As high-profile successes and failures have happened in America's urban affordable housing, much of the country's rural affordable housing developments have waged a quiet and frequently overlooked battle to survive with little federal help. Now, with an average age of 28 years old, many of the Section 515 properties from the old Farmers Home Administration portfolio are starting to face hard times.

"They are in need of some repair, some serious work, and a recapitalization," says Russ Davis, housing and community facility programs administrator for USDA Rural Development. The program provides a guaranteed loan for developers to build rural, multifamily housing for people with low, very low, and moderate incomes.

New financing options will make it easier to spruce up USDA Section 515 properties, like the Cedar Woods Apartments in Rock Falls, Ill.

New financing options will make it easier to spruce up USDA Section 515 properties, like the Cedar Woods Apartments in Rock Falls, Ill.

Credit: Enterprise Community Investment

Luckily, help is finally on the way for these apartments, their owners, and their residents, thanks to a new decision from the Federal Housing Administration.

In the past, owners of Section 515 properties had few options for financing the cost of repairs or updates to these federally funded rural properties. To do so, owners often had to sell or transfer the property's ownership so that the building would be eligible for a loan from the Section 538 program, another rural multifamily housing program for people with low, very low, and moderate incomes.

Why? Because only buyers–not ongoing owners–of Section 515 properties could take advantage of a Section 538 loan.

Needless to say, that made things awfully complicated. "There are a lot of accounting and financial difficulties for a company that sells a project to accommodate this task," says Carl Wagner, vice president of Lancaster Pollard Mortgage Co., which is affiliated with Lancaster Pollard, a capital funding and financial advisory services firm headquartered in Columbus, Ohio. "The owner that's selling could have exit taxes or could have complications of getting limited partners to agree to sell."

Fortunately, things have changed. In January, FHA agreed to make all Section 515 properties eligible for the Section 538 loan program. "We really see the value of providing a lot of different flexible tools for rehabbing the Section 515 portfolio," Davis says. "It's a large portfolio of properties at an advanced age."

(A quick primer: Private lenders originate the Section 538 loans, but USDA guarantees 90 percent of the loan. Section 515 loans are made by USDA. The dollars are scarce for this program, however.)