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.
_______________________________________________________________________________________________
$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
mike.buethe@ne.usda.gov
Linda Anders
402-437-5734
Linda.anders@ne.usda.gov
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).