Key Topics in this Chapter 

 Agency Reviews During Loan Origination 

 Environmental Reviews During the 

Servicing Period 

 Other Environmental Requirements 

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11.1 PURPOSE AND OVERVIEW 

The purpose of this chapter is to 

describe the environmental requirements that 

must be met by the Agency and by the lender 

as a part of multifamily housing lending 

and loan servicing activities. 

11.2 GENERAL ENVIRONMENTAL REQUIREMENTS 

The lender will provide the Agency with the information required for the 

environmental review process. The environmental review process must be 

concluded by the Agency in accordance with National Environmental Policy Act 

(NEPA) of 1969 and 7 CFR part 1970 and its associated RD Instructions prior to taking 

any official action on an application for a loan guarantee. 

NEPA requires that Agency actions be classified into three basic categories of 

action: 

 Those that qualify as categorical exclusions; 

 Those that require an Environmental Assessment (EA); and 

 Those that require an Environmental Impact Statement (EIS). 

 Due to the range of activities that may qualify for a categorical exclusion, the Agency 

has established two types of categorical exclusions. Projects with no or minimal 

disturbance do not require an Environmental Report but may require additional 

documentation at the Agency’s discretion (see 7 CFR 1970.53). Projects with small-scale 

development require submission of an Environmental Report (see 7 CFR 1970.54). 

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CHAPTER 11: ENVIRONMENTAL REQUIREMENTS 
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The Agency environmental review must examine the potential impacts of the 

proposed project on the environment and on a wide range of protected resources. Exhibit 

11-1 provides a list of major resources that must be considered. For a complete list of 

resources that might present an “extraordinary circumstance” see 7 CFR 1970.52. 

The applicant/lender will provide to the Agency sufficient environmental information to: 

 Demonstrate compliance with the requirements for the protection of the 

human environment, including the development of practicable alternatives 

(which must always include the “no action” alternative) to either avoid or 

lessen adverse environmental impacts. 

 Demonstrate why the potential impact on the human environment is not 

considered to be significant, and therefore, an EIS is not required. 

Environmental files must include appropriate, detailed, and accurate 

supporting documentation, maps, results of consultation, and evidence that 

required public notices were published and sent to the parties listed in 7 CFR 

1970 and its associated RD instructions. 

 Demonstrate that all mitigation measures listed in the environmental review 

will be included in legally binding documents, such as the Letter of Conditions 

and Conditional Commitment for Guarantee. 

 Show that mitigation measures were implemented during project completion. 

This evidence will be obtained and included in the environmental file. 

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Exhibit 11-1 

Major Protected Resources 

Wetlands Natural Landmarks 

Floodplains Important Farmland 

Wilderness Areas Prime Forestland 

Wild and Scenic Rivers Prime Rangeland 

Historical and Archeological Sites Coastal Zone Management 

Critical Habitat or Endangered or Areas 

 Threatened Species Sole Source Aquifer 

Coastal Barriers Recharge Area 

State Water Quality Standards 
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11.3 ENVIRONMENTAL RISK MANAGEMENT 

 The Agency and the guaranteed lender will incorporate into their lending practices an 

environmental risk management program. The purpose of this risk management program 

is two-fold: 

 To minimize adverse impacts to the security interests of the Agency and the 

lender in real property caused by potential contamination from hazardous 

substances, hazardous wastes, and petroleum products; and 

 To establish a process by which the Agency and the lender can minimize their 

liability under the laws regulating management of hazardous substances, 

hazardous wastes, and petroleum products. 

A major component of this risk management program will be the performance of 

due diligence. Due diligence is the process of inquiring into the environmental condition 

of the real estate, in the context of a real estate transaction, to determine the presence of 

contamination from hazardous wastes and petroleum products and to determine what 

impact such contamination may have on the market value of the property. 

Lenders are required to perform due diligence in conjunction with appropriate 

loan processing and servicing actions. The minimum standard the Agency will accept as 

evidence of due diligence is the most current version of the ASTM Standard E 1528-14, 

Phase I Environmental Site Assessment Process, published by the American Society for 

Testing and Materials (ASTM), completed by a qualified environmental professional. 

Guaranteed lenders may incorporate the ASTM standards into their processing and 

servicing procedures or use an equivalent process of due diligence approved by the State 

Environmental Coordinator in consultation with the Regional OGC. Lenders must 

provide the Agency with a copy of the due diligence report and maintain a copy in the 

loan file. Non-compliance with this section may jeopardize the Agency’s payment of 

loss claims due to environmental contamination. 

Due diligence will be performed for: 

 All applications for existing multifamily housing units when: 

 An appraiser reports to the Agency or to the guaranteed lender that 

potential contamination from hazardous substances, hazardous wastes, or 

petroleum products has been observed on the property or encountered 

through research or interviews with individuals knowledgeable about the 

property; or 

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 The Agency or the guaranteed lender becomes aware of possible 

contamination through some means other than the appraiser’s report. 

 All applications for new construction of multifamily housing units. 

 The Agency takes a security interest in a commercial real estate loan in the 

amount of $100,000 or more; or 

 An appraiser reports to the Agency or to the guaranteed lender that potential 

contamination from hazardous substances, hazardous wastes, or petroleum 

products has been observed on the property or encountered through research or 

interviews with individuals knowledgeable about the property; or 

 The Agency or the guaranteed lender becomes aware of possible 

contamination through some means other than the appraiser’s report. 

 All applications for new construction of multifamily housing units. 

Additionally, if underground storage tanks are present at existing structures, the 

lender will ensure that the tanks comply with appropriate regulatory requirements or they 

will be removed. 

11.4 RESPONSIBILITY FOR ENVIRONMENTAL REVIEWS 

The Agency is responsible for determining the appropriate level of 

environmental review in accordance with 7 CFR RD Instruction1970 and making 

the environmental determination. The applicant/lender is responsible for 

submitting sufficient environmental information to the Agency for making its 

determination. In consultation with the Agency, the applicant/lender will assemble and 

submit to the Agency the analysis of relevant material, the development and analysis of 

practicable alternatives and mitigation measures, and the development of 

recommendations. The Agency is responsible for the environmental decision. 

The Agency will require information from the lender and the lender’s applicant to 

complete this environmental review. Lenders have a responsibility to become familiar 

with Federal environmental requirements so that they can advise applicants and reduce 

the probability of unacceptable applications being submitted to the Agency. Lenders are 

also expected to cooperate in the collection of any environmental data which the Agency 

determines is necessary and in the resolution of potential environmental problems. 

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The Agency approval official will use the environmental review documents and 

the recommendations of the State Environmental Coordinator to make the Agency’s final 

decision regarding an environmental impact determination and compliance with 

environmental requirements, as well as flood insurance requirements. This decision will 

be documented on RD Instruction 1970-B, Exhibit D, “Categorical Exclusion Form with 

Instructions”, for a categorical exclusion, a Finding of No Significant Impact (FONSI) 

for an EA, or a Record of Decision (ROD) for an EIS. 

The State Environmental Coordinator is available to provide technical assistance 

and guidance to Agency staff, lenders, and borrowers. They are also available to assist in 

problem resolution on environmental issues. Environmental issues or problems should be 

referred promptly to the State Environmental Coordinator. 

11.5 ENVIRONMENTAL REVIEWS DURING LOAN ORIGINATION 

The Agency’s environmental review of the property, as required under NEPA, 

will be initiated as early as possible, but no later than the selection of the proposal for 

further processing. This means the environmental review will normally be prepared 

simultaneously with the development of the application package. This review must be 

complete and a Categorical Exclusion or FONSI issued prior to the Agency’s issuance of 

a conditional commitment. Applicants and lenders must ensure no actions such as 

demolition, land clearing, initiation of construction prior to the Agency’s environmental 

decision (see 7 CFR 1970.5(b)(5). 

A. The Response to the Notice Stage 

One of the requirements in the response to the Notice is a description of 

any “known environmental issues that may affect the project.” During this stage, 

the Agency will take note of environmental issues that are disclosed by the lender 

in assessing the preliminary feasibility of the property. It is important that all 

known information is disclosed at this stage. Information not disclosed, that was 

known to the lender or borrower, could be grounds for disqualification of funding 

at a later stage. 

B. The Application Submission Stage 

1. Submission Requirement 

The lender must submit the following information (unless such 

information was previously submitted) as part of the loan application package 

(see Paragraph 4.8 B.): 

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 Lenders and applicants should refer to 7 CFR 1970 Subparts B and C, and their 

associated RD Instruction which contain applicant guides detailing information 

needed from the lender and/or applicants. 

 Phase I Environmental Site Assessment report as prescribed by ASTM (ASTM 

Standard E 1527) or an equivalent process of due diligence approved by the 

State Environmental Coordinator in consultation with the Regional OGC. 

 Lender comments regarding relevant off-site conditions. 

 Land survey. 

 FEMA Form 086-0-32, Special Flood Hazard 

Determination Form

 FEMA Form 086-0-33, Elevation Certificate. 

2. Agency Response 

As early as possible in the planning and decision making process, the 

Agency will inform the lender of the appropriate level of environmental review so 

that the lender or applicant can initiate the collection of environmental 

information in accordance with 7 CFR 1970 and its associated RD Instructions. 

The environmental review will be completed prior to loan approval, 

obligation of funds, or other commitment of Agency resources, including issuance 

of a conditional commitment for guarantee whichever occurs first; and prior to the 

Agency decision on any servicing action which is subject to Agency 

environmental approval. Servicing actions that do not involve obligation of 

additional Agency funds are not subject to a new environmental decision by the 

Agency (although foreclosure actions may be subject to environmental due 

diligence requirements). A commitment of Agency resources may not be made 

subject to completion of the environmental review. 

The environmental review is considered complete when the environmental 

documents have been properly executed, all applicable public notices have been 

published, the associated public comment periods have expired, and the Agency 

has taken any necessary actions to address the comments received and has issued 

its environmental decision. 

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11.6 ENVIRONMENTAL REVIEWS DURING THE SERVICING PERIOD 

Routine servicing actions that do not obligate additional Agency funds are not 

subject to NEPA review and a new Agency environmental decision. However, it is the 

lender’s responsibility to ensure that due diligence is conducted in conjunction with the 

appraisal for all loan servicing actions which require a determination of security value or 

which could lead to acquisition of real property by the Agency or the guaranteed lender. 

If, through environmental audits, due diligence, or some other means, a release or 

threatened release of hazardous substances, hazardous wastes, or petroleum products is 

discovered on a borrower’s property, the Agency official, in consultation with the State 

Environmental Coordinator and the guaranteed lender, will promptly notify the borrower 

in writing that immediate corrective action must be taken, consistent with appropriate 

regulatory authority requirements. Simultaneously, the State Environmental Coordinator 

will notify the appropriate regulatory authority for any necessary enforcement action. 

In the case of a defaulted loan where the Agency may consider taking title from 

the lender, the Agency will review the due diligence report and the appraisal, prior to 

accepting title. If contamination is present and the cost of mitigation exceeds the market 

value or the amount of the debt, the Agency may decide not to accept title from the 

lender. If there is a loss claim due to contamination, the Agency will not finalize the loss 

claim until the lender has sold the property. The Agency will also review the due 

diligence report and appraisal prior to its consent to the release of security property by the 

guaranteed lender and when there are bankruptcy proceedings. 

11.7 OTHER ENVIRONMENTAL REQUIREMENTS 

A. Flood Hazard Determination 

Properties located in Special Flood Hazard Areas (SFHAs) designated by 

FEMA are not eligible for Federal financial assistance, including loan guarantees, 

unless flood insurance through NFIP is available. The lender must 

ensure that NFIP flood insurance is purchased prior to loan closing and 

issuance of the guarantee, in accordance with the National Flood 

Insurance Act, as amended, and RD Instruction 426.2. 

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The lender is responsible for ensuring the completion of FEMA Form 086-

0-32and completion of an elevation certificate (FEMA Form 086-0-33) and for 

submitting a copy to the Agency with the request for guarantee. The form 

provides specific information with regard to the proposal’s location in a 

floodplain, the community’s NFIP eligibility, its proximity to floodplains, and the 

availability of flood insurance. This information is necessary for a determination 

of site eligibility by the Agency. The environmental review conducted by the 

Agency will examine whether or not there is a reasonable alternative to a 

proposed purchase/construction in the floodplain. 

Flood insurance must cover the lesser of the outstanding principle balance 

of the loan or the maximum amount of coverage allowed under FEMA’s NFIP. 

Prior to loan closing, the lender is responsible for sending the applicant a copy of 

Form RD 3550-6, Notice of Special Flood Hazards, Flood Insurance Purchase 

Requirements, and Availability of Federal Disaster Relief Assistance. The 

applicant must sign and return the form at or before loan closing. 

B. Clean Air Act and Water Pollution Control Act 

Federal contracts that exceed $100,000 must meet all applicable standards, orders, 

or requirements issued under section 306 of the Clean Air Act, section 508 of the Clean 

Air Act, Executive Order 11738, and EPA regulations at 40 CFR part 15. The lender 

must ensure compliance with this requirement during construction of the property and 

throughout the servicing period. 

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