Rule2026-07618
Changes Related to Insurance Requirements in Multi-Family Housing (MFH) Direct Loan and Grant Programs
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 20, 2026
Effective
May 20, 2026
Issuing agencies
Agriculture DepartmentRural Housing Service
Abstract
The Rural Housing Service (RHS or the Agency), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), will implement changes related to insurance requirements under the Multi-Family Housing (MFH) Direct Loan and Grant programs. This final rule will align RD insurance coverage types, amounts, and deductibles with affordable housing industry standards to simplify the coverage amounts, deductible limits, and improve customer experience with updated and understandable insurance requirements.
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<title>Federal Register, Volume 91 Issue 75 (Monday, April 20, 2026)</title>
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[Federal Register Volume 91, Number 75 (Monday, April 20, 2026)]
[Rules and Regulations]
[Pages 20863-20868]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07618]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 91, No. 75 / Monday, April 20, 2026 / Rules
and Regulations
[[Page 20863]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3560
[Docket No. RHS-23-MFH-0019]
RIN 0575-AD29
Changes Related to Insurance Requirements in Multi-Family Housing
(MFH) Direct Loan and Grant Programs
AGENCY: Rural Housing Service, Department of Agriculture (USDA).
ACTION: Final rule.
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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural
Development (RD) agency of the United States Department of Agriculture
(USDA), will implement changes related to insurance requirements under
the Multi-Family Housing (MFH) Direct Loan and Grant programs. This
final rule will align RD insurance coverage types, amounts, and
deductibles with affordable housing industry standards to simplify the
coverage amounts, deductible limits, and improve customer experience
with updated and understandable insurance requirements.
DATES: This final rule is effective on May 20, 2026.
ADDRESSES: Other information: Additional information about RD and its
programs is available on the internet at <a href="https://www.rurdev.usda.gov">https://www.rurdev.usda.gov</a>.
FOR FURTHER INFORMATION CONTACT: Michael Resnik, Director, Multi-Family
Housing Asset Management Division, Rural Housing Service, United States
Department of Agriculture, 1400 Independence Avenue SW, Washington, DC
20250-0782, Telephone: (202) 430-3114 (this is not a toll-free number),
or email: <a href="/cdn-cgi/l/email-protection#7934101a11181c15572b1c0a171012390c0a1d18571e160f"><span class="__cf_email__" data-cfemail="97dafef4fff6f2fbb9c5f2e4f9fefcd7e2e4f3f6b9f0f8e1">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
The Rural Housing Service (RHS) offers a variety of programs to
build or improve housing and essential community facilities in rural
areas. RHS offers loans, grants, and loan guarantees for single and
multifamily housing, childcare centers, fire and police stations,
hospitals, libraries, nursing homes, schools, first responder vehicles
and equipment, and housing for farm laborers. RHS also provides
technical assistance loans and grants in partnership with non-profit
organizations, Indian tribes, state and Federal government agencies,
and local communities.
Title V of the Housing Act of 1949 (Act) authorized USDA to make
housing loans to farmers to enable them to provide habitable dwellings
for themselves or their tenants, lessees, sharecroppers, and laborers.
USDA then expanded opportunities in rural areas, making housing loans
and grants to rural residents through the Single-Family Housing (SFH)
and Multi-Family Housing (MFH) Programs.
RHS operates the MFH direct loan and grant programs by providing
direct loans or grants to affordable multi-family rental housing for
low income, elderly, disabled individuals and families, or domestic
farm workers in eligible rural areas. The programs are covered by the 7
CFR part 3560, Direct Multi-Family Housing Loans and Grants and are:
(1) Section 515, Rural Rental Housing loans, which finances multi-
family units in rural areas; (2) Section 514 and 516 Farm Labor Housing
loans and grants, which finances farm labor housing; and (3) Section
521, Rental Assistance, which finances project-based tenant rent
subsidy.
As required by the Agency under the 7 CFR part 3560, borrowers must
purchase and maintain property insurance on all buildings included as
security for an Agency loan, to avoid a non-monetary loan default.
Regulations require borrowers to provide fidelity coverage, liability
insurance and various other insurance coverage to protect against
losses or damages.
II. Summary of Public Comments Received and Agency Responses
Stakeholder input is vital to the Agency to ensure that the current
regulations will support the Agency's mission, while ensuring that new
regulations and policies are reasonable and do not overly burden the
Agency's lenders and its customers. The Rural Housing Service (RHS)
published a proposed rule in the Federal Register on October 25, 2023
(88 FR 73245) where a 60-day comment period was provided for the public
to submit comments, which closed on December 26, 2023. Commenters
included non-profit housing organizations, entities representing
housing providers, and private citizens. The Agency received nine (9)
comments from stakeholders and the general public. The Agency's
responses to the comments which have been summarized and categorized
are noted below:
Comments 1 & 2: Several commenters provided positive support for
the proposed considerations of the rule changes.
Agency's response: The Agency acknowledges the commenters' support.
Comment 3: Four commenters expressed concerns with the proposed
higher deductible limits adversely affecting smaller properties.
Agency's response: The Agency understands the concerns expressed by
the commenters regarding insurance deductible limits. The deductible
limits will be listed as not to exceed maximum limit; therefore, a
property can choose a deductible limit that is less than the maximum
limit specified in the proposed rule change.
Comment 4: Two commenters expressed concern regarding: (1) the
difficulty of windstorm deductibles to match the all-peril property
deductible limits; (2) the windstorm coverage premium cost being
prohibitive in many areas of the country; and, (3) the inclusion of
windstorm deductible limits in the same category as hazard coverage.
The commenters requested alternative language that would allow owners
to opt out of windstorm coverage when the cost is prohibitive.
Commenters also flagged that with coverage such as windstorm, which
varies widely based on geographical location, the coverage is often
based on a percentage of the building and may conflict with the blanket
requirements in the Final rule.
Agency's response: Due to the volume of windstorm events that occur
on an annual basis nationwide, the Agency concludes that windstorm
coverage is necessary to protect the Agency's security asset. The
Agency acknowledges the recommendation that the windstorm deductible
limit in the proposed rule limit may be cost prohibitive and could vary
based on
[[Page 20864]]
geographical locations, and the deductible is often based on a
percentage of the building value. Therefore, the current regulation at
7 CFR 3560.105(f)(9)(iii) which states that when windstorm coverage is
excluded from the ``All Risk'' policy, the deductible must not exceed
five percent of the total insured value, will remain unchanged.
Comment 5: One commenter requested that these policies apply to all
Rural Housing Service (RHS) programs. They urge RHS to include both the
direct and guaranteed loan programs in these updated requirements.
Agency's Response: The Agency appreciates the concern for insurance
requirements throughout all RHS programs. This Final rule applies only
to the RHS Multi-Family Housing Programs and the insurance requirements
in 7 CFR 3560.
Comment 6: One commenter requested that the Agency consider
business income loss insurance to be an optional type of insurance. The
commenter provided benefits and shortcomings of business income loss
insurance.
Agency's Response: The Agency appreciates the commenter's concern.
The Final Rule will still require business loss insurance as the Agency
believes that requiring business income insurance will provide
financial relief to the owners who suffer income loss due to damage or
destruction of their rental property.
Comment 7: One commenter expressed concerns about insurance
companies declaring bankruptcy and other insurance companies deciding
to discontinue offering insurance coverage in some states entirely as
the result of a catastrophic event or multiple catastrophic events.
Agency's Response: The Agency acknowledges the concern of the
overall lack of insurance companies who will provide coverage and the
general difficulty in obtaining insurance in some states where
catastrophic events have occurred. At the time of a catastrophic event,
when a property has incurred a total loss, and tenants have been
relocated under Agency relocation procedures, it may be in the Agency's
best interest to apply the insurance proceeds to the Agency's debt
rather than rebuilding and facing the difficulty of the property being
uninsured. As a result, in addition to the revision in the proposed
rule, this Final rule incorporates additional language into 7 CFR
3560.105(f)(7) for instances where the insurance proceeds will be
applied to the Agency's loan.
Comment 8: Two commenters urged a larger Federal response to
address the underlying issues causing the current vulnerability of the
insurance industry.
Agency's Response: The Agency understands this concern and will
continue to support a unified solution beyond the scope of this Final
rule.
Comment 9: One commenter suggested the RHS implement a waiver of
certain insurance deductible limits during times of increased rates by
the Federal Reserve to allow owners relief until rates stabilize and
fall.
Agency's Response: The Agency acknowledges the commenter's
suggestion for this modification. The Agency finds that the
implementation of such a waiver will adversely affect the interest of
the Federal Government, which is contrary to the Administrator's
exception authority noted in Sec. 3560.8.
III. Discussion of the Final Rule
The Agency has determined that the current regulations set forth at
7 CFR part 3560 contain outdated insurance requirements. Stakeholders
and affordable housing industry advocates have stressed the need for
changes and updates to the RD multifamily housing insurance
requirements. The current insurance coverage amounts, and deductible
limits were established in 2004 when the interim Final rule was
published on November 26, 2004, in the Federal Register (69 FR 69031).
This rule is necessary to update the RD multifamily housing insurance
coverage amounts and deductible limits from those established in 2004
to the current dollar value. The rule will modernize the RD multifamily
housing insurance coverage requirements, amounts, and deductible limits
to align with the affordable housing industry practices.
Insurance premiums, including those for hazard/property insurance
required by the Agency, are increasing due to changes in the insurance
industry, such as the increasing of insurance rates in part due to
increased catastrophic or significant weather related events. Agency
stakeholders are expected to benefit from the Final rule changes
through lower insurance premiums and more flexibility in choices of
coverage and deductibles. The current low-deductible limits result in
higher premiums. By allowing higher deductible limits, the Final rule
will provide flexibility to the owner to select a deductible that can
lower the premium costs.
When a disaster occurred and the coverage was less than the
industry standard of 80 percent of replacement cost value, the Agency
has seen the loss of needed multifamily housing properties. Due to
insufficient coverage amounts, properties have not been able to be
rebuilt and the communities in need of affordable housing have lost
housing units. For example, an 85-unit property was a total loss as a
result of a naturally declared disaster. Insurance proceeds per the
current regulation requirement covered the remaining balance of the
Agency loan but were insufficient to rebuild, resulting in the total
loss of 85 affordable housing units from the community. This Final rule
is intended to assist stakeholders by providing the financial capacity
to build-back needed affordable housing units. Rural communities will
benefit and be able to maintain affordable housing units.
The Agency believes that the changes made by this Final rule will
provide a streamlined process and positive customer experience while
creating a stronger, more resilient portfolio of properties, improved
oversight of critical areas, and a reduction of portfolio financial
risk by providing consistent coverage amounts and deductible limits.
IV. Summary of Final Rule Changes
Changes as Published in the Proposed Rule and as a Result of Public
Comments
The following changes to 7 CFR 3560 as proposed in the published
proposed rule, and updated based on public comments received by the
Agency during the proposed rule public comment period are as follows:
7 CFR 3560, Subpart A
(1) In Sec. 3560.4(b), the Agency is removing the reference to 7
CFR part 1806, subpart B--National Flood Insurance. The flood insurance
requirement for the covered programs is required in Sec. 3560.105.
7 CFR 3560, Subpart B
(2) In Sec. 3560.62 paragraph(d), the Agency is updating the
current format to be more reader friendly and adding changes that would
require Worker's Compensation insurance and business income insurance.
The Worker's Compensation insurance requirement would implement current
Agency policy. The business income insurance requirement would provide
protection and financial relief to borrowers who suffer income loss due
to damage or destruction at their rental property.
7 CFR 3560, Subpart C
(3) The Agency will update the insurance coverages and deductible
requirements for the MFH Direct Loan and Farm Labor Housing programs to
[[Page 20865]]
the current dollar values. The Agency's research for the updates
include a review of data from other federal housing agencies such as
Housing and Urban Development (HUD) and Freddie Mac, coupled with state
agencies and private sector affordable housing data. This data is used
by the Agency as an indicator of industry standards for the insurance
requirements.
Adding Worker's Compensation insurance and Business Income
insurance requirements is consistent with housing industry standards
and is consistent with the change for 7 CFR part 3560.62(d), which will
require Worker's Compensation insurance and Business Income insurance
before loan funds are made available to the borrower in addition to the
current insurance requirements.
The Final rule will update Sec. 3560.105 as follows:
(i) Update language in paragraph (b)(1) to state that insurance is
required, on or prior to loan or grant closing rather than prior to
loan approval. Also, update language to clarify when insurance is
required if there is interim financing or the Agency is providing
multiple loan advances.
(ii) Update paragraph (b)(4) to state that the Agency must be named
as loss co-payee or mortgagee, regardless of lien position, which
provides consistency with Agency subordination agreement documents.
(iii) Update paragraph (c)(4) to state that insurance is required
on or prior to loan or grant closing rather than prior to loan
approval. This is consistent with the final change to Sec.
3560.105(b)(1).
(iv) Include windstorm coverage in the general types of coverage as
noted in hazard insurance in paragraph (f)(1)(i). And add a caveat to
(f)(2)(i) that windstorm coverage is an other type of insurance the
Agency may require when it is specifically excluded from the All-Risk
policy. This is consistent with current hazard (or property) insurance
industry standard.
(v) Update paragraph (f)(1)(iii) to include the amount of coverage
requirement to provide consistency with current Agency policy.
(vi) Add paragraph (f)(1)(v) to include business income loss
insurance in the list of minimum property insurance that borrowers must
acquire. This change is consistent with the final change for 7 CFR part
3560.62(d).
(vii) Update paragraph (f)(3) from a depreciated replacement value
or unpaid loan balance, to a ``not less than a percentage of insurable
replacement cost value,'' which is a percentage that is consistent with
affordable housing industry standards for the minimum property
insurance coverage.
(viii) Remove paragraph (f)(3)(ii) because its intent is
duplicative of paragraph (f)(3)(i). Paragraph (f)(3)(iii) will be
redesignated to the new (ii) and revise the minimum flood insurance
coverage to the lesser of, not less than a percentage of insurable
replacement cost value, or maximum amount of insurance available under
the National Flood Insurance Act, which is consistent with affordable
housing industry standards.
(ix) Update the language in paragraph (f)(4) to consolidate the
relevant content of this paragraph and remove the sub-bullet content
that references depreciated replacement value which is no longer
relevant.
(x) Update the language in paragraph (f)(7) by adding an additional
option for insurance settlement claims to be placed in an other
supervised account or applied to Agency debt.
(xi) Update the language in paragraph(f)(9)(i)(A) through (B) and
adding a paragraph (C) to the hazard/property insurance deductible
limits to a ``not to exceed'' amount that is based on the coverage
amount, instead of the current deductible calculation formula. The
current Agency limitations on the deductible limit contribute to rising
premium costs for the project. This change will allow for larger
deductible limits which in turn will make the project's insurance
premiums more affordable.
(xii) Update the language in paragraph (f)(9)(iv) regarding the
earthquake deductible limit to allow deductibles that do not exceed 20
percent of the coverage amount. This will increase the deductible limit
and align the deductible with affordable housing industry standards.
(xiii) Add new paragraph (f)(11) to include policy requirements for
cancellation, standard form of Non-Contribution Mortgage Clause, and
loss payee.
(xiv) Revise language in paragraph (h)(2)(ii) by removing the
fidelity coverage deductible chart and replacing it with a new
deductible limit based on a ``not to exceed amount.'' Also, revising
the fidelity coverage amount to a specific percentage of proposed
annual rental income with a minimum limit, instead of the Agency's
current policy of a formula based calculation. This change will
simplify the coverage calcuation, align the coverage amount and
deductible limit with affordable housing industry standard, create
consistency among insurance deductibles, and in turn make it easier for
the borrower to be in compliance with insurance requirements.
(xv) Update to the definition of worker's compensation insurance
based on industry standards will be added and becomes paragraph (i).
The current paragraph (i) (Taxes) will become paragraph (j).
V. Regulatory Information
Statutory Authority
Title V the Housing Act of 1949 (42 U.S.C. 1480 et. seq.), as
amended, authorizes the Secretary of the Department of Agriculture to
promulgate rules and regulations as deemed necessary to carry out the
purpose of that title, as implemented under 7 CFR part 3560.
Executive Orders and Acts
Executive Order 12372, Intergovernmental Review of Federal Programs
These loans and grants are subject to the provisions of Executive
Order 12372, which requires intergovernmental consultation with state
and local officials. RHS conducts intergovernmental consultations for
each loan and grants in accordance with 2 CFR part 415, subpart C.
Executive Order 12866, Regulatory Planning and Review
This final rule has been determined to be non-significant and,
therefore, was not reviewed by the Office of Management and Budget
(OMB) under Executive Order 12866.
Executive Order 12988, Civil Justice Reform
This final rule has been reviewed under Executive Order 12988. In
accordance with this rule: (1) Unless otherwise specifically provided,
all state and local laws that conflict with this rulemaking will be
preempted; (2) no retroactive effect will be given to this rulemaking
except as specifically prescribed in the rule; and (3) administrative
proceedings of the National Appeals Division of the Department of
Agriculture (7 CFR part 11) must be exhausted before suing in court
that challenges action taken under this rulemaking.
Executive Order 13132, Federalism
The policies contained in this Final rule do not have any
substantial direct effect on States, on the relationship between the
National Government and the States, or on the distribution of power and
responsibilities among the various levels of Government. This Final
rule does not impose substantial
[[Page 20866]]
direct compliance costs on State and local Governments; therefore,
consultation with States is not required.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This Final rule has been reviewed in accordance with the
requirements of Executive Order 13175, Consultation and Coordination
with Indian Tribal Governments. Executive Order 13175 requires Federal
agencies to consult and coordinate with tribes on a government-to-
government basis on policies that have tribal implications, including
regulations, legislative comments or proposed legislation, and other
policy statements or actions that have substantial direct effects on
one or more Indian tribes, on the relationship between the Federal and
Indian tribes or on the distribution of power and responsibilities
between the Federal government and Indian tribes. Consultation is also
required for any regulation that preempts tribal law or that imposes
substantial direct compliance costs on Indian tribal governments and
that is not required by statute.
The Agency has determined that this Final rule does not, to our
knowledge, have tribal implications that require formal tribal
consultation under Executive Order 13175. If a Tribe requests
consultation, the RHS will work with the Office of Tribal Relations to
ensure meaningful consultation is provided where changes, additions and
modifications identified herein are not expressly mandated by Congress.
National Environmental Policy Act
In accordance with the National Environmental Policy Act of 1969,
Public Law 91-190, this Final rule has been reviewed in accordance with
7 CFR part 1b (``National Environmental Policy Act''). The Agency has
determined that i) this action meets the criteria established in 7 CFR
1b.4(c)(31) and ii) no extraordinary circumstances exist. Therefore,
the Agency has determined that the action does not have a significant
effect on the human environment, and therefore neither an Environmental
Assessment nor an Environmental Impact Statement is required.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally
requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act (``APA'') or any other statute. The
Administrative Procedures Act exempts from notice and comment
requirements rules ``relating to agency management or personnel or to
public property, loans, grants, benefits, or contracts'' (5 U.S.C.
553(a)(2)), so therefore an analysis has not been prepared for this
rule.
Unfunded Mandates Reform Act (UMRA)
Title II of the UMRA, Public Law 104-4, establishes requirements
for Federal agencies to assess the effects of their regulatory actions
on state, local, and tribal governments and on the private sector.
Under section 202 of the UMRA, Federal agencies generally must prepare
a written statement, including cost-benefit analysis, for proposed and
Final rules with ``Federal mandates'' that may result in expenditures
to state, local, or tribal governments, in the aggregate, or to the
private sector, of $100 million or more in any one year. When such a
statement is needed for a rule, section 205 of the UMRA generally
requires a Federal Agency to identify and consider a reasonable number
of regulatory alternatives and adopt the least costly, most cost-
effective, or least burdensome alternative that achieves the objectives
of the rule.
This final rule contains no Federal mandates (under the regulatory
provisions of title II of the UMRA) for State, local, and tribal
Governments or for the private sector. Therefore, this rule is not
subject to the requirements of sections 202 and 205 of the UMRA.
Paperwork Reduction Act
The information collection requirements contained in this
regulation have been approved by OMB and have been assigned OMB control
number 0575-0189. This final rule contains no new reporting and
recordkeeping requirements that would require approval under the
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).
E-Government Act Compliance
Rural Development is committed to the E-Government Act, which
requires Government agencies in general to provide the public the
option of submitting information or transacting business electronically
to the maximum extent possible and to promote the use of the internet
and other information technologies to provide increased opportunities
for citizen access to Government information and services, and for
other purposes.
Civil Rights Impact Analysis
This final rule was reviewed in accordance with USDA Regulation
4300-004, ``Civil Rights Impact Analysis,'' to identify any major civil
rights impacts the final rule might have on program participants on the
basis of age, race, religion, color, national origin, sex, disability,
marital status, or familial status. Based on the results of the review
and analysis of the proposed rule and all available data, issuance of
this final rule is not likely to negatively impact any group identified
by protected group status.
Severability
It is USDA's intention that the provisions of this rule shall
operate independently of each other. In the event that this rule or any
portion of this rule is ultimately declared invalid or stayed as to a
particular provision, it is USDA's intent that the rule nonetheless be
severable and remain valid with respect to those provisions not
affected by a declaration of invalidity or stayed. USDA concludes it
would separately adopt all of the provisions contained in this final
rule.
Assistance Listing
The programs affected by this regulation are listed in the
Assistance Listing Catalog (formerly Catalog of Federal Domestic
Assistance) under numbers 10.405 and, 10.415.
Non-Discrimination Statement
In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Agencies, offices, and employees, and institutions participating in or
administering USDA programs are prohibited from discriminating based on
race, color, national origin, religion, sex, disability, age, marital
status, family/parental status, income derived from a public assistance
program, political beliefs, or reprisal or retaliation for prior civil
rights activity, in any program or activity conducted or funded by USDA
(not all bases apply to all programs). Remedies and complaint filing
deadlines vary by program or incident.
Persons with disabilities who require alternative means of
communication for program information (e.g., Braille, large print,
audiotape, American Sign Language, etc.) should contact the State or
local Agency that administers the program or contact USDA through the
Telecommunications Relay Service at 711 (voice and TTY). Additionally,
program information may be made available in languages other than
English.
[[Page 20867]]
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at <a href="https://www.usda.gov/sites/default/files/documents/ad-3027.pdf">https://www.usda.gov/sites/default/files/documents/ad-3027.pdf</a> and at any USDA
office or write a letter addressed to USDA and provide in the letter
all of the information requested in the form. To request a copy of the
complaint form, call (866) 632-9992. Submit your completed form or
letter to USDA by: (1) mail: U.S. Department of Agriculture, Office of
the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW,
Mail Stop 9410, Washington, DC 20250-9410; (2) fax: (202) 690-7442; or
(3) email: <a href="/cdn-cgi/l/email-protection#97e7e5f8f0e5f6fab9fef9e3f6fcf2d7e2e4f3f6b9f0f8e1"><span class="__cf_email__" data-cfemail="7f0f0d10180d1e125116110b1e141a3f0a0c1b1e51181009">[email protected]</span></a>.
List of Subjects in 7 CFR Part 3560
Accounting, Administrative practice and procedure, Aged, Conflict
of interest, Government property management, Grant programs--housing
and community development, Insurance, Loan programs--agriculture, Loan
programs--housing and community development, Low- and moderate-income
housing, Migrant labor, Mortgages, Nonprofit organizations, Public
housing, Rent subsidies, Reporting and recordkeeping requirements,
Rural areas.
For the reasons set forth in the preamble, RHS amends 7 CFR part
3560 as follows:
PART 3560--DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS
0
1. The authority citation for part 3560 continues to read as follows:
Authority: 42 U.S.C. 1480.
Subpart A--General Provisions and Definitions
0
2. Amend Sec. 3560.4 by revising paragraph (b) to read as follows:
Sec. 3560.4 Compliance with other Federal requirements.
* * * * *
(b) National flood insurance. The National Flood Insurance Act of
1968, as amended by the Flood Disaster Protection Act of 1973; and the
National Flood Insurance Reform Act of 1994.
* * * * *
Subpart B--Direct Loan and Grant Origination
0
3. Amend Sec. 3560.62 by revising paragraph (d) to read as follows:
Sec. 3560.62 Technical, legal, insurance, and other services.
* * * * *
(d) Insurance. Applicants must meet the property, liability, flood,
Worker's Compensation, business income loss, and fidelity insurance
requirements in Sec. 3560.105.
(1) Applicants must have property and liability coverage at loan
closing as well as flood insurance, if required by the Agency.
(2) Fidelity coverage must be in force as soon as there are assets
within the organization, and it must be obtained before any loan funds
or interim financing funds are made available to the borrower.
(3) If the property has permanent and/or part-time employees
assigned directly to the project, Worker's Compensation, also known as
employer's liability coverage, must be obtained before interim
financing funds are made available to the borrower, or prior to loan or
grant closing, whichever occurs first.
(4) Upon completion of construction or rehabilitation of the
project, or any portion thereof that allows for occupancy, the Owner
shall obtain business income loss insurance.
* * * * *
Subpart C--Borrower Management and Operations Responsibilities
0
4. Amend Sec. 3560.105 by:
0
a. Revising paragraphs (b)(1) and (4), (c)(4), and (f)(1)(i) and (iii);
0
b. Adding paragraph (f)(1)(v);
0
c. Revising paragraphs (f)(2)(i), (f)(3) introductory text, and
(f)(3)(ii);
0
d. Removing paragraph (f)(3)(iii);
0
e. Revising paragraphs (f)(4) and (7) and (f)(9)(i) and (iv);
0
f. Adding paragraph (f)(11);
0
g. Revising paragraph (h)(2)(ii);
0
h. Redesignating paragraph (i) as paragraph (j); and
0
i. Adding a new paragraph (i).
The revisions and additions read as follows:
Sec. 3560.105 Insurance and taxes.
* * * * *
(b) * * *
(1) On or prior to the date of loan or grant closing, applicants
must provide documentary evidence that insurance requirements have been
met. The borrower must maintain insurance in accordance with the
requirements of their loan or grant documents and this section until
the loan is repaid or the terms of the grant expire. If interim
financing is obtained or the Agency provides for multiple advances for
construction or rehabilitation, evidence of builder's risk insurance is
required prior to the start of construction or rehabilitation.
* * * * *
(4) The Agency must be named as loss co-payee or mortgagee as it
appears on all property insurance policies.
(c) * * *
(4) If the best insurance policy a borrower can obtain at the time
the borrower receives the loan or grant contains a loss deductible
clause greater than that allowed by paragraph (f)(9) of this section,
the insurance policy and an explanation of the reasons why more
adequate insurance is not available must be submitted to the Agency for
approval prior to the date of loan or grant closing.
* * * * *
(f) * * *
(1) * * *
(i) Hazard insurance. A policy which generally covers loss or
damage by fire, smoke, lightning, windstorms, hail, explosion, riot,
civil commotion, aircraft, and vehicles. These policies may also be
known as ``Property Insurance,'' ``Fire and Extended Coverage,''
``Homeowners,'' ``All Physical Loss,'' or ``Broad Form'' policies.
* * * * *
(iii) Builder's risk insurance. A policy that insures 100 percent
of the estimated cost value of the project under construction or
rehabilitation, or applicable State required coverage limits, if more
stringent.
* * * * *
(v) Business income loss. Business income or rent loss coverage
provides coverage for the loss of rental income incurred due to a
property loss during a 12-month period.
(2) * * *
(i) Windstorm Coverage if specifically excluded from the All-Risk
policy.
* * * * *
(3) For property insurance, the minimum coverage amount must equal
the ``Total Estimated Reproduction Cost of New Improvements,'' as
reflected in the housing project's most recent appraisal. At a minimum,
property insurance coverage must not be less than 80 percent of the
insurable replacement cost value, unless such coverage is financially
unfeasible for the housing project, as determined by the Agency.
* * * * *
(ii) When required by paragraph (f)(1) of this section, the
coverage amount for flood insurance must not be less than 80 percent of
the insurable replacement value, or the maximum amount of insurance
available with respect to the project under the National Flood
Insurance Act, whichever is less. The policy shall show the Owner as
insured and shall show loss, if any, payable to the United States of
America acting
[[Page 20868]]
through the Rural Housing Service or its successor agency.
(4) Except for flood insurance, property insurance is not required
if the housing project is in a condition which the Agency determines
makes insurance coverage not economical.
* * * * *
(7) When the Agency is in the first lien position and an insurance
settlement represents a satisfactory adjustment of a loss, the
insurance settlement will be deposited in the housing project's general
operating account unless the settlement exceeds $5,000. If the
settlement exceeds $5,000, the funds will be placed in the reserve
account or other supervised account for the housing project.
(i) Insurance settlement funds which remain after all repairs,
replacements, and other authorized disbursements have been made retain
their status as housing project funds.
(ii) If the indebtedness secured by the insured property has been
paid in full or the insurance settlement is in payment for loss of
property on which the Agency has no claim; a loss draft which includes
the Agency as co-payee may be endorsed by the Agency without recourse
and delivered to the borrower.
(iii) The Agency will apply the insurance proceeds to the Agency
debt when the following occurs:
(A) The Agency is in the first lien position;
(B) The multifamily housing property has been deemed a total loss
by the insurance company, such as a catastrophic event beyond the
Borrower's control;
(C) All units are vacant and non-habitable; and
(D) The tenants who occupied the property at the time of the
catastrophic event have been relocated to other housing units under the
Agency's disaster procedure process.
* * * * *
(9) * * *
(i) Hazard/property insurance. (A) For a project with less than or
equal to $1,000,000 of coverage, no deductible greater than $10,000 per
occurrence.
(B) For a project with more than $1,000,000 but less than or equal
to $2,000,000 of coverage, no deductible greater than $25,000 per
occurrence.
(C) For a project with more than $2,000,000 of coverage, no
deductible greater than $50,000 per occurrence.
* * * * *
(iv) Earthquake coverage. If the borrower obtains earthquake
coverage, the Agency is to be named as a loss payee. The deductible
should be no more than 20 percent of the coverage amount.
* * * * *
(11) Each policy shall meet the following requirements:
(i) Policy may not be cancelled or modified without at least thirty
(30) days prior written notice to the Agency (the clause shall not
state that the insurer will ``endeavor'' to send such notice or that no
liability attaches to the insurer for failure to send such notice).
(ii) Policy shall provide that any loss otherwise payable
thereunder shall be payable notwithstanding any act or negligence of
Borrower which might, absent such agreement, result in a forfeiture of
all or part of such insurance payment.
(iii) Such insurance policies shall name the Owner as the Insured
and shall carry a standard form of Non-Contribution Mortgage Clause
showing loss or damage, if any, payable to the Owner and the ``United
States of America acting through the Rural Housing Service or its
successor agency,'' as its interest may appear.
* * * * *
(h) * * *
(2) * * *
(ii) Fidelity coverage amount and deductible as follows:
(A) Coverage amount. An amount at least equal to 25 percent of the
operational cash sources per the project's proposed annual budget or
$50,000 whichever is greater, unless greater amounts are required by
the Owner. Where the operational cash sources for a project are
substantially below the minimum $50,000 bonding requirement for
operation, with Agency approval, the bond may be reduced to an amount
sufficient to cover at least 25 percent of the operational cash
sources.
(B) Deductible. No greater than $15,000 per occurrence.
* * * * *
(i) Workers' compensation insurance. This insurance coverage, which
may also be known as employer's liability coverage, provides benefits
to employees who suffer work-related injuries or illnesses. Workers'
compensation insurance is required for permanent and part-time staff
assigned directly to the project.
* * * * *
George Kelly,
Administrator, Rural Housing Service.
[FR Doc. 2026-07618 Filed 4-17-26; 8:45 am]
BILLING CODE 3410-XV-P
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</html>Indexed from Federal Register on April 20, 2026.
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.