As Section 515 loans mature on a large number of rural housing properties, a pilot program will seek to preserve their affordability.

Adobe Stock/Jakub Krechowicz

The 2024 appropriations bill authorized the pilot, enabling the U.S. Department of Agriculture Rural Development (USDA RD) to preserve Section 521 rental assistance at properties past the maturity of their RD loans.

Rural housing advocates have been seeking the decoupling of the Section 515 loans from Section 521 rental assistance for years.

“This is a preservation tool that can be used to have rental assistance remain on the properties,” says Colleen Fisher, executive director of the Council for Affordable and Rural Housing. “The Section 515 portfolio is important for rural communities and the people who live there. Many of the residents are elderly, single female-headed households, and families that want to stay in their communities. This will be a tool that will allow them to do that.”

Typically, when a Section 515 loan has matured, the rental assistance is automatically terminated.

The pilot opens the door for stand-alone project-based Section 521 rental assistance contracts. It allows for the renewal of rental assistance for up to 1,000 units when it’s determined that a project cannot be reasonably restructured or modified with another USDA loan. The loan must also be maturing for a property to qualify.Section 515 loan maturities impact more than 1,500 units each year, and by 2030 that number will increase to more than 10,000 units annually, according to an alert from the Nixon Peabody law firm.

Overall, there are approximately 406,000 RD units across the country, and the number has been declining. This total includes some Section 514 farm labor housing.It’s estimated that about 80% of the Section 515 units have Sec. 521 rental assistance.

“Decoupling is a good step toward preservation of a very much-needed tool that supports low-income families in the most rural communities across the country,” says Rebecca Simon, counsel in the affordable housing practice at Nixon Peabody. “In a lot of these communities, the Rural Development properties are the only available affordable housing. Decoupling will mean preservation of that affordable housing stock for future generations, past the life of the Section 515 loans that have helped people for the last 30 to 40 years. Decoupling will put into place a permanent solution for keeping this rental assistance that’s desperately needed in these communities.”

Rental assistance agreements renewed under the pilot will be extended for at least 10 years but not more than 20 years. Owners need to continue to maintain the project as decent, safe, and sanitary housing. Rents will be based on current fair market rents determined by the Department of Housing and Urban Development.

The next steps will be for USDA to work with stakeholders to develop the pilot. Regulations still need to be drafted, says Fisher, who stresses the importance of creating a workable program.