Direct Single Family Housing Loans and Grants Programs
| Published date | 07 February 2022 |
| Record Number | 2022-02470 |
| Section | Rules and Regulations |
| Court | Rural Housing Service |
Federal Register, Volume 87 Issue 25 (Monday, February 7, 2022)
[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Rules and Regulations]
[Pages 6761-6773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02470]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules
and Regulations
[[Page 6761]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3550
[Docket No. RHS-21-SFH-0025]
RIN 0575-AD14
Direct Single Family Housing Loans and Grants Programs
AGENCY: Rural Housing Service, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Housing Service (RHS or Agency), a Rural Development
agency of the United States Department of Agriculture (USDA), is
issuing a final rule to amend its Direct Single Family Housing Loans
and Grants (DSFHLG) programs regulation. This final rule adopts most
changes as presented in the proposed rule published on November 25,
2019, in the Federal Register. This final rule also addresses public
comments received by the Agency and makes some modifications based on
consideration of those comments, including revisions to the refinancing
provisions which will help provide relief to homeowners who have
difficulty keeping their accounts current (e.g., coming off a payment
moratorium), based on the availability of funds and Agency priorities.
DATES: Effective on March 9, 2022.
FOR FURTHER INFORMATION CONTACT: Andrea Birmingham, Finance and Loan
Analyst, Single Family Housing Direct Special Programs Branch, USDA
Rural Development, STOP 0783, 1400 Independence Ave. SW, Washington, DC
20250-0783, Telephone: (202) 720-1489. Email:
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
USDA's 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.
The purpose of the DSFHLG programs is to assist low-and very-low-
income applicants to obtain decent, safe, and sanitary single-family
housing in eligible rural areas. Well built, affordable housing is
essential to the vitality of communities in rural America. RHS Programs
give families and individuals the opportunity to buy, build, repair, or
own safe and affordable homes located in rural America. Eligibility for
these loans and grants is based on income; and the income limits are
based on household size and location.
The DSFHLG programs are authorized by sections 502 and 504 of the
Housing Act of 1949, as amended (42 U.S.C. 1472 and 1474). The 7 CFR
part 3550 sets forth the requirements of the DSFHLG programs which
includes policies regarding both loan and grant origination and
servicing. The Section 502 Direct Loan Program provides 100 percent
loan financing to assist low- and very low-income applicants obtain
modest housing in eligible rural areas and payment assistance to
increase an applicant's repayment ability. The Section 504 Loan Program
provides one percent interest rate loans to very low-income homeowners
in eligible rural areas to repair, improve, or modernize their home or
to remove health and safety hazards. The Section 504 Grant Program
provides grants to elderly very low-income homeowners in eligible rural
areas to remove health and safety hazards, or accessibility barriers
from their home, often in conjunction with a section 504 loan.
Changes to the programs will increase program flexibility, allow
more borrowers to access affordable loans, better align the programs
with best practices and enable the programs to be more responsive to
economic conditions and trends.
II. Discussion of Relevant Public Comments
The Agency invited public comments on the proposed rule, which was
published on November 25, 2019, in the Federal Register (84 FR 64788).
The 60-day comment period ended on January 24, 2020. A total of 28
comments were received. Commenters included non-profit housing
organizations or associations representing housing providers and
private citizens.
(1) Comments on the definition of modest housing (Sec. 3550.10
Definitions) which currently prohibits in-ground swimming pools.
The Agency received several comments on the definition of modest
housing and the prohibition of in-ground swimming pools. Two commenters
expressed concern that allowing for the financing of existing modest
homes with in-ground swimming pools would create a financial burden on
the borrower and borrowers would be unable to maintain and afford the
costs of utility bills and pool treatments, which may increase
foreclosures.
In contrast, there were two comments in favor of revising the
modest housing definition to allow in-ground swimming pools. The
commenters both stated there is a lack of affordable housing in rural
areas and this amendment would open the market for families looking for
an affordable home.
Agency Response: The Agency acknowledges these concerns related to
the high utility costs and maintenance expenses of an in-ground
swimming pool. However, affordable housing stock is very limited in
many rural areas and this unnecessary prohibition may be a barrier to
homeownership for applicants and limit access to the program. The
revised definition of modest housing will also promote a degree of
consistency with the guaranteed SFH loan program (which has no
prohibition on in-ground swimming pools). Therefore, the Agency is
adopting the proposed definition of modest housing without changes.
(2) Comments on changing references to homeownership education and
removing the requirement placed on State Directors to update the list
of homeownership education providers annually, per Sec. 3550.11 State
Director Assessment of Homeowner Education.
[[Page 6762]]
The Agency received a comment that did not support the proposed
rule regarding the determination of Agency preference for homeownership
education formats. The commenter believes this change seems to signal a
move by the Agency, now or in the future, towards a heavier emphasis on
internet-enabled homeownership education.
The commenter encourages the Agency to include the addition of
``accessibility to the homebuyer'' and ``quality of education'' as
additional factors used to determine Agency preference for homebuyer
education formats.
Agency Response: The Agency acknowledges the benefits of in-person
training but adds that remote training has many benefits as well (e.g.,
self-paced, available any time, no travel costs, etc.). The preference
factors listed in the proposed Sec. 3550.11(b)--availability and
industry practice--are not an exclusive list and the Agency may
consider other factors. Explicitly adding ``accessibility to the
homebuyer'' or ``quality of education'' is unnecessary since the
factors in the proposed Sec. 3550.11(b) are not exclusive, and quality
issues are also addressed in Sec. 3550.11(c) and (d). The Agency is
adopting the proposal without changes.
(3) Comments on allowing a new borrower to use new loan funds to
purchase a dwelling from an existing RHS borrower (Sec. 3550.52(a)).
The Agency received a comment that supports the use of new loan
funds to purchase a dwelling from an existing RHS borrower since self-
help housing providers have experienced borrowers having to leave the
building group prior to finishing their home. With the change,
processing a new loan to a new qualified borrower so they can purchase
and finish the home with the building group is more straightforward
than processing an assumption with a subsequent loan (if needed).
Agency Response: This revision will allow the Agency to
responsibly, effectively, and fully utilize funds appropriated by
Congress without the additional steps required to process and close an
assumption loan and subsequent loan, thereby reducing loan application
processing time. The Agency is adopting the proposal without changes.
(4) Comments on revising the packaging fee requirements (Sec.
3550.52(d)(6)). One commenter states the processing fee changes seem to
be fair and the new process of calculating the fees seem to make more
sense. The new rule will take into consideration economy changes and
amount of time required in processing loans which was not previously
accounted for.
One commenter does not oppose the increases in packaging fees to
non-certified packagers represented in the proposed rule but wants to
urge caution to the Agency when setting the new fee levels.
Theoretically, despite the cap to the fee put in place by the proposed
rule, the fee paid to non-certified packagers could exceed the fee paid
to certified packagers who submit through an intermediary, or in a less
extreme scenario, the fee for non-certified packager could approach or
match the fee paid to certified packagers. In either case, the proposed
rule could diminish the incentive for packagers to become certified.
Agency Response: The rule change will allow the Agency more
flexibility to specify packaging fees under the certified and non-
certified loan application process. The Agency is adopting the proposal
with changes.
The language in Sec. 3550.52(d)(6) will remove the restrictive
$350 fee limit for non-certified packagers, which does not reflect the
resources the non-certified loan packager invests in the packaging
process. To address the concern regarding the fee level and ensure that
the fee paid to a non-certified packager could not equal or exceed the
current published fees resulting from the certified loan application
packaging process, the Agency lowered the percentage and will determine
a limit, not to exceed ``one half percent of the national average area
loan limit'' for the non-certified process, rather than a maximum of
one percent as was proposed.
The Agency acknowledges the concern that the increased non-
certified fee may be a disincentive for packagers to become certified;
however, the Agency continues to encourage loans funneled through an
Agency-approved intermediary under the certified loan application
packaging process by specifying these loans for priority consideration
when being selected for processing. In addition, the language in Sec.
3550.52(d)(6) will continue to state, ``The Agency will determine the
limit, based on factors such as the level of service provided and the
prevailing cost to provide the service, and such cap will not exceed
two percent of the national average area loan limit.'' This language
allows the Agency to specify a higher limit for certified packaged
loans through an intermediary. The certified packager and intermediary
will share a portion of the fee, but the higher limit determined by the
Agency will allow the parties to negotiate a fee structure that is
advantageous to the certified packager and reflective to their
experience.
(5) Comments on revising repayment ability ratio thresholds (Sec.
3550.53(g) Repayment ability) to use the same ratios for both low- and
very-low income applicants. Three commenters concur with making the
revised principal, interest, taxes, and insurance (PITI) consistent
across income categories.
Agency Response: The Agency is adopting the proposal with changes
given the portfolio's new loan delinquency trends since November 2019,
which nearly doubled by October 2020. While new loan delinquency trends
have gradually improved since October 2020, they still exceed November
2019 rates, which has resulted in the need for measured and gradual
changes to the underwriting standards. The proposed rule change
included repayment ability thresholds for both low- and very-low income
applicants not to exceed thirty-five (35) percent for PITI, and forty-
three (43) percent for Total Debt (TD) (current maximum thresholds are
twenty-nine (29) percent PITI and forty-one (41) percent TD for very-
low income applicants, and thirty-three (33) percent PITI and forty-one
(41) percent TD for low-income applicants). However, the final rule
change will only revise repayment ability thresholds to use the same
PITI ratio of thirty-three (33) percent for both low- and very- low
income applicants. The final rule retains the current forty-one (41)
percent TD maximum threshold for low- and very low- income applicants.
Adopting the same PITI ratio threshold for both low- and very low-
income applicants will help ensure equal treatment of applicants across
the income categories and improve marketability of the program.
(6) Comments on revising introductory text so that application
processing priorities are applied on a regular basis, and not just
during periods of insufficient funding (Sec. 3550.55(c)).
One commenter does not agree that applications sent by a certified
packager going through an intermediary should be fourth priority, but
feels these applications should be given a higher priority and should
be processed in conjunction with borrowers who are in need, veterans,
or disabled, etc.
One commenter supports making the priorities for processing of
applications on a continual basis rather than only during periods of
insufficient funding. They are generally supportive of including
intermediary loan submittals to the fourth priority pool, however, they
would like to encourage self-help
[[Page 6763]]
loan submittals be consistently prioritized and ask the full group
funding to be a priority during periods of insufficient funding.
One commenter supports allowing the priority processing and funding
priority at all times to avoid packaged applications from going stale
while awaiting eligibility at RD offices.
Agency Response: The Agency's first, second and third loan
application processing priorities are for applicants who have an
especially serious need for immediate assistance and allow purchase of
inventory properties to move more quickly before the property
deteriorates or loses value.
The fourth priority will encourage the participation and interest
of intermediaries in the SFH program application process.
Intermediaries are valuable to the program by helping attract program
applicants, training certified packagers, and performing quality
assurance reviews of applications.
If applicants with equivalent priority status apply for assistance
on the same day, applicants qualifying for a veteran's preference will
receive priority processing, which complies with section 507 of the
Housing Act of 1949 (42 U.S.C. 1477) which requires a preference for
veterans. Taking into account statutory requirements for preferences,
the Agency gives equal consideration to loan applications without
regard to race, color, national origin, religion, sex, gender identity,
sexual orientation, disability, age, marital status, family/parental
status, income derived from public assistance program, political
beliefs, or reprisal or retaliation for prior civil rights activity.
Therefore, the Agency is adopting the proposal without changes.
(7) Comments on revising the requirement that the value of the site
must not exceed 30 percent of the ``as improved'' market value of the
property (Sec. 3550.56(b)(3)). One commenter expressed the removal of
the 30 percent rule is a welcome upgrade of the regulations.
One commenter stated this change will better reflect overall market
value of the subject property, not just the value of the land and
should increase the availability of affordable housing in high-cost
areas and throughout rural communities. Limiting the land cost, even
when the overall appraised value is considered modest, has been a
hinderance to the program.
Agency Response: The Agency agrees with these comments, and the
program has other requirements that are better indicators of whether
the property is considered modest, such as, area loan limits,
appraisals, purchase agreements and construction contracts. Therefore,
the Agency is adopting the proposal without changes.
(8) Comment on revising the requirement that the amount of a junior
lien, when it is a grant or a forgivable affordable housing product,
may not exceed the market value by more than five percent (Sec.
3550.59(a)(2)). One commenter supports the Agency's increases to the
loan-to-value ratio for rehab loans and grants.
Agency Response: The Agency acknowledges the support. This will
allow for more partnerships with nonprofits. Grants and forgivable
affordable housing products often partially or completely cover the
cost of rehabilitation to make the dwelling decent, safe, and sanitary,
and a higher loan to value ratio may be tolerated in these instances.
Therefore, the Agency is adopting the proposal without changes.
(9) Comment on revising the requirement for title insurance and a
closing agent for certain secured Section 504 loans of $7,500 or
greater (Sec. 3550.108(b)(1)). One commenter expressed support.
Agency Response: The Agency acknowledges the support. This will
significantly reduce loan closing costs incurred by the borrowers, as
well as allow the Agency greater responsiveness and flexibility to
address changes to average repair costs. Therefore, the Agency is
adopting the proposal without changes.
(10) Comment on revising the Section 504 maximum loan amount of
$20,000, so that the sum of all outstanding section 504 loans to one
borrower and for one dwelling may not exceed an amount determined by
the Agency (Sec. 3550.112). One commenter expressed support.
Agency Response: The Agency acknowledges the support. This will
allow the Agency greater responsiveness and flexibility to address
changes to average repair costs. Therefore, the Agency is adopting the
proposal without changes.
(11) Comments on revising the payment moratorium requirements to
require reamortization of each loan coming off a moratorium (Sec.
3550.207). One commenter stated that two provisions in 7 CFR 3550.207
continue to impose unnecessary barriers to borrower's eligibility for a
payment moratorium. The first is the prohibition on a moratorium for a
loan that has been accelerated. Furthermore, the second is the
requirement that the borrower's repayment income have fallen by at
least 20 percent within the past 12 months.
Agency Response: The Agency acknowledges the recommendation,
although the comment is speaking to eligibility for a moratorium and
not the proposed reamortization for every loan post-moratorium.
However, to address the comment, the Agency clarifies that every
borrower whose account is accelerated is/was given written and verbal
notice of all servicing actions (including moratoriums) prior to the
acceleration process. All servicing actions, for which the borrower may
qualify for, are discussed with the borrower in detail prior to
acceleration. The Agency then allows each borrower a reasonable amount
of time (at least 30 days) to apply for any and all such servicing
options. If the borrower does apply for any servicing options, the
acceleration action is withdrawn until those requested servicing
option(s) are reviewed and a determination on eligibility is provided
to the borrower with appeal rights on all denials. In light of this
process which occurs before acceleration, allowing a moratorium after
acceleration would not provide any meaningful benefit. The Agency
believes exploring other loss mitigation efforts after acceleration
(e.g., voluntary liquidation) and requiring some type of repayment or
conveyance is more helpful.
The Agency acknowledges the recommendation. The Agency will proceed
with the existing language as written and will explore the
recommendation of modifying the criteria in the future.
(12) Comment stating RHS needs to update its set of loss mitigation
options to incorporate industry standards developments over the past
decade; in particular its lack of a flexible loan modification options
allowing for interest rate reduction and loan term extension.
Agency Response: The Agency acknowledges the recommendation. While
refinancing and loan modification have some key differences there are
also a number of similarities, including the ability to reduce the
interest rate and extend the repayment term to create more affordable
payments for the borrower. Currently, refinancing Agency debt is only
permitted in accordance with Sec. 3550.204 to allow the borrower to
receive payment assistance (e.g., borrowers who were not previously
eligible for payment assistance because the loan was approved before
August 1, 1968, or the loan was made on above-moderate or nonprogram
(NP) terms). More importantly, the Agency cannot offer
[[Page 6764]]
loan modifications which extend the original loan term past 33 years
(or 38 years in very limited circumstances) because the timeframe for
the loan is established by statute at section 502(a) of the Housing Act
of 1949 (42 U.S.C. 1472(a)).
While the Agency is statutorily prohibited from offering loan
modifications that extend the original loan term beyond 33 years (or 38
years in very limited circumstances), the Agency may amend the
refinance regulations so that a new loan term could replace the
original and does make such amendment with this final rule. The
refinancing option adopted with this rule change is particularly
important given the large number of borrowers who will be exiting a
COVID-related payment moratorium (also referred to as COVID-related
forbearances). Some of these moratoria lasted over a year, and a post-
moratorium reamortization agreement would not result in affordable
monthly payments because the original loan term is limited by statute.
In addition, the American Rescue Plan Act of 2021 provided additional
budget authority which, given the critical need for flexibility in
servicing direct loans, will be best directed towards refinancing and
other loss mitigation options. The Agency is amending the regulation to
reflect the expansion of refinancing availability (e.g., borrowers
exiting a moratorium)--however such refinancing will be subject to the
availability of funds and at the discretion of the Agency. In other
words, while the final rule amendments will provide critical relief to
borrowers in response to COVID and the Agency preserves the ability to
provide such refinancing in the future, such refinancing is subject to
funding availability and Agency discretion.
In addition, the Agency would like to clarify that borrowers in
moratorium status are not delinquent on a nontax federal debt upon
expiration of the moratorium for purposes of the Debt Collection
Improvement Act (DCIA) (Pub. L. 104-134) and its implementing
regulations at 31 CFR part 285, and that a loan may be refinanced with
a new loan following a moratorium.
In consideration of comments received and industry practice, the
Agency is revising Sec. 3550.52(c) and Sec. 3550.201to allow for
broader use of circumstances under which RHS debt may be refinanced,
subject to availability of funds and Agency priorities.
(13) One comment related to Sec. 3550.207(c), Resumption of
scheduled payments, suggested that the Agency needs to give borrowers
written notices that inform them about the Agency procedures for
assessing the forgiveness of interest.
Agency Response: The Agency acknowledges the recommendation. The
Agency already has a meaningful standard in place to determine if
interest accrued during the moratorium should be forgiven. Currently,
all borrowers requesting a moratorium are sent a Moratorium on Payment
(Fact Sheet) outlining the moratorium process, requirements,
procedures, and impact on future payments. The Agency will explore
expanding this document to include the standard utilized to determine
when moratorium interest is forgiven. The standard is whether the
borrower can afford the new, reamortized payment without forgiveness of
interest. If the borrower can afford a reamortized payment without
interest forgiveness, the Agency includes the moratorium interest in
the re-amortization process. This standard best supports the borrower's
ability to repay the loan and the Agency's fiscal responsibility to the
public to carry out the program in a reasonable manner. If the borrower
does not have repayment ability when the moratorium interest is
included in determining the new payment amount, the moratorium interest
is forgiven in the amount required to demonstrate repayment ability. As
previously stated, in almost all cases the moratorium interest is
forgiven prior to the re-amortization. The Agency does not make any
changes in the final rule in response to this comment.
(14) One comment specific to 7 CFR 3550.207(c), Resumption of
scheduled payments, recommends that the Agency must develop meaningful
objective standards for evaluating whether all or part of the interest
that has accrued during the moratorium may be forgiven.
Agency Response: The Agency acknowledges the recommendation.
Currently, all borrowers requesting a moratorium are sent a Moratorium
on Payment (Fact Sheet) outlining the moratorium process, requirements,
procedures, and impact on future payments. The Agency will explore
expanding this document to include the criteria utilized to determine
when moratorium interest is forgiven. However, except for a limited
number of cases with demonstrated repayment ability, the Agency does
forgive all interest accrued during the moratorium period. The Agency
does not make any changes in the final rule in response to this
comment.
General comments on matters not within the scope of the proposed
rule:
(15) One commenter would like to see the 502 direct construction
programs allow for an initial draw at closing to cover lot costs, site
prep, and initial construction costs. Current regulations make it
almost impossible for a 502 applicant to build.
Agency Response: This suggestion is beyond the scope of the
proposed rule but will be taken under consideration for future proposed
rulemaking.
(16) One commenter stated they are thankful for the Agency's
efforts to bring the Direct and Guaranteed programs more in line with
one another's regulations. A consistent issue is that the regulations
of one program prevents them from deploying that product in scenarios
that the other program's regulations would allow. Increasing the
effectiveness of these programs is crucial for their region, where the
incomes of entire communities can be depressed and where commercial
lending can be difficult to access or entirely absent.
Agency Response: The Agency acknowledges the need for consistency
when appropriate; and acknowledges the need for differences based on
the direct SFH programs' targeted audience (low- and very low-income)
and unique features (e.g., subsidy). The Agency does not make any
changes in the final rule in response to this comment.
III. Summary of Rule Changes
Outlined below is the summary of changes to the 7 CFR part 3550
regulations.
Subpart A--General
Sec. 3550.10 Definition
The modest housing definition, which currently prohibits in-ground
swimming pools, will be revised to allow for the financing of existing
modest homes with swimming pools. Existing housing stocks are very
limited in many rural areas, and this is an unnecessary prohibition to
homeownership when an otherwise modest and affordable home is typical
for the area but cannot be financed because of a swimming pool. The
change promotes a degree of consistency with the guaranteed SFH loan
program, which does not prohibit in-ground swimming pools. In-ground
pools with new construction, or with dwellings that are purchased new,
will still be prohibited.
The veterans' preference definition will be revised to remove
obsolete information and streamline the definition by citing the
definitions of a veteran or a family member of a deceased service
member in 42 U.S.C. 1477.
[[Page 6765]]
A definition for principal residence will be added to this section.
The new definition aligns with that used in the guaranteed SFH loan
program and the mortgage industry: The primary residence definition
will refer to the principal residence definition, and ``principal
residence'' is defined as the home domicile physically occupied by the
owner on a permanent basis (i.e., lives there for the majority of the
year and is the address of record for such activities as Federal income
tax reporting, voter registration, occupational licensing, etc.).
The changes noted above are substantively the same as the proposed
rule. However, the proposed rule also included two other changes which
are not adopted in the final rule. First, the proposed rule included
the removal of the definition of national average area loan limit, but
the Agency decided to keep this definition as it used as a benchmark
for several items (e.g., packaging fees). Second, the proposed rule
included a revision to the definition of the PITI ratio to include the
homeowner's association (HOA) dues and other recurring housing-related
assessments, but the Agency considered the matter further and
determined that it cannot adopt this revision due to current automated
system limitations. The Agency will explore other possible changes
regarding HOA dues in the future.
Sec. 3550.11 State Director Assessment of Homeownership Education
In this section, paragraphs (a) and (b) will be revised to change
references to ``homeowner education'' to ``homeownership education''
for consistency, and remove the requirement placed on State Directors
to update the list of homeownership education providers annually. The
Agency will require State Directors to update the list on an as-needed
basis, but no less frequently than every three years. The Agency will
determine preferences for education format (i.e., online, in-person,
telephone) based on availability and industry practice. The Agency will
publish the education format preferences in a publicly available
format, such as the program handbook. These changes are adopted from
the proposed rule without change and allow the Agency to be more
responsive to changes in homeownership education course delivery and
availability.
Subpart B--Section 502 Origination
Sec. 3550.52 Loan Purposes
In this section, paragraph (a) will be revised to allow a new
borrower to use new loan funds to purchase a dwelling from an existing
RHS borrower. The current regulation requires the new borrower to
assume the existing loan. This is revised so that the Agency will
determine if these transactions will be financed using an assumption of
the existing RHS indebtedness or new loan funds, depending on funding
levels as well as program goals and needs. This revision is adopted
from the proposed rule without change and allows the Agency to
responsibly, effectively, and fully utilize funds appropriated by
Congress without the additional steps required to process and close a
loan assumption and subsequent new loan, thereby reducing loan
application processing times.
Also, as a result of comments received on the proposed rule and
additional consideration of various factors (e.g., the potential need
for more flexible refinance options when budget authority and
circumstances deemed appropriate by RHS exist), paragraph (c)
Refinancing RHS debt will be revised so that depending on the
availability of funds and program priorities as determined by RHS, an
existing RHS loan may be refinanced in accordance with Sec. 3550.201
to allow refinancing as a special servicing action including, but not
limited to, Sec. 3550.207 to allow refinancing, including subsidy
recapture, at the end of a moratorium. The Agency may limit the number
of direct loans made for refinancing purposes based on the availability
of funds and Agency priorities on market conditions and other
appropriate factors. This revision provides the Agency with more
flexibility pertaining to special servicing actions to reduce the
number of borrower failures.
Also, in this section, paragraph (d)(6) will be revised to allow
the Agency more flexibility to specify packaging fees for the non-
certified loan application process, and to ensure non-certified
packaging fees reflect the level of service provided and the prevailing
cost to provide the service. This revision is adopted from the proposed
rule with the following changes: This final rule will establish the
limit as determined by the Agency and will be no greater than one half
percent of the national average area loan limit, rather than one
percent as was proposed, and the initial limit in the program handbook
will be $750.
For the non-certified loan packaging process, the current fee may
not exceed $350, but this limit is being revised as it does not
necessarily reflect the time a non-certified loan packager invests in
the packaging process. The Agency will determine the exact limit within
the one-half percent threshold based on factors such as the level of
service provided and the prevailing cost to provide the service and
will publish the exact limit in a publicly available format such as the
program handbook. For example, the current national average area loan
limit is approximately $285,000, so the packaging fee for the non-
certified loan packaging process could not exceed $1,425. The initial
limit in the program handbook will be $750, which is the packaging fee
permitted for Section 504 loan applications.
This final rule also amends this paragraph to remove the language
regarding a preliminary eligibility determination to streamline the
process, and to clarify that the packaging fee is paid only if the loan
closes. This revision is adopted from the proposed rule without change.
Sec. 3550.53 Eligibility Requirements
In this section, paragraph (a) will be revised to clarify income
eligibility requirements when refinancing existing RHS debt as a
special servicing action, in light of the discussion above and as a
change from the proposed rule. When an existing RHS loan is being
refinanced as a special servicing action in the limited circumstances
provided in the revised Sec. 3550.52 and Sec. 3550.201, the
household's adjusted income must not exceed the applicable moderate-
income limit for the area at the time of loan approval and closing.
Currently, Sec. 3550.53(a) requires that the household's adjusted
income must not exceed the applicable low-income limit for the area at
the time of loan approval and must not exceed the applicable moderate-
income limit for the area at closing. This means if an existing direct
borrower exceeds the low-income limit at the time of loan approval for
refinance, the Agency would be unable to approve the loan which limits
the borrower's ability to refinance and improve their chance of success
post-moratorium. This change provides the Agency with flexibility by
recognizing that holding existing borrowers and new applicants to the
same standard at time of loan approval is detrimental to the existing
borrowers who are having difficulty keeping their accounts current and
demonstrate that they may benefit from a refinance at more favorable
rates and terms. It would be harmful to the existing borrower and the
Agency to deny an opportunity to refinance, and improve the
affordability
[[Page 6766]]
of the loan, simply because the borrower may exceed the low-income
limit at time of approval for the refinance.
The revision of paragraph (c) and removing paragraphs (c)(1)
through (3) will remove the overly restrictive primary residence
requirements for military personnel and students. These requirements
prohibit approving loans for active duty military applicants, unless
they will be discharged within a reasonable period; and for fulltime
students unless there are reasonable prospects that employment will be
available in the area after graduation. Active duty military personnel
and full-time students provide valuable service experience, education,
and civic and financial contributions to rural areas. Providing these
applicants with more opportunity to own modest, decent, safe, and
sanitary homes in rural areas will strengthen the fabric of those
communities. In addition, removing this overly restrictive language
will improve consistency with other Federal housing programs such as
the U. S. Department of Housing and Urban Development and the U. S.
Department of Veterans Affairs. This revision is adopted from the
proposed rule without change.
Also, in this section, paragraphs (g)(1) through (3) will be
revised and paragraphs (g)(4) and (5) will be removed. The revisions
will align the repayment ability ratio thresholds for both low- and
very-low income applicants. The revisions are adopted from the proposed
rule with the following changes: The PITI ratio for very-low will
increase to thirty-three percent to align with the existing low-income
PITI ratio, rather than increasing PITI to thirty-five percent for both
income categories as was proposed; and the total debt (TD) ratio will
remain at forty-one percent for both income categories, rather than
increasing it to forty-three percent for both income categories as was
proposed.
This will help to ensure equal treatment of applicants across the
income categories and improve the marketability of the program, while
being prudent about increasing risk. This change, in conjunction with
automated underwriting technology, will address risk layers and reduce
the frequent requests for PITI ratio waivers due to compensating
factors.
The use of ``homeowner'' under this section in paragraph (i) will
be revised by replacing with ``homeownership'' to have consistency
within 7 CFR part 3550. This revision is adopted from the proposed rule
without change.
Sec. 3550.55 Applications
In this section, paragraph (c) introductory text and paragraphs
(c)(4) and (5) will be revised to allow application processing
priorities to be applied on a regular basis, and not just during
periods of insufficient funding. Current regulations only trigger
priorities in application processing when funding is insufficient.
However, applying these priorities on a regular basis, not just during
insufficient funding, will provide clear processing priorities for RHS
staff. In the case of applications with equivalent priority status that
are received on the same day, preference will be extended to applicants
qualifying for a veterans' preference.
The change recognizes fluctuation in RHS staff resources, and that
complete applications need to be prioritized for processing, as well as
for funding when funds are limited. While the goal is to determine an
applicant's eligibility for the program within 30 days of receiving a
complete application regardless of their priority ranking and the
availability of funds, the priority ranking will direct Agency staff
how to prioritize their work processes and better meet urgent needs.
The amendment also gives fourth priority to applications submitted via
an intermediary through the certified application packaging process
outlined in Sec. 3550.75. Currently, RHS may temporarily classify
these applications as fourth priority when determined appropriate which
will make the fourth priority status permanent and applicable at all
times.
The change in priority does not impact the priority of any other
category and will recognize and encourage the participation and
interest of intermediaries in the direct SFH program. Intermediaries
are valuable to the program by helping attract program applicants,
training certified packagers, and performing quality assurance reviews
of applications.
Other priorities remain unchanged including existing customers who
request subsequent loans to correct health and safety hazards, loans
related to the sale of Real Estate Owned (REO) property or ownership
transfer of an existing RHS financed property, hardships including
applicants living in deficient housing for more than six months,
homeowners in danger of losing property through foreclosure, applicants
constructing dwellings in an approved self-help project, and applicants
obtaining other funds in an approved leveraging proposal. Veterans'
preference also remains a priority in accordance with 42 U.S.C. 1477.
To further emphasize these priorities, the Agency will also make
funding available in accordance with same priorities as application
processing.
These revisions are adopted from the proposed rule without change.
Sec. 3550.56 Site Requirements
Under this section, make revisions in paragraph (b) and remove
(b)(3) to remove the requirement that the value of the site must not
exceed 30 percent of the ``as improved'' market value of the property.
This change is consistent with the guaranteed SFH loan program, which
has no site value limitation. This revision is adopted from the
proposed rule without change.
Sec. 3550.57 Dwelling Requirements
In this section, paragraph (a) will be revised to remove the
reference to in-ground swimming pools for existing housing under the
Section 502 program, to align the paragraph with the revised modest
housing definition in 7 CFR 3550.10 of this rule. This revision is
adopted from the proposed rule without change.
Sec. 3550.59 Security Requirements
In this section, paragraph (a)(2) will be revised to remove the
requirement that the amount of a junior lien, when it is a grant or a
forgivable affordable housing product, may not exceed the market value
by more than five percent (i.e., up to a 105 percent loan to value
ratio). This is an overly restrictive requirement as it relates to
grants and forgivable affordable housing products as these products
often partially or completely cover the cost of rehabilitation to make
the dwelling decent, safe, and sanitary, and a higher loan to value
ratio may be tolerated in these instances.
Beginning in FY 16, RHS initiated a pilot in a limited number of
states to allow the State Office to approve leveraging arrangements
where the total loan-to-value was more than the 105% limitation
identified in Sec. 3550.59(a)(2), provided:
RHS is in the senior lien position and the RHS loan is
fully secured (with allowable exceptions for the tax service fee,
appraisal fee, homebuyer education and initial escrow for taxes and
insurance);
The junior lien is for an authorized loan purpose
identified in Sec. 3550.52;
The junior lien involves a grant or forgivable affordable
housing product; and
The grant or forgivable affordable housing product comes
from a recognized grant source such as a
[[Page 6767]]
Community Development Block Grant or a HOME Investment Partnerships
Program (HOME).
The pilot has been successful because it has:
Empowered the selected State Offices to make timely
decisions on loans with junior liens involving a grant or forgivable
affordable housing product, and gave the junior lien holder the
discretion to determine a total loan-to-value that could be supported
within their own program requirements;
Generally improved an area's rural housing stock since the
grants and forgivable affordable housing products are frequently used
for rehabilitation work where the rehab cost is more than the enhanced
value;
Promoted consistency with the guaranteed SFH loan program,
which states that junior liens by other parties are permitted if the
junior liens do not adversely affect repayment ability or the security
for the guaranteed loan; and
Increased partnerships with nonprofits.
This final rule codifies the positive aspects of the pilot so that
the advantages will apply program wide. These revisions are adopted
from the proposed rule without change.
Sec. 3550.67 Repayment Period
In this section, paragraph (c) will be revised to allow more small
Section 502 direct loans to be repaid in periods of up to ten years.
The portfolio's new loan delinquency nearly doubled between November
2019 to October 2020, and while new loan delinquency trends have
gradually improved since October 2020, they still exceed November 2019
rates. This resulted in the need for measured and gradual changes,
therefore, the revisions are adopted from the proposed rule with the
following change: The threshold for determining a small loan as
determined by the Agency will not exceed eight percent of the national
average area loan limit, rather than ten percent as was proposed. The
eight percent parameter provides a threshold that meets the Agency's
current practice and gives the Agency flexibility to increase the
unsecured loan level within a reasonable amount in the future.
The current regulation states that only loans of $2,500 or less
must not have a repayment period exceeding ten years. In practice,
loans of less than $7,500 are generally termed for ten years or less so
that the loan can be unsecured (i.e., no mortgage or deed of trust is
required) in accordance with the program's guidance.
This revision provides the Agency flexibility in setting the dollar
threshold for smaller loans which may have a repayment period that does
not exceed ten years. This threshold will be determined by the Agency
and published in a publicly available format and will not exceed eight
percent of the national average area loan limit. For example, the
current national average area loan limit is approximately $285,000, so
only loans of $22,800 or less may not have a repayment period exceeding
ten years. During Fiscal Years 2019 and 2020, there were approximately
67 loans for less than $23,000, with an average loan amount of $12,240.
Of this subset of loans, there was a 22.5 percent increase in the
average loan amount from FY 19 ($10,847) to FY 20 ($13,293). This
highlights the need for additional flexibility as ever-increasing
purchase and repair costs naturally increase what constitutes a
``small'' loan. The Agency will determine the threshold based on
factors such as the Agency's level of tolerance for unsecured loans and
the performance and collection of unsecured loans in the Agency's
portfolio.
Subpart C--Section 504 Origination and Section 306 Water and Waste
Disposal Grants
Sec. 3550.102 Grant and Loan Purposes
In light of the discussion above and as a change from the proposed
rule, the revision of paragraph (e)(5) will permit refinancing of
existing 504 loans, depending on the availability of funds and program
priorities as determined by RHS, in accordance with the revised Sec.
3550.201 to allow refinancing as a special servicing action to reduce
the number of borrower failures that result in liquidation including,
but not limited to, Sec. 3550.207 to allow refinancing at the end of a
moratorium. The Agency may limit the number of direct loans made for
refinancing purposes based on the availability of funds and Agency
priorities. market conditions and other appropriate factors. This
revision provides the Agency with more flexibility pertaining to loss
mitigation measures.
Sec. 3550.103 Eligibility Requirements
Under this section, paragraph (e) will be revised to remove the
language in regarding a waiver of the requirement that applicants must
be unable to obtain financial assistance at reasonable terms and
conditions from non-RHS credit or grant sources and lack the personal
resources to meet their needs. The regulation currently provides that
this requirement may be waived if the household is experiencing medical
expenses more than three percent of the household's income. The
revision removes the medical expense and waiver language. The authority
to waive regulations on a case-by-case basis already exists in Sec.
3550.8, making the medical expense and waiver language in Sec.
3550.103(e) unnecessary. Furthermore, limiting the waiver of the
requirement to only those instances in which medical expenses exceed 3
percent of the household's income is overly restrictive. This revision
is adopted from the proposed rule without change.
Sec. 3550.104 Applications
Paragraph (c) will be revised by replacing ``veterans preference''
with ``veterans' preference.'' This is a grammatical correction only
and is adopted from the proposed rule without change.
Sec. 3550.106 Dwelling Requirements
Paragraph (a) will be revised to remove the reference to in-ground
swimming pools for the Section 504 program, to align the paragraph with
the revised modest housing definition in 7 CFR 3550.10 of this rule.
This revision is adopted from the proposed rule without change.
Sec. 3550.108 Security Requirements (Loans Only)
Paragraph (b)(1) will be revised to modify the requirement for
title insurance and a closing agent for certain secured Section 504
loans of $7,500 and greater. Currently, Section 504 loans less than
$7,500 may be closed by the Agency without title insurance and a
closing agent; however, loans of $7,500 and greater require title
insurance and must be closed by a closing agent.
The cost for title insurance and a closing agent can be
unaffordable for very-low income borrowers with loans of $7,500 and
greater or can potentially decrease the amount of loan funds available
for needed repairs or improvements. This revision removes the specific
dollar threshold for loans which require title insurance and a closing
agent. Loans where the total section 504 indebtedness does not exceed
an amount determined by the Agency, but no greater than 20 percent of
the national average area loan limit, may be closed by the Agency
without title insurance or a closing agent. Using this parameter gives
flexibility to adjust for inflation over time and still results in a
loan amount that can be closed by the Agency with minimal risk. The
Agency will determine the maximum amount based on factors such as
average costs for title insurance and closing agents compared to
average housing
[[Page 6768]]
repair costs and publish the specific threshold in a publicly available
format such as the program handbook. This revision will significantly
reduce loan closing costs incurred by the borrowers, by allowing more
loans to be closed by the Rural Development office. This revision will
also allow for responsiveness and adjustments based on inflationary
changes and is adopted from the proposed rule without change.
Sec. 3550.112 Maximum Loan and Grant
The revision of paragraph (a) will revise the Section 504 maximum
loan amount of $20,000, so that the sum of all outstanding section 504
loans to one borrower and for one dwelling may not exceed an amount
determined by the Agency, but not greater than twenty percent of the
national average area loan limit. This revision is adopted from the
proposed rule without change. An initial limit of $40,000 will be used
in the program handbook.
The Agency will determine the maximum amount based on factors such
as average loan amount and repair costs. Using this parameter gives
flexibility to adjust for inflation over time and still results in a
total outstanding loan amount that can be acceptable to the Agency. A
corresponding change will also be made to Sec. 3550.112(a)(1) to
address maximum loan amounts for transferees who assume Section 504
loans and wish to obtain a subsequent loan. The revision allows the
Agency greater responsiveness and flexibility to address changes to
average repair costs. The current national average area loan limit is
$285,000 so the maximum loan assistance could not exceed $57,000; as
stated above, an initial limit of $40,000 will be used in the program
handbook. The $40,000 limit is currently used under a pilot.
The revision of paragraph (c) will remove the lifetime maximum
assistance of $7,500 for a Section 504 grant and replace with a maximum
lifetime limit not to exceed ten percent of the national average area
loan limit for any one household or one dwelling versus the five
percent outlined in the proposed rule. Since the publication of the
proposed rule in November 2019, there have been major shifts in the
economy. According the National Association of Home Builder's May 2021
survey, building materials costs have on average increased 26.1 percent
over the prior 12 months and builders are widely experiencing shortages
in material. The higher percentage is needed given current and future
conditions. An initial limit of $10,000 (which is currently used under
a pilot) will be used in the program handbook. Limiting this to any one
household will eliminate applicants from applying separately and
receiving double grant assistance per household. In addition to
changing the percent used, the statement ``no grant can be awarded when
the household has repayment ability for a loan'' that appeared in the
proposed rule was removed. It was determined to be confusing given the
allowance for loan/grant combinations. This revision was adopted from
the proposed rule, with the changes noted above.
Sec. 3550.113 Rates and Terms (Loans Only)
The revision of paragraph (b) will revise the Section 504 loan term
requirements to specify that the loan term will be 20 years. This will
make 504 loan terms consistent, increase affordability, and maximize
repayment ability. This revision is adopted from the proposed rule
without change.
Subpart D--Regular Servicing
Sec. 3550.162 Recapture
Under this section, revising the recapture requirements in
paragraph (b) to specify when Principal Reduction Attributable to
Subsidy (PRAS) is, or is not, collected. The direct loan program
provides payment assistance (subsidy), which may include PRAS, to help
borrowers meet their monthly mortgage loan obligations. At the time of
loan payoff, borrowers are required to repay all or a portion of the
subsidy they received over the life of the loan. This is known as
subsidy recapture. The amount of subsidy recapture to be repaid is
based on the borrower's subsidy repayment agreement and a calculation
that determines the amount of value appreciation (equity) the borrower
has in the property at the time of payoff. The changes to the
regulation clarify when PRAS is collected and is consistent with the
terms of the subsidy repayment agreements. In cases where the borrower
has no equity in the property based on the recapture calculation, PRAS
will not be collected. There are no changes to the current subsidy
recapture calculation. These revisions are adopted from the proposed
rule without change.
Subpart E--Special Servicing
Sec. 3550.201 Purpose of Special Servicing Actions
In light of the discussion above and as a change from the proposed
rule, this paragraph will be revised to include refinancing of RHS debt
as a special servicing action to reduce the number of borrower failures
that result in liquidation. Borrowers who have difficulty keeping their
accounts current may be eligible to refinance as a special servicing
option (e.g., exiting a moratorium, reamortization or other options are
unaffordable). As with other special servicing options, the refinance
special servicing option will be unavailable for accelerated accounts.
The refinancing option adopted with this rule change is particularly
important given the large number of borrowers who will be exiting a
COVID-related payment moratorium (also referred to as COVID-related
forbearances). Some of these moratoria lasted over a year, and a post-
moratorium reamortization agreement would not result in affordable
monthly payments because the original loan term is limited by statute.
In addition, the American Rescue Plan Act of 2021 provided additional
budget authority which, given the critical need for flexibility in
servicing direct loans, will be best directed towards refinancing and
other loss mitigation options. The Agency is amending the regulation to
reflect the expansion of refinancing availability as a special
servicing action to help make payments more affordable (e.g., following
a moratorium or reamortization)--however such refinancing will be
subject to the availability of funds and at the discretion of the
Agency. In other words, while the final rule amendments will provide
critical relief to borrower in response to COVID and the Agency
preserves the ability to provide such refinancing in the future, such
refinancing is not a given due to factors such as budget authority and
other Agency priorities.
Sec. 3550.207 Payment Moratorium
Under this section, revising the payment moratorium requirements to
require reamortization of each loan coming off a moratorium. Currently,
the regulation stipulates that at the end of a moratorium borrowers are
to be provided a re-amortization if the Agency determines they can
resume making scheduled payments, based on financial information
provided by the borrower. Often these borrowers lack demonstrable
repayment ability for the new installment, which then requires the
Agency to liquidate the account. However, it should not be unexpected
that a borrower may have difficulty demonstrating repayment ability at
the end of a moratorium. The very purpose of the moratorium is to
provide temporary payment relief to borrowers who have experienced
circumstances beyond their control such as the loss of at least 20
percent of their income,
[[Page 6769]]
unexpected expenses from illness, injury, death in the family, etc.
In July 2010, due to the recession, the Administrator of RHS issued
a decision memorandum approving the re-amortization of all accounts
following a moratorium; this decision has been supported by subsequent
Administrators. Historical data has shown that borrowers whose loans
are re-amortized after a moratorium, regardless of repayment ability,
have no greater risk of becoming delinquent when compared to non-
moratorium borrowers whose loans were re-amortized.
When comparing the borrower's repayment history 18 months after the
moratorium/re-amortization, 81.5 percent of the borrowers made their
required monthly payment and avoided foreclosure, making this the best
option for the borrower and the Agency. Whereas, if the borrower's
repayment ability would have been considered, a large percentage of
these successful borrowers would have lost their home without being
given a chance to demonstrate their ability to repay their mortgage.
This revision will require re-amortization after a moratorium
regardless of repayment ability, which will reduce foreclosures and
better serve borrowers. The Agency is also clarifying that all or part
of the interest accrued during the moratorium may be forgiven in an
amount that balances affordability to the borrower and serving the best
interest of the government. These revisions are adopted from the
proposed rule without change.
Subpart F--Post-Servicing Actions
Sec. 3550.251 Property Management and Disposition
In this section, revising paragraphs (c) and (d) to remove obsolete
references and clarify the process and priorities in the sale or lease
of REO properties. The revision also clarifies the sale or lease
process and reservation periods for priority buyers to comply with 42
U.S.C. 11408a.
Under 42 U.S.C. 11408a, RHS must lease or sell program and
nonprogram inventory properties to public agencies and nonprofits to
provide transitional housing and to provide turnkey housing for tenants
of such transitional housing and for eligible families. However, first
priority is the sale of REO properties to Section 502 borrowers.
The changes will further align Sec. 3550.251(c) and (d) with 42
U.S.C. 11408a concerning the priority of the sale or lease of REO
properties to eligible borrowers and to nonprofit organizations or
public bodies providing transitional housing.
This action will incorporate references to 42 U.S.C. 11408a and its
more detailed instruction on transitional housing, lease and purchase
procedures, and the employment or participation of homeless (or
formerly homeless) individuals for the property being leased or
acquired. To provide the maximum flexibility, the Agency will reserve
program REO properties for no less than 30 days for sale to program
eligible borrowers, as well as for sale or lease to a public agency or
nonprofit organization for transitional and turnkey housing purposes.
Upon receipt of written notification from a public agency or nonprofit
organization seeking to purchase or lease REO property, the Agency
shall withdraw the property from the market for not more than 30 days
for the purpose of negotiations. If negotiations are unsuccessful, the
REO property will be relisted and sold in the best interest of the
Government.
The expected result of this rulemaking is to allow the maximum use
of the REO properties and foster collaboration in working to address a
national shortage of transitional housing. These revisions are adopted
from the proposed rule without change.
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 Agriculture to
promulgate rules and regulations as deemed necessary to carry out the
purpose of that title.
Executive Order 12866
The Office of Management and Budget (OMB) has designated this final
rule as not significant under Executive Order 12866.
Executive Order 12988, Civil Justice Reform
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. Except where specified, all State and local laws
and regulations that are in direct conflict with this rule will be
preempted. Federal funds carry Federal requirements. No person is
required to apply for funding under this program, but if they do apply
and are selected for funding, they must comply with the requirements
applicable to the Federal program funds. This rule is not retroactive.
It will not affect agreements entered into prior to the effective date
of the rule. Before any judicial action may be brought regarding the
provisions of this rule, the administrative appeal provisions of 7 CFR
part 11 must be exhausted.
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.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1970,
subpart A, ``Environmental Policies.'' It is the determination of the
Agency that this action does not constitute a major Federal action
significantly affecting the quality of the human environment, and, in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, neither an Environmental Assessment nor an Environmental
Impact Statement is required.
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. Nor does this
final rule impose substantial direct compliance costs on State and
local governments. Therefore, consultation with the States is not
required.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.) the undersigned has determined and certified by signature of this
document
[[Page 6770]]
that this rule, while affecting small entities, will not have an
adverse economic impact on small entities. This rule does not impose
any significant new requirements on program recipients, nor does it
adversely impact proposed real estate transactions involving program
recipients as the buyers.
Executive Order 12372, Intergovernmental Review of Federal Programs
This program/activity is not subject to the provisions of Executive
Order 12372, which require intergovernmental consultation with State
and local officials. (See the document related to 7 CFR part 3015,
subpart V, at 48 FR 29112, June 24, 1983; 49 FR 22675, May 31, 1984; 50
FR 14088, April 10, 1985.)
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This Executive Order imposes requirements in the development of
regulatory policies that have tribal implications or preempt tribal
laws. RHS has determined that the final rule does not have a
substantial direct effect on one or more Indian tribe(s) or on either
the relationship or the distribution of powers and responsibilities
between the Federal Government and Indian tribes. Thus, this final rule
is not subject to the requirements of Executive Order 13175. If tribal
leaders are interested in consulting with the Agency on this rule, they
are encouraged to contact USDA's Office of Tribal Relations or the
Agency's Native American Coordinator at: [email protected] to request such
a consultation.
Programs Affected
The following programs, which are listed in the Catalog of Federal
Domestic Assistance, are affected by this final rule:
Number 10.410, Very Low to Moderate Income Housing Loans
(specifically the section 502 direct and guaranteed loans), and Number
10.417, Very Low-Income Housing Repair Loans and Grants (specifically
the section 504 direct loans and grants).
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.), the information collection activities associated with
this rule are covered under OMB Number: 0575-0172. This final rule
contains no new reporting or recordkeeping requirements that would
require approval under the Paperwork Reduction Act of 1995.
E-Government Act Compliance
RHS is committed to complying with the E-Government Act, 44 U.S.C.
3601 et seq., to promote the use of the internet and other information
technologies to provide increased opportunities for citizen access to
Government information and services, and for other purposes.
V. Non-Discrimination Policy
In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Agencies, offices, and 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.
Persons with disabilities who require alternative means of
communication for program information (e.g., Braille, large print,
audiotape, American Sign Language, etc.) should contact the responsible
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or
contact USDA through the Federal Relay Service at (800) 877-8339.
Additionally, program information may be made available in languages
other than English.
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and
at any USDA office or write a letter addressed to USDA and provide in
the letter all of the information requested in the form. To request a
copy of the complaint form, call (866) 632-9992. Submit your completed
form or letter 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;
(2) Fax: (202) 690-7442; or
(3) Email: [email protected].
USDA is an equal opportunity provider, employer, and lender.
List of Subjects in 7 CFR Part 3550
Administrative practice and procedure, Environmental impact
statements, Fair housing, Grant programs-housing and community
development, Housing, Loan programs-housing and community development,
low- and moderate-income housing, Manufactured homes, Reporting and
recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, chapter XXXV, title 7 of
the Code of Federal Regulations, is amended as follows:
PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS
0
1. The authority citation for part 3550 continues to read as follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1480.
Subpart A--General
0
2. Section 3550.10 is amended by revising the definition of ``Modest
housing'', adding a definition for ``Principal residence'' in
alphabetical order, and revising the definition of ``Veterans'
preference'' to read as follows:
Sec. 3550.10 Definitions.
* * * * *
Modest housing. A property that is considered modest for the area,
has a market value that does not exceed the applicable maximum loan
limit as established by RHS in accordance with Sec. 3550.63, and is
not designed for income producing activities. Existing properties with
in-ground pools may be considered modest; however, in-ground pools with
new construction or with properties which are purchased new are
prohibited.
* * * * *
Principal residence. The home domicile physically occupied by the
owner on a permanent basis (i.e., lives there for the majority of the
year and is the address of record for such activities as Federal income
tax reporting, voter registration, occupational licensing, etc.).
* * * * *
Veterans' preference. A preference extended to a veteran applying
for a loan or grant under this part, or the families of deceased
servicemen, who meet the criteria in 42 U.S.C. 1477.
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3. In Sec. 3550.11, revise paragraphs (a) and (b) to read as follows:
Sec. 3550.11 State Director assessment of homeownership education.
(a) State Directors will assess the availability of certified
homeownership education in their respective states on an as-needed
basis but at a minimum every three years and maintain an
[[Page 6771]]
updated listing of providers and their reasonable costs.
(b) The order of preference for homeownership education formats
will be determined by the Agency based on factors such as industry
practice and availability.
* * * * *
Subpart B--Section 502 Origination
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4. In Sec. 3550.52, revise paragraphs (a), (c), and (d)(6) to read as
follows:
Sec. 3550.52 Loan Purposes.
* * * * *
(a) Purchases from existing RHS borrowers. To purchase a property
currently financed by an RHS loan, the new borrower will assume the
existing RHS indebtedness or receive new loan funds as determined by
the Agency. The Agency will periodically determine whether assumptions
or new loans are appropriate on a program wide basis based on the best
interest of the government, taking into account factors such as funding
availability and staff resources. Regardless of the method, loan funds
may be used for eligible costs as defined in paragraph (d) of this
section or to permit a remaining borrower to purchase the equity of a
departing co-borrower.
* * * * *
(c) Refinancing RHS debt. An existing RHS loan may be refinanced in
accordance with Sec. 3550.204 to allow the borrower to receive payment
assistance. In addition, depending on the availability of funds and
program priorities as determined by RHS, an existing RHS loan and the
related subsidy recapture may be refinanced as allowed under Sec.
3550.201.
* * * * *
(d) * * *
(6) Packaging fees resulting from the certified loan application
packaging process outlined in Sec. 3550.75. The Agency will determine
the limit, based on factors such as the level of service provided and
the prevailing cost to provide the service, and such cap will not
exceed two percent of the national average area loan limit. Nominal
packaging fees not resulting from the certified loan application
process are an eligible cost provided the fee does not exceed a limit
determined by the Agency based on the level and cost of service
factors, but no greater than one half percent of the national average
area loan limit; the loan application packager is a nonprofit, tax
exempt partner that received an exception to all or part of the
requirements outlined in Sec. 3550.75 from the applicable Rural
Development State Director; and the packager gathers and submits the
information needed for the Agency to determine if the applicant is
eligible along with a fully completed and signed uniform residential
loan application.
* * * * *
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5. In Sec. 3550.53, revise paragraphs (a), (c), (g), and (i) to read
as follows:
Sec. 3550.53 Eligibility requirements.
(a) Income eligibility. At the time of loan approval, the
household's adjusted income must not exceed the applicable low-income
limit for the area, and at closing, must not exceed the applicable
moderate-income limit for the area (see Sec. 3550.54). When an
existing RHS loan is being refinanced as a special servicing action
under Sec. 3550.201), the household's adjusted income must not exceed
the applicable moderate-income limit for the area at the time of loan
approval and closing.
* * * * *
(c) Principal residence. Applicants must agree to and have the
ability to occupy the dwelling in accordance with the definition found
in Sec. 3550.10. If the dwelling is being constructed or renovated, an
adult member of the household must be available to make inspections and
authorize progress payments as the dwelling is constructed.
* * * * *
(g) Repayment ability. Repayment ability means applicants must
demonstrate adequate and dependably available income. The determination
of income dependability will include consideration of the applicant's
history of annual income.
(1) An applicant is considered to have repayment ability when the
monthly amount required for payment of principal, interest, taxes, and
insurance (PITI), does not exceed thirty-three percent of the
applicant's repayment income (PITI ratio). In addition, the monthly
amount required to pay PITI plus recurring monthly debts must not
exceed forty-one percent of the applicant's repayment income (total
debt ratio).
(2) If the applicant's PITI ratio and total debt ratio exceed the
percentages specified by the Agency by a minimal amount, compensating
factors may be considered. Examples of compensating factors include
payment history (if applicant has historically paid a greater share of
income for housing with the same income and debt level), savings
history, job prospects, and adjustments for nontaxable income.
(3) If an applicant does not meet the repayment ability
requirements in this paragraph (g), the applicant can have another
party join the application as a cosigner, have other household members
join the application, or both.
* * * * *
(i) Homeownership education. Applicants who are first-time
homebuyers must agree to provide documentation, in the form of a
completion certificate or letter from the provider, that a
homeownership education course from a certified provider under Sec.
3550.11 has been successfully completed as defined by the provider.
Requests for exceptions to the homeownership education requirement in
this paragraph (i) will be reviewed and granted on an individual case-
by-case basis. The State Director may grant an exception to the
homeownership education requirement for individuals in geographic areas
within the State where the State Director verifies that certified
homeownership education is not reasonably available in the local area
in any of the formats listed in Sec. 3550.11(b).
Whether such homeownership education is reasonably available will
be determined based on factors including, but not limited to: Distance,
travel time, geographic obstacles, and cost. On a case-by-case basis,
the State Director also may grant an exception, provided the applicant
borrower documents a special need, such as a disability, that would
unduly impede completing a homeownership course in a reasonably
available format.
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6. In Sec. 3550.55, revise paragraphs (c) introductory text and (c)(4)
and (5) to read as follows:
Sec. 3550.55 Applications.
* * * * *
(c) Selection for processing and funding. Applications will be
selected for processing using the priorities specified in this
paragraph (c). Within priority categories, applications will be
processed in the order that the completed applications are received. In
the case of applications with equivalent priority status that are
received on the same day, preference will first be extended to
applicants qualifying for a veterans' preference. When funds are
limited and eligible applicants will be placed on the waiting list, the
priorities specified in this paragraph (c) will be used to determine
the selection of applications for available funds.
* * * * *
(4) Fourth priority will be given to applicants seeking loans for
the construction of dwellings in an RHS-approved Mutual Self-Help
project, loan application packages funneled through an Agency-approved
intermediary
[[Page 6772]]
under the certified loan application packaging process, and loans that
will leverage funding or financing from other sources at a level
published in the program handbook.
(5) Applications from applicants who do not qualify for priority
consideration in paragraph (c)(1), (2), (3), or (4) of this section
will be selected for processing after all applications with priority
status have been processed.
* * * * *
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7. In Sec. 3550.56, revise paragraphs (b)(1) and (2) and remove
paragraph (b)(3).
The revisions read as follows:
Sec. 3550.56 Site requirements.
* * * * *
(b) * * *
(1) The site must not be large enough to subdivide into more than
one site under existing local zoning ordinances and
(2) The site must not include farm service buildings, though small
outbuildings such as a storage shed may be included.
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8. In Sec. 3550.57, revise paragraph (a) introductory text to read as
follows:
Sec. 3550.57 Dwelling requirements.
(a) Modest dwelling. The property must be one that is considered
modest for the area, must not be designed for income producing
purposes, or have a market value in excess of the applicable maximum
area loan limit, in accordance with Sec. 3550.63, unless RHS
authorizes an exception under this paragraph (a). An exception may be
granted on a case-by-case basis to accommodate the specific needs of an
applicant, such as to serve exceptionally large households or to
provide reasonable accommodation for a household member with a
disability. Any additional loan amount approved must not exceed the
amount required to address the specific need. Existing properties with
in-ground swimming pools may be considered modest; however, in-ground
swimming pools with new construction or with properties which are
purchased new are prohibited.
* * * * *
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9. In Sec. 3550.59, revise paragraph (a)(2) to read as follows:
Sec. 3550.59 Security requirements.
* * * * *
(a) * * *
(2) No liens prior to the RHS mortgage exist at the time of closing
and no junior liens are likely to be taken immediately after or at the
time of closing, unless the other liens are taken as part of a
leveraging strategy or the RHS loan is essential for repairs. Any lien
senior to the RHS lien must secure an affordable non-RHS loan. Liens
junior to the RHS lien may be allowed at loan closing if the junior
lien will not interfere with the purpose or repayment of the RHS loan.
When the junior lien involves a grant or a forgivable affordable
housing product, the total debt may exceed the market value provided:
(i) The RHS loan is fully secured (with allowable exceptions for
the tax service fee, appraisal fee, homebuyer education and initial
escrow for taxes and insurance);
(ii) The junior lien is for an authorized loan purpose identified
in Sec. 3550.52; and
(iii) The grant or forgivable affordable housing product comes from
a recognized grant source such as a Community Development Block Grant
or a HOME Investment Partnerships Program (HOME).
* * * * *
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10. In Sec. 3550.67, revise paragraph (c) to read as follows:
Sec. 3550.67 Repayment period.
* * * * *
(c) Ten years for loans not exceeding an amount determined by the
Agency based on factors such as the performance of unsecured loans in
the Agency's portfolio and the Agency's budgetary needs, but not to
exceed eight percent of the national average area loan limit.
* * * * *
Subpart C--Section 504 Origination and Section 306C Water and Waste
Disposal Grants
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11. In Sec. 3550.102, revise paragraph (e)(5) to read as follows:
Sec. 3550.102 Grant and loan purposes.
* * * * *
(e) * * *
(5) Refinance any debt or obligation of the applicant incurred
before the date of application except for the installation and
assessment costs of utilities; or subject to the availability of funds
and program priorities as determined by RHS, refinance of an existing
RHS loan in accordance with Sec. 3550.201 as a special servicing
option, including but not limited to refinancing at the end of a
moratorium.
* * * * *
0
12. In Sec. 3550.103, revise paragraph (e) to read as follows:
Sec. 3550.103 Eligibility requirements.
* * * * *
(e) Need and use of personal resources. Applicants must be unable
to obtain financial assistance at reasonable terms and conditions from
non-RHS credit or grant sources and lack the personal resources to meet
their needs. Elderly families must use any net family assets in excess
of $20,000 to reduce their section 504 request. Non-elderly families
must use any net family assets in excess of $15,000 to reduce their
section 504 request. Applicants may contribute assets in excess of the
aforementioned amounts to further reduce their request for assistance.
The definition of assets for the purpose of this paragraph (e) is net
family assets as described in Sec. 3550.54, less the value of the
dwelling and a minimum adequate site.
* * * * *
0
13. In Sec. 3550.104, revise paragraph (c) to read as follows:
Sec. 3550.104 Applications.
* * * * *
(c) Processing priorities. When funding is not sufficient to serve
all eligible applicants, applications for assistance to remove health
and safety hazards will receive priority for funding. In the case of
applications with equivalent priority status that are received on the
same day, preference will be extended to applicants qualifying for a
veterans' preference. After selection for processing, requests for
assistance are funded on a first-come, first-served basis.
0
14. In Sec. 3550.106, revise paragraph (a) to read as follows:
Sec. 3550.106 Dwelling requirements.
(a) Modest dwelling. The property must be one that is considered
modest for the area, must not be designed for income producing
purposes, or have a market value in excess of the applicable maximum
area loan limit, in accordance with Sec. 3550.63.
* * * * *
0
15. In Sec. 3550.108, revise paragraph (b)(1) to read as follows:
Sec. 3550.108 Security requirements (loans only).
* * * * *
(b) * * *
(1) Loans where the total section 504 indebtedness does not exceed
an amount determined by the Agency based on factors such as average
costs for title insurance and closing agents compared to average
housing repair costs, but no greater than twenty percent of the
national average area loan limit.
* * * * *
[[Page 6773]]
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16. In Sec. 3550.112, revise paragraphs (a) introductory text, (a)(1),
and (c) to read as follows:
Sec. 3550.112 Maximum loan and grant.
(a) Maximum loan permitted. The sum of all outstanding section 504
loans to one household for one dwelling may not exceed an amount
determined by the Agency based on factors such as average loan amounts
and repair costs, but no greater than twenty percent of the national
average area loan limit.
(1) Transferees who have assumed a section 504 loan and wish to
obtain a subsequent section 504 loan are limited to the difference
between the unpaid principal balance of the debt assumed and the
maximum loan permitted.
* * * * *
(c) Maximum grant. The lifetime total of the grant assistance to
any one household or one dwelling may not exceed ten percent of the
national average area loan limit.
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17. In Sec. 3550.113, revise paragraph (b) to read as follows:
Sec. 3550.113 Rates and terms (loans only).
* * * * *
(b) Loan term. The repayment period for all section 504 loans will
be 20 years.
Subpart D--Regular Servicing
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18. In Sec. 3550.162, revise paragraphs (b)(1) introductory text and
(b)(1)(ii) to read as follows:
Sec. 3550.162 Recapture.
* * * * *
(b) * * *
(1) General. The amount to be recaptured is determined by a
calculation specified in the borrower's subsidy repayment agreement and
is based on the borrower's equity in the property at the time of loan
pay off. If there is no equity based on the recapture calculation, the
amount of principal reduction attributed to subsidy is not collected.
The recapture calculation includes the amount of principal reduction
attributed to subsidy plus the lesser of:
* * * * *
(ii) A portion of the value appreciation of the property subject to
recapture. In order for the value appreciation to be calculated, the
borrower will provide a current appraisal, including an appraisal for
any capital improvements, or arm's length sales contract as evidence of
market value upon Agency request. Appraisals must meet Agency standards
under Sec. 3550.62.
* * * * *
Subpart E--Special Servicing
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19. Revise Sec. 3550.201 to read as follows:
Sec. 3550.201 Purpose of special servicing actions.
The Rural Housing Service (RHS) may approve special servicing
actions to reduce the number of borrower failures that result in
liquidation. Borrowers who have difficulty keeping their accounts
current may be eligible for one or more available servicing options
including: Payment assistance; delinquency workout agreements that
temporarily modify payment terms; protective advances of funds for
taxes, insurance, and other approved costs; and payment moratoriums.
Subject to the availability of funds and Agency priorities, refinancing
may be available as a special servicing option in accordance with Sec.
3550.52(c).
0
20. In Sec. 3550.207, revise paragraphs (b)(2) and (c) and remove
paragraph (d).
The revisions read as follows:
Sec. 3550.207 Payment moratorium.
* * * * *
(b) * * *
(2) At least 30 days before the moratorium is scheduled to expire,
the borrower must provide financial information needed to process the
re-amortization of the loan(s).
(c) Resumption of scheduled payments. When the moratorium expires
or is cancelled, the loan will be re-amortized to include the amount
deferred during the moratorium and the borrower will be required to
escrow. If the new monthly payment, after consideration of the maximum
amount of payment subsidy available to the borrower, exceeds the
borrower's repayment ability, all or part of the interest that has
accrued during the moratorium may be forgiven so that the new monthly
payment optimizes both affordability to the borrower as well as the
best interest of the Government.
Subpart F--Post-Servicing Actions
0
21. In Sec. 3550.251:
0
a. Revise paragraphs (c)(4) and (5);
0
b. Remove paragraph (c)(6);
0
c. Revise paragraph (d)(2);
0
d. Remove paragraph (d)(3);
0
e. Redesignate paragraph (d)(4) as (d)(3).
The revisions read as follows:
Sec. 3550.251 Property management and disposition.
* * * * *
(c) * * *
(4) Sale of program REO properties. For no less than 30 days after
a program REO property is listed for sale, the property will be
reserved for sale to eligible direct or guaranteed single family
housing very-low, low- or moderate income applicants under this part or
part 3555 of this title, and for sale or lease to nonprofit
organizations or public bodies providing transitional housing and
turnkey housing for tenants of such transitional housing in accordance
with 42 U.S.C. 11408a. Offers from eligible direct or guaranteed single
family housing applicants are evaluated at the listed price, not the
offering price. Priority of offers received the same day from eligible
direct or guaranteed single family housing applicants will be given to
applicants qualifying for veterans' preference, cash offers from
highest to lowest, then credit offers from highest to lowest.
Acceptable offers of equal priority received on the same business day
are selected by lot. After the expiration of a reservation period, REO
properties can be bought by any buyer.
(5) Sale by sealed bid or auction. RHS may authorize the sale of an
REO property by sealed bid or public auction when it is in the best
interest of the Government.
(d) * * *
(2) RHS shall follow the standards and procedures in 42 U.S.C.
11408a for the sale or lease of an REO property to a public agency or
nonprofit organization. The terms of the sale and lease, and the entity
seeking to purchase or lease the REO property, must meet the
requirements in 42 U.S.C. 11408a.
* * * * *
Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-02470 Filed 2-4-22; 8:45 am]
BILLING CODE 3410-XV-P
