BROADCAST EMAIL – Regulatory Update

October 31, 2017

In the October 25^th Federal Register, the Rural Housing Service published a Final Rule (Rule) entitled, “Multi-Family Housing Program Requirements to Reduce Financial Reporting Requirements.” The rule modifies the Agency’s Section 515/514 financial reporting requirements and will become effective on November 24^th.

The Rule updates Rural Development’s  (RD) Multi-Family Housing (MFH) financial reporting requirements to establish risk thresholds (an OIG recommendation), align requirements with HUD (a White House Rental Policy Working Group initiative), and reduce program operating costs to RD and its borrowers. The goal of these changes is to help small project borrowers with saving costs associated with certain financial reporting. RD would expect that cost reduction to be reflected in a reduction of rent subsidy for Section 521 Rental Assistance. The Rule also updates reporting requirements to current AICPA requirements.

The Rule changes will be OPTIONAL in Fiscal Year (FY) 2018, as proposed budgets have been submitted, but will be MANDATORY starting in FY 2019.

The Rule removes RD requirements for an engagement that examines records using agreed upon procedures (AUPs) established by RD as part of the annual financial reporting requirements. If owners have not contracted for these services (AUPs) for their FY 2017 Actuals, RD will waive this requirement for FY 2017.  New construction Section 514 and 515 properties are still subject to agreed upon cost certification procedures.

Non-profit borrowers that receive less than $750,000 in assistance and for-profit borrowers that receive less than $500,000 in assistance are not considered to be high-risk. These owners will submit owner certified prescribed forms using the accrual method of accounting. The compilation of prescribed forms will include Form RD 3560-7, “MFH Project Budget/Utility Allowance” and Form RD 3560-10, “MFH Borrower Balance Sheet,” and include supporting schedules for those forms within the report package.

Assistance is based on combined federal financing and includes a combination of any or all of the sources identified below:

• The outstanding beginning principal balance of a USDA Mortgage, a mortgage insured by the Federal Housing Administration (FHA) or HUD-held mortgages or loans, including flexible subsidy loans. This would also include the outstanding beginning principal balance of a USDA Section 538 Mortgage;
• Any RD Rental Assistance or HUD Project-based Section 8 assistance received during the fiscal year;
• Interest reduction payments (interest subsidy) received during the year, and/or;
• Federal grant funds received during the year.