[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Rules and Regulations]
[Pages 48031-48035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15759]
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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. 142 / Wednesday, July 26, 2023 /
Rules and Regulations
[[Page 48031]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3555
Single Family Housing Section 502 Guaranteed Loan Program
AGENCY: Rural Housing Service, USDA.
ACTION: Announcement of pilot programs.
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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural
Development (RD) agency of the United States Department of Agriculture
(USDA), is announcing the implementation of two pilot programs for the
Section 502 Single Family Housing Guaranteed Loan Program (SFHGLP),
which are the Tribal Property Valuation Pilot Program and the Tribal
Rehabilitation Pilot Program. Both pilot programs will provide flexible
options for obtaining financing on tribal lands, one with a flexible
appraisal option and the other permitting rehabilitation loans for
homeowners. The Agency's intention is to evaluate the existing
regulations, expand opportunities for economic development, and improve
the quality of life in rural tribal communities. Details about these
two pilot programs are provided in this notification.
DATES: The effective date of the two pilot programs is July 26, 2023.
The duration of both pilot programs is anticipated to continue until
July 28, 2025, at which time the RHS may extend the pilot programs
(with or without modifications) or terminate them depending on the
workload and resources needed to administer the programs, feedback from
the public, and the effectiveness of the programs. RHS will notify the
public if the pilot programs are extended or terminated.
FOR FURTHER INFORMATION CONTACT: For general information about the
pilot programs, contact Laurie Mohr, Finance and Loan Analyst, Policy,
Analysis, and Communications Branch, Single Family Housing Guaranteed
Loan Division, Rural Development, U.S. Department of Agriculture,
Email: [email protected]; Phone: (314) 679-6917.
SUPPLEMENTARY INFORMATION:
Authority
Title V, section 502 of the Housing Act of 1949, as amended; 42
U.S.C. 1472.
Background
The RHS is committed to helping improve the economy and quality of
life in rural areas by offering a variety of programs. The Agency
offers loans, grants, and loan guarantees to help create jobs, expand
economic development, and provide critical infrastructure investments.
RHS also provides technical assistance loans and grants by partnering
with agricultural producers, cooperatives, Indian tribes, non-profits,
and other local, state, and Federal agencies.
Affordable housing is essential to the vitality of communities in
rural America. RHS's Single Family Housing Programs give families and
individuals the opportunity to purchase, build, repair their existing
home, or to refinance their current mortgage under certain criteria.
Eligibility for these loans, loan guarantees, or grants is based on
income, which varies according to the average median income for each
eligible rural area. Through various program options, RHS offers
qualifying individuals and families the opportunity to purchase or
build a new single family home with no money down, to repair their
existing home, or to refinance their current mortgage under certain
qualifying circumstances. There are also programs to assist non-profit
entities in their efforts to provide new homes or home repair to
qualifying individuals and families. One such program is the Section
502 Guaranteed Loan Program, implemented under 7 CFR part 3555, which
provides a 90% loan note guarantee to approved lenders which are
intended to assist low- and moderate-income households with the
opportunity to own adequate, modest, decent, safe, and sanitary
dwellings as their primary residence in eligible rural areas.
The SFHGLP offers applicants without sufficient resources to
provide the necessary housing on their own account, and unable to
secure the credit necessary for such housing from other sources upon
terms and conditions, which the applicant can reasonably be expected to
fulfill without the guarantee, an opportunity to acquire, build,
rehabilitate, improve, or relocate dwellings in rural areas. Eligible
applicants may purchase, build, rehabilitate, improve, or relocate a
dwelling in an eligible rural area. Applicant eligibility for this
program is determined by an approved lender.
The RHS is exploring ways the SFHGLP may be able to assist in
breaking down barriers in lending on tribal land. One such way is to
use its statutory authority to authorize limited demonstration programs
(i.e., pilot programs) as allowed by law. The objective of these pilot
programs is to test new approaches to offering housing under the
statutory authority granted to the Secretary, as set forth in 7 CFR
3555.2(b) (Demonstration programs). Such demonstration programs may not
be consistent with some of the provisions contained in 7 CFR part 3555.
However, any SFHGLP requirements that are statutory will remain in
effect. These pilot programs are intended to assist more eligible very
low to moderate income applicants seeking to purchase or rehabilitate
affordable housing on tribal land. This notification outlines two new
pilot programs under the Section 502 SFHGLP, the Tribal Property
Valuation Pilot Program and the Tribal Rehabilitation Pilot Program.
Issues in Lending on Tribal Land
Native American stakeholders have identified significant barriers
regarding mortgage lending on tribal land. These include obtaining
accurate and fair priced appraisals and being able to secure funds to
improve a dwelling even when the dwelling is owned without any
encumbrances.
With the unique aspects of real estate located on tribal land, it
has become increasingly difficult to secure a traditional appraisal
that is both accurate and completed at a reasonable price. There are
very few local appraisers and lenders are forced to hire appraisers
from different counties, and sometimes different states, to complete
appraisal reports. These appraisals often yield reports that are very
expensive and frequently completed by
[[Page 48032]]
individuals that are unfamiliar with the local market area. The local
market area will have few or no comparable housing units. The result
can be an appraisal report that is not accurate, with a value that is
not reflective of the true property value, or the report is not
completed to industry standards. The Tribal Property Valuation Pilot
Program intends to provide more individuals the ability to purchase
homes on tribal lands by allowing an alternative appraisal option to
obtain the value of the property.
On tribal lands, it is typical to hand down dwellings from one
generation to another and many of these dwellings need extensive
renovations. In many situations, the property does not have liens. Over
time, many of these homes require substantial repairs or restoration.
The current SFHGLP regulations do not allow RHS to finance these
properties unless the applicant was to purchase the property, instead
of inheriting the home, or unless they currently have an existing
Single Family Housing Guaranteed Loan.
The National Congress of American Indians (NCAI) \1\ estimates that
40% of housing on tribal land is considered substandard, with less than
50% connected to public sewer systems and 16% lacking indoor plumbing.
The U.S. Department of Health and Human Services \2\ reported that as
of 2019, an estimated 5.7 million people living in the United States
are American Indian and/or Alaska Native, with approximately 22% living
on tribal land. The median household income for American Indian and
Alaska Native families is $46,906, compared to $71,664 for non-Hispanic
white households. According to the World Population Review, 33 percent
of all Native Americans live in poverty.\3\ Consequently, many live in
homes on tribal lands that are overcrowded and in poor condition.
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\1\ https://www.ncai.org/policy-issues/economic-development-commerce/housing-infrastructure.
\2\ https://minorityhealth.hhs.gov/omh/browse.aspx?lvl=3&lvlid=62.
\3\ Native American Issues Today [verbar] Current Problems &
Struggles 2022--https://www.powwows.com/issues-and-problems-facing-native-americans-today/.
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These statistics show there is a significant need for affordable
financial resources to be made available to improve housing conditions
on tribal land. Currently, the SFHGLP can assist with purchase
transactions on tribal land, which may provide funding for repairs at
acquisition. The SFHGLP, however, cannot assist those that already own
their own home on tribal land. The Tribal Rehabilitation Pilot Program
intends to help those that currently own a home without encumbrances
and need to make improvements to ensure these individuals have adequate
and safe housing for their families on tribal land.
These pilot programs will provide additional flexibility in lending
on tribal lands. One pilot program offers an alternative appraisal
option and the other offers funding to rehabilitate homes owned without
liens or encumbrances that will facilitate additional homeownership
opportunities and allow others to remain in improved and safer homes on
tribal land.
Discussion of the Two Pilot Programs
(1) Tribal Property Valuation Pilot Program
The implementation of the Tribal Property Valuation pilot program
is an alternative approach to obtain values when providing financing in
remote rural properties on tribal lands. Currently, the SFHGLP
regulation at 7 CFR 3555.107(d) (Appraisals) requires the lender to
``supply a current appraisal report of the property for which the
guarantee is requested.'' Furthermore, 7 CFR 3555.107(d)(6)
(Appraisals) specifies that the ``[u]se of an alternative approach to
value for appraisals performed in remote rural areas, on tribal lands,
or where a lack of market activity exists may be accepted at the
Agency's discretion.'' Qualified appraisers that understand and are in
close proximity to tribal land in rural areas are limited. This forces
lenders to often use appraisers that must travel long distances. Many
times, the appraisal report will cost substantially more, and, in some
cases, the appraiser will not be familiar with the local market which
will affect the accuracy of the appraisal report itself.
Typically, Tribally Designated Housing Entities (TDHE), Tribal
Housing Authorities (THA), Tribal Housing Programs, and other tribal
organizations have experience determining property values, adjustments,
satisfactory comparables, cost of improvements, etc. on tribal land.
Many Tribes have established relationships with appraisers that are
familiar with their market area and trends, however many times travel
is required to complete a traditional appraisal report. Additionally,
the Agency has appraisal staff who are familiar with lending on tribal
land. Building partnerships between Rural Development programs and
appraisal staff, lenders, tribal organizations, and appraisers to
develop a method to obtain accurate appraisals on tribal land would
eliminate a significant barrier in tribal mortgage lending and provide
a path to increase affordable homeownership opportunities for tribal
members. The alternative method would be a desktop appraisal, as
explained in the eligibility requirements section of this notification.
(i) Eligibility Requirements. Approved lenders in the SFHGLP do not
require additional approval to participate in this pilot program. Under
7 CFR 3555.107(d)(6), (Appraisals) the ``[u]se of an alternative
approach to value for appraisals performed in remote rural areas, on
tribal lands, or where a lack of market activity exists may be accepted
at the Agency's discretion.'' This pilot program will allow lenders to
provide property information obtained from a qualified entity to either
a qualified appraiser or the Agency for review and completion of a
desktop appraisal to accurately determine the appraised value of
properties located on tribal land. To be eligible for financing under
the Tribal Property Valuation Pilot Program, all program requirements
of 7 CFR part 3555 must be met, with the following exceptions and/or
considerations:
(A) property must be located on tribal land;
(B) property must meet the existing dwelling property standards and
new construction inspection requirements described in 7 CFR 3555.202
(Dwelling requirements);
(C) the site must have acceptable water and wastewater disposal
systems to ensure the property is decent, safe, sanitary, and meets
community standards. Inspections of private water and wastewater
disposal systems are required in accordance with 7 CFR 3555.201 (Site
requirements);
(D) fees charged by the qualified entity providing the property
documentation required to complete the appraisal constitute an eligible
loan cost under 7 CFR 3555.101(b) (Eligible costs); and
(E) the applicant(s) and property must meet all other criteria set
forth in 7 CFR part 3555.
(ii) Desktop Appraisals. Based on the availability of qualified
appraisers, the lender may use one of the following two options to
obtain a desktop appraisal on tribal land:
Option 1--When a qualified appraiser is readily available to
complete a desktop appraisal, at reasonable terms, the following
process will be used:
(A) A qualified entity, as determined by the lender and appraiser,
will provide all required property documentation to the lender for
consideration. Examples of qualified
[[Page 48033]]
entities include TDHE, THA, or other entities familiar with housing
construction, repair, and conditions on tribal lands. Documentation
provided by a party who has a financial interest in the sale of the
property may be accepted if the appraiser verifies such data from a
disinterested source.
(B) The lender will submit the required property *documentation to
the appraiser for review. The appraiser will review the documentation
provided by the lender and determine if the information is accurate,
reliable, and sufficient to produce a creditable report.
(C) Once all necessary information has been received, the appraiser
will complete a desktop appraisal. Upon completion, the appraisal will
be provided to the lender for review and acceptance. The appraisal will
be included in the complete loan application package submitted to Rural
Development for a Conditional Commitment request.
(D) If the lender determines this option is not available, they may
use option two.
Option 2--When the lender determines a qualified appraiser is not
readily available to complete a desktop appraisal at reasonable terms,
a Rural Development Staff Appraiser will become involved, and the
following process will be used:
(A) A qualified entity, as determined by the lender and concurred
with by Rural Development, will provide all required property
documentation to the lender for consideration. Documentation provided
by a party who has a financial interest in the sale or financing of the
property may be accepted if the Rural Development Staff Appraiser
verifies such data from a disinterested source.
(B) The lender will submit the required property *documentation to
Rural Development for review. The Rural Development Staff Appraiser
will review the documentation provided by the lender and determine if
the information is accurate, reliable, and sufficient to produce a
creditable report. Once all necessary information has been received,
the Rural Development Staff Appraiser will complete a desktop
appraisal.
(C) When an approved lender needs to use RD for the desktop
appraisal, they will email [email protected] with their lender name,
lender number, contact name, phone number, email address, and property
address. A staff member from the Agency will complete the request for
the appraisal division to complete a desktop appraisal for the
transaction on tribal land. The request will be placed on the national
SharePoint for appraisal requests to be completed by the RD team of
staff appraisers. The RD appraisal division uses SharePoint to track
all appraisal requests and will forward a request out to the lender
with all items needed. The appraisal will be completed with USDA
identified as the client.
(D) Upon completion, a copy of the appraisal prepared for Rural
Development will be provided to the lender and the Policy, Analysis and
Communication (PAC) Branch. The lender will have the appraisal
available to submit with the rest of the file to the Origination and
Processing Division (OPD) in the complete loan application package for
a Conditional Commitment request.
(iii) *Documentation. At a minimum, include the following, as
applicable:
(A) address of property;
(B) legal description;
(C) assessor data from local website;
(D) status of utilities (present, working condition, etc.);
(E) site plan-approximate well and septic location;
(F) all property structures and any improvements;
(G) copy of floor plan with exterior dimensions and approximate
interior walls;
(H) purchase agreement;
(I) seller disclosure statement;
(J) copy of specifications, including materials list for
construction and interior finishes (for new constructions);
(K) scope of rehabilitation/repairs to be completed;
(L) copy of specifications including materials list for repairs and
interior finishes;
(M) copy of land leases;
(N) photos of site and street providing access to the site;
(O) prior appraisal assignment results if available;
(P) photos of existing home; exterior front and back, interior
photos of each room, interior and exterior photo repair, and
rehabilitation items necessary;
(Q) street providing access;
(R) any information deemed relevant to accurately value the
property.
(iv) Submission to the Agency. These guaranteed loan applications
must be manually underwritten; however, the documents may be uploaded
through Guaranteed Underwriting System (GUS). A job aid for this type
of submission is available in our USDA LINC Training and Resources
Library in the ``Loan Origination'' menu at the following link: https://www.rd.usda.gov/resources/usda-linc-training-resource-library/loan-origination. Use of the job aid is optional and not required. The
lender will use the Lender Loan Closing (LLC) system to load the loan
closing documents.
When option 2 is utilized, thus the appraisal is prepared by Rural
Development, the requirements of 7 CFR 3555.108(d)(1)(iv) will be
waived. All other requirements of 7 CFR 3555.108(d)(1) remain in
effect. In all instances, the lender remains responsible for the
accuracy of the property documentation provided to complete the
appraisal and to ensure compliance with all investor requirements that
may apply.
Please be aware investors may require a note be made at loan
delivery that a desktop appraisal was used as the appraisal method in
the mortgage transaction. The lender is responsible for ensuring all
investor requirements are met.
(2) Tribal Rehabilitation Pilot Program
The implementation of the Tribal Rehabilitation pilot program is
intended to focus on providing a rehabilitation loan program for homes
free of encumbrances on tribal lands. The Agency is proposing to
provide loan funds to finance renovations of an existing home without
being part of an acquisition, provided the property is on tribal land.
Consistent with the statute, the SFHGLP regulation 7 CFR 3555.101(a)
(Eligible purposes) identifies the following eligible purposes which
loan funds may be utilized for: (1) the construction or purchase of a
new dwelling; (2) the cost of acquisition of an existing dwelling; (3)
the cost of repairs associated with the acquisition of an existing
dwelling; or (4) acquisition and relocation of an existing dwelling.
In addition, 7 CFR 3555.101(d) (Refinancing) authorizes utilizing
loan funds for refinancing transactions, in limited circumstances,
however funding for repairs associated with a refinance transaction is
not permitted.
With many homes on tribal lands being passed on from one generation
to the next, many of these homes need renovations to make them safe and
bring them up to current codes. Additionally, many of these properties
are free of encumbrances, which would enable this pilot to benefit many
homes on tribal lands. The pilot program will allow individuals to
remain in safe and improved housing on tribal lands and improve their
quality of life.
(i) Eligibility Requirements. Approved lenders in the SFHGLP do not
require additional approval to participate in this pilot program. The
regulation at 7 CFR 3555.101(a) (Eligible purposes) allows the cost of
repairs associated with the acquisition of an existing dwelling.
[[Page 48034]]
Since the inception of the program, the SFHGLP has restricted loan
funds from being used to finance solely the rehabilitation of an
existing home, without being part of an acquisition. Since many
properties on tribal land need significant rehabilitation, this pilot
program will allow loan funds to be utilized to finance repairs to
existing dwellings located on tribal land that are owned and are free
of encumbrances.
To be eligible for financing under the pilot, all program
requirements of 7 CFR part 3555 must be met, with the following
exceptions and/or considerations:
(A) The home must be located on tribal land;
(B) The home must be owned by the proposed applicant(s), with no
outstanding mortgages encumbering or other liens on the property;
(C) The guaranteed loan must have first lien position at closing.
The acceptable lien position requirements outlined in 7 CFR 3555.204
(Security requirements) apply for the purpose of this pilot program;
(D) The transaction will be considered as a ``purchase''
transaction;
(F) The loan amount cannot exceed the as-improved appraised value
of the property, only to the extent that the excess represents the
financed guarantee fee;
(G) Additional guidance on appraisal requirements may be found in 7
CFR 3555.107(d) (Appraisals);
(H) Property and construction requirements described in 7 CFR
3555.105 (Combination construction and permanent loans) apply;
(I) The site must have acceptable water and wastewater disposal
systems to ensure the property is decent, safe, sanitary, and meets
community standards.
(J) Inspections of private water and wastewater disposal systems
are required in accordance with 7 CFR 3555.201(b) (Site standards);
(K) Upon completion of the repairs, the home must meet the minimum
property requirements of Department of Housing and Urban Development
(HUD) Handbook 4000.1;
(L) Properties must have adequate hazard insurance on the
collateral to protect against fire and weather-related damage (7 CFR
3555.252(b) (Payment of taxes and insurance), and an escrow account for
property taxes (if applicable) and hazard insurance will be maintained
by the lender.
(M) Manufactured home requirements.
(1) Repairs to existing manufactured homes constitute an eligible
loan purpose under the pilot program when the requirements of 7 CFR
3555.208 are met, including: The manufactured home was constructed on
or after January 1, 2006; in conformance with the Federal Manufactured
Home Construction and Safety Standards (FMHCSS), as evidenced by an
affixed Housing and Urban Development (HUD) Data Plate and
Certification Label.
(2) The unit inspection is required using one of the following two
methods:
Option 1--Form HUD-309, ``HUD Manufactured Home Installation
Certification and Verification Report,'' completed in accordance with
24 CFR 3286.507(b) by a party qualified as required by 7 CFR 3286.511
such as: a manufactured home or residential building inspector employed
by the local authority having jurisdiction over the site of the home,
provided that the jurisdiction has a residential code enforcement
program; a professional engineer; a registered architect; a HUD-
accepted Production Inspection Primary Inspection Agency (IPIA) or a
Design Approval Primary Inspection Agency (DAPIA), or an International
Code Council (ICC) certified Inspector.
Option 2--Obtain a certification that the foundation design meets
the requirements of either HUD Handbook 4930.3G or HUD Publication
7584, which updated and revised the pre-1996 version of HUD Handbook
4930.3G, ``Permanent Foundations Guide for Manufactured Housing
(PFGMH).'' Certifications referencing either Publication 7584 or
Handbook 4930.3G are acceptable. The foundation certification must be
from a licensed professional engineer, or registered architect, who is
licensed/registered in the state where the manufactured home is located
and must attest to compliance with current guidelines of the PFGMH. The
certification must be site specific and contain the engineer's or
registered architect's signature, seal and/or state license/
certification number. This certification can take place of Form HUD-
309.
(3) The unit must not have had any alterations or modifications to
it since construction in the factory, except for porches, decks or
other structures which were built to engineered designs or were
approved and inspected by local code officials.
(4) The unit must not have been previously installed on a different
homesite.
(5) The unit must have a floor area of not less than 400 square
feet.
(6) The unit must meet the Comfort Heating and Cooling Certificate
Uo (coefficient of heat transmission) Value Zone for the location.
(7) The towing hitch and running gear must have been removed.
(8) The manufactured home must be classified and taxed (if
applicable) as real estate.
(9) The remaining economic life of the property must meet or exceed
the 30-year term of the proposed loan.
(N) The applicant(s) and property must meet all other criteria set
forth in 7 CFR part 3555. Loan servicing will be conducted in
accordance with 7 CFR part 3555.
(ii) Submission to the Agency. These Guaranteed loan applications
must be manually underwritten; however, the documents may be uploaded
through GUS. A job aid for this type of submission is available in our
USDA LINC Training and Resources Library in the ``Loan Origination''
tab or directly here: https://www.rd.usda.gov/resources/usda-linc-training-resource-library/loan-origination. Use of the job aid is
optional and not required.
The lender will use the Lender Loan Closing (LLC) system to load
the loan closing documents. The Loan Note Guarantee will be issued
prior to the completion of the repairs. Once the repairs are completed,
the lender is responsible to go back in the LLC System and complete the
Lender Administration Page. A job aid for this task is available in our
USDA LINC Training and Resources Library in the ``Loan Closing'' tab or
directly here: https://www.rd.usda.gov/resources/usda-linc-training-resource-library/loan-closing. Use of the job aid is optional and not
required.
Paperwork Reduction Act
The regulatory waivers for this pilot program contain no new
reporting or recordkeeping burdens under Office of Management and
Budget (OMB) control number 0575-0179 that would require approval under
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
Non-Discrimination Statement
In accordance with Federal civil rights laws and USDA civil rights
regulations and policies, the USDA, its Mission Areas, agencies, staff
offices, employees, and institutions participating in or administering
USDA programs are prohibited from discriminating based on race, color,
national origin, religion, sex, gender identity (including gender
expression), sexual orientation, disability, age, marital status,
family/parental status, income derived from a public assistance
program, political beliefs, or reprisal or retaliation for prior civil
rights activity, in any program or activity conducted or
[[Page 48035]]
funded by USDA (not all bases apply to all programs). Remedies and
complaint filing deadlines vary by program or incident.
Program information may be made available in languages other than
English. Persons with disabilities who require alternative means of
communication to obtain program information (e.g., Braille, large
print, audiotape, American Sign Language) should contact the
responsible Mission Area, agency, or staff office; the USDA TARGET
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service
at 711.
To file a program discrimination complaint, a complainant should
complete a Form AD-3027, USDA Program Discrimination Complaint Form,
which can be obtained online at http://www.ascr.usda.gov/complaint_filing_cust.html, from any USDA office, by calling (866) 632-
9992, or by writing a letter addressed to USDA. The letter must contain
the complainant's name, address, telephone number, and a written
description of the alleged discriminatory action in sufficient detail
to inform the Assistant Secretary for Civil Rights (ASCR) about the
nature and date of an alleged civil rights violation. The completed AD-
3027 form or letter must be submitted to USDA by:
(1) Mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue, Washington, DC
20250-9410; or
(2) Fax: (833) 256-1665 or (202) 690-7442; or
(3) Email: [email protected].
Cathy Glover,
Acting Administrator, Rural Housing Service, Rural Development, USDA.
[FR Doc. 2023-15759 Filed 7-25-23; 8:45 am]
BILLING CODE 3410-XV-P