[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20250]


[[Page Unknown]]

[Federal Register: August 18, 1994]


_______________________________________________________________________

Part VII





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Public and Indian Housing



_______________________________________________________________________



24 CFR part 955



Public and Indian Housing: Indian Loan Guarantee Program; Housing 
Financing on Restricted Lands; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Public and Indian Housing

24 CFR Part 955

[Docket No. R-94-1730; FR-3614-I-01]
RIN 2577-AB40

 

Loan Guarantees for Indian Housing

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule sets forth regulations to implement the 
Indian Loan Guarantee Program authorized by section 184 of the Housing 
and Community Development Act of 1992. The purpose of the program is to 
provide loan guarantees that will make private financing available to 
Native Americans in restricted lands where no source of financing is 
currently available.

DATES: Effective date: September 19, 1994.
    Comments due date: October 17, 1994.
ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Rules Docket Clerk, Office of General Counsel, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Washington, DC 20410-0500. Communications should refer to 
the above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 7:30 a.m. and 5:30 p.m. 
weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Dominic Nessi, Director, Office of 
Native American Programs, Room B-133, Department of Housing and Urban 
Development, Washington, DC 20410; telephone (202) 755-0032 (voice) or 
(202) 708-0850 (TDD for speech or hearing impaired individuals). These 
are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements contained in this interim 
rule have been submitted to the Office of Management and Budget (OMB) 
for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-
3520). No person may be subjected to a penalty for failure to comply 
with these information collection requirements until they have been 
approved and assigned an OMB control number. The OMB control number, 
when assigned, will be announced by separate notice in the Federal 
Register.
    The public reporting burden for each of these collections of 
information is estimated to include the time for reviewing and 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. Information on the estimated public 
reporting burden is provided under the preamble heading, Other Matters. 
Send comments regarding this burden estimate or any other aspect of 
this collection of information, including suggestions for reducing this 
burden, to the Department of Housing and Urban Development, Rules 
Docket Clerk, 451 Seventh Street, SW, Room 10276, Washington, DC 20410; 
and to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Attention Desk Officer for HUD, Washington, DC 
20503.

II. Background

    Section 184 of the Housing and Community Development Act of 1992 
(HCDA 1992) (Pub. L. 102-550, approved October 28, 1992) authorized the 
establishment of the Indian Housing Loan Guarantee Fund (the Fund) to 
provide access to sources of private financing to Indian families and 
Indian housing authorities who otherwise could not acquire housing 
financing because of the unique legal status of Indian trust land. In 
general, these lands, held in trust by the United States for the 
benefit of an Indian or Indian tribe, are inalienable. Trust lands 
under this program also include lands to which the title is held by an 
Indian tribe subject to a restriction against alienation imposed by the 
United States. Because titles to individual plots do not convey, and 
liens do not attach, conventional mortgage lending practices do not 
operate in this forum.
    The Fund addresses these obstacles to mortgage financing by 
guaranteeing loans made to Indian families or Indian housing 
authorities to construct, acquire, or rehabilitate 1- to 4-family 
dwellings that are standard housing and are located on trust land or 
land located in an Indian or Alaska Native area. Loans may be made by 
any lender approved by the Secretary of Housing and Urban Development, 
the Secretary of Agriculture, or the Secretary of Veterans Affairs; or, 
any lender which is supervised, approved, regulated or insured by any 
agency of the Federal Government.
    Although HCDA 1992 authorized the establishment of the Loan 
Guarantee Fund for fiscal years 1993 and 1994, no funds were 
appropriated until 1994. One million dollars was appropriated in FY 
1994 to capitalize the guarantee fund allowing the Department to extend 
$7 million in loan guarantees.
    The traditional Indian Housing program targets and serves the 
neediest among the Native American population--the low- and very low-
income families. While a large number of Native Americans fall into 
these income groups, there are families who live on reservations, or 
who wish to return to their Native land, whose incomes would allow them 
to afford a home loan, but who cannot construct a home in Indian 
country because of the unique legal status of Indian land. The Indian 
Loan Guarantee program will assist these persons in attaining 
homeownership on their native land.
    Notwithstanding the availability of mortgage insurance under the 
Federal Housing Administration's Section 248 program, the private 
lending market has been reluctant to provide mortgage money in Indian 
country. The limited use of that program has been due in large part to 
the lack of awareness of the availability of mortgage insurance by both 
borrowers and lenders. In addition, until very recently the program was 
limited in applicability because it did not allow insurance of the 
construction loan, and it adheres to the underwriting, mortgage credit, 
and appraisal standards of the non-Indian, single-family mortgage 
insurance program. These standards may not be appropriate in Indian 
country. A real deterrent of Section 248 for Indian tribes is the 
potential for transfer of the home to a non-Indian in the event of 
default and foreclosure. The new program under this interim rule has 
features that are more appropriate for the Native American culture, and 
the potential for a unit to be transferred to a non-Indian is avoided.
    Perhaps the most significant feature of the statute authorizing 
this new program is that it permits loans to be secured by any 
collateral authorized under Federal, State, or local law. This 
innovative approach addresses the basic difference in providing housing 
loans for Indian trust lands, the fact that interests in these land are 
encumbered in ways that land interests in conventional mortgage markets 
are not. This element of uncertainty has certainly played a role in the 
failure of private lenders to provide mortgage services for Indian 
trust lands. This interim rule, in addition to making loan guarantees 
available, makes clear, at Sec. 955.111, that the collateral for loans 
to construct, acquire, or rehabilitate one- to four- family dwellings 
on trust land need not consist of real property and the improvements 
upon it, but may consist of anything of value determined by the lender 
and approved by the Department to be sufficient to cover the amount of 
the loan, and may include, but is not limited to, the property and/or 
improvements to be acquired, constructed, or rehabilitated, to the 
extent that an interest in such property is not subject to the 
restrictions of trust lands against alienation; a first or second 
mortgage on property other than trust land; personal property; or cash, 
notes, an interest in securities, royalties, annuities, or any other 
property that is transferable and whose present value may be 
determined. This use of various forms of collateral is consistent with 
the targeting of moderate income families, as discussed above, as the 
primary beneficiaries of this program.
    This interim rule follows the statutory language very closely, and 
imposes additional regulatory requirements only where necessary to 
implement the program. The statute provides that a loan may be 
guaranteed for approval under this program only where ``there is a 
reasonable prospect of repayment of the loan.'' The interim rule, 
therefore, adds a number of requirements taken from the Department's 
conventional mortgage programs to address this issue.
    One requirement that is added, at Sec. 955.111(b)(3), is to tie 
loan eligibility, where trust land is the collateral for the loan, to 
the presence of eviction procedures. Before HUD will issue any 
commitment to guarantee such a loan on Indian land, the tribe having 
jurisdiction over such property must certify to the Department that it 
has adopted and will enforce procedures for eviction of defaulted 
mortgagors where the guaranteed loan has been foreclosed.
    In other instances where the statute has placed the interpretation 
of a provision within the Department's discretion, the Department has 
attempted to provide the broadest interpretation, as discussed below.
    The law allows the guarantee to cover ``up to'' 100 percent of the 
unpaid principal and interest. The regulation provides, at 
Sec. 955.113(a), for 100 percent coverage. This position is based on 
the FHA mortgage insurance programs which insure 100 percent of the 
principal and interest and provide for payment of other allowable 
expenses in the event of a claim.
    A loan term of ``up to'' 30 years is allowed at Sec. 955.105(b)(1), 
as permitted by the statute, but is not required, because there may be 
instances where terms less than 30 years will be desirable to both the 
borrower and lender. The Department has determined that this program 
should have the flexibility to guarantee most standard loan products, 
with the exception of adjustable rate mortgages. In a totally new 
lending environment, the uncertainty of an adjustable rate would create 
an unnecessary risk to the borrower, the lender and the Department.
    Section 184 requires the Department to set forth requirements for 
standard housing. These requirements are established at 
Sec. 955.107(b)(1), and conform with those established for the FHA 
single family mortgage insurance programs.

Other Matters

Justification for Interim Rulemaking

    The Department has determined that this interim rule should be 
adopted without the delay occasioned by requiring prior notice and 
comment. This interim rule simply constitutes the implementation of 
statutory language with the exercise of little or no discretion on the 
part of the Department. As such, prior notice and comment are 
unnecessary under 24 CFR Part 10. Section 955.125 is added to implement 
a Department-wide policy that provides for the expiration of interim 
rules within a set period of time if they are not issued in final form 
before the end of the period. The expiration period may be extended by 
notice published in the Federal Register. The expiration date for this 
interim rule is July 31, 1995.

Impact on Small Entities

    The Department, in accordance with the Regulatory Flexibility Act 
(5 U.S.C. 605(b)), has reviewed this interim rule before publication 
and by approving it certifies that this interim rule does not have a 
significant economic impact on a substantial number of small entities. 
Specifically, this interim rule implements a loan guarantee program 
targeted to a very specific population, and is not expected to affect a 
substantial number of small entities.

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR Part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant Impact is available for 
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the 
Office of the Rules Docket Clerk.

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this interim rule will not have substantial direct effects 
on states or their political subdivisions, or the relationship between 
the federal government and the states, or on the distribution of power 
and responsibilities among the various levels of government. As a 
result, the interim rule is not subject to review under the order. 
Specifically, the requirements of this interim rule are directed to 
individual borrowers and financial institutions.

Impact on the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this interim rule has 
potential for significant impact on family formation, maintenance, and 
general well-being. The Indian Loan Guarantee Program will make it 
possible for Native American families to build or acquire homes on 
their Native lands where homeownership opportunities have been very 
limited in the past. Accordingly, since the impact on the family is 
beneficial, no further review is considered necessary.

Regulatory Agenda

    This interim rule was listed as item 1682 in the Department's 
Semiannual Agenda of Regulations published on April 25, 1994 (59 FR 
20424, 20469) in accordance with Executive Order 12866 and the 
Regulatory Flexibility Act.

Public Reporting Burden

    The information collection requirements contained in this interim 
rule have been submitted to the Office of Management and Budget under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The 
Department has determined that the following provisions contain 
information collection requirements: 

------------------------------------------------------------------------
                                                 Estimated              
                         No. of     Frequency     average     Estimated 
      Sections        respondents  respondents    response      annual  
                                                  time (in    burden (in
                                                  hours)       hours)   
------------------------------------------------------------------------
Reporting burden:                                                       
    Individuals                                                         
     955.105........          150            1            2          300
    Lending                                                             
     Institutions                                                       
     955.113,                                                           
     955.115,                                                           
     955.119,                                                           
     955.123........           15           10            8        1,200
    Tribes 955.105..           15            1            1          15 
                     ---------------------------------------------------
      Total                                                             
       reporting                                                        
       burden.......  ...........  ...........  ...........        1,515
Recordkeeping                                                           
 burden: 955.105,                                                       
 955.115, 955.119,                                                      
 955.123                       15           12          .24        43.2 
                     ---------------------------------------------------
      Total                                                             
       recordkeeping                                                    
       burden.......  ...........  ...........  ...........        43.2 
------------------------------------------------------------------------

List of Subjects in 24 CFR Part 955

    Indians, Loan programs--Indians, Reporting and recordkeeping 
requirements.

    Accordingly, chapter IX of title 24 of the Code of Federal 
Regulations is amended by adding a new part 955, consisting of 
Secs. 955.101 through 955.125, as follows:

PART 955--LOAN GUARANTEES FOR INDIAN HOUSING

Sec.
955.101  Applicability and scope.
955.103  Definitions.
955.105  Eligible loans.
955.107  Eligible housing.
955.109  Eligible lenders.
955.111  Eligible collateral.
955.113  Certificate of guarantee.
955.115  Guarantee fee.
955.117  Liability under guarantee.
955.119  Transfer and assumptions.
955.121  Disqualification of lenders and civil money penalties.
955.123  Payment under guarantee.
955.125  Expiration of interim rule.

    Authority: 42 U.S.C. 1715z-13a and 3535(d).


Sec. 955.101  Applicability and scope.

    (a) General. Under the provisions of section 184 of the Housing and 
Community Development Act of 1992 (Pub. L. 102-550, approved October 
28, 1992), the Department of Housing and Urban Development has the 
authority to guarantee loans for the construction, acquisition, or 
rehabilitation of 1- to 4-family homes to be owned by Native Americans 
on restricted Indian lands. This part describes the eligibility of 
borrowers, lenders and property, as well as the benefits of the Indian 
Loan Guarantee Program.
    (b) Other HUD regulations and requirements. The provisions of this 
part are supplemented by parts in other chapters of title 24 of the 
Code of Federal Regulations, as applicable.


Sec. 955.103  Definitions.

    Default means the failure by a borrower to make any payment or to 
perform any other obligation under the terms of a loan, and such 
failure continues for a period of more than 30 days.
    Department means the U.S. Department of Housing and Urban 
Development (HUD).
    Guarantee Fund means the Indian Housing Loan Guarantee Fund 
established under section 184(i) of the Housing and Community 
Development Act of 1992.
    Indian means any person recognized as being Indian or Alaska Native 
by an Indian tribe, the Federal Government, or any State, and includes 
the term ``Native American''.
    Indian area means the area within which an Indian housing authority 
is authorized to provide housing.
    Indian Housing Authority (IHA) means any entity that is authorized 
to engage in or assist in the development or operation of low-income 
housing for Indians and that is established either:
    (1) By exercise of the power of self-government of an Indian tribe 
independent of State law; or
    (2) By operation of State law providing specifically for housing 
authorities for Indians, including regional housing authorities in the 
State of Alaska.
    Mortgage as used in this part, means a first lien as is commonly 
given to secure advances on, or the unpaid purchase price of, real 
estate under the laws of the jurisdiction where the property is located 
and may refer both to a security instrument creating a lien, whether 
called a mortgage, deed of trust, security deed, or another term used 
in a particular jurisdiction, as well as the credit instrument, or 
note, secured thereby.
    Principal residence means the dwelling where the mortgagor 
maintains (or will maintain) his or her permanent place of abode, and 
typically spends (or will spend) the majority of the calendar year. A 
person may have only one principal residence at any one time.
    Secretary means the Secretary of Housing and Urban Development. 
Standard housing means a dwelling unit or housing that complies with 
the requirements established in this part.
    Tribe means any tribe, band, pueblo, group, community, or nation of 
Indians or Alaska Natives.
    Trust land means land, title to which is held by the United States 
for the benefit of an Indian or Indian tribe; or, land, title to which 
is held by an Indian tribe, subject to a restriction against alienation 
imposed by the United States.


Sec. 955.105  Eligible loans.

    (a) Eligible borrowers. A loan guaranteed under this part may be 
made to a borrower that is:
    (1) An Indian who will occupy it as a principal residence and who 
is otherwise qualified under this part; or
    (2) An Indian Housing Authority.
    (b) Terms of loan. The loan shall:
    (1) Be made for a term not exceeding 30 years;
    (2) Bear interest (exclusive of the guarantee fee and service 
charges, if any) at a fixed rate agreed upon by the borrower and the 
lender and determined by the Department to be reasonable, which may not 
exceed the rate generally charged in the area (as determined by the 
Department) for home mortgage loans not guaranteed or insured by any 
agency or instrumentality of the Federal Government.
    (c) Maximum mortgage amounts. (1) A principal obligation may not 
exceed:
    (i) An amount equal to the sum of:
    (A) 97 percent of the first $25,000 of the appraised value of the 
property, as of the date the loan is accepted for guarantee; and
    (B) 95 percent of such value in excess of $25,000; and
    (ii) Amounts approved otherwise by the Department under this 
section.
    (2) The balance of the purchase price must involve a payment on 
account of the property that may be:
    (i) In cash or other property of equivalent value acceptable to the 
lender and the Department; or
    (ii) The value of any improvements to the property made through the 
skilled or unskilled labor of the borrower, appraised in accordance 
with generally acceptable practices and procedures.
    (d) Construction advances. The Department may guarantee loans from 
which advances will be made during construction. The Department will 
provide guarantees for advances made by the mortgagee during 
construction if all of the following conditions are satisfied:
    (1) The mortgagor and the mortgagee execute a building loan 
agreement, approved by HUD, setting forth the terms and conditions 
under which advances will be made;
    (2) The advances are made only as provided in the commitment;
    (3) The principal amount of the mortgage is held by the mortgagee 
in an interest bearing account, trust, or escrow for the benefit of the 
mortgagor, pending advancement to the mortgagor or to his or her 
creditors as provided in the loan agreement; and
    (4) The mortgage shall bear interest on the amount advanced to the 
mortgagor or to his or her creditors and on the amount held in an 
account or trust for the benefit of the mortgagor.
    (e) Prohibited loans. Adjustable rate mortgages are not permitted 
under this program.


Sec. 955.107  Eligible housing.

    (a) In general. A loan guaranteed under this part may be used for 
the construction, acquisition, or rehabilitation of 1- to 4-family 
dwellings located on trust land or land located in an Indian area.
    (b) Safety and quality standards. Loans guaranteed under this part 
shall be made only on dwelling units which meet safety and quality 
standards set forth herein. Each unit must:
    (1) Be decent, safe, sanitary, and modest in size and design;
    (2) Conform with applicable general construction standards for the 
region;
    (3) Contain a heating system that:
    (i) Has the capacity to maintain a minimum temperature in the 
dwelling of 65 degrees Fahrenheit during the coldest weather in the 
area;
    (ii) Is safe to operate and maintain;
    (iii) Delivers a uniform distribution of heat; and
    (iv) Conforms to any applicable tribal heating code or, if there is 
not applicable tribal code, an appropriate county, State, or National 
code;
    (4) Contain a plumbing system that:
    (i) Uses a properly installed system of piping;
    (ii) Includes a kitchen sink and a partitional bathroom with 
lavatory, toilet, and bath or shower; and
    (iii) Uses water supply, plumbing and sewage disposal systems that 
conform to any applicable tribal code or, if there is no applicable 
tribal code, the minimum standards established by the applicable county 
or State;
    (5) Contain an electrical system using wiring and equipment 
properly installed to safely supply electrical energy for adequate 
lighting and for operation of appliances that conforms to any 
applicable tribal code or, if there is no applicable tribal code, an 
appropriate county, State, or National code;
    (6) Be not less than:
    (i) 570 square feet in size, if designed for a family of not more 
than 4 persons;
    (ii) 850 square feet in size, if designed for a family of not less 
than 5 and more than 7 persons; and
    (iii) 1020 square feet in size, if designed for a family of not 
less than 8 persons; or
    (iv) The size provided under the applicable locally adopted 
standards for size of dwelling units; except that the Department, upon 
the request of a tribe or Indian housing authority, may waive the size 
requirements under this paragraph; and
    (7) Conform with the energy performance requirements for new 
construction established by the Department under section 526(a) of the 
National Housing Act (12 U.S.C. 1735f-4).


Sec. 955.109  Eligible lenders.

    The loan shall be made only by a lender approved by and meeting 
qualifications established in this part, except that loans otherwise 
insured or guaranteed by any agency of the Federal Government, or made 
by an organization of Indians from amounts borrowed from the United 
States shall not be eligible for guarantee under this part. The 
following lenders are deemed to be approved under this part:
    (a) Any mortgagee approved by the Department of Housing and Urban 
Development for participation in the single family mortgage insurance 
program under title II of the National Housing Act (12 U.S.C. 1707).
    (b) Any lender whose housing loans under chapter 37 of title 38, 
United States Code are automatically guaranteed pursuant to section 
1802(d) of such title.
    (c) Any lender approved by the Department of Agriculture to make 
guaranteed loans for single family housing under the Housing Act of 
1949 (42 U.S.C. 1441).
    (d) Any other lender that is supervised, approved, regulated, or 
insured by any agency of the Federal Government.


Sec. 955.111  Eligible collateral.

    (a) In general. A loan guaranteed under this part may be secured by 
any collateral authorized under Federal, State, or tribal law and 
determined by the lender and approved by the Department to be 
sufficient to cover the amount of the loan, and may include, but is not 
limited to, the following:
    (1) The property and/or improvements to be acquired, constructed, 
or rehabilitated, to the extent that an interest in such property is 
not subject to the restrictions of trust lands against alienation;
    (2) A first or second mortgage on property other than trust land;
    (3) Personal property; or
    (4) Cash, notes, an interest in securities, royalties, annuities, 
or any other property that is transferable and whose present value may 
be determined.
    (b) Trust land as collateral. If trust land is used as collateral 
for the loan, the following additional provisions apply:
    (1) Approved Lease. Any land lease for a unit financed under this 
part must be on a form approved by both HUD and the Bureau of Indian 
Affairs, U.S. Department of Interior.
    (2) Assumption or sale of leasehold. If a leasehold is used as 
security for the loan, the loan form must contain a provision requiring 
tribal consent before any assumption of an existing lease, except where 
title to the leasehold interest is obtained by the Department through 
foreclosure of the guaranteed mortgage. A mortgagee other than the 
Department must obtain tribal consent before obtaining title through a 
foreclosure sale. Tribal consent must be obtained on any subsequent 
transfer from the purchaser, including the Department, at foreclosure 
sale. The lease may not be terminated by the lessor without HUD's 
approval while the mortgage is guaranteed or held by the Department.
    (3) Priority of loan obligation. Any tribal government whose courts 
have jurisdiction to hear foreclosures must enact a law providing for 
the satisfaction of a loan guaranteed or held by the Department before 
other obligations (other than tribal leasehold taxes against the 
property assessed after the property is mortgaged) are satisfied.
    (4) Eviction procedures. Before HUD will guarantee a loan secured 
by trust land, the tribe having jurisdiction over such property must 
certify to the Department that it has adopted and will enforce 
procedures for eviction of defaulted mortgagors where the guaranteed 
loan has been foreclosed.
    (i) Enforcement. If the Department determines that the tribe has 
failed to enforce adequately its eviction procedures, HUD will cease 
issuing guarantees for loans for tribal members except pursuant to 
existing commitments. Adequate enforcement is demonstrated where prior 
evictions have been completed within 60 days after the date of the 
notice by HUD that foreclosure was completed.
    (ii) Review. If the Department ceases issuing guarantees in 
accordance with the first sentence of paragraph (c)(1) of this section, 
HUD shall notify the tribe of the reasons for such action and that the 
tribe may, within 60 days after notification of HUD's action, file a 
written appeal with the Field Office of Native American Programs 
(FONAP) Administrator. Within 60 days after notification of an adverse 
decision of the appeal by the FONAP Administrator, the tribe may file a 
written request for review with the headquarters Director, Office of 
Native American Programs (ONAP). Upon notification of an adverse 
decision by the ONAP Director, the tribe has 60 additional days to file 
an appeal with the Assistant Secretary for Public and Indian Housing. 
The determination of the Assistant Secretary shall be final, but the 
tribe may resubmit the issue to the Assistant Secretary for review at 
any subsequent time if new evidence or changed circumstances warrant 
reconsideration. (Any other administrative actions determined to be 
necessary to debar a tribe from participating in this program will be 
subject to the formal debarment procedures contained in 24 CFR part 
24).


Sec. 955.113  Certificate of guarantee.

    (a) Extent of guarantee. A certificate issued in accordance with 
this section guarantees 100 percent of the unpaid principal and 
interest of the underlying loan.
    (b) Approval process. Before the Department approves any loan for 
guarantee under this part, the lender shall submit the application or 
the loan to the Department for examination. If the Department approves 
the loan for guarantee, the Department will issue a certificate under 
this part as evidence of the guarantee.
    (c) Standard for approval. (1) The Department may approve a loan 
for guarantee under this part and issue a certificate under this 
section only if the Department determines there is a reasonable 
prospect of repayment of the loan based on criteria established 
pursuant to this part.
    (2) The Department will assure that the value of the property has 
been established in accordance with current regulatory and 
administrative requirements.
    (3) Before approval of a loan for guarantee, the Department will 
assure that all required environmental reviews pursuant to 24 CFR Part 
50 have been performed and, if necessary, all findings have been 
successfully resolved.
    (d) Effect. A certificate of guarantee issued under this section by 
the Department shall be conclusive evidence of the eligibility of the 
loan for guarantee under the provisions of this part and the amount of 
such guarantee. Such evidence shall be incontestable in the hands of 
the bearer and the full faith and credit of the United States is 
pledged to the payment of all amounts agreed to be paid by the 
Department as security for such obligations.
    (e) Fraud and misrepresentation. Nothing in this part may preclude 
the Department from establishing:
    (1) Defenses against the original lender based on fraud or material 
misrepresentation; and
    (2) Establishing partial defenses, based upon regulations in effect 
on the date of issuance or disbursement (whichever is earlier), to the 
amount payable on the guarantee.


Sec. 955.115  Guarantee fee.

    The lender shall pay to the Department, at the time of issuance of 
the guarantee, a fee for the guarantee of loans under this section, in 
an amount equal to 1 percent of the principal obligation of the loan. 
This amount is payable by the borrower at closing.


Sec. 955.117  Liability under guarantee.

    The liability under a guarantee provided in accordance with this 
part shall decrease or increase on a pro rata basis according to any 
decrease or increase in the amount of the unpaid obligation under the 
provisions of the loan agreement.


Sec. 955.119  Transfer and assumptions.

    Notwithstanding any other provision of law, any loan guaranteed 
under this part, including the security given for the loan, may be sold 
or assigned by the lender to any financial institution subject to 
examination and supervision by an agency of the Federal Government or 
of any State or the District of Columbia.


Sec. 955.121  Disqualification of lenders and civil money penalties.

    (a) General. If the Department determines that any lender or holder 
of a guarantee certificate under Sec. 955.113 has failed to maintain 
adequate accounting records, to adequately service loans guaranteed 
under this section to exercise proper credit or underwriting judgement, 
or has engaged in practices otherwise detrimental to the interest of a 
borrower or the United States, the Department may:
    (1) Refuse, either temporarily or permanently, to guarantee any 
further loans made by such lender or holder;
    (2) Bar such lender or holder from acquiring additional loans 
guaranteed under this section; and
    (3) Require that such lender or holder assume not less than 10 
percent of any loss on further loans made or held by the lender or 
holder that are guaranteed under this section.
    (b) Civil money penalties for intentional violations. If the 
Department determines that any lender or holder of a guarantee 
certificate under Sec. 955.113 has intentionally failed to maintain 
adequate accounting records, to adequately service loans guaranteed 
under this section, or to exercise proper credit or underwriting 
judgement, the Department may impose a civil money penalty on such 
lender or holder in the manner and amount provided under section 536 of 
the National Housing Act (12 U.S.C. 1735f-14) with respect to 
mortgagees and lenders under such Act.
    (c) Payment of loans made in good faith. Notwithstanding paragraphs 
(a) and (b) of this section, the Department may not refuse to pay 
pursuant to a valid guarantee on loans of a lender or holder barred 
under this section if the loans were previously made in good faith.


Sec. 955.123  Payment under guarantee.

    (a) Lender options. (1) General. In the event of default by the 
borrower on a loan guaranteed under this part, the holder of the 
guarantee certificate shall provide written notice of the default to 
the Department. Upon providing this notice, the holder of the guarantee 
certificate will be entitled to payment under the guarantee (subject to 
the provisions of this part) and may proceed to obtain payment in one 
of the following manners:
    (i) Foreclosure. The holder of the certificate may initiate 
foreclosure proceedings in a court of competent jurisdiction (after 
providing written notice of such action to the Department) and upon a 
final order by the court authorizing foreclosure and submission to the 
Department of a claim for payment under the guarantee, the Department 
will pay to the holder of the certificate the pro rata portion of the 
amount guaranteed (as determined in accordance with Sec. 955.117) plus 
reasonable fees and expenses as approved by the Department. The 
Department will be subrogated to the rights of the holder of the 
guarantee and the lender holder shall assign the obligation and 
security to the Department.
    (ii) No foreclosure. Without seeking a judicial foreclosure (or in 
any case in which a foreclosure proceeding initiated under paragraph 
(a)(1)(i) of this section continues for a period in excess of 1 year), 
the holder of the guarantee may submit to the Department a claim for 
payment under the guarantee and the Department will only pay to such 
holder for a loss on any single loan an amount equal to 90 percent of 
the pro rata portion of the amount guaranteed (as determined in 
accordance with Sec. 955.117). The Department will be subrogated to the 
rights of the holder of the guarantee and the holder shall assign the 
obligation and security to the Department.
    (2) Requirements. Before any payment under a guarantee is made 
under paragraph (a)(1) of this section, the holder of the guarantee 
shall exhaust all reasonable possibilities of collection. Upon payment, 
in whole or in part, to the holder, the note of judgement evidencing 
the debt shall be assigned to the United States and the holder shall 
have no further claim against the borrower or the United States.
    (b) Assignment by the Department. Notwithstanding paragraph (a) of 
this section, upon receiving notice of default on a loan guaranteed 
under this section from the holder of the guarantee, the Department may 
accept assignment of the loan if the Department determines that the 
assignment is in the best interests of the United States. Upon 
assignment the Department will pay to the holder of the guarantee the 
pro rata portion of the amount guaranteed (as determined in accordance 
with Sec. 955.117). The Department will be subrogated to the rights of 
the holder of the guarantee and the holder shall assign the obligation 
and security to the Department.
    (c) Limitations on liquidation. In the event of a default by the 
borrower on a loan guaranteed under this section involving a security 
interest in tribal allotted or trust land, the Department will only 
pursue liquidation after offering to transfer the account to an 
eligible tribal member, the tribe, or the Indian housing authority 
serving the tribe or tribes. If the Department subsequently proceeds to 
liquidate the account, the Department will not sell, transfer, 
otherwise dispose of or alienate the property except to one of the 
entities described in the preceding sentence.


Sec. 955.125  Expiration of interim rule.

    This part shall expire and shall not be in effect after July 31, 
1995, unless it is published as a final rule or the Department 
publishes a notice in the Federal Register to extend the effective 
date.

    Dated: August 10, 1994.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 94-20250 Filed 8-17-94; 8:45 am]
BILLING CODE 4210-33-P