Change in the Lease-Up Reserve Calculation for the Section 538 Guaranteed Rural Rental Housing Program, 54452 [2022-19019]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Housing Service

[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Page 54452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19019]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

[Docket No. RHS-19-MFH-0024]


Change in the Lease-Up Reserve Calculation for the Section 538 
Guaranteed Rural Rental Housing Program

AGENCY: Rural Housing Service, USDA.

ACTION: Notice.

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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural 
Development (RD) agency of the United States Department of Agriculture 
(USDA), is announcing a new calculation of the required Lease-up 
Reserve for the Section 538 Guaranteed Rural Rental Housing Program 
(GRRHP).

DATES: The effective date of the new calculation is September 6, 2022.

FOR FURTHER INFORMATION CONTACT: Tammy Daniels, Finance and Loan 
Analyst, Multi-Family Housing Production and Preservation Division, 
Rural Housing Service, USDA, STOP 0781, 1400 Independence Avenue SW, 
Washington, DC 20250-0781, Telephone: (202) 720-0021 (this is not a 
toll-free number); email: [email protected].

SUPPLEMENTARY INFORMATION: 

Authority

    The RHS administers the Section 538 Guaranteed Rural Rental Housing 
Program (GRRHP) loans under the authority of the Housing Act of 1949, 
as amended (42 U.S.C. 1490p-2) and is implemeted under 7 CFR part 3565.

Background

    RHS administers the Section 538 GRRHP under the authority of the 
Housing Act of 1949, as amended (42 U.S.C. 1490p-2). The purpose of the 
GRRHP is to increase the supply of affordable rural rental housing, 
using loan guarantees that encourage partnerships between the RHS, 
private lenders, and public agencies.

Lease-Up Reserve and Formula

    As a condition to making the loan, the RHS Section 538 GRRHP may 
require borrowers to establish a lease-up reserve account to help pay 
operating costs and debt service costs at the initiation of operations 
while units are being leased to their initial occupants. It is an 
additional amount (cash deposit), over and above the required initial 
operating and maintenance contribution. In short, its purpose is to 
ensure that adequate funds are available for unexpected costs. 7 CFR 
3565.303(d)(3) requires the project to either attain a minimum level of 
acceptable occupancy of 90% for 90 continuous days within the 120-day 
period immediately preceding the issuance of the permanent guarantee or 
establish a lease-up reserve in an amount the Agency determines is 
necessary to cover projected shortfalls. The current lease-up reserve 
calculation is based on the appraised value of the project or the total 
development cost, whichever is greater and produces an inflated amount 
the Agency has determined to be disproportionate. In addition, the 
current calculation fails to contemplate a property's specific 
operating needs during lease up and bears no correlation to the 
timeframe identified in the other acceptable Loan Note Guarantee (LNG) 
issuance threshold, which is sustained occupancy at 90% for a period of 
90 days. To align the agency's LNG issuance thresholds and reduce the 
burden to the borrower, the new lease up reserve calculation described 
below, will represent an on-average savings to the borrower of 
approximately $100,000 per transaction, while adding a truer level of 
protection for project operations (this is based off of a random 
sampling of prior transactions).
    As set forth in 7 CFR part 3565, the Agency is required to announce 
when there is a change in its calculation for the required amount of 
the lease-up reserve. To calculate the new required minimum lease-up 
reserve amount, add the monthly amount of the Operations and 
Maintenance (O&M) expense, the monthly amount of the Debt Service Cost, 
and the monthly amount of the Reserve Deposit, then multiply this sum 
by three. The calculation may be written as follows:

(Monthly O&M Expense + Monthly Debt Service Amount + Monthly Reserve 
Deposit) x 3 = Minimum Required 538 Lease-Up Reserve Amount.

Paperwork Reduction Act

    This notice contains no new reporting or recordkeeping burdens 
under Office of Management and Budget (OMB) control number 0575-0179 
that would require approval under the Paperwork Reduction Act of 1995 
(44 U.S.C. Chapter 35).

Non-Discrimination Statement

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices, employees, and institutions participating in or administering 
USDA programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service 
at (800) 877-8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a 
letter addressed to USDA. The letter must contain the complainant's 
name, address, telephone number, and a written description of the 
alleged discriminatory action in sufficient detail to inform the 
Assistant Secretary for Civil Rights (ASCR) about the nature and date 
of an alleged civil rights violation. The completed AD-3027 form or 
letter must be submitted to USDA by: (1) Mail: U.S. Department of 
Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 
Independence Avenue SW, Washington, DC 20250-9410; or (2) Fax: (833) 
256-1665 or (202) 690-7442; or (3) Email: [email protected].

Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-19019 Filed 9-2-22; 8:45 am]
BILLING CODE 3410-XV-P