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CHAPTER 11: LOAN RESTRUCTURING 

11.1 INTRODUCTION 

During the term of an Agency loan, borrowers may request Agency consent to restructure 

the loan for their project that will simplify the operation of the project or help address financial 

distress due to factors beyond the borrower’s control. One example is when a borrower requests 

that loans be restructured to reduce administrative burden, improve cost-effectiveness and 

efficiency, or more effectively use the physical facilities common to projects. Another example 

is a project experiencing negative cash flow due to increases in local taxes and utilities that are 

rising faster than area rents. The methods used by the Agency to help accomplish the objectives 

stated above include loan agreement or loan resolution consolidation, loan consolidation, 

reamortization, and loan adjustments (writedowns). In addition to 7 CFR 3560 and the 

instructions provided below, the requirements of Attachment A to Chapter 7, "Transfer of Project 

Ownership" should also be used. 

This chapter describes the requirements for loan restructuring techniques and Agency 

procedures for reviewing, approving and implementing such requests. 

This chapter describes the requirements for each of these loan restructuring techniques, 

and Agency procedures for reviewing, approving, and implementing such requests. 

SECTION 1: ALLOWABLE TYPES OF RESTRUCTURING 

11.2 OVERVIEW 

As mentioned above, the loan restructuring activities that the Agency may approve 

include the following: 

• Loan agreement or loan resolution consolidation, which is an administrative action 

whereby the loan agreements, or loan resolutions, for multiple projects held by the 

same borrower are consolidated and assigned a single new project number. The 

borrower still has separate loan notes and the Agency still tracks each loan

individually, but all projects are administered by the Agency as if they were a single 

project; 

• Loan consolidation, which is the consolidation of multiple loans for a single 

property into a single loan, with one note and one payment; 

• Reamortization, which is a rescheduling of a borrower’s debt; and 

• Loan adjustments (writedowns), which are reductions of the amount of the 

borrower’s debt, allowing an otherwise sound project experiencing financial 

difficulties beyond its control to continue operating as a program property. 

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11.3 LOAN AGREEMENT OR LOAN RESOLUTION CONSOLIDATION 

REQUIREMENTS [7 CFR 3560.410]

The Agency may approve the consolidation of loan agreements or resolutions regardless 

of the total amount of debt being consolidated as long as the loan agreements being consolidated 

represent loans made for the same purpose, to the same borrower, with the same plan of 

operation (e.g., nonprofit, limited profit, full profit). The terms and the due date of the loans 

involved must not be altered, and other security instruments must remain unchanged and must 

not be released. 

Under no circumstances will loan agreements or loan resolutions be consolidated if the 

Agency’s security position will be adversely affected. Any applicable restrictive-use provisions 

of the existing notes will continue to apply following consolidation. 

11.4 LOAN CONSOLIDATION REQUIREMENTS [7 CFR 3560.410]

The Agency may approve loan consolidations under two circumstances: 

• The loans are being transferred on new terms; or 

• An initial and subsequent loan under one project number were closed on the same

date at the same rates and terms. 

The Agency may approve loan consolidations if, in addition to the above requirements, 

the following conditions are met: 

• Form RD 3560-52, Promissory Note and the loan agreements or resolutions will be 

consolidated; 

• Consolidation occurs on the Amortization Effective Date (AED) or as soon as 

possible after the AED is established;

• All project accounts being consolidated will be current after the consolidation 

process, unless otherwise authorized by the Administrator; and 

• The Agency’s security position will not be adversely affected. 

11.5 REAMORTIZATION REQUIREMENTS [7 CFR 3560.455 (b)]

The Agency may approve the reamortization of any Agency multi-family housing loan 

account, although it will not reamortize accounts solely to remove a delinquency. 

The Agency may reamortize accounts when doing so is in the best interest of the 

Government and when needed to improve the financial viability of the property and project 

operations. The Agency will not approve a loan reamortization if the reamortization will 

adversely affect the Government lien priority. 

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11.6 LOAN ADJUSTMENT (WRITEDOWN) REQUIREMENTS [7 CFR 3560.455(c)]

Borrower requests for loan writedowns must be part of an approved workout agreement 

with the Agency and be in the best interest of the Government. Writedowns are permitted with 

existing borrowers or transferees where: 

• The causes are beyond the borrower’s control—such as market weaknesses, 

unforeseen site problems, or natural disasters; and 

• Sound management is evident or unsound management practices can be resolved by 

the removal of the responsible individuals in accordance with an approved work-out 

agreement with the Agency. 

SECTION 2: LOAN AGREEMENT OR 

LOAN RESOLUTION/LOAN CONSOLIDATION 

11.7 OVERVIEW 

Loan agreement or loan resolution consolidation offers several advantages. For instance, 

following loan agreement or loan resolution consolidation, all reporting, accounting, and project 

management requirements for the various projects being consolidated are fulfilled as a single 

project. In other words, borrowers need to maintain only one set of books and one operating 

budget, and can track all rents as a single project. In addition, because rental assistance 

agreements are not consolidated, borrowers can apply rental assistance across projects following 

consolidation. That is, waiting lists for the projects being consolidated will be combined and 

rental assistance can be assigned to eligible tenants in the newly formed “project” per assignment 

priorities. 

Loan consolidation also offers several advantages. For instance, when consolidating a 

loan under new rates and terms in conjunction with a transfer, borrowers can combine notes and 

cost items. In addition, different portions of the property that may have been financed with 

separate loans can still be set up as distinct projects, but the borrower need track only one loan 

and one note. 

State Directors or their designees may approve project or loan consolidations with the 

advice of the Office of General Counsel (OGC) and when all required conditions outlined in this 

chapter are met. 

11.8 BORROWER SUBMISSIONS 

A. Loan Agreement or Loan Resolution Consolidation 

A borrower requests a loan agreement or loan resolution consolidation by submitting 

the following forms to the appropriate Field Office: 

• Form RD 3560-33A, Consolidated Loan Agreement;

• Form RD 3560-34A, Consolidated RRH Loan Agreement;

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• Form RD 3560-35A, Consolidated Loan Resolution; 

• Form RD 3560-7 as well as a project budget; 

• Updated loan agreements/resolutions; and 

• Management plans. 

B. Loan Consolidation

For loan consolidations, borrowers must execute a new Form RD 3560-9 for the new 

consolidated Form RD 3560-52, and submit it to the Field Office. The interest credit plan 

originally established for the project applies to the consolidated note. If the interest credit 

plan is changed by submitting a new Form RD 3560-9, Loan Servicers will enter the new 

plan for the project through the field office terminal. 

11.9 AGENCY PROCESSING OF BORROWER SUBMISSIONS 

A. Loan Agreement or Loan Resolution Consolidation 

1. Complete Form RD 3560-17A, Multi-Family Housing Consolidation of 

Projects/Loan Agreements/Resolutions 

The Servicing Office completes Form RD 3560-17A to show all notes for the projects 

being consolidated. 

2. Send Form to the State Office and St. Louis Office 

The Field Office sends Form RD 3560-17A and a letter recommending the 

consolidation to the State Office for approval. The State Office then forwards the 

materials to the St. Louis Office for processing. 

3. Obtain OGC Guidance 

OGC guidance is required to accomplish loan agreement or loan resolution 

consolidations. Under no circumstances will the Agency consolidate projects if the 

security position of the Agency will be adversely affected. If required by OGC, all of the 

loan agreements or loan resolutions being consolidated may be secured by one deed of 

trust or mortgage describing all of the loans for the projects. 

4. Maintain Loan Terms and Due Date 

The Agency alters neither the terms nor the due date of the loan(s) involved. Other 

security instruments also remain unchanged, and are not released following the 

consolidation. 

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B. Loan Consolidation

Loan Servicers should note that there are some potential obstacles to consolidating 

certain loans. For instance, the St. Louis Office is unable to consolidate loans unless the 

loans are on the same plan of operation. In addition, direct loans cannot be consolidated 

with interest credit loans, and loans with HUD Section 8 subsidy cannot be consolidated 

with insured loans. In all other cases, however, the procedures outlined in this chapter 

will apply to loan consolidations. 

1. Prepare Form RD 3560-52 

Loan Servicers prepare Form RD 3560-52 for the notes or assumption agreements 

being consolidated. If the Field Office does not have possession of the original note or 

assumption agreement, the Loan Servicer calls the St. Louis Office to request the return 

of the original form so it is in the Field Office before the Form RD 3560-52 is processed, 

or as soon as possible thereafter. Form RD 3560-52 should be prepared on a monthly 

payment basis, as appropriate. 

2. Prepare a Consolidated Loan Agreement or Resolution 

Loan Servicers prepare a consolidated loan agreement or resolution using Forms 

RD 3560-33A, 3560-34A, or 3560-35A, as appropriate, to reflect current reporting 

requirements and the authorized initial investment attributable to the owner after the 

consolidation has occurred. 

3. Obtain OGC Guidance 

Consolidation of notes may only occur with OGC guidance. Under no circumstances 

will the Agency approve consolidation of Form RD 3560-52 if the security position of the 

Agency will be adversely affected. 

4. Complete Form RD 3560-17, Multi-Family Housing Note Consolidation, and Send 

a Copy to the Finance Office 

Loan Servicers complete Form RD 3560-17 to show all of the notes that are 

consolidated on Form RD 3560-52. Loan Servicers send a copy of Form RD 3560-17 to 

the State Office for approval. The State Office forwards Form RD 3560-17 to the St. 

Louis Office for processing. 

5. Stamp Notes or Assumption Agreements “Consolidated” 

The original and Field Office copies of all notes or assumption agreements that are 

consolidated will be stamped “consolidated” by Loan Servicers. The original instruments 

being consolidated will be stapled to the “consolidated” note and filed in the safe in the 

Field Office. When the consolidated note has been paid in full or otherwise satisfied, 

Loan Servicers will handle it and all other instruments according to RD Instruction 

1951-A. 

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6. File New Security Instruments 

Loan Servicers file new security instruments that describe the consolidated note to 

perfect the Agency lien position. If the new lien position taken is junior only to the 

previous lien position, the previous security instruments may be released with the 

guidance and assistance of OGC. 

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SECTION 3: LOAN REAMORTIZATION 

11.10 OVERVIEW 

Reamortization is the process of revising an existing loan payment plan or schedule 

established for repayment of a loan. The new schedule is usually developed to enable the 

borrower to continue the objectives of the loan. 

State Directors or their designees may approve the reamortization of Agency loans within 

their approval authority for the type of loan involved. Reamortization will not subject the 

borrower to any additional restrictive-use provisions beyond those associated with the original 

loan. For example, if there were 10 years of restrictive use remaining on a loan prior to a 

reamortization, there would still be 10 years remaining following the action. If the original loan 

contained no restrictive-use provisions, the reamortization would not add new use restrictions. 

11.11 ACCEPTABLE USES OF REAMORTIZATIONS 

A. Allowable Conditions for Reamortizations 

The Agency may consider approving a reamortization if any of the following four 

conditions are met: 

1. Preventive Measure for a Borrower Likely to Experience Delinquency 

The State Director determines that the borrower and tenants cannot reasonably be 

expected to continue to meet their obligations unless the account is reamortized to reduce 

substantially the installments and rental rates. 

2. Corrective Measure to Help Delinquent Borrower Attain Successful Operation 

The borrower has a substantial delinquency that cannot be cured within one year. In 

addition, the borrower must have acted in good faith and maintained compliance with all 

applicable Agency policies and procedures. 

3. Incentive to a Borrower Requesting Prepayment 

The borrower has received an equity loan as an incentive to avert prepayment, or a 

subsequent loan has been made to a nonprofit corporation or public agency to purchase a 

project to avert prepayment. 

4. Measure to Improve Project Operations 

The borrower is not delinquent or likely to become delinquent, but proposes the 

reamortization to improve project operations. The State Director’s approval is required 

for such reamortization requests. 

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B. Requirements for Obtaining a Reamortization 

In addition, borrowers must demonstrate that the following criteria are satisfied 

before the Agency will approve a reamortization: 

• The reamortization must be in the best interest of the Government; 

• The reamortization will enable the borrower to operate successfully and carry out the 

purpose of the loan; 

• The Agency’s lien position remains unchanged; and 

• The action is not proposed solely to remove a delinquency. 

11.12 BORROWER SUBMISSIONS 

To request a reamortization, the borrower must complete and submit Form RD 3560-15, 

Reamortization Request to the Field Office. Loan Servicers review the form and determine 

whether the required conditions for a reamortization exist. 

11.13 AGENCY REVIEW AND APPROVAL 

A. Field Office Actions

When the Field Office receives a request to reamortize, Loan Servicers will take 

several actions, as follows: 

• Determine whether the conditions for a reamortization exist; 

• Document the request in the official case file and on Form RD 3560-15; and 

• Submit the request, the case file, and other pertinent information to the State Office 

for review. 

B. Evaluating Borrower Requests 

To receive Agency approval, Loan Servicers must review the borrower’s submission 

and Agency records to ensure that the reamortization meets all of the following 

requirements, and adequately document in the case file and on Form RD 3560-15 that the 

requirements are met. The analyses described below are used to evaluate all 

reamortization requests. Additional evaluation is required for requests involving projects 

with delinquencies or compliance violations (see Paragraph 11.14). 

1. Budget is Adequate 

The borrower’s budget or plan of operations must provide reasonable assurance of the 

following: 

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• The newly scheduled payments will be made according to the terms of the proposed 

reamortization; 

• The charges for the use of the facility or service are within the payment ability of

those it is intended to serve and are comparable to similar units in the area; and 

• Applicable rent increase procedures will be followed if any rent increase is required. 

2. Management is Adequate 

The borrower must demonstrate the following: 

• The Board of Directors and memberships will obtain membership and community 

support, and will provide competent management for the continued operation of the 

borrower entity and the facility financed with the loan; and 

• The borrower can provide acceptable management for the project and has corrected 

any management deficiencies identified by the Agency. Acceptable corrective 

actions may include revision of the management plan or employment of professional 

management services. 

3. Security is Adequate

The borrower must demonstrate that the security will be adequate to protect the 

Agency’s interests over the term of the reamortization. 

C. Approval Recommendation and State Office Review

If the Loan Servicer determines that a borrower’s request meets the requirements 

described in subparagraph B of this section, they must forward the case file with a 

recommendation for approval to the State Office for review. If the State Office concurs 

with the recommendation to reamortize, it will submit the request and any other pertinent 

information to OGC for legal advice and closing instructions, as needed. 

When the indebtedness to be reamortized exceeds the State Director’s approval 

authority but the State Director determines that the required conditions for approval can 

be met, the request for reamortization, the official case file, and all other pertinent 

information, along with complete comments and recommendations by both the State 

Office and Loan Servicers, is sent to the National Office. 

D. National Office Exception 

If the State Director concludes that the conditions for a reamortization cannot be met 

but a reamortization would be in the best interest of the Government, the file, along with 

recommendations from the Field Office, will be sent to the National Office for an 

exception. The State Director will submit all subsequent reamortization requests for the 

same project to the National Office for prior authorization. 

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E. OGC Guidance 

When OGC determines that the reamortization request is legally sufficient, the 

servicing official will execute the reamortization request. 

F. Agency Denial of Request 

If the Agency denies a request for a reamortization, it must send a formal letter to the 

applicant indicating the reasons for the Agency’s decision and informing the applicant of 

appeal rights. A copy of this letter should be placed in the case file. 

11.14 ADDITIONAL EVALUATION FOR REQUESTS INVOLVING 

DELINQUENCIES OR COMPLIANCE VIOLATIONS 

Reamortization requests to address a delinquency or compliance violations will be 

approved only as part of a work-out agreement acceptable to the Agency. Reamortization may 

be used to address reserve accounts that are not at the authorized levels, as long as the deficiency 

is not due to improper or unauthorized use of reserve funds. 

To obtain a reamortization to address a delinquency or compliance violations, the 

borrower must correct or be able to effectively address the cause of the deficiency, demonstrate 

that the objectives of the loan can be met following the reamortization, and meet the 

requirements described below. To show that the objectives of the loan can be met, borrowers 

must demonstrate the following: 

A. Project Feasibility 

Borrowers must demonstrate that they are operating on a financially sound basis and 

have adequate operating income to: 

• Repay the loan at the reamortized rate; 

• Fund reserve accounts adequately; 

• Fund tax and insurance accounts adequately; 

• Pay operation and maintenance expenses as they become due; and 

• Maintain an acceptable level of occupancy. 

B. Property is Adequately Maintained 

Borrowers must ensure that they provide modest, decent, safe, and sanitary housing 

by properly maintaining the property. 

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C. Housing Remains Affordable 

Borrowers must provide affordable housing opportunities/services to eligible 

residents. 

D. Compliance with Agency Regulations is Maintained 

Borrowers must be in compliance with all applicable Agency regulations, including: 

• Providing financial information to the Agency in a timely manner; and 

• Maintaining required records needed to ensure the eligibility of residents (e.g., tenant 

certifications). 

If the borrower cannot demonstrate the ability to meet the above-listed objectives, the 

Loan Servicer must reject the borrower’s request for reamortization of the Agency loan 

and provide the borrower all applicable appeal rights. 

11.15 PROCESSING REAMORTIZATIONS 

In general, to reamortize an account, Loan Servicers must ensure that they obtain, 

complete, and sign all relevant forms, and obtain OGC review of documents for legal 

sufficiency, if needed. To actually process a reamortization, Loan Servicers must take the 

following steps, as applicable. 

A. Complete Reamortization Agreement 

Loan Servicers will complete Form RD 3560-16 according to the FMI. The effective 

date and the due date for all payments will be the first of the month, except for labor 

housing loans, whose due date will be established in accordance with the FMI. Note: 

Appraisals will not be required in the case of reamortizations as long as there is adequate 

documentation that the Agency’s security interest is protected. 

B. Obtain Form RD 3560-52 and Assumption Agreement 

If the note or assumption agreement being reamortized is not held in the Field Office, 

the Loan Servicer will obtain the Form RD 3560-52 and any assumption agreement from

the St. Louis Office before processing the reamortization. 

On the back of the original note or assumption agreement, below all signatures and 

endorsements, the Loan Servicer will insert the following: “A reamortization agreement 

dated _____________, 20__, in the principal sum of $__________, has been given to 

modify the payment schedule of the note.” 

C. Establish End of the Reamortization Period 

The reamortization period will end on the final due date of the note being

reamortized, unless the term is extended with the advice and guidance of OGC and the 

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Agency’s lien position is not altered. Any extension of the final due date should not 

exceed the lesser of the remaining useful life of the security property or the maximum 

term granted by the respective loan program authorizations. 

The Agency may amortize the loan over a period not to exceed the remaining 

economic life of the project or 50 years, whichever is less. The Agency may extend the 

term of the loan to a period not to exceed 30 years or the remaining economic life of the 

project, whichever is less. 

D. Establish Interest Rate 

The interest rate for the account will remain unchanged except when the final due 

date has been extended. The interest rate charged by the Agency will be either the 

existing note rate, or the current rate at the time the reamortization request Form RD 

3560-15 is approved or closed, whichever is less. 

E. Address Delinquent Reserve Accounts 

The Agency may use reamortizations to address reserve accounts that are not at 

authorized levels, as long as the shortfall is not due to the borrower’s improper or 

unauthorized use of reserve funds. Loan Servicers should take the following steps to 

address delinquent reserve accounts: 

1. Modify the Loan Agreement or Resolution 

The Loan Servicer should modify the loan agreement or resolution, or execute a new 

agreement or resolution, that bases the new fully funded amount (i.e., 10 percent of the 

indebtedness) and annual reserve requirement (i.e., one-tenth of the fully funded amount) 

on the amount of the reamortization, rather than on the original amount of indebtedness. 

2. Establish Reserve Requirements 

The Loan Servicer may establish reserve requirements at a higher level than the 

amount required for the reamortization to allow for capital expenditures that have been 

identified and quantified, as long as the budget will support a higher level.

3. Begin the Reserve Account with a New Base

Since the fully funded amount and annual requirement are reestablished based on the 

amount of the reamortization, the reserve account will begin with a new base. That is, 

any underfunded reserves existing prior to the reamortization will no longer be 

considered underfunded. In essence, the reamortization allows the borrower to begin 

with a “clean slate.” 

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4. Allow the Borrower to Receive a Return on Investment 

When a newly established fully funded amount and annual requirement are based on 

the reamortization amount, the Loan Servicer may allow the borrower to receive a return 

on investment if all other applicable conditions for receiving a return have been met. 

F. Obtain OGC Guidance As Needed 

Loan Servicers may obtain OGC guidance in the review of documents for legal 

sufficiency. OGC also may offer further guidance to properly perfect the reamortization. 

G. Execute New Interest Credit Agreement 

If the borrower is to receive interest credit benefits following the reamortization of

the account, Loan Servicers will cancel the current interest credit agreement and prepare 

a new Form RD 3560-9. 

H. Close the Reamortization 

The Agency always closes reamortizations on the first day of the month. Unpaid 

interest to the date of closing may be capitalized. 

I. Meet Other Procedural Requirements 

In addition, Loan Servicers need to ensure that the following procedural requirements 

are met: 

• All reamortized loans must be closed on Predetermined Amortization Schedule 

System (PASS). All initial and subsequent loans must convert to PASS in connection 

with the reamortization; 

• When recoverable cost items are involved, they are first capitalized by adding them to 

the principal loan balance outstanding on the oldest loan and then the entire 

indebtedness (principal plus outstanding interest, overage, and late fees) is 

reamortized; and 

• Audit receivables and late fees may be reamortized. 

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SECTION 4: LOAN WRITEDOWNS 

11.16 OVERVIEW 

In cases of severe financial distress, the Agency may agree to a writedown of the debt, 

whereby the Agency agrees to reduce the outstanding loan amount. Writedowns should occur 

only when the value of the property is less than the outstanding Agency debt. 

Generally, writedowns will occur simultaneously with a transfer and assumption for less 

than the total amount of outstanding debt. However, the Agency may write down debts and 

continue the account with the same borrower if doing so is in the best interest of the Agency, the 

property, and tenants. 

In all cases, writedowns must be part of an approved work-out plan with the Agency, in 

the Government’s best interest, and designed to correct circumstances beyond the borrower’s 

control. Writedowns require approval by the State Director. The Agency should consider the 

project’s suitability in accordance with Chapter 6 before approving a writedown. 

Borrower equity in the project following the writedown will be no less than five percent 

of the amended loan balance for limited for-profit owners. The borrower may realize the eight 

percent return on investment on a maximum of five percent equity, if applicable. A reduced 

return may be authorized on amounts of equity contributed greater than five percent. Nonprofit 

and public agency borrowers may enter into workouts that propose loan-to-value ratios of 100 

percent. 

11.17 ALLOWABLE USES 

Writedowns may only be approved when the conditions leading to a default were beyond 

the borrower’s control and management is generally sound. Writedowns are used to address 

severe financial difficulties with a project and the Agency will consider all available servicing 

options before approving a writedown. Some examples of circumstances where a writedown 

might be an acceptable servicing solution include: 

• Sustained market weaknesses in the property’s community or region; 

• Unforeseen site problems; or 

• A natural disaster results in significant damage to the property. 

11.18 BORROWER SUBMISSIONS 

Borrowers requesting writedowns must submit the following documents to the Field 

Office: 

• Form RD 3560-15; and

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• A work-out plan, which includes:

◊ A revised budget; and

◊ A narrative description of project difficulties and proposed corrective actions.

11.19 AGENCY REVIEW AND APPROVAL 

A. Appraisal 

For a borrower to receive Agency approval for a writedown, the borrower is 

responsible for obtaining an “as-is” market value, subject to restricted rents. The Agency 

generally will not approve a writedown to an amount that is lower than the “as-is” 

unsubsidized value of the property. The Agency may require the general partner or 

primary person controlling the borrower to exit or waive equity, or both, to qualify for the 

writedown. 

B. OGC Advice 

OGC advice is required for all writedowns. The OGC review will primarily focus on 

the legal sufficiency of the transferee’s organizational documents in cases where the

writedown is occurring concurrently with a transfer. 

C. Approval 

As part of the writedown approval process, the State Office will review the following 

items: 

• Field Office recommendation;

• Eligibility review; and 

• An appraisal of the property. 

The State Director is the approval official. The State Director may determine whether 

a writedown that does not include a change in the management structure of the project is 

acceptable. 

11.20 PROCESSING WRITEDOWNS 

To process a writedown, borrowers must execute documents per guidance from OGC.

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