[Federal Register Volume 67, Number 247 (Tuesday, December 24, 2002)]
[Rules and Regulations]
[Pages 78321-78332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32190]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business--Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1806, 1822, 1924, 1925, 1927, 1930, 1940, 1944, 1948, 
1950, 1951, 1955, 1965, 1980, and 3550

RIN 0575-AB99


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

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

ACTION: Final rule.

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SUMMARY: The Rural Housing Service (RHS), published an interim final 
rule on November 22, 1996 (61 FR 59761-59802) requesting comments on 
the Single Family Housing regulations. This action incorporates the 
changes made as a result of the comments received and is taken to 
further reduce unnecessary Federal regulations, improve customer 
service, and improve the agency's ability to achieve greater 
efficiency, flexibility and effectiveness in managing its SFH 
portfolio. The intended effect of this action is to improve service to 
rural America and comply with the Administration's goal of reducing 
unnecessary Federal regulations.

EFFECTIVE DATE: January 23, 2003 except 3550.63 (the maximum loan 
limit) will be effective on March 24, 2003.

FOR FURTHER INFORMATION CONTACT: Thomas P. Dickson, Senior Loan 
Specialist, Single Family Housing, Direct Loan Division, Rural Housing 
Service, U.S. Department of Agriculture, Stop 0783, 1400 Independence 
Avenue, SW., Washington, DC 20250-0783, telephone (202) 720-1474.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be not significant and was not 
reviewed by the Office of Management and Budget (OMB) under Executive 
Order 12866.

[[Page 78322]]

Paperwork Reduction Act of 1995

    The information collection requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) under the provisions of 44 U.S.C. chapter 35 and have been 
assigned OMB control number 0575-0172, in accordance with the Paperwork 
Reduction Act (PRA) of 1995. This rule does not impose any new or 
modified information collection requirements.

Civil Justice Reform

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. In accordance with that Executive Order: (1) All state 
and local laws and regulations that are in conflict with this rule will 
be preempted; (2) no retroactive effect will be given to this rule; and 
(3) administrative proceedings in accordance with the regulations of 
the National Appeals Division of USDA at 7 CFR part 11 must be 
exhausted before bringing suit in court challenging action taken under 
this rule unless those regulations specifically allow bringing suit at 
an earlier time.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, 2 
U.S.C. 1532, RHS generally must prepare a written statement, including 
a cost-benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector, of $100 
million or more in any one year. When such a statement is needed for a 
rule, section 205 of the UMRA generally requires RHS to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, more cost-effective or least burdensome alternative that 
achieves the objectives of the rule. This rule contains no Federal 
mandates (under the regulatory provisions of Title II of the UMRA) for 
State, local, and tribal Governments or the private sector. Therefore, 
this rule is not subject to the requirements of sections 202 and 205 of 
the UMRA.

Programs Affected

    The following programs are affected by this final rule: 10.410 Very 
Low to Moderate Income Housing Loans, 10.417 Very Low-Income Housing 
Repair Loans and Grants, 10.770 Water and Waste Disposal Loans and 
Grants (Section 306C).

Intergovernmental Consultation

    For the reasons set forth in the final rule related Notice to 7 CFR 
part 3015, subpart V, only the Water and Waste Disposal Loans and 
Grants are subject to Executive Order 12372 which requires 
intergovernmental consultation with State and local officials.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It is the determination of RHS 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with the National Environmental Policy Act of 1969, Pub. L. 
91-190, an Environmental Impact Statement is not required.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has 
determined and certified by signature of this document that this rule 
will not have a significant economic impact on a substantial number of 
small entities since this rulemaking action does not involve a new or 
expanded program.

Background Information

    The RHS published an interim final rule on November 22, 1996 (61 FR 
59761-59802) for reengineering and reinventing how direct loans and 
grants under sections 502 and 504 of the Housing Act of 1949 are made 
and serviced. The Agency made the decision to publish this as an 
interim final rule in order to give the public the opportunity to 
comment on four particular sections. These sections cover areas where 
the Agency needed further comment and analysis completed to determine 
the impact of the changes on the section 502 program. The areas that 
were of most concern to the RHS related to payment subsidies and 
defining modest housing. Analyses and research were done based on the 
comments received, and the Agency has made revisions to the definition 
of modest housing, which will increase our level of customer service 
and reduce costs to the taxpayer by increasing the modest housing limit 
in areas where the limit was too low to finance modest homes, 
especially new construction, and lowering the limit in other areas 
where the financing of housing was considered more than ``modest.'' The 
result will be a more equitable and flexible program serving more 
customers at a lower cost to the taxpayer.

Implementation of This Rule

    This final rule includes provisions pertaining to the definition of 
a modest dwelling and the maximum loan limit that an applicant can 
receive to purchase a single-family residence. In order to implement 
this rule, States must gather certain data on improved lot sales for 
each county in their state. States will be allowed up to 45 days to 
gather the information, conduct an analysis, and prepare a 
recommendation to be submitted to the Administrator. Upon receipt, the 
Administrator will review and, if acceptable, approve the State's 
recommendation during the next 45-day period. Once the State receives 
approval, they will make the new maximum loan limits available in the 
State Office and their local offices.
    All provisions of this rule are effective 30 days after publication 
in the Federal Register, except the maximum loan limit, which will be 
effective 90 days from the date of publication. All pending 
applications will be subject to this final rule unless the applicant 
received Form RD 1944-59, ``Certificate of Eligibility,'' or submitted 
a contract for the purchase of a property or to build a home prior to 
the effective date of the new maximum loan limits. Details of the 
provisions adopted in this rule are given in the ``Discussion of 
Comments'' section.

Discussion of Comments

    The interim final rule was published in the Federal Register on 
November 22, 1996, with a 30-day comment period that ended December 26, 
1996. Seven comments were received from Rural Development personnel, 
housing advocacy groups, developers, builders, housing authorities, 
housing organizations, and other interested parties. Written comments 
were requested specifically for the following four sections: 
3550.53(g), 3550.57(a), 3550.63, and 3550.68. These comments are 
discussed below. Comments also were received on three additional 
sections: 3550.53(a), 3550.53(h), and 3550.56(b). These unsolicited 
comments have not been addressed.

Section 3550.53(g) Repayment Ability

    Six comments were received on this section. Two comments were in 
favor of using the same principal, interest, taxes and insurance (PITI) 
ratio of 33 percent for both low and very low-income applicants. They 
felt this would be simpler and fairer for both income groups. One 
commentor felt that using 29 percent promoted very low-income 
applicants to carry more debt. Two commentors felt that the PITI ratio

[[Page 78323]]

should be capped at 29 percent for both low and very low-income 
applicants. One commentor felt that the 29 percent cap coupled with 
exclusively using the equivalent interest rate method of payment 
assistance would promote applicants' shopping for more affordable 
housing. The other commentor felt that using 29 percent PITI would make 
the program consistent with the Guaranteed Housing Program.
    The Agency considered these comments and determined that there is 
merit in having different PITI ratios for very low- and low-income 
applicants. Low-income applicants have relatively more disposable 
income for PITI and can afford to pay a higher amount for PITI than 
very low-income applicants. The Agency determined that the two separate 
PITI ratios at 29 percent for very low-income and 33 percent for low-
income should continue. The lower PITI ratio for very low-income 
applicants allows them to pay a more affordable payment and keeps the 
overall subsidy provided at a lower rate. Very low-income applicants 
have less disposable income available with which to make payments. The 
amount of subsidy will be lower due to the overall lower payment. As 
for the total debt (TD) load of very low-income applicants, the 41 
percent ratio allows a very low-income applicant to carry some debt 
load considered a necessity, such as medical expenses or a car payment.
    One commentor recommended lowering the PITI ratios because of the 
high cost of construction in the commentor's particular State and the 
fact that many people in the State live a subsistence lifestyle with 
little or no cash income. The issue in this comment had more to do with 
cash for repayment. The program is a loan program. The program requires 
that eligible recipients repay their loan and; therefore, some type of 
adequate cash income is needed to do so.
    One commentor agreed that the ratios set forth in the interim final 
rule are fair and similar to those in other mortgage lending programs.

Section 3550.57(a) Modest Dwelling

    Five comments were received regarding the definition of modest 
dwelling. Four of these agreed that the use of 203(b) of the National 
Housing Act (12 U.S.C. 1709(b)) is the best way to determine modest 
housing. Two of these were of the opinion that there are many areas 
where some reduction from these limits is in order. The Agency has 
studied the effect of the use of the section 203(b) limits of the 
National Housing Act and the cost of modest housing in rural areas. The 
adoption of the section 203(b) limits of the National Housing Act has 
led in many areas to the financing of housing that RHS believes to be 
more than ``modest.'' In addition, the limits are so low in other 
areas, and are not based on rural statistics, that the Agency is unable 
to finance homes (especially new construction). A modification of the 
loan limits is needed because of the desire to serve as many low and 
very low--income rural residents as possible and to ensure that the 
Agency is clearly financing only modest homes.
    Several possibilities were explored for defining modest housing. 
One of these compared the adjusted county median income to typical loan 
amounts made during fiscal years 1991 through 1995, while square 
footage limitations defined modest housing. The response to this 
proposal was generally negative. Some thought it was too complicated 
while others thought that the section 203(b) limit of the National 
Housing Act is more recognized and understood, whereas median income is 
not.
    The Agency then conducted an historical analysis of the 
relationship between the section 203(b) limit of the National Housing 
Act and section 502 loan amounts. This analysis showed that in most 
States, the 203(b) limit of the National Housing Act exceeds the cost 
of historically modest housing. It was clear that the 203(b) limit of 
the National Housing Act has little or no correlation to the actual 
price of rural housing, particularly in counties that are not ``high 
cost.'' In addition, the historical data supported the claim that in 
the majority of counties, RHS has made loans significantly lower than 
203(b) of the National Housing Act.
    Also, the Agency utilized a nationally recognized source for 
providing residential cost data related to new construction to assist 
in this endeavor. The vehicle calculated costs for new construction on 
a county by county basis throughout the country, based on parameters 
that closely defined modest housing in terms of size and amenities. 
These numbers did not include the cost of an improved site. States were 
requested to establish the market value of improved sites including the 
market value of the lot, the cost of water and sewer hookup or well and 
a septic system, driveway and landscaping, based upon their own market 
analysis of comparable sales or other substantiated data. Each Rural 
Development State Office was provided the construction cost numbers and 
was asked to add the market value of an improved site to these numbers 
to arrive at a maximum loan limit. A majority of the states indicated 
that this loan limit most closely represented the type of modest 
housing being constructed in their State.
    In addition, consideration was given to allow States to use a 
recognized established loan limit such as those set by a State Housing 
Authority as long as the limits were within a close percentage (5 to 10 
percent) of the limit for construction cost plus market value of the 
unimproved site discussed above.
    Another commentor was concerned that lower cost should not be 
confused with low quality, and that quality construction with good 
insulation and structural soundness will decrease the likelihood of 
defaults. The Agency supports quality construction. In accordance with 
42 U.S.C. 1479(a), the Agency requires in Sec.  3550.57 that new homes 
to be built in accordance with the building code for the particular 
area of the country where the house is being constructed. Additionally, 
7 CFR part 1924, subpart A, exhibit D requires that houses be insulated 
according to the Model Energy Code (MEC) appropriate for the area.
    The discussion of modest housing limits and maximum loan amounts 
are closely related. See Sec. 3550.63, Maximum loan amount, for a full 
discussion of these comments. In sum, the Agency has determined that 
``modest housing'' generally may not have a market value in excess of 
the maximum loan limit under that section.

Section 3550.63 Maximum Loan Amount

    The comments under this section were essentially identical to those 
received on Sec. Sec.  3550.53(g), 3550.57(a), and 3550.68. The Agency 
received six comments on the maximum loan amounts. One of the 
commentors felt that using State non-metro average income would be a 
better way to determine maximum loan amount. While it is true that 
housing fair market values are higher in areas of higher income, based 
on the Agency's past experience, there is no consistent direct 
relationship between income and housing values across the country. In 
other words, housing values are more related to location. Areas across 
the country with similar median incomes do not necessarily have similar 
housing values. Therefore, this comment was not adopted.
    Another commentor recommended a provision for exceeding the 
appraised value when another affordable housing agency or non-profit is 
providing forgivable loans for closing or down payment assistance. The 
Agency allows the appraised value to be exceeded by the cost of an 
appraisal and other

[[Page 78324]]

allowable closing costs, regardless of where the financing is obtained. 
However, the Agency agrees that some flexibility should be allowed when 
forgivable loans or grants are provided for the purpose of down payment 
assistance and closing costs. The Agency has determined that in those 
cases where there is a grant or forgivable subordinate affordable 
housing products, the total debt may exceed the market value by the 
amount of the forgivable loan or grant up to 5 percent. This will 
provide the needed flexibility and not put the Agency at undue risk of 
loss. Any additional amount above the appraised value is not authorized 
and would leave the Agency unsecured in the event of default. The 
Agency also has revised the security requirements at Sec.  
3550.59(a)(2) accordingly to allow a junior lien if the junior lien 
will not interfere with the purpose of repayment of the RHS loan. If 
the junior lien involves a grant or forgivable subordinate affordable 
housing product, the total debt may exceed the market value by the 
amount of the forgivable loan or grant up to 5 percent.
    Three of the comments received supported the reduction to a 
percentage of the 203(b) limit of the National Housing Act. Two of 
these agreed that State Directors should have the ability to determine 
which areas need higher maximum loan amounts.
    After considering all of the comments and the above options, the 
Agency has concluded that there is no simple solution in determining 
maximum loan amount. Therefore, the Agency will provide States with 
some flexibility in determining the maximum loan amount in their State. 
The Agency will provide each State with the option of choosing between 
the cost data plus the market value of an improved lot, or the State 
Housing Authority (SHA) limit, as long as the SHA limit is within 10 
percent of the cost data plus the market value of an improved lot. 
States must determine which value most appropriately reflects the value 
of modest for the area. However, either option cannot exceed the 
current 203(b) limit of the National Housing Act.
    Both of these methods rely on actual market data for the cost of 
constructing a dwelling in a specific area, plus data a state collects 
for the market value of an improved site. The Agency will provide 
construction cost data to each state annually, and states will be 
required to publish a State Administrative Notice annually establishing 
limits that are to be used. The flexibility added to this section 
negates the need for an area-wide exception to the modest dwelling 
requirement of Sec.  3550.57, so it has been removed.

Section 3550.68 Payment Subsidies

    There were four comments received. One commentor stated that only 
one method of calculating subsidy should be used and recommended using 
the equivalent interest rate (EIR) method. The same commentor felt that 
the EIR is the only method that takes the price of a house into 
consideration when determining affordability and that use of the floor 
computation does not give the applicant the option of choosing lower 
priced housing. The floor computation is the relationship between a 
borrower's adjusted income and the applicable adjusted median income in 
the area in which the security property is located.
    Another commentor suggested that floor payments should be made in 
one percent increments from 22 to 26 percent. The same commentor went 
on to propose that the EIR scale should be modified to reflect interest 
rates divided in \1/4\ percent interest increments and five percent 
income increments. This commentor suggested that subsidy would be 
easier to determine based on a flat percentage of an applicant's 
adjusted income. Another commentor suggested subsidy based on an 
applicant paying a flat 30 percent of annual income for principal, 
interest, taxes, insurance and utilities and maintenance.
    In response to these comments, the Agency has made no changes to 
the policy established in the interim rule. The Agency uses the floor 
and EIR comparison method of determining payment subsidy to reduce the 
costs of the program and; therefore, increase the number of families we 
can assist. This method allows subsidy costs to be at a minimum while 
maintaining affordability for low and very low-income families. 
Applicants are not asked to pay any more than 22, 24, or 26 percent of 
their income, depending on the percent of median income, for total 
PITI. The Agency has used this formula since 1996 and has experienced 
no problems with it. The Agency considers these percentages reasonable 
for a very low- or low-income applicant to pay for housing costs and is 
not proposing any changes to the payment assistance formula at this 
time.

Technical Corrections and Clarifications

    In addition to the changes being made to Sec. Sec.  3550.53(g), 
3550.57(a), and 3550.63, we are also providing the following technical 
corrections, omission corrections and clarifications of the interim 
rule. A summary of these technical corrections and clarifications 
follows. Conforming changes are also being made to update obsolete 
references in other regulations associated with the Direct Section 502 
and 504 programs.

Section 3550.10 Definitions

    The definition for ``modest housing'' was modified due to the 
changes in Sec. Sec.  3550.57(a) and 3550.63 discussed above. This 
change makes the sections consistent.

Section 3550.52 Loan Purposes

    A paragraph from the obsolete 7 CFR 1944.22(c) was inadvertently 
omitted in this section in the interim rule. This paragraph allows for 
refinancing of a non-RHS debt if the loan is $5,000 or more and is 
necessary for repairs to correct major deficiencies and make the 
dwelling decent, safe and sanitary and the refinancing is necessary for 
the borrower to show repayment ability, regardless of the delinquency. 
This final rule corrects that omission.

Section 3550.53 Eligibility Requirements

    The credit requirements of this section have been interpreted 
inconsistently. The language is confusing because it includes both 
installment debts such as a car loan and credit card debt. These two 
distinct types of credit must be looked at in their own context. 
Therefore, we are clarifying the indicators of unacceptable credit to 
include payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months and payments on any account which was delinquent for more than 
30 days on two or more occasions within a 12-month period. A correction 
was made to state that Agency debts that were debt settled within the 
last 36 months or are being considered for debt settlement is 
considered adverse credit. Corrections were also made to this section 
by renumbering and redesignating paragraphs.
    In addition to addressing the above comments, we added an omission 
from the obsolete 7 CFR 1944.8(a)(2)(i), which required an applicant to 
have adequate and dependable income. Dependably available income is a 
basic eligibility requirement, which necessitates the need to re-
introduce this into the calculation of repayment ability. The 
determination of income dependability will include consideration of an 
applicant's past history of annual income.

[[Page 78325]]

Section 3550.54 Calculation of Income and Assets

    A correction was made to this section to change wording from family 
member to household member in calculating adjusted income. This is 
necessary to make the section internally consistent, as all household 
income must be included in determining annual and adjusted income.

Section 3550.59 Security Requirements

    A correction was made to this section to clarify how the market 
value may be exceeded up to 5 percent when a junior lien involves a 
grant or a forgivable affordable housing product.

Section 3550.66 Interest Rate

    This section has been changed for clarity to remove the reference 
to the non-program interest rate. This section is for program loans 
only.

Section 3550.70 Conditional Commitments

    Spelling and grammatical corrections have been made to the first 
paragraph.

Section 3550.100 OMB Control Number

    This section has been changed to correct the OMB control number 
from 0575-0166 to 0575-0172.

Subpart C--Section 504 Origination

    This subpart has been modified to include a section on the 
Consolidated Farm and Rural Development Act section 306C (7 U.S.C. 
1926c) Water and Waste Disposal Grants to individuals. The information 
on section 306C was previously included in 7 CFR part 1944, subpart J, 
Exhibit D, which was eliminated by the interim rule. Putting this 
information in 7 CFR part 3550 corrects the omission.

Section 3550.101 Program Objectives

    This section has been modified to include a statement that the 
subpart also covers section 306C Water and Waste Disposal Grants.

Section 3550.103 Eligibility Requirements

    This section was modified to clarify the indicators of unacceptable 
credit to include payments on any account where the amount of the 
delinquency exceeded one installment for more than 30 days within the 
last 12 months and payments on any account which was delinquent for 
more than 30 days on two or more occasions within a 12-month period. A 
correction was made to state that Agency debts that were debt settled 
within the last 36 months or are being considered for debt settlement 
is considered adverse credit. Corrections were also made to this 
section by renumbering and redesignating paragraphs.

Section 3550.106 Dwelling Requirements

    This section has been corrected to remove the reference to the HUD 
Section 203(b) limit. This is necessary due to the change in the 
definition of modest dwelling.

Section 3550.108 Security Requirements (Loans Only)

    This section has been modified to increase from $2,500 to $7,500 
the dollar amount required before a mortgage must be obtained, due to 
section 702 of the American Homeownership and Economic Opportunity Act 
of 2000, Public Law 106-569 that amended Sec.  504(a) of the Housing 
Act of 1949. This section is for section 504 loans only.

Section 3550.114 Repayment Agreement (Grants Only)

    A correction has been made to state that the grant must be repaid 
if the property is sold in less than 3 years from the date the grant 
agreement was signed rather than when the grant was approved. This 
clarifies and provides consistency in determining the applicable 3-year 
timeframe.

Sections 3550.115 Through 3550.119 Section 306C WWD Grant Program

    These sections have been added to include a section on 306C Water 
and Waste Disposal Grants. The information on Section 306C was 
previously included in 7 CFR part 1944, subpart J, Exhibit D which was 
eliminated by the interim rule. Putting this information in 7 CFR part 
3550 corrects the omission.

Section 3550.150 OMB Control Number

    This section has been changed to correct the OMB control number 
from 0575-0166 to 0575-0172.

Section 3550.162 Recapture

    This section has been modified to clarify and provide additional 
guidance on how value appreciation of a property with a cross-
collateralized loan is to be determined.

Section 3550.163 Transfer of Security and Assumption of Indebtedness

    A correction has been made to this section for clarity to change 
the wording from selling security property to transferring title to 
secured property. This provides additional guidance for approval of 
assumptions of property regardless of how title is transferred.

Section 3550.200 OMB Control Number

    This section has been changed to correct the OMB control number 
from 0575-0166 to 0575-0172.

Section 3550.208 Reamortization Using Promissory Note Interest Rate

    A sixth servicing action example has been added to further clarify 
when an account may be reamortized using the promissory note interest 
rate.

Section 3550.211 Liquidation

    This section has been corrected to state that RHS may accept 
partial payments on an accelerated loan and continue with the 
foreclosure if allowed by state law.

Section 3550.250 OMB Control Number

    This section has been changed to correct the OMB control number 
from 0575-0166 to 0575-0172.

Section 3550.251 Property Management and Disposition

    This section has been modified to clarify that program Real Estate 
Owned (REO) properties are reserved for buyers eligible for Rural 
Housing Direct or Guaranteed SFH programs rather than just Direct 
program eligible applicants. The section has also been clarified to 
state that an offer from a buyer on a program REO property who does not 
qualify for Direct or Guaranteed financing will be considered to have 
been received the day after the reservation period ends. This changes 
the sentence from reading ``section 502 program loan'' to ``Direct or 
Guaranteed loan.''

Section 3550.300 OMB Control Number

    This section has been changed to correct the OMB control number 
from 0575-0166 to 0575-0172.
    Conforming changes and technical corrections have been made to 
parts 1806, 1822, 1924, 1925, 1927, 1930, 1940, 1944, 1948, 1950, 1951, 
1955, 1965, and 1980 accordingly.

List of Subjects

7 CFR Part 1806

    Buildings, Community development, Disaster assistance, Flood 
plains, Housing, Insurance, Loan programs--Agriculture, Loan programs--
Housing and community development, Real property insurance, Rural 
areas.

7 CFR Part 1822

    Loan programs--Housing and community development, Low and

[[Page 78326]]

moderate income housing, Mortgages, Nonprofit organizations, Rural 
housing.

7 CFR Part 1924

    Agriculture, Claims, Construction complaints, Construction defects, 
Construction management, Construction and repair, Energy conservation, 
Housing, Loan programs--Agriculture, Low and moderate income housing.

7 CFR Part 1925

    Real property taxes, Taxes.

7 CFR Part 1927

    Loan programs--Agriculture, Loan programs--Housing and community 
development, Mortgages.

7 CFR Part 1930

    Accounting, Administrative practice and procedure, Grant programs--
Housing and community development, Loan programs--Housing and community 
development, Low and moderate income housing, Reporting and 
recordkeeping requirements.

7 CFR Part 1940

    Administrative practice and procedure, Credit, Legal services, 
Mortgages, Truth in lending.

7 CFR Part 1944

    Administrative practice and procedure, Aged, Farm labor housing, 
Grant programs--Housing and community development, Home improvement, 
Loan programs--Housing and community development, Low and moderate 
income housing--Rental, Migrant labor, Mobile homes, Mortgages, 
Nonprofit organizations, Public housing, Rent subsidies, Reporting 
requirements, Rural housing, Subsidies.

7 CFR Part 1948

    Business and industry, Coal, Community development, Community 
facilities, Energy, Grant programs--Housing and community development, 
Housing, Nuclear energy, Planning, Rural areas, Transportation.

7 CFR Part 1950

    Accounting, Loan programs--Agriculture, Military personnel.

7 CFR Part 1951

    Accounting, Account servicing, Credit, Loan programs--Agriculture, 
Low and moderate income housing loans--Servicing.

7 CFR Part 1955

    Foreclosure, Government acquired property, Sale of government 
acquired property, Surplus government property.

7 CFR Part 1965

    Administrative practice and procedure.

7 CFR Part 1980

    Home improvement, Loan programs--Housing and community development, 
Mortgage insurance, Mortgages, Rural areas.

7 CFR Part 3550

    Accounting, Administrative practice and procedure, Conflict of 
interests, Environmental impact statements, Equal credit opportunity, 
Fair housing, Grant programs--Housing and community development, 
Housing, Loan programs--Housing and community development, Low and 
moderate income housing, Manufactured homes, Reporting and 
recordkeeping requirements, Rural areas, Subsidies.

    Therefore, chapters XVIII and XXXV of title 7 of the Code of 
Federal Regulations are amended as follows:

CHAPTER XVIII--[AMENDED]

PART 1806--INSURANCE

    1. The authority citation for part 1806 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart A--Real Property Insurance

    2. Section 1806.6 is amended in the introductory text by revising 
the words ``Sec.  1951.310 of subpart G of part 1951 of this chapter'' 
to read ``7 CFR part 3550.''

Subpart B--National Flood Insurance

    3. Section 1806.28 is amended by revising the words ``Sec.  
1951.310 of subpart G of part 1951 of this chapter'' to read ``7 CFR 
part 3550.''

PART 1822--RURAL HOUSING LOANS AND GRANTS

    4. The authority citation for part 1822 continues to read as 
follows:

    Authority: 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 2.23; 7 CFR 2.70.

Subpart G--Rural Housing Site Loan Policies, Procedures, and 
Authorizations

    5. Section 1822.263 is amended by revising paragraph (c) to read as 
follows:


Sec.  1822.263  Definitions.

* * * * *
    (c) Rural area is open country or rural places as defined in 7 CFR 
part 3550, subpart A.
* * * * *

    6. Section 1822.267 is amended by revising paragraph (l)(1) to read 
as follows:


Sec.  1822.267  Special conditions.

* * * * *
    (l) * * *
    (1) The requirements of 7 CFR 3550.70 must be met and a conditional 
commitment issued prior to the start of construction of the home.
* * * * *
    7. Section 1822.275 is amended by revising the last sentence in 
paragraph (c) to read as follows:


Sec.  1822.275  Actions after sites are developed.

* * * * *
    (c) * * * The sites will be released from the mortgage in 
accordance with 7 CFR part 3550, subpart D or otherwise in accordance 
with prior approval of the National Office.

PART 1924--CONSTRUCTION AND REPAIR

    8. The authority citation for part 1924 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart A--Planning and Performing Construction and Other 
Development

    9. Section 1924.5 is amended by revising paragraph (g)(4) and the 
second and third sentences of the introductory text of paragraph (i) to 
read as follows:


Sec.  1924.5  Planning development work.

* * * * *
    (g) * * *
    (4) Releases requested by the borrower or the buyer will be 
processed in accordance with applicable release procedures in 7 CFR 
part 3550, as appropriate.
* * * * *
    (i) * * * Except in cases in which advance commitments are made in 
accordance with 7 CFR part 3550 or according to Sec.  
1924.13(e)(1)(vi)(A) or Sec.  1924.13(e)(2)(ix)(A) of this subpart, no 
commitments with respect to performing planned development will be made 
by the Agency or the applicant before the loan is closed. The applicant 
will be instructed that before the loan is closed, debts should not be 
incurred for labor or materials, or expenditures made for such 
purposes, with the expectation of being reimbursed from funds except as 
provided in subpart A of part 1943 of this chapter, 7 CFR part 3550, 
and subpart E of part 1944 of this chapter. * * *

    10. Section 1924.6 is amended by revising the last sentence in the

[[Page 78327]]

introductory text and the first sentence in paragraph (c) to read as 
follows:


Sec.  1924.6  Performing development work.

    * * * Conditional commitment construction is covered under 7 CFR 
part 3550.
* * * * *
    (c) * * * The mutual self-help method is performance of work by a 
group of families by mutual labor under the direction of a construction 
supervisor, as described in 7 CFR part 3550. * * *
* * * * *

    11. Section 1924.9 is amended in the second sentence of paragraph 
(a) by revising the words ``in paragraph (b)(3) of this section, in 
Sec.  1944.17(a)(2)(iii) of FmHA Instruction 2024-A (available in any 
RECD field office)'' to read ``in paragraph (d) of this section, in 7 
CFR part 3550, in RD Instruction 2024-A (available in any Rural 
Development office).''

    12. Exhibit B of subpart A is amended in paragraph VI.A.8. by 
revising the words ``subpart A of part 1944 of this chapter'' to read 
``7 CFR part 3550.''

    13. Exhibit J of subpart A is amended:
    a. In Part A by revising paragraph V.B.4. to read as follows:
* * * * *
    4. 7 CFR part 3550, ``Direct Single Family Housing Loans and 
Grants.''
* * * * *
    b. By revising in Part B, paragraph II.B.4., the words ``Sec.  
1944.11(e) of subpart A of part 1944'' to read ``7 CFR part 3550.''
    c. By revising in Part C, paragraph I.B., the words ``paragraph XIV 
(c)(3) of exhibit F of subpart A of part 1944'' to read ``exhibit D of 
this subpart.''
    d. By revising in Part D, paragraph III, the words ``exhibit F of 
subpart A of part 1944 of this chapter'' to read ``7 CFR part 3550, 
subpart B''.

Subpart F--Complaints and Compensation for Construction Defects

    14. Section 1924.253 is amended in paragraph (a)(3) by revising the 
words ``subpart A of part 1944 of this chapter'' to read ``7 CFR part 
3550'' and in paragraph (b)(3) by revising the words ``exhibit F of 
subpart A of part 1944 of this chapter'' to read ``exhibit J of subpart 
A of part 1924 of this chapter.''

    15. Section 1924.266 is amended:
    a. By revising in the introductory text of paragraph (a)(3) the 
words ``subpart A of part 1955 of this chapter'' to read ``7 CFR part 
3550.''
    b. By revising in the introductory text of paragraph (a)(3)(i) the 
words ``subpart C of part 1965 of this chapter'' to read ``7 CFR part 
3550,'' and the words ``subpart C of part 1955 of this chapter'' to 
read ``7 CFR part 3550.''
    c. By revising in paragraph (a)(3)(i)(B) the words ``subpart C of 
part 1965 of this chapter'' to read ``7 CFR part 3550.''
    d. By revising in paragraph (a)(3)(ii) the words ``subpart C of 
part 1955 of this chapter'' to read ``7 CFR part 3550, `` and the words 
``subpart A of part 1955 of this chapter'' to read ``7 CFR part 3550.''
    e. By revising in paragraph (a)(4)(i)(A) the words ``subpart A of 
part 1955 of this chapter'' to read ``7 CFR part 3550.''

    16. Section 1924.273 is amended in paragraph (a) by revising the 
words ``subpart B of part 1900 of this chapter'' to read ``7 CFR part 
11.''

PART 1925--TAXES

    17. The authority citation for part 1925 continues to read as 
follows:

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 
2.23 and 2.70.

Subpart A--Real Estate Tax Servicing

    18. Section 1925.1 is amended by revising the words ``Sec.  
1965.105 of subpart C of part 1965 of this chapter'' to read ``7 CFR 
part 3550.''

    19. Section 1925.4 is amended in paragraph (a) by revising the 
words ``FmHA or its successor Agency under Public Law 103-354 
Instructions 1951-A and 1951-G'' to read ``subpart A of part 1951 of 
this chapter.''

PART 1927--TITLE CLEARANCE AND LOAN CLOSING

    20. The authority citation for part 1927 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart B--Real Estate Title Clearance and Loan Closing

    21. Section 1927.52 is amended by revising the definitions for 
``Program regulations'' and ``State Office'' to read as follows:


Sec.  1927.52  Definitions.

* * * * *
    Program regulations. The agency regulations for the particular loan 
program involved (e.g., 7 CFR part 3550 for single family housing (SFH) 
loans).
* * * * *
    State Office. For FSA, this term refers to the FSA State Office. 
For RHS, this term refers to the Rural Development State Director.
* * * * *

    22. Section 1927.59 is amended in paragraph (b) by revising the 
words ``part 1965, subparts A, B, and C, of this chapter'' to read 
``subparts A and B of part 1965 of this chapter and 7 CFR part 3550.''

PART 1930--GENERAL

    23. The authority citation for part 1930 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

Subpart C--Management and Supervision of Multiple Family Housing 
Borrowers and Grant Recipients

    24. Exhibit B of subpart C is amended:
    a. By revising in paragraph II in the definition for ``Eligibility 
income'' the words ``exhibit C of subpart A of part 1944 of this 
chapter (available in any FmHA or its successor agency under Public Law 
103-354 office)'' to read ``Appendix 9 of HB-1-3550 (available in any 
Rural Development office).''
    b. By revising in paragraph II, in the definition for ``Low-income 
household'' the words ``exhibit C of subpart A of part 1944 of this 
chapter which is periodically updated (available in any FmHA or its 
successor agency under Public Law 103-354 Office)'' to read ``Appendix 
9 of HB-1-3550 (available in any Rural Development office) which is 
periodically updated.''
    c. By revising in paragraph II in the definition for ``Moderate-
income household'' the words ``exhibit C of subpart A of part 1944 of 
this chapter (available in any FmHA or its successor agency under 
Public Law 103-354 office)'' to read ``Appendix 9 of HB-1-3550 
(available in any Rural Development office).''
    d. By revising in paragraph II in the definition for ``Very low-
income household'' the words ``exhibit C of subpart A of part 1944 of 
this chapter (available in any FmHA or its successor agency under 
Public Law 103-354 office)'' to read ``Appendix 9 of HB-1-3550 
(available in any Rural Development office).''

    25. Exhibit E of subpart C is amended in paragraph II.A.1. by 
revising the words ``exhibit C of subpart A of part 1944 of this 
chapter (available in any FmHA or its successor or its successor agency 
under Public Law 103-354 office)'' to read ``Appendix 9 of HB-1-3550 
(available in any Rural Development office).''

PART 1940--GENERAL

    26. The authority citation for part 1940 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

[[Page 78328]]

Subpart I--Truth In Lending--Real Estate Settlement Procedures

    27. Section 1940.401 is amended in paragraph (c)(3)(ii) by revising 
the words ``Sec.  1944.37(g) of subpart A of part 1944 and Sec.  
1951.315 of subpart G of part 1951 of this chapter'' to read ``7 CFR 
part 3550'' and in paragraph (c)(3)(iii) by revising the words ``Sec.  
1944.22 of subpart A of part 1944 of this chapter'' to read ``7 CFR 
part 3550.''

PART 1944--HOUSING

    28. The authority citation for part 1944 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

Subpart B--Housing Application Packaging Grants

    29. Section 1944.73 is amended in paragraph (d) by revising the 
words ``exhibit C of subpart A of part 1944 of this chapter (available 
in any FmHA or its successor agency under Public Law 103-354 office)'' 
to read ``Appendix 9 of HB-1-3550 (available in any Rural Development 
office)'' and by revising the words ``exhibit C of FmHA Instruction 
1944-A (available in any FmHA or its successor agency under Public Law 
103-354 office)'' to read ``Appendix 9 of HB-1-3550 (available in any 
Rural Development office).''

    30. Section 1944.75 is amended in the second sentence by revising 
the words ``Assistant Administrator, Housing'' to read ``Deputy 
Administrator, Single Family Housing.''

    31. Exhibit C of subpart B is amended by revising in paragraph A 
the words ``exhibit A of subpart A of part 1944 of this chapter'' to 
read ``7 CFR part 3550'' and by revising paragraph B to read as 
follows:

Exhibit C of subpart B--Requirements for Housing Application Packages

* * * * *
    B. Section 504--Complete application packages will be submitted in 
accordance with 7 CFR part 3550. The package must include the forms 
listed in paragraph A of this exhibit and the following:
    The appropriate Agency application form for Rural Housing 
assistance (non-farm tract) (available in any Rural Development 
office).
    The appropriate Agency form to request verification of employment 
(available in any Rural Development office).
    The appropriate Agency Rural Housing Loan application package 
(available in any Rural Development office).
    Evidence of ownership in accordance with 7 CFR part 3550.
    Cost estimates or bid prices for removal of health or safety 
hazards in accordance with 7 CFR part 3550.
* * * * *

Subpart D--Farm Labor Housing Loan and Grant Policies, Procedures 
and Authorizations

    32. Section 1944.153 is amended in the introductory text of 
paragraph (3) of the definition of ``Substantial portion of income'' by 
revising the words ``as shown in exhibit C of subpart A of part 1944 of 
this chapter (which is available in any FmHA or its successor agency 
under Public Law 103-354 office)'' to read ``as stated in Appendix 9 of 
HB-1-3550 (which is available in any Rural Development office)''.

    33. Section 1944.164 is amended in paragraph (j)(2)(ii) by revising 
the words ``part 1944 subpart A'' to read ``7 CFR part 3550'' and in 
paragraph (n) by revising the words ``Sec.  1944.18(b)(5) of part 1944 
subpart A'' to read ``7 CFR part 3550.''

    34. Section 1944.168 is amended in paragraph (c)(1)(ii) by revising 
the words ``Sec.  1944.18 (b)(6) of part 1944 subpart A'' to read ``7 
CFR part 3550.''

Subpart E--Rural Rental and Rural Cooperative Housing Loan 
Policies, Procedures, and Authorizations

    35. Section 1944.205 is amended:
    a. By revising in the definition for ``Community'' the words 
``Sec.  1944.10 of subpart A of this part 1944'' to read ``7 CFR part 
3550.''
    b. By revising in the definition for ``Dealer-contractor'' the 
words ``paragraphs IX and X of exhibit F of subpart A of this part 
1944'' to read ``7 CFR part 3550.''
    c. By revising in the definition for ``Low-income household'' the 
words ``exhibit C of subpart A of this part 1944 (available in any FmHA 
or its successor agency under Public Law 103-354 office)'' to read 
``Appendix 9 of HB-1-3550 (available in any Rural Development 
office).''
    d. By revising in the definition for ``Moderate-income household'' 
the words ``exhibit C of subpart A of this part 1944 (available in any 
FmHA or its successor agency under Public Law 103-354 office)'' to read 
``Appendix 9 of HB-1-3550 (available in any Rural Development 
office).''
    e. By revising in the definition for ``Very low-income household'' 
the words ``exhibit C of subpart A of this part 1944 (available in any 
FmHA or its successor agency under Public Law 103-354 office)'' to read 
``Appendix 9 of HB-1-3550 (available in any Rural Development 
office).''

    36. Section 1944.222 is amended paragraph (g) by removing the last 
sentence and in paragraph (h) by revising the words ``subpart A of part 
1944'' to read ``7 CFR part 3550.''

    37. Section 1944.223 is amended by revising paragraph (e)(4)(iii) 
to read as follows:


Sec.  1944.223  Supplemental requirements for manufactured home project 
development.

* * * * *
    (e) * * *
    (4) * * *
    (iii) Be constructed in compliance with Rural Development thermal 
performance construction standards as specified in Exhibit D to subpart 
A of part 1924 of this chapter. The unit must have an affixed label as 
specified in 7 CFR part 3550 indicating that the unit is constructed to 
Rural Development thermal requirements for the appropriate winter 
degree days.
* * * * *

Subpart I--Self-Help Technical Assistance Grants

    38. Section 1944.402 is amended in paragraph (a) by revising the 
words ``exhibit C of subpart A of this part'' to read ``Appendix 9 of 
HB-1-3550 (available in any Rural Development office).''

    39. Section 1944.423 is amended by revising the words ``exhibit A 
of subpart A of part 1944 of this chapter'' to read ``7 CFR part 
3550.''

    40. Section 1944.424 is amended by revising the words ``subpart A 
of part 1944 of this chapter'' to read ``7 CFR part 3550.''

    41. Section 1944.426 is amended:
    a. By revising in paragraph (a)(1) the reference to ``Sec.  
1951.58(j) of FmHA Instruction 1951-B (available in any FmHA or its 
successor agency under Public Law 103-354 office)'' to read ``Sec.  
1951.58(k) of RD Instruction 1951-B (available in any Rural Development 
office).''
    b. By revising in paragraph (a)(3) the words ``Subpart M of part 
1951 of this chapter'' to read ``7 CFR part 3550.''

Subpart K--Technical and Supervisory Assistance Grants

    42. Section 1944.506 is amended in paragraph (f) by revising the 
words ``Sec.  1944.10 of part 1944, subpart A'' to read ``7 CFR part 
3550'' and by revising paragraph (d) to read as follows:


Sec.  1944.506  Definitions.

* * * * *
    (d) Low-income family. Any household, including those with one

[[Page 78329]]

member, whose adjusted annual income, computed in accordance with 7 CFR 
part 3550, subpart B, does not exceed the maximum low-income limits 
specified in Appendix 9 of HB-1-3550 (available in any Rural 
Development office).
* * * * *

Subpart N--Housing Preservation Grants

    43. Section 1944.656 is amended in the definition of ``Low-income'' 
by revising the words ``exhibit C of subpart A of this part (available 
in any FmHA or its successor agency under Public Law 103-354 office)'' 
to read ``Appendix 9 of HB-1-3550 (available in any Rural Development 
office).''

PART 1948--RURAL DEVELOPMENT

    44. The authority citation for part 1948 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note.

Subpart B--Section 601 Energy Impacted Area Development Assistance 
Program

    45. Section 1948.84 is amended in paragraph (d)(2) by revising the 
words ``part 1944, subpart A'' to read ``7 CFR part 3550.''

PART 1950--GENERAL

    46. The authority citation for part 1950 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

Subpart C--Servicing Accounts of Borrowers Entering the Armed 
Forces

    47. Section 1950.105 is amended in paragraph (d) by revising the 
words ``subpart G of part 1951 of this chapter'' to read ``7 CFR part 
3550.''

PART 1955--PROPERTY MANAGEMENT

    48. The authority citation for part 1955 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart A--Liquidation of Loans Secured by Real Estate and 
Acquisition of Real and Chattel Property

    49. Section 1955.10 is amended in the introductory text of 
paragraph (f)(1) by revising the words ``Sec.  1965.125(a) of Subpart C 
of part 1965 of this chapter'' to read ``7 CFR part 3550.''

    50. Section 1955.15 is amended:
    a. By removing in paragraph (b)(2) the third, fourth, and fifth 
sentences.
    b. By revising in the introductory text of paragraph (d)(2)(iv) the 
words ``subpart G of part 1951 of this chapter'' the first time they 
appear to read ``7 CFR part 3550'' and the words ``Sec.  1951.315 of 
subpart G of part 1951 of this chapter'' to read ``7 CFR part 3550.''
    c. By revising in paragraph (d)(2)(iv)(C) the words ``Sec.  
1965.125 of subpart C of part 1965 of this chapter'' in both places 
they appear to read ``7 CFR part 3550.''
    d. By revising in paragraph (d)(2)(iv)(D) the words ``Sec.  
1965.125 of subpart C of part 1965 of this chapter'' to read ``7 CFR 
part 3550.''

Subpart B--Management of Property

    51. Section 1955.53 is amended in the definition of ``Nonprogram 
(NP) property'' by revising the words ``FmHA or its successor agency 
under Public Law 103-354 requirements for existing housing as described 
in subpart A of part 1944 of this chapter'' to read ``requirements for 
existing housing as described in 7 CFR part 3550.''

Subpart C--Disposal of Inventory Property

    52. Section 1955.114 is amended in paragraph (a)(5) by revising the 
words ``subpart A of part 1944 of this chapter'' to read ``7 CFR part 
3550.''

    53. Section 1955.115 is amended in paragraph (a)(3) by revising the 
words ``subpart A of Part 1944 of this chapter'' to read ``7 CFR part 
3550.''

PART 1965--REAL PROPERTY

    54. The authority citation for part 1965 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart B--Security Servicing for Multiple Housing Loans

    55. Section 1965.61 is amended in paragraph (d) by revising the 
words ``Sec.  1965.104(c) of subpart C of part 1965 of this chapter'' 
to read ``7 CFR part 3550'' and in paragraph (e)(3) by revising the 
words ``Sec.  1965.113 of subpart C of part 1965 of this chapter'' to 
read ``7 CFR part 3550.''

Subpart E--Prepayment and Displacement Prevention of Multi-Family 
Housing Loans

    56. Section 1965.202 is amended in the definition for ``Income 
limits'' by revising the words ``exhibit C of subpart A of part 1944 of 
this chapter (available in any FmHA or its successor agency under 
Public Law 103-354 office)'' to read ``Appendix 9 of HB-1-3550 
(available in any Rural Development office).''

PART 1980--GENERAL

    57. The authority citation for part 1980 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart D--Rural Housing Loans

    58. Section 1980.312 is amended by revising the words ``Sec.  
1944.10'' to read ``7 CFR part 3550.''

    59. Section 1980.353 is amended in paragraph (e)(3) by removing the 
second sentence and by adding the word ``acceptable'' before 
``documentation'' in the first sentence.

CHAPTER XXXV--[AMENDED]

PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

    60. The authority citation for part 3550 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

Subpart A--General

    61. Section 3550.10 is amended by revising the definition for 
``Modest housing'' to read as follows:


Sec.  3550.10  Definitions.

* * * * *
    Modest housing. A property that is considered modest for the area, 
with a market value that does not exceed the applicable maximum loan 
limit as established by RHS in accordance with Sec.  3550.63. In 
addition, the property must not be designed for income producing 
activities nor have an in-ground swimming pool.
* * * * *

    62. Section 3550.50 is amended by revising the OMB control number 
``0575-0166'' to read ``0575-0172'' and by removing the third sentence.

Subpart B--Section 502 Origination

    63. Section 3550.52 is amended by revising paragraph (b)(1)(i) and 
(b)(1)(ii) to read as follows:


Sec.  3550.52  Loan purposes.

* * * * *
    (a) * * *
    (1) * * *
    (i) Due to circumstances beyond the applicant's control, the 
applicant is in danger of losing the property, the debt is over $5,000, 
and the debt was incurred for eligible program purposes prior to loan 
application or was a protective advance made by the

[[Page 78330]]

mortgagee for items covered by the loan to be refinanced, including 
accrued interest, insurance premiums, real estate tax advances, or 
preliminary foreclosure costs; or
    (ii) If a loan of $5,000 or more is necessary for repairs to 
correct major deficiencies and make the dwelling decent, safe and 
sanitary and refinancing is necessary for the borrower to show 
repayment ability, regardless of the delinquency.
* * * * *

    64. Section 3550.53 is amended as follows:
    a. By revising the introductory text of paragraph (g);
    b. By redesignating paragraphs (h)(1)(ii) through (h)(1)(ix) as 
paragraphs (h)(1)(iii) through (h)(1)(x);
    c. By revising paragraph (h)(1)(i);
    d. By adding a new paragraph (h)(1)(ii); and
    e. By revising newly redesignated paragraphs (h)(1)(v) and 
(h)(1)(ix).
    The revision and addition read as follows:


Sec.  3550.53  Eligibility requirements.

* * * * *
    (g) Repayment ability. Repayment ability means applicants must 
demonstrate adequate and dependably available income. The determination 
of income dependability will include consideration of the applicant's 
past history of annual income.
* * * * *
    (h) * * *
    (1) * * *
    (i) Payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months.
    (ii) Payments on any account which was delinquent for more than 30 
days on two or more occasions within a 12-month period.
* * * * *
    (v) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded in paragraph 
(i)(2) of this section.
* * * * *
    (ix) Agency debts that were debt settled within the last 36 months 
or are being considered for debt settlement.
* * * * *

    65. Section 3550.54 is amended in paragraph (c)(1) by revising the 
word ``family'' to read ``household.''

    66. Section 3550.57 is amended by revising the introductory text of 
paragraph (a) to read as follows:


Sec.  3550.57  Dwelling requirements.

    (a) Modest dwelling. The property must be one that is considered 
modest for the area, must not be designed for income producing 
purposes, must not have an in-ground swimming pool or have a market 
value in excess of the applicable maximum loan limit, in accordance 
with Sec.  3550.63, unless RHS authorizes an exception under this 
paragraph. An exception may be granted on a case-by-case basis to 
accommodate the specific needs of an applicant, such as to serve 
exceptionally large households or to provide reasonable accommodation 
for a household member with a disability. Any additional loan amount 
approved must not exceed the amount required to address the specific 
need.
* * * * *

    67. Section 3550.59 is amended by revising the last sentence of 
paragraph (a)(2) and adding a new sentence at the end of paragraph 
(a)(2) to read as follows:


Sec.  3550.59  Security requirements.

* * * * *
    (a) * * *
    (2) * * * Liens junior to the RHS lien may be allowed at loan 
closing if the junior lien will not interfere with the purpose or 
repayment of the RHS loan. When the junior lien involves a grant or a 
forgivable affordable housing product, the total debt may exceed the 
market value by the amount of the forgivable loan or grant up to 5 
percent.
* * * * *

    68. Section 3550.63 is amended by revising the introductory text 
and paragraph (a) to read as follows:


Sec.  3550.63  Maximum loan amount.

    Total secured indebtedness must not exceed the area loan limit or 
market value limitations specified in paragraphs (a) or (b) of this 
section, whichever is lower. Any loan amount for the RHS appraisal, tax 
monitoring fee, and the charge to establish an escrow account for taxes 
and insurance will not be subject to the limitations specified below. 
This section does not apply to loans on NP terms.
    (a) Area loan limit.
    (1) The area loan limit is the maximum value of the property RHS 
will finance in a given locality. Subject to the following, this limit 
is based on cost data plus the market value of an improved lot, or the 
State Housing Authority limits, whichever the State Director determines 
most appropriately reflects the value of modest housing for the area:
    (i) The cost of the structure is based upon the cost to construct a 
modest home and is obtained by RHS from a nationally recognized 
residential cost provider.
    (ii) The market value of an improved site (without the dwelling) is 
based upon current sales data for typical housing sites and reasonable 
and typical costs of site improvements.
    (iii) The applicable State Housing Authority limit will only be 
considered if it is within 10 percent of the cost data plus the market 
value of an improved lot.
    (iv) The area loan limit may not exceed the applicable local HUD 
section 203(b) limit.
    (v) All area loan limit data will be updated at least annually and 
is available in any Rural Development office.
    (2) The maximum loan limit calculated under paragraph (a)(1) will 
be reduced in the following situations:
    (i) When the applicant owns the site or is purchasing the site at a 
sales price below market value, the market value of the lot will be 
deducted from the maximum loan limit, and
    (ii) When an applicant is receiving a housing grant or other form 
of affordable housing assistance for purposes other than closing costs, 
the amount(s) of such grants and affordable housing assistance will be 
deducted from the maximum loan limit.
    (3) The maximum loan limit for self-help housing will be calculated 
by adding the total of the market value of the lot (including 
reasonable and typical costs of site development), the cost of 
construction, and the value of sweat equity. The total of these three 
factors cannot exceed the limit established in paragraph (a)(1) of this 
section.
* * * * *

    69. Section 3550.66 is revised to read as follows:


Sec.  3550.66  Interest rate.

    Loans will be written using the applicable RHS interest rate in 
effect at loan approval or loan closing, whichever is lower. 
Information about current interest rates is available in any Rural 
Development office.

    70. Section 3550.70 is amended in the introductory text by removing 
the word ``be'' in the first sentence the first time it appears and by 
revising the word ``lessor'' to read ``lesser'' and the words ``HUD 
section 203(b) limit'' to read ``maximum loan limit.''

    71. Section 3550.100 is amended by revising the OMB control number 
``0575-0166'' to read ``0575-0172'' and by removing the third sentence.

    72. The heading of subpart C of part 3550 is revised to read as 
follows:

[[Page 78331]]

Subpart C--Section 504 Origination and Section 306C Water and Waste 
Disposal Grants

    73. Section 3550.101 is amended by adding a sentence at the end of 
the section to read as follows:


Sec.  3550.101  Program objectives.

    * * * This subpart also covers Water and Waste Disposal (WWD) 
Grants to individuals authorized by Section 306C(b) of the Consolidated 
Farm and Rural Development Act, (7 U.S.C. 1926c).

    74. Section 3550.103 is amended as follows:
    a. By redesignating paragraphs (i)(1)(ii) through (i)(1)(viii) as 
(i)(1)(iii) through (i)(1)(ix) respectively;
    b. By revising paragraph (i)(1)(i) and newly redesignated 
paragraphs (i)(1)(v) and (i)(1)(viii); and
    c. By adding a new paragraph (i)(1)(ii).
    The revision and addition read as follows:


Sec.  3550.103  Eligibility requirements.

* * * * *
    (i) * * *
    (1) * * *
    (i) Payments on any account where the amount of the delinquency 
exceeded one installment for more than 30 days within the last 12 
months.
    (ii) Payments on any account which was delinquent for more than 30 
days on two or more occasions within a 12-month period.
* * * * *
    (v) A court-created or court-affirmed obligation or judgment caused 
by nonpayment that is currently outstanding or has been outstanding 
within the last 12 months, except for those excluded by paragraphs 
(i)(2)(i) and (i)(2)(ii) of this section.
* * * * *
    (viii) Agency debts that were debt settled within the last 36 
months or are being considered for debt settlement.
* * * * *

    75. Section 3550.106 is amended in paragraph (a) by removing the 
words ``or have a value in excess of the 203(b) limits of the National 
Housing Act'' to read ``or have a market value in excess of the 
applicable maximum loan limit, in accordance with Sec.  3550.63.''

    76. Section 3550.108 is amended by revising in the introductory 
text the amount ``$2,500'' to read ``$7,500'' and by revising paragraph 
(b)(1) to read as follows:


Sec.  3550.108  Security requirements (loans only).

* * * * *
    (b) * * *
    (1) Loans where the total RHS indebtedness is less than $7,500; or
* * * * *

    77. Section 3550.114 is amended by revising the words ``was 
approved'' to read ``agreement was signed.''

    78. Sections 3550.115 through 3550.119 are added to read as 
follows:


Sec.  3550.115  WWD grant program objectives.

    The objective of the WWD individual grant program is to facilitate 
the use of community water and waste disposal systems by the residents 
of colonias along the border between the U.S. and Mexico. WWD grants 
are processed the same as Section 504 grants, except as specified in 
this subpart.


Sec.  3550.116  Definitions applicable to WWD grants only.

    (a) Colonia. Any identifiable community designated in writing by 
the State or county in which it is located; determined to be a colonia 
on the basis of objective criteria including lack of a potable water 
supply, lack of adequate sewage systems, and lack of decent, safe, and 
sanitary housing, inadequate roads, and drainage; and existed and was 
generally recognized as a colonia before October 1, 1989.
    (b) Individual. Resident of a colonia located in a rural area.
    (c) Rural areas. Includes unincorporated areas and any city or town 
with a population not in excess of 10,000 inhabitants according to the 
most recent decennial census of the United States.
    (d) System. A community or central water supply or waste disposal 
system.
    (e) WWD. Water and Waste Disposal grants to individuals.


Sec.  3550.117  WWD grant purposes.

    Grant funds may be used to pay the reasonable costs for individuals 
to:
    (a) Extend service lines from the system to their residence.
    (b) Connect service lines to residence's plumbing.
    (c) Pay reasonable charges or fees for connecting to a system.
    (d) Pay for necessary installation of plumbing and related fixtures 
within dwellings lacking such facilities. This is limited to one 
bathtub, sink, commode, kitchen sink, water heater, and outside spigot.
    (e) Construction and/or partitioning off a portion of the dwelling 
for a bathroom, not to exceed 4.6 square meters (48 square feet) in 
size.
    (f) Pay reasonable costs for closing abandoned septic tanks and 
water wells when necessary to protect the health and safety of 
recipients of a grant for a purpose provided in paragraph (a) or (b) of 
this section and is required by local or State law.
    (g) Make improvements to individual's residence when needed to 
allow the use of the water and/or waste disposal system.


Sec.  3550.118  Grant restrictions.

    (a) Maximum grant. Lifetime assistance to any individual for 
initial or subsequent Section 306C WWD grants may not exceed a 
cumulative total of $5,000.
    (b) Limitation on use of grant funds. WWD grant funds may not be 
used to:
    (1) Pay any debt or obligation of the grantees other than 
obligations incurred for purposes listed in Sec.  3550.117.
    (2) Pay individuals for their own labor.


Sec.  3550.119  WWD eligibility requirements.

    In addition to the eligibility requirements of Sec.  3550.103, WWD 
applicants must meet the following requirements:
    (a) An applicant need not be 62 years of age or older.
    (b) Own and occupy a dwelling located in a colonia. Evidence of 
ownership will be presented as outlined in Sec.  3550.107.
    (c) Have a total taxable income from all individuals residing in 
the household that is below the most recent poverty income guidelines 
established by the Department of Health and Human Services.
    (d) Must not be delinquent on any Federal debt.
    (e) The household income must be verified at the time they apply 
for assistance through verification of employment and benefits. Federal 
tax returns are used as further verification of household income.

    79. Section 3550.150 is amended by revising the OMB control number 
``0575-0166'' to read ``0575-0172'' and by removing the third sentence.

Subpart D--Regular Servicing

    80. Section 3550.162 is amended by revising paragraph (b)(2) to 
read as follows:


Sec.  3550.162  Recapture.

* * * * *
    (b) * * *
    (2) The value appreciation of property with a cross-collateralized 
loan is based on the market value of the dwelling and lot. If located 
on a farm, the lot size would be a typical lot for a single family 
housing property.
* * * * *

    81. Section 3550.163 is amended in the first sentence of paragraph 
(b)(2) by

[[Page 78332]]

revising the words ``sells a'' to read ``transfers title to the.''

    82. Section 3550.200 is amended by revising the OMB control number 
``0575-0166'' to read ``0575-0172'' and by removing the third sentence.

Subpart E--Special Servicing

    83. Section 3550.208 is amended by revising in paragraph (b) the 
reference to ``paragraph (a)(6)'' to read ``paragraph (a)(5)'' and by 
adding a new paragraph (a)(6) to read as follows:


Sec.  3550.208  Reamortization using promissory note interest rate.

* * * * *
    (a) * * *
    (6) Bring an account current where the National Appeals Division 
(NAD) reverses an adverse action, the borrower has adequate repayment 
ability, and RHS determines the reamortization is in the best interests 
of the Government and the borrower.
* * * * *

    84. Section 3550.211 is amended in paragraph (c) by removing the 
last two sentences.

    85. Section 3550.250 is amended by revising the OMB control number 
``0575-0166'' to read ``0575-0172'' and by removing the third sentence.

Subpart F--Post-Servicing Actions

    86. Section 3550.251 is amended in paragraph (c)(5)(i)(A) by 
revising the words ``program-eligible applicants'' to ``eligible direct 
or guaranteed single family housing loan applicants'' and by revising 
paragraphs (c)(4)(i) and (c)(4)(ii) to read as follows:


Sec.  3550.251  Property management and disposition.

* * * * *
    (c) * * *
    (4) * * *
    (i) Program REO properties are reserved for eligible direct or 
guaranteed single family housing loans under this part or part 1980, 
subpart D of this title and nonprofit organizations or public bodies 
providing transitional housing during the first 60 days after the date 
of the first notice of sale, and during the first 30 days following any 
reduction in price or any other change in credit terms or other sale 
terms. After the expiration of a reservation period, program REO 
properties can be bought by any buyer.
    (ii) An offer on a program REO property from a buyer who does not 
qualify for a direct or guaranteed single family housing loan may be 
submitted during a reservation period, but is considered to have been 
received on the day after the reservation period ends.
* * * * *

    87. Section 3550.300 is amended by revising the OMB control number 
``0575-0166'' to read ``0575-0172'' and by removing the third sentence.

    Dated: December 16, 2002.
Arthur A. Garcia,
Administrator, Rural Housing Service.
[FR Doc. 02-32190 Filed 12-23-02; 8:45 am]
BILLING CODE 3410-XV-P