I

103D CONGRESS

2D SESSION H. R. 4445

To amend the Housing Act of 1949 to authorize the Secretary of Agriculture

to guarantee the repayment of loans made by private lenders for the

development costs of multifamily rental housing for low- and moderateincome families in rural areas.

IN THE HOUSE OF REPRESENTATIVES

MAY 18, 1994

Mr. BEREUTER introduced the following bill; which was referred to the

Committee on Banking, Finance and Urban Affairs

A BILL

To amend the Housing Act of 1949 to authorize the Secretary of Agriculture to guarantee the repayment of loans

made by private lenders for the development costs of

multifamily rental housing for low- and moderate-income

families in rural areas.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Rural Multifamily

5 Rental Housing Loan Guarantee Demonstration Act’’.
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1 SEC. 2. LOAN GUARANTEES FOR MULTIFAMILY RENTAL

2 HOUSING IN RURAL AREAS.

3 Title V of the Housing Act of 1949 is amended by

4 adding at the end the following new section:

5 ‘‘SEC. 543. LOAN GUARANTEES FOR MULTIFAMILY RENTAL

6 HOUSING IN RURAL AREAS.

7 ‘‘(a) AUTHORITY.—The Secretary may make commit8 ments to guarantee eligible loans for the development costs

9 of eligible housing and related facilities, and may guaran10 tee such eligible loans, in accordance with this section.

11 ‘‘(b) EXTENT OF GUARANTEE.—A guarantee made

12 under this section shall guarantee repayment of an

13 amount not exceeding 90 percent of the unpaid principal

14 and interest of the loan for which the guarantee is made.

15 The liability of the United States under any guarantee

16 under this section shall decrease or increase pro rata with

17 any decrease or increase of the amount of the unpaid por18 tion of the obligation.

19 ‘‘(c) ELIGIBLE BORROWERS.—A loan guaranteed

20 under this section may be made to a nonprofit organiza21 tion, an agency or body of any State government or politi22 cal subdivision thereof, or a private entity.

23 ‘‘(d) ELIGIBLE HOUSING.—A loan may be guaran24 teed under this section only if the loan is used for the

25 development costs of housing and related facilities (as

26 such terms are defined in section 515(e)) that—
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1 ‘‘(1) consists of 5 or more adequate dwellings;

2 ‘‘(2) is available for occupancy only by low or

3 moderate income families or persons, whose incomes

4 at the time of initial occupancy do not exceed 115

5 percent of the median income of the area, as deter6 mined by the Secretary;

7 ‘‘(3) will remain available as provided in para8 graph (2), according to such binding commitments

9 as the Secretary may require, for the period of the

10 original term of the loan guaranteed, unless the Sec11 retary waives the applicability of such requirement

12 for the loan; and

13 ‘‘(4) is located in a rural area.

14 A low-income housing tax credit under section 42 of the

15 Internal Revenue Code of 1986 may be provided in con16 nection with housing developed using amounts from a loan

17 guaranteed under this section, but only if such housing

18 complies with the requirements under such Code for such

19 a credit.

20 ‘‘(e) ELIGIBLE LENDERS.—

21 ‘‘(1) REQUIREMENT.—A loan may be guaran22 teed under this subsection only if the loan is made

23 by a lender that the Secretary determines—

24 ‘‘(A) meets the qualifications, and has been

25 approved by the Secretary of Housing and
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1 Urban Development, to make loans for multi2 family housing that are to be insured under the

3 National Housing Act;

4 ‘‘(B) meets the qualifications, and has

5 been approved by the Federal National Mort6 gage Association, to make loans for multifamily

7 housing that are to be sold to such corporation;

8 ‘‘(C) meets the qualifications, and has been

9 approved by the Federal Home Loan Mortgage

10 Corporation, to make loans for multifamily

11 housing that are to be sold to such Corporation;

12 or

13 ‘‘(D) meets any qualifications that the Sec14 retary may, by regulation, establish for partici15 pation of lenders in the loan guarantee program

16 under this section.

17 ‘‘(2) ELIGIBILITY LIST AND ANNUAL AUDIT.—

18 The Secretary shall establish a list of eligible lenders

19 and shall annually conduct an audit of each lender

20 included in the list for purposes of determining

21 whether such lender continues to be an eligible lend22 er.

23 ‘‘(f) LOAN TERMS.—Each loan guaranteed pursuant

24 to this subsection shall—
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1 ‘‘(1) provide for complete amortization by peri2 odic payments to be made for a term not to exceed

3 40 years;

4 ‘‘(2) involve a rate of interest agreed upon by

5 the borrower and the lender that does not exceed the

6 maximum allowable rate established by the Secretary

7 for purposes of this section and is fixed over the

8 term of the loan;

9 ‘‘(3) involve a principal obligation (including

10 initial service charges, appraisal, inspection, and

11 other fees as the Secretary may approve) not to ex12 ceed—

13 ‘‘(A) in the case of a borrower that is a

14 nonprofit organization or an agency or body of

15 any State or local government, 97 percent of

16 the development costs of the housing and relat17 ed facilities or the value of the housing and fa18 cilities, whichever is less;

19 ‘‘(B) in the case of a borrower that is a

20 for-profit entity not referred to in subparagraph

21 (A), 90 percent of the development costs of the

22 housing and related facilities or the value of the

23 housing and facilities, whichever is less; and

24 ‘‘(C) in the case of any borrower, for such

25 part of the property as may be attributable to
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1 dwelling use, the applicable maximum per unit

2 dollar amount limitations under section 207(c)

3 of the National Housing Act; and

4 ‘‘(4) be secured by a first mortgage on the

5 housing and related facilities for which the loan is

6 made, or otherwise, as the Secretary may determine

7 necessary to ensure repayment of the obligation.

8 ‘‘(g) GUARANTEE FEE.—At the time of issuance of

9 a loan guaranteed under this section, the Secretary may

10 collect from the lender a fee equal to not more than 1

11 percent of the principal obligation of the loan.

12 ‘‘(h) AUTHORITY FOR LENDERS TO ISSUE CERTIFI13 CATES OF GUARANTEE.—The Secretary may authorize

14 certain eligible lenders to determine whether a loan meets

15 the requirements for guarantee under this section and,

16 subject to the availability of authority to enter into guar17 antees under this section, execute a firm commitment for

18 a guarantee binding upon the Secretary and issue a certifi19 cate of guarantee evidencing a guarantee, without review

20 and approval by the Secretary of the specific loan. The

21 Secretary may establish standards for approving eligible

22 lenders for a delegation of authority under this subsection.

23 ‘‘(i) PAYMENT UNDER GUARANTEE.—

24 ‘‘(1) NOTICE OF DEFAULT.—In the event of de25 fault by the borrower on a loan guaranteed under
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1 this section, the holder of the guarantee certificate

2 for the loan shall provide written notice of the de3 fault to the Secretary.

4 ‘‘(2) FORECLOSURE.—After receiving notice

5 under paragraph (1) and providing written notice of

6 action under this paragraph to the Secretary, the

7 holder of the guarantee certificate for the loan may

8 initiate foreclosure proceedings for the loan in a

9 court of competent jurisdiction, in accordance with

10 regulations issued by the Secretary, to obtain posses11 sion of the security property. After the court issues

12 a final order authorizing foreclosure on the property,

13 the holder of the certificate shall be entitled to pay14 ment by the Secretary under the guarantee (in the

15 amount provided under subsection (b)) upon (A)

16 conveyance to the Secretary of title to the security

17 property, (B) submission to the Secretary of a claim

18 for payment under the guarantee, and (C) assign19 ment to the Secretary of all the claims of the holder

20 of the guarantee against the borrower or others aris21 ing out of the loan transaction or foreclosure pro22 ceedings, except claims released with the consent of

23 the Secretary.

24 ‘‘(3) ASSIGNMENT BY SECRETARY.—After re25 ceiving notice under paragraph (1), the Secretary
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1 may accept assignment of the loan if the Secretary

2 determines that the assignment is in the best inter3 ests of the United States. Assignment of a loan

4 under this paragraph shall include conveyance to the

5 Secretary of title to the security property, assign6 ment to the Secretary of all rights and interests

7 arising under the loan, and assignment to the Sec8 retary of all claims against the borrower or others

9 arising out of the loan transaction. Upon assignment

10 of a loan under this paragraph, the holder of a guar11 antee certificate for the loan shall be entitled to pay12 ment by the Secretary under the guarantee (in the

13 amount provided under subsection (b)).

14 ‘‘(4) REQUIREMENTS.—Before any payment

15 under a guarantee is made under paragraph (2) or

16 (3), the holder of the guarantee certificate shall ex17 haust all reasonable possibilities of collection on the

18 loan guaranteed. Upon payment, in whole or in part,

19 to the holder, the note or judgment evidencing the

20 debt shall be assigned to the United States and the

21 holder shall have no further claim against the bor22 rower or the United States. The Secretary shall then

23 take such action to collect as the Secretary deter24 mines appropriate.
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1 ‘‘(j) VIOLATION OF GUARANTEE REQUIREMENTS BY

2 LENDERS ISSUING GUARANTEES.—

3 ‘‘(1) INDEMNIFICATION.—If the Secretary de4 termines that a loan guaranteed by an eligible lender

5 pursuant to delegation of authority under subsection

6 (h) was not originated in accordance with the re7 quirements under this section and the Secretary

8 pays a claim under the guarantee for the loan, the

9 Secretary may require the eligible lender authorized

10 under subsection (h) to issue the guarantee certifi11 cate for the loan—

12 ‘‘(A) to indemnify the Secretary for the

13 loss, if the payment under the guarantee was

14 made within a reasonable period specified by

15 the Secretary; or

16 ‘‘(B) to indemnify the Secretary for the

17 loss regardless of when payment under the

18 guarantee was made, if the Secretary deter19 mines that fraud or misrepresentation was in20 volved in connection with the origination of the

21 loan.

22 ‘‘(2) TERMINATION OF AUTHORITY TO ISSUE

23 GUARANTEES.—The Secretary may cancel a delega24 tion of authority under subsection (h) to an eligible

25 lender if the Secretary determines that the lender
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1 has violated the requirements and procedures for

2 guaranteed loans under this section or for other

3 good cause. Any such cancellation shall be made by

4 giving notice to the eligible lender and shall take ef5 fect upon receipt of the notice by the mortgagee or

6 at a later date, as the Secretary may provide. A de7 cision by the Secretary to cancel a delegation shall

8 be final and conclusive and shall not be subject to

9 judicial review.

10 ‘‘(k) REFINANCING.—Any loan guaranteed under this

11 section may be refinanced and extended in accordance

12 with terms and conditions that the Secretary shall pre13 scribe, but in no event for an additional amount or term

14 that exceeds the limitations under subsection (f).

15 ‘‘(l) NONASSUMPTION.—The borrower under a loan

16 that is guaranteed under this section and under which any

17 portion of the principal obligation or interest remains out18 standing may not be relieved of liability with respect to

19 the loan, notwithstanding the transfer of property for

20 which the loan was made.

21 ‘‘(m) GEOGRAPHICAL TARGETING.—

22 ‘‘(1) STUDY.—The Secretary shall provide for

23 an independent entity to conduct a study to deter24 mine the extent to which borrowers in the United

25 States will utilize loan guarantees under this section
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1 and the rural areas in the United States in which

2 borrowers can best utilize and most need loans guar3 anteed under this section. The Secretary shall re4 quire the independent entity conducting the study to

5 submit a report to the Secretary and to the Con6 gress describing the results of the study not later

7 than the expiration of the 90-day period beginning

8 on the date of the enactment of the Rural Multifam9 ily Rental Housing Loan Guarantee Demonstration

10 Act.

11 ‘‘(2) TARGETING.—In providing loan guaran12 tees under this section, the Secretary shall establish

13 standards to target and give priority to rural areas

14 in which borrowers can best utilize and most need

15 loans guaranteed under this section, as determined

16 by the Secretary based on the results of the study

17 under paragraph (1) and any other information the

18 Secretary considers appropriate.

19 ‘‘(n) INAPPLICABILITY OF CREDIT-ELSEWHERE

20 TEST.—Section 501(c) shall not apply to guarantees, or

21 loans guaranteed, under this section.

22 ‘‘(o) HOUSING STANDARDS.—The standards estab23 lished under section 515(m) for housing and related facili24 ties assisted under section 515 shall apply to housing and

25 related facilities the development costs of which are fi-
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1 nanced in whole or in part with a loan guaranteed under

2 this section.

3 ‘‘(p) LIMITATION ON COMMITMENTS TO GUARANTEE

4 LOANS.—

5 ‘‘(1) REQUIREMENT OF APPROPRIATIONS.—The

6 authority of the Secretary to enter into commit7 ments to guarantee loans under this section, and to

8 guarantee loans, shall be effective for any fiscal year

9 only to the extent or in such amounts as are or have

10 been provided in appropriations Acts for such fiscal

11 year.

12 ‘‘(2) LIMITATION ON OUTSTANDING AGGREGATE

13 PRINCIPAL AMOUNT.—Subject to the limitation in

14 paragraph (1), the Secretary may enter into commit15 ments to guarantee loans under this section having

16 an aggregate outstanding principal amount not ex17 ceeding $200,000,000 in each of fiscal years 1995

18 and 1996.

19 ‘‘(q) REPORT.—

20 ‘‘(1) IN GENERAL.—The Secretary shall submit

21 a report to the Congress, not later than the expira22 tion of the 2-year period beginning on the date of

23 the enactment of the Rural Multifamily Rental

24 Housing Loan Guarantee Demonstration Act, de-
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1 scribing the program under this section for guaran2 teeing loans.

3 ‘‘(2) CONTENTS.—The report shall—

4 ‘‘(A) describe the types of borrowers pro5 viding housing with loans guaranteed under this

6 section, the areas served by the housing pro7 vided and the geographical distribution of the

8 housing, the levels of income of the residents of

9 the housing, the number of dwelling units pro10 vided, the extent to which borrowers under such

11 loans have obtained other financial assistance

12 for development costs of housing provided with

13 the loans, and the extent to which borrowers

14 under such loans have used low-income housing

15 tax credits provided under section 42 of the In16 ternal Revenue Code of 1986 in connection with

17 the housing provided with the loans;

18 ‘‘(B) analyze the financial viability of the

19 housing provided with loans guaranteed under

20 this section and the need for project-based rent21 al assistance for such housing;

22 ‘‘(C) include any recommendations of the

23 Secretary for expanding or improving the pro24 gram under this section for guaranteeing loans;

25 and
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1 ‘‘(D) include any other information regard2 ing the program for guaranteeing loans under

3 this section that the Secretary considers appro4 priate.

5 ‘‘(r) DEFINITIONS.—For purposes of this subsection,

6 the following definitions shall apply:

7 ‘‘(1) The term ‘development cost’ has the mean8 ing given the term in section 515(e).

9 ‘‘(2) The term ‘eligible lender’ means a lender

10 determined by the Secretary to meet the require11 ments of subparagraph (A), (B), (C), or (D) of sub12 section (e)(1).

13 ‘‘(3) The terms ‘housing’ and ‘related facilities’

14 have the meanings given such terms in section

15 515(e).

16 ‘‘(s) AUTHORIZATION OF APPROPRIATIONS.—There

17 are authorized to be appropriated for fiscal years 1995

18 and 1996 such sums as may be necessary for costs (as

19 such term is defined in section 502 of the Congressional

20 Budget Act of 1974) of loan guarantees made under this

21 section.

22 ‘‘(t) TERMINATION DATE.—A loan may not be guar23 anteed under this section after September 30, 1996.’’.

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