NIFA AFFORDABLE HOUSING INNOVATION MARKETPLACE BIG PLANS FOR SMALL COMMUNITIES USDA RURAL DEVELOPMENT Section 538 Guaranteed Rural Rental Housing Program

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) What is it?

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) Rural rental housing Increase supply of affordable housing in rural areas Low to moderate income tenants Loan guarantee program Foster risk sharing partnership with public and private lenders

Section 538 Compared to Section 515

Section 538 GRRHP Target Audience: Affordable housing lenders and developers 515 developers

Section 538 GRRHP Discussion Topics Creating Affordability Developer Benefits Risk Sharing with Lenders Revitalization of 515 portfolio

The Section 538 Program CreatingAffordability

Creating Affordability Market Driven – Developer and lender determine affordable housing need – no designated place list Works well with tax credits, HOME funds, grants, bonds, and other sources of financing Guaranteed Loan Amount is Unlimited

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) Typical Transaction Financing Structure $1,200,000 Section 538 Loan Guarantee, 40 Year Loan Term $4,400,000 9% Tax Credits, HOME Funds, Bonds, etc. _______________________________________________________________________________________________ $5,600,000 Total Development Cost

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) Program Requirements- Tenant Income & Unit rents Available to families or persons whose incomes at time of initial occupancy do not exceed 115% of area median income Rent (including tenant-paid utilities) for any unit at initial occupancy cannot exceed 30% of 115% of area median income, adjusted for family size Average rent (including tenant-paid utilities) for all units in a project cannot exceed 30% of 100% of area median income

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) Program Requirements Interest rate must be fixed for the life of the loan USDAs lien must be in first position Minimum of 25 years affordability Minimum loan term is 25 years (40 years max)

Ownership Structures For profit owners, corporations, partnerships, LLCs Non-profit owners, Housing Finance Authorities, State and Local Agencies and Indian tribes

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) What is in it for Developers? Up to 90% LTV for for-profit entities Up to 97% LTV for non-profit entities Housing type flexibility - Housing types vary from apartments to single family – must consist of at least 5 dwelling units Qualified Allocation Plan (QAP) preference

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) What is in it for Developers? No restriction on return Construction loan guaranteed Guarantee on permanent loan No Davis Bacon requirement Uses include soft costs (loan fees, market study, professional services, developer fees and construction interest)

Construction / Permanent : Limited duration guarantee during construction until construction completed and guarantee for permanent loan upon conditions being met Continuous Construction loan and permanent loan guarantee (final rule January 3, 2011) Permanent loan only guarantee Types of Loans Guaranteed Risk Sharing With Lenders

Substantial – minimum of $6,500 in hard construction costs per unit Funds can be used for acquisition costs, including professional services and financing costs Types of Loans Guaranteed

Section 538 GRRHP Using the Section 538 for Revitalization with 515

Sec. 515 Portfolio Issues Prepay – Owners want out! Aging of physical asset Section 504 compliance issues Lack of affordable capital resources Lack of affordable debt for acquisition with rehabilitation

515 Revitalization – How Can the 538 Help? Provide affordable debt to: Transfer or acquire ownership of property Revitalize existing property Must need at least $6,500/unit rehab.

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) Process: Availability for GRRHP funding made public through NOFA Contact Approved Lender - submit summary of proposed projects for scoring and ranking Selected applications issued Notice to Proceed – lender originate & underwrite application USDA obligates funds & issues Conditional Commitment

Approved lenders make and service loans guaranteed by RD Lender Features 90% RD Guarantee 100% of Loan can be sold CRA credits Lenders Underwriting standards Sell or Hold servicing Best Negotiated Interest Rate

The Section 538 Program Fees

Guarantee Fees GRRH Application Fee: NONE + GRRH Initial Fee: NONE + GRRH Annual renewal fee: NONE = FREE Guarantee NOTE: LENDER fees will apply

Section 538 Guaranteed Rural Rental Housing Program (GRRHP) Questions? USDA is an equal opportunity provider, employer, and lender. To file a complaint of discrimination write USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W., Washington, D.C., or call (800) (voice) or (202) (TDD).

Mike Buethe Office Linda Anders USDA is an equal opportunity provider, employer, and lender. To file a complaint of discrimination write USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W., Washington, D.C., or call (800) (voice) or (202) (TDD). NEBRASKA WEBSITE: