Single Family Housing Direct and Guaranteed Loan Programs, 44504-44508 [2018-18683]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Housing Service

[Federal Register Volume 83, Number 170 (Friday, August 31, 2018)]
[Proposed Rules]
[Pages 44504-44508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18683]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 83, No. 170 / Friday, August 31, 2018 / 
Proposed Rules

[[Page 44504]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Parts 3550 and 3555

RIN 0575-AD13


Single Family Housing Direct and Guaranteed Loan Programs

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: Through this action, the Rural Housing Service (RHS or Agency) 
is proposing to amend its regulations for the direct and guaranteed 
single family housing loan and grant programs.

DATES: Comments on the proposed rule must be received on or before 
October 30, 2018.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Federal eRulemaking Portal: https://www.regulations.gov.
    Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue SW, 
Washington, DC 20250-0742.
    All written comments will be available for public inspection during 
regular work hours at the address listed above.

FOR FURTHER INFORMATION CONTACT: Shannon Chase, Finance and Loan 
Analyst, Single Family Housing Direct Loan Origination Branch, USDA 
Rural Development, STOP 0783, 1400 Independence Ave. SW, Washington, DC 
20250-0783, Telephone: (515) 305-0399. Email: 
[email protected].

SUPPLEMENTARY INFORMATION: The RHS is proposing to amend its 
regulations for the direct and guaranteed single family housing loan 
and grant programs in 7 CFR parts 3550 and 3555 by:
    (1) Revising the definition of very low-, low-, and moderate-income 
to allow for a two-tier income limit structure (also known as income 
banding) within the single family housing direct loan and grant 
programs.
    (2) Clarifying that net family assets are not considered when 
calculating repayment income, and that net family assets exclude 
amounts in voluntary retirement accounts, tax advantaged college, 
health, or medical savings or spending accounts, and other amounts 
deemed by the Agency not to constitute net family assets.
    (3) Revising the methodology used to determine the area loan limits 
to use a percentage(s), as determined by the Agency, of the applicable 
local HUD section 203(b) limit.
    (4) As a result of income banding, converting borrowers currently 
receiving payment assistance method 1 to payment assistance method 2 
should they receive a subsequent loan.
    (5) Revising the definition of low-income to allow for the two-tier 
income limit structure (income banding) within the single family 
housing guaranteed loan program.

Statutory Authority

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

Executive Order 12866

    The Office of Management and Budget (OMB) has designated this rule 
as not significant 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 proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1970, 
subpart A, ``Environmental Policies.'' It is the determination of the 
Agency that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and, in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 91-190, neither an Environmental Assessment nor an Environmental 
Impact Statement is required.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

[[Page 44505]]

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) the undersigned has determined and certified by signature of this 
document that this rule, while affecting small entities, will not have 
an adverse economic impact on small entities. This rule does not impose 
any significant new requirements on program recipients nor does it 
adversely impact proposed real estate transactions involving program 
recipients as the buyers.

Executive Order 12372, Intergovernmental Review of Federal Programs

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

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements in the development of 
regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the 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 the Indian tribes. Thus, this 
proposed rule is not subject to the requirements of Executive Order 
13175.

Programs Affected

    The following programs, which are listed in the Catalog of Federal 
Domestic Assistance, are affected by this proposed rule: Number 10.410, 
Very Low to Moderate Income Housing Loans (specifically the section 502 
direct and guaranteed loans), and Number 10.417, Very Low-Income 
Housing Repair Loans and Grants (specifically the section 504 direct 
loans and grants).

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.), the information collection activities associated with 
this rule are covered under OMB Number: 0575-0172. This proposed rule 
contains no new reporting or recordkeeping requirements that would 
require approval under the Paperwork Reduction Act of 1995.

E-Government Act Compliance

    RHS is committed to complying with the E-Government Act, 44 U.S.C. 
3601 et. seq., to promote the use of the internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services, and for other purposes.

Non-Discrimination Policy

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion , sex, gender identity 
(including gender expression), sexual orientation, disability, age, 
marital status, family/parental status, income derived from a public 
assistance program, political beliefs, or reprisal or retaliation for 
prior civil rights activity, in any program or activity conducted or 
funded by USDA (not all bases apply to all programs). Remedies and 
complaint filing deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the responsible 
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or 
contact USDA through the Federal Relay Service at (800) 877-8339. 
Additionally, program information may be made available in languages 
other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at https://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or 
write a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by:
    (1) Mail: U.S. Department of Agriculture Office of the Assistant 
Secretary for Civil Rights. 1400 Independence Avenue SW, Washington, DC 
20250-9410;
    (2) Fax: (202)690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

I. Background

    In order to improve the delivery of the single family housing loan 
programs and to promote consistency among the programs when 
appropriate, RHS proposes making the following revisions to 7 CFR parts 
3550 and 3555.
    (1) Revising the definition of very low-, low-, and moderate-income 
in Sec.  3550.10 to allow for a two-tier income limit structure (income 
banding) for the single family housing direct loan and grant programs.
    The revisions will help minimize the impact of varying minimum 
wages among states and territories and the observed disconnect between 
minimum wages and the low median income in many areas. Under current 
regulations, the income of a household with two people earning the 
minimum wage would exceed the low-income eligibility limit in 39 to 93 
percent of the counties in 16 states and territories. In other words, 
under current regulations and income limits, the income from a two-
person household earning minimum wage may be considered too high to 
qualify for a direct loan.
    In accordance with Section 501(b)(4) of the Housing Act of 1949 (42 
U.S.C. 1471(b)(4)), the terms ``low income families or persons'' and 
``very low-income families or persons'' mean those families and persons 
whose income do not exceed the respective levels established for low-
income families and very low-income families under the United States 
Housing Act of 1937 (42 U.S.C. 1437 et seq.). The income levels in the 
Housing Act of 1937 are generally established by the U.S. Department of 
Housing and Urban Development (HUD). RHS currently uses the HUD income 
levels without income banding. However, HUD programs authorized by the 
Housing Act of 1937 focus on renting as opposed to home purchases, 
which contributes to the disqualification of households with minimum 
wage earners as described above. The Agency has been operating a pilot 
in 23 states to test the alternate methodology of a two-tier income 
limit structure to address this issue.
    For the pilot, the Agency used the authority in 42 U.S.C. 
1437a(b)(2)(D), which provides for HUD and USDA to consult on income 
ceilings for rural areas, taking into account the types of programs 
that will use the income ceilings as well as subsidy characteristics. 
Based on this authority, the Agency used a two-tier income limit 
structure for the single family housing programs which bands together 
1-4 person households using the 4-person income level set by HUD, and 
5-8 person households using the 8-person income level established by 
HUD. The pilot has successfully served more borrowers, providing 
meaningful

[[Page 44506]]

homeownership opportunities to those who would otherwise be denied. The 
Agency is now proposing to use income banding to determine all limits 
for very low-income, low-income, moderate-income, 38 year term, and 
adjusted median income.
    Such banding has successfully been used to establish the moderate 
income limits in the guaranteed single family housing loan program for 
years (the term ``moderate income'' is not defined in Section 501(b)(4) 
of the Housing Act of 1949 and therefore is not restricted in the same 
way as ``very low-'' and ``low-income'').
    The Agency has consulted with HUD, and both agencies agree that the 
two-tier income limit approach is suitable for the USDA single family 
housing loan and grant programs. The impacted income definitions in 
Sec.  3550.10 will be revised to simply state that the respective limit 
is ``an adjusted income limit developed in consultation with HUD''. The 
two-tier income limits will be published annually via a Procedure 
Notice and posted to the Agency website at https://www.rd.usda.gov/files/RD-DirectLimitMap.pdf.
    The Agency also proposes to revise the definition of moderate 
income so that it does not exceed the moderate income limit established 
for the guaranteed single family housing loan program. The Agency will 
publish a specific limit in the program handbook.
    The revisions to the income definitions will ultimately allow the 
Agency and HUD to account for the differences between renting (which is 
the focus of HUD and 42 U.S.C. 1437 et seq.) and owning a home. This 
proposed action will improve program availability to the intended 
recipients.
    (2) Revising Sec.  3550.54(d) to remove the requirement that net 
family assets be included in the calculation of repayment income.
    Currently, net family assets are considered for determining annual 
income, down payment purposes, and repayment income. The Agency 
proposes to exclude net family assets from repayment income 
calculations because repayment income focuses on the income of those 
who sign the promissory note, whereas net family assets considers the 
finances of other family members. Net family assets will still be 
considered for annual income and down payment purposes.
    The Agency also proposes to revise the regulation so that the list 
of net family assets considered for annual income and down payment 
purposes would exclude amounts in voluntary retirement accounts such as 
individual retirement accounts (IRAs), 401(k) plans, Keogh accounts, 
and the cash value of life insurance policies.
    In addition, the Agency proposes to exclude the value of tax 
advantaged college savings plans, the value of tax advantaged health or 
medical savings or spending accounts, and other amounts deemed by the 
Agency, from net family assets considered in the determination of 
annual income and down payments.
    Excluding these types of assets when considering annual income or 
down payment requirements will help safeguard the assets for their 
intended purposes and promote a healthy financial support system for 
the household when it does incur education and health care costs, or 
enters retirement.
    The Agency also proposes removing from net family assets the value, 
in excess of the consideration received, for any business or household 
assets disposed of for less than the fair market value during the 2 
years preceding the income determination. This proposed change 
recognizes that it is not productive or meaningful to consider assets 
which have been disposed of in the past.
    Lastly, the Agency proposes two minor changes primarily for 
consistency between the direct and guaranteed single family housing 
loan regulations. The Agency proposes to include in net family assets 
any equity in capital investments for consistency with the guaranteed 
single family housing loan regulations, as well as obtaining a full 
understanding of an applicant's financial condition before making a 
decision on a loan. In the exclusions from net family assets, the 
Agency proposes to change the language from ``American Indian trust 
land'' to ``American Indian restricted land''. The terms ``trust land'' 
and ``restricted'' are often used interchangeably, and the proposed 
revision is for consistency between the direct and guaranteed program 
regulations, and will not result in any substantive changes.
    (3) Revising the methodology used to determine the area loan limits 
in Sec.  3550.63(a) to use a percentage(s), as determined by the 
Agency, of the applicable local HUD section 203(b) limit.
    The revisions to the area loan limit methodology will streamline 
the determination of area loan limits and improve the reliability of 
the data set used to establish the area loan limits. The current 
process to annually establish the area loan limits uses a data set 
based on overly restrictive nationalized parameters and requires a 
significant amount of staff time on all levels (field, state, and 
national). Currently, Sec.  3550.63(a) allows for two methods that a 
State Director may use to establish area loan limits. The first option 
is based on the cost to construct a modest home plus the market value 
of an improved lot based on recent sales data. The second option allows 
the State Director to use State Housing Authority (SHA) limits as long 
as the limit is within 10 percent of the cost data plus the market 
value of the improved lot. This second option is rarely used because 
the SHA limits are usually not within the 10 percent limit.
    For the first option, the most widely used option, the Agency 
contracts with a third party that provides building cost data for real 
estate valuations to obtain construction costs, but those construction 
costs are based on parameters for homes that do not reflect the varied 
modest homes available to program borrowers. In addition, obtaining the 
market value is a time-consuming process relying on collecting and 
updating recent home sales data, which is particularly difficult given 
Agency staff appraiser shortages over the past few years.
    The Agency has been operating a pilot to test the alternate 
methodology of basing the area loan limits on a percentage of the FHA 
Forward One-Family mortgage limits (the HUD 203(b) limit). Under the 
pilot, 80 percent of the HUD 203(b) limit was used to establish the 
area loan limits in selected pilot states. The 80 percent was 
established based on a side-by-side, county-by-county comparison of the 
Agency's existing area loan limits to various percentages of the HUD 
203(b) limits. It was determined that 80 percent of the HUD 203(b) 
limits was adequate to cover the loan amounts in the majority of states 
(vs. lower percentages of 60-70 percent).
    While the pilot states generally experienced increases in their 
area loan limits, the increases were not significant, in part because 
an applicant's qualification amount continues to be limited to 
repayment ability, property eligibility criteria (for example, 
properties financed through the program are currently subject to 2,000 
square feet), and other factors. Average loan amounts in the pilot 
states increased 13.4 percent from Fiscal Year 2015 to 2017, while 
average loan amounts in the non-pilot states have increased 5.4 percent 
during the same period.
    The Agency believes the higher percent increase in the pilot states 
is acceptable for several reasons. For example, the alternate 
methodology makes new construction under the program more feasible, and 
new

[[Page 44507]]

construction can improve a rural community's housing stock and economy. 
In addition, this proposed action will save the Agency more than 
$70,000 each year (which is the cost to obtain the construction cost 
data set from a nationally recognized residential cost provider). A 
significant amount of staff time will also be saved.
    The Agency will determine the percentage(s) based on housing market 
conditions and trends, and publish the percentage(s) in the program 
handbook. The resulting area loan limits will be posted to the Agency 
website at https://www.rd.usda.gov/files/RD-SFHAreaLoanLimitMap.pdf. 
The proposed change allows the Agency to adjust the percentage(s) as 
necessary in order to be responsive to housing market conditions and 
trends.
    (4) Revising Sec.  3550.68(b)(2) to convert a borrower currently 
receiving payment assistance method 1 to payment assistance method 2 
should that borrower receive a subsequent loan.
    The proposed change is related to the income banding proposal, as 
payment assistance method 2 will more closely align the subsidy with 
what is actually needed for affordability. The proposed change avoids 
potentially over-subsidizing borrowers using payment assistance method 
1 under the income banding system, and reduces the potential for 
negative impacts to the program's subsidy rate.
    (5) Revising the definition of low-income in Sec.  3555.10 for the 
single family housing guaranteed loan program to allow for the two-tier 
income limit structure (income banding) discussed above. The two-tier 
income limits will be published annually via a Procedure Notice and 
posted to the Agency website at https://www.rd.usda.gov/files/RD-GRHLimitMap.pdf.
    The single family housing guaranteed loan program provides 
guarantees to lenders who make loans to low- and moderate-income 
borrowers in rural areas who are without sufficient resources or credit 
to obtain a loan without the guarantee. As mentioned, the guaranteed 
loan program already uses the two-tier income limit structure for 
moderate income limits. The proposed change would allow the two-tier 
income limit structure to be used for determining the very low- and 
low-income limits in the guaranteed loan program.

List of Subjects in 7 CFR Parts 3550 and 3555

    Administrative practice and procedure, Environmental impact 
statements, Fair housing, Grant programs--housing and community 
development, Housing, Loan programs--housing and community development, 
Low and moderate income housing, Manufactured homes, Reporting and 
recordkeeping requirements, Rural areas.
    For the reasons stated in the preamble, 7 CFR parts 3550 and 3555 
are proposed to be amended as follows:

PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

0
1. The authority citation for part 3550 continues to read as follows:

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480(k).

Subpart A--General

0
2. Section 3550.10 is amended by revising the definitions of ``low 
income'', ``moderate income'', and ``very low income'' to read as 
follows:


Sec.  3550.10  Definitions.

* * * * *
    Low income. An adjusted income limit developed in consultation with 
HUD under 42 U.S.C. 1437a(b)(2)(D).
* * * * *
    Moderate income. An adjusted income that does not exceed the 
moderate income limit for the guaranteed single family housing loan 
program authorized by Section 502(h) of the Housing Act of 1949, as 
amended.
* * * * *
    Very low income. An adjusted income limit developed in consultation 
with HUD under 42 U.S.C. 1437a(b)(2)(D).
* * * * *

Subpart B--Section 502 Origination

0
3. In Sec.  3550.54:
0
a. Revise the first sentence of paragraph (d) introductory text;
0
b. Revise paragraphs (d)(1) introductory text and (d)(1)(i);
0
c. Revise paragraphs (d)(1)(iv) through (vi);
0
d. Remove paragraph (d)(1)(vii);
0
e. Revise paragraphs (d)(2)(i) and (v); and
0
f. Add paragraphs (d)(2)(vi) through (x).
    The revisions and additions read as follows:


Sec.  3550.54  Calculation of income and assets.

* * * * *
    (d) Net family assets. Income from net family assets must be 
included in the calculation of annual income. * * *
    (1) Net family assets include, but are not limited to:
    (i) Equity in real property or other capital investments, other 
than the dwelling or site;
* * * * *
    (iv) Stocks, bonds, and other forms of capital investments that are 
accessible to the applicant without retiring or terminating employment;
    (v) Lump sum receipts such as lottery winnings, capital gains, 
inheritances; and
    (vi) Personal property held as an investment.
    (2) * * *
    (i) Interest in American Indian restricted land;
* * * * *
    (v) Amounts in voluntary retirement plans such as individual 
retirement accounts (IRAs), 401(k) plans, and Keogh accounts (except at 
the time interest assistance is initially granted);
    (vi) The value of an irrevocable trust fund or any other trust over 
which no member of the household has control;
    (vii) Cash value of life insurance policies;
    (viii) The value of tax advantaged college savings plans (529 plan, 
Coverdell Education Savings Account, etc.);
    (ix) The value of tax advantaged health or medical savings or 
spending accounts; and
    (x) Other amounts deemed by the Agency not to constitute net family 
assets.
0
4. In Sec.  3550.63, paragraph (a)(1) is revised to read as follows in 
its entirety:


Sec.  3550.63  Maximum loan amount.

* * * * *
    (a) * * *
    (1) The area loan limit is the maximum value of the property RHS 
will finance in a given locality. This limit is based on a 
percentage(s) of the applicable local HUD section 203(b) limit. The 
percentage(s) will be determined by the Agency and published in the 
program handbook. The area loan limits will be reviewed at least 
annually and posted to the Agency website.
    (i) [Removed]
    (ii) [Removed]
    (iii) [Removed]
    (iv) [Removed]
    (v) [Removed]
* * * * *
0
5. In Sec.  3550.68, paragraph (b)(2) is revised to read as follows:


Sec.  3550.68  Payment subsidies.

* * * * *
    (b) * * *
    (2) If a borrower receiving payment assistance using payment 
assistance method 1 received a subsequent loan, payment assistance 
method 2 will be used to calculate the subsidy for the initial loan and 
subsequent loan.
* * * * *

[[Page 44508]]

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

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

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480(k).

Subpart A--General

0
2. Section 3555.10 is amended to revising the definition of ``low-
income'' to read as follows:


Sec.  3555.10  Definitions and abbreviations.

* * * * *
    Low-income. An adjusted income limit developed in consultation with 
HUD under 42 U.S.C. 1437a(b)(2)(D).
* * * * *

    Dated: August 1, 2018.
Joel C. Baxley,
Administrator, Rural Housing Service.
[FR Doc. 2018-18683 Filed 8-30-18; 8:45 am]
BILLING CODE 3410-XV-P