[Federal Register Volume 73, Number 164 (Friday, August 22, 2008)]
[Rules and Regulations]
[Pages 49591-49593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-19350]



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 Rules and Regulations
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  Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Rules 
and Regulations  

[[Page 49591]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3550

RIN 0575-AC69


Direct Single Family Housing Loans and Grants

AGENCY: Rural Housing Service, USDA.

ACTION: Direct final rule.

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

SUMMARY: Through this action, Rural Housing Service (RHS) is addressing 
the following:
    The Agency is revising the minimum insurance deductible amount and 
removing specific dollar limits with regards to insurance deductible 
clauses. The Agency also is clarifying the amount of dwelling coverage 
required to address current standards in the mortgage insurance 
industry and the coverage that the Agency may obtain when force-placed 
insurance is required. The intended effect is to make it easier for new 
homeowners to secure affordable insurance coverage and give the Agency 
sufficient flexibility to quickly react to changes in insurance costs 
and requirements.
    This action also is revising the applicant net asset limitation to 
increase it from $7,500 to $15,000 for non-elderly families and from 
$10,000 to $20,000 for elderly families. The intended effect is to 
require applicants to contribute a downpayment when their net assets 
exceed the stated limits. These limits have not been updated in over 10 
years.
    Finally, this action updates the rural area definition to reference 
the effective date of census data collected through 2010.
    This rule combines three actions under one notice. In the event 
that we receive adverse comments on any one section of this rule, we 
will proceed with the final implementation of the other portions not 
affected. No adverse comments are anticipated.

DATES: This rule is effective without further action November 5, 2008 
unless we receive written adverse comments or written notices of intent 
to submit adverse comments on or before October 21, 2008. If adverse 
comment is received, RHS will publish a timely withdrawal of the rule 
in the Federal Register.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     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: Teresa Sumpter, Loan Specialist, Rural 
Housing Service, Single Family Housing Direct Loan Division, Stop 0783, 
1400 Independence Avenue, SW., Washington, DC 20250-0783; Telephone: 
202-720-1474; FAX: 202-720-2232; 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 the Office of Management and Budget 
(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.

E-Government Act Compliance

    The Rural Housing Service is committed to complying with the E-
Government Act, to promote the use of the Internet and other 
information technologies to provide 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.

[[Page 49592]]

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 to 7 CFR part 3015, 
subpart V, and related notice (48 FR 29115) this program is 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 programs affected by 
this rule provide loans and grants to individuals. For this reason, 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 rulemaking action does not 
involve a new or expanded program.

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

    1. According to 7 CFR 3550.61(b) and 7 CFR 3550.110(b), the 
dwelling and any other essential buildings must be insured in an amount 
that is the lesser of the insurable value (cost of restoration) or the 
balance of the secured principal debt. 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 with high 
windstorm and water damage that make it extremely difficult for 
borrowers/homeowners to secure affordable insurance coverage and almost 
impossible to pay the rates if they are located in a high risk area 
that may be subject to disasters such as hurricanes and tornadoes. New 
borrowers have escrow accounts set up that collect the insurance 
premium.
    Agency borrowers with loans made before escrow was available, prior 
to September 1996 when the Agency began centralized servicing of its 
portfolio, normally provide their own coverage. When a homeowner fails 
to provide insurance, the government force-places insurance coverage 
typically in the last known insured amount. This assures that the 
Government's interests are protected and provides our customers the 
best opportunity to become successful homeowners. Force place insurance 
only provides insurance coverage to the Agency and does not provide any 
direct coverage or benefit to the borrower.
    With this action, the Agency is revising 7 CFR sections 3550.61 and 
3550.110 (Section 502 requests) to clarify the minimum insurance 
deductible amount, remove specific dollar limits with regards to 
insurance deductible clauses and clarify that borrowers with a secured 
indebtedness of $15,000 at the time of loan approval must secure and 
continually maintain hazard insurance coverage adequate to cover the 
government's interest for the entire unpaid debt. Loss deductible 
clauses for required insurance coverage may not exceed generally 
accepted minimums based on current industry standards and local market 
conditions. These minimums will be established in the Agency handbook 
and available in any local Rural Development office. The intended 
effect is to make it easier for new homeowners to obtain affordable 
insurance coverage while allowing the Agency sufficient flexibility to 
quickly update its handbook guidance on insurance deductibles in order 
to react to changes in insurance costs and requirements and assure the 
Government's interest in the property is adequately protected.
    2. 7 CFR 3550.64 and 7 CFR 3550.103(e) (Section 504 requests) 
require elderly families with net family assets in excess of $10,000 
and non-elderly families with net family assets in excess of $7,500 to 
apply the excess amount towards the down payment on the property. This 
limitation has not been updated in over 10 years. U.S. non-metropolitan 
median income has increased from $33,200 in 1997 to $48,201 in 2006. 
While these figures indicate a rise in the median income, it should be 
noted that the dollar value of the net family assets would be similarly 
higher in dollars without a significant change in composition due to 
inflation over a long period of time. Thus, as households earn more 
money, they also must spend more. Based on this information, the Agency 
believes it is reasonable to relax the down payment requirements. In 
addition, many elderly applicants in this program are on fixed incomes 
and have set aside funds and/or purchased financial instruments 
intended to be used to cover final expenses. The increase in the 
threshold amounts would allow these elderly applicants to maintain more 
funds for this purpose. Therefore, we propose to revise the regulation 
to increase the applicant net family asset limitation from $7,500 to 
$15,000 for non-elderly families and from $10,000 to $20,000 for 
elderly families.
    3. Finally, the rural area definition will be amended to comply 
with a change in Section 520 of the Housing Act of 1949 made by Public 
Law 106-569, Section 705 (December 27, 2000) that extends the 
grandfathering of areas classified as a rural area prior to October 1, 
1990, through receipt of decennial census data for the year 2010 if the 
area has a population between 10,000 and 25,000, is rural in character, 
and has a serious lack of credit for lower and moderate income 
families.

List of Subjects in 7 CFR Part 3550

    Accounting, Grant programs, Housing and community development, 
Housing, Loan programs, 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 3550.10 is amended in paragraph (3) of the definition for 
``Rural area'' by replacing ``2000'' with ``2010.''

Subpart B--Section 502 Origination

0
3. Section 3550.61 is amended by revising the section heading and 
paragraphs (a), (b) and (d)(1) to read as follows:

[[Page 49593]]

Sec.  3550.61  Insurance (loans only).

    (a) Borrower responsibility. Any borrower with a secured 
indebtedness in excess of $15,000 at the time of loan approval must 
furnish and continually maintain hazard insurance on the security 
property, with companies, in amounts, and on terms and conditions 
acceptable to RHS including a ``loss payable clause'' payable to RHS to 
protect the Government's interest.
    (b) Amount. The borrower is required to insure the dwelling and any 
other essential buildings in an amount equal to the insurable value of 
the dwelling and other essential buildings. However, in cases where the 
borrower's outstanding secured indebtedness is less than the insurable 
value of the dwelling and other essential buildings, the borrower may 
elect a lower coverage provided it is not less than the outstanding 
secured indebtedness. If the borrower fails, or is unable, to insure 
the secured property, RHS will force place insurance and charge the 
cost to the borrower's account. Force place insurance only provides 
insurance coverage to the Agency and does not provide any direct 
coverage or benefit to the borrower. The amount of the lender-placed 
coverage will generally be the property's last known insured value.
* * * * *
    (d) * * *
    (1) Loss deductible clauses for required insurance coverage may not 
exceed the generally accepted minimums based on current industry 
standards and local market conditions.
* * * * *
0
4. Section 3550.64 is revised to read as follows:


Sec.  3550.64  Down payment.

    Elderly families must use any net family assets in excess of 
$20,000 towards a down payment on the property. Non-elderly families 
must use net family assets in excess of $15,000 towards a down payment 
on the property. Applicants may contribute assets in addition to the 
required down payment to further reduce the amount to be financed.

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

0
6. Section 3550.103 is amended by revising paragraph (e) to read as 
follows:


Sec.  3550.103  Eligibility requirements.

* * * * *
    (e) Need and use of personal resources. Applicants must be unable 
to obtain financial assistance at reasonable terms and conditions from 
non-RHS credit or grant sources and lack the personal resources to meet 
their needs. In cases where the household is experiencing medical 
expenses in excess of three percent of the household's income, this 
requirement may be waived or modified. Elderly families must use any 
net family assets in excess of $20,000 to reduce their section 504 
request. Non-elderly families must use any net family assets in excess 
of $15,000 to reduce their section 504 request. Applicants may 
contribute assets in excess of the aforementioned amounts to further 
reduce their request for assistance. The definition of assets for this 
purpose is net family assets as described in Sec.  3550.54 of subpart B 
of this part, less the value of the dwelling and a minimum adequate 
site.
* * * * *
0
7. Section 3550.110 is amended by revising paragraphs (a), (b) and 
(d)(1) to read as follows:


Sec.  3550.110  Insurance (loans only).

    (a) Borrower responsibility. Any borrower with a secured 
indebtedness in excess of $15,000 at the time of loan approval must 
furnish and continually maintain hazard insurance on the security 
property, with companies, in amounts, and on terms and conditions 
acceptable to RHS including a ``loss payable clause'' payable to RHS to 
protect the Government's interest.
    (b) Amount. The borrower is required to insure the dwelling and any 
other essential buildings in an amount equal to the insurable value of 
the dwelling and other essential buildings. However, in cases where the 
borrower's outstanding secured indebtedness is less than the insurable 
value of the dwelling and other essential buildings, the borrower may 
elect a lower coverage provided it is not less than the outstanding 
secured indebtedness. If the borrower fails, or is unable to insure the 
secured property, RHS will force place insurance and charge the cost to 
the borrower's account. Force place insurance only provides insurance 
coverage to the Agency and does not provide any direct coverage or 
benefit to the borrower. The amount of the lender-placed coverage 
generally will be the property's last known insured value.
* * * * *
    (d) * * *
    (1) Loss deductible clauses for required insurance coverage may not 
exceed the generally accepted minimums based on current and local 
market conditions.
* * * * *

    Dated: July 28, 2008.
Russell T. Davis,
Administrator, Rural Housing Service.
 [FR Doc. E8-19350 Filed 8-21-08; 8:45 am]
BILLING CODE 3410-XV-P