[Federal Register Volume 84, Number 227 (Monday, November 25, 2019)]
[Proposed Rules]
[Pages 64788-64795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25128]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 84, No. 227 / Monday, November 25, 2019 /
Proposed Rules
[[Page 64788]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3550
[Docket No. RHS-19-SFH-0020]
RIN 0575-AD14
Single Family Housing Direct Loan and Grant Programs
AGENCY: Rural Housing Service, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: Through this proposed rule, the Rural Housing Service (RHS or
Agency) is proposing to amend its regulations to update and improve the
direct Single-Family Housing (SFH) loans and grants programs. The
proposed changes would increase program flexibility, allow more
borrowers to access affordable loans, better align the programs with
best practices, and enable the programs to be more responsive to
economic conditions and trends.
DATES: Comments on the proposed rule must be received on or before
January 24, 2020.
ADDRESSES: You may submit comments to this rule through the Federal
eRulemaking Portal: Go to http://www.regulations.gov and, in the lower
``Search Regulations and Federal Actions'' box, select ``Rural Housing
Service'' from the agency drop-down menu, then click on ``Submit.'' In
the Docket ID column, select RHS-19-SFH-0020 to submit or view public
comments and to view supporting and related materials available
electronically. Information on using Regulations.gov, including
instructions for accessing documents, submitting comments, and viewing
the docket after the close of the comment period, is available through
the site's ``User Tips'' link.
All comments will be available for public inspection online at the
Federal eRulemaking Portal (http://www.regulations.gov).
FOR FURTHER INFORMATION CONTACT: Andrea Birmingham, Finance and Loan
Analyst, Single Family Housing Direct Loan Division, USDA Rural
Development, STOP 0783, 1400 Independence Ave. SW, Washington, DC
20250-0783, Telephone: (202) 720-1489. Email:
[email protected].
SUPPLEMENTARY INFORMATION:
Background and Proposed Changes
In order to improve the delivery of the SFH loan programs and to
promote consistency among the programs when appropriate, RHS is
proposing to amend its regulations at 7 CFR part 3550 for the direct
SFH loan and grant programs by:
(1) Revising and adding specific definitions to Sec. 3550.10:
a. Revise the definition of modest housing, which currently
prohibits in-ground swimming pools. The revised definition would allow
for the financing of existing modest homes with pools. Existing housing
stocks are very limited in many rural areas, and this is an unnecessary
prohibition to homeownership when an otherwise modest and affordable
home is typical for the area but cannot be financed because of a pool.
The proposed change promotes a degree of consistency with the SFH
guaranteed loan program, which does not prohibit in-ground swimming
pools. In-ground pools with new construction, or with dwellings that
are purchased new, would still be prohibited.
b. Remove the definition of national average area loan limit. This
removal would complement changes proposed to Sec. 3550.52(d)(6) in a
separate rulemaking (83 FR 44504 (August 31, 2018)).
c. Revise the definition of the PITI ratio to include homeowner's
association dues and other recurring, housing-related assessments. The
change would reduce the risk of financing a property which may not be
truly affordable to the homeowner. This risk occurs because of a PITI
ratio which may be too low when recurring housing related costs such as
mandatory homeowner's association dues and land lease payments are not
taken into consideration during underwriting. This change would result
in more accurately calculating the front end, PITI ratio for housing
related costs; and in turn, calculating a more accurate Total Debt
ratio on the back end. Calculating more accurate ratios will help
ensure a loan amount is approved at an affordable level for the
borrower.
d. Revise the veterans' preference definition to remove obsolete
information and streamline the definition by citing the definition of a
veteran or a family member of a deceased service member in 42 U.S.C.
1477.
e. Add definition for principal residence. The definition would
align with that used in the SFH guaranteed loan program and the
mortgage industry.
(2) Changing references Sec. 3550.11(a) and (b) to ``homeowner
education'' to ``homeownership education'' for consistency, and
removing the requirement placed on State Directors to update the list
of homeownership education providers annually. The Agency proposes to
require State Directors to update the list on an as-needed basis, but
no less frequently than every three years. The proposed rule also
specifies that the Agency would determine preferences for education
format (i.e., online, in-person, telephone) based on effectiveness,
availability and industry practice. The Agency would publish the
education format preferences in a publicly available format, such as
the program handbook. These changes would allow the Agency to be more
responsive to changes in homeowner education course delivery and
availability.
(3) Revising Sec. 3550.52(a) to allow a new borrower to use new
loan funds to purchase a dwelling from an existing RHS borrower. The
current regulation requires the new borrower to assume the existing
loan. Under the proposed revision, the Agency would determine if these
transactions will be financed using an assumption of the existing RHS
indebtedness or new loan funds, depending on funding levels as well as
program goals and needs. This revision would allow the Agency to
responsibly, effectively, and fully utilize funds appropriated by
Congress without the additional steps required to process and close a
loan assumption and subsequent new loan, thereby reducing loan
application processing times.
(4) Revising the packaging fee requirements in Sec. 3550.52(d)(6)
to allow the Agency more flexibility to specify packaging fees for the
non-certified loan application process, and to ensure non-
[[Page 64789]]
certified packaging fees reflect the level of service provided and the
prevailing cost to provide the service.
For the non-certified loan packaging process, the current fee may
not exceed $350, but this limit would be revised as it does not
necessarily reflect the time a non-certified loan packager invests in
the packaging process. Under the proposed revision, the packaging fees
for the non-certified loan packaging process may not exceed a limit
determined by the Agency and is no greater than one percent of the
national average area loan limit. The Agency will determine the exact
limit within the one percent threshold based on factors such as the
level of service provided and the prevailing cost to provide the
service and will publish the exact limit in a publicly available format
such as the program handbook.
This rule also proposes to amend this paragraph to remove the
language regarding a preliminary eligibility determination to
streamline the process, and to clarify that the packaging fee is paid
only if the loan closes.
(5) Revising Sec. 3550.53(c) and removing (c)(1) through (3) to
remove the overly restrictive primary residence requirements for
military personnel and students. These requirements prohibit approving
loans for active duty military applicants, unless they will be
discharged within a reasonable period; and for full time students
unless there are reasonable prospects that employment will be available
in the area after graduation. Active duty military personnel and full-
time students provide valuable service experience, education, and civic
and financial contributions to rural areas. Providing these applicants
with more opportunity to own modest, decent, safe, and sanitary homes
in rural areas would strengthen the fabric of those communities. In
addition, removing this overly restrictive language will improve
consistency with other Federal housing programs such as the U.S.
Department of Housing and Urban Development and the U.S. Department of
Veterans Affairs.
(6) Revising Sec. 3550.53(g) and removing Sec. 3550.53(g)(1)
through (5) to include the new definition of PITI for clarity; and to
revise repayment ability ratio thresholds to use the same ratios for
both low- and very-low income applicants (which will help ensure equal
treatment of applicants across the income categories and improve the
marketability of the program) and to increase the ratios by a small
percentage to reflect common industry tolerances. This change, in
conjunction with automated underwriting technology, will address risk
layers and reduce the frequent requests for PITI ratio waivers due to
compensating factors.
(7) Replacing ``homeowner'' with ``homeownership'' in Sec.
3550.53(i)for consistency within part 3550.
(8) Revising Sec. 3550.55(c) introductory text and (c)(4) and (5)
so that application processing priorities are applied on a regular
basis, and not just during periods of insufficient funding. Current
regulations only trigger priorities in application processing when
funding is insufficient. However, applying these priorities on a
regular basis, not just during insufficient funding, will provide clear
processing priorities for RHS staff. In the case of applications with
equivalent priority status that are received on the same day,
preference will be extended to applicants qualifying for a veterans'
preference.
This proposed change recognizes that RHS has limited staff
resources and that complete applications need to be prioritized for
processing, as well as for funding when funds are limited. While the
goal is to determine an applicant's eligibility for the program within
30 days of receiving a complete application regardless of their
priority ranking and the availability of funds, the priority ranking
will direct Agency staff how to prioritize their work processes and
better meet urgent needs. The proposed amendment would also give fourth
priority to applications submitted via an intermediary through the
certified application packaging process outlined in Sec. 3550.75.
Currently, RHS may temporarily classify these applications as fourth
priority when determined appropriate--the proposed change would make
the fourth priority status permanent and applicable at all times. The
change in priority does not impact the priority of any other category
and will recognize and encourage the participation and interest of
intermediaries in the direct SFH program. Intermediaries are valuable
to the program by helping attract program applicants, training
certified packagers, and performing quality assurance reviews of
applications.
Other priorities remain unchanged including existing customers who
request subsequent loans to correct health and safety hazards, loans
related to the sale of REO property or ownership transfer of an
existing RHS financed property, hardships including applicants living
in deficient housing for more than six months, homeowners in danger of
losing property through foreclosure, applicants constructing dwellings
in an approved self-help project, and applicants obtaining other funds
in an approved leveraging proposal. Veterans' preference also remains a
priority in accordance with 42 U.S.C. 1477. To further emphasize these
priorities, the Agency proposes to also make funding available in
accordance with same priorities as application processing.
(9) Revising Sec. 3550.56(b)(3) to remove the requirement that the
value of the site must not exceed 30 percent of the ``as improved''
market value of the property. The site value is not necessarily an
indicator of whether the property is modest. Other Agency requirements
including area loan limits, appraisals, purchase agreements, and
construction contracts are better indicators of whether the property is
considered modest. Site values in high cost areas typically exceed the
30 percent threshold even in rural communities, and the frequent
requests for waivers of this requirement impose an unnecessary
administrative burden. This change would also be consistent with the
guaranteed SFH loan program, which has no site value limitation.
(10) Amending Sec. 3550.57(a) to remove the reference to in-ground
swimming pools for existing housing under the Section 502 program, to
align the paragraph with the revised modest housing definition in Sec.
3550.10 of this proposed rule.
(11) Revising Sec. 3550.59(a)(2) to remove the requirement that
the amount of a junior lien, when it is a grant or a forgivable
affordable housing product, may not exceed the market value by more
than 5 percent (i.e. up to a 105% loan to value ratio). This is an
overly restrictive requirement as it relates to grants and forgivable
affordable housing products as these products often partially or
completely cover the cost of rehabilitation to make the dwelling
decent, safe, and sanitary, and a higher loan to value ratio may be
tolerated in these instances.
Beginning in FY 2016, RHS initiated a pilot in a limited number of
states to allow the State Office to approve leveraging arrangements
where the total loan-to-value was more than the 105% limitation
identified in Sec. 3550.59(a)(2), provided:
RHS is in the senior lien position and the RHS loan is
fully secured (with allowable exceptions for the tax service fee,
appraisal fee, homebuyer education and initial escrow for taxes and
insurance);
The junior lien is for an authorized loan purpose
identified in Sec. 3550.52;
The junior lien involves a grant or forgivable affordable
housing product; and
The grant or forgivable affordable housing product comes
from a
[[Page 64790]]
recognized grant source such as a Community Development Block Grant or
a HOME Investment Partnerships Program (HOME).
The pilot has been successful because it has:
Empowered the selected State Offices to make timely
decisions on loans with junior liens involving a grant or forgivable
affordable housing product, and gave the junior lien holder the
discretion to determine a total loan-to-value that could be supported
within their own program requirements;
Generally improved an area's rural housing stock since the
grants and forgivable affordable housing products are frequently used
for rehabilitation work where the rehab cost is more than the enhanced
value;
Promoted consistency with the guaranteed SFH loan program,
which states that junior liens by other parties are permitted if the
junior liens do not adversely affect repayment ability or the security
for the guaranteed loan; and
Increased partnerships with nonprofits.
The proposed amendment would codify the positive aspects of the
pilot so that the advantages will apply program wide.
(12) Revising Sec. 3550.67(c) to allow more small Section 502
direct loans to be repaid in periods of up to 10 years. The current
regulation states that only loans of $2,500 or less must not have a
repayment period exceeding 10 years. In practice, loans of less than
$7,500 are generally termed for 10 years or less so that the loan can
be unsecured (i.e., no mortgage or deed of trust is required) in
accordance with the program's guidance.
This revision will provide the Agency flexibility in setting the
dollar threshold for smaller loans which may have a repayment period
that does not exceed 10 years. This threshold will be determined by the
Agency and published in a publicly available format such as the program
handbook and will not exceed ten percent of the national average area
loan limit. The Agency will determine the threshold based on factors
such as the Agency's level of tolerance for unsecured loans and the
performance and collection of unsecured loans in the Agency's
portfolio.
(13) Removing the language in Sec. 3550.103(e) regarding a waiver
of the requirement that applicants must be unable to obtain financial
assistance at reasonable terms and conditions from non-RHS credit or
grant sources and lack the personal resources to meet their needs. The
regulation currently provides that this requirement may be waived if
the household is experiencing medical expenses more than three percent
of the household's income. The revision would remove the medical
expense and waiver language. The authority to waive regulations on a
case-by-case basis already exists in Sec. 3550.8, making the medical
expense and waiver language in Sec. 3550.103(e) unnecessary.
Furthermore, limiting the waiver of the requirement to only those
instances in which medical expenses exceed 3 percent of the household's
income is overly restrictive.
(14) Revising Sec. 3550.104(c) to replace ``veterans preference''
with ``veterans' preference.'' This is a grammatical correction only.
(15) Revising Sec. 3550.106(a) to remove the reference to in-
ground swimming pools for the Section 504 program, to align the
paragraph with the revised modest housing definition in Sec. 3550.10
of this proposed rule.
(16) Revising Sec. 3550.108(b)(1) to modify the requirement for
title insurance and a closing agent for certain secured Section 504
loans of $7,500 and greater. Currently, Section 504 loans less than
$7,500 may be closed by the Agency without title insurance and a
closing agent; however, loans of $7,500 and greater require title
insurance and must be closed by a closing agent. The cost for title
insurance and a closing agent can be unaffordable for very-low income
borrowers with loans of $7,500 and greater or can potentially decrease
the amount of loan funds available for needed repairs or improvements.
This revision would remove the specific dollar threshold for loans
which would require title insurance and closing agent. Loans where the
total section 504 indebtedness does not exceed an amount determined by
the Agency, but no greater than twenty percent of the national average
area loan limit, may be closed by the Agency without title insurance or
a closing agent. The Agency will determine the maximum amount based on
factors such as average costs for title insurance and closing agents
compared to average housing repair costs and publish the specific
threshold in a publicly available format such as the program handbook.
This revision would significantly reduce loan closing costs incurred by
the borrowers, by allowing more loans to be closed by the Rural
Development office. This revision would also allow for responsiveness
and adjustments based on inflationary changes.
(17) Revising Sec. 3550.112(a) to revise the Section 504 maximum
loan amount of $20,000, so that the sum of all outstanding section 504
loans to one borrower and for one dwelling may not exceed an amount
determined by the Agency, but not greater than twenty percent of the
national average area loan limit, and published in a publicly available
format, such as the program handbook. The Agency will determine the
maximum amount based on factors such as average loan amount and repair
costs. A corresponding change will also be made to Sec. 3550.112(a)(1)
to address maximum loan amounts for transferees who assume Section 504
loans and wish to obtain a subsequent loan. The revision allows the
Agency greater responsiveness and flexibility to address changes to
average repair costs.
(18) Removing the lifetime maximum assistance of $7,500 for a
Section 504 grant and allowing the Agency to apply a lifetime grant
limit to any one household or one dwelling.
(19) Revising the Section 504 loan term requirements to specify
that the loan term will be 20 years.
(20) Revising the recapture requirements in Sec. 3550.162(b) to
specify when Principal Reduction Attributable to Subsidy (PRAS) is, or
is not, collected.
The direct loan program provides payment assistance (subsidy),
which may include PRAS, to help borrowers meet their monthly mortgage
loan obligations. At time of loan payoff), borrowers are required to
repay all or a portion of the subsidy they received over the life of
the loan. This is known as subsidy recapture. The amount of subsidy
recapture to be repaid is based on a calculation that determines the
amount of value appreciation (equity) the borrower has in the property
at time of payoff. The proposed changes to the regulation specify when
PRAS is collected. In cases where the borrower has no equity in the
property based on the recapture calculation, PRAS will not be not
collected. There are no changes to the current subsidy recapture
calculation.
(21) Revising the payment moratorium requirements in Sec. 3550.207
to require reamortization of each loan coming off a moratorium.
Currently, the regulation stipulates that at the end of a
moratorium borrowers are to be provided a re-amortization if the Agency
determines they can resume making scheduled payments, based on
financial information provided by the borrower. Often these borrowers
lack demonstrable repayment ability for the new installment, which then
requires the Agency to liquidate the account. However, it should not be
unexpected that a borrower may have difficulty demonstrating repayment
ability at the end of a moratorium. The very purpose
[[Page 64791]]
of the moratorium is to provide temporary payment relief to borrowers
who have experienced circumstances beyond their control such as the
loss of at least 20 percent of their income, unexpected expenses from
illness, injury, death in the family, etc.
In July 2010, due to the recession, the Administrator of RHS issued
a decision memorandum approving the re-amortization of all accounts
following a moratorium; this decision has been supported by subsequent
Administrators. Historical data has shown that borrowers whose loans
are re-amortized after a moratorium, regardless of repayment ability,
have no greater risk of becoming delinquent when compared to non-
moratorium borrowers whose loans were re-amortized.
When comparing the borrower's repayment history 18 months after the
moratorium/re-amortization, 81.5 percent of the borrowers made their
required monthly payment and avoided foreclosure, making this the best
option for the borrower and the Agency. Whereas, if the borrower's
repayment ability would have been considered, a large percentage of
these successful borrowers would have lost their home without being
given a chance to demonstrate their ability to repay their mortgage.
This revision would require reamortization after a moratorium
regardless of repayment ability, which would reduce foreclosures and
better serve borrowers.
The Agency is also clarifying that all or part of the interest
accrued during the moratorium may be forgiven in an amount that
balances affordability to the borrower and serving the best interest of
the government.
(22) Revising Sec. 3550.251(c) and (d) to remove obsolete
references and clarify the process and priorities in the sale or lease
of Real Estate Owned (REO) properties. The revision would also clarify
the sale or lease process and reservation periods for priority buyers
to comply with 42 U.S.C. 11408a.
Under 42 U.S.C. 11408a, RHS must lease or sell program and
nonprogram inventory properties public agencies and nonprofits to
provide transitional housing and to provide turnkey housing for tenants
of such transitional housing and for eligible families. However, first
priority is the sale of REO properties to Section 502 borrowers.
The proposed changes would further align Sec. 3550.251(c) and (d)
with 42 U.S.C. 11408a concerning the priority of the sale or lease of
REO properties to eligible borrowers and to nonprofit organizations or
public bodies providing transitional housing.
The proposed action will incorporate references to 42 U.S.C. 11408a
and its more detailed instruction on transitional housing, lease and
purchase procedures, and the employment or participation of homeless
(or formerly homeless) individuals for the property being leased or
acquired. To provide the maximum flexibility, the Agency will reserve
program REO properties for no less than 30 days for sale to program
eligible borrowers, as well as for sale or lease to a public agency or
nonprofit organization for transitional and turnkey housing purposes.
Upon receipt of written notification from a public agency or nonprofit
organization seeking to purchase or lease REO property, the Agency
shall withdraw the property from the market for not more than 30 days
for the purpose of negotiations. If negotiations are unsuccessful, the
REO property will be relisted and sold in the best interest of the
Government.
The expected result of this rulemaking is to allow the maximum use
of the REO properties and foster collaboration in working to address a
national shortage of transitional housing, and to provide more
flexibility and increased efficiency of REO property management.
Statutory Authority
Section 510(k) of Title V the Housing Act of 1949 (42 U.S.C.
1480(k)), as amended, 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 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 A, ``Environmental Policies.'' 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
[[Page 64792]]
entities, will not have an adverse economic impact on small entities.
This rule does not impose any significant new requirements on program
recipients nor does it adversely impact proposed real estate
transactions involving program recipients as the buyers.
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 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 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 the Indian tribes. Thus, this
proposed rule is not subject to the requirements of Executive Order
13175.
Programs Affected
The following programs, which are listed in the Catalog of Federal
Domestic Assistance, are affected by this proposed rule: Number 10.410,
Very Low to Moderate Income Housing Loans (specifically Section 502
direct loans), and Number 10.417, Very Low-Income Housing Repair Loans
and Grants (specifically the Section 504 direct loans and grants).
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.), the information collection activities associated with
this rule are covered under OMB Number: 0575-0172. This proposed rule
contains no new reporting or recordkeeping requirements that would
require approval under the Paperwork Reduction Act of 1995.
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.
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 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.
List of Subjects in 7 CFR Part 3550
Administrative practice and procedure, Environmental impact
statements, Fair housing, Grant programs--housing and community
development, Housing, Loan programs--housing and community development,
Low and moderate-income housing, Manufactured homes, Reporting and
recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, 7 CFR part 3550 is proposed
to be 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 by:
0
a. Revising the definition of Modest housing;
0
b. Removing the definition of National average loan limit;
0
c. Revising the definition of PITI ratio;
0
d. Adding definition Principal residence in alphabetical order; and
0
e. Removing the definition of Veterans preference and adding the
definition Veterans' preference in its place.
The revisions and additions read as follows:
Sec. 3550.10 Definitions.
* * * * *
Modest housing. A property that is considered modest for the area,
has a market value that does not exceed the applicable maximum loan
limit as established by RHS in accordance with Sec. 3550.63, and not
designed for income producing activities. Existing properties with in-
ground pools may be considered modest; however, in-ground pools with
new construction or with properties which are purchased new are
prohibited.
* * * * *
PITI ratio. The amount paid by the borrower for principal,
interest, taxes, insurance, and other recurring, housing related costs
such as mandatory homeowner's association (HOA) dues, land lease
payments (i.e. community land trusts), or other housing related
assessments which may vary by state, divided by repayment income.
* * * * *
Principal residence. The home domicile physically occupied by the
owner on a permanent basis (i.e. lives there for the majority of the
year and is the address of record for such activities as Federal income
tax reporting, voter registration, occupational licensing, etc.).
* * * * *
Veterans' preference. A preference extended to a veteran applying
for a loan or grant under this part, or the families of deceased
servicemen, who meet the criteria in 42 U.S.C. 1477.
* * * * *
0
3. In Sec. 3550.11, revise paragraphs (a) and (b) to read as follows:
[[Page 64793]]
Sec. 3550.11 State Director assessment of homeownership education.
(a) State Directors will assess the availability of certified
homeownership education in their respective states on an as-needed
basis but at a minimum every three years and maintain an updated
listing of providers and their reasonable costs.
(b) The order of preference for homeownership education formats
will be determined by the Agency based on factors such as industry
practice and availability.
* * * * *
Subpart B--Section 502 Origination
0
4. In Sec. 3550.52, revise paragraphs (a) and (d)(6) to read as
follows:
Sec. 3550.52 Loan Purposes.
* * * * *
(a) Purchases from existing RHS borrowers. To purchase a property
currently financed by an RHS loan, the new borrower will assume the
existing RHS indebtedness or receive new loan funds as determined by
the Agency. The Agency will periodically determine whether assumptions
or new loans are appropriate on a program wide basis based on the best
interest of the government, taking into account factors such as funding
availability and staff resources. Regardless of the method, loan funds
may be used for eligible costs as defined in paragraph(d) of this
section or to permit a remaining borrower to purchase the equity of a
departing co-borrower.
* * * * *
(d) * * *
(6) Packaging fees resulting from the certified loan application
packaging process outlined in Sec. 3550.75. The Agency will determine
the limit, based on factors such as the level of service provided and
the prevailing cost to provide the service, and such cap will not
exceed two percent of the national average area loan limit. Nominal
packaging fees not resulting from the certified loan application
process are an eligible cost provided the fee does not exceed a limit
determined by the Agency based on the level and cost of service
factors, but no greater than one percent of the national average area
loan limit; 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 eligible along with a
fully completed and signed uniform residential loan application.
* * * * *
0
5. In Sec. 3550.53, revise paragraphs (c), (g), and (i) to read as
follows:
Sec. 3550.53 Eligibility requirements.
* * * * *
(c) Principal residence. Applicants must agree to and have the
ability to occupy the dwelling in accordance with the definition found
in Sec. 3550.10. If the dwelling is being constructed or renovated, an
adult member of the household must be available to make inspections and
authorize progress payments as the dwelling is constructed.
* * * * *
(g) Repayment ability. Repayment ability means applicants must
demonstrate adequate and dependably available income. The determination
of income dependability will include consideration of the applicant's
history of annual income.
(1) An applicant is considered to have repayment ability when the
monthly amount required for payment of principal, interest, taxes,
insurance, homeowner's association (HOA) dues and other recurring,
housing related assessments (PITI) does not exceed thirty-five percent
of the applicant's repayment income (PITI ratio). In addition, the
monthly amount required to pay PITI plus recurring monthly debts must
not exceed forty-three percent of the applicant's repayment income
(total debt ratio).
(2) If the applicant's PITI ratio and total debt ratio exceed the
percentages specified by the Agency by a minimal amount, compensating
factors may be considered. Examples of compensating factors include:
Payment history (if applicant has historically paid a greater share of
income for housing with the same income and debt level), savings
history, job prospects, and adjustments for nontaxable income.
(3) If an applicant does not meet the repayment ability
requirements in this paragraph (g), the applicant can have another
party join the application as a cosigner, have other household members
join the application, or both.
* * * * *
(i) Homeownership education. Applicants who are first-time
homebuyers must agree to provide documentation, in the form of a
completion certificate or letter from the provider, that a
homeownership education course from a certified provider under Sec.
3550.11 has been successfully completed as defined by the provider.
Requests for exceptions to the homeownership education requirement in
this paragraph (i) will be reviewed and granted on an individual case-
by-case basis. The State Director may grant an exception to the
homeownership education requirement for individuals in geographic areas
within the State where the State Director verifies that certified
homeownership education is not reasonably available in the local area
in any of the formats listed in Sec. 3550.11(b). Whether such
homeownership education is reasonably available will be determined
based on factors including, but not limited to: Distance, travel time,
geographic obstacles, and cost. On a case-by-case basis, the State
Director also may grant an exception, provided the applicant borrower
documents a special need, such as a disability, that would unduly
impede completing a homeownership course in a reasonably available
format.
0
6. In Sec. 3550.55, revise paragraphs (c) introductory text and (c)(4)
and (5) to read as follows:
Sec. 3550.55 Applications.
* * * * *
(c) Selection for processing and funding. Applications will be
selected for processing using the priorities specified in this
paragraph (c). Within priority categories, applications will be
processed in the order that the completed applications are received. In
the case of applications with equivalent priority status that are
received on the same day, preference will first be extended to
applicants qualifying for a veterans' preference. When funds are
limited and eligible applicants will be placed on the waiting list, the
priorities specified in this paragraph (c) will be used to determine
the selection of applications for available funds.
* * * * *
(4) Fourth priority will be given to applicants seeking loans for
the construction of dwellings in an RHS-approved Mutual Self-Help
project, loan application packages funneled through an Agency-approved
intermediary under the certified loan application packaging process,
and loans that will leverage funding or financing from other sources at
a level published in the program handbook.
(5) Applications from applicants who do not qualify for priority
consideration in paragraph (1), (2), (3), or (4) of this section will
be selected for processing after all applications with priority status
have been processed.
* * * * *
Sec. 3550.56 [Amended]
0
7. In Sec. 3550.56:
[[Page 64794]]
0
a. Add the word ``and'' at the end of paragraph (b)(1);
0
b. Remove ``; and'' and add a period in its place in paragraph (b)(2);
and
0
c. Remove paragraph (b)(3).
0
8. In Sec. 3550.57, revise paragraph (a) introductory text to reads as
follows:
Sec. 3550.57 Dwelling requirements.
(a) Modest dwelling. The property must be one that is considered
modest for the area, must not be designed for income producing
purposes, or have a market value in excess of the applicable maximum
loan limit, in accordance with Sec. 3550.63, unless RHS authorizes an
exception under this paragraph (a). Existing properties with in-ground
pools may be considered modest; however, in-ground pools with new
construction or with properties which are purchased new are prohibited.
An exception may be granted on a case-by-case basis to accommodate the
specific needs of an applicant, such as to serve exceptionally large
households or to provide reasonable accommodation for a household
member with a disability. Any additional loan amount approved must not
exceed the amount required to address the specific need.
* * * * *
0
9. In Sec. 3550.59, revise paragraph (a)(2) to read as follows:
Sec. 3550.59 Security requirements.
* * * * *
(a) * * *
(2) No liens prior to the RHS mortgage exist at the time of closing
and no junior liens are likely to be taken immediately after or at the
time of closing, unless the other liens are taken as part of a
leveraging strategy or the RHS loan is essential for repairs. Any lien
senior to the RHS lien must secure an affordable non-RHS loan. Liens
junior to the RHS lien may be allowed at loan closing if the junior
lien will not interfere with the purpose or repayment of the RHS loan.
When the junior lien involves a grant or a forgivable affordable
housing product, the total debt may exceed the market value provided:
(i) The RHS loan is fully secured (with allowable exceptions for
the tax service fee, appraisal fee, homebuyer education and initial
escrow for taxes and insurance);
(ii) The junior lien is for an authorized loan purpose identified
in Sec. 3550.52; and
(iii) The grant or forgivable affordable housing product comes from
a recognized grant source such as a Community Development Block Grant
or a HOME Investment Partnerships Program (HOME).
* * * * *
0
10. In Sec. 3550.67, revise paragraph (c) to read as follows:
Sec. 3550.67 Repayment period.
* * * * *
(c) Ten years for loans not exceeding an amount determined by the
Agency based on factors such as the performance of unsecured loans in
the Agency's portfolio and the Agency's budgetary needs, but not to
exceed ten percent of the national average area loan limit.
* * * * *
Subpart C--Section 504 Origination and Section 306C Water and Waste
Disposal Grants
0
11. In Sec. 3550.103, revise paragraph (e) to read as follows:
Sec. 3550.103 Eligibility requirements.
* * * * *
(e) Need and use of personal resources. Applicants must be unable
to obtain financial assistance at reasonable terms and conditions from
non-RHS credit or grant sources and lack the personal resources to meet
their needs. Elderly families must use any net family assets in excess
of $20,000 to reduce their section 504 request. Non-elderly families
must use any net family assets in excess of $15,000 to reduce their
section 504 request. Applicants may contribute assets in excess of the
aforementioned amounts to further reduce their request for assistance.
The definition of assets for the purpose of this paragraph (e) is net
family assets as described in Sec. 3550.54, less the value of the
dwelling and a minimum adequate site.
* * * * *
0
12. In Sec. 3550.104, revise paragraph (c) to read as follows:
Sec. 3550.104 Applications.
* * * * *
(c) Processing priorities. When funding is not sufficient to serve
all eligible applicants, applications for assistance to remove health
and safety hazards will receive priority for funding. In the case of
applications with equivalent priority status that are received on the
same day, preference will be extended to applicants qualifying for a
veterans' preference. After selection for processing, requests for
assistance are funded on a first-come, first-served basis.
0
13. In Sec. 3550.106, revise paragraph (a) to read as follows:
Sec. 3550.106 Dwelling requirements.
(a) Modest dwelling. The property must be one that is considered
modest for the area, must not be designed for income producing
purposes, or have a market value in excess of the applicable maximum
loan limit, in accordance with Sec. 3550.63.
* * * * *
0
14. In Sec. 3550.108, revise paragraph (b)(1) to read as follows:
Sec. 3550.108 Security requirements (loans only).
* * * * *
(b) * * *
(1) Loans where the total section 504 indebtedness does not exceed
an amount determined by the Agency based on factors such as average
costs for title insurance and closing agents compared to average
housing repair costs, but no greater than twenty percent of the
national average area loan limit.
* * * * *
0
15. In Sec. 3550.112, revise paragraphs (a) introductory text, (a)(1),
and (c) to read as follows:
Sec. 3550.112 Maximum loan and grant.
(a) Maximum loan permitted. The sum of all outstanding section 504
loans to one household for one dwelling may not exceed an amount
determined by the Agency based on factors such as average loan amounts
and repair costs, but no greater than twenty percent of the national
average area loan limit.
(1) Transferees who have assumed a section 504 loan and wish to
obtain a subsequent section 504 loan are limited to the difference
between the unpaid principal balance of the debt assumed and the
maximum loan permitted.
* * * * *
(c) Maximum grant. The lifetime total of the grant assistance to
any one household for one dwelling may not exceed an amount established
by the Agency based factors such as average lifetime grant amounts and
repair costs, but no greater than five percent of the national average
area loan limit. No grant can be awarded when the household has
repayment ability for a loan.
0
16. In Sec. 3550.113, revise paragraph (b) to read as follows:
Sec. 3550.113 Rates and terms (loans only).
* * * * *
(b) Loan term. The repayment period for all section 504 loans will
be 20 years.
Subpart D--Regular Servicing
0
17. In Sec. 3550.162, revise paragraphs (b)(1) introductory text and
(b)(1)(ii) to read as follows:
Sec. 3550.162 Recapture.
* * * * *
(b) * * *
[[Page 64795]]
(1) General. The amount to be recaptured is determined by a
calculation specified in the borrower's subsidy repayment agreement and
is based on the borrower's equity in the property at the time of loan
pay off. If there is no equity based on the recapture calculation, the
amount of principal reduction attributed to subsidy is not collected.
The recapture calculation includes the amount of principal reduction
attributed to subsidy plus the lesser of:
* * * * *
(ii) A portion of the value appreciation of the property subject to
recapture. In order for the value appreciation to be calculated, the
borrower will provide a current appraisal, including an appraisal for
any capital improvements, or arm's length sales contract as evidence of
market value upon Agency request. Appraisals must meet Agency standards
under Sec. 3550.62.
* * * * *
Subpart E--Special Servicing
0
18. In Sec. 3550.207, revise paragraphs (b)(2) and (c) and remove
paragraph (d) to read as follows:
Sec. 3550.207 Payment moratorium.
* * * * *
(b) * * *
(2) At least 30 days before the moratorium is scheduled to expire,
the borrower must provide financial information needed to process the
re-amortization of the loan(s).
(c) Resumption of scheduled payments. When the moratorium expires
or is cancelled, the loan will be re-amortized to include the amount
deferred during the moratorium and the borrower will be required to
escrow. If the new monthly payment, after consideration of the maximum
amount of payment subsidy available to the borrower, exceeds the
borrower's repayment ability, all or part of the interest that has
accrued during the moratorium may be forgiven so that the new monthly
payment optimizes both affordability to the borrower as well as the
best interest of the Government.
Subpart F--Post-Servicing Actions
0
19. In Sec. 3550.251:
0
a. Revise paragraphs (c)(4) and (5);
0
b. Remove paragraph (C)(6);
0
c. Revise paragraph (d)(2);
0
d. Remove paragraph (d)(3);
0
e. Redesignate paragraph (d)(4) as (d)(3).
The revisions read as follows:
Sec. 3550.251 Property management and disposition.
* * * * *
(c) * * *
(4) Sale of program REO properties. For no less than 30 days after
a program REO property is listed for sale, the property will be
reserved for sale to eligible direct or guaranteed single family
housing very-low, low- or moderate income applicants under this part or
part 3555 of this title, and for sale or lease to nonprofit
organizations or public bodies providing transitional housing and
turnkey housing for tenants of such transitional housing in accordance
with 42 U.S.C. 11408a. Offers from eligible direct or guaranteed single
family housing applicants are evaluated at the listed price, not the
offering price. Priority of offers received the same day from eligible
direct or guaranteed single family housing applicants will be given to
applicants qualifying for veterans' preference, cash offers from
highest to lowest, then credit offers from highest to lowest.
Acceptable offers of equal priority received on the same business day
are selected by lot. After the expiration of a reservation period, REO
properties can be bought by any buyer.
(5) Sale by sealed bid or auction. RHS may authorize the sale of an
REO property by sealed bid or public auction when it is in the best
interest of the Government.
(d) * * *
(2) RHS shall follow the standards and procedures in 42 U.S.C.
11408a for the sale or lease of an REO property to a public agency or
nonprofit organization. The terms of the sale and lease, and the entity
seeking to purchase or lease the REO property, must meet the
requirements in 42 U.S.C. 11408a.
* * * * *
Bruce W. Lammers,
Administrator, Rural Housing Service.
[FR Doc. 2019-25128 Filed 11-22-19; 8:45 am]
BILLING CODE 3410-XV-P