Single Family Housing Guaranteed Loan Program, 6418-6430 [2016-01872]

Download as PDF 6418 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations Subpart O—Sun Grant Program DEPARTMENT OF AGRICULTURE § 3430.1001 Rural Housing Service [Amended] 21. In § 3430.1001, in paragraph (d), remove the words ‘‘the Department of Energy’’ and add in their place ‘‘other appropriate Federal agencies (as determined by the Secretary)’’. ■ § 3430.1002 7 CFR Part 3555 RIN 0575–AC18 Single Family Housing Guaranteed Loan Program [Amended] Rural Housing Service, USDA. Final rule. 22. In § 3430.1002, remove the definition for the term ‘‘gasification.’’ AGENCY: § 3430.1003 SUMMARY: ■ ACTION: 24. In § 3430.1004, in paragraph (a)(1), remove the words ‘‘multistate research, extension, and education programs on technology development and multiinstitutional and multistate integrated research, extension, and education programs on technology implementation’’ and add in their place the words ‘‘integrated, multistate research, extension, and education programs on technology development and technology implementation’’. This final rule follows publication of the December 9, 2013, interim final rule and makes changes in response to public comment and further consideration of certain issues by the Rural Housing Service (RHS or Agency) to the Single Family Housing Guaranteed Loan Program (SFHGLP). The changes made by this final rule are designed to further improve and clarify Agency instructions while strengthening and enhancing the SFHGLP process by reducing regulations, improving customer service to achieve greater efficiency, flexibility and effectiveness. This rule will allow RHS to manage the program more effectively and reduce SFHGLP risk of loss. DATES: This rule is effective on March 9, 2016. FOR FURTHER INFORMATION CONTACT: Lilian Lipton, 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: (202) 720–1452, email is lilian.lipton@ wdc.usda.gov. § 3430.1005 SUPPLEMENTARY INFORMATION: [Amended] 23. In § 3430.1003: a. In paragraph (a)(1), remove the words ‘‘at South Dakota State University’’; ■ b. In paragraph (a)(2), remove the words ‘‘at University of Tennessee at Knoxville’’; ■ c. In paragraph (a)(3), remove the words ‘‘at Oklahoma State University’’; ■ d. In paragraph (a)(4), remove the words ‘‘at Cornell University’’; ■ e. In paragraph (a)(5), remove the words ‘‘at Oregon State University’’; and ■ f. In paragraph (a)(6), remove the words ‘‘at the University of Hawaii’’. ■ ■ § 3430.1004 [Amended] ■ [Amended] 25. In § 3430.1005, in paragraph (b), remove the words ‘‘each of the five Centers’’ and add in their place the words ‘‘the Centers’’. ■ Executive Order 12866, Classification § 3430.1007 This final rule has been determined to be non-significant by the Office of Management and Budget (OMB) under Executive Order 12866. [Amended] 26. In § 3430.1007: a. In the first sentence of paragraph (a), remove the words ‘‘gasification’’ and ‘‘the Department of Energy’’ and add in their place the words ‘‘bioproducts’’ and ‘‘other appropriate Federal agencies’’ respectively; and ■ b. Remove the second and third sentences of paragraph (a). ■ c. Remove and reserve paragraph (b). asabaliauskas on DSK5VPTVN1PROD with RULES ■ ■ Done at Washington, DC, this 21 day of January, 2016. Sonny Ramaswamy, Director, National Institute of Food and Agriculture. [FR Doc. 2016–02213 Filed 2–5–16; 8:45 am] BILLING CODE 3410–22–P VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 Executive Order 12988, Civil Justice Reform This 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 PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 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 costbenefit 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 1940, subpart G, ‘‘Environmental Program.’’ 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 E:\FR\FM\08FER1.SGM 08FER1 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations 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 This executive order imposes requirements on Rural Development in the development of regulatory policies that have Tribal implications or preempt tribal laws. Rural Development has determined that the proposed 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 rule is not subject to the requirements of Executive Order 13175. If a Tribe determines that this rule has implications of which RD is not aware and would like to engage with RD on this rule, please contact RD’s Native American Coordinator at (720) 544– 2911 or AIAN@wdc.usda.gov. Executive Order 12372, Intergovernmental Consultation This program/activity is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. (See the Notice 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). Programs Affected This program 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). asabaliauskas on DSK5VPTVN1PROD with RULES 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. 3501 et seq.). The assigned OMB control number is 0575–0179. E-Government Act Compliance The Rural Housing Service is committed to complying with the EGovernment Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 Government information and services, and for other purposes. Non-Discrimination Policy The U.S. Department of Agriculture (USDA) prohibits discrimination against its customers, employees, and applicants for employment on the bases of race, color, national origin, age, disability, sex, gender identity, religion, reprisal, and where applicable, political beliefs, marital status, familial or parental status, sexual orientation, or all or part of an individual’s income is derived from any public assistance program, or protected genetic information in employment or in any program or activity conducted or funded by the Department. (Not all prohibited bases will apply to all programs and/or employment activities.) If you wish to file a Civil Rights program complaint of discrimination, complete the USDA Program Discrimination Complaint Form (PDF), found online at http:// www.ascr.usda.gov/complaint_filing_ cust.html, or at any USDA office, or call (866) 632–9992 to request the form. You may also write a letter containing all of the information requested in the form. Send your completed complaint form or letter to us by mail at U.S. Department of Agriculture, Director, Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 20250– 9410, by fax (202) 690–7442 or email at program.intake@usda.gov. Individuals who are deaf, hard of hearing or have speech disabilities and you wish to file either an EEO or program complaint please contact USDA through the Federal Relay Service at (800) 877–8339 or (800) 845– 6136 (in Spanish). Persons with disabilities who wish to file a program complaint, please see information above on how to contact us by mail directly or by email. If you require alternative means of communication for program information (e.g., Braille, large print, audiotape, etc.) please contact USDA’s TARGET Center at (202) 720–2600 (voice and TDD). I. Background Information On December 9, 2013, at 78 FR 73928, RHS published for public comment an interim final rule (December 2013 interim final rule) to replace an existing rule and process that was outdated. The December 2013 interim final rule submitted for public comment was intended to make the process of utilizing the SFHGLP clearer and streamlined in an effort to achieve greater efficiency, flexibility and effectiveness in managing the SFHGLP. The principles that guided RHS in the PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 6419 development of this rule are included in the December 2013 interim final rule. The public comment period for the December 2013 interim final rule closed on January 8, 2014. The effective date of implementation was to occur on September 1, 2014. In response to numerous requests to extend the implementation period and the desire of RHS to allow ample time for lenders and consumers to receive training and implement changes that occurred with the implementation of the interim final rule, RHS announced a delayed implementation date. This announcement was made by publication of a notice in the Federal Register on August 22, 2014 (79 FR 49659). Effective with the announcement on August 22, 2014, the effective date of the interim final rule was delayed from September 1, 2014, to December 1, 2014. II. This Final Rule; Changes to the December 9, 2013, Interim Final Rule This final rule follows publication of the December 9, 2013, interim final rule and takes into consideration the public comments received. The public comment period on the interim final rule closed on January 8, 2014. RHS received comments from twelve respondents consisting of eight lenders, an Agency employee and two interest groups. The comments were not substantive in nature, resulting in minor changes to the final rule. Most commenters were supportive of the interim final rule and commenters were satisfied with the technical guidance provided in the accompanying release of the Technical Handbook, ‘‘SFH Guaranteed Loan Program Technical Handbook’’ which accompanied the December 2013 interim final rule, available at: http://www.rd.usda.gov/ publications/regulations-guidelines/ handbooks. RHS did not receive any comments that opposed the rule. After careful consideration of the issues raised by the commenters, RHS will adopt an amended version of the interim final rule. None of the changes are considered material. Specifically RHS has made the following changes to the December 2013 interim final rule: 1. Editorial and technical changes. This rule clarifies terminology and provides editorial and technical changes to correct cross-references in the rule, punctuation, grammar and spelling at the following Sections: § 3555.5(d)(7) § 3555.101(b)(6)(x) and (xi) § 3555.103(a) § 3555.107(h) § 3555.151(h)(2) § 3555.151(i)(2) § 3555.256(b)(2)(vi) E:\FR\FM\08FER1.SGM 08FER1 6420 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations asabaliauskas on DSK5VPTVN1PROD with RULES § 3555.306(f)(1) 2. Environmental requirements. This final rule will expand an applicant’s ability to purchase a flood insurance policy at § 3555.5(d)(5) and (6) for a dwelling in a Special Flood Hazard Area (SFHA) from a private insurance company meeting the requirements of 42 U.S.C. 4012a (b)(1)(A). Additionally, the word ‘‘habitable’’ has been removed from the December 2013 interim final rule at § 3555.5(d)(7) to coincide with language utilized by the Federal Emergency Management Agency (FEMA). 3. Discount points as an eligible loan purpose. RHS has reconsidered comments received in response to the 2013 interim final rule regarding discount points as a permissible loan purpose for moderate-income applicants at § 3555.101(b)(6)(vi). In reconsidering the comment, RHS will allow discount points in the final rule, as a permissible loan purpose, to ‘‘buy-down’’ the interest rate for moderate income applicants in addition to low-income applicants. The December 2013 interim final rule limited discount points as an eligible loan purpose to low-income applicants only. The Agency changed its position regarding discount points as an eligible loan purpose to allow all applicants the opportunity to lower the interest rate on the home loan. The Agency previously argued that moderate income borrowers were less likely to need to obtain a lower interest rate. Purchasing mortgage points is very common practice. It doesn’t always make financial sense. Since this option may reduce the monthly mortgage payments and savings in accrued interest over the life of the loan, the Agency reconsidered its positon by allowing the applicant to determine if financing discount points will make financial sense for the applicant. This optional loan purpose is considered a prepaid mortgage cost, limiting the maximum loan amount to the appraised value of the collateral offered with the mortgage loan request. If utilized, the interest rate prior to reduction must be no greater than the maximum rate revealed at § 3555.104(a). 4. Loan terms. At § 3555.104(a)(3) under loan terms, the December 2013 interim final rule adopted the current Freddie Mac required net yield in addition to the existing Fannie Mae posted yield for 90-day delivery to establish the interest rate of the loan. Freddie Mac has now ceased publication of their net yield rate. The final rule will permit lenders to establish the interest rate with the current Fannie Mae posted yield for 90- VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 day delivery (actual/actual) for 30-year fixed rate conventional loans plus 1 percent, rounded up to the nearest onequarter of 1 percent and will remove language applicable to the Freddie Mac required net yield. 5. Combination construction and permanent loan. The December 2013 interim final rule limited a contractor or builder at § 3555.105(b)(6) to 25 units per year unless approved by the Agency. In response to comments, RHS is removing this language. Additionally, the final rule provides that the combination construction and permanent loan feature of the SFHGLP may be utilized for a manufactured home if the builder’s contract includes the sum of the cost of the unit and all on-site installation costs. The December 2013 interim final rule prohibited manufactured homes as an eligible loan purpose for this feature at § 3555.105(c). 6. Credit qualifications. Section 3555.151(i)(3)(ii) required applicants who had entered into a bankruptcy debt restructuring plan to have 12 months of seasoned established credit after completion of the plan prior considering the applicants credit favorable. Respondents to the December 2013 interim final rule requested RHS align the language with that of like Federal programs. Like Federal programs, such as the U.S. Department of Housing Urban and Development and U.S. Department of Veterans Affairs allow lenders to consider applicants favorable with a partially completed bankruptcy debt restructuring plan. Having considered the comments, the Agency will amend the final rule for continuity with like Federal programs. The final rule will allow applicants who have a 12 month pay out period under the bankruptcy debt restructuring plan elapsed to be considered satisfactory, provided payment performance was satisfactory and permission from the Trustee or Bankruptcy Judge is obtained to allow additional debt for the applicant. 7. Loan modification plan. The December 2013 interim final rule established language to extend the terms of a loan modification for up to 30 years from the date of the loan modification at § 3555.303(b)(3)(iii). However it limited the guarantee to the date and terms established at issuance of the guarantee. The guarantee would not apply beyond the original 30 year loan term. The final rule provides authority to extend the guarantee to coincide with the terms of a loan modification that meets the eligibility criteria as noted in § 3555.303. 8. Extended-term loan modification. The December 2013 interim final rule PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 allowed lenders under special servicing options at § 3555.304(c) to extend the repayment term up to a maximum of 40 years from the date of loan modification through use of an extended-term loan modification. However, the December 2013 interim final rule at § 3555.304(a)(3) limited the existing guarantee to the terms of the loan note guarantee. The final rule provides authority to extend the guarantee to coincide with the terms of an extendterm loan modification meeting eligibility criteria of that section. III. Discussion of Public Comments Received on the December 9, 2013, Interim Final Rule The following section of the preamble presents a summary of substantive issues raised by the public in response to the December 2013 interim final rule and the RHS response to these issues. § 3555.4 Mediation and Appeals Comment: The final rule should be modified to clarify that any participant receiving an adverse decision can appeal an RHS decision. RHS Response: The Technical Handbook accompanying the implementation of the December 2013 interim final rule sets forth the criteria for appeal in accordance with 7 CFR parts 1 and 11. Furthermore, notice of any administrative appeal rights will be included in adverse decision letters. The final rule has not been amended based upon this comment. § 3555.5 Environmental Requirements Comment: The final rule should be amended to accept private flood insurance policies. The Biggert-Waters Flood Reform Act of 2012 promotes acceptance of flood insurance by private mortgage companies, as opposed to flood policies issued by the Federal Government as part of the National Flood Insurance Program. RHS Response: The final rule has been amended based upon this comment. RHS will accept flood insurance by private mortgage companies that meet the requirements of 42 U.S.C. 4012a (b)(1)(A). The Technical Handbook accompanying publication of the December 2013 interim final rule outlined the eligibility of private flood insurance policies. Comment. Amend the flood insurance language to ensure flood insurance coverage coincides with the National Flood Insurance Act of 1968, as amended. RHS Response. Flood insurance coverage and policy details are clarified in the Technical Handbook implemented with the December 2013 E:\FR\FM\08FER1.SGM 08FER1 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations interim final rule. RHS has not amended the final rule based upon this comment. § 3555.7 Exception Authority Comment: The final rule should be amended to reflect the requirement that exception authority reasons be documented. RHS Response: The Technical Handbook accompanying the implementation of the December 2013 interim final rule clarified the internal requirements surrounding documenting and submitting a request for exception authority to the RHS Administrator. The Agency has not amended the final rule based upon this comment. asabaliauskas on DSK5VPTVN1PROD with RULES § 3555.54 Sale of Loans to Approved Lenders Comment: Provide clarification regarding the sale of loans to approved lenders. Specifically, provide clarification surrounding the liability of purchasing and servicing lenders for origination errors. RHS Response: RHS has not amended the final rule based upon these comments. Section 3555.54 addresses the sale of loans to approved lenders and sets forth the policies surrounding the eligibility of entities and obligations the participating lender is bound to. Approved lenders may be an originator, a servicer or may hold the loan. The eligibility of entities to become an approved lender and enter into a lender agreement is set forth at § 3555.51. A loan may be serviced by an entity that does not hold a valid lender agreement. The approved lender holding the loan remains responsible for the actions of the servicer. In reference to the purchasing lender’s liability surrounding origination errors, § 3555.108(d) sets forth requirements surrounding indemnification when an approved originating lender fails to meet the criteria. § 3555.101 Loan Purposes Comment: The respondent requests the cost to design and construct access to broadband services as an eligible loan purpose. RHS Response: The Technical Handbook accompanying the implementation of the December 2013 interim final rule clarified the requirements surrounding eligibility of broadband services. RHS has not amended the final rule based upon this comment. Comment: Add language to § 3555.101(d)(3)(vi) to coincide with text in the preamble of the December 2013 interim final rule regarding refinancing as an eligible loan purpose. The respondent suggested adding VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 language ‘‘unless otherwise provided by the Agency’’ to the last sentence of the section referenced in the final rule to coincide with language published in the December 2013 interim final rule preamble for clarification. RHS Response: Paragraph (d)(3)(vi) of § 3555.101 is amended to correct an omission of language in the interim final rule that led to a discrepancy between the statement in the preamble to the text of that rule. Some documentation, costs and underwriting requirements of subparts D, E and F may not apply to a refinance transaction. The last sentence of paragraph (d)(3)(vi) of § 3555.101 is amended to read: ‘‘Documentation, costs, and underwriting requirements for subparts, D, E, and F of this part apply to refinances, unless otherwise provided by the Agency. § 3555.102 Loan Restrictions Comment: The respondent requests RHS clarify the language in the final rule surrounding seller concession limitations. The respondent proposes additional language to exclude lender credits which can be contributed towards an applicant’s closing costs. Additionally the respondent requests excluding a lender cure payment, as a result of undisclosed items on the Good Faith Estimate, from the maximum concession limitation. RHS Response: RHS has not amended the rule based upon this comment. Internal administrative procedures have been removed from the rule and are provided in the Technical Handbook implemented with the December 2013 interim final rule. The purpose of the Technical Handbook is to remove the detailed administrative instructions and allow for a responsive update to the handbook to mortgage industry changes. Details and guidance regarding seller concession limitations can be found in the Agency’s Handbook. Should questions surrounding premium pricing and penalties for lender cures arise, the Technical Handbook will be updated to provide further guidance. § 3555.104 Loan Terms Comment: As of January, 2013, Freddie Mac no longer publishes the Required Net Yield (RNY) information. Because it is not published, it is not feasible for lenders to be required to utilize this rate. The reference to this requirement should be removed. RHS Response: RHS concurs with this respondent and has removed the language in the final rule that requires a comparison to the maximum interest rate of the loan to Freddie Mac’s RNY. In addition, the final rule corrects the PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 6421 reference to the Web site containing information relevant to the calculation of maximum interest rate. Comment: Respondent supports an extended repayment period of 40 years since credit unions may offer repayment terms of up to 40 years for residential mortgage loans. RHS Response: RHS is unable to amend the final rule based upon this comment. The Housing Act of 1949 [42 U.S.C. 1472], as amended, limits the term of the guarantee to 30 years at section 502(h)(7)(A) of the Act. § 3555.105 Combination Construction and Permanent Loans Comment: RHS should clarify language with additional detail surrounding contractor/builder method, the limitation of 25 units per year per builder and introductory language. RHS Response: The Agency has amended the rule based upon this comment. The Agency will no longer limit the builder to 25 units per year without further approval by RHS. Instead the Agency will rely upon the lender and the technical guidelines set forth in the accompanying Technical Handbook implemented with the December 2013 interim final rule that provides the administrative instructions and detail of processing the combination construction and permanent loan feature and qualifying the builder for participation in the combination construction to permanent feature. Comment: Respondent requests reference to ‘‘annual guarantee fee’’ be struck and replaced with ‘‘annual fee’’ at § 3555.105(d)(3). RHS Response: The Agency agrees with the respondent and will amend the language at § 3555.105(d)(3) for language consistency to coincide with language in the final rule that implemented the annual fee published in the Federal Register (77 FR 40785) on July 11, 2012. The word ‘‘guarantee’’ will be removed from the section reference in the final rule. § 3555.107 Application for and Issuance of the Loan Guarantee Comment: The Agency should amend the rule to allow a validity period for an appraisal of 180 days in lieu of 120 days. The respondent indicates the application process together with increased federal regulations surrounding mortgage loan processing is now lengthy and the appraisal could expire during the application process. RHS Response: RHS has not amended the final rule based upon this comment. The validity period of the appraisal report coincides with that of other E:\FR\FM\08FER1.SGM 08FER1 6422 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations Federal agencies, such as the US Department of Housing Urban and Development, along with Government Sponsored Enterprise (Fannie Mae and Freddie Mac) who require the age of the appraisal report to be no greater than four months old on the date of note. Additional technical guidance can be found in the Technical Handbook published and implemented with the December 2013 interim final rule. § 3555.108 Full Faith and Credit Comment: The December 2013 interim final rule removed the clear distinction between the originating lender and servicing lender regarding indemnification. This may prevent servicing lenders from fully embracing the program limiting the benefits of servicing competition for the borrower and lenders. RHS Response: RHS agrees to add the word ‘‘originating’’ to the sentence referencing the continued eligibility of the lender. The use of the word will further clarify the intent of indemnification when a lender fails to originate a loan in accordance with requirements. It will coincide with language in the final rule implementing indemnification for the SFHGLP that holds originating lenders accountable in the future should the Agency seek indemnification from the lender if a loss is paid under certain circumstances. The final rule implementing indemnification was published in the Federal Register (76 FR 31217) on May 31, 2011. The Technical Handbook accompanying the implementation of the December 2013 interim final rule expands upon the details surrounding the criteria outlined. asabaliauskas on DSK5VPTVN1PROD with RULES § 3555.151 Eligibility Requirements Comment: One commenter requests clarification at § 3555.151(e) on how the ‘‘current home no longer adequately meets the applicant’s needs’’ when considering eligibility of a household for the SFHGLP, who owns a home and intends to retain it. RHS Response: The Agency has not amended the final rule based upon this comment. The Technical Handbook, released with the implementation of the December 2013 interim final rule provides the administrative procedures and details surrounding the language in the December 2013 interim final rule. The Handbook expands upon further guidance and possible examples when a home no longer meets the needs of the applicant. Comment: The respondent requests expanded language at § 3555.151(e)(4) to require documentation if the applicants VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 are unable to secure conventional financing. RHS Response: RHS has not amended the substance of this provision in response to this comment. The Technical Handbook, implemented with the December 2013 interim final rule, which provides the administrative procedures, expands upon the criteria to confirm the applicant’s eligibility for the SFHGLP, including eligibility for conventional financing. The applicant must be ineligible for conventional financing, based upon the criteria outlined in the Handbook, for a lender to continue with the application under the SFHGLP. Comment: Amend the language to include missing text at § 3555.151(h)(2) to clarify language of a sentence. The sentence pertaining to repayment ability should read ‘‘The Handbook will define when a debt ratio waiver may be granted’’ as opposed to ‘‘The Handbook will define when a debt ratio may be granted.’’ RHS Response: RHS agrees with this comment as recommended and will amend the final rule to correct an editorial omission of text in the December 2013 interim final rule. Comment: Amend language at § 3555.151(i)(2) to clarify text to indicate ‘‘a loan’s acceptance’’. RHS Response: RHS agrees with this editorial comment and will amend the text of the final rule to clarify the sentence. Comment: The commenter proposes to amend the final rule at § 3555.151(i)(3)(ii) by allowing applicant(s) who are presently in a Chapter 13 bankruptcy plan to qualify if the applicant has been in the plan for at least 12 months and payments under the plan have been paid as agreed. RHS Response: The Agency agrees with this comment. The mortgage industry and other like Federal Agencies offering insurance and guarantees allow the applicant to be in an active bankruptcy repayment plan, provided 12 months of the pay-out period under the bankruptcy has elapsed and the applicant’s payment performance has been satisfactory with all required payments made on time, and written permission from the bankruptcy court to enter into the mortgage transaction is obtained. For those lenders who utilize the Agency’s automated underwriting system, if the Chapter 13 bankruptcy has not been discharged for a minimum period of two years, the underwriting recommendation will generate a Refer underwriting recommendation requiring manual underwriting. PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 Comment: A concern was expressed that the language requiring credit counseling may be difficult to implement based on available financing for these programs. The commenter requests RHS to publish a list of counseling programs readily available to all applicants and lenders. Moreover, the commenter requests RHS to require Agency personnel when conditioning for credit counseling in response to a lender’s request for Conditional Commitment confirm what credit counseling programs are available in the geographic area of the applicant. RHS Response: The language in the December 2013 interim final rule is consistent with the language and process found at 7 CFR part 1980, subpart D, § 1980.309(d)(4), which expired upon implementation of the December 2013 interim final rule. Credit counseling remains a supported educational opportunity, carried out by the lender. The Section 502 direct lending program, administered under 7 CFR part 3550, at § 3550.11 requires the State Director to assess the availability of certified homeownership education providers in their respective states. A list of providers, including the reasonable costs, if any, to the participant is maintained by each state as a requirement to the referenced rule which is offered by RHS separate to the SFHGLP in each state. A list is available on each state Web site and can be accessed at: http://www.rd.usda.gov/. Therefore no change will be implemented to this final rule as a result of this comment. § 3555.152 Calculation of Income and Assets Comment: Require applicant’s to be employed, maintain employment and work towards paying off the loan. RHS Response: RHS supports individual loan performance in order to fulfill its statutory obligation to the SFHGLP. The Agency has not changed the substance of the language as a result of this comment. Comment: Section 3555.152(b)(2) requires lenders to obtain and verify household income for all household members in order to determine the income eligibility of the household for the SFHGLP. Verification of income for the past 24 months is a regulatory change over the previous rule governing the SFHGLP (7 CFR part 1980, subpart D, which expired with implementation of the December 2013 interim final rule) and is excessive and provides no additional benefit to the applicant or RHS. RHS Response: Household income eligibility is a critical component of E:\FR\FM\08FER1.SGM 08FER1 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations asabaliauskas on DSK5VPTVN1PROD with RULES every application. Requiring lenders to verify and validate the income of all household members for the previous 2 years assures the public that only truly eligible households are provided assistance under the SFHGLP. Additionally this provision is consistent with language provided in RHS Section 502 direct lending program, found at 7 CFR part 3550 and was a recommendation by the Office of Inspector General (OIG) in an audit (Audit Report 04703–02–Ch dated September 2011) of the SFHGLP. RHS has not amended the final rule based upon this comment. § 3555.202 Dwelling Requirements Comment: Objection to removal of minimal thermal efficiency requirements for existing homes. The commenter was concerned language countered the Government’s energy reduction and energy independence goals. RHS Response: As noted in the preamble of the December 2013 interim final rule, thermal standards for existing homes was removed from the rule as published in the Federal Register (72 FR 70220) on December 11, 2007. The Agency will make no change to the present language in the final rule as a result of this comment. Energy efficient homes for both new and existing construction are encouraged as provided under § 3555.209 under the Rural Energy Plus loans. Comment: One comment was received in regards to the amount of funds required to cover an interior or exterior escrow holdback. Under the rule that expired (7 CFR part 1980, subpart D) with implementation of the December 2013 interim final rule, the commenter felt the language should require escrow accounts for exterior development be funded at 150 percent of the cost of completion. The commenter requests the language in the final rule at § 3555.202(c) be amended to require their interpretation of the language found at the now expired 7 CFR part 1980, subpart D. The commenter cited risks of fund shortages, cost overruns and a builder’s failure to complete improvements as their premise for modifying the language. RHS Response: While the Agency appreciates the comment on this issue, the final rule regarding funding the escrow for future development is consistent with the practice found at the now expired 7 CFR part 1980, subpart D. Under the former rule and the December 2013 interim final rule, lenders are required to fund an escrow account in an amount sufficient to assure the completion of the remaining VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 work. The language further encourages that amount to be 150 percent of the cost of completion, but may be higher if the lender determines a higher amount is needed. The final rule continues to encourage the lender to fund the escrow at a higher amount, if needed, but at a minimum requires the figure to be at least 100 percent of the cost of completion. Lenders may make an internal business decision to fund an escrow account at a higher amount. As a result of this comment, RHS will make no change to the language in the final rule. § 3555.205 Special Requirements for Condominiums Comment: Clarity is requested in the language surrounding what requirements should be followed and when a condominium unit becomes ineligible for lending. RHS Response: RHS has not amended the substance of this provision in response to this comment. The Technical Handbook implemented with the December 2013 interim final rule, provides the administrative procedures and expands upon the detailed criteria to confirm requirements for lending on condominium units. § 3555.251 Servicing Responsibility Comment: One respondent requested more detail in § 3555.251(c) surrounding the process of notification, the lender’s rights and opportunities to cure deficiencies when it is determined by the Agency that an approved lender has failed to provide acceptable servicing. RHS Response. The language in this final rule remains unchanged by RHS. The Technical Handbook implemented with the December 2013 interim final rule provides the details surrounding the expectations of loan servicing and monitoring responsibilities of lenders. When a lender has uncorrected performance problems, the Handbook outlines the actions the Agency will take regarding notification and appeal rights surrounding a termination. § 3555.252 Required Servicing Actions Comment: One comment was received requesting § 3555.252(c)(2) of the final rule be amended to remove language requiring the borrower to notify the lender when damage occurs to the property. RHS Response: RHS has not amended the rule based on this comment. The Agency believes that the regulatory language is clear and consistent with standard industry practice requiring borrowers to notify the lender when damage is sustained to a property and PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 6423 hazard insurance proceeds will be disbursed. The Agency will issue additional guidance regarding insurance should it determine such clarification is necessary. Policy encompassing a lender’s responsibility to processing of hazard insurance proceeds as a result of damage to the security is detailed in the accompanying Technical Handbook implemented with the December 2013 interim final rule. Comment: The language at § 3555.252(d) should be revised to include exceptions to reporting to credit bureaus when loans are in Presidentially declared disaster areas and loans involving the Service members Civil Relief Act. RHS Response: RHS has not amended the rule based upon this comment. The provisions of the December 2013 interim final rule emphasize a lender’s existing and continued responsibility to reporting defaulted mortgages to credit bureaus. Loans involving Service members Civil Relief Act will be subject to the provisions of the Act. Loans located in presidentially declared disaster areas may require special guidance. RHS will issue additional guidance should it determine clarification is necessary. The language as written pertains to the general servicing reporting requirements applicable to most SFHGLP loans. § 3555.254 Final Payments Comment: One commenter requested RHS provide additional clarification regarding the release of security instruments. Presently the language at § 3555.254 indicates lenders may release security instruments only after full payment of all amounts have been received. The commenter indicated if a lender’s decision is to not file a loss claim, the final decision to release security documents should lie with the lender. RHS Response: The intent of the language is to ensure and enforce that lenders cannot release security documents until a satisfaction of the debt in full has occurred. In response to this comment, RHS has amended the rule to add clarification. § 3555.256 Transfer and Assumptions Comment: The words ‘‘continue with guarantee’’ are confusing at § 3555.256(d)(2)(ii). The commenter requests clarity. RHS Response: RHS has not amended the rule based on this comment. The Agency believes that the regulatory language is clear in that RHS will continue with the guarantee, as opposed to voiding the guarantee in situations meeting the criteria of the section. RHS E:\FR\FM\08FER1.SGM 08FER1 6424 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations asabaliauskas on DSK5VPTVN1PROD with RULES will issue additional guidance regarding a transfer that does not trigger the dueon-sale clause should it determine such clarification is necessary. Comment: A respondent indicated § 3555.256(d)(2)(iii) should be clarified to confirm a concurrent loan assumption and modification could occur if a transferee meeting the criteria assumes the guaranteed loan when the loan is past due. The commenter found the language ‘‘re-amortized’’ in the section confusing since it is not listed under § 3555.10 Definition and abbreviations of the rule. RHS Response: RHS has not amended the rule based on this comment. When a transferee meets the criteria set forth in the section referenced, the regulatory language allows the transferee to assume on the rates and terms of the original promissory note and in the case of a delinquent account, allows the transferee ‘‘at the time the assumption agreement is executed’’ to bring the loan current through reamortization. RHS believes the language ‘‘at the time the assumption agreement is executed’’ is clear and concise that the two actions would be concurrent. Regarding the definition of reamortization, the Technical Handbook, accompanying the release of the December 2013 interim final rule provides an extensive list of terminology and definitions, including reamortization, while the rule addresses substantive definitions. Reamortization is a common mortgage industry term referring to modifying the loan. Comment: The commenter requests clarification of § 3555.256(d)(3) and restrictions imposed for transfer of title triggering the due-on-sale clause. RHS Response: RHS released a Technical Handbook with implementation of the December 2013 interim final rule, which provides the details and restrictions imposed for transfer of title triggering the due-onsale clause. As a result of this comment, RHS has not modified the final rule. § 3555.257 Unauthorized Assistance Comment: In reference to § 3555.277(b), a commenter questioned the lender’s ability to prove the applicant’s eligibility should the lender be challenged on inaccurate information in response to unauthorized assistance. Specifically in question was if the lender utilized RHS’s automated underwriting system when submitting the loan to the Agency, how the lender would prove the applicant was eligible if the Agency’s automated underwriting system rendered an acceptable recommendation. RHS Response: Lenders are required to retain a permanent record of the VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 applicant’s request. The final underwriting recommendation obtained from the Agency’s automated underwriting system becomes part of the lender’s permanent record. Data reflected in the automated system must reflect and support information in the permanent file record retained by the lender. The records should support the lender’s ability to prove the applicant’s eligibility. Further, the Agency’s automated underwriting system is a tool utilized to streamline the decision of the lender, but does not replace the lender’s final determination to qualify the household for the SFHGLP or the loan request. No change to the final rule as a result of this comment has been made. § 3555.301 General Servicing Techniques Comment: One comment was received in regards to language used surrounding past due accounts found at § 3555.301(e). Verbiage in the December 2013 interim final rule references months past due while the Consumer Financial Protection Bureau (CFPB) (12 CFR part 1026) measures payments past due in days. It was suggested the Agency align our language with CFPB. RHS Response: RHS will amend the rule in Sections referencing months, as applicable, for continuity with CFPB when referencing the measurement of delinquent past due amounts. The Agency publishes, as a tool for lenders, a Loss Mitigation Guide. The Agency’s Loss Mitigation Guide published at https://usdalinc.sc.egov.usda.gov/ USDALincTrainingResourceLib.do currently provides for measurement in ‘‘months/days’’ format in response to CFPB language. § 3555.302 Protective Advances Comment: One commenter requested clarification of protective advances for costs other than taxes and insurance. They questioned if this section pertained to advances incurred prior to a foreclosure sale, or those that occur once a foreclosure sale occurs. RHS Response: RHS has not revised the substance of this provision in response to the comment. The Agency believes the language flow of the rule provides for a waterfall of loss mitigation workout alternatives from general servicing at § 3555.302, followed by traditional servicing (§ 3555.303), then by special loan servicing (§ 3555.304) prior to voluntary or involuntary liquidation (§§ 3555.305 and 3555.306). The language in these sections provides the guidance, expectations and flow of order for servicing non-performing loans. With consideration for the comment, this PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 final rule makes one minor change to the wording of this provision by referring to the protective advance expense as advances prior to liquidation, for clarification. § 3555.303 Options Traditional Servicing Comment: Several comments were received in regard to traditional servicing options. The majority of comments requested clarification on details surrounding servicing options, such as if the agreement needs to be in writing, the maximum interest rate for modifications, fees and costs included in a loan modification, and eligibility for trial payments. RHS Response: RHS published a Technical Handbook which accompanied the implementation of the December 2013 interim final rule. The Handbook provides the information which responds to the commenters request for detailed information for offering servicing options to homeowners. In response to comments, RHS has added clarification at § 3555.303(b)(3) to confirm that the loan modification must be a written agreement, the interest rate must be fixed, the rate of interest cannot exceed the original rate of the loan note guarantee issued and trial payments for traditional loan modifications are not required. Comment: One comment received urged the Agency to adopt, as a servicing option, a moratorium of payments, similar to that offered in the Section 502 SFH Direct lending program offered by the Agency under 7 CFR part 3550. RHS Response: Traditional and special loan servicing options provide for various forbearance agreements, which in part could temporarily suspend or reduce payments. The Agency believes the forbearance agreement option (see § 3555.10 definition of forbearance agreement) does provide for a moratorium (suspension) of payments temporarily, if warranted, based upon the circumstances of the loan serviced. The Technical Handbook accompanying the publication of the December 2013 interim final rule provides additional details and loss mitigation workout alternatives. RHS has not amended the rule based upon this comment. Comment: RHS should extend the guarantee at § 3555.303(b)(3)(iii) to cover the full term of a loan modification as opposed to limiting the modification to the original term as referenced in the December 2013 interim final rule. The commenter feels E:\FR\FM\08FER1.SGM 08FER1 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations asabaliauskas on DSK5VPTVN1PROD with RULES it will expand a lender’s ability to assist a homeowner become successful. RHS Response: RHS agrees with the comment. To that end, the Agency has amended the final rule based on this comment to extend the guarantee to the loan term of the loan modification, provided the loan modification meets the eligibility criteria set forth in § 3555.303(b)(3). § 3555.304 Special Servicing Options Comment: A comment was received regarding the required pre-modification trial payment period found at § 3555.304(b)(2). The commenter indicated that trial payment periods premodification decrease the flexibility to assist borrowers and could lead to greater losses for the Agency. RHS Response: RHS disagrees with this comment in regards to trial payments required at § 3555.304(b)(2). In the waterfall of loss mitigation options, once the lender has determined the use of traditional loan servicing options will not cure the borrower default, the use of special loan servicing options are considered. The objective of special loan servicing options is to offer struggling homeowners who are at risk of foreclosure reduced monthly mortgage payments that are affordable and sustainable over the long-term. Trial payment periods allow a borrower to demonstrate recovery from the financial problem by making 3 or 4 payments at the modified amount, after which the delinquent amount is capitalized into the modified loan. A trial period will help ensure the borrower can meet the modified terms and verify the proposed servicing plan will succeed in helping the borrower afford their home. If they are unable to demonstrate their ability to make their modified mortgage payment before being placed into a permanent modification, the lender can assist with a more suitable alternative to foreclosure that meets the borrower’s needs. Many loan servicers’ guidelines, other than RHS, require a trial period. Trial payments are a mortgage industry standard. Additionally, this provision is included to minimize loss to the government. RHS has not amended the final rule based upon this comment. Comment: Comments were received regarding the determination of the interest rate. Lenders requested reconsideration to the requirement to reduce an interest rate on an extendedterm loan modification at § 3555.304(c). Historically rates have been low. Lenders viewed this requirement as an impediment to assisting borrowers who were delinquent or in imminent default. Additionally lenders questioned if the interest rate, at execution of the VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 modification agreement, was required to meet the maximum allowable interest rate at noted at § 3555.304(c)(2). RHS Response: Maximum interest rates cannot exceed the published rate as noted in § 3555.304(c)(2) if lowering the interest rate; or the interest rate of the loan guarantee issued. Reducing the rate is not a required condition to an extended-term loan modification in § 3555.305(c). RHS will amend the final rule to correct language at § 3555.304(c)(2) which references the maximum interest rate is tied to the date the loan modification is executed. Language will be corrected to indicate the maximum interest rate will be tied to when the loan modification is approved. RHS Comment: Multiple comments were received regarding the waterfall of loss mitigation options that must be considered prior to utilizing a mortgage recovery advance in § 3555.304(c). Concern was expressed that lenders would be forced to utilize an extendedterm loan modification with a 40 year term. When the loan is in a Ginnie Mae pool the lender must repurchase it to complete a loan modification. Requiring a 40 year term together with not extending the guarantee beyond the original maturity date subjects the lender to vulnerability that Ginnie Mae may not repurchase the loan after the modification occurs and that lenders may incur greater future losses if liquidated. RHS Response: Pursuant to § 3555.304(c)(4), if the targeted mortgage payment to income ratio cannot be achieved using an extended-term loan modification, then the lender may consider a mortgage recovery advance. Before considering a mortgage recovery advance, the lender must extend the repayment term for 30 years from the date of loan modification. The lender may extend the repayment term for 40 years from the date of loan modification, but the lender is not required to do so before utilizing a mortgage recovery advance. This language affords the lenders the flexibility to adhere to specific investor loan modification term extension requirements while encouraging lenders to achieve the targeted mortgage payment to income ratio using the servicing option(s) that will be least expensive for the government. Use of the mortgage recovery advance is limited because the mortgage recovery advance will be most expensive for the government. By imposing restrictions, RHS will promote the reduction of mortgage foreclosures in a cost-effective manner. Language at this section is unchanged regarding extended-term loan modification from PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 6425 the final rule implementing special servicing options published August 26, 2010 (75 FR 52429) which became effective September 24, 2010. RHS has amended § 3555.305(c)(1) and (c) for clarity in response to comments. Comment: One comment was received regarding the mortgage recovery advance special servicing option at § 3555.304(d). The commenter felt if the agency reimburses the lender for eligible advances, additional full financial risk and responsibility on the agency potentially will increase the cost to the overall SFHGLP. RHS Response: Lenders will advance, after obtaining Agency approval, for any Mortgage Recovery Advance that meets the criteria set forth in the December 2013 interim final rule and supplemented by a Technical Handbook. Pursuant to § 3555.304(d)(7) and with language of the published final rule (75 FR 52429 published August 26, 2010) in connection with the introduction of special loan servicing options, the lender may file a request for partial loss claim to obtain reimbursement of the eligible funds advanced. The claim for reimbursement will be processed by the Agency in advance of any final loss claim reimbursement (occurring after liquidation)—provided the lender has secured adequate security and the borrower is eligible for the advance. A future loss claim filed by a lender after liquidation will be adjusted by any amount of mortgage recovery advance reimbursed to the lender by the Agency. Borrowers are not required to make any monthly or periodic payments on the Mortgage Recovery Advance as outlined in § 3555.304(d)(6)(ii). The mortgage recovery advance is due and payable pursuant to § 3555.304(d)(6)(iii). The Agency has made no change to their collection procedures presently exercised on loss payments paid that do not involve a mortgage recovery advance. In accordance with § 3555.304(d)(6)(v), RHS may pursue collection of the Federal debt from the borrower by any available means if the mortgage recovery advance is not repaid based on the terms in the promissory note and mortgage or deed-of-trust. This same approach is performed on loss payments that do not involve a mortgage recovery advance. Therefore, additional financial risk and responsibility to the Agency has not increased with publication of this rule. RHS has not amended the final rule based on this comment. Comment: A comment was received questioning the maximum Mortgage Recovery Advance (MRA) at § 3555.304(d). The respondent E:\FR\FM\08FER1.SGM 08FER1 asabaliauskas on DSK5VPTVN1PROD with RULES 6426 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations questioned how the advance will be determined and if the MRA maximum is not advanced on an initial MRA, can the balance of the maximum calculation of MRA be applied to another future MRA. RHS Response: RHS released a Technical Handbook and Loss Mitigation Guide with implementation of the December 2013 interim final rule. The handbook and guide outlines the details surrounding the eligibility and calculation of a maximum recovery advance. To be eligible, the lender must consider an extended-term loan modification of at least 30 years and set the interest rate not to exceed the maximum allowable rate as further outlined in § 3555.304(c)(1) and (2). If the targeted mortgage payment to income cannot be achieved using an extended-term loan modification, the lender may consider a mortgage recovery advance. The maximum mortgage recovery advance (up to 30 percent of the unpaid principal balance as of the date of default) consists of the sum of arrearages not to exceed 12 months of principal, interest, taxes and insurance (PITI); legal fees and foreclosure costs related to a cancelled foreclosure action; and principal reduction as outlined in § 3555.304(d)(1) and (2). The principal deferment on the modified mortgage is determined by multiplying the unpaid principal balance by 30 percent and then reducing that amount by arrearages advanced to cure the default and any foreclosure costs incurred to that point. The principal deferment amount for a specific case shall be limited to the amount that will bring the borrower’s total monthly mortgage payment to 31 percent of gross monthly income. In response to the comment, the following is an example of the calculation of a maximum Mortgage Recovery Advance when utilizing the Special Loan Servicing: Example. Unpaid Principal Balance = $150,000 • Current Monthly Payment (PITI) = $1,220 (Principal and Interest = $920 + Taxes and Insurance = $300) • Current Other Recurring Debt = $800 • Monthly Gross Income = $3,500 • Number of Payments Past Due = 3 • Total Arrearage = $3,660 • Maximum Mortgage Recovery Advance = $150,000 × 30% = $45,000 • Maximum Monthly Mortgage Payment = $3,500 × 31% = $1,085 (Front Ratio) • Maximum Total Monthly Debt = $3,500 × 55% = $1,925 (Back Ratio) Special loan servicing is permitted one time over the life of the loan. RHS has not amended the final rule in response to this comment. VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 Comment: One commenter felt the language in the December 2013 interim final rule changed the definition of the maximum mortgage recovery advance at § 3555.304(d). RHS Response: The December 2013 interim final rule language at § 3555.304(d) incorporated the published final rule introducing the special loan servicing options available to lenders (75 FR 52429 published August 26, 2010). Details on eligibility, processing, approval, documentation requirements, and reimbursement to the lender can be found in the Technical Handbook and Loss Mitigation Guide implemented with the December 2013 interim final rule. RHS has not amended the final rule in response to this comment. Comment: Clarification was requested on § 3555.304(d)(iv) on collecting the Mortgage Recovery Advance from the borrower. Concern was expressed if the lender was responsible for paying off the borrower’s MRA once a borrower voluntarily or involuntarily transfers title to the property. RHS Response: Pursuant to § 3555.304(d)(6) the lender must have the borrower execute a promissory note payable to RHS and a mortgage or deedof-trust in recordable form perfecting a lien naming RHS as the security party for the amount of the mortgage recovery advance. The lender will record the mortgage or deed-of-trust in the appropriate local real estate records and provide the original promissory note to RHS. The Mortgage Recovery Advance will be interest free. Borrowers are not required to make any monthly or periodic payment; however, the borrower may voluntarily submit partial payment without incurring any prepayment penalty. The payment of the Mortgage Recovery Advance is not due until the earliest of (i) the maturity of the modified mortgage; (ii) the borrower transfers title to the property (by sale or by other voluntary or involuntary means), or (iii) a payoff of the mortgage. Pursuant to § 3555(d)(8) any RHS reimbursement issued for the Mortgage Recovery Advance to the lender on behalf of the borrower will be credited toward the maximum loan guarantee amount payable by the Agency under the guarantee. This credit or reduction in the ultimate loss claim payment is necessary since the Mortgage Recovery Advance is a partial claim under the guarantee. The lender is not expected to collect on the Mortgage Recovery Advance. RHS has not changed the final rule in response to this comment as § 3555.304(d) provides the provisions a lender must follow and additional administrative details are PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 available through the Technical Handbook and Loss Mitigation Guide implemented with the December 2013 interim final rule. § 3555.305 Voluntary Liquidation Comment: To be eligible for a voluntary liquidation option, § 3555.305(a)(3) indicates the borrower must presently occupy the property, unless non-occupancy is related to the same involuntary reason leading to the default. One comment was received asking for further relief and flexibility should the borrower act in good faith in vacating the premises to facilitate a preforeclosure sale or due to a financial hardship. RHS Response: RHS has not amended the rule based upon this comment. Further guidance and detail is provided in the Technical Handbook accompanying the implementation of the December 2013 interim final rule. To be eligible to participate in a voluntary liquidation, the borrower must occupy the property as their primary residence. A non-occupant borrower who seeks a voluntary liquidation option may be eligible should the lender verify that the need to vacate is related to the cause of the default, such as job loss (financial hardship), a mandatory employment transfer, divorce or death, for example. RHS feels the flexibility provided to allow non-occupant borrower eligibility for voluntary liquidation is a lenient standard and any further flexibility is not acceptable from a risk management perspective. § 3555.306 Liquidation Comment: One commenter requested that the lender should be able to assign the loan to the government when the default occurs and prior to liquidation in accordance with the Housing Act of 1949. RHS Response: The Housing Act of 1949, as amended, at section 502(h)(15) provides the option to the program to allow a lender to transfer a loan in default to the government prior to liquidation. RHS has not exercised this option. RHS has selected a more cost effective strategy by requiring lenders to liquidate and sell an acquired property, while RHS exercises oversight and verifies proper use of government funds. Should RHS exercise the language available in the Housing Act in the future, language will be published. RHS has not amended the final rule in response to this comment. Comment: A respondent expressed concern regarding the requirement that in addition to a borrower paying all past-due amounts, advances and any E:\FR\FM\08FER1.SGM 08FER1 asabaliauskas on DSK5VPTVN1PROD with RULES Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations foreclosure costs when reinstating an account in liquidation a borrower must have the ability to continue making the scheduled payments on the loan pursuant to language found at § 3555.306(c)(2). Clarification was requested on what actions by the lender are necessary to perform or comply with ensuring the borrower has the ability to continue making the scheduled payments on the loan if the loan is paid current and all fees are paid. RHS Response: RHS has considered the language and action questioned. RHS has omitted reference to the borrower’s ability to continue making scheduled payments when the loan is paid current and all fees are paid as noted in § 3555.306(c). Comment: One respondent indicated § 3555.306(d)(3) seems to mandate creditors to force a debtor to reaffirm a debt. The respondent indicated most jurisdictions allow a ‘‘retain and pay’’ option, so that the debtor continues to pay the mortgage but is discharged of the personal liability by virtue of the Chapter 7 discharge. The respondent requested clarification on the language in the section in question. RHS Response: Language in the § 3555.306(d)(3) provides the flexibility the respondent is seeking by instructing the lender to seek a reaffirmation under the criteria noted, whenever possible. RHS has not amended the final rule in response to this comment. Comment: Concern was expressed by a respondent in reference to language found at § 3555.306(f)(3) of the December 2013 interim final rule. The respondent felt the language limited the lender in the sale of property once the marketing period for an acquired property expired. The language indicates it is the Agency’s responsibility to obtain a liquidation value appraisal. Often times the lender’s receipt of that appraisal is delayed. The respondent is seeking assurance the lender can continue to sell the property while waiting for the Agency to respond with the determined liquidation value. Additionally the respondent expressed concern on the balance of language at § 3555.306(f)(3) which limited accrued interest paid a loss claim to 90 days from the foreclosure sale or expiration of redemption period when calculating a loss claim request of the Agency. RHS Response: Pursuant to § 3555.306(f)(3), to ensure the lender proactively seeks maximum recovery from the sale of the acquired property, RHS requires the lender to notify the Agency if the security property held for disposition remains unsold once the marketing period expires. The Agency orders a liquidation value appraisal in VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 response to notification and provides the lender with the results of the report. With the value determined, a loss claim is calculated based upon a management sale factor, which estimates holding and resale costs. In response to the commenter who is seeking Agency approval to allow continued marketing while waiting for a liquidation value appraisal, once the marketing period has expired, and the lender has notified the Agency of the expiration, the loss claim will be calculated based upon a liquidation value appraisal pursuant to § 3555.354(b). Additionally, the referenced section caps accrued interest to the first 90 days of the marketing period. This requirement assures the program goals are met in a cost-effective manner and minimizes loss to the government. The Technical Handbook implemented with the December 2013 interim final rule provides an aggressive marketing and sales approach for lenders which when followed should result in a sale of acquired property within 90 days of foreclosure or redemption. As a result of guidance provided, RHS has not amended the final rule in response to this comment. § 3555.307 Assistance in Natural Disasters Comment: Comments were received proposing slight phrase changes for clarification regarding special relief measures available when a natural disaster is designated found at § 3555.307(c). RHS Response: The Agency has considered the request of commenters. While no substantive changes are made to the rule as written, the Agency has agreed to modify language slightly for clarification. § 3555.354 Loss Claim Procedures Comment: One comment was received reporting the concern that RHS will no longer conduct an audit to determine why a loan failed and if there was reason to reduce or deny the loss claim. RHS Response: Details surrounding processing loss claim requests and reduction or denial of a proposed claim can be found in the Technical Handbook accompanying the implementation of the December 2013 interim final rule. The Handbook indicates the Agency will review each loss claim for adherence to program regulation and make any reductions and/or denial of loss claim with information provided by the lender. RHS has not amended the final rule based upon this comment. Comment: One comment was received requesting the Agency to implement a partial claim payment option as PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 6427 provided for in the Housing Act of 1949, as amended. RHS Response: The December 2013 interim final rule at § 3555.304(d)(7) provides for reimbursement from the Agency to the lender for a Mortgage Recovery Advance. This claim process is a partial claim payment filed by a lender in response to a Mortgage Recovery Advance under special servicing options (§ 3555.304). The Housing Act of 1949, as amended, at section 502(h)(14) provides this authority. The lender must comply with requirements set forth in § 3555.304(d)(7) when requesting a partial claim. Any future loss claim filed by a lender is adjusted by any amount of Mortgage Recovery Advance reimbursed to the lender by the Agency. RHS has not amended the final rule based on this comment since language in the December 2013 interim final rule provided for a partial claim payment under the guarantee in response to the Mortgage Recovery Advance by the lender. Comment: Several comments were received in response to penalties imposed as a result of untimely submission of a disposition plan at acquisition or loss claim report once a property held by the lender is sold. Commenters felt the possible penalties implied were unduly harsh. RHS Response: RHS establishes delivery timelines for lenders to report; file claims or update records for essential documents in the servicing, loss mitigation, liquidation, acquisition and loss claim process. Time lines establish prompt response requiring lenders to comply with corresponding expectations. Time lines for regulatory compliance, for example—filing a claim, require actions by the lender and impose penalties associated with noncompliance with those timelines. Establishing expected timelines are a common method in the mortgage industry to insure a lender is responsibly attentive and focuses with reasonable due diligence in carrying out tasks associated with non-performing borrowers. Curtailment or penalties on claims when reasonable diligence and/ or reporting requirements are not met are common in the mortgage industry as with other federal agencies such as HUD or VA who insure or guarantee a lender’s loan. The December 2013 interim final rule at § 3555.354 outlines what may occur should a lender fail to act timely. It also provides for extenuating circumstances beyond the lenders control by utilizing the language ‘‘may’’ be imposed when referring to denying or reducing a claim. This language allows flexibility the E:\FR\FM\08FER1.SGM 08FER1 6428 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations commenters are seeking based upon circumstances surrounding untimely filings. Additional detail regarding possible imposed penalties can be found in the Agency’s Technical Handbook that accompanied the implementation of the December 2013 interim final rule. RHS has not amended the final rule in response to these comments. § 3555.355 Claim Reducing or Denying the RHS Comment: A comment was submitted in response to language in the rule that allows the Agency to reduce or deny a claim when a lender failed to follow regulatory time frames in servicing and liquidating, including payment of real estate taxes or hazard insurance premiums when due. The commenter requested that the rule define that a direct correlation and casual connection between the lender’s action or failure to act occurred which impaired the collateral and ultimately increased the loss. RHS Response: In response to the comment, the RHS feels language at § 3555.355(a) is consistent with the commenter’s request for flexibility in that it provides language indicating RHS may reduce or deny any loss claim by the portion of the loss determined was caused by the lender’s action or failure to act. Additional detail surrounding time frames imposed and penalties for a lenders failure to act can be found in the Agency’s Technical Handbook that was implemented with the December 2013 interim final rule. The final rule does not revise the Agency’s approach to reducing or denying a claim for a lender’s failure to comply with the conditions of the Loan Note Guarantee. List of Subjects in 7 CFR Part 3555 Home improvement, Loan Programs— Housing and community development, Mortgage insurance, Mortgages, Rural areas. For the reason stated in the preamble, chapter XVIII, part 3555, title 7 of the Code of Federal Regulations is amended as follows: PART 3555—GUARANTEED RURAL HOUSING PROGRAM 1. The authority citation for part 3555 continues to read as follows: asabaliauskas on DSK5VPTVN1PROD with RULES ■ Authority: 5 U.S.C. 301, 42 U.S.C. 1471et seq. § 3555.5 Environmental requirements. * * * * * (d) * * * (5) The lender must comply with Federally mandated flood insurance purchase requirements. Existing dwellings in a SFHA are not eligible under the SFHGLP unless flood insurance through the FEMA National Flood Insurance Program (NFIP) is available for the community and flood insurance, whether NFIP, ‘‘write your own,’’ or private flood insurance, is purchased by the borrower. The lender will require the borrower to obtain, and maintain for the term of the mortgage, flood insurance for any property located in a SFHA, listing the lender as a loss payee. Purchase of existing structures within the federally regulated floodplain will not require consideration of alternatives to avoid adverse effects and incompatible development in floodplains; (6) The borrower must obtain, and continuously maintain for the life of the mortgage, flood insurance on the security property in an amount sufficient to protect the property securing the guaranteed loan. Flood insurance policies must be issued under the NFIP, or by a licensed property and casualty insurance company authorized to participate in NFIP’s ‘‘Write Your Own’’ program or private flood insurance policy, as approved by the lender. Lenders are required to accept private flood insurance policies, when purchased by a borrower, that meet the requirements of 42 U.S.C. 4012a (b)(1)(A). Lenders remain responsible to ensure a private flood insurance policy meets the requirements of 42 U.S.C. 4012a (b)(1)(A). (7) Rural Development will not guarantee loans for new or proposed homes in an SFHA unless the lender obtains a final Letter of Map Amendment (LOMA) or a final Letter of Map Revision (LOMR) that removes the property from the SFHA, or performs an alternatives analysis in compliance with the Agencies National Environmental Policy Act regulation and obtains a FEMA elevation certificate that shows that the lowest floor (including basement) of the dwelling and all related building improvements are built at or above the 100-year flood plain elevation in compliance with the NFIP. 2. Amend § 3555.5 by revising paragraphs (d)(5) through (7) to read as follows: ■ VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 § 3555.103 Maximum loan amount. 3. Amend § 3555.101 by revising paragraphs (b)(6)(vi), (b)(6)(x), (b)(6)(xi), and (d)(3)(vi) to read as follows: * * * * (a) Market value. The market value of the property as determined by an appraisal that meets Agency requirements plus the amount of the upfront loan guarantee fee required by § 3555.107(g), or * * * * * ■ 5. Amend § 3555.104 by revising paragraph (a)(3) to read as follows: § 3555.101 Loan purposes. § 3555.104 * * Subpart C—Loan Requirements ■ Subpart A—General (b) * * * (6) * * * (vi) Reasonable and customary loan discount points to reduce the note interest rate from the rate authorized in § 3555.104(a). * * * * * (x) The amount of the loan up-front guarantee fee required by § 3555.107(g). (xi) The cost of establishing a cushion in the mortgage escrow account for payment of the annual fee required by § 3555.107(h), not to exceed 2 months. * * * * * (d) * * * (3) * * * (vi) Two options for refinancing can be offered. Lenders may offer a streamlined refinance for existing Section 502 Guaranteed loans, which does not require a new appraisal. Streamlined financing may not be available for existing Section 502 Direct loans. The lender will pay off the principal balance of the existing Section 502 Guaranteed loan. The new loan amount cannot include any accrued interest, closing costs or lender fees. The refinance up-front guarantee fee as established by the Agency can be included in the loan to be refinanced to the extent financing does not exceed the original loan amount. Lenders may offer non-streamlined refinancing for existing Section 502 Guaranteed or Direct loans, which requires a new and current market value appraisal. The new loan may include the principal and interest of the existing Agency loan, reasonable closing costs and lenders fees to extent there is sufficient equity in the property as determined by an appraisal. The appraised value may be exceeded by the amount of up-front guarantee fee financed, if any, when using the nonstreamlined option. Documentation, costs, and underwriting requirements of subparts D, E, and F of this part apply to refinances, unless otherwise provided by the Agency. * * * * * ■ 4. Amend § 3555.103 by revising paragraph (a) to read as follows: PO 00000 * Frm 00018 * Fmt 4700 * Sfmt 4700 * Loan terms. (a) * * * E:\FR\FM\08FER1.SGM 08FER1 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations (3) Does not exceed the Fannie Mae rate for 30 year fixed rate conventional loans, as authorized in Exhibit B of subpart A of part 1810 of this Chapter (RD Instruction 440.1, available in any Rural Development office) or online at: http://www.rd.usda.gov/publications/ regulations-guidelines and * * * * * ■ 6. Amend § 3555.105 by: ■ a. Removing paragraph (b)(6)and redesignating paragraph (b)(7) as (b)(6); and ■ b. Revising paragraphs (c)(1) and (d)(3). The revisions read as follows: § 3555.108 Full faith and credit. * * * * * (d) Indemnification. If the Agency determines that a lender did not originate a loan in accordance with the requirements in this part and the Agency pays a claim under the loan guarantee, the Agency may revoke the originating lender’s eligibility status in accordance with subpart B and may also require the lender: * * * * * Subpart D—Underwriting the Applicant § 3555.105 Combination construction and permanent loans. 2. Amend § 3555.151 by revising paragraphs (h)(2) introductory text, (i)(2), and (i)(3)(ii) to read as follows: * § 3555.151 * * * * (c) * * * (1) The loan is to finance the construction and purchase of a single family housing residence. Condominiums are ineligible for combination construction and permanent loans. * * * * * (d) * * * (3) Annual fees will begin in the month immediately following loan closing and will not be affected by loan reamortization following the completion of construction. Lenders may fund a lender imposed escrow account for borrower payments of the annual fee in accordance with § 3555.101(b)(6)(xi), as an eligible loan purpose, provided the market value of the property is not exceeded. * * * * * ■ 7. Amend § 3555.107 by revising paragraph (h) to read as follows: § 3555.107 Application for and issuance of the loan guarantee. asabaliauskas on DSK5VPTVN1PROD with RULES * * * * * (h) Annual fee. The Agency may impose an annual fee of the lender not to exceed 0.5 percent of the average annual scheduled unpaid principal balance of the loan for the life of the loan to allow the Agency to reduce the up-front guarantee in § 3555.107(g). The annual fee will be applicable to purchase and refinance loan transactions. The annual fee may be passed on to the borrower by the lender. The Agency may assess a late charge to the lender if the annual fee is not paid by the due date, and the late charge may not be passed on to the borrower. Further administrative guidance is provided in the handbook. * * * * * ■ 8. Amend § 3555.108 by revising paragraph (d) introductory text to read as follows: VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 ■ Eligibility requirements. * * * * * (h) * * * (2) The repayment ratio may exceed the percentage specified in paragraph (h)(1) of this section if certain compensating factors exist. The handbook will define when a debt ratio waiver may be granted. The automated underwriting system will take into account any compensating factors in determining whether the variance is appropriate. For manually underwritten loans, the lender must document compensating factors demonstrating that the household has higher repayment ability based on its capacity, willingness and ability to pay mortgage payments in a timely manner. The presence of compensating factors does not strengthen a ratio exception when multiple layers of risk, such as a marginal credit history, are present in the application. Acceptable compensating factors and supporting documentation for a proposed debt ratio waiver will be further defined and clarified in the handbook. Compensating factors include, but are not limited to: * * * * * (i) * * * (2) A loan’s acceptance by an Agency approved automated underwriting system eliminates the need for the lender to submit documentation of the credit qualification decision as loan approval requirements will be incorporated in the automated system. (3) * * * (ii) A bankruptcy in which debts were discharged within 36 months prior to the date of application by the applicant. A lender may give favorable consideration to applicants who have entered into a bankruptcy debt restructuring plan who have completed 12 months of consecutive payments. The payment performance must have been satisfactory with all required PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 6429 payments made on time, and the Trustee or the Bankruptcy Judge must approve of the new credit. * * * * * Subpart E—Underwriting the Property 3. Amend § 3555.208 by revising paragraph (a)(2) to read as follows: ■ § 3555.208 Special requirements for manufactured homes. * * * * * (a) * * * (2) Site development work properly completed to HUD, state and local government standards, as well as the manufacturer’s requirements for installation on a permanent foundation. * * * * * Subpart F—Servicing Performing Loans 4. Revise § 3555.254 to read as follows: ■ § 3555.254 Final payments. Lenders may release security instruments only after payment for the satisfaction of the full debt, including any recapture, has been received and verified. ■ 5. Amend § 3555.256 by revising paragraph (b)(2)(vi) to read as follows: § 3555.256 Transfer and assumptions. * * * * * (b) * * * (2) * * * (vi) A new guarantee fee, calculated based on the remaining principal balance, must be paid to Rural Development in accordance with § 3555.107(g). * * * * * Subpart G—Servicing Non-Performing Loans 6. Amend § 3555.301 by revising paragraphs (e) and (f) to read as follows: ■ § 3555.301 General servicing techniques * * * * * (e) Communication. Before an account becomes 60 days past due and if there is no payment arrangement in place, the lender must send a certified letter to the borrower requesting an interview for the purpose of resolving the past due account. (f) Prior to liquidation. Before an account becomes 60 days past due or before initiating liquidation, the lender must assess the physical condition of the property, determine whether it is occupied, and take necessary steps to protect the property. * * * * * E:\FR\FM\08FER1.SGM 08FER1 6430 Federal Register / Vol. 81, No. 25 / Monday, February 8, 2016 / Rules and Regulations 7. In § 3555.302, revise the introductory text to read as follows: ■ § 3555.302 Protective advances. Lenders may pay the following preliquidation expenses necessary to protect the security property and charge the cost against the borrower’s account. * * * * * ■ 8. Amend § 3555.303 by: ■ a. Revising paragraphs (b)(3) introductory text and (b)(3)((i) and (iii); ■ b. Adding paragraph (b)(3)(v); and ■ c. Revising paragraph (c). The revisions and addition read as follows: § 3555.303 Traditional servicing options. * * * * * (b) * * * (3) Loan modification plan. A loan modification is a permanent change in one or more of the terms of a loan that results in a payment the borrower can afford and allows the loan to be brought current. A loan modification must be a written agreement. * * * * * (i) Loan modifications must be a fixed interest rate and cannot exceed the interest rate of the loan note guarantee issued. * * * * * (iii) If necessary to demonstrate repayment ability, the loan term after reamortization may be extended for up to 30 years from the date of the loan modification. * * * * * (v) The borrower is not required to complete a trial payment plan prior to making the scheduled payments amended by the traditional loan servicing loan modification. (c) Terms of loan note guarantee. Use of traditional servicing options does not change the terms of the loan note guarantee except when the traditional servicing option meets the requirements of § 3555.303(b)(3)(iv). The loan guarantee will apply to loan terms extending beyond the 30 year loan term from the date of origination when a loan modification meets the criteria set forth in § 3555.303(b)(3)(iv). 8. Amend § 3555.304 by revising paragraphs (c) introductory text and (c)(1) and (2) to read as follows: asabaliauskas on DSK5VPTVN1PROD with RULES ■ § 3555.304 Special servicing options. * * * * * (c) Extended-term loan modification. The Lender may modify the loan by reducing the interest rate to a level at or below the maximum allowable interest rate and extending the repayment term up to a maximum of 40 years from the VerDate Sep<11>2014 16:19 Feb 05, 2016 Jkt 238001 date of loan modification. The loan guarantee will apply to loan terms extending beyond the 30 year loan term from the date of origination when a loan modification meets the criteria set forth in this section. (1) The interest rate must be fixed. The interest rate cannot exceed the interest rate of the loan note guarantee issued. When reducing the interest rate, the maximum rate is subject to paragraph (c)(2) of this section. (2) The Agency may establish the maximum allowable interest rate by publishing a notice of a change in interest rate. A notice of change in interest rate will be published as authorized in Exhibit B of subpart A of part 1810 of this chapter (RD Instruction 440.1, available in any Rural Development office) or online at http://www.rd.usda.gov/publications/ regulations-guidelines/instructions. If the maximum allowable interest rate has not been so established, it shall be 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) rate for 30-year fixed-rate mortgages (U.S. average) rounded to the nearest one-eighth of one percent (0.125%), as of the date the loan modification is approved. * * * * * ■ 9. Amend § 3555.306 by revising paragraphs (c) and (f)(1) to read as follows: § 3555.307 § 3555.306 RIN 1651–AB09 Liquidation. * * * * * (c) Unless State law imposes other requirements, the lender may reinstate an accelerated account if the borrower pays, or makes acceptable arrangements to pay, all past-due amounts, any protective advances, and any foreclosure-related costs incurred by the lender. * * * * * (f) * * * (1) The lender must prepare and maintain a disposition plan on all acquired properties. The lender will submit the property disposition plan and any subsequent changes for Agency concurrence in a timely manner as specified by the Agency. The lender may obtain a waiver of the concurrence requirement as provided for in § 3555.301(h). The plan will include the proposed method for sale of the property, the estimated value based on an appraisal, minimum sale price, itemized estimated costs of the sale, and any other information that could impact the amount of loss on the loan. * * * * * ■ 10. Amend § 3555.307 by revising paragraph (c) to read as follows: PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 Assistance in natural disasters. * * * * * (c) Special relief measures. The servicer must evaluate on an individual case-by-case basis a mortgage that is (or becomes) seriously delinquent as the result of the borrower’s incurring extraordinary damages or expenses related to the natural disaster. The servicer should document its individual mortgage file regarding all servicing actions taken during this time period. The lender must consider all special relief alternatives for disaster assistance available to the borrower prior to suspending collection and foreclosure activities. The suspension of servicing actions will expire 90 days from the declaration date of the natural disaster, unless otherwise extended by the Agency. * * * * * Dated: January 4, 2016. Tony Hernandez, Administrator, Rural Housing Service. [FR Doc. 2016–01872 Filed 2–5–16; 8:45 am] BILLING CODE P DEPARTMENT OF HOMELAND SECURITY 8 CFR Part 212 [USCBP–2016–0003; CBP Dec. 16–03] Elimination of Nonimmigrant Visa Exemption for Certain Caribbean Residents Coming to the United States as H–2A Agricultural Workers U.S. Customs and Border Protection, DHS. ACTION: Interim final rule; solicitation of comments. AGENCY: This interim final rule revises Department of Homeland Security regulations to eliminate the nonimmigrant visa exemption for certain Caribbean residents seeking to come to the United States as H–2A agricultural workers and the spouses or children who accompany or follow these workers to the United States. As a result, these nonimmigrants will be required to have both a valid passport and visa. The Department of State is revising its parallel regulations. DATES: Effective Date: The effective date of the rule is February 19, 2016. Comment Date: Comments must be received by April 8, 2016. ADDRESSES: Please submit comments, identified by docket number, by one of the following methods: SUMMARY: E:\FR\FM\08FER1.SGM 08FER1

Agencies

[Federal Register Volume 81, Number 25 (Monday, February 8, 2016)]
[Rules and Regulations]
[Pages 6418-6430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01872]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

RIN 0575-AC18


Single Family Housing Guaranteed Loan Program

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule follows publication of the December 9, 2013, 
interim final rule and makes changes in response to public comment and 
further consideration of certain issues by the Rural Housing Service 
(RHS or Agency) to the Single Family Housing Guaranteed Loan Program 
(SFHGLP). The changes made by this final rule are designed to further 
improve and clarify Agency instructions while strengthening and 
enhancing the SFHGLP process by reducing regulations, improving 
customer service to achieve greater efficiency, flexibility and 
effectiveness. This rule will allow RHS to manage the program more 
effectively and reduce SFHGLP risk of loss.

DATES: This rule is effective on March 9, 2016.

FOR FURTHER INFORMATION CONTACT: Lilian Lipton, 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: (202) 
720-1452, email is lilian.lipton@wdc.usda.gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866, Classification

    This final rule has been determined to be non-significant by the 
Office of Management and Budget (OMB) under Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This 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 1940, 
subpart G, ``Environmental Program.'' 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

[[Page 6419]]

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

    This executive order imposes requirements on Rural Development in 
the development of regulatory policies that have Tribal implications or 
preempt tribal laws. Rural Development has determined that the proposed 
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 rule is not subject to the requirements of Executive Order 
13175. If a Tribe determines that this rule has implications of which 
RD is not aware and would like to engage with RD on this rule, please 
contact RD's Native American Coordinator at (720) 544-2911 or 
AIAN@wdc.usda.gov.

Executive Order 12372, Intergovernmental Consultation

    This program/activity is not subject to the provisions of Executive 
Order 12372, which require intergovernmental consultation with State 
and local officials. (See the Notice 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).

Programs Affected

    This program 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. 3501 et seq.). The 
assigned OMB control number is 0575-0179.

E-Government Act Compliance

    The Rural Housing Service 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

    The U.S. Department of Agriculture (USDA) prohibits discrimination 
against its customers, employees, and applicants for employment on the 
bases of race, color, national origin, age, disability, sex, gender 
identity, religion, reprisal, and where applicable, political beliefs, 
marital status, familial or parental status, sexual orientation, or all 
or part of an individual's income is derived from any public assistance 
program, or protected genetic information in employment or in any 
program or activity conducted or funded by the Department. (Not all 
prohibited bases will apply to all programs and/or employment 
activities.)
    If you wish to file a Civil Rights program complaint of 
discrimination, complete the USDA Program Discrimination Complaint Form 
(PDF), found online at http://www.ascr.usda.gov/complaint_filing_cust.html, or at any USDA office, or call (866) 632-
9992 to request the form. You may also write a letter containing all of 
the information requested in the form. Send your completed complaint 
form or letter to us by mail at U.S. Department of Agriculture, 
Director, Office of Adjudication, 1400 Independence Avenue SW., 
Washington, DC 20250-9410, by fax (202) 690-7442 or email at 
program.intake@usda.gov.
    Individuals who are deaf, hard of hearing or have speech 
disabilities and you wish to file either an EEO or program complaint 
please contact USDA through the Federal Relay Service at (800) 877-8339 
or (800) 845-6136 (in Spanish).
    Persons with disabilities who wish to file a program complaint, 
please see information above on how to contact us by mail directly or 
by email. If you require alternative means of communication for program 
information (e.g., Braille, large print, audiotape, etc.) please 
contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

I. Background Information

    On December 9, 2013, at 78 FR 73928, RHS published for public 
comment an interim final rule (December 2013 interim final rule) to 
replace an existing rule and process that was outdated. The December 
2013 interim final rule submitted for public comment was intended to 
make the process of utilizing the SFHGLP clearer and streamlined in an 
effort to achieve greater efficiency, flexibility and effectiveness in 
managing the SFHGLP. The principles that guided RHS in the development 
of this rule are included in the December 2013 interim final rule.
    The public comment period for the December 2013 interim final rule 
closed on January 8, 2014. The effective date of implementation was to 
occur on September 1, 2014. In response to numerous requests to extend 
the implementation period and the desire of RHS to allow ample time for 
lenders and consumers to receive training and implement changes that 
occurred with the implementation of the interim final rule, RHS 
announced a delayed implementation date. This announcement was made by 
publication of a notice in the Federal Register on August 22, 2014 (79 
FR 49659). Effective with the announcement on August 22, 2014, the 
effective date of the interim final rule was delayed from September 1, 
2014, to December 1, 2014.

II. This Final Rule; Changes to the December 9, 2013, Interim Final 
Rule

    This final rule follows publication of the December 9, 2013, 
interim final rule and takes into consideration the public comments 
received. The public comment period on the interim final rule closed on 
January 8, 2014. RHS received comments from twelve respondents 
consisting of eight lenders, an Agency employee and two interest 
groups. The comments were not substantive in nature, resulting in minor 
changes to the final rule. Most commenters were supportive of the 
interim final rule and commenters were satisfied with the technical 
guidance provided in the accompanying release of the Technical 
Handbook, ``SFH Guaranteed Loan Program Technical Handbook'' which 
accompanied the December 2013 interim final rule, available at: http://www.rd.usda.gov/publications/regulations-guidelines/handbooks. RHS did 
not receive any comments that opposed the rule.
    After careful consideration of the issues raised by the commenters, 
RHS will adopt an amended version of the interim final rule. None of 
the changes are considered material. Specifically RHS has made the 
following changes to the December 2013 interim final rule:
    1. Editorial and technical changes. This rule clarifies terminology 
and provides editorial and technical changes to correct cross-
references in the rule, punctuation, grammar and spelling at the 
following Sections:

Sec.  3555.5(d)(7)
Sec.  3555.101(b)(6)(x) and (xi)
Sec.  3555.103(a)
Sec.  3555.107(h)
Sec.  3555.151(h)(2)
Sec.  3555.151(i)(2)
Sec.  3555.256(b)(2)(vi)

[[Page 6420]]

Sec.  3555.306(f)(1)

    2. Environmental requirements. This final rule will expand an 
applicant's ability to purchase a flood insurance policy at Sec.  
3555.5(d)(5) and (6) for a dwelling in a Special Flood Hazard Area 
(SFHA) from a private insurance company meeting the requirements of 42 
U.S.C. 4012a (b)(1)(A). Additionally, the word ``habitable'' has been 
removed from the December 2013 interim final rule at Sec.  3555.5(d)(7) 
to coincide with language utilized by the Federal Emergency Management 
Agency (FEMA).
    3. Discount points as an eligible loan purpose. RHS has 
reconsidered comments received in response to the 2013 interim final 
rule regarding discount points as a permissible loan purpose for 
moderate-income applicants at Sec.  3555.101(b)(6)(vi). In 
reconsidering the comment, RHS will allow discount points in the final 
rule, as a permissible loan purpose, to ``buy-down'' the interest rate 
for moderate income applicants in addition to low-income applicants. 
The December 2013 interim final rule limited discount points as an 
eligible loan purpose to low-income applicants only. The Agency changed 
its position regarding discount points as an eligible loan purpose to 
allow all applicants the opportunity to lower the interest rate on the 
home loan. The Agency previously argued that moderate income borrowers 
were less likely to need to obtain a lower interest rate. Purchasing 
mortgage points is very common practice. It doesn't always make 
financial sense. Since this option may reduce the monthly mortgage 
payments and savings in accrued interest over the life of the loan, the 
Agency reconsidered its positon by allowing the applicant to determine 
if financing discount points will make financial sense for the 
applicant. This optional loan purpose is considered a prepaid mortgage 
cost, limiting the maximum loan amount to the appraised value of the 
collateral offered with the mortgage loan request. If utilized, the 
interest rate prior to reduction must be no greater than the maximum 
rate revealed at Sec.  3555.104(a).
    4. Loan terms. At Sec.  3555.104(a)(3) under loan terms, the 
December 2013 interim final rule adopted the current Freddie Mac 
required net yield in addition to the existing Fannie Mae posted yield 
for 90-day delivery to establish the interest rate of the loan. Freddie 
Mac has now ceased publication of their net yield rate. The final rule 
will permit lenders to establish the interest rate with the current 
Fannie Mae posted yield for 90-day delivery (actual/actual) for 30-year 
fixed rate conventional loans plus 1 percent, rounded up to the nearest 
one-quarter of 1 percent and will remove language applicable to the 
Freddie Mac required net yield.
    5. Combination construction and permanent loan. The December 2013 
interim final rule limited a contractor or builder at Sec.  
3555.105(b)(6) to 25 units per year unless approved by the Agency. In 
response to comments, RHS is removing this language. Additionally, the 
final rule provides that the combination construction and permanent 
loan feature of the SFHGLP may be utilized for a manufactured home if 
the builder's contract includes the sum of the cost of the unit and all 
on-site installation costs. The December 2013 interim final rule 
prohibited manufactured homes as an eligible loan purpose for this 
feature at Sec.  3555.105(c).
    6. Credit qualifications. Section 3555.151(i)(3)(ii) required 
applicants who had entered into a bankruptcy debt restructuring plan to 
have 12 months of seasoned established credit after completion of the 
plan prior considering the applicants credit favorable. Respondents to 
the December 2013 interim final rule requested RHS align the language 
with that of like Federal programs. Like Federal programs, such as the 
U.S. Department of Housing Urban and Development and U.S. Department of 
Veterans Affairs allow lenders to consider applicants favorable with a 
partially completed bankruptcy debt restructuring plan. Having 
considered the comments, the Agency will amend the final rule for 
continuity with like Federal programs. The final rule will allow 
applicants who have a 12 month pay out period under the bankruptcy debt 
restructuring plan elapsed to be considered satisfactory, provided 
payment performance was satisfactory and permission from the Trustee or 
Bankruptcy Judge is obtained to allow additional debt for the 
applicant.
    7. Loan modification plan. The December 2013 interim final rule 
established language to extend the terms of a loan modification for up 
to 30 years from the date of the loan modification at Sec.  
3555.303(b)(3)(iii). However it limited the guarantee to the date and 
terms established at issuance of the guarantee. The guarantee would not 
apply beyond the original 30 year loan term. The final rule provides 
authority to extend the guarantee to coincide with the terms of a loan 
modification that meets the eligibility criteria as noted in Sec.  
3555.303.
    8. Extended-term loan modification. The December 2013 interim final 
rule allowed lenders under special servicing options at Sec.  
3555.304(c) to extend the repayment term up to a maximum of 40 years 
from the date of loan modification through use of an extended-term loan 
modification. However, the December 2013 interim final rule at Sec.  
3555.304(a)(3) limited the existing guarantee to the terms of the loan 
note guarantee. The final rule provides authority to extend the 
guarantee to coincide with the terms of an extend-term loan 
modification meeting eligibility criteria of that section.

III. Discussion of Public Comments Received on the December 9, 2013, 
Interim Final Rule

    The following section of the preamble presents a summary of 
substantive issues raised by the public in response to the December 
2013 interim final rule and the RHS response to these issues.

Sec.  3555.4 Mediation and Appeals

    Comment: The final rule should be modified to clarify that any 
participant receiving an adverse decision can appeal an RHS decision.
    RHS Response: The Technical Handbook accompanying the 
implementation of the December 2013 interim final rule sets forth the 
criteria for appeal in accordance with 7 CFR parts 1 and 11. 
Furthermore, notice of any administrative appeal rights will be 
included in adverse decision letters. The final rule has not been 
amended based upon this comment.

Sec.  3555.5 Environmental Requirements

    Comment: The final rule should be amended to accept private flood 
insurance policies. The Biggert-Waters Flood Reform Act of 2012 
promotes acceptance of flood insurance by private mortgage companies, 
as opposed to flood policies issued by the Federal Government as part 
of the National Flood Insurance Program.
    RHS Response: The final rule has been amended based upon this 
comment. RHS will accept flood insurance by private mortgage companies 
that meet the requirements of 42 U.S.C. 4012a (b)(1)(A). The Technical 
Handbook accompanying publication of the December 2013 interim final 
rule outlined the eligibility of private flood insurance policies.
    Comment. Amend the flood insurance language to ensure flood 
insurance coverage coincides with the National Flood Insurance Act of 
1968, as amended.
    RHS Response. Flood insurance coverage and policy details are 
clarified in the Technical Handbook implemented with the December 2013

[[Page 6421]]

interim final rule. RHS has not amended the final rule based upon this 
comment.

Sec.  3555.7 Exception Authority

    Comment: The final rule should be amended to reflect the 
requirement that exception authority reasons be documented.
    RHS Response: The Technical Handbook accompanying the 
implementation of the December 2013 interim final rule clarified the 
internal requirements surrounding documenting and submitting a request 
for exception authority to the RHS Administrator. The Agency has not 
amended the final rule based upon this comment.

Sec.  3555.54 Sale of Loans to Approved Lenders

    Comment: Provide clarification regarding the sale of loans to 
approved lenders. Specifically, provide clarification surrounding the 
liability of purchasing and servicing lenders for origination errors.
    RHS Response: RHS has not amended the final rule based upon these 
comments. Section 3555.54 addresses the sale of loans to approved 
lenders and sets forth the policies surrounding the eligibility of 
entities and obligations the participating lender is bound to. Approved 
lenders may be an originator, a servicer or may hold the loan. The 
eligibility of entities to become an approved lender and enter into a 
lender agreement is set forth at Sec.  3555.51. A loan may be serviced 
by an entity that does not hold a valid lender agreement. The approved 
lender holding the loan remains responsible for the actions of the 
servicer. In reference to the purchasing lender's liability surrounding 
origination errors, Sec.  3555.108(d) sets forth requirements 
surrounding indemnification when an approved originating lender fails 
to meet the criteria.

Sec.  3555.101 Loan Purposes

    Comment: The respondent requests the cost to design and construct 
access to broadband services as an eligible loan purpose.
    RHS Response: The Technical Handbook accompanying the 
implementation of the December 2013 interim final rule clarified the 
requirements surrounding eligibility of broadband services. RHS has not 
amended the final rule based upon this comment.
    Comment: Add language to Sec.  3555.101(d)(3)(vi) to coincide with 
text in the preamble of the December 2013 interim final rule regarding 
refinancing as an eligible loan purpose. The respondent suggested 
adding language ``unless otherwise provided by the Agency'' to the last 
sentence of the section referenced in the final rule to coincide with 
language published in the December 2013 interim final rule preamble for 
clarification.
    RHS Response: Paragraph (d)(3)(vi) of Sec.  3555.101 is amended to 
correct an omission of language in the interim final rule that led to a 
discrepancy between the statement in the preamble to the text of that 
rule. Some documentation, costs and underwriting requirements of 
subparts D, E and F may not apply to a refinance transaction. The last 
sentence of paragraph (d)(3)(vi) of Sec.  3555.101 is amended to read: 
``Documentation, costs, and underwriting requirements for subparts, D, 
E, and F of this part apply to refinances, unless otherwise provided by 
the Agency.

Sec.  3555.102 Loan Restrictions

    Comment: The respondent requests RHS clarify the language in the 
final rule surrounding seller concession limitations. The respondent 
proposes additional language to exclude lender credits which can be 
contributed towards an applicant's closing costs. Additionally the 
respondent requests excluding a lender cure payment, as a result of 
undisclosed items on the Good Faith Estimate, from the maximum 
concession limitation.
    RHS Response: RHS has not amended the rule based upon this comment. 
Internal administrative procedures have been removed from the rule and 
are provided in the Technical Handbook implemented with the December 
2013 interim final rule. The purpose of the Technical Handbook is to 
remove the detailed administrative instructions and allow for a 
responsive update to the handbook to mortgage industry changes. Details 
and guidance regarding seller concession limitations can be found in 
the Agency's Handbook. Should questions surrounding premium pricing and 
penalties for lender cures arise, the Technical Handbook will be 
updated to provide further guidance.

Sec.  3555.104 Loan Terms

    Comment: As of January, 2013, Freddie Mac no longer publishes the 
Required Net Yield (RNY) information. Because it is not published, it 
is not feasible for lenders to be required to utilize this rate. The 
reference to this requirement should be removed.
    RHS Response: RHS concurs with this respondent and has removed the 
language in the final rule that requires a comparison to the maximum 
interest rate of the loan to Freddie Mac's RNY. In addition, the final 
rule corrects the reference to the Web site containing information 
relevant to the calculation of maximum interest rate.
    Comment: Respondent supports an extended repayment period of 40 
years since credit unions may offer repayment terms of up to 40 years 
for residential mortgage loans.
    RHS Response: RHS is unable to amend the final rule based upon this 
comment. The Housing Act of 1949 [42 U.S.C. 1472], as amended, limits 
the term of the guarantee to 30 years at section 502(h)(7)(A) of the 
Act.

Sec.  3555.105 Combination Construction and Permanent Loans

    Comment: RHS should clarify language with additional detail 
surrounding contractor/builder method, the limitation of 25 units per 
year per builder and introductory language.
    RHS Response: The Agency has amended the rule based upon this 
comment. The Agency will no longer limit the builder to 25 units per 
year without further approval by RHS. Instead the Agency will rely upon 
the lender and the technical guidelines set forth in the accompanying 
Technical Handbook implemented with the December 2013 interim final 
rule that provides the administrative instructions and detail of 
processing the combination construction and permanent loan feature and 
qualifying the builder for participation in the combination 
construction to permanent feature.
    Comment: Respondent requests reference to ``annual guarantee fee'' 
be struck and replaced with ``annual fee'' at Sec.  3555.105(d)(3).
    RHS Response: The Agency agrees with the respondent and will amend 
the language at Sec.  3555.105(d)(3) for language consistency to 
coincide with language in the final rule that implemented the annual 
fee published in the Federal Register (77 FR 40785) on July 11, 2012. 
The word ``guarantee'' will be removed from the section reference in 
the final rule.

Sec.  3555.107 Application for and Issuance of the Loan Guarantee

    Comment: The Agency should amend the rule to allow a validity 
period for an appraisal of 180 days in lieu of 120 days. The respondent 
indicates the application process together with increased federal 
regulations surrounding mortgage loan processing is now lengthy and the 
appraisal could expire during the application process.
    RHS Response: RHS has not amended the final rule based upon this 
comment. The validity period of the appraisal report coincides with 
that of other

[[Page 6422]]

Federal agencies, such as the US Department of Housing Urban and 
Development, along with Government Sponsored Enterprise (Fannie Mae and 
Freddie Mac) who require the age of the appraisal report to be no 
greater than four months old on the date of note. Additional technical 
guidance can be found in the Technical Handbook published and 
implemented with the December 2013 interim final rule.

Sec.  3555.108 Full Faith and Credit

    Comment: The December 2013 interim final rule removed the clear 
distinction between the originating lender and servicing lender 
regarding indemnification. This may prevent servicing lenders from 
fully embracing the program limiting the benefits of servicing 
competition for the borrower and lenders.
    RHS Response: RHS agrees to add the word ``originating'' to the 
sentence referencing the continued eligibility of the lender. The use 
of the word will further clarify the intent of indemnification when a 
lender fails to originate a loan in accordance with requirements. It 
will coincide with language in the final rule implementing 
indemnification for the SFHGLP that holds originating lenders 
accountable in the future should the Agency seek indemnification from 
the lender if a loss is paid under certain circumstances. The final 
rule implementing indemnification was published in the Federal Register 
(76 FR 31217) on May 31, 2011. The Technical Handbook accompanying the 
implementation of the December 2013 interim final rule expands upon the 
details surrounding the criteria outlined.

Sec.  3555.151 Eligibility Requirements

    Comment: One commenter requests clarification at Sec.  3555.151(e) 
on how the ``current home no longer adequately meets the applicant's 
needs'' when considering eligibility of a household for the SFHGLP, who 
owns a home and intends to retain it.
    RHS Response: The Agency has not amended the final rule based upon 
this comment. The Technical Handbook, released with the implementation 
of the December 2013 interim final rule provides the administrative 
procedures and details surrounding the language in the December 2013 
interim final rule. The Handbook expands upon further guidance and 
possible examples when a home no longer meets the needs of the 
applicant.
    Comment: The respondent requests expanded language at Sec.  
3555.151(e)(4) to require documentation if the applicants are unable to 
secure conventional financing.
    RHS Response: RHS has not amended the substance of this provision 
in response to this comment. The Technical Handbook, implemented with 
the December 2013 interim final rule, which provides the administrative 
procedures, expands upon the criteria to confirm the applicant's 
eligibility for the SFHGLP, including eligibility for conventional 
financing. The applicant must be ineligible for conventional financing, 
based upon the criteria outlined in the Handbook, for a lender to 
continue with the application under the SFHGLP.
    Comment: Amend the language to include missing text at Sec.  
3555.151(h)(2) to clarify language of a sentence. The sentence 
pertaining to repayment ability should read ``The Handbook will define 
when a debt ratio waiver may be granted'' as opposed to ``The Handbook 
will define when a debt ratio may be granted.''
    RHS Response: RHS agrees with this comment as recommended and will 
amend the final rule to correct an editorial omission of text in the 
December 2013 interim final rule.
    Comment: Amend language at Sec.  3555.151(i)(2) to clarify text to 
indicate ``a loan's acceptance''.
    RHS Response: RHS agrees with this editorial comment and will amend 
the text of the final rule to clarify the sentence.
    Comment: The commenter proposes to amend the final rule at Sec.  
3555.151(i)(3)(ii) by allowing applicant(s) who are presently in a 
Chapter 13 bankruptcy plan to qualify if the applicant has been in the 
plan for at least 12 months and payments under the plan have been paid 
as agreed.
    RHS Response: The Agency agrees with this comment. The mortgage 
industry and other like Federal Agencies offering insurance and 
guarantees allow the applicant to be in an active bankruptcy repayment 
plan, provided 12 months of the pay-out period under the bankruptcy has 
elapsed and the applicant's payment performance has been satisfactory 
with all required payments made on time, and written permission from 
the bankruptcy court to enter into the mortgage transaction is 
obtained. For those lenders who utilize the Agency's automated 
underwriting system, if the Chapter 13 bankruptcy has not been 
discharged for a minimum period of two years, the underwriting 
recommendation will generate a Refer underwriting recommendation 
requiring manual underwriting.
    Comment: A concern was expressed that the language requiring credit 
counseling may be difficult to implement based on available financing 
for these programs. The commenter requests RHS to publish a list of 
counseling programs readily available to all applicants and lenders. 
Moreover, the commenter requests RHS to require Agency personnel when 
conditioning for credit counseling in response to a lender's request 
for Conditional Commitment confirm what credit counseling programs are 
available in the geographic area of the applicant.
    RHS Response: The language in the December 2013 interim final rule 
is consistent with the language and process found at 7 CFR part 1980, 
subpart D, Sec.  1980.309(d)(4), which expired upon implementation of 
the December 2013 interim final rule. Credit counseling remains a 
supported educational opportunity, carried out by the lender. The 
Section 502 direct lending program, administered under 7 CFR part 3550, 
at Sec.  3550.11 requires the State Director to assess the availability 
of certified homeownership education providers in their respective 
states. A list of providers, including the reasonable costs, if any, to 
the participant is maintained by each state as a requirement to the 
referenced rule which is offered by RHS separate to the SFHGLP in each 
state. A list is available on each state Web site and can be accessed 
at: http://www.rd.usda.gov/. Therefore no change will be implemented to 
this final rule as a result of this comment.

Sec.  3555.152 Calculation of Income and Assets

    Comment: Require applicant's to be employed, maintain employment 
and work towards paying off the loan.
    RHS Response: RHS supports individual loan performance in order to 
fulfill its statutory obligation to the SFHGLP. The Agency has not 
changed the substance of the language as a result of this comment.
    Comment: Section 3555.152(b)(2) requires lenders to obtain and 
verify household income for all household members in order to determine 
the income eligibility of the household for the SFHGLP. Verification of 
income for the past 24 months is a regulatory change over the previous 
rule governing the SFHGLP (7 CFR part 1980, subpart D, which expired 
with implementation of the December 2013 interim final rule) and is 
excessive and provides no additional benefit to the applicant or RHS.
    RHS Response: Household income eligibility is a critical component 
of

[[Page 6423]]

every application. Requiring lenders to verify and validate the income 
of all household members for the previous 2 years assures the public 
that only truly eligible households are provided assistance under the 
SFHGLP. Additionally this provision is consistent with language 
provided in RHS Section 502 direct lending program, found at 7 CFR part 
3550 and was a recommendation by the Office of Inspector General (OIG) 
in an audit (Audit Report 04703-02-Ch dated September 2011) of the 
SFHGLP. RHS has not amended the final rule based upon this comment.

Sec.  3555.202 Dwelling Requirements

    Comment: Objection to removal of minimal thermal efficiency 
requirements for existing homes. The commenter was concerned language 
countered the Government's energy reduction and energy independence 
goals.
    RHS Response: As noted in the preamble of the December 2013 interim 
final rule, thermal standards for existing homes was removed from the 
rule as published in the Federal Register (72 FR 70220) on December 11, 
2007. The Agency will make no change to the present language in the 
final rule as a result of this comment. Energy efficient homes for both 
new and existing construction are encouraged as provided under Sec.  
3555.209 under the Rural Energy Plus loans.
    Comment: One comment was received in regards to the amount of funds 
required to cover an interior or exterior escrow holdback. Under the 
rule that expired (7 CFR part 1980, subpart D) with implementation of 
the December 2013 interim final rule, the commenter felt the language 
should require escrow accounts for exterior development be funded at 
150 percent of the cost of completion. The commenter requests the 
language in the final rule at Sec.  3555.202(c) be amended to require 
their interpretation of the language found at the now expired 7 CFR 
part 1980, subpart D. The commenter cited risks of fund shortages, cost 
overruns and a builder's failure to complete improvements as their 
premise for modifying the language.
    RHS Response: While the Agency appreciates the comment on this 
issue, the final rule regarding funding the escrow for future 
development is consistent with the practice found at the now expired 7 
CFR part 1980, subpart D. Under the former rule and the December 2013 
interim final rule, lenders are required to fund an escrow account in 
an amount sufficient to assure the completion of the remaining work. 
The language further encourages that amount to be 150 percent of the 
cost of completion, but may be higher if the lender determines a higher 
amount is needed. The final rule continues to encourage the lender to 
fund the escrow at a higher amount, if needed, but at a minimum 
requires the figure to be at least 100 percent of the cost of 
completion. Lenders may make an internal business decision to fund an 
escrow account at a higher amount. As a result of this comment, RHS 
will make no change to the language in the final rule.

Sec.  3555.205 Special Requirements for Condominiums

    Comment: Clarity is requested in the language surrounding what 
requirements should be followed and when a condominium unit becomes 
ineligible for lending.
    RHS Response: RHS has not amended the substance of this provision 
in response to this comment. The Technical Handbook implemented with 
the December 2013 interim final rule, provides the administrative 
procedures and expands upon the detailed criteria to confirm 
requirements for lending on condominium units.

Sec.  3555.251 Servicing Responsibility

    Comment: One respondent requested more detail in Sec.  3555.251(c) 
surrounding the process of notification, the lender's rights and 
opportunities to cure deficiencies when it is determined by the Agency 
that an approved lender has failed to provide acceptable servicing.
    RHS Response. The language in this final rule remains unchanged by 
RHS. The Technical Handbook implemented with the December 2013 interim 
final rule provides the details surrounding the expectations of loan 
servicing and monitoring responsibilities of lenders. When a lender has 
uncorrected performance problems, the Handbook outlines the actions the 
Agency will take regarding notification and appeal rights surrounding a 
termination.

Sec.  3555.252 Required Servicing Actions

    Comment: One comment was received requesting Sec.  3555.252(c)(2) 
of the final rule be amended to remove language requiring the borrower 
to notify the lender when damage occurs to the property.
    RHS Response: RHS has not amended the rule based on this comment. 
The Agency believes that the regulatory language is clear and 
consistent with standard industry practice requiring borrowers to 
notify the lender when damage is sustained to a property and hazard 
insurance proceeds will be disbursed. The Agency will issue additional 
guidance regarding insurance should it determine such clarification is 
necessary. Policy encompassing a lender's responsibility to processing 
of hazard insurance proceeds as a result of damage to the security is 
detailed in the accompanying Technical Handbook implemented with the 
December 2013 interim final rule.
    Comment: The language at Sec.  3555.252(d) should be revised to 
include exceptions to reporting to credit bureaus when loans are in 
Presidentially declared disaster areas and loans involving the Service 
members Civil Relief Act.
    RHS Response: RHS has not amended the rule based upon this comment. 
The provisions of the December 2013 interim final rule emphasize a 
lender's existing and continued responsibility to reporting defaulted 
mortgages to credit bureaus. Loans involving Service members Civil 
Relief Act will be subject to the provisions of the Act. Loans located 
in presidentially declared disaster areas may require special guidance. 
RHS will issue additional guidance should it determine clarification is 
necessary. The language as written pertains to the general servicing 
reporting requirements applicable to most SFHGLP loans.

Sec.  3555.254 Final Payments

    Comment: One commenter requested RHS provide additional 
clarification regarding the release of security instruments. Presently 
the language at Sec.  3555.254 indicates lenders may release security 
instruments only after full payment of all amounts have been received. 
The commenter indicated if a lender's decision is to not file a loss 
claim, the final decision to release security documents should lie with 
the lender.
    RHS Response: The intent of the language is to ensure and enforce 
that lenders cannot release security documents until a satisfaction of 
the debt in full has occurred. In response to this comment, RHS has 
amended the rule to add clarification.

Sec.  3555.256 Transfer and Assumptions

    Comment: The words ``continue with guarantee'' are confusing at 
Sec.  3555.256(d)(2)(ii). The commenter requests clarity.
    RHS Response: RHS has not amended the rule based on this comment. 
The Agency believes that the regulatory language is clear in that RHS 
will continue with the guarantee, as opposed to voiding the guarantee 
in situations meeting the criteria of the section. RHS

[[Page 6424]]

will issue additional guidance regarding a transfer that does not 
trigger the due-on-sale clause should it determine such clarification 
is necessary.
    Comment: A respondent indicated Sec.  3555.256(d)(2)(iii) should be 
clarified to confirm a concurrent loan assumption and modification 
could occur if a transferee meeting the criteria assumes the guaranteed 
loan when the loan is past due. The commenter found the language ``re-
amortized'' in the section confusing since it is not listed under Sec.  
3555.10 Definition and abbreviations of the rule.
    RHS Response: RHS has not amended the rule based on this comment. 
When a transferee meets the criteria set forth in the section 
referenced, the regulatory language allows the transferee to assume on 
the rates and terms of the original promissory note and in the case of 
a delinquent account, allows the transferee ``at the time the 
assumption agreement is executed'' to bring the loan current through 
reamortization. RHS believes the language ``at the time the assumption 
agreement is executed'' is clear and concise that the two actions would 
be concurrent. Regarding the definition of reamortization, the 
Technical Handbook, accompanying the release of the December 2013 
interim final rule provides an extensive list of terminology and 
definitions, including reamortization, while the rule addresses 
substantive definitions. Reamortization is a common mortgage industry 
term referring to modifying the loan.
    Comment: The commenter requests clarification of Sec.  
3555.256(d)(3) and restrictions imposed for transfer of title 
triggering the due-on-sale clause.
    RHS Response: RHS released a Technical Handbook with implementation 
of the December 2013 interim final rule, which provides the details and 
restrictions imposed for transfer of title triggering the due-on-sale 
clause. As a result of this comment, RHS has not modified the final 
rule.

Sec.  3555.257 Unauthorized Assistance

    Comment: In reference to Sec.  3555.277(b), a commenter questioned 
the lender's ability to prove the applicant's eligibility should the 
lender be challenged on inaccurate information in response to 
unauthorized assistance. Specifically in question was if the lender 
utilized RHS's automated underwriting system when submitting the loan 
to the Agency, how the lender would prove the applicant was eligible if 
the Agency's automated underwriting system rendered an acceptable 
recommendation.
    RHS Response: Lenders are required to retain a permanent record of 
the applicant's request. The final underwriting recommendation obtained 
from the Agency's automated underwriting system becomes part of the 
lender's permanent record. Data reflected in the automated system must 
reflect and support information in the permanent file record retained 
by the lender. The records should support the lender's ability to prove 
the applicant's eligibility. Further, the Agency's automated 
underwriting system is a tool utilized to streamline the decision of 
the lender, but does not replace the lender's final determination to 
qualify the household for the SFHGLP or the loan request. No change to 
the final rule as a result of this comment has been made.

Sec.  3555.301 General Servicing Techniques

    Comment: One comment was received in regards to language used 
surrounding past due accounts found at Sec.  3555.301(e). Verbiage in 
the December 2013 interim final rule references months past due while 
the Consumer Financial Protection Bureau (CFPB) (12 CFR part 1026) 
measures payments past due in days. It was suggested the Agency align 
our language with CFPB.
    RHS Response: RHS will amend the rule in Sections referencing 
months, as applicable, for continuity with CFPB when referencing the 
measurement of delinquent past due amounts. The Agency publishes, as a 
tool for lenders, a Loss Mitigation Guide. The Agency's Loss Mitigation 
Guide published at https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do currently provides for measurement in 
``months/days'' format in response to CFPB language.

Sec.  3555.302 Protective Advances

    Comment: One commenter requested clarification of protective 
advances for costs other than taxes and insurance. They questioned if 
this section pertained to advances incurred prior to a foreclosure 
sale, or those that occur once a foreclosure sale occurs.
    RHS Response: RHS has not revised the substance of this provision 
in response to the comment. The Agency believes the language flow of 
the rule provides for a waterfall of loss mitigation workout 
alternatives from general servicing at Sec.  3555.302, followed by 
traditional servicing (Sec.  3555.303), then by special loan servicing 
(Sec.  3555.304) prior to voluntary or involuntary liquidation 
(Sec. Sec.  3555.305 and 3555.306). The language in these sections 
provides the guidance, expectations and flow of order for servicing 
non-performing loans. With consideration for the comment, this final 
rule makes one minor change to the wording of this provision by 
referring to the protective advance expense as advances prior to 
liquidation, for clarification.

Sec.  3555.303 Traditional Servicing Options

    Comment: Several comments were received in regard to traditional 
servicing options. The majority of comments requested clarification on 
details surrounding servicing options, such as if the agreement needs 
to be in writing, the maximum interest rate for modifications, fees and 
costs included in a loan modification, and eligibility for trial 
payments.
    RHS Response: RHS published a Technical Handbook which accompanied 
the implementation of the December 2013 interim final rule. The 
Handbook provides the information which responds to the commenters 
request for detailed information for offering servicing options to 
homeowners. In response to comments, RHS has added clarification at 
Sec.  3555.303(b)(3) to confirm that the loan modification must be a 
written agreement, the interest rate must be fixed, the rate of 
interest cannot exceed the original rate of the loan note guarantee 
issued and trial payments for traditional loan modifications are not 
required.
    Comment: One comment received urged the Agency to adopt, as a 
servicing option, a moratorium of payments, similar to that offered in 
the Section 502 SFH Direct lending program offered by the Agency under 
7 CFR part 3550.
    RHS Response: Traditional and special loan servicing options 
provide for various forbearance agreements, which in part could 
temporarily suspend or reduce payments. The Agency believes the 
forbearance agreement option (see Sec.  3555.10 definition of 
forbearance agreement) does provide for a moratorium (suspension) of 
payments temporarily, if warranted, based upon the circumstances of the 
loan serviced. The Technical Handbook accompanying the publication of 
the December 2013 interim final rule provides additional details and 
loss mitigation workout alternatives. RHS has not amended the rule 
based upon this comment.
    Comment: RHS should extend the guarantee at Sec.  
3555.303(b)(3)(iii) to cover the full term of a loan modification as 
opposed to limiting the modification to the original term as referenced 
in the December 2013 interim final rule. The commenter feels

[[Page 6425]]

it will expand a lender's ability to assist a homeowner become 
successful.
    RHS Response: RHS agrees with the comment. To that end, the Agency 
has amended the final rule based on this comment to extend the 
guarantee to the loan term of the loan modification, provided the loan 
modification meets the eligibility criteria set forth in Sec.  
3555.303(b)(3).

Sec.  3555.304 Special Servicing Options

    Comment: A comment was received regarding the required pre-
modification trial payment period found at Sec.  3555.304(b)(2). The 
commenter indicated that trial payment periods pre-modification 
decrease the flexibility to assist borrowers and could lead to greater 
losses for the Agency.
    RHS Response: RHS disagrees with this comment in regards to trial 
payments required at Sec.  3555.304(b)(2). In the waterfall of loss 
mitigation options, once the lender has determined the use of 
traditional loan servicing options will not cure the borrower default, 
the use of special loan servicing options are considered. The objective 
of special loan servicing options is to offer struggling homeowners who 
are at risk of foreclosure reduced monthly mortgage payments that are 
affordable and sustainable over the long-term. Trial payment periods 
allow a borrower to demonstrate recovery from the financial problem by 
making 3 or 4 payments at the modified amount, after which the 
delinquent amount is capitalized into the modified loan. A trial period 
will help ensure the borrower can meet the modified terms and verify 
the proposed servicing plan will succeed in helping the borrower afford 
their home. If they are unable to demonstrate their ability to make 
their modified mortgage payment before being placed into a permanent 
modification, the lender can assist with a more suitable alternative to 
foreclosure that meets the borrower's needs. Many loan servicers' 
guidelines, other than RHS, require a trial period. Trial payments are 
a mortgage industry standard. Additionally, this provision is included 
to minimize loss to the government. RHS has not amended the final rule 
based upon this comment.
    Comment: Comments were received regarding the determination of the 
interest rate. Lenders requested reconsideration to the requirement to 
reduce an interest rate on an extended-term loan modification at Sec.  
3555.304(c). Historically rates have been low. Lenders viewed this 
requirement as an impediment to assisting borrowers who were delinquent 
or in imminent default. Additionally lenders questioned if the interest 
rate, at execution of the modification agreement, was required to meet 
the maximum allowable interest rate at noted at Sec.  3555.304(c)(2).
    RHS Response: Maximum interest rates cannot exceed the published 
rate as noted in Sec.  3555.304(c)(2) if lowering the interest rate; or 
the interest rate of the loan guarantee issued. Reducing the rate is 
not a required condition to an extended-term loan modification in Sec.  
3555.305(c). RHS will amend the final rule to correct language at Sec.  
3555.304(c)(2) which references the maximum interest rate is tied to 
the date the loan modification is executed. Language will be corrected 
to indicate the maximum interest rate will be tied to when the loan 
modification is approved.
    RHS Comment: Multiple comments were received regarding the 
waterfall of loss mitigation options that must be considered prior to 
utilizing a mortgage recovery advance in Sec.  3555.304(c). Concern was 
expressed that lenders would be forced to utilize an extended-term loan 
modification with a 40 year term. When the loan is in a Ginnie Mae pool 
the lender must repurchase it to complete a loan modification. 
Requiring a 40 year term together with not extending the guarantee 
beyond the original maturity date subjects the lender to vulnerability 
that Ginnie Mae may not repurchase the loan after the modification 
occurs and that lenders may incur greater future losses if liquidated.
    RHS Response: Pursuant to Sec.  3555.304(c)(4), if the targeted 
mortgage payment to income ratio cannot be achieved using an extended-
term loan modification, then the lender may consider a mortgage 
recovery advance. Before considering a mortgage recovery advance, the 
lender must extend the repayment term for 30 years from the date of 
loan modification. The lender may extend the repayment term for 40 
years from the date of loan modification, but the lender is not 
required to do so before utilizing a mortgage recovery advance. This 
language affords the lenders the flexibility to adhere to specific 
investor loan modification term extension requirements while 
encouraging lenders to achieve the targeted mortgage payment to income 
ratio using the servicing option(s) that will be least expensive for 
the government. Use of the mortgage recovery advance is limited because 
the mortgage recovery advance will be most expensive for the 
government. By imposing restrictions, RHS will promote the reduction of 
mortgage foreclosures in a cost-effective manner. Language at this 
section is unchanged regarding extended-term loan modification from the 
final rule implementing special servicing options published August 26, 
2010 (75 FR 52429) which became effective September 24, 2010. RHS has 
amended Sec.  3555.305(c)(1) and (c) for clarity in response to 
comments.
    Comment: One comment was received regarding the mortgage recovery 
advance special servicing option at Sec.  3555.304(d). The commenter 
felt if the agency reimburses the lender for eligible advances, 
additional full financial risk and responsibility on the agency 
potentially will increase the cost to the overall SFHGLP.
    RHS Response: Lenders will advance, after obtaining Agency 
approval, for any Mortgage Recovery Advance that meets the criteria set 
forth in the December 2013 interim final rule and supplemented by a 
Technical Handbook. Pursuant to Sec.  3555.304(d)(7) and with language 
of the published final rule (75 FR 52429 published August 26, 2010) in 
connection with the introduction of special loan servicing options, the 
lender may file a request for partial loss claim to obtain 
reimbursement of the eligible funds advanced. The claim for 
reimbursement will be processed by the Agency in advance of any final 
loss claim reimbursement (occurring after liquidation)--provided the 
lender has secured adequate security and the borrower is eligible for 
the advance. A future loss claim filed by a lender after liquidation 
will be adjusted by any amount of mortgage recovery advance reimbursed 
to the lender by the Agency. Borrowers are not required to make any 
monthly or periodic payments on the Mortgage Recovery Advance as 
outlined in Sec.  3555.304(d)(6)(ii). The mortgage recovery advance is 
due and payable pursuant to Sec.  3555.304(d)(6)(iii). The Agency has 
made no change to their collection procedures presently exercised on 
loss payments paid that do not involve a mortgage recovery advance. In 
accordance with Sec.  3555.304(d)(6)(v), RHS may pursue collection of 
the Federal debt from the borrower by any available means if the 
mortgage recovery advance is not repaid based on the terms in the 
promissory note and mortgage or deed-of-trust. This same approach is 
performed on loss payments that do not involve a mortgage recovery 
advance. Therefore, additional financial risk and responsibility to the 
Agency has not increased with publication of this rule. RHS has not 
amended the final rule based on this comment.
    Comment: A comment was received questioning the maximum Mortgage 
Recovery Advance (MRA) at Sec.  3555.304(d). The respondent

[[Page 6426]]

questioned how the advance will be determined and if the MRA maximum is 
not advanced on an initial MRA, can the balance of the maximum 
calculation of MRA be applied to another future MRA.
    RHS Response: RHS released a Technical Handbook and Loss Mitigation 
Guide with implementation of the December 2013 interim final rule. The 
handbook and guide outlines the details surrounding the eligibility and 
calculation of a maximum recovery advance. To be eligible, the lender 
must consider an extended-term loan modification of at least 30 years 
and set the interest rate not to exceed the maximum allowable rate as 
further outlined in Sec.  3555.304(c)(1) and (2). If the targeted 
mortgage payment to income cannot be achieved using an extended-term 
loan modification, the lender may consider a mortgage recovery advance. 
The maximum mortgage recovery advance (up to 30 percent of the unpaid 
principal balance as of the date of default) consists of the sum of 
arrearages not to exceed 12 months of principal, interest, taxes and 
insurance (PITI); legal fees and foreclosure costs related to a 
cancelled foreclosure action; and principal reduction as outlined in 
Sec.  3555.304(d)(1) and (2). The principal deferment on the modified 
mortgage is determined by multiplying the unpaid principal balance by 
30 percent and then reducing that amount by arrearages advanced to cure 
the default and any foreclosure costs incurred to that point. The 
principal deferment amount for a specific case shall be limited to the 
amount that will bring the borrower's total monthly mortgage payment to 
31 percent of gross monthly income. In response to the comment, the 
following is an example of the calculation of a maximum Mortgage 
Recovery Advance when utilizing the Special Loan Servicing:
    Example. Unpaid Principal Balance = $150,000

 Current Monthly Payment (PITI) = $1,220 (Principal and 
Interest = $920 + Taxes and Insurance = $300)
 Current Other Recurring Debt = $800
 Monthly Gross Income = $3,500
 Number of Payments Past Due = 3
 Total Arrearage = $3,660
 Maximum Mortgage Recovery Advance = $150,000 x 30% = $45,000
 Maximum Monthly Mortgage Payment = $3,500 x 31% = $1,085 
(Front Ratio)
 Maximum Total Monthly Debt = $3,500 x 55% = $1,925 (Back 
Ratio)

    Special loan servicing is permitted one time over the life of the 
loan. RHS has not amended the final rule in response to this comment.
    Comment: One commenter felt the language in the December 2013 
interim final rule changed the definition of the maximum mortgage 
recovery advance at Sec.  3555.304(d).
    RHS Response: The December 2013 interim final rule language at 
Sec.  3555.304(d) incorporated the published final rule introducing the 
special loan servicing options available to lenders (75 FR 52429 
published August 26, 2010). Details on eligibility, processing, 
approval, documentation requirements, and reimbursement to the lender 
can be found in the Technical Handbook and Loss Mitigation Guide 
implemented with the December 2013 interim final rule. RHS has not 
amended the final rule in response to this comment.
    Comment: Clarification was requested on Sec.  3555.304(d)(iv) on 
collecting the Mortgage Recovery Advance from the borrower. Concern was 
expressed if the lender was responsible for paying off the borrower's 
MRA once a borrower voluntarily or involuntarily transfers title to the 
property.
    RHS Response: Pursuant to Sec.  3555.304(d)(6) the lender must have 
the borrower execute a promissory note payable to RHS and a mortgage or 
deed-of-trust in recordable form perfecting a lien naming RHS as the 
security party for the amount of the mortgage recovery advance. The 
lender will record the mortgage or deed-of-trust in the appropriate 
local real estate records and provide the original promissory note to 
RHS. The Mortgage Recovery Advance will be interest free. Borrowers are 
not required to make any monthly or periodic payment; however, the 
borrower may voluntarily submit partial payment without incurring any 
prepayment penalty. The payment of the Mortgage Recovery Advance is not 
due until the earliest of (i) the maturity of the modified mortgage; 
(ii) the borrower transfers title to the property (by sale or by other 
voluntary or involuntary means), or (iii) a payoff of the mortgage. 
Pursuant to Sec.  3555(d)(8) any RHS reimbursement issued for the 
Mortgage Recovery Advance to the lender on behalf of the borrower will 
be credited toward the maximum loan guarantee amount payable by the 
Agency under the guarantee. This credit or reduction in the ultimate 
loss claim payment is necessary since the Mortgage Recovery Advance is 
a partial claim under the guarantee. The lender is not expected to 
collect on the Mortgage Recovery Advance. RHS has not changed the final 
rule in response to this comment as Sec.  3555.304(d) provides the 
provisions a lender must follow and additional administrative details 
are available through the Technical Handbook and Loss Mitigation Guide 
implemented with the December 2013 interim final rule.

Sec.  3555.305 Voluntary Liquidation

    Comment: To be eligible for a voluntary liquidation option, Sec.  
3555.305(a)(3) indicates the borrower must presently occupy the 
property, unless non-occupancy is related to the same involuntary 
reason leading to the default. One comment was received asking for 
further relief and flexibility should the borrower act in good faith in 
vacating the premises to facilitate a pre-foreclosure sale or due to a 
financial hardship.
    RHS Response: RHS has not amended the rule based upon this comment. 
Further guidance and detail is provided in the Technical Handbook 
accompanying the implementation of the December 2013 interim final 
rule. To be eligible to participate in a voluntary liquidation, the 
borrower must occupy the property as their primary residence. A non-
occupant borrower who seeks a voluntary liquidation option may be 
eligible should the lender verify that the need to vacate is related to 
the cause of the default, such as job loss (financial hardship), a 
mandatory employment transfer, divorce or death, for example. RHS feels 
the flexibility provided to allow non-occupant borrower eligibility for 
voluntary liquidation is a lenient standard and any further flexibility 
is not acceptable from a risk management perspective.

Sec.  3555.306 Liquidation

    Comment: One commenter requested that the lender should be able to 
assign the loan to the government when the default occurs and prior to 
liquidation in accordance with the Housing Act of 1949.
    RHS Response: The Housing Act of 1949, as amended, at section 
502(h)(15) provides the option to the program to allow a lender to 
transfer a loan in default to the government prior to liquidation. RHS 
has not exercised this option. RHS has selected a more cost effective 
strategy by requiring lenders to liquidate and sell an acquired 
property, while RHS exercises oversight and verifies proper use of 
government funds. Should RHS exercise the language available in the 
Housing Act in the future, language will be published. RHS has not 
amended the final rule in response to this comment.
    Comment: A respondent expressed concern regarding the requirement 
that in addition to a borrower paying all past-due amounts, advances 
and any

[[Page 6427]]

foreclosure costs when reinstating an account in liquidation a borrower 
must have the ability to continue making the scheduled payments on the 
loan pursuant to language found at Sec.  3555.306(c)(2). Clarification 
was requested on what actions by the lender are necessary to perform or 
comply with ensuring the borrower has the ability to continue making 
the scheduled payments on the loan if the loan is paid current and all 
fees are paid.
    RHS Response: RHS has considered the language and action 
questioned. RHS has omitted reference to the borrower's ability to 
continue making scheduled payments when the loan is paid current and 
all fees are paid as noted in Sec.  3555.306(c).
    Comment: One respondent indicated Sec.  3555.306(d)(3) seems to 
mandate creditors to force a debtor to reaffirm a debt. The respondent 
indicated most jurisdictions allow a ``retain and pay'' option, so that 
the debtor continues to pay the mortgage but is discharged of the 
personal liability by virtue of the Chapter 7 discharge. The respondent 
requested clarification on the language in the section in question.
    RHS Response: Language in the Sec.  3555.306(d)(3) provides the 
flexibility the respondent is seeking by instructing the lender to seek 
a reaffirmation under the criteria noted, whenever possible. RHS has 
not amended the final rule in response to this comment.
    Comment: Concern was expressed by a respondent in reference to