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The purpose of the Guaranteed Rural Rental Housing Program (GRRHP) is to increase the supply of affordable rural rental housing by using loan guarantees to encourage partnerships between the Rural Housing Service (RHS or Agency) Multi-Family Housing (MFH) program, private lenders, and public agencies. 7 CFR part 3565 sets forth the regulation requirements for the GRRHP which prescribes the policies, authorizations, and procedures for the guarantee of multifamily loans authorized by section 538, title V, of the Housing Act of 1949 (42 U.S.C. 1490p-2).

7 CFR part 3565 currently requires that applications for a loan guarantee submitted by lenders must include a loan request for projects that demonstrate market feasibility. The regulation does not specifically state the type of documentation the lender can submit to demonstrate the need (feasibility) for affordable rental housing. Some opted to provide it in the form of a formal market study, others did not, opting for another means / information, thus creating inconsistencies when submitting documentation to the agency that demonstrate market demand.  The regulation makes references to market assessment, but there is no specific requirement that a market study be submitted.

The Agency intends to publish a proposed rule to amend 7 CFR part 3565.24(b) to require that applicants (lenders) submit a market study as part of the complete application for a section 538 Guaranteed Rural Rental Housing loan guarantee. The Agency expects that this proposed regulatory change will allow the Agency to enforce the requirement that applicants must submit a market study as a part of a complete section 538 GRRHP application to determine feasibility of the project. This change would formalize the process and require all applicants to all use a formal market study when demonstrating market need.