BROADCAST EMAIL – Regulatory Update

September 25, 2026

Today, the U.S. Department of Agriculture Rural Development (RD) published a Federal Register Notice entitled, Multifamily Housing Preservation Pilot and Multifamily Housing Guaranteed Loan Notice of Loan-to-Cost Percentage Change for Option 3 (Continuous Guarantee).

The Notice implements two significant actions that directly address longstanding concerns raised by CARH and our members: a two-year Multifamily Housing (MFH) Preservation Pilot (Pilot) designed to reduce regulatory barriers and processing delays for ownership transfers and Section 538 transactions, and a separate increase in the Section 538 Continuous Guarantee loan-to-cost percentage from 70 percent to 80 percent of total development cost. The Pilot becomes effective 14 days after publication and runs through September 25, 2028. The Pilot covers three transaction types: Section 515 ownership transfers outside the existing Simple Transfer Pilot; Section 515 ownership transfers involving LIHTC; and Section 538 guaranteed loan transactions, whether or not a transfer is involved, for the first 200 loans.

1. Appraisal and Transfer Processing

The Pilot streamlines the transfer approval process by reducing appraisal requirements and allowing broader participation in processing applications. Changes include the following:

  • RD may forego the requirement for a technical appraisal review by a RD appraiser under 7 CFR 3560.753(b), conducting reviews only when necessary to protect the government’s interest.
  • Where RD holds the first lien and assumed loans total 50 percent or less of the property’s current value per tax records, RD may determine security value through monitoring reports or a borrower-paid appraisal, eliminating the need for a separate appraisal.
  • Qualified lenders, nonprofit preservation partners, and other approved participants may process low-risk transfer applications using RD-approved templates, certifications, and checklists. RD retains final determination authority.
  • RD may designate a property as distressed or at risk of loss from the affordable housing stock and apply accelerated review, expanded preservation tools, or modified documentation requirements.
  • Borrowers may use Section 515 subsequent loans to purchase a property as part of the transfer.

 

2. HUD Documentation Reliance and Environmental Reviews

For properties that also receive HUD financing, subsidy, insurance, or recapitalization support, the Pilot reduces duplicative documentation requirements in the following ways:

  • RD may accept recent HUD environmental review documentation, capital needs assessments, or related third-party reports to satisfy overlapping MFH program requirements.
  • RD may accept HUD reserve analyses or lender certifications for reserve adequacy in establishing annual reserve deposits, while retaining authority to require additional reserves when warranted.

3. Construction and Design Flexibilities

The Pilot replaces the prescriptive construction standards in 7 CFR Part 1924 with a streamlined framework. Under this framework:

  • Pilot properties must meet applicable federal accessibility requirements, state and local codes, and RD affordable, decent, safe, and sanitary standards.

4. LIHTC-Specific Provisions

For Section 515 transfers involving LIHTC, the Pilot makes several changes to improve deal economics and reduce duplicative assessment requirements. These changes include the following:

  • Developer fee aligned with the applicable state housing finance agency’s Qualified Allocation Plan maximums, replacing the cap in 7 CFR 3560.63 or, where applicable, any lower maximum that other Federal or State funding sources require. The Pilot developer fee will replace the developer fee set forth in 7 CFR 3560.63.
  • Additional ROI standards under 7 CFR 3560.68(a) and (b) will not apply. The owner’s return will follow 7 CFR 3560.68(c), provided rents do not exceed Conventional Rents for Comparable Units (CRCU).
  • RD may accept a Physical Needs Assessment or tax-credit-agency-approved CNA in lieu of a RD-prescribed CNA and may accept LIHTC allocating agency underwriting amounts for annual reserve deposit requirements. For HUD-financed properties, a HUD-compliant CNA may also be accepted.

5. Section 538 Pilot Variations (First 200 Transactions)

For the first 200 Section 538 guaranteed loans processed under the Pilot, RD makes the following adjustments.

  • DSCR reduced to 1.11, with discretion to approve a lower ratio based on the lender’s analysis of current market conditions and comparable properties.
  • For transactions involving LIHTC and HUD financing, RD may defer to applicable federal or state program requirements for rent and income standards, reducing duplicative administration.
  • RD may apply risk-tiered underwriting and documentation standards, with tiers determined by rental assistance, LIHTC equity, operating history, and market strength.

Section 538 Loan-to-Cost Increase (not part of Pilot)

Separate from the Pilot, the notice increases the loan-to-cost percentage for Section 538 Option Three (Continuous Guarantee) loans from 70 percent to 80 percent of total development cost. This programmatic change is not limited by the Pilot’s 200-transaction cap and applies to all qualifying Section 538 guarantees going forward. RD expects this change to increase both preservation and new production applications.

CARH and our members have long advocated for reducing processing delays, eliminating duplicative documentation requirements, and removing regulatory barriers that jeopardize preservation transactions. This notice represents a major step forward. CARH encourages all members to review the Notice carefully and assess how the Pilot and the Section 538 loan-to-cost increase may benefit their portfolios and pipeline transactions.

Please contact the CARH National Office at carh@carh.org or 703-837-9001 should you have questions or concerns.

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