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TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION ............................................................................................ 1-1

SECTION 1: INTRODUCTION TO THE LOAN ORIGINATION HANDBOOK ............................ 1-1

1.1 ABOUT THIS HANDBOOK........................................................................................................ 1-1

1.2 COMPANION MULTI-FAMILY HOUSING HANDBOOKS .................................................... 1-1

1.3 USING THIS HANDBOOK ......................................................................................................... 1-2

A. Citations and Text Boxes......................................................................................................... 1-2

B. Attachments and Appendices................................................................................................... 1-2

C. Terminology ............................................................................................................................ 1-2

SECTION 2: OVERVIEW OF THE MULTI-FAMILY HOUSING PROGRAMS........................... 1-5

1.4 GOALS OF RHS MULTI-FAMILY HOUSING PROGRAMS.................................................... 1-5

1.5 SECTION 515 PROGRAM—OVERVIEW.................................................................................. 1-5

1.6 SECTION 514 PROGRAM—OVERVIEW.................................................................................. 1-6

A. Section 514 Loans and Section 516 Grants for Off-Farm Housing ..........................................1-6

B. Section 514 Loans for On-Farm Housing ................................................................................ 1-6

SECTION 3: GENERAL PROGRAM REQUIREMENTS.................................................................. 1-7

1.7 CIVIL RIGHTS [7 CFR 3560.2]....................................................................................................1-7

A. Nondiscrimination ................................................................................................................... 1-8

B. Reasonable Accommodations for Persons with Disabilities.................................................... 1-8

C. Limited English Proficiency [7 CFR 3560.2].......................................................................... 1-8

D. Civil Rights Impact Analysis................................................................................................... 1-8

1.8 REVIEWS AND APPEALS [7 CFR 3560.9]................................................................................1-9

A. Informing Program Participants of Their Rights..................................................................... 1-9

B. Adverse Decisions That Cannot Be Appealed ....................................................................... 1-10

C. Informal Review.................................................................................................................... 1-10

D. Mediation or ADR................................................................................................................. 1-10

E. Appeal.....................................................................................................................................1-14

1.9 CONFLICT OF INTEREST [7 CFR 3560.10] ............................................................................1-14

A. Applicant Disclosure ............................................................................................................. 1-15

B. Agency Employee Disclosure.................................................................................................1-15

1.10 OTHER FEDERAL REQUIREMENTS ................................................................................... 1-15

A. Environmental Requirements [7 CFR 3560.3 and 3560.4].....................................................1-15

B. Construction Standards.......................................................................................................... 1-15

C. Lobbying Restrictions............................................................................................................ 1-16

D. Administrative Requirements .................................................................................................1-16

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1.11 EXCEPTION AUTHORITY [7 CFR 3560.8]............................................................................1-16

ATTACHMENT 1-A: EQUAL CREDIT OPPORTUNITY ACT (ECOA)

ATTACHMENT 1-B: ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF AN 

ADVERSE DECISION THAT IS APPEALABLE

ATTACHMENT 1-C: ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF AN 

ADVERSE DECISION THAT CANNOT BE APPEALED

ATTACHMENT 1-D: ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF 

UNFAVORABLE DECISION REACHED AS A RESULT OF AN 

INFORMAL REVIEW

ATTACHMENT 1-E: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT REQUEST 

MEDIATION IN STATES WITH A USDA-SPONSORED MEDIATION 

PROGRAM

ATTACHMENT 1-F: ATTACHMENT FOR REQUESTING MEDIATION OR ALTERNATIVE 

DISPUTE RESOLUTION (ADR) SERVICES

ATTACHMENT 1-G: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT REQUEST 

MEDIATION OR ALTERNATIVE DISPUTE RESOLUTION (ADR) OF 

SERVICE PROVIDER

ATTACHMENT 1-H: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT REQUEST 

MEDIATION OR ALTERNATIVE DISPUTE RESOLUTION (ADR) OF 

POTENTIAL SERVICE PROVIDERS

ATTACHMENT 1-I: ATTACHMENT FOR NOTIFYING CUSTOMERS THAT MEDIATION OR 

ALTERNATIVE DISPUTE RESOLUTION (ADR) DID NOT RESULT IN 

RESOLUTION OF ISSUES

CHAPTER 2: MULTI-FAMILY HOUSING PROGRAMS AND THE ORIGINATION 

PROCESS ........................................................................................................ 2-1

2.1 INTRODUCTION......................................................................................................................... 2-1

SECTION 1: SECTION 515 PROGRAM .............................................................................................. 2-1

2.2 OVERVIEW.................................................................................................................................. 2-1

2.3 TYPES OF PROJECTS................................................................................................................. 2-2

A. Family Projects........................................................................................................................ 2-2

B. Elderly Projects........................................................................................................................ 2-2

C. Congregate Projects................................................................................................................. 2-2

D. Group Homes .......................................................................................................................... 2-2

E. Rural Cooperative Housing...................................................................................................... 2-3

F. Mixed Projects ......................................................................................................................... 2-3

2.4 TYPES OF LOANS ...................................................................................................................... 2-3

A. Initial Loans............................................................................................................................. 2-3

B. Subsequent Loans.................................................................................................................... 2-4

C. Assumed Loans........................................................................................................................ 2-4

2.5 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS..................................... 2-5
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SECTION 2: SECTION 514/516 PROGRAM ....................................................................................... 2-7

2.6 TYPES OF PROJECTS................................................................................................................. 2-7

A. Off-Farm Labor Housing......................................................................................................... 2-7

B. On-Farm Labor Housing.......................................................................................................... 2-7

2.7 LOANS AND GRANTS ............................................................................................................... 2-7

A. Farm Labor Housing Loans..................................................................................................... 2-7

B. Farm Labor Housing Grants.................................................................................................... 2-8

2.8 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS.................................... 2-8

SECTION 3: SECTION 521 PROGRAM .............................................................................................. 2-9

2.9 OVERVIEW.................................................................................................................................. 2-9

2.10 SECTION 515 and 514/516 PROGRAM.....................................................................................2-9

A. Section 515.............................................................................................................................. 2-9

B. Section 516/516 ....................................................................................................................... 2-9

SECTION 4: OVERVIEW OF LOAN AND GRANT ORIGINATION............................................ 2-10

2.11 THE LOAN ORIGINATION PROCESS AND THIS HANDBOOK........................................2-10

2.12 KEY STEPS IN THE ORIGINATION PROCESS ................................................................... 2-10

A. Section 515 Loan Origination Process....................................................................................2-10

B. Section 514/516 Loan and Grant Origination Process. .......................................................... 2-12

2.13 LOAN ORIGINATION FOR SECTION 515 PROJECTS.........................................................2-13

A. Property Requirements (Chapter 3)........................................................................................2-13

B. NOFA and Initial Application Process – Stage 1 (Chapter 4)................................................ 2-13

C. Processing Final Applications – Stage 2 (Chapter 5)............................................................. 2-14

D. Participation with Other Funding Sources (Chapter 6).......................................................... 2-14

E. Security Requirements (Chapter 7).........................................................................................2-14

F. Loan Closing and Project Lease-Up (Chapter 8).................................................................... 2-15

G. Project Construction (Chapter 9)............................................................................................2-15

H. Subsequent Loans and Loans for Final Payments (Chapter 10)............................................. 2-15

I. Special Property Types (Chapter 11) ......................................................................................2-15

2.14 FARM LABOR HOUSING LOANS AND GRANTS (CHAPTER 12) ................................... 2-15

A. Off-Farm Labor Housing........................................................................................................2-15

B. On-Farm Labor Housing.........................................................................................................2-16

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CHAPTER 3: PROPERTY REQUIREMENTS .................................................................... 3-1

3.1 INTRODUCTION......................................................................................................................... 3-1

SECTION 1: DESIGNATED PLACES [7 CFR 3560.57]...................................................................... 3-1

3.2 OVERVIEW.................................................................................................................................. 3-1

3.3 ESTABLISHING A DESIGNATED PLACE LIST...................................................................... 3-1

A. Requirements for Establishing Designated Places................................................................... 3-1

B. Procedures for Establishing the Designated Place List ............................................................ 3-3

C. Updating the Designated Place List......................................................................................... 3-4

D. Partnership Designated Place List ........................................................................................... 3-4

SECTION 2: SITE REQUIREMENTS [7 CFR 3560.58] ...................................................................... 3-5

3.4 OVERVIEW.................................................................................................................................. 3-5

3.5 SITE LOCATION ......................................................................................................................... 3-5

A. Designated Place ..................................................................................................................... 3-5

B. Residential Area....................................................................................................................... 3-5

C. Downtown Business Area........................................................................................................ 3-5

D. Public Facilities and Services.................................................................................................. 3-6

E. Desirable Areas........................................................................................................................ 3-6

F. Historic Places.......................................................................................................................... 3-6

3.6 SITE STANDARDS...................................................................................................................... 3-7

A. Applicable Codes .................................................................................................................... 3-7

B. Adequate Utilities and Infrastructure ....................................................................................... 3-7

C. Water and Wastewater Disposal .............................................................................................. 3-8

D. Grading and Drainage.............................................................................................................. 3-9

E. Size and Shape ......................................................................................................................... 3-9

F. Noncontiguous Sites................................................................................................................. 3-9

G. Undesirable Physical Conditions............................................................................................3-10

3.7 SITE DENSITY........................................................................................................................... 3-10

3.8 CIVIL RIGHTS............................................................................................................................3-10

SECTION 3: ENVIRONMENTAL REQUIREMENTS [7 CFR 3560.59].........................................3-13

3.9 OVERVIEW.............................................................................................................................. 3-13

3.10 TYPES OF ENVIRONMENTAL REVIEWS........................................................................... 3-13

3.11 COMPLETING ENVIRONMENTAL REVIEWS.................................................................... 3-13

3.12 FLOOD HAZARD DETERMINATION [7 CFR 3560.58]...................................................... 3-15

3.13 MANAGEMENT OF HAZARDOUS SUBSTANCES..............................................................3-15

A. Due Diligence Requirements..................................................................................................3-15

B. Phase I Environmental Site Assessment ................................................................................ 3-16

C. Appraisers’ Responsibilities................................................................................................... 3-16

D. Loan Originator and Loan Servicer Responsibilities...............................................................3-17
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SECTION 4: DESIGN REQUIREMENTS [7 CFR 3560.60]...............................................................3-19

3.14 OVERVIEW.............................................................................................................................. 3-19

3.15 STANDARDS........................................................................................................................... 3-19

3.16 RESIDENTIAL DESIGN.......................................................................................................... 3-20

3.17 ECONOMICAL DEVELOPMENT COSTS..............................................................................3-20

A. Evaluating Cost Reasonableness.............................................................................................3-20

B. Evaluating Cost Effectiveness.................................................................................................3-21

3.18 ACCESSIBILITY...................................................................................................................... 3-22

3.19 RELOCATION...........................................................................................................................3-25

A. Uniform Relocation Assistance and Property Acquisition Act of 1970 ................................. 3-25

B. Temporary Relocation of Tenants During Rehabilitation .......................................................3-25

3.20 CONVENTIONAL RENTS FOR COMPARABLE UNITS..................................................... 3-25

A. The CRCU Standard............................................................................................................... 3-25

B. Exceptions to the CRCU Standard......................................................................................... 3-26

ATTACHMENT 3-A: GUIDE FOR SELECTING AN ENVIRONMENTALLY SOUND SITE 

ATTACHMENT 3-B: CHECKLIST OF ARCHITECTURAL DOCUMENTS

ATTACHMENT 3-C: SAMPLE DESIGNATED PLACE LIST FORMAT

CHAPTER 4: NOFA AND INITIAL APPLICATION PROCESS — STAGE 1 ................ 4-1

4.1 INTRODUCTION......................................................................................................................... 4-1

4.2 OVERVIEW OF STAGE 1, PROCESSING THE INITIAL APPLICATION...............................4-2

SECTION 1: INVITING INITIAL APPLICATIONS........................................................................... 4-3

4.3 FUNDING AND RENTAL ASSISTANCE LIMITS.................................................................... 4-3

4.4 STATE ACTIONS TO PREPARE FOR THE NOFA................................................................... 4-3

4.5 THE NOFA ................................................................................................................................... 4-4

4.6 LOAN PURPOSES ....................................................................................................................... 4-6

A. Eligible Loan Purposes [7 CFR 3560.53]................................................................................ 4-6

B. Prohibited Uses of Loan Funds [7 CFR 3560.54].................................................................... 4-7

C. Eligible Applicants [7 CFR 3560.55].......................................................................................4-7

4.7 CONTENTS OF THE INITIAL APPLICATION PACKAGE ................................................... 4-10

4.8 PRELIMINARY MEETING WITH APPLICANT......................................................................4-13

4.9 ACCEPTING INITIAL APPLICATIONS ...................................................................................4-14

A. Date Stamping Initial Applications.........................................................................................4-14

B. 30-Day Agency Review..........................................................................................................4-15

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SECTION 2: THE REVIEW PROCESS AND SCORING AND RANKING ....................................4-15

4.10 OVERVIEW OF THE REVIEW PROCESS..............................................................................4-15

4.11 LOAN REVIEW COMMITTEES............................................................................................. 4-15

4.12 PRELIMINARY ASSESSMENT OF THE INITIAL APPLICATION [7 CFR 3560.56(b)]....4-16

A. Was the Initial Application Submitted on Time?....................................................................4-16

B. Is the Initial Application Complete? .......................................................................................4-16

C. Establishing Applicant/Project Data .......................................................................................4-17

D. Is the Applicant Eligible? ...................................................................................................... 4-17

E. Does the Applicant Entity Have the Financial Resources to Commit to the Project? ............ 4-18

F. Does the Applicant Show Site Control? ................................................................................. 4-18

G. Is the Project for an Authorized Purpose and in a Designated Place?.................................... 4-19

H. The Site Review .................................................................................................................... 4-19

I. Environmental Review............................................................................................................ 4-20

J. Is There a Market for the Project?............................................................................................4-20

4.13 SCORING AND RANKING INITIAL APPLICATIONS .........................................................4-20

A. Scoring Leveraged Assistance ................................................................................................4-21

B. Scoring Other Factors............................................................................................................ 4-23

C. Ranking Initial Applications.................................................................................................. 4-24

D. Review of Highest Ranked Initial Applications..................................................................... 4-25

E. Forwarding Initial Applications to National Office for National Ranking ..............................4-26

4.14 INFORMING THE APPLICANTS OF RESULTS OF INITIAL APPLICATION

REVIEW ....................................................................................................................................4-26

SECTION 3: PROJECT FEASIBILITY REVIEW ............................................................................ 4-27

4.15 UNDERWRITING THE PROPOSED PROJECT .....................................................................4-27

A. Key Decisions........................................................................................................................ 4-27

B. Ordering the Appraisal........................................................................................................... 4-28

C. Documenting Underwriting ....................................................................................................4-28

4.16 APPLICANT ELIGIBILITY [7 CFR 3560.55]..........................................................................4-28

A. Citizenship Requirements...................................................................................................... 4-28

B. Organizational Requirements..................................................................................................4-29

C. Financial Requirements ......................................................................................................... 4-31

D. Compliance Requirements for Current or Previous Borrowers ..............................................4-33

4.17 PROJECT ELIGIBILITY [7 CFR 3560.58, 3560.59, and 3560.60]..........................................4-34

A. Civil Rights Impact Analyses.................................................................................................4-34

B. Working with the State Historic Preservation Office (SHPO)................................................4-35

C. Flood Hazard Determination...................................................................................................4-35

D. Design Review ...................................................................................................................... 4-35

E. Prohibited Conditions .............................................................................................................4-35
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4.18 PROJECT FEASIBILITY ..........................................................................................................4-36

A. Feasibility of Agency’s Security.............................................................................................4-36

B. Market Feasibility .................................................................................................................. 4-36

C. Financial Feasibility................................................................................................................4-41

4.19 SUBSIDY LAYERING [7 CFR 3560.63] .................................................................................4-44

A. Fee Norms............................................................................................................................. 4-44

B. Excess Assistance ...................................................................................................................4-45

4.20 INITIAL APPLICATIONS WITH RENTAL SUBSIDY ......................................................... 4-45

A. Agency-Funded Rental Assistance ........................................................................................ 4-45

B. Non–Agency Rental Subsidy..................................................................................................4-46

4.21 PROJECT COSTS......................................................................................................................4-46

A. The State Architect’s Role..................................................................................................... 4-46

B. Cost Databases....................................................................................................................... 4-47

C. Acceptable and Unacceptable Legal Costs ............................................................................ 4-48

D. Unacceptable Construction Costs...........................................................................................4-48

4.22 ADEQUATE SECURITY..........................................................................................................4-48

4.23 COMPLETING THE INITIAL APPLICATION REVIEW...................................................... 4-49

A. Notifying Applicants of Their Status......................................................................................4-49

B. Returning Unused Funds........................................................................................................ 4-49

C. Withdrawing and Rejecting Applications .............................................................................. 4-49

4.24 CONDITIONAL LETTERS OF COMMITMENT ....................................................................4-49

ATTACHMENT 4-A: STATE NOFA RESPONSE SUMMARY SHEET 

ATTACHMENT 4-B: ELIGIBLE LOAN PURPOSES

ATTACHMENT 4-C: PROHIBITED LOAN USES

ATTACHMENT 4-D: CONTENTS OF INITIAL APPLICATION PACKAGE 

ATTACHMENT 4-E: SITE EVALUATION CHECKLIST

ATTACHMENT 4-F: ANALYZING THE MARKET FEASIBILITY DOCUMENTATION 

ATTACHMENT 4-G: EXAMPLE OF INTEREST CREDIT DETERMINATION FOR RURAL

RENTAL HOUSING

CHAPTER 5: PROCESSING FINAL APPLICATIONS — STAGE 2................................. 5-1

5.1 INTRODUCTION......................................................................................................................... 5-1

5.2 OVERVIEW OF STAGE 2, FINAL APPLICATIONS ................................................................ 5-1

SECTION 1: REQUESTING FINAL APPLICATIONS AND MEETING WITH

APPLICANTS................................................................................................................... 5-3

5.3 REQUESTING FINAL APPLICATIONS .................................................................................... 5-3

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A. Invitation to Submit Final Application .....................................................................................5-3

B. Content of Final Application.................................................................................................... 5-3

C. Construction Contract Documents. ...........................................................................................5-5

5.4 MEETING WITH THE APPLICANT AND PREPARING THE LOAN DOCKET .................... 5-6

5.5 APPLICANT'S COMPLIANCE WITH OTHER AGENCY DEBT ............................................. 5-7

SECTION 2: REVIEWING THE FINAL APPLICATION...................................................................5-7

5.6 OVERVIEW.................................................................................................................................. 5-7

5.7 APPLICANT ELIGIBILITY......................................................................................................... 5-7

A. Acceptable Borrower Entity .................................................................................................... 5-7

B. Identity-of-Interest Disclosure ................................................................................................. 5-8

C. Applicant Certification Regarding Debt Collection ..................................................................5-8

5.8 FINAL PROJECT ELIGIBILITY ................................................................................................. 5-8

A. Property Requirements............................................................................................................ 5-8

B. Acceptable Agreements and Contracts..................................................................................... 5-9

C. Concurrence with Construction Contracts............................................................................... 5-9

D. Clear Title and Necessary Local Approval .............................................................................. 5-9

E. Prohibited Conditions .............................................................................................................5-10

5.9 FINAL PROJECT FEASIBILITY ANALYSIS.......................................................................... 5-10

A. Are Final Costs Acceptable?...................................................................................................5-10

B. Matching Income Stream with Projected Costs..................................................................... 5-10

C. Failure to Obtain Leveraging ................................................................................................. 5-10

D. Adequacy of the Initial Operating Capital ............................................................................. 5-11

E. Management Systems .............................................................................................................5-11

SECTION 3: DETERMINING LOAN LIMITS, RATES, AND TERMS ..........................................5-15

5.10 DETERMINING LOAN LIMITS [7 CFR 3560.63]..................................................................5-15

A. Determining Maximum Debt Limit and Equity Contribution.................................................5-15

B. Land or Cash Equity Contribution. .........................................................................................5-16

C. Subsidy Review ......................................................................................................................5-16

5.11 SETTING LOAN RATES AND TERMS [7 CFR 3560.67]......................................................5-17

A. Interest................................................................................................................................... 5-17

B. Interest Credit ........................................................................................................................ 5-17

C. Loan Term and Amortization Period ......................................................................................5-17

5.12 ESTABLISHING PROFIT BASE AND RETURN ON INITIAL INVESTMENT

[7 CFR 3560.68].........................................................................................................................5-17

A. Return on Required Investment..............................................................................................5-17

B. Return on Additional Investment............................................................................................5-18
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C. Tax Credit Proceeds............................................................................................................... 5-18

D. Building Sites.........................................................................................................................5-18

SECTION 4: REJECTING AND APPROVING FINAL APPLICATIONS ..................................... 5-19

5.13 REJECTING FINAL APPLICATIONS .................................................................................... 5-19

5.14 RECOMMENDING PROJECTS FOR FINAL APPROVAL....................................................5-19

A. Preparing the Recommendation for Approval ....................................................................... 5-19

B. Submitting the Completed Docket..........................................................................................5-20

5.15 LOAN APPROVAL ACTIONS.................................................................................................5-20

A. Reviewing of Docket............................................................................................................. 5-20

B. Approving Loans....................................................................................................................5-20

5.16 LETTER TO INTERIM LENDER............................................................................................ 5-21

5.17 OBLIGATING FUNDS .............................................................................................................5-21

A. Initial Obligation.................................................................................................................... 5-21

B. Changing the Loan Amount....................................................................................................5-21

5.18 FOLLOW-UP TO OBLIGATIONS .......................................................................................... 5-22

5.19 TRANSFER OF FUND OBLIGATION.................................................................................... 5-23

5.20 CANCELING AN OBLIGATION.............................................................................................5-23

5.21 LETTER OF CONDITIONS......................................................................................................5-24

5.22 INSURANCE REQUIREMENTS............................................................................................. 5-26

5.23 ASSIGNING CASE NUMBERS, PROJECT NUMBERS, AND LOAN CODES....................5-26

ATTACHMENT 5-A: AGENCY DOCKET CHECKLIST 

ATTACHMENT 5-B: LOAN CALCULATION WORKSHEETS

CHAPTER 6: PARTICIPATION WITH OTHER FUNDING SOURCES ......................... 6-1

6.1 INTRODUCTION......................................................................................................................... 6-1

6.2 OVERVIEW OF PARTICIPATION LOANS............................................................................... 6-1

SECTION 1: REQUIREMENTS FOR PARTICIPATION LOANS [7 CFR 3560.66]....................... 6-3

6.3 GENERAL .................................................................................................................................... 6-3

6.4 DESIGN REQUIREMENTS......................................................................................................... 6-3

A. Composition and Quality of Units. .......................................................................................... 6-4

B. Nonessential Common Facilities [7 CFR 3560.66(e)]............................................................. 6-4

6.5 SECURITY AGREEMENTS........................................................................................................ 6-4

A. Lien Position............................................................................................................................ 6-4

B. Security Agreement ................................................................................................................. 6-4

C. Sample Agreements................................................................................................................. 6-5

6.6 SUBSIDY LAYERING................................................................................................................. 6-5

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6.7 RENTS, RENTAL ASSISTANCE, AND MANAGEMENT........................................................ 6-6

A. Establishing Rents................................................................................................................... 6-6

B. Rental Assistance [7 CFR 3560.66(b)].................................................................................... 6-6

C. Management ............................................................................................................................ 6-6

6.8 RESERVE REQUIREMENTS [7 CFR 3560.65].......................................................................... 6-6

SECTION 2: PROCESSING APPLICATIONS INVOLVING PARTICIPATION LOANS. ........... 6-7

6.9 OVERVIEW................................................................................................................................ 6-7

6.10 UNDERWRITING ...................................................................................................................... 6-8

A. Applicant and Project Eligibility.............................................................................................. 6-8

B. Project Feasibility .................................................................................................................... 6-8

C. Reasonable Project Costs......................................................................................................... 6-9

D. Management ............................................................................................................................ 6-9

6.11 ENVIRONMENTAL REQUIREMENTS ................................................................................. 6-10

6.12 SUBSIDY REVIEWS ............................................................................................................... 6-10

6.13 ESTABLISHING LOAN AMOUNT, TERMS, AND CONDITIONS ..................................... 6-10

A. Establishing Loan Amounts....................................................................................................6-10

B. Borrower Contribution Requirement ......................................................................................6-11

6.14 WORKING WITH STATE HOUSING FINANCE AGENCIES.............................................. 6-11

A. Coordinating Resources......................................................................................................... 6-12

B. Entering into a Memorandum of Understanding.................................................................... 6-12

C. Working with the State Agency..............................................................................................6-13

ATTACHMENT 6-A: SAMPLE #1 SAMPLE INTERCREDITOR AGREEMENT 

SAMPLE #2 SAMPLE PARITY AGREEMENT

SAMPLE #3 SAMPLE SUBORDINATION AGREEMENT 

ATTACHMENT 6-B: SAMPLE PROCESSING MEMORANDUM OF UNDERSTANDING

CHAPTER 7: SECURITY REQUIREMENTS [7 CFR 3560.61].......................................... 7-1

7.1 INTRODUCTION......................................................................................................................... 7-1

7.2 ADDRESSING SECURITY REQUIREMENTS DURING THE

ORIGINATION PROCESS .......................................................................................................... 7-1

SECTION 1: SECURITY REQUIREMENTS....................................................................................... 7-1

7.3 CONTROL OF LAND .................................................................................................................. 7-1

A. At Time of Application............................................................................................................ 7-2

B. At Loan Closing........................................................................................................................7-2

7.4 ADEQUATE SECURITY FOR THE LOAN................................................................................ 7-3

7.5 LIABILITY ................................................................................................................................... 7-3

7.6 ACCEPTABLE LIEN POSITION ................................................................................................ 7-3

A. Acceptable Lien on Property ................................................................................................... 7-3

B. Acceptable Lien on Project Revenue. ...................................................................................... 7-4
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SECTION 2: ASSESSING THE VALUE OF THE SECURITY—APPRAISALS.............................. 7-5

7.7 PURPOSE OF THE APPRAISAL ................................................................................................ 7-5

7.8 REQUIREMENTS FOR APPRAISALS [7 CFR part 3560, subpart P]....................................... 7-5

7.9 VALUING MULTI-FAMILY HOUSING PROJECTS ................................................................ 7-7

A. Basic Components of an Appraisal.......................................................................................... 7-7

B. Valuation of Favorable Financing............................................................................................ 7-9

7.10 THE APPRAISAL PROCESS—ROLES AND RESPONSIBILITIES....................................... 7-9

A. The Appraisal Process............................................................................................................. 7-9

B. Roles and Responsibilities ..................................................................................................... 7-11

7.11 SELECTING AN APPRAISER .................................................................................................7-12

A. Blanket Purchase Agreement..................................................................................................7-12

B. Request for Contract Services.................................................................................................7-13

C. Time frame for Completion and Review of Appraisals.......................................................... 7-13

7.12 WORKING WITH THE APPRAISER ..................................................................................... 7-13

A. Post-Award Conference with the Appraiser .......................................................................... 7-13

B. The Statement of Work.......................................................................................................... 7-14

C. Paying for Appraisals............................................................................................................. 7-15

7.13 AGENCY REVIEW OF THE APPRAISAL............................................................................. 7-15

7.14 RELEASE OF APPRAISALS................................................................................................... 7-16

A. Freedom of Information Act................................................................................................. 7-16

B. Steps in Release of Appraisals.............................................................................................. 7-17

7.15 EVALUATING THE RESULTS OF THE APPRAISAL......................................................... 7-18

A. Is the Project Eligible?........................................................................................................... 7-18

B. Is the Project Economically Feasible? ....................................................................................7-18

C. Are the Costs Reasonable?..................................................................................................... 7-19

D. Are the Agency’s Interests Secure?........................................................................................7-20

ATTACHMENT 7-A: VALUE TYPES USED IN MULTI-FAMILY HOUSING APPRAISALS 

ATTACHMENT 7-B: PROPERTY RIGHTS VALUED

ATTACHMENT 7-C: SPECIFIC VALUE TYPES TO BE REQUESTED AND REPORTED BASED 

ON INTENDED USE OF APPRAISAL

ATTACHMENT 7-D: STANDARD STATEMENT OF WORK (SOW) FOR MULTI-FAMILY 

HOUSING CONTRACT APPRAISALS

ATTACHMENT 7-E: APPRAISAL INFORMATION SHEET (EXAMPLE), ATTACHMENT TO 

SOW

ATTACHMENT 7-F: APPRAISAL DATA PACKAGE CHECKLIST 

ATTACHMENT 7-G: SAMPLE TRANSMITTAL LETTER

ATTACHMENT 7-H: GUIDE FOR VALUATION OF INTEREST CREDIT SUBSIDY 

ATTACHMENT 7-I: INSURABLE VALUE CALCULATION

CHAPTER 8: LOAN CLOSING AND PROJECT LEASE-UP.............................................8-1

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8.1 INTRODUCTION......................................................................................................................... 8-1

SECTION 1: LOAN CLOSING [7 CFR 3560.72].................................................................................. 8-1

8.2 OVERIVEW.................................................................................................................................. 8-1

8.3 TIMING OF LOAN CLOSING .................................................................................................... 8-1

8.4 LOAN CLOSING REQUIREMENTS .......................................................................................... 8-2

8.5 CHOOSING THE CLOSING AGENT AND TITLE COMPANY............................................... 8-4

8.6 CLOSING AGENT RESPONSIBILITIES.................................................................................... 8-4

8.7 LOAN PROCESSING STAFF RESPONSIBILITIES .................................................................. 8-6

A. Work with the Applicant ......................................................................................................... 8-6

B. Review Title Insurance Binder ................................................................................................ 8-6

C. Prepare Documents for Closing Instructions............................................................................ 8-7

D. Provide Closing Agent with Closing Instructions and Materials............................................. 8-7

E. Obtain Loan Check .................................................................................................................. 8-7

F. Establish Payment Schedule..................................................................................................... 8-8

G. Establish Initial Disbursement ................................................................................................. 8-8

8.8 ACTIONS AT LOAN CLOSING ................................................................................................. 8-8

8.9 POSTCLOSING ACTIVITIES ..................................................................................................... 8-9

A. Obtain and Review Closing Documents.................................................................................. 8-9

B. Record Mortgage or Deed........................................................................................................ 8-9

C. Secure Title.............................................................................................................................. 8-9

D. Establish the Amortization Effective Date............................................................................... 8-9

E. Put Closing Information into AMAS ....................................................................................... 8-9

F. Complete Loan Docket and Transfer to Servicing Staff......................................................... 8-10

G. Populate Multi-Family Housing Information System (MFIS)................................................8-10

SECTION 2: PROJECT LEASE-UP......................................................................................................8-11

8.10 PROJECT LEASE-UP REQUIREMENTS............................................................................... 8-11

8.11 MONITORING PROJECT LEASE-UP.................................................................................... 8-11

A. Pre-Occupancy Conference ....................................................................................................8-12

B. The 90-Day Visit ................................................................................................................... 8-13

C. The 11-Month Warranty Inspection........................................................................................8-14

ATTACHMENT 8-A: LOAN CLOSING DOCUMENTS

CHAPTER 9: PROJECT CONSTRUCTION........................................................................ 9-1

9.1 INTRODUCTION......................................................................................................................... 9-1

9.2 OVERIVEW OF THE AGENCY'S ROLE IN THE CONSTRUCTION PROCESS.................... 9-1

9.3 CONSTRUCTION FINANCING.................................................................................................. 9-2

9.4 IDENTITY-OF-INTEREST RELATIONSHIPS........................................................................... 9-2

SECTION 1: CONSTRUCTION REQUIREMENTS ........................................................................... 9-3

9.5 CONSTRUCTION STANDARDS................................................................................................ 9-3

9.6 METHODS OF CONTRACTING ................................................................................................ 9-3

A. Competitive Bid....................................................................................................................... 9-3
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B. Negotiated Contract ................................................................................................................. 9-4

C. Owner-Builder Contract [RD Instruction 1924.13(e)(2)]......................................................... 9-4

9.7 CONTRACTOR REQUIREMENTS............................................................................................. 9-4

A. Debarment and Suspensions. ................................................................................................... 9-5

B. Insurance.................................................................................................................................. 9-5

C. Payment and Performance Bonds............................................................................................ 9-5

D. Letters Of Credit...................................................................................................................... 9-5

E. Warranties................................................................................................................................ 9-6

F. Compliance with Civil Rights Requirements............................................................................ 9-6

9.8 COST CERTIFICATION.............................................................................................................. 9-7

SECTION 2: CONTRACTING PROCEDURES................................................................................... 9-9

9.9 COMPETITIVE BIDDING PROCEDURES ................................................................................ 9-9

A. Contents of the Bidding Package............................................................................................. 9-9

B. Distribution of the Bidding Packages ...................................................................................... 9-9

9.10 AGENCY CONCURRENCE IN THE CONTRACT.................................................................. 9-9

A. Review of the Bid.................................................................................................................. 9-10

B. Use of the Contract Documents............................................................................................. 9-10

9.11 PRECONSTRUCTION CONFERENCE .................................................................................. 9-11

9.12 NOTICE TO PROCEED........................................................................................................... 9-13

SECTION 3: CONSTRUCTION OVERSIGHT.................................................................................. 9-15

9.13 PROGRESS INSPECTIONS..................................................................................................... 9-15

A. Timing of Inspections............................................................................................................ 9-15

B. Inspection Procedures............................................................................................................ 9-16

9.14 CHANGE ORDERS.................................................................................................................. 9-17

9.15 PARTIAL PAYMENTS............................................................................................................ 9-18

9.16 OBTAINING THE CHECK FOR MULTIPLE ADVANCES.................................................. 9-19

9.17 CONTRACT CLOSE-OUT....................................................................................................... 9-19

A. Final Inspections.................................................................................................................... 9-20

B. Final Payment........................................................................................................................ 9-20

CHAPTER 10: SUBSEQUENT LOANS [7 CFR 3560.73] AND LOANS FOR FINAL 

PAYMENTS [7 CFR 3560.74]......................................................................10-1

10.1 INTRODUCTION..................................................................................................................... 10-1

10.2 OVERVIEW.............................................................................................................................. 10-1

A. Loans for Existing Units........................................................................................................ 10-2

B. Loans Made with Conventional Financing ............................................................................ 10-2

SECTION 1: QUALIFYING FOR SUBSEQUENT LOANS.............................................................. 10-3

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10.3 ELIGIBILITY, LOAN PURPOSES, AND PRIORITIES ..........................................................10-3

A. Project Eligibility....................................................................................................................10-3

B. Eligible Loan Purposes...........................................................................................................10-3

C. Repair and Rehabilitation Loan Funds....................................................................................10-3

10.4 DESIGN REQUIREMENTS......................................................................................................10-3

10.5 ENVIRONMENTAL REQUIREMENTS ..................................................................................10-4

10.6 LOAN LIMITS...........................................................................................................................10-4

A. Borrower Equity Contribution................................................................................................10-4

B. Initial Operating Capital .........................................................................................................10-4

10.7 RATES AND TERMS................................................................................................................10-5

10.8 RESTRICTIVE-USE PROVISIONS..........................................................................................10-5

A. Extension of Restrictive-Use Provisions ................................................................................10-6

B. Prepaying Projects ..................................................................................................................10-6

SECTION 2: APPLICATION SUBMISSION AND PROCESSING ..................................................10-7

10.9 ACCEPTING APPLICATIONS...............................................................................................10-7

10.10 SETTING DEADLINES AND EVALUATING COMPLETENESS.......................................10-8

A. Submission Deadlines.............................................................................................................10-8

B. Completeness Requirements...................................................................................................10-8

10.11 UNDERWRITING ...................................................................................................................10-8

A. Applicant Eligibility ...............................................................................................................10-9

B. Project Eligibility....................................................................................................................10-9

C. Reasonable Costs....................................................................................................................10-9

D. Project Feasibility ...................................................................................................................10-9

E. Security .................................................................................................................................10-10

10.12 LOAN APPROVAL AND CLOSING ...................................................................................10-11

A. General Procedures...............................................................................................................10-11

B. Implementing Restrictive-Use Provisions.............................................................................10-11

10.13 RELOCATION PLANS.........................................................................................................10-11

SECTION 3: FINAL PAYMENTS ......................................................................................................10-13

10.14 FINANCING FINAL PAYMENTS .......................................................................................10-13

CHAPTER 11: SPECIAL PROPERTY TYPES [7 CFR 3560.69 and

7 CFR 3560.70]............................................................................................. 11-1

11.1 INTRODUCTION......................................................................................................................11-1

SECTION 1: CONGREGATE HOUSING [7 CFR 3560.69] ...............................................................11-1
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11.2 OVERVIEW.............................................................................................................................. 11-1

11.3 RESTRICTIONS ON USE OF LOAN FUNDS........................................................................ 11-2

11.4 USE OF OPERATING CAPITAL ............................................................................................ 11-2

11.5 ELIGIBILITY REQUIREMENTS ............................................................................................ 11-2

A. Eligible Loan Applicants....................................................................................................... 11-2

B. Eligible Tenants..................................................................................................................... 11-3

C. Eligible Projects..................................................................................................................... 11-3

11.6 APPLICATION REQUIREMENTS.......................................................................................... 11-3

11.7 DESIGN REQUIREMENTS..................................................................................................... 11-3

11.8 TENANT SUPPORT SERVICES............................................................................................. 11-4

A. Services Plan ......................................................................................................................... 11-5

B. Minimum Services................................................................................................................. 11-5

C. Project Services Coordinator ................................................................................................. 11-7

D. Service Agreements............................................................................................................... 11-7

11.9 NONTENANT SERVICES..................................................................................................... 11-7

11.10 PROCESSING APPLICATIONS............................................................................................ 11-7

A. Agency Action....................................................................................................................... 11-7

B. Requirements of the Applicant............................................................................................... 11-8

11.11 PRELIMINARY MEETING................................................................................................... 11-8

11.12 UNDERWRITING CONSIDERATIONS............................................................................... 11-9

A. Market Feasibility Documentation......................................................................................... 11-9

B. Tenant Services...................................................................................................................... 11-9

C. Management ........................................................................................................................ 11-10

11.13 DESIGN CONSIDERATIONS ............................................................................................. 11-10

SECTION 2: GROUP HOMES [7 CFR 3560.69]............................................................................... 11-11

11.14 OVERVIEW.......................................................................................................................... 11-11

11.15 PROJECT ELIGIBILITY...................................................................................................... 11-11

A. Tenancy ............................................................................................................................... 11-11

B. Applicable Laws.................................................................................................................. 11-11

C. Association with Another Organization ............................................................................... 11-11

11.16 SUPPORT SERVICES.......................................................................................................... 11-11

11.17 DESIGN REQUIREMENTS................................................................................................. 11-12

11.18 RENTS AND RENTAL ASSISTANCE ............................................................................... 11-12

11.19 APPLICATION REQUIREMENTS AND PROCESSING................................................... 11-13

11.20 UNDERWRITING CONSIDERATIONS............................................................................. 11-13

SECTION 3: MARKET FEASIBILITY CONSIDERATIONS FOR CONGREGATE HOUSING 

AND GROUP HOMES.................................................................................................. 11-15

11.21 ADDITIONAL MARKET FEASIBILITY DOCUMENTATION REQUIREMENTS

[7 CFR 3560.69(f)]................................................................................................................ 11-15

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SECTION 4: MANUFACTURED HOUSING [7 CFR 3560.70]........................................................11-17

11.22 OVERVIEW...........................................................................................................................11-17

11.23 ELIGIBILITY REQUIREMENTS .........................................................................................11-17

A. Applicant Eligibility .............................................................................................................11-17

B. Project Eligibility..................................................................................................................11-17

11.24 DESIGN REQUIREMENTS..................................................................................................11-18

11.25 SPECIAL WARRANTY REQUIREMENTS.........................................................................11-18

11.26 RATES AND TERMS............................................................................................................11-19

11.27 LOAN PROCESSING AND UNDERWRITING...................................................................11-19

11.28 LOAN CLOSING...................................................................................................................11-19

SECTION 5: RURAL COOPERATIVE HOUSING..........................................................................11-21

11.29 OVERVIEW...........................................................................................................................11-21

11.30 ELIGIBILITY AND ORGANIZATIONAL REQUIREMENTS. ..........................................11-21

11.31 MARKET FEASIBILITY ......................................................................................................11-22

11.32 APPLICATION REQUIREMENTS.......................................................................................11-22

11.33 MANAGEMENT REQUIREMENTS....................................................................................11-23

A. Cooperative Board of Directors............................................................................................11-24

B. Adviser to the Board .............................................................................................................11-24

C. Committees...........................................................................................................................11-24

D. Acceptable Forms of Management.......................................................................................11-25

E. Management Reserves and Patronage Accounts...................................................................11-26

F. Occupancy Agreement ..........................................................................................................11-27

11.34 COOPERATIVE MEMBERSHIP FEE..................................................................................11-27

11.35 LOAN PROCESSING............................................................................................................11-27

11.36 LOAN CLOSING AND POST-CLOSING ACTIVITIES .....................................................11-28

ATTACHMENT 11-A: MANAGEMENT OF CONGREGATE HOUSING AND GROUP HOMES 

ATTACHMENT 11-B: SUPPORT SERVICES FOR CONGREGATE HOUSING AND GROUP

HOMES

ATTACHMENT 11-C: OCCUPANCY AGREEMENT 

ATTACHMENT 11-D: COOPERATIVE HOUSING SURVEY 

ATTACHMENT 11-E: LIMITED EQUITY AGREEMENT

ATTACHMENT 11-F: QUALIFICATIONS FOR AN ADVISER TO THE BOARD 

ATTACHMENT 11-G: RELATIONSHIP OF ADVISER TO MEMBERS 

ATTACHMENT 11-H: ADVISER RESPONSIBILITIES

ATTACHMENT 11-I: SUBSCRIPTION AGREEMENT

CHAPTER 12: FARM LABOR HOUSING LOANS AND GRANTS................................ 12-1

12.1 INTRODUCTION......................................................................................................................12-1

SECTION 1: OFF-FARM LABOR HOUSING LOANS AND GRANTS ...........................................12-1

12.2 OVERVIEW...............................................................................................................................12-1

12.3 APPLICANT ELIGIBILITY FOR OFF-FARM LABOR HOUSING [7 CFR 3560.555].........12-2

A. Eligible Applicants for Farm Labor Housing Loans...............................................................12-2

B. Eligible Applicants for Farm Labor Housing Grants. .............................................................12-2
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12.4 TECHNICAL ASSISTANCE GRANTS....................................................................................12-3

12.5 PROJECT ELIGIBILITY...........................................................................................................12-4

A. Site Requirements [7 CFR 3560.558].....................................................................................12-4

B. Design Requirements [7 CFR 3560.559]................................................................................12-4

12.6 LOAN AND GRANT FUND USES ..........................................................................................12-5

A. Eligible Uses of Funds [7 CFR 3560.53(k) and (o)]...............................................................12-5

B. Prohibited Uses of Funds [7 CFR 3560.554]..........................................................................12-5

12.7 SUBMISSION AND PROCESSING OF INITIAL APPLICATIONS.......................................12-5

A. Content of Initial Applications................................................................................................12-5

B. Completeness Review.............................................................................................................12-6

C. Eligibility Review...................................................................................................................12-6

D. Scoring and Ranking of Initial Applications...........................................................................12-6

E. National Ranking and Selection of Initial Applications..........................................................12-6

F. Notification of Initial Applications Selection ..........................................................................12-7

12.8 FURTHER PROCESSING OF INITIAL APPLICATIONS ......................................................12-7

A. Project Eligibility....................................................................................................................12-7

B. Applicant Eligibility................................................................................................................12-8

C. Project Feasibility ...................................................................................................................12-8

D. Calculation of the Allowable Grant Amount..........................................................................12-8

12.9 SUBMISSION AND PROCESSING OF FINAL APPLICATIONS..........................................12-8

A. Security Value and Borrower Contributions...........................................................................12-8

B. Establishing a Profit Base on Initial Investment Return..........................................................12-9

12.10 LOAN/GRANT APPROVAL AND CLOSING [7 CFR 3560.571].........................................12-9

A. Loan Resolution or Loan Agreement......................................................................................12-9

B. Labor Housing Grant Agreement and Resolution...................................................................12-9

C. Restrictive-Use Provisions....................................................................................................12-10

12.11 CONSTRUCTION FINANCING...........................................................................................12-10

12.12 MONITORING CONSTRUCTION AND PROJECT LEASE-UP........................................12-10

12.13 ESTABLISHING DIMINISHED NEEDS FOR FARM LABOR HOUSING 12-11

SECTION 2: ON-FARM LABOR HOUSING LOANS.......................................................................12-12

12.14 OVERVIEW...........................................................................................................................12-12

12.15 ON-FARM LABOR HOUSING CHECKLIST 12.12

12.16 APPLICANT ELIGIBILITY [7 CFR 3560.605]....................................................................12-16

12.17 PROJECT ELIGIBILITY [7 CFR 3560.605].........................................................................12-17

12.18 LOAN FUND USES...............................................................................................................12-18

A. Eligible Uses of Funds [7 CFR 3560.603]............................................................................12-18

B. Prohibited Uses of Funds [7 CFR 3560.604]........................................................................12-18

12.19 PRIORITIES FOR FUNDING...............................................................................................12-18

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12.20 SUBMISSION AND PROCESSING OF INITIAL APPLICATIONS...................................12-18

A. Project Eligibility..................................................................................................................12-18

B. Applicant Eligibility..............................................................................................................12-19

C. Project Feasibility .................................................................................................................12-19

D. Financial Capacity 12-19

12.21 SUBMISSION AND PROCESSING OF FINAL APPLICATIONS......................................12-20

A. Determining Loan Limits, Rates, and Terms [7 CFR 3560.612 and 616] ............................12-20

B. Establishing a Profit Base on Initial Investment Return........................................................12-20

12.22 LOAN APPROVAL AND CLOSING [7 CFR 3560.621].....................................................12-20

A. Loan Resolution or Loan Agreement [7 CFR 3560.571]......................................................12-20

B. Security Documents [7 CFR 3560.610]................................................................................12-21

C. Loan Companies and Closing Attorneys 12-21

12.23 CONSTRUCTION MONITORING.......................................................................................12-21

12.24 CONSTRUCTION COST NORMS......................................................................................12-21

ATTACHMENT 12-A: CLARIFYING THE DEFINITION OF "FARM LABOR"

APPENDICES

Appendix 1: 7 CFR part 3560

Appendix 2: 7 CFR part 11

Appendix 3: Forms Referenced in this Handbook

Appendix 4: Handbook Letters Referenced in this Handbook