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1.1 INTRODUCTION 

This chapter provides an overview of the Guaranteed Rural Rental Housing Program 

(GRRHP) Handbook and key program features. It includes the following sections: 

SECTION 1: THE HANDBOOK 

1.2 PURPOSE 

This handbook provides lenders and Rural Housing Service (hereinafter referred to as 

RHS or the Agency) staff with guidance on the origination and servicing of GRRHP loans and 

the approval of qualified lenders. Lenders will use this handbook as a guide for carrying out the 

activities and procedures required by the regulation. Agency staff will use the handbook as a 

reference to monitor and evaluate a lender’s performance in the program. 

These instructions are intended to be consistent with all applicable laws, civil rights laws, 

Executive Orders, and U.S. Department of Agriculture (USDA) regulations. Nothing in this 

handbook should be construed to supersede, rescind, or otherwise amend such laws, Executive 

Orders, and regulations. 

This handbook and any additions or revisions to this handbook will be distributed to 

approved lenders and are available to other interested parties at 

www.rurdev.usda.gov/regs/hblist.html#hbw6. 

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CHAPTER 1: OVERVIEW OF GUARANTEED RURAL 

RENTAL HOUSING PROGRAM ORIGINATION 

AND SERVICING HANDBOOK 

Key Topics in this Chapter 

Section 1: The Handbook 

Section 2: The Rural Housing Service (RHS) 

Section 3: Program Overview 

Section 4: Federal Requirements 
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1.3 USING THE HANDBOOK 

This handbook has been organized for ease in looking up information. Several graphic 

tools and conventions have been used to make information easier to find and understand. 

A. Handbook Symbols 

 References. The book symbol directs the reader to additional information 

sources, such as laws, regulations, or instructions. 

 Civil rights. A modified fair housing logotype highlights processing 

procedures with significant fair housing or civil rights implications. 

 Deadlines. Time frames for completing required actions are highlighted 

by a small clock to make them easier to locate. Deadlines are also underlined in the 

text. Deadlines are generally expressed in terms of calendar days unless otherwise 

noted. 

 Helpful hints. Helpful hints, cautions, or important facts are included in 

text boxes throughout the handbook and display this hand symbol. 

B. Citations and Text Boxes 

 Regulatory citations. The text 

of the GRRHP regulation [7 

CFR part 3565] is provided in 

Appendix 1. All references to 

this regulation appear in 

italicized brackets. Other 

referenced regulations or Rural 

Development (RD) Instructions 

may be found on the 

USDA/RD website at 

http://www.rurdev.usda.gov/Re

gulationsAndGuidance.html

 Form references. Agency 

forms, guides, and system 

letters are shown in italics. 

Appendix 2 lists all forms used in this handbook. 

 Examples and exhibits. Text boxes labeled as examples or exhibits provide a 

specific illustration of a concept described in the text or provide additional detailed 

The Code of Federal Regulations 

What is the CFR? The Code of 

Federal Regulations (CFR) is published in volumes 

and is numbered according to the Agency or 

subject. The part pertaining to USDA can be found 

in Title 7 of the CFR. 

Where do I find Federal regulations? Some 

sources for the CFR are: 

 Purchase it from the U.S. Government Printing 

Office, Superintendent of Documents, 

Washington, DC 20402-9328. 

 View the e-CFR on the Internet at: 

http://www.gpoaccess.gov/cfr/index.html. 
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information. Exhibits are numbered in sequence, using the chapter number. For 

example, Exhibit 2-1 is the first exhibit in Chapter 2. Examples are not numbered. 

C. Attachments and Appendices 

 Attachments. Attachments at the end of each chapter contain technical information 

that is specific to the topics covered in the chapter. Attachments are referenced in 

sequence, using the chapter number and a letter; for example, Attachment 4-A is the 

first attachment in Chapter 4. 

 Glossary and acronyms lists. Key words and terms are defined in the glossary. The 

glossary and list of acronyms can be found immediately before Appendix 1. 

 Appendices. Appendices at the end of the handbook include forms and other 

reference materials that relate to multiple chapters or the entire handbook.

SECTION 2: THE RURAL HOUSING SERVICE (RHS) 

1.4 RHS ORGANIZATION 

RHS is a credit agency within USDA for rural housing and community development. 

The Agency’s purpose is to increase the availability of affordable housing and community 

facilities for rural residents. 

The GRRHP will be administered jointly by the RHS National Office and State Offices. 

The National Office will allocate guarantee authority to the States. National Office staff will 

also approve lenders and allocate interest credit, if applicable. 

All applications will be sent to the State Offices initially. State Offices will score 

applications and submit them to the National Office for its concurrence, when applicable, and 

funding. 

SECTION 3: PROGRAM OVERVIEW 

1.5 PROGRAM GOALS 

The GRRHP was established to: 

 Increase the supply of affordable rental housing in rural areas; 

 Ensure that housing is affordable to rural residents whose incomes are 115 percent or 

less of area median income (AMI); 

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 Provide housing that is decent, safe, sanitary, and competitive in the market; and 

 Foster risk-sharing partnerships with public and private lenders. 

Under the program, the Agency will provide credit enhancements through Government 

guarantees to encourage private and public lenders to make new loans for the construction and 

preservation of affordable rural rental properties. The Agency will review lender qualifications 

and approve eligible lenders to participate in the program. Approved, lenders will underwrite 

and service the loans guaranteed by the Agency. The Agency will monitor lender performance 

to ensure it meets program requirements. 

1.6 ELIGIBLE RURAL AREA 

Loans under this program may only be made in an eligible rural area. An eligible rural 

area is: 

 Open country which is not a part of or associated with an urban area. 

 Any town, village, city, or place, including the immediate, adjacent, densely-settled 

area which is not part of or associated with an urban area and which has: 

 An area with a population of 10,000 or less if it is rural in character, or 

 An area with a population in excess of 10,000, but not in excess of 20,000, 

that is not contained within a Metropolitan Statistical Area and has a serious lack 

of mortgage credit for low and moderate income households, as determined by the 

Secretary of Agriculture and the Secretary of the Department of Housing and 

Urban Development (HUD), or 

 An area classified as a rural area prior to October 1, 1990, (even if within 

a Metropolitan Statistical Area), with a population exceeding 10,000, but not in 

excess of 25,000, which is rural in character and has a serious lack of mortgage 

credit for low and moderate income families. (This definition is effective through 

the receipt of the most current decennial census data.) 

 A Section 515 revitalization property that will use Section 538 Guaranteed Rural 

Rental Housing loan funds. (This is permissible in areas that are no longer rural.) 

1.7 PROGRAM FEATURES 

The GRRHP program offers the following types of loan guarantees [7 CFR 3565.52 

(c)(1), (c)(2), and (c)(3)]: 

 The Agency may guarantee permanent loans (Option One). 
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 The Agency may guarantee advances during construction and [when eligible] the permanent 

loan (Option Two). 

 The Agency may provide a single continuous guarantee for construction and permanent loans 

(Option Three). 

Key features of the program include: 

A. Risk Sharing With Lenders 

The Agency will provide a guarantee in the event of loss of up to 90 percent of the loan 

amount; lenders will retain the remaining 10 percent of any loss. The Agency and lender risk 

sharing percentages will be applied equally to every dollar of the Agency-approved loss amount. 

While this type of lending presents additional risks to lenders, the Agency believes that lender 

performance will be improved if lenders have a financial interest in preventing losses. 

B. Affordability Features 

The program restricts both tenant income and unit rents. The program is designed to provide 

housing for low- or moderate-income families or individuals whose incomes at initial occupancy 

do not exceed 115 percent of the AMI adjusted for family size. Monthly rent for a unit may not 

exceed 30 percent of 115 percent of adjusted AMI. Average project rent may not exceed 30 

percent of 100 percent of AMI. 

C. Construction and Permanent Financing 

The program may provide credit enhancement for construction lending as part of a 

construction and permanent loan. This feature is intended to encourage greater construction 

lending in rural areas and make it easier for lenders to make one loan to finance a project. 

D. Lender Origination, Servicing, and Disposition 

To be approved to participate in the program lenders must be experienced in affordable rental 

housing loan origination and servicing. Lenders will be responsible for underwriting the loan in a 

prudent manner and for servicing the loan to ensure repayment and protection of the property. In 

the event of default by the borrower, lenders must dispose of properties prior to submitting a 

claim to the Agency. 

When a borrower defaults on a loan, the lender must submit a liquidation plan for the 

Agency’s approval. When the property is liquidated, the lender will be able to submit a claim and 

receive payment for the Agency’s share of any loss if the lender has complied with all program 

requirements. 

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E. The Notice of Program Funding 

The availability of GRRHP guarantee and interest credit authority under all three 

options and the criteria for allocating this assistance will be made public through some 

form of electronic communication such as e-mail service, GovDelivery, or a Federal 

Register Notice.. Once the public has been notified, lenders may submit a summary of 

proposed projects for scoring and ranking. All responses will be reviewed and ranked in 

accordance with selection criteria included in the Notice. Applicants selected will be 

issued a Notice to Proceed with Processing (Notice to Proceed) of an application for a 

loan guarantee. 

1.8 ROLES AND RESPONSIBILITIES OF AGENCY, LENDER, AND BORROWER 

Each participant in the guarantee program has responsibilities that must be met if the 

program is to achieve its goals. Agency staff, participating lenders, and borrowers should 

understand the range of tasks for which they are responsible. The responsibilities are 

summarized below. 

The Agency will: 

 Approve qualified lenders and monitor lenders for compliance; 

 Conduct the National Environmental Policy Act (NEPA) environmental 

review; 

 Approve the loan guarantee application; and 

 Process and pay claims. 

The Lender must: 

 Originate and service loans; 

 Monitor the borrower and property for compliance with program 

requirements; 

 Manage the mortgage asset through regular monitoring; and 

 Provide reports to the Agency on loans in their portfolio. 

The Borrower must: 

 Develop and maintain property that is decent, safe, and sanitary; 

 Ensure that the occupancy and rent requirements are met; 
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 Comply with all other program rules and regulations; and 

 Comply with the loan requirements. 

1.9 IDENTITY OF INTERESTS 

Hidden identity of interest relationships may undermine the confidence of participants 

and the public that the program is fair and open. The lender is responsible for properly 

addressing any identity of interest situations and for disclosing their existence to the Agency 

using Forms RD 3560-30 “Certification of No Identity of Interest (IOI)” or 3560-31 “Identity of Interest 

Disclosure/Qualification Certificate”. 

Identity of interest may exist between the borrower and another party, such as a general 

contractor, architect, engineer, attorney, subcontractor, material supplier, or equipment lessor (hereafter 

called “other entities”) in circumstances such as the following: 

 When there is any financial interest of the borrower in any other entity, except provisions of 

normal professional services by architects, engineers, attorneys, or accountants with a clientprofessional relationship (these situations will not constitute an identity of interest); 

 When one or more of the officers, directors, stockholders, or partners of the borrower is also 

an officer, director, stockholder, or partner of any other entity; 

 When any officer, director, stockholder, or partner of the borrower has any financial interest, 

whatsoever, in any other entity; 

 When any spouse or relative (such as grandmother, aunt, daughter, granddaughter, 

grandfather, uncle, son, grandson, mother, sister, niece, cousin, father, brother, nephew) or 

step-relatives of the borrower, on its principals, has any significant financial interest in any 

other entity; 

 When any other entity advances any funds to the borrower; 

 When any other entity provides and pays, on behalf of the borrower, the cost of any legal 

services, architectural services, engineering services, or other development costs, other than 

those of a surveyor, general superintendent, or engineer employed by a general contractor, in 

connection with obligations under the construction contract; 

 When any other entity takes significant stock or any interest in the borrower as part of the 

consideration to be paid; 

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 When there exists or comes into being any side deals, agreements, contracts, or 

undertakings that alter, amend, or cancel any of the required loan or construction 

closing documents; or 
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 When another party can significantly influence the management or operating policies 

of the transacting parties, or if it has an ownership interest in one of the transacting 

parties and can significantly influence the other to an extent that one or more of the 

transacting parties might be prevented from fully pursuing its own separate interests. 

When considering whether a lender’s relationship in an entity that purchased the low income 

housing tax credits generated by a project may be an inappropriate identity of interest, the 

Agency will determine whether the lender’s interest in the entity controlling the tax credits 

conflicts with the lender’s responsibilities under the program. From to time to time affordable 

housing lenders, in addition to providing loan funds on affordable housing projects may purchase 

an interest in an entity that purchased the low income housing tax credits on that project. The 

Agency does not want to discourage this practice however the Agency must be sure that its 

interest as a guarantor is not compromised by the lender’s interest in the tax credit ownership 

entity. The Agency will look to several factors during its review; 

 The lender’s ownership interest in the entity owning the tax credits; 

 The lender’s ability to effect action within the entity that owns the tax credits; 

 The connection and interaction between the subsidiary of the lender that owns the 

interest in the entity owning the subsidiary of the lender that originates and 

services the loan guaranteed by the Agency; and 

 The loan to cost ratio of the guaranteed loan for the project. 

1.10 AGENCY EXCEPTION AUTHORITY 

Exceptions to any requirement of this handbook or [7 CFR part 3565], which 

are not inconsistent with any applicable law, may be approved by the Administrator or 

a designee, on an individual basis, if the application of the requirement or failure to 

take action would adversely affect the government’s interest, adversely affect the 

accomplishment of the purposes of the program, or result in undue hardship. The Administrator 

may exercise such authority independently or at the request of the State Director. A request for 

an exception to any requirement may also be initiated by the Deputy Administrator for 

Multifamily Housing. The exception request must provide clear and convincing evidence of the 

need for the exception. At a minimum, the request must include: 

 A full explanation of the circumstances, including an explanation of the adverse effect 

on the government’s interest or on the accomplishment of program purposes, or any 

undue hardship that may result if an exception is not granted; 

 A discussion of proposed alternatives considered; and 
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 A discussion of how the adverse effect will be eliminated or minimized if the 

exception is granted. 

State Office requests for exceptions regarding architectural and engineering, 

environmental, or civil rights issues must be accompanied by the review and comments of the 

appropriate State Office technical staff and will be referred to the appropriate National Office 

technical staff for further comment before a decision is made. Likewise, when exception 

requests on such issues are generated by the Administrator or National Office staff, such requests 

will be referred to the appropriate National Office technical staff for further comment before a 

decision is made. 

1.11 REVIEWS AND APPEALS 

Only the borrower and/or lender can appeal an Agency decision. The borrower and 

lender must jointly execute the written request for review of an alleged adverse decision made by 

the Agency and both must participate in the appeal. In cases where the Agency has denied or 

reduced the amount of final loss payment to the lender, the adverse decision may be appealed by 

the lender only. A decision by a lender adverse to the interest of the borrower is not 

a decision by the Agency, whether or not concurred in by the Agency. Appeals will 

be handled in accordance with 7 CFR part 11. 

An Agency decision that is not made in favor of the lender may be considered an adverse 

decision. Agency decisions may include administrative actions taken by Agency officials or the 

Agency’s failure to take required actions within required or reasonable timeframes. The lender 

may request a review of adverse Agency decisions by the next-level supervisor except those 

decisions made by the Secretary. In addition, most adverse decisions may be appealed to the 

National Appeals Division (NAD). The Agency review and appeals policy for all programs can 

be found in Attachment 1-A. 

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SECTION 4: FEDERAL REQUIREMENTS 

1.12 INTERGOVERNMENTAL REVIEW 

The Agency is responsible for ensuring that intergovernmental review and 

comment is obtained on all proposals in accordance with RD Instruction 1970-I. The 
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intergovernmental review process must be initiated by the lender or the borrower. This process 

should be completed as early as possible since all comments must be submitted to the Agency 

for consideration as part of the environmental review. 

1.13 NATIONAL FLOOD INSURANCE PROGRAM 

Property located in a Special Flood Hazard Area (SFHA) designated by the 

Federal Emergency Management Agency (FEMA) is not eligible for Federal financial 

assistance, including loan guarantees, unless flood insurance through the National Flood 

Insurance Program (NFIP) is available. Flood insurance through NFIP must be purchased prior 

to loan closing and issuance of the guarantee, in accordance with the National Flood Insurance 

Act, as amended, and RD Instruction 426.2. These requirements are also addressed in Chapter 

11. 

1.14 HISTORIC PRESERVATION 

The Agency is responsible for compliance with historic preservation statutes, 

regulations, and related directives, in accordance with RD Instruction 1940-G and RD 

Instruction 1901-F. 

1.15 CIVIL RIGHTS 

A. Nondiscrimination 

Federal civil rights laws ensure that 

no person will, exclude from participation in, 

deny the benefits of, or subject to 

discrimination, any person in the United 

States under program activity conducted by 

Rural Development, on the basis of race, 

color, religion, sex, age, national origin, 

familial status, physical or mental disability, 

or because all or part of an individual income is derived from any public assistance program. 

Discrimination in employment practices also is prohibited. Exhibit 7-5 lists the applicable 

Federal laws and Executive Orders and highlights key aspects of these requirements. 

The rules of nondiscrimination apply to all parties involved in this process. The lender is 

responsible for upholding the laws pertaining to nondiscrimination in selecting, assisting, and 

monitoring a borrower. Borrowers are held accountable for any discrimination resulting from 

development and management tasks, from the hiring of construction firms, and from the 

selection of tenants. 

Effective program management and consistent policies and procedures are essential to 

ensure that all applicants are treated fairly. Poor program implementation, whether or not 

Key Civil Rights Issues 

 Access 

 Consistency and fairness of treatment 

 Disparate impacts -- intended or unintended 

 Record keeping 
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discrimination is intended, may have possible civil rights consequences. Attention to consistent 

procedures is especially important in several key areas listed below. 

 Outreach. Information about the availability of GRRHP rental units and how to 

apply for tenancy must be broadly disseminated, and the information, assistance, and 

courtesy extended to those who make inquiries must be equal and consistent. 

 Application-taking procedures. Application-taking procedures must be fair and 

equally accessible to all potential tenant applicants. 

 Determining eligibility. Lenders, borrowers, and property managers must use equal 

rigor for all applicants when verifying income, conducting credit checks, and allowing 

applicants to clarify information. 

 Making exceptions. Standards for offering exceptions to policies and procedures 

must be applied equally and consistently. 

 Loan terms and subsidies. Opportunities for subsidies and favorable loan terms 

must be made available equally and consistently. 

 Hearings and appeals. Avenues for remedies when problems arise must be equally 

accessible to all applicants. 

B. Reasonable Accommodations for Persons with Disabilities 

It is unlawful for owners or managers to refuse to make reasonable accommodations in 

rules, policies, practices, or services, when such accommodations may be necessary to afford a 

qualified person with a disability equal opportunity to use and enjoy a dwelling unit, including 

public and common use areas. It is also unlawful for owners or managers to refuse to permit, at 

the expense of a qualified person with a disability, reasonable modifications of existing 

premises, occupied or to be occupied by a disabled person so that they may have full enjoyment 

of the premises of a dwelling. 

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1.16 FAIR HOUSING 

Federal fair housing regulations provide the specific framework to ensure that 

Federal housing assistance is available to all individuals qualified by income and 

residence in rural areas, without regard to race, color, religion, sex, familial status, 

national origin, or disability. This includes any actions in the financing, sale, rental, 
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or advertising of the dwellings or in the provision of brokerage services that involve Federal 

assistance. 

All participating lenders and borrowers must comply with the requirements of Title VIII 

of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988 (the 

Fair Housing Act). Any lender or borrower that refuses to comply with the regulations is liable 

for sanctions as authorized by law. 

If a resident or prospective resident believes that their denial of occupancy was based on 

discrimination, they may file a complaint with HUD. 

1.17 ENVIRONMENTAL REQUIREMENTS 

It is the Agency’s policy to give environmental quality equal consideration with 

economic, social, and other factors in its program development and decision-making 

processes. The Agency is concerned with the impact of the project on important environmental 

resources, as well as the quality of life for residents and the long-term viability of the project as 

an investment. It is the responsibility of the Agency to effectively integrate the environmental 

policies and procedures, described in RD Instruction 1940-G and Executive Order 12898 

“Federal Actions to Address Environmental Justice in Minority Populations and Low – Income 

Populations” and the Departmental Regulation 5600-002 which implements the Executive 

Order”, into loan guarantee origination and servicing activities. 

Lenders and borrowers must cooperate fully with the Agency and provide such 

information as the Agency needs to complete its environmental review. Lenders must become 

familiar with the requirements so they can help advise borrowers and reduce the probability of 

unacceptable applications being submitted to the Agency and so they can speed Agency approval 

or consent to certain servicing actions. 

The responsibilities of the lender and the Agency to address environmental issues are 

discussed in more detail in Chapter 11. 
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Attachment 1-A 

Page 1 of 2 

ATTACHMENT 1-A 

REVIEW AND APPEALS OF ADVERSE AGENCY DECISIONS 

A. INFORMING LENDERS OF THEIR RIGHTS 

Whenever the Agency makes a decision that will adversely affect a lender, the Agency 

must inform the lender in writing that a review by the next-level supervisor may be requested. 

The Agency must also inform the lender whether or not the decision can be appealed to the 

National Appeals Division (NAD). 

The lender and/or borrower can appeal an Agency decision made under this 

program. In cases where the Agency has denied or reduced the amount of final loss 

payment to the lender, the adverse decision may be appealed by the lender only. A decision 

made by a lender adverse to the interest of the borrower is not a decision made by the Agency, 

whether or not concurred in by the Agency. Appeals will be handled in accordance with 7 CFR 

part 11. Any lender adversely affected by an Agency decision under this subpart may request a 

determination of appealability from the Director, NAD, USDA, within 30 days of 

the adverse decision.

Review Requests. Lenders who want to request a review by the next-level 

supervisor must do so within 15 days of the date of the Agency’s letter notifying the 

applicant of an adverse decision. The lender shall have the option to make the request 

in writing or verbally. Copies of written requests should be retained in the lender’s files. If the 

lender chooses to make a verbal request, it should be carefully documented. The review must be 

completed within 45 days of the request. 

Appeal Requests. Lenders who wish to appeal an adverse decision must 

submit a written request to NAD within 30 days of receiving notice of an adverse 

decision. The request must be personally signed by the participant and include a copy of the 

adverse decision to be appealed and a brief statement describing why the participant believes the 

decision is wrong. 

NAD will notify the participant and the Agency once it has made a final determination. 

If NAD reverses the Agency’s decision, the next loan processing action that would have 

occurred (had no adverse decision been made) must be taken within 30 days after the effective 

date of the notice from NAD. 
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Attachment 1-A 

Page 2 of 2 

B. DECISIONS THAT CANNOT BE APPEALED 

Decisions that cannot be appealed by the lender include: 

 Interest rates set by the Agency’s procedures, unless the participant alleges that an 

incorrect interest rate was applied; 

 Decisions made in accordance with the statute; 

 Denials of credit due to lack of funds; and 

 Decisions made by the lender. 

Participants may submit a written request to NAD to confirm that the decision cannot be 

appealed. Even though a decision is not appealable, Agency staff must provide the participant 

an opportunity for a review and explanation of the decision.