HB-2-3560 

CHAPTER 8: RENTAL SUBSIDIES 

8.1 INTRODUCTION 

Rental subsidies are deep subsidies that enhance the affordability of rents in a project. 

Each year, the Agency has available a limited number of Agency-funded rental assistance units 

that can be allocated to new or existing Agency-financed multi-family housing projects. The 

Agency also encourages the use of non–Agency rental subsidies in multi-family housing projects 

as a way to reduce tenants’ rents. 

Because rental subsidies are limited, it is important that they be allocated to borrowers 

and distributed to tenants in a fair and equitable manner. Consequently, the Agency has 

developed rules that must be followed in the distribution and administration of rental subsidies. 

This chapter presents the program rules and procedures for allocating and administering rental 

subsidies in multi-family housing projects, including Farm Labor Housing projects. It covers not 

only Agency-funded rental assistance, but U.S. Department of Housing and Urban Development 

(HUD) and other types of subsidies as well. 

For purposes of this chapter, the term “tenant” also means “member,” and “rental 

assistance” is reserved for use in describing Agency-financed rental subsidy. 

8.2 AUTHORIZED RENTAL SUBSIDIES [7 CFR 3560.252]

A. Project-Based Rental Subsidy 

The Agency may authorize the use of project-based rental subsidies in addition to 

interest credit for multi-family housing projects. These rental subsidies may take the 

form of: 

• Agency-funded rental assistance. This is a project-based subsidy program available 

to very low- and low-income tenants in Agency-financed multi-family housing. 

• HUD Section 8 assistance. This project-based subsidy is administered by HUD and 

was used extensively with Agency-financed housing from the mid-1970s to the early 

1980s. 

• Private rental subsidy. This is a subsidy program whereby the project owner(s) or 

others enter into an agreement with the Agency to provide and fund subsidy to tenants 

of the project on approximately the same basis as the Agency-funded rental assistance 

program. In some instances, the agreement may include a limit on the number of 

units and a per-unit ceiling on the amount of assistance. 

• State or local rental subsidy. Such subsidy is provided and funded by some states 

and available to borrowers to assist tenants on approximately the same basis as the 

Agency rental assistance program. The assistance is in the form of a contract 

between the borrower and the state and has the Agency’s concurrence. 

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• Operating subsidy for off-farm migrant farmworker projects. Section 521 

Agency rental assistance funds may be used as operating assistance in migrant 

farmworker projects financed under 514 or 516 to reduce operating costs so that rents 

may be set at rates affordable to low-income migrant farmworkers.

B. Tenant-Based Rental Subsidies 

HUD Section 8 Vouchers may be accepted by borrowers in Agency-funded multifamily housing. These subsidies are administered by HUD or others authorized to 

administer the program such as a State Housing Finance Agency or the local public 

housing agency. Projects accepting tenants who use such vouchers assigned by a local 

public housing agency will also comply with any requirements imposed by that agency. 

C. Multiple Subsidies 

More than one type of subsidy may be used in a project. The rental subsidy that the 

tenant is receiving must be less than the full amount of Agency rental assistance for 

which the tenant would qualify. In such cases, the Agency may provide the difference 

between the subsidy received by the tenant and the amount of Agency rental assistance 

for which the tenant qualifies. 

There are special tenant codes under Part II, item 6 of the electronic MFIS Tenant 

Certification to denote what types of subsidy, if any, a tenant is receiving, and whether 

the tenant is receiving full or partial subsidy from a source other than the Agency. 

_________________________________________________________________________________________ 

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SECTION 1: ALLOCATION OF AGENCY RENTAL ASSISTANCE 

8.3 AGENCY-FUNDED RENTAL ASSISTANCE 

The objective of the Agency rental assistance (RA) program is to reduce rents paid by 

low-income households. RA is the portion of approved shelter cost (rent and utilities) paid by 

the Agency to the borrower on behalf of a tenant to compensate for the difference between the 

approved shelter cost and the monthly tenant contribution as calculated on Form RD 3560-8, 

Tenant Certification. When the household’s monthly gross tenant contribution is less than the 

approved utility allowance that is billed directly to and paid by the tenant, the owner will pay the 

household that difference. 

If a prospective tenant with a HUD voucher or other subsidy applies for occupancy and 

the project has RA or project-based subsidy, the RA or project-based subsidy takes precedence. 

RA may only be provided to tenants who are income eligible and residing in eligible units. There 

are four types of RA: 

• Renewal RA is RA that replaces RA agreements contracts expiring because the 

obligated funds under the agreement have been fully disbursed. Because the Agency 

wishes to protect tenants currently benefiting from RA, replacement of RA contracts 

receive first priority for funding from the Agency. 

• Servicing RA is RA that increases the number of RA units in a project resulting in an 

initial RA agreement or an amendment to an existing agreement with a borrower. 

• New construction RA is RA to accompany new units of multi-family housing. 

• Incentive RA is RA that is used to help preserve multi-family housing projects as 

part of the prepayment process. For information about the prepayment process, see 

HB-3-3560, Chapter 15. 

8.4 ALLOCATION AND DISTRIBUTION OF AGENCY RA [7 CFR 3560.257]

A. Allocation of RA to the States by the National Office 

RA is allocated to the states on an annual basis by the National Office and in an 

amount based on Congressional appropriations. The National Office uses RD 

Instruction 1940-L to allocate the RA and to provide guidance to the states on how to 

distribute the RA among projects. 

Before the beginning of the fiscal year, the National Office sends out a survey to each 

state requesting summary data on the need for RA in each state. These data are used to 

allocate replacement and servicing RA. New construction RA is allocated to each state 

based on a formula. 

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B. Prioritization of RA 

In the absence of other guidance from the National Office, states will use the 

following priorities to allocate RA within the state: 

• Replacements units. First priority will be for replacing RA units that are expiring. 

• New construction. Second priority will be for RA to accompany new construction. 

◊ RA units will be allocated to those projects that are selected for funding under the 

Notice of Funding Availability (NOFA) system and in accordance with the 

scoring and ranking system described in Chapter 4 of HB-1-3560. 

◊ For farm labor housing projects, RA units will be allocated by the National Office 

from the National Office reserve on a case-by-case basis at the time the projects 

are considered for funding at the National Office level. 

• Servicing assistance. Third priority is for RA for existing multi-family housing 

projects that have requested servicing RA by checking the appropriate box on the 

budget Form RD 3560-7, Multiple Family Housing Project Budget/Utility Allowance. 

Incentive RA is not allocated by priority. The National Office allocates incentive RA 

from a special set-aside of funds. 

8.5 PROJECT ELIGIBILITY FOR AGENCY RA [7 CFR 3560.254]

To be eligible for RA, a project must be designated as one of the following types 

according to the loan agreement: 

• A Plan II interest credit project. If a project is not currently a Plan II project, it may 

be possible to change to Plan II and thereby become eligible. Exhibit 8-1 lists which 

types of projects may switch to Plan II and which may not. 

• An off-farm labor housing project. Off-farm labor housing projects that are financed 

with grants only are not eligible. 

• A project financed with a direct or insured Rural Rental Housing Loan approved prior 

to August 1, 1968. To be eligible, the project must be operated under an interest 

credit agreement that identifies the housing project as a Plan RA project. 

• A project funded by multiple sources, including Agency financing, for which the loan 

must be a Plan II interest credit loan. 

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Exhibit 8-1 

Project Eligibility for Rental Assistance

Project Type Eligible Not Eligible 

Can Convert 

to Plan II 

On-Farm Labor Housing X NO 

Off-Farm Labor Housing X 

For Profit X YES 

Plan I X YES 

Plan II X 

Section 8/515 with no interest credit X YES 

Section 8/515 with interest credit reduced by 1% X YES 

Section 8/515 with interest credit reduced by 2% X YES 

Section 8/515 with full interest credit X 

8.6 PROCESSING RA OBLIGATIONS [7 CFR 3560.255]

The State Director or a delegated member of the staff approves or disapproves RA 

requests. Form RD 3560-51, Obligation Fund Analysis, is the form that obligates the RA. 

When reviewing RA requests, the Loan Servicer must consider the following questions: 

• Is the project/unit eligible for RA? The project must meet the requirements specified 

in Section 8.5. 

• Does the project need the RA? The supporting documentation from the borrower 

must show that there are tenants or applicants who are eligible for the RA. 

• Is the RA available for distribution? The state must have the RA units available. 

How an RA request gets processed depends upon whether the assistance is for 

replacement RA, servicing RA, or new construction RA. 

A. Renewal and Servicing Rental Assistance 

1. Tracking Usage of Agency-Funded RA 

The Loan Servicer inputs the information provided by the borrower on Form RD 

3560-29, Notice of Payment Due Report into the Multi-Family Housing Information 

System (MFIS). Quarterly and annually, a report is issued by the Office of the Deputy 

Chief Financial Office (ODCFO) that provides the Loan Servicer with an RA payment 

and obligation status report for each project. The Loan Servicers should use these 

reports, in conjunction with the Automated Multi-Family Housing Accounting System 

(AMAS) to closely monitor their borrower’s accounts to ensure maximum utilization of 

existing RA obligations. If it is determined that RA units are not being used, the 

procedures in Section 8.8 should be followed to transfer the units. 

The Field Office must monitor statewide RA usage so that it can be reported as 

expiring and needing replacement when the annual survey is sent out from the National 

Office ascertaining the need for replacement RA. 

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2. Processing Renewal RA 

Renewal RA must not be awarded in an amount that is more than necessary to cover 

existing expiring contracts. For example, if a 24-unit project has only 18 units of RA that 

are expiring, the State Director may not award the project more than 18 units of RA. 

To the extent that sufficient Federal funds are available, the Agency will 

automatically renew expiring RA agreements at the existing number of units. 

If there is no renewal RA available to give to the borrower due to a lack of 

Congressional appropriations, the Loan Servicer will inform the borrowers that they must 

notify the affected tenants of their increased rents and give them the option of terminating 

their leases with no penalties. 

3. HUD Section 8 Housing Assistance Payments 

For properties that receive project-based HUD Section 8 assistance, borrowers must 

provide copies of their Housing Assistance Payments (HAP) contracts to the Loan 

Servicer. The Loan Servicer must monitor these contracts, particularly their expiration 

dates. 

4. Servicing RA 

Borrowers apply for servicing RA by checking a box on the project budget 

Form RD 3560-7, indicating a need for servicing units and certifying that they have 

looked elsewhere for other rental subsidies. To allocate servicing units to a project, the 

Loan Servicer must verify that the project is eligible and: 

• Existing tenants are paying more than 30 percent of their incomes in rent; or 

• There are vacancies in the project and evidence that shows that there are very lowincome tenants who would occupy the housing if there were RA units available. 

Such evidence must be in the form of market data and/or waiting lists. 

B. New Construction Rental Assistance 

New construction RA is requested with the initial application. The following 

requirements must be met for the Agency to consider awarding new construction RA: 

• The number of RA units requested must be based on the market data for the area, the 

proposed rental rates as reflected in a budget for the project, and the income levels of 

the prospective tenants; and 

• If the RA is going to be part of a project funded by a participation loan, the Agency 

participation rate needs to be at least 25 percent of the total development cost. 

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Chapter 4 of HB-1-3560 provides further details on processing new construction RA. 

C. Special Language for FY 2004, 2005 & 2006 RA Obligations. 

The FY 2004, 2005 and 2006 appropriation language has established a set term of four 

years for RA Obligations, only. Therefore, the following instructions should be used for 

completing Form RD 3560-27, “Rental Assistance Agreement” regarding ALL FY 2004, 2005 

and 2006 RA obligations. 

1. All FY 2004, 2005 and 2006 obligations will ALWAYS need to have a separate Form 

RD 3560-27. 

2. Changes to the form: 

a. Above title: "Rental Assistance Agreement" add "FOUR YEAR" 

b. Section 8 (a) - cross out "...automatically upon total disbursement or credit rental 

assistance to the borrower's account" and insert - "four (4) years from _____*_____, 

unless the funds are fully expended prior to that time." 

*If agreement is for the original obligation, enter the date the agreement is prepared. 

*If the agreement is for units transferred, enter the date of the agreement from the original Form 

RD 3560-27. 

 For example, renewal obligation for Borrower A is obligated on April 6, 2006, and the 

Form RD 3560-27 is signed on April 10, 2006. The expiration of the obligation will be April 10, 

2010. If one unit of RA (from the FY 2006 obligation) is transferred to Borrower B on August 

15, 2007, then the Form RD 3560-27 for Borrower B will have an expiration date of April 10, 

2010, even though the borrower received the unit on August 15, 2007. 

 For new construction RA obligations, Form RD 3560-27 must be signed during the Fiscal 

Year of the RA obligation. 

 A servicing effort tracking item “FY __ RA Obligations” has been established in MFIS to 

assist in the monitoring of FY 2004, 2005 and 2006 obligations. The National Office will be 

monitoring this tracking item to assure that funds are being properly monitored. 

D. General Approval and Processing Actions 

When it has been determined that RA can be obligated, the Loan Servicer will 

prepare and distribute part III of Form RD 3560-51 according to the instructions. The 

State Office will verify the obligation or transfer via the computer terminal on the day 

following the request. Upon verification that the obligation or transfer has processed in 

AMAS, the State Office will complete the RA Review process in MFIS. Refer to the 

MFIS Phase 4 Training Manual for guidance for the RA Review process. 

When the State Office verifies that RA units have been obligated, it will forward a 

copy of Form RD 3560-51 to the Loan Servicer. The Loan Servicer will complete Form 

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RD 3560-27 and attach the copy of Form RD 3560-51 according to the instructions on the 

form. The Form RD 3560-27 is then filed in the borrower’s active case file, and a copy is 

sent to the borrower.

If RA funds are available but cannot be provided due to a determination of 

ineligibility, the State Director will inform the borrower in writing of the reasons and 

provide the borrower information on appeal rights in accordance with 7 CFR Part 11. 

See paragraph 1.8 of Chapter 1 for an overview of the appeals process. 

Loan applicants or borrowers determined to be eligible for RA as a result of an appeal 

or funding review will receive RA, if RA funding is available. If the funding is available, 

the applicant or borrower will receive it beginning with the month following the date of 

the appeal or funding review decision. If the funding is not available, the applicant or 

borrower will receive it beginning in the first month that RA funding becomes available. 

When an RA request is denied because funds are not available from the state’s 

allocation or the National Office reserve, the decision is not appealable. 

E. RA Obligation Numbers 

AMAS uses obligation numbers to track RA obligations and undisbursed balances. 

See the AMAS manual for information on tracking RA obligations. 

1. Current Obligations 

When RA is approved, each RA obligation is assigned a six-digit RA obligation 

number as follows: 

• First two digits represent the fiscal year in which the funds are obligated (e.g., 04, 05, 

06, etc.); 

• Second two digits represent the number of the RA obligation for each project in 

sequential order for each fiscal year starting with 01 (e.g., 04-01, 04-02, 04-03, etc.); 

and 

• Third two digits are coded 00 for all obligations. 

For example, the fifth RA obligation made in fiscal year 2005 would be coded 

 05-05-00. 

2. Pre-1985 Obligations 

RA obligations obligated before 1985 were coded as follows: 

• First two digits represent the fiscal year in which the initial obligation was made on 

the project (i.e., 78, 79, 80, etc.); 

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• Second two digits relate to the pre-Automated Multi-housing Accounting System 

conversion loan number to which the RA obligation was processed; and 

• Third two digits indicate the number of modifications plus 1. (Form RD 3560-27, 

with two modifications on September 30, 1984, would be designated “03”). 

8.7 TERMS OF AGREEMENT [7 CFR 3560.258]

Form RD 3560-27 is the document that sets out the terms of RA agreement between the 

Agency and the borrower. 

A. Terms of Agreement 

Each Form RD 3560-27 will be effective the first day of the month in which it is 

executed. If assistance is granted to a project under an appeal, the amount of the 

assistance will cover what is needed for an effective date retroactive to the first day of the 

month in which the assistance was denied, provided the borrower agrees to make any 

appropriate refunds to tenants who would have been entitled to RA during the retroactive 

term. 

Starting in 2004, RA is obligated for 4-year terms. Previously, the Agency issued 5-

year RA agreements. The agreement for RA obligations prior to FY 04, expires when the 

funds obligated for the RA units described in Section 10 of Form RD 3560-27 are fully 

disbursed. This can be any time before or after the end of the agreement period. The 

Agency has in the past issued 20-year and 5-year RA agreements. If and when these are 

renewed, they are done so for 5-year or 4-year terms. 

B. When Agreements May Be Amended 

Loan Servicers may amend RA agreements to: 

• Add replacement units for the project to the agreement; 

• Add or subtract servicing units assigned to the project through obligation, through 

transfer from another RA obligation, or as an incentive to avert prepayment; 

• Reinstate a suspended RA obligation(s) to a new borrower in the same project after a 

voluntary conveyance or a foreclosure and a credit sale within the Multi-Family 

Housing program; or 

• Transfer a suspended RA obligation(s) to a new borrower and a different project after 

liquidation of the project assets or after the loan is paid in full. 

C. Procedures for Amending Agreements 

The following steps are taken to amend agreements. 

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• Any existing RA obligation executed prior to February 15, 1983, which will have a 

remaining obligation balance at the end of the expiration date stated in section 9 of 

the RA agreement, “Term of the Agreement,” may be amended. The amended 

agreement will expire when the obligated funds are fully disbursed. 

• For every replacement or modification of an RA agreement that occurs on or after 

May 1, 1985, the original and all copies of the affected RA agreement will be noted, 

assembled, and distributed by the Loan Servicer according to the form’s instructions. 

When a Form RD 444-27A, Amendment to RA Agreement initiated prior to May 1, 

1985, is replaced or modified, a new Form RD 3560-27 will be prepared and 

distributed according to the form’s instructions. 

• The Loan Servicer must use the new form so that eventually all borrowers will be 

using the new form. 

D. Consolidating Agreements 

Consolidation of RA agreements is allowed, if the fiscal year and the type of RA are 

the same. 

E. Replacing Expiring Obligations 

The Agency will renew all expiring obligations with obligations to the extent funds 

are appropriated. Expiring 20-year obligations will be replaced with current funding 

levels. 

Expiring RA obligations and replacement RA obligations may run concurrently for a 

period of 30 to 60 days so any undisbursed obligation balance on the expiring RA 

agreement can be liquidated. 

8.8 TRANSFERRING RA [7 CFR 3560.259] 

A. Cases in which RA May Be Transferred 

The State Director may transfer RA in the following instances: 

1. At Project Transfer 

When a project is transferred to an eligible borrower, the transferee may assume the 

transferor’s unliquidated RA obligation(s). 

2. Following Voluntary Conveyance or Foreclosure Sale 

When a project with RA is voluntarily conveyed to the Agency or acquired by 

foreclosure sale, the RA obligation will be automatically suspended under the borrower’s 

name when the St. Louis Office processes Form RD 3560-19, Status of REO Property. 

The RA for these units will be held in suspension until the final disposition of the 

acquired property has been determined, at which time the RA will be transferred to a 

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different Agency-financed project in accordance with paragraph C of this section. 

During the inventory period, tenants will pay 30 percent of their incomes for rent. 

Tenants entitled to reimbursement for utilities will be paid from project income. 

3. Following Liquidation or Prepayment 

 The Fiscal Year 2006 appropriations language requires that units from prepaid 

 projects be used for other Section 542 (Vouchers) and Section 502 (Preservation/ 

 Incentives) purposes. Therefore, RA from prepaid projects is not available for 

 transfer and will be held outside of the Administrator’s Reserve. These units cannot 

 be moved to other properties. 

4. When Not Being Used After Initial Rent-Up 

RA that is not being used may be transferred with or without the borrower’s consent 

or request. When RA is unused after initial rent-up (following the construction period) 

and not needed because of a lack of eligible potential tenants in the area, all or a portion 

of it may be transferred by the State Director under the following conditions: 

• The Loan Servicer recommends the RA transfer after reviewing documentation 

submitted by the borrower; and 

• Available RA units remain unused after a one-year period since initial availability. 

5. When Not Being Used 6 Months or Later After the Initial Year of the Agreement 

If, after the end of the initial year of an RA agreement, the borrower has not used a 

portion of the RA units for any ensuing consecutive 6-month period, the State Director 

may transfer the number of unused units to another project without the borrower’s 

request. If the remaining unit(s) remains unused after an additional 6-month period, the 

State Director may authorize its transfer to another project. This would apply only if the 

current agreement is on Form RD 3560-27, and when: 

• The Loan Servicer has reviewed the project occupancy list and verified that there is 

no apparent RA need in the project; 

• The State Director has notified the borrower at least 30 days in advance of the 

Agency’s intent to transfer the RA units and has given the borrower appropriate 

appeal rights; 

• If the borrower appeals the decision, the appeal is resolved in accordance with 

7 CFR Part 11 before any transfer action is taken; and 

• The transfer will take place in accordance with transfer procedures described in 

subparagraph D below. 

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6. Due to an Unclosable Loan 

When RA will be unused because the loan to which it was obligated will not be 

closed or the RA agreement is not signed, the RA obligation may not be transfered except 

when the circumstances allow for the funds to finance the project to be transferred as 

well. However, if this situation occurs during the same fiscal year of obligation, the 

obligation must be canceled and reallocated immediately using current authorities. 

Obligations from prior fiscal years must be canceled and will be lost unless the conditions 

allow the financing for the project to be transferred, in which case the RA may be 

transferred as well. 

7. In Response to a Disaster 

If a disaster renders a project temporarily or permanently uninhabitable, the RA may 

be transferred. 

8. Due to a Servicing Action 

The State Director will suspend RA in a project where the loan has been accelerated 

to the extent that no payments will be credited to the project’s account. Interest credit 

will be credited to the project’s account until the appeal period for the acceleration has 

expired. After the expiration of the appeal period, if it is determined that foreclosure will 

proceed, the interest credit will be canceled as of the last day of the month in which the 

appeal period expired. RA will be automatically suspended by the interest credit 

cancellation. 

That portion of the monthly RA not needed to pay the project monthly installment 

and other charges, including any delinquencies, overage, and late fees may be processed 

and returned to the project operating account to maintain project operation. RA 

agreements expiring during the acceleration and appeal process may be renewed in order 

to continue payment of RA for this purpose, but only if a third party is managing the 

project to ensure the proper use of project funds. 

After final disposition of the acceleration, expiration of the appeal and redemption 

period of the defaulting borrower, the RA will be either transferred with a credit sale, 

transferred to a different project when the defaulting project is sold outside the program, 

or reinstated to the same project as follows: 

• Transferred with a credit sale. If the project is sold through a credit sale to an 

eligible borrower within the program, the suspended RA should be transferred from 

the previous borrower’s case number and project number to the new case number and 

project number. Form RD 3560-55, Multi-Family Housing Transfer of RA, will be 

attached to Form RD 3560-19.

• Transferred to a different project. If a defaulting project is sold outside the 

program, the RA must be transferred to a different project. 

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• Reinstated to the same project. When defaults are corrected, the State Director may 

reinstate the RA to the borrower’s account. 

The State Director will apprise the borrowers of their appeal rights under 7 CFR Part 

11 upon notification of the pending suspension. The suspension will not be effective 

until these appeal rights have been exhausted. 

B. Eligible Units 

In order to be eligible for RA, units must be eligible for interest credit in terms of 

habitability. Should a fire, natural cause, or other damage render a unit uninhabitable, the 

RA may be suspended during rehabilitation or it may move with a tenant to a temporary 

location in another project financed by the Agency. 

C. Transferring RA for Displaced Tenants 

The State Director may transfer RA from one project to another eligible multi-family 

housing project to which a tenant is moving due to displacement as a result of 

prepayment, liquidation, or a natural disaster for that tenant’s initial use. 

The displaced tenant will be given first priority for an RA unit, regardless of other 

priorities for the RA, if all of the following conditions are met: 

• The borrower is eligible to receive and administer RA. 

• The tenant is eligible to occupy the project and to receive RA. 

• The tenant has taken all of the following steps to ensure eligibility to receive priority 

for the unit of RA: 

◊ Placed on at least one waiting list for an Agency-financed project with a 

Handbook Letter 201 (3560), Letter of Priority Entitlement (LOPE). 

◊ Moved to the project as soon as the name was reached on a waiting list, even if it 

meant temporarily occupying an ineligible unit. The ineligible unit may not differ 

from the one for which the tenant is eligible by more than one bedroom. 

◊ Moved to an eligible unit as soon as one was available. 

• The RA has not previously been transferred for the tenant’s current displacement. 

D. Process for Transferring 

Only the State Director may approve an RA transfer. RA may be transferred to any 

borrower with an RA eligible project according to the priorities established in this 

handbook or by the National Office. All or any portion of the units in an RA agreement 

with an undisbursed balance may be transferred from one project to another. 

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When the State Director approves an RA transfer, the Loan Servicer uses 

Form RD 3560-55, completed according to the instructions, to notify the St. Louis Office. 

AMAS determines the per-unit value of the RA obligation being transferred by 

dividing the undisbursed balance of the RA obligation on the date the transfer is 

processed by the number of RA units in the agreement. The number of units being 

transferred times the per-unit value equals the total amount transferred. After the transfer 

processes, the Loan Servicer must enter the dollar amount of the transfer in the remarks 

area of Form RD 3560-55. 

RA units identified by different RA obligation numbers may be transferred. New RA 

obligation numbers should be assigned according to the instructions for 

Form RD 3560-55 and as described in paragraph 8.6 E. 

The Loan Servicer will complete Form RD 3560-27 with Form RD 3560-55 attached. 

These will be completed according to the instructions for each transferee. The transferee 

may use the transferred units effective the first day of the month in which the transfer is 

approved. Borrowers must assign the rental assistance units, in accordance with the 

established priorities identified in Exhibit 8-2, as soon as they become available. 

The Loan Servicer will amend the transferor’s Form RD 3560-27 by attaching a copy 

of Form RD 3560-55 according to the instructions to indicate that a portion of the 

agreement has been transferred. When all RA units on a RA agreement have been 

transferred, the transferor’s present agreement will be so documented. 

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SECTION 2: ADMINISTRATION OF RENTAL ASSISTANCE 

8.9 CORRECTIONS TO RENTAL ASSISTANCE PAYMENTS 

A. Administrative Errors 

The borrower is responsible for correcting any errors made in the administration of 

the RA program that are made by the borrower or the borrower’s authorized management 

agent. Errors in computation or other unauthorized use of RA will require, at a 

minimum, the repayment of incorrectly advanced RA funds. Agency requirements 

regarding unauthorized assistance as established under 7 CFR part 3560, subpart O, apply 

whenever any RA has been incorrectly advanced. 

If the error or unauthorized use of RA appears to be deliberate or intentional, the State 

Director will refer the case to the OGC. For more information on unauthorized 

assistance, see HB-3-3560, Chapter 9. 

B. Canceling an RA Check 

When an RA check needs to be canceled, such as when it is returned, or if the 

borrower must return an RA payment, an MS2 transaction must be entered directly into 

the AMAS. Specific instructions for completing this transaction can be found in the 

AMAS On-Line Manual. This transaction will not be processed until the funds have 

been received by the Agency through one of the following methods: 

• The original U.S. Treasury check covering the RA is returned. 

• The borrower submits a check made payable to the Agency to the Field Office for all 

or a portion of the monthly RA payment that needs to be returned. 

8.10 ASSIGNING RENTAL ASSISTANCE TO TENANTS AND APPLICANTS 

[7 CFR 3560.257]

Because RA is limited, the Agency has established procedures to ensure that it is 

distributed consistently and to the most needy households. 

A. Eligible Households 

Households which are eligible for RA are those: 

• With very low or low incomes who are eligible to live in multi-family housing 

projects; 

• With net tenant contribution determined in accordance with 7 CFR 3560.203(a)(2) 

that is less than the current basic rent for the unit; and 

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• Who have a signed an unexpired Form RD 3560-8 on file with the borrower. 

To determine priority for assigning an available RA unit in an operational project, the 

borrower must update the latest Form RD 3560-29 for the project as of the date the unit is 

available. 

B. Priorities in Existing Projects 

When assigning available RA, borrowers must use the priorities identified in 

Exhibit 8-2. 

Exhibit 8-2 

Five Priorities for Assigning Rental Assistance

• First priority is always to eligible very low-income tenants paying the 

highest percentage of their adjusted annual income in shelter costs. 

• Second priority is to very low-income applicants on the waiting list, 

considering the applicant’s unit size and type needed. 

• Third priority is to eligible low-income tenants paying the highest 

percentage of their adjusted annual income in shelter costs. 

• Fourth priority is to eligible low-income applicants on the waiting list. 

• Final priority is to households that are residing in a rental unit for which 

they do not qualify on the basis of an occupancy waiver or other special 

approval situations 

In order to provide RA to the third, fourth, and final priority categories, a borrower 

must fully document that either there are no very low-income households on the waiting 

list or fully document that occupancy by low-income households is limited as follows: 

• For projects occupied on or after November 30, 1983, no more than 5 percent of the 

units in the project are occupied by low-income households; or 

• For projects occupied before November 30, 1983, no more than 25 percent of the 

units in the project are occupied by low-income households. 

Borrower documentation of these circumstances must be kept in the borrower’s files 

and made available to the Loan Servicer upon request. 

C. Assigning RA in Newly Constructed Units 

A borrower with RA units for a newly constructed project should accept applications 

for occupancy during the construction phase of the project, after the preconstruction 

conference has been held. The names of the applicants should be placed on a waiting list. 

During the initial rent-up period, the following priorities will apply: 

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• Until all the RA units have been assigned, a number of apartment units in the project 

equal to the number of RA units will be initially reserved for eligible tenants who 

qualify for RA, even if there are applications on other lists that applied earlier. 

Applications qualifying for RA will be considered according to the priority 

established for existing projects, by passing those applicants on the waiting list whose 

income is above the low-income limits for the area. The remaining units equal to the 

number of units that will not be subsidized with RA can be rented simultaneously to 

other applicants. 

• If a substantial number of apartment units reserved to be used with RA units remain 

vacant after initial rent-up and the borrower could rent those units to applicants 

ineligible for RA, the borrower may request a transfer of unused RA units. However, 

applicants ineligible for RA cannot be selected to occupy units initially reserved to be 

used with RA until the unused RA units are transferred. 

• If there are still vacant units, those applicants bypassed because they did not qualify 

for RA will be considered for occupancy on a first-come, first-served basis. 

D. Continued Eligibility 

Eligible tenants receiving the benefits of RA may continue receiving such benefits as 

long as they remain eligible for occupancy, are eligible for RA under 

7 CFR 3560.254(c)(2), and RA units are available. 

E. Timing of RA Assignment 

Rental assistance is paid to the borrower on the first of the month based on the prior 

month’s occupancy. 

When a tenant who has been receiving RA vacates the project, the borrower must 

immediately assign that unit of RA to the next existing eligible tenant or applicant on the 

waiting list. 

When a tenant receiving RA vacates before the end of the month and the borrower 

reassigns the RA, the Agency will provide RA for the newly designated tenant starting on 

the first day of the following month. 

When an RA unit is assigned to an eligible existing tenant on a day other than the first 

day of a month, the Agency will not provide rental assistance for the newly assigned 

existing tenant and the tenant will not pay reduced rental charges until the first day of the 

month following the assignment of the rental assistance. 

F. Incorrectly Assigned RA 

Incorrectly assigned RA is viewed as unauthorized assistance and handled in 

accordance with the requirements established under 7 CFR part 3560, subpart O. 

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When the tenant has correctly reported income and household size but RA was 

assigned to a household in error, that tenant’s RA benefit should be canceled and 

reassigned. Incidents involving incorrect reporting are handled in accordance with the 

unauthorized assistance requirements established under 7 CFR part 3560, subpart O. 

Before the borrower notifies the tenant, the borrower or management agent shall 

review the case with the Loan Servicer. If the Loan Servicer verifies that an error has 

been made based on information available at the time the unit was assigned, the tenant 

will be given 30 days’ written notice that the unit was assigned in error and that the RA 

benefit will be canceled effective on the next monthly rental payment due date after the 

end of the 30-day notice period. It should be noted that some states require a 60-day

notice of rent increases, in which case the written notice must be extended to 60 days. 

The borrower will also notify the tenant in writing that: 

• The tenant has the right to cancel the lease based on the error made by the borrower 

and the loss of benefit to the tenant; 

• The RA granted in error will not be recaptured from the tenant; and 

• The tenant may meet with management to discuss the cancellation and the facts on 

which the decision was based. If the facts are accurate and the tenant cannot produce 

further evidence proving eligibility for RA, there will be no appeal for the decision. 

If the tenant feels there is justification for further review, the borrower must give the 

tenant appeal rights under 7 CFR 3560.160. 

The RA unit will be reassigned to the next eligible household, based on 

Form RD 3560-29 from which the original priority was established, when the unit was 

erroneously assigned. The RA will not be retroactive unless the reassignment was based 

on an appeal by the tenant. Retroactive RA may not exceed the project’s remaining RA 

obligation balance. 

Tenants may appeal determination of ineligibility for available RA under 

7 CFR 3560.160. See paragraph 1.8 of Chapter 1 for information on the appeals process. 

G. Dealing with Tenants Who Attempt to Receive RA Simultaneously in Two 

Different Projects 

A tenant may not receive RA in two different multi-family housing projects at the 

same time. If part of the household is occupying a unit and the tenant attempts to occupy 

a seasonal unit in another project, MFIS will identify the duplicate tenancy through the 

tenant’s Social Security Number. 

8.11 TENANT PAYMENTS [7 CFR 3560.256(d)] 

A. Rents 

Tenants receiving RA must pay the net tenant contribution toward rent, which will 

not exceed the higher of: 

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• 30 percent of monthly adjusted income, with an adjustment for any utility allowance; 

or 

• 10 percent of gross monthly income, with an adjustment for any utility allowance. 

B. Utilities 

The utility allowance for a project with RA is determined as it is for any other project. 

As for non–RA projects, the utility allowance is reviewed annually for accuracy and 

changes are made when necessary. 

When the tenant is billed directly for utilities, rent paid by the tenant receiving RA 

will be the difference between the established utility allowance and the net tenant 

contribution as determined by 7 CFR 3560.203. 

• Example: Assume a basic rent of $250 and a utility allowance of $50. Patty Duke’s 

adjusted monthly income is $400. Thirty percent of her adjusted income is $120. 

Fifty dollars is deducted from the $120 to allow her to pay her utilities, leaving her a 

net tenant contribution of $70 for rent to the borrower. The Agency pays RA to the 

borrower on behalf of Patty Duke in an amount of $180 to total the $250 basic rent. 

When utilities are paid by the household receiving RA and the net tenant contribution 

is less than the allowance for utilities, the borrower will pay the household the difference 

between the utility allowance and net tenant contribution. 

• Example: Assume a basic rent of $250 and a utility allowance of $50. Jane Ronda’s 

adjusted monthly income is $160. Thirty percent of her adjusted monthly income is 

$48, which is less than the utility allowance. The Agency will pay $252 in RA to the 

borrower to cover the $250 basic rent and the extra $2 that the borrower must provide 

to the tenant to allow her to meet the $50 utility allowance. 

In a project where the borrower pays all utilities, the tenant rent will be the net tenant 

contribution as per 7 CFR 3560.203 up to the approved rent for the rental unit being 

occupied. 

• Example: In a project where the basic rent is $300 and there is no utility allowance, 

RHS would pay the borrower $180 for Patty Duke, who would pay the whole $120 in 

rent, totaling the required rent payment of $300. For Jane Ronda, the Agency would 

pay $252 to the borrower in RA and Ms. Ronda would contribute her $48 to make the 

total $300 rent payment. 

SECTION 3: OTHER RENTAL SUBSIDIES 

8.12 HUD RENTAL SUBSIDY [7 CFR 3560.260]

The Agency encourages the use of HUD Section 8 vouchers. 

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A. Project-Based Assistance 

Tenants in Section 8/515 units must pay rents and utility allowances in accordance with 

HUD requirements.

B. Tenant-Based Assistance 

Families using vouchers must be initially eligible as per program rules [7 CFR 

3560.152]. The public housing authority issuing the vouchers will be responsible for an 

annual examination of household income and family composition. The public housing 

authority will adjust the housing assistance payments made on behalf of the family to 

reflect any changes in the family’s monthly adjusted income, size, or composition. 

For tenants with HUD vouchers, the borrower must set the rent for each unit occupied 

by a voucher holder at the basic rent or the rent standard set by the public housing 

agency, whichever is higher. The borrower must remit the value of the voucher 

exceeding the basic rent up to the note rate rent to the Agency. The public housing 

agency distributing the HUD Section 8 subsidy may set the utility allowance. 

Once a HUD assistance contract expires, recertification responsibility reverts to the 

borrower, and Agency form and income verification and certification requirements apply. 

8.13 OTHER SOURCES OF RENTAL SUBSIDY [7 CFR 3560.260]

The Agency may authorize other types of rental subsidies to be used in new or existing 

projects but will make no commitment to providing RA at the expiration of the project-based 

rental subsidy agreement from other sources. 

A. Agency Requirements for New Construction Projects Proposed with Non–

Agency Rental Subsidy 

For the Agency to consider a new project with non-Agency rental subsidy, the 

applicants must demonstrate that: 

• A market exists for the assistance and at income levels that would benefit from the 

subsidy being provided; 

• Once the rental subsidy is no longer available, an adequate rental market exists for the 

project without assistance; and 

• Tenants will not be displaced at the end of the subsidy agreement. 

Applicants will specify how they intend to meet the above requirements through two 

documents: the memorandum of understanding with the provider of the RA and the 

Project-Based Rental Subsidy Agreement. 

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B. Formalizing the Project-Based Rental Subsidy 

Rental subsidy for new and existing projects is formalized through two main 

documents: the memorandum of understanding, which is between the Agency and the 

provider of the rental subsidy, and the Project-Based Rental Subsidy Agreement, which is 

the instrument agreement involving the tenant, borrower, and provider of assistance. 

1. Memorandum of Understanding 

The Agency must enter into a memorandum of understanding with the provider of the 

rental subsidy to make sure that the Government’s interests are secure. This 

memorandum of understanding must include the following provisions: 

• The reason for providing the project-based rental subsidy and its intended purpose; 

• The length of time the project-based rental subsidy will be provided; 

• Actions to be taken at the end of the project-based rental subsidy agreement to 

minimize the effect on tenants losing the rental subsidy and to avoid displacement; 

and 

• A copy of the proposed project-based rental subsidy agreement. 

2. The Project-Based Rental Subsidy Agreement 

The Project-Based Rental Subsidy Agreement is the instrument of agreement 

involving the tenant, borrower, and provider of assistance. 

The Agency will not be a party to the Project-Based Rental Subsidy Agreement nor 

have any responsibilities under the agreement. However, the Loan Servicer must ensure 

that the Project-Based Rental Subsidy Agreement provides that: 

• The rental subsidy payments will be paid directly to the tenants or deposited to a 

separate project operating account established for this purpose. The tenants must be 

advised of the amount and source of the subsidy through the lease or supplement to 

the lease. 

• The life of the Project-Based Rental Subsidy Agreement must be similar to existing 

or current Agency RA funding levels, and sufficient funds must be set aside in a way 

that ensures availability of project-based rental subsidy for this term. The method of 

supplying the funds must be clearly set forth and acceptable to the Agency. 

• During the term of the Project-Based Rental Subsidy Agreement, the provider must 

make available the subsidy amounts required at least annually. 

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C. Low-Income Housing Tax Credit Projects 

For projects with low-income housing tax credits (LIHTCs), if the project-based 

rental subsidy term is less than the LIHTC compliance period, the borrower must 

demonstrate the marketability of the project-based rental subsidy units by either: 

• Demonstrating that there are sufficient households within the LIHTC income limits to 

support the units without rent overburden; or 

• Certifying that the targeted percentage of LIHTC units (not the minimum set-aside 

option) does not include the project-based rental subsidy units, so that the units will 

be marketable to households in all Agency program eligible income ranges. 

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SECTION 4: LABOR HOUSING REQUIREMENTS 

FOR RENTAL ASSISTANCE 

8.14 USING RENTAL ASSISTANCE AS OPERATING ASSISTANCE 

[7 CFR 3560.574] 

The Agency’s rental assistance program, which provides assistance based on each 

household’s income, can be difficult to administer in housing for migrant workers because of 

frequent tenant turnover and short periods of occupancy. 

Borrowers of section 514 or 516 funds for Off-Farm Labor Housing projects may use 

Agency rental assistance funds for operating assistance rather than for providing rental assistance 

to individual households. By using operating assistance to reduce operating costs, rental rates 

can remain lower so that they are affordable to tenants based on the average wages of migrant 

farmworkers in the area. Tenants in Off-Farm Labor Housing projects that are receiving 

operating subsidy are still required to provide income verification and household income must be 

within the very-low or low-income limits to qualify for reduced operating assistance rents. 

Borrowers must provide documentation of tenant incomes to the Agency. 

8.15 PROJECT ELIGIBILITY FOR OPERATING ASSISTANCE

Only Off-Farm Labor Housing project units that are designated for migrant farmworkers 

are eligible to receive operating subsidy. The property must be eligible to receive rental 

assistance. 

8.16 OPERATING SUBSIDY LIMITS 

The amount of operating assistance requested by the owner must be based on the 

project’s actual income and expenses and must be approved by the Agency. For projects with 

both migrant and year round farmworkers, the amount of operating assistance is based on the 

portion of actual income and expenses attributable to the units that are for migrant farmworkers. 

In no instance may the annual amount of operating assistance exceed 90 percent of the annual 

operating costs that are attributable to the migrant units. 

8.17 OWNER RESPONSIBILITIES. 

A. Requesting for operating assistance program 

Owners of Off-Farm Labor Housing projects with units for migrant farmworkers may 

request operating assistance by submitting a request to the Agency, which must include a 

budget. The budget must include: 

• Estimated operating costs for the migrant units, including authorized expenditures 

such as reserve deposits; 

• Proposed rental rates for the migrant units to generate sufficient funds for operating 

costs of those units, taking into consideration all other sources of project income; and 

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• Estimated rental income from tenants, based on a tenant contribution of 30 percent of 

the average adjusted monthly income of migrant farmworker households in the area. 

B. Requesting operating assistance payments 

Each month, the owner will submit a request for operating assistance to the Agency. 

C. Verifying tenant income eligibility 

Owners are responsible for verifying tenant income eligibility. Only very low or lowincome households are eligible for the operating assistance rents. Households with 

incomes above the low-income limits must pay the full rent. 

D. Reporting requirements 

Owners will complete and submit to the Agency tenant certifications to document 

tenant income and eligibility. 

Owners will complete and submit monthly to the Agency a project worksheet for 

operating assistance. 

Owners must submit an annual planning budget to the Agency prior to the project’s 

fiscal year. 

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