[Federal Register Volume 61, Number 128 (Tuesday, July 2, 1996)]
[Notices]
[Pages 34416-34419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16866]


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DEPARTMENT OF AGRICULTURE

Notice of Availability of Funding and Requests for Proposals for 
the Section 538 Rural Rental Housing Guaranteed Loan Demonstration 
Program

AGENCY: Rural Housing Service, USDA.

ACTION: Notice.

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SUMMARY: The Rural Housing Service (RHS) announces the availability of 
the Section 538 Rural Rental Housing Guaranteed Loan program on a 
demonstration basis. The intended outcome is to produce new affordable 
rental housing by inviting qualified lenders and eligible housing 
providers to propose rental complexes that will serve a wide range of 
incomes and better serve rural residents. The purpose of the 
demonstration is to encourage proposals that show the feasibility of 
the program in varying markets and with innovative financing proposals.

DATES: The deadline for receipt of applications is 4:00 PM, Eastern 
Daylight Savings Time on August 5, 1996. Applications received after 
such date and time will be returned. Lenders are encouraged to submit 
applications prior to the end of the period, as applications will be 
reviewed as they are received. If there are differences between any 
additional guidelines and this Notice, the requirements of this notice 
shall prevail. Notification of selected applications will be made by 
September 1, 1996. Commitments for guarantees will be issued on or 
before September 16, 1996. If RHS is unable to obligate section 538 
funds for guaranteed loans by September 16, 1996, any remaining section 
538 funds will be transferred for use prior to September 30, 1996, 
under the section 515 program. Qualified lenders may call Patrick 
Sheridan at 202-720-1600 or Obediah G. Baker, Jr., at 202-720-1604 for 
a copy of the application package. This is not a toll-free number. 
Hearing- or speech-impaired persons may access that number by calling 
toll-free the Federal Information Relay Service at (800) 877-8339.

ADDRESSES: Applications for participation in the demonstration program 
must be identified as ``Section 538 Demonstration Program'' on the 
envelope or wrapper and be submitted as follows: Director, Multi-family 
Housing Processing Division, Rural Housing Service, US Department of 
Agriculture, South Agriculture Building, Room 5337 (stop 0781), 1400 
Independence Ave., SW, Washington, DC 20250. Lenders shall submit an 
original and two copies (a FAX copy is NOT acceptable) of the 
application to the above address by the application deadline.

FOR FURTHER INFORMATION CONTACT: Patrick Sheridan, Chief, Management 
Branch, Multi-Family Housing Portfolio Management Division, US 
Department of Agriculture, South Agriculture Building, Room 5321 (stop 
0782), 1400 Independence Ave., SW, Washington, DC 20250. Telephone: 
(202) 720-1600. (This number is not toll-free.) Hearing- or speech-
impaired persons may access that number by calling toll-free the 
Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION: On March 28, 1996, President Clinton signed 
the ``Housing Opportunity Program Extension Act of 1996,'' Public Law 
104-120. One of the actions was the authorization of the section 538 
Rural Rental Housing Guaranteed Loan Program. The program is intended 
to reach the needs of rural America by complimenting the section 515 
Rural Rental Housing Direct Loan Program. It is anticipated that 
beneficiaries of the program will be rural residents with low and 
moderate incomes provided rental housing through the use of loan 
guarantees. Partnership opportunities exist to utilize the section 538 
program with other affordable housing programs.
    In Fiscal Year (FY) 1996, approximately $25 million is available 
under the section 538 demonstration program that was funded under the 
``Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act, 1996,'' Public Law 104-37. If the 
program is extended, final regulations will be developed based on 
information gathered during administration of the demonstration 
program.

[[Page 34417]]

I. Purpose and Program Summary

    Public Law 104-37 provided funds to the Department to implement a 
multifamily mortgage guarantee demonstration program subject to 
enactment of authorizing legislation. Public Law 104-120 provided 
authorization for that program with qualified lenders, the purpose of 
which is to demonstrate the effectiveness of providing new forms of 
Federal credit enhancement for the development of affordable 
multifamily housing by lenders.
    The program has been designed to increase the supply of affordable 
multifamily housing through partnerships between RHS and major lending 
sources, as well as State and local housing finance agencies and bond 
issuers. Qualified lenders will be authorized to originate, underwrite, 
and close loans for multifamily housing projects requiring new 
construction. RHS will guarantee such loans upon presentation and 
review of appropriate certifications, project information and 
satisfactory completion of the appropriate level of environmental 
review by RHS. Lenders will be responsible for the full range of loan 
management, servicing, and property disposition activities associated 
with these projects. The lender will be expected to provide servicing 
or contract for servicing of each loan it underwrites. RHS, in turn, 
commits to pay up to a maximum of 90 percent of the outstanding 
principal and interest mortgage balance in the case of default of the 
loan and filing of a claim.

II. Eligible Housing and Tenants

    A loan may be guaranteed only if the loan is generally used for the 
development costs of housing and related facilities as such term is 
defined in 7 CFR 1944.205 that also meet the following criteria:
    (a) Occupancy Requirements. The housing must be available for 
occupancy only by low or moderate income families or persons, whose 
incomes at the time of initial occupancy do not exceed 115 percent of 
the median income of the area. After initial occupancy, a tenant's 
income may exceed these limits.
    (b) Location. Projects must be located in areas considered eligible 
as defined in 7 CFR 1944.10. The eligible areas are the same as those 
eligible under the section 515 program.
    (c) Minimum Project Size. Projects must consist of 5 or more rental 
dwelling units. The site may consist of two or more noncontiguous 
parcels of land situated so as to comprise a readily marketable real 
estate entity within an area small enough to allow convenient and 
efficient management. --
    (d) Types of Housing. For the purposes of the demonstration 
program, only proposals for new construction will be considered. The 
complexes may contain units that are detached, semi-detached, row 
houses, or multifamily structures.
    (e) Housing Standards. The standards established under 7 CFR part 
1944, subpart E for housing and related facilities assisted under 
section 515 shall generally apply to housing and related facilities, 
the development costs of which are financed in whole or in part with a 
loan guaranteed under this program. The Agency anticipates and will 
guarantee loans in which the fees and the proposed housing may exceed 
the amounts or size allowances and amenities contained in 7 CFR part 
1944, subpart E provided such costs and features are generally found in 
similar housing proposals for similar income families in the market 
area. Such costs, features and amenities may include larger units, 
dishwashers, microwaves, increased and multi-purpose community spaces, 
developer's fees, etc. For loans where RHS is requested to provide 
interest credits, the proposed housing must more closely follow the 
standards contained in 7 CFR part 1944, subpart E.
    (f) Tenant Protections. The standards for the treatment of tenants 
of housing developed using amounts from a loan guaranteed under this 
program shall incorporate standards for lease and grievance procedures 
and tenant appeals of adverse actions used under the section 515 Rural 
Rental Housing Program.
    (g) Fair Housing and Equal Opportunity. No person shall be 
subjected to discrimination because of race, color, religion, sex, 
disability, familial status, or national origin in the sale, rental or 
advertising of dwellings, in the provisions of brokerage services, or 
in the availability of residential real estate related transactions 
involving RHS or housing in the Rural Development mission area.
    (h) Environmental. The environmental requirements established under 
7 CFR part 1940, subpart G, for housing and related facilities under 
the section 515 program shall apply to housing and related facilities 
under the section 538 program.
    (i) Preservation. The housing developed will remain available for 
occupancy as provided in paragraph II (a) of this notice, for the 
period of the original term of the loan guaranteed unless the housing 
is acquired by foreclosure (or instrument in lieu of foreclosure) or 
the Administrator waives the applicability of such requirement for the 
loan only after determining, based on objective information, that:
    (1) There is no longer a need for low- and moderate-income housing 
in the market area in which the housing is located;
    (2) Housing opportunities for low-income households and minorities 
will not be reduced as a result of the waiver; and
    (3) Additional Federal assistance will not be necessary as a result 
of the waiver.
    (j) It is anticipated that complexes developed under this program 
may utilize other affordable housing programs such as the Low Income 
Housing Tax Credit, tax-exempt or taxable bonds, HOME Investment 
Partnerships Program (HOME) funds, and other State or locally funded 
tenant assistance or grants. -

III. Loans Eligible for Guarantee

    (a) Eligible Borrowers. A loan guaranteed under this program may be 
made to a nonprofit organization, an agency or body of any State 
government or political subdivision thereof, or a private entity.
    (b) Loan Terms. Each loan guaranteed shall:
    (1) Provide for complete amortization by periodic payments to be 
made for a term not to exceed 40 years;
    (2) Involve a fixed rate of interest agreed upon by the borrower 
and the lender that does not exceed the maximum allowable rate 
established by the Administrator. For purposes of the demonstration 
program, the maximum allowable rate is 300 basis points over the 30-
year Treasury Bond Rate as published in the Wall Street Journal as of 
the business day previous to the business day the rate is set;
    (3) Involve a principal obligation (including initial service 
charges, appraisal, inspection, and other reasonable fees) not to 
exceed:
    (i) In the case of a borrower that is a nonprofit organization or 
an agency or body of any State or local government, up to 97 percent of 
the development costs of the housing and related facilities or the 
value of the housing and facilities, whichever is less;
    (ii) In the case of a borrower that is a for-profit entity or other 
entity not referred to in paragraph III(b)(3)(i) of this notice, up to 
90 percent of the development costs of the housing and related 
facilities, whichever is less;
    (iii) In the case of any borrower, for such part of the property as 
may be attributable to dwelling use, the

[[Page 34418]]

applicable maximum per unit dollar amount limitations under section 
207(c) of the National Housing Act; and
    (iv) In the case of a borrower utilizing Low Income Housing Tax 
Credits, a review will be conducted in conjunction with the applicable 
tax credit administration entity to determine if the proposal is in 
conformance with subsidy layering requirements.
    (4) Be secured by a first mortgage on the housing and related 
facilities for which the loan is made, or in the case where the loan 
upon which the RHS guarantee is requested is not the primary funding 
source, be secured by a parity lien;
    (5) May be a permanent loan or a combination construction and 
permanent loan; and
    (6) For 20 percent of the loans made under the demonstration 
program, RHS shall provide the borrower with assistance in the form of 
interest credits to the extent necessary to reduce the rate of interest 
under paragraph III(b)(2) of this notice to the applicable Federal 
rate, as such term is used in section 42(I)(2)(D) of the Internal 
Revenue Code of 1986.
    (c) Refinancing of Loans Made Under the Program. Any loan 
guaranteed under the program may be refinanced and extended in 
accordance with the terms and conditions that the Agency shall 
prescribe, but in no event for an additional amount or term that 
exceeds the limitations under paragraph III(b) of this notice.
    (d) Nonassumption. The borrower under a loan that is guaranteed 
under this program and under which any portion of the principal 
obligation or interest remains outstanding may not be relieved of 
liability with respect to the loan, notwithstanding the transfer of 
property for which the loan was made. Loans guaranteed under this 
program may be made on a recourse or nonrecourse basis.
    (e) Issuance of Guarantee on Permanent Loans. Guarantees may be 
issued on permanent loans financing new construction once the final 
certificate of occupancy for the complex has been issued by the 
appropriate governmental body.

IV. Guarantee Provisions

    (a) Lender eligibility. Those lenders currently approved and 
considered eligible by the Federal National Mortgage Association, the 
Federal Home Loan Mortgage Corporation, or the Department of Housing 
and Urban Development for guaranteed loan programs supporting 
multifamily housing will be considered approved lenders for this 
demonstration program. Lenders may use their own underwriting standards 
and loan terms and conditions with approval from RHS subject to 
statutory program constraints. In addition, State Housing Finance 
Agencies (HFAs) are also considered eligible lenders to participate in 
the demonstration program provided they demonstrate they have the 
ability to underwrite, originate, process, close, service, manage, and 
dispose of multifamily housing loans in a prudent manner.
    (b) Extent of Guarantee. RHS will guarantee repayment of an amount 
not exceeding 90 percent of the total of the amount of the unpaid 
principal and interest of the loan.
    (c) Guarantee Fee. At the time of issuance of a loan guarantee 
under this program, RHS will collect a fee equal to 1 percent of the 
guaranteed principal obligation of the loan from the lender.
    (d) Transferability of the Guarantee. It is anticipated that loans 
guaranteed under this program may be sold into the secondary market. 
The guarantee may be transferred to other eligible lenders with the 
written consent of RHS.
    (e) Payment Under Guarantee.
    (1) Notice of default. In the event of default under the loan 
documents by the borrower on a loan guaranteed, the holder of the 
guarantee certificate for the loan shall provide written notice of the 
default to the Administrator.
    (2) Lenders will be required to discuss future servicing strategies 
with RHS prior to proceeding to liquidation. Before any payment under a 
guarantee is made, the holder of the guarantee certificate must exhaust 
all reasonable possibilities of collection on the loan guaranteed.
    (3) Foreclosure. After receiving notice under paragraph IV(e)(1) of 
this notice and providing written notice of action to RHS, the holder 
of the guarantee certificate for the loan may initiate foreclosure 
proceedings, with the concurrence of RHS, in a court of competent 
jurisdiction, to obtain possession of the security property. After the 
court issues a final order authorizing foreclosure on the property, the 
holder of the certificate shall be entitled to payment by RHS under the 
guarantee upon:
    (i) Conveyance to RHS of title to the security property;
    (ii) Submission to RHS of a claim for payment under the guarantee; 
and
    (iii) Assignment to RHS of all the claims of the holder of the 
guarantee against the borrower or others arising out of the loan 
transaction or foreclosure proceedings, except claims released with the 
consent of RHS.
    (4) Acceptance of the Assignment by RHS. After receiving notice 
under paragraph IV (e)(1) of this notice, RHS may accept assignment of 
the loan if RHS determines that the assignment is in the best interests 
of the United States. Assignment of a loan under this paragraph shall 
include conveyance to RHS of all rights and interests arising under the 
loan, and assignment to RHS of all claims against the borrower or 
others arising out of the loan transaction. Upon assignment of a loan 
under this paragraph, the holder of a guarantee for the loan shall be 
entitled to payment by RHS under the guarantee. Upon payment, in whole 
or in part, to the holder, the note or judgment evidencing the debt 
shall be assigned to the United States and the holder shall have no 
further claim against the borrower or the United States.

V. Demonstration Selection Criteria

    (a) The Agency intends under the demonstration program to fund 
varying financing proposals to help determine the areas of need, the 
types of financing packages possible and the demand in the various 
eligible market areas. Selection of proposals under this demonstration 
program will be based on the following criteria:
    (1) Flexibility, innovation and variation of funding models;
    (2) Partnering and leveraging;
    (3) No more than one viable application will be selected in any 
State (unless the number of viable applications are limited and 
sufficient funds remain to allow more than one application in any one 
State); and
    (4) Administrator's discretion in order to effectively use funding 
to best explore program structure and effectiveness consistent with the 
best interests of the Government.
    (b) For 20 percent of the loans made under the demonstration 
program, RHS shall provide the borrower with interest credits to the 
extent necessary to reduce the rate of the loan to the applicable 
Federal rate. Proposals that could be viable with or without interest 
credits are encouraged to submit an application showing financial and 
market feasibility under either scenario. Applications proposing to 
receive interest credit will be selected using the following criteria:
    (1) Geographical location with emphasis on smaller rural 
communities versus larger rural communities;
    (2) The most needy communities based on income limits;
    (3) Commitments by the applicant to maintain occupancy standards 
throughout the term of the loan for families with low and moderate

[[Page 34419]]

incomes, with a priority at initial occupancy for low income families.
    (4) The lowest overall proportional effective subsidy cost to the 
Government when section 521 interest credit is involved.

VI. Review Criteria

    RHS will review each request for participation under the 
demonstration program to determine if the lender and the proposal meet 
all the requirements of this notice and the lender demonstrates the 
ability to underwrite, originate, process, close, service, manage, and 
dispose of multifamily loans in a prudent manner. Applications will be 
reviewed to determine financial feasibility, compliance with cost 
limitations, and market need of the proposal. RHS will review each 
application for compliance with subsidy layering requirements of the 
Act. RHS also reserves the right to negotiate with potential lenders 
over the scope of the proposal to ensure the best interests of the 
Government and objectives of the demonstration program are achieved.
    It is the policy of RHS to consider environmental quality as equal 
with economic, social, and other relevant factors in program 
development and decision making. Proposals which have the potential for 
adverse impact to protected resources (wetlands, floodplains, and 
important farmland, for example) will receive low priority, since the 
brief period of time allocated for obligation of funds may be 
insufficient for RHS to satisfactorily complete the environmental 
review process if the proposal has adverse environmental impacts. 
Therefore, it is important that lenders and applicants submit proposals 
which minimize the potential to adversely impact the environment.
    Since RHS will complete the appropriate environmental review at the 
field level, the appropriate field office will need certain information 
from the lender or applicant in order to complete the environmental 
review. Lenders or applicants who plan to file an application should 
call at the earliest date possible for directions on how to contact the 
applicable field office.

VII. Other Matters

    (a) Environmental Finding. A Finding of No Significant Impact with 
respect to the environment has been made in accordance with RHS 
regulations at 7 CFR part 1940, subpart G.
    (b) Civil Rights Impact Analysis. It is the policy within the Rural 
Development mission area to ensure that the consequences of any 
proposed project approval do not negatively or disproportionately 
affect program beneficiaries by virtue of race, color, sex, national 
origin, religion, age, disability, marital or familial status. To 
ensure that any proposal under this demonstration program complies with 
these objectives, the RHS approval official will complete Form RECD 
2006-38, ``Civil Rights Impact Analysis Certification.''
    (c) Executive Order 12612, Federalism. The General Counsel, as the 
Designated Official under section 6(a) of Executive Order 12612, 
Federalism, has determined that the policies and procedures contained 
in this Notice will not have substantial direct effects on States or 
their political subdivisions, or the relationship between the federal 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the Notice is not subject to review under the Order.
    (d) Prohibition Against Advance Information on Funding Decisions. 
The requirements of the rule continue to apply until the announcement 
of the selection of successful applicants. RHS employees involved in 
the review of applications and in the making of funding decisions are 
restricted from providing advance information to any person (other than 
an authorized employee of RHS) concerning funding decisions, or from 
otherwise giving any applicant an unfair competitive advantage.
    (e) Paperwork Reduction Act. The information collection 
requirements within this notice are covered under OMB Nos. 0575-0042, 
0575-0047, 0575-100, 0575-0024, 0575-0029, and 0075-0137.

    Dated: June 27, 1996.
Maureen Kennedy,
Administrator, Rural Housing Service.
[FR Doc. 96-16866 Filed 6-27-96; 4:08 pm]
BILLING CODE 3410-07-U