Rural Rental Housing (RRH) Assistance

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1930, 1944, 1951, and 1965

RIN 0575-AC15

Rural Rental Housing (RRH) Assistance

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,

Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Rural Housing Service (RHS), formerly Rural Housing and

Community Development Service (RHCDS), a successor Agency to the

Farmers Home Administration (FmHA), amends its regulations for the

Rural Rental Housing (RRH) program to implement legislative reforms

mandated by the Agriculture, Rural Development, Food and Drug

Administration, and Related Agencies Appropriations Act, 1997, Public

Law 104-180, enacted August 6, 1996 (hereinafter referred to as the

Act.) The following revisions are included in this rule: Prioritization

of assistance; assurances that the amount of assistance provided is no

more than is necessary; assurance that project transfers are in the

best interest of the tenants and the government; elimination of the

occupancy surcharge; changes to the equity loan program; and

implementation of penalties for equity skimming by project owners and

managers. The intended effect of these reforms is to improve the

effectiveness of the Section 515 Rural Rental Housing Program.

DATES: The effective date of this interim final rule is May 7, 1997.

Written comments must be received on or before July 7, 1997.

ADDRESSES: Written comments may be submitted, in duplicate, to the

Director, Support Services Division, U.S. Department of Agriculture,

Stop 0743, 1400 Independence Avenue SW, Washington, D.C. 20250.

Comments may be submitted via the Internet by addressing them to

``[email protected]'' and must contain the word ``reforms'' in the

subject. All written comments will be available for public inspection

at the above address during normal working hours.

FOR FURTHER INFORMATION CONTACT: Linda Armour or Carl Wagner, Senior

Loan Specialists, Multi-Family Housing Processing Division, Rural

Housing Service, U.S. Department of Agriculture, Room 5349--South

Building, Stop 0781, Washington, D.C. 20250, telephone (202) 720-1608.

SUPPLEMENTARY INFORMATION:

Classification

This rule has been determined to be significant for purposes of

Executive Order 12886 and therefore has been reviewed by the Office of

Management and Budget.

Paperwork Reduction Act

The information collection requirements contained in this

regulation have been previously approved by the Office of Management

and Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and have

been assigned OMB control number 0575-0047 in accordance with the

Paperwork Reduction Act of 1995. This rule does not impose any new

information collection requirements.

Under the Paperwork Reduction Act of 1995, no persons are required

to respond to a collection of information unless it displays a valid

OMB control number. The valid OMB control number assigned to the

collection of information in these final regulations is displayed at

the end of the affected section of the regulations.

Civil Justice Reform

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. In accordance with this rule: (1) All state and local

laws and regulations that are in conflict with this rule will be

preempted; (2) no retroactive effect will be given to this rule; and

(3) administrative proceedings in accordance with 7 CFR part 11 must be

exhausted before bringing suit.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public

Law 104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local, and tribal

governments and the private sector. Under section 202 of the UMRA, RHS

generally must prepare a written statement, including a cost-benefit

analysis, for proposed and final rules with ``Federal mandates'' that

may result in expenditures to State, local, or tribal governments, in

the aggregate, or to the private sector, of $100 million or more in any

one year. When such a statement is needed for a rule, section 205 of

the UMRA generally requires RHS to identify and consider a reasonable

number of regulatory alternatives and adopt the least costly, more

cost-effective or least burdensome alternative that achieves the

objectives of the rule.

This rule contains no Federal mandates (under the regulatory

provisions of title II of the UMRA) for State, local, and tribal

governments or the private sector. Therefore, this rule is not subject

to the requirements of sections 202 and 205 of the UMRA.

Discussion of Use of Interim Final Rule

It is the policy of this Department that rules relating to public

property loans, grants, benefits or contracts shall be published for

comment notwithstanding the exemption in 5 U.S.C. 553 with respect to

such rules. These amendments, however, are not published for proposed

rulemaking since the purpose of the change is to comply with mandatory

statutory provisions and any delay would be contrary to the public

interest. The Act requires six reforms to the MFH program in direct

response to reports issued by the General Accounting Office (GAO),

Surveys and Investigations Staff of the House Appropriations Committee,

and USDA Office of the Inspector General (OIG). These reports

highlighted program deficiencies and the potential for fraud and waste.

Congress mandated immediate action on all reforms, and specifically

directed the Agency to implement one reform within 60 days through

negotiated rulemaking. The Agency was not able to accomplish the 60-day

deadline because the negotiated rulemaking process takes an estimated

18 months; however, this provides further documentation of Congress'

intent that these regulations be implemented without delay. In

addition, the effect of including these reforms in the Agency's

appropriation bill precludes the Agency from obligating any loan funds

for new construction until the reforms are enacted, with the result

being that many very-low and low income families are being denied

access to decent, safe and sanitary housing. In addition, our other

partners in the development of affordable housing such as state housing

financing agencies administering low-income housing tax credits, and

other loan and grant programs are adversely affected by the Agency's

inability to make loan commitments on jointly financed proposals. And

finally, there are provisions of the Act that affect the management of

our existing loan portfolio. Their immediate implementation will serve

to reduce unnecessary outlays of federal

[[Page 25063]]

resources, reduce paperwork burden, improve program performance, and

impose stricter penalties on program abusers.

Due to its exigency, this rule also constitutes an emergency for

purposes of section 534(c) of the Housing Act of 1949 and thus is an

exception to the proposed rulemaking requirements in section 534(a) of

the Housing Act of 1949. Comments are being solicited on this interim

final rule and will be considered in the development of the final rule.

Programs Affected

The affected programs are listed in the Catalog of Federal Domestic

Assistance under Numbers 10.405, Farm Labor Housing Loans and Grants,

10.415, Rural Rental Housing Loans and 10.427, Rural Rental Assistance

Payments.

Intergovernmental Consultation

This program is subject to Executive Order 12372 which requires

intergovernmental consultation with State and local officials. RHS has

conducted intergovernmental consultation in the manner delineated in RD

Instruction 1940-J.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940,

subpart G, ``Environmental Program.'' It is the determination of RHS

that this action does not constitute a major Federal action

significantly affecting the quality of the human environment and in

accordance with the National Environmental Policy Act of 1969, Public

Law 91-190, an Environmental Impact Statement is not required.

Civil Rights Impact Analysis

This document has been reviewed in accordance with RD Instruction

2006-P, ``Civil Rights Impact Analysis.'' It is the determination of

RHS that this document complies with the requirements of this

Instruction.

Background and Information

The Act included reforms in six areas of the multi-family housing

program. Four of the six reforms were directive and could be

implemented as enacted without the need for public comment. For

example, the Act eliminated occupancy surcharge. Two of the reforms,

however, provided for substantive changes in the manner in which MFH

loan requests are processed and gave the Secretary administrative

discretion in their implementation. The Act required that one of these

reforms, determining the amount of assistance necessary to develop the

proposed rental housing, be implemented within 60 days through

negotiated rulemaking as a means of assuring that the public was both

informed and consulted regarding the Agency's intentions and

requirements that would impact them as potential users of the program.

Unfortunately, such process takes an estimated 18 months and could not

be accomplished within the confines of the law (that is, within 60 days

of enactment). In order to meet the spirit of negotiated rulemaking,

the Agency sought extensive public input through several informal

meetings with developers, major housing groups, and Agency personnel so

that the Agency would gain a full measure of public input before

developing the regulations. The Act further required the Agency to

follow 5 U.S.C. 557 if negotiated rulemaking could not be accomplished.

Therefore, in accordance with 5 U.S.C. 557, the Agency is publishing

the rule for notice and comment.

Following is a discussion of each of the six reforms included in

this rule:

(1) Limitation on Project Transfers. If a borrower fails to perform

the duties contained in their RHS security instruments, the Agency can

authorize the transfer of the property to an operator who is able to

protect the housing and the health and safety of the tenants. Borrowers

demonstrating a record of substantial noncompliance on one or more

projects may be ineligible for financial assistance from the

government. Borrowers must be in compliance and operating successfully

on loans or be successfully operating on a workout plan in order to

qualify for federal assistance. Furthermore, the government must

evaluate the proposed costs and impacts associated with rehabilitation

efforts. The government is seeking to ensure that rehabilitation costs

are reasonable, that the efforts will minimize tenant displacement, and

that the community will benefit by achieving decent, safe, sanitary,

modest, and affordable housing for very low-, low-, and moderate income

rural residents. Since 1994, RHS has taken an aggressive stance toward

servicing delinquent and problem borrowers. Delinquencies of 180 days

or more have dropped 28%, while the overall program delinquency rate

for the past two years has stayed at or near 2.6%, a very low rate for

this type of portfolio. The reform amendments formalize the Agency's

role in servicing these accounts by stipulating that the Agency will

determine if a project transfer is in the best interest of the tenants

and the government. 7 CFR part 1965, subpart B, ``Security Servicing

for Multiple Housing Loans,'' is revised to implement this provision.

(2) Eliminating the Occupancy Surcharge. Occupancy surcharges were

enacted as a mechanism to build an equity reserve fund to defray some

of the costs of guaranteed equity takeout loans. The surcharge program

adds $2 to the monthly rental rate for each rental unit each year,

thereby increasing the amount of rental assistance (RA) RHS must

provide tenants who receive RA, and reducing the amount of available

RA. The reform amendments eliminated the requirement to collect

occupancy surcharges. The elimination of the occupancy surcharge will

reduce the amount of RA provided to tenants by nearly $600,000 per

month. The Agency is amending 7 CFR part 1951, subpart K,

``Predetermined Amortization Schedule System (PASS) Account

Servicing;'' part 1930, subpart C, ``Management and Supervision of

Multiple Family Housing Borrowers and Grant Recipients;'' and part

1965, subpart B, ``Security Servicing for Multiple Housing Loans'' to

implement these changes. Rural Development Administrative Notice (AN)

3301 (1930-C) was issued on December 18, 1996, to provide guidance to

Agency field offices on how to implement the process to repeal the

occupancy surcharge. At this time, no determination has been made

regarding occupancy surcharges previously collected by the Agency.

(3) Revising the Equity Loan Program. The equity loan program was

enacted as an incentive for owners not to prepay their RHS loans and to

keep their projects in use as low-and very low-income housing for the

full terms of their loans. This rule includes revisions to 7 CFR part

1965, subpart E, ``Prepayment and Displacement Prevention of Multi-

Family Housing Loans,'' to implement statutory provisions that allow

any owner with a pre-1989 loan to apply for an equity loan. The primary

focus of this reform is to ensure that any developer who has

restrictive-use provisions currently on its property would not be

eligible to receive any incentives, including equity loans, until their

existing restrictive-use provisions have expired. An additional change

to the statute, to improve program consistency, allows owners with

post-1979 but pre-1989 loans to obtain equity loans once their

restrictive use period expires. Prior to this statutory change, the

program allowed only owners with pre-1979 loans to recover some of

their equity through low-interest government loans. A significant

number of owners will now become eligible for equity loans with this

change once their restrictive use

[[Page 25064]]

period expires, but given current and projected funding levels, RHS's

ability to finance these loans is severely limited.

The Act also contained language which appeared to make farm labor

housing borrowers eligible for equity loans. Specifically, the Act

contained language providing authority to make equity loans to farm

labor housing borrowers under ``section 514(j)'' of the Housing Act of

1949. However, section 514(j) of the Housing Act does not pertain to

equity loans; it deals specifically with equity skimming penalties for

farm labor housing borrowers who abuse rent receipts, physical

property, etc. Since the Act did not provide clear authority for equity

loans to farm labor housing borrowers, this provision could not be

implemented.

(4) Preventing equity skimming by project owners and managers. RHS

has implemented numerous administrative measures to prevent owners and

managers from defrauding the government by ``equity skimming''

(misusing rent receipts, physical property, and reserve accounts.) In

addition, under current law, owners and managers found defrauding the

government may be prevented from doing business with the federal

government for a certain number of years (debarment). However, the

administration of these measures varies from case to case and depends

on the servicing arrangements between the government and the operator.

The Act enhances the Agency's ability to deter waste, fraud, and abuse

by making equity skimming a criminal offense, punishable by a fine of

up to $250,000 or up to 5 years in prison, or both. This provision has

been added to 7 CFR part 1930, subpart C, ``Management and Supervision

of Multiple Family Housing Borrowers and Grant Recipients,'' and will

provide a strong and consistent deterrent to defrauding the government.

(5) Prioritization of Assistance. Prior to the passage of the Act,

the Agency used a point system that heavily weighted proposals for

projects in areas at least 20 miles from an urban center. This system,

designed to ensure that truly rural areas receive housing assistance,

was criticized for placing too much emphasis on the proximity of a

community to an urban center and not fully reflecting a rural

community's need for housing. The new legislation allows the Agency a

more proactive role in selecting areas of greatest need based on

specific criteria contained in the Act. The regulation, developed with

input from program users, contains specific criteria and parameters for

selecting areas, provides guidance on optional criteria permitted by

the law, and establishes the timing for area selection and for

selection of loans within such areas. The Agency has developed a

ranking system for selecting and designating places for which loan

requests will be invited, based on the following objective measures

required by the Act: The incidence of poverty; the lack of affordable

housing and the existence of substandard housing; the lack of mortgage

credit; and the rural characteristics of the location. Loan requests

received for designated places will be scored and ranked using

objective criteria developed by the Agency. The highest ranked loan

requests within the State's funding levels will be further processed.

(6) Necessary Assistance. Responding to the concern that rural

rental housing developers may be earning excessive profits through

government subsidies, the reform legislation provides that the Agency

can adjust the amount of its loan if excess assistance is being

provided. RHS already has in place a provision that each State will

enter into a memorandum of understanding (MOU) with state housing

agencies agreeing to coordinate the award of program benefits. In

developing regulations to implement the reform legislation, input was

obtained from program users in determining appropriate caps to use for

builder's profit, general overhead, and general requirements;

calculation of a maximum allowable developer's fee; the timing of the

determination of the amount of necessary assistance; and the process to

be used in determining the amount of necessary assistance. The

regulations will require an evaluation of the subsidy being provided to

the proposed project, using a computer-based analysis. That evaluation

will be shared with the state housing finance agency providing tax

credits and with other participants in the financing of the proposal.

If indicated by the evaluation, RHS will work with other participants

to reduce their contribution, or as a final step, will reduce the

amount of RHS resources to ensure that excess assistance is not

provided.

This rule also makes other minor revisions and clarifications of a

housekeeping nature, such as correcting certain references to

applicable Civil Rights legislation or regulatory cross-references.

Implementation Proposal

This rule changes the manner in which multi-family housing loan

requests are processed; adds provisions to ensure that the amount of

assistance provided is no more than is necessary; reinforces the

Agency's role in project transfers; eliminates the occupancy surcharge;

revises the equity loan parameters; and institutes measures to prevent

equity skimming. All provisions of the rule become effective the date

of publication of this interim final rule. Loan requests on hand and

existing loans will be reviewed for compliance with the revised

regulations.

Concurrently, upon publication of this rule, the Agency will

discontinue its priority point system and change to a NOFA (Notice of

Funds Availability) system which is published elsewhere in this issue

of the Federal Register. Under the NOFA system, the amount of available

funds and application deadlines will be announced each funding cycle in

the Federal Register. Loan requests will be reviewed and selected based

on objective criteria in accordance with the new regulations; loan

requests not selected for funding will be returned to the applicant.

The Agency intends to fund eligible loan requests on hand that were

issued an AD-622, ``Notice of Preapplication Review Action,'' inviting

a formal application prior to November 7, 1996 (the date Agency staff

were advised that no further AD-622s be issued pending implementation

of the new statutory provisions), in date order of complete application

received, provided the applications comply with the new statutory

requirements and are in designated areas in accordance with the new

regulations. In these instances, the Agency will not invite further

loan requests for designated areas where a loan request has been issued

an AD-622. Since regulations in effect prior to this rulemaking action

allowed States to authorize applications up to either 150 or 200

percent of their annual allocation, existing applications will be

considered until the beginning of FY 1999. At that time, any remaining

outstanding applications authorized prior to November 7, 1996, which

have not been reached for funding will be returned to the applicant.

Loan requests that have been issued an AD-622 inviting a formal

application that are not located in a designated place in accordance

with the new requirements will be returned to the applicant. The Agency

recognizes the impact on applicants thus affected; however, we are

mandated by Congress to institute measures to ensure assistance is

provided only to those rural areas with the greatest need.

Loan requests on hand that have not been issued an AD-622 inviting

a formal application will be returned to the applicant. Loan requests

thus

[[Page 25065]]

returned may, of course, be submitted for consideration with other loan

requests when the availability of funds is announced, if they are

located in communities on the State's list of designated places.

List of Subjects

7 CFR Part 1930

Grant programs--housing and community development, Loan programs--

housing and community development, Low and moderate income housing,

Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1944

Administrative practice and procedure, Aged, Handicapped, Loan

programs--housing and community development, Low and moderate income

housing, Mortgages, Nonprofit organizations, Rent subsidies, Rural

areas.

7 CFR Part 1951

Accounting, Loan programs--agriculture, Loan programs--housing and

community development, Low and moderate income housing, Mortgages,

Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1965

Low and moderate income housing, Mortgages, Reporting and

recordkeeping requirements, Rural areas.

Therefore, chapter XVIII, title 7, Code of Federal Regulations is

amended as follows:

1. 7 CFR chapter XVIII is amended by revising the word

``preapplication'' to read ``loan request'' in the following places:

a. Part 1944, Sec. 1944.211(a)(13)(i)

b. Part 1944, introductory text of Sec. 1944.213(b)

c. Part 1944, Sec. 1944.213(d)(1)(i)

d. Part 1944, Sec. 1944.213(d)(1)(ii)

e. Part 1944, Sec. 1944.224(a)(4)

f. Part 1944, Sec. 1944.224(a)(6)

g. Part 1944, Sec. 1944.224(a)(7)

h. Part 1944, introductory text of Sec. 1944.235(h)

i. Part 1944, subpart E, Exhibit A, paragraph IV.B.4.

j. Part 1944, subpart E, Exhibit A, paragraph IV.B.22.

k. Part 1944, subpart E, Exhibit A-7, paragraph I.A.(4)

l. Part 1944, subpart E, Exhibit E, paragraph III

m. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.A.

n. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.B.

o. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.D.

p. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.E.

q. Part 1944, subpart E, Exhibit E, paragraph VII

2. 7 CFR chapter XVIII is amended by removing the words ``,

occupancy surcharge'' in the following places:

a. Part 1930, subpart C, Exhibit B, paragraph XIII.C.2.f(1)

b. Part 1951, Sec. 1951.517(b)(4)(i)(A)

c. Part 1951, Sec. 1951.517(b)(4)(i)(B)

d. Part 1951, Sec. 1951.517(b)(4)(ii)(A)

e. Part 1951, Sec. 1951.517(b)(4)(ii)(B)

f. Part 1951, Sec. 1951.517(b)(4)(iii)

3. 7 CFR chapter XVIII is amended by removing the words ``and

occupancy surcharge'' in the following places:

a. Part 1930, subpart C, Exhibit B, introductory text of paragraph

XIV.A.5.b

b. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(1)(i)(A)--2

times

c. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(1)(i)(B)

d. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(2)(vi)(A)--2

times

e. Part 1930, subpart C, Exhibit B-1, paragraph 4.b

f. Part 1930, subpart C, Exhibit B-1, heading of paragraph 6

g. Part 1930, subpart C, Exhibit B-1, paragraph 6.a

h. Part 1930, subpart C, Exhibit E, paragraph II.A.2

4. 7 CFR chapter XVIII is amended by removing the words ``or

occupancy surcharge'' in part 1951, Sec. 1951.506(a)(3).

5. 7 CFR chapter XVIII is amended by removing the words ``, as well

as the occupancy surcharge'' in the following places:

a. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(1)(v)(C)

b. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(2)(iv)

PART 1930--GENERAL

6. The authority citation for part 1930 is revised to read as

follows:

Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

Subpart C--Management and Supervision of Multiple Family Housing

Borrowers and Grant Recipients

7. Section 1930.105 is amended by revising paragraph (b)(10) to

read as follows:

Sec. 1930.105 Objective of management and supervision.

* * * * *

(b) * * *

(10) Operate the facilities according to applicable Civil Rights

laws, Title VI of the Civil Rights Act of 1964, Title VIII of the Civil

Rights Act of 1968, Section 504 of the Rehabilitation Act of 1973,

Executive Order 11246, the Americans with Disabilities Act of 1990, and

the Age Discrimination Act of 1975.

* * * * *

8. Section 1930.106 is added to read as follows:

Sec. 1930.106 Project operations.

Project operations shall be conducted to meet the actual needs and

necessary expenses of the property or for any other purpose authorized

under Agency regulations. Whoever willfully uses, or authorizes the

use, of any part of the rents, assets, proceeds, income, or other funds

derived from such property for unauthorized purposes is subject to

penalty. This includes an owner, agent, or manager, or person who is

otherwise in custody, control, or possession of property that is

security for a multi-family housing loan. Those violating these

provisions are subject to penalties set out under Agency regulations

and the law. Under law (42 U.S.C. 1484 and 1485), federal penalties

consisting of fines of not more than $250,000 or imprisonment of not

more than five years, or both, may be imposed for operating a project

in a manner inconsistent with the provisions of this section.

9. Subpart C, Exhibit B is amended in paragraph II by removing the

definition of ``Occupancy surcharge'' and by removing the words ``,

including occupancy surcharge,'' in the definition of ``Tenant

contribution''; in paragraph V F 1 a by removing the last sentence; in

paragraph V F 1 b by removing the last sentence; in paragraph VII F 6

(c) in the second sentence by removing the words ``as well as maximum

occupancy surcharge''; in paragraph VII F 6 d in the third sentence by

removing the words ``and occupancy surcharges''; by removing paragraph

VIII A 3; by redesignating paragraphs VIII A 4 through VIII A 8 as

paragraphs VIII A 3 through VIII A 7 respectively; in the introductory

text of paragraph VIII B by revising the words ``paragraphs 1, 4b, 4d,

4e, 5, and 7'' to read ``paragraphs VIII B 1, VIII B 4 b, VIII B 4 d,

VIII B 4 e, VIII B 5, and VIII B 7;'' in paragraph VIII B 4 by revising

the word ``Occupancy'' to read ``Cooperative occupancy'' and by

revising the words ``paragraphs VII B 4 b, d, and e'' to read

``paragraphs VIII B 4 b, VIII B 4 d, and VIII B 4 e''; in paragraph

VIII D 2 by removing the words ``, including occupancy surcharge

levied, if any''; in paragraph XIII B 2 a (2) by removing the words

``occupancy surcharge monies,''; in paragraph XIII B 2 a (3) by

removing

[[Page 25066]]

the words ``including occupancy surcharge''; in paragraph XIV A 5 b (1)

(i) (B) by removing the words ``or to pay the occupancy surcharge''; in

paragraph XIV A 5 b (2) (vi) (B) by removing the words ``or the

occupancy surcharge''; in paragraph XIV A 5 B(1)(I)(b) by removing the

words ``or to pay the occupancy surcharge''; in paragraph XIV A 5 b (2)

(vi) (C) by removing the words ``and reimbursement for occupancy

surcharge''; and in paragraph II by revising the definition of

``Shelter cost'' to read as follows:

EXHIBITS TO SUBPART C

* * * * *

EXHIBIT B--MULTIPLE HOUSING MANAGEMENT HANDBOOK

* * * * *

II * * *

Shelter cost. Consists of basic or note rate rent plus utility

allowance when used. Basic or note rate rent must be shown on the

project budget for the year and approved according to paragraph XII

of this exhibit. Utility allowances, when required, must be

determined and approved according to part 1944, subpart E, Exhibit

A-6, of this chapter. Any change in rental rates or utility

allowances must be processed according to Exhibit C of this subpart.

The shelter cost in a cooperative housing project will consist of

occupancy charge plus utility allowance.

* * * * *

10. Subpart C, Exhibit E is amended by revising paragraph II K to

read as follows:

* * * * *

EXHIBIT E--RENTAL ASSISTANCE PROGRAM

* * * * *

II * * *

K Shelter cost. The approved shelter cost consists of basic or

note rate rent plus utility allowance when used. Basic or note rate

rent must be shown on the project budget for the year and approved

according to Sec. 1930.122(b)(1). Utility allowances, when required,

are determined and approved according to part 1944, subpart E,

Exhibit A-6, of this chapter. Any change in rental rates or utility

allowances must be processed according to Exhibit C of this subpart.

* * * * *

PART 1944--HOUSING

11. The authority citation for part 1944 is revised to read as

follows:

Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

Subpart E--Rural Rental and Rural Cooperative Housing Loan

Policies, Procedures, and Authorizations

12. Section 1944.205 is amended in the definition of ``Rural area''

by revising the words ``Sec. 1944.10 of subpart A of part 1944 of this

chapter'' to read ``Sec. 3550.10 of this title'' and by adding in

alphabetical order definitions to read as follows:

Sec. 1944.205 Definitions.

* * * * *

Agency. The Rural Housing Service within the Rural Development

mission area of the U.S. Department of Agriculture or its successor

agency which administers Section 515 loans and Section 521 rental

assistance.

* * * * *

Census Designated Place (CDP). An unincorporated population center

identified by the Census Bureau.

* * * * *

Consolidated Plan. A plan developed by a community or state

addressing community planning and development that is used to support

requests for assistance from the Department of Housing and Urban

Development.

* * * * *

HUD. The U.S. Department of Housing and Urban Development.

* * * * *

LIHTC. Low-income housing tax credits.

* * * * *

MFH. Multi-Family Housing.

* * * * *

NOFA. Notice of funds availability.

* * * * *

RCH. Rural Cooperative Housing.

* * * * *

RHS. Rural Housing Service.

RRH. Rural Rental Housing.

* * * * *

Section 515. Section 515 of title V of the Housing Act of 1949 (42

U.S.C. 1485 et seq.).

* * * * *

Sec. 1944.213 [Amended]

13. Section 1944.213 is amended in the introductory text of

paragraph (b) in the second sentence by revising the words

``Sec. 1944.231(k)'' to read ``Sec. 1944.231(h)'', and in the third

sentence by removing the words ``Form AD-622, `Notice of Preapplication

Review Action,' or any other''; in the introductory text of paragraph

(d) in the first sentence by revising the words ``preapplication for a

loan'' to read ``loan request'' and adding the words ``and the

environmental requirements of part 1940, subpart G, of this chapter''

following the words ``of this subpart'' and in the second sentence by

removing the word ``preapplication''; and by revising paragraph (a),

the heading of paragraph (f), and paragraphs (f)(2)(i) and (f)(3) to

read as follows:

Sec. 1944.213 Limitations.

(a) Loan limits. The Agency must certify that assistance provided

any housing project is not more than is necessary to make the project

affordable to potential tenants and the Government. The applicant must

disclose, during each stage of the process, all other assistance

proposed for the project, including all other government assistance as

defined in Sec. 1944.205.

(1) Fee norms. RHS has established the fee norms below for purposes

of analysis. The total of the three fees may not exceed 21 percent.

(i) Builder's profit: up to 10% of the construction contract.

(ii) General overhead: up to 4% of the construction contract.

(iii) General requirements: up to 7 % of the construction contract.

(iv) Developer's fee: up to 15% of the total development costs

authorized for tax credit purposes on new construction or

rehabilitation; up to 8% of the acquisition costs only for the

acquisition rehabilitation costs.

(2) Other fee norms. (i) RHS has established the new construction

and rehabilitation fee norm for a developer's fee at up to 15% of the

total development cost authorized for tax credit purposes. (A

developer's fee is not an authorized Section 515 loan purpose.)

(ii) For transfer proposals that include acquisition costs, RHS has

established the developer's fee on the acquisition costs at up to 8% of

the acquisition costs only when authorized by the state agency and only

for tax credit purposes. (A developer's fee is not an authorized

Section 515 loan purpose.)

(3) Analysis of loan requests to determine the minimum amount of

assistance.

(i) The fee structure of the state agency administering low-income

housing tax credits will be used in the RHS analysis of the amount of

assistance that is necessary for a proposal.

(ii) In all cases where the results of an analysis indicate that

there will be excess assistance (defined as more than the lesser of

$25,000 or 1 percent of the total development cost as authorized by the

state agency), RHS will consult with the applicant, as well as with the

state agency, to strive to reach an agreement for reducing the excess

assistance.

(iii) In the event that excess assistance is not reduced through an

agreement with the applicant, RHS will adjust the amount of equity

contribution by the amount of excess assistance (through the reduction

of the loan) to ensure that assistance provided is not more than is

[[Page 25067]]

necessary to provide affordable housing after taking into account

assistance from all Federal, state and local sources.

* * * * *

(f) New loans in areas with RHS, the Department of Housing and

Urban Development (HUD), or similar type rental housing assistance.

* * * * *

(2) * * *

(i) Another RRH or RCH loan request in the same market area has

been selected for further processing; or

* * * * *

(3) Status. When a loan proposal or project exists in the market

area which meets any of the criteria in paragraph (f)(2) of this

section, loan requests in the same market area will be returned to the

applicant in accordance with Sec. 1944.231. This does not affect the

processing of loan requests in other market areas.

* * * * *

Sec. 1944.215 [Amended]

14. Section 1944.215 is amended in paragraph (a)(1) in the ninth

sentence by removing the word ``preapplication'' and by revising the

words ``in this paragraph'' to read ``in accordance with

Sec. 1944.213(a)(1)(iii) and (a)(1)(iv)'' and by removing the last

three sentences; in paragraph (r)(1) by adding the words ``, persons

with disabilities,'' following the words ``elderly persons''; in

paragraph (r)(2) by revising the words ``should promote an equal

opportunity'' to read ``are to promote equal access''; in the

introductory text of paragraph (r)(4) by revising the words ``priority

points'' to read ``preference''; in paragraph (r)(4)(i) by revising the

words ``meets all FmHA or its successor agency under Public Law 103-354

site criteria'' to read ``meets the site criteria of this paragraph (r)

and the environmental requirements of part 1940, subpart G, of this

chapter''; in the last sentence of paragraph (r)(4)(ii) by revising the

words ``additional priority points'' to read ``preference''; in

paragraph (r)(4)(vii) by revising the words ``Sec. 1944.231(i)(6)'' to

read ``Sec. 1944.231(e)''; and in paragraph (r)(7) by revising the

words ``Sec. 1944.10 of subpart A of part 1944 of this chapter'' to

read ``7 CFR 3550.10'', by revising the word ``preapplications'' to

read ``loan requests'', and by removing the phrase ``, including rating

and ranking for potential authorization''.

Sec. 1944.224 [Amended]

15. Section 1944.224 is amended in the introductory text of

paragraph (a)(5) in the second sentence by revising the words

``paragraph III of exhibit J of subpart C of part 1930 of this

chapter'' to read ``part 1930, subpart C, exhibit J, paragraph V, of

this chapter''.

16. Section 1944.228 is added to read as follows:

Sec. 1944.228 Ranking of rural places based on greatest need for

Section 515 housing.

The Agency will rank rural places based on greatest need for

Section 515 housing in accordance with this section. Places may be

incorporated population centers such as cities, boroughs, towns, and

villages; or unincorporated population centers identified by the Census

Bureau (known as Census Designated Places (CDPs)). States must be

consistent state-wide in their use of place types that are included in

the list of designated places. Ranking will be based on the following:

(a) Qualifies as a rural area in accordance with 7 CFR 3550.10.

(b) Lacks mortgage credit for borrowers in accordance with

Sec. 1944.211(a)(2).

(c) Demonstrates a need for multi-family housing based on the

following factors, with equal weight given to each. Data for this

purpose will be provided to States by the National Office from the most

recent rural place data obtained from the Census Bureau. If Census data

is not available for an eligible rural place, the State may request

authority from the National Office to include the place on the list of

designated places established in accordance with Sec. 1944.229,

provided the place meets the requirements of Sec. 1944.229(b) and it

can be demonstrated that there is a high need for assisted multi-family

housing based on information obtained from reliable local or state

sources. The State may request authority from the National Office to

use other state-wide data if it is objective and consistent with the

Housing Act of 1949, as amended.

(1) The incidence of poverty, measured by determining households

below 60 percent of the county rural median income.

(2) The existence of substandard housing, measured by determining

the number of occupied housing units that lack complete plumbing or

have more than one occupant per room.

(3) The lack of affordable housing, measured by determining

households below 60 percent of county rural median income paying more

than 30 percent of income in rent.

17. Section 1944.229 is added to read as follows:

Sec. 1944.229 Establishing the list of designated places for which

Section 515 applications will be invited.

States will compile a list of designated places for which Section

515 applications will be invited, in accordance with the provisions of

this section and the ranking process described in Sec. 1944.228.

Inclusion on the list of designated places does not indicate that

market need and demand has been established; this will be a loan

feasibility determination. Once placed on the list of designated

places, places will be considered equal, with no regard to their

ranking on the ranking list or order of selection. In exceptional

circumstances, there may be an instance when a place with an urgent

need for multi-family housing is not reflected in the ranking process

in Sec. 1944.228; for example, a place that has had a substantial

increase in income-eligible population since the most recent decennial

Census data because of a new industry, a place that has experienced a

loss of affordable housing because of a natural disaster, or a

community within the limits of an Indian reservation or tribal alloted

or trust land with a demonstrated need for multifamily housing. With

concurrence from the National Office, the State may include the place

on the list of designated places.

(a) Establishing the number of designated places. Initially, the

number of designated places may equal up to 5 percent of the state's

total eligible rural places ranked in accordance with Sec. 1944.228,

but must equal, in all cases, at least 10 places. For example, in a

state with 1,000 total rural places, the State may designate up to 5

percent, or 50 places. However, in a state with 60 total rural places,

the State would use the minimum number of 10 places, since 5 percent of

60 equals 3. In states where 5 percent equals more than the minimum

number of 10, consideration in determining the number of places to

include on the list should be given to the size and population of the

state, funding levels, and the potential for leveraging. States that

anticipate high loan activity because of leveraging may designate a

number of places higher than 5 percent or the minimum 10 places with

the concurrence of the National Office.

(b) Requirements for inclusion on the list of designated places.

Places selected for the list of designated places:

(1) Must have 250 or more households as a minimum feasibility

threshold for multi-family housing; and

(2) May not have any of the ``build and fill'' conditions described

in Sec. 1944.213(f)(2). Places thus identified will be deferred for

inclusion on the current year's list of designated places. Deferred

places will be reviewed annually and, at such time that the ``build and

fill'' conditions no longer

[[Page 25068]]

exist, will be considered for inclusion on the list for the next fiscal

year in accordance with this section. To the extent practicable, States

will consult with HUD and other state or local agencies or entities

that provide very low- or low-income rental housing to determine places

where loan proposals have been approved or are in process.

(c) Selection of designated places. Places meeting the requirements

of paragraph (b) of this section will be selected from the ranking list

as follows:

(1) At least 90 percent of the State's total designated places must

be selected in rank order from the list.

(2) With concurrence from the National Office, up to 10 percent of

the State's designated places may be selected in accordance with the

following guidelines: Provided, That such places fall within the top-

ranked 10 percent of the state's total rural places (or a minimum of 20

places) meeting the requirements of paragraph (b) of this section. For

example, in a state with 1,000 total rural places, the State has

elected to select designated places equal to the maximum 5 percent, or

50 places. Of the 50 places, at least 90 percent, or 45 places, must be

selected from the places that meet the requirements of paragraph (b) of

this section in order of their ranking. Up to 10 percent, or 5 places,

may be selected from the top-ranked 100 places (10 percent of the total

rural places in the state) that meet the requirements of paragraph (b)

of this section, as follows:

(i) Places that provide geographic diversity in the state. Places

thus selected must be the highest ranked place in each geographic

division designated by the State. Geographic divisions must correspond

with established State divisions, such as districts, regions, or

servicing areas.

(ii) Places that have been identified as high need areas for multi-

family housing in the state Consolidated Plan or similar state plan or

needs assessment report.

(d) Length of designation. Places will remain on the list of

designated places for three years or until a loan request is selected

for funding, whichever occurs first. A place where a loan request is

selected for Section 515 funding will be reevaluated for potential

inclusion on the next fiscal year's list of designated places when the

complex is completed, in accordance with the ``build and fill''

provisions of Sec. 1944.213(f)(2). A place may be removed from the list

prior to the end of the 3-year designation period because of a

substantial loss of income-eligible population or an increase in the

affordable rental housing supply, for example, a place that experiences

the closing of a military base or other major employer.

(e) List of designated places. A list of designated places may be

obtained by contacting the State Office or any Rural Development office

in the state.

18. Section 1944.230 is added to read as follows:

Sec. 1944.230 Application submission deadline and availability of

funds.

(a) Application submission and funding cycle. Dates governing the

submission and funding cycle of Section 515 loan requests will be

published annually in the Federal Register and may be obtained from any

Rural Development office.

(b) Availability of funds. The amount of funds available for each

State, as well as any limits on the amount of individual loan requests,

will be published as a notice annually in the Federal Register.

19. Section 1944.231 is revised to read as follows:

Sec. 1944.231 Processing loan requests.

(a) Actions by the applicant. Loan requests may be submitted for

designated areas when the availability of funds is announced. The loan

request will consist of an application form prescribed by the Agency

and the items listed in Exhibit A-7 of this subpart. If an application

is selected, the applicant will be required to provide the additional

items required by Exhibit A-9 of this subpart within the timeframes

established by the Agency.

(b) Actions by the Agency.--(1) Actions by the Agency on loan

requests received. Loan requests received after the deadline announced

in the Federal Register will not be considered for funding in that

funding cycle and will be returned to the applicant.

(2) Review and scoring of loan requests. Loan requests will be

reviewed:

(i) To determine if the loan request is complete and includes the

additional information required in NOFA;

(ii) To determine if the request is for an authorized purpose; and

(iii) To establish a point score based on the following factors:

(A) The presence and extent of leveraged assistance (including

services, abatement of taxes, etc.) for the units that will serve RHS

income-eligible tenants, not including tax credits or donated land.

Scoring will be based on the presence and extent of leveraged

assistance for each loan request compared to the other loan requests

being reviewed, computed as a percent of the total development cost of

the units that will serve RHS income-eligible tenants. A total monetary

value will be determined for leveraged assistance in order to compare

such items equitably with leveraged funds. As part of the loan

application, the applicant must include specific information on the

source and value of the services for this purpose. Proposals will then

be ranked in order of the percent of leveraged funds and assigned a

point score accordingly. (0 to 20 points)

(B) The loan request is for units to be developed in a colonia,

tribal land, or EZ/EC community, or in a place identified in the state

Consolidated Plan or state needs assessment as a high need community

for multi-family housing. (20 points)

(C) The loan request is in support of a National Office initiative

announced in NOFA. (20 points)

(D) The loan request is in support of an optional factor developed

by the State that promotes compatibility with special housing

initiatives in conjunction with state-administered housing programs

such as HOME funds or low income housing tax credits.

A factor thus developed cannot duplicate factors already included

in this paragraph and must be provided to the National Office prior to

the funding cycle for concurrence and inclusion in NOFA. (20 points)

(E) The loan request includes donated land meeting the provisions

of Sec. 1944.215(r)(4). (5 points)

(3) Point score ties and ranking of loan requests. Loan requests

will be ranked in order of highest point score or, where there are

point score ties, in order of highest point score and number assigned

as follows:

(i) If one of the same-pointed requests is from an entity meeting

the requirements of paragraph (e) of this section, it will be denoted

with a #1 following the point score. If two or more are from entities

meeting these requirements, a lottery will be held. The first drawn

request will be denoted #1, the second drawn #2, etc.

(ii) After all requests from entities meeting the requirements of

paragraph (e) of this section have been numbered, the next sequential

number will be assigned to a loan request from an entity not meeting

the requirements of paragraph (e) of this section. If there are two or

more requests from entities not meeting the requirements of paragraph

(e) of this section, a lottery will be held and each request numbered

in the order it is drawn, beginning with the next sequential number.

(4) Preliminary eligibility and feasibility review. In order of

ranking, a preliminary review of eligibility and

[[Page 25069]]

feasibility will be made on the highest ranked requests, including:

(i) A review of the preliminary plans and cost estimates.

(ii) A market feasibililty review, including the Agency's review of

the market, a review of HUD's (and similar lender's, if applicable)

feedback on the market area, and a review to ensure compliance with the

``build and fill'' provisions of Sec. 1944.213(f).

(iii) A site visit and preliminary review to determine if the site

criteria of Sec. 1944.215(r) can be met.

(iv) A review of the Affirmative Fair Housing Marketing Plan.

(v) Analysis of a current (within 6 months) credit report.

(5) Selection of loan requests for further processing. The Agency

will select loan requests for further processing from loan requests

determined preliminarily eligible and feasible, in ranking order,

taking into consideration the amount of available funds.

(i) If any selected loan requests are later withdrawn, rejected, or

delayed for a period of time that will not permit funding in the

current funding cycle, the Agency will select additional loan requests

in ranking order as funding levels permit. For this purpose, the State

may keep the next highest ranked loan request until it is determined

that all selected loan requests will be funded. Applicants whose loan

requests are held for this purpose will be advised that their loan

request was not selected but ranked sufficiently high to be retained in

the event a selected request is withdrawn or rejected in the current

funding cycle.

(ii) Loan requests not funded in the funding cycle, including

incomplete requests, or requests not meeting the requirements of

Exhibit A-7 of this subpart or NOFA, will be returned to the applicant

with the reason it was not considered.

(c) Additional requirements for selected loan requests. For

selected loan requests, the applicant must provide the additional

information required by Exhibit A-9 of this subpart and any additional

State requirements within the timeframes established by the Agency. If

the applicant fails to meet established timeframes, the Agency may

grant an extension if the delay appears reasonable and granting the

extension will still permit funding of the loan request in the current

funding cycle.

(d) Site rejections. Site rejections will be handled as follows:

(1) Applicants will be given 15 calendar days from the date of the

Agency's site rejection letter to submit a new site option. If the

applicant appeals the decision but submits a new site option within 15

days, the new site option will be accompanied by a copy of their letter

to the National Appeals Division withdrawing their appeal request. If

the new site is acceptable, processing will continue. If the new site

is not acceptable, the loan request will be rejected.

(2) If the applicant does not submit a new site option within 15

days, and has appealed the Agency's decision, the Agency will not delay

processing of loan requests in other market areas pending the outcome

of the appeal. The next ranked loan request, within available funding

limits, will be selected for further processing.

(3) If the applicant prevails in the appeal, the loan request will

be considered in the next funding cycle. The applicant will be given

the opportunity to amend their loan request consistent with NOFA.

(e) Nonprofit or public body preference. Preference in ranking loan

requests will be provided to an entity that meets all of the following

conditions:

(1) Is a local nonprofit organization, public body, or Indian Tribe

whose principal purposes include the planning, development, and

management of low-income housing;

(2) Is exempt from Federal income taxes under section 501(c)(3) or

501(c)(4) of the Internal Revenue Code (26 U.S.C. 501(c)(3) or

501(c)(4));

(3) Is not wholly or partially owned or controlled by a for-profit

or limited-profit type entity;

(4) Whose members, or the entity, do not share an identity of

interest with a for-profit or limited-profit type entity;

(5) Is not co-venturing with another entity; and

(6) The entity or its members will not be receiving any direct or

indirect benefits pursuant to LIHTC.

(f) RCH loan requests. (1) Loan requests for RCH assistance will be

processed in the order in which a complete loan request was received.

(2) All loan requests for RCH assistance will be reviewed for

eligibility and feasibility. In cases where the proposal is not

eligible or feasible, the proposal will be rejected. Proposals which

appear eligible and feasible will be forwarded to the National Office

for review and authorization.

(3) If authorized by the National Office, the State will notify the

applicant that the proposal appears eligible and feasible. The

applicant will be requested to provide the additional information

required by Exhibit A-9 of this subpart and any additional State

requirements.

(4) If funds are not available in the current funding cycle, the

loan request will be considered for funding in the next funding cycle.

(g) General guidance on processing requests for Multi-Family

Housing (MFH) Assistance. (1) All applicants must provide their

taxpayer identification number. The taxpayer identification number for

individuals who are not businesses is their Social Security Number.

(2) A loan request for MFH assistance may be withdrawn upon written

request of the applicant at any time. The Agency may withdraw a loan

request for failure of an applicant to provide necessary information to

process a request for assistance should the applicant fail to respond

to a written request which provides the applicant with a reasonable

time period to submit the information.

Sec. 1944.237 [Amended]

20. Section 1944.237 is amended in paragraph (a) in the second

sentence by revising the words ``be rated and ranked'' to read

``compete for funding'' and by removing the words ``the priority point

system contained in'', and in the last sentence by removing the words

``under the priority point system''.

21. Exhibit A of subpart E is amended in section IV. A. in the

first sentence by revising the words ``When an applicant is authorized

to submit a formal application'' to read ``When a loan request is

selected for further processing''; in the introductory text of section

IV. B. in the last sentence by revising the word ``preapplication'' to

read ``loan request'' and the words ``when developing an application''

to read ``for loan requests selected for further processing''; and in

section VIII in the contents listing for exhibit A-7 by revising the

word ``Preapplication'' to read ``a Loan Request'', in the contents

listing for exhibit A-9 by adding the word ``Additional'' before the

word ``Information'', by removing the words ``with Application'', and

by revising the word ``Loans'' to read ``Loan Requests'', and by

removing and reserving the contents listing for Exhibit A-10; and by

revising sections II. and III. to read as follows:

Exhibits to Subpart E

EXHIBIT A--HOW TO BRING RENTAL AND COOPERATIVE HOUSING TO YOUR TOWN

* * * * *

II. APPLYING FOR A LOAN

A. An individual, organization, or group organizing to provide

housing may contact any Rural Development office processing Section

515 loan requests to obtain

[[Page 25070]]

information and necessary forms. The Section 515 program is

administered by Rural Development's Rural Housing Service (RHS).

B. Each funding cycle, RHS will publish in the Federal Register

a notice of the availability of funds (NOFA) for Section 515 loans

and a list of designated places (communities) for which loan

requests may be submitted. The list of designated places is also

available from any Rural Development office processing Section 515

loan requests. Designated places are rural places identified by RHS

as having the greatest potential need for Section 515 housing.

Except in unusual circumstances, places are designated for a period

of three years or until a loan has been selected for funding,

whichever occurs first.

C. Applicants must submit a loan request by the deadline

announced in the Federal Register, and available in any Rural

Development office, to be considered in the funding cycle. Section

III of this exhibit provides information on the loan review and

selection process. In addition, applicants are advised to read this

subpart, which provides detailed information on the Section 515

program.

D. The loan request consists of SF-424.2, ``Application for

Federal Assistance (For Construction),'' the supporting material or

information listed in exhibit A-7 of this subpart, and any

additional information required in NOFA. This information will

enable the Agency to determine:

1. The eligibility of the applicant;

2. The feasibility (economic, environmental, and architectural)

of the proposed housing;

3. That prospective cooperative members have read and understand

their responsibilities as outlined in ``What is Cooperative

Housing?'' (available in any Rural Development office) before

agreeing to a cooperative housing project;

4. Whether the proposed housing can appropriately be financed by

RHS; and

5. Its Civil Rights impact.

E. This information usually can be furnished by the applicant

without hiring extensive professional services. However, fees for

professional packaging services rendered to a nonprofit organization

can be made a part of loan development costs.

III. REVIEW OF THE LOAN REQUEST

A. Loan requests received by the deadline announced in the NOFA

will be reviewed, scored, and ranked based on the loan selection

criteria announced in the NOFA. Requests that rank sufficiently high

will be reviewed for eligibility and feasibility.

B. Upon completion of the loan review process, applicants will

be advised of RHS' decision. Applicants whose loan requests are

selected for further processing will be notified of the additional

steps that need to be taken. Loan requests not selected for further

processing in the current funding cycle will be returned to the

applicant.

* * * * *

22. Exhibit A-7 of subpart E is amended in the introductory text by

removing the words ``(for preapplication submission)''; in paragraph

I.A.(6) by removing the last sentence; in paragraph I.A.(7)(A) by

removing the words ``preapplication or''; and by revising the heading

of the exhibit and paragraphs IV.C. and VI to read as follows:

* * * * *

EXHIBIT A-7--INFORMATION TO BE SUBMITTED WITH A LOAN REQUEST FOR A

RURAL RENTAL HOUSING (RRH) OR A RURAL COOPERATIVE HOUSING (RCH)

LOAN

* * * * *

IV. * * *

C. The size and type of other facilities to be included in the

project, such as laundry rooms, storage spaces, etc., and a

justification for any related facilities to be financed wholly or in

part by RHS funds.

* * * * *

VI. Form RD 1940-20, ``Request for Environmental Information.''

* * * * *

23. Exhibit A-9 of subpart E is amended by removing the

introductory text; in paragraph 5 by revising the words ``since the

applicant submitted the market analysis'' to read ``since the market

analysis was completed''; by removing paragraph 15 and by redesignating

paragraph 16 as paragraph 15; and by revising the heading of the

exhibit and paragraph 10 to read as follows:

* * * * *

EXHIBIT A-9--ADDITIONAL INFORMATION TO BE SUBMITTED FOR RURAL

RENTAL HOUSING (RRH) AND RURAL COOPERATIVE HOUSING (RCH) LOAN

REQUESTS

* * * * *

10. The applicant will submit all proposed agreements for

architectural, engineering, and legal services.

* * * * *

EXHIBIT A-10--[REMOVED AND RESERVED]

24. Subpart E, Exhibit A-10, is removed and reserved.

PART 1951--SERVICING AND COLLECTIONS

25. The authority citation for part 1951 continues to read as

follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart K--Predetermined Amortization Schedule System (PASS)

Account Servicing

Sec. 1951.504 [Amended]

26. Section 1951.504 is amended by removing the alphabetic

paragraph designations and placing the definitions in alphabetical

order and by removing the definition for ``Occupancy surcharges''.

Sec. 1951.506 [Amended]

27. Section 1951.506 is amended by removing paragraph (a)(5)(iv);

by redesignating paragraph (a)(5)(v) as paragraph (a)(5)(iv); and in

newly redesignated paragraph (a)(5)(iv) in the third sentence by

removing the words ``, occupancy surcharges'' and in the fourth

sentence by removing the words ``, occupancy surcharge''.

Sec. 1951.509 [Removed]

28. Section 1951.509 is removed and reserved.

Exhibit B--[Removed and Reserved]

29. Part 1951, subpart K, Exhibit B, is removed and reserved.

PART 1965--REAL PROPERTY

30. The authority citation for part 1965 continues to read as

follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart B--Security Servicing for Multiple Housing Loans

31. Section 1965.65 is amended by revising the introductory text of

paragraph (a) to read as follows:

Sec. 1965.65 Transfer of real estate security and assumption of loans.

(a) General. The transfer may be approved only if it is determined

that the transfer would ensure the further availability of the housing

and related facilities for very-low, low, and moderate income families

or persons and would be in the best interests of the residents and the

Federal Government.

* * * * *

Sec. 1965.68 [Amended]

32. Section 1965.68 is amended by removing paragraph (c)(9).

Subpart E--Prepayment and Displacement Prevention of Multi-Family

Housing Loans

33. Section 1965.210 is revised to read as follows:

Sec. 1965.210 Loans approved prior to December 15, 1989--RHS actions

when processing prepayment requests.

For loans approved prior to December 15, 1989, that have not

subsequently accepted prepayment incentives, the Servicing Office or

other designated office must evaluate the need for the housing to

determine the level of incentives to be offered, including equity

loans, and whether the prepayment may be legally accepted with or

without restrictive-use provisions. A reasonable effort must be made to

enter into an agreement with

[[Page 25071]]

the borrower to maintain the housing for low-income use that takes into

consideration the economic loss the borrower may suffer by foregoing

prepayment. When developing an incentive offer, the Servicing Office or

other designated office must first offer incentives other than equity

loans, unless it is determined that alternative incentives are not

adequate to provide a fair return to the borrower, prevent prepayment

of the loan, or prevent displacement of the tenants. The guidance

provided in Secs. 1965.213 and 1965.214 and Exhibit E of this subpart

(available in any Rural Development State or District Office) will be

used to determine the appropriate incentive package. Once an incentive

offer has been accepted on a project, the project will be considered

ineligible for future incentive offers until such time as the

restrictive-use period associated with the incentive offer has expired.

Sec. 1965.213 [Amended]

34. Section 1965.213 is amended by redesignating paragraphs (a),

(b), and (c) as paragraphs (b), (c) and (d) respectively; and by adding

a new paragraph (a) and by revising the introductory text of newly

redesignated paragraph (b) and paragraph (b)(1) to read as follows:

Sec. 1965.213 Offer of incentives to borrowers.

* * * * *

(a) Availability of incentives. Incentives may be offered only if

the restrictive period has expired for any RRH project loan.

(b) Available incentives. One or more of the following incentives

will be offered to the borrower. The amount of incentives will be

determined in accordance with Exhibits D and E of this subpart

(available in any Rural Development State or District Office).

(1) Equity loans. In RRH projects, a subsequent loan may be offered

for equity for the difference between the current unpaid loan balance

and a maximum of 90 percent of the project's value appraised as

unsubsidized conventional housing. Equity loans may not be offered

unless the servicing official determines that other incentives offered

under this paragraph are not adequate to provide a fair return on the

investment of the borrower, to prevent prepayment of the loan, or to

prevent the displacement of project tenants.

* * * * *

Dated: May 1, 1997.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 97-11817 Filed 5-6-97; 8:45 am]

BILLING CODE 3410-XV-U