WASHINGTON, D.C.—The long-awaited bill to preserve affordable rural housing is still hung up in Congress. But that’s not stopping housing officials and property owners from bringing new money to old developments.

Rural Development (RD), the agency that administers federal rural housing for the U.S. Department of Agriculture, has opened its Sec. 538 lending program to help preserve older affordable housing, in addition to the new construction projects that Sec. 538 has funded in the past. The program is now running at maximum capacity.

RD guarantees Sec. 538 loans and commits to lower their interest rates by up to 250 basis points to match the applicable federal rate, if possible.

As fiscal 2007 wound to a close on September 30, officials expected to use all of the money that Congress appropriated for the program, and guarantee more than $90 million in Sec. 538 loans.

That’s similar to fiscal 2006, when the agency guaranteed $100 million in Sec. 538 loans to 60 properties. A third of the loans helped rehabilitate older affordable housing. The other two-thirds financed new construction.

Sec. 538 loans typically are combined with equity from the sale of low-income housing tax credits and provide the extra funding necessary to make rural deals work. The loans are originated by individual banks, which use RD’s guarantees to pool the loans and sell them to Ginnie Mae.

Because Sec. 538 guarantees loans rather than originating them, the program in the long run costs the government very little relative to the volume of loans guaranteed: just $6 million for the $90 million in loans guaranteed in 2007, according to Joyce Allen, deputy director for guaranteed multifamily housing for RD.

“RD has been doing a good job with limited resources,” said Leslie Strauss, a spokesperson for the Housing Assistance Council (HAC).

Sec. 515 properties need help

Most of the properties rehabbed with help from Sec. 538 loans were originally financed under the Sec. 515 program. There are more than 16,000 Sec. 515 properties. About two-thirds of the units in this portfolio are more than 20 years old, according to RD, and could potentially leave the program either by defaulting on their loans or by making prepayments— a move whose legality is still being battled in the courts. Many properties have severe unmet capital needs.

Advocates are waiting for a comprehensive plan to rehabilitate aging Sec. 515 rural affordable housing properties. A rural preservation bill has been stymied in Congress as advocates and owners struggle over issues like the strength of RD’s new rental voucher program meant to protect tenants from rent increases.

Advocates like HAC’s Strauss worry that properties in once-rural places now surrounded by suburban sprawl will attempt to leave the program and raise their rents. Owners lost the right to prepay their mortgages and leave the program in 1987 when Congress passed the Emergency Low-Income Housing Preservation Act. But many owners have sued—and won millions in damages from the government.

In June, the owners represented in 283 cases reached settlements affecting 800 properties, though that may prove to be just a fraction of the owners that want to prepay, Strauss said. In exchange for receiving damage payments, the owners agreed to keep their apartments affordable.

Advocates and officials both hope this resolution will remove the barriers to creating a new rural housing program.