[Federal Register Volume 80, Number 43 (Thursday, March 5, 2015)]
[Proposed Rules]
[Pages 11950-11954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03711]


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

DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

RIN 0575-AD00


Single Family Housing Guaranteed Loan Program

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: The Rural Housing Service (RHS or Agency) proposes to amend 
the current regulation for the Single Family Housing Guaranteed Loan 
Program (SFHGLP) on the subjects of lender indemnification, principal 
reduction, refinancing, and qualified mortgage requirements.

DATES: Written or email comments on the proposed rule must be received 
on or before May 4, 2015.

ADDRESSES: You may submit comments on this proposed rule by any one of 
the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments electronically.
     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 Ave. SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express mail, or other 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, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Lilian Lipton, Loan Specialist, Single 
Family Housing Guaranteed Loan Division, STOP 0784, Room 2250, USDA 
Rural Development, South Agriculture Building, 1400 Independence Avenue 
SW., Washington, DC 20250-0784, telephone: (202) 260-8012, email is 
[email protected].

SUPPLEMENTARY INFORMATION: RHS proposes to amend the current regulation 
for the Single Family Housing Guaranteed Loan Program (SFHGLP) on the 
subjects of lender indemnification, principal reduction, refinancing, 
and qualified mortgage requirements.
    Indemnification: The Agency seeks to expand its lender 
indemnification authority for loss claims in the case of fraud, 
misrepresentation, or noncompliance with applicable loan origination 
requirements. This action is taken to continue the Agency's efforts to 
improve and expand the risk management of the SFHGLP. The proposed 
change is in accordance with the recommendations in the Office of 
Inspector General Report 04703-003-HY, from October 2012.
    Principal Reduction: The Agency is proposing to amend its 
regulations at 7 CFR 3555.10 and 3555.304 to add a new special loan 
servicing option to the SFHGLP that lenders may utilize while still 
maintaining the SFHGLP loan guarantee. The Agency will allow lenders to 
reduce the principal balance on behalf of borrowers in amounts up to 30 
percent of the unpaid principal balance of the loan as of the date of 
default, inclusive of any Mortgage Recovery Advance (MRA), after the 
lender has exhausted all other traditional loss mitigation options such 
as a loan modification or forbearance.
    Refinance: The Agency is proposing to amend its refinancing 
provisions at 3555.101(d)(3) to remove the requirement that the new 
interest rate be at least 100 basis points below the original loan 
rate. The interest rate reduction requirement of 3555.101(d)(3)(i) is 
being revised to simply require that the new interest rate not exceed 
the interest rate on the original loan.
    The Agency is also proposing to amend its regulations at 7 CFR 
3555.101 to add a new refinance option, ``streamlined-assist,'' which 
was formerly the Rural Refinance Pilot (pilot), to the SFHGLP. The 
streamlined-assist refinance differs from the traditional refinance 
options in that there is no appraisal or credit report requirement in 
most instances, as long as the borrower has not defaulted on their 
first mortgage during the previous 12 months. Appraisals are still 
required for refinancing direct loans where the borrower has received a 
subsidy, for purposes of calculating subsidy recapture.
    Qualified Mortgage: The agency intends to amend its regulation to 
indicate that a loan guaranteed by RHS is a Qualified Mortgage if it 
meets certain requirements set forth by the Consumer Protection Finance 
Bureau (CFPB). The CFPB published a Qualified Mortgage rule (12 CFR 
1026) which implements in part the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (P.L. 111-203). The CFPB rule includes 
a sunset provision that presumes RHS guaranteed loans are Qualified 
Mortgages until January 10, 2021, or until USDA publishes its own 
Qualified Mortgage rule, whichever comes first.

Classification

    This proposed rule has been determined to be non-significant by the 
Office of Management and Budget (OMB) under Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Except where specified, all State and local laws and 
regulations that are in direct conflict with this rule will be 
preempted. Federal funds carry Federal requirements. No person is 
required to apply for funding under this program, but if they do apply 
and are selected for funding, they must comply with the requirements 
applicable to the Federal program funds. This rule is not retroactive. 
It will not affect agreements

[[Page 11951]]

entered into prior to the effective date of the rule. Before any 
judicial action may be brought regarding the provisions of this rule, 
the administrative appeal provisions of 7 CFR part 11 must be 
exhausted.

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 
effect of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Agency 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 the Agency to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule.
    This proposed 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.'' It is the determination of the 
Agency 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, neither an Environmental Assessment nor an Environmental 
Impact Statement is required.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and 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.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) the undersigned has determined and certified by signature of this 
document that this rule change will not have a significant impact on a 
substantial number of small entities. This rule does not impose any 
significant new requirements on Agency applicants and borrowers, and 
the regulatory changes affect only Agency determination of program 
benefits for guarantees of loans made to individuals.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on RD in the development 
of regulatory policies that have Tribal implications or preempt tribal 
laws. RD has determined that the proposed 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 rule is 
not subject to the requirements of Executive Order 13175. If a Tribe 
determines that this rule has implications of which RD is not aware and 
would like to engage with RD on this rule, please contact RD's Native 
American Coordinator at (720) 544-2911 or [email protected].

Executive Order 12372, Intergovernmental Consultation

    This program/activity is not subject to the provisions of Executive 
Order 12372, which require intergovernmental consultation with State 
and local officials. (See the Notice related to 7 CFR part 3015, 
subpart V, at 48 FR 29112, June 24, 1983; 49 FR 22675, May 31, 1984; 50 
FR 14088, April 10, 1985).

Programs Affected

    This program is listed in the Catalog of Federal Domestic 
Assistance under Number 10.410, Very Low to Moderate Income Housing 
Loans (Section 502 Rural Housing Loans).

Paperwork Reduction Act

    The information collection and record keeping requirements 
contained in this regulation have been approved by OMB in accordance 
with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). The 
assigned OMB control number is XXXX-XXXX.

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.

Non-Discrimination Policy

    The U.S. Department of Agriculture (USDA) prohibits discrimination 
against its customers, employees, and applicants for employment on the 
bases of race, color, national origin, age, disability, sex, gender 
identity, religion, reprisal, and where applicable, political beliefs, 
marital status, familial or parental status, sexual orientation, or all 
or part of an individual's income is derived from any public assistance 
program, or protected genetic information in employment or in any 
program or activity conducted or funded by the Department. (Not all 
prohibited bases will apply to all programs and/or employment 
activities.)
    If you wish to file a Civil Rights program complaint of 
discrimination, complete the USDA Program Discrimination Complaint Form 
(PDF), found online at http://www.ascr.usda.gov/complaint_filing_cust.html, or at any USDA office, or call (866) 632-
9992 to request the form. You may also write a letter containing all of 
the information requested in the form. Send your completed complaint 
form or letter to us by mail at U.S. Department of Agriculture, 
Director, Office of Adjudication, 1400 Independence Avenue SW., 
Washington, DC 20250-9410, by fax (202) 690-7442 or email at 
[email protected].
    Individuals who are deaf, hard of hearing or have speech 
disabilities and you wish to file either an EEO or program complaint 
please contact USDA through the Federal Relay Service at (800) 877-8339 
or (800) 845-6136 (in Spanish).
    Persons with disabilities who wish to file a program complaint, 
please see information above on how to contact us by mail directly or 
by email. If you require alternative means of communication for program 
information (e.g., Braille, large print, audiotape, etc.) please 
contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

Background Information

    Indemnification: In the Office of Inspector General (OIG) Report 
04703-003-HY, SFH GL Loss Claims, the Agency was requested to re-
evaluate the timeframe in which the Government can seek indemnification 
for noncompliance with regulations in loan origination. Present 
language in 7 CFR 3555.108(d)(1) limits the indemnification to losses 
if the payment

[[Page 11952]]

under the guarantee was made within 24 months of loan closing. 
Origination defects which depart from Agency requirements, however, may 
cause defaults beyond 24 months from loan closing. Similarly, claims 
arising from defective originations may occur several years after loan 
closing. The proposed change will trigger indemnification if the 
default occurs within 5 years from origination, the Agency concludes 
the default arose because the originator did not underwrite the loan 
according to Agency standards and guidelines, and regardless of when 
the claim is paid. This is similar to how HUD and other federal 
agencies operate.
    The Agency may also seek indemnification if the Agency determines 
that fraud or misrepresentation occurred in connection with the 
origination of the loan, regardless of when the loan closed. 7 CFR 
3555.108(d)(2). This provision is being clarified to state that the 
Agency may seek indemnification in cases of fraud or misrepresentation 
regardless of when the loan closed or when the default occurred.
    In addition, the definition of ``default'' has been added to 
section 3555.10 to clarify that default is when an account is more than 
30 days overdue. This is consistent with how the term is used in the 
mortgage industry.
    Principal Reduction Advance (PRA): The Helping Families Save Their 
Homes Act of 2009 was signed into law on May 20, 2009. Section 101 of 
this law amended section 502(h) of the Housing Act of 1949 (42 U.S.C. 
1472(h)), which authorizes the SFHGLP. The amendments gave RHS the 
authority to establish a program for the payment of partial claims to 
approved guaranteed lenders who agree to apply the claim amount to the 
payment of a loan in default or facing imminent default under Section 
502(h)(14) of the Housing Act. RHS published a final rule under this 
authority on August 26, 2010 (see 75 FR 52429).
    Under this authority, the Agency proposes to add paragraph 7 CFR 
3555.304(e) to reimburse lenders for PRAs made on behalf of borrowers 
in default or facing imminent default. The lender must consider all 
other traditional loan servicing options, including forbearances and 
loan modifications, prior to requesting a PRA. The Agency proposes that 
the MRA will continue to include the sum of arrearages not exceeding 12 
months of PITI, annual fees, legal fees, and foreclosure costs related 
to a cancelled foreclosure action, but will no longer include any 
principal deferments or reductions. A PRA will follow an MRA if 
necessary to bring the borrower's total monthly mortgage payment to 31 
percent of gross monthly income. The PRA cannot be issued without an 
MRA; the MRA may be issued independently of a PRA. The purpose of the 
PRA is to ensure the modified loan is affordable to the borrower with 
the potential of also addressing housing market pricing imbalances that 
impact borrowers in default or in imminent danger of default. The PRA 
cannot be extended more than once to provide borrower relief. Lenders 
must receive written approval from RHS prior to servicing a borrower's 
account with a PRA. As with other special servicing options, the Lender 
must submit a servicing plan to RHS pursuant to 7 CFR 3555.301(h) when 
a borrower's account is 90 days delinquent and a method other than 
foreclosure is recommended to resolve the delinquency. Use of special 
loan servicing does not change the terms of the loan note guarantee.
    Section 502(h)(14) of the Housing Act of 1949 limits the amount of 
the partial claim to no more than 30 percent of the unpaid principal 
balance of the mortgage plus any costs that are approved by the 
Secretary. The maximum principal reduction amount that can be achieved 
through a combination of both the MRA and PRA can therefore not exceed 
30 percent of the unpaid principal balance as of the date of default. 
The PRA is only permitted in cases when all special servicing 
requirements are met, notably, that the mortgage payment-to-income 
ratio after special servicing is reduced to 31 percent or a proximate 
value extremely close to, but not less than, 31 percent, and the total 
debt-to-income ratio after special servicing is not more than 55 
percent. The trial payment plan described in paragraph 3555.304(b) is 
also applicable when PRAs take place. In order to provide principal 
reductions for borrowers who purchased properties at unrealistically 
inflated values during the period from 2001 to 2009, PRAs will be 
limited to loans originated and closed on or after January 1, 2001 
through January 1, 2010.
    Section 3555.304(e)(2) discusses how the amount of a PRA must be 
subject to an unsecured promissory note which is interest and payment 
free, due three years from the date of the principal reduction advance, 
and may be forgiven at the end of three years if the borrower and loan 
account are in good standing. To be in good standing, the account may 
not have been more than 60 days delinquent at any time after the date 
of the PRA. If the debt is forgiven, RHS must report this amount to the 
Internal Revenue Service as income for the borrower.
    Section 3555.304(e)(3) discusses how a Lender files a claim with 
RHS for reimbursement of a principal reduction advance. First, a claim 
for reimbursement must be submitted to RHS within 60 days of the 
advance being executed by the borrower through his or her signature on 
the promissory note. When filing the claim for reimbursement with RHS, 
the Lender must submit the original promissory note with the other 
supporting documentation for the claim.
    In order to avoid confusion between the MRA and PRA, the Agency 
proposes to remove references to principal reduction or deferment in 
the MRA regulations. Revisions to the definition of MRA in 7 CFR 
3555.10 and the MRA provisions in 7 CFR 3555.304(d)(1) and (3) reflect 
that proposed change. This rule also amends 7 CFR 3555.10, 
``Definitions and Abbreviations,'' to include the terms introduced in 7 
CFR 3555.304(e).
    Refinance: There are currently two refinance options available to 
Section 502 borrowers, and the Agency wishes to add a third option 
which has been successfully tested in a pilot. The Agency is proposing 
to amend section 3555.101(d)(3)(i) to remove the requirement that the 
interest rate of a refinanced loan be at least 100 basis points below 
the original rate, and instead to require that the new interest rate 
not exceed the original interest loan's interest rate. The interest 
rate reduction requirement has proven problematic in rising rate 
environments. For example, in the case of divorce, the borrower may not 
be able to refinance as required by their divorce decree or judgment 
because they cannot secure an interest rate at least 1 percent lower 
than the first one. The definition of ``streamlined-assist refinance'' 
is being added to 7 CFR 3555.10. On February 1, 2012 RHS created a 
refinancing pilot known as the ``Rural Refinance Pilot.'' The pilot was 
published in Administrative Notice numbers 4634, 4704, 4720, and 4749. 
The streamlined-assist refinance differs from the traditional refinance 
options in that there is no appraisal or credit report requirement in 
most instances, as long as the borrower has been current on their first 
mortgage for the previous 12 months and their new interest rate is at 
least 1 percent lower than their first one. A new appraisal is required 
for direct loan borrowers who received a subsidy for the purposes of 
calculating subsidy recapture.
    The pilot was designed to assist existing Section 502 direct or

[[Page 11953]]

guaranteed loan borrowers in refinancing their homes with greater ease 
in thirty-five eligible states where steep home price declines, 
unemployment and persistent poverty rates made refinancing a current 
mortgage into more affordable terms difficult or impossible. Due to the 
success of the pilot program, RHS will implement the pilot as a 
refinance option for existing Section 502 direct or guaranteed loan 
borrowers nationwide in addition to the two traditional refinance loan 
options of streamlined and non-streamlined. The special refinance loan 
option will be called ``streamlined-assist.''
    This rule proposes to amend 7 CFR 3555.101(d)(vi) to include 
``streamlined-assist'' as one of three available refinance loan options 
in addition to the traditional ``streamlined'' and ``non-streamlined'' 
refinance loans. Section 3555.101(d)(vi) discusses eligibility 
requirements for each streamlined and non-streamlined refinance loan. 
The streamlined-assist refinance will have the same features as the 
Rural Refinance Pilot described above. Additional eligibility criteria 
for refinance loans is discussed in Section 3555.101(d)(3).
    Qualified Mortgage: The agency proposes a rule change to Section 
3555.109, to indicate that a loan guaranteed by RHS meeting certain 
CFPB requirements is a ``Qualified Mortgage.''
    The CFPB published a ``Qualified Mortgage'' rule (12 CFR part 1026) 
which became effective January 10, 2014 and implemented in part the 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Pub. 
L. 111-203). This rule requires creditors to make a reasonable, good 
faith determination of a consumer's repayment ability for any consumer 
credit transaction secured by a dwelling, and establishes a safe harbor 
from liability for transactions that meet the requirements for 
``qualified mortgages.'' Currently, SFHGLP loans are considered to be 
qualified mortgages if they meet the requirements in 12 CFR 
1026.43(e)(2)(i)-(iii) and the points and fees limits in 12 CFR 
1026.43(e)(3) until RHS promulgates its own rules regarding qualified 
mortgages, or January 10, 2021, whichever is earlier. (See 12 CFR 
1026.43(e)(4)).
    RHS guaranteed loans currently meet these requirements. Therefore, 
section 3555.109 will clarify that RHS guaranteed loans which meet the 
CFPB requirements in 12 CFR 1026.43(e)(2)(i)-(iii) and 12 CFR 
1026.43(e)(3) are considered qualified mortgages. Also, the definition 
of ``qualified mortgage'' will be added to 7 CFR 3555.10.

List of Subjects in 7 CFR Part 3555

    Home improvement, Loan programs--Housing and community development, 
Mortgage insurance, Mortgages, Rural areas.

    For the reason stated in the preamble, Chapter XVIII, Title 7 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

0
1. The authority citation for part 3555 continues to read as follows:

    Authority:  5 U.S.C. 301, 7 U.S.C. 1989, 42 U.S.C. 1480, and 
Subpart E of 7 U.S.C. 1932(a).

Subpart C--Loan Requirements

0
2. Amend Sec.  3555.10 by adding in alphabetical order the definition 
for ``Default,'' revising the definition of ``Mortgage recovery 
advance,'' and adding in alphabetical order definitions for ``Principal 
reduction advance,'' ``Qualified mortgage,'' and ``Streamlined-assist 
refinance'' to read as follows:


Sec.  3555.10  Definitions and abbreviations.

* * * * *
    Default. A loan is considered in default when a payment has not 
been paid after 30 days from the date it was due.
* * * * *
    Principal reduction advance. A principal reduction advance is funds 
advanced by the Lender on behalf of a borrower to reduce the principal 
balance of the loan.
* * * * *
    Mortgage recovery advance. A mortgage recovery advance is funds 
advanced by the lender on behalf of a borrower to satisfy the 
borrower's arrearage, and pay legal fees and foreclosure costs related 
to a cancelled foreclosure action.
* * * * *
    Qualified mortgage. A qualified mortgage is a guaranteed loan under 
this part which meets all Agency requirements as well as the 
restrictions in 12 CFR 1026.43(e)(2)(i) through (iii) and the points 
and fees limits in 12 CFR 1026.43(e)(3).
* * * * *
    Streamlined-assist refinance. A streamlined-assist refinance is an 
abbreviated method of refinancing which does not require a credit 
report, or the calculation of loan-to-value or debt-to-income ratios. 
Lenders must verify that the borrower has been current on their 
existing loan for the preceding 12 month period.
* * * * *
0
3. Section 3555.101 is amended by:
0
a. Revising paragraphs (d)(3)(i) and (ii).
0
b. Removing paragraph (d)(3)(iv).
0
c. Re-designating paragraphs (d)(3)(v) through (x) as (d)(3)(iv) 
through (ix) respectively.
    The revisions read as follows:


Sec.  3555.101  Loan Purposes.

* * * * *
    (d) * * *
    (3) * * *
    (i) Three options for refinancing may be offered: Streamlined, non-
streamlined, and streamlined-assist. Other than provided in this 
paragraph, no cash out is permitted for any refinance. Documentation 
costs and underwriting requirements of subparts D, E, and F of this 
part apply to streamlined and non-streamlined refinances.
    (A) Lenders may offer a streamlined refinance for existing Section 
502 Guaranteed loans, which does not require a new appraisal. The 
lender will pay off the balance of the existing Section 502 Guaranteed 
loan. The new loan amount cannot include any closing costs or lender 
fees.
    (B) Lenders may offer non-streamlined refinancing for existing 
Section 502 Guaranteed or Direct loans, which requires a new and 
current market value appraisal. The amount of the new loan must be 
supported by sufficient equity in the property as determined by an 
appraisal. The appraised value may be exceeded by the amount of up-
front guarantee fee financed, if any, when using the non-streamlined 
option.
    (C) A streamlined-assist refinance loan is a special refinance 
option available to existing Section 502 direct and guaranteed loan 
borrowers. Applicants must meet the income eligibility requirements of 
Sec.  3555.151(a), and must not have had any defaults during the 12 
month period prior to the refinance loan application. There are no 
debt-to-income calculation requirements, no credit report requirements, 
no property inspection requirements, and no loan-to-value requirements. 
There is no appraisal requirement except for Section 502 direct loan 
borrowers who have received a subsidy.
    (ii) The interest rate of the new loan must be fixed and must not 
exceed the interest rate of the original loan being refinanced.
* * * * *

[[Page 11954]]

0
4. Amend Sec.  3555.108 by revising paragraph (d) to read as follows:


Sec.  3555.108  Full faith and credit.

* * * * *
    (d) Indemnification. If the Agency determines that a Lender did not 
originate a loan in accordance with the requirements in this part, and 
the Agency pays a claim under the loan guarantee, the Agency may revoke 
the lender's eligibility status in accordance with subpart B of this 
part and may also require the lender:
    (1) To indemnify the Agency for the loss, if the default leading to 
the payment of loss claim occurred within five (5) years of loan 
closing, and the default arose from failure to originate the loan in 
accordance with agency requirements; or:
    (2) To indemnify the Agency for the loss regardless of how long ago 
the loan closed or the default occurred, if the Agency determines that 
fraud or misrepresentation was involved with the origination of the 
loan.
    (3) In addition, the Agency may use any other legal remedies it has 
against the Lender.
* * * * *
0
5. Add Sec.  3555.109 to read as follows:


Sec.  3555.109  Qualified mortgage.

    A qualified mortgage is a guaranteed loan meeting the requirements 
of this part and applicable Agency guidance, as well as the 
requirements in 12 CFR 1026.43(e)(i) through (iii) and 12 CFR 
1026.43(e)(3).
0
6. Section 3555.304 is amended by:
0
a. Revising paragraph (d)(1).
0
b. Removing paragraph (d)(3).
0
c. Re-designating paragraphs (d)(4) through (8) as (d)(3) through (7) 
respectively.
0
d. Adding paragraph (e).
    The revisions read as follows:


Sec.  3555.304  Special servicing options.

* * * * *
    (d) * * *
    (1) The maximum amount of a mortgage recovery advance is the sum of 
arrearages not to exceed 12 months of PITI, annual fees, legal fees and 
foreclosure costs related to a cancelled foreclosure action.
* * * * *
    (e) Principal reduction advance. A principal reduction advance 
cannot be issued independently of a mortgage recovery advance, and the 
amount of the principal reduction advance, when combined with the 
mortgage recovery advance, cannot exceed 30 percent of the unpaid 
principal balance as of the date of default. Principal reduction 
advances can be considered only for loans originated and closed on or 
after January 1, 2001 through January 1, 2010.
    (1) After a mortgage recovery advance has been calculated, the 
principal reduction amount for the modified mortgage is determined by 
calculating how much principal reduction advance is needed to achieve a 
mortgage payment-to-income ratio that is 31 percent or a proximate 
value extremely close to, but not less than, 31 percent, while ensuring 
that the total debt-to-income ratio does not exceed 55 percent and that 
the combined mortgage recovery advance and principal reduction advance 
does not exceed 30 percent of the unpaid principal balance.
    (2) The Lender must have the borrower execute an unsecured 
promissory note payable to RHS for the amount of the principal 
reduction advance.
    (3) The following terms apply to the repayment of principal 
reduction advances:
    (i) The principal reduction advance debt under the promissory note 
shall be interest-free.
    (ii) Borrowers are not required to make any monthly or periodic 
payments on the principal reduction advance note; however, borrowers 
may voluntarily submit partial payments without incurring any 
prepayment penalty.
    (iii) The due date for the principal reduction advance note shall 
be three years from the date of the note. Prior to the due date on the 
principal reduction note, payment in full under the note is due should 
the borrower transfer title to the property by voluntary or involuntary 
means within three years of the principal reduction advance.
    (iv) At the conclusion of three years, RHS will review the account 
and determine if it is in good standing. An account will be deemed in 
good standing if it has not been 60 days or more delinquent over the 
past three years. If the debt is forgiven, RHS must report this amount 
to the Internal Revenue Service in accordance with applicable law and 
regulations.
    (v) If the account is in good standing at the conclusion of the 
three year period, RHS will forgive the principal reduction advance 
note and the borrower will be released of all liability from the 
principal reduction advance promissory note.
    (vi) If the account is not in good standing, the principal 
reduction advance note will be payable and due in full. The Agency will 
collect this Federal debt from the borrower by any available means if 
the principal reduction advance is not repaid based on the terms 
outlined in the promissory note.
    (4) The lender may request reimbursement from the Agency for a 
principal reduction advance. A fully supported and documented claim for 
reimbursement must be submitted to the Agency within 60 days of the 
advance being completed. To be complete, the lender must provide the 
original promissory note to the Agency.
    (5) The loss claim filed by the lender will be adjusted by any 
amount of principal recovery advance reimbursed to the lender by the 
Agency.
* * * * *

    Dated: January 20, 2015.
Tony Hernandez,
Administrator, Rural Housing Service.
[FR Doc. 2015-03711 Filed 3-4-15; 8:45 am]
 BILLING CODE 3410-XV-P