Council for Affordable and Rural Housing

Serving Council for Affordable and Rural Housing the Affordable Housing Needs of Rural America

SECTION 538 INTEREST SUBSIDY IS NEEDED

WHAT IS THE SECTION 538 PROGRAM?

The Section 538 program is administered by the United States Department of Agriculture’s (USDA), Rural Development (RD) department within Housing and Community Facilities. The official name of the Section 538 program is the Guaranteed Rental Rural Housing Program (“GRRHP”). The program was enacted in 1996 as Section 538 of the Housing Act of ’49, to build new affordable rural housing as well as preserve the existing Section 515 portfolio. The Section 538 program is targeted to low- and moderate-income rural residents with incomes no greater than 115 percent of area median income, though most residents are low or very low income. Qualifying properties include either new construction or acquisition/rehabilitation of properties. RD will generally guarantee any form of Federal, state, or conventional financing, including HOME and tax-exempt bonds. Loans are for up to 40 year terms with a fixed interest rate. Guarantees are provided through a Notice of Funding Availability (“NOFA”) process.

WHAT IS INTEREST SUBSIDY?

Each year a portion of the Section 538 loans carry with it interest subsidy. This interest subsidy reduces the interest rate. The NOFAs encourage deeper subsidy to house very low or extremely low-income persons. The interest subsidy allows the 538 to be used to preserve existing section 515 properties (where the average household is elderly and earns about $10,000 a year), and to be used with HOME and tax credits in rural areas.

OMNIBUS CANCELED INTEREST SUBSIDY FOR 2009

The Omnibus Appropriations Act for Fiscal Year 2009, (P.L. 111-8) signed into law on March 10, 2009 provides for $129.1 million for the 538 program, but only $8 million in interest subsidy, instead of $20 million in the Senate Appropriations Committee bill (S. 3289) that was the basis for the interim Continuing Resolution for Fiscal Year 2009. More than that, the Omnibus Act specifically prohibits using the $8 million for 2009 NOFA applications. On January 21, 2009, RHS had already issued its 2009 NOFA, providing for interest subsidy, under the notion that it fully expected continued funding as well as the interest subsidy. The NOFA was needed to keep the loan pipeline moving. Unless the interest credit subsidy is quickly corrected, that pipeline will have to shut down for 2009, and the one viable program for the construction of low and moderate income housing in rural America will be severely impacted. 1112 King Street  Alexandria, Virginia 22314  (703) 837-9001  (703) 837-8467 Fax [email protected]  www.carh.org