[Federal Register Volume 89, Number 158 (Thursday, August 15, 2024)]
[Rules and Regulations]
[Pages 66189-66194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18291]



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 Rules and Regulations
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  Federal Register / Vol. 89, No. 158 / Thursday, August 15, 2024 / 
Rules and Regulations  

[[Page 66189]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

[Docket No. RHS-24-SFH-0001]
RIN 0575-AD28


Single Family Housing Guaranteed Loan Program Changes Related to 
Special Servicing Options

AGENCY: Rural Housing Service, U.S. Department of Agriculture (USDA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Housing Service (RHS or Agency), a Rural Development 
(RD) agency of the United States Department of Agriculture (USDA), is 
implementing changes to the Single-Family Housing Guaranteed Loan 
Program (SFHGLP) to amend the current regulations regarding Special 
Servicing Options and adjust the Mortgage Recovery Advance (MRA) 
process. This final rule is intended to benefit borrowers and lenders 
by providing lenders more flexibility in their servicing options, 
offering a less expensive and less cumbersome MRA process, and reduce 
program risk of the guaranteed loan portfolio.

DATES: This final rule is effective February 11, 2025.

FOR FURTHER INFORMATION CONTACT: Ticia Weare, Finance and Loan Analyst, 
Single Family Housing Guaranteed Loan Division, Rural Development, U.S. 
Department of Agriculture, STOP 0784, South Agriculture Building, 1400 
Independence Avenue SW, Washington, DC 20250-0784. Telephone: (314) 
679-6919; or email: [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The USDA RHS offers a variety of programs to build or improve 
housing and essential community facilities in rural areas. RHS offers 
loans, grants, and loan guarantees for single- and multi-family 
housing, childcare centers, fire and police stations, hospitals, 
libraries, nursing homes, schools, first responder vehicles and 
equipment, housing for farm laborers and much more. RHS also provides 
technical assistance loans and grants in partnership with non-profit 
organizations, Indian tribes, State and Federal Government agencies, 
and local communities.
    Under the authority of the Housing Act of 1949 (42 U.S.C. 1471 et 
seq.), as amended, the SFHGLP makes loan guarantees to provide low- and 
moderate-income persons in rural areas an opportunity to own decent, 
safe, and sanitary dwellings and related facilities. The RHS 
administers the SFHGLP that provides a 90% Loan Note Guarantee to 
approved lenders to reduce the lender's risk of extending loans to low- 
and moderate-income households in rural areas. Approved lenders make 
the initial eligibility determinations, and the Agency reviews those 
determinations to make a final eligibility decision.
    This program helps lenders work with low- and moderate-income 
households living in rural areas to make homeownership a reality. 
Providing affordable homeownership opportunities promotes prosperity, 
which in turn creates thriving communities and improves the quality of 
life in rural areas.
    The RHS published a proposed rule on January 27, 2023 (88 FR 5275) 
to amend the current regulation for the SFHGLP found in 7 CFR part 
3555. This final rule will amend 7 CFR part 3555 to implement changes 
related to the use of Special Servicing Options for Non-Performing 
Loans. The changes to the current regulation will benefit borrowers by 
offering a less cumbersome option to eliminate documentation and 
eligibility challenges for borrowers who do not require payment 
reduction, while providing lenders more flexibility in their servicing 
options and reducing program risk of the guaranteed loan portfolio.
    The SFHGLP is authorized by section 502(h) of the Housing Act of 
1949, (42 U.S.C. 1472(h)), as amended. 7 CFR part 3555 sets forth the 
regulatory requirements of the SFHGLP which includes policies regarding 
originating, servicing, holding, and liquidating SFHGLP loans. SFHGLP 
approved lenders make the initial eligibility determinations, and the 
Agency reviews those determinations to make a final eligibility 
decision. In Sec.  3555.303, lenders are provided several traditional 
servicing options for Non-Performing Loans. The use of special 
servicing options in Sec.  3555.304 is provided if the traditional 
servicing options provided in Sec.  3555.303 have been exhausted or the 
lender has determined that the use of such servicing options would not 
resolve the delinquency.
    RHS is issuing a final rule to amend Sec. Sec.  3555.303 and .304 
to incorporate the MRA as a part of the regular servicing options in 
Sec.  3555.303 and allow for streamline servicing options in Sec.  
3555.304. This final rule also adjusts the MRA process to make it less 
cumbersome and eliminates documentation and eligibility challenges for 
borrowers who do not require payment reduction.

II. Discussion of Public Comments Received on March 28, 2023, Proposed 
Rule

    The Agency received comments from 12 respondents, including 
mortgage lenders, associations, and other interested parties. Specific 
public comments are addressed below:
    Public Comment: One respondent suggested that the Agency combine 
both Sec.  3555.303 (traditional servicing options) with Sec.  3555.304 
to maintain the COVID-19 loss mitigation waterfall and provide specific 
guidance in HB-1-3555. Further, the respondent suggested the Agency 
maintain the standalone MRA as the first option in the waterfall for 
borrowers who do not require payment reduction; eliminate financial 
reviews for seriously delinquent borrowers; retain a target payment 
reduction of 20 percent for borrowers who cannot resume an affordable 
new payment; and allow the MRA to be combined with a 30 or 40 year loan 
modification, allowing borrowers to defer additional principal if MRA 
funds are available.
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency agrees changes to Sec.  3555.303 in addition to changes in 
Sec.  3555.304 may assist in loss mitigation and amends the proposed 
rule accordingly. The final rule incorporates the MRA into Sec.  
3555.303, maintaining the MRA as either a standalone option or combined 
with a loan modification. The Agency agrees additional flexibility

[[Page 66190]]

in servicing options may assist in preventing unnecessary foreclosures. 
The final rule amends Sec.  3555.304 to provide streamline servicing 
options to provide the borrower with at least a 10 percent reduction to 
their principal and interest payment with no consideration of the 
borrower's financials. The Agency agrees with the respondent that the 
option to extend the loan term as suggested may assist in loss 
mitigation, therefore, the final rule provides the ability to extend 
the loan term after reamortization up to 40 years when necessary to 
demonstrate repayment ability. Additionally, the Agency will amend 
Sec.  3555.303 to add section (b)(3)(vi) indicating the order in which 
that traditional servicing options will be established.
    Public Comment: Four respondents replied that they were in favor of 
the proposed rule, some indicating that eliminating the subordinate 
lien is a worthy regulatory reform priority for post-pandemic mortgage 
servicing. However, they have expressed their opinion that this may 
place an undue burden on the lender and the borrower for collection of 
a balloon payment of the non-interest-bearing promissory note at the 
maturity of the interest-bearing loan. These respondents recommend that 
the Agency allow servicers to assign the servicing advance MRA to USDA 
at maturity of the interest-bearing original note, stating that the 
Agency has greater flexibility to help such homeowners avoid 
foreclosure.
    Agency's Response: The Agency appreciates the support, as well as 
the suggested revision. It is anticipated that only a small percentage 
of loans will reach maturity. The Agency has not amended the final rule 
as recommended; however, the Agency is amending Sec.  3555.303 to allow 
an MRA to be combined with up to a 40-year loan modification term, 
allowing borrowers to defer the additional principal if MRA funds are 
available. The opportunity to defer the additional principal will 
ensure borrowers are able to achieve the target payment. Additionally, 
the Agency is not opposed to allowing the servicer additional 
collection time if the lien is not released prior to the loan, 
including the MRA, being paid in full. The Agency will continue to work 
with the industry to provide alternative solutions.
    Public Comment: Four respondents requested that clarification be 
provided in the rule to allow lenders to provide multiple MRAs 
throughout the life of the loan.
    Agency's Response: The Agency appreciates the commenters' 
responses, as well as the suggested revision. The Agency has amended 
the rule to allow multiple MRAs and to clarify what conditions must be 
present to allow additional MRAs.
    Public Comment: One respondent suggested that the Agency exempt 
small servicers from the provisions of the new rule, explaining that 
requiring servicers to collect the unsecured debt the homeowner owes to 
USDA puts them in the position of becoming third party debt collectors 
and creates a different relationship than what a Housing Finance Agency 
servicer agreed to when their agency agreed to offer and service SFHGLP 
loans as part of their single-family program offerings.
    Agency's Response: The Agency appreciates the commenter's response. 
It is anticipated that only a small percentage of loans will reach 
maturity. The Agency has not amended the rule as recommended; however, 
the Agency is amending the CFR to allow an MRA to be combined with up 
to a 40-year loan modification term, allowing borrowers to defer the 
additional principal if MRA funds are available. The opportunity to 
defer the additional principal will ensure borrowers are able to 
achieve the target payment. Additionally, the Agency is not opposed to 
allowing the servicer additional collection time if the lien is not 
released prior to the loan, including the MRA, being paid in full. The 
Agency will continue to work with the industry to provide alternative 
solutions.
    Public Comment: One respondent suggested that the Agency require 
borrowers to execute a standard MRA agreement.
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency understands it is important that variances in State laws are 
considered. An optional attachment for use by the lender will be made 
available on the Agency's LINC Training and Resource Library, located 
at rd.usda.gov/resources/usda-linc-training-resource-library.
    Public Comment: One respondent suggested that the Agency allow 
servicers to recover incentives after completing an MRA.
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency agrees that an incentive for completing the MRA is a 
reasonable request and will consider them in the future.
    Public Comment: One respondent suggested that the Agency provide 
guidance that specifies how funds are to be applied when the servicer 
receives funds in excess of the Principal, Interest, Taxes and 
Insurance (PITI).
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency agrees that it is more beneficial to the borrower to apply 
any additional funds to the interest-bearing loan first, however, the 
Agency does not feel it should dictate to the servicer and borrower how 
partial prepayments should be applied.
    Public Comment: One respondent suggested that the Agency provide 
guidance that specifies how the MRA should be addressed in the event of 
a short sale or foreclosure bidding process.
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency agrees that guidance should be provided. Such guidance will 
be provided in Handbook-1-3555.
    Public Comment: Two respondents suggested that the Agency permit 
servicers to modify the repayment date of the MRA.
    Agency's Response: The Agency appreciates the commenters' response. 
The Agency is amending Sec.  3555.303 to allow an MRA to be combined 
with up to a 40-year loan modification term, allowing borrowers to 
defer the additional principal if MRA funds are available. The 
opportunity to defer the additional principal will ensure borrowers are 
able to achieve the target payment. The Agency is not opposed to 
allowing the servicer additional collection time if the lien is not 
released prior to the loan, including the MRA, being paid in full. The 
final rule revises Sec.  3555.303 to indicate that the MRA may be paid 
to the Agency when the payment is received from the borrower; or when 
the mortgage lien is released; or when the borrower transfers title to 
the property by voluntary or involuntary means.
    Public Comment: One respondent suggested that the Agency provide 
guidance to servicers instructing them to notify borrowers that the MRA 
balance is coming due no later than six months prior to the maturity of 
their mortgage and that the Agency provide potential solutions for 
paying off the remaining MRA balance and that this be included in Sec.  
3555.304.
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency agrees that servicers providing advanced notice of the MRA 
payoff obligation could prevent unnecessary foreclosures and will 
provide such guidance.
    Public Comment: One respondent suggested that the Agency reassess 
the loss mitigation regulations in Sec.  3555.303 and Sec.  3555.304 to 
allow for more flexible servicing options to provide

[[Page 66191]]

borrowers with effective solutions to quickly resolve financial 
hardships.
    Agency's Response: The Agency appreciates the commenter's response. 
The Agency agrees that additional flexibility in servicing options may 
assist in preventing unnecessary foreclosure. The final rule amends 
Sec.  3555.303 to incorporate the MRA into traditional servicing 
options and amends Sec.  3555.304 to provide streamline servicing 
options when traditional servicing options have been exhausted, the 
borrower is at least 90 days delinquent, and prior to any acceleration 
or foreclosure action.
    Public Comment: One respondent suggested that the Agency ensure 
modified loans with a deferred balance be redelivered to Ginnie Mae.
    Agency's Response: The Agency appreciates the commenter's response 
and agrees that preserving access to liquidity is an important 
component to preserving affordable homeownership. The Agency will 
continue to work with Ginnie Mae and others to provide options that 
preserve liquidity.

III. Summary of Changes to Rule

    The following changes were included in the proposed rule:
    In Sec.  3555.304(b)(3), remove language pertaining to title search 
and recording fees as these services will no longer be utilized by the 
lender.

Additional Changes to Rule as a Result of Comments Received

    As a result of the comments received, Sec.  3555.303 will be 
amended as follows:
    Move (b)(3)(iv) to (b)(3)(i) to emphasize that the lender's lien 
priority cannot be affected by providing a loan modification. This will 
renumber the remaining section.
    Revise section (b)(3)(iii), formerly (ii), to clarify that fees and 
costs associated with the delinquency may be included in the loan 
modification.
    Revise section (b)(3)(iv), formerly (iii), to extend the repayment 
term for up to 40 years from the date of modification.
    Add section (b)(3)(vi) indicating that traditional servicing 
options will be used in the order established to incorporate the 
addition of the MRA in the traditional servicing waterfall.
    Add section (b)(3)(vii) to clarify that a mortgage recovery advance 
may be considered if the targeted income to ratio mortgage payment 
cannot be reached.
    Add section (b)(4) to incorporate the MRA as a part of traditional 
servicing options.
    Add section (b)(4)(V) to clarify that the lender may file a claim 
for reimbursement of reasonable title search and/or recording fees.
    As a result of the comments received, Sec.  3555.304 will be 
further amended as follows:
    Revise the title of Sec.  3555.304 to change ``Special'' to 
Streamline'' and replace throughout the section.
    Revise (a)(1) to clarify that the lender must exhaust all 
traditional loss mitigation options prior to offering the streamline 
servicing options.
    Revise (a)(3) to indicate the streamline servicing options must 
provide the borrower with at least a 10 percent reduction to their 
principal and interest payment.
    Remove (a)(4) since it is no longer applicable to streamlined 
servicing options.
    Revise (b)(1) to eliminate the ratio cap for total debt to income 
and add that the borrower must be at least 90 days delinquent and 
streamline servicing shall be considered prior to initiation of any 
legal acceleration or foreclosure action.
    Revise (b)(3) to remove the sentence on fees associated with 
foreclosure due to the requirement that streamline servicing must occur 
prior to any legal foreclosure action commencing.
    Revise (c) to allow the servicer to extend the repayment term to 40 
years, unless limited to 30 years by the investor.
    Revise (c)(1) to remove reference to foreclosure fees and costs, as 
well as tax and insurance advances since foreclosure will not have 
commenced under the streamline option.
    Revise (c)(3) to allow the servicer to extend the repayment term to 
40 years, unless limited to provide the borrower a principal and 
interest reduction of at least 10 percent.
    Revise (c)(4) to clarify that if the targeted mortgage payment 
reduction cannot be achieved using a modification as described in this 
section, the loan is not eligible for streamline loan servicing and 
acceleration, or foreclosure may be initiated.
    Delete (d) as the section provides guidance for the MRA 
requirements and procedures, and this entire section has been modified 
and reincorporated into Sec.  3555.303(b)(4).
    This final rule continues the Agency's on-going efforts to improve 
delivery and mitigate risk of the SFHGLP.

IV. Regulatory Information

Statutory Authority

    Section 510(k) of Title V the Housing Act of 1949 [42 U.S.C. 
1480(k)], as amended, authorizes the Secretary of the Department of 
Agriculture to promulgate rules and regulations as deemed necessary to 
carry out the purpose of that title.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is not subject to the requirements of Executive Order 
12372, ``Intergovernmental Review of Federal Programs,'' as implemented 
under USDA's regulations at 7 CFR part 3015.

Executive Order 12866, Regulatory Planning and Review

    This final rule has been determined to be non-significant and, 
therefore, was not reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988. In 
accordance with this rule: (1) unless otherwise specifically provided, 
all state and local laws that conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as specifically prescribed in the rule; and (3) administrative 
proceedings of the National Appeals Division of the Department of 
Agriculture (7 CFR part 11) must be exhausted before suing in court 
that challenges action taken under this rule.

Executive Order 13132, Federalism

    The policies contained in this final rule do not have any 
substantial direct effect on states, on the relationship between the 
national government and states, or on the distribution of power and 
responsibilities among the various levels of government. This rule does 
not impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the states is not required 
and a federal summary impact statement is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This final rule has been reviewed in accordance with the 
requirements of Executive Order 13175, ``Consultation and Coordination 
with Indian Tribal Governments.'' Executive Order 13175 requires 
Federal agencies to consult and coordinate with Tribes on a government-
to-government basis on policies that have Tribal implications, 
including regulations, legislative comments or proposed legislation, 
and other policy statements or actions that have substantial direct 
effects on one or more Indian Tribes, on the relationship between the 
Federal Government and Indian Tribes or on the distribution of power 
and responsibilities between the Federal Government and Indian Tribes.

[[Page 66192]]

    The Agency has determined that this final rule does not, to our 
knowledge, have tribal implications that require formal tribal 
consultation under Executive Order 13175. If a Tribe requests 
consultation, the Rural Housing Service will work with the Office of 
Tribal Relations to ensure meaningful consultation is provided where 
changes, additions and modifications identified herein are not 
expressly mandated by Congress.

Regulatory Flexibility Act

    This final rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned 
has determined and certified by signature on this document that this 
rule will not have a significant economic impact on a substantial 
number of small entities since this rulemaking action does not involve 
a new or expanded program nor does it require any more action on the 
part of a small business than required of a large entity.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effect of their regulatory actions on state, local, and tribal 
governments, and the private sector. Under section 202 of the UMRA, the 
Agency generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``federal 
mandates'' that may result in expenditures to state, local, or tribal 
governments; in the aggregate, or to the private sector of $100 million 
or more, in any one year. When such a statement is needed for a rule, 
section 205 of the UMRA generally requires the Agency to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule.
    This final rule contains no federal mandates (under the regulatory 
provisions of Title II of the UMRA) for state, local, and tribal 
governments, or the private sector. Therefore, this rule is not subject 
to the requirements of sections 202 and 205 of the UMRA.

National Environmental Policy Act

    In accordance with the National Environmental Policy Act of 1969, 
Public Law 91-190, this final rule has been reviewed in accordance with 
7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency 
has determined that (i) this action meets the criteria established in 7 
CFR 1970.53(f); (ii) no extraordinary circumstances exist; and (iii) 
the action is not ``connected'' to other actions with potentially 
significant impacts, is not considered a ``cumulative action'' and is 
not precluded by 40 CFR 1506.1. Therefore, the Agency has determined 
that the action does not have a significant effect on the human 
environment, and therefore neither an Environmental Assessment nor an 
Environmental Impact Statement is required.

Civil Rights Impact Analysis

    Rural Development has reviewed this final rule in accordance with 
USDA Regulation 4300-4, Civil Rights Impact Analysis, to identify any 
major civil rights impacts the rule might have on program participants 
on the basis of age, race, color, national origin, sex, or disability, 
gender identity (including gender expression), genetic information, 
political beliefs, sexual orientation, marital status, familial status, 
parental status, veteran status, religion, reprisal and/or resulting 
from all or a part of an individual's income being derived from any 
public assistance program. This final rule is within a Guarantee-based 
program. Guarantees are not covered under Title VI of the Civil Rights 
Act of 1964, Section 504 of the Rehabilitation Act of 1973, and Title 
IX of the Education Amendments Act of 1972, as amended, when the 
Federal assistance does not include insurance or interest credit loans. 
Lenders must comply with other applicable Federal laws, including Equal 
Employment Opportunities, the Equal Credit Opportunity Act, the Fair 
Housing Act, and the Civil Rights Act of 1964. Guaranteed loans that 
involve the construction of or addition to facilities that accommodate 
the public must comply with the Architectural Barriers Act 
Accessibility Standard. The borrower and lender are responsible for 
ensuring compliance with these requirements.

Assistance Listing

    The program affected by this final rule is listed in the Assistance 
Listing Catalog (formerly Catalog of Federal Domestic Assistance) under 
number 10.410, Very Low to Moderate Income Housing Loans (Section 502 
Rural Housing Loans).

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by OMB and have been assigned OMB control 
number 0575-0179. This final rule contains no new reporting or 
recordkeeping requirements that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

E-Government Act Compliance

    Rural Development is committed to the E-Government Act, which 
requires Government agencies in general to provide the public the 
option of submitting information or transacting business electronically 
to the maximum extent possible.

USDA Non-Discrimination Policy

    In accordance with Federal civil rights laws and U.S. Department of 
Agriculture (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, or staff office; or the Federal Relay 
Service at (800) 877-8339.
    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 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

[[Page 66193]]

    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 3555

    Administrative practice and procedure, Business and industry, 
Conflicts of interest, Credit environmental impact statements, Fair 
housing, Flood insurance, Grant programs--housing and community 
development, Home improvement, Housing, Loan programs--housing and 
community development, Low- and moderate-income housing, Manufactured 
homes, Mortgage insurance, Mortgages, Reporting and recordkeeping 
requirements, Rural areas.

    For the reasons discussed in the preamble, the Agency is amending 7 
CFR part 3555 as follows:

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

0
1. The authority citation for part 3555 continues to read as follows:

    Authority:  5 U.S.C. 301; 42 U.S.C. 1471 et seq.

Subpart G--Servicing Non-Performing Loans

0
2. Revise and republish Sec.  3555.303 to read as follows:


Sec.  3555.303  Traditional servicing options.

    (a) Eligibility. To be eligible for traditional servicing, all the 
following conditions must be met:
    (1) The borrower presently occupies the property;
    (2) The borrower is in default or facing imminent default for an 
involuntary reason. A borrower is ``facing imminent default'' if that 
borrower is current or less than 30 days past due on the mortgage 
obligation and is experiencing a significant reduction in income or 
some other hardship that will prevent him or her from making the next 
required payment on the mortgage during the month in which it is due. 
The borrower must be able to document the cause of the imminent 
default, which may include, but is not limited to, one or more of the 
following types of hardship:
    (i) A reduction in or loss of income that was supporting the 
mortgage loan;
    (ii) A change in household financial circumstances;
    (3) The borrower demonstrates a reasonable ability to support 
repayment of the debt in the future;
    (4) There are no adverse property conditions that inhibit the 
inhabitability or use of the property; and
    (5) The borrower has not received assistance due to the submission 
of false information by the borrower.
    (b) Servicing options. The lender must consider traditional 
servicing options in the following order to resolve the borrower's 
default or imminent default:
    (1) Repayment agreement. A repayment agreement is an informal plan 
lasting 3 months or less to cure short-term delinquencies.
    (2) Special forbearance agreement. A special forbearance agreement 
is a longer-term formal plan to cure a delinquency not to exceed the 
equivalent of 12 months of PITI. The agreement may gradually increase 
monthly payments in an amount sufficient to repay the arrearage over a 
reasonable amount of time and/or temporarily reduce or suspend payments 
for a short period. If the borrower is at least 3 months delinquent, 
the special forbearance agreement may resume normal payments for 
several months followed by a loan modification.
    (3) Loan modification plan. A loan modification is a permanent 
change in one or more of the terms of a loan that results in a payment 
the borrower can afford and allows the loan to be brought current. A 
loan modification must be a written agreement. (i) The lender's lien 
priority cannot be adversely affected by providing a loan modification.
    (ii) Loan modifications must be a fixed interest rate and cannot 
exceed the market interest rate at the time of modification.
    (iii) Loan modifications may capitalize all or a portion of the 
arrearage and/or reamortization of the balance due including 
foreclosure fees and costs associated with the delinquency, tax and 
insurance advances, and past due Agency annual fees imposed by the 
lender. Late charges and lender fees may not be capitalized.
    (iv) If necessary to demonstrate repayment ability, the loan term 
after reamortization may be extended for up to 40 years from the date 
of the loan modification.
    (v) Lenders may require that borrowers complete a trial payment 
plan prior to making scheduled payments amended by the traditional loan 
servicing loan modification.
    (vi) Traditional servicing options shall be used in the order 
established in this section to reduce the borrower's mortgage payment 
to income ratio as close as possible to 31 percent of gross monthly 
income.
    (vii) If the targeted mortgage payment to income cannot be achieved 
using a loan modification alone, the lender may consider a mortgage 
recovery advance under this section in addition to the loan 
modification.
    (4) Mortgage recovery advance. A mortgage recovery advance is funds 
advanced by the lender on behalf of a borrower to satisfy the 
borrower's arrearage and reduce principal.
    (i) Borrowers may be eligible for multiple Mortgage Recovery 
Advances up to a cumulative amount that is less than or equal to 30 
percent of the unpaid principal balance as of the date of the initial 
default.
    (ii) If the borrower's total monthly mortgage payment is within a 
reasonable percent of the borrower's ability to repay prior to an 
extended term loan modification, the mortgage recovery advance can be 
used to cure the borrower's delinquency without changing the terms of 
the promissory note.
    (iii) The principal deferment amount for a specific case shall be 
limited to the amount that will bring the borrower's total monthly 
mortgage payment to 31 percent of gross monthly income.
    (iv) If the borrower is eligible for a mortgage recovery advance, 
the servicer will advance the funds to the borrower's account and 
create a non-interest-bearing recoverable servicing advance. The 
balance is to be provided on the mortgage statements along with the 
principal balance of the loan, but no payment arrangement will be 
required.
    (v) Prior to making a mortgage recovery advance, the lender must 
perform an escrow analysis to ensure that the payment made on behalf of 
the borrower accurately reflects the escrow amount required for taxes 
and insurance.
    (vi) The lender may request reimbursement from the Agency for a 
mortgage recovery advance. The lender shall repay any such 
reimbursement as provided in this section.
    (vii) The following terms apply to the repayment of a mortgage 
recovery advance:
    (A) Borrowers are not required to make any monthly or periodic 
payments on the mortgage recovery advance; however, borrowers may 
voluntarily submit partial payments without incurring any prepayment 
penalty.
    (B) The borrower is responsible for payment of the mortgage 
recovery advance to the lender in full at the earlier of the following:
    (1) When the first lien mortgage and guaranteed note are paid off; 
or

[[Page 66194]]

    (2) When the borrower transfers title to the property by voluntary 
or involuntary means.
    (C) The lender shall remit to the agency the amount mortgage 
recovery advance reimbursed by the Agency for a mortgage recovery 
advance, as described in this part, at the earliest of the following:
    (1) When the lender receives payment is received from the borrower; 
or
    (2) When the mortgage lien is released; or
    (3) When the borrower transfers title to the property by voluntary 
or involuntary means.
    (i) The Agency will collect this Federal Debt from the lender. The 
Agency may use the debt collection and administrative offset process to 
collect money owed.
    (ii) In the event of a loss claim, the mortgage recovery advance 
will be considered in calculating the claim paid by the Agency. The 
total amount paid cannot exceed the maximum loss payment described in 
Sec.  3555.351(b).
    (iii) Borrowers are not required to make any monthly or periodic 
payments on the mortgage recovery advance note; however, borrowers may 
voluntarily submit partial payments without incurring any prepayment 
penalty.
    (c) Terms of loan note guarantee. Use of traditional servicing 
options does not change the terms of the loan note guarantee except 
when the traditional servicing option meets the requirements of 
paragraph (b)(3)(iv) of this section. The loan guarantee will apply to 
loan terms extending beyond the 30-year loan term from the date of 
origination when a loan modification meets the criteria set forth in 
paragraph (b)(3)(iv).

0
3. Revise and republish Sec.  3555.304 to read as follows:


Sec.  3555.304  Streamline servicing options.

    (a) General. (1) Lenders must exhaust traditional servicing options 
outlined in this part without received a completed package to be used 
in evaluating the borrower for traditional servicing options and have 
sent a demand letter in accordance with Sec.  3555.306 to the borrower 
prior to consideration of streamline servicing options.
    (2) Use of streamline loan servicing does not change the terms of 
the loan note guarantee.
    (3) Streamline options may be provided to the borrower with at 
least a 10 percent reduction to their principal and interest payment 
with no consideration of the borrower's financials.
    (b) Conditions for streamline servicing options. In addition to the 
requirements in Sec.  3555.303(a), the following conditions apply to 
all special loan servicing:
    (1) The borrower must be at least 90 days past due and prior to 
initiation of any acceleration or foreclosure action.
    (2) The borrower must successfully complete a trial payment plan of 
sufficient duration, as determined by the Agency, to demonstrate that 
the borrower will be able to make regularly scheduled payments as 
modified by the special loan servicing.
    (3) Expenses related to streamline loan servicing including, but 
not limited to, title search and recording fees, shall not be charged 
to the borrower.
    (4) Capitalization of late charges and lender fees is not permitted 
in the special loan servicing option.
    (c) Extended streamline loan modification. The Lender may modify 
the loan by reducing the interest rate to a level at or below the 
maximum allowable interest rate and extending the repayment term to 40 
years from the date of loan modification. The servicer may limit the 
extension to 30 years if limited by any investor or pooling 
restrictions. The loan guarantee will apply to loan terms extending 
beyond the 30-year loan term from the date of origination when a loan 
modification meets the criteria set forth in this section.
    (1) Streamline loan modifications may capitalize all or a portion 
of the arrearage and/or reamortization of the balance due including, 
tax and insurance advances and past due Agency annual fees imposed by 
the lender. Late charges and lender fees may not be capitalized.
    (2) Streamline loan modifications must be a fixed interest rate and 
cannot exceed the current market interest rate at the time of 
modification. When reducing the interest rate, the maximum rate is 
subject to paragraph (c)(3) of this section.
    (3) The term shall be extended to a maximum of 40 years as noted 
above to provide the borrower with at least a 10 percent reduction in 
their principal and interest payment.
    (4) If the targeted mortgage payment reduction cannot be achieved 
using a modification as described in this section, the loan is not 
eligible for streamline loan servicing and foreclosure may be 
initiated.

Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2024-18291 Filed 8-14-24; 8:45 am]
BILLING CODE 3410-XV-P