[Federal Register Volume 87, Number 77 (Thursday, April 21, 2022)]
[Notices]
[Pages 23792-23855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08515]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

[Docket No. RHS-22-MFH-0007]


Notice of Solicitation of Applications for Section 514 Off-Farm 
Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for 
New Construction for Fiscal Year 2022

AGENCY: Rural Housing Service, United States Department of Agriculture.

ACTION: Notice and updates to a previous notice.

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SUMMARY: The Rural Housing Service (RHS) (Agency), a Rural Development 
(RD) agency of the United States Department of Agriculture (USDA), 
published a notice of solicitation of applications (NOSA) in the 
Federal Register on February 2, 2021, entitled ``Notice of Solicitation 
of Applications for Section 514 Off-Farm Labor Housing Loans and 
Section 516 Off-Farm Labor Housing Grants for New Construction for 
Fiscal Year 2021.'' The Notice described the methods used to distribute 
funds, the pre-application and final application processes, and 
submission requirements. On August 3, 2021, the Agency published a 
subsequent notice to announce the second round of solicitation of 
competitive pre-applications and corrected inadvertent errors in the 
NOSA published on February 2, 2021, in the Federal Register. The 
purpose of this Notice is to announce the third round of solicitation 
of applications and to make updates to the initial notice.

DATES: Eligible pre-applications submitted to the Production and 
Preservation Division, Processing and Report Review Branch in response 
to this Notice, will be accepted until July 15, 2022, 12:00 p.m., 
Eastern Standard Time. See the SUPPLEMENTARY INFORMATION section of the 
NOSA published in the Federal Register on February 2, 2021, at 86 FR 
7840, entitled ``Notice of Solicitation of Applications for Section 514 
Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing 
Grants for New Construction for Fiscal Year 2021'' for additional 
information.

ADDRESSES: This funding announcement will be available on Grants.gov. 
Applications submitted in response to this Notice must be submitted

[[Page 23793]]

electronically to the Production and Preservation Division, Processing 
and Report Review Branch. Specific instructions on how to submit 
applications electronically are provided under the SUPPLEMENTARY 
INFORMATION section of the NOSA published in the Federal Register on 
February 2, 2021, FR citation 86 FR 7840, entitled ``Notice of 
Solicitation of Applications for Section 514 Off-Farm Labor Housing 
Loans and Section 516 Off-Farm Labor Housing Grants for New 
Construction for Fiscal Year 2021'' for additional information.

FOR FURTHER INFORMATION CONTACT: Abby Boggs, Branch Chief, Program 
Support Branch, Production and Preservation Division, Multifamily 
Housing Programs, Rural Development, United States Department of 
Agriculture, via email: <a href="/cdn-cgi/l/email-protection#d8b9babaa1f6bab7bfbfab98adabbcb9f6bfb7ae"><span class="__cf_email__" data-cfemail="c5a4a7a7bceba7aaa2a2b685b0b6a1a4eba2aab3">[email protected]</span></a> or phone at: (615) 490-
1371.

SUPPLEMENTARY INFORMATION: The amount of program dollars available will 
be determined by yearly appropriations. Available loan and grant 
funding amounts can be found at the following link: https://www.rd.usda.gov/programs-services/multifamily-housing-programs/farm-labor-housing-direct-loans-grants. Expenses incurred in developing 
preapplications and final applications will be at the applicant's sole 
risk.

Rural Development: Key Priorities

    The Agency encourages applicants to consider projects that will 
advance the following key priorities:
    <bullet> Assisting Rural communities recover economically from the 
impacts of the COVID-19 pandemic, particularly disadvantaged 
communities;
    <bullet> Ensuring all rural residents have equitable access to RD 
programs and benefits from RD funded projects; and
    <bullet> Reducing climate pollution and increasing resilience to 
the impacts of climate change through economic support to rural 
communities.
    For further information, visit https://www.rd.usda.gov/priority-points.

Authority

    This solicitation of applications is authorized under 7 CFR 3560 
and Section 516 of the Housing Act of 1949, 42 U.S.C. 14867.

Background

    As required by 7 CFR 3560.556, RHS is required to publish in the 
Federal Register, an annual NOSA for each round of the Section 514 Off-
Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants 
for New Construction program. The first notice was published on 
February 2, 2021 in the Federal Register, at 86 FR 7840. The Notice 
announced the initial opening round and described the method used to 
distribute funds, the pre-application and final application process, 
and submission requirements.
    A second notice published on August 3, 2021 in the Federal 
Register, at 86 FR 41811. That notice announced the second round of 
solicitation for competitive pre-applications and corrected inadvertent 
errors published in the initial notice.
    There are three rounds of pre-application submissions and 
selections for this program until July 15, 2022. For details, 
applicants should refer to the full funding announcement notice 
published on February 2, 2021, in the Federal Register at 86 FR 7840. 
This notice announces the third round that opens May 16, 2022. The 
available loan and grant funding will be posted to the RHS website by 
April 21, 2022. Pre-applications must be submitted by July 15, 2022, 
12:00 p.m., Eastern Standard Time. RHS will notify applicants by 
September 1, 2022. Final applications must be submitted by November 1, 
2022, 12:00 p.m., Eastern Standard Time.

Updates

    The following information are updates to the Notice published on 
February 2, 2021 in the Federal Register.
    (1). In the Federal Register of February 2, 2021, in FR Doc. 2021-
02193, on page 7840, in the third column, update the ``Third Round'' 
list to read:

Third Round

    1. Available loan and grant funding posted to the RHS website by 
April 21, 2022.
    2. Pre-applications will be accepted on May 16, 2022.
    3. Pre-applications must be submitted by July 15, 2022, 12:00 p.m., 
Eastern Standard Time.
    4. RHS notification to applicants by September 1, 2022.
    5. Final applications must be submitted by November 1, 2022, 12:00 
p.m., local time.
    (2). On page 7841, in the second column in the second paragraph, 
revise paragraph to read:
    All award commitments will be valid for a period of twelve months. 
Applicants dependent upon third-party funding, including but not 
limited to local-, state-, and federal resources through competitive 
and non-competitive application rounds, must obtain a satisfactory 
commitment of those funds, as determined by the Agency, within the 
twelve-month time frame. An extension of the award commitment of up to 
three months may be given, at the sole discretion of the Agency, and 
will be based on project viability, current program demand, and 
availability of program funds. Applicants unable to satisfy this 
condition of the award commitment will be subject to having the award 
rescinded and will be required to reapply in future rounds.
    (3). On page 7841, in the third column in the second paragraph, 
revise paragraph to read:
    In order to enhance customer service and the transparency of this 
program, RHS will publish a list of awardees, the loan and/or grant 
amounts of their respective awards and the final score as computed by 
RHS in accordance with the dates listed in this Notice. This will be 
done for each funding round. This information can be found at: https://www.rd.usda.gov/programs-services/multifamily-housing-programs/farm-labor-housing-direct-loans-grants. RHS reserves the right to post all 
information submitted as part of the pre-application and final 
application package, which is not protected under the Privacy Act, on a 
public website with free and open access to any member of the public.

Requests for Additional Funds To Address Funding Gaps/Cost Overruns in 
Previously-Awarded FLH Transactions

    There are three categories of previously-awarded FLH transactions 
that may need additional FLH funds to complete a project awarded under 
a previous FLH New Construction NOSA. The following provides 
eligibility criteria under this NOSA and other guidance for properties 
in each of the three categories:
    Category 1: Properties that have (a) received a FLH award under a 
previous NOSA and (b) have not yet closed on their initial award, are 
eligible to apply under this NOSA if the funds requested, when combined 
with the initial award under the original NOSA for which the project 
was initially funded, exceeds the per-project award cap under that 
NOSA. Owners applying under this category will need to successfully 
demonstrate financial viability of the transaction and only need to 
apply for the additional FLH funds needed to complete the transaction.
    Category 2: Properties that have (a) received a FLH award under a 
previous NOSA and (b) have not yet closed on their initial award may 
request an amendment to their initial funding award outside of this 
NOSA, if the

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funds needed, when combined with the initial award under the original 
NOSA for which the project was initially funded, does not exceed the 
per-project award cap under that NOSA. Owners seeking amendments to 
initial awards will need to successfully demonstrate financial 
viability of the transaction and are eligible to apply for this 
amendment outside of this NOSA, as it is considered an amendment to the 
current award. Amendments to awards are subject to available funding. 
Owners with transactions in this category may contact Rural 
Development's Office of Multifamily Housing's Production & Preservation 
Division for additional guidance.
    Category 3: Properties that have (a) received a FLH award under a 
previous NOSA and (b) have closed on their financing are considered 
eligible for subsequent loans under Sec.  3560.73, which may be applied 
for outside of this NOSA, on a rolling basis, subject to available 
funding. Owners with transactions in this category may contact Rural 
Development's Office of Multifamily Housing's Production & Preservation 
Division for additional guidance.
    (4). On page 7843, at the bottom of the second column, correct 
section (b) to read:
    (b) RHS will host a workshop on May 11, 2022 to discuss the 
application process, the borrower's responsibilities under the Off-FLH 
program, among other topics. Participants should pre-register for the 
session using the following link: https://attendee.gotowebinar.com/register/2244949179096454669.
    (5). On page 7851, in the first column, revise paragraph (19) to 
read as follows:
    (19) An acceptable Post Construction Capital Needs Assessment (CNA) 
in accordance with 7 CFR 3560.103(c) and the addendum at the end of 
this NOSA. The CNA will be used to underwrite the proposal to determine 
financial feasibility. The CNA must be approved by the Agency prior to 
the Agency underwriting the transaction. A CNA is comprised of nine 
main sections:
    <bullet> Definitions;
    <bullet> Contract Addendum;
    <bullet> Requirements and Statement of Work (SOW) for a CNA;
    <bullet> The CNA Review Process;
    <bullet> Guidance for the Multi-Family Housing (MFH) CNA Recipient 
Regarding Contracting for a CNA;
    <bullet> Revising an Accepted CNA During Underwriting;
    <bullet> Updating a CNA;
    <bullet> Incorporating a Property's Rehabilitation into a CNA; and
    <bullet> Repair and Replacement Schedule.
    Additionally, there are seven attachments which accompany the CNA 
addendum identified as follows:
    <bullet> Attachment A, ADDENDUM TO THE CAPITAL NEEDS ASSESSMENT 
CONTRACT
    <bullet> Attachment B, CAPITAL NEEDS ASSESSMENT STATEMENT OF WORK
    <bullet> Attachment C, FANNIE MAE PHYSICAL NEEDS ASSESSMENT 
GUIDANCE TO THE PROPERTY EVALUATOR
    <bullet> Attachment D, CNA e-Tool Estimated Useful Life Table
    <bullet> Attachment E, CAPITAL NEEDS ASSESSMENT REPORT
    <bullet> Attachment F, SAMPLE CAPITAL NEEDS ASSESSMENT REVIEW 
REPORT
    <bullet> Attachment G, CAPITAL NEEDS ASSESSEMENT GUIDANCE TO THE 
REVIEWER
    The CNA Addendum can be found at www.rd.usda.gov/programs-services/multi-family-housing-direct-loans.
    (6). On page 7852, in the first column, add paragraph (31) to read 
as follows:
    (31) Current (not older than six months from the date of issuance) 
combination comprehensive credit reports for the applicant, entity and 
principals must be submitted and considered during the Agency's review 
for eligibility determination. In the past, the Agency has required the 
applicant to submit the credit report fee . In lieu of the applicant 
submitting the fee, the Agency will require the applicant to provide 
the credit report. It is the Agency's expectation that this change will 
create an efficiency in the application process that did not exist, 
which should assist with streamlining the application process for the 
applicant. Only Credit reports provided by accredited major credit 
bureaus will be accepted.

Addendum: Capital Needs Assessment Process

    A Capital Needs Assessment (CNA) provides a repair schedule for the 
property in its present condition, indicating repairs and replacements 
necessary for a property to function properly and efficiently over a 
span of 20 years.
    The purpose of this Addendum is to provide clarification and 
guidance on the Rural Development CNA process. The document includes 
general instructions used in completing CNA reports, specific 
instructions on how to use the expected useful life tables, and a set 
of applicable forms including the Terms of Reference form; Systems and 
Conditions forms; and Evaluator's Summary forms.

1. Definitions

    The following definitions are provided to clarify terms used in 
conjunction with the CNA process:
    CNA Recipient: This will be who enters into the contract with the 
CNA Provider. The Recipient can be either the property owner or 
applicant/transferee.
    ``As-Is'' CNA: This type of CNA is prepared for an existing MFH 
property and reports the physical condition including all Section 504 
Accessibility and Health and Safety items of the property based on that 
moment in time. This CNA can be useful for many program purposes other 
than the MPR Demonstration program such as: An ownership transfer, 
determining whether to offer pre-payment aversion incentive and 
evaluating or resizing the reserve account. The ``as-is'' report will 
include all major repairs and likely some minor repairs that are 
typically associated with the major work: Each major component, system, 
equipment item, etc. inside and outside; building(s); property; access 
and amenities in their present condition. A schedule of those items 
showing the anticipated repair or replacement timeframe and the 
associated hard costs for the ensuing 20-year term of the CNA serves as 
the basis or starting point in evaluating the underwriting that will be 
necessary to determine the feasibility and future viability of the 
property to continue serving the needs of eligible tenants.
    ``Post Rehabilitation'' CNA: This type of CNA builds on the 
findings of the accepted ``as-is'' CNA and is typically prepared for a 
project that will be funded for major rehabilitation. The Post 
Rehabilitation CNA is adjusted to reflect the work intended to be 
performed during the rehabilitation. The assessment must be developed 
from the rehabilitation project plans and any construction contract 
documents to reflect the full extent of the planned rehabilitation.
    Life Cycle Cost Analysis (LCCA): A LCCA is an expanded version of a 
CNA and is defined at 7 CFR Section 3560.11. The LCCA will determine 
the initial purchase cost, the operation and maintenance cost, the 
``estimated useful life,'' and the replacement cost of an item selected 
for the project. The LCCA provides the borrower with the information on 
repair or replacement costs and timeframes over a 20-year period. It 
also provides information that will assist with a more informed 
component selection and can provide the borrower with a more complete 
financial plan based on the predictive

[[Page 23795]]

maintenance needs associated with those components. If the newly 
constructed project has already been completed without any previous 
LCCA requirements, either an ``as-is'' CNA or LCCA can be provided to 
establish program mandated reserve deposits. An Architect or Engineer 
is the best qualified person(s) to prepare this report.
    Consolidation: In some circumstances, RD may permit two or more 
properties to be consolidated as defined in 7 CFR 3560, Sec.  3560.410 
when it is in the best interests of the Government. The CNA Recipient 
must consult with the RD loan official before engaging the CNA Provider 
in any case where the CNA intends to encompass more than a single (one) 
existing RD property to determine if a consolidated CNA may be 
acceptable for RD underwriting.

2. Contract Addendum

    RD uses a Contract Addendum to supplement the basic CNA Agreement 
or ``Contract'', between the CNA Recipient and CNA Provider, with 
additional details and conditions. It can be found in Attachment A, 
Addendum to Capital Needs Assessment Contract and must accompany all 
contracts executed between the CNA Recipient and CNA Provider for CNAs 
used in RD transactions. If any conflicts arise between the 
``Contract'' and ``Contract Addendum'', the ``Contract Addendum'' will 
supersede.
    The Contract Addendum identifies the responsibilities and 
requirements for both the CNA Recipient and the CNA Provider. To assure 
proper completion of the contract documents the following key 
provisions must be completed:
    a. The Contract Addendum will include the contract base amount for 
the CNA Provider's cost for services on page A-2, and provisions for 
additional services to establish the total price for the CNA.
    b. Item I e, will require an itemized listing for any additional 
anticipated services and their unit costs including future updates and 
revisions that may be required before the CNA is accepted by RD. Note: 
Any cost for updating a CNA must be included, in the ``additional 
services'' subpart, of the original CNA Contract.
    c. The selection criteria boxes in II a, will identify the type of 
CNA being provided.
    d. In III a, the required language for the blank on ``report 
format'' is: ``USDA RD CNA Template, current RD version, in Microsoft 
Excel format''. This format will import directly into the RD 
underwriting template for loan underwriting purposes.

3. Requirements and Statement of Work (SOW) for a CNA

    Minimum requirements for a CNA acceptable to RD can be found in 
Attachment B, Capital Needs Assessment Statement of Work. This is 
supplemented by Attachment C, Fannie Mae Physical Needs Assessment 
Guidance to the Property Evaluator. To resolve any inconsistency in the 
two documents, Attachment B, the CNA SOW, will in all cases prevail 
over Attachment C, Fannie Mae Physical Needs Assessment Guidance to the 
Property Evaluator. (For example, on page C-2 of Attachment C, Fannie 
Mae defines the ``term'' as ``term of the mortgage and two years 
beyond''. For USDA, the ``term'' will be 20 years, as defined in the 
CNA SOW.)
    Attachment B includes the required qualifications for the CNA 
Provider, the required SOW for a CNA assignment, and general 
distribution and review instructions to the CNA Provider. The CNA 
Providers must be able to report the current physical condition of the 
property and not base their findings on the financial condition of 
either the property or the CNA Recipient.
    Attachment C is a three-part document RD has permission to use as 
reference to the CNA process throughout the RD MFH program efforts. The 
three key components of this Attachment are: (1) Guidance to the 
property evaluator; (2) expected useful life tables; and (3) a set of 
forms.
    An acceptable CNA must appropriately address within the report and 
narrative all Accessibility Laws and Requirements that apply to Section 
515 and Sections 514/516 MFH properties. The CNA Provider must assess 
how the property meets the requirements of accessibility to persons 
with disabilities in accordance the Uniform Federal Accessibility 
Standards (UFAS) and Section 504 Accessibility Requirements. It is the 
responsibility of the Provider to inspect and verify whether all 
accessibility features are compliant.

4. The CNA Review Process

    A CNA used by RD will be reviewed by the designated RD CNA Reviewer 
with experience in construction, rehabilitation, and repair of MFH 
properties, especially as it relates to repair and replacement.
    A CNA report must be obtained by the CNA Recipient from an 
independent third-party CNA Provider that has no identity of interest 
with the property owner, management agent, applicant/transferee or any 
other principle or affiliate defined in 7 CFR part 3560, Sec.  3560.11. 
The CNA Recipient will contract with the CNA Provider and is therefore 
the client of the provider. However, the CNA Recipient must consult 
with RD, before contracting with a CNA Provider to review Guidance 
Regarding Contracting for a CNA. The RD CNA Reviewer will evaluate a 
proposed agreement or engagement letter between the CNA Recipient and 
the CNA Provider using Attachment G, Capital Needs Assessment Guidance 
to the Reviewer, prior to reviewing any CNA report. Unacceptable CNA 
proposals, contracts or reports will be returned to the CNA Recipient 
for appropriate corrections before they will be used for any 
underwriting determinations.
    The CNA Reviewer will also review the cost of the CNA contract. The 
proposed fee for the CNA must be approved as an eligible housing 
project expense under 7 CFR 3560.103(c) for the agreement to be 
acceptable and paid using project funds. In most cases, the CNA service 
contract amount has not exceeded $3,500 based on the Agency's most 
recent cost analysis.
    Borrowers and applicants are encouraged to obtain multiple bids in 
all cases. However, there is no Agency requirement to select the ``low 
bidder'' under this UL and the CNA Recipient may select a CNA Provider 
that will provide the best value, based on qualifications, as well as 
price after reviewing references and past work.
    If the CNA is funded by the property's reserve account, a minimum 
of two bids is required if the CNA service contract amount is estimated 
to exceed $5,000 as specified in HB-2-3560, Chapter 4, Paragraph 4.17 
B. If the CNA contract under this UL is funded by another source, or 
will be under $5,000, a single bid is acceptable.
    If the proposed agreement is acceptable, the reviewer will advise 
the appropriate RD servicing official, who will in turn inform the CNA 
Recipient. If the proposed agreement is unacceptable, the reviewer will 
notify the servicing official, who will notify the CNA Recipient and 
the CNA Provider in writing and identify actions necessary to make the 
proposed CNA agreement acceptable to RD. Upon receipt of a satisfactory 
agreement, the RD CNA Reviewer should advise the appropriate RD 
servicing official or underwriting official to accept the proposal.
    The CNA Reviewer will review the preliminary CNA report submitted 
to RD by the CNA Provider using Attachment D and write the preliminary 
CNA review report. During the CNA

[[Page 23796]]

review process, the CNA Reviewer and underwriter will consult with the 
servicing field office most familiar with the property for their input 
and knowledge of the property. Any differences of opinion that exist 
regarding the findings must be mutually addressed by RD staff. If 
corrections are needed, the loan official will notify the CNA 
Recipient, in writing, of any revisions necessary to make the CNA 
report acceptable to RD. The CNA Reviewer will review the final CNA 
report and deliver it to the loan official. The final report must be 
signed by both the CNA Reviewer and the loan official (underwriter). 
Upon signature by both, this report becomes the ``accepted'' CNA 
indicating the actual condition of the property at the time of the CNA 
inspection--a ``snapshot'' in time--and will be marked ``Current 
Property Condition'' for indefinite retention in the borrower case 
file.
    A CNA Provider should be fully aware of the intended use for the 
CNA because it can impact the calculations necessary to perform 
adequate accessibility assessments and can impact the acceptability of 
the report by RD. Unacceptable reports will not be used for any RD 
underwriting purposes even though they may otherwise be acceptable to 
the CNA Recipient or another third-party lender or participant in the 
transaction being proposed.

5. Guidance Regarding Contracting for a CNA

    CNA Recipients are responsible for choosing the CNA Provider they 
wish to contract with, and for delivering an acceptable CNA to Rural 
Development. RD in no way guarantees the performance any Provider nor 
the acceptability of the Provider's work.
    CNA Recipients are advised to request an information package from 
several CNA Providers and to evaluate the information before selecting 
a provider. At a minimum, the information package should include a list 
of qualifications, a list of references, a client list, and a sample 
CNA report. However, the CNA Recipient may request any additional 
information they feel necessary to evaluate potential candidates and 
select a suitable provider for this service. Consideration for the type 
of CNA required should be part of the CNA Recipient's selection 
criteria and inserted into the contract language as well. The necessary 
skill set to perform the ``as-is'' versus the Post Rehabilitation CNA 
or a LCCA needs to be considered carefully. Knowledge of the 
accessibility laws and standards and the ability to read and understand 
plans and specifications should also be among the critical skill 
elements to consider.
    Attachment A, Contract Addendum must be submitted to RD with the 
contract and signed by the CNA Recipient and CNA Provider. The proposed 
agreement with the CNA Recipient and CNA Provider must meet RD's 
qualification requirements for both the provider and the CNA SOW, as 
specified in Attachment B, Capital Needs Assessment Statement of Work. 
RD must review the proposed agreement between the CNA Recipient and the 
CNA Provider, and concur only if all of the RD requirements and 
conditions are met. (See the previous Section 3 of this UL, The CNA 
Review Process.)
    Please note: It is in the CNA Recipient's best interest to furnish 
the CNA Provider with the most current and up-to-date property 
information for a more comprehensive and thorough CNA report. RD 
recommends that the CNA Recipient conduct a pre-inspection meeting with 
the Owner, Property Manager, maintenance persons familiar with the 
property, CNA Provider, and Agency Representatives at the site. This 
meeting will allow a forum to discuss specific details about the 
property that may not be readily apparent to all parties involved 
during the review process, as well as making some physical observations 
on-site. Certain issues that may not be evident to the CNA Provider due 
to weather conditions at the time of review should also be discussed 
and included in the report. Additionally, other issues that may need to 
be addressed include environmental hazards, structural defects, and 
complex accessibility issues. It is imperative that the Agency be fully 
aware of the current physical condition of the property at the time the 
CNA is prepared. An Agency representative must make every effort to 
attend the CNA Providers on-site inspection of the property unless the 
Agency has performed a physical inspection of the property within the 
previous 12 months.
    This pre-inspection meeting also allows the CNA Provider to discuss 
with the CNA Recipient total number of units to be inspected, as well 
as identifying any specific units that will be inspected in detail. The 
minimum number of inspected units required by the Agency for an 
acceptable CNA is 50 percent. However, inspecting a larger number of 
units generally provides more accurate information to identify the 
specific line items to be addressed over the ``term'' being covered by 
the CNA report. CNA Recipients are encouraged to negotiate with the CNA 
Provider to achieve inspection of all units whenever possible. The 
ultimate goal for the CNA Recipient and CNA Provider, as well as the 
Agency, is to produce the most accurate ``baseline or snapshot'' of 
current physical property conditions for use as a tool in projecting 
future reserve account needs.

6. Revising an Accepted CNA During Underwriting (Applies to RD Actions)

    During transaction underwriting and analysis, presentation of the 
information contained in the ``accepted'' CNA may need to be revised by 
RD to address financing and other programmatic issues. The loan 
underwriter and the CNA Reviewer will work together to determine if 
revisions are necessary to meet the financial and physical needs of the 
property, and established RD underwriting or servicing standards and 
principals. These may involve shifting individual repair line items 
reported in the CNA, moving work from year to year, or other 
adjustments that will improve cash flow. The revised underwriting CNA 
will be used to establish reserve funding schedules as well as 
operating budget preparation and analysis and will be maintained by RD 
as supporting documentation for the loan underwriting.
    The initial CNA, prepared by the CNA Provider, will be maintained 
as an independent third- party record of the current condition of the 
property at the beginning of the 20-year cycle.
    Original CNAs will be maintained in the case file, clearly marked 
as either ``Current Property Condition'' (``As-is''), ``Post 
Rehabilitation Condition'', or ``Revised Underwriting/Replacement 
Schedule'', as applicable. Note: The CNA Provider is not the 
appropriate party to ``revise'' a CNA which has already been approved 
by the CNA Recipient and concurred with by the Agency. The CNA 
Provider's independent opinion was the basis of the ``As is'' or ``Post 
Rehabilitation'' CNA. The CNA developed for underwriting may only be 
revised by RD staff during the underwriting process or as part of a 
post-closing servicing action.

7. Updating a CNA (Applies to ``As-is'' and ``Post-Rehabilitation'' 
That Have Not Been Accepted by RD)

    A completed CNA more than a year old at the time of the RD CNA 
review and approval must be ``updated' prior to RD approval. Likewise, 
if at the time of underwriting the CNA is more than a year old (but 
less than two years old), it must be updated before the transaction can 
be approved.
    To update a CNA, the CNA Provider must review property changes 
(repairs, improvements, or failures) that have

[[Page 23797]]

occurred since the date of the original CNA site visit with the CNA 
Recipient, review costs and quantities, and submit an updated CNA for 
approval. However, if the site visit for the CNA occurred more than two 
years prior to the loan underwriting, the CNA Provider should perform a 
new site visit to verify the current project condition.
    Once the CNA has been updated, the CNA Provider will include a 
statement noting ``This is an updated CNA of the earlier CNA dated 
___,'' at the beginning of the CNA's Narrative section. The CNA 
Provider should reprint the CNA with a new date for the updated CNA, 
and provide a new electronic copy to the CNA Recipient and RD.
    If the CNA age exceeds 2 years at the time of the RD CNA review and 
approval, the CNA Provider will need to repeat the site visit process 
to re-evaluate the condition of the property. The original report can 
remain the basis of the findings.

8. Incorporating a Property's Rehabilitation Into a CNA

    A CNA provides a repair schedule for the property in its present 
condition, indicating repairs and replacements necessary for a property 
to function properly and efficiently over a span of 20 years. It is not 
an estimate of existing rehabilitation needs, or an estimate of 
rehabilitation costs. If any rehabilitation of a MFH development is 
planned as part of the proposed transaction, a rehabilitation repair 
list (also called a ``Scope of Work'') must be developed independently 
based on the CNA repair schedule. This rehabilitation repair list may 
be developed by the CNA Recipient, a project Architect, or an outside 
party (such as the CNA Provider, when qualified) hired by the CNA 
Recipient.
    The CNA Recipient must not use repair line-item costs taken from 
the CNA to develop the rehabilitation cost estimates for the 
rehabilitation loan, as these costs will not be accurate. The repair 
costs in a CNA are based on estimated costs for the property. 
Typically, these costs include the labor, materials, overhead and 
profit, but do not include applicable ``soft costs''. For example, for 
CNA purposes, the probable cost is to send a repairman out, remove an 
appliance, and put a new one in its place. For rehabilitation cost 
estimates, the CNA Recipient typically intends to hire a general 
contractor to oversee and supervise the rehabilitation work, which is 
then considered a ``soft cost''. The cost of rehabilitation includes 
the costs for that general contractor, the general contractor's 
requirements, the cost of a project Architect (if one is used), tenant 
relocation (if needed), and interim financing (if used), which are 
considered ``soft costs'' attributed to the rehabilitation costs for 
the project.
    If a ``Post Rehabilitation'' CNA is required and authorized by RD, 
a copy of the rehabilitation repair list or SOW must be provided to the 
CNA Provider. The CNA Provider will prepare a ``Post Rehabilitation'' 
CNA indicating what repairs are planned for the property in the coming 
20 years based on conditions after the rehabilitation is completed. 
Items to be replaced during rehabilitation that will need to be 
replaced again within the 20 years, such as appliances, will be 
included in the ``Post Rehabilitation'' CNA. Items that will not need 
replacement during the coming 20 years, such as a new roof, will not 
need to be calculated in the ``Post Rehabilitation'' CNA. The line item 
should not be removed from the CNA, but the cost data should be zeroed 
out. Appropriate comments should be included in the CNA report to 
acknowledge the SOW or rehabilitation/repairs that were considered.

9. Repair and Replacement Schedule

    A CNA is not a formal repair and replacement schedule and cannot be 
used as an exact replacement schedule. A CNA is an estimate of the 
anticipated replacement needs for the property over time, and the 
associated replacement costs. The goal of a CNA is to estimate the 
replacement times based on the Expected Useful Life (EUL) to assure 
funds are available to replace equipment as it is needed. Hopefully, 
materials will be well maintained and last longer than estimated in the 
CNA. However, the CNA cannot be used to mandate replacement times for 
the identified building components. The RD underwriter may find it 
necessary to adjust the proposed replacement schedule during the course 
of the underwriting to allow for an adequate Annual Deposit to 
Replacement Reserves (ADRR) payment that will sustain the property over 
a 20-year period and keep rents below the maximum rents that are 
allowed.
BILLING CODE 3410-XV-P

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Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-08515 Filed 4-20-22; 8:45 am]
BILLING CODE 3410-XV-C


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