[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Rules and Regulations]
[Pages 29091-29092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14149]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Parts 1806, 1910, 1922, 1944, 1951, 1955, 1956, 1965, and 
3550

RIN 0575-AB99


Reengineering and Reinvention of the Direct Section 502 and 504 
Single Family Housing (SFH) Programs; Reopening of Comment Period

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Reopening of comment period on interim final rule.

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SUMMARY: The Rural Housing Service (RHS) is reopening the comment 
period on proposed revisions to the Agency's standards for modest 
housing in the direct Single Family Housing (SFH) program. The Agency 
published proposed changes to these standards in the Federal Register 
on April 8, 1996 (61 FR 15395), and subsequently published an interim 
final rule on November 22, 1996 (61 FR 59762). This current action is 
being taken to solicit additional comments from the public. The 
intended effect is to ensure that the Agency has regulations in effect 
which best define modest housing, and provide homeownership 
opportunities to the maximum number of families within allocated 
resources.

DATES: Written comments must be received June 29, 1998.

ADDRESSES: Written comments may be submitted, in duplicate, to the 
Chief, Regulations and Paperwork Management Branch, U.S. Department of 
Agriculture, Stop 0742, 1400 Independence Avenue, SW, Washington, D.C. 
20250-0742. Comments may be submitted via the Internet by addressing 
them to ``[email protected]'' and must contain the word ``modest'' 
in the subject. All written comments will be available for public 
inspection at 300 E Street, SW, Third Floor, Washington, D.C. 20546 
during normal working hours.

FOR FURTHER INFORMATION CONTACT: David J. Villano, Special Assistant to 
the Administrator, RHS, U.S. Department of Agriculture, Room 5017-S, 
Stop 0701, 1400 Independence Avenue, SW, Washington, D.C. 20250-0701, 
telephone (202) 720-1628.

SUPPLEMENTARY INFORMATION:

Background

    On April 8, 1996, the Agency published a proposed rule in the 
Federal Register (61 FR 15395) to reinvent and reengineer the direct 
SFH programs. An interim final rule was subsequently published in the 
Federal Register (61 FR 59762) on November 22, 1996. The interim final 
rule requested additional comments on four sections of the rule. One of 
these sections [7 CFR 3550.57(a)] dealt with the Agency's standards for 
modest housing in the direct SFH program. In brief, the primary factor 
for determining whether a house is modest is whether the cost is below 
the section 203(b) maximum loan limits established by the Department of 
Housing and Urban Development. Use of the section 203(b) limits are not 
required by statute in the direct SFH program; however, they were 
adopted by the Agency in 1995 as the primary factor for determining 
whether a house was modest. Prior to 1995, the Agency used square 
footage and amenity standards to make such a determination. Different 
square footage requirements existed for different family sizes, and the 
regulations contained an extensive list of amenities which were not 
permitted in houses to be financed by the Agency. These standards were 
overly cumbersome, especially for

[[Page 29092]]

families seeking to purchase an existing home, and did not provide 
sufficient flexibility. The Agency received tremendous support when the 
previous standards were eliminated.
    As mentioned, the new standards for modest housing became effective 
in 1995. As the Agency began the process of reinventing and 
reengineering the program in 1996, we became aware of concerns which 
impacted our ability to provide financing on modest homes for very-low 
and low-income families in rural America. For example, in some rural 
areas, the section 203(b) loan limit is higher than the cost of housing 
the Agency financed under previous standards. This is evidenced by an 
increase in the average cost of a house financed by the Agency under 
the previous standards and the average cost of a house financed under 
the section 203(b) standards, even when the rise in construction costs 
is taken into account. This limits our ability to provide the maximum 
number of homeownership opportunities in rural America within allocated 
funds. Concomitantly, in other areas of rural America, the section 
203(b) limits are too low for the Agency to finance the cost of 
constructing a modest home. The percentage of newly constructed homes 
financed by the Agency has dropped significantly since the Agency began 
utilizing the section 203(b) limits. This severely limits our ability 
to provide homeownership opportunities for families in many growing 
rural communities which are in dire need of new housing.
    For these reasons, when the Agency published the aforementioned 
interim final rule comments were solicited on alternative methods the 
Agency could utilize to ensure that only modest housing was financed. 
Seven comments were received. None of the commentors wanted the Agency 
to return to its previous standards and most supported continuing with 
the section 203(b) limits. No additional criteria were provided by the 
commentors. In retrospect, the Agency believes that at the time of 
publication of the interim final rule, most of the commentors were not 
fully aware of the impact of the use of the 203(b) loan limits in the 
direct SFH program. The Agency is again seeking recommendations on 
alternative methods for establishing a standard for modest housing. The 
Agency is currently considering two options.
    The first option being considered is to utilize a multiple of the 
median income for the area to establish the maximum loan amount. In 
this manner, the income of the area would assist in determining a 
typical modest home for the area. RHS is considering establishing a 
maximum loan amount of 2.5 times the median income for a family of 
four. For example, if the median income for a family of four was 
$30,000 in a given county, the maximum loan would be $75,000 ($30,000 
times 2.5). For families in excess of four, the loan limit would be 2.5 
times the median income for that family size.
    The second option being considered is a square footage limitation. 
The Agency has no intention of reconsidering the previous standards in 
which amenities were considered and square footage maximums were set by 
specific family size. The proposed standard is simple and 
straightforward. The maximum square footage allowable would be 1300 
square feet of finished living area. This standard would apply to 
existing homes and new construction. For family sizes in excess of 
four, the square footage standard may be increased by 150 square feet 
for each family member over four. The Agency also proposes to allow the 
State Director the authority to provide exceptions on a case-by-case 
basis provided the proposed housing is modest and alternative homes 
within the square footage standards are not readily available in the 
market. There would be no amenity standards except for the existing 
requirements that the property may not have an in-ground pool or be 
used for income producing purposes.
    Under this option, the Agency is particularly interested in 
comments on how to further satisfy our statutory mandate to finance 
only modest housing, without the need to establish specific amenity 
standards. In addition, the Agency is proposing only one square footage 
standard; whereas in the past, different square footage standards for 
existing homes and new construction existed. The Agency wants comments 
on whether a single standard is appropriate, or whether and why 
separate standards should be established. Also, if two standards are 
recommended, what square footage standards should be established for 
existing homes and new construction? And finally, how should the Agency 
define ``finished'' living area?
    The Agency would appreciate comments on these two options, together 
with any recommended enhancements or changes. In addition, the Agency 
is also interested in other potential standards by which to determine 
that housing is modest provided such standards are simple, 
straightforward and not overly burdensome to our customers.
    The Agency generally provides a 60-day comment period for proposed 
changes. However, since the Agency is only requesting comments on one 
standard, a 30-day comment period is provided. It is the Agency's 
objective to publish a final rule with the proposed change by September 
1, 1998, with an effective date of October 1, 1998. The rule would be 
effective for any current applicant who had not submitted a sales 
contract for the purchase of a home to the Agency.

    Dated: May 21, 1998.
Jan E. Shadburn,
Administrator, Rural Housing Service.
[FR Doc. 98-14149 Filed 5-27-98; 8:45 am]
BILLING CODE 3410-XV-U