Guaranteed Rural Rental Housing Program

SUMMARY: The Rural Housing Service (RHS) is issuing final regulations

for the Guaranteed Rural Rental Housing Program (GRRHP). This action is

taken to implement the ``Housing Opportunity Program Extension Act of

1996.'' The program is intended to increase the supply of affordable

rural multifamily housing through partnerships between the Agency and

major lending sources, including banks, state and local housing finance

agencies, and bond issuers.

EFFECTIVE DATE: July 16, 1999.

FOR FURTHER INFORMATION CONTACT: Carl W. Wagner, Deputy Division

Director, Guaranteed Loans, Multi-Family Housing Processing Division,

Rural Housing Service, USDA, STOP 0781, 1400 Independence Avenue, SW,

Washington, DC 20250-0781, telephone: (202) 720-1604.

SUPPLEMENTARY INFORMATION:

Classification

This rule has been redesignated from significant to not-significant

since the publication of the interim final rule. This rule has now been

determined to be not-significant for the purposes of Executive Order

12866 and therefore has not been reviewed by the Office of Management

and Budget.

Programs Affected

The affected program is listed in the Catalog of Federal Domestic

Assistance under Number 10.415, Rural Rental Housing Loans.

Discussion of Use of Final Rule

Program funding levels are made public in a ``Notice of Funds

Availability'' (NOFA) published concurrently with this final rule.

Approximately $74 million in guaranteed loans is available in this

fiscal year. Potential applicants are encouraged to apply as soon as

possible.

Civil Justice Reform

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. In accordance with this order: (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 in court challenging action taken

under this rule unless those regulations specifically allow bringing

suit at an earlier time.

Intergovernmental Consultation

The program is subject to Executive Order 12372 which requires

intergovernmental consultation with state and local officials.

Intergovernmental consultation has been conducted in accordance with 7

CFR part 3015, subpart V, ``Intergovernmental Review of Department of

Agriculture Programs and Activities.''

Environmental Impact Statement

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

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

Agency 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, an

Environmental Impact Statement is not required.

Unfunded Mandates Reform Act

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

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, the Agency generally

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

for 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 the Agency 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 objections

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.

Paperwork Reduction Act

The information and recordkeeping requirements contained in this

regulation have been approved by the Office of Management and Budget

(OMB) under the provisions of 44 U.S.C. chapter 35 and were assigned

OMB control number 0575-0174, in accordance with the Paperwork

Reduction Act of 1995. Under the Paperwork Reduction Act of 1995, no

person is required to respond to a collection of information unless it

displays a valid OMB control number. This final rules does not impose

any new information or recordkeeping requirements from those approved

by OMB.

Purpose and Program Summary

The program has been designed to increase the availability of

affordable multifamily housing through partnerships between the Agency

and lending sources, as well as state and local housing finance

agencies and bond issuers. Qualified lenders will be authorized to

originate, underwrite, and close loans for multifamily housing projects

to be guaranteed under this program. Projects may be for new

construction or acquisition with substantial rehabilitation. The Agency

will guarantee such loans upon review of the lender's underwriting

package, appraisal report, appropriate certifications, project

information, and satisfactory completion of the appropriate level of

environmental review by the Agency. Lenders will be responsible for

loan underwriting, management and servicing associated with these

projects. The lender will be expected to provide servicing or contract

for servicing of each loan it underwrites. In turn, RHS will guarantee

the lender's loan up to 90 percent of total development cost and

commits to pay up to a maximum of 90 percent of the outstanding

principal and interest balance of such loan in the case of default of

the loan and filing of a claim. In no event will the Agency pay more

than 90 percent of the original principal amount. This means that the

Agency will have a risk exposure under the GRRHP of approximately 80

percent of the total development cost. Any losses would be shared on a

pro-rate basis between the lender and the Agency from the first dollar

lost.

[[Page 32371]]

Program applicability and funding will be announced by NOFA

published in the Federal Register. When program funding levels exceed

$100 million, funds are allocated to states based on the following

criteria: (1) State's percentage of national rural population, (2)

State's percentage of the national number of rural households between

50 and 115 percent of the area median income, and (3) State's

percentage of National average cost per unit. These criteria for

allocation of funds to the states are consistent with other Agency

housing programs. The criteria will enable the Agency to allocate funds

based on a state's population and available households with income

sufficient to meet the proposed rents, and to adjust the allocation for

per unit new construction cost. The purpose of having a cost factor is

to assure units produced reflect criteria for need, especially for high

cost states. Eighty percent of the weight will be divided equally

between population and income and 20 percent based on cost. When the

funding levels are under $100 million, funds will all be held in a

National Office reserve and made available administratively in

accordance with the NOFA and program regulations.

Public Comments

The Agency received the following comments as the result of the

publication of the regulation as an Interim Final Rule in the Federal

Register on July 22, 1998 (62 FR 39452).

The Agency received seven comments on the regulation. The

commentators represented the following:

Mortgage Banker and User of Program.

Developer.

Interest Group.

Public Body.

Private consultant.

Two Tenants' Rights Group.

Many of the comments related to the how things will be done (e.g.

``How will interest credit be calculated and paid?''). Such questions

are addressed in the Guaranteed Rural Rental Housing Program

Origination and Servicing Handbook (HB-1-3565) which was not available

during the comment period. The Handbook was made available to the

public on December 18, 1998. It provides the reader with instruction on

matters such as the Agency's internal processing procedures. The

Handbook will not be published in the Federal Register, but is

available to the public at no cost. The Handbook can also be found on

the Internet at http://rdinit.usda.gov/regs/.

The comments that we adopted in the regulation are as follows:

1. Two commentors recommended extending the construction/permanent

loan period from 12 to 24 months.

2. Two respondents commented that a Regulatory Agreement is

typically not recorded of record. The requirement to have the

Regulatory Agreement recorded was removed because the requirement to

maintain the property in affordable housing will be recorded in the

deed.

3. Two commentors responded on the exclusion of tax exempt bonds in

the program. Since tax exempt bond financing is now authorized by

legislation passed in August 1998, the Final Rule has been changed

accordingly.

4. Three respondents suggested that three of the priority items

used to rank and score NOFA responses be included in the regulation

(Namely priority for projects in smaller communities, low income

communities, and Empowerment Zones/Enterprise Communities). These

priorities will be included in the Final Rule.

5. Four respondents commented on the requirement for the lender to

certify that the project is in compliance with local, state, federal

laws and program requirements. This requirement will be changed to

require the lender to obtain borrower certification that the project is

in compliance with local, state, federal laws and program requirements.

The issues that we were not able to adopt are as follows:

1. Two commentors responded that rental assistance be provided to

538 projects. We could not consider this because rental assistance is

not authorized by the Housing Act of 1949 (the Act).

2. One commentor believed that the amount of the loan guarantee

should be increased to 100%. This is not permitted by the Act.

3. One commentor responded that the non-assumability or release of

borrower provision be removed. This is not permitted by the Act.

4. One commentor suggested that the rural area definition be

changed to allow places up to 50,000 population. This change is not

permitted by the Act.

5. Several commentors asked for a more complete discussion of

interest credit. This was not added to the Final Rule but was added to

the Handbook.

List of Subjects

7 CFR Part 1940

Administrative practice and procedure, Agriculture, Grant

programs--Housing and community development, Loan programs--

Agriculture, Rural areas.

7 CFR Part 3565

Bankruptcy, Banks, Banking civil rights, Conflict of interests,

Credit, Environmental impact statements, Fair housing, Government

procurement, Guaranteed loans, Hearing and appeal procedures, Housing

standards, Lobbying, Low and moderate income housing, Manufactured

homes, Mortgages, Real property acquisition, Surety bonding.

Accordingly, chapters XVIII and XXXV, title 7, Code of Federal

Regulations are amended by adopting the interim rule published on July

22, 1998 (63 FR 39452) as a final rule with amendments as follows:

PART 3565--GUARANTEED RURAL RENTAL HOUSING PROGRAM

1. The authority citation for part 3565 continues to read as

follows:

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

Subpart A--General Provisions

2. Revise section 3565.5 (b) to read as follows:

Sec. 3565.5 Ranking and selection criteria.

* * * * *

(b) Priority projects. Priority will be given to projects: in

smaller rural communities, in the most needy communities having the

highest percentage of leveraging, having the lowest interest rate,

having the highest ratio of 3-5 bedroom units to total units, or

located in Empowerment Zones/Enterprise Communities or on tribal lands.

In addition, the Agency may, at its sole discretion, set aside

assistance for or rank projects that meet important program goals.

Assistance will include both loan guarantees and interest credits.

Priority projects must compete for set-aside funds. The Agency will

announce any assistance set aside and selection criteria in the NOFA.

3. Revise section 3565.6 to read as follows:

Sec. 3565.6 Inclusion of tax-exempt debt.

Tax-exempt financing can be used a source of capital for the

guaranteed loan.

4. Revise section 3565.8 to read as follows:

Sec. 3565.8 Civil Rights Compliance.

(a) All actions taken by the Agency, or on behalf of the Agency, by

a lender will be conducted without regard to race, color, religion,

national origin, sex, marital status, age, income from public

assistance or having exercised their right under the Consumer Credit

Protection Act, and in accordance with

[[Page 32372]]

the Equal Credit Opportunity Act (ECOA).

(b) Any action related to the sale, rental or advertising of

dwellings; in the provision of brokerage services; or in making

available residential real estate transactions involving Agency

assistance, must be in accordance with the Fair Housing Act, which

prohibits discrimination on the basis of race, color, religion, sex,

national origin, familial status or handicap. It is unlawful for a

lender or borrower participating in the program to:

(1) Refuse to make accommodations in rules, policies, practices, or

services if such accommodations are necessary to provide a person with

a disability an opportunity to use or continue to use a dwelling unit

and all public and common use areas; and

(2) Refuse to allow an individual with a disability to make

reasonable modifications to a unit at his or her expense, if such

modifications may be necessary to afford the individual full enjoyment

of the unit.

(c) Any resident or prospective resident seeking occupancy or use

of a unit, property or related facility for which a loan guarantee has

been provided, and who believes that he or she is being discriminated

against may file a complaint with the lender, the Agency or the

Department of Housing and Urban Development. A written complaint should

be sent to the Secretary of Agriculture or of the Department of Housing

and Urban Development in Washington, DC.

(d) Lenders and borrowers that fail to comply with the requirements

of title VIII of the Civil Rights Act of 1968, as amended (the Fair

Housing Act), are liable for those sanctions authorized by law.

(e) For guaranteed loans with ``interest credit,'' the following

additional civil rights laws will apply and be enforced by the agency

delivering this guarantee program: title VI of the Civil Rights Act of

1964, section 504 of the Rehabilitation Act of 1973, the Americans with

Disabilities Act, Age Discrimination Act of 1975, and title IX of the

Education Amendments of 1972.

(f) In accordance with title VI, borrowers will be subjected to

compliance reviews for projects that receive interest credit.

Sec. 3565.9 [Amended]

5. Amend section 3565.9 to remove paragraph (e) and redesignate

paragraph (f) as paragraph (e).

6. Revise section 3565.13 to read as follows:

Sec. 3565.13 Exception Authority.

An Agency official may request and the Administrator or designee

may make an exception to any requirement or provision, or address any

omission of this part, if the Administrator determines that application

of the requirement or provision, or failure to take action, would

adversely affect the government's interest or the program objectives,

and provided that such an exception is not inconsistent with any

applicable law or statutory requirement.

Subpart B--Guarantee Requirements

Sec. 3565.52 [Amended]

7. Amend the introductory text of section 3565.52 by revising the

words ``12 months'' to read ``24 months.''

8. Amend section 3565.53 by revising paragraph (a) and the last

sentence in paragraph (b) to read as follows:

Sec. 3565.53 Guarantee fees.

* * * * *

(a) Initial guarantee fee. The Agency will charge an initial

guarantee fee equal to one percent of the guarantee amount. For

purposes of calculating this fee, the guarantee amount is the product

of the percentage of the guarantee times the initial principal amount

of the guaranteed loan.

(b) * * * This fee will be collected on January 1, of each calendar

year.

* * * * *

Subpart C--Lender Requirements

9. Add section 3565.103(d)(9) to read as follows:

Sec. 3565.103 Approval requirements.

* * * * *

(d) * * *

(9) The lender must certify that they have computer systems that

comply with year 2000 technology.

Subpart G--Processing Requirements

Sec. 3565.303 [Amended]

10. Amend section 3565.303(d)(8) by revising the word ``a'' to read

``an'' and by removing the word ``recordable,''.

Subpart H--Project Management

11. Amend section 3565.351 by amending paragraph (a) to remove the

words ``which will be filed in the real estate records of the

appropriate jurisdiction'' and by revising the introductory text of the

section to read as follows:

Sec. 3565.351 Project Management.

As a condition of the guarantee, the lender is to obtain borrower

certification that the project is in compliance with local, state,

federal laws and program requirements.

* * * * *

Dated: June 9, 1999.

Inga Smulkstys,

Acting Under Secretary, Rural Development.

[FR Doc. 99-15288 Filed 6-15-99; 8:45 am]

BILLING CODE 3410-XV-U