Resources: Rural Development (RD)
The United States Department of Agriculture, Rural Development (RD) and its programs play a very important role in the Affordable Housing Industry. With a vision of providing a rural America that is a healthy, safe, and prosperous place in which to live and work and a mission to increase economic opportunity and improve the quality of life for all rural Americans, RD has been changing lives for more than 70 years.
In the 1930′s, President Franklin Roosevelt established the Resettlement Administration and the Rural Electrification Administration. The agencies relocated families impacted by the Great Depression, restored soil-eroded areas, provided modest emergency loans to farmers for land and equipment, and provided electricity to rural areas. In 1946, Congress established the Farmers Home Administration (FmHA) to expand the original agency’s functions beyond farm credit and authorized FmHA to provide financing in rural areas for housing, community facilities, and business ventures. In 1994, the Department of Agriculture was reorganized and RD was created to administer the former FmHA’s non-farm financial programs for rural housing, community facilities, water and waste disposal, and rural businesses. Today, RD is termed as one of the venture capitalist for rural America, with an $86 billion dollar loan portfolio and administrator of nearly $16 billion in program loans, loan guarantees, and grants through its various programs.
The RD Rural Rental Housing Loans are provided to both for-profit and not-for-profit owners. A list of targeted communities is established based on needs assessments for loan funding through Section 515 loans. Rural Rental Housing Loans are direct loans made to provide affordable multifamily rental housing for very low-, low-, and moderate-income families; the elderly; and persons with disabilities. Borrowers must prove they are unable to obtain credit elsewhere that will allow them to charge rents affordable to the low- and moderate-income tenants they will be targeting. In addition, for-profit borrowers must agree to operate on a limited-profit basis (currently 8 percent on initial investment). Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is capped at $5,500 above the low-income limit, while those living in substandard housing are given first priority for tenancy.
In addition to financing, RD administers the Rural Rental Assistance (RA) program to provide an additional source of support for households with incomes too low to pay the Housing and Community Facilities Programs (HCFP) subsidized (basic) rent from their own resources. HCFP pays the owner of a multi-family housing complex the difference between the tenant’s contribution (30 percent of adjusted income) and the monthly rental rate. The RA Program is available to all Rural Rental Housing (Section 515) financed projects.
Reporting Requirements
All borrowers who have a Section 515 Rural Rental Housing loan or a Section 514 Off-Farm Labor Housing loan must comply with the RD’s financial reporting requirements as described in Chapter 4, Financial Management of the Asset Management Handbook (HB-2-3560 MFH). A summary of those requirements is as follows:
| Type of Property | Forms RD 3560-7 and 3560-10 | Agreed-Upon Procedures and Determinations | Audited Financial Statements (in accordance with Yellow Book Standards) |
|---|---|---|---|
|
Rural Development project (1-15 units) |
Yes |
No |
No |
|
Rural Development project (16-23 units) |
Yes |
Yes |
No |
|
Rural Development project (24+ units) |
Yes |
Yes |
Yes * |
|
State and local governments, Indian tribes and Nonprofit Organizations (subject to OMB Circular A-133) |
Yes |
No |
No ** |
* Must be completed by a CPA
** This Audit is in accordance with OMB Circular A-133 and submitted to the Agency as part of the Financial Reporting Requirements.
Forms RD 3560-7 and 3560-10
Form RD 3560-7 (Budget Actuals) will be used for end of year reporting using actual income and expenses. Form RD 3560-10 (Balance Sheet) is a summary of the balances of the accounts, a listing of the liabilities, and long term debts and an indicator of the net worth of the project. Ending balances of the accounts listed on the Form RD 3560-7 in Part III should match the balances listed on the balance sheet, lines 1-4. The ending cash balance on Form RD 3560-7, line 33, should also match the balances listed on Form RD 3560-10, lines 1, 2, 5, and 6. These checks are a part of the analysis run in MFIS as well. Signatures are required on these forms, however if submitted electronically through MINC, signed copies will not need to be sent to the Rural Development Servicing Official.
Agreed-Upon Procedures and Determinations
Borrowers with 16 or more units in their housing project must submit an agreed upon procedures report completed by a CPA according to the agreed-upon procedures and determinations established by the Agency. The Agency’s financial reporting requirements as set forth in 7 CFR Part 3560.308 require that CPAs conduct certain tests in connection with preparing the agreed-upon procedures report. The purpose of these tests is to determine whether the borrower/management agent is in compliance with applicable Agency requirements in the management and operation of the project.
Audited Financial Statements
Borrowers with 24 or more units in their housing project must base their annual financial reports on a financial audit in accordance with generally accepted government auditing standards or GAGAS, as set forth in “Government Auditing Standards” (July 2007 Revision), established by the Comptroller General of the United States, and any subsequent revisions (this publication is commonly referred to as the “Yellow Book” or “Government Accounting Office Standards”).
Find out more:
- United States Department of Agriculture, Rural Development
- Asset Management Handbook
- Chapter 4: Financial Management
For more information, contact us at 866.848.5700 or email info@doz.net
