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antees under the Act. These include prof1t-seeking, nonprofit, or limited dividend corporations. The form of organization of the developer and changes in that form must be approved by the Secretary. Changes in ownership which might result in changes in control of the developer's operation must also be approved.

(2) The developer must have financial, technical, and administrative ability and background appropriate to the size and complexity of the project, the amount of the obligations to be guaranteed, and the period of time for project completion. The developer must have either in his own organization or available to him land development and related skills of a high order over the whole period of development. He must also have the capacity for anticipating and dealing effectively with the social concerns and problems that must be considered in planning the community or that may arise during the period of development,

(3) The developer may engage in nontitle IV activities, either in the project Itself or in related development, subject to such conditions as the Secretary may impose. The project agreement shall impose such control and limitations as the Secretary shall determine are required to (i) govern the nontitle IV activities of the developer, in the project itself or otherwise, or (ii) provide separation of accounts and activities to serve the purposes of the Act and protect the security interests of the United States.

(b) Equal opportunity. (1) The new community project must be specifically designed and implemented so as to assure compliance with all requirements imposed by, or pursuant to, any applicable statute or executive order treating with discrimination on the basis of race, creed, color, sex, or national origin. These include title VIII (Fair Housing) of the Civil Rights Act of 1968 (42 U.S.C. 36013619); title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e); the Civil Rights Act of 1866, as amended (42 U.S.C. 1981 and 1982); Executive Order 11063 (27 F.R. 11527); and Executive Order 11246, as amended by Executive Order 11375 (30 F.R. 12319, as amended by 32 F.R. 14303); which apply variously so as to prohibit discrimination in the use, sale, lease, or other disposition of land, housing, or facilities in the new community and in employment in the new community or in the development of the new community project. Pursuant to the authority in each executive department to

Issue regulations and take other appropriate action under Executive Order 11063 with respect to its programs, discrimination on the basis of race, color, creed, or national origin in the use, sale, lease, or other disposition of any land developed for residential or related uses with assistance under the Act is hereby specifically made a violation of that order enforceable under the terms of section 302 of the Order after due notice and hearing.

(2) In furtherance of subparagraph (1) of this paragraph and as a condition of granting or continuation of assistance, the developer must formulate and implement an affirmative action program covering all or part of the new community project; include appropriate equal opportunity provisions in pertinent contracts, subcontracts, covenants, or other documents; and take such further steps as the Secretary may direct to carry out the developer's program, including, but not limited to, provision of equal opportunity in employment and encouragement of minority business enterprise.

(c) Labor standards. In any new community project, construction contracts, subcontracts, or building and loan agreements for land development assisted under the Act shall contain such labor standards clauses as the Secretary may direct in furtherance of the Act and of the regulations of the Secretary of Labor codified in 29 CFR Part 5. The provisions of such regulations with respect to ineligible contractors shall also be observed. No proceeds of new community obligations may be disbursed to a developer with respect to any such construction contract unless there has been filed, in a manner satisfactory to the Secretary, a certificate signed by the contractor or subcontractor stating that laborers and mechanics employed under the contract have been paid not less than the wages determined by the Secretary of Labor to be prevailing wages for corresponding classes of laborers and mechanics employed on construction of a similar character.

(d) Small builders. In any new community project, there must be provision satisfactory to the Secretary to encourage maintenance and growth of a diversified local homebuilding industry and broad participation by builders, particularly small builders.

(e) Government approvals. The developer must secure all State and local

approvals required by law or determined keting skills associated with it, and its by the Secretary to be necessary for the capacity to sustain a job base which, in project. To the extent significant project turn, will generate demand for housing activities will require, or depend upon, and commercial facilities. future approvals that are necessarily un

In the case of projects in rural and other obtainable at the time the offer of commitment is made or the project agree

areas, including those beyond the urban

izing portion of a metropolitan area, ment entered into, the Secretary will

where, for economic or other reasons, require that the project plan or plans

advantage cannot be taken of existing provide reasonable assurance that such approvals will and can be secured, in a

growth trends, it is particularly impor

tant that there will be a large enough timely fashion, as needed.

employment base to generate demand to (f) Staging. Major new community

sustain the projected growth rate of the projects will ordinarily be planned, car

new community. Feasibility will depend ried out, and financed in progressive

upon the basic conditions for industrial stages, so as to provide an opportunity

development; the probable effectiveness to test the market and minimize finan

of private and governmental efforts to cial risk, with each stage resulting in a

attract stable industries and to overcome balanced and self-sufficient whole. Ex

some of the major obstacles to economic ceptions to this requirement, and the

development; and the degree to which degree of and terms for staging, will be

commitments from industries can be determined according to the scope of the

secured. project, the nature of market demand, the extent of assurance that all contem $710.9 General financial plan and proplated financing will be obtained and all

gram. public actions or approvals taken or ob

A new community must be developed tained, the degree to which economies of pursuant to a financial plan or program scale can in fact be obtained, the possi which must include provisions that will: ble adverse effects of contemplated (a) Cover all anticipated project major improvements upon the Govern costs, including, but not limited to, costs ment's security, the projected scheduling which will be met with funds to be borof housing in relation to critical housing rowed under the obligations guaranteed; needs, particularly needs for low and (b) Demonstrate the manner by moderate income housing, and such

which, and the sources from which, these other matters as the Secretary deems

costs will be met, including anticipated relevant. Regardless of the stage covered revenues from the project, financial rein the initial application, the developer sources of the developer, and borrowing; must submit a general plan for the en

(c) Provide assurances that the develtire project which will be covered by oper will have an adequate incentive, in subsequent stages.

terms of equity invested and expected Subpart C-Financial and Economic

return, for proceeding with the approved

project in an expeditious and efficient Criteria and Standards

manner; and $ 710.8 Economic feasibility.

(d) Set forth a procedure for periodic

updating of the financial plan to take A new community must be economi

into consideration changes in costs, revecally feasible in terms of economic base

nues, market conditions, and other releor potential for growth. Among the

vant changes affecting the plan. criteria by which feasibility will be determined are the following:

8710.10 Maximum Federal guarantee. (a) Current and projected economic The maximum loan which may be and demographic growth patterns and guaranteed under the Act is the lesser of demand for and supply of industrial, (a) 80 percent of the Secretary's esticommercial, and residential properties mate of the value of the property upon for the region in which the project is completion of land development or (b) located;

the sum of 75 percent of the Secretary's (b) The market area of the project estimate of the value of the land before and the growth and demand trends pro development and 90 percent of his estijected within this market area;

mate of the actual cost of land develop(c) The advantages of the project, ment. In no event shall the principal relative to other developments, includ amount of the outstanding obligations ing its location, the managerial and mar guaranteed under the Act with respect to

a single project exceed $50 million. Land which is yet to be acquired and costs which are yet to be incurred at the time a commitment is made may be included as a basis for determining maximum commitment, but, in the absence of escrow or trust provisions under $ 710.22(b) (1), only land acquired and costs incurred at or prior to issuance of a guarantee may be included as a basis for determining the maximum outstanding principal amount of obligations which may be guaranteed. § 710.11 Land valuation.

Among the principles which the Secretary will apply with respect to any valuation and which should be applied in any valuation made by or on behalf of a developer are the following:

(a) Before development. (1) Estimates of the "as is" value of the land prior to its development as part of a new community project must be based, to the greatest extent possible, on recent actual arm's length sales transactions of the land involved or of nearby comparable land. In all cases where land valuations exceed actual prices paid by the developer or paid in the latest arm's length transactions, the reasons for the valuation will be fully explained and documented. Unusually high prices paid for remaining parcels needed to round out a site will be considered as unrepresentative of the values of the site as a whole. Different parcels may be valued according to their highest and best use only where supported by market demand. In any case, valuation shall not be limited to a small sample acreage or a few selected choice parcels.

(2) Valuation should not take into account any increased values resulting from the guarantees expected to be issued under the Act and the development made possible by these guarantees, as distinct from normal growth that would have been expected in any event. It is recognized, however, that market value may be increased by improvements already on the land, including those installed by the developer, and changes which have occurred in local zoning or comprehensive planning as a result of actions by the developer. Such increases in value may be taken into account to the same extent as they would be in valuing comparable land.

(b) After development. Estimates of the value of the property upon completion of land development should reflect

the income potential of the new community project from the sale or rental of developed land if the project is carried out as planned. Consideration should be given to the potential effect on values of existing and planned public facilities and other existing and planned development in the area. Absorption rates should be related to the proposed land uses and development schedule for the project. Weight should also be given to any factors affecting the potential value of the particular land in question, such as zoning which may be approved, access, topography, and anticipated governmental approvals. § 710.12 Cost estimation.

Only the actual costs of land development, as those terms are defined in § 710.2 (e) and (f), will be considered for purposes of calculating the maximum amount of obligations which may be guaranteed under the Act. The general principles that will apply in estimating actual costs of land development for this determination are as follows:

(a) Costs of land development may be included as estimated actual costs to the extent that they are expected to be incurred after the date as of which land valuation is determined by the Secretary. Planning and other organizational costs relating directly to the development of the new community proposal may be included even if incurred prior to that date.

(b) Construction costs estimates, to the fullest extent feasible, should be supported by detailed engineer's cost figures broken down by unit quantities and prices, and must be identified in terms of specific improvements.

(c) Fees and charges payable pursuant to Subpart E of this part before or during development may be included as estimated actual costs. $ 710.13 Terms and conditions of bor.

rowing. (a) Kind of obligations. The obligations guaranteed under the Act may include any bond, debenture, note, or other obligation issued by a developer for public or private sale. To facilitate public financing, the guaranteed obligations of any number of developers may be issued to a trustee who will sell to the public, through underwriters or otherwise, certificates of participation or other securities evidencing rights in the guaranteed obligations held in trust, provided that

the terms and conditions of each such transactions shall be approved by the Secretary.

(b) Investors and lenders. Investors in guaranteed obligations, except for public offerings, must be approved by the Secretary or must meet such standards and criteria as may be from time to time prescribed by him. In the case of a public offering, obligations must be underwritten under terms and conditions approved by the Secretary.

(c) Rates of interest and maturities. Rates of interest and any other charges relating to guaranteed obligations and the repayment maturity and redemption privilege provisions of such obligations must be approved by the Secretary.

(d) Trustees and fiduciaries. Any trustee or other person or corporation acting in a fiduciary capacity with respect to a guaranteed obligation must be a banking or other financial institution subject to governmental inspection and supervision. Approval of such a trustee or other person may be conditioned on its written agreement with the Secretary to take such steps and act under such conditions as the Secretary may prescribe for the protection of the security interests of the United States. § 710.14 Equity and working capital.

(a) Prior to the execution of the project agreement a developer must make arrangements satisfactory to the Secretary to assure that there will be adequate funds and working capital to meet cash requirements for costs and contingencies, not covered by the proceeds of guaranteed obligations, incurred or to be incurred in connection with the land development program.

(b) The Secretary may require developers to have equity in addition to funds described in paragraph (a) of this section, according to the amount of and arrangements for debt financing, and such other considerations as he determines may bear upon the risks to the United States as guarantor. § 710.15 Security for the guarantee.

(a) All obligations must contain, or be Issued subject to, such provisions relating to the security interests of the United States as may be required by the Secretary. These shall include general provisions under which the United States shall acquire rights of subrogation on payment of a guarantee in addition to

such special provisions relating to the security of the United States in the specific property, including real property being acquired and developed, or other property as may be appropriate.

(b) Unless otherwise required or approved by the Secretary, the security of the United States will include a first lien on the real property of the developer (or such portion thereof as the Secretary may determine) owner or acquired in connection with the project. The developer's title to such property and the validity of such lien must be evidenced by a title insurance policy issued by a title insurer licensed to do business in the State in which the real property is located and acceptable to the Secretary, or other satisfactory evidence of title. The form and amount of any title insurance policy shall comply with the standards prescribed by the Secretary. At, or prior to, the issuance of obligations guaranteed under the Act, the first llen referred to above shall be given to and held by the Secretary, or by a trustee approved by him. The instruments creating such lien and setting forth the terms and conditions under which it is given and held must be satisfactory to the Secretary.

(c) Such instruments shall include provisions for the release of real property from the lien, as such property is sold or otherwise disposed of for project purposes, in accordance with such schedules and procedures as the Secretary may require in the project agreement to assure that on the sale or other disposition of such property (1) adequate release payments will be applied to the redemption of the guaranteed obligations or paid into an appropriate fund, or (11) other appropriate action will be taken or assurances received as may be required to protect the security interests of the United States. 8 710.16 Terms and conditions of pay

ment under the guarantee. (a) Nature and scope. The full faith and credit of the United States is pledged to the payment of any guarantee made pursuant to the Act, and the validity of such guarantee shall be incontestable in the hands of a qualified holder of a guaranteed obligation, except for fraud or material misrepresentation on the part of such holder. The guarantee may extend to both principal and Interest, including interest, as may be provided for

as, in

in the guarantee, accruing between the view of each proposal, will inform the date of default under a guaranteed obli applicant in writing of his findings and gation and the payment in full of the (1) invite submission of an application; guarantee.

(2) invite submission of an application, (b) Claims and payment upon default. indicating the need for specific changes Upon default by a developer in payment in the project; (3) recommend the resoof interest or principal under an obli lution of certain critical problems before gation guaranteed under the Act, the proceeding with an application; or (4) first recourse of the holder thereof shall discourage an application, indicating the be a claim under the guarantee for pay aspects of the proposal which do not apment of the defaulted interest or prin pear to meet the requirements of the Act. cipal; and, upon payment thereof in An invitation to submit an application accordance with the terms of such guar does not constitute or imply an assurance antee, the holder shall have no further of eventual approval by the Department. recourse. All payments thereunder shall If the applicant is not invited to submit be made in cash from the revolving fund an application, but nevertheless believes established pursuant to the Act.

that the project may qualify under the

Act, he may resubmit the proposal for Subpart D-Procedures

further review with such chas 8 710.18 Preapplication proposal. his opinion, will overcome the initial obThe preapplication procedure is de

jections of the Assistant Secretary for signed to provide an initial screening to

Community Planning and Management. determine whether or not a project ap & 710.19 Application. pears to be within the broad framework

(a) Submission. An application may of the Act before all of the detailed

be submitted to the Assistant Secretary plans are completed by the developer.

for Community Planning and ManageIt will also provide the Secretary an

ment following receipt of an invitation opportunity to work with the developer

pursuant to § 710.18, and upon payment from the earliest stages of project

of the application charge specified in planning.

§ 710.24. The application must contain (a) Inquiry. After familiarizing them

information adequate to enable the Secselves with the Act and the regulations

retary to make the determination that In this part, applicants are encouraged the criteria covered in Subparts B and C to meet with the Assistant Secretary for

of this part have each been met. Specific Community Planning and Management

instructions regarding the items which and his designated representatives to must be included in an application may discuss their proposals, so that subse

be obtained from the Assistant Secretary quent steps may be taken with a clear

for Community Planning and Manageunderstanding of the goals and require

ment. Such items may, in addition to ments of the program.

other matters, include information as to (b) Proposal. The first formal step in

a range of feasible interest rates and processing submission of a preapplica

alternative repayment schedules and tion proposal to the Assistant Secretary

maturities, subject to further determinafor Community Planning and Manage tions in accordance with paragraph (b) ment, U.S. Department of Housing and

of this section. Urban Development, Washington, D.C.

(b) Offer of commitment. If the de20410. The proposal should deal in summary form with the criteria for project

terminations referred to in paragraph evaluation set forth in Subparts B and

(a) of this section are made by the SecC of this part. The proposal need not in retary and an application is approved by clude the detailed supporting data re

him hereunder, the Secretary may adquired for an application. Specific in

dress a letter to the applicant stating in structions regarding the items which effect that, based upon the information must be included in a proposal may be contained in the applicant's proposal and obtained from the Assistant Secretary application and any other information for Community Planning and Manage which may have been submitted by the ment. No charge is required upon sub applicant, the Secretary is prepared to mission of a preapplication proposal. enter into an agreement providing for

(c) Review and action. The Assistant the guarantee under the Act of a speciSecretary for Community Planning and fied maximum principal amount of obliManagement, upon completion of his re gations to be issued by a specified devel

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