Single Family Housing Guaranteed Loan Program

 
CONTENT
Federal Register, Volume 84 Issue 247 (Thursday, December 26, 2019)
[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Rules and Regulations]
[Pages 70881-70887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27504]
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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. 84, No. 247 / Thursday, December 26, 2019 /
Rules and Regulations
[[Page 70881]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3555
[Docket No. RHS-18-SFH-0020]
RIN 0575-AD09
Single Family Housing Guaranteed Loan Program
AGENCY: Rural Housing Service, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Housing Service (RHS or Agency) published a proposed
rule on August 23, 2018, proposing to implement changes to the single
family housing guaranteed loan program (SFHGLP) regulation to
streamline the loss claim process for lenders who have acquired title
to property through voluntary liquidation or foreclosure; clarify that
lenders must comply with applicable laws, including those within the
purview of the Consumer Financial Protection Bureau (CFPB); and better
align loss mitigation policies with the mortgage industry. Through this
action, RHS finalizes the rule largely as proposed with some revisions.
DATES: Effective April 24, 2020.
FOR FURTHER INFORMATION CONTACT: Kate Jensen, Finance and Loan Analyst,
Single Family Housing Guaranteed Loan Division, STOP 0784, Room 2250,
USDA Rural Development, South Agriculture Building, 1400 Independence
Avenue SW, Washington, DC 20250-0784, telephone: (503) 894-2382, email
is [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
    The expansion of the SFHGLP in recent years has led the Agency to
investigate opportunities to streamline the program policies and
procedures, align the Agency with accepted industry practices, and
balance Agency resources with program demand. To help achieve these
objectives, this rule modifies the loss claim and loss mitigation
processes.
A. Loss Claim Process
    The Agency is implementing two primary changes to the loss claim
process in the areas of timing and valuation of property that has been
acquired by a lender (referred to as Real Estate Owned (REO) property).
The Agency will not change the loan guarantee limits under 7 CFR
3555.351.
    Regarding the timing of loss claims, the Agency currently affords
lenders (defined in 7 CFR 3555.10 as entities making, holding, or
servicing SFHGLP loans) the opportunity to submit loss claims on REO
property after foreclosure; during a nine-month marketing period; or if
the property has not sold during the nine-month marketing period
(twelve-month for tribal land), through the submission of an Estimated
Net Recovery (ENR) loss claim. The current options create uncertainty,
as it may take many months before a loss claim package is submitted and
processed and impose significant administrative burden on lenders and
the Agency. To streamline the process, the Agency will eliminate the
options of the nine-month marketing period and ENR loss claims.
Instead, all loss claims will be submitted in a timely manner
(discussed further below) after lender acquisition of title without
waiting for a potential sale to a third party during the marketing
period. In addition, the elimination of the ENR loss claim option will
eliminate the need for lenders to monitor, and the Agency to collect,
Future Recovery payments. Therefore, the Agency is removing the Future
Recovery requirements at 7 CFR 3555.356.
    Regarding the valuation of REO property, the Agency currently
requires lenders to obtain a liquidation value appraisal to determine
security property value and calculate the loss claim amount. Under the
final rule, the Agency will replace the liquidation value appraisal
with a market value appraisal in conjunction with a model to determine
the security property value as the basis to calculate the loss claim
amount. The Agency presently requires the submission of receipts for
actual property preservation and disposal costs. Property preservation
and disposal costs will now be based on the Veterans Administration
Management and Acquisition Factor (aka the VA Net Value Factor) found
at https://www.benefits.va.gov/homeloans/servicers_valeri.asp. Lenders
will be required to submit the complete loss claim package within 60
days of foreclosure sale date, acquisition date, or possession of the
security property. The new process will eliminate the need for REO
property disposition plans.
    Through the changes made by the final rule to the loss claim
process, the Agency anticipates a more streamlined approach to loss
claim payment processing. Therefore, the Agency will limit the amount
of additional interest (accrued between the settlement date and loss
claim payment) included in the loss claim payment to 60 days of
additional interest during the loss claim period.\1\
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    \1\ In the unlikely event that it takes more than 60 days to
process a loss claim, the Agency may pay up to 90 days of additional
interest if provided for in the relevant Loan Note Guarantee (Form
RD 3555-17). The Agency plans to amend the Loan Note Guarantee for
consistency with the 60-day limit in the final rule.
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    The final rule makes several other changes to improve and clarify
the loss claim process.
    The Agency will revise 7 CFR 3555.354, which currently allows
lenders to submit a loss claim electronically or in paper format. The
change will require all lenders to utilize a web-based system to submit
loss claims that will make it easier for both lenders and the Agency.
    The Agency will also add a definition for settlement date for deed-
in-lieu actions for purposes of calculating loss claims. The Agency
will define the settlement date of the deed-in-lieu as the date title
is recorded. The current version of the regulation does not address
this issue.
B. Loss Mitigation
    Changes regarding loss mitigation procedures will continue the
Agency's efforts to improve the overall effectiveness of loss
mitigation by emphasizing payment reduction. Historically, borrowers
who receive a payment reduction of less than 10 percent have re-
defaulted at a rate greater than 60 percent. When at least a 10 percent
payment reduction is achieved, the re-default rate is reduced by half.
The changes will continue to increase homeownership success and
decrease foreclosures. The Agency
[[Page 70882]]
expects a corresponding reduction in lender REO property which could
result in community stability and decreased expenses associated with
foreclosure and property disposition.
    The Agency will also add a Mortgage Recovery Advance (MRA) option
that will not require a modification to the terms of the promissory
note. This option will create an opportunity for borrowers with a
resolved hardship to cure the delinquency and retain their already
affordable payment.
    The Agency will also amend 7 CFR 3555.51(b)(1) to clarify that in
addition to complying with Agency laws and guidance, lenders must
comply with other applicable federal, state, and local laws, including
those that fall under the purview of the Consumer Financial Protection
Bureau (CFPB), such as the Real Estate Settlement Procedures Act
(RESPA) and the Truth in Lending Act (TILA).
II. Discussion of Relevant Public Comments Received on the August 23,
2018, Proposed Rule
    On August 23, 2018, RHS published a proposed rule regarding the
changes to SFHGLP loss claims and loss mitigation discussed above (83
FR 42618-42622). The Agency received comments from nine respondents
including lenders, State Housing Finance Agencies, industry trade
groups, and other interested parties. Specific public comments are
addressed below in order of appearance in the regulation.
Loss Claims
    Nine respondents supported the Agency's proposal to streamline the
loss claim process for lenders who have acquired title to properties
through voluntary liquidation or foreclosure.
    Two respondents requested clarification when the rule would be
enacted, and which loans will be directly affected by the changes. The
new rule will affect all loans where lender acquisition or possession
of the property takes place on or after the Final Rule effective date.
    Six respondents requested further definition of ``acquisition of
title'' along with the request to amend the regulation requirement to
include the vacancy status of the property. The proposed rule stated
the lender should order an appraisal within fifteen days of acquiring
title to the property and did not consider the potential inability to
complete an interior appraisal if eviction action would be required. In
response to these comments, the Agency will amend the regulation in
Sec.  3555.353(b) to require the lender to submit a loss claim package,
including a market value appraisal, within 60 days of the foreclosure
sale date or the date the lender acquires title. If eviction action is
required in order to obtain a market value appraisal, the lender must
submit the loss claim package, including the market value appraisal,
within 60 days of the date the occupants clear the premises (also
referred to in this notice as a lender taking ``possession'' of the
property).
    One respondent requested the Agency to define ``cost effective''
and ``significant amount'' as used in Sec.  3555.302(b) for purposes of
determining when protective advances require concurrence from the
Agency and cover costs besides taxes and insurance. The respondent
suggested that if the cost of a protective advance exceeds ten percent
of the market value of the property, Agency concurrence is required.
This align with existing published policy in the USDA SFHGLP Handbook
Chapters 17 and 18 regarding Pre-Foreclosure Sales (PFS) and Deed-in-
Lieu transactions. The Agency will continue to provide additional
guidance to lenders as necessary. No change is made to the regulation.
    One respondent requested the Agency to allow for additional payment
of interest when USDA exceeds 60 days for processing claims. At
minimum, the respondent recommends a review process within USDA to
quarterly or bi-annually review cycle times and publish a requirement
in this regulation that will allow some flexibility to reimburse
interest beyond 60 days. The Agency believes that it is well positioned
through improvements in the process created with this change to meet
the 60-day timeframe for processing loss claims. No change is made to
the provision. However, in the unlikely event that it takes more than
60 days to process a loss claim, the Agency may pay up to 90 days of
additional interest if provided for in the relevant Loan Note Guarantee
(Form RD 3555-17). The Agency plans to amend the Loan Note Guarantee
for consistency with the 60-day limit in the final rule.
    Three respondents believe the Agency should publish the loss claim
model algorithm to allow lenders increased transparency to better model
potential outcomes. The Agency is providing an overview of the loss
claim model algorithm as follows: The Property Sale Value Calculator
(PSVC) uses a statistical technique known as linear regression. The
PSVC is based on, and like, the Federal Housing Agency's (FHA) Loss
Given Default (LGD) model, which also uses linear regression. For a
detailed description of FHA's LGD model, see Section 5 of the
Congressional Budget Office's working paper, Modeling the Budgetary
Costs of FHA's Single-Family Mortgage Insurance http://www.cbo.gov/sites/default/files/cbofiles/attachments/45711-FHA.pdf.
    Linear regression is a statistical method for estimating one
unknown variable using other known variables. The result of linear
regression analysis is an equation of coefficients based on historical
relationships between variables. Inputting known variables into the
equation generates an estimate of the unknown variable--the property
sale value. The model coefficients use data on approximately 94,000
historical claims from the program. The Agency updates the model
coefficients annually using actual property sale values acquired
through a third-party data provider. The Agency adds historical data to
the model every year and re-generates coefficients to ensure historical
relationships between variables represent the most recent data
available and that the model produces accurate property value
estimates.
    The servicing system takes known loan characteristic values based
on the REO date and multiplies them by the coefficients. The products
are then summed to output the estimated property sale value.
    Table 1 (below) presents the variables used in the model along with
the variable type and a description. The model uses two types of
variables: Continuous and categorical. Continuous variables can have
any numeric value. Categorical variables have a value of one if they
fall within a certain range and a value of zero if they do not. If a
loan has a categorical variable with a value of zero, that means the
coefficient is not applicable to the loan and the model does not adjust
the estimated property sale value for that characteristic. The model
only adjusts the estimated property sale value for certain states.
[[Page 70883]]
                    Table 1--Description of Variables
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          Variable                    Type               Description
------------------------------------------------------------------------
Constant....................  NA..................  Applied to all
                                                     loans.
Original Loan Amount........  Continuous..........  Original mortgage
                                                     amount.
Appraisal Amount............  Continuous..........  Appraisal amount at
                                                     the time a property
                                                     becomes REO.
Current Loan-to-Value Ratio   Continuous..........  The ratio of the UPB
 (CLTV).                                             to the appraisal
                                                     amount.
Origination Year Indicators.  Categorical.........  Indicates a loan
                                                     originated between
                                                     2004 and 2009.
States......................  Categorical.........  Indicates a loan
                                                     from a given state.
Loan Size Ratio (LSR).......  Categorical.........  The ratio of the
                                                     original loan
                                                     amount to the
                                                     average original
                                                     loan amount in the
                                                     region.
------------------------------------------------------------------------
    One respondent encouraged the Agency to publish the findings from
the ``Settle at Foreclosure Pilot Program,'' to help lenders better
understand potential effects to their portfolio's loss assumptions on
RHS properties which have culminated in a foreclosure sale. The Agency
has received positive feedback from pilot lenders concerning reduction
of loss claim documentation, the elimination of property disposition
plans, and collection of future recovery. Additionally, pilot lenders
receive payment of loss claim funds sooner as compared to the current
system. This is evidenced internally through a reduction in loss claim
processing time for the Agency. The Agency believes further information
regarding the pilot is unnecessary at this time given the overview of
the loss claim algorithm above and will provide further guidance as
necessary.
    One respondent suggested the regulation should address differences
between estimated and actual expenses and that RHS should specify that
actual expenses are captured for claim filing only when all necessary
steps to make a property stable have occurred. The proposed changes to
the regulation do not require the servicing lender to use actual
expenses since the new process utilizes estimated property preservation
and disposal expenses using the VA Net Value Factor. No change is made
to this provision.
    Three respondents commented on the Agency's use of the VA Net Value
Factor to estimate holding and deposition costs. All three respondents
contended the VA Net Value Factor consistently and significantly
underestimates the actual expenses and believes lenders will not be
sufficiently compensated for holding and property management costs. The
VA Net Value Factor is a long-established model widely utilized in the
mortgage servicing industry for loss claim servicing. The VA Net Value
Factor regularly updates the factor taking into account the costs of
servicing single family properties. The Agency has used the VA Net
Value Factor since 1999 with success and does not believe that there
are industry accepted alternatives to the VA Net Value Factor. No
change is made to this provision.
    One respondent suggested that RHS should continue to develop and
support alternative disposition strategies. Given the resource savings
to RHS and the timeframe reduction in the proposed rule, the respondent
requests that RHS should not implement this rule at the cost of
alternative disposition strategies. Instead, RHS should continue to
prioritize efforts to develop or enhance disposition options that do
not result in lenders taking a property into inventory. The adoption of
this new loss claim regulation should not prohibit or discourage
lenders from offering borrowers the full range of loss mitigation
options. The Agency fully supports loss mitigation activity in lieu of
foreclosure and will not eliminate any requirements that lenders offer
and investigate loss mitigation alternatives prior to foreclosure as
required in Sec.  3555.301(b).
    One respondent proposed that the value of the property to determine
loss claim calculation be based on the outstanding unpaid principal
balance (UPB) and percentage of loss coverage in the Loan Note
Guarantee. The respondent contends the suggested valuation method will
not establish a reliable property value. If existing UPBs were utilized
to establish value, there would be no loss and any future claim
payments would be reduced or nonexistent. The Agency did not propose to
change the percentage of coverage based on the original loan amount and
will retain the loan guarantee limits as outlined in Sec.  3555.351. No
change is made to this provision.
    One respondent requested that a time limit be imposed on post-
payment review or eliminate repayment under post-payment reviews. This
was not addressed in the proposed rule and, therefore, no further
action will be taken.
General Lender Requirement
    Two respondents commented on the proposed general lender
requirements to clarify that in addition to complying with Agency laws
and guidance, lenders must comply with all other applicable federal,
state, and local laws. The first respondent requested the Agency update
the language in regulation Sec.  3555.51(b)(1) instead of Sec.  3555.6.
The Agency agrees to update Sec.  3555.51(b)(1) versus Sec.  3555.6.
    The second respondent requested the Agency to include the RESPA and
TILA obligations. The updated language in Sec.  3555.51(b) refers to
all applicable laws, and specifically mentions RESPA and TILA. Lenders
may refer to the CFPB regulations implementing RESPA and TILA,
including those at 12 CFR parts 1024 and 1026, for specific
requirements. It is redundant and unnecessary for the Agency to repeat
the content of those regulations in 7 CFR part 3555. No change is made
in this provision.
Loss Mitigation
    Four respondents commented on the proposed regulation language at 7
CFR 3555.303(b)(3)(v) regarding the option for a lender to require a
trial plan before a traditional servicing loan modification. One
respondent requested clarification as to when a trial period should be
used to ensure equal treatment of all borrowers. The current regulation
only requires a trial period when Special Servicing Options are
utilized, and the updated regulation language provides flexibility to
the lender/to determine whether a trial period is warranted or required
by lender or investor guidelines for other retention options. The
Agency does not believe it is necessary or helpful for the Agency to
prescribe when trial periods may be required. No change is made to this
provision.
    Two of the four respondents expressed concern that by not requiring
a trial plan prior to a traditional servicing loan modification, the
loans will not meet the investor buyout requirements. While the final
rule will
[[Page 70884]]
not require a trial period, the rule will neither prohibit the use of
trial period overlays based on loan lender and investor requirements.
No change is made to this provision.
    The fourth respondent requested that the Agency eliminate the
requirement for trial period plans to increase borrower access to loss
mitigation measures. As previously discussed, the regulation in
3555.303 will not require a trial plan for traditional servicing loan
modifications. It is the lender's responsibility to determine if a
trial plan is warranted and/or a trial plan is required by lender or
investor guidelines. The regulation does require the use of trial plans
for special servicing extended term loan modifications. No change is
made to this provision.
    Two respondents proposed the MRA eligibility threshold be adjusted.
Both commenters suggest RHS adjust the eligibility threshold to ``31
percent or less.'' This would align with the eligibility cut-off for
Special Servicing measures making the MRA only an option for all
customers ineligible for Special Loan Servicing. The Agency agrees and
will amend the regulation to state ``31 percent or less.''
    One of the two respondents also requested RHS to provide clarity on
where the MRA eligibility threshold would fit in the servicing
waterfall. Details on the waterfall will be addressed in the Loss
Mitigation Guide (Attachment 18-A). No further change is made to this
provision.
    One respondent proposed RHS change the verbiage in section Sec.
3555.304(d)(2) from ``date of default'' to ``date of initial default''
to align with industry standards. The Agency agrees and will adopt the
language ``date of initial default.''
    One respondent suggested that RHS should amend Sec.  3555.303 to
permit capitalization of protective advances in traditional servicing
loan modifications. The respondent suggested RHS update the regulation
to explicitly permit lenders to capitalize protective advances related
to the maintenance and preservation of mortgage properties. The Agency
does not believe such a change is necessary at this time, and the
suggestion is outside the scope of the proposed rule. No change is made
to this provision.
    One respondent requested clarification that modified interest rates
for loan modifications are not limited by the interest rate at the time
the Loan Note Guarantee (LNG) was issued. The proposed rule provided in
Sec.  3555.304(c)(1) that the modified interest rate for special
servicing extended term loan modifications not exceed the market
interest rate and eliminated the reference to the interest rate stated
in the LNG. The Agency will make a similar change in Sec.
3555.303(b)(3)(i) regarding traditional servicing loan modifications.
    One respondent requested that RHS incorporate an exclusion waiver
from loss mitigation options requiring a change in the interest rate, a
write off of principal, and/or extension of the term of the mortgage
for Housing Finance Agencies with loans funded through the sale of
Mortgage Revenue Bonds. This authority is already provided to lenders
in the Loss Mitigation Guide. No change is made to this provision.
    One respondent recommended that RHS should eliminate the
requirement for agency approval of all loss mitigation decisions and
instead establish a loss mitigation appeals process for disputed cases.
Instead of having RHS review each case, the Agency must instead divert
those resources to an appeal process by which the borrower can address
lenders mistakes. The commenter believes the Agency should implement
appeal rights pursuant to 42 U.S.C. 1480(g). The Agency is finalizing
the elimination of the need for Agency concurrence for all loss
mitigation plans. The suggestion to add appeal processes beyond what is
already provided for Sec.  3555.4 is unnecessary and outside the scope
of the proposed rule. No change is made to this provision.
    One respondent suggested the Agency should require lenders to
provide servicing plans to borrowers. They stated RHS should require
the lender to simultaneously provide the borrower with copies of all
servicing plans submitted to the Agency regarding the borrower's loan.
RESPA and Regulation X (12 CFR part 1024), administered by the CFPB,
govern mortgage servicing disclosure requirements. It is unnecessary
for the Agency to duplicate or add to those requirements. No change is
made in this provision.
    One respondent requested the Agency to clarify that unpaid
principal balance is not counted twice in the modification calculation
and RHS should make it clear how the terms of modifications are
calculated to avoid confusion. The Agency agrees and will clarify the
language in sections Sec.  3555.303(b)(3)(ii) for traditional servicing
loan modifications and the new Sec.  3555.304(c)(1) for special
servicing extended term loan modifications.
    One respondent proposed three changes to the updated regulation
that are outside of the scope of the published proposed rule. The first
recommended the Agency fully implement the FHA-Home Affordable
Modification Program (HAMP) waterfall. The second was a suggestion to
include language in required notices and form documents to clearly
identify the loan status. The third called for the implementation of
payment moratorium options for borrowers in default. These items are
outside of the scope of this rulemaking and not necessary at this time.
No change is made to this provision.
    One respondent stated the Agency should eliminate the debt-to-
income cap and clarify that lenders must waive late fees in connection
with a successful loss mitigation. The Agency does not consider these
suggestions as necessary at this time, and they are outside the scope
of the proposed rule. No change is made to this provision.
    One respondent suggested RHS should modernize its data collection
systems and its quality control process to improve its evaluation of
loss mitigation options. These items were not addressed in the proposed
rule and are considered to be outside of the scope. No change is made
in response to this comment.
    The loss mitigation changes will offer borrowers faster and greater
payment relief early in the loan delinquency. The changes will continue
to increase homeownership success and decrease foreclosures. The Agency
expects a corresponding reduction in lender-owned properties resulting
in greater community stability as well as decreased expenses associated
with foreclosure and property disposition.
Executive Order 12866, Classification
    This 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.
Congressional Review Act
    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as not a major rule, as defined by 5 U.S.C. 804(2).
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 the SFHGLP, but if they do apply
and are selected for funding, they must comply with the requirements
applicable to the
[[Page 70885]]
Federal program funds. This final rule is not retroactive. It will not
affect agreements entered 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 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
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 that this rule change will not have a significant impact on a
substantial number of small entities. This rule does not impose any
significant new requirements on Agency applicants and borrowers, and
the regulatory changes affect only Agency determination of program
benefits for guarantees of loans made to individuals.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
    Executive Order 13175 imposes requirements on RHS 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 a Tribe determines that this rule has implications of
which RHS is not aware and would like to engage with RHS on this rule,
please contact USDA's Native American Coordinator at (720) 544-2911 or
[email protected].
Executive Order 12372, Intergovernmental Consultation
    These loans are subject to the provisions of Executive Order 12372,
which require intergovernmental consultation with State and local
officials. RHS conducts intergovernmental consultations for each SFHGLP
loan in accordance with 2 CFR part 415, subpart C.
Programs Affected
    The program affected by this regulation is listed in the 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 and record keeping requirements
contained in this regulation have been approved by OMB in accordance
with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The
assigned OMB control number is 0570-0179.
E-Government Act Compliance
    The Agency is committed to complying with the E-Government Act, 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.
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 http://www.ascr.usda.gov/complaint_filing_cust.html 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 3555
    Home improvement, Loan Programs--Housing and community development,
Eligible loan purpose, Construction, Loan terms, Mortgages, Rural
areas.
[[Page 70886]]
    Therefore, chapter XXXV, title 7 of the Code of Federal Regulations
is amended 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.
0
2. Amend Sec.  3555.10 in the definition of Settlement date to by
revising the introductory text and adding paragraph (5) to read as
follows:
Sec.  3555.10  Definitions and abbreviations.
* * * * *
    Settlement date. The settlement date, for the purpose of loss
calculation, is:
* * * * *
    (5) The date title is acquired upon recordation of a deed-in-lieu
of foreclosure, with prior approval of the lender.
* * * * *
0
3. Amend Sec.  3555.51 by adding a new second sentence to paragraph
(b)(1) to read as follows:
Sec.  3555.51  Lender eligibility.
* * * * *
    (b) * * *
    (1) * * * Lenders must also comply with all other applicable
federal, state, and local laws, rules, and requirements, including
those under the purview of the Consumer Financial Protection Bureau,
such as the Real Estate Settlement Procedures Act and the Truth in
Lending Act. * * *
* * * * *
0
4. Amend Sec.  3555.301 by revising paragraph (h) to read as follows:
Sec.  3555.301  General servicing techniques.
* * * * *
    (h) Formal servicing plan. The lender must report a formal
servicing plan to the Agency utilizing a web-based automated system
when a borrower's account is delinquent for 90 days or more and a
method other than foreclosure is recommended to solve the delinquency.
0
5. Amend Sec.  3555.302 by revising the last sentence in paragraph (b)
to read as follows:
Sec.  3555.302  Protective advances.
* * * * *
    (b) * * * The lender must obtain prior Agency concurrence before
issuing protective advances under this paragraph of a significant
amount as specified by the Agency.
0
6. Amend Sec.  3555.303 by revising paragraphs (b)(3)(i), (ii), and (v)
to read as follows:
Sec.  3555.303  Traditional servicing options.
* * * * *
    (b) * * *
    (3) * * *
    (i) Loan modifications must be a fixed interest rate and cannot
exceed the market interest rate at the time of modification.
    (ii) Loan modifications may capitalize all or a portion of the
arrearage and/or reamortization of the balance due including
foreclosure fees and costs, tax and insurance advances, and past due
Agency annual fees imposed by the lender. Late charges and lender fees
may not be capitalized.
* * * * *
    (v) Lenders may require that borrowers complete a trial payment
plan prior to making scheduled payments amended by the traditional loan
servicing loan modification.
* * * * *
0
7. Amend Sec.  3555.304 by:
0
a. Removing paragraph (a)(2);
0
b. Redesignating paragraphs (a)(3) and (4) as paragraphs (a)(2) and
(3);
0
c. Adding new paragraph(a)(4); and
0
d. Revising paragraphs (c)(1) and (2) and (d)(1) and (2).
    The addition and revisions read as follows:
Sec.  3555.304  Special servicing options.
    (a) * * *
    (4) If the borrower currently has a mortgage payment to income
ratio of 31 percent or less, special servicing options can be utilized
to cure the delinquency without modifying the note; otherwise, special
servicing options shall be used in the order established in this
section to bring the borrower's mortgage payment to income ratio as
close as possible to, but not less than, 31 percent.
* * * * *
    (c) * * *
    (1) Loan modifications may capitalize all or a portion of the
arrearage and/or reamortization of the balance due including
foreclosure fees and costs, tax and insurance advances, and past due
Agency annual fees imposed by the lender. Late charges and lender fees
may not be capitalized.
    (2) 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.
* * * * *
    (d) * * *
    (1) The maximum amount of a mortgage recovery advance is 30 percent
of the unpaid principal balance as of the date of initial default. The
Agency may change the maximum amount of mortgage recovery advance by
publication in the Federal Register.
    (2) If the borrower's total monthly mortgage payment is less than
31 percent of gross monthly income 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.
* * * * *
0
8. Amend Sec.  3555.305 by revising the introductory text and paragraph
(a)(1) to read as follows:
Sec.  3555.305  Voluntary liquidation.
    The lender must have exhausted the servicing options outlined in
Sec. Sec.  3555.302 through 3555.304 to cure the delinquency before
considering voluntary liquidation. The methods of voluntary liquidation
of the security property outlined in this section may be used to
protect the interests of the Government.
    (a) * * *
    (1) The loan is at least 30 days delinquent or meets the imminent
default definition as outlined in Sec.  3555.303(a)(2);
* * * * *
0
9. Amend Sec.  3555.306 by revising paragraph (f) to read as follows:
Sec.  3555.306  Liquidation.
* * * * *
    (f) Lender acquisition of title. If at liquidation, the title to
the property is conveyed to the lender, the lender will submit a loss
claim package, including a market value appraisal, within 60 days of
the foreclosure sale date or the date the lender acquires title. If
eviction action is required in order to obtain a market value
appraisal, the lender must submit the loss claim package, including the
market value appraisal, within 60 days of the date the occupants clear
the premises. The lender must submit the loss claim request, including
the market value appraisal, in accordance with subpart H.
* * * * *
0
10. Amend Sec.  3555.352 by revising paragraphs (c) and (e) to read as
follows:
Sec.  3555.352  Loss covered by the guarantee.
* * * * *
    (c) Additional interest. Additional interest on the unsatisfied
principal accrued from the settlement date to the date the claim is
paid, but not more than 60 days from the settlement date;
* * * * *
    (e) Liquidation costs. Reasonable and customary liquidation costs,
such as
[[Page 70887]]
attorney fees, market value appraisals, and foreclosure costs. Annual
fees advanced by the lender to the Agency are ineligible for
reimbursement when calculating the loss claim payment.
0
11. Amend Sec.  3555.353 by revising paragraphs (a) introductory text
and (b) to read as follows:
Sec.  3555.353  Net recovery value.
* * * * *
    (a) For a property that has been sold. When a loss claim is filed
on a property that was sold to a third party at the foreclosure sale or
through an approved pre-foreclosure sale, net recovery value is
calculated as follows:
* * * * *
    (b) For a property that has been acquired. When a loss claim is
filed on a property acquired by the lender through a foreclosure sale
or a deed-in-lieu of foreclosure, the net recovery value is based on an
estimated sales price calculated using a market value appraisal along
with holding and disposition costs calculated using the acquisition and
management factor (also known as the VA Net Value Factor) published by
the VA, and other factors as determined by the Agency. The lender must
submit a loss claim package, including a market value appraisal, within
60 days of the foreclosure sale date or the date the lender acquires
title. If eviction action is required in order to obtain a market value
appraisal, the lender must submit the loss claim package, including the
market value appraisal, within 60 days of the date the occupants clear
the premises and in accordance with other requirements of this subpart.
with any loss claim request in accordance with subpart H.
0
12. Amend Sec.  3555.354 by revising the introductory text and
paragraph (b) to read as follows:
Sec.  3555.354  Loss claim procedures.
    All lenders must use a web-based automated system designated by the
Agency to submit all loss claim requests.
* * * * *
    (b) REO. If at liquidation, the title to the property is conveyed
to the lender, the lender will submit a loss claim package, including a
market value appraisal, within 60 days of the foreclosure sale date or
the date the lender acquires title. If eviction action is required in
order to obtain a market value appraisal, the lender must submit the
loss claim package within 60 days of the date the occupants clear the
premises. The lender must order a market value appraisal and include
the market value appraisal with the loss claim package. The Agency will
use the market value appraisal, along with other Agency required
documentation, to determine the property value for the basis of the
loss claim. The Agency will apply an acquisition and management resale
factor to estimate holding and disposition costs, based on the most
current VA Management and Acquisition Factor found at https://
www.benefits.va.gov/HOMELOANS/servicers_valeri.asp.
* * * * *
Sec.  3555.356  [Removed and Reserved]
0
13. Remove and reserve Sec.  3555.356.
    Dated: November 25, 2019.
Bruce W. Lammers,
Administrator, Rural Housing Service.
[FR Doc. 2019-27504 Filed 12-23-19; 8:45 am]
BILLING CODE 3410-XV-P