[Federal Register Volume 68, Number 229 (Friday, November 28, 2003)]
[Rules and Regulations]
[Pages 66980-66985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29472]



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Part III





Department of Housing and Urban Development





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24 CFR Parts 1006 and 1007



Housing Assistance for Native Hawaiians: Native Hawaiian Housing Block 
Grant Program and Loan Guarantees for Native Hawaiian Housing Program; 
Direct Final Rule

  Federal Register / Vol. 68, No. 229 / Friday, November 28, 2003 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 1006 and 1007

[Docket No. FR-4668-F-03]
RIN 2577-AC27


Housing Assistance for Native Hawaiians: Native Hawaiian Housing 
Block Grant Program and Loan Guarantees for Native Hawaiian Housing 
Program; Final Rule

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

ACTION: Final rule.

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SUMMARY: This rule issues as final, and responds to public comments on, 
an interim rule published on June 13, 2002, to implement procedures and 
requirements for two new programs to address the housing needs of 
Native Hawaiians. The Native Hawaiian Housing Block Grant program will 
provide housing block grants to fund affordable housing activities. The 
Section 184A Loan Guarantees for Native Hawaiian Housing program will 
provide Native Hawaiian families with greater access to private 
mortgage resources by guaranteeing loans for one-to four-family housing 
located on Hawaiian Home Lands.

DATES: Effective Date: December 29, 2003.

FOR FURTHER INFORMATION CONTACT: Edward Fagan, Office of Native 
American Programs, Office of Public and Indian Housing, Department of 
Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 
20410-5000, telephone (202) 401-7914. (This is not a toll-free number.) 
Individuals with speech-or hearing-impairments may access this number 
through TTY by calling the toll-free Federal Information Relay Service 
at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 513 of the Hawaiian Homelands Homeownership Act of 2000, 
Subtitle B of Title V of the American Homeownership and Economic 
Opportunity Act of 2000 (Pub. L. 106-569, approved December 27, 2000) 
(HHH Act) amends the Native American Housing Assistance and Self-
Determination Act of 1996 (25 U.S.C. 4101 et seq.) (NAHASDA) by adding 
a new ``Title VIII--Housing Assistance for Native Hawaiians.'' Title 
VIII (the Act) establishes a program of block grant assistance to 
provide affordable housing for Native Hawaiians that is closely modeled 
on the Indian Housing Block Grant (IHBG) program under NAHASDA. Section 
514 of the HHH Act adds a new Section 184A to the Housing and Community 
Development Act of 1992 to authorize a new program of housing loan 
guarantees for Native Hawaiians based upon the Section 184 Loan 
Guarantee for Indian Housing program.
    HUD published an interim rule on June 13, 2002 (67 FR 40774), to 
implement the Act at 24 CFR part 1006 as the Native Hawaiian Housing 
Block Grant (NHHBG) program, and to implement the Section 184A Native 
Hawaiian Housing Loan Guarantee program (Section 184A program) at 24 
CFR part 1007. Public comment was also invited on the two new programs 
of housing assistance for Native Hawaiians. This rule issues as final, 
and responds to public comments received on, the June 13, 2002, interim 
rule.

II. Response to Public Comment on the Interim Rule

    The public comment period on the June 13, 2002, interim rule closed 
on August 12, 2002. HUD received four comments on the interim rule. 
Comments were received from a nonprofit organization, a county agency, 
and two agencies of the state of Hawaii. The comments received are 
organized below in this section of the preamble to correspond to the 
rule section that is addressed by the comment. The HUD response follows 
each comment.

Section 1006.10 Definitions

    Comment: The definition of ``housing area'' should be expanded to 
include lands outside the jurisdiction of the Department of Hawaiian 
Home Lands (DHHL), and lands other than the Hawaiian home lands 
(Hawaiian Home Lands) because there are many native Hawaiians who 
should qualify for assistance on the basis of income, but have not 
received a DHHL lease.
    HUD response: The language of the definition of ``housing area'' in 
the rule is the same language that appears as the definition of 
``housing area'' in section 801(5) of the Act, and HUD may not, by 
regulation, substantively change this statutory definition.
    Comment: In the definition of ``Native Hawaiian,'' DHHL's 
certification that an individual is a bona fide lessee should be 
included as acceptable evidence that an individual is a Native 
Hawaiian, along with genealogical records, verification by elders, and 
birth records.
    HUD response: Section 1006.301 sets forth the statutory requirement 
that eligibility is limited to Native Hawaiian families who are 
eligible to reside on the Hawaiian Home Lands. HUD agrees that an 
individual who is a bona fide homestead leaseholder satisfies the NHHBG 
program requirement that the family is eligible to reside on the 
Hawaiian Home Lands. The lease is sufficient to document the 
requirement.

Section 1006.101 Housing Plan Requirements

    Comment: Since no federal funds were used in constructing past 
units on the Hawaiian Home Lands, DHHL should not be required to report 
on the condition or disposition of those dwellings.
    HUD response: The housing plan requirements of Sec. Sec.  
1006.101(b)(vii) and (viii), which this comment addresses, are taken 
directly from the authorizing statute (see 25 U.S.C. 4223(c)(2)(D)(vii) 
and (viii)). In general, the statutory provisions for a housing plan 
require a more comprehensive approach that looks at the use of NHHBG 
funding not in isolation, but within the context of the overall housing 
needs of Native Hawaiians and the total resources available to address 
those needs. Therefore, even though no federal funds were used in the 
construction of past units, it is necessary to consider these existing 
resources to better utilize the new assistance. In addition, NHHBG 
funding may be used for the demolition or disposition of existing 
units, if the DHHL provides for this activity in its housing plan, even 
though the units were not constructed with federal funds.

Section 1006.201 Eligible Affordable Housing Activities

    Comment: Because there are currently no NAHASDA (more specifically, 
NHHBG) assisted units on the Hawaiian Home Lands), NHHBG funds cannot 
be used in existing communities. DHHL would like to enable existing 
communities to use NAHASDA funds for model activities, resident 
management and crime and safety activities.
    HUD response: The eligible activities in section 810 of the Act are 
``affordable housing'' activities. Subsection (b)(1) covers development 
of affordable housing, subsection (b)(2) covers housing-related 
services for affordable housing, subsection (b)(3) covers management 
services for affordable housing, subsection (b)(4) covers crime 
prevention and safety measures to protect residents of affordable 
housing, and subsection (b)(5) covers model housing activities. Subpart 
C of the regulations reflects the statutory language. ``Affordable 
housing'' is housing that complies with the requirements for affordable 
housing in

[[Page 66981]]

the statute and regulations. Notwithstanding the fact that the housing 
in existing communities was not developed with NHHGB funds, NHHBG funds 
may be used to assist existing communities if the existing housing 
complies with the requirements for affordable housing. HUD notes that 
under both section 813(b) of the Act (25 U.S.C. 4232(b)) and, Sec.  
1006.305(d) of the regulations, housing assisted with NHHBG funds 
pursuant to the exception to low-income requirement at section 
809(a)(2)(B) of the Act (25 U.S.C. 4228(a)(2)(B)), and Sec.  
1006.301(b) of the regulations, shall be considered affordable housing 
for purposes of the Act.

Section 1006.220 Crime Prevention and Safety Activities

    Comment: DHHL would like to provide services within existing 
communities, even if there are no NAHASDA-assisted units within the 
communities at the present time.
    HUD response: HUD's response to the comment on Sec.  1006.201 
addresses this issue.

Section 1006.225 Model Activities

    Comment: DHHL would like to provide services within existing 
communities, even if there are no NAHASDA-assisted units within the 
communities at the present time.
    HUD response: HUD's response to the comment on Sec.  1006.201 
addresses this issue.

Eligible Activities (Subpart C Generally)

    Comment: In the case of activities such as site improvements or 
development of utilities that benefit the whole community, ``all units 
in a project should be considered as Eligible Low-Income Families'' if 
the families in the project are existing residents and any of the 
following:
    (a) The median income of the Hawaiian Home Lands area in which the 
project is located is less than 80 percent of the median income of the 
state of Hawaii (based on the most recent U.S. Census data available); 
or
    (b) The project has a poverty rate of at least 20 percent; or
    (c) The project is located in a low-income area of the U.S. 
Treasury Department's Community Development Financial Institutions 
(CDFI) Fund On-line Help Desk Maps.
    There should be criteria to qualify whole communities as low-income 
because where there are existing residents, the effort to certify 
individual families as low-income becomes an imposition on the 
residents and burdensome to the DHHL. The rule should not serve as a 
disincentive to provide affordable housing activities in existing 
communities.
    HUD response: The authorizing statute permits exceptions to the 
low-income requirement and allows NHHBG funds to be used for housing 
activities under model programs that are designed to carry out the 
purposes of title VIII of the Act. The use of NHHBG funds under the 
low-income exception and for model activities both require HUD 
approval. HUD encourages the submission of specific planned model 
activities and requests for exemptions for review with conformity to 
the Act's requirements.
    Comment: The rule restricts the use of funds to communities in 
which there are existing NAHASDA-assisted units, and prevents DHHL from 
strengthening or enabling existing communities with NAHASDA funds. 
[Note: Although the comment spoke of ``NAHASDA-assisted units'' and 
``NAHASDA funds'' it is clear that NHHBG assistance is the intended 
subject.]
    HUD response: HUD's response to the comment on Sec.  1006.201 
addresses this issue.
    Comment: There may be a need to improve off-site infrastructure to 
access DHHL property through non-DHHL properties. The current rule 
appears to preclude such projects. Expanding the definition of 
``housing area'' would allow funding of off-site infrastructure 
improvements.
    HUD response: Under section 810(b)(1) of the Act, the development 
of affordable housing may include both site improvements and the 
development of utilities and utility services. Site improvements must 
be on the site of the affordable housing. The affordable housing must 
be located on a ``housing area'' which is defined by section 801(5) of 
the Act to mean an area of the Hawaiian Home Lands with respect to 
which the DHHL is authorized to provide assistance for affordable 
housing under the Act. Although the affordable housing must be located 
on the Hawaiian Home Lands, the utilities need not necessarily be 
located there. However, the utilities must be for the affordable 
housing.

Section 1006.310 Rent and Lease-Purchase Limitations

    Comment: For rental and rent-to-own units, each entering family 
must qualify as low-income. For homeownership, only the initial family 
must qualify as low-income.
    HUD response: The regulatory requirements reflect the statutory 
requirements at section 813(a) of the Act (25 U.S.C. 4232(a)).
    Comment: Because the monthly maximum rent or lease-purchase payment 
may not exceed 30 percent of a low-income family's income, this cap may 
preclude the establishment of flat rents or lease-purchase payments 
based on operational costs or market factors.
    HUD response: The 30 percent of income requirement is statutory (25 
U.S.C. 4230(a)(2), section 811(a) of the Act) and applies ``in the case 
of any low-income family.'' Where a family that is not low-income is 
assisted, if permitted under the exception discussed earlier in this 
preamble, the 30 percent of income requirement does not apply. (See 
Sec.  1006.310(c).)

Section 1006.315 Lease Requirements

    Comment: Currently DHHL will take action against the lessee only if 
the illegal activity is conducted on the leased premises.
    HUD response: The regulation allows this flexibility, and provides, 
at Sec.  1006.315(f), that ``the DHHL, owner, or manager may terminate 
the tenancy.'' (Emphasis added.) Termination is discretionary, not 
mandatory.

Section 1006.320 Tenant or Homebuyer Selection

    Comment: DHHL plans to use current state administrative rules, 
which govern the awarding of leases to applicants on the waiting lists 
for Hawaiian Home Lands with the addition of the NAHASDA income 
requirement for this purpose.
    HUD response: The policies and criteria adopted by the DHHL as 
required by the Act, must be available for review by HUD, and the 
housing plan submitted annually by the DHHL must contain a 
certification that the DHHL has such policies in effect. HUD will bring 
any concerns it may have with respect to such policies to the DHHL's 
attention upon conducting such reviews.

Section 1006.330 Insurance Coverage

    Comment: Would HUD be required to be named as an additional insured 
on homeowner units funded by the Act or does the insurance requirement 
apply only on rental units purchased or constructed by DHHL with 
NAHASDA funds and owned and managed by DHHL?
    HUD response: The insurance requirement is intended to preserve the 
NHHBG investment in affordable housing and not to provide any 
compensation to HUD. HUD is not named as an additional insured on any 
units, but the DHHL must require the owner of any rental or 
homeownership unit assisted with more than $5,000 of

[[Page 66982]]

NHHBG funds to obtain insurance sufficient to cover the replacement 
cost of the unit.

Section 1006.335 Use of Nonprofit Organizations and Public-Private 
Partnerships

    Comment: Because of the limited number of experienced nonprofit 
developers in Hawaii, the requirement to work with nonprofits to the 
extent practicable may serve as an obstacle to the development of 
affordable housing.
    HUD response: The DHHL is in the best position to determine the 
extent to which it is practicable to work with nonprofits. This 
requirement is not intended to hinder the DHHL's affordable housing 
efforts.

Section 1006.340 Treatment of Program Income

    Comment: New grant funds should be accessible even if there is 
available program income remaining, because it may be impracticable to 
exhaust all program income first.
    HUD response: The requirement to disburse program income first in 
Sec.  1006.340(b)(3) merely repeats the governmentwide requirements of 
Office of Management and Budget (OMB) Circular A-102, ``Administrative 
Requirements for Grants and Cooperative Agreements to State, Local and 
Federally Recognized Indian Tribal Governments,'' which has been 
adopted by HUD at 24 CFR part 85. It is not necessary to exhaust all 
program income first as the comment states. Under 24 CFR 1006.340(c), 
if the total amount of program income received in a single year does 
not exceed $25,000, then the amount is not considered program income 
and is not subject to the requirement that it be disbursed before 
disbursing additional NHHBG funds. Program income would not have to be 
disbursed unless and until it is determined that the $25,000 threshold 
has been crossed. The requirement is intended to avoid the stockpiling 
and non-use of program income.

Section 1006.345 Labor Standards

    Comment: DHHL partners with nonprofits that use self-help and 
volunteer labor to bring down housing costs for low-income families. 
These efforts would be hampered by a wage requirement.
    HUD response: Volunteer labor is specifically exempted, under the 
conditions specified in section 805(b)(2) of the Act (25 U.S.C. 
4225(b)(2)), and Sec.  1006.345(d) of the regulations, from the wage 
requirement.

Section 1007.1 Purpose

    Comment: The purpose section of the regulations states that HUD 
understands homestead leases have unique legal status; therefore, HUD 
is aware that homestead leases are not alienable.
    HUD response: Section 208(6) of the Hawaiian Homes Commission Act 
(HHCA) provides that:

    The lessee, with the consent and approval of the commission, may 
mortgage or pledge the lessee's interest in the tract or 
improvements thereon to a recognized lending institution authorized 
to do business as a lending institution in either the state or 
elsewhere in the United States; provided the loan secured by a 
mortgage on the lessee's leasehold interest is insured or guaranteed 
by the Federal Housing Administration, Department of Veterans 
Affairs, or any other federal agency and their respective successors 
and assigns, which are authorized to insure or guarantee such loans, 
or any acceptable private mortgage insurance as approved by the 
commission. The mortgagee's interest in any such mortgage shall be 
freely assignable. Such mortgages, to be effective, must be 
consented to and approved by the commission and recorded with the 
department.

    The HHCA specifically permits the lessee of a homestead lease to 
pledge the lessee's interest in the tract or improvements, which 
provides a sufficient basis for mortgage lending to proceed in the 
unique circumstances of the Hawaiian Home Lands. As a practical matter, 
the federal government's insurance or guarantee of the loan, rather 
than the value of the property, provides the actual financial security 
for a lender to an individual Native Hawaiian borrower in these 
transactions. Under the HHCA, general leases are clearly alienable.
    HUD notes that nearly all of the comments submitted on the Section 
184A program address issues of loans to individual, Native Hawaiian 
borrowers who hold homestead leases, the same group of borrowers 
directly served by the existing Federal Housing Administration (FHA) 
Section 247 mortgage insurance program. Because of the unique status of 
Hawaiian Home Lands, the Section 247 program focuses on loans to 
individual, Native Hawaiian borrowers. This focus is exemplified by one 
of the principal purposes of the HHCA, ``Preventing alienation of the 
fee title to the lands set aside under this Act so that these lands 
will always be held in trust for continued use by native Hawaiians in 
perpetuity,'' HHCA Sec.  101(b)(3)). This focus raises a number of 
difficulties in implementation, among them, issues concerning the 
security offered for a loan, and valuation of, foreclosure on, and sale 
after foreclosure of the security. However, the use of Section 184A 
loan guarantees is not limited to individual homebuyers, and HUD wishes 
to emphasize the significant difference between the new Section 184A 
program and the Section 247 program.
    The Section 184A program does not merely duplicate the Section 247 
program, which focuses exclusively on loans to individual native 
Hawaiian families holding homestead leases. For reasons of efficiency 
and ease of administration, and to capitalize on familiarity in order 
to promote acceptance by the lending industry, HUD intends to 
administer both the Section 184A and Section 247 programs in a 
consistent manner with respect to individual, Native Hawaiian 
borrowers, who are eligible under either program. But to fully 
implement, and derive the maximum benefit from, the Section 184A 
program, HUD has concluded that it will emphasize and strongly 
encourage the use of the Section 184A program in ways that do not 
duplicate the Section 247 program.
    The conclusion for not having the Section 184A program duplicate 
the Section 247 program comes from HUD's consideration of the broader 
range of eligible borrowers under the Section 184A program statute, the 
flexibility permitted for eligible collateral, and the larger scale of 
the activities that may be undertaken with the greater amount of 
guaranteed funds available to a borrower. HUD, therefore, strongly 
encourages the use of Section 184A loan guarantees by the institutional 
borrowers (DHHL, Office of Hawaiian Affairs, experienced nonprofits) 
specifically made eligible under the statute. These institutional 
borrowers may negotiate with lenders for larger loans, up to the limits 
HUD is authorized to guarantee, to obtain financing for large-scale, 
integrated infrastructure, homeownership development projects on the 
Hawaiian Home Lands. Section 184A allows this type of community-wide, 
rather than single home, development and, to the fullest extent 
possible, HUD encourages the use of the program for such projects.
    Under such a project, for example, the DHHL could develop and pay 
for the cost of a number of homes and supporting infrastructure, using 
a combination of NHHBG funds and Section 184A guaranteed loan proceeds. 
The loan collateral could be any bonds or notes the DHHL is authorized 
to issue. The grant funds could cover the infrastructure costs, and the 
loan proceeds could cover the cost of the homes. If the DHHL chooses to 
provide direct financing to a Native Hawaiian leaseholder for one of 
these homes, the

[[Page 66983]]

transaction would require no additional source of funding; the DHHL 
could offer a loan at the minimum rate necessary to cover its repayment 
of the Section 184A loan; and any payments made by the leaseholder 
would be a direct offset of the cost of developing the home. HUD would 
not have to guarantee or insure these loans. Because the infrastructure 
was paid for by grant funds, the leaseholder/borrower is not paying 
back these costs, only the loan guarantee costs of the home. Even if 
there were a number of successive defaults on a home, the home could be 
offered at a discounted price or shorter term to each successive 
leaseholder, since the DHHL is seeking only to recover its costs and 
repay its loans, not to make a profit. Any gap in cash flow while a 
defaulting leaseholder is evicted and a new leaseholder takes over 
would be limited to the monthly payments as they come due and not to 
the entire cost of the home.
    The use of Section 184A loan guarantees as described above may 
proceed under the rule at 24 CFR part 1007 as currently written. HUD is 
planning in a separate rule to propose minimum financial viability and 
development capacity and experience requirements to determine what 
nonprofits are eligible for guarantees, but this should not prevent 
planning of Section 184A development projects from proceeding. HUD 
welcomes the opportunity to work with the eligible institutional 
borrowers to develop viable projects on a case-by-case basis. The 
result of using the Section 184A program for this larger-scale 
development is anticipated to be an increase in the production of 
affordable housing units on a more financially sound basis, while 
avoiding many of the difficulties pointed out in the public comments, 
which focus on issues related to individual borrowers. To the extent 
Section 184A loan guarantees are sought for individual borrowers, the 
existing FHA Section 247 program model will be followed.

Section 1007.20 Eligible Housing

    Comment: The FHA Section 247 program accepts the building codes of 
the various counties, and the Section 184A program should accept the 
same requirements.
    HUD response: A new paragraph (d) is being added to Sec.  1007.20 
to provide that housing that meets the minimum property standards for 
Section 247 mortgage insurance is deemed to meet the required housing 
safety and quality standards.

Section 1007.30 Security for Loan

    Comment: Under Sec.  1007.30(a), only the dwelling for which the 
loan is used is collateral for the loan.
    HUD response: Where the borrower is an individual, Native Hawaiian 
holder of a homestead lease, the lessee's interest must always be 
included as collateral for the loan. This is consistent with Section 
208(6) of the HHCA, and with the FHA Section 247 mortgage insurance 
program. Where the borrower is an entity other than an eligible Native 
Hawaiian family, ``any collateral authorized under and not prohibited 
by federal or state law,'' as provided by Sec.  1007.30(a), may be 
used.
    Comment: Under Sec.  1007.30(b), which addresses Hawaiian Home 
Lands property interest as collateral, all homestead leases are 
inalienable.
    HUD response: As noted earlier, HUD is aware of the restrictions 
preventing alienation of the fee title to the lands set aside as 
Hawaiian Home Lands and recognizes the limitations on disposition of a 
homestead lease that has been mortgaged pursuant to section 208(6) of 
the HHCA. However, HUD also notes the specific authority to ``mortgage 
or pledge the lessee's interest in the tract or improvements thereon.''
    Comment: Under Sec.  1007.30(b)(1), which addresses approved 
leases, leases have evolved over the years, and DHHL would not want to 
be required to amend older leases.
    HUD response: HUD is uncertain of the circumstances under which an 
older lease would be at issue in a Section 184A loan guarantee 
transaction, since refinancing is not an eligible activity. The statute 
for the Section 184 loan guarantee program was amended to specifically 
authorize refinancing, and such specific authorization is not present 
in Section 184A. Nevertheless, should a request for a Section 184A loan 
guarantee present itself in the context of an older lease, HUD must 
reserve the right to approve the lease in order to protect its, and the 
public's, financial interest, as it is obliged to do in all of its 
programs.
    Comment: Under Sec.  1007.30(b)(2), which addresses assumption or 
sale of leasehold, title can only be transferred to another native 
Hawaiian; neither HUD nor the mortgagee can hold title.
    HUD response: HUD agrees with this comment, and plans to amend this 
section in a separate proposed rule. As a practical matter, the 
provisions of this paragraph with respect to obtaining title to the 
leasehold interest cannot be executed, although the provisions 
requiring the DHHL's consent before any assumption of a lease, and 
HUD's approval before the lessor may terminate the lease while the 
mortgage is guaranteed or held by HUD, remain valid.
    Comment: Under Sec.  1007.30(b)(3), which addresses liquidation, 
only DHHL can cancel or award a lease.
    HUD response: The HUD response to the comment under Sec.  
1007.30(b)(2) addresses this issue.
    Comment: Under Sec.  1007.30(b)(4), which addresses eviction 
procedures, the DHHL's Administrative Rules and Hawaii Revised Statutes 
provide procedures for ``contested case hearings'' to allow lessees due 
process before a lease can be cancelled, which lengthens the process 
time. A more realistic time requirement than 60 days is 180 days to a 
year.
    HUD response: HUD does not intend to impose unrealistic 
requirements. In response to this comment, the last sentence of Sec.  
1007.30(b)(4), which contains this requirement, is removed.
    Comment: Under Sec.  1007.30(b)(4)(i), which addresses enforcement, 
reconsideration of lease cancellations, and court stays prolong the 
process.
    HUD response: The HUD response to the comment under Sec.  
1007.30(b)(4) addresses this issue.

Section 1007.35 Loan Terms

    Comment: Because DHHL provides land at no cost to native Hawaiians, 
only the cost of the dwelling is assumed by the lessee; therefore, loan 
limits should mirror the FHA Section 247 program. Setting a high loan 
maximum will limit DHHL's ability to reaward existing homes, which have 
high values, to waiting low-income families.
    HUD response: HUD agrees with the comment. As noted earlier in this 
preamble, HUD intends to administer both the Section 184A and Section 
247 programs in a consistent manner, with respect to individual, Native 
Hawaiian borrowers holding homestead leases.

Section 1007.40 Environmental Requirements

    Comment: A Finding of No Significant Impact (FONSI) should not be 
required to be published for each new construction loan made by 
individual lessees to construct a house on their homestead lot. The 
lessee should not be burdened with the cost to publish a FONSI.
    HUD response: FONSIs result from environmental assessments under 
the National Environmental Policy Act (NEPA). Under the environmental 
reviews conducted by HUD under 24 CFR part 50, referenced in Sec.  
1007.40, activities under the Section 184A program may or may not 
require

[[Page 66984]]

preparation of environmental assessments and FONSIs under NEPA, 
depending upon whether or not the activities are categorically excluded 
from environmental assessment in accordance with 24 CFR 50.20. 
Categorically excluded activities require only review and compliance 
with the other applicable environmental laws and authorities, and do 
not involve a FONSI. If a FONSI or other findings are required, HUD 
will prepare them. As noted in Sec.  1007.40, HUD will also require 
documents similar to the builder's certification required under 24 CFR 
203.12(b)(2). The lessee is not responsible for preparing the FONSI, 
the other findings, or the builder's certification.

Section 1007.50 Certificate of Guarantee

    Comment: After a lender has established credibility in packaging 
Section 184A loans, HUD should consider a direct guarantee process for 
local lenders.
    HUD response: HUD will consider such an approach, although as 
discussed earlier, HUD intends to encourage the use of the Section 184A 
program by institutional borrowers to conduct larger-scale development.

Section 1007.65 Transfer and Assumption

    Comment: DHHL should be notified of any assignment of loan to 
another servicer; assignment should be recorded in DHHL's recordation 
system.
    HUD response: HUD agrees with the suggested change in this comment, 
which will assist DHHL in monitoring the status of outstanding loans in 
the Section 184A program and taking an active approach to prevent 
defaults. Because this change would affect the responsibilities of 
servicers and has not been subject to notice and comment, it would be 
included in a proposed rule HUD is planning to publish separately from 
today's rule.

Section 1007.75 Payment under Guarantee

    Comment: Under Sec.  1007.75(a)(1), which addresses notification, 
the lender should also provide written notice to DHHL if the borrower 
defaults.
    HUD response: The HUD response to the comment under Sec.  1007.65 
addresses this issue.
    Comment: Under Sec.  1007.75(a)(2)(i), which addresses foreclosure, 
the holder of guarantee cannot foreclose on a DHHL lease.
    HUD response: Although Sec.  1007.75(a)(2)(i) basically tracks the 
statutory language of Section 184A(i)(1)(A)(ii)(I) (12 U.S.C. 1715z-
13b(i)(1)(A)(ii)(I)), HUD agrees that this comment identifies the 
difficulties of proceeding in accordance with the statute where the 
borrower is an individual, Native Hawaiian leaseholder, and the 
security for the loan is the lessee's interest in a homestead lease. 
The foreclosure process in these cases would have to follow the 
procedure used for defaults under the Section 247 program. HUD notes 
that these difficulties would not be present in the case of any of the 
eligible institutional borrowers, where the security for the loan would 
not be an interest of any kind in Hawaiian Home Lands property or where 
the borrower holds a general lease. This is among the reasons that HUD 
is encouraging the use of the Section 184A program by the eligible 
institutional borrowers.
    Comment: Under Sec.  1007.75(a)(2)(ii), a loan could be assigned to 
HUD, HUD pays the claim, DHHL cancels the lease, reawards the lease and 
repays HUD the amount recovered through sale.
    HUD response: Again, HUD notes that the situation contemplated by 
the comment almost certainly involves an individual, leaseholder 
borrower, with the lessee's interest as collateral, a situation that 
HUD intends to address in a manner consistent with the Section 247 
program, to the extent such transactions take place under Section 184A.

III. Changes to the Interim Rule in This Final Rule

    The following changes to the June 13, 2002, interim rule are made 
by this final rule, consistent with the discussion of public comments 
in this preamble, and as further explained below:
    1. A new paragraph (d) is added to Sec.  1007.20 to provide that 
housing that meets the minimum property standards for Section 247 
mortgage insurance is deemed to meet the required housing safety and 
quality standards.
    2. The last sentence of Sec.  1007.30(b)(4)(i), which uses 60 days 
to completion of eviction as a requirement for adequate enforcement, is 
removed.
    3. HUD is removing the initial field office review in the appeal 
process under Sec.  1007.30(b)(4)(ii) to streamline the procedure from 
a three-step to a two-step process. The initial request for a review is 
to be submitted directly to the Deputy Assistant Secretary, Office of 
Native American Programs.

IV. Findings and Certifications

Paperwork Reduction Act Statement

    The information collection requirements contained in this rule have 
been submitted to the Office of Management and Budget (OMB) for review 
under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35) and have been assigned OMB control number 2577-0200. In 
accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid OMB 
control number.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was 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 (42 U.S.C. 4332) at the interim rule stage of this rulemaking, and 
continues to apply at this final rule stage. The Finding of No 
Significant Impact is available for public inspection between the hours 
of 7:30 a.m. and 5:30 p.m. weekdays in the Office of General Counsel, 
Regulations Division, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-0500.

Executive Order 12866, Regulatory Planning and Review

    OMB reviewed this rule under Executive Order 12866 (entitled 
``Regulatory Planning and Review''). OMB determined that this rule is a 
``significant regulatory action'' as defined in section 3(f) of the 
Order (although not economically significant, as provided in section 
3(f)(1) of the Order). Any changes made to the rule as a result of that 
review are identified in the docket file, which is available for public 
inspection in the Regulations Division, Room 10276, Office of the 
General Counsel, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500.

Regulatory Flexibility Act

    The Secretary has reviewed this rule before publication and by 
approving it certifies, in accordance with the Regulatory Flexibility 
Act (5 U.S.C. 605(b)), that this rule would not have a significant 
economic impact on a substantial number of small entities. This rule 
provides requirements for administering a program of assistance to 
provide affordable housing for a specific population, Native Hawaiians, 
through a single state agency, the Department of Hawaiian Home Lands.

[[Page 66985]]

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) requires federal agencies to assess the effects of 
their regulatory actions on state, local, and tribal governments and on 
the private sector. This rule does not impose, within the meaning of 
the UMRA, any federal mandates on any state, local, or tribal 
governments or on the private sector.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either (1) imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (2) the rule 
preempts state law, unless the agency meets the consultation and 
funding requirements of section 6 of the Order. This rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Order.

List of Subjects

24 CFR Part 1006

    Community development block grants, Grant programs--housing and 
community development, Grant programs--Native Hawaiians, Low and 
moderate income housing, Native Hawaiians, Reporting and recordkeeping 
requirements.

24 CFR Part 1007

    Loan programs--Native Hawaiians, Native Hawaiians, Reporting and 
recordkeeping requirements.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for the Native 
Hawaiian Housing Block Grant program is 14.873, and for the Section 
184A Loan Guarantees for Native Hawaiian Housing program is 14.874.

0
Accordingly, for the reasons stated in the preamble, the interim rule 
for parts 1006 and 1007 of chapter IX of title 24 of the Code of 
Federal Regulations, published on June 13, 2002, 67 FR 40774, is 
promulgated as final, with the following amendments, to read as 
follows:

PART 1007--SECTION 184A LOAN GUARANTEES FOR NATIVE HAWAIIAN HOUSING

0
1. The authority citation for 24 CFR part 1007 continues to read as 
follows:

    Authority: 12 U.S.C. 1715z-13b; 42 U.S.C. 3535(d).


0
2. In Sec.  1007.20, add a new paragraph (d) to read as follows:


Sec.  1007.20  Eligible housing.

* * * * *
    (d) Housing that meets the minimum property standards for Section 
247 mortgage insurance (12 U.S.C. 1715z-12) is deemed to meet the 
required housing safety and quality standards.

0
3. In Sec.  1007.30, revise paragraphs (b)(4)(i) and (b)(4)(ii) and add 
the undesignated paragraph at the end of the section to the end of 
newly revised (b)(4)(ii) to read as follows:


Sec.  1007.30  Security for loan.

* * * * *
    (b) * * *
    (4) * * *
    (i) Enforcement. If HUD determines that the DHHL has failed to 
enforce adequately its eviction procedures, HUD will cease issuing 
guarantees for loans under this part except pursuant to existing 
commitments.
    (ii) Review. If HUD ceases issuing guarantees for the DHHL's 
failure to enforce its eviction procedures, HUD shall notify the DHHL 
of such action and that the DHHL may, within 30 days after notification 
of HUD's action, file a written appeal with the Deputy Assistant 
Secretary, Office of Native American Programs (ONAP). Upon notification 
of an adverse decision by the Deputy Assistant Secretary, the DHHL has 
30 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 DHHL may resubmit the issue to the Assistant 
Secretary for review at any subsequent time if new evidence or changed 
circumstances warrant reconsideration. * * *

    Dated: September 9, 2003.
Michael Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 03-29472 Filed 11-26-03; 8:45 am]
BILLING CODE 4668-33-P