[Federal Register Volume 89, Number 142 (Wednesday, July 24, 2024)]
[Rules and Regulations]
[Pages 59823-59825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16149]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Parts 3555

[Docket No. RHS-24-SFH-0025]


Single Family Housing Guaranteed Housing Payment Supplement 
Account Demonstration Program

AGENCY: Rural Housing Service, USDA.

ACTION: Notification.

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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural 
Development (RD) agency of the United States Department of Agriculture 
(USDA), is issuing this document for a demonstration program that will 
establish a new loss mitigation retention option, referred to as the 
Payment Supplement Account (PSA). The Agency's intention of this 
demonstration program is to assist borrowers who have experienced a 
documented hardship that led to an involuntary inability to pay their 
mortgage obligation, require payment reduction to resume making a 
monthly payment, and currently have a below market interest rate. This 
document briefly discusses a special servicing option for servicers to 
utilize to continue assisting struggling borrowers who seek loss 
mitigation alternatives, regardless of the nature of their hardship.

DATES: The effective date of this demonstration program is July 24, 
2024. The duration of the demonstration program is anticipated to 
continue until July 24, 2026, at which time the RHS may extend the 
demonstration program (with or without modifications) or terminate it 
depending on the workload and resources needed to administer the 
program, feedback from the public, and the effectiveness of the 
program. RHS will notify the public whether the demonstration program 
has been extended or terminated.

FOR FURTHER INFORMATION CONTACT: Stephanie Freeman, Finance and Loan 
Analyst, Policy, Analysis, and Communications Branch, Single Family 
Housing Guaranteed Loan Division, Rural Development, U.S. Department of 
Agriculture, Email: [email protected]; Phone: (314) 457-6413.
    If you are interested in participating in this demonstration 
program or if you have any questions, please contact the Loan Servicing 
Branch at [email protected].

SUPPLEMENTARY INFORMATION:

[[Page 59824]]

Authority

    The SFHGLP is authorized by Section 502(h) of the Housing Act of 
1949, as amended, codified at 42 U.S.C. 1472(h); and implemented under 
7 CFR part 3555.

Overview

    The RHS is committed to helping improve the economy and quality of 
life in rural areas by offering a variety of programs. The Agency 
offers loans, grants, and loan guarantees to help create jobs, expand 
economic development, and provide critical infrastructure investments. 
The RHS also provides technical assistance loans and grants by 
partnering with agricultural producers, cooperatives, Indian tribes, 
non-profits, and other local, state, and federal agencies.
    Affordable housing is essential to the vitality of communities in 
rural America. RD's Single Family Housing Programs give families and 
individuals the opportunity to purchase, build, repair their existing 
home, or to refinance their current mortgage under certain criteria. 
Eligibility for these loans, loan guarantees, or grants is based on 
income which varies according to the average median income for each 
eligible rural area.
    Section 502 Guaranteed Loan Program provides a 90 percent loan note 
guarantee to approved lenders in efforts to provide low- and moderate-
income households the opportunity to own adequate, modest, decent, safe 
and sanitary dwellings as their primary residence in eligible rural 
areas. Eligible applicants may purchase, build, rehabilitate, improve 
or relocate a dwelling in an eligible rural area. Applicant eligibility 
for this program is determined by the lender pursuant to the criteria 
set forth in 7 CFR part 3555, subpart D.
    The Domestic Policy Council (DPD) and the National Economic Council 
(NEC) has recently urged agencies to begin implementing workable home 
retention solutions that would provide subsequent mortgage protections 
and minimize the borrowers' risk of foreclosure considering the current 
market conditions. Therefore, the Agency has continued to explore 
additional home retention options for servicers to further assist 
borrowers and reduce Agency losses.
    The RHS may authorize limited demonstration programs to test new 
approaches to offering housing under the statutory authority granted to 
the Secretary, as set forth in 42 U.S.C. 1476(b); 7 CFR 3555.2(b). 
Demonstration programs are time- and scope-limited programs designed to 
test new approaches and for those reasons, demonstration programs need 
not be consistent with all regulatory provisions while active. This 
demonstration program helps struggling borrowers that are delinquent on 
their mortgage payments and are unable to obtain a payment reduction 
utilizing the currently available loss mitigation options.

Purpose of the Payment Supplement Account

    The Single-Family Housing Guaranteed Loan Program (SFHGLP) provides 
borrowers with the maximum opportunity to remain successful homeowners 
and provides servicers with multiple loan servicing options to support 
borrowers who have experienced a documented hardship. RD continues to 
explore strategies to improve the quality and effectiveness of our 
program.
    Typically, assistance is accomplished through a combination of rate 
reduction, term extension, and/or a reduction of the borrower's 
interest-bearing principal. These assistance options can be 
accomplished with the utilization of a stand-alone Mortgage Recovery 
Advance (MRA), also known to the industry as a partial claim. While the 
Agency's loss mitigation options have continued to deliver assistance 
to borrowers in default, unprecedented higher interest rates in 
conjunction with the current economic conditions have impacted the 
ability and delayed the effectiveness of those relief measures to 
meaningfully assist borrowers.
    Due to the sensitivity of the changes in mortgage rates, rise in 
consumer debt, and the challenges with mortgage payments associated 
with the pressures on household finances, the Agency has continued to 
evaluate additional options for servicers in an effort to further 
assist borrowers. This demonstration program establishes a new loss 
mitigation retention option, referred to as the Payment Supplement 
Account (PSA). The PSA shall be funded by a stand-alone MRA. The PSA 
assists borrowers who have experienced a documented hardship that led 
to an involuntary inability to pay their mortgage obligation, require 
payment reduction to resume making a monthly payment, and currently 
have a below market interest rate.

Discussion of the Payment Supplement Account

    7 CFR 3555.304(d) permits the use of an MRA in conjunction with 
loss mitigation to provide payment relief to borrowers. The MRA allows 
the servicer to advance funds on behalf of the borrower to satisfy the 
borrower's arrearage, pay legal fees and foreclosure costs related to a 
cancelled foreclosure action, and reduce the principal balance of the 
loan.
    The PSA demonstration program shall require the servicer to use a 
portion of the MRA funds to cure the arrearage and segregate the 
remaining funds in a separate, non-interest-bearing custodial account 
to provide monthly payment relief to the borrower. The PSA shall be 
funded by a stand-alone MRA, which shall be incrementally utilized to 
first, payoff the arrearages accumulated during a hardship to bring the 
loan current and second, to supplement the principal portion of the 
borrower's payment in monthly increments and provide payment relief for 
three years. The PSA shall remain with the servicer's lien as a non-
interest-bearing, recoverable servicing advance. The MRA created under 
this demonstration program shall not be secured by a second lien in 
favor of RD, which eliminates the need for notary fees, recording 
costs, and additional legal fees.

Eligibility Requirements

    To be eligible under this demonstration program, all the following 
parameters shall apply:
     The borrower must occupy the home as their primary 
residence.
     The borrower must have experienced a documented hardship 
and requires payment reduction to resume making a regular monthly 
payment. The hardship that caused the borrower's involuntary inability 
to pay must have been cured. Lenders and servicers may refer to HB-1-
3555 Attachment 18-A for guidance on this inquiry.
     There is no reasonable ability for the borrower to cure 
the delinquency on their own within 12 months without assistance.
     The MRA shall be utilized to cure the arrearage, bring the 
loan current, and fund a PSA that will be utilized to provide a 
targeted reduction to the borrower's principal and interest (P&I) 
payment for three years. At the end of the three years, the borrower 
shall be responsible for resuming the full amount of their monthly 
contractual payment.
     The servicer should target a 25 percent principal and 
interest reduction, not to exceed the principal portion of the 
principal and interest, for a maximum 3-year total period. If a 25 
percent reduction cannot be achieved, offer the achievable reduction, 
not less

[[Page 59825]]

than 5 percent, and not to exceed a maximum 3-year total period.
     Three trial timely payments will be required. Guidance on 
trial payments is available at HB-1-3555 Attachment 18-A.
     The borrower shall sign an agreement to repay the advance 
in full.
     The servicer shall segregate the funds paid by USDA for 
the PSA in a separate, non-interest-bearing custodial account (the PSA) 
characterized by the following:
    [cir] is deposited with a financial institution whose accounts are 
insured by the Federal Deposit Insurance Corporation (FDIC) or the 
National Credit Union Administration (NCUA);
    [cir] does not limit the servicer's access to funds for the payment 
supplement, require an advance notice of withdrawal, or require the 
payment of a withdrawal penalty; and
    [cir] clearly identifies the funds being held in that account as 
being derived from and held as part of the PSA Agreement executed by 
the borrower.
     The servicer must ensure that the funds in the PSA are 
clearly delineated as funds held as a result of the PSA Agreement 
executed by the borrower, for use only as provided for in the PSA 
Agreement. Neither the servicer nor the borrower may exercise 
discretion in the use and application of the funds from the PSA; funds 
shall be used and applied only to reduce the principal balance.
    [cir] The MRA utilized to fund the PSA will be limited to 30 
percent of the borrower's unpaid principal balance at the time of 
initial default. If the borrower has previously been provided an MRA 
they may still be considered for a PSA MRA provided that the combined 
amount of MRAs do not exceed the 30 percent maximum outlined above.
    [cir] This option is the last option in the loss mitigation 
waterfall, and it must be determined by the servicer that the borrower 
is not eligible for any other retention solution prior to solicitation 
for participation in this pilot.
    [cir] Servicers shall advance their own funds to bring the loan 
current prior to requesting the MRA to establish the PSA.
    [cir] Servicers may file an MRA claim with RD to recoup the funds 
they advance on behalf of the borrower and utilized to fund the PSA, 
subject to the MRA claim filing requirements described in 7 CFR part 
3555.
    [cir] The amount of the non-interest-bearing receivable will remain 
part of the servicer's first lien.
    [cir] The servicer shall agree to repay the amount of the MRA to RD 
when the first lien matures, the borrower sells or refinances the home, 
or otherwise pays the loan in full.
    [cir] The servicer shall draw from the PSA monthly, only when the 
borrower makes their portion of the monthly payment, to provide payment 
relief. As funds are advanced, the amount drawn will be added to the 
non-interest-bearing receivable.
    [cir] If a borrower makes the full amount of their monthly 
contractual payment, the servicer shall still make the monthly draw 
from the PSA. Any additional funds paid by the borrower shall be 
applied to curtail the principal balance.
    [cir] A borrower who re-defaults while receiving PSA funds can re-
enter the RD loss mitigation waterfall and be evaluated for traditional 
options, if eligible. Any remaining PSA funds should be applied to the 
unpaid principal balance as part of that loss mitigation action.
    [cir] If a servicing transfer occurs on the guaranteed loan, the 
servicer shall ensure that the funds in the PSA awaiting disbursement 
are transferred to the new servicer at the same time as the mortgage 
transfer. The new servicer shall assume any remaining obligations of 
the initial servicer in connection with the ongoing loss mitigation 
action consistent with the terms of the PSA Agreement.
    [cir] If there is a loss due to a short sale, a deed-in-lieu of 
foreclosure, or a foreclosure, any remaining funds in the PSA shall be 
applied towards the principal balance and added to the non-interest-
bearing receivable prior to a loss claim being filed.
    The servicer may be required to submit additional information about 
the pilot program outside of the usual electronic reporting process. 
This enhanced report shall be provided as requested and should include 
at minimum the number of current and existing PSA MRAs provided under 
this pilot. Loan servicing and loss claim submissions will be conducted 
in accordance with the Housing Act of 1949, as amended, and 7 CFR part 
3555.

Paperwork Reduction Act

    The regulatory waivers for this demonstration program contains no 
new reporting or recordkeeping burdens under OMB control number 0575-
0179 that would require approval under the Paperwork Reduction Act of 
1995 (44 U.S.C. Chapter 35).

Non-Discrimination Statement

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices, employees, and institutions participating in or administering 
USDA programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, staff office; or the 711 Relay 
Service.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.usda.gov/sites/default/files/documents/ad-3027.pdf, from any USDA office, by calling (866) 
632-9992, or by writing a letter addressed to USDA. The letter must 
contain the complainant's name, address, telephone number, and a 
written description of the alleged discriminatory action in sufficient 
detail to inform the Assistant Secretary for Civil Rights (ASCR) about 
the nature and date of an alleged civil rights violation. The completed 
AD-3027 form or letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].

Yvonne Hsu,
Acting Administrator, Rural Housing Service.
[FR Doc. 2024-16149 Filed 7-23-24; 8:45 am]
BILLING CODE 3410-XV-P