Notice2022-08515
Notice of Solicitation of Applications for Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction for Fiscal Year 2022
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 21, 2022
Issuing agencies
Agriculture DepartmentRural Housing Service
Abstract
The Rural Housing Service (RHS) (Agency), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), published a notice of solicitation of applications (NOSA) in the Federal Register on February 2, 2021, entitled "Notice of Solicitation of Applications for Section 514 Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for New Construction for Fiscal Year 2021." The Notice described the methods used to distribute funds, the pre-application and final application processes, and submission requirements. On August 3, 2021, the Agency published a subsequent notice to announce the second round of solicitation of competitive pre-applications and corrected inadvertent errors in the NOSA published on February 2, 2021, in the Federal Register. The purpose of this Notice is to announce the third round of solicitation of applications and to make updates to the initial notice.
Full Text
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<title>Federal Register, Volume 87 Issue 77 (Thursday, April 21, 2022)</title>
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[Federal Register Volume 87, Number 77 (Thursday, April 21, 2022)]
[Notices]
[Pages 23792-23855]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08515]
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
[Docket No. RHS-22-MFH-0007]
Notice of Solicitation of Applications for Section 514 Off-Farm
Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants for
New Construction for Fiscal Year 2022
AGENCY: Rural Housing Service, United States Department of Agriculture.
ACTION: Notice and updates to a previous notice.
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SUMMARY: The Rural Housing Service (RHS) (Agency), a Rural Development
(RD) agency of the United States Department of Agriculture (USDA),
published a notice of solicitation of applications (NOSA) in the
Federal Register on February 2, 2021, entitled ``Notice of Solicitation
of Applications for Section 514 Off-Farm Labor Housing Loans and
Section 516 Off-Farm Labor Housing Grants for New Construction for
Fiscal Year 2021.'' The Notice described the methods used to distribute
funds, the pre-application and final application processes, and
submission requirements. On August 3, 2021, the Agency published a
subsequent notice to announce the second round of solicitation of
competitive pre-applications and corrected inadvertent errors in the
NOSA published on February 2, 2021, in the Federal Register. The
purpose of this Notice is to announce the third round of solicitation
of applications and to make updates to the initial notice.
DATES: Eligible pre-applications submitted to the Production and
Preservation Division, Processing and Report Review Branch in response
to this Notice, will be accepted until July 15, 2022, 12:00 p.m.,
Eastern Standard Time. See the SUPPLEMENTARY INFORMATION section of the
NOSA published in the Federal Register on February 2, 2021, at 86 FR
7840, entitled ``Notice of Solicitation of Applications for Section 514
Off-Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing
Grants for New Construction for Fiscal Year 2021'' for additional
information.
ADDRESSES: This funding announcement will be available on <a href="http://Grants.gov">Grants.gov</a>.
Applications submitted in response to this Notice must be submitted
[[Page 23793]]
electronically to the Production and Preservation Division, Processing
and Report Review Branch. Specific instructions on how to submit
applications electronically are provided under the SUPPLEMENTARY
INFORMATION section of the NOSA published in the Federal Register on
February 2, 2021, FR citation 86 FR 7840, entitled ``Notice of
Solicitation of Applications for Section 514 Off-Farm Labor Housing
Loans and Section 516 Off-Farm Labor Housing Grants for New
Construction for Fiscal Year 2021'' for additional information.
FOR FURTHER INFORMATION CONTACT: Abby Boggs, Branch Chief, Program
Support Branch, Production and Preservation Division, Multifamily
Housing Programs, Rural Development, United States Department of
Agriculture, via email: <a href="/cdn-cgi/l/email-protection#d8b9babaa1f6bab7bfbfab98adabbcb9f6bfb7ae"><span class="__cf_email__" data-cfemail="c5a4a7a7bceba7aaa2a2b685b0b6a1a4eba2aab3">[email protected]</span></a> or phone at: (615) 490-
1371.
SUPPLEMENTARY INFORMATION: The amount of program dollars available will
be determined by yearly appropriations. Available loan and grant
funding amounts can be found at the following link: <a href="https://www.rd.usda.gov/programs-services/multifamily-housing-programs/farm-labor-housing-direct-loans-grants">https://www.rd.usda.gov/programs-services/multifamily-housing-programs/farm-labor-housing-direct-loans-grants</a>. Expenses incurred in developing
preapplications and final applications will be at the applicant's sole
risk.
Rural Development: Key Priorities
The Agency encourages applicants to consider projects that will
advance the following key priorities:
<bullet> Assisting Rural communities recover economically from the
impacts of the COVID-19 pandemic, particularly disadvantaged
communities;
<bullet> Ensuring all rural residents have equitable access to RD
programs and benefits from RD funded projects; and
<bullet> Reducing climate pollution and increasing resilience to
the impacts of climate change through economic support to rural
communities.
For further information, visit <a href="https://www.rd.usda.gov/priority-points">https://www.rd.usda.gov/priority-points</a>.
Authority
This solicitation of applications is authorized under 7 CFR 3560
and Section 516 of the Housing Act of 1949, 42 U.S.C. 14867.
Background
As required by 7 CFR 3560.556, RHS is required to publish in the
Federal Register, an annual NOSA for each round of the Section 514 Off-
Farm Labor Housing Loans and Section 516 Off-Farm Labor Housing Grants
for New Construction program. The first notice was published on
February 2, 2021 in the Federal Register, at 86 FR 7840. The Notice
announced the initial opening round and described the method used to
distribute funds, the pre-application and final application process,
and submission requirements.
A second notice published on August 3, 2021 in the Federal
Register, at 86 FR 41811. That notice announced the second round of
solicitation for competitive pre-applications and corrected inadvertent
errors published in the initial notice.
There are three rounds of pre-application submissions and
selections for this program until July 15, 2022. For details,
applicants should refer to the full funding announcement notice
published on February 2, 2021, in the Federal Register at 86 FR 7840.
This notice announces the third round that opens May 16, 2022. The
available loan and grant funding will be posted to the RHS website by
April 21, 2022. Pre-applications must be submitted by July 15, 2022,
12:00 p.m., Eastern Standard Time. RHS will notify applicants by
September 1, 2022. Final applications must be submitted by November 1,
2022, 12:00 p.m., Eastern Standard Time.
Updates
The following information are updates to the Notice published on
February 2, 2021 in the Federal Register.
(1). In the Federal Register of February 2, 2021, in FR Doc. 2021-
02193, on page 7840, in the third column, update the ``Third Round''
list to read:
Third Round
1. Available loan and grant funding posted to the RHS website by
April 21, 2022.
2. Pre-applications will be accepted on May 16, 2022.
3. Pre-applications must be submitted by July 15, 2022, 12:00 p.m.,
Eastern Standard Time.
4. RHS notification to applicants by September 1, 2022.
5. Final applications must be submitted by November 1, 2022, 12:00
p.m., local time.
(2). On page 7841, in the second column in the second paragraph,
revise paragraph to read:
All award commitments will be valid for a period of twelve months.
Applicants dependent upon third-party funding, including but not
limited to local-, state-, and federal resources through competitive
and non-competitive application rounds, must obtain a satisfactory
commitment of those funds, as determined by the Agency, within the
twelve-month time frame. An extension of the award commitment of up to
three months may be given, at the sole discretion of the Agency, and
will be based on project viability, current program demand, and
availability of program funds. Applicants unable to satisfy this
condition of the award commitment will be subject to having the award
rescinded and will be required to reapply in future rounds.
(3). On page 7841, in the third column in the second paragraph,
revise paragraph to read:
In order to enhance customer service and the transparency of this
program, RHS will publish a list of awardees, the loan and/or grant
amounts of their respective awards and the final score as computed by
RHS in accordance with the dates listed in this Notice. This will be
done for each funding round. This information can be found at: <a href="https://www.rd.usda.gov/programs-services/multifamily-housing-programs/farm-labor-housing-direct-loans-grants">https://www.rd.usda.gov/programs-services/multifamily-housing-programs/farm-labor-housing-direct-loans-grants</a>. RHS reserves the right to post all
information submitted as part of the pre-application and final
application package, which is not protected under the Privacy Act, on a
public website with free and open access to any member of the public.
Requests for Additional Funds To Address Funding Gaps/Cost Overruns in
Previously-Awarded FLH Transactions
There are three categories of previously-awarded FLH transactions
that may need additional FLH funds to complete a project awarded under
a previous FLH New Construction NOSA. The following provides
eligibility criteria under this NOSA and other guidance for properties
in each of the three categories:
Category 1: Properties that have (a) received a FLH award under a
previous NOSA and (b) have not yet closed on their initial award, are
eligible to apply under this NOSA if the funds requested, when combined
with the initial award under the original NOSA for which the project
was initially funded, exceeds the per-project award cap under that
NOSA. Owners applying under this category will need to successfully
demonstrate financial viability of the transaction and only need to
apply for the additional FLH funds needed to complete the transaction.
Category 2: Properties that have (a) received a FLH award under a
previous NOSA and (b) have not yet closed on their initial award may
request an amendment to their initial funding award outside of this
NOSA, if the
[[Page 23794]]
funds needed, when combined with the initial award under the original
NOSA for which the project was initially funded, does not exceed the
per-project award cap under that NOSA. Owners seeking amendments to
initial awards will need to successfully demonstrate financial
viability of the transaction and are eligible to apply for this
amendment outside of this NOSA, as it is considered an amendment to the
current award. Amendments to awards are subject to available funding.
Owners with transactions in this category may contact Rural
Development's Office of Multifamily Housing's Production & Preservation
Division for additional guidance.
Category 3: Properties that have (a) received a FLH award under a
previous NOSA and (b) have closed on their financing are considered
eligible for subsequent loans under Sec. 3560.73, which may be applied
for outside of this NOSA, on a rolling basis, subject to available
funding. Owners with transactions in this category may contact Rural
Development's Office of Multifamily Housing's Production & Preservation
Division for additional guidance.
(4). On page 7843, at the bottom of the second column, correct
section (b) to read:
(b) RHS will host a workshop on May 11, 2022 to discuss the
application process, the borrower's responsibilities under the Off-FLH
program, among other topics. Participants should pre-register for the
session using the following link: <a href="https://attendee.gotowebinar.com/register/2244949179096454669">https://attendee.gotowebinar.com/register/2244949179096454669</a>.
(5). On page 7851, in the first column, revise paragraph (19) to
read as follows:
(19) An acceptable Post Construction Capital Needs Assessment (CNA)
in accordance with 7 CFR 3560.103(c) and the addendum at the end of
this NOSA. The CNA will be used to underwrite the proposal to determine
financial feasibility. The CNA must be approved by the Agency prior to
the Agency underwriting the transaction. A CNA is comprised of nine
main sections:
<bullet> Definitions;
<bullet> Contract Addendum;
<bullet> Requirements and Statement of Work (SOW) for a CNA;
<bullet> The CNA Review Process;
<bullet> Guidance for the Multi-Family Housing (MFH) CNA Recipient
Regarding Contracting for a CNA;
<bullet> Revising an Accepted CNA During Underwriting;
<bullet> Updating a CNA;
<bullet> Incorporating a Property's Rehabilitation into a CNA; and
<bullet> Repair and Replacement Schedule.
Additionally, there are seven attachments which accompany the CNA
addendum identified as follows:
<bullet> Attachment A, ADDENDUM TO THE CAPITAL NEEDS ASSESSMENT
CONTRACT
<bullet> Attachment B, CAPITAL NEEDS ASSESSMENT STATEMENT OF WORK
<bullet> Attachment C, FANNIE MAE PHYSICAL NEEDS ASSESSMENT
GUIDANCE TO THE PROPERTY EVALUATOR
<bullet> Attachment D, CNA e-Tool Estimated Useful Life Table
<bullet> Attachment E, CAPITAL NEEDS ASSESSMENT REPORT
<bullet> Attachment F, SAMPLE CAPITAL NEEDS ASSESSMENT REVIEW
REPORT
<bullet> Attachment G, CAPITAL NEEDS ASSESSEMENT GUIDANCE TO THE
REVIEWER
The CNA Addendum can be found at <a href="http://www.rd.usda.gov/programs-services/multi-family-housing-direct-loans">www.rd.usda.gov/programs-services/multi-family-housing-direct-loans</a>.
(6). On page 7852, in the first column, add paragraph (31) to read
as follows:
(31) Current (not older than six months from the date of issuance)
combination comprehensive credit reports for the applicant, entity and
principals must be submitted and considered during the Agency's review
for eligibility determination. In the past, the Agency has required the
applicant to submit the credit report fee . In lieu of the applicant
submitting the fee, the Agency will require the applicant to provide
the credit report. It is the Agency's expectation that this change will
create an efficiency in the application process that did not exist,
which should assist with streamlining the application process for the
applicant. Only Credit reports provided by accredited major credit
bureaus will be accepted.
Addendum: Capital Needs Assessment Process
A Capital Needs Assessment (CNA) provides a repair schedule for the
property in its present condition, indicating repairs and replacements
necessary for a property to function properly and efficiently over a
span of 20 years.
The purpose of this Addendum is to provide clarification and
guidance on the Rural Development CNA process. The document includes
general instructions used in completing CNA reports, specific
instructions on how to use the expected useful life tables, and a set
of applicable forms including the Terms of Reference form; Systems and
Conditions forms; and Evaluator's Summary forms.
1. Definitions
The following definitions are provided to clarify terms used in
conjunction with the CNA process:
CNA Recipient: This will be who enters into the contract with the
CNA Provider. The Recipient can be either the property owner or
applicant/transferee.
``As-Is'' CNA: This type of CNA is prepared for an existing MFH
property and reports the physical condition including all Section 504
Accessibility and Health and Safety items of the property based on that
moment in time. This CNA can be useful for many program purposes other
than the MPR Demonstration program such as: An ownership transfer,
determining whether to offer pre-payment aversion incentive and
evaluating or resizing the reserve account. The ``as-is'' report will
include all major repairs and likely some minor repairs that are
typically associated with the major work: Each major component, system,
equipment item, etc. inside and outside; building(s); property; access
and amenities in their present condition. A schedule of those items
showing the anticipated repair or replacement timeframe and the
associated hard costs for the ensuing 20-year term of the CNA serves as
the basis or starting point in evaluating the underwriting that will be
necessary to determine the feasibility and future viability of the
property to continue serving the needs of eligible tenants.
``Post Rehabilitation'' CNA: This type of CNA builds on the
findings of the accepted ``as-is'' CNA and is typically prepared for a
project that will be funded for major rehabilitation. The Post
Rehabilitation CNA is adjusted to reflect the work intended to be
performed during the rehabilitation. The assessment must be developed
from the rehabilitation project plans and any construction contract
documents to reflect the full extent of the planned rehabilitation.
Life Cycle Cost Analysis (LCCA): A LCCA is an expanded version of a
CNA and is defined at 7 CFR Section 3560.11. The LCCA will determine
the initial purchase cost, the operation and maintenance cost, the
``estimated useful life,'' and the replacement cost of an item selected
for the project. The LCCA provides the borrower with the information on
repair or replacement costs and timeframes over a 20-year period. It
also provides information that will assist with a more informed
component selection and can provide the borrower with a more complete
financial plan based on the predictive
[[Page 23795]]
maintenance needs associated with those components. If the newly
constructed project has already been completed without any previous
LCCA requirements, either an ``as-is'' CNA or LCCA can be provided to
establish program mandated reserve deposits. An Architect or Engineer
is the best qualified person(s) to prepare this report.
Consolidation: In some circumstances, RD may permit two or more
properties to be consolidated as defined in 7 CFR 3560, Sec. 3560.410
when it is in the best interests of the Government. The CNA Recipient
must consult with the RD loan official before engaging the CNA Provider
in any case where the CNA intends to encompass more than a single (one)
existing RD property to determine if a consolidated CNA may be
acceptable for RD underwriting.
2. Contract Addendum
RD uses a Contract Addendum to supplement the basic CNA Agreement
or ``Contract'', between the CNA Recipient and CNA Provider, with
additional details and conditions. It can be found in Attachment A,
Addendum to Capital Needs Assessment Contract and must accompany all
contracts executed between the CNA Recipient and CNA Provider for CNAs
used in RD transactions. If any conflicts arise between the
``Contract'' and ``Contract Addendum'', the ``Contract Addendum'' will
supersede.
The Contract Addendum identifies the responsibilities and
requirements for both the CNA Recipient and the CNA Provider. To assure
proper completion of the contract documents the following key
provisions must be completed:
a. The Contract Addendum will include the contract base amount for
the CNA Provider's cost for services on page A-2, and provisions for
additional services to establish the total price for the CNA.
b. Item I e, will require an itemized listing for any additional
anticipated services and their unit costs including future updates and
revisions that may be required before the CNA is accepted by RD. Note:
Any cost for updating a CNA must be included, in the ``additional
services'' subpart, of the original CNA Contract.
c. The selection criteria boxes in II a, will identify the type of
CNA being provided.
d. In III a, the required language for the blank on ``report
format'' is: ``USDA RD CNA Template, current RD version, in Microsoft
Excel format''. This format will import directly into the RD
underwriting template for loan underwriting purposes.
3. Requirements and Statement of Work (SOW) for a CNA
Minimum requirements for a CNA acceptable to RD can be found in
Attachment B, Capital Needs Assessment Statement of Work. This is
supplemented by Attachment C, Fannie Mae Physical Needs Assessment
Guidance to the Property Evaluator. To resolve any inconsistency in the
two documents, Attachment B, the CNA SOW, will in all cases prevail
over Attachment C, Fannie Mae Physical Needs Assessment Guidance to the
Property Evaluator. (For example, on page C-2 of Attachment C, Fannie
Mae defines the ``term'' as ``term of the mortgage and two years
beyond''. For USDA, the ``term'' will be 20 years, as defined in the
CNA SOW.)
Attachment B includes the required qualifications for the CNA
Provider, the required SOW for a CNA assignment, and general
distribution and review instructions to the CNA Provider. The CNA
Providers must be able to report the current physical condition of the
property and not base their findings on the financial condition of
either the property or the CNA Recipient.
Attachment C is a three-part document RD has permission to use as
reference to the CNA process throughout the RD MFH program efforts. The
three key components of this Attachment are: (1) Guidance to the
property evaluator; (2) expected useful life tables; and (3) a set of
forms.
An acceptable CNA must appropriately address within the report and
narrative all Accessibility Laws and Requirements that apply to Section
515 and Sections 514/516 MFH properties. The CNA Provider must assess
how the property meets the requirements of accessibility to persons
with disabilities in accordance the Uniform Federal Accessibility
Standards (UFAS) and Section 504 Accessibility Requirements. It is the
responsibility of the Provider to inspect and verify whether all
accessibility features are compliant.
4. The CNA Review Process
A CNA used by RD will be reviewed by the designated RD CNA Reviewer
with experience in construction, rehabilitation, and repair of MFH
properties, especially as it relates to repair and replacement.
A CNA report must be obtained by the CNA Recipient from an
independent third-party CNA Provider that has no identity of interest
with the property owner, management agent, applicant/transferee or any
other principle or affiliate defined in 7 CFR part 3560, Sec. 3560.11.
The CNA Recipient will contract with the CNA Provider and is therefore
the client of the provider. However, the CNA Recipient must consult
with RD, before contracting with a CNA Provider to review Guidance
Regarding Contracting for a CNA. The RD CNA Reviewer will evaluate a
proposed agreement or engagement letter between the CNA Recipient and
the CNA Provider using Attachment G, Capital Needs Assessment Guidance
to the Reviewer, prior to reviewing any CNA report. Unacceptable CNA
proposals, contracts or reports will be returned to the CNA Recipient
for appropriate corrections before they will be used for any
underwriting determinations.
The CNA Reviewer will also review the cost of the CNA contract. The
proposed fee for the CNA must be approved as an eligible housing
project expense under 7 CFR 3560.103(c) for the agreement to be
acceptable and paid using project funds. In most cases, the CNA service
contract amount has not exceeded $3,500 based on the Agency's most
recent cost analysis.
Borrowers and applicants are encouraged to obtain multiple bids in
all cases. However, there is no Agency requirement to select the ``low
bidder'' under this UL and the CNA Recipient may select a CNA Provider
that will provide the best value, based on qualifications, as well as
price after reviewing references and past work.
If the CNA is funded by the property's reserve account, a minimum
of two bids is required if the CNA service contract amount is estimated
to exceed $5,000 as specified in HB-2-3560, Chapter 4, Paragraph 4.17
B. If the CNA contract under this UL is funded by another source, or
will be under $5,000, a single bid is acceptable.
If the proposed agreement is acceptable, the reviewer will advise
the appropriate RD servicing official, who will in turn inform the CNA
Recipient. If the proposed agreement is unacceptable, the reviewer will
notify the servicing official, who will notify the CNA Recipient and
the CNA Provider in writing and identify actions necessary to make the
proposed CNA agreement acceptable to RD. Upon receipt of a satisfactory
agreement, the RD CNA Reviewer should advise the appropriate RD
servicing official or underwriting official to accept the proposal.
The CNA Reviewer will review the preliminary CNA report submitted
to RD by the CNA Provider using Attachment D and write the preliminary
CNA review report. During the CNA
[[Page 23796]]
review process, the CNA Reviewer and underwriter will consult with the
servicing field office most familiar with the property for their input
and knowledge of the property. Any differences of opinion that exist
regarding the findings must be mutually addressed by RD staff. If
corrections are needed, the loan official will notify the CNA
Recipient, in writing, of any revisions necessary to make the CNA
report acceptable to RD. The CNA Reviewer will review the final CNA
report and deliver it to the loan official. The final report must be
signed by both the CNA Reviewer and the loan official (underwriter).
Upon signature by both, this report becomes the ``accepted'' CNA
indicating the actual condition of the property at the time of the CNA
inspection--a ``snapshot'' in time--and will be marked ``Current
Property Condition'' for indefinite retention in the borrower case
file.
A CNA Provider should be fully aware of the intended use for the
CNA because it can impact the calculations necessary to perform
adequate accessibility assessments and can impact the acceptability of
the report by RD. Unacceptable reports will not be used for any RD
underwriting purposes even though they may otherwise be acceptable to
the CNA Recipient or another third-party lender or participant in the
transaction being proposed.
5. Guidance Regarding Contracting for a CNA
CNA Recipients are responsible for choosing the CNA Provider they
wish to contract with, and for delivering an acceptable CNA to Rural
Development. RD in no way guarantees the performance any Provider nor
the acceptability of the Provider's work.
CNA Recipients are advised to request an information package from
several CNA Providers and to evaluate the information before selecting
a provider. At a minimum, the information package should include a list
of qualifications, a list of references, a client list, and a sample
CNA report. However, the CNA Recipient may request any additional
information they feel necessary to evaluate potential candidates and
select a suitable provider for this service. Consideration for the type
of CNA required should be part of the CNA Recipient's selection
criteria and inserted into the contract language as well. The necessary
skill set to perform the ``as-is'' versus the Post Rehabilitation CNA
or a LCCA needs to be considered carefully. Knowledge of the
accessibility laws and standards and the ability to read and understand
plans and specifications should also be among the critical skill
elements to consider.
Attachment A, Contract Addendum must be submitted to RD with the
contract and signed by the CNA Recipient and CNA Provider. The proposed
agreement with the CNA Recipient and CNA Provider must meet RD's
qualification requirements for both the provider and the CNA SOW, as
specified in Attachment B, Capital Needs Assessment Statement of Work.
RD must review the proposed agreement between the CNA Recipient and the
CNA Provider, and concur only if all of the RD requirements and
conditions are met. (See the previous Section 3 of this UL, The CNA
Review Process.)
Please note: It is in the CNA Recipient's best interest to furnish
the CNA Provider with the most current and up-to-date property
information for a more comprehensive and thorough CNA report. RD
recommends that the CNA Recipient conduct a pre-inspection meeting with
the Owner, Property Manager, maintenance persons familiar with the
property, CNA Provider, and Agency Representatives at the site. This
meeting will allow a forum to discuss specific details about the
property that may not be readily apparent to all parties involved
during the review process, as well as making some physical observations
on-site. Certain issues that may not be evident to the CNA Provider due
to weather conditions at the time of review should also be discussed
and included in the report. Additionally, other issues that may need to
be addressed include environmental hazards, structural defects, and
complex accessibility issues. It is imperative that the Agency be fully
aware of the current physical condition of the property at the time the
CNA is prepared. An Agency representative must make every effort to
attend the CNA Providers on-site inspection of the property unless the
Agency has performed a physical inspection of the property within the
previous 12 months.
This pre-inspection meeting also allows the CNA Provider to discuss
with the CNA Recipient total number of units to be inspected, as well
as identifying any specific units that will be inspected in detail. The
minimum number of inspected units required by the Agency for an
acceptable CNA is 50 percent. However, inspecting a larger number of
units generally provides more accurate information to identify the
specific line items to be addressed over the ``term'' being covered by
the CNA report. CNA Recipients are encouraged to negotiate with the CNA
Provider to achieve inspection of all units whenever possible. The
ultimate goal for the CNA Recipient and CNA Provider, as well as the
Agency, is to produce the most accurate ``baseline or snapshot'' of
current physical property conditions for use as a tool in projecting
future reserve account needs.
6. Revising an Accepted CNA During Underwriting (Applies to RD Actions)
During transaction underwriting and analysis, presentation of the
information contained in the ``accepted'' CNA may need to be revised by
RD to address financing and other programmatic issues. The loan
underwriter and the CNA Reviewer will work together to determine if
revisions are necessary to meet the financial and physical needs of the
property, and established RD underwriting or servicing standards and
principals. These may involve shifting individual repair line items
reported in the CNA, moving work from year to year, or other
adjustments that will improve cash flow. The revised underwriting CNA
will be used to establish reserve funding schedules as well as
operating budget preparation and analysis and will be maintained by RD
as supporting documentation for the loan underwriting.
The initial CNA, prepared by the CNA Provider, will be maintained
as an independent third- party record of the current condition of the
property at the beginning of the 20-year cycle.
Original CNAs will be maintained in the case file, clearly marked
as either ``Current Property Condition'' (``As-is''), ``Post
Rehabilitation Condition'', or ``Revised Underwriting/Replacement
Schedule'', as applicable. Note: The CNA Provider is not the
appropriate party to ``revise'' a CNA which has already been approved
by the CNA Recipient and concurred with by the Agency. The CNA
Provider's independent opinion was the basis of the ``As is'' or ``Post
Rehabilitation'' CNA. The CNA developed for underwriting may only be
revised by RD staff during the underwriting process or as part of a
post-closing servicing action.
7. Updating a CNA (Applies to ``As-is'' and ``Post-Rehabilitation''
That Have Not Been Accepted by RD)
A completed CNA more than a year old at the time of the RD CNA
review and approval must be ``updated' prior to RD approval. Likewise,
if at the time of underwriting the CNA is more than a year old (but
less than two years old), it must be updated before the transaction can
be approved.
To update a CNA, the CNA Provider must review property changes
(repairs, improvements, or failures) that have
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occurred since the date of the original CNA site visit with the CNA
Recipient, review costs and quantities, and submit an updated CNA for
approval. However, if the site visit for the CNA occurred more than two
years prior to the loan underwriting, the CNA Provider should perform a
new site visit to verify the current project condition.
Once the CNA has been updated, the CNA Provider will include a
statement noting ``This is an updated CNA of the earlier CNA dated
___,'' at the beginning of the CNA's Narrative section. The CNA
Provider should reprint the CNA with a new date for the updated CNA,
and provide a new electronic copy to the CNA Recipient and RD.
If the CNA age exceeds 2 years at the time of the RD CNA review and
approval, the CNA Provider will need to repeat the site visit process
to re-evaluate the condition of the property. The original report can
remain the basis of the findings.
8. Incorporating a Property's Rehabilitation Into a CNA
A CNA provides a repair schedule for the property in its present
condition, indicating repairs and replacements necessary for a property
to function properly and efficiently over a span of 20 years. It is not
an estimate of existing rehabilitation needs, or an estimate of
rehabilitation costs. If any rehabilitation of a MFH development is
planned as part of the proposed transaction, a rehabilitation repair
list (also called a ``Scope of Work'') must be developed independently
based on the CNA repair schedule. This rehabilitation repair list may
be developed by the CNA Recipient, a project Architect, or an outside
party (such as the CNA Provider, when qualified) hired by the CNA
Recipient.
The CNA Recipient must not use repair line-item costs taken from
the CNA to develop the rehabilitation cost estimates for the
rehabilitation loan, as these costs will not be accurate. The repair
costs in a CNA are based on estimated costs for the property.
Typically, these costs include the labor, materials, overhead and
profit, but do not include applicable ``soft costs''. For example, for
CNA purposes, the probable cost is to send a repairman out, remove an
appliance, and put a new one in its place. For rehabilitation cost
estimates, the CNA Recipient typically intends to hire a general
contractor to oversee and supervise the rehabilitation work, which is
then considered a ``soft cost''. The cost of rehabilitation includes
the costs for that general contractor, the general contractor's
requirements, the cost of a project Architect (if one is used), tenant
relocation (if needed), and interim financing (if used), which are
considered ``soft costs'' attributed to the rehabilitation costs for
the project.
If a ``Post Rehabilitation'' CNA is required and authorized by RD,
a copy of the rehabilitation repair list or SOW must be provided to the
CNA Provider. The CNA Provider will prepare a ``Post Rehabilitation''
CNA indicating what repairs are planned for the property in the coming
20 years based on conditions after the rehabilitation is completed.
Items to be replaced during rehabilitation that will need to be
replaced again within the 20 years, such as appliances, will be
included in the ``Post Rehabilitation'' CNA. Items that will not need
replacement during the coming 20 years, such as a new roof, will not
need to be calculated in the ``Post Rehabilitation'' CNA. The line item
should not be removed from the CNA, but the cost data should be zeroed
out. Appropriate comments should be included in the CNA report to
acknowledge the SOW or rehabilitation/repairs that were considered.
9. Repair and Replacement Schedule
A CNA is not a formal repair and replacement schedule and cannot be
used as an exact replacement schedule. A CNA is an estimate of the
anticipated replacement needs for the property over time, and the
associated replacement costs. The goal of a CNA is to estimate the
replacement times based on the Expected Useful Life (EUL) to assure
funds are available to replace equipment as it is needed. Hopefully,
materials will be well maintained and last longer than estimated in the
CNA. However, the CNA cannot be used to mandate replacement times for
the identified building components. The RD underwriter may find it
necessary to adjust the proposed replacement schedule during the course
of the underwriting to allow for an adequate Annual Deposit to
Replacement Reserves (ADRR) payment that will sustain the property over
a 20-year period and keep rents below the maximum rents that are
allowed.
BILLING CODE 3410-XV-P
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Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-08515 Filed 4-20-22; 8:45 am]
BILLING CODE 3410-XV-C
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</html>Indexed from Federal Register on April 21, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.