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538 Guaranteed Rural Rental Housing Program (GRRHP)

538 Guaranteed Rural Rental Housing Program (GRRHP). Cynthia Chapman, 538 Specialist.

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538 Guaranteed Rural Rental Housing Program (GRRHP)

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  1. 538 Guaranteed Rural Rental Housing Program (GRRHP) Cynthia Chapman, 538 Specialist

  2. The purpose of the Section 538 Guaranteed Loan Program is to increase the supply of affordable rural rental housing and to ensure that housing is affordable, safe, sanitary and competitive in the market for rural residents. How do we do that? Offer a guarantee of up to 90% of the loan amount on 3rd party loans in exchange for better than average market rates and terms

  3. The Program at a Glance • USDA guarantees loans made by private, USDA approved lenders, in eligible rural areas (Up to 90% of the loan may be guaranteed) • Location eligibility matches the 515 program • No restriction on maximum loan size; loan size may restrict some lenders from participating in projects sized too small or too large • Program allows for 3 different guarantees Option One: Permanent only, Option Two, construction/perm and Option Three, Continuous Guarantee (most common) • Option 2 has a gap in the guarantee after construction completion until guarantee is converted to perm (approx. 60 days) • All rehabs must meet minimum $6,500/unit • USDA Fees: Initial Guarantee Fee (Due prior to or at loan closing) 1% of guaranteed portion Annual Guarantee (Due each anniversary of loan closing) 0.50% of outstanding principle balance • Lender Origination Fee: (Not an Agency Fee and varies by lender) • At initial occupancy, tenant income must not exceed 115% of AMI • Rents must not exceed 30 percent of 100 percent of AMI

  4. The Program at a Glance Continued • Proposed projects do not have to be an RD asset at origination (515, 514, 516 programs) • Maximum 90% LTV (97% for non-profits) • Minimum 1.15 times DSCR on all serviceable debt (includes non-agency debt) • Interest Rate is the best negotiated rate between the Borrower and Lender (average 4-6%) • 25 - 40 year term & amort or any combination thereof (25/40, 30/30, 30/40,40/40, etc.) • No Davis-Bacon wage requirement • 538 Loans qualify for Community Reinvestment Act (CRA) credit (important for local banks) • 538 loan guarantees are not intended to be the sole source of funding • 95% of all closed 538 loans include Low Income Housing Tax Credits (LIHTC) or some other equity source • Eligible borrowers included private organizations, public bodies, Indian tribes, state/local entities, trusts • Loan-to-Cost threshold of 70% to match GNMA securitization requirement

  5. The Process • Pre-application – NOSA Response: https://www.rd.usda.gov/files/GRRHP_Application_FY2019.pdf • 12 pages of basic documentation to determine suitability and eligibility for the program, hard numbers are not required • RD Staff have 30 days to review and respond to the lender of acceptance or denial of the NOSA response • If approved staff will issue a Notice to Proceed inviting the lender to submit the full application for the project within 90 days • Full application requires all 3rd party reports: plans/specs, construction documents, appraisal, environmental • Environmental documentation should be submitted as soon as possible • Reference Chapter 4 and Attachment 4-A of Handbook 3565 for required forms • Approval results in issuance of the Conditional Commitment requiring certain conditions to be met within 720 days of issuance in order to close the loan • At closing the Loan Note Guarantee (LNG) is issued and the project is finalized

  6. What's new with the program? • Annual authority remains unchanged at $240 million, with the ability to access more authority as needed ($320 million FY18) • Loan to cost threshold changed to 70%, up from previous requirement of 50% • Aligns with GNMAs requirements for securitization and packaging of loans in the secondary market. • Proposed regulatory change to remove annual NOSA publication. • Will allow applications to be accepted year round without delay improving processing time for applicants. • Proposed change to allow the Agency to adjust fee structure based upon market conditions. • 1% guarantee fee and 0.50% annual maintenance fee will adjust to market conditions. • Agency Pilot Program – small centralized team processing applications for 7 states. • Testing program operating efficiency, updating Standard Operating Procedures and continue to look for ways to enhance the program.

  7. Cynthia Chapman– 538 Specialist Guaranteed Rural Rental Housing Program Cynthia.Chapman@usda.gov (919) 830-5201 Tammy Daniels – Senior Finance & Loan Analyst Guaranteed Rural Rental Housing Program Tammy.Daniels@usda.gov (202) 720-0021

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