[Federal Register Volume 80, Number 82 (Wednesday, April 29, 2015)]
[Rules and Regulations]
[Pages 23673-23680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09958]



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  Federal Register / Vol. 80, No. 82 / Wednesday, April 29, 2015 / 
Rules and Regulations  

[[Page 23673]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3550

RIN 0575-AC88


Single Family Housing Direct Loan Program

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Rural Housing Service (RHS or Agency) published a proposed 
rule on August 23, 2013, to amend its regulations for the section 502 
direct single family housing loan program to create a certified loan 
application packaging process. Through this action, revisions are being 
made to the rule based on an evaluation of the public comments received 
as well as the results of the pilot program RHS began in 2010 to test 
changes to the loan application packaging process. This final rule will 
impose reasonable experience, training, structure, and performance 
requirements on eligible service providers; and it will regulate the 
packaging fee permitted under the process.
    By establishing a vast network of competent, experienced, and 
committed Agency-certified packagers, this action is intended to 
benefit low- and very low-income people who wish to achieve 
homeownership in rural areas by increasing their awareness of the 
Agency's housing program, increasing specialized support available to 
them to complete the application for assistance, and improving the 
quality of loan application packages submitted on their behalf.

DATES: The effective date for the final rule is July 28, 2015.

FOR FURTHER INFORMATION CONTACT: Brooke Baumann, Branch Chief, Single 
Family Housing Direct Loan Division, USDA Rural Development, Stop 0783, 
1400 Independence Avenue SW., Washington, DC 20250-0783, Telephone: 
202-690-4250. Email: [email protected].

SUPPLEMENTARY INFORMATION:

Statutory Authority

    Title V, Section 1480(k) of the Housing Act authorizes the 
Secretary of Agriculture to promulgate rules and regulations as deemed 
necessary to carry out the purpose of that title.

Executive Order 12866

    The Office of Management and Budget (OMB) has designated this rule 
as not significant 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 packaged loan applications received 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 final 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, while affecting small entities, will not have 
an adverse economic impact on small entities. The Agency made this 
determination based on the fact that this regulation only impacts those 
who choose to participate in the certified loan application packaging 
process. Small entities engaged in this process will not be affected to 
a greater extent than large entities engaged in this process.

Executive Order 12372, Intergovernmental Review of Federal Programs

    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

[[Page 23674]]

CFR part 3015, subpart V, at 48 FR 29112, June 24, 1983; 49 FR 22675, 
May 31, 1984; 50 FR 14088, April 10, 1985).

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 the Indian 
tribes. Thus, this final rule is not subject to the requirements of 
Executive Order 13175. However, in an effort to raise Tribal and Tribal 
Housing Authority awareness and interest in the proposed rule published 
on August 23, 2013, RHS co-hosted a webinar and teleconference with the 
National American Indian Housing Council on November, 6, 2013, during 
the extension of the public comment period. Thirty-nine Indian Housing 
and Tribal staff from around the country registered for the webinar and 
teleconference to learn about the proposed certified loan application 
packaging process. Participants were encouraged to provide feedback 
during the webinar and teleconference as well.

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 Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
requires that OMB approve all collections of information by a Federal 
agency before they can be implemented. Under the proposed rule, 
qualified employers were required to provide monthly reports to the 
Agency outlining the packaging activities of their Agency-certified 
packager(s). The estimated total annual burden on respondents was 6,300 
hours.
    After gauging the benefits and limitations of the reporting under 
the packaging pilot program and in light of public comments received, 
the monthly reporting requirement outlined in Sec.  3550.75 (b)(2)(iv) 
was removed. This rule does not impose any new or modified information 
collection requirements.

E-Government Act Compliance

    RHS is committed to complying with the E-Government Act, 44 U.S.C. 
3601 et seq., 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.

I. Background

    The section 502 direct single family housing loan program provides 
subsidized mortgage loans for modest homes in rural areas to primarily 
first-time homebuyers who are low- and very low-income. While loan 
approval and underwriting are functions of the Agency staff, the 
Agency's nonprofit and public partners often play a role in educating 
potential homebuyers in homeownership and in originating section 502 
loans.
    Loan application packaging, which is an optional service, is not 
new to the program; it has been permitted under the program for 
decades. Loan application packagers, who are separate and independent 
from the Agency, play an important role in increasing awareness of the 
section 502 program among potential homeowners and provide a valuable 
service to potential homeowners.
    To address weaknesses in the existing loan application process and 
to integrate the lessons learned from the packaging pilot program, 
which began in Fiscal Year 2010 and introduced the use of 
intermediaries in the packaging process, RHS published a proposed rule 
on August 23, 2013, (78 FR 52460-52464) to amend its regulations for 
the section 502 direct single family housing loan program to create a 
certified loan application packaging process.

II. Discussion of Relevant Public Comments Received on August 23, 2013, 
Proposed Rule

    The original 60-day comment period for the proposed rule, which 
ended on October 22, 2013, was extended to November 22, 2013, due to 
the lapse in Federal funding that caused a partial closing of Federal 
government operations from October 1 through October 16, 2013. Notice 
of the extension was published on November 1, 2013 (78 FR 65582). A 
total of 34 comments were received. Commenters included affordable 
housing nonprofit organizations, the National Council of State Housing 
Agencies, the National Rural Housing Coalition, and the general public.
    Comments on the role of the intermediaries. The Agency received 
several comments on the role of the intermediaries in the process. As 
outlined in the proposed rule, intermediaries would perform quality 
assurance reviews and monitoring activities on individuals seeking or 
who have been designated as an Agency-certified loan application 
packager and their qualified employers. Some called for the complete 
removal of the intermediaries while some called for a tightening of the 
requirements to become one (i.e. require the organization to 
demonstrate financial viability, have at least one recommendation from 
a Rural Development State Office, etc.) and/or expanding their role 
(i.e. allow them to order critical items, require their involvement in 
all packaged loan applications, allow them to perform quality assurance 
reviews on self-help loans, etc.).
    Agency Response: In light of the intermediaries' overall 
performance under the pilot, which included successes and shortcomings, 
the Agency will strengthen the requirements to be an intermediary while 
relaxing the requirements to be a qualified employer to allow startups 
to participate in the certified loan application packaging process. An 
intermediary will be involved in the process unless a qualified 
employer and their certified packaging staff obtains approval from the 
applicable Rural Development State Director to opt not to go through an 
intermediary based on the quality of the loan application packages 
submitted by the qualified employer and their certified packaging 
staff. The ``opt out'' request is optional. Qualified employers and 
their certified packaging staff that are performing at or above the 
required standards may choose to continue to funnel their packaged loan 
applications through an intermediary for their own reasons.
    For qualified employers and their certified packaging staff that 
received approval to ``opt out,'' the State Director will determine if 
they must subsequently submit through an intermediary instead of 
directly to the Agency if performance issues should occur. Guidelines 
for State Directors will be included in the program's handbook to 
ensure uniformity.
    The criteria to be an intermediary will be revised to clarify that 
intermediaries will be required to provide supplemental training, 
technical assistance, and support to those qualified employers and 
their Agency-certified packaging staff that are required to funnel 
their packages through them since one of the primary goals of an 
intermediary is to cultivate high performance. As further detailed in 
the program's handbook, supplemental training and technical assistance 
will address, among other things, any areas

[[Page 23675]]

for improvement discovered during the quality assurance reviews and 
explain any changes to program guidance.
    The criteria will also be revised to require an intermediary to be, 
to the Agency's satisfaction, a Section 501 (c)(3) nonprofit 
organization or public agency in good standing in the State(s) of its 
operation with the capacity to promptly serve (as detailed in the 
program's handbook) multiple qualified employers and their Agency-
certified loan application packagers throughout an entire State or 
preferably throughout entire States; be financially viable as evidenced 
by an audit paid for by the applicant seeking to be an intermediary; 
and demonstrate that their quality assurance staff has experience with 
packaging, originating, or underwriting affordable housing loans. After 
the initial application process, intermediaries may be required to 
periodically demonstrate that they still meet specified criteria.
    An intermediary will continue to be prohibited from having a 
financial interest in the property for which the application package is 
submitted since this helps ensure an unbiased and objective quality 
assurance review. A qualified employer and/or Agency-certified 
packager, however, will be permitted to have a financial interest in 
the property since many offer acquisition and rehabilitation programs 
or other programs that promote affordable housing and improve a 
community's housing stock. However, a qualified employer and/or Agency-
certified packager must notify the Agency and applicant of any 
financial interest in the property. In addition, the Agency may 
prohibit a qualified employer and/or Agency-certified packager from 
receiving part or all of the packaging fee if the financial interest is 
improper or the qualified employer and/or Agency-certified packager has 
a history of improperly using its position when a financial interest 
exists.
    To complement the above, the proficiency requirement outlined in 
Sec.  3550.75(b)(1)(iv) was removed, although an individual must still 
meet the requirements in 3550.75(b)(1)(i) through (iv); and the 
experience requirement outlined in Sec.  3550.75(b)(2)(iii) was 
removed, although a qualified employer must still meet the requirements 
in 3550.75(b)(2)(i) through now (v).
    Following the publication of this rule, a Federal Register notice 
of the Agency's intent to accept applications to be an intermediary 
under the regulation will be published. Intermediaries operating under 
the packaging pilot program are not guaranteed an intermediary role 
beyond their participation in the pilot program (which ends at the 
earlier of either the end date of the agreement between the pilot 
intermediary and the Agency, or the effective date of this final rule) 
and will be subject to this application process should they wish to 
serve as an intermediary under the regulation. Periodically, the Agency 
will issue such notices to give interested parties an opportunity to 
apply to be an intermediary, require existing intermediaries to 
demonstrate that they still meet the requirements under the regulation, 
and ensure there are a sufficient number of qualified intermediaries 
engaged in the certified loan application packaging process.
    Comments on the loan application packaging fee and compensation. 
The Agency received several comments on the packaging fee. Some called 
for the packaging fee to be reduced or eliminated. Some called for the 
packaging fee to be increased or a percent of the loan amount. Within 
this subset, it was also stated that compensation should be allowed 
even if the packaged loan application does not result in a closed loan 
and that the Agency should pay for all or a portion of the fee and 
provide technical assistance funding to the Agency-certified packagers 
for marketing, prescreening, and other related items.
    Agency Response: The language under Sec.  3550.52 will state that, 
``The fee may not exceed two percent of the national average area loan 
limit as determined by the Agency and may be limited further at the 
Agency's discretion.'' However, the program's handbook will initially 
specify that the fee may be up to, but not exceed, $1,500. If the 
qualified employer and their certified packaging staff are required to 
go through an intermediary, the fee will remain the same but they will 
have to share a portion of the fee with the intermediary. The parties 
will negotiate how the fee is shared exclusive of any Agency 
involvement.
    Comments were made that mortgage lenders and brokers traditionally 
earn a minimum of 250 basis points in originating private sector 
mortgages. Although these services share some similarities, packaging a 
section 502 loan and originating a private mortgage are not the same. 
For example, originating a private mortgage generally includes 
processing an application, underwriting and funding a loan, and other 
administrative services. Packagers in the section 502 program do not 
underwrite, approve, or fund loans on behalf of the Agency.
    Compensation will only be allowed for closed loans. This condition 
is currently in effect for the protection it affords parties who wish 
to seek a section 502 loan but who are clearly ineligible.
    Other than using program funds to include the packaging fee in the 
borrower's loan when permissible and travel funds for a designated 
Agency staff member to attend classroom sessions offered by non-Agency 
trainers, the Agency will not use funds to operate the certified loan 
application packaging process.
    Comments on the adverse impact the rule will have on small 
nonprofits that have been effectively providing abbreviated packaging 
services to Agency applicants for years. Some commenters expressed 
concerns that the requirements of the certified loan application 
packaging process, such as the training component, would force out 
small nonprofits currently engaged in packaging.
    Agency Response: Language will be added to Sec.  3550.52, ``Loan 
Purposes'', that states, ``Nominal packaging fees not resulting from 
the certified loan application process are an eligible cost provided 
the fee is no more than $350; the loan application packager is a 
nonprofit, tax exempt partner that received an exception to all or part 
of the requirements outlined in Sec.  3550.75 from the applicable Rural 
Development State Director; and the packager gathers and submits the 
information needed for the Agency to determine if the applicant is 
preliminarily eligible along with a fully completed and signed uniform 
residential loan application.''
    Comments on whether loan applications packaged under this process 
should be considered as a fourth funding priority item. The Agency 
received several comments on the funding priority classification. Some 
stated that fourth funding priority or higher was critical to the 
success of the certified loan application packaging process. Within 
this subset, it was also stated that processing priority was 
imperative. Some stated that giving fourth funding priority to 
applications received under this process would be unethical and 
discriminatory.
    Agency Response: After weighing the comments for and against, it 
was decided that loans packaged under this process will not receive 
fourth funding priority unless the Administrator decides that such a 
temporary classification is necessary nor will they receive processing 
priority though the Agency will examine the program's guidance to 
ensure that both tracks (packaged or non-packaged) are treated

[[Page 23676]]

equitably. As noted by one commenter, ``As it stands today, the items 
that receive fourth priority ultimately allow the agency to assist more 
income-limited persons by reducing the agency loan amount for 
transactions involving sweat equity or supplemental financing from 
outside sources. Giving fourth priority to applications packaged under 
this process only benefits a particular borrower and actually places 
them in a position where this service is not exactly optional.'' 
However, Sec.  3550.55 (c) will be revised to include the following 
guidance at the end of the paragraph: ``Applications received through 
the certified loan application packaging process do not, by themselves, 
warrant a higher priority; though the Administrator may temporarily 
reclassify them as fourth priority when determined appropriate.'' Any 
such reclassification will be published in a Federal Register notice.
    Comments on the experience requirement placed on an individual who 
wishes to become an Agency-certified packager. One commenter suggested 
that the requirement be revised from ``have at least one year of real 
estate and/or mortgage experience'' to ``have at least one year of 
affordable housing loan origination and/or affordable housing 
counseling experience''. One commenter asked for the rationale behind 
this experience requirement. One commenter suggested this requirement 
be removed.
    Agency Response: The minimum relevant experience requirement (along 
with the other requirements), helps ensure that Agency-certified 
packagers have the needed knowledge, skills, and abilities to provide 
this service. The Agency agrees that experience with affordable housing 
loan origination and/or affordable housing counseling is more relevant 
given the nature of the section 502 direct single family housing loan 
program and the income categories it is designed to serve, and has 
revised Sec.  3550.75(b)(1)(i) accordingly.
    Comments on the employment relationship between the Agency-
certified packager and the qualified employer. Some commenters 
requested clarity on the nature of the relationship and one requested 
that contract arrangements be permitted.
    Agency Response: It will be clarified that employed means as an 
employee or as an independent contractor.
    Comment specific to the States' Housing Finance Agencies (HFAs). 
One commenter suggested that the States' HFAs be allowed to serve as 
qualified employers or as intermediaries regardless of their 
composition (public agency or quasi-government entity established by 
the State as an independent authority and public corporation) and their 
experience with the Agency's programs.
    Agency Response: Given the States' HFAs purpose, vision, and 
structure, the Agency agrees with this comment and is revising Sec.  
3550.75(b)(2) and (3) accordingly. A similar allowance will also be 
extended to tribal housing authorities though this allowance will be 
limited to serving as qualified employers since tribal housing 
authorities focus on Indian housing needs and not necessarily statewide 
housing needs.
    Comments on compliance with the Secure and Fair Enforcement 
Mortgage Licensing Act of 2008 (SAFE Act). Several commenters expressed 
concern that compliance with the SAFE Act would be overwhelmingly 
burdensome and costly.
    Agency Response: As noted in the Paperwork Reduction Act section, 
the monthly reporting requirement outlined in Sec.  3550.75(b)(2)(iv) 
was removed and along with it the reference to the SAFE Act. The SAFE 
Act provides for the licensing and registration of mortgage loan 
originators, and includes provisions requiring all States to establish 
a licensing and registration scheme for mortgage loan originators who 
are not employed by federal agencies or Agency-regulated institutions. 
The Consumer Financial Protection Bureau published regulations 
regarding the State requirements at 12 CFR part 1008 (Regulation H).
    The Agency does not have the authority under the SAFE Act to 
enforce or monitor SAFE Act compliance. However, the Agency believes 
that certified loan application packagers meeting the requirements of 
this rule are not ``mortgage loan originators'' subject to the SAFE Act 
or Regulation H because certified loan application packagers do not 
``offer or negotiate terms'' of loan and therefore do not meet the 
criteria of ``mortgage loan originators''. See 12 CFR 1008.103(c)(2). 
Specifically, certified loan application packagers will not communicate 
with a borrower or prospective borrower ``for the purpose of reaching a 
mutual understanding about prospective residential mortgage loan 
terms.'' Rather, it is the Agency that underwrites the loan, makes a 
final decision about the loan terms, and communicates those terms to 
the borrower. The mutual understanding regarding the loan terms is 
between the borrower and the Agency--the certified loan packager is not 
a party to the mutual understanding.
    Even if the activities of a certified loan application packager 
were to be considered those of a mortgage loan originator, a State may 
exempt an individual from the State requirements if that individual is 
an employee of a bona fide nonprofit organization who acts as a loan 
originator only as part of work duties to the nonprofit organization 
and with respect to residential mortgage loans with terms favorable to 
the borrower. See 12 CFR 1008.103(e)(7)(i).
    Commenters were misinterpreting the reference to mean that the 
Agency would require SAFE Act compliance even when the State does not.
    Comments on the Agency-approved loan application packaging course 
and continuing training. Comments included: Ensure that the training is 
readily available and not cost prohibitive; consider offering an online 
version; underscore the Agency's oversight role in the management of 
the curriculum development and revisions as well as participation 
records; add a continuing education requirement; and do not require 
attendees of past three-day classroom training sessions (offered since 
August 2009) to retake the training.
    Agency Response: Reference to a ``three-day classroom'' session 
will be removed from the final rule to allow for flexibility in the 
training's delivery method and guidance will be added to the program's 
handbook to underscore the Agency's oversight role. In addition, Sec.  
3550.75(c)(3) will be changed from ``Non-Agency trainers, who will be 
limited to housing nonprofit organizations . . .'' to ``Non-Agency 
trainers, who will generally be limited to housing nonprofit 
organizations but may in rare cases include public bodies such as 
public universities . . .'' and from ``. . . and course materials; and 
bear the cost of providing the training. The course schedule must be 
approved by RHS and each session will be attended by a designated 
Agency staff member. A list of eligible non-Agency trainers will be 
published on the Agency's Web site . . .'' to ``. . . and updated 
course materials; and bear the cost of providing the training though a 
reasonable tuition fee may be charged the course participants. The 
course content, schedule, and tuition must be approved by RHS and a 
designated Agency staff member will typically participate in each 
training session to ensure accuracy of the program information and to 
serve as a program resource. A list of eligible non-Agency trainers, 
which is subject to change based on the non-Agency trainers' 
performance, will be published by the Agency . . .'' These changes are 
being made to increase the availability of the

[[Page 23677]]

training and to clarify how the trainers will be compensated and the 
oversight that will be provided by the Agency.
    In regards to continuing education, Sec.  3550.75(e) states that 
the Agency will stipulate any training and performance requirements for 
retaining a designation. Additional guidance on this issue will be 
provided in the program's handbook.
    The Agency will recognize the attendance of past training sessions 
provided the attendee fully attended a three-day classroom course 
jointly presented by the Agency and one of three sponsoring nonprofit 
organizations (NeighborWorks, the Housing Assistance Council, or the 
Rural Community Assistance Corporation), and passed the online exam. If 
the training was taken more than three years ago (from the effective 
date of this final rule), recognition will also be subject to the 
attendee having submitted at least one viable packaged loan application 
between passing the course and the effective date of this final rule.
    Comment to require Agency-certified packagers to perform in a 
manner that does not adversely impact the Agency's ability to meet its 
statutory requirement to make 40 percent of the program funds available 
to very low-income persons nationwide and 30 percent on a state level.
    Agency Response: The Agency agrees, and language was added under 
Sec.  3550.75(f) to address this comment.
    Comment to provide the acceptable rate of packaged loan 
applications in the regulation instead of referring to the program's 
handbook. A commenter believed the regulation should set forth the 
expectations.
    Agency's Response: The Agency is not making changes to the final 
rule on this issue. The acceptable rate and the new rate added in 
response to the comment above will be published in the program's 
handbook so that the Agency may make appropriate and timely 
adjustments.
    Comments pertaining to the rule as it relates to the section 523 
self-help program. Comments included: Clarify if grantees are subject 
to the rule's requirements, allow intermediaries to perform quality 
assurance reviews on self-help loans, and allow grantees to charge a 
packaging fee on self-help transactions.
    Agency Response: Self-help projects and loans are excluded from the 
certified loan application process and from charging a packaging fee 
since grantees receive grant funds to package (among other things) and 
are provided technical and management assistance. However, a grantee 
and its staff may participate in the process for non-self-help loans 
provided they meet all the rule's requirements (i.e., grantees or 
technical and management assistance contractors and their staff do not 
automatically qualify as intermediaries, qualified employers, or 
Agency-certified packagers under the process).
    Comments on improving the lines of communication between the 
Agency-certified packagers and the Agency before and after loan 
closing. Some commenters called for improved communication to boost 
performance before and after closing. One commenter believed that if 
notification was sent to the intermediary or packager when a loan they 
packaged went into default, they could help the homeowner get back on 
track and avoid foreclosure.
    Agency Response: The program's handbook currently instructs 
packagers to issue a prescribed disclosure letter to interested 
parties. The disclosure letter includes a waiver of provisions to the 
Privacy Act of 1974. If a party permits it, the Agency will release to 
and discuss with the packager any information they seek or request from 
the Agency's records concerning the person's application for Agency 
assistance. Under the packaging pilot program, this disclosure also 
includes the intermediary.
    Clarification will be provided in the program's handbook that 
Agency staff should promptly contact the packager with specific 
information (e.g., the closing date once scheduled) regardless of the 
response to the Privacy Act waiver.
    While the current waiver notes that the authorization will 
terminate upon loan closing or Agency denial of the loan application, 
appropriate changes may be made to extend this authorization beyond 
closing if/when the program's loan servicing system can be configured 
to issue servicing (i.e., delinquency) notifications to the packager as 
well.
    Comments to allow packagers to obtain the residential mortgage 
credit report and the appraisal report that will be used in the 
Agency's decision. Several commenters thought this would streamline the 
process and expedite the Agency's decision making process.
    Agency Response: While it is expected that the packager would do a 
preliminary check on a potential applicant's credit history (e.g., by 
having a process in place to order single repository infile reports at 
their own expense; by requesting the potential applicant to obtain a 
free report via www.annualcreditreport.com; etc.), the Agency must 
order the residential mortgage credit report through the program's loan 
origination system so that the reported liabilities and score can be 
automatically populated into the system. Having the credit report file 
in the system will become even more critical when the program 
implements an automated underwriting system.
    The Agency must manage the ordering of the appraisal to ensure that 
orders are only made when funds are available to process the loan 
request and to ensure the equitable ordering of services among 
appraisers who have blanket purchase agreements with the Agency. The 
Agency can only accept an appraisal obtained from a third-party when 
that third-party is a lender participating in the transaction and has a 
risk of loss at stake.
    Comments on whether limiting qualified employers and intermediaries 
to nonprofit entities (and public agencies) would provide better 
protection to borrowers and the government or increase the packaging 
fees by limiting competition.
    Agency Response: The commenters that addressed this item were 
almost unanimously agreed that limiting the process to nonprofits (and 
public agencies) provided better protection while not adversely 
impacting the fee. The Agency agrees, and the program's handbook will 
elaborate on what constitutes a public agency and provide examples.

III. Discussion of Non-Relevant Public Comments Received on August 23, 
2013, Proposed Rule

    Comments on considering alternatives to how the Agency currently 
conducts the applicant orientation, which is generally handled on an 
individual application basis in person or over the phone (using Form RD 
3550-23, Applicant Orientation Guide).
    Agency Response: This suggestion will be taken under consideration 
but separate from this rulemaking.
    Comments to allow qualified third-parties to complete the final 
inspection on new constructions.
    Agency Response: The Agency is in the process of issuing a rule 
that consolidates and updates certain regulations dealing with 
constructions; one of those regulations is Rural Development 
Instruction 1924-A that outlines the final inspection requirements.
    In the interim, internal guidance was approved on April 29, 2013, 
and on July 15, 2013, addressing alternative measures that may be used 
to fulfill the program's inspection requirements.
    Comments to update the program's loan origination system, give 
packagers

[[Page 23678]]

access to the system, and adopt industry-standard technologies.
    Agency Response: The Agency launched a department wide initiative 
in 2009 to create an intuitive, integrated information technology 
platform to support its mission. Given the complexity of the 
initiative, implementation is multiphase and spans several years.
    In the interim, projects are underway in the program to create an 
automated underwriting system for internal use and to modify an 
existing system to allow packagers to upload applications into 
program's loan origination system.
    Comments to use tri-merged credit reports instead of residential 
mortgage credit reports in the program's decision making process.
    Agency Response: The use of tri-merged credit reports will be 
considered when preparing the next solicitation for credit services, 
which will occur in Fiscal Year 2015, as part of the Agency's ongoing 
process improvements.
    Comment to allow direct endorsement underwriting by Agency-approved 
third parties.
    Agency Response: Currently, only agency staff may perform 
underwriting, loan approval and obligation of funds. Loan application 
packaging is permissible since packagers perform certain non-
discretionary tasks in the origination process.
    The agency is also removing the language concerning packaging fees 
for section 504 transactions from Sec.  3550.52(d)(6), since this 
eligible cost is already covered under Sec.  3550.102(d)(5).

List of Subjects in 7 CFR Part 3550

    Administrative practice and procedure, Conflict of interests, 
Environmental impact statements, Equal credit opportunity, Fair 
housing, Accounting, Housing, Loan programs--Housing and community 
development, Low and moderate income housing, Manufactured homes, 
Reporting and recordkeeping requirements, Rural areas, Subsidies.

    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 to add new definitions of ``Agency-
approved intermediary'', ``Agency-certified loan application 
packager'', ``National average area loan limit'', and ``Qualified 
employer'' to read as follows:


Sec.  3550.10  Definitions.

* * * * *
    Agency-approved intermediary. An affordable housing nonprofit, 
public agency, or State Housing Finance Agency approved by RHS to 
perform quality assurance reviews on packages prepared by Agency-
certified loan application packagers through their qualified employers. 
See Sec.  3550.75 for further details.
    Agency-certified loan application packager. An individual certified 
by RHS under this subpart to package section 502 loan applications 
while employed (either as an employee or as an independent contractor) 
by a qualified employer. See Sec.  3550.75 for further details.
* * * * *
    National average area loan limit. Across the nation, the average 
area loan limit as specified in Sec.  3550.63(a). The national average 
is considered when determining the maximum packaging fee permitted 
under the certified loan application packaging process under the 
section 502 program.
* * * * *
    Qualified employer. An affordable housing nonprofit organization, 
public agency, tribal housing authority, or State Housing Finance 
Agency that meets the requirements outlined in Sec.  3550.75(b)(2) and 
is involved in the certified loan application packaging process under 
the section 502 program.
* * * * *

Subpart B--Section 502 Origination

0
3. Section 3550.52 paragraph (d)(6) is revised to read as follows:


Sec.  3550.52  Loan purposes.

* * * * *
    (d) * * *
    (6) Packaging fees resulting from the certified loan application 
packaging process outlined in Sec.  3550.75. The fee may not exceed two 
percent of the national average area loan limit as determined by the 
Agency and may be limited further at the Agency's discretion. Nominal 
packaging fees not resulting from the certified loan application 
process are an eligible cost provided the fee is no more than $350; the 
loan application packager is a nonprofit, tax exempt partner that 
received an exception to all or part of the requirements outlined in 
Sec.  3550.75 from the applicable Rural Development State Director; and 
the packager gathers and submits the information needed for the Agency 
to determine if the applicant is preliminarily eligible along with a 
fully completed and signed uniform residential loan application.
* * * * *

0
4. Section 3550.55 paragraph (c)(5) is revised to read as follows:


Sec.  3550.55  Applications.

* * * * *
    (c) * * *
    (5) Applications from applicants who do not qualify for priority 
consideration in paragraphs (c)(1), (2), (3), or (4) of this section 
will be selected for processing after all applications with priority 
status have been processed. The Administrator may temporarily 
reclassify applications received through the certified loan application 
packaging process as fourth priority when determined appropriate.
* * * * *

0
5. Section 3550.75 is added to read as follows:


Sec.  3550.75  Certified loan application packaging process.

    Persons interested in applying for a section 502 loan may, but are 
not required to, submit an application through the certified loan 
application packaging process.
    (a) General. The certified loan application packaging process 
involves individuals who have been designated as an Agency-certified 
loan application packager, their qualified employers, and, if required 
by the State Director, Agency-approved intermediaries.
    (b) Process requirements. To package section 502 loan applications 
under this process, each of the following conditions must be met:
    (1) Agency-certified loan application packager. An individual who 
wishes to acquire RHS certification as a loan application packager must 
meet all of the following conditions:
    (i) Have at least one year of affordable housing loan origination 
and/or affordable housing counseling experience;
    (ii) Be employed (either as an employee or as an independent 
contractor) by a qualified employer as outlined in paragraph (b)(2) of 
this section;
    (iii) Complete an Agency-approved loan application packaging course 
and successfully pass the corresponding test as specified in paragraph 
(c) of this section; and
    (iv) Submit applications to the Agency via an intermediary if 
determined necessary by a State Director.
    (2) Qualified employer. Individuals who have been designated as an

[[Page 23679]]

Agency-certified loan application packager must be employed (either as 
an employee or as an independent contractor) by a qualified employer. 
To be considered a qualified employer, the packager's employer must 
meet each of the conditions specified in paragraphs (b)(2)(i) through 
(v) of this section. Tribal housing authorities and the States' Housing 
Finance Agencies are eligible and are exempt from the conditions 
specified in paragraphs (b)(2)(i) through (ii) of this section.
    (i) Be a nonprofit organization or public agency in good standing 
in the State(s) of its operation.
    (ii) Be tax exempt under the Internal Revenue Code and be engaged 
in affordable housing per their regulations, articles of incorporation, 
or bylaws.
    (iii) Notify the Agency and the applicant if they or their Agency-
certified packager(s) are the developer, builder, seller of, or have 
any other such financial interest in the property for which the 
application package is submitted. The Agency may disallow a particular 
qualified employer and/or Agency-certified packager from receiving part 
or all of a packaging fee if the Agency determines that the financial 
interest is improper or the qualified employer or Agency-certified 
packager has a history of improperly using its position when there has 
been a financial interest in the property.
    (iv) Prepare an affirmative fair housing marketing plan for Agency 
approval as outlined in RD Instruction 1901-E (or in any superseding 
guidance provided in the impending RD Instruction 1940-D).
    (v) Submit applications to the Agency via an intermediary if 
determined necessary by a State Director.
    (3) Agency-approved intermediaries. To become an Agency-approved 
intermediary, an interested party must apply and demonstrate to the 
Agency's satisfaction that they meet each of the conditions specified 
below. The States' Housing Finance Agencies, however, are exempt from 
the conditions specified in paragraphs (b)(3)(i) through (v). After the 
initial application process, the Agency may require intermediaries to 
periodically demonstrate that they still meet the following criteria.
    (i) Be a section 501(c)(3) nonprofit organization or public agency 
in good standing in the State(s) of its operation with the capacity to 
serve multiple qualified employers and their Agency-certified loan 
application packagers throughout an entire State or preferably 
throughout entire States and with the capacity to perform quality 
assurance reviews on a large volume of packaged loan applications 
within an acceptable period of time as determined by the Agency;
    (ii) Be engaged in affordable housing in accordance with their 
regulations, articles of incorporation, or bylaws;
    (iii) Be financially viable and demonstrate positive operating 
performance as evidenced by an independent audit paid for by the 
applicant seeking to be an intermediary;
    (iv) Have at least five years of verifiable experience with the 
Agency's direct single family housing loan programs;
    (v) Demonstrate that their quality assurance staff has experience 
with packaging, originating, or underwriting affordable housing loans.
    (vi) Develop and implement quality control procedures designed to 
prevent submission of incomplete or ineligible application packages to 
the Agency;
    (vii) Ensure that their quality assurance staff complete an Agency-
approved loan application packaging course and successfully pass the 
corresponding test;
    (viii) Not be the developer, builder, seller of, or have any other 
such financial interest in the property for which the application 
package is submitted; and
    (ix) Provide supplemental training, technical assistance, and 
support to certified loan application packagers and qualified employers 
to promote quality standards and accountability; and to address areas 
for improvement and any changes in program guidance.
    (c) Loan application packaging courses. Prospective loan 
application packagers must successfully complete an Agency-approved 
course that covers the material identified in paragraph (c)(1) of this 
section. Prospective intermediaries must also successfully complete an 
Agency-approved course as specified in paragraph (c)(2) of this 
section.
    (1) Loan application packagers. At a minimum, the certification 
course for individuals who wish to become Agency-certified loan 
application packagers will provide:
    (i) An in-depth review of the section 502 direct single family 
housing loan program and the regulations and laws that govern the 
program (including civil rights lending laws such as the Equal Credit 
Opportunity Act, Fair Housing Act, and Section 504 of the 
Rehabilitation Act of 1973);
    (ii) A detailed discussion on the program's application process and 
borrower/property eligibility requirements;
    (iii) An examination of the Agency's loan underwriting process 
which includes the use of payment subsidies; and
    (iv) The roles and responsibilities of a loan application packager 
and the Agency staff.
    (2) Intermediaries. The required course for an intermediary's 
quality assurance staff will cover the components described in 
paragraph (c)(1) of this section and other information relevant to 
undertaking quality assurance, technical assistance, and training 
functions in support of the qualified employers and their Agency-
certified loan application packagers.
    (3) Non-Agency trainers. Prior to offering the required course to 
packagers and intermediaries, non-Agency trainers must obtain approval 
from designated Agency staff. Non-Agency trainers, who will generally 
be limited to housing nonprofit organizations but may in rare cases 
include public bodies such as public universities, must provide proof 
of relevant experience and resources for delivery; present evidence 
that their individual trainers are competent and knowledgeable on all 
subject areas; submit course materials for Agency review; agree to 
maintain attendance records, test results, and updated course 
materials; and bear the cost of providing the training though a 
reasonable tuition fee may be charged the course participants. The 
course content, schedule, and tuition must be approved by RHS and a 
designated Agency staff member will typically participate in each 
training session to ensure accuracy of the program information and to 
serve as a program resource. A list of eligible non-Agency trainers, 
which is subject to change based on non-Agency trainers' performance, 
will be published by the Agency.
    (d) Confidentiality. The Agency-certified loan application 
packager, qualified employer, Agency-approved intermediary and their 
agents must safeguard each applicant's personal and financial 
information.
    (e) Retaining designation. The Agency will meet with the Agency-
certified loan application packager, their qualified employer, and 
Agency-approved intermediary (if applicable) at least annually to 
maintain open lines of communication; discuss their packaging 
activities; identify and resolve deficiencies in the packaging process; 
and stipulate any training requirements for retaining designation 
(including but not limited to civil rights refresher training).
    (f) Revocation. The designation as an Agency-certified loan 
application packager or Agency-approved intermediary is subject to 
revocation by

[[Page 23680]]

the Agency under any of the following conditions:
    (1) The rate of submitted packaged loan applications that receive 
RHS approval is below the acceptable limit as determined by the Agency;
    (2) The rate of submitted packaged loan applications from very low-
income applicants is below the acceptable level as determined by the 
Agency;
    (3) Violation of applicable regulations, statutes and other 
guidance; or
    (4) No viable packaged loan applications are submitted to the 
Agency in any consecutive 12-month period.

    Dated: March 31, 2015.
Tony Hernandez,
Administrator, Rural Housing Service.
[FR Doc. 2015-09958 Filed 4-28-15; 8:45 am]
 BILLING CODE 3410-XV-P