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 Lender Guarantor Income Limit Amortization Loan Term IC Rate RA Available Davis Bacon "Federal Funds"
Section 515 USDA None 80% AMI 50 Years 30 Years 1% Yes No Yes
Section 538 Private USDA 115% AMI 40 Years 25-40 Years No No No Guarantee
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
Creating Affordability
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 $4,400,000
Section 538 Loan Guarantee, 40 Year Loan Term 9% Tax Credits, HOME Funds, Bonds, etc.
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$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 USDA’s 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)
Types of Loans Guaranteed Risk Sharing With Lenders
•
• •
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
• •
Substantial – minimum of $6,500 in hard construction costs per unit Funds can be used for acquisition costs, including professional services and financing costs
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
Lender Features Approved lenders make and service loans guaranteed by RD
Best Negotiated Interest Rate 90% RD Guarantee Lender’s Underwriting standards 100% of Loan can be sold CRA credits Sell or Hold servicing
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., 20250-9410 or call (800) 795-3272 (voice) or (202) 720-6382 (TDD).
Mike Buethe 402-437-5574 Office
[email protected]
Linda Anders 402-437-5734
[email protected]
NEBRASKA WEBSITE: www.rurdev.usda.gov/ne/ 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., 20250-9410 or call (800) 795-3272 (voice) or (202) 720-6382 (TDD).
