CARH’S BROADCAST E-MAIL – Regulatory Update

March 19, 2024

On March 18, the Rural Housing Service published a Final Rule in the Federal Register entitled, Changes Related to Reserve Account Administration in Multi-Family Housing (MFH) Direct Loan Programs. The regulation becomes effective on April 17, 2024.

According to the final regulation, the general operating account of a property is deemed to contain surplus funds when all payables have been made and the balance at the end of the property’s fiscal year exceeds 20 percent of the operating and maintenance expenses. When a property’s budget results in surplus cash at the end of the year, Rural Development (RD) will now allow the borrower to use surplus cash to fund approved soft debt. Allowing borrowers to use surplus funds to repay third-party debt will allow those borrowers to access State and local government funding available as a capital source for property improvements. Acceptable third-party debt, including cash flow notes, will take the form of a written agreement for the payment of an Agency-approved debt obligation, with or without interest. Payments may occur only after approval has been granted by the RD.

RD approved soft-debt is a type of debt that (1) is not immediately due and payable, (2) has lenient repayment terms, and/or (3) has no-interest or low-interest rates, for example a ‘cash flow note.” Soft debt is often provided by a State or local government as vital, additional sources of direct loan property rehabilitation funding.

Changes are designed to improve property condition and increase tools available to borrowers to preserve properties as affordable housing resources. This final rule no longer includes the reduction in rents as an allowable use of surplus funds, as rent- setting is part of the annual proposed budget process and should not be included in the reserve account section of this regulation. These changes are designed to improve property condition and increase tools available to borrowers to preserve properties as affordable housing resources.

This and other regulations will be discussed at CARH’s upcoming Annual Meeting & Legislative Conference on June 24-26, 2024. Click here to register.

For other news and information affecting the affordable rural housing industry, please visit the Newsroom on CARH’s website, www.carh.org.