Remarks by:
Patrick N. Sheridan
Acting Deputy Administrator
Multifamily Housing
Rural Housing Service, USDA
Washington, D.C.
Addressing CARH:
RHS Nitty-Gritty
I’m going to cover some of what’s going on in RHS and what some of our bigger focuses have been lately.
First, on staffing. At this point we still don’t have an Under Secretary for Rural Development. There is a Senate Confirmation Hearing scheduled for the nominee, Mr. Thomas Dorr. We do not have an Administrator for the Rural Housing Service yet. Not even any good rumors. There are two recent retirements: Carl Grate, the Director of the MultiFamily Portfolio Management Division, has retired. Currently, we have Bruce McGuire, the Housing Chief from Iowa, serving in an acting capacity, and we have a vacancy announcement out to fill that position. The announcement is for “all sources,” so we’re not just looking for RHS
staff to move into that position, but for anyone else who might be
interested. And Steve Jorgenson, our appraisal specialist, retired. He did a lot of the training for field staff on appraisals and review work. He caught us a little bit by surprise, but we are scrambling to try to get someone to fill his shoes. He did a wonderful job on appraisal work, so I think he’ll be sorely missed.
3560 In Pipeline
On 3560, we are yet in clearance. We’ve cleared Office of General
Counsel, we’ve cleared the regulations group. It is currently in the office
of the Deputy Secretary of Agriculture, where he has to provide the go-ahead
to the rest of us to finish the clearance process. Then it will go to OMB.
It’s not moving very fast, quite frankly, so I really can’t give you a date, but we’re looking forward to it with great anticipation. Probably a lot of other people are, too, because we keep hearing about needing to change our Administrative Notices, do this or that, and other things. Most of these are in the regulation, and if they’re not when it comes out in the Federal Register as a Proposed Regulation, it is an opportunity for all of you to let us know what else needs to be changed, and we can actually put it in there.
Preservation and Rehab
Looking at the focus of our programs and where we think we need to look at over the next several years, staff are very concerned about Preservation. We’re using Preservation, not as big owners paying off, we want to make sure the housing is out there for tenants. That includes not just being able to pay equity to owners to keep them in the program or for letting non-profits buy the projects, but also the rehabilitation side of things. That’s probably where our biggest gaps are, both in rehab work and money to pay owners.
I think we’re seeing the start of a trend as far as who the potential purchasers of these properties are. Certainly, the large regional non-profits seem to be the ones that are the most interested. We’ve had a number of conversations and some deals actually struck so far with Mercy Housing, Volunteers of America, Farm Workers Service Center. A number of these large organizations can look at a large portfolio and have the capability of analyzing it and, in some cases, the resources to help buy it. From our perspective, obviously they are going to be in it for the long haul and also are able to provide some supportive services. As those types of deals come up, I think we’ll certainly look to try to encourage them, and if that gives you an opportunity to sell a portfolio and get out (if that’s what your goal is), it may be a good direction to go.
Equity Loan Waiting List
Larry Anderson, the Director of the Office of Rural Housing Preservation,
did tell me that there is only an $8 million backlog on the prepayment equity
loan list, which isn’t that much. We will be able to fund $5 million this
year. As far as Rental Assistance (RA), we have a small pot to be used for
Preservation. This probably works best when you have a third party financing
source for an equity loan, and you need additional rental support. The RA can
be tapped for that purpose if it is there. Larry tells me he has no waiting
list right now. If you have a potential lender lined up and you want us to
subordinate to them, and you need additional subsidy, that would be an
additional possibility.
Innovative Proposals
I think that what is new and innovative—and what I’ve been spending a
lot of time on—is working on partnerships with other organizations to help
bring resources to this portfolio. I know we’ve worked with Mike McCullough
at HUD thinking about ways that FHA-insured money could be used
for equity or rehabilitation. We’re going to continue to pursue that through
discussions on how we can facilitate that at the National Office level
between both agencies.
We’ve been working with Fannie Mae through some of their DUS lenders on
trying to come up with a program that would work. Again, it is more like a
portfolio type deal rather than case-by-case. Our average rehab/equity deal
looks like about $300,000 each, and that is not really enough money to
interest most DUS lenders, but if you could package a number of deals
together, and a developer would come in as a Managing GP of ten properties
with $3,000,000, I think those might be deals that could be done.
We’ve got a few individual mortgage companies looking at putting together
programs such as that. We had a meeting recently with the Federal Housing
Finance Board, overseer of the twelve District Banks of the Federal Home
Loan Bank. They seem to be very interested in letting us have an opportunity
for us to talk with the District Banks to let them know what the 515
portfolio is about and how they can potentially help under their AHP programs
and some of the others. Talk about inconsistency between RD State Offices:
The twelve District Banks are quite on their own also. It is a job for us to
convince all twelve that there is an opportunity. That’s another angle we’ve
been pursuing to try to bring resources.
Portfolio Approaches
Another area of partnerships has been intermediaries. We’ve been working
with groups like Ginger Brown, NAHPA, the National Housing Trust. We’re
trying to get a commitment out of the Enterprise Foundation to help sponsor non-profits; they seem to be very interested. The Neighborhood
Reinvestment Corporation is working with us on a number of different angles.
We have a lot of different resources now alert to what the problems are with
515 portfolios as far as resources go. I think we’re going to start seeing some
activities there on a larger scale. The biggest nut we have to crack, of
course, is the portfolio concept: to try to move several properties at a time
to try to get some economies of scale.
Section 538 Program
In closing, I want to touch on the 538 program. It continues to evolve.
One of the things we have to buck is the perception that the program doesn’t
work. It actually does work. If there are problems with it, we need to know
about them so we can make those corrections. There are a few things in the
works right now that we think we can do. Maybe to bring in some consultants to do some of the real
heavy lifting as far as what would happen if we had to establish a lender’s
reserve or some things like that. Part of the problem is getting some
of the resources. We have a fairly good feel as to what might
need to be changed so it’s usable by more people. We continue to
get more applications each year than we have funds to guarantee. We do
encourage you to let us know if you perceive something that needs to be
changed or some way we can streamline it.
Typical deals are very high with leverage. We have about a 45% LTV ratio of guarantee to total deal. We’re more the gap financing than we are the major portion. We did have a Memorandum of Understanding signed in July 2001 with Freddie Mac; they are buying deals generated by some of their program lenders at this point. I think they have closed at least two or three, with several more in the mill right now.
Last, one of the things we’ve had a lot of success with, and maybe we can crow about a little bit, is the fact that we’ve been able to use 538 on Tribal Lands. That’s always been a tough nut to crack for lenders in getting through a lot of the security issues there. If you have any interest in working in those areas, this is a program that will work there.
Thank you.
Next: 515 Portfolio Analysis: Opportunity for Owners