[Federal Register Volume 87, Number 236 (Friday, December 9, 2022)]
[Rules and Regulations]
[Pages 75457-75459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26726]



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 Rules and Regulations
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
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  Federal Register / Vol. 87, No. 236 / Friday, December 9, 2022 / 
Rules and Regulations  

[[Page 75457]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3560

[Docket No. RHS-22-MFH-0020]


Multi-Family Housing Simple Transfer Pilot Program

AGENCY: Rural Housing Service, USDA.

ACTION: Notification of pilot program.

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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural 
Development (RD) agency of the United States Department of Agriculture 
(USDA), is announcing the implementation of a pilot program for simple 
transfers of USDA Section 515 Rural Rental Housing properties. The 
Agency's intention is to evaluate the existing regulations and remove 
regulatory barriers to reduce application requirements for certain 
types of transfers, resulting in lower transaction-related costs for 
applicants and improved processing times.

DATES: The effective date of the Simple Transfer Pilot Program is 
December 9, 2022. The duration of the pilot program is anticipated to 
continue until December 9, 2024, at which time the RHS may extend the 
pilot program (with or without modifications) or terminate it depending 
on the workload and resources needed to administer the program, 
feedback from the public, and the effectiveness of the program. If the 
pilot program is extended or terminated, the RHS will notify the 
public.

FOR FURTHER INFORMATION CONTACT: For general information about the 
pilot program, contact Stephanie Vergin, MFH Production and 
Preservation Division at [email protected] or David Willis, 
Asset Management Division at [email protected]. Owners that are 
interested in participating in the pilot program should contact the 
project's assigned servicing specialist in the Field Operations 
Division. The assigned specialist can be found on the Agency's website 
at https://www.sc.egov.usda.gov/data/MFH.html. Select the file under 
the heading Multifamily Housing 514 & 515 Property Assignments. The 
servicing specialist is listed in the column labeled ``Assigned To'' 
and their email is in the column ``Assigned To Email.''

SUPPLEMENTARY INFORMATION: 

Authority

    Title V, Section 506(b) of the Housing Act of 1949, as amended; 42 
U.S.C. Section 1476(b).

Background

    RHS is committed to helping improve the economy and quality of life 
in rural areas by offering a variety of programs such as loans, grants, 
and loan guarantees to help create jobs, expand economic development, 
and provide critical infrastructure investments. RHS also provides 
technical assistance, loans, and grants by partnering with agricultural 
producers, cooperatives, Indian tribes, non-profits, and other local, 
state, and federal agencies.
    The Multi-family Housing Program (MFH), an RHS program, assists 
rural property owners through loans, loan guarantees, and grants that 
enable owners to develop and rehabilitate properties for low-income, 
elderly, and disabled individuals and families as well as domestic farm 
laborers. MFH works with the owners of its direct and farm labor 
housing loan properties to subsidize rents for low-income tenants who 
cannot afford to pay their full rent. These programs assist qualified 
applicants that cannot obtain commercial credit on terms that will 
allow them to charge rents that are affordable to low-income tenants.

Transfer Types: Simple and Standard Transfers

    MFH utilizes a variety of tools to revitalize and preserve the 
physical and financial health of more than 13,000 properties currently 
in USDA's rural rental portfolio. The Agency may authorize limited 
demonstration programs to test new approaches to offering housing under 
the statutory authority granted to the Secretary, as set forth in 42 
U.S.C. 1476(b) and 7 CFR 3560.53(t). Such demonstration programs may 
authorize procedures and requirements that differ from those set forth 
in statute or regulation. However, any program requirements that are 
not expressly waived, whether statutory or regulatory, remain in 
effect.
    There are two primary types of ownership changes that require 
approval by MFH which are (1) a change in the borrower entity's 
organizational structure or (2) a transfer of ownership to a new 
entity. Organizational changes that include changes in a borrower's 
current ownership entity structure are addressed in 42 U.S.C. 1485(h) 
and 7 CFR 3560.405. Transfers, which are sales of projects to new 
owners that continue to operate the projects in the 515 program, are 
detailed in 42 U.S.C. 1485(h) and 7 CFR 3560.406.
    MFH has identified the need to simplify the transfer of ownership 
for certain types of transactions. The current process places the same 
submission requirements on applicants regardless of the complexity of 
the transaction, resulting in undue burdens for relatively 
uncomplicated transfers, thereby reducing potential transfer and 
preservation activity in the portfolio. To address this issue, MFH is 
implementing the Simple Transfer Pilot Program which will offer three 
additional transfer options as a way to encourage preservation and 
revitalize its portfolio. MFH expects that by reducing application 
requirements for certain types of transfers, the result will be lower 
transaction-related costs for applicants and improved processing times. 
At the end of the pilot program, MFH will evaluate the findings with 
consideration towards, if successful, future regulatory changes that 
could be codified into 7 CFR part 3560 and applied program wide.

Discussion of the New Transfer Pilot Program

    (1) Simple Transfer Pilot Program: For a simple transfer, under 
certain conditions the Agency will process an application for an 
ownership change without requiring full rehabilitation financing and/or 
reserve account funding typically needed to approve a standard 
transfer. Simple transfers include restrictions on new debt, equity 
payouts, and other limitations that are not included for standard 
transfers.
    The Agency must determine that the new owner can operate the 
property successfully and that the ownership change will benefit the 
government and tenants even if there are remaining rehabilitation needs 
post-transfer. The

[[Page 75458]]

property must meet the required conditions to be processed as a simple 
transfer. The Asset Management Division (AMD) will process simple 
transfers.
    (2) Standard Transfer: All transfers that do not meet the 
requirements for a simple transfer are considered standard transfers. 
Standard transfers often include third-party financing, such as Low-
Income Housing Tax Credits (LIHTC), and may include one property or 
multiple properties in a portfolio. Standard transfers follow the 
guidance in 7 CFR 3560.406. The Production and Preservation Division 
(P2) will continue to process standard transfers.

Implementation of the Simple Transfer Pilot Program

    Eligibility for the pilot program will be based on property 
conditions and the ability and willingness of the buyer and seller to 
meet required simple transfer conditions. Buyers must meet the 
eligibility criteria in 7 CFR 3560.406. Applicants must be able to 
clearly demonstrate that the property can operate successfully under 
new ownership. Applicants must abide by the regulatory requirements set 
forth in 7 CFR part 3560 and the requirements set forth in applicable 
statutes, except for the exceptions made available through this pilot 
program, as detailed in this Notice.
    Under the pilot program, three simple transfer options are 
available to address different property circumstances, which are 
outlined below:
Option 1: Simple Transfer With Expedited Ownership Change Required
    Option 1 is the most streamlined transfer process. It is available 
in circumstances where the Agency determines that an expedited 
ownership change is in the best interest of the Government, property, 
and tenants.
    (1) Requirements:
    (i) Property is in acceptable physical condition as determined by 
the Agency based on information submitted by the applicant, available 
in Agency files, or available from third parties, AND
    (ii) Conditions exist that require an expedited transfer, including 
but not limited to: deceased borrower or general partner, hardship, 
insolvency, receivership, imminent loan maturity, or sale to nonprofit 
under prepayment, AND
    (iii) No additional debt will be incurred by the Buyer or secured 
by the property as part of the transfer, AND
    (iv) New owner (nonprofit or for-profit) will provide a plan for 
the long-term viability of the property, which may include 
recapitalization/rehabilitation or resetting of reserves. The Agency 
must determine that the proposed viability plan demonstrates the 
continued physical and financial viability of the property.
    (2) Pilot Program Modification to Current Standard Transfer 
Requirements in 7 CFR 3560:
    (i) No Capital Needs Assessment (CNA) is required with the transfer 
application (the CNA requirement in 7 CFR 3560.406(d)(5) is waived for 
transfers qualifying for Option 1).
    (ii) No new valuation of the property is required with the transfer 
application (the requirement in 7 CFR 3560.406(d)(3)(i) and (ii) that 
the security value of the housing project be determined at the time of 
transfer is waived for transfers qualifying for Option 1).
    (iii) The maturity date and amortization period of the loan will 
not be changed or extended.
    (iv) No equity payout can be included as part of the transaction. 
Equity payout to transferor shall not be paid for by project funds and 
shall not be secured by the property. If agreed to by both parties, 
equity may be paid outside of the transaction.
    (v) The project must meet minimum reserve account requirements as 
determined by the Agency. The Agency may require a post-transfer 
analysis to reset annual reserve deposits as a condition of the 
approved viability plan, which could include completion of a property 
conditions survey, a CNA, or another analysis acceptable to the Agency.
Option 2: Simple Transfer With Rehabilitation
    Option 2 is designed for properties that require rehabilitation 
and/or resetting of the annual deposit to the reserve account.
    (1) Requirements:
    (i) Property is or will be fully subsidized post-transfer OR rents 
can be increased without adversely impacting occupancy and without a 
term extension, AND
    (ii) No additional amortizing debt will be incurred by the Buyer or 
secured by the property as part of the transfer, AND
    (iii) One of the following conditions applies:
    (a) Based on a CNA, rehabilitation is needed now that cannot be 
funded by the current reserve account, OR
    (b) Property is in acceptable condition, with only minor upfront 
rehabilitation or repairs needed, as determined by the Agency based on 
information submitted by the applicant, available in Agency files, or 
available from third parties. Reserves are sufficient to meet any 
upfront rehabilitation needs but are inadequate to address future 
rehabilitation needs, OR
    (c) Property requires upfront rehabilitation that cannot be funded 
by the current reserve account, as well as resetting of reserve 
balances to adequately address future rehabilitation needs.
    (2) Pilot Program Modification to Current Standard Transfer 
Requirements in 7 CFR 3560:
    (i) No new valuation of the property is required with the transfer 
application (the requirement in 7 CFR 3560.406(d)(3)(i) and (ii) that 
the security value of the housing project be determined at the time of 
transfer is waived for transfers qualifying for Option 2).
    (ii) The Agency may approve a junior lien for deferred financing as 
provided in 3560.409, except that: (a) deferred financing must at a 
minimum be coterminous with the Agency's loan(s), and (b) the Agency 
may set a maximum per unit limit on rehabilitation that can be approved 
under Option 2.
    (iii) The maturity date and amortization period of the loan will 
not be changed or extended, except that a term extension may be 
permitted in accordance with 7 CFR 3560.409(j) if required by the 
deferred lender to preserve affordability for a longer period.
    (iv) No equity payout can be included as part of the transaction. 
Equity payout to transferor shall not be paid for by project funds and 
shall not be secured by the property. If agreed to by both parties, 
equity may be paid outside of the transaction.
Option 3: Simple Transfer With Future Rehabilitation/Recapitalization 
Plan
    Option 3 provides flexibility to nonprofits and government agencies 
to complete an acquisition of a preservation-worthy property even if 
resources for rehabilitation of the property are not available at the 
time of the transfer. An appraisal and CNA are required as part of the 
transfer application.
    (1) Requirements:
    (i) Based on a CNA, rehabilitation is needed that cannot be fully 
funded by the current reserve account or resetting of the existing 
reserve deposits, AND
    (ii) The purchaser is a nonprofit organization or government 
agency, AND
    (iii) The new nonprofit or government agency owner will pursue a 
strategy to rehabilitate/recapitalize the property with Agency and/or 
third-party funds within two years of the transfer closing

[[Page 75459]]

date. The Agency must determine that the recapitalization plan will 
meet the physical and financial needs of the property the new owner is 
likely to obtain the Agency and/or third-party funds, and the property 
can function successfully until rehabilitation/recapitalization is 
complete.
    (2) Pilot Program Modification to Current Standard Transfer 
Requirements in 7 CFR 3560:
    (i) The Agency will waive the necessary reserve requirement 
adjustment under 7 CFR 3560.406(d)(5). The new owner must address the 
rehabilitation needs identified in the CNA over a period not to exceed 
two years after the closing date of the transfer. RD must approve the 
new owner's proposed rehabilitation plan and the new owner's plan to 
obtain funding for the rehabilitation prior to approval of the 
transfer.
    (ii) The Agency will monitor the progress and implementation of the 
approved plan as part of routine project servicing. The new owner may 
propose changes to the approved plan; however, RD must authorize in 
writing any changes before they are implemented.
    For all simple transfer options, health, safety, environmental, 
civil rights, and applicable accessibility requirements must be 
resolved at the time of transfer. The property must be rated 
``performing'' in the internal risk rating tool unless an exception is 
approved by the Agency.
    In cases where MFH determines that none of the simple transfer 
options are viable for a project, the property owner should follow the 
standard transfer requirements in 7 CFR 3560.406. The Agency may also 
determine that other servicing actions are more appropriate based on 
the property's circumstances.
    Standard transfer requirements have not changed and are outlined in 
7 CFR 3560.406 (https://ecfr.federalregister.gov/current/title-7/subtitle-B/chapter-XXXV/part-3560/subpart-I/section-3560.406) and are 
available on the Agency's website at: https://www.rd.usda.gov/sites/default/files/3560-3chapter07.pdf.
    For simple transfers, a checklist and other information have been 
developed and are available by: (1) going to the MFH website at https://www.rd.usda.gov/programs-services/multifamily-housing-programs/multifamily-housing-direct-loans (click on the To Apply tab), (2) 
contacting the assigned servicing specialist, which can be found at 
USDA Service Center Agencies Online Services; or (3) refer to the FOR 
FURTHER INFORMATION CONTACT section in this Notice.

Transfer Processing Steps

    A property owner should contact the assigned Field Operations 
Division (FOD) servicing specialist if interested in a transfer under 
the pilot program. The FOD servicing specialist will meet with the 
owner to discuss their goals for the transfer, timelines, prospective 
buyer(s), possible funding sources, etc. The specialist will review 
options with the borrower, including prepayment (if applicable), and 
determine if other servicing actions are needed. If a simple transfer 
appears possible and the owner is interested, FOD will refer the 
customer to the Servicing Support Branch in AMD for a consultation. AMD 
will review simple transfer options with the prospective buyer and 
seller, along with the streamlined revised checklist. If a standard 
transfer appears to be the best option, FOD will refer the owner to the 
appropriate Processing and Report Review Branch in P2 for a 
consultation.

Paperwork Reduction Act

    The regulatory waivers for this pilot contain no new reporting or 
recordkeeping burdens under OMB control number 0575-0179 that would 
require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35).

Non-Discrimination Statement

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices, employees, and institutions participating in or administering 
USDA programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service 
at (800) 877-8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at http://www.ascr.usda.gov/complaint_filing_cust.html, from any USDA office, by calling (866) 632-
9992, or by writing a letter addressed to USDA. The letter must contain 
the complainant's name, address, telephone number, and a written 
description of the alleged discriminatory action in sufficient detail 
to inform the Assistant Secretary for Civil Rights (ASCR) about the 
nature and date of an alleged civil rights violation. The completed AD-
3027 form or letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].

Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-26726 Filed 12-8-22; 8:45 am]
BILLING CODE 3410-XV-P