[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Rules and Regulations]
[Pages 6773-6777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02467]


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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, U.S. Department of Agriculture (USDA).

ACTION: Final rule.

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SUMMARY: The Rural Housing Service (RHS or Agency), is implementing 
changes to Single-Family Housing Guaranteed Loan Program (SFHGLP) to 
mandate the use of the Guaranteed Underwriting System (GUS) and the

[[Page 6774]]

Lender Loan Closing System (LLC) by approved lenders. The Agency's 
mandated 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: This final rule is effective May 9, 2022.

FOR FURTHER INFORMATION CONTACT: Ticia Weare, 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: (702) 407-1400 x6001; or email: [email protected].

SUPPLEMENTARY INFORMATION:

Background

    Rural Housing Service (RHS or Agency) is an agency of the U.S. 
Department of Agriculture. RHS is issuing a final rule to amend the 
Single-Family Housing Guaranteed Loan Program (SFHGLP) regulations 
found in 7 CFR part 3555, 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.
    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 is revising the 
regulation to mandate that lenders utilize GUS and the LLC systems for 
all supported applications and loan closing files. Mandatory use of GUS 
and the 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.
    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 and select pilot programs. 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 not only 
offers ease to lenders when uploading closing documents and payment of 
the guarantee and technology fees using the LLC, but efficiently and 
effectively allows Agency staff the capability to review loan 
applications, increases lender's ability to transfer loans to program 
investors, and lessens 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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    This final rule will change how the agency receives loan requests 
by mandating the use of GUS for all supported loan type submissions and 
the LLC for all loan submissions. Currently, the Agency allows approved 
lenders to submit applications for loan guarantee requests by mail, 
electronic mail (email) or GUS.

Discussion of Public Comments Received on January 19, 2021 Proposed 
Rule

    On November 17, 2020, RHS published a proposed rule for comments on 
the mandatory use of GUS for SFHGLP (85 FR 73241). The Agency received 
comments from eighteen respondents including Banks, Credit Unions, and 
other interested parties. Specific public comments are addressed below:
    Comment: Two respondents' comments were unrelated to the proposed 
rule. One was an inquiry for small business loan assistance and the 
other, a business advertisement.
    Agency Response: The Agency has determined that no action is 
required.
    Comment: Two respondents commented that the benefit of the proposed 
rule will improve efficiency and effectiveness; however, they are 
concerned with the elimination of manual underwriting considering the 
automated underwriting system may be inadequate for certain credit risk 
scenarios and want to ensure an accommodation is considered for these 
scenarios.
    Agency Response: The Agency has determined that no action is 
required, the manual underwriting process remains unchanged for the 
following GUS recommendations of ``Refer, Refer with Caution''.
    Comment: Eight respondents commented they are concerned that the 
requirement for all lenders to submit requests through GUS would 
eliminate manual underwriting for submissions that receive a GUS 
recommendation of ``Refer or Refer with Caution''. In addition, 
applicants without a credit score may be unable to apply.
    Agency Response: The use of alternate credit and the manual 
underwriting process remains unchanged for the following GUS 
recommendations: Refer, Refer with Caution. The Agency has provided 
clarification in Sec.  3555.107(c)(1) and Sec.  3555.107(c)(2), by 
adding language explaining loans with GUS recommendations of ``Refer 
and Refer with Caution'' will continue to be manually underwritten. 
Clarification was added to Sec.  3555.107(i)(4), explaining all closed 
loans including manual submissions are required to use Rural 
Development's automated systems.
    Comment: Four respondents commented in favor of the proposed rule 
and indicate the rule will create a positive impact on consistency and 
efficiency.
    Agency Response: The Agency has determined that no action is 
required.
    Comment: Two respondents commented in opposition to the proposed 
rule, one citing a possible adverse impact on smaller lenders with 
limited resources who rely on manual submissions and the other cited 
concerns over accuracy of the data input as well as an economic impact 
the proposed rule may have.
    Agency Response: The Agency has determined that no action is 
required. The Agency does not anticipate a barrier to program 
participation and offers two opportunities to participate: (1) Through 
a connection with the lender's point of sale or loan origination 
system, (2) entering loan application information directly into GUS. 
GUS is available to all approved lenders with eAuthentication 
credentials. The Agency has an established process for lenders to 
obtain eAuthentication credentials online that is free, easy, and does 
not create a burden to the lender. It is anticipated that the rule will 
provide more consistent and timely reviews which will benefit all 
lenders including small lenders.

[[Page 6775]]

Summary of Changes to Rule

    A summary of the changes includes amending 7 CFR 3555.107(b) 
introductory text and (b)(1), (3),and (6), to reflect that the use of 
the Agency's automated underwriting system will be required for all 
supported submissions by alternate means, such as email or hard copy, 
will not be permitted and therefore the Agency will eliminate 
references to such submission methods.
    This final rule also amends Sec.  3555.107(c) and add paragraphs 
(c)(1) and (2) to describe the two types of loans that will continue to 
be manually underwritten. First, loan products not supported by the 
automated origination system, such as streamlined-assist refinance 
transactions and select pilot programs, 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 will 
continue to submit the loan documentation via the Agency's automated 
systems.
    Concurrently, Sec.  3555.107(i)(4) will be amended to require all 
loan closing documentation to be submitted via the Agency's automated 
systems.
    Regulations Sec.  3555.151(h)(2) will also be amended to clarify 
procedures for manually underwritten loans. The loan files for manually 
underwritten loans will continue to 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 Orders and Acts

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

    In accordance with the National Environmental Policy Act of 1969, 
Public Law 91-190, this final rule has been reviewed in accordance with 
7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency 
has determined that (i) this action meets the criteria established in 7 
CFR 1970.53(f); (ii) no extraordinary circumstances exist; and (iii) 
the action is not ``connected'' to other actions with potentially 
significant impacts, is not considered a ``cumulative action'' and is 
not precluded by 40 CFR 1506.1. Therefore, the Agency has determined 
that the action does not have a significant effect on the human 
environment, and therefore 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 
final rule impose substantial direct compliance costs on state and 
local governments. Therefore, consultation with the States is not 
required.

Regulatory Flexibility Act

    The final 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 final 
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 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 Indian tribes. Thus, this final rule 
is not subject to the requirements of Executive Order 13175. If tribal 
leaders are interested in consulting with RHS on this final 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 final rule is listed in the Assistance 
Listing Number 10.410, Very Low to Moderate Income Housing Loans 
(Section 502 Rural Housing Loans).

Paperwork Reduction Act

    This final rule contains no new reporting or recordkeeping burdens 
under OMB control number 0575-0179 that would require approval under 
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

[[Page 6776]]

Civil Rights Impact Analysis

    Rural Development has reviewed this final 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, 
disability, marital or familial status. Based on the review and 
analysis of the rule and all available data, issuance of this final 
rule is not likely to negatively impact low and moderate-income 
populations, minority populations, women, Indian tribes or persons with 
disability, by virtue of their age, race, color, national origin, sex, 
disability, or marital or familial status.

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 laws and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Mission Areas, agencies, staff offices, 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.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service 
at (800) 877-8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a 
letter addressed to USDA. The letter must contain the complainant's 
name, address, telephone number, and a written description of the 
alleged discriminatory action in sufficient detail to inform the 
Assistant Secretary for Civil Rights (ASCR) about the nature and date 
of an alleged civil rights violation. The completed AD-3027 form or 
letter must be submitted 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; or
    (2) Fax: (833) 256-1665 or (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 amending 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 paragraphs (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 downgraded by Rural Development's automated system. These 
loans are manually underwritten by the lender and submitted utilizing 
Rural Development's automated system.
    (2) Loans that are not supported by Rural Development's automated 
systems. These loans are manually underwritten by the lender and 
submitted by secure email or other electronic means approved by the 
Agency.
* * * * *
    (i)* * *
    (4) For all loan submissions, evidence of documentation supporting 
the properly closed loan will be submitted using Rural Development's 
automated systems.
* * * * *

Subpart D--Underwriting the Applicant

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


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

[[Page 6777]]

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:
* * * * *

Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-02467 Filed 2-4-22; 8:45 am]
BILLING CODE 3410-XV-P