[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Proposed Rules]
[Pages 28547-28550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13154]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

RIN 0575-AD10


Single Family Housing Guaranteed Loan Program

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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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 subject of Single Close Combination 
Construction to Permanent Loans. The Agency proposes to amend the 
regulation to provide increased flexibility in loan terms that affect 
the costs of interim construction financing and the viability of 
combination construction to permanent loans on the secondary market in 
a manner which will enable more lenders to make these combination 
construction to permanent loans to SFHGLP borrowers. Specifically, the 
Agency proposes to: Allow and define a maximum interest rate for 
interim construction financing that is different than the underlying 
rate; allow for the escrow or reserve of regularly scheduled principal, 
interest, taxes and insurance (PITI) payments; and remove the 
requirement for loan modification or re-amortization once construction 
is complete.

DATES: Written or email comments on the proposed rule must be received 
on or before August 20, 2018 to be assured for consideration.

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

[[Page 28548]]

Management Branch, U.S. Department of Agriculture, 1400 Independence 
Avenue SW, Washington, DC 20250-0742.

FOR FURTHER INFORMATION CONTACT: Kate Jensen, Finance and Loan Analyst, 
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: (503) 810-6855, email 
is [email protected].

SUPPLEMENTARY INFORMATION: 

Executive Order 12866, Classification

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

Executive Order 12988, Civil Justice Reform

    This proposed rule has been reviewed under 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 SFHGLP, but if they do apply and 
are selected for funding, they must comply with the requirements 
applicable to the Federal program funds. This proposed rule is not 
retroactive. It will not affect agreements 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 1970, 
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

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

Executive Order 12372, Intergovernmental Consultation

    These loans are subject to the provisions of Executive Order 12372, 
which require intergovernmental consultation with State and local 
officials. RHS conducts intergovernmental consultations for each SFHGLP 
loan in accordance with 2 CFR part 415, subpart C.

Programs Affected

    The program affected by this regulation 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. Chapter 35). The 
assigned OMB control number is 0575-0179.

E-Government Act Compliance

    The Agency 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

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large

[[Page 28549]]

print, audiotape, American Sign Language, etc.) should contact the 
responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and 
TTY) or contact USDA through the Federal Relay Service at (800) 877-
8339. Additionally, program information may be made available in 
languages other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at http://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or 
write a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410;
    (2) Fax: (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

Background Information

    In order to encourage new construction purchase opportunities for 
rural applicants and increase lender utilization of SFHGLP Combination 
Construction to Permanent Loans in rural communities, the Agency 
proposes to revise the regulation pertaining to combination 
construction permanent loans. The proposed revisions will align the 
Agency's construction to permanent loans with industry standards. 
Lenders would be able to recapture interest accrued on a warehouse or 
business line of credit during the course of construction. An 
additional option is for lenders to escrow or set aside in reserves 
regularly scheduled fully amortized PITI payments for the construction 
period.
    Currently, a lender is restricted to using the promissory note rate 
for the life of the loan, including during the construction phase. The 
restriction discourages lenders from making combination construction to 
permanent loans because lenders may have difficulty covering the higher 
costs of construction or warehouse lines of credit associated with the 
construction phases. If a lender uses a warehouse line of credit in 
order to finance the cost of construction, the lender is responsible 
for any cost associated with the use of those funds. The proposed 
changes to 7 CFR 3555.104 will allow for a modified interim 
construction interest rate that is no more than 200 basis points above 
the underlying promissory note rate. After the construction period, the 
rate will revert back to the promissory note rate, or a lower interest 
rate. This practice is common in the traditional construction to 
permanent loan industry, and allows lenders to cover higher 
construction phase line of credit costs. The Agency will publish the 
maximum allowable interim construction interest rate in RD Instruction 
440.1, available in any Rural Development Office) or online at: http://www.rd.usda.gov/publications/regulations-guidelines. After construction 
is completed, lenders who used the interim construction interest rate 
must revert to the underlying promissory note rate or lower. The Agency 
also proposes to amend 7 CFR 3555.105(c) so that the cost of the 
interim construction interest rate may qualify as an eligible 
construction loan purpose.
    Current regulations impede the ability to sell or transfer a loan 
to an investor on the secondary market at loan closing because lenders 
do not have a viable method to ensure that consistent, equal principal 
and interest payments are made to investors during the construction 
phase. Construction to permanent loans must be modified and re-
amortized at the end of the construction period pursuant to 7 CFR 
3555.105(d), and there is no authority for lenders to establish an 
escrow or reserve for payments of consistent, equal principal and 
interest payments to investors during the construction phase. To 
address this issue, the Agency proposes to amend 7 CFR 3555.105 by 
making post-construction modification or re-amortization optional, as 
well as allowing lenders to establish an escrow or reserve in an amount 
of up to 12 months of the fully amortized regularly scheduled PITI 
payments over the construction period. This provides lenders with the 
increased ability to place SFHGLP construction to permanent loans in 
the secondary market at loan closing. Please note that 7 CFR 
3555.105(d)(4) already allows for the establishment of reserves for 
interest, taxes and insurance--the proposed amendment is for an 
additional principal reserve account in order to achieve a 30 year 
amortization of PITI payments.
    The regulatory revisions will reduce the burden of construction 
financing on small and medium sized lenders, streamline the program, 
encourage program utilization, and provide the lender the ability to 
quickly transfer closed loans to program investors.
    Lastly, the Agency proposes to correct 7 CFR 3555.104(a)(4) to 
clarify that if the interest rate increases between the issuance of a 
conditional commitment and the loan closing, the lender must submit a 
new request for new conditional commitment. Current language states 
that the lender must note the increased interest rate in the closing 
loan package--however this is not consistent with the terms of the 
conditional commitment or current practice. Lenders do submit new 
requests for conditional commitments in the event of an increase in 
interest rate before closing.

List of Subjects in 7 CFR Part 3555

    Home improvement, Loan Programs--Housing and community development, 
Eligible loan purpose, Construction, Loan terms, Mortgages, Rural 
areas.

    Therefore, chapter XXXV, 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; 42 U.S.C. 1471 et seq.

Subpart C--Loan Requirements

0
2. Amend Sec.  3555.104 by revising paragraph (a)(4)and adding new 
paragraph (e) to read as follows:


Sec.  3555.104  Loan Terms.

    (a) * * *
    (4) If the interest rate increases between the time of the issuance 
of the conditional commitment and the loan closing, the lender must 
submit a new request for a conditional commitment with the updated 
interest rate.
    * * *
    (e) Combination construction and permanent loans. For the purpose 
of combination construction permanent loans:
    (1) The lender may charge an interest rate for interim construction 
financing that exceeds the underlying promissory note rate by an amount 
determined by the Agency. The maximum allowable interim construction 
interest rate will be published in RD Instruction 440.1, available in 
any Rural Development Office or online at: http://www.rd.usda.gov/publications/regulations-guidelines.
    (2) After construction ends, the interest rate must revert to a 
rate that is no higher than the underlying promissory note rate.
0
3. Amend Sec.  3555.105 by:
0
a. Adding paragraph (c)(2)(iv);
0
b. Revising paragraph (d)(1) and the first sentence of paragraph (d)(6) 
by

[[Page 28550]]

replacing the first ``will'' with ``may''; and
0
c. Adding paragraph (d)(7).


Sec.  3555.105  Combination construction and permanent loans.

* * * * *
    (c) * * *
    (2) * * *
    (iv) An interim construction financing interest rate as provided 
for in Sec.  3555.104(e).
     * * *
    (d) * * *
    (1) * * *. An interim construction financing interest rate may be 
used in accordance with Sec.  3555.104(e).
* * * * *
    (7) Lenders may establish a reserve for up to 12 months of the 
regularly scheduled (amortized) principal payments, to ensure full PITI 
payments during the construction period. In such cases, a loan 
modification or re-amortization is not required after construction is 
complete.
* * * * *

    Dated: May 23, 2018.
Joel C. Baxley,
Administrator, Rural Housing Service.
[FR Doc. 2018-13154 Filed 6-19-18; 8:45 am]
 BILLING CODE 3410-XV-P