[Federal Register Volume 77, Number 15 (Tuesday, January 24, 2012)]
[Rules and Regulations]
[Pages 3377-3379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1268]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 77, No. 15 / Tuesday, January 24, 2012 / 
Rules and Regulations  

[[Page 3377]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3550

RIN 0575-AC81


Direct Single Family Housing Loans and Grants

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

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

SUMMARY: Through this action, the Rural Housing Service (RHS) amends 
its regulations for the Direct Single Family Housing Loans by 
reinstating language in the Single Family Housing (SFH) recapture 
regulation to enable full repayment of the entire subsidy in event of 
foreclosure or deed-in-lieu of foreclosure (voluntary conveyance). This 
action clarifies that in the event of foreclosure or deed-in-lieu of 
foreclosure (voluntary conveyance) the RHS will recapture the full 
subsidy from the value of the property.

DATES: Effective: February 23, 2012.

FOR FURTHER INFORMATION CONTACT: Michael S. Feinberg, Chief, Loan 
Origination Branch, Single Family Housing Direct Loan Division, Rural 
Housing Service, Stop 0783, 1400 Independence Avenue SW., Washington, 
DC 20250-0783, Telephone: (202) 720-1474.

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

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

E-Government Act Compliance

    The RHS 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), 2 
U.S.C. 1501 et seq., 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, 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 published at 7 CFR part 
3015, subpart V, and the related notice (48 FR 29115), 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 reinstates a requirement on Agency applicants 
and borrowers; however, the requirement of full subsidy recapture in 
event of foreclosure or voluntary conveyance 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 rule.

Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, 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.

[[Page 3378]]

Background

    In the event of a foreclosure or deed in lieu of foreclosure 
(voluntary conveyance), the original recapture regulation promulgated 
on October 1, 1979, (7 CFR part 1951, subpart I (1980)) provided for 
recapture of the full amount of subsidy granted in determining the 
balance owed. However, when the Section 502 SFH direct loan program was 
restructured on November 22, 1996, the revised recapture regulation, 7 
CFR 3550.162, omitted this provision. Therefore, because of the 
omission of the critical language in the regulation, full recovery is 
not currently supported by regulatory authority.
    Foreclosure or deed in lieu of foreclosure is a last resort to 
protect the Government's interest after all other servicing actions 
have failed. Recovery of some or the entire payment subsidy provided to 
direct single family housing borrowers or ``recapture'' is provided for 
by statute in 42 U.S.C. 1490a (a)(1)(D). The statute gives the 
Secretary broad discretion in determining the amount of the subsidy 
recapture.
    A proposed rule was published on March 5, 2010, [75 FR 10194--
10195] to provide clear regulatory authority in 7 CFR part 3550 for 
full recovery of the payment assistance subsidy that the borrower has 
received in the event of foreclosure or deed in lieu of foreclosure. 
This final rule further clarifies the subsidy repayment requirement in 
event of foreclosure or deed in lieu of foreclosure by restoring the 
original regulatory authority and policy of full recovery of the 
subsidy in these situations in 7 CFR 3550.162(b)(2). The Subsidy 
Repayment Agreement (Form RD 3550-12) signed by the borrower has been 
revised accordingly to reflect the language of the regulation.
    This rule also clarifies in 7 CFR 3550.162(b)(2) that the borrower 
will not be personally liable for any deficiency in repayment of the 
full subsidy to the Agency and the Agency will not seek to recover 
unpaid subsidy from assets of the borrower other than the property 
which was security for the loan. This policy was stated in the original 
recapture regulation promulgated on October 1, 1979, but 
unintentionally omitted from 7 CFR 3550.162 when the program was 
restructured in 1996.
    No comments were received on the Proposed Rule; however, the Agency 
made a several changes to the proposed rule for organization and 
clarification purposes. The Agency revised paragraph (a) to clarify 
that ``payment subsidy'' includes subsidy from the former interest 
credit program, and that foreclosure and deed in lieu of foreclosure 
are examples of situations in which ``the borrower transfers title or 
ceases to occupy the property.'' The Agency also clarified that 
recapture would include the amount of principal reduction attributed to 
subsidy (PRAS), except in cases of foreclosure and deed in lieu of 
foreclosure. PRAS would have benefitted borrowers with loans receiving 
interest credit subsidy between October 1, 1979 and December 31, 1989. 
This limited recapture of PRAS is consistent with the Subsidy Repayment 
Agreement used during that time.
    The Agency also moved some language from proposed paragraph (a) to 
paragraph (b)(2) to more clearly distinguish its recapture procedure 
for foreclosure and deed in lieu of foreclosure from other situations. 
The Agency further explained its current policy on how liquidation 
proceeds are to be applied to a borrower's debt to make clear that no 
preference is made to recover subsidy from security proceeds.
    Subparagraph (b)(1)(General) was clarified for non-foreclosure/deed 
in lieu of foreclosure cases, to reference the calculation for value 
appreciation under the applicable Subsidy Repayment Agreement (SRA). 
These agreements have been revised over the years and will be enforced 
according to their terms and current regulations to the extent not 
inconsistent with the applicable agreements. The paragraph also was 
clarified to specify current Agency procedure that upon Agency request 
borrowers will provide property appraisals, including those for any 
capital improvements, or arm's length sales contracts to establish 
market value for determining value appreciation. Agency appraisal 
standards are found in 7 CFR 3550.62.
    Existing policies for deferral of recapture and recapture when the 
loan is assumed by a third party have been reinserted as paragraphs (c) 
and (d) of 7 CFR 3550.162. A discount is available when the borrower 
timely pays recapture at settlement or upon notice instead of deferring 
payment until the property is sold or vacated. This discount amount is 
consistent with current 25% discount policy under the Subsidy Repayment 
Agreement and handbook procedures. No change in policy was intended in 
the proposed rule on these issues.
    A cross-reference to 7 CFR 3550.162 was added to 3550.202(b) 
concerning the acceleration of past due accounts.

List of Subjects in 7 CFR Part 3550

    Accounting, Housing, Loan programs--Housing and community 
development, Reporting and recordkeeping requirements.
    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 D--Regular Servicing

0
2. Section 3550.162 is revised to read as follows:


Sec.  3550.162  Recapture.

    (a) Recapture policy. Borrowers with loans approved or assumed on 
or after October 1, 1979, will be required to repay subsidy amounts 
received through payment subsidy (including the former interest credit 
program) or deferred mortgage assistance in accordance with paragraph 
(b) of this section. Amounts to be recaptured are due and payable when 
the borrower transfers title or ceases to occupy the property, 
including but not limited to, in the event of foreclosure or deed in 
lieu of foreclosure. Such recapture will include the amount of 
principal reduction attributed to subsidy (for loans subject to 
recapture that were approved, and received interest credit, between 
October 1, 1979, and December 31, 1989), except in cases of foreclosure 
and deed in lieu of foreclosure.
    (b) Amount to be recaptured. (1) General. The amount to be 
recaptured is the amount of principal reduction attributed to subsidy 
plus the lesser of:
    (i) The amount of subsidy received; or
    (ii) A portion of the value appreciation of the property subject to 
recapture. In order for value appreciation to be calculated, the 
borrower will provide a current appraisal, including an appraisal for 
any capital improvements, or arm's length sales contract as evidence of 
market value upon Agency request. Appraisals must meet Agency standards 
under Sec.  3550.62.
    (2) Foreclosure or deed in lieu of foreclosure. Notwithstanding 
paragraph (b)(1) of this section, the amount to be recaptured in a 
foreclosure or deed in lieu of foreclosure is the amount of subsidy 
received, not including any principal reduction attributed to subsidy. 
Foreclosure actions will seek to recover such amounts only from the

[[Page 3379]]

proceeds of the property. Liquidation proceeds (in the case of 
foreclosure) or the net recovery value (in the case of deed in lieu of 
foreclosure) will be applied or credited to the borrower's debt in 
accordance with the security agreement in the following order:
    (i) Recoverable costs (e.g. protective advances, foreclosure costs, 
late charges).
    (ii) Accrued interest.
    (iii) Principal.
    (iv) Subsidy.
    (3) Value appreciation. The value appreciation of property with a 
cross-collateralized loan is based on the market value of the dwelling 
and lot. If located on a farm, the lot size would be a typical lot for 
a single family housing property.
    (4) Interest reduced from the promissory note rate to six percent 
under the Servicemembers Civil Relief Act (SCRA) is not subject to 
recapture.
    (c) Deferral of recapture. If the borrower refinances or otherwise 
pays in full without transfer of title and continues to occupy the 
property, the amount of recapture will be calculated in accordance with 
paragraph (a) of this section but payment of recapture may be deferred, 
interest free, until the property is sold or vacated. If the recapture 
amount is deferred, the Agency mortgage can be subordinated when in the 
Government's best interest but will not be released nor the promissory 
note satisfied until the Agency is paid in full. In situations where 
deferral of recapture is an option, recapture will be discounted if 
paid in full at the time of settlement or timely paid after Agency 
notification to the borrower that recapture is due.
    (d) Assumed loans. (1) When a loan subject to recapture is assumed 
under new rates and terms, the recapture amount may be paid in full by 
the seller or included in the principal amount assumed by the buyer.
    (2) When a loan is assumed under the same rates and terms as the 
original promissory note, recapture amounts will not be due. When the 
new borrower transfers title or ceases to occupy the property, all 
subsidy subject to recapture before and after the assumption is due.
    (3) When a borrower has deferred payment of recapture amounts, the 
deferred recapture amount may be included in the principal amount of 
the new loan.

Subpart E--Special Servicing

0
3. Section 3550.202 is amended by adding paragraph (b)(3) to read as 
follows:


Sec.  3550.202  Past due accounts.

* * * * *
    (b) * * *
    (3) Subsidy recapture. Acceleration under this section will take 
into account any subsidy recapture due under Sec.  3550.162.

    Dated: January 16, 2012.
Tammye Trevi[ntilde]o,
Administrator, Rural Housing Service.
[FR Doc. 2012-1268 Filed 1-23-12; 8:45 am]
BILLING CODE 3410-XV-P