
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 23, 2000]
[Document affected by Public Law 106-569 Section 707]
[CITE: 42USC1490p-2]

 
                 TITLE 42--THE PUBLIC HEALTH AND WELFARE
 
       CHAPTER 8A--SLUM CLEARANCE, URBAN RENEWAL, AND FARM HOUSING
 
                      SUBCHAPTER III--FARM HOUSING
 
Sec. 1490p-2. Loan guarantees for multifamily rental housing in 
        rural areas
        

(a) Authority

    The Secretary may make commitments to guarantee eligible loans for 
the development costs of eligible housing and related facilities, and 
may guarantee such eligible loans, in accordance with this section.

(b) Extent of guarantee

    A guarantee made under this section shall guarantee repayment of an 
amount not exceeding the total of the amount of the unpaid principal and 
interest of the loan for which the guarantee is made. The liability of 
the United States under any guarantee under this section shall decrease 
or increase pro rata with any decrease or increase of the amount of the 
unpaid portion of the obligation.

(c) Eligible borrowers

    A loan guaranteed under this section may be made to a nonprofit 
organization, an agency or body of any State government or political 
subdivision thereof, or a private entity.

(d) Eligible housing

    A loan may be guaranteed under this section only if the loan is used 
for the development costs of housing and related facilities (as such 
terms are defined in section 1485(e) of this title) that--
        (1) consists of 5 or more adequate dwellings;
        (2) is available for occupancy only by low or moderate income 
    \1\ families or persons, whose incomes at the time of initial 
    occupancy do not exceed 115 percent of the median income of the 
    area, as determined by the Secretary;
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    \1\ So in original. Probably should be ``low- or moderate-income''.
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        (3) will remain available as provided in paragraph (2), 
    according to such binding commitments as the Secretary may require, 
    for the period of the original term of the loan guaranteed, unless 
    the housing is acquired by foreclosure (or instrument in lieu of 
    foreclosure) or the Secretary waives the applicability of such 
    requirement for the loan only after determining, based on objective 
    information, that--
            (A) there is no longer a need for low- and moderate-income 
        housing in the market area in which the housing is located;
            (B) housing opportunities for low-income households and 
        minorities will not be reduced as a result of the waiver; and
            (C) additional Federal assistance will not be necessary as a 
        result of the waiver; and

        (4) is located in a rural area.

(e) Eligible lenders

                           (1) Requirement

        A loan may be guaranteed under this section only if the loan is 
    made by a lender that the Secretary determines--
            (A) meets the qualifications, and has been approved by the 
        Secretary of Housing and Urban Development, to make loans for 
        multifamily housing that are to be insured under the National 
        Housing Act [12 U.S.C. 1701 et seq.];
            (B) meets the qualifications, and has been approved by the 
        Federal National Mortgage Association and the Federal Home Loan 
        Mortgage Corporation, to make loans for multifamily housing that 
        are to be sold to such corporations; or
            (C) meets any qualifications that the Secretary may, by 
        regulation, establish for participation of lenders in the loan 
        guarantee program under this section.

                (2) Eligibility list and annual audit

        The Secretary shall establish a list of eligible lenders and 
    shall annually conduct an audit of each lender included in the list 
    for purposes of determining whether such lender continues to be an 
    eligible lender.

(f) Loan terms

    Each loan guaranteed pursuant to this section shall--
        (1) provide for complete amortization by periodic payments to be 
    made for a term not to exceed 40 years;
        (2) involve a rate of interest agreed upon by the borrower and 
    the lender that does not exceed the maximum allowable rate 
    established by the Secretary for purposes of this section and is 
    fixed over the term of the loan;
        (3) involve a principal obligation (including initial service 
    charges, appraisal, inspection, and other fees as the Secretary may 
    approve) not to exceed--
            (A) in the case of a borrower that is a nonprofit 
        organization or an agency or body of any State or local 
        government, 97 percent of the development costs of the housing 
        and related facilities or the value of the housing and 
        facilities, whichever is less;
            (B) in the case of a borrower that is a for-profit entity 
        not referred to in subparagraph (A), 90 percent of the 
        development costs of the housing and related facilities or the 
        value of the housing and facilities, whichever is less; and
            (C) in the case of any borrower, for such part of the 
        property as may be attributable to dwelling use, the applicable 
        maximum per unit dollar amount limitations under section 207(c) 
        of the National Housing Act [12 U.S.C. 1713(c)];

        (4) be secured by a first mortgage on the housing and related 
    facilities for which the loan is made, or otherwise, as the 
    Secretary may determine necessary to ensure repayment of the 
    obligation; and
        (5) for at least 20 percent of the loans made under this 
    section, the Secretary shall provide the borrower with assistance in 
    the form of credits pursuant to section 1490a(a)(1)(B) of this title 
    to the extent necessary to reduce the rate of interest under 
    paragraph (2) to the applicable Federal rate, as such term is used 
    in section 42(i)(2)(D) of title 26.

(g) Guarantee fee

    At the time of issuance of a loan guaranteed under this section, the 
Secretary may collect from the lender a fee equal to not more than 1 
percent of the principal obligation of the loan.

(h) Authority for lenders to issue certificates of guarantee

    The Secretary may authorize certain eligible lenders to determine 
whether a loan meets the requirements for guarantee under this section 
and, subject to the availability of authority to enter into guarantees 
under this section, execute a firm commitment for a guarantee binding 
upon the Secretary and issue a certificate of guarantee evidencing a 
guarantee, without review and approval by the Secretary of the specific 
loan. The Secretary may establish standards for approving eligible 
lenders for a delegation of authority under this subsection.

(i) Payment under guarantee

                        (1) Notice of default

        In the event of default by the borrower on a loan guaranteed 
    under this section, the holder of the guarantee certificate for the 
    loan shall provide written notice of the default to the Secretary.

                           (2) Foreclosure

        After receiving notice under paragraph (1) and providing written 
    notice of action under this paragraph to the Secretary, the holder 
    of the guarantee certificate for the loan may initiate foreclosure 
    proceedings for the loan in a court of competent jurisdiction, in 
    accordance with regulations issued by the Secretary, to obtain 
    possession of the security property. After the court issues a final 
    order authorizing foreclosure on the property, the holder of the 
    certificate shall be entitled to payment by the Secretary under the 
    guarantee (in the amount provided under subsection (b) of this 
    section) upon (A) conveyance to the Secretary of title to the 
    security property, (B) submission to the Secretary of a claim for 
    payment under the guarantee, and (C) assignment to the Secretary of 
    all the claims of the holder of the guarantee against the borrower 
    or others arising out of the loan transaction or foreclosure 
    proceedings, except claims released with the consent of the 
    Secretary.

                     (3) Assignment by Secretary

        After receiving notice under paragraph (1), the Secretary may 
    accept assignment of the loan if the Secretary determines that the 
    assignment is in the best interests of the United States. Assignment 
    of a loan under this paragraph shall include conveyance to the 
    Secretary of title to the security property, assignment to the 
    Secretary of all rights and interests arising under the loan, and 
    assignment to the Secretary of all claims against the borrower or 
    others arising out of the loan transaction. Upon assignment of a 
    loan under this paragraph, the holder of a guarantee certificate for 
    the loan shall be entitled to payment by the Secretary under the 
    guarantee (in the amount provided under subsection (b) of this 
    section).

                          (4) Requirements

        Before any payment under a guarantee is made under paragraph (2) 
    or (3), the holder of the guarantee certificate shall exhaust all 
    reasonable possibilities of collection on the loan guaranteed. Upon 
    payment, in whole or in part, to the holder, the note or judgment 
    evidencing the debt shall be assigned to the United States and the 
    holder shall have no further claim against the borrower or the 
    United States. The Secretary shall then take such action to collect 
    as the Secretary determines appropriate.

(j) Violation of guarantee requirements by lenders issuing guarantees

                         (1) Indemnification

        If the Secretary determines that a loan guaranteed by an 
    eligible lender pursuant to delegation of authority under subsection 
    (h) of this section was not originated in accordance with the 
    requirements under this section and the Secretary pays a claim under 
    the guarantee for the loan, the Secretary may require the eligible 
    lender authorized under subsection (h) of this section to issue the 
    guarantee certificate for the loan--
            (A) to indemnify the Secretary for the loss, if the payment 
        under the guarantee was made within a reasonable period 
        specified by the Secretary; or
            (B) to indemnify the Secretary for the loss regardless of 
        when payment under the guarantee was made, if the Secretary 
        determines that fraud or misrepresentation was involved in 
        connection with the origination of the loan.

          (2) Termination of authority to issue guarantees

        The Secretary may cancel a delegation of authority under 
    subsection (h) of this section to an eligible lender if the 
    Secretary determines that the lender has violated the requirements 
    and procedures for guaranteed loans under this section or for other 
    good cause. Any such cancellation shall be made by giving notice to 
    the eligible lender and shall take effect upon receipt of the notice 
    by the mortgagee or at a later date, as the Secretary may provide. A 
    decision by the Secretary to cancel a delegation shall be final and 
    conclusive and shall not be subject to judicial review.

(k) Refinancing

    Any loan guaranteed under this section may be refinanced and 
extended in accordance with terms and conditions that the Secretary 
shall prescribe, but in no event for an additional amount or term that 
exceeds the limitations under subsection (f) of this section.

(l) Nonassumption

    The borrower under a loan that is guaranteed under this section and 
under which any portion of the principal obligation or interest remains 
outstanding may not be relieved of liability with respect to the loan, 
notwithstanding the transfer of property for which the loan was made.

(m) Geographical targeting

                              (1) Study

        The Secretary shall provide for an independent entity to conduct 
    a study to determine the extent to which borrowers in the United 
    States will utilize loan guarantees under this section, the rural 
    areas in the United States in which borrowers can best utilize and 
    most need loans guaranteed under this section, and the rural areas 
    in the United States in which housing of the type eligible for a 
    loan guarantee under this section is most needed by low- and 
    moderate-income families. The Secretary shall require the 
    independent entity conducting the study to submit a report to the 
    Secretary and to the Congress describing the results of the study 
    not later than the expiration of the 90-day period beginning on 
    March 28, 1996.

                            (2) Targeting

        In providing loan guarantees under this section, the Secretary 
    shall establish standards to target and give priority to rural areas 
    in which borrowers can best utilize and most need loans guaranteed 
    under this section, as determined by the Secretary based on the 
    results of the study under paragraph (1) and any other information 
    the Secretary considers appropriate.

(n) Inapplicability of credit-elsewhere test

    Section 1471(c) of this title shall not apply to guarantees, or 
loans guaranteed, under this section.

(o) Tenant protections

    The Secretary shall establish standards for the treatment of tenants 
of housing developed using amounts from a loan guaranteed under this 
section, which shall incorporate, to the extent applicable, existing 
standards applicable to tenants of housing developed with loans made 
under section 1485 of this title. Such standards shall include standards 
for fair housing and equal opportunity, lease and grievance procedures, 
and tenant appeals of adverse actions.

(p) Housing standards

    The standards established under section 1485(m) of this title for 
housing and related facilities assisted under section 1485 of this title 
shall apply to housing and related facilities the development costs of 
which are financed in whole or in part with a loan guaranteed under this 
section.

(q) Limitation on commitments to guarantee loans

         (1) Requirement of appropriations for cost subsidy

        The authority of the Secretary to enter into commitments to 
    guarantee loans under this section, and to guarantee loans, shall be 
    effective for each fiscal year only to the extent that 
    appropriations of budget authority to cover the costs (as such term 
    is defined in section 661a of title 2) of the guarantees are made in 
    advance for such fiscal year.

          (2) Annual limitation on amount of loan guarantee

        In each fiscal year, the Secretary may enter into commitments to 
    guarantee loans under this section only to the extent that the costs 
    of the guarantees entered into in such fiscal year do not exceed 
    such amount as may be provided in appropriation Acts for such fiscal 
    year.

(r) Report

                           (1) In general

        The Secretary shall submit a report to the Congress, not later 
    than the expiration of the 2-year period beginning on March 28, 
    1996, describing the program under this section for guaranteeing 
    loans.

                            (2) Contents

        The report shall--
            (A) describe the types of borrowers providing housing with 
        loans guaranteed under this section, the areas served by the 
        housing provided and the geographical distribution of the 
        housing, the levels of income of the residents of the housing, 
        the number of dwelling units provided, the extent to which 
        borrowers under such loans have obtained other financial 
        assistance for development costs of housing provided with the 
        loans, and the extent to which borrowers under such loans have 
        used low-income housing tax credits provided under section 42 of 
        title 26 in connection with the housing provided with the loans;
            (B) analyze the financial viability of the housing provided 
        with loans guaranteed under this section and the need for 
        project-based rental assistance for such housing;
            (C) include any recommendations of the Secretary for 
        expanding or improving the program under this section for 
        guaranteeing loans; and
            (D) include any other information regarding the program for 
        guaranteeing loans under this section that the Secretary 
        considers appropriate.

(s) Definitions

    For purposes of this section, the following definitions shall apply:
        (1) The term ``development cost'' has the meaning given the term 
    in section 1485(e) of this title.
        (2) The term ``eligible lender'' means a lender determined by 
    the Secretary to meet the requirements of subparagraph (A), (B), 
    (C), or (D) of subsection (e)(1) of this section.
        (3) The terms ``housing'' and ``related facilities'' have the 
    meanings given such terms in section 1485(e) of this title.

(t) Authorization of appropriations

    There are authorized to be appropriated for each fiscal year for 
costs (as such term is defined in section 661a of title 2) of loan 
guarantees made under this section such sums as may be necessary for 
such fiscal year.

(u) Tax-exempt financing

    The Secretary may not deny a guarantee under this section on the 
basis that the interest on the loan or on an obligation supporting the 
loan for which a guarantee is sought is exempt from inclusion in gross 
income for purposes of chapter I \2\ of title 26.
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    \2\ So in original. Probably should be chapter ``1''.
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(July 15, 1949, ch. 338, title V, Sec. 538, as added and amended Pub. L. 
104-120, Sec. 5, Mar. 28, 1996, 110 Stat. 835; Pub. L. 105-86, title 
VII, Sec. 735(c), Nov. 18, 1997, 111 Stat. 2111; Pub. L. 105-276, title 
V, Sec. 599C(c), Oct. 21, 1998, 112 Stat. 2661.)

                       References in Text

    The National Housing Act, referred to in subsec. (e)(1)(A), is act 
June 27, 1934, ch. 847, 48 Stat. 1246, as amended, which is classified 
principally to chapter 13 (Sec. 1701 et seq.) of Title 12, Banks and 
Banking. For complete classification of this Act to the Code, see 
section 1701 of Title 12 and Tables.

                          Codification

    Section is based on section 5(a) of H.R. 1691, One Hundred Fourth 
Congress, as passed by the House of Representatives on Oct. 30, 1995, 
which was enacted into law by Pub. L. 104-120.


                               Amendments

    1998--Subsec. (t). Pub. L. 105-276, Sec. 599C(c)(1), substituted 
``each fiscal year'' for ``fiscal year 1998''.
    Subsec. (u). Pub. L. 105-276, Sec. 599C(c)(2), added subsec. (u) and 
struck out heading and text of former subsec. (u). Text read as follows: 
``A loan may not be guaranteed under this section after September 30, 
1998.''
    1997--Subsec. (q)(2). Pub. L. 105-86, Sec. 735(c)(1), added par. (2) 
and struck out heading and text of former par. (2). Text read as 
follows: ``In fiscal year 1996, the Secretary may enter into commitments 
to guarantee loans under this section only to the extent that the costs 
of the guarantees entered into in such fiscal year do not exceed 
$1,000,000.''
    Subsec. (t). Pub. L. 105-86, Sec. 735(c)(2), added subsec. (t) and 
struck out text of former subsec. (t). Text read as follows: ``There is 
authorized to be appropriated for fiscal year 1996 $1,000,000 for costs 
(as such term is defined in section 661a of title 2) of loan guarantees 
made under this section.''
    Subsec. (u). Pub. L. 105-86, Sec. 735(c)(3), substituted ``1998'' 
for ``1996''.
    1996--Subsecs. (m)(1), (r)(1). Pub. L. 104-120, Sec. 5(b), made 
technical amendment to reference in original act which appears in text 
as reference to March 28, 1996.


                             Effective Date

    Section to be construed to have become effective Oct. 1, 1995, see 
section 13(a) of Pub. L. 104-120, set out as an Effective and 
Termination Dates of 1996 Amendments note under section 1437d of this 
title.
