HB-1-3560

6.1 INTRODUCTION 

The Agency encourages the use of loans in which it will be a partner with one or more 

other funding or financing sources. Such loans are referred to as participation loans. The 

Agency seeks to foster the use of participation loans as a way to stretch limited resources to 

provide the maximum number of affordable housing units possible. For this reason, loans that 

leverage other sources of funding receive a priority in project selection. 

Because of the multiple funding sources, processing and underwriting a participation loan 

involves some special efforts on the part of the Loan Processing Staff. The Agency must make 

sure that its security is protected, that procedures are established to address different program

requirements that may apply as a result of multiple financing, and that it provides no more 

subsidy than is necessary to make the loan feasible. 

The Agency will enter into a participation loan only when certain requirements are met. 

This chapter discusses those requirements, including the special underwriting considerations that 

will be used, and how the Agency establishes its security interests and sets loan limits in light of

the other funding sources. This chapter also outlines procedures for working with the authority 

that allocates low-income housing tax credits (LIHTCs), the State housing finance agency. 

6.2 OVERVIEW OF PARTICIPATION LOANS 

Participation loans offer advantages to both the Agency and borrowers. By combining its 

resources with those of other lenders or grantors, the Agency can stretch its resources to assist 

more borrowers, thereby maximizing the number of affordable housing units provided. 

The Agency may become a partner in a participation loan by contributing loan funds only 

or by contributing both rental assistance and loan funds. The amount that can be provided will 

be based on the Agency’s funding priorities and rental assistance levels. If Agency rental 

assistance is provided, the Agency’s loan participation must equal at least 25 percent of the total 

development cost (TDC) unless an exception is granted by the Administrator, and rents may not 

be higher than what they would have been had the Agency provided full financing of the units. 

CHAPTER 6: PARTICIPATION WITH OTHER 

FUNDING SOURCES 

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SECTION 1: REQUIREMENTS FOR PARTICIPATION LOANS 

[7 CFR 3560.66] 

6.3 GENERAL 

Participation loans for new construction of multi-family housing are processed in 

accordance with regular program requirements through the Notice of Funding Availability 

(NOFA) process. The processing procedures detailed in Chapters 4 and 5 apply. There are some

differences, however, in terms of the need to coordinate with the other funding sources, ensuring 

the Agency’s security position, and allowing some flexibility in the design of mixed-use projects. 

The Agency will only consider becoming a partner in a participation loan when the 

following requirements are met: 

• The number of units in the project that will serve Agency income-eligible tenants 

must equal or exceed the number of units that will be financed by the Agency. This 

requirement ensures that Agency funds will be used for authorized program purposes. 

The number of units financed by the Agency is determined by dividing its loan 

amount by the State’s average new per-unit construction costs. If the number of units 

to be occupied by program-eligible tenants is less than the number of Agencyfinanced units, the loan applicant must increase the number of units that will serve 

program-eligible residents or reduce the Rural Housing Service (RHS) loan request. 

Loan Originators must not approve loans for projects that fail to meet this

requirement. 

• The Agency must enter into a participation agreement, intercreditor agreement, or 

Memorandum of Understanding (MOU) with the other participating lenders in the 

project. This requirement protects the Agency’s interests and is further described in 

Section 2 of this chapter.

• Projects with participation loans may be marketed to a mixed-income population. 

Consequently, there may be some program-ineligible occupants in a project. Mixing 

conventional and income-restricted units requires additional management oversight 

by the Agency and the loan applicant to ensure that those units financed by the 

Agency meet program requirements. For such projects, the Agency also permits some

design flexibility that is not allowed in projects funded solely with Agency financing. 

Some restrictions apply, and these must be discussed with the loan applicant at the 

preliminary meeting (see paragraph 6.4). 

6.4 DESIGN REQUIREMENTS 

All housing and related facilities funded by a participation loan, as part of a Multi-Family 

Housing project funded with Agency loans, will be planned and constructed in accordance with 

RD Instruction 1924-A and RD Instruction 1924-C. However, some differences exist in the 

flexibility of design features, permitted use of nonessential facilities, and construction documents 

that are detailed at 7 CFR 3560.66. For example, in some cases a partner agency may require the 

use of its own contractual forms. 

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A. Composition and Quality of Units 

All units in a project built with a participation loan must be equal in quality to those 

that are built solely with Agency funds. In mixed-income projects, all units must be 

equal; those units for lower-income residents may not be of a lesser quality than those for 

higher-income residents. Design features such as patios or balconies, washers and dryers, 

and garbage disposals may be included in the project if they are customary for the area 

and needed for marketability. 

B. Nonessential Common Facilities [7 CFR 3560.66(e)]

Mixed-income complexes may include nonessential common facilities, provided the 

facility is designed and operated with appropriate safeguards for the resident’s health and 

safety and the following conditions are met: 

y The facilities must not be funded by Agency funds; 

y The project must be able to support the facility’s operating and maintenance costs 

through collection of a user fee from residents who subscribe to the service; and 

y A separate parcel and lien are used where appropriate. 

6.5 SECURITY AGREEMENTS 

The Agency will establish its security in a participation loan by: 

y Seeking a first or parity lien on the property and project revenues; and 

y By entering into a participation agreement, intercreditor agreement, or MOU with the 

other lenders that clearly defines each party’s relationship and responsibility to the 

others. 

A. Lien Position 

The Agency will seek a first or parity lien on the property and project revenues. A 

junior lien position on the property and project revenues may be accepted if the 

Government’s interests are adequately secured and it is in the best interest of the Agency. 

There must be adequate security for the Agency to accept a junior lien position. 

Adequate security means that the value of the property is sufficient, so the Agency is 

confident that it can recover its loan principle even after the first lien has been satisfied. 

B. Security Agreement 

The Loan Originator must prepare a participation agreement, intercreditor agreement, 

or MOU to be signed by the Agency and the other lenders at loan closing. The security 

agreements document the Agency’s lien position on the property and on the project’s 

revenue. They also define the responsibilities and relationship between the Agency and 

the lender. The Loan Originator should negotiate the content of this document with the 

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other financing source(s) during the loan origination process so that the Loan Originator

has time to send the negotiated document to USDA Office of General Counsel (OGC) 

prior to loan closing for its review and concurrence. Exhibit 6-1 outlines the provisions 

that must be included in this document. 

Exhibit 6-1 

Elements of the Participation Agreement, Intercreditor Agreement, or MOU 

• Lien position and collateral. The Agency will seek a parity lien except in those cases 

described in Paragraph 6.5. The lender must agree that any interest it may have in the 

project revenues will be subordinate to that of the Agency. In the event of project 

liquidation⎯meaning voluntary or involuntary sale, condemnation, forfeiture, casualty loss, 

or other disposition⎯the net proceeds, except with respect to revenues, must be divided pro 

rata based on the amounts loaned, but not including protective advances. 

• Cross defaults. The intercreditor agreement must state that the loan documents used by the 

lender and the Agency will contain a promise by the borrower that a default under the terms 

of the lender’s loan documents will constitute a default under the terms of the Agency’s loan 

documents and vice versa. 

• Notices. The lender and the Agency must agree to provide each other notice within 15 days

of any loan default. In addition, such notice will specify the nature of the default and what 

course of action the lender or the Agency plans to take. 

• Application of payments. The intercreditor agreement must make clear that in the event 

the borrower is unable to pay the regularly scheduled installments due under the terms of the 

Promissory Notes given to the lender and the Agency (as adjusted for interest credit and 

rental assistance), the borrower will pay such funds as are available to the lender and the 

Agency pro rata, based on the amounts of the respective regularly scheduled installments. 

• Use of loan proceeds during construction. The lender must agree to not advance funds 

without first securing the concurrence of a duly authorized officer of the Government. 

• Reserve requirements. The intercreditor agreement must specify the contribution to 

reserve requirements and withdrawal procedures. 

• Foreclosure. The intercreditor agreement must state that neither the lender nor the Agency

will foreclose or accept a deed in lieu of foreclosure without consulting with each other. 

C. Sample Agreements

Attachment 6-A provides a sample intercreditor agreement, a sample parity 

agreement, and a sample subordination agreement.

6.6 SUBSIDY LAYERING 

The Agency has an obligation under law to make sure that the total funds provided to any 

project by all sources do not exceed the minimum amount necessary to make the project feasible. 

The Sources and Uses Comprehensive Evaluation (SAUCE) software program allows the Loan 

Originator to perform the necessary analysis to ensure that the Agency is not providing excess 

subsidy. Chapter 4 provides the details on how to analyze subsidy. 

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6.7 RENTS, RENTAL ASSISTANCE, AND MANAGEMENT 

A. Establishing Rents 

For a project funded by a participation loan, the rent for any unit receiving Agency 

financing must be established as for any other project financed by the Agency and must 

comply with 7 CFR part 3560, subpart E (see Chapter 7, HB-2-3560). 

B. Rental Assistance [7 CFR 3560.66(b)]

The Agency may consider providing Agency-funded rental assistance to a 

participation loan for those units which qualify for the rental assistance. The following

provisions must be met for the Agency to consider providing Agency-funded rental 

assistance: 

y The Agency’s loan must equal at least 25 percent of the project’s TDC. The State 

Director may request an exception to this provision from the Administrator by 

submitting a complete explanation as to why the exception should be made. 

y The rental assistance must be restricted to only those units where the basic rents do 

not exceed what basic rents would have been had the Agency provided full financing.

C. Management 

Multi-Family Housing projects developed with participation loans may serve lowerincome households exclusively or may be marketed to households with mixed incomes. 

In either case, units serving income-eligible tenants must meet the more stringent Agency 

or lender management requirements. The management plan submitted by the loan 

applicant must clearly describe the procedures that will be used to ensure that the 

appropriate management requirements will be met and must identify those areas where 

Agency requirements will be superseded by the more stringent lender requirements. 

6.8 RESERVE REQUIREMENTS [7 CFR 3560.65]

It is Agency policy to establish replacement reserve account funding levels sufficient to 

meet the major capital needs of a project over its life. For participation loans, Agency reserve 

requirements will be determined on a case-by-case basis, taking into consideration the reserve 

requirements of the other participating lenders. 

The aggregate, fully funded reserve amount established by the Agency and the other 

lenders: 

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• Should, where feasible, equal the replacement cost of capital items based on the lifecycle cost analysis of the project’s capital needs over the life of the project, but 

results in rents that are no higher than Comparable Rents for Conventional Units 

(CRCU) standard discussed in Chapter 3; and. 

• At a minimum, equal at least 10 percent of the project’s total Rural Developmenteligible development cost or appraised value, whichever is greater. This minimum 

funding assumes annual contributions of at least 1 percent of eligible TDC. Loan 

Originators should seek guidance from the National Office about the circumstances 

when it is advisable to establish reserve funding levels at amounts higher than this 

minimum.

Rents may only exceed CRCU in limited circumstances, as described in Chapter 3, 

paragraph 3.20 B. 

If a participating lender’s reserve requirements meet the above criteria, the Agency will 

not impose any additional reserve contribution requirements. If, however, the participating 

lender’s reserve requirements are insufficient to meet this requirement, the Agency may require 

the loan applicant to make additional contributions until the Agency’s standards are met. If the 

applicant borrower is unable to make adjustment to costs to meet the Agency’s reserve 

requirements without rents exceeding the CRCU standard, the application must be rejected as 

infeasible. 

Reserve requirements and procedures for reserve withdrawals must be agreed upon by all 

lenders and must be included in any participation or intercreditor agreement. Attachment 6-A 

provides a sample intercreditor agreement. 

SECTION 2: PROCESSING APPLICATIONS INVOLVING

PARTICIPATION LOANS 

6.9 OVERVIEW 

When processing participation loans, the Loan Originator follows the same basic 

procedures as presented in Chapters 4 and 5. However, some additional considerations must be 

made when:

• Underwriting the loan; 

• Establishing the Agency’s security position;

• Evaluating design and management features; and 

• Setting the loan limits. 

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In processing and evaluating an application involving a participation loan, the Loan 

Originator will need to work with other funding sources to underwrite the proposed project. 

These partners might be private lenders, Federal Agencies, and in all likelihood, the State 

housing finance agency that allocates LIHTCs and HOME Investment Partnership Program

funds. The Loan Originator should begin to coordinate efforts with the other proposed partners 

on the project as soon as the participation loan request is submitted, and determine the likelihood 

of the additional funding being received. Throughout the loan origination process, the Loan 

Originator should share information with the State housing finance agency to make sure that 

there is no excess subsidy in the form of LIHTCs or Agency funds being provided to the project. 

If any of the proposed funding sources do not become reality, the Loan Originator must 

reevaluate the financial feasibility of the project and rescore the application. When this occurs, 

the National Office must be immediately contacted to determine whether the application can be 

processed further. 

6.10 UNDERWRITING 

The Loan Originator must conduct 

underwriting for a participation loan as would be 

done for any other Multi-Family Housing loan 

application. However, some special considerations 

apply. The following determinations must be 

made. 

Underwriting Criteria for 

Participation Loans

y Is the applicant eligible? 

y Is the project eligible? 

y Is the project economically feasible? 

y Are Rural Development-eligible project 

costs reasonable?

y Are the Agency’s interests secure?

A. Applicant and Project Eligibility 

Applicant and project eligibility 

requirements for a participation loan are 

the same as those for a project funded with Agency-only financing. The applicant and 

project eligibility requirements and procedures detailed in Chapters 4 and 5 apply. 

B. Project Feasibility 

1. Project Need 

Market feasibility documentation for a participation loan must demonstrate a clear 

need and demand for the total type and number of units in the project. If the proposed 

project is a mixed-income project, the market feasibility documentation must show a 

need and demand from households in all income ranges that are proposed to be served. 

Loan Originators must follow the procedures presented in Chapters 4 and 5 for analyzing 

the need for the proposed units. 

If LIHTCs are anticipated on a proportion of units higher than the percentage 

receiving rental assistance from the Agency or similar resident rental subsidy, the Loan 

Originator must review the market feasibility documentation to make sure that it clearly 

reflects a need and market for the number of units without deep subsidy. If it does not, 

the application must be rejected. 

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2. Financial Feasibility 

The Loan Originator must evaluate project income and expenses as described in 

Chapters 4 and 5 to determine whether the project is financially feasible and whether 

sources and uses match. 

3. Viability of Other Funding/Financing Sources 

The Loan Originator must also assess the likelihood that other proposed financing 

sources will be realized. To make this determination, the Loan Originator must receive 

sufficient documentation from the loan applicant to evaluate the status of all funding 

sources. Copies of loan applications or grant requests must accompany the initial 

application submitted to the Agency. The Loan Originator must verify with the sources

that the loan applicant has actually applied and is eligible for the loan or grant requested. 

The Loan Originator must again contact the other funding source(s) to reassess the 

likelihood of funding if a firm commitment has not been made by that time. If the Loan 

Originator determines that funding is unlikely to become a reality, then the loan request 

may be rejected. The Loan Originator must immediately notify the National Office of the 

availability of funds. 

C. Reasonable Project Costs 

The Loan Originator must use all underwriting tools described in Chapters 4 and 5 to 

establish that project costs are reasonable as would be done for project applications 

seeking Agency-only financing. 

In a mixed-income project, if there are any nonessential common facilities that would 

ordinarily not be allowed in a project funded with Agency-only financing, such as a 

swimming pool, the Loan Originator must review the management plan and budget 

submitted as part of the final application to ensure that: 

y Agency funds are not being used to pay for the construction, operation, or 

maintenance of such facilities; and 

y Adequate measures have been taken to secure tenant health and safety when using the 

facility. 

D. Management 

As with any Agency loan, the applicant must show that adequate management 

systems will be in place to provide for the effective and efficient management of the 

project and within Agency program requirements for those units to be financed by the 

Agency. 

The Loan Originator must review the management plan to make sure that the loan 

applicant has included a detailed description on how they ensure that Agency program

requirements are met in units occupied by Agency program-eligible tenants. The 

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management plan must also describe how any user fees will be implemented to pay for

the operating and maintenance costs of any nonessential facilities. 

6.11 ENVIRONMENTAL REQUIREMENTS 

The environmental review process for participation loans is identical to the process for 

nonparticipation loans. The environmental review will cover the entire project, not just the 

portion being financed by the Agency. If the financial partner is a State agency, the Loan 

Originator will promptly consult with the State Environmental Coordinator to facilitate 

development of a joint environmental review with the State agency. Chapter 3 and RD

Instruction 1940-G provide further guidance on environmental reviews. 

6.12 SUBSIDY REVIEWS 

The Loan Originator will use the SAUCE software program to prepare an analysis of all 

loan requests prior to loan approval. The Loan Originator will either use the electronic SAUCE 

data file returned by the loan applicant or will input the required data from Form RD 1924-13, 

Estimate and Certificate of Actual Cost and Form RD 3560-7, Multiple Family Housing Project 

Budget/Utility Allowance provided by the loan applicant. The SAUCE program provides the 

Loan Originator with the necessary instructions to complete the analysis. 

6.13 ESTABLISHING LOAN AMOUNT, TERMS, AND CONDITIONS 

A. Establishing Loan Amounts 

Agency loans will only be made in an amount that takes into account all proposed 

funding sources and eligible loan costs. Any grants that are included as part of the 

project financing up front will not be considered as the borrower’s equity contribution. 

In the event that a borrower procures a grant after the initial loan proposal to pay for 

disallowed costs and cost overruns, the Agency’s loan will not be affected. Exhibit 6-2 

presents an example illustrating how to establish the maximum loan amount for 

participation loans. 

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Exhibit 6-2 

Establishing Agency Loan Amounts — An Example 

Applicant Smith requests a participation loan from the Agency. He intends to put 

$250,000 of LIHTCs into the project as leveraged assistance and estimates a $1.2 million 

TDC. The Agency appraises the project at $1 million and calculates the loan amount 

based on this appraised value since it is lower than the total development cost. The 

Agency deducts the $250,000 in tax credits from the appraised value as available 

funding, leaving a balance of $750,000. Because the applicant intends to use LIHTCs, 

the Agency will make a loan of $712,500, which is equal to 95 percent on the remaining 

balance of the appraised value. The borrower is required to make a 5 percent 

contribution of $37,500 to the project. The applicant wishes to proceed with the project 

as proposed, so the applicant must obtain the additional $200,000 to meet total 

development costs. The borrower obtains a $200,000 grant. The Agency does not change 

its point score since the borrower had not received any credit for the additional grant 

funds in prioritizing the loan. 

$1,200,000 Total development cost 

 $1,000,000 Appraised value 

 $250,000 Proposed tax credits 

 $712,500 Agency funds

$37,500 Borrower equity contribution requirement 

 $200,000 Grant 

B. Borrower Contribution Requirement 

The minimum required borrower contribution will be based on the Agency loan 

amount and determined in accordance with the guidelines provided in Chapter 5. 

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 within the guidance provided in Paragraph 5.12. 

A loan from the borrower may be considered, provided that the loan to the project is 

from the borrower’s own resources and that when added to all financing sources for the 

project, rents do not exceed the CRCU standard, except under limited circumstances as 

described in Chapter 3, paragraph 3.20 B. LIHTC proceeds may be considered the 

borrower’s own resources subject to the conditions described in Paragraph 5.12. 

6.14 WORKING WITH STATE HOUSING FINANCE AGENCIES 

As participation loans have increasingly become the norm for producing affordable rental 

housing, the Agency is working to develop explicit partnerships with other financing sources. 

The State housing finance agency (or that agency that allocates the LIHTCs in a State), as the 

primary coordinator of affordable housing funding in a State, is probably the most common 

potential partner. To facilitate processing of participation loans, Field Offices must develop and 

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negotiate procedures for working with their State housing finance agency to coordinate resources 

and exchange information. 

A. Coordinating Resources 

The State Director or a designee should participate with the State housing finance 

agency in the development of the State’s Consolidated Plan to ensure that the Agency 

resources available from the Rural Development mission area are coordinated, to the 

extent possible, with the Consolidated Plan to efficiently maximize the number of 

affordable housing units to be produced. The cooperation should include, but is not 

limited to, the sharing of the loan request and application information from Agency 

applicants, the analysis tool and the results of any evaluation conducted using this tool, 

funding levels, and rural area designations. State Offices should attempt to obtain 

preference for RHS applicants in the allocations of the LIHTC, for example, through a set 

aside for Agency projects or a priority for Agency applications in the award of LIHTCs. 

In all likelihood as part of its financing package, a project proposal will have LIHTCs 

and perhaps other financing that comes from the State housing finance agency as well. 

The State Office will need to work with the State agency on two major levels: 

y During the loan application review to share information about project financing and 

costs to make sure that no excess Government assistance is being provided to the 

project; and 

y During asset management to share information about occupancy, tenant incomes, and 

rents to make sure that owners are in compliance with the tax credit program rules. 

The earlier that State Offices begin to work with the State housing finance agency on 

a particular project, the better. This section discusses working with the State agency

during the loan origination process. 

B. Entering into a Memorandum of Understanding 

All State Offices are required to establish a working relationship with the State 

housing finance agency. This relationship includes entering into a Memorandum of 

Understanding (MOU) that defines that relationship and clearly describes when and how 

information will be exchanged. This information stage is critical to performing the 

required subsidy review (see Paragraph 6.12). Attachment 6-B provides a sample of an 

MOU; Exhibit 6-3 outlines the contents of an MOU. 

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C. Working with the State Agency 

The Loan Originator will contact the State housing finance agency upon receipt of a 

loan request to verify that application for the LIHTC or other funding source has been 

made. The Agency will establish contact with the State agency during the loan 

origination process to provide the State agency with the information specified in 

Exhibit 6-3. The information obtained from the Agency in accordance with the MOU 

will be analyzed and compared with the information provided to the Agency by the loan 

applicant for consistency. 

Exhibit 6-3 

Contents of the Memorandum of Understanding 

with State Housing Finance Agencies 

A. Agreement by both parties: 

1. To the fee norms to be used in evaluating participation loans, including the fees for builder’s profit; 

builder’s overhead; builder’s general requirements; and developer’s profit for new construction, 

rehabilitation, and acquisition cost of an acquisition rehabilitation request and the fact that these will be 

reviewed by both parties annually.

2. To the process for deviation for a fee over the fee norm.

3. To the definitions and formulas for the determination of costs and amounts of assistance. 

4. On how the Agency defines excess assistance. 

5. That the Agency will reduce the equity contribution through reduction of the loan to ensure that Agency

assistance provided is not more than is necessary if excess assistance is not reduced through other means.

6. That the Agency is not certifying to the accuracy of the tax credit applicant’s eligibility or compliance 

with Section 42 of the Internal Revenue Code. 

7. That information shared under the MOU is for internal analysis and will not be disclosed to outside 

sources. 

B. Agreement by the Agency to provide to the State agency information on Multi-Family Housing projects 

being considered and receiving funding decisions on a regular basis. Specifically, the Agency may provide:

1. A list of Multi-Family Housing loan requests and their status; 

2. For each loan request on the list, the most recent Form RD 1924-13 or other cost estimation documents; 

3. A copy of Form RD 1944-37, Previous Participation Certification, and any identity-of-interest (IOI) 

disclosure information that has been provided to the Agency; 

4. A copy of any notification of selection for further processing issued to applicants; 

5. When the construction is completed, the actual Form RD 1924-13, including any cost analysis prepared 

by the Agency; and 

6. The results of any analysis on necessary assistance to the loan applicant and the State agency. 

continued

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Exhibit 6-3 (cont.) 

Contents of the Memorandum of Understanding 

with State Housing Finance Agencies

C. The State agency should agree to inform any loan applicants seeking both tax credits 

and Agency Multi-Family Housing assistance that the MOU will be applied to the 

processing of their loan requests. The State agency should also agree to provide the 

Agency with the following data: 

1. The list of tax credit loan requests received from applicants that indicate they are 

seeking financing from the Agency; 

2. For each loan request, a copy of the tax credit application with the detailed cost 

breakdown used to estimate the amount of tax credits for which the developer 

would be eligible; 

3. When the development is complete and the final sources and uses of funds in 

projects receiving both Agency funds and tax credits are made, the IRS Form 8609, 

Low-Income Housing Credit Allocation Certification, with a copy of the cost data 

used to determine the development cost of the project; and 

4. So as to coordinate the use of limited resources and to ensure that no existing 

projects are adversely affected a list of all allocation requests to the Agency for 

comment. 

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Attachment 6-A 

Page 1 of 12 

ATTACHMENT 6-A 

SAMPLE #1 

SAMPLE INTERCREDITOR AGREEMENT 

This Intercreditor Agreement is entered into this _____ day of _______________, 20__, 

by and between the (name of bank), with a principal address of 

____________________________ (the Bank), the United States of America acting through the 

Rural Housing Service, U.S. Department of Agriculture, with an address at 

_______________________________ (the Government), and ________________________, a 

(State name) limited partnership (the Borrower) with an address at 

___________________________________. 

The Bank has agreed to make a loan to the Borrower in the amount of 

$_______________ pursuant to a certain commitment dated _________________, 20__, which 

is hereby incorporated by reference, to finance the construction of a __-unit apartment project to 

be located in (town and state) (the Project) that is to be secured by a first mortgage on the 

Project; and

The Government intends to make a loan to the Borrower in the amount of 

$____________ to finance the Project pursuant to the terms of a Letter of Conditions dated 

______________, 20__, which is hereby incorporated by reference that is also to be secured by a 

first mortgage on the Project together with a first security interest in the revenue of the Project; 

and 

The Bank, the Government, and the Borrower desire to further define and determine their 

relationship with respect to their security interests in the Project and its revenue. 

NOW, THEREFORE, in consideration of the covenants contained herein and for other 

good and valuable consideration, the receipt of which the parties hereby acknowledge, the Bank, 

the Government, and the Borrower hereby agree as follows: 

1. Collateral and Priorities. The lien of the mortgages of the Bank and the Government

shall be co-equal regardless of the order in which their respective mortgages may be 

recorded. The Bank agrees that if any interest it may have in the Project is liquidated, the 

net proceeds, except with respect to revenues, shall be divided pro rata based on the 

amounts loaned, but not including protective advances. For the purposes of this 

Agreement, the term "liquidation" means voluntary or involuntary sale, condemnation, 

forfeiture, casualty loss, or other disposition. 

2. Cross Defaults Required. The loan documents used by the Bank and the Government

will contain a promise by the Borrower that a default under the terms of the Bank's loan 

documents will be a default under the terms of the Government's loan documents and that 

a default under the terms of the Government's loan documents (including any agreements 

providing for subsidy or assistance to the Borrower or tenants) will constitute a default 

under the terms of the Bank's loan documents. 

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Attachment 6-A 

Page 2 of 12 

3. Notices. The Bank shall give notice in writing to the Government at the address set out 

above, or such other place as the Government may designate in writing from time to time, 

within 15 days of the occurrence of a default under the terms of its loan documents. Such 

notice shall specify the nature of the default and state what action, if any, the Bank 

intends to take. The Government shall give the Bank notice in writing at the address set 

out above, or such other place as the Bank may designate in writing from time to time, 

within 15 days of the occurrence of a default under the terms of its loan documents. Such 

notice shall specify the nature of the default and state what action, if any, the Government 

intends to take. Each party shall promptly send the other a copy of any notice or demand 

that it sends to the Borrower. 

4. Application of Payments. In the event that the Borrower shall not have sufficient funds 

available to pay the regularly scheduled installment due under the terms of the 

Promissory Notes given to the Bank and the Government (adjusted for interest credit and 

rental assistance), the Borrower agrees to pay such funds as are available to the Bank and 

the Government, pro rata, based on the amounts of the respective regularly scheduled 

installments. 

5. Use of Loan Proceeds During Construction. The Bank agrees to advance funds in 

accordance with the terms of its agreement with the Borrower, except that it will not 

disburse any funds without first securing the concurrence of a duly authorized officer of 

the Government. 

6. Foreclosure. Neither the Bank nor the Government will foreclose or accept a deed in lieu 

of foreclosure without consulting with each other. In the event that either the Bank or the 

Government elects to foreclose, the mortgage of the other lender shall be deemed to be 

subordinate to that of the foreclosing lender so that the property can be sold free and clear 

of all liens. The proceeds from any foreclosure sale shall be used: (a) to pay the costs of 

the foreclosure, including legal fees; (b) protective advances to preserve the Project or the 

lien of the mortgage of the foreclosing lender; (c) to the Bank and the Government, pro 

rata, as provided in Paragraph 1, above; and (d) as provided by law. 

[NAME OF BANK] UNITED STATES OF AMERICA 

By: __________________________ By: __________________________ 

[Name, title] [Name, title]

[NAME OF BORROWER]

 

 By: ________________________ 

 [Name, title]

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Attachment 6-A 

Page 3 of 12 

Sample #2 

SAMPLE PARITY AGREEMENT 

THIS AGREEMENT dated the ______ day of _______________, 20__, by and between 

________________________________ hereinafter referred to as “Bank”, the United States of America, 

acting through Rural Development, U.S. Department of Agriculture, hereinafter referred to as “the 

agency”, and __________________________________, hereinafter referred to as “__________” is made 

for the primary purpose of setting out an agreement to share in the pledge of assets as security for loans 

made and to be made by the Bank and the agency to ____________________. 

WHEREAS, the Bank has made or will be making a loan to ____________________ in 

an amount not to exceed ________________________________ Dollars ($__________) for the 

purpose of ____________________ in __________ County, ____________________; and 

WHEREAS, the agency has made or will be making a loan _______________ in an 

amount not to exceed ______________________ (The amount stated should be the total of the 

loans made and contemplated to be made, if any, and not just the unpaid balances. Use original 

amounts as would appear on the promissory notes.) for the purposes of ____________________ 

in ________________ County, _____________________; and 

WHEREAS, both the Bank and the agency desire to establish by this Parity Agreement 

the sharing of priorities of the liens and security interests of the Bank and the agency in all of the 

revenues, real and personal property, and the proceeds therefrom of __________________ in 

______________ County; and 

WHEREAS, the parties agree that all such loans will be secured by perfected security 

interests as shall be hereinafter provided. 

NOW, THEREFORE, in consideration of the above and other good and valuable 

consideration, the parties agree that: 

1. The Bank will record a mortgage perfecting a lien on real property of __________ in 

__________ County and will file a financing statement perfecting a security interest on

revenues earned and personal property of __________ located in __________ County. 

2. The agency will or has recorded a mortgage perfecting a lien on real property of

__________ in __________ County and has or will file a financing statement perfecting 

a security interest on revenues earned and personal property of __________ located in 

__________ County. 

3. The agency may perfect a lien and security interest inferior to the lien and security 

interest of the Bank covering the above referred to property and the revenues in 

__________ County and the Bank may perfect a lien and security interest inferior to the 

lien and security interest of Rural Development covering the above referred to property 

and revenues in __________ County depending upon the order in which said documents 

are recorded and filed. 

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4. (a) In the event of default under any of the loan agreements, promissory notes, 

mortgages, pledges of revenue, or security agreements of either the Bank or the agency, 

the Bank and the agency will be affected on a proportionate basis regardless of the time 

and/or order of recording, attachment, or perfection of the security interest as follows: 

(1) In the event adequate funds are not available to meet regular installments in their 

entirety, the funds available will be apportioned pro rata to the agency and the Bank 

based upon respective current installments of principal and interest due. Such 

apportionment shall not prevent the agency or the Bank from seeking any other 

remedy provided by its agreements with ____________________ or otherwise 

provided by law, and shall not be deemed a waiver of default. 

(2) All funds obtained by the agency or the Bank from foreclosure, sale, liquidation or 

any enforcement of other remedies against ____________________ will be 

apportioned to the agency and the Bank based upon the pro rata amount loaned but 

not to exceed the respective outstanding balances of principal and interest. 

(3) Reimbursement of protective advances, as defined in 7 CFR 3560.455(b)(3)(ii), 

made by the agency and/or the Bank for the mutual protection of both the agency 

and the Bank shall receive first priority in the pro rata apportionment of funds 

between the agency and the Bank provided both the agency and the Bank concurred 

in the making of each such protective advance given first priority status 

notwithstanding the provisions of paragraphs (1) and (2) above. 

(b) In any event other than an event of default which results in money or other proceeds 

to be paid to the agency and the Bank, including without limitation recoveries pursuant to 

construction contracts or surety bonds, insurance proceeds, condemnation proceeds, 

disposition of property, releases of secured property, or otherwise, said money or other 

proceeds shall be shared in the absence of the agreement between the agency and the 

Bank pro rata by the agency and the Bank in proportion to the unpaid balances of 

principal interest (reduced by any reserve funds held for such indebtedness) existing at 

the time such money or proceeds are available. 

5. The agency and its successors and assigns, and the Bank, and its successors and assigns, 

shall each notify the other promptly upon the occurrence of any of the following: an 

event of default; material and substantial alterations to the loan agreement; advances, 

extension, reamortizations, renewals, and extensions of additional credit. Such notice 

shall be immediate and in writing, and if made by United States Mail, shall be deemed 

received three (3) days after being deposited with the postal service. Failure to give 

notice shall not affect __________ obligation to the agency or the Bank nor shall it affect 

the priority of either party. 

6. Such notice sent due to the occurrence of an event of default shall fix the time and date 

upon which the pro rata shares shall be determined as 4:00 p.m. of the date of the notice. 

Any advances or loans made by either the Bank or the agency thereafter shall not have 

been made in accordance with the terms of this Agreement, except insofar as said 

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Attachment 6-A 

Page 5 of 12 

advances represent expenses incurred to maintain and enforce Mortgage and security 

instruments and maintain the mortgaged and secured property in connection herewith. 

7. If either the Bank or the agency accelerates its indebtedness or proposes to commence

proceedings to dispose of all or security agreements with __________ (other than a 

declaration of bankruptcy or insolvency by __________), that party shall give at least 

five (5) days notice by United States Mail to the other. 

All such notices of default shall be addressed as provided below: 

To the Bank: To the agency: 

 Rural Development 

To 

Or to such other address as the party concerned, and its successors and assigns, shall from

time to time designate in writing. 

8. Provisions herein concerning priority shall be controlling, notwithstanding the terms of 

any agreement between the agency or the Bank and _______________; the time at which 

the lien or security interest attaches to or is perfected; the order in which financing 

statements may be filed or continued; the order in which mortgages may be recorded; or 

any provisions in any other agreement to the contrary, whether or not in bankruptcy, 

receivership, or other insolvency proceedings have been commenced. 

9. All terms used but not defined herein which are defined in the Uniform Commercial 

Code as adopted by the State of _______________ shall have the same meaning as in 

such code. 

10. This Agreement is solely for the benefit of the parties hereto, and their respective 

successors, and no other person or persons shall obtain any right, priority, or interest

pursuant to this Agreement. (It is anticipated and specifically consented to by the agency 

that the mortgages, security agreements, and financing statements executed by 

_______________ and recorded or filed by the Bank may be assigned.) This Agreement 

and the rights granted to the parties by this Agreement shall not be further assigned 

without written notice to the agency, or its successors and assigns, or the Bank, or its 

successors and assigns. Any such assignment shall not require notice to or the consent of 

_______________. Nothing herein contained shall be deemed to obligate the Bank or the 

agency to offer or extend any credit to ____________________ or to forbear in any effort 

to collect indebtedness owed by ____________________. 

11. So long as any loan obligation of ____________________ is held or insured by the 

agency, this Agreement is subject to the following additional restrictions. 

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Page 6 of 12 

a. The loan(s) made by the Bank to _______________ may not be redeemed and paid 

prior to their stated maturity; and 

b. The loan(s) made by the Bank to _______________ may not be refunded without 

simultaneously paying the loans made by the agency to _______________, without 

the written consent of the agency; and 

c. The loan(s) made by the Bank to _______________ and the execution of this 

Agreement do not impose legal restrictions that will prevent _______________ from

complying with 7 U.S.C. § 1983(3) with respect to any loan obligations held or 

insured by the agency. 

12. This Agreement shall be governed by and interpreted in accordance with the laws of the 

State of _______________ except to the extent governed by federal statutes, rules, and 

regulations. 

13. The invalidity or unenforceability of any portion of this Agreement shall not affect the 

remaining portions hereof; in the case of such invalidity or unenforceability, this 

Agreement shall be construed as if such invalid or unenforceable portion had not been 

included herein. 

14. This Agreement constitutes the entire contract among the parties and may not be 

modified or amended except in writing signed by the parties. 

15. This Agreement may be simultaneously executed in counterparts and all such 

counterparts shall constitute but one and the same instrument. 

16. This Agreement shall remain in effect until or unless terminated by agreement in writing 

or the parties or until such time as the indebtedness of _______________ to the Bank and 

the agency is paid in full. 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed 

on the day and year above written. 

The United States of America, acting through 

Rural Development, U.S. Department of 

Agriculture.

_______________________________ 

By: By: 

 

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Attachment 6-A 

Page 7 of 12 

By: 

ATTEST: 

________________________________ 

STATE OF ______________________ 

COUNTY OF ____________________ 

On this _____ day of ____________________, 20___, before me personally appeared 

_____________________, who declared __________self to be the _______________ of Rural 

Development, U.S. Department of Agriculture, and acknowledged that _____ he executed the 

foregoing instrument in behalf of said United States of America agency. 

IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal 

at my office in ____________________, the day and year above written. 

Notary Public 

My Commission Expires: 

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Attachment 6-A 

Page 8 of 12 

SAMPLE #3 

SAMPLE SUBORDINATION AGREEMENT 

THIS SUBORDINATION AGREEMENT, by and between NEW BANK, having its 

principal office at _______________________________ (hereinafter referred to as the 

“BANK”), ABC LIMITED PARTNERSHIP, a Limited Partnership, having its principal office at 

_________________________ (hereinafter referred to as “BORROWER”), and the United 

States of America, acting through RURAL DEVELOPMENT, whose principal office is located 

in Washington, DC (hereinafter referred to as “RURAL DEVELOPMENT”), 

W I T N E S S E T H: 

WHEREAS, on ____________, BORROWER executed that certain Mortgage (or deed 

of trust) (hereinafter referred to as the “RURAL DEVELOPMENT Mortgage”) recorded in 

__________________________ in favor of RURAL DEVELOPMENT, encumbering that 

certain real property described in Exhibit “A” of the RURAL DEVELOPMENT Mortgage, 

attached hereto and by this reference made a part hereof (hereinafter referred to as the 

“Property”); and 

WHEREAS, RURAL DEVELOPMENT has offered to subordinate its lien in accordance 

with 7 CFR 3560.409, so that the BORROWER can obtain a loan from the BANK and so that 

the BORROWER will continue to subject the real property described in Exhibit “A” to 

restrictive use provisions more particularly set forth herein, RURAL DEVELOPMENT has 

agreed to execute and deliver this Subordination Agreement; and 

WHEREAS, the BANK has made a loan to BORROWER in the amount of $ _________ 

as evidenced by that certain Real Estate Note (the “Note”) dated _______________, which loan 

is secured by a lien of mortgage (or deed of trust) as evidenced by that certain Mortgage and 

Security Agreement (hereinafter referred to as the “BANK’S Mortgage”) in favor of BANK, its 

successors and assigns, duly executed and delivered by BORROWER and constituting a lien 

upon the Property; and 

WHEREAS, the BANK requires, the specific terms of Paragraph (12) of the RURAL 

DEVELOPMENT Mortgage permit, and RURAL DEVELOPMENT agrees to allow, the 

subordination of the lien of the RURAL DEVELOPMENT Mortgage to the loan from the BANK 

to the BORROWER in the principal amount of $______________, but in no greater principal 

amount, and the subordination of the lien of the RURAL DEVELOPMENT Mortgage to the lien 

of the BANK’S Mortgage; 

NOW, THEREFORE, in consideration of the above and for other good and valuable 

consideration, the receipt and sufficiency of which are hereby acknowledged, the BANK, 

RURAL DEVELOPMENT, and the BORROWER agree as follows: 

1. RURAL DEVELOPMENT hereby subordinates the lien of RURAL 

DEVELOPMENT on the Property to the loan from the BANK to BORROWER as evidenced by 

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Attachment 6-A 

Page 9 of 12 

the Note in the principal amount of $_______________, and subordinates the lien of the RURAL 

DEVELOPMENT Mortgage to the lien of the BANK’S Mortgage on the Property. RURAL 

DEVELOPMENT hereby expressly agrees that the lien of the BANK’S Mortgage is superior to 

and prior in dignity to the lien of the RURAL DEVELOPMENT Mortgage. 

2. The amount of this subordination will not exceed $_____________ unless agreed to 

by RURAL DEVELOPMENT in writing. Further, the Subordination Agreement shall not 

include future advances made to the BORROWER except those advances necessary for the 

preservation of the Property, such as payment of taxes and insurance. 

3. The BANK agrees that, in addition to the BANK, RURAL DEVELOPMENT shall be 

listed as loss payee as its interest appears on all insurance policies maintained on the Property. 

4. Neither the BANK nor RURAL DEVELOPMENT shall foreclose its respective 

mortgage, or accept a deed in lieu of foreclosure, without first providing no less than 45 days

written prior notice to the other lender. The proceeds from any foreclosure sale shall be applied 

as follows: (a) to pay the costs of foreclosure, including legal fees; (b) to reimburse the lender or 

lenders for any protective advance made to preserve the Property or the mortgage lien of the 

foreclosing lender; (c) to the BANK, until paid in full; and (d) to RURAL DEVELOPMENT, 

with the balance to be distributed in accordance with law.

5. All notices to be sent to RURAL DEVELOPMENT will be sent to the following 

address: 

State Director, Rural Development 

(Address) 

RURAL DEVELOPMENT may, by written notice to the BANK, change the above address. 

All notices to be sent to the BANK will be sent to the following address: 

Bank 

(Address) 

The BANK may, by written notice to RURAL DEVELOPMENT, change the above address. 

6. (a) BORROWER, its successors and assigns in interest, shall use the improvements 

located on the Property for the purpose of those people eligible for occupancy as provided in 

Section 515 of Title V of the Housing Act of 1949, as amended, and RURAL DEVELOPMENT 

regulations during the twenty (20) year term of the Mortgage beginning _______________, 

2000. Until ____________, 2020, no eligible person occupying the housing shall be required to 

vacate without cause and no eligible person wishing to occupy shall be denied occupancy 

without cause. BORROWER shall be released from the obligations of this paragraph before 

_____________, 2020, only when the United States of America determines that there is no 

longer a need for housing on the Property under Section 515 of Title V of the Housing Act of 

1949, as amended, or that financial assistance for such housing will no longer be provided due to 

no fault, action or lack of action on the part of BORROWER. A tenant of the Property, an 

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Attachment 6-A 

Page 10 of 12

individual wishing to become a tenant of the Property, or the United States of America may seek 

enforcement of this paragraph. 

(b) It is understood and agreed that, in the event of (1) a determination by RURAL 

DEVELOPMENT that housing under Section 515 of Title V of the Housing Act of 1949, as 

amended, is no longer needed, then neither the BANK nor any other title holders after judicial 

foreclosure, shall in any way be restricted in its use of the Property under this or any other 

agreement or document between RURAL DEVELOPMENT, the BANK, the partnership (the 

BORROWERS), and their successors. 

7. RURAL DEVELOPMENT will monitor the Property in accordance with RD 

Instruction 1930-C or successor regulations. RURAL DEVELOPMENT will furnish to the 

BANK copies of all reports received pursuant to RD Instruction 1930-C at the request of the 

BANK. RURAL DEVELOPMENT shall also notify the BANK of any matter or circumstance 

that may jeopardize the financial viability of the Property within 5 business days of RURAL 

DEVELOPMENT’S discovery of the matter or circumstance. The BANK reserves the right to 

monitor the Property at any time. RURAL DEVELOPMENT will manage the escrow accounts 

for the Property and approve disbursements from the escrow accounts. 

8. RURAL DEVELOPMENT will require the BORROWER to submit an annual audit 

report for the Property, the expense of which shall be deemed a project expense. If the 

BORROWER provides a written consent, RURAL DEVELOPMENT will furnish a copy of the 

audit to the BANK. The BANK shall have the right to request additional financial information 

from the BORROWER. 

9. RURAL DEVELOPMENT and the BANK shall each service and collect payments 

on their respective loans.

10. The BANK and RURAL DEVELOPMENT shall each provide written notice to the 

other lender of the occurrence of a default, which written notice shall be sent no later than 15 

days after the BANK or RURAL DEVELOPMENT has made a determination that a default has 

occurred and which written notice shall specify the nature of the default and what action, if any, 

the sending party intends to take. Each lender shall promptly send to the other a copy of any 

notice or demand that it sends to the BORROWER. 

11. In the event collections received from the operation of the Property, whether prior to 

or after the occurrence of a default or the institution of foreclosure proceedings, are insufficient 

to pay both the payments then due under the RURAL DEVELOPMENT loan and the payments 

then due under the BANK’S loan, the collections shall be applied first, to the amount then due on 

the BANK’S loan, with the balance, if any, to the amount then due on RURAL 

DEVELOPMENT’S loan. 

12. The BANK will take no action that would preclude BORROWER from being able to 

comply with applicable government statutes, regulations, instructions and terms of RURAL 

DEVELOPMENT’S loan instruments with the BORROWER. 

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Attachment 6-A 

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13. The BANK’S loan may be prepaid in part or in whole subject to prepayment 

premiums as defined in the note, respecting the provisions of paragraph 14 below. Prepayment 

in no event shall effect, modify or terminate the provisions of paragraph 6(a) herein prior to 

_____________, 2020.

14. The BANK’S Note and Mortgage will not be refinanced or assigned without the prior 

written approval of RURAL DEVELOPMENT. Also, prior written approval of RURAL 

DEVELOPMENT must be obtained before protective advances can be made on the BANK’S 

Note and Mortgage. 

15. Rental payments received from the Property may be assigned to the BANK by the 

BORROWER, but the assignment cannot exceed the amount due on the Note as it comes due. 

The BORROWER’S assignment of the rental payments to the BANK cannot be assigned to a 

subsequent assignee unless the Note and Mortgage are also assigned with RURAL 

DEVELOPMENT’S approval. 

16. This SUBORDINATION AGREEMENT and the rights and obligations of the parties 

hereunder shall be governed by, and construed and interpreted in accordance with, applicable 

federal law. 

17. This SUBORDINATION AGREEMENT shall be binding upon and inure to the heirs, 

executors, administrators, successors and assigns of the respective parties.

18. This SUBORDINATION AGREEMENT may only be waived, discharged, modified, 

amended or terminated by mutual consent of the parties in writing. 

19. This AGREEMENT may be executed in several counterparts, all or any of which 

shall be regarded for all purposes as duplicate originals and shall constitute and be but one and 

the same instrument. 

[Signatures on following page] 

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Attachment 6-A 

Page 12 of 12

IN WITNESS WHEREOF, the parties have caused these presents to executed this 

_______ day of _________, 20___. 

WITNESSES: BANK

_________________________ 

Print name: By: ___________________________ (Seal) 

 Title: _______________________________

 BORROWER 

ABC Limited Partnership 

By: ___________________________ (Seal) 

_________________________ Title: _______________________________ 

Print name: 

UNITED STATES OF AMERICA, 

RURAL DEVELOPMENT, U.S. 

DEPARTMENT OF AGRICULTURE.

_________________________ By: ___________________________ (Seal) 

Print name: Title: _______________________________ 

STATE OF _________________ 

COUNTY OF _______________ 

PERSONALLY appeared before me the undersigned witness, who, being duly sworn, 

says that (s)he saw ______________________, _____ President of an unnamed Bank, N.A., sign 

the foregoing instrument, and that (s)he with the other witness named above witnessed the 

execution and delivery thereof as the act and deed of the said unnamed Bank, N.A. 

___________________________

 (Signature of Witness)

SWORN to before me this ____ day of _______________, _____. 

 ___________________________________ 

[Notary Seal] Notary Public, 

State of ___________________ 

My Commission Expires: _____________ 

6-26
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Attachment 6-B

Page 1 of 4 

ATTACHMENT 6-B 

SAMPLE PROCESSING 

MEMORANDUM OF UNDERSTANDING 

Between the

Rural Housing Service (State) 

and 

[State Housing Credit Agency] 

INTRODUCTION

The Rural Housing Service of the Rural Development mission area in (name of applicable 

State), an Agency of the U.S. Department of Agriculture and hereinafter referred to as “RHS,” 

and (Name of applicable State Agency), hereinafter referred to as “State Agency,” wish to enter 

into the following Memorandum of Understanding (MOU) regarding the sources and uses of 

funds in projects receiving low-income housing tax credits. 

RHS administers a loan program authorized by Section 515 of the Housing Act of 1949, 

which provides financing for housing for very low- and low-income tenants in rural areas. The 

Section 515 program, and all programs administered by RHS, comply with all applicable civil 

rights laws. The Internal Revenue Service (IRS), through Section 42 of the Internal Revenue 

Code, provides tax credits to encourage the development of housing for very low- and lowincome tenants that are administered through State or local housing credit agencies. 

SCOPE OF THE AGREEMENT 

Under this agreement, RHS, through its State Director for Rural Development (herein 

referred to as “State Director”) and the State Agency agree to engage in cooperative efforts to 

enable RHS to assure that only the necessary assistance is provided through the Section 515 

program and to enable the State Agency to effectively evaluate tax credit requests of RHS 

applicants, as provided in Section 42 of the IRS Code. 

PURPOSE

The purpose of this document is to establish the general conditions under which the State 

Director and State Agency agree to cooperate. 

BOTH PARTIES AGREE:

(a) To share information on project costs. 

(b) To use the following fee norms: 

(1) Builder’s profit: Up to (10 percent) of the construction contract. 

(2) General overhead: Up to (4 percent) of the construction contract. 

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Page 2 of 4 

(3) General requirements: Up to (7 percent) of the construction contract. 

(4) Developer’s fee: Up to (15 percent) of the total development costs for tax 

credit purposes for new construction and rehabilitation 

costs; up to (8 percent) of the acquisition costs only for 

the acquisition rehabilitation costs. 

(c) As appropriate, both parties agree on the following process for deviation for a fee over 

the fee norm for an individual state. Alternative fee norms may be included in the 

MOU with approval of the National Office. 

(d) As appropriate, both parties agree to the definitions and formulas for the determination 

of costs and amounts of assistance. 

(e) The above fee norms will be used in the Agency’s analysis of the amount of assistance 

that is necessary for a proposal. RHS will prepare an analysis spreadsheet on all loan 

requests: 

(1) When accepted as a loan request; 

(2) Just prior to approval; and 

(3) When the cost certification is completed and prior to issuance of IRS Form 8609, 

indicating the amount of tax credits. 

(f) In all cases where the results of an analysis indicate that there will be excess assistance

(defined as more than the lesser of $25,000 or one percent of the total development cost 

as authorized by the State Agency), RHS will consult with the applicant as well as the

State Agency, to strive to reach an agreement for reducing the excess assistance. The 

following alternatives are examples of actions that can be taken: 

(1) Reducing the amount of tax credit units required; 

(2) Reducing the level of assistance provided by one or more of the sources of funds; 

or 

(3) Revising the uses to include eligible costs for any funding participants, provided 

the project enhancement is consistent with the intent of the RRH program and will 

assist the resident population being served by the housing. 

(g) Parties to this agreement understand that, in the event that excess assistance is not 

reduced through other means, RHS will adjust the amount of equity contribution 

(through the reduction of the loan) to ensure that RHS assistance provided is not more 

than is necessary to provide affordable housing after taking account of assistance from

all Federal, State, and local sources. Approval of any reduction will require formal 

notification to the applicant and the State Agency and the RHS National Office. 

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(h) Parties to this agreement understand that RHS does not certify accuracy of the tax 

credit applicant’s eligibility, nor does it certify the applicant’s compliance with 

requirements of Section 42 of the Internal Revenue Code. The State Agency 

understands that the owner certifies the information to RHS as being true and correct 

representations and that RHS carries out periodic reviews and analysis of the data to 

verify compliance with its requirements. 

(i) It is further understood that the general information shared under this MOU is for 

internal analysis and will not be disclosed to other than the appropriate RHS and State 

Agency employees and that specific information on a proposal may be shared with the 

applicant and other providers of funds on the respective proposals as appropriate. 

(j) The State Director and the State Agency will review, at least annually, the fee norms on 

builder or general contractor charges (builder’s profit, builder’s overhead, and general 

requirements) established by this MOU relative to the State Agency’s allocation plan or 

other regulations. The developer’s fee or any other fees allowed will also be reviewed. 

Any revised fee norms will be added as an amendment to this agreement and be used in 

subsequent analyses of loan requests. 

(k) The State Director and the State Agency will prepare joint environmental assessments 

whenever possible on jointly funded projects. The State Environmental Coordinator 

will work with the State Agency’s environmental coordinator to facilitate the 

development of an orderly process for accomplishing this objective. 

RHS IN (STATE) AGREES:

(a) To provide to the State Agency information on Section 515 projects being considered 

and receiving Section 515 funding decisions as follows: 

(1) A list of Section 515 loan applications and their status; 

(2) For each loan request on the list, the most recent Form RD 1924-13 or other cost 

estimation documents; 

(3) A copy of Form RD 1944-37 and any identity-of-interest (IOI) disclosure 

information that has been provided to RHS; 

(4) A copy of any notification of selection for further processing issued to applicants; 

(5) When the construction is completed, the final Form RD 1924-13 including any 

cost analysis prepared by RHS; 

(6) On an annual basis, a copy of the AMAS generated report on the Rural Rental 

Housing Section 515 program called “Construction Cost Analysis” for the prior 

year; and 

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(7) RHS will provide the results of any analysis on necessary assistance to the 

applicant and the State Agency. 

THE STATE AGENCY AGREES:

(a) The State Agency agrees to inform any applicants seeking both tax credit and RHS loan 

assistance that the MOU will be applied to the processing of their request for tax 

credits. A copy of the MOU will be provided to applicants for their guidance when 

combining the assistance provided by both agencies. 

(b) To provide to RHS in (State) the following data: 

(1) The list of tax credit loan requests received from applicants that indicate they are 

seeking financing from RHS; 

(2) For each loan request, a copy of the Tax Credit Application with the detailed cost 

breakdown used to estimate the amount of tax credits for which the developer 

would be eligible; 

(3) IRS Form 8609 and a copy of the cost data used to determine the development 

cost of the project after the development is complete and the final sources and 

uses of funds for projects receiving both RHS funds and tax credits is made; 

(4) A list of all allocation requests to RHS for comment in an effort to coordinate the 

use of limited resources and to ensure that no existing projects are adversely 

affected. 

(c) Information (quarterly), (at the end of its funding cycle on (date)) or (by (date)). 

PERIOD OF AGREEMENT

This agreement will remain in effect until terminated by written notification of either party. 

MODIFICATION OF AMENDMENT PROVISION

This agreement will be modified or amended by written agreement of RHS and the State 

Agency. Requests for amendments to the agreement will be initiated by either of the two parties 

through written notification. 

ACCEPTANCE AND SIGNATURE OF EACH PROVIDING PARTY 

_____________________________ ____________________________________ 

[State Director] (State) [State Agency Head]

Rural Development [State Housing Credit Agency]

_____________________________ ____________________________________ 

Date Date 

6-30