Responding to Community Housing Needs



523 Listening Session Comments

By NCALL Research, Inc.

  1. As many of you know, we are in the process of amending our self-help regulations. What changes do you want us to make?
    • Continue to award Pre-development grants. Additional comments in #9.
    • We would like to see the 523 application require both their most recent audit and financial statement for the organization (no more than 90 day’s old). NCALL does not agree that the requirement of a “commercial Credit Report” fulfills the ability to determine an organization’s financial capacity. An audit provides a more in-depth analysis of an agency’s overall financial management capacity and it is the standard which most funders use.
    • Update the SHARES system to allow easy input and collection of Self-Help data that is important to the overall management of the program. Permit more management reports to be compiled by the grantee and T & MA Contractors.
    • We do not believe that application components should be waived based on grantee status or longevity. We recommend that an organization’s demonstrated capacity be required for all grant application submissions. There is seldom an organization that does not go through some staff turnover or have difficulty that could have a significant impact on their program. Further, each grant has its own feasibility determination and as we have witnessed in recent years, adjustments in the economy and markets can dramatically impact even the most successful self-help organizations.
  2. In the area of required family labor, do you think that the current requirement of completing 65% of the work is too great in terms of time demands in the work/life balance of things? What would be more appropriate and why?
    • NCALL is not in favor of reducing the percentage of labor to 50% as called for in the proposed regulations and as retained in the Talking Points for Stakeholders, March 13, 2008. NCALL has monitored the 65% of labor within our region for over 25 years. We find that the 65% of labor is attainable and that, for the most part, grantees within our region believe that it is the labor contribution that provides justification for this program. That is not to say however that the current process is not without issues and opportunities for improvement. Within our region, most grantees build homes with basements and therefore are more limited in obtaining the 65% labor contribution. In addition to our additions and recommendations in #4, a new breakdown of labor tasks is attached. These recommendations allow the construction task percentages to remain at 65%, but allow more flexibility and ease for the grantee and families in achieving that goal.
  3. How should family labor be accounted for? Do you like the current method of assigning percentages to certain major components of the home or do you think other approaches should be considered?
    • NCALL supports the current method of assigning percentages to labor tasks with some adjustments. The use of labor tasks with assigned percentages is the correct measure for counting EUs. We are not in favor of counting hours; this is a tool used by grantees to measure productivity on site. See #4 for suggestions and recommendations.
  4. One of the challenges we’ve identified on some of our program reviews, is the way some organizations give credit to families for their labor contributions as far as how much of the activity they do themselves to get credit for doing it all. What do some of your organizations do to ensure that the contributions are meaningful and cost saving?
    • We recommend that the 27 tasks currently identified be redefined into 38 tasks. This involves taking 7 tasks and breaking them out further to reflect activity and to better distinguish between the labor of subcontractor and that of the family. See attachment for more details.

    Excavation now becomes:

    1. Clear Lot
    2. Stake House
    3. Excavation

    Roof & Ceiling Framing & Sheathing becomes:

    1. Roof & Ceiling Framing & Sheathing
    2. Soffits, Fascia, Drip Edge

    Dry Wall becomes:

    1. Hang Dry Wall
    2. Taping Joints & Finishing Dry Wall

    Footings Foundations & Columns becomes:

    1. Footing Framing
    2. Install Rebar
    3. Footings Foundations & Columns

    Floor Covering becomes:

    1. Floor Covering Preparation
    2. Floor Covering Finish

    Floor Slab or Framing becomes:

    1. Vapor Barrier
    2. Gravel Spread
    3. Floor Slab or Floor Framing
    4. Tarring Foundation

    Grading, Paving & Landscaping becomes:

    1. Landscaping
    2. Paving & Gravel

    • The point structure has been simplified by eliminating different point values for slab, crawl and basement construction. The most significant problem with the current system is the percentage breakdown of slab, crawl and basement. The current breakdown causes discrepancies in these percentages and makes building houses with basements more difficult to achieve the 65%.
    • The point structure reflects the percentage of time to complete each task and is not based on percentage of cost, as is the current system. NCALL believes this current system based on cost to be problematic. Some labor tasks may cost more, but require less time to complete. The reverse is also true; some tasks require considerable more time to complete and currently receive a small percentage of EUs, because it is based on cost.
    • The proposed regulation reduces the percentage of work required by the families down to 50%. Any reduction in the percentage of labor required by the families will increase the amount of work to be subcontracted out, thereby increasing the cost of construction for self-help housing. Increasing construction cost has a huge impact on affordability which can cause problems for the organization: increasing length of time to recruit families, requiring the grantee to lower the number of homes proposed, needing leveraged money to offset affordability issues for the families, and/or adjusting the construction method to lower costs.
    • In light of the impact of the current economy and the housing industry, affordability issues that are outside of the grantees’ control must be dealt with. It is important that Rural Development not contribute to the issue by imposing additional affordability issues from the program side by reducing the percentage of labor required for the self-help program.

    NCALL believes that using this new labor task schedule (combining slab, crawl, and basement) based on percentage of labor not costs and breaking it further into 11 additional tasks, maintains the integrity of the program by requiring 65% labor, while allowing the grantees more flexibility in achieving the 65% labor contribution. This proposed breakdown has been reviewed by four grantees in our region and has received positive responses from all. NCALL is pleased to submit this for your review.


  5. Regarding the use of our T&MA contractors, if you are a current grantee, do you feel that you are receiving valuable assistance from them to support your efforts? Do you have ideas about other options we might consider obtaining these services?


    6. A reasonable question to ask is why the self-help program needs Technical and Management Assistance Contractors. The T & MA contractors bring professional expertise and knowledge through years of providing best practices, time tested approaches and guidance to organizations interested in and involved with this very unique program. For NCALL, this amounts to over 125 years of staff knowledge and experience in providing training, technical assistance and problem solving.

    So what makes this program unique? First, the self-help grant is by definition a “project.” While the self-help program provided by operating grantees is an ongoing, refundable program, the grant itself establishes a time frame, production level, and the a specific amount paid to a grantee to produce project results.

    To develop and administer a successful self-help program all of the stars in project feasibility must be aligned. These stars are land, area housing market, community support, area demographics, eligible participants, organizational eligibility, and the ability to administer the grant and its costs (both housing affordability and administrative costs).

    Knowledge of the program and its best practices allows T & MA Contractors to help grantees and interested organizations deal with the realities of the program through both training and technical assistance. Even experienced grantees can be faced with economic changes that disrupt the feasibility of their program and cause disequilibrium. T & MA Contractors continuously examine and analyze program trends within the regions and, when given the opportunity, across the country. We use this knowledge to understand the impact these changes will have on each local grantee.

    As T & MA Contractors, we are committed to providing quality technical assistance services to both the grantees and to Rural Development. As T & MA Contractors we see program trends and can assist in course correction with both Rural Development and grantees prior to serious problems. Our fingers are on the pulse of the program. The problematic and changing landscape and trends that grantees within Region III have faced within the past couple of years has resulted in the development and publication of NCALL’s Credit Repair Best Practices Guide, Leveraging Guide for Mutual Self-Help Housing Grantees, and Recruitment & Marketing Best Practices Guide.

    NCALL helps grantees with feasibility issues throughout the entire course of the grant. NCALL works with the organizations to develop detailed budgets, construction schedules and grant modification plans as needed. We spend time with grantees on marketing and recruitment dilemmas and the ever growing credit repair needs; we provide guidance in the application process and the development of a solid self help program. We review applications for completeness, as well as for feasibility and practicality.

    To provide this level of training and technical assistance requires more than regulation knowledge, but an understanding of the program, how it works, the unique balance required between feasibility and the administration of the program, and consistent interpretation of the regulations.

    NCALL invites you to visit our website at www.ncall.org. We have 33 guides, manuals, brochures, tools, and PowerPoint presentations developed for the self-help program. NCALL conducts surveys as we provide technical assistance to grantees; they rate aspects of our services to ensure that standards are met and improvements are made where needed. These surveys have trended between “good” and “excellent.”

  6. We know that some of the markets you serve have encountered depressed prices of existing housing stock and are experiencing difficulty in marketing the program because of that. Do you have any suggestions about changes we should consider in our policies that would make this easier for you?
    • Don’t tie equity to TA cost. The current housing and economic turmoil is being experienced in our region and is affecting grants and grantees. Across our region recruitment is slowing, refunding grantees are questioning the ability to meet past production numbers and their economies of scale, and “suppressed markets” are common. These are only a few areas that will be impacting sweat equity. It does not make sense to tie program justification to appraisal amounts which may be on a downhill slide and could possibly put the program in jeopardy.
    • Purchase/Rehab Self-Help Program: Retain self-help rehab as an eligible activity. We have locations where the new construction market is in strong competition with the sale of existing houses. The reduced mortgages inherent with the self-help program are not always enough to compete with sale of existing homes in depressed markets. Allowing both Self-Help Purchase / Rehab grants and Mutual Self-Help new construction grants or some form of combination grants will provide some flexibility to the program. This will allow groups to weather this current storm where new construction at the previous level is not feasible at this time. This is also consistent with Neighborhood Stabilization Program activities that are taking place across the country which repair and market foreclosed homes to low income families.
    • Self-Help Housing Affordability:
      • Self-Help Mortgage Amounts: Self-Help Housing affordability was impacted in a major way in the early 90’s when the 502 Program regulations changed. Prior to that time, affordability was defined by family size and composition which determined the house size (sq. footage) and the number of bedrooms and baths. The regulations changed; the house size and amenities are now determined by what the family can afford (the PITI and Total Debt ratio). That change resulted in a slow but steady increase in the size and amenities offered in the self-help program to a reasonable standard of 1350 square feet. Also contributing to the increase in self-help housing costs were the rising expenses and land values across the country. On the up side, families were able to build or purchase what they could afford. The 502 Direct Loan Self-Help Obligations identified in the Listening Session PowerPoint reflect an increase in the average loans from $68,318 in 1996 to an average loan amount of $127,333 in 2009, which is actually a 186% increase. These numbers also reflect a total of 1514 loan obligations in 1996 down to 1073 in 2009.

        NCALL is not suggesting that affordability return to limiting the house size. However, we have witnessed the impact of the economic changes on the program over the past 25 years. It has been impacted by the growth in adjusted income limits, the growth in area loan limits, the growth in appraised value of self-help homes, and the growth in sweat equity. In 1996, the average sweat equity in Region III was $15,571. This amount has increased to $33,580 in 2009. This past year only two counties covered by a self-help housing program within NCALL’s region had a reduction in the amount of area loan limits. With home values decreasing, we expected the number of counties to be greater. While, strictly speaking, the area loan limits have no impact on self-help affordability, the area loan limit is indicative of the cost of living in the county and is reflective of the cost to build a 1300 square foot “average” house.

        It seems that over the last few years, the area loan limits and adjusted income limits have become out of sync. This may be having an impact on recruiting families to the program, especially VLI families.
  7. Right now, the primary efficiency measure that is used in the Office of Management and Budget’s (OMB) Program Assessment Rating Tools (PART) to measure the effectiveness of the self-help program is the amount of equity achieved as compared to the amount of grant assistance per unit. Do you think that is an appropriate measure of the program’s effectiveness and can you suggest other alternatives we might want to consider?
    • Amount of Equity Compared to TA Cost per Unit – NCALL does not agree that the method of comparing the TA cost to the equity achieved is a measure of program's effectiveness.

      A method for measuring effectiveness for the self-help program would be to compare some measurement of the self-help program to a like measure of a similar program. The calculation for TA cost per house and equity calculations are not related and are influenced by separate factors.

      NCALL does not consider “sweat equity” to be the primary measuring stick. Sweat equity is determined by the amount of time and labor that a family contributes to the construction of an entire group of homes. Equity is the appraisal amount minus the loan amount; therefore equity can be driven by an unpredictable market. The TA cost per home is influenced by a grantee’s realistic budget and production schedule. NCALL does not believe that tying the justification of the program to a comparison of sweat equity to TA cost per house effectively measures the program and its benefits. It is comparing apples to oranges. Bottom line is the amount of sweat equity at any given time is outside of the grantee’s control and therefore cannot be a stable way to determine the effectiveness of a self-help program. NCALL recommends that sweat equity not be a primary measure of effectiveness of the self-help program.

      Some grantees within our region are Habitat for Humanity organizations that do not use the 502 funds or charge interest and by the very nature of their program do not allow participating families to achieve as much sweat equity for the labor contribution as normal SH programs allow.

      Within NCALL’s region, data does reflect that the self-help program is currently providing housing in areas where, although the amount of sweat equity is less than the TA cost per house, valuable, solid self-help programs are reaching many underserved rural areas and families who wouldn’t be able to own a home any other way. These are areas that have less financial assistance flowing and in some cases Rural Development is the only game in town.

      RD has historically supported the program on “sweat equity” not on the “amount of sweat equity.” The spirit of the program promotes self sufficiency, personal growth, and successful homeownership through education and hands on training. While these things cannot be measured by dollars or statistics, they do reflect why the program was created and is still needed today.
  8. We’ve had much internal dialogue about how to define the equivalent value of a modest house. We’d be interested in your thoughts and comments on what criteria and/or parameters we should use in establishing what is meant by that terminology.
    • Equivalent Value of Modest Housing (EVMH): The definition of EVMH should simply be the area loan limit with a maximum cap established to account for area loan limits that are substantially higher. The only use of the EVMH is to determine the maximum amount of administrative dollars to be received for the grant. Rural Development annually determines the area loan limit for each county using the figures from “Marshall Swift” based on a 1300 sq. foot house and adding estimated developed lot cost. It seems that this figure would accomplish the same goal without creating additional work for local RD staff. It also provides more consistency in the approach. The EVMH is currently determined by the average contractor-built 502 loan amount or an amount determined by “Marshall Swift.”

      There is no other program that uses EVMH and therefore Rural Development staff who have no prior dealings with the Self-Help Program have no idea what it is, how to determine the amount, and how it will be used. When training organizations and Rural Development we must first refer to the definition of EVMH at 1944.403(g) and then to refer to 1944.407 Limitations for the understanding of how the EVMH will be used which is strictly for determining the maximum limit for the grant amount. Based on the March 2008 Talking Points, the new definition is “the typical value of a recent contractor built home for a proposed area, as determined by the agency. (This gives the agency flexibility to adjust as appropriate, based on their expertise and knowledge of the area.)”

      Problems exist when the EVMH is not calculated equitably across our region. Most organizations are provided the area loan limit, while some organizations are given a much lower comparable value figure.
  9. We’ve heard some concerns about going to a competitive grant application process. Up until just a couple of years ago, the self-help program was oversubscribed and we had little opportunity to encourage new applications to start self-help building programs. In view of the most recent increases of funding, what are your thoughts about requiring competition and what obstacles should we anticipate with how to balance re-funding with cycling new organizations into the program? Given current economic conditions, do you think we should open the program up to new grantee organizations?

    CFR 3015.158(d) does allow for some exceptions to the NOFA requirement. Our proposal is to implement a NOFA process for pre-development grants. (See below.)
    • New Program Growth – NCALL estimates that total operating grantees have dropped by about 25% over the past three to four years. In light of this drop in number, we support “controlled growth” in the Self-Help program.
    • Pre-Development Grants – NCALL recommends pre-development grants continue to be awarded. To control the growth, NCALL recommends that each year a designated amount of 523 funds be earmarked for pre-development grants. We recommend that the pre-development grant amount be increased to $25,000. This increase from $10,000 to $25,000 is to cover needed capacity of pre-development grantee personnel to complete the requirements of a full application. NCALL recommends that approval of a pre-application and award of a pre-development grant be completed through a NOFA process. Placing the NOFA earlier in the process would control the growth of the program and would ensure that those programs have the greatest chance of success. This would help to eliminate the surge of new grants into the system, especially from organizations that have limited capacity and questionable ability to successfully administer a grant. The annual NOFA should seek predevelopment grantees for each region, depending on the available funding. NCALL recommends a set aside pool of funding for NOFA pre-development grants in this process.
    • New Grants & Refunding – NOFAs work great for multi-family housing projects, but not self-help housing development which is ongoing, has development cycles by group, requires purchase of multiple lots and uses family labor. We do not recommend a NOFA for refunding or for new grantees. If a NOFA is applied to pre-development grants we do not see the need for two funding pools to ensure that sufficient 523 funds are available for refunding grants. If no NOFA is implemented for PD grants, NCALL then recommends two funding pools be established for refunding and new grants.
    • 523 Funding Needs – The anticipated need should be considered as new budgets and funding levels are created for the various pools. The funds and allocations should also be monitored by RD National and T & MA Contractors throughout the fiscal year. The national office should provide updated usage information to T&MA Contractors on a regular basis. We do not recommend putting growth limitations on grant amounts for either refunding or new grants. Within the limits established for maximum TA cost per unit, grantees should be allowed to develop their program and budget to provide adequate staffing and to secure adequate operating funds. Reasonableness and feasibility should be the cornerstone of what is considered. An adequately funded program contributes greatly to its success. This goes back to question #8.
  10. As a follow up to the previous question, how would you propose funding these organizations; first come-first served, through a competitive process, or through some other process?
    • More complete response in question #9. NCALL recommends that the program be opened to new organizations and programs. Our data indicates that there has been a 25% loss of 523 grantees over recent years due to the economy and funding restrictions. To the best of our knowledge, the program is no longer over-subscribed. A steady, controlled growth of new grantees with the capacity to operate successful programs is needed to replace those lost as well as to grow the program and to increase home production which has dropped substantially.
  11. Overall, what are some of the things that you think work best with self-help and what areas are problematic that we should focus on modifying so that the program serves its intended objectives?
    • It is amazing that a program in 2010, that started in the 1960’s, is still relevant, using family labor, serving rural underserved areas, helping families that would not own a home by other means, and still includes all of the valuable intangibles that only self-help housing does. NCALL thinks that Mutual Self-Help Housing should be a signature program for USDA.
  12. What problems do you typically encounter when trying to qualify families for the program? What programmatic changes to the 502 Direct Loan Program would you like to see to help overcome these issues?
    • Adjusted Income Levels – A number of grantees within our region, as well as participant families who testified at the Ohio listening session, indicated that there are families whose income is slightly above the adjusted income cap for that family size, and therefore do not qualify for the Self-help program or the 502 direct program.

      In addition, we have noted a number of programs within NCALL’s region, where the self-help mortgage is high in comparison to the area loan limit, have large dollar gaps between the maximum adjusted income level for family size and the repayment income needed to qualify for PITI in VLI levels of 1 and 2 person households. It would be difficult for families to have enough adjustment to attain the adjusted income levels needed to be eligible for the program.

      After much discussion, NCALL proposes the following solution: Rural Development should consider raising the amount of adjustment for each child to $1,000 per child, as defined for Child Tax Credit. A similar measure for the elderly family adjustment could also be identified. Adjustments per child remains at $480 and $400 for an elderly family, while the adjustments for child care and medical expenses have kept up with the current economy and reflect actual cost. This replaces the suggestion made during the Ohio Listening Session for families who slightly exceed adjusted income levels and could also resolve the gap between adjusted income levels and the repayment income needed to qualify for PITI as identified in our regional analysis.
    • 502 Underwriting – Grantees across Region III seem to have the same issues regarding the need for “some” credit flexibility within reason. There seems to be no opportunity for risk factors to be uniformly and consistently weighted within the current system. Examples of underwriting risk factor issues include credit scores, how medical bills and medical collections are considered, and the amount of time permitted/required between bringing current and/or paying off a bad debt to loan submission, when other information in file demonstrates a good credit risk. The GUS system allows for risk factors to be weighted and then reviewed for course correction as needed. The system has the capability to weigh certain factors of risk and, if there is an increase in late payments or defaults, it can identify the reasons and the weight factor for that risk can be loosened or tightened. A similar system to GUS is needed for the 502 direct loan program which would allow for more flexibility to make good loans.
  13. Do you think the program would be better served, if we no longer had T&MA Contractors and instead relied on entirely on RD staff to provide the oversight to the grantees?

    To provide this level of training and technical assistance requires more than regulation knowledge but an understanding of the program, how it works, the unique balance required between feasibility and the administration of the program and consistent interpretation of the regulations. It also requires a heart and mission to want to serve large geographic areas with quality services. In light of RD’s staff reductions over recent years and their activity level with other programs, the level of training, technical assistance and time devoted to the program and the grantees would be difficult for RD to provide.

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