[Federal Register Volume 71, Number 43 (Monday, March 6, 2006)]
[Proposed Rules]
[Pages 11167-11169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2072]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 71, No. 43 / Monday, March 6, 2006 / Proposed 
Rules  

[[Page 11167]]



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: Proposed rule.

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SUMMARY: Through this action, the Rural Housing Service (RHS) is 
proposing homeownership education requirements. The lack of 
homeownership education is a well-known barrier to successful 
homeownership for many families. The intended effect of this action is 
to assure that first time homeowners financed under the Section 502 
Direct program are well prepared for homeownership by assuring that 
they receive homeownership education.

DATES: Written comments must be received on or before May 5, 2006 to be 
assured for consideration.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Agency Web site: http://www.rurdev.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., 7th Floor, Suite 701, 
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.

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

    In accordance with the Paperwork Reduction Act of 1995, the Agency 
will seek the Office of management and Budget (OMB) approval of the 
reporting and record keeping requirements contained in this proposed 
regulation. These reporting and recordkeeping requirements have been 
previously approved under OMB control number 0575-0172.
    Title: Homeownership Education.
    Type of Request: Revision of a currently approved collection.
    Abstract: RHS enables low and very-low income rural residents to 
become homeowners through the Section 502 Direct Loan Program. The 
burden imposed in this proposed rule is a new requirement for borrowers 
who will be first-time homeowners to provide documentation that they 
have passed a publicly available homeowner education course. This 
information collected will be used by the Agency to assure successful 
homeownership and avoid delinquencies and forecloses.
    Estimate of Burden: The Agency is not recommending any particular 
course over another. For this reason, we believe our customers will 
take advantage of a variety of different sources to meet the minimum 
requirement. The public burden for this collection of information 
estimated to average 8.0 hours per response.
    Respondents: Limited to eligible Loan Applicants who will obtain 
their first homes through the Section 502 Rural Housing Loan program.
    Estimated Number of Respondents: 15,221.
    Estimated Number of Responses per Respondent: 1.
    Estimated Number of Responses: 15,221.
    Estimated Total Annual Burden on Respondents: 121,768.
    Copies of this information collection can be obtained from Renita 
Bolden, Regulations and Paperwork Management Branch, at (202) 692-0035.
    Comments: Comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Agency, including whether the information will 
have practical utility; (b) the accuracy of the Agencies' estimate of 
the burden of the proposed collection of information, including the 
validity of the methodology and assumptions used; (c) ways to enhance 
the quality utility, and clarity of the information to be collected; 
and (d) ways to minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology.
    All responses to this proposed rule will be summarized, included in 
the request for OMB approval, and will become a matter of public 
record. Comments should be submitted to Renita Bolden, Regulations and 
Paperwork Management Branch, Support Services Division, Rural Housing 
Service, U.S. Department of Agriculture, STOP 0742, 1400 Independence 
Avenue, SW., Washington, DC 20250-0742. A comment is best assured of 
having its full effect if it is received within 30 days of publication 
of this rule.

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 that Executive Order: (1) All State 
and local laws and regulations that are in conflict with this rule will 
be preempted; (2) no

[[Page 11168]]

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 b ringing 
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 of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 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 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 proposed rule are 10.410, 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 in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 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. This rule imposes a new requirement on Agency 
applicants and borrowers, however, the new requirement of homeownership 
education will apply solely to the individual applicants and borrowers 
of Section 502 Direct Single Family Housing financing and will not 
apply to small entities. There will be no significant information 
collection, or regulatory requirements imposed on small entities under 
this proposed rule.

Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the National 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Background

Borrower Education

    There is no homeowner education requirement in 7 CFR part 3550. The 
goal of Rural Development is to help rural applicants and their 
families become successful homeowners. One identified barrier to many 
rural applicants in becoming successful homeowners is the complexity of 
the home-buying process. Many applicants are ill prepared to undertake 
the added responsibility of homeownership. The benefit of homeownership 
education prior to home purchase is supported by a Freddie Mac study, 
``A Little Knowledge is a Good Thing: Empirical Evidence of the 
Effectiveness of Pre-Purchase Homeownership Counseling'', by Agdighani 
Hirad and Peter M. Zorn (May 22, 2001), (Study). (Available at http://www.freddiemac.com/corporate/reports/pdf/homebuyers_study.pdf.) The 
authors used data on mortgages from Freddie Mac's Affordable Gold 
program which is designed for borrowers who earn 100 percent or less of 
area median income. This study found that counseling did mitigate 
credit risk and that on average borrowers who receive pre-purchase 
counseling are 19 percent less likely to become 90-days delinquent on 
their mortgages than borrowers in similar situations who did not 
receive counseling. However, the study found that there was significant 
variation in the effectiveness of the counseling based on the format 
used to deliver the counseling--classroom, home study, individual and 
telephone counseling. The data indicated that borrowers receiving 
individual counseling had the greatest reduction in 90-day delinquency, 
a 34 per cent reduction. Classroom counseling reduced 90-day 
delinquency by 26 per cent and home study counseling reduced 90-day 
delinquency by 21 per cent and both were considered to be superior to 
telephone counseling. Telephone counseling was not found to have a 
statistically significant impact on borrower delinquency.
    The Study concluded ``that pre-purchase counseling can increase the 
success of affordable lending programs by helping families keep their 
homes, a substantial benefit to both borrowers and lenders.'' (Study p. 
4)
    Under its general rulemaking authority (42 U.S.C. 1480(k)), RHS 
proposes to add a requirement for applicants who are first time 
homebuyers to successfully complete a homeownership education course 
provided by a certified homeownership education counselor that includes 
the minimum topical components set forth below and to present 
documentation of their successful completion, as defined by the 
provider, of such course by submitting a certificate of completion or 
letter from the certified provider. The Agency is particularly 
interested in receiving comments on appropriate methods of measuring 
successful completion of a home study homeownership education course.
    The Agency believes this requirement will result in better-prepared 
borrowers, which will lead to more applicants becoming successful 
homeowners. Often homeownership education courses are offered by non-
profit community development corporations or public housing authorities 
at little or no cost to the borrower. However, the Agency recognizes 
that in some cases there will be a cost of homeownership education 
incurred by the prospective homeowner. The cost of homeownership 
education is proposed to be added as an eligible loan purpose akin to 
other reasonable expenses related to obtaining a loan. In instances 
where a fee must be paid by the prospective homeowner to obtain 
homeownership education, the cost can be included in the loan provided 
it does not exceed the reasonable fee amount for the service provider 
approved by the State Director.

[[Page 11169]]

    The Agency expects, however, that such education will be available 
at no or little cost to the borrowers in most areas.
    The Agency recognizes that there are some rural areas where 
homeownership education is not readily available or easily accessible. 
In implementing this requirement the Agency will assure that no one is 
turned away for consideration for a loan application solely because the 
required borrower education is not reasonably available in the local 
area as determined by the State Director. The homeownership education 
requirement may be waived, if the borrower demonstrates, and the State 
Director verifies, that no certified homeownership courses available 
via automated, electronic, mechanical or other technological medium and 
no home-study, or on-line format is available. The homeownership 
education requirement may be waived if the borrower documents a special 
needs such as a disability that would impede completing a homeownership 
course in any of the above mentioned formats.
    Acceptable forms of homeownership education must be provided by 
homeownership education counselors that are certified by any of the 
following: The Department of Housing and Urban Development (HUD); 
NeighborWorks America; or the National Federation of Housing Counselors 
and at a minimum must include the following components:
     Preparing for Homeownership (evaluate readiness to go from 
rental to homeownership).
     Shopping for a home.
     Obtaining a mortgage (mortgage process, different types of 
mortgages).
     Loan closing (closing process, documentation, closing 
costs).
     Life as a homeowner (homeowner warranties, maintenance and 
repairs).

List of Subjects in 7 CFR Part 3550

    Administrative practice and procedure, Conflict of interests, 
Environmental impact statements, Equal credit opportunity, Fair 
housing, Accounting, Housing Loan programs--Housing and community 
development, Low and moderate income housing, Manufactured homes, 
Reporting and recordkeeping requirements, Rural areas, Subsidies.
    For the reasons stated in the preamble, chapter XXXV, Title 7 of 
the Code of Federal Regulations, is proposed to be amended as follows:

PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

    2. 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

    2. Section 3550.11 is added to read as follows:


Sec.  3550.11  State Director Assessment of Homeowner Education.

    (a) The State Director will make an assessment of the availability 
of certified homeowner education in their respective states and 
maintain a listing of providers and their reasonable costs.
    (b) Acceptable forms of homeownership education must have a testing 
component and certificate of completion process and be provided by 
homeownership education counselors that are certified by an of the 
following:
    (1) The Department of Housing and Urban Development (HUD);
    (2) NeighborWorks America; or
    (3) The National Federation of Housing Counselors.
    (c) Acceptable forms of homeownership education at a minimum must 
include the following components:
    (1) Preparing for Homeownership (evaluate readiness to go from 
rental to homeownership).
    (2) Shopping for a home.
    (3) Obtaining a mortgage (mortgage process, different types of 
mortgages).
    (4) Loan closing (closing process, documentation, closing costs).
    (5) Life as a homeowner (homeowner warranties, maintenance and 
repairs).

Subpart B--Section 502 Origination

    3. Section 3550.52(d)(10) is added to read as follows:


Sec.  3550.52  Loan purposes.

* * * * *
    (D) * * *
    (10) Fees for acceptable homeownership education under Sec.  
3550.11 of this subpart provided the fee does not exceed the reasonable 
costs determined by the State Director under that section.
* * * * *
    4. Section 3550.53(I) is added to read as follows:


Sec.  3550.53  Eligibility requirements.

    (i) Homeownership education. Applicants who are first-time 
homebuyers must provide documentation, in the form of a completion 
certificate or letter from the provider, that a homeownership education 
course from a certified provider under Sec.  3550.11 has been 
successfully completed as defined by the provider prior to loan 
closing. The State Director may waive the homeownership education 
requirement for geographic areas within the State where the borrower 
demonstrates and the State Director verifies that certified 
homeownership education is not reasonably available in the local area 
in either automated, electronic, mechanical or technological format. On 
a case-by-case basis, the State Director may waive the homeownership 
education requirement, provided the applicant borrower documents a 
special need such as a disability that would impede completing a 
homeownership course in the above mentioned formats.

    Dated: February 24, 2006.
Russell T. Davis,
Administrator, Rural Housing Service.
[FR Doc. 06-2072 Filed 3-3-06; 8:45 am]
BILLING CODE 3410-XV-M