Ticking Clock

Genesis Fund works to preserve rural rental housing

The paucity of affordable housing isn’t limited to urban areas. People who live in rural and remote counties of Northern New England can also have a tough time finding an affordable place to live, for several reasons.

Over the past several decades, rural communities have watched once-thriving industries decline. The loss of manufacturing, forestry, and agriculture jobs has resulted in widespread unemployment and under employment. Plus, as the population ages, there is an increasing demand for homes for seniors and people with disabilities

One mechanism for developers to create affordable rental housing for low-income families, the elderly, and people with disabilities has been Section 515 Rural Rental Housing, mortgages made by the U.S. Department of Agriculture (USDA) for rural development (RD).

Since the program’s inception in 1963, Section 515 has financed nearly 28,000 rental properties, comprising more than 533,000 apartment units. Maine has 333 Section 515 RD-funded multifamily properties, providing 8,035 rental units. New Hampshire and Vermont, combined, have 150 Section 515 properties.

In 2010, Congress stopped funding Section 515, so no additional housing was built through the program. According to the Housing Assistance Council, as these loans mature or leave the portfolio, significant numbers of affordable housing properties will be lost: “Assessed on a timeline ‘curve,’ mortgage maturity projections indicate that an average of 74 properties (1,788 units) per year will leave the program from 2016 to 2027. Over 20 percent of the properties are expected to exit the program during each of these three phases.”

2019_Q1_Rural America is Losing its Affordable Rental Housing by the Housing Assistance Council

Another integral part of the USDA program is Section 521 Rental Assistance. Approximately two-thirds of all Section 515 tenants live in units that are rent subsidized through this program. When a Section 515 loan ends, the property also loses its rental assistance. This is significant considering that tenants’ annual income averages only $13,600.

According to Bill Floyd, Executive Director of the Genesis Community Loan Fund, one way to preserve rural housing properties is to help owners sell to housing authorities or other nonprofits. However, because of numerous requirements imposed by USDA RD regulations, the ownership transfer of these properties can be challenging.  One challenge, for example, is determination of value. At the time of the sale, the owner’s equity is payable through the property and is determined by a market rate appraisal and replacement reserves, less outstanding debt. But borrowing is limited to 97% or 95% (for LIHTC deals) of security value, which is based on restricted rent and low-rate financing. But if the owner pays off the debt, they can sell the housing to whomever they like – and rental assistance goes away.

The Genesis Fund is addressing RD preservation in a number of ways. Last year, they received a grant of $1.165 million from the Capital Magnet Fund at the U.S. Treasury Department and a $500,000 Federal Home Loan Bank grant, which provided new lending capital for rural rental housing. They’re also working with MaineHousing and other funding partners to secure additional resources in the form of subsidy to help fill the remaining gaps.

“What we’re trying to do is find other forms of housing subsidy to fill the gaps to make the transfer of USDA RD 515 properties feasible,” said Floyd. “It’s a challenge to secure those resources, but the amount is small compared to the cost of new construction.”
Additionally, Genesis Fund was one of only four technical assistance (TA) providers in the country to secure USDA RD funds to provide TA to buyers and sellers of 515 properties with maturing mortgages.

As the clock ticks down on Section 515 properties with maturing mortgages, The Genesis Fund remains committed to developing resources and expertise to preserving housing in rural communities. .