Foote, Bruce E.

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Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RS22301October 18, 2005Rural Housing: USDA Disaster Relief ProvisionsBruce E. FooteAnalyst in HousingDomestic Social Policy DivisionSummaryWhen disasters occur, such as Hurricane Katrina, the U.S. Department ofAgriculture (USDA) provides housing relief to residents of the affected areas in generaland to affected participants in the various USDA rural housing programs. This reportprovides an overview of those housing relief efforts.  Assistance can be placed in threebroad categories:  (1) relief for homeowners and homebuyers; (2) relief for apartmentdwellers; and (3) and relief for multi-family property owners.For Section 521 rental assistance allocated to housing made uninhabitable byHurricane Katrina or Hurricane Rita, H.R. 3895, as passed by the House on October 6,2005, would amend the Housing Act of 1949 to permit the conversion of the rentalassistance into either Section 8 vouchers or rural housing vouchers.  The bill wouldamend the law to permit Section 502 guarantee loans to be used for the repair orrehabilitation of existing properties.This report will be updated as suggested by regulatory or legislative changes.Title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.), as amended, authorizesthe U.S. Department of Agriculture (USDA) to administer several programs whichprovide housing opportunities to residents of rural areas.  The programs are  administeredby the Rural Housing Service (RHS) and the programs are generally referred to by thesection number under which they are authorized in the Housing Act of 1949.When disasters occur, such as Hurricane Katrina, the USDA provides housing reliefto residents of the affected areas in general and to affected participants in the variousUSDA rural housing programs.  The relief can be placed in three broad categories:  (1)relief for homeowners and homebuyers; (2) relief for apartment dwellers; (3) and relieffor multi-family property owners.  In general, USDA assistance is only available if fundsfrom the Federal Emergency Management Agency (FEMA), the Small BusinessAdministration, other agencies, or insurers are inadequate to meet the housing needs ofaffected rural residents.CRS-2Relief for Homeowners and HomebuyersUSDA has authority to finance the purchase or repair of single-family housing underSections 502 and 504 of the Housing Act of 1949.Section 502.  Under the Section 502 program, qualified applicants may obtainloans for the purchase or repair of new or existing single-family housing in rural areas.Borrowers may either obtain direct loans from USDA or obtain loans from private lenderswhich are guaranteed by USDA.Borrowers with income of 80% or less of the area median may be eligible for thedirect Section 502 loans and may receive interest credit to reduce the interest rate to aslow as 1%.  The direct loans may be used to purchase existing homes, to repair homes thatare already owned, or to construct new homes.  Borrowers with income of up to 115%of the area median may obtain USDA-guaranteed loans from private lenders.  GuaranteedSection 502 loans may only be used to purchase existing dwellings or to construct newhomes.  Priority is given to first-time homebuyers, and USDA may require that borrowerscomplete a homeownership counseling program.Historically, about 98% of the loans have been used for home purchases.  The homesto be financed must be “modest” in cost and design and must be located in rural areasserviced by the USDA.  To be eligible for a Section 502 loan, a borrower must have themeans to repay the loan but be unable to secure reasonable credit terms elsewhere.After a presidentially-declared disaster, borrowers are eligible for a six-monthmoratorium on mortgage payments if they live in the disaster area and  have direct Section502 loans from the USDA.  If necessary, the moratorium may be extended, but themoratorium may not exceed two years.  Interest will continue to accrue on the unpaid loanbalance during the moratorium.  Upon resumption of scheduled payments the loan is tobe re-amortized to include the amount deferred.  After adjusting for any interest ratesubsidy available to the borrower, all or part of the interest accrued during the moratoriummay be forgiven to the extent that the new mortgage payment would exceed theborrower’s ability to pay.Borrowers whose homes have been damaged by the disaster may also be eligible fornew Section 502 loans to pay for needed repairs.The USDA has no direct control over the actions of lenders that participate in itshousing programs.  In cases of presidentially-declared disasters, the USDA sends a letterto lenders who hold USDA-guaranteed Section 502 loans, and asks that such lenderscease foreclosures and offer payment forbearance to Section 502 borrowers who live inthe disaster areas.Section 504.  Under the Section 504 program, rural homeowners with incomes of50% or less of the area median may qualify for USDA direct loans to repair their homes.The proceeds must be used to remove identified health and safety hazards or to remodelthe dwellings to make them accessible and useable for household members withdisabilities.  Loans are limited to $20,000.  Owners who are age 62 or more may qualifyfor grants of up to $7,500 to pay for the needed home repairs.  To qualify for the grants,the elderly homeowners must lack the ability to repay the full cost of the repairs.CRS-3Depending on the cost of the repairs and the income of the elderly homeowner, the ownermay be eligible for a grant for the full cost of the repairs or for some combination of aloan and a grant which covers the repair costs.  The combination loan and grant may totalno more than $27,500.  As with the Section 502 program, borrowers with Section 504 loans are eligible fora six-month payment moratorium if the mortgaged property is within a presidentially-declared disaster area.  The loans are reamortized upon resumption of mortgage payments.Borrowers may also be eligible for new Section 504 loans to pay for damage caused bythe disaster.Rental Housing Preference as Displaced Tenants.  Homeowners who aremade homeless as a result of a presidentially-declared disaster, and who are borrowersunder the Section 502 program (either direct or guaranteed) or the Section 504 program(either loans or grants), are eligible for occupancy nationwide as “displaced tenants” atany USDA-financed multi-family housing projects. They are given a letter of priorityeligibility (LOPE), which moves them to the top of waiting lists for vacancies in otherproperties.  The LOPE is good for 120 days.  After 120 days the family may remain on thewaiting list but without priority.  An expedited placement process waives maximumincome limits, security deposits, and credit checks; streamlines month-to-month leasingprocedures; and institutes telephone background checks.Relief for Apartment RentersUSDA has authority to finance multi-family housing under Sections 514, 515, 516,and 538 of the Housing Act of 1949.  Section 521 of the act provides authority to offerrental assistance to low-income renters who reside in USDA-financed rental housing.Section 515.  Under the Section 515 program, USDA is authorized to make directloans for the construction of rural rental and cooperative housing.  Except for publicagencies, all borrowers must demonstrate that financial assistance from other sources willnot enable the borrower to provide the housing at terms that are affordable to the targetpopulation.  The funds may also be used to buy and improve land and to providenecessary facilities such as water and waste disposal systems. Section 514 and Section 516.  Under the Section 514 program, USDA isauthorized to make direct loans for the construction of housing and related facilities forfarm workers.  The loans are repayable in 33 years and bear an interest rate of 1%.  Exceptfor state and local public agencies or political subdivisions, the applicants must be unableto obtain financing from other sources that would enable the housing to be affordable bythe target population.  Under the Section 516 program, USDA is authorized to makegrants of up to 90% of the development cost to nonprofit organizations and public bodiesseeking to construct housing and related facilities for farm workers.  Applicants mustdemonstrate  a “pressing need” in the area for the housing and show there is reasonabledoubt that it can be provided without the grant.  The remaining 10% of the cost may befrom the applicant’s own resources, from other sources, or from Section 514 loans.Section 521.  Under the Section 521 program, the USDA is authorized to makerental assistance payments to owners of rental housing (Sections 515 or 514) to enableeligible tenants to pay no more than 25% of their income in rent.  The rental assistanceCRS-4payments, which are to be made directly to the property owners, are to make up thedifference between the tenants’ payments and the USDA-approved rent for the units.Owners must agree to operate the property on a limited profit or nonprofit basis.For residents receiving Section 521 rental assistance in units made uninhabitable bya presidentially-declared disaster, USDA permits  the transfer of the rental assistance toanother eligible Section 514 or Section 515 apartment complex.  The transfer must beagreed to by all parties and be designed for the return of the residents and the rentalassistance to the original complex and unit after the property has been restored.  If thetenant chooses to stay instead of returning to the original complex, the tenant will not beassured rental assistance,  and the owner would charge an appropriate rent based on anysubsidy available to that property.Section 538.  Under the Section 538  program, borrowers may obtain loans fromprivate lenders to finance multifamily housing, and USDA guarantees to pay for thelender losses in case of borrower default.  Section 538 guaranteed loans may be used forthe development costs of housing and related facilities that (1) consist of five or moreadequate dwelling units, (2) are available for occupancy only by renters whose income attime of occupancy does not exceed 115% of the median income of the area, (3) wouldremain available to such persons for the period of the loan, and (4) are located in a ruralarea.Rental Housing Preference as Displaced Tenants.  Residents of Section 515Section 514, Section 516 and Section 538 housing, who are made homeless as a result ofa presidentially-declared disaster, are eligible for occupancy nationwide as “displacedtenants” at any USDA-financed multi-family housing projects.  They are to be given aletter of priority eligibility (LOPE), which moves them to the top of waiting lists forvacancies in other properties.  The LOPE letter is good for 120 days.  After 120 days thefamily may remain on the waiting list but without priority.  Documentation of beingregistered with FEMA may be used in lieu of a LOPE letter.  An expedited placementprocess waives maximum income limits, security deposits, and credit checks; streamlinesmonth-to-month leasing procedures; and institutes telephone background checks.Relief for Multi-Family Property Owners Owners of Section 514 and Section 515 properties in disaster areas are to be givena 90-day moratorium on mortgage payments.  Applicants must meet two conditions toqualify:  (1) have properties in the areas designated as disasters, and (2) provideverification that the damage to the property was a direct result of the disaster.  At the endof the moratorium the loan may be reamortized, the loan may be refinanced, or USDAmay enter a  work-out plan with the borrowers.The USDA is to send letters to lenders holding Section 538 loans, suggesting thatthe lenders offer similar forbearance to Section 538 borrowers in disaster areas. CRS-5Legislation in the 109th CongressThe Rural Housing Hurricane Relief Act of 2005 (H.R. 3895), as passed by theHouse on October 6, 2005, would amend the Housing Act of 1949 to provide ruralhousing assistance to families affected by Hurricane Katrina or Hurricane Rita.Section 541 of the National Housing Act provides that, in cases of presidentially-declared disasters, the USDA must allocate disaster assistance to affected states for usein counties designated as disaster areas and to counties contiguous to such counties.Allocations may be made over three fiscal years beginning on the date of the declaration.In general the funds may be used for any of USDA’s authorized housing purposes.  Localgovernments, their agencies, and nonprofit organizations may use the funds for theconstruction or rehabilitation of housing for agricultural workers.As passed, H.R. 3895 would amend Section 541 such that it only applied to countiesdesignated as disaster areas in connection with Hurricane Katrina or Hurricane Rita,counties contiguous to such counties, and individuals residing in these counties at the timeof the disaster.  For Section 514 or Section 515 properties in these areas that had beenallocated Section 521 rental assistance, and which had become uninhabitable because ofthe disaster, the USDA would have the option of converting the Section 521 rentalassistance into either Section 8 vouchers or rural housing vouchers.  Affected tenantswould be able to use the vouchers to pay towards the cost of renting substitute housing.The USDA would be permitted to use the vouchers in areas that do not meet the definitionof “rural.” The bill would amend the rural housing voucher program (Section 542) by no longerlimiting its use to very- low-income families, and permit its use by certain low-incomefamilies.  Eligible low-income families would be those who reside or resided in areas thatwere subject to Presidential disaster declarations in connection with Hurricane Katrina orHurricane Rita, and whose residences became uninhabitable or inaccessible as a result ofthese disasters.  The limit of 5,000 rural housing vouchers in a fiscal year would not applyto vouchers authorized under these provisions.The authority for the amended Sections 541 and 542 would apply during the six-month period beginning on the date of enactment of H.R. 3895.As noted above, under present law Section 502 guaranteed loans may only be usedfor purchasing existing dwellings or constructing new homes.  The bill would amend thelaw to provide that guaranteed loans may also be used to repair or rehabilitate existingproperties in rural areas.

Rural Housing: USDA Disaster Relief Provisions

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Rural Housing: USDA Disaster Relief Provisions

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