HB-2-3560

CHAPTER 2: MULTI-FAMILY HOUSING 

PROGRAMS AND ASSET MANAGEMENT 

2.1 INTRODUCTION 

This chapter introduces key aspects of the Section 515 Multi-Family 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 handbook (HB-1-3565). 

This chapter also presents the asset management framework that the Agency uses to 

oversee borrower performance in meeting their responsibilities under the program. The 

framework provides Loan Servicers with a consistent basis for ensuring that borrowers’ 

operation of projects meets the objectives of the program and complies with applicable program

requirements. 

Section 1 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 

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 

outlines the Agency’s asset management framework, 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; 

• Rental assistance available from the Agency; and 

• The Agency’s preference for leveraged projects. 

2.3 TYPES OF PROJECTS 

There are five types of rental projects that can be developed using Section 515 loans: 

• Family projects; 

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• Elderly projects; 

• Congregate projects; 

• Group homes; and 

• Rural cooperative housing. 

The housing must be economical and must not include elaborate features, but 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-, and moderate-income households. Nonelderly and elderly households 

may occupy the housing. Household income is the only tenant characteristic, except 

under extraordinary circumstances such as tenant displacement, which is given 

preference in selecting among eligible applicants for occupancy. Priority is also given to 

those needing features of an accessible unit if one becomes available. Occupancy may 

not be restricted to particular groups of eligible households and may include elderly 

households. 

B. Elderly Projects 

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

eligible elderly households, which include a tenant or cotenant who is disabled or age 62 

years or older. Persons with disabilities and their families are permitted to live in elderly 

housing. 

C. Congregate Projects 

Congregate projects are rental properties developed for occupancy by eligible very 

low-, low-, or moderate-income elderly households, individuals with disabilities and 

families who require some supervision and central services but are otherwise able to care 

for themselves. 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. When leasing units, priority 

may be given to eligible elderly households who qualify for the services provided by the 

facility. 

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D. Group Homes 

A group home is housing that is occupied by eligible very low-, low-, and 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, who will own and manage the project. 

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. 

Loans are only made to projects that further the program’s objectives and comply with 

applicable Agency requirements. 

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 does make initial loans for 

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 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 Chapter 7 and also in HB-3-3560. 

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 a 50-year amortization period. . 

 

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 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. 

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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 11 of HB-1-3560. Guidance regarding the requirements and 

procedures for processing project transfers is covered in the HB-3-3560. 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. 

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 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. 

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SECTION 2: Section 514/516 Program 

2.6 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. On-Farm Labor 

Housing projects may receive only 514 assistance. They are not eligible for grants (Section 

516). 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 on the property. 

2.7 LOANS AND GRANTS 

A. Farm Labor Housing Loans 

Section 514 loans for Farm Labor Housing projects are very similar to Section 515 

loans. However, they differ in two important ways: 

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

and 

• The maximum term for these loans is 33 years. 

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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 NOFA process, while loans for On-Farm

Labor Housing projects are still processed in the order that they are received. Chapter 12 

of HB-1-3560 provides more detailed information about the origination process for Farm

Labor Housing loans. 

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. 

Chapter 12 of HB-1-3560 provides more information about the origination process for 

these grants.

2.8 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. 

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SECTION 3: SECTION 521 PROGRAM 

2.9 OVERVIEW

The Section 521 Rental Assistance program provides assistance to individual residents of 

Agency financed multi-family projects. Rent subsidies under the Rental Assistance Program

ensure that elderly, disabled, and low-income residents of multi-family housing projects financed 

by RHS are able to afford rent payments. With the help of the Rental Assistance Program, a 

qualified applicant/tenant pays no more than 30 percent of his or her income for housing. 

Residents of multi-family housing projects built under both the Rural Rental Housing 

Program (Section 515) and the Farm Labor Housing Program (Section 514) are eligible to apply 

for the Rental Assistance Program. Not all residents of RHS-financed housing developments 

receive rental assistance. 

The Agency and the project owner execute a contract in which the Agency commits 

payments on behalf of tenants in a designated number of the units. Both the Agency and the 

project owner agree to be bound by all applicable Agency regulations. The contract becomes 

effective on the first day of the month in which it is executed (additional units may be covered if 

funds are available and an additional contract is executed). The agreement may be renewed as 

many times as funds are made available. State Directors may transfer unused and unneeded 

contracts or portions of contracts to other projects. 

2.10 SECTION 515 & 514/516 PROGRAM 

A. Section 515 

Owners of Section 515 projects located in areas where prospective applicants are likely to 

be overburdened by rent or where existing tenants are already overburdened can apply for 

rental assistance administered by the Agency. 

B. Section 514/516 

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. Operating assistance may be used in lieu of tenant-specific rental assistance in offfarm labor housing projects financed under Section 514 or Section 516 that serve migrant 

farm workers. On-Farm Labor Housing projects are not eligible for rental assistance. 

SECTION 4: ASSET MANAGEMENT FRAMEWORK 

2.11 ASSET MANAGEMENT 

The goal of the Agency’s asset management procedures is to ensure that projects 

receiving Agency financing operate in a manner consistent with the program’s objectives and 

comply with applicable requirements. Accordingly, this handbook covers the following aspects 

of project operation and oversight: 

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• Project Management; 

• Financial Management; 

• Physical Condition of the Project; 

• Project Occupancy; 

• Project Rents; and 

• Rental Subsidies. 

It presents the program requirements in each of these areas and describes the Agency’s 

procedures for monitoring properties to ensure that borrowers, their agents, and tenants are 

fulfilling their 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 KEY ASSET MANAGEMENT ACTIVITIES AND DOCUMENTS 

A. Key Agency Activities 

The Agency uses the same basic 

procedures to oversee the performance of all 

types of multi-family housing projects that it 

directly finances. While the Agency’s 

oversight activities are essentially the same

for all types of projects, the aspects of 

borrower performance examined during these 

activities will vary by type of project due to 

differences in requirements. 

Asset Management 

Asset management refers to 

Agency oversight of project 

performance to ensure that operation of 

the property furthers the program’s 

objectives and complies with applicable 

Agency requirements.

Agency oversight activities fall into three major categories:

• Oversight of new projects or borrowers; 

• Annual oversight activities; and 

• Periodic oversight activities. 

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The specific activities in each category are summarized in Exhibit 2-1. 

Exhibit 2-1 

Key Asset Management Activities 

Agency Actions for New Projects:

• Conduct pre-occupancy meeting; 

• Conduct post occupancy review; 

• Review project worksheets; and 

• Review of quarterly/monthly reports. 

Annual Agency Actions:

• Review project worksheets; 

• Review of project annual financial report; 

• Annual review of project reserve account (new); 

• Annual physical review; 

• Review and approval of project budget for the coming year; 

• Respond to evidence of potential compliance concerns (e.g., substantiated 

tenant complaints, reports by other Agency staff or offices, information 

provided by public or other agency); and

• Respond to servicing requests from borrowers. 

Periodic Agency Actions:

• Perform physical inspection of project; 

• Perform occupancy review of project; 

• Perform supervisory visit; and 

• Conduct compliance reviews. 

All of the above require follow-up to address deficiencies. 

B. Key Documents 

Borrowers’ responsibilities under the program and evidence that they are complying 

with program requirements are established through program loan and grant documents. 

The key program documents used in Agency asset management activities are listed in 

Exhibit 2-2. 

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Exhibit 2-2 

Key Program Documents 

• Mortgage or deed of trust;

• Promissory Note; 

• Loan agreement/resolution; 

• Grant agreement; 

• Interest credit and rental assistance agreement; 

• Rental assistance agreement; 

• Management plan; 

• Management certification; 

• Management agreement; 

• Affirmative Fair Housing Marketing Plan; 

• Project worksheet; 

• Utility allowance documentation; 

• Tenant certification; 

• Dwelling lease; 

• Project budget; 

• Annual financial report for project; and 

• Agency Monitoring Forms.

2.13 ASSET MANAGEMENT PROCEDURES FOR MULTI-FAMILY HOUSING 

PROJECTS 

Chapters 3 through 9 describe the program requirements for Section 515 and 514/516 

projects. 

A. Property Management (Chapter 3) 

Borrowers must comply with a number of program requirements regarding general 

project management functions. The borrower’s plans for project management are 

documented in management documents (the management plan and management entity 

profile). The Agency must also approve the project’s management agent and review 

management fees for reasonableness. 

B. Financial Management (Chapter 4) 

Borrowers must establish project financial management systems and procedures that 

reflect the complexity of project operations and provide adequate supervision to ensure 

that program objectives are met. The Agency has specific requirements regarding project 

accounting, budgeting, financial reporting, and project annual financial reports. The 

borrower’s accounting system identified in the management plan must comply with the 

Agency’s chart of accounts. The Agency will monitor project accounts through project 

reports and monitoring visits to the site. The Agency approves the budget on an annual 

basis and reviews financial reports on an ongoing basis. 

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C. Project Physical Conditions (Chapter 5) 

Borrowers are responsible for maintaining their projects’ physical conditions to meet 

program standards for decent, safe, and sanitary housing. Loan Servicers will monitor 

the quality of the housing through regular physical inspections of the property as well as 

through the budget process. The Agency will review the borrower’s capital budget 

planning and approve reserve withdrawals for capital improvements. In the event that a 

borrower fails to meet program standards, Loan Servicers are responsible for ensuring 

that the borrower takes appropriate actions to correct physical deficiencies. 

D. Project Occupancy (Chapter 6) 

Loan Servicers will monitor borrowers’ compliance with program occupancy rules, 

ensuring that tenant eligibility requirements are observed and occupancy policies are 

consistently followed. The borrower must market the project to all eligible applicants 

and process applications, select tenants, and assign units in a fair and consistent manner. 

Borrower must also observe Agency rules regarding dwelling leases, tenant 

recertification, termination of occupancy, and tenant grievance procedures. Loan 

Servicers will check compliance with these requirements through regular reports and 

monitoring visits to the site. 

E. Rents, Shelter Cost, and Utility Allowances (Chapter 7)

Loan Servicers will review projects to ensure that the borrower establishes

appropriate rents, occupancy charges, and utility allowances for individual units and, on 

an annual basis, review budgets to approve or deny requests for rent changes. Loan 

Servicers will also ensure that the borrower meets all requirements in handling the 

following: 

• Tenant rent payments during evictions; 

• Tenant security deposits; and 

• Cases of tenant fraud. 

F. Rental Subsidies (Chapter 8) 

A multi-family housing project may have one or more types of rental subsidy 

including Agency rental assistance (RA), HUD Section 8, or other local forms of rental 

subsidy. Loan Servicers must ensure that borrowers comply with requirements to use RA 

appropriately. Only eligible projects, units, and tenants may receive rental subsidies. 

The borrower must enter into a rental subsidy agreement with the appropriate agency. 

Agency staff has administrative responsibilities for RA including suspending or 

transferring RA, replacing expiring RA agreements, and processing borrower requests for 

additional RA, modifying RA agreements and agency oversight of borrower 

performance. 

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G. Agency Monitoring (Chapter 9) 

Loan Servicers must perform regular reviews of multi-family housing projects to 

monitor project performance and ensure compliance with program regulations and civil 

rights laws. Loan Servicers will make efforts to plan and prioritize monitoring activities

to focus on the projects that need the most Agency attention. Borrowers will submit 

reports on an ongoing basis (either monthly or quarterly, as needed) to provide the 

Agency with much of the information needed to monitor project performance. However, 

Field Office Staff will also perform site visits as part of annual reviews, physical 

inspections, and supervisory visit.

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