[Federal Register Volume 79, Number 156 (Wednesday, August 13, 2014)]
[Proposed Rules]
[Pages 47383-47384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-19086]


 ========================================================================
 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. 79, No. 156 / Wednesday, August 13, 2014 / 
Proposed Rules  

[[Page 47383]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3560

RIN 0575-AA99


Reserve Account

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: Through this action, the Rural Housing Service (RHS) is 
proposing to amend its regulation to change the requirements of the 
Reserve Account for the Section 515 Rural Rental Housing (RRH) program. 
The intended effect of this action is to address the reserve account 
requirement of an Agency countersignature with the borrower when a 
Section 538 guaranteed loan is involved, and to also clarify that 
reserve account funds cannot be used to pay for fees associated with 
the Section 538 guaranteed loan program.

DATES: Written or email comments must be received on or before October 
14, 2014.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Federal e-Rulemaking 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 hours at the 300 7th Street SW., address listed above.

FOR FURTHER INFORMATION CONTACT: Tammy S. Daniels, Financial and Loan 
Analyst, Multi-Family Housing Guaranteed Loan Division, Rural Housing 
Service, U.S. Department of Agriculture, STOP 0781, 1400 Independence 
Avenue SW., Washington, DC 20250-0781, Telephone: (202) 720-0021 (this 
is not a toll-free number); email: [email protected].

SUPPLEMENTARY INFORMATION: 

Executive Order 12866--Classification

    This proposed rule has been determined to be not significant and 
was reviewed by the Office of Management and Budget (OMB) under 
Executive Order 12866.

Executive Order 12988--Civil Justice Reform

    This proposed rule has been reviewed under E.O. 12988, Civil 
Justice Reform. If this proposed rule is adopted: (1) Unless otherwise 
specifically provided, all State and local laws that are in conflict 
with this rule will be preempted; (2) no retroactive effect will be 
given to this rule except as specifically prescribed in the rule; and 
(3) administrative proceedings of the National Appeals Division of the 
Department of Agriculture (7 CFR part 11) must be exhausted before 
bringing suit.

Executive Order 13132--Federalism

    The policies contained in this proposed 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 states is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on Rural Development in 
the development of regulatory policies that have tribal implications or 
preempt tribal laws. Rural Development has determined that the final 
rule does not have a substantial direct effect on one or more Indian 
tribe(s) or on either the relationship or the distribution of powers 
and responsibilities between the Federal Government and Indian tribes. 
Thus, this final rule is not subject to the requirements of Executive 
Order 13175. If a tribe determines that this rule has implications of 
which Rural Development is not aware and would like to engage with 
Rural Development on this rule, please contact Rural Development's 
Native American Coordinator at [email protected].

Regulatory Flexibility Act

    The proposed 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 on 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 nor does it require any more action on the part of 
a small business than required of a large entity.

Paperwork Reduction Act

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

E-Government Act Compliance

    RHS is committed to complying with the E-Government Act by 
promoting the use of the Internet and other information technologies in 
order to provide increased opportunities for citizen access to 
Government information, services, and other purposes.

Unfunded Mandate Reform Act (UMRA)

    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.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' RHS determined that the proposed 
action does not constitute a major Federal action significantly 
affecting the quality of the environment. Therefore in accordance with 
the National Environmental Policy Act of 1969,

[[Page 47384]]

Public Law 91-190, an Environmental Impact Statement is not required.

Programs Affected

    The programs affected by this regulation are listed in the Catalog 
of Federal Domestic Assistance under numbers 10.405--Farm Labor Housing 
Loans and Grants; 10.415--Rural Rental Housing Loans; and 10.427--Rural 
Rental Assistance Payments.

Executive Order 12372--Intergovernmental Consultation

    These loans are subject to the provisions of E.O. 12372, which 
require intergovernmental consultation with state and local officials. 
RHS conducts intergovernmental consultations for each loan in a manner 
delineated in RD Instruction 1940-J, (available in any Rural 
Development office and on the Internet at http://www.rurdev.usda.gov/SupportDocuments/1940j.pdf) and 7 CFR part 3015, subpart V.

Background Information:

    Reserve accounts are established by the recipient of Section 515 
Rural Rental Housing loans (the ``borrower'') to meet the major capital 
expenses of a housing project. The amount of the payments to the 
reserve account is established in the loan documents, beginning with 
the first loan payment or the date specified in the loan documents. The 
current requirement at 7 CFR 3560.306(e)(2) states that reserve 
accounts require Agency countersignature with the borrower on all 
withdrawals. The Section 538 Guaranteed Rural Rental Housing Program 
(GRRHP) often provides funding to an existing Section 515 Direct Rural 
Rental Housing property. Loan funds provided by the lender and 
guaranteed by the GRRHP are critical to the rehabilitation and 
preservation of older existing Section 515 properties. The GRRHP 
regulation at 7 CFR 3565.402(a) requires that all property reserve 
accounts be held by the lender, which eliminates the unauthorized use 
of these funds by the borrower since the borrower does not have access 
to the funds. When an approved Section 538 lender lends funds to an 
existing Section 515 financed property, this brings 7 CFR 3560.306 and 
3565.402 into conflict, pitting the requirement for the Agency to 
countersignature for funds pursuant to Sec.  3560.306, against the 
requirement that lenders have unfettered control of funds pursuant to 
Sec.  3565.402. GRRHP loan guarantees are sold on the secondary market 
as long as the loan is closed and is not in default. In most cases, the 
Section 538 loans on Section 515 financed properties are transferred to 
Ginnie Mae. Ginnie Mae requires that property reserve accounts be 
pledged as collateral for the loan and that it has unfettered access to 
those accounts. In order to meet this secondary market requirement, the 
reserve accounts must be titled exclusively in the lender's name. In 
order to meet Ginnie Mae's requirements, the reserve accounts cannot be 
countersigned with any other party. Requiring the Agency's signature on 
all withdrawals ensures that the borrower does not have uncontrolled 
use of the funds and this requirement will remain unchanged for 
properties that only have Section 515 direct loans. This amendment 
would relieve the Agency of its countersignature responsibility for 
properties with Section 538 funding; the Agency's interest in the 
reserve accounts would still be protected by the change in the 
regulation, since the lender is required to get prior Agency approval 
before funds disbursement. Therefore, funds from the lender-controlled 
reserve account cannot be used for items not agreed to by the Agency.
    Additionally, RHS proposes to amend 7 CFR 3560.306(g) to clarify 
that reserve account funds cannot be used to pay fees associated with 
the loan guarantee. Lenders are currently using the Replacement Reserve 
account to pay fees associated with the loan guarantee, i.e., the 
annual renewal fee. These fees are considered a project expense and 
must be paid from the operating account, not the replacement reserve 
account.

List of Subjects in 7 CFR Part 3560

    Accounting, Accounting servicing, Administrative practice and 
procedure, Aged, Farm labor housing, Foreclosure, Grant programs--
Housing and community development, Government acquired property, 
Government property management, Handicapped, Insurance, Loan programs--
Agriculture, Loan programs--Housing and community development, Low and 
moderate income housing, Low and moderate income housing--Rental, 
Migrant labor, Mortgages, Nonprofit organizations, Public housing, Rent 
subsidies, Reporting and recordkeeping requirements, Rural areas, Rural 
housing, Sale of Government acquired property, Surplus Government 
property.

    Therefore, chapter XXXV, Title 7 of the Code of Federal 
Regulations, is proposed to be amended as follows:

PART 3560--DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS

0
1. The authority citation for Part 3560 continues to read as follows:

    Authority: 42 U.S.C. 1480.

Subpart G--Financial Management

0
2. Amend Sec.  3560.306 by revising paragraph (e)(2) and adding 
paragraph (g)(5) to read as follows:


Sec.  3560.306  Reserve account.

* * * * *
    (e) * * *
    (2) Reserve accounts must be supervised accounts that require 
Agency countersignatures on all withdrawals; except, this requirement 
is not applicable when loan funds guaranteed by the Section 538 
Guaranteed Rural Rental Housing Program (GRRHP) are used for the 
construction and/or rehabilitation of a Section 515 project. Section 
515 Rural Rental Housing borrowers who are exempted from the supervised 
account and countersignature requirement, as described above, must 
follow Section 538 GRRHP regulatory requirements pertaining to reserve 
accounts. In all cases, Section 538 lenders must get prior written 
approval from the Agency before reserve account funds involving a 
Section 515 project can be disbursed to the borrower.
* * * * *
    (g) * * *
    (5) Funds from the replacement reserve account cannot be used to 
pay any fees associated with the Section 538 GRRHP loan guarantee, as 
determined by the Agency.
* * * * *

    Dated: July 11, 2014.
Tony Hernandez,
Administrator, Rural Housing Service.
[FR Doc. 2014-19086 Filed 8-12-14; 8:45 am]
BILLING CODE 3410-XV-P