[Federal Register Volume 88, Number 116 (Friday, June 16, 2023)]
[Rules and Regulations]
[Pages 39335-39341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12779]



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 Rules and Regulations
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  Federal Register / Vol. 88 , No. 116 / Friday, June 16, 2023 / Rules 
and Regulations  

[[Page 39335]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

RIN 3245-AH91


Disaster Assistance Loan Program Changes to Maximum Loan Amounts 
and Miscellaneous Updates

AGENCY: U.S. Small Business Administration.

ACTION: Direct final rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
amending various regulations governing SBA's Disaster Loan Program in 
order to expand options for disaster loan recipients as well as reflect 
the impact of inflationary increases over time that result in higher 
costs. These changes, including the increase to the home loan lending 
limits, the extension of the deferment period and the expansion of 
mitigation options, are intended to increase disaster survivors' access 
to obtain needed disaster loan funds for the repair or replacement of a 
damaged property. The changes are overdue and necessary due to 
increased costs related to construction and labor, as well as increases 
in property valuations that have occurred over time.

DATES: 
    Effective date: This rule is effective July 31, 2023, unless SBA 
receives a significant adverse comment to this direct final rule by 
July 17, 2023 that explains why it is inappropriate, for example by 
persuasively challenging the rule's underlying premise or approach or 
explaining why the rule will be ineffective or unacceptable without a 
change. If a timely, significant adverse comment is received, the 
Agency will publish a notification of withdrawal of the direct final 
rule in the Federal Register before the effective date. Such a 
notification might withdraw the direct final rule in whole or in part.
    Applicability date: This rule is applicable for disasters declared 
on or after July 31, 2023.
    Comment Date: Comments must be received on or before July 17, 2023.

ADDRESSES: You may submit comments, identified by number 2023-0002, 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    SBA will post all comments on http://www.regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at http://www.regulations.gov, please submit the 
information via email to Robert Blocker at [email protected] and 
highlight the information that you consider to be CBI and explain why 
you believe SBA should hold this information as confidential. SBA will 
review the information and make the final determination whether it will 
publish the information.

FOR FURTHER INFORMATION CONTACT: Robert Blocker at 
[email protected] or (202) 619-0477. If you are deaf, hard of 
hearing, or have a speech disability, please dial 7-1-1 to access 
telecommunications relay services.

SUPPLEMENTARY INFORMATION: 

I. Background Information

    The SBA's Disaster Loan Program provides direct assistance to 
homeowners, renters, businesses and nonprofits and is critical to 
rebuilding communities after a disaster. Pursuant to section 7(b)(1) of 
the Small Business Act, 15 U.S.C. 636(b)(1), SBA is authorized to make 
disaster loans available to repair, rehabilitate or replace real or 
personal property damaged or destroyed as a result of disasters. These 
long-term, low-interest loans support those needing to repair or 
replace their damaged primary residence and personal effects. In this 
direct final rule, SBA is increasing the lending limits applicable to 
home loans, including the limits on amounts for repair and replacement 
of disaster damaged real and personal property, for refinancing, for 
mitigation, and for contractor malfeasance. These changes are necessary 
as current home loan lending limitations have not been adjusted since 
1994 and are insufficient to meet the needs of many homeowners and 
renters. SBA has determined that these increases are necessary due to 
inflation and higher costs for real and personal property repairs. 
These increases address the need for periodic adjustments in loan 
limits based on increases in home costs, the cost and availability of 
construction materials, and significant changes in labor costs. The 
current limits, established in 1994, are inadequate to compensate many 
disaster survivors for the costs associated with rebuilding, replacing 
and repairing their homes and household effects which have been lost or 
damaged as a result of a disaster. Housing prices have risen 
significantly over the past 25 years. The median price of a single-
family house sold in the first quarter of 1994 was only $130,000. By 
the end of 2021, the median price of a home had risen to over 
$400,000.\1\ More recent increases have also been noted. According to 
the latest Producer Price Index (PPI) report released by the Bureau of 
Labor Statistics,\2\ the prices of goods used in construction climbed 
each month during 2022 resulting in a 19% jump in producer prices for 
construction for a 12-month period ending November 2022. Additionally, 
the National Association of Home Builders (NAHB) price index of 
services inputs to residential construction registered even steeper 
increases. As a result, the price index of services used in home 
building (including trade services, transportation and warehousing) 
went up 15.2% since the start of 2022. The index increased 18.5% year 
over year. Since the start of the pandemic, services prices are now 39% 
higher. In addition, building materials prices increased 20.4% year 
over year and have risen 33% since the start of the pandemic.\3\ From 
2018 through 2022, approximately 8.5% of borrowers have been unable to 
fully restore their real estate and replace their personal property due 
to the current home loan lending limits. Most recently, 64.2% of 
recipients of home loans for damage caused by the 2021 Colorado 
Wildfires, and 17.6% of such borrowers from Hurricanes Fiona and Ian, 
were unable to fully restore their real estate

[[Page 39336]]

and replace personal property; this level of shortfall is expected to 
continue to increase and impact greater numbers of disaster survivors 
in other regions. Historically, in the aftermath of disasters, 
especially large catastrophes, construction costs increase sharply as 
demand increases and supply decreases. Therefore, SBA, based on 
statutory authority and additional analyses cited above, has determined 
that it is appropriate and necessary at this time to increase home loan 
lending limits.
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    \1\ Data obtained from U.S. Census Bureau and U.S. Department of 
Housing and Urban Development, Median Sales Price of Houses Sold for 
the United States. www.census.gov/construction/nrs/current/index.html.
    \2\ www.bls.gov/opub/ted/2022/producer-prices-for-final-demand-rose-7-4-percent-over-the-year-ended-november-2022.htm.
    \3\ National Association of Home Builders published Apr 15, 2022 
www.nahb.org/blog/2022/04/building-materials-prices-start-2022-with-8-percent-increase and Producer Price Index News Release_
www.bls.gov/news.release/archives/ppi_05122022.htm.
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    SBA is also increasing the initial deferment period from 5 months 
to 12 months, which reduces the immediate financial burden for disaster 
survivors. Repair and replacement timelines often extend beyond the 
existing 5 months permitted for deferment. This creates the 
responsibility and burden for a disaster survivor to begin making 
payments before their property is completely restored and all-in costs 
accounted for. Further, SBA is revising its regulations to allow the 
SBA Administrator to increase the maximum loan amounts to homeowners 
and renters under a specific disaster declaration based on appropriate 
economic indicators, such as current building costs, regional median 
home prices, and the Consumer Price Index (CPI) and the Producer Price 
Index (PPI) for the region(s). These disaster-specific increases will 
be published in the Federal Register.
    Finally, SBA is making other revisions that will increase access to 
disaster loans and that clarify existing requirements, as further 
described below in the section-by-section analysis.

II. Section-by-Section Analysis

Section 123.7 Are there restrictions on how disaster loans can be used?

    Current section 123.7 allows loan funds to be used to protect 
damaged or destroyed real property from possible future similar 
disasters. SBA is eliminating the word ``similar,'' which allows a 
disaster loan recipient to use loan funds allocated for mitigation to 
implement mitigation measures to protect against any type of disaster. 
The elimination of ``similar'' allows disaster loan recipients more 
flexibility to better protect their property from future disasters. For 
example, under current section 123.7, a homeowner that suffered damage 
from a fire would not be allowed to use mitigation funds to prevent 
earthquake damage, since the damage to the home was not caused by an 
earthquake. This change provides disaster borrowers with more options 
to mitigate future damage from all types of disasters, reducing the 
need for future financial assistance.

Section 123.11 Does SBA require collateral for any of its disaster 
loans?

    Section 123.11 defines when SBA requires collateral for disaster 
loans. Paragraph (b) lists examples of available collateral that may be 
required to secure a disaster loan, such as a lien on the damaged or 
replacement property, a security interest in personal/business 
property, or both. SBA is revising paragraph (b) to provide SBA more 
discretion to determine the collateral that will be required for 
disaster loans. This increased flexibility will allow SBA to tailor 
this collateral requirement to the disaster survivor's circumstances. 
For example, requiring liens on property with no liquidation value may 
increase the cost burden to the borrower without providing meaningful 
liquidated recovery for SBA in the event of a default. SBA will further 
define ``available collateral'' in its Standard Operating Procedures 
(SOP). SBA will clarify in the Disaster Assistance Program SOP 50 30 
the circumstances under which blanket liens on all business assets will 
not be required.

Section 123.13 What happens if my loan application is denied?

    Section 123.13 addresses declined applications and procedures for 
reconsideration. Current subsection (d) refers to documentation 
required to overcome SBA's denial of the original loan application and 
includes an additional requirement for business loan application 
reconsideration requests to include current business financial 
statements. SBA is removing this requirement to submit current business 
financial statements with every business loan reconsideration request. 
In instances where SBA declines a loan based on lack of repayment 
ability, current business financial statements would be required. 
However, other reconsiderations not based on repayment ability may not 
require this information.

Section 123.105 How much can I borrow with a home disaster loan and 
what limits apply on use of funds and repayment terms?

    SBA is amending this regulation by increasing the stated threshold 
limits within each subparagraph of Sec.  123.105(a). Specifically, SBA 
is replacing ``$40,000'' with ``$100,000'' as the limit for repair and 
replacement of household and personal effects. SBA is also replacing 
``$200,000'' with ``$500,000'' as the limit for repair and replacement 
of a primary residence. These changes will allow for many eligible 
disaster survivors to obtain full recovery for their disaster losses 
and align with increases in inflation, construction costs and home 
prices. In addition, SBA is removing the limit on landscaping and other 
improvements to grounds, currently capped at $5,000, to allow disaster 
borrowers to obtain the necessary funds to repair their damaged real 
estate. In accordance with the home lending limit increase, SBA is also 
increasing the limits from $200,000 to $500,000 for eligible 
refinancing purposes in section 123.105(a)(3), post-disaster mitigation 
in Sec.  123.105(a)(4), and eligible malfeasance in Sec.  
123.105(a)(5). These changes are based on increases in median home 
prices and repair/replacement costs.
    SBA is increasing the deferment period for the first payment due in 
Sec.  123.105(c) from 5 months to 12 months from the date of the 
initial disbursement to reduce the financial burden for disaster 
survivors. Generally, the borrower will pay monthly installments of 
principal and interest, payment beginning 12 months from the date of 
the initial disbursement. Currently, SBA has the discretion to defer 
first payment due dates longer than 5 months and frequently defers 
payments for 12 months on a disaster-by-disaster basis. This change 
will create clarity and consistency across disaster declarations, since 
each will have the same deferment period, and will provide more time to 
a borrower recovering from a declared disaster to start making payments 
on the loan. SBA recognizes that full disbursements are not always 
completed immediately after approval and disaster recovery can be an 
ongoing process.
    Finally, in order to allow for flexibility and to match the 
authority already granted to the Administrator for business loans,\4\ 
SBA is adding a new paragraph (d) to Sec.  123.105 to allow the 
Administrator to increase home loan lending limits within Sec.  
123.105(a) under an individual disaster declaration based on 
appropriate economic indicators for the region(s) in which the disaster 
occurred including but not limited to factors such as Consumer Price 
Index (CPI), Producer Price Index (PPI), median home prices and local 
construction costs. After reviewing the totality of circumstances, and 
if determined appropriate, SBA will publish any increased lending limit 
for an individual disaster declaration in the Federal Register.
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    \4\ See 15 U.S.C. 636(b)(8)(B) and 13 CFR 123.202(e).

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[[Page 39337]]

Section 123.106 What is eligible refinancing?

    The eligible amount of refinancing is limited by the amount of 
physical damage to the home as well as the maximum loan amount. 
Therefore, in accordance with the increases in disaster lending limits, 
SBA is increasing the refinance limits in Sec.  123.106(b) to match the 
above stated repair/replacement lending limit of $500,000.
    In addition, SBA is revising the regulation to remove certain 
restrictions on the amount of eligible refinancing. Currently, 
refinancing amounts cannot exceed the amount of physical damage, less 
any amounts received from insurance or other recoveries, up to a 
maximum of $200,000. SBA is revising Sec.  123.106(b) to state that 
refinancing amounts cannot exceed the amount of physical damage, and 
the amount will be reduced by any insurance or other recoveries, but 
only if the disaster survivor uses the insurance or other recoveries to 
pay down the mortgage or lien to be refinanced, up to a maximum of 
$500,000. This change ties the eligible refinancing amount to the 
amount of physical damage rather than to the amount received from SBA 
for physical damage repairs. This change also makes the regulatory 
language--currently more constraining than the statutory language--the 
same as the statutory language, removes the existing penalty on 
disaster borrowers with insurance, and makes more funding available to 
disaster survivors for refinancing.\5\ For example, under the current 
regulation, if a disaster survivor suffered $150,000 in real estate 
damages and received $100,000 from their insurance company, SBA would 
reduce the disaster survivor's refinancing eligibility to $50,000--the 
physical damages less their insurance recovery. So the borrower could 
receive $50,000 for physical damages and $50,000 for refinancing, for a 
total maximum SBA loan amount of $100,000. In contrast, a borrower with 
the same damages, but no insurance, could receive $150,000 for physical 
damages and $150,000 for refinancing, for a maximum total SBA loan 
amount of $300,000. With the change, some disaster survivors will have 
increased refinancing eligibility. Using the earlier example, the 
disaster survivor's refinancing eligibility will be $150,000, unless 
any amount of insurance is used to reduce the lien SBA is refinancing. 
So the borrower could receive $50,000 for physical damages and $150,000 
for refinancing, for a total maximum SBA loan amount of $200,000. If 
the disaster survivor uses the $100,000 of insurance proceeds to pay 
down the lien SBA is refinancing, only then would SBA reduce the amount 
of eligible refinancing funds by the $100,000 to $50,000, for a total 
maximum SBA loan amount of $100,000 ($50,000 for physical damages and 
$50,000 for refinancing).
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    \5\ See 15 U.S.C. 636(b)(1)(B)(iv).
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Section 123.107 How much can I borrow for post-disaster mitigation for 
my home?

    In accordance with increases in the disaster loan limit discussed 
above, SBA is also increasing the maximum amount available for post-
disaster mitigation. Current regulations limit the amount to the lesser 
of the cost of the mitigation measure, or up to 20% of the verified 
loss, to a maximum of $200,000. SBA is increasing the maximum allowed 
for post-disaster mitigation from $200,000 to $500,000 to align with 
the real estate lending limit increase.

Section 123.202 How much can my business borrow with a physical 
disaster business loan?

    SBA is revising paragraph (c) of Sec.  123.202 to remove 
restrictions on the amount of eligible refinancing for businesses. SBA 
is removing the requirement to reduce the amount of eligible 
refinancing if there is compensation from insurance or other 
recoveries. Like the changes to Sec.  123.106(b) described above 
applicable to home loans, SBA is revising the regulation to the 
statutory language. Revised paragraph (c) requires the refinancing 
amount for business loans to be reduced only to the extent the lien or 
encumbrance to be refinanced is satisfied by insurance or other 
recoveries.
    In addition, and in accordance with removal of the limit on amounts 
for landscaping or recreational facilities in Sec.  123.105(a)(4) for 
home loans, SBA is removing similar language in Sec.  123.202(d) 
applicable to business loans. Currently, SBA makes exceptions to this 
limit based on documented functional need on a case-by-case basis. This 
change provides consistency and removes the need for administrative 
exceptions and reduces administrative burden on the disaster survivor 
and SBA in securing resources to repair or replace their damaged 
property.

Section 123.203 What interest rate will my business pay on a physical 
disaster business loan and what are the repayment terms?

    SBA is increasing the deferment period for the first payment due in 
Sec.  123.203(b) from 5 months to 12 months from the date of the 
initial disbursement to reduce the financial burden for disaster 
survivors. Generally, the borrower will pay monthly installments of 
principal and interest, payment beginning 12 months from the date of 
the initial disbursement. Currently, SBA has the discretion to defer 
first payment due dates longer than 5 months and frequently defers 
payments for 12 months on a disaster-by-disaster basis. This change 
will create clarity and consistency across disaster declarations, since 
each will have the same deferment period, and will provide more time to 
a borrower recovering from a declared disaster to start making payments 
on the loan. SBA recognizes that full disbursements are not always 
completed immediately after approval and disaster recovery can be an 
ongoing process.

Section 123.301 When would my business not be eligible to apply for an 
economic injury disaster loan?

    SBA is removing ineligibility for economic injury disaster loans 
for consumer or marketing cooperatives to align with SBA's 7(a) and 504 
business loan programs that currently consider cooperatives as eligible 
entities. Cooperatives are recognized by SBA as an eligible form of 
business organization which should not be excluded from disaster 
assistance provided to other business entities. As such, cooperatives 
may be eligible for economic injury disaster loans, provided they meet 
all other program requirements. SBA is removing paragraph (c) in its 
entirety.

Section 123.502 Under what circumstances is your business ineligible to 
be considered for a Military Reservist Economic Injury Disaster Loan?

    SBA is removing ineligibility for Military Reservist Economic 
Injury Disaster loans for consumer or marketing cooperatives for the 
same reasons as stated above. SBA is removing paragraph (j) in its 
entirety.

III. Justification for Direct Final Rule

    Agencies typically utilize direct final rulemakings for non-
controversial regulatory actions that are unlikely to receive adverse 
comments. In direct final rulemaking, an agency publishes a final rule 
with a statement that the rule will go into effect unless the agency 
receives significant adverse comment within a specified period. 
Significant adverse comments are comments that provide strong 
justifications why the rule should not be adopted or for changing the 
rule. If the agency receives

[[Page 39338]]

no significant adverse comment in response to the direct final rule, 
the rule goes into effect. If the agency receives significant adverse 
comment, the agency withdraws the direct final rule and may instead 
issue a proposed rulemaking.
    SBA has determined that the regulatory changes addressed in this 
direct final rulemaking are non-controversial, and not likely to result 
in adverse comments. SBA's disaster loan maximums have not been 
increased in over 20 years, in part, because such increase in the 
maximums was unnecessary: despite the rise in the costs of real estate, 
SBA had perennially satisfied the lending demands of disaster 
survivors, ensuring homeowners could successfully rebuild. However, 
today, recent natural disasters have demonstrated SBA's lending limits 
are increasingly preventing households from receiving the necessary 
disaster assistance to rebuild as in years past. Over the past 20 
years, SBA has provided disaster assistance for 119 disaster 
declarations each year on average, each of which is an emergency to the 
survivors. The timing, occurrence, and impact of a disaster is 
unpredictable. But natural disasters are increasing in severity and in 
frequency across the United States and its territories, evidenced by 
more severe hurricane seasons and more frequent wildfires, tornados, 
floods, and blizzards. This is a recent phenomenon, and the effect on 
disaster survivors has been exacerbated by the increase in construction 
costs occasioned by the pandemic. As stated previously, more than 60% 
of borrowers from the recent Colorado wildfires and nearly 20% of 
borrowers from Hurricanes Fiona and Ian, were unable to obtain the full 
disaster assistance necessary because of SBA's current disaster loan 
maximums and other criteria. Overall, as also noted above, on average 
from 2018 to 2022, fewer than 10% of borrowers affected by a disaster 
have been unable to obtain sufficient disaster assistance through SBA. 
Further, an increasing number of insurance carriers in areas of 
frequent disasters are insolvent and have issues providing benefit 
payments to insured customers.\6\ All disaster occurrences are urgent 
and require the most efficient and effective path to assistance for the 
survivors. In short, an increase to SBA's disaster loan maximums is no 
longer preemptive, but now necessary to meet current economic demands 
from increasingly severe and frequent disasters. A higher threshold 
accounting for increased average home value, inflation, and other 
changes is required to ensure nearly all disaster survivors can receive 
full SBA assistance.
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    \6\ See e.g., Duvall, M. (December 20, 2022). Home insurers are 
leaving Florida: Here's what you need to know. Retrieved from 
https://www.insurance.com/home-and-renters-insurance/home-insurers-leaving-florida.
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    This direct final rule changes the maximum loan size which is well 
overdue based on inflation and other economic data. SBA does not 
anticipate receiving significant adverse comments because the principal 
effect of these amendments is to increase the amount disaster survivors 
can borrow under the SBA's Disaster Assistance Loan Program. The 
regulatory changes in this direct final rulemaking address overdue loan 
amount adjustments based on inflation and costs over a 28-year period, 
the need to increase mitigation measures that reduce taxpayer 
investment in repeat repairs and expanding payment options for disaster 
survivors that assist with successful repayment of loans. SBA's 
disaster loan program offers long-term, low interest, fixed rate loans 
to disaster survivors, enabling them to replace real or personal 
property damaged or destroyed in declared disasters. It also offers 
such loans to affected small businesses and non-profits to help them 
recover from economic injury caused by such disasters. The changes in 
this direct final rule will not require members of the public to adjust 
their behavior. Rather, the changes will benefit the public by allowing 
for increased compensation to adequately reflect increases in costs 
associated with replacing and repairing residential real property and 
household effects which have been lost or damaged as a result of a 
disaster. This would eliminate the need for many disaster borrowers to 
seek out more costly additional financing options to cover potential 
shortfalls in completing repair and replacement projects, such as 
second mortgages and Home Equity Lines of Credit (HELOC), which incur 
additional closing costs, and credit cards, which historically carry 
variable and/or punitive higher interest rates compared to disaster 
assistance loans (current average 22.91%). Other changes, such as 
increasing the amounts available for landscaping, refinancing, and 
mitigation, also benefit disaster survivors. Due to urgent needs for 
disaster assistance, and the noncontroversial nature of these changes, 
SBA concludes immediate action is required to support homeowners, 
businesses, and their communities as they recover from future 
disasters.

Compliance With Executive Orders 12866, 12988, 13132, 13175, 13563, 
14030, the Paperwork Reduction Act (44 U.S.C., Ch. 35), the 
Congressional Review Act (5 U.S.C. 801-808), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget has determined that this rule 
is a ``significant regulatory action'' under Executive Order 12866. SBA 
has drafted a Regulatory Impact Analysis for the public's information 
below.
A. Regulatory Objective of the Rule
    The Agency believes it needs to update its disaster home loan 
limits and expand access to disaster loan funds to better meet the 
recovery needs of many homeowners throughout the nation that have 
incurred physical damage from an unforeseen disaster. The lending 
limits for home loans have been in place since 1994 and the increase 
would align the SBA Disaster Program with relative increased costs 
related to construction and labor, as well as increases in property 
valuations that have occurred over time. According to the Bureau of 
Labor Statistics' (BLS) consumer price index and Zillow median house 
price data,\7\ housing prices have increased by an average of 0.85% 
monthly between May 2013 and May 2022, whereas inflation has only 
increased at an average monthly rate of 0.24% over the same period.\8\ 
In light of housing prices increasing at a faster rate than inflation, 
SBA has identified a need for increasing home disaster loan lending 
limits. Further changes in the program, including extending the loan 
deferment for first payment due date on the loan are also necessary to 
provide disaster borrowers with flexibility in payment options when 
dealing with and incurring additional expenses related to disaster 
recovery. Other modernizations include expanding the availability of 
mitigation measures, which supports the Administration's climate 
resilience priorities and resiliency initiative. In addition, rule 
updates related to refinancing eligibility, removing restrictions on 
loans to consumer or marketing cooperatives, and enhancing the 
Administrator's authority to adjust loan limits for specific disaster 
declarations depending on economic indicators allows the disaster loan 
program greater flexibility for unforeseen economic conditions. These

[[Page 39339]]

increases and expansions are necessary and long overdue for many 
disaster borrowers especially in areas of the country where housing and 
repair costs have risen significantly.
---------------------------------------------------------------------------

    \7\ For home prices: Zillow's website and pulling median sale 
price smoothed and seasonally adjusted www.zillow.com/research/data/
.
    \8\ See CPI Home: www.bls.gov/cpi/.
---------------------------------------------------------------------------

B. Benefits of the Rule
    This regulatory action will directly benefit disaster survivors by 
increasing the amount of loan proceeds available as well as expanding 
options for mitigation funds and other related benefits. The changes 
will allow for increased resources for disaster borrowers specifically 
accounting for regional pricing differentials. The changes will reflect 
increases in costs to replace and repair residential, property and 
household effects which have been lost or damaged as a result of a 
physical disaster.
    Data from disaster loan approvals between July 2018 and July 2022 
shows over 2,300 disaster home borrowers had uncompensated real estate 
damage that exceeded the $200,000 loan limit, of which 97% were under 
the $500,000 limit. In addition, there were a larger number of disaster 
borrowers, over 7,600, that had uncompensated personal property losses 
that exceeded the $40,000 limit, of which 94% were under the $100,000 
limit.
    In these cases, the disaster borrowers were limited in the amount 
of loan funds that they could receive and had to seek out more costly 
financing options to cover potential shortfalls in completing repair 
and replacement projects, such as second mortgages and Home Equity 
Lines of Credit (HELOC), which incur additional closing costs, and 
credit cards, which historically carry variable and/or punitive higher 
interest rates compared to disaster assistance loans (current average 
22.91%).
    Between July 2018 and July 2022, for the disaster survivors whose 
losses exceeded the $200,000 limit in uncompensated losses, the annual 
average uncompensated loss for real estate damage was approximately 
$113,027. The annual average personal property uncompensated losses 
were approximately $36,847. These amounts represent a shortfall in 
funds needed for the disaster survivor to fully recover. Based on SBA's 
review of historic data, between 479 and 2,919 loan applicants per year 
would benefit from the loan limit increases for personal property and 
real estate losses. There are no changes to loan eligibility approval 
or repayment factors so these estimates are based on the number of loan 
applicants who applied and were approved previously but would have 
received the recovery benefit of a larger loan amount. These 
calculations reflect the historical number of applicants who would 
potentially benefit from the new loan limits and the corresponding 
increases in their approved loan amounts.
C. Costs of the Rule
    SBA anticipates the calculated subsidy from the changes will not 
have a significant impact on the overall subsidy rate. The initial cost 
to the Agency is de minimis. Individual applicants will still be 
governed by standard disaster loan eligibility requirements for SBA 
disaster assistance and will remain eligible for assistance to the 
extent of verifiable uncompensated loss as present regulations provide.
    Based on SBA data from disaster loan approvals between July 2018 
and July 2022, SBA anticipates that this rule change would result in an 
average annual increase of roughly $95.1 million in additional lending. 
The annual increase in loan amounts could range between $68.9 million 
and $131.1 million, depending on the severity of disasters in any given 
year. Although the loan amounts would likely increase, SBA does not 
expect any significant impact to the subsidy rate given that the 
historical rate of default for the disaster program trends down as loan 
amounts increase. Based on actual performance from FY 2012 through July 
2022, approximately 221,497 home loans were approved, of which a total 
16,141 defaulted (7.2%). This portfolio default rate based on the size 
of loan is 5.2% for loans approved between $50,000 to $200,000, 
decreasing to 3.75% rate of default for loans over $200,000. This data 
demonstrates a diminishing rate of default for larger amount loans.
    There are no changes in credit and repayment consideration for loan 
approval determinations. SBA will continue to analyze personal or 
business cash flow to determine repayment ability for those applicants 
who do not have strong credit. In addition, the value of the property 
being repaired by the disaster loan would be enhanced by additional 
repair/replacement funds from the increased loan amount, which would 
potentially enhance SBA collateral in the event of default.
D. Alternatives
    Given that the program has not increased the current lending limits 
since 1994, the SBA found no acceptable alternatives to the regulation 
changes. The Agency currently requires disaster survivors to seek 
outside financing to cover project shortfalls caused by current lending 
limits. Typical alternate financing includes the use of second 
mortgages and Home Equity Lines of Credit (HELOC), which incur 
additional closing costs, and credit cards, which historically carry 
variable and/or punitive higher interest rates compared to disaster 
assistance loans (current average 22.91%). Use of alternate financing 
can make full recovery from disasters significantly less affordable for 
many survivors and further reduces opportunities to include mitigation 
funds for sustainable recoveries. Additionally, outside lenders 
generally require collateral for loans which can adversely impact SBA's 
lien priority and collateral on secured home loans.
    SBA concluded that the revisions as set forth in this rule are the 
optimum available to ensure recovery is available for disaster 
survivors. When comparing SBA's projections to a no action baseline, 
the Agency found that between 479 and 2,919 loan applicants per year 
would potentially be excluded from the benefits of the higher loan 
limits. These applicants are those that qualify for funds greater than 
the previous limits of $200,000 and $40,000 for real estate and 
personal property, respectively, who are currently forced to look to 
other likely more costly sources to cover excess loss.
    Table 1 displays the relative frequencies of uncompensated losses 
between July 2018 and July 2022, when grouped by each of the discussed 
loan limit ranges. Over this period, 29% of loans with real estate had 
uncompensated losses between the $200,000 and $500,000 thresholds, 
while only 3% exceeded this threshold. The table demonstrates that the 
increase of the disaster home loan lending limit to $500,000 for real 
property damage would cover an additional 29% of uncompensated real 
estate losses and fully cover 97% of the uncompensated real estate 
losses during this timeframe. Similarly, increasing the personal 
property disaster loan limit from $40,000 to $100,000 would cover an 
additional 88% of uncompensated personal property losses and fully 
cover 94% of disaster survivors in this category.

          Table 1--Relative Frequencies of Uncompensated Losses
                            [FY 2018-FY 2022]
------------------------------------------------------------------------
                                                          Percentages of
                        Category                           loans within
                                                             category
------------------------------------------------------------------------
                           Real estate (7,279)
------------------------------------------------------------------------
0-$200K.................................................              68
$201K-$500K.............................................              29
>$500K..................................................               3
------------------------------------------------------------------------

[[Page 39340]]

 
                        Personal Property (8,174)
------------------------------------------------------------------------
0-$40K..................................................               6
$41K-$100K..............................................              88
>$100K..................................................               6
------------------------------------------------------------------------

Executive Order 12988

    This action meets applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have preemptive effect or retroactive effect.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It will not have substantial direct effects on 
the States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government, as specified in the Executive Order. As 
such it does not warrant the preparation of a Federalism Assessment.

Executive Order 13175

    This rule does not have Tribal implications under Executive Order 
13175, Consultation and Coordination with Indian Tribal Governments, 
because it does not have a substantial direct effect on one or more 
Indian Tribes, on the relationship between the Federal Government and 
Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian Tribes.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action, including possible 
distributional impacts that relate to Executive Order 13563, are 
included above in the Regulatory Impact Analysis under Executive Order 
12866.

Executive Order 14030

    SBA was tasked with developing recommendations for improving how 
federal financial management and reporting can incorporate climate-
related financial risk, especially as that risk relates to Federal 
lending programs. The SBA disaster loan program contains eligibility 
and additional loan funds for mitigation measures that allow physical 
disaster loan recipients to obtain additional funds to install 
mitigating measures to protect homes and businesses and reduce future 
property damage. Expanding the scope of mitigation measures by not 
limiting them to similar disasters that caused the original damage will 
allow for more options and give more flexibility for the recipient to 
utilize the funds. In addition, the regulations allow physical disaster 
loan recipients additional funding of up to 20 percent of the verified 
loss to cover costs related to these measures. Increasing the maximum 
amount of mitigation funding from $200,000 to $500,000 will assist in 
encouraging the use of proceeds for mitigation measures. These changes 
align with the intent of Executive Order 14030 in that they expand the 
range of mitigation measures that a disaster survivor can use to 
prevent future loss from subsequent disasters.

Paperwork Reduction Act, 44 U.S.C. Ch. 35

    SBA has determined that this rule does not impose additional 
reporting or recordkeeping requirements under the Paperwork Reduction 
Act, 44 U.S.C., Chapter 35.

Congressional Review Act, 5 U.S.C. Ch. 8

    Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996, also known as the Congressional Review Act or CRA, 
generally provides that before a rule may take effect, the agency 
promulgating the rule must submit a rule report, which includes a copy 
of the rule, to each House of the Congress and to the Comptroller 
General of the United States. SBA will submit a report containing this 
rule and other required information to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the CRA cannot take effect until 60 days after it is 
published in the Federal Register. The Office of Information and 
Regulatory Affairs has determined that this rule is not a ``major 
rule'' as defined by 5 U.S.C. 804(2). Therefore, this rule is not 
subject to the 60-day restriction.

Regulatory Flexibility Act, 5 U.S.C. 601

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, generally 
requires that when an agency issues a proposed rule, or a final rule 
pursuant to section 553(b) of the APA or another law, the agency must 
prepare a regulatory flexibility analysis that meets the requirements 
of the RFA and publish such analysis in the Federal Register. 5 U.S.C. 
603, 604.
    Rules that are exempt from notice and comment are also exempt from 
the RFA requirements, including conducting a regulatory flexibility 
analysis, such as when--among other exceptions--the agency for good 
cause finds that notice and public procedure are impracticable, 
unnecessary, or contrary to the public interest. SBA Office of Advocacy 
Guide: How to Comply with the Regulatory Flexibility Act, Ch.1. p.9. 
Since this rule is exempt from notice and comment, SBA is not required 
to conduct a regulatory flexibility analysis.

List of Subjects in 13 CFR Part 123

    Disaster assistance, Loan mitigation, Loan programs--physical 
disaster (home, business).

    For the reasons set forth in the preamble, the SBA amends 13 CFR 
part 123 as follows:

PART 123--DISASTER LOAN PROGRAM

0
1. The authority citation for part 123 continues to read as follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 636(d), 657n, and 
9009.


Sec.  123.7  [Amended]


0
2. Amend Sec.  123.7 by removing the word ``similar''.

0
3. Amend Sec.  123.11 by revising paragraph (b) to read as follows:


Sec.  123.11  Does SBA require collateral for any of its disaster 
loans?

* * * * *
    (b) For loans larger than the amounts outlined in paragraph (a) of 
this section, you will be required to provide available collateral, as 
determined by SBA, such as a lien on the damaged or replacement 
property and/or a security interest in business assets.
* * * * *


Sec.  123.13  [Amended]

0
4. Amend Sec.  123.13 in paragraph (d) by removing the second sentence.


0
5. Amend Sec.  123.105 by revising paragraphs (a) and (c) and adding 
paragraph (d) to read as follows:


Sec.  123.105  How much can I borrow with a home disaster loan and what 
limits apply on use of funds and repayment terms?

    (a) There are limits on how much money you can borrow for 
particular purposes. The limits in effect for disasters occurring on or 
after June 16, 2023 are as follows.
    (1) $100,000 for repair or replacement of household and personal 
effects;
    (2) $500,000 for repair or replacement of a primary residence 
(including

[[Page 39341]]

upgrading in order to meet minimum standards of safety and decency or 
current building code requirements);
    (3) $500,000 for eligible refinancing purposes;
    (4) 20 percent of the verified loss (not including refinancing or 
malfeasance), before deduction of compensation from other sources, up 
to a maximum of $500,000 for post-disaster mitigation (see Sec.  
123.107); and
    (5) $500,000 for eligible malfeasance, pursuant to Sec.  123.18.
* * * * *
    (c) SBA determines the loan maturity and repayment terms based on 
your needs and your ability to pay. Generally, you will pay monthly 
installments of principal and interest, beginning twelve months from 
the date of the initial disbursement. SBA will consider other payment 
terms if you have seasonal or fluctuating income. The maximum maturity 
for a home disaster loan is 30 years. There is no penalty for 
prepayment of disaster loans.
    (d) The SBA Administrator may increase the home loan lending limits 
within paragraph (a) of this section under an individual disaster 
declaration based on appropriate economic indicators for the region(s) 
in which the disaster occurred. SBA will publish any increased lending 
limit for an individual disaster declaration in the Federal Register.


0
6. Amend Sec.  123.106 by revising paragraph (b) to read as follows:


Sec.  123.106  What is eligible refinancing?

* * * * *
    (b) Your home disaster loan for refinancing existing liens or 
encumbrances cannot exceed an amount equal to the lesser of $500,000, 
or the physical damage to your primary residence. Any refinancing 
amount will be reduced to the extent such lien or encumbrance is 
satisfied by insurance or otherwise.


Sec.  123.107  [Amended]

0
7. Amend Sec.  123.107 by removing the number ``$200,000'' and adding 
in its place the number ``$500,000''.

0
8. Amend Sec.  123.202 by:
0
a. Revising paragraph (c) introductory text;
0
b. Removing paragraph (d); and
0
c. Redesignating paragraph (e) as paragraph (d).
    The revision reads as follows:


Sec.  123.202  How much can my business borrow with a physical disaster 
business loan?

* * * * *
    (c) Physical disaster business borrowers may request refinancing of 
liens on both damaged real property and machinery and equipment. Such 
amount shall be reduced to the extent such lien or encumbrance is 
satisfied by insurance or otherwise. Your business property must be 
totally destroyed or substantially damaged, which means:
* * * * *

0
9. Amend Sec.  123.203 by revising paragraph (b) as follows:


Sec.  123.203  What interest rate will my business pay on a physical 
disaster business loan and what are the repayment terms?

* * * * *
    (b) Generally, you will pay monthly installments of principal and 
interest, beginning twelve months from the date of the initial 
disbursement. SBA will consider other payment terms if you have 
seasonal or fluctuating income. There is no penalty for prepayment for 
disaster loans.
* * * * *


Sec.  123.301  [Amended]

0
10. Amend Sec.  123.301 by removing and reserving paragraph (c).


Sec.  123.502  [Amended]

0
11. Amend Sec.  123.502 by removing and reserving paragraph (j).

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2023-12779 Filed 6-15-23; 8:45 am]
BILLING CODE 8026-09-P