[Federal Register Volume 72, Number 23 (Monday, February 5, 2007)]
[Rules and Regulations]
[Pages 5153-5157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1817]


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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: Final rule.

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SUMMARY: Through this action, the Rural Housing Service (RHS) is 
adopting 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: This rule is effective on May 7, 2007.

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; e-mail: 
[email protected].

[[Page 5154]]


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 of 1995, the information 
collection requirements contained in this regulation have been approved 
by OMB under control number 0575-0172.

E-Government Act Compliance

    The Agency is committed to complying with the E-Government Act, to 
promote the use of Internet and other information technologies to 
provided increased opportunities for citizen access to Government 
information and services, and for other purposes.

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), 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 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 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, not 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 a substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Background

    On March 6, 2006 the Agency published a proposed rule (71 FR 11167-
9) with a 60 day comment period that would add homeowner education as a 
requirement for first time homebuyers that use Section 502 Direct loan 
funds to purchase a home. We received a total of 52 comments in 
response to the proposed rule. Overall the comments expressed support 
for the addition of the homeownership education requirement and 
generally agreed that homeowner education was necessary and beneficial. 
Many comments did have a recommendation or suggest a revision to the 
proposed rule. The comments are highlighted into significant issue 
areas and discussed below.

A. Homeowner Education as a Requirement Will Be a Barrier for Low-
Income Families and Should Not Be Mandatory

    The Agency received 5 comments stating that mandating homeowner 
education would create a barrier for families to access Section 502 
loans for home purchase. The comments suggested the following as 
possible barriers for families:
     Availability of homeowner education classes;
     Perception of an additional requirement that could 
discourage applicants, realtors and sellers from participating in the 
program,
     The travel time, distance and cost to the applicant(s), 
and
     Lack of certified counselors in some areas.
    The Agency does not believe that these are insurmountable barriers. 
In fact, based on the overall comments received, the Agency has 
determined that the general consensus is that making homeowner 
education a requirement results in greater benefit to the borrowers 
than any perceived detrimental effect to the home buying process. While 
the agency has established some preferences under Sec.  3550.11 for 
formats in training based on their effectiveness, adequate flexibility 
has been included to address the possible barriers raised.
    In addition, although the Agency does not expect the exception 
provision to be liberally used, it will be available. The State 
Director may grant an exception to borrowers on a case-by-case basis 
where the applicant documents a special need, such as a disability, 
that would impede completing the homeownership course, or where 
homeownership education is not reasonably available in the local area 
as further discussed below. Therefore, these comments have not been 
adopted.

[[Page 5155]]

B. Waiver of Homeowner Education by State Directors Should Not Be 
Routinely Exercised--RD Should Use Its Resources To Have Homeowner 
Education Services Delivered in Underserved Areas

    The Agency received 9 comments indicating that the waiver provision 
should not be routinely exercised, and 3 comments indicating the waiver 
provision was needed but that flexibility should be built into the rule 
in exercising the waiver. The State/Local RD office will do an area by 
area assessment of the availability of homeowner education in the 
following forms, before requesting an exception for an individual from 
the State Director: Classroom, one-on-one counseling, interactive video 
conference, interactive home-study, interactive telephone counseling, 
and on-line counseling. Exception requests will be reviewed and granted 
on an individual case-by-case basis. The State Director will consider 
whether access to such homeownership counseling is ``reasonably 
available'' before granting an exception to the homeowner education 
requirement to an individual. Factors that will be taken into 
consideration regarding availability of homeowner education to 
borrowers in areas served by field offices include, but are not limited 
to: Distance, travel time, geographic obstacles and cost. The intent of 
the exception provision is to ensure that the homeowner education 
requirement is not a barrier to an applicant in securing a loan; 
however, it is not the intent of the Agency to have liberal use of the 
exception provision. The exception provision is intended to be used 
only in those rare instances where it is demonstrated that a borrower 
would not be able to access any form of homeowner education without 
undue hardship[m1].

C. Readily Available Counseling Should Be Defined

    The Agency received 1 comment stating that readily available 
counseling should be defined in the rule. Informal investigation 
indicated that in some states applicants traveled up to one hour to 
attend a homeowner education class, after work and on the weekends, if 
necessary. Other comments were received that indicated an applicant 
would have to travel to another county to receive counseling. Distances 
vary from state to state and the willingness of an applicant to attend 
a class will vary. Given the many differences from state to state, what 
is `` readily available'' in this rule is better addressed by the State 
Director during the assessment of available homeowner education 
resources in the respective States. Factors that will be taken into 
consideration regarding availability of homeowner education to 
borrowers in areas served by field offices include, but are not limited 
to: distance, travel time, geographic obstacles and cost.

D. Lack of funds to pay for homeownership education training/who will 
pay for the homeowner education if the borrower cannot afford it?

    The Agency received 7 comments regarding sources of funds to pay 
for homeowner education on behalf of very-low and low-income borrowers. 
Some commenters believe that the Agency should assist in paying for the 
required homeowner education. This issue will be addressed, in part, by 
the RD State Offices when they assess the availability of homeowner 
education throughout their respective states and compile, an annually 
updated resource list of certified organizations and trainers that 
provide homeowner education. Where there is a fee charged to the 
borrower for homeowner education, the States will also assess sources 
of funding for the borrower to pay for their homeowner education, for 
example, organizations that provide free homeowner education will be 
identified, and borrowers will be referred to the free training first 
in all states. The Agency research revealed that many organizations 
charge only a nominal fee to cover the cost of materials for homeowner 
education. If qualified, these providers will be identified, and 
borrowers will be referred to these classes if free classes are 
unavailable. In addition, the borrower will have the option of 
financing reasonable costs of the training, as determined by the State 
Director, by including the amount in the loan amount at loan closing. 
Inclusion of such costs will not substantially increase the monthly 
Section 502 borrower loan payments.
    The Agency believes that the overall benefit of homeownership 
education outweighs the burdens involved. The cost of homeowner 
education will be another allowed expense that can be added to the cost 
of home purchase, if requested.

E. What is a reasonable fee to charge? Who decides?

    The Agency received 10 comments regarding reasonable fees to charge 
for homeowner education and suggesting that the Agency to set 
parameters for homeownership education fees as a guideline for the RD 
State Directors. RD does not believe it is appropriate to set or 
regulate the appropriate fee for providers. This should be determined 
based on local market conditions. Based on the comments received, the 
Agency will allow the State Directors to determine what is a reasonable 
fee to be charged for homeowner education based on the results of 
statewide assessments within their respective states. The Agency 
anticipates fees charged to borrowers based on the comments received to 
range from free to $400.

F. Homeowner Education Training Fees Should Be Allowed to the Homebuyer 
in Excess of the Appraised Amount of the House

    The Agency received 3 comments indicating that the fee for 
homeowner education counseling should be allowed in the loan amount in 
excess of the appraised value of the house. In response, the Agency 
will allow reasonable homeowner education fees to be added to the loan 
amount in excess of the appraised value of the house and area loan 
limits under Sec.  3550.63 in cases where the borrower requests to pay 
for the cost of the homeowner education by adding it to the loan 
amount. The Agency anticipates that such amounts will be insignificant 
portions of the loan.

G. Should RD staff deliver the homeowner education?

    The Agency received 4 comments stating that RD staff should deliver 
the homeowner education training. Staff capacity and, qualification to 
deliver training vary from state to state. State Directors have the 
flexibility within their States to determine the feasibility of 
offering this training using staff resources given other program 
demands. RD staff would have to be trained and certified to provide 
homeowner education as required under this rule.

H. Certification of Counselors: Should Include Certification From State 
Housing Finance Authorities or Other State Level Certification and 
Should Include Certification of Training That Is Culturally Appropriate 
for Native American Communities

    The Agency received 18 comments stating that certification of 
housing counselors should be allowed on the state-level, either by the 
State Housing Financing Agencies or other state-level certification 
processes, 4 comments stating the certification should model the HUD 
standard or one of the national organizations referenced in the 
proposed rule, and 1 commenting regarding certification of culturally 
appropriate training for Native American communities, especially Native 
Americans that reside on rural reservations. The Agency agrees that

[[Page 5156]]

state-level certification and certification of culturally appropriate 
training for Native Americans should be included. It is addressed in 
the final rule by Sec.  3550.11 permitting state-level certification by 
the State Housing Finance Agency or other state-level certification 
approved by the State Director, and certification by the National 
American Indian Housing Council, provided the required topics are 
included in their curriculum. The State Director will confirm that the 
housing counseling agencies that are not certified by a national agency 
identified in the final rule are certified by an approved state agency 
during the RD State Office assessment of available certified housing 
counseling agencies in their respective states.

I. What process should applicants undergo to receive a certificate of 
completion?

    The Agency received 4 comments regarding the requirement for the 
borrower to have a certificate of completion or letter of completion 
from the housing counseling provider to document that the course was 
successfully completed. The main concern of these comments was that 
there should not be a testing component in order for the provider to 
issue a letter or certificate of completion to the participants. Since 
the language in the proposed rule lets the provider determine 
successful completion of their course, the Agency has determined that 
there is sufficient flexibility for each provider to make an 
appropriate individual assessment and; therefore, the language will 
remain the same in the final rule.

J. At what point during the home purchase process should the Homeowner 
Education be required?

    The Agency received 8 comments regarding when during the home 
purchase process should the borrower complete homeowner education. 
Homeowner education must be completed by the borrower prior to closing 
their loan. When the borrowers receive their certificate of eligibility 
for a loan they will be advised that by accepting the certificate of 
eligibility they agree to submit documentation of homeowner education 
completion before loan closing and that they understand that it is a 
condition of loan closing. Language to this effect will be added to the 
Agency's certificate of eligibility document. At that time, the Agency 
will provide referrals to certified housing counselors to the borrower 
and discuss with the borrower where and when they will complete the 
homeowner education class.
    Generally, the comments stated that the earlier in the process the 
homeownership education is taken the greater it would benefit the 
borrower. It would be ideal if the borrowers would complete an 
homeowner education course before submitting a loan application and 
certainly before signing a purchase and sale agreement; however, 
realistically, as some comments indicated this may not be practicable 
in all cases. Many borrowers are unlikely to incur the expense of 
taking a homeowner education course if they have no confidence that 
they will be approved for a loan to buy a house. In recognition of 
these realities, the Agency also will offer some flexibility to 
providers in tailoring the curriculum to the attendee. For example, 
when the attendee has already located a dwelling to purchase, they need 
not be required to take that portion of the training dealing with 
shopping for a home. The provider could determine that the applicant 
already has satisfactory knowledge in this area.

K. Will the requirement be the same for Self-Help families who apply 
for Section 502 Direct loans?

    The Agency received 2 comments regarding whether Self-Help families 
would have to comply with the homeowner education requirement. If the 
Self-Help families are applying for Section 502 loans, then this rule 
requiring homeowner education as set forth would apply.

L. Suggestions for Adding Educational Components to Homeowner Education 
Course

    The Agency received 8 comments regarding additional topics that 
should be included in the required homeowner education. The Agency 
recognizes the value of these additional topics, therefore, the final 
rule will add them as recommended: Budgeting--Pre-& Post-Purchase; 
Credit Counseling; Lender Differences--especially predatory lending; 
and Post-Occupancy Education to include delinquency and foreclosure 
prevention.

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.


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

0
2. Section 3550.11 is added to read as follows:


Sec.  3550.11  State Director assessment of homeowner education.

    (a) State Director's will make an assessment of the availability of 
certified homeowner education in their respective states and maintain 
an annually updated listing of providers and their reasonable costs.
    (b) The order of preference for homeowner education formats is as 
follows:
    (1) Classroom; one-on-one counseling; or interactive video 
conference.
    (2) If none of the formats in paragraph (b)(1) of this section is 
reasonably available; as determined under Sec.  3550.53(i), then the 
applicant may use interactive home-study or interactive telephone 
counseling of at least four hours duration.
    (3) If none of the formats in paragraphs (b)(1) and (b)(2) of this 
section is reasonably available as determined under Sec.  3550.53(i), 
then the applicant may use on-line counseling to meet the homeownership 
education requirement.
    (c) Homeownership education must include a letter or certificate of 
completion and be provided by homeownership education counselors that 
are certified by any of the following:
    (1) The Department of Housing and Urban Development (HUD);
    (2) NeighborWorks America (NWA);
    (3) The National Federation of Housing Counselors (NFHC);
    (4) National American Indian Housing Council (NAIHC); or
    (5) The State Housing Finance Agency or other qualified 
organization approved by the State Director.
    (d) The provider will issue a letter or certificate of completion 
to document that the borrower has satisfactory knowledge of these 
minimum topics:
    (1) Preparing for homeownership (evaluate readiness to go from 
rental to homeownership),
    (2) Budgeting (pre and post-purchase),
    (3) Credit counseling,
    (4) Shopping for a home,

[[Page 5157]]

    (5) Lender differences (predatory lending),
    (6) Obtaining a mortgage (mortgage process, different types of 
mortgages),
    (7) Loan closing (closing process, documentation, closing costs),
    (8) Post-occupancy counseling (delinquency and foreclosure 
prevention),
    (9) Life as a homeowner (homeowner warranties, maintenance and 
repairs),
    (e) The provider may tailor the homeownership education training to 
the needs of the borrower to ensure satisfactory knowledge of the 
topics listed in paragraph (d) of this section.

Subpart B--Section 502 Origination

0
3. Section 3550.52 (d)(10) is added to read as follows:


Sec.  3550.52  Loan purposes.

* * * * *
    (d) * * *
    (10) Reasonable fees for homeownership education as determined by 
the State Director under Sec.  3550.11 of this subpart. Such fees may 
be added to the loan amount in excess of the area loan limit and 
appraised value of the house.
* * * * *

0
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 agree to 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. Requests for exceptions to the homeowner 
education requirement will be reviewed and granted on an individual 
case-by-case basis. The State Director may grant an exception the 
homeownership education requirement for individuals in geographic areas 
within the State where the State Director verifies that certified 
homeownership education is not reasonably available in the local area 
in any of the formats listed in Sec.  3550.11(b). Whether such 
homeownership education is reasonably available will be determined 
based on factors including, but not limited to: Distance, travel time, 
geographic obstacles, and cost. On a case-by-case basis, the State 
Director also may grant an exception, provided the applicant borrower 
documents a special need, such as a disability, that would unduly 
impede completing a homeownership course in a reasonably available 
format.

    Dated: January 5, 2007.
Russell T. Davis,
Administrator, Rural Housing Service.
 [FR Doc. E7-1817 Filed 2-2-07; 8:45 am]
BILLING CODE 3410-XV-P