[Federal Register Volume 70, Number 25 (Tuesday, February 8, 2005)]
[Rules and Regulations]
[Pages 6551-6553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2429]



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 Rules and Regulations
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  Federal Register / Vol. 70, No. 25 / Tuesday, February 8, 2005 / 
Rules and Regulations  

[[Page 6551]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3550

RIN 0575-AC54


Direct Single Family Housing Loans and Grants

AGENCY: Rural Housing Service, USDA.

ACTION: Direct final rule.

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SUMMARY: Through this action, the Rural Housing Service (RHS) is 
revising and clarifying the definition for an existing dwelling and a 
new dwelling or unit, removing specific dollar limits with regards to 
insurance deductible clauses, and establishing the amount of insurance 
required to conform to industry standards. These changes are being made 
to make more clear what constitutes an existing and a new dwelling, and 
to conform insurance coverage requirements to industry standards. The 
intended effect is to improve the delivery and implementation of the 
Direct Single Family Housing programs.

DATES: This rule is effective April 25, 2005, unless we receive written 
adverse comments or written notices of intent to submit adverse 
comments on or before April 11, 2005.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Agency Web site: http://rdinit.usda.gov/regs/. Follow the 
instructions for submitting comments on the Web site.
     E-Mail: [email protected]. Include the RIN number (0575-
AC54) in the subject line of the message.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or another mail courier service requiring a street address 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., Washington, DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., address listed above.

FOR FURTHER INFORMATION CONTACT: Janet L. Carter, Senior Loan 
Specialist, Rural Housing Service, Stop 0783; 1400 Independence Avenue, 
SW., Washington, DC 20250-0783; Telephone: 202-720-1489; Fax: 202-690-
3555; e-mail: [email protected].

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.

Paperwork Reduction Act of 1995

    The information collection requirements contained in this 
regulation have been approved by 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.

GPEA Statement

    RHS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA), which requires Government agencies, in general 
to provide the public the option of submitting information or 
transacting business electronically to the maximum extent possible.

Civil Justice Reform

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. In accordance with this rule: (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 in 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 programs affected by this final rule are 10.410 Very Low to 
Moderate Income Housing Loans and 10.417 Very Low-Income Housing Repair 
Loans and Grants.

Intergovernmental Consultation

    For the reasons set forth in the final rule related Notice to 7 CFR 
part 3015, subpart V, these programs are not 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

[[Page 6552]]

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

    It is the policy of RHS to publish rules determined to be non-
controversial and unlikely to result in adverse comments as direct 
final rules. RHS Policy for direct final rules was published on March 
27, 2003 at 68 FR 14889. No adverse comments are anticipated on the 
changes in this rule. Adverse comments suggest that the rule should not 
be adopted or that a change should be made to the rule. Unless any 
adverse comments are received within 60 days of publication, this rule 
will be effective 75 days from the date of publication.

Definition of Existing Dwelling

    According to 7 CFR 3550.10, an existing dwelling is currently 
defined as a dwelling that is more than 1 year old, or less than 1 year 
old and covered by an approved 10-year warranty plan. 7 CFR 3550.10 
further defines a new dwelling as a dwelling that is to be constructed, 
or an already-existing dwelling that is less than 1 year old and is not 
covered by an approved 10-year warranty plan. This gives the impression 
that the major difference between a new and existing dwelling is 
coverage by a 10-year warranty plan. This has been a cause for much 
confusion with field staff, applicants, contractors, and Realtors. The 
10-year warranty allows the Agency to provide full financing on homes 
that are less than 1 year old when there is not other means of adequate 
and verifiable documentation of construction quality of new dwellings. 
This change will simplify the definitions of new and existing homes but 
does not otherwise change any policy on how new and existing homes are 
financed. The only anticipated impact of this change is clarity on what 
constitutes a new or existing dwelling for the purposes of financial 
assistance through the Direct Single Family Housing programs. No change 
will result from this revision regarding the applicability or value of 
a 10-year warranty.

Insurance Deductible Clauses

    According to 7 CFR 3550.61(b) and 7 CFR 3550.110(b) essential 
buildings must be insured in an amount at least equal to the balance of 
the secured debts. Many companies are reluctant to issue policies when 
the coverage is well in excess of the replacement value of the home. 
This is a particular problem in areas of high land costs and makes it 
extremely difficult for borrowers/homeowners to secure affordable 
insurance coverage. In addition, according to 7 CFR 3550.61(d) and 7 
CFR 3550.110(d) loss deductible clauses may not exceed $250 or 1 
percent of the insurance coverage, whichever is greater. The deductible 
for any 1 building may not exceed $750. The cost of housing has risen 
dramatically and so has the cost of insurance. Some companies are 
reluctant to provide coverage with deductible clauses with a low dollar 
threshold. This makes it very difficult for new homeowners to secure 
affordable insurance coverage.
    The change in this requirement conforms with industry standards and 
will adequately protect both the borrower's and the government's 
interest. With this change, the borrower will be asked to insure their 
house in an amount that is the lesser of 100% of the insurable value 
(i.e. the cost to restore the property back to its state prior to a 
loss) of the house or the unpaid principal balance. The loss deductible 
clause requirement will be based on the higher of 1% of the face value 
of the policy or $1,000 unless state law requires a higher maximum 
deductible amount. This change will make it easier for applicants to 
secure affordable insurance coverage.

List of Subjects in 7 CFR Part 3550

    Administrative practice and procedure, Conflict of interests, 
Environmental impact statements, Equal credit opportunity, Fair 
housing, Accounting, 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.


0
For the reasons stated in the preamble, chapter XXXV, Title 7 of the 
Code of Federal Regulations, is amended as follows:

PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

0
1. 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

    Section 3550.10 is amended by revising definitions for ``existing 
dwelling or unit'' and ``new dwelling'' to read as follows:


Sec.  3550.10  Definitions.

* * * * *
    Existing dwelling or unit. A dwelling or unit that has either been 
previously owner-occupied or has been completed for more than 1 year as 
evidenced by an occupancy permit, certificate of occupancy or similar 
document issued by the local authority.
* * * * *
    New dwelling or unit. A dwelling that is to be constructed, or a 
dwelling that is less than 1 year old as evidenced by an occupancy 
permit, certificate of occupancy or similar document issued by the 
local authority and has never been occupied.
* * * * *

Subpart B--Section 502 Origination

0
2. Section 3550.61 is amended by revising paragraphs (b) and (d)(1) to 
read as follows:


Sec.  3550.61  Insurance.

* * * * *
    (b) Amount. The dwelling and any other essential buildings must be 
insured in an amount that is the lesser of 100% of the insurable value 
(i.e. the cost to restore the property back to its state prior to a 
loss) of the house or the unpaid principal balance.
* * * * *
    (d) * * *
    (1) Loss deductible clauses for required insurance coverage may not 
exceed the higher of 1% of the face value of the policy or $1,000 
unless state law requires a higher maximum deductible amount.
* * * * *

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

0
3. Section 3550.110 is amended by revising paragraphs (b) and (d)(1) to 
read as follows:


Sec.  3550.110  Insurance (loans only).

* * * * *
    (b) Amount. The dwelling and any other essential buildings must be 
insured in an amount that is the lesser of 100% of the insurable value 
of the house or the unpaid principal balance.
* * * * *
    (d) * * *

[[Page 6553]]

    (1) Loss deductible clauses for required insurance coverage may not 
exceed the higher of 1% of the face value of the policy or $1,000 
unless state law requires a higher maximum deductible amount.
* * * * *

    Dated: December 27, 2004.
Russell T. Davis,
Administrator, Rural Housing Service.
[FR Doc. 05-2429 Filed 2-7-05; 8:45 am]
BILLING CODE 3410-XV-P