[Federal Register Volume 79, Number 194 (Tuesday, October 7, 2014)]
[Notices]
[Pages 60492-60494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23969]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5811-N-01]


Section 184 Indian Housing Loan Guarantee Program New Annual 
Premium

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Notice.

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SUMMARY: The Section 184 Indian Housing Loan Guarantee program (Section 
184 program) provides access to sources of private financing for Indian 
families, Indian housing authorities, and Indian tribes that otherwise 
could not acquire housing financing because of the unique legal status 
of Indian land, by guaranteeing loans to eligible persons and entities. 
Over the last 5 years, the Section 184 program has doubled the number 
of loans and eligible families being assisted by the program. For HUD 
to continue to meet the increasing demand for participation in this 
program, HUD is exercising its new statutory authority to implement an 
annual premium to the borrower in the amount of 0.15 percent of the 
remaining loan balance until the unpaid principal balance, excluding 
the upfront loan guarantee fee, reaches 78 percent of the lower of the 
initial sales price or appraised value based on the initial 
amortization schedule. Effective November 15, 2014 the new annual 
premium of 0.15 percent of the remaining loan balance will apply to all 
new loan guarantees, including refinances. This notice also provides 
guidance on the cancellation of the annual premium when the loan 
reaches the 78 percent loan-to-value ratio.

DATES: Effective Date: November 15, 2014.

FOR FURTHER INFORMATION CONTACT: Rodger J. Boyd, Deputy Assistant 
Secretary for Native American Programs, Office of Public and Indian 
Housing, Department of Housing and Urban Development, 451 7th Street 
SW., Room 4126, Washington, DC 20410; telephone number 202-401-7914 
(this is not a toll-free number). Persons with hearing or speech 
disabilities may access this number through TTY by calling the toll-
free Federal Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 184 of the Housing and Community Development Act of 1992 
(Public Law 102-550, approved October 28, 1992), as amended by the 
Native American Housing Assistance and Self-Determination Act of 1996 
(Pub. L. 104-330, approved October 26, 1996), established the Section 
184 program to provide access to sources of private financing to Indian 
families, Indian housing authorities, and Indian tribes that otherwise 
could not acquire housing financing because of the unique legal status 
of Indian land. Because title to trust or restricted land is 
inalienable, title cannot be conveyed to eligible Section 184 program 
borrowers. As a consequence, financial institutions cannot utilize the 
land as security in mortgage lending transactions. The Section 184 
program addresses obstacles to mortgage financing on trust land and in 
other Indian and Alaska Native areas by giving HUD the authority to 
guarantee loans to eligible persons and entities to construct, acquire, 
refinance, or rehabilitate one-to-four family dwellings in these areas.
    The Section 184 Loan Guarantee Fund (the Fund) receives annual 
appropriations to cover the cost of the program. Guarantee fees and any 
other amounts, claims, notes, mortgages, contracts, and property 
acquired by the Secretary under the Section 184 program reduce the 
amount of appropriations needed to support the program, and together 
with appropriations are used to fulfill obligations of the Secretary 
with respect to the loans guaranteed under this section.
    In recent years, rapidly growing demand has increased the need for 
subsidy appropriations to support new loan guarantees. HUD issued loan

[[Page 60493]]

guarantee commitments for $308 million in 2008, $501 million in 2009, 
$536 million in 2010, $577 million in 2011, $792 million in 2012, and 
$642 million in 2013.\1\ Additionally, expenses have increased for 
acquisitions, insurance, and other program costs, and HUD has seen 
higher losses now that the Fund has guaranteed over $4 billion in 
current loans.
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    \1\ The volume in 2013 does not represent program demand because 
during FY 2013, the program was shut down for 8 weeks and did not 
guarantee refinances, which typically accounts for 30 percent of the 
Section 184 program's business.
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    The 2013 Consolidated and Further Continuing Appropriations Act 
(Pub. L. 113-6, approved March 26, 2013) amended section 184(d) of the 
Housing and Community Development Act of 1992, by authorizing the 
Secretary to increase the upfront fee for the guarantee of loans up to 
3 percent of the principal obligation of the loan and to establish and 
collect annual premium payments in an amount not exceeding one percent 
of the remaining guaranteed balance (excluding the portion of the 
remaining balance attributable to the fee collected at the time of the 
issuance of the guarantee) by publishing a notice in the Federal 
Register. On April 4, 2014, HUD exercised its larger loan guarantee fee 
authority to increase the one-time, loan guarantee fee that borrowers 
pay at loan closing from 1 percent to 1.5 percent of a mortgage (79 FR 
12520). This increase ensured that there would be enough funding to 
meet borrower demand for all of fiscal year 2014, and reduce the amount 
of subsidy needed to meet demand in future years.

II. New Annual Premium

    To meet projected demand for participation in the Section 184 
program for fiscal year 2015, HUD is establishing an annual premium of 
0.15 percent of the remaining loan balance until the unpaid principal 
balance, excluding the upfront loan guarantee fee, reaches 78 percent 
of the lower of the initial sales price or appraised value based on the 
initial amortization schedule on all new loans, including refinances. 
With the establishment of the annual premium, the Section 184 program 
will now have two sources of funds derived from the borrower (the other 
being the one-time, up-front loan guarantee fee). Without an annual 
premium, an appropriation of $8 million for Fiscal Year (FY) 2015 \2\ 
would support only about $318 million in new loan guarantee 
commitments, less than half of the amount the program guaranteed in 
2013. This may force HUD to limit access to the program for otherwise 
eligible program participants. If HUD were to limit access to the loan 
guarantee program, HUD predicts that some lenders currently 
participating in the Section 184 program may choose to no longer 
partner with HUD to provide mortgage lending through the Section 184 
program. Without those lenders, the Section 184 program would be unable 
to meet the demand for mortgage lending on trust land and in Indian and 
Alaska Native areas and tribal lands, potentially causing a further 
reduction in program activity.
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    \2\ Requested by the President in his FY 2015 HUD at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/hud.pdf.
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    By establishing an annual premium paid by borrowers, the credit 
subsidy rate \3\ will go down, and HUD expects the program will be able 
to guarantee the volume of loans predicted for FY 2015. Establishing a 
0.15 percent annual premium would cost a borrower with a $175,000 
mortgage (the average loan size for the program) an extra $22 a month 
on the borrower's monthly payment or $264 annually. Since the 0.15 
percent annual premium is tied to the loan balance, the annual premium 
will decrease for the borrower every year as the loan balance declines 
and then disappears after the loan-to-value ratio reaches 78 percent of 
the lower of the initial sales price or appraised value based on the 
initial amortization schedule. Even with these additional costs to 
borrowers, the Section 184 program will still be affordable. While 
paying an annual premium may be a hardship for some borrowers, HUD does 
not believe that the extra cost is prohibitive and believes it will 
have a limited impact on the demand for the program. However, the new 
annual premium will allow HUD to continue to meet the demand for 
mortgage lending transactions in fiscal year 2015 so that more Indian 
and Alaska Native families have the opportunity for homeownership.\4\ 
To reduce some of the hardship accompanying the annual premium, HUD 
provides that payment of the annual premium can be made through monthly 
payments, to spread out the cost for borrowers, or annual and lump sum 
payments, to keep a borrower's monthly payment lower.
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    \3\ Credit Subsidy Rate as defined in the Federal Credit Reform 
Act (FCRA) of 1990, as amended by the Balanced Budget Act of 1997.
    \4\ In its Congressional Justifications for HUD's FY 2015 
budget, HUD announced that it would pursue a .15 percent annual 
premium payment in the Section 184 program. Please see page M-5 of 
HUD's Congressional Justification for the ``Indian Housing Loan 
Guarantee Fund (Section 184)'' at http://portal.hud.gov/hudportal/HUD?src=/program_offices/cfo/reports/fy15_CJ.
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III. Cancelling the Section 184 Annual Premium at 78 Percent Loan-to-
Value.

    The new Section 184 annual premium applies only while the unpaid 
principal balance, excluding the upfront loan guarantee fee, exceeds 78 
percent of the lower of the initial sales price or appraised value 
based on the initial amortization schedule. Once the mortgage amortizes 
to a loan-to-value (LTV) ratio of 78 percent, collection of the annual 
premium will cease. HUD will determine when the mortgage reaches the 
amortized 78 percent LTV threshold based on the contract interest rate 
and the LTV information provided to HUD's mortgage processing system by 
the originating lender, and will cease billing the servicing lender 
accordingly. HUD's calculation of the 78 percent threshold will be 
predicated on the loan amount excluding the upfront loan guarantee fee.
    The LTV ratio on streamline refinances performed without appraisals 
will be based on data regarding the mortgage being refinanced, 
including sales price and appraised value amounts residing in the HUD's 
Office of Native American Program's (ONAP) mortgage processing system. 
HUD will compute a new LTV ratio by dividing the new loan amount, 
excluding any upfront guarantee fee, by the lower of the sales price or 
appraised value amount residing in ONAP's mortgage processing system. 
From this computed loan-to-value ratio, HUD will determine when the 78 
percent threshold is to be reached based on the scheduled amortization. 
If a computed LTV ratio is not possible, due to missing data or 
previous refinancing without an appraisal, the new LTV will default to 
89.99 percent unless a new appraisal is provided.
    In addition to the HUD initiated annual premium cancellation 
process, borrowers can also request through their lenders cancellation 
of the collection of the annual premium for those mortgages that reach 
the 78 percent threshold due to prepayments (principal curtailment). 
Those loans reaching the 78 percent loan to value threshold sooner than 
projected due to advanced payments of principal will have the annual 
premium collections canceled upon the servicing lender submitting 
supporting information to HUD following the borrower's request. As part 
of their annual disclosures to homeowners, servicers are to notify 
borrowers of their option to cancel the annual premium in advance of 
the projected date by making additional payments of mortgage principal 
and requesting the lender cancel the collection of the annual premium.

[[Page 60494]]

    This notice establishes the annual premium of 0.15 percent of the 
remaining loan balance for all new case numbers assigned on or after 
November 15, 2014 until the unpaid principal balance, excluding the 
upfront loan guarantee fee, reaches 78 percent of the lower of the 
initial sales price or appraised value based on the initial 
amortization schedule.

IV. Tribal Consultation

    HUD's policy is to consult with Indian tribes early in the process 
on matters that have tribal implications. Accordingly, on July 31, 
2014, HUD sent letters to all tribal leaders participating in the 
Section 184 program, informing them of the nature of the forthcoming 
notice and soliciting comments. A summary of comments received and 
responses can be found on HUD's Web site at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/ih/homeownership/184.

V. Environmental Impact

    This notice involves the establishment of a rate or cost 
determination that does not constitute a development decision affecting 
the physical condition of specific project areas or building sites. 
Accordingly, under 24 CFR 50.19(c)(6), this notice is categorically 
excluded from environmental review under the National Environmental 
Policy Act of 1969 (U.S.C. 4321).

    Dated: October 2, 2014.
Jemine A. Bryon,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 2014-23969 Filed 10-6-14; 8:45 am]
BILLING CODE 4210-67-P