Exhibit H to Subpart C of Part 1930 - Interest Credits on Insured Rural Rental Housing and Rural Cooperative Housing Loans

IPurpose: This exhibit outlines the policies and conditions under which interest credits will be made on insured Rural Rental Housing (RRH) and Rural Cooperative Housing (RCH) loans.

IIDefinitions: As used in this exhibit:

AInterest credit is the amount of assistance the Farmers Home Administration (FmHA) or its successor agency under Public Law 103-354 may give a borrower toward making its payments on an insured RRH or RCH loan.

BInterest credit and rental assistance (RA) agreement is an agreement between FmHA or its successor agency under Public Law 103-354 and the borrower providing for interest credits and/or RA for RRH or RCH loans. This agreement will be on Form FmHA or its successor agency under Public Law 103-354 1944-7, “Multiple Family Housing Interest Credit and Rental Assistance Agreement.”

CProject is the total number of rental or cooperative housing units that are operated under one management plan with one loan agreement/resolution.

DBasic rent is determined on the basis of operating the project with payments of principal and interest on a loan to be repaid over a 30-year or longer period at 1 percent per annum and covering budgeted project expenses. Basic rent also means basic occupancy charge.

ENote rate rental is a unit rental charge determined on the basis of operating the project with payments of principal and interest which the borrower is obligated to pay under the terms of the promissory note and meet budgeted project expenses. Note rate rental also means note rate occupancy charge in an RCH housing project.

FOverage is the amount by which total rental or occupancy charge payments paid or to be paid by the tenants or members of a project exceed the total basic monthly charge.

GSurcharge is 25 percent of the established rent in a Plan I project which is added to the rent of an ineligible tenant or member.

IIIEligibilty: Borrowers may receive interest credit provided the loan was made on or after August 1, 1986, to a nonprofit corporation, consumer cooperative, State or local public agency, or to any individual or organization operating on a limited profit basis; is repaid over a period of 30 years or more; and meets the other requirements of this exhibit subject to the following limitations:

APlan I will be only to broadly-based nonprofit corporations and consumer cooperatives. Except for subsequent loans to projects approved before August 1, 1968, Plan I interest credit is no longer available. All borrowers already operating on Plan I may continue operating under it according to the applicable requirements of this exhibit and of this subpart. A subsequent loan on a Plan I project approved after August 1, 1968, will require the project to convert to Plan II.

BPlan II will be available to broadly-based nonprofit corporations, cooperatives, State or local public agencies, or to profit organizations and individuals operating on a limited profit basis.

CUnits must be ready for occupancy (decent, safe, and sanitary) to qualify for interest credit.

IVOptions of Borrowers: An eligible borrower operating under Plan I or Plan II, as described below, will determine interest credits on its loan in the respective manner indicated.

APlan I.

1Borrowers operating under this plan must agree to limit occupancy of the housing to very low-or low-income nonelderly and very low-, low- and moderate-income elderly, disabled, or handicapped persons.

2A borrower under Plan I generally must:

aDetermine that there is firm market and continuing demand for rental housing by persons within the applicable income limits.

bPrepare a budget on the basis of a 3 percent loan.

cDetermine rentals to be charged.

dDetermine adjusted personal income of each tenant or member and have each tenant or member complete Form FmHA or its successor agency under Public Law 103-354 1944-8, “Tenant Certification.” Determine the monthly rent or occupancy charge to be paid by each tenant or member household.

BPlan II.

1Borrowers operating under this plan must agree to limit occupancy of the housing to households, including elderly, disabled, and handicapped persons of very-low, low- and moderate-incomes. Under Plan II, interest credits are based on the cost of operating the project and the size and income of the household.

2A borrower under Plan II generally must:

aPrepare one budget form that reflects two rent levels; the first level on the basis of a 1 percent interest rate loan to determine basic rental; the second level on the basis of a loan at the interest rate shown in the promissory note to determine note rate rental.

bDetermine both basic rental and note rate rental for the different units based on the two budgets. (See exhibit H-1 of this subpart).

cDetermine adjusted personal income of each tenant or member and have each tenant or member complete Form FmHA or its successor agency under Public Law 103-354 1944-8. Determine the monthly rent or occupancy charge to be paid by each tenant or member household.

dDetermine the required monthly payment on the loan at 1 percent interest plus overage for the month for the total units. The amount of the project payment will be entered on Form FmHA or its successor agency under Public Law 103-354 1944-29, “Project Worksheet for Interest Credit and Rental Assistance.”

VDetermining the Amount of Payment:

AFor Plan I. The amount of payment will be determined by using the amortization factor for a payment at a 3 percent interest rate (use the same number of years that was used for computing the regular installment on the note) plus all surcharges.

BFor Plan II. The amount of payment will be determined by using the amortization factor for a payment at a 1 percent interest rate (use the same number of years that was used for computing the regular installment on the note) plus all overage.

CFor the project. The payment amount for all loans on the project will be added together to determine the project payment. The amount due FmHA or its successor agency under Public Law 103-354 will also include all overage, surcharges, late fees, audit receivables, and cost item charges.

VISpecial Conditions:

ALeases or occupancy agreements. Borrowers participating in the interest credit program must have an FmHA or its successor agency under Public Law 103-354 approved lease or occupancy agreement with the assisted household. Leases and occupancy agreements must comply with the requirements of paragraph VIII of exhibit B of this subpart.

BRental surcharges to ineligible tenants. If a unit is rented in accordance with the provisions of paragraph VI A of this exhibit to a tenant who is ineligible because the income exceeds the maximum income limits, the ineligible tenant will:

1Under Plan I, be charged a 25 percent rental surcharge. To illustrate, if the unit normally rents for $100 per month, this ineligible tenant would pay $125 per month. The 25 percent surcharge, or $25 in this illustration, would be paid on the account and would be included with, but in addition to, the regular payment on the loan.

2Under Plan II, be charged the note rate rental.

CVacancies.

1When all construction is not completed but some units are ready for occupancy and the contractor consents in writing to permit occupancy, the State Director may authorize the occupancy of those completed units to eligible tenants or members at the rent or occupancy charge they would be paying as if the amortization effective date (AED) and subsidy levels had been established. A prerent-up or preoccupancy conference is required before marketing and rent-up begins. All income generated must be deposited in the general operating account and used for management and operation of the units except for member's patronage capital contributions.

2Multi-Family Housing units rendered unusable due to fire, natural cause, or other damage requiring less than 180 days to repair or replace shall be assumed to be rented or occupied at the monthly basic rate rental or occupancy charge rate. If the units are not repaired or replaced within the 180 day period, they shall thereafter be assumed to be unmarketable and the units will be carried at the monthly note rate rental or occupancy charge rate (i.e., full overage for such units will be paid by the borrower until the units are again ready for occupancy). The Form FmHA or its successor agency under Public Law 103-354 1944-7 will be cancelled, effective the first day of the month following the 180-day period.

3The State Director may make an exception to the 180-day period if all of the following conditions are met:

aThe repairs have not been started or completed due to circumstances beyond the borrower's control; and

bThe borrower must be able to show that they have acted in good faith and they face serious financial difficulties in maintaining the project for existing tenants and they are unable to meet the payments on the indebtedness without the subsidy.

4Any borrower directly or indirectly affected by action under this subpart will be granted the appropriate appeal rights according to subpart B of part 1900 of this chapter.

5RRH or RCH units vacant for lack of tenant or member applications on the waiting list or for repair not associated with paragraph VI C 2 of this exhibit shall be assumed to be charged at the basic rent.

DInterest credit for tenants in projects under the Department of Housing and Urban Development (HUD) Housing Assistance Payment Program or FmHA or its successor agency under Public Law 103-354 rental assistance. When any rental units in an RRH project are leased under the new construction Section 8 program, Form HUD 50059, “Certification and Recertification of Tenant Eligibility,” or other acceptable HUD Form will be completed. When any rental units in an RRH project are leased under the FmHA or its successor agency under Public Law 103-354 RA program, Form FmHA or its successor agency under Public Law 103-354 1944-8 will be completed.

ESpecial cases. Situations not covered by this exhibit or exhibit E to this subpart will be handled individually with instructions from the National Office.

FUnderstanding eligibility. The borrower should understand the eligibility requirements for occupancy of the housing. Instructions for tenant or member eligibility are in paragraph VI D of exhibit B of this subpart.

VIIExecution of Agreements:

AInterest credit and rental assistance agreement.

1Multiple advance loans. Interest credit may become effective the first day of the month following substantial completion of construction when the project is ready for full operation, which is the AED. When the Servicing Official determines that the project is ready for full operation, the borrower and the Servicing Official should execute Form FmHA or its successor agency under Public Law 103-354 1944-7. A separate Form FmHA or its successor agency under Public Law 103-354 1944-7 will be executed for each loan on the project.

2Interim financing and servicing. Effective dates for interim financed loans and servicing action will be according to the Form Manual Insert (FMI) for Form FmHA or its successor agency under Public Law 103-354 1944-7.

BChange in interest credit plan. A borrower under Plan I may change, if it can meet the requirements of the other plan, by executing a new Form FmHA or its successor agency under Public Law 103-354 1944-7.

CBorrowers who are not receiving interest credit. If an eligible borrower did not execute a Form FmHA or its successor agency under Public Law 103-354 1944-7 according to paragraph VII A of this exhibit, interest credit may be instituted at any time during the life of the loan provided the borrower agrees to the requirements of Form FmHA or its successor agency under Public Law 103-354 1944-7 and this exhibit. When Form FmHA or its successor agency under Public Law 103-354 1944-7 is executed, it will be effective for the first of the month in which the Form FmHA or its successor agency under Public Law 103-354 1944-7 is executed.

DBorrowers who have had interest credit terminated.

1If an interest credit agreement on Form FmHA or its successor agency under Public Law 103-354 1944-7 has been terminated because the benefits were not needed and circumstances change to where an interest credit is again needed, a new Form FmHA or its successor agency under Public Law 103-354 1944-7 may be executed.

2If an interest credit agreement on Form FmHA or its successor agency under Public Law 103-354 1944-7 has been terminated because of the borrower's failure to comply with requirements and the appropriate corrective actions have been accomplished, a new Form FmHA or its successor agency under Public Law 103-354 1944-7 may be executed.

VIIITenant or Member Certification: Tenant or member certification and recertification for interest credit borrowers will be performed in accordance with paragraph VII of exhibit B to this subpart.

IX Project Payments: With each payment made, the borrower will complete Form RD 1944-29. The agency representative will transmit the payments to the Finance Office.

APlan I.

1The borrower will make monthly payments in an amount necessary to repay the project loans as if the loans carried a 3 percent interest rate. When a rental surcharge is collected as described in paragraph VI B of this exhibit, the surcharge will be included and will be credited as interest to the account as a regular payment. The special handling of payments involving rental surcharges is explained in paragraph IX A 2 of this exhibit.

2When a payment is made for any month that involves a rental surcharge, Form FmHA or its successor agency under Public Law 103-354 1944-29 will be completed with the amount of the surcharge being inserted in the spaces provided. This form will be completed and the amount shown and will be charged to the project account regardless of whether the surcharge is actually collected by the borrower.

BPlan II. The borrower will make monthly payments as though the project notes were written at a 1 percent interest rate plus any overage due and payable whether or not collected from the tenant or member.

XServicing: Handling of interest credits when servicing a project's accounts according to § 1965.85 of subpart B of part 1965 of this chapter will be handled according to the applicable parts of subpart A of part 1955 of this chapter. Any unusual cases that cannot be serviced in accordance with these sections should be submitted to the National Office with the State Director's recommendations.