[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Rules and Regulations]
[Pages 25071-25077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11818]
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Part 1944
RIN 0575-AB93
Processing Requests for Section 515 Rural Rental Housing (RRH)
Loans
AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, and Farm Service Agency, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Housing Service (RHS), formerly Rural Housing and
Community Development Service (RHCDS), a successor Agency to the
Farmers Home Administration (FmHA), amends its regulations for
processing loan requests for Rural Rental Housing (RRH) assistance.
This action is taken to improve loan processing procedures to better
accomplish the program's purpose of providing rental housing to rural
areas of greatest need.
In a future rulemaking document the comment period will be reopened
for the proposed market study revisions (Exhibit A-8 of 7 CFR part
1944, subpart E) only.
DATES: The effective date of this final rule is June 6, 1997.
FOR FURTHER INFORMATION CONTACT: Linda Armour, Senior Loan Specialist,
Multi-Family Housing Processing Division, RHS, U.S. Department of
Agriculture, Room 5349--South Building, Stop 0781, Washington, D.C.
20250, telephone (202) 720-1608.
SUPPLEMENTARY INFORMATION:
Classification
This rule has been determined to be significant for purposes of
Executive Order 12886 and therefore has been reviewed by the Office of
Management and Budget.
Paperwork Reduction Act
The information collection requirements contained in this
regulation have been previously approved by the Office of Management
and Budget (OMB) under the provisions of 44 U.S.C. Chapter 35 and have
been assigned OMB control number 0575-0047, in accordance with the
Paperwork Reduction Act of 1995. This rule does not impose any new
information collection requirements.
Civil Justice Reform
This rule has been reviewed under Executive Order 12778, Civil
Justice Reform. In accordance with this rule: (1) All state and local
laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule; and
(3) administrative proceedings in accordance with 7 CFR part 11 must be
exhausted before bringing suit in court challenging action taken under
this rule.
Unfunded Mandate Reform Act
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, RHS
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, or tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. When such a statement is needed for a rule, section 205 of
the UMRA generally requires RHS to identify and consider a reasonable
number of regulatory alternatives and adopt the least costly, more
cost-effective or least burdensome alternative that achieves the
objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments or the private sector. Therefore, this rule is not subject
to the requirements of sections 202 and 205 of the UMRA.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review program to eliminate unnecessary regulations and
improve those that remain in force.
Programs Affected
The affected program is listed in the Catalog of Federal Domestic
Assistance under Number 10.415, Rural Rental Housing Loans.
Intergovernmental Consultation
For the reasons set forth in the Final Rule related Notice to 7 CFR
part 3015, subpart V, this program is subject to Executive Order 12372
which requires intergovernmental consultation with State and local
officials. RHS has conducted intergovernmental consultation in the
manner delineated in RD Instruction 1940-J.
[[Page 25072]]
Executive Order 12778
The Office of the General Counsel has determined that these
regulations meet the applicable standards provided in section 2(a) and
2(b)(2) of Executive Order 12778. The provisions of this rule will not
have retroactive effect prior to the effective date. The provisions of
this rule will preempt state and local laws to the extent such state
and local laws are inconsistent herewith. The administrative appeal
provisions published at 7 CFR parts 11 and 780 must be exhausted before
action for judicial review may be brought.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' It is the determination of RHS
that this action does not constitute a major Federal action
significantly affecting the quality of the human environment and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Background
RHS has recognized the need to revise the manner in which Section
515 loan proposals are selected for processing to ensure that
affordable rental housing reaches areas of the greatest need. This
resulted from internal reviews by the Agency and reports from the
General Accounting Office, the USDA Office of the Inspector General
(OIG), and the Surveys and Investigations Staff of the House Committee
on Appropriations. In response to such findings, RHS published a
proposed rule on January 17, 1996 (61 FR 1153). This rule proposed
changes to the manner in which loans were selected for funding and
complied with statutory provisions of the Housing Act of 1949 at that
time. In addition, other program enhancements were proposed to improve
the quality of loan underwriting. Since publishing the proposed rule,
the Agriculture, Rural Development, Food and Drug Administration, and
Related Agencies Appropriations Act, 1997, Public Law 104-180 (herein
referred to as the Act) was enacted on August 6, 1996. The Act amended
the Housing Act of 1949 and revised the manner in which RHS selects
loan proposals. The provisions of the Act conflicted with many of the
revisions contained in the proposed rule. As a result, the Agency is
not implementing the changes affecting the priority point system which
were initially proposed on January 17, 1996.
In a separate rulemaking document, published elsewhere in this
issue of the Federal Register, RHS is implementing the provisions of
the Act. These changes are effective upon publication.
This rulemaking document implements the other program enhancements
proposed on January 17, 1996, which were not affected by the Act. This
rulemaking action is effective June 6, 1997.
RHS is also publishing elsewhere in this issue of the Federal
Register a Notice of Funding Availability (NOFA) announcing the
application requirements for Fiscal Year 1997 Section 515 funding.
Applicants for the Section 515 program should be aware that, although
the implementation dates are staggered, the provisions of both
rulemaking provisions published this date in the Federal Register and
the provisions contained in the NOFA will apply to any Section 515 loan
request to be processed in FY 1997.
Implementation Proposal
This rule includes provisions pertaining to applicant eligibility
and loan processing procedures that affect loan proposals in process.
All pending loan requests to be processed in FY 97 will be reviewed for
compliance and eligibility based on this regulation. Details of the
provisions adopted in this rule are given in the ``Discussion of
Comments'' section.
Discussion of Comments
The proposed rule was published in the Federal Register, 61 FR
1153, on January 17, 1996, with a 60-day comment period that ended
March 18, 1996. Nineteen comments were received during the comment
period from RHS personnel, developers, attorneys, housing advocacy
groups, and others.
As previously discussed, the revisions to the point system will not
be implemented because of recent legislation that directs the Secretary
to develop objective criteria for identifying and designating areas
with the greatest need for Section 515 housing. We appreciate the many
constructive comments that were received regarding the proposed
revisions. Many of these were general comments that were helpful in
developing regulations to implement the Act. We would also like to
thank the RHS staff who reviewed and provided excellent comments on the
draft census data and priority point scores for the revised system.
Two comments were received regarding the Agency's reserve account
requirements. One commentor expressed the opinion that Agency
requirements were not sufficient for the replacement of major building
components and recommended increasing the annual reserve account
requirement from one percent of the RHS loan amount to an amount
between five and seven percent. The second commentor mentioned the need
to address reserve account requirements for participation loans. As a
result, we have included guidance on reserve requirements for
participation loans in this rule. In addition, we have modified the
instructions for the Agency's loan agreement to ensure that reserve
levels are based on the total project, regardless of whether RHS is the
sole lender or is participating with other funding sources. The revised
instructions require that the fully funded reserve amount be based on
the project's total development cost (TDC) or the appraised value,
whichever is greater, rather than on the RHS loan amount.
Comments on the major proposed changes are discussed below:
1. Section 1944.211(a)(15). Eligibility requirements for applicants
with noncompliance issues or fair housing violations.
Five comments were received on this section:
Two comments pertained to paragraph (i), which provides that the
State Director may request a waiver from the Deputy Administrator,
Multi-Family Housing, to the requirement that applicants must be in
compliance with existing workout plans for a minimum of 6 months. One
commentor noted that this paragraph was inconsistent with existing
Agency policy, which gives the State Director the authority to grant
this waiver. This was an oversight; we have changed the appropriate
paragraph to be consistent with this policy. The second commentor
suggested that good faith borrowers be allowed to request a waiver
themselves. We believe the decision to request a waiver should be made
by the Agency; good faith borrowers should work with their local RHS
servicing official, who may request a waiver from the State Director
when circumstances warrant.
One commentor felt the Agency included items in the list of fair
housing violations that were not found in the Fair Housing Act and
suggested eliminating the Fair Housing provisions. The same commentor
found certain statements to be vague and asked for a definition of
several phrases, including ``unusual circumstances'', ``in compliance
with requirements of existing debts'', ``unacceptable compliance
reviews'', and ``acting in good faith''. Two commentors submitted
language they felt would accomplish the Agency's purpose and be
``defensible''.
[[Page 25073]]
The suggested language omits the 6-month compliance period for
borrowers with workout plans and instead requires only that an approved
workout plan be in place; it also changes the provision that borrowers
with serious violations will not be considered eligible to a provision
that applicants or principals who had been debarred are eligible if the
debarment period has expired.
We have made several changes to this section based on the comments
we received. The suggested wording regarding debarment has been
included but modified to state that applicants who had been debarred
but whose debarment period has expired will be considered for
eligibility, subject to all eligibility requirements. We have retained
our requirement for the 6-month compliance period to help ensure the
applicant is complying with the terms of the workout plan and not
merely signing a token plan in order to meet eligibility requirements.
We have further defined ``in compliance with existing debts,''
``unusual circumstances,'' and ``acted in good faith.'' The paragraph
on civil rights violations has been revised to specify that the
applicant and principals must be in compliance with the Civil Rights
Act of 1964, in accordance with their Assurance Agreement, Form RD 400-
4.
2. Section 1944.213(f)(3). ``Build and fill'' policies.
Because of the loan processing changes required by the Act, the
proposed language in section 1944.213(f)(3) regarding preapplications
and applications was not adopted in this rule. One commentor expressed
the opinion that the build and fill provisions should not apply if
there was no similarity between the proposed units and existing units
in type or kind, for example, family units versus elderly, 1-and 2-
bedroom units versus 3-and 4-bedroom units. We considered this
suggestion; however, regardless of type or size units, we believe it is
necessary to assess the impact of newly developed units on the existing
housing supply before authorizing additional units. For example, newly
developed units may create vacancies in existing single or multi-family
units that meet, or partially meet, the housing needs of the community.
Therefore, no changes have been made to this policy.
3. Section 1944.215(n), establishing profit base on initial
investment, has been revised to include provisions pertaining to low-
income housing tax credit (LIHTC) syndication proceeds.
4. Section 1944.215(x) has been added to require the RHS servicing
official to complete Form RD 2006-38, ``Civil Rights Impact Analysis
Certification,'' to ensure compliance with the civil rights policy of
the Rural Development mission area.
5. Section 1944.231. Several revisions were proposed to this
section but have not been adopted in this rule because of the changes
in loan processing procedures required by the Act.
6. Section 1944.233. Participation with other funding sources.
Ten comments were received on this section. No commentors opposed
this section but several changes were recommended:
Three commentors felt we should not require a minimum amount of RHS
participation. Two of these felt the Agency should be as flexible as
possible and should determine the amount of the loan on a case by case
basis; one felt it was in the ``best interest of the government'' for
RHS to provide the minimum funds necessary.
We carefully weighed the pros and cons of establishing a minimum
RHS funding level for participation loans. A major consideration is
whether sufficient RHS rental assistance (RA) will be available for the
large number of participation loans that could be developed without a
minimum RHS funding level. Nevertheless, we want to encourage and
participate in as many jointly-funded proposals as possible. Therefore,
each state will be responsible for determining the amount of RHS loan
funds and RA that can be provided for participation loans, based on the
Agency's funding priorities, the state's funding and RA levels, and the
amount of assistance needed to make the participation loan feasible. If
RHS RA is to be provided, RHS loan participation must equal at least
ten percent of the TDC unless an exception is granted to allow a lower
percentage of participation by the Administrator or Deputy
Administrator for Housing in accordance with Sec. 1944.240. No
preference will be given to participation loans, and all loans must be
processed in accordance with Agency regulations and funding priorities.
Two commentors noted that the proposed provisions regarding RA for
participation loans in this section were inconsistent with existing
Agency policy, which stipulates that, where all units require RA, the
RHS loan must equal at least 50 percent of TDC; where all units do not
require RA, the RHS loan must equal at least 25 percent and the RA
provided will be commensurate with RHS' loan participation (for
example, if RHS is providing 40 percent of the funds, no more than 40
percent of the units may receive RA). RA has been distributed this FY
based on existing policy; however, beginning in FY 1997, RA will be
distributed in accordance with Sec. 1944.233, which provides that RHS
RA can be provided on any unit where the debt service does not exceed
what it would have been if RHS provided full financing, up to the RA
limits established annually in RD Instruction 1940-L.
Several commentors felt that additional guidance was needed on
security requirements for participation loans; one commentor offered
suggestions for guidelines based on recent experience with jointly
funded Community Facility projects. As a result, we have added
additional guidance to this section.
We have added a paragraph designated ``Design requirements,'' to
ensure that complexes comply with the provisions of Sec. 1944.215 and
Sec. 1944.222 and that any nonessential facilities permitted under this
section are designed and operated with appropriate safeguards for
tenant health and safety.
7. Exhibit A-7, section II.A. Addition of a requirement in Exhibit
A-7 that the Market Study address need and demand for both family and
elderly households and the applicant's loan proposal reflect the
greater need.
Four commentors supported this requirement; three opposed it. Those
who opposed this measure felt that the applicant should have a choice
if there was a need for both types of housing. One commentor stated
that demand will almost always be greater for families and that little,
if any, elderly housing will be built if this requirement is
implemented, leaving the elderly no choice but to live in family
complexes although they often do not wish to do so.
After considering the arguments on both sides, we are adopting this
measure with the following modifications: First, we believe the
community should be aware of the results of the market analysis in all
cases, including the analyst's recommendations regarding project type
and size. We have revised exhibit A-7 to advise that the applicant will
make available to the community the market study's conclusions
regarding need and demand in the community and recommendations
regarding number of units, type and number of bedrooms. This does not
require the release of the market study in its entirety. Second, we
have revised ``greater need'' to ``greater proportionate need'', that
is, the share or percentage of the community's total rental units that
are designated for the elderly will be compared to the community's
share of elderly households, and the share of total rental units for
families will be compared to the share of family
[[Page 25074]]
households in the community. Third, the applicant's proposed complex
type must reflect the greater proportionate need of the community. (For
mixed complexes, the unit mix must reflect the proportionate need of
family and elderly households.) In unusual circumstances, an exception
may be granted to this requirement by the State Director if at least
one of the following conditions is met: the community's housing plan
indicates that the community's greater immediate need is for the
complex type of the smaller proportionate need and the plan includes a
specific proposal to address the housing needs of the other household
type; the complex has the support of a public community forum
represented by diverse interests; or the units are needed because of an
emergency or hardship situation, for example, a loss of housing caused
by a natural disaster. The circumstances for the exception must be
clearly documented in the casefile.
8. Exhibit A-7, section II.G. Use of a market survey to establish
market feasibility on a case-by-case basis for proposals of 12 or fewer
units.
Three commentors supported this change; three opposed it. One
commentor who supported the revision recommended that this authority be
limited to loan requests meeting specific conditions or from small
nonprofit applicants. Those who opposed this option believe a
professional market study is needed in all cases; one commented that
loan quality has improved since the Agency began requiring professional
market studies.
Opinions were evenly split on this issue, with good arguments for
both sides. Because this change is optional for each State and requires
a decision on a case-by-case basis under specific conditions, we have
implemented this provision.
9. Implementation of a preliminary preapplication stage including a
preliminary market analysis, or a preliminary market analysis only
(with an otherwise full preapplication).
Three commentors favored implementing both a preliminary
preapplication stage and market analysis; one commentor favored a
preliminary market analysis only; two opposed either option; two
commentors did not give an opinion (one wanted more information and
felt little was saved from the existing process, the other stated that
if a preliminary market analysis is implemented, a site visit should be
required). The arguments for continuing to require a full
preapplication and market analysis were compelling: (1) As much
information, if not more, is required to reject a proposal as to
authorize it; if rejected, it would be very difficult to defend the
Agency's decision based on preliminary information only; (2) Since two
Agency reviews would be required (preliminary and full), the processing
time would not be shortened; and (3) If a full market study is
requested at a later time, it implies a decision has been made and it
would be more difficult than ever to reject based on market
feasibility.
Because of the valid concerns of those opposing this change and
because there is no appreciable time savings, we are not implementing
either option at this time. In addition, with the low volume of new
loan requests because of reduced funding levels and the backlog of
approved proposals, implementation of a simplified application process
would not result in significant savings to either the public or RHS.
List of Subjects in 7 CFR Part 1944
Administrative practice and procedure, Aged, Handicapped, Loan
programs--housing and community development, Low and moderate income
housing, Mortgages, Nonprofit organizations, Rent subsidies, Rural
areas.
Therefore, chapter XVIII, title 7, Code of Federal Regulations is
amended as follows:
PART 1944--HOUSING
1. The authority citation for part 1944 continues to read as
follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1480.
Subpart E--Rural Rental and Rural Cooperative Housing Loan
Policies, Procedures, and Authorizations
2. Section 1944.211 is amended by revising the introductory text of
paragraph (a)(2) and adding paragraph (a)(15) to read as follows:
Sec. 1944.211 Eligibility requirements.
(a) * * *
(2) Be unable to obtain the necessary credit from private or
cooperative sources on terms and conditions that allow establishment of
rent or occupancy charges within the payment ability of eligible
tenants or members.
* * * * *
(15) Meet the following requirements if the applicant, including
the principals, has prior or existing RHS debts and is applying for a
new or subsequent loan or requesting incentives to preclude prepayment.
Applicants who do not meet these requirements will be rejected for
failure to meet the applicable provisions of this section, as well as
Sec. 1965.213(c)(2)(i) of subpart E of part 1965 of this chapter, if
applicable.
(i) The applicant, including the principals, must be in compliance
with existing debts in accordance with all legal and regulatory
requirements and agreements, including the Promissory Note, Loan
Agreement, and mortgage, all applicable local, state, and federal laws,
and must provide regular financial and other required reports within
required timeframes; or, if the applicant fails to meet any of these
requirements, has an approved workout plan in effect that meets the
provisions of paragraph (a)(15)(ii) of this section.
(ii) An applicant or principal with an approved workout plan in
effect to correct deficiencies in an existing RHS debt may be
considered for eligibility if the applicant or principal has been in
compliance with the provisions of the workout plan for 6 months. The
State Director may waive this requirement for borrowers who have acted
in good faith but are in noncompliance through circumstances beyond
their control, including substantial local economic downturn, natural
disaster, assuming responsibility for a troubled loan through
substitution of the general partners, or assuming a loan with an
existing workout plan.
(iii) Applicants and principals must be in compliance with the
provisions of the Civil Rights Act of 1964 (in accordance with their
Form RD 400-4, ``Assurance Agreement'') and all other civil rights
laws. If the Agency has reasonable grounds, based on a substantiated
complaint, the Agency's own investigation, or otherwise, to believe
that the representations of an applicant or borrower as to civil rights
compliance are in some material respect untrue or are not being
honored, assistance may be deferred or denied.
(iv) Applicants or principals who have been debarred but whose
debarment period has expired will be considered for eligibility subject
to all requirements of this section.
(v) Applicants, including principals, who have been determined
ineligible by one state may not be determined eligible by another State
until the problems have been corrected or workout plans are in effect
in all States in which the applicant or principal is operating.
* * * * *
Sec. 1944.212 [Amended]
3. Section 1944.212 is amended by adding the words ``purchase and''
after the word ``such'' in the introductory text of paragraph (b).
4. Section 1944.215 is amended by revising paragraphs (n)(1) and
(n)(2) and adding paragraph (x) to read as follows:
[[Page 25075]]
Sec. 1944.215 Special conditions.
* * * * *
(n) * * *
(1) Cash contributions made by the applicant from the applicant's
own resources, which, when added to the loan and grant amounts from all
sources, do not exceed the security value of the project. Proceeds
received by the applicant from the syndication of low-income housing
tax credits (LIHTC) and contributed to the project may be considered
funds from the applicant's own resources for the portion of the
proceeds which exceeds:
(i) the allowable developer's fee determined by the State Agency
administering the LIHTC, and
(ii) the amounts expected to be contributed to the transaction, as
determined by the State Agency administering the LIHTC.
(2) The value of the building site or essential related facilities
contributed by the applicant up to the amount which, when added to the
loan and grant amounts from all sources, is not in excess of the
security value of the project. An appraisal will be completed in
accordance with applicable RHS regulations. Value of the applicant's
contribution will be determined on an ``as is'' basis less liens
against the property.
* * * * *
(x) Civil Rights Impact Analysis. It is the policy within the Rural
Development mission area to ensure that the consequences of any
proposed project approval do not negatively or disproportionately
affect program beneficiaries by virtue of race, color, sex, national
origin, religion, age, disability, or marital or familial status. To
ensure compliance with these objectives, the RHS approval official will
complete Form RD 2006-38, ``Civil Rights Impact Analysis
Certification.''
5. Section 1944.221 is amended by revising the introductory text of
paragraph (a) to read as follows:
Sec. 1944.221 Security.
(a) Mortgage. Each loan will be secured in a manner that adequately
protects the financial interest of the Government. A first mortgage
will be taken on the property purchased or improved with the loan,
except as indicated in paragraphs (a)(1) and (a)(3) of this section
and, for projects that are funded jointly by RHS and other sources, as
indicated in Sec. 1944.233(f).
* * * * *
6. Section 1944.233 is added to read as follows:
Sec. 1944.233 Participation with other funding sources.
In order to develop the maximum number of affordable housing units
and promote partnerships with states, local communities, and other
partners with similar housing goals, RHS participation loans are
encouraged.
Apartment complexes developed with participation funds may serve
lower income households exclusively (RHS very-low and low income-
eligible households; LIHTC income-eligible households) or may be
marketed to households with mixed incomes. The following will apply:
(a) RHS loan and rental assistance (RA) participation.
(1) RHS may participate with loan funds only, or with both RA and
loan funds, as provided in paragraphs (a)(2) and (a)(3) of this
section.
(2) If RHS RA is being provided, RHS loan participation should
equal at least ten percent of the project's total development cost
unless authorization for a lower percentage of participation is
obtained from the National Office in accordance with Sec. 1944.240.
(3) RHS RA may be provided on any unit where the debt service does
not exceed what the debt service would have been on that unit if RHS
provided full financing. The number of RHS RA units available for
participation loans is limited and established annually through subpart
L of part 1940 of this chapter.
(b) General conditions.
(1) The number of units that will serve RHS income-eligible tenants
must equal or exceed the number of units financed by RHS, determined by
dividing the RHS loan amount by the State's average new construction
cost.
(2) The total funds provided by all sources may not exceed what is
necessary to make the project feasible in accordance with
Sec. 1944.213(a).
(3) The total debt from all sources is limited to the State
Director's loan approval authority unless written authorization is
obtained from the National Office in accordance with Sec. 1944.213(b).
(4) The complex will be operated and managed in compliance with RHS
requirements and regulations.
(5) If Low Income Housing Tax Credits are anticipated on a
proportion of units higher than the percentage receiving RA or similar
tenant subsidy, the market study must clearly reflect a need and market
for units without deep subsidy. It is not the intent of RHS to provide
servicing RA in the future nor can RHS provide RA on units which have a
debt service higher than those if RHS had provided full financing.
(c) Design requirements. Complexes must comply with the provisions
of Secs. 1944.215 and 1944.222.
(1) Design features such as patios or balconies, washers and
dryers, and garbage disposals may be included if they are customary for
the area and needed for marketability.
(2) Mixed income complexes may include nonessential common
facilities such as swimming pools provided:
(i) The facility is not financed with RHS funds,
(ii) The complex is able to support the facility's operating and
maintenance costs through collection of a user fee from tenants who
subscribe to the service, and
(iii) The facility is designed and operated with appropriate
safeguards for tenant health and safety.
(d) Borrower contribution and return on investment.
(1) The minimum required borrower contribution will be based on the
RHS loan amount and determined in accordance with Sec. 1944.213(b).
(2) For limited profit borrowers, additional funds exceeding the
minimum required contribution that are provided from the borrower's own
resources (not loans or grants from other sources) may be included in
the borrower's initial investment, for purposes of determining return
on investment, as provided in Sec. 1944.215(n).
(3) A loan from the borrower to the project may be considered,
provided the loan proposal meets all conditions of this section and the
loan to the project is from the borrower's own resources. LIHTC
proceeds may be considered the borrower's own resources as provided in
Sec. 1944.215(n)(1).
(e) Reserve requirements. RHS reserve requirements (the annual
reserve requirement and the fully funded reserve amount) will be
determined on a case-by-case basis, taking into consideration the
reserve requirements of the other participating lenders, so that the
aggregate fully funded reserve amount established by RHS and the other
lenders equals at least 10 percent of the project's total development
cost (TDC) or appraised value, whichever is greater. For example, if
the other lenders do not have reserve requirements, RHS will establish
its reserve requirements to meet the full aggregate amount (at least 10
percent of the TDC or appraised value of the project, whichever is
greater), regardless of the RHS loan amount. On the other hand, if the
other lenders have aggregate reserve requirements equal to or higher
than the minimum 10 percent of TDC or appraised value required by RHS,
and
[[Page 25076]]
the amount is sufficient to meet project needs based on its capital
improvement plan, it may not be necessary for RHS to establish
additional reserve requirements. Reserve requirements and procedures
for reserve withdrawals should be agreed upon by all lenders and
included in the intercreditor or participation agreement referenced in
paragraph (g) of this section.
(f) Security requirements.
(1) RHS will take a first or parity lien in all instances where the
Agency's participation is 50 percent or more.
(2) If RHS participation is less than 50 percent, every effort
should be made to obtain a parity lien position. If a parity lien
cannot be negotiated, an exception may be requested to accept a second
lien position in accordance with Sec. 1944.240. The State Director will
submit requests to accept a second lien position to the Deputy
Administrator, Multi-Family Housing with comments and recommendations.
(3) RHS will take a first lien on project revenue from rent or
occupancy payments; RHS, State, or private RA payments; and operating
and reserve accounts.
(g) Participation agreement. RHS will enter into a participation
(or intercreditor) agreement with the other lenders that clearly
defines each party's relationship and responsibilities to the others.
7. Section 1944.234 is added to read as follows:
Sec. 1944.234 Actions prior to loan approval.
Prior to loan approval the application will be reviewed for
continued eligibility. The applicant may be required to submit updated
information at that time.
8. Exhibit A-7 of subpart E is amended in paragraph I.H. by
revising the words ``preapplication package'' to read ``loan request'';
and by revising paragraph I.E. and section II; and by adding a new
paragraph III.D. to read as follows:
EXHIBITS TO SUBPART E
* * * * *
Exhibit A-7--Information To Be Submitted With a Loan Request For a
Rural Rental Housing (RRH) or a Rural Cooperative Housing (RCH)
Loan
* * * * *
I. * * *
E. Evidence Concerning the Test for Other Credit--Applicants
must be unable to obtain other credit at rates and terms that will
allow a unit rent or occupancy charge within the payment ability of
the occupants. Based upon a review of the applicant's financial
condition, the servicing official may require the applicant to
provide documentation regarding the availability of other credit.
* * * * *
II. Need and demand.
A. Economic justification, the number of units, and the type of
facility (family, elderly, congregate, mixed, group home, or
cooperative) will be based on the housing need and demand of
eligible prospective tenants or members who are permanent residents
of the community and its surrounding trade area. Since the intent of
the program is to provide housing for the eligible permanent
residents of the community, temporary residents of a community (such
as college students in a college town, military personnel stationed
at a military installation within the trade area, or others not
claiming their current residence as their legal domicile) may not be
included in determining need and project size. Similarly, homeowners
may not be included in determining need and project size. The market
study must include a discussion of the current market for single
family houses and how sales, or the lack of sales, will affect the
demand for elderly rental units. The market study may discuss how
elderly homeowners may reinforce the need for rental housing, but
only as a secondary market and not as the primary market. The market
study must assess need and demand for both family and elderly renter
households. The conclusions of the market study must be provided to
the community by the applicant, through direct contact with
community officials whenever possible. The type of complex (family,
elderly, etc.) that is proposed by the applicant must reflect the
greater proportionate need and demand of the community, that is, the
share or percentage of the community's total rental units that are
designated for the elderly will be compared to the community's share
of elderly households, and the share of total rental units for
families will be compared to the share of family households in the
community. (For mixed complexes, the unit mix must reflect the
proportionate need of each household type.) In unusual
circumstances, where there is a compelling need for a complex type
that does not represent the greater proportionate need (i.e., family
vs. elderly need), the State Director may consider granting an
exception to this requirement. At least one of the following
conditions must be met in order to consider an exception: the
community's or State's housing plan indicates that the greater
immediate need is for the complex type of the smaller proportionate
need and the plan includes a specific proposal to address the
housing needs of the other household type; the complex has the
support of a public community forum represented by diverse
interests; or the units are needed due to an emergency or hardship
situation, for example, a loss of housing caused by a natural
disaster. The circumstances for the exception must be documented in
the casefile. The bedroom mix of the proposed units must reflect the
need in the market area based on renter household size and the
bedroom mix of existing units. Market feasibility for the proposed
units will be determined by RHS based on the market information
provided by the applicant (requirements are described in section
II.E. of this exhibit), RHS' knowledge of the market area and
judgment concerning the need for new units, RHS' experience with the
housing market in the State and local area, and the U.S. Department
of Housing and Urban Development's (HUD's) or similar lender's
analysis of market feasibility for the proposed units.
B. The applicant must provide a schedule of the proposed rental
or occupancy rates and, for congregate housing proposals, a separate
schedule listing the proposed cost of any nonshelter service to be
provided.
C. For proposals where the applicant is requesting Low-Income
Housing Tax Credits (LIHTC), the applicant must provide the number
of LIHTC units and the maximum LIHTC incomes and rents by unit size.
This information will determine the levels of incomes in the market
area which will support the basic rents while also qualifying the
borrower for tax credits.
D. For Rural Cooperative Housing (RCH) proposals, market
feasibility will be evidenced by the names and addresses of
prospective members who have definitely affirmed their intention of
becoming cooperative members in the proposed project. In the event
some persons cannot be accepted for membership for financial or
other reasons, the cooperative should obtain more names than the
number of proposed units in order to assure adequate feasibility
coverage. Exhibit A-4 of this subpart contains a Cooperative Housing
Survey form which may be used for this purpose.
E. For Rural Rental Housing (RRH) proposals, except as permitted
by section II. G. of this exhibit, a professional market study is
required. The qualifications of the person preparing the market
study should include some housing or demographic experience. The
following requirements apply:
(1) A table of contents, the analyst's statement of
qualifications, and a certification of the accuracy of the study
must be included.
(2) Market analysts must affirm that they will receive no fees
which are contingent upon approval of the project by RHS, before or
after the fact, and that they will have no interest in the housing
project. An analyst with an identity of interest with the developer
will need to fully disclose the nature of the identity.
(3) The analyst must personally visit the market area and
project site and must certify to same in the market study. Failure
to do so may result in the denial of further participation by the
analyst in the Section 515 program.
(4) A detailed study based upon data obtained from census
reports, state or county data centers, individual employers,
industrial directories, and other sources of local economic and
housing information such as newspapers, realtors, apartment owners
and managers, community groups, and chambers of commerce is
required. Exhibit A-8 of this subpart details the specific
information which professional market studies are required to
provide. The study must be presented in clear, understandable
language. Negative as well as positive market trends
[[Page 25077]]
must be disclosed and discussed. Statistical data must be
accompanied by analytical text which explains the data and its
significance to the proposed housing. Mathematical calculations must
be expressed in actual numbers and may be accompanied by
percentages. Each table or section must identify the source of the
data. A brief statement of the methodology used in the study should
be included in the foreword and in other sections where necessary
for clarity. RHS personnel will utilize the market study checklist
found at exhibit A-12 of this subpart (available in any Rural
Development office) as a means of measuring market study
credibility.
(5) The market study will include:
a. A complete description of the proposed site and its location
with respect to city boundary lines, residential developments,
employment centers, and transportation; the location and description
of available services and facilities and their distances from the
site; a discussion of the site's desirability and marketability
based on its location in the community, adjacent land uses, traffic
conditions, air or noise pollution, and the location of competitive
housing units; and a description of the site in terms of its size,
accessibility, and terrain.
b. Pertinent employment data, including the name and location of
each major employer within the community and market area, its
product or service, number of employees and salary range, commute
times and distances, and the year the employer was established at
the location. If income data cannot be obtained from individual
employers, salary information for the community can be obtained from
the state employment commission.
c. Population data required by exhibit A-8 of this subpart,
including population figures by year, number and percentage of
increase or decrease, and population characteristics by age.
d. Household data required by exhibit A-8 of this subpart,
including number of households by year, tenure (owner or renter),
age, income groups, and number of persons per household.
e. Building permits issued and demolitions by year by single
unit dwelling and multiple unit dwelling. In nonreporting
jurisdictions, this information may be substituted with the number
of requests for electric service connections, number of water or
sewer hookups, etc., obtained from local suppliers.
f. Housing stock by tenure and vacancy rates for total number of
units, one-unit buildings, two- or more-unit buildings, mobile
homes, and number lacking some or all plumbing facilities.
g. A survey of existing rental housing by name, location, year
built, number of units, amenities, bedroom mix, type (family,
elderly, etc.), rental rates, and rental subsidies if any.
h. A projection of housing need and demand and the analyst's
recommendation for the number, type, and size of units, based on the
number of RHS and LIHTC income-eligible renter households, the
existing comparable housing supply and vacancy rates, the absorption
rate of recently completed units, the number of comparable units
currently proposed or under construction, and current and projected
economic conditions.
F. For congregate housing proposals with central dining area or
housing involving a group living arrangement, a narrative statement
from local, state, or federal government agencies supporting the
current and long-range need for the facilities in the community and
its trade area is required.
G. For RRH proposals of 12 or fewer units, the State Director
may authorize the use of a market survey to establish market
feasibility on a case-by-case basis. This authority may be used when
there is evidence of strong market demand, for example, very low
vacancy rates and long waiting lists in existing assisted or
comparable rental units. The casefile must be documented
accordingly. Exhibits A-2, A-3, and A-5 of this subpart may be used
for the market survey.
III. * * *
D. Appropriate zoning or evidence of capability to be
appropriately zoned.
* * * * *
Dated: May 1, 1997.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 97-11818 Filed 5-6-97; 8:45 am]
BILLING CODE 3410-XV-U
