[Federal Register Volume 71, Number 84 (Tuesday, May 2, 2006)]
[Rules and Regulations]
[Pages 25739-25740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4089]



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 Rules and Regulations
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  Federal Register / Vol. 71, No. 84 / Tuesday, May 2, 2006 / Rules and 
Regulations  

[[Page 25739]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 1924

RIN 0575-AC63


Surety Requirements

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Housing Service is amending its regulations to 
change the threshold for surety requirements guaranteeing payment and 
performance from a $100,000 contract amount to the maximum Rural 
Development Single Family Housing area lending limit. This limit will 
vary by locality. This will liberalize the requirement for surety and 
take into account the increased construction cost of single family 
homes in Rural Development's Single Family Housing Program. This will 
ease the burden on small contractors for whom obtaining surety is 
difficult and expensive, thereby reducing costs to our single family 
housing borrowers.
    On August 26, 2005 (70 FR 50222), the Rural Housing Service 
proposed to change the surety requirements for Single Family Housing 
loans under Section 502 of the Housing Act of 1949 (42 U.S.C. 1472). 
The rule, open for comment for a period of 60 days, received two 
comments regarding its implementation in Rural Housing procedure. The 
first comment is in favor of this final rule, thus reinforcing the idea 
that reducing costs for the contractor by raising the threshold at 
which surety is required, ultimately benefits the borrower through 
greater cost savings. The second comment does not favor the proposed 
rule. The essence of this argument is based upon protecting federal 
funds, by providing surety (performance and payment bonds). The cost of 
surety places a greater financial burden on the borrower, as well as 
making it more difficult for small contractors in rural areas to 
service RHS borrowers. RHS oversees the construction process until the 
project is complete, insuring that Federal funds are properly disbursed 
for the adequate amount of completed construction demonstrated by the 
contractor. In addition, surety requirements are not entirely 
eliminated in Single Family Housing. If the borrower requests surety or 
the loan official feels that additional security is needed for a 
specific project, then surety will be provided.

DATES: Effective Date: June 1, 2006.

FOR FURTHER INFORMATION CONTACT: Michel Mitias, Technical Support 
Branch, Program Support Staff, Rural Housing Service, U.S. Department 
of Agriculture, STOP 0761, 1400 Independence Avenue, SW., Washington, 
DC 20250-0761; Telephone: 202-720-9653; FAX: 202-690-4335; E-mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

Classification

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

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 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.

Regulatory Flexibility Act

    The Administrator of the Rural Housing Service has determined that 
this rule will not have a significant economic impact on a substantial 
number of small entities as defined in the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.). New provisions included in this rule will not 
impact a substantial number of small entities to a greater extent than 
large entities. Therefore, a regulatory flexibility analysis was not 
performed.

Paperwork Reduction Act

    There are no new reporting and recordkeeping requirements 
associated with this rule.

Unfunded Mandates Reform Act

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandates Reform Act of 1995.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' RHS has determined 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.

Programs Affected

    The programs affected are listed in the Catalog of Federal Domestic 
Assistance under Number 10.410, Very Low to Moderate Income Housing 
Loans, and Number 10.415, Rural Rental Housing Loans. Rural Rental 
Housing Loans will be affected for those construction contracts above 
the applicable Rural Development area loan limit.

Intergovernmental Review

    RHS conducts intergovernmental consultation in the manner 
delineated in RD Instruction 1940-J, ``Intergovernmental Review of 
Rural Development Programs and Activities,'' and in 7 CFR part 3015, 
subpart V. The Very Low to Moderate Income Housing Loans Program, 
Number 10.410, is not subject to the provisions of Executive Order 
12372, which requires intergovernmental consultation with State and 
local officials. Rural Rental Housing Loans Program, Number 10.415, 
conducts intergovernmental reviews on a case-by-case basis. An 
intergovernmental review for this revision is not required or 
applicable.

Background

    RHS administers the Direct Single Family Housing Loan and Grant 
program pursuant to 7 CFR part 3550,

[[Page 25740]]

designed to assist very low and low-income households to obtain modest, 
decent, safe, and sanitary housing for use as permanent residences in 
rural areas. Direct loans may be used to buy, build, or improve the 
applicant's permanent residence. RHS regulations in 7 CFR part 1924, 
subpart A, contain requirements for construction which is funded with 
direct RHS loans, including direct single family housing loans. The 
regulation also applies to larger direct funded construction projects 
by other programs in the Rural Development mission area. This 
regulation was originally promulgated on March 13, 1987 in 52 FR 41833. 
One of the requirements in this regulation is that for construction 
work performed by the contract method (where the borrower contracts 
with a builder for the construction), the builder must obtain a surety 
bond guaranteeing payment and performance in the amount of the contract 
when the contract exceeds $100,000. This amount has remained unchanged 
since 1987. In 1987, a single family house constructed and financed 
under the direct single family housing loan program would not exceed 
$100,000. Since 1987, construction costs for single family houses 
financed by RHS have dramatically increased so that now construction 
costs frequently exceed $100,000. The requirement that builders obtain 
surety bonds when the construction contract exceeds $100,000 has made 
it difficult for contractors to compete for direct single family 
housing projects financed by RHS. While the regulation contains 
internal exceptions for the $100,000 requirement, none of these 
exceptions satisfactorily resolves the cost burden for builders of 
direct single family housing.
    The revision to 7 CFR 1924.6(a)(3)(i)(A) will facilitate the 
process of construction by raising the threshold when the contractor 
must acquire surety bonds. The purpose of this regulation is to revise 
the existing surety bond requirement for direct funded single family 
housing. The new threshold will be when the contract exceeds the 
applicable RHS area single family housing loan limit as established 
pursuant to 7 CFR 3550.63. The limit for any particular area is 
available from any Rural Development office.
    The provisions in 7 CFR 1924.6(a)(3)(i) that require payment and 
performance bonds when construction is under this threshold amount 
remain unchanged. RHS has determined that changing the threshold for 
payment and performance bonds provides for more flexibility, is 
locality based, borrowers are adequately protected, and housing costs 
are reduced.

List of Subjects in 7 CFR Part 1924

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


0
For the reasons set forth in the preamble, chapter XVIII, title 7, of 
the Code of Federal Regulations is amended as follows:

PART 1924--CONSTRUCTION AND REPAIR

0
1. 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

0
2. Section 1924.6 is amended by revising paragraph (a)(3)(i)(A) to read 
as follows:


Sec.  1924.6  Performing development work.

* * * * *
    (a) * * *
    (3) * * *
    (i) * * *
    (A) The contract exceeds the applicable Rural Development Single 
Family Housing area loan limit as per 7 CFR 3550.63. (Loan limits are 
available at the local Rural Development field office.)
* * * * *

    Dated: March 30, 2006.
Russell T. Davis,
Administrator, Rural Housing Service.
[FR Doc. 06-4089 Filed 5-1-06; 8:45 am]
BILLING CODE 3410-XV-P