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The Rural Housing Service (RHS) Multi-Family Housing (MFH) Direct Loan Programs is proposing to update 7 CFR part 3560 to implement changes related to the administration of property reserve accounts under the Multi-Family Housing (MFH) Rental Assistance (RA) program. The programs covered by this part are authorized by title V of the Housing Act of 1949, as amended. 

In the proposed rule, RHS is considering amending section 3560.306 to update the definition of surplus general operating funds, clarify that surplus operating funds may be used to reduce debt service for debt other than agency debt, and allow for an annual increase in reserve contributions by utilizing the Department of Housing and Urban Development's (HUD) Operating Cost Adjustment Factor (OCAF). 

Proposed changes to 3560.306 Reserve account may also include updates to section (d)2 to define surplus cash and explicitly include other third-party debt as an allowable use of those funds, allowing borrowers to access state and local government funding available as a capital source for property improvements. If proposed this could improve property condition and increase tools available to borrowers to preserve properties as affordable housing resources. 

Additionally, the proposed rule may allow for an annual adjustment to increase reserve account funding levels by Operating Cost Adjustment Factor (OCAF) as published by HUD annually. This could allow properties to increase their savings for capital repairs and incorporate the appreciation of the cost of repairs, ensuring funds could be available as needed to make these improvements. 

The proposed changes  are expected to benefit Low -and moderate-income tenants living MFH units with improved physical condition of the properties. It is expected that the proposed changes will focus on providing more flexibility in obtaining funds for rehabilitation which will result in safer housing for MFH tenants, and a stronger, and more resilient, portfolio of properties.