[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
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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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.
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\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/.
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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