section 538

The section 538 Guaranteed Rural Rental Housing Program, which had been targeted for termination by the administration, has been saved from the chopping block in  H.R. 2112. Here is a graphic depicting the funding made available to all USDA Development programs through the Act:


Last Thursday, The house passed H.R. 2112, the appropriations bill for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies programs for the fiscal year 2012.  Here is a breakdown of what the bill means for rural development programs:

  • $846 million for the Section 502 single-family subsidized direct loan program, $276 million less than FY 2011
  • $24 billion for the Section 502 unsubsidized guaranteed loan program, the same as FY 2011
  • $59 million for the Section 515 rural rental housing program, $11 million less than in FY 2011
  • No funding for the section 538 multifamily loan guarantee program



Rural Housing Services posted a Notice of Funding Availability for loan guarantees under the section 538 Guaranteed Rural Rental Housing Program for fiscal year 2011.  Below is a brief summary and further information:

This is a request for proposals for guaranteed loans under the section 538 Guaranteed Rural Rental Housing Program (GRRHP) pursuant to 7 CFR 3565.4 for Fiscal Year (FY) 2011. The Department of Defense and Full Year Continuing Appropriations Act, 2011 (Pub. L. 112-20) (April 15, 2011) appropriated approximately $31,000,000 to the Agency for FY 2011 funding for the section 538 program. The commitment of program dollars will be made first to approved and complete applications from prior years NOFA, then to applicants of selected responses in the order they are ranked under this NOFA that have fulfilled the necessary requirements for obligation.

Deadline: December 30, 2011, 12 p.m. Eastern Time

Eligible lenders will send responses to the Multi-family Housing Program Director of the State Office where the project will be located.

USDA Rural Development State Offices, their addresses, and telephone numbers, can be found HERE.


Agriculture Secretary Vilsack had the following to say about the elimination of the 538 guaranteed loan program:

On the rural development side, we are proposing and suggesting some tailoring of our housing programs, reducing some of the programs and eliminating others, but still try to meet the overall housing needs through a very aggressive Guaranteed Loan Program.

Link to audio recording

Media Briefing: Remarks by Agriculture Secretary Vilsack on President’s Proposed FY 2012 Budget

Monday, February 14, 2011

MODERATOR: Good afternoon, everyone, and thank you for joining us today. Agriculture Secretary Tom Vilsack is here in this studio to talk about the proposed 2012 budget as it relates to agriculture. If you would like to ask a question of him, let us know by pressing Star/1 on your touchtone pad, and with that, we go straight to the Secretary.

SECRETARY VILSACK: Susan, thank you very much, and thank you all for joining. I am going to take a few minutes of your time this afternoon to talk about a very challenging and difficult budget that we presented today. In fact, there are several different challenges or realities that the USDA budget has to face in this year.

I think it’s no surprise that folks at USDA and across the country have become very concerned about the deficits, and the President has instructed us to take a look, a very close look, at our budget to find ways in which we can provide opportunities for reducing the deficit. USDA stepped up to the plate last year and steps up to the plate this year as well. Whenever you are talking about deficit reduction or eliminating or reducing programs, you are obviously talking about difficult and tough choices, both to reduce budgets and to reallocate resources. That’s one reality we had to face in this budget.

[click to continue…]


The Obama administration released it’s FY 2012 budget proposal. Among the most drastic reductions in multifamily affordable housing programs is a proposed elimination of the section 538 multifamily guaranteed loan program. The Terminations, Reductions and Savings report cited the rising cost of the program resulting from an increased default rate:

However, the defaults in these programs have been much higher than initially projected, and the increase has happened quickly, making them more expensive than their direct loan counterparts. In addition, the direct loan programs have very low defaults, even though they tend to serve the much lower income residents/communities

The problems in the 538 program surfaced several months ago in the USDA’s budget submissions. A December CARH email newsletter called attention to the curious rise in the USDA Rural Development Section 538 Guaranteed Rural Rental Housing program loan guarantee score:

In the USDA’s budget submission, the score for FY2011 appropriations increased nearly ten-fold from FY2010… It appears that certain defaults in the Section 538 program, together with changes resulting from the lack of interest credit subsidy, have been cited as reasons for this scoring increase.

The ten-fold increase in defaults was, in-part, responsible for a $13,625,000 increase in requested loan subsidies for guaranteed multi-family housing, an increase explained in the 2011 Office of Budget and Program Analysis explanatory notes:

The proposed increase supports the estimated loan obligations associated with the requested loan level in FY 2011. The increase in subsidy rate is a result of annual technical assumptions, increase in default rates, and interest changes as forecasted in the President’s 2011 budget economic assumptions.

Looking at the 2011 budget assumptions, the subsidy Rate increased from 1.15 in 2010 to 9.69 in 2011 with the program level remaining essentially constant. Underlying this rate change was an increase in the default rate from 1.49 to 11.73 (taken from the 2010 and 2011 subsidy estimates).