Federal funding reductions have significantly reduced the amount of rental assistance (RA) available for Rural Development Section 515 projects. As a result of this reduction, the Rural Development Service (RD) issued an Unnumbered Letter in July 2014 limiting the use of RA as an incentive to not prepay a Section 515 loan. RD is now making it more difficult to offer the following incentives to owners wishing to prepay their loans:
*An offer of additional rental assistance or an increase in rental assistance;
*An offer to make an equity loan; or
*An offer of rental assistance to protect rent-burdened tenants.
Under the RD guidance, if owners seek incentives not to pre-pay, state Rural Development offices must provide the National Office with justification for using one of the three incentives noted above. The justification must explain why RA is needed to save the project, and why the affordable housing is important to the community.
This is one of the latest consequences of the draconian cuts be made to domestic programs by Congress. Owners who are considering seeking incentives to avoid prepayment should be aware that a case will not have to be made that failure to provide incentives will have a negative impact on both the project and the community at large,