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USDA RURAL DEVELOPMENTSection 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 515 Section 538Lender USDA PrivateGuarantor None USDAIncome Limit 80% AMI 115% AMIAmortization 50 Years 40 YearsLoan Term 30 Years 25-40 YearsIC Rate 1% NoRA Available Yes NoDavis Bacon No No"Federal Funds" Yes 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 Section 538 Loan Guarantee, 40 Year Loan Term

$4,400,000 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)

• 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 GuaranteedRisk 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 RDLender Features

90% RD Guarantee

100% of Loan can be sold

CRA credits

Lender’s 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., 20250-9410 or call (800) 795-3272 (voice) or (202)

720-6382 (TDD).

Mike Buethe 402-437-5574 Office

mike.buethe@ne.usda.gov

Linda Anders

402-437-5734

Linda.anders@ne.usda.gov

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).

NEBRASKA WEBSITE: www.rurdev.usda.gov/ne/