HB-3-3560 

 CHAPTER 2: MULTI-FAMILY HOUSING 

PROGRAMS AND LOAN SERVICING 

2.1 INTRODUCTION 

This chapter introduces key aspects of the Section 515 Rural Rental Housing and Section 

514/516 Farm Labor Housing programs. Under these programs, the Agency provides direct 

loans and grants to support the development of affordable rental housing that serves rural areas. 

The Section 538 Multi-Family Housing Guarantee program—the Agency’s third Multi-Family 

Housing program that guarantees loans made by private lenders—is covered in a separate 

regulation [7 CFR Part 3565] and HB-1-3565. 

This chapter also describes the key project servicing procedures that the Agency uses to 

administer the terms of the Agency loan or grant agreement for the program. These procedures 

provide Loan Servicers with a consistent basis for conducting servicing actions and assisting 

borrowers in meeting their responsibilities. 

Section 1 of this chapter introduces the types of loans and other forms of assistance 

available through the Section 515 program and the Agency’s objectives in providing this 

assistance. Section 2 of this chapter describes the loans, grants, and other assistance available to 

increase the supply of affordable housing specifically targeted toward farm labor. The chapter 

concludes with Section 3, which introduces the major project servicing activities, as well as the 

key parties involved. 

SECTION 1: SECTION 515 PROGRAM 

2.2 OVERVIEW 

The Section 515 program offers direct loans to eligible borrowers to provide 

economically designed and constructed housing and related facilities for very low-, low-, and 

moderate-income households; elderly households; and persons with disabilities living in rural 

areas. This section of the chapter describes: 

• The types of projects allowed; 

• The types of loans available; and 

• Rental assistance available from the Agency. 

2.3 TYPES OF PROJECTS 

There are four basic types of rental projects that can be developed using Section 515 

loans: 

• Family projects; 

• Elderly projects; 

2-1 

(02-24-05) SPECIAL PN 
HB-3-3560 

• Congregate projects; and 

• Group homes. 

In addition, Section 515 loans can be used to finance rural cooperative housing projects. 

The Agency also allows mixed projects that contain both family and elderly units. 

The housing must be economical and must not include elaborate features, but it must be 

adequate to meet tenants’ needs. The project should be of average quality and cost. With the 

exception of off-farm labor housing, all projects must be developed in locations that qualify as 

rural areas. 

A. Family Projects 

A family housing project is a rental property developed for occupancy by eligible 

very low-, low-, or moderate-income households. 

B. Elderly Projects 

An elderly project is a rental property that is developed for occupancy solely by 

eligible elderly households that include a tenant or cotenant that is disabled or age 62 

years or older. 

C. Congregate Projects 

Congregate projects are rental properties developed for occupancy by eligible very 

low-, low-, and moderate income elderly households that need meals or other services to 

assist them in performing activities of daily living. Congregate projects consist of private 

apartments and central dining facilities in which a number of allowable preestablished 

services are provided to tenants. These projects are not designed to be nursing homes 

and, therefore, are not allowed to pay for the cost of medical- or healthcare-related 

services. 

D. Group Homes 

A group home is housing that is occupied by eligible very low-, low-, or moderateincome elderly persons or individuals with disabilities who share living space within a 

rental unit and in which a resident assistant may be required. 

E. Rural Cooperative Housing 

Section 515 loans may be used to finance rural cooperative housing projects operated 

by nonprofit consumer cooperatives for the benefit of eligible very low-, low- and 

moderate-income members. 

2-2 

 
HB-3-3560 

F. Mixed Projects 

Mixed projects are properties developed with a portion of the units designated as 

family units and the remainder of the units established as elderly units. At the time the 

project is developed, the borrower must designate the units that will be operated as family 

units and those that will be operated as elderly units. NOTE: Rural Development no 

longer finances mixed projects. 

2.4 TYPES OF LOANS 

The rules governing the origination of Section 515 loans differ slightly, depending upon 

the type of loan being made. The types of loans available under Section 515 include: 

• Initial loans; 

• Subsequent loans; and 

• Assumed loans. 

This section describes the three types of loans and how they differ. The first two types 

are discussed in further detail in HB-1-3560. The requirements and procedures for assumed 

loans and equity loans are covered in Chapter 7. 

A. Initial Loans 

Initial loans are made to projects with no existing Agency loan. Most initial loans are 

made to build new properties. However, the Agency makes initial loans for the 

rehabilitation of existing properties when it is in the Agency’s best interest. 

The interest rate for these loans is set at the note rate established by the Agency in 

RD Instruction 440.1. The Agency then provides interest credit assistance, which 

reduces the effective interest rate to 1 percent1

. Interest credit is only provided for units 

occupied by eligible tenants paying at least 30 percent of their income for rent. The 

administration of interest credit is covered in this handbook and HB-2-3560. 

The Agency establishes the term of these loans to correspond to the expected useful 

life of the property. The maximum term is 30 years with an amortization period not to 

exceed 50 years. Generally, initial loans are made for a term of 50 years, with the 

exception of properties where the expected useful life is a shorter period (e.g., 

manufactured housing). 

 

1

 Some existing projects do not receive interest credit, while others receive interest credit that reduces the interest 

rate to three percent. However, all initial loans made by the Agency following the publication of this handbook will 

receive interest credit as described here. 

2-3 

(02-24-05) SPECIAL PN 

Revised (03-01-06) PN 395 
HB-3-3560 

B. Subsequent Loans 

Subsequent loans can be issued during the term of an Agency loan to help an existing 

borrower pay for repairs or improvements to the property or in conjunction with the 

transfer of a property where the purchaser is assuming the initial Agency loan. The key 

differences between processing requirements for subsequent and initial Section 515 loans 

are discussed in Chapter 10 of HB-1-3560. Guidance regarding the requirements and 

procedures for processing project transfers is covered in Chapter 7. Subsequent loans 

may also be used to finance equity to avert prepayment of the project. 

C. Assumed Loans 

Section 515 loans may be assumed in conjunction with the transfer of ownership of 

the property. The terms and conditions of the assumption depend upon the needs of the 

project at the time of the transfer. The procedures for processing transfers and 

assumptions are presented in Chapter 5. 

1. New Rates and Terms Assumption 

Most assumptions of Section 515 loans are new rates and terms assumptions—that is, 

the purchaser assumes responsibility for all or a portion of the remaining debt. To 

conserve the Agency’s budgetary resources, the transaction does not involve paying off 

the old loan and issuing a new initial loan. Instead, the purchaser assumes the 

outstanding debt, which is reamortized at new rates and terms. New rates and terms 

assumptions are used when the purchaser will experience financial difficulties under the 

terms of the initial loan or when a change in rates and terms is necessary to facilitate the 

transfer. Purchasers may apply for subsequent loans to make up the difference between 

the amount of debt assumed and the purchase price or to address physical needs at the 

project. 

2. Same Rates and Terms Assumption 

Transfers may also take place in conjunction with a same rates and terms assumption. 

Under this type of assumption, the existing note terms, including the interest rate and the 

remaining repayment period, do not change. 

2.5 AGENCY RENTAL ASSISTANCE 

Owners of projects located in areas where prospective tenants are likely to be rent 

overburdened or existing tenants are already overburdened can apply for rental assistance 

administered by the Agency. This rental subsidy assists tenants by allowing them to pay 30 

percent of adjusted income for rent, thereby reducing the financial burden on the household. The 

Agency pays the difference between the tenant contribution and the approved shelter costs for 

the unit through the rental assistance contract with the borrower. 

2-4 

 
HB-3-3560 

2.6 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS 

To maximize the number of units produced with Section 515 loan funds, the Agency 

gives preference to project applications for new loans that leverage other funds, thereby reducing 

the amount of Section 515 loan funds needed to develop the project. The greater the leveraging 

proposed in a project application, the greater the preference for funding. Examples of funds that 

count as leveraged funds include borrower resources beyond the minimum required amount, 

equity generated by the sale of low-income housing tax credits (LIHTCs), a second loan from 

another lender, or a grant from a State or Local public agency or other source. 

2-5 

(02-24-05) SPECIAL PN 
HB-3-3560 

This page intentionally left blank

2-6 
HB-3-3560 

SECTION 2: SECTION 514/516 PROGRAM 

2.7 TYPES OF PROJECTS 

The Section 514/516 Farm Labor Housing program provides funds to support the 

development of housing for farm labor. Section 514/516 assistance differs from the Section 515 

loans in the following ways: 

• The objective of the program is to provide housing for farmworkers; 

• There are no rural restrictions; and 

• Agency grants are available to support the development of these projects. 

Section 514/516 assistance may be used for off-farm labor housing projects and Section 514 

assistance may be used only for on-farm labor housing projects. Only Section 514 assistance 

may be used in conjunction with Federal LIHTCs. 

A. Off-Farm Labor Housing 

The Agency is authorized to make loans and grants for financing off-farm labor 

housing to broad-based nonprofit organizations; nonprofit organizations of farmworkers; 

Federally recognized Indian tribes, agencies, or political subdivisions of State or Local 

Government; and public agencies, such as local housing authorities. Section 514 loans 

can be made to limited partnerships in which the general partner is a nonprofit entity. 

B. On-Farm Labor Housing 

On-farm labor housing is designed to provide adequate housing for farmworkers 

involved in a specific farming operation. Individual farmers, family farm corporations or 

partnerships, or associations of farmers may develop these projects but must operate them 

on a nonprofit basis. To qualify for occupancy, an individual or a household must simply 

be employed as part of the farming operation. There is no income restriction governing 

occupancy. However, immediate family members of individuals with an ownership 

interest in the farm are prohibited from living in this housing. 

2.8 LOANS AND GRANTS 

The Agency offers loans and grants to finance Farm Labor Housing projects. Chapter 12 

of HB-1-3560 provides more information about the origination process for these loans and 

grants. 

A. Farm Labor Housing Loans 

Section 514 loans for farm labor housing projects are very similar to Section 515 

loans, but they differ in two important ways: 

• These loans carry a 1 percent effective interest rate (i.e., there is no interest credit). 

2-7 

(02-24-05) SPECIAL PN 
HB-3-3560 

• The maximum term for these loans is 33 years. 

These loans can be used to finance either Off-Farm or On-Farm Labor Housing projects. 

At one time, loans for both types of projects were processed on a first-come, firstserved basis. Today, lending decisions regarding loans for off-farm labor housing 

projects are handled through a competitive Notice of Funding Availability (NOFA) 

process, while loans for on-farm labor housing projects are still processed in the order 

that they are received. 

B. Farm Labor Housing Grants 

Section 516 grants may only be used to support the development of off-farm labor 

housing projects. These grants may be used for the same purposes as Section 514 loans 

when there is reasonable doubt that the housing would not be provided without the grant. 

2.9 RENTAL ASSISTANCE 

Applicants for Section 514/516 assistance for off-farm labor housing projects may also 

apply for rental assistance administered by the Agency. The requirements for obtaining rental 

assistance are the same as for Section 515 projects. On-farm labor housing projects are not 

eligible for this rental assistance. 

2.10 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS 

Like the Section 515 program, the Agency gives preference to applications for off-farm 

labor housing projects that leverage other sources of funds. There is no leveraging preference for 

on-farm labor housing applications. 

2-8 
HB-3-3560 

SECTION 3: OVERVIEW OF MULTI-FAMILY PROJECT SERVICING 

2.11 KEY PROJECT SERVICING ACTIVITIES AND THIS HANDBOOK 

The goal of the Agency’s servicing efforts is to ensure that projects fulfill the terms of 

their loan or grant agreement and provide fair, consistent processing of servicing requests. 

Project servicing involves the following activities: 

• Account servicing; 

• Reviewing requested changes in the ownership entity; 

• Evaluating and processing project transfer requests; 

• Addressing security restructuring requests; 

• Identifying and recapturing unauthorized assistance; 

• Addressing borrower defaults and evaluating workout agreements; 

• Processing loan restructuring requests; 

• Foreclosing and liquidating projects in default; 

• Managing and disposing of inventory property; and 

• Evaluating and processing prepayment requests. 

This handbook presents the program requirements in each of these areas and describes 

the Agency’s procedures for fulfilling its responsibilities. 

In addressing each topic area, the handbook first presents the requirements and 

procedures for Section 515 rental projects and then discusses differences or additional 

requirements for other types of projects (e.g., congregate housing, farm labor housing, 

cooperatives). 

2.12 PROJECT SERVICING PROCEDURES FOR MULTI-FAMILY HOUSING 

PROJECTS 

Chapters 3 through 13 describe the program requirements for Section 515 projects. 

A. Automated Systems (Chapter 3) 

This chapter describes the Agency’s four primary automated information 

management systems—Industry Interface, the Automated Multi-Family Housing 

Accounting System (AMAS), the Multi-Family Integrated System (MFIS), and the 

2-9 

(02-24-05) SPECIAL PN 
HB-3-3560 

Prepayment Tracking and Concurrence (Pre-Trac)—including their purpose and 

capabilities, staff responsibilities, and training and certification requirements. 

B. Account Servicing (Chapter 4) 

This chapter covers routine transactions involving the borrower’s repayment of the 

loan obligation, including payment processing, tracking project accounts, and final 

payments. 

C. Ownership and Organizational Changes (Chapter 5) 

Changes in the borrower entity require Agency notification and, in specific cases, 

Agency consent. This chapter outlines the requirements regarding borrower requests 

involving these changes and the procedures for addressing these changes. 

D. Determination of Project Suitability (Chapter 6) 

When there are loan repayment or compliance problems with a project and the 

Agency is considering special servicing actions, or prior to making a subsequent loan, the 

Loan Servicer must determine that the property remains suitable as a program property. 

This chapter is designed to assist the Agency and the Loan Servicer in particular, to make 

an analysis of a project’s suitability and to determine that it meets the principles and 

objectives of the Agency. 

E. Transfers of Project Ownership (Chapter 7) 

When borrowers seek to transfer their projects to a new ownership entity, the transfer 

must be performed in a manner consistent with the program requirements to ensure that 

the project continues to address program objectives and the Agency’s security interests 

are protected. This chapter explains the requirements and procedures for completing 

project transfers. 

F. Security Restructuring Requests (Chapter 8) 

As project conditions change over time, it may become necessary to request a 

restructuring of the security for the loan. The Agency’s requirements and procedures for 

filing these requests are covered in this chapter. 

G. Unauthorized Assistance (Chapter 9) 

If borrowers or tenants receive assistance for which they are ineligible, the Agency 

will take steps to recapture this unauthorized assistance. This chapter discusses the 

Agency’s requirements and procedures for identifying and collecting unauthorized 

assistance. 

2-10 
HB-3-3560 

H. Compliance Violations, Defaults, and Workout Agreements (Chapter 10) 

The Agency will monitor borrower performance using the procedures presented in 

Chapter 9 of HB-2-3560. Borrowers who fail to comply with program requirements will 

be notified of compliance violations and the need to correct the deficiencies. This 

chapter describes the servicing actions in response to compliance violations and the 

additional servicing actions taken by the Agency in the event violations go uncorrected 

and the borrower falls into default. 

I. Loan Restructuring (Chapter 11) 

When borrowers encounter changes or difficulties beyond their control that affect the 

financial viability of the project, they may ask for the Agency to approve restructuring of 

its financing as one course of financial relief for the project. Also, borrowers with more 

than one Agency loan may be able to request restructuring changes that simplify 

administration of the loans. This chapter presents the requirements and procedures for 

Agency review and approval of these requests. 

J. Account Foreclosure and Liquidation (Chapter 12) 

When borrowers go into default under the terms of their loan agreement, the Agency 

will review the case and determine whether to accelerate the loan and initiate foreclosure 

proceedings. The procedures for making this determination are covered in this chapter. 

K. Other Special Cases (Chapter 13) 

There are a number of special circumstances that borrowers may face during the life 

of a loan that require special servicing actions by the Agency. The special cases covered 

in this chapter include bankruptcy, death of a borrower, abandonment, and valueless 

liens. 

L. Management and Disposal of Real Estate Owned Property (Chapter 14) 

Real estate owned (REO) property consists of projects where the Agency has 

assumed ownership as a result of foreclosure. This chapter presents Agency procedures 

for managing and disposing of these projects in a manner that is in the best interest of the 

government and of any tenants of the projects. 

M. Project Preservation (Chapter 15) 

Borrowers receiving loans prior to December 15, 1989 may prepay their loan 

obligations under the terms of their loan agreements. In an effort to preserve such units 

as affordable housing, the statute for the program directs the Agency to make reasonable 

efforts to extend the low-income use of the project. This chapter presents the 

requirements and procedures for borrower requests and Agency evaluation of such 

requests. 

2-101 

(02-24-05) SPECIAL PN