Source: https://www.federalregister.gov/articles/2011/01/03/2010-33042/continuous-construction-permanent-loan-guarantees-under-the-section-538-guaranteed-rural-rental
Timestamp: 2016-08-28 05:08:23
Document Index: 348712261

Matched Legal Cases: ['§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', 'art 3565', 'art 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565', '§ 3565']

-5 (5 pages)
0575-AC80
Document Number: 2010-33042
Shorter URL: https://federalregister.gov/a/2010-33042 Related Topics
The Rural Housing Service (RHS) (an agency within the Rural Development mission area) is amending its regulations to add an additional form of guarantee that is now available under its Guaranteed Rural Rental Housing Program. A single, continuous guarantee during the construction phase for construction advances and the permanent financing phase of the project (for loans that meet certain criteria) will now be provided in addition to the two existing forms of guarantees under the program. This action is taken to enhance efficiency, flexibility, and effectiveness in managing the program.
Guaranteed Rural Rental Housing Program--Continuous Guarantee-Uni-GRRHP 4 actions from January 29th, 2010 to February 2nd, 2011
Effective Date: The final rule is effective on February 2, 2011.
This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has determined and certified by signature of this document that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect both small and large entities in the same manner. This rule has no significant changes in information collection or regulatory requirements that would have a negative impact on either small or large entities in an economic way.
The Guaranteed Rural Rental Housing Program (GRRHP) currently offers two forms of guarantees: (1) A guarantee for permanent loans and (2) a guarantee which provides a limited duration guarantee for advances during the construction period with the limited duration provision being automatically removed if certain conditions are met. Under this final rule, the Agency creates, for loans meeting certain criteria and subject to the availability of funds, an option for a single, continuous guarantee during the construction phase for construction advances and the permanent financing phase of the project. This third option was created in response to input from GRRHP stakeholders who believe that this option will allow the program to serve more borrowers thus making affordable housing available for more low to moderate income families. This final rule also includes technical corrections and clarifications and removes the anachronistic requirement that lenders certify that their computer systems comply with year 2000 technology. The proposed rule can be found at 75 FR 4707-4710. Additionally, this final rule removes the definition for “combination construction and permanent loan” and added definitions for “construction and permanent loan,” “construction contingency reserve,” “lease-up period,” “lease-up reserve,” “loan-to-cost ratio,” and “operating and maintenance reserve.”
Comments Received on the Proposed Rule Back to Top
On January 29, 2010, RHS (an agency within the Rural Development mission area) proposed an additional form of guarantee under the Guaranteed Rural Rental Housing Program regulation. The Agency received comments from five entities in response to the proposed rule. Comments were supportive of the new guarantee option offered in the proposed rule. One commenter stated that they supported the additional form of guarantee and applauded RHS' work in this area. The commenter believed the continuous guarantee will reduce the complexity of the program, making housing affordable for more low to moderate income families. Another commenter also stated that the continuous guarantee is a good idea and that it would provide a financing vehicle for additional multifamily housing construction. The Agency appreciates the support received from commenters in regard to the new continuous guarantee option. Specific comments were also received in three particular areas: Construction contingency reserve, the guarantee requirements, and the processing requirements. These comments are summarized below.
Construction Contingency Reserve Back to Top
Two comments were received regarding the construction contingency reserve. The first comment was related to the definition provided in the proposed rule which read: “This reserve will be held by the lender and will only be disbursed for Agency and lender approved change order requests.” The commenter's concern was that, as written, the language could be interpreted to mean that change order requests need only be approved by the Agency or the lender. The commenter recommended the language be rewritten to provide that the funds will only be disbursed for change order[s] requests that are approved by both the Agency and the lender. In response to this comment, the Agency has revised the definition to read: “A cash reserve of at least two percent of the construction contract, inclusive of the contractor's fee and all hard and soft costs, which must be set up and fully funded by the closing of the construction loan. This reserve will be held by the lender, and funds will only be disbursed for change order requests approved by the Agency and the lender.”
The second comment on construction contingency reserve stated that it would be useful to clarify the timing of the release of unused reserve funds as there are inconsistent interpretations among various State agencies. The commenter recommended releasing these funds at the same time that the 90/90 reserve funds are released. In response to this comment the Agency has revised the definition to clarify when the unused reserve funds will be released.
Guarantee Requirements Back to Top
The Agency received three comments regarding the guarantee requirements. One commenter recommended removal of the following language in § 3565.52(c)(3) which the commenter viewed as unnecessary: “Only projects that have low loan-to-cost ratio, as specified by the Agency in a Notice published periodically in the Federal Register, are eligible for this type of guarantee.” The Agency believes this language serves the purpose of advising readers up front that specific eligibility criteria in relation to what constitutes low loan-to-cost ration is subject to change and appropriate notification will take place periodically in the Federal Register. Accordingly, this language was unchanged.
The second commenter asked what is intended by the term “low loan-to-cost ratio” in § 3565.52(c)(3). The commenter further stated that this [achieving a low loan-to-cost ratio] should not be a problem for Low Income Housing Tax Credit properties but could be for other properties, and that RHS should not arbitrarily limit the availability of the new guarantee. In response to this comment, the Agency reserves the right in the regulation to periodically publish a threshold in the Federal Register to define the ratio that will be considered “low”. The definition for “loan-to-cost ratio” was unchanged.
The third commenter stated that it is not clear in the proposed rule how the required lease-up reserve (in § 3565.52(c)(3)) will be calculated and expressed a concern that adding on a “substantial” lease-up reserve that must be funded up front (in § 3565.52(e)(3)) is burdensome on the project and would make the program much less useful. Specific administrative guidance on calculating the lease-up reserve will be announced through a Notice in the Federal Register. Supplemental guidance will be included in HB-1-3565, the Guaranteed Rural Rental Housing Program Origination and Servicing Handbook (available in any Rural Development office), and will not be published in the rule. In response to the commenter's second concern, the Agency has revised the final rule to require that the lease-up reserve be funded 30 days before first Certificate of Occupancy is anticipated (rather than up front).
Processing Requirements Back to Top
In terms of processing requirements, the Agency received three comments. The first commenter asked that the word “independent” be removed from § 3565.303(c)(3). Section 3565.303(c)(3) which states that inspections must be done by an “independent” inspector. The commenter stated the requirement is that the inspector must be “qualified.” The Agency agrees that the inspector must be qualified to perform inspections but in order to avoid potential conflicts of interest; the inspector must also be independent and cannot be affiliated with the borrower or lender. This language remains in the rule.
The second comment on this subject was to remove in § 3565.303(d)(4) the requirement regarding an as-built appraisal. The commenter recommended making this required under certain circumstances in order to reduce the number of exemptions that would need to be processed. In response, the Agency revised the final rule to clarify that the as-built appraisal is required only for Options 1 and 2, but not for Option 3 (the continuous guarantee).
The final comment the Agency received on this subject was to change the requirement in § 3565.303(d)(4)(iii) that the Agency's guaranteed loan balance not exceed 50% (in order to qualify for an exception to the as-built appraisal). The commenter recommended that this figure be revised to be 90%. The commenter's point was that if a construction loan can be done at 90% and then rolled into a permanent loan, there is no difference in risk, and loans with less leveraging can be more easily moved into the secondary market. As noted above, the as-built appraisal is required only for Options 1 and 2, but not for Option 3 (the continuous guarantee) so this provision does not apply.
In addition, a conforming change has been added as section 3565.303(f). Though the continuous guarantee will be seamless from the construction phase to the permanent financing phase, the loan must still be in compliance with 7 CFR part 3565. Section 3565.303(f) simply clarifies the specific requirements.
Accordingly, chapter XXXV, title 7, Code of Federal Regulations is amended as follows:
1.The authority citation for part 3565 continues to read as follows: Authority:
2.Section 3565.3 is amended by removing the definition for “combination construction and permanent loan” and by adding alphabetically definitions for “construction and permanent loan,” “construction contingency reserve,” “lease-up period,” “lease-up reserve,” “loan-to-cost ratio,” and “operating and maintenance reserve” to read as follows: § 3565.3 Definitions.
3.Section 3565.51 is revised to read as follows: § 3565.51 Eligible loans and advances.
4.Section 3565.52 is amended by revising paragraph (c) and adding new paragraphs (d) and (e) to read as follows: § 3565.52 Conditions of guarantee.
(1) Option One. The Agency may guarantee permanent loans subject to the conditions specified in § 3565.303(d). The maximum guarantee for a permanent loan will be 90 percent [unless the Agency establishes a different percent and announces this different percent through a Notice in the Federal Register] of the unpaid principal and interest up to default and accrued interest 90 calendar days from the date the liquidation plan is approved by the Agency, as defined in § 3565.452.
5.Section 3565.103 is amended by removing paragraph (d)(9). § 3565.106 [Amended]
6.Section 3565.106 is amended by removing the word “combination.” Subpart G—Processing Requirements Back to Top
7.Section 3565.303 is amended by revising paragraphs (c) and (d) and adding paragraph (f) to read as follows: § 3565.303 Issuance of loan guarantee.
(c) Guarantee during construction. When requesting a guarantee on construction loan advances under § 3565.52(c)(2) and (c)(3), Options 2 and 3, the Agency will only issue a guarantee to an approved lender that the Agency determines is eligible under § 3565.106 of this part.
(ii) Additional funds, supplementing the funds required under § 3565.303(d), have been added to the lease-up reserve in an amount the Agency determines is necessary to cover projected shortfalls.
(13) Necessary information to complete an updated necessary assistance review by the Agency under § 3565.204(c); and
8.Section 3565.457 (c)(1)is amended in the first sentence by removing the word ”collectibility” and adding “collectability” in its place. end regulatory text
Tammye Treviňo,
[FR Doc. 2010-33042 Filed 12-30-10; 8:45 am]