I

104TH CONGRESS

1ST SESSION H. R. 66

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 rural rental housing for low- and moderate-income families in rural areas.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

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

Committee on Banking and Financial Services

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 rural rental housing for low- and moderateincome 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’’.
2

•HR 66 IH

1 SEC. 2. LOAN GUARANTEES FOR MULTIFAMILY RENTAL

2 HOUSING IN RURAL AREAS.

3 Title V of the Housing Act of 1949 (42 U.S.C. 1471

4 et seq.) is amended by inserting after section 537 the fol5 lowing new section:

6 ‘‘SEC. 538. LOAN GUARANTEES FOR MULTIFAMILY RENTAL

7 HOUSING IN RURAL AREAS.

8 ‘‘(a) AUTHORITY.—The Secretary may make commit9 ments to guarantee eligible loans for the development costs

10 of eligible housing and related facilities, and may guaran11 tee such eligible loans, in accordance with this section.

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

13 under this section shall guarantee repayment of an

14 amount not exceeding the total of the amount of the un15 paid principal and interest of the loan for which the guar16 antee is made. The liability of the United States under

17 any guarantee under this section shall decrease or increase

18 pro rata with any decrease or increase of the amount of

19 the unpaid portion of the obligation.

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

21 under this section may be made to a nonprofit organiza22 tion, an agency or body of any State government or politi23 cal subdivision thereof, or a private entity.

24 ‘‘(d) ELIGIBLE HOUSING.—A loan may be guaran25 teed under this section only if the loan is used for the
3

•HR 66 IH

1 development costs of housing and related facilities (as

2 such terms are defined in section 515(e)) that—

3 ‘‘(1) consists of 5 or more adequate dwellings;

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

5 moderate income families or persons, whose incomes

6 at the time of initial occupancy do not exceed 115

7 percent of the median income of the area, as deter8 mined by the Secretary;

9 ‘‘(3) will remain available as provided in para10 graph (2), according to such binding commitments

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

12 original term of the loan guaranteed, unless the

13 housing is acquired by foreclosure (or instrument in

14 lieu of foreclosure) or the Secretary waives the appli15 cability of such requirement for the loan only after

16 determining, based on objective information, that—

17 ‘‘(A) there is no longer a need for low- and

18 moderate-income housing in the market area in

19 which the housing is located;

20 ‘‘(B) housing opportunities for low-income

21 households and minorities will not be reduced

22 as a result of the waiver; and

23 ‘‘(C) additional Federal assistance will not

24 be necessary as a result of the waiver; and

25 ‘‘(4) is located in a rural area.
4

•HR 66 IH

1 ‘‘(e) ELIGIBLE LENDERS.—

2 ‘‘(1) REQUIREMENT.—A loan may be guaran3 teed under this subsection only if the loan is made

4 by a lender that the Secretary determines—

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

6 approved by the Secretary of Housing and

7 Urban Development, to make loans for multi8 family housing that are to be insured under the

9 National Housing Act;

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

11 been approved by the Federal National Mort12 gage Association and the Federal Home Loan

13 Mortgage Corporation, to make loans for multi14 family housing that are to be sold to such cor15 porations; or

16 ‘‘(C) meets any qualifications that the Sec17 retary may, by regulation, establish for partici18 pation of lenders in the loan guarantee program

19 under this section.

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

21 The Secretary shall establish a list of eligible lenders

22 and shall annually conduct an audit of each lender

23 included in the list for purposes of determining

24 whether such lender continues to be an eligible

25 lender.
5

•HR 66 IH

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

2 to this subsection shall—

3 ‘‘(1) provide for complete amortization by peri4 odic payments to be made for a term not to exceed

5 40 years;

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

7 the borrower and the lender that does not exceed the

8 maximum allowable rate established by the Secretary

9 for purposes of this section and is fixed over the

10 term of the loan;

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

12 initial service charges, appraisal, inspection, and

13 other fees as the Secretary may approve) not to

14 exceed—

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

16 nonprofit organization or an agency or body of

17 any State or local government, 97 percent of

18 the development costs of the housing and relat19 ed facilities or the value of the housing and fa20 cilities, whichever is less;

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

22 for-profit entity not referred to in subparagraph

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

24 housing and related facilities or the value of the

25 housing and facilities, whichever is less; and
6

•HR 66 IH

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

2 part of the property as may be attributable to

3 dwelling use, the applicable maximum per unit

4 dollar amount limitations under section 207(c)

5 of the National Housing Act;

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

7 housing and related facilities for which the loan is

8 made, or otherwise, as the Secretary may determine

9 necessary to ensure repayment of the obligation; and

10 ‘‘(5) for at least 20 percent of the loans made

11 under this section, the Secretary shall provide the

12 borrower with assistance in the form of credits pur13 suant to section 521(a)(1)(B) to the extent nec14 essary to reduce the rate of interest under para15 graph (2) to the applicable Federal rate, as such

16 term is used in section 42(i)(2)(D) of the Internal

17 Revenue Code of 1986.

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

19 a loan guaranteed under this section, the Secretary may

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

21 percent of the principal obligation of the loan.

22 ‘‘(h) AUTHORITY FOR LENDERS TO ISSUE CERTIFI23 CATES OF GUARANTEE.—The Secretary may authorize

24 certain eligible lenders to determine whether a loan meets

25 the requirements for guarantee under this section and,
7

•HR 66 IH

1 subject to the availability of authority to enter into guar2 antees under this section, execute a firm commitment for

3 a guarantee binding upon the Secretary and issue a certifi4 cate of guarantee evidencing a guarantee, without review

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

6 Secretary may establish standards for approving eligible

7 lenders for a delegation of authority under this subsection.

8 ‘‘(i) PAYMENT UNDER GUARANTEE.—

9 ‘‘(1) NOTICE OF DEFAULT.—In the event of de10 fault by the borrower on a loan guaranteed under

11 this section, the holder of the guarantee certificate

12 for the loan shall provide written notice of the de13 fault to the Secretary.

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

15 under paragraph (1) and providing written notice of

16 action under this paragraph to the Secretary, the

17 holder of the guarantee certificate for the loan may

18 initiate foreclosure proceedings for the loan in a

19 court of competent jurisdiction, in accordance with

20 regulations issued by the Secretary, to obtain posses21 sion of the security property. After the court issues

22 a final order authorizing foreclosure on the property,

23 the holder of the certificate shall be entitled to pay24 ment by the Secretary under the guarantee (in the

25 amount provided under subsection (b)) upon (A)
8

•HR 66 IH

1 conveyance to the Secretary of title to the security

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

3 for payment under the guarantee, and (C) assign4 ment to the Secretary of all the claims of the holder

5 of the guarantee against the borrower or others aris6 ing out of the loan transaction or foreclosure pro7 ceedings, except claims released with the consent of

8 the Secretary.

9 ‘‘(3) ASSIGNMENT BY SECRETARY.—After re10 ceiving notice under paragraph (1), the Secretary

11 may accept assignment of the loan if the Secretary

12 determines that the assignment is in the best inter13 ests of the United States. Assignment of a loan

14 under this paragraph shall include conveyance to the

15 Secretary of title to the security property, assign16 ment to the Secretary of all rights and interests

17 arising under the loan, and assignment to the Sec18 retary of all claims against the borrower or others

19 arising out of the loan transaction. Upon assignment

20 of a loan under this paragraph, the holder of a guar21 antee certificate for the loan shall be entitled to pay22 ment by the Secretary under the guarantee (in the

23 amount provided under subsection (b)).

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

25 under a guarantee is made under paragraph (2) or
9

•HR 66 IH

1 (3), the holder of the guarantee certificate shall ex2 haust all reasonable possibilities of collection on the

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

4 to the holder, the note or judgment evidencing the

5 debt shall be assigned to the United States and the

6 holder shall have no further claim against the bor7 rower or the United States. The Secretary shall then

8 take such action to collect as the Secretary deter9 mines appropriate.

10 ‘‘(j) VIOLATION OF GUARANTEE REQUIREMENTS BY

11 LENDERS ISSUING GUARANTEES.—

12 ‘‘(1) INDEMNIFICATION.—If the Secretary de13 termines that a loan guaranteed by an eligible lender

14 pursuant to delegation of authority under subsection

15 (h) was not originated in accordance with the re16 quirements under this section and the Secretary

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

18 Secretary may require the eligible lender authorized

19 under subsection (h) to issue the guarantee certifi20 cate for the loan—

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

22 loss, if the payment under the guarantee was

23 made within a reasonable period specified by

24 the Secretary; or
10

•HR 66 IH

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

2 loss regardless of when payment under the

3 guarantee was made, if the Secretary deter4 mines that fraud or misrepresentation was in5 volved in connection with the origination of the

6 loan.

7 ‘‘(2) TERMINATION OF AUTHORITY TO ISSUE

8 GUARANTEES.—The Secretary may cancel a delega9 tion of authority under subsection (h) to an eligible

10 lender if the Secretary determines that the lender

11 has violated the requirements and procedures for

12 guaranteed loans under this section or for other

13 good cause. Any such cancellation shall be made by

14 giving notice to the eligible lender and shall take ef15 fect upon receipt of the notice by the mortgagee or

16 at a later date, as the Secretary may provide. A de17 cision by the Secretary to cancel a delegation shall

18 be final and conclusive and shall not be subject to

19 judicial review.

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

21 section may be refinanced and extended in accordance

22 with terms and conditions that the Secretary shall pre23 scribe, but in no event for an additional amount or term

24 that exceeds the limitations under subsection (f).
11

•HR 66 IH

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

2 that is guaranteed under this section and under which any

3 portion of the principal obligation or interest remains out4 standing may not be relieved of liability with respect to

5 the loan, notwithstanding the transfer of property for

6 which the loan was made.

7 ‘‘(m) GEOGRAPHICAL TARGETING.—

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

9 an independent entity to conduct a study to deter10 mine the extent to which borrowers in the United

11 States will utilize loan guarantees under this section,

12 the rural areas in the United States in which bor13 rowers can best utilize and most need loans guaran14 teed under this section, and the rural areas in the

15 United States in which housing of the type eligible

16 for a loan guarantee under this section is most need17 ed by low- and moderate-income families. The Sec18 retary shall require the independent entity conduct19 ing the study to submit a report to the Secretary

20 and to the Congress describing the results of the

21 study not later than the expiration of the 90-day pe22 riod beginning on the date of the enactment of the

23 Rural Multifamily Rental Housing Loan Guarantee

24 Demonstration Act.
12

•HR 66 IH

1 ‘‘(2) TARGETING.—In providing loan guaran2 tees under this section, the Secretary shall establish

3 standards to target and give priority to rural areas

4 in which borrowers can best utilize and most need

5 loans guaranteed under this section, as determined

6 by the Secretary based on the results of the study

7 under paragraph (1) and any other information the

8 Secretary considers appropriate.

9 ‘‘(n) INAPPLICABILITY OF CREDIT-ELSEWHERE

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

11 loans guaranteed, under this section.

12 ‘‘(o) TENANT PROTECTIONS.—The Secretary shall

13 establish standards for the treatment of tenants of hous14 ing developed using amounts from a loan guaranteed

15 under this section, which shall incorporate, to the extent

16 applicable, existing standards applicable to tenants of

17 housing developed with loans made under section 515.

18 Such standards shall include standards for fair housing

19 and equal opportunity, lease and grievance procedures,

20 and tenant appeals of adverse actions.

21 ‘‘(p) HOUSING STANDARDS.—The standards estab22 lished under section 515(m) for housing and related facili23 ties assisted under section 515 shall apply to housing and

24 related facilities the development costs of which are fi-
13

•HR 66 IH

1 nanced in whole or in part with a loan guaranteed under

2 this section.

3 ‘‘(q) 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 PROJECTS AND OUT13 STANDING AGGREGATE PRINCIPAL AMOUNT.—Sub14 ject to the limitation in paragraph (1), the Secretary

15 may enter into commitments to guarantee loans

16 under this section for not more than 25 housing

17 projects in each of fiscal years 1995 and 1996, hav18 ing an aggregate outstanding principal amount not

19 exceeding $50,000,000 in each of such fiscal years.

20 ‘‘(r) REPORT.—

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

22 a report to the Congress, not later than the expira23 tion of the 2-year period beginning on the date of

24 the enactment of the Rural Multifamily Rental

25 Housing Loan Guarantee Demonstration Act, de-
14

•HR 66 IH

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
15

•HR 66 IH

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

3 this section that the Secretary considers appro4 priate.

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

Æ