[Federal Register Volume 85, Number 222 (Tuesday, November 17, 2020)]
[Proposed Rules]
[Pages 73241-73244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24578]


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 Proposed Rules
                                                 Federal Register
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 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.
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  Federal Register / Vol. 85, No. 222 / Tuesday, November 17, 2020 / 
Proposed Rules  

[[Page 73241]]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

[Docket No. RHS-20-SFH-0025]
RIN 0575-AD21


Single Family Housing Guaranteed Loan Program

AGENCY: Rural Housing Service, Agriculture Department (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) to mandate the use of the Guaranteed Underwriting 
System (GUS) and the Lender Loan Closing System (LLC) by approved 
lenders. The Agency's proposal to mandate the use of GUS in loan 
originations and the LLC for loan closings will allow the Agency to 
decrease time-consuming and expensive manual file reviews, improve 
performance monitoring and reduce program risk of the guaranteed loan 
portfolio.

DATES: Comments must be submitted on or before January 19, 2021.

ADDRESSES: Comments may be submitted by going to the Federal 
eRulemaking Portal: Go to http://www.regulations.gov and in the 
``Search Documents'' box, enter the Docket Number RHS-20-SFH-0025 or 
the RIN# 0575-AD21, and click the ``Search'' button. To submit a 
comment, choose the ``Comment Now!'' button. 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 under the ``Help'' tab at the top of the 
Home page.
    Other Information: Additional information about Rural Development 
and its programs is available on the internet at http://www.rurdev.usda.gov/index.html.
    All comments will be available for public inspection online at the 
Federal eRulemaking Portal (http://www.regulations.gov).

FOR FURTHER INFORMATION CONTACT: Ana Placencia, Finance and Loan 
Analyst, Single Family Housing Guaranteed Loan Division, Rural 
Development, U.S. Department of Agriculture, STOP 0784, Room 2250, 
South Agriculture Building, 1400 Independence Avenue SW, Washington, DC 
20250-0784. Telephone: (254) 721-0770; or email: 
[email protected].

SUPPLEMENTARY INFORMATION:

Background

    Rural Housing Service (RHS) is issuing a proposed rule to amend the 
Single-Family Housing Guaranteed Loan Program (SFHGLP) regulations 
found in 7 CFR part 5555, subparts C and D, by updating the regulations 
to align the Agency's program with the mortgage industry expectations 
in the domain of information technology.
    Currently, the Agency allows approved lenders to submit 
applications for loan guarantee requests by mail, electronic mail 
(email) or GUS. Loan requests received by email must be saved to a 
folder on a computer drive before being manually uploaded into the 
Electronic Case File (ECF) for processing. If the loan request is 
received in paper format, it must first be scanned, saved and then 
uploaded to ECF, which imposes a time constraint on both the lender and 
the agency. Additionally, Agency staff must place the application in 
ECF for processing in the sequential order in which it was received. In 
some cases, paper checks are still being submitted and manually 
processed by Agency staff before being forwarded to the appropriate 
finance center. Agency staff must also manually upload the documents 
for review, separately from the uniform residential appraisal report.
    Approximately 98 percent of lenders are currently utilizing GUS to 
submit loan applications. The remaining two percent are submitting 
manually underwritten loan packages by email or mail. This translates 
to roughly 1093 manually submitted loans per year and 3826 staff hours. 
Lenders that participate in the SFHGLP generally participate in other 
federally insured mortgage programs that require utilization of loan 
origination systems (LOS). Access to GUS is web-based and is compatible 
with the industry's leading LOS technology.
    The goal of updating this regulation is to better streamline the 
processing of the SFHGLP application using the automated initiatives of 
the GUS and the LLC for all applications and loan closings 
transactions. GUS is compatible with the Loan Origination Systems and 
Point of Sale vendors that are widely accepted throughout the industry. 
All SFHGLP loan products are supported by GUS, except for streamlined-
assist refinance transactions. Lenders will continue to submit manually 
underwritten files for these types of transactions by electronic means 
approved by the Agency. These loans are different from loans downgraded 
in GUS for manual underwriting--the downgraded loans will continue to 
be submitted via GUS for a manual review. Mandatory use of the 
automated underwriting system will not only offer ease to lenders when 
uploading closing documents and payment of the guarantee and technology 
fees using the LLC, but will efficiently and effectively allow Agency 
staff the capability to review loan applications, increase lender's 
ability to transfer loans to program investors, and lessen the 
timeframe for underwriting and processing loan approvals.
    GUS is a robust automated system that processes application 
requests and provides specific loan closing data to the lender and the 
Agency. It offers added benefits to the lender's decision-making 
process by producing underwriting findings reports and reliable credit 
data for managing borrower risks.\1\ Expanded use of the system will 
maximize the impact of core agency programs and drive innovation that 
will remove obstacles that delay loan production.
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    \1\ GUS is a tool that helps evaluate the credit risk but does 
not replace the informed judgment of the experienced underwriter's 
decision and does not serve the sole basis for making a final loan 
decision. See 7 CFR 3555.107(b).
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Discussion of the Rule

    In order to provide efficient and timely delivery of the SFHGLP, it 
is necessary to streamline the processing of SFHGLP applications using 
automation initiatives as much as possible. The Agency proposes to 
revise the regulation to mandate that lenders

[[Page 73242]]

utilize GUS and LLC systems for all applications and loan closing 
files. Mandatory use of GUS and LLC will allow uniformity in 
application submissions, consistency in the timely processing of loan 
requests and will save time and administrative costs for both lenders 
and the Agency by eliminating the requirement for paper file storage, 
shredding costs, and mail with overnight courier fees.
    A summary of the changes includes amending 7 CFR 3555.107(b) 
introductory text and (b)(1), to reflect that the use of the Agency's 
automated underwriting system would be required for all requests for 
conditional commitments and loan guarantees. Submissions by alternate 
means, such as email or hard copy, will not be permitted and therefore 
the Agency proposes to eliminate references to such submission methods.
    The Agency also proposes to amend Sec.  3555.107(c) and add 
paragraphs (c)(1) and (2) to describe the two types of loans that would 
still be manually underwritten. First, loan products not supported by 
the automated origination system, such as streamlined-assist refinance 
transactions, must be manually underwritten and submitted via secure 
email or other electronic means approved by the Agency. Second, loans 
downgraded in the agency's automated origination system require manual 
underwriting, although lenders would still submit the loan 
documentation via the Agency's automated systems.
    Concurrently, Sec.  3555.107(i)(4) will be amended to require all 
loan documentation to be submitted via the Agency's automated systems 
with the exception of the loan products described in Sec.  
3555.107(c)(1).
    Regulations Sec.  3555.151(h)(2) would also be amended to clarify 
procedures for manually underwritten loans. The loan files for manually 
underwritten loans would still be submitted through the automated 
underwriting system but require full documentation review, and credit 
score validation or compensating factors.

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 the Department of 
Agriculture to promulgate rules and regulations as deemed necessary to 
carry out the purpose of that title.

Executive Order 12866, Classification

    This rule has been determined to be not significant for the 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

Executive Order 12988, Civil Justice Reform

    This rule has been reviewed under Executive Order 12988. In 
accordance with this rule: (1) Unless otherwise specifically provided, 
all state and local laws that conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as specifically prescribed in the rule; and (3) administrative 
proceedings of the National Appeals Division of the Department of 
Agriculture (7 CFR part 11) must be exhausted before bringing suit in 
court that challenges action taken under this rule.

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 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.

National Environmental Policy Act

    This document has been reviewed in accordance with 7 CFR part 1970, 
subpart A, ``Environmental Policies.'' RHS determined that this action 
does not constitute a major Federal action significantly affecting the 
quality of the environment. In accordance with the National 
Environmental Policy Act of 1969, Public Law 91-190, an Environmental 
Impact Statement is not 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

    The rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has 
determined and certified by signature on this document that this rule 
will not have a significant economic impact on a substantial number of 
small entities since this rulemaking action does not involve a new or 
expanded program nor does it require any more action on the part of a 
small business than required of a large entity.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is not subject to the requirements of Executive Order 
12372, ``Intergovernmental Review of Federal Programs,'' as implemented 
under USDA's regulations at 7 CFR part 3015.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This Executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the rule does not have a substantial 
direct effect on one or more Indian tribe(s) or on either the 
relationship or the distribution of powers and responsibilities between 
the Federal Government and Indian tribes. Thus, this rule is not 
subject to the requirements of Executive Order 13175. If tribal leaders 
are interested in consulting with RHS on this rule, they are encouraged 
to contact USDA's Office of Tribal Relations or RD's Native American 
Coordinator at: [email protected] to request such a consultation.

Programs Affected

    The program affected by this proposed rule 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

    This rule contains no new reporting or recordkeeping burdens under 
OMB control number 0575-0179 that would

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require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35).

Executive Order 13771--Reducing Regulation and Controlling Regulatory 
Costs

    Executive Order 13771 directs agencies to reduce regulation and 
control regulatory costs and provides that the cost of planned 
regulations be prudently managed and controlled through a budgeting 
process. This rule has been reviewed in accordance with E.O. 13771 and 
it has been determined that because the subject program of this rule is 
considered an income transfer from taxpayers to program beneficiaries, 
it is not subject to the requirements of E.O. 13771.

Civil Rights Impact Analysis

    Rural Development has reviewed this rule in accordance with USDA 
Regulation 4300-4, Civil Rights Impact Analysis, to identify any major 
civil rights impacts the rule might have on program participants on the 
basis of age, race, color, national origin, sex or disability. After 
review and analysis of the rule and available data, it has been 
determined that implementation of the rule will not adversely or 
disproportionately impact very low, low- and moderate-income 
populations, minority populations, women, Indian tribes or persons 
based on their race, color, national origin, sex, age, disability, or 
marital or familiar status. No major civil rights impact is likely to 
result from this rule.

E-Government Act Compliance

    Rural Development is committed to the E-Government Act, which 
requires Government agencies in general to provide the public the 
option of submitting information or transacting business electronically 
to the maximum extent possible.

USDA 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 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 on 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 3555

    Construction, Eligible loan purpose, Home improvement, Loan 
programs--housing and community development, Loan terms, Mortgage 
insurance, Mortgages, Rural areas.

    For the reasons discussed in the preamble, the Agency is proposing 
to amend 7 CFR part 3555 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.  3555.107 by revising paragraph (b) introductory text, 
(b)(1), (3), and (6), (c), and (i)(4) to read as follows:


Sec.  3555.107   Applications for and issuance of the loan guarantee.

* * * * *
    (b) Automated underwriting. Approved lenders are required to 
process SFHGLP loans using Rural Development's automated systems. The 
automated underwriting system is a tool to help evaluate credit risk 
but does not substitute or replace the careful judgment of experienced 
underwriters and shall not be the exclusive determination on extending 
credit. The lender must apply for and receive approval from Rural 
Development to utilize the automated underwriting system. Rural 
Development reserves the right to terminate the lender's use of the 
automated underwriting system.
    (1) Lenders are responsible for ensuring all data is true and 
accurately represented in the automated underwriting system.
* * * * *
    (3) The use of Rural Development's automated underwriting system 
subjects the lender to indemnification requirements in accordance with 
Sec.  3555.108.
* * * * *
    (6) Lenders will validate findings based on the output report of 
the automated underwriting system.
* * * * *
    (c) Manual underwriting. Loans requiring manual underwriting 
(manually underwritten loans) are described in paragraphs (c)(1) and 
(2) of this section. For manually underwritten loans, full 
documentation and verification in accordance with subparts C, D, and E 
of this part will be submitted to Rural Development when requesting a 
guarantee and maintained in the lender's file. The documentation will 
confirm the applicant's eligibility, creditworthiness, repayment 
ability, eligible loan purpose, adequate collateral, and satisfaction 
of other regulatory requirements. The following types of loans require 
manual underwriting:
    (1) Loans that are not supported by Rural Development's automated 
systems. These loans are submitted by secure email or other electronic 
means approved by the Agency.
    (2) Loans downgraded by Rural Development's automated system. These 
loans are submitted utilizing Rural Development's automated system.
* * * * *
    (i) * * *
    (4) Evidence of documentation supporting the properly closed loan 
will be submitted using Rural Development's automated systems, with the 
exception of manually underwritten loans defined in paragraph (c)(1) of 
this section.
* * * * *

Subpart D--Underwriting the Applicant

0
3. Amend Sec.  3555.151 by revising paragraph (h)(2) introductory text 
to read as follows:

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Sec.  3555.151   Eligibility requirements.

* * * * *
    (h) * * *
    (2) The repayment ratio may exceed the percentage in paragraph 
(h)(1) of this section when certain compensating factors exist. The 
handbook, HB-1-3555, Appendix I, located at https://www.rd.usda.gov/sites/default/files/ hb-1-3555.pdf, will provide examples of when a 
debt ratio waiver may be granted. The automated underwriting system 
will consider any compensating factors in determining when the variance 
is appropriate. Loans downgraded in the automated underwriting system 
which must be manually underwritten will require the lender to document 
compensating factors. The presence of compensating factors does not 
strengthen a ratio exception when multiple layers of risk are present 
in the application. Acceptable compensating factors, supporting 
documentation, and maximum ratio thresholds, will be further defined 
and clarified in the handbook. Compensating factors include, but are 
not limited to:
* * * * *

Elizabeth Green,
Acting Administrator, Rural Housing Service.
[FR Doc. 2020-24578 Filed 11-16-20; 8:45 am]
BILLING CODE 3410-XV-P