Rural Housing Service Issues Final Regs on Continuous Section 538 Guarantee

On January 3, 2011, the Rural Housing Service issued final regulations for the Section 538 guaranteed multifamily housing loan program that provide for a single, continuous guarantee for construction and permanent financing. The regulation went into effect on February 2, 2011.

The RHS currently offers two separate guarantees – one for the permanent loan and one for construction advances; these two types of guarantees will continue to be offered.

The new continuous guarantee option will be offered only to projects with a low loan-to- cost ratio, to be specified by the RHS in a Federal Register Notice. The program will require a construction contingency reserve of 2% of the construction contract, and the RHS may also require a lease-up reserve.

Developers interested in this new option should review the January 3 Federal Register notice carefully for full details on requirements.

Of course, all this is contingent on there actually being money for the 538 Program (see below.)