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

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Housing Service

[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 https://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: https://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: https://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