[Federal Register Volume 87, Number 244 (Wednesday, December 21, 2022)]
[Proposed Rules]
[Pages 78324-78379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26097]



[[Page 78323]]

Vol. 87

Wednesday,

No. 244

December 21, 2022

Part III





Department of Housing and Urban Development





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24 CFR Parts 58 and 1005





Strengthening the Section 184 Indian Home Loan Guarantee Program; 
Proposed Rule

  Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / 
Proposed Rules  

[[Page 78324]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 58 and 1005

[Docket No. FR-5593-P-01]
RIN 2577-AD01


Strengthening the Section 184 Indian Home Loan Guarantee Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, U.S. Department of Housing and Urban Development (HUD).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the regulations governing the 
Section 184 Indian Home Loan Guarantee Program (``Section 184 
Program'') to fiscally strengthen the program by clarifying rules for 
Lenders, Tribes, and Borrowers. As the program has experienced an 
increase in demand, it now requires an update to the implementing 
regulations to minimize potential risk and increase program 
participation by financial institutions. This proposed rule strives to 
modernize and enhance the Section 184 Program by adding participation 
and eligibility requirements for Lenders and other financial 
institutions. This proposed rule would also clarify the rules governing 
Tribal participation in the program, establish underwriting 
requirements, specify rules on the closing and endorsement process, 
establish stronger and clearer servicing requirements, establish 
program rules governing claims submitted by Servicers and paid by HUD, 
and add standards governing monitoring, reporting, sanctions and 
appeals. This rule would add new definitions and make statutory 
conforming amendments, including the categorical exclusion of the 
Section 184 program in HUD's environmental review regulations. 
Ultimately, the changes made by this proposed rule would promote 
program sustainability, increase Borrower protections, and provide 
clarity for new and existing Lenders who participate in the program.

DATES: Comment Due Date: March 17, 2023.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule. All submissions and communications must refer to 
the above docket number and title. To receive consideration as public 
comments, comments must be submitted through one of two methods, 
specified below.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500. Due to security measures at all Federal 
agencies, however, submission of comments by mail often results in 
delayed delivery. To ensure timely receipt of comments, HUD recommends 
that comments submitted by mail be submitted at least two weeks in 
advance of the public comment deadline.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov website can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (fax) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at 
the above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). HUD welcomes and is prepared to 
receive calls from individuals who are deaf or hard of hearing, as well 
as individuals with speech and communication disabilities. To learn 
more about how to make an accessible telephone call, please visit 
https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments submitted by the due date will be available 
for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Krisa Johnson, Director, Office of 
Loan Guarantee, Office of Native American Programs, Office of Public 
and Indian Housing, Department of Housing and Urban Development, 451 
7th Street SW, Room 4108, Washington, DC 20410; telephone number 202-
402-4978 (this is not a toll-free number). HUD welcomes and is prepared 
to receive calls from individuals who are deaf or hard of hearing, as 
well as individuals with speech and communication disabilities. To 
learn more about how to make an accessible telephone call, please visit 
https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 184 of the Housing and Community Development Act of 1992 
(Pub. L. 102-550, approved October 28, 1992) (12 U.S.C. 1715z-13a), as 
amended by the Native American Housing Assistance and Self-
Determination Act of 1996 (Pub. L. 104-330, approved October 26, 1996), 
the 2013 Consolidated and Further Continuing Appropriations Act (Pub. 
L. 113-6, approved March 26, 2013), the 2015 Consolidated and Further 
Continuing Appropriations Act (Pub. L. 113-235, approved December 16, 
2014), and the Consolidated Appropriations Act, 2021 (Pub. L. 116-260, 
approved December 27, 2020) (Section 184 statute), authorize the 
Section 184 Program to provide access to sources of private financing 
to Indian families, Tribes and Tribally Designated Housing Entities 
(TDHEs) who otherwise could not acquire housing financing because of 
the unique legal status of Trust Land. The Section 184 Program provides 
HUD with the authority to provide access to sources of private 
financing for Indian families, Tribes and TDHEs that otherwise could 
not obtain private financing because of the unique legal status of 
Trust Lands by guaranteeing loans to eligible persons and entities. 
Since its inception, the number of loans guaranteed under the Section 
184 Program has significantly increased. At the same time, the program 
regulations have never been substantially revised to accommodate the 
exponential growth of the program. Generally, improvements on Trust 
Land, are alienable, but conditions and restrictions apply. 
Consequently, financial institutions may struggle with utilizing the 
land interest as Security in mortgage lending transactions. To address 
this concern, the Section 184 Program provides a loan guarantee to 
approved Direct Guarantee lenders in the event of Borrower default. The 
guarantee is paid from the Section 184 Loan Guarantee Fund (Fund) for 
up to 100 percent of the unpaid principal balance as well as any 
reasonable fees

[[Page 78325]]

and expenses approved by the Secretary.
    Following the enactment of Section 184 on August 18, 1994, HUD 
published an interim rule (59 FR 42732) codifying regulations for the 
Section 184 Program at 24 CFR part 955, and on March 6, 1996, HUD 
published a final rule (61 FR 9052). With the enactment of the Native 
American Housing Assistance and Self-Determination Act of 1996 
(NAHASDA), HUD published a final rule on March 12, 1998, implementing 
NAHASDA amendments to the Section 184 Program as well as re-designating 
24 CFR part 995 as 24 CFR part 1005 (63 FR 12334). On September 11, 
1998, HUD published an interim final rule (63 FR 48988) establishing a 
direct guarantee procedure similar to that in the Direct Endorsement 
Program under the Federal Housing Authority (FHA) single family 
mortgage insurance program. The interim final rule adopted procedures 
that permitted HUD to review and guarantee a loan after loan closing 
and made minimum changes to allow for any necessary administrative 
actions against approved Direct Guarantee Lenders. The final rule 
making these changes permanent was issued on April 19, 2002 (67 FR 
19491).
    The Fund receives annual appropriations to cover some of the 
program costs and charges and an upfront and annual fee to the borrower 
to support the remaining program costs. The demand for the program has 
increased steadily each year. In 1995, the first year of the program, 
HUD guaranteed less than 20 Section 184 Guaranteed Loans. Over the last 
10 years, HUD has consistently guaranteed thousands of loans worth 
hundreds of millions of dollars annually. To date, the Fund has 
guaranteed over $7.5 billion in loans. While the program has grown 
exponentially, the program regulations have not been substantially 
revised to reflect this significant growth. As the volume in the 
program increases, so does the risk to the Fund. The proposed 
regulations will help to mitigate the risk associated with this 
increased volume.
    The 2013 Consolidated and Further Continuing Appropriations Act 
(Pub. L. 113-6, approved March 26, 2013) (2013 Appropriations Act) 
amended section 184(d) of the Housing and Community Development Act of 
1992 to authorize HUD to increase the fee for the guarantee of loans up 
to 3-percent of the principal obligation of the loan and to establish 
and collect annual premium payments in an amount not exceeding one 
percent of the remaining guaranteed balance (excluding the portion of 
the remaining balance attributable to the fee collected at the time of 
the issuance of the guarantee). On March 5, 2014, HUD published a 
Federal Register Notice (79 FR 12520) announcing an increase in the 
one-time Loan Guarantee Fee that Borrowers pay at loan closing from a 
then-existing 1 percent to 1.5 percent of Guaranteed Loan amount. By 
Federal Register Notice published on October 7, 2014 (79 FR 60492), HUD 
exercised its new annual premium authority to implement an annual 
premium to the Borrower in the amount of 0.15 percent of the remaining 
loan balance until the unpaid principal balance, excluding the Upfront 
Loan Guarantee Fee, reaches 78 percent of the lower of the initial 
sales price or appraised value based on the initial Amortization 
Schedule. By Federal Register Notice published on November 1, 2016 (81 
FR 75836), HUD once again exercised its new annual premium authority to 
implement an annual premium to the Borrower in the amount of 0.25 
percent of the remaining loan balance. These new fees allowed HUD to 
meet the current demands of the Section 184 Program.
    The Consolidated and Further Continuing Appropriations Act (Pub. L. 
113-235) (approved December 16, 2014) (2015 Appropriations Act) amended 
Section 184(h)(1)(B) of the Housing and Community Development Act of 
1992 to require the exhausting of all reasonable possibilities of 
collection by the Holder of the guarantee, to include a good faith 
consideration of loan modification, and to meet standards for servicing 
Section 184 Guaranteed Loans in default, as determined by the 
Secretary.
    The Office of Audit of the HUD Office of Inspector General (OIG) 
audited the Section 184 Program and issued Audit Report Number: 2015-
LA-0002 on July 6, 2015. The report found that HUD did not adequately 
monitor, track, and evaluate participating Direct Guarantee and Non-
Direct Guarantee Lenders to ensure that loans guaranteed by the program 
were being underwritten in accordance with the Section 184 processing 
guidelines. The OIG gave many recommendations, including: HUD develop 
and implement policies and procedures for monitoring, tracking, 
underwriting, and evaluating the Section 184 Program; standardize 
monthly delinquency reports; deny payments for claims on loans that 
have material underwriting deficiencies; take enforcement actions 
against certain Direct Guarantee and Non-Direct Guarantee Lenders; and 
ensure that only underwriters that are approved by HUD are underwriting 
Section 184 Guaranteed Loans. The corrective action plan proposed by 
OIG and agreed upon by HUD includes the development of new regulations 
to provide additional structure to the program and a platform for 
policies and procedures to manage the program and address these 
findings.

II. This Proposed Rule

    As the Section 184 Program assists more eligible Borrowers and 
entities, the Fund faces more program expenses and increased risk. HUD 
is proposing these regulatory changes to make the program sustainable, 
protect Borrowers, address weaknesses identified by the OIG, provide 
clarity for new and existing Direct Guarantee and Non-Direct Guarantee 
Lenders, and reduce and eliminate inappropriate and unreasonable Claim 
payment requests from Servicers. This proposed rule is designed to 
strengthen and modernize the Section 184 Program, as well as protect 
the Fund. This proposed rule would enhance and fill the gap in the 
existing regulations by modifying and adopting industry standards and 
best practices, as well as relevant FHA regulations and guidance.
    This proposed rule would reorganize the Section 184 Program's 
regulations by removing outdated sections and replacing them with the 
following: definitions, eligibility requirements for Lenders, rules 
governing participation by Indian Tribes, underwriting requirements, 
rules on the closing and endorsement process, loan fees, servicing 
requirements submission of Claims, and standards governing monitoring, 
reporting, sanctions and appeals.

Proposed Organization of New Part 1005

    This rule proposes to divide HUD's regulations in 24 CFR part 1005 
in nine subparts: Subpart A would comprise of general program 
requirements; subpart B would discuss Lender and eligibility 
requirements; subpart C would cover requirements for Tribal 
participation; subpart D would contain underwriting requirements for 
eligible Borrowers, eligible Properties, and loan types; subpart E 
would include requirements for closing a Section 184 Guaranteed Loan 
and receiving endorsement approval from HUD; subpart F would provide 
the requirements for calculation, collection, and submission of the 
Section 184 Guaranteed Loan fees; subpart G would cover the 
requirements for Servicers to manage Section 184 Guaranteed Loans and 
steps to take when a Section 184 Guaranteed Loan is in default; subpart 
H would contain the requirements to submit Claims on Section 184 
Guaranteed Loans; and subpart I would include report requirements and 
sanctions to for

[[Page 78326]]

noncompliance with Section 184 Program regulations. Unless otherwise 
noted in this proposed rule, HUD is proposing to codify current 
practices. Where a section is a new requirement, it is noted.
A. General Program Requirements (Subpart A)
    Purpose Sec.  1005.101. Section 1005.101 would address the purpose 
of the part 1005 regulations and provide that the regulations in part 
1005 implement the Section 184 Program.
    Definitions Sec.  1005.103. The proposed rule includes definitions 
for the terms found in the existing Section 184 Program regulations, 
which HUD has revised to better reflect how the terms are currently 
used by the Section 184 Program or to reflect policy shifts: 
``default,'' ``Indian,'' ``property,'' ``Section 184,'' and ``Trust or 
Restricted Land''. In the proposed regulations, the term ``Section 
184'' is further revised to ``Section 184 Guaranteed Loan,'' and the 
term ``Trust or Restricted Land'' is further revised to ``Trust Land''.
    The proposed rule does not include the terms ``Mortgage'' and 
``Mortgagee'', which were previously used in the existing regulation, 
because the terms are no longer used in the program and are obsolete. 
These terms are replaced by the terms ``Loan'' and ``Lender,'' 
respectively, as currently proposed in Sec.  1005.103.
    Additionally, HUD has included new terms that are commonly used by 
the Section 184 Program in practice. This regulation would formalize 
these definitions for the program. The following terms would provide 
clarity and ensure consistency in the implementation of the various 
parts of the Section 184 Program regulations: ``Acquisition Cost,'' 
``Amortization,'' ``Amortization Schedule,'' ``Annual Loan Guarantee 
Fee,'' ``BIA,'' ``Borrower,'' ``Claim,'' ``Conflict of Interest,'' 
``Date of default,'' ``day,'' ``Direct Guarantee Lender,'' ``Eligible 
Nonprofit Organization,'' ``Financial Statements'' ``Firm Commitment,'' 
``First Legal Action,'' ``Good and Marketable Title,'' ``Holder,'' 
``Identity of Interest,'' ``Indian Family,'' ``Indian Housing Loan 
Guarantee Fund,'' ``lease or leasehold interest,'' ``Lender,'' 
``Loan,'' ``Loan Guarantee Certificate,'' ``Loan Guarantee Fee,'' 
``Loss Mitigation,'' ``month or monthly,'' ``Non-Direct Guarantee 
Lender,'' ``Origination or originate,'' ``Owner of Record,'' ``Partial 
Payment,'' ``Section 184 Guaranteed Loan,'' ``Section 184 Approved 
Program Area,'' ``Section 184 Program Guidance,'' ``Security,'' 
``Servicer,'' ``Sponsor,'' ``Sponsored Entity,'' ``Tax-exempt bond 
financing,'' ``Title Status Report,'' ``Tribe,'' ``Tribally Designated 
Housing Entity (TDHE),'' ``Trust Land,'' and ``Upfront Loan Guarantee 
Fee.''
B. Lender Eligibility & Requirements (Subpart B)
    This subpart includes Lender eligibility and the application 
process to participate in the Section 184 Program as a Non-Direct 
Guarantee or Direct Guarantee Lender.
    Lender approval and participation Sec.  1005.201. This section 
describes the two types of Lenders approved to participate in the 
Section 184 Program: Lenders deemed approved by statute and Lenders 
approved by HUD. This section would require that Lenders submit to HUD 
an application for participation in accordance with the level of 
activity a Lender wants to engage in, as prescribed by Section 184 
Program Guidance. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Lenders deemed approved by statute Sec.  1005.203. This section is 
a restatement of what is an eligible Lender under the statute. In 
response to comments received during Tribal consultation, this section 
specifically references Community Development Financial Institutions 
(CDFIs) as being included as a `Lender approved by statute.' This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Lenders required to obtain Secretarial approval Sec.  1005.205. 
This section addresses qualifications for participation in HUD's 
Section 184 Program if a Lender is not approved under the statutory 
approved listed in Sec.  1005.203. A Lender would be required to submit 
an application, as prescribed by Section 184 Program Guidance, for HUD 
to determine the capacity of the financial institution to participate 
in the Section 184 Program. This application would include establishing 
a Lender's qualifications based on the following: business formation 
verification, certifications related to employees and officers, 
Financial Statements, quality control plan, identification of branch 
offices, certification of conflict and interest, licensing 
certification, verification of minimum net worth, and identification of 
operating area. HUD will review documentation submitted under this 
section and make a determination if the requesting financial 
institution is qualified to be a Lender under the Section 184 Program. 
If a Lender is approved to participate in the Section 184 Program, HUD 
would send written notification of approval. If HUD determines that the 
Lender does not meet the requirements of subpart B, HUD would send 
written notice of the denial, which may be appealed to HUD in 
accordance with the appeal procedure set forth in the regulation.
    Lender participation options Sec.  1005.207. This section describes 
the two levels of Lender participation in the Section 184 Program, Non-
Direct Guarantee Lender and Direct Guarantee Lender, along with the 
allowed eligible activities for each level of participation. This 
section proposes to establish a new requirement that eligible Lenders 
must select their desired participation level by submitting an 
application to HUD. A participation level must be selected by the 
Lender and approved by HUD before initiating any Section 184 program 
activities.
    Direct Guarantee Lender application process Sec.  1005.209. This 
section details the application requirements for Lenders to apply to 
become a Direct Guarantee Lender in the Section 184 Program. These 
proposed requirements HUD believes are necessary to ensure that Direct 
Guarantee Lenders meet certain minimum requirements including having a 
certain level of experience in origination, underwriting, and servicing 
of mortgage loans. Additionally, Lenders must submit a quality control 
plan.
    Direct Guarantee Lender approval Sec.  1005.211. This section 
addresses what constitutes HUD approval for Lenders applying to 
participate in the Section 184 Program as a Direct Guarantee Lender 
under Sec.  1005.209. This section addresses the process HUD would 
follow to notify Lenders of their approval as Direct Guarantee Lenders 
under the program. HUD would provide written notification to the 
Lender, and the Lender would need to certify to being in compliance 
with all program requirements and agree to ensure that any Sponsored 
Entities also comply with all program requirements. This section is an 
addition to HUD's current practice.
    Non-Direct Guarantee Lender application, approval, and Direct 
Guarantee Lender sponsorship Sec.  1005.213. This section describes the 
sponsorship relationship between a Direct Guarantee Lender and a Non-
Direct Guarantee Lender and the general responsibilities of a Direct 
Guarantee Lender as the Sponsor. Each Sponsor is responsible to HUD for 
the actions of the Sponsored Entity and must ensure that HUD records 
remain up to date by informing HUD regarding any changes of the 
Sponsored Entity. This section

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seeks to align with HUD's current practice.
    Annual reporting requirements Sec.  1005.215. This section would 
require annual reporting on Section 184 Guaranteed Loan performance 
data from Direct Guarantee Lenders, their Sponsored Entities. It also 
provides for HUD to establish additional annual reporting requirements 
as provided in Section 184 Program Guidance. The section would be a new 
requirement to track the performance of the program and participating 
Direct and Non-Direct Guarantee Lenders to ensure the protection of the 
Fund.
    Quality control plan Sec.  1005.217. This section proposes to 
implement the requirement that Lenders participating in the Section 184 
Program have a written quality control plan and the contents of that 
plan. The purpose of the quality control plan is to ensure Lender 
compliance with Section 184 Program requirements and protect HUD and 
the Lenders from unacceptable risks. A Lender would be required to 
adopt and implement a quality control plan that fully complies with 
Section 184 Program Guidance. This requirement incorporates existing 
Quality Control Plan policies and adds new requirements, such as 
paragraphs (c) and (d) in Sec.  1005.217.
    Other requirements Sec.  1005.219. This section describes proposed 
additional Direct Guarantee Lender and Non-Direct Guarantee Lender 
requirements, including compliance with pertinent Tribal, Federal, and 
State, and laws, dual employment, reporting requirements, records 
retention, all of which are proposed to place in regulations current 
program policy, practice, and/or procedure.
    This section also includes a proposed new requirement that HUD may 
set for lenders a minimum level of lending on Trust Land. While this 
program was designed to bring mortgage capital to Trust Lands, the 
majority of loans guaranteed by the Program are made on fee simple 
land. In order to address this concern, this rule proposes to set forth 
a new requirement for lenders participating in the program to actively 
market, originate, and underwrite loans on Trust Land. HUD is 
interested in increasing lending on Trust Land to further the 
objectives of the Section 184 Program and provide additional 
homeownership opportunities on Trust Lands. In this section, HUD 
proposes to set, by Federal Register, a minimum lending amount for 
direct guarantee lenders on Trust Lands. All Lenders would be required 
to ensure that they comply with these additional requirements to remain 
as a participant in the program. While HUD is not proposing a specific 
minimum level of lending on Trust Land in this proposed rule, HUD is 
interested in receiving feedback on what this minimum level of lending 
should be and if such minimum requirement would help with the 
underlying goal of the provision.
    Business change reporting Sec.  1005.221. This section would 
require Lenders participating in the Section 184 Program to notify HUD 
within a timeframe as prescribed by Section 184 Program Guidance of any 
changes in a Lender's legal structure or staffing or any new sanctions 
against the Lender. HUD is proposing to require this notification to 
reduce risk and monitor the stability of the lender.
    Annual recertification Sec.  1005.223. This section would implement 
the mandatory submission of an annual recertification by all Direct 
Guarantee and Non-Direct Guarantee Lenders, as prescribed by Section 
184 Program Guidance. HUD is proposing to require recertification to 
ensure that Direct Guarantee and Non-Direct Guarantee Lenders continue 
to meet program eligibility requirements and to reduce the risk to HUD 
and the Fund. This section also would require the Direct Guarantee 
Lender and Non-Direct Guarantee Lender to submit Financial Reports and 
updated contact information. This section is consistent with HUD's 
current practice.
    Program ineligibility Sec.  1005.225. This section describes the 
circumstances under which HUD would determine that a Direct Guarantee 
Lender or Non-Direct Guarantee Lender is ineligible to participate the 
Section 184 Program. This section is intended to reduce risk to the 
Fund as well and align with current industry standards.
C. Lending on Trust Land (Subpart C)
    This subpart proposes requirements for Tribal participation in the 
Section 184 Program when Tribes want to make Trust Land or Restricted 
Fee Land available under the Section 184 Program. This section requires 
a partnership between HUD, the Tribe, the Direct Guarantee Lender, 
Servicer and the Borrower. The Tribe is a critical partner in the 
ability of the program to operate on Tribal Lands. For the program to 
operate on Trust Lands, certain Tribal ordinances must be in place. 
Tribes interested in participating in the Program would be required to 
submit to HUD evidence of the required legal and administrative 
framework necessary to ensure HUD or the Servicer have the ability to 
enforce the lien in case of default.
    Tribal legal and administrative framework Sec.  1005.301. This 
section outlines the legal and the administrative framework necessary 
when a Tribe seeks to allow eligible Borrowers place a mortgage lien on 
Trust Land under the Section 184 Program. The proposed rule would 
specify requirements governing foreclosure and assignments, property 
disposition, eviction procedures, lien priority, and leasing, which are 
an addition to the regulation to codify current policy, practice and/or 
procedure. These requirements are necessary to protect Borrowers, 
Tribes, TDHEs, Lenders and the Fund from unnecessary financial risks. 
This section proposes new language to be included in the Tribal lease 
that would allow a Tribe to assign the lease to HUD, and HUD would 
transfer the lease to a successor lessee, as approved by the Tribe. 
This language has been added because there have been instances when a 
Borrower is in default, their Section 184 Guaranteed Loan has been 
assigned to HUD, and the Borrower has vacated the property before 
foreclosure. The Tribe, THDE or a trial member is interested in 
purchasing the property, but the sale cannot happen because the 
defaulted Borrower remains on the lease. The proposed language gives 
the Tribe the authority to assign the lease to HUD so the sale of the 
property can move forward without having to wait until HUD obtains the 
lease through foreclosure.
    Tribal application Sec.  1005.303. This section includes the 
application requirements for Tribes interested in bringing the Section 
184 Program to their Trust Lands. The application must include a copy 
of documents related to the Tribe's legal and administrative framework, 
including but not limited to a Tribe's foreclosure, eviction, lease, 
and priority lien ordinances, all cross-referenced ordinances in those 
sections, and any other documents in accordance with Section 184 
Program Guidance. HUD is proposing this section to ensure that Tribes 
have the necessary legal structure in the event of a default on Trust 
Land and to ensure that HUD is provided first lien priority.
    Approval of Tribal application Sec.  1005.305. This section would 
specify that HUD will provide written notification to Tribes upon the 
completion of its review of a Tribe's application submitted in 
accordance with Sec.  1005.303 and would provide the opportunity for 
Tribes to resubmit missing, incomplete, or deficient applications. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.

[[Page 78328]]

    Tribal recertification Sec.  1005.307. This section would implement 
the mandatory submission of an annual recertification by all Tribes 
participating in the Section 184 Program and the contents of such 
recertification, in accordance with Section 184 Program Guidance. HUD 
proposes to require recertification to ensure that the Tribe continues 
to meet program eligibility requirements. This section would also 
require the Tribe to update contact information. This proposed section 
is intended to keep current on Tribal contacts and to confirm that 
there have been no changes to relevant ordinances and the Tribal lease.
    Duty to report changes Sec.  1005.309. This section would require 
Tribes participating in the Section 184 Program to report to HUD any 
current changes in the Tribe's contact information, or proposed changes 
to foreclosure, eviction lease and lien priority ordinances. This 
section is a new requirement to ensure HUD notification of these 
changes and to reduce the risk to HUD and the Fund.
    HUD Notification of any lease default Sec.  1005.311. This section 
would mandate, when there is any default of the lease by the Borrower, 
including a nonpayment of leasehold rent, the lessor shall notify HUD 
within 30 days of default, or as set forth in the lease agreement. This 
section is proposed to ensure notification of a delinquency to HUD and 
allow HUD to explore early Loss Mitigation actions and to reduce the 
risk of potential loss to the Fund.
    Tribal reporting requirements Sec.  1005.313. This section provides 
HUD with the ability to require Section 184 program-related reports 
from Tribes approved under Sec.  1005.305. HUD intends to use this new 
requirement as a placeholder in the event, at a future date, HUD is in 
need of Section 184 Program information from approved Tribes that is 
not anticipated in Sec. Sec.  1005.307 and 1005.309. If HUD determines 
additional information the Section 184 Program from Tribes is needed, 
it would publish these requirements in Section 184 Program Guidance and 
complete the necessary Paperwork Reduction Act process requesting input 
on the additional burden associated with the requested reports.
D. Underwriting (Subpart D)
    This subpart includes the requirements for a loan to be guaranteed 
by the Section 184 program. The subpart is organized into four 
sections: eligible Borrowers, eligible Properties, eligible loans, and 
underwriting.
    Eligible Borrowers Sec.  1005.401. This section provides that to be 
eligible to participate in the Section 184 Program, a Borrower must be 
an Indian Family, Indian Tribe, or TDHE. This section would require an 
Indian Family to document its status as American Indian or Alaska 
Native through evidence as prescribed by Section 184 Program Guidance. 
This section is a revision of the language found in Sec.  1005.105(b) 
of the current regulations; the existing regulation is proposed to be 
moved into a new section and aligns with current procedures.
    Principal Residence Sec.  1005.403. This section sets forth the 
occupancy requirements for Borrowers in relation to the property 
interest that secures the Section 184 Guaranteed Loan. HUD also defines 
the qualifications for a non-occupant Co-Borrower. As the program has 
evolved, it has allowed for non-occupant co-Borrowers as a way to 
expand homeownership opportunities for Borrowers who may need 
assistance with their mortgage and have a family member willing to take 
on the financial responsibility for the Section 184 Guaranteed Loan. 
Non-occupant co-Borrowers must be related by blood, or be able to 
document a family-type, longstanding, and substantial relationship not 
arising out of the loan transaction. This section is a revision of 
existing Sec.  1005.105(b)(1).
    Borrower residency status Sec.  1005.405. This section describes 
the residence status requirements to be considered an eligible Borrower 
in the Section 184 Loan Guarantee program. In addition to the 
requirements set forth in Sec.  1005.401, an eligible Borrower must be 
a U.S. citizen; lawful permanent resident alien; or a non-permanent 
resident alien. Documentation to support the lawful residency status 
must be provided. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Relationship of income to loan payments Sec.  1005.407. This 
section provides that a Borrower's income must be sufficient to cover 
the costs of Section 184 Guaranteed Loan payments plus any other long-
term obligations. This section also describes the requirement for a 
minimum qualifying threshold when an eligible Borrower has a co-
Borrower that will not occupy the home. Additionally, HUD also would 
require that the determination of the adequacy of a Borrower's income 
be free from discrimination. In particular, this section adds new 
language requiring that the determination of adequacy of Borrower 
income shall be made without regard to, among other things, Borrower's 
source of income or location of the property. HUD believes these two 
proposed non-discrimination provisions further the statutory purpose of 
the program to ``provide access to sources of private financing to 
Indian families, Indian housing authorities, and Indian tribes, who 
otherwise could not acquire housing financing because of the unique 
status of Indian lands.'' 12 U.S.C. 1715z-13a(a). With respect to the 
proposed prohibition of discrimination based on the Borrower's source 
of income, HUD seeks to address instances where lenders may disapprove 
of the Borrower's income streams related to Borrower's Tribal status 
(such as Tribal payments a Borrower may receive from his or her Tribe 
or from traditional tribal income sources). With respect to the 
proposed prohibition of discrimination based on property location, HUD 
seeks to address instances where lenders may decide to only approve 
loans involving fee simple properties and uniformly reject loan 
applications solely because Borrower chooses to finance a home on 
Tribal trust property. Other than the newly added provisions regarding 
non-discrimination based on property location and sources of income, 
this section is consistent with current practice, policy, and/or 
procedure.
    Credit standing Sec.  1005.409. This section is proposing, 
consistent with current policy and practice, that no minimum credit 
score is required to qualify for a Section 184 Guaranteed Loan. 
However, Direct Guarantee Lenders are required to analyze the 
Borrower's credit history and payment patterns to determine credit 
worthiness. This section also revises the existing guidance that if a 
Borrower previously defaulted on a Section 184 Guaranteed Loan, they 
are ineligible to apply for another Section 184 Guaranteed Loan. To 
conform with industry practice, HUD is proposing that these Borrowers 
may apply for a Section 184 Guaranteed Loan after a waiting period as 
prescribed by HUD.
    Disclosure and verification of Social Security and Employer 
Identification Numbers or Tax Identification Number Sec.  1005.411. 
This section would require that Borrowers must meet the requirements 
for the disclosure and verification of social security, employer and 
tax identification numbers. Disclosure and verification of this 
information minimizes fraud and adds protections for the Fund and is 
consistent with HUD's current practice, policy, and/or procedure.
    Acceptable title Sec.  1005.413. To be considered acceptable title, 
a Section 184 Guaranteed Loan must be on real estate held in fee simple 
land or Trust Land. Where title evidences a lease that

[[Page 78329]]

is used in conjunction with the Section 184 Guaranteed Loan, the lease 
must comply with Sec.  1005.301, and must have a remaining term which 
exceeds the maturity date of the Section 184 Guaranteed Loan by ten 
years. This proposed section is consistent with current program policy, 
practice, and/or procedure.
    Sale of property Sec.  1005.415. This section would require that 
the property be purchased from the Owner of Record and that the Direct 
Guarantee Lender provide evidence of ownership. Additionally, this 
section would establish the requirements for documentation and timing 
restrictions on property re-sales to prevent flipping of the property 
for financial gain by the Borrower. This proposed section is consistent 
with current program policy, practice, and/or procedure.
    Location of property Sec.  1005.417. This section would establish 
that a property must be used for residential purposes and be located 
within an approved Section 184 Approved Program Area to be eligible for 
a Section 184 Guaranteed Loan. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Requirements for standard housing Sec.  1005.419. This proposed 
section lists the minimum required property standards for properties 
under the Section 184 Program. This section also explains environmental 
review requirements and responsibilities and includes requirements for 
flood insurance, the Coastal Barrier Resource System and Special 
Airport Hazards. With respect to minimum required property standards, 
this proposed section requires the property to be: decent, safe, 
sanitary and modest in size and design, conform with applicable general 
construction standards for the region, containing a heating system, 
contain a plumbing system, contain an electrical system, meet minimum 
square footage requirements, and conform with energy performance 
requirements for new construction. This proposed section revises 
existing Sec.  1005.111(a) consistent with current practices, policies, 
and/or procedures.
    Certification of appraisal amount Sec.  1005.421. This section 
would require the contract for sale to be satisfactory to HUD and where 
the seller agrees to provide a certification of appraisal establishing 
the amount of the appraised value of the property. This protects the 
Borrower and the Fund by ensuring the guaranteed loan is secured by a 
property where the true value has been established. This proposed 
section is consistent with current program policy, practice, and/or 
procedure.
    Legal restrictions on Conveyance Sec.  1005.423. This section 
proposes to define and establish permitted legal restrictions that may 
be placed on a property guaranteed by a Section 184 loan. This section 
would allow for restrictions on Conveyance only to enrolled Tribal 
members when the property is located on Trust Land, the acceleration of 
a mortgage subject to tax exempt bond funding where it no longer meets 
the Federal requirements, and property with approved restrictions 
established for occupancy for the elderly. This regulation would 
provide Tribes with the maximum flexibility available to best serve 
their Tribal members. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Rental properties Sec.  1005.425. This section proposes the 
conditions under which a Section 184 Guaranteed Loan may be used to 
purchase a one- to four-family unit property where one unit will be 
owner occupied and the additional units may be rented. This section 
clarifies that one- to four-family unit Properties owned by the Tribe 
or TDHE will not be subject to the same conditions. This section 
clarifies the two allowable exceptions to the Principal Residence 
requirements in Sec.  1005.403 and is consistent with current program 
policy, practice, and/or procedure.
    Refinancing Sec.  1005.427. This section proposes to include the 
criteria to refinance a qualified loan under the Section 184 Program 
and presents the three types of allowable refinance transactions: Rate 
and Term, Streamline and Cash Out. This section would require a maximum 
term for the new loan to be 30 years and a payment history on the 
existing loan that meets the standards established by HUD. It would 
also prohibit Lenders from requiring a minimum outstanding principal 
amount on the existing loan and clarifies the treatment of financed 
Upfront Loan Guarantee Fees. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Eligibility of Loans covering manufactured homes Sec.  1005.429. 
This section provides eligibility requirements for the financing of 
one-family manufactured homes. This section would establish the minimum 
square footage for a unit, the requirement to meet the National 
Manufactured Home Construction and Safety Standards and have a 
certification label, and the requirement of siting on a permanent 
foundation that meets the applicable installation standards and adheres 
to the manufacturer's installation instructions. This regulation is 
required to ensure the safety of the Borrower and the value of the 
collateral. This proposed section is consistent with current program 
policy, practice, and/or procedure and would align with FHA standards.
    Acceptance of individual residential water purification Sec.  
1005.431. This section proposes requirements for properties that do not 
have access to a continuing supply of safe and potable water, without 
use of a water purification system. It would require the applicable 
official's specification of the water purification equipment approval 
standard, certification by Tribal, State or health authority, and 
Borrower notices and certification. This section would require a 
certification by a Tribal, State, or local health authority that it has 
determined the water supply meets the entity's quality standards for 
drinking water. Additionally, this section would require written 
notification to the Borrower when the contract is ratified that the 
property does not have access to a continuing supply of safe and 
potable water without a purification system, a water safety report 
identifying contaminants and associated health hazards, and a good 
faith estimate of maintenance and replacement costs. The Borrower must 
sign a certification they have received all of this information prior 
to underwriter approval. This regulation would provide the Borrower 
with full disclosure of maintenance and upkeep costs of an individual 
water purification system and health and safety provisions. This 
proposed section is consistent with current program policy, practice, 
and/or procedure and would align with industry standards.
    Builder warranty Sec.  1005.433. This section proposes that a 
builder must submit a warranty that the property is constructed in 
substantial conformity with the plans and specifications for newly 
constructed Properties guaranteed by the Section 184 Program. This 
proposed section is consistent with current program policy, practice, 
and/or procedure and would align with industry standards.
    Eligible collateral Sec.  1005.435. This section proposes what 
collateral is acceptable for a Section 184 Guaranteed Loan. The 
proposed section would require that the collateral be authorized and 
not prohibited by Tribal, Federal, State, or local law and must be 
sufficient to cover the amount of the loan as determined by the Direct 
Guarantee Lender and approved by HUD. This section would revise 
existing Sec.  1005.107 of the current regulations and be consistent 
with current practices, policies, and/or procedures.

[[Page 78330]]

    Loan provisions Sec.  1005.437. This proposed section provides the 
details for loan provisions required for a Section 184 Guaranteed Loan, 
including loan form, loan multiples, loan payments, loan maturity, 
property standards, disbursements and prepayment. This section would 
revise existing Sec.  1005.105(a).
    Loan lien Sec.  1005.439. This section proposes lien requirements 
for a Section 184 Guaranteed Loan. After the loan offered for guarantee 
has been recorded, the property must be free and clear of any other 
liens, unless prior approval has been granted by HUD for a junior lien. 
This section proposes conditions for a junior lien, which covers 
periodic payments, ability to pay considerations, loan to value 
limitations, prohibition of balloon payments earlier than 10 years, 
requirement for the junior lien to be due and payable upon sale or 
refinance of the Section 184 Guaranteed Loan, and the acceptability of 
prepayments at any time without the requirement for a prepayment 
penalty. In addition, a junior lien may be provided as a means to 
reduce that Borrower's monthly payments. This type of junior lien would 
require pre-approval from HUD, shall not require the payment of any 
principal or interest until the property securing the junior lien is 
sold or the Section 184 Guaranteed Loan is refinanced, and shall not 
require principal and interest payments, so long as the property is 
owner occupied and, where applicable, shall provide forgiveness of the 
junior lien at the end of the term. Lastly, if a junior lien is related 
to tax exempt bond financing or low-income housing tax credits, HUD 
approval is also required. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Section 184 Guaranteed Loan limit Sec.  1005.441. This section 
would establish HUD's authority to set the maximum loan limits for 
Section 184 Approved Program Areas. HUD may revise these maximum limits 
periodically. This proposed section is consistent with current program 
policy, practice, and/or procedure.
    Loan amount Sec.  1005.443. This section proposes the minimum 
required investment from the Borrower based on the difference between 
the sales price and the base loan amount. It also would provide the 
methodology for calculating the base loan amount and would establish 
the maximum and minimum principal loan amounts. This investment must 
come from the Borrower's own funds, gifts, or Tribal, State, or local 
funds awarded to the Borrower. The regulation is required to balance 
the risk to the Fund and the unique requirements of Native American 
Borrowers. This proposed section is consistent with current program 
policy, practice, and/or procedure.
    Case numbers Sec.  1005.445. This section explains when and how to 
obtain a Section 184 case number. Direct Guarantee Lenders must have an 
active loan application for a Borrower and a specific property. The 
case number request must include proof of Tribal enrollment or Alaska 
Native status, verification that the property is located in a Section 
184 Approved Program Area, confirmation that the Loan does not exceed 
the Section 184 Loan Limit, and be submitted in manner prescribed in 
the Section 184 Program Guidance. Case numbers will be automatically 
cancelled after a period identified by HUD if a reservation of funds 
request is not received and processed by HUD. HUD may allow for the 
extension as prescribed. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Maximum age of Loan documents Sec.  1005.447. This section proposes 
the maximum age of loan documents at the time of underwriting and loan 
closing. Documents reviewed at underwriting may not be older than 60 
days and all documents may not be more than 120 days old at closing. 
Certain documents will be exempt from these time frames if they are not 
affected by the passage of time. This proposed section is consistent 
with current program policy, practice, and/or procedure.
    Qualified mortgage Sec.  1005.449. This section explains that 
Section 184 Guaranteed Loans are afforded safe harbor as qualified 
mortgages that meet the ability-to-pay requirements. This section is a 
revision of the existing Sec.  1005.120 and conforms to current 
practices, policies, and/or procedures.
    Agreed interest rate Sec.  1005.451. This section would require 
that a Loan must have an interest rate that is agreed upon by the 
Direct Guarantee Lender and Borrower and is determined by HUD to be 
reasonable. This regulation is necessary to ensure Borrowers are not 
being charged inflated interest rates attributable to risk-based 
pricing for minimum loan amounts, credit scores, or other risks, when 
the Direct Guarantee Lender is receiving a 100 percent guarantee 
against any loss due to default. This risk-based pricing requirement 
would be a new requirement and is intended to protect the Borrower from 
inflated interest rates, which may impact loan performance and the 
Fund.
    Amortization provisions Sec.  1005.453. This section proposes that 
a Loan's Amortization provisions be satisfactory to HUD, monthly 
payments by the Borrower, and that the principal and interest payments 
each month shall be substantially the same. This section is a revision 
of existing Sec.  1005.105(a) and is consistent with current practices, 
policies, and/or procedures.
    Direct guarantee underwriting Sec.  1005.455. This section outlines 
proposed requirements for direct guarantee underwriting including 
underwriter due diligence, evaluation of the Borrower, and assumptions. 
This section is a revision of the existing Sec.  1005.106(a), outlining 
the direct guarantee procedure. Direct Guarantee underwriters must 
exercise the same level of due diligence as if they were entirely 
dependent on the property as Security to protect their investment. An 
acceptable quality control plan and compliance with HUD prescribed 
underwriting guidelines are the minimum standard of due diligence. 
Direct Guarantee underwriters shall evaluate the Borrower's credit 
characteristics, adequacy, and stability of income to make payments on 
all obligations and the available assets. This section also would 
require all assumptions of an existing Section 184 Guaranteed Loan be 
underwritten using the same Borrower eligibility and underwriting 
standards in this subpart. This section is consistent with current 
program policy, practice, and/or procedure.
    Appraisal Sec.  1005.457. This section would establish the 
requirement for the appraisal of a property to be used to obtain a 
Section 184 Guaranteed Loan, the selection of an appraiser, appraisal 
standards, validity period for appraisals, possible extensions of the 
validity period, and possible sanctions when the requirements listed 
under the section are not met. A property appraisal for the Section 184 
Program must be done in accordance with the Uniform Standards of 
Professional Appraisal Practice and the Fair Housing Act (42 U.S.C. 
3601-19); however, HUD may establish alternative requirements in 
Section 184 Program Guidance. The Direct Guarantee Lender must select 
an appraiser currently on the FHA Appraiser Roster and the Direct 
Guarantee Lender must not discriminate in its selection of the 
appraiser. The appraiser must be knowledgeable in the market where the 
property is located. The appraisal and related documents must satisfy 
FHA, Fannie Mae, or Freddie Mac requirements. In addition, the Direct 
Guarantee Lender may be subject to sanctions permitted under

[[Page 78331]]

Sec.  1005.907 for submitting an appraisal that does not meet the 
requirements described. This proposed section would codify current 
program policy, practice, and/or procedure and aligns with industry 
standards.
    Loan submission to HUD for Direct Guarantee Sec.  1005.459. This 
section proposes a 60-day timeframe in which an endorsement case binder 
must be sent to HUD after closing. This section also outlines the 
additional documentation required for a late submission greater than 60 
days after closing. The Direct Guarantee Lender would be required to 
submit a late endorsement request with documentation affirming the loan 
is not currently in default, all escrow accounts are current, all loan 
guarantee fees are current, and a statement that neither the Direct 
Guarantee Lender nor its agents have provided funds to bring or keep 
the loan current or bring about the appearance of a satisfactory 
payment history. This proposed section is consistent with current 
practices, policies, and procedures. This section does propose an 
exception to the proposed current endorsement practice, which provides 
that with prior approval from HUD, consistent with Section 184 program 
guidance, the Direct Guarantee Lender or Servicer may provide funds to 
bring or keep the Section 184 Guaranteed Loan current in the event the 
Borrower agrees to Loss Mitigation before HUD provides endorsement, as 
the case with some Borrowers during the COVID-19 National Emergency.
    HUD issuance of Firm Commitment Sec.  1005.461. This section 
proposes that HUD may underwrite, consistent with specific underwriting 
criteria, and issue a Firm Commitment. This proposed section is 
consistent with HUD's current practice, policy, and/or procedure.

E. Closing and Endorsement (Subpart E)

    This subpart includes requirements for closing a Section 184 
Guaranteed Loan and receiving endorsement approval from HUD. The 
subpart is organized into two sections: closing, and endorsement and 
post-closing.
    Direct Guarantee Lender closing requirements Sec.  1005.501. This 
section would provide the required documentation for closing a loan 
under the program, including: chain of ownership, title search and 
Title Status Report, closing in compliance with Direct Guarantee Lender 
approval, closing in the Lender's name, required forms and language in 
documents, projected escrow, closing costs and fees, per diem interest 
and interest credits, Borrower authorization of Tribal notice, 
signatures, and other requirements. This documentation is necessary to 
ensure that the Loan may be eligible for a Loan Guarantee under the 
program. This proposed section is consistent with current program 
policy, practice, and/or procedure.
    Contents of endorsement case binder Sec.  1005.503. This section 
proposes HUD requirements for the contents of the endorsement case 
binder. The endorsement case binder is required by HUD and includes 
certain documentation necessary for HUD to determine program compliance 
and to issue a Loan Guarantee Certificate to the Lender. The actual 
contents of the endorsement case binder shall be in a format as 
prescribed by Section 184 Program Guidance. This proposed section is 
consistent with current program policy, practice, and/or procedure.
    Payment of Upfront Loan Guarantee Fee Sec.  1005.505. This section 
would require the Direct Guarantee Lender to provide evidence of the 
remittance of the Upfront Loan Guarantee Fee, as required under Sec.  
1005.607. This proposed section is consistent with current program 
policy, practice, and/or procedure.
    Borrower's payments to include other charges and escrow payments 
Sec.  1005.507. This section proposes the charges and escrow payments 
that the Direct Guarantee Lender must include as part of the Section 
184 Guaranteed Loan monthly payment. This section also proposes how 
these payments should be managed by the Lender and disallows the 
recovery from the Borrowers of payment of additional premiums to 
protect the interest of the Lender. This proposed section is consistent 
with current program policy, practice, and/or procedure.
    Application of payments Sec.  1005.509. This section would require 
that all monthly payments made by the Borrower to the Servicer shall be 
aggregated into a single monthly payment, and that the Servicer shall 
apply the Borrower's funds in accordance with Sec.  1005.715. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Late fee Sec.  1005.511. This section would establish the ability 
for a Servicer to charge a late charge to the Borrower when a Section 
184 Guaranteed Loan payment is 15 or more days in arrears. It also 
would establish maximum late charge of four percent of the overdue 
payment of principal and interest, or any other amount as established 
by HUD through public notice with an opportunity for comment. This 
section is intended to provide a deterrent for the Borrower to make 
payments outside of the applicable payment period and to reduce risk to 
the Direct Guarantee Lender and the Fund. This proposed section is 
consistent with current program policy, practice, and/or procedure.
    Borrower's payments when Section 184 Guaranteed Loan is executed 
Sec.  1005.513. This section outlines what payments from what parties 
are required upon execution of the Section 184 Guaranteed Loan, 
including the one-time Upfront Loan Guarantee Fee or any portion 
payable pursuant to Sec.  1005.603; and all other applicable monthly 
charges pursuant to Sec.  1005.507, including the annual Section 184 
Guaranteed Loan fee pursuant to Sec.  1005.607, covering the period 
from the closing date to the due date of the first installment payment 
under the Section 184 Guaranteed Loan. This proposed section is 
consistent with current program policy, practice, and/or procedure.
    Charges, fees, or discounts Sec.  1005.515. This section proposes a 
list of allowable charges, fees, or discounts a Direct Guarantee Lender 
may collect from the Borrower at Origination of a Section 184 
Guaranteed Loan. These charges/fees include costs to cover origination 
and closing; recording fees and recording taxes; credit report; survey; 
title examination; title insurance premium and any appraisal or 
inspection; such other reasonable and customary charges as may be 
authorized by HUD; reasonable and customary charges in the nature of 
discounts; and interest calculations in accordance with Sec.  1005.501. 
Before the Loan may be guaranteed by the Section 184 Program, the 
Direct Guarantee Lender must provide HUD a listing of all charges, 
fees, or discounts collected from the Borrower by the Lender.
    For an assumption of an existing Section 184 Guaranteed Loan, 
processing fees must be based on actual costs and the Direct Guarantee 
Lender may not charge more than the reasonable and customary allowable 
cost without HUD approval. Fees for assumptions may include, but are 
not limited to, credit report, verification of employment and the 
execution of additional release of liability forms. Additional fees 
over and above assumption fees cannot be assessed for Section 184 
Guaranteed Loans on Trust Lands. HUD may establish limitations on the 
amount charged for origination, closing, and assumptions. This proposed 
section is consistent with current program policy, practice, and/or 
procedure.

[[Page 78332]]

    Certificate of nondiscrimination by the Direct Guarantee Lender 
Sec.  1005.517. This section would require that Direct Guarantee 
Lenders, when applicable, certify to HUD specific nondiscrimination 
practices required of Direct Guarantee Lenders, including: 
nondiscrimination based on race, color, religion, sex, disability, 
familial status, or national origin, except as provided by law; and 
prohibiting any restrictive covenant, other than permissible 
restrictions on Trust Land, on such property relating to race, color, 
religion, sex, disability, familial status, or national origin and 
recognizing such prohibited restrictive covenants as being illegal, 
void, and disclaimed. A civil action for preventative relief may be 
brought by the Attorney General in any appropriate U.S. District Court 
against any person responsible for a violation of this certification. 
This section is intended to protect the Borrower from discrimination, 
and is consistent with current program policy, practice, and/or 
procedure.
    Creation of the contract Sec.  1005.519. This section describes 
when a Loan shall be considered guaranteed under the program and that 
the Direct Guarantee Lender and HUD are bound by the requirements set 
forth in this regulation as if the two parties were in an executed 
contract relating to the loan. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Lender pre-endorsement review and requirements Sec.  1005.521. This 
section would require a pre-endorsement review of the endorsement case 
binder by the Direct Guarantee Lender prior to the submission of the 
endorsement case binder to HUD and describes the parameters of this 
review. This review must be conducted by Direct Guarantee Lender staff 
not involved in the origination, processing, or underwriting of the 
loan, and the case binder must include all documentation the Direct 
Guarantee Lender used to approve the loan. Upon finalizing the pre-
endorsement review, the Direct Guarantee Lender must certify that all 
required documents were submitted and meet the requirements of Sec.  
1005.503. This proposed new requirement would provide additional 
assurances that the Direct Guarantee Lender is making prudent 
judgements when approving the loans and following HUD program polices, 
practice, and procedures.
    HUD pre-endorsement review Sec.  1005.523. This section proposes 
Lender's submission deadline and HUD's process for a pre-endorsement 
review. Before endorsement, HUD will review the endorsement case binder 
submitted by the Direct Guarantee Lender to ensure that the loan meets 
all statutory, regulatory, and administrative requirements. Following 
this review, if the loan is determined to be eligible, HUD will issue a 
Loan Guarantee Certificate. HUD may reject an endorsement case binder 
if HUD finds that the certification or documentation is false, 
misleading, or constitutes fraud or is a misrepresentation on the part 
of any party, or that the loan fails to meet a statutory or regulatory 
requirement. HUD will inform the Direct Guarantee Lender in writing the 
reasons for the determination and any corrective actions that may be 
taken. The HUD pre-endorsement review is intended to reduce the risk 
for fraud and program non-compliance that could negatively impact the 
Fund, and is consistent with current program policy, practice, and/or 
procedure.
    Loan Guarantee Certificate Sec.  1005.525. This section proposes 
the conditions under which HUD will issue a Loan Guarantee Certificate. 
The Loan Guarantee Certificate is evidence of the HUD guarantee and is 
issued after HUD completes a review of the Lender's endorsement case 
binder and determines the case binder is in compliance with all 
applicable Section 184 requirements. HUD may issue a Loan Guarantee 
Certificate for a loan on Trust Land before HUD receives all required 
Trailing Documents, provided that the Direct Guarantee Lender agrees to 
indemnify HUD. The indemnification agreement between HUD and the Direct 
Guarantee Lender will terminate once all required documentation is 
received in a form and manner that is acceptable by HUD. This proposed 
section is consistent with current program policy, practice, and/or 
procedure.
    Post-endorsement review Sec.  1005.527. This section proposes the 
process for HUD to conduct a post-endorsement review of the endorsement 
case binder, including, but not limited to a quality control review. 
Following the issuance of the Loan Guarantee Certificate, HUD may 
review all documents required by Sec.  1005.503. Based upon this 
review, if HUD determines that the Loan does not satisfy the 
requirements of the program, HUD may cancel the Section 184 Loan 
Guarantee Certificate, may request indemnification from the Direct 
Guarantee Lender, or sanction the Direct Guarantee Lender pursuant to 
Sec.  1005.907. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Indemnification Sec.  1005.529. This section proposes that an 
Originating Direct Guarantee Lender must indemnify HUD when a claim has 
been filed or when HUD discovers an underwriting deficiency in a pre- 
or post-endorsement review. In this instance, the Originating Direct 
Guarantee Lender shall indemnify HUD or HUD may deny the Claim. 
Underwriting deficiencies may include, but not limited to, fraud or 
misrepresentation by the Originating Direct Guarantee Lender. If 
indemnification is necessary, HUD will request indemnification in 
writing that the Originating Direct Guarantee Lender will reimburse HUD 
if a subsequent holder of the loan files a Claim and HUD suffers a 
financial loss. This proposed section is intended to protect HUD from 
financial risk from possible underwriting deficiencies and aligns with 
industry standards.
F. Section 184 Guaranteed Loan Fees (Subpart F)
    This subpart includes the requirements for calculation, collection, 
and submission of the Section 184 Loan Guarantee Fee.
    Scope and method of payment Sec.  1005.601. This section includes 
the statutory requirements of a one-time, Upfront Loan Guarantee Fee 
and a recurring Annual Loan Guarantee Fee, for all Section 184 
Guaranteed Loans. This section revises existing Sec.  1005.109 of the 
current regulations and is consistent with current program policy, 
practice, and/or procedure.
    Upfront Loan Guarantee Fee Sec.  1005.603. This section mandates 
that an Upfront Loan Guarantee Fee, not exceeding three percent of the 
principal obligation of the loan, as determined by HUD, is to be paid 
at closing. The amount of the Upfront Fee will be prescribed by HUD 
through a notice in the Federal Register. This fee is statutorily 
required and necessary to credit the Fund to provide for payments under 
the guarantee, in addition to congressional appropriation.
    Remittance of Upfront Loan Guarantee Fee Sec.  1005.605. This 
section would require the Direct Guarantee Lender to submit to HUD the 
Upfront Loan Guarantee Fee within 15 days of loan closing. 
Additionally, this section would require the Direct Guarantee Lender to 
provide an account reconciliation of the Upfront Loan Guarantee Fee in 
the time and manner as may be prescribed by HUD. This proposed section 
codifies current program practices, policy, and/or procedure.
    Annual Loan Guarantee Fee Sec.  1005.607. This section would 
require an Annual Loan Guarantee Fee to be collected from the Borrower 
on a monthly basis, as determined by HUD

[[Page 78333]]

and published in the Federal Register. This section would also 
authorize the Servicer to collect monthly payments from the Borrower in 
an amount equal to one-twelfth of the annual loan guarantee premium and 
the ability for the Borrower to prepay their Section 184 Guaranteed 
Loan. These payments are included in the Amortization Schedule issued 
with the Loan approval. The Annual Loan Guarantee Fee is statutorily 
required and necessary to credit the Fund to provide for payments under 
the guarantee, in addition to congressional appropriation. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Remittance of Annual Loan Guarantee Fee Sec.  1005.609. This 
section would require the Servicer to submit to HUD the Annual Loan 
Guarantee Fees collected from the Borrower no later than the 15th day 
of each month, beginning in the month in which the Borrower is required 
to make the first monthly loan payment. If the Servicer is late 
submitting the monthly installment of the Annual Loan Guarantee Fee, 
the Servicer must pay a penalty in accordance with Sec.  1005.611. The 
Annual Loan Guarantee Fee no longer applies when the loan to value 
ratio equals an amount less than 78 percent, in accordance with Sec.  
1005.607. The Servicer must refund to the Borrower any excess Annual 
Loan Guarantee Fees collected when the loan-to-value ratio is less than 
78 percent, within 30 days of the overpayment.
    This section also would require that the Servicer continue to 
collect the Annual Loan Guarantee Fee on a monthly basis without regard 
to delinquent payments, prepayments, agreements to postpone payments, 
or agreements to recast the loan. When transferring a Section 184 
Guaranteed Loan to another Servicer, this section would require an 
account reconciliation of the Upfront Guarantee Fee and Annual Loan 
Guarantee to the new Servicer. When transfer of servicing between 
Servicers results in a missed monthly payment(s) of the Annual Loan 
Guarantee Fee to HUD, the acquiring Servicer shall pay the overdue 
payment(s) in a lump sum to HUD within 30 days of acquisition of the 
loan and include any applicable penalties in accordance with Sec.  
1005.611. This section clarifies the circumstances of the on-going 
payment of the monthly payment of the Annual Loan Guarantee Fee and 
sets a timeframe for submission of this payment even when the loan is 
sold between Direct Guarantee Lenders or to a Servicer. This proposed 
section is consistent with current program policy, practice, and/or 
procedure.
    HUD imposed penalties Sec.  1005.611. This section proposes the 
circumstances in which HUD may impose civil monetary penalties on 
Direct Guarantee Lenders and Servicers related to the collection and 
submission of Loan Guarantee Fees. This section also prohibits seeking 
recovery of the penalty from the Borrower. Direct Guarantee Lenders may 
incur penalties for failure to timely remit Upfront Loan Guarantee Fee. 
Servicers may incur penalties for failure to timely remit the monthly 
installment of the Annual Loan Guarantee Fee to HUD, failure to adjust 
the amount of the Annual Loan Guarantee Fee, and failure to cease 
collection of the Annual Loan Guarantee Fee. A reasonable penalty or 
fee will be prescribed by HUD in Section 184 Program Guidance. HUD is 
proposing allowing a monetary penalty for the late or non-submission of 
the Annual Loan Guarantee Fee to encourage Lenders and Servicers to pay 
on a timely basis.

G. Servicing (Subpart G)

    This subpart includes the requirements for Servicers to manage 
Section 184 Guarantee Loans and steps to take when a Borrower defaults 
on a Section 184 Guaranteed Loan. The subpart is organized into four 
sections: servicing loans generally, servicing defaulted loans, Loss 
Mitigation and assignment, foreclosure and Conveyance.
    Section 184 Guaranteed Loan servicing generally Sec.  1005.701. 
This proposed section provides an overview of subpart G, HUD servicing 
expectations and requirements for servicing Section 184 Guaranteed 
Loans.
    Servicer eligibility and application process Sec.  1005.703. This 
section proposes that a Direct Guarantee Lender, Non-Direct Guarantee 
Lenders or other financial institution must be an approved mortgage 
Servicer for FHA or another agency of the Federal Government. Direct 
Guarantee Lenders, and Non-Direct Guarantee Lenders are required to 
apply to be a Servicer, in accordance with Section 184 Program 
Guidance. This proposed section is intended to ensure that Servicers 
have the experience and qualifications and have the processes in place 
to properly service Section 184 Guaranteed Loans to provide quality 
customer service to Native American Borrowers.
    Servicer approval Sec.  1005.705. This section proposes what 
constitutes HUD approval for a Direct Guarantee Lenders, Non-Direct 
Guarantee Lenders and other financial institutions applying to be 
Servicers in the Section 184 Program under Sec.  1005.703. This section 
addresses the process HUD will follow to notify interested Non-Director 
Guarantee Lenders and financial institutions seeking HUD approval to be 
a Servicer under the program. HUD will provide written notification of 
its approval and the approved Servicer must agree to comply with all 
program requirements. This includes the notification by the Servicer to 
HUD of any acquisition or sale of Section 184 Guaranteed Loans. This 
proposed section would be complimentary to the new requirement under 
Sec.  1005.703.
    Responsibility for servicing Sec.  1005.707. This section proposes 
a Servicer's responsibilities under the Section 184 Program, which 
includes, program compliance, using a sub-Servicer, changing Servicers, 
transferring servicing rights, reporting requirements, program 
ineligibility, and records retention. This section proposes new 
requirements for the Servicer in the areas of annual recertification 
and business change reporting. HUD is proposing these new requirements 
to reduce risk and monitor the stability of the Servicer.
    Providing information to Borrower and HUD Sec.  1005.709. This 
section proposes Servicer requirements for providing information to the 
Borrower on the Section 184 Guaranteed Loan. Servicers must provide 
loan information to Borrowers and arrange for individual loan 
consultation on request. The Servicer must establish written procedures 
and controls to assure prompt responses to inquiries. All Borrowers 
must be informed annually of the system available for obtaining answers 
to loan inquiries and the office to which requests may be presented. 
Within 30 days after the end of each calendar year, the Servicer must 
furnish to the Borrower a statement of the interest paid, and of the 
taxes disbursed from the escrow account during the preceding year. At 
the Borrower's request, the Servicer must furnish a statement of the 
escrow account sufficient to enable the Borrower to reconcile the 
account. Each Servicer must deliver to the Borrower a written notice of 
any transfer of the servicing rights of the loan. Finally, Servicers 
must respond to HUD requests for information concerning individual 
accounts within a timeframe prescribed by Section 184 Program Guidance. 
HUD is proposing these requirements to ensure that acceptable 
procedures exist so that Servicers can readily provide loan information 
to Borrowers and HUD. This proposed section is consistent with current 
program policy, practice, and/or procedure.

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    Assumption and release of personal liability Sec.  1005.711. This 
section proposes the requirements and the process for assumption of a 
Section 184 Guaranteed Loan. Eligible Borrowers may assume a Section 
184 Guaranteed Loan. The new Borrower must be determined to be 
creditworthy under subpart D. For loans securing Properties on Trust 
Lands, the lease document may require Tribal and Bureau of Indian 
Affairs (BIA) approval of the assignment of the lease to the new 
Borrower. Servicers should not proceed to closing on the assumption 
until and unless the Tribe has assigned the leasehold to the new 
Borrower, and it has been approved by the BIA. Servicers may only 
collect fees for an assumption in accordance with this section. With 
respect to release of liability, this section would provide that at 
closing, the Servicer must release the existing Borrower from any 
personal liability on a form approved by HUD and the new Borrower 
assumes personal liability of the loan. Finally, upon completion of an 
assumption, a Servicer is required to provide copies of the documents 
to HUD. HUD will issue a revised Loan Guarantee Certificate and 
additional processing instructions. These changes ensure clear 
guidelines exist to govern the assumption and associated release of 
personal liability, such as ensuring that Borrowers that assume loans 
meet minimum creditworthiness standards. This proposed section is 
consistent with current program policy, practice, and/or procedure.
    Due-on-sale provision Sec.  1005.713. This section mandates a due-
on-sale clause permitting acceleration for all Section 184 Guaranteed 
Loans. The Servicer must accelerate the loan, subject to HUD prior 
approval, so long as the acceleration is permitted by applicable 
Tribal, Federal, or State law This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Application of Borrower payments Sec.  1005.715. This section would 
establish the order in which the Servicer applies Borrower payments 
authorized under Sec.  1005.509 and the proposal is consistent with 
current program policy, practice, and/or procedure.
    Administering escrow accounts Sec.  1005.717. This section would 
establish the requirements for administering escrow accounts and 
deposits from a Section 184 Guaranteed Loan. The Servicer may not use 
escrow funds for any purpose other than that for which they were 
received. It must segregate escrow commitment deposits, work completion 
deposits, and all periodic payments received on account of leasehold 
rents on Trust Land, taxes, assessments, monthly installments of 
Section 184 annual loan guarantee fees and insurance charges or 
premiums and must deposit such funds with one or more financial 
institutions in a special account or accounts that are fully insured by 
the Federal Deposit Insurance Corporation or the National Credit Union 
Administration. The Servicer must also adhere to the requirements as 
prescribed by Section 184 Program Guidance for escrow funds related to 
leasehold rents on Trust Lands. The Servicer is responsible for making 
escrow disbursements before bills become delinquent and must establish 
controls to ensure that bills payable from the escrow fund or the 
information needed to pay such bills is obtained on a timely basis. 
Penalties for late payments for items payable from the escrow account 
must not be charged to the Borrower unless the penalty was the direct 
result of the Borrower's error or omission. This section also mandates 
that the Servicer use the procedures set forth in the Consumer 
Financial Protection Bureau's (CFPB) Real Estate Settlement Procedures 
Act (RESPA) regulations at 12 CFR 1024.17 to compute the amount of the 
escrow, the methods of collection and accounting, and the payment of 
the bills for which the money has been escrowed. The Servicer is 
prohibited from initiating foreclosure for a default related to escrow 
payment shortfalls resulting from an adjustment pursuant to this 
section. Finally, when a Section 184 Guaranteed Loan is terminated 
voluntarily or because of Borrower's prepayment in full of the unpaid 
principal balance, amounts in the escrow account designated to pay any 
HUD required program fees must be remitted to HUD. When a loan is 
prepaid in full, amounts held in escrow for taxes, hazard insurance, or 
rents due under a tribal lease must be promptly released to the 
Borrower. HUD is proposing this section to ensure clear guidelines on 
how Servicers must administer escrow accounts. This proposed section is 
consistent with current practices, policies and/or procedures, aligns 
with industry standards, and cross references RESPA requirements, as 
implemented in CFPB regulations.
    Fees and costs after endorsement Sec.  1005.719. This section sets 
forth the allowable fees and charges from the Servicer to the Borrower 
after HUD's endorsement of the Section 184 Guaranteed Loan. Permissible 
fees and charges include certain late charges, charges for processing 
or reprocessing a check returned as uncollectible, fees for processing 
a change of ownership of the mortgaged property, fees and charges for 
arranging a substitution of liability in connection with the sale or 
transfer of the Section 184 property, charges for processing a request 
for credit approval on behalf of an assumption or substitute Borrower, 
charges for substitution of a hazard insurance policy, charges for 
modification of the Section 184 Guaranteed Loan involving a recorded 
agreement for extension of term or re-Amortization, fees and charges 
for processing a partial release of the property, certain attorney's 
and trustee's fees and expenses actually incurred, escrow charges, a 
trustee's fee, property preservation expenses incurred, fees permitted 
for providing a beneficiary notice under applicable Tribal or State 
law, and such other reasonable and customary charges as may be 
authorized by HUD. This section also would provide that reasonable and 
customary fees must be based upon the actual cost of the work 
performed, including out-of-pocket expenses. HUD may establish maximum 
fees and charges, which are reasonable and customary in different 
areas. Unless otherwise provided, no fee or charge may be based on a 
percentage of either the face amount of the loan or the unpaid 
principal balance due on the Section 184 Guaranteed Loan. This section 
proposes to clarify the range of fees and charges that can and cannot 
be charged by Servicers participating in the program proposes change 
consistent with HUD's current practice, policy, and/or procedure.
    Enforcement of late fees Sec.  1005.721. This section proposes when 
and how late charges must be applied by a Servicer. It would provide 
that Servicers are prohibited from commencing foreclosure when the 
Borrower's only default is his or her failure to pay a late charge or 
charges. A late charge attributable to a particular installment payment 
due may not be deducted from that installment. However, if the Servicer 
notifies the Borrower of the obligation to pay a late charge, that 
charge may be deducted from any subsequent payment. This section also 
would provide that a payment may be returned because of failure to 
include a late charge only if the Servicer notifies the Borrower before 
imposition of the charge of the amount of the monthly payment, the date 
when the late charge will be imposed and either the amount of the late 
charge or the total amount due when the late charge is included. This 
section prohibits a late charge from being imposed on the Borrower with 
respect to any payment on the Section

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184 Guaranteed Loan during the 60 day period beginning on the effective 
date of transfer of the servicing rights of a Section 184 Guaranteed 
Loan. This section would provide that if a payment is received by the 
old Servicer prior to the due date, no late charges may be assessed by 
the new Servicer. Finally, this section would provide that a Servicer 
is prohibited from imposing a late fee for failure to pay a late fee, 
consistent with CFPB regulations. HUD is proposing this addition to 
consistent with current program practices, policies, procedures, to 
conform the regulations to CFPB's Truth in Lending regulations, and to 
ensure that Servicers comply with fair rules governing late charges and 
is intended align with industry standards.
    Partial payments Sec.  1005.723. This proposed section provides 
that a Servicer must have a written policy available to the public on 
how it handles Partial Payments and outlines the acceptable actions 
when a Servicer receives a Partial Payment from a Borrower. It also 
proposes to provide that upon receipt of a Partial Payment, a Servicer 
must provide to the Borrower a copy of the Servicer's written Partial 
Payment policy and a letter explaining how it will handle the received 
Partial Payment. The Servicer may accept a Partial Payment and apply it 
to the Borrower's account, identify it with the Borrower's account 
number and hold it in a trust account pending disposition, or return 
the Partial Payment to the Borrower. This proposal is necessary to 
ensure clear guidelines on how Servicers are to manage Partial Payments 
and would provide Servicers with various options and is intended to 
codify current practice, policy, and/or procedure.
    Handling prepayments Sec.  1005.725. This section would require 
that a Servicer accept pre-payment at any time and details how the 
interest on the debt is calculated for prepayments. This proposed 
section is consistent with codifies current practices, policies, and/or 
procedures, and ensures that Borrowers who want to make prepayments on 
their Section 184 Guaranteed Loans have the option to do so.
    Substitute Borrowers Sec.  1005.727. This section proposes when a 
Borrower requests the substitution of a co-Borrower on the Section 184 
Guaranteed Loan. A remaining original Borrower must still be on the 
loan. It would provide that where an original Borrower requests the 
substitution of a co-Borrower on the loan, a Non-Direct Guarantee 
Servicer must obtain HUD approval for the substitution. A Direct 
Guarantee Lender may approve an eligible substitute Borrower who meets 
program eligibility requirements and need not obtain further specific 
approval from HUD. This proposed section is meant to provide clear 
guidelines to Servicers and Borrowers on how to manage the substitution 
of Borrowers consistent with current practice, policy, and/or 
procedure.
    Section 184 Guaranteed Loan collection action Sec.  1005.729. This 
section would require the Servicer to take prompt action to collect 
amounts due from Borrowers and to exhaust all reasonable possibilities 
of collection before initiating foreclosure or assignment. This 
proposed regulation is necessary to ensure that Servicers meet 
standards for serving Section 184 Guaranteed in default and provide 
Borrowers with a good faith consideration of available Loss Mitigation 
options to avoid default, foreclosure, or both. This section is 
designed to ensure that risks to the Fund are minimized, and that all 
available reasonable loan collection and Loss Mitigation options have 
been considered by the Servicer. This proposed section is consistent 
with current program policy, practice, and/or procedure.
    Default notice to Borrower Sec.  1005.731. This section outlines 
the proposed requirements for contacting a defaulted Borrower, 
including live contact and written notice. This includes a requirement 
to contact all Borrowers, whether they live in the same or different 
locations. Servicers are required to establish or make good faith 
efforts to establish live contact with a defaulting Borrower no later 
than the 36th day of the Borrower's default and promptly inform the 
Borrower about the availability of Loss Mitigation options. This 
section also would provide that Servicers must give written notice to 
each Borrower in default no later than the end of the 45th day of a 
Borrower's default. This section also governs what must be included in 
the required written notice and would provide that nothing in this 
section shall require a Servicer to communicate with a Borrower in a 
manner otherwise prohibited by applicable Tribal, Federal, or State 
law. This section is necessary to ensure that Servicers present a 
minimum level of notice of default and consider Loss Mitigation options 
to prevent foreclosure and other unnecessary losses and risks to the 
Fund. HUD is proposing this addition consistent with current program 
practices, policies, and/or procedures and to conform to CFPB 
regulations and industry standards.
    Loss mitigation application, timelines, and appeals Sec.  1005.733. 
This section would provide specific expectations when a Servicer 
processes a Borrower's Loss Mitigation application. It proposes to 
provide five days to acknowledge receipt of the application, determine 
if the application is complete or incomplete, and, if incomplete, 
notify the Borrower of documentation that is still required and inform 
the Borrower that submission of the missing documents must occur within 
fourteen days. Within fourteen days of receipt of a complete 
application, the Servicer must evaluate the application.
    This section also would provide that Servicers are required to 
provide written notification: (1) of all available Loss Mitigation 
options; (2) to encourage Borrowers to review all available Loss 
Mitigation options and to contact the Servicer with any questions; (3) 
to encourage Borrowers to consider pursuing simultaneous Loss 
Mitigation options; (4) to inform Borrowers that if no Loss Mitigation 
option is elected or if they fail, the Servicer may proceed with filing 
of the First Legal Action at 180 days of default; and (5) to inform 
Borrowers that at the filing of first legal action or the assignment of 
the loan to HUD, the Servicer will no longer offer or allow a pre-
foreclosure sale as an alternative to foreclosure, and that the only 
available and remaining alternative to foreclosure will be a lease-in-
lieu or deed-in-lieu of foreclosure, subject to applicable Tribal, 
Federal, or State law. Borrowers may appeal within 14 days of receipt 
of the Servicer's Loss Mitigation determination, in writing, that the 
Servicer re-evaluate the Borrower's Loss Mitigation application. The 
Servicer will be required to re-evaluate the Borrower's Loss Mitigation 
application within 30 days, but may not use the same staff that made 
the initial Loss Mitigation determination and must notify the Borrower 
of its appeal decision. If the Borrower submits a timely written 
appeal, the 180-day deadline to initiate foreclosure will be suspended 
during the appeal process. This section is being proposed to provide 
clear guidelines to both Servicers and Borrowers on the Loss Mitigation 
application process and associated appeals, to minimize risks and 
losses to the Fund, and to avoid foreclosure when possible. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Occupancy inspection Sec.  1005.735. This section proposes 
occupancy inspection as a visual inspection by the Servicer, defines 
occupancy follow-up as an attempt to communicate with the

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Borrower through various means to determine occupancy status, and would 
provide the requirements for occupancy inspections and occupancy 
follow-ups while a Borrower is in default. It also governs occupancy 
inspections conducted during a Borrower's bankruptcy.
    HUD is proposing this regulation to ensure that clear guidelines 
exist for Servicers governing occupancy inspections. Servicers may find 
the need to conduct occupancy inspections to determine whether a 
property has become vacant or abandoned, and to confirm the identity of 
any occupants. HUD is requiring Servicers to conduct occupancy follow-
ups and to attempt to conduct continuing inspections, if necessary, 
every 25-35 days from the last inspection until the occupancy status is 
determined. This is designed to ensure that Servicers proactively work 
to determine the status of each property subject to a loan guaranteed 
under the program, that is in default, and to minimize costs and risks 
to the Fund. This proposed section is consistent with current program 
policy, practice, and/or procedure.
    Vacant property procedures Sec.  1005.737. This section would set 
forth the requirements when a property has been determined vacant or 
abandoned based on an occupancy or occupancy follow-up inspection. This 
provision includes a notice requirement to the Borrowers of 
determination of vacancy or abandonment, which is sent to the property 
address and all known addresses of Borrowers. If occupancy is found 
through the delivery confirmation process, the Servicer must continue 
pursuing Loss Mitigation efforts until the Servicer can proceed to 
First Legal Action. On the other hand, if the Servicer verifies through 
the delivery confirmation process or other method that the property is 
vacant or abandoned, then the Servicer must secure and maintain the 
property through appropriate property preservation actions, initiate 
the First Legal Action or assign a Trust Land loan to HUD within 120 
days after date of default, continue to perform vacant property 
inspections every 25-35 days, and retain documentation in the servicing 
file.
    HUD is proposing this section to ensure that clear guidelines exist 
for Servicers who manage vacant or abandoned Properties. While not 
common, a small number of Properties assisted under the Section 184 
Program have previously been abandoned. In such cases, it is critical 
that Servicers remain proactive in verifying the occupancy status of 
such Properties and ensuring that they are processed and disposed of in 
a timely manner. Vacant or abandoned Properties can attract criminal 
activity and serve as an additional blight to Trust Land. These 
guidelines will also help preserve collateral and prevent unnecessary 
losses and risks to the Fund. This proposed section is consistent with 
current program policy, practice, and/or procedure, and aligns with 
industry standards.
    Loss mitigation Sec.  1005.739. This section proposes the Loss 
Mitigation options and review requirements when a Borrower defaults on 
a Section 184 Guaranteed Loan. This section would require that 
Servicers utilize various Loss Mitigation options, if practical, within 
180 days of the date of default. Loss mitigation options include: (1) 
forbearance plan, (2) assumption, (3) trial payment plan agreement for 
a loan modification, (4) pre-foreclosure sale, or (5) deed-in-lieu or 
lease-in-lieu of foreclosure. Within 180 days of default, if the 
Borrower is offered a Loss Mitigation option other than loan 
modification and fails to meet the Loss Mitigation requirements, the 
Servicer is required, within 5 days of the Loss Mitigation default, to 
determine whether the Borrower should continue with the current Loss 
Mitigation option or reassess the Borrower. If no time or very limited 
time remains within 180 days of default, the Servicer will not be 
required to reassess the Borrower for another Loss Mitigation option.
    This section also would provide that if a Borrower is performing 
under a Loss Mitigation option that does not reinstate the loan at 180 
days of default but subsequently fails to perform, the Servicer must 
take First Legal Action within 5 days of the Loss Mitigation option 
default. Servicers must maintain documentation of all evaluations and 
Loss Mitigation actions. Finally, Servicers that fail to engage in and 
comply with required Loss Mitigation may be subject to enforcement 
action by HUD, including possible sanctions.
    HUD is proposing this addition to the regulation to ensure 
Servicers review Loss Mitigation options to prevent foreclosures, to 
maintain Native American Borrowers in their homes, to the extent 
practicable, and to minimize any resulting losses and risks to the 
Fund. This proposed section is consistent with current program 
practices, policies, and/or procedures, and conforms to CFPB 
regulations and industry standards.
    Notice to Tribe and BIA--Borrower default Sec.  1005.741. This 
proposed section compliments HUD's current practice and policy to 
notify the BIA when a Borrower defaults on a Section 184 Guaranteed 
Loan, in accordance with applicable requirements under 25 CFR part 162. 
This section also includes a new requirement for Servicers. When given 
consent by the Borrower, Servicers must notify the Borrower's Tribe 
when a Borrower defaults on Section 184 Guaranteed Loan. This proposed 
section addresses a request made during Tribal consultation in which 
Tribal representatives expressed a desire to be notified when a member 
has defaulted on their Section 184 Guaranteed Loan, so that the Tribe 
may provide financial assistance, if available.
    Relief for Borrower in military service Sec.  1005.743. This 
proposed section outlines the options for Borrowers who are in military 
service, in addition to benefits afforded under other applicable laws, 
including postponement of principal payments, forbearance, and 
postponement of foreclosure. This section is being proposed to provide 
accommodations for Borrowers that are persons in ``military service,'' 
as such term is defined in the Servicemembers Civil Relief Act (50 
U.S.C. 3901, et seq.). This proposed section is consistent with current 
program policy, practice, and/or procedure, and aligns with industry 
standards.
    Forbearance plans Sec.  1005.745. This section proposes forbearance 
options a Servicer may offer to defaulting Borrowers. This section sets 
out the requirements for informal forbearance, formal forbearance, 
unemployment forbearance, and servicemember forbearance. Each type has 
its own agreement requirements, duration period requirements, property 
condition requirements, and required documents. HUD is proposing this 
regulation to ensure that several options are available for defaulting 
Borrowers. This proposed section is consistent with current program 
policy, practice, and/or procedure, and aligns with industry standards.
    Assumption Sec.  1005.747. This section would require Servicers to 
explore loan assumption as a Loss Mitigation option. HUD is proposing 
this regulation to provide another Loss Mitigation option for a 
Borrower that has defaulted on their guaranteed loan. This proposed 
section is consistent with current program policy, practice, and/or 
procedure, and aligns with industry standards.
    Loan modification Sec.  1005.749. This section proposes loan 
modifications as a Loss Mitigation option and sets forth the 
eligibility and qualifications necessary for a Servicer to approve a 
Borrower's application and the required property conditions. This 
section also discusses

[[Page 78337]]

the use of trial payment plans, the execution of loan modification 
documents that conform to all applicable Tribal, Federal, and State 
laws, and when the Servicer must provide modified loan guarantee 
documents to HUD. HUD is proposing this regulation to provide another 
Loss Mitigation option for Borrowers in default. This proposed section 
is consistent with current program policy, practice, and/or procedure.
    Pre-foreclosure sale Sec.  1005.751. This section would provide 
authority for pre-foreclosure sale as a Loss Mitigation option. The 
requirements specified for this review include: surchargeable 
calculation of the Borrower's cash reserve contribution, condition of 
title for both fee simple and Trust Land Properties, verification of 
discharge of all junior liens, and listing the property at no less than 
the value determined in the required appraisal. The Servicer would be 
required to send all required pre-foreclosure documentation to HUD and 
send an approval to participate agreement and required addendum notice 
to the Borrower.
    This section also would provide Tribal notification of the option 
to assume the Section 184 Guaranteed Loan or purchase the either the 
Note or the property. The section sets out the requirements for the 
Borrower in securing a real estate broker and required clauses in the 
contract between the Servicer and broker, as well as the time period 
for the Borrower to market the property in listings. For all pre-
foreclosure sale Properties, the Servicer is required to conduct 
property inspections and maintenance, and the Borrower is required to 
disclose any damage that has occurred immediately. If damage has 
occurred, the Servicer is required to work with the Borrower to file 
hazard insurance claims. The section sets out the responsibilities for 
the seller in receiving sufficient bids, reviewing the sales contract, 
as well as closing and post-closing responsibilities. The section 
details early termination initiated by both the Borrower and the 
Servicer, and how to proceed in the event the Borrower fails to 
complete the pre-foreclosure sale. HUD is proposing this regulation to 
provide an additional option for defaulted Borrowers. This is a new 
loss mitigation option for the Section 184 Program. HUD is proposing 
this section to give Native American Borrowers comparable loss 
mitigation options to Borrowers in other loan guarantee programs.
    Deed-in-lieu/lease-in-lieu of foreclosure Sec.  1005.753. This 
section would require the use of deed-in-lieu/lease-in-lieu of 
foreclosure as a Loss Mitigation option. This section also sets out the 
required documents to effectuate the transfer and, upon Conveyance to 
HUD, the Servicer must file for record the required documents within 
two days and report to HUD. The Servicer must also comply with all 
applicable Federal, State, Tribal, and local reporting requirements. 
HUD is proposing this regulation in order to provide an additional 
option for Borrowers in default. This proposed section is consistent 
with current program policy, practice, and/or procedure and aligns with 
industry standards.
    Incentive payments to Borrower Sec.  1005.755. This section 
proposes that HUD may authorize incentive payments to the Borrower when 
Borrowers complete certain loss mitigation options and when Borrowers 
agree to vacate the property after foreclosure to avoid an eviction. 
This section also proposes that HUD may authorize incentive payments to 
Lender and Servicer for their completion of certain Loss Mitigation 
options and incentive payments to Tribes and TDHEs when they assist HUD 
in the loss mitigation, sale or transfer of the Trust Land property. 
HUD plans to provide further guidance on the incentives in Section 184 
Program Guidance. HUD is proposing this new authority to encourage 
Borrowers' and Servicers' participation in Loss Mitigation, to avoid 
the time and expense of foreclosing on the property and evicting the 
Borrower after foreclosure.
    Property on Trust Land--Tribal first right of refusal; foreclosure 
or assignment Sec.  1005.757. This section proposes the timeframe in 
which a Servicer must contact a Tribe or TDHE and offer an option to 
assume or purchase the property or the Note under Sec.  1005.757(a) 
when a defaulted loan pertains to property that is located on Trust 
Land, as well as the TDHE or Tribe's acceptance of the offer. This 
section also allows for the Servicer to choose between foreclosure or 
assignment to HUD for a defaulted Section 184 Guaranteed Loan located 
on Trust Lands. HUD is proposing this regulation to clarify options 
available to the Servicer but also to ensure timely action. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Fee simple properties--foreclosure or assignment with HUD approval 
Sec.  1005.759. This section proposes the requirement for Servicers to 
initiate foreclosures or request the ability to assign a defaulted 
property to HUD. HUD may approve assignments under limited 
circumstances. HUD is proposing this regulation in order to ensure that 
Servicers timely initiate foreclosure proceedings and is consistent 
with current policy, practice and/or procedure.
    First Legal Action deadline and automatic extensions Sec.  
1005.761. This section proposes to provide a timeline for the 
initiation of foreclosure by the Servicer on defaulted Section 184 
Guaranteed Loans. This proposed section is consistent with current 
program policy, practice, and/or procedure and aligns with industry 
standards.
    Assignment of the Section 184 Guaranteed Loan Sec.  1005.763. This 
section presents the requirements for assigning a defaulted Section 184 
Guaranteed Loan to HUD. This proposed section is consistent with 
current program policy, practice, and/or procedure and aligns with 
industry standards.
    Inspection and preservation of Properties Sec.  1005.765. This 
section proposes that the Servicer comply with inspection requirements 
under Sec.  1005.737 when the Servicer knows or should know the 
property is vacant or abandoned. The section also proposes to require 
that the Servicer take action to preserve and protect the property 
until Conveyance to HUD. HUD is proposing this section in order to 
ensure the Servicer continues to inspect and preserve the property. 
This proposed section is consistent with current program policy, 
practice, and procedure and aligns with industry standards.
    Property condition Sec.  1005.767. This section would mandate the 
condition of the property and the Servicer's responsibilities at the 
time a property is transferred to HUD through Conveyance or assignment. 
This proposed section is consistent with current program policy, 
practice, and/or procedure.
    Conveyance of property to HUD at or after foreclosure; time of 
Conveyance Sec.  1005.769. This section proposes the methods and 
timeframe in which a Servicer may convey a property to HUD after 
foreclosure, including HUD notification of the Conveyance. HUD is 
proposing this section in order to ensure the Servicer timely conveys 
the property to HUD. This proposed section is consistent with current 
program policy, practice, and/or procedure and aligns with industry 
standards.
    Acceptance of property by HUD Sec.  1005.771. This section would 
establish the date which HUD is deemed to have accepted an assignment 
of a Section 184 Guaranteed Loan, or title to and possession of a 
property. HUD is proposing this section to clarify when HUD has 
accepted title to a conveyed

[[Page 78338]]

property. This proposed section is consistent with current program 
policy, practice, and/or procedure and aligns with industry standards.
H. Claims (Subpart H)
    This subpart includes the requirements for Servicers to submit 
claims to HUD. The subpart is organized into five sections: claims 
application, submission categories, and types; submission of claims; 
property title transfers and title waivers; condition of the property; 
and payment of guarantee benefits.
    Purpose Sec.  1005.801. This section proposes the purpose of this 
subpart which is to set forth the requirements applicable to a 
submission of an application for loan guarantee benefits (Claim 
submission). It explains that Servicers must comply with regulations 
presented in subpart H and process details included in Section 184 
Program Guidance. This subpart also sets forth requirements processing 
and payment of Claim. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Claim case binder; HUD authority to review records Sec.  1005.803. 
This section would require Servicers to maintain a Claim case binder 
for a minimum of five years after the final Claim has been paid and 
allow HUD access to the case binder. Section 1005.803(b) allows HUD 
access to the Claim case binder at any time and would provide that 
Servicer denial of HUD access to any of the files may subject the 
Servicer to sanctions under Sec. Sec.  1005.905 and 1005.907. Section 
1005.803(c) would provide that the Servicer must make available to HUD 
any request for Claim files within three business days of the request. 
This proposed section is consistent with current practices and 
establishes new timeframes for Servicers to respond to HUD's request 
for a Claim case binder. These policies are necessary to ensure HUD has 
appropriate oversight of the program.
    Effect of noncompliance Sec.  1005.805. This section proposes to 
establish the actions HUD may take if a Claim case binder does not 
comply with the requirements of subpart D, including: rejecting the 
claim, paying the claim but demanding reimbursement from the 
Originating Direct Guarantee Lender, reconveying the property or 
reassigning the deed of trust or mortgage in accordance with Sec.  
1005.849 and sanctions in accordance with Sec. Sec.  1005.905 and 
1005.907. Further, it would establish actions HUD may take if it finds 
the Servicer failed to service the Section 184 Guaranteed Loan in 
accordance with subpart G, committed fraud, known or should have known 
of fraud or material misrepresentation in violation of this part. These 
include holding the claim to remedy the deficiency, rejecting expenses 
under Sec.  1005.807(b), reconveying the property or reassigning the 
deed of trust or mortgage in accordance with Sec.  1005.849, 
administrative offset, sanctions in accordance with Sec. Sec.  1005.905 
and 1005.907, and other remedies as determined by HUD. This section 
also limits the expenses that can be changed when a reconveying the 
property or reassigning the deed of trust or mortgage. This proposed 
section is consistent with current program policy, practice, and/or 
procedure.
    Claim submission categories Sec.  1005.807. This section lists the 
three Claim submission categories. The three Claim categories are: 
payment of the unpaid principal balance; reimbursement of eligible 
reasonable expenses up to assignment, Conveyance or transfer of the 
property; and supplemental claims for eligible expenses incurred that 
were omitted from the Servicer's prior submission or for a calculation 
error made by the Servicer or HUD. This proposed section is consistent 
with current program policy, practice, and/or procedure.
    Claim types Sec.  1005.809. This section would establish five Claim 
types, which are submitted based on property disposition, timeframes 
for Claim submission, and the documentation required for each Claim 
type. The five Claim types are: Conveyance; assignment of the loan; 
post-foreclosure claims without Conveyance of title; pre-foreclosure 
sale; and supplemental claims.
    Paragraph (a) would provide for a Claim when the Servicer conveys 
the property to HUD after foreclosure or execution of a deed-in-lieu or 
lease-in-lieu. The Servicer has 45 days from date the deed to HUD is 
executed to submit the Conveyance Claim. For fee simple properties, the 
section would require final title policy. For Trust Land Properties, a 
Title Status Report from the Bureau of Indian Affairs evidencing 
ownership vested to HUD is required. Where Servicer is unable to obtain 
a Title Status Report from the Bureau of Indian Affairs, the Servicer 
may submit a Claim on the 45th day in accordance with Claim processing 
instructions that HUD will provide. Lenders must submit claims related 
to reimbursable eligible expenses no later than the 60th day of the 
date the deed is executed to HUD, unless extension of time is given by 
HUD.
    Paragraph (b) describes the assignment of the Section 184 
Guaranteed Loan and would require the Servicer to submit a Claim no 
later than 45 days from the date of the assignment of the Section 184 
Guaranteed Loan to HUD is executed. The section would require the 
Servicer provide a final title policy or, where applicable, a certified 
Title Status Report evidencing the assignment of the mortgage to HUD. 
Where the Servicer is unable to comply with the documentation from 
title policy or Title Status Report, the Servicer may submit a Claim on 
the 45th day in accordance with processing instructions from HUD. For 
assignment of a Section 184 Guaranteed Loan, the Servicer must submit a 
Claim for reimbursable expenses, if any, within 45 days of the date the 
loan assignment is executed. This section would require the Servicer to 
certify that the Section 185 Guaranteed Loan is in first lien position 
and prior to all mechanics' and materialmen's liens filed for record, 
the amount due and owing under the loan, there are no offsets or 
counterclaims, the Servicer has good right to assign, and has met the 
property inspection and property preservation requirements of this 
part.
    Paragraph (c) explains the post-foreclosure claims without 
Conveyance of title requirements and addresses when a third-party 
purchases fee simple Properties at foreclosure. The Servicer must 
submit a Claim to HUD no later than 180 days from the date the deed to 
the third-party is executed. Paragraph (d) is the pre-foreclosure sale 
Claim. It authorizes claims when a property is sold prior to 
foreclosure in accordance with HUD's pre-foreclosure sale requirements 
at Sec.  1005.751 or Sec.  1005.753. The Servicer must submit a Claim 
no later than 45 days from the date the deed or assignment of the lease 
to the third-party is executed.
    Paragraph (e) discusses supplemental claims, and limits Servicers 
to one supplemental Claim for each Claim related to the payment of 
unpaid principal balance and reimbursement of eligible reasonable 
expenses. Paragraph (e) limits supplemental claims to reasonable 
eligible expenses incurred on the date of Conveyance of the property or 
assignment of the Section 184 Guaranteed Loan, when invoices are 
received after payment of the Claim or when there is a calculation 
error made by the Servicer or HUD. Supplemental claims must be 
submitted within six months of when the Servicer files a Claim for 
reimbursement of eligible reasonable expenses. Any supplemental claims 
received after the six-month period will not be reviewed or paid by 
HUD. This section makes clear any supplemental Claim paid by HUD shall

[[Page 78339]]

be considered final satisfaction of the loan guarantee.
    Proposed paragraphs (a) through (d) are consistent with HUD's 
existing policies, practices, and procedures with the exception of 
paragraph (b)(4), which proposes to implement a new Servicer 
certification requirement. Proposed paragraph (e) is consistent, in 
part, with HUD's existing policies, practices, and procedures, but 
proposes to add a new requirement that supplemental claims are time 
limited to a 6-month window. These policies are proposed to ensure HUD 
maintains its fiduciary duty to protect the Fund and reduce its risk 
against Claim payments that do not meet Section 184 requirements.
    Claims supporting documentation Sec.  1005.811. This section 
proposes to require Servicers to submit supporting documentation 
required for each Claim to the satisfaction of HUD. Such documentation 
will be provided for in Section 184 Program Guidance. This proposed 
section is consistent with current program policy, practice, and/or 
procedure.
    Upfront and Annual Loan Guarantee Fee reconciliation Sec.  
1005.813. This section proposes to require Lenders to submit, as part 
of a Claim submission under Sec.  1005.807(b), a reconciliation 
evidencing the payment of the Annual Loan Guarantee Fee to HUD. This 
section proposes a new process to ensure Lenders can verify they have 
paid all Loan Guarantee Fees prior to HUD payment of any claims.
    Conditions for withdrawal of claim Sec.  1005.815. This section 
provides the conditions under which a Servicer can withdraw a Claim 
submission after there has been a Conveyance. HUD will permit 
withdrawal of the application when a Servicer accepts a reconveyance of 
the property under a deed which warrants against the acts of HUD and 
all claiming by, through or under HUD, promptly files a reconveyance 
for record; accepts without continuation the title evidence it 
furnished to HUD; and reimburses HUD for property expenditures HUD 
incurred after Conveyance to HUD. This proposed section is consistent 
with HUD's current practice, policy, and/or procedure.
    Conveyance of Good and Marketable Title Sec.  1005.817. This 
section proposes to mandate that a property have Good and Marketable 
Title when conveyed to HUD from a Lender. This proposed section is 
consistent with current program, policy and/or practice. Within this 
section, HUD is proposing a new timeframe in which a Servicer must 
correct any title defects. HUD is proposing that the Servicer make this 
correction in 60 days, or the Servicer must reimburse HUD for the cost 
of holding the property until any defect is corrected or until HUD 
reconveys the property to the Servicer. This proposed time frame is 
intended to help ensure timely action by the Servicer to correct title 
defects.
    Types of satisfactory title evidence Sec.  1005.819. This section 
would provide six types of title evidence that may be submitted with a 
Claim submission. The permissible types of title evidence include: fee 
or owner's title policy; Lender's policy of title insurance; abstract 
and legal opinion; torrens or similar certificate; title standard of 
U.S., Tribal, or State government; and Title Status Report issued by 
the Bureau of Indian Affairs. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Coverage of title evidence Sec.  1005.821. This section would 
establish that evidence of title or Title Status Report shall be 
executed subsequent to the filing for record of the deed or assignment 
to HUD. The title evidence must show that, according to public records, 
there are not, as of the date of the recordation of the deed or 
assignment to HUD, any outstanding prior liens, including any past due 
and unpaid ground rents, general taxes, or special assessments, if 
applicable. This proposed section is consistent with current program 
policy, practice, and/or procedure.
    Waived title objections for properties on fee simple land Sec.  
1005.823. This section would provide that reasonable title objections 
for fee simple properties shall be waived by HUD. Reasonable title 
objections will be prescribed in Section 184 Program Guidance. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Waived title objections for properties on Trust Land Sec.  
1005.825. This section proposes that HUD shall not object to title 
restrictions placed on Trust Land by a Tribe or the Bureau of Indian 
Affairs, so long as those restrictions do not adversely impact the 
property or marketability. This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Damage or neglect Sec.  1005.827. This section would provide a 
Lender's responsibilities when a property has suffered damage or 
neglect and HUD's remedy when a damaged property is conveyed to HUD 
without prior notice or approval. Section 1005.827(a) would provide 
that if a property has been damaged by fire, flood, earthquake, 
tornado, or due to Lender's failure to take action to protect and 
preserve the property, the Servicer must submit a Claim to the hazard 
insurance policy, and the damage must be repaired before Conveyance of 
the property or assignment of the loan to HUD.
    Paragraph (b) would provide that if the property damage is not 
covered by a hazard insurance policy, the Servicer must notify HUD of 
the damage. Servicer may not convey until directed to do so by HUD. If 
HUD requires the Servicer to repair the damage before Conveyance, HUD 
may reimburse Servicer for reasonable payments not in excess of HUD's 
estimate of the cost of repair, less any insurance recovery or require 
the Lender to repair the damage before Conveyance at the Servicer's own 
expense.
    Paragraph (c) would provide that in the event the Servicer conveys 
property to HUD without repair to the damage or without notice to HUD 
of the damage, HUD may, after notice, reconvey the property to the 
Servicer and seek reimbursement for expenses HUD incurred in connection 
with the Conveyance. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Certificate of property condition Sec.  1005.829. This section 
would require a Servicer to submit a certification of property 
condition as part of the Claim submission. This section would provide 
that, as part of the Claim submission, the Servicer certifies the 
property was undamaged by fire, flood, earthquake, or tornado, was 
undamaged due to failure of the Servicer to act, and undamaged while 
the property was in possession of the Borrower. Alternatively, if the 
property was damaged, the Servicer includes a copy of the HUD approval 
to convey the property in damaged condition.
    Paragraph (b) would provide that, in the absence of evidence to the 
contrary, the Servicer's certificate or description of the damage shall 
be accepted by HUD as establishing the condition of the property, as of 
the date of the filing of the deed or assignment of the loan. This 
proposed section is consistent with current program policy, practice, 
and/or procedure, and to ensure Servicers confirm the property is 
conveyed to HUD undamaged.
    Cancellation of hazard insurance Sec.  1005.831. This section 
proposes to provide that Servicers shall cancel any hazard insurance 
policy as of the date of the filing for record of the deed to HUD, 
subject to certain conditions. The conditions include: (1) the amount 
of the return premium, due to the Servicer because of such 
cancellation, may be calculated on a ``short-rate'' basis and reported 
on fiscal data, and the amount shall be deducted from the total amount

[[Page 78340]]

claimed; (2) If the Servicer's calculation of the return premium is 
less than the actual return, the amount of the difference between the 
actual refund and the calculated amount shall be remitted to HUD, 
accompanied by the carrier's or agent's statement; (3) If the 
Servicer's calculation of the return premium is more than the actual 
return, the Servicer may include in its Claim submission, the statement 
of the amount of the refund from the insurance carrier or agent, and 
include the amount of the difference as an eligible cost in accordance 
with Sec.  1005.843(a)(3). This proposed section is consistent with 
current program policy, practice, and/or procedure.
    Method of payment Sec.  1005.833. This section would establish that 
HUD will make payment of guarantee benefits by electronic transfer of 
funds for all approved claim submissions. This proposed section is 
consistent with current program policy, practice, and/or procedure.
    Claim payment not conclusive evidence of claim meeting all HUD 
requirements Sec.  1005.835. This section proposes to provide that any 
payment of claim by HUD is not conclusive evidence of a Servicer's 
compliance with Section 184 Program requirements. HUD reserves the 
right to conduct post-claim payment review of any claim file within 5 
years from the date of last claim payment. This section states when 
non-compliance with any requirements of this part is identified, HUD 
may take appropriate post-claim action against the Servicer. This 
section is a codification of existing policy, practice, and procedure 
with the exception of the five-year period. The proposed five-year 
period is necessary to ensure uniformity in the time frame for HUD to 
conduct post-claim reviews of the loan file.
    Payment of claim: unpaid principal balance Sec.  1005.837. This 
section would state that HUD will pay claims for unpaid principal 
balance submitted under Sec.  1005.807(a), minus any receipts for the 
sale or transfer of the property. This proposed section is consistent 
with current program policy, practice, and/or procedure.
    Payment of claim: interest on unpaid principal balance Sec.  
1005.839. This section would establish the payment timeframe for 
interest payments on the unpaid principal balance. HUD shall pay 
interest on the unpaid principal balance from the date of default to 
the earlier of the following: the execution of the deed to the Lender, 
HUD, or third-party; execution of Conveyance of deed to either Lender, 
HUD, or third-party; execution of the assignment of the loan to HUD; or 
expiration of the reasonable diligence timeframes as prescribed by 
Section 184 Program Guidance. This proposed section is consistent with 
current program policy, practice, and/or procedure and aligns with 
industry standards.
    Payment of claim: reimbursement of eligible and reasonable costs 
Sec.  1005.841. This section proposes to provide that reimbursement of 
eligible and reasonable costs under Sec.  1005.807(b) shall be paid as 
part of the guarantee benefits. HUD will prescribe reasonable costs 
that are eligible for reimbursement in Section 184 Program Guidance. 
This proposed section is consistent with current program policy, 
practice, and/or procedure and aligns with industry standards.
    Reductions to the Claim submission amount Sec.  1005.843. This 
section proposes the circumstances under which Lenders should reduce 
their Claim amount. The Servicer shall reduce its Claim when the 
following amounts are received by the Lender: amounts received by the 
Servicer instituting foreclosure or acquisition of the property by 
direct Conveyance or otherwise after default; amounts received by the 
Servicer from any source relating to the property on the account of 
rent or other income after deducting reasonable expenses incurred in 
handling the property; and all cash retained by the Lender, including 
amounts held or deposited for the account of the Borrower or to which 
is entitled under the loan transaction that have not been applied in 
reduction of the principal loan indebtedness. This proposed section is 
consistent with current program policy, practice, and/or procedure and 
aligns with industry standards.
    Rights and liabilities under the Indian Housing Loan Guarantee Fund 
Sec.  1005.845. This section would state that Borrowers and Lenders 
shall not have any vested right in the Fund nor be subject to any 
liability arising under such Fund. In addition, that the Indian Housing 
Loan Guarantee Fund will be credited and debited in accordance with 12 
U.S.C. 1715z-13a(i)(2). This proposed section is consistent with 
current program policy, practice, and/or procedure and aligns with 
industry standards.
    Final payment Sec.  1005.847. This section would establish the 
conditions for final payment from HUD to the Lender. Paragraph (a) 
would provide that payment of the Claim shall be deemed as final 
payment to the Servicer and that the Servicer would have no further 
claims against the Borrower or HUD. The provision further states final 
payment to the Servicer does not preclude HUD from seeking 
reimbursement of costs and return of amounts from the Servicer when 
there is a reconveyance to the Lender.
    Paragraph (b) would provide that when there is a reconveyance to 
the Servicer, and the Servicer reimburses HUD for all expenses and 
returns all Claim amounts paid, the final payment to the Servicer 
restriction under Sec.  1005.849(a) will not apply. The section makes 
clear that in the event the Servicer resubmits a Claim after 
reconveyance to the Servicer, then the Servicer shall not be reimbursed 
for any expenses incurred after the date of the HUD Conveyance. This 
proposed section is consistent with current program policy, practice, 
and/or procedure.
    Reconveyance and reassignment Sec.  1005.849. This section proposes 
actions HUD may take when there is a reconveyance of a property or a 
reassignment of the deed of trust or mortgage back to the Holder. 
Paragraph (a) would provide that HUD may reconvey the property to the 
Holder due to an Originating Direct Guarantee Lender or Servicer's 
noncompliance with the requirements of this part or if there is a 
withdrawal of a Claim for benefits in accordance with Sec.  1005.815. 
Paragraph (b) proposes to provide that HUD may take action against the 
Holder, including, but not limited to, seeking reimbursement of all 
Claim costs paid. Paragraph (c) proposes to provide that where HUD has 
conveyed the property or reassigned the deed of trust or mortgage back 
to the Holder, and a Claim is subsequently resubmitted, the Holder will 
not be reimbursed for any expenses incurred after the date of the HUD 
Conveyance or assignment. This proposed section is consistent with 
current program policy, practice, and/or procedure and aligns with 
industry standards.
    Reimbursement of expenses to HUD Sec.  1005.851. This section would 
establish a Holder or the Originating Direct Guarantee Lender 
reimbursement responsibilities when HUD determines it will reconvey of 
a property previously conveyed to HUD under the claims process. This 
section proposes that when there is a reconveyance or reassignment by 
HUD, to the Holder or the Originating Direct Guarantee Lender, or when 
HUD determines noncompliance, the Holder or the Originating Direct 
Guarantee Lender shall reimburse HUD for all Claim costs paid, HUD's 
cost of holding the property, and reimbursement plus interest on the 
loan guarantee benefits from the date the loan guarantee benefits were 
paid to the date HUD

[[Page 78341]]

receives the refund from the Holder. The interest rate shall be in 
conformity with the Treasury Fiscal Requirements Manual. This proposed 
section is consistent with current program policy, practice, and/or 
procedure and aligns with industry standards.
I. Lender Program Performance, Reporting, Sanctions, and Appeals 
(Subpart I)
    Direct Guarantee Lender, Holder, or Servicer performance reviews 
Sec.  1005.901. This section would establish HUD's authority to conduct 
periodic performance reviews of Direct Guarantee Lenders, Non-Direct 
Guarantee Lenders, Holders, and Servicers. These reviews will include, 
but are not limited to, an evaluation of compliance with this 
regulation. Monitoring reviews ensure that Direct Guarantee Lenders, 
Non-Direct Guarantee Lenders, Holders, and Servicers are complying with 
the requirements of the program and reduces risk to the Fund. This 
proposed section is consistent with current program policy, practice, 
and procedure and aligns with industry standards.
    Direct Guarantee Lender, Holder, or Servicer reporting and 
certifications Sec.  1005.903. This section proposes to mandate Direct 
Guarantee Lenders, Non-Direct Guarantee Lenders, or Servicers provide 
timely and accurate reports and certifications to HUD and provides HUD 
the authority to subject the Lender to sanctions for failure to submit 
such documents. This proposed section is consistent with current 
program policy, practice, and/or procedure.
    Direct Guarantee Lender, Holder, or Servicer notice of sanctions 
Sec.  1005.905. This section would state that HUD will provide notice 
to the Direct Guarantee Lender, Non-Direct Guarantee Lender, Holder, or 
Servicer of the specific-noncompliance and, where applicable, allow for 
a reasonable time to return to compliance, prior to any sanctions or 
civil money penalties If the Direct Guarantee Lender, Non-Direct 
Guarantee Lender, Holder, or Servicer fails to return to compliance, 
HUD shall provide written notice of the sanction or civil money 
penalties to be imposed and the basis for the action. This proposed 
section is consistent with current program policy, practice, and/or 
procedure and aligns with industry standards.
    Direct Guarantee Lender, Holder, or Servicer sanctions and civil 
money penalties Sec.  1005.907. This section proposes that sanctions 
and civil money penalties may be imposed by HUD when a Direct Guarantee 
Lender, Non-Direct Guarantee Lender, Holder, or Servicer fails to 
comply with this part. Such compliance may include complying with 
Section 184 Program Guidance when it specifically provides reasonable 
times, processes, and procedures for complying with part 1005 
requirements. This includes: termination from the program; bar the 
Direct Guarantee Lender, or Holder from acquiring additional loans 
guaranteed under this section; require that the Direct Guarantee Lender 
assume not less than 10 percent of any loss on further loans made by 
the Direct Guarantee Lender; require that the Direct Guarantee Lender, 
Non-Direct Guarantee Lender, Holder, or Servicer comply with a 
corrective action plan or amend Direct Guarantee Lender, Non-Direct 
Guarantee Lender, or Servicer's quality control plan; or impose a civil 
money penalty on the Direct Guarantee Lender, Non-Direct Guarantee 
Lender, Holder, or Servicer in the manner and amount provided pursuant 
to Section 184 of the Native American Assistance and Self-Determination 
Act of 1996 (12 U.S.C. 1715z-13a) and 24 CFR part 30. This proposed 
section is statutorily authorized and is intended to protect the Fund 
and Section 184 Program integrity by allowing HUD to sanction poorly 
performing Direct Guarantee Lenders, Non-Direct Guarantee Lenders, 
Holders, or Servicers.
    Direct Guarantee Lender, Holder, or Servicer appeals process Sec.  
1005.909. This section would establish an appeal process for Non-Direct 
Guarantee Lenders, Direct Guarantee Lenders, and Servicers to appeal a 
denial of participation in the Section 184 Program and to appeal 
sanctions or civil money penalties imposed pursuant to Sec.  1005.907. 
This proposed section is intended to provide Lenders the opportunity to 
appeal a decision to HUD for HUD's reconsideration.

HUD's Part 58 Regulations

    Currently Tribes may elect to assume environmental responsibility 
for Section 184 Guaranteed Loans pursuant to 24 CFR part 58, requiring 
Tribes to ensure applicable environmental requirements are met. HUD 
proposes to not have Tribes assume environmental responsibility for the 
Section 184 Program for fee simple Properties that are located outside 
of a reservation in order to streamline the environmental review 
process and relieve the burden upon Tribes. It is impractical to have a 
Tribe assume environmental responsibilities for Section 184 Guaranteed 
Loans on fee simple Properties outside of a reservation, which may be 
located far from the reservation of the Borrower's Tribe. Forgoing 
Tribal involvement and responsibility for Federal environmental review 
on such properties will increase the efficiency in providing HUD 
assistance, as well as relieve the Tribes of a burden. Accordingly, the 
proposed rule would revise Sec.  58.1(b), which lists the programs that 
are subject to part 58, to indicate that Indian Housing Loan Guarantees 
under Section 184 are subject to part 58 for Properties on trust land 
and on fee land within a reservation. Thus, Properties not on trust 
land not on fee land within a reservation shall be subject to Sec.  
50.19(b)(17).
    For loan guarantees that are subject to part 58, part 58 indicates 
which activities are categorically excluded from environmental 
assessment under the National Environmental Policy Act (42 U.S.C. 4321, 
et seq.) (NEPA) and which categorically excluded activities remain 
subject to related Federal environmental laws and authorities listed in 
Sec.  58.5. HUD's existing regulation at Sec.  58.35(b) lists a number 
of programs that are categorically excluded from assessment under NEPA 
and not subject to such related authorities, and this proposed rule 
would add to the list HUD's guarantee of loans for one- to four-family 
dwellings under the Direct Guarantee procedure for the Section 184 
Program where there is no review or approval of the application for the 
loan guarantee by HUD or the responsible entity, or approval of the 
loan guarantee by HUD, before the execution of the contract for 
construction or rehabilitation and the loan closing.\1\ The proposed 
rule would update HUD's categorical exclusions and increase efficiency 
in providing HUD assistance, as well as reducing reduce costs 
associated with HUD's environmental review process to eliminate 
unnecessary regulatory burdens that impede affordable housing 
development.
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    \1\ A comparable categorical exclusion for loan guarantees under 
the Section 184 Direct Guarantee procedure is already contained in 
24 CFR part 50, which applies when a Tribe declines to assume 
environmental review responsibilities and HUD performs any required 
environmental review. See 24 CFR 50.19(b)(17). The proposed 
exclusion under part 58 would adapt the existing exclusion to apply 
when a Tribe assumes environmental responsibilities, where there is 
no HUD review or approval of the application for the loan guarantee 
by HUD or the responsible entity, or approval of the loan guarantee 
by HUD before the completion of construction or rehabilitation and 
the loan closing.
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Specific Question for Comment--Environmental Regulations

    HUD invites comments on the proposal to shift environmental 
responsibility from Tribes to HUD for

[[Page 78342]]

fee simple Properties that are located outside of a reservation.

III. Tribal Consultation

    HUD's policy is to consult with Indian Tribes early in the 
rulemaking process on matters that have Tribal implications. 
Accordingly, HUD began consulting with Indian Tribes in February 2018. 
HUD held eleven in-person Tribal consultation sessions before the 
regulations in this proposed rule were drafted. As draft subparts of 
the regulation were completed, HUD held three additional in-person 
consultations to solicit Tribal feedback on each subpart. On April 4, 
2019, HUD sent out a copy of the full draft proposed rule to all Tribal 
leaders and directors of TDHEs for review and comment. The Tribal 
comment period was originally from April 4, 2019, to June 4, 2019, but 
it was extended to June 30, 2019, after Tribal leaders requested more 
time to review the draft proposed rule. During this time, HUD also held 
two in-person Tribal consultations and two national teleconferences to 
review the draft proposed rule.
    Tribal feedback has been an integral part of the process to develop 
this proposed rule. Throughout the consultation process, HUD used 
Tribal feedback to refine and improve this proposed rule. Tribal 
comments included areas such as Lender relationships and 
qualifications, loan limits, rate and fees, loan processing, Borrower 
qualifications, eligible units, Section 184 Approved Program Area, 
Tribal courts, and Tribal involvement. HUD considered all written 
comments submitted to HUD, as well as recorded comments received from 
in-person Tribal consultation sessions, and revised the proposed rule 
as appropriate.

IV. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both the costs and 
benefits of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the order. This 
proposed rule, as discussed above, would introduce changes to make the 
program sustainable, protect Borrowers, address recommendations by the 
OIG in areas such as Lender underwriting and the claims process, and 
provide clarity for new and existing Lenders who participate in the 
Section 184 Program. These changes would allow for Lenders to serve the 
growing demand for the program and introduce stronger governing 
regulations to reduce the increased risk to the Fund.
    Many current and potential Section 184 Lenders and Servicers 
participate in the FHA single family mortgage program. Where 
appropriate, aligning the new Section 184 regulations with the FHA 
single family mortgage program regulations should also minimize costs 
to new and existing Lenders. Additionally, clarifying servicing 
requirements will protect the Borrowers by requiring Servicers to 
consider Loss Mitigation options for Borrowers. Moreover, the added 
requirements and protections will help to reduce losses to the Fund and 
thereby allow the Section 184 Program to provide additional loans and 
decrease the cost of the loans to eligible Borrowers.
    This rule was determined to be a significant regulatory action 
under section 3(f) of Executive Order 12866, Regulatory Planning and 
Review, and therefore was reviewed by OMB. However, this rule was not 
deemed to be economically significant. Because program participants 
have long followed the substantive standards that this rule would 
establish, HUD anticipates that this rule will have little to no 
economic effect.
    The docket file is available for public inspection in the 
Regulations Division, Office of General Counsel, Room 10276, 451 7th 
Street SW, Washington, DC 20410-0500. Due to security measures at the 
HUD Headquarters building, please schedule an appointment to review the 
docket file by calling the Regulations Division at 202-708-3055 (this 
is not a toll-free number). Individuals with speech or hearing 
impairments may access this number via TTY by calling the Federal Relay 
Service at 800-877-8339 (this is a toll-free number).

Paperwork Reduction Act

    Currently, the Section 184 Program has an existing information 
collection requirement previously approved by the OMB under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB 
control number 2577-0200. The proposed rule would modify some of the 
documents in this information collection and would create new documents 
to bring additional efficiency and accountability to the program. In 
accordance with the Paperwork Reduction Act, an agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a valid OMB control number.
    The proposed rule would amend the existing Lender and Direct 
Guarantee Lender application process. Under Sec.  1005.207, HUD would 
require all Lenders to select a level of participation in the Section 
184 Program on a form prescribed by HUD. This form requests detailed 
information about the Lender, in addition to the participation level. 
This proposed revision of the Lender application process would allow 
HUD to more closely track how many, and the type of, Lenders 
participating in the program. The proposed rule would request 
information that would give HUD further assurances that the Lenders 
participating in the Section 184 Program have the experience, staffing, 
and financial resources to follow program guidelines.
    Currently the Section 184 Program uses FHA forms as part of 
securing a loan on a manufactured home, assumptions, and pre-
foreclosure sale process. This has led to confusion by Lenders over 
which information to submit, since the Section 184 Program may require 
the same information collected on the FHA form. As part of the proposed 
rule, under Sec. Sec.  1005.429(a)(3)(iv), 1005.711(c), and 
1005.751(h)(1), (s)(2), and (t)(1), HUD would develop and gain 
approval, when required, of forms similar to the FHA documents, but 
specific to the Section 184 Program, which would reduce the paperwork 
burden on the Lenders.
    The proposed rule would establish new requirements in the areas of 
annual Lender and Tribal Recertification Sec. Sec.  1005.223(a) and 
1005.307 to provide additional accountability when changes occur that 
might impact a Lender or Tribe's eligibility for the program. The 
proposed rule would establish new requirements for Tribal application 
under Sec.  1005.303 to clarify the information a Tribe needs to submit 
when seeking HUD approval of eligibility to guarantee loans on a its 
Tribal Land.
    Based on comments received during Tribal consultation, the proposed 
rule at Sec.  1005.501(j), would establish a new loan closing document, 
signed by the

[[Page 78343]]

Borrower, in which the Borrower may elect to authorize the Lender to 
notify the Borrower's Tribe in the event of default. Tribes requested 
this notification so they may assist the Borrower with default if such 
assistance was available.
    Under Sec.  1005.769(b), HUD has new requirement for Lenders 
conveying a property to HUD at or after foreclosure, to submit a 
notification of Conveyance advising HUD of the filing of such 
Conveyance.
    The total annual estimated paperwork burden for the proposed rule 
is 520.41 hours. The overall new paperwork burden for the proposed 
rule, as compared to the burden under the previous rule, is 303.7 
hours. The bulk of this time is related to the new loan closing 
document required in Sec.  1005.501(j), which would allow the Borrower 
to elect Tribal notification in the event of default. This form would 
be required for each loan guaranteed by the program. The estimated 
burden for this form is 5 minutes, and the program's total loan volume 
is 3,750 loans for a total of 187.5 hours of estimated annual burden.
    The burden of the information collections in this rule is estimated 
as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                   Estimated
                                                 Number of        Number of       average time      Estimated
              Section reference                 respondents     responses per   for requirement   annual burden
                                                                  respondent       (in hours)       (in hours)
----------------------------------------------------------------------------------------------------------------
1005.207....................................               32                1             0.08             2.56
1005.223(a).................................              150                1             0.25             37.5
1005.303....................................                6                1             0.33             1.98
1005.307....................................              226                1             0.17            38.42
1005.429(a)(3)(iv)..........................              350                1             0.03             10.5
1005.501(b).................................             3750                1             0.05            187.5
1005.501(j).................................             3750                1             0.05            187.5
1005.711(c).................................                5                1             0.05             0.25
1005.751(h)(1)..............................               25                1             0.15             3.75
1005.751(s)(2)..............................               25                1             0.25             6.25
1005.751(t)(1)..............................               25                1             0.25             6.25
1005.769(b).................................              115                1             0.33            37.95
                                             -------------------------------------------------------------------
    Total Paperwork Burden for the New Rule.  ...............  ...............  ...............           520.41
----------------------------------------------------------------------------------------------------------------

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Comments must refer 
to the proposal by name and docket number (FR-5593-P-01) and must be 
sent to:
    HUD Desk Officer: Office of Management and Budget, New Executive 
Office Building, Washington, DC 20503, Fax: (202) 395-6947, and Reports 
Liaison Officer, Office of Public and Indian Housing, Department of 
Housing and Urban Development, Room, 451 7th Street SW, Washington, DC 
20410.
    Interested persons may submit comments regarding the information 
collection requirements electronically through the Federal eRulemaking 
Portal at https://www.regulations.gov. HUD strongly encourages 
commenters to submit comments electronically. Electronic submission of 
comments allows the commenter maximum time to prepare and submit a 
comment, ensures timely receipt by HUD, and enables HUD to make them 
immediately available to the public. Comments submitted electronically 
through the https://www.regulations.gov website can be viewed by other 
commenters and interested members of the public. Commenters should 
follow the instructions provided on that site to submit comments 
electronically.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
As discussed above, this rule would provide clarity for new and 
existing Lenders who participate in the Section 184 Program. 
Participation in the Section 184 Program is voluntary. HUD does not 
believe the additional requirements will have a significant impact on 
small entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that will meet HUD's objectives, as described 
in this preamble.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive order. This proposed rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

[[Page 78344]]

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50, which implement Section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is 
available for public inspection at https://www.hud.gov/codetalk and 
between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office 
of General Counsel, Department of Housing and Urban Development, 451 
7th Street SW, Room 10276, Washington, DC 20410-0500. Due to security 
measures at the HUD Headquarters building, an advance appointment to 
review the docket file must be scheduled by calling the Regulations 
Division at 202-708-3055 (this is not a toll-free number). Hearing or 
speech-impaired individuals may access this number through TTY by 
calling the toll-free Federal Relay Service at 800-877-8339.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) proposes to establish requirements 
for Federal agencies to assess the effects of their regulatory actions 
on State, local, and Tribal governments, and on the private sector. 
This proposed rule does not impose any Federal mandates on any State, 
local, or Tribal government, or on the private sector, within the 
meaning of the UMRA.

List of Subjects

24 CFR Part 58

    Community development block grants, Environmental impact 
statements, Grant programs-housing and community development, Reporting 
and recordkeeping requirements.

24 CFR Part 1005

    Indians, Loan programs-Indians, Reporting and recordkeeping 
requirements.

    For the reasons stated in the preamble, HUD proposes to amend 24 
CFR parts 58 and 1005 as follows:

PART 58--ENVIRONMENTAL REVIEW PROCEDURES FOR ENTITIES ASSUMING HUD 
ENVIRONMENTAL RESPONSIBILITIES

0
1. The authority citation for part 58 continues to read as follows:

    Authority: 12 U.S.C. 1707 note, 1715z-13a(k); 25 U.S.C. 4115 and 
4226; 42 U.S.C. 1437x, 3535(d), 3547, 4321-4335, 4852, 5304(g), 
12838, and 12905(h); title II of Pub. L. 105-276; E.O. 11514 as 
amended by E.O. 11991, 3 CFR, 1977, Comp., p. 123.

0
2. In Sec.  58.1, revise paragraph (b)(11) to read as follows:


Sec.  58.1  Purpose and applicability.

* * * * *
    (b) * * *
    (11) Indian Housing Loan Guarantees authorized by section 184 of 
the Housing and Community Development Act of 1992 on trust land and on 
fee land within a reservation, in accordance with section 184(k) (12 
U.S.C. 1715z-13a(k)); and
* * * * *
0
3. In Sec.  58.35, add paragraph (b)(8) to read as follows:


Sec.  58.35  Categorical exclusions.

* * * * *
    (b) * * *
    (8) HUD's guarantee of loans for one- to-four family dwellings on 
trust land and on fee land within a reservation under the Direct 
Guarantee procedure for the Section 184 Indian Housing loan guarantee 
program without any review or approval of the application for the loan 
guarantee by HUD or the responsible entity or approval of the loan 
guarantee by HUD before the execution of the contract for construction 
or rehabilitation and the loan closing.
* * * * *
0
4. Revise part 1005 to read as follows:

PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING

Subpart A--General Program Requirements
Sec.
1005.101 Purpose.
1005.103 Definitions.
Subpart B--Lender Eligibility & Requirements
1005.201 Lender approval and participation.
1005.203 Lenders deemed approved by statute.
1005.205 Lenders required to obtain Secretarial approval.
1005.207 Lender participation options.
1005.209 Direct Guarantee Lender application process.
1005.211 Direct Guarantee Lender approval.
1005.213 Non-Direct Guarantee Lender application, approval, and 
Direct Guarantee Lender sponsorship.
1005.215 Annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Annual recertification.
1005.225 Program ineligibility.
Subpart C--Lending on Trust Land
1005.301 Tribal legal and administrative framework.
1005.303 Tribal application.
1005.305 Approval of Tribal application.
1005.307 Tribal recertification.
1005.309 Duty to report changes.
1005.311 HUD notification of any lease default.
1005.313 Tribal reporting requirements.
Subpart D--Underwriting

Eligible Borrowers

1005.401 Eligible Borrowers.
1005.403 Principal Residence.
1005.405 Borrower residency status.
1005.407 Relationship of income to loan payments.
1005.409 Credit standing.
1005.411 Disclosure and verification of Social Security and Employer 
Identification Numbers or Tax Identification Number.

Eligible Properties

1005.413 Acceptable title.
1005.415 Sale of property.
1005.417 Location of property.
1005.419 Requirements for standard housing.
1005.421 Certification of appraisal amount.
1005.423 Legal restrictions on Conveyance.
1005.425 Rental properties.
1005.427 Refinancing.
1005.429 Eligibility of Loans covering manufactured homes.
1005.431 Acceptance of individual residential water purification.
1005.433 Builder warranty.

Eligible Loans

1005.435 Eligible collateral.
1005.437 Loan provisions.
1005.439 Loan lien.
1005.441 Section 184 Guaranteed Loan limit.
1005.443 Loan amount.
1005.445 Case numbers.
1005.447 Maximum age of Loan documents.
1005.449 Qualified mortgage.
1005.451 Agreed interest rate.
1005.453 Amortization provisions.

Underwriting

1005.455 Direct guarantee underwriting.
1005.457 Appraisal.
1005.459 Loan submission to HUD for Direct Guarantee.
1005.461 HUD issuance of Firm Commitment.
Subpart E--Closing and Endorsement

Closing

1005.501 Direct Guarantee Lender closing requirements.
1005.503 Contents of the endorsement case binder.
1005.505 Payment of Upfront Loan Guarantee Fee.
1005.507 Borrower's payments to include other charges and escrow 
payments.
1005.509 Application of payments.
1005.511 Late fee.
1005.513 Borrower's payments when Section 184 Guaranteed Loan is 
executed.
1005.515 Charges, fees, or discounts.
1005.517 Certificate of nondiscrimination by the Direct Guarantee 
Lender.

[[Page 78345]]

Endorsement and Post-Closing

1005.519 Creation of the contract.
1005.521 Lender pre-endorsement review and requirements.
1005.523 HUD pre-endorsement review.
1005.525 Loan Guarantee Certificate.
1005.527 Post-endorsement review.
1005.529 Indemnification.
Subpart F--Section 184 Guaranteed Loan Fees
1005.601 Scope and method of payment.
1005.603 Upfront Loan Guarantee Fee.
1005.605 Remittance of Upfront Loan Guarantee Fee.
1005.607 Annual Loan Guarantee Fee.
1005.609 Remittance of Annual Loan Guarantee Fee.
1005.611 HUD imposed penalties.
Subpart G--Servicing

Servicing Section 184 Guaranteed Loans Generally

1005.701 Section 184 Guaranteed Loan servicing generally.
1005.703 Servicer eligibility and application process.
1005.705 Servicer approval.
1005.707 Responsibility for servicing.
1005.709 Providing information to Borrower and HUD.
1005.711 Assumption and release of personal liability.
1005.713 Due-on-sale provision.
1005.715 Application of Borrower payments.
1005.717 Administering escrow accounts.
1005.719 Fees and costs after endorsement.
1005.721 Enforcement of late fees.
1005.723 Partial payments.
1005.725 Handling prepayments.
1005.727 Substitute Borrowers.

Servicing Default Section 184 Guaranteed Loans

1005.729 Section 184 Guaranteed Loan collection action.
1005.731 Default notice to Borrower.
1005.733 Loss mitigation application, timelines, and appeals.
1005.735 Occupancy inspection.
1005.737 Vacant property procedures.

Servicing Default Section 184 Guaranteed Loans under the Loss 
Mitigation Program

1005.739 Loss mitigation.
1005.741 Notice to Tribe and BIA--Borrower default.
1005.743 Relief for Borrower in military service.
1005.745 Forbearance plans.
1005.747 Assumption.
1005.749 Loan modification.
1005.751 Pre-foreclosure sale.
1005.753 Deed-in-lieu/lease-in-lieu of foreclosure.
1005.755 Incentive payments to Borrower.

Assignment of the Loan to HUD, Foreclosure, and Conveyance

1005.757 Property on Trust Land--Tribal first right of refusal; 
foreclosure or assignment.
1005.759 Fee simple land properties--foreclosure or assignment with 
HUD approval.
1005.761 First Legal Action deadline and automatic extensions.
1005.763 Assignment of the Section 184 Guaranteed Loan.
1005.765 Inspection and preservation of properties.
1005.767 Property condition.
1005.769 Conveyance of property to HUD at or after foreclosure; time 
of Conveyance.
1005.771 Acceptance of property by HUD.
Subpart H--Claims

Claims Application, Submission Categories, and Types

1005.801 Purpose.
1005.803 Claim case binder; HUD authority to review records.
1005.805 Effect of noncompliance.
1005.807 Claim submission categories.
1005.809 Claim types.

Submission of Claims

1005.811 Claims supporting documentation.
1005.813 Upfront and Annual Loan Guarantee Fee reconciliation.
1005.815 Conditions for withdrawal of claim.

Property Title Transfers and Title Waivers

1005.817 Conveyance of Good and Marketable Title.
1005.819 Types of satisfactory title evidence.
1005.821 Coverage of title evidence.
1005.823 Waived title objections for properties on fee simple land.
1005.825 Waived title objections for properties on Trust Land.

Condition of the Property

1005.827 Damage or neglect.
1005.829 Certificate of property condition.
1005.831 Cancellation of hazard insurance.

Payment of Guarantee Benefits

1005.833 Method of payment.
1005.835 Claim payment not conclusive evidence of claim meeting all 
HUD requirements.
1005.837 Payment of claim: unpaid principal balance.
1005.839 Payment of claim: interest on unpaid principal balance.
1005.841 Payment of claim: reimbursement of eligible and reasonable 
costs.
1005.843 Reductions to the claim submission amount.
1005.845 Rights and liabilities under the Indian Housing Loan 
Guarantee Fund.
1005.847 Final payment.
1005.849 Reconveyance and reassignment.
1005.851 Reimbursement of expenses to HUD.
Subpart I--Lender Program Performance, Reporting, Sanctions, and 
Appeals
1005.901 Direct Guarantee Lender, Holder, or Servicer performance 
reviews.
1005.903 Direct Guarantee Lender, Holder, or Servicer reporting and 
certifications.
1005.905 Direct Guarantee Lender, Holder, or Servicer notice of 
sanctions.
1005.907 Direct Guarantee Lender, Holder, or Servicer sanctions and 
civil money penalties.
1005.909 Direct Guarantee Lender, Holder, or Servicer appeals 
process.

    Authority: 12 U.S.C. 1715z-13a; 15 U.S.C. 1639c; 42 U.S.C. 
3535(d).

Subpart A--General Program Requirements


Sec.  1005.101  Purpose.

    This part implements the Section 184 Indian Home Loan Guarantee 
Program (``Section 184 Program'') authorized under Section 184 of the 
Housing and Community Development Act of 1992, as amended, codified at 
12 U.S.C. 1715z-13a. Section 184 authorizes the U.S. Department of 
Housing and Urban Development (HUD) to establish a loan guarantee 
program for American Indian and Alaskan Native families, Tribes and 
Tribally Designated Housing Entities (TDHE). The loans guaranteed under 
the Section 184 Program are used to construct, acquire, refinance, or 
rehabilitate one- to four-family standard housing located on Trust 
Land, land located in an Indian or Alaska Native area, and Section 184 
Approved Program Area. These regulations apply to Lenders, Servicers 
and Tribes seeking to or currently participating in the Section 184 
Program.


Sec.  1005.103  Definitions.

    The following definitions apply throughout this part:
    Acquisition Cost means the sum of the sales price or construction 
cost for a property and the cost of allowable repairs or improvements 
for the same property, less any unallowable sales concession(s). For 
the purposes of this definition, the term ``sales concession'' means an 
inducement to purchase a property paid by the seller to consummate a 
sales transaction.
    Amortization means the calculated schedule of repayment of a 
Section 184 Guaranteed Loan in full, through structured, regular 
payments of principal and interest within a certain time frame.
    Amortization Schedule means the document generated at the time of 
loan approval outlining the Borrower's schedule of payments of 
principal and interest for the life of the loan and the unpaid 
principal balance with and without financed Upfront Loan Guarantee Fee, 
where applicable.
    Annual Loan Guarantee Fee means a fee calculated on an annual basis 
and paid in monthly installments by the Borrower, which is collected by 
the Servicer and remitted to HUD for the purposes of financing the 
Indian Housing Loan Guarantee Fund.
    BIA means the United States Department of Interior, Bureau of 
Indian Affairs.

[[Page 78346]]

    Borrower means each and every individual on the mortgage 
application. For the purposes of servicing the loan, Borrower refers to 
each and every original Borrower who signed the note and their heirs, 
executors, administrators, assigns, and approved substitute Borrowers. 
Borrower includes Tribes and TDHEs.
    Claim means the Servicer's application to HUD for payment of 
benefits under the Loan Guarantee Certificate for a Section 184 
Guaranteed Loan.
    Conflict of Interest means any party to the transaction who has a 
direct or indirect personal business or financial relationship 
sufficient to appear that it may cause partiality or influence the 
transaction, or both.
    Date of default means the day after the Borrower's obligation to 
make a loan payment or perform an obligation under the terms of the 
loan, Loss Mitigation plan, or any other agreement with the Direct 
Guarantee Lender was due.
    Day means calendar day, except where the term ``business day'' is 
used.
    Default means when the Borrower has failed to make a loan payment 
or perform an obligation under the terms of the Section 184 Guaranteed 
Loan, Loss Mitigation plan, lease, or any other agreement with the 
Direct Guarantee Lender.
    Direct Guarantee Lender means a Lender approved by HUD under Sec.  
1005.211 to originate, underwrite, close, service, purchase, hold, or 
sell Section 184 Guaranteed Loans.
    Eligible Nonprofit Organization means a nonprofit organization 
established under Tribal law or organization of the type described in 
section 501(c)(3) of the Internal Revenue Code of 1986 as an 
organization exempt from taxation under section 501(a) of the Code, 
which has:
    (1) Two years' experience as a provider of low- or moderate-income 
housing;
    (2) A voluntary board; and
    (3) No part of its net earnings inuring to the benefit of any 
member, founder, contributor or individual.
    Financial Statements means audited financial statements or other 
financial records as required by HUD.
    Firm Commitment means a commitment by HUD to reserve funds, for a 
specified period of time, to guarantee a Loan under the Section 184 
program, when a Loan for a specific Borrower and property meets 
standards as set forth in subpart D of this part.
    First Legal Action means the first public action required by Tribal 
or State law to foreclose, such as filing a complaint or petition, 
recording a notice of default, or publication of a notice of sale.
    Good and Marketable Title means title that contains exceptions or 
restrictions, if any, which are permissible under subpart D of this 
part; and any objections to title that have been waived by HUD or 
otherwise cleared; and any discrepancies have been resolved to ensure 
the Section 184 Guaranteed Loan is in first lien position. In the case 
of Section 184 Guaranteed Loans on Trust Land, Good and Marketable 
Title includes the ownership rights of the improvements as reported in 
the Title Status Report issued by the BIA.
    Holder means an entity that holds title to a Section 184 Guaranteed 
Loan and has the right to enforce the mortgage agreement.
    Identity of Interest means a sales transaction between family 
members, business partners, or other business affiliates.
    Indian means a person who is recognized as being an Indian or 
Alaska Native Federally by a recognized Indian Tribe, a regional or 
village corporation as defined in the Alaska Native Claims Settlement 
Act, or a State recognized Tribe eligible to receive assistance under 
Title I of the Native American Housing Assistance and Self-
Determination Act of 1996 (NAHASDA).
    Indian Family means one or more persons maintaining a household 
where at least one Borrower is an Indian.
    Indian Housing Loan Guarantee Fund or Fund means a fund established 
at the U.S. Department of Treasury for the purpose of providing loan 
guarantees under the Section 184 Program.
    Lease or leasehold interest means a written contract between a 
Borrower and a Tribe, entity, or individual, whereby the Borrower, as 
lessee, is granted a right of possession of Trust Land for a specific 
purpose and duration, according to applicable Tribal, Federal, or State 
law.
    Lender means a financial institution engaging in mortgage lending 
that is eligible to participate in the Section 184 Program under Sec.  
1005.203 or Sec.  1005.205, but has not yet had a program participation 
level approved under Sec.  1005.207.
    Loan means a loan application or mortgage loan that has not 
received a Loan Guarantee Certificate.
    Loan Guarantee Certificate means evidence of endorsement by HUD of 
a Loan for guarantee issued under Sec.  1005.525.
    Loss Mitigation means an alternative to foreclosure offered by the 
Holder of a Section 184 Guaranteed Loan that is made available through 
the Servicer to the Borrower.
    Non-Direct Guarantee Lender means a Lender approved by HUD under 
Sec.  1005.207 who has selected a level of program participation 
limited to originating Section 184 Guaranteed Loans.
    Month or monthly means thirty days in a month, regardless of the 
actual number of days.
    Origination or originate means the process by which the Lender 
accepts a new loan application along with all required supporting 
documentation. Origination does not include underwriting the loan.
    Owner of Record means, for fee simple properties, the owner of 
property as shown on the records of the recorder in the county where 
the property is located. For properties held in trust by the United 
States, the current lessee or owner of property, as shown on the Title 
Status Report provided by the BIA.
    Partial Payment means a Borrower payment of any amount less than 
the full amount due under the terms of the Section 184 Guaranteed Loan 
at the time the payment is tendered.
    Property means a one to four-family dwelling that meets the 
requirements for standard housing under Sec.  1005.419 and located on 
Trust Land, land located in an Indian or Alaska Native area, or Section 
184 Approved Program Area.
    Section 184 Approved Program Area means the Indian Housing Block 
Grant (IHBG) Formula Area as defined in 24 CFR 1000.302 or any other 
area approved by HUD, in which HUD may guarantee Loans.
    Section 184 Guaranteed Loan is a Loan that has received a Loan 
Guarantee Certificate.
    Section 184 Program Guidance means administrative guidance 
documents that may be issued by HUD, including but not limited to 
Federal Register Notices, Dear Lender Letters, handbooks, guidebooks, 
manuals, and user guides.
    Security means any collateral authorized under existing Tribal, 
Federal, or State law.
    Servicer means a Direct Guarantee Lender that chooses to services 
Section 184 Guaranteed Loans or a Non-Direct Guarantee Lender or a 
financial institution approved by HUD under Sec.  1005.705 to service 
Section 184 Guaranteed Loans.
    Sponsor means an approved Direct Guarantee Lender that enters into 
a relationship with a Non-Direct Guarantee Lender or another Direct 
Guarantee Lender (Sponsored Entity), whereby the Sponsor provides 
underwriting, closing, purchasing, and holding of Section 184 
Guaranteed Loans and may provide servicing.

[[Page 78347]]

    Sponsored Entity means a Non-Direct Guarantee or Direct Guarantee 
Lender operating under an agreement with a Sponsor to originate Section 
184 Guaranteed Loans in accordance with Sec.  1005.213.
    Tax-exempt bond financing means financing which is funded in whole 
or in part by the proceeds of qualified mortgage bonds described in 
section 143 of the Internal Revenue Code of 1986 on which the interest 
is exempt from Federal income tax. The term does not include financing 
by qualified veterans' mortgage bonds as defined in section 143(b) of 
the Code.
    Title Status Report is defined in 25 CFR 150.2, as may be amended.
    Tribe means any Indian Tribe, band, nation, or other organized 
group or community of Indians, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601, et seq.), 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians pursuant to the Indian Self Determination and Education 
Assistance Act of 1975.
    Tribally Designated Housing Entity (TDHE) means any entity as 
defined in the Indian Housing Block Grant Program under the Native 
American Housing Assistance and Self Determination Act at 25 U.S.C. 
4103(22).
    Trust Land means land title which is held by the United States for 
the benefit of an Indian or Tribe or title which is held by a Tribe 
subject to a restriction against alienation imposed by the United 
States or Tribe. This definition shall include but is not limited to 
allotted, restricted fee, or assigned trust lands.
    Upfront Loan Guarantee Fee means a fee, paid by the Borrower at 
closing, collected by the Direct Guarantee Lender and remitted to HUD 
for the purposes of financing the Indian Housing Loan Guarantee Fund.

Subpart B--Lender Eligibility & Requirements


Sec.  1005.201  Lender approval and participation.

    (a) Approval types. The Section 184 Program has two types of Lender 
approval:
    (1) Lenders deemed approved by statute, as described in Sec.  
1005.203; or
    (2) Lenders required to obtain secretarial approval under Sec.  
1005.205.
    (b) Lender participation. In accordance with Sec.  1005.207, 
approved Lenders must select a level of program participation and 
submit a completed application package, as prescribed by Section 184 
Program Guidance, to participate in the Section 184 program.


Sec.  1005.203  Lenders deemed approved by statute.

    (a) The following Lenders are deemed approved by statute:
    (1) Any mortgagee approved by HUD for participation in the single-
family mortgage insurance program under Title II of the National 
Housing Act;
    (2) Any Lender whose housing loans under the U.S. Department of 
Veterans Affairs, 38 U.S.C. chapter 37, are automatically guaranteed 
pursuant to 38 U.S.C. 3702(d);
    (3) Any Lender approved by the U.S. Department of Agriculture to 
make Guaranteed Loans for single family housing under the Housing Act 
of 1949; and
    (4) Any other Lender that is supervised, approved, regulated, or 
insured by any other Federal agency of the United States, including but 
not limited to Community Development Financial Institutions.
    (b) [Reserved]


Sec.  1005.205  Lenders required to obtain Secretarial approval.

    (a) Lender application process. Lenders not meeting the 
requirements of Sec.  1005.203 must apply to HUD for approval to 
participate in the Section 184 Program by submitting to HUD a completed 
application package, as prescribed by Section 184 Program Guidance. The 
application must establish that the Lender meets the following 
qualifications:
    (1) Business form. The Lender shall be a corporation or other 
chartered institution, a permanent organization having succession, or a 
partnership, organized under Tribal or State law.
    (i) Partnership requirements. A partnership must meet the following 
requirements:
    (A) Each general partner must be a corporation or other chartered 
institution consisting of two or more partners.
    (B) One general partner must be designated as the managing general 
partner. The managing general partner shall also comply with the 
requirements specified in Sec.  1005.205(a)(1)(i)(C) and (D). The 
managing general partner must have as its principal activity the 
management of one or more partnerships, all of which are mortgage 
lending institutions or property improvement or manufactured home 
lending institutions, and must have exclusive authority to deal 
directly with HUD on behalf of each partnership. Newly admitted 
partners must agree to the management of the partnership by the 
designated managing general partner. If the managing general partner 
withdraws or is removed from the partnership for any reason, a new 
managing general partner shall be substituted, and HUD must be notified 
in writing within 15 days of the substitution.
    (C) The partnership agreement shall specify that the partnership 
shall exist for a minimum term of ten years, as required by HUD. All 
Section 184 Guaranteed Loans held by the partnership shall be 
transferred to a Lender approved under this part prior to the 
termination of the partnership. The partnership shall be specifically 
authorized to continue its existence if a partner withdraws.
    (D) HUD must be notified in writing within 15 days of any 
amendments to the partnership agreement that would affect the 
partnership's actions under the Section 184 Program.
    (ii) Use of business name. The Lender must use its HUD-registered 
business name in all advertisements and promotional materials related 
to the Guaranteed Loan. HUD-registered business names include any alias 
or ``doing business as'' (DBA) on file with HUD. The Lender must keep 
copies of all print and electronic advertisements and promotional 
materials for a period of 2 years from the date that the materials are 
circulated or used to advertise.
    (2) Identification and certification of employees. The Lender shall 
identify personnel and certify that they are trained and competent to 
perform their assigned responsibilities in mortgage lending, including 
origination, servicing, collection, and Conveyance activities, and 
shall maintain adequate staff and facilities to originate or service 
mortgages, or both, in accordance with applicable Tribal, Federal, or 
State requirements, to the extent it engages in such activities.
    (3) Identification and certification of officers. The Lender shall 
identify officers and certify that all employees who will sign 
applications for Guaranteed Loans on behalf of the Lender shall be 
corporate officers or shall otherwise be authorized to bind the Lender 
in the Origination transaction. The Lender shall certify that only 
authorized person(s) report on guarantees, purchases, and sales of 
Guaranteed Loans to HUD for the purpose of obtaining or transferring 
guarantee coverage.
    (4) Financial statements. The Lender shall:

[[Page 78348]]

    (i) Furnish to HUD a copy of its most current annual audited 
financial statement.
    (ii) Furnish such other information as HUD may request; and
    (iii) Submit to examination of the portion of its records that 
relates to its activities under the Section 184 Program.
    (5) Quality control plan. The Lender shall submit a written quality 
control plan in accordance with Sec.  1005.217.
    (6) Identification of branch offices. A Lender may maintain branch 
offices. A financial institution's branch office must be registered 
with HUD to originate or submit applications for Guaranteed Loans. The 
financial institution shall remain responsible to HUD for the actions 
of its branch offices.
    (7) Certification of conflict of interest policy. The Lender must 
certify that the lender shall not pay anything of value, directly or 
indirectly, in connection with any Guaranteed Loan to any person or 
entity if such person or entity has received any other consideration 
from the seller, builder, or any other person for services related to 
such transactions or related to the purchase or sale of the property, 
except that consideration, approved by HUD, may be paid for services 
actually performed. The Lender shall not pay a referral fee to any 
person or organization.
    (8) Licensing certification. A Lender shall certify that it has not 
been refused a license and has not been sanctioned by any Tribal, 
Federal, or State, or authority in which it will originate Section 184 
Guaranteed Loans.
    (9) Minimum net worth. Irrespective of size, a Lender shall have a 
net worth of not less an amount as established by Section 184 Program 
Guidance.
    (10) Identification of operating area. The Lender must submit a 
list of states in which they wish to participate in the Section 184 
Program and evidence of Lender's license to operate in those states, as 
may be prescribed by Section 184 Program Guidance.
    (11) Other. Other qualifications by notice for comment.
    (b) HUD approval. HUD shall review applications under Sec.  
1005.203(a) and any other publicly available information related to the 
Lender, its officers, and employees. If HUD determines the Lender meets 
the requirements for participation in this subpart, HUD shall provide 
written notification of the approval to be a Section 184 Lender.
    (c) Limitations on approval. A Lender may only operate in the 
Section 184 Approved Program Area where they are licensed.
    (d) Denial of participation. A Lender may be denied approval to 
become a Section 184 Lender if HUD determines the Lender does not meet 
the qualification requirements of this subpart. HUD will provide 
written notification of denial and that decision may be appealed in 
accordance with the procedures set forth in Sec.  1005.909.


Sec.  1005.207  Lender participation options.

    (a) Levels of participation. Lenders must choose one of two levels 
of program participation, a Non-Direct Guarantee Lender or a Direct 
Guarantee Lender and submit an application to participate on a form 
prescribed by Section 184 Program Guidance. A participation level must 
be selected by the Lender and approved by HUD before initiating any 
Section 184 Program activities.
    (b) Non-Direct Guarantee Lender. (1) A Non-Direct Guarantee Lender 
originates Loans.
    (2) A Non-Direct Guarantee Lender must be a Sponsored Entity under 
Sec.  1005.213.
    (3) A Non-Direct Guarantee Lender must submit documentation 
supporting their eligibility as a Lender under Sec.  1005.203 or 
approved by HUD under Sec.  1005.205 and other documentation as 
prescribed by Section 184 Program Guidance to HUD through their 
Sponsor.
    (c) Direct Guarantee Lender. (1) A Direct Guarantee Lender may 
originate, underwrite, close, service, purchase, hold, and sell Section 
184 Guaranteed Loans.
    (2) A Direct Guarantee Lender may sponsor Non-Direct Guarantee 
Lenders or other Direct Guarantee Lenders in accordance with Sec.  
1005.213.
    (3) To become a Direct Guarantee Lender, Lenders must submit 
additional documentation as provided in Sec.  1005.209 and obtain HUD 
approval under Sec.  1005.211.


Sec.  1005.209  Direct Guarantee Lender application process.

    (a) Lenders must apply to HUD for approval to participate in the 
Section 184 Program as a Direct Guarantee Lender. Lenders must submit a 
completed application package in accordance with Section 184 Program 
Guidance.
    (b) To be approved as a Direct Guarantee Lender, a Lender must 
establish in its application that it meets the following 
qualifications:
    (1) Eligibility under Sec.  1005.203 or HUD approval under Sec.  
1005.205, as evidenced by approval documents and most recent 
recertification documents.
    (2) Has a principal officer with a minimum of five years' 
experience in the origination of Loans guaranteed or insured by an 
agency of the Federal Government. HUD may approve a Lender with less 
than five years of experience, if a principal officer has had a minimum 
of five years of managerial experience in the origination of loans 
guaranteed or insured by an agency of the Federal Government.
    (3) Has on its permanent staff an underwriter(s) that meets the 
following criteria:
    (i) Two years' experience underwriting loans guaranteed or insured 
by an agency of the Federal Government;
    (ii) Is an exclusive employee of the Lender;
    (iii) Authorized by the Lender to obligate the Lender on matters 
involving the origination of Loans;
    (iv) Is registered with HUD as an underwriter and continues to 
maintain such registration; and
    (v) Other qualifications by notice for comment.
    (c) The Lender must submit a list of states or geographic regions 
in which it is licensed to operate, evidenced by submitting the active 
approvals for each State or region, and declare its interest in 
participating in the Section 184 Program.
    (d) The Lender must submit the quality control plan as required by 
its approving agency, modified for the Section 184 Program.
    (e) If a Lender wants to service Section 184 Guaranteed Loans as 
Direct Guarantee Lender, they must meet qualifications and submit an 
application in accordance with Sec.  1005.703.


Sec.  1005.211  Direct Guarantee Lender approval.

    HUD shall review all documents submitted by a Lender under Sec.  
1005.209 and make a determination of conditional approval or denial.
    (a) Conditional approval. Conditional approval is signified by 
written notification from HUD that the Lender is a conditionally 
approved Direct Guarantee Lender under the Section 184 Program subject 
to the following conditions:
    (1) The Lender signs an agreement to comply with requirements of 
this part, and any applicable Tribal, Federal, or State law.
    (2) If applicable, the Lender submits a list of entities it 
currently sponsors under another Federal loan program and intends to 
sponsor in the Section 184 Program. This list shall include the 
following for each Sponsored Entity:
    (i) Contact information, including mailing address, phone number, 
and email address for corporate officers.

[[Page 78349]]

    (ii) The Federal tax identification number (TIN) for the Sponsored 
Entity, and
    (iii) Names and Nationwide Multistate Licensing System and Registry 
numbers for all loan originators and processors.
    (3) The Lender certifies it monitors and provides oversight of 
Sponsored Entities to ensure compliance with this part, and any 
applicable Tribal, Federal, or State law.
    (4) The Lender must, for each underwriter, submit a number, 
prescribed by Section 184 Program Guidance, of test endorsement case 
binders, which meet the requirements of subparts D and E of this part. 
Unsatisfactory performance by an underwriter during HUD's test case 
review may constitute grounds for denial of approval to participate as 
a Direct Guarantee Lender. If participation is denied, such denial is 
effective immediately and may be appealed in accordance with the 
procedures set forth in Sec.  1005.909.
    (5) The Lender will operate only in accordance with the Lender's 
licensing in Section 184 Approved Program Areas.
    (b) Final approval. Final approval is signified by written 
notification from HUD that the Lender is an approved Direct Guarantee 
Lender under the Section 184 Program without further submission of test 
case endorsement case binders to HUD. HUD retains the right to request 
additional test cases as determined necessary.
    (c) Limitations on approval. (1) A Lender may only operate as a 
Direct Guarantee Lender in accordance with the Lender's Tribal or State 
licensing and within Section 184 Approved Program Areas.
    (2) The Lender must employ and retain an underwriter with the 
qualifications as provided in Sec.  1005.209(b)(3). Failure to comply 
with this provision may subject the Lender to sanctions under Sec.  
1005.907.
    (d) Denial of participation. A Lender may be denied approval to 
become a Direct Guarantee Lender if HUD determines the Lender does not 
meet the qualification requirements of this subpart. HUD will provide 
written notification of denial and that decision may be appealed in 
accordance with the procedures set forth in Sec.  1005.909.


Sec.  1005.213  Non-Direct Guarantee Lender application, approval, and 
Direct Guarantee Lender sponsorship.

    (a) Sponsorship. A Sponsorship is a contractual relationship 
between a Sponsor and a Sponsored Entity.
    (b) General responsibility requirements of a Sponsor. (1) The 
Sponsor must determine the eligibility of a Lender and submit to HUD, 
as prescribed in Section 184 Program Guidance, a recommendation for 
approval under Sec.  1005.207(b) or evidence of HUD approval under 
Sec.  1005. 205(b) or Sec.  1005.211(b).
    (2) Upon HUD approval of eligibility under Sec.  1005.207(b), or 
HUD acknowledgement of the evidence of HUD approval under Sec.  
1005.205(b) or Sec.  1005.211(b), the Sponsor may enter into a 
Sponsorship with the Sponsored Entity.
    (3) The Sponsor must notify HUD of changes in a Sponsorship within 
10 days.
    (4) The Sponsor must provide HUD-approved training to the Sponsored 
Entity on the requirements of the Section 184 Program before the 
Sponsored Entity may originate Section 184 Guaranteed Loans for the 
Sponsor.
    (5) Each Sponsor shall be responsible to HUD for the actions of its 
Sponsored Entity in originating Loans. If Tribal or State law requires 
specific knowledge by the Sponsor or the Sponsored Entity, HUD shall 
presume the Sponsor had such knowledge and shall remain liable.
    (6) The Sponsor is responsible for conducting quality control 
reviews of the Sponsored Entity's origination case binders and Loan 
performance to ensure compliance with this part and any other Tribal, 
Federal, State, or law requirements.
    (7) The Sponsor is responsible for maintaining all records for 
loans originated by a Sponsored Entity in accordance with this part.
    (8) A Sponsor must notify HUD of any changes in a sponsorship 
within 15 days.
    (c) Responsibilities of the Sponsored Entity. A Sponsor must ensure 
that a Sponsored Entity complies with this part and any other Tribal, 
Federal, State, or law requirements.


Sec.  1005.215  Annual reporting requirements.

    Direct Guarantee Lenders must submit an annual report on Loan 
performance, including that of all Sponsored Entities, where 
applicable, along with any other required reporting under Sec.  
1005.903 and other such reports as prescribed by Section 184 Program 
Guidance.


Sec.  1005.217  Quality control plan.

    (a) A quality control plan sets forth a Lender's procedures for 
ensuring the quality of the Lender's Section 184 Guaranteed Loan 
origination, underwriting, closing, and/or servicing. The purpose of 
the quality control plan is to ensure Lender's compliance with Section 
184 Program requirements and protect HUD and Lender from unacceptable 
or unreasonable risks. A Lender must adopt and implement a quality 
control plan.
    (b) A quality control plan must:
    (1) Be maintained and updated, as needed, to comply with all 
applicable Section 184 Program requirements.
    (2) Cover all policies and procedures, whether performed by the 
Lender or an agent, to ensure full compliance with all Section 184 
Program requirements.
    (3) Provide the Lender with information sufficient to adequately 
monitor and oversee the Lender's compliance and measure performance, as 
it relates to the Lender's Section 184 Guaranteed Loan activity.
    (4) Require the Lender to retain all quality control plan related 
documentation, including selection criteria, review documentation, 
findings, and actions to mitigate findings, for a period of three years 
from initial quality control review, or from the last action taken to 
mitigate findings, whichever is later.
    (5) Allow the Lender to use employees or agents to perform the 
quality control functions, so long as they do not directly participate 
in any loan administration processes as outlined in Section 184 Program 
Guidance.
    (6) Ensure the Lender assumes full responsibility for any agent's 
conduct of quality control reviews.
    (7) Require the Lender to train all staff, agents working with the 
Section 184 Program on Loan administration and quality control 
processes and provide staff access to all current Section 184 legal 
authorities and policy guidance. The Lender must retain copies of 
training documentation for all staff working on the Section 184 Program 
in accordance with Sec.  1005.219(d)(3). Failure to comply with the 
training and documentation requirements may subject the Lender to 
sanctions in accordance with Sec.  1005.907.
    (8) Ensure that the Lender's employees, agents, are eligible to 
participate in the Section 184 Program. Any designated employees, 
agents, deemed ineligible shall be restricted from participating in the 
program in the Section 184 Program.
    (9) Ensure the Borrower's information maintained related to the 
Section 184 Guaranteed Loan are used only for the purpose for which 
they were received and follow all applicable Federal, State, and Tribal 
requirements.
    (10) Require the Lender to refer any suspected fraud or material 
misrepresentation by any party whatsoever directly to HUD's Office of

[[Page 78350]]

Inspector General (OIG) and the Office of Native American Programs.
    (11) Require the Lender to report all material deficiencies and 
submit a corrective action plan to HUD within a timeframe as prescribed 
by Section 184 Program Guidance.
    (12) Require the Lender to conduct appropriate Loan level quality 
control procedures, in accordance with requirements as prescribed by 
Section 184 Program Guidance.
    (13) Require that the Lender maintain complete and accurate records 
of the Section 184 Guaranteed Loans which are selected for the quality 
control sample for a timeframe as prescribed by Section 184 Program 
Guidance.
    (14) Require the Lender to review a random statistical sample of 
rejected loan applications within 90 days from the end of the month in 
which the decision was made. The reviews must be conducted no less 
frequently than monthly and with the goal to ensure that the reasons 
given for the rejection were valid and each rejection received 
concurrence of an appropriate staff person with sufficient approval 
authority. The Lender must submit a report of this review in form and 
timeframe as prescribed in Section 184 Program Guidance.
    (c) Lenders to applying be a Direct Guarantee Lender under Sec.  
1005.209, must submit a quality control plan in accordance with 
paragraph (b) of this section and include the following additional 
requirements:
    (1) Require the Lender to collect and forward all Loan Guarantee 
Fees in accordance with the Section 184 Program requirements, with 
sufficient documentation evidencing the timely collection and payment 
of the fees to HUD.
    (2) Require the Lender to verify that the endorsement case binder 
is submitted to HUD for guarantee within required time frames.
    (3) Require the Lender to review a random statistical sample of its 
endorsement case binders for potential fraud, material 
misrepresentations, or other findings on a quarterly basis. The Lender 
must investigate and determine if fraud, material misrepresentation or 
other findings occurred.
    (4) Require the Lender to perform quality control review of its 
Sponsored Entities in the same manner and under the same conditions as 
required for the Lender's own operation.
    (5) Where applicable, require the Sponsor to apply paragraphs 
(b)(7) through (8) of this section to its Sponsored Entities.
    (d) All Sponsored Entities shall comply with paragraph (b) of this 
section and provide a quality control plan directly to their Sponsor in 
accordance with their sponsorship agreement.


Sec.  1005.219  Other requirements.

    (a) Federal law. All Direct Guarantee Lenders, Non-Director 
Guarantee Lenders, and Servicers must comply with all applicable 
Federal laws which impact mortgage-related activities.
    (b) Dual employment. All Non-Direct Guarantee Lenders and Direct 
Guarantee Lenders must require its employees to be exclusive employees, 
unless the Lender has determined that the employee's other employment, 
including any self-employment, does not create a Conflict of Interest.
    (c) Reporting requirements. All Direct Guarantee Lenders must 
submit reports in accordance with Sec.  1005.903. Unless requested 
directly by HUD, Non-Direct Guarantee Lenders must submit required 
reports to their Sponsor, under this part or any requirements as 
prescribed by Section 184 Program Guidance, or any special request for 
information within the time frames prescribed in the request.
    (d) Records retention. Records retention requirements are as 
follows:
    (1) Direct Guarantee Lenders must maintain an endorsement case 
binder for a period of three years beyond the date of satisfaction or 
maturity date of the Loan, whichever is sooner. However, where there is 
a payment of claim, the endorsement case binder must be retained for a 
period of at least five years after the final claim has been paid. 
Section 184 Program Guidance shall prescribe additional records 
retention time depending on the circumstances of the claim.
    (2) All Direct Guarantee Lender and Non-Direct Guarantee Lenders 
must retain personnel files of employees for one year beyond the 
employee's separation.
    (3) All Direct Guarantee Lenders and Non-Direct Guarantee Lenders 
must follow the applicable records retention requirements imposed by 
applicable Tribal, Federal, and State laws and regulations.
    (4) Direct Guarantee Lenders and Non-Direct Guarantee Lenders must 
maintain the quality control plan records for a period prescribed in 
Sec.  1005.217(b)(4).
    (e) Minimum level of lending on Trust Land. (1) Direct Guarantee 
Lenders must actively market, originate, underwrite, and close Loans on 
Trust Land. A Sponsor must ensure its Sponsored Entities actively 
market and originate loans on Trust Land. HUD may impose a minimum 
level of lending on Tribal Trust Land, which may be adjusted 
periodically, through publication in the Federal Register.
    (2) Failure to meet the minimum level of lending on Trust Land may 
result in sanctions in accordance with Sec. Sec.  1005.905 and 
1005.907.
    (3) HUD may grant exceptions for Direct Guarantee Lenders and Non-
Direct Guarantee Lenders licensed and doing business in a State or 
States with limited Trust Lands. The process for Lenders to request the 
exception will be prescribed by Section 184 Program Guidance.


Sec.  1005.221  Business change reporting.

    (a) Within a timeframe as prescribed by Section 184 Program 
Guidance, Direct Guarantee Lenders shall provide written notification 
to HUD, in such a form as prescribed by Section 184 Program Guidance 
of:
    (1) All changes in the Direct Guarantee Lender or Sponsored 
Entity's legal structure, including, but not limited to, mergers, 
acquisitions, terminations, name, location, control of ownership, and 
character of business;
    (2) Staffing changes with senior leadership and Loan underwriters 
for Direct Guarantee Lenders and Sponsored Entities; and
    (3) Any sanctions by another supervising entity.
    (b) Failure to report changes within a reasonable timeframe 
prescribed in Section 184 Program Guidance may result in sanctions in 
accordance with Sec. Sec.  1005.905 and 1005.907.


Sec.  1005.223  Annual recertification.

    (a) All Direct Guarantee Lenders are subject to annual 
recertification on a date and form as prescribed by Section 184 Program 
Guidance.
    (b) With each annual recertification, Direct Guarantee Lenders must 
submit updated contact information, continued eligibility documentation 
and other pertinent materials as prescribed by Section 184 Program 
Guidance, including but not limited to:
    (1) A certification that it has not been refused a license by any 
Tribe, State, or Federal entity;
    (2) A certification that the Direct Guarantee Lender is in good 
standing with any Tribe, State, or Federal entity in which it will 
perform Direct Guarantee Lender activities; and
    (3) Renewal documents and certification of continued eligibility 
from an authorizing entity listed in Sec.  1005.203.
    (4) Lenders approved under Sec.  1005.205 must submit documentation 
supporting continued eligibility as prescribed by Section 184 Program 
Guidance.

[[Page 78351]]

    (c) All Sponsored Entities shall comply with this requirement and 
provide the annual recertification documentation directly to their 
Sponsor in accordance with their sponsorship agreement.
    (d) Direct Guarantee Lenders must also submit the following in 
accordance with Section 184 Program Guidance:
    (1) a certification that the Direct Guarantee Lender continues to 
meet the direct guarantee program eligibility requirements in 
accordance with Sec.  1005.209;
    (2) A list of all Sponsored Entities with which the Direct 
Guarantee Lender has a sponsorship relationship, and a certification of 
their continued eligibility; and
    (3) Any reports required in accordance with Section 184 Program 
Guidance.
    (e) Direct Guarantee Lenders must retain documentation related to 
the continued eligibility of their Sponsored Entities for a period as 
prescribed by Section 184 Program Guidance.
    (f) Direct Guarantee Lenders may request an extension of the 
recertification deadline, but such request must be presented at least 
45 days before the recertification deadline.
    (g) HUD will review the annual recertification submission and may 
request any further information required to determine recertification.
    (h) HUD will provide written notification of approval to continue 
participation in the Section 184 Program or denial. A denial may be 
appealed pursuant to Sec.  1005.909.
    (i) If an annual recertification is not submitted by a reasonable 
deadline prescribed in Section 184 Program Guidance, HUD may subject 
the Direct Guarantee Lender to sanctions under Sec.  1005.907.


Sec.  1005.225  Program ineligibility.

    (a) Ineligibility. A Direct Guarantee Lender or Non-Direct 
Guarantee Lender may be deemed ineligible for Section 184 Program 
participation when HUD becomes aware that the entity or any officer, 
partner, director, principal, manager or supervisor, loan processor, 
loan underwriter, or loan originator of the entity was:
    (1) Suspended, debarred, under a limited denial of participation 
(LDP), or otherwise restricted under 2 CFR part 2424, or under similar 
procedures of any other Federal agency;
    (2) Indicted for, or have been convicted of, an offense that 
reflects adversely upon the integrity, competency, or fitness to meet 
the responsibilities of the Direct Guarantee Lender or Non-Direct 
Guarantee Lender to participate in the Title I or Title II programs of 
the National Housing Act, or Section 184 Program;
    (3) Found to have unresolved findings as a result of HUD or other 
governmental audit, investigation, or review;
    (4) Engaged in business practices that do not conform to generally 
accepted practices of prudent Lenders or that demonstrate 
irresponsibility;
    (5) Convicted of, or have pled guilty or nolo contendere to, a 
felony related to participation in the real estate or mortgage loan 
industry during the 7-year period preceding the date of the application 
for licensing and registration, or at any time preceding such date of 
application, if such felony involved an act of fraud, dishonesty, or a 
breach of trust or money laundering;
    (6) In violation of provisions of the Secure and Fair Enforcement 
Mortgage Licensing Act of 2008 (12 U.S.C. 5101, et seq.) or any 
applicable provision of Tribal or State law; or
    (7) In violation of 12 U.S.C. 1715z-13a.
    (b) [Reserved]

Subpart C--Lending on Trust Land


Sec.  1005.301  Tribal legal and administrative framework.

    (a) Tribal requirements. (1) A Tribe seeking to allow eligible 
Borrowers to place a mortgage lien on Trust Land under the Section 184 
Program must apply to HUD for approval to participate in the program.
    (2) Tribes electing to make Trust Land or restricted fee land 
available under the Section 184 Program must provide to HUD a legal and 
administrative framework for leasing, foreclosure and eviction on Trust 
Land to protect the interests of the Borrower, Tribe, Direct Guarantee 
Lender, and HUD.
    (3) Approved Tribes shall assist in facilitating Loss Mitigation 
efforts and assist in the disposition of defaulted properties on Trust 
Land.
    (b) Legal and administrative framework. A Tribe may enact legal 
procedures through Tribal council resolution or any other recognized 
legislative action. These procedures must be legally enforceable and 
include the following requirements:
    (1) Foreclosure and assignment. When a Borrower is in default, and 
is unwilling or unable to successfully complete Loss Mitigation in 
accordance with subpart G of this part; and Servicer either initiates 
First Legal Action against the Borrower, or assigns the Loan to HUD 
after offering the Tribe the option to assume the Section 184 
Guaranteed Loan or purchase the property under Sec.  1005.757(a):
    (i) The Tribe must demonstrate that a foreclosure will be processed 
through the legal systems having jurisdiction over the Section 184 
Guaranteed Loan. Jurisdiction must include Federal Court jurisdiction 
when HUD forecloses on the property.
    (ii) Foreclosure ordinances must allow for the legal systems with 
jurisdiction to reassign the lease to HUD or provide for a new lease to 
be issued to HUD in the event the lease is vacated.
    (iii) If the Holder assigns the Loan to HUD without initiating or 
completing the foreclosure process, or the property becomes vacant 
during the Loss Mitigation or foreclosure process, the Tribe may assign 
the lease to HUD to facilitate disposition of the property.
    (2) Property disposition. Once a lease is vacated or reassigned, 
the Tribe or the TDHE shall work with HUD to sell the property to an 
eligible party.
    (3) Eviction. The Tribe must have a legal and administrative 
framework implementing eviction procedures, allowing for the expedited 
removal of the borrower in default, all household residents, and any 
unauthorized occupants of the property. Eviction procedures must enable 
the Servicer or the Tribe to secure possession of the property. 
Eviction may be required upon:
    (i) The completion of a foreclosure;
    (ii) The involuntary termination of the lease;
    (iii) The reassignment of the lease; or
    (iv) The sale of the property.
    (4) Lien priority. Section 184 Guaranteed Loans must be in a first 
lien position securing the property.
    (i) To ensure that each Section 184 Guaranteed Loan holds a first 
lien position, the Tribe must enact an ordinance that either:
    (A) Provides for the satisfaction of the Section 184 Guaranteed 
Loan before any and all other obligations; or
    (B) Follows State law to determine the priority of liens against 
the property. If a Tribal jurisdiction spans two or more states, the 
State in which the property is located is the applicable State law.
    (ii) For a lien to be considered valid on Trust Land, the lien must 
be:
    (A) Approved by the Tribe and BIA, as applicable; and
    (B) Recorded by the BIA.
    (5) Lease provisions for Trust Land. The lease provisions for Trust 
Land must meet the following requirements:
    (i) Tribes may use a model lease available from HUD for Section 184 
Guaranteed Loan lending on Trust Land. The Tribe may use a rider to 
make modifications to the model lease, with the approval of HUD and 
BIA.
    (ii) Tribes may draft their own lease in compliance with 25 CFR 
part 162 and

[[Page 78352]]

contain mandatory lease terms and language as prescribed in Section 184 
Program Guidance, with approval of HUD and BIA.
    (A) Identify lessor.
    (B) Identify the lessee (Tribe, TDHE, enrolled member of the Tribe 
or HUD).
    (C) Legal description of the land and property address covered by 
the lease.
    (D) The lease must have a minimum term of 50 years. For refinances 
the lease must have a remaining term which exceeds the maturity date of 
the loan by a minimum of ten years.
    (E) In the event of lessee default under the lease, the lease shall 
allow the servicer to accelerate the Section 184 Guaranteed Loan and 
foreclose or assign the Section 184 Guaranteed Loan to HUD, with HUD 
approval.
    (F) The lease must be executed by all interested parties to be 
enforceable.
    (G) Lender and HUD consent shall be required for any lease 
termination when the Section 184 Guaranteed Loan is secured by the 
property.
    (H) The Tribal lease must contain the following provision: ``If 
lessee default(s) on a Section 184 Guaranteed Loan, under which the 
lease and improvements on the leased premises are pledged as security, 
the lessee or lessor may assign the lease and deliver possession of the 
leased premises, including any improvements thereon, to HUD. HUD may 
transfer this lease and the leased premises to a successor lessee; 
provided, however, that the lease may only be transferred to another 
member of the Tribe or Tribal entity, as approved by the Tribe.''
    (I) lease language as prescribed by Section 184 Program Guidance.
    (J) The lease must also provide that in the event of foreclosure, 
the lease will not be subject to any forfeiture or reversion and will 
not be otherwise subject to termination.


Sec.  1005.303  Tribal application.

    A Tribe shall submit an application on a form prescribed by HUD. 
The application must include a copy of the Tribe's foreclosure, 
eviction, lease, priority lien ordinances, all cross-referenced 
ordinances in those sections, and any other documents in accordance 
with Section 184 Program Guidance.


Sec.  1005.305  Approval of Tribal application.

    HUD shall review applications under Sec.  1005.303 and where all 
requirements of Sec.  1005.301 are met, HUD shall provide written 
notification of the approval of the Tribe to participate in the Section 
184 Program. If HUD determines the application is incomplete, or the 
documents submitted do not comply with the requirements of this subpart 
or any process prescribed in Section 184 Program Guidance, HUD will 
work with the Tribe to cure the deficiencies before there is a denial 
of the application.


Sec.  1005.307  Tribal recertification.

    A Tribe shall recertify annually to HUD whether it continues to 
meet the requirements of this subpart, on a form and by a deadline 
prescribed by Section 184 Program Guidance. Recertification shall 
include Tribal certification of no changes to the Tribe's foreclosure, 
eviction, lease, and lien priority ordinances. The Tribe shall provide 
any updated contact information and similar information that may be 
required under Section 184 Program Guidance.


Sec.  1005.309  Duty to report changes.

    Based on the timeframe as prescribed by Section 184 Program 
Guidance, the Tribe must notify HUD of any proposed changes in the 
Tribe's foreclosure, eviction, lease, and lien priority ordinances or 
contact information. HUD shall require approval of the changes in the 
foreclosure, eviction, lease, and lien priority ordinances. HUD will 
provide written notification of the review of the changes and determine 
whether the updated documents meet the requirements of this subpart.


Sec.  1005.311  HUD notification of any lease default.

    In cases where the lessee is in default under the lease for any 
reason, the lessor shall provide written notification to HUD within 30 
days of the lease default.


Sec.  1005.313  Tribal reporting requirements.

    The Tribe shall provide timely and accurate reports and 
certifications to HUD, as may be prescribed by Section 184 Program 
Guidance.

Subpart D--Underwriting

Eligible Borrowers


Sec.  1005.401  Eligible Borrowers.

    (a) Eligible Borrowers are Indian Families, Tribes, or TDHEs. 
Indian Family Borrowers are limited to one Section 184 Guaranteed Loan 
at a time.
    (b) Indian Family Borrowers must document their status as American 
Indian or Alaska Native through evidence as prescribed by Section 184 
Program Guidance.


Sec.  1005.403  Principal Residence.

    (a) Principal Residence. Means the dwelling where the Borrower 
maintains as a permanent place of abode. A Borrower may have only one 
Principal Residence at any one time.
    (b) Occupancy requirement. Borrowers who are an Indian Family must 
occupy the property as a Principal Residence. Borrowers who are a TDHE 
or Tribe do not need to occupy the property as a Principal Residence.
    (c) Non-occupant Co-Borrower. A co-Borrower who does not occupy the 
property as a principal resident is permitted. A Non-occupant Co-
Borrower must be related by blood (e.g., parent-child, siblings, aunts-
uncles/nieces-nephews), or an unrelated individual who can document 
evidence of a family-type, longstanding, and substantial relationship 
not arising out of the loan transaction.


Sec.  1005.405  Borrower residency status.

    (a) An eligible Borrower who is an Indian must be:
    (1) A U.S. citizen;
    (2) A lawful permanent resident alien; or
    (3) A non-permanent resident alien.
    (b) Documentation must be provided to the Direct Guarantee Lender 
to support lawful residency status as defined in the Immigration and 
Nationality Act, codified at 8 U.S.C. 1101, et seq.


Sec.  1005.407  Relationship of income to loan payments.

    (a) Adequacy of Borrower gross income. (1) All Borrowers must 
establish, in accordance with Section 184 Program Guidance, that their 
gross income is and will be adequate to meet:
    (i) The periodic payments required by the Loan to be guaranteed by 
the Section 184 Program; and
    (ii) Other long-term obligations.
    (2) In cases where there is a Non-occupant Co-Borrower, the 
occupying Borrower must meet a minimum qualifying threshold, in 
accordance with Section 184 Program Guidance.
    (b) Non-discrimination. Determinations of adequacy of Borrower 
income under this section shall be made in a uniform manner without 
regard to race, color, national origin, religion, sex (including gender 
identity and sexual orientation), familial status, disability, marital 
status, source of income of the Borrower, or location of the property.


Sec.  1005.409  Credit standing.

    (a) A Borrower must have a general credit standing satisfactory to 
HUD. A Direct Guarantee Lender must not use a Borrower's credit score 
when evaluating the Borrower's credit worthiness. The Direct Guarantee 
Lender must analyze the Borrower's credit history and payment pattern 
to determine credit worthiness.
    (b) If a Borrower had a previous default on a Section 184 
Guaranteed

[[Page 78353]]

Loan which resulted in a claim payment by HUD, the Borrower shall be 
subject to a reasonable waiting period, as may be prescribed by Section 
184 Program Guidance.


Sec.  1005.411  Disclosure and verification of Social Security and 
Employer Identification Numbers or Tax Identification Number.

    All Borrowers must meet applicable requirements for the disclosure 
and verification of Social Security, Employer Identification Numbers, 
or Tax Identification Numbers.

Eligible Properties


Sec.  1005.413  Acceptable title.

    To be considered acceptable title, a Section 184 Guaranteed Loan 
must be secured by an interest in real estate held in fee simple or a 
leasehold interest on Trust Land. Where title evidences a lease that is 
used in conjunction with the Section 184 Guaranteed Loan on Trust Land, 
the lease must comply with relevant provisions of Sec.  1005.301.


Sec.  1005.415  Sale of property.

    (a) Owner of Record requirement. The property must be or have been 
purchased from the Owner of Record and the transaction may not involve 
or had not involved any sale or assignment of the sales contract.
    (b) Supporting documentation. The Direct Guarantee Lender shall 
obtain documentation verifying that the seller is the Owner of Record 
and must submit this documentation to HUD as part of the application 
for a Section 184 Guaranteed Loan. This documentation may include, but 
is not limited to, a property ownership history report from the Tribe, 
State, or local government, a copy of the recorded deed from the 
seller, or other documentation (such as a copy of a property tax bill, 
title commitment, or binder) demonstrating the seller's ownership.
    (c) Time restrictions on re-sales--(1) General. The eligibility of 
a property for a Loan guaranteed by HUD is dependent on the time that 
has elapsed between the date the seller acquired the property (based 
upon the date of settlement) and the date of execution of the sales 
contract that will result in the HUD guarantee (the re-sale date). The 
Direct Guarantee Lender shall obtain documentation verifying compliance 
with the time restrictions described in this paragraph and must submit 
this documentation to HUD as part of the application for Section 184 
Guaranteed Loan, in accordance with Sec.  1005.501.
    (2) Re-sales occurring 90 days or less following acquisition. If 
the re-sale date is 90 days or less following the date of acquisition 
by the seller, the property is not eligible for a Loan to be guaranteed 
by HUD.
    (3) Re-sales occurring between 91 days and 180 days following 
acquisition. (i) If the re-sale date is between 91 days and 180 days 
following acquisition by the seller, the property is generally eligible 
for a Section 184 Guaranteed Loan.
    (ii) However, HUD will require that the Direct Guarantee Lender 
obtain additional documentation if the re-sale price is 100 percent 
over the purchase price. Such documentation must include a second 
appraisal from another a different appraiser. The Direct Guarantee 
Lender may also document its Loan file to support the increased value 
by establishing that the increased value results from the 
rehabilitation of the property.
    (iii) Additional documentation, as may prescribed by notice for 
comment.
    (4) Authority to address property flipping for re-sales occurring 
between 91 days and 12 months following acquisition. (i) If the re-sale 
date is more than 90 days after the date of acquisition by the seller, 
but before the end of the twelfth month after the date of acquisition, 
the property is eligible for a Loan to be guaranteed by HUD.
    (ii) However, HUD may require that the Direct Guarantee Lender 
provide additional documentation to support the re-sale value of the 
property if the re-sale price is 5 percent or greater than the lowest 
sales price of the property during the preceding 12 months (as 
evidenced by the contract of sale). At HUD's discretion, such 
documentation must include, but is not limited to, a second appraisal 
from a different appraiser. HUD may exclude re-sales of less than a 
specific dollar amount from the additional value documentation 
requirements.
    (iii) If the additional value documentation supports a value of the 
property that is more than 5 percent lower than the value supported by 
the first appraisal, the lower value will be used to calculate the 
maximum principal loan amount under Sec.  1005.443. Otherwise, the 
value supported by the first appraisal will be used to calculate the 
maximum principal loan amount.
    (iv) Additional value documentation may be prescribed by notice for 
comment.
    (5) Re-sales occurring more than 12 months following acquisition. 
If the re-sale date is more than 12 months following the date of 
acquisition by the seller, the property is eligible for a loan 
guaranteed by HUD.
    (d) Exceptions to the time restrictions on sales. The time 
restrictions on sales described in paragraph (b) of this section do not 
apply to:
    (1) Sales by HUD of real estate owned (REO) properties under 24 CFR 
part 291 and of single-family assets in revitalization areas pursuant 
to section 204 of the National Housing Act (12 U.S.C. 1710);
    (2) Sales by an agency of the United States Government of REO 
single family properties pursuant to programs operated by such 
agencies;
    (3) Sales of properties by Tribes, TDHEs, State, or local 
governments, or Eligible Nonprofit Organizations approved to purchase 
HUD REO single family properties at a discount with resale 
restrictions;
    (4) Sales of properties that were acquired by the sellers by death, 
devise, or intestacy;
    (5) Sales of properties purchased by an employer or relocation 
agency in connection with the relocation of an employee;
    (6) Sales of properties by Tribes, TDHEs, State and local 
government agencies; and
    (7) Only upon announcement by HUD through issuance of a notice, 
sales of properties located in areas designated by the President as 
Federal disaster areas. The notice will specify how long the exception 
will be in effect.
    (8) HUD may approve other exceptions on a case-by-case basis.


Sec.  1005.417  Location of property.

    At the time a loan is guaranteed, the property must be for 
residential use under Tribal, State, or local law and be located within 
a Section 184 Approved Program Area.


Sec.  1005.419  Requirements for standard housing.

    (a) General standards. Every property guaranteed under the Section 
184 Program must:
    (1) Be decent, safe, sanitary, and modest in size and design.
    (2) Conform with applicable general construction standards for the 
region.
    (3) Contain a heating system that:
    (i) Has the capacity to maintain a minimum temperature in the 
dwelling of 65 degrees Fahrenheit during the coldest weather in the 
area;
    (ii) Is safe to operate and maintain;
    (iii) Delivers a uniform distribution of heat; and
    (iv) Conforms to any applicable Tribal heating code, or if there is 
no applicable Tribal code, an appropriate local, State, or national 
code.
    (4) Contains a plumbing system that:
    (i) Uses a properly installed system of piping;

[[Page 78354]]

    (ii) Includes a kitchen sink and partitional bathroom with 
lavatory, toilet, and bath or shower; and
    (iii) Uses water supply, plumbing, and sewage disposal systems that 
conform to any applicable Tribal code or, if there is no applicable 
Tribal code, the minimum standards established by the appropriate 
local, State, or national code.
    (5) Contain an electrical system using wiring and equipment 
properly installed to safely supply electrical energy for adequate 
lighting and for operation of appliances that conforms to any 
applicable Tribal code or, if there is no applicable Tribal code, an 
appropriate local, State, or national code.
    (6) Meets minimum square footage requirements and be not less than:
    (i) 570 square feet in size, if designed for a family of not more 
than 4 persons;
    (ii) 850 square feet in size, if designed for a family of not less 
than 5 and not more than 7 persons;
    (iii) 1020 square feet in size, if designed for a family of not 
less than 8 persons; or
    (iv) Current locally adopted standards for size of dwelling units, 
documented by the Direct Guarantee Lender.
    (v) Upon the written request of a Tribe, or THDE, HUD may waive the 
minimum square footage requirements under paragraphs (a)(6)(i) through 
(iv) of this section for properties located on Trust Land.
    (7) Conform with the energy performance requirements for new 
construction established by HUD under section 526(a) of the National 
Housing Act (12 U.S.C. 1735f-4(a)).
    (b) Additional requirements. HUD may prescribe any additional 
requirements to permit the use of various designs and materials in 
housing acquired under this part.
    (c) Lead-based paint. The relevant requirements of the Lead-Based 
Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential 
Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), 
and implementing regulations at 24 CFR part 35, subparts A, B, H, J, K, 
M, and R, shall apply.
    (d) Environmental review procedures. (1) The regulations in 24 CFR 
1000.20 applies to an environmental review for Trust Land and for fee 
land within a reservation in connection with a Loan guaranteed under 
this part. That section permits a Tribe to choose to assume 
environmental review responsibility.
    (2) Before HUD issues a commitment to guarantee any Loan, or before 
HUD guarantees a Loan if there is no commitment, the Tribe or HUD must 
comply with environmental review procedures to the extent applicable 
under part 58 or part 50 of this title, as appropriate.
    (3) If the Loan involves proposed or new construction, HUD will 
require the Lender to submit a signed Builder's Certification of Plans, 
Specifications and Site (Builder's Certification). The Builder's 
Certification must be in a form prescribed by Section 184 Program 
Guidance and must cover:
    (i) Flood hazards;
    (ii) Noise;
    (iii) Explosive and flammable materials storage hazards;
    (iv) Runway clear zones/clear zones;
    (v) Toxic waste hazards; and
    (vi) Other foreseeable hazards or adverse conditions (i.e., rock 
formations, unstable soils or slopes, high ground water levels, 
inadequate surface drainage, springs, etc.) that may affect the health 
and safety of the occupants or the structural soundness of the 
improvements.
    (4) The Builder's Certification must be provided to the appraiser 
for reference before the performance of an appraisal on the property.
    (e) Special Flood Hazard Areas and Coastal Barrier Resource System. 
A property is not eligible for a Section 184 loan guarantee if a 
residential building and related improvements to the property are 
located within a Special Flood Hazard Area (SFHA) designated by a FEMA 
Flood Insurance Rate Map and insurance under the National Flood 
Insurance Program (NFIP) is not available in the community; or the 
improvements are, or are proposed to be, located within the Coastal 
Barrier Resources System.
    (1) Eligibility for new construction in SFHAs. If any portion of 
the dwelling, related structures, or equipment essential to the value 
of the property and subject to flood damage is located within an SFHA, 
the property is not eligible for a Section 184 loan guarantee unless 
the Direct Guarantee Lender obtains from FEMA a final Letter of Map 
Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes 
the property from the SFHA; or obtains a FEMA National Flood Insurance 
Program Elevation Certificate (FEMA Form 086-0-33) prepared by a 
licensed engineer or surveyor. The elevation certificate must document 
that the lowest floor including the basement of the residential 
building, and all related improvements/equipment essential to the value 
of the property, is built at or above the 100-year flood elevation in 
compliance with the NFIP criteria, and flood insurance must be 
obtained.
    (2) Eligibility for existing construction in SFHAs. When any 
portion of the residential improvements is determined to be located 
within an SFHA, flood insurance must be obtained and maintained.
    (3) Required flood insurance amount for properties located within 
an SFHA. Flood insurance must be maintained for the life of the Section 
184 Guaranteed Loan in an amount that at a minimum equals the project 
cost less the estimated land cost; the outstanding principal balance of 
the loan; or the maximum amount of NFIP insurance available with 
respect to the property improvements, whichever is the least.
    (4) Required documentation. The Direct Guarantee Lender must obtain 
a Life of Loan Flood Certification for all Properties. If applicable, 
the Direct Guarantee Lender must also obtain a FEMA Letter of Map 
Amendment; FEMA Letter of Map Revision; or FEMA National Flood 
Insurance Program Elevation Certificate (FEMA Form 086-0-33).
    (5) Restrictions on property within Coastal Barrier Resources 
System. In accordance with the Coastal Barrier Resources Act, a 
property is not eligible for a Section 184 loan guarantee if the 
improvements are or are proposed to be located within the Coastal 
Barrier Resources System.
    (f) Airport hazards--(1) Existing construction. If a property is 
existing construction and is located within a Runway Clear Zone (also 
known as a Runway Protection Zone) at a civil airport or within a Clear 
Zone at a military airfield, the Direct Guarantee Lender must obtain a 
Borrower's acknowledgement of the hazard.
    (2) New construction. If a new construction property is located 
within a Runway Clear Zone (also known as a Runway Protection Zone) at 
a civil airport or within a Clear Zone at a military airfield, the 
Direct Guarantee Lender must reject the property for loan guarantee. 
Properties located in Accident Potential Zone 1 (APZ 1) at a military 
airfield may be eligible for a Section 184 loan guarantee provided that 
the Direct Guarantee Lender determines that the property complies with 
Department of Defense guidelines.


Sec.  1005.421  Certification of appraisal amount.

    A Section 184 Guaranteed Loan must be accompanied by a sales 
contract satisfactory to HUD, executed by the seller, whereby the 
seller agrees that before any sale of the property, the seller will 
deliver to the purchaser of the property a certification of the 
appraisal, in a form satisfactory to HUD, setting forth the amount of 
the appraised value of the property.

[[Page 78355]]

Sec.  1005.423  Legal restrictions on Conveyance.

    (a) Legal Restrictions on Conveyance means any provision in any 
legal instrument, law or regulation applicable to the Borrower or the 
mortgaged property, including but not limited to a lease, deed, sales 
contract, declaration of covenants, declaration of condominium, option, 
right of first refusal, will, or trust agreement, that attempts to 
cause a Conveyance (including a lease) made by the Borrower to:
    (1) Be void or voidable by a third party;
    (2) Be the basis of contractual liability of the Borrower for 
breach of an agreement not to convey, including rights of first 
refusal, pre-emptive rights or options related to Borrower efforts to 
convey;
    (3) Terminate or subject to termination all or a part of the 
interest held by the Borrower in the property if a Conveyance is 
attempted;
    (4) Be subject to the consent of a third party;
    (5) Be subject to limits on the amount of sales proceeds retainable 
by the seller; or
    (6) Be grounds for acceleration of the Guaranteed Loan or increase 
in the interest rate.
    (b) Section 184 Guaranteed Loans shall not be subject to any Legal 
Restrictions on Conveyance, except for restrictions in this paragraph 
(b):
    (1) A lease or any other legal document that restricts the 
assignment of interest in properties held in trust or otherwise 
restricted to an eligible Indian Family.
    (2) A mortgage funded through tax-exempt Bond F and includes a due-
on-sale provision in a form approved by HUD that permits the Direct 
Guarantee Lender to accelerate a mortgage that no longer meets Federal 
requirements for tax-exempt bond financing or for other reasons 
acceptable to HUD. A mortgage funded through tax-exempt bond financing 
shall comply with all form requirements prescribed under this subpart 
and shall contain no other provisions designed to enforce compliance 
with Federal or State requirements for tax-exempt bond financing.
    (3) A mortgaged property subject to protective covenants which 
restrict occupancy by, or transfer to, persons of a defined population 
if:
    (i) The restrictions do not have an undue effect on marketability 
as determined in the original plan.
    (ii) The restrictions do not constitute illegal discrimination and 
are consistent with the Fair Housing Act and all other applicable 
nondiscrimination laws under Tribal, State, or local law, where 
applicable.
    (4) HUD shall require that the previously approved restrictions 
automatically terminate if the lease or title to the mortgaged property 
is transferred by foreclosure, deed-in-lieu/lease-in-lieu of 
foreclosure, or if the loan is assigned to HUD.


Sec.  1005.425  Rental properties.

    (a) When a Borrower is an Indian Family. A Section 184 Guaranteed 
Loan may be used to purchase, construct, rehabilitate, or refinance an 
up to four-unit property. The Borrower must occupy one unit as a 
Principal Residence and may rent the additional units.
    (b) When the Borrower is a Tribe or TDHE. There is no limit to the 
number of one- to four-unit properties a Tribe or TDHE may purchase or 
own with a Section 184 Guaranteed Loan(s) on or off Trust Land. 
However, the Tribe or TDHE must meet all Borrower program requirements.


Sec.  1005.427  Refinancing.

    (a) Refinance eligibility. HUD may permit a Borrower to refinance 
any qualified mortgage, including an existing Section 184 Guaranteed 
Loan, so long as the Borrower and property meet all Section 184 Program 
requirements.
    (b) Types of refinances. HUD may guarantee a Rate and Term 
refinance, a Streamline refinance, or a Cash-Out refinance, consistent 
with paragraphs (d) through (f) of this section.
    (c) General requirements. All types of refinances are subject to 
the following requirements:
    (1) The term of the refinancing Loan may not exceed a term of 30 
years.
    (2) The Borrower must have a payment history on the existing 
mortgage that is acceptable to HUD.
    (3) The Direct Guarantee Lender may not require a minimum principal 
amount to be outstanding on the loan secured by the existing mortgage.
    (4) If an Upfront Loan Guarantee Fee was financed as part of the 
existing mortgage, no refund will be given. However, the maximum amount 
of the refinancing Loan computed in accordance with Sec.  1005.443 may 
be increased by the amount of the Upfront Loan Guarantee Fee associated 
with the new refinancing Loan and exceed the applicable Section 184 
Guaranteed Loan limit as established by HUD for an area pursuant to 
Sec.  1005.441.
    (d) Rate and term refinance. (1) Rate and term refinance is the 
refinancing of an existing mortgage loan for the purpose of changing 
the interest rate or term, or both, of a loan without advancing new 
funds on the loan, with the exception of allowable closing costs.
    (2) A Rate and Term Refinance Loan must meet the following 
requirements:
    (i) The Loan must be in an amount that does not exceed the lesser 
of the original principal amount of the existing mortgage; or the sum 
of the unpaid principal balance of the existing mortgage plus loan 
closing charges and allowable fees approved by HUD.
    (ii) The Loan must result in a reduction in regular monthly 
payments by the Borrower, except when refinancing a mortgage for a 
shorter term will result in an increase in the Borrower's regular 
monthly payments.
    (e) Streamline Refinance. Streamline Refinance refers to the 
refinance of an existing Section 184 Guaranteed Loan requiring limited 
Borrower credit documentation and underwriting.
    (1) A Streamline Refinance Loan must be in an amount that does not 
exceed the unpaid principal balance of the existing Section 184 
Guaranteed Loan and meet all other applicable Section 184 Program 
requirements.
    (2) A Streamline Refinance with an appraisal may be in the amount 
equal to the unpaid principal balance of the existing mortgage plus 
Loan closing charges and allowable fees approved by HUD. The refinanced 
Loan must be subject to an appraisal and meet all other applicable 
Section 184 Program requirements.
    (f) Cash-Out refinance. (1) A Cash-Out refinance is when a Section 
184 Guaranteed Loan is made for a Loan amount larger than the existing 
unpaid principal balance, utilizing the property's equity.
    (2) A Cash-Out refinance Loan amount cannot exceed a maximum loan 
to value ratio, as established by HUD.
    (3) A Borrower may elect to receive a portion of equity in the form 
of cash in an amount up to a reasonable maximum allowed amount, as 
prescribed by Section 184 Program Guidance.
    (4) All cash advances, except cash amounts to the Borrower, must be 
used for approved purposes in accordance with HUD and BIA requirements, 
and must be supported by verified documentation.
    (5) The Cash-Out refinance must meet all other applicable Section 
184 Program requirements.


Sec.  1005.429  Eligibility of Loans covering manufactured homes.

    A Loan covering a manufactured home (as defined in 24 CFR part 
3280), shall be eligible for a Section 184 Guaranteed Loan when the 
following requirements have been met:

[[Page 78356]]

    (a) For manufactured homes located on a fee simple site. (1) The 
manufactured home, as erected on site, must be installed in accordance 
with 24 CFR part 3286; conform with property standards under Sec.  
1005.419; and shall have been constructed in accordance with 24 CFR 
part 3280, as evidenced by the certification label.
    (2) The Loan shall cover the manufactured home and site, shall 
constitute a Loan on a property classified and taxed as real estate.
    (3) In the case of a manufactured home which has not been 
permanently erected on a site for more than one year prior to the date 
of the application for the Loan Guarantee Certificate:
    (i) The manufactured home shall be erected on a site-built 
permanent foundation that meets or exceeds applicable requirements of 
the Minimum Property Standards (MPS) for one- and two-family property, 
in accordance with 24 CFR 200.929(b)(1) and shall be permanently 
attached thereto by anchoring devices adequate for all loads identified 
in the MPS. The towing hitch or running gear, which includes axles, 
brakes, wheels, and other parts of the chassis that operate only during 
transportation, shall have been removed. The finished grade level 
beneath the manufactured home shall be at least two feet above the 100-
year return frequency flood elevation. The site, site improvements, and 
all other features of the mortgaged property not addressed by the 
Manufactured Home Construction and Safety Standards shall meet or 
exceed applicable requirements of the MPS.
    (ii) The space beneath the manufactured home shall be enclosed by 
continuous foundation-type construction designed to resist all forces 
to which it is subject without transmitting forces to the building 
superstructure. The enclosure shall be adequately secured to the 
perimeter of the manufactured home and be constructed of materials that 
conform to MPS requirements for foundations.
    (iii) The manufactured home shall be braced and stiffened before it 
leaves the factory to resist racking and potential damage during 
transportation.
    (iv) Section 1005.431 is modified to the extent provided in this 
paragraph (a). Applications relating to the guarantee of Loans under 
this paragraph (a) must be accompanied by an agreement in a form 
satisfactory to HUD executed by the seller or manufacturer or such 
other person as HUD may require, agreeing that in the event of any sale 
or Conveyance of the property within a period of one year beginning 
with the date of initial occupancy, the seller, manufacturer, or such 
other person will, at the time of such sale or Conveyance, deliver to 
the purchaser or owner of such property the manufacturer's warranty on 
a form prescribed by HUD. This warranty shall provide that the 
manufacturer's warranty is in addition to and not in derogation of all 
other rights and remedies the purchaser or owner may have, and a 
warranty in form satisfactory to HUD warranting that the manufactured 
home, the foundation, positioning, and anchoring of the manufactured 
home to its permanent foundation, and all site improvements are 
constructed in substantial conformity with the plans and specifications 
(including amendments thereof or changes and variations therein which 
have been approved in writing by HUD) on which HUD has based its 
valuation of the property. The warranty shall also expressly state that 
the manufactured home sustained no hidden damage during transportation, 
and if the manufactured home is a double-wide, that the sections were 
properly joined and sealed. The warranty must provide that upon the 
sale or Conveyance of the property and delivery of the warranty, the 
seller, builder, or such other person will promptly furnish HUD with a 
conformed copy of the warranty establishing by the purchaser's receipt 
thereon that the original warranty has been delivered to the purchaser 
in accordance with this section.
    (4) In the case of a manufactured home which has been permanently 
erected on a site for more than one year prior to the date of the 
application for the Section 184 Guaranteed Loan:
    (i) The manufactured home shall be permanently anchored to and 
supported by permanent footings and shall have permanently installed 
utilities that are protected from freezing. The space beneath the 
manufactured home shall be a properly enclosed crawl space.
    (ii) The site, site improvements, and all other features of the 
mortgaged property not addressed by 24 CFR parts 3280 and 3286 shall 
meet or exceed HUD requirements. The finished grade level beneath the 
manufactured home shall be at or above the 100-year return frequency 
flood elevation.
    (b) For manufactured homes located on Trust Land. Manufactured 
homes built and installed on Trust Land, shall meet manufactured home 
installation standards pursuant to Tribal laws, if any. In the absence 
of Tribal laws, the requirements in paragraph (a) of this section shall 
apply.


Sec.  1005.431  Acceptance of individual residential water 
purification.

    If a property does not have access to a continuing supply of safe 
and potable water as part of its plumbing system without the use of a 
water purification system, the requirements of this section apply. The 
Direct Guarantee Lender must provide appropriate documentation with the 
submission for a Section 184 Guaranteed Loan to address each of the 
requirements of this section.
    (a) Equipment. Water purification equipment must be approved by a 
nationally recognized testing laboratory acceptable to Tribal, State, 
or local health authority.
    (b) Certification by Tribal, State, or local health authority. A 
Tribal, State, or local health authority certification must be 
submitted to HUD, which certifies that a point-of entry or point-of-use 
water purification system is used for the water supply, the treatment 
equipment meets the requirements of the Tribal, State, or local health 
authority, and has been determined to meet Tribal, State, or local 
health authority quality standards for drinking water. If neither 
Tribal, State, nor local health authority standards are applicable, 
then quality shall be determined in accordance with standards set by 
the Environmental Protection Agency (EPA) pursuant to the Safe Drinking 
Water Act. (EPA standards are prescribed in the National Primary 
Drinking Water requirements, 40 CFR parts 141 and 142.)
    (c) Borrower notices and certification. (1) The prospective 
Borrower must have received written notification, when the Borrower 
signs a sales contract, that the property does not have access to a 
continuing supply of safe and potable water without the use of a water 
purification system to remain safe and acceptable for human 
consumption.
    (2) Prior to final ratification of the sales contract, the Borrower 
must have received:
    (i) A water safety report identifying specific contaminants in the 
water supply serving the property, and the related health hazard 
arising from the presence of those contaminants.
    (ii) A written good faith estimate of the maintenance and 
replacement costs of the equipment necessary to assure continuing safe 
drinking water.
    (3) The prospective Borrower must sign a certification, 
acknowledging the required notices have been received by the Borrower, 
in the form prescribed by Section 184 Program Guidance, at the time the 
application for mortgage credit approval is signed by the Direct 
Guarantee Lender. The required certification must be submitted to HUD

[[Page 78357]]

with the request for the Loan Guarantee Certificate.


Sec.  1005.433  Builder warranty.

    (a) Applications relating to proposed construction must be 
accompanied by an agreement in a form satisfactory to HUD, executed by 
the seller or builder or such other person as HUD may require, and 
agreeing that in the event of any sale or Conveyance of the property, 
within a period of one year beginning with the date of initial 
occupancy, the seller, builder, or such other person will, at the time 
of such sale or Conveyance, deliver to the purchaser or owner of such 
property a warranty in a form satisfactory to HUD, warranting that the 
property is constructed in substantial conformity with the plans and 
specifications (including amendments thereof or changes and variations 
therein which have been approved in writing by HUD) on which HUD has 
based on the valuation of the property.
    (b) Such agreement must provide that upon the sale or Conveyance of 
the property and delivery of the warranty, the seller, builder, or such 
other person will promptly furnish HUD with a confirmed copy of the 
warranty, establishing by the purchaser's receipt thereon that the 
original warranty has been delivered to the purchaser in accordance 
with this section.

Eligible Loans


Sec.  1005.435  Eligible collateral.

    A Section 184 Loan Guarantee may be secured by any collateral 
authorized under existing Federal law or applicable State or Tribal 
law. The collateral must be sufficient to cover the amount of the loan, 
as determined by the Direct Guarantee Lender and approved by HUD. 
Improvements on Trust Lands may be considered as eligible collateral. 
Trust Land cannot be considered as part of the eligible collateral.


Sec.  1005.437  Loan provisions.

    (a) Loan form. (1) The Loan shall be in a form meeting the 
requirements of HUD. HUD may prescribe loan closing documents. For each 
case in which HUD does not prescribe loan closing documents, HUD shall 
require specific language in the Loan which shall be uniform for every 
Loan. HUD may also prescribe the language or substance of additional 
provisions for all Loans, as well as the language or substance of 
additional provisions for use only in particular jurisdictions.
    (2) Each Loan shall also contain any provisions necessary to create 
a valid and enforceable Security interest under Tribal law or the laws 
of the jurisdiction in which the property is located.
    (b) Loan multiples. A Loan, in whole dollars, shall be in an amount 
not to exceed the maximum principal loan amount (as calculated under 
Sec.  1005.443) for the area where the property is located.
    (c) Payments. The Loan payments shall:
    (1) Be due on the first of the month;
    (2) Contain complete Amortization provisions in accordance with 
Sec.  1005.453 and an Amortization period not in excess of the term of 
the Loan; and
    (3) Provide for payments to principal and interest to begin no 
later than the first day of the month, 60 days after the date the Loan 
is executed. For closings taking place within the first seven days of 
the month, interest credit is acceptable.
    (d) Maturity. The Loan shall have a repayment term of not more than 
the maximum period as approved by HUD and fully amortizing.
    (e) Property standards. The Loan must be a first lien upon the 
property that conforms with the requirements for standard housing under 
Sec.  1005.419.
    (f) Disbursement. The entire principal amount of the Loan must have 
been disbursed to the Borrower or to the Borrower's creditors for the 
Borrower's account and with the Borrower's consent.
    (g) Disbursement for construction advances. (1) HUD may guarantee 
Loans from which advances will be made during construction. HUD will 
provide guarantees for advances made by the Direct Guarantee Lender 
during construction when all the following conditions are satisfied:
    (i) The Direct Guarantee Lender and Borrower execute a building 
Loan agreement, approved by HUD, setting forth the terms and conditions 
under which advances will be made.
    (ii) The advances may be made only as provided in the building 
agreement.
    (iii) The principal amount of the Loan is held by the Direct 
Guarantee Lender in an interest-bearing account, trust, or escrow for 
the benefit of the Borrower, pending advancement to the Borrower or 
Borrower's creditors as provided in the loan agreement.
    (iv) The Loan shall bear interest on the amount advanced to the 
Borrower or the Borrower's creditors and on the amount held in an 
account or trust for the benefit of the Borrower.
    (2) Notwithstanding the requirements in paragraph (g)(1) of this 
section, upon request of the Lender, HUD may provide for the approval 
of advances prior to construction.
    (h) Prepayment privilege. The Loan must contain a provision 
permitting the Borrower to prepay the Loan in whole or in part at any 
time and in any amount. The Loan may not provide for the payment of any 
fee on account of such prepayment.


 Sec.  1005.439  Loan lien.

    (a) First lien. A Borrower must establish that, after the Loan 
offered for guarantee has been recorded, the property will be free and 
clear of all liens other than such Loan, and that there will not be 
outstanding any other unpaid obligations contracted in connection with 
the loan transaction or the purchase of the property, except 
obligations that are secured by property or collateral owned by the 
Borrower independently of the property.
    (b) Junior lien. With prior approval of HUD, the property may be 
subject to a junior lien held by a Direct Guarantee Lender or a Tribe 
or instrumentality, TDHE, Federal, State, local government, or an 
Eligible Nonprofit Organization. Unless the junior lien is for the 
purpose described in paragraph (c) of this section, it shall meet the 
following requirements:
    (1) Periodic payments shall be collected monthly and be 
substantially the same;
    (2) The monthly Loan payments for the Section 184 Guaranteed Loan 
and the junior lien shall not exceed the Borrower's reasonable ability 
to pay, as determined by HUD;
    (3) The sum of the principal amount of the Section 184 Guaranteed 
Loan and the junior lien shall not exceed the loan-to-value limitation 
applicable to the Section 184 Program, and shall not exceed the loan 
limit for the area, except as otherwise permitted by HUD;
    (4) The repayment terms shall not provide for a balloon payment 
before ten years unless approved by HUD;
    (5) The junior lien must become due and payable on sale or 
refinancing of the secured property covered by the Section 184 
Guaranteed Loan, unless otherwise approved by HUD; and
    (6) The junior lien shall contain a provision permitting the 
Borrower to prepay the junior lien in whole or in part at any time and 
shall not require a prepayment penalty.
    (c) Junior liens to reduce Borrower monthly payments. With the 
prior approval of HUD, the property may be subject to a junior lien 
advanced to reduce the Borrower's monthly payments on the Section 184 
Guaranteed Loan following the date it is guaranteed, if the junior lien 
meets the following requirements:

[[Page 78358]]

    (1) The junior lien shall not provide for any payment of principal 
or interest until the property securing the junior lien is sold or the 
Section 184 Guaranteed Loan is refinanced, at which time the junior 
lien shall become due and payable.
    (2) The junior lien shall not provide for any payment of principal 
or interest so long as the occupancy requirements are met; and, where 
applicable, shall provide for forgiveness of the junior lien amount at 
the end of the term of the junior lien.
    (d) Junior liens related to tax-exempt bond financing and low-
income housing tax credits. HUD approval shall be required when 
Borrower seeks to encumber property with a junior lien pursuant to 
Sec.  1005.423(b).


Sec.  1005.441  Section 184 Guaranteed Loan limit.

    The Section 184 Guaranteed Loan limit is the level set by HUD for 
the Section 184 Approved Program Area and is based upon the location of 
the property. The limit that is in effect on the date the Section 184 
case number is issued in accordance with Sec.  1005.445 shall apply, 
regardless of the closing date. The limit shall be revised periodically 
by HUD and published in Section 184 Program Guidance.


Sec.  1005.443  Loan amount.

    (a) Minimum required investment. The Borrower is required to make a 
minimum investment in the property. This investment must come from the 
Borrower's own funds, gifts, or Tribal, State, or local funds awarded 
to the Borrower. The minimum investment in the property is the 
difference between the sales price and the base loan amount.
    (b) Calculating base loan amount. (1) The base loan amount is 
determined by calculating:
    (i) 97.75 percent of the appraised value of the property or the 
Acquisition Cost, whichever is less; or
    (ii) 98.75 percent of the lessor of the appraised value or sales 
price when the appraised value or sales price is $50,000 or less.
    (2) The base loan amount cannot exceed the Section 184 Guaranteed 
Loan limits established under Sec.  1005.441.
    (c) Maximum principal loan amount. The maximum principal loan 
amount is the base loan amount and the Upfront Loan Guarantee Fee. The 
Section 184 Guaranteed Loan limit may only be exceeded by the amount of 
the Upfront Loan Guarantee Fee.
    (d) Minimum principal loan amount. A Direct Guarantee Lender may 
not require a minimum loan amount for a Section 184 Guaranteed Loan.


Sec.  1005.445  Case numbers.

    (a) Section 184 case numbers may only be obtained by a Direct 
Guarantee Lender when the Direct Guarantee Lender or its Sponsored 
Entity has an active loan application from a Borrower(s) and a property 
is identified.
    (b) To obtain a case number, the Direct Guarantee Lender must:
    (1) Provide evidence of Tribal enrollment or Alaska Native status;
    (2) Verify that the property is located in a Section 184 Approved 
Program Area;
    (3) Confirm that the Loan does not exceed the Section 184 Loan 
limit; and
    (4) Submit Loan specific information as prescribed in Section 184 
Program Guidance.
    (c) Case numbers are automatically cancelled after a limited period 
is identified in Section 184 Program Guidance, unless a Firm Commitment 
is issued, or an extension is granted by HUD in accordance with Section 
184 Program Guidance prior to the expiration of the case number.


Sec.  1005.447  Maximum age of Loan documents.

    Documents reviewed at underwriting may not be older than 60 days 
and may not be more than 120 days old at the Loan closing date. 
Documents whose validity for underwriting purposes is not affected by 
the passage of time, such as divorce decrees or tax returns, are not 
subject to the 60- and 120-day limitations.


Sec.  1005.449  Qualified mortgage.

    A Section 184 Guaranteed Loan, except for mortgage transactions 
exempted under 15 U.S.C. 1639c(b)(3)(ii), is afforded safe harbor as a 
qualified mortgage that meets the ability-to-repay requirements in 15 
U.S.C. 1639c(a).


Sec.  1005.451  Agreed interest rate.

    The Loan shall bear interest at the rate agreed upon by the Direct 
Guarantee Lender and the Borrower and determined by HUD to be 
reasonable. The agreed upon interest rate may not exceed the rate 
generally charged in the area for mortgage loans not guaranteed or 
insured by any agency or instrumentality of the Federal Government, or 
a rate determined by HUD, whichever is lower. The agreed upon interest 
rate must not take into consideration a Borrower's credit score in 
accordance with Sec.  1005.409 and must not be based on risk-based 
pricing.


Sec.  1005.453  Amortization provisions.

    The Loan must contain complete Amortization provisions satisfactory 
to HUD, requiring payments due on the first day of each month by the 
Borrower. The sum of the principal and interest payments in each month 
shall be substantially the same.

Underwriting


Sec.  1005.455  Direct guarantee underwriting.

    (a) Underwriter due diligence. A Direct Guarantee Lender shall 
exercise the same level of care which it would exercise in obtaining 
and verifying information for a Loan in which the Direct Guarantee 
Lender would be entirely dependent on the property as Security to 
protect its investment. Direct Guarantee Lender procedures that 
evidence such due diligence shall be incorporated as part of the 
quality control plan required under Sec.  1005.219. Compliance with 
HUD-prescribed underwriting guidelines shall be the minimum standard of 
due diligence in underwriting the Loans. Failure to comply with HUD-
prescribed underwriting guidelines may result in sanctions in 
accordance with Sec. Sec.  1005.905 and 1005.907.
    (b) Evaluating the Borrower(s) qualifications. The Direct Guarantee 
Lender shall evaluate the Borrower's credit characteristics, adequacy, 
and stability of income to meet the periodic payments under the Loan 
and all other obligations, the adequacy of the Borrower's available 
assets to close the transaction, the Borrower's management capacity and 
grant performance, if applicable, and render an underwriting decision 
in accordance with applicable regulations, policies, and procedures.
    (c) Assumption. Applications for the assumption of an existing 
Section 184 Guaranteed Loan shall be underwritten using the same 
Borrower eligibility and underwriting standards in accordance with this 
subpart.


Sec.  1005.457  Appraisal.

    (a) A Direct Guarantee Lender shall have the property appraised in 
accordance with the Uniform Standards of Professional Appraisal 
Practice and the Fair Housing Act (42 U.S.C. 3601-19). HUD may 
establish alternative requirements to Uniform Standards of Professional 
Appraisal Practice and publish such alternative requirements in Section 
184 Program Guidance.
    (b) A Direct Guarantee Lender must select an appraiser identified 
on the Federal Housing Administration Appraiser Roster, compiled in 
accordance with 24 CFR part 200, subpart G. The Direct Guarantee Lender 
shall not discriminate on the basis of race, color, religion, sex, 
disability, familial status national origin, or age in the selection of 
an appraiser.

[[Page 78359]]

    (c) The appraiser must be knowledgeable in the market where the 
property is located.
    (d) A Direct Guarantee Lender and an appraiser must ensure that an 
appraisal and related documentation satisfy Federal Housing 
Administration, Fannie Mae, or Freddie Mac appraisal requirements, and 
both bear responsibility for the quality of the appraisal in satisfying 
such requirements.
    (e) A Direct Guarantee Lender that submits, or causes to be 
submitted, an appraisal or related documentation that does not satisfy 
requirements under paragraphs (a) through (d) of this section may be 
subject to sanctions by HUD pursuant to Sec. Sec.  1005.905 and 
1005.907.
    (f) The validity period of appraisals is 120 days:
    (1) The validity period for an appraisal may be extended for 30 
days at the option of the Direct Guarantee Lender if the Direct 
Guarantee Lender has obtained a Firm Commitment.
    (2) If the transaction will not close within 120 days or 150 days 
with an approved extension, then the Direct Guarantee Lender must 
update the appraisal. The appraisal must be updated before the 120th-
day validity period, or 150th day if extended, has expired. The updated 
appraisal is valid for an additional 120 days after the effective date 
of the initial appraisal report that is being updated.
    (g) The Direct Guarantee Lender may request an extension of the 
120-day validity period for up to two additional 120-day extensions 
requests. HUD may request an updated appraisal during the extension 
periods.


Sec.  1005.459  Loan submission to HUD for Direct Guarantee.

    (a) Deadline for submission. Within 60 days after the date of 
closing the loan, a Direct Guarantee Lender must submit an endorsement 
case binder to HUD, in accordance with Sec.  1005.503.
    (b) Late submission. If the endorsement case binder is submitted 
past 60 days, the Direct Guarantee Lender must include, as part of the 
case binder, a late endorsement request with supporting documentation, 
affirming:
    (1) The Loan is not currently in default;
    (2) All escrow accounts for taxes, hazard insurance, and monthly 
Loan Guarantee Fees are current;
    (3) Neither the Direct Guarantee Lender nor Servicer provided the 
funds to bring or keep the loan current or to bring about the 
appearance of acceptable payment history; and
    (4) Notwithstanding paragraph (b)(3) of this section, with prior 
approval from HUD, Lender or Servicer may provide funds to bring or 
keep the loan current.


Sec.  1005.461  HUD issuance of Firm Commitment.

    HUD may underwrite and issue a Firm Commitment when it is in the 
interest of HUD.

Subpart E--Closing and Endorsement

Closing


Sec.  1005.501  Direct Guarantee Lender closing requirements.

    The Direct Guarantee Lender shall close the Loan in accordance with 
the following:
    (a) Chain of title/interest. (1) For fee simple properties, the 
Direct Guarantee Lender must obtain evidence of all prior ownership 
within 12 months of the case number assignment date. The Direct 
Guarantee Lender must review the evidence of prior ownership to 
determine any undisclosed Identity of Interest transactions.
    (i) If an Identity of Interest is discovered, the Direct Guarantee 
Lender must review for any possible Conflict of Interest.
    (ii) As a requirement of closing, all Borrowers must execute a 
Section 184 Borrower's Certification, addressing any Identity of 
Interest and Conflict of Interest.
    (2) For Trust Land transactions, the requirements for the 
determination of ownership title interest shall be prescribed by HUD in 
Section 184 Program Guidance.
    (b) Title/Title Status Report. The Direct Guarantee Lender must 
ensure that all objections to title binder/initial certified Title 
Status Report have been cleared, and any discrepancies have been 
resolved, to ensure that the Section 184 Guaranteed Loan will be in 
first Security interest position.
    (c) Closing in compliance with Direct Guarantee Lender approval. 
The Direct Guarantee Lender must instruct the settlement agent to close 
the Section 184 Guaranteed Loan on the same terms or on the same 
assumptions in which it was underwritten and approved.
    (d) Closing in the Direct Guarantee Lender's name. A Section 184 
Guaranteed Loan must close in the name of the Direct Guarantee Lender 
issuing the underwriting approval.
    (e) Required HUD documents at closing. The Direct Guarantee Lender 
must use the forms and language as may be prescribed in Section 184 
Program Guidance.
    (f) Projected escrow. The Direct Guarantee Lender must establish an 
escrow account in accordance with Sec.  1005.713 and the Real Estate 
Settlement Procedures Act and any other escrow requirements as 
prescribed under applicable Tribal and Federal laws and regulations.
    (g) Closing costs and fees. The Direct Guarantee Lender may charge 
the Borrower reasonable and customary fees in accordance with Sec.  
1005.515.
    (h) Closing date. The closing date must occur before the expiration 
of the Firm Commitment.
    (i) Per diem interest and interest credits. The Direct Guarantee 
Lender may collect per diem interest from the closing date to the date 
Amortization begins. Alternatively, the Direct Guarantee Lender may 
begin Amortization up to 7 days prior to the closing date and provide a 
per diem interest credit. Any per diem interest credit may not be used 
to meet Borrower's minimum required investment. Per diem interest must 
be computed using a factor of 1/365th of the annual rate.
    (j) Authorization of Tribal notification in the event of default. 
At closing, the Borrower must, on a form provided by HUD, elect whether 
to authorize the Direct Guarantee Lender and HUD to notify the Tribe in 
the event of a default.
    (k) Signatures. Direct Guarantee Lender must ensure that the note, 
Security instrument, and all closing documents are signed by the 
required parties.
    (l) Other requirements. Direct Guarantee Lender shall close the 
Loan in accordance with any applicable Tribal, State, or Federal 
requirements. Direct Guarantee Lenders must execute any other documents 
as may be required by applicable Tribal, Federal, or State law.


Sec.  1005.503  Contents of endorsement case binder.

    The Direct Guarantee Lender's endorsement case binder shall be 
submitted in a format as prescribed by HUD and contain the documents 
meeting the requirements of Sec.  1005.501 and any other documents 
supporting the Direct Guarantee Lender's underwriting determination.


Sec.  1005.505  Payment of Upfront Loan Guarantee Fee.

    The Direct Guarantee Lender, shall provide evidence of the 
remittance of the Upfront Loan Guarantee Fee, as required under Sec.  
1005.607, in accordance with a process provided by HUD in Section 184 
Program Guidance.


Sec.  1005.507  Borrower's payments to include other charges and escrow 
payments.

    (a) The Direct Guarantee Lender must include in the Section 184 
Guaranteed

[[Page 78360]]

Loan monthly payment the following charges and escrow payments:
    (1) The ground rents, if any;
    (2) Annual Loan Guarantee Fee, as prescribed in Sec.  1005.607, if 
any;
    (3) The estimated amount of all taxes;
    (4) Special assessments, if any;
    (5) Flood insurance premiums, if flood insurance is required; and
    (6) Fire and other hazard insurance premiums, except master policy 
premiums payable to a condominium association or a Tribe and paid 
directly by the Borrower.
    (b) The Section 184 Guaranteed Loan shall further provide that such 
payments shall be held by the Direct Guarantee Lender in a manner 
satisfactory to HUD for the purpose of paying such ground rents, taxes, 
assessments, and insurance premiums before the same become delinquent, 
for the benefit and account of the Borrower. The Section 184 Guaranteed 
Loan must also make provisions for adjustments in case the estimated 
amount of such taxes, assessments, and insurance premiums shall prove 
to be more, or less, than the actual amount thereof so paid by the 
Borrower. Such payments shall be held in an escrow subject to Sec.  
1005.717.
    (c) The Borrower shall not be required to pay premiums for fire or 
other hazard insurance which protects only the interests of the Direct 
Guarantee Lender, or for life or disability income insurance, or fees 
charged for obtaining information necessary for the payment of property 
taxes. The foregoing does not apply to charges made or penalties 
exacted by the taxing authority, except that a penalty assessed, or 
interest charged, by a taxing authority for failure to timely pay taxes 
or assessments shall not be charged by the Direct Guarantee Lender to 
the Borrower if the Direct Guarantee Lender had sufficient funds in 
escrow for the account of the Borrower to pay such taxes or assessments 
prior to the date on which penalty or interest charges are imposed.


Sec.  1005.509  Application of payments.

    All monthly payments to be made by the Borrower to the Servicer 
shall be added together, and the aggregate amount shall be paid by the 
Borrower each month in a single payment by the Borrower, in accordance 
with the Loan documents. The Servicer shall apply the Borrower's funds 
in accordance with Sec.  1005.715.


Sec.  1005.511  Late fee.

    When the monthly Section 184 Guaranteed Loan payment is 15 or more 
days in arrears, the Servicer may collect from Borrower a late fee, not 
to exceed four percent of the overdue payment of principal and 
interest, or any other limit as established by HUD through public 
notice with an opportunity for comment. The late fee provision must 
appear on the note executed at closing.


Sec.  1005.513  Borrower's payments when Section 184 Guaranteed Loan is 
executed.

    The Borrower must pay to the Direct Guarantee Lender, upon 
execution of the Section 184 Guaranteed Loan, where applicable, the:
    (a) One-time Upfront Loan Guarantee Fee or any portion payable 
pursuant to Sec.  1005.603; and
    (b) All other applicable monthly charges pursuant to Sec.  
1005.507, including the Annual Loan Guarantee Fee pursuant to Sec.  
1005.607 covering the period from the closing date to the due date of 
the first installment payment under the Section 184 Guaranteed Loan.


Sec.  1005.515  Charges, fees, or discounts.

    (a) The Direct Guarantee Lender must ensure that all fees charged 
and disclosure requirements at closing to the Borrower comply with all 
applicable Tribal, Federal, State, and local laws.
    (b) The Direct Guarantee Lender may collect from the Borrower the 
following charges, fees, or discounts at closing:
    (1) A charge to compensate the Direct Guarantee Lender for expenses 
incurred in originating and closing the Loan. HUD may establish 
limitations on the amount of any such charge in Section 184 Program 
Guidance.
    (2) Reasonable and customary amounts, but not more than the amount 
actually paid by the Direct Guarantee Lender, for any of the following 
items:
    (i) Recording fees and recording taxes or other charges incident to 
recordation;
    (ii) Credit report;
    (iii) Survey, if required by Direct Guarantee Lender or Borrower;
    (iv) Title examination;
    (v) Title insurance, if any;
    (vi) Fees paid to an appraiser or inspector approved by HUD for the 
appraisal and inspection, if required, of the property. The Direct 
Guarantee Lender may collect from the Borrower the reasonable and 
customary amounts for such appraisals and inspections;
    (vii) Such other reasonable and customary charges as may be 
authorized by HUD;
    (viii) Reasonable and customary charges in the nature of discounts; 
and
    (ix) Interest calculations in accordance with Sec.  1005.501(i).
    (c) All charges, fees, or discounts are subject to review by HUD 
after endorsement.


Sec.  1005.517  Certificate of nondiscrimination by the Direct 
Guarantee Lender.

    (a) Where applicable, a Direct Guarantee Lender shall certify to 
HUD as to each of the following:
    (1) That neither the Direct Guarantee Lender, nor anyone authorized 
to act for the Direct Guarantee Lender, will refuse to sell, after the 
making of a bona fide offer, or refuse to negotiate for the sale 
otherwise make unavailable or deny the property covered by the Section 
184 Guaranteed Loan to any eligible purchaser or discriminate in making 
a loan or engaging in a residential real estate-related transaction (as 
defined in 42 U.S.C. 3605) because of race, color, religion, sex, 
disability, familiar status, or national origin, except as provided by 
law.
    (2) That any restrictive covenant, other than permissible 
restrictions on Trust Land, on such property relating to race, color, 
religion, sex, disability, familial status, or national origin is 
hereby illegal, unenforceable, or void.
    (b) That civil action for preventative relief may be brought by the 
Attorney General in any appropriate U.S. District Court against any 
person responsible for a violation of this certification.

Endorsement and Post-Closing


Sec.  1005.519  Creation of the contract.

    The Loan shall be a Section 184 Guaranteed Loan from the date of 
the issuance of a Loan Guarantee Certificate, from the date of the 
endorsement of the credit instrument, or from the date of HUD's 
electronic acknowledgement to the Direct Guarantee Lender that the Loan 
is guaranteed, as applicable. HUD and the Direct Guarantee Lender are 
thereafter bound by the regulations in this subpart with the same force 
and to the same extent as if a separate contract had been executed 
relating to the Section 184 Guaranteed Loan, including the provisions 
of the regulations in this subpart and 12 U.S.C. 1715z-13a.


Sec.  1005.521  Lender pre-endorsement review and requirements.

    Direct Guarantee Lender must complete a pre-endorsement review of 
the endorsement case binder. This review must be conducted by staff not 
involved in the originating, processing, or underwriting of the Loan. 
This review must also confirm that the Loan was underwritten by an 
approved Direct Guarantee Lender. The endorsement case binder must 
contain all documentation relied upon by the Direct Guarantee Lender to 
justify its decision to approve the Loan in accordance with subpart D 
of this part. Upon finalizing the pre-endorsement review, the Direct 
Guarantee Lender

[[Page 78361]]

must certify that all required documents are submitted and meet the 
requirements of Sec.  1005.503.


Sec.  1005.523  HUD pre-endorsement review.

    (a) Direct Guarantee Lender shall submit to HUD within 60 days 
after the date of the closing of the Loan, or such additional time as 
permitted by HUD, the endorsement case binder;
    (b) Upon submission by a Direct Guarantee Lender of the endorsement 
case binder containing those documents required by Sec.  1005.503, HUD 
will review the documents to ensure that the Loan meets all statutory, 
regulatory, and administrative requirements, including but not limited 
to:
    (1) There is no fee, late charge, or interest due to HUD;
    (2) The Loan was not in default when submitted for the Loan 
Guarantee Certificate or if submitted for guarantee more than 60 days 
after the date of closing, the Loan shows an acceptable payment 
history; and
    (3) The Loan was underwritten by an approved Direct Guarantee 
Lender.
    (c) Upon review, if HUD determines the loan to meet program 
requirements, HUD will issue a Loan Guarantee Certificate. If HUD 
determines the Loan it be ineligible, HUD will provide the Direct 
Guarantee Lender a written determination and specify any available 
corrective actions that may be available. If there is information 
indicating that any certification or required document is false, 
misleading, or constitutes fraud or misrepresentation on the part of 
any party, or that the loan fails to meet a statutory or regulatory 
requirement, HUD will conduct a complete audit of the endorsement case 
binder. Repeated submission of deficient endorsement case binders may 
subject the Direct Guarantee Lender to sanctions or civil money 
penalties pursuant to Sec. Sec.  1005.905 and 1005.907.


Sec.  1005.525  Loan Guarantee Certificate.

    (a) HUD shall issue a Loan Guarantee Certificate as evidence of the 
guarantee when HUD completes a review of the Direct Guarantee Lender's 
endorsement case binder and determines the Loan complies with all 
applicable Section 184 Program requirements in this part.
    (b) HUD may issue a Loan Guarantee Certificate for a Loan involving 
a Security interest in Trust Land before HUD receives the required 
trailing documents from BIA, if the Direct Guarantee Lender agrees to 
indemnify HUD. The indemnification agreement between HUD and the Direct 
Guarantee Lender will terminate only upon receipt of the Trailing 
Documents in a form and manner acceptable to HUD. Trailing Documents 
may include the following documents:
    (1) A final certified Title Status Report (TSR) that identifies 
that the BIA approved and recorded the mortgage instrument and 
residential lease related to the Section 184 Loan, if applicable;
    (2) A certified true copy of the recorded mortgage instrument;
    (3) A certified true copy of the recorded lease, if applicable;
    (4) A certified true copy of the recorded executed mortgage release 
documents for all prior mortgages identified on the initial certified 
TSR, if applicable; and
    (5) A certified true copy of any BIA approved and executed 
subordination agreements.
    (c) The Loan Guarantee Certificate is conclusive evidence of the 
eligibility of the Loan for guarantee under this part. Such evidence 
will be incontestable in the hands of the bearer and the full faith and 
credit of the United States is pledged to the payment of amounts agreed 
to be paid by HUD as Security for such obligations.
    (d) This section may not be construed to preclude HUD from 
conducting a post-endorsement review. With respect to the original 
Direct Guarantee Lender, HUD may establish defenses against the 
original Direct Guarantee Lender based on fraud or material 
misrepresentation. This section may not be construed to bar HUD from 
establishing partial defenses to the amount payable on the Section 184 
Guaranteed Loan.


Sec.  1005.527  Post-endorsement review.

    (a) HUD may review an endorsement case binder at any time, 
including but not limited to a quality control review of all documents 
in Sec.  1005.503.
    (b) Within three business days of a request by HUD, the Direct 
Guarantee Lender must make available for review, or forward to HUD, 
copies of the identified endorsement case binder(s).
    (c) A Direct Guarantee Lender's failure to provide HUD access to 
any files may be grounds for sanctions in accordance with Sec. Sec.  
1005.905 and 1005.907.
    (d) Based on HUD's review under paragraph (a) of this section, if 
HUD determines that:
    (1) The Loan does not satisfy the requirements of subpart F of this 
part;
    (2) The Direct Guarantee Lender or Sponsored Entity committed fraud 
or a material misrepresentation; or
    (3) The Direct Guarantee Lender or Sponsored Entity had known or 
should have known of fraud or a material misrepresentation in violation 
of this part, such that the Loan should not have been approved by the 
Direct Guarantee Lender.
    (e) HUD may request indemnification from the originating Direct 
Guarantee Lender and impose sanctions on the Direct Guarantee Lender 
and Sponsored Entity pursuant to Sec. Sec.  1005.905 and 1005.907.


Sec.  1005.529  Indemnification.

    (a) When HUD conducts a pre- or post-endorsement review and HUD 
determines there is an underwriting deficiency where the Loan should 
not have been approved, HUD may request the originating Direct 
Guarantee to indemnify HUD.
    (b) Underwriting deficiencies with respect to the Section 184 
Guaranteed Loan may include but is not limited to fraud or 
misrepresentation by the originating Direct Guarantee Lender.
    (c) HUD will notify the originating Direct Guarantee Lender in 
writing when an indemnification is required.
    (d) Under an indemnification, the originating Direct Guarantee 
Lender must reimburse HUD when a subsequent Holder files a claim and 
HUD suffers a financial loss.
    (e) If the originating Direct Guarantee Lender fails to indemnify 
HUD, HUD may impose sanctions pursuant to Sec. Sec.  1005.905 and 
1005.907.

Subpart F--Section 184 Guaranteed Loan Fees


Sec.  1005.601  Scope and method of payment.

    HUD shall charge a one-time Section 184 Upfront Loan Guarantee Fee 
and a recurring Annual Loan Guarantee Fee, which will be collected by a 
Direct Guarantee Lender or Servicer as required by Sec. Sec.  1005.603 
and 1005.607 and remitted to HUD as required by Sec. Sec.  1005.605 and 
1005.609. The fees collected by the Direct Guarantee Lender or Servicer 
on behalf of HUD shall be payable to HUD in cash, in the manner 
prescribed by Section 184 Program Guidance.


Sec.  1005.603  Upfront Loan Guarantee Fee.

    At settlement, the Direct Guarantee Lender will collect from the 
Borrower a one-time Upfront Loan Guarantee Fee in an amount, not 
exceeding three percent of the principal obligation of the Section 184 
Guaranteed Loan. The amount will be set by HUD through a notice in the 
Federal Register.


Sec.  1005.605  Remittance of Upfront Loan Guarantee Fee.

    The Direct Guarantee Lender shall remit the Upfront Loan Guarantee 
Fee to HUD within 15 days after settlement, using the payment system as 
prescribed by Section 184 Program Guidance. The Direct Guarantee Lender 
shall provide an account reconciliation of the Upfront

[[Page 78362]]

Loan Guarantee Fee in the time and manner as may be prescribed in 
Section 184 Program Guidance.


Sec.  1005.607  Annual Loan Guarantee Fee.

    (a) Percentage of Annual Loan Guarantee Fee. Where applicable the 
Servicer must collect a monthly installment for the Annual Loan 
Guarantee Fee from the Borrower in an amount, not exceeding one percent 
of the principal obligation of the loan. The percentage used to 
calculate the Annual Loan Guarantee Fee amount will be prescribed by 
notice in the Federal Register.
    (b) Payment of Annual Loan Guarantee Fee. Where applicable, the 
Section 184 Guaranteed Loan shall require monthly payments by the 
Borrower to the Servicer in an amount equal to one-twelfth of the 
Annual Loan Guarantee Fee, payable by the Servicer to HUD in accordance 
with the Amortization Schedule issued with the Loan approval.
    (c) Amortization Schedule. The amount of the Borrower's monthly 
installment will be based on an Amortization Schedule as prescribed in 
Section 184 Program Guidance.


Sec.  1005.609  Remittance of Annual Loan Guarantee Fee.

    (a) Monthly installment of the Annual Loan Guarantee Fee shall be 
due and payable to HUD no later than the 15th day of each month, 
beginning in the month in which the Borrower is required to make the 
first monthly loan payment. Monthly payments of the Annual Loan 
Guarantee Fee must be submitted using a HUD prescribed payment system, 
as prescribed by Section 184 Program Guidance.
    (b) Subject to the exception in paragraph (d) of this section, the 
Servicer shall continue to collect from the Borrower and pay HUD the 
monthly installment of the Annual Loan Guarantee Fee, without taking 
into account Borrower's default, Loss Mitigation, prepayments, 
agreements to postpone payments, or agreements to recast the loan.
    (c) The Servicer shall adjust the monthly installment of the Annual 
Loan Guarantee Fee in accordance the schedule provided in Sec.  
1005.607(b). Notwithstanding paragraph (a) of this section, the 
Servicer shall refund to the Borrower any overpayment of Annual Loan 
Guarantee Fees collected from the Borrower, due to a delayed adjustment 
of the Loan Guarantee Fee, within 30 days of the overpayment. Failure 
to refund the Borrower within this timeframe will result in a penalty 
in accordance with Sec.  1005.611.
    (d) The Servicer shall cease collecting the monthly installment of 
the Annual Loan Guarantee Fee when the amortized loan to value ratio 
equals an amount less than 78 percent, as established by a schedule 
provided in Sec.  1005.607(b). Notwithstanding paragraph (a) of this 
section, the Servicer shall refund to the Borrower any overpayment of 
Annual Loan Guarantee Fees collected when the loan-to-value ratio is 
less than 78 percent, within 30 days of the overpayment. Failure to 
refund the Borrower within this timeframe will result in penalty in 
accordance with Sec.  1005.611.
    (e) Annual Loan Guarantee Fees paid in accordance with the schedule 
provided in Sec.  1005.607(b) shall not be refundable to the Borrower.
    (f) If the Servicer submits the monthly installment of the Annual 
Loan Guarantee Fee to HUD after the due date, the amount paid must 
include the required payment of penalties pursuant to Sec.  
1005.611(c).
    (g)(1) When transfer of servicing occurs in accordance with Sec.  
1005.707:
    (i) The schedule of monthly installment payments provided in Sec.  
1005.607(b) must be provided to the new Servicer; and
    (ii) The account reconciliation of the Upfront Guarantee Fee and 
Annual Loan Guarantee Fee due and remitted to HUD must be provided to 
the new Servicer.
    (2) The new Servicer is responsible for compliance with all 
requirements of this part, including, but not limited to, any 
outstanding Annual Loan Guarantee Fee payments and penalties owed to 
HUD, or any Annual Loan Guarantee Fee adjustments or refunds due to the 
Borrower.
    (3) If a transfer results in missed monthly installment(s) of the 
Annual Loan Guarantee Fee, the new Servicer shall pay the overdue 
installment(s) in a lump sum to HUD within 30 days of acquisition of 
the loan and include any applicable penalties in accordance with Sec.  
1005.611.
    (h) The Direct Guarantee Lender shall provide an account 
reconciliation of the Annual Loan Guarantee Fee in the time and manner 
as may be prescribed in Section 184 Program Guidance.


Sec.  1005.611  HUD imposed penalties.

    (a) Prohibited penalty pass through. The Direct Guarantee Lender or 
Servicer shall not recover or attempt to recover from the Borrower any 
penalties HUD imposes upon the Direct Guarantee Lender or Servicer.
    (b) Failure of Direct Guarantee Lender to timely remit Upfront loan 
guarantee to HUD. (1) The Direct Guarantee Lender shall include a late 
fee if the Upfront Loan Guarantee Fee to is not remitted to HUD within 
15 days of settlement.
    (2) Failure to remit the Upfront Loan Guarantee Fee, with a late 
fee where applicable, may result in HUD rejecting the endorsement or 
claim case binder.
    (c) Failure of Servicer to timely remit the monthly installment of 
the Annual Loan Guarantee Fee to HUD. (1) The Servicer shall include a 
late fee for each monthly installment of the Annual Loan Guarantee Fee 
remitted to HUD after the 15th of each month.
    (2) Failure to remit monthly installment of the Annual Loan 
Guarantee Fee to HUD, with late fee, may result in HUD rejecting the 
claim case binder, where applicable.
    (d) Failure of Servicer to adjust the amount of the Annual Loan 
Guarantee Fee. (1) When a Servicer fails to make the annual adjustment 
to the amount of the monthly installment of the Annual Loan Guarantee 
Fee in accordance with Sec.  1005.607(b), the Servicer shall, in 
addition to reimbursing the Borrower as required in Sec.  1005.609(c), 
pay HUD a penalty for each month the Servicer collects an overpayment 
of the Annual Loan Guarantee Fee.
    (2) The Servicer shall provide annual written notice, in the manner 
prescribed by Section 184 Program Guidance to the Borrower prior to the 
scheduled change in the monthly installment of the Annual Loan 
Guarantee Fee, with such advance notice as required by 12 CFR 1026.9, 
or other applicable Federal law.
    (e) Failure to cease collection of the Annual Loan Guarantee Fee. 
When a Servicer fails to cease collection of the monthly installment of 
the Annual Loan Guarantee Fee after the loan to value ratio reaches the 
threshold described in Sec.  1005.609(d), the Servicer shall, in 
addition to reimbursing the Borrower as required in Sec.  1005.609(d), 
pay HUD a penalty for each month the Servicer collects an overpayment 
of the Annual Loan Guarantee Fee.
    (f) Late fee and penalty amounts. All reasonable late fees and 
penalty amounts under this section shall be prescribed by HUD.

Subpart G--Servicing

Servicing Section 184 Guaranteed Loans Generally


Sec.  1005.701  Section 184 Guaranteed Loan servicing generally.

    This subpart identifies the servicing requirements for Section 184 
Guaranteed Loans. All Section 184 Guaranteed Loans must be serviced by 
Section 184 approved Servicers, including Section 184 Guaranteed Loans

[[Page 78363]]

owned by Holders. Holders are responsible for all servicing actions, 
including the acts of its Servicers. Servicers are responsible for 
their actions in servicing Section 184 Guaranteed Loans, including 
actions taken on behalf of, or at the direction of, the Holder. Failure 
to comply with this subpart may result in the reduction of the claims 
amount in accordance with subpart H of this part or may subject 
Servicer to sanctions pursuant to subpart I of this part. HUD requires 
Servicers to comply all applicable Tribal, Federal, and State 
requirements.


Sec.  1005.703  Servicer eligibility and application process.

    (a) To be eligible to service Section 184 Guaranteed Loans, a 
Direct Guarantee Lender, Non-Direct Guarantee Lenders, or other 
financial institution must be an approved mortgage Servicer for the 
Federal Housing Authority (FHA) or another agency of the Federal 
Government.
    (b) All eligible Direct Guarantee Lenders, Non-Direct Guarantee 
Lenders and other financial institutions must apply to become a 
Servicer in accordance with Section 184 Program Guidance.
    (c) As of [EFFECTIVE DATE OF FINAL RULE], Direct Guarantee Lenders 
servicing Section 184 Guaranteed Loans may request a waiver of Sec.  
1005.703(a).


Sec.  1005.705  Servicer approval.

    (a) Final approval. Approval is signified by:
    (1) Written notification from HUD that the Direct Guarantee Lender, 
Non-Direct Guarantee Lender, or other financial institution is approved 
as a Servicer under the Section 184 Program; and
    (2) Agreement by the Direct Guarantee Lender, Non-Direct Guarantee 
Lender, or other financial institution to comply with requirements of 
this part and any applicable Federal, State, or Tribal law requirement.
    (b) Limitations on approval. The Direct Guarantee Lender, Non-
Direct Guarantee Lender or other financial institution may only be 
approved to service Section 184 Guaranteed Loans in areas where the 
Direct Guarantee Lender, Non-Direct Guarantee Lender, or financial 
institution is licensed, as applicable.
    (c) Denial of participation. A Direct Guarantee Lender, Non-Direct 
Guarantee Lender, or other financial institution may be denied approval 
to become a Servicer if HUD determines the Direct Guarantee Lender, 
Non-Direct Guarantee Lender, or other financial institution does not 
meet the qualification requirements of Sec.  1005.703. HUD will provide 
written notification of denial and of the right to submit a written 
appeal in accordance with Sec.  1005.909.


Sec.  1005.707  Responsibility for servicing.

    (a) Program compliance. (1) The Servicer must participate in HUD 
training on the Section 184 program and comply with this part and all 
Tribal, State, and Federal requirements.
    (2) A Servicer shall provide written notification to HUD of any 
changes that affect qualifications under this subpart within a 
timeframe prescribed by Section 184 Program Guidance.
    (b) Sub-Servicer. (1) If a Servicer elects to use a sub-Servicer, 
the sub-Servicer must be an approved Servicer under Sec.  1005.705.
    (2) Servicers are responsible for the actions of their sub-
Servicers. The Servicer shall remain fully responsible to HUD for 
Section 184 Guaranteed Loan servicing in accordance with this subpart, 
and the actions of a sub-Servicer shall be considered the actions of 
the Servicer.
    (c) Change in Servicer. (1) When the responsibility of servicing a 
Section 184 Guaranteed Loan is transferred from one Servicer to 
another, the acquiring Servicer shall assume responsibility for 
compliance with this part, this includes addressing any noncompliance 
by the former Servicer.
    (2) The former Servicer must notify HUD of the change in Servicer 
within a timeframe and format prescribed by Section 184 Program 
Guidance.
    (3) The acquiring Servicer shall provide notice to the Borrower of 
the transfer of servicing in accordance with 12 CFR 1024.33, or other 
Federal laws that may require such notice.
    (4) HUD will hold the acquiring Servicer responsible for errors, 
omissions, and unresolved HUD review findings on the part of the losing 
Servicer (or losing sub-Servicer), discovered after the transfer is 
reported even when the errors or omissions took place prior to the 
transfer.
    (d) Transfer of servicing rights. The Servicer must submit written 
notification to HUD, in a timeframe prescribed by Section 184 Program 
Guidance, of the transfer of servicing rights through the of 
acquisition or sale of any Section 184 Guaranteed Loans.
    (e) Reporting requirements. (1) On a date and manner established by 
Section 184 Program Guidance, the Servicer shall report to HUD the 
status of all Section 184 Guaranteed Loans in its servicing portfolio.
    (2) Servicer shall provide an Annual Loan Guarantee Fee 
reconciliation to the Borrower and HUD, in a manner and timeframe as 
prescribed by Section 184 Program Guidance.
    (3) Servicer must also comply with any other reporting requirements 
under Sec.  1005.903.
    (4) The Servicer's failure to submit required reports on time may 
subject the Servicer to sanctions and civil money penalties pursuant to 
Sec. Sec.  1005.905 and 1005.907.
    (f) Business change reporting. Within a timeframe and form as 
prescribed by Section 184 Program Guidance, the Servicer shall provide 
written notification to HUD of:
    (1) All changes in the Servicer's legal structure, including, but 
not limited to, mergers, acquisitions, terminations, name, location, 
control of ownership, and character of business;
    (2) Staffing changes related to servicing Section 184 Guaranteed 
Loans; and
    (3) Any sanctions by another supervising entity.
    (4) Failure to report changes within the timeframe prescribed in 
Section 184 Program Guidance may result in sanctions in accordance with 
Sec. Sec.  1005.905 and 1005.907.
    (g) Annual recertification. (1) All Servicers are subject to annual 
recertification on a date and manner as prescribed by Section 184 
Program Guidance. With each annual recertification, Servicers must 
submit updated contact information, current FHA recertification status, 
and other pertinent documents as prescribed by Section 184 Program 
Guidance.
    (2) Servicers may request an extension of the recertification 
deadline in accordance with Section 184 Program Guidance.
    (3) HUD will review the annual recertification submission and may 
request any further information required to determine recertification. 
HUD will provide written notification of approval to continue 
participation in the Section 184 Program or denial. A denial may be 
appealed pursuant to Sec.  1005.909.
    (4) If an annual recertification is not submitted by the reasonable 
deadline as prescribed in Section 184 Program Guidance, HUD may subject 
the Servicer to sanctions under Sec.  1005.907.
    (h) Program ineligibility. Servicer may be deemed ineligible for 
Section 184 Program participation when HUD becomes aware that the 
entity or any officer, partner, director, principal, manager, or 
supervisor of the entity was:
    (1) Suspended, debarred, under a limited denial of participation 
(LDP), or otherwise restricted under 2 CFR part 2424, or under similar 
procedures of any other Federal agency;

[[Page 78364]]

    (2) Indicted for, or have been convicted of, an offense that 
reflects adversely upon the integrity, competency, or fitness to meet 
the responsibilities of the Servicer to participate in the Title I or 
Title II programs of the National Housing Act, or Section 184 Program;
    (3) Found to have unresolved findings as a result of HUD or other 
governmental audit, investigation, or review;
    (4) Engaged in business practices that do not conform to generally 
accepted practices of prudent Servicers or that demonstrate 
irresponsibility;
    (5) Convicted of, or have pled guilty or nolo contendere to, a 
felony related to participation in the real estate or mortgage Loan 
industry during the 7-year period preceding the date of the application 
for licensing and registration, or at any time preceding such date of 
application, if such felony involved an act of fraud, dishonesty, or a 
breach of trust or money laundering;
    (6) In violation of provisions of the Secure and Fair Enforcement 
Mortgage Licensing Act of 2008 (12 U.S.C. 5101, et seq.) or any 
applicable provision of Tribal or State law; or
    (7) In violation of 12 U.S.C. 1715z-13a or any other requirement 
established by HUD.
    (i) Records retention. Servicers must maintain the servicing case 
binder for a period of three years beyond the date of satisfaction or 
maturity date of the Loan, whichever is sooner. However, where there is 
a payment of claim, the claim case binder must be retained for a period 
of at least five years after the final claim has been paid. Section 184 
Program Guidance shall prescribe additional records retention time 
depending on the circumstances of the claim.


Sec.  1005.709  Providing information to Borrower and HUD.

    (a) Servicers shall provide Section 184 Guaranteed Loan information 
to Borrowers and arrange for individual loan consultation on request. 
The Servicer must establish written procedures and controls to assure 
prompt responses to inquiries. At a minimum, the Servicer must provide 
contact information to the Borrower in accordance with 12 CFR 1024.36 
and 1026.41, including:
    (1) A written address a Borrower can use to request and submit 
information; and
    (2) A toll-free telephone number a Borrower can use to verbally ask 
questions and seek information.
    (b) All Borrowers must be informed of the system available for 
obtaining answers to loan inquiries, the Servicer's office from which 
needed information may be obtained, and reminded of the system at least 
annually.
    (c) Within 30 days after the end of each calendar year, the 
Servicer shall furnish to the Borrower a statement of the interest 
paid, and of the taxes disbursed from the escrow account during the 
preceding year.
    (d) At the Borrower's request, the Servicer shall furnish a 
statement of the escrow account sufficient to enable the Borrower to 
reconcile the account.
    (e) Each Servicer of a Section 184 Guaranteed Loan shall deliver to 
the Borrower a written notice of any transfer of the Servicing of the 
Section 184 Guaranteed Loan. The notice must be sent in accordance with 
12 CFR 1024.33(b)(3) and shall contain the information required by 12 
CFR 1024.33(b)(4). Servicers must respond to Borrower inquiries 
pertaining to the transfer of Servicing in accordance with 12 CFR 
1024.33.
    (f) Servicers must respond to HUD's written or electronic requests 
for information concerning individual accounts within a reasonable 
timeframe established by Section 184 Program Guidance, or the deadline 
placed by other applicable law, whichever is sooner.


Sec.  1005.711  Assumption and release of personal liability.

    (a) Assumption. Section 184 Guaranteed Loans may be fully assumed 
by eligible substitute Borrowers, if such assumption is approved by HUD 
and other required parties, including but not limited to a Tribe, TDHE, 
or the BIA. HUD approval will be based on the following:
    (1) Creditworthiness. At least one person acquiring ownership must 
be determined to be creditworthy under subpart D of this part. If the 
Servicer is approved as a Direct Guarantee Lender, the Servicer 
performs a creditworthiness determination under Sec.  1005.409. If the 
Servicer is not approved as a Direct Guarantee Lender, then the 
Servicer shall request a creditworthiness determination in a manner 
prescribed by Section 184 Program Guidance.
    (2) Trust Lands. (i) The lease document may require Tribal and BIA 
approval of the assignment of the lease to the new Borrower. Servicers 
shall not proceed to closing on the assumption until and unless the 
Tribe has assigned the leasehold to the new Borrower, and it has been 
approved by the BIA.
    (ii) The lease may contain other Conveyance restrictions. Servicer 
must review the lease for Conveyance restrictions and ensure the lease 
complies with Sec.  1005.303(b)(2).
    (b) Fees. The Servicer may collect from the Borrower the following 
fees and costs:
    (1) A charge to compensate the Direct Guarantee Lender for 
reasonable and necessary expenses incurred as part of the assumption 
review and processing. HUD may establish limitations on the amount of 
any such charge.
    (2) Reasonable and customary costs, but not more than the amount 
actually paid by the Direct Guarantee Lender, for any of the following 
items: credit report, verification of employment and the execution of 
additional release of liability forms.
    (3) Additional fees and costs over and above the assumption fee and 
reasonable and customary costs cannot be assessed.
    (c) Release of liability. At closing, the Servicer must release the 
existing Borrower from any personal liability on a form approved by 
HUD; the eligible and approved substitute Borrower assumes personal 
liability of the Section 184 Guaranteed Loan when the release is 
executed.
    (d) Modification of Loan Guarantee Certificate. Upon completion of 
an assumption, the Servicer shall submit copies of the documentation 
required in this section to HUD, in a manner and form prescribed by 
HUD. HUD will subsequently issue a revised Loan Guarantee Certificate.


Sec.  1005.713  Due-on-sale provision.

    A Section 184 Guaranteed Loan shall contain a due-on-sale clause 
permitting acceleration, in a form prescribed by Section 184 Program 
Guidance. The Servicer shall promptly advise HUD of any sale or other 
transfer that occurs without the approval of the Direct Guarantee 
Lender. If acceleration is permitted by applicable Tribal, Federal, or 
State law, the Servicer shall certify as to the legal authority and 
seek HUD's approval, in a form and manner prescribed by Section 184 
Program Guidance. Within 30 days of receipt of HUD approval to 
accelerate, the Servicer shall notify the Borrower of default and 
acceleration.


Sec.  1005.715  Application of Borrower payments.

    (a) Servicer shall comply with Sec.  1005.509 with respect to the 
application of Borrower payments. The Servicer shall apply the payments 
in the following order:
    (1) Escrow items, including monthly payments of the Annual Loan 
Guarantee Fee, rents, taxes, special assessments, and if required, 
flood insurance, fire and other hazard insurance premiums;

[[Page 78365]]

    (2) Interest accrued on the Section 184 Guaranteed Loan;
    (3) Principal of the Section 184 Guaranteed Loan; and
    (4) Late charges, if permitted under the terms of the Section 184 
Guaranteed Loan and subject to such conditions as HUD may prescribe.
    (b) Partial Payments shall be applied in accordance with Sec.  
1005.723.


Sec.  1005.717  Administering escrow accounts.

    (a) The Servicer shall not use escrow funds for any purpose other 
than that for which they were received. It shall segregate escrow 
commitment deposits, work completion deposits, and all periodic 
payments received on account of leasehold rents, taxes, assessments, 
monthly payments of Annual Loan Guarantee Fee, and insurance charges or 
premiums, and shall deposit such funds with one or more financial 
institutions in a special account or accounts that are fully insured by 
the Federal Deposit Insurance Corporation or the National Credit Union 
Administration. Leasehold rents on Trust Lands may require additional 
escrow segregation by Servicer's which HUD will prescribe in Section 
184 Program Guidance.
    (b) It is the Servicer's responsibility to ensure timely escrow 
disbursements and their proper application. Servicers must establish 
controls to ensure that accounts payable from the escrow account or the 
information needed to pay such accounts payable is obtained on a timely 
basis. Penalties for late payments for accounts payable from the escrow 
account must not be charged to the Borrower or HUD unless the Servicer 
can show that the penalty was the direct result of the Borrower's error 
or omission. The Servicer shall further comply with all requirements 
set forth in 12 CFR 1024.17, including method of calculations related 
to escrow, the methods of collection and accounting, and the payment of 
the accounts payable for which the money has been escrowed.
    (c) The Servicer shall not initiate foreclosure for escrow account 
shortfalls resulting from advances made pursuant to this section.
    (d) When a Loan Guarantee Certificate is terminated voluntarily or 
due to Borrower's prepayment, in total satisfaction of the Section 184 
Guaranteed Loan, amounts in the escrow account designated to pay any 
HUD required program fees shall be remitted to HUD in a form approved 
by HUD at the time of the required reporting related to the voluntary 
termination or prepayment. When a Section 184 Guaranteed Loan is 
prepaid in full, amounts held in escrow for taxes, hazard insurance, or 
rents, if applicable, that are not yet due or incurred, shall be 
released to the Borrower.


Sec.  1005.719  Fees and costs after endorsement.

    (a) After endorsement, the Servicer may collect reasonable and 
customary fees and costs from the Borrower only as provided in 
paragraphs (a)(1) through (14) of this section. The Servicer may 
collect these fees or costs from the Borrower only to the extent that 
the Servicer is not reimbursed for such fees or costs by HUD. 
Permissible fees and costs include:
    (1) Late fee in accordance with Sec.  1005.511;
    (2) Costs for processing or reprocessing a check returned as 
uncollectible (where bank policy permits, the Servicer must deposit a 
check for collection a second time before assessing an insufficient 
funds charge);
    (3) Fees for processing a change of ownership of the property;
    (4) Fees and costs for processing an assumption of the Section 184 
Guaranteed Loan in connection with the sale or transfer of the 
property;
    (5) Costs for processing a request for credit approval incurred in 
the course of processing an assumption or substitute Borrower;
    (6) Costs for substitution of a hazard insurance policy at other 
than the expiration of term of the existing hazard insurance policy;
    (7) Costs for modification of the Section 184 Guaranteed Loan 
requiring recordation of the agreement, including those for extension 
of term or re-Amortization;
    (8) Fees and costs for processing a partial release of the 
property;
    (9) Attorney's and trustee's fees and costs actually incurred 
(including the cost of appraisals and advertising) when a Section 184 
Guaranteed Loan has been referred to foreclosure counsel and 
subsequently the Section 184 Guaranteed Loan is reinstated. No 
attorney's fee and cost that exceeds the reasonable limits prescribed 
by Section 184 Program Guidance may be collected from the Borrower, 
unless approved by HUD;
    (10) A trustee's fee, if the Security instrument provides for 
payment of such a fee, for execution of a satisfactory release when the 
deed of trust is paid in full;
    (11) Where permitted by the Security instrument, attorney's fees 
and costs actually incurred in the defense of any suit or legal 
proceeding wherein the Servicer shall be made a party thereto by reason 
of the Section 184 Guaranteed Loan. No attorney's fee may be charged 
for the services of the Servicer's staff attorney or other employee;
    (12) Property preservation costs incurred, subject to reasonable 
limits prescribed by Section 184 Program Guidance, or otherwise 
approved by HUD;
    (13) Fees permitted for providing a beneficiary notice under 
applicable Tribal or State law, if such a fee is not otherwise 
prohibited by applicable law, under 12 CFR 1024.36; and
    (14) Such other reasonable and customary costs as may be authorized 
by HUD.
    (b) Reasonable and customary fees must be based upon the actual 
cost of the work performed, including out-of-pocket expenses. HUD may 
establish maximum fees and costs which are reasonable and customary in 
different geographic areas. Except as provided in this part, no fee or 
costs shall be based on a percentage of either the face amount of the 
Section 184 Guaranteed Loan or the unpaid principal balance due.


Sec.  1005.721  Enforcement of late fees.

    (a) A Servicer shall not commence foreclosure when the Borrower's 
only default is his or her failure to pay a late fee(s).
    (b) A late fee that may be assessed under the Section 184 
Guaranteed Loan shall not justify return of a payment submission. 
However, if the Servicer thereafter notifies the Borrower of his 
obligation to pay a late fee, such a fee may be deducted from any 
subsequent payment or payments submitted by the Borrower or on his 
behalf if this is not inconsistent with the terms of the Section 184 
Guaranteed Loan. Partial Payments shall be treated as provided in Sec.  
1005.723.
    (c) A payment submission may be returned because of failure to 
include a late fee only if the Servicer notifies the Borrower before 
imposition of the charge of the amount of the monthly payment, the date 
when the late fee will be imposed, and either the amount of the late 
charge or the total amount due when the late fee is included.
    (d) During the 60-day period beginning on the effective date of 
transfer of the Servicing of a Section 184 Guaranteed Loan, a late fee 
shall not be assessed. If a payment is received by the prior Servicer 
on or before the due date (including any applicable grace period 
allowed by the Section 184 Guaranteed Loan), no late fees shall be 
assessed by the new Servicer.

[[Page 78366]]

    (e) A Servicer shall not assess a late fee for failure to pay a 
late fee, as prohibited under 12 CFR 1026.36.


Sec.  1005.723  Partial payments.

    (a) A Servicer must have a written policy on how it handles Partial 
Payments, in compliance with this section and that policy shall be 
readily available to the public.
    (b) Upon receipt of a Partial Payment, a Servicer must provide to 
the Borrower a copy of the Servicer's written Partial Payment policy 
and a letter explaining how it will handle the received Partial 
Payment. The Servicer may:
    (1) Accept a Partial Payment and either apply it to the Borrower's 
account;
    (2) Identify it with the Borrower's account number and hold it in a 
trust account pending disposition; or
    (3) Return the Partial Payment(s) to the Borrower.


Sec.  1005.725  Handling prepayments.

    Notwithstanding the terms of the Section 184 Guaranteed Loan, the 
Servicer shall accept a prepayment at any time and in any amount. 
Monthly interest on the Section 184 Guaranteed Loan must be calculated 
on the actual unpaid principal balance of the Section 184 Guaranteed 
Loan as of the date the prepayment is received, and not as of the next 
payment due date.


Sec.  1005.727  Substitute Borrowers.

    Where an original Borrower requests the substitution of an existing 
Borrower on the Section 184 Guaranteed Loan:
    (a) A Servicer who is Non-Direct Guarantee Lender or financial 
institution must obtain HUD approval for the substitution. A remaining 
original Borrower must be maintained and continue to be personally 
liable for the Section 184 Guaranteed Loan, notwithstanding any 
discharge entered in accordance with applicable Tribal, Federal, or 
State law.
    (b) A Servicer who is a Direct Guarantee Lender may, subject to 
limitations established by HUD, approve an eligible substitute Borrower 
that meets the requirements for Section 184 Guaranteed Loans which they 
own or service, and need not obtain further without specific approval 
from HUD. A remaining original Borrower must be maintained and continue 
to be personally liable for the Section 184 Guaranteed Loan, 
notwithstanding any discharge entered in accordance with applicable 
Tribal, Federal, or State law.

Servicing Default Section 184 Guaranteed Loans


Sec.  1005.729  Section 184 Guaranteed Loan collection action.

    A Servicer shall take prompt action to collect amounts due from 
Borrowers to minimize the number of accounts in default status. The 
Servicer must exhaust all reasonable possibilities of collection, 
including assessing the Borrower's financial circumstances for Loss 
Mitigation options in accordance with Sec.  1005.739.


Sec.  1005.731  Default notice to Borrower.

    (a) Live contact. (1) The Servicer shall establish or make good 
faith efforts to establish live contact with a Borrower in default not 
later than the 36th day of the Borrower's default and, promptly after 
establishing live contact, inform such Borrower about the availability 
of Loss Mitigation options.
    (2) A good faith effort to establish live contact consists of 
reasonable steps under the circumstances to reach a Borrower, including 
telephoning a Borrower on more than one occasion and, if unable to 
establish live contact, sending written or electronic communication 
encouraging a Borrower to establish live contact with the Servicer.
    (b) Written notice. The Servicer shall give written notice of 
default to the Borrower, in a format approved by HUD, no later than the 
end of the 45th day of a Borrower default. The Servicer must contact 
the Borrower, whether the Borrower lives in the same or a different 
location. If an account is reinstated and again enters default, a new 
default notice shall be sent to the Borrower, except that the Servicer 
is not required to send a second default notice to the same Borrower 
more often than once during any 180-day period. The Servicer may give 
additional or more frequent notices of default, at its discretion.
    (c) Content of the written notice. The notice required by paragraph 
(b) of this section shall include:
    (1) A statement encouraging the Borrower to contact the Servicer;
    (2) Servicer contact information, including but not limited to the 
telephone number to access Servicer personnel and the Servicer's 
mailing address;
    (3) A statement providing a brief description of examples of Loss 
Mitigation options that may be available from the Servicer and a 
statement how a Borrower may obtain more information about Loss 
Mitigation options;
    (4) An outline of all critical Servicing deadlines under this 
subpart, including but not limited to the Servicer timeframe for 
evaluating a complete Loss Mitigation application, deadline for 
Borrower to select a Loss Mitigation option, Tribal notice under Sec.  
1005.757(a), if applicable, and the process for filing First Legal 
Action;
    (5) Disclosure to the Borrower that they may be eligible for 
additional protections under Consumer Financial Protection Bureau 
regulations in 12 CFR chapter X;
    (6) A Loss Mitigation application and submission instructions, 
including a statement that delays in submission of the Loss Mitigation 
application or incomplete submissions shall reduce the availability of 
certain Loss Mitigation options to the Borrower;
    (7) The manner in which a Borrower can access the HUD list of 
homeownership counselors or counseling organizations, including a 
website(s) or toll-free telephone(s); and
    (8) A statement informing the Borrower that the Servicer may make 
information available to local credit bureaus and prospective 
creditors.
    (d) Conflicts with other law. Nothing in this section shall require 
a Servicer to communicate with a Borrower in a manner otherwise 
prohibited by applicable Tribal, Federal, or State law.


Sec.  1005.733  Loss mitigation application, timelines, and appeals.

    (a) Servicer response to Loss Mitigation application. Within five 
days after the Servicer receives the Borrower's Loss Mitigation 
application, the Servicer must, in writing:
    (1) Acknowledge receipt of the application;
    (2) Determine if the application is complete or incomplete; and
    (3) If incomplete, notify the Borrower which documentation is 
required and missing, and that submission of the missing documents is 
required no later than fourteen days from the date of the response to 
provide missing documents to the Servicer. If Borrower does not timely 
submit the requested documents, the Servicer must initiate live contact 
with the Borrower.
    (b) Servicer timeframe for evaluating complete Loss Mitigation 
application. Within fourteen days of receipt of a complete application 
from Borrower, the Servicer must evaluate the application.
    (c) Notification of Servicer determination. The Servicer shall 
provide written notification: (1) Informing the Borrower of all 
available Loss Mitigation options;
    (2) Encouraging the Borrower to review all available Loss 
Mitigation options and to contact the Servicer with any questions;

[[Page 78367]]

    (3) Encouraging Borrowers, when feasible, to consider pursuing 
simultaneous Loss Mitigation options, to the extent it is offered by 
the Servicer;
    (4) Informing the Borrower that if no Loss Mitigation option is 
elected or if all elected Loss Mitigation options fail, the Servicer 
may proceed with Tribal notice under Sec.  1005.757(a) or First Legal 
Action at 180 days of default in accordance with Sec.  1005.757 or 
Sec.  1005.761; and
    (5) Informing the Borrower that, upon First Legal Action or the 
assignment of the Section 184 Guaranteed Loan to HUD, the Servicer may 
no longer offer or authorize a pre-foreclosure sale as an alternative 
to foreclosure, and that the primary alternative to foreclosure shall 
be a deed-in-lieu/lease-in-lieu of foreclosure, subject to applicable 
Tribal, Federal, or State law or contractual requirements.
    (d) Appeal. (1) If, after the Borrower receives the Servicer's Loss 
Mitigation options, the Borrower disagrees with Servicer's Loss 
Mitigation determination, the Borrower may appeal in writing and 
request that the Servicer re-evaluate the Borrower's Loss Mitigation 
application. The Borrower must submit its appeal no later than 14 days 
from the date of notification of the Servicer's Loss Mitigation 
determination. Upon receipt of the Borrower's appeal of the Servicer's 
Loss Mitigation determination, the Servicer shall re-evaluate the 
Borrower's Loss Mitigation application within thirty days but may not 
use the same staff that made the initial Loss Mitigation determination 
and shall notify the Borrower of its appeal decision in writing.
    (2) If the Borrower submits a timely written appeal, the 180-day 
deadline for First Legal Action shall be suspended during the appeal 
process.


Sec.  1005.735  Occupancy inspection.

    (a) Occupancy inspection. An occupancy inspection is a visual 
inspection of a Section 184 Guaranteed Loan property by the Servicer to 
determine if the property is vacant or abandoned and to confirm the 
identity of any occupants.
    (b) Occupancy follow-up. An occupancy follow-up is an attempt to 
communicate with the Borrower via letter, telephone, or other method of 
communication, other than on-site inspection, to determine occupancy 
when the Section 184 Guaranteed Loan remains in default after the 
initial occupancy inspection that did not result in determination of 
the Borrower's occupancy status.
    (c) Initial occupancy inspection. The Servicer must perform the 
initial occupancy inspection after the 45th day of default but no later 
than the 60th day of the default when:
    (1) A payment has not been received within 45 days of the due date 
or for any other defaults under the Section 184 Guaranteed Loan; and
    (2) Efforts to reach the Borrower or occupant have been 
unsuccessful.
    (d) Occupancy follow-ups and continued inspections. If the Servicer 
is unable to determine the Borrower's occupancy status through the 
initial occupancy inspection, the Servicer must perform occupancy 
follow-ups and, if necessary, occupancy inspections every 25-35 days 
from the last inspection until the occupancy status is determined.
    (e) Occupancy inspections during bankruptcy. When payments are not 
submitted and a Borrower is a debtor in bankruptcy, the Servicer must 
contact either the bankruptcy trustee or the Borrower's bankruptcy 
attorney, if the Borrower is represented, for information concerning 
the occupancy status of the property or if an occupancy inspection is 
necessary or requires authorization. If the Servicer cannot determine 
that the property is vacant or abandoned during the period of the 
automatic stay, the Servicer must document the servicing case binder 
with evidence that it timely contacted the attorney or trustee.
    (f) Conflicts with other law. Nothing in this section shall require 
a Servicer to conduct an inspection when prohibited by applicable 
Tribal, Federal, State, or local law.


Sec.  1005.737  Vacant property procedures.

    If the Servicer determines through an occupancy inspection or 
occupancy follow-up that the property is vacant or abandoned, the 
Servicer must send a letter, via certified mail or other method 
providing delivery confirmation, to all Borrowers at the property 
address, or other known address of Borrower, informing them of the 
Servicer's determination that the property is vacant or abandoned. This 
letter must include the Servicer's contact information.
    (a) If occupancy is verified through the delivery confirmation, the 
Servicer shall continue pursuing collection efforts required by Sec.  
1005.729 until the Servicer has the authority to proceed to First Legal 
Action.
    (b) If the Servicer verifies through the delivery confirmation 
process that the property is vacant or abandoned; then the Servicer 
shall:
    (1) Commence first-time vacant property inspection;
    (2) Take appropriate property preservation and protection actions 
to secure and maintain the property;
    (3) For properties on Trust Land, initiate Tribal First Right of 
Refusal notice under Sec.  1005.757(a) within seven days;
    (4) For fee simple properties, initiate First Legal Action within 
seven days;
    (5) Continue to perform vacant property inspections every 25-35 
days until the default is cured, the property is disposed of, or the 
bankruptcy court has granted approval for the Servicer to contact the 
Borrower or to take any required property preservation actions; and
    (6) Retain documentation in the servicing case binder providing 
evidence of activities required by HUD in this section or otherwise 
directed by HUD.
    (c) Conflicts with other law. Nothing in this section shall require 
a Servicer to communicate with a Borrower in a manner prohibited by 
applicable Tribal, Federal, or State law.

Servicing Default Section 184 Guaranteed Loans Under the Loss 
Mitigation Program


Sec.  1005.739  Loss mitigation.

    (a) The purpose of Loss Mitigation is to attempt to cure the 
Borrower's default and minimize financial loss to HUD. Servicer must 
also comply with 12 CFR 1024.41 and any applicable Tribal, Federal, and 
State requirements.
    (b) The Servicer must offer a Loss Mitigation option, if applicable 
to the Borrower and if practical under the circumstances, within 180 
days of the date of default.
    (c) Loss mitigation options include:
    (1) A forbearance plan;
    (2) Assumption;
    (3) A loan modification;
    (4) Pre-foreclosure sale;
    (5) A deed-in-lieu/lease-in-lieu of foreclosure; or
    (6) Other options, as may be prescribed in Section 184 Program 
Guidance.
    (d) A Loss Mitigation review shall, to the greatest extent 
possible, be based on a full financial assessment of the Borrower at 
time of default, and the collection technique(s) must take into account 
the circumstances particular to each Borrower.
    (e) HUD may prescribe conditions and requirements for the 
eligibility and appropriate use of Loss Mitigation options.
    (f) Within 180 days of default, if the Borrower is offered a Loss 
Mitigation option, other than loan modification, and subsequently fails 
to meet the Loss

[[Page 78368]]

Mitigation option requirements, the Servicer shall within the time 
period as may be established by Section 184 Program Guidance of the 
failure of the Loss Mitigation, determine whether Borrower should 
continue with the current Loss Mitigation option or reassess the 
Borrower for an alternate Loss Mitigation option.
    (1) Upon competition of the Loss Mitigation assessment, the 
Servicer must notify the Borrower within two days of the Loss 
Mitigation option failure and any possible additional Loss Mitigation 
options.
    (2) The Borrower shall respond to the Servicer within seven days 
and accept any offer of Loss Mitigation, or the Servicer will proceed 
with foreclosure or Tribal First Right of Refusal notice under Sec.  
1005.757(a).
    (g) If the Borrower is satisfactorily performing under a Loss 
Mitigation option, other than a loan modification, at 180 days after 
default but subsequently fails to perform, the Servicer shall follow 12 
CFR part 1024 (Regulation X) and, for Trust Land, initiate Tribal First 
Right of Refusal notice under Sec.  1005.757(a) within five days of the 
Loss Mitigation option failure.
    (h) Documentation must be maintained for the initial and all 
subsequent evaluations and resulting Loss Mitigation actions in the 
servicing case binder in accordance with Sec.  1005.219(d)(2).
    (i) A Servicer that is found to have failed to engage in and comply 
with Loss Mitigation as required under this subpart may be subject to 
enforcement action by HUD, including but not limited to sanctions under 
Sec. Sec.  1005.905 and 1005.907.


Sec.  1005.741  Notice to Tribe and BIA--Borrower default.

    (a) When two consecutive Section 184 Guaranteed Loan payments are 
in default or sixty days after other default under the Section 184 
Guaranteed Loan, the Servicer shall provide notice of default to:
    (1) The BIA, for Section 184 Guaranteed Loan property that is on 
Trust Land, in accordance with applicable requirements under 25 CFR 
part 162; and,
    (2) The Tribe, for any Section 184 Guaranteed Loan property where a 
Borrower has provided consent of notification in accordance with Sec.  
1005.501(j).
    (b) The Servicer shall continue exploring Loss Mitigation options, 
consistent with the requirements under this subpart, with the Borrower 
during the notification process to the Tribe or BIA.


Sec.  1005.743  Relief for Borrower in military service.

    (a) Postponement of principal payments. If the Borrower is a person 
in ``military service,'' as such term is defined in the Servicemembers 
Civil Relief Act (50 U.S.C. 3901-4043), the Servicer may, by written 
agreement with the Borrower, postpone for the period of military 
service and three months thereafter any part of the monthly payment 
which represents the Amortization of principal. The agreement shall 
contain a provision for the resumption of monthly payments after such 
period in amounts which will completely amortize the Section 184 
Guaranteed Loan within the maturity as provided in the original loan 
term.
    (b) Forbearance. Forbearance plans may be available to Borrowers in 
military service pursuant to Sec.  1005.745(e).
    (c) Postponement of foreclosure. If at any time during default the 
Borrower is a person in ``military service,'' as such term is defined 
in the Servicemembers Civil Relief Act, the period during which the 
Borrower is in such military service shall be excluded in computing the 
period within which the Servicer shall commence First Legal Action to 
acquire the property or Tribal notice under Sec.  1005.757(a). No 
postponement or delay in the prosecution of foreclosure proceedings 
during the period the Borrower is in such military service shall be 
construed as failure on the part of the Servicer to exercise reasonable 
diligence in prosecuting such proceedings to completion as required by 
this subpart.


Sec.  1005.745  Forbearance plans.

    (a) General. Forbearance plans are arrangements between a Servicer 
and Borrower that may allow for a period of reduced or suspended 
payments and specific terms for the repayment plan.
    (b) Informal forbearance. Informal forbearance plans are oral 
agreements, where permitted under Tribal or State law, between a 
Servicer and Borrower allowing for reduced or suspended payments and 
may provide specific terms for repayment.
    (1) Eligibility. The Servicer may offer an informal forbearance 
plan to a Borrower with a delinquent Section 184 Guaranteed Loan who is 
not experiencing a loss of income or an increase in living expenses 
that can be verified.
    (2) Duration. The period shall be three months or less.
    (c) Formal forbearance. Formal forbearance plans are written 
agreements executed by the Servicer and Borrower, allowing for reduced 
or suspended payments and such plans may include specific terms for 
repayment.
    (1) Eligibility. The Servicer may offer a formal forbearance plan 
when:
    (i) The Borrower is not experiencing a loss of income or increase 
in living expenses that can be verified;
    (ii) The Servicer determines that 85 percent of the Borrower's 
surplus income is sufficient to reinstate within six months; or
    (iii) If the Servicer determines that the Borrower is otherwise 
ineligible for other Loss Mitigation options but has sufficient surplus 
income or other assets that could repay the indebtedness.
    (2) Agreement. The Servicer shall execute a written agreement with 
the Borrower outlining the terms and conditions of the formal 
forbearance. The Servicer must include in the formal forbearance 
agreement a provision for the resumption of monthly payments on a date 
certain, with repayment in amounts which will completely reinstate the 
Section 184 Guaranteed Loan no later than the original maturity date. 
The Servicer must retain in the servicing case binder a copy of the 
written formal forbearance agreement postponing principal and interest 
payments.
    (3) Duration. The repayment period shall be equal to or greater 
than three months but not to exceed six months, unless authorized by 
HUD.
    (4) Required documents. The Servicer must obtain from the Borrower 
any necessary supporting documentation and retain this documentation in 
the servicing case binder.
    (5) Property condition. The Servicer must conduct any review it 
deems necessary, including a property inspection, when the Servicer has 
reason to believe that the physical condition of the property adversely 
impacts the Borrower's use or ability to support the debt as follows:
    (i) Financial information provided by the Borrower indicating large 
expenses for property maintenance;
    (ii) The Servicer receives notice from local government or other 
third parties
    regarding property condition; or
    (iii) The property may be affected by a disaster event.
    (iv) If significant maintenance costs contributed to the default or 
are affecting the Borrower's ability to make payments under the loan or 
formal forbearance agreement, the Servicer may provide in the formal 
forbearance agreement a period of loan forbearance

[[Page 78369]]

during which repairs specified in the agreement will be completed at 
the Borrower's expense.
    (d) Special forbearance-unemployment. The special forbearance-
unemployment Loss Mitigation option is available when one or more of 
the Borrowers has become unemployed and the loss of employment has 
negatively affected the Borrower's ability to continue to make their 
monthly Section 184 Guaranteed Loan payment.
    (1) Eligibility. The Servicer must ensure that the Borrower meets 
all the following eligibility requirements:
    (i) The Section 184 Guaranteed Loan must be at least three months 
in default.
    (ii) The Borrower is experiencing a verified loss of income or 
increase in living expenses due to loss of employment.
    (iii) The Borrower must continue to occupy the property as a 
Principal Residence.
    (iv) The Borrower must have a verified unemployment status and no 
Borrower is currently receiving continuous income; or an analysis of 
the Borrower's financial information indicates that special 
forbearance-unemployment is the best or only option available for the 
Borrower.
    (2) Agreement. The Servicer shall execute a written special 
forbearance-unemployment agreement with the Borrower outlining the 
terms and conditions of the special forbearance--unemployment. The 
Servicer must include in the special forbearance-unemployment agreement 
a provision for the resumption of monthly payments on a date certain, 
with repayment in amounts which will completely reinstate the Section 
184 Guarantee Loan no later than the original maturity. The Servicer 
must retain in the servicing case binder a copy of the written special 
forbearance-unemployment agreement postponing principal and interest 
payments.
    (3) Duration. The repayment period shall not exceed six months. 
During this repayment period where Borrower is in compliance with the 
Special Forbearance-Unemployment Agreement, the Servicer shall not 
proceed to filing of First Legal Action or initiating Tribal First 
Right of Refusal notice under Sec.  1005.757(a) until expiration or 
default of the Agreement.
    (4) Required documents. The Servicer must obtain from the Borrower 
such supporting third party documentation, including receipts of 
unemployment benefits or an affidavit signed by the Borrower, stating 
the date that the Borrower became unemployed and stating that the 
Borrower is actively seeking, and is available, for employment. The 
Servicer must retain this documentation in the servicing case binder.
    (5) Property condition. The Servicer must conduct any review it 
deems necessary, including a property inspection, when the Servicer has 
reason to believe that the physical condition of the property adversely 
impacts the Borrower's use or ability to support the debt as follows:
    (i) Financial information provided by the Borrower indicating large 
expenses for property maintenance;
    (ii) The Servicer receives notice from local government or other 
third parties regarding property condition; or
    (iii) The property may be affected by a disaster event.
    (iv) If significant maintenance costs contributed to the default or 
are affecting the Borrower's ability to make payments under the Section 
184 Guaranteed Loan or special forbearance-unemployment agreement, the 
Servicer may provide in the special forbearance-unemployment agreement 
a period of forbearance during which repairs specified in the agreement 
will be completed at the Borrower's expense.
    (e) Special forbearance-servicemember. The Servicer may, by written 
special forbearance-servicemember agreement with the Borrower, postpone 
any part of the monthly Section 184 Guaranteed Loan that represents 
amortization of principal, for the period permitted by HUD under Sec.  
1005.743.
    (1) Eligibility. The servicemember must be in active-duty military 
service and meet the criteria established in 50 U.S.C. 3911. Dependents 
of servicemembers are entitled to protections in limited situations per 
the Servicemembers Civil Relief Act, as amended.
    (2) Duration. The repayment period shall be for the period of 
military service and three months thereafter.
    (3) Required documents. The Borrower shall provide Servicer with a 
copy of the servicemember's deployment orders.
    (4) Agreement. (i) The Servicer shall execute a written special 
forbearance-servicemember agreement with the Borrower outlining the 
terms and conditions of the special forbearance-servicemember. The 
Servicer must include in the special forbearance-servicemember 
agreement a provision for the resumption of monthly payments on a date 
certain, with repayment in amounts which will completely reinstate the 
Section 184 Guaranteed Loan no later than the original maturity date. 
The Servicer must retain in the servicing case binder a copy of the 
written special forbearance-servicemember agreement postponing 
principal and interest payments.
    (ii) The Servicer shall comply with all applicable requirements 
under the Servicemembers Civil Relief Act.
    (f) Continued review and re-evaluation. The Servicer shall monitor 
the Borrower's compliance with an agreement under Sec.  1005.743 every 
30 days, until the end of the agreement.


Sec.  1005.747  Assumption.

    The Servicer shall explore assumption as a Loss Mitigation option 
with the Borrower in accordance with Sec.  1005.711.


Sec.  1005.749  Loan modification.

    (a) General. A Section 184 Guaranteed Loan modification may include 
a change in one or more of the following: interest rate; capitalization 
of delinquent principal, interest or escrow items; or re-amortization 
of the balance due. A Section 184 Guaranteed Loan modification may not 
be used as a means to reinstate the Section 184 Guaranteed Loan prior 
to sale or assumption.
    (b) Eligibility. The Servicer must ensure that the Borrower is able 
to support the monthly loan payment after the loan is modified.
    (c) Borrower qualifications. The Servicer must ensure that the 
Borrower meets the following eligibility criteria:
    (1) At least 12 months have elapsed since the closing date of the 
original Section 184 Guaranteed Loan.
    (2) The Borrower has not executed a loan modification agreement in 
the past 24 months. The number of loan modification agreements may be 
limited as prescribed by Section 184 Program Guidance. The Servicer may 
approve the first loan modification agreement under the Loan, and HUD 
must approve any subsequent loan modifications.
    (3) The Borrower's default is due to a verified loss of income or 
increase in living expenses.
    (4) One or more Borrowers receives continuous income sufficient to 
support the monthly payment under the modified rate and term, although 
not sufficient to sustain the original Section 184 Guaranteed Loan and 
repay the arrearage.
    (5) The Borrower's minimum surplus income and percentage of net 
income shall be prescribed by HUD.
    (6) Eighty-five percent of the Borrower's surplus income is 
insufficient to cure arrears within six months.
    (7) The Borrower's monthly payment, which consists of principal, 
interest,

[[Page 78370]]

taxes, insurance, and other escrow, can be reduced by the greater of 10 
percent of the existing monthly Section 184 Guaranteed Loan payment 
amount or $100, using an agreed upon interested rate in accordance with 
Sec.  1005.451 and amortizing for a term up to 30 years or any other 
period as may be prescribed by HUD.
    (8) The Borrower has successfully completed a three-month trial 
payment plan based on the Section 184 Guaranteed Loan estimated 
modification monthly payment amount.
    (d) Property conditions. The Servicer must conduct any review it 
deems necessary, including a property inspection, when the Servicer has 
reason to believe that the physical conditions of the property 
adversely impact the Borrower's use or ability to support the debt as 
follows:
    (1) Financial information provided by the Borrower indicates large 
expenses for property maintenance;
    (2) The Servicer receives notice from local government or other 
third parties regarding property condition; or
    (3) The property is affected by a disaster event.
    (e) Trial payment plans. A trial payment plan is a written 
agreement executed by all parties on the Section 184 Guaranteed Loan, 
for a minimum period of three months, during which the Borrower must 
make the agreed-upon consecutive monthly payments prior to execution of 
the final loan modification.
    (1) Trial payment plan terms. The Servicer must ensure that the 
following apply to interest rates and monthly payment amounts under 
trial payment plan:
    (i) The interest rate for the trial payment plan and the loan 
modification must in accordance with Sec.  1005.451.
    (ii) The interest rate is established when the trial payment plan 
is offered to the Borrower.
    (iii) The established monthly loan modification payment must be the 
same or less than the established monthly trial payment.
    (2) Start of trial payments. The Servicer must send the proposed 
trial payment plan agreement to the Borrower at least 30 days before 
the date the first trial payment is due.
    (3) Trial payment plan signatures. (i) All parties on the Section 
184 Guaranteed Loan and all parties that will be subject to the 
modified loan must execute the trial payment plan agreement unless:
    (A) A Borrower or co-Borrower is deceased;
    (B) A Borrower and a co-Borrower are divorced; or
    (C) A Borrower or co-Borrower on the Section 184 Guaranteed Loan 
has been released from liability as the result of an approved 
substitute Borrower.
    (ii) When a Borrower uses a non-Borrower household member's income 
to qualify for a loan modification, the non-Borrower household member 
must be on the modified note and Section 184 Guaranteed Loan and sign 
the trial payment plan agreement.
    (4) Application of trial payments. The Servicer must treat payments 
made under the trial payment plan as Partial Payments, held in a 
suspense account and applied in accordance with procedures in the 
Section 184 Program Guidance and applicable Federal regulations.
    (5) End of trial payment plan period. The Servicer must offer the 
Borrower a permanent loan modification after the Borrower's successful 
completion of a trial payment plan.
    (6) Trial payment plan failure. The Borrower fails a trial payment 
plan when one of the following occurs:
    (i) The Borrower does not return the executed trial payment plan 
agreement within the month the first trial payment is due;
    (ii) The Borrower vacates or abandons the property; or
    (iii) The Borrower does not make a scheduled trial payment plan 
payment by the last day of the month it was due.
    (7) Alternatives to foreclosure after trial payment plan failure. 
If a Borrower fails to successfully complete a trial payment plan, the 
Servicer must:
    (i) Provide notice to the Borrower of the failure to comply with 
the trial payment plan; and
    (ii) Offer the Borrower the opportunity for a deed-in-lieu/lease-
in-lieu of foreclosure, with seven days to respond to the offer.
    (8) Funds remaining at the end of trial payment period. (i) At the 
end of a successful trial payment plan, any remaining funds that do not 
equal a full payment must be applied to any escrow shortage or be used 
to reduce the amount that would be capitalized onto the principal 
balance.
    (ii) If the Borrower does not complete the trial payment plan, the 
Servicer must apply all funds held in suspense to the Borrower's 
account in the established order of priority.
    (9) Reporting of trial payment plans. The Servicer must report the 
trial payment plans to HUD in the manner prescribed in Section 184 
Program Guidance.
    (f) Loan modification documents. HUD does not require a specific 
format for the loan modification documents; however, the Servicer must 
use documents that conform to all applicable Tribal, Federal, and State 
laws.
    (g) Post-modification review and modification of Loan Guarantee 
Certificate. Upon completion of a successful trial payment plan and 
within 30 days of the execution of the loan modification documents, the 
Servicer shall provide copies of the loan modification documents to 
HUD. The Servicer shall comply with additional processing instructions 
as prescribed by Section 184 Program Guidance.


Sec.  1005.751  Pre-foreclosure sale.

    (a) General. A pre-foreclosure sale, also known as a short sale, 
refers to the sale of real estate that generates proceeds that are less 
than the amount owed on the property and any junior lien holders have 
agreed to release their liens and forgive the deficiency balance on the 
real estate.
    (b) Eligibility. To be eligible for a pre-foreclosure sale, a 
Servicer must ensure:
    (1) The Section 184 Guaranteed Loan was originated at least 12 
months prior to default;
    (2) Default was due to an adverse and unavoidable financial 
situation impacting the Borrower;
    (3) The property has a current fair market value that equal to or 
less than the unpaid principal balance;
    (4) The Borrower elected the pre-foreclosure sale option within 120 
days from default; and
    (5) All other requirements of the pre-foreclosure sale Loss 
Mitigation option under this section are met.
    (c) Surchargeable damages. Surchargeable damage is damage to the 
Section 184 Guaranteed Loan property caused by fire, flood, earthquake, 
tornado, boiler explosion (for condominiums only) or Servicer neglect. 
The Servicer is responsible for the cost of surchargeable damage. The 
Servicer must request HUD approval before approving the use of the pre-
foreclosure sale Loss Mitigation option when the property has sustained 
surchargeable damage. If the damage is not surchargeable damage, the 
Servicer is not required to obtain HUD approval prior to approving the 
Approval to Participate Agreement with Borrower. The Servicer must 
comply with paragraph (l) of this section where a hazard insurance 
claim must be filed.
    (d) Cash reserves. Before executing a pre-foreclosure sale 
agreement as described in paragraph (h) of this section, Servicer must 
calculate the Borrower's cash reserve contribution.
    (1) The cash reserve contribution shall come from non-retirement 
liquid assets, which may be available for withdrawal

[[Page 78371]]

or liquidation from Borrower's financial institutions. Servicer shall 
calculate the total cash reserves using the highest ending balance of 
each cash reserve asset.
    (2) The Servicer must require the Borrower with cash reserves 
greater than the contribution threshold to contribute 20 percent of the 
total amount exceeding the contribution threshold towards the Section 
184 Guaranteed Loan debt. The Servicer must not require the Borrower to 
contribute more than the difference between the unpaid principal 
balance and the appraised value of the property. The Servicer must give 
written notice to the Borrower designating the amount of the Borrower's 
cash reserve contribution that is to be applied towards the 
transaction.
    (3) If the cash reserve calculation returns an amount at or below 
the contribution threshold amount, or a negative amount, the Servicer 
is not required to obtain a contribution from the Borrower in 
connection with the transaction.
    (e) Condition of title or Title Status Report. (1) For Section 184 
Guaranteed Loans on fee simple lands, a Servicer must ensure the 
property has Good and Marketable Title. Before approving a pre-
foreclosure sale Loss Mitigation option, the Servicer must obtain title 
evidence or a preliminary report verifying that the title is not 
impaired by unresolvable title defects or junior liens that cannot be 
discharged.
    (2) For Section 184 Guaranteed Loans on Trust Land, the Servicer 
shall obtain a certified Title Status Report from the BIA. Before 
approving a pre-foreclosure sale Loss Mitigation option, the Servicer 
must verify that the property is not encumbered by unresolvable title 
defects or junior liens that cannot be discharged.
    (f) Discharge of junior liens. The Servicer must contact all junior 
lienholders to verify the Borrower has secured a discharge of the 
junior liens.
    (g) Property list price and valuation--(1) List price. The Servicer 
must ensure that the Borrower lists the property for sale at no less 
than the ``as-is'' value, as determined by an appraisal completed in 
accordance with the requirements in Sec.  1005.457.
    (2) Appraisals. The Servicer must obtain a standard electronically 
formatted appraisal performed by an FHA Appraiser Roster pursuant to 
the following requirements:
    (i) The appraisal must contain an ``as-is'' fair market value for 
the subject property;
    (ii) A copy of the appraisal must be provided to HUD. A copy of the 
appraisal must be provided to the Borrower or sales agent, upon 
request;
    (iii) The ``as-is'' fair market value used for a pre-foreclosure 
sale transaction is valid for 120 days; and
    (iv) A Servicer must present HUD with a request for a variance to 
approve a pre-foreclosure sale transaction if one of the following 
conditions exists:
    (A) The current appraised value of the property is less than the 
unpaid principal balance by an amount of $75,000 or greater;
    (B) The appraised value is less than 50 percent of the unpaid 
principal balance; or
    (C) The appraisal is deemed unacceptable because the as-is value 
cannot be affirmed using a broker's price opinion or automated 
valuation model within 10 percent of the value. This section is not 
applicable to property on Trust Land unless there is a viable real 
estate market;
    (v) The Servicer must note on the variance request the specific 
reason for the request and attach any supporting documents needed for 
HUD review;
    (vi) The Servicer must obtain HUD approval before authorizing the 
marketing of the property; and
    (vii) All pre-foreclosure appraisals must be accompanied by a 
broker's price opinion or an automated valuation model, unless the 
property is located on Trust Land.
    (h) Required documents. After determining that a Borrower and 
property meet the pre-foreclosure sale eligibility requirements, the 
Servicer shall send to the Borrower:
    (1) Pre-foreclosure Sale Approval to Participate Agreement. The 
agreement, on a form prescribed by Section 184 Program Guidance, shall 
list the pre-foreclosure sale requirements, including the date by which 
the Borrower's sales contract must be executed during the pre-
foreclosure sale marketing period and applicable cash reserve amount; 
and
    (2) Pre-foreclosure addendum. The addendum shall be in the form 
prescribed by Section 184 Program Guidance. The pre-foreclosure sale 
addendum must be fully executed at closing.
    (i) Delivery of documents to Borrower. Documents listed under 
paragraphs (h)(1) and (2) of this section must be sent to the Borrower 
via methods providing delivery confirmation with a date and time stamp 
of delivery. The Servicer must inform the Borrower that the documents 
must be signed and returned to the Servicer within 10 days of receipt.
    (j) Copies to HUD. The Servicer must send signed copies of the 
documents in paragraphs (h)(1) and (2) of this section to HUD within 15 
days of receipt from the Borrower.
    (k) Tribal notification for properties on Trust Land. At the same 
time the Servicer sends the approval to participate agreement to the 
Borrower, in accordance with the requirements as prescribed by Section 
184 Program Guidance, the Servicer shall send a notice to the Tribe and 
the TDHE of the option to assume the Section 184 Guaranteed Loan or 
purchase the property.
    (l) Use of a real estate broker. The Borrower is responsible for 
retaining the services of a HUD-approved real estate broker/agent 
within seven days of the signed approval to participate agreement. For 
Trust Land, the Borrower may request, through the Servicer, an 
exception to this section. If an exception is granted, HUD will work 
with the Borrower, Servicer and Tribe or TDHE to sell the property or 
pursue another Loss Mitigation option.
    (m) Required listing disclosure. The Servicer shall require the 
listing agreement between the seller and the agent/broker to include 
the following cancellation clause: ``Seller may cancel this Agreement 
prior to the ending date of the listing period without advance notice 
to the Broker, and without payment of a commission or any other 
consideration if the property is conveyed to HUD or the Holder. The 
sale completion is subject to approval by the Servicer and HUD.'' This 
section is not applicable to property on Trust Land unless a HUD-
approved real estate broker/agent is utilized.
    (n) Pre-foreclosure sale marketing, settlement period, failure to 
complete pre-foreclosure sale. The Borrower has a timeframe, as 
prescribed by Section 184 Program Guidance, seven days from the date of 
the signed approval to participate agreement to market the property in 
the Multiple Listing Service, or other marketing resource if the 
property is on Trust Land.
    (1) The property must be marketed in the Multiple Listing Service 
or other marketing resource for a timeframe as prescribed by Section 
184 Program Guidance before Borrower may consider any offers.
    (2) During the marketing period, Servicers must conduct a monthly 
review of the property's marketing status with the real estate broker/
agent or the Tribe or TDHE, for property on Trust Land.
    (3) The maximum marketing period for the sale of the property is 
four months from the execution date of the approval to participate 
agreement and the date of the property settlement. If

[[Page 78372]]

there is a signed contract of sale, but property settlement has not 
occurred by the end of the fourth month, the marketing period may be 
extended up to two months to allow for closing to occur.
    (4) Within 30 days of the end the marketing period, or no earlier 
than 120 days of default, whichever is later, if no settlement has 
occurred, Servicer shall provide electronic or written notice to the 
Borrower of the Borrower's default under the pre-foreclosure sale 
agreement and present the agreed upon deed-in-lieu/lease-in-lieu of 
foreclosure, with title being taken in the name of the Secretary. The 
Borrower shall have ten days from the date of the notice to respond in 
writing or by electronic means. If the Servicer receives no response or 
if the Servicer receives notice of the Borrower's rejection of the 
alternative to foreclosure, the Servicer must initiate First Legal 
Action or Tribal First Right of Refusal within five days of the 
Borrower's deadline to respond or actual rejection response date, 
whichever is sooner.
    (o) Property inspections and maintenance. The Servicer shall 
inspect the property in accordance with Sec.  1005.735 and follow Sec.  
1005.739, where applicable.
    (p) Disclosure of damage after pre-foreclosure sale approval. In 
the event the property becomes damaged, the Borrower must report damage 
to the Servicer in accordance with the pre-foreclosure sale agreement. 
When the Servicer becomes aware that the property has sustained damage 
after a Borrower has received the approval to participate agreement, 
the Servicer must evaluate the property to determine if it continues to 
qualify for the pre-foreclosure sale program or terminate participation 
if the extent of the damage changes the property's fair market value.
    (q) Hazard insurance claim. Where applicable, the Servicer must 
work with the Borrower to file a hazard insurance claim and either: use 
the proceeds to repair the property; or adjust the claim by the amount 
of the insurance settlement (non-surchargeable damage) or the 
Government's repair cost estimate.
    (r) Evaluation of offers. The Servicer must receive from the 
listing real estate broker/agent an offer that yields the highest net 
return to HUD and meets HUD's requirements for bids, as follows:
    (1) Real estate broker/agent to ensure execution of documents. The 
real estate broker/agent must ensure that the accepted offer and the 
pre-foreclosure sale addendum are signed by all applicable parties 
before submitting to the Servicer for approval.
    (2) Arm's Length Transaction. The transaction must be an Arm's 
Length Transaction meaning the transaction must be between two 
unrelated parties who are each acting in their own best interest.
    (3) Back-up offers. Once an offer has been submitted to the 
Servicer for approval, the real estate broker/agent must retain any 
offer that the seller elects to hold for ``back-up'' until a 
determination has been made on the previously submitted offer.
    (s) Contract approval by Servicer--(1) Review of sales contract. In 
reviewing the contract of sale, the Servicer must:
    (i) Ensure that the pre-foreclosure sale is an outright sale of the 
property and not a sale by assumption.
    (ii) Review the sales documentation to determine that there are no 
hidden terms or special agreements existing between any of the parties 
involved in the pre-foreclosure sale transaction; and no contingencies 
that might delay or jeopardize a timely settlement.
    (iii) Determine that the property was marketed pursuant to HUD 
requirements in this part.
    (iv) Not approve a Borrower for a pre-foreclosure sale if the 
Servicer knows or has reason to know of the Borrower's fraud or 
misrepresentation of information.
    (2) Sales Contract Review period. After receiving an executed 
contract of sale and pre-foreclosure sale addendum from the Borrower, 
the Servicer must send to the Borrower a Sales Contract Review, on a 
form prescribed by Section 184 Program Guidance, no later than five 
business days after the Servicer's receipt of an executed contract for 
sale.
    (3) Net sale proceeds. (i) Net sale proceeds are the proceeds of a 
pre-foreclosure sale, calculated by subtracting reasonable and 
customary closing and settlement costs from the property sales price.
    (ii) Regardless of the property sale price, a Servicer may only 
approve a pre-foreclosure sale contract for sale if the net sale 
proceeds are at or above minimum allowable thresholds established by 
HUD. The net sale proceeds must conform to the requirements on the Pre-
Foreclosure Sale Approval to Participate Agreement.
    (iii) The Servicer is liable for any claim overpayment on a pre-
foreclosure sale transaction that closes with less than the required 
net sale proceeds, unless a variance has been granted by HUD.
    (4) Unacceptable settlement costs. The Servicer must not include 
the following costs in the Net Sale Proceeds calculation:
    (i) Repair reimbursements or allowances;
    (ii) Home warranty fees;
    (iii) Discount points or loan fees;
    (iv) Servicer's title insurance fee; and
    (v) Third-party fees incurred by the Servicer or Borrower to 
negotiate a pre-foreclosure sale.
    (5) Other third-party fees. (i) With the exception of reasonable 
and customary real estate commissions, the Servicer must ensure that 
third-party fees incurred by the Servicer or Borrower to negotiate a 
pre-foreclosure sale are not included on the Closing Disclosure or 
similar legal documents unless explicitly permitted by Tribal or State 
law.
    (ii) The Servicer, its agents, or any outsourcing firm it employs 
must not charge any fee to the Borrower for participation in the pre-
foreclosure sale.
    (t) Closing and post-closing responsibilities. For the purpose of 
this section, with respect to Trust Land, the closing agent may be 
selected by the Tribe or TDHE.
    (1) Closing worksheet. Prior to closing, the Servicer must provide 
the closing agent with a Closing Worksheet, on a form prescribed by 
HUD, listing all amounts payable from net sale proceeds; and a pre-
foreclosure sale addendum signed by all parties.
    (2) Servicer review of final terms of pre-foreclosure sale 
transaction. The Servicer will receive from the closing agent a 
calculation of the actual net sale proceeds and a copy of the Closing 
Disclosure or similar legal document. The Servicer must ensure that:
    (i) The final terms of the pre-foreclosure sale transaction are 
consistent with the purchase contract;
    (ii) Only allowable settlement costs have been deducted from the 
seller's proceeds;
    (iii) The net sale proceeds will be equal to or greater than the 
allowable thresholds;
    (iv) A Closing Worksheet form is included in the claim case binder; 
and
    (v) It reports the pre-foreclosure sale to consumer reporting 
agencies.
    (3) Closing agent responsibilities after final approval. Once the 
Servicer gives final approval for the pre-foreclosure sale and the 
settlement occurs, the closing agent must:
    (i) Pay the expenses out of the Net Sale Proceeds and forward the 
Net Sale Proceeds to the Servicer;
    (ii) Forward a copy of the Closing Disclosure or similar legal 
document to the Servicer to be included in the claim case binder no 
later than three business days after the pre-foreclosure sale 
transaction closes; and,
    (iii) Sign the pre-foreclosure sale addendum on or before the date 
the pre-

[[Page 78373]]

foreclosure sale transaction closes, unless explicitly prohibited by 
Tribal or State statute.
    (4) Satisfaction of debt. Upon receipt of the portion of the net 
sale proceeds designated for Section 184 Guaranteed Loan satisfaction, 
the Servicer must apply the funds to the outstanding balance and 
discharge any remaining debt, release the lien in the appropriate 
jurisdiction, and may file a claim.
    (5) Discharge of junior liens. The Servicer must verify the pre-
foreclosure sale will result in the discharge of junior liens as 
follows:
    (i) If the Borrower has the financial ability, the Borrower must be 
required to satisfy or otherwise obtain release of liens.
    (ii) If no other sources are available, the Borrower may obligate 
up to a maximum amount from sale proceeds towards discharging the liens 
or encumbrances, such maximum amount will be prescribed by HUD.
    (u) Early termination of pre-foreclosure participation--(1) 
Borrower-initiated termination. The Servicer must permit a Borrower to 
voluntarily terminate participation in the pre-foreclosure sale Loss 
Mitigation option at any time.
    (2) Servicer-initiated termination. The Servicer shall terminate a 
Borrower's pre-foreclosure sale program participation for any of the 
following reasons:
    (i) Discovery of unresolvable title problems;
    (ii) Determination that the Borrower is not acting in good faith to 
market the property;
    (iii) Significant change in property condition or value;
    (iv) Re-evaluation based on new financial information provided by 
the Borrower that indicates that the case does not qualify for the pre-
foreclosure sale option; or
    (v) Borrower has failed to complete a pre-foreclosure sale within 
the time limits prescribed by Section 184 Program Guidance and no 
extensions of time have been granted by HUD.
    (3) Notification of pre-foreclosure sale program participation 
termination. The Servicer must forward to the Borrower a written 
explanation for terminating their program participation. This letter is 
to include the ``end-of-participation'' date for the Borrower.
    (4) Failure to complete a pre-foreclosure sale. Should the Borrower 
be unable to complete a pre-foreclosure sale transaction, the Servicer 
must proceed with a deed-in-lieu/lease-in-lieu of foreclosure in 
accordance with Sec.  1005.753. If the Servicer is unable to obtain a 
deed-in-lieu/lease-in-lieu of foreclosure, the Servicer must proceed to 
First Legal Action or assignment in accordance with Sec. Sec.  1005.761 
and 1005.763.


Sec.  1005.753  Deed-in-lieu/lease-in-lieu of foreclosure.

    (a) Requirements. In lieu of instituting or completing a 
foreclosure, the Servicer or HUD may acquire a property by voluntary 
Conveyance from the Borrowers. Conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure is allowed subject to the Servicer's 
compliance with the following requirements:
    (1) The lease-in-lieu of foreclosure for property on Trust Land 
shall be approved by the Tribe prior to execution and by the BIA at 
recordation.
    (2) The Section 184 Guaranteed Loan is in default at the time of 
the deed-in-lieu/lease-in-lieu of foreclosure is executed and 
delivered.
    (3) The Section 184 Guaranteed Loan is satisfied of record as a 
part of the consideration for such Conveyance.
    (4) The deed-in-lieu/lease-in-lieu of foreclosure from the Borrower 
contains a covenant which warrants against the acts of the grantor and 
all claiming by, through, or under the grantor and conveys Good and 
Marketable Title, or for leases, assigns without objectionable 
encumbrances.
    (5) With respect to Section 184 Guaranteed Loans on fee simple 
lands, the Servicer transfers to HUD Good and Marketable Title 
accompanied by satisfactory title evidence.
    (6) With respect to Section 184 Guaranteed Loans on Trust Lands, 
the Servicer provides to HUD a certified Title Status Report evidencing 
assignment to HUD without any objectionable encumbrances.
    (7) The property must meet the property conditions under Sec.  
1005.767. HUD may consent to Conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure when property does not meet Sec.  
1005.767 in accordance with procedures in Section 184 Program Guidance.
    (b) Required documentation. A written agreement must be executed by 
the Borrower and Servicer which contains all of the conditions under 
which the deed-in-lieu/lease-in-lieu of foreclosure will be accepted.
    (c) Conveyance to Servicer. Upon execution of the deed-in-lieu/
lease-in-lieu of foreclosure document(s), the Servicer must file for 
record no later than two business days from receipt.
    (d) Conveyance to HUD, where applicable. After evidence of 
recordation is available, the Servicer shall immediately convey the 
property to HUD in accordance with Sec.  1005.769.
    (e) Reporting for credit purposes. The Servicer must comply with 
all applicable Tribal, Federal, State, and local reporting 
requirements, including but not limited to reporting to credit 
reporting agencies.


Sec.  1005.755  Incentive payments.

    As an alternative to foreclosure, or eviction where applicable, HUD 
may authorize an incentive payment to:
    (a) Borrowers that complete certain Loss Mitigation options or for 
their agreement to vacate the property after foreclosure, under the 
terms established by the Secretary;
    (b) Lenders and Servicers for their completion of certain Loss 
Mitigation options; and (c) Tribes and TDHEs for their assistance in 
Loss Mitigation, sale, or transfer of the Trust Land property.

Assignment of the Loan to HUD, Foreclosure, and Conveyance


Sec.  1005.757  Property on Trust Land--Tribal first right of refusal; 
foreclosure or assignment.

    (a) For any property on Tribal Land, the Servicer shall provide 
written notice to the Tribe or TDHE of the option to assume the Section 
184 Guaranteed Loan or purchase the property at the earlier of:
    (1) Any lease provision addressing Tribal First Right of Refusal;
    (2) 120 days after default; or
    (3) The exhaustion of all Loss Mitigation options.
    (b) The Tribe or TDHE shall have either the time frame provided in 
the lease or, if not defined in the lease, 60 days to accept or decline 
the option to assume the Section 184 Guaranteed Loan or purchase the 
property based on the current appraised value or other purchase price.
    (c) Unless a Borrower has completed a pre-foreclosure sale or a 
lease-in-lieu of foreclosure in accordance with Sec. Sec.  1005.751 and 
1005.753, the Servicer must either initiate First Legal Action or 
assignment to HUD, within the timeframes prescribed in Sec. Sec.  
1005.761 and 1005.763.
    (d) Any costs associated with failure to initiate Tribal First 
Right of Refusal may be deemed ineligible for claim payment.


Sec.  1005.759  Fee simple land properties--foreclosure or assignment 
with HUD approval.

    (a) Unless a Borrower has completed a pre-foreclosure sale or a 
deed-in-lieu of foreclosure in accordance with Sec. Sec.  1005.751 and 
1005.753, the Servicer must initiate First Legal Action on the

[[Page 78374]]

Section 184 Guaranteed Loan pursuant to Sec.  1005.761.
    (b) Under limited circumstances, HUD may approve an assignment of a 
Section 184 Guaranteed Loan to HUD for fee simple land properties.


Sec.  1005.761  First Legal Action deadline and automatic extensions.

    (a) Deadline for First Legal Action. The Servicer must initiate 
First Legal Action, as defined in Sec.  1005.103, within 180 days of 
default, unless a later date is authorized under this part.
    (b) Automatic extensions to the First Legal Action deadline. The 
Section 184 Program allows for automatic extension to the First Legal 
Action deadline for the following reasons and separate HUD approval is 
not required.
    (1) If Federal law or the laws of the Tribe or State, in which the 
Section 184 Guaranteed Loan property is located, do not permit the 
commencement of First Legal Action within the deadline designated in 
paragraph (a) of this section, then the Servicer must accomplish First 
Legal Action within 30 days after the expiration of the time during 
which First Legal Action is prohibited; or
    (2) If the Borrower is in compliance with an approved Loss 
Mitigation plan. However, upon Borrower's default or failure under the 
Loss Mitigation plan and expiration of response period in any required 
notice or Borrower's request to terminate participation in the Loss 
Mitigation plan, the Servicer shall refer the Loan to legal counsel 
within five days. First Legal Action must be initiated within 30 days 
of the default or Borrower's request to terminate the Loss Mitigation 
plan.
    (3) Other necessary and reasonable automatic extensions may be 
allowed, as prescribed by Section 184 Program Guidance.
    (c) Compliance with Federal law. The First Legal Action must be in 
compliance with all applicable Federal law, including but not limited 
to regulations imposed by the Consumer Financial Protection Bureau.
    (d) Notice to HUD. The Servicer must provide notice to HUD, in a 
form as may be prescribed in Section 184 Program Guidance, within 15 
days of accomplishing First Legal Action.


Sec.  1005.763  Assignment of the Section 184 Guaranteed Loan.

    (a) Prerequisites for assignment to HUD. (1) Prior to assignment to 
HUD, one of the following conditions must have been met:
    (i) The Servicer has completed its review of the Borrower's Loss 
Mitigation request, determined that the Borrower does not qualify for a 
Loss Mitigation option, and properly notified the Borrower of this 
decision and, where the Borrower has initiated a timely appeal, the 
appeal process has been completed or the Borrower's period to appeal 
has expired.
    (ii) The Borrower has failed to perform under an agreement on a 
Loss Mitigation option, and the Servicer has determined that the 
Borrower is ineligible for other Loss Mitigation options or is unable 
to complete an additional Loss Mitigation option within 180 days of 
default.
    (iii) The Servicer has been unable to determine the Borrower's 
eligibility for any Loss Mitigation option due to the Borrower's 
failure to respond to the Servicer's efforts to contact the Borrower.
    (2) Where applicable, the Servicer has complied with the Right of 
First Refusal requirements of Sec.  1005.757(a).
    (3) Where applicable, the Servicer has complied with all Tribal law 
requirements.
    (4) The Servicer shall conduct an occupancy inspection in 
accordance with Sec.  1005.735. (i) If the property is vacant or 
abandoned, secure the property in accordance with Sec.  1005.737(b)(2).
    (ii) If the property is occupied, request and obtain approval from 
HUD to assign the property.
    (b) Timeframes--(1) Fee simple land properties. The assignment of 
fee simple land properties requires prior HUD approval. The request for 
an assignment must be no earlier than 180 days of default, unless the 
Servicer has determined the property is vacant pursuant to Sec.  
1005.737. Upon the Servicer's timely certification of compliance with 
paragraphs (a)(1) through (4) of this section and HUD's approval of the 
assignment, the Holder shall have five days to execute and cause the 
appropriate documents to be filed, to accomplish assignment to HUD and 
submit to HUD evidence of the filing and a claim in a manner so 
prescribed by Section 184 Program Guidance.
    (2) Properties on Trust Land. The assignment must be no earlier 
than 180 days after the date of default, unless the Servicer has 
determined the property is vacant pursuant to Sec.  1005.737. Upon the 
Servicer's timely certification of compliance with paragraphs (a)(1) 
through (4) of this section, the Holder shall have five days cause the 
appropriate documents to be filed, to accomplish assignment to HUD. The 
Servicer shall submit to HUD evidence of the filing and of a claim in a 
manner so prescribed by Section 184 Program Guidance.


Sec.  1005.765  Inspection and preservation of properties.

    (a) If at any time the Servicer knows or should have known the 
property is vacant or abandoned, the Servicer shall comply with the 
inspection requirements under Sec.  1005.737.
    (b) The Servicer shall take appropriate action to protect and 
preserve the property until its Conveyance to HUD, if such action does 
not constitute an illegal trespass. Taking ``appropriate action'' 
includes the commencement of First Legal Action or assignment within 
the time required by Sec. Sec.  1005.761 and 1005.763, as applicable.


Sec.  1005.767  Property condition.

    (a) Condition at time of transfer. (1) When the property is 
transferred, or a Section 184 Guaranteed Loan is assigned to HUD in 
accordance with Sec.  1005.763, the property must be undamaged by fire, 
earthquake, flood, tornado, and Servicer neglect, except as set forth 
in this subpart.
    (2) A vacant property must be in broom-swept condition, meaning the 
property is, at a minimum, reasonably free of dust and dirt, and free 
of hazardous materials or conditions, personal belongings, and interior 
and exterior debris.
    (3) A vacant property is secured and, if applicable, winterized.
    (b) Damage to property by waste. The Servicer shall not be liable 
for damage to the property by waste committed by the Borrower, or 
heirs, successors, or assigns.
    (c) Servicer responsibility. The Servicer shall be responsible for:
    (1) Damage by fire, flood, earthquake, or tornado;
    (2) Damage to or destruction of property which is vacant or 
abandoned when such damage or destruction is due to the Servicer's 
failure to take reasonable action to inspect, protect, and preserve 
such property as required by Sec.  1005.737; and
    (3) Any damage, whatsoever, that the property has sustained while 
in the possession of the Servicer, when the property has been conveyed 
to HUD without notice or approval by HUD as required by Sec.  1005.763.


Sec.  1005.769  Conveyance of Property to HUD at or after foreclosure; 
time of Conveyance.

    (a) At or after foreclosure, the Servicer shall convey the property 
to HUD by one of the following:
    (1) Direct Conveyance to HUD. The Servicer shall cause for the deed 
to be transferred directly to HUD. The

[[Page 78375]]

Servicer shall be responsible for determining that such Conveyance will 
comply with all provisions of this part, including conveying Good and 
Marketable Title and producing satisfactory title evidence to HUD.
    (2) Conveyance by the Servicer to HUD. The Servicer shall acquire 
Good and Marketable Title and transfer the property to HUD within 30 
days of the earlier of:
    (i) Execution of the foreclosure deed;
    (ii) Acquiring possession of the property;
    (iii) Expiration of the redemption period;
    (iv) Such further time as may be necessary to complete the title 
examination and perfect the title; or
    (v) Such further time as HUD may approve in writing.
    (b) On the date the deed is filed for record, the Servicer shall 
notify HUD, on a form prescribed by HUD, advising HUD of the filing of 
such Conveyance and shall assign all rights without recourse or 
warranty any or all claims which the Servicer has acquired in 
connection with the loan transaction, and as a result of the 
foreclosure proceedings or other means by which the Servicer acquired 
or conveyed such property, except such claims as may have been released 
with the approval of HUD. The Servicer must file for record the deed no 
later than two days after execution. The Servicer must document 
evidence of the submission in the file.


Sec.  1005.771  Acceptance of property by HUD.

    (a) Effective date of assignment. HUD accepts the assignment of a 
Section 184 Guaranteed Loan when:
    (1) The Servicer has assigned the Section 184 Guaranteed Loan to 
HUD;
    (2) The Servicer has provided HUD evidence of the recordation; and
    (3) HUD pays a claim for the unpaid principal balance under Sec.  
1005.807(a).
    (b) Effective date of Conveyance. HUD accepts Conveyance of the 
property when:
    (1) The Servicer has deeded the property to HUD;
    (2) The Servicer has provided HUD evidence of the recordation; and
    (3) HUD pays a claim for the unpaid principal balance under Sec.  
1005.807(a)
    (c) Servicer ongoing obligation. Notwithstanding the assignment of 
the Section 184 Guarantee Loan or the filing of the deed to the HUD, 
the Servicer remains responsible for ensuring compliance with this 
part, including and any loss or damage to the property, and such 
responsibility is retained by the Servicer until the claim has been 
paid by HUD.

Subpart H--Claims

Claims Application, Submission Categories, and Types


Sec.  1005.801  Purpose.

    This subpart sets forth requirements that are applicable to a 
Servicer's submission of an application for Section 184 Guaranteed Loan 
benefits to HUD. The Servicer's submission of the claim shall be in 
compliance with this subpart and process details as set forth by HUD in 
Section 184 Program Guidance. This subpart also sets forth requirements 
processing and payment of claim.


Sec.  1005.803  Claim case binder; HUD authority to review records.

    (a) A Servicer must maintain a claim case binder for each claim 
submitted for payment in accordance with Sec.  1005.219(d)(2). The 
claim case binder must contain documentation supporting all information 
submitted in the claim.
    (b) HUD may review a claim case binder and the associated 
endorsement case binder at any time. A Servicer's denial of HUD access 
to any files may be grounds for sanctions in accordance with Sec. Sec.  
1005.905 and 1005.907.
    (c) Within three business days of a request by HUD, the Servicer 
must make available for review, or forward to HUD, copies of identified 
claim case binders.


Sec.  1005.805  Effect of noncompliance.

    (a) When a claim case binder is submitted to HUD for consideration, 
HUD may conduct a post-endorsement review in accordance with Sec.  
1005.527. If HUD determines that the Section 184 Guaranteed Loan does 
not satisfy the requirements of subpart D of this part, HUD will take 
one or more of the following actions:
    (1) Reject the claim submission when the Holder is the originating 
Direct Guarantee Lender.
    (2) Pay the claim to the current Holder and demand reimbursement of 
the claim from the originating Direct Guarantee Lender.
    (3) Reconvey the property or reassign the deed of trust or mortgage 
in accordance with Sec.  1005.849.
    (4) Pursue sanctions against the originating Direct Guarantee 
Lender or Sponsored Entity pursuant to Sec. Sec.  1005.905 and 
1005.907.
    (b) When reviewing a claim case binder, if HUD determines one or 
more of the conditions in paragraph (b)(1) of this section to be true, 
HUD may take one or more of the actions listed in paragraph (b)(2) of 
this section:
    (1) Conditions. (i) The Servicer failed to service the Section 184 
Guaranteed Loan in accordance with subpart G of this part;
    (ii) The Servicer committed fraud or a material misrepresentation; 
or
    (iii) The Servicer had known or should have known of fraud or a 
material misrepresentation in violation of this part.
    (2) Actions. (i) Place a hold on processing the claim for 
reimbursement of eligible reasonable expenses under Sec.  1005.807(b) 
and provide the Servicer the opportunity to remedy the deficiency.
    (ii) Reject the claim for reimbursement of eligible reasonable 
expenses under Sec.  1005.807(b) partially or in its entirety.
    (iii) Reconvey the property or reassign the deed of trust or 
mortgage in accordance with Sec.  1005.849, where applicable, and 
require the Holder to refund the claim payment of the unpaid principal 
balance under Sec.  1005.807(a) and expenses under Sec.  1005.807(b). 
The Holder may resubmit the claim when the deficiencies identified by 
HUD are cured.
    (iv) Pursue administrative offset for any unpaid amounts owed to 
HUD pursuant to 24 CFR part 17.
    (v) Pursue sanctions against the Servicer or Holder pursuant to 
Sec. Sec.  1005.905 and 1005.907.
    (vi) Pursue other remedies as determined by HUD.
    (c) If a property is reconveyed or the deed of trust or mortgage is 
reassigned to the Holder, the Holder may not be reimbursed for any 
expenses incurred after Conveyance or reassignment.
    (d) If a claim is resubmitted after reconveyance or reassignment 
and HUD determines a decrease in the value of the property at the time 
of the resubmission, HUD may reduce the claim payment accordingly.


Sec.  1005.807  Claim submission categories.

    There are three claim submission categories:
    (a) Payment of the unpaid principal balance;
    (b) Reimbursement of eligible reasonable expenses, as prescribed by 
Section 184 Program Guidance, up to the execution of the assignment or 
date of Conveyance of the property of the property to HUD or a third 
party; and
    (c) Supplemental claim for eligible reasonable expenses incurred 
prior to the assignment, Conveyance, or transfer of the property to a 
third party, for which the expenses were omitted from the Servicer's 
prior claim or for a calculation error made by either Servicer or HUD.


Sec.  1005.809  Claim types.

    HUD recognizes five different claim types. The Servicer must submit 
a claim

[[Page 78376]]

based upon the type of property disposition. The Servicer shall submit 
claims within timeframes established in this section. The claim types 
are:
    (a) Conveyance. When the property is deeded to HUD through or after 
foreclosure or by deed-in-lieu or lease-in-lieu of foreclosure:
    (1) The Servicer must submit a claim under Sec.  1005.807(a) to HUD 
no later than 45 days from the date the deed to HUD is executed, unless 
an extension of time is granted by HUD.
    (2)(i) Fee simple land. The claim must include the final title 
policy evidencing HUD's ownership through foreclosure or transfer of 
the ownership of the property through deed-in-lieu to HUD.
    (ii) Trust Land. The claim must include a certified Title Status 
Report evidencing HUD's leasehold interest through foreclosure or the 
transfer of the mortgage and leasehold interest to HUD through lease-
in-lieu.
    (3) In cases where the Servicer is unable to comply with paragraph 
(a)(2)(ii) of this section, the Servicer shall submit the claim pending 
the certified Title Status Report in accordance with the time frame 
specified in paragraph (a)(1) of this section.
    (4) Servicers must submit claims under Sec.  1005.807(b) no later 
than 60 days after the date the deed to HUD is executed, unless an 
extension of time is granted by HUD.
    (b) Assignment of the loan. When the Holder assigns the Section 184 
Guaranteed Loan to HUD:
    (1) The Servicer must submit a claim under Sec.  1005.807(a) and 
(b) no later than 45 days from the date of the assignment of the 
Section 184 Guaranteed Loan to HUD is executed, unless an extension of 
time is granted by HUD.
    (2)(i) Trust Land. The claim must include a certified Title Status 
Report evidencing the assignment of the mortgage to HUD.
    (ii) Fee simple land. The claim must include the final title policy 
providing coverage through the transfer of the mortgage to HUD.
    (3) In cases where the Servicer is unable to comply with paragraph 
(b)(2)(i) of this section, the Servicer shall submit the claim pending 
the certified Title Status Report in accordance with the time frame 
specified in paragraph (b)(1) of this section.
    (4) At the time of assignment of the Section 184 Guaranteed Loan, 
the Servicer shall certify to HUD that:
    (i) Priority of Section 184 Guaranteed Loan. The Section 184 
Guaranteed Loan has priority over all judgments, mechanics' and 
materialmen's liens, or any other liens, regardless of when such liens 
attached, unless approved by HUD;
    (ii) Amount due. The amount reported to HUD in accordance with 
Sec.  1005.707(d) prior to assignment is verified to be due and owing 
under the Section 184 Guaranteed Loan;
    (iii) Offsets or counterclaims and authority to assign. There are 
no offsets or counterclaims thereto and the Holder has the authority to 
assign; and
    (iv) Assignment. The assignment of the Section 184 Guaranteed Loan 
to HUD meets the requirements of Sec.  1005.763.
    (c) Post-foreclosure claims without Conveyance of title. When a 
third-party purchases the property at foreclosure, the Servicer must 
submit a claim under Sec.  1005.807(a) and (b) to HUD no later than 180 
days from the date the property is conveyed to the third-party. If the 
Holder purchases the property at foreclosure and subsequently sells the 
property, the Servicer may submit a claim under this section.
    (d) Pre-foreclosure sale, deed-in-lieu, or lease-in-lieu. When a 
property is sold or conveyed prior to foreclosure in accordance with 
Sec. Sec.  1005.751 or 1005.753, the Servicer must submit a claim under 
Sec.  1005.807(a) and (b) to HUD no later than 45 days from the date 
the sale or Conveyance is executed.
    (e) Supplemental claim. The Servicer shall be limited to one 
supplemental claim for each claim under submission categories in 
paragraphs (a) and (b) of this section.
    (1) The supplemental claim shall be limited to:
    (i) Reasonable eligible expenses incurred up to the date of 
Conveyance of the property or assignment of the Section 184 Guaranteed 
Loan, when invoices are received after the payment of the claim under 
Sec.  1005.807(b); or
    (ii) Calculation error(s) made by either the Servicer or HUD.
    (2) Supplemental claims must be submitted within six months of the 
claim submission under Sec.  1005.807(b). Supplemental claims received 
after six months will not be reviewed or paid by HUD.
    (3) Any supplemental claim paid by HUD shall be considered final 
satisfaction of the Loan Guarantee Certificate.

Submission of Claim


Sec.  1005.811  Claims supporting documentation.

    The Servicer shall submit supporting documentation to the 
satisfaction of HUD for each claim. Such documentation will be provided 
for in Section 184 Program Guidance.


Sec.  1005.813  Upfront and Annual Loan Guarantee Fee reconciliation.

    (a) The Servicer must include in the claims case binder a 
reconciliation evidencing the payment of the Upfront and Annual Loan 
Guarantee Fees to HUD.
    (b) Where the Servicer fails to comply with paragraph (a) of this 
section or the reconciliation shows unpaid amounts owed to HUD, and the 
unpaid amounts, along with late fees, have not been satisfied by the 
Servicer, HUD shall reject the claim.
    (c) The Servicer may resubmit the claim after providing the 
reconciliation required under paragraph (a) of this section or after 
the Annual Loan Guarantee Fee amounts, along with late fees, owed to 
HUD are paid by the Servicer.
    (d) Allowance to resubmit in accordance with paragraph (c) of this 
section shall not be construed to extend any deadlines to file claims 
specified in this subpart.


Sec.  1005.815  Conditions for withdrawal of claim.

    With HUD's consent, a Holder may withdraw a claim. When HUD consent 
is granted, the Holder shall agree, where applicable, in writing that 
it will:
    (a) Accept a reconveyance of the property under a Conveyance which 
warrants against the acts of HUD and all claiming by, through or under 
HUD;
    (b) Promptly file for record the reconveyance from HUD;
    (c) Accept without continuation, the title evidence which the 
Servicer furnished to HUD; and
    (d) Reimburse HUD for the expenditures and amounts set forth in 
Sec.  1005.851.

Property Title Transfers and Title Waivers


Sec.  1005.817  Conveyance of Good and Marketable Title.

    (a) Definition. Good and Marketable Title is defined in Sec.  
1005.103.
    (b) Satisfactory Conveyance of title and transfer of possession. 
The Servicer shall tender to HUD a satisfactory Conveyance of title and 
transfer of possession of the property. The deed or other instrument of 
Conveyance shall convey Good and Marketable Title to the property, 
which shall be accompanied by title evidence satisfactory to HUD.
    (c) Conveyance of property without Good and Marketable Title. (1) 
If the title to the property conveyed by the Servicer to HUD is not 
Good and Marketable Title, the Servicer must correct any title defect 
within 60 days after receiving notice from HUD, or

[[Page 78377]]

within such further time as HUD may approve in writing.
    (2) If the defect is not corrected within 60 days, or such further 
time as HUD approves in writing, the Servicer must reimburse HUD's 
costs of holding the property. Such holding costs accrue on a daily 
basis and include interest on the amount of the loan guarantee benefits 
paid to the Servicer at an interest rate set in conformity with the 
Treasury Fiscal Requirements Manual from the date of such notice to the 
date the defect is corrected or until HUD reconveys the property to the 
Servicer, as described in paragraph (c)(3) of this section. The daily 
holding costs to be charged to the Servicer shall also include the 
costs specified in Sec.  1005.851.
    (3) If the title defect is not corrected within a reasonable time, 
as determined by HUD, HUD will, after notice, reconvey the property to 
the Servicer and the Servicer must reimburse HUD in accordance with 
Sec. Sec.  1005.849 and 1005.851.


Sec.  1005.819  Types of satisfactory title evidence.

    (a) The following types of title evidence shall be satisfactory to 
HUD:
    (1) Fee or owner's title policy. A fee or owner's policy of title 
insurance, a guaranty or guarantee of title, or a certificate of title, 
issued by a title company, duly authorized by law and qualified by 
experience to issue such instruments. If an owner's policy of title 
insurance is furnished, it shall show title in HUD's name and inure to 
the benefit of the Department. The policy must be drawn in favor of the 
Servicer and HUD, and their successors and assigns, as their interests 
may appear, with the consent of the title company endorsed thereon;
    (2) Policy of title insurance. A Holder's policy of title insurance 
supplemented by an abstract and an attorney's certificate of title 
covering the period subsequent to the date of the loan, the terms of 
the policy shall be such that the liability of the title company will 
continue in favor of the HUD after title is conveyed to HUD. The policy 
must be drawn in favor of the Servicer and HUD, and their successors 
and assigns, as their interests may appear, with the consent of the 
title company endorsed thereon;
    (3) Abstract and legal opinion. An abstract of title prepared by an 
abstract company or individual engaged in the business of preparing 
abstracts of title and accompanied by the legal opinion as to the 
quality of such title signed by an attorney at law experienced in 
examination of titles. If title evidence consists of an abstract and an 
attorney's certificate of title, the search shall extend for at least 
forty years prior to the date of the certificate to a well-recognized 
source of good title;
    (4) Torrens or similar certificate. A Torrens or similar title 
certificate;
    (5) Title standard of U.S., Tribal, or State government. Evidence 
of title conforming to the standards of a supervising branch of the 
Government of the United States or of any Tribe, State or Territory 
thereof; or
    (6) Title Status Report. Certified Title Status Report issued by 
the BIA shall not be more than sixty (60) days from the date of the 
Sec.  1005.807(a) claim submission. Extensions may be granted under 
certain reasonable circumstances, as prescribed by Section 184 Program 
Guidance.
    (b) [Reserved]


Sec.  1005.821  Coverage of title evidence.

    (a) Evidence of title or Title Status Report shall include the 
recordation of the Conveyance or assignment to HUD. The evidence of 
title or the Title Status Report shall further show that, according to 
the public records, there are no outstanding prior liens, including any 
past-due and unpaid ground rents, general taxes or special assessments, 
if applicable, on the date of Conveyance or assignment.
    (b) If the title evidence and Title Status Report are acceptable 
generally in the community in which the property is situated, such 
title evidence and Title Status Report shall be satisfactory to HUD and 
shall be considered Good and Marketable Title. In cases of 
disagreement, HUD will make the final determination in its sole 
discretion.


Sec.  1005.823  Waived title objections for properties on fee simple 
land.

    Reasonable title objections for fee simple land properties shall be 
waived by HUD. Reasonable title objections will be prescribed in 
Section 184 Program Guidance.


Sec.  1005.825  Waived title objections for properties on Trust Land.

    HUD shall not object to title restrictions placed on the tract of 
Trust Land by the Tribe or the BIA so long as those restrictions do not 
adversely impact the property or marketability.

Condition of the Property


Sec.  1005.827  Damage or neglect.

    (a) If the property has been damaged by fire, flood, earthquake, or 
tornado, or if the property has suffered damage because of the 
Servicer's failure to take action as required by Sec.  1005.765 or for 
any other reason, the Servicer must submit a claim to the hazard 
insurance policy, as applicable and the damage must be repaired before 
Conveyance of the property or assignment of the Section 184 Guaranteed 
Loan to HUD.
    (b) If the property has been damaged as described in paragraph (a) 
of this section and the damage is not covered by a hazard insurance 
policy, the Servicer must provide notice of such damage to HUD. The 
property may not be conveyed or assigned until directed to do so by 
HUD. Upon receipt of such notice, HUD will either:
    (1) Allow the Holder to convey the damaged property;
    (2) Require the Servicer to repair the damage before Conveyance, 
and HUD will reimburse the Holder for reasonable payments, not in 
excess of HUD's estimate of the cost of repair, less any hazard 
insurance recovery; or
    (3) Require the Servicer to repair the damage before Conveyance, at 
the Holder's own expense.
    (c) In the event the damaged property is conveyed to HUD without 
prior notice or approval as provided in paragraph (a) or (b) of this 
section, HUD may, after notice, reconvey the property and demand 
reimbursement to HUD for the expenses in accordance with Sec. Sec.  
1005.849 and 1005.851.


Sec.  1005.829  Certificate of property condition.

    (a) As part of the claim submission, the Servicer shall either:
    (1) Certify that as of the date of the deed or assignment of the 
loan to HUD the property was:
    (i) Undamaged by fire, flood, earthquake, or tornado;
    (ii) Undamaged due to failure of the Servicer to act as required by 
Sec.  1005.765; and,
    (iii) Undamaged while the property was in the possession of the 
Borrower; or,
    (2) Include a copy of HUD's authorization to convey the property in 
damaged condition.
    (b) In the absence of evidence to the contrary, the Servicer's 
certificate or description of the damage shall be accepted by HUD as 
establishing the condition of the property, as of the date of the deed 
or assignment of the Section 184 Guaranteed Loan.


Sec.  1005.831  Cancellation of hazard insurance.

    The Holder shall cancel any hazard insurance policy as of the date 
of the deed to HUD, subject to the following conditions:
    (a) The amount of premium refund due to the Servicer resulting from 
such cancellation must be deducted from the total amount claimed.

[[Page 78378]]

    (b) If the Servicer's calculation of the premium refund is less 
than the actual premium refund, the amount of the difference between 
the actual refund and the calculated refund shall be remitted to HUD, 
accompanied by the insurance company's or agent's statement.
    (c) If the Servicer's calculation of the premium refund is more 
than the actual refund, the Servicer must include in a supplemental 
claim submission in accordance with Sec.  1005.809(c), accompanied by 
the insurance company's or agent's statement, the amount of the 
difference as an eligible cost in accordance with Sec.  1005.843(a)(3).

Payment of Guarantee Benefits


Sec.  1005.833  Method of payment.

    If the claim is acceptable to HUD, payment of the guarantee 
benefits shall be made by electronic transfer of funds to the Holder or 
other such allowable payment method.


Sec.  1005.835  Claim payment not conclusive evidence of claim meeting 
all HUD requirements.

    Payment of any claim by HUD is not conclusive evidence of 
compliance with the subpart D or G of this part. HUD reserves the right 
to conduct post-claim payment review of claims filed within five years 
from the date of the last claim payment. Where non-compliance with any 
requirements of this part is identified, HUD will take appropriate 
action against the Holder, originating Direct Guarantee Lender, and/or 
Servicer, including but not limited to HUD's remedies under Sec.  
1005.805 and sanctions under Sec. Sec.  1005.905 and 1005.907.


Sec.  1005.837  Payment of claim: unpaid principal balance.

    HUD will pay a claim under Sec.  1005.807(a) in the amount of the 
unpaid principal balance less all receipts for the sale or transfer of 
the property, if applicable, in accordance with the requirements of 
this subpart.


Sec.  1005.839  Payment of claim: interest on unpaid principal balance.

    (a) HUD shall pay interest on the unpaid principal balance from the 
date of default to the earlier of the following:
    (1) The execution of deed-in-lieu/lease-in-lieu of foreclosure;
    (2) The execution of the Conveyance to either Servicer, HUD, or a 
third-party;
    (3) The execution of the assignment of the Section 184 Guaranteed 
Loan to HUD; or
    (4) The expiration of the reasonable diligence timeframe, as 
prescribed by Section 184 Program Guidance.
    (b) [Reserved]


Sec.  1005.841  Payment of claim: reimbursement of eligible and 
reasonable costs.

    The claim will be paid in accordance with Sec.  1005.807(b) and 
will include eligible and reasonable costs, as prescribed by Section 
184 Program Guidance.


Sec.  1005.843  Reductions to the claim submission amount.

    (a) A Servicer shall reduce the claim when the following amounts 
are received or held by the Servicer:
    (1) All amounts received by the Servicer from account of the loan 
after default.
    (2) All amounts received by the Servicer from any source relating 
to the property on account of rent, reimbursement, or other income 
after deducting reasonable expenses incurred in handling the property.
    (3) All cash retained by the Servicer including amounts held or 
deposited for the account of the Borrower or to which it is entitled 
under the loan transaction that have not been applied in reduction of 
the principal loan indebtedness.
    (b) [Reserved]


Sec.  1005.845  Rights and liabilities under Indian Housing Loan 
Guarantee Fund.

    (a) No Borrower, Direct Guarantee Lender, Non-Direct Guarantee 
Lender, Holder, or Servicer shall have any vested right in the Indian 
Housing Loan Guarantee Fund.
    (b) No Borrower, Direct Guarantee Lender, Non-Direct Guarantee 
Lender, Holder, or Servicer shall be subject to any liability arising 
under the Indian Housing Loan Guarantee Fund.
    (c) The Indian Housing Loan Guarantee Fund will be credited and 
debited in accordance with 12 U.S.C. 1715z-13a(i)(2).


Sec.  1005.847  Final payment.

    (a) HUD's payment of a claim(s) shall be deemed as final payment to 
the Holder, notwithstanding the ability to present additional claim(s) 
in accordance with Sec.  1005.807 as applicable. The Holder shall have 
no further rights against the Borrower or HUD when there is a final 
payment. This paragraph (a) does not preclude HUD from seeking 
reimbursement of costs and return of amounts from the Holder or 
originating Direct Guarantee Lender pursuant to Sec. Sec.  1005.849 and 
1005.851.
    (b) In cases where HUD reconveys the property to the Holder and HUD 
is reimbursed for all expenses and returns all amounts pursuant to 
Sec. Sec.  1005.849 and 1005.851, provisions under paragraph (a) of 
this section shall not apply. However, the resubmission of the claim, 
if any, shall be subject to Sec.  1005.849(b) and any reasonable 
processes requirements as may be prescribed by Section 184 Program 
Guidance.


Sec.  1005.849  Reconveyance and reassignment.

    (a) HUD may reconvey the property or reassign the deed of trust or 
mortgage to the Holder due to:
    (1) Originating Direct Guarantee Lender or Servicer's noncompliance 
with this part or any requirements as prescribed by Section 184 Program 
Guidance; or
    (2) An authorized withdrawal of a claim in accordance with Sec.  
1005.815.
    (b) HUD may take appropriate action against the Holder associated 
with the reconveyance or reassignment authorized in paragraph (a) of 
this section, including but not limited to, seeking reimbursement of 
all claim costs paid by HUD and carrying costs incurred by HUD in 
accordance with Sec.  1005.851.
    (c) Notwithstanding any other provision in this subpart, in cases 
where HUD has conveyed the property or reassigned the deed of trust or 
mortgage back to the Holder in accordance with Sec.  1005.851, and 
where the Servicer resubmits the claim, HUD will not reimburse the 
Holder any expenses incurred after the date of the HUD Conveyance or 
assignment.
    (d) Additional reasonable and necessary restrictions may be 
imposed, as prescribed by Section 184 Program Guidance.


Sec.  1005.851  Reimbursement of expenses to HUD.

    Where reconveyance or reassignment is sought by HUD pursuant to 
Sec.  1005.849 or when HUD determines noncompliance the Holder or the 
originating Direct Guarantee Lender shall reimburse HUD for:
    (a) All claim costs paid by HUD.
    (b) HUD's cost of holding the property, including but not limited 
to expenses based on the estimated taxes, maintenance and operating 
expenses of the property, and administrative expenses. Adjustments 
shall be made by HUD for any income received from the property.
    (c) The reimbursement shall include interest on the amount of the 
claim payment returned by the Holder or the originating Direct 
Guarantee Lender from the date the claim was paid to the date HUD 
receives the reimbursement from Holder or the originating Direct 
Guarantee Lender. The interest rate set shall be in conformity with the 
Treasury Fiscal Requirements Manual.

[[Page 78379]]

Subpart I--Lender Program Performance, Reporting, Sanctions, and 
Appeals


Sec.  1005.901  Direct Guarantee Lender, Holder, or Servicer 
performance reviews.

    HUD may conduct periodic performance reviews of Direct Guarantee 
Lenders, Non-Direct Guarantee Lenders, Holders, and Servicers. These 
may include analytical reviews, customer surveys, and on-site or remote 
monitoring reviews. These reviews may include, but are not limited to, 
an evaluation of compliance with this part. HUD will provide a written 
notice of its assessment and any proposed corrective action, if 
applicable.


Sec.  1005.903  Direct Guarantee Lender, Holder, or Servicer reporting 
and certifications.

    (a) The Direct Guarantee Lender, Non-Direct Guarantee Lender, or 
Servicer shall provide timely and accurate reports and certifications 
to HUD, which may include but is not limited to reports in connection 
with performance reviews under Sec.  1005.901, any special request for 
information from HUD, and any reasonable reports prescribed by Section 
184 Program Guidance, within reasonable time frames prescribed by HUD.
    (b) The Direct Guarantee Lender, Non-Direct Guarantee Lender, or 
Servicer's failure to provide timely and accurate reports and 
certifications to HUD may subject the Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder, or Servicer to sanctions and civil 
money penalties pursuant to Sec. Sec.  1005.905 and 1005.907.


Sec.  1005.905  Direct Guarantee Lender, Holder, or Servicer notice of 
sanctions.

    (a) Prior to the notice of sanctions or civil money penalties, HUD 
shall inform the Direct Guarantee Lender, Non-Direct Guarantee Lender, 
Holder, or Servicer of the specific non-compliance with this part and, 
where applicable, afford the Direct Guarantee Lender, Non-Direct 
Guarantee Lender, Holder, or Servicer a reasonable time, as prescribed 
in Section 184 Program Guidance to return to compliance.
    (b) If it is determined that the Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder, or Servicer fails to return to 
compliance within the allowed time, HUD shall provide written notice of 
the sanction and civil money penalties to be imposed and the basis for 
the action.


Sec.  1005.907  Direct Guarantee Lender, Holder, or Servicer sanctions 
and civil money penalties.

    (a) Where the Direct Guarantee Lender, Non-Direct Guarantee Lender, 
Holder, or Servicer fails to comply with this part, including failure 
to maintain adequate accounting records, failure to adequately service 
loans, or failure to exercise proper credit or underwriting judgment, 
or becomes ineligible to participate pursuant to Sec.  1005.225, or has 
engaged in practices otherwise detrimental to the interest of a 
Borrower or the United States, including but not limited to, failure to 
provide timely reporting, or failure to follow underwriting 
requirements set forth in this part, or failure to comply with Section 
184 Program Guidance when it specifically provides times, processes, 
and procedures for complying with the requirements in this part, HUD 
may take any combination of the following actions:
    (1) Either temporarily or permanently terminate a Director 
Guarantee Lender or Non-Direct Guarantee Lender's status. If such 
action is taken and the terminated Direct Guarantee Lender wishes to 
maintain servicing rights to the Section 184 Guaranteed Loans, the 
terminated Direct Guarantee Lender must seek HUD approval as prescribed 
in Section 184 Program Guidance.
    (2) Bar the Direct Guarantee Lender or Holder from acquiring 
additional Section 184 Guaranteed Loans.
    (3) Require that the Direct Guarantee Lender assume not less than 
10 percent of any loss on further Section 184 Guaranteed Loans made by 
the Direct Guarantee Lender.
    (4) Require that the Direct Guarantee Lender, Non-Direct Guarantee 
Lender, Holder, or Servicer comply with a corrective action plan or 
amend the Direct Guarantee Lender, Non-Direct Guarantee Lender, or 
Servicer's quality control plan, subject to HUD approval, to remedy the 
non-compliance with this part and any process prescribed by Section 184 
Program Guidance. The plan shall also address methods to prevent the 
reoccurrence of any practices that are detrimental to the interest of 
the Borrower or HUD. The corrective action plan or amended quality 
control plan shall afford the Direct Guarantee Lender, Non-Direct 
Guarantee Lender, Holder, or Servicer reasonable time to return to 
compliance.
    (5) If HUD determines any Direct Guarantee Lender, Non-Direct 
Guarantee Lender, Holder, or Servicer has intentionally failed to 
maintain adequate accounting records, to adequately service loans 
guaranteed under this section, or to exercise proper credit or 
underwriting judgment, the Assistant Secretary for Public and Indian 
Housing (and his/her designee) is authorized pursuant to 12 U.S.C. 
1715z-13a(g)(2) to impose civil money penalties upon Direct Guarantee 
Lenders, Non-Direct Guarantee Lender, Holders, or Servicers, as set 
forth in 24 CFR part 30. The violations for which a civil money penalty 
may be imposed are listed in subpart B of 24 CFR part 30.
    (b) [Reserved]


Sec.  1005.909  Direct Guarantee Lender, Holder, or Servicer appeals 
process.

    (a) Lenders denied participation in the Section 184 Program 
pursuant to subpart B of this part, or a Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder or Servicer subject to sanctions 
pursuant to Sec.  1005.907, may appeal to HUD's Office of Loan 
Guarantee within a timeframe prescribed in Section 184 Program 
Guidance. After consideration of the Lender, Direct Guarantee Lender, 
Non-Direct Guarantee Lender, Holder, or Servicer's appeal, HUD shall 
advise the Lender, Direct Guarantee Lender, Non-Direct Guarantee 
Lender, Holder, or Servicer in writing whether the denial is rescinded, 
modified or affirmed. The Lender, Direct Guarantee Lender, Non-Direct 
Guarantee Lender, Holder, or Servicer may then appeal such decision to 
the Deputy Assistant Secretary for Office of Native American Programs, 
or his or her designee. A decision by the Deputy Assistant Secretary or 
designee shall constitute final agency action.
    (b) Hearings to challenge the imposition of civil money penalties 
shall be conducted according to the applicable rules of 24 CFR part 30.

Dominique Blom,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 2022-26097 Filed 12-20-22; 8:45 am]
BILLING CODE 4210-67-P