NAHMA USDA Update: Final Rule -Changes Related to Reserve Account Administration in MFH Direct Loan Program ; Final Rule -Section 538 Change in Prioritization Criteria

On March 20th, two new Rural Housing Service updates were published for release. 

Changes Related to Reserve Account Administration in Multifamily (MFH) Direct Loan Programs

Washington D.C, March, 20, 2024 -The Rural Housing Service (RHS) published a final rule in the Federal Register, Changes Related to Reserve Account Administration in Multi-Family Housing (MFH) Direct Loan Programs (RIN # 0575-AD23).  This amends Section 3560.306 Reserve account, to include other third-party debt as an allowable use of surplus cash funds.  MFH borrowers may now use surplus cash, as defined in MFH regulations, to access state and local government funding available as a capital source for property improvements, when approved by MFH loan servicers. This will increase the tools available to borrowers to preserve properties as affordable housing resources.

Final Rule - Multifamily Housing Section 538 Guaranteed Rural Rental Housing Prioritization Criteria

Washington D.C, March, 20, 2024 -The Rural Housing Service Office of Multifamily Housing (MFH) published a final rule on March 19, 2024 (Federal Register) to amend the current regulation for the MFH Section 538 Guaranteed Rural Rental Housing Program (GRRHP).   

While the 538 program is authorized by the Housing Act of 1949, as amended, the 538 program wasn't created until 1996.  This regulatory change aligns the prioritization criteria for applications in the Section 538 regulations with those identified in the Housing Act of 1949.   

The 538 regulations, over time, were amended to include certain priority criteria, many of which are now outdated. The regulatory change aligns the priority language in the regulation with the language in the statute, removes the old regulatory-required priorities, and extends the Secretary the ability to establish and implement any priorities through Federal Register Notice.   

The purpose of the regulatory change is to harmonize the Section 538 Regulation with the Statute, specifically regarding priority language. This Regulatory Change accomplishes two main objectives: 

It eliminates outdated priority language, such as bedroom count and lower interest rate, which no longer align with the highest RHS priorities, including but not limited to Advancing Racial Justice, Place-Based Equity, and Opportunity - Ensuring all rural residents have equitable access to RD programs and benefits from RD funded projects. 

 It provides greater flexibility to allow RHS to ensure that properties meet their full affordability contract period and are able to adjust to market conditions and trends.  

“With this flexibility, RHS will update its Section 538 Notice in the Federal Register in the summer of 2024. This update will include addressing the potential loss of affordability through Qualified Contract provisions, using priority points for investments in projects that waive its Qualified Contract provision, ensuring the 30-year affordability period envisioned by the LIHTC program,” said Joaquin Altoro, Rural Housing Administrator. 


Summary provided by Larry Keys, Vice President of Government Affairs, National Affordable Housing Management Association



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