Multi-Family Housing Program Requirements To Reduce Financial Reporting Requirements

Rural Development’s Office of Multi-Family Housing has announced publication of a new rule modifying the Agency’s Section 515/514 financial reporting requirements. The rule was published on October 25th, and will become effective on November 24th. A copy of the Federal Register notice is available here: https://www.gpo.gov/fdsys/pkg/FR-2017-10-25/pdf/2017-23082.pdf

Rural Development’s Office of Multi-Family is excited about this rule, because it represents a perfect example of how they can work together with industry partners to create change for the better. They believe this new rule will make their programs more efficient, easier to work with, and enhance their ability to provide more timely and effective customer service.

Summary:

  • The Final Rule updates RD’s 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. As a result of these changes, we believe small-portfolio borrowers will realize cost savings in property operating expenses and a consequent reduction in the amount of rent subsidy (Rental Assistance and HUD Section 8). The Rule also updates reporting requirements to current AICPA requirements.

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

  • High-risk properties are those with combined Federal financial assistance at and above $750,000 for non-profit entities and $500,000 involving for-profit entities.
  • Combined Federal financial assistance 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 RHS Rental Assistance or 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.
  • Through this rule change, the Agency has removed requirements for an engagement that examines records using agreed upon procedures established by the Agency as part of the annual financial reporting requirements.
    • If Borrowers have not contracted for these services (AUP’s) for their FY 2017 Actuals, the Agency will waive this requirement for FY2017. Additional guidance on this waiver will be forthcoming.
  • For-profit borrowers receiving less than $500,000 in combined Federal financial assistance, and non-profit borrowers receiving less than $750,000 in combined Federal financial assistance, 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.

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