21 July 1997
A Letter To My Clients
I believe the Rural Housing Service will seek to tighten up on the management of cash accounts in Section 515 projects. These are my predictions about what the Agency is going to do or try to do. I can’t say when the Agency will take any of these initiatives: this is like watching a glacier — you may not know when it will arrive, but you know it will.
My predictions are that the Agency will propose regulations or issue ANs to:
1. Try to increase the interest on Reserve accounts and, possibly, other accounts; the Agency may propose that Reserves be under the exclusive control of the Agency.
2. Require closer Agency reviews of Reserve accounts; the Agency may require Reserve statements to be submitted or that staff review financial records in detail.
3. Step up the efforts at having owners and managers respond quickly when the Agency sends a letter; I can imagine an AN that says when a response is not fast enough, the Agency will move to accelerate the loan.
4. Review the General Operating, Tax and Insurance, and Security Deposit Accounts and try to transfer excess funds to the Reserve.
5. Try to have excess Reserve funds applied to the loan balance.
6. Revisit Section 8/515 projects to reduce Interest Credits and require that major capital improvements be made only from the Reserve; and, the Agency will try to monitor closely the HUD Section 8 payments to 8/515 projects.
7. Require that major capital improvements be made only from the Reserve.
8. Take a more active role in approving proposed capital improvements in an attempt to limit them to only essential, needed improvements.
These are not in themselves unreasonable initiatives because they can prevent some abuses of the program. As taxpayers, we owe it to the program to support these.
Of course, as an owner and manager, you may already have concerns about the capability of Agency staff to make the financial and real estate decisions the staff are presently attempting to make on your behalf.
My first hope is that the Agency train staff to be able to do their jobs well and professionally. My second hope is that the State Directors recognize that the program is exceedingly complex and has shifted from a development orientation to a management orientation for a portfolio of over $11 billion. My third hope is that as tensions over program administration ratchet up, there should be a greater effort at mediation to avoid needless appeals of adverse Agency decisions.
Proposed Legislation to Address Prepayment Issues