[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Rules and Regulations]
[Pages 20032-20092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05515]
[[Page 20031]]
Vol. 89
Wednesday,
No. 55
March 20, 2024
Part III
Department of Housing and Urban Development
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24 CFR Parts 58 and 1005
Strengthening the Section 184 Indian Housing Loan Guarantee Program;
Final Rule
Federal Register / Vol. 89 , No. 55 / Wednesday, March 20, 2024 /
Rules and Regulations
[[Page 20032]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 58 and 1005
[Docket No. FR-5593-F-02]
RIN 2577-AD01
Strengthening the Section 184 Indian Housing Loan Guarantee
Program
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, U.S. Department of Housing and Urban Development (HUD).
ACTION: Final rule.
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SUMMARY: This final rule amends the regulations governing the Section
184 Indian Housing Loan Guarantee Program (``Section 184 Program'') to
strengthen the program by clarifying rules for stakeholders. As the
program has experienced an increase in demand, it is necessary that HUD
update the Section 184 Program implementing regulations to minimize
potential risk and increase program participation by financial
institutions. This final rule adds participation and eligibility
requirements for Lender Applicants, Direct Guarantee Lenders, Non-
Direct Guarantee Lenders, Holders and Servicers and other financial
institutions. This final rule clarifies the rules governing Tribal
participation in the program, establishes underwriting requirements,
specifies rules on the closing and endorsement process, establishes
stronger and clearer servicing requirements, establishes program rules
governing claims submitted by Servicers and paid by HUD, and adds
standards governing monitoring, reporting, sanctions, and appeals. This
final rule adds new definitions and makes statutory conforming
amendments, including the categorical exclusion of the Section 184
Program in HUD's environmental review regulations. Ultimately, the
changes made by this final rule promote program sustainability,
increase Borrower protections, and provide clarity for new and existing
Lenders who participate in the program. This final rule follows the
publication of a proposed rule on December 21, 2022, and takes into
consideration the comments received in response to that proposed rule
and during the Tribal consultations.
DATES: Effective June 18, 2024.
FOR FURTHER INFORMATION CONTACT: Krisa Johnson, Director, Office of
Loan Guarantee, Office of Native American Programs, Office of Public
and Indian Housing, Department of Housing and Urban Development, 451
7th Street SW, Room 4108, Washington, DC 20410; telephone number 202-
402-4978 (this is not a toll-free number). HUD welcomes and is prepared
to receive calls from individuals who are deaf or hard of hearing, as
well as individuals with speech or communication disabilities. To learn
more about how to make an accessible telephone call, please visit
https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
SUPPLEMENTARY INFORMATION:
I. Background
Section 184 of the Housing and Community Development Act of 1992
(Pub. L. 102-550, approved October 28, 1992) (12 U.S.C. 1715z-13a), as
amended by the Native American Housing Assistance and Self-
Determination Act of 1996 (Pub. L. 104-330, approved October 26, 1996),
the 2013 Consolidated and Further Continuing Appropriations Act (Pub.
L. 113-6, approved March 26, 2013), the 2015 Consolidated and Further
Continuing Appropriations Act (Pub. L. 113-235, approved December 16,
2014), and the Consolidated Appropriations Act, 2021 (Pub. L. 116-260,
approved December 27, 2020) (Section 184 statute), authorize the
Section 184 Program to provide access to sources of private financing
to Indian families, Tribes and tribally Designated Housing Entities
(TDHEs) who otherwise could not acquire housing financing because of
the unique legal status of Trust Land.
Native American households face a number of housing challenges,
including overcrowding and a lack of affordable housing in Tribal
areas.\1\ These challenges stem in part from barriers to mortgage
lending in these communities. There are several unique challenges to
mortgage lending in Tribal areas, including their often-remote
locations, the specialized situation of observing Tribal courts and
laws, and the unique Trust Land status of much of the land in Tribal
areas. Trust Land includes, but not is not limited to land where the
Federal Government holds legal title for the benefit of a Tribe or
individual Tribal member. Before a lien can be placed on a property, it
must receive Federal approval through the U.S. Department of the
Interior's Bureau of Indian Affairs. Consequently, financial
institutions may struggle with utilizing the land interest as security
in mortgage lending transactions. By mitigating risk to private lenders
through the loan guarantee, the Section 184 Program addresses barriers
to mortgage lending in Tribal areas, helping to increase housing
supply, relieve overcrowding, and expand homeownership in these
underserved communities.
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\1\ Mortgage Lending on Tribal Land: A Report From the
Assessment of American Indian, Alaska Native, and Native Hawaiian
Housing Needs. HUD, Office of Policy Development and Research,
January 2017, available at: https://www.huduser.gov/portal/publications/NAHSC-Lending.html.
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A lack of access to mortgage credit also poses challenges to Native
American households outside of Tribal areas, where they have
historically experienced lower homeownership and higher home loan
denial rates than other groups.\2\ Like in other historically
underserved markets, prospective borrowers are likely to have limited
experience dealing with mainstream financial institutions and to have
limited incomes, assets, and credit histories. The Section 184 Program
is also available to members of federally recognized Tribes in many
areas beyond Tribal areas, where it similarly promotes homeownership
opportunities among this underserved community by mitigating risk to
lenders.
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\2\ Id.
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Since its inception in 1994, the number of loans guaranteed under
the Section 184 Program has significantly increased from an average of
105 loans per year the first five Fiscal Years (FYs 2994-1995) the
program operated to an average of 2,531 loans per year for the past
five fiscal years (FYs 2018-2023). In total, the Section 184 Program
has guaranteed over 56,000 loans totaling over $10 billion. However,
the program regulations have not been substantially revised since
publication in 1996.
In 2015, the Office of Audit of the HUD Office of Inspector General
(OIG) audited the Section 184 Program, Report Number 2015-LA-0002, and
recommended that HUD develop and implement policies and procedures for
monitoring, tracking, underwriting, and evaluating the Section 184
Program; standardize monthly delinquency reports; deny payments for
claims on loans that have material underwriting deficiencies; take
enforcement actions against certain Direct Guarantee and Non-Direct
Guarantee Lenders; and ensure that only underwriters that are approved
by HUD are underwriting Section 184 Guaranteed Loans. The corrective
action plan proposed by OIG and agreed upon by HUD includes the
development of new regulations to provide additional structure to the
program and a platform for policies and procedures to manage the
program and address these findings.
On December 21, 2022 (87 FR 78324), HUD published a proposed rule
to strengthen the Section 184 Program by
[[Page 20033]]
clarifying rules for program stakeholders. Specifically, the rule
proposed revisions to minimize potential risk, increase program
participation by financial institutions, and modernize and enhance the
Section 184 Program by adding participation and eligibility
requirements for Lenders and other financial institutions. The proposed
rule also included revisions to the rules governing Tribal
participation in the program, established underwriting requirements,
specified rules on the closing and endorsement process, established
stronger and clearer servicing requirements, established program rules
governing claims submitted by Servicers and paid by HUD, and added
standards governing monitoring, reporting, sanctions, and appeals. The
proposed rule not only addressed the corrective actions proposed by OIG
and agreed upon by HUD but set a regulatory foundation for the Section
184 Program to support the continued growth of the program, and more
importantly, to ensure that it can positively impact the lives of
Native Americans by providing an opportunity for homeownership.
Additional details about the Section 184 Program may be found in the
background of the December 21, 2022, proposed rule.
II. Changes Made at the Final Rule Stage
In consideration of the public comments, the Tribal consultations,
and HUD's experience implementing the Section 184 Program, this section
of the preamble lists some of the changes HUD made to the December 21,
2022, proposed rule. In general, the final rule revised the regulation
to be more inclusive of Tribal land types, including allotted and other
Tribal lands.
1. This final rule incorporates a new severability provision at
Sec. 1005.102. As described in Sec. 1005.102, in the event that any
portion of this final rule is declared invalid or stayed, it is HUD's
intent that the remaining portions of the final rule be severable. If
any provision of this regulation is held to be invalid or
unenforceable, facially or as applied, the provision shall be severable
from the remainder of the regulation, or such application shall be
considered severable from any valid or enforceable application of such
provision.
2. In Sec. 1005.205(a)(9), HUD revised the minimum net worth
Lender Applicants must have to obtain Secretarial approval to
participate in the Section 184 Program. Specifically, HUD established a
net worth of at least one million dollars, or amount as provided in
Section 184 Program Guidance, for Lender Applicants to participate in
the Section 184 Program. HUD made this revision to provide lenders a
clear baseline for meeting this condition of approval and to ensure
that Lender Applicants participating in the Section 184 Program are
solvent.
3. In Sec. 1005.217(a), HUD expanded the types of lenders subject
to the Quality Control (QC) requirements to include Direct Guarantee
Lenders and Non-Direct Guarantee Lenders because ensuring these lenders
comply with the QC requirements is essential to mitigating risk to the
Section 184 Program.
4. In Sec. 1005.217(b)(8), HUD revised the requirements for the
Lender Applicant's quality control plan. This final rule establishes
that a quality control plan must require the Lender Applicant, Direct
Guarantee or Non-Direct Guarantee Lender to report all material
deficiencies and submit a corrective action plan to HUD ``within 30
days.'' Additionally, HUD added Sec. 1005.217(b)(8)(13) to require the
Lender Applicant to comply with any other administrative requirement as
may be prescribed by Section 184 Program Guidance. These revisions help
to ensure that Section 184 Guaranteed Loans comply with the Section 184
Program requirements.
5. In Sec. 1005.205(a)(4)(i), HUD removed the requirement that
financial statements be audited as cost prohibitive and inconsistent
with generally accepted industry standard financial documents. HUD will
outline requirements for the financial statement in program guidance.
While financial statements are still required, removing the ``audited''
requirement should assist lenders in submitting mandatory financial
information.
6. In Sec. 1005.301(a), HUD is clarifying in paragraph (a)(3) that
Tribes are required to assist, where practical, in facilitating loss
mitigation efforts when notified of the Borrower's default in
accordance with Sec. 1005.501(j) or when the Tribe receives notice
pursuant to Sec. 1005.759. Examples of a Tribe facilitating in loss
mitigation efforts, where practical, could include the Tribe providing
financial and/or non-financial assistance to Borrower. Non-financial
assistance could be default counseling, budget counseling, helping
Borrower identify potential purchasers, or encouraging the Borrower to
execute a Lease-in-Lieu of foreclosure. HUD also added a new
requirement in paragraph (a)(4) that Tribes report any unsecured vacant
units to HUD. HUD clarified Sec. 1005.737 to provide that the Servicer
may be notified by HUD that the Tribe or TDHE has determined that a
unit is vacant or abandoned, triggering the Servicer's responsibility
to notify all Borrowers of the determination that the property is
vacant or abandoned.
7. In Sec. 1005.409(b), HUD established a 7-year waiting period
for Borrowers who have previously defaulted on a Section 184 Guaranteed
Loan which resulted in a Claim payment by HUD. This revision helps to
minimize potential risk to the Section 184 Program.
8. In Sec. 1005.419(a)(6)(v), HUD removed ``for properties on
Trust Land'', which restricts minimum square footage waivers to
properties on Trust Land. This revision expands the waiver to all types
of properties, to account for various situations, including when a
Tribe purchases fee simple property.
9. In Sec. 1005.419(c), HUD added new property standard
requirements for properties with multiple dwelling units to be
consistent with the industry standard on how these units are financed.
10. In Sec. 1005.427(c) ``General Requirements,'' HUD moved
paragraphs (2) and (5) from paragraph (f) ``Cash-Out Refinance,''
because these requirements apply to all types of requirements. Further,
in Sec. 1005.427(d)(2) HUD added paragraph (iii) to further clarify
that construction loans less than a year are considered ``rate and
term'' construction loans.
11. In Sec. 1005.437(g) HUD is clarifying that it is not
guaranteeing each individual advance made by the Direct Guarantee
Lender during construction and that the entire loan is being guaranteed
by HUD once a Loan Guarantee Certificate is issued. In addition, at
Sec. 1005.437(h), HUD added a requirement that changes to the loan
agreement must be approved and documented by the Direct Guarantee
Lender before the construction advance, notwithstanding paragraph
(g)(1)(ii) of this section.
12. In Sec. 1005.439, HUD clarified that junior liens do not
require the prior approval of HUD, and that the Direct Guarantee
Lenders will evaluate a junior lien only when the lien is part of the
Section 184 loan package.
13. In Sec. 1005.447, HUD revised the maximum age of loan
documents from 60 days to 120 days after closing to provide more
flexibility to both the Direct Guarantee Lenders and the Borrowers. To
further flexibility, HUD also removed the time limitation regarding the
maximum age of documents whose validity for underwriting purposes is
not affected by the passage of time.
14. In Sec. 1005.457(b), HUD added a provision that allows HUD to
establish guidance regarding the use of alternatives to appraisers
identified on
[[Page 20034]]
the Federal Housing Administration Appraiser Roster. This change
provides flexibility to obtain an appraisal from non-FHA certified
appraisers in remote and rural areas, often attributable to Trust
Lands.
15. In Sec. 1005.511, HUD clarifies that the Servicer may collect
from the Borrower a late fee of up to four percent of principal and
interest for payments 15 days or more in arrears.
16. In Sec. 1005.609(b), HUD clarifies that the annual fee stops
when the loan to value ratio is less than 78 percent. HUD also
clarified that the monthly annual fee charge will remain the same as
reflected in the amortization schedule, even with prepayments, until
the 78 percent threshold is reached.
17. In Sec. 1005.609(d), HUD removed the 78 percent threshold, and
retained the ability to establish the Annual Loan Guarantee Fee
termination by notice in the Federal Register. This will provide
flexibility to quickly respond to unforeseen circumstances.
18. In Sec. 1005.709(f), HUD clarified the period by which
servicers must respond to HUD's request for information regarding an
individual account. Specifically, HUD revised the paragraph by setting
a three-day time period floor in which Servicers must respond to HUD's
written or electronic requests for information concerning individual
accounts. HUD retains the ability to set other timeframes by Section
184 Program Guidance. This revision will improve the efficiency of the
Section 184 Program.
19. In Sec. 1005.729, HUD added that no Servicer shall commence
foreclosure, or assignor acquire title to a property until the
requirements of this subpart have been completed. The intent of this
revision is to prevent the borrower from losing the asset until and
unless the lender complies with all servicing requirements.
20. In Sec. 1005.731, HUD significantly revised this section by
removing default notice requirements from the rule. HUD took this
action to align the Section 184 Program with Federal, State and Tribal
laws concerning notice of default.
21. In Sec. 1005.739, HUD added loss mitigation advances as a loss
mitigation option. This will provide Borrowers with another option to
remain in their homes. HUD also revised this section to provide that
the servicer must conduct occupancy inspections in accordance with
Sec. 1005.735. If the property is confirmed to be vacant or abandoned,
the servicer must conduct property preservation in accordance with
Sec. 1005.737.
22. In Sec. 1005.745, HUD added paragraph (g) which provides that
HUD may provide for a temporary special forbearance in response to a
disaster or national emergency. This provision will add more
flexibility and allow for HUD to respond to unforeseen events, such as
national emergencies.
23. In Sec. 1005.747, HUD clarified that assumptions associated
with loss mitigation must result in the cure of the default and
reinstatement of the Section 184 Guaranteed Loan.
24. In Sec. 1005.749(c), HUD removed the loan modification
eligibility requirement that 85 percent of a borrower's surplus income
must be insufficient to cure arrears within six months. This allows for
more Borrowers to be eligible for loan modification.
25. In Sec. 1005.751, HUD established loss mitigation advance
requirements, including borrower eligibility and the terms of the
advances. For example, to be eligible for a loss mitigation advance,
the Borrower's Section 184 Guaranteed Loan must be 90 days past due,
the Property is owner occupied, and the Borrower has the ability to
continue making on-time payments. Additionally, loss mitigation
advances must include arrearages and cannot exceed 30 percent of the
unpaid balance as of the date of default. These revisions help to
provide loss mitigation options to Borrowers and ensure that the
Section 184 Program is solvent.
26. 1005.753(d) Removed the cash reserve requirement to match FHA
standards. FHA no longer imposes this requirement on borrowers
participating in the Pre-foreclosure Sale loss mitigation option. HUD
has chosen to consistently apply the Pre-foreclosure Sale requirements.
27. In Sec. 1005.753(m), HUD established a 90-day pre-foreclosure
sale marketing period for the sale of the property, with a maximum 120-
day marketing period. This provides Borrowers with more clarity
concerning pre-foreclosure sales.
28. In Sec. 1005.759, HUD provided a definition Tribal First Right
of Refusal and established a 60-day period for Tribes to respond to the
Tribal First Right of Refusal.
29. In Sec. 1005.809, HUD revised paragraph (a)(1) to match the
industry standard of two days to submit a claim and clarified the
delivery requirements for claims under Sec. 1005.807(a)(4).
Additionally, HUD revised the timeframes provided in paragraphs (c) and
(d) to reflect industry standards. Specifically, a Servicer must submit
a post-foreclosure claim to HUD 30 days from the date Property is
conveyed to a third party to align with FHA standards. Similarly, when
a property is sold or conveyed prior to foreclosure, the Servicer must
submit a claim to HUD no later than 30 days from the date the sale or
conveyance is executed.
30. In Sec. 1005.909(a), HUD clarified that Lender Applicants that
are denied participation in the Section 184 Program have 15 days to
appeal the decision. This revision adds more certainty to the appeals
process.
III. Summary of Public Comments
The public comment period for the December 22, 2022, proposed rule
closed on March 17, 2023. HUD received 33 distinct comments relating to
the proposed rule's request for public comments. The comments were from
the lenders, Tribes, Tribally Designated Housing Entities (TDHEs), and
housing and banking interest groups and associations. This summary of
comments addresses the most significant issues raised by the commenters
and HUD's response to those issues.
General Support
Several commenters expressed support for the Section 184 Program
and HUD's rulemaking effort to meet increased programmatic and
operational demands as utilization of the program increases. These
commenters suggested that HUD prioritize program requirements that:
facilitate expansion of the program, increase flexibility to
accommodate the unique needs of the Native American community, and
accommodate operational demands on lenders looking to close or
securitize loans insured under the program.
HUD Response: HUD appreciates this positive feedback and the time
taken by the commenters to review HUD's proposed rule. HUD does have a
priority to expand the program, as shown in its recent Dear Lender
Letter 2023-02 on Tribal expansion areas and the Biden Administration's
proposal to expand eligibility of the program to the entire United
States. HUD will also work to market the program and educate potential
new lenders and Tribes on the program, as well as continue to work with
the Bureau of Indian Affairs (BIA) and other Federal agencies to expand
the program.
General Opposition
Several commenters expressed general opposition to HUD's proposed
rule, stating concerns that the proposed rule comes with onerous
requirements, sanctions, and penalties that would make it difficult for
Tribes and lenders, especially Native CDFIs, to participate in the
program, or could even weaken the program. One commenter expressed
opposition out of concern for possible unintended negative effects on
the
[[Page 20035]]
Tribal borrowers participating in the program.
HUD Response: HUD appreciates all the concerns raised by the
commenters. HUD does not believe that the proposed rule will deter
Tribes and Direct Guarantee and Non-Direct Guarantee Lenders from
participating in the program. Most of HUD's proposed rule codified
current program practices. New requirements such as Sec. Sec. 1005.527
and 1005.529 are necessary based on program growth and to address
concerns identified internally by the Office of Native American
Programs (ONAP) and HUD's Office of Inspector General (OIG). Further,
to the extent any entity participating in the Section 184 Program
believes a regulatory waiver is needed, these entities have the option
to submit a waiver request to HUD. HUD disagrees that this rule will
have the effect of weakening the program, in particular the Loan
Guarantee Certificate (LGCs). This rule codifies the practice where
Direct Guarantee Lenders are fully accountable for any non-compliance
with any Section 184 requirement, even after the LGCs are issued.
Ensuring Direct Guarantee Lenders are accountable for their non-
compliance with Section 184 requirements, even in cases when the non-
compliance may not be initially detected by HUD, is fundamental to the
program's integrity. The HUD remedy of seeking indemnification from
originating Direct Guarantee when the non-compliance warrants it,
serves not only to strengthen the program as a whole, but strengthens
the value of the LGC for all Holders.
HUD understands the desire for more Native Community Development
Financial Institution (CDFI) participation in lending as a Non-Direct
Guarantee Lender. HUD's regulations explicitly list that CDFIs are
eligible entities. Further, given that the rule codifies current
program eligibility requirements and that several CDFIs already
participate, HUD does not believe the regulation will make it
impossible for small Native CDFIs to become Direct Guarantee or Non-
Direct Guarantee Lenders. As these Native CDFIs grow and build
capacity, they will have the ability to become Section 184 Direct
Guarantee Lenders.
Negotiated Rulemaking and Tribal Engagement
A commenter stated that HUD's failure to establish a negotiated
rulemaking committee to develop the Section 184 Program regulations is
a violation of Federal law. Another strongly encouraged HUD to create a
Tribal Workgroup for any future regulatory changes to the Section 184
Program, based on HUD's Tribal Consultation Policy. The commenter noted
that a workgroup would allow for more detailed input over a longer
period of time and would provide a format for Tribal leaders to work
together to create mutually beneficial policy suggestions.
HUD Response: HUD disagrees with the commenter that negotiated
rulemaking is required to issue Section 184 Program regulations since
the program's authorizing legislation does not require negotiated
rulemaking. The requirement for negotiated rulemaking only applies to
the Indian Housing Block Grant program as authorized by Native American
Housing Assistance and Self Determination Act of 1996, as amended
(NAHASDA) (25 U.S.C. 4101). The 184 Program is authorized by Housing
Community Development Act of 1992, as amended (42 U.S.C. 1715z-13a),
not NAHASDA, therefore negotiated rulemaking is not required. HUD did
conduct extensive Tribal consultation before drafting the proposed
rule, however, holding over 21 consultation sessions over a period of 6
years and sending out draft versions of the proposed rule for Tribal
comment and review prior to and in addition to the 60-day public
comment period provided by the proposed rule. Based on these efforts,
HUD believes that it has met its Tribal consultation obligations. HUD
will continue to solicit feedback from all Section 184 stakeholders
regarding the development of program policy, as appropriate.
Guidance Rather Than Regulations
Commenters stressed that HUD should utilize program guidance,
including handbooks, to address issues that may need to follow market
trends, rather than set requirements in regulations. Commenters
explained that the program needs to have the flexibility to accommodate
the diversity of the different Tribes and their needs, and the
flexibility to quickly adjust guidance as market conditions change and
operational constraints emerge. Commenters stated that HUD should
preserve the ability to make programmatic changes in a manner where
formal notice-and comment rulemaking is not required every time a
slight change is needed.
HUD Response: HUD is committed to ensuring that the Section 184
Program has the flexibility to address market changes and other
operational contingencies. Based on public comment, HUD has reviewed
the rule and strengthened the program's flexibility by incorporating
references to program guidance where appropriate, without losing the
enforceability of the key provisions of the program.
Outreach, Training, and Homeownership Counseling
Commenters generally requested increased outreach and training for
lenders and Native CDFIs. The commenters explained that they wanted to
ensure that Native CDFIs are able to become approved lenders without
too many hurdles and capacity restraints. The commenters also stated
that loan volume on Tribal Trust and Restricted Lands would increase if
CDFIs and Native CDFIs were provided training. Other commenters
suggested educating Tribes and TDHEs about their potential role in
facilitating homeownership opportunities in their communities to Tribes
and offering homeownership counseling to borrowers residing on
reservations.
HUD Response: HUD supports increased outreach and training to
Direct Guarantee and Non-Direct Guarantee Lenders (including Native
CDFIs) and Tribes to encourage participating in the program, as well as
providing training to existing Direct Guarantee Lenders and Tribes on
how to best navigate the program and comply with the new regulations.
HUD has engaged specifically with CDFIs to become more involved in the
program and will continue to explore ways to engage Native CDFIs. Once
the final rule is published and effective, HUD intends to conduct a
series of training and outreach sessions in different formats: virtual
trainings, pre-recorded video trainings and in-person trainings.
HUD also supports homeownership counseling for borrowers; however,
the Section 184 Program as authorized does not provide for
homeownership counseling. Tribes may use their Indian Housing
Development Block Grant (IHBG) funding for homeownership counseling.
Additionally, HUD's Office of Housing Counseling can provide additional
resources and connect Tribes with homeownership counseling partners.
Consumer Protection Law Applicability
One commenter recommended that specific consumer protection laws
and regulations apply to mortgage lenders, servicers, and originators
under the proposed rule: the Real Estate Settlement Procedures Act
(RESPA), See, Title 12, Chapter 27 of the United States Code, 12 U.S.C.
2601-2617, and the Truth in Lending Act (TILA) 15 U.S.C. 1601 et seq.,
as well as both those acts enabling regulations referred to as
Regulation X (12 CFR part 1024) and Regulation Z (12 CFR 1026). (0015)
[[Page 20036]]
HUD Response: Based on public comments, HUD has revised the rule to
state Direct Guarantee Lender, Non-Direct Guarantee Lender, Holder, and
Servicers' compliance with all applicable Tribal, Federal, and State
laws that impact mortgage-related activities are required. HUD plans to
provide further guidance on the Real Estate Settlement Procedures Act
(RESPA) and Truth in Lending Act (TILA) in Section 184 Program
Guidance.
Section 184 Program Data
A commenter suggested that the proposed rule should require lenders
and originators to be subject to the Home Mortgage Disclosure Act (or
HMDA) (28 U.S.C. 2801 et seq.) and its enabling Regulation C, and to
require data similar to what is collected under the Community
Reinvestment Act (CRA). The commenter stated that this data would
assist Tribal Nations better serve the housing needs of their citizen
members and to better advocate for banks and lending institutions to
invest in Tribal communities. Another commenter suggested that HUD
should provide data about loan volume by State and reservation to
better understand how the Section 184 Program is working.
HUD Response: HUD appreciates the comments regarding data
collection and how data can be used to promote homeownership and
investments in Indian Country. HUD does not have rulemaking authority
over HMDA or CRA. However, HUD will explore the possibility of
providing public data on the program's performance. Until such data is
published, Tribes may request program data on as needed basis in
support of their housing and homeownership programs.
Alignment With Federal Housing Administration (FHA) Single-Family
Framework
Commenters suggested that the Section 184 requirements should
closely align with those of the FHA single-family program where it
would not result in negative impact to Tribal communities served by the
program. Commenters explained that this may increase lender
participation in the Section 184 Program, would enable borrowers to
take advantage of benefits that FHA borrowers receive, and would allow
for consistency within the industry. One commenter explained that for
the Section 184 Program to remain a competitive choice for lenders, the
program should not be dramatically different in a financially
detrimental way to lenders and servicers which could result in offering
more FHA and non-Section 184 loans.
Other commenters were opposed to directly aligning with FHA
regulations out of concern that an FHA-type program is not appropriate
for Tribes, Tribal nations, and related entities.
HUD Response: HUD appreciates the comments and understands lenders'
desire to have uniformity with FHA and Tribes' desire to keep the
program unique to address Tribal specific circumstances. HUD notes,
however, that FHA's single-family mortgage programs and the Section 184
Program have separate statutory authorities, which means one program
may have the authority to operate in a way that the other cannot. In
fact, because FHA's Section 248 Mortgage Insurance Programs on Indian
Reservations and Other Restricted Lands (12 U.S.C. 1715z-13) was and
continues to be unpopular among Tribal borrowers, Congress established
the Section 184 Program in 1992 to give HUD greater flexibilities to
encourage lending to Native borrowers than what FHA's Section 248
program required and allowed (59 FR 42732 (August 18, 1994)).
As a result, there are areas where the two programs are similar and
there are areas where they are deliberately dissimilar. In drafting the
proposed rule, HUD took a balanced approach between the program's
intent to serve Native American communities and providing consistency
for Direct Guarantee and Non-Direct Guarantee Lenders. Specifically,
HUD reviewed the FHA single family regulations and, where possible,
adopted, or modified regulations as appropriate for the 184 Program,
while still keeping the program's unique flexibilities and focus on
serving Native American communities.
Automated Underwriting
Commenters suggested that HUD should adopt an automated
underwriting system similar to FHA's system to modernize the program,
increase consistency with other government programs, attract new
lenders and comply with Sec. 1005.451 regarding risk-based pricing.
HUD Response: HUD appreciates the commenters' suggestion to adopt
an automated underwriting system similar to that used by FHA. However,
manual underwriting is one of the cornerstones of the Section 184
Program to make the program more accessible to Native American
borrowers. Manual underwriting allows the program to take into account
the borrower's income and credit from non-traditional sources. HUD will
consider future changes to permit automated underwriting when
sufficient Section 184 programmatic and systems safeguards can be in
place.
Evidence of Title
One commenter expressed concern that the current process does not
adequately address the title process involving restricted fee land. The
commenter states HUD's demand for New York based Land Title Searches,
Land Title Abstracts, and Land Title Insurance is not a requirement to
access the Section 184 Program.
HUD Response: HUD appreciates the comment regarding evidence of
title for restricted fee land. HUD will provide administrative guidance
on the title process involving restricted fee land and other types of
trust land.
Evictions Following Foreclosure
One commenter suggested that the lender should be responsible for
evicting a borrower after a foreclosure has occurred.
HUD Response: When Holders, Direct Guarantee Lenders or Servicers
initiate and complete foreclosure, whether on fee simple or trust land,
Holders, Direct Guarantee Lenders or Servicers are responsible for
evicting the borrower when the borrower fails to vacate the property.
Default
One commenter recommended the Tribe or TDHE be the borrower if the
loan goes into default. HUD would then be able to review the case and
discuss with the Tribe or TDHE the loss mitigations options, and if
they weren't practical within 90 days of default, then the file will be
submitted to HUD. The commenter reasoned that HUD has always indicated
that Tribal borrowers would be dealt with Government to Government, and
that should be the case here.
HUD Response: HUD appreciates the commenter's input and support of
Tribal engagement. However, there are Federal consumer protection laws
protecting the borrower when a loan goes into default. These laws are
designed to keep the borrower in the home, if possible, and the legal
relationship at time of default is between the borrower and the lender.
To achieve some of what the commenter proposed, the final rule allows
for the Tribes to be notified of borrower default if the borrower
chooses this option. Once notified of the borrower's default, the Tribe
may choose how to assist the borrower during loss mitigation.
[[Page 20037]]
Specific Recommendations for Changes to the Proposed Rule
Sec. 58.35 Categorical Exclusions
A commenter sought clarification on whether the environmental
review, under Sec. 58.35(b)(8) would be required; and if it is
required, whether it would be completed prior to the loan closing.
HUD Response: HUD appreciates the comment regarding the Categorical
Exclusions. An environmental review is required prior to closing.
Section 184 Program Guidance will provide information on how this will
be implemented.
Sec. 1005.103 Definitions
Commenters expressed general support for the expansion of the term
``Lender.'' Commenters noted that it would encourage Tribes to build
capacity internally and that HUD should focus on expanding capacity for
Native lenders. However, one commenter requested clarification around
the term noting its reference to a financial institution that has not
yet been approved by HUD. The commenter noted that while the definition
of ``Lender'' distinguishes it from direct and non-direct guarantee
lenders, this defined term appears to be used inconsistently, applying
to lenders approved under Sec. 1005.207. Another commenter suggested
that ``Default'' and ``Date of default'' should be capitalized
throughout the proposed rule to show that they are being used as
defined terms.
Other commenters stated that the definition of ``Tribal Land''
should be very broad, not limited to lands that are leased. The
commenters explained that the 184 Program allows for Tribes, housing
authorities, and TDHEs to borrow, but Tribes do not have leasehold
ownership in their own lands held in trust by the BIA. Commenters
stated that the proposed regulation needs to be inclusive of all Tribal
land to allow new concepts to be developed. There are currently Tribes
who have Land Use Deeds in lieu of leases that are allowed to use the
184 Program.
The commenters also noted that while allotted lands are included in
the definition of ``Trust Lands'', they are missing from the specific
paragraphs regulating the lending on Tribal lands. The commenters
recommended that allotted lands should be included in the regulations
everywhere the regulations mention fee simple and leasehold interests.
The commenters further noted that allotted lands and other Tribal lands
are missing in various parts of the regulation, including how to
appraise allotted lands and the appropriate documents to mortgage.
Another commenter recommended that a clear definition of what
Native American lands are eligible under the 184 Program should be
included in the rule and that it be expansive enough to capture the
congressional intent of the 184 Program. The commenter explained that
without providing a clear definition as to what Native American lands
are eligible, many Native Americans on reservations are going to
continue to experience extreme difficulty with accessing the Section
184 Program which Congress intended to assist them.
One commenter noted that Sec. 1005.203 paragraph (a)(1) uses
``mortgagee'' which should be replaced with the term ``Lender.'' The
same is true for the term ``Mortgage'' which has been replaced by the
term ``Loan.'' The commenter stated that the term ``mortgage'' is used
throughout the entirety of the proposed rule; in most cases, this term
should be replaced with the term ``Loan.''
HUD Response: HUD appreciates commenters' input but has not edited
the final rule to capitalize defined terms. HUD has, however, reviewed
the use of the defined term ``Lender'' and has replaced ``Lender'' with
``Lender Applicant'', ``Non-Direct Guarantee Lender,'' ``Direct
Guarantee Lender'', or ``Servicer,'' as appropriate. HUD also revised
the definition of ``Trust Land'' to be more expansive and inclusive of
allotted lands throughout the final rule; HUD removed the term
``leasehold interest'' and replaced it with ``property interest.''
HUD disagrees with the commenter's suggestion to replace
``mortgagee'' with ``lender'' in Sec. 1005.203(a)(1). The language in
Sec. 1005.203(a)(1) (paragraph (a) of this final rule) is verbatim
from 12 U.S.C. 1715z-13a(b)(4)(A), which also uses the word
``mortgagee'' in the context of FHA's single family mortgage insurance
program. Additionally, HUD disagrees with the commenter that the term
``mortgage'' should be replaced with the term ``loan'' wherever
``mortgage'' appears in the final rule. While HUD defined ``loan'' and
``Section 184 Guaranteed Loan'' in Sec. 1005.103, there are instances
where ``mortgage'' is properly used to reference another Federal
program or requirement, or an industry-standard practice. Nevertheless,
HUD reviewed the final rule to ensure ``loan'', ``Section 184
Guaranteed Loan'' and ``mortgage'' were properly used and made
corrections where errors in usage appeared.
Sec. 1005.205 Lender Applicants Required To Obtain Secretarial
Approval
Commenters stated that requiring sponsored entities to provide an
audited financial statement, rather than the industry standard
financial documents, is not prudent, is very cost prohibitive, and
would deter lenders from offering Section 184 products. One commenter
explained that this requirement would make access to qualified lenders
more difficult, which would negatively impact Tribal members and
communities.
One commenter suggested that the requirement in Sec.
1005.205(a)(8) that a lender not have a licensed refused or received a
government sanction should be limited to the lending practices of the
lender.
HUD Response: HUD agrees with commenters that requiring ``audited''
financial statements may be a burden for some Lender Applicants and
Direct Guarantee Lenders. As a result, HUD has revised Sec.
1005.205(a)(4)(i) by removing the term ``audited.'' HUD has also
provided that Section 184 Program Guidance will explain when audited
and non-audited financial statements may be needed. HUD also agrees
with the comment that the denial of a license or government sanctions
of a lender should be limited to the Direct Guarantee Lender's lending
practices. HUD has revised Sec. 1005.205(a)(8) to limit the lender
certification to issues related to lender's lending activity.
Sec. 1005.213 Non-Direct Guarantee Lender Application, Approval, and
Direct Guarantee Lender Sponsorship
Commenters proposed that notification in Sec. 1005.213(b)(3) and
(8) be changed to ``within 30 days'' to conform to industry standard.
HUD Response: HUD appreciates the commenters' recommendation.
However, to ensure HUD has up to date information on who Direct
Guarantee Lenders are sponsoring and to protect Section 184 Program
integrity, it is critical that lenders notify HUD within 10 days when
there are changes to the lenders' sponsorship. Additionally, HUD
deleted in this section paragraph (b)(8) because it is redundant and
inconsistent with paragraph (b)(3).
Sec. 1005.217 Quality Control Plan
One commenter noted that the requirement to complete a monthly
review of a sampling of rejected loan applications and a written report
of the review would be onerous to lenders and may keep lenders from
participating in the Program. Other commenters
[[Page 20038]]
objected to the proposed monthly reviews, reporting, and tracking
requirements, explaining that these requirements will be burdensome to
small Tribes and lenders.
HUD Response: Lender Applicants, Direct Guarantee and Non-Direct
Guarantee Lenders must have an effective quality control plan to ensure
their Section 184 loans are compliant with Section 184 requirements and
to protect HUD and Lender Applicants, Direct Guarantee and Non-Direct
Guarantee Lenders from unacceptable or unreasonable risks and the
borrower from erroneous negative decisions. As provided for in Sec.
1005.217(b)(8), one method HUD will use to detect issues or anomalies
in Lender Applicants, Direct Guarantee and Non-Direct Guarantee
Lenders' Section 184 lending is by reviewing a random statistical
sampling of the Lender Applicants, Direct Guarantee and Non-Direct
Guarantee Lenders' rejected Section 184 loans. Having this data is
essential to HUD maintaining Section 184 Program integrity.
Sec. 1005.219 Other Requirements
Several commenters supported establishing HUD's ability to set a
trust land lending requirement for lenders as proposed in this section.
One commenter recommended that HUD base this requirement on historic
numbers of trust loans closed within each state. Commenters also
recommended that the required percentage could be lower than the state
average, but some requirement should be in place to prohibit lenders
who have no interest in serving Tribal members and communities in a
meaningful way. Another commenter stated that if imposed, the
requirement should be reasonable and should not be imposed in a way
that discourages lenders from participating and making loans under the
Program. Another commenter suggested that lenders should be given an
opportunity to submit a plan for originating a minimum level of loans
on trust lands. Lastly, the commenter suggested that if HUD retains the
requirement to originate loans on trust lands, HUD should provide a
minimum one-year timeframe that will allow the lender time to market
loans on trust lands and create relationships with relevant Tribal
departments or staff on Tribal lands.
Some commenters opposed establishing HUD's ability to set trust
lending requirements for lender participation. These commenters
explained that many of their villages are on trust lands and do not
have a local bank resulting in Tribal members having insufficient
access to financial services. As an alternative to this requirement,
commenters recommended that HUD work with Federal partner agencies such
as the Bureau of Indian Affairs (BIA) to establish processes to make
the Section 184 Program practical and accessible on Trust Lands, noting
that the Program's focus and intent should be on developing
homeownership opportunities to all Alaska Native and Native American
families.
One commenter was concerned that there may be unintended
consequences if lenders are subject to a required percentage of loans
and recommended that HUD exercise caution. The commenter noted that it
is an unfortunate reality that making loans on Tribal land is
significantly more difficult than it is on fee simple lands. The
commenter further explained that the number of lenders participating in
the Section 184 Program is already small. If lenders that cannot meet
the required percentage of loans on trust land are faced with the
possibility of ``sanctions and civil money penalties'' under Sec. Sec.
1005.905 and 1005.907 of the proposed Section 184 Program regulations,
the commenter was concerned that they may simply stop participating in
the Program.
Another commenter suggested, instead of establishing lending
requirements, that HUD offer incentives to lenders who opt to take
advantage of market opportunities on trust land. For example, the
commenter suggested that if the property is located on trust land, this
section could increase a lender's portion of the guaranteed fee or
offer priority processing.
HUD Response: HUD appreciates the many comments, in support of and
in opposition to, this section of the regulation concerning the minimum
level of Trust Land lending. HUD acknowledges that Trust Land lending
is a complex issue and there may not be a ``one size fits all''
approach to Trust Land lending. HUD intends on developing a minimum
level of Trust Land lending policy that is reasonable, achievable, and
serves to promote and not hinder Trust Land homeownership opportunities
for Indian families. HUD anticipates seeking Tribal and Direct
Guarantee Lender input as HUD researches the issue further prior to
implementing the minimum level of trust land lending requirement.
Sec. 1005.223 Annual Recertification
One commenter proposed that Sec. 1005.223(b)(2) be clarified to
include good standing with the ONAP Office of Loan Guarantee rather
than for problems outside of past due or default. One commenter stated
the recertification requirements seem unrealistic given HUD's staffing
levels. The commenter suggested that HUD should consider requiring
recertification every five years.
HUD Response: HUD agrees with the comment that Sec. 1005.223(b)(2)
should be clarified and will provide further administrative guidance.
However, HUD does not agree that the Direct Guarantee Lender
recertification requirements are unrealistic and that the
certifications should be every five years. HUD believes annual
recertifications from Direct Guarantee Lenders are necessary for the
proper administration of the Section 184 Program.
Sec. 1005.301 Tribal Legal and Administrative Framework
Several commenters suggested that the proposed rule exclude BIA
involvement because some Tribes do not use the BIA for mortgageable
land assignments. Rather, the commenters suggested that the guidelines
should address Tribal Assignments for those Tribes that do have the
mortgageable land assignments.
A commenter suggested giving lenders notice of all current HUD
approved leases. The commenters noted that currently, there is no way
for a lender to know which leases have been approved without submitting
this to HUD for review.
Other commenters recommended that the assignment of lease
provisions should include the lender in situations where the lender is
unable to assign the loan to HUD and must pursue the foreclosure,
eviction, and resale of the property to an eligible Tribal member.
HUD Response: HUD appreciates the extensive commenters received on
this section. HUD recognizes not all Trust Land involves the BIA.
Accordingly, HUD revised the regulations by inserting ``where
applicable'' in provisions which references BIA involvement. With
respect to the comment that there is no way for lenders to know which
Tribal leases have been approved by HUD, HUD anticipates providing
administrative guidance that will assist Direct Guarantee Lenders in
verifying which Tribal leases are HUD approved.
With respect to the comments that the lease provision should
include addressing situations where the lender is unable to assign the
loan to HUD and must pursue foreclosure in Tribal court, HUD disagrees.
Whether a Holder or Servicer must assign, could assign, or is unable to
assign the loan to HUD is not an issue for the lease to address. When
HUD exercises its discretion to accept the assignment, the requirements
of
[[Page 20039]]
Holder or Servicer assignment of the loan can be found at Sec.
1005.765. HUD notes that paragraph (b)(1) of this section is not
intended to provide that all Trust land loans must be assigned to HUD.
Under current policy, the Holder and Servicer always retains the option
to not assign the mortgage to HUD and pursue foreclosure in Tribal
court. HUD further notes that acceptance of loan assignment remains at
HUD's discretion. HUD revised Sec. 1005.765(b) to make this point
clear. In cases where HUD does not accept assignment and the Holder or
Servicer is otherwise unable to assign the loan or prefers not to
assign, the Holder or Servicer would proceed with foreclosure in Tribal
court.
Sec. 1005.301(b)(1)(i) Tribal Courts
Commenters recommended that HUD should recognize Tribal courts as
the only legitimate court regarding foreclosures on trust land. One
commenter stated that HUD lenders and servicers show proper respect and
deference to Tribal courts during the foreclosure process, which
includes having legal counsel appear in Tribal courts when necessary
for foreclosure and eviction and adhering to applicable Tribal laws.
Commenters also noted that paragraph Sec. 1005.301(b)(1)(i) requires
Tribes to grant Federal Court jurisdiction so that HUD can foreclose on
a default of a Section 184 Guaranteed Loan, however, some Tribal
leasehold mortgage codes do not allow recognition of Federal
jurisdiction and conflict with this requirement.
HUD Response: HUD appreciates the commentor's input. HUD respects
the sovereignty of Tribes and the jurisdiction of Tribal Courts as well
as the ability to conduct business related to trust land in Tribal
court. However, when a Trust Land loan is assigned to HUD, the Federal
Government must be able to protect the Section 184 program and its
Federal interest in Federal court. Therefore, the rule requires Tribes
to allow for foreclosures to occur in Federal Court in cases where HUD
must foreclose. Nevertheless, it is HUD's hope that with the expansive
loss mitigation options available to defaulted borrowers, including
incentive payments to Tribes, Holder or Servicers, and defaulted
borrowers as established in Sec. 1005.757, and a stronger partnership
between Tribes, Holder and Servicer, and HUD to effectuate loss
mitigation, trust land foreclosure referrals to DOJ will become
increasingly rare. Accordingly, HUD makes no changes to paragraph
(b)(1)(i) of this section.
Sec. 1005.301(b)(1)(ii) Foreclosure Ordinances
One commenter noted that Sec. 1005.301(b)(1)(ii) requires that
foreclosure ordinances allow for the reassignment of leases to HUD or
the issuance of new leases to HUD and reassignment of leases to the
Tribe. The commenter explained that for some Tribes, a significant
amount of their Tribal trust land is allotted to individual Tribal
members who may also wish to approve new leaseholders. The commenter
asked how the proposed requirements incorporate or contemplate the
rights of those who hold shares in allotted Tribal trust land. Another
commenter recommended that the word ``lease'' in Sec.
1005.301(b)(1)(ii) be changed to ``leasehold'' or ``leased property''.
A third commenter inquired how individual allotted Trust Land would be
treated under paragraph (b)(1)(ii) of this section.
HUD Response: Based on these comments, HUD revised Sec.
1005.301(b)(1)(ii) and made a technical correction to state more
generally the Tribe's legal ordinances must allow for the borrower's
property interest (and not just leasehold interest) to be assigned to
HUD or Holder. HUD will provide administrative guidance to address the
rights of Tribal members who hold shares in allotted Tribal trust land.
Sec. 1005.301(b)(1)(iii) Lease Assignment
One commenter stated Sec. 1005.301(b)(1)(iii), which allows a
Tribe to assign a lease to HUD without the consent of the borrower and
without foreclosure, ignores the contractual rights a borrower may have
in the lease, the loan, and through the foreclosure process. The
commenter recommended providing for assignment of a lease from a
borrower to HUD within the terms of the lease.
HUD Response: HUD appreciates the comment but maintains that the
Tribe should have the discretion to assign the lease to HUD when the
Section 184 Loan has been assigned to HUD when the Section 184 Loan is
in default. While Sec. 1005.301(b)(5)(ii)(G) establishes a mandatory
lease provision giving Tribes the ability to assign the lease to HUD,
we emphasize Tribes have the discretion to assign the lease to HUD or
not when the borrower defaults on the Section 184 Loan. To the extent a
Tribe as the lessor of the leasehold interest, wishes to exercise this
discretion to assign the lease to HUD, it would be pursuant to the
mandatory lease terms. To address the commenter's concern that the
proposed regulation enables Tribes to ignore the contractual rights a
borrowers may have in a lease, HUD revised Sec. 1005.301(b)(5)(ii)(G)
(and Sec. 1005.301(b)(1)(iii)) to expressly require Tribes provide due
process to the lessees in accordance with Tribal laws if a Tribe
intends to assign the lease to HUD.
Sec. 1005.301(b)(4) Lien Priority
A commenter stated that Sec. 1005.301(b)(4)(ii), which requires
any second lien on title to trust land be approved by the Tribe and BIA
and recorded by BIA, makes sense for a second mortgage through a
financial institution, but it is impractical when it is related to a
contractor's liens and tribally funded liens. Another commenter stated
that a Tribe should not be required under Sec. 1005.301(b)(4) to apply
state law to determine a mortgage as the priority lien. The commenter
also noted that the requirement that a Section 184 loan be satisfied
before all other obligations seems to prohibit full satisfaction on a
secondary loan made for purposes of providing down payment assistance,
inconsistent with Sec. 1005.439. The commenter further noted that the
majority of junior loans are for terms less than thirty years.
Another commenter stated that its code has an exception for
allowing a Section 184 Guaranteed Loan to have first lien priority when
there is a Tribal leasehold tax lien, which appears to conflict with
Sec. 1005.301(b)(4). A separate commenter stated that the purpose of
HUD's proposal in paragraph (b)(4) appears to only be ensuring that the
Section 184 mortgage becomes the first priority debt to be satisfied
before any other debt, such as secondary liens. According to the
commenter, on some Reservations the land cannot be pledged for any
debts and thus raises questions regarding how the secondary lien holder
can take ``possession'' of the home. Further, acquiring a home mortgage
on a Tribal reservation is so rare that there are likely very few first
priority loans. A commenter proposed, as an alternative for Tribal
Nations that manage and control their own land systems, a certification
process that confirms their legal system meets the proposed
requirements contained in paragraph Sec. 1005.301(b)(4).
Another commenter stated that if a contractor is not paid for a job
completed on trust land, or any other land, it will secure its material
and labor costs with a lien on the property. The commenter further
stated that contractors will not go through the process of seeking
approvals before pursuing their rights under the
[[Page 20040]]
contractor lien laws. The commenter stated that if this requirement
remains part of the rule, it is inevitable that some contractors
unfortunately learn that they do not have the right to an immediate
lien on trust land, or perhaps any right to a lien should a Tribe
refuse to approve these types of liens. The commenter further noted
that once these incidents occur, there will be a threat of contractors'
refusal to work on properties on trust land given the additional steps
and risks should their bill remain unpaid should the trust land be
secured by a Section 184 loan.
HUD Response: HUD appreciates the various comments on Sec.
1005.301(b)(4) of the regulation. HUD agrees with the comment that BIA
approval is not always required. HUD has revised paragraph
(b)(4)(ii)(B) and elsewhere in the regulations to provide for ``BIA, as
applicable''. HUD does not believe the lien provisions under Sec.
1005.301(b)(4) are inconsistent with Sec. 1005.439. Additionally, HUD
intends on providing program guidance on lien priority as it relates to
mechanics' liens, tribally funded liens, and Tribal leasehold tax
liens.
Sec. 1005.301(b)(5) Lease Provisions for Trust Land
Several Commenters stated that Sec. 1005.301(b)(5)(ii) be revised
to recognize that other Federal and Tribal leasing regulations may
apply, including, but not limited to those under 25 U.S.C. 415. Another
commenter noted that this paragraph requires Tribes to draft their own
lease in compliance with 25 CFR part 162. The commenter further noted
that certain Tribes adopted their own leasing codes to regulate the
leasing of Tribal lands in accordance with 25 U.S.C. 415.
Other commenters proposed removing ``property address'' from Sec.
1005.301(b)(5)(ii)(C) or clarifying that it would only be required if
applicable or assigned. The commenter explained that for new
construction properties, the property address is not typically
available at the time the lease is created and that it is not usually
available until construction has started or until construction is fully
completed. The commenters proposed moving the lease term in Sec.
1005.301(b)(5)(ii)(D) from the regulation and making it part of the
guidelines instead.
These commenters also proposed clarifying that refinances should be
50-year term with at least 10 years remaining after maturity of the
loan. The commenters noted that the remaining term should be written to
provide as much flexibility as necessary. A separate commenter asked
whether the paragraph should require a ``maximum'' 50-year term, rather
than a ``minimum'' 50-year term. The commenter explained that if a
Tribal Nation member has the financial capabilities to meet a shorter
loan term, they should be able to do so. Another commenter proposed the
Sec. 1005.301(b)(5)(ii)(E) and (H) should clearly state that a lease
cannot be assigned without foreclosure or consent of the lessee.
HUD Response: HUD appreciates the numerous comments regarding the
lease provisions under Sec. 1005.301(b)(5). HUD agrees with the
comment that Tribal leases must be in compliance with all applicable
Federal requirements and not just 25 CFR part 162, where applicable.
HUD has revised Sec. 1005.301(b)(5)(ii) and removed the citation to
the BIA regulation and in its place inserted ``Federal requirements''.
HUD disagrees with the comment to remove ``property address'' from
paragraph (b)(5)(ii)(C). HUD will provide administrative guidance on
this paragraph when a property address is not available in the context
of new construction.
HUD also appreciates the comments regarding providing the borrower
with 10 additional years beyond the payoff of the mortgage to enjoy the
property. This regulation codifies current practice. HUD has this
policy as a protection for the borrower for their quiet enjoyment to
ensure after loan maturity the borrower has some meaningful years left
to remain in the property. HUD will continue this policy for the
benefit of the borrower.
Finally, HUD has not removed the lease term in the regulation from
Sec. 1005.301(b)(5)(ii)(D). However, HUD agrees that flexibility in
the lease term provisions would be beneficial to HUD. HUD revised this
paragraph to by inserting the clause ``unless another term is approved
by the Secretary'' so HUD will have the administrative ability to
require a different minimum lease term.
Sec. 1005.303 Tribal Application
One commenter asked if the proposed rule provided an allowance
(e.g., grandfathering) for Tribal Nations who already participate in
the Section 184 Program and may already have Section 184 loans on their
reservations.
HUD Response: HUD does not intend for Tribes currently approved for
the Section 184 Program to reapply to participate in the Section 184
Program when the final rule goes into effect. However, Tribes currently
approved to participate may still be required to provide copies of the
current ordinances and lease under Sec. 1005.301 and show all
requirements in Sec. Sec. 1005.307 through 313 are being met. HUD will
provide guidance on what Tribes may need to do to ensure their
transition into the final rule.
Sec. 1005.307 Tribal Recertification
One commenter stated that the certification requirements for Tribes
are burdensome and should be removed because they place a hinderance on
Tribes' and members' ability to qualify for the Section 184 Program.
Other commenters objected to an annual recertification, stating that an
annual recertification can be administratively burdensome and can
potentially limit growth among our small Tribes with limited resources.
These commenters recommended that Tribes have a 3-year recertification
process under this section. Other commenters recommended that the
Tribal recertification process should be a simple process of the Tribe
certifying no changes to their previously approved legal structures.
Commenters also suggested that HUD maintain an Approved Lease Database
that lenders and Tribes could reference to make sure the correct format
is being used prior to closing.
HUD Response: HUD appreciates the commenters' concern that an
annual recertification may be burdensome to Tribes. HUD agrees with the
commenters' suggestion that the Tribal recertification be a simple
process for Tribes to inform HUD that there have been no changes to the
Tribes' legal and administrative framework and contact information. HUD
made no changes to this regulation in response to the public comments.
HUD appreciates the commenters' suggestion that HUD maintain a database
of approved Section 184 Tribal leases. HUD will explore the viability
of this suggestion further.
Sec. 1005.309 Duty To Report Changes
One commenter stated that this section needs to be specific as to
which entity this written notification will be provided. Another
commenter noted that many Tribes have no one designated to carry out
Section 184 duties, and that this proposed rule makes it hard for
Tribes to carry out the program.
HUD Response: The purpose of this regulation is to enable HUD to be
timely informed of any proposed changes to the Tribe's foreclosure,
eviction, lease, and lien priority ordinances and contact information.
To provide clarity to the regulation, HUD revised the last sentence of
the Sec. 1005.309 to make clear HUD will provide notification to the
Tribe regarding whether the proposed
[[Page 20041]]
ordinance changes meet Section 184 requirements.
Sec. 1005.311 HUD Notification of Any Lease Default
Commenters noted that instances where a borrower is current with
their loan but delinquent on their land lease has caused situations
where the Tribe has attempted to cancel the lease thereby endangering
the loan collateral. These commenters recommended that HUD consider
requiring that lease payments be handled through a borrower's escrow
account with the servicer in the same way that property taxes and
hazard insurance are handled.
Other commenters stated that the proposed rule only requires a
Tribe to notify HUD of lease default within 30 days of default and
proposed that HUD should provide written notification to the lender
after receiving the Tribe's notice of lease default. Other than
defaults unrelated to the loan, Tribes are not aware of a default on
the loan until a lender sends a notice of the right of first refusal.
The commenters stated that, in many cases, notice is received at the
same time a lender files a foreclosure action, and that a Tribe is not
aware of the default until the lender or borrower requests an
assignment of the lease. The commenter recommended that HUD be required
to notify a Tribe once HUD acts on its guarantee. This will, according
to the commenters, allow the Tribe and HUD to work in a coordinated
effort on loss mitigation actions.
HUD Response: HUD appreciates the comments regarding this section
of the regulation. The comment recommending that lease payments be
handled through a borrower's escrow account has already been addressed
in Sec. 1005.507. Under that section, borrower's monthly payment must
include, among other things, ``ground rents'', which includes lease
payments from the Tribal member to the Tribe.
Regarding the comment that HUD should notify the Tribe of the
borrower's default on the loan once HUD pays out a claim to the Holder
or Servicer, under Sec. 1005.759 the regulation establishes a
timeframe for when the Tribe receives the right of first refusal.
However, the Tribe could potentially receive notice of the borrower's
default even sooner than the Holder or Servicer's issuance of the Right
of First Refusal if the borrower elects to provide consent for the
Holder or Servicer to disclose to the Tribe his or her default under
Sec. 1005.501(j). HUD intends on providing training to Holder and
Servicer and outreach to borrowers to encourage borrowers to consent to
Tribal notifications so that Tribal interventions can occur sooner when
Tribal borrowers are in trouble.
Sec. 1005.313 Tribal Reporting Requirements
Commenters recommended that HUD seek feedback from Tribal entities
on the impact of additional review reporting requirements, stating that
quarterly or semiannually, may be just as effective and less
burdensome. Commenters also recommended that although additional
reporting and program data requests will be posted through guidance and
will go through the necessary Paperwork Reduction Act process, HUD
should receive feedback from Tribal entities on the impact of
additional reporting requirements or on what type of data HUD might
request from Tribes. Another commenter questioned what the requirements
would entail and who within the Tribe would be responsible for these
reports.
HUD Response: HUD appreciates the commenters' recommendation that
HUD obtain feedback from Tribes before implementing this regulation.
The regulation does not specify the frequency of the Tribal reporting
requirement. HUD will provide administrative guidance on what
information will be collected and how often. Prior to implementing this
regulation, HUD intends to seek feedback from Tribes on the Tribal
reporting requirement and on whether an equally effective and less
burdensome information collection process could be achieved.
Sec. 1005.401 Eligible Borrowers
A commenter suggested that either Sec. 1005.401(a) or (c) should
be amended to clarify that eligible Borrowers with a Section 184 loan
on their principal residence may sign as a non-occupant, co-Borrower on
a separate Section 184 loan, provided they meet all loan qualifications
with the additional loan. The commenter noted that Sec. 1005.401(a)
only limits eligible Borrowers to one Section 184 loan at a time, and
that paragraph (c) of this section allows a non-occupant co-Borrower on
Section 184 loans. The commenter further noted that often, when a non-
occupant co-Borrower is included on a mortgage loan, it is a parent of
a child making one of their first purchases of real estate.
Commenters also suggested allowing second homes on Tribal trust
land, noting that Tribal borrowers would like to have a presence on
their Tribal homeland but primarily live on non-Tribal lands for work
or other reasons. These commenters also noted situations of a family
home where the occupant dies, and the heirs would like to retain the
property. In this situation, commenters explained that under the
proposed rule the heirs' only option would be to move into the house,
which may not be practicable for their current life situation.
HUD Response: HUD acknowledges there can be a need for a family
member to assist another family member as they embark on the path to
homeownership and supports the recommendation to allow an individual
with an existing Section 184 Guaranteed Loan to be a non-occupying co-
borrower in accordance with the Section 184 Program Guidance. This
shift will provide wealth building opportunities for more Native
families. Accordingly, HUD revised Sec. 1005.401(c) to provide an
exception to the rule that an Indian Family is limited to one Section
184 Guaranteed Loan at a time. The exception will provide that an
existing Section 184 borrower may be a non-occupant co-borrower on only
one other Section 184 loan, so long as the non-occupant co-borrower
loan also meets Sec. 1005.403. Relatedly, HUD has made conforming
technical changes to Sec. 1005.403 to provide greater clarity on the
non-occupant co-borrower requirements.
Lastly, HUD appreciates the commenters' suggestion to allow a
borrower to have multiple Section 184 Guaranteed Loans which would
include second homes. HUD believes, however, that the mission of the
Section 184 Program is to increase homeownership for Native American
borrowers. As a result, HUD is not making this change.
Sec. 1005.405 Borrower Residency Status
A commenter noted that ``U.S. Citizen, or lawful permanent
resident, or non-permanent resident'' does not appear to describe
Native Americans consistent with 8 U.S.C. 1359, which provides that:
``Nothing in this subchapter shall be construed to affect the right of
American Indians born in Canada to pass the borders of the United
States, but such right shall extend only to persons who possess at
least 50 per centum of blood of the American Indian race.''
HUD Response: HUD appreciates the commenters suggestion but notes
that 8 U.S.C. 1359 governs movement across borders and not permanent
residency status. As a result, HUD has not revised Sec. 1005.405 in
response to this comment.
Sec. 1005.407 Relationship of Income to Loan Payments
A commenter recommended that the terms ``age'' and ``sexual
orientation'' be added to the nondiscrimination provision in Sec.
1005.407(b). Other
[[Page 20042]]
commenters expressed support for the addition the nondiscrimination
provision in Sec. 1005.407(b). One stated that this provision advances
not just the statutory purpose of the Program to provide access to
sources of financing to Native American families, housing authorities
and Tribes, but it is also consistent with fair lending provisions
which seek to root out discrimination in credit markets.
Other commenters recommended that the provisions prohibiting
discrimination based on income stream should also include Tribal
sources of income. These commenters explained that HUD currently
requires two years of receipt and averages the last two years instead
of using the current amount. According to the commenters, this is
discriminatory towards Tribal governments and members and should be
changed.
One commenter noted that without including some type of `test' with
respect to mortgage underwriters automated or electronic underwriting
that the rule will fall far short of detecting and stopping such
discrimination. The commenter recommended that the proposed rule
require lenders and originators to attest that their automated
underwriter software meets the requirements needed to originate loans
under the Section 184 Program including the prohibition against Native
income and loan location discrimination. The commenter further
recommended that HUD develop an automated underwriting program to use
with the Section 184 Program (e.g., Scorecard or Native Advantage),
particularly with the data HUD is about to receive under the Section
184 Program, and to make that available to lenders, originators, and
Native Housing Counselors or Agencies located on Tribal reservations
who are trying to assist Native American participation in the Section
184 Program.
Other commenters objected to this section's requirement that the
occupying borrower meet a minimum qualifying threshold when there is a
co-borrower that will not occupy the home. These commenters reasoned
this could have a negative impact for protected classes and first-time
homebuyers. Finally, one commenter stated that under Sec.
1005.407(a)(2), requiring the occupying borrower to meet a minimum
qualifying threshold when a non-occupying borrower is on the loan could
result in disparate impact for protected classes and first-time
homebuyers.
HUD Response: HUD appreciates the extensive comments received on
this section of the regulation. HUD agrees with the comment that
``age'' should be added to the non-discrimination provision in
paragraph (b) of the section as ``age'' is a protected class under the
Equal Credit Opportunity Act. HUD has inserted ``age'' into the list of
protected categories. With regards to the comment suggesting the non-
discrimination provision in Sec. 1005.407(b) expressly reference
``Tribal sources of income'', HUD believes this is unnecessary. This
paragraph states more broadly there can be no discrimination based on
the ``source of income of the borrower'', which would naturally include
Tribal sources of income. With regards to the comment that ``sexual
orientation'' should be added, this protected class is already
referenced in the regulation, and has been maintained in this final
rule in accordance with Executive Order 13988, ``Preventing and
Combating Discrimination on the Basis of Gender Identity or Sexual
Orientation'' \3\ and HUD's February 2021 implementation memorandum.\4\
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\3\ 86 FR 7023, January 25, 2021.
\4\ Available at https://www.hud.gov/sites/dfiles/PA/documents/HUD_Memo_EO13988.pdf.
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With regards to the comments suggesting HUD develop a test to
detect discrimination in the lenders' automated underwriting of Section
184 borrowers, HUD disagrees with the comment. The Section 184 Program
currently does not allow automated underwriting and, as a result, there
would be no test to develop to detect discrimination. HUD will consider
future changes to permit automated underwriting when sufficient Section
184 programmatic and systems safeguards can be in place.
With regards to the commenters' recommendation that the occupying
borrower meet minimum qualifying threshold when there is a non-occupant
co-borrower under paragraph (a)(2) of this section, HUD appreciates the
commenters' concerns. However, when an occupying borrower and a non-
occupant co-borrower are on the same loan, it is critical that the
occupying borrower meet a minimum qualifying threshold to avoid the
situation where as soon as the other non-occupant co-borrower no longer
can contribute towards the mortgage, the occupying co-borrower faces
default. Exempting the occupying borrower from meeting a minimum
qualifying threshold will cause undue and unnecessary risks to the
Section 184 Program.
Sec. 1005.409 Credit Standing
Commenters recommended a default waiting period of 36 months which
is consistent with other loan programs. Other commenters stated that
this section codifies a current practice of not having a credit score
that impacts the borrower's ability to qualify for a Section 184 Loan.
The commenters suggested that this section continue to be a guideline/
policy and not set in stone in the regulations. Another commenter
stated that prohibiting the use of credit scores to measure a
borrower's creditworthiness is contrary to their use by the lending
industry. The commenter recommended that a Section 184 lender should
have the discretion to use credit scores, along with credit history and
payment patterns, to evaluate credit worthiness.
HUD Response: HUD appreciates the commenters recommendations for a
36-month waiting period for borrowers who previously defaulted on a
Section 184 loan. As mentioned above, HUD considered the comments and
has adopted a seven-year waiting period, or other period as may be
prescribed by Section 184 Program Guidance, to minimize risk to the
program. The seven-year waiting period only applies when the borrower
defaults on the Section 184 Loan and there is claim payment by HUD. HUD
has a long-standing prohibition of the use of credit scores for the
Section 184 Program. As a result, HUD has not revised this section to
provide Direct Guarantee Lenders the discretion to use credit scores.
Direct Guarantee Lenders are able to evaluate the credit worthiness of
Native borrowers without using credit scores. HUD will continue this
time-tested successful practice for the benefit of Native borrowers.
Sec. 1005.413 Acceptable Title
Commenters expressed concern that this requirement does not provide
any risk mitigation to HUD due to the unique status and marketability
issues of trust land properties. The commenters explained that this
requirement would cause issues for borrowers with trust loans in having
to redo leases and eliminating it would benefit borrowers. Commenters
requested that HUD consider instead the necessity of having a lease on
trust property that exceeds the mortgage term by ten years, which is
standard in the industry. One commenter also suggested adding to this
section ``including but not limited to leasehold, Allotted and Land Use
Deed''. The commenter explained that this language currently permits
land types and would include other land types that evolve over time and
need to be permitted.
Another commenter proposed that that Tribal Nations be recognized
as being able to provide both Acceptable Title and Property Ownership
Report for
[[Page 20043]]
Section 184 Program purposes, thereby reducing delays in the loan
approval process.
HUD Response: HUD does not believe that this provision will cause
issues for borrowers with Trust Land loans, possibly requiring these
borrowers to redo leases. Tribes approved to participate in the Section
184 Program are required to have their Section 184 Tribal leases
approved by HUD prior to any mortgage lending on Tribal Trust Land. As
a result, it is highly unlikely a Section 184 lease would ever need to
be redone solely because of the requirement under Sec. 1005.413.
HUD also appreciates the comment that Tribal Nations be permitted
provide acceptable title and property ownership reports for the Section
184 Program. HUD will explore further the feasibility of this proposal
and what safeguards, if any, HUD must adopt to ensure there are no
increased risks to the program should this proposal be implemented.
Sec. 1005.415 Sale of Property
One commenter recommended that Sec. 1005.415(c) be revised to
provide that all sales occurring within 180 days of acquisition require
additional documentation, such as a second appraisal. The commenter
further recommended that the additional documentation should be
described in these paragraphs because they are vague as written. The
commenter noted that restrictions on eligible borrowers' ability to
purchase flipped or remodeled homes reduces their opportunities to
purchase. The commenter also stated that the use of ``property
flipping'' in the title of paragraph (c)(4) of Sec. 1005.415 is
misplaced and unnecessary. Specifically, the commenter noted that Sec.
1005.415(c)(2) and (3) do not include the term ``property flipping''
and the fact that a home is sold for a higher price within 12 months of
purchase does not unequivocally mean it was flipped. The commenter
stated that if the goal of this section is to require additional
documentation for properties that were flipped, then there must be a
definition for the same that involves construction.
HUD Response: HUD appreciates the numerous comments received
regarding this section of the regulation. This section is vital to
ensure that Holder and Servicers understand the legal requirements
regarding sales of a home involving a Section 184 borrower. HUD
disagrees with the comment to revise Sec. 1005.415(c). Paragraph (c)
relates to time restrictions on resale and is divided into paragraphs
(c)(1) through (3). Each of these paragraphs properly lay out an
important component of this section. HUD agrees that the term
``property flipping'' should not be used in paragraph (c)(4). HUD
disagrees that there should be definition for the same that involves
construction. This section equally applies to new construction.
Sec. 1005.419 Requirements for Standard Housing
One commenter stated that Sec. 1005.419(a) provides that heating,
plumbing, and electrical systems must conform with any applicable
Tribal code, and if there is no applicable Tribal code, an appropriate
local, state, or national code. The commenter recommended that
conformance with an international code be included alongside the other
types of codes to use in place of an applicable Tribal code.
Other commenters recommended that paragraph (a)(6) of this section
should allow for a minimum square footage of ``not less than 200 square
feet in size, if designed for a family of not more than 2 persons.''
These commenters explained that ``tiny homes'' provides affordable
housing options to Tribes faced with skyrocketing home costs on
reservations and have been shown to be successful on reservations.
Other commenters proposed moving this paragraph from this final rule
and making it part of the guidelines instead.
One commenter proposed removing ``for properties on Trust Land''
from paragraph (a)(6)(v) as Tribes can have Fee Simple and Restricted
Fee on and off the reservations. The commenter explained that removing
this would allow Tribes with all land types to be able to request the
waiver of the square footage requirement.
Other commenters proposed that the requirements of paragraph (e) of
Sec. 1005.419 be rewritten to allow a property to be eligible for a
Section 184 loan guarantee if the building located with a Special Flood
Hazard Area (SFHA) is insurable by any flood insurance. These
commenters stated that Tribes should not be subject to flood insurance
under the National Flood Insurance Program (NFIP), as States are exempt
from this requirement. The commenter also explained that Letters of Map
Amendments (LOMAs), Letters of Map Revision (LOMRs), and NFIP Elevation
Certificates are not available to communities, including Tribes, that
are not a part of the NFIP. The commenters recommended that the rule be
written to allow a property on a SFHA to be eligible so long as the
flood risks are mitigated, and flood insurance is obtained. These
commenters stated that the majority of Tribes in the U.S. are not
participants of the NFIP but are able to mitigate their flood risks and
obtain flood insurance from reputable insurance companies outside the
NFIP. Finally, another commenter noted that the environmental review
process is often a burden to lenders, with HUD and the BIA having
separate requirements. The commenter recommended that a streamlined
process and single form should be agreed to for a consolidated
environmental review process that is completed by the Tribe or its
assignee at the time of the lease.
HUD Response: HUD appreciates the numerous comments regarding this
section of the proposed rule. HUD has considered the suggestion to
reference international codes in paragraph (a) in this section and has
accepted the suggestion to utilize the International Building Code.
HUD also appreciates the comments suggesting a lower minimum square
footage requirement for paragraph (a)(6) of Sec. 1005.419. However,
this section derives from section 184(j)(6) of the Act and HUD has no
ability to on its own waive this statutory provision. However, as
discussed above, the Act provides that upon the request of a Tribe or a
TDHE, HUD may waive the minimum square footage requirements.
HUD appreciates the comment regarding paragraph (d)(4), but HUD has
decided to adopt the same standard as used by the FHA-family forward
mortgage program. HUD agrees with the comment regarding private flood
insurance and has revised the provision to allow for private flood
insurance.
Sec. 1005.421 Certification of Appraisal Amount
One commenter noted that there are few, if any, qualified Native
American restricted land appraisers, and that determining the market
comparison is extremely difficult. The commenter stated that the
current option of utilizing replacement cost or actual cost for new
units in lieu of an appraisal continues to be the most practical method
of determining value. The commenter also stated that in most real
estate transactions, the buyer and or his bank is responsible for
determining (appraisal) value, and not the seller.
Another commenter recommended that HUD provide a fuller definition
of the term ``appraisal,'' similar to requirements in other HUD and
Fannie Mae contexts where opportunities for alternative appraisal
methods are provided. Furthermore, the commenter, citing a Brookings
Institution report, noted concerns about discrimination in the home
mortgage process for Native Americans, as there is potential bias in
home appraisals occurring on Tribal
[[Page 20044]]
reservations. The commenter recommended that the requirements should
require lenders and originators to attest that appraisals used come
from competent appraisers, and who, like the Consumer Financial
Protection Bureau (CFPB) requires appraisers to attest that the
appraisal conforms with ``the Fair Housing Act and Equal Credit
Opportunity Act.''
HUD Response: HUD appreciates the comments regarding the challenges
of appraising property located on restricted lands and the request for
a definition of appraisal. This section requires an appraisal to be
completed, which would require the seller to allow an appraiser to
access the property, to inspect the subject property, and prepare an
appraisal report. HUD has addressed the concerns of the commenters
regarding Fair Housing Act and the Equal Credit Opportunity Act in
Sec. 1005.457. As a result, HUD is revising this section by
referencing the Fair Housing Act and the Equal Credit Opportunity Act,
along with revising the language for clarity regarding HUD's ability to
provide for appraisal alternative requirements.
Sec. 1005.423 Legal Restrictions on Conveyance
One commenter suggested that this section should be updated to
allow for leases and sales with third party consent from a governmental
entity or agency, master lessee, and planned community authorities.
Another commenter suggested that paragraph (b)(4) of this section be
revised to clarify that restrictions which do not restrict conveyance
are not impacted by this rule, i.e., covenants on a subdivision
continue to apply.
HUD Response: HUD appreciates commenters' input and recognizes the
concerns raised regarding third party consent and clarification of
restrictions on conveyance. HUD will provide further administrative
guidance to address commenters' concerns.
Sec. 1005.425 Rental Properties
A commenter recommended that paragraph (b) of Sec. 1005.425, which
contains the phrase ``one- to four-unit properties'', should be changed
to ``properties'' since that term defines the phrase. Additionally, the
commenter stated ``Property'' or ``Properties'' should be capitalized
throughout the proposed rule since they are being used to describe the
dwellings identified under the definition of ``Property''.
HUD Response: As discussed previously, HUD defined ``property'' in
Sec. 1005.103 to mean one to four-family dwellings and is consistent
with current policy. HUD has not capitalized the term throughout the
regulations. HUD made further changes to Sec. 1005.425 to clarify that
there is one Section 184 Guaranteed Loan per ``property,'' and a
``property'' may be one to four-family dwellings.
Sec. 1005.427 Refinancing
One commenter recommended moving this entire section to guidance,
with a reference to new construction financing, whether it be
refinancing the construction loan, reimbursement of funds spent or a
combination.
HUD Response: HUD appreciates the comment but has not moved the
entire section to guidance. However, HUD did add paragraph (d) to this
section to clarify that construction loans less than one year old are
included under rate and term refinance.
Sec. 1005.429 Eligibility of Loans Covering Manufactured Homes
Several commenters sought clarity concerning the standards for
manufactured homes, including a time frame for Tribal Nations to come
into compliance with this section, and whether this section applies to
existing homes and 184 Program loans located on Tribal reservations.
HUD Response: With respect to manufactured homes located on fee
simple properties, HUD is not changing the standards for manufactured
homes. These manufactured homes must continue to conform to the
National Manufactured Housing Construction and Safety Standards Act of
1974, as amended (HUD Standards). Under Sec. 1005.429(b), this section
applies to manufactured homes on Trust Land, HUD revised this section
to clarify in the absence of Tribal laws addressing installation
standards, provisions of Sec. 1005.429(a)(1), (3), and (4), and any
applicable Section 184 Program Guidance shall apply. HUD will provide
an effective date and compliance date for the final rule, allowing
Tribes ample time to review and implement the new regulations.
Sec. 1005.431 Acceptance of Individual Residential Water Purification
One commenter stated that paragraph (c)(1) of Sec. 1005.431 should
be revised since it is not within the control of the lender when a
borrower receives notice of the need for water purification or when the
borrower signs a sales contract, and that this should be stated in the
real estate law and stricken from regulations. The commenter also
stated that Sec. 1005.431(c)(2)(ii) provides that the lender would be
responsible for providing a Good Faith Estimate of the ongoing
maintenance and replacement costs of the equipment and that this would
not be within the lender's scope of knowledge. Another commenter
recommended that the proposed rule clarify the type of proof required
to show compliance under this section.
HUD Response: HUD appreciates this comment but does not believe
that Sec. 1005.431(c)(1) should be revised. While it is true that a
Direct Guarantee Lender may not have control of the timing of when a
borrower receives the notice under Sec. 1005.431(c)(1), HUD requires
the borrower to receive the notice under (c)(1) of this section as one
of the conditions of loan eligibility under the Section 184 Program.
Therefore, Direct Guarantee Lenders must ensure that the notification
occurred before the signing of the contract for the loan to be eligible
under the program. HUD agrees that the lender is not responsible for
providing the borrower a Good Faith Estimate as required under
paragraph (c)(2)(ii) of this section. To clarify, this is a transaction
between the seller of the property and the borrower. However, HUD is
requiring the lender to obtain a copy of the document from the borrower
and submit it with the loan package.
Sec. 1005.435 Eligible Collateral
One commenter suggested that the proposed rule expand the amount
constituting the collateral amount to all costs that have been expended
by the borrower, or on behalf of the borrower, including water, sewage,
or driveway installation, similar to Sec. 1005.443. Another commenter
recommended that the proposed rule clarify whether a leasehold interest
on trust land can be considered part of the eligible collateral.
HUD Response: HUD appreciates commenters' input. As a program and
industry practice, all costs paid by the borrower are not factored into
the value of the collateral. The value of the collateral is determined
by a property appraisal which includes all eligible improvements.
Further clarification will be provided in Section 184 Program Guidance.
Additionally, this section specifically states that the Trust Land,
which is secured by the leasehold interest, is not considered eligible
collateral. HUD will provide additional clarity on what constitutes
eligible collateral in administrative guidance.
Sec. 1005.437 Loan Provisions
One commenter proposed that paragraph (g) of this section be
revised to reflect the current process for guarantee and construction.
The commenters noted that the proposed rule does not mirror the current
process
[[Page 20045]]
and does not provide lenders with certainty that HUD will guarantee the
loan because that determination will be made at closing. The commenter
further stated that the proposed rule indicates HUD may guarantee
advances as they happen. However, according to the commenter, the loan
is fully funded at closing, as the construction funds are deposited
into a construction account and the advances are paid out of that
account. Currently, the loan is guaranteed just like any other loan
with the same documentation and is typically in place prior to the
construction being finished. The proposed requirements will cause
delays with construction if each advance must wait to be guaranteed,
and the current language indicates the advance ``may'' be guaranteed,
indicating that some draws could be denied a guarantee, which will put
undue risk or burden on the Tribal borrower, Tribes, TDHEs, and the
lenders. The commenter opined that if the guarantee is no longer going
to be done after closing when the funds are put into the construction
account and done only with each advance it will have a major negative
impact on the borrowers and reservations.
HUD Response: HUD appreciates the extensive comments received on
the topic of the Single-Close construction program. Based on
commenters' suggestion regarding Sec. 1005.437(g), HUD has revised
this paragraph to make clear that HUD is not guaranteeing each
individual advance made by the Direct Guarantee Lender during
construction. Further, HUD added paragraphs (h) that changes to the
building Loan Agreement must be approved and documented by the Direct
Guarantee Lender prior to the construction advance and (i), which
requires the Direct Guarantee Lender to submit a construction
completion package to HUD, as prescribed in Section 184 Program
Guidance. HUD revised paragraph (g) by removing paragraph (g)(2) to
remove any requirements for HUD to approve construction advances. HUD
inserted paragraph (h) to address changes to the Loan Agreement and
paragraph (i) to address the documentation HUD shall require upon
construction completion. HUD intends on providing administrative
guidance and future training on the Single-Close Construction program.
Sec. 1005.439 Loan Lien
Several commenters noted that the requirement for prior approval by
HUD of second mortgage liens will primarily affect tribally sponsored
homeownership assistance programs and stated that HUD already has well
defined rules around second liens and there is no need to change them.
These commenters explained that this proposal will add to the closing
timeframes and negatively impact Native borrowers. Some commenters
noted that contractors' and tribally funded liens must be considered,
and if a contractor or Tribe properly or improperly records a junior
lien on the property's title, it should not invalidate the senior lien
and should not accelerate the payment for the borrower. Other
commenters noted that the proposal to prohibit interest and principal
payments and require loan forgiveness conflicts with many of the
homeownership assistance programs. Commenters provided a list of
Tribes, TDHEs, and Tribal communities that would be negatively
affected.
Another commenter sought clarification regarding whether the
proposed requirements would limit the Tribal down payment assistance
(DPA) as a second mortgage. The commenter explained that many DPA
grants are awarded as second forgivable mortgages. The commenter noted
concern that if DPA was limited, borrowers might be likely to use other
programs. A separate commenter stated that, as written, Sec.
1005.439(b) is contrary to the original intentions of the Section 184
Program, which are to provide more flexibility and opportunities for
eligible borrowers. The commenter contended that HUD's proposals would
reduce the options eligible borrowers have because it allows junior
liens to only come from Direct Guarantee Lenders. Eligible borrowers
can only receive one Section 184 loan on their principal residence,
which must come from a Direct Guarantee Lender, and limiting their
options for a separate junior lien ``is futile.'' The commenter also
stated that there is nothing in this section or the proposed rule
allowing for a junior lien to be placed on the property's title by a
contractor or the member's Tribe.
HUD Response: HUD appreciates the numerous comments received on the
loan lien section. It was not HUD's intention that Direct Guarantee
Lenders seek HUD approval when there will be a junior lien on the
property or to change existing HUD policies on junior liens. Rather, it
is HUD's intention that where there will be a junior lien, the junior
lien conditions must satisfy the requirements outlined in Sec.
1005.439 (b) through (d), where applicable, and to continue to allow
junior liens from Tribes, TDHEs and downpayment assistance programs.
HUD revised paragraph (b) of this section to provide greater clarity as
to HUD's intent. HUD will provide administrative guidance on the
commonly acceptable junior liens held by Section 184 borrowers, such as
liens by Tribes, TDHEs and contractor's liens and liens related to
downpayment assistance programs.
Sec. 1005.443 Loan Amount
One commenter noted a technical change stating that ``lessor'' in
paragraph (b)(ii) should be ``lesser''.
HUD Response: HUD has corrected this typographical error.
Sec. 1005.445 Case Numbers
Several commenters stated that case numbers may only be obtained by
lender or Sponsored Entity, but paragraph (b) of this section
specifically identifies the Direct Guarantee Lender. The commenters
recommended that HUD clarify whether a sponsored broker is allowed to
order their own case number or if their sponsoring lender is required
to request a case number.
HUD Response: HUD appreciates commentors' input. Under Sec.
1005.445 a sponsored broker is not allowed to order their own case
number. HUD has revised the regulation to clarify that only the Direct
Guarantee Lender can request a case number.
Sec. 1005.447 Maximum Age of Loan Documents
Commenters suggested that this section should require review and
revision at minimum on an annual basis. One commenter also proposed
adding title commitments to adhere to state expirations. The commenter
noted that Tribal Resolutions are typically accepted based on number
units or maximum dollar and typically expire based on their content,
not based on a date. Another commenter noted that administrative
difficulties and delays cause borrowers to not meet deadlines related
to the maximum age of loan documents. One commenter stated that this
section does not consider the impacts of BIA rules and processes.
HUD Response: HUD agrees with the commenters' that title documents
should be included in this section and has revised the language to
include title documents reviewed at closing in addition to documents
reviewed at underwriting. Additionally, HUD agrees that the section
should be more flexible regarding the maximum age of these documents
and has revised this section so that the age of the documents will be
described by Section 184 Program Guidance.
Sec. 1005.451 Agreed Interest Rate
Several commenters opposed the prohibition on risk-based pricing.
They explained that risk-based pricing is an
[[Page 20046]]
accepted practice in the mortgage industry, including the Government
Sponsored Entities, and that it benefits some borrowers based upon
their personal credit history and loan size and negatively impacts
others. The commenters further noted that risk-based pricing reflects
the added costs of servicing smaller loans and loans with a higher risk
of default; however, in practice, the 100 percent loan guarantee rarely
reimburses the servicer for 100 percent of their losses from a default.
HUD Response: HUD disagrees with the comments regarding risk-based
pricing. The Section 184 Program offers up to 100 percent reimbursement
for the unpaid principal balance and interest, along with reimbursement
of Holders and Servicers eligible costs in the case of borrower's
default on the Section 184 Loan when Holders and Servicers comply with
all applicable Section 184 requirements. Therefore, HUD does not permit
risk-based pricing on Section 184 Loans. The major secondary market
organizations, such as Freddie Mac and Fannie Mae, have specifically
exempted risk-based pricing for Section 184 Loans.
Sec. 1005.457 Appraisal
A number of commenters stated that the appraisal requirements would
eliminate the ability of lenders to select a non-FHA certified
appraiser in cases where there is no FHA-certified appraiser available.
These commenters explained that many Tribal borrowers and Tribal
reservations are in very rural and remote areas where it is difficult
and expensive to find an appraiser. According to the commenters,
limiting lenders to the FHA Appraiser Roster will prevent some Tribes
and Tribal homebuyers from receiving Section 184 loans and will
dramatically raise the cost for others. Additionally, the commenters
stated that there are not many cost comparison properties on the market
and recommended allowing cost-based appraisals for new construction as
well.
One commenter recommended broadening the pool of eligible
appraisers. The commenter noted that the current proposal states, ``The
appraiser must be knowledgeable in the market where the property is
located''. According to the commenter, this requires upfront competency
leading into the assignment, which could be rather limited in certain
markets. The commenter explained that a broader approach would allow
appraisers to gain competency during the assignment, which would
maintain consistency with the Uniform Standards of Professional
Appraisal Practice (USPAP). The commenter further explained that this
approach would allow appraisers to ``acquire the necessary competency
to perform the assignment'' even after accepting the assignment.
Another commenter recommended, for Native American borrowers
purchasing properties in less remote areas, the lenders serving those
borrowers should be able to use Automated Valuation Model (``AVM'')
systems that have a proven track record of being accurate and non-
discriminatory. The commenter stated that by embracing this technology
HUD can save these Tribal borrowers significant costs while ensuring
that they are not subject to discriminatory appraisal practices, among
many other benefits.
Separate commenters sought clarification on whether the age of the
appraisals should be 120 or 180 days to align with recent Mortgagee
Letter 2022-11. Further, the commenter proposed additional language to
allow for cost-basis appraisal and allowing Tribes and TDHEs to utilize
master appraisals for the same floor plan on a similar site or for
leaseholds where there is no land value included. Finally, a commenter
proposed amending Sec. 1005.457(a), which reads ``HUD may establish
alternative requirements,'' to read instead, ``HUD has established
alternative requirements,'' which would reflect current policy. The
commenter stated that without such guidance Native American borrowers
located on-reservation will continue to experience delay, if not
outright discrimination, guised as a requirement if the language is not
amended.
HUD Response: HUD recognizes the challenge remote locations can
present when appraising real estate. To address this, the regulation
provides HUD with discretion to establish alternative requirements when
necessitated by the location of the property and availability of
appraisers in the area. HUD agrees with the comment regarding the
validity period for an appraisal and has revised the regulation to
provide for a validity period to 180 days or any other period as may be
prescribed by Section 184 Program Guidance.
Sec. 1005.501 Direct Guarantee Lender Closing Requirements
One commenter asked why ``Trust Land'' in paragraph (a)(2) of this
section receives its own special guidance in a document outside the
proposed rule. The commenter stated there is no language in the statute
limiting the Section 184 Program to just Trust lands, and in fact the
statute provides for eligibility for Native Americans living on
``otherwise restricted land;'' the commenter cited 12 U.S.C. 1715z-13
and 1715z-13a. The commenter explained that without addressing or
providing additional guidance for Native American borrowers who reside
on ``otherwise restricted land'' over which their Nation has
``governmental jurisdiction'', and such lands are not held in trust,
they will continue to experience significant barriers in trying to
obtain on-reservation home financing.
Several commenters recommended this section better align with
current guidance, noting that that Sec. 1005.501(d), requiring the
Direct Guarantee Lender to close the loan will cause major issues with
correspondent lenders who do not have underwriting staff. The
commenters further stated that this will lead those lenders to use
another program, such as FHA, instead of the Section 184 Program. Other
commenters stated that closing in the Direct Guarantee Lender's name
may deter new lenders from the Section 184 Program. These commenters
also noted that the requirement to have a Section-184 certified
underwriter on staff may deter many lenders from entering the Program.
Another commenter referencing Sec. 1005.501(e) and (f) stated that
this program was created with an understanding that Congress through
HUD might have some ongoing subsidy requirements to make the Program
viable. The commenter further stated that it would be appropriate for
HUD to confer with Tribes and Congress to identify how that
appropriation would be decreasing over the years as Tribes learn how to
encourage lending through expedited leasing (Hearth Act), Tribal court
training, and focused Tribal code.
One commenter identified an incorrect cross-reference to Sec.
1005.713 in paragraph (f), which provides for establishment of an
escrow account and repair completion escrow account in accordance with
Sec. 1005.713--but that section pertains to a Due-on-Sale provision
that must be contained in a Section 184 Guaranteed Loan. Another
commenter recommended that Sec. 1005.501(j) be revised so that Tribes
can receive notice of a member's default so they can assist with loss
mitigation, as it does under the current rules. The commenter explained
that allowing Tribes the opportunity to assist with loss mitigation
will further satisfy the purpose of the rule because it will add
protections against the loss of the underlying security for loan
servicers and encourage more servicers to participate in the Section
184 Program.
Another commenter expressed concerns with Sec. 1005.501(j), which
[[Page 20047]]
provides that Tribes are the beneficiary owners of Tribal trust lands.
The commenter noted that for all practical purposes, Tribes own the
land being leased to the Tribal member and are entitled to notice upon
default. According to the commenter, many Tribal mortgage laws require
the lender to send a notice of the right of first refusal at some time
after default. Requiring a borrower's consent prior to providing notice
of default to a Tribe is contrary to many Tribal mortgage laws, and is
contrary to proposed Sec. 1005.311, which requires a Tribe to notify
HUD of lease violations regardless of a borrower's consent. The
commenter recommended that the requirements clearly state that a
Section 184 lender will notify the borrower that a Tribe may be
notified of default regardless of whether a borrower consents.
Other commenters recommended that the release form provided by HUD
to the borrower at closing allow the lender and HUD ``to notify the
Tribe [or another entity as designated by the borrower] in the event of
default.'' The commenter noted that this would allow the borrower to
designate the entity that assisted them to qualify for the mortgage,
such as a nonprofit, Native CDFI, or TDHE, and would help ensure that
early intervention and foreclosure prevention education occur early
enough to avoid foreclosure. The commenter suggested that, at closing,
the Tribe and homebuyers should be able to choose if a HUD Housing
Counseling Agency should be contacted for assistance.)
Other commenters stated that paragraph (a)(3) of the section does
not conform with the flexibility provided to borrowers in Sec.
1005.501(j). The commenter explained that if a borrower elects not to
give notice to its Tribe pursuant to Sec. 1005.501(j), then a Tribe
will not receive notice under Sec. 1005.741(a)(2) and will not be able
to fulfill its requirements under paragraph Sec. 1005.501(a)(3).
Another commenter asked how HUD planned to implement the requirement
that Tribes assist in facilitating loss mitigation efforts and in the
disposition of defaulted properties. The commenter noted that many
Tribes have decided to stay out of the default process and let lenders
perform their jobs.
HUD Response: HUD appreciates the extensive comments on this
section of the regulation. With regards to the comment asking HUD why
Trust Land has its own provisions under Sec. 1005.501(a)(2), it is
because Trust Land encompasses more than one land status type, and each
land status type may have its own distinct requirements and challenges.
HUD considered the many comments received suggesting HUD incorporate as
much flexibility as possible in this section so that the many nuances
of Trust Land lending can be addressed. HUD believes that the
flexibility provided by this regulation allows it to address the
nuances of Trust Land lending. HUD appreciates the comment regarding
``otherwise restricted fee'' language that commenter quoted from the
Housing Act of 1992, as amended, and incorporated the term ``restricted
fee'' into the definition of ``Trust Land'' in this regulation.
Regarding the comments received concerning paragraph (d) of this
section, which requires Direct Guarantee Lenders to close the loan in
the Direct Guarantee Lender's name, HUD disagrees that this provision
will negatively impact the program. Because HUD will only be working
directly with Direct Guarantee Lenders in all aspects related to loan
origination, underwriting, and closing, naturally then the loan must
close in the Direct Guarantee Lender's name. HUD has corrected the
incorrect cross-reference in paragraph (f) of this section to properly
cite to Sec. 1005.717.
With respect to the comment regarding Sec. 1005.501(j), HUD does
not agree that Tribes should automatically receive notice of borrower's
default. It is important that borrowers have the option whether to
disclose the default to the Tribe or not early in the process.
Borrowers may have privacy concerns regarding sharing default
information with the Tribe. Through outreach or marketing of Tribal
assistance programs, Tribes should encourage Tribal borrowers to elect
disclosure so that help can be provided to defaulted borrowers as early
as possible in the process. HUD also does not agree that paragraph (j)
be revised to allow the borrower to elect to disclose to another third-
party, which may include the TDHE, nonprofit, or housing counseling
agencies, as examples. However, the borrower can reach out to a third
party directly if the borrower chooses to.
HUD does not agree with the comment that paragraph Sec.
1005.501(a)(3) does not conform with the flexibility provided to
borrowers in Sec. 1005.501(j). While a borrower may elect to not
provide notice to his or her Tribe pursuant to Sec. 1005.501(j), it
does not mean the Tribe would not receive the notice of borrower's
default, thereby making it impossible for a Tribe to comply with
paragraph (a)(3). When a borrower elects not notify the Tribe under
Sec. 1005.501(j), a Tribe will still receive a first right of refusal
under Sec. 1005.759. Nevertheless, HUD revised paragraph (a)(3) to
make it clear that when Tribes receive notice of borrower's default
under Sec. Sec. 1005.501(j) or 1005.759, Tribes shall assist in
facilitating loss mitigation efforts and in the disposition of Trust
Land properties.
HUD believes that Tribes are a vital partner in the Section 184
Program, especially in cases involving defaulted borrowers on Trust
Land. It is critical that Tribes engage the borrower and Holder and/or
Servicer and assist in loss mitigation and disposition wherever
possible. HUD will provide further guidance on what ``assist, where
practical, in facilitating loss mitigation and disposition'' (Sec.
1005.501(a)(3)) of the property means for Tribes in administrative
guidance.
Sec. 1005.507 Borrower's Payments To Include Other Charges and Escrow
Payments
Commenters recommended that the proposed rule clarify whether there
is reimbursement for force placed insurance when a Borrower lets their
policy lapse. The commenters also recommended adding an option to
escrow for annual lease payments on Tribal leaseholds to avoid default
and complications associated with the notice to HUD and lender.
HUD Response: HUD will provide administrative guidance pursuant to
Sec. 1005.507(a)(7) regarding Holder or Servicer's purchase of force
placed insurance when borrowers let their policy lapse. Regarding the
comment on annual lease payments, under this section borrower's monthly
payment must include, among other things, ``ground rents'', which
includes lease payments from the Tribal member to the Tribe. HUD had
provided additional language at Sec. 1005.507(a)(1) and will provide
administrative guidance on the collection of Tribal leasehold payments
for escrow under this regulation.
Sec. 1005.517 Certificate of Nondiscrimination by the Direct Guarantee
Lender
One commenter stated that Sec. 1005.517(a)(1) and (2) list several
items regarding nondiscrimination including race, sex, and handicap.
The commenter recommended that the terms ``age'' and ``sexual
orientation'' be added to these lists.
HUD Response: HUD agrees in part with the commentor. HUD has
included ``gender identity'' and ``sexual orientation'' in both
paragraphs (a)(1) and (2), in accordance with Executive Order 13988,
``Preventing and Combatting Discrimination on the Basis of Gender
Identity or Sexual Orientation'' and HUD's February 2021
[[Page 20048]]
implementing memorandum and included ``age'' in paragraph (a)(1). The
Equal Credit Opportunity Act provides for the prohibition based on
``age'' in the context of making a loan, but there is no Federal
statute providing for ``age'' as a protected class with regards to
restrictive covenants.
Sec. 1005.527 Post-Endorsement review
Commenters stated that if a loan guarantee certificate can be
revoked after endorsement, then it is not a guarantee but instead
insured like FHA. The commenters strongly stated that this weakens the
guarantee and may cause lenders to lose faith in the benefits of this
100 percent guarantee loan.
HUD Response: Commenters misunderstand this regulation. This
regulation is not stating the Loan Guarantee Certificate can be revoked
after endorsement. Rather, HUD may request indemnification from the
originating Direct Guarantee Lender and impose sanctions on the Direct
Guarantee Lender and Sponsored Entity in the event of noncompliance,
pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.529 Indemnification
A commenter recommended that indemnification should only be
required when it is proven that the originating Direct Guarantee
Lenders had a deficiency in underwriting or due to fraud or
misrepresentation.
HUD Response: HUD appreciates the commenter's input; however, HUD
has determined that this regulation may require that the originating
Direct Guarantee Lender indemnify any Section 184 Guaranteed Loan where
it finds an underwriting deficiency and the Section 184 Guaranteed Loan
should not have been approved.
Sec. 1005.603 Upfront Loan Guarantee Fee
Commenters objected to the maximum 3 percent Upfront Loan Guarantee
Fee. Commenters stated that the market has stabilized since the 2008
foreclosure crisis, HUD has not provided sufficient justification for
the high fees, and that the high fees negatively impact affordability
for Tribal borrowers. Another commenter recommended a 1 percent upfront
fee model as an alternative (and 0 percent for the monthly premium, see
Sec. 1005.607 in this summary). Another commenter noted that many
Tribes and TDHEs were unaware of the Upfront Loan Guarantee Fee.
Commenters recommended that Section 184 refinance borrowers should
get a credit against their new Guarantee Fee. Commenters explained that
a Tribe or native borrower that chooses to refinance a Section 184 loan
is charged a loan guarantee fee of up to 3 percent of the loan balance
of the new loan even though they previously paid HUD to guarantee the
virtually identical loan. In addition, commenters stated that new loan
represents a lower risk to HUD due to a lower loan-to-value and
interest rate in most cases.
Another commenter stated that these fees would counteract the
reduced rates by adding as much as 4 percent of the principal
obligation each year. The commenter further stated that the fees would
eliminate the competitive nature of Section 184 loans, and that the
fees serve only the financial institutions, not Tribal members and
communities. The commenter also recommended that the existing loan
guarantee fee should not be increased from its current maximum.
HUD Response: Under 12 U.S.C. 1715z-13a(d), the Section 184 Program
is authorized to charge ``an amount not exceeding 3 percent of the
principal obligation of the loan.'' This section codifies that
authority and restates that any ``Up-front Loan Guarantee Fee'' set by
HUD will first be published in the Federal Register. Pursuant to 12
U.S.C. 1715z-13a(i), the Up-front Loan Guarantee Fee funds, in part,
the Indian Housing Loan Guarantee Fund (Fund). The Fund pays for, among
other things, claim payments to Holders and expenses incurred by HUD in
the disposition of HUD foreclosed properties. The Fund may not be used
for crediting borrowers as doing so would violate the statutory
requirements of the Section 184 Program.
In 2022, HUD conducted an analysis of the program's portfolio,
including default rate and credit subsidy data, and determined the
program could support a reduction in the loan guarantee fees charged on
new loans. Subsequently on May 4, 2023, HUD published a Federal
Register Notice (88 FR 28598), informing the public it would be
exercising its legal authority to decrease the ``Upfront Loan Guarantee
Fee'' from 1.50 to 1.00 percent and the ``Annual Loan Guarantee Fee''
from 0.25 to 0.00 percent for all new or updated Section 184 firm
commitments after July 1, 2023.
Sec. 1005.605 Remittance of Upfront Loan Guarantee Fee
Several commenters objected to the 15-day timeline for lenders to
remit the ``Upfront Loan Guarantee Fee'' stating that it would be
administratively burdensome to small Tribes and lenders.
HUD Response: HUD appreciates the comments and understands the
commenters' concerns. Small Tribes and Direct Guarantee Lenders will
not be impacted by this timeline. This section codifies current program
practice and applies only to Direct Guarantee Lenders closing Section
184 guaranteed loans.
Sec. 1005.607 Annual Loan Guarantee Fee
Commenters objected to the ``Annual Loan Guarantee Fee's'' maximum
of 1 percent of the principal obligation of the loan. Commenters stated
that the market has long since stabilized since the 2008 foreclosure
crisis and HUD has not justified the need for these high fees which
negatively impact affordability for Tribal borrowers. One commenter
recommended a 0 percent monthly premium model (and 1 percent upfront,
see Sec. 1005.603 in this summary).
HUD Response: HUD appreciates the commenter's input. Similar to the
response for Sec. 1005.603, the program is authorized by statute to
charge up to a one percent ``Annual Loan Guarantee Fee.'' This section
codifies that authority and restates that any ``Annual Loan Guarantee
Fee'' set by HUD will first be published in the Federal Register. When
collected, the purpose of this fee is to pay for certain programmatic
expenses, such as claim payments to Holders and to fund expenses HUD
incurs in the disposition of HUD foreclosed properties. Additionally,
as previously stated in Sec. 1005.603, effective July 1, 2023, HUD has
eliminated this fee by reducing it to 0.00 percent.
Sec. 1005.609 Remittance of Annual Loan Guarantee Fee
One commenter recommended that HUD cease collecting the monthly
installment of the Annual Loan Guarantee Fee when the amortized loan-
to-value ratio equals an amount less than 80 percent, instead of the 78
percent published in the proposed rule. The commenter stated that this
small increase in percentage will bring the Section 184 Program in line
with the standard found in the Homeowners Protection Act of 1998 for
Private Mortgage Insurance and would equate to approximately a year's
worth of annual fee payments, providing a small benefit to Tribal
borrowers.
HUD Response: In consideration of this comment, HUD removed the
specific requirement of 78 percent loan to value ratio and provided HUD
the ability to establish the Annual Loan Guarantee Fee termination
threshold by notice in the Federal Register. This will
[[Page 20049]]
provide flexibility to quickly respond to unforeseen economic
conditions.
Sec. 1005.611 HUD Imposed Penalties
One commenter proposed removing the monetary penalties on lenders
and servicers related to the collection and submission of loan
guarantee fees, stating that sanctioning lenders for not meeting HUD
timelines would discourage lenders from participating in the Section
184 Program.
HUD Response: HUD disagrees with the commenter's statement. This
regulation codifies current program practice, and the program has not
observed any negative impacts from this practice which has been in
place for over a decade.
Sec. 1005.703 Servicer Eligibility and Application Process
One commenter stated that requiring servicers to submit an
application for participation and recertify annually would discourage
servicers from participating in Section 184 Program.
HUD Response: HUD is requiring servicers to submit applications for
participation to make sure servicers have the experience and
qualifications necessary to best serve Native American borrowers and
successfully service Section 184 Guaranteed Loans. Annual
recertification is not intended to be a cumbersome process and is
necessary to make sure the servicers retain their capability to service
Section 184 Guaranteed Loans and to notify HUD of any staffing or
contact changes.
One commenter suggested that in light of the ``unique legal status
of Indian lands . . .'' (see 12 U.S.C. 1715z-13a) no servicer should be
permitted to waive into becoming a servicer under the Section 184
Program. The commenter further stated that all entities wishing to
become servicers under the Section 184 Program should be required to
undergo mandatory training for not only the Section 184 Program, but
also be knowledgeable regarding the legal systems of the Tribal Nations
of the on-reservation Section 184 Programs loans they will be
servicing.
HUD Response: To clarify, HUD's intention under Sec. 1005.703(c)
is to allow qualified servicers that are currently participating in the
program but are not a Federally approved mortgage servicers to submit a
request to be considered a servicer without other Federal agency
approval. HUD will provide guidance regarding the exception in the
Section 184 Program Guidance. HUD anticipates training servicers once
the final rule is published and intends to include a section on Tribal
Nation legal systems as part of that training. HUD made minor technical
corrections to Sec. 1005.703(c) for greater clarity.
Sec. 1005.711 Assumption and Release of Personal Liability
A commenter stated that if the assuming borrower has been assigned
the leasehold and, in the end, does not move forward with the
assumption, then the existing borrower no longer has rights to the
subject property. The same commenter noted that under paragraph (a) of
this section, requiring approval from HUD and other parties would
likely cause extreme delays in the process and reduce the effectiveness
of the ability to assume a loan.
HUD Response: HUD agrees with the commenter and clarifies that the
assignment of leasehold interest or property interest occurs at
closing. Further, HUD agrees that requiring HUD approval of assumptions
could reduce the effectiveness of the process and has removed this
requirement from the section, except in cases where the Holder or
Servicer is not a Direct Guarantee Lender and would not be able to
underwrite the assuming borrower.
Sec. 1005.713 Due-on-Sale Provision
One commenter stated that it is unclear why a servicer would be
required to seek HUD approval to accelerate a loan. Another commenter
stated that under Sec. 1005.713(a), requiring the servicer to advise
HUD of any sale or other transfer that occurs without the approval of
the lender, and to seek HUD's approval to enforce the Due on Sale
provision, can create delays which prevent timely resolution of the
issue.
HUD Response: HUD appreciates the comments on the due-on-sale
provision. HUD has revised the language to clarify the HUD approval to
accelerate is required when ``any prohibited sale or transfer occurs.''
Sec. 1005.729 Section 184 Guaranteed Loan Collection Action
One commenter suggested adding the following to the end of the
paragraph: ``It is the intent of the Department that no mortgagee shall
commence foreclosure or acquire title to a property until the
requirements of this subpart have been followed.'' The commenter
explained that servicers should not proceed with foreclosure unless
they have complied with the servicing framework that the regulations
create and have fully evaluated borrowers for alternatives to
foreclosure. The commenter further explained that to ensure compliance,
HUD should incorporate language from FHA's default servicing
regulation, 24 CFR 203.500. The commenter noted that its proposed
language has been in force for FHA-insured servicers since 1997 and has
provided important clarity on servicer obligations.)
HUD Response: HUD agrees with the commenter and has revised this
section to provide that a servicer cannot commence foreclosure or
acquire title to a property until the requirements of the subpart have
been followed.
Sec. 1005.733 Loss Mitigation Application, Timelines, and Appeals
Commenters expressed concerns with the proposed timelines in Sec.
1005.733(a) and (b). These commenters explained that promulgating
requirements that overlap or conflict with CFPB requirements including
RESPA and FHA loan processes, will make it more challenging for HUD to
adapt to changes in RESPA and could create inconsistencies with other
agencies. One commenter recommended that HUD delete paragraphs (a) and
(b) and noted that HUD should not include these requirements in a
regulation as the requirements may soon become outdated if RESPA
changes. Another commenter stated that paragraph (a) of this section
should rely on RESPA regulations to cover incomplete applications.
Another commenter suggested a ``more reasonable'' timeline for a
customer to return documents for an incomplete application.
Another commenter recommended deleting the following language from
paragraph Sec. 1005.733(c)(5), ``and that the primary alternative to
foreclosure shall be a deed in lieu/lease-in-lieu of foreclosure,'' and
replacing it with ``but the servicer may still offer alternative loss
mitigation options, subject to applicable Tribal, Federal, or State law
or contractual requirements.'' According to the commenter, this would
clarify that loss mitigation is not cut off after the first legal
action. The commenter also proposed that HUD revise the language in
Sec. 1005.733(d) from ``14 days from the date of notification of the
servicer's loss mitigation determination'' to ``30 days from the date
of notification,'' since borrowers need more than 14 days from the date
of notification to appeal loss mitigation decisions.
HUD Response: HUD agrees with the general concept that Holders,
Direct Guarantee Lenders and Servicers must follow all applicable
Federal requirements, including RESPA and any other regulations
promulgated by CFPB. In response to the comment, HUD added language in
Sec. 1005.701, which covers general requirements for Section 184
[[Page 20050]]
guaranteed loan servicing. The new language requires that ``Holders and
Servicers must follow all current loss mitigation processes based on
applicable Tribal, Federal, or State law.'' Similarly, Sec. 1005.731
provided requirements that were duplicative with CFPB. Therefore, HUD
removed these requirements and added new language that Servicers must
provide notice of default to borrowers based on applicable Tribal,
Federal, or State law.
HUD believes the timelines in Sec. 1005.733(a) and (b) are
necessary for the successful administration of the loss mitigation
options under the Section 184 Program and declines to revise these
sections accordingly.
HUD did not substantively revise the language in Sec. 1005.733(c)
as recommended by the commenter. CFPB does not regulate what loss
mitigation options may be available to borrowers when the servicer
completes filing of first legal action. HUD is free to limit loss
mitigation options available to borrower upon the servicer's filing of
first legal action. Based however on prior public comments requesting
HUD incorporate as much flexibility in the regulations as possible, HUD
revised Sec. 1005.733(c)(5) to add that ``HUD may permit other loss
mitigation on a case-by-case basis if requested by the Servicer.''
Finally, HUD did not revise the deadline in Sec. 1005.733(d) for
borrower to appeal to 30 days as recommended by the commenter. HUD
believes 14 days is sufficient time for borrower to file an appeal.
Sec. 1005.735 Occupancy Inspection
A commenter recommended that the servicer provide advance notice to
a designated Tribal entity prior to any occupancy inspection, and that
a designated Tribal representative be required to be present at the
property during the inspection. In addition, the commenter suggested
that the Tribal entity should be a member of a Tribal housing
department or law enforcement officer. According to the commenter, this
would provide respect for a Tribe's sovereign lands and add a level of
safety to the inspection requirement.
HUD Response: HUD agrees with the commenter and has included
language that requires servicers to contact the Tribe in advance of an
occupancy inspection. HUD revised the regulation to allow Tribes and
the servicers to develop agreeable methods of communication and
protocols when conducting an occupancy inspection.
Sec. 1005.737 Vacant Property Procedures
One commenter suggested that the Tribe should be a part of the
servicing process to determine if a house has been abandoned or is
vacant. The commenter further stated the Tribe must be empowered to
secure the house by an independent determination of a Tribal official
that the house is abandoned and therefore, remedial, rehabilitation,
and security services can be implemented by the Tribe. Another
commenter recommended that the section title of the section be revised
to ``Vacant and abandoned property procedures,'' as it applies to
abandoned properties as well. Lastly, some commenters proposed that
this section should clarify if seven days are meant to be calendar days
or business days.
HUD Response: HUD made several revisions to this section based on
commenters' suggestions. The section now allows for the Tribe to
determine if a property is vacant or abandoned and requires servicers
to notify the Tribe if it determines a property is vacant or abandoned.
Further, HUD has added ``abandoned'' to the title of the section and
has expanded the timeframe for Tribal First Right of Refusal and the
completion of First Legal Action.
Sec. 1005.739 Loss Mitigation
One commenter recommended deleting the requirement in Sec.
1005.739 (a) to comply with ``12 CFR 1024.41'' and replace it with
``1024.41, as it might be amended from time to time, or any additional
or successor regulation that governs the same subject matter.'' The
commenter explained that given the CFPB's recent Request for
Information (RFI) on loss mitigation, the CFPB may make changes to
servicer obligations under a RESPA rulemaking, and therefore HUD should
expand its coverage beyond this regulation and incorporate changes,
deletions, or expansions.
Another commenter stated that the 180-day grace period in paragraph
(b) of this section is too long because seasonal fluctuations within
that period causes damage to the property. The commenter recommended
that the proposed requirements should include provisions for interim
protective actions by the Tribe to weatherize and winterize the house.
Another commenter noted that its understanding of HUD's proposed
language is that if a customer applies beyond 180 days of delinquency,
the servicer cannot evaluate that application. Other commenters
recommended including partial claim/loss mitigation advance option as a
loss mitigation option, which have been the most popular options to
resolve COVID and other borrower-related delinquencies. The commenters
noted that this would be consistent with FHA requirements and would
increase the usage of the Section 184 Program.
Another commenter recommended establishing assumptions as a
standalone process outside of the loss mitigation process, similar to
the FHA. The commenter explained this would help a confirmed successor
in interest complete assumptions without manually reinstating the
account. One commenter recommended deleting Sec. 1005.739(d)
requirement for a full financial assessment of the borrower at time of
default. The commenter explained that in response to the pandemic,
streamlined modifications did not rely on a full financial assessment
of the borrower. Instead, the loss mitigation modification options
target reducing the borrower's monthly payment without considering the
borrower's income or debt. The commenter further noted that requiring a
full financial assessment may hamper HUD's ability to provide
streamlined payment relief modifications. The commenter recommended
developing modification criteria through agency guidance instead of
through a regulation.
Commenters also recommended placing Sec. 1005.739(f) in guidance
or extending the timeframes to align with FHA, due to the complex
nature of servicing and to make the process more customer friendly.
HUD Response: HUD has revised this section by removing the
reference to 12 CFR 1024.41 since Sec. 1005.701 now provides that
servicers must follow all Tribal, State and Federal requirements on
loss mitigation, so citing the CFPB regulation is redundant. HUD also
included the option of a loss mitigation advance under Sec.
1005.739(c)(4) and added a new section, Sec. 1005.751, on loss
mitigation advances. HUD inadvertently omitted the reference to loss
mitigation advance in Sec. 1005.739(c)(4) and added a new regulation
for loss mitigation advances at Sec. 1005.751 and renumbered all
subsequent regulations accordingly. HUD clarified Sec. 1005.739(f) to
provide that, when a borrower fails a loss mitigation option within 180
days of default, the servicer has 45 days from the failure date to
initiate another loss mitigation option. Further, HUD clarified that
the servicer shall complete First Legal Action in accordance with Sec.
1005.763 or Tribal First Right of Refusal in accordance with Sec.
1005.759 if a borrower does not accept, is not eligible for, or fails
loss mitigation.
Additionally, HUD revised this section to provide that the servicer
must conduct occupancy inspections in accordance with Sec. 1005.735
and, if the unit is confirmed to be vacant or
[[Page 20051]]
abandoned, the servicer must conduct property preservation in
accordance with Sec. 1005.737. With respect to Sec. Sec. 1005.735 and
1005.737, HUD added language to ensure that it can, by Section 184
Program Guidance, extend these deadlines to address national emergency
or disaster situations. With respect to Sec. 1005.739, HUD added
language that provides HUD the flexibility to enhance loss mitigation
options to borrowers when there is a national emergency or disaster and
publish such alternative timeframes in Section 184 Program Guidance.
Sec. 1005.741 Notice to Tribe and BIA--Borrower Default
Commenters suggested including ``TDHE'' where appropriate in this
section, similar to Sec. 1005.757. The commenters stated that the
intent of this recommendation is to connect a borrower with resources,
and, in Alaska, 196 Tribes have their housing programs and services
through Regional Housing Authorities.
Related to Sec. 1005.741(a), one commenter stated that a Section
184 lender should not be required to obtain borrower consent to give
notice to the Tribe. The commenter further stated that BIA is no longer
responsible for leases approved by a HEARTH Tribe. Another commenter
recommended that notifications of borrower default or of Tribal rights
of first refusal should clearly outline deadlines and steps for a Tribe
to take when they elect to exercise their ROFR or if they will assist a
borrower in redeeming the loan. One commenter proposed that Sec.
1005.741(a)(2) should be stricken.
One commenter suggested that HUD should add in Sec. 1005.741(b),
``and foreclosure process'' after ``notification process,'' which would
clarify that HUD follows the industry standard and seeks to allow
borrowers to pursue loss mitigation options, including home retention
options, even after the foreclosure process has been initiated.
HUD Response: HUD declines the commenter's suggestion to include
the TDHE in part of the notification process. For purposes of the
Section 184 Program, HUD's relationship is with the Tribe as the entity
with the authority to issue ordinances that support the program. A
Tribe may choose a TDHE to be its point of contact for the program.
Based on previous Tribal comments, the regulation includes the option
for a borrower to select Tribal notification if they go into default,
so that if the Tribe has resources to assist the borrower, they may do
so earlier in the loss mitigation process rather than at the end of the
process. This section deals specifically with when, during the loss
mitigation process, a Tribe and/or the BIA is notified. Section
1005.741 states that loss mitigation should have happened concurrent
with Tribal/BIA notification.
Sec. 1005.743 Relief for Borrower in Military Service
A commenter agreed with suspending the foreclosure process and
delaying the first legal action in this situation but stated that their
experience indicates that HUD does not take these valid delays into
account when reimbursing a servicer for its expenses. To retain
lenders' and servicers' interest in the Section 184 Program, the
commenters requested that HUD be more considerate of delays that are
valid and out of the servicers' control.
HUD Response: HUD appreciates the input by the commenter. HUD has
built in additional timeframes within the loss mitigation process to
account for delays. Further, Holders and Servicers experiencing delays
out of their control can request an extension for the filing of first
legal, as is the current policy and will be further described in
administrative guidance.
Sec. 1005.745 Forbearance Plans
One commenter proposed deleting Sec. 1005.745(b) through (f) and
moving these provisions to a PIH notice. The commenter stated that
while HUD should establish forbearance as a loss mitigation option, it
should follow FHA's lead in 24 CFR 203.614 and save eligibility
criteria for PIH notices and handbooks. The commenter stated that
including eligibility requirements in regulations unnecessarily hampers
agency efforts at creating an effective loss mitigation system. Both
the formal forbearance and special forbearance provisions of the
section require borrowers to submit supporting documentation to obtain
forbearance. However, the response to the pandemic by institutions such
as the Urban Institute, which credited forbearance access during the
pandemic, demonstrated that it may be valuable to streamline access to
forbearance in particular situations and not require documents. The
commenter concluded that HUD should allow streamlined forbearance when
necessary.
Another commenter recommended that HUD remove the requirement from
Sec. 1005.745(c)(1)(ii) and simplify the formal forbearance process by
mirroring the FHA formal forbearance process. Similarly, for paragraph
(c)(2) of this section, the commenter suggested mirroring the FHA
process to make it more customer- and servicer-friendly.
HUD Response: HUD agrees with the comment to streamline access to
forbearance process and has added additional language that allows HUD
to establish a special forbearance in response to a national emergency
or disaster. HUD will also provide additional guidance on the process
in the Section 184 Program Guidance.
Sec. 1005.747 Assumption
A commenter sought clarification on whether the person assuming the
loan is responsible for making the loan current and suggested that HUD
address this in guidance.
HUD Response: In response to the commenter, HUD added additional
language to clarify that with an assumption associated with loss
mitigation, the person assuming the loan must cure the default and
reinstate the Section 184 Guaranteed Loan.
Sec. 1005.749 Loan Modification
One commenter stated that HUD's proposed text includes detailed
eligibility rules for loan modifications and many of those rules are
borrowed from outdated FHA Handbook provisions, which HUD should not
codify in its regulations. For example, the commenter stated that FHA
no longer requires an assessment of ``surplus income,'' signatures on
trial payment plans, and a twelve-month loan seasoning period prior to
modification. According to the commenter, FHA has removed these
requirements to minimize barriers to modifications, yet HUD's proposed
rule would make these rules difficult to amend even after, in FHA's
experience, they have weakened loss mitigation. This commenter proposed
removing all Sec. 1005.749(b) through (e) and moving this to a PIH
notice instead.
One commenter suggested replacing Sec. 1005.749(b) with language
stating, ``The servicer must offer the borrower any modification that
the borrower is eligible to receive under relevant HUD guidance.'' The
commenter stated that while HUD should establish forbearance as a loss
mitigation option, it should follow FHA's lead in 24 CFR 203.616 and
save eligibility criteria for loan modifications for PIH notices and
handbooks.
Another commenter stated that requiring the servicer to ``seek
HUD's approval'' under paragraph (c)(2) of this section for any
subsequent loan modifications after the first one is likely to cause
delays, frustration, and anxiety for the borrower if a response is not
provided timely by HUD. Another commenter recommended that the proposed
30 days proposed by
[[Page 20052]]
paragraph (e)(2) of this section be reduced to 14 days at minimum. The
commenter explained that this will help the servicer to start trials
and complete modifications early, and that there is no such timeline
for FHA customers.
HUD Response: HUD appreciates commenter's input and has revised the
regulation mirror the current FHA loan modification requirements, as
appropriate. HUD has removed the requirement for surplus income. HUD
declines to accept the commenter's proposal to remove the HUD approval
for subsequent loan modifications (beyond the Borrower's very first
loan modification). HUD has found in the past that multiple loan
modifications have not resolved the Borrower's delinquency. To provide
for additional flexibility in the future, HUD added language that
allows modification of the Borrower's eligibility criteria in the event
of a national emergency or disaster.
Sec. 1005.753 Pre-Foreclosure Sale
One commenter expressed concern about the cost to the lenders of
servicing loans that default. The commenter stated that the
requirements of this section recognize a short sale opportunity but
again refer several times to appraisal which may be further compounded
by lack of market data and the availability of licensed contractors
that can make repairs on defaulted units. Another commenter urged HUD
to remove Sec. 1005.753(b) through (u) and move the requirements from
guidance to PIH notices. The commenter noted that the proposed text for
this section provides far too many details about the pre-foreclosure
sale program and will significantly limit HUD's ability to make any
changes.
Another commenter stated that the term ``Government'' in paragraph
(q) this section is not a defined term and therefore lacks specificity
as to which it applies. The commenter also noted that the definition
for ``Arm's Length Transaction'' in Sec. 1005.749(r)(2) should be
moved to the definitions section in Sec. 1005.103.
HUD Response: HUD appreciates commenters' input. As discussed in
Sec. 1005.457, HUD has revised the appraisal standards based on public
comment to allow HUD to establish alternative requirements depending on
the area and availability of an appraiser. HUD removed paragraph (d) of
this section because FHA no longer requires defaulted borrowers to
provide a cash contribution in its pre-foreclosure sale program. In
paragraph (g) of this section, HUD has increased the market value
timeframe from 120 days to 180 days to match FHA standards based on
public comment. Further, HUD has clarified Sec. 1005.749(q) to provide
that it is the HUD's repair cost estimate. HUD kept the definition for
``Arm's Length Transaction'' in paragraph Sec. 1005.749(r)(2) since it
is a definition only used within Subpart G and is not used throughout
the rule.
Sec. 1005.755 Deed-in-Lieu/Lease-in-Lieu of Foreclosure (Formerly
1005.753)
One commenter suggested that in Sec. 1005.755(a)(1), the words
``if applicable'' should be added after the words ``the BIA''.
HUD Response: HUD does not accept the commenter's suggestion. While
some Tribes have the authority to issue their own leases without BIA
approval, BIA is responsible for the recordation of all leases.
Sec. 1005.757 Incentive Payments (Formerly Sec. 1005.755)
A commenter sought clarification on when and how much incentive is
expected to be authorized under this section. The commenter noted that
``may'' can also mean ``may not'' and this would be a significant
difference from FHA loans, resulting in lower participation in the
Section 184 Program.
HUD Response: This section establishes HUD's ability to offer
incentive payments to the borrower, Tribe, TDHE, Holder or servicer,
which will be a new feature to the program. HUD prefers to maintain
discretion and flexibility in establishing incentives as a new
component of the program.
Sec. 1005.759 Property on Trust Land--Tribal First Right of Refusal;
Foreclosure or Assignment (Formerly Sec. 1005.757)
A commenter proposed clarifying the timeframe for the right of
first refusal for the Tribes. The commenter noted that typically a
Tribe has at least 60 days or potentially longer to accept if they
choose to do so. Another commenter noted that the term ``Tribal Land''
used in Sec. 1005.779(a) is an undefined term and recommended that the
term be replaced with ``Trust Land.''
A commenter supported the authorization of the first right of
refusal of foreclosed property meeting certain conditions and updated
valuations, in Sec. 1005.759(a). Some commenters also suggested that
HUD should adopt the U.S. Department of Agriculture's (USDA) practice
of using a net recovery value to determine the purchase price when a
Tribe chooses to exercise its first right of refusal. Finally, another
commenter stated that no assignment of the lease under Sec.
1005.759(c) should occur without consent of the Borrower or without
foreclosure.
HUD Response: HUD appreciates commenters' input. Based on these
comments, HUD has provided a definition of Tribal First Right of
Refusal and has clarified the timeframe and circumstances for when it
should occur. The servicer must provide Tribal First Right of Refusal
to the Tribe within 14 days of specified actions and the Tribe has 60
days to respond to the Tribal First Right of Refusal. HUD also made the
technical change of ``Tribal Land'' to ``Trust Land''.
Sec. 1005.763 First Legal Action Deadline and Automatic Extensions
(Formerly Sec. 1005.761)
Several commenters stated that 180 days under Sec. 1005.763(a)
does not provide lenders with sufficient time, as it takes that amount
of time to implement loss mitigation efforts. These commenters sought
clarification under Sec. 1005.763(a) if ``must initiate'' is the same
as ``file'' for First Legal Action. And one commenter suggested
removing the cross reference in paragraph (a) to the definition of
``First Legal Action'' in Sec. 1005.103, as this is extraneous and not
necessary.
In paragraph (b) of this section, a commenter sought clarification
regarding whether HUD uses a 30-day auto-extension to extend the First
Legal Action deadlines instead of the industry standard of a 90-day
auto-extension. Another commenter recommended that HUD clarify
paragraph Sec. 1005.763(b)(2) regarding what is required to be
completed within 30 days of the borrower's failure of loss mitigation.
The existing guidelines state ``complete First Legal Filing'' or
``initiate foreclosure action''.
Finally, a commenter sought clarification regarding delays caused
by bankruptcy filing or federally declared disaster declarations under
Sec. 1005.763(c). The commenter noted that both are valid external
influences extending the first legal filing period and out of the
servicer's control. Therefore, the commenter requested that the
extension process be outlined in guidelines instead of the regulations.
HUD Response: HUD appreciates the commenters' input. HUD has
revised the definition of filing for first legal action in Sec.
1005.103 to provide ``the first notice or filing required by applicable
law for any judicial or non-judicial foreclosure process.'' HUD added
clarifying language to this section that the filing of first legal
action must be complete within the given timeframe. Additionally, HUD
has added clarifying language to Sec. 1005.763(b) which
[[Page 20053]]
outlines the timeframes and circumstances for automatic extensions to
the filing for first legal action. As previously stated, Holders and
Servicers experiencing delays out of their control can request an
extension for the filing of first legal action, as is the current
policy and will be further described in the Section 184 Guidebook.
Sec. 1005.765 Assignment of the Section 184 Guaranteed Loan (Formerly
Sec. 1005.763)
A commenter stated that the required documents (recorded assignment
from the county, updated Title Status Report from the BIA) typically
take longer than 5 days and proposed extending the timeframe in
guidance rather than regulations.
Other commenters stated that under Sec. 1005.763(a)(4)(ii), most
of the properties assigned to HUD are occupied because there has been
no notice to the borrowers about vacating the property. The commenters
stated that vacancy is not a requirement for an assignment and
requiring approval for this common situation will cause delays in
completing the assignment. The commenters also noted that completing
the assignment has a strict timeframe defined by HUD, which, if not
met, results in curtailments of the advance amounts reimbursed by HUD,
and requiring HUD approval will increase losses that are outside the
servicer's control. (0008, 0018)
HUD Response: HUD appreciates the commenter's input. HUD has
revised Sec. 1005.765 to clarify that that the servicer must submit
the executed assignment for recordation to the appropriate jurisdiction
or BIA within five days of either receiving HUD approval for assignment
for fee simple Properties or completing Tribal First Right of Refusal
in accordance with Sec. 1005.759. HUD does not expect that the
recordation process will be complete in five days. HUD further
clarifies that the servicer has 45 days to submit evidence of this
assignment and request for recordation in accordance with Sec. 1005.
809(b). Further HUD deleted the language formerly at paragraph Sec.
1005.763(a)(4)(ii). It is not HUD's intention to remove an occupying
borrower, or for the servicer to receive prior HUD approval to complete
the assignment. Further, HUD has removed the former Sec.
1005.763(a)(i) through (iii) since they are redundant based on changes
made to Sec. 1005.729.
Sec. 1005.767 Inspection and Preservation of Properties (Formerly
Sec. 1005.765)
One commenter suggested that paragraph (a) of this section should
include a provision providing that a direct letter from the Tribe
informing the property is abandoned or vacant is sufficient to trigger
the servicer's obligation to secure the property. The commenter further
recommended that the provision permit the Tribe to secure the property
in the absence of a response from the servicer. The commenter also
recommended that the proposed rule should contain a procedure to
determine disputed questions of fact, and evidentiary standards for the
fact finder to opine on the disputed questions of facts. The commenter
explained that the Tribe should be able to take self-help measures to
secure and rehabilitate the vacant or abandoned house, and offset the
costs against the Service Provider, if the disputed facts are proven by
the Tribe.
HUD Response: HUD agrees with commenter that a Tribe's notice to
HUD that the property is vacant or abandoned is sufficient to trigger
the servicer's obligation to secure the property. Therefore, HUD
revised Sec. 1005.737 that the servicer may be notified by HUD when
the Tribe determines a unit is vacant or abandoned and that the Tribe
should be notified by the servicer that the unit is vacant or
abandoned.
Sec. 1005.769 Property Condition (Formerly Sec. 1005.767)
A commenter stated that the term ``Damage to Property by Waste'' in
paragraph (b) of this section is unclear and that revising the
paragraph by adding ``damage, deterioration or neglect'' committed by
borrower would provide clarity.
HUD Response: HUD agrees with this comment and has revised Sec.
1005.769(b) to provide ``waste, deterioration or neglect''. Further,
HUD revised the title of the paragraph to convey the requirements of
the paragraph more broadly. Additionally, HUD provided additional
clarity by inserting ``documented'' before the word ``damage'' to make
clear servicer must document the damage.
Sec. 1005.773 Acceptance of Property by HUD (Formerly Sec. 1005.771)
Commenters stated that Part A claims are usually not paid for many
months after the claim is filed, and that Sec. 1005.773(c) would
unreasonably result in the servicer incurring costs during HUD's
decision period to pay the claim. The commenter recommended that HUD
reimburse the lender to maintain the property for this length of time.
Similarly, the commenters stated that Sec. 1005.773(a)(1) through (3),
(b)(1) through (3), and (c) significantly depart from the current
Section 184 Program and place additional burden on the servicer. The
commenters recommended that Sec. 1005.807 be expanded to clarify that
the servicer will be reimbursed until HUD accepts the property.
HUD Response: HUD appreciates the commenters' concerns and has
worked to provide claim payments in a timely manner, once the claim
payment is submitted in a format requested by HUD and includes all
documents necessary to file a claim. In accordance with Sec. 1005.839,
the claim is paid based on the earlier of the execution of deed-in-
lieu/lease-in-lieu of foreclosure; the execution of the conveyance to
either servicer, HUD or a third-party; the execution of the assignment
of the Section 184 Guaranteed Loan to HUD; the expiration of the
reasonable diligence timeframe; or other event as prescribed by Section
184 Program Guidance. As a result, HUD is revising Sec. 1005.807(b) to
address the reimbursement of reasonable expenses and provide that HUD
will establish reasonable exceptions in Section 184 Program Guidance.
Several commenters stated the servicers needed guidance on expenses
related to loans in default. The commenter stated that current program
practice leaves a gap in expenses between when a foreclosure is
completed and when a property is conveyed to HUD. As a result, the
servicer incurs expenses to maintain and protect the property and
cannot recover these expenses through a claim. The commenters believe
that requiring servicers to absorb unreimbursed losses to protect
properties for HUD is not a reasonable policy, nor is it in line with
how FHA, VA, USDA, and the GSEs handle similar issues.
HUD Response: HUD thanks the commenters for the comments. HUD
incorporated the interest on unpaid principal balance and reimbursement
for reasonable costs policies from HUD's April 30, 2019, letter to
lenders into Sec. Sec. 1005.839 and 1005.841. With respect to
reimbursement of reasonable expenses, HUD has revised Sec. 1005.807(b)
to provide HUD with the flexibility to provide exceptions regarding the
reimbursement of reasonable expenses. HUD will provide administrative
guidance on reimbursement of reasonable expenses.
[[Page 20054]]
Sec. 1005.807 Claim Submission Categories
A commenter sought clarification in Sec. 1005.807(a), (b), and (c)
of the term ``Conveyance'' and when it is completed. Under paragraph
(b), commenters also sought clarification of the provision ``execution
of assignment,'' and proposed to include the reimbursement of the final
title work, as this is required under Sec. 1005.819(a)(1). The
commenter also proposed the addition of a claim for loss mitigation
incentives and loss mitigation advance.
HUD Response: HUD appreciates the request for clarification. Under
this final rule, HUD will use the same earlier of deadlines for payment
of reimbursable claim expenses as is outlined in Sec. 1005.839(a)
through (e) for reimbursement of interest payments. HUD has clarified
Sec. 1005.807 to specifically set the deadline for reimbursement and
will provide exceptions by Section 184 Program Guidance.
Sec. 1005.809 Claim Types
One commenter asked HUD to confirm, under Sec. 1005.809(a)(1),
whether the initial conveyance claim to HUD would need to be submitted
to HUD within 45 days from the executed deed instead of the industry
standard of two days when submitted electronically. This commenter also
asked HUD to confirm, under Sec. 1005.809(a)(2) and (3), whether HUD
provides title approval, similar to current industry standard. The
commenter further sought clarification as to whether servicers will be
able to submit a B Claim after the 60 days for claim payment under
paragraph (a)(4) of the section. In Sec. 1005.809(c), the commenter
asked HUD to confirm whether the Conveyance Without Title Claims
(CWCOT) are submitted to HUD within 180 days from when a property is
conveyed to HUD, which is different from the industry standard to
submit CWCOT within 30 days from receipt of third-party proceeds.
The commenter asked HUD to confirm in Sec. 1005.809(d) whether the
pre-foreclosure claims (PFS) are to be submitted to HUD within 45 days
of sale date, while the industry standard is 30 days from the closing
date (settlement date on HUD-1). The commenter also asked HUD to
confirm whether under paragraph (d) of the section, a Deed-in-Lieu
(DIL) is to be submitted to HUD within 45 days of executed conveyance
deed to HUD, while industry standard is 30 days from executed
conveyance deed.
Finally, the commenter also asked whether under Sec. 1005.809(e)
servicers are only allowed to submit supplemental claims to HUD for
only conveyance and assignment claims, because based on the industry
standards, servicers can file supplemental claims for conveyance,
assignment, PFS, DIL, and CWCOT. (0023) Lastly, the commenter asked HUD
to confirm if supplemental claims under paragraph (e)(2) are to be
submitted to HUD within 6 months from final claim (Part B) submitted
date, because the industry standard is supplemental claims are filed
within six months from final claim payment date (advice of payment
settlement date or wire date). (0023)
HUD Response: HUD agrees with many of the comments on this section.
Accordingly, HUD has revised paragraph (a)(1) to match the industry
standard of two days and to clarify the delivery requirement for claims
under Sec. 1005.807(a)(4). Section 184 Program Guidance will provide
instructions on the submission of final title. HUD has also revised
paragraphs (c) and (d) of the section to reflect industry standards.
Section Sec. 1005.809(e) has also been revised to clarify Supplemental
Claims may be submitted for all claim types found in Sec. Sec.
1005.809(a) through (d).
Sec. 1005.817 Conveyance of Good and Marketable Title
One commenter found the current paragraph (a) unnecessary as its
sole purpose is to cite to Sec. 1005.103 as the location of the ``Good
and Marketable Title'' definition.
HUD Response: HUD agrees with the commenter and deleted paragraph
(a) since it is unnecessary to restate a term that is defined in
section Sec. 1005.103.
Sec. 1005.821 Coverage of Title Evidence
One commenter stated that a Title Status Report (TSR) does not
always show certain information such as outstanding prior liens,
including any past-due and unpaid ground rents, general taxes, or
special assessments. The commenter further stated that while this
information may be included in title commitments, title commitments
sometimes are not available for trust land. As a result, the commenter
recommended that paragraph (a) of the section be revised to remove,
``The evidence of title or TSR further show that, according to the
public records, there are no outstanding prior liens, including any
past-due and ground rents, general taxes or special assessments, if
applicable, on the date of Conveyance or assignment'' to ensure the
borrowers' ability to comply:
HUD Response: HUD appreciates commenters' input. HUD has revised
paragraph (a) of this section to expand the eligible sources of
information acceptable to verify all liens have been released and there
are no outstanding rents, taxes, or special assessments. Additionally,
the initial TSR provided by the BIA will disclose all existing
encumbrances. If these encumbrances no longer appear on the Final TSR,
they have been released by the BIA.
Sec. 1005.835 Claim Payment Not Conclusive Evidence of Claim Meeting
All HUD Requirements
One commenter disfavored HUD's ability to review a loan file up to
five years after claim payment. The commenter believed this has the
effect of weakening the loan guarantee.
HUD Response: HUD appreciates the commenters' input but does not
agree permitting HUD to review a loan after claim payment has the
effect of weaking the loan guarantee. Lenders and servicers are always
required to comply with all applicable Section 184 regulations. The
final rule does not change this current policy to be consistent with
FHA, which has no official limitation on the timeframe it has to review
a loan post-endorsement or post-claim. Accordingly, HUD removed the
five-year reference in the regulation. HUD will provide information
regarding monitoring and quality control reviews of Direct Guarantee
Lenders in the Section 184 Program Guidance.
IV. Tribal Consultation
HUD's policy is to consult with Indian Tribes early in the
rulemaking process on matters that have Tribal implications.
Accordingly, HUD began consulting with Indian Tribes in February 2018.
HUD held eleven in-person Tribal consultation sessions before the
regulations in this proposed rule were drafted. As draft subparts of
the regulation were completed, HUD held three additional in-person
consultations to solicit Tribal feedback on each subpart. On April 4,
2019, HUD sent out a copy of the full draft proposed rule to all Tribal
leaders and directors of TDHEs for review and comment. The Tribal
comment period was originally from April 4, 2019, to June 4, 2019, but
it was extended to June 30, 2019, after Tribal leaders requested more
time to review the draft proposed rule. During this time, HUD also held
two in-person Tribal consultations and two national teleconferences to
review the draft proposed rule.
[[Page 20055]]
In addition to the Tribal consultation sessions held before and
during the drafting of the proposed rule, HUD conducted ten additional
consultations during the public comment period. HUD held six regional
consultation sessions and four national consultation sessions between
December 2022 and March 2023. During these consultation sessions, HUD
mainly answered questions participants had about the proposed rule. HUD
did receive comments about setting a minimum threshold of Trust land
lending (Sec. 1005.219(e)) and possible data collection from Tribal
participants (Sec. 1005.313). HUD considered these comments during the
drafting of the final rule and will continue to consider these comments
during the drafting of any subsequent Federal Register Notice or other
Section 184 Program Guidance related to these two sections.
Tribal feedback has been an integral part of the process to develop
the rule. Throughout the consultation process, HUD used Tribal feedback
to refine and improve this rule. Tribal comments included areas such as
lender relationships and qualifications, loan limits, rate and fees,
loan processing, Borrower qualifications, eligible units, Section 184
Approved Program Area, Tribal courts, and Tribal involvement. HUD
considered all written comments submitted to HUD, as well as recorded
comments received from in-person Tribal consultation sessions and
revised the proposed rule as appropriate.
V. Findings and Certifications
Regulatory Review--Executive Orders 12866, 13563, and 14094
Pursuant to Executive Order 12866 (Regulatory Planning and Review),
a determination must be made whether a regulatory action is
significant, and therefore, subject to review by OMB in accordance with
the requirements of the order. Executive Order 13563 (Improving
Regulations and Regulatory Review) directs executive agencies to
analyze regulations that are ``outmoded, ineffective, insufficient, or
excessively burdensome, and to modify, streamline, expand, or repeal
them in accordance with what has been learned.'' Executive Order 13563
also directs that, where relevant, feasible, and consistent with
regulatory objectives, and to the extent permitted by law, agencies are
to identify and consider regulatory approaches that reduce burdens and
maintain flexibility and freedom of choice for the public. Executive
Order 14094 (Modernizing Regulatory Review) amends section 3(f) of
Executive Order 12866 (Regulatory Planning and Review), among other
things.
Under Executive Order 12866 (Regulatory Planning and Review), as
amended by Executive Order 14094 (Modernizing Regulatory Review), a
determination must be made whether a regulatory action is significant
and, therefore, subject to review by OMB in accordance with the
requirements of the order. This final rule, as discussed above,
introduces changes to make the program sustainable, protect Borrowers,
address recommendations by the OIG in areas such as underwriting and
the claims process, and provide clarity for new and existing Direct and
Non-Direct Guarantee Lenders, Holders and Servicers who participate in
the Section 184 Program. These changes allow for Holders, Servicers,
Direct Guarantee Lenders and Non-Direct Guarantee Lenders to serve the
growing demand for the program and introduce stronger governing
regulations to reduce the increased risk to the Fund.
Many current and potential Section 184 Direct Guarantee and Non-
Direct Guarantee Lenders and Servicers participate in the FHA single
family mortgage program. Where appropriate, aligning the new Section
184 regulations with the FHA single family mortgage program regulations
should also minimize costs to new and existing lenders. Additionally,
clarifying servicing requirements will protect the Borrowers by
requiring Servicers to consider loss mitigation options for Borrowers.
Moreover, the added requirements and protections will help to reduce
losses to the Fund and thereby allow the Section 184 Program to provide
additional loans and decrease the cost of the loans to eligible
Borrowers.
This final rule was determined to be a significant regulatory
action under section 3(f) of Executive Order 12866 (Regulatory Planning
and Review) as amended by Executive Order 14094 (Modernizing Regulatory
Review), and therefore was reviewed by OMB. However, this final rule
was not deemed to be significant under Section 3(f)(1). Because program
participants have long followed the substantive standards that this
final rule would establish, HUD anticipates that this final rule will
have little to no economic effect. The docket file is available for
public inspection in the Regulations Division, Office of General
Counsel, Room 10276, 451 7th Street SW, Washington, DC 20410-0500. Due
to security measures at the HUD Headquarters building, please schedule
an appointment to review the docket file by calling the Regulations
Division at 202-708-3055 (this is not a toll-free number). HUD welcomes
and is prepared to receive calls from individuals who are deaf or hard
of hearing, as well as individuals with speech or communication
disabilities. To learn more about how to make an accessible telephone
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act, an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection displays a valid
control number. The information collection requirements contained in
this proposed rule have been approved by the OMB under the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control
number 2577-0200.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.),
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
As discussed above, this final rule would provide clarity for new and
existing lenders who participate in the Section 184 Program.
Participation in the Section 184 Program is voluntary. HUD has
determined that this rule would not have a significant economic impact
on a substantial number of small entities.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has Federalism implications if the rule
either imposes substantial direct compliance costs on State and local
governments and is not required by statute, or the rule preempts State
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This final rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made in accordance with HUD regulations at 24 CFR
part 50, which implement Section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C.
[[Page 20056]]
4332(2)(C)). The FONSI is available for public inspection at both
https://www.regulations.gov and https://www.hud.gov/codetalk, and
between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office
of General Counsel, Department of Housing and Urban Development, 451
7th Street SW, Room 10276, Washington, DC 20410-0500. Due to security
measures at the HUD Headquarters building, an advance appointment to
review the docket file must be scheduled by calling the Regulations
Division at 202-708-3055 (this is not a toll-free number).). HUD
welcomes and is prepared to receive calls from individuals who are deaf
or hard of hearing, as well as individuals with speech or communication
disabilities. To learn more about how to make an accessible telephone
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) proposes to establish requirements
for Federal agencies to assess the effects of their regulatory actions
on State, local, and Tribal governments, and on the private sector.
This final rule does not impose any Federal mandates on any state,
local, or Tribal government, or on the private sector, within the
meaning of the UMRA.
List of Subjects
24 CFR Part 58
Community development block grants, Environmental impact
statements, Grant programs--housing and community development,
Reporting and recordkeeping requirements.
24 CFR Part 1005
Indians, Loan programs--Indians, Reporting and recordkeeping
requirements.
For the reasons stated in the preamble, HUD amends 24 CFR parts 58
and 1005 as follows:
PART 58--ENVIRONMENTAL REVIEW PROCEDURES FOR ENTITIES ASSUMING HUD
ENVIRONMENTAL RESPONSIBILITIES
0
1. The authority citation for part 58 continues to read as follows:
Authority: 12 U.S.C. 1707 note, 1715z-13a(k); 25 U.S.C. 4115
and 4226; 42 U.S.C. 1437x, 3535(d), 3547, 4321-4335, 4852, 5304(g),
12838, and 12905(h); title II of Pub. L. 105-276; E.O. 11514, 35 FR
4247, 3 CFR, 1966-1970, Comp., p. 902, as amended by E.O. 11991, 3
CFR, 1977, Comp., p. 123; E.O. 13807, 3 CFR, 2017, Comp.; p. 369)
0
2. In Sec. 58.1, revise paragraph (b)(11) to read as follows:
Sec. 58.1 Purpose and applicability.
* * * * *
(b) * * *
(11) Indian Housing Loan Guarantees authorized by section 184 of
the Housing and Community Development Act of 1992 on trust land and on
fee land within an Indian reservation, and on fee land owned by the
Indian Tribe outside of the Tribe's Indian reservation boundaries, in
accordance with section 184(k) (12 U.S.C. 1715z-13a(k)); and
* * * * *
0
3. In Sec. 58.35, add paragraph (b)(8) to read as follows:
Sec. 58.35 Categorical exclusions.
* * * * *
(b) * * *
(8) HUD's guarantee of loans for one- to-four family dwellings on
trust land and on fee land within an Indian reservation and on fee land
owned by the Indian Tribe outside the Tribe's Indian Reservation
boundaries, under the Direct Guarantee procedure for the Section 184
Indian Housing loan guarantee program without any review or approval of
the application for the loan guarantee by HUD or the responsible entity
or approval of the loan guarantee by HUD before the execution of the
contract for construction or rehabilitation and the loan closing.
* * * * *
0
4. Revise part 1005 to read as follows:
PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING
Subpart A--General Program Requirements
Sec.
1005.101 Purpose.
1005.102 Severability.
1005.103 Definitions.
Subpart B--Lender Eligibility and Requirements
1005.201 Lender Applicant approval and participation.
1005.203 Lender Applicants deemed approved by statute.
1005.205 Lender Applicants required to obtain Secretarial approval.
1005.207 Lender Applicants participation options.
1005.209 Direct Guarantee Lender application process.
1005.211 Direct Guarantee Lender approval.
1005.213 Non-Direct Guarantee Lender application, approval, and
Direct Guarantee Lender sponsorship.
1005.215 Direct Guarantee Lender annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Direct Guarantee Lender Annual recertification
requirements.
1005.225 Program ineligibility.
Subpart C--Lending on Trust Land
1005.301 Tribal legal and administrative framework.
1005.303 Tribal application.
1005.305 Approval of Tribal application.
1005.307 Tribal annual recertification.
1005.309 Tribal duty to report proposed changes and actual changes.
1005.311 HUD notification of any lease default.
1005.313 Tribal reporting requirements.
Subpart D--Underwriting
Eligible Borrowers
1005.401 Eligible Borrowers.
1005.403 Principal Residence.
1005.405 Borrower residency status.
1005.407 Relationship of income to loan payments.
1005.409 Credit standing.
1005.411 Disclosure and verification of Social Security and Employer
Identification Numbers or Tax Identification Number.
Eligible Properties
1005.413 Acceptable title.
1005.415 Sale of property.
1005.417 Location of property.
1005.419 Requirements for standard housing.
1005.421 Certification of appraisal amount.
1005.423 Legal Restrictions on Conveyance.
1005.425 Rental properties.
1005.427 Refinancing.
1005.429 Eligibility of Loans covering manufactured homes.
1005.431 Acceptance of individual residential water purification.
1005.433 Builder warranty.
Eligible Loans
1005.435 Eligible collateral.
1005.437 Loan provisions.
1005.439 Loan lien.
1005.441 Section 184 Guaranteed Loan limit.
1005.443 Loan amount.
1005.445 Case numbers.
1005.447 Maximum age of Loan documents.
1005.449 Qualified mortgage.
1005.451 Agreed interest rate.
1005.453 Amortization provisions.
Underwriting
1005.455 Direct guarantee underwriting.
1005.457 Appraisal.
1005.459 Loan submission to HUD for endorsement.
1005.461 HUD issuance of Firm Commitment.
Subpart E--Closing and Endorsement
Closing
1005.501 Direct Guarantee Lender closing requirements.
1005.503 Contents of endorsement case binder.
1005.505 Payment of Upfront Loan Guarantee Fee.
[[Page 20057]]
1005.507 Borrower's payments to include other charges and escrow
payments.
1005.509 Application of payments.
1005.511 Late fee.
1005.513 Borrower's payments when Section 184 Guaranteed Loan is
executed.
1005.515 Charges, fees, or discounts.
1005.517 Certificate of nondiscrimination by the Direct Guarantee
Lender.
Endorsement and Post-Closing
1005.519 Creation of the contract.
1005.521 Pre-endorsement review and requirements.
1005.523 HUD pre-endorsement review.
1005.525 Loan Guarantee Certificate.
1005.527 Post-endorsement review.
1005.529 Indemnification.
Subpart F--Section 184 Guaranteed Loan Fees
1005.601 Scope and method of payment.
1005.603 Up-Front Loan Guarantee Fee.
1005.605 Remittance of Up-Front Loan Guarantee Fee.
1005.607 Annual Loan Guarantee Fee.
1005.609 Remittance of Annual Loan Guarantee Fee.
1005.611 HUD imposed penalties.
Subpart G--Servicing
Servicing Section 184 Guaranteed Loans Generally
1005.701 Section 184 Guaranteed Loan servicing generally.
1005.703 Servicer eligibility and application process.
1005.705 Servicer approval.
1005.707 Responsibility for servicing.
1005.709 Providing information to Borrower and HUD.
1005.711 Assumption and release of personal liability.
1005.713 Due-on-sale provision.
1005.715 Application of Borrower payments.
1005.717 Administering escrow accounts.
1005.719 Fees and costs after endorsement.
1005.721 Enforcement of late fees.
1005.723 Partial Payments.
1005.725 Handling prepayments.
1005.727 Substitute Borrowers.
Servicing Default Section 184 Guaranteed Loans
1005.729 Section 184 Guaranteed Loan collection action.
1005.731 Default notice to Borrower.
1005.733 Loss mitigation application, timelines, and appeals.
1005.735 Occupancy inspection.
1005.737 Vacant or abandoned property procedures.
Servicing Default Section 184 Guaranteed Loans Under the Loss
Mitigation Program
1005.739 Loss mitigation.
1005.741 Notice to Tribe and BIA--Borrower default.
1005.743 Relief for Borrower in military service.
1005.745 Forbearance plans.
1005.747 Assumption.
1005.749 Loan modification.
1005.751 Loss mitigation advance
1005.753 Pre-foreclosure sale.
1005.755 Deed-in-lieu/lease-in-lieu of foreclosure.
1005.757 Incentive payments.
Assignment of the Loan to HUD; Foreclosure and Conveyance
1005.759 Property on Trust Land--Tribal First Right of Refusal;
foreclosure or assignment
1005.761 Fee simple land properties--foreclosure or assignment with
HUD approval.
1005.763 First Legal Action deadline and automatic extensions.
1005.765 Assignment of the Section 184 Guaranteed Loan.
1005.767 Inspection and preservation of properties.
1005.769 Property condition.
1005.771 Conveyance of property to HUD at or after foreclosure; time
of conveyance.
1005.773 HUD acceptance of assignment or conveyance.
Subpart H--Claims
Claims Application, Submission Categories and Types
1005.801 Purpose.
1005.803 Claim case binder; HUD authority to review records.
1005.805 Effect of noncompliance.
1005.807 Claim submission categories.
1005.809 Claim types.
Submission of Claims
1005.811 Claims supporting documentation.
1005.813 Up-front and Annual Loan Guarantee Fee reconciliation.
1005.815 Conditions for withdrawal of claim.
Property Title Transfers and Title Waivers
1005.817 Conveyance of Good and Marketable Title.
1005.819 Types of satisfactory title evidence.
1005.821 Coverage of title evidence.
1005.823 Waived title objections for properties on fee simple land.
1005.825 Waived title objections for properties on Trust Land.
Condition of the Property
1005.827 Damage or neglect.
1005.829 Certificate of property condition.
1005.831 Cancellation of hazard insurance.
Payment of Guarantee Benefits
1005.833 Method of payment.
1005.835 Claim payment not conclusive evidence of claim meeting all
HUD requirements.
1005.837 Payment of claim: unpaid principal balance.
1005.839 Payment of claim: interest on unpaid principal balance.
1005.841 Payment of claim: reimbursement of eligible and reasonable
costs.
1005.843 Reductions to the claim submission amount.
1005.845 Rights and liabilities under the Indian Housing Loan
Guarantee Fund.
1005.847 Final payment.
1005.849 Reconveyance and reassignment
1005.851 Reimbursement of expenses to HUD.
Subpart I--Performance Reviews, Reporting, Sanctions, and Appeals
1005.901 Performance reviews.
1005.903 Reporting and certifications.
1005.905 Notice of sanctions.
1005.907 Sanctions and civil money penalties.
1005.909 Appeals process.
Authority: 12 U.S.C. 1715z-13a; 15 U.S.C. 1639c; 42 U.S.C.
3535(d).
Subpart A--General Program Requirements
Sec. 1005.101 Purpose.
This part implements the Section 184 Indian Housing Loan Guarantee
Program (``Section 184 Program'') authorized under Section 184 of the
Housing and Community Development Act of 1992, as amended, codified at
12 U.S.C. 1715z-13a. Section 184 authorizes the U.S. Department of
Housing and Urban Development (HUD) to establish a loan guarantee
program for American Indian and Alaskan Native families, Tribes, and
tribally Designated Housing Entities (TDHE). The loans guaranteed under
the Section 184 Program are used to construct, acquire, refinance, or
rehabilitate one- to four-family standard housing located on Trust
Land, land located in an Indian or Alaska Native area, and Section 184
Approved Program Area. These regulations apply to Lender Applicants,
Holders, Direct and Non-Direct Guarantee Lenders, Servicers and Tribes
seeking to or currently participating in the Section 184 Program.
Sec. 1005.102 Severability.
Any provision of this part held to be invalid or unenforceable as
applied to any action should be construed so as to continue to give the
maximum effect to the provision permitted by law, unless such holding
is that the provision of this part is invalid and unenforceable in all
circumstances, in which event the provision should be severable from
the remainder of this part and shall not affect the remainder thereof.
Sec. 1005.103 Definitions.
The following definitions apply throughout this part:
Acquisition Cost means the sum of the sales price or construction
cost for a property and the cost of allowable repairs or improvements
for the same property, less any unallowable sales concession(s). For
the purposes of this definition, the term ``sales concession'' means an
inducement to purchase a property paid by the seller to consummate a
sales transaction.
[[Page 20058]]
Amortization means the calculated schedule of repayment of a
Section 184 Guaranteed Loan in full, through structured, regular
payments of principal and interest within a certain time frame.
Amortization Schedule means the document generated at the time of
loan approval outlining the Borrower's schedule of payments of
principal and interest for the life of the loan and the unpaid
principal balance with and without the financed Upfront Loan Guarantee
Fee, where applicable.
Annual Loan Guarantee Fee means a fee calculated on an annual basis
and paid in monthly installments by the Borrower, which is collected by
the Servicer and remitted to HUD for the purposes of financing the
Indian Housing Loan Guarantee Fund.
BIA means the United States Department of Interior, Bureau of
Indian Affairs.
Borrower means every individual on the mortgage application. For
the purposes of servicing the loan, Borrower refers to every original
Borrower who signed the note and their heirs, executors,
administrators, assigns, and approved substitute Borrowers. Borrowers
include Tribes and TDHEs.
Claim means the Servicer's application to HUD for payment of
benefits under the Loan Guarantee Certificate for a Section 184
Guaranteed Loan.
Conflict of Interest means any party to the transaction who has a
direct or indirect personal business or financial relationship
sufficient to appear that it may cause partiality or influence the
transaction, or both.
Date of Default means the day after the Borrower's obligation to
make a loan payment or perform an obligation under the terms of the
loan.
Day means calendar day, except where the term ``business day'' is
used.
Default means when the Borrower has failed to make a loan payment
or perform an obligation under the terms of the Section 184 Guaranteed
Loan.
Direct Guarantee Lender means a Lender approved by HUD under Sec.
1005.21 to Originate, underwrite, close, service, purchase, hold, or
sell Section 184 Guaranteed Loans.
Eligible Nonprofit Organization means a nonprofit organization
established under Tribal law or organization of the type described in
section 501(c)(3) of the Internal Revenue Code of 1986 as an
organization exempt from taxation under section 501(a) of the Code,
which has:
(1) Two years' experience as a provider of low- or moderate-income
housing;
(2) A voluntary board; and
(3) No part of its net earnings inuring to the benefit of any
member, founder, contributor or individual.
Financial Statements means audited financial statements or other
financial records as required by HUD.
Firm Commitment means a commitment by HUD to reserve funds, for a
specified period of time, to guarantee a Loan under the Section 184
Program, when a Loan for a specific Borrower and property meets
standards as set forth in subpart D of this part.
First Legal Action means the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process.
Good and Marketable Title means title that contains exceptions or
restrictions, if any, which are permissible under subpart D of this
part; and any objections to title that have been waived by HUD or
otherwise cleared by HUD; and any discrepancies have been resolved to
ensure the Section 184 Guaranteed Loan is in first lien position. In
the case of Section 184 Guaranteed Loans on Trust Land, evidence of
Good and Marketable Title must be reported in the Title Status Report
issued by the BIA, or other HUD approved document issued by the Tribe,
as prescribed by Section 184 Program Guidance and the document
evidences the property interest rights.
Holder means an entity that is named on the Promissory Note and any
successor or assigns for the Section 184 Guaranteed Loan and has the
right and responsibilities to enforce the Section 184 requirements and
the Holder's interests arising under the mortgage or deed of trust.
Identity of Interest means a sales transaction between family
members, business partners, or other business affiliates.
Indian means a person who is recognized as being an Indian or
Alaska Native by a federally recognized Indian Tribe, a regional or
village corporation as defined in the Alaska Native Claims Settlement
Act, or a State recognized Tribe eligible to receive assistance under
Title I of the Native American Housing Assistance and Self-
Determination Act of 1996 (NAHASDA).
Indian Family means one or more persons maintaining a household
where at least one Borrower is an Indian.
Indian Housing Loan Guarantee Fund or Fund means a fund established
at the U.S. Department of Treasury for the purpose of providing loan
guarantees under the Section 184 Program.
Lease or Leasehold Interest means a written contract between a
Borrower and a Tribe, entity, or individual, whereby the Borrower, as
lessee, is granted a right of possession of Trust Land for a specific
purpose and duration, according to applicable Tribal, Federal or State
Law.
Lender Applicant means:
(1) A financial institution engaging in mortgage lending that is
eligible to participate in the Section 184 Program under Sec. 1005.203
or Sec. 1005.205;
(2) The financial institution has applied or will apply to HUD for
approval to participate in the Section 184 Program; and
(3) Has not received approval from HUD.
Loan means a loan application or mortgage loan that has not
received a Loan Guarantee Certificate.
Loan Guarantee Certificate means evidence of endorsement by HUD of
a Loan for guarantee issued under Sec. 1005.525.
Loss Mitigation means an alternative to foreclosure offered by the
Holder that is made available through the Servicer to the Borrower.
Non-Direct Guarantee Lender means a Lender approved by HUD under
Sec. 1005.207 who has selected a level of program participation
limited to Originating Section 184 Guaranteed Loans.
Month or monthly means thirty days in a month, regardless of the
actual number of days.
Origination, originate, or originating means the process by which
the Lender accepts a new loan application along with all required
supporting documentation. Origination does not include underwriting the
loan.
Owner of Record means, for fee simple properties, the owner of the
property as shown on the records of the recorder in the county where
the property is located. For Trust Land Properties, the current lessee
or owner of property, as shown on the Title Status Report provided by
the BIA or other HUD approved document issued by the Tribe, as
prescribed by Section 184 Program Guidance and the document evidences
the property interest rights.
Partial Payment means a Borrower payment of any amount less than
the full amount due under the terms of the Section 184 Guaranteed Loan
at the time the payment is tendered.
Property means one to four-family dwellings that meet the
requirements for standard housing under Sec. 1005.419 and located on
Trust Land, land located in an Indian or Alaska Native area, or Section
184 Approved Program Area.
Section 184 Guaranteed Loan is a Loan that has received a Loan
Guarantee Certificate.
[[Page 20059]]
Section 184 Approved Program Area means the Indian Housing Block
Grant (IHBG) Formula Area as defined in 24 CFR 1000.302 or any other
area approved by HUD, in which HUD may guarantee Loans.
Section 184 Program Guidance means administrative guidance
documents that may be issued by HUD, including but not limited to
Federal Register documents, Dear Lender Letters, handbooks, guidebooks,
manuals, and user guides.
Security means any collateral authorized under existing Tribal,
Federal, or State law.
Servicer means a Direct Guarantee Lender that chooses to service
Section 184 Guaranteed Loans or a Non-Direct Guarantee Lender or a
financial institution approved by HUD under Sec. 1005.705 to service
Section 184 Guaranteed Loans.
Sponsor means an approved Direct Guarantee Lender that enters into
a relationship with a Non-Direct Guarantee Lender or another Direct
Guarantee Lender (Sponsored Entity), whereby the Sponsor provides
underwriting, closing, purchasing, and holding of Section 184
Guaranteed Loans and may provide servicing.
Sponsored Entity means a Non-Direct Guarantee or Direct Guarantee
Lender operating under an agreement with a Sponsor to Originate Section
184 Guaranteed Loans in accordance with Sec. 1005.213.
Tax-exempt Bond Financing means financing which is funded in whole
or in part by the proceeds of qualified mortgage bonds described in
section 143 of the Internal Revenue Code of 1986, or any successor
section, on which the interest is exempt from Federal income tax. The
term does not include financing by qualified veterans' mortgage bonds
as defined in section 143(b) of the Code.
Title Status Report is defined in 25 CFR 150.2, as may be amended.
Tribe means any Indian Tribe, band, nation, or other organized
group or community of Indians, including any Alaska Native village or
regional or village corporation as defined in or established pursuant
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601, et seq.),
that is recognized as eligible for the special programs and services
provided by the United States to Indians because of their status as
Indians pursuant to the Indian Self Determination and Education
Assistance Act of 1975.
Tribally Designated Housing Entity (TDHE) means any entity as
defined in the Indian Housing Block Grant Program under the Native
American Housing Assistance and Self Determination Act at 25 U.S.C.
4103(22).
Trust Land means land title which is held by the United States for
the benefit of an Indian or Tribe or title which is held by a Tribe
subject to a restriction against alienation imposed by the United
States or the Tribe. This definition shall include but is not limited
to Tribal, individual, assigned trust, or restricted fee lands.
Upfront Loan Guarantee Fee means a fee, paid by the Borrower at
closing, collected by the Direct Guarantee Lender and remitted to HUD
for the purposes of financing the Indian Housing Loan Guarantee Fund.
Subpart B--Lender Eligibility and Requirements
Sec. 1005.201 Lender Applicant approval and participation.
(a) Approval types. The Section 184 Program has two types of Lender
Applicant approvals:
(1) Lender Applicants deemed approved by statute, as described in
Sec. 1005.203; or
(2) Lender Applicants required to obtain secretarial approval under
Sec. 1005.205.
(b) Lender Applicant participation. In accordance with Sec.
1005.207, Lender Applicants must select a level of program
participation and submit a completed application package, as prescribed
by Section 184 Program Guidance, to participate in the Section 184
Program.
Sec. 1005.203 Lender Applicants deemed approved by statute.
The following Lender Applicants are deemed approved by statute:
(a) Any mortgagee approved by HUD for participation in the single-
family mortgage insurance program under title II of the National
Housing Act;
(b) Any Lender Applicant whose housing loan under chapter 37 of
title 38, United States Code are automatically guaranteed pursuant to
38 U.S.C. 3702(d);
(c) Any Lender Applicant approved by the U.S. Department of
Agriculture to make Guaranteed Loans for single family housing under
the Housing Act of 1949; and
(d) Any other Lender Applicant that is supervised, approved,
regulated, or insured by any other Federal agency of the United States,
including but not limited to Community Development Financial
Institutions.
Sec. 1005.205 Lender Applicants required to obtain Secretarial
approval.
(a) Lender Applicant application process. Lender Applicants not
meeting the requirements of Sec. 1005.203 must apply to HUD for
approval to participate in the Section 184 Program by submitting to HUD
a completed application package, as prescribed by Section 184 Program
Guidance. The application must establish that the Lender meets the
following qualifications:
(1) Business form. The Lender Applicant shall be a corporation or
other chartered institution, a permanent organization having
succession, or a partnership, organized under Tribal or State law.
(i) Partnership requirements. A partnership must meet the following
requirements:
(A) Each general partner must be a corporation or other chartered
institution consisting of two or more partners.
(B) One general partner must be designated as the managing general
partner. The managing general partner shall also comply with the
requirements specified in paragraphs (a)(1)(i)(C) and (D) of this
section. The managing general partner must have as its principal
activity the management of one or more partnerships, all of which are
mortgage lending institutions or property improvement or manufactured
home lending institutions and must have exclusive authority to deal
directly with HUD on behalf of each partnership. Newly admitted
partners must agree to the management of the partnership by the
designated managing general partner. If the managing general partner
withdraws or is removed from the partnership for any reason, a new
managing general partner shall be substituted, and HUD must be notified
in writing within 15 days of the substitution.
(C) The partnership agreement shall specify that the partnership
shall exist for a minimum term of ten years, as required by HUD. All
Section 184 Guaranteed Loans held by the partnership shall be
transferred to a Lender Applicant approved under this part prior to the
termination of the partnership. The partnership shall be specifically
authorized to continue its existence if a partner withdraws.
(D) HUD must be notified in writing within 15 days of any
amendments to the partnership agreement that would affect the
partnership's actions under the Section 184 Program.
(ii) Use of business name. The Lender Applicant must use its HUD-
registered business name in all advertisements and promotional
materials related to the Guaranteed Loan. HUD-registered business names
include any alias or ``doing business as'' (DBA) on file with
[[Page 20060]]
HUD. The Lender must keep copies of all print and electronic
advertisements and promotional materials for a period of 2 years from
the date that the materials are circulated or used to advertise.
(2) Identification and certification of employees. The Lender
Applicant shall identify personnel and certify that they are trained
and competent to perform their assigned responsibilities in mortgage
lending, including origination, servicing, collection, and conveyance
activities, and shall maintain adequate staff and facilities to
Originate or service mortgages, or both, in accordance with applicable
Tribal, Federal, or State requirements, to the extent it engages in
such activities.
(3) Identification and certification of officers. The Lender
Applicant shall identify officers and certify that all employees who
will sign applications for Guaranteed Loans on behalf of the Lender
Applicant shall be corporate officers or shall otherwise be authorized
to bind the Lender in the Origination transaction. The Lender Applicant
shall certify that only authorized person(s) report on guarantees,
purchases, and sales of Guaranteed Loans to HUD for the purpose of
obtaining or transferring guarantee coverage.
(4) Financial statements. The Lender Applicant shall:
(i) Furnish to HUD a copy of its most current annual financial
statements, as prescribed by Section 184 Program Guidance.
(ii) Furnish such other information as HUD may request; and
(iii) Submit to examination of the portion of its records that
relates to its activities under the Section 184 Program.
(5) Quality control plan. The Lender Applicant shall submit a
written quality control plan in accordance with Sec. 1005.217.
(6) Identification of branch offices. A Lender Applicant may
maintain branch offices. A financial institution's branch office must
be registered with HUD to originate or submit applications for
Guaranteed Loans. The financial institution shall remain responsible to
HUD for the actions of its branch offices.
(7) Certification of conflict of interest policy. The Lender
Applicant must certify that the lender shall not pay anything of value,
directly or indirectly, in connection with any Guaranteed Loan to any
person or entity if such person or entity has received any other
consideration from the seller, builder, or any other person for
services related to such transactions or related to the purchase or
sale of the property, except that consideration, approved by HUD, may
be paid for services actually performed. The Lender Applicant shall not
pay a referral fee to any person or organization.
(8) Licensing certification. A Lender Applicant shall certify that
it has not been refused a license or has not been sanctioned by any
Tribal, Federal, State, or other authority related to any lending
activity.
(9) Minimum net worth. Irrespective of size, a Lender Applicant
shall have a net worth of not less than $1 million, or amount as
provided in Section 184 Program Guidance.
(10) Identification of operating area. The Lender Applicant must
submit a list of states in which they wish to participate in the
Section 184 Program and evidence of Lender Applicant's license to
operate in those states, as may be prescribed by Section 184 Program
Guidance.
(11) Other qualifications. Other qualifications by notice for
comment.
(b) HUD approval. HUD shall review applications under Sec.
1005.203(a) and any other publicly available information related to the
Lender Applicant, its officers, and employees. If HUD determines the
Lender Applicant meets the requirements for participation in this
subpart, HUD shall provide written notification of the approval to be a
Non-Direct Guarantee Lender.
(c) Limitations on approval. A Lender Applicant may only operate in
the Section 184 Approved Program Area where they are licensed.
(d) Denial of participation. A Lender Applicant may be denied
approval to become a Section 184 Lender if HUD determines the Lender
Applicant does not meet the qualification requirements of this subpart.
HUD will provide written notification of denial and that decision may
be appealed in accordance with the procedures set forth in Sec.
1005.909.
Sec. 1005.207 Lender Applicant participation options.
(a) Levels of participation. Lender Applicants must choose one of
two levels of program participation, a Non-Direct Guarantee Lender or a
Direct Guarantee Lender and submit an application to participate on a
form prescribed by Section 184 Program guidance. A participation level
must be selected by the Lender Applicant and approved by HUD before
initiating any Section 184 Program activities.
(b) Non-Direct Guarantee Lender. (1) A Non-Direct Guarantee Lender
originates loans.
(2) A Non-Direct Guarantee Lender must be a Sponsored Entity under
Sec. 1005.213.
(3) A Non-Direct Guarantee Lender must submit documentation
supporting their eligibility as a Lender under Sec. 1005.203 or
approved by HUD under Sec. 1005.205 and other documentation as
prescribed by Section 184 Program Guidance to HUD through their
Sponsor.
(c) Direct Guarantee Lender. (1) A Direct Guarantee Lender may
originate, underwrite, close, service, purchase, hold, and sell Section
184 Guaranteed Loans.
(2) A Direct Guarantee Lender may sponsor Non-Direct Guarantee
Lenders or other Direct Guarantee Lenders in accordance with Sec.
1005.213.
(3) To become a Direct Guarantee Lender, Lender Applicants must
submit additional documentation as provided in Sec. 1005.209 and
obtain HUD approval under Sec. 1005.211.
Sec. 1005.209 Direct Guarantee Lender application process.
(a) For purposes of this section, Lender Applicants shall include
Non-Direct Guarantee Lenders, Lender Applicants and financial
institutions approved by HUD to only service under Sec. 1005.705.
Lender Applicants may apply to HUD for approval to participate in the
Section 184 Program as a Direct Guarantee Lender. Lenders Applicants
must submit a completed application package in accordance with Section
184 Program Guidance.
(b) To be approved as a Direct Guarantee Lender, a Lender Applicant
must establish in its application that it meets the following
qualifications:
(1) Eligibility under Sec. 1005.203 or HUD approval under Sec.
1005.205, as evidenced by approval documents and most recent
recertification documents.
(2) Has a principal officer with a minimum of five years'
experience in the origination of Loans guaranteed or insured by an
agency of the Federal Government. HUD may approve a Lender applicant
with less than five years of experience, if a principal officer has had
a minimum of five years of managerial experience in the origination of
Loans guaranteed or insured by an agency of the Federal Government.
(3) Has on its permanent staff an underwriter(s) that meets the
following criteria:
(i) Two years' experience underwriting Loans guaranteed or insured
by an agency of the Federal Government;
(ii) Is an exclusive employee of the Lender Applicant;
(iii) Authorized by the Lender Applicant to obligate the Lender
Applicant on matters involving the origination of Loans;
[[Page 20061]]
(iv) Is registered with HUD as an underwriter and continues to
maintain such registration; and
(v) Other qualifications as may be prescribed by Section 184
Program Guidance.
(c) The Lender Applicant must submit a list of States or geographic
regions in which it is licensed to operate, evidenced by submitting the
active approvals for each State or region, and declare its interest in
participating in the Section 184 Program.
(d) The Lender Applicant must submit the quality control plan as
required by its approving agency, modified for the Section 184 Program.
(e) If a Lender Applicant wants to service Section 184 Guaranteed
Loans as Direct Guarantee Lender, they must meet qualifications and
apply in accordance with Sec. 1005.703.
Sec. 1005.211 Direct Guarantee Lender approval.
HUD shall review all documents submitted by a Lender Applicant
under Sec. 1005.209 and make a determination of conditional approval
or denial.
(a) Conditional approval. Conditional approval is signified by
written notification from HUD that the Lender Applicant is a
conditionally approved Direct Guarantee Lender under the Section 184
Program subject to the following conditions:
(1) The Lender Applicant signs an agreement to comply with
requirements of this part, and any applicable Tribal, Federal, or State
law; and
(2) If applicable, the Lender Applicant submits a list of entities
it currently sponsors under another Federal Loan program and intends to
sponsor in the Section 184 Program. This list shall include the
following for each Sponsored Entity:
(i) Contact information, including mailing address, phone number,
and email address for corporate officers.
(ii) The Federal tax identification number (TIN) for the Sponsored
Entity, and
(iii) Names and Nationwide Multistate Licensing System and Registry
numbers for all Loan originators and processors.
(3) The Lender Applicant certifies it monitors and provides
oversight of Sponsored Entities to ensure compliance with this part,
and any applicable Tribal, Federal, or State law.
(4) The Lender Applicant must, for each underwriter, submit ten
test endorsement case binders, or a number prescribed by Section 184
Program Guidance, which meet the requirements of subparts D and E.
Unsatisfactory performance by an underwriter during HUD's test case
review may constitute grounds for denial of approval to participate as
a Direct Guarantee Lender. If participation is denied, such denial is
effective immediately and may be appealed in accordance with the
procedures set forth in Sec. 1005.909; and
(5) The Lender Applicant will operate only in accordance with the
Lender's licensing in Section 184 Approved Program Areas.
(b) Final approval. Final approval is signified by written
notification from HUD that the Lender Applicant is an approved Direct
Guarantee Lender under the Section 184 Program without further
submission of test case endorsement case binders to HUD. HUD retains
the right to request additional test cases as determined necessary.
(c) Limitations on approval. (1) A Lender Applicant may only
operate as a Direct Guarantee Lender in accordance with the Lender's
Tribal or State licensing and within Section 184 Approved Program
Areas.
(2) The Lender Applicant must employ and retain an underwriter with
the qualifications as provided in Sec. 1005.209(b)(3). Failure to
comply with this provision may subject the Lender Applicant to
sanctions under Sec. 1005.907.
(d) Denial of participation. A Lender Applicant may be denied
approval to become a Direct Guarantee Lender if HUD determines the
Lender Applicant does not meet the qualification requirements of this
subpart. HUD will provide written notification of denial and that
decision may be appealed in accordance with the procedures set forth in
Sec. 1005.909.
Sec. 1005.213 Non-Direct Guarantee Lender application, approval, and
Direct Guarantee Lender sponsorship.
(a) Sponsorship. A Sponsorship is a contractual relationship
between a Sponsor and a Sponsored Entity.
(b) General responsibility requirements of a Sponsor. (1) The
Sponsor must determine the eligibility of a Lender and submit to HUD,
as prescribed in Section 184 Program Guidance, a recommendation for
approval under Sec. 1005.207(b) or evidence of HUD approval under
Sec. Sec. 1005. 205(b) or 211(b).
(2) Upon HUD approval of eligibility under Sec. 1005.207(b), or
HUD acknowledgement of the evidence of HUD approval under Sec.
1005.205(b) or Sec. 1005.211(b), the Sponsor may enter into a
Sponsorship with the Sponsored Entity.
(3) The Sponsor must notify HUD of changes in a Sponsorship within
10 days.
(4) The Sponsor must provide HUD-approved training to the Sponsored
Entity on the requirements of the Section 184 Program before the
Sponsored Entity may originate Section 184 Guaranteed Loans for the
Sponsor.
(5) Each Sponsor shall be responsible to HUD for the actions of its
Sponsored Entity in Originating Loans. If Tribal or State law requires
specific knowledge by the Sponsor or the Sponsored Entity, HUD shall
presume the Sponsor had such knowledge and shall remain liable.
(6) The Sponsor is responsible for conducting quality control
reviews of the Sponsored Entity's origination case binders and Loan
performance to ensure compliance with this part.
(7) The Sponsor is responsible for maintaining all records for
Loans Originated by a Sponsored Entity in accordance with this part.
(c) Responsibilities of the Sponsored Entity. A Sponsor must ensure
that a Sponsored Entity complies with this part and any other Tribal,
Federal, or State law requirements.
Sec. 1005.215 Direct Guarantee Lender annual reporting requirements.
Direct Guarantee Lenders must submit an annual report on Loan
performance, including reporting on all its Sponsored Entities, where
applicable, along with any other required reporting under Sec.
1005.903 and other such reports as prescribed by Section 184 Program
Guidance.
Sec. 1005.217 Quality control plan.
(a) A quality control plan sets forth a Lender Applicant, Direct
Guarantee Lender, or Non-Direct Guarantee Lender's procedures for
ensuring the quality of the Direct Guarantee or Non-Direct Guarantee
Lender's Section 184 Guaranteed Loan Origination, underwriting,
closing, and/or servicing, as applicable. The purpose of the quality
control plan is to ensure the Lender Applicant, Direct Guarantee and
non-Direct Guarantee Lender's compliance with Section 184 Program
requirements and protect HUD and the entities from unacceptable or
unreasonable risks. A Lender Applicant, Direct Guarantee Lender, and
Non-Direct Guarantee Lender must adopt and implement a quality control
plan.
(b) A quality control plan must:
(1) Be maintained and updated, as needed, to comply with all
applicable Section 184 Program requirements.
(2) Cover all policies and procedures, whether performed by the
Lender or an agent, to ensure full compliance with all Section 184
Program requirements.
(3) Provide the Lender with information sufficient to adequately
[[Page 20062]]
monitor and oversee the Lender's compliance and measure performance, as
it relates to the Lender's Section 184 Guaranteed Loan activity.
(4) Require the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to retain all quality control plan related
documentation, including selection criteria, review documentation,
findings, and actions to mitigate findings, for a period of three years
from initial quality control review, or from the last action taken to
mitigate findings, whichever is later.
(5) Allow the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to use employees or agents to perform the quality
control functions, so long as they do not directly participate in any
Loan administration processes as outlined in Section 184 Program
Guidance.
(6) Ensure the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender assumes full responsibility for any agent's conduct of
quality control reviews.
(7) Require the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to train all staff, agents working with the Section
184 Program on Loan administration and quality control processes and
provide staff access to all current Section 184 legal authorities and
policy guidance. The Lender, Direct Guarantee or Non-Direct Guarantee
Lender must retain copies of training documentation for all staff
working on the Section 184 Program in accordance with Sec.
1005.219(d)(3). Failure to comply with the training and documentation
requirements may subject the Direct Guarantee Lender and Non-Direct
Guarantee Lender to sanctions in accordance with Sec. 1005.907.
(8) Require the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to review a random statistical sample of rejected Loan
applications within 90 days from the end of the month in which the
decision was made. The reviews must be conducted no less frequently
than monthly and with the goal of ensuring that the reasons given for
the rejection were valid and each rejection received concurrence of an
appropriate staff person with sufficient approval authority. The Lender
Applicant, Direct Guarantee or Non-Direct Guarantee Lender must submit
a report of this review in form and timeframe as prescribed in Section
184 Program Guidance.
(9) Ensure that the Lender Applicant, Direct Guarantee or Non-
Direct Guarantee Lender's employees and agents are eligible to
participate in the Section 184 Program. Any employees or agents deemed
ineligible shall be restricted from participating in the Section 184
Program.
(10) Require the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to refer any suspected fraud or material
misrepresentation by any party whatsoever directly to HUD's Office of
Inspector General (OIG) and the Office of Native American Programs.
(11) Require the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to report all material deficiencies and submit a
corrective action plan to HUD within 30 days, or a timeframe as
prescribed by Section 184 Program Guidance.
(12) Require the Lender Applicant, Direct Guarantee or Non-Direct
Guarantee Lender to conduct appropriate Loan level quality control
procedures, in accordance with Section 184 Program Guidance.
(13) Require the Lender Applicant to comply with any other
administrative requirement as may be prescribed by Section 184 Program
Guidance.
(c) Lender Applicants applying to be a Direct Guarantee Lender
under Sec. 1005.209, must submit a quality control plan in accordance
with paragraph (b) of this section and include the following additional
requirements:
(1) Require the Lender Applicant to collect and forward all Loan
Guarantee Fees in accordance with the Section 184 Program requirements,
with sufficient documentation evidencing the timely collection and
payment of the fees to HUD.
(2) Require the Lender Applicant to verify that the endorsement
case binder is submitted to HUD for guarantee within required time
frames.
(3) Require the Lender Applicant to review a random statistical
sample of its endorsement case binders for potential fraud, material
misrepresentations, or other findings on a quarterly basis. The Lender
Applicant must investigate and determine if fraud, material
misrepresentation or other findings occurred.
(4) Require the Lender Applicant to perform quality control review
of its Sponsored Entities in the same manner and under the same
conditions as required for the Lender's own operation.
(5) Where applicable, require the Sponsor to apply paragraph (b) of
this section to its Sponsored Entities.
(d) All Sponsored Entities shall comply with paragraph (b) of this
section and provide a quality control plan directly to their Sponsor in
accordance with their sponsorship agreement.
Sec. 1005.219 Other requirements.
(a) Tribal, Federal, and State law. All Holders, Direct Guarantee
Lenders, Non-Direct Guarantee Lenders and Servicers must comply with
all applicable Tribal, Federal, and State laws which impact mortgage-
related activities.
(b) Dual employment. All Non-Direct Guarantee Lenders and Direct
Guarantee Lenders must require its employees to be exclusive employees,
unless the Non-Direct Guarantee and Direct Guarantee Lender has
determined that the employee's other employment, including any self-
employment, does not create a Conflict of Interest.
(c) Reporting requirements. All Direct Guarantee Lenders must
submit reports in accordance with Sec. 1005.903. Non-Direct Guarantee
Lenders must submit required reports to their Sponsor, under this part
or any requirements as prescribed by Section 184 Program Guidance.
(d) Records retention. Records retention requirements are as
follows:
(1) Direct Guarantee Lenders must maintain an endorsement case
binder for a period of three years beyond the date of satisfaction or
maturity date of the Loan, whichever is sooner. However, where there is
a payment of Claim, the endorsement case binder must be retained for a
period of at least five years after the final Claim has been paid.
Section 184 Program Guidance shall prescribe additional records
retention time depending on the circumstances of the Claim.
(2) All Direct Guarantee Lenders and Non-Direct Guarantee Lenders
must retain personnel files of employees for one year beyond the
employee's separation.
(3) All Direct Guarantee Lenders and Non-Direct Guarantee Lenders
must follow the applicable records retention requirements imposed by
applicable Tribal, Federal, and State laws.
(4) Direct Guarantee Lenders and Non-Direct Guarantee Lenders must
maintain the quality control plan records for a period prescribed in
Sec. 1005.217(b)(4).
(e) Minimum level of lending on Trust Land. (1) Direct Guarantee
Lenders must actively market, Originate, underwrite, and close Loans on
Trust Land. A Sponsor must ensure its Sponsored Entities actively
market and Originate Loans on Trust Land. HUD may impose a minimum
level of lending on Trust Land, which may be adjusted periodically,
through publication in the Federal Register.
(2) Failure to meet the minimum level of lending on Trust Land may
result in sanctions in accordance with Sec. Sec. 1005.905 and
1005.907.
[[Page 20063]]
(3) HUD may grant exceptions for Direct Guarantee Lenders and Non-
Direct Guarantee Lenders licensed and doing business in a State or
States with limited Trust Lands. The process to request the exception
will be prescribed by Section 184 Program Guidance.
Sec. 1005.221 Business change reporting.
(a) Within a timeframe as prescribed by Section 184 Program
Guidance, Direct Guarantee Lenders shall provide written notification
to HUD, in such a form as prescribed by Section 184 Program Guidance
of:
(1) All changes in the Direct Guarantee Lender or Sponsored
Entity's legal structure, including, but not limited to, mergers,
acquisitions, terminations, name, location, control of ownership, and
character of business;
(2) Staffing changes with senior leadership and Loan underwriters
for Direct Guarantee Lenders and Sponsored Entities; and
(3) Any sanctions by another supervising entity.
(b) Failure to report changes within a reasonable timeframe
prescribed in Section 184 Program Guidance may result in sanctions in
accordance with Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.223 Direct Guarantee Lender Annual recertification
requirements.
(a) All Direct Guarantee Lenders are subject to annual
recertification on a date and form as prescribed by Section 184 Program
Guidance.
(b) With each annual recertification, Direct Guarantee Lenders must
submit updated contact information, continued eligibility documentation
and other pertinent materials as prescribed by Section 184 Program
Guidance, including but not limited to:
(1) A certification that it has not been refused a license or
sanctioned by any Tribe, State, or Federal entity or other governmental
authority related to any lending activity;
(2) A certification that the Direct Guarantee Lender is in good
standing with any Tribe, State, or Federal entity in which it will
perform Direct Guarantee Lender activities; and
(3) Renewal documents and certification of continued eligibility
from an authorizing entity listed in Sec. 1005.203.
(4) Lenders approved under Sec. 1005.205 must submit documentation
supporting continued eligibility as prescribed by Section 184 Program
Guidance.
(c) All Sponsored Entities shall comply with this requirement and
provide the annual recertification documentation directly to their
Sponsor in accordance with their sponsorship agreement.
(d) Direct Guarantee Lenders must also submit the following in
accordance with Section 184 Program Guidance:
(1) A certification that the Direct Guarantee Lender continues to
meet the direct guarantee program eligibility requirements in
accordance with Sec. 1005.209;
(2) A list of all Sponsored Entities with which the Direct
Guarantee Lender has a sponsorship relationship, and a certification of
their continued eligibility; and
(3) All reports.
(e) Direct Guarantee Lenders must retain documentation related to
the continued eligibility of their Sponsored Entities for a period as
prescribed by Section 184 Program Guidance.
(f) Direct Guarantee Lenders may request an extension of the
recertification deadline, but such a request must be presented to HUD
at least 30 days before the recertification deadline.
(g) HUD will review the annual recertification submission and may
request any further information required to determine recertification.
(h) HUD will provide written notification of approval to continue
participation in the Section 184 Program or denial. A denial may be
appealed pursuant to Sec. 1005.909.
(1) If an annual recertification is not submitted by a reasonable
deadline prescribed in Section 184 Program Guidance, HUD may subject
the Direct Guarantee Lender to sanctions under Sec. 1005.907.
(2) [Reserved]
Sec. 1005.225 Program ineligibility.
A Lender Applicant, Direct Guarantee Lender or Non-Direct Guarantee
Lender may be deemed ineligible for Section 184 Program participation
when HUD becomes aware that the entity or any officer, partner,
director, principal, manager or supervisor, loan processor, loan
underwriter, or loan originator of the entity was:
(a) Suspended, debarred, under a limited denial of participation
(LDP), or otherwise restricted under 2 CFR part 2424, or under similar
procedures of any other Federal agency;
(b) Indicted for, or have been convicted of, an offense that
reflects adversely upon the integrity, competency, or fitness to meet
the responsibilities of the Lender, Direct Guarantee Lender or Non-
Direct Guarantee Lender to participate in the title I or title II
programs of the National Housing Act, or Section 184 Program;
(c) Found to have unresolved findings as a result of HUD or other
governmental audit, investigation, or review;
(d) Engaged in business practices that do not conform to generally
accepted practices of prudent Lender Applicants, Direct or Non-Direct
Guarantee Lenders or that demonstrate irresponsibility;
(e) Convicted of, or have pled guilty or nolo contendere to, a
felony related to participation in the real estate or mortgage loan
industry during the 7-year period preceding the date of the application
for licensing and registration, or at any time preceding such date of
application, if such felony involved an act of fraud, dishonesty, or a
breach of trust or money laundering;
(f) In violation of provisions of the Secure and Fair Enforcement
Mortgage Licensing Act of 2008 (12 U.S.C. 5101, et seq.) or any
applicable provision of Tribal or State law; or
(g) In violation of 12 U.S.C. 1715z-13a.
Subpart C--Lending on Trust Land
Sec. 1005.301 Tribal legal and administrative framework.
(a) Tribal requirements. (1) A Tribe seeking to allow eligible
Borrowers to place a mortgage lien on Trust Land under the Section 184
Program must apply to HUD for approval to participate in the program.
(2) Tribes electing to make Trust Land available under the Section
184 Program must provide to HUD a legal and administrative framework
for leasing, foreclosure, and eviction on Trust Land to protect the
interests of the Borrower, Tribe, Direct Guarantee Lender, and HUD.
(3) When Tribes are notified of the Borrower's default in
accordance with Sec. 1005.501(j) or when the Tribe receives notice of
Tribal right of first refusal pursuant to Sec. 1005.759, Tribes must
assist, where practical, in facilitating loss mitigation and
disposition, such as assisting with identifying potential purchasers or
identifying Tribal members who may wish to assume the loan, encouraging
Borrower to execute Lease-in-Lieu, and providing other general
assistance to the Borrower.
(4) Tribes must notify HUD in writing when the Tribe determines a
property is vacant or abandoned and the property is not secured by the
Servicer or HUD.
(b) Legal and administrative framework. A Tribe may enact legal
procedures through Tribal council resolution or any other recognized
legislative action. These procedures must be legally enforceable and
include the following requirements:
(1) Foreclosure and assignment. When a Borrower is in default, and
is
[[Page 20064]]
unwilling or unable to successfully complete loss mitigation in
accordance with subpart G of this part; and Servicer either completes
First Legal Action against the Borrower, or assigns the loan to HUD
after completing Tribal first right of refusal in accordance with Sec.
1005.759:
(i) The Tribe must demonstrate that a foreclosure will be processed
through the legal systems having jurisdiction over the Section 184
Guaranteed Loan. A foreclosure must be held in a court of competent
jurisdiction, which includes Federal courts, when HUD forecloses on the
property.
(ii) Foreclosure ordinances must allow for the legal systems with
jurisdiction to assign Borrower's property interest to HUD or Holder.
(iii) Where applicable, if the Holder assigns the Section 184
Guaranteed Loan to HUD without initiating or completing the foreclosure
process, or the property becomes vacant and abandoned during the loss
mitigation or foreclosure process, the Tribe may assign the lease to
HUD to facilitate disposition of the property, so long as the Tribe
provides due process to the lessee in compliance with Tribal law.
(2) Property disposition. Once a lease is vacated or reassigned, or
the property interest has otherwise been conveyed to HUD or the Holder,
the Tribe or the TDHE shall work with HUD or the Holder to sell the
property to an eligible party.
(3) Eviction. The Tribe must have a legal and administrative
framework implementing eviction procedures, allowing for the expedited
removal of the Borrower in default, all household residents, and any
unauthorized occupants of the property. Eviction procedures must enable
the Servicer or the Tribe to secure possession of the property.
Eviction may be required upon:
(i) The completion of a foreclosure;
(ii) The involuntary termination of the lease;
(iii) The reassignment of the lease or conveyance of the property
interest to HUD or the Holder; or
(iv) The sale of the property.
(4) Lien priority. Section 184 Guaranteed Loans must be in a first
lien position securing the property.
(i) To ensure that each Section 184 Guaranteed Loan holds a first
lien position, the Tribe must enact an ordinance that either:
(A) Provides for the satisfaction of the Section 184 Guaranteed
Loan before any and all other obligations; or
(B) Follows State law to determine the priority of liens against
the property. If a Tribal jurisdiction spans two or more states, the
State in which the property is located is the applicable State law.
(ii) For lien to be considered valid on Trust Land, the lien must
be:
(A) Approved by the Tribe, and BIA as applicable; and
(B) Recorded by the Tribe and/or BIA, as applicable.
(5) Lease provisions for Trust Land. Where applicable, the lease
provisions for Trust Land must meet the following requirements:
(i) Tribes may use a HUD model lease for Section 184 Guaranteed
Loan lending on Trust Land. The Tribe may make modifications to the HUD
model lease, with the approval of HUD and, as applicable, BIA.
(ii) Tribes may draft their own lease in compliance with Federal
requirements and contain mandatory lease terms and language as
prescribed in Section 184 Program Guidance, with approval of HUD and,
as applicable, BIA. At a minimum the lease must:
(A) Identify lessor;
(B) Identify the lessee;
(C) Provide a legal description of the land and identify the
property address covered by the lease;
(D) The lease must have a minimum term of 50 years unless an
extended term is approved by the Secretary. For refinances or lease
transfers the lease must have a remaining term which exceeds the
maturity date of the Loan by a minimum of ten years, or other period as
prescribed by Section 184 Program Guidance.
(E) The lease must be executed by all interested parties to be
enforceable;
(F) The Tribe shall require HUD consent for any lease termination
or assignment of the lease when the Section 184 Guaranteed Loan is
secured by the property.
(G)(1) The lease must contain the following provision: ``In the
case of a default on a Section 184 Guaranteed Loan:
(i) The lessee may assign the lease and deliver possession of the
leased premises, including any improvements thereon, to HUD; or
(ii) The lessor may assign the lease and deliver possession of the
leased premises, including any improvements thereon, to HUD when the
Tribe has provided due process to lessee in compliance with Tribal law.
(2) HUD may transfer this lease and the leased premises to a
successor lessee if the successor lessee is another member of the Tribe
or Tribal entity, as approved by the Tribe.''
(H) Lease language as prescribed by Section 184 Program Guidance.
(I) The lease must also provide that in the event of foreclosure,
the lease will not be subject to any forfeiture or reversion and will
not be otherwise subject to termination.
Sec. 1005.303 Tribal application.
A Tribe shall submit an application on a form prescribed by HUD.
The application must include a copy of the Tribe's foreclosure,
eviction, lease, priority lien ordinances, all cross-referenced
ordinances in those sections, and any other documents in accordance
with Section 184 Program Guidance.
Sec. 1005.305 Approval of Tribal application.
HUD shall review applications under Sec. 1005.303 and where all
requirements of Sec. 1005.301 are met, HUD shall provide written
notification of the approval of the Tribe to participate in the Section
184 Program. If HUD determines the application is incomplete, or the
documents submitted do not comply with the requirements of this subpart
or any process prescribed in Section 184 Program Guidance, HUD will
work with the Tribe to cure the deficiencies before there is a denial
of the application.
Sec. 1005.307 Tribal annual recertification.
A Tribe shall recertify annually to HUD whether it continues to
meet the requirements of this subpart, on a form and by a deadline
prescribed by Section 184 Program Guidance. Recertification shall
include Tribal certification of no changes to the Tribe's foreclosure,
eviction, lease, and lien priority ordinances. The Tribe shall provide
any updated contact information and similar information that may be
required under Section 184 Program Guidance.
Sec. 1005.309 Tribal duty to report proposed changes and actual
changes.
Based on the timeframe as prescribed by Section 184 Program
Guidance, the Tribe must notify HUD of any proposed changes in the
Tribe's foreclosure, eviction, lease, and lien priority ordinances or
contact information. Tribes shall obtain HUD approval of the changes in
the foreclosure, eviction, lease, and lien priority ordinances. HUD
will provide written notification to the Tribe of HUD's review of the
proposed ordinance changes and advise the Tribe whether the updated
documents meet the requirements of this subpart.
Sec. 1005.311 HUD notification of any lease default.
In cases where the lessee is in default under the lease for any
reason, the lessor shall provide written notification to HUD within 30
days of the lease default.
[[Page 20065]]
Sec. 1005.313 Tribal reporting requirements.
The Tribe shall provide accurate reports and certifications to HUD,
as may be prescribed by Section 184 Program Guidance.
Subpart D--Underwriting
Eligible Borrowers
Sec. 1005.401 Eligible Borrowers.
(a) Eligible Borrowers. Eligible Borrowers are Indian Families,
Tribes, or TDHEs.
(b) Documentation. Indian Family Borrowers must document their
status as American Indian or Alaska Native through evidence as
prescribed by Section 184 Program Guidance.
(c) Limitation on the number of loans. An Indian Family Borrower is
limited to one Section 184 Guaranteed Loan, for primary residence, at a
time unless the Indian Family Borrower is a non-occupant co-Borrower on
one other Section 184 Guaranteed Loan. An Indian Family Borrower and/or
non-occupant co-Borrower must meet all other applicable requirements of
this subpart and any guidance provided in Section 184 Program Guidance.
Sec. 1005.403 Principal Residence.
(a) Principal Residence. Means the dwelling where the Indian Family
Borrower maintains as a permanent place of abode. An Indian Family
Borrower may have only one Principal Residence at any one time.
(b) Occupancy requirement. An Indian Family Borrower must occupy
the property as a Principal Residence. Borrowers who are a TDHE or a
Tribe do not need to occupy the property as a Principal Residence and
are not subject to the occupancy requirement.
(c) Non-occupant co-Borrower. A co-Borrower who does not occupy the
property as a principal resident is permitted and is not subject to
paragraphs (a) and (b) of this section. A non-occupant co-Borrower must
be related by blood, or an unrelated individual who can document
evidence of a family-type, longstanding, and substantial relationship
not arising out of the loan transaction. A non-occupant co-Borrower
must meet all other applicable requirements of this subpart and any
requirements as may be established in Section 184 Program Guidance.
Sec. 1005.405 Borrower residency status.
(a) An eligible Borrower who is an Indian must be:
(1) A U.S. citizen;
(2) A lawful permanent resident alien; or
(3) A non-permanent resident alien.
(b) Documentation must be provided to the Direct Guarantee Lender
to support lawful residency status as defined in the Immigration and
Nationality Act, codified at 8 U.S.C. 1101, et seq.
Sec. 1005.407 Relationship of income to loan payments.
(a) Adequacy of Borrower gross income. (1) All Borrowers must
establish, in accordance with Section 184 Program Guidance, that their
income is and will be adequate to meet:
(i) The periodic payments required by the loan to be guaranteed by
the Section 184 Program; and
(ii) Other long-term obligations.
(2) In cases where there is a non-occupant Co-Borrower, the
occupying Borrower must meet a minimum qualifying threshold, in
accordance with Section 184 Program Guidance.
(b) Non-discrimination. Determinations of adequacy of Borrower
income under this section shall be made in a uniform manner without
regard to age, race, color, national origin, religion, sex (including
gender identity and sexual orientation), familial status, disability,
marital status, source of income of the Borrower, location of the
property.
Sec. 1005.409 Credit standing.
(a) A Borrower must have a general credit standing satisfactory to
HUD. A Direct Guarantee Lender must not use a Borrower's credit score
when evaluating the Borrower's credit worthiness. The Direct Guarantee
Lender must analyze the Borrower's credit history and payment pattern
to determine credit worthiness.
(b) If a Borrower had a previous default on a Section 184
Guaranteed Loan which resulted in a Claim payment by HUD, the Borrower
shall be subject to a 7-year waiting period or other period as may be
prescribed by Section 184 Program Guidance.
Sec. 1005.411 Disclosure and verification of Social Security and
Employer Identification Numbers or Tax Identification Number.
All Borrowers must meet applicable requirements for the disclosure
and verification of Social Security, Employer Identification Numbers,
or Tax Identification Numbers.
Eligible Properties
Sec. 1005.413 Acceptable title.
To be considered acceptable title, a Section 184 Guaranteed Loan
must be secured by an interest in real estate held in fee simple or
other property interest on Trust Land. Where the title evidences a
lease that is used in conjunction with the Section 184 Guaranteed Loan
on Trust Land, the lease must comply with relevant provisions of Sec.
1005.301.
Sec. 1005.415 Sale of property.
(a) Owner of Record requirement. The property must be or have been
purchased from the Owner of Record and the transaction may not involve
or had not involved any sale or assignment of the sales contract.
(b) Supporting documentation. The Direct Guarantee Lender shall
obtain and submit to HUD documentation verifying that the seller is the
Owner of Record as part of the application for a loan guarantee under
the Section 184 Program. Documentation must conform with the
requirements set out in Section 184 Program Guidance. This
documentation may include, but is not limited to, a property ownership
history report from the State or local government, a copy of the
recorded deed or other HUD approved document issued by the Tribe, as
provided by Section 184 Program Guidance and the document evidences the
property interest rights, as permitted by this subpart from the seller,
or other documentation (such as a copy of a property tax bill, title
commitment, or binder) demonstrating the seller's ownership.
(c) Time restrictions on re-sales--(1) General. The eligibility of
a property for a Loan guaranteed by HUD is dependent on the time that
has elapsed between the date the seller acquired the property (based
upon the date of settlement) and the date of execution of the sales
contract that will result in the HUD guarantee (the re-sale date). The
Direct Guarantee Lender shall obtain documentation verifying compliance
with the time restrictions described in this paragraph and must submit
this documentation to HUD as part of the application for the Section
184 Guaranteed Loan, in accordance with Sec. 1005.501.
(2) Re-sales occurring 90 days or less following acquisition. If
the re-sale date is 90 days or less following the date of acquisition
by the seller, the property is not eligible under the Section 184
Program.
(3) Re-sales occurring between 91 days and 180 days following
acquisition. (i) If the re-sale date is between 91 days and 180 days
following acquisition by the seller, the property is generally eligible
under the Section 184 Program.
(ii) However, HUD will require that the Direct Guarantee Lender
obtain additional documentation if the re-sale price is 100 percent
over the purchase
[[Page 20066]]
price. Such documentation must include a second appraisal from a
different appraiser. The Direct Guarantee Lender may also document its
Loan file to support the increased value by establishing that the
increased value results from the rehabilitation of the property.
(iii) Additional documentation may be required, as prescribed by
Section 184 Program Guidance.
(4) Authority to address property re-sales occurring between 181
days and 12 months following acquisition. (i) If the re-sale date is
more than 181 days after the date of acquisition by the seller, but
before the end of the twelfth month after the date of acquisition, the
property is eligible under the Section 184 Program.
(ii) However, HUD may require that the Direct Guarantee Lender
provide additional documentation to support the re-sale value of the
property if the re-sale price is 5 percent or greater than the lowest
sales price of the property during the preceding 12 months (as
evidenced by the contract of sale). At HUD's discretion, such
documentation must include, but is not limited to, a second appraisal
from a different appraiser. HUD may exclude re-sales of less than a
specific dollar amount from the additional value documentation
requirements.
(iii) If the additional value documentation supports a value of the
property that is more than 5 percent lower than the value supported by
the first appraisal, the lower value will be used to calculate the
maximum principal loan amount under Sec. 1005.443. Otherwise, the
value supported by the first appraisal will be used to calculate the
maximum principal loan amount.
(iv) Additional value documentation may be prescribed by Section
184 Program Guidance.
(5) Re-sales occurring more than 12 months following acquisition.
If the re-sale date is more than 12 months following the date of
acquisition by the seller, the property is eligible under the Section
184 Program.
(d) Exceptions to the time restrictions on sales. The time
restrictions on sales described in paragraph (b) of this section do not
apply to:
(1) Sales by HUD of real estate owned (REO) properties under 24 CFR
part 291 and of single-family assets in revitalization areas pursuant
to section 204 of the National Housing Act (12 U.S.C. 1710);
(2) Sales by an agency of the United States Government of REO
single family properties pursuant to programs operated by such
agencies;
(3) Sales of properties by Tribes, TDHEs, State, or local
governments, or Eligible Nonprofit Organizations approved to purchase
HUD REO single family properties at a discount with resale
restrictions;
(4) Sales of properties that were acquired by the sellers by death,
devise, or intestacy;
(5) Sales of properties purchased by an employer or relocation
agency in connection with the relocation of an employee;
(6) Sales of properties by Tribes, TDHEs, State and local
government agencies; and
(7) Only upon announcement by HUD through issuance of a notice,
sales of properties located in areas designated by the President as
federally declared disaster areas. The notice will specify how long the
exception will be in effect.
(8) HUD may approve other exceptions on a case-by-case basis.
Sec. 1005.417 Location of property.
At the time a loan is guaranteed, the property must be for
residential use under Tribal, State, or local law and be located within
a Section 184 Approved Program Area.
Sec. 1005.419 Requirements for standard housing.
(a) General standards. Each dwelling unit located on a property
guaranteed under the Section 184 Program must:
(1) Be decent, safe, sanitary, and modest in size and design;
(2) Conform with International Building Code, applicable general
construction standards for the region, or other code as prescribed by
Section 184 Program Guidance;
(3) Contain a heating system that:
(i) Has the capacity to maintain a minimum temperature in the
dwelling of 65 degrees Fahrenheit during the coldest weather in the
area;
(ii) Is safe to operate and maintain;
(iii) Delivers a uniform distribution of heat; and
(iv) Conforms to any applicable Tribal heating code, or if there is
no applicable Tribal code, an appropriate local, State, or
International Building Code, or other code as prescribed by Section 184
Program Guidance.
(4) Contains a plumbing system that:
(i) Uses a properly installed system of piping;
(ii) Includes a kitchen sink and partitional bathroom with
lavatory, toilet, and bath or shower; and
(iii) Uses water supply, plumbing, and sewage disposal systems that
conform to any applicable Tribal building code or, if there is no
applicable Tribal code, the minimum building standards established by
the appropriate local or State code, or the International Building
Code, or other code as prescribed by Section 184 Program Guidance;
(5) Contain an electrical system using wiring and equipment
properly installed to safely supply electrical energy for adequate
lighting and for operation of appliances that conforms to any
applicable Tribal code or, if there is no applicable Tribal code, an
appropriate local, State, or International Building Code, or other code
as prescribed by Section 184 Program Guidance;
(6) Meets minimum square footage requirements and be not less than:
(i) 570 square feet in size, if designed for a family of not more
than 4 persons;
(ii) 850 square feet in size, if designed for a family of not less
than 5 and not more than 7 persons;
(iii) 1020 square feet in size, if designed for a family of not
less than 8 persons; or
(iv) Current locally adopted standards for size of dwelling units,
documented by the Direct Guarantee Lender.
(v) Upon the written request of a Tribe, or TDHE, HUD may waive the
minimum square footage requirements under paragraphs (a)(6)(i) through
(iv) of this section.
(7) Conform with the energy performance requirements for new
construction established by HUD under section 526(a) of the National
Housing Act (12 U.S.C. 1735f-4(a)).
(b) Additional requirements. HUD may prescribe any additional
requirements to permit the use of various designs and materials in
housing acquired under this part.
(c) One to four dwelling unit properties. Properties containing one
to four dwelling units:
(1) Must meet local zoning requirements;
(2) For 2-4 dwelling unit properties, units may be attached or
detached; and
(3) Must have all dwelling unit(s) located on the property and
included in the parcel legal description recorded under the loan.
(d) Lead-based paint. The relevant requirements of the Lead-Based
Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential
Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856),
and implementing regulations at 24 CFR part 35, subparts A, B, H, J, K,
M, and R shall apply.
(e) Environmental review procedures. (1) The regulations in 24 CFR
1000.20 apply to an environmental review for Trust Land and for fee
land within an Indian reservation, and on fee land owned by the Indian
Tribe outside of the Tribe's Indian reservation
[[Page 20067]]
boundaries, in connection with a Loan guaranteed under this part. That
section permits a Tribe to choose to assume environmental review
responsibility.
(2) Before HUD issues a commitment to guarantee any loan, or before
HUD guarantees a loan if there is no commitment, the Tribe or HUD must
comply with environmental review procedures to the extent applicable
under 24 CFR part 58 or 50, as appropriate.
(3) If the Loan involves proposed or new construction, HUD will
require the Direct Guarantee Lender to submit a signed Builder's
Certification of Plans, Specifications and Site (Builder's
Certification). The Builder's Certification must be in a form
prescribed by Section 184 Program Guidance and must cover:
(i) Flood hazards;
(ii) Noise;
(iii) Explosive and flammable materials storage hazards;
(iv) Runway clear zones/clear zones;
(v) Toxic waste hazards;
(vi) Other foreseeable hazards or adverse conditions (i.e., rock
formations, unstable soils or slopes, high ground water levels,
inadequate surface drainage, springs, etc.) that may affect the health
and safety of the occupants or the structural soundness of the
improvements.
(4) The Builder's Certification must be provided to the appraiser
for reference before the performance of an appraisal on the property.
(f) Flood insurance--(1) Special Flood Hazard Areas. A property is
not eligible for a Section 184 loan guarantee if a residential building
and related improvements to the property are located within a Special
Flood Hazard Area (SFHA) designated by a FEMA Flood Insurance Rate Map
unless insurance under the National Flood Insurance Program (NFIP), or
notwithstanding 24 CFR 58.6(a), private flood insurance in lieu of NFIP
insurance is secured for the property.
(2) Eligibility for new construction in SFHAs. If any portion of
the dwelling, related structures or equipment essential to the value of
the property and subject to flood damage is located within an SFHA, the
property is not eligible for a Section 184 Guaranteed Loan unless the
Direct Guarantee Lender obtains from FEMA a final Letter of Map
Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes
the property from the SFHA; or obtains a FEMA National Flood Insurance
Program Elevation Certificate (FEMA Form 086-0-33) prepared by a
licensed engineer or surveyor. The elevation certificate must document
that the lowest floor including the basement of the residential
building, and all related improvements/equipment essential to the value
of the property, is built at or above the 100-year flood elevation in
compliance with the NFIP criteria, and flood insurance must be
obtained., notwithstanding 24 CFR 58.6(a),
(3) Required flood insurance amount. Where flood insurance is
required under paragraph (f)(1) of this section, flood insurance,
whether NFIP insurance or private flood insurance in lieu of NFIP, must
be maintained for the life of the Section 184 Guaranteed Loan in an
amount that is not less than the lessor of:
(i) The project cost less the estimated land cost;
(ii) The outstanding principal balance of the loan; or,
(iii) For NFIP insurance only, the maximum amount available with
respect to the property improvements;
(4) Required documentation. The Direct Guarantee Lender must obtain
a Life of Loan Flood Certification for all Properties. If applicable,
the Direct Guarantee Lender must provide all eligibility documentation
obtained under paragraph (e)(2) of this section.
(g) Restrictions on property within Coastal Barrier Resources
System. In accordance with the Coastal Barrier Resources Act, a
property is not eligible for a Section 184 Loan Guarantee if the
improvements are or are proposed to be located within the Coastal
Barrier Resources System.
(h) Airport hazards--(1) Existing Construction. If a property is
Existing Construction and is located within a Runway Clear Zone (also
known as a Runway Protection Zone) at a civil airport or within a Clear
Zone at a military airfield, the Direct Guarantee Lender must obtain a
Borrower's acknowledgement of the hazard.
(2) New Construction. If a New Construction property is located
within a Runway Clear Zone (also known as a Runway Protection Zone) at
a civil airport or within a Clear Zone at a military airfield, the
Direct Guarantee Lender must reject the property for loan guarantee.
Properties located in Accident Potential Zone 1 (APZ 1) at a military
airfield may be eligible for a Section 184 loan guarantee provided that
the Direct Guarantee Lender determines that the property complies with
Department of Defense guidelines.
Sec. 1005.421 Certification of appraisal amount.
A Section 184 Guaranteed Loan must be accompanied by a sales
contract satisfactory to HUD, executed by the seller, whereby the
seller agrees that before any sale of the property, the seller will
deliver to the purchaser of the property a certification of the
appraisal, in a form satisfactory to HUD, setting forth the amount of
the appraised value of the property.
Sec. 1005.423 Legal Restrictions on Conveyance.
(a) Legal Restrictions on Conveyance means any provision in any
legal instrument, law, or regulation applicable to the Borrower or the
mortgaged property, including but not limited to a lease, deed, sales
contract, declaration of covenants, declaration of condominium, option,
right of first refusal, will, or trust agreement, that attempts to
cause a conveyance (including a lease) made by the Borrower to:
(1) Be void or voidable by a third party;
(2) Be the basis of contractual liability of the Borrower for
breach of an agreement not to convey, including rights of first
refusal, pre-emptive rights or options related to Borrower efforts to
convey;
(3) Terminate or subject to termination all or a part of the
interest held by the Borrower in the property if a conveyance is
attempted;
(4) Be subject to the consent of a third party;
(5) Be subject to limits on the amount of sales proceeds retainable
by the seller; or
(6) Be grounds for acceleration of the Guaranteed Loan or increase
in the interest rate.
(b) Section 184 Guaranteed Loans shall not be subject to any Legal
Restrictions on Conveyance, except for restrictions in paragraphs
(b)(1) through (4) of this section:
(1) A lease or any other legal document that restricts the
assignment of interest in properties held in trust or otherwise
restricted to an eligible Indian Family.
(2) A mortgage funded through tax-exempt bond financing and
includes a due-on-sale provision in a form approved by HUD that permits
the Direct Guarantee Lender to accelerate a mortgage that no longer
meets Federal requirements for tax-exempt bond financing or for other
reasons acceptable to HUD. A mortgage funded through tax-exempt bond
financing shall comply with all form requirements prescribed under this
subpart and shall contain no other provisions designed to enforce
compliance with Federal or State requirements for tax-exempt bond
financing.
[[Page 20068]]
(3) A mortgaged property subject to protective covenants which
restrict occupancy by, or transfer to, persons of a defined population
if:
(i) The restrictions do not have an undue effect on marketability
as determined in the original plan.
(ii) The restrictions do not constitute illegal discrimination and
are consistent with the Fair Housing Act and all other applicable
nondiscrimination laws under Tribal, Federal, State, or local law,
where applicable.
(4) HUD shall require that the previously approved restrictions
automatically terminate if the lease or title to the mortgaged property
is transferred by foreclosure, deed-in-lieu/lease-in-lieu of
foreclosure, or if the loan is assigned to HUD.
Sec. 1005.425 Rental properties.
(a) When a Borrower is an Indian Family. A Section 184 Guaranteed
Loan may be used to purchase, construct, rehabilitate, or refinance a
property, which may contain up to four dwelling units. The Borrower
must occupy one unit on the property as a Principal Residence and may
rent the additional units.
(b) When the Borrower is a Tribe or TDHE. There is no limit to the
number of properties a Tribe or TDHE may purchase or own with a Section
184 Guaranteed Loan(s) on or off Trust Land. However, the Tribe or TDHE
must meet all applicable Section 184 program requirements.
Sec. 1005.427 Refinancing.
(a) Refinance eligibility. HUD may permit a Borrower to refinance
any qualified mortgage, including an existing Section 184 Guaranteed
Loan, so long as the Borrower and property meet all Section 184 Program
requirements.
(b) Types of refinances. HUD may guarantee a Rate and Term
refinance, a Streamline refinance, or a Cash-Out refinance, consistent
with paragraphs (c) through (f) of this section.
(c) General requirements. All types of refinances are subject to
the following requirements:
(1) The term of the refinancing may not exceed a term of 30 years.
(2) The Borrower must have a payment history on the existing
mortgage that is acceptable to HUD.
(3) The Direct Guarantee Lender may not require a minimum principal
amount to be outstanding on the loan secured by the existing mortgage.
(4) If an Up-Front Loan Guarantee Fee was financed as part of the
existing Section 184 Guaranteed Loan, no refund will be given. However,
the maximum amount of the refinancing loan computed in accordance with
Sec. 1005.443 may be increased by the amount of the Up-Front Loan
Guarantee Fee associated with the new refinancing loan and exceed the
applicable Section 184 Guaranteed Loan limit as established by HUD for
an area pursuant to Sec. 1005.441.
(5) The new loan must meet all other applicable Section 184
requirements, including maximum loan to value ratios, as prescribed by
Section 184 Program Guidance.
(d) Rate and Term Refinance Transaction. (1) Rate and term
refinance is the refinancing of an existing mortgage for the purpose of
changing the interest rate or term, or both, of a loan without
advancing new funds on the loan, with the exception of allowable
closing costs.
(2) A Rate and Term Refinance Transaction must meet the following
requirements:
(i) The new loan must be in an amount that does not exceed the
lesser of the original principal amount of the existing mortgage; or
the sum of the unpaid principal balance of the existing mortgage plus
loan closing charges and allowable fees approved by HUD.
(ii) The new loan must result in a reduction in regular monthly
payments by the Borrower, except when refinancing a mortgage for a
shorter term will result in an increase in the Borrower's regular
monthly payments.
(iii) The new Loan is not subject to paragraphs (d)(2)(i) and (ii)
of this section for an existing mortgage used to construct the property
and where the property has been completed for less than one year. The
new loan must be in an amount not to exceed the unpaid principal
balance plus loan closing charges and allowable fees approved by HUD,
plus, at Borrower's option, additional construction costs paid in cash
by the Borrower, that were not included in the original construction
contract.
(e) Streamline Refinance Transaction. Streamline Refinance
Transaction refers to the refinance of an existing Section 184
Guaranteed Loan requiring limited Borrower credit documentation and
underwriting.
(1) The new loan must be in an amount that does not exceed the
unpaid principal balance of the existing Section 184 Guaranteed Loan.
(2) The new loan with an appraisal may be in the amount equal to
the unpaid principal balance of the existing mortgage plus Loan closing
charges and allowable fees approved by HUD. The new loan must be
subject to an appraisal.
(f) Cash-out refinance transaction. (1) A Cash-out refinance
transaction is when the new Loan is made for an amount larger than the
existing mortgage's unpaid principal balance, utilizing the property's
equity.
(2) A Cash-out refinance Loan amount cannot exceed a maximum loan
to value ratio, as established by HUD.
(3) A Borrower may elect to receive a portion of equity in the form
of cash in an amount up to a maximum allowed amount as prescribed by
Section 184 Program Guidance.
(4) All cash advances, except cash amounts to the Borrower, must be
used for approved purposes in accordance with HUD and BIA requirements,
and must be supported by verified documentation.
(5) The Cash-out refinance must meet all other applicable Section
184 Program requirements.
Sec. 1005.429 Eligibility of Loans covering manufactured homes.
A Loan covering a manufactured home (as defined in 24 CFR part
3280), shall be eligible for a Section 184 Guaranteed Loan when the
following requirements have been met:
(a) For manufactured homes located on a fee simple property. (1) A
manufactured home, as erected on the property, must be installed in
accordance with 24 CFR part 3286; conform with property standards under
Sec. 1005.419; and shall have been constructed in accordance with 24
CFR part 3280, as evidenced by the certification label.
(2) The Loan shall cover the manufactured home(s) and site, shall
constitute a loan on a property, and classified and taxed as real
estate, as applicable.
(3) In the case of a manufactured home which has not been
permanently erected on a site for more than one year prior to the date
of the application for the Loan Guarantee Certificate:
(i) A manufactured home shall be erected on a site-built permanent
foundation and shall be permanently attached thereto by anchoring
devices adequate for all loads in accordance with 24 CFR part 3286. The
towing hitch or running gear, which includes axles, brakes, wheels, and
other parts of the chassis that operate only during transportation,
shall have been removed. The finished grade level beneath the
manufactured home shall be at least two feet above the 100-year return
frequency flood elevation. The site, site improvements, and all other
features of the property not addressed by the Manufactured Home
Construction and Safety Standards shall
[[Page 20069]]
meet or exceed applicable requirements of the Minimum Property
Standards (MPS).
(ii) The space beneath a manufactured home shall be enclosed by
continuous foundation-type construction designed to resist all forces
to which it is subject without transmitting forces to the building
superstructure. The enclosure shall be adequately secured to the
perimeter of the manufactured home and be constructed of materials that
conform to MPS requirements for foundations.
(iii) A manufactured home shall be braced and stiffened before it
leaves the factory to resist racking and potential damage during
transportation.
(iv) Section 1005.433 is modified to the extent provided in this
paragraph. Applications relating to the guarantee of loans under this
paragraph (a) must be accompanied by an agreement in a form
satisfactory to HUD executed by the seller or manufacturer or such
other person as HUD may require, agreeing that in the event of any sale
or conveyance of the property within a period of one year beginning
with the date of initial occupancy, the seller, manufacturer, or such
other person will, at the time of such sale or conveyance, deliver to
the purchaser or owner of such property the manufacturer's warranty on
a form prescribed by HUD. This warranty shall provide that the
manufacturer's warranty is in addition to and not in derogation of all
other rights and remedies the purchaser or owner may have, and a
warranty in form satisfactory to HUD warranting that the manufactured
home, the foundation, positioning, and anchoring of the manufactured
home to its permanent foundation, and all site improvements are
constructed in substantial conformity with the plans and specifications
(including amendments thereof or changes and variations therein which
have been approved in writing by HUD) on which HUD has based its
valuation of the property. The warranty shall also expressly state that
the manufactured home sustained no hidden damage during transportation,
and if the manufactured home is a double-wide, that the sections were
properly joined and sealed. The warranty must provide that upon the
sale or conveyance of the property and delivery of the warranty, the
seller, builder, or such other person will promptly furnish HUD with a
conformed copy of the warranty establishing by the purchaser's receipt
thereon that the original warranty has been delivered to the purchaser
in accordance with this section.
(4) In the case of a manufactured home which has been permanently
erected on a site for more than one year prior to the date of the
application for the Section 184 Guaranteed Loan:
(i) A manufactured home shall be permanently anchored to and
supported by permanent footings and shall have permanently installed
utilities that are protected from freezing. The space beneath the
manufactured home shall be a properly enclosed crawl space.
(ii) The site, site improvements, and all other features of the
property not addressed by 24 CFR parts 3280 and 3286 shall meet or
exceed HUD requirements. The finished grade level beneath the
manufactured home shall be at or above the 100-year return frequency
flood elevation.
(b) For manufactured homes located on Trust Land. Manufactured
homes on Trust Land shall meet manufactured home installation standards
pursuant to Tribal laws, if any. In the absence of Tribal laws, the
requirements in paragraphs (a)(1), (3), and (4) of this section shall
apply and other such requirements as established by Section 184 Program
Guidance.
Sec. 1005.431 Acceptance of individual residential water
purification.
If a property does not have access to a continuing supply of safe
and potable water as part of its plumbing system without the use of a
water purification system, the requirements of this section apply. The
Direct Guarantee Lender must provide appropriate documentation with the
submission for a Section 184 Guaranteed Loan to address each of the
requirements of this section.
(a) Equipment. Water purification equipment must be approved by a
nationally recognized testing laboratory acceptable to Tribal, State,
or local health authority.
(b) Certification by Tribal, State, or local health authority. A
Tribal, State, or local health authority certification must be
submitted to HUD, which certifies that a point-of entry or point-of-use
water purification system is used for the water supply, the treatment
equipment meets the requirements of the Tribal, State, or local health
authority, and has been determined to meet Tribal, State, or local
health authority quality standards for drinking water. If neither
Tribal, State, nor local health authority standards are applicable,
then quality shall be determined in accordance with standards set by
the Environmental Protection Agency (EPA) pursuant to the Safe Drinking
Water Act. (EPA standards are prescribed in the National Primary
Drinking Water requirements, 40 CFR parts 141 and 142.)
(c) Borrower notices and certification. (1) The prospective
Borrower must have received written notification, when the Borrower
signs a sales contract, that the property does not have access to a
continuing supply of safe and potable water without the use of a water
purification system to remain safe and acceptable for human
consumption.
(2) Prior to final ratification of the sales contract, the Borrower
must have received:
(i) A water safety report identifying specific contaminants in the
water supply serving the property, and the related health hazard
arising from the presence of those contaminants.
(ii) A written good faith estimate of the maintenance and
replacement costs of the equipment necessary to assure continuing safe
drinking water.
(3) The prospective Borrower must sign a certification,
acknowledging the required notices have been received by the Borrower,
in the form prescribed by Section 184 Program Guidance, at the time the
application for mortgage credit approval is signed by the Direct
Guarantee Lender. The required certification must be submitted to HUD
with the request for the Loan Guarantee Certificate.
Sec. 1005.433 Builder warranty.
(a) Applications relating to proposed construction must be
accompanied by an agreement in a form satisfactory to HUD, executed by
the seller or builder or such other person as HUD may require, and
agreeing that in the event of any sale or conveyance of the property,
within a period of one year beginning with the date of initial
occupancy, the seller, builder, or such other person will, at the time
of such sale or conveyance, deliver to the purchaser or owner of such
property a warranty in a form satisfactory to HUD, warranting that the
property is constructed in substantial conformity with the plans and
specifications (including amendments thereof or changes and variations
therein which have been approved in writing by HUD) on which HUD has
based on the valuation of the property.
(b) Such agreement must provide that upon the sale or conveyance of
the property and delivery of the warranty, the seller, builder, or such
other person will promptly furnish HUD with a confirmed copy of the
warranty, establishing by the purchaser's receipt thereon that the
original warranty has been delivered to the purchaser in accordance
with this section.
[[Page 20070]]
Eligible Loans
Sec. 1005.435 Eligible collateral.
A Section 184 Guaranteed Loan may be secured by any collateral
authorized under existing Federal law or applicable State or Tribal
law. The collateral must be sufficient to cover the amount of the loan,
as determined by the Direct Guarantee Lender and approved by HUD.
Improvements on Trust Lands may be considered as eligible collateral.
Trust Land cannot be considered as part of the eligible collateral.
Sec. 1005.437 Loan provisions.
(a) Loan form. (1) The Loan shall be in a form meeting the
requirements of HUD. HUD may prescribe loan closing documents. For each
case in which HUD does not prescribe loan closing documents, HUD shall
require specific language in the loan which shall be uniform for every
loan. HUD may also prescribe the language or substance of additional
provisions for all loans, as well as the language or substance of
additional provisions for use only in particular jurisdictions.
(2) Each Loan shall also contain any provisions necessary to create
a valid and enforceable security interest under Tribal law or the laws
of the jurisdiction in which the property is located.
(b) Loan multiples. A Loan, in whole dollars, shall be in an amount
not to exceed the maximum principal loan amount (as calculated under
Sec. 1005.443) for the area where the property is located.
(c) Payments. The Loan payments shall:
(1) Be due on the first of the month;
(2) Contain complete Amortization provisions in accordance with
Sec. 1005.453 and an Amortization period not in excess of the term of
the loan; and
(3) Provide for payments to principal and interest to begin no
later than the first day of the month, 60 days after the date the loan
is executed. For closings taking place within the first seven days of
the month, interest credit is acceptable.
(d) Maturity. The Loan shall have a repayment term of not more than
the maximum period as approved by HUD and fully amortized.
(e) Property standards. The Loan must be a first lien upon the
property that conforms with the requirements for standard housing under
Sec. 1005.419.
(f) Disbursement. The entire principal amount of the Loan must have
been disbursed to the Borrower or to the Borrower's creditors for the
Borrower's account and with the Borrower's consent.
(g) Disbursement for construction advances. HUD may guarantee loans
from which advances will be made during construction when all
applicable Section 184 Program requirements are met and all the
following conditions are satisfied:
(1) The Direct Guarantee Lender and Borrower execute a building
Loan agreement, in the form prescribed by Section 184 Program Guidance,
setting forth the terms and conditions under which advances will be
made.
(2) The advances may be made only as provided in the building loan
agreement.
(3) The principal amount of the loan is held by the Direct
Guarantee Lender in an interest-bearing account, trust, or escrow for
the benefit of the Borrower, pending advancement to the Borrower or
Borrower's creditors as provided in the building loan agreement;
(4) The loan shall bear interest on the amount advanced to the
Borrower or the Borrower's creditors and on the amount held in an
account or trust for the benefit of the Borrower.
(h) Changes to the Loan Agreement. Notwithstanding paragraph (g)(2)
of this section, changes to the building loan Agreement must be
approved and documented by the Direct Guarantee Lender prior to the
construction advance.
(i) Documentation. Direct Guarantee Lender must submit a
construction completion package to HUD, as prescribed in Section 184
Program guidance.
(j) Prepayment privilege. The Loan must contain a provision
permitting the Borrower to prepay the Loan in whole or in part at any
time. The Loan may not provide for the payment of any fee or penalty on
account of such prepayment.
Sec. 1005.439 Loan lien.
(a) First lien. A Borrower must establish that, after the loan
offered for guarantee has been recorded, the property will be free and
clear of all liens other than such loan, and that there will not be
outstanding any other unpaid obligations contracted in connection with
the loan transaction or the purchase of the property, except
obligations that are secured by property or collateral owned by the
Borrower independently of the property.
(b) Junior lien. The property may be subject to a junior lien held
by a Tribe, Direct Guarantee Lender, TDHE, Federal, State, local
government, or an Eligible Nonprofit Organization. Where applicable, a
junior lien when intended to be utilized in conjunction with a Section
184 loan, must be evaluated in the Section 184 underwriting process by
the Direct Guarantee underwriter in accordance with Section 184 Program
Guidance. In cases where a junior lien is recorded after the Section
184 Loan Guarantee Certificate is issued, the junior lien must comply
with this section.
(1) Periodic payments, if any, shall be collected monthly and be
substantially the same;
(2) The monthly Loan payments for the Section 184 Guaranteed Loan
and the junior lien shall not exceed the Borrower's reasonable ability
to pay, as determined by HUD;
(3) The sum of the principal amount of the Section 184 Guaranteed
Loan and the junior lien shall not exceed the loan-to-value limitation
applicable to the Section 184 Program, and shall not exceed the loan
limit for the area, except as otherwise permitted by HUD;
(4) The repayment terms shall not provide for a balloon payment
before ten years unless approved by HUD;
(5) The junior lien must become due and payable on sale or
refinancing of the secured property covered by the Section 184
Guaranteed Loan, unless otherwise approved by HUD; and
(6) The junior lien shall contain a provision permitting the
Borrower to prepay the junior lien in whole or in part at any time and
shall not require a prepayment penalty.
(c) Junior liens to reduce Borrower monthly payments. With prior
HUD acceptance, the property may be subject to a junior lien advanced
to reduce the Borrower's monthly payments on the Section 184 Guaranteed
Loan following the date it is guaranteed, if the junior lien meets the
following requirements:
(1) The junior lien shall not provide for any payment of principal
or interest until the property securing the junior lien is sold or the
Section 184 Guaranteed Loan is refinanced, at which time the junior
lien shall become due and payable.
(2) The junior lien shall not provide for any payment of principal
or interest so long as the occupancy requirements are met; and, where
applicable, shall provide for forgiveness of the junior lien amount at
the end of the term of the junior lien.
(d) Junior liens related to tax-exempt bond financing and low-
income housing tax credits. HUD approval shall be required when
Borrower seeks to encumber property with a junior lien pursuant to
Sec. 1005.423(b).
Sec. 1005.441 Section 184 Guaranteed Loan limit.
The Section 184 Guaranteed Loan limit is the level set by HUD for
the Section 184 Approved Program Area and is based upon the location of
the property. The limit that is in effect on
[[Page 20071]]
the date the Section 184 Program case number is issued in accordance
with Sec. 1005.445 shall apply, regardless of the closing date. The
limit shall be revised periodically by HUD and published in Section 184
Program guidance.
Sec. 1005.443 Loan amount.
(a) Minimum required investment. The Borrower is required to make a
minimum investment in the property. This investment must come from the
Borrower's own funds, gifts, or Tribal, State, or local funds awarded
to the Borrower. The minimum investment in the property is the
difference between the sales price and the base loan amount.
(b) Calculating base loan amount. (1) The base loan amount is
determined by calculating:
(i) 97.75 percent of the appraised value of the property or the
Acquisition Cost, whichever is less; or
(ii) 98.75 percent of the lesser of the appraised value or sales
price when the appraised value or sales price is $50,000 or less.
(2) The base loan amount cannot exceed the Section 184 Guaranteed
Loan limits established under Sec. 1005.441.
(c) Maximum principal loan amount. The maximum principal loan
amount is the base loan amount and the Up-Front Loan Guarantee Fee. The
Section 184 Guaranteed Loan limit may only be exceeded by the amount of
the Up-Front Loan Guarantee Fee.
(d) Minimum principal loan amount. A Direct Guarantee Lender may
not require a minimum loan amount for a Section 184 Guaranteed Loan.
Sec. 1005.445 Case numbers.
(a) Section 184 case numbers may only be obtained by a Direct
Guarantee Lender.
(b) To obtain a case number, the Direct Guarantee Lender must:
(1) Have an active loan application from a Borrower(s) with an
identified property;
(2) Provide evidence of borrower eligibility, as prescribed in
Sec. 1005.401(a);
(3) Verify that the property is located in a Section 184 Approved
Program Area;
(4) Confirm that the Loan does not exceed the Section 184 Loan
limit; and
(5) Submit Loan specific information as prescribed in Section 184
Program Guidance.
(c) Case numbers are automatically cancelled after a period as
identified in Section 184 Program Guidance, unless a Firm Commitment is
issued, or an extension is granted by HUD in accordance with Section
184 Program Guidance prior to the expiration of the case number.
Sec. 1005.447 Maximum age of Loan documents.
Documents reviewed at underwriting and at loan closing may not be
older than the 120 days, or another time period prescribed by Section
184 Program Guidance. Documents whose validity for underwriting
purposes is not affected by the passage of time, such as divorce
decrees or tax returns, are not subject to time limitations.
Sec. 1005.449 Qualified mortgage.
A Section 184 Guaranteed Loan, except for mortgage transactions
exempted under 15 U.S.C. 1639c(b)(3)(ii), is afforded safe harbor as a
qualified mortgage that meets the ability-to-repay requirements in 15
U.S.C. 1639c(a).
Sec. 1005.451 Agreed interest rate.
The loan shall bear interest at the rate agreed upon by the Direct
Guarantee Lender and the Borrower and determined by HUD to be
reasonable. The agreed upon interest rate may not exceed the rate
generally charged in the area for mortgage loans not guaranteed or
insured by any agency or instrumentality of the Federal Government, or
a rate determined by HUD, whichever is lower. The agreed upon interest
rate must not take into consideration a Borrower's credit score in
accordance with Sec. 1005.409 and must not be based on risk-based
pricing.
Sec. 1005.453 Amortization provisions.
The loan must contain complete Amortization provisions satisfactory
to HUD, requiring payments due on the first day of each month by the
Borrower. The sum of the principal and interest payments in each month
shall be substantially the same.
Underwriting
Sec. 1005.455 Direct guarantee underwriting.
(a) Underwriter due diligence. A Direct Guarantee Lender shall
exercise the same level of care which it would exercise in obtaining
and verifying information for a Loan in which the Direct Guarantee
Lender would be entirely dependent on the property as security to
protect its investment. Direct Guarantee Lender procedures that
evidence such due diligence shall be incorporated as part of the
quality control plan required under Sec. 1005.219. Compliance with
HUD-prescribed underwriting guidelines shall be the minimum standard of
due diligence in underwriting the Loans. Failure to comply with HUD-
prescribed underwriting guidelines may result in sanctions in
accordance with Sec. Sec. 1005.905 and 1005.907.
(b) Evaluating the Borrower(s) qualifications. The Direct Guarantee
Lender shall evaluate the Borrower's credit characteristics, the
adequacy and stability of the Borrower's income to meet the periodic
payments under the loan and all other obligations, the adequacy of the
Borrower's available assets to close the transaction, the Borrower's
management capacity and grant performance, if applicable, and render an
underwriting decision in accordance with applicable regulations,
policies, and procedures.
(c) Assumption. Applications for the assumption of an existing
Section 184 Guaranteed Loan shall be underwritten using the same
Borrower eligibility and underwriting standards in accordance with this
subpart.
Sec. 1005.457 Appraisal.
(a) A Direct Guarantee Lender shall have the property appraised in
accordance with all applicable Federal requirements, including but not
limited to the Uniform Standards of Professional Appraisal Practice,
Equal Credit Opportunity Act (15 U.S.C. 1691-1691f), and the Fair
Housing Act (42 U.S.C. 3601-19). HUD may establish alternative
requirements to Uniform Standards of Professional Appraisal Practice,
when necessitated by location and availability of an appraiser, and
publish such alternative requirements in Section 184 Program Guidance.
(b) A Direct Guarantee Lender must select an appraiser identified
on the Federal Housing Administration Appraiser Roster, compiled in
accordance with 24 CFR part 200, subpart G. The Direct Guarantee Lender
shall not discriminate on the basis of race, color, religion, sex
(including gender identity and sexual orientation), disability,
familial status, national origin, or age in the selection of an
appraiser. HUD may establish guidance regarding the alternatives to the
use of an appraiser identified on the Federal Housing Administration
Appraiser Roster, when necessitated by a rural or remote location and
the availability of an appraiser.
(c) A Direct Guarantee Lender and an appraiser must ensure that an
appraisal and related documentation satisfy Federal Housing
Administration, Fannie Mae, or Freddie Mac appraisal requirements, and
both bear responsibility for the quality of the appraisal in satisfying
such requirements.
(d) A Direct Guarantee Lender that submits, or causes to be
submitted, an
[[Page 20072]]
appraisal or related documentation that does not satisfy requirements
under paragraphs (a) through (d) of this section may be subject to
sanctions by HUD pursuant to Sec. Sec. 1005.905 and 1005.907.
(e) The validity period of appraisals is 180 days or as provided by
Section 184 Program Guidance.
(f) Where the initial appraisal report will be more than 180 days
at closing, an appraisal update may be performed to extend the
appraisal validity period prior to closing, in accordance with Section
184 Program Guidance. The updated appraisal is valid for one year after
the effective date of the initial appraisal report; and
(g) The appraisal shall meet other guidance as prescribed in
Section 184 Program Guidance.
Sec. 1005.459 Loan submission to HUD for endorsement.
(a) Deadline for submission. Within 60 days after the date of
closing the loan, a Direct Guarantee Lender must submit an endorsement
case binder to HUD, in accordance with Sec. 1005.503.
(b) Late submission. If the endorsement case binder is submitted
past 60 days, the Direct Guarantee Lender must include, as part of the
case binder, a late endorsement request with supporting documentation,
affirming:
(1) The loan is not currently in default;
(2) All escrow accounts for taxes, hazard insurance, and monthly
Loan Guarantee Fees are current;
(3) Neither the Direct Guarantee Lender nor Servicer provided the
funds to bring or keep the loan current or to bring about the
appearance of acceptable payment history; and
(4) Notwithstanding paragraph (b)(3) of this section, with prior
approval from HUD, Direct Guarantee Lender or Servicer may provide
funds to bring or keep the loan current.
Sec. 1005.461 HUD issuance of Firm Commitment.
HUD may underwrite and issue a Firm Commitment when it is in the
interest of HUD.
Subpart-E--Closing and Endorsement
Closing
Sec. 1005.501 Direct Guarantee Lender closing requirements.
The Direct Guarantee Lender shall close the loan in accordance with
the following:
(a) Chain of title/interest. (1) For fee simple Properties, the
Direct Guarantee Lender must obtain evidence of all prior ownership
within 12 months of the case number assignment date. The Direct
Guarantee Lender must review the evidence of prior ownership to
determine any undisclosed Identity of Interest transactions.
(i) If an Identity of Interest is discovered, the Direct Guarantee
Lender must review for any possible Conflict of Interest.
(ii) As a requirement of closing, all Borrowers must execute a
Section 184 Borrower's Certification, addressing any Identity of
Interest and Conflict of Interest.
(2) For Trust Land transactions, the requirements for the
determination of ownership title interest shall be prescribed by HUD in
Section 184 Program Guidance.
(b) Title/Title Status Report. The Direct Guarantee Lender must
ensure that all objections to title binder/initial certified Title
Status Report have been cleared, and any discrepancies have been
resolved, to ensure that the Section 184 Guaranteed Loan will be in
first security interest position.
(c) Closing in compliance with Direct Guarantee Lender approval.
The Direct Guarantee Lender must instruct the settlement agent to close
the Section 184 Guaranteed Loan on the same terms or on the same
assumptions in which it was underwritten and approved.
(d) Closing in the Direct Guarantee Lender's name. A Section 184
Guaranteed Loan must close in the name of the Direct Guarantee Lender
issuing the underwriting approval.
(e) Required HUD documents at closing. The Direct Guarantee Lender
must use the forms and language as prescribed in Section 184 Program
Guidance.
(f) Projected escrow. The Direct Guarantee Lender must establish an
escrow account in accordance with Sec. 1005.717 and the Real Estate
Settlement Procedures Act and any other escrow requirements as
prescribed under applicable Tribal and Federal laws and regulations.
(g) Closing costs and fees. The Direct Guarantee Lender may charge
the Borrower reasonable and customary fees in accordance with Sec.
1005.515.
(h) Closing date. The closing date must occur before the expiration
of the Firm Commitment.
(i) Per diem interest and interest credits. The Direct Guarantee
Lender may collect per diem interest from the closing date to the date
Amortization begins. Alternatively, the Direct Guarantee Lender may
begin Amortization up to 7 days prior to the closing date and provide a
per diem interest credit. Any per diem interest credit may not be used
to meet Borrower's minimum required investment. Per diem interest must
be computed using a factor of 1/365th of the annual rate.
(j) Authorization of Tribal notification in the event of default.
At closing and on a form provided by HUD, the Borrower must elect
whether to authorize the Direct Guarantee Lender or Servicer to notify
the Tribe in the event of a default, as prescribed in the Section 184
Program Guidance.
(k) Signatures. Direct Guarantee Lender must ensure that the note,
security instrument, and all closing documents are signed by the
required parties.
(l) Other requirements. Direct Guarantee Lender shall close the
loan in accordance with any applicable Tribal, State, or Federal
requirements. Direct Guarantee Lenders must execute any other documents
as may be required by applicable Tribal, Federal, or State law.
Sec. 1005.503 Contents of endorsement case binder.
The Direct Guarantee Lender's endorsement case binder shall be
submitted in a format as prescribed by HUD and contain the documents
meeting the requirements of Sec. 1005.501 and any other documents
supporting the Direct Guarantee Lender's underwriting determination.
Sec. 1005.505 Payment of Upfront Loan Guarantee Fee.
The Direct Guarantee Lender, shall provide evidence of the
remittance of the Upfront Loan Guarantee Fee, as required under Sec.
1005.607, in accordance with a process provided by HUD in Section 184
Program Guidance.
Sec. 1005.507 Borrower's payments to include other charges and
escrow payments.
(a) The Direct Guarantee Lender must include in the Section 184
Guaranteed Loan monthly payment the following charges and escrow
payments:
(1) The ground rents, if any, when the Tribe or TDHE does not have
an existing withholding or payment policy in place;
(2) Annual Loan Guarantee Fee, as prescribed in Sec. 1005.607, if
any;
(3) The estimated amount of all taxes;
(4) Special assessments, if any;
(5) Flood insurance premiums, if flood insurance is required;
(6) Fire and other hazard insurance premiums, except master policy
premiums payable to a condominium association or a Tribe and paid
directly by the Borrower:
(7) Other charges as allowed in Section 184 Program Guidance.
(b) The Section 184 Guaranteed Loan shall further provide that such
payments shall be held by the Direct
[[Page 20073]]
Guarantee Lender in a manner satisfactory to HUD for the purpose of
paying such ground rents, taxes, assessments, and insurance premiums
before the same become delinquent, for the benefit and account of the
Borrower. The Section 184 Guaranteed Loan must also make provisions for
adjustments in case the estimated amount of such taxes, assessments,
and insurance premiums shall prove to be more, or less, than the actual
amount thereof so paid by the Borrower. Such payments shall be held in
an escrow subject to Sec. 1005.717.
(c) The Borrower shall not be required to pay premiums for fire or
other hazard insurance which protects only the interests of the Direct
Guarantee Lender, or for life or disability income insurance, or fees
charged for obtaining information necessary for the payment of property
taxes. The foregoing does not apply to charges made or penalties
exacted by the taxing authority, except that a penalty assessed, or
interest charged, by a taxing authority for failure to timely pay taxes
or assessments shall not be charged by the Direct Guarantee Lender to
the Borrower if the Direct Guarantee Lender had sufficient funds in
escrow for the account of the Borrower to pay such taxes or assessments
prior to the date on which penalty or interest charges are imposed.
Sec. 1005.509 Application of payments.
All monthly payments to be made by the Borrower to the Servicer
shall be added together, and the aggregate amount shall be paid by the
Borrower each month in a single payment by the Borrower, in accordance
with the loan documents. The Servicer shall apply the Borrower's funds
in accordance with Sec. 1005.715.
Sec. 1005.511 Late fee.
When the monthly Section 184 Guaranteed Loan payment is 15 or more
days in arrears, the Servicer may collect from Borrower a late fee of
up to four percent of the overdue payment of principal and interest, or
any other limit as established by HUD through public notice with an
opportunity for comment. The late fee provision must appear on the note
executed at closing.
Sec. 1005.513 Borrower's payments when Section 184 Guaranteed Loan
is executed.
The Borrower must pay to the Direct Guarantee Lender, upon
execution of the Section 184 Guaranteed Loan, where applicable, the:
(a) One-time Up-Front Loan Guarantee Fee or any portion payable
pursuant to Sec. 1005.603; and
(b) All other applicable monthly charges pursuant to Sec.
1005.507, including the Annual Loan Guarantee Fee pursuant to Sec.
1005.607 covering the period from the closing date to the due date of
the first installment payment under the Section 184 Guaranteed Loan.
Sec. 1005.515 Charges, fees, or discounts.
(a) The Direct Guarantee Lender must ensure that all fees charged
and disclosure requirements at closing to the Borrower comply with all
applicable Tribal, Federal, State, and local laws.
(b) The Direct Guarantee Lender may collect from the Borrower the
following charges, fees, or discounts at closing:
(1) A charge to compensate the Direct Guarantee Lender for expenses
incurred in originating and closing the Loan. HUD may establish
limitations on the amount of any such charge in Section 184 Program
Guidance.
(2) Reasonable and customary amounts, but not more than the amount
actually paid by the Direct Guarantee Lender, for any of the following
items:
(i) Recording fees and recording taxes or other charges incident to
recordation;
(ii) Credit report;
(iii) Survey, if required by Direct Guarantee Lender or Borrower;
(iv) Title examination;
(v) Title insurance, if any;
(vi) Fees paid to an appraiser or inspector approved by HUD for the
appraisal and inspection, if required, of the property;
(vii) Reasonable and customary charges in the nature of discounts;
and
(viii) Interest calculations in accordance with Sec. 1005.501(i).
(ix) Such other reasonable and customary charges as may be
authorized by HUD.
(c) All charges, fees or discounts are subject to review by HUD
after endorsement.
Sec. 1005.517 Certificate of nondiscrimination by the Direct
Guarantee Lender.
(a) Where applicable, a Direct Guarantee Lender shall certify to
HUD as to each of the following:
(1) That neither the Direct Guarantee Lender, nor anyone authorized
to act for the Direct Guarantee Lender, will refuse to sell, after the
making of a bona fide offer, or refuse to negotiate for the sale
otherwise make unavailable or deny the property covered by the Section
184 Guaranteed Loan to any eligible purchaser or discriminate in making
a loan or engaging in a residential real estate-related transaction (as
defined in 42 U.S.C. 3605) because of age, race, color, religion, sex
(including gender identity and sexual orientation), disability,
familial status, or national origin, source of income of the Borrower,
location of the property, or because the Borrower exercised any right
under the Consumer Credit Protection Act, except as provided by law.
(2) That any restrictive covenant, other than permissible
restrictions on Trust Land, on such property relating to race, color,
religion, sex (including gender identity and sexual orientation),
disability, familial status, or national origin is hereby illegal,
unenforceable, or void.
(b) That civil action for preventative relief may be brought by the
Attorney General in any appropriate U.S. District Court against any
person responsible for a violation of this certification.
Endorsement and Post-Closing
Sec. 1005.519 Creation of the contract.
The loan shall be a Section 184 Guaranteed Loan from the date of
the issuance of a Loan Guarantee Certificate. The Direct Guarantee
Lender is thereafter bound by the regulations in this subpart with the
same force and to the same extent as if a separate contract had been
executed relating to the Section 184 Guaranteed Loan, including the
provisions of the regulations in this subpart and 12 U.S.C. 1715z-13a.
Sec. 1005.521 Pre-endorsement review and requirements.
Direct Guarantee Lender must complete a pre-endorsement review of
the endorsement case binder. This review must be conducted by staff not
involved in the originating, processing, or underwriting of the Loan.
This review must also confirm that the loan was underwritten by an
approved Direct Guarantee Lender. The endorsement case binder must
contain all documentation relied upon by the Direct Guarantee Lender to
justify its decision to approve the Loan in accordance with subpart D
of this part. Upon finalizing the pre-endorsement review, the Direct
Guarantee Lender must certify that all required documents are submitted
and meet the requirements of Sec. 1005.503.
Sec. 1005.523 HUD pre-endorsement review.
(a) Direct Guarantee Lender shall submit to HUD within 60 days
after the date of the closing of the Loan, or such additional time as
permitted by HUD, the endorsement case binder.
(b) Upon submission by a Direct Guarantee Lender of the endorsement
case binder containing those documents required by Sec. 1005.503, HUD
will review the documents to ensure that the Loan meets all statutory,
regulatory, and administrative requirements, including but not limited
to:
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(1) There is no fee, late charge, or interest due to HUD;
(2) The Loan was not in default when submitted for the Loan
Guarantee Certificate, unless otherwise approved by HUD, or if
submitted for guarantee more than 60 days after the date of closing,
the loan shows an acceptable payment history; and
(3) The loan was underwritten by an approved Direct Guarantee
Lender.
(c) Upon review, if HUD determines the loan to meet program
requirements, HUD will issue a Loan Guarantee Certificate. If HUD
determines the loan is ineligible, HUD will provide the Direct
Guarantee Lender with a written determination and specify any available
corrective actions that may be available. If there is information
indicating that any certification or required document is false,
misleading, or constitutes fraud or misrepresentation on the part of
any party, or that the loan fails to meet a statutory or regulatory
requirement, HUD will conduct a complete audit of the endorsement case
binder. Repeated submission of deficient endorsement case binders may
subject the Direct Guarantee Lender to sanctions or civil money
penalties pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.525 Loan Guarantee Certificate.
(a) HUD shall issue a Loan Guarantee Certificate as evidence of the
guarantee when HUD completes a review of the Direct Guarantee Lender's
endorsement case binder and determines the Loan complies with all
applicable Section 184 Program requirements. HUD's issuance of the Loan
Guarantee Certificate does not preclude HUD from conducting post-
endorsement reviews under Sec. 1005.527, seeking indemnification under
Sec. 1005.529, or imposing sanctions from originating Direct Guarantee
Lender, Holder and/or Servicer under Sec. Sec. 1005.905 and 1005.907.
(b) HUD may issue a Loan Guarantee Certificate for a loan involving
a security interest in Trust Land before HUD receives the required
trailing documents from BIA, where applicable, if the Direct Guarantee
Lender agrees to indemnify HUD. The indemnification agreement between
HUD and the Direct Guarantee Lender will terminate only upon receipt of
the Trailing Documents in a form and manner acceptable to HUD. Trailing
Documents may include the following documents:
(1) A final certified TSR that identifies that the BIA or Tribe
approved and recorded the mortgage instrument and residential lease
related to the Section 184 Loan, as applicable;
(2) A certified true copy of the recorded mortgage instrument;
(3) A certified true copy of the recorded lease, if applicable;
(4) A certified true copy of the recorded executed mortgage release
documents for all prior mortgages identified on the initial certified
TSR, if applicable; and
(5) A certified true copy of any BIA approved and executed
subordination agreements;
(c) The Loan Guarantee Certificate is conclusive evidence of the
eligibility of the Loan for guarantee under this part. Such evidence
will be incontestable in the hands of the bearer and the full faith and
credit of the United States is pledged to the payment of amounts agreed
to be paid by HUD as security for such obligations.
(d) This section may not be construed to preclude HUD from
conducting a post-endorsement review. With respect to the original
Direct Guarantee Lender, HUD may establish defenses against the
original Direct Guarantee Lender based on fraud or material
misrepresentation. This section may not be construed to bar HUD from
establishing partial defenses to the amount payable on the Section 184
Guaranteed Loan.
Sec. 1005.527 Post-endorsement review.
(a) HUD may review an endorsement case binder at any time,
including but not limited to a quality control review of all documents
in Sec. 1005.503.
(b) Within three business days of a request by HUD, the Direct
Guarantee Lender must make available for review, or forward to HUD,
copies of the identified endorsement case binder(s).
(c) A Direct Guarantee Lender's failure to provide HUD access to
any files may be grounds for sanctions in accordance with Sec. Sec.
1005.905 and 1005.907.
(d) Based on HUD's review under paragraph (a) of this section, if
HUD determines that:
(1) The Loan does not satisfy the requirements of subpart F of this
part;
(2) The Direct Guarantee Lender or Sponsored Entity committed fraud
or a material misrepresentation; or
(3) The Direct Guarantee Lender or Sponsored Entity had known or
should have known of fraud or a material misrepresentation in violation
of this part, such that the Loan should not have been approved by the
Direct Guarantee Lender;
(e) HUD may request indemnification from the originating Direct
Guarantee Lender and impose sanctions on the Direct Guarantee Lender
and Sponsored Entity pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.529 Indemnification.
(a) When HUD conducts a pre- or post-endorsement review and HUD
determines there is an underwriting deficiency where the Section 184
Guaranteed Loan should not have been approved, HUD may request the
originating Direct Guarantee Lender to indemnify HUD.
(b) Underwriting deficiencies with respect to the Section 184
Guaranteed Loan may include but is not limited to fraud or
misrepresentation by the originating Direct Guarantee Lender.
(c) HUD will notify the originating Direct Guarantee Lender in
writing when an indemnification is required.
(d) Under an indemnification, the originating Direct Guarantee
Lender must reimburse HUD when a subsequent Holder files a Claim and
HUD suffers a financial loss.
(e) If the originating Direct Guarantee Lender fails to indemnify
HUD, HUD may impose sanctions pursuant to Sec. Sec. 1005.905 and
1005.907.
Subpart F--Section 184 Guaranteed Loan Fees
Sec. 1005.601 Scope and method of payment.
HUD shall charge a one-time Section 184 Up-Front Loan Guarantee
Fee, and a recurring Annual Loan Guarantee Fee where applicable, which
will be collected by a Direct Guarantee Lender or Servicer as required
by Sec. Sec. 1005.603 and 1005.607 and remitted to HUD as required by
Sec. Sec. 1005.605 and 1005.609. The fees collected by the Direct
Guarantee Lender or Servicer on behalf of HUD shall be payable to HUD
in cash, in the manner prescribed by Section 184 Program Guidance.
Sec. 1005.603 Up-Front Loan Guarantee Fee.
At settlement, the Direct Guarantee Lender will collect from the
Borrower a one-time Up-Front Loan Guarantee Fee in an amount not
exceeding three percent of the principal obligation of the Section 184
Guaranteed Loan. The amount will be set by HUD through a notice in the
Federal Register.
Sec. 1005.605 Remittance of Up-Front Loan Guarantee Fee.
The Direct Guarantee Lender shall remit the Up-Front Loan Guarantee
Fee to HUD within 15 days after settlement, using the payment system as
prescribed by Section 184 Program Guidance. The Direct Guarantee Lender
shall provide an account reconciliation of the Up-Front Loan Guarantee
Fee in the time and manner as may be prescribed in Section 184 Program
Guidance.
[[Page 20075]]
Sec. 1005.607 Annual Loan Guarantee Fee.
(a) Percentage of Annual Loan Guarantee Fee. Where applicable the
Servicer must collect a monthly installment for the Annual Loan
Guarantee Fee from the Borrower in an amount not exceeding one percent
of the principal obligation of the loan. The percentage used to
calculate the Annual Loan Guarantee Fee amount will be prescribed by
notice in the Federal Register.
(b) Payment of Annual Loan Guarantee Fee. Where applicable, the
Section 184 Guaranteed Loan shall require monthly payments by the
Borrower to the Servicer in an amount equal to one-twelfth of the
Annual Loan Guarantee Fee, payable by the Servicer to HUD in accordance
with the Amortization Schedule issued with the Loan approval.
(c) Amortization Schedule. The amount of the Borrower's monthly
installment will be based on an Amortization Schedule as prescribed in
Section 184 Program Guidance.
Sec. 1005.609 Remittance of Annual Loan Guarantee Fee.
(a) Where applicable, monthly installment of the Annual Loan
Guarantee Fee shall be due and payable to HUD no later than the 15th
day of each month, beginning in the month in which the Borrower is
required to make the first monthly loan payment. Monthly payments of
the Annual Loan Guarantee Fee must be submitted using a HUD prescribed
payment system, as prescribed by Section 184 Program Guidance.
(b) Where applicable, subject to the exception in paragraph (d) of
this section, the Servicer shall continue to collect from the Borrower,
as established by a schedule provided in Sec. 1005.607(b) and pay HUD
the monthly installment of the Annual Loan Guarantee Fee, without
taking into account Borrower's default, loss mitigation, prepayments,
agreements to postpone payments, or agreements to recast the loan. Any
changes to the Annual Loan Guarantee Fee will be published in the
Federal Register.
(c) Where applicable, the Servicer shall adjust the monthly
installment of the Annual Loan Guarantee Fee in accordance the schedule
provided in Sec. 1005.607(b). Notwithstanding paragraph (a) of this
section, the Servicer shall refund to the Borrower any overpayment of
Annual Loan Guarantee Fees collected from the Borrower, due to a
delayed adjustment of the Loan Guarantee Fee, within 30 days of the
overpayment. Failure to refund the Borrower within this timeframe will
result in a penalty in accordance with Sec. 1005.611.
(d) Where applicable, the Servicer shall cease collecting the
monthly installment of the Annual Loan Guarantee Fee when the amortized
loan to value ratio equals an amount less than the Annual Loan
Guarantee Fee termination threshold loan-to-value ratio as established
by the Secretary in the Federal Register and established by a schedule
provided in Sec. 1005.607(b). Notwithstanding paragraph (a) of this
section, the Servicer shall refund to the Borrower any overpayment of
Annual Loan Guarantee Fees collected when the loan-to-value ratio falls
below the threshold established by the Secretary in the Federal
Register, within 30 days of the overpayment. Failure to refund the
Borrower within this timeframe will result in penalty in accordance
with Sec. 1005.611.
(e) Annual Loan Guarantee Fees paid, if any, in accordance with the
schedule provided in Sec. 1005.607(b) shall not be refundable to the
Borrower.
(f) Where applicable, if the Servicer submits the monthly
installment of the Annual Loan Guarantee Fee to HUD after the due date,
the amount paid must include the required payment of penalties pursuant
to Sec. 1005.611(c).
(g)(1) When transfer of servicing occurs in accordance with Sec.
1005.707:
(i) The schedule of monthly installment payments provided in Sec.
1005.607(b) must be provided to the new Servicer; and
(ii) The account reconciliation of the Upfront Guarantee Fee and
Annual Loan Guarantee Fee due and remitted to HUD must be provided to
the new Servicer.
(2) The new Servicer is responsible for compliance with all
requirements of this part, including, but not limited to, any
outstanding Annual Loan Guarantee Fee payments and penalties owed to
HUD, or any Annual Loan Guarantee Fee adjustments or refunds due to the
Borrower.
(3) If a transfer results in missed monthly installment(s) of the
Annual Loan Guarantee Fee, the new Servicer shall pay the overdue
installment(s) in a lump sum to HUD within 30 days of acquisition of
the loan and include any applicable penalties in accordance with Sec.
1005.611.
(h) The Direct Guarantee Lender shall provide an account
reconciliation of the Annual Loan Guarantee Fee in the time and manner
as may be prescribed in Section 184 Program Guidance.
Sec. 1005.611 HUD imposed penalties.
(a) Prohibited penalty pass through. The Holder, Direct Guarantee
Lender or Servicer shall not recover or attempt to recover from the
Borrower any penalties HUD imposes upon the Holder, Direct Guarantee
Lender or Servicer.
(b) Failure of Direct Guarantee Lender to timely remit Up-Front
loan guarantee to HUD. (1) The Direct Guarantee Lender shall include a
late fee if the Up-Front Loan Guarantee Fee is not remitted to HUD
within 15 days of settlement.
(2) Failure to remit the Up-Front Loan Guarantee Fee, with a late
fee where applicable, may result in HUD rejecting the endorsement or
Claim case binder.
(c) Failure of Servicer to timely remit the monthly installment of
the Annual Loan Guarantee Fee to HUD. (1) The Servicer shall include a
late fee for each monthly installment of the Annual Loan Guarantee Fee
remitted to HUD after the15th of each month.
(2) Failure to remit monthly installment of the Annual Loan
Guarantee Fee to HUD, with late fee, may result in HUD rejecting the
Claim case binder, where applicable.
(d) Failure of Servicer to adjust the amount of the Annual Loan
Guarantee Fee. (1) When a Servicer fails to make the annual adjustment
to the amount of the monthly installment of the Annual Loan Guarantee
Fee in accordance with Sec. 1005.607(b), the Holder shall, in addition
to reimbursing the Borrower as required in Sec. 1005.609(c), pay HUD a
penalty for each month the Servicer collects an overpayment of the
Annual Loan Guarantee Fee.
(2) The Servicer shall provide annual written notice, in the manner
prescribed by Section 184 Program Guidance to the Borrower prior to the
scheduled change in the monthly installment of the Annual Loan
Guarantee Fee, with such advance notice as required by 12 CFR 1026.9,
or other applicable Federal law.
(e) Failure to cease collection of the Annual Loan Guarantee Fee.
When a Servicer fails to cease collection of the monthly installment of
the Annual Loan Guarantee Fee after the loan to value ratio reaches the
threshold described in Sec. 1005.609(d), the Holder shall, in addition
to reimbursing the Borrower as required in Sec. 1005.609(d), pay HUD a
penalty for each month the Servicer collects an overpayment of the
Annual Loan Guarantee Fee.
(f) Late fee and penalty amounts. Late fees and penalty amounts
under this section shall be prescribed by HUD in Section 184 Program
Guidance.
[[Page 20076]]
Subpart G--Servicing
Servicing Section 184 Guaranteed Loans Generally
Sec. 1005.701 Section 184 Guaranteed Loan servicing generally.
This subpart identifies the servicing requirements for Section 184
Guaranteed Loans. All Section 184 Guaranteed Loans must be serviced by
Section 184 approved Servicers, including Section 184 Guaranteed Loans
owned by Holders. Holders are responsible for all servicing actions,
including the acts of its Servicers. Servicers are responsible for
their actions in servicing Section 184 Guaranteed Loans, including
actions taken on behalf of, or at the direction of, the Holder. Failure
to comply with this subpart may result in the reduction of the Claims
amount in accordance with subpart H of this part or may subject Holder
and/or Servicer to sanctions pursuant to subpart I. Holders and
Servicers must comply with all applicable Tribal, Federal, and State
requirements related to mortgage servicing.
Sec. 1005.703 Servicer eligibility and application process.
(a) To be eligible to service Section 184 Guaranteed Loans, a
Direct Guarantee Lender, Non-Direct Guarantee Lender or other financial
institution must be an approved mortgage Servicer for FHA or another
agency of the Federal Government.
(b) All eligible Direct Guarantee Lenders, Non-Direct Guarantee
Lenders and other financial institutions must apply to become a
Servicer in accordance with Section 184 Program Guidance.
(c) Direct Guarantee Lenders servicing Section 184 Guaranteed Loans
prior to June 18, 2024 may request an exemption from paragraph (a) of
this section.
Sec. 1005.705 Servicer approval.
(a) Final approval. Approval is signified by:
(1) Written notification from HUD that the Direct Guarantee Lender,
Non-Direct Guarantee Lender, or other financial institution is approved
as a Servicer under the Section 184 Program; and
(2) Agreement by the Direct Guarantee Lender, Non-Direct Guarantee
Lender, or other financial institution to comply with requirements of
this part and any applicable Federal, State, or Tribal law requirement.
(b) Limitations on approval. The Direct Guarantee Lender, Non-
Direct Guarantee Lender or other financial institution may only be
approved to service Section 184 Guaranteed Loans in areas where the
Direct Guarantee Lender, Non-Direct Guarantee Lender or financial
institution is licensed, as applicable.
(c) Denial of participation. A Direct Guarantee Lender, Non-Direct
Guarantee Lender or other financial institution may be denied approval
to become a Servicer if HUD determines the Direct Guarantee Lender,
Non-Direct Guarantee Lender or other financial institution does not
meet the qualification requirements of Sec. 1005.703. HUD will provide
written notification of denial and of the right to submit a written
appeal in accordance with Sec. 1005.909.
Sec. 1005.707 Responsibility for servicing.
(a) Program compliance. (1) The Servicer must participate in HUD
training on the Section 184 program.
(2) A Servicer shall provide written notification to HUD of any
changes that affect qualifications under this subpart within a
timeframe prescribed by Section 184 Program Guidance.
(b) Sub-Servicer. (1) If a Servicer elects to use a sub-servicer,
the sub-servicer must be an approved Servicer under Sec. 1005.705.
(2) Servicers are responsible for the actions of their sub-
servicers. The Holder and Servicer shall remain fully responsible to
HUD for Section 184 Guaranteed Loan servicing in accordance with this
subpart, and the actions of a sub-Servicer shall be considered the
actions of the Servicer.
(c) Change in Servicer. (1) When the responsibility of servicing a
Section 184 Guaranteed Loan is transferred from one Servicer to
another, the acquiring Servicer shall assume responsibility for
compliance with this part, this includes addressing any noncompliance
by the former Servicer.
(2) The former Servicer must notify HUD of the change in Servicer
within 15 days of the transfer, or timeframe as prescribed by Section
184 Program Guidance.
(3) The acquiring Servicer shall provide notice to the Borrower of
the transfer of servicing in accordance with applicable Tribal, Federal
and/or State laws that may require such notice.
(4) HUD will hold the acquiring Servicer responsible for errors,
omissions, and unresolved HUD review findings on the part of the former
Servicer (or former sub-Servicer), discovered after the transfer is
reported even when the errors or omissions took place prior to the
transfer.
(d) Transfer of servicing rights. The Servicer must submit written
notification to HUD, within 15 days of transfer, or other time period
as prescribed by Section 184 Program Guidance, of the transfer of
servicing rights through the acquisition or sale of any Section 184
Guaranteed Loans.
(e) Reporting requirements. (1) On a date and manner established by
Section 184 Program Guidance, the Servicer shall report to HUD the
status of all Section 184 Guaranteed Loans in its Servicing portfolio.
(2) Where applicable, Servicer shall provide an Annual Loan
Guarantee Fee reconciliation to the Borrower and HUD, in a manner and
timeframe as prescribed by Section 184 Program Guidance.
(3) Servicer must comply with any other reporting requirements
under Sec. 1005.903.
(4) The Servicer's failure to submit required reports on time may
subject the Holder and/or Servicer to sanctions and civil money
penalties pursuant to Sec. Sec. 1005.905 and 1005.907.
(f) Business change reporting. Within a timeframe and on a form as
prescribed by Section 184 Program Guidance, the Servicer shall provide
written notification to HUD of:
(1) All changes in the Servicer's legal structure, including, but
not limited to, mergers, acquisitions, terminations, name, location,
control of ownership, and character of business;
(2) Staffing changes related to servicing Section 184 Guaranteed
Loans; and
(3) Any sanctions by another supervising entity.
(4) Failure to report changes within the timeframe prescribed in
Section 184 Program Guidance may result in sanctions in accordance with
Sec. Sec. 1005.905 and 1005.907.
(g) Annual recertification. (1) All Servicers are subject to annual
recertification on a date and manner as prescribed by Section 184
Program Guidance. With each annual recertification, Servicers must
submit updated contact information, current FHA or another Federal
agency recertification status, and other pertinent documents as
prescribed by Section 184 Program Guidance.
(2) Servicers may request an extension of the recertification
deadline in accordance with Section 184 Program Guidance.
(3) HUD will review the annual recertification submission and may
request any further information required to determine recertification.
HUD will provide written notification of approval to continue
participation in the Section 184 Program or denial. A denial may be
appealed pursuant to Sec. 1005.909.
(4) If an annual recertification is not submitted by the reasonable
deadline as
[[Page 20077]]
prescribed in Section 184 Program Guidance, HUD may subject the
Servicer to sanctions under Sec. 1005.907.
(h) Program ineligibility. Servicer may be deemed ineligible for
Section 184 Program participation when HUD becomes aware that the
entity or any officer, partner, director, principal, manager or
supervisor of the entity was:
(1) Suspended, debarred, under a limited denial of participation
(LDP), or otherwise restricted under 2 CFR part 2424, or under similar
procedures of any other Federal agency
(2) Indicted for, or have been convicted of, an offense during the
7-year period preceding the date of the application for licensing and
registration, or at any time preceding such date of the application, if
such indictment or conviction reflects adversely upon the integrity,
competency, or fitness to meet the responsibilities of the Servicer to
participate in the title I or title II programs of the National Housing
Act, or Section 184 Program;
(3) Found to have unresolved findings as a result of HUD or other
governmental audit, investigation, or review;
(4) Engaged in business practices that do not conform to generally
accepted practices of prudent Servicers or that demonstrate
irresponsibility;
(5) Convicted of, or have pled guilty or nolo contendere to, a
felony related to participation in the real estate or mortgage Loan
industry during the 7-year period preceding the date of the application
for licensing and registration, or at any time preceding such date of
application, if such felony involved an act of fraud, dishonesty, or a
breach of trust or money laundering;
(6) In violation of provisions of the Secure and Fair Enforcement
Mortgage Licensing Act of 2008 (12 U.S.C. 5101, et seq.) or any
applicable provision of Tribal or State law; or
(7) In violation of 12 U.S.C. 1715z-13a or any other requirement
established by HUD.
(i) Records retention. Servicers must maintain the servicing case
binder for a period of three years beyond the date of satisfaction or
maturity date of the Loan, whichever is sooner. However, where there is
a payment of Claim, the Claim case binder must be retained for a period
of at least five years after the final Claim has been paid. Section 184
Program Guidance shall prescribe additional records retention time
depending on the circumstances of the Claim.
(ii) [Reserved]
Sec. 1005.709 Providing information to Borrower and HUD.
(a) Servicers shall provide Section 184 Guaranteed Loan information
to Borrowers and arrange for individual loan consultation on request.
The Servicer must establish written procedures and controls to assure
prompt responses to inquiries. At a minimum, the Servicer must provide
contact information to the Borrower in accordance with applicable
Tribal, Federal and/or State laws, including:
(1) A written address a Borrower can use to request and submit
information; and
(2) A toll-free telephone number a Borrower can use to verbally ask
questions and seek information.
(b) All Borrowers must be informed of the system available for
obtaining answers to loan inquiries, the Servicer's office from which
needed information may be obtained and reminded of the system at least
annually.
(c) Within 30 days after the end of each calendar year, the
Servicer shall furnish to the Borrower a statement of the interest
paid, and of the taxes disbursed from the escrow account during the
preceding year.
(d) At the Borrower's request, the Servicer shall furnish a
statement of the escrow account sufficient to enable the Borrower to
reconcile the account.
(e) Each Servicer shall deliver to the Borrower a written notice of
any transfer of the Servicing of the Section 184 Guaranteed Loan. The
notice must be sent in accordance with applicable Tribal, Federal and/
or State laws. Servicers must respond to Borrower inquiries pertaining
to the transfer of Servicing in accordance applicable Tribal, Federal
and/or State laws.
(f) Servicers must respond to HUD's written or electronic requests
for information concerning individual accounts within three business
days, or other timeframe established by Section 184 Program Guidance,
or the deadline placed by other applicable law, whichever is sooner.
Sec. 1005.711 Assumption and release of personal liability.
(a) Assumption. Section 184 Guaranteed Loans may be fully assumed
by an eligible substitute Borrower(s), based on the following:
(1) Creditworthiness. At least one person acquiring ownership must
be determined to be creditworthy under subpart D of this part. If the
Servicer is approved as a Direct Guarantee Lender, the Servicer
performs a creditworthiness determination under Sec. 1005.409. If the
Servicer or Holder is not approved as a Direct Guarantee Lender, then
the Servicer shall request a creditworthiness determination in a manner
prescribed by Section 184 Program Guidance.
(2) Trust Lands. (i) As applicable, a lease approved by HUD, the
Tribe or the BIA in the new Borrower's name is required. Servicers
shall not proceed to closing on the assumption until and unless the
Tribe has consented to assign the property interest to the new Borrower
at closing. Where applicable, a final certified Title Status Report
documenting the assignment of the lease or recordation of a new lease
is required.
(ii) Where applicable, the lease may contain other conveyance
restrictions. Servicer must review the lease for conveyance
restrictions and ensure the lease complies with Sec. 1005.303(b)(2).
(iii) Other requirements prescribed in Section 184 Program
Guidance.
(b) Fees. The Servicer may collect from the Borrower the following
fees and costs:
(1) A charge to compensate the Direct Guarantee Lender for
reasonable and necessary expenses incurred as part of the assumption
review and processing. HUD may establish limitations on the amount of
any such charge.
(2) Reasonable and customary costs, but not more than the amount
actually paid by the Direct Guarantee Lender, for any of the following
items: credit report, verification of employment and the execution of
additional release of liability forms.
(3) Additional fees and costs over and above the assumption fee and
reasonable and customary costs cannot be assessed.
(c) Release of liability. At closing, the Servicer must release the
existing Borrower from any personal liability on a form approved by
HUD; the eligible and approved substitute Borrower assumes personal
liability of the Section 184 Guaranteed Loan when the release is
executed.
(d) Modification of Loan Guarantee Certificate. Upon completion of
an assumption, the Servicer shall submit copies of the documentation
required in this section to HUD, in a manner and form prescribed by
HUD. HUD will review the assumption for compliance prior to issuing a
revised Loan Guarantee Certificate.
Sec. 1005.713 Due-on-sale provision.
A Section 184 Guaranteed Loan shall contain a due-on-sale clause
permitting acceleration, as prescribed by Section 184 Program Guidance.
The Servicer shall promptly advise HUD of any prohibited sale or other
transfer of the property or leasehold interest that occurs. The
Servicer must request
[[Page 20078]]
approval from HUD to accelerate the Loan when any prohibited sale or
transfer occurs. If acceleration is permitted by applicable Tribal,
Federal, or State law, the Servicer shall certify as to the legal
authority as part of the request for approval, in a form and manner
prescribed by Section 184 Program Guidance. Within 30 days of receipt
of HUD approval to accelerate, the Servicer shall notify the Borrower
of default and acceleration.
Sec. 1005.715 Application of Borrower payments.
(a) Servicer shall comply with Sec. 1005.509 with respect to the
application of Borrower payments. The Servicer shall apply the payments
in the following order:
(1) Escrow items, including monthly payments of the Annual Loan
Guarantee Fee, rents, taxes, special assessments, and if required,
flood insurance, fire, and other hazard insurance premiums;
(2) Interest accrued on the Section 184 Guaranteed Loan;
(3) Principal of the Section 184 Guaranteed Loan; and
(4) Late charges, if permitted under the terms of the Section 184
Guaranteed Loan and subject to such conditions as HUD may prescribe.
(b) Partial Payments shall be applied in accordance with Sec.
1005.723.
Sec. 1005.717 Administering escrow accounts.
(a) The Servicer shall not use escrow funds for any purpose other
than that for which they were received. It shall segregate escrow
commitment deposits, work completion deposits, and all periodic
payments received on account of leasehold rents, taxes, assessments,
monthly payments of Annual Loan Guarantee Fee, and insurance charges or
premiums, and shall deposit such funds with one or more financial
institutions in a special account or accounts that are fully insured by
the Federal Deposit Insurance Corporation or the National Credit Union
Administration. Leasehold rents on Trust Lands may require additional
escrow segregation by Servicers, as may be prescribed in Section 184
Program Guidance.
(b) It is the Servicer's responsibility to ensure timely escrow
disbursements and their proper application. Servicers must establish
controls to ensure that accounts payable from the escrow account or the
information needed to pay such accounts payable is obtained on a timely
basis. Penalties for late payments for accounts payable from the escrow
account must not be charged to the Borrower or HUD unless the Servicer
can show that the penalty was the direct result of the Borrower's error
or omission. The Servicer shall further comply with applicable Tribal,
Federal, or State laws, including method of calculations related to
escrow, the methods of collection and accounting, and the payment of
the accounts payable for which the money has been escrowed.
(c) The Servicer shall not initiate foreclosure for escrow account
shortfalls resulting from advances made pursuant to this section.
(d) When a Loan Guarantee Certificate is terminated voluntarily or
due to Borrower's prepayment, in total satisfaction of the Section 184
Guaranteed Loan, amounts in the escrow account designated to pay any
HUD required program fees shall be remitted to HUD in a form approved
by HUD at the time of the required reporting related to the voluntary
termination or prepayment. When a Section 184 Guaranteed Loan is
prepaid in full, amounts held in escrow for taxes, hazard insurance, or
rents, if applicable, that are not yet due or incurred, shall be
released to the Borrower.
Sec. 1005.719 Fees and costs after endorsement.
(a) After endorsement, the Servicer may collect reasonable and
customary fees and costs from the Borrower only as provided below. The
Servicer may collect these fees or costs from the Borrower only to the
extent that the Servicer is not reimbursed for such fees or costs by
HUD. Permissible fees and costs include:
(1) Late fee in accordance with Sec. 1005.511;
(2) Costs for processing or reprocessing a check returned as
uncollectible (where bank policy permits, the Servicer must deposit a
check for collection a second time before assessing an insufficient
funds charge);
(3) Fees for processing a change of ownership of the property;
(4) Fees and costs for processing an assumption of the Section 184
Guaranteed Loan in connection with the sale or transfer of the
property;
(5) Costs for processing a request for credit approval incurred in
the course of processing an assumption or substitute Borrower;
(6) Costs for substitution of a hazard insurance policy at other
than the expiration of term of the existing hazard insurance policy;
(7) Costs for modification of the Section 184 Guaranteed Loan
requiring recordation of the agreement, including those for extension
of term or re-amortization;
(8) Fees and costs for processing a partial release of the
property;
(9) Attorney's and trustee's fees and costs actually incurred
(including the cost of appraisals and advertising) when a Section 184
Guaranteed Loan has been referred to foreclosure counsel and
subsequently the Section 184 Guaranteed Loan is reinstated. No
attorney's fee and cost that exceeds the reasonable limits prescribed
by Section 184 Program Guidance may be collected from the Borrower,
unless approved by HUD;
(10) A trustee's fee, if the security instrument provides for
payment of such a fee, for execution of a satisfactory release when the
deed of trust is paid in full;
(11) Where permitted by the security instrument, attorney's fees
and costs actually incurred in the defense of any suit or legal
proceeding wherein the Servicer shall be made a party thereto by reason
of the Section 184 Guaranteed Loan. No attorney's fee may be charged
for the services of the Servicer's staff attorney or other employee;
(12) property preservation costs incurred, subject to reasonable
limits prescribed by Section 184 Program Guidance, or otherwise
approved by HUD;
(13) Fees permitted for providing a beneficiary notice under
applicable Tribal, Federal and/or State law, if such a fee is not
otherwise prohibited by the applicable law(s); and
(14) Such other reasonable and customary costs as may be authorized
by HUD.
(b) Reasonable and customary fees must be based upon the actual
cost of the work performed, including out-of-pocket expenses. HUD may
establish maximum fees and costs which are reasonable and customary in
different geographic areas. Except as provided in this part, no fee or
costs shall be based on a percentage of either the face amount of the
Section 184 Guaranteed Loan or the unpaid principal balance due.
Sec. 1005.721 Enforcement of late fees.
(a) A Servicer shall not commence foreclosure when the Borrower's
only default is his or her failure to pay a late fee(s).
(b) A late fee that may be assessed under the Section 184
Guaranteed Loan but unpaid by the Borrower shall not justify Servicer's
return of Borrower's payment. However, if the Servicer thereafter
notifies the Borrower of his obligation to pay a late fee, such a fee
may be deducted from any subsequent
[[Page 20079]]
payment or payments submitted by the Borrower or on his behalf if this
is not inconsistent with the terms of the Section 184 Guaranteed Loan.
Partial Payments shall be treated as provided in Sec. 1005.723.
(c) A payment submission may be returned because of failure to
include a late fee only if the Servicer notifies the Borrower before
imposition of the charge of the amount of the monthly payment, the date
when the late fee will be imposed, and either the amount of the late
charge or the total amount due when the late fee is included.
(d) During the 60-day period beginning on the effective date of
transfer of the Servicing of a Section 184 Guaranteed Loan, a late fee
shall not be assessed. If a payment is received by the prior Servicer
on or before the due date (including any applicable grace period
allowed by the Section 184 Guaranteed Loan), no late fees shall be
assessed by the new Servicer.
(e) A Servicer shall not assess a late fee for failure to pay a
late fee, as prohibited under 12 CFR 1026.36.
Sec. 1005.723 Partial Payments.
(a) A Servicer must have a written policy on how it handles Partial
Payments, in compliance with this section and that policy shall be
readily available to the public.
(b) Upon receipt of a Partial Payment, a Servicer must provide the
Borrower a copy of the Servicer's written Partial Payment policy and a
letter explaining how it will handle the received Partial Payment. The
Servicer may:
(1) Accept a Partial Payment and either apply it to the Borrower's
account;
(2) Identify it with the Borrower's account number and hold it in a
trust account pending disposition; or
(3) Return the Partial Payment(s) to the Borrower.
Sec. 1005.725 Handling prepayments.
Notwithstanding the terms of the Section 184 Guaranteed Loan, the
Servicer shall accept a prepayment at any time and in any amount.
Monthly interest on the Section 184 Guaranteed Loan must be calculated
on the actual unpaid principal balance of the Section 184 Guaranteed
Loan as of the date the prepayment is received, and not as of the next
payment due date.
Sec. 1005.727 Substitute Borrowers.
Where an original Borrower requests the substitution of an existing
Borrower on the Section 184 Guaranteed Loan:
(a) A Servicer who is Non-Direct Guarantee Lender or financial
institution must obtain HUD approval for the substitution. A remaining
original Borrower must be maintained and continue to be personally
liable for the Section 184 Guaranteed Loan, notwithstanding any
discharge entered in accordance with applicable Tribal, Federal, or
State law.
(b) A Servicer who is a Direct Guarantee Lender may, subject to
limitations established by HUD, approve an eligible substitute Borrower
that meets the requirements for Section 184 Guaranteed Loans which they
own or service, without specific approval from HUD. The remaining
original Borrower must be maintained and continue to be personally
liable for the Section 184 Guaranteed Loan, notwithstanding any
discharge entered in accordance with applicable Tribal, Federal, or
State law.
Servicing Default Section 184 Guaranteed Loans
Sec. 1005.729 Section 184 Guaranteed Loan collection action.
A Servicer shall take prompt action to collect amounts due from
Borrowers to minimize the number of accounts in default status. The
Servicer must exhaust all reasonable possibilities of collection,
including assessing the Borrower's financial circumstances for loss
mitigation options in accordance with Sec. 1005.739. No Servicer shall
commence foreclosure, assign the loan to HUD, or acquire title to a
property until the requirements of this subpart have been completed.
Sec. 1005.731 Default notice to Borrower.
The Servicer shall provide notice to the Borrower as prescribed by
applicable Tribal, Federal, or State law.
Sec. 1005.733 Loss mitigation application, timelines, and appeals.
(a) Servicer response to loss mitigation application. Within five
days after the Servicer receives the Borrower's loss mitigation
application, the Servicer must, in writing:
(1) Acknowledge receipt of the application;
(2) Determine if the application is complete or incomplete;
(3) If incomplete, notify the Borrower which documentation is
required and missing, and that submission of the missing documents is
required no later than fourteen days from the date of the response to
provide missing documents to the Servicer. If the Borrower does not
timely submit the requested documents, the Servicer must initiate live
contact with the Borrower.
(b) Servicer timeframe for evaluating complete loss mitigation
application. Within fourteen days of receipt of a complete application
from Borrower, the Servicer must evaluate the application.
(c) Notification of Servicer determination. The Servicer shall
provide written notification:
(1) Informing the Borrower of all available loss mitigation
options;
(2) Encouraging the Borrower to review all available loss
mitigation options and to contact the Servicer with any questions;
(3) Encouraging Borrowers, when feasible, to consider pursuing
simultaneous loss mitigation options, to the extent it is offered by
the Servicer;
(4) Informing the Borrower that if no loss mitigation option is
elected or if all elected loss mitigation options fail, the Servicer
may proceed with Tribal notice under Sec. 1005.757(a) or First Legal
Action at 180 days of default in accordance with Sec. 1005.757 or
Sec. 1005.761; and
(5) Informing the Borrower that, upon First Legal Action or the
assignment of the Section 184 Guaranteed Loan to HUD, the Servicer may
no longer offer or authorize a pre-foreclosure sale as an alternative
to foreclosure, and that the primary alternative to foreclosure shall
be a deed-in-lieu/lease-in-lieu of foreclosure, subject to applicable
Tribal, Federal, or State law or contractual requirements. HUD may
permit other loss mitigation on a case-by-case basis if requested by
the Servicer.
(d) Appeal. (1) If, after the Borrower receives the Servicer's loss
mitigation options, the Borrower disagrees with Servicer's loss
mitigation determination, the Borrower may appeal in writing and
request that the Servicer re-evaluate the Borrower's loss mitigation
application. The Borrower must submit its appeal no later than 14 days
from the date of notification of the Servicer's loss mitigation
determination, or any other deadline as may be prescribed by Section
184 Program Guidance. Upon receipt of the Borrower's appeal of the
Servicer's loss mitigation determination, the Servicer shall re-
evaluate the Borrower's loss mitigation application within thirty days
but may not use the same staff that made the initial loss mitigation
determination and shall notify the Borrower of its appeal decision in
writing.
(2) If the Borrower submits a timely written appeal, the 180-day
deadline for First Legal Action shall be suspended during the appeal
process.
Sec. 1005.735 Occupancy inspection.
(a) Occupancy inspection. An occupancy inspection is a visual
inspection of a Section 184 Guaranteed Loan property by the Servicer to
determine if the property is vacant or
[[Page 20080]]
abandoned and to confirm the identity of any occupants.
(b) Occupancy follow-up. An occupancy follow-up is an attempt to
communicate with the Borrower via letter, telephone, or other method of
communication, other than on-site inspection, to determine occupancy
when the Section 184 Guaranteed Loan remains in default after the
initial occupancy inspection that did not result in determination of
the Borrower's occupancy status.
(c) Initial occupancy inspection. The Servicer must perform the
initial occupancy inspection after the 45th day of default but no later
than the 60th day of the default when:
(1) A payment has not been received within 45 days of the due date
or for any other defaults under the Section 184 Guaranteed Loan; and
(2) Efforts to reach the Borrower or occupant have been
unsuccessful.
(d) Occupancy follow-ups and continued inspections. If the Servicer
is unable to determine the Borrower's occupancy status through the
initial occupancy inspection, the Servicer must perform occupancy
follow-ups and, if necessary, occupancy inspections every 25-35 days
from the last inspection until the occupancy status is determined.
(e) Occupancy inspections during bankruptcy. When payments are not
submitted and a Borrower is a debtor in bankruptcy, the Servicer must
contact either the bankruptcy trustee or the Borrower's bankruptcy
attorney, if the Borrower is represented, for information concerning
the occupancy status of the property or if an occupancy inspection is
necessary or requires authorization. If the Servicer cannot determine
that the property is vacant or abandoned during the period of the
automatic stay, the Servicer must document in the servicing case binder
with evidence that it timely contacted the attorney or trustee.
(f) Occupancy inspections on Trust Land. Servicers must make an
initial contact with the Tribe in advance of any occupancy inspection
on Trust Land to review the Tribe's protocol for conducting occupancy
inspections. After the initial contact, Servicers must contact the
Tribe in advance of an occupancy inspection on Trust Land in accordance
with the Tribe's protocol.
(g) Alternative deadlines. HUD may prescribe alternative extended
deadlines to the requirements in paragraphs (c) and (d) of this section
through Section 184 Program Guidance.
(h) Conflicts with other law. Nothing in this section shall require
a Servicer to conduct an inspection when prohibited by applicable
Tribal, Federal, State, or local law.
Sec. 1005.737 Vacant or abandoned property procedures.
If the Servicer determines through an occupancy inspection or
occupancy follow-up that the property is vacant or abandoned, or if the
Servicer is notified by HUD that the Tribe or the TDHE determined the
property is vacant or abandoned, the Servicer must send a letter, via
certified mail or other method providing delivery confirmation, to all
Borrowers at the property address, or other known address of Borrower,
informing them of the Servicer's determination that the property is
vacant or abandoned. This letter must include the Servicer's contact
information.
(a) If occupancy is verified through the delivery confirmation, the
Servicer shall continue pursuing collection efforts and loss mitigation
as required by Sec. Sec. 1005.729 and 1005.739 until the Servicer has
the authority to proceed to First Legal Action in accordance with Sec.
1005.763 or Tribal First Right of Refusal in accordance with Sec.
1005.759.
(b) If the Servicer verifies through the delivery confirmation
process that the property is vacant or abandoned; then the Servicer
shall:
(1) Commence first-time vacant property inspection;
(2) Take appropriate property preservation and protection actions
to secure and maintain the property;
(3) For properties on Trust Land:
(i) Notify the Tribe that the property is vacant or abandoned; and
(ii) Complete Tribal First Right of Refusal under Sec. 1005.759;
(4) For fee simple Properties, complete First Legal Action within
30 days;
(5) Continue to perform vacant property inspections every 25-35
days until the default is cured, the property is disposed of, or the
bankruptcy court has granted approval for the Servicer to contact the
Borrower or to take any required property preservation actions; and
(6) Retain documentation in the servicing case binder providing
evidence of activities required by HUD in this section or otherwise
provided in Section 184 Program Guidance.
(c) Alternative deadlines. HUD may prescribe alternative extended
deadlines to the time requirements of this section in Section 184
Program Guidance.
(d) Conflicts with other law. Nothing in this section shall require
a Servicer to communicate with a Borrower in a manner prohibited by
applicable Tribal, Federal, or State law.
Servicing Default Section 184 Guaranteed Loans Under the Loss
Mitigation Program
Sec. 1005.739 Loss mitigation.
(a) The purpose of loss mitigation is to attempt to cure the
Borrower's default and minimize financial loss to HUD.
(b) The Servicer must offer a loss mitigation option, if
applicable, to the Borrower and if practical under the circumstances,
within 180 days of the Date of Default, or any extended timeframe
prescribed by Section 184 Program Guidance.
(c) Loss mitigation options include:
(1) A forbearance plan;
(2) Assumption;
(3) A loan modification;
(4) Loss mitigation advance;
(5) Pre-foreclosure sale;
(6) A deed-in-lieu/lease-in-lieu of foreclosure; or
(7) Other options, as may be prescribed in Section 184 Program
Guidance.
(d) A loss mitigation review shall, to the greatest extent
possible, be based on a full financial assessment of the Borrower at
time of default, and the collection technique(s) must take into account
the circumstances particular to each Borrower.
(e) HUD may prescribe conditions and requirements in Section 184
Program Guidance for the eligibility and appropriate use of loss
mitigation options.
(f) Within 180 days of default, or any extended timeframe
prescribed by Section 184 Guidance, if the Borrower fails to meet their
loss mitigation option requirements, the Servicer shall have up to 45
days from the date of the failure of the loss mitigation to determine
whether the Borrower should continue with the current loss mitigation
option or have Borrower enter into an alternate loss mitigation option.
(g) If a Borrower does not accept, is not eligible for, or fails
loss mitigation, the Servicer shall complete First Legal Action in
accordance with Sec. 1005.763 or Tribal First Right of Refusal in
accordance with Sec. 1005.759.
(h) Documentation must be maintained for the initial and all
subsequent evaluations and resulting loss mitigation actions in the
servicing case binder in accordance with Sec. 1005.219(d)(2).
(i) A Servicer that is found to have failed to engage in and comply
with loss mitigation as required under this subpart may be subject to
enforcement action by HUD, including but not limited to sanctions under
Sec. Sec. 1005.905 and 1005.907.
(j) HUD may provide alternative requirements to this section when
there
[[Page 20081]]
is a national emergency or disaster and publish such alternative
requirements in Section 184 Program Guidance.
Sec. 1005.741 Notice to Tribe and BIA--Borrower default.
(a) When two consecutive Section 184 Guaranteed Loan payments are
in default or sixty days after other default under the Section 184
Guaranteed Loan, the Servicer shall provide notice of default to:
(1) The BIA, where applicable, for Section 184 Guaranteed Loan
property that is on Trust Land, in accordance with applicable BIA
requirements; and,
(2) The Tribe, where applicable, for any Section 184 Guaranteed
Loan property where a Borrower has provided consent of notification in
accordance with Sec. 1005.501(j).
(b) The Servicer shall continue exploring loss mitigation options,
consistent with the requirements under this subpart, with the Borrower
during the notification process to the Tribe and/or BIA, as applicable.
Sec. 1005.743 Relief for Borrower in military service.
(a) Postponement of principal payments. If the Borrower is a person
in ``military service,'' as such term is defined in the Servicemembers
Civil Relief Act (50 U.S.C. 3901-4043), the Servicer may, by written
agreement with the Borrower, postpone for the period of military
service and three months thereafter any part of the monthly payment
which represents the Amortization of principal. The agreement shall
contain a provision for the resumption of monthly payments after such a
period in amounts which will completely amortize the Section 184
Guaranteed Loan within the maturity as provided in the original loan
term.
(b) Forbearance. Forbearance plans may be available to Borrowers in
military service pursuant to Sec. 1005.745(e).
(c) Postponement of foreclosure. If at any time during default the
Borrower is a person in ``military service,'' as such term is defined
in the Servicemembers Civil Relief Act, the period during which the
Borrower is in such military service shall be excluded in computing the
period within which the Servicer shall complete First Legal Action to
acquire the property or Tribal notice under Sec. 1005.759(a). No
postponement or delay in the prosecution of foreclosure proceedings
during the period the Borrower is in such military service shall be
construed as failure on the part of the Servicer to exercise reasonable
diligence in prosecuting such proceedings to completion as required by
this subpart.
Sec. 1005.745 Forbearance plans.
(a) General. Forbearance plans are arrangements between a Servicer
and Borrower that may allow for a period of reduced and/or suspended
payments and specific terms for the repayment plan. During the
Forbearance period, where Borrower is in compliance with the
Forbearance plan, the Servicer shall not proceed to First Legal Action
or complete Tribal First Right of Refusal notice under Sec. 1005.759
until expiration or default of the Agreement.
(b) Informal forbearance. Informal forbearance plans are oral
agreements, where permitted under Tribal or State law, between a
Servicer and Borrower allowing for reduced or suspended payments and
may provide specific terms for repayment.
(1) Eligibility. The Servicer may offer an informal forbearance
plan to a Borrower with a delinquent Section 184 Guaranteed Loan who is
not experiencing a loss of income or an increase in living expenses
that can be verified.
(2) Duration. The period shall be three months or less.
(c) Formal forbearance. Formal forbearance plans are written
agreements executed by the Servicer and Borrower, allowing for reduced
or suspended payments and such plans may include specific terms for
repayment.
(1) Eligibility. The Servicer may offer a formal forbearance plan
when:
(i) The Borrower is not experiencing a loss of income or increase
in living expenses that can be verified; or
(ii) If the Servicer determines that the Borrower is otherwise
ineligible for other loss mitigation options but has sufficient surplus
income or other assets that could repay the indebtedness.
(2) Agreement. The Servicer shall execute a written agreement with
the Borrower outlining the terms and conditions of the formal
forbearance. The Servicer must include in the formal forbearance
agreement a provision for the resumption of monthly payments on a date
certain, with repayment in amounts which will completely reinstate the
Section 184 Guaranteed Loan no later than the original maturity date.
The Servicer must retain in the servicing case binder a copy of the
written formal forbearance agreement postponing principal and interest
payments.
(3) Duration. The repayment period shall be equal to or greater
than three months but not to exceed six months, unless authorized by
HUD.
(4) Required documents. The Servicer must obtain from the Borrower
any necessary supporting documentation and retain this documentation in
the servicing case binder.
(5) Property condition. The Servicer must conduct any review it
deems necessary, including a property inspection, when the Servicer has
reason to believe that the physical condition of the property adversely
impacts the Borrower's use or ability to support the debt as follows:
(i) Financial information provided by the Borrower indicating large
expenses for property maintenance;
(ii) The Servicer receives notice from local government or other
third parties regarding property condition; or
(iii) The property may be affected by a disaster event.
(iv) If significant maintenance costs contributed to the default or
are affecting the Borrower's ability to make payments under the loan or
formal forbearance agreement, the Servicer may provide in the formal
forbearance agreement a period of loan forbearance during which repairs
specified in the agreement will be completed at the Borrower's expense.
(d) Special forbearance-unemployment. The special forbearance-
unemployment loss mitigation option is available when one or more of
the Borrowers has become unemployed and the loss of employment has
negatively affected the Borrower's ability to continue to make their
monthly Section 184 Guaranteed Loan payment. It is a formal forbearance
plan with a written agreement executed by the Servicer and Borrower,
allowing for reduced or suspended payments and such plan may include
specific terms for repayment.
(1) Eligibility. The Servicer must ensure that the Borrower meets
all the following eligibility requirements:
(i) The Section 184 Guaranteed Loan must be at least three months
in default.
(ii) The Borrower is experiencing a verified loss of income or
increase in living expenses due to loss of employment.
(iii) The Borrower must continue to occupy the property as a
Principal Residence.
(iv) The Borrower must have a verified unemployment status and no
Borrower is currently receiving continuous income; or an analysis of
the Borrower's financial information indicates that special
forbearance-unemployment is the best or only option available for the
Borrower.
(2) Agreement. The Servicer shall execute a written special
forbearance-unemployment agreement with the
[[Page 20082]]
Borrower outlining the terms and conditions of the special forbearance-
unemployment. The Servicer must include in the special forbearance-
unemployment agreement a provision for the resumption of monthly
payments on a date certain, with repayment in amounts which will
completely reinstate the Section 184 Guarantee Loan no later than the
original maturity. The Servicer must retain in the servicing case
binder a copy of the written special forbearance-unemployment agreement
postponing principal and interest payments.
(3) Duration. The repayment period shall not exceed six months.
(4) Required documents. The Servicer must obtain from the Borrower
such supporting third party documentation, including receipts of
unemployment benefits or an affidavit signed by the Borrower, stating
the date that the Borrower became unemployed and stating that the
Borrower is actively seeking, and is available, for employment. The
Servicer must retain this documentation in the servicing case binder.
(5) Property condition. The Servicer must conduct any review it
deems necessary, including a property inspection, when the Servicer has
reason to believe that the physical condition of the property adversely
impacts the Borrower's use or ability to support the debt as follows:
(i) Financial information provided by the Borrower indicating large
expenses for property maintenance;
(ii) The Servicer receives notice from local government or other
third parties regarding property condition; or
(iii) The property may be affected by a disaster event.
(iv) If significant maintenance costs contributed to the default or
are affecting the Borrower's ability to make payments under the Section
184 Guaranteed Loan or special forbearance-unemployment agreement, the
Servicer may provide in the special forbearance-unemployment agreement
a period of forbearance during which repairs specified in the agreement
will be completed at the Borrower's expense.
(e) Special forbearance-servicemember. The Servicer may, by written
special forbearance-servicemember agreement with the Borrower, postpone
any part of the monthly Section 184 Guaranteed Loan that represents
Amortization of principal, for the period permitted by HUD under Sec.
1005.743.
(1) Eligibility. The servicemember must be in active-duty military
service and meet the criteria established in 50 U.S.C. 3911. Dependents
of servicemembers are entitled to protections in limited situations per
the Servicemembers Civil Relief Act, as amended.
(2) Duration. The repayment period shall be for the period of
military service and three months thereafter.
(3) Required documents. The Borrower shall provide the Servicer
with a copy of the servicemember's deployment orders.
(4) Agreement. (i) The Servicer shall execute a written special
forbearance-servicemember agreement with the Borrower outlining the
terms and conditions of the special forbearance-servicemember
agreement. The Servicer must include in the special forbearance-
servicemember agreement a provision for the resumption of monthly
payments on a date certain, with repayment in amounts which will
completely reinstate the Section 184 Guaranteed Loan no later than the
original maturity date. The Servicer must retain in the servicing case
binder a copy of the written special forbearance-servicemember
agreement postponing principal and interest payments.
(ii) The Servicer shall comply with all applicable requirements
under the Servicemembers Civil Relief Act.
(f) Continued review and re-evaluation. The Servicer shall monitor
the Borrower's compliance with an agreement under Sec. 1005.743 every
30 days, until the end of the agreement.
(g) Other special forbearances. HUD may provide for a special
forbearance in response to a disaster or other national emergency or
other circumstances approved by the Secretary.
Sec. 1005.747 Assumption.
The Servicer shall explore assumption as a loss mitigation option
with the Borrower in accordance with Sec. 1005.711. Assumptions
associated with loss mitigation must result in the cure of the default
and reinstatement of the Section 184 Guaranteed Loan.
Sec. 1005.749 Loan modification.
(a) General. A Section 184 Guaranteed Loan modification may include
a change in one or more of the following: interest rate; capitalization
of delinquent principal, interest, or escrow items; or re-Amortization
of the balance due. A Section 184 Guaranteed Loan modification may not
be used as a means to reinstate the Section 184 Guaranteed Loan prior
to sale or assumption.
(b) Eligibility. The Servicer must ensure that the Borrower is able
to support the monthly loan payment after the loan is modified.
(c) Borrower qualifications. The Servicer must ensure that the
Borrower meets the following eligibility criteria:
(1) At least 12 months have elapsed since the closing date of the
original Section 184 Guaranteed Loan.
(2) The Borrower has not executed a loan modification agreement in
the past 24 months. The number of loan modification agreements may be
limited as prescribed by Section 184 Program Guidance. The Servicer may
approve the first loan modification agreement under the Loan, and HUD
must approve any subsequent loan modifications.
(3) The Borrower's default is due to a verified loss of income or
increase in living expenses.
(4) One or more Borrowers receive continuous income sufficient to
support the monthly payment under the modified rate and term, although
not sufficient to sustain the original Section 184 Guaranteed Loan and
repay the arrearage.
(5) The Borrower's minimum percentage of net income shall be
prescribed by HUD.
(7) The Borrower's monthly payment, which consists of principal,
interest, taxes, insurance, and other escrow, can be reduced by the
greater of 10 percent of the existing monthly Section 184 Guaranteed
Loan payment amount but no less than $100, using an agreed upon
interested rate in accordance with Sec. 1005.451 and amortizing for a
term up to 30 years or any other period as may be prescribed by HUD.
(8) The Borrower has successfully completed a three-month trial
payment plan based on the Section 184 Guaranteed Loan estimated
modification monthly payment amount.
(d) Property conditions. The Servicer must conduct any review it
deems necessary, including a property inspection, when the Servicer has
reason to believe that the physical conditions of the property
adversely impact the Borrower's use or ability to support the debt as
follows:
(1) Financial information provided by the Borrower indicates large
expenses for property maintenance;
(2) The Servicer receives notice from local government or other
third parties regarding property condition; or
(3) The property is affected by a disaster event.
(e) Trial payment plans. A trial payment plan is a written
agreement executed by all parties on the Section 184 Guaranteed Loan,
for a minimum period of three months, during which the Borrower must
make the agreed-upon consecutive monthly payments prior to execution of
the final loan modification.
[[Page 20083]]
(1) Trial payment plan terms. The Servicer must ensure that the
following apply to interest rates and monthly payment amounts under
trial payment plan:
(i) The interest rate for the trial payment plan and the loan
modification must in accordance with Sec. 1005.451.
(ii) The interest rate is established when the trial payment plan
is offered to the Borrower.
(iii) The established monthly loan modification payment must be the
same or less than the established monthly trial payment.
(2) Start of trial payments. The Servicer must send the proposed
trial payment plan agreement to the Borrower at least 30 days before
the date the first trial payment is due.
(3) Trial payment plan signatures. (i) All parties on the Section
184 Guaranteed Loan and all parties that will be subject to the
modified loan must execute the trial payment plan agreement unless:
(A) A Borrower or co-Borrower is deceased;
(B) A Borrower and a co-Borrower are divorced; or
(C) A Borrower or co-Borrower on the Section 184 Guaranteed Loan
has been released from liability as the result of an approved
substitute Borrower.
(ii) When a Borrower uses a non-Borrower household member's income
to qualify for a loan modification, the non-Borrower household member
must be on the modified note and Section 184 Guaranteed Loan and sign
the trial payment plan agreement.
(4) Application of trial payments. The Servicer must treat payments
made under the trial payment plan as Partial Payments, held in a
suspense account and applied in accordance with procedures in the
Section 184 Program Guidance and applicable Federal regulations.
(5) End of trial payment plan period. The Servicer must offer the
Borrower a permanent loan modification after the Borrower's successful
completion of a trial payment plan.
(6) Trial payment plan failure. The Borrower fails a trial payment
plan when one of the following occurs:
(i) The Borrower does not return the executed trial payment plan
agreement within the month the first trial payment is due;
(ii) The Borrower vacates or abandons the property; or
(iii) The Borrower does not make a scheduled trial payment plan
payment by the last day of the month it was due.
(7) Alternatives to foreclosure after trial payment plan failure.
If a Borrower fails to successfully complete a trial payment plan, the
Servicer must:
(i) Provide notice to the Borrower of the failure to comply with
the trial payment plan; and
(ii) Offer the Borrower the opportunity for a deed-in-lieu/lease-
in-lieu of foreclosure, with seven days to respond to the offer.
(8) Funds remaining at the end of trial payment period. (i) At the
end of a successful trial payment plan, any remaining funds that do not
equal a full payment must be applied to any escrow shortage or be used
to reduce the amount that would be capitalized onto the principal
balance.
(ii) Trial payment plan failure. If the Borrower does not complete
the trial payment plan, the Servicer must apply all funds held in
suspense to the Borrower's account in the established order of
priority.
(9) Reporting of trial payment plans. The Servicer must report the
trial payment plans to HUD in the manner prescribed in Section 184
Program Guidance.
(f) Loan modification documents. HUD does not require a specific
format for the loan modification documents; however, the Servicer must
use documents that conform to all applicable Tribal, Federal, and State
laws.
(g) Post-modification review and modification of Loan Guarantee
Certificate. Upon completion of a successful trial payment plan and
within 30 days of the execution of the loan modification documents, the
Servicer shall provide copies of the loan modification documents to
HUD. The Servicer shall comply with additional processing instructions
as prescribed by Section 184 Program Guidance.
Sec. 1005.751 Loss mitigation advance.
(a) General. A loss mitigation advance is a reimbursement by HUD to
the Holder for the advancement of funds on behalf of the Borrower in
the amount necessary to assist in the reinstatement of the Borrower's
Section 184 Guaranteed Loan. The loss mitigation advance is a
subordinate lien in favor of HUD. More than one loss mitigation advance
may be made to an eligible Borrower.
(b) Borrower eligibility. To be eligible for a loss mitigation
advance:
(1) The Borrower's Section 184 Guaranteed Loan is 90 or more days
past due:
(2) The Borrower has the ability to resume making on-time monthly
loan payments and the property is owner occupied.
(3) [Reserved]
(c) Terms. The loss mitigation advance shall:
(1) Include all arrearages, which refers to any amounts needed to
bring the Borrower's Section 184 Guaranteed Loan current;
(2) Provide that all prior loss mitigation advances, if any, in
total must not exceed 30 percent of the unpaid principal balance as of
the date of default;
(3) Include any other terms and conditions, as may be prescribed by
Section 184 Program Guidance; and
(4) Along with another loss mitigation, where applicable, fully
reinstate the Section 184 Guaranteed Loan upon the Borrower's
acceptance of the loss mitigation advance.
Sec. 1005.753 Pre-foreclosure sale.
(a) General. A pre-foreclosure sale, also known as a short sale,
refers to the sale of real estate that generates proceeds that are less
than the amount owed on the property and any junior lien holders have
agreed to release their liens and forgive the deficiency balance on the
real estate.
(b) Eligibility. To be eligible for a pre-foreclosure sale, a
Servicer must ensure:
(1) The Section 184 Guaranteed Loan was Originated at least 12
months prior to default;
(2) The default was due to an adverse and unavoidable financial
situation impacting the Borrower;
(3) The property has a current fair market value that is equal to
or less than the unpaid principal balance;
(4) The Borrower elected the pre-foreclosure sale option within 120
days, or any other date as prescribed by Section 184 Program Guidance,
from default; and
(5) All other requirements of the pre-foreclosure sale loss
mitigation option under this section are met.
(c) Surchargeable damages. Surchargeable damage is damage to the
Section 184 Guaranteed Loan property caused by fire, flood, earthquake,
tornado, boiler explosion (for condominiums only) or Servicer neglect.
The Servicer is responsible for the cost of surchargeable damage, and
these amounts are not reimbursable by HUD. The Servicer must request
HUD approval before approving the use of the pre-foreclosure sale loss
mitigation option when the property has sustained surchargeable damage.
If the damage is not surchargeable damage, the Servicer is not required
to obtain HUD approval prior to approving the Approval to Participate
Agreement with Borrower. The Servicer must comply with paragraph (p) of
this regulation where a hazard insurance claim must be filed.
(d) Condition of title or Title Status Report. (1) For Section 184
Guaranteed
[[Page 20084]]
Loans on fee simple lands, a Servicer must ensure the property has Good
and Marketable Title. Before approving a pre-foreclosure sale loss
mitigation option, the Servicer must obtain title evidence or a
preliminary report verifying that the title is not impaired by
unresolvable title defects or junior liens that cannot be discharged.
(2) For Section 184 Guaranteed Loans on Trust Land, the Servicer
shall obtain a certified Title Status Report from the BIA. Before
approving a pre-foreclosure sale loss mitigation option, the Servicer
must verify that the property is not encumbered by unresolvable title
defects or junior liens that cannot be discharged.
(e) Discharge of junior liens. The Servicer must contact all junior
lienholders to verify the Borrower has secured a discharge of the
junior liens.
(f) Property list price and valuation--(1) List price. The Servicer
must ensure that the Borrower lists the property for sale at no less
than the ``as-is'' value, as determined by an appraisal completed in
accordance with the requirements in Sec. 1005.457.
(2) Appraisals. The Servicer must have the property appraised in
accordance with Sec. 1005.457 and pursuant to the following
requirements:
(i) The appraisal must contain an ``as-is'' fair market value for
the subject property;
(ii) A copy of the appraisal must be provided to HUD. A copy of the
appraisal must be provided to the Borrower or sales agent, upon
request;
(iii) A Servicer must present HUD with a request for a variance to
approve a pre-foreclosure sale transaction if one of the following
conditions exists:
(A) The current appraised value of the property is less than the
unpaid principal balance by an amount of $75,000 or greater;
(B) The appraised value is less than 50 percent of the unpaid
principal balance; or
(C) The appraisal is deemed unacceptable because the as-is value
cannot be affirmed using a Broker's Price Opinion or Automated
Valuation Model within 10 percent of the value.
(iv) Paragraph (f)(2)(iii) of this section is not applicable to
property on Trust Land unless there is a viable real estate market;
(v) Under paragraph (f)(2)(iii) of this section, the Servicer must
note on the variance request the specific reason for the request and
attach any supporting documents needed for HUD review;
(vi) The Servicer must obtain HUD approval before authorizing the
marketing of the property; and
(vii) All pre-foreclosure appraisals must be accompanied by a
broker's price opinion or an automated valuation model unless the
property is located on Trust Land.
(g) Required documents. After determining that a Borrower and
property meet the pre-foreclosure sale eligibility requirements, the
Servicer shall send to the Borrower:
(1) Pre-foreclosure sale approval to participate agreement. The
agreement, on a form prescribed by Section 184 Program Guidance, shall
list the pre-foreclosure sale requirements, including the date by which
the Borrower's sales contract must be executed during the pre-
foreclosure sale marketing period; and
(2) Pre-foreclosure addendum. The addendum shall be in the form
prescribed by Section 184 Program Guidance. The pre-foreclosure sale
addendum must be fully executed at closing.
(h) Delivery of documents to Borrower. Documents listed under
paragraphs (g)(1) and (2) of this section must be sent to the Borrower
via methods providing delivery confirmation with a date and time stamp
of delivery. The Servicer must inform the Borrower that the documents
must be signed and returned to the Servicer within 10 days of receipt.
(i) Copies to HUD. The Servicer must send signed copies of the
documents in paragraphs (g)(1) and (2) of this section to HUD within 15
days of receipt from the Borrower.
(j) Tribal Notification for Properties on Trust Land. At the same
time the Servicer sends the Approval to Participate Agreement to the
Borrower, in accordance with the requirements as prescribed by Section
184 Program Guidance, the Servicer shall send a notice to the Tribe and
the TDHE of the option to assume the Section 184 Guaranteed Loan or
purchase the property.
(k) Use of a real estate broker. The Borrower is responsible for
retaining the services of a HUD-approved real estate broker/agent
within seven days of the signed Approval to Participate Agreement. For
Trust Land, the Borrower may request, through the Servicer, an
exception to this section. If an exception is granted, HUD will work
with the Borrower, Servicer and Tribe or TDHE to sell the property or
pursue another loss mitigation option.
(l) Required listing disclosure. The Servicer shall require the
listing agreement between the seller and the agent/broker to include
the following cancellation clause: ``Seller may cancel this Agreement
prior to the ending date of the listing period without advance notice
to the Broker, and without payment of a commission or any other
consideration if the property is conveyed to HUD or the Holder. The
sale completion is subject to approval by the Servicer and HUD.'' This
section is not applicable to property on Trust Land unless a HUD-
approved real estate broker/agent is utilized.
(m) Pre-foreclosure sale marketing, settlement period, failure to
complete pre-foreclosure sale. The Borrower has seven days, or other
timeframe as prescribed by Section 184 Program Guidance from the date
of the signed approval to participate agreement to market the property
in the Multiple Listing Service, or other marketing resource if the
property is on Trust Land.
(1) The property must be marketed in the Multiple Listing Service
or other marketing resource for a period of 90 days, or other timeframe
as prescribed by Section 184 Program Guidance before Borrower may
consider any offers.
(2) During the marketing period, Servicers must conduct a monthly
review of the property's marketing status with the real estate broker/
agent or the Tribe or TDHE, for property on Trust Land.
(3) The maximum marketing period for the sale of the property is
120 days from the execution date of the Approval to Participate
Agreement and the date of the property settlement. If there is a signed
contract of sale, but property settlement has not occurred by the end
of the 120 Days, the marketing period may be extended up to 60 days to
allow for closing to occur.
(4) Within 30 days of the end the marketing period, or no earlier
than 120 days of default, whichever is later, if no settlement has
occurred, Servicer shall provide electronic or written notice to the
Borrower of the Borrower's default under the pre-foreclosure sale
agreement and present the agreed upon deed-in-lieu/lease-in-lieu of
foreclosure, with title being taken in the name of the Secretary. The
Borrower shall have ten days from the date of the notice to respond in
writing or by electronic means. If the Servicer receives no response or
if the Servicer receives notice of the Borrower's rejection of the
alternative to foreclosure, the Servicer must complete First Legal
Action within 30 days or Tribal First Right of Refusal within 14 days
of the Borrower's deadline to respond or actual rejection response
date, whichever is sooner.
(n) Property inspections and maintenance. The Servicer shall
inspect the property in accordance with
[[Page 20085]]
Sec. 1005.735 and follow Sec. 1005.739, where applicable.
(o) Disclosure of damage after pre-foreclosure sale approval. In
the event the property becomes damaged, the Borrower must report damage
to the Servicer in accordance with the pre-foreclosure sale agreement.
When the Servicer becomes aware that the property has sustained damage
after a Borrower has received the Approval to Participate Agreement,
the Servicer must evaluate the property to determine if it continues to
qualify for the pre-foreclosure sale program or terminate participation
if the extent of the damage changes the property's fair market value.
(p) Hazard insurance claim. Where applicable, the Servicer must
work with the Borrower to file a hazard insurance claim and either: use
the proceeds to repair the property; or adjust the Claim by the amount
of the insurance settlement (Non-Surchargeable Damage) or the
Secretary's repair cost estimate.
(q) Evaluation of offers. The Servicer must receive from the
listing real estate broker/agent an offer that yields the highest net
return to HUD and meets HUD's requirements for bids, as follows:
(1) Real estate broker/agent to ensure execution of documents. The
real estate broker/agent must ensure that the accepted offer and the
pre-foreclosure sale addendum are signed by all applicable parties
before submitting to the Servicer for approval, and
(2) Arm's length transaction. The transaction must be between two
unrelated parties who are each acting in their own best interest.
(3) Back-up offers. Once an offer has been submitted to the
Servicer for approval, the real estate broker/agent must retain any
offer that the seller elects to hold as backup offer until a
determination has been made on the previously submitted offer.
(r) Contract approval by Servicer--(1) Review of sales contract. In
reviewing the contract of sale, the Servicer must:
(i) Ensure that the pre-foreclosure sale is an outright sale of the
property and not a sale by assumption.
(ii) Review the sales documentation to determine that there are no
hidden terms or special agreements existing between any of the parties
involved in the pre-foreclosure sale transaction; and no contingencies
that might delay or jeopardize a timely settlement.
(iii) Determine that the property was marketed pursuant to HUD
requirements.
(iv) Not approve a Borrower for a pre-foreclosure sale if the
Servicer knows or has reason to know of the Borrower's fraud or
misrepresentation of information.
(2) Sales contract review period. After receiving an executed
contract of sale and pre-foreclosure sale addendum from the Borrower,
the Servicer must send to the Borrower a Sales Contract Review, on a
form prescribed by Section 184 Program Guidance, no later than five
business days after the Servicer's receipt of an executed contract for
sale.
(3) Net sale proceeds. (i) Net sale proceeds are the proceeds of a
pre-foreclosure sale, calculated by subtracting reasonable and
customary closing and settlement costs from the property sales price.
(ii) Regardless of the property sale price, a Servicer may only
approve a pre-foreclosure sale contract for sale if the net sale
proceeds are at or above minimum allowable thresholds established by
HUD. The net sale proceeds must conform to the requirements on the Pre-
Foreclosure Sale Approval to Participate Agreement.
(iii) The Servicer is liable for any Claim overpayment on a pre-
foreclosure sale transaction that closes with less than the required
net sale proceeds unless a variance has been granted by HUD.
(4) Unacceptable settlement costs. The Servicer must not include
the following costs in the Net Sale Proceeds calculation:
(i) Repair reimbursements or allowances;
(ii) Home warranty fees;
(iii) Discount points or loan fees;
(iv) Servicer's title insurance fee;
(v) Third-party fees incurred by the Servicer or Borrower to
negotiate a pre-foreclosure sale; and
(vi) Any other costs as may be prohibited in Section 184 Program
Guidance.
(5) Other third-party fees. (i) With the exception of reasonable
and customary real estate commissions, the Servicer must ensure that
third-party fees incurred by the Servicer or Borrower to negotiate a
pre-foreclosure sale are not included on the Closing Disclosure or
similar legal documents unless explicitly permitted by Tribal or State
law.
(ii) The Servicer, its agents, or any outsourcing firm it employs
must not charge any fee to the Borrower for participation in the pre-
foreclosure sale.
(s) Closing and post-closing responsibilities. For the purpose of
this section, with respect to Trust Land, the closing agent may be
selected by the Tribe or TDHE.
(1) Closing worksheet. Prior to closing, the Servicer must provide
the closing agent with a Closing Worksheet, on a form prescribed by
HUD, listing all amounts payable from net sale proceeds; and a pre-
foreclosure sale addendum signed by all parties.
(2) Servicer review of final terms of pre-foreclosure sale
transaction. The Servicer will receive from the closing agent a
calculation of the actual net sale proceeds and a copy of the Closing
Disclosure or similar legal document. The Servicer must ensure that:
(i) The final terms of the pre-foreclosure sale transaction are
consistent with the purchase contract;
(ii) Only allowable settlement costs have been deducted from the
seller's proceeds;
(iii) The net sale proceeds will be equal to or greater than the
allowable thresholds;
(iv) A Closing Worksheet form is included in the claim case binder;
and
(v) It reports the pre-foreclosure sale to consumer reporting
agencies.
(3) Closing agent responsibilities after final approval. Once the
Servicer gives final approval for the pre-foreclosure sale and the
settlement occurs, the closing agent must:
(i) Pay the expenses out of the Net Sale Proceeds and forward the
Net Sale Proceeds to the Servicer;
(ii) Forward a copy of the Closing Disclosure or similar legal
document to the Servicer to be included in the Claim case binder no
later than three business days after the pre-foreclosure sale
transaction closes; and,
(iii) Sign the pre-foreclosure sale Addendum on or before the date
the pre-foreclosure sale transaction closes, unless explicitly
prohibited by Tribal or State statute.
(4) Satisfaction of debt. Upon receipt of the portion of the net
sale proceeds designated for Section 184 Guaranteed Loan satisfaction,
the Servicer must apply the funds to the outstanding balance and
discharge any remaining debt, release the lien in the appropriate
jurisdiction, and may file a Claim.
(5) Discharge of junior liens. The Servicer must verify the pre-
foreclosure sale will result in the discharge of junior liens as
follows:
(i) If the Borrower has the financial ability, the Borrower must be
required to satisfy or otherwise obtain release of liens.
(ii) If no other sources are available, the Borrower may obligate
up to a maximum amount from sale proceeds towards discharging the liens
or encumbrances, such maximum amount will be prescribed by HUD.
(t) Early termination of pre-foreclosure participation--(1)
Borrower-initiated termination. The Servicer must permit a Borrower to
voluntarily terminate participation in the pre-
[[Page 20086]]
foreclosure sale loss mitigation option at any time.
(2) Servicer-initiated termination. The Servicer shall terminate a
Borrower's pre-foreclosure sale program participation for any of the
following reasons:
(i) Discovery of unresolvable title problems;
(ii) Determination that the Borrower is not acting in good faith to
market the property;
(iii) Significant change in property condition or value;
(iv) Re-evaluation based on new financial information provided by
the Borrower that indicates that the case does not qualify for the pre-
foreclosure sale option; or
(v) Borrower has failed to complete a pre-foreclosure sale within
the time limits prescribed by Section 184 Program Guidance and no
extensions of time have been granted by HUD.
(3) Notification of pre-foreclosure sale Program Participation
Termination. The Servicer must forward to the Borrower a written
explanation for terminating their program participation. This letter is
to include the ``end-of-participation'' date for the Borrower.
(4) Failure to complete a pre-foreclosure sale. Should the Borrower
be unable to complete a pre-foreclosure sale transaction, the Servicer
must proceed with a deed-in-lieu/lease-in-lieu of foreclosure in
accordance with Sec. 1005.755. If the Servicer is unable to obtain a
deed-in-lieu/lease-in-lieu of foreclosure, the Servicer must proceed to
First Legal Action or assignment in accordance with Sec. Sec. 1005.763
and 1005.765.
Sec. 1005.755 Deed-in-lieu/lease-in-lieu of foreclosure.
(a) Requirements. In lieu of instituting or completing a
foreclosure, the Servicer or HUD may acquire a property by voluntary
conveyance from the Borrowers. Conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure is allowed subject to the Servicer's
compliance with the following requirements:
(1) The lease-in-lieu of foreclosure for a property on Trust Land
shall be approved by the Tribe prior to execution and by the BIA at
recordation.
(2) The Section 184 Guaranteed Loan is in default at the time of
the deed-in-lieu/lease-in-lieu of foreclosure is executed and
delivered;
(3) The Section 184 Guaranteed Loan is satisfied of record as a
part of the consideration for such conveyance;
(4) The deed-in-lieu/lease-in-lieu of foreclosure from the Borrower
contains a covenant which warrants against the acts of the grantor and
all claiming by, through, or under the grantor and conveys Good and
Marketable Title, or for leases, assigns without objectionable
encumbrances;
(5) With respect to Section 184 Guaranteed Loans on fee simple
lands, the Servicer transfers to HUD Good and Marketable Title
accompanied by satisfactory title evidence.
(6) With respect to Section 184 Guaranteed Loans on Trust Lands,
the Servicer provides to HUD a certified Title Status Report, or other
HUD approved document issued by the Tribe, as prescribed by Section 184
Program Guidance evidencing assignment to HUD without any objectionable
encumbrances.
(7) The property must meet the property conditions under Sec.
1005.769. HUD may consent to conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure when property does not meet Sec.
1005.769 in accordance with procedures in Section 184 Program Guidance.
(b) Required documentation. A written agreement must be executed by
the Borrower and Servicer which contains all of the conditions under
which the deed-in-lieu/lease-in-lieu of foreclosure will be accepted.
(c) Conveyance to Servicer. Upon execution of the deed-in-lieu/
lease-in-lieu of foreclosure document(s), the Servicer must file for
record no later than two business days from receipt.
(d) Conveyance to HUD, where applicable. After evidence of
recordation is available, the Servicer shall convey the property to HUD
in accordance with Sec. 1005.771.
(e) Reporting for Credit Purposes. The Servicer must comply with
all applicable Tribal, Federal, State, and local reporting
requirements, including but not limited to reporting to credit
reporting agencies.
Sec. 1005.757 Incentive payments.
As an alternative to foreclosure, or eviction where applicable, as
prescribed by Section 184 Program Guidance, HUD may authorize, an
incentive payment to:
(a) Borrowers that complete certain loss mitigation options or for
their agreement to vacate the property after foreclosure, under the
terms established by the Secretary;
(b) Holders or Servicers for their completion of certain loss
mitigation options; and
(c) Tribes or TDHEs for their assistance in loss mitigation, sale,
or transfer of the Trust Land property.
Assignment of the Loan to HUD; Foreclosure and Conveyance
Sec. 1005.759 Property on Trust Land--Tribal First Right of Refusal;
foreclosure or assignment.
(a) Tribal First Right of Refusal is written notice to the Tribe of
the options to assume the Section 184 Guaranteed Loan or purchase the
Note based on the current unpaid principal balance or appraised value
for any property on Trust Land or other reasonable options as
prescribed by Section 184 Program Guidance.
(b) The Servicer shall provide Tribal First Right of Refusal no
later than 14 days, or any extended timeframe prescribed by Section 184
Program Guidance, after the earlier of:
(1) Any lease provision addressing Tribal First Right of Refusal;
(2) 120 days after default, unless the Borrower is in active loss
mitigation;
(3) Failure of loss mitigation after 180 days from default;
(4) The failure of loss mitigation after an extension of the loss
mitigation period under Sec. 1005.739(f).
(5) The date the property was determined vacant or abandoned in
accordance Sec. 1005.737 or the earliest date the Servicer should have
known the property was vacant or abandoned.
(b) The Tribe shall have either the time frame provided in the
lease or, if not defined in the lease, 60 days, or any extended
timeframe prescribed by Section 184 Program Guidance, to accept or
decline the offer of Tribal First Right of Refusal.
(c) If the Tribe declines or does not respond to the Tribal First
Right of Refusal within 60 days, or any extended timeframe prescribed
by Section 184 Guidance, the Servicer must either complete First Legal
Action or assignment to HUD, within the timeframes prescribed in
Sec. Sec. 1005.763 and 1005.765.
(d) Any costs associated with failure to initiate Tribal First
Right of Refusal may be deemed ineligible for claim payment.
Sec. 1005.761 Fee simple properties--foreclosure or assignment with
HUD approval.
(a) Unless a Borrower has completed a pre-foreclosure sale or a
deed-in-lieu of foreclosure in accordance with Sec. Sec. 1005.753 and
1005.755, the Servicer must complete First Legal Action on the Section
184 Guaranteed Loan pursuant to Sec. 1005.763.
(b) Under limited circumstances, HUD may approve an assignment of a
Section 184 Guaranteed Loan to HUD for fee simple land properties.
[[Page 20087]]
Sec. 1005.763 First Legal Action deadline and automatic extensions.
(a) Deadline for First Legal Action. The Servicer must complete
First Legal Action, within 180 days of default, unless a later date is
authorized under this part.
(b) Automatic extensions to the First Legal Action deadline. HUD
permits automatic extensions to the First Legal Action deadline for the
following reasons and HUD approval is not required.
(1) If Federal law or the laws of the Tribe or State, in which the
Section 184 Guaranteed Loan property is located, do not permit First
Legal Action within the deadline designated above, then the Servicer
must complete First Legal Action within 30 days after the expiration of
the time during which First Legal Action is prohibited; or
(2) If the Borrower is in compliance with an approved loss
mitigation plan at 180 days of default and the Borrower subsequently
fails loss mitigation, First Legal Action must be completed within 30
days of the loss mitigation failure or the Borrower's request to
terminate the loss mitigation plan, whichever is sooner.
(3) If the Borrower does not continue with their current loss
mitigation option or enter into an alternative loss mitigation option
during the 45-day period under Sec. 1005.739(f), the First Legal
Action must be completed within 30 days or
(4) If a Tribal First Right of Refusal was offered under Sec.
1005.759, and the Servicer decides to pursue foreclosure in Tribal
court, instead of assigning the Loan to HUD, First Legal Action must be
completed within 30 days of completing the Tribal First Right of
Refusal.
(c) Other extensions. Other necessary and reasonable extensions may
be allowed, as prescribed by Section 184 Program Guidance.
(d) Notice to HUD. The Servicer must provide notice to HUD, in a
form as may be prescribed in Section 184 Program Guidance, within 15
days of completing First Legal Action.
(e) Submission of claim. The Servicer must submit a claim to HUD
within 45 days from the date the foreclosure was complete in accordance
with Sec. 1005.809(a) or (c).
Sec. 1005.765 Assignment of the Section 184 Guaranteed Loan.
(a) Fee simple land properties. (1) The assignment of Section 184
Guaranteed Loans involving fee simple land properties requires prior
HUD approval. The Servicer must submit a request for an assignment
within 135 days of default, or any extended timeframe prescribed by
Section 184 Program Guidance, unless the Servicer has determined the
property is vacant pursuant to Sec. 1005.737.
(2) The Servicer shall have five business days from HUD approval,
or any extended timeframe prescribed by Section 184 Program Guidance,
to submit the executed assignment for recordation with the appropriate
jurisdiction.
(b) Properties on Trust Land. HUD may accept assignment of the
Section 184 Guaranteed Loan if HUD determines that the assignment is in
the best interest of the United States. In cases where HUD accepts the
assignment, upon completing the Tribal First Right of Refusal in
accordance with Sec. 1005.759, the Servicer shall have five business
days, or any extended timeframe prescribed by Section 184 Program
Guidance, to submit the executed assignment for recordation with the
BIA, as applicable, or other HUD approved document, as prescribed by
Section 184 Program Guidance, that evidences the assignment.
(c) Notice to HUD. The Servicer must provide notice to HUD, in a
form as may be prescribed in Section 184 Program Guidance, within 15
days of submitting the assignment for recordation.
(d) Submission of Claim. The Servicer shall have 45 days to submit
the assignment and evidence of recordation as part of a Claim in
accordance with 1005.809(b). The Servicer shall submit to HUD evidence
of the filing and of a Claim in a manner so prescribed by Section 184
Program Guidance.
(e) Acceptance by HUD. HUD will accept assignment of the Section
184 Guaranteed Loan in accordance with 1005.773.
Sec. 1005.767 Inspection and preservation of properties.
(a) If at any time the Servicer knows or should have known the
property is vacant or abandoned, the Servicer shall comply with the
inspection requirements under Sec. 1005.737.
(b) The Servicer shall take appropriate action to protect and
preserve the property until its conveyance to HUD, if such action does
not constitute an illegal trespass or is not otherwise prohibited by
Tribal, State, or Federal law. Taking ``appropriate action'' includes
First Legal Action or assignment within the time required by Sec. Sec.
1005.763 and 1005.765, as applicable.
Sec. 1005.769 Property condition.
(a) Condition at time of transfer. (1) When the property is
transferred, or a Section 184 Guaranteed Loan is assigned to HUD in
accordance with Sec. 1005.765, the property must be undamaged by fire,
earthquake, flood, tornado, and Servicer neglect, except as set forth
in this subpart.
(2) A vacant property must be in broom-swept condition, meaning the
property is, at a minimum, reasonably free of dust and dirt, and free
of hazardous materials or conditions, personal belongings, and interior
and exterior debris.
(3) A vacant property is secured and, if applicable, winterized.
(b) Damage to property. The Servicer shall not be liable for
documented damage to the property by waste, deterioration, or neglect
committed by the Borrower, or heirs, successors, or assigns.
(c) Servicer responsibility. The Servicer shall be responsible for:
(1) Damage by fire, flood, earthquake, or tornado;
(2) Damage to or destruction of property which is vacant or
abandoned when such damage or destruction is due to the Servicer's
failure to take reasonable action to inspect, protect, and preserve
such property as required by Sec. 1005.737; and
(3) Any damage, whatsoever, that the property has sustained while
in the possession of the Servicer, when the property has been conveyed
to HUD without notice or approval by HUD as required by Sec. 1005.765.
Sec. 1005.771 Conveyance of property to HUD at or after foreclosure;
time of conveyance.
(a) At or after foreclosure, the Servicer shall convey the property
to HUD by one of the following:
(1) Direct conveyance to HUD. The Servicer shall cause for the deed
to be transferred directly to HUD. The Servicer shall be responsible
for determining that such conveyance will comply with all provisions of
this part, including conveying Good and Marketable Title and producing
satisfactory title evidence to HUD.
(2) Conveyance by the Holder to HUD. The Holder shall acquire Good
and Marketable Title and transfer the property to HUD within 30 days of
the later of:
(i) Execution of the foreclosure deed;
(ii) Acquiring possession of the property;
(iii) Expiration of the redemption period;
(iv) Such further time as may be necessary to complete the title
examination and perfect the title; or
(v) Such further time as HUD may approve in writing.
(b) On the date the deed is filed for record, the Servicer shall
notify HUD,
[[Page 20088]]
on a form prescribed by HUD, advising HUD of the filing of such
conveyance and shall assign all rights without recourse or warranty any
or all claims which the Servicer has acquired in connection with the
loan transaction, and as a result of the foreclosure proceedings or
other means by which the Servicer acquired or conveyed such property,
except such claims as may have been released with the approval of HUD.
The Servicer must file for record the deed no later than two business
days after execution. The Servicer must document evidence of the
submission in the file.
Sec. 1005.773 HUD acceptance of assignment or conveyance.
(a) Effective date of assignment. HUD accepts the assignment of a
Section 184 Guaranteed Loan when:
(1) The Servicer has assigned the Section 184 Guaranteed Loan to
HUD;
(2) The Servicer has provided HUD evidence of the recordation; and
(3) HUD pays a claim for the unpaid principal balance under Sec.
1005.807(a).
(b) Effective date of conveyance. HUD accepts conveyance of the
property when:
(1) The Servicer has deeded the property to HUD;
(2) The Servicer has provided HUD evidence of the recordation; and
(3) HUD pays a claim for the unpaid principal balance under Sec.
1005.807(a).
(c) Servicer ongoing obligation. Notwithstanding the assignment of
the Section 184 Guarantee Loan or the filing of the deed or other legal
instrument conveying the property interest to the HUD, the Servicer
remains responsible for ensuring compliance with this part, including
any loss or damage to the property, and such responsibility is retained
by the Servicer until the claim has been paid by HUD.
Subpart H--Claims
Claims Application, Submission Categories and Types
Sec. 1005.801 Purpose.
This subpart sets forth requirements that are applicable to a
Servicer's submission of an application for a Claim for a Section 184
Guaranteed Loan benefits to HUD. The Servicer's submission of the Claim
shall be in compliance with this subpart and must follow the process
details as set forth in Section 184 Program Guidance. This subpart also
sets forth requirements for processing and payment of the Claim.
Sec. 1005.803 Claim case binder; HUD authority to review records.
(a) A Servicer must maintain a claim case binder for each claim
submitted for payment in accordance with Sec. 1005.219(d)(2). The
claim case binder must contain documentation supporting all information
submitted in the claim.
(b) HUD may review a claim case binder and the associated
endorsement case binder at any time. A Servicer's denial of HUD access
to any files may be grounds for sanctions in accordance with Sec. Sec.
1005.905 and 1005.907.
(c) Within three business days of a request by HUD, the Servicer
must make available for review, or forward to HUD, copies of identified
claim case binders.
Sec. 1005.805 Effect of noncompliance.
(a) When a claim case binder is submitted to HUD for consideration,
HUD may conduct a post-endorsement review in accordance with Sec.
1005.527. If HUD determines that the Section 184 Guaranteed Loan does
not satisfy the requirements of subpart D, HUD will take one or more of
the following actions:
(1) Reject the claim submission when the Holder is the Originating
Direct Guarantee Lender.
(2) Pay the claim to the current Holder and demand reimbursement of
the claim from the Originating Direct Guarantee Lender.
(3) Reconvey the property or reassign the deed of trust or mortgage
in accordance with Sec. 1005.849.
(4) Pursue sanctions against the Originating Direct Guarantee
Lender or Sponsored Entity pursuant to Sec. Sec. 1005.905 and
1005.907.
(b) When reviewing a claim case binder, if HUD determines:
(1) The Servicer failed to service the Section 184 Guaranteed Loan
in accordance with subpart G of this part;
(2) The Servicer committed fraud or a material misrepresentation;
or
(3) The Servicer had known or should have known of fraud or a
material misrepresentation in violation of this part.
(4) HUD may take one or more of the following actions.
(i) Place a hold on processing the claim for reimbursement of
eligible reasonable expenses under Sec. 1005.807(b) and provide the
Servicer the opportunity to remedy the deficiency.
(ii) Reject the claim for reimbursement of eligible reasonable
expenses under Sec. 1005.807(b) partially or in its entirety.
(iii) Reconvey the property or reassign the deed of trust or
mortgage in accordance with Sec. 1005.849, where applicable, and
require the Holder to refund the claim payment of the unpaid principal
balance under Sec. 1005.807(a) and expenses under Sec. 1005.807(b).
The Holder may resubmit the claim when the deficiencies identified by
HUD are cured.
(iv) Pursue administrative offset for any unpaid amounts owed to
HUD pursuant to 24 CFR part 17.
(vi) Pursue sanctions against the Servicer or Holder pursuant to
Sec. Sec. 1005.905 and 1005.907.
(vii) Pursue other remedies as determined by HUD.
(c) If a property is reconveyed or the deed of trust or mortgage is
reassigned to the Holder, the Holder may not be reimbursed for any
expenses incurred after conveyance or reassignment.
(d) If a claim is resubmitted after reconveyance or reassignment
and HUD determines a decrease in the value of the property at the time
of the resubmission, HUD may reduce the claim payment accordingly.
Sec. 1005.807 Claim submission categories.
There are three claim submission categories:
(a) Payment of the unpaid principal balance;
(b) Reimbursement of eligible reasonable expenses, including
interest, from the Date of Default to the earlier of the deadlines
provided in Sec. 1005.839(a) through (e). Allowable reasonable
exceptions will be provided by Section 184 Program Guidance; and
(c) Supplemental claim for eligible reasonable expenses incurred
prior to the earlier of the deadlines provided in Sec. 1005.839(a)(1)
through (5), for expenses omitted from the Servicer's prior claim or
for a calculation error made by either Servicer or HUD.
Sec. 1005.809 Claim types.
HUD recognizes five different claim types. The Servicer must submit
a claim based upon the type of property disposition. The Servicer shall
submit claims within timeframes established below or any extended
timeframe prescribed by Section 184 Program Guidance. The Claim types
are:
(a) Conveyance. When the property is deeded to HUD through
foreclosure:
(1) The Servicer must submit a claim under Sec. 1005.807(a) to HUD
no later than 2 business days from the date the deed to HUD is
executed.
(2)(i) Fee simple land. The claim must include the final title
policy evidencing HUD's ownership through foreclosure or transfer of
the ownership of the property through deed-in-lieu to HUD, in
accordance with Sec. 1005.817.
(ii) Trust Land. The claim must include a certified Title Status
Report evidencing HUD's property interest through foreclosure.
(3) In cases where the Servicer is unable to comply with paragraph
[[Page 20089]]
(a)(2)(ii) of this section, the Servicer shall submit the claim pending
the certified Title Status Report in accordance with the time frame
specified in paragraph (a)(1) of this section.
(4) Servicers must submit claims under Sec. 1005.807(b) no later
than 15 days following the submission of a claim under Sec.
1005.807(a).
(b) Assignment of the loan. When the Holder assigns the Section 184
Guaranteed Loan to HUD:
(1) The Servicer must submit a claim under Sec. 1005.807(a) and
(b) no later than 45 days from the date of the assignment of the
Section 184 Guaranteed Loan to HUD is executed.
(2)(i) Trust Land. The claim must include the recorded assignment
and a certified Title Status Report evidencing the assignment of the
mortgage to HUD.
(ii) Fee simple land. The claim must include the final title policy
providing coverage through the transfer of the mortgage to HUD.
(3) In cases where the Servicer is unable to comply with paragraph
(b)(2)(i) of this section, the Servicer shall submit the claim pending
the certified Title Status Report in accordance with the time frame
specified in paragraph (b)(1) of this section.
(4) At the time of assignment of the Section 184 Guaranteed Loan,
the Servicer shall certify to HUD that:
(i) Priority of Section 184 Guaranteed Loan. The Section 184
Guaranteed Loan has priority over all judgments, mechanics' and
materialmen's liens, or any other liens, regardless of when such liens
attached, unless approved by HUD;
(ii) Amount due. The amount reported to HUD in accordance with
Sec. 1005.707(d) prior to assignment is verified to be due and owing
under the Section 184 Guaranteed Loan;
(iii) Offsets or counterclaims and authority to assign. There are
no offsets or counterclaims thereto and the Holder has the authority to
assign; and
(iv) The assignment of the Section 184 Guaranteed Loan to HUD meets
the requirements of Sec. 1005.765.
(c) Post-foreclosure claims without conveyance of title. When a
third-party purchases the property at foreclosure, the Servicer must
submit a claim under Sec. 1005.807(a) and (b) to HUD no later than 30
days from the date the property is conveyed to the third-party. If the
Holder purchases the property at foreclosure and subsequently sells the
property, the Servicer may submit a claim under this section.
(d) Pre-foreclosure sale, deed-in-lieu or lease-in-lieu. When a
property is sold or conveyed prior to foreclosure in accordance with
Sec. 1005.753 or Sec. 1005.755, the Servicer must submit a claim
under Sec. 1005.807(a) and (b) to HUD no later than 30 days from the
date the sale or conveyance is executed.
(e) Supplemental claim. The Servicer shall be limited to one
supplemental claim for each Claim under submission categories in
paragraphs (a) through (d) of this section.
(1) The supplemental claim shall be limited to:
(i) Reasonable eligible expenses incurred up to the date of
conveyance of the property or assignment of the Section 184 Guaranteed
Loan, when invoices are received after the payment of the claim under
Sec. 1005.807(b); or
(ii) Calculation error(s) made by either the Servicer or HUD.
(2) Supplemental claims must be submitted within six months of the
claim submission under Sec. 1005.807(b). Supplemental claims received
after six months of the claim submission will not be reviewed or paid
by HUD.
(3) Any supplemental claim paid by HUD shall be considered final
satisfaction of the Loan Guarantee Certificate.
Submission of Claims
Sec. 1005.811 Claims supporting documentation.
The Servicer shall submit supporting documentation to the
satisfaction of HUD for each Claim. Such documentation will be provided
for in Section 184 Program Guidance.
Sec. 1005.813 Up-front and Annual Loan Guarantee Fee reconciliation.
(a) The Servicer must include in the claims case binder a
reconciliation evidencing the payment of the Up-front and Annual Loan
Guarantee Fees to HUD.
(b) Where the Servicer fails to comply with paragraph (a) of this
section or the reconciliation shows unpaid amounts owed to HUD, and the
unpaid amounts, along with late fees, have not been satisfied by the
Servicer, HUD shall reject the claim.
(c) The Servicer may resubmit the claim after providing the
reconciliation required under paragraph (a) of this section or after
the Annual Loan Guarantee Fee amounts, along with late fees, owed to
HUD are paid by the Servicer.
(d) Allowance to resubmit in accordance with paragraph (c) of this
section shall not be construed to extend any deadlines to file claims
specified in this subpart.
Sec. 1005.815 Conditions for withdrawal of claim.
With HUD's consent, a Holder may withdraw a claim. When HUD consent
is granted, the Holder shall agree, where applicable, in writing that
it will:
(a) Accept a reconveyance of the property under a conveyance which
warrants against the acts of HUD and all claiming by, through or under
HUD;
(b) Promptly file for record the reconveyance from HUD;
(c) Accept without continuation, the title evidence which the
Servicer furnished to HUD; and
(d) Reimburse HUD for the expenditures and amounts set forth in
Sec. 1005.851.
Property Title Transfers and Title Waivers
Sec. 1005.817 Conveyance of Good and Marketable Title.
(a) Satisfactory conveyance of title and transfer of possession.
The Servicer shall tender to HUD a satisfactory conveyance of title and
transfer of possession of the property. The deed or other instrument of
conveyance shall convey Good and Marketable Title to the property,
which shall be accompanied by title evidence satisfactory to HUD.
(b) Conveyance of property without Good and Marketable Title. (1)
If the title to the property conveyed by the Holder to HUD does not
have Good and Marketable Title, the Holder must correct any title
defect within 60 days after receiving notice from HUD, or within such
further time as HUD may approve in writing.
(2) If the defect is not corrected within 60 days, or such further
time as HUD approves in writing, the Holder must reimburse HUD's costs
of holding the property. Such holding costs accrue on a daily basis and
include interest on the amount of the loan guarantee benefits paid to
the Holder at an interest rate set in conformity with the Treasury
Fiscal Requirements Manual from the date of such notice to the date the
defect is corrected or until HUD reconveys the property to the Holder,
as described in paragraph (b)(3) of this section. The daily holding
costs to be charged to the Holder shall also include the costs
specified in Sec. 1005.851.
(3) If the title defect is not corrected within a reasonable time,
as determined by HUD, HUD will, after notice, reconvey the property to
the Holder and the Holder must reimburse HUD in accordance with
Sec. Sec. 1005.849 and 1005.851.
[[Page 20090]]
Sec. 1005.819 Types of satisfactory title evidence.
The following types of title evidence shall be satisfactory to HUD:
(a) Fee or owner's title policy. A fee or owner's policy of title
insurance, a guaranty or guarantee of title, or a certificate of title,
issued by a title company, duly authorized by law and qualified by
experience to issue such instruments. If an owner's policy of title
insurance is furnished, it shall show title in HUD's name and inure to
the benefit of the Department. The policy must be drawn in favor of the
Holder and HUD, ``and their successors and assigns, as their interests
may appear'', with the consent of the title company endorsed thereon.
(b) Policy of title insurance. A Holder's policy of title insurance
supplemented by an abstract and an attorney's certificate of title
covering the period subsequent to the date of the loan, the terms of
the policy shall be such that the liability of the title company will
continue in favor of HUD after title is conveyed to HUD. The policy
must be drawn in favor of the Servicer and HUD, ``and their successors
and assigns, as their interests may appear'', with the consent of the
title company endorsed thereon;
(c) Abstract and legal opinion. An abstract of title prepared by an
abstract company or individual engaged in the business of preparing
abstracts of title and accompanied by the legal opinion as to the
quality of such title signed by an attorney at law experienced in
examination of titles. If title evidence consists of an abstract and an
attorney's certificate of title, the search shall extend for at least
forty years prior to the date of the Certificate to a well-recognized
source of good title;
(d) Torrens or similar certificate. A Torrens or similar title
certificate;
(e) Title standard of U.S., Tribal, or State government. Evidence
of title conforming to the standards of a supervising branch of the
Government of the United States or of any Tribe, State or Territory
thereof; or
(f) Title Status Report. Certified Title Status Report issued by
the BIA or other comparable document approved by HUD in accordance with
Section 184 Program Guidance, shall not be more than sixty (60) days
from the date of the Sec. 1005.807(a) claim submission. Extensions may
be granted under certain reasonable circumstances, as prescribed by
Section 184 Program Guidance.
Sec. 1005.821 Coverage of title evidence.
(a) Evidence of title or Title Status Report shall include the
recordation of the conveyance or assignment to HUD. The evidence of
title, the Title Status Report or direct verification from the Tribe or
TDHE, shall further show that, according to the public or Tribal
records, there are no outstanding prior liens, including any past-due
and unpaid ground rents, general taxes or special assessments, if
applicable, on the date of conveyance or assignment.
(b) If the title evidence and Title Status Report are acceptable
generally in the community in which the property is situated, such
title evidence and Title Status Report shall be satisfactory to HUD and
shall be considered Good and Marketable Title. In cases of
disagreement, HUD will make the final determination in its sole
discretion.
Sec. 1005.823 Waived title objections for properties on fee simple
land.
Reasonable title objections for fee simple land properties shall be
waived by HUD. Reasonable title objections will be prescribed in
Section 184 Program Guidance.
Sec. 1005.825 Waived title objections for properties on Trust Land.
HUD shall not object to title restrictions placed on the tract of
Trust Land by the Tribe or the BIA so long as those restrictions do not
adversely impact the property or marketability.
Condition of the Property
Sec. 1005.827 Damage or neglect.
(a) If the property has been damaged by fire, flood, earthquake, or
tornado, or if the property has suffered damage because of the Servicer
's failure to take action as required by Sec. 1005.767 or for any
other reason, the Servicer must submit a claim to the hazard insurance
policy, as applicable and the damage must be repaired before conveyance
of the property or assignment of the Section 184 Guaranteed Loan to
HUD.
(b) If the property has been damaged as described in paragraph (a)
of this section and the damage is not covered by a hazard insurance
policy, the Servicer must provide notice of such damage to HUD. The
property may not be conveyed or assigned until directed to do so by
HUD. Upon receipt of such notice, HUD will either:
(1) Allow the Holder to convey the damaged property;
(2) Require the Holder to repair the damage before conveyance, and
HUD will reimburse the Holder for reasonable payments, not in excess of
HUD's estimate of the cost of repair, less any hazard insurance
recovery; or
(3) Require the Holder to repair the damage before conveyance, at
the Holder's own expense.
(c) In the event the damaged property is conveyed to HUD without
prior notice or approval as provided in paragraph (a) or (b) of this
section, HUD may, after notice, reconvey the property and demand
reimbursement to HUD for the expenses in accordance with Sec. Sec.
1005.849 and 1005.851.
Sec. 1005.829 Certificate of property condition.
(a) As part of the claim submission, the Servicer shall either:
(1) Certify that as of the date of the deed or assignment of the
loan to HUD the property was:
(i) Undamaged by fire, flood, earthquake, or tornado;
(ii) Undamaged due to failure of the Servicer to act as required by
Sec. 1005.767; and,
(iii) Undamaged while the property was in the possession of the
Borrower; or,
(2) Include a copy of HUD's authorization to convey the property in
damaged condition.
(b) In the absence of evidence to the contrary, the Servicer's
certificate or description of the damage shall be accepted by HUD as
establishing the condition of the property, as of the date of the deed
or assignment of the Section 184 Guaranteed Loan.
Sec. 1005.831 Cancellation of hazard insurance.
The Holder shall cancel any hazard insurance policy as of the date
of the deed to HUD, subject to the following conditions:
(a) The amount of premium refund due to the Servicer resulting from
such cancellation must be deducted from the total amount claimed.
(b) If the Holder's calculation of the premium refund is less than
the actual premium refund, the amount of the difference between the
actual refund and the calculated refund shall be remitted to HUD,
accompanied by the insurance company's or agent's statement.
(c) If the Holder's calculation of the premium refund is more than
the actual refund, the Servicer must include in a supplemental Claim
submission in accordance with Sec. 1005.809(c), accompanied by the
insurance company's or agent's statement, the amount of the difference
as an eligible cost in accordance with Sec. 1005.843(c).
Payment of Guarantee Benefits
Sec. 1005.833 Method of payment.
If the claim is acceptable to HUD, payment of the guarantee
benefits shall be made by electronic transfer of funds to the Holder or
other such allowable payment method.
[[Page 20091]]
Sec. 1005.835 Claim payment not conclusive evidence of claim meeting
all HUD requirements.
Payment of any claim by HUD is not conclusive evidence of
compliance with the subparts D or G of this part. HUD reserves the
right to conduct post-claim payment review of claims. Where non-
compliance with any requirements of this part is identified, HUD will
take appropriate action against the Holder, Originating Direct
Guarantee Lender and/or Servicer, including but not limited to HUD's
remedies under Sec. 1005.805 and sanctions under Sec. Sec. 1005.905
and 1005.907.
Sec. 1005.837 Payment of claim: unpaid principal balance.
HUD will pay a claim under Sec. 1005.807(a) in the amount of the
unpaid principal balance less all receipts for the sale or transfer of
the property, if applicable, in accordance with the requirements of
this subpart.
Sec. 1005.839 Payment of claim: interest on unpaid principal
balance.
HUD shall pay interest on the unpaid principal balance from the
date of default to the earlier of the following:
(a) The execution of deed-in-lieu/lease-in-lieu of foreclosure;
(b) The execution of the conveyance to either Holder, HUD or a
third-party;
(c) The execution of the assignment of the Section 184 Guaranteed
Loan to HUD;
(d) The expiration of the reasonable diligence timeframe; or
(e) Other event as prescribed by Section 184 Program Guidance.
Sec. 1005.841 Payment of claim: reimbursement of eligible and
reasonable costs.
The claim will be paid in accordance with Sec. 1005.807(b) and
will include eligible and reasonable costs, as prescribed by Section
184 Program Guidance.
Sec. 1005.843 Reductions to the claim submission amount.
A Holder shall reduce the claim when the following amounts are
received or held by the Holder:
(a) All amounts received by the Holder to the account of the
borrower after default.
(b) All amounts received by the Holder from any source relating to
the property on account of rent, reimbursement or other payments.
(c) All cash retained by the Holder including amounts held or
deposited in the account of the Borrower or to which it is entitled
under the loan transaction that have not been applied in reduction of
the principal loan indebtedness.
Sec. 1005.845 Rights and liabilities under Indian Housing Loan
Guarantee Fund.
(a) No Borrower, Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer shall have any vested right in the Indian
Housing Loan Guarantee Fund.
(b) No Borrower, Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer shall be subject to any liability arising
under the Indian Housing Loan Guarantee Fund.
(c) The Indian Housing Loan Guarantee Fund will be credited and
debited in accordance with 12 U.S.C. 1715z-13a(i)(2).
Sec. 1005.847 Final payment.
(a) HUD's payment of a claim(s) shall be deemed as final payment to
the Holder, notwithstanding the Holder's ability to present additional
claim(s) in accordance with Sec. 1005.807 as applicable. The Holder
shall have no further rights against the Borrower or HUD when there is
a final payment. This paragraph does not preclude HUD from seeking
reimbursement of costs and return of amounts from the Holder or
Originating Direct Guarantee Lender pursuant to Sec. Sec. 1005.849 and
1005.851.
(b) In cases where HUD reconveys the property to the Holder and HUD
is reimbursed for all expenses and Holder returns all amounts pursuant
to Sec. Sec. 1005.849 and 1005.851, provisions under paragraph (a) of
this section shall not apply. However, the resubmission of the Claim,
if any, shall be subject to Sec. 1005.849(b) and any additional
processes as prescribed by Section 184 Program Guidance.
Sec. 1005.849 Reconveyance and reassignment.
(a) HUD may reconvey the property or reassign the deed of trust or
mortgage to the Holder due to:
(1) Noncompliance with this part or any requirements as prescribed
by Section 184 Program Guidance; or
(2) An authorized withdrawal of a claim in accordance with Sec.
1005.815.
(b) HUD may take appropriate action against the Holder associated
with the reconveyance or reassignment authorized in paragraph (a) of
this section, including but not limited to, seeking reimbursement of
all claim costs paid by HUD and carrying costs incurred by HUD in
accordance with Sec. 1005.851.
(c) Notwithstanding any other provision in this subpart, in cases
where HUD has conveyed the property or reassigned the deed of trust or
mortgage back to the Holder in accordance with Sec. 1005.851, and
where the Servicer resubmits the claim, HUD will not reimburse the
Holder any expenses incurred after the date of the HUD conveyance or
assignment.
(d) Additional reasonable and necessary restrictions may be
imposed, as prescribed by Section 184 Program Guidance.
Sec. 1005.851 Reimbursement of expenses to HUD.
Where reconveyance or reassignment is sought by HUD pursuant to
Sec. 1005.849 or when HUD determines noncompliance, the Holder or the
Originating Direct Guarantee Lender shall reimburse HUD for:
(a) All Claim costs paid by HUD.
(b) HUD's cost of holding the property, including but not limited
to expenses based on the estimated taxes, maintenance and operating
expenses of the property, and administrative expenses. Adjustments
shall be made by HUD for any income received from the property.
(c) The reimbursement shall include interest on the amount of the
claim payment returned by the Holder or the originating Direct
Guarantee Lender from the date the claim was paid to the date HUD
receives the reimbursement from Holder or the originating Direct
Guarantee Lender. The interest rate set shall be in conformity with the
Treasury Fiscal Requirements Manual.
Subpart I--Program Performance, Reporting, Sanctions, and Appeals
Sec. 1005.901 Performance reviews.
HUD may conduct periodic performance reviews of Direct Guarantee
Lenders, Non-Direct Guarantee Lenders, Holders, and Servicers. These
may include analytical reviews, customer surveys and on-site or remote
monitoring reviews. These reviews may include, but are not limited to,
an evaluation of compliance with this part. HUD will provide written
notice of its assessment and any proposed corrective action, if
applicable.
Sec. 1005.903 Reporting and certifications.
(a) The Direct Guarantee Lender, Non-Direct Guarantee Lender or
Servicer shall provide timely and accurate reports and certifications
to HUD, which may include but is not limited to reports in connection
with performance reviews under Sec. 1005.901, any special request for
information from HUD, and any reasonable reports prescribed by Section
184 Program Guidance, within reasonable time frames prescribed by HUD.
(b) The Direct Guarantee Lender, Non-Direct Guarantee Lender or
Servicer's failure to provide timely and accurate
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reports and certifications to HUD may subject the Direct Guarantee
Lender, Non-Direct Guarantee Lender, Holder, or Servicer to sanctions
and civil money penalties pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.905 Notice of sanctions.
(a) Prior to the notice of sanctions or civil money penalties, HUD
shall inform the Direct Guarantee Lender, Non-Direct Guarantee Lender,
Holder, or Servicer of the specific non-compliance with this part and,
where applicable, afford the Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer a reasonable time, as prescribed
in Section 184 Program Guidance, to return to compliance.
(b) If it is determined that the Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder or Servicer fails to return to
compliance within the allowed time, HUD shall provide written notice of
the sanctions and civil money penalties to be imposed and the basis for
the action.
Sec. 1005.907 Sanctions and civil money penalties.
(a) Where the Direct Guarantee Lender, Non-Direct Guarantee Lender,
Holder or Servicer fails to comply with this part, including failure to
maintain adequate accounting records, failure to adequately service
loans, or failure to exercise proper credit or underwriting judgment,
or becomes ineligible to participate pursuant to Sec. 1005.225, or has
engaged in practices otherwise detrimental to the interest of a
Borrower or the United States, including but not limited to, failure to
provide timely reporting, or failure to follow underwriting
requirements set forth in this part, or failure to comply with Section
184 Program Guidance when it specifically provides times, processes,
and procedures for complying with the requirements of this part, HUD
may take any combination of the following actions:
(1) Either temporarily or permanently terminate a Director
Guarantee Lender or Non-Direct Guarantee Lender's status. If such
action is taken and the terminated Direct Guarantee Lender wishes to
maintain servicing rights to the Section 184 Guaranteed Loans, the
terminated Direct Guarantee Lender must seek HUD approval as prescribed
in Section 184 Program Guidance.
(2) Bar the Direct Guarantee Lender or Holder from acquiring
additional Section 184 Guaranteed Loans.
(3) Require that the Direct Guarantee Lender assume not less than
10 percent of any loss on further Section 184 Guaranteed Loans made by
the Direct Guarantee Lender.
(4) Require that the Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer comply with a corrective action plan or
amend the Direct Guarantee Lender, Non-Direct Guarantee Lender or
Holder's quality control plan, subject to HUD approval, to remedy the
non-compliance with this part and any process prescribed by Section 184
Program Guidance. The plan shall also address methods to prevent the
reoccurrence of any practices that are detrimental to the interest of
the Borrower or HUD. The corrective action plan or amended quality
control plan shall afford the Direct Guarantee Lender, Non-Direct
Guarantee Lender, or Holder reasonable time to return to compliance.
(b) HUD is authorized pursuant to 12 U.S.C. 1715z-13a(g)(2) to
impose civil money penalties upon Direct Guarantee Lenders, Non-Direct
Guarantee Lender, or Holders as set forth in 24 CFR part 30. The
violations for which a civil money penalty may be imposed are listed in
subpart B of 24 CFR part 30.
Sec. 1005.909 Appeals process.
(a) Lenders denied participation in the Section 184 Program
pursuant to subpart B of this part, or a Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder, or Servicer subject to sanctions
pursuant to Sec. 1005.907, may appeal to HUD's Office of Loan
Guarantee within 15 days, or other timeframe as prescribed in Section
184 Program Guidance. After consideration of the Lender, Direct
Guarantee Lender, Non-Direct Guarantee Lender, Holder or Servicer's
appeal, HUD shall advise the Lender, Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder or Servicer in writing whether the
denial is rescinded, modified or affirmed. The Lender, Direct Guarantee
Lender, Non-Direct Guarantee Lender, Holder, or Servicer may then
appeal such decision to the Deputy Assistant Secretary for Office of
Native American Programs, or his or her designee. A decision by the
Deputy Assistant Secretary or designee shall constitute final agency
action.
(b) Hearings to challenge the imposition of civil money penalties
shall be conducted according to the applicable rules of 24 CFR part 30.
Adrianne Todman,
Deputy Secretary.
[FR Doc. 2024-05515 Filed 3-19-24; 8:45 am]
BILLING CODE 4210-67-P