[Federal Register Volume 88, Number 18 (Friday, January 27, 2023)]
[Proposed Rules]
[Pages 5275-5278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01636]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 88, No. 18 / Friday, January 27, 2023 / 
Proposed Rules  

[[Page 5275]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

[Docket No. RHS-22-SFH-0012]
RIN 0575-AD28


Single-Family Housing Guaranteed Loan Program

AGENCY: Rural Housing Service, Agriculture Department (USDA).

ACTION: Proposed rule.

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SUMMARY: The Rural Housing Service (RHS or Agency), a Rural Development 
(RD) agency of the United States Department of Agriculture (USDA), 
proposes to amend the current regulation for the Single-Family Housing 
Guaranteed Loan Program (SFHGLP) to implement changes related to the 
use of Special Servicing Options for Non-performing Loans. This 
proposed rule is intended to benefit borrowers by offering a less 
cumbersome option to eliminate documentation and eligibility challenges 
for borrowers who do not require payment reduction, provide lenders 
more flexibility in their servicing options, and reduce program risk of 
the guaranteed loan portfolio.

DATES: Comments must be submitted on or before March 28, 2023.

ADDRESSES: Comments may be submitted by going to the Federal 
eRulemaking Portal: Go to https://www.regulations.gov and in the 
``Search Field'' box, labeled ``Search for Rules, Proposed Rules, 
Notices, or Supporting Documents,'' enter the following docket number: 
(RHS-22-SFH-0012) or the RIN# 0575-AD28. To submit or view public 
comments, click the ``Search'' button, select the ``Documents'' tab, 
then select the following document title: (Single-Family Housing 
Guaranteed Loan Program) from the ``Search Results,'' and select the 
``Comment'' button. Before inputting your comments, you may also review 
the ``Commenter's Checklist'' (optional). Insert your comments under 
the ``Comment'' title, click ``Browse'' to attach files (if available). 
Input your email address and select ``Submit Comment.'' Information on 
using Regulations.gov, including instructions for accessing documents, 
submitting comments, and viewing the docket after the close of the 
comment period, is available through the site's ``FAQ'' link.
    Other Information: Additional information about Rural Development 
and its programs is available on the internet at http://www.rurdev.usda.gov/index.html.
    All comments will be available for public inspection online at the 
Federal eRulemaking Portal (https://www.regulations.gov).

FOR FURTHER INFORMATION CONTACT: Ticia Weare, Finance and Loan Analyst, 
Single Family Housing Guaranteed Loan Division, Rural Development, U.S. 
Department of Agriculture, STOP 0784, South Agriculture Building, 1400 
Independence Avenue SW, Washington, DC 20250-0784. Telephone: (314) 
679-6919; or email: [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    The USDA's RHS offers a variety of programs to build or improve 
housing and essential community facilities in rural areas. RHS offers 
loans, grants, and loan guarantees for single- and multi-family 
housing, childcare centers, fire and police stations, hospitals, 
libraries, nursing homes, schools, first responder vehicles and 
equipment, housing for farm laborers and much more. RHS also provides 
technical assistance loans and grants in partnership with non-profit 
organizations, Indian tribes, State and Federal Government agencies, 
and local communities.
    The purpose of the SFHGLP is to assist approved lenders in 
providing low- and moderate-income households the opportunity to own 
adequate, modest, decent, safe, and sanitary dwellings as their primary 
residence in eligible rural areas. Eligible applicants may purchase, 
build, rehabilitate, improve, or relocate a dwelling in an eligible 
rural area with 100 percent financing. The USDA-RD backed 90 percent 
loan note guarantee encourages lender participation by minimizing the 
risk of extending 100 percent loan to value, also referred to as no-
money-down mortgage loans, to eligible low- and moderate-income rural 
applicants. Providing affordable homeownership opportunities promotes 
prosperity, which in turn creates thriving communities and improves the 
quality of life in rural areas.
    The SFHGLP is authorized by the requirements of section 502(h) of 
the Housing Act of 1949, (42 U.S.C. 1472(h)), as amended. 7 CFR part 
3555 sets forth the regulatory requirements of the SFHGLP which 
includes policies regarding originating, servicing, holding and 
liquidating SFGHLP loans. SFHGLP approved lenders make the initial 
eligibility determinations, and the Agency reviews those determinations 
to make a final eligibility decision. Under 7 CFR 3555.303 lenders are 
provided several traditional servicing options for Non-Performing 
Loans, and 7 CFR 3555.304 provides for the use of special servicing 
options if the traditional servicing options provided at 7 CFR 3555.303 
have been exhausted or the lender has determined that the use of such 
servicing options would not resolve the delinquency.
    The Agency's intent is to update the Special Servicing Options for 
Non- Performing Loans to improve the process for lenders requesting a 
Mortgage Recovery Advance (MRA).

II. Discussion of the Proposed Rule

    RHS is issuing a proposed rule to amend the SFHGLP regulation, 7 
CFR part 3555, subpart G, to change how MRA funds are advanced and 
repaid.
    The MRA is available to the lender only after all traditional 
options provided at 7 CFR 3555.303 have been considered or the lender 
has determined that use of such servicing options would resolve the 
delinquency. While this remains unchanged, the Agency proposes to 
change how the funds are advanced and repaid. In the coming months and 
years, the Agency anticipates a greater volume of MRA's to be necessary 
to solve for the forbearance volume initiated by borrowers impacted by 
circumstances beyond their control.
    A partial claim, or MRA as the Agency refers to it under 7 CFR 
3555.304(d), is one of several special servicing options currently 
available to lenders. The MRA is funds advanced by the lender on behalf 
of a borrower to satisfy the borrower's debt, pay legal fees and 
foreclosure costs related to a cancelled foreclosure action and reduce 
principal.

[[Page 5276]]

    The Agency will track the MRA payment due from the lender and 
perform normal servicing activities to collect the debt. The lender is 
advised to collect the debt from the borrower prior to releasing the 
lien. The lender's failure to collect the debt from the borrower will 
not relieve the lender from their obligation to repay the debt to USDA. 
If the lender does not repay the debt to USDA, that failure to repay 
could result in the lender losing their approved lender status. In the 
event of a loss claim by the lender, the MRA will be subtracted from 
the final calculation of the claim to be paid by the Agency.
    The Agency also proposes to eliminate the second lien required by 7 
CFR 3555.304(d)(7). By eliminating this requirement, modification of 
the loan would not always be required when there is no change to the 
terms, which may allow the loan to remain securitized. The lender or 
servicer issuing a servicer advance to the borrower and seeking 
reimbursement by the Agency should follow the Agency suggested 
practices. The amount of the servicer advance will show on the 
borrower's statement along with the principal balance of the loan, but 
no payment arrangement will be required. The lender or servicer will 
collect the servicer advance from the borrower when the first lien is 
satisfied, and the full amount of the servicer advance will be due to 
the Agency from the lender.
    The current process for a lender to take advantage of this 
servicing option and be reimbursed for the advance requires the 
borrower to sign the subordinate promissory note payable to the Agency, 
a second lien be placed on the property, and the final recorded 
mortgage be submitted to the Agency. Placing a second lien on the 
property puts the burden of collection on the Agency instead of the 
lender.
    These proposed changes are expected to provide lenders more 
flexibility in their servicing options and will benefit borrowers and 
lenders by offering a less expensive and less cumbersome option, 
creating an environment that supports successful future homeownership.

III. Summary of Proposed Rule Changes

    The following is a summary of the proposed changes to 7 CFR part 
3555.
    (1) Amend Sec.  3555.304(b)(3) by removing language pertaining to 
title search and recording fees. These services will no longer be 
utilized by the lender.
    (2) Amend Sec.  3555.304(d)(4) by removing language pertaining to 
the reimbursement of fees for title search and/or recording fees, which 
costs will no longer be incurred. The lender will be responsible for 
issuing a servicer advance to the borrower and seeking reimbursement 
from the Agency. The advance will show on the statement along with the 
principal balance of the loan, but no payment arrangement will be 
required. The full amount of the advance will be due from the lender 
prior to the release of lien on the original recorded note.
    (3) Amend Sec.  3555.304(d)(6) by revising sub-paragraphs (i), 
(ii), (iii), (iv), and (v) to eliminate the second lien requirement. By 
eliminating this requirement, modification of the loan would not always 
be required as there is no change to the terms, thus may allow the loan 
to remain securitized.
    (4) Amend Sec.  3555.304 by amending sub-paragraph (d)(7) and 
eliminating (d)(8) to remove references to the borrower's requirement 
to execute a promissory note payable to the Agency and a mortgage or 
deed-of-trust in recordable form perfecting a lien naming the Agency as 
the secured party for the amount of the mortgage recovery advance.

IV. Regulatory Information

Statutory Authority

    Section 510(k) of Title V the Housing Act of 1949 [42 U.S.C. 
1480(k)], as amended, authorizes the Secretary of the Department of 
Agriculture to promulgate rules and regulations as deemed necessary to 
carry out the purpose of that title. Regulations implementing section 
502(h), the SFHGLP, are located at 7 CFR part 3555.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is not subject to the requirements of Executive Order 
12372, ``Intergovernmental Review of Federal Programs,'' as implemented 
under USDA's regulations at 2 CFR part 415, subpart C.

Executive Order 12866, Regulatory Planning and Review

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

Executive Order 12988, Civil Justice Reform

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

Executive Order 13132, Federalism

    The policies contained in this proposed rule do not have any 
substantial direct effect on States, on the relationship between the 
National Government and States, or on the distribution of power and 
responsibilities among the various levels of government. This proposed 
rule does not impose substantial direct compliance costs on state and 
local governments; therefore, consultation with the States is not 
required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

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

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effect of their regulatory actions on state, local, and tribal 
governments, and the private sector. Under section 202 of the UMRA, the 
Agency generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to state, local, or tribal 
governments, in the aggregate, or to the private sector, of $100 
million, or more, in any one year. When such a statement is needed for 
a rule, section 205 of the UMRA generally requires the Agency to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome

[[Page 5277]]

alternative that achieves the objectives of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for state, local, and 
tribal governments, or the private sector. Therefore, this proposed 
rule is not subject to the requirements of sections 202 and 205 of the 
UMRA.

National Environmental Policy Act

    In accordance with the National Environmental Policy Act of 1969, 
Public Law 91-190, this proposed rule has been reviewed in accordance 
with 7 CFR part 1970 (``Environmental Policies and Procedures''). The 
Agency has determined that (i) this action meets the criteria 
established in 7 CFR 1970.53(f); (ii) no extraordinary circumstances 
exist; and (iii) the action is not ``connected'' to other actions with 
potentially significant impacts, is not considered a ``cumulative 
action'' and is not precluded by 40 CFR 1506.1. Therefore, the Agency 
has determined that the action does not have a significant effect on 
the human environment, and therefore neither an Environmental 
Assessment nor an Environmental Impact Statement is required

Regulatory Flexibility Act

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

Assistance Listing

    The program affected by this proposed rule is listed in the 
Assistance Listing Catalog (formerly Catalog of Federal Domestic 
Assistance) under number 10.410, Very Low to Moderate Income Housing 
Loans (Section 502 Rural Housing Loans).

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by OMB and have been assigned OMB control 
number 0575-0179. This proposed rule contains no new reporting or 
recordkeeping requirements that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

Civil Rights Impact Analysis

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

E-Government Act Compliance

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

Non-Discrimination Policy

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices, employees, and institutions participating in or administering 
USDA programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; the USDA TARGET 
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service 
at (800) 877-8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a 
letter addressed to USDA. The letter must contain the complainant's 
name, address, telephone number, and a written description of the 
alleged discriminatory action in sufficient detail to inform the 
Assistant Secretary for Civil Rights (ASCR) about the nature and date 
of an alleged civil rights violation. The completed AD-3027 form or 
letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 3555

    Loss claim coverage--loan guarantee limits, Mortgage recovery 
advance, Special relief measures, Special servicing options, Stand-
alone MRA.

    For the reasons discussed in the preamble, the Rural Housing 
Service is proposing to amend 7 CFR part 3555 as follows:

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

0
1. The authority citation for part 3555 continues to read as follows:

    Authority:  5 U.S.C. 301; 42 U.S.C. 1471 et seq.

Subpart G--Servicing Non-Performing Loans

0
2. Amend Sec.  3555.304 by revising paragraph (b)(3), (d)(4), (d)(6)(i) 
through (v), (d)(7), and removing (d)(8) to read as follows:


Sec.  3555.304   Special servicing options.

* * * * *
    (b) * * *
    (3) Expenses related to special loan servicing shall not be charged 
to the borrower. However, if a foreclosure was initiated and canceled 
prior to special loan servicing, legal fees and costs for work 
performed in relation to the foreclosure costs before the cancellation 
date may be charged to the borrower.
* * * * *
    (d) * * *
    (4) If the borrower is eligible for a mortgage recovery advance, 
the servicer will advance the funds to the borrower's

[[Page 5278]]

account and create a non-interest-bearing recoverable servicing 
advance. The advance is to be provided on the mortgage statements, 
along with the principal balance of the loan, but no payment 
arrangement will be required. The servicing advance must be collected 
from the borrower prior to the earlier of the release of lien or the 
transfer of title to the property by voluntary or involuntary means.
* * * * *
    (6) The following terms apply to the repayment of mortgage recovery 
advances:
    (i) Borrowers are not required to make any monthly or periodic 
payments on the mortgage recovery advance; however, borrowers may 
voluntarily submit partial payments without incurring any prepayment 
penalty.
    (ii) The borrower is responsible for payment of the mortgage 
recovery advance to the lender in full at the earlier of the following:
    (A) When the mortgage lien and the guaranteed note are paid off; or
    (B) When the borrower transfers title to the property by voluntary 
or involuntary means.
    (iii) Repayment of any part of the mortgage recovery advance 
reimbursed by the Agency must be remitted to the Agency by the lender 
at the earlier of the following:
    (A) When payment is received from the borrower.
    (B) The mortgage lien is released; or
    (C) The borrower transfers title to the property by voluntary or 
involuntary means.
    (iv) The Agency will collect this Federal debt from the lender.
    (v) In the event of a loss claim, the mortgage recovery advance 
will be considered in calculating the claim paid by the Agency. The 
total amount paid, including the mortgage recovery advance, cannot 
exceed the Agency's maximum exposure, as defined in Sec.  3555.351(b).
    (7) The lender may request reimbursement from the Agency for a 
mortgage recovery advance. The lender shall repay any such 
reimbursement as provided in paragraph (d)(6) of this section.

Cathy Glover,
Acting Administrator, Rural Housing Service.
[FR Doc. 2023-01636 Filed 1-26-23; 8:45 am]
BILLING CODE 3410-XV-P