Streamlining of the Section 523 Mutual and Self-Help Housing Program, 27988-28003 [07-2406]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency
• Rural Business-Cooperative Service
• Rural Housing Service
• Rural Utility Service

[Federal Register Volume 72, Number 96 (Friday, May 18, 2007)]
[Proposed Rules]
[Pages 27988-28003]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-2406]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utility Service

Farm Service Agency

7 CFR Part 1944

Rural Housing Service

7 CFR Part 3551

RIN 0575-AC20


Streamlining of the Section 523 Mutual and Self-Help Housing 
Program

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This action proposes to replace the Mutual and Self-Help 
Housing Program's (MSH) administration under 7 CFR part 1944, Subpart I 
with 7 CFR part 3551. This rule will apply to grants executed after the 
effective date of the final rule. The Rural Housing Service (an agency 
within the Rural Development mission area) proposes to streamline and 
clarify its regulations for MSH. This action is taken to reduce 
regulations, improve customer service and enhance efficiency, 
flexibility, and effectiveness in managing the program.

DATES: Written or e-mail comments must be received on or before July 
17, 2007. The comment period for information collections under the 
Paperwork Reduction Act of 1995 continues through July 17, 2007.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Agency Web Site: https://www.rurdev.usda.gov/regs. Follow 
instructions for submitting comments on the Web Site.
     E-Mail: comments@wdc.usda.gov. Include ``RIN No. 0575-
AC20'' in the subject line of the message.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Debra S. Mangrum, Senior Loan 
Specialist, Special Programs and New Initiatives Branch, Single Family 
Housing Direct Loan Division, RHS, Stop 0783, Room 2209, South 
Agriculture Building, 1400 Independence Avenue, SW., Washington, DC 
20250-0783, telephone (202) 720-1366.

SUPPLEMENTARY INFORMATION:

Classification

    This proposed rule has been determined not to be significant for 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. If this proposed rule is adopted: (1) Unless 
otherwise specifically provided, 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 except as specifically 
prescribed in the rule; and (3) the appeal procedures of the National 
Appeals Division (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, the 
Agency 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 the

[[Page 27989]]

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 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.

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the National 
government and States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

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 the proposed 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, 
neither an Environmental Assessment nor an Environmental Impact 
Statement is required.

Regulatory Flexibility Act

    This proposed 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 proposes 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.

Programs Affected

    This program is listed in the Catalog of Federal Domestic 
Assistance under Number 10.420, Rural Self-Help Housing Technical 
Assistance.

Intergovernmental Consultation

    For the reasons set forth in the Final Rule related Notice to 7 CFR 
part 3015, Subpart V, this program is subject to Executive Order 12372 
which requires intergovernmental consultation with State and local 
officials. The Agency has conducted intergovernmental consultation in 
the manner delineated in RD Instruction 1940-J (available in any RD 
office).

Paperwork Reduction and E-Government Sections

    In accordance with the Paperwork Reduction Act of 1995, the Agency 
will seek Office of Management and Budget (OMB) approval of reporting 
and recordkeeping requirements contained in this proposed regulation.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 4.60 hours per response.
    Respondents: Public or private non-profit organizations or state or 
political subdivisions.
    Estimated number of respondents: 230.
    Estimated number of responses: 4,063.
    Estimated Number of Responses per Respondent: 17.67.
    Estimated Total Annual Burden on Respondents: 18,698 hours.
    There have been no new paperwork requirements, however; the 
reporting burden and associated costs have increased consistent with 
the growth of the program.
    Copies of this information collection can be obtained from Brigitte 
Sumter, Regulations and Paperwork Management Branch, Support Services 
Division, Rural Development, at 202-692-0042.
    Comments: Comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Agency, including whether the information will 
have practical utility; (b) the accuracy of the Agency's estimate of 
the burden of the proposed collection of information including the 
validity of the methodology and assumptions used; (c) ways to enhance 
the quality, utility, and clarity of the information to be collected; 
and (d) ways to minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology. Comments may be 
sent to Cheryl Thompson, Regulations and Paperwork Management Branch, 
Support Services Division, U.S. Department of Agriculture, Rural 
Development, STOP 0742, 1400 Independence Avenue, SW., Washington, DC 
20250-0742. All responses to this notice will be summarized and 
included in the request for OMB approval. All comments will also become 
a matter of public record.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services, and for other purposes.

Background Information

    The Mutual and Self-Help Housing (MSH) program is authorized by 
Section 523 of Title V of the Housing Act of 1949 (``Act''). Under the 
Act, the Secretary of Agriculture is authorized to make MSH grants to, 
or contract with, public or private non-profit corporations, agencies, 
institutions, organizations, Indian tribes, and other associations, to 
pay part or all of the cost of developing, conducting, administering, 
or coordinating programs of technical and supervisory assistance to aid 
needy very-low and low-income families in carrying out self-help 
housing efforts. One of the primary benefits of MSH is to fund 
organizations that are willing to locate and work with families that 
otherwise do not qualify as homeowners. Generally, these are families 
with incomes below 50 percent of the median income, living in 
substandard housing, and/or lacking the skills to be a homeowner.
    The number of MSH families participating in the Single Family 
Housing Direct loan program has grown from 518 families in 1968 to more 
than 41,000 families in 2006. Since 1996 the funding level has more 
than tripled from $11 million to the current funding level of 
approximately $34 million. Both the numbers of families obtaining 
homeownership through MSH and the number of grantees participating have 
increased since the program's inception. The rapid growth of interest 
in this program has necessitated a change in how the program is being 
delivered. Therefore, this rule proposes to implement a competitive 
process for application processing and awarding of grant funds. This 
process will ensure fairness, increase efficiency, and minimize the 
negative impact to the customers we serve. Greater accountability will 
be realized for rural residents resulting in greater investments that 
enhance rural competitiveness, improve and diversify community 
services, and enable rural residents to have a better quality of life. 
These proposed revisions are consistent with efforts to streamline 
Government

[[Page 27990]]

functions, improve efficiency and the effectiveness of Government 
activities.

Enhancements To Improve Program Success

Streamlined Regulation

    The proposed changes will provide more flexibility for both 
grantees and Agency staff. Errors will be reduced because the proposed 
guidelines and requirements will be clearer and items can be found in 
reduced and better-organized regulations. This will enable the Agency 
to deliver the program with fewer staff resources. The Agency believes 
that streamlining of the regulations to make them simpler and more 
direct will enhance the use of the program and encourage grantee 
participation. The ultimate benefits are increased activity resulting 
in better living standards for residents of rural communities.
    This rule proposes policy changes consistent with the existing 
statutory authority, clarifies certain requirements that have multiple 
interpretations, and amends others that have led to unintended 
consequences as discussed below. This streamlining will reduce the 
program's administrative burden not only for the Agency but also for 
applicants and grantees. The following contains more detailed 
information for areas in which changes are proposed to streamline the 
program, reduce the burden, and make needed policy changes:

Technical Enhancements

    (a) Definitions: This rule proposes to make changes to the 
definitions of agreement (now Grant agreement) and Mutual self-help 
(now Mutual self-help method of construction) to be more consistent 
with 7 CFR part 3550 and for program clarity. New definitions for the 
following terms are added for clarity: Administrator, Applicant, Board 
of Directors, Borrower, Bylaws, Close out, Colonias, Completed units, 
Custodial account, Debarment, Environmental review, Environmental due 
diligence, existing grantee, EZ/EC/REAP areas, Family labor 
contribution, Final grantee evaluation, Grantee, High risk, household, 
Housing Act of 1949 as amended, HUD, Indian reservation, Leveraged 
assistance, Low-income, Member's agreement, Modest housing, Multi-
funded applicants, Notice of Funding Availability, Program 
requirements, Production based, Reasonable costs, Rural area, Rural 
Development, Section 502 loan program, Self-help construction cost, 
Specialty tools, Substitute labor, Supervised bank account, Technical 
and management assistance provider, Tribe, very-low income, and Workout 
agreement. Definitions for the following are removed as unnecessary: 
Date of completion, Direct costs, Disallowed costs and Termination of a 
grant.
    (b) Eligibility: This rule proposes to clarify or expand several 
current eligibility requirements and to add new requirements (Sec.  
3551.51) as discussed below.
    The current regulation does not specify that organizations that 
have been suspended, debarred, or excluded from participation in 
Federal programs based on the ``List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs,'' are not eligible for this 
program. This proposed rule includes that requirement in 7 CFR 
3551.51(e). This change is necessary to prevent the award of grant 
funds to unreliable organizations and to comply with existing Federal 
Non-Procurement Debarment and Suspension regulations and USDA 
regulations at 7 CFR Part 3017.
    Under the current regulation, grantees applying for additional 
funding must have received or will receive at least an acceptable 
rating on their current grant. However, the State Director has 
authority to grant an exception to this requirement if the grantee has 
removed or will remove the factor that caused the unacceptable rating 
(Sec.  1944.421). The proposed rule requires that an exception under 
this section must be requested through the national office and only the 
Administrator can approve such an exception (Sec.  3551.51(f)(1)). This 
change is being proposed to eliminate funding of unsuccessful grantees 
and in an effort to assure that only highly qualified applicants 
receive funding.
    The current regulation (Sec.  1944.404(d)(2)) considers only 
organizations classified under section 501(c)(3) of the Internal 
Revenue Code of 1986 as eligible private nonprofit corporations. The 
proposed rule adds a new source of eligibility (Sec.  
3551.51(a)(3)(iii) for organizations that are classified as tax exempt 
under 501(c)(4) of the Code. There are considerable overlaps between 
the two and many organizations could qualify for exempt status under 
either. The major difference in the two types of organizations 
affecting their qualifications with Rural Development, is that the 
Sec.  501(c)(4) classification allows organizations the right to lobby. 
However, all organizations applying for assistance in the MSH program 
must certify and disclose their lobbying activities in accordance with 
7 CFR part 3018 and Sec.  3551.55(b)(10)(iv). Adding this additional 
source of eligibility will expand the pool of applicants and assure the 
Agency of highly qualified grantees.
    The current regulation also requires the organization to have a 
board of directors that consists of not less than five members but does 
not detail requirements of those board members (Sec.  1944.404(d)(4)). 
The proposed rule requires that at least one-third of these members be 
very-low or low income, their elected representatives, or residents of 
a low income community and no more than one-third from the public 
sector (Sec.  3551.51(3)(v)). This change will ensure that the 
customers are being fairly represented by the organization.
    Under the current regulation, applicants must provide information 
to exhibit financial, legal and administrative capacity to carry out 
the requirements of this program (Sec.  1944.404(b)). One of the 
requirements includes submitting a staffing plan that reflects they 
have qualified people to carry out the responsibilities of 
administering this program or can be hired or contracted. This rule 
proposes to change that requirement and states the applicant must have 
experienced staff on board prior to grant approval or provide 
documentation that a paid or volunteer consultant is secured with 
similar experience to assist and train key staff members (Sec.  
3551.51(b)(3)). This change will eliminate steps in monitoring the 
grantee and taking any needed enforcement action after the grant is 
closed to ensure required staffing levels are reached.
    Under the current regulation, grantees must also submit a narrative 
statement detailing the number of homes to be constructed, that low 
income families are being served, and those families are willing to 
contribute their labor (Sec.  1944.410(a)(4)). The proposed rule 
expands that requirement to specifically require the applicant to 
propose that no fewer than five homes will be built simultaneously per 
participating family group, that at least 40 percent of the 
participating families are very low income, that all of the 
participating families are either low or very low income, and that 
participating family members are willing to contribute at least 50 
percent of the labor required on their home (Sec.  3551.51(c)). The 
proposed rule also requires applicants to document that upon completion 
of each participating family's home, they will have at least 10 percent 
equity, based on the appraised market value at completion (Sec.  
3551.51(c)(3)). These additional requirements will ensure that family 
members are receiving a quality product and the goal to provide

[[Page 27991]]

affordable housing to very low and low income families is being met. 
Greater specificity of expectations will improve consistency in grantee 
success in meeting their goals.
    Under the current regulation, grantees are generally expected to 
close out grants with all the homes proposed for the grant cycle as 
completed units. This method of operation, for the purpose of MSH, is 
considered as ``grant based''. In recognition of existing practices, 
however, the proposed rule adds flexibility to allow certain grantees 
that operate on an ongoing, ``production line'' basis, to close out 
grants with incomplete units and continue to operate without major 
lapses between funding cycles (Sec.  3551.51(g)). In such case, the 
grantee must: (1) Have the demonstrated capacity to close out the grant 
with incomplete homes and continue to meet all program requirements; 
(2) have successfully closed out at least two technical assistance 
grants with the Agency; (3) have received at least a satisfactory 
rating on their most recent final grantee evaluation and not currently 
be designated ``High Risk'' or operating under a workout agreement; (4) 
be a multi-funded applicant (with funding from a resource other than 
the Agency); and (5) propose that no more than 10 percent of the homes 
to be constructed will be incomplete at grant close out and that all 
incomplete homes will be completed during the next grant cycle. The 
Agency cannot guarantee that successive grants will be made. The 
production line method of operation is currently being used by some 
grantees without a negative impact on the families. Under this method, 
no construction is begun, on homes within a group, unless the grantee 
is certain there will be sufficient funds to complete the group 
project. Therefore, no family's home is left unfinished with the 
uncertainty of completion.
    (c) Authorized Grant Uses: Under the current regulation no 
reference is made to expenses that might be incurred by the applicant 
regarding environmental reviews (Sec.  1944.405). The proposed rule 
includes as an authorized grant use the payment of costs the applicant 
may incur to obtain information necessary for the Agency to complete an 
environmental review, when necessary (Sec.  3551.52(b)(10)). The 
proposed rule also permits payment of other reasonable costs the 
applicant may incur associated with the execution of a MSH program not 
covered in this part but only when prior written approval by Rural 
Development is obtained (Sec.  3551.52(b)(12)). The Agency believes 
such inclusion of incidental costs associated with a grant application 
will encourage highly qualified MSH applicants.
    (d) Technical Assistance Grant Ceilings: The proposed rule 
streamlines the method by which technical assistance grant ceilings are 
calculated. While the current regulation lists four different methods 
in which grant ceilings are calculated (Sec.  1944.407), the proposed 
rule establishes a single, consistent method (Sec.  3551.54(b)(1)). In 
addition, the proposed rule establishes some flexibility to permit 
exceptions by the State Director and the Administrator only under 
specific circumstances.
    Under the current regulation, grantees generally opt for the method 
of calculating technical assistance that produces the highest cost. An 
even higher cost can be approved by the State Director with few 
additional requirements and no maximum percentage limit. This has 
resulted in many exceptions being made at the state level, inconsistent 
technical assistance costs among states, and the depletion of funds 
more rapidly. The proposed rule limits technical assistance cost to no 
more than 15 percent of the equivalent value of a comparable modest 
home in the subject area for each home that is to be constructed. This 
amount, when added to the self-help construction cost, shall not exceed 
the equivalent value of a comparable modest home in the area. Self-help 
construction cost is defined under proposed Sec.  3551.10. The amount 
is calculated as the total debt to the participating family, 
subtracting land costs, closing costs, and impact fees, and adding any 
additional financing such as grants that reduce the total debt to the 
participating family. The method enables the Agency to make fair and 
consistent comparisons of construction costs among grantees in an area 
to determine whether a particular requested amount per unit is 
reasonable.
    The proposed rule allows for an exception to this grant ceiling by 
the State Director, but only up to 20 percent of the equivalent value 
of a modest home in the area. Special conditions must also exist in the 
marketplace or locality, the participant's situation or labor rates 
must require the additional cost, or no Agency-built homes must have 
been built in the past 12 months and the cost to construct a modest 
home is obtained by the Agency from a nationally recognized residential 
cost provider (Sec.  3551.54(b)(2)). These changes should greatly 
reduce the number of exceptions being made and maintain an acceptable 
technical assistance cost among the states.
    The proposed rule also permits for an Administrator's exception to 
the grant ceiling to allow a higher technical assistance cost under 
exigent circumstances set out in a notice published in the Federal 
Register. Such circumstances should be beyond the grantee's control, 
and might affect market prices such as natural disasters, strikes, fuel 
prices, etc. This proposal is necessary to maintain continuity in the 
program, expand the use of grant dollars, and establish more 
accountability for the grantees while continuing to provide 
flexibility. The Agency understands that the calculation of technical 
assistance grant ceilings is a particularly important issue and is 
especially interested in receiving comments on this issue. The Agency 
encourages parties providing comments to suggest alternative methods 
for calculating grant ceilings if they feel the proposed method may not 
be effective.
    (e) Grant Application Process: Under the current regulation, grant 
applications are received and processed on a first come-first served 
basis until funding is exhausted (Sec.  1944.410(b)(4)(i)). The number 
of applications received has far exceeded the limited amount of grant 
funds available. Therefore, this rule proposes a revised grant 
application process (Sec.  3551.55 and 3551.205) to award grants by a 
competitive process. The Agency will publish a ``Notice of Funding 
Availability'' (NOFA) in the Federal Register that lists the specific 
amount of grant funds available, establishes deadlines for the 
submission and review of applications, and lists the criteria by which 
the Agency will evaluate applications (Sec.  3551.55(a)) for that grant 
cycle. The NOFA may also contain any special criteria designated by the 
Administrator to encourage innovation, ensure geographic diversity, 
respond to emergency situations, etc. Applications will be scored and 
ranked in accordance with the criteria outlined in the NOFA, and grants 
will be awarded to those most qualified to the extent of funding 
availability.
    The current regulation requires applicants to provide information 
at three separate stages: Preapplication (Sec.  1944.410(a), (b), and 
(c)), application (Sec.  1944.410(a), (b), and (c)), and grant approval 
(Sec.  1944.411). The proposed rule eliminates the preapplication 
stage, requires more documentation for the eligibility/approval 
determination (Sec.  3551.55(b)), and minimizes the documents required 
for grant approval/closing (Sec.  3551.55(d) and (e)) as discussed 
below. These proposed changes will reduce the grantees' workload 
overall and provide the Agency a more simplified review process. These 
changes are also

[[Page 27992]]

beneficial to establish a competitive application and award process.
    In addition, the proposed rule eliminates other unnecessary 
application requirements that will reduce the paperwork burden on 
existing grantees. Existing grantees who are not designated as high 
risk and who received at least a satisfactory rating on their most 
recent final grantee evaluation will no longer be required to resubmit 
documentation they have the demonstrated capacity to carry out the 
objectives of the MSH program (Sec.  3551.55 (c)(2)) or organizational 
documents that have not changed in the interim (Sec.  3551.55(c)(3)). 
That information is readily available to the Rural Development staff 
and, therefore, is an unnecessary requirement.
    The current regulation requires applicants to submit a Form RD 
1940-20, ``Request for Environmental Information'' (Sec.  
1944.410(b)(1)(ii)). This rule proposes to remove that requirement in 
order to conform with the requirements of 7 CFR part 1940, subpart G 
which states this action is considered as a categorical exclusion. 
However, the Agency will continue to complete the Form RD 1940-22, 
``Environmental Checklist for Categorical Exclusions'' with each 
application. If the Agency determines an Environmental Impact Analysis 
is necessary despite the categorical exclusion, the applicant must 
obtain and/or assist the Agency in acquiring any additional information 
needed (7 CFR 3551.55(d)(11)). Such information may include delineating 
wetland areas or performing an acheological survey, for example. This 
requirement will help to minimize unsuitable properties being obtained 
by grantees for use under this program and assist the Agency in meeting 
the environmental requirements of 7 CFR part 1940, subpart G.
    The proposed rule will add the requirement for applicants to submit 
a credit report fee to the Agency to obtain a commercial credit report 
on their behalf (Sec.  3551.55(b)(9). This report will be used as a 
tool in determining the financial capacity of the applicant and may be 
waived by the State Director if the applicant is an existing grantee or 
if the Agency already obtained a report for a predevelopment grant. 
This will assist the Agency in assuring that only highly qualified 
applicants are funded.
    (f) Grantee Responsibility and Performance: The proposed rule 
places more focus on and clarifies the eligibility requirements and 
standards for evaluating grantee performance as discussed below. These 
changes will improve program management and oversight, improve the 
ability of grantees to comply with program requirements, and ensure the 
success of the MSH program.
    The current regulation does not require grantees to provide 
counseling to participating family members. This proposed rule will 
require grantees to provide family members with counseling throughout 
the project (7 CFR 3551.101(b)). Counseling will include direct or 
indirect homeownership education in accordance with new Single Family 
Housing loan regulations which was published on February 5, 2007 at 72 
FR 51537 CFR 3550.11(c) and 3550.53(i) of this proposed rule. This rule 
proposes for grantees to counsel family members in selecting suitable 
and modest housing designs and assisting them in determining 
contracting and material cost estimates. These rule changes will ensure 
that the family receive a quality product at minimal cost, provide the 
families with life skills necessary to become successful homeowners, 
and minimize any loss to the government.
    The current regulation permits amendments to the grant agreement 
but does not clearly define the purpose of the amendment (7 CFR 
1944.420). Consistent with the increased emphasis on grantee 
performance, the proposed rule provides that the Agency will approve 
grant agreement amendments only to modify the grant amount or grant 
period (7 CFR 3551.151(a)) and if other listed criteria are met. The 
proposed rule specifies that the Agency will no longer approve grant 
agreement amendments to lower the number of homes to be completed (7 
CFR 3551.151(b)(2)). The need must be due to circumstances beyond the 
grantee's control and consistent with the goals of MSH. Adequate funds 
must be available, if requested.
    Under the current regulation, the State Director may designate a 
grantee ``High Risk'' based on quarterly reports and comments received 
from Agency field staff (7 CFR 1944.417(b)). Under the proposed rule, 
greater emphasis is being placed on better monitoring at the early 
stages of a grantee's project (7 CFR 3551.153). This rule proposes that 
at any time it appears the grantee is not meeting performance goals or 
is not complying with program requirements, counseling must be 
initiated by Rural Development or its agent. This counseling must 
advise the grantee of problems or concerns noted and provide the 
grantee with a reasonable time to return to a satisfactory rating. A 
``High Risk'' designation cannot be made until this process has taken 
place and only if the grantee did not address the issue satisfactorily 
within the specified time period. This change is necessary to identify 
problems early and eliminate the possibility of project extensions and 
budget shortfalls by the grantee.
    The current regulation does not clearly define the process of 
classifying a grantee as ``High Risk''. The proposed rule establishes a 
step by step procedure that leaves little room for flexibility. This 
change will establish a simple, fair and consistent process, help to 
minimize the negative impact on grantees, and reduce unnecessary 
workload for Rural Development staff.
    The proposed rule more clearly delineates the performance goals 
that grantees must meet based upon their proposal at the time of 
application and agreed upon by the grant agreement (7 CFR 3551.152(a)). 
The grantee's commitment would include, but not limited to: The number 
of homes to be complete and/or incomplete at the end of the grant 
cycle, the average per unit cost of technical assistance, and the 
completion date of the project. At the end of the grant period, the 
Agency will evaluate grantees to see if they have attained these goals 
(7 CFR 3551.152(c). Grantees who receive an unsatisfactory rating on 
their performance evaluation are ineligible for subsequent grants as 
outlined in the eligibility requirements (7 CFR 3551.51). This 
increased emphasis on performance means that grantees must deliver the 
results that they have committed to in their grant agreement.
    The current regulation allows for a self-evaluation by the grantee 
to be submitted as a part of the grantee's performance evaluation (7 
CFR 1944.427). This rule proposes to remove this requirement as 
unnecessary for the grantee and an unproductive tool for the Agency. 
The elimination of this requirement will reduce both the grantee and 
the Agency's workload.
    (g) Family Labor Contribution: The current regulation (7 CFR 
1944.403), ``participating family'' requires participating families to 
contribute at least 65 percent of the labor of the construction tasks 
as outlined in Exhibit B-2 of 7 CFR part 1944. This method of 
measurement is open to a wide variety of interpretation by grantees, 
meaning that the amount of labor actually contributed by participating 
families may vary greatly from grantee to grantee. The proposed rule 
changes the family labor contribution to meet a minimum of at least 50 
percent of the total 100 percent labor required (7 CFR 3551.7(b)(1)). 
This percentage was derived from surveying non-profit organizations 
that currently participate in this type of program and participating

[[Page 27993]]

families. It is extremely difficult for participating families to work 
a regular forty hour work week and then be required to perform 65 
percent of the labor requirements, which calculates to approximately 
thirty hours per week. We have determined this is too burdensome on the 
participating families and difficult for the non-profit organizations 
to accurately record. The required 100 percent labor task list will be 
provided in the agency handbook available in any Rural Development 
office. This task list will be more detailed than the current Exhibit 
B-2 contained in 7 CFR part 1944, subpart I. Each individual task will 
be assigned a percentage and will clearly identify the labor that can 
be completed by the family under that task in order to receive that 
percentage of work completed. The changes proposed in this rule will 
provide a more objectively measurable labor requirement and establish 
more consistency among grantees.
    (h) Pre-development Grants: The current regulation sets a pre-
development grant limit at $10,000 (7 CFR 1944.410(d)). The proposed 
rule increases the pre-development grant limit from $10,000 to $15,000 
(7 CFR 3551.206(a). This increase better reflects the costs required 
for pre-development grantees to plan and prepare for the operation of a 
MSH program in all rural areas.
    (i) Audits: Under the current regulation (7 CFR 1944.422(a) and 
(b)), State and local governments, Indian tribes, and nonprofit 
organizations that receive less than $25,000 a year in Federal 
financial assistance are exempt from the Federal annual audit 
requirement. The proposed rule makes a technical correction to amend 
the threshold for exemption from $25,000 to $300,000 a year (7 CFR 
3551.103(c)(3)) consistent with the Departmental requirements of 7 CFR 
part 3052. Other monitoring requirements of 7 CFR parts 3015, 3016, and 
3019 continue to apply.
    (j) Rehabilitation Projects: The current regulation includes 
rehabilitation of homes as an eligible activity (7 CFR 1944.407(d)). 
The proposed rule eliminates any type of rehabilitation as an eligible 
activity. Existing rehabilitation grants will continue to be honored 
according to their existing grant agreements. This change will not have 
a significant impact on applicants because similar programs are 
available to accommodate the requests, and there has been little to no 
demand for this service under the MSH program.
    (k) Site Option Loans: The current regulation includes authority 
for site option loans to grantees to establish revolving funds to 
obtain options on land for families participating in the MSH program (7 
CFR part 1944, subpart I, Exhibit F). The proposed rule removes 
authority for site option loans as obsolete. These loans have not been 
funded and requests for this service have been nonexistent for several 
years, therefore; there will be no impact by this change. The Rural 
Development Section 524 Site Loan Program is still available.

Regulatory Crosswalk

    The following is a crosswalk which indicates where subjects can be 
found under the current regulation and under the proposed 7 CFR part 
3551.

------------------------------------------------------------------------
                                     Current location 7    Located in 7
              Topic                    CFR part 1944       CFR part 3551
------------------------------------------------------------------------
General                            Subpart I............       Subpart A
------------------------------------------------------------------------
Objective and Purpose............  Sec.   1944.401 and     Sec.   3551.2
                                    Sec.   1944.402.
Construction Standards...........  Sec.   1944.424......   Sec.   3551.7
Executive Order 12372............  Sec.   1944.409......   Sec.   3551.8
Definitions......................  Sec.   1944.403......  Sec.   3551.10
------------------------------------------------------------------------
Operating Grant                    .....................       Subpart B
------------------------------------------------------------------------
Eligibility requirements.........  Sec.   1944.404 and    Sec.   3551.51
                                    Sec.   1944.421.
Authorized use of funds..........  Sec.   1944.405......  Sec.   3551.52
Prohibited use of funds..........  Sec.   1944.406......  Sec.   3551.53
Technical assistance grant         Sec.   1944.407......  Sec.   3551.54
 amounts.
Application submission and         Sec.   1944.410; Sec.  Sec.   3551.55
 processing.                          1944.411; Sec.
                                    1944.412; Sec.
                                    1944.413; Sec.
                                    1944.415; and Sec.
                                    1944.416.
------------------------------------------------------------------------
Grantee Responsibility             .....................       Subpart C
------------------------------------------------------------------------
Recruitment and education........  Numerous.............            Sec.
                                                                3551.101
Construction supervision.........  None.................            Sec.
                                                                3551.101
Accounting for 502 loan funds....  Sec.   1944.425......            Sec.
                                                                3551.101
Request for payments.............  Sec.   1944.417......            Sec.
                                                                3551.102
Audit requirements...............  Sec.   1944.422......            Sec.
                                                                3551.103
------------------------------------------------------------------------
Grant Servicing                    .....................       Subpart D
------------------------------------------------------------------------
Grant agreement amendment........  Sec.   1944.420......            Sec.
                                                                3551.151
Grantee monitoring...............  Sec.   1944.417......            Sec.
                                                                3551.152
Grantee performance..............  Sec.   1944.417 and              Sec.
                                    Sec.   1944.419.            3551.153
Grant suspension and termination.  Sec.   1944.426......            Sec.
                                                                3551.154
Grant closeout...................  Sec.   1944.426......            Sec.
                                                                3551.155
------------------------------------------------------------------------
Predevelopment Grants              .....................       Subpart E
------------------------------------------------------------------------
Eligibility requirements.........  Sec.   1944.404......            Sec.
                                                                3551.202
Authorized use of funds..........  Sec.   1944.410 and              Sec.
                                    Sec.   1944.415.            3551.203
Prohibited use of funds..........  Sec.   1944.406......            Sec.
                                                                3551.204
Application submission and         Sec.   1944.410; Sec.            Sec.
 processing.                          1944.412; Sec.            3551.205
                                    1944.413; Sec.
                                    1944.415; and Sec.
                                    1944.416.
Grant terms......................  Sec.   1944.410; and             Sec.
                                    Sec.   1944.415.            3551.206

[[Page 27994]]

 
Grant close out..................  Sec.   1944.426......            Sec.
                                                                3551.207
------------------------------------------------------------------------

List of Subjects

7 CFR Part 1944

    Home improvement, Loan programs--Housing and community development, 
Low and moderate income housing--Rental, Mobile homes, Mortgages, 
Subsidies.

7 CFR Part 3551

    Home improvement, Loan programs--Housing and community development, 
Low and moderate income housing--Rental, Mobile homes, Mortgages, 
Subsidies.

    For the reasons set forth in the preamble, Chapters XVIII and XXXV, 
title 7, Code of Federal Regulations are proposed to be amended as 
follows:

CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT 
OF AGRICULTURE

PART 1944--HOUSING

    1. The authority citation for part 1944 continues to read as 
follows:

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

Subpart I of Part 1944--[Removed]

    2. Subpart I of part 1944 is removed and reserved.

CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE

    3. A new part 3551, consisting of subparts A through E, is added to 
read as follows:

PART 3551--MUTUAL AND SELF-HELP HOUSING PROGRAM

Subpart A--General
Sec.
3551.1 Applicability.
3551.2 Purpose.
3551.3 Standards of conduct.
3551.4 Civil rights and equal employment opportunity.
3551.5 Reviews and appeals.
3551.6 Environmental requirements.
3551.7 Construction requirements.
3551.8 Compliance with other Federal, State and local requirements.
3551.9 Exception authority.
3551.10 Definitions.
3551.11-3551.49 [Reserved]
3551.50 OMB Control number [Reserved]
Subpart B--Technical Assistance Grant Application and Approval
3551.51 Eligibility requirements.
3551.52 Authorized technical assistance grant uses.
3551.53 Unauthorized technical assistance grant uses.
3551.54 Technical assistance (TA) grant amounts.
3551.55 Application submission and processing.
3551.56-3551.99 [Reserved]
3551.100 OMB Control number [Reserved]
Subpart C--Technical Assistance Grantee Responsibilities
3551.101 Provision of technical assistance.
3551.102 Request for payment.
3551.103 Audit requirements.
3551.104-3551.149 [Reserved]
3551.150 OMB Control number [Reserved]
Subpart D--Technical Assistance Grant Servicing
3551.151 Grant agreement amendment.
3551.152 Grantee monitoring.
3551.153 Grantee performance.
3551.154 Grant suspension and termination.
3551.155 Grant close out.
3551.156-3551.199 [Reserved]
3551.200 OMB Control number [Reserved]
Subpart E--Predevelopment Grants
3551.201 General.
3551.202 Eligibility requirements.
3551.203 Authorized predevelopment grant uses.
3551.204 Unauthorized predevelopment grant uses.
3551.205 Application submission and processing.
3551.206 Terms of the predevelopment grant.
3551.207 Predevelopment grant close out.
3551.208-3551.249 [Reserved]
3551.250 OMB Control number [Reserved]

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

Subpart A--General


Sec.  3551.1  Applicability.

    This part contains the policies and the requirements for 
applicants, grantees, and contractors who participate in the Mutual and 
Self-Help Housing program as authorized under Section 523 of the 
Housing Act of 1949, as amended (42 U.S.C. 1490c). Copies of applicable 
regulations, Rural Development Instructions, Handbooks (HB), Department 
Regulations (DR), and forms referenced in this part are available in 
any Rural Development office.


Sec.  3551.2  Purpose.

    The Mutual and Self-Help Housing program funds organizations to 
assist very-low and low-income families in obtaining home financing and 
building their new homes, located in rural areas, using the mutual 
self-help method of construction as described in 7 CFR part 1924, 
subpart A. To achieve this purpose, Rural Development may make 
available:
    (a) Technical assistance (TA) grant funds to support programs of 
technical and supervisory assistance.
    (b) Predevelopment grant funds to support the development of a 
technical assistance grant application package.
    (c) Grant or contract funds to Technical and Management Assistance 
providers for the following services:
    (1) Disseminate information about the Mutual and Self-Help Housing 
program;
    (2) Assist prospective grantees with their organizational and grant 
application efforts;
    (3) Assist predevelopment grantees with the development of their 
technical assistance grant application packages;
    (4) Assist technical assistance grantees in achieving the goals of 
the Mutual Self-Help Program; and
    (5) Assist Rural Development in reviewing predevelopment grant and 
technical assistance grant applications, evaluating grantee 
performance, and performing other financial and administrative 
responsibilities.


Sec.  3551.3  Standards of conduct.

    (a) Prohibition on lobbying. Grantees must comply with all 
restrictions on lobbying in accordance with 7 CFR part 3018 and Rural 
Development Instruction 1940-Q.
    (b) Conflict of interest restrictions. (1) Applicants must identify 
any known relationship or association with an employee of Rural 
Development.
    (2) Unless Rural Development grants a waiver, grantees must not 
hire any person in a staff position/contractor or work with anyone as a 
participating family if that person or a member of that person's 
household is employed by Rural Development.
    (c) Identity of interest. (1) Grantees' board members and employees 
and their immediate households must not directly or indirectly 
participate, for financial gain, in any transactions involving the

[[Page 27995]]

grantee organization or participating families.
    (2) Grantees' board members must not be compensated by the grantee 
as employees, consultants, or independent contractors.
    (d) Financial transactions with participating families. With the 
following exceptions, any savings realized by the grantee on behalf of 
a participating family, such as through bulk purchases, must be passed 
on to the participating family.
    (1) Grantees may sell lots to participating families at a price up 
to the fair market value of the lot as determined by independent 
appraisal.
    (2) Grantees also may pass on to a participating family any holding 
costs related to the purchase, acquisition, and development of a 
participating family's lot, so long as those costs do not result in 
land costs that exceed the fair market value of a comparable site.
    (3) Grantees may provide small tools for family's use in 
construction at a reasonable cost to the families. The cost may not 
exceed fair market value of the tools plus a 10% (ten percent) fee for 
handling.
    (e) Gifts and gratuities. Grantees' board members, officers, 
employees, or agents must neither solicit nor accept gratuities, 
favors, or any item of monetary value from suppliers, contractors, or 
others doing business with the grantee.


Sec.  3551.4  Civil rights and equal employment opportunity.

    (a) Civil rights. Grantees must comply with all applicable civil 
rights laws and USDA regulations found in 7 CFR parts 15, 15a, and 15b.
    (b) Equal employment opportunity. (1) In all hiring or employment 
made possible by or resulting from funding provided by Rural 
Development, the grantee must:
    (i) Not discriminate against any employee or applicant for 
employment because of race, religion, color, sex, marital status, 
national origin, age, or mental or physical disability; and
    (ii) Take affirmative action in employing applicants and ensure 
that employees are treated during employment without regard to their 
race, religion, color, sex, marital status, national origin, age, or 
mental or physical disability.
    (2) If the grantee signs a contract with another person or firm and 
the contract is covered by an Executive Order, law, or regulation 
prohibiting discrimination, the grantee must include in the contract 
the Equal Opportunity Clause published at 41 CFR 60-1.4(a) and (b).


Sec.  3551.5  Reviews and appeals.

    Whenever Rural Development makes a decision that is adverse to a 
participant, Rural Development will provide the participant with 
written notice of such adverse decision and the participant's rights to 
a USDA National Appeals Division hearing in accordance with 7 CFR part 
11. Any adverse decision, whether appealable or non-appealable, may be 
reviewed by the next level Rural Development supervisor.


Sec.  3551.6  Environmental requirements.

    (a) All processing and servicing actions provided under this part 
are subject to the appropriate level of environmental review conducted 
in accordance with the requirements of 7 CFR part 1940, subpart G, or 
successor regulation.
    (1) Rural Development also will review scattered sites and sites in 
existing subdivisions individually.
    (2) Rural Development will also review building sites located in a 
new subdivision in which five or more lots will be used for this 
program with an environmental review in accordance with 7 CFR part 
1940, subpart G that covers all available lots in the subdivision. If 
more than one subdivision meeting this criterion is involved, each will 
be subject to the same level of environmental review.
    (b) Environmental due diligence will be used on all properties by 
evaluating for potential contamination from hazardous wastes, hazardous 
materials, petroleum products or other materials having potential for a 
detrimental effect on valuation or usability of the property.


Sec.  3551.7  Construction requirements.

    (a) Homes constructed under the Mutual and Self-Help Housing 
program must be modest and meet the following requirements:
    (1) The construction must be performed in accordance with 7 CFR 
part 1924, subpart A, including the model building code adopted by the 
Rural Development State Office under this part;
    (2) The design and construction must meet the dwelling requirements 
of 7 CFR part 3550, subpart B;
    (3) The sites and site development work must conform to 7 CFR part 
1924, subpart C;
    (4) The construction must meet all applicable State and local 
construction requirements. The more restrictive standard shall govern 
in the case of conflicts between local, State, and Rural Development 
requirements; and
    (5) All work by contractors and subcontractors must be warranted in 
compliance with the requirements of 7 CFR part 1924, Subpart A.
    (b) Participating families must agree to work together to perform 
labor on their homes in a mutual effort.
    (1) Each family in the group must contribute labor on each other's 
homes to accomplish a minimum of 50 percent of the total 100 percent 
labor required. The labor task list is available in any Rural 
Development office.
    (2) A participating family may use substitute labor to perform 
their required 50 percent labor only when a participating family member 
is physically or mentally incapable of performing the required labor 
and with prior written approval by the grantee and Rural Development.
    (3) Volunteer labor is permissible in conjunction with the family 
labor but cannot replace the 50 percent family labor requirement.


Sec.  3551.8  Compliance with other Federal, State and local 
requirements.

    The grantee must comply with all applicable Federal, State and 
local requirements, including the following:
    (a) Intergovernmental review. For the reasons set forth in 7 CFR 
part 3015, Subpart V, the Mutual and Self-Help Housing program is 
subject to Executive Order 12372 which calls for an intergovernmental 
partnership with state and local officials. Under RD Instruction 1940-
J, the Agency will provide opportunities for consultation by elected 
officials of those state and local governments that would provide the 
non-Federal funds for, or that would be directly affected by this 
program.
    (b) Federal assistance regulations 7 CFR parts 3015, 3016, and 
3019. 7 CFR part 3015 applies to all Mutual and Self-Help Housing 
program applicants. In addition, public agencies must comply with 7 CFR 
part 3016, and private nonprofit organizations must comply with 7 CFR 
part 3019, as applicable.


Sec.  3551.9  Exception authority.

    A Rural Development official may request, and the Administrator or 
designee may make, an exception to any requirement of this part if it 
does not conflict with applicable statutes and the Administrator or 
designee determines that application of the requirement or provision, 
or failure to take action in the case of an omission, would adversely 
affect the Government's interest.


Sec.  3551.10  Definitions.

    Administrator. The official of the Rural Housing Service within the 
Rural Development mission area (or official of its successor agency) 
delegated authority by the Secretary of the U.S.

[[Page 27996]]

Department of Agriculture (USDA) to administer the Agency and its 
programs.
    Applicant. An organization that submits an application for a 
section 523 technical assistance grant or predevelopment grant.
    Approving Official. The approving official for the purposes of this 
part will be the Rural Development State Director.
    Board of directors. The governing body of an organization and its 
members.
    Borrower. An applicant who has received a loan from Rural 
Development.
    Bylaws. Rules adopted by an organization to govern the conduct of 
its affairs.
    Close out. The process of taking final action connected with a 
completed or terminated grant, including closing of grantee accounts, 
auditing grantee expenditures, and completing final reports.
    Colonias. A community that meets the criteria established in 7 CFR 
part 1940, subpart L, exhibit C, or successor regulation.
    Completed unit(s). A home in which 100 percent of construction has 
been completed and a final inspection has been made or a Certificate of 
Occupancy has been issued.
    Custodial account. A bank account controlled by a grantee on behalf 
of a participating family.
    Debarment. A determination that a party is ineligible to 
participate in, or receive assistance under Federal programs in 
accordance with 7 CFR part 3017.
    Environmental review. The environmental analysis required by the 
National Environmental Policy Act and 7 CFR part 1940, subpart G (or 
successor regulation).
    Environmental due diligence. The process of evaluating real estate 
for potential contamination by hazardous wastes, hazardous materials, 
petroleum products or other materials having a detrimental effect on 
valuation or use of a property.
    Equivalent unit(s). Equivalent units are useful in measuring 
progress during the period of the grant and are not a measurement of 
actual accomplishments or completed units. Equivalent units represent 
the ``theoretical number of units'' arrived at by adding the equivalent 
percentage of construction complete for each family in the self-help 
program together at any given date during construction. The sum of the 
percentage complete for all participating families represents the total 
number of ``theoretical units'' completed at any point in time. The 
number of equivalent units for any group can never exceed the number of 
planned or completed units for that group.
    Equivalent value of a modest house. The typical cost of a recent 
contractor-built modest home in the area financed by Rural Development 
plus the actual or projected costs of an acceptable site including site 
development. If Rural Development has not financed a contractor-built 
house during the last 12 months, the value is established by using data 
obtained from a nationally recognized residential cost provider. Rural 
Development will establish the equivalent value of a modest house to 
calculate maximum technical assistance grant amounts in accordance with 
Sec.  3551.54(b).
    Existing grantee. Unless otherwise specified, a grantee that is 
currently operating a technical assistance grant from Rural 
Development.
    EZ/EC/REAP areas. Empowerment Zones, Enterprise Communities, and 
Rural Economic Area Partnership areas are designated areas in which 
communities are targeted for opportunities for growth and 
revitalization, including economic opportunity, sustainable community 
development, community-based partnerships, and strategic planning in 
accordance with 7 CFR part 25.
    Family labor contribution. The amount of labor a participating 
family provides for construction of homes within a group. The amount of 
labor a family contributes to the construction of their home assists in 
determining the amount of equity in the home at the time of closing.
    Final grantee evaluation. An evaluation performed by Rural 
Development at the end of the grant period to determine whether the 
grantee met its projected performance goals and complied with program 
requirements.
    Grant agreement. The contract signed by the grantee and Rural 
Development, on the appropriate Agency form, that contains the terms 
and conditions under which technical assistance funds are being made 
available.
    Grantee. An organization with which Rural Development has closed a 
section 523 technical assistance or predevelopment grant.
    High risk. A designation that may be placed on a grantee for 
noncompliance with the grant agreement and/or failure to meet 
requirements of this part.
    Household. All persons expected to be living in the dwelling, 
except for live-in aids, foster children, and foster adults.
    Housing Act of 1949, as amended. The Act which provides the 
authority for the direct single family housing programs. It is codified 
at 42 U.S.C. 1471, et seq.
    HUD. The U.S. Department of Housing and Urban Development.
    Indian reservation. All land located within the limits of any 
Indian Reservation under the jurisdiction of the United States 
notwithstanding the issuance of any patent and including rights-of-ways 
running through the reservation; trust or restricted land located 
within the boundaries of a former reservation of a Federally recognized 
Indian tribe in the State of Oklahoma; or all Indian allotments, the 
titles to which have not been extinguished if such allotments are 
subject to the jurisdiction of a Federally recognized Indian tribe.
    Indirect costs. Those costs that are incurred for common or joint 
objectives and therefore, cannot be readily identified with a 
particular project or activity.
    Leveraged assistance. Non-Rural Development financial assistance 
such as grant or loan funds, from a recognized source, which is 
combined with Rural Development financial assistance to accomplish a 
Mutual and Self-Help housing program purpose.
    Low-income. An adjusted income that is greater than the HUD 
established very low-income limit, but that does not exceed the HUD 
established low-income limit (generally 80 percent of median income 
adjusted for household size) for the county or Metropolitan Statistical 
Area where the property is or will be located.
    Members' Agreement. The Rural Development form that serves as a 
written contract signed by the grantee and the participating families 
to establish each party's responsibilities and obligations in the 
construction of the participating families' homes.
    Modest housing. See 7 CFR 3550.10.
    Multi-funded applicants. Applicants who receive some type of 
funding from Rural Development and other funding sources.
    Mutual self-help (MSH) method of construction. A group of families 
working together to provide mutual labor in constructing their homes 
under the direction of a construction supervisor.
    Notice of Funding Availability (NOFA). An announcement published in 
the Federal Register announcing that funds are available for specific 
programs and outlining the process for submission and processing of 
applications.
    Organization. A state or political subdivision, public nonprofit 
corporation, tribes or tribal

[[Page 27997]]

corporations, or private nonprofit corporations.
    Participating family. A household that has executed a Members' 
Agreement pertaining to a Mutual and Self-Help Housing program and, 
thereby, committed itself to joining with other households to build 
each other's homes and uphold the requirements of the program.
    Program requirements. Requirements set forth in any loan or grant 
document, agreement, statute, or regulation applicable to the Mutual 
and Self-Help Housing program.
    Production based. When a grant is approved based on technical 
assistance cost for a proposed number of equivalent units to be started 
during the grant cycle.
    Reasonable costs. A cost is reasonable if, in its nature and 
amount, it does not exceed that which would be incurred by a prudent 
person under the circumstances prevailing at the time the decision was 
made to incur the cost. To be considered reasonable, costs must meet 
all of the following conditions:
    (1) The cost is of a type generally recognized as ordinary and 
necessary for the operation of the organization or the performance of 
the Federal award.
    (2) The cost meets the restraints or requirements imposed by such 
factors as sound business practices; arms-length bargaining; Federal, 
State, and other laws and regulations; and terms and conditions of the 
award.
    (3) Market prices for similar goods or services are comparable.
    (4) The individuals concerned acted with prudence in the 
circumstances considering their responsibilities to the organization, 
its members, employees, clients, the public at large, and the Federal 
Government.
    (5) In incurring the cost, the organization did not deviate 
significantly from its established practices and, thereby, 
unjustifiably increase the award's cost.
    Rural area. The definition of rural area provided in Sec.  520 
title V of the Housing Act of 1949, as amended, (42 U.S.C. 1490) 
applies to this part.
    Rural Development (RD). A mission area within the USDA that 
includes Rural Housing Service (RHS), Rural Utilities Service (RUS), 
and Rural Business-Cooperative Service (RBS).
    Section 502 loan program. A Rural Development single family housing 
loan program. (See 7 CFR part 3550)
    Self-Help construction cost. The cost of constructing a home under 
the Mutual and Self-Help Housing program. This cost is calculated as 
the total debt to the participating family, subtracting land costs, 
closing costs and impact fees, and adding any additional financing such 
as grants which reduces the total debt to the participating family.
    Specialty tools. Specialty tools are those tools needed to complete 
the construction of a home, not including hand tools that are commonly 
needed to maintain a home, such as hammers, screwdrivers, tape 
measures, pliers, and wrenches. Speci