97-17269. Notice of Availability of Funding and Requests for Proposals for the Section 538 Rural Rental Housing Guaranteed Loan Demonstration Program  

  • [Federal Register Volume 62, Number 127 (Wednesday, July 2, 1997)]
    [Notices]
    [Pages 35782-35786]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-17269]
    
    
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    DEPARTMENT OF AGRICULTURE
    
    Rural Housing Service
    
    
    Notice of Availability of Funding and Requests for Proposals for 
    the Section 538 Rural Rental Housing Guaranteed Loan Demonstration 
    Program
    
    AGENCY: Rural Housing Service, USDA.
    
    ACTION: Notice.
    
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    SUMMARY: The Rural Housing Service (RHS) announces the availability of 
    the
    
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    Section 538 Rural Rental Housing Guaranteed Loan program on a 
    demonstration basis. The intended outcome is to produce new affordable 
    rental housing by inviting qualified lenders and eligible housing 
    providers to propose rental complexes that will serve rural residents 
    with low and moderate incomes. The 1996 demonstration resulted in the 
    selection of 9 proposals providing 370 affordable units in 8 States. 
    The purpose of this year's demonstration is to test program 
    enhancements we are considering for incorporating into final program 
    regulations.
    
    DATES: The deadline for receipt of applications is 4 p.m., Eastern 
    Daylight Savings Time on August 18, 1997. Applications received after 
    such date and time will be returned. Lenders are encouraged to submit 
    applications prior to August 18, 1997, as applications will be reviewed 
    as they are received. If there are differences between any additional 
    guidelines and this Notice, the requirements of this notice shall 
    prevail. Notification of selected applications will be made by 
    September 1, 1997. Commitments for guarantees will be issued on or 
    before September 16, 1997. If RHS is unable to obligate section 538 
    funds for guaranteed loans by September 16, 1997, any remaining section 
    538 funds will be transferred for use prior to September 30, 1997, 
    under the section 515 program. Qualified lenders may call the office of 
    the Multi-Family Housing Processing Division of the Rural Housing 
    Service, at 202-720-1604 for a copy of the application package. This is 
    not a toll-free number. Hearing- or speech-impaired persons may access 
    that number by calling toll-free the Federal Information Relay Service 
    at (800) 877-8339.
    
    ADDRESSES: Applications for participation in the demonstration program 
    must be identified as ``Section 538 Demonstration Program'' on the 
    envelope or wrapper and be submitted as follows: Director, Multi-family 
    Housing Processing Division, Rural Housing Service, US Department of 
    Agriculture, Room 5337 (stop 0781), 1400 Independence Ave., SW., 
    Washington, DC 20250. Lenders shall submit an original (a FAX or E-mail 
    copy is NOT acceptable) of the application to the above address by the 
    application deadline.
    
    FOR FURTHER INFORMATION CONTACT: Obediah G. Baker, Jr., Director, 
    Multi-Family Housing Processing Division, US Department of Agriculture, 
    South Agriculture Building, Room 5337 (stop 0781), 1400 Independence 
    Ave., SW, Washington, DC 20250. Telephone: (202) 720-1604. (This number 
    is not toll-free.) Hearing- or speech-impaired persons may access that 
    number by calling toll-free the Federal Information Relay Service at 
    (800) 877-8339.
    
    SUPPLEMENTARY INFORMATION: On March 28, 1996, President Clinton signed 
    the ``Housing Opportunity Program Extension Act of 1996,'' Public Law 
    104-120. One of the actions was the authorization of the section 538 
    Rural Rental Housing Guaranteed Loan Program. The program is intended 
    to reach the needs of rural America by complementing the section 515 
    Rural Rental Housing Direct Loan Program. It is anticipated that 
    beneficiaries of the program will be rural residents with low and 
    moderate incomes. The rural residents will be provided rental housing 
    through the use of loan guarantees. Partnership opportunities exist to 
    utilize the section 538 program with other affordable housing programs.
        In Fiscal Year (FY) 1997, the budget authority of $783,000 will 
    provide up to approximately $25 million available under the section 538 
    demonstration program. The Agency is currently developing regulations 
    which will be based on information gathered during administration of 
    the FY 1996 and 1997 demonstration programs.
    
    I. Purpose and Program Summary
    
        Public Law 104-37 provided funds to the Department to implement a 
    multifamily mortgage guarantee demonstration program subject to 
    enactment of authorizing legislation. Public Law 104-120 provided 
    authorization for that program with qualified lenders, the purpose of 
    which is to demonstrate the effectiveness of providing new forms of 
    Federal credit enhancement for the development of affordable 
    multifamily housing by lenders.
        The program has been designed to increase the supply of affordable 
    multifamily housing through partnerships between RHS and major lending 
    sources, as well as State and local housing finance agencies and bond 
    issuers. Qualified lenders will be authorized to originate, underwrite, 
    and close loans for multifamily housing projects. Projects requiring 
    new construction or acquisition with rehabilitation of at least $15,000 
    per unit will be considered. RHS will guarantee such loans upon 
    presentation and review of appropriate certifications, project 
    information and satisfactory completion of the appropriate level of 
    environmental review by RHS. Lenders will be responsible for the full 
    range of loan management, servicing, and property disposition 
    activities associated with these projects. The lender will be expected 
    to provide servicing or contract for servicing of each loan it 
    underwrites. RHS, in turn, commits to pay up to a maximum of 90 percent 
    of the outstanding principal and interest balance in the case of 
    default of the loan and filing of a claim, but in no event, not more 
    than 90 percent of the original principal amount. Any losses would be 
    based on a pro-rata split.
    
    II. Eligible Housing and Tenants
    
        A loan may be guaranteed only if the loan is used for the 
    development costs of housing and related facilities as such term is 
    defined in 7 CFR 1944.205. Proposals must also meet the following 
    criteria:
        (a) Occupancy Requirements. The housing must be available for 
    occupancy only by low or moderate income families or persons, whose 
    incomes at the time of initial occupancy do not exceed 115 percent of 
    the median income of the area. After initial occupancy, a tenant's 
    income may exceed these limits; however, rents, including utilities, 
    are restricted to no more than 30 percent of the 115 percent of area 
    Median Income for the term of the loan.
        (b) Location. Units must be located in areas considered eligible as 
    defined in 7 CFR 3550.10 (not just the designated areas as defined in 7 
    CFR 1944.228).
        (c) Minimum Complex Size. Apartment complexes must consist of five 
    or more rental dwelling units. The site may consist of two or more 
    noncontiguous parcels of land situated so as to comprise a readily 
    marketable real estate entity within an area small enough to allow 
    convenient and efficient management.
        (d) Types of Housing. For the purposes of the demonstration 
    program, proposals for new construction or acquisition with 
    rehabilitation of at least $15,000 per unit will be considered. 
    Complexes may contain units that are detached, semi-detached, row 
    houses, or multifamily structures. The portion of the guarantee funds 
    for acquisition with rehabilitation is limited to 25 percent of the 
    program authority.
        (e) Housing Standards. The standards established under 7 CFR 
    1944.215 ``Special conditions,'' for housing and related facilities 
    assisted under section 515, shall apply to housing and related 
    facilities, the development costs of which are financed in whole or in 
    part with a loan guaranteed under this program. The Agency will 
    guarantee loans in which the fees and the proposed housing may exceed 
    the amounts or size allowances and amenities contained in 7 CFR part 
    1944,
    
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    subpart E provided such costs and features are generally found in 
    similar housing proposals for similar income families in the market 
    area. Such costs, features and amenities may include larger units, 
    dishwashers, microwaves, increased and multi-purpose community spaces, 
    and developer's fees. The proposals under this program will be subject 
    to the Necessary Assistance Reviews discussed in 7 CFR 1944.213(a), see 
    Federal Register Volume 62, Number 88, pages 25061-25071 published May 
    7, 1997.
        (f) Tenant Protections. The standards for the treatment of tenants 
    of housing developed using amounts from a loan guaranteed under this 
    program shall incorporate standards for lease and grievance procedures 
    and tenant appeals of adverse actions used under the section 515 Rural 
    Rental Housing Program.
        (g) Fair Housing and Equal Opportunity. No person shall be 
    subjected to discrimination because of race, color, religion, sex, 
    disability, familial status, or national origin in the rental or 
    advertising of rental dwellings, or in the availability of residential 
    real estate related transactions involving RHS or housing in the Rural 
    Development mission area. Borrowers and lenders must also comply with 
    applicable Fair Housing and Equal Opportunity statutes.
        (h) Environmental. The environmental requirements established under 
    7 CFR part 1940, subpart G, for housing and related facilities under 
    the section 515 program shall apply to housing and related facilities 
    under the section 538 program.
        (i) Preservation. The housing developed will remain available for 
    occupancy as provided in paragraph II(a) of this notice, for the period 
    of the original term of the loan guaranteed unless the housing is 
    acquired by foreclosure (or instrument in lieu of foreclosure) or the 
    Administrator waives the applicability of such requirement for the loan 
    only after determining, based on objective information, that the 
    following three circumstances exist:
        (1) There is no longer a need for low-and moderate-income housing 
    in the market area in which the housing is located;
        (2) Housing opportunities for low-income households and minorities 
    will not be reduced as a result of the waiver; and
        (3) Additional Federal assistance will not be necessary as a result 
    of the waiver.
    
    III. Loans Eligible for Guarantee
    
        (a) Eligible Borrowers. A loan guaranteed under this program may be 
    made to a nonprofit organization, an agency or body of any State 
    government or political subdivision thereof, or a private entity.
        (b) Loan Terms. Each loan guaranteed shall:
        (1) Provide for complete amortization by periodic payments to be 
    made for a term not to exceed 40 years (480 equal amortized monthly 
    installments);
        (2) Involve a fixed rate of interest agreed upon by the borrower 
    and the lender that does not exceed the maximum allowable rate 
    established by the Administrator. For purposes of the demonstration 
    program, the maximum allowable rate is 200 basis points over the 30-
    year Treasury Bond Rate as published in the ``Wall Street Journal'' as 
    of the business day previous to the business day the rate is set. 
    Priority will be given to proposals that are up to 150 basis points; a 
    higher priority will be given to proposals with the lowest number of 
    basis points;
        (3) Involve a principal obligation (including initial service 
    charges, appraisal, inspection, and other reasonable fees) not to 
    exceed:
        (i) In the case of a borrower that is a nonprofit organization or 
    an agency or body of any State or local government, up to 97 percent of 
    the development costs of the housing and related facilities or the 
    value of the housing and facilities, whichever is less;
        (ii) In the case of a borrower that is a for-profit entity or other 
    entity not referred to in paragraph III(b)(3)(i) of this notice, up to 
    90 percent of the development costs of the housing and related 
    facilities or the value of the housing and facilities, whichever is 
    less;
        (iii) In the case of any borrower, for such part of the property as 
    may be attributable to dwelling use, the applicable maximum per unit 
    dollar amount limitations under section 207(c) of the National Housing 
    Act; and
        (iv) In the case of a borrower utilizing Low Income Housing Tax 
    Credits, a review will be conducted in conjunction with the applicable 
    tax credit administration entity to determine if the proposal is in 
    conformance with subsidy layering requirements at 7 CFR 1944.213, which 
    stipulates that the government will provide no more than the minimum 
    amount of assistance necessary to make the complex financially 
    feasible.
        (4) Be secured by a first mortgage on the housing and related 
    facilities for which the loan is made, or in the case where the loan 
    upon which the RHS guarantee is requested is not the primary funding 
    source, be secured by a parity lien;
        (5) May be a permanent loan or a combination construction and 
    permanent loan. The agency will not guarantee a construction loan that 
    will not be rolled into a permanent loan which will have an agency 
    guarantee. For the construction loan, which may not exceed 12 months, 
    the RHS guarantee will be limited to 60 percent of the work in place. 
    For example: total construction advances for completed work of 
    $1,000,000  x  60 percent would result in a $600,000 maximum guarantee 
    on the work in place. RHS will also consider a higher level of 
    guarantee (not to exceed 90 percent of the work in place) for 
    construction contracts which are bonded or have letters of credit for 
    advances, or both; and
        (6) For 20 percent of the loans made under this demonstration 
    program, RHS shall provide the borrower with assistance in the form of 
    interest credits to the extent necessary to reduce the rate of interest 
    under paragraph III(b)(2) of this notice to the applicable Federal 
    rate, as such term is used in section 42(I)(2)(D) of the Internal 
    Revenue Code of 1986.
        (c) Refinancing of Loans Made Under the Program. Any loan 
    guaranteed under the program may be refinanced and extended in 
    accordance with the terms and conditions that the Agency shall 
    prescribe, but in no event for an additional amount or term that 
    exceeds the limitations under paragraph III(b) of this notice.
        (d) Nonassumption. The borrower under a loan that is guaranteed 
    under this program and under which any portion of the principal 
    obligation or interest remains outstanding may not be relieved of 
    liability with respect to the loan, notwithstanding the transfer of 
    property for which the loan was made. Loans guaranteed under this 
    program may be made on a recourse or nonrecourse basis.
        (e) Issuance of Guarantee on Permanent Loans. Guarantees may be 
    issued on permanent loans financing new construction once the final 
    certificate of occupancy for the complex has been issued by the 
    appropriate governmental body.
        (f) It is anticipated that complexes developed under this program 
    may utilize other affordable housing programs such as the Low Income 
    Housing Tax Credit, taxable bonds, HOME Investment Partnerships Program 
    (HOME) funds, and other State or locally funded tenant assistance or 
    grants. Tax-exempt financing is not
    
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    eligible for a loan guarantee in this year's demonstration program.
    
    IV. Guarantee Provisions
    
        (a) Lender eligibility. Those lenders currently approved and 
    considered eligible by the Federal National Mortgage Association, the 
    Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank 
    members, or the Department of Housing and Urban Development for 
    guaranteed loan programs supporting multifamily housing will be 
    considered approved lenders for this demonstration program. Lenders may 
    use their own underwriting standards and loan terms and conditions with 
    approval from RHS subject to statutory program constraints. In 
    addition, State Housing Finance Agencies (HFAs) are also considered 
    eligible lenders to participate in the demonstration program provided 
    they demonstrate they have the ability to underwrite, originate, 
    process, close, service, manage, and dispose of multifamily housing 
    loans in a prudent manner. Other lenders have the opportunity to enter 
    into a correspondent bank relationship with approved lenders in order 
    to participate in the program.
        (b) Extent of Guarantee. RHS will guarantee repayment of an amount 
    not exceeding 90 percent of the total of the amount of the unpaid 
    principal and interest of the loan but, in all cases, not more than 90 
    percent of the original principal amount. Any losses would be based on 
    a pro-rata split. For example: Assume the Loan Amount and Total 
    Development Cost are equal to $1,000,000  x  90 percent (For Profit 
    Borrower)  x  90 percent Guarantee = $810,000 coverage. Assume the loan 
    was liquidated and property sold for $600,000. The claim would be 
    $900,000 - $600,000 = $300,000  x  90 percent = $270,000 maximum 
    government payment on loss claim. The lender's loss would be $30,000.
        (c) Guarantee Fee. At the time of issuance of a loan guarantee 
    under this program, RHS will collect a fee equal to 1 percent of the 
    guaranteed principal obligation of the loan from the lender. RHS will 
    also collect an annual servicing fee of 50 basis points (\1/2\ percent) 
    based on the outstanding principal and interest of the guarantee 
    portion of the loan on the first and subsequent anniversary of the 
    promissory note.
        (d) Transferability of the Guarantee and Servicing. It is 
    anticipated that loans guaranteed under this program may be sold into 
    the secondary market. The guarantee and the servicing may be 
    transferred, either combined or separated, to other eligible lenders 
    with the written consent of RHS.
        (e) Payment Under Guarantee.
        (1) Notice of default. In the event of default by the borrower on a 
    loan guaranteed under this program, the holder of the guarantee 
    certificate for the loan shall provide written notice of the default to 
    the Administrator.
        (2) Lenders will be required to discuss future servicing strategies 
    with RHS prior to proceeding to liquidation. Before any payment under a 
    guarantee is made, the holder of the guarantee certificate must exhaust 
    all reasonable possibilities of collection on the loan.
        (3) Foreclosure. After receiving notice under paragraph IV(e)(1) of 
    this notice and providing written notice of action to RHS, the holder 
    of the guarantee certificate for the loan may initiate foreclosure 
    proceedings, with the concurrence of RHS, in a court of competent 
    jurisdiction, to obtain possession of the security property. After the 
    court issues a final order authorizing foreclosure on the property, the 
    holder of the certificate shall be entitled to payment by RHS under the 
    guarantee upon:
        (i) Conveyance to RHS of title to the security property;
        (ii) Submission to RHS of a claim for payment under the guarantee; 
    and
        (iii) Assignment to RHS of all the claims of the holder of the 
    guarantee against the borrower or others arising out of the loan 
    transaction or foreclosure proceedings, except claims released with the 
    consent of RHS.
        (4) Acceptance of the Assignment by RHS. After receiving notice 
    under paragraph IV(e)(1) of this notice, RHS may accept assignment of 
    the loan if RHS determines that the assignment is in the best interests 
    of the United States. Assignment of a loan under this paragraph shall 
    include conveyance to RHS of all rights and interests arising under the 
    loan, and assignment to RHS of all claims against the borrower or 
    others arising out of the loan transaction. Upon assignment of a loan 
    under this paragraph, the holder of a guarantee for the loan shall be 
    entitled to payment by RHS under the guarantee. Upon payment, in whole 
    or in part, to the holder, the note or judgment evidencing the debt 
    shall be assigned to the United States and the holder shall have no 
    further claim against the borrower or the United States.
    
    V. Demonstration Selection Criteria
    
        (a) The Agency intends under the demonstration program to fund 
    varying financing proposals to help determine the areas of need, the 
    types of financing packages possible and the demand in the various 
    eligible market areas. Selection of proposals under this demonstration 
    program will be based on the following criteria:
        (1) Flexibility, innovation and variation of funding models.
        (2) Partnering and leveraging in order to develop the maximum 
    number of housing units and promote partnerships with states, local 
    communities, and other partners with similar housing goals. RHS 
    participation loans and leveraging are encouraged.
        (3) No more than one viable application will be selected in any 
    State (unless the number of viable applications are limited and 
    sufficient funds remain to allow more than one application in any one 
    State); and to increase the variety of experience under the 
    demonstration, priority will be provided to those applications from 
    States that have not previously received a commitment from the FY 1996 
    demonstration program. The States that received a commitment from the 
    FY 1996 demonstration program were Florida, Kansas, Missouri, Nebraska, 
    North Carolina, Vermont, and West Virginia.
        (4) Priority will be provided to the proposals that set the 
    interest rate up to 150 basis points over the 30 Year Treasury Rate; 
    the lower the basis points, the higher the priority. However, the 
    program will permit proposals that require 200 basis points over the 30 
    Year Treasury Rate.
        (5) Administrator's discretion in order to effectively use funding 
    to best explore program structure and effectiveness consistent with the 
    best interests of the Government.
        (b) For 20 percent of the loans made under the demonstration 
    program, RHS shall provide the borrower with interest credits to the 
    extent necessary to reduce the rate of the loan to the applicable 
    Federal rate. The maximum amount of loan guarantee is $1.5 million on a 
    loan requesting interest credit. Proposals that could be viable with or 
    without interest credits are encouraged to submit an application 
    showing financial and market feasibility under either scenario. 
    Applications proposing to receive interest credit will be selected 
    using the following criteria:
        (1) Geographical location with emphasis on smaller rural 
    communities versus larger rural communities.
        (2) The most needy communities based on census income data showing 
    the preponderance of low and moderate income families.
        (3) Commitments by the applicant to maintain occupancy standards 
    throughout the term of the loan for families with low and moderate
    
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    incomes, with a priority at initial occupancy for low income families.
        (4) The lowest overall proportional effective subsidy cost to the 
    Government.
        (5) Preference will be given to family proposals with large bedroom 
    mixes (3/4/5 bedrooms).
        (6) Those proposals to be developed in a colonia, tribal land, or 
    EZ/EC community, or in a place identified in the state Consolidated 
    Plan or state needs assessment as a high need community for multifamily 
    housing will receive preference.
    
    VI. Review Criteria
    
        RHS will review each request for participation under the 
    demonstration program to determine if the lender and the proposal meet 
    all the requirements of this notice and the lender demonstrates the 
    ability to underwrite, originate, process, close, service, manage, and 
    dispose of multifamily loans in a prudent manner. Applications will be 
    reviewed to determine financial feasibility, compliance with cost 
    limitations, and market need of the proposal. RHS will review each 
    application for compliance with subsidy layering requirements, which 
    stipulates that the government will provide no more than the minimum 
    amount of assistance necessary to make the complex financially feasible 
    pursuant to 7 CFR 1944.213(a)(2), see Federal Register Volume 62, 
    Number 88, pages 25061-25071 published May 7, 1997.
        RHS also reserves the right to negotiate with potential lenders 
    over the scope of the proposal to ensure the best interests of the 
    Government and objectives of the demonstration program are achieved.
        It is the policy of RHS to consider environmental quality as equal 
    with economic, social, and other relevant factors in program 
    development and decision making. Proposals which have the potential for 
    adverse impact to protected resources (wetlands, floodplains, and 
    important farmland, for example) will receive low priority, since the 
    brief period of time allocated for obligation of funds may be 
    insufficient for RHS to satisfactorily complete the environmental 
    review process if the proposal has adverse environmental impacts. 
    Therefore, it is important that lenders and applicants submit proposals 
    which minimize the potential to adversely impact the environment.
        Since RHS will complete the appropriate environmental review at the 
    field level, the appropriate field office will need certain information 
    from the lender or applicant in order to complete the environmental 
    review. Lenders or applicants who plan to file an application should 
    request the application package at the earliest date possible for 
    directions on how to contact the applicable field office.
    
    VII. Other Matters
    
        (a) Environmental Finding. A Finding of No Significant Impact with 
    respect to the environment has been made in accordance with RHS 
    regulations at 7 CFR part 1940, subpart G.
        (b) 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, marital or familial status. To 
    ensure that any proposal under this demonstration program complies with 
    these objectives, the RHS approval official will complete Form RD 2006-
    38, ``Civil Rights Impact Analysis Certification.''
        (c) Executive Order 12612, Federalism. The policies and procedures 
    contained in this Notice will not have substantial direct effects on 
    States or their political subdivisions, or the relationship between the 
    Federal Government and the States, or on the distribution of power and 
    responsibilities among the various levels of government. As a result, 
    the Notice is not subject to review under the Order.
        (d) Paperwork Reduction Act. The information collection 
    requirements within this notice are covered under OMB Nos. 0575-0042, 
    0575-0047, 0575-100, 0575-0024, 0570-0014, and 0575-0137.
    
        Dated: June 25, 1997.
    Jan E. Shadburn,
    Acting Administrator, Rural Housing Service.
    [FR Doc. 97-17269 Filed 7-1-97; 8:45 am]
    BILLING CODE 3410-XV-U