Strengthening the Section 184 Indian Home Loan Guarantee Program, 78324-78379 [2022-26097]
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Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / Proposed Rules
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Parts 58 and 1005
[Docket No. FR–5593–P–01]
RIN 2577–AD01
Strengthening the Section 184 Indian
Home Loan Guarantee Program
Office of the Assistant
Secretary for Public and Indian
Housing, U.S. Department of Housing
and Urban Development (HUD).
ACTION: Proposed rule.
AGENCY:
This proposed rule would
revise the regulations governing the
Section 184 Indian Home Loan
Guarantee Program (‘‘Section 184
Program’’) to fiscally strengthen the
program by clarifying rules for Lenders,
Tribes, and Borrowers. As the program
has experienced an increase in demand,
it now requires an update to the
implementing regulations to minimize
potential risk and increase program
participation by financial institutions.
This proposed rule strives to modernize
and enhance the Section 184 Program
by adding participation and eligibility
requirements for Lenders and other
financial institutions. This proposed
rule would also clarify the rules
governing Tribal participation in the
program, establish underwriting
requirements, specify rules on the
closing and endorsement process,
establish stronger and clearer servicing
requirements, establish program rules
governing claims submitted by Servicers
and paid by HUD, and add standards
governing monitoring, reporting,
sanctions and appeals. This rule would
add new definitions and make statutory
conforming amendments, including the
categorical exclusion of the Section 184
program in HUD’s environmental
review regulations. Ultimately, the
changes made by this proposed rule
would promote program sustainability,
increase Borrower protections, and
provide clarity for new and existing
Lenders who participate in the program.
DATES: Comment Due Date: March 17,
2023.
ADDRESSES: Interested persons are
invited to submit comments regarding
this proposed rule. All submissions and
communications must refer to the above
docket number and title. To receive
consideration as public comments,
comments must be submitted through
one of two methods, specified below.
1. Submission of Comments by Mail.
Comments may be submitted by mail to
the Regulations Division, Office of
General Counsel, Department of
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SUMMARY:
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Housing and Urban Development, 451
7th Street SW, Room 10276,
Washington, DC 20410–0500. Due to
security measures at all Federal
agencies, however, submission of
comments by mail often results in
delayed delivery. To ensure timely
receipt of comments, HUD recommends
that comments submitted by mail be
submitted at least two weeks in advance
of the public comment deadline.
2. Electronic Submission of
Comments. Interested persons may
submit comments electronically through
the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly
encourages commenters to submit
comments electronically. Electronic
submission of comments allows the
commenter maximum time to prepare
and submit a comment, ensures timely
receipt by HUD, and enables HUD to
make them immediately available to the
public. Comments submitted
electronically through the
www.regulations.gov website can be
viewed by other commenters and
interested members of the public.
Commenters should follow the
instructions provided on that site to
submit comments electronically.
Note: To receive consideration as public
comments, comments must be submitted
through one of the two methods specified
above. Again, all submissions must refer to
the docket number and title of the rule.
No Facsimile Comments. Facsimile
(fax) comments are not acceptable.
Public Inspection of Public
Comments. All properly submitted
comments and communications
submitted to HUD will be available for
public inspection and copying between
8 a.m. and 5 p.m., weekdays, at the
above address. Due to security measures
at the HUD Headquarters building, an
appointment to review the public
comments must be scheduled in
advance by calling the Regulations
Division at 202–708–3055 (this is not a
toll-free number). HUD welcomes and is
prepared to receive calls from
individuals who are deaf or hard of
hearing, as well as individuals with
speech and communication disabilities.
To learn more about how to make an
accessible telephone call, please visit
https://www.fcc.gov/consumers/guides/
telecommunications-relay-service-trs.
Copies of all comments submitted by
the due date will be available for
inspection and downloading at
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Krisa Johnson, Director, Office of Loan
Guarantee, Office of Native American
Programs, Office of Public and Indian
Housing, Department of Housing and
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Urban Development, 451 7th Street SW,
Room 4108, Washington, DC 20410;
telephone number 202–402–4978 (this
is not a toll-free number). HUD
welcomes and is prepared to receive
calls from individuals who are deaf or
hard of hearing, as well as individuals
with speech and communication
disabilities. To learn more about how to
make an accessible telephone call,
please visit https://www.fcc.gov/
consumers/guides/telecommunicationsrelay-service-trs.
SUPPLEMENTARY INFORMATION:
I. Background
Section 184 of the Housing and
Community Development Act of 1992
(Pub. L. 102–550, approved October 28,
1992) (12 U.S.C. 1715z–13a), as
amended by the Native American
Housing Assistance and SelfDetermination Act of 1996 (Pub. L. 104–
330, approved October 26, 1996), the
2013 Consolidated and Further
Continuing Appropriations Act (Pub. L.
113–6, approved March 26, 2013), the
2015 Consolidated and Further
Continuing Appropriations Act (Pub. L.
113–235, approved December 16, 2014),
and the Consolidated Appropriations
Act, 2021 (Pub. L. 116–260, approved
December 27, 2020) (Section 184
statute), authorize the Section 184
Program to provide access to sources of
private financing to Indian families,
Tribes and Tribally Designated Housing
Entities (TDHEs) who otherwise could
not acquire housing financing because
of the unique legal status of Trust Land.
The Section 184 Program provides HUD
with the authority to provide access to
sources of private financing for Indian
families, Tribes and TDHEs that
otherwise could not obtain private
financing because of the unique legal
status of Trust Lands by guaranteeing
loans to eligible persons and entities.
Since its inception, the number of loans
guaranteed under the Section 184
Program has significantly increased. At
the same time, the program regulations
have never been substantially revised to
accommodate the exponential growth of
the program. Generally, improvements
on Trust Land, are alienable, but
conditions and restrictions apply.
Consequently, financial institutions may
struggle with utilizing the land interest
as Security in mortgage lending
transactions. To address this concern,
the Section 184 Program provides a loan
guarantee to approved Direct Guarantee
lenders in the event of Borrower default.
The guarantee is paid from the Section
184 Loan Guarantee Fund (Fund) for up
to 100 percent of the unpaid principal
balance as well as any reasonable fees
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and expenses approved by the
Secretary.
Following the enactment of Section
184 on August 18, 1994, HUD published
an interim rule (59 FR 42732) codifying
regulations for the Section 184 Program
at 24 CFR part 955, and on March 6,
1996, HUD published a final rule (61 FR
9052). With the enactment of the Native
American Housing Assistance and SelfDetermination Act of 1996 (NAHASDA),
HUD published a final rule on March
12, 1998, implementing NAHASDA
amendments to the Section 184 Program
as well as re-designating 24 CFR part
995 as 24 CFR part 1005 (63 FR 12334).
On September 11, 1998, HUD published
an interim final rule (63 FR 48988)
establishing a direct guarantee
procedure similar to that in the Direct
Endorsement Program under the Federal
Housing Authority (FHA) single family
mortgage insurance program. The
interim final rule adopted procedures
that permitted HUD to review and
guarantee a loan after loan closing and
made minimum changes to allow for
any necessary administrative actions
against approved Direct Guarantee
Lenders. The final rule making these
changes permanent was issued on April
19, 2002 (67 FR 19491).
The Fund receives annual
appropriations to cover some of the
program costs and charges and an
upfront and annual fee to the borrower
to support the remaining program costs.
The demand for the program has
increased steadily each year. In 1995,
the first year of the program, HUD
guaranteed less than 20 Section 184
Guaranteed Loans. Over the last 10
years, HUD has consistently guaranteed
thousands of loans worth hundreds of
millions of dollars annually. To date,
the Fund has guaranteed over $7.5
billion in loans. While the program has
grown exponentially, the program
regulations have not been substantially
revised to reflect this significant growth.
As the volume in the program increases,
so does the risk to the Fund. The
proposed regulations will help to
mitigate the risk associated with this
increased volume.
The 2013 Consolidated and Further
Continuing Appropriations Act (Pub. L.
113–6, approved March 26, 2013) (2013
Appropriations Act) amended section
184(d) of the Housing and Community
Development Act of 1992 to authorize
HUD to increase the fee for the
guarantee of loans up to 3-percent of the
principal obligation of the loan and to
establish and collect annual premium
payments in an amount not exceeding
one percent of the remaining guaranteed
balance (excluding the portion of the
remaining balance attributable to the fee
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collected at the time of the issuance of
the guarantee). On March 5, 2014, HUD
published a Federal Register Notice (79
FR 12520) announcing an increase in
the one-time Loan Guarantee Fee that
Borrowers pay at loan closing from a
then-existing 1 percent to 1.5 percent of
Guaranteed Loan amount. By Federal
Register Notice published on October 7,
2014 (79 FR 60492), HUD exercised its
new annual premium authority to
implement an annual premium to the
Borrower in the amount of 0.15 percent
of the remaining loan balance until the
unpaid principal balance, excluding the
Upfront Loan Guarantee Fee, reaches 78
percent of the lower of the initial sales
price or appraised value based on the
initial Amortization Schedule. By
Federal Register Notice published on
November 1, 2016 (81 FR 75836), HUD
once again exercised its new annual
premium authority to implement an
annual premium to the Borrower in the
amount of 0.25 percent of the remaining
loan balance. These new fees allowed
HUD to meet the current demands of the
Section 184 Program.
The Consolidated and Further
Continuing Appropriations Act (Pub. L.
113–235) (approved December 16, 2014)
(2015 Appropriations Act) amended
Section 184(h)(1)(B) of the Housing and
Community Development Act of 1992 to
require the exhausting of all reasonable
possibilities of collection by the Holder
of the guarantee, to include a good faith
consideration of loan modification, and
to meet standards for servicing Section
184 Guaranteed Loans in default, as
determined by the Secretary.
The Office of Audit of the HUD Office
of Inspector General (OIG) audited the
Section 184 Program and issued Audit
Report Number: 2015–LA–0002 on July
6, 2015. The report found that HUD did
not adequately monitor, track, and
evaluate participating Direct Guarantee
and Non-Direct Guarantee Lenders to
ensure that loans guaranteed by the
program were being underwritten in
accordance with the Section 184
processing guidelines. The OIG gave
many recommendations, including:
HUD develop and implement policies
and procedures for monitoring, tracking,
underwriting, and evaluating the
Section 184 Program; standardize
monthly delinquency reports; deny
payments for claims on loans that have
material underwriting deficiencies; take
enforcement actions against certain
Direct Guarantee and Non-Direct
Guarantee Lenders; and ensure that only
underwriters that are approved by HUD
are underwriting Section 184
Guaranteed Loans. The corrective action
plan proposed by OIG and agreed upon
by HUD includes the development of
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new regulations to provide additional
structure to the program and a platform
for policies and procedures to manage
the program and address these findings.
II. This Proposed Rule
As the Section 184 Program assists
more eligible Borrowers and entities, the
Fund faces more program expenses and
increased risk. HUD is proposing these
regulatory changes to make the program
sustainable, protect Borrowers, address
weaknesses identified by the OIG,
provide clarity for new and existing
Direct Guarantee and Non-Direct
Guarantee Lenders, and reduce and
eliminate inappropriate and
unreasonable Claim payment requests
from Servicers. This proposed rule is
designed to strengthen and modernize
the Section 184 Program, as well as
protect the Fund. This proposed rule
would enhance and fill the gap in the
existing regulations by modifying and
adopting industry standards and best
practices, as well as relevant FHA
regulations and guidance.
This proposed rule would reorganize
the Section 184 Program’s regulations
by removing outdated sections and
replacing them with the following:
definitions, eligibility requirements for
Lenders, rules governing participation
by Indian Tribes, underwriting
requirements, rules on the closing and
endorsement process, loan fees,
servicing requirements submission of
Claims, and standards governing
monitoring, reporting, sanctions and
appeals.
Proposed Organization of New Part
1005
This rule proposes to divide HUD’s
regulations in 24 CFR part 1005 in nine
subparts: Subpart A would comprise of
general program requirements; subpart
B would discuss Lender and eligibility
requirements; subpart C would cover
requirements for Tribal participation;
subpart D would contain underwriting
requirements for eligible Borrowers,
eligible Properties, and loan types;
subpart E would include requirements
for closing a Section 184 Guaranteed
Loan and receiving endorsement
approval from HUD; subpart F would
provide the requirements for
calculation, collection, and submission
of the Section 184 Guaranteed Loan
fees; subpart G would cover the
requirements for Servicers to manage
Section 184 Guaranteed Loans and steps
to take when a Section 184 Guaranteed
Loan is in default; subpart H would
contain the requirements to submit
Claims on Section 184 Guaranteed
Loans; and subpart I would include
report requirements and sanctions to for
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noncompliance with Section 184
Program regulations. Unless otherwise
noted in this proposed rule, HUD is
proposing to codify current practices.
Where a section is a new requirement,
it is noted.
A. General Program Requirements
(Subpart A)
Purpose § 1005.101. Section 1005.101
would address the purpose of the part
1005 regulations and provide that the
regulations in part 1005 implement the
Section 184 Program.
Definitions § 1005.103. The proposed
rule includes definitions for the terms
found in the existing Section 184
Program regulations, which HUD has
revised to better reflect how the terms
are currently used by the Section 184
Program or to reflect policy shifts:
‘‘default,’’ ‘‘Indian,’’ ‘‘property,’’
‘‘Section 184,’’ and ‘‘Trust or Restricted
Land’’. In the proposed regulations, the
term ‘‘Section 184’’ is further revised to
‘‘Section 184 Guaranteed Loan,’’ and the
term ‘‘Trust or Restricted Land’’ is
further revised to ‘‘Trust Land’’.
The proposed rule does not include
the terms ‘‘Mortgage’’ and ‘‘Mortgagee’’,
which were previously used in the
existing regulation, because the terms
are no longer used in the program and
are obsolete. These terms are replaced
by the terms ‘‘Loan’’ and ‘‘Lender,’’
respectively, as currently proposed in
§ 1005.103.
Additionally, HUD has included new
terms that are commonly used by the
Section 184 Program in practice. This
regulation would formalize these
definitions for the program. The
following terms would provide clarity
and ensure consistency in the
implementation of the various parts of
the Section 184 Program regulations:
‘‘Acquisition Cost,’’ ‘‘Amortization,’’
‘‘Amortization Schedule,’’ ‘‘Annual
Loan Guarantee Fee,’’ ‘‘BIA,’’
‘‘Borrower,’’ ‘‘Claim,’’ ‘‘Conflict of
Interest,’’ ‘‘Date of default,’’ ‘‘day,’’
‘‘Direct Guarantee Lender,’’ ‘‘Eligible
Nonprofit Organization,’’ ‘‘Financial
Statements’’ ‘‘Firm Commitment,’’
‘‘First Legal Action,’’ ‘‘Good and
Marketable Title,’’ ‘‘Holder,’’ ‘‘Identity
of Interest,’’ ‘‘Indian Family,’’ ‘‘Indian
Housing Loan Guarantee Fund,’’ ‘‘lease
or leasehold interest,’’ ‘‘Lender,’’
‘‘Loan,’’ ‘‘Loan Guarantee Certificate,’’
‘‘Loan Guarantee Fee,’’ ‘‘Loss
Mitigation,’’ ‘‘month or monthly,’’
‘‘Non-Direct Guarantee Lender,’’
‘‘Origination or originate,’’ ‘‘Owner of
Record,’’ ‘‘Partial Payment,’’ ‘‘Section
184 Guaranteed Loan,’’ ‘‘Section 184
Approved Program Area,’’ ‘‘Section 184
Program Guidance,’’ ‘‘Security,’’
‘‘Servicer,’’ ‘‘Sponsor,’’ ‘‘Sponsored
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Entity,’’ ‘‘Tax-exempt bond financing,’’
‘‘Title Status Report,’’ ‘‘Tribe,’’ ‘‘Tribally
Designated Housing Entity (TDHE),’’
‘‘Trust Land,’’ and ‘‘Upfront Loan
Guarantee Fee.’’
B. Lender Eligibility & Requirements
(Subpart B)
This subpart includes Lender
eligibility and the application process to
participate in the Section 184 Program
as a Non-Direct Guarantee or Direct
Guarantee Lender.
Lender approval and participation
§ 1005.201. This section describes the
two types of Lenders approved to
participate in the Section 184 Program:
Lenders deemed approved by statute
and Lenders approved by HUD. This
section would require that Lenders
submit to HUD an application for
participation in accordance with the
level of activity a Lender wants to
engage in, as prescribed by Section 184
Program Guidance. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Lenders deemed approved by statute
§ 1005.203. This section is a restatement
of what is an eligible Lender under the
statute. In response to comments
received during Tribal consultation, this
section specifically references
Community Development Financial
Institutions (CDFIs) as being included as
a ‘Lender approved by statute.’ This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Lenders required to obtain Secretarial
approval § 1005.205. This section
addresses qualifications for
participation in HUD’s Section 184
Program if a Lender is not approved
under the statutory approved listed in
§ 1005.203. A Lender would be required
to submit an application, as prescribed
by Section 184 Program Guidance, for
HUD to determine the capacity of the
financial institution to participate in the
Section 184 Program. This application
would include establishing a Lender’s
qualifications based on the following:
business formation verification,
certifications related to employees and
officers, Financial Statements, quality
control plan, identification of branch
offices, certification of conflict and
interest, licensing certification,
verification of minimum net worth, and
identification of operating area. HUD
will review documentation submitted
under this section and make a
determination if the requesting financial
institution is qualified to be a Lender
under the Section 184 Program. If a
Lender is approved to participate in the
Section 184 Program, HUD would send
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written notification of approval. If HUD
determines that the Lender does not
meet the requirements of subpart B,
HUD would send written notice of the
denial, which may be appealed to HUD
in accordance with the appeal
procedure set forth in the regulation.
Lender participation options
§ 1005.207. This section describes the
two levels of Lender participation in the
Section 184 Program, Non-Direct
Guarantee Lender and Direct Guarantee
Lender, along with the allowed eligible
activities for each level of participation.
This section proposes to establish a new
requirement that eligible Lenders must
select their desired participation level
by submitting an application to HUD. A
participation level must be selected by
the Lender and approved by HUD before
initiating any Section 184 program
activities.
Direct Guarantee Lender application
process § 1005.209. This section details
the application requirements for
Lenders to apply to become a Direct
Guarantee Lender in the Section 184
Program. These proposed requirements
HUD believes are necessary to ensure
that Direct Guarantee Lenders meet
certain minimum requirements
including having a certain level of
experience in origination, underwriting,
and servicing of mortgage loans.
Additionally, Lenders must submit a
quality control plan.
Direct Guarantee Lender approval
§ 1005.211. This section addresses what
constitutes HUD approval for Lenders
applying to participate in the Section
184 Program as a Direct Guarantee
Lender under § 1005.209. This section
addresses the process HUD would
follow to notify Lenders of their
approval as Direct Guarantee Lenders
under the program. HUD would provide
written notification to the Lender, and
the Lender would need to certify to
being in compliance with all program
requirements and agree to ensure that
any Sponsored Entities also comply
with all program requirements. This
section is an addition to HUD’s current
practice.
Non-Direct Guarantee Lender
application, approval, and Direct
Guarantee Lender sponsorship
§ 1005.213. This section describes the
sponsorship relationship between a
Direct Guarantee Lender and a NonDirect Guarantee Lender and the general
responsibilities of a Direct Guarantee
Lender as the Sponsor. Each Sponsor is
responsible to HUD for the actions of
the Sponsored Entity and must ensure
that HUD records remain up to date by
informing HUD regarding any changes
of the Sponsored Entity. This section
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seeks to align with HUD’s current
practice.
Annual reporting requirements
§ 1005.215. This section would require
annual reporting on Section 184
Guaranteed Loan performance data from
Direct Guarantee Lenders, their
Sponsored Entities. It also provides for
HUD to establish additional annual
reporting requirements as provided in
Section 184 Program Guidance. The
section would be a new requirement to
track the performance of the program
and participating Direct and Non-Direct
Guarantee Lenders to ensure the
protection of the Fund.
Quality control plan § 1005.217. This
section proposes to implement the
requirement that Lenders participating
in the Section 184 Program have a
written quality control plan and the
contents of that plan. The purpose of the
quality control plan is to ensure Lender
compliance with Section 184 Program
requirements and protect HUD and the
Lenders from unacceptable risks. A
Lender would be required to adopt and
implement a quality control plan that
fully complies with Section 184
Program Guidance. This requirement
incorporates existing Quality Control
Plan policies and adds new
requirements, such as paragraphs (c)
and (d) in § 1005.217.
Other requirements § 1005.219. This
section describes proposed additional
Direct Guarantee Lender and Non-Direct
Guarantee Lender requirements,
including compliance with pertinent
Tribal, Federal, and State, and laws,
dual employment, reporting
requirements, records retention, all of
which are proposed to place in
regulations current program policy,
practice, and/or procedure.
This section also includes a proposed
new requirement that HUD may set for
lenders a minimum level of lending on
Trust Land. While this program was
designed to bring mortgage capital to
Trust Lands, the majority of loans
guaranteed by the Program are made on
fee simple land. In order to address this
concern, this rule proposes to set forth
a new requirement for lenders
participating in the program to actively
market, originate, and underwrite loans
on Trust Land. HUD is interested in
increasing lending on Trust Land to
further the objectives of the Section 184
Program and provide additional
homeownership opportunities on Trust
Lands. In this section, HUD proposes to
set, by Federal Register, a minimum
lending amount for direct guarantee
lenders on Trust Lands. All Lenders
would be required to ensure that they
comply with these additional
requirements to remain as a participant
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in the program. While HUD is not
proposing a specific minimum level of
lending on Trust Land in this proposed
rule, HUD is interested in receiving
feedback on what this minimum level of
lending should be and if such minimum
requirement would help with the
underlying goal of the provision.
Business change reporting § 1005.221.
This section would require Lenders
participating in the Section 184 Program
to notify HUD within a timeframe as
prescribed by Section 184 Program
Guidance of any changes in a Lender’s
legal structure or staffing or any new
sanctions against the Lender. HUD is
proposing to require this notification to
reduce risk and monitor the stability of
the lender.
Annual recertification § 1005.223.
This section would implement the
mandatory submission of an annual
recertification by all Direct Guarantee
and Non-Direct Guarantee Lenders, as
prescribed by Section 184 Program
Guidance. HUD is proposing to require
recertification to ensure that Direct
Guarantee and Non-Direct Guarantee
Lenders continue to meet program
eligibility requirements and to reduce
the risk to HUD and the Fund. This
section also would require the Direct
Guarantee Lender and Non-Direct
Guarantee Lender to submit Financial
Reports and updated contact
information. This section is consistent
with HUD’s current practice.
Program ineligibility § 1005.225. This
section describes the circumstances
under which HUD would determine that
a Direct Guarantee Lender or Non-Direct
Guarantee Lender is ineligible to
participate the Section 184 Program.
This section is intended to reduce risk
to the Fund as well and align with
current industry standards.
C. Lending on Trust Land (Subpart C)
This subpart proposes requirements
for Tribal participation in the Section
184 Program when Tribes want to make
Trust Land or Restricted Fee Land
available under the Section 184
Program. This section requires a
partnership between HUD, the Tribe,
the Direct Guarantee Lender, Servicer
and the Borrower. The Tribe is a critical
partner in the ability of the program to
operate on Tribal Lands. For the
program to operate on Trust Lands,
certain Tribal ordinances must be in
place. Tribes interested in participating
in the Program would be required to
submit to HUD evidence of the required
legal and administrative framework
necessary to ensure HUD or the Servicer
have the ability to enforce the lien in
case of default.
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Tribal legal and administrative
framework § 1005.301. This section
outlines the legal and the administrative
framework necessary when a Tribe
seeks to allow eligible Borrowers place
a mortgage lien on Trust Land under the
Section 184 Program. The proposed rule
would specify requirements governing
foreclosure and assignments, property
disposition, eviction procedures, lien
priority, and leasing, which are an
addition to the regulation to codify
current policy, practice and/or
procedure. These requirements are
necessary to protect Borrowers, Tribes,
TDHEs, Lenders and the Fund from
unnecessary financial risks. This section
proposes new language to be included
in the Tribal lease that would allow a
Tribe to assign the lease to HUD, and
HUD would transfer the lease to a
successor lessee, as approved by the
Tribe. This language has been added
because there have been instances when
a Borrower is in default, their Section
184 Guaranteed Loan has been assigned
to HUD, and the Borrower has vacated
the property before foreclosure. The
Tribe, THDE or a trial member is
interested in purchasing the property,
but the sale cannot happen because the
defaulted Borrower remains on the
lease. The proposed language gives the
Tribe the authority to assign the lease to
HUD so the sale of the property can
move forward without having to wait
until HUD obtains the lease through
foreclosure.
Tribal application § 1005.303. This
section includes the application
requirements for Tribes interested in
bringing the Section 184 Program to
their Trust Lands. The application must
include a copy of documents related to
the Tribe’s legal and administrative
framework, including but not limited to
a Tribe’s foreclosure, eviction, lease,
and priority lien ordinances, all crossreferenced ordinances in those sections,
and any other documents in accordance
with Section 184 Program Guidance.
HUD is proposing this section to ensure
that Tribes have the necessary legal
structure in the event of a default on
Trust Land and to ensure that HUD is
provided first lien priority.
Approval of Tribal application
§ 1005.305. This section would specify
that HUD will provide written
notification to Tribes upon the
completion of its review of a Tribe’s
application submitted in accordance
with § 1005.303 and would provide the
opportunity for Tribes to resubmit
missing, incomplete, or deficient
applications. This proposed section is
consistent with current program policy,
practice, and/or procedure.
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Tribal recertification § 1005.307. This
section would implement the
mandatory submission of an annual
recertification by all Tribes participating
in the Section 184 Program and the
contents of such recertification, in
accordance with Section 184 Program
Guidance. HUD proposes to require
recertification to ensure that the Tribe
continues to meet program eligibility
requirements. This section would also
require the Tribe to update contact
information. This proposed section is
intended to keep current on Tribal
contacts and to confirm that there have
been no changes to relevant ordinances
and the Tribal lease.
Duty to report changes § 1005.309.
This section would require Tribes
participating in the Section 184 Program
to report to HUD any current changes in
the Tribe’s contact information, or
proposed changes to foreclosure,
eviction lease and lien priority
ordinances. This section is a new
requirement to ensure HUD notification
of these changes and to reduce the risk
to HUD and the Fund.
HUD Notification of any lease default
§ 1005.311. This section would
mandate, when there is any default of
the lease by the Borrower, including a
nonpayment of leasehold rent, the lessor
shall notify HUD within 30 days of
default, or as set forth in the lease
agreement. This section is proposed to
ensure notification of a delinquency to
HUD and allow HUD to explore early
Loss Mitigation actions and to reduce
the risk of potential loss to the Fund.
Tribal reporting requirements
§ 1005.313. This section provides HUD
with the ability to require Section 184
program-related reports from Tribes
approved under § 1005.305. HUD
intends to use this new requirement as
a placeholder in the event, at a future
date, HUD is in need of Section 184
Program information from approved
Tribes that is not anticipated in
§§ 1005.307 and 1005.309. If HUD
determines additional information the
Section 184 Program from Tribes is
needed, it would publish these
requirements in Section 184 Program
Guidance and complete the necessary
Paperwork Reduction Act process
requesting input on the additional
burden associated with the requested
reports.
D. Underwriting (Subpart D)
This subpart includes the
requirements for a loan to be guaranteed
by the Section 184 program. The subpart
is organized into four sections: eligible
Borrowers, eligible Properties, eligible
loans, and underwriting.
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Eligible Borrowers § 1005.401. This
section provides that to be eligible to
participate in the Section 184 Program,
a Borrower must be an Indian Family,
Indian Tribe, or TDHE. This section
would require an Indian Family to
document its status as American Indian
or Alaska Native through evidence as
prescribed by Section 184 Program
Guidance. This section is a revision of
the language found in § 1005.105(b) of
the current regulations; the existing
regulation is proposed to be moved into
a new section and aligns with current
procedures.
Principal Residence § 1005.403. This
section sets forth the occupancy
requirements for Borrowers in relation
to the property interest that secures the
Section 184 Guaranteed Loan. HUD also
defines the qualifications for a nonoccupant Co-Borrower. As the program
has evolved, it has allowed for nonoccupant co-Borrowers as a way to
expand homeownership opportunities
for Borrowers who may need assistance
with their mortgage and have a family
member willing to take on the financial
responsibility for the Section 184
Guaranteed Loan. Non-occupant coBorrowers must be related by blood, or
be able to document a family-type,
longstanding, and substantial
relationship not arising out of the loan
transaction. This section is a revision of
existing § 1005.105(b)(1).
Borrower residency status § 1005.405.
This section describes the residence
status requirements to be considered an
eligible Borrower in the Section 184
Loan Guarantee program. In addition to
the requirements set forth in § 1005.401,
an eligible Borrower must be a U.S.
citizen; lawful permanent resident alien;
or a non-permanent resident alien.
Documentation to support the lawful
residency status must be provided. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Relationship of income to loan
payments § 1005.407. This section
provides that a Borrower’s income must
be sufficient to cover the costs of
Section 184 Guaranteed Loan payments
plus any other long-term obligations.
This section also describes the
requirement for a minimum qualifying
threshold when an eligible Borrower has
a co-Borrower that will not occupy the
home. Additionally, HUD also would
require that the determination of the
adequacy of a Borrower’s income be free
from discrimination. In particular, this
section adds new language requiring
that the determination of adequacy of
Borrower income shall be made without
regard to, among other things,
Borrower’s source of income or location
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of the property. HUD believes these two
proposed non-discrimination provisions
further the statutory purpose of the
program to ‘‘provide access to sources of
private financing to Indian families,
Indian housing authorities, and Indian
tribes, who otherwise could not acquire
housing financing because of the unique
status of Indian lands.’’ 12 U.S.C.
1715z–13a(a). With respect to the
proposed prohibition of discrimination
based on the Borrower’s source of
income, HUD seeks to address instances
where lenders may disapprove of the
Borrower’s income streams related to
Borrower’s Tribal status (such as Tribal
payments a Borrower may receive from
his or her Tribe or from traditional tribal
income sources). With respect to the
proposed prohibition of discrimination
based on property location, HUD seeks
to address instances where lenders may
decide to only approve loans involving
fee simple properties and uniformly
reject loan applications solely because
Borrower chooses to finance a home on
Tribal trust property. Other than the
newly added provisions regarding nondiscrimination based on property
location and sources of income, this
section is consistent with current
practice, policy, and/or procedure.
Credit standing § 1005.409. This
section is proposing, consistent with
current policy and practice, that no
minimum credit score is required to
qualify for a Section 184 Guaranteed
Loan. However, Direct Guarantee
Lenders are required to analyze the
Borrower’s credit history and payment
patterns to determine credit worthiness.
This section also revises the existing
guidance that if a Borrower previously
defaulted on a Section 184 Guaranteed
Loan, they are ineligible to apply for
another Section 184 Guaranteed Loan.
To conform with industry practice, HUD
is proposing that these Borrowers may
apply for a Section 184 Guaranteed
Loan after a waiting period as
prescribed by HUD.
Disclosure and verification of Social
Security and Employer Identification
Numbers or Tax Identification Number
§ 1005.411. This section would require
that Borrowers must meet the
requirements for the disclosure and
verification of social security, employer
and tax identification numbers.
Disclosure and verification of this
information minimizes fraud and adds
protections for the Fund and is
consistent with HUD’s current practice,
policy, and/or procedure.
Acceptable title § 1005.413. To be
considered acceptable title, a Section
184 Guaranteed Loan must be on real
estate held in fee simple land or Trust
Land. Where title evidences a lease that
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is used in conjunction with the Section
184 Guaranteed Loan, the lease must
comply with § 1005.301, and must have
a remaining term which exceeds the
maturity date of the Section 184
Guaranteed Loan by ten years. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Sale of property § 1005.415. This
section would require that the property
be purchased from the Owner of Record
and that the Direct Guarantee Lender
provide evidence of ownership.
Additionally, this section would
establish the requirements for
documentation and timing restrictions
on property re-sales to prevent flipping
of the property for financial gain by the
Borrower. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Location of property § 1005.417. This
section would establish that a property
must be used for residential purposes
and be located within an approved
Section 184 Approved Program Area to
be eligible for a Section 184 Guaranteed
Loan. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Requirements for standard housing
§ 1005.419. This proposed section lists
the minimum required property
standards for properties under the
Section 184 Program. This section also
explains environmental review
requirements and responsibilities and
includes requirements for flood
insurance, the Coastal Barrier Resource
System and Special Airport Hazards.
With respect to minimum required
property standards, this proposed
section requires the property to be:
decent, safe, sanitary and modest in size
and design, conform with applicable
general construction standards for the
region, containing a heating system,
contain a plumbing system, contain an
electrical system, meet minimum square
footage requirements, and conform with
energy performance requirements for
new construction. This proposed
section revises existing § 1005.111(a)
consistent with current practices,
policies, and/or procedures.
Certification of appraisal amount
§ 1005.421. This section would require
the contract for sale to be satisfactory to
HUD and where the seller agrees to
provide a certification of appraisal
establishing the amount of the appraised
value of the property. This protects the
Borrower and the Fund by ensuring the
guaranteed loan is secured by a property
where the true value has been
established. This proposed section is
consistent with current program policy,
practice, and/or procedure.
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Legal restrictions on Conveyance
§ 1005.423. This section proposes to
define and establish permitted legal
restrictions that may be placed on a
property guaranteed by a Section 184
loan. This section would allow for
restrictions on Conveyance only to
enrolled Tribal members when the
property is located on Trust Land, the
acceleration of a mortgage subject to tax
exempt bond funding where it no longer
meets the Federal requirements, and
property with approved restrictions
established for occupancy for the
elderly. This regulation would provide
Tribes with the maximum flexibility
available to best serve their Tribal
members. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Rental properties § 1005.425. This
section proposes the conditions under
which a Section 184 Guaranteed Loan
may be used to purchase a one- to fourfamily unit property where one unit will
be owner occupied and the additional
units may be rented. This section
clarifies that one- to four-family unit
Properties owned by the Tribe or TDHE
will not be subject to the same
conditions. This section clarifies the
two allowable exceptions to the
Principal Residence requirements in
§ 1005.403 and is consistent with
current program policy, practice, and/or
procedure.
Refinancing § 1005.427. This section
proposes to include the criteria to
refinance a qualified loan under the
Section 184 Program and presents the
three types of allowable refinance
transactions: Rate and Term, Streamline
and Cash Out. This section would
require a maximum term for the new
loan to be 30 years and a payment
history on the existing loan that meets
the standards established by HUD. It
would also prohibit Lenders from
requiring a minimum outstanding
principal amount on the existing loan
and clarifies the treatment of financed
Upfront Loan Guarantee Fees. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Eligibility of Loans covering
manufactured homes § 1005.429. This
section provides eligibility requirements
for the financing of one-family
manufactured homes. This section
would establish the minimum square
footage for a unit, the requirement to
meet the National Manufactured Home
Construction and Safety Standards and
have a certification label, and the
requirement of siting on a permanent
foundation that meets the applicable
installation standards and adheres to the
manufacturer’s installation instructions.
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This regulation is required to ensure the
safety of the Borrower and the value of
the collateral. This proposed section is
consistent with current program policy,
practice, and/or procedure and would
align with FHA standards.
Acceptance of individual residential
water purification § 1005.431. This
section proposes requirements for
properties that do not have access to a
continuing supply of safe and potable
water, without use of a water
purification system. It would require the
applicable official’s specification of the
water purification equipment approval
standard, certification by Tribal, State or
health authority, and Borrower notices
and certification. This section would
require a certification by a Tribal, State,
or local health authority that it has
determined the water supply meets the
entity’s quality standards for drinking
water. Additionally, this section would
require written notification to the
Borrower when the contract is ratified
that the property does not have access
to a continuing supply of safe and
potable water without a purification
system, a water safety report identifying
contaminants and associated health
hazards, and a good faith estimate of
maintenance and replacement costs.
The Borrower must sign a certification
they have received all of this
information prior to underwriter
approval. This regulation would provide
the Borrower with full disclosure of
maintenance and upkeep costs of an
individual water purification system
and health and safety provisions. This
proposed section is consistent with
current program policy, practice, and/or
procedure and would align with
industry standards.
Builder warranty § 1005.433. This
section proposes that a builder must
submit a warranty that the property is
constructed in substantial conformity
with the plans and specifications for
newly constructed Properties
guaranteed by the Section 184 Program.
This proposed section is consistent with
current program policy, practice, and/or
procedure and would align with
industry standards.
Eligible collateral § 1005.435. This
section proposes what collateral is
acceptable for a Section 184 Guaranteed
Loan. The proposed section would
require that the collateral be authorized
and not prohibited by Tribal, Federal,
State, or local law and must be
sufficient to cover the amount of the
loan as determined by the Direct
Guarantee Lender and approved by
HUD. This section would revise existing
§ 1005.107 of the current regulations
and be consistent with current practices,
policies, and/or procedures.
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Loan provisions § 1005.437. This
proposed section provides the details
for loan provisions required for a
Section 184 Guaranteed Loan, including
loan form, loan multiples, loan
payments, loan maturity, property
standards, disbursements and
prepayment. This section would revise
existing § 1005.105(a).
Loan lien § 1005.439. This section
proposes lien requirements for a Section
184 Guaranteed Loan. After the loan
offered for guarantee has been recorded,
the property must be free and clear of
any other liens, unless prior approval
has been granted by HUD for a junior
lien. This section proposes conditions
for a junior lien, which covers periodic
payments, ability to pay considerations,
loan to value limitations, prohibition of
balloon payments earlier than 10 years,
requirement for the junior lien to be due
and payable upon sale or refinance of
the Section 184 Guaranteed Loan, and
the acceptability of prepayments at any
time without the requirement for a
prepayment penalty. In addition, a
junior lien may be provided as a means
to reduce that Borrower’s monthly
payments. This type of junior lien
would require pre-approval from HUD,
shall not require the payment of any
principal or interest until the property
securing the junior lien is sold or the
Section 184 Guaranteed Loan is
refinanced, and shall not require
principal and interest payments, so long
as the property is owner occupied and,
where applicable, shall provide
forgiveness of the junior lien at the end
of the term. Lastly, if a junior lien is
related to tax exempt bond financing or
low-income housing tax credits, HUD
approval is also required. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Section 184 Guaranteed Loan limit
§ 1005.441. This section would establish
HUD’s authority to set the maximum
loan limits for Section 184 Approved
Program Areas. HUD may revise these
maximum limits periodically. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Loan amount § 1005.443. This section
proposes the minimum required
investment from the Borrower based on
the difference between the sales price
and the base loan amount. It also would
provide the methodology for calculating
the base loan amount and would
establish the maximum and minimum
principal loan amounts. This
investment must come from the
Borrower’s own funds, gifts, or Tribal,
State, or local funds awarded to the
Borrower. The regulation is required to
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balance the risk to the Fund and the
unique requirements of Native
American Borrowers. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Case numbers § 1005.445. This
section explains when and how to
obtain a Section 184 case number.
Direct Guarantee Lenders must have an
active loan application for a Borrower
and a specific property. The case
number request must include proof of
Tribal enrollment or Alaska Native
status, verification that the property is
located in a Section 184 Approved
Program Area, confirmation that the
Loan does not exceed the Section 184
Loan Limit, and be submitted in manner
prescribed in the Section 184 Program
Guidance. Case numbers will be
automatically cancelled after a period
identified by HUD if a reservation of
funds request is not received and
processed by HUD. HUD may allow for
the extension as prescribed. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Maximum age of Loan documents
§ 1005.447. This section proposes the
maximum age of loan documents at the
time of underwriting and loan closing.
Documents reviewed at underwriting
may not be older than 60 days and all
documents may not be more than 120
days old at closing. Certain documents
will be exempt from these time frames
if they are not affected by the passage
of time. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Qualified mortgage § 1005.449. This
section explains that Section 184
Guaranteed Loans are afforded safe
harbor as qualified mortgages that meet
the ability-to-pay requirements. This
section is a revision of the existing
§ 1005.120 and conforms to current
practices, policies, and/or procedures.
Agreed interest rate § 1005.451. This
section would require that a Loan must
have an interest rate that is agreed upon
by the Direct Guarantee Lender and
Borrower and is determined by HUD to
be reasonable. This regulation is
necessary to ensure Borrowers are not
being charged inflated interest rates
attributable to risk-based pricing for
minimum loan amounts, credit scores,
or other risks, when the Direct
Guarantee Lender is receiving a 100
percent guarantee against any loss due
to default. This risk-based pricing
requirement would be a new
requirement and is intended to protect
the Borrower from inflated interest
rates, which may impact loan
performance and the Fund.
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Amortization provisions § 1005.453.
This section proposes that a Loan’s
Amortization provisions be satisfactory
to HUD, monthly payments by the
Borrower, and that the principal and
interest payments each month shall be
substantially the same. This section is a
revision of existing § 1005.105(a) and is
consistent with current practices,
policies, and/or procedures.
Direct guarantee underwriting
§ 1005.455. This section outlines
proposed requirements for direct
guarantee underwriting including
underwriter due diligence, evaluation of
the Borrower, and assumptions. This
section is a revision of the existing
§ 1005.106(a), outlining the direct
guarantee procedure. Direct Guarantee
underwriters must exercise the same
level of due diligence as if they were
entirely dependent on the property as
Security to protect their investment. An
acceptable quality control plan and
compliance with HUD prescribed
underwriting guidelines are the
minimum standard of due diligence.
Direct Guarantee underwriters shall
evaluate the Borrower’s credit
characteristics, adequacy, and stability
of income to make payments on all
obligations and the available assets.
This section also would require all
assumptions of an existing Section 184
Guaranteed Loan be underwritten using
the same Borrower eligibility and
underwriting standards in this subpart.
This section is consistent with current
program policy, practice, and/or
procedure.
Appraisal § 1005.457. This section
would establish the requirement for the
appraisal of a property to be used to
obtain a Section 184 Guaranteed Loan,
the selection of an appraiser, appraisal
standards, validity period for appraisals,
possible extensions of the validity
period, and possible sanctions when the
requirements listed under the section
are not met. A property appraisal for the
Section 184 Program must be done in
accordance with the Uniform Standards
of Professional Appraisal Practice and
the Fair Housing Act (42 U.S.C. 3601–
19); however, HUD may establish
alternative requirements in Section 184
Program Guidance. The Direct
Guarantee Lender must select an
appraiser currently on the FHA
Appraiser Roster and the Direct
Guarantee Lender must not discriminate
in its selection of the appraiser. The
appraiser must be knowledgeable in the
market where the property is located.
The appraisal and related documents
must satisfy FHA, Fannie Mae, or
Freddie Mac requirements. In addition,
the Direct Guarantee Lender may be
subject to sanctions permitted under
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§ 1005.907 for submitting an appraisal
that does not meet the requirements
described. This proposed section would
codify current program policy, practice,
and/or procedure and aligns with
industry standards.
Loan submission to HUD for Direct
Guarantee § 1005.459. This section
proposes a 60-day timeframe in which
an endorsement case binder must be
sent to HUD after closing. This section
also outlines the additional
documentation required for a late
submission greater than 60 days after
closing. The Direct Guarantee Lender
would be required to submit a late
endorsement request with
documentation affirming the loan is not
currently in default, all escrow accounts
are current, all loan guarantee fees are
current, and a statement that neither the
Direct Guarantee Lender nor its agents
have provided funds to bring or keep
the loan current or bring about the
appearance of a satisfactory payment
history. This proposed section is
consistent with current practices,
policies, and procedures. This section
does propose an exception to the
proposed current endorsement practice,
which provides that with prior approval
from HUD, consistent with Section 184
program guidance, the Direct Guarantee
Lender or Servicer may provide funds to
bring or keep the Section 184
Guaranteed Loan current in the event
the Borrower agrees to Loss Mitigation
before HUD provides endorsement, as
the case with some Borrowers during
the COVID–19 National Emergency.
HUD issuance of Firm Commitment
§ 1005.461. This section proposes that
HUD may underwrite, consistent with
specific underwriting criteria, and issue
a Firm Commitment. This proposed
section is consistent with HUD’s current
practice, policy, and/or procedure.
E. Closing and Endorsement (Subpart E)
This subpart includes requirements
for closing a Section 184 Guaranteed
Loan and receiving endorsement
approval from HUD. The subpart is
organized into two sections: closing,
and endorsement and post-closing.
Direct Guarantee Lender closing
requirements § 1005.501. This section
would provide the required
documentation for closing a loan under
the program, including: chain of
ownership, title search and Title Status
Report, closing in compliance with
Direct Guarantee Lender approval,
closing in the Lender’s name, required
forms and language in documents,
projected escrow, closing costs and fees,
per diem interest and interest credits,
Borrower authorization of Tribal notice,
signatures, and other requirements. This
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documentation is necessary to ensure
that the Loan may be eligible for a Loan
Guarantee under the program. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Contents of endorsement case binder
§ 1005.503. This section proposes HUD
requirements for the contents of the
endorsement case binder. The
endorsement case binder is required by
HUD and includes certain
documentation necessary for HUD to
determine program compliance and to
issue a Loan Guarantee Certificate to the
Lender. The actual contents of the
endorsement case binder shall be in a
format as prescribed by Section 184
Program Guidance. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Payment of Upfront Loan Guarantee
Fee § 1005.505. This section would
require the Direct Guarantee Lender to
provide evidence of the remittance of
the Upfront Loan Guarantee Fee, as
required under § 1005.607. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Borrower’s payments to include other
charges and escrow payments
§ 1005.507. This section proposes the
charges and escrow payments that the
Direct Guarantee Lender must include
as part of the Section 184 Guaranteed
Loan monthly payment. This section
also proposes how these payments
should be managed by the Lender and
disallows the recovery from the
Borrowers of payment of additional
premiums to protect the interest of the
Lender. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Application of payments § 1005.509.
This section would require that all
monthly payments made by the
Borrower to the Servicer shall be
aggregated into a single monthly
payment, and that the Servicer shall
apply the Borrower’s funds in
accordance with § 1005.715. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Late fee § 1005.511. This section
would establish the ability for a Servicer
to charge a late charge to the Borrower
when a Section 184 Guaranteed Loan
payment is 15 or more days in arrears.
It also would establish maximum late
charge of four percent of the overdue
payment of principal and interest, or
any other amount as established by
HUD through public notice with an
opportunity for comment. This section
is intended to provide a deterrent for the
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Borrower to make payments outside of
the applicable payment period and to
reduce risk to the Direct Guarantee
Lender and the Fund. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Borrower’s payments when Section
184 Guaranteed Loan is executed
§ 1005.513. This section outlines what
payments from what parties are required
upon execution of the Section 184
Guaranteed Loan, including the onetime Upfront Loan Guarantee Fee or any
portion payable pursuant to § 1005.603;
and all other applicable monthly
charges pursuant to § 1005.507,
including the annual Section 184
Guaranteed Loan fee pursuant to
§ 1005.607, covering the period from the
closing date to the due date of the first
installment payment under the Section
184 Guaranteed Loan. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Charges, fees, or discounts § 1005.515.
This section proposes a list of allowable
charges, fees, or discounts a Direct
Guarantee Lender may collect from the
Borrower at Origination of a Section 184
Guaranteed Loan. These charges/fees
include costs to cover origination and
closing; recording fees and recording
taxes; credit report; survey; title
examination; title insurance premium
and any appraisal or inspection; such
other reasonable and customary charges
as may be authorized by HUD;
reasonable and customary charges in the
nature of discounts; and interest
calculations in accordance with
§ 1005.501. Before the Loan may be
guaranteed by the Section 184 Program,
the Direct Guarantee Lender must
provide HUD a listing of all charges,
fees, or discounts collected from the
Borrower by the Lender.
For an assumption of an existing
Section 184 Guaranteed Loan,
processing fees must be based on actual
costs and the Direct Guarantee Lender
may not charge more than the
reasonable and customary allowable
cost without HUD approval. Fees for
assumptions may include, but are not
limited to, credit report, verification of
employment and the execution of
additional release of liability forms.
Additional fees over and above
assumption fees cannot be assessed for
Section 184 Guaranteed Loans on Trust
Lands. HUD may establish limitations
on the amount charged for origination,
closing, and assumptions. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
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Certificate of nondiscrimination by
the Direct Guarantee Lender § 1005.517.
This section would require that Direct
Guarantee Lenders, when applicable,
certify to HUD specific
nondiscrimination practices required of
Direct Guarantee Lenders, including:
nondiscrimination based on race, color,
religion, sex, disability, familial status,
or national origin, except as provided by
law; and prohibiting any restrictive
covenant, other than permissible
restrictions on Trust Land, on such
property relating to race, color, religion,
sex, disability, familial status, or
national origin and recognizing such
prohibited restrictive covenants as being
illegal, void, and disclaimed. A civil
action for preventative relief may be
brought by the Attorney General in any
appropriate U.S. District Court against
any person responsible for a violation of
this certification. This section is
intended to protect the Borrower from
discrimination, and is consistent with
current program policy, practice, and/or
procedure.
Creation of the contract § 1005.519.
This section describes when a Loan
shall be considered guaranteed under
the program and that the Direct
Guarantee Lender and HUD are bound
by the requirements set forth in this
regulation as if the two parties were in
an executed contract relating to the
loan. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Lender pre-endorsement review and
requirements § 1005.521. This section
would require a pre-endorsement
review of the endorsement case binder
by the Direct Guarantee Lender prior to
the submission of the endorsement case
binder to HUD and describes the
parameters of this review. This review
must be conducted by Direct Guarantee
Lender staff not involved in the
origination, processing, or underwriting
of the loan, and the case binder must
include all documentation the Direct
Guarantee Lender used to approve the
loan. Upon finalizing the preendorsement review, the Direct
Guarantee Lender must certify that all
required documents were submitted and
meet the requirements of § 1005.503.
This proposed new requirement would
provide additional assurances that the
Direct Guarantee Lender is making
prudent judgements when approving
the loans and following HUD program
polices, practice, and procedures.
HUD pre-endorsement review
§ 1005.523. This section proposes
Lender’s submission deadline and
HUD’s process for a pre-endorsement
review. Before endorsement, HUD will
review the endorsement case binder
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submitted by the Direct Guarantee
Lender to ensure that the loan meets all
statutory, regulatory, and administrative
requirements. Following this review, if
the loan is determined to be eligible,
HUD will issue a Loan Guarantee
Certificate. HUD may reject an
endorsement case binder if HUD finds
that the certification or documentation
is false, misleading, or constitutes fraud
or is a misrepresentation on the part of
any party, or that the loan fails to meet
a statutory or regulatory requirement.
HUD will inform the Direct Guarantee
Lender in writing the reasons for the
determination and any corrective
actions that may be taken. The HUD preendorsement review is intended to
reduce the risk for fraud and program
non-compliance that could negatively
impact the Fund, and is consistent with
current program policy, practice, and/or
procedure.
Loan Guarantee Certificate
§ 1005.525. This section proposes the
conditions under which HUD will issue
a Loan Guarantee Certificate. The Loan
Guarantee Certificate is evidence of the
HUD guarantee and is issued after HUD
completes a review of the Lender’s
endorsement case binder and
determines the case binder is in
compliance with all applicable Section
184 requirements. HUD may issue a
Loan Guarantee Certificate for a loan on
Trust Land before HUD receives all
required Trailing Documents, provided
that the Direct Guarantee Lender agrees
to indemnify HUD. The indemnification
agreement between HUD and the Direct
Guarantee Lender will terminate once
all required documentation is received
in a form and manner that is acceptable
by HUD. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Post-endorsement review § 1005.527.
This section proposes the process for
HUD to conduct a post-endorsement
review of the endorsement case binder,
including, but not limited to a quality
control review. Following the issuance
of the Loan Guarantee Certificate, HUD
may review all documents required by
§ 1005.503. Based upon this review, if
HUD determines that the Loan does not
satisfy the requirements of the program,
HUD may cancel the Section 184 Loan
Guarantee Certificate, may request
indemnification from the Direct
Guarantee Lender, or sanction the Direct
Guarantee Lender pursuant to
§ 1005.907. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Indemnification § 1005.529. This
section proposes that an Originating
Direct Guarantee Lender must
indemnify HUD when a claim has been
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filed or when HUD discovers an
underwriting deficiency in a pre- or
post-endorsement review. In this
instance, the Originating Direct
Guarantee Lender shall indemnify HUD
or HUD may deny the Claim.
Underwriting deficiencies may include,
but not limited to, fraud or
misrepresentation by the Originating
Direct Guarantee Lender. If
indemnification is necessary, HUD will
request indemnification in writing that
the Originating Direct Guarantee Lender
will reimburse HUD if a subsequent
holder of the loan files a Claim and
HUD suffers a financial loss. This
proposed section is intended to protect
HUD from financial risk from possible
underwriting deficiencies and aligns
with industry standards.
F. Section 184 Guaranteed Loan Fees
(Subpart F)
This subpart includes the
requirements for calculation, collection,
and submission of the Section 184 Loan
Guarantee Fee.
Scope and method of payment
§ 1005.601. This section includes the
statutory requirements of a one-time,
Upfront Loan Guarantee Fee and a
recurring Annual Loan Guarantee Fee,
for all Section 184 Guaranteed Loans.
This section revises existing § 1005.109
of the current regulations and is
consistent with current program policy,
practice, and/or procedure.
Upfront Loan Guarantee Fee
§ 1005.603. This section mandates that
an Upfront Loan Guarantee Fee, not
exceeding three percent of the principal
obligation of the loan, as determined by
HUD, is to be paid at closing. The
amount of the Upfront Fee will be
prescribed by HUD through a notice in
the Federal Register. This fee is
statutorily required and necessary to
credit the Fund to provide for payments
under the guarantee, in addition to
congressional appropriation.
Remittance of Upfront Loan
Guarantee Fee § 1005.605. This section
would require the Direct Guarantee
Lender to submit to HUD the Upfront
Loan Guarantee Fee within 15 days of
loan closing. Additionally, this section
would require the Direct Guarantee
Lender to provide an account
reconciliation of the Upfront Loan
Guarantee Fee in the time and manner
as may be prescribed by HUD. This
proposed section codifies current
program practices, policy, and/or
procedure.
Annual Loan Guarantee Fee
§ 1005.607. This section would require
an Annual Loan Guarantee Fee to be
collected from the Borrower on a
monthly basis, as determined by HUD
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and published in the Federal Register.
This section would also authorize the
Servicer to collect monthly payments
from the Borrower in an amount equal
to one-twelfth of the annual loan
guarantee premium and the ability for
the Borrower to prepay their Section
184 Guaranteed Loan. These payments
are included in the Amortization
Schedule issued with the Loan
approval. The Annual Loan Guarantee
Fee is statutorily required and necessary
to credit the Fund to provide for
payments under the guarantee, in
addition to congressional appropriation.
This proposed section is consistent with
current program policy, practice, and/or
procedure.
Remittance of Annual Loan
Guarantee Fee § 1005.609. This section
would require the Servicer to submit to
HUD the Annual Loan Guarantee Fees
collected from the Borrower no later
than the 15th day of each month,
beginning in the month in which the
Borrower is required to make the first
monthly loan payment. If the Servicer is
late submitting the monthly installment
of the Annual Loan Guarantee Fee, the
Servicer must pay a penalty in
accordance with § 1005.611. The
Annual Loan Guarantee Fee no longer
applies when the loan to value ratio
equals an amount less than 78 percent,
in accordance with § 1005.607. The
Servicer must refund to the Borrower
any excess Annual Loan Guarantee Fees
collected when the loan-to-value ratio is
less than 78 percent, within 30 days of
the overpayment.
This section also would require that
the Servicer continue to collect the
Annual Loan Guarantee Fee on a
monthly basis without regard to
delinquent payments, prepayments,
agreements to postpone payments, or
agreements to recast the loan. When
transferring a Section 184 Guaranteed
Loan to another Servicer, this section
would require an account reconciliation
of the Upfront Guarantee Fee and
Annual Loan Guarantee to the new
Servicer. When transfer of servicing
between Servicers results in a missed
monthly payment(s) of the Annual Loan
Guarantee Fee to HUD, the acquiring
Servicer shall pay the overdue
payment(s) in a lump sum to HUD
within 30 days of acquisition of the loan
and include any applicable penalties in
accordance with § 1005.611. This
section clarifies the circumstances of the
on-going payment of the monthly
payment of the Annual Loan Guarantee
Fee and sets a timeframe for submission
of this payment even when the loan is
sold between Direct Guarantee Lenders
or to a Servicer. This proposed section
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is consistent with current program
policy, practice, and/or procedure.
HUD imposed penalties § 1005.611.
This section proposes the circumstances
in which HUD may impose civil
monetary penalties on Direct Guarantee
Lenders and Servicers related to the
collection and submission of Loan
Guarantee Fees. This section also
prohibits seeking recovery of the
penalty from the Borrower. Direct
Guarantee Lenders may incur penalties
for failure to timely remit Upfront Loan
Guarantee Fee. Servicers may incur
penalties for failure to timely remit the
monthly installment of the Annual Loan
Guarantee Fee to HUD, failure to adjust
the amount of the Annual Loan
Guarantee Fee, and failure to cease
collection of the Annual Loan Guarantee
Fee. A reasonable penalty or fee will be
prescribed by HUD in Section 184
Program Guidance. HUD is proposing
allowing a monetary penalty for the late
or non-submission of the Annual Loan
Guarantee Fee to encourage Lenders and
Servicers to pay on a timely basis.
G. Servicing (Subpart G)
This subpart includes the
requirements for Servicers to manage
Section 184 Guarantee Loans and steps
to take when a Borrower defaults on a
Section 184 Guaranteed Loan. The
subpart is organized into four sections:
servicing loans generally, servicing
defaulted loans, Loss Mitigation and
assignment, foreclosure and
Conveyance.
Section 184 Guaranteed Loan
servicing generally § 1005.701. This
proposed section provides an overview
of subpart G, HUD servicing
expectations and requirements for
servicing Section 184 Guaranteed Loans.
Servicer eligibility and application
process § 1005.703. This section
proposes that a Direct Guarantee
Lender, Non-Direct Guarantee Lenders
or other financial institution must be an
approved mortgage Servicer for FHA or
another agency of the Federal
Government. Direct Guarantee Lenders,
and Non-Direct Guarantee Lenders are
required to apply to be a Servicer, in
accordance with Section 184 Program
Guidance. This proposed section is
intended to ensure that Servicers have
the experience and qualifications and
have the processes in place to properly
service Section 184 Guaranteed Loans to
provide quality customer service to
Native American Borrowers.
Servicer approval § 1005.705. This
section proposes what constitutes HUD
approval for a Direct Guarantee Lenders,
Non-Direct Guarantee Lenders and other
financial institutions applying to be
Servicers in the Section 184 Program
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under § 1005.703. This section
addresses the process HUD will follow
to notify interested Non-Director
Guarantee Lenders and financial
institutions seeking HUD approval to be
a Servicer under the program. HUD will
provide written notification of its
approval and the approved Servicer
must agree to comply with all program
requirements. This includes the
notification by the Servicer to HUD of
any acquisition or sale of Section 184
Guaranteed Loans. This proposed
section would be complimentary to the
new requirement under § 1005.703.
Responsibility for servicing
§ 1005.707. This section proposes a
Servicer’s responsibilities under the
Section 184 Program, which includes,
program compliance, using a subServicer, changing Servicers,
transferring servicing rights, reporting
requirements, program ineligibility, and
records retention. This section proposes
new requirements for the Servicer in the
areas of annual recertification and
business change reporting. HUD is
proposing these new requirements to
reduce risk and monitor the stability of
the Servicer.
Providing information to Borrower
and HUD § 1005.709. This section
proposes Servicer requirements for
providing information to the Borrower
on the Section 184 Guaranteed Loan.
Servicers must provide loan information
to Borrowers and arrange for individual
loan consultation on request. The
Servicer must establish written
procedures and controls to assure
prompt responses to inquiries. All
Borrowers must be informed annually of
the system available for obtaining
answers to loan inquiries and the office
to which requests may be presented.
Within 30 days after the end of each
calendar year, the Servicer must furnish
to the Borrower a statement of the
interest paid, and of the taxes disbursed
from the escrow account during the
preceding year. At the Borrower’s
request, the Servicer must furnish a
statement of the escrow account
sufficient to enable the Borrower to
reconcile the account. Each Servicer
must deliver to the Borrower a written
notice of any transfer of the servicing
rights of the loan. Finally, Servicers
must respond to HUD requests for
information concerning individual
accounts within a timeframe prescribed
by Section 184 Program Guidance. HUD
is proposing these requirements to
ensure that acceptable procedures exist
so that Servicers can readily provide
loan information to Borrowers and
HUD. This proposed section is
consistent with current program policy,
practice, and/or procedure.
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Assumption and release of personal
liability § 1005.711. This section
proposes the requirements and the
process for assumption of a Section 184
Guaranteed Loan. Eligible Borrowers
may assume a Section 184 Guaranteed
Loan. The new Borrower must be
determined to be creditworthy under
subpart D. For loans securing Properties
on Trust Lands, the lease document may
require Tribal and Bureau of Indian
Affairs (BIA) approval of the assignment
of the lease to the new Borrower.
Servicers should not proceed to closing
on the assumption until and unless the
Tribe has assigned the leasehold to the
new Borrower, and it has been approved
by the BIA. Servicers may only collect
fees for an assumption in accordance
with this section. With respect to release
of liability, this section would provide
that at closing, the Servicer must release
the existing Borrower from any personal
liability on a form approved by HUD
and the new Borrower assumes personal
liability of the loan. Finally, upon
completion of an assumption, a Servicer
is required to provide copies of the
documents to HUD. HUD will issue a
revised Loan Guarantee Certificate and
additional processing instructions.
These changes ensure clear guidelines
exist to govern the assumption and
associated release of personal liability,
such as ensuring that Borrowers that
assume loans meet minimum
creditworthiness standards. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Due-on-sale provision § 1005.713.
This section mandates a due-on-sale
clause permitting acceleration for all
Section 184 Guaranteed Loans. The
Servicer must accelerate the loan,
subject to HUD prior approval, so long
as the acceleration is permitted by
applicable Tribal, Federal, or State law
This proposed section is consistent with
current program policy, practice, and/or
procedure.
Application of Borrower payments
§ 1005.715. This section would establish
the order in which the Servicer applies
Borrower payments authorized under
§ 1005.509 and the proposal is
consistent with current program policy,
practice, and/or procedure.
Administering escrow accounts
§ 1005.717. This section would establish
the requirements for administering
escrow accounts and deposits from a
Section 184 Guaranteed Loan. The
Servicer may not use escrow funds for
any purpose other than that for which
they were received. It must segregate
escrow commitment deposits, work
completion deposits, and all periodic
payments received on account of
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leasehold rents on Trust Land, taxes,
assessments, monthly installments of
Section 184 annual loan guarantee fees
and insurance charges or premiums and
must deposit such funds with one or
more financial institutions in a special
account or accounts that are fully
insured by the Federal Deposit
Insurance Corporation or the National
Credit Union Administration. The
Servicer must also adhere to the
requirements as prescribed by Section
184 Program Guidance for escrow funds
related to leasehold rents on Trust
Lands. The Servicer is responsible for
making escrow disbursements before
bills become delinquent and must
establish controls to ensure that bills
payable from the escrow fund or the
information needed to pay such bills is
obtained on a timely basis. Penalties for
late payments for items payable from
the escrow account must not be charged
to the Borrower unless the penalty was
the direct result of the Borrower’s error
or omission. This section also mandates
that the Servicer use the procedures set
forth in the Consumer Financial
Protection Bureau’s (CFPB) Real Estate
Settlement Procedures Act (RESPA)
regulations at 12 CFR 1024.17 to
compute the amount of the escrow, the
methods of collection and accounting,
and the payment of the bills for which
the money has been escrowed. The
Servicer is prohibited from initiating
foreclosure for a default related to
escrow payment shortfalls resulting
from an adjustment pursuant to this
section. Finally, when a Section 184
Guaranteed Loan is terminated
voluntarily or because of Borrower’s
prepayment in full of the unpaid
principal balance, amounts in the
escrow account designated to pay any
HUD required program fees must be
remitted to HUD. When a loan is
prepaid in full, amounts held in escrow
for taxes, hazard insurance, or rents due
under a tribal lease must be promptly
released to the Borrower. HUD is
proposing this section to ensure clear
guidelines on how Servicers must
administer escrow accounts. This
proposed section is consistent with
current practices, policies and/or
procedures, aligns with industry
standards, and cross references RESPA
requirements, as implemented in CFPB
regulations.
Fees and costs after endorsement
§ 1005.719. This section sets forth the
allowable fees and charges from the
Servicer to the Borrower after HUD’s
endorsement of the Section 184
Guaranteed Loan. Permissible fees and
charges include certain late charges,
charges for processing or reprocessing a
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check returned as uncollectible, fees for
processing a change of ownership of the
mortgaged property, fees and charges for
arranging a substitution of liability in
connection with the sale or transfer of
the Section 184 property, charges for
processing a request for credit approval
on behalf of an assumption or substitute
Borrower, charges for substitution of a
hazard insurance policy, charges for
modification of the Section 184
Guaranteed Loan involving a recorded
agreement for extension of term or reAmortization, fees and charges for
processing a partial release of the
property, certain attorney’s and trustee’s
fees and expenses actually incurred,
escrow charges, a trustee’s fee, property
preservation expenses incurred, fees
permitted for providing a beneficiary
notice under applicable Tribal or State
law, and such other reasonable and
customary charges as may be authorized
by HUD. This section also would
provide that reasonable and customary
fees must be based upon the actual cost
of the work performed, including out-ofpocket expenses. HUD may establish
maximum fees and charges, which are
reasonable and customary in different
areas. Unless otherwise provided, no fee
or charge may be based on a percentage
of either the face amount of the loan or
the unpaid principal balance due on the
Section 184 Guaranteed Loan. This
section proposes to clarify the range of
fees and charges that can and cannot be
charged by Servicers participating in the
program proposes change consistent
with HUD’s current practice, policy,
and/or procedure.
Enforcement of late fees § 1005.721.
This section proposes when and how
late charges must be applied by a
Servicer. It would provide that Servicers
are prohibited from commencing
foreclosure when the Borrower’s only
default is his or her failure to pay a late
charge or charges. A late charge
attributable to a particular installment
payment due may not be deducted from
that installment. However, if the
Servicer notifies the Borrower of the
obligation to pay a late charge, that
charge may be deducted from any
subsequent payment. This section also
would provide that a payment may be
returned because of failure to include a
late charge only if the Servicer notifies
the Borrower before imposition of the
charge of the amount of the monthly
payment, the date when the late charge
will be imposed and either the amount
of the late charge or the total amount
due when the late charge is included.
This section prohibits a late charge from
being imposed on the Borrower with
respect to any payment on the Section
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184 Guaranteed Loan during the 60 day
period beginning on the effective date of
transfer of the servicing rights of a
Section 184 Guaranteed Loan. This
section would provide that if a payment
is received by the old Servicer prior to
the due date, no late charges may be
assessed by the new Servicer. Finally,
this section would provide that a
Servicer is prohibited from imposing a
late fee for failure to pay a late fee,
consistent with CFPB regulations. HUD
is proposing this addition to consistent
with current program practices, policies,
procedures, to conform the regulations
to CFPB’s Truth in Lending regulations,
and to ensure that Servicers comply
with fair rules governing late charges
and is intended align with industry
standards.
Partial payments § 1005.723. This
proposed section provides that a
Servicer must have a written policy
available to the public on how it
handles Partial Payments and outlines
the acceptable actions when a Servicer
receives a Partial Payment from a
Borrower. It also proposes to provide
that upon receipt of a Partial Payment,
a Servicer must provide to the Borrower
a copy of the Servicer’s written Partial
Payment policy and a letter explaining
how it will handle the received Partial
Payment. The Servicer may accept a
Partial Payment and apply it to the
Borrower’s account, identify it with the
Borrower’s account number and hold it
in a trust account pending disposition,
or return the Partial Payment to the
Borrower. This proposal is necessary to
ensure clear guidelines on how
Servicers are to manage Partial
Payments and would provide Servicers
with various options and is intended to
codify current practice, policy, and/or
procedure.
Handling prepayments § 1005.725.
This section would require that a
Servicer accept pre-payment at any time
and details how the interest on the debt
is calculated for prepayments. This
proposed section is consistent with
codifies current practices, policies, and/
or procedures, and ensures that
Borrowers who want to make
prepayments on their Section 184
Guaranteed Loans have the option to do
so.
Substitute Borrowers § 1005.727. This
section proposes when a Borrower
requests the substitution of a coBorrower on the Section 184 Guaranteed
Loan. A remaining original Borrower
must still be on the loan. It would
provide that where an original Borrower
requests the substitution of a coBorrower on the loan, a Non-Direct
Guarantee Servicer must obtain HUD
approval for the substitution. A Direct
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Guarantee Lender may approve an
eligible substitute Borrower who meets
program eligibility requirements and
need not obtain further specific
approval from HUD. This proposed
section is meant to provide clear
guidelines to Servicers and Borrowers
on how to manage the substitution of
Borrowers consistent with current
practice, policy, and/or procedure.
Section 184 Guaranteed Loan
collection action § 1005.729. This
section would require the Servicer to
take prompt action to collect amounts
due from Borrowers and to exhaust all
reasonable possibilities of collection
before initiating foreclosure or
assignment. This proposed regulation is
necessary to ensure that Servicers meet
standards for serving Section 184
Guaranteed in default and provide
Borrowers with a good faith
consideration of available Loss
Mitigation options to avoid default,
foreclosure, or both. This section is
designed to ensure that risks to the
Fund are minimized, and that all
available reasonable loan collection and
Loss Mitigation options have been
considered by the Servicer. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Default notice to Borrower § 1005.731.
This section outlines the proposed
requirements for contacting a defaulted
Borrower, including live contact and
written notice. This includes a
requirement to contact all Borrowers,
whether they live in the same or
different locations. Servicers are
required to establish or make good faith
efforts to establish live contact with a
defaulting Borrower no later than the
36th day of the Borrower’s default and
promptly inform the Borrower about the
availability of Loss Mitigation options.
This section also would provide that
Servicers must give written notice to
each Borrower in default no later than
the end of the 45th day of a Borrower’s
default. This section also governs what
must be included in the required
written notice and would provide that
nothing in this section shall require a
Servicer to communicate with a
Borrower in a manner otherwise
prohibited by applicable Tribal, Federal,
or State law. This section is necessary
to ensure that Servicers present a
minimum level of notice of default and
consider Loss Mitigation options to
prevent foreclosure and other
unnecessary losses and risks to the
Fund. HUD is proposing this addition
consistent with current program
practices, policies, and/or procedures
and to conform to CFPB regulations and
industry standards.
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Loss mitigation application, timelines,
and appeals § 1005.733. This section
would provide specific expectations
when a Servicer processes a Borrower’s
Loss Mitigation application. It proposes
to provide five days to acknowledge
receipt of the application, determine if
the application is complete or
incomplete, and, if incomplete, notify
the Borrower of documentation that is
still required and inform the Borrower
that submission of the missing
documents must occur within fourteen
days. Within fourteen days of receipt of
a complete application, the Servicer
must evaluate the application.
This section also would provide that
Servicers are required to provide written
notification: (1) of all available Loss
Mitigation options; (2) to encourage
Borrowers to review all available Loss
Mitigation options and to contact the
Servicer with any questions; (3) to
encourage Borrowers to consider
pursuing simultaneous Loss Mitigation
options; (4) to inform Borrowers that if
no Loss Mitigation option is elected or
if they fail, the Servicer may proceed
with filing of the First Legal Action at
180 days of default; and (5) to inform
Borrowers that at the filing of first legal
action or the assignment of the loan to
HUD, the Servicer will no longer offer
or allow a pre-foreclosure sale as an
alternative to foreclosure, and that the
only available and remaining alternative
to foreclosure will be a lease-in-lieu or
deed-in-lieu of foreclosure, subject to
applicable Tribal, Federal, or State law.
Borrowers may appeal within 14 days of
receipt of the Servicer’s Loss Mitigation
determination, in writing, that the
Servicer re-evaluate the Borrower’s Loss
Mitigation application. The Servicer
will be required to re-evaluate the
Borrower’s Loss Mitigation application
within 30 days, but may not use the
same staff that made the initial Loss
Mitigation determination and must
notify the Borrower of its appeal
decision. If the Borrower submits a
timely written appeal, the 180-day
deadline to initiate foreclosure will be
suspended during the appeal process.
This section is being proposed to
provide clear guidelines to both
Servicers and Borrowers on the Loss
Mitigation application process and
associated appeals, to minimize risks
and losses to the Fund, and to avoid
foreclosure when possible. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Occupancy inspection § 1005.735.
This section proposes occupancy
inspection as a visual inspection by the
Servicer, defines occupancy follow-up
as an attempt to communicate with the
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Borrower through various means to
determine occupancy status, and would
provide the requirements for occupancy
inspections and occupancy follow-ups
while a Borrower is in default. It also
governs occupancy inspections
conducted during a Borrower’s
bankruptcy.
HUD is proposing this regulation to
ensure that clear guidelines exist for
Servicers governing occupancy
inspections. Servicers may find the need
to conduct occupancy inspections to
determine whether a property has
become vacant or abandoned, and to
confirm the identity of any occupants.
HUD is requiring Servicers to conduct
occupancy follow-ups and to attempt to
conduct continuing inspections, if
necessary, every 25–35 days from the
last inspection until the occupancy
status is determined. This is designed to
ensure that Servicers proactively work
to determine the status of each property
subject to a loan guaranteed under the
program, that is in default, and to
minimize costs and risks to the Fund.
This proposed section is consistent with
current program policy, practice, and/or
procedure.
Vacant property procedures
§ 1005.737. This section would set forth
the requirements when a property has
been determined vacant or abandoned
based on an occupancy or occupancy
follow-up inspection. This provision
includes a notice requirement to the
Borrowers of determination of vacancy
or abandonment, which is sent to the
property address and all known
addresses of Borrowers. If occupancy is
found through the delivery confirmation
process, the Servicer must continue
pursuing Loss Mitigation efforts until
the Servicer can proceed to First Legal
Action. On the other hand, if the
Servicer verifies through the delivery
confirmation process or other method
that the property is vacant or
abandoned, then the Servicer must
secure and maintain the property
through appropriate property
preservation actions, initiate the First
Legal Action or assign a Trust Land loan
to HUD within 120 days after date of
default, continue to perform vacant
property inspections every 25–35 days,
and retain documentation in the
servicing file.
HUD is proposing this section to
ensure that clear guidelines exist for
Servicers who manage vacant or
abandoned Properties. While not
common, a small number of Properties
assisted under the Section 184 Program
have previously been abandoned. In
such cases, it is critical that Servicers
remain proactive in verifying the
occupancy status of such Properties and
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ensuring that they are processed and
disposed of in a timely manner. Vacant
or abandoned Properties can attract
criminal activity and serve as an
additional blight to Trust Land. These
guidelines will also help preserve
collateral and prevent unnecessary
losses and risks to the Fund. This
proposed section is consistent with
current program policy, practice, and/or
procedure, and aligns with industry
standards.
Loss mitigation § 1005.739. This
section proposes the Loss Mitigation
options and review requirements when
a Borrower defaults on a Section 184
Guaranteed Loan. This section would
require that Servicers utilize various
Loss Mitigation options, if practical,
within 180 days of the date of default.
Loss mitigation options include: (1)
forbearance plan, (2) assumption, (3)
trial payment plan agreement for a loan
modification, (4) pre-foreclosure sale, or
(5) deed-in-lieu or lease-in-lieu of
foreclosure. Within 180 days of default,
if the Borrower is offered a Loss
Mitigation option other than loan
modification and fails to meet the Loss
Mitigation requirements, the Servicer is
required, within 5 days of the Loss
Mitigation default, to determine
whether the Borrower should continue
with the current Loss Mitigation option
or reassess the Borrower. If no time or
very limited time remains within 180
days of default, the Servicer will not be
required to reassess the Borrower for
another Loss Mitigation option.
This section also would provide that
if a Borrower is performing under a Loss
Mitigation option that does not reinstate
the loan at 180 days of default but
subsequently fails to perform, the
Servicer must take First Legal Action
within 5 days of the Loss Mitigation
option default. Servicers must maintain
documentation of all evaluations and
Loss Mitigation actions. Finally,
Servicers that fail to engage in and
comply with required Loss Mitigation
may be subject to enforcement action by
HUD, including possible sanctions.
HUD is proposing this addition to the
regulation to ensure Servicers review
Loss Mitigation options to prevent
foreclosures, to maintain Native
American Borrowers in their homes, to
the extent practicable, and to minimize
any resulting losses and risks to the
Fund. This proposed section is
consistent with current program
practices, policies, and/or procedures,
and conforms to CFPB regulations and
industry standards.
Notice to Tribe and BIA—Borrower
default § 1005.741. This proposed
section compliments HUD’s current
practice and policy to notify the BIA
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when a Borrower defaults on a Section
184 Guaranteed Loan, in accordance
with applicable requirements under 25
CFR part 162. This section also includes
a new requirement for Servicers. When
given consent by the Borrower,
Servicers must notify the Borrower’s
Tribe when a Borrower defaults on
Section 184 Guaranteed Loan. This
proposed section addresses a request
made during Tribal consultation in
which Tribal representatives expressed
a desire to be notified when a member
has defaulted on their Section 184
Guaranteed Loan, so that the Tribe may
provide financial assistance, if available.
Relief for Borrower in military service
§ 1005.743. This proposed section
outlines the options for Borrowers who
are in military service, in addition to
benefits afforded under other applicable
laws, including postponement of
principal payments, forbearance, and
postponement of foreclosure. This
section is being proposed to provide
accommodations for Borrowers that are
persons in ‘‘military service,’’ as such
term is defined in the Servicemembers
Civil Relief Act (50 U.S.C. 3901, et seq.).
This proposed section is consistent with
current program policy, practice, and/or
procedure, and aligns with industry
standards.
Forbearance plans § 1005.745. This
section proposes forbearance options a
Servicer may offer to defaulting
Borrowers. This section sets out the
requirements for informal forbearance,
formal forbearance, unemployment
forbearance, and servicemember
forbearance. Each type has its own
agreement requirements, duration
period requirements, property condition
requirements, and required documents.
HUD is proposing this regulation to
ensure that several options are available
for defaulting Borrowers. This proposed
section is consistent with current
program policy, practice, and/or
procedure, and aligns with industry
standards.
Assumption § 1005.747. This section
would require Servicers to explore loan
assumption as a Loss Mitigation option.
HUD is proposing this regulation to
provide another Loss Mitigation option
for a Borrower that has defaulted on
their guaranteed loan. This proposed
section is consistent with current
program policy, practice, and/or
procedure, and aligns with industry
standards.
Loan modification § 1005.749. This
section proposes loan modifications as a
Loss Mitigation option and sets forth the
eligibility and qualifications necessary
for a Servicer to approve a Borrower’s
application and the required property
conditions. This section also discusses
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the use of trial payment plans, the
execution of loan modification
documents that conform to all
applicable Tribal, Federal, and State
laws, and when the Servicer must
provide modified loan guarantee
documents to HUD. HUD is proposing
this regulation to provide another Loss
Mitigation option for Borrowers in
default. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Pre-foreclosure sale § 1005.751. This
section would provide authority for preforeclosure sale as a Loss Mitigation
option. The requirements specified for
this review include: surchargeable
calculation of the Borrower’s cash
reserve contribution, condition of title
for both fee simple and Trust Land
Properties, verification of discharge of
all junior liens, and listing the property
at no less than the value determined in
the required appraisal. The Servicer
would be required to send all required
pre-foreclosure documentation to HUD
and send an approval to participate
agreement and required addendum
notice to the Borrower.
This section also would provide
Tribal notification of the option to
assume the Section 184 Guaranteed
Loan or purchase the either the Note or
the property. The section sets out the
requirements for the Borrower in
securing a real estate broker and
required clauses in the contract between
the Servicer and broker, as well as the
time period for the Borrower to market
the property in listings. For all preforeclosure sale Properties, the Servicer
is required to conduct property
inspections and maintenance, and the
Borrower is required to disclose any
damage that has occurred immediately.
If damage has occurred, the Servicer is
required to work with the Borrower to
file hazard insurance claims. The
section sets out the responsibilities for
the seller in receiving sufficient bids,
reviewing the sales contract, as well as
closing and post-closing
responsibilities. The section details
early termination initiated by both the
Borrower and the Servicer, and how to
proceed in the event the Borrower fails
to complete the pre-foreclosure sale.
HUD is proposing this regulation to
provide an additional option for
defaulted Borrowers. This is a new loss
mitigation option for the Section 184
Program. HUD is proposing this section
to give Native American Borrowers
comparable loss mitigation options to
Borrowers in other loan guarantee
programs.
Deed-in-lieu/lease-in-lieu of
foreclosure § 1005.753. This section
would require the use of deed-in-lieu/
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lease-in-lieu of foreclosure as a Loss
Mitigation option. This section also sets
out the required documents to effectuate
the transfer and, upon Conveyance to
HUD, the Servicer must file for record
the required documents within two days
and report to HUD. The Servicer must
also comply with all applicable Federal,
State, Tribal, and local reporting
requirements. HUD is proposing this
regulation in order to provide an
additional option for Borrowers in
default. This proposed section is
consistent with current program policy,
practice, and/or procedure and aligns
with industry standards.
Incentive payments to Borrower
§ 1005.755. This section proposes that
HUD may authorize incentive payments
to the Borrower when Borrowers
complete certain loss mitigation options
and when Borrowers agree to vacate the
property after foreclosure to avoid an
eviction. This section also proposes that
HUD may authorize incentive payments
to Lender and Servicer for their
completion of certain Loss Mitigation
options and incentive payments to
Tribes and TDHEs when they assist
HUD in the loss mitigation, sale or
transfer of the Trust Land property.
HUD plans to provide further guidance
on the incentives in Section 184
Program Guidance. HUD is proposing
this new authority to encourage
Borrowers’ and Servicers’ participation
in Loss Mitigation, to avoid the time and
expense of foreclosing on the property
and evicting the Borrower after
foreclosure.
Property on Trust Land—Tribal first
right of refusal; foreclosure or
assignment § 1005.757. This section
proposes the timeframe in which a
Servicer must contact a Tribe or TDHE
and offer an option to assume or
purchase the property or the Note under
§ 1005.757(a) when a defaulted loan
pertains to property that is located on
Trust Land, as well as the TDHE or
Tribe’s acceptance of the offer. This
section also allows for the Servicer to
choose between foreclosure or
assignment to HUD for a defaulted
Section 184 Guaranteed Loan located on
Trust Lands. HUD is proposing this
regulation to clarify options available to
the Servicer but also to ensure timely
action. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Fee simple properties—foreclosure or
assignment with HUD approval
§ 1005.759. This section proposes the
requirement for Servicers to initiate
foreclosures or request the ability to
assign a defaulted property to HUD.
HUD may approve assignments under
limited circumstances. HUD is
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proposing this regulation in order to
ensure that Servicers timely initiate
foreclosure proceedings and is
consistent with current policy, practice
and/or procedure.
First Legal Action deadline and
automatic extensions § 1005.761. This
section proposes to provide a timeline
for the initiation of foreclosure by the
Servicer on defaulted Section 184
Guaranteed Loans. This proposed
section is consistent with current
program policy, practice, and/or
procedure and aligns with industry
standards.
Assignment of the Section 184
Guaranteed Loan § 1005.763. This
section presents the requirements for
assigning a defaulted Section 184
Guaranteed Loan to HUD. This
proposed section is consistent with
current program policy, practice, and/or
procedure and aligns with industry
standards.
Inspection and preservation of
Properties § 1005.765. This section
proposes that the Servicer comply with
inspection requirements under
§ 1005.737 when the Servicer knows or
should know the property is vacant or
abandoned. The section also proposes to
require that the Servicer take action to
preserve and protect the property until
Conveyance to HUD. HUD is proposing
this section in order to ensure the
Servicer continues to inspect and
preserve the property. This proposed
section is consistent with current
program policy, practice, and procedure
and aligns with industry standards.
Property condition § 1005.767. This
section would mandate the condition of
the property and the Servicer’s
responsibilities at the time a property is
transferred to HUD through Conveyance
or assignment. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Conveyance of property to HUD at or
after foreclosure; time of Conveyance
§ 1005.769. This section proposes the
methods and timeframe in which a
Servicer may convey a property to HUD
after foreclosure, including HUD
notification of the Conveyance. HUD is
proposing this section in order to ensure
the Servicer timely conveys the property
to HUD. This proposed section is
consistent with current program policy,
practice, and/or procedure and aligns
with industry standards.
Acceptance of property by HUD
§ 1005.771. This section would establish
the date which HUD is deemed to have
accepted an assignment of a Section 184
Guaranteed Loan, or title to and
possession of a property. HUD is
proposing this section to clarify when
HUD has accepted title to a conveyed
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property. This proposed section is
consistent with current program policy,
practice, and/or procedure and aligns
with industry standards.
H. Claims (Subpart H)
This subpart includes the
requirements for Servicers to submit
claims to HUD. The subpart is organized
into five sections: claims application,
submission categories, and types;
submission of claims; property title
transfers and title waivers; condition of
the property; and payment of guarantee
benefits.
Purpose § 1005.801. This section
proposes the purpose of this subpart
which is to set forth the requirements
applicable to a submission of an
application for loan guarantee benefits
(Claim submission). It explains that
Servicers must comply with regulations
presented in subpart H and process
details included in Section 184 Program
Guidance. This subpart also sets forth
requirements processing and payment of
Claim. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Claim case binder; HUD authority to
review records § 1005.803. This section
would require Servicers to maintain a
Claim case binder for a minimum of five
years after the final Claim has been paid
and allow HUD access to the case
binder. Section 1005.803(b) allows HUD
access to the Claim case binder at any
time and would provide that Servicer
denial of HUD access to any of the files
may subject the Servicer to sanctions
under §§ 1005.905 and 1005.907.
Section 1005.803(c) would provide that
the Servicer must make available to
HUD any request for Claim files within
three business days of the request. This
proposed section is consistent with
current practices and establishes new
timeframes for Servicers to respond to
HUD’s request for a Claim case binder.
These policies are necessary to ensure
HUD has appropriate oversight of the
program.
Effect of noncompliance § 1005.805.
This section proposes to establish the
actions HUD may take if a Claim case
binder does not comply with the
requirements of subpart D, including:
rejecting the claim, paying the claim but
demanding reimbursement from the
Originating Direct Guarantee Lender,
reconveying the property or reassigning
the deed of trust or mortgage in
accordance with § 1005.849 and
sanctions in accordance with
§§ 1005.905 and 1005.907. Further, it
would establish actions HUD may take
if it finds the Servicer failed to service
the Section 184 Guaranteed Loan in
accordance with subpart G, committed
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fraud, known or should have known of
fraud or material misrepresentation in
violation of this part. These include
holding the claim to remedy the
deficiency, rejecting expenses under
§ 1005.807(b), reconveying the property
or reassigning the deed of trust or
mortgage in accordance with § 1005.849,
administrative offset, sanctions in
accordance with §§ 1005.905 and
1005.907, and other remedies as
determined by HUD. This section also
limits the expenses that can be changed
when a reconveying the property or
reassigning the deed of trust or
mortgage. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Claim submission categories
§ 1005.807. This section lists the three
Claim submission categories. The three
Claim categories are: payment of the
unpaid principal balance;
reimbursement of eligible reasonable
expenses up to assignment, Conveyance
or transfer of the property; and
supplemental claims for eligible
expenses incurred that were omitted
from the Servicer’s prior submission or
for a calculation error made by the
Servicer or HUD. This proposed section
is consistent with current program
policy, practice, and/or procedure.
Claim types § 1005.809. This section
would establish five Claim types, which
are submitted based on property
disposition, timeframes for Claim
submission, and the documentation
required for each Claim type. The five
Claim types are: Conveyance;
assignment of the loan; post-foreclosure
claims without Conveyance of title; preforeclosure sale; and supplemental
claims.
Paragraph (a) would provide for a
Claim when the Servicer conveys the
property to HUD after foreclosure or
execution of a deed-in-lieu or lease-inlieu. The Servicer has 45 days from date
the deed to HUD is executed to submit
the Conveyance Claim. For fee simple
properties, the section would require
final title policy. For Trust Land
Properties, a Title Status Report from
the Bureau of Indian Affairs evidencing
ownership vested to HUD is required.
Where Servicer is unable to obtain a
Title Status Report from the Bureau of
Indian Affairs, the Servicer may submit
a Claim on the 45th day in accordance
with Claim processing instructions that
HUD will provide. Lenders must submit
claims related to reimbursable eligible
expenses no later than the 60th day of
the date the deed is executed to HUD,
unless extension of time is given by
HUD.
Paragraph (b) describes the
assignment of the Section 184
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Guaranteed Loan and would require the
Servicer to submit a Claim no later than
45 days from the date of the assignment
of the Section 184 Guaranteed Loan to
HUD is executed. The section would
require the Servicer provide a final title
policy or, where applicable, a certified
Title Status Report evidencing the
assignment of the mortgage to HUD.
Where the Servicer is unable to comply
with the documentation from title
policy or Title Status Report, the
Servicer may submit a Claim on the
45th day in accordance with processing
instructions from HUD. For assignment
of a Section 184 Guaranteed Loan, the
Servicer must submit a Claim for
reimbursable expenses, if any, within 45
days of the date the loan assignment is
executed. This section would require
the Servicer to certify that the Section
185 Guaranteed Loan is in first lien
position and prior to all mechanics’ and
materialmen’s liens filed for record, the
amount due and owing under the loan,
there are no offsets or counterclaims, the
Servicer has good right to assign, and
has met the property inspection and
property preservation requirements of
this part.
Paragraph (c) explains the postforeclosure claims without Conveyance
of title requirements and addresses
when a third-party purchases fee simple
Properties at foreclosure. The Servicer
must submit a Claim to HUD no later
than 180 days from the date the deed to
the third-party is executed. Paragraph
(d) is the pre-foreclosure sale Claim. It
authorizes claims when a property is
sold prior to foreclosure in accordance
with HUD’s pre-foreclosure sale
requirements at § 1005.751 or
§ 1005.753. The Servicer must submit a
Claim no later than 45 days from the
date the deed or assignment of the lease
to the third-party is executed.
Paragraph (e) discusses supplemental
claims, and limits Servicers to one
supplemental Claim for each Claim
related to the payment of unpaid
principal balance and reimbursement of
eligible reasonable expenses. Paragraph
(e) limits supplemental claims to
reasonable eligible expenses incurred on
the date of Conveyance of the property
or assignment of the Section 184
Guaranteed Loan, when invoices are
received after payment of the Claim or
when there is a calculation error made
by the Servicer or HUD. Supplemental
claims must be submitted within six
months of when the Servicer files a
Claim for reimbursement of eligible
reasonable expenses. Any supplemental
claims received after the six-month
period will not be reviewed or paid by
HUD. This section makes clear any
supplemental Claim paid by HUD shall
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be considered final satisfaction of the
loan guarantee.
Proposed paragraphs (a) through (d)
are consistent with HUD’s existing
policies, practices, and procedures with
the exception of paragraph (b)(4), which
proposes to implement a new Servicer
certification requirement. Proposed
paragraph (e) is consistent, in part, with
HUD’s existing policies, practices, and
procedures, but proposes to add a new
requirement that supplemental claims
are time limited to a 6-month window.
These policies are proposed to ensure
HUD maintains its fiduciary duty to
protect the Fund and reduce its risk
against Claim payments that do not
meet Section 184 requirements.
Claims supporting documentation
§ 1005.811. This section proposes to
require Servicers to submit supporting
documentation required for each Claim
to the satisfaction of HUD. Such
documentation will be provided for in
Section 184 Program Guidance. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Upfront and Annual Loan Guarantee
Fee reconciliation § 1005.813. This
section proposes to require Lenders to
submit, as part of a Claim submission
under § 1005.807(b), a reconciliation
evidencing the payment of the Annual
Loan Guarantee Fee to HUD. This
section proposes a new process to
ensure Lenders can verify they have
paid all Loan Guarantee Fees prior to
HUD payment of any claims.
Conditions for withdrawal of claim
§ 1005.815. This section provides the
conditions under which a Servicer can
withdraw a Claim submission after there
has been a Conveyance. HUD will
permit withdrawal of the application
when a Servicer accepts a reconveyance
of the property under a deed which
warrants against the acts of HUD and all
claiming by, through or under HUD,
promptly files a reconveyance for
record; accepts without continuation the
title evidence it furnished to HUD; and
reimburses HUD for property
expenditures HUD incurred after
Conveyance to HUD. This proposed
section is consistent with HUD’s current
practice, policy, and/or procedure.
Conveyance of Good and Marketable
Title § 1005.817. This section proposes
to mandate that a property have Good
and Marketable Title when conveyed to
HUD from a Lender. This proposed
section is consistent with current
program, policy and/or practice. Within
this section, HUD is proposing a new
timeframe in which a Servicer must
correct any title defects. HUD is
proposing that the Servicer make this
correction in 60 days, or the Servicer
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must reimburse HUD for the cost of
holding the property until any defect is
corrected or until HUD reconveys the
property to the Servicer. This proposed
time frame is intended to help ensure
timely action by the Servicer to correct
title defects.
Types of satisfactory title evidence
§ 1005.819. This section would provide
six types of title evidence that may be
submitted with a Claim submission. The
permissible types of title evidence
include: fee or owner’s title policy;
Lender’s policy of title insurance;
abstract and legal opinion; torrens or
similar certificate; title standard of U.S.,
Tribal, or State government; and Title
Status Report issued by the Bureau of
Indian Affairs. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Coverage of title evidence § 1005.821.
This section would establish that
evidence of title or Title Status Report
shall be executed subsequent to the
filing for record of the deed or
assignment to HUD. The title evidence
must show that, according to public
records, there are not, as of the date of
the recordation of the deed or
assignment to HUD, any outstanding
prior liens, including any past due and
unpaid ground rents, general taxes, or
special assessments, if applicable. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Waived title objections for properties
on fee simple land § 1005.823. This
section would provide that reasonable
title objections for fee simple properties
shall be waived by HUD. Reasonable
title objections will be prescribed in
Section 184 Program Guidance. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Waived title objections for properties
on Trust Land § 1005.825. This section
proposes that HUD shall not object to
title restrictions placed on Trust Land
by a Tribe or the Bureau of Indian
Affairs, so long as those restrictions do
not adversely impact the property or
marketability. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Damage or neglect § 1005.827. This
section would provide a Lender’s
responsibilities when a property has
suffered damage or neglect and HUD’s
remedy when a damaged property is
conveyed to HUD without prior notice
or approval. Section 1005.827(a) would
provide that if a property has been
damaged by fire, flood, earthquake,
tornado, or due to Lender’s failure to
take action to protect and preserve the
property, the Servicer must submit a
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Claim to the hazard insurance policy,
and the damage must be repaired before
Conveyance of the property or
assignment of the loan to HUD.
Paragraph (b) would provide that if
the property damage is not covered by
a hazard insurance policy, the Servicer
must notify HUD of the damage.
Servicer may not convey until directed
to do so by HUD. If HUD requires the
Servicer to repair the damage before
Conveyance, HUD may reimburse
Servicer for reasonable payments not in
excess of HUD’s estimate of the cost of
repair, less any insurance recovery or
require the Lender to repair the damage
before Conveyance at the Servicer’s own
expense.
Paragraph (c) would provide that in
the event the Servicer conveys property
to HUD without repair to the damage or
without notice to HUD of the damage,
HUD may, after notice, reconvey the
property to the Servicer and seek
reimbursement for expenses HUD
incurred in connection with the
Conveyance. This proposed section is
consistent with current program policy,
practice, and/or procedure.
Certificate of property condition
§ 1005.829. This section would require
a Servicer to submit a certification of
property condition as part of the Claim
submission. This section would provide
that, as part of the Claim submission,
the Servicer certifies the property was
undamaged by fire, flood, earthquake, or
tornado, was undamaged due to failure
of the Servicer to act, and undamaged
while the property was in possession of
the Borrower. Alternatively, if the
property was damaged, the Servicer
includes a copy of the HUD approval to
convey the property in damaged
condition.
Paragraph (b) would provide that, in
the absence of evidence to the contrary,
the Servicer’s certificate or description
of the damage shall be accepted by HUD
as establishing the condition of the
property, as of the date of the filing of
the deed or assignment of the loan. This
proposed section is consistent with
current program policy, practice, and/or
procedure, and to ensure Servicers
confirm the property is conveyed to
HUD undamaged.
Cancellation of hazard insurance
§ 1005.831. This section proposes to
provide that Servicers shall cancel any
hazard insurance policy as of the date
of the filing for record of the deed to
HUD, subject to certain conditions. The
conditions include: (1) the amount of
the return premium, due to the Servicer
because of such cancellation, may be
calculated on a ‘‘short-rate’’ basis and
reported on fiscal data, and the amount
shall be deducted from the total amount
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claimed; (2) If the Servicer’s calculation
of the return premium is less than the
actual return, the amount of the
difference between the actual refund
and the calculated amount shall be
remitted to HUD, accompanied by the
carrier’s or agent’s statement; (3) If the
Servicer’s calculation of the return
premium is more than the actual return,
the Servicer may include in its Claim
submission, the statement of the amount
of the refund from the insurance carrier
or agent, and include the amount of the
difference as an eligible cost in
accordance with § 1005.843(a)(3). This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Method of payment § 1005.833. This
section would establish that HUD will
make payment of guarantee benefits by
electronic transfer of funds for all
approved claim submissions. This
proposed section is consistent with
current program policy, practice, and/or
procedure.
Claim payment not conclusive
evidence of claim meeting all HUD
requirements § 1005.835. This section
proposes to provide that any payment of
claim by HUD is not conclusive
evidence of a Servicer’s compliance
with Section 184 Program requirements.
HUD reserves the right to conduct postclaim payment review of any claim file
within 5 years from the date of last
claim payment. This section states when
non-compliance with any requirements
of this part is identified, HUD may take
appropriate post-claim action against
the Servicer. This section is a
codification of existing policy, practice,
and procedure with the exception of the
five-year period. The proposed five-year
period is necessary to ensure uniformity
in the time frame for HUD to conduct
post-claim reviews of the loan file.
Payment of claim: unpaid principal
balance § 1005.837. This section would
state that HUD will pay claims for
unpaid principal balance submitted
under § 1005.807(a), minus any receipts
for the sale or transfer of the property.
This proposed section is consistent with
current program policy, practice, and/or
procedure.
Payment of claim: interest on unpaid
principal balance § 1005.839. This
section would establish the payment
timeframe for interest payments on the
unpaid principal balance. HUD shall
pay interest on the unpaid principal
balance from the date of default to the
earlier of the following: the execution of
the deed to the Lender, HUD, or thirdparty; execution of Conveyance of deed
to either Lender, HUD, or third-party;
execution of the assignment of the loan
to HUD; or expiration of the reasonable
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diligence timeframes as prescribed by
Section 184 Program Guidance. This
proposed section is consistent with
current program policy, practice, and/or
procedure and aligns with industry
standards.
Payment of claim: reimbursement of
eligible and reasonable costs § 1005.841.
This section proposes to provide that
reimbursement of eligible and
reasonable costs under § 1005.807(b)
shall be paid as part of the guarantee
benefits. HUD will prescribe reasonable
costs that are eligible for reimbursement
in Section 184 Program Guidance. This
proposed section is consistent with
current program policy, practice, and/or
procedure and aligns with industry
standards.
Reductions to the Claim submission
amount § 1005.843. This section
proposes the circumstances under
which Lenders should reduce their
Claim amount. The Servicer shall
reduce its Claim when the following
amounts are received by the Lender:
amounts received by the Servicer
instituting foreclosure or acquisition of
the property by direct Conveyance or
otherwise after default; amounts
received by the Servicer from any
source relating to the property on the
account of rent or other income after
deducting reasonable expenses incurred
in handling the property; and all cash
retained by the Lender, including
amounts held or deposited for the
account of the Borrower or to which is
entitled under the loan transaction that
have not been applied in reduction of
the principal loan indebtedness. This
proposed section is consistent with
current program policy, practice, and/or
procedure and aligns with industry
standards.
Rights and liabilities under the Indian
Housing Loan Guarantee Fund
§ 1005.845. This section would state
that Borrowers and Lenders shall not
have any vested right in the Fund nor
be subject to any liability arising under
such Fund. In addition, that the Indian
Housing Loan Guarantee Fund will be
credited and debited in accordance with
12 U.S.C. 1715z–13a(i)(2). This
proposed section is consistent with
current program policy, practice, and/or
procedure and aligns with industry
standards.
Final payment § 1005.847. This
section would establish the conditions
for final payment from HUD to the
Lender. Paragraph (a) would provide
that payment of the Claim shall be
deemed as final payment to the Servicer
and that the Servicer would have no
further claims against the Borrower or
HUD. The provision further states final
payment to the Servicer does not
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preclude HUD from seeking
reimbursement of costs and return of
amounts from the Servicer when there
is a reconveyance to the Lender.
Paragraph (b) would provide that
when there is a reconveyance to the
Servicer, and the Servicer reimburses
HUD for all expenses and returns all
Claim amounts paid, the final payment
to the Servicer restriction under
§ 1005.849(a) will not apply. The
section makes clear that in the event the
Servicer resubmits a Claim after
reconveyance to the Servicer, then the
Servicer shall not be reimbursed for any
expenses incurred after the date of the
HUD Conveyance. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Reconveyance and reassignment
§ 1005.849. This section proposes
actions HUD may take when there is a
reconveyance of a property or a
reassignment of the deed of trust or
mortgage back to the Holder. Paragraph
(a) would provide that HUD may
reconvey the property to the Holder due
to an Originating Direct Guarantee
Lender or Servicer’s noncompliance
with the requirements of this part or if
there is a withdrawal of a Claim for
benefits in accordance with § 1005.815.
Paragraph (b) proposes to provide that
HUD may take action against the
Holder, including, but not limited to,
seeking reimbursement of all Claim
costs paid. Paragraph (c) proposes to
provide that where HUD has conveyed
the property or reassigned the deed of
trust or mortgage back to the Holder,
and a Claim is subsequently
resubmitted, the Holder will not be
reimbursed for any expenses incurred
after the date of the HUD Conveyance or
assignment. This proposed section is
consistent with current program policy,
practice, and/or procedure and aligns
with industry standards.
Reimbursement of expenses to HUD
§ 1005.851. This section would establish
a Holder or the Originating Direct
Guarantee Lender reimbursement
responsibilities when HUD determines
it will reconvey of a property previously
conveyed to HUD under the claims
process. This section proposes that
when there is a reconveyance or
reassignment by HUD, to the Holder or
the Originating Direct Guarantee
Lender, or when HUD determines
noncompliance, the Holder or the
Originating Direct Guarantee Lender
shall reimburse HUD for all Claim costs
paid, HUD’s cost of holding the
property, and reimbursement plus
interest on the loan guarantee benefits
from the date the loan guarantee
benefits were paid to the date HUD
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receives the refund from the Holder.
The interest rate shall be in conformity
with the Treasury Fiscal Requirements
Manual. This proposed section is
consistent with current program policy,
practice, and/or procedure and aligns
with industry standards.
I. Lender Program Performance,
Reporting, Sanctions, and Appeals
(Subpart I)
Direct Guarantee Lender, Holder, or
Servicer performance reviews
§ 1005.901. This section would establish
HUD’s authority to conduct periodic
performance reviews of Direct
Guarantee Lenders, Non-Direct
Guarantee Lenders, Holders, and
Servicers. These reviews will include,
but are not limited to, an evaluation of
compliance with this regulation.
Monitoring reviews ensure that Direct
Guarantee Lenders, Non-Direct
Guarantee Lenders, Holders, and
Servicers are complying with the
requirements of the program and
reduces risk to the Fund. This proposed
section is consistent with current
program policy, practice, and procedure
and aligns with industry standards.
Direct Guarantee Lender, Holder, or
Servicer reporting and certifications
§ 1005.903. This section proposes to
mandate Direct Guarantee Lenders,
Non-Direct Guarantee Lenders, or
Servicers provide timely and accurate
reports and certifications to HUD and
provides HUD the authority to subject
the Lender to sanctions for failure to
submit such documents. This proposed
section is consistent with current
program policy, practice, and/or
procedure.
Direct Guarantee Lender, Holder, or
Servicer notice of sanctions § 1005.905.
This section would state that HUD will
provide notice to the Direct Guarantee
Lender, Non-Direct Guarantee Lender,
Holder, or Servicer of the specificnoncompliance and, where applicable,
allow for a reasonable time to return to
compliance, prior to any sanctions or
civil money penalties If the Direct
Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer
fails to return to compliance, HUD shall
provide written notice of the sanction or
civil money penalties to be imposed and
the basis for the action. This proposed
section is consistent with current
program policy, practice, and/or
procedure and aligns with industry
standards.
Direct Guarantee Lender, Holder, or
Servicer sanctions and civil money
penalties § 1005.907. This section
proposes that sanctions and civil money
penalties may be imposed by HUD
when a Direct Guarantee Lender, Non-
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Direct Guarantee Lender, Holder, or
Servicer fails to comply with this part.
Such compliance may include
complying with Section 184 Program
Guidance when it specifically provides
reasonable times, processes, and
procedures for complying with part
1005 requirements. This includes:
termination from the program; bar the
Direct Guarantee Lender, or Holder from
acquiring additional loans guaranteed
under this section; require that the
Direct Guarantee Lender assume not less
than 10 percent of any loss on further
loans made by the Direct Guarantee
Lender; require that the Direct
Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer
comply with a corrective action plan or
amend Direct Guarantee Lender, NonDirect Guarantee Lender, or Servicer’s
quality control plan; or impose a civil
money penalty on the Direct Guarantee
Lender, Non-Direct Guarantee Lender,
Holder, or Servicer in the manner and
amount provided pursuant to Section
184 of the Native American Assistance
and Self-Determination Act of 1996 (12
U.S.C. 1715z-13a) and 24 CFR part 30.
This proposed section is statutorily
authorized and is intended to protect
the Fund and Section 184 Program
integrity by allowing HUD to sanction
poorly performing Direct Guarantee
Lenders, Non-Direct Guarantee Lenders,
Holders, or Servicers.
Direct Guarantee Lender, Holder, or
Servicer appeals process § 1005.909.
This section would establish an appeal
process for Non-Direct Guarantee
Lenders, Direct Guarantee Lenders, and
Servicers to appeal a denial of
participation in the Section 184 Program
and to appeal sanctions or civil money
penalties imposed pursuant to
§ 1005.907. This proposed section is
intended to provide Lenders the
opportunity to appeal a decision to HUD
for HUD’s reconsideration.
HUD’s Part 58 Regulations
Currently Tribes may elect to assume
environmental responsibility for Section
184 Guaranteed Loans pursuant to 24
CFR part 58, requiring Tribes to ensure
applicable environmental requirements
are met. HUD proposes to not have
Tribes assume environmental
responsibility for the Section 184
Program for fee simple Properties that
are located outside of a reservation in
order to streamline the environmental
review process and relieve the burden
upon Tribes. It is impractical to have a
Tribe assume environmental
responsibilities for Section 184
Guaranteed Loans on fee simple
Properties outside of a reservation,
which may be located far from the
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78341
reservation of the Borrower’s Tribe.
Forgoing Tribal involvement and
responsibility for Federal environmental
review on such properties will increase
the efficiency in providing HUD
assistance, as well as relieve the Tribes
of a burden. Accordingly, the proposed
rule would revise § 58.1(b), which lists
the programs that are subject to part 58,
to indicate that Indian Housing Loan
Guarantees under Section 184 are
subject to part 58 for Properties on trust
land and on fee land within a
reservation. Thus, Properties not on
trust land not on fee land within a
reservation shall be subject to
§ 50.19(b)(17).
For loan guarantees that are subject to
part 58, part 58 indicates which
activities are categorically excluded
from environmental assessment under
the National Environmental Policy Act
(42 U.S.C. 4321, et seq.) (NEPA) and
which categorically excluded activities
remain subject to related Federal
environmental laws and authorities
listed in § 58.5. HUD’s existing
regulation at § 58.35(b) lists a number of
programs that are categorically excluded
from assessment under NEPA and not
subject to such related authorities, and
this proposed rule would add to the list
HUD’s guarantee of loans for one- to
four-family dwellings under the Direct
Guarantee procedure for the Section 184
Program where there is no review or
approval of the application for the loan
guarantee by HUD or the responsible
entity, or approval of the loan guarantee
by HUD, before the execution of the
contract for construction or
rehabilitation and the loan closing.1 The
proposed rule would update HUD’s
categorical exclusions and increase
efficiency in providing HUD assistance,
as well as reducing reduce costs
associated with HUD’s environmental
review process to eliminate unnecessary
regulatory burdens that impede
affordable housing development.
Specific Question for Comment—
Environmental Regulations
HUD invites comments on the
proposal to shift environmental
responsibility from Tribes to HUD for
1 A comparable categorical exclusion for loan
guarantees under the Section 184 Direct Guarantee
procedure is already contained in 24 CFR part 50,
which applies when a Tribe declines to assume
environmental review responsibilities and HUD
performs any required environmental review. See
24 CFR 50.19(b)(17). The proposed exclusion under
part 58 would adapt the existing exclusion to apply
when a Tribe assumes environmental
responsibilities, where there is no HUD review or
approval of the application for the loan guarantee
by HUD or the responsible entity, or approval of the
loan guarantee by HUD before the completion of
construction or rehabilitation and the loan closing.
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fee simple Properties that are located
outside of a reservation.
III. Tribal Consultation
HUD’s policy is to consult with
Indian Tribes early in the rulemaking
process on matters that have Tribal
implications. Accordingly, HUD began
consulting with Indian Tribes in
February 2018. HUD held eleven inperson Tribal consultation sessions
before the regulations in this proposed
rule were drafted. As draft subparts of
the regulation were completed, HUD
held three additional in-person
consultations to solicit Tribal feedback
on each subpart. On April 4, 2019, HUD
sent out a copy of the full draft
proposed rule to all Tribal leaders and
directors of TDHEs for review and
comment. The Tribal comment period
was originally from April 4, 2019, to
June 4, 2019, but it was extended to
June 30, 2019, after Tribal leaders
requested more time to review the draft
proposed rule. During this time, HUD
also held two in-person Tribal
consultations and two national
teleconferences to review the draft
proposed rule.
Tribal feedback has been an integral
part of the process to develop this
proposed rule. Throughout the
consultation process, HUD used Tribal
feedback to refine and improve this
proposed rule. Tribal comments
included areas such as Lender
relationships and qualifications, loan
limits, rate and fees, loan processing,
Borrower qualifications, eligible units,
Section 184 Approved Program Area,
Tribal courts, and Tribal involvement.
HUD considered all written comments
submitted to HUD, as well as recorded
comments received from in-person
Tribal consultation sessions, and
revised the proposed rule as
appropriate.
IV. Findings and Certifications
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Regulatory Review—Executive Orders
12866 and 13563
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both the costs and benefits
of reducing costs, of harmonizing rules,
and of promoting flexibility.
Under Executive Order 12866
(Regulatory Planning and Review), a
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determination must be made whether a
regulatory action is significant and,
therefore, subject to review by the Office
of Management and Budget (OMB) in
accordance with the requirements of the
order. This proposed rule, as discussed
above, would introduce changes to
make the program sustainable, protect
Borrowers, address recommendations by
the OIG in areas such as Lender
underwriting and the claims process,
and provide clarity for new and existing
Lenders who participate in the Section
184 Program. These changes would
allow for Lenders to serve the growing
demand for the program and introduce
stronger governing regulations to reduce
the increased risk to the Fund.
Many current and potential Section
184 Lenders and Servicers participate in
the FHA single family mortgage
program. Where appropriate, aligning
the new Section 184 regulations with
the FHA single family mortgage program
regulations should also minimize costs
to new and existing Lenders.
Additionally, clarifying servicing
requirements will protect the Borrowers
by requiring Servicers to consider Loss
Mitigation options for Borrowers.
Moreover, the added requirements and
protections will help to reduce losses to
the Fund and thereby allow the Section
184 Program to provide additional loans
and decrease the cost of the loans to
eligible Borrowers.
This rule was determined to be a
significant regulatory action under
section 3(f) of Executive Order 12866,
Regulatory Planning and Review, and
therefore was reviewed by OMB.
However, this rule was not deemed to
be economically significant. Because
program participants have long followed
the substantive standards that this rule
would establish, HUD anticipates that
this rule will have little to no economic
effect.
The docket file is available for public
inspection in the Regulations Division,
Office of General Counsel, Room 10276,
451 7th Street SW, Washington, DC
20410–0500. Due to security measures
at the HUD Headquarters building,
please schedule an appointment to
review the docket file by calling the
Regulations Division at 202–708–3055
(this is not a toll-free number).
Individuals with speech or hearing
impairments may access this number
via TTY by calling the Federal Relay
Service at 800–877–8339 (this is a tollfree number).
Paperwork Reduction Act
Currently, the Section 184 Program
has an existing information collection
requirement previously approved by the
OMB under the Paperwork Reduction
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Act of 1995 (44 U.S.C. 3501–3520) and
assigned OMB control number 2577–
0200. The proposed rule would modify
some of the documents in this
information collection and would create
new documents to bring additional
efficiency and accountability to the
program. In accordance with the
Paperwork Reduction Act, an agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless the
collection displays a valid OMB control
number.
The proposed rule would amend the
existing Lender and Direct Guarantee
Lender application process. Under
§ 1005.207, HUD would require all
Lenders to select a level of participation
in the Section 184 Program on a form
prescribed by HUD. This form requests
detailed information about the Lender,
in addition to the participation level.
This proposed revision of the Lender
application process would allow HUD
to more closely track how many, and the
type of, Lenders participating in the
program. The proposed rule would
request information that would give
HUD further assurances that the Lenders
participating in the Section 184 Program
have the experience, staffing, and
financial resources to follow program
guidelines.
Currently the Section 184 Program
uses FHA forms as part of securing a
loan on a manufactured home,
assumptions, and pre-foreclosure sale
process. This has led to confusion by
Lenders over which information to
submit, since the Section 184 Program
may require the same information
collected on the FHA form. As part of
the proposed rule, under
§§ 1005.429(a)(3)(iv), 1005.711(c), and
1005.751(h)(1), (s)(2), and (t)(1), HUD
would develop and gain approval, when
required, of forms similar to the FHA
documents, but specific to the Section
184 Program, which would reduce the
paperwork burden on the Lenders.
The proposed rule would establish
new requirements in the areas of annual
Lender and Tribal Recertification
§§ 1005.223(a) and 1005.307 to provide
additional accountability when changes
occur that might impact a Lender or
Tribe’s eligibility for the program. The
proposed rule would establish new
requirements for Tribal application
under § 1005.303 to clarify the
information a Tribe needs to submit
when seeking HUD approval of
eligibility to guarantee loans on a its
Tribal Land.
Based on comments received during
Tribal consultation, the proposed rule at
§ 1005.501(j), would establish a new
loan closing document, signed by the
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Borrower, in which the Borrower may
elect to authorize the Lender to notify
the Borrower’s Tribe in the event of
default. Tribes requested this
notification so they may assist the
Borrower with default if such assistance
was available.
Under § 1005.769(b), HUD has new
requirement for Lenders conveying a
property to HUD at or after foreclosure,
to submit a notification of Conveyance
advising HUD of the filing of such
Conveyance.
The total annual estimated paperwork
burden for the proposed rule is 520.41
hours. The overall new paperwork
burden for the proposed rule, as
compared to the burden under the
previous rule, is 303.7 hours. The bulk
of this time is related to the new loan
closing document required in
§ 1005.501(j), which would allow the
78343
Borrower to elect Tribal notification in
the event of default. This form would be
required for each loan guaranteed by the
program. The estimated burden for this
form is 5 minutes, and the program’s
total loan volume is 3,750 loans for a
total of 187.5 hours of estimated annual
burden.
The burden of the information
collections in this rule is estimated as
follows:
REPORTING AND RECORDKEEPING BURDEN
Number of
respondents
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Section reference
Number of
responses per
respondent
Estimated
average
time for
requirement
(in hours)
Estimated
annual burden
(in hours)
1005.207 ..................................................................................................
1005.223(a) ..............................................................................................
1005.303 ..................................................................................................
1005.307 ..................................................................................................
1005.429(a)(3)(iv) ....................................................................................
1005.501(b) ..............................................................................................
1005.501(j) ...............................................................................................
1005.711(c) ..............................................................................................
1005.751(h)(1) .........................................................................................
1005.751(s)(2) .........................................................................................
1005.751(t)(1) ..........................................................................................
1005.769(b) ..............................................................................................
32
150
6
226
350
3750
3750
5
25
25
25
115
1
1
1
1
1
1
1
1
1
1
1
1
0.08
0.25
0.33
0.17
0.03
0.05
0.05
0.05
0.15
0.25
0.25
0.33
2.56
37.5
1.98
38.42
10.5
187.5
187.5
0.25
3.75
6.25
6.25
37.95
Total Paperwork Burden for the New Rule ......................................
..........................
..........................
..........................
520.41
In accordance with 5 CFR
1320.8(d)(1), HUD is soliciting
comments from members of the public
and affected agencies concerning this
collection of information to:
(1) Evaluate whether the proposed
collection of information is necessary
for the proper performance of the
functions of the agency, including
whether the information will have
practical utility;
(2) Evaluate the accuracy of the
agency’s estimate of the burden of the
proposed collection of information;
(3) Enhance the quality, utility, and
clarity of the information to be
collected; and
(4) Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated collection
techniques or other forms of information
technology, e.g., permitting electronic
submission of responses.
Interested persons are invited to
submit comments regarding the
information collection requirements in
this rule. Comments must refer to the
proposal by name and docket number
(FR–5593–P–01) and must be sent to:
HUD Desk Officer: Office of
Management and Budget, New
Executive Office Building, Washington,
DC 20503, Fax: (202) 395–6947, and
Reports Liaison Officer, Office of Public
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Jkt 259001
and Indian Housing, Department of
Housing and Urban Development,
Room, 451 7th Street SW, Washington,
DC 20410.
Interested persons may submit
comments regarding the information
collection requirements electronically
through the Federal eRulemaking Portal
at https://www.regulations.gov. HUD
strongly encourages commenters to
submit comments electronically.
Electronic submission of comments
allows the commenter maximum time to
prepare and submit a comment, ensures
timely receipt by HUD, and enables
HUD to make them immediately
available to the public. Comments
submitted electronically through the
https://www.regulations.gov website can
be viewed by other commenters and
interested members of the public.
Commenters should follow the
instructions provided on that site to
submit comments electronically.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
(5 U.S.C. 601, et seq.), generally requires
an agency to conduct a regulatory
flexibility analysis of any rule subject to
notice and comment rulemaking
requirements unless the agency certifies
that the rule will not have a significant
economic impact on a substantial
number of small entities. As discussed
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above, this rule would provide clarity
for new and existing Lenders who
participate in the Section 184 Program.
Participation in the Section 184 Program
is voluntary. HUD does not believe the
additional requirements will have a
significant impact on small entities.
Notwithstanding HUD’s
determination that this rule will not
have a significant economic impact on
a substantial number of small entities,
HUD specifically invites comments
regarding less burdensome alternatives
to this rule that will meet HUD’s
objectives, as described in this
preamble.
Executive Order 13132, Federalism
Executive Order 13132 (entitled
‘‘Federalism’’) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial direct compliance costs on
State and local governments and is not
required by statute, or the rule preempts
State law, unless the agency meets the
consultation and funding requirements
of section 6 of the Executive order. This
proposed rule would not have
federalism implications and would not
impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning
of the Executive order.
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Environmental Impact
A Finding of No Significant Impact
(FONSI) with respect to the
environment has been made in
accordance with HUD regulations at 24
CFR part 50, which implement Section
102(2)(C) of the National Environmental
Policy Act of 1969 (42 U.S.C.
4332(2)(C)). The FONSI is available for
public inspection at https://
www.hud.gov/codetalk and between 8
a.m. and 5 p.m. weekdays in the
Regulations Division, Office of General
Counsel, Department of Housing and
Urban Development, 451 7th Street SW,
Room 10276, Washington, DC 20410–
0500. Due to security measures at the
HUD Headquarters building, an advance
appointment to review the docket file
must be scheduled by calling the
Regulations Division at 202–708–3055
(this is not a toll-free number). Hearing
or speech-impaired individuals may
access this number through TTY by
calling the toll-free Federal Relay
Service at 800–877–8339.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104–4;
approved March 22, 1995) (UMRA)
proposes to establish requirements for
Federal agencies to assess the effects of
their regulatory actions on State, local,
and Tribal governments, and on the
private sector. This proposed rule does
not impose any Federal mandates on
any State, local, or Tribal government,
or on the private sector, within the
meaning of the UMRA.
List of Subjects
24 CFR Part 58
Community development block
grants, Environmental impact
statements, Grant programs-housing and
community development, Reporting and
recordkeeping requirements.
24 CFR Part 1005
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Indians, Loan programs-Indians,
Reporting and recordkeeping
requirements.
For the reasons stated in the
preamble, HUD proposes to amend 24
CFR parts 58 and 1005 as follows:
PART 58—ENVIRONMENTAL REVIEW
PROCEDURES FOR ENTITIES
ASSUMING HUD ENVIRONMENTAL
RESPONSIBILITIES
1. The authority citation for part 58
continues to read as follows:
■
Authority: 12 U.S.C. 1707 note, 1715z–
13a(k); 25 U.S.C. 4115 and 4226; 42 U.S.C.
1437x, 3535(d), 3547, 4321–4335, 4852,
5304(g), 12838, and 12905(h); title II of Pub.
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L. 105–276; E.O. 11514 as amended by E.O.
11991, 3 CFR, 1977, Comp., p. 123.
2. In § 58.1, revise paragraph (b)(11) to
read as follows:
■
§ 58.1
Purpose and applicability.
*
*
*
*
*
(b) * * *
(11) Indian Housing Loan Guarantees
authorized by section 184 of the
Housing and Community Development
Act of 1992 on trust land and on fee
land within a reservation, in accordance
with section 184(k) (12 U.S.C. 1715z–
13a(k)); and
*
*
*
*
*
■ 3. In § 58.35, add paragraph (b)(8) to
read as follows:
§ 58.35
*
*
*
*
(b) * * *
(8) HUD’s guarantee of loans for oneto-four family dwellings on trust land
and on fee land within a reservation
under the Direct Guarantee procedure
for the Section 184 Indian Housing loan
guarantee program without any review
or approval of the application for the
loan guarantee by HUD or the
responsible entity or approval of the
loan guarantee by HUD before the
execution of the contract for
construction or rehabilitation and the
loan closing.
*
*
*
*
*
■ 4. Revise part 1005 to read as follows:
PART 1005—LOAN GUARANTEES
FOR INDIAN HOUSING
Subpart A—General Program Requirements
Sec.
1005.101 Purpose.
1005.103 Definitions.
Subpart B—Lender Eligibility &
Requirements
1005.201 Lender approval and
participation.
1005.203 Lenders deemed approved by
statute.
1005.205 Lenders required to obtain
Secretarial approval.
1005.207 Lender participation options.
1005.209 Direct Guarantee Lender
application process.
1005.211 Direct Guarantee Lender approval.
1005.213 Non-Direct Guarantee Lender
application, approval, and Direct
Guarantee Lender sponsorship.
1005.215 Annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Annual recertification.
1005.225 Program ineligibility.
Subpart C—Lending on Trust Land
1005.301 Tribal legal and administrative
framework.
1005.303 Tribal application.
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Subpart D—Underwriting
Eligible Borrowers
1005.401 Eligible Borrowers.
1005.403 Principal Residence.
1005.405 Borrower residency status.
1005.407 Relationship of income to loan
payments.
1005.409 Credit standing.
1005.411 Disclosure and verification of
Social Security and Employer
Identification Numbers or Tax
Identification Number.
Eligible Properties
Categorical exclusions.
*
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1005.305 Approval of Tribal application.
1005.307 Tribal recertification.
1005.309 Duty to report changes.
1005.311 HUD notification of any lease
default.
1005.313 Tribal reporting requirements.
1005.413 Acceptable title.
1005.415 Sale of property.
1005.417 Location of property.
1005.419 Requirements for standard
housing.
1005.421 Certification of appraisal amount.
1005.423 Legal restrictions on Conveyance.
1005.425 Rental properties.
1005.427 Refinancing.
1005.429 Eligibility of Loans covering
manufactured homes.
1005.431 Acceptance of individual
residential water purification.
1005.433 Builder warranty.
Eligible Loans
1005.435 Eligible collateral.
1005.437 Loan provisions.
1005.439 Loan lien.
1005.441 Section 184 Guaranteed Loan
limit.
1005.443 Loan amount.
1005.445 Case numbers.
1005.447 Maximum age of Loan documents.
1005.449 Qualified mortgage.
1005.451 Agreed interest rate.
1005.453 Amortization provisions.
Underwriting
1005.455 Direct guarantee underwriting.
1005.457 Appraisal.
1005.459 Loan submission to HUD for
Direct Guarantee.
1005.461 HUD issuance of Firm
Commitment.
Subpart E—Closing and Endorsement
Closing
1005.501 Direct Guarantee Lender closing
requirements.
1005.503 Contents of the endorsement case
binder.
1005.505 Payment of Upfront Loan
Guarantee Fee.
1005.507 Borrower’s payments to include
other charges and escrow payments.
1005.509 Application of payments.
1005.511 Late fee.
1005.513 Borrower’s payments when
Section 184 Guaranteed Loan is
executed.
1005.515 Charges, fees, or discounts.
1005.517 Certificate of nondiscrimination
by the Direct Guarantee Lender.
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Endorsement and Post-Closing
1005.519 Creation of the contract.
1005.521 Lender pre-endorsement review
and requirements.
1005.523 HUD pre-endorsement review.
1005.525 Loan Guarantee Certificate.
1005.527 Post-endorsement review.
1005.529 Indemnification.
Subpart F—Section 184 Guaranteed Loan
Fees
1005.601 Scope and method of payment.
1005.603 Upfront Loan Guarantee Fee.
1005.605 Remittance of Upfront Loan
Guarantee Fee.
1005.607 Annual Loan Guarantee Fee.
1005.609 Remittance of Annual Loan
Guarantee Fee.
1005.611 HUD imposed penalties.
Subpart H—Claims
Claims Application, Submission Categories,
and Types
1005.801 Purpose.
1005.803 Claim case binder; HUD authority
to review records.
1005.805 Effect of noncompliance.
1005.807 Claim submission categories.
1005.809 Claim types.
Subpart G—Servicing
Servicing Section 184 Guaranteed Loans
Generally
1005.701 Section 184 Guaranteed Loan
servicing generally.
1005.703 Servicer eligibility and
application process.
1005.705 Servicer approval.
1005.707 Responsibility for servicing.
1005.709 Providing information to
Borrower and HUD.
1005.711 Assumption and release of
personal liability.
1005.713 Due-on-sale provision.
1005.715 Application of Borrower
payments.
1005.717 Administering escrow accounts.
1005.719 Fees and costs after endorsement.
1005.721 Enforcement of late fees.
1005.723 Partial payments.
1005.725 Handling prepayments.
1005.727 Substitute Borrowers.
Servicing Default Section 184 Guaranteed
Loans
1005.729 Section 184 Guaranteed Loan
collection action.
1005.731 Default notice to Borrower.
1005.733 Loss mitigation application,
timelines, and appeals.
1005.735 Occupancy inspection.
1005.737 Vacant property procedures.
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Servicing Default Section 184 Guaranteed
Loans under the Loss Mitigation Program
1005.739 Loss mitigation.
1005.741 Notice to Tribe and BIA—
Borrower default.
1005.743 Relief for Borrower in military
service.
1005.745 Forbearance plans.
1005.747 Assumption.
1005.749 Loan modification.
1005.751 Pre-foreclosure sale.
1005.753 Deed-in-lieu/lease-in-lieu of
foreclosure.
1005.755 Incentive payments to Borrower.
Assignment of the Loan to HUD, Foreclosure,
and Conveyance
1005.757 Property on Trust Land—Tribal
first right of refusal; foreclosure or
assignment.
1005.759 Fee simple land properties—
foreclosure or assignment with HUD
approval.
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1005.761 First Legal Action deadline and
automatic extensions.
1005.763 Assignment of the Section 184
Guaranteed Loan.
1005.765 Inspection and preservation of
properties.
1005.767 Property condition.
1005.769 Conveyance of property to HUD at
or after foreclosure; time of Conveyance.
1005.771 Acceptance of property by HUD.
Submission of Claims
1005.811 Claims supporting
documentation.
1005.813 Upfront and Annual Loan
Guarantee Fee reconciliation.
1005.815 Conditions for withdrawal of
claim.
Property Title Transfers and Title Waivers
1005.817 Conveyance of Good and
Marketable Title.
1005.819 Types of satisfactory title
evidence.
1005.821 Coverage of title evidence.
1005.823 Waived title objections for
properties on fee simple land.
1005.825 Waived title objections for
properties on Trust Land.
Condition of the Property
1005.827 Damage or neglect.
1005.829 Certificate of property condition.
1005.831 Cancellation of hazard insurance.
Payment of Guarantee Benefits
1005.833 Method of payment.
1005.835 Claim payment not conclusive
evidence of claim meeting all HUD
requirements.
1005.837 Payment of claim: unpaid
principal balance.
1005.839 Payment of claim: interest on
unpaid principal balance.
1005.841 Payment of claim: reimbursement
of eligible and reasonable costs.
1005.843 Reductions to the claim
submission amount.
1005.845 Rights and liabilities under the
Indian Housing Loan Guarantee Fund.
1005.847 Final payment.
1005.849 Reconveyance and reassignment.
1005.851 Reimbursement of expenses to
HUD.
Subpart I—Lender Program Performance,
Reporting, Sanctions, and Appeals
1005.901 Direct Guarantee Lender, Holder,
or Servicer performance reviews.
1005.903 Direct Guarantee Lender, Holder,
or Servicer reporting and certifications.
1005.905 Direct Guarantee Lender, Holder,
or Servicer notice of sanctions.
1005.907 Direct Guarantee Lender, Holder,
or Servicer sanctions and civil money
penalties.
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78345
1005.909 Direct Guarantee Lender, Holder,
or Servicer appeals process.
Authority: 12 U.S.C. 1715z–13a; 15 U.S.C.
1639c; 42 U.S.C. 3535(d).
Subpart A—General Program
Requirements
§ 1005.101
Purpose.
This part implements the Section 184
Indian Home Loan Guarantee Program
(‘‘Section 184 Program’’) authorized
under Section 184 of the Housing and
Community Development Act of 1992,
as amended, codified at 12 U.S.C.
1715z–13a. Section 184 authorizes the
U.S. Department of Housing and Urban
Development (HUD) to establish a loan
guarantee program for American Indian
and Alaskan Native families, Tribes and
Tribally Designated Housing Entities
(TDHE). The loans guaranteed under the
Section 184 Program are used to
construct, acquire, refinance, or
rehabilitate one- to four-family standard
housing located on Trust Land, land
located in an Indian or Alaska Native
area, and Section 184 Approved
Program Area. These regulations apply
to Lenders, Servicers and Tribes seeking
to or currently participating in the
Section 184 Program.
§ 1005.103
Definitions.
The following definitions apply
throughout this part:
Acquisition Cost means the sum of the
sales price or construction cost for a
property and the cost of allowable
repairs or improvements for the same
property, less any unallowable sales
concession(s). For the purposes of this
definition, the term ‘‘sales concession’’
means an inducement to purchase a
property paid by the seller to
consummate a sales transaction.
Amortization means the calculated
schedule of repayment of a Section 184
Guaranteed Loan in full, through
structured, regular payments of
principal and interest within a certain
time frame.
Amortization Schedule means the
document generated at the time of loan
approval outlining the Borrower’s
schedule of payments of principal and
interest for the life of the loan and the
unpaid principal balance with and
without financed Upfront Loan
Guarantee Fee, where applicable.
Annual Loan Guarantee Fee means a
fee calculated on an annual basis and
paid in monthly installments by the
Borrower, which is collected by the
Servicer and remitted to HUD for the
purposes of financing the Indian
Housing Loan Guarantee Fund.
BIA means the United States
Department of Interior, Bureau of Indian
Affairs.
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Borrower means each and every
individual on the mortgage application.
For the purposes of servicing the loan,
Borrower refers to each and every
original Borrower who signed the note
and their heirs, executors,
administrators, assigns, and approved
substitute Borrowers. Borrower includes
Tribes and TDHEs.
Claim means the Servicer’s
application to HUD for payment of
benefits under the Loan Guarantee
Certificate for a Section 184 Guaranteed
Loan.
Conflict of Interest means any party to
the transaction who has a direct or
indirect personal business or financial
relationship sufficient to appear that it
may cause partiality or influence the
transaction, or both.
Date of default means the day after
the Borrower’s obligation to make a loan
payment or perform an obligation under
the terms of the loan, Loss Mitigation
plan, or any other agreement with the
Direct Guarantee Lender was due.
Day means calendar day, except
where the term ‘‘business day’’ is used.
Default means when the Borrower has
failed to make a loan payment or
perform an obligation under the terms of
the Section 184 Guaranteed Loan, Loss
Mitigation plan, lease, or any other
agreement with the Direct Guarantee
Lender.
Direct Guarantee Lender means a
Lender approved by HUD under
§ 1005.211 to originate, underwrite,
close, service, purchase, hold, or sell
Section 184 Guaranteed Loans.
Eligible Nonprofit Organization
means a nonprofit organization
established under Tribal law or
organization of the type described in
section 501(c)(3) of the Internal Revenue
Code of 1986 as an organization exempt
from taxation under section 501(a) of
the Code, which has:
(1) Two years’ experience as a
provider of low- or moderate-income
housing;
(2) A voluntary board; and
(3) No part of its net earnings inuring
to the benefit of any member, founder,
contributor or individual.
Financial Statements means audited
financial statements or other financial
records as required by HUD.
Firm Commitment means a
commitment by HUD to reserve funds,
for a specified period of time, to
guarantee a Loan under the Section 184
program, when a Loan for a specific
Borrower and property meets standards
as set forth in subpart D of this part.
First Legal Action means the first
public action required by Tribal or State
law to foreclose, such as filing a
complaint or petition, recording a notice
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of default, or publication of a notice of
sale.
Good and Marketable Title means title
that contains exceptions or restrictions,
if any, which are permissible under
subpart D of this part; and any
objections to title that have been waived
by HUD or otherwise cleared; and any
discrepancies have been resolved to
ensure the Section 184 Guaranteed Loan
is in first lien position. In the case of
Section 184 Guaranteed Loans on Trust
Land, Good and Marketable Title
includes the ownership rights of the
improvements as reported in the Title
Status Report issued by the BIA.
Holder means an entity that holds title
to a Section 184 Guaranteed Loan and
has the right to enforce the mortgage
agreement.
Identity of Interest means a sales
transaction between family members,
business partners, or other business
affiliates.
Indian means a person who is
recognized as being an Indian or Alaska
Native Federally by a recognized Indian
Tribe, a regional or village corporation
as defined in the Alaska Native Claims
Settlement Act, or a State recognized
Tribe eligible to receive assistance
under Title I of the Native American
Housing Assistance and SelfDetermination Act of 1996 (NAHASDA).
Indian Family means one or more
persons maintaining a household where
at least one Borrower is an Indian.
Indian Housing Loan Guarantee Fund
or Fund means a fund established at the
U.S. Department of Treasury for the
purpose of providing loan guarantees
under the Section 184 Program.
Lease or leasehold interest means a
written contract between a Borrower
and a Tribe, entity, or individual,
whereby the Borrower, as lessee, is
granted a right of possession of Trust
Land for a specific purpose and
duration, according to applicable Tribal,
Federal, or State law.
Lender means a financial institution
engaging in mortgage lending that is
eligible to participate in the Section 184
Program under § 1005.203 or § 1005.205,
but has not yet had a program
participation level approved under
§ 1005.207.
Loan means a loan application or
mortgage loan that has not received a
Loan Guarantee Certificate.
Loan Guarantee Certificate means
evidence of endorsement by HUD of a
Loan for guarantee issued under
§ 1005.525.
Loss Mitigation means an alternative
to foreclosure offered by the Holder of
a Section 184 Guaranteed Loan that is
made available through the Servicer to
the Borrower.
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Non-Direct Guarantee Lender means a
Lender approved by HUD under
§ 1005.207 who has selected a level of
program participation limited to
originating Section 184 Guaranteed
Loans.
Month or monthly means thirty days
in a month, regardless of the actual
number of days.
Origination or originate means the
process by which the Lender accepts a
new loan application along with all
required supporting documentation.
Origination does not include
underwriting the loan.
Owner of Record means, for fee
simple properties, the owner of property
as shown on the records of the recorder
in the county where the property is
located. For properties held in trust by
the United States, the current lessee or
owner of property, as shown on the
Title Status Report provided by the BIA.
Partial Payment means a Borrower
payment of any amount less than the
full amount due under the terms of the
Section 184 Guaranteed Loan at the time
the payment is tendered.
Property means a one to four-family
dwelling that meets the requirements for
standard housing under § 1005.419 and
located on Trust Land, land located in
an Indian or Alaska Native area, or
Section 184 Approved Program Area.
Section 184 Approved Program Area
means the Indian Housing Block Grant
(IHBG) Formula Area as defined in 24
CFR 1000.302 or any other area
approved by HUD, in which HUD may
guarantee Loans.
Section 184 Guaranteed Loan is a
Loan that has received a Loan Guarantee
Certificate.
Section 184 Program Guidance means
administrative guidance documents that
may be issued by HUD, including but
not limited to Federal Register Notices,
Dear Lender Letters, handbooks,
guidebooks, manuals, and user guides.
Security means any collateral
authorized under existing Tribal,
Federal, or State law.
Servicer means a Direct Guarantee
Lender that chooses to services Section
184 Guaranteed Loans or a Non-Direct
Guarantee Lender or a financial
institution approved by HUD under
§ 1005.705 to service Section 184
Guaranteed Loans.
Sponsor means an approved Direct
Guarantee Lender that enters into a
relationship with a Non-Direct
Guarantee Lender or another Direct
Guarantee Lender (Sponsored Entity),
whereby the Sponsor provides
underwriting, closing, purchasing, and
holding of Section 184 Guaranteed
Loans and may provide servicing.
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Sponsored Entity means a Non-Direct
Guarantee or Direct Guarantee Lender
operating under an agreement with a
Sponsor to originate Section 184
Guaranteed Loans in accordance with
§ 1005.213.
Tax-exempt bond financing means
financing which is funded in whole or
in part by the proceeds of qualified
mortgage bonds described in section 143
of the Internal Revenue Code of 1986 on
which the interest is exempt from
Federal income tax. The term does not
include financing by qualified veterans’
mortgage bonds as defined in section
143(b) of the Code.
Title Status Report is defined in 25
CFR 150.2, as may be amended.
Tribe means any Indian Tribe, band,
nation, or other organized group or
community of Indians, including any
Alaska Native village or regional or
village corporation as defined in or
established pursuant to the Alaska
Native Claims Settlement Act (43 U.S.C.
1601, et seq.), that is recognized as
eligible for the special programs and
services provided by the United States
to Indians because of their status as
Indians pursuant to the Indian Self
Determination and Education
Assistance Act of 1975.
Tribally Designated Housing Entity
(TDHE) means any entity as defined in
the Indian Housing Block Grant Program
under the Native American Housing
Assistance and Self Determination Act
at 25 U.S.C. 4103(22).
Trust Land means land title which is
held by the United States for the benefit
of an Indian or Tribe or title which is
held by a Tribe subject to a restriction
against alienation imposed by the
United States or Tribe. This definition
shall include but is not limited to
allotted, restricted fee, or assigned trust
lands.
Upfront Loan Guarantee Fee means a
fee, paid by the Borrower at closing,
collected by the Direct Guarantee
Lender and remitted to HUD for the
purposes of financing the Indian
Housing Loan Guarantee Fund.
Subpart B—Lender Eligibility &
Requirements
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§ 1005.201 Lender approval and
participation.
(a) Approval types. The Section 184
Program has two types of Lender
approval:
(1) Lenders deemed approved by
statute, as described in § 1005.203; or
(2) Lenders required to obtain
secretarial approval under § 1005.205.
(b) Lender participation. In
accordance with § 1005.207, approved
Lenders must select a level of program
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participation and submit a completed
application package, as prescribed by
Section 184 Program Guidance, to
participate in the Section 184 program.
§ 1005.203
statute.
Lenders deemed approved by
(a) The following Lenders are deemed
approved by statute:
(1) Any mortgagee approved by HUD
for participation in the single-family
mortgage insurance program under Title
II of the National Housing Act;
(2) Any Lender whose housing loans
under the U.S. Department of Veterans
Affairs, 38 U.S.C. chapter 37, are
automatically guaranteed pursuant to 38
U.S.C. 3702(d);
(3) Any Lender approved by the U.S.
Department of Agriculture to make
Guaranteed Loans for single family
housing under the Housing Act of 1949;
and
(4) Any other Lender that is
supervised, approved, regulated, or
insured by any other Federal agency of
the United States, including but not
limited to Community Development
Financial Institutions.
(b) [Reserved]
§ 1005.205 Lenders required to obtain
Secretarial approval.
(a) Lender application process.
Lenders not meeting the requirements of
§ 1005.203 must apply to HUD for
approval to participate in the Section
184 Program by submitting to HUD a
completed application package, as
prescribed by Section 184 Program
Guidance. The application must
establish that the Lender meets the
following qualifications:
(1) Business form. The Lender shall be
a corporation or other chartered
institution, a permanent organization
having succession, or a partnership,
organized under Tribal or State law.
(i) Partnership requirements. A
partnership must meet the following
requirements:
(A) Each general partner must be a
corporation or other chartered
institution consisting of two or more
partners.
(B) One general partner must be
designated as the managing general
partner. The managing general partner
shall also comply with the requirements
specified in § 1005.205(a)(1)(i)(C) and
(D). The managing general partner must
have as its principal activity the
management of one or more
partnerships, all of which are mortgage
lending institutions or property
improvement or manufactured home
lending institutions, and must have
exclusive authority to deal directly with
HUD on behalf of each partnership.
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78347
Newly admitted partners must agree to
the management of the partnership by
the designated managing general
partner. If the managing general partner
withdraws or is removed from the
partnership for any reason, a new
managing general partner shall be
substituted, and HUD must be notified
in writing within 15 days of the
substitution.
(C) The partnership agreement shall
specify that the partnership shall exist
for a minimum term of ten years, as
required by HUD. All Section 184
Guaranteed Loans held by the
partnership shall be transferred to a
Lender approved under this part prior to
the termination of the partnership. The
partnership shall be specifically
authorized to continue its existence if a
partner withdraws.
(D) HUD must be notified in writing
within 15 days of any amendments to
the partnership agreement that would
affect the partnership’s actions under
the Section 184 Program.
(ii) Use of business name. The Lender
must use its HUD-registered business
name in all advertisements and
promotional materials related to the
Guaranteed Loan. HUD-registered
business names include any alias or
‘‘doing business as’’ (DBA) on file with
HUD. The Lender must keep copies of
all print and electronic advertisements
and promotional materials for a period
of 2 years from the date that the
materials are circulated or used to
advertise.
(2) Identification and certification of
employees. The Lender shall identify
personnel and certify that they are
trained and competent to perform their
assigned responsibilities in mortgage
lending, including origination,
servicing, collection, and Conveyance
activities, and shall maintain adequate
staff and facilities to originate or service
mortgages, or both, in accordance with
applicable Tribal, Federal, or State
requirements, to the extent it engages in
such activities.
(3) Identification and certification of
officers. The Lender shall identify
officers and certify that all employees
who will sign applications for
Guaranteed Loans on behalf of the
Lender shall be corporate officers or
shall otherwise be authorized to bind
the Lender in the Origination
transaction. The Lender shall certify
that only authorized person(s) report on
guarantees, purchases, and sales of
Guaranteed Loans to HUD for the
purpose of obtaining or transferring
guarantee coverage.
(4) Financial statements. The Lender
shall:
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(i) Furnish to HUD a copy of its most
current annual audited financial
statement.
(ii) Furnish such other information as
HUD may request; and
(iii) Submit to examination of the
portion of its records that relates to its
activities under the Section 184
Program.
(5) Quality control plan. The Lender
shall submit a written quality control
plan in accordance with § 1005.217.
(6) Identification of branch offices. A
Lender may maintain branch offices. A
financial institution’s branch office
must be registered with HUD to
originate or submit applications for
Guaranteed Loans. The financial
institution shall remain responsible to
HUD for the actions of its branch offices.
(7) Certification of conflict of interest
policy. The Lender must certify that the
lender shall not pay anything of value,
directly or indirectly, in connection
with any Guaranteed Loan to any person
or entity if such person or entity has
received any other consideration from
the seller, builder, or any other person
for services related to such transactions
or related to the purchase or sale of the
property, except that consideration,
approved by HUD, may be paid for
services actually performed. The Lender
shall not pay a referral fee to any person
or organization.
(8) Licensing certification. A Lender
shall certify that it has not been refused
a license and has not been sanctioned
by any Tribal, Federal, or State, or
authority in which it will originate
Section 184 Guaranteed Loans.
(9) Minimum net worth. Irrespective
of size, a Lender shall have a net worth
of not less an amount as established by
Section 184 Program Guidance.
(10) Identification of operating area.
The Lender must submit a list of states
in which they wish to participate in the
Section 184 Program and evidence of
Lender’s license to operate in those
states, as may be prescribed by Section
184 Program Guidance.
(11) Other. Other qualifications by
notice for comment.
(b) HUD approval. HUD shall review
applications under § 1005.203(a) and
any other publicly available information
related to the Lender, its officers, and
employees. If HUD determines the
Lender meets the requirements for
participation in this subpart, HUD shall
provide written notification of the
approval to be a Section 184 Lender.
(c) Limitations on approval. A Lender
may only operate in the Section 184
Approved Program Area where they are
licensed.
(d) Denial of participation. A Lender
may be denied approval to become a
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Section 184 Lender if HUD determines
the Lender does not meet the
qualification requirements of this
subpart. HUD will provide written
notification of denial and that decision
may be appealed in accordance with the
procedures set forth in § 1005.909.
§ 1005.207
Lender participation options.
(a) Levels of participation. Lenders
must choose one of two levels of
program participation, a Non-Direct
Guarantee Lender or a Direct Guarantee
Lender and submit an application to
participate on a form prescribed by
Section 184 Program Guidance. A
participation level must be selected by
the Lender and approved by HUD before
initiating any Section 184 Program
activities.
(b) Non-Direct Guarantee Lender. (1)
A Non-Direct Guarantee Lender
originates Loans.
(2) A Non-Direct Guarantee Lender
must be a Sponsored Entity under
§ 1005.213.
(3) A Non-Direct Guarantee Lender
must submit documentation supporting
their eligibility as a Lender under
§ 1005.203 or approved by HUD under
§ 1005.205 and other documentation as
prescribed by Section 184 Program
Guidance to HUD through their
Sponsor.
(c) Direct Guarantee Lender. (1) A
Direct Guarantee Lender may originate,
underwrite, close, service, purchase,
hold, and sell Section 184 Guaranteed
Loans.
(2) A Direct Guarantee Lender may
sponsor Non-Direct Guarantee Lenders
or other Direct Guarantee Lenders in
accordance with § 1005.213.
(3) To become a Direct Guarantee
Lender, Lenders must submit additional
documentation as provided in
§ 1005.209 and obtain HUD approval
under § 1005.211.
§ 1005.209 Direct Guarantee Lender
application process.
(a) Lenders must apply to HUD for
approval to participate in the Section
184 Program as a Direct Guarantee
Lender. Lenders must submit a
completed application package in
accordance with Section 184 Program
Guidance.
(b) To be approved as a Direct
Guarantee Lender, a Lender must
establish in its application that it meets
the following qualifications:
(1) Eligibility under § 1005.203 or
HUD approval under § 1005.205, as
evidenced by approval documents and
most recent recertification documents.
(2) Has a principal officer with a
minimum of five years’ experience in
the origination of Loans guaranteed or
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insured by an agency of the Federal
Government. HUD may approve a
Lender with less than five years of
experience, if a principal officer has had
a minimum of five years of managerial
experience in the origination of loans
guaranteed or insured by an agency of
the Federal Government.
(3) Has on its permanent staff an
underwriter(s) that meets the following
criteria:
(i) Two years’ experience
underwriting loans guaranteed or
insured by an agency of the Federal
Government;
(ii) Is an exclusive employee of the
Lender;
(iii) Authorized by the Lender to
obligate the Lender on matters involving
the origination of Loans;
(iv) Is registered with HUD as an
underwriter and continues to maintain
such registration; and
(v) Other qualifications by notice for
comment.
(c) The Lender must submit a list of
states or geographic regions in which it
is licensed to operate, evidenced by
submitting the active approvals for each
State or region, and declare its interest
in participating in the Section 184
Program.
(d) The Lender must submit the
quality control plan as required by its
approving agency, modified for the
Section 184 Program.
(e) If a Lender wants to service
Section 184 Guaranteed Loans as Direct
Guarantee Lender, they must meet
qualifications and submit an application
in accordance with § 1005.703.
§ 1005.211
approval.
Direct Guarantee Lender
HUD shall review all documents
submitted by a Lender under § 1005.209
and make a determination of
conditional approval or denial.
(a) Conditional approval. Conditional
approval is signified by written
notification from HUD that the Lender
is a conditionally approved Direct
Guarantee Lender under the Section 184
Program subject to the following
conditions:
(1) The Lender signs an agreement to
comply with requirements of this part,
and any applicable Tribal, Federal, or
State law.
(2) If applicable, the Lender submits
a list of entities it currently sponsors
under another Federal loan program and
intends to sponsor in the Section 184
Program. This list shall include the
following for each Sponsored Entity:
(i) Contact information, including
mailing address, phone number, and
email address for corporate officers.
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(ii) The Federal tax identification
number (TIN) for the Sponsored Entity,
and
(iii) Names and Nationwide Multistate
Licensing System and Registry numbers
for all loan originators and processors.
(3) The Lender certifies it monitors
and provides oversight of Sponsored
Entities to ensure compliance with this
part, and any applicable Tribal, Federal,
or State law.
(4) The Lender must, for each
underwriter, submit a number,
prescribed by Section 184 Program
Guidance, of test endorsement case
binders, which meet the requirements of
subparts D and E of this part.
Unsatisfactory performance by an
underwriter during HUD’s test case
review may constitute grounds for
denial of approval to participate as a
Direct Guarantee Lender. If participation
is denied, such denial is effective
immediately and may be appealed in
accordance with the procedures set
forth in § 1005.909.
(5) The Lender will operate only in
accordance with the Lender’s licensing
in Section 184 Approved Program
Areas.
(b) Final approval. Final approval is
signified by written notification from
HUD that the Lender is an approved
Direct Guarantee Lender under the
Section 184 Program without further
submission of test case endorsement
case binders to HUD. HUD retains the
right to request additional test cases as
determined necessary.
(c) Limitations on approval. (1) A
Lender may only operate as a Direct
Guarantee Lender in accordance with
the Lender’s Tribal or State licensing
and within Section 184 Approved
Program Areas.
(2) The Lender must employ and
retain an underwriter with the
qualifications as provided in
§ 1005.209(b)(3). Failure to comply with
this provision may subject the Lender to
sanctions under § 1005.907.
(d) Denial of participation. A Lender
may be denied approval to become a
Direct Guarantee Lender if HUD
determines the Lender does not meet
the qualification requirements of this
subpart. HUD will provide written
notification of denial and that decision
may be appealed in accordance with the
procedures set forth in § 1005.909.
§ 1005.213 Non-Direct Guarantee Lender
application, approval, and Direct Guarantee
Lender sponsorship.
(a) Sponsorship. A Sponsorship is a
contractual relationship between a
Sponsor and a Sponsored Entity.
(b) General responsibility
requirements of a Sponsor. (1) The
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Sponsor must determine the eligibility
of a Lender and submit to HUD, as
prescribed in Section 184 Program
Guidance, a recommendation for
approval under § 1005.207(b) or
evidence of HUD approval under § 1005.
205(b) or § 1005.211(b).
(2) Upon HUD approval of eligibility
under § 1005.207(b), or HUD
acknowledgement of the evidence of
HUD approval under § 1005.205(b) or
§ 1005.211(b), the Sponsor may enter
into a Sponsorship with the Sponsored
Entity.
(3) The Sponsor must notify HUD of
changes in a Sponsorship within 10
days.
(4) The Sponsor must provide HUDapproved training to the Sponsored
Entity on the requirements of the
Section 184 Program before the
Sponsored Entity may originate Section
184 Guaranteed Loans for the Sponsor.
(5) Each Sponsor shall be responsible
to HUD for the actions of its Sponsored
Entity in originating Loans. If Tribal or
State law requires specific knowledge
by the Sponsor or the Sponsored Entity,
HUD shall presume the Sponsor had
such knowledge and shall remain liable.
(6) The Sponsor is responsible for
conducting quality control reviews of
the Sponsored Entity’s origination case
binders and Loan performance to ensure
compliance with this part and any other
Tribal, Federal, State, or law
requirements.
(7) The Sponsor is responsible for
maintaining all records for loans
originated by a Sponsored Entity in
accordance with this part.
(8) A Sponsor must notify HUD of any
changes in a sponsorship within 15
days.
(c) Responsibilities of the Sponsored
Entity. A Sponsor must ensure that a
Sponsored Entity complies with this
part and any other Tribal, Federal, State,
or law requirements.
§ 1005.215
Annual reporting requirements.
Direct Guarantee Lenders must submit
an annual report on Loan performance,
including that of all Sponsored Entities,
where applicable, along with any other
required reporting under § 1005.903 and
other such reports as prescribed by
Section 184 Program Guidance.
§ 1005.217
Quality control plan.
(a) A quality control plan sets forth a
Lender’s procedures for ensuring the
quality of the Lender’s Section 184
Guaranteed Loan origination,
underwriting, closing, and/or servicing.
The purpose of the quality control plan
is to ensure Lender’s compliance with
Section 184 Program requirements and
protect HUD and Lender from
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78349
unacceptable or unreasonable risks. A
Lender must adopt and implement a
quality control plan.
(b) A quality control plan must:
(1) Be maintained and updated, as
needed, to comply with all applicable
Section 184 Program requirements.
(2) Cover all policies and procedures,
whether performed by the Lender or an
agent, to ensure full compliance with all
Section 184 Program requirements.
(3) Provide the Lender with
information sufficient to adequately
monitor and oversee the Lender’s
compliance and measure performance,
as it relates to the Lender’s Section 184
Guaranteed Loan activity.
(4) Require the Lender to retain all
quality control plan related
documentation, including selection
criteria, review documentation,
findings, and actions to mitigate
findings, for a period of three years from
initial quality control review, or from
the last action taken to mitigate
findings, whichever is later.
(5) Allow the Lender to use
employees or agents to perform the
quality control functions, so long as
they do not directly participate in any
loan administration processes as
outlined in Section 184 Program
Guidance.
(6) Ensure the Lender assumes full
responsibility for any agent’s conduct of
quality control reviews.
(7) Require the Lender to train all
staff, agents working with the Section
184 Program on Loan administration
and quality control processes and
provide staff access to all current
Section 184 legal authorities and policy
guidance. The Lender must retain
copies of training documentation for all
staff working on the Section 184
Program in accordance with
§ 1005.219(d)(3). Failure to comply with
the training and documentation
requirements may subject the Lender to
sanctions in accordance with
§ 1005.907.
(8) Ensure that the Lender’s
employees, agents, are eligible to
participate in the Section 184 Program.
Any designated employees, agents,
deemed ineligible shall be restricted
from participating in the program in the
Section 184 Program.
(9) Ensure the Borrower’s information
maintained related to the Section 184
Guaranteed Loan are used only for the
purpose for which they were received
and follow all applicable Federal, State,
and Tribal requirements.
(10) Require the Lender to refer any
suspected fraud or material
misrepresentation by any party
whatsoever directly to HUD’s Office of
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Inspector General (OIG) and the Office
of Native American Programs.
(11) Require the Lender to report all
material deficiencies and submit a
corrective action plan to HUD within a
timeframe as prescribed by Section 184
Program Guidance.
(12) Require the Lender to conduct
appropriate Loan level quality control
procedures, in accordance with
requirements as prescribed by Section
184 Program Guidance.
(13) Require that the Lender maintain
complete and accurate records of the
Section 184 Guaranteed Loans which
are selected for the quality control
sample for a timeframe as prescribed by
Section 184 Program Guidance.
(14) Require the Lender to review a
random statistical sample of rejected
loan applications within 90 days from
the end of the month in which the
decision was made. The reviews must
be conducted no less frequently than
monthly and with the goal to ensure
that the reasons given for the rejection
were valid and each rejection received
concurrence of an appropriate staff
person with sufficient approval
authority. The Lender must submit a
report of this review in form and
timeframe as prescribed in Section 184
Program Guidance.
(c) Lenders to applying be a Direct
Guarantee Lender under § 1005.209,
must submit a quality control plan in
accordance with paragraph (b) of this
section and include the following
additional requirements:
(1) Require the Lender to collect and
forward all Loan Guarantee Fees in
accordance with the Section 184
Program requirements, with sufficient
documentation evidencing the timely
collection and payment of the fees to
HUD.
(2) Require the Lender to verify that
the endorsement case binder is
submitted to HUD for guarantee within
required time frames.
(3) Require the Lender to review a
random statistical sample of its
endorsement case binders for potential
fraud, material misrepresentations, or
other findings on a quarterly basis. The
Lender must investigate and determine
if fraud, material misrepresentation or
other findings occurred.
(4) Require the Lender to perform
quality control review of its Sponsored
Entities in the same manner and under
the same conditions as required for the
Lender’s own operation.
(5) Where applicable, require the
Sponsor to apply paragraphs (b)(7)
through (8) of this section to its
Sponsored Entities.
(d) All Sponsored Entities shall
comply with paragraph (b) of this
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section and provide a quality control
plan directly to their Sponsor in
accordance with their sponsorship
agreement.
§ 1005.219
Other requirements.
(a) Federal law. All Direct Guarantee
Lenders, Non-Director Guarantee
Lenders, and Servicers must comply
with all applicable Federal laws which
impact mortgage-related activities.
(b) Dual employment. All Non-Direct
Guarantee Lenders and Direct Guarantee
Lenders must require its employees to
be exclusive employees, unless the
Lender has determined that the
employee’s other employment,
including any self-employment, does
not create a Conflict of Interest.
(c) Reporting requirements. All Direct
Guarantee Lenders must submit reports
in accordance with § 1005.903. Unless
requested directly by HUD, Non-Direct
Guarantee Lenders must submit
required reports to their Sponsor, under
this part or any requirements as
prescribed by Section 184 Program
Guidance, or any special request for
information within the time frames
prescribed in the request.
(d) Records retention. Records
retention requirements are as follows:
(1) Direct Guarantee Lenders must
maintain an endorsement case binder
for a period of three years beyond the
date of satisfaction or maturity date of
the Loan, whichever is sooner.
However, where there is a payment of
claim, the endorsement case binder
must be retained for a period of at least
five years after the final claim has been
paid. Section 184 Program Guidance
shall prescribe additional records
retention time depending on the
circumstances of the claim.
(2) All Direct Guarantee Lender and
Non-Direct Guarantee Lenders must
retain personnel files of employees for
one year beyond the employee’s
separation.
(3) All Direct Guarantee Lenders and
Non-Direct Guarantee Lenders must
follow the applicable records retention
requirements imposed by applicable
Tribal, Federal, and State laws and
regulations.
(4) Direct Guarantee Lenders and
Non-Direct Guarantee Lenders must
maintain the quality control plan
records for a period prescribed in
§ 1005.217(b)(4).
(e) Minimum level of lending on Trust
Land. (1) Direct Guarantee Lenders must
actively market, originate, underwrite,
and close Loans on Trust Land. A
Sponsor must ensure its Sponsored
Entities actively market and originate
loans on Trust Land. HUD may impose
a minimum level of lending on Tribal
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Trust Land, which may be adjusted
periodically, through publication in the
Federal Register.
(2) Failure to meet the minimum level
of lending on Trust Land may result in
sanctions in accordance with
§§ 1005.905 and 1005.907.
(3) HUD may grant exceptions for
Direct Guarantee Lenders and NonDirect Guarantee Lenders licensed and
doing business in a State or States with
limited Trust Lands. The process for
Lenders to request the exception will be
prescribed by Section 184 Program
Guidance.
§ 1005.221
Business change reporting.
(a) Within a timeframe as prescribed
by Section 184 Program Guidance,
Direct Guarantee Lenders shall provide
written notification to HUD, in such a
form as prescribed by Section 184
Program Guidance of:
(1) All changes in the Direct
Guarantee Lender or Sponsored Entity’s
legal structure, including, but not
limited to, mergers, acquisitions,
terminations, name, location, control of
ownership, and character of business;
(2) Staffing changes with senior
leadership and Loan underwriters for
Direct Guarantee Lenders and
Sponsored Entities; and
(3) Any sanctions by another
supervising entity.
(b) Failure to report changes within a
reasonable timeframe prescribed in
Section 184 Program Guidance may
result in sanctions in accordance with
§§ 1005.905 and 1005.907.
§ 1005.223
Annual recertification.
(a) All Direct Guarantee Lenders are
subject to annual recertification on a
date and form as prescribed by Section
184 Program Guidance.
(b) With each annual recertification,
Direct Guarantee Lenders must submit
updated contact information, continued
eligibility documentation and other
pertinent materials as prescribed by
Section 184 Program Guidance,
including but not limited to:
(1) A certification that it has not been
refused a license by any Tribe, State, or
Federal entity;
(2) A certification that the Direct
Guarantee Lender is in good standing
with any Tribe, State, or Federal entity
in which it will perform Direct
Guarantee Lender activities; and
(3) Renewal documents and
certification of continued eligibility
from an authorizing entity listed in
§ 1005.203.
(4) Lenders approved under
§ 1005.205 must submit documentation
supporting continued eligibility as
prescribed by Section 184 Program
Guidance.
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(c) All Sponsored Entities shall
comply with this requirement and
provide the annual recertification
documentation directly to their Sponsor
in accordance with their sponsorship
agreement.
(d) Direct Guarantee Lenders must
also submit the following in accordance
with Section 184 Program Guidance:
(1) a certification that the Direct
Guarantee Lender continues to meet the
direct guarantee program eligibility
requirements in accordance with
§ 1005.209;
(2) A list of all Sponsored Entities
with which the Direct Guarantee Lender
has a sponsorship relationship, and a
certification of their continued
eligibility; and
(3) Any reports required in
accordance with Section 184 Program
Guidance.
(e) Direct Guarantee Lenders must
retain documentation related to the
continued eligibility of their Sponsored
Entities for a period as prescribed by
Section 184 Program Guidance.
(f) Direct Guarantee Lenders may
request an extension of the
recertification deadline, but such
request must be presented at least 45
days before the recertification deadline.
(g) HUD will review the annual
recertification submission and may
request any further information required
to determine recertification.
(h) HUD will provide written
notification of approval to continue
participation in the Section 184 Program
or denial. A denial may be appealed
pursuant to § 1005.909.
(i) If an annual recertification is not
submitted by a reasonable deadline
prescribed in Section 184 Program
Guidance, HUD may subject the Direct
Guarantee Lender to sanctions under
§ 1005.907.
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§ 1005.225
Program ineligibility.
(a) Ineligibility. A Direct Guarantee
Lender or Non-Direct Guarantee Lender
may be deemed ineligible for Section
184 Program participation when HUD
becomes aware that the entity or any
officer, partner, director, principal,
manager or supervisor, loan processor,
loan underwriter, or loan originator of
the entity was:
(1) Suspended, debarred, under a
limited denial of participation (LDP), or
otherwise restricted under 2 CFR part
2424, or under similar procedures of
any other Federal agency;
(2) Indicted for, or have been
convicted of, an offense that reflects
adversely upon the integrity,
competency, or fitness to meet the
responsibilities of the Direct Guarantee
Lender or Non-Direct Guarantee Lender
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to participate in the Title I or Title II
programs of the National Housing Act,
or Section 184 Program;
(3) Found to have unresolved findings
as a result of HUD or other
governmental audit, investigation, or
review;
(4) Engaged in business practices that
do not conform to generally accepted
practices of prudent Lenders or that
demonstrate irresponsibility;
(5) Convicted of, or have pled guilty
or nolo contendere to, a felony related
to participation in the real estate or
mortgage loan industry during the 7year period preceding the date of the
application for licensing and
registration, or at any time preceding
such date of application, if such felony
involved an act of fraud, dishonesty, or
a breach of trust or money laundering;
(6) In violation of provisions of the
Secure and Fair Enforcement Mortgage
Licensing Act of 2008 (12 U.S.C. 5101,
et seq.) or any applicable provision of
Tribal or State law; or
(7) In violation of 12 U.S.C. 1715z–
13a.
(b) [Reserved]
Subpart C—Lending on Trust Land
§ 1005.301 Tribal legal and administrative
framework.
(a) Tribal requirements. (1) A Tribe
seeking to allow eligible Borrowers to
place a mortgage lien on Trust Land
under the Section 184 Program must
apply to HUD for approval to participate
in the program.
(2) Tribes electing to make Trust Land
or restricted fee land available under the
Section 184 Program must provide to
HUD a legal and administrative
framework for leasing, foreclosure and
eviction on Trust Land to protect the
interests of the Borrower, Tribe, Direct
Guarantee Lender, and HUD.
(3) Approved Tribes shall assist in
facilitating Loss Mitigation efforts and
assist in the disposition of defaulted
properties on Trust Land.
(b) Legal and administrative
framework. A Tribe may enact legal
procedures through Tribal council
resolution or any other recognized
legislative action. These procedures
must be legally enforceable and include
the following requirements:
(1) Foreclosure and assignment. When
a Borrower is in default, and is
unwilling or unable to successfully
complete Loss Mitigation in accordance
with subpart G of this part; and Servicer
either initiates First Legal Action against
the Borrower, or assigns the Loan to
HUD after offering the Tribe the option
to assume the Section 184 Guaranteed
Loan or purchase the property under
§ 1005.757(a):
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78351
(i) The Tribe must demonstrate that a
foreclosure will be processed through
the legal systems having jurisdiction
over the Section 184 Guaranteed Loan.
Jurisdiction must include Federal Court
jurisdiction when HUD forecloses on
the property.
(ii) Foreclosure ordinances must
allow for the legal systems with
jurisdiction to reassign the lease to HUD
or provide for a new lease to be issued
to HUD in the event the lease is vacated.
(iii) If the Holder assigns the Loan to
HUD without initiating or completing
the foreclosure process, or the property
becomes vacant during the Loss
Mitigation or foreclosure process, the
Tribe may assign the lease to HUD to
facilitate disposition of the property.
(2) Property disposition. Once a lease
is vacated or reassigned, the Tribe or the
TDHE shall work with HUD to sell the
property to an eligible party.
(3) Eviction. The Tribe must have a
legal and administrative framework
implementing eviction procedures,
allowing for the expedited removal of
the borrower in default, all household
residents, and any unauthorized
occupants of the property. Eviction
procedures must enable the Servicer or
the Tribe to secure possession of the
property. Eviction may be required
upon:
(i) The completion of a foreclosure;
(ii) The involuntary termination of the
lease;
(iii) The reassignment of the lease; or
(iv) The sale of the property.
(4) Lien priority. Section 184
Guaranteed Loans must be in a first lien
position securing the property.
(i) To ensure that each Section 184
Guaranteed Loan holds a first lien
position, the Tribe must enact an
ordinance that either:
(A) Provides for the satisfaction of the
Section 184 Guaranteed Loan before any
and all other obligations; or
(B) Follows State law to determine the
priority of liens against the property. If
a Tribal jurisdiction spans two or more
states, the State in which the property
is located is the applicable State law.
(ii) For a lien to be considered valid
on Trust Land, the lien must be:
(A) Approved by the Tribe and BIA,
as applicable; and
(B) Recorded by the BIA.
(5) Lease provisions for Trust Land.
The lease provisions for Trust Land
must meet the following requirements:
(i) Tribes may use a model lease
available from HUD for Section 184
Guaranteed Loan lending on Trust Land.
The Tribe may use a rider to make
modifications to the model lease, with
the approval of HUD and BIA.
(ii) Tribes may draft their own lease
in compliance with 25 CFR part 162 and
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contain mandatory lease terms and
language as prescribed in Section 184
Program Guidance, with approval of
HUD and BIA.
(A) Identify lessor.
(B) Identify the lessee (Tribe, TDHE,
enrolled member of the Tribe or HUD).
(C) Legal description of the land and
property address covered by the lease.
(D) The lease must have a minimum
term of 50 years. For refinances the
lease must have a remaining term which
exceeds the maturity date of the loan by
a minimum of ten years.
(E) In the event of lessee default under
the lease, the lease shall allow the
servicer to accelerate the Section 184
Guaranteed Loan and foreclose or assign
the Section 184 Guaranteed Loan to
HUD, with HUD approval.
(F) The lease must be executed by all
interested parties to be enforceable.
(G) Lender and HUD consent shall be
required for any lease termination when
the Section 184 Guaranteed Loan is
secured by the property.
(H) The Tribal lease must contain the
following provision: ‘‘If lessee default(s)
on a Section 184 Guaranteed Loan,
under which the lease and
improvements on the leased premises
are pledged as security, the lessee or
lessor may assign the lease and deliver
possession of the leased premises,
including any improvements thereon, to
HUD. HUD may transfer this lease and
the leased premises to a successor
lessee; provided, however, that the lease
may only be transferred to another
member of the Tribe or Tribal entity, as
approved by the Tribe.’’
(I) lease language as prescribed by
Section 184 Program Guidance.
(J) The lease must also provide that in
the event of foreclosure, the lease will
not be subject to any forfeiture or
reversion and will not be otherwise
subject to termination.
§ 1005.303
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Approval of Tribal application.
HUD shall review applications under
§ 1005.303 and where all requirements
of § 1005.301 are met, HUD shall
provide written notification of the
approval of the Tribe to participate in
the Section 184 Program. If HUD
determines the application is
incomplete, or the documents submitted
do not comply with the requirements of
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§ 1005.307
Tribal recertification.
A Tribe shall recertify annually to
HUD whether it continues to meet the
requirements of this subpart, on a form
and by a deadline prescribed by Section
184 Program Guidance. Recertification
shall include Tribal certification of no
changes to the Tribe’s foreclosure,
eviction, lease, and lien priority
ordinances. The Tribe shall provide any
updated contact information and similar
information that may be required under
Section 184 Program Guidance.
§ 1005.309
Duty to report changes.
Based on the timeframe as prescribed
by Section 184 Program Guidance, the
Tribe must notify HUD of any proposed
changes in the Tribe’s foreclosure,
eviction, lease, and lien priority
ordinances or contact information. HUD
shall require approval of the changes in
the foreclosure, eviction, lease, and lien
priority ordinances. HUD will provide
written notification of the review of the
changes and determine whether the
updated documents meet the
requirements of this subpart.
§ 1005.311
default.
HUD notification of any lease
In cases where the lessee is in default
under the lease for any reason, the
lessor shall provide written notification
to HUD within 30 days of the lease
default.
§ 1005.313
Tribal reporting requirements.
The Tribe shall provide timely and
accurate reports and certifications to
HUD, as may be prescribed by Section
184 Program Guidance.
Subpart D—Underwriting
Tribal application.
A Tribe shall submit an application
on a form prescribed by HUD. The
application must include a copy of the
Tribe’s foreclosure, eviction, lease,
priority lien ordinances, all crossreferenced ordinances in those sections,
and any other documents in accordance
with Section 184 Program Guidance.
§ 1005.305
this subpart or any process prescribed in
Section 184 Program Guidance, HUD
will work with the Tribe to cure the
deficiencies before there is a denial of
the application.
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Eligible Borrowers
§ 1005.401
Eligible Borrowers.
(a) Eligible Borrowers are Indian
Families, Tribes, or TDHEs. Indian
Family Borrowers are limited to one
Section 184 Guaranteed Loan at a time.
(b) Indian Family Borrowers must
document their status as American
Indian or Alaska Native through
evidence as prescribed by Section 184
Program Guidance.
§ 1005.403
Principal Residence.
(a) Principal Residence. Means the
dwelling where the Borrower maintains
as a permanent place of abode. A
Borrower may have only one Principal
Residence at any one time.
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(b) Occupancy requirement.
Borrowers who are an Indian Family
must occupy the property as a Principal
Residence. Borrowers who are a TDHE
or Tribe do not need to occupy the
property as a Principal Residence.
(c) Non-occupant Co-Borrower. A coBorrower who does not occupy the
property as a principal resident is
permitted. A Non-occupant CoBorrower must be related by blood (e.g.,
parent-child, siblings, aunts-uncles/
nieces-nephews), or an unrelated
individual who can document evidence
of a family-type, longstanding, and
substantial relationship not arising out
of the loan transaction.
§ 1005.405
Borrower residency status.
(a) An eligible Borrower who is an
Indian must be:
(1) A U.S. citizen;
(2) A lawful permanent resident alien;
or
(3) A non-permanent resident alien.
(b) Documentation must be provided
to the Direct Guarantee Lender to
support lawful residency status as
defined in the Immigration and
Nationality Act, codified at 8 U.S.C.
1101, et seq.
§ 1005.407 Relationship of income to loan
payments.
(a) Adequacy of Borrower gross
income. (1) All Borrowers must
establish, in accordance with Section
184 Program Guidance, that their gross
income is and will be adequate to meet:
(i) The periodic payments required by
the Loan to be guaranteed by the Section
184 Program; and
(ii) Other long-term obligations.
(2) In cases where there is a Nonoccupant Co-Borrower, the occupying
Borrower must meet a minimum
qualifying threshold, in accordance with
Section 184 Program Guidance.
(b) Non-discrimination.
Determinations of adequacy of Borrower
income under this section shall be made
in a uniform manner without regard to
race, color, national origin, religion, sex
(including gender identity and sexual
orientation), familial status, disability,
marital status, source of income of the
Borrower, or location of the property.
§ 1005.409
Credit standing.
(a) A Borrower must have a general
credit standing satisfactory to HUD. A
Direct Guarantee Lender must not use a
Borrower’s credit score when evaluating
the Borrower’s credit worthiness. The
Direct Guarantee Lender must analyze
the Borrower’s credit history and
payment pattern to determine credit
worthiness.
(b) If a Borrower had a previous
default on a Section 184 Guaranteed
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Loan which resulted in a claim payment
by HUD, the Borrower shall be subject
to a reasonable waiting period, as may
be prescribed by Section 184 Program
Guidance.
§ 1005.411 Disclosure and verification of
Social Security and Employer Identification
Numbers or Tax Identification Number.
All Borrowers must meet applicable
requirements for the disclosure and
verification of Social Security, Employer
Identification Numbers, or Tax
Identification Numbers.
Eligible Properties
§ 1005.413
Acceptable title.
To be considered acceptable title, a
Section 184 Guaranteed Loan must be
secured by an interest in real estate held
in fee simple or a leasehold interest on
Trust Land. Where title evidences a
lease that is used in conjunction with
the Section 184 Guaranteed Loan on
Trust Land, the lease must comply with
relevant provisions of § 1005.301.
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§ 1005.415
Sale of property.
(a) Owner of Record requirement. The
property must be or have been
purchased from the Owner of Record
and the transaction may not involve or
had not involved any sale or assignment
of the sales contract.
(b) Supporting documentation. The
Direct Guarantee Lender shall obtain
documentation verifying that the seller
is the Owner of Record and must submit
this documentation to HUD as part of
the application for a Section 184
Guaranteed Loan. This documentation
may include, but is not limited to, a
property ownership history report from
the Tribe, State, or local government, a
copy of the recorded deed from the
seller, or other documentation (such as
a copy of a property tax bill, title
commitment, or binder) demonstrating
the seller’s ownership.
(c) Time restrictions on re-sales—(1)
General. The eligibility of a property for
a Loan guaranteed by HUD is dependent
on the time that has elapsed between
the date the seller acquired the property
(based upon the date of settlement) and
the date of execution of the sales
contract that will result in the HUD
guarantee (the re-sale date). The Direct
Guarantee Lender shall obtain
documentation verifying compliance
with the time restrictions described in
this paragraph and must submit this
documentation to HUD as part of the
application for Section 184 Guaranteed
Loan, in accordance with § 1005.501.
(2) Re-sales occurring 90 days or less
following acquisition. If the re-sale date
is 90 days or less following the date of
acquisition by the seller, the property is
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not eligible for a Loan to be guaranteed
by HUD.
(3) Re-sales occurring between 91
days and 180 days following
acquisition. (i) If the re-sale date is
between 91 days and 180 days following
acquisition by the seller, the property is
generally eligible for a Section 184
Guaranteed Loan.
(ii) However, HUD will require that
the Direct Guarantee Lender obtain
additional documentation if the re-sale
price is 100 percent over the purchase
price. Such documentation must
include a second appraisal from another
a different appraiser. The Direct
Guarantee Lender may also document
its Loan file to support the increased
value by establishing that the increased
value results from the rehabilitation of
the property.
(iii) Additional documentation, as
may prescribed by notice for comment.
(4) Authority to address property
flipping for re-sales occurring between
91 days and 12 months following
acquisition. (i) If the re-sale date is more
than 90 days after the date of acquisition
by the seller, but before the end of the
twelfth month after the date of
acquisition, the property is eligible for
a Loan to be guaranteed by HUD.
(ii) However, HUD may require that
the Direct Guarantee Lender provide
additional documentation to support the
re-sale value of the property if the resale price is 5 percent or greater than the
lowest sales price of the property during
the preceding 12 months (as evidenced
by the contract of sale). At HUD’s
discretion, such documentation must
include, but is not limited to, a second
appraisal from a different appraiser.
HUD may exclude re-sales of less than
a specific dollar amount from the
additional value documentation
requirements.
(iii) If the additional value
documentation supports a value of the
property that is more than 5 percent
lower than the value supported by the
first appraisal, the lower value will be
used to calculate the maximum
principal loan amount under
§ 1005.443. Otherwise, the value
supported by the first appraisal will be
used to calculate the maximum
principal loan amount.
(iv) Additional value documentation
may be prescribed by notice for
comment.
(5) Re-sales occurring more than 12
months following acquisition. If the resale date is more than 12 months
following the date of acquisition by the
seller, the property is eligible for a loan
guaranteed by HUD.
(d) Exceptions to the time restrictions
on sales. The time restrictions on sales
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78353
described in paragraph (b) of this
section do not apply to:
(1) Sales by HUD of real estate owned
(REO) properties under 24 CFR part 291
and of single-family assets in
revitalization areas pursuant to section
204 of the National Housing Act (12
U.S.C. 1710);
(2) Sales by an agency of the United
States Government of REO single family
properties pursuant to programs
operated by such agencies;
(3) Sales of properties by Tribes,
TDHEs, State, or local governments, or
Eligible Nonprofit Organizations
approved to purchase HUD REO single
family properties at a discount with
resale restrictions;
(4) Sales of properties that were
acquired by the sellers by death, devise,
or intestacy;
(5) Sales of properties purchased by
an employer or relocation agency in
connection with the relocation of an
employee;
(6) Sales of properties by Tribes,
TDHEs, State and local government
agencies; and
(7) Only upon announcement by HUD
through issuance of a notice, sales of
properties located in areas designated
by the President as Federal disaster
areas. The notice will specify how long
the exception will be in effect.
(8) HUD may approve other
exceptions on a case-by-case basis.
§ 1005.417
Location of property.
At the time a loan is guaranteed, the
property must be for residential use
under Tribal, State, or local law and be
located within a Section 184 Approved
Program Area.
§ 1005.419
housing.
Requirements for standard
(a) General standards. Every property
guaranteed under the Section 184
Program must:
(1) Be decent, safe, sanitary, and
modest in size and design.
(2) Conform with applicable general
construction standards for the region.
(3) Contain a heating system that:
(i) Has the capacity to maintain a
minimum temperature in the dwelling
of 65 degrees Fahrenheit during the
coldest weather in the area;
(ii) Is safe to operate and maintain;
(iii) Delivers a uniform distribution of
heat; and
(iv) Conforms to any applicable Tribal
heating code, or if there is no applicable
Tribal code, an appropriate local, State,
or national code.
(4) Contains a plumbing system that:
(i) Uses a properly installed system of
piping;
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(ii) Includes a kitchen sink and
partitional bathroom with lavatory,
toilet, and bath or shower; and
(iii) Uses water supply, plumbing, and
sewage disposal systems that conform to
any applicable Tribal code or, if there is
no applicable Tribal code, the minimum
standards established by the appropriate
local, State, or national code.
(5) Contain an electrical system using
wiring and equipment properly
installed to safely supply electrical
energy for adequate lighting and for
operation of appliances that conforms to
any applicable Tribal code or, if there is
no applicable Tribal code, an
appropriate local, State, or national
code.
(6) Meets minimum square footage
requirements and be not less than:
(i) 570 square feet in size, if designed
for a family of not more than 4 persons;
(ii) 850 square feet in size, if designed
for a family of not less than 5 and not
more than 7 persons;
(iii) 1020 square feet in size, if
designed for a family of not less than 8
persons; or
(iv) Current locally adopted standards
for size of dwelling units, documented
by the Direct Guarantee Lender.
(v) Upon the written request of a
Tribe, or THDE, HUD may waive the
minimum square footage requirements
under paragraphs (a)(6)(i) through (iv) of
this section for properties located on
Trust Land.
(7) Conform with the energy
performance requirements for new
construction established by HUD under
section 526(a) of the National Housing
Act (12 U.S.C. 1735f–4(a)).
(b) Additional requirements. HUD
may prescribe any additional
requirements to permit the use of
various designs and materials in
housing acquired under this part.
(c) Lead-based paint. The relevant
requirements of the Lead-Based Paint
Poisoning Prevention Act (42 U.S.C.
4821–4846), the Residential Lead-Based
Paint Hazard Reduction Act of 1992 (42
U.S.C. 4851–4856), and implementing
regulations at 24 CFR part 35, subparts
A, B, H, J, K, M, and R, shall apply.
(d) Environmental review procedures.
(1) The regulations in 24 CFR 1000.20
applies to an environmental review for
Trust Land and for fee land within a
reservation in connection with a Loan
guaranteed under this part. That section
permits a Tribe to choose to assume
environmental review responsibility.
(2) Before HUD issues a commitment
to guarantee any Loan, or before HUD
guarantees a Loan if there is no
commitment, the Tribe or HUD must
comply with environmental review
procedures to the extent applicable
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Jkt 259001
under part 58 or part 50 of this title, as
appropriate.
(3) If the Loan involves proposed or
new construction, HUD will require the
Lender to submit a signed Builder’s
Certification of Plans, Specifications
and Site (Builder’s Certification). The
Builder’s Certification must be in a form
prescribed by Section 184 Program
Guidance and must cover:
(i) Flood hazards;
(ii) Noise;
(iii) Explosive and flammable
materials storage hazards;
(iv) Runway clear zones/clear zones;
(v) Toxic waste hazards; and
(vi) Other foreseeable hazards or
adverse conditions (i.e., rock
formations, unstable soils or slopes,
high ground water levels, inadequate
surface drainage, springs, etc.) that may
affect the health and safety of the
occupants or the structural soundness of
the improvements.
(4) The Builder’s Certification must be
provided to the appraiser for reference
before the performance of an appraisal
on the property.
(e) Special Flood Hazard Areas and
Coastal Barrier Resource System. A
property is not eligible for a Section 184
loan guarantee if a residential building
and related improvements to the
property are located within a Special
Flood Hazard Area (SFHA) designated
by a FEMA Flood Insurance Rate Map
and insurance under the National Flood
Insurance Program (NFIP) is not
available in the community; or the
improvements are, or are proposed to
be, located within the Coastal Barrier
Resources System.
(1) Eligibility for new construction in
SFHAs. If any portion of the dwelling,
related structures, or equipment
essential to the value of the property
and subject to flood damage is located
within an SFHA, the property is not
eligible for a Section 184 loan guarantee
unless the Direct Guarantee Lender
obtains from FEMA a final Letter of Map
Amendment (LOMA) or final Letter of
Map Revision (LOMR) that removes the
property from the SFHA; or obtains a
FEMA National Flood Insurance
Program Elevation Certificate (FEMA
Form 086–0–33) prepared by a licensed
engineer or surveyor. The elevation
certificate must document that the
lowest floor including the basement of
the residential building, and all related
improvements/equipment essential to
the value of the property, is built at or
above the 100-year flood elevation in
compliance with the NFIP criteria, and
flood insurance must be obtained.
(2) Eligibility for existing construction
in SFHAs. When any portion of the
residential improvements is determined
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to be located within an SFHA, flood
insurance must be obtained and
maintained.
(3) Required flood insurance amount
for properties located within an SFHA.
Flood insurance must be maintained for
the life of the Section 184 Guaranteed
Loan in an amount that at a minimum
equals the project cost less the estimated
land cost; the outstanding principal
balance of the loan; or the maximum
amount of NFIP insurance available
with respect to the property
improvements, whichever is the least.
(4) Required documentation. The
Direct Guarantee Lender must obtain a
Life of Loan Flood Certification for all
Properties. If applicable, the Direct
Guarantee Lender must also obtain a
FEMA Letter of Map Amendment;
FEMA Letter of Map Revision; or FEMA
National Flood Insurance Program
Elevation Certificate (FEMA Form 086–
0–33).
(5) Restrictions on property within
Coastal Barrier Resources System. In
accordance with the Coastal Barrier
Resources Act, a property is not eligible
for a Section 184 loan guarantee if the
improvements are or are proposed to be
located within the Coastal Barrier
Resources System.
(f) Airport hazards—(1) Existing
construction. If a property is existing
construction and is located within a
Runway Clear Zone (also known as a
Runway Protection Zone) at a civil
airport or within a Clear Zone at a
military airfield, the Direct Guarantee
Lender must obtain a Borrower’s
acknowledgement of the hazard.
(2) New construction. If a new
construction property is located within
a Runway Clear Zone (also known as a
Runway Protection Zone) at a civil
airport or within a Clear Zone at a
military airfield, the Direct Guarantee
Lender must reject the property for loan
guarantee. Properties located in
Accident Potential Zone 1 (APZ 1) at a
military airfield may be eligible for a
Section 184 loan guarantee provided
that the Direct Guarantee Lender
determines that the property complies
with Department of Defense guidelines.
§ 1005.421
amount.
Certification of appraisal
A Section 184 Guaranteed Loan must
be accompanied by a sales contract
satisfactory to HUD, executed by the
seller, whereby the seller agrees that
before any sale of the property, the
seller will deliver to the purchaser of
the property a certification of the
appraisal, in a form satisfactory to HUD,
setting forth the amount of the
appraised value of the property.
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§ 1005.423 Legal restrictions on
Conveyance.
(a) Legal Restrictions on Conveyance
means any provision in any legal
instrument, law or regulation applicable
to the Borrower or the mortgaged
property, including but not limited to a
lease, deed, sales contract, declaration
of covenants, declaration of
condominium, option, right of first
refusal, will, or trust agreement, that
attempts to cause a Conveyance
(including a lease) made by the
Borrower to:
(1) Be void or voidable by a third
party;
(2) Be the basis of contractual liability
of the Borrower for breach of an
agreement not to convey, including
rights of first refusal, pre-emptive rights
or options related to Borrower efforts to
convey;
(3) Terminate or subject to
termination all or a part of the interest
held by the Borrower in the property if
a Conveyance is attempted;
(4) Be subject to the consent of a third
party;
(5) Be subject to limits on the amount
of sales proceeds retainable by the
seller; or
(6) Be grounds for acceleration of the
Guaranteed Loan or increase in the
interest rate.
(b) Section 184 Guaranteed Loans
shall not be subject to any Legal
Restrictions on Conveyance, except for
restrictions in this paragraph (b):
(1) A lease or any other legal
document that restricts the assignment
of interest in properties held in trust or
otherwise restricted to an eligible Indian
Family.
(2) A mortgage funded through taxexempt Bond F and includes a due-onsale provision in a form approved by
HUD that permits the Direct Guarantee
Lender to accelerate a mortgage that no
longer meets Federal requirements for
tax-exempt bond financing or for other
reasons acceptable to HUD. A mortgage
funded through tax-exempt bond
financing shall comply with all form
requirements prescribed under this
subpart and shall contain no other
provisions designed to enforce
compliance with Federal or State
requirements for tax-exempt bond
financing.
(3) A mortgaged property subject to
protective covenants which restrict
occupancy by, or transfer to, persons of
a defined population if:
(i) The restrictions do not have an
undue effect on marketability as
determined in the original plan.
(ii) The restrictions do not constitute
illegal discrimination and are consistent
with the Fair Housing Act and all other
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applicable nondiscrimination laws
under Tribal, State, or local law, where
applicable.
(4) HUD shall require that the
previously approved restrictions
automatically terminate if the lease or
title to the mortgaged property is
transferred by foreclosure, deed-in-lieu/
lease-in-lieu of foreclosure, or if the loan
is assigned to HUD.
§ 1005.425
Rental properties.
(a) When a Borrower is an Indian
Family. A Section 184 Guaranteed Loan
may be used to purchase, construct,
rehabilitate, or refinance an up to fourunit property. The Borrower must
occupy one unit as a Principal
Residence and may rent the additional
units.
(b) When the Borrower is a Tribe or
TDHE. There is no limit to the number
of one- to four-unit properties a Tribe or
TDHE may purchase or own with a
Section 184 Guaranteed Loan(s) on or
off Trust Land. However, the Tribe or
TDHE must meet all Borrower program
requirements.
§ 1005.427
Refinancing.
(a) Refinance eligibility. HUD may
permit a Borrower to refinance any
qualified mortgage, including an
existing Section 184 Guaranteed Loan,
so long as the Borrower and property
meet all Section 184 Program
requirements.
(b) Types of refinances. HUD may
guarantee a Rate and Term refinance, a
Streamline refinance, or a Cash-Out
refinance, consistent with paragraphs
(d) through (f) of this section.
(c) General requirements. All types of
refinances are subject to the following
requirements:
(1) The term of the refinancing Loan
may not exceed a term of 30 years.
(2) The Borrower must have a
payment history on the existing
mortgage that is acceptable to HUD.
(3) The Direct Guarantee Lender may
not require a minimum principal
amount to be outstanding on the loan
secured by the existing mortgage.
(4) If an Upfront Loan Guarantee Fee
was financed as part of the existing
mortgage, no refund will be given.
However, the maximum amount of the
refinancing Loan computed in
accordance with § 1005.443 may be
increased by the amount of the Upfront
Loan Guarantee Fee associated with the
new refinancing Loan and exceed the
applicable Section 184 Guaranteed Loan
limit as established by HUD for an area
pursuant to § 1005.441.
(d) Rate and term refinance. (1) Rate
and term refinance is the refinancing of
an existing mortgage loan for the
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78355
purpose of changing the interest rate or
term, or both, of a loan without
advancing new funds on the loan, with
the exception of allowable closing costs.
(2) A Rate and Term Refinance Loan
must meet the following requirements:
(i) The Loan must be in an amount
that does not exceed the lesser of the
original principal amount of the existing
mortgage; or the sum of the unpaid
principal balance of the existing
mortgage plus loan closing charges and
allowable fees approved by HUD.
(ii) The Loan must result in a
reduction in regular monthly payments
by the Borrower, except when
refinancing a mortgage for a shorter term
will result in an increase in the
Borrower’s regular monthly payments.
(e) Streamline Refinance. Streamline
Refinance refers to the refinance of an
existing Section 184 Guaranteed Loan
requiring limited Borrower credit
documentation and underwriting.
(1) A Streamline Refinance Loan must
be in an amount that does not exceed
the unpaid principal balance of the
existing Section 184 Guaranteed Loan
and meet all other applicable Section
184 Program requirements.
(2) A Streamline Refinance with an
appraisal may be in the amount equal to
the unpaid principal balance of the
existing mortgage plus Loan closing
charges and allowable fees approved by
HUD. The refinanced Loan must be
subject to an appraisal and meet all
other applicable Section 184 Program
requirements.
(f) Cash-Out refinance. (1) A Cash-Out
refinance is when a Section 184
Guaranteed Loan is made for a Loan
amount larger than the existing unpaid
principal balance, utilizing the
property’s equity.
(2) A Cash-Out refinance Loan
amount cannot exceed a maximum loan
to value ratio, as established by HUD.
(3) A Borrower may elect to receive a
portion of equity in the form of cash in
an amount up to a reasonable maximum
allowed amount, as prescribed by
Section 184 Program Guidance.
(4) All cash advances, except cash
amounts to the Borrower, must be used
for approved purposes in accordance
with HUD and BIA requirements, and
must be supported by verified
documentation.
(5) The Cash-Out refinance must meet
all other applicable Section 184 Program
requirements.
§ 1005.429 Eligibility of Loans covering
manufactured homes.
A Loan covering a manufactured
home (as defined in 24 CFR part 3280),
shall be eligible for a Section 184
Guaranteed Loan when the following
requirements have been met:
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(a) For manufactured homes located
on a fee simple site. (1) The
manufactured home, as erected on site,
must be installed in accordance with 24
CFR part 3286; conform with property
standards under § 1005.419; and shall
have been constructed in accordance
with 24 CFR part 3280, as evidenced by
the certification label.
(2) The Loan shall cover the
manufactured home and site, shall
constitute a Loan on a property
classified and taxed as real estate.
(3) In the case of a manufactured
home which has not been permanently
erected on a site for more than one year
prior to the date of the application for
the Loan Guarantee Certificate:
(i) The manufactured home shall be
erected on a site-built permanent
foundation that meets or exceeds
applicable requirements of the
Minimum Property Standards (MPS) for
one- and two-family property, in
accordance with 24 CFR 200.929(b)(1)
and shall be permanently attached
thereto by anchoring devices adequate
for all loads identified in the MPS. The
towing hitch or running gear, which
includes axles, brakes, wheels, and
other parts of the chassis that operate
only during transportation, shall have
been removed. The finished grade level
beneath the manufactured home shall be
at least two feet above the 100-year
return frequency flood elevation. The
site, site improvements, and all other
features of the mortgaged property not
addressed by the Manufactured Home
Construction and Safety Standards shall
meet or exceed applicable requirements
of the MPS.
(ii) The space beneath the
manufactured home shall be enclosed
by continuous foundation-type
construction designed to resist all forces
to which it is subject without
transmitting forces to the building
superstructure. The enclosure shall be
adequately secured to the perimeter of
the manufactured home and be
constructed of materials that conform to
MPS requirements for foundations.
(iii) The manufactured home shall be
braced and stiffened before it leaves the
factory to resist racking and potential
damage during transportation.
(iv) Section 1005.431 is modified to
the extent provided in this paragraph
(a). Applications relating to the
guarantee of Loans under this paragraph
(a) must be accompanied by an
agreement in a form satisfactory to HUD
executed by the seller or manufacturer
or such other person as HUD may
require, agreeing that in the event of any
sale or Conveyance of the property
within a period of one year beginning
with the date of initial occupancy, the
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seller, manufacturer, or such other
person will, at the time of such sale or
Conveyance, deliver to the purchaser or
owner of such property the
manufacturer’s warranty on a form
prescribed by HUD. This warranty shall
provide that the manufacturer’s
warranty is in addition to and not in
derogation of all other rights and
remedies the purchaser or owner may
have, and a warranty in form
satisfactory to HUD warranting that the
manufactured home, the foundation,
positioning, and anchoring of the
manufactured home to its permanent
foundation, and all site improvements
are constructed in substantial
conformity with the plans and
specifications (including amendments
thereof or changes and variations
therein which have been approved in
writing by HUD) on which HUD has
based its valuation of the property. The
warranty shall also expressly state that
the manufactured home sustained no
hidden damage during transportation,
and if the manufactured home is a
double-wide, that the sections were
properly joined and sealed. The
warranty must provide that upon the
sale or Conveyance of the property and
delivery of the warranty, the seller,
builder, or such other person will
promptly furnish HUD with a
conformed copy of the warranty
establishing by the purchaser’s receipt
thereon that the original warranty has
been delivered to the purchaser in
accordance with this section.
(4) In the case of a manufactured
home which has been permanently
erected on a site for more than one year
prior to the date of the application for
the Section 184 Guaranteed Loan:
(i) The manufactured home shall be
permanently anchored to and supported
by permanent footings and shall have
permanently installed utilities that are
protected from freezing. The space
beneath the manufactured home shall be
a properly enclosed crawl space.
(ii) The site, site improvements, and
all other features of the mortgaged
property not addressed by 24 CFR parts
3280 and 3286 shall meet or exceed
HUD requirements. The finished grade
level beneath the manufactured home
shall be at or above the 100-year return
frequency flood elevation.
(b) For manufactured homes located
on Trust Land. Manufactured homes
built and installed on Trust Land, shall
meet manufactured home installation
standards pursuant to Tribal laws, if
any. In the absence of Tribal laws, the
requirements in paragraph (a) of this
section shall apply.
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§ 1005.431 Acceptance of individual
residential water purification.
If a property does not have access to
a continuing supply of safe and potable
water as part of its plumbing system
without the use of a water purification
system, the requirements of this section
apply. The Direct Guarantee Lender
must provide appropriate
documentation with the submission for
a Section 184 Guaranteed Loan to
address each of the requirements of this
section.
(a) Equipment. Water purification
equipment must be approved by a
nationally recognized testing laboratory
acceptable to Tribal, State, or local
health authority.
(b) Certification by Tribal, State, or
local health authority. A Tribal, State, or
local health authority certification must
be submitted to HUD, which certifies
that a point-of entry or point-of-use
water purification system is used for the
water supply, the treatment equipment
meets the requirements of the Tribal,
State, or local health authority, and has
been determined to meet Tribal, State,
or local health authority quality
standards for drinking water. If neither
Tribal, State, nor local health authority
standards are applicable, then quality
shall be determined in accordance with
standards set by the Environmental
Protection Agency (EPA) pursuant to the
Safe Drinking Water Act. (EPA
standards are prescribed in the National
Primary Drinking Water requirements,
40 CFR parts 141 and 142.)
(c) Borrower notices and certification.
(1) The prospective Borrower must have
received written notification, when the
Borrower signs a sales contract, that the
property does not have access to a
continuing supply of safe and potable
water without the use of a water
purification system to remain safe and
acceptable for human consumption.
(2) Prior to final ratification of the
sales contract, the Borrower must have
received:
(i) A water safety report identifying
specific contaminants in the water
supply serving the property, and the
related health hazard arising from the
presence of those contaminants.
(ii) A written good faith estimate of
the maintenance and replacement costs
of the equipment necessary to assure
continuing safe drinking water.
(3) The prospective Borrower must
sign a certification, acknowledging the
required notices have been received by
the Borrower, in the form prescribed by
Section 184 Program Guidance, at the
time the application for mortgage credit
approval is signed by the Direct
Guarantee Lender. The required
certification must be submitted to HUD
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with the request for the Loan Guarantee
Certificate.
§ 1005.433
Builder warranty.
(a) Applications relating to proposed
construction must be accompanied by
an agreement in a form satisfactory to
HUD, executed by the seller or builder
or such other person as HUD may
require, and agreeing that in the event
of any sale or Conveyance of the
property, within a period of one year
beginning with the date of initial
occupancy, the seller, builder, or such
other person will, at the time of such
sale or Conveyance, deliver to the
purchaser or owner of such property a
warranty in a form satisfactory to HUD,
warranting that the property is
constructed in substantial conformity
with the plans and specifications
(including amendments thereof or
changes and variations therein which
have been approved in writing by HUD)
on which HUD has based on the
valuation of the property.
(b) Such agreement must provide that
upon the sale or Conveyance of the
property and delivery of the warranty,
the seller, builder, or such other person
will promptly furnish HUD with a
confirmed copy of the warranty,
establishing by the purchaser’s receipt
thereon that the original warranty has
been delivered to the purchaser in
accordance with this section.
Eligible Loans
§ 1005.435
Eligible collateral.
A Section 184 Loan Guarantee may be
secured by any collateral authorized
under existing Federal law or applicable
State or Tribal law. The collateral must
be sufficient to cover the amount of the
loan, as determined by the Direct
Guarantee Lender and approved by
HUD. Improvements on Trust Lands
may be considered as eligible collateral.
Trust Land cannot be considered as part
of the eligible collateral.
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§ 1005.437
Loan provisions.
(a) Loan form. (1) The Loan shall be
in a form meeting the requirements of
HUD. HUD may prescribe loan closing
documents. For each case in which
HUD does not prescribe loan closing
documents, HUD shall require specific
language in the Loan which shall be
uniform for every Loan. HUD may also
prescribe the language or substance of
additional provisions for all Loans, as
well as the language or substance of
additional provisions for use only in
particular jurisdictions.
(2) Each Loan shall also contain any
provisions necessary to create a valid
and enforceable Security interest under
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Tribal law or the laws of the jurisdiction
in which the property is located.
(b) Loan multiples. A Loan, in whole
dollars, shall be in an amount not to
exceed the maximum principal loan
amount (as calculated under § 1005.443)
for the area where the property is
located.
(c) Payments. The Loan payments
shall:
(1) Be due on the first of the month;
(2) Contain complete Amortization
provisions in accordance with
§ 1005.453 and an Amortization period
not in excess of the term of the Loan;
and
(3) Provide for payments to principal
and interest to begin no later than the
first day of the month, 60 days after the
date the Loan is executed. For closings
taking place within the first seven days
of the month, interest credit is
acceptable.
(d) Maturity. The Loan shall have a
repayment term of not more than the
maximum period as approved by HUD
and fully amortizing.
(e) Property standards. The Loan must
be a first lien upon the property that
conforms with the requirements for
standard housing under § 1005.419.
(f) Disbursement. The entire principal
amount of the Loan must have been
disbursed to the Borrower or to the
Borrower’s creditors for the Borrower’s
account and with the Borrower’s
consent.
(g) Disbursement for construction
advances. (1) HUD may guarantee Loans
from which advances will be made
during construction. HUD will provide
guarantees for advances made by the
Direct Guarantee Lender during
construction when all the following
conditions are satisfied:
(i) The Direct Guarantee Lender and
Borrower execute a building Loan
agreement, approved by HUD, setting
forth the terms and conditions under
which advances will be made.
(ii) The advances may be made only
as provided in the building agreement.
(iii) The principal amount of the Loan
is held by the Direct Guarantee Lender
in an interest-bearing account, trust, or
escrow for the benefit of the Borrower,
pending advancement to the Borrower
or Borrower’s creditors as provided in
the loan agreement.
(iv) The Loan shall bear interest on
the amount advanced to the Borrower or
the Borrower’s creditors and on the
amount held in an account or trust for
the benefit of the Borrower.
(2) Notwithstanding the requirements
in paragraph (g)(1) of this section, upon
request of the Lender, HUD may provide
for the approval of advances prior to
construction.
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(h) Prepayment privilege. The Loan
must contain a provision permitting the
Borrower to prepay the Loan in whole
or in part at any time and in any
amount. The Loan may not provide for
the payment of any fee on account of
such prepayment.
§ 1005.439
Loan lien.
(a) First lien. A Borrower must
establish that, after the Loan offered for
guarantee has been recorded, the
property will be free and clear of all
liens other than such Loan, and that
there will not be outstanding any other
unpaid obligations contracted in
connection with the loan transaction or
the purchase of the property, except
obligations that are secured by property
or collateral owned by the Borrower
independently of the property.
(b) Junior lien. With prior approval of
HUD, the property may be subject to a
junior lien held by a Direct Guarantee
Lender or a Tribe or instrumentality,
TDHE, Federal, State, local government,
or an Eligible Nonprofit Organization.
Unless the junior lien is for the purpose
described in paragraph (c) of this
section, it shall meet the following
requirements:
(1) Periodic payments shall be
collected monthly and be substantially
the same;
(2) The monthly Loan payments for
the Section 184 Guaranteed Loan and
the junior lien shall not exceed the
Borrower’s reasonable ability to pay, as
determined by HUD;
(3) The sum of the principal amount
of the Section 184 Guaranteed Loan and
the junior lien shall not exceed the loanto-value limitation applicable to the
Section 184 Program, and shall not
exceed the loan limit for the area, except
as otherwise permitted by HUD;
(4) The repayment terms shall not
provide for a balloon payment before
ten years unless approved by HUD;
(5) The junior lien must become due
and payable on sale or refinancing of the
secured property covered by the Section
184 Guaranteed Loan, unless otherwise
approved by HUD; and
(6) The junior lien shall contain a
provision permitting the Borrower to
prepay the junior lien in whole or in
part at any time and shall not require a
prepayment penalty.
(c) Junior liens to reduce Borrower
monthly payments. With the prior
approval of HUD, the property may be
subject to a junior lien advanced to
reduce the Borrower’s monthly
payments on the Section 184
Guaranteed Loan following the date it is
guaranteed, if the junior lien meets the
following requirements:
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(1) The junior lien shall not provide
for any payment of principal or interest
until the property securing the junior
lien is sold or the Section 184
Guaranteed Loan is refinanced, at which
time the junior lien shall become due
and payable.
(2) The junior lien shall not provide
for any payment of principal or interest
so long as the occupancy requirements
are met; and, where applicable, shall
provide for forgiveness of the junior lien
amount at the end of the term of the
junior lien.
(d) Junior liens related to tax-exempt
bond financing and low-income housing
tax credits. HUD approval shall be
required when Borrower seeks to
encumber property with a junior lien
pursuant to § 1005.423(b).
§ 1005.441
limit.
Section 184 Guaranteed Loan
The Section 184 Guaranteed Loan
limit is the level set by HUD for the
Section 184 Approved Program Area
and is based upon the location of the
property. The limit that is in effect on
the date the Section 184 case number is
issued in accordance with § 1005.445
shall apply, regardless of the closing
date. The limit shall be revised
periodically by HUD and published in
Section 184 Program Guidance.
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§ 1005.443
Loan amount.
(a) Minimum required investment.
The Borrower is required to make a
minimum investment in the property.
This investment must come from the
Borrower’s own funds, gifts, or Tribal,
State, or local funds awarded to the
Borrower. The minimum investment in
the property is the difference between
the sales price and the base loan
amount.
(b) Calculating base loan amount. (1)
The base loan amount is determined by
calculating:
(i) 97.75 percent of the appraised
value of the property or the Acquisition
Cost, whichever is less; or
(ii) 98.75 percent of the lessor of the
appraised value or sales price when the
appraised value or sales price is $50,000
or less.
(2) The base loan amount cannot
exceed the Section 184 Guaranteed Loan
limits established under § 1005.441.
(c) Maximum principal loan amount.
The maximum principal loan amount is
the base loan amount and the Upfront
Loan Guarantee Fee. The Section 184
Guaranteed Loan limit may only be
exceeded by the amount of the Upfront
Loan Guarantee Fee.
(d) Minimum principal loan amount.
A Direct Guarantee Lender may not
require a minimum loan amount for a
Section 184 Guaranteed Loan.
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§ 1005.445
Case numbers.
(a) Section 184 case numbers may
only be obtained by a Direct Guarantee
Lender when the Direct Guarantee
Lender or its Sponsored Entity has an
active loan application from a
Borrower(s) and a property is identified.
(b) To obtain a case number, the
Direct Guarantee Lender must:
(1) Provide evidence of Tribal
enrollment or Alaska Native status;
(2) Verify that the property is located
in a Section 184 Approved Program
Area;
(3) Confirm that the Loan does not
exceed the Section 184 Loan limit; and
(4) Submit Loan specific information
as prescribed in Section 184 Program
Guidance.
(c) Case numbers are automatically
cancelled after a limited period is
identified in Section 184 Program
Guidance, unless a Firm Commitment is
issued, or an extension is granted by
HUD in accordance with Section 184
Program Guidance prior to the
expiration of the case number.
§ 1005.447 Maximum age of Loan
documents.
Documents reviewed at underwriting
may not be older than 60 days and may
not be more than 120 days old at the
Loan closing date. Documents whose
validity for underwriting purposes is
not affected by the passage of time, such
as divorce decrees or tax returns, are not
subject to the 60- and 120-day
limitations.
§ 1005.449
Qualified mortgage.
A Section 184 Guaranteed Loan,
except for mortgage transactions
exempted under 15 U.S.C.
1639c(b)(3)(ii), is afforded safe harbor as
a qualified mortgage that meets the
ability-to-repay requirements in 15
U.S.C. 1639c(a).
§ 1005.451
Agreed interest rate.
The Loan shall bear interest at the rate
agreed upon by the Direct Guarantee
Lender and the Borrower and
determined by HUD to be reasonable.
The agreed upon interest rate may not
exceed the rate generally charged in the
area for mortgage loans not guaranteed
or insured by any agency or
instrumentality of the Federal
Government, or a rate determined by
HUD, whichever is lower. The agreed
upon interest rate must not take into
consideration a Borrower’s credit score
in accordance with § 1005.409 and must
not be based on risk-based pricing.
§ 1005.453
Amortization provisions.
The Loan must contain complete
Amortization provisions satisfactory to
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HUD, requiring payments due on the
first day of each month by the Borrower.
The sum of the principal and interest
payments in each month shall be
substantially the same.
Underwriting
§ 1005.455
Direct guarantee underwriting.
(a) Underwriter due diligence. A
Direct Guarantee Lender shall exercise
the same level of care which it would
exercise in obtaining and verifying
information for a Loan in which the
Direct Guarantee Lender would be
entirely dependent on the property as
Security to protect its investment. Direct
Guarantee Lender procedures that
evidence such due diligence shall be
incorporated as part of the quality
control plan required under § 1005.219.
Compliance with HUD-prescribed
underwriting guidelines shall be the
minimum standard of due diligence in
underwriting the Loans. Failure to
comply with HUD-prescribed
underwriting guidelines may result in
sanctions in accordance with
§§ 1005.905 and 1005.907.
(b) Evaluating the Borrower(s)
qualifications. The Direct Guarantee
Lender shall evaluate the Borrower’s
credit characteristics, adequacy, and
stability of income to meet the periodic
payments under the Loan and all other
obligations, the adequacy of the
Borrower’s available assets to close the
transaction, the Borrower’s management
capacity and grant performance, if
applicable, and render an underwriting
decision in accordance with applicable
regulations, policies, and procedures.
(c) Assumption. Applications for the
assumption of an existing Section 184
Guaranteed Loan shall be underwritten
using the same Borrower eligibility and
underwriting standards in accordance
with this subpart.
§ 1005.457
Appraisal.
(a) A Direct Guarantee Lender shall
have the property appraised in
accordance with the Uniform Standards
of Professional Appraisal Practice and
the Fair Housing Act (42 U.S.C. 3601–
19). HUD may establish alternative
requirements to Uniform Standards of
Professional Appraisal Practice and
publish such alternative requirements in
Section 184 Program Guidance.
(b) A Direct Guarantee Lender must
select an appraiser identified on the
Federal Housing Administration
Appraiser Roster, compiled in
accordance with 24 CFR part 200,
subpart G. The Direct Guarantee Lender
shall not discriminate on the basis of
race, color, religion, sex, disability,
familial status national origin, or age in
the selection of an appraiser.
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(c) The appraiser must be
knowledgeable in the market where the
property is located.
(d) A Direct Guarantee Lender and an
appraiser must ensure that an appraisal
and related documentation satisfy
Federal Housing Administration, Fannie
Mae, or Freddie Mac appraisal
requirements, and both bear
responsibility for the quality of the
appraisal in satisfying such
requirements.
(e) A Direct Guarantee Lender that
submits, or causes to be submitted, an
appraisal or related documentation that
does not satisfy requirements under
paragraphs (a) through (d) of this section
may be subject to sanctions by HUD
pursuant to §§ 1005.905 and 1005.907.
(f) The validity period of appraisals is
120 days:
(1) The validity period for an
appraisal may be extended for 30 days
at the option of the Direct Guarantee
Lender if the Direct Guarantee Lender
has obtained a Firm Commitment.
(2) If the transaction will not close
within 120 days or 150 days with an
approved extension, then the Direct
Guarantee Lender must update the
appraisal. The appraisal must be
updated before the 120th-day validity
period, or 150th day if extended, has
expired. The updated appraisal is valid
for an additional 120 days after the
effective date of the initial appraisal
report that is being updated.
(g) The Direct Guarantee Lender may
request an extension of the 120-day
validity period for up to two additional
120-day extensions requests. HUD may
request an updated appraisal during the
extension periods.
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§ 1005.459 Loan submission to HUD for
Direct Guarantee.
(a) Deadline for submission. Within
60 days after the date of closing the
loan, a Direct Guarantee Lender must
submit an endorsement case binder to
HUD, in accordance with § 1005.503.
(b) Late submission. If the
endorsement case binder is submitted
past 60 days, the Direct Guarantee
Lender must include, as part of the case
binder, a late endorsement request with
supporting documentation, affirming:
(1) The Loan is not currently in
default;
(2) All escrow accounts for taxes,
hazard insurance, and monthly Loan
Guarantee Fees are current;
(3) Neither the Direct Guarantee
Lender nor Servicer provided the funds
to bring or keep the loan current or to
bring about the appearance of
acceptable payment history; and
(4) Notwithstanding paragraph (b)(3)
of this section, with prior approval from
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HUD, Lender or Servicer may provide
funds to bring or keep the loan current.
§ 1005.461 HUD issuance of Firm
Commitment.
HUD may underwrite and issue a
Firm Commitment when it is in the
interest of HUD.
Subpart E—Closing and Endorsement
Closing
§ 1005.501 Direct Guarantee Lender
closing requirements.
The Direct Guarantee Lender shall
close the Loan in accordance with the
following:
(a) Chain of title/interest. (1) For fee
simple properties, the Direct Guarantee
Lender must obtain evidence of all prior
ownership within 12 months of the case
number assignment date. The Direct
Guarantee Lender must review the
evidence of prior ownership to
determine any undisclosed Identity of
Interest transactions.
(i) If an Identity of Interest is
discovered, the Direct Guarantee Lender
must review for any possible Conflict of
Interest.
(ii) As a requirement of closing, all
Borrowers must execute a Section 184
Borrower’s Certification, addressing any
Identity of Interest and Conflict of
Interest.
(2) For Trust Land transactions, the
requirements for the determination of
ownership title interest shall be
prescribed by HUD in Section 184
Program Guidance.
(b) Title/Title Status Report. The
Direct Guarantee Lender must ensure
that all objections to title binder/initial
certified Title Status Report have been
cleared, and any discrepancies have
been resolved, to ensure that the Section
184 Guaranteed Loan will be in first
Security interest position.
(c) Closing in compliance with Direct
Guarantee Lender approval. The Direct
Guarantee Lender must instruct the
settlement agent to close the Section 184
Guaranteed Loan on the same terms or
on the same assumptions in which it
was underwritten and approved.
(d) Closing in the Direct Guarantee
Lender’s name. A Section 184
Guaranteed Loan must close in the
name of the Direct Guarantee Lender
issuing the underwriting approval.
(e) Required HUD documents at
closing. The Direct Guarantee Lender
must use the forms and language as may
be prescribed in Section 184 Program
Guidance.
(f) Projected escrow. The Direct
Guarantee Lender must establish an
escrow account in accordance with
§ 1005.713 and the Real Estate
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Settlement Procedures Act and any
other escrow requirements as prescribed
under applicable Tribal and Federal
laws and regulations.
(g) Closing costs and fees. The Direct
Guarantee Lender may charge the
Borrower reasonable and customary fees
in accordance with § 1005.515.
(h) Closing date. The closing date
must occur before the expiration of the
Firm Commitment.
(i) Per diem interest and interest
credits. The Direct Guarantee Lender
may collect per diem interest from the
closing date to the date Amortization
begins. Alternatively, the Direct
Guarantee Lender may begin
Amortization up to 7 days prior to the
closing date and provide a per diem
interest credit. Any per diem interest
credit may not be used to meet
Borrower’s minimum required
investment. Per diem interest must be
computed using a factor of 1/365th of
the annual rate.
(j) Authorization of Tribal notification
in the event of default. At closing, the
Borrower must, on a form provided by
HUD, elect whether to authorize the
Direct Guarantee Lender and HUD to
notify the Tribe in the event of a default.
(k) Signatures. Direct Guarantee
Lender must ensure that the note,
Security instrument, and all closing
documents are signed by the required
parties.
(l) Other requirements. Direct
Guarantee Lender shall close the Loan
in accordance with any applicable
Tribal, State, or Federal requirements.
Direct Guarantee Lenders must execute
any other documents as may be required
by applicable Tribal, Federal, or State
law.
§ 1005.503
binder.
Contents of endorsement case
The Direct Guarantee Lender’s
endorsement case binder shall be
submitted in a format as prescribed by
HUD and contain the documents
meeting the requirements of § 1005.501
and any other documents supporting the
Direct Guarantee Lender’s underwriting
determination.
§ 1005.505 Payment of Upfront Loan
Guarantee Fee.
The Direct Guarantee Lender, shall
provide evidence of the remittance of
the Upfront Loan Guarantee Fee, as
required under § 1005.607, in
accordance with a process provided by
HUD in Section 184 Program Guidance.
§ 1005.507 Borrower’s payments to
include other charges and escrow
payments.
(a) The Direct Guarantee Lender must
include in the Section 184 Guaranteed
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Loan monthly payment the following
charges and escrow payments:
(1) The ground rents, if any;
(2) Annual Loan Guarantee Fee, as
prescribed in § 1005.607, if any;
(3) The estimated amount of all taxes;
(4) Special assessments, if any;
(5) Flood insurance premiums, if
flood insurance is required; and
(6) Fire and other hazard insurance
premiums, except master policy
premiums payable to a condominium
association or a Tribe and paid directly
by the Borrower.
(b) The Section 184 Guaranteed Loan
shall further provide that such
payments shall be held by the Direct
Guarantee Lender in a manner
satisfactory to HUD for the purpose of
paying such ground rents, taxes,
assessments, and insurance premiums
before the same become delinquent, for
the benefit and account of the Borrower.
The Section 184 Guaranteed Loan must
also make provisions for adjustments in
case the estimated amount of such taxes,
assessments, and insurance premiums
shall prove to be more, or less, than the
actual amount thereof so paid by the
Borrower. Such payments shall be held
in an escrow subject to § 1005.717.
(c) The Borrower shall not be required
to pay premiums for fire or other hazard
insurance which protects only the
interests of the Direct Guarantee Lender,
or for life or disability income
insurance, or fees charged for obtaining
information necessary for the payment
of property taxes. The foregoing does
not apply to charges made or penalties
exacted by the taxing authority, except
that a penalty assessed, or interest
charged, by a taxing authority for failure
to timely pay taxes or assessments shall
not be charged by the Direct Guarantee
Lender to the Borrower if the Direct
Guarantee Lender had sufficient funds
in escrow for the account of the
Borrower to pay such taxes or
assessments prior to the date on which
penalty or interest charges are imposed.
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§ 1005.509
Application of payments.
All monthly payments to be made by
the Borrower to the Servicer shall be
added together, and the aggregate
amount shall be paid by the Borrower
each month in a single payment by the
Borrower, in accordance with the Loan
documents. The Servicer shall apply the
Borrower’s funds in accordance with
§ 1005.715.
§ 1005.511
Late fee.
When the monthly Section 184
Guaranteed Loan payment is 15 or more
days in arrears, the Servicer may collect
from Borrower a late fee, not to exceed
four percent of the overdue payment of
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principal and interest, or any other limit
as established by HUD through public
notice with an opportunity for
comment. The late fee provision must
appear on the note executed at closing.
§ 1005.513 Borrower’s payments when
Section 184 Guaranteed Loan is executed.
The Borrower must pay to the Direct
Guarantee Lender, upon execution of
the Section 184 Guaranteed Loan, where
applicable, the:
(a) One-time Upfront Loan Guarantee
Fee or any portion payable pursuant to
§ 1005.603; and
(b) All other applicable monthly
charges pursuant to § 1005.507,
including the Annual Loan Guarantee
Fee pursuant to § 1005.607 covering the
period from the closing date to the due
date of the first installment payment
under the Section 184 Guaranteed Loan.
§ 1005.515
Charges, fees, or discounts.
(a) The Direct Guarantee Lender must
ensure that all fees charged and
disclosure requirements at closing to the
Borrower comply with all applicable
Tribal, Federal, State, and local laws.
(b) The Direct Guarantee Lender may
collect from the Borrower the following
charges, fees, or discounts at closing:
(1) A charge to compensate the Direct
Guarantee Lender for expenses incurred
in originating and closing the Loan.
HUD may establish limitations on the
amount of any such charge in Section
184 Program Guidance.
(2) Reasonable and customary
amounts, but not more than the amount
actually paid by the Direct Guarantee
Lender, for any of the following items:
(i) Recording fees and recording taxes
or other charges incident to recordation;
(ii) Credit report;
(iii) Survey, if required by Direct
Guarantee Lender or Borrower;
(iv) Title examination;
(v) Title insurance, if any;
(vi) Fees paid to an appraiser or
inspector approved by HUD for the
appraisal and inspection, if required, of
the property. The Direct Guarantee
Lender may collect from the Borrower
the reasonable and customary amounts
for such appraisals and inspections;
(vii) Such other reasonable and
customary charges as may be authorized
by HUD;
(viii) Reasonable and customary
charges in the nature of discounts; and
(ix) Interest calculations in
accordance with § 1005.501(i).
(c) All charges, fees, or discounts are
subject to review by HUD after
endorsement.
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§ 1005.517 Certificate of nondiscrimination
by the Direct Guarantee Lender.
(a) Where applicable, a Direct
Guarantee Lender shall certify to HUD
as to each of the following:
(1) That neither the Direct Guarantee
Lender, nor anyone authorized to act for
the Direct Guarantee Lender, will refuse
to sell, after the making of a bona fide
offer, or refuse to negotiate for the sale
otherwise make unavailable or deny the
property covered by the Section 184
Guaranteed Loan to any eligible
purchaser or discriminate in making a
loan or engaging in a residential real
estate-related transaction (as defined in
42 U.S.C. 3605) because of race, color,
religion, sex, disability, familiar status,
or national origin, except as provided by
law.
(2) That any restrictive covenant,
other than permissible restrictions on
Trust Land, on such property relating to
race, color, religion, sex, disability,
familial status, or national origin is
hereby illegal, unenforceable, or void.
(b) That civil action for preventative
relief may be brought by the Attorney
General in any appropriate U.S. District
Court against any person responsible for
a violation of this certification.
Endorsement and Post-Closing
§ 1005.519
Creation of the contract.
The Loan shall be a Section 184
Guaranteed Loan from the date of the
issuance of a Loan Guarantee Certificate,
from the date of the endorsement of the
credit instrument, or from the date of
HUD’s electronic acknowledgement to
the Direct Guarantee Lender that the
Loan is guaranteed, as applicable. HUD
and the Direct Guarantee Lender are
thereafter bound by the regulations in
this subpart with the same force and to
the same extent as if a separate contract
had been executed relating to the
Section 184 Guaranteed Loan, including
the provisions of the regulations in this
subpart and 12 U.S.C. 1715z-13a.
§ 1005.521 Lender pre-endorsement
review and requirements.
Direct Guarantee Lender must
complete a pre-endorsement review of
the endorsement case binder. This
review must be conducted by staff not
involved in the originating, processing,
or underwriting of the Loan. This
review must also confirm that the Loan
was underwritten by an approved Direct
Guarantee Lender. The endorsement
case binder must contain all
documentation relied upon by the
Direct Guarantee Lender to justify its
decision to approve the Loan in
accordance with subpart D of this part.
Upon finalizing the pre-endorsement
review, the Direct Guarantee Lender
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must certify that all required documents
are submitted and meet the
requirements of § 1005.503.
§ 1005.523
HUD pre-endorsement review.
(a) Direct Guarantee Lender shall
submit to HUD within 60 days after the
date of the closing of the Loan, or such
additional time as permitted by HUD,
the endorsement case binder;
(b) Upon submission by a Direct
Guarantee Lender of the endorsement
case binder containing those documents
required by § 1005.503, HUD will
review the documents to ensure that the
Loan meets all statutory, regulatory, and
administrative requirements, including
but not limited to:
(1) There is no fee, late charge, or
interest due to HUD;
(2) The Loan was not in default when
submitted for the Loan Guarantee
Certificate or if submitted for guarantee
more than 60 days after the date of
closing, the Loan shows an acceptable
payment history; and
(3) The Loan was underwritten by an
approved Direct Guarantee Lender.
(c) Upon review, if HUD determines
the loan to meet program requirements,
HUD will issue a Loan Guarantee
Certificate. If HUD determines the Loan
it be ineligible, HUD will provide the
Direct Guarantee Lender a written
determination and specify any available
corrective actions that may be available.
If there is information indicating that
any certification or required document
is false, misleading, or constitutes fraud
or misrepresentation on the part of any
party, or that the loan fails to meet a
statutory or regulatory requirement,
HUD will conduct a complete audit of
the endorsement case binder. Repeated
submission of deficient endorsement
case binders may subject the Direct
Guarantee Lender to sanctions or civil
money penalties pursuant to
§§ 1005.905 and 1005.907.
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§ 1005.525
Loan Guarantee Certificate.
(a) HUD shall issue a Loan Guarantee
Certificate as evidence of the guarantee
when HUD completes a review of the
Direct Guarantee Lender’s endorsement
case binder and determines the Loan
complies with all applicable Section
184 Program requirements in this part.
(b) HUD may issue a Loan Guarantee
Certificate for a Loan involving a
Security interest in Trust Land before
HUD receives the required trailing
documents from BIA, if the Direct
Guarantee Lender agrees to indemnify
HUD. The indemnification agreement
between HUD and the Direct Guarantee
Lender will terminate only upon receipt
of the Trailing Documents in a form and
manner acceptable to HUD. Trailing
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Documents may include the following
documents:
(1) A final certified Title Status Report
(TSR) that identifies that the BIA
approved and recorded the mortgage
instrument and residential lease related
to the Section 184 Loan, if applicable;
(2) A certified true copy of the
recorded mortgage instrument;
(3) A certified true copy of the
recorded lease, if applicable;
(4) A certified true copy of the
recorded executed mortgage release
documents for all prior mortgages
identified on the initial certified TSR, if
applicable; and
(5) A certified true copy of any BIA
approved and executed subordination
agreements.
(c) The Loan Guarantee Certificate is
conclusive evidence of the eligibility of
the Loan for guarantee under this part.
Such evidence will be incontestable in
the hands of the bearer and the full faith
and credit of the United States is
pledged to the payment of amounts
agreed to be paid by HUD as Security for
such obligations.
(d) This section may not be construed
to preclude HUD from conducting a
post-endorsement review. With respect
to the original Direct Guarantee Lender,
HUD may establish defenses against the
original Direct Guarantee Lender based
on fraud or material misrepresentation.
This section may not be construed to bar
HUD from establishing partial defenses
to the amount payable on the Section
184 Guaranteed Loan.
§ 1005.527
Post-endorsement review.
(a) HUD may review an endorsement
case binder at any time, including but
not limited to a quality control review
of all documents in § 1005.503.
(b) Within three business days of a
request by HUD, the Direct Guarantee
Lender must make available for review,
or forward to HUD, copies of the
identified endorsement case binder(s).
(c) A Direct Guarantee Lender’s
failure to provide HUD access to any
files may be grounds for sanctions in
accordance with §§ 1005.905 and
1005.907.
(d) Based on HUD’s review under
paragraph (a) of this section, if HUD
determines that:
(1) The Loan does not satisfy the
requirements of subpart F of this part;
(2) The Direct Guarantee Lender or
Sponsored Entity committed fraud or a
material misrepresentation; or
(3) The Direct Guarantee Lender or
Sponsored Entity had known or should
have known of fraud or a material
misrepresentation in violation of this
part, such that the Loan should not have
been approved by the Direct Guarantee
Lender.
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(e) HUD may request indemnification
from the originating Direct Guarantee
Lender and impose sanctions on the
Direct Guarantee Lender and Sponsored
Entity pursuant to §§ 1005.905 and
1005.907.
§ 1005.529
Indemnification.
(a) When HUD conducts a pre- or
post-endorsement review and HUD
determines there is an underwriting
deficiency where the Loan should not
have been approved, HUD may request
the originating Direct Guarantee to
indemnify HUD.
(b) Underwriting deficiencies with
respect to the Section 184 Guaranteed
Loan may include but is not limited to
fraud or misrepresentation by the
originating Direct Guarantee Lender.
(c) HUD will notify the originating
Direct Guarantee Lender in writing
when an indemnification is required.
(d) Under an indemnification, the
originating Direct Guarantee Lender
must reimburse HUD when a
subsequent Holder files a claim and
HUD suffers a financial loss.
(e) If the originating Direct Guarantee
Lender fails to indemnify HUD, HUD
may impose sanctions pursuant to
§§ 1005.905 and 1005.907.
Subpart F—Section 184 Guaranteed
Loan Fees
§ 1005.601
Scope and method of payment.
HUD shall charge a one-time Section
184 Upfront Loan Guarantee Fee and a
recurring Annual Loan Guarantee Fee,
which will be collected by a Direct
Guarantee Lender or Servicer as
required by §§ 1005.603 and 1005.607
and remitted to HUD as required by
§§ 1005.605 and 1005.609. The fees
collected by the Direct Guarantee
Lender or Servicer on behalf of HUD
shall be payable to HUD in cash, in the
manner prescribed by Section 184
Program Guidance.
§ 1005.603
Upfront Loan Guarantee Fee.
At settlement, the Direct Guarantee
Lender will collect from the Borrower a
one-time Upfront Loan Guarantee Fee in
an amount, not exceeding three percent
of the principal obligation of the Section
184 Guaranteed Loan. The amount will
be set by HUD through a notice in the
Federal Register.
§ 1005.605 Remittance of Upfront Loan
Guarantee Fee.
The Direct Guarantee Lender shall
remit the Upfront Loan Guarantee Fee to
HUD within 15 days after settlement,
using the payment system as prescribed
by Section 184 Program Guidance. The
Direct Guarantee Lender shall provide
an account reconciliation of the Upfront
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Loan Guarantee Fee in the time and
manner as may be prescribed in Section
184 Program Guidance.
§ 1005.607
Annual Loan Guarantee Fee.
(a) Percentage of Annual Loan
Guarantee Fee. Where applicable the
Servicer must collect a monthly
installment for the Annual Loan
Guarantee Fee from the Borrower in an
amount, not exceeding one percent of
the principal obligation of the loan. The
percentage used to calculate the Annual
Loan Guarantee Fee amount will be
prescribed by notice in the Federal
Register.
(b) Payment of Annual Loan
Guarantee Fee. Where applicable, the
Section 184 Guaranteed Loan shall
require monthly payments by the
Borrower to the Servicer in an amount
equal to one-twelfth of the Annual Loan
Guarantee Fee, payable by the Servicer
to HUD in accordance with the
Amortization Schedule issued with the
Loan approval.
(c) Amortization Schedule. The
amount of the Borrower’s monthly
installment will be based on an
Amortization Schedule as prescribed in
Section 184 Program Guidance.
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§ 1005.609 Remittance of Annual Loan
Guarantee Fee.
(a) Monthly installment of the Annual
Loan Guarantee Fee shall be due and
payable to HUD no later than the 15th
day of each month, beginning in the
month in which the Borrower is
required to make the first monthly loan
payment. Monthly payments of the
Annual Loan Guarantee Fee must be
submitted using a HUD prescribed
payment system, as prescribed by
Section 184 Program Guidance.
(b) Subject to the exception in
paragraph (d) of this section, the
Servicer shall continue to collect from
the Borrower and pay HUD the monthly
installment of the Annual Loan
Guarantee Fee, without taking into
account Borrower’s default, Loss
Mitigation, prepayments, agreements to
postpone payments, or agreements to
recast the loan.
(c) The Servicer shall adjust the
monthly installment of the Annual Loan
Guarantee Fee in accordance the
schedule provided in § 1005.607(b).
Notwithstanding paragraph (a) of this
section, the Servicer shall refund to the
Borrower any overpayment of Annual
Loan Guarantee Fees collected from the
Borrower, due to a delayed adjustment
of the Loan Guarantee Fee, within 30
days of the overpayment. Failure to
refund the Borrower within this
timeframe will result in a penalty in
accordance with § 1005.611.
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(d) The Servicer shall cease collecting
the monthly installment of the Annual
Loan Guarantee Fee when the amortized
loan to value ratio equals an amount
less than 78 percent, as established by
a schedule provided in § 1005.607(b).
Notwithstanding paragraph (a) of this
section, the Servicer shall refund to the
Borrower any overpayment of Annual
Loan Guarantee Fees collected when the
loan-to-value ratio is less than 78
percent, within 30 days of the
overpayment. Failure to refund the
Borrower within this timeframe will
result in penalty in accordance with
§ 1005.611.
(e) Annual Loan Guarantee Fees paid
in accordance with the schedule
provided in § 1005.607(b) shall not be
refundable to the Borrower.
(f) If the Servicer submits the monthly
installment of the Annual Loan
Guarantee Fee to HUD after the due
date, the amount paid must include the
required payment of penalties pursuant
to § 1005.611(c).
(g)(1) When transfer of servicing
occurs in accordance with § 1005.707:
(i) The schedule of monthly
installment payments provided in
§ 1005.607(b) must be provided to the
new Servicer; and
(ii) The account reconciliation of the
Upfront Guarantee Fee and Annual
Loan Guarantee Fee due and remitted to
HUD must be provided to the new
Servicer.
(2) The new Servicer is responsible
for compliance with all requirements of
this part, including, but not limited to,
any outstanding Annual Loan Guarantee
Fee payments and penalties owed to
HUD, or any Annual Loan Guarantee
Fee adjustments or refunds due to the
Borrower.
(3) If a transfer results in missed
monthly installment(s) of the Annual
Loan Guarantee Fee, the new Servicer
shall pay the overdue installment(s) in
a lump sum to HUD within 30 days of
acquisition of the loan and include any
applicable penalties in accordance with
§ 1005.611.
(h) The Direct Guarantee Lender shall
provide an account reconciliation of the
Annual Loan Guarantee Fee in the time
and manner as may be prescribed in
Section 184 Program Guidance.
§ 1005.611
HUD imposed penalties.
(a) Prohibited penalty pass through.
The Direct Guarantee Lender or Servicer
shall not recover or attempt to recover
from the Borrower any penalties HUD
imposes upon the Direct Guarantee
Lender or Servicer.
(b) Failure of Direct Guarantee Lender
to timely remit Upfront loan guarantee
to HUD. (1) The Direct Guarantee
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Lender shall include a late fee if the
Upfront Loan Guarantee Fee to is not
remitted to HUD within 15 days of
settlement.
(2) Failure to remit the Upfront Loan
Guarantee Fee, with a late fee where
applicable, may result in HUD rejecting
the endorsement or claim case binder.
(c) Failure of Servicer to timely remit
the monthly installment of the Annual
Loan Guarantee Fee to HUD. (1) The
Servicer shall include a late fee for each
monthly installment of the Annual Loan
Guarantee Fee remitted to HUD after the
15th of each month.
(2) Failure to remit monthly
installment of the Annual Loan
Guarantee Fee to HUD, with late fee,
may result in HUD rejecting the claim
case binder, where applicable.
(d) Failure of Servicer to adjust the
amount of the Annual Loan Guarantee
Fee. (1) When a Servicer fails to make
the annual adjustment to the amount of
the monthly installment of the Annual
Loan Guarantee Fee in accordance with
§ 1005.607(b), the Servicer shall, in
addition to reimbursing the Borrower as
required in § 1005.609(c), pay HUD a
penalty for each month the Servicer
collects an overpayment of the Annual
Loan Guarantee Fee.
(2) The Servicer shall provide annual
written notice, in the manner prescribed
by Section 184 Program Guidance to the
Borrower prior to the scheduled change
in the monthly installment of the
Annual Loan Guarantee Fee, with such
advance notice as required by 12 CFR
1026.9, or other applicable Federal law.
(e) Failure to cease collection of the
Annual Loan Guarantee Fee. When a
Servicer fails to cease collection of the
monthly installment of the Annual Loan
Guarantee Fee after the loan to value
ratio reaches the threshold described in
§ 1005.609(d), the Servicer shall, in
addition to reimbursing the Borrower as
required in § 1005.609(d), pay HUD a
penalty for each month the Servicer
collects an overpayment of the Annual
Loan Guarantee Fee.
(f) Late fee and penalty amounts. All
reasonable late fees and penalty
amounts under this section shall be
prescribed by HUD.
Subpart G—Servicing
Servicing Section 184 Guaranteed
Loans Generally
§ 1005.701 Section 184 Guaranteed Loan
servicing generally.
This subpart identifies the servicing
requirements for Section 184
Guaranteed Loans. All Section 184
Guaranteed Loans must be serviced by
Section 184 approved Servicers,
including Section 184 Guaranteed Loans
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owned by Holders. Holders are
responsible for all servicing actions,
including the acts of its Servicers.
Servicers are responsible for their
actions in servicing Section 184
Guaranteed Loans, including actions
taken on behalf of, or at the direction of,
the Holder. Failure to comply with this
subpart may result in the reduction of
the claims amount in accordance with
subpart H of this part or may subject
Servicer to sanctions pursuant to
subpart I of this part. HUD requires
Servicers to comply all applicable
Tribal, Federal, and State requirements.
§ 1005.703 Servicer eligibility and
application process.
(a) To be eligible to service Section
184 Guaranteed Loans, a Direct
Guarantee Lender, Non-Direct
Guarantee Lenders, or other financial
institution must be an approved
mortgage Servicer for the Federal
Housing Authority (FHA) or another
agency of the Federal Government.
(b) All eligible Direct Guarantee
Lenders, Non-Direct Guarantee Lenders
and other financial institutions must
apply to become a Servicer in
accordance with Section 184 Program
Guidance.
(c) As of [EFFECTIVE DATE OF
FINAL RULE], Direct Guarantee Lenders
servicing Section 184 Guaranteed Loans
may request a waiver of § 1005.703(a).
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§ 1005.705
Servicer approval.
(a) Final approval. Approval is
signified by:
(1) Written notification from HUD that
the Direct Guarantee Lender, Non-Direct
Guarantee Lender, or other financial
institution is approved as a Servicer
under the Section 184 Program; and
(2) Agreement by the Direct Guarantee
Lender, Non-Direct Guarantee Lender,
or other financial institution to comply
with requirements of this part and any
applicable Federal, State, or Tribal law
requirement.
(b) Limitations on approval. The
Direct Guarantee Lender, Non-Direct
Guarantee Lender or other financial
institution may only be approved to
service Section 184 Guaranteed Loans in
areas where the Direct Guarantee
Lender, Non-Direct Guarantee Lender,
or financial institution is licensed, as
applicable.
(c) Denial of participation. A Direct
Guarantee Lender, Non-Direct
Guarantee Lender, or other financial
institution may be denied approval to
become a Servicer if HUD determines
the Direct Guarantee Lender, Non-Direct
Guarantee Lender, or other financial
institution does not meet the
qualification requirements of
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§ 1005.703. HUD will provide written
notification of denial and of the right to
submit a written appeal in accordance
with § 1005.909.
§ 1005.707
Responsibility for servicing.
(a) Program compliance. (1) The
Servicer must participate in HUD
training on the Section 184 program and
comply with this part and all Tribal,
State, and Federal requirements.
(2) A Servicer shall provide written
notification to HUD of any changes that
affect qualifications under this subpart
within a timeframe prescribed by
Section 184 Program Guidance.
(b) Sub-Servicer. (1) If a Servicer
elects to use a sub-Servicer, the subServicer must be an approved Servicer
under § 1005.705.
(2) Servicers are responsible for the
actions of their sub-Servicers. The
Servicer shall remain fully responsible
to HUD for Section 184 Guaranteed
Loan servicing in accordance with this
subpart, and the actions of a subServicer shall be considered the actions
of the Servicer.
(c) Change in Servicer. (1) When the
responsibility of servicing a Section 184
Guaranteed Loan is transferred from one
Servicer to another, the acquiring
Servicer shall assume responsibility for
compliance with this part, this includes
addressing any noncompliance by the
former Servicer.
(2) The former Servicer must notify
HUD of the change in Servicer within a
timeframe and format prescribed by
Section 184 Program Guidance.
(3) The acquiring Servicer shall
provide notice to the Borrower of the
transfer of servicing in accordance with
12 CFR 1024.33, or other Federal laws
that may require such notice.
(4) HUD will hold the acquiring
Servicer responsible for errors,
omissions, and unresolved HUD review
findings on the part of the losing
Servicer (or losing sub-Servicer),
discovered after the transfer is reported
even when the errors or omissions took
place prior to the transfer.
(d) Transfer of servicing rights. The
Servicer must submit written
notification to HUD, in a timeframe
prescribed by Section 184 Program
Guidance, of the transfer of servicing
rights through the of acquisition or sale
of any Section 184 Guaranteed Loans.
(e) Reporting requirements. (1) On a
date and manner established by Section
184 Program Guidance, the Servicer
shall report to HUD the status of all
Section 184 Guaranteed Loans in its
servicing portfolio.
(2) Servicer shall provide an Annual
Loan Guarantee Fee reconciliation to the
Borrower and HUD, in a manner and
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timeframe as prescribed by Section 184
Program Guidance.
(3) Servicer must also comply with
any other reporting requirements under
§ 1005.903.
(4) The Servicer’s failure to submit
required reports on time may subject the
Servicer to sanctions and civil money
penalties pursuant to §§ 1005.905 and
1005.907.
(f) Business change reporting. Within
a timeframe and form as prescribed by
Section 184 Program Guidance, the
Servicer shall provide written
notification to HUD of:
(1) All changes in the Servicer’s legal
structure, including, but not limited to,
mergers, acquisitions, terminations,
name, location, control of ownership,
and character of business;
(2) Staffing changes related to
servicing Section 184 Guaranteed Loans;
and
(3) Any sanctions by another
supervising entity.
(4) Failure to report changes within
the timeframe prescribed in Section 184
Program Guidance may result in
sanctions in accordance with
§§ 1005.905 and 1005.907.
(g) Annual recertification. (1) All
Servicers are subject to annual
recertification on a date and manner as
prescribed by Section 184 Program
Guidance. With each annual
recertification, Servicers must submit
updated contact information, current
FHA recertification status, and other
pertinent documents as prescribed by
Section 184 Program Guidance.
(2) Servicers may request an extension
of the recertification deadline in
accordance with Section 184 Program
Guidance.
(3) HUD will review the annual
recertification submission and may
request any further information required
to determine recertification. HUD will
provide written notification of approval
to continue participation in the Section
184 Program or denial. A denial may be
appealed pursuant to § 1005.909.
(4) If an annual recertification is not
submitted by the reasonable deadline as
prescribed in Section 184 Program
Guidance, HUD may subject the
Servicer to sanctions under § 1005.907.
(h) Program ineligibility. Servicer may
be deemed ineligible for Section 184
Program participation when HUD
becomes aware that the entity or any
officer, partner, director, principal,
manager, or supervisor of the entity was:
(1) Suspended, debarred, under a
limited denial of participation (LDP), or
otherwise restricted under 2 CFR part
2424, or under similar procedures of
any other Federal agency;
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(2) Indicted for, or have been
convicted of, an offense that reflects
adversely upon the integrity,
competency, or fitness to meet the
responsibilities of the Servicer to
participate in the Title I or Title II
programs of the National Housing Act,
or Section 184 Program;
(3) Found to have unresolved findings
as a result of HUD or other
governmental audit, investigation, or
review;
(4) Engaged in business practices that
do not conform to generally accepted
practices of prudent Servicers or that
demonstrate irresponsibility;
(5) Convicted of, or have pled guilty
or nolo contendere to, a felony related
to participation in the real estate or
mortgage Loan industry during the 7year period preceding the date of the
application for licensing and
registration, or at any time preceding
such date of application, if such felony
involved an act of fraud, dishonesty, or
a breach of trust or money laundering;
(6) In violation of provisions of the
Secure and Fair Enforcement Mortgage
Licensing Act of 2008 (12 U.S.C. 5101,
et seq.) or any applicable provision of
Tribal or State law; or
(7) In violation of 12 U.S.C. 1715z–
13a or any other requirement
established by HUD.
(i) Records retention. Servicers must
maintain the servicing case binder for a
period of three years beyond the date of
satisfaction or maturity date of the Loan,
whichever is sooner. However, where
there is a payment of claim, the claim
case binder must be retained for a
period of at least five years after the
final claim has been paid. Section 184
Program Guidance shall prescribe
additional records retention time
depending on the circumstances of the
claim.
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§ 1005.709 Providing information to
Borrower and HUD.
(a) Servicers shall provide Section 184
Guaranteed Loan information to
Borrowers and arrange for individual
loan consultation on request. The
Servicer must establish written
procedures and controls to assure
prompt responses to inquiries. At a
minimum, the Servicer must provide
contact information to the Borrower in
accordance with 12 CFR 1024.36 and
1026.41, including:
(1) A written address a Borrower can
use to request and submit information;
and
(2) A toll-free telephone number a
Borrower can use to verbally ask
questions and seek information.
(b) All Borrowers must be informed of
the system available for obtaining
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answers to loan inquiries, the Servicer’s
office from which needed information
may be obtained, and reminded of the
system at least annually.
(c) Within 30 days after the end of
each calendar year, the Servicer shall
furnish to the Borrower a statement of
the interest paid, and of the taxes
disbursed from the escrow account
during the preceding year.
(d) At the Borrower’s request, the
Servicer shall furnish a statement of the
escrow account sufficient to enable the
Borrower to reconcile the account.
(e) Each Servicer of a Section 184
Guaranteed Loan shall deliver to the
Borrower a written notice of any transfer
of the Servicing of the Section 184
Guaranteed Loan. The notice must be
sent in accordance with 12 CFR
1024.33(b)(3) and shall contain the
information required by 12 CFR
1024.33(b)(4). Servicers must respond to
Borrower inquiries pertaining to the
transfer of Servicing in accordance with
12 CFR 1024.33.
(f) Servicers must respond to HUD’s
written or electronic requests for
information concerning individual
accounts within a reasonable timeframe
established by Section 184 Program
Guidance, or the deadline placed by
other applicable law, whichever is
sooner.
§ 1005.711 Assumption and release of
personal liability.
(a) Assumption. Section 184
Guaranteed Loans may be fully assumed
by eligible substitute Borrowers, if such
assumption is approved by HUD and
other required parties, including but not
limited to a Tribe, TDHE, or the BIA.
HUD approval will be based on the
following:
(1) Creditworthiness. At least one
person acquiring ownership must be
determined to be creditworthy under
subpart D of this part. If the Servicer is
approved as a Direct Guarantee Lender,
the Servicer performs a creditworthiness
determination under § 1005.409. If the
Servicer is not approved as a Direct
Guarantee Lender, then the Servicer
shall request a creditworthiness
determination in a manner prescribed
by Section 184 Program Guidance.
(2) Trust Lands. (i) The lease
document may require Tribal and BIA
approval of the assignment of the lease
to the new Borrower. Servicers shall not
proceed to closing on the assumption
until and unless the Tribe has assigned
the leasehold to the new Borrower, and
it has been approved by the BIA.
(ii) The lease may contain other
Conveyance restrictions. Servicer must
review the lease for Conveyance
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restrictions and ensure the lease
complies with § 1005.303(b)(2).
(b) Fees. The Servicer may collect
from the Borrower the following fees
and costs:
(1) A charge to compensate the Direct
Guarantee Lender for reasonable and
necessary expenses incurred as part of
the assumption review and processing.
HUD may establish limitations on the
amount of any such charge.
(2) Reasonable and customary costs,
but not more than the amount actually
paid by the Direct Guarantee Lender, for
any of the following items: credit report,
verification of employment and the
execution of additional release of
liability forms.
(3) Additional fees and costs over and
above the assumption fee and
reasonable and customary costs cannot
be assessed.
(c) Release of liability. At closing, the
Servicer must release the existing
Borrower from any personal liability on
a form approved by HUD; the eligible
and approved substitute Borrower
assumes personal liability of the Section
184 Guaranteed Loan when the release
is executed.
(d) Modification of Loan Guarantee
Certificate. Upon completion of an
assumption, the Servicer shall submit
copies of the documentation required in
this section to HUD, in a manner and
form prescribed by HUD. HUD will
subsequently issue a revised Loan
Guarantee Certificate.
§ 1005.713
Due-on-sale provision.
A Section 184 Guaranteed Loan shall
contain a due-on-sale clause permitting
acceleration, in a form prescribed by
Section 184 Program Guidance. The
Servicer shall promptly advise HUD of
any sale or other transfer that occurs
without the approval of the Direct
Guarantee Lender. If acceleration is
permitted by applicable Tribal, Federal,
or State law, the Servicer shall certify as
to the legal authority and seek HUD’s
approval, in a form and manner
prescribed by Section 184 Program
Guidance. Within 30 days of receipt of
HUD approval to accelerate, the Servicer
shall notify the Borrower of default and
acceleration.
§ 1005.715 Application of Borrower
payments.
(a) Servicer shall comply with
§ 1005.509 with respect to the
application of Borrower payments. The
Servicer shall apply the payments in the
following order:
(1) Escrow items, including monthly
payments of the Annual Loan Guarantee
Fee, rents, taxes, special assessments,
and if required, flood insurance, fire and
other hazard insurance premiums;
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(2) Interest accrued on the Section 184
Guaranteed Loan;
(3) Principal of the Section 184
Guaranteed Loan; and
(4) Late charges, if permitted under
the terms of the Section 184 Guaranteed
Loan and subject to such conditions as
HUD may prescribe.
(b) Partial Payments shall be applied
in accordance with § 1005.723.
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§ 1005.717
accounts.
Administering escrow
(a) The Servicer shall not use escrow
funds for any purpose other than that
for which they were received. It shall
segregate escrow commitment deposits,
work completion deposits, and all
periodic payments received on account
of leasehold rents, taxes, assessments,
monthly payments of Annual Loan
Guarantee Fee, and insurance charges or
premiums, and shall deposit such funds
with one or more financial institutions
in a special account or accounts that are
fully insured by the Federal Deposit
Insurance Corporation or the National
Credit Union Administration. Leasehold
rents on Trust Lands may require
additional escrow segregation by
Servicer’s which HUD will prescribe in
Section 184 Program Guidance.
(b) It is the Servicer’s responsibility to
ensure timely escrow disbursements
and their proper application. Servicers
must establish controls to ensure that
accounts payable from the escrow
account or the information needed to
pay such accounts payable is obtained
on a timely basis. Penalties for late
payments for accounts payable from the
escrow account must not be charged to
the Borrower or HUD unless the
Servicer can show that the penalty was
the direct result of the Borrower’s error
or omission. The Servicer shall further
comply with all requirements set forth
in 12 CFR 1024.17, including method of
calculations related to escrow, the
methods of collection and accounting,
and the payment of the accounts
payable for which the money has been
escrowed.
(c) The Servicer shall not initiate
foreclosure for escrow account shortfalls
resulting from advances made pursuant
to this section.
(d) When a Loan Guarantee Certificate
is terminated voluntarily or due to
Borrower’s prepayment, in total
satisfaction of the Section 184
Guaranteed Loan, amounts in the
escrow account designated to pay any
HUD required program fees shall be
remitted to HUD in a form approved by
HUD at the time of the required
reporting related to the voluntary
termination or prepayment. When a
Section 184 Guaranteed Loan is prepaid
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in full, amounts held in escrow for
taxes, hazard insurance, or rents, if
applicable, that are not yet due or
incurred, shall be released to the
Borrower.
§ 1005.719 Fees and costs after
endorsement.
(a) After endorsement, the Servicer
may collect reasonable and customary
fees and costs from the Borrower only
as provided in paragraphs (a)(1) through
(14) of this section. The Servicer may
collect these fees or costs from the
Borrower only to the extent that the
Servicer is not reimbursed for such fees
or costs by HUD. Permissible fees and
costs include:
(1) Late fee in accordance with
§ 1005.511;
(2) Costs for processing or
reprocessing a check returned as
uncollectible (where bank policy
permits, the Servicer must deposit a
check for collection a second time
before assessing an insufficient funds
charge);
(3) Fees for processing a change of
ownership of the property;
(4) Fees and costs for processing an
assumption of the Section 184
Guaranteed Loan in connection with the
sale or transfer of the property;
(5) Costs for processing a request for
credit approval incurred in the course of
processing an assumption or substitute
Borrower;
(6) Costs for substitution of a hazard
insurance policy at other than the
expiration of term of the existing hazard
insurance policy;
(7) Costs for modification of the
Section 184 Guaranteed Loan requiring
recordation of the agreement, including
those for extension of term or reAmortization;
(8) Fees and costs for processing a
partial release of the property;
(9) Attorney’s and trustee’s fees and
costs actually incurred (including the
cost of appraisals and advertising) when
a Section 184 Guaranteed Loan has been
referred to foreclosure counsel and
subsequently the Section 184
Guaranteed Loan is reinstated. No
attorney’s fee and cost that exceeds the
reasonable limits prescribed by Section
184 Program Guidance may be collected
from the Borrower, unless approved by
HUD;
(10) A trustee’s fee, if the Security
instrument provides for payment of
such a fee, for execution of a satisfactory
release when the deed of trust is paid in
full;
(11) Where permitted by the Security
instrument, attorney’s fees and costs
actually incurred in the defense of any
suit or legal proceeding wherein the
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Servicer shall be made a party thereto
by reason of the Section 184 Guaranteed
Loan. No attorney’s fee may be charged
for the services of the Servicer’s staff
attorney or other employee;
(12) Property preservation costs
incurred, subject to reasonable limits
prescribed by Section 184 Program
Guidance, or otherwise approved by
HUD;
(13) Fees permitted for providing a
beneficiary notice under applicable
Tribal or State law, if such a fee is not
otherwise prohibited by applicable law,
under 12 CFR 1024.36; and
(14) Such other reasonable and
customary costs as may be authorized
by HUD.
(b) Reasonable and customary fees
must be based upon the actual cost of
the work performed, including out-ofpocket expenses. HUD may establish
maximum fees and costs which are
reasonable and customary in different
geographic areas. Except as provided in
this part, no fee or costs shall be based
on a percentage of either the face
amount of the Section 184 Guaranteed
Loan or the unpaid principal balance
due.
§ 1005.721
Enforcement of late fees.
(a) A Servicer shall not commence
foreclosure when the Borrower’s only
default is his or her failure to pay a late
fee(s).
(b) A late fee that may be assessed
under the Section 184 Guaranteed Loan
shall not justify return of a payment
submission. However, if the Servicer
thereafter notifies the Borrower of his
obligation to pay a late fee, such a fee
may be deducted from any subsequent
payment or payments submitted by the
Borrower or on his behalf if this is not
inconsistent with the terms of the
Section 184 Guaranteed Loan. Partial
Payments shall be treated as provided in
§ 1005.723.
(c) A payment submission may be
returned because of failure to include a
late fee only if the Servicer notifies the
Borrower before imposition of the
charge of the amount of the monthly
payment, the date when the late fee will
be imposed, and either the amount of
the late charge or the total amount due
when the late fee is included.
(d) During the 60-day period
beginning on the effective date of
transfer of the Servicing of a Section 184
Guaranteed Loan, a late fee shall not be
assessed. If a payment is received by the
prior Servicer on or before the due date
(including any applicable grace period
allowed by the Section 184 Guaranteed
Loan), no late fees shall be assessed by
the new Servicer.
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Servicing Default Section 184
Guaranteed Loans
(e) A Servicer shall not assess a late
fee for failure to pay a late fee, as
prohibited under 12 CFR 1026.36.
§ 1005.723
§ 1005.729 Section 184 Guaranteed Loan
collection action.
Partial payments.
(a) A Servicer must have a written
policy on how it handles Partial
Payments, in compliance with this
section and that policy shall be readily
available to the public.
(b) Upon receipt of a Partial Payment,
a Servicer must provide to the Borrower
a copy of the Servicer’s written Partial
Payment policy and a letter explaining
how it will handle the received Partial
Payment. The Servicer may:
(1) Accept a Partial Payment and
either apply it to the Borrower’s
account;
(2) Identify it with the Borrower’s
account number and hold it in a trust
account pending disposition; or
(3) Return the Partial Payment(s) to
the Borrower.
§ 1005.725
Handling prepayments.
Notwithstanding the terms of the
Section 184 Guaranteed Loan, the
Servicer shall accept a prepayment at
any time and in any amount. Monthly
interest on the Section 184 Guaranteed
Loan must be calculated on the actual
unpaid principal balance of the Section
184 Guaranteed Loan as of the date the
prepayment is received, and not as of
the next payment due date.
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§ 1005.727
Substitute Borrowers.
Where an original Borrower requests
the substitution of an existing Borrower
on the Section 184 Guaranteed Loan:
(a) A Servicer who is Non-Direct
Guarantee Lender or financial
institution must obtain HUD approval
for the substitution. A remaining
original Borrower must be maintained
and continue to be personally liable for
the Section 184 Guaranteed Loan,
notwithstanding any discharge entered
in accordance with applicable Tribal,
Federal, or State law.
(b) A Servicer who is a Direct
Guarantee Lender may, subject to
limitations established by HUD, approve
an eligible substitute Borrower that
meets the requirements for Section 184
Guaranteed Loans which they own or
service, and need not obtain further
without specific approval from HUD. A
remaining original Borrower must be
maintained and continue to be
personally liable for the Section 184
Guaranteed Loan, notwithstanding any
discharge entered in accordance with
applicable Tribal, Federal, or State law.
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A Servicer shall take prompt action to
collect amounts due from Borrowers to
minimize the number of accounts in
default status. The Servicer must
exhaust all reasonable possibilities of
collection, including assessing the
Borrower’s financial circumstances for
Loss Mitigation options in accordance
with § 1005.739.
§ 1005.731
Default notice to Borrower.
(a) Live contact. (1) The Servicer shall
establish or make good faith efforts to
establish live contact with a Borrower in
default not later than the 36th day of the
Borrower’s default and, promptly after
establishing live contact, inform such
Borrower about the availability of Loss
Mitigation options.
(2) A good faith effort to establish live
contact consists of reasonable steps
under the circumstances to reach a
Borrower, including telephoning a
Borrower on more than one occasion
and, if unable to establish live contact,
sending written or electronic
communication encouraging a Borrower
to establish live contact with the
Servicer.
(b) Written notice. The Servicer shall
give written notice of default to the
Borrower, in a format approved by HUD,
no later than the end of the 45th day of
a Borrower default. The Servicer must
contact the Borrower, whether the
Borrower lives in the same or a different
location. If an account is reinstated and
again enters default, a new default
notice shall be sent to the Borrower,
except that the Servicer is not required
to send a second default notice to the
same Borrower more often than once
during any 180-day period. The Servicer
may give additional or more frequent
notices of default, at its discretion.
(c) Content of the written notice. The
notice required by paragraph (b) of this
section shall include:
(1) A statement encouraging the
Borrower to contact the Servicer;
(2) Servicer contact information,
including but not limited to the
telephone number to access Servicer
personnel and the Servicer’s mailing
address;
(3) A statement providing a brief
description of examples of Loss
Mitigation options that may be available
from the Servicer and a statement how
a Borrower may obtain more
information about Loss Mitigation
options;
(4) An outline of all critical Servicing
deadlines under this subpart, including
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but not limited to the Servicer
timeframe for evaluating a complete
Loss Mitigation application, deadline
for Borrower to select a Loss Mitigation
option, Tribal notice under
§ 1005.757(a), if applicable, and the
process for filing First Legal Action;
(5) Disclosure to the Borrower that
they may be eligible for additional
protections under Consumer Financial
Protection Bureau regulations in 12 CFR
chapter X;
(6) A Loss Mitigation application and
submission instructions, including a
statement that delays in submission of
the Loss Mitigation application or
incomplete submissions shall reduce
the availability of certain Loss
Mitigation options to the Borrower;
(7) The manner in which a Borrower
can access the HUD list of
homeownership counselors or
counseling organizations, including a
website(s) or toll-free telephone(s); and
(8) A statement informing the
Borrower that the Servicer may make
information available to local credit
bureaus and prospective creditors.
(d) Conflicts with other law. Nothing
in this section shall require a Servicer
to communicate with a Borrower in a
manner otherwise prohibited by
applicable Tribal, Federal, or State law.
§ 1005.733 Loss mitigation application,
timelines, and appeals.
(a) Servicer response to Loss
Mitigation application. Within five days
after the Servicer receives the
Borrower’s Loss Mitigation application,
the Servicer must, in writing:
(1) Acknowledge receipt of the
application;
(2) Determine if the application is
complete or incomplete; and
(3) If incomplete, notify the Borrower
which documentation is required and
missing, and that submission of the
missing documents is required no later
than fourteen days from the date of the
response to provide missing documents
to the Servicer. If Borrower does not
timely submit the requested documents,
the Servicer must initiate live contact
with the Borrower.
(b) Servicer timeframe for evaluating
complete Loss Mitigation application.
Within fourteen days of receipt of a
complete application from Borrower,
the Servicer must evaluate the
application.
(c) Notification of Servicer
determination. The Servicer shall
provide written notification: (1)
Informing the Borrower of all available
Loss Mitigation options;
(2) Encouraging the Borrower to
review all available Loss Mitigation
options and to contact the Servicer with
any questions;
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(3) Encouraging Borrowers, when
feasible, to consider pursuing
simultaneous Loss Mitigation options,
to the extent it is offered by the Servicer;
(4) Informing the Borrower that if no
Loss Mitigation option is elected or if all
elected Loss Mitigation options fail, the
Servicer may proceed with Tribal notice
under § 1005.757(a) or First Legal
Action at 180 days of default in
accordance with § 1005.757 or
§ 1005.761; and
(5) Informing the Borrower that, upon
First Legal Action or the assignment of
the Section 184 Guaranteed Loan to
HUD, the Servicer may no longer offer
or authorize a pre-foreclosure sale as an
alternative to foreclosure, and that the
primary alternative to foreclosure shall
be a deed-in-lieu/lease-in-lieu of
foreclosure, subject to applicable Tribal,
Federal, or State law or contractual
requirements.
(d) Appeal. (1) If, after the Borrower
receives the Servicer’s Loss Mitigation
options, the Borrower disagrees with
Servicer’s Loss Mitigation
determination, the Borrower may appeal
in writing and request that the Servicer
re-evaluate the Borrower’s Loss
Mitigation application. The Borrower
must submit its appeal no later than 14
days from the date of notification of the
Servicer’s Loss Mitigation
determination. Upon receipt of the
Borrower’s appeal of the Servicer’s Loss
Mitigation determination, the Servicer
shall re-evaluate the Borrower’s Loss
Mitigation application within thirty
days but may not use the same staff that
made the initial Loss Mitigation
determination and shall notify the
Borrower of its appeal decision in
writing.
(2) If the Borrower submits a timely
written appeal, the 180-day deadline for
First Legal Action shall be suspended
during the appeal process.
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§ 1005.735
Occupancy inspection.
(a) Occupancy inspection. An
occupancy inspection is a visual
inspection of a Section 184 Guaranteed
Loan property by the Servicer to
determine if the property is vacant or
abandoned and to confirm the identity
of any occupants.
(b) Occupancy follow-up. An
occupancy follow-up is an attempt to
communicate with the Borrower via
letter, telephone, or other method of
communication, other than on-site
inspection, to determine occupancy
when the Section 184 Guaranteed Loan
remains in default after the initial
occupancy inspection that did not result
in determination of the Borrower’s
occupancy status.
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(c) Initial occupancy inspection. The
Servicer must perform the initial
occupancy inspection after the 45th day
of default but no later than the 60th day
of the default when:
(1) A payment has not been received
within 45 days of the due date or for any
other defaults under the Section 184
Guaranteed Loan; and
(2) Efforts to reach the Borrower or
occupant have been unsuccessful.
(d) Occupancy follow-ups and
continued inspections. If the Servicer is
unable to determine the Borrower’s
occupancy status through the initial
occupancy inspection, the Servicer must
perform occupancy follow-ups and, if
necessary, occupancy inspections every
25–35 days from the last inspection
until the occupancy status is
determined.
(e) Occupancy inspections during
bankruptcy. When payments are not
submitted and a Borrower is a debtor in
bankruptcy, the Servicer must contact
either the bankruptcy trustee or the
Borrower’s bankruptcy attorney, if the
Borrower is represented, for information
concerning the occupancy status of the
property or if an occupancy inspection
is necessary or requires authorization. If
the Servicer cannot determine that the
property is vacant or abandoned during
the period of the automatic stay, the
Servicer must document the servicing
case binder with evidence that it timely
contacted the attorney or trustee.
(f) Conflicts with other law. Nothing
in this section shall require a Servicer
to conduct an inspection when
prohibited by applicable Tribal, Federal,
State, or local law.
§ 1005.737
Vacant property procedures.
If the Servicer determines through an
occupancy inspection or occupancy
follow-up that the property is vacant or
abandoned, the Servicer must send a
letter, via certified mail or other method
providing delivery confirmation, to all
Borrowers at the property address, or
other known address of Borrower,
informing them of the Servicer’s
determination that the property is
vacant or abandoned. This letter must
include the Servicer’s contact
information.
(a) If occupancy is verified through
the delivery confirmation, the Servicer
shall continue pursuing collection
efforts required by § 1005.729 until the
Servicer has the authority to proceed to
First Legal Action.
(b) If the Servicer verifies through the
delivery confirmation process that the
property is vacant or abandoned; then
the Servicer shall:
(1) Commence first-time vacant
property inspection;
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78367
(2) Take appropriate property
preservation and protection actions to
secure and maintain the property;
(3) For properties on Trust Land,
initiate Tribal First Right of Refusal
notice under § 1005.757(a) within seven
days;
(4) For fee simple properties, initiate
First Legal Action within seven days;
(5) Continue to perform vacant
property inspections every 25–35 days
until the default is cured, the property
is disposed of, or the bankruptcy court
has granted approval for the Servicer to
contact the Borrower or to take any
required property preservation actions;
and
(6) Retain documentation in the
servicing case binder providing
evidence of activities required by HUD
in this section or otherwise directed by
HUD.
(c) Conflicts with other law. Nothing
in this section shall require a Servicer
to communicate with a Borrower in a
manner prohibited by applicable Tribal,
Federal, or State law.
Servicing Default Section 184
Guaranteed Loans Under the Loss
Mitigation Program
§ 1005.739
Loss mitigation.
(a) The purpose of Loss Mitigation is
to attempt to cure the Borrower’s default
and minimize financial loss to HUD.
Servicer must also comply with 12 CFR
1024.41 and any applicable Tribal,
Federal, and State requirements.
(b) The Servicer must offer a Loss
Mitigation option, if applicable to the
Borrower and if practical under the
circumstances, within 180 days of the
date of default.
(c) Loss mitigation options include:
(1) A forbearance plan;
(2) Assumption;
(3) A loan modification;
(4) Pre-foreclosure sale;
(5) A deed-in-lieu/lease-in-lieu of
foreclosure; or
(6) Other options, as may be
prescribed in Section 184 Program
Guidance.
(d) A Loss Mitigation review shall, to
the greatest extent possible, be based on
a full financial assessment of the
Borrower at time of default, and the
collection technique(s) must take into
account the circumstances particular to
each Borrower.
(e) HUD may prescribe conditions and
requirements for the eligibility and
appropriate use of Loss Mitigation
options.
(f) Within 180 days of default, if the
Borrower is offered a Loss Mitigation
option, other than loan modification,
and subsequently fails to meet the Loss
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Mitigation option requirements, the
Servicer shall within the time period as
may be established by Section 184
Program Guidance of the failure of the
Loss Mitigation, determine whether
Borrower should continue with the
current Loss Mitigation option or
reassess the Borrower for an alternate
Loss Mitigation option.
(1) Upon competition of the Loss
Mitigation assessment, the Servicer
must notify the Borrower within two
days of the Loss Mitigation option
failure and any possible additional Loss
Mitigation options.
(2) The Borrower shall respond to the
Servicer within seven days and accept
any offer of Loss Mitigation, or the
Servicer will proceed with foreclosure
or Tribal First Right of Refusal notice
under § 1005.757(a).
(g) If the Borrower is satisfactorily
performing under a Loss Mitigation
option, other than a loan modification,
at 180 days after default but
subsequently fails to perform, the
Servicer shall follow 12 CFR part 1024
(Regulation X) and, for Trust Land,
initiate Tribal First Right of Refusal
notice under § 1005.757(a) within five
days of the Loss Mitigation option
failure.
(h) Documentation must be
maintained for the initial and all
subsequent evaluations and resulting
Loss Mitigation actions in the servicing
case binder in accordance with
§ 1005.219(d)(2).
(i) A Servicer that is found to have
failed to engage in and comply with
Loss Mitigation as required under this
subpart may be subject to enforcement
action by HUD, including but not
limited to sanctions under §§ 1005.905
and 1005.907.
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(a) When two consecutive Section 184
Guaranteed Loan payments are in
default or sixty days after other default
under the Section 184 Guaranteed Loan,
the Servicer shall provide notice of
default to:
(1) The BIA, for Section 184
Guaranteed Loan property that is on
Trust Land, in accordance with
applicable requirements under 25 CFR
part 162; and,
(2) The Tribe, for any Section 184
Guaranteed Loan property where a
Borrower has provided consent of
notification in accordance with
§ 1005.501(j).
(b) The Servicer shall continue
exploring Loss Mitigation options,
consistent with the requirements under
this subpart, with the Borrower during
21:11 Dec 20, 2022
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§ 1005.743
service.
Relief for Borrower in military
(a) Postponement of principal
payments. If the Borrower is a person in
‘‘military service,’’ as such term is
defined in the Servicemembers Civil
Relief Act (50 U.S.C. 3901–4043), the
Servicer may, by written agreement with
the Borrower, postpone for the period of
military service and three months
thereafter any part of the monthly
payment which represents the
Amortization of principal. The
agreement shall contain a provision for
the resumption of monthly payments
after such period in amounts which will
completely amortize the Section 184
Guaranteed Loan within the maturity as
provided in the original loan term.
(b) Forbearance. Forbearance plans
may be available to Borrowers in
military service pursuant to
§ 1005.745(e).
(c) Postponement of foreclosure. If at
any time during default the Borrower is
a person in ‘‘military service,’’ as such
term is defined in the Servicemembers
Civil Relief Act, the period during
which the Borrower is in such military
service shall be excluded in computing
the period within which the Servicer
shall commence First Legal Action to
acquire the property or Tribal notice
under § 1005.757(a). No postponement
or delay in the prosecution of
foreclosure proceedings during the
period the Borrower is in such military
service shall be construed as failure on
the part of the Servicer to exercise
reasonable diligence in prosecuting
such proceedings to completion as
required by this subpart.
§ 1005.745
§ 1005.741 Notice to Tribe and BIA—
Borrower default.
VerDate Sep<11>2014
the notification process to the Tribe or
BIA.
Forbearance plans.
(a) General. Forbearance plans are
arrangements between a Servicer and
Borrower that may allow for a period of
reduced or suspended payments and
specific terms for the repayment plan.
(b) Informal forbearance. Informal
forbearance plans are oral agreements,
where permitted under Tribal or State
law, between a Servicer and Borrower
allowing for reduced or suspended
payments and may provide specific
terms for repayment.
(1) Eligibility. The Servicer may offer
an informal forbearance plan to a
Borrower with a delinquent Section 184
Guaranteed Loan who is not
experiencing a loss of income or an
increase in living expenses that can be
verified.
(2) Duration. The period shall be three
months or less.
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(c) Formal forbearance. Formal
forbearance plans are written
agreements executed by the Servicer
and Borrower, allowing for reduced or
suspended payments and such plans
may include specific terms for
repayment.
(1) Eligibility. The Servicer may offer
a formal forbearance plan when:
(i) The Borrower is not experiencing
a loss of income or increase in living
expenses that can be verified;
(ii) The Servicer determines that 85
percent of the Borrower’s surplus
income is sufficient to reinstate within
six months; or
(iii) If the Servicer determines that the
Borrower is otherwise ineligible for
other Loss Mitigation options but has
sufficient surplus income or other assets
that could repay the indebtedness.
(2) Agreement. The Servicer shall
execute a written agreement with the
Borrower outlining the terms and
conditions of the formal forbearance.
The Servicer must include in the formal
forbearance agreement a provision for
the resumption of monthly payments on
a date certain, with repayment in
amounts which will completely
reinstate the Section 184 Guaranteed
Loan no later than the original maturity
date. The Servicer must retain in the
servicing case binder a copy of the
written formal forbearance agreement
postponing principal and interest
payments.
(3) Duration. The repayment period
shall be equal to or greater than three
months but not to exceed six months,
unless authorized by HUD.
(4) Required documents. The Servicer
must obtain from the Borrower any
necessary supporting documentation
and retain this documentation in the
servicing case binder.
(5) Property condition. The Servicer
must conduct any review it deems
necessary, including a property
inspection, when the Servicer has
reason to believe that the physical
condition of the property adversely
impacts the Borrower’s use or ability to
support the debt as follows:
(i) Financial information provided by
the Borrower indicating large expenses
for property maintenance;
(ii) The Servicer receives notice from
local government or other third parties
regarding property condition; or
(iii) The property may be affected by
a disaster event.
(iv) If significant maintenance costs
contributed to the default or are
affecting the Borrower’s ability to make
payments under the loan or formal
forbearance agreement, the Servicer may
provide in the formal forbearance
agreement a period of loan forbearance
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during which repairs specified in the
agreement will be completed at the
Borrower’s expense.
(d) Special forbearanceunemployment. The special
forbearance-unemployment Loss
Mitigation option is available when one
or more of the Borrowers has become
unemployed and the loss of
employment has negatively affected the
Borrower’s ability to continue to make
their monthly Section 184 Guaranteed
Loan payment.
(1) Eligibility. The Servicer must
ensure that the Borrower meets all the
following eligibility requirements:
(i) The Section 184 Guaranteed Loan
must be at least three months in default.
(ii) The Borrower is experiencing a
verified loss of income or increase in
living expenses due to loss of
employment.
(iii) The Borrower must continue to
occupy the property as a Principal
Residence.
(iv) The Borrower must have a
verified unemployment status and no
Borrower is currently receiving
continuous income; or an analysis of the
Borrower’s financial information
indicates that special forbearanceunemployment is the best or only
option available for the Borrower.
(2) Agreement. The Servicer shall
execute a written special forbearanceunemployment agreement with the
Borrower outlining the terms and
conditions of the special forbearance—
unemployment. The Servicer must
include in the special forbearanceunemployment agreement a provision
for the resumption of monthly payments
on a date certain, with repayment in
amounts which will completely
reinstate the Section 184 Guarantee
Loan no later than the original maturity.
The Servicer must retain in the
servicing case binder a copy of the
written special forbearanceunemployment agreement postponing
principal and interest payments.
(3) Duration. The repayment period
shall not exceed six months. During this
repayment period where Borrower is in
compliance with the Special
Forbearance-Unemployment Agreement,
the Servicer shall not proceed to filing
of First Legal Action or initiating Tribal
First Right of Refusal notice under
§ 1005.757(a) until expiration or default
of the Agreement.
(4) Required documents. The Servicer
must obtain from the Borrower such
supporting third party documentation,
including receipts of unemployment
benefits or an affidavit signed by the
Borrower, stating the date that the
Borrower became unemployed and
stating that the Borrower is actively
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21:11 Dec 20, 2022
Jkt 259001
seeking, and is available, for
employment. The Servicer must retain
this documentation in the servicing case
binder.
(5) Property condition. The Servicer
must conduct any review it deems
necessary, including a property
inspection, when the Servicer has
reason to believe that the physical
condition of the property adversely
impacts the Borrower’s use or ability to
support the debt as follows:
(i) Financial information provided by
the Borrower indicating large expenses
for property maintenance;
(ii) The Servicer receives notice from
local government or other third parties
regarding property condition; or
(iii) The property may be affected by
a disaster event.
(iv) If significant maintenance costs
contributed to the default or are
affecting the Borrower’s ability to make
payments under the Section 184
Guaranteed Loan or special forbearanceunemployment agreement, the Servicer
may provide in the special forbearanceunemployment agreement a period of
forbearance during which repairs
specified in the agreement will be
completed at the Borrower’s expense.
(e) Special forbearanceservicemember. The Servicer may, by
written special forbearanceservicemember agreement with the
Borrower, postpone any part of the
monthly Section 184 Guaranteed Loan
that represents amortization of
principal, for the period permitted by
HUD under § 1005.743.
(1) Eligibility. The servicemember
must be in active-duty military service
and meet the criteria established in 50
U.S.C. 3911. Dependents of
servicemembers are entitled to
protections in limited situations per the
Servicemembers Civil Relief Act, as
amended.
(2) Duration. The repayment period
shall be for the period of military
service and three months thereafter.
(3) Required documents. The
Borrower shall provide Servicer with a
copy of the servicemember’s
deployment orders.
(4) Agreement. (i) The Servicer shall
execute a written special forbearanceservicemember agreement with the
Borrower outlining the terms and
conditions of the special forbearanceservicemember. The Servicer must
include in the special forbearanceservicemember agreement a provision
for the resumption of monthly payments
on a date certain, with repayment in
amounts which will completely
reinstate the Section 184 Guaranteed
Loan no later than the original maturity
date. The Servicer must retain in the
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78369
servicing case binder a copy of the
written special forbearanceservicemember agreement postponing
principal and interest payments.
(ii) The Servicer shall comply with all
applicable requirements under the
Servicemembers Civil Relief Act.
(f) Continued review and reevaluation. The Servicer shall monitor
the Borrower’s compliance with an
agreement under § 1005.743 every 30
days, until the end of the agreement.
§ 1005.747
Assumption.
The Servicer shall explore assumption
as a Loss Mitigation option with the
Borrower in accordance with
§ 1005.711.
§ 1005.749
Loan modification.
(a) General. A Section 184 Guaranteed
Loan modification may include a
change in one or more of the following:
interest rate; capitalization of
delinquent principal, interest or escrow
items; or re-amortization of the balance
due. A Section 184 Guaranteed Loan
modification may not be used as a
means to reinstate the Section 184
Guaranteed Loan prior to sale or
assumption.
(b) Eligibility. The Servicer must
ensure that the Borrower is able to
support the monthly loan payment after
the loan is modified.
(c) Borrower qualifications. The
Servicer must ensure that the Borrower
meets the following eligibility criteria:
(1) At least 12 months have elapsed
since the closing date of the original
Section 184 Guaranteed Loan.
(2) The Borrower has not executed a
loan modification agreement in the past
24 months. The number of loan
modification agreements may be limited
as prescribed by Section 184 Program
Guidance. The Servicer may approve
the first loan modification agreement
under the Loan, and HUD must approve
any subsequent loan modifications.
(3) The Borrower’s default is due to a
verified loss of income or increase in
living expenses.
(4) One or more Borrowers receives
continuous income sufficient to support
the monthly payment under the
modified rate and term, although not
sufficient to sustain the original Section
184 Guaranteed Loan and repay the
arrearage.
(5) The Borrower’s minimum surplus
income and percentage of net income
shall be prescribed by HUD.
(6) Eighty-five percent of the
Borrower’s surplus income is
insufficient to cure arrears within six
months.
(7) The Borrower’s monthly payment,
which consists of principal, interest,
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taxes, insurance, and other escrow, can
be reduced by the greater of 10 percent
of the existing monthly Section 184
Guaranteed Loan payment amount or
$100, using an agreed upon interested
rate in accordance with § 1005.451 and
amortizing for a term up to 30 years or
any other period as may be prescribed
by HUD.
(8) The Borrower has successfully
completed a three-month trial payment
plan based on the Section 184
Guaranteed Loan estimated
modification monthly payment amount.
(d) Property conditions. The Servicer
must conduct any review it deems
necessary, including a property
inspection, when the Servicer has
reason to believe that the physical
conditions of the property adversely
impact the Borrower’s use or ability to
support the debt as follows:
(1) Financial information provided by
the Borrower indicates large expenses
for property maintenance;
(2) The Servicer receives notice from
local government or other third parties
regarding property condition; or
(3) The property is affected by a
disaster event.
(e) Trial payment plans. A trial
payment plan is a written agreement
executed by all parties on the Section
184 Guaranteed Loan, for a minimum
period of three months, during which
the Borrower must make the agreedupon consecutive monthly payments
prior to execution of the final loan
modification.
(1) Trial payment plan terms. The
Servicer must ensure that the following
apply to interest rates and monthly
payment amounts under trial payment
plan:
(i) The interest rate for the trial
payment plan and the loan modification
must in accordance with § 1005.451.
(ii) The interest rate is established
when the trial payment plan is offered
to the Borrower.
(iii) The established monthly loan
modification payment must be the same
or less than the established monthly
trial payment.
(2) Start of trial payments. The
Servicer must send the proposed trial
payment plan agreement to the
Borrower at least 30 days before the date
the first trial payment is due.
(3) Trial payment plan signatures. (i)
All parties on the Section 184
Guaranteed Loan and all parties that
will be subject to the modified loan
must execute the trial payment plan
agreement unless:
(A) A Borrower or co-Borrower is
deceased;
(B) A Borrower and a co-Borrower are
divorced; or
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21:11 Dec 20, 2022
Jkt 259001
(C) A Borrower or co-Borrower on the
Section 184 Guaranteed Loan has been
released from liability as the result of an
approved substitute Borrower.
(ii) When a Borrower uses a nonBorrower household member’s income
to qualify for a loan modification, the
non-Borrower household member must
be on the modified note and Section 184
Guaranteed Loan and sign the trial
payment plan agreement.
(4) Application of trial payments. The
Servicer must treat payments made
under the trial payment plan as Partial
Payments, held in a suspense account
and applied in accordance with
procedures in the Section 184 Program
Guidance and applicable Federal
regulations.
(5) End of trial payment plan period.
The Servicer must offer the Borrower a
permanent loan modification after the
Borrower’s successful completion of a
trial payment plan.
(6) Trial payment plan failure. The
Borrower fails a trial payment plan
when one of the following occurs:
(i) The Borrower does not return the
executed trial payment plan agreement
within the month the first trial payment
is due;
(ii) The Borrower vacates or abandons
the property; or
(iii) The Borrower does not make a
scheduled trial payment plan payment
by the last day of the month it was due.
(7) Alternatives to foreclosure after
trial payment plan failure. If a Borrower
fails to successfully complete a trial
payment plan, the Servicer must:
(i) Provide notice to the Borrower of
the failure to comply with the trial
payment plan; and
(ii) Offer the Borrower the
opportunity for a deed-in-lieu/lease-inlieu of foreclosure, with seven days to
respond to the offer.
(8) Funds remaining at the end of trial
payment period. (i) At the end of a
successful trial payment plan, any
remaining funds that do not equal a full
payment must be applied to any escrow
shortage or be used to reduce the
amount that would be capitalized onto
the principal balance.
(ii) If the Borrower does not complete
the trial payment plan, the Servicer
must apply all funds held in suspense
to the Borrower’s account in the
established order of priority.
(9) Reporting of trial payment plans.
The Servicer must report the trial
payment plans to HUD in the manner
prescribed in Section 184 Program
Guidance.
(f) Loan modification documents.
HUD does not require a specific format
for the loan modification documents;
however, the Servicer must use
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documents that conform to all
applicable Tribal, Federal, and State
laws.
(g) Post-modification review and
modification of Loan Guarantee
Certificate. Upon completion of a
successful trial payment plan and
within 30 days of the execution of the
loan modification documents, the
Servicer shall provide copies of the loan
modification documents to HUD. The
Servicer shall comply with additional
processing instructions as prescribed by
Section 184 Program Guidance.
§ 1005.751
Pre-foreclosure sale.
(a) General. A pre-foreclosure sale,
also known as a short sale, refers to the
sale of real estate that generates
proceeds that are less than the amount
owed on the property and any junior
lien holders have agreed to release their
liens and forgive the deficiency balance
on the real estate.
(b) Eligibility. To be eligible for a preforeclosure sale, a Servicer must ensure:
(1) The Section 184 Guaranteed Loan
was originated at least 12 months prior
to default;
(2) Default was due to an adverse and
unavoidable financial situation
impacting the Borrower;
(3) The property has a current fair
market value that equal to or less than
the unpaid principal balance;
(4) The Borrower elected the preforeclosure sale option within 120 days
from default; and
(5) All other requirements of the preforeclosure sale Loss Mitigation option
under this section are met.
(c) Surchargeable damages.
Surchargeable damage is damage to the
Section 184 Guaranteed Loan property
caused by fire, flood, earthquake,
tornado, boiler explosion (for
condominiums only) or Servicer
neglect. The Servicer is responsible for
the cost of surchargeable damage. The
Servicer must request HUD approval
before approving the use of the preforeclosure sale Loss Mitigation option
when the property has sustained
surchargeable damage. If the damage is
not surchargeable damage, the Servicer
is not required to obtain HUD approval
prior to approving the Approval to
Participate Agreement with Borrower.
The Servicer must comply with
paragraph (l) of this section where a
hazard insurance claim must be filed.
(d) Cash reserves. Before executing a
pre-foreclosure sale agreement as
described in paragraph (h) of this
section, Servicer must calculate the
Borrower’s cash reserve contribution.
(1) The cash reserve contribution shall
come from non-retirement liquid assets,
which may be available for withdrawal
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or liquidation from Borrower’s financial
institutions. Servicer shall calculate the
total cash reserves using the highest
ending balance of each cash reserve
asset.
(2) The Servicer must require the
Borrower with cash reserves greater
than the contribution threshold to
contribute 20 percent of the total
amount exceeding the contribution
threshold towards the Section 184
Guaranteed Loan debt. The Servicer
must not require the Borrower to
contribute more than the difference
between the unpaid principal balance
and the appraised value of the property.
The Servicer must give written notice to
the Borrower designating the amount of
the Borrower’s cash reserve contribution
that is to be applied towards the
transaction.
(3) If the cash reserve calculation
returns an amount at or below the
contribution threshold amount, or a
negative amount, the Servicer is not
required to obtain a contribution from
the Borrower in connection with the
transaction.
(e) Condition of title or Title Status
Report. (1) For Section 184 Guaranteed
Loans on fee simple lands, a Servicer
must ensure the property has Good and
Marketable Title. Before approving a
pre-foreclosure sale Loss Mitigation
option, the Servicer must obtain title
evidence or a preliminary report
verifying that the title is not impaired by
unresolvable title defects or junior liens
that cannot be discharged.
(2) For Section 184 Guaranteed Loans
on Trust Land, the Servicer shall obtain
a certified Title Status Report from the
BIA. Before approving a pre-foreclosure
sale Loss Mitigation option, the Servicer
must verify that the property is not
encumbered by unresolvable title
defects or junior liens that cannot be
discharged.
(f) Discharge of junior liens. The
Servicer must contact all junior
lienholders to verify the Borrower has
secured a discharge of the junior liens.
(g) Property list price and valuation—
(1) List price. The Servicer must ensure
that the Borrower lists the property for
sale at no less than the ‘‘as-is’’ value, as
determined by an appraisal completed
in accordance with the requirements in
§ 1005.457.
(2) Appraisals. The Servicer must
obtain a standard electronically
formatted appraisal performed by an
FHA Appraiser Roster pursuant to the
following requirements:
(i) The appraisal must contain an ‘‘asis’’ fair market value for the subject
property;
(ii) A copy of the appraisal must be
provided to HUD. A copy of the
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21:11 Dec 20, 2022
Jkt 259001
appraisal must be provided to the
Borrower or sales agent, upon request;
(iii) The ‘‘as-is’’ fair market value used
for a pre-foreclosure sale transaction is
valid for 120 days; and
(iv) A Servicer must present HUD
with a request for a variance to approve
a pre-foreclosure sale transaction if one
of the following conditions exists:
(A) The current appraised value of the
property is less than the unpaid
principal balance by an amount of
$75,000 or greater;
(B) The appraised value is less than
50 percent of the unpaid principal
balance; or
(C) The appraisal is deemed
unacceptable because the as-is value
cannot be affirmed using a broker’s
price opinion or automated valuation
model within 10 percent of the value.
This section is not applicable to
property on Trust Land unless there is
a viable real estate market;
(v) The Servicer must note on the
variance request the specific reason for
the request and attach any supporting
documents needed for HUD review;
(vi) The Servicer must obtain HUD
approval before authorizing the
marketing of the property; and
(vii) All pre-foreclosure appraisals
must be accompanied by a broker’s
price opinion or an automated valuation
model, unless the property is located on
Trust Land.
(h) Required documents. After
determining that a Borrower and
property meet the pre-foreclosure sale
eligibility requirements, the Servicer
shall send to the Borrower:
(1) Pre-foreclosure Sale Approval to
Participate Agreement. The agreement,
on a form prescribed by Section 184
Program Guidance, shall list the preforeclosure sale requirements, including
the date by which the Borrower’s sales
contract must be executed during the
pre-foreclosure sale marketing period
and applicable cash reserve amount;
and
(2) Pre-foreclosure addendum. The
addendum shall be in the form
prescribed by Section 184 Program
Guidance. The pre-foreclosure sale
addendum must be fully executed at
closing.
(i) Delivery of documents to Borrower.
Documents listed under paragraphs
(h)(1) and (2) of this section must be
sent to the Borrower via methods
providing delivery confirmation with a
date and time stamp of delivery. The
Servicer must inform the Borrower that
the documents must be signed and
returned to the Servicer within 10 days
of receipt.
(j) Copies to HUD. The Servicer must
send signed copies of the documents in
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78371
paragraphs (h)(1) and (2) of this section
to HUD within 15 days of receipt from
the Borrower.
(k) Tribal notification for properties
on Trust Land. At the same time the
Servicer sends the approval to
participate agreement to the Borrower,
in accordance with the requirements as
prescribed by Section 184 Program
Guidance, the Servicer shall send a
notice to the Tribe and the TDHE of the
option to assume the Section 184
Guaranteed Loan or purchase the
property.
(l) Use of a real estate broker. The
Borrower is responsible for retaining the
services of a HUD-approved real estate
broker/agent within seven days of the
signed approval to participate
agreement. For Trust Land, the
Borrower may request, through the
Servicer, an exception to this section. If
an exception is granted, HUD will work
with the Borrower, Servicer and Tribe or
TDHE to sell the property or pursue
another Loss Mitigation option.
(m) Required listing disclosure. The
Servicer shall require the listing
agreement between the seller and the
agent/broker to include the following
cancellation clause: ‘‘Seller may cancel
this Agreement prior to the ending date
of the listing period without advance
notice to the Broker, and without
payment of a commission or any other
consideration if the property is
conveyed to HUD or the Holder. The
sale completion is subject to approval
by the Servicer and HUD.’’ This section
is not applicable to property on Trust
Land unless a HUD-approved real estate
broker/agent is utilized.
(n) Pre-foreclosure sale marketing,
settlement period, failure to complete
pre-foreclosure sale. The Borrower has a
timeframe, as prescribed by Section 184
Program Guidance, seven days from the
date of the signed approval to
participate agreement to market the
property in the Multiple Listing Service,
or other marketing resource if the
property is on Trust Land.
(1) The property must be marketed in
the Multiple Listing Service or other
marketing resource for a timeframe as
prescribed by Section 184 Program
Guidance before Borrower may consider
any offers.
(2) During the marketing period,
Servicers must conduct a monthly
review of the property’s marketing
status with the real estate broker/agent
or the Tribe or TDHE, for property on
Trust Land.
(3) The maximum marketing period
for the sale of the property is four
months from the execution date of the
approval to participate agreement and
the date of the property settlement. If
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there is a signed contract of sale, but
property settlement has not occurred by
the end of the fourth month, the
marketing period may be extended up to
two months to allow for closing to
occur.
(4) Within 30 days of the end the
marketing period, or no earlier than 120
days of default, whichever is later, if no
settlement has occurred, Servicer shall
provide electronic or written notice to
the Borrower of the Borrower’s default
under the pre-foreclosure sale
agreement and present the agreed upon
deed-in-lieu/lease-in-lieu of foreclosure,
with title being taken in the name of the
Secretary. The Borrower shall have ten
days from the date of the notice to
respond in writing or by electronic
means. If the Servicer receives no
response or if the Servicer receives
notice of the Borrower’s rejection of the
alternative to foreclosure, the Servicer
must initiate First Legal Action or Tribal
First Right of Refusal within five days
of the Borrower’s deadline to respond or
actual rejection response date,
whichever is sooner.
(o) Property inspections and
maintenance. The Servicer shall inspect
the property in accordance with
§ 1005.735 and follow § 1005.739, where
applicable.
(p) Disclosure of damage after preforeclosure sale approval. In the event
the property becomes damaged, the
Borrower must report damage to the
Servicer in accordance with the preforeclosure sale agreement. When the
Servicer becomes aware that the
property has sustained damage after a
Borrower has received the approval to
participate agreement, the Servicer must
evaluate the property to determine if it
continues to qualify for the preforeclosure sale program or terminate
participation if the extent of the damage
changes the property’s fair market value.
(q) Hazard insurance claim. Where
applicable, the Servicer must work with
the Borrower to file a hazard insurance
claim and either: use the proceeds to
repair the property; or adjust the claim
by the amount of the insurance
settlement (non-surchargeable damage)
or the Government’s repair cost
estimate.
(r) Evaluation of offers. The Servicer
must receive from the listing real estate
broker/agent an offer that yields the
highest net return to HUD and meets
HUD’s requirements for bids, as follows:
(1) Real estate broker/agent to ensure
execution of documents. The real estate
broker/agent must ensure that the
accepted offer and the pre-foreclosure
sale addendum are signed by all
applicable parties before submitting to
the Servicer for approval.
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(2) Arm’s Length Transaction. The
transaction must be an Arm’s Length
Transaction meaning the transaction
must be between two unrelated parties
who are each acting in their own best
interest.
(3) Back-up offers. Once an offer has
been submitted to the Servicer for
approval, the real estate broker/agent
must retain any offer that the seller
elects to hold for ‘‘back-up’’ until a
determination has been made on the
previously submitted offer.
(s) Contract approval by Servicer—(1)
Review of sales contract. In reviewing
the contract of sale, the Servicer must:
(i) Ensure that the pre-foreclosure sale
is an outright sale of the property and
not a sale by assumption.
(ii) Review the sales documentation to
determine that there are no hidden
terms or special agreements existing
between any of the parties involved in
the pre-foreclosure sale transaction; and
no contingencies that might delay or
jeopardize a timely settlement.
(iii) Determine that the property was
marketed pursuant to HUD
requirements in this part.
(iv) Not approve a Borrower for a preforeclosure sale if the Servicer knows or
has reason to know of the Borrower’s
fraud or misrepresentation of
information.
(2) Sales Contract Review period.
After receiving an executed contract of
sale and pre-foreclosure sale addendum
from the Borrower, the Servicer must
send to the Borrower a Sales Contract
Review, on a form prescribed by Section
184 Program Guidance, no later than
five business days after the Servicer’s
receipt of an executed contract for sale.
(3) Net sale proceeds. (i) Net sale
proceeds are the proceeds of a preforeclosure sale, calculated by
subtracting reasonable and customary
closing and settlement costs from the
property sales price.
(ii) Regardless of the property sale
price, a Servicer may only approve a
pre-foreclosure sale contract for sale if
the net sale proceeds are at or above
minimum allowable thresholds
established by HUD. The net sale
proceeds must conform to the
requirements on the Pre-Foreclosure
Sale Approval to Participate Agreement.
(iii) The Servicer is liable for any
claim overpayment on a pre-foreclosure
sale transaction that closes with less
than the required net sale proceeds,
unless a variance has been granted by
HUD.
(4) Unacceptable settlement costs.
The Servicer must not include the
following costs in the Net Sale Proceeds
calculation:
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(i) Repair reimbursements or
allowances;
(ii) Home warranty fees;
(iii) Discount points or loan fees;
(iv) Servicer’s title insurance fee; and
(v) Third-party fees incurred by the
Servicer or Borrower to negotiate a preforeclosure sale.
(5) Other third-party fees. (i) With the
exception of reasonable and customary
real estate commissions, the Servicer
must ensure that third-party fees
incurred by the Servicer or Borrower to
negotiate a pre-foreclosure sale are not
included on the Closing Disclosure or
similar legal documents unless
explicitly permitted by Tribal or State
law.
(ii) The Servicer, its agents, or any
outsourcing firm it employs must not
charge any fee to the Borrower for
participation in the pre-foreclosure sale.
(t) Closing and post-closing
responsibilities. For the purpose of this
section, with respect to Trust Land, the
closing agent may be selected by the
Tribe or TDHE.
(1) Closing worksheet. Prior to closing,
the Servicer must provide the closing
agent with a Closing Worksheet, on a
form prescribed by HUD, listing all
amounts payable from net sale proceeds;
and a pre-foreclosure sale addendum
signed by all parties.
(2) Servicer review of final terms of
pre-foreclosure sale transaction. The
Servicer will receive from the closing
agent a calculation of the actual net sale
proceeds and a copy of the Closing
Disclosure or similar legal document.
The Servicer must ensure that:
(i) The final terms of the preforeclosure sale transaction are
consistent with the purchase contract;
(ii) Only allowable settlement costs
have been deducted from the seller’s
proceeds;
(iii) The net sale proceeds will be
equal to or greater than the allowable
thresholds;
(iv) A Closing Worksheet form is
included in the claim case binder; and
(v) It reports the pre-foreclosure sale
to consumer reporting agencies.
(3) Closing agent responsibilities after
final approval. Once the Servicer gives
final approval for the pre-foreclosure
sale and the settlement occurs, the
closing agent must:
(i) Pay the expenses out of the Net
Sale Proceeds and forward the Net Sale
Proceeds to the Servicer;
(ii) Forward a copy of the Closing
Disclosure or similar legal document to
the Servicer to be included in the claim
case binder no later than three business
days after the pre-foreclosure sale
transaction closes; and,
(iii) Sign the pre-foreclosure sale
addendum on or before the date the pre-
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foreclosure sale transaction closes,
unless explicitly prohibited by Tribal or
State statute.
(4) Satisfaction of debt. Upon receipt
of the portion of the net sale proceeds
designated for Section 184 Guaranteed
Loan satisfaction, the Servicer must
apply the funds to the outstanding
balance and discharge any remaining
debt, release the lien in the appropriate
jurisdiction, and may file a claim.
(5) Discharge of junior liens. The
Servicer must verify the pre-foreclosure
sale will result in the discharge of junior
liens as follows:
(i) If the Borrower has the financial
ability, the Borrower must be required
to satisfy or otherwise obtain release of
liens.
(ii) If no other sources are available,
the Borrower may obligate up to a
maximum amount from sale proceeds
towards discharging the liens or
encumbrances, such maximum amount
will be prescribed by HUD.
(u) Early termination of preforeclosure participation—(1) Borrowerinitiated termination. The Servicer must
permit a Borrower to voluntarily
terminate participation in the preforeclosure sale Loss Mitigation option
at any time.
(2) Servicer-initiated termination. The
Servicer shall terminate a Borrower’s
pre-foreclosure sale program
participation for any of the following
reasons:
(i) Discovery of unresolvable title
problems;
(ii) Determination that the Borrower is
not acting in good faith to market the
property;
(iii) Significant change in property
condition or value;
(iv) Re-evaluation based on new
financial information provided by the
Borrower that indicates that the case
does not qualify for the pre-foreclosure
sale option; or
(v) Borrower has failed to complete a
pre-foreclosure sale within the time
limits prescribed by Section 184
Program Guidance and no extensions of
time have been granted by HUD.
(3) Notification of pre-foreclosure sale
program participation termination. The
Servicer must forward to the Borrower
a written explanation for terminating
their program participation. This letter
is to include the ‘‘end-of-participation’’
date for the Borrower.
(4) Failure to complete a preforeclosure sale. Should the Borrower be
unable to complete a pre-foreclosure
sale transaction, the Servicer must
proceed with a deed-in-lieu/lease-inlieu of foreclosure in accordance with
§ 1005.753. If the Servicer is unable to
obtain a deed-in-lieu/lease-in-lieu of
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foreclosure, the Servicer must proceed
to First Legal Action or assignment in
accordance with §§ 1005.761 and
1005.763.
§ 1005.753 Deed-in-lieu/lease-in-lieu of
foreclosure.
(a) Requirements. In lieu of instituting
or completing a foreclosure, the Servicer
or HUD may acquire a property by
voluntary Conveyance from the
Borrowers. Conveyance of the property
by deed-in-lieu/lease-in-lieu of
foreclosure is allowed subject to the
Servicer’s compliance with the
following requirements:
(1) The lease-in-lieu of foreclosure for
property on Trust Land shall be
approved by the Tribe prior to execution
and by the BIA at recordation.
(2) The Section 184 Guaranteed Loan
is in default at the time of the deed-inlieu/lease-in-lieu of foreclosure is
executed and delivered.
(3) The Section 184 Guaranteed Loan
is satisfied of record as a part of the
consideration for such Conveyance.
(4) The deed-in-lieu/lease-in-lieu of
foreclosure from the Borrower contains
a covenant which warrants against the
acts of the grantor and all claiming by,
through, or under the grantor and
conveys Good and Marketable Title, or
for leases, assigns without objectionable
encumbrances.
(5) With respect to Section 184
Guaranteed Loans on fee simple lands,
the Servicer transfers to HUD Good and
Marketable Title accompanied by
satisfactory title evidence.
(6) With respect to Section 184
Guaranteed Loans on Trust Lands, the
Servicer provides to HUD a certified
Title Status Report evidencing
assignment to HUD without any
objectionable encumbrances.
(7) The property must meet the
property conditions under § 1005.767.
HUD may consent to Conveyance of the
property by deed-in-lieu/lease-in-lieu of
foreclosure when property does not
meet § 1005.767 in accordance with
procedures in Section 184 Program
Guidance.
(b) Required documentation. A
written agreement must be executed by
the Borrower and Servicer which
contains all of the conditions under
which the deed-in-lieu/lease-in-lieu of
foreclosure will be accepted.
(c) Conveyance to Servicer. Upon
execution of the deed-in-lieu/lease-inlieu of foreclosure document(s), the
Servicer must file for record no later
than two business days from receipt.
(d) Conveyance to HUD, where
applicable. After evidence of
recordation is available, the Servicer
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78373
shall immediately convey the property
to HUD in accordance with § 1005.769.
(e) Reporting for credit purposes. The
Servicer must comply with all
applicable Tribal, Federal, State, and
local reporting requirements, including
but not limited to reporting to credit
reporting agencies.
§ 1005.755
Incentive payments.
As an alternative to foreclosure, or
eviction where applicable, HUD may
authorize an incentive payment to:
(a) Borrowers that complete certain
Loss Mitigation options or for their
agreement to vacate the property after
foreclosure, under the terms established
by the Secretary;
(b) Lenders and Servicers for their
completion of certain Loss Mitigation
options; and (c) Tribes and TDHEs for
their assistance in Loss Mitigation, sale,
or transfer of the Trust Land property.
Assignment of the Loan to HUD,
Foreclosure, and Conveyance
§ 1005.757 Property on Trust Land—Tribal
first right of refusal; foreclosure or
assignment.
(a) For any property on Tribal Land,
the Servicer shall provide written notice
to the Tribe or TDHE of the option to
assume the Section 184 Guaranteed
Loan or purchase the property at the
earlier of:
(1) Any lease provision addressing
Tribal First Right of Refusal;
(2) 120 days after default; or
(3) The exhaustion of all Loss
Mitigation options.
(b) The Tribe or TDHE shall have
either the time frame provided in the
lease or, if not defined in the lease, 60
days to accept or decline the option to
assume the Section 184 Guaranteed
Loan or purchase the property based on
the current appraised value or other
purchase price.
(c) Unless a Borrower has completed
a pre-foreclosure sale or a lease-in-lieu
of foreclosure in accordance with
§§ 1005.751 and 1005.753, the Servicer
must either initiate First Legal Action or
assignment to HUD, within the
timeframes prescribed in §§ 1005.761
and 1005.763.
(d) Any costs associated with failure
to initiate Tribal First Right of Refusal
may be deemed ineligible for claim
payment.
§ 1005.759 Fee simple land properties—
foreclosure or assignment with HUD
approval.
(a) Unless a Borrower has completed
a pre-foreclosure sale or a deed-in-lieu
of foreclosure in accordance with
§§ 1005.751 and 1005.753, the Servicer
must initiate First Legal Action on the
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Section 184 Guaranteed Loan pursuant
to § 1005.761.
(b) Under limited circumstances, HUD
may approve an assignment of a Section
184 Guaranteed Loan to HUD for fee
simple land properties.
§ 1005.761 First Legal Action deadline and
automatic extensions.
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(a) Deadline for First Legal Action.
The Servicer must initiate First Legal
Action, as defined in § 1005.103, within
180 days of default, unless a later date
is authorized under this part.
(b) Automatic extensions to the First
Legal Action deadline. The Section 184
Program allows for automatic extension
to the First Legal Action deadline for the
following reasons and separate HUD
approval is not required.
(1) If Federal law or the laws of the
Tribe or State, in which the Section 184
Guaranteed Loan property is located, do
not permit the commencement of First
Legal Action within the deadline
designated in paragraph (a) of this
section, then the Servicer must
accomplish First Legal Action within 30
days after the expiration of the time
during which First Legal Action is
prohibited; or
(2) If the Borrower is in compliance
with an approved Loss Mitigation plan.
However, upon Borrower’s default or
failure under the Loss Mitigation plan
and expiration of response period in any
required notice or Borrower’s request to
terminate participation in the Loss
Mitigation plan, the Servicer shall refer
the Loan to legal counsel within five
days. First Legal Action must be
initiated within 30 days of the default
or Borrower’s request to terminate the
Loss Mitigation plan.
(3) Other necessary and reasonable
automatic extensions may be allowed,
as prescribed by Section 184 Program
Guidance.
(c) Compliance with Federal law. The
First Legal Action must be in
compliance with all applicable Federal
law, including but not limited to
regulations imposed by the Consumer
Financial Protection Bureau.
(d) Notice to HUD. The Servicer must
provide notice to HUD, in a form as may
be prescribed in Section 184 Program
Guidance, within 15 days of
accomplishing First Legal Action.
§ 1005.763 Assignment of the Section 184
Guaranteed Loan.
(a) Prerequisites for assignment to
HUD. (1) Prior to assignment to HUD,
one of the following conditions must
have been met:
(i) The Servicer has completed its
review of the Borrower’s Loss Mitigation
request, determined that the Borrower
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does not qualify for a Loss Mitigation
option, and properly notified the
Borrower of this decision and, where
the Borrower has initiated a timely
appeal, the appeal process has been
completed or the Borrower’s period to
appeal has expired.
(ii) The Borrower has failed to
perform under an agreement on a Loss
Mitigation option, and the Servicer has
determined that the Borrower is
ineligible for other Loss Mitigation
options or is unable to complete an
additional Loss Mitigation option
within 180 days of default.
(iii) The Servicer has been unable to
determine the Borrower’s eligibility for
any Loss Mitigation option due to the
Borrower’s failure to respond to the
Servicer’s efforts to contact the
Borrower.
(2) Where applicable, the Servicer has
complied with the Right of First Refusal
requirements of § 1005.757(a).
(3) Where applicable, the Servicer has
complied with all Tribal law
requirements.
(4) The Servicer shall conduct an
occupancy inspection in accordance
with § 1005.735. (i) If the property is
vacant or abandoned, secure the
property in accordance with
§ 1005.737(b)(2).
(ii) If the property is occupied, request
and obtain approval from HUD to assign
the property.
(b) Timeframes—(1) Fee simple land
properties. The assignment of fee simple
land properties requires prior HUD
approval. The request for an assignment
must be no earlier than 180 days of
default, unless the Servicer has
determined the property is vacant
pursuant to § 1005.737. Upon the
Servicer’s timely certification of
compliance with paragraphs (a)(1)
through (4) of this section and HUD’s
approval of the assignment, the Holder
shall have five days to execute and
cause the appropriate documents to be
filed, to accomplish assignment to HUD
and submit to HUD evidence of the
filing and a claim in a manner so
prescribed by Section 184 Program
Guidance.
(2) Properties on Trust Land. The
assignment must be no earlier than 180
days after the date of default, unless the
Servicer has determined the property is
vacant pursuant to § 1005.737. Upon the
Servicer’s timely certification of
compliance with paragraphs (a)(1)
through (4) of this section, the Holder
shall have five days cause the
appropriate documents to be filed, to
accomplish assignment to HUD. The
Servicer shall submit to HUD evidence
of the filing and of a claim in a manner
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so prescribed by Section 184 Program
Guidance.
§ 1005.765 Inspection and preservation of
properties.
(a) If at any time the Servicer knows
or should have known the property is
vacant or abandoned, the Servicer shall
comply with the inspection
requirements under § 1005.737.
(b) The Servicer shall take appropriate
action to protect and preserve the
property until its Conveyance to HUD,
if such action does not constitute an
illegal trespass. Taking ‘‘appropriate
action’’ includes the commencement of
First Legal Action or assignment within
the time required by §§ 1005.761 and
1005.763, as applicable.
§ 1005.767
Property condition.
(a) Condition at time of transfer. (1)
When the property is transferred, or a
Section 184 Guaranteed Loan is
assigned to HUD in accordance with
§ 1005.763, the property must be
undamaged by fire, earthquake, flood,
tornado, and Servicer neglect, except as
set forth in this subpart.
(2) A vacant property must be in
broom-swept condition, meaning the
property is, at a minimum, reasonably
free of dust and dirt, and free of
hazardous materials or conditions,
personal belongings, and interior and
exterior debris.
(3) A vacant property is secured and,
if applicable, winterized.
(b) Damage to property by waste. The
Servicer shall not be liable for damage
to the property by waste committed by
the Borrower, or heirs, successors, or
assigns.
(c) Servicer responsibility. The
Servicer shall be responsible for:
(1) Damage by fire, flood, earthquake,
or tornado;
(2) Damage to or destruction of
property which is vacant or abandoned
when such damage or destruction is due
to the Servicer’s failure to take
reasonable action to inspect, protect,
and preserve such property as required
by § 1005.737; and
(3) Any damage, whatsoever, that the
property has sustained while in the
possession of the Servicer, when the
property has been conveyed to HUD
without notice or approval by HUD as
required by § 1005.763.
§ 1005.769 Conveyance of Property to
HUD at or after foreclosure; time of
Conveyance.
(a) At or after foreclosure, the Servicer
shall convey the property to HUD by
one of the following:
(1) Direct Conveyance to HUD. The
Servicer shall cause for the deed to be
transferred directly to HUD. The
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Servicer shall be responsible for
determining that such Conveyance will
comply with all provisions of this part,
including conveying Good and
Marketable Title and producing
satisfactory title evidence to HUD.
(2) Conveyance by the Servicer to
HUD. The Servicer shall acquire Good
and Marketable Title and transfer the
property to HUD within 30 days of the
earlier of:
(i) Execution of the foreclosure deed;
(ii) Acquiring possession of the
property;
(iii) Expiration of the redemption
period;
(iv) Such further time as may be
necessary to complete the title
examination and perfect the title; or
(v) Such further time as HUD may
approve in writing.
(b) On the date the deed is filed for
record, the Servicer shall notify HUD,
on a form prescribed by HUD, advising
HUD of the filing of such Conveyance
and shall assign all rights without
recourse or warranty any or all claims
which the Servicer has acquired in
connection with the loan transaction,
and as a result of the foreclosure
proceedings or other means by which
the Servicer acquired or conveyed such
property, except such claims as may
have been released with the approval of
HUD. The Servicer must file for record
the deed no later than two days after
execution. The Servicer must document
evidence of the submission in the file.
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§ 1005.771
HUD.
Acceptance of property by
(a) Effective date of assignment. HUD
accepts the assignment of a Section 184
Guaranteed Loan when:
(1) The Servicer has assigned the
Section 184 Guaranteed Loan to HUD;
(2) The Servicer has provided HUD
evidence of the recordation; and
(3) HUD pays a claim for the unpaid
principal balance under § 1005.807(a).
(b) Effective date of Conveyance. HUD
accepts Conveyance of the property
when:
(1) The Servicer has deeded the
property to HUD;
(2) The Servicer has provided HUD
evidence of the recordation; and
(3) HUD pays a claim for the unpaid
principal balance under § 1005.807(a)
(c) Servicer ongoing obligation.
Notwithstanding the assignment of the
Section 184 Guarantee Loan or the filing
of the deed to the HUD, the Servicer
remains responsible for ensuring
compliance with this part, including
and any loss or damage to the property,
and such responsibility is retained by
the Servicer until the claim has been
paid by HUD.
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Subpart H—Claims
Claims Application, Submission
Categories, and Types
§ 1005.801
Purpose.
This subpart sets forth requirements
that are applicable to a Servicer’s
submission of an application for Section
184 Guaranteed Loan benefits to HUD.
The Servicer’s submission of the claim
shall be in compliance with this subpart
and process details as set forth by HUD
in Section 184 Program Guidance. This
subpart also sets forth requirements
processing and payment of claim.
§ 1005.803 Claim case binder; HUD
authority to review records.
(a) A Servicer must maintain a claim
case binder for each claim submitted for
payment in accordance with
§ 1005.219(d)(2). The claim case binder
must contain documentation supporting
all information submitted in the claim.
(b) HUD may review a claim case
binder and the associated endorsement
case binder at any time. A Servicer’s
denial of HUD access to any files may
be grounds for sanctions in accordance
with §§ 1005.905 and 1005.907.
(c) Within three business days of a
request by HUD, the Servicer must make
available for review, or forward to HUD,
copies of identified claim case binders.
§ 1005.805
Effect of noncompliance.
(a) When a claim case binder is
submitted to HUD for consideration,
HUD may conduct a post-endorsement
review in accordance with § 1005.527. If
HUD determines that the Section 184
Guaranteed Loan does not satisfy the
requirements of subpart D of this part,
HUD will take one or more of the
following actions:
(1) Reject the claim submission when
the Holder is the originating Direct
Guarantee Lender.
(2) Pay the claim to the current Holder
and demand reimbursement of the claim
from the originating Direct Guarantee
Lender.
(3) Reconvey the property or reassign
the deed of trust or mortgage in
accordance with § 1005.849.
(4) Pursue sanctions against the
originating Direct Guarantee Lender or
Sponsored Entity pursuant to
§§ 1005.905 and 1005.907.
(b) When reviewing a claim case
binder, if HUD determines one or more
of the conditions in paragraph (b)(1) of
this section to be true, HUD may take
one or more of the actions listed in
paragraph (b)(2) of this section:
(1) Conditions. (i) The Servicer failed
to service the Section 184 Guaranteed
Loan in accordance with subpart G of
this part;
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78375
(ii) The Servicer committed fraud or
a material misrepresentation; or
(iii) The Servicer had known or
should have known of fraud or a
material misrepresentation in violation
of this part.
(2) Actions. (i) Place a hold on
processing the claim for reimbursement
of eligible reasonable expenses under
§ 1005.807(b) and provide the Servicer
the opportunity to remedy the
deficiency.
(ii) Reject the claim for
reimbursement of eligible reasonable
expenses under § 1005.807(b) partially
or in its entirety.
(iii) Reconvey the property or reassign
the deed of trust or mortgage in
accordance with § 1005.849, where
applicable, and require the Holder to
refund the claim payment of the unpaid
principal balance under § 1005.807(a)
and expenses under § 1005.807(b). The
Holder may resubmit the claim when
the deficiencies identified by HUD are
cured.
(iv) Pursue administrative offset for
any unpaid amounts owed to HUD
pursuant to 24 CFR part 17.
(v) Pursue sanctions against the
Servicer or Holder pursuant to
§§ 1005.905 and 1005.907.
(vi) Pursue other remedies as
determined by HUD.
(c) If a property is reconveyed or the
deed of trust or mortgage is reassigned
to the Holder, the Holder may not be
reimbursed for any expenses incurred
after Conveyance or reassignment.
(d) If a claim is resubmitted after
reconveyance or reassignment and HUD
determines a decrease in the value of
the property at the time of the
resubmission, HUD may reduce the
claim payment accordingly.
§ 1005.807
Claim submission categories.
There are three claim submission
categories:
(a) Payment of the unpaid principal
balance;
(b) Reimbursement of eligible
reasonable expenses, as prescribed by
Section 184 Program Guidance, up to
the execution of the assignment or date
of Conveyance of the property of the
property to HUD or a third party; and
(c) Supplemental claim for eligible
reasonable expenses incurred prior to
the assignment, Conveyance, or transfer
of the property to a third party, for
which the expenses were omitted from
the Servicer’s prior claim or for a
calculation error made by either
Servicer or HUD.
§ 1005.809
Claim types.
HUD recognizes five different claim
types. The Servicer must submit a claim
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based upon the type of property
disposition. The Servicer shall submit
claims within timeframes established in
this section. The claim types are:
(a) Conveyance. When the property is
deeded to HUD through or after
foreclosure or by deed-in-lieu or leasein-lieu of foreclosure:
(1) The Servicer must submit a claim
under § 1005.807(a) to HUD no later
than 45 days from the date the deed to
HUD is executed, unless an extension of
time is granted by HUD.
(2)(i) Fee simple land. The claim must
include the final title policy evidencing
HUD’s ownership through foreclosure or
transfer of the ownership of the property
through deed-in-lieu to HUD.
(ii) Trust Land. The claim must
include a certified Title Status Report
evidencing HUD’s leasehold interest
through foreclosure or the transfer of the
mortgage and leasehold interest to HUD
through lease-in-lieu.
(3) In cases where the Servicer is
unable to comply with paragraph
(a)(2)(ii) of this section, the Servicer
shall submit the claim pending the
certified Title Status Report in
accordance with the time frame
specified in paragraph (a)(1) of this
section.
(4) Servicers must submit claims
under § 1005.807(b) no later than 60
days after the date the deed to HUD is
executed, unless an extension of time is
granted by HUD.
(b) Assignment of the loan. When the
Holder assigns the Section 184
Guaranteed Loan to HUD:
(1) The Servicer must submit a claim
under § 1005.807(a) and (b) no later than
45 days from the date of the assignment
of the Section 184 Guaranteed Loan to
HUD is executed, unless an extension of
time is granted by HUD.
(2)(i) Trust Land. The claim must
include a certified Title Status Report
evidencing the assignment of the
mortgage to HUD.
(ii) Fee simple land. The claim must
include the final title policy providing
coverage through the transfer of the
mortgage to HUD.
(3) In cases where the Servicer is
unable to comply with paragraph
(b)(2)(i) of this section, the Servicer
shall submit the claim pending the
certified Title Status Report in
accordance with the time frame
specified in paragraph (b)(1) of this
section.
(4) At the time of assignment of the
Section 184 Guaranteed Loan, the
Servicer shall certify to HUD that:
(i) Priority of Section 184 Guaranteed
Loan. The Section 184 Guaranteed Loan
has priority over all judgments,
mechanics’ and materialmen’s liens, or
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any other liens, regardless of when such
liens attached, unless approved by
HUD;
(ii) Amount due. The amount reported
to HUD in accordance with
§ 1005.707(d) prior to assignment is
verified to be due and owing under the
Section 184 Guaranteed Loan;
(iii) Offsets or counterclaims and
authority to assign. There are no offsets
or counterclaims thereto and the Holder
has the authority to assign; and
(iv) Assignment. The assignment of
the Section 184 Guaranteed Loan to
HUD meets the requirements of
§ 1005.763.
(c) Post-foreclosure claims without
Conveyance of title. When a third-party
purchases the property at foreclosure,
the Servicer must submit a claim under
§ 1005.807(a) and (b) to HUD no later
than 180 days from the date the
property is conveyed to the third-party.
If the Holder purchases the property at
foreclosure and subsequently sells the
property, the Servicer may submit a
claim under this section.
(d) Pre-foreclosure sale, deed-in-lieu,
or lease-in-lieu. When a property is sold
or conveyed prior to foreclosure in
accordance with §§ 1005.751 or
1005.753, the Servicer must submit a
claim under § 1005.807(a) and (b) to
HUD no later than 45 days from the date
the sale or Conveyance is executed.
(e) Supplemental claim. The Servicer
shall be limited to one supplemental
claim for each claim under submission
categories in paragraphs (a) and (b) of
this section.
(1) The supplemental claim shall be
limited to:
(i) Reasonable eligible expenses
incurred up to the date of Conveyance
of the property or assignment of the
Section 184 Guaranteed Loan, when
invoices are received after the payment
of the claim under § 1005.807(b); or
(ii) Calculation error(s) made by either
the Servicer or HUD.
(2) Supplemental claims must be
submitted within six months of the
claim submission under § 1005.807(b).
Supplemental claims received after six
months will not be reviewed or paid by
HUD.
(3) Any supplemental claim paid by
HUD shall be considered final
satisfaction of the Loan Guarantee
Certificate.
Submission of Claim
§ 1005.811 Claims supporting
documentation.
The Servicer shall submit supporting
documentation to the satisfaction of
HUD for each claim. Such
documentation will be provided for in
Section 184 Program Guidance.
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§ 1005.813 Upfront and Annual Loan
Guarantee Fee reconciliation.
(a) The Servicer must include in the
claims case binder a reconciliation
evidencing the payment of the Upfront
and Annual Loan Guarantee Fees to
HUD.
(b) Where the Servicer fails to comply
with paragraph (a) of this section or the
reconciliation shows unpaid amounts
owed to HUD, and the unpaid amounts,
along with late fees, have not been
satisfied by the Servicer, HUD shall
reject the claim.
(c) The Servicer may resubmit the
claim after providing the reconciliation
required under paragraph (a) of this
section or after the Annual Loan
Guarantee Fee amounts, along with late
fees, owed to HUD are paid by the
Servicer.
(d) Allowance to resubmit in
accordance with paragraph (c) of this
section shall not be construed to extend
any deadlines to file claims specified in
this subpart.
§ 1005.815
claim.
Conditions for withdrawal of
With HUD’s consent, a Holder may
withdraw a claim. When HUD consent
is granted, the Holder shall agree, where
applicable, in writing that it will:
(a) Accept a reconveyance of the
property under a Conveyance which
warrants against the acts of HUD and all
claiming by, through or under HUD;
(b) Promptly file for record the
reconveyance from HUD;
(c) Accept without continuation, the
title evidence which the Servicer
furnished to HUD; and
(d) Reimburse HUD for the
expenditures and amounts set forth in
§ 1005.851.
Property Title Transfers and Title
Waivers
§ 1005.817 Conveyance of Good and
Marketable Title.
(a) Definition. Good and Marketable
Title is defined in § 1005.103.
(b) Satisfactory Conveyance of title
and transfer of possession. The Servicer
shall tender to HUD a satisfactory
Conveyance of title and transfer of
possession of the property. The deed or
other instrument of Conveyance shall
convey Good and Marketable Title to
the property, which shall be
accompanied by title evidence
satisfactory to HUD.
(c) Conveyance of property without
Good and Marketable Title. (1) If the
title to the property conveyed by the
Servicer to HUD is not Good and
Marketable Title, the Servicer must
correct any title defect within 60 days
after receiving notice from HUD, or
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within such further time as HUD may
approve in writing.
(2) If the defect is not corrected within
60 days, or such further time as HUD
approves in writing, the Servicer must
reimburse HUD’s costs of holding the
property. Such holding costs accrue on
a daily basis and include interest on the
amount of the loan guarantee benefits
paid to the Servicer at an interest rate
set in conformity with the Treasury
Fiscal Requirements Manual from the
date of such notice to the date the defect
is corrected or until HUD reconveys the
property to the Servicer, as described in
paragraph (c)(3) of this section. The
daily holding costs to be charged to the
Servicer shall also include the costs
specified in § 1005.851.
(3) If the title defect is not corrected
within a reasonable time, as determined
by HUD, HUD will, after notice,
reconvey the property to the Servicer
and the Servicer must reimburse HUD
in accordance with §§ 1005.849 and
1005.851.
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§ 1005.819
evidence.
Types of satisfactory title
(a) The following types of title
evidence shall be satisfactory to HUD:
(1) Fee or owner’s title policy. A fee
or owner’s policy of title insurance, a
guaranty or guarantee of title, or a
certificate of title, issued by a title
company, duly authorized by law and
qualified by experience to issue such
instruments. If an owner’s policy of title
insurance is furnished, it shall show
title in HUD’s name and inure to the
benefit of the Department. The policy
must be drawn in favor of the Servicer
and HUD, and their successors and
assigns, as their interests may appear,
with the consent of the title company
endorsed thereon;
(2) Policy of title insurance. A
Holder’s policy of title insurance
supplemented by an abstract and an
attorney’s certificate of title covering the
period subsequent to the date of the
loan, the terms of the policy shall be
such that the liability of the title
company will continue in favor of the
HUD after title is conveyed to HUD. The
policy must be drawn in favor of the
Servicer and HUD, and their successors
and assigns, as their interests may
appear, with the consent of the title
company endorsed thereon;
(3) Abstract and legal opinion. An
abstract of title prepared by an abstract
company or individual engaged in the
business of preparing abstracts of title
and accompanied by the legal opinion
as to the quality of such title signed by
an attorney at law experienced in
examination of titles. If title evidence
consists of an abstract and an attorney’s
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certificate of title, the search shall
extend for at least forty years prior to
the date of the certificate to a wellrecognized source of good title;
(4) Torrens or similar certificate. A
Torrens or similar title certificate;
(5) Title standard of U.S., Tribal, or
State government. Evidence of title
conforming to the standards of a
supervising branch of the Government
of the United States or of any Tribe,
State or Territory thereof; or
(6) Title Status Report. Certified Title
Status Report issued by the BIA shall
not be more than sixty (60) days from
the date of the § 1005.807(a) claim
submission. Extensions may be granted
under certain reasonable circumstances,
as prescribed by Section 184 Program
Guidance.
(b) [Reserved]
§ 1005.821
Coverage of title evidence.
(a) Evidence of title or Title Status
Report shall include the recordation of
the Conveyance or assignment to HUD.
The evidence of title or the Title Status
Report shall further show that,
according to the public records, there
are no outstanding prior liens, including
any past-due and unpaid ground rents,
general taxes or special assessments, if
applicable, on the date of Conveyance or
assignment.
(b) If the title evidence and Title
Status Report are acceptable generally in
the community in which the property is
situated, such title evidence and Title
Status Report shall be satisfactory to
HUD and shall be considered Good and
Marketable Title. In cases of
disagreement, HUD will make the final
determination in its sole discretion.
§ 1005.823 Waived title objections for
properties on fee simple land.
Reasonable title objections for fee
simple land properties shall be waived
by HUD. Reasonable title objections will
be prescribed in Section 184 Program
Guidance.
§ 1005.825 Waived title objections for
properties on Trust Land.
HUD shall not object to title
restrictions placed on the tract of Trust
Land by the Tribe or the BIA so long as
those restrictions do not adversely
impact the property or marketability.
78377
policy, as applicable and the damage
must be repaired before Conveyance of
the property or assignment of the
Section 184 Guaranteed Loan to HUD.
(b) If the property has been damaged
as described in paragraph (a) of this
section and the damage is not covered
by a hazard insurance policy, the
Servicer must provide notice of such
damage to HUD. The property may not
be conveyed or assigned until directed
to do so by HUD. Upon receipt of such
notice, HUD will either:
(1) Allow the Holder to convey the
damaged property;
(2) Require the Servicer to repair the
damage before Conveyance, and HUD
will reimburse the Holder for reasonable
payments, not in excess of HUD’s
estimate of the cost of repair, less any
hazard insurance recovery; or
(3) Require the Servicer to repair the
damage before Conveyance, at the
Holder’s own expense.
(c) In the event the damaged property
is conveyed to HUD without prior
notice or approval as provided in
paragraph (a) or (b) of this section, HUD
may, after notice, reconvey the property
and demand reimbursement to HUD for
the expenses in accordance with
§§ 1005.849 and 1005.851.
§ 1005.829
condition.
Certificate of property
(a) As part of the claim submission,
the Servicer shall either:
(1) Certify that as of the date of the
deed or assignment of the loan to HUD
the property was:
(i) Undamaged by fire, flood,
earthquake, or tornado;
(ii) Undamaged due to failure of the
Servicer to act as required by
§ 1005.765; and,
(iii) Undamaged while the property
was in the possession of the Borrower;
or,
(2) Include a copy of HUD’s
authorization to convey the property in
damaged condition.
(b) In the absence of evidence to the
contrary, the Servicer’s certificate or
description of the damage shall be
accepted by HUD as establishing the
condition of the property, as of the date
of the deed or assignment of the Section
184 Guaranteed Loan.
Condition of the Property
§ 1005.831 Cancellation of hazard
insurance.
§ 1005.827
The Holder shall cancel any hazard
insurance policy as of the date of the
deed to HUD, subject to the following
conditions:
(a) The amount of premium refund
due to the Servicer resulting from such
cancellation must be deducted from the
total amount claimed.
Damage or neglect.
(a) If the property has been damaged
by fire, flood, earthquake, or tornado, or
if the property has suffered damage
because of the Servicer’s failure to take
action as required by § 1005.765 or for
any other reason, the Servicer must
submit a claim to the hazard insurance
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(b) If the Servicer’s calculation of the
premium refund is less than the actual
premium refund, the amount of the
difference between the actual refund
and the calculated refund shall be
remitted to HUD, accompanied by the
insurance company’s or agent’s
statement.
(c) If the Servicer’s calculation of the
premium refund is more than the actual
refund, the Servicer must include in a
supplemental claim submission in
accordance with § 1005.809(c),
accompanied by the insurance
company’s or agent’s statement, the
amount of the difference as an eligible
cost in accordance with
§ 1005.843(a)(3).
Payment of Guarantee Benefits
§ 1005.833
Method of payment.
If the claim is acceptable to HUD,
payment of the guarantee benefits shall
be made by electronic transfer of funds
to the Holder or other such allowable
payment method.
§ 1005.835 Claim payment not conclusive
evidence of claim meeting all HUD
requirements.
Payment of any claim by HUD is not
conclusive evidence of compliance with
the subpart D or G of this part. HUD
reserves the right to conduct post-claim
payment review of claims filed within
five years from the date of the last claim
payment. Where non-compliance with
any requirements of this part is
identified, HUD will take appropriate
action against the Holder, originating
Direct Guarantee Lender, and/or
Servicer, including but not limited to
HUD’s remedies under § 1005.805 and
sanctions under §§ 1005.905 and
1005.907.
§ 1005.837 Payment of claim: unpaid
principal balance.
HUD will pay a claim under
§ 1005.807(a) in the amount of the
unpaid principal balance less all
receipts for the sale or transfer of the
property, if applicable, in accordance
with the requirements of this subpart.
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(a) HUD shall pay interest on the
unpaid principal balance from the date
of default to the earlier of the following:
(1) The execution of deed-in-lieu/
lease-in-lieu of foreclosure;
(2) The execution of the Conveyance
to either Servicer, HUD, or a third-party;
(3) The execution of the assignment of
the Section 184 Guaranteed Loan to
HUD; or
(4) The expiration of the reasonable
diligence timeframe, as prescribed by
Section 184 Program Guidance.
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§ 1005.841 Payment of claim:
reimbursement of eligible and reasonable
costs.
The claim will be paid in accordance
with § 1005.807(b) and will include
eligible and reasonable costs, as
prescribed by Section 184 Program
Guidance.
§ 1005.843 Reductions to the claim
submission amount.
(a) A Servicer shall reduce the claim
when the following amounts are
received or held by the Servicer:
(1) All amounts received by the
Servicer from account of the loan after
default.
(2) All amounts received by the
Servicer from any source relating to the
property on account of rent,
reimbursement, or other income after
deducting reasonable expenses incurred
in handling the property.
(3) All cash retained by the Servicer
including amounts held or deposited for
the account of the Borrower or to which
it is entitled under the loan transaction
that have not been applied in reduction
of the principal loan indebtedness.
(b) [Reserved]
§ 1005.845 Rights and liabilities under
Indian Housing Loan Guarantee Fund.
(a) No Borrower, Direct Guarantee
Lender, Non-Direct Guarantee Lender,
Holder, or Servicer shall have any
vested right in the Indian Housing Loan
Guarantee Fund.
(b) No Borrower, Direct Guarantee
Lender, Non-Direct Guarantee Lender,
Holder, or Servicer shall be subject to
any liability arising under the Indian
Housing Loan Guarantee Fund.
(c) The Indian Housing Loan
Guarantee Fund will be credited and
debited in accordance with 12 U.S.C.
1715z–13a(i)(2).
§ 1005.847
§ 1005.839 Payment of claim: interest on
unpaid principal balance.
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(b) [Reserved]
Final payment.
(a) HUD’s payment of a claim(s) shall
be deemed as final payment to the
Holder, notwithstanding the ability to
present additional claim(s) in
accordance with § 1005.807 as
applicable. The Holder shall have no
further rights against the Borrower or
HUD when there is a final payment.
This paragraph (a) does not preclude
HUD from seeking reimbursement of
costs and return of amounts from the
Holder or originating Direct Guarantee
Lender pursuant to §§ 1005.849 and
1005.851.
(b) In cases where HUD reconveys the
property to the Holder and HUD is
reimbursed for all expenses and returns
all amounts pursuant to §§ 1005.849 and
1005.851, provisions under paragraph
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(a) of this section shall not apply.
However, the resubmission of the claim,
if any, shall be subject to § 1005.849(b)
and any reasonable processes
requirements as may be prescribed by
Section 184 Program Guidance.
§ 1005.849 Reconveyance and
reassignment.
(a) HUD may reconvey the property or
reassign the deed of trust or mortgage to
the Holder due to:
(1) Originating Direct Guarantee
Lender or Servicer’s noncompliance
with this part or any requirements as
prescribed by Section 184 Program
Guidance; or
(2) An authorized withdrawal of a
claim in accordance with § 1005.815.
(b) HUD may take appropriate action
against the Holder associated with the
reconveyance or reassignment
authorized in paragraph (a) of this
section, including but not limited to,
seeking reimbursement of all claim costs
paid by HUD and carrying costs
incurred by HUD in accordance with
§ 1005.851.
(c) Notwithstanding any other
provision in this subpart, in cases where
HUD has conveyed the property or
reassigned the deed of trust or mortgage
back to the Holder in accordance with
§ 1005.851, and where the Servicer
resubmits the claim, HUD will not
reimburse the Holder any expenses
incurred after the date of the HUD
Conveyance or assignment.
(d) Additional reasonable and
necessary restrictions may be imposed,
as prescribed by Section 184 Program
Guidance.
§ 1005.851
HUD.
Reimbursement of expenses to
Where reconveyance or reassignment
is sought by HUD pursuant to
§ 1005.849 or when HUD determines
noncompliance the Holder or the
originating Direct Guarantee Lender
shall reimburse HUD for:
(a) All claim costs paid by HUD.
(b) HUD’s cost of holding the
property, including but not limited to
expenses based on the estimated taxes,
maintenance and operating expenses of
the property, and administrative
expenses. Adjustments shall be made by
HUD for any income received from the
property.
(c) The reimbursement shall include
interest on the amount of the claim
payment returned by the Holder or the
originating Direct Guarantee Lender
from the date the claim was paid to the
date HUD receives the reimbursement
from Holder or the originating Direct
Guarantee Lender. The interest rate set
shall be in conformity with the Treasury
Fiscal Requirements Manual.
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Subpart I—Lender Program
Performance, Reporting, Sanctions,
and Appeals
written notice of the sanction and civil
money penalties to be imposed and the
basis for the action.
§ 1005.901 Direct Guarantee Lender,
Holder, or Servicer performance reviews.
§ 1005.907 Direct Guarantee Lender,
Holder, or Servicer sanctions and civil
money penalties.
HUD may conduct periodic
performance reviews of Direct
Guarantee Lenders, Non-Direct
Guarantee Lenders, Holders, and
Servicers. These may include analytical
reviews, customer surveys, and on-site
or remote monitoring reviews. These
reviews may include, but are not limited
to, an evaluation of compliance with
this part. HUD will provide a written
notice of its assessment and any
proposed corrective action, if
applicable.
§ 1005.903 Direct Guarantee Lender,
Holder, or Servicer reporting and
certifications.
(a) The Direct Guarantee Lender, NonDirect Guarantee Lender, or Servicer
shall provide timely and accurate
reports and certifications to HUD, which
may include but is not limited to reports
in connection with performance reviews
under § 1005.901, any special request
for information from HUD, and any
reasonable reports prescribed by Section
184 Program Guidance, within
reasonable time frames prescribed by
HUD.
(b) The Direct Guarantee Lender, NonDirect Guarantee Lender, or Servicer’s
failure to provide timely and accurate
reports and certifications to HUD may
subject the Direct Guarantee Lender,
Non-Direct Guarantee Lender, Holder,
or Servicer to sanctions and civil money
penalties pursuant to §§ 1005.905 and
1005.907.
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§ 1005.905 Direct Guarantee Lender,
Holder, or Servicer notice of sanctions.
(a) Prior to the notice of sanctions or
civil money penalties, HUD shall inform
the Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer of
the specific non-compliance with this
part and, where applicable, afford the
Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer a
reasonable time, as prescribed in
Section 184 Program Guidance to return
to compliance.
(b) If it is determined that the Direct
Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer
fails to return to compliance within the
allowed time, HUD shall provide
VerDate Sep<11>2014
21:11 Dec 20, 2022
Jkt 259001
(a) Where the Direct Guarantee
Lender, Non-Direct Guarantee Lender,
Holder, or Servicer fails to comply with
this part, including failure to maintain
adequate accounting records, failure to
adequately service loans, or failure to
exercise proper credit or underwriting
judgment, or becomes ineligible to
participate pursuant to § 1005.225, or
has engaged in practices otherwise
detrimental to the interest of a Borrower
or the United States, including but not
limited to, failure to provide timely
reporting, or failure to follow
underwriting requirements set forth in
this part, or failure to comply with
Section 184 Program Guidance when it
specifically provides times, processes,
and procedures for complying with the
requirements in this part, HUD may take
any combination of the following
actions:
(1) Either temporarily or permanently
terminate a Director Guarantee Lender
or Non-Direct Guarantee Lender’s status.
If such action is taken and the
terminated Direct Guarantee Lender
wishes to maintain servicing rights to
the Section 184 Guaranteed Loans, the
terminated Direct Guarantee Lender
must seek HUD approval as prescribed
in Section 184 Program Guidance.
(2) Bar the Direct Guarantee Lender or
Holder from acquiring additional
Section 184 Guaranteed Loans.
(3) Require that the Direct Guarantee
Lender assume not less than 10 percent
of any loss on further Section 184
Guaranteed Loans made by the Direct
Guarantee Lender.
(4) Require that the Direct Guarantee
Lender, Non-Direct Guarantee Lender,
Holder, or Servicer comply with a
corrective action plan or amend the
Direct Guarantee Lender, Non-Direct
Guarantee Lender, or Servicer’s quality
control plan, subject to HUD approval,
to remedy the non-compliance with this
part and any process prescribed by
Section 184 Program Guidance. The
plan shall also address methods to
prevent the reoccurrence of any
practices that are detrimental to the
interest of the Borrower or HUD. The
corrective action plan or amended
PO 00000
Frm 00057
Fmt 4701
Sfmt 9990
78379
quality control plan shall afford the
Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer
reasonable time to return to compliance.
(5) If HUD determines any Direct
Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer
has intentionally failed to maintain
adequate accounting records, to
adequately service loans guaranteed
under this section, or to exercise proper
credit or underwriting judgment, the
Assistant Secretary for Public and
Indian Housing (and his/her designee) is
authorized pursuant to 12 U.S.C. 1715z–
13a(g)(2) to impose civil money
penalties upon Direct Guarantee
Lenders, Non-Direct Guarantee Lender,
Holders, or Servicers, as set forth in 24
CFR part 30. The violations for which a
civil money penalty may be imposed are
listed in subpart B of 24 CFR part 30.
(b) [Reserved]
§ 1005.909 Direct Guarantee Lender,
Holder, or Servicer appeals process.
(a) Lenders denied participation in
the Section 184 Program pursuant to
subpart B of this part, or a Direct
Guarantee Lender, Non-Direct
Guarantee Lender, Holder or Servicer
subject to sanctions pursuant to
§ 1005.907, may appeal to HUD’s Office
of Loan Guarantee within a timeframe
prescribed in Section 184 Program
Guidance. After consideration of the
Lender, Direct Guarantee Lender, NonDirect Guarantee Lender, Holder, or
Servicer’s appeal, HUD shall advise the
Lender, Direct Guarantee Lender, NonDirect Guarantee Lender, Holder, or
Servicer in writing whether the denial is
rescinded, modified or affirmed. The
Lender, Direct Guarantee Lender, NonDirect Guarantee Lender, Holder, or
Servicer may then appeal such decision
to the Deputy Assistant Secretary for
Office of Native American Programs, or
his or her designee. A decision by the
Deputy Assistant Secretary or designee
shall constitute final agency action.
(b) Hearings to challenge the
imposition of civil money penalties
shall be conducted according to the
applicable rules of 24 CFR part 30.
Dominique Blom,
General Deputy Assistant Secretary for Public
and Indian Housing.
[FR Doc. 2022–26097 Filed 12–20–22; 8:45 am]
BILLING CODE 4210–67–P
E:\FR\FM\21DEP3.SGM
21DEP3
]]>Agencies
[Federal Register Volume 87, Number 244 (Wednesday, December 21, 2022)]
[Proposed Rules]
[Pages 78324-78379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26097]
[[Page 78323]]
Vol. 87
Wednesday,
No. 244
December 21, 2022
Part III
Department of Housing and Urban Development
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24 CFR Parts 58 and 1005
Strengthening the Section 184 Indian Home Loan Guarantee Program;
Proposed Rule
Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 /
Proposed Rules
[[Page 78324]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 58 and 1005
[Docket No. FR-5593-P-01]
RIN 2577-AD01
Strengthening the Section 184 Indian Home Loan Guarantee Program
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, U.S. Department of Housing and Urban Development (HUD).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would revise the regulations governing the
Section 184 Indian Home Loan Guarantee Program (``Section 184
Program'') to fiscally strengthen the program by clarifying rules for
Lenders, Tribes, and Borrowers. As the program has experienced an
increase in demand, it now requires an update to the implementing
regulations to minimize potential risk and increase program
participation by financial institutions. This proposed rule strives to
modernize and enhance the Section 184 Program by adding participation
and eligibility requirements for Lenders and other financial
institutions. This proposed rule would also clarify the rules governing
Tribal participation in the program, establish underwriting
requirements, specify rules on the closing and endorsement process,
establish stronger and clearer servicing requirements, establish
program rules governing claims submitted by Servicers and paid by HUD,
and add standards governing monitoring, reporting, sanctions and
appeals. This rule would add new definitions and make statutory
conforming amendments, including the categorical exclusion of the
Section 184 program in HUD's environmental review regulations.
Ultimately, the changes made by this proposed rule would promote
program sustainability, increase Borrower protections, and provide
clarity for new and existing Lenders who participate in the program.
DATES: Comment Due Date: March 17, 2023.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule. All submissions and communications must refer to
the above docket number and title. To receive consideration as public
comments, comments must be submitted through one of two methods,
specified below.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW, Room 10276,
Washington, DC 20410-0500. Due to security measures at all Federal
agencies, however, submission of comments by mail often results in
delayed delivery. To ensure timely receipt of comments, HUD recommends
that comments submitted by mail be submitted at least two weeks in
advance of the public comment deadline.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly encourages commenters to submit
comments electronically. Electronic submission of comments allows the
commenter maximum time to prepare and submit a comment, ensures timely
receipt by HUD, and enables HUD to make them immediately available to
the public. Comments submitted electronically through the
www.regulations.gov website can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
rule.
No Facsimile Comments. Facsimile (fax) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at
the above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). HUD welcomes and is prepared to
receive calls from individuals who are deaf or hard of hearing, as well
as individuals with speech and communication disabilities. To learn
more about how to make an accessible telephone call, please visit
https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments submitted by the due date will be available
for inspection and downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Krisa Johnson, Director, Office of
Loan Guarantee, Office of Native American Programs, Office of Public
and Indian Housing, Department of Housing and Urban Development, 451
7th Street SW, Room 4108, Washington, DC 20410; telephone number 202-
402-4978 (this is not a toll-free number). HUD welcomes and is prepared
to receive calls from individuals who are deaf or hard of hearing, as
well as individuals with speech and communication disabilities. To
learn more about how to make an accessible telephone call, please visit
https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
SUPPLEMENTARY INFORMATION:
I. Background
Section 184 of the Housing and Community Development Act of 1992
(Pub. L. 102-550, approved October 28, 1992) (12 U.S.C. 1715z-13a), as
amended by the Native American Housing Assistance and Self-
Determination Act of 1996 (Pub. L. 104-330, approved October 26, 1996),
the 2013 Consolidated and Further Continuing Appropriations Act (Pub.
L. 113-6, approved March 26, 2013), the 2015 Consolidated and Further
Continuing Appropriations Act (Pub. L. 113-235, approved December 16,
2014), and the Consolidated Appropriations Act, 2021 (Pub. L. 116-260,
approved December 27, 2020) (Section 184 statute), authorize the
Section 184 Program to provide access to sources of private financing
to Indian families, Tribes and Tribally Designated Housing Entities
(TDHEs) who otherwise could not acquire housing financing because of
the unique legal status of Trust Land. The Section 184 Program provides
HUD with the authority to provide access to sources of private
financing for Indian families, Tribes and TDHEs that otherwise could
not obtain private financing because of the unique legal status of
Trust Lands by guaranteeing loans to eligible persons and entities.
Since its inception, the number of loans guaranteed under the Section
184 Program has significantly increased. At the same time, the program
regulations have never been substantially revised to accommodate the
exponential growth of the program. Generally, improvements on Trust
Land, are alienable, but conditions and restrictions apply.
Consequently, financial institutions may struggle with utilizing the
land interest as Security in mortgage lending transactions. To address
this concern, the Section 184 Program provides a loan guarantee to
approved Direct Guarantee lenders in the event of Borrower default. The
guarantee is paid from the Section 184 Loan Guarantee Fund (Fund) for
up to 100 percent of the unpaid principal balance as well as any
reasonable fees
[[Page 78325]]
and expenses approved by the Secretary.
Following the enactment of Section 184 on August 18, 1994, HUD
published an interim rule (59 FR 42732) codifying regulations for the
Section 184 Program at 24 CFR part 955, and on March 6, 1996, HUD
published a final rule (61 FR 9052). With the enactment of the Native
American Housing Assistance and Self-Determination Act of 1996
(NAHASDA), HUD published a final rule on March 12, 1998, implementing
NAHASDA amendments to the Section 184 Program as well as re-designating
24 CFR part 995 as 24 CFR part 1005 (63 FR 12334). On September 11,
1998, HUD published an interim final rule (63 FR 48988) establishing a
direct guarantee procedure similar to that in the Direct Endorsement
Program under the Federal Housing Authority (FHA) single family
mortgage insurance program. The interim final rule adopted procedures
that permitted HUD to review and guarantee a loan after loan closing
and made minimum changes to allow for any necessary administrative
actions against approved Direct Guarantee Lenders. The final rule
making these changes permanent was issued on April 19, 2002 (67 FR
19491).
The Fund receives annual appropriations to cover some of the
program costs and charges and an upfront and annual fee to the borrower
to support the remaining program costs. The demand for the program has
increased steadily each year. In 1995, the first year of the program,
HUD guaranteed less than 20 Section 184 Guaranteed Loans. Over the last
10 years, HUD has consistently guaranteed thousands of loans worth
hundreds of millions of dollars annually. To date, the Fund has
guaranteed over $7.5 billion in loans. While the program has grown
exponentially, the program regulations have not been substantially
revised to reflect this significant growth. As the volume in the
program increases, so does the risk to the Fund. The proposed
regulations will help to mitigate the risk associated with this
increased volume.
The 2013 Consolidated and Further Continuing Appropriations Act
(Pub. L. 113-6, approved March 26, 2013) (2013 Appropriations Act)
amended section 184(d) of the Housing and Community Development Act of
1992 to authorize HUD to increase the fee for the guarantee of loans up
to 3-percent of the principal obligation of the loan and to establish
and collect annual premium payments in an amount not exceeding one
percent of the remaining guaranteed balance (excluding the portion of
the remaining balance attributable to the fee collected at the time of
the issuance of the guarantee). On March 5, 2014, HUD published a
Federal Register Notice (79 FR 12520) announcing an increase in the
one-time Loan Guarantee Fee that Borrowers pay at loan closing from a
then-existing 1 percent to 1.5 percent of Guaranteed Loan amount. By
Federal Register Notice published on October 7, 2014 (79 FR 60492), HUD
exercised its new annual premium authority to implement an annual
premium to the Borrower in the amount of 0.15 percent of the remaining
loan balance until the unpaid principal balance, excluding the Upfront
Loan Guarantee Fee, reaches 78 percent of the lower of the initial
sales price or appraised value based on the initial Amortization
Schedule. By Federal Register Notice published on November 1, 2016 (81
FR 75836), HUD once again exercised its new annual premium authority to
implement an annual premium to the Borrower in the amount of 0.25
percent of the remaining loan balance. These new fees allowed HUD to
meet the current demands of the Section 184 Program.
The Consolidated and Further Continuing Appropriations Act (Pub. L.
113-235) (approved December 16, 2014) (2015 Appropriations Act) amended
Section 184(h)(1)(B) of the Housing and Community Development Act of
1992 to require the exhausting of all reasonable possibilities of
collection by the Holder of the guarantee, to include a good faith
consideration of loan modification, and to meet standards for servicing
Section 184 Guaranteed Loans in default, as determined by the
Secretary.
The Office of Audit of the HUD Office of Inspector General (OIG)
audited the Section 184 Program and issued Audit Report Number: 2015-
LA-0002 on July 6, 2015. The report found that HUD did not adequately
monitor, track, and evaluate participating Direct Guarantee and Non-
Direct Guarantee Lenders to ensure that loans guaranteed by the program
were being underwritten in accordance with the Section 184 processing
guidelines. The OIG gave many recommendations, including: HUD develop
and implement policies and procedures for monitoring, tracking,
underwriting, and evaluating the Section 184 Program; standardize
monthly delinquency reports; deny payments for claims on loans that
have material underwriting deficiencies; take enforcement actions
against certain Direct Guarantee and Non-Direct Guarantee Lenders; and
ensure that only underwriters that are approved by HUD are underwriting
Section 184 Guaranteed Loans. The corrective action plan proposed by
OIG and agreed upon by HUD includes the development of new regulations
to provide additional structure to the program and a platform for
policies and procedures to manage the program and address these
findings.
II. This Proposed Rule
As the Section 184 Program assists more eligible Borrowers and
entities, the Fund faces more program expenses and increased risk. HUD
is proposing these regulatory changes to make the program sustainable,
protect Borrowers, address weaknesses identified by the OIG, provide
clarity for new and existing Direct Guarantee and Non-Direct Guarantee
Lenders, and reduce and eliminate inappropriate and unreasonable Claim
payment requests from Servicers. This proposed rule is designed to
strengthen and modernize the Section 184 Program, as well as protect
the Fund. This proposed rule would enhance and fill the gap in the
existing regulations by modifying and adopting industry standards and
best practices, as well as relevant FHA regulations and guidance.
This proposed rule would reorganize the Section 184 Program's
regulations by removing outdated sections and replacing them with the
following: definitions, eligibility requirements for Lenders, rules
governing participation by Indian Tribes, underwriting requirements,
rules on the closing and endorsement process, loan fees, servicing
requirements submission of Claims, and standards governing monitoring,
reporting, sanctions and appeals.
Proposed Organization of New Part 1005
This rule proposes to divide HUD's regulations in 24 CFR part 1005
in nine subparts: Subpart A would comprise of general program
requirements; subpart B would discuss Lender and eligibility
requirements; subpart C would cover requirements for Tribal
participation; subpart D would contain underwriting requirements for
eligible Borrowers, eligible Properties, and loan types; subpart E
would include requirements for closing a Section 184 Guaranteed Loan
and receiving endorsement approval from HUD; subpart F would provide
the requirements for calculation, collection, and submission of the
Section 184 Guaranteed Loan fees; subpart G would cover the
requirements for Servicers to manage Section 184 Guaranteed Loans and
steps to take when a Section 184 Guaranteed Loan is in default; subpart
H would contain the requirements to submit Claims on Section 184
Guaranteed Loans; and subpart I would include report requirements and
sanctions to for
[[Page 78326]]
noncompliance with Section 184 Program regulations. Unless otherwise
noted in this proposed rule, HUD is proposing to codify current
practices. Where a section is a new requirement, it is noted.
A. General Program Requirements (Subpart A)
Purpose Sec. 1005.101. Section 1005.101 would address the purpose
of the part 1005 regulations and provide that the regulations in part
1005 implement the Section 184 Program.
Definitions Sec. 1005.103. The proposed rule includes definitions
for the terms found in the existing Section 184 Program regulations,
which HUD has revised to better reflect how the terms are currently
used by the Section 184 Program or to reflect policy shifts:
``default,'' ``Indian,'' ``property,'' ``Section 184,'' and ``Trust or
Restricted Land''. In the proposed regulations, the term ``Section
184'' is further revised to ``Section 184 Guaranteed Loan,'' and the
term ``Trust or Restricted Land'' is further revised to ``Trust Land''.
The proposed rule does not include the terms ``Mortgage'' and
``Mortgagee'', which were previously used in the existing regulation,
because the terms are no longer used in the program and are obsolete.
These terms are replaced by the terms ``Loan'' and ``Lender,''
respectively, as currently proposed in Sec. 1005.103.
Additionally, HUD has included new terms that are commonly used by
the Section 184 Program in practice. This regulation would formalize
these definitions for the program. The following terms would provide
clarity and ensure consistency in the implementation of the various
parts of the Section 184 Program regulations: ``Acquisition Cost,''
``Amortization,'' ``Amortization Schedule,'' ``Annual Loan Guarantee
Fee,'' ``BIA,'' ``Borrower,'' ``Claim,'' ``Conflict of Interest,''
``Date of default,'' ``day,'' ``Direct Guarantee Lender,'' ``Eligible
Nonprofit Organization,'' ``Financial Statements'' ``Firm Commitment,''
``First Legal Action,'' ``Good and Marketable Title,'' ``Holder,''
``Identity of Interest,'' ``Indian Family,'' ``Indian Housing Loan
Guarantee Fund,'' ``lease or leasehold interest,'' ``Lender,''
``Loan,'' ``Loan Guarantee Certificate,'' ``Loan Guarantee Fee,''
``Loss Mitigation,'' ``month or monthly,'' ``Non-Direct Guarantee
Lender,'' ``Origination or originate,'' ``Owner of Record,'' ``Partial
Payment,'' ``Section 184 Guaranteed Loan,'' ``Section 184 Approved
Program Area,'' ``Section 184 Program Guidance,'' ``Security,''
``Servicer,'' ``Sponsor,'' ``Sponsored Entity,'' ``Tax-exempt bond
financing,'' ``Title Status Report,'' ``Tribe,'' ``Tribally Designated
Housing Entity (TDHE),'' ``Trust Land,'' and ``Upfront Loan Guarantee
Fee.''
B. Lender Eligibility & Requirements (Subpart B)
This subpart includes Lender eligibility and the application
process to participate in the Section 184 Program as a Non-Direct
Guarantee or Direct Guarantee Lender.
Lender approval and participation Sec. 1005.201. This section
describes the two types of Lenders approved to participate in the
Section 184 Program: Lenders deemed approved by statute and Lenders
approved by HUD. This section would require that Lenders submit to HUD
an application for participation in accordance with the level of
activity a Lender wants to engage in, as prescribed by Section 184
Program Guidance. This proposed section is consistent with current
program policy, practice, and/or procedure.
Lenders deemed approved by statute Sec. 1005.203. This section is
a restatement of what is an eligible Lender under the statute. In
response to comments received during Tribal consultation, this section
specifically references Community Development Financial Institutions
(CDFIs) as being included as a `Lender approved by statute.' This
proposed section is consistent with current program policy, practice,
and/or procedure.
Lenders required to obtain Secretarial approval Sec. 1005.205.
This section addresses qualifications for participation in HUD's
Section 184 Program if a Lender is not approved under the statutory
approved listed in Sec. 1005.203. A Lender would be required to submit
an application, as prescribed by Section 184 Program Guidance, for HUD
to determine the capacity of the financial institution to participate
in the Section 184 Program. This application would include establishing
a Lender's qualifications based on the following: business formation
verification, certifications related to employees and officers,
Financial Statements, quality control plan, identification of branch
offices, certification of conflict and interest, licensing
certification, verification of minimum net worth, and identification of
operating area. HUD will review documentation submitted under this
section and make a determination if the requesting financial
institution is qualified to be a Lender under the Section 184 Program.
If a Lender is approved to participate in the Section 184 Program, HUD
would send written notification of approval. If HUD determines that the
Lender does not meet the requirements of subpart B, HUD would send
written notice of the denial, which may be appealed to HUD in
accordance with the appeal procedure set forth in the regulation.
Lender participation options Sec. 1005.207. This section describes
the two levels of Lender participation in the Section 184 Program, Non-
Direct Guarantee Lender and Direct Guarantee Lender, along with the
allowed eligible activities for each level of participation. This
section proposes to establish a new requirement that eligible Lenders
must select their desired participation level by submitting an
application to HUD. A participation level must be selected by the
Lender and approved by HUD before initiating any Section 184 program
activities.
Direct Guarantee Lender application process Sec. 1005.209. This
section details the application requirements for Lenders to apply to
become a Direct Guarantee Lender in the Section 184 Program. These
proposed requirements HUD believes are necessary to ensure that Direct
Guarantee Lenders meet certain minimum requirements including having a
certain level of experience in origination, underwriting, and servicing
of mortgage loans. Additionally, Lenders must submit a quality control
plan.
Direct Guarantee Lender approval Sec. 1005.211. This section
addresses what constitutes HUD approval for Lenders applying to
participate in the Section 184 Program as a Direct Guarantee Lender
under Sec. 1005.209. This section addresses the process HUD would
follow to notify Lenders of their approval as Direct Guarantee Lenders
under the program. HUD would provide written notification to the
Lender, and the Lender would need to certify to being in compliance
with all program requirements and agree to ensure that any Sponsored
Entities also comply with all program requirements. This section is an
addition to HUD's current practice.
Non-Direct Guarantee Lender application, approval, and Direct
Guarantee Lender sponsorship Sec. 1005.213. This section describes the
sponsorship relationship between a Direct Guarantee Lender and a Non-
Direct Guarantee Lender and the general responsibilities of a Direct
Guarantee Lender as the Sponsor. Each Sponsor is responsible to HUD for
the actions of the Sponsored Entity and must ensure that HUD records
remain up to date by informing HUD regarding any changes of the
Sponsored Entity. This section
[[Page 78327]]
seeks to align with HUD's current practice.
Annual reporting requirements Sec. 1005.215. This section would
require annual reporting on Section 184 Guaranteed Loan performance
data from Direct Guarantee Lenders, their Sponsored Entities. It also
provides for HUD to establish additional annual reporting requirements
as provided in Section 184 Program Guidance. The section would be a new
requirement to track the performance of the program and participating
Direct and Non-Direct Guarantee Lenders to ensure the protection of the
Fund.
Quality control plan Sec. 1005.217. This section proposes to
implement the requirement that Lenders participating in the Section 184
Program have a written quality control plan and the contents of that
plan. The purpose of the quality control plan is to ensure Lender
compliance with Section 184 Program requirements and protect HUD and
the Lenders from unacceptable risks. A Lender would be required to
adopt and implement a quality control plan that fully complies with
Section 184 Program Guidance. This requirement incorporates existing
Quality Control Plan policies and adds new requirements, such as
paragraphs (c) and (d) in Sec. 1005.217.
Other requirements Sec. 1005.219. This section describes proposed
additional Direct Guarantee Lender and Non-Direct Guarantee Lender
requirements, including compliance with pertinent Tribal, Federal, and
State, and laws, dual employment, reporting requirements, records
retention, all of which are proposed to place in regulations current
program policy, practice, and/or procedure.
This section also includes a proposed new requirement that HUD may
set for lenders a minimum level of lending on Trust Land. While this
program was designed to bring mortgage capital to Trust Lands, the
majority of loans guaranteed by the Program are made on fee simple
land. In order to address this concern, this rule proposes to set forth
a new requirement for lenders participating in the program to actively
market, originate, and underwrite loans on Trust Land. HUD is
interested in increasing lending on Trust Land to further the
objectives of the Section 184 Program and provide additional
homeownership opportunities on Trust Lands. In this section, HUD
proposes to set, by Federal Register, a minimum lending amount for
direct guarantee lenders on Trust Lands. All Lenders would be required
to ensure that they comply with these additional requirements to remain
as a participant in the program. While HUD is not proposing a specific
minimum level of lending on Trust Land in this proposed rule, HUD is
interested in receiving feedback on what this minimum level of lending
should be and if such minimum requirement would help with the
underlying goal of the provision.
Business change reporting Sec. 1005.221. This section would
require Lenders participating in the Section 184 Program to notify HUD
within a timeframe as prescribed by Section 184 Program Guidance of any
changes in a Lender's legal structure or staffing or any new sanctions
against the Lender. HUD is proposing to require this notification to
reduce risk and monitor the stability of the lender.
Annual recertification Sec. 1005.223. This section would implement
the mandatory submission of an annual recertification by all Direct
Guarantee and Non-Direct Guarantee Lenders, as prescribed by Section
184 Program Guidance. HUD is proposing to require recertification to
ensure that Direct Guarantee and Non-Direct Guarantee Lenders continue
to meet program eligibility requirements and to reduce the risk to HUD
and the Fund. This section also would require the Direct Guarantee
Lender and Non-Direct Guarantee Lender to submit Financial Reports and
updated contact information. This section is consistent with HUD's
current practice.
Program ineligibility Sec. 1005.225. This section describes the
circumstances under which HUD would determine that a Direct Guarantee
Lender or Non-Direct Guarantee Lender is ineligible to participate the
Section 184 Program. This section is intended to reduce risk to the
Fund as well and align with current industry standards.
C. Lending on Trust Land (Subpart C)
This subpart proposes requirements for Tribal participation in the
Section 184 Program when Tribes want to make Trust Land or Restricted
Fee Land available under the Section 184 Program. This section requires
a partnership between HUD, the Tribe, the Direct Guarantee Lender,
Servicer and the Borrower. The Tribe is a critical partner in the
ability of the program to operate on Tribal Lands. For the program to
operate on Trust Lands, certain Tribal ordinances must be in place.
Tribes interested in participating in the Program would be required to
submit to HUD evidence of the required legal and administrative
framework necessary to ensure HUD or the Servicer have the ability to
enforce the lien in case of default.
Tribal legal and administrative framework Sec. 1005.301. This
section outlines the legal and the administrative framework necessary
when a Tribe seeks to allow eligible Borrowers place a mortgage lien on
Trust Land under the Section 184 Program. The proposed rule would
specify requirements governing foreclosure and assignments, property
disposition, eviction procedures, lien priority, and leasing, which are
an addition to the regulation to codify current policy, practice and/or
procedure. These requirements are necessary to protect Borrowers,
Tribes, TDHEs, Lenders and the Fund from unnecessary financial risks.
This section proposes new language to be included in the Tribal lease
that would allow a Tribe to assign the lease to HUD, and HUD would
transfer the lease to a successor lessee, as approved by the Tribe.
This language has been added because there have been instances when a
Borrower is in default, their Section 184 Guaranteed Loan has been
assigned to HUD, and the Borrower has vacated the property before
foreclosure. The Tribe, THDE or a trial member is interested in
purchasing the property, but the sale cannot happen because the
defaulted Borrower remains on the lease. The proposed language gives
the Tribe the authority to assign the lease to HUD so the sale of the
property can move forward without having to wait until HUD obtains the
lease through foreclosure.
Tribal application Sec. 1005.303. This section includes the
application requirements for Tribes interested in bringing the Section
184 Program to their Trust Lands. The application must include a copy
of documents related to the Tribe's legal and administrative framework,
including but not limited to a Tribe's foreclosure, eviction, lease,
and priority lien ordinances, all cross-referenced ordinances in those
sections, and any other documents in accordance with Section 184
Program Guidance. HUD is proposing this section to ensure that Tribes
have the necessary legal structure in the event of a default on Trust
Land and to ensure that HUD is provided first lien priority.
Approval of Tribal application Sec. 1005.305. This section would
specify that HUD will provide written notification to Tribes upon the
completion of its review of a Tribe's application submitted in
accordance with Sec. 1005.303 and would provide the opportunity for
Tribes to resubmit missing, incomplete, or deficient applications. This
proposed section is consistent with current program policy, practice,
and/or procedure.
[[Page 78328]]
Tribal recertification Sec. 1005.307. This section would implement
the mandatory submission of an annual recertification by all Tribes
participating in the Section 184 Program and the contents of such
recertification, in accordance with Section 184 Program Guidance. HUD
proposes to require recertification to ensure that the Tribe continues
to meet program eligibility requirements. This section would also
require the Tribe to update contact information. This proposed section
is intended to keep current on Tribal contacts and to confirm that
there have been no changes to relevant ordinances and the Tribal lease.
Duty to report changes Sec. 1005.309. This section would require
Tribes participating in the Section 184 Program to report to HUD any
current changes in the Tribe's contact information, or proposed changes
to foreclosure, eviction lease and lien priority ordinances. This
section is a new requirement to ensure HUD notification of these
changes and to reduce the risk to HUD and the Fund.
HUD Notification of any lease default Sec. 1005.311. This section
would mandate, when there is any default of the lease by the Borrower,
including a nonpayment of leasehold rent, the lessor shall notify HUD
within 30 days of default, or as set forth in the lease agreement. This
section is proposed to ensure notification of a delinquency to HUD and
allow HUD to explore early Loss Mitigation actions and to reduce the
risk of potential loss to the Fund.
Tribal reporting requirements Sec. 1005.313. This section provides
HUD with the ability to require Section 184 program-related reports
from Tribes approved under Sec. 1005.305. HUD intends to use this new
requirement as a placeholder in the event, at a future date, HUD is in
need of Section 184 Program information from approved Tribes that is
not anticipated in Sec. Sec. 1005.307 and 1005.309. If HUD determines
additional information the Section 184 Program from Tribes is needed,
it would publish these requirements in Section 184 Program Guidance and
complete the necessary Paperwork Reduction Act process requesting input
on the additional burden associated with the requested reports.
D. Underwriting (Subpart D)
This subpart includes the requirements for a loan to be guaranteed
by the Section 184 program. The subpart is organized into four
sections: eligible Borrowers, eligible Properties, eligible loans, and
underwriting.
Eligible Borrowers Sec. 1005.401. This section provides that to be
eligible to participate in the Section 184 Program, a Borrower must be
an Indian Family, Indian Tribe, or TDHE. This section would require an
Indian Family to document its status as American Indian or Alaska
Native through evidence as prescribed by Section 184 Program Guidance.
This section is a revision of the language found in Sec. 1005.105(b)
of the current regulations; the existing regulation is proposed to be
moved into a new section and aligns with current procedures.
Principal Residence Sec. 1005.403. This section sets forth the
occupancy requirements for Borrowers in relation to the property
interest that secures the Section 184 Guaranteed Loan. HUD also defines
the qualifications for a non-occupant Co-Borrower. As the program has
evolved, it has allowed for non-occupant co-Borrowers as a way to
expand homeownership opportunities for Borrowers who may need
assistance with their mortgage and have a family member willing to take
on the financial responsibility for the Section 184 Guaranteed Loan.
Non-occupant co-Borrowers must be related by blood, or be able to
document a family-type, longstanding, and substantial relationship not
arising out of the loan transaction. This section is a revision of
existing Sec. 1005.105(b)(1).
Borrower residency status Sec. 1005.405. This section describes
the residence status requirements to be considered an eligible Borrower
in the Section 184 Loan Guarantee program. In addition to the
requirements set forth in Sec. 1005.401, an eligible Borrower must be
a U.S. citizen; lawful permanent resident alien; or a non-permanent
resident alien. Documentation to support the lawful residency status
must be provided. This proposed section is consistent with current
program policy, practice, and/or procedure.
Relationship of income to loan payments Sec. 1005.407. This
section provides that a Borrower's income must be sufficient to cover
the costs of Section 184 Guaranteed Loan payments plus any other long-
term obligations. This section also describes the requirement for a
minimum qualifying threshold when an eligible Borrower has a co-
Borrower that will not occupy the home. Additionally, HUD also would
require that the determination of the adequacy of a Borrower's income
be free from discrimination. In particular, this section adds new
language requiring that the determination of adequacy of Borrower
income shall be made without regard to, among other things, Borrower's
source of income or location of the property. HUD believes these two
proposed non-discrimination provisions further the statutory purpose of
the program to ``provide access to sources of private financing to
Indian families, Indian housing authorities, and Indian tribes, who
otherwise could not acquire housing financing because of the unique
status of Indian lands.'' 12 U.S.C. 1715z-13a(a). With respect to the
proposed prohibition of discrimination based on the Borrower's source
of income, HUD seeks to address instances where lenders may disapprove
of the Borrower's income streams related to Borrower's Tribal status
(such as Tribal payments a Borrower may receive from his or her Tribe
or from traditional tribal income sources). With respect to the
proposed prohibition of discrimination based on property location, HUD
seeks to address instances where lenders may decide to only approve
loans involving fee simple properties and uniformly reject loan
applications solely because Borrower chooses to finance a home on
Tribal trust property. Other than the newly added provisions regarding
non-discrimination based on property location and sources of income,
this section is consistent with current practice, policy, and/or
procedure.
Credit standing Sec. 1005.409. This section is proposing,
consistent with current policy and practice, that no minimum credit
score is required to qualify for a Section 184 Guaranteed Loan.
However, Direct Guarantee Lenders are required to analyze the
Borrower's credit history and payment patterns to determine credit
worthiness. This section also revises the existing guidance that if a
Borrower previously defaulted on a Section 184 Guaranteed Loan, they
are ineligible to apply for another Section 184 Guaranteed Loan. To
conform with industry practice, HUD is proposing that these Borrowers
may apply for a Section 184 Guaranteed Loan after a waiting period as
prescribed by HUD.
Disclosure and verification of Social Security and Employer
Identification Numbers or Tax Identification Number Sec. 1005.411.
This section would require that Borrowers must meet the requirements
for the disclosure and verification of social security, employer and
tax identification numbers. Disclosure and verification of this
information minimizes fraud and adds protections for the Fund and is
consistent with HUD's current practice, policy, and/or procedure.
Acceptable title Sec. 1005.413. To be considered acceptable title,
a Section 184 Guaranteed Loan must be on real estate held in fee simple
land or Trust Land. Where title evidences a lease that
[[Page 78329]]
is used in conjunction with the Section 184 Guaranteed Loan, the lease
must comply with Sec. 1005.301, and must have a remaining term which
exceeds the maturity date of the Section 184 Guaranteed Loan by ten
years. This proposed section is consistent with current program policy,
practice, and/or procedure.
Sale of property Sec. 1005.415. This section would require that
the property be purchased from the Owner of Record and that the Direct
Guarantee Lender provide evidence of ownership. Additionally, this
section would establish the requirements for documentation and timing
restrictions on property re-sales to prevent flipping of the property
for financial gain by the Borrower. This proposed section is consistent
with current program policy, practice, and/or procedure.
Location of property Sec. 1005.417. This section would establish
that a property must be used for residential purposes and be located
within an approved Section 184 Approved Program Area to be eligible for
a Section 184 Guaranteed Loan. This proposed section is consistent with
current program policy, practice, and/or procedure.
Requirements for standard housing Sec. 1005.419. This proposed
section lists the minimum required property standards for properties
under the Section 184 Program. This section also explains environmental
review requirements and responsibilities and includes requirements for
flood insurance, the Coastal Barrier Resource System and Special
Airport Hazards. With respect to minimum required property standards,
this proposed section requires the property to be: decent, safe,
sanitary and modest in size and design, conform with applicable general
construction standards for the region, containing a heating system,
contain a plumbing system, contain an electrical system, meet minimum
square footage requirements, and conform with energy performance
requirements for new construction. This proposed section revises
existing Sec. 1005.111(a) consistent with current practices, policies,
and/or procedures.
Certification of appraisal amount Sec. 1005.421. This section
would require the contract for sale to be satisfactory to HUD and where
the seller agrees to provide a certification of appraisal establishing
the amount of the appraised value of the property. This protects the
Borrower and the Fund by ensuring the guaranteed loan is secured by a
property where the true value has been established. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Legal restrictions on Conveyance Sec. 1005.423. This section
proposes to define and establish permitted legal restrictions that may
be placed on a property guaranteed by a Section 184 loan. This section
would allow for restrictions on Conveyance only to enrolled Tribal
members when the property is located on Trust Land, the acceleration of
a mortgage subject to tax exempt bond funding where it no longer meets
the Federal requirements, and property with approved restrictions
established for occupancy for the elderly. This regulation would
provide Tribes with the maximum flexibility available to best serve
their Tribal members. This proposed section is consistent with current
program policy, practice, and/or procedure.
Rental properties Sec. 1005.425. This section proposes the
conditions under which a Section 184 Guaranteed Loan may be used to
purchase a one- to four-family unit property where one unit will be
owner occupied and the additional units may be rented. This section
clarifies that one- to four-family unit Properties owned by the Tribe
or TDHE will not be subject to the same conditions. This section
clarifies the two allowable exceptions to the Principal Residence
requirements in Sec. 1005.403 and is consistent with current program
policy, practice, and/or procedure.
Refinancing Sec. 1005.427. This section proposes to include the
criteria to refinance a qualified loan under the Section 184 Program
and presents the three types of allowable refinance transactions: Rate
and Term, Streamline and Cash Out. This section would require a maximum
term for the new loan to be 30 years and a payment history on the
existing loan that meets the standards established by HUD. It would
also prohibit Lenders from requiring a minimum outstanding principal
amount on the existing loan and clarifies the treatment of financed
Upfront Loan Guarantee Fees. This proposed section is consistent with
current program policy, practice, and/or procedure.
Eligibility of Loans covering manufactured homes Sec. 1005.429.
This section provides eligibility requirements for the financing of
one-family manufactured homes. This section would establish the minimum
square footage for a unit, the requirement to meet the National
Manufactured Home Construction and Safety Standards and have a
certification label, and the requirement of siting on a permanent
foundation that meets the applicable installation standards and adheres
to the manufacturer's installation instructions. This regulation is
required to ensure the safety of the Borrower and the value of the
collateral. This proposed section is consistent with current program
policy, practice, and/or procedure and would align with FHA standards.
Acceptance of individual residential water purification Sec.
1005.431. This section proposes requirements for properties that do not
have access to a continuing supply of safe and potable water, without
use of a water purification system. It would require the applicable
official's specification of the water purification equipment approval
standard, certification by Tribal, State or health authority, and
Borrower notices and certification. This section would require a
certification by a Tribal, State, or local health authority that it has
determined the water supply meets the entity's quality standards for
drinking water. Additionally, this section would require written
notification to the Borrower when the contract is ratified that the
property does not have access to a continuing supply of safe and
potable water without a purification system, a water safety report
identifying contaminants and associated health hazards, and a good
faith estimate of maintenance and replacement costs. The Borrower must
sign a certification they have received all of this information prior
to underwriter approval. This regulation would provide the Borrower
with full disclosure of maintenance and upkeep costs of an individual
water purification system and health and safety provisions. This
proposed section is consistent with current program policy, practice,
and/or procedure and would align with industry standards.
Builder warranty Sec. 1005.433. This section proposes that a
builder must submit a warranty that the property is constructed in
substantial conformity with the plans and specifications for newly
constructed Properties guaranteed by the Section 184 Program. This
proposed section is consistent with current program policy, practice,
and/or procedure and would align with industry standards.
Eligible collateral Sec. 1005.435. This section proposes what
collateral is acceptable for a Section 184 Guaranteed Loan. The
proposed section would require that the collateral be authorized and
not prohibited by Tribal, Federal, State, or local law and must be
sufficient to cover the amount of the loan as determined by the Direct
Guarantee Lender and approved by HUD. This section would revise
existing Sec. 1005.107 of the current regulations and be consistent
with current practices, policies, and/or procedures.
[[Page 78330]]
Loan provisions Sec. 1005.437. This proposed section provides the
details for loan provisions required for a Section 184 Guaranteed Loan,
including loan form, loan multiples, loan payments, loan maturity,
property standards, disbursements and prepayment. This section would
revise existing Sec. 1005.105(a).
Loan lien Sec. 1005.439. This section proposes lien requirements
for a Section 184 Guaranteed Loan. After the loan offered for guarantee
has been recorded, the property must be free and clear of any other
liens, unless prior approval has been granted by HUD for a junior lien.
This section proposes conditions for a junior lien, which covers
periodic payments, ability to pay considerations, loan to value
limitations, prohibition of balloon payments earlier than 10 years,
requirement for the junior lien to be due and payable upon sale or
refinance of the Section 184 Guaranteed Loan, and the acceptability of
prepayments at any time without the requirement for a prepayment
penalty. In addition, a junior lien may be provided as a means to
reduce that Borrower's monthly payments. This type of junior lien would
require pre-approval from HUD, shall not require the payment of any
principal or interest until the property securing the junior lien is
sold or the Section 184 Guaranteed Loan is refinanced, and shall not
require principal and interest payments, so long as the property is
owner occupied and, where applicable, shall provide forgiveness of the
junior lien at the end of the term. Lastly, if a junior lien is related
to tax exempt bond financing or low-income housing tax credits, HUD
approval is also required. This proposed section is consistent with
current program policy, practice, and/or procedure.
Section 184 Guaranteed Loan limit Sec. 1005.441. This section
would establish HUD's authority to set the maximum loan limits for
Section 184 Approved Program Areas. HUD may revise these maximum limits
periodically. This proposed section is consistent with current program
policy, practice, and/or procedure.
Loan amount Sec. 1005.443. This section proposes the minimum
required investment from the Borrower based on the difference between
the sales price and the base loan amount. It also would provide the
methodology for calculating the base loan amount and would establish
the maximum and minimum principal loan amounts. This investment must
come from the Borrower's own funds, gifts, or Tribal, State, or local
funds awarded to the Borrower. The regulation is required to balance
the risk to the Fund and the unique requirements of Native American
Borrowers. This proposed section is consistent with current program
policy, practice, and/or procedure.
Case numbers Sec. 1005.445. This section explains when and how to
obtain a Section 184 case number. Direct Guarantee Lenders must have an
active loan application for a Borrower and a specific property. The
case number request must include proof of Tribal enrollment or Alaska
Native status, verification that the property is located in a Section
184 Approved Program Area, confirmation that the Loan does not exceed
the Section 184 Loan Limit, and be submitted in manner prescribed in
the Section 184 Program Guidance. Case numbers will be automatically
cancelled after a period identified by HUD if a reservation of funds
request is not received and processed by HUD. HUD may allow for the
extension as prescribed. This proposed section is consistent with
current program policy, practice, and/or procedure.
Maximum age of Loan documents Sec. 1005.447. This section proposes
the maximum age of loan documents at the time of underwriting and loan
closing. Documents reviewed at underwriting may not be older than 60
days and all documents may not be more than 120 days old at closing.
Certain documents will be exempt from these time frames if they are not
affected by the passage of time. This proposed section is consistent
with current program policy, practice, and/or procedure.
Qualified mortgage Sec. 1005.449. This section explains that
Section 184 Guaranteed Loans are afforded safe harbor as qualified
mortgages that meet the ability-to-pay requirements. This section is a
revision of the existing Sec. 1005.120 and conforms to current
practices, policies, and/or procedures.
Agreed interest rate Sec. 1005.451. This section would require
that a Loan must have an interest rate that is agreed upon by the
Direct Guarantee Lender and Borrower and is determined by HUD to be
reasonable. This regulation is necessary to ensure Borrowers are not
being charged inflated interest rates attributable to risk-based
pricing for minimum loan amounts, credit scores, or other risks, when
the Direct Guarantee Lender is receiving a 100 percent guarantee
against any loss due to default. This risk-based pricing requirement
would be a new requirement and is intended to protect the Borrower from
inflated interest rates, which may impact loan performance and the
Fund.
Amortization provisions Sec. 1005.453. This section proposes that
a Loan's Amortization provisions be satisfactory to HUD, monthly
payments by the Borrower, and that the principal and interest payments
each month shall be substantially the same. This section is a revision
of existing Sec. 1005.105(a) and is consistent with current practices,
policies, and/or procedures.
Direct guarantee underwriting Sec. 1005.455. This section outlines
proposed requirements for direct guarantee underwriting including
underwriter due diligence, evaluation of the Borrower, and assumptions.
This section is a revision of the existing Sec. 1005.106(a), outlining
the direct guarantee procedure. Direct Guarantee underwriters must
exercise the same level of due diligence as if they were entirely
dependent on the property as Security to protect their investment. An
acceptable quality control plan and compliance with HUD prescribed
underwriting guidelines are the minimum standard of due diligence.
Direct Guarantee underwriters shall evaluate the Borrower's credit
characteristics, adequacy, and stability of income to make payments on
all obligations and the available assets. This section also would
require all assumptions of an existing Section 184 Guaranteed Loan be
underwritten using the same Borrower eligibility and underwriting
standards in this subpart. This section is consistent with current
program policy, practice, and/or procedure.
Appraisal Sec. 1005.457. This section would establish the
requirement for the appraisal of a property to be used to obtain a
Section 184 Guaranteed Loan, the selection of an appraiser, appraisal
standards, validity period for appraisals, possible extensions of the
validity period, and possible sanctions when the requirements listed
under the section are not met. A property appraisal for the Section 184
Program must be done in accordance with the Uniform Standards of
Professional Appraisal Practice and the Fair Housing Act (42 U.S.C.
3601-19); however, HUD may establish alternative requirements in
Section 184 Program Guidance. The Direct Guarantee Lender must select
an appraiser currently on the FHA Appraiser Roster and the Direct
Guarantee Lender must not discriminate in its selection of the
appraiser. The appraiser must be knowledgeable in the market where the
property is located. The appraisal and related documents must satisfy
FHA, Fannie Mae, or Freddie Mac requirements. In addition, the Direct
Guarantee Lender may be subject to sanctions permitted under
[[Page 78331]]
Sec. 1005.907 for submitting an appraisal that does not meet the
requirements described. This proposed section would codify current
program policy, practice, and/or procedure and aligns with industry
standards.
Loan submission to HUD for Direct Guarantee Sec. 1005.459. This
section proposes a 60-day timeframe in which an endorsement case binder
must be sent to HUD after closing. This section also outlines the
additional documentation required for a late submission greater than 60
days after closing. The Direct Guarantee Lender would be required to
submit a late endorsement request with documentation affirming the loan
is not currently in default, all escrow accounts are current, all loan
guarantee fees are current, and a statement that neither the Direct
Guarantee Lender nor its agents have provided funds to bring or keep
the loan current or bring about the appearance of a satisfactory
payment history. This proposed section is consistent with current
practices, policies, and procedures. This section does propose an
exception to the proposed current endorsement practice, which provides
that with prior approval from HUD, consistent with Section 184 program
guidance, the Direct Guarantee Lender or Servicer may provide funds to
bring or keep the Section 184 Guaranteed Loan current in the event the
Borrower agrees to Loss Mitigation before HUD provides endorsement, as
the case with some Borrowers during the COVID-19 National Emergency.
HUD issuance of Firm Commitment Sec. 1005.461. This section
proposes that HUD may underwrite, consistent with specific underwriting
criteria, and issue a Firm Commitment. This proposed section is
consistent with HUD's current practice, policy, and/or procedure.
E. Closing and Endorsement (Subpart E)
This subpart includes requirements for closing a Section 184
Guaranteed Loan and receiving endorsement approval from HUD. The
subpart is organized into two sections: closing, and endorsement and
post-closing.
Direct Guarantee Lender closing requirements Sec. 1005.501. This
section would provide the required documentation for closing a loan
under the program, including: chain of ownership, title search and
Title Status Report, closing in compliance with Direct Guarantee Lender
approval, closing in the Lender's name, required forms and language in
documents, projected escrow, closing costs and fees, per diem interest
and interest credits, Borrower authorization of Tribal notice,
signatures, and other requirements. This documentation is necessary to
ensure that the Loan may be eligible for a Loan Guarantee under the
program. This proposed section is consistent with current program
policy, practice, and/or procedure.
Contents of endorsement case binder Sec. 1005.503. This section
proposes HUD requirements for the contents of the endorsement case
binder. The endorsement case binder is required by HUD and includes
certain documentation necessary for HUD to determine program compliance
and to issue a Loan Guarantee Certificate to the Lender. The actual
contents of the endorsement case binder shall be in a format as
prescribed by Section 184 Program Guidance. This proposed section is
consistent with current program policy, practice, and/or procedure.
Payment of Upfront Loan Guarantee Fee Sec. 1005.505. This section
would require the Direct Guarantee Lender to provide evidence of the
remittance of the Upfront Loan Guarantee Fee, as required under Sec.
1005.607. This proposed section is consistent with current program
policy, practice, and/or procedure.
Borrower's payments to include other charges and escrow payments
Sec. 1005.507. This section proposes the charges and escrow payments
that the Direct Guarantee Lender must include as part of the Section
184 Guaranteed Loan monthly payment. This section also proposes how
these payments should be managed by the Lender and disallows the
recovery from the Borrowers of payment of additional premiums to
protect the interest of the Lender. This proposed section is consistent
with current program policy, practice, and/or procedure.
Application of payments Sec. 1005.509. This section would require
that all monthly payments made by the Borrower to the Servicer shall be
aggregated into a single monthly payment, and that the Servicer shall
apply the Borrower's funds in accordance with Sec. 1005.715. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Late fee Sec. 1005.511. This section would establish the ability
for a Servicer to charge a late charge to the Borrower when a Section
184 Guaranteed Loan payment is 15 or more days in arrears. It also
would establish maximum late charge of four percent of the overdue
payment of principal and interest, or any other amount as established
by HUD through public notice with an opportunity for comment. This
section is intended to provide a deterrent for the Borrower to make
payments outside of the applicable payment period and to reduce risk to
the Direct Guarantee Lender and the Fund. This proposed section is
consistent with current program policy, practice, and/or procedure.
Borrower's payments when Section 184 Guaranteed Loan is executed
Sec. 1005.513. This section outlines what payments from what parties
are required upon execution of the Section 184 Guaranteed Loan,
including the one-time Upfront Loan Guarantee Fee or any portion
payable pursuant to Sec. 1005.603; and all other applicable monthly
charges pursuant to Sec. 1005.507, including the annual Section 184
Guaranteed Loan fee pursuant to Sec. 1005.607, covering the period
from the closing date to the due date of the first installment payment
under the Section 184 Guaranteed Loan. This proposed section is
consistent with current program policy, practice, and/or procedure.
Charges, fees, or discounts Sec. 1005.515. This section proposes a
list of allowable charges, fees, or discounts a Direct Guarantee Lender
may collect from the Borrower at Origination of a Section 184
Guaranteed Loan. These charges/fees include costs to cover origination
and closing; recording fees and recording taxes; credit report; survey;
title examination; title insurance premium and any appraisal or
inspection; such other reasonable and customary charges as may be
authorized by HUD; reasonable and customary charges in the nature of
discounts; and interest calculations in accordance with Sec. 1005.501.
Before the Loan may be guaranteed by the Section 184 Program, the
Direct Guarantee Lender must provide HUD a listing of all charges,
fees, or discounts collected from the Borrower by the Lender.
For an assumption of an existing Section 184 Guaranteed Loan,
processing fees must be based on actual costs and the Direct Guarantee
Lender may not charge more than the reasonable and customary allowable
cost without HUD approval. Fees for assumptions may include, but are
not limited to, credit report, verification of employment and the
execution of additional release of liability forms. Additional fees
over and above assumption fees cannot be assessed for Section 184
Guaranteed Loans on Trust Lands. HUD may establish limitations on the
amount charged for origination, closing, and assumptions. This proposed
section is consistent with current program policy, practice, and/or
procedure.
[[Page 78332]]
Certificate of nondiscrimination by the Direct Guarantee Lender
Sec. 1005.517. This section would require that Direct Guarantee
Lenders, when applicable, certify to HUD specific nondiscrimination
practices required of Direct Guarantee Lenders, including:
nondiscrimination based on race, color, religion, sex, disability,
familial status, or national origin, except as provided by law; and
prohibiting any restrictive covenant, other than permissible
restrictions on Trust Land, on such property relating to race, color,
religion, sex, disability, familial status, or national origin and
recognizing such prohibited restrictive covenants as being illegal,
void, and disclaimed. A civil action for preventative relief may be
brought by the Attorney General in any appropriate U.S. District Court
against any person responsible for a violation of this certification.
This section is intended to protect the Borrower from discrimination,
and is consistent with current program policy, practice, and/or
procedure.
Creation of the contract Sec. 1005.519. This section describes
when a Loan shall be considered guaranteed under the program and that
the Direct Guarantee Lender and HUD are bound by the requirements set
forth in this regulation as if the two parties were in an executed
contract relating to the loan. This proposed section is consistent with
current program policy, practice, and/or procedure.
Lender pre-endorsement review and requirements Sec. 1005.521. This
section would require a pre-endorsement review of the endorsement case
binder by the Direct Guarantee Lender prior to the submission of the
endorsement case binder to HUD and describes the parameters of this
review. This review must be conducted by Direct Guarantee Lender staff
not involved in the origination, processing, or underwriting of the
loan, and the case binder must include all documentation the Direct
Guarantee Lender used to approve the loan. Upon finalizing the pre-
endorsement review, the Direct Guarantee Lender must certify that all
required documents were submitted and meet the requirements of Sec.
1005.503. This proposed new requirement would provide additional
assurances that the Direct Guarantee Lender is making prudent
judgements when approving the loans and following HUD program polices,
practice, and procedures.
HUD pre-endorsement review Sec. 1005.523. This section proposes
Lender's submission deadline and HUD's process for a pre-endorsement
review. Before endorsement, HUD will review the endorsement case binder
submitted by the Direct Guarantee Lender to ensure that the loan meets
all statutory, regulatory, and administrative requirements. Following
this review, if the loan is determined to be eligible, HUD will issue a
Loan Guarantee Certificate. HUD may reject an endorsement case binder
if HUD finds that the certification or documentation is false,
misleading, or constitutes fraud or is a misrepresentation on the part
of any party, or that the loan fails to meet a statutory or regulatory
requirement. HUD will inform the Direct Guarantee Lender in writing the
reasons for the determination and any corrective actions that may be
taken. The HUD pre-endorsement review is intended to reduce the risk
for fraud and program non-compliance that could negatively impact the
Fund, and is consistent with current program policy, practice, and/or
procedure.
Loan Guarantee Certificate Sec. 1005.525. This section proposes
the conditions under which HUD will issue a Loan Guarantee Certificate.
The Loan Guarantee Certificate is evidence of the HUD guarantee and is
issued after HUD completes a review of the Lender's endorsement case
binder and determines the case binder is in compliance with all
applicable Section 184 requirements. HUD may issue a Loan Guarantee
Certificate for a loan on Trust Land before HUD receives all required
Trailing Documents, provided that the Direct Guarantee Lender agrees to
indemnify HUD. The indemnification agreement between HUD and the Direct
Guarantee Lender will terminate once all required documentation is
received in a form and manner that is acceptable by HUD. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Post-endorsement review Sec. 1005.527. This section proposes the
process for HUD to conduct a post-endorsement review of the endorsement
case binder, including, but not limited to a quality control review.
Following the issuance of the Loan Guarantee Certificate, HUD may
review all documents required by Sec. 1005.503. Based upon this
review, if HUD determines that the Loan does not satisfy the
requirements of the program, HUD may cancel the Section 184 Loan
Guarantee Certificate, may request indemnification from the Direct
Guarantee Lender, or sanction the Direct Guarantee Lender pursuant to
Sec. 1005.907. This proposed section is consistent with current
program policy, practice, and/or procedure.
Indemnification Sec. 1005.529. This section proposes that an
Originating Direct Guarantee Lender must indemnify HUD when a claim has
been filed or when HUD discovers an underwriting deficiency in a pre-
or post-endorsement review. In this instance, the Originating Direct
Guarantee Lender shall indemnify HUD or HUD may deny the Claim.
Underwriting deficiencies may include, but not limited to, fraud or
misrepresentation by the Originating Direct Guarantee Lender. If
indemnification is necessary, HUD will request indemnification in
writing that the Originating Direct Guarantee Lender will reimburse HUD
if a subsequent holder of the loan files a Claim and HUD suffers a
financial loss. This proposed section is intended to protect HUD from
financial risk from possible underwriting deficiencies and aligns with
industry standards.
F. Section 184 Guaranteed Loan Fees (Subpart F)
This subpart includes the requirements for calculation, collection,
and submission of the Section 184 Loan Guarantee Fee.
Scope and method of payment Sec. 1005.601. This section includes
the statutory requirements of a one-time, Upfront Loan Guarantee Fee
and a recurring Annual Loan Guarantee Fee, for all Section 184
Guaranteed Loans. This section revises existing Sec. 1005.109 of the
current regulations and is consistent with current program policy,
practice, and/or procedure.
Upfront Loan Guarantee Fee Sec. 1005.603. This section mandates
that an Upfront Loan Guarantee Fee, not exceeding three percent of the
principal obligation of the loan, as determined by HUD, is to be paid
at closing. The amount of the Upfront Fee will be prescribed by HUD
through a notice in the Federal Register. This fee is statutorily
required and necessary to credit the Fund to provide for payments under
the guarantee, in addition to congressional appropriation.
Remittance of Upfront Loan Guarantee Fee Sec. 1005.605. This
section would require the Direct Guarantee Lender to submit to HUD the
Upfront Loan Guarantee Fee within 15 days of loan closing.
Additionally, this section would require the Direct Guarantee Lender to
provide an account reconciliation of the Upfront Loan Guarantee Fee in
the time and manner as may be prescribed by HUD. This proposed section
codifies current program practices, policy, and/or procedure.
Annual Loan Guarantee Fee Sec. 1005.607. This section would
require an Annual Loan Guarantee Fee to be collected from the Borrower
on a monthly basis, as determined by HUD
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and published in the Federal Register. This section would also
authorize the Servicer to collect monthly payments from the Borrower in
an amount equal to one-twelfth of the annual loan guarantee premium and
the ability for the Borrower to prepay their Section 184 Guaranteed
Loan. These payments are included in the Amortization Schedule issued
with the Loan approval. The Annual Loan Guarantee Fee is statutorily
required and necessary to credit the Fund to provide for payments under
the guarantee, in addition to congressional appropriation. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Remittance of Annual Loan Guarantee Fee Sec. 1005.609. This
section would require the Servicer to submit to HUD the Annual Loan
Guarantee Fees collected from the Borrower no later than the 15th day
of each month, beginning in the month in which the Borrower is required
to make the first monthly loan payment. If the Servicer is late
submitting the monthly installment of the Annual Loan Guarantee Fee,
the Servicer must pay a penalty in accordance with Sec. 1005.611. The
Annual Loan Guarantee Fee no longer applies when the loan to value
ratio equals an amount less than 78 percent, in accordance with Sec.
1005.607. The Servicer must refund to the Borrower any excess Annual
Loan Guarantee Fees collected when the loan-to-value ratio is less than
78 percent, within 30 days of the overpayment.
This section also would require that the Servicer continue to
collect the Annual Loan Guarantee Fee on a monthly basis without regard
to delinquent payments, prepayments, agreements to postpone payments,
or agreements to recast the loan. When transferring a Section 184
Guaranteed Loan to another Servicer, this section would require an
account reconciliation of the Upfront Guarantee Fee and Annual Loan
Guarantee to the new Servicer. When transfer of servicing between
Servicers results in a missed monthly payment(s) of the Annual Loan
Guarantee Fee to HUD, the acquiring Servicer shall pay the overdue
payment(s) in a lump sum to HUD within 30 days of acquisition of the
loan and include any applicable penalties in accordance with Sec.
1005.611. This section clarifies the circumstances of the on-going
payment of the monthly payment of the Annual Loan Guarantee Fee and
sets a timeframe for submission of this payment even when the loan is
sold between Direct Guarantee Lenders or to a Servicer. This proposed
section is consistent with current program policy, practice, and/or
procedure.
HUD imposed penalties Sec. 1005.611. This section proposes the
circumstances in which HUD may impose civil monetary penalties on
Direct Guarantee Lenders and Servicers related to the collection and
submission of Loan Guarantee Fees. This section also prohibits seeking
recovery of the penalty from the Borrower. Direct Guarantee Lenders may
incur penalties for failure to timely remit Upfront Loan Guarantee Fee.
Servicers may incur penalties for failure to timely remit the monthly
installment of the Annual Loan Guarantee Fee to HUD, failure to adjust
the amount of the Annual Loan Guarantee Fee, and failure to cease
collection of the Annual Loan Guarantee Fee. A reasonable penalty or
fee will be prescribed by HUD in Section 184 Program Guidance. HUD is
proposing allowing a monetary penalty for the late or non-submission of
the Annual Loan Guarantee Fee to encourage Lenders and Servicers to pay
on a timely basis.
G. Servicing (Subpart G)
This subpart includes the requirements for Servicers to manage
Section 184 Guarantee Loans and steps to take when a Borrower defaults
on a Section 184 Guaranteed Loan. The subpart is organized into four
sections: servicing loans generally, servicing defaulted loans, Loss
Mitigation and assignment, foreclosure and Conveyance.
Section 184 Guaranteed Loan servicing generally Sec. 1005.701.
This proposed section provides an overview of subpart G, HUD servicing
expectations and requirements for servicing Section 184 Guaranteed
Loans.
Servicer eligibility and application process Sec. 1005.703. This
section proposes that a Direct Guarantee Lender, Non-Direct Guarantee
Lenders or other financial institution must be an approved mortgage
Servicer for FHA or another agency of the Federal Government. Direct
Guarantee Lenders, and Non-Direct Guarantee Lenders are required to
apply to be a Servicer, in accordance with Section 184 Program
Guidance. This proposed section is intended to ensure that Servicers
have the experience and qualifications and have the processes in place
to properly service Section 184 Guaranteed Loans to provide quality
customer service to Native American Borrowers.
Servicer approval Sec. 1005.705. This section proposes what
constitutes HUD approval for a Direct Guarantee Lenders, Non-Direct
Guarantee Lenders and other financial institutions applying to be
Servicers in the Section 184 Program under Sec. 1005.703. This section
addresses the process HUD will follow to notify interested Non-Director
Guarantee Lenders and financial institutions seeking HUD approval to be
a Servicer under the program. HUD will provide written notification of
its approval and the approved Servicer must agree to comply with all
program requirements. This includes the notification by the Servicer to
HUD of any acquisition or sale of Section 184 Guaranteed Loans. This
proposed section would be complimentary to the new requirement under
Sec. 1005.703.
Responsibility for servicing Sec. 1005.707. This section proposes
a Servicer's responsibilities under the Section 184 Program, which
includes, program compliance, using a sub-Servicer, changing Servicers,
transferring servicing rights, reporting requirements, program
ineligibility, and records retention. This section proposes new
requirements for the Servicer in the areas of annual recertification
and business change reporting. HUD is proposing these new requirements
to reduce risk and monitor the stability of the Servicer.
Providing information to Borrower and HUD Sec. 1005.709. This
section proposes Servicer requirements for providing information to the
Borrower on the Section 184 Guaranteed Loan. Servicers must provide
loan information to Borrowers and arrange for individual loan
consultation on request. The Servicer must establish written procedures
and controls to assure prompt responses to inquiries. All Borrowers
must be informed annually of the system available for obtaining answers
to loan inquiries and the office to which requests may be presented.
Within 30 days after the end of each calendar year, the Servicer must
furnish to the Borrower a statement of the interest paid, and of the
taxes disbursed from the escrow account during the preceding year. At
the Borrower's request, the Servicer must furnish a statement of the
escrow account sufficient to enable the Borrower to reconcile the
account. Each Servicer must deliver to the Borrower a written notice of
any transfer of the servicing rights of the loan. Finally, Servicers
must respond to HUD requests for information concerning individual
accounts within a timeframe prescribed by Section 184 Program Guidance.
HUD is proposing these requirements to ensure that acceptable
procedures exist so that Servicers can readily provide loan information
to Borrowers and HUD. This proposed section is consistent with current
program policy, practice, and/or procedure.
[[Page 78334]]
Assumption and release of personal liability Sec. 1005.711. This
section proposes the requirements and the process for assumption of a
Section 184 Guaranteed Loan. Eligible Borrowers may assume a Section
184 Guaranteed Loan. The new Borrower must be determined to be
creditworthy under subpart D. For loans securing Properties on Trust
Lands, the lease document may require Tribal and Bureau of Indian
Affairs (BIA) approval of the assignment of the lease to the new
Borrower. Servicers should not proceed to closing on the assumption
until and unless the Tribe has assigned the leasehold to the new
Borrower, and it has been approved by the BIA. Servicers may only
collect fees for an assumption in accordance with this section. With
respect to release of liability, this section would provide that at
closing, the Servicer must release the existing Borrower from any
personal liability on a form approved by HUD and the new Borrower
assumes personal liability of the loan. Finally, upon completion of an
assumption, a Servicer is required to provide copies of the documents
to HUD. HUD will issue a revised Loan Guarantee Certificate and
additional processing instructions. These changes ensure clear
guidelines exist to govern the assumption and associated release of
personal liability, such as ensuring that Borrowers that assume loans
meet minimum creditworthiness standards. This proposed section is
consistent with current program policy, practice, and/or procedure.
Due-on-sale provision Sec. 1005.713. This section mandates a due-
on-sale clause permitting acceleration for all Section 184 Guaranteed
Loans. The Servicer must accelerate the loan, subject to HUD prior
approval, so long as the acceleration is permitted by applicable
Tribal, Federal, or State law This proposed section is consistent with
current program policy, practice, and/or procedure.
Application of Borrower payments Sec. 1005.715. This section would
establish the order in which the Servicer applies Borrower payments
authorized under Sec. 1005.509 and the proposal is consistent with
current program policy, practice, and/or procedure.
Administering escrow accounts Sec. 1005.717. This section would
establish the requirements for administering escrow accounts and
deposits from a Section 184 Guaranteed Loan. The Servicer may not use
escrow funds for any purpose other than that for which they were
received. It must segregate escrow commitment deposits, work completion
deposits, and all periodic payments received on account of leasehold
rents on Trust Land, taxes, assessments, monthly installments of
Section 184 annual loan guarantee fees and insurance charges or
premiums and must deposit such funds with one or more financial
institutions in a special account or accounts that are fully insured by
the Federal Deposit Insurance Corporation or the National Credit Union
Administration. The Servicer must also adhere to the requirements as
prescribed by Section 184 Program Guidance for escrow funds related to
leasehold rents on Trust Lands. The Servicer is responsible for making
escrow disbursements before bills become delinquent and must establish
controls to ensure that bills payable from the escrow fund or the
information needed to pay such bills is obtained on a timely basis.
Penalties for late payments for items payable from the escrow account
must not be charged to the Borrower unless the penalty was the direct
result of the Borrower's error or omission. This section also mandates
that the Servicer use the procedures set forth in the Consumer
Financial Protection Bureau's (CFPB) Real Estate Settlement Procedures
Act (RESPA) regulations at 12 CFR 1024.17 to compute the amount of the
escrow, the methods of collection and accounting, and the payment of
the bills for which the money has been escrowed. The Servicer is
prohibited from initiating foreclosure for a default related to escrow
payment shortfalls resulting from an adjustment pursuant to this
section. Finally, when a Section 184 Guaranteed Loan is terminated
voluntarily or because of Borrower's prepayment in full of the unpaid
principal balance, amounts in the escrow account designated to pay any
HUD required program fees must be remitted to HUD. When a loan is
prepaid in full, amounts held in escrow for taxes, hazard insurance, or
rents due under a tribal lease must be promptly released to the
Borrower. HUD is proposing this section to ensure clear guidelines on
how Servicers must administer escrow accounts. This proposed section is
consistent with current practices, policies and/or procedures, aligns
with industry standards, and cross references RESPA requirements, as
implemented in CFPB regulations.
Fees and costs after endorsement Sec. 1005.719. This section sets
forth the allowable fees and charges from the Servicer to the Borrower
after HUD's endorsement of the Section 184 Guaranteed Loan. Permissible
fees and charges include certain late charges, charges for processing
or reprocessing a check returned as uncollectible, fees for processing
a change of ownership of the mortgaged property, fees and charges for
arranging a substitution of liability in connection with the sale or
transfer of the Section 184 property, charges for processing a request
for credit approval on behalf of an assumption or substitute Borrower,
charges for substitution of a hazard insurance policy, charges for
modification of the Section 184 Guaranteed Loan involving a recorded
agreement for extension of term or re-Amortization, fees and charges
for processing a partial release of the property, certain attorney's
and trustee's fees and expenses actually incurred, escrow charges, a
trustee's fee, property preservation expenses incurred, fees permitted
for providing a beneficiary notice under applicable Tribal or State
law, and such other reasonable and customary charges as may be
authorized by HUD. This section also would provide that reasonable and
customary fees must be based upon the actual cost of the work
performed, including out-of-pocket expenses. HUD may establish maximum
fees and charges, which are reasonable and customary in different
areas. Unless otherwise provided, no fee or charge may be based on a
percentage of either the face amount of the loan or the unpaid
principal balance due on the Section 184 Guaranteed Loan. This section
proposes to clarify the range of fees and charges that can and cannot
be charged by Servicers participating in the program proposes change
consistent with HUD's current practice, policy, and/or procedure.
Enforcement of late fees Sec. 1005.721. This section proposes when
and how late charges must be applied by a Servicer. It would provide
that Servicers are prohibited from commencing foreclosure when the
Borrower's only default is his or her failure to pay a late charge or
charges. A late charge attributable to a particular installment payment
due may not be deducted from that installment. However, if the Servicer
notifies the Borrower of the obligation to pay a late charge, that
charge may be deducted from any subsequent payment. This section also
would provide that a payment may be returned because of failure to
include a late charge only if the Servicer notifies the Borrower before
imposition of the charge of the amount of the monthly payment, the date
when the late charge will be imposed and either the amount of the late
charge or the total amount due when the late charge is included. This
section prohibits a late charge from being imposed on the Borrower with
respect to any payment on the Section
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184 Guaranteed Loan during the 60 day period beginning on the effective
date of transfer of the servicing rights of a Section 184 Guaranteed
Loan. This section would provide that if a payment is received by the
old Servicer prior to the due date, no late charges may be assessed by
the new Servicer. Finally, this section would provide that a Servicer
is prohibited from imposing a late fee for failure to pay a late fee,
consistent with CFPB regulations. HUD is proposing this addition to
consistent with current program practices, policies, procedures, to
conform the regulations to CFPB's Truth in Lending regulations, and to
ensure that Servicers comply with fair rules governing late charges and
is intended align with industry standards.
Partial payments Sec. 1005.723. This proposed section provides
that a Servicer must have a written policy available to the public on
how it handles Partial Payments and outlines the acceptable actions
when a Servicer receives a Partial Payment from a Borrower. It also
proposes to provide that upon receipt of a Partial Payment, a Servicer
must provide to the Borrower a copy of the Servicer's written Partial
Payment policy and a letter explaining how it will handle the received
Partial Payment. The Servicer may accept a Partial Payment and apply it
to the Borrower's account, identify it with the Borrower's account
number and hold it in a trust account pending disposition, or return
the Partial Payment to the Borrower. This proposal is necessary to
ensure clear guidelines on how Servicers are to manage Partial Payments
and would provide Servicers with various options and is intended to
codify current practice, policy, and/or procedure.
Handling prepayments Sec. 1005.725. This section would require
that a Servicer accept pre-payment at any time and details how the
interest on the debt is calculated for prepayments. This proposed
section is consistent with codifies current practices, policies, and/or
procedures, and ensures that Borrowers who want to make prepayments on
their Section 184 Guaranteed Loans have the option to do so.
Substitute Borrowers Sec. 1005.727. This section proposes when a
Borrower requests the substitution of a co-Borrower on the Section 184
Guaranteed Loan. A remaining original Borrower must still be on the
loan. It would provide that where an original Borrower requests the
substitution of a co-Borrower on the loan, a Non-Direct Guarantee
Servicer must obtain HUD approval for the substitution. A Direct
Guarantee Lender may approve an eligible substitute Borrower who meets
program eligibility requirements and need not obtain further specific
approval from HUD. This proposed section is meant to provide clear
guidelines to Servicers and Borrowers on how to manage the substitution
of Borrowers consistent with current practice, policy, and/or
procedure.
Section 184 Guaranteed Loan collection action Sec. 1005.729. This
section would require the Servicer to take prompt action to collect
amounts due from Borrowers and to exhaust all reasonable possibilities
of collection before initiating foreclosure or assignment. This
proposed regulation is necessary to ensure that Servicers meet
standards for serving Section 184 Guaranteed in default and provide
Borrowers with a good faith consideration of available Loss Mitigation
options to avoid default, foreclosure, or both. This section is
designed to ensure that risks to the Fund are minimized, and that all
available reasonable loan collection and Loss Mitigation options have
been considered by the Servicer. This proposed section is consistent
with current program policy, practice, and/or procedure.
Default notice to Borrower Sec. 1005.731. This section outlines
the proposed requirements for contacting a defaulted Borrower,
including live contact and written notice. This includes a requirement
to contact all Borrowers, whether they live in the same or different
locations. Servicers are required to establish or make good faith
efforts to establish live contact with a defaulting Borrower no later
than the 36th day of the Borrower's default and promptly inform the
Borrower about the availability of Loss Mitigation options. This
section also would provide that Servicers must give written notice to
each Borrower in default no later than the end of the 45th day of a
Borrower's default. This section also governs what must be included in
the required written notice and would provide that nothing in this
section shall require a Servicer to communicate with a Borrower in a
manner otherwise prohibited by applicable Tribal, Federal, or State
law. This section is necessary to ensure that Servicers present a
minimum level of notice of default and consider Loss Mitigation options
to prevent foreclosure and other unnecessary losses and risks to the
Fund. HUD is proposing this addition consistent with current program
practices, policies, and/or procedures and to conform to CFPB
regulations and industry standards.
Loss mitigation application, timelines, and appeals Sec. 1005.733.
This section would provide specific expectations when a Servicer
processes a Borrower's Loss Mitigation application. It proposes to
provide five days to acknowledge receipt of the application, determine
if the application is complete or incomplete, and, if incomplete,
notify the Borrower of documentation that is still required and inform
the Borrower that submission of the missing documents must occur within
fourteen days. Within fourteen days of receipt of a complete
application, the Servicer must evaluate the application.
This section also would provide that Servicers are required to
provide written notification: (1) of all available Loss Mitigation
options; (2) to encourage Borrowers to review all available Loss
Mitigation options and to contact the Servicer with any questions; (3)
to encourage Borrowers to consider pursuing simultaneous Loss
Mitigation options; (4) to inform Borrowers that if no Loss Mitigation
option is elected or if they fail, the Servicer may proceed with filing
of the First Legal Action at 180 days of default; and (5) to inform
Borrowers that at the filing of first legal action or the assignment of
the loan to HUD, the Servicer will no longer offer or allow a pre-
foreclosure sale as an alternative to foreclosure, and that the only
available and remaining alternative to foreclosure will be a lease-in-
lieu or deed-in-lieu of foreclosure, subject to applicable Tribal,
Federal, or State law. Borrowers may appeal within 14 days of receipt
of the Servicer's Loss Mitigation determination, in writing, that the
Servicer re-evaluate the Borrower's Loss Mitigation application. The
Servicer will be required to re-evaluate the Borrower's Loss Mitigation
application within 30 days, but may not use the same staff that made
the initial Loss Mitigation determination and must notify the Borrower
of its appeal decision. If the Borrower submits a timely written
appeal, the 180-day deadline to initiate foreclosure will be suspended
during the appeal process. This section is being proposed to provide
clear guidelines to both Servicers and Borrowers on the Loss Mitigation
application process and associated appeals, to minimize risks and
losses to the Fund, and to avoid foreclosure when possible. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Occupancy inspection Sec. 1005.735. This section proposes
occupancy inspection as a visual inspection by the Servicer, defines
occupancy follow-up as an attempt to communicate with the
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Borrower through various means to determine occupancy status, and would
provide the requirements for occupancy inspections and occupancy
follow-ups while a Borrower is in default. It also governs occupancy
inspections conducted during a Borrower's bankruptcy.
HUD is proposing this regulation to ensure that clear guidelines
exist for Servicers governing occupancy inspections. Servicers may find
the need to conduct occupancy inspections to determine whether a
property has become vacant or abandoned, and to confirm the identity of
any occupants. HUD is requiring Servicers to conduct occupancy follow-
ups and to attempt to conduct continuing inspections, if necessary,
every 25-35 days from the last inspection until the occupancy status is
determined. This is designed to ensure that Servicers proactively work
to determine the status of each property subject to a loan guaranteed
under the program, that is in default, and to minimize costs and risks
to the Fund. This proposed section is consistent with current program
policy, practice, and/or procedure.
Vacant property procedures Sec. 1005.737. This section would set
forth the requirements when a property has been determined vacant or
abandoned based on an occupancy or occupancy follow-up inspection. This
provision includes a notice requirement to the Borrowers of
determination of vacancy or abandonment, which is sent to the property
address and all known addresses of Borrowers. If occupancy is found
through the delivery confirmation process, the Servicer must continue
pursuing Loss Mitigation efforts until the Servicer can proceed to
First Legal Action. On the other hand, if the Servicer verifies through
the delivery confirmation process or other method that the property is
vacant or abandoned, then the Servicer must secure and maintain the
property through appropriate property preservation actions, initiate
the First Legal Action or assign a Trust Land loan to HUD within 120
days after date of default, continue to perform vacant property
inspections every 25-35 days, and retain documentation in the servicing
file.
HUD is proposing this section to ensure that clear guidelines exist
for Servicers who manage vacant or abandoned Properties. While not
common, a small number of Properties assisted under the Section 184
Program have previously been abandoned. In such cases, it is critical
that Servicers remain proactive in verifying the occupancy status of
such Properties and ensuring that they are processed and disposed of in
a timely manner. Vacant or abandoned Properties can attract criminal
activity and serve as an additional blight to Trust Land. These
guidelines will also help preserve collateral and prevent unnecessary
losses and risks to the Fund. This proposed section is consistent with
current program policy, practice, and/or procedure, and aligns with
industry standards.
Loss mitigation Sec. 1005.739. This section proposes the Loss
Mitigation options and review requirements when a Borrower defaults on
a Section 184 Guaranteed Loan. This section would require that
Servicers utilize various Loss Mitigation options, if practical, within
180 days of the date of default. Loss mitigation options include: (1)
forbearance plan, (2) assumption, (3) trial payment plan agreement for
a loan modification, (4) pre-foreclosure sale, or (5) deed-in-lieu or
lease-in-lieu of foreclosure. Within 180 days of default, if the
Borrower is offered a Loss Mitigation option other than loan
modification and fails to meet the Loss Mitigation requirements, the
Servicer is required, within 5 days of the Loss Mitigation default, to
determine whether the Borrower should continue with the current Loss
Mitigation option or reassess the Borrower. If no time or very limited
time remains within 180 days of default, the Servicer will not be
required to reassess the Borrower for another Loss Mitigation option.
This section also would provide that if a Borrower is performing
under a Loss Mitigation option that does not reinstate the loan at 180
days of default but subsequently fails to perform, the Servicer must
take First Legal Action within 5 days of the Loss Mitigation option
default. Servicers must maintain documentation of all evaluations and
Loss Mitigation actions. Finally, Servicers that fail to engage in and
comply with required Loss Mitigation may be subject to enforcement
action by HUD, including possible sanctions.
HUD is proposing this addition to the regulation to ensure
Servicers review Loss Mitigation options to prevent foreclosures, to
maintain Native American Borrowers in their homes, to the extent
practicable, and to minimize any resulting losses and risks to the
Fund. This proposed section is consistent with current program
practices, policies, and/or procedures, and conforms to CFPB
regulations and industry standards.
Notice to Tribe and BIA--Borrower default Sec. 1005.741. This
proposed section compliments HUD's current practice and policy to
notify the BIA when a Borrower defaults on a Section 184 Guaranteed
Loan, in accordance with applicable requirements under 25 CFR part 162.
This section also includes a new requirement for Servicers. When given
consent by the Borrower, Servicers must notify the Borrower's Tribe
when a Borrower defaults on Section 184 Guaranteed Loan. This proposed
section addresses a request made during Tribal consultation in which
Tribal representatives expressed a desire to be notified when a member
has defaulted on their Section 184 Guaranteed Loan, so that the Tribe
may provide financial assistance, if available.
Relief for Borrower in military service Sec. 1005.743. This
proposed section outlines the options for Borrowers who are in military
service, in addition to benefits afforded under other applicable laws,
including postponement of principal payments, forbearance, and
postponement of foreclosure. This section is being proposed to provide
accommodations for Borrowers that are persons in ``military service,''
as such term is defined in the Servicemembers Civil Relief Act (50
U.S.C. 3901, et seq.). This proposed section is consistent with current
program policy, practice, and/or procedure, and aligns with industry
standards.
Forbearance plans Sec. 1005.745. This section proposes forbearance
options a Servicer may offer to defaulting Borrowers. This section sets
out the requirements for informal forbearance, formal forbearance,
unemployment forbearance, and servicemember forbearance. Each type has
its own agreement requirements, duration period requirements, property
condition requirements, and required documents. HUD is proposing this
regulation to ensure that several options are available for defaulting
Borrowers. This proposed section is consistent with current program
policy, practice, and/or procedure, and aligns with industry standards.
Assumption Sec. 1005.747. This section would require Servicers to
explore loan assumption as a Loss Mitigation option. HUD is proposing
this regulation to provide another Loss Mitigation option for a
Borrower that has defaulted on their guaranteed loan. This proposed
section is consistent with current program policy, practice, and/or
procedure, and aligns with industry standards.
Loan modification Sec. 1005.749. This section proposes loan
modifications as a Loss Mitigation option and sets forth the
eligibility and qualifications necessary for a Servicer to approve a
Borrower's application and the required property conditions. This
section also discusses
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the use of trial payment plans, the execution of loan modification
documents that conform to all applicable Tribal, Federal, and State
laws, and when the Servicer must provide modified loan guarantee
documents to HUD. HUD is proposing this regulation to provide another
Loss Mitigation option for Borrowers in default. This proposed section
is consistent with current program policy, practice, and/or procedure.
Pre-foreclosure sale Sec. 1005.751. This section would provide
authority for pre-foreclosure sale as a Loss Mitigation option. The
requirements specified for this review include: surchargeable
calculation of the Borrower's cash reserve contribution, condition of
title for both fee simple and Trust Land Properties, verification of
discharge of all junior liens, and listing the property at no less than
the value determined in the required appraisal. The Servicer would be
required to send all required pre-foreclosure documentation to HUD and
send an approval to participate agreement and required addendum notice
to the Borrower.
This section also would provide Tribal notification of the option
to assume the Section 184 Guaranteed Loan or purchase the either the
Note or the property. The section sets out the requirements for the
Borrower in securing a real estate broker and required clauses in the
contract between the Servicer and broker, as well as the time period
for the Borrower to market the property in listings. For all pre-
foreclosure sale Properties, the Servicer is required to conduct
property inspections and maintenance, and the Borrower is required to
disclose any damage that has occurred immediately. If damage has
occurred, the Servicer is required to work with the Borrower to file
hazard insurance claims. The section sets out the responsibilities for
the seller in receiving sufficient bids, reviewing the sales contract,
as well as closing and post-closing responsibilities. The section
details early termination initiated by both the Borrower and the
Servicer, and how to proceed in the event the Borrower fails to
complete the pre-foreclosure sale. HUD is proposing this regulation to
provide an additional option for defaulted Borrowers. This is a new
loss mitigation option for the Section 184 Program. HUD is proposing
this section to give Native American Borrowers comparable loss
mitigation options to Borrowers in other loan guarantee programs.
Deed-in-lieu/lease-in-lieu of foreclosure Sec. 1005.753. This
section would require the use of deed-in-lieu/lease-in-lieu of
foreclosure as a Loss Mitigation option. This section also sets out the
required documents to effectuate the transfer and, upon Conveyance to
HUD, the Servicer must file for record the required documents within
two days and report to HUD. The Servicer must also comply with all
applicable Federal, State, Tribal, and local reporting requirements.
HUD is proposing this regulation in order to provide an additional
option for Borrowers in default. This proposed section is consistent
with current program policy, practice, and/or procedure and aligns with
industry standards.
Incentive payments to Borrower Sec. 1005.755. This section
proposes that HUD may authorize incentive payments to the Borrower when
Borrowers complete certain loss mitigation options and when Borrowers
agree to vacate the property after foreclosure to avoid an eviction.
This section also proposes that HUD may authorize incentive payments to
Lender and Servicer for their completion of certain Loss Mitigation
options and incentive payments to Tribes and TDHEs when they assist HUD
in the loss mitigation, sale or transfer of the Trust Land property.
HUD plans to provide further guidance on the incentives in Section 184
Program Guidance. HUD is proposing this new authority to encourage
Borrowers' and Servicers' participation in Loss Mitigation, to avoid
the time and expense of foreclosing on the property and evicting the
Borrower after foreclosure.
Property on Trust Land--Tribal first right of refusal; foreclosure
or assignment Sec. 1005.757. This section proposes the timeframe in
which a Servicer must contact a Tribe or TDHE and offer an option to
assume or purchase the property or the Note under Sec. 1005.757(a)
when a defaulted loan pertains to property that is located on Trust
Land, as well as the TDHE or Tribe's acceptance of the offer. This
section also allows for the Servicer to choose between foreclosure or
assignment to HUD for a defaulted Section 184 Guaranteed Loan located
on Trust Lands. HUD is proposing this regulation to clarify options
available to the Servicer but also to ensure timely action. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Fee simple properties--foreclosure or assignment with HUD approval
Sec. 1005.759. This section proposes the requirement for Servicers to
initiate foreclosures or request the ability to assign a defaulted
property to HUD. HUD may approve assignments under limited
circumstances. HUD is proposing this regulation in order to ensure that
Servicers timely initiate foreclosure proceedings and is consistent
with current policy, practice and/or procedure.
First Legal Action deadline and automatic extensions Sec.
1005.761. This section proposes to provide a timeline for the
initiation of foreclosure by the Servicer on defaulted Section 184
Guaranteed Loans. This proposed section is consistent with current
program policy, practice, and/or procedure and aligns with industry
standards.
Assignment of the Section 184 Guaranteed Loan Sec. 1005.763. This
section presents the requirements for assigning a defaulted Section 184
Guaranteed Loan to HUD. This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Inspection and preservation of Properties Sec. 1005.765. This
section proposes that the Servicer comply with inspection requirements
under Sec. 1005.737 when the Servicer knows or should know the
property is vacant or abandoned. The section also proposes to require
that the Servicer take action to preserve and protect the property
until Conveyance to HUD. HUD is proposing this section in order to
ensure the Servicer continues to inspect and preserve the property.
This proposed section is consistent with current program policy,
practice, and procedure and aligns with industry standards.
Property condition Sec. 1005.767. This section would mandate the
condition of the property and the Servicer's responsibilities at the
time a property is transferred to HUD through Conveyance or assignment.
This proposed section is consistent with current program policy,
practice, and/or procedure.
Conveyance of property to HUD at or after foreclosure; time of
Conveyance Sec. 1005.769. This section proposes the methods and
timeframe in which a Servicer may convey a property to HUD after
foreclosure, including HUD notification of the Conveyance. HUD is
proposing this section in order to ensure the Servicer timely conveys
the property to HUD. This proposed section is consistent with current
program policy, practice, and/or procedure and aligns with industry
standards.
Acceptance of property by HUD Sec. 1005.771. This section would
establish the date which HUD is deemed to have accepted an assignment
of a Section 184 Guaranteed Loan, or title to and possession of a
property. HUD is proposing this section to clarify when HUD has
accepted title to a conveyed
[[Page 78338]]
property. This proposed section is consistent with current program
policy, practice, and/or procedure and aligns with industry standards.
H. Claims (Subpart H)
This subpart includes the requirements for Servicers to submit
claims to HUD. The subpart is organized into five sections: claims
application, submission categories, and types; submission of claims;
property title transfers and title waivers; condition of the property;
and payment of guarantee benefits.
Purpose Sec. 1005.801. This section proposes the purpose of this
subpart which is to set forth the requirements applicable to a
submission of an application for loan guarantee benefits (Claim
submission). It explains that Servicers must comply with regulations
presented in subpart H and process details included in Section 184
Program Guidance. This subpart also sets forth requirements processing
and payment of Claim. This proposed section is consistent with current
program policy, practice, and/or procedure.
Claim case binder; HUD authority to review records Sec. 1005.803.
This section would require Servicers to maintain a Claim case binder
for a minimum of five years after the final Claim has been paid and
allow HUD access to the case binder. Section 1005.803(b) allows HUD
access to the Claim case binder at any time and would provide that
Servicer denial of HUD access to any of the files may subject the
Servicer to sanctions under Sec. Sec. 1005.905 and 1005.907. Section
1005.803(c) would provide that the Servicer must make available to HUD
any request for Claim files within three business days of the request.
This proposed section is consistent with current practices and
establishes new timeframes for Servicers to respond to HUD's request
for a Claim case binder. These policies are necessary to ensure HUD has
appropriate oversight of the program.
Effect of noncompliance Sec. 1005.805. This section proposes to
establish the actions HUD may take if a Claim case binder does not
comply with the requirements of subpart D, including: rejecting the
claim, paying the claim but demanding reimbursement from the
Originating Direct Guarantee Lender, reconveying the property or
reassigning the deed of trust or mortgage in accordance with Sec.
1005.849 and sanctions in accordance with Sec. Sec. 1005.905 and
1005.907. Further, it would establish actions HUD may take if it finds
the Servicer failed to service the Section 184 Guaranteed Loan in
accordance with subpart G, committed fraud, known or should have known
of fraud or material misrepresentation in violation of this part. These
include holding the claim to remedy the deficiency, rejecting expenses
under Sec. 1005.807(b), reconveying the property or reassigning the
deed of trust or mortgage in accordance with Sec. 1005.849,
administrative offset, sanctions in accordance with Sec. Sec. 1005.905
and 1005.907, and other remedies as determined by HUD. This section
also limits the expenses that can be changed when a reconveying the
property or reassigning the deed of trust or mortgage. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Claim submission categories Sec. 1005.807. This section lists the
three Claim submission categories. The three Claim categories are:
payment of the unpaid principal balance; reimbursement of eligible
reasonable expenses up to assignment, Conveyance or transfer of the
property; and supplemental claims for eligible expenses incurred that
were omitted from the Servicer's prior submission or for a calculation
error made by the Servicer or HUD. This proposed section is consistent
with current program policy, practice, and/or procedure.
Claim types Sec. 1005.809. This section would establish five Claim
types, which are submitted based on property disposition, timeframes
for Claim submission, and the documentation required for each Claim
type. The five Claim types are: Conveyance; assignment of the loan;
post-foreclosure claims without Conveyance of title; pre-foreclosure
sale; and supplemental claims.
Paragraph (a) would provide for a Claim when the Servicer conveys
the property to HUD after foreclosure or execution of a deed-in-lieu or
lease-in-lieu. The Servicer has 45 days from date the deed to HUD is
executed to submit the Conveyance Claim. For fee simple properties, the
section would require final title policy. For Trust Land Properties, a
Title Status Report from the Bureau of Indian Affairs evidencing
ownership vested to HUD is required. Where Servicer is unable to obtain
a Title Status Report from the Bureau of Indian Affairs, the Servicer
may submit a Claim on the 45th day in accordance with Claim processing
instructions that HUD will provide. Lenders must submit claims related
to reimbursable eligible expenses no later than the 60th day of the
date the deed is executed to HUD, unless extension of time is given by
HUD.
Paragraph (b) describes the assignment of the Section 184
Guaranteed Loan and would require the Servicer to submit a Claim no
later than 45 days from the date of the assignment of the Section 184
Guaranteed Loan to HUD is executed. The section would require the
Servicer provide a final title policy or, where applicable, a certified
Title Status Report evidencing the assignment of the mortgage to HUD.
Where the Servicer is unable to comply with the documentation from
title policy or Title Status Report, the Servicer may submit a Claim on
the 45th day in accordance with processing instructions from HUD. For
assignment of a Section 184 Guaranteed Loan, the Servicer must submit a
Claim for reimbursable expenses, if any, within 45 days of the date the
loan assignment is executed. This section would require the Servicer to
certify that the Section 185 Guaranteed Loan is in first lien position
and prior to all mechanics' and materialmen's liens filed for record,
the amount due and owing under the loan, there are no offsets or
counterclaims, the Servicer has good right to assign, and has met the
property inspection and property preservation requirements of this
part.
Paragraph (c) explains the post-foreclosure claims without
Conveyance of title requirements and addresses when a third-party
purchases fee simple Properties at foreclosure. The Servicer must
submit a Claim to HUD no later than 180 days from the date the deed to
the third-party is executed. Paragraph (d) is the pre-foreclosure sale
Claim. It authorizes claims when a property is sold prior to
foreclosure in accordance with HUD's pre-foreclosure sale requirements
at Sec. 1005.751 or Sec. 1005.753. The Servicer must submit a Claim
no later than 45 days from the date the deed or assignment of the lease
to the third-party is executed.
Paragraph (e) discusses supplemental claims, and limits Servicers
to one supplemental Claim for each Claim related to the payment of
unpaid principal balance and reimbursement of eligible reasonable
expenses. Paragraph (e) limits supplemental claims to reasonable
eligible expenses incurred on the date of Conveyance of the property or
assignment of the Section 184 Guaranteed Loan, when invoices are
received after payment of the Claim or when there is a calculation
error made by the Servicer or HUD. Supplemental claims must be
submitted within six months of when the Servicer files a Claim for
reimbursement of eligible reasonable expenses. Any supplemental claims
received after the six-month period will not be reviewed or paid by
HUD. This section makes clear any supplemental Claim paid by HUD shall
[[Page 78339]]
be considered final satisfaction of the loan guarantee.
Proposed paragraphs (a) through (d) are consistent with HUD's
existing policies, practices, and procedures with the exception of
paragraph (b)(4), which proposes to implement a new Servicer
certification requirement. Proposed paragraph (e) is consistent, in
part, with HUD's existing policies, practices, and procedures, but
proposes to add a new requirement that supplemental claims are time
limited to a 6-month window. These policies are proposed to ensure HUD
maintains its fiduciary duty to protect the Fund and reduce its risk
against Claim payments that do not meet Section 184 requirements.
Claims supporting documentation Sec. 1005.811. This section
proposes to require Servicers to submit supporting documentation
required for each Claim to the satisfaction of HUD. Such documentation
will be provided for in Section 184 Program Guidance. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Upfront and Annual Loan Guarantee Fee reconciliation Sec.
1005.813. This section proposes to require Lenders to submit, as part
of a Claim submission under Sec. 1005.807(b), a reconciliation
evidencing the payment of the Annual Loan Guarantee Fee to HUD. This
section proposes a new process to ensure Lenders can verify they have
paid all Loan Guarantee Fees prior to HUD payment of any claims.
Conditions for withdrawal of claim Sec. 1005.815. This section
provides the conditions under which a Servicer can withdraw a Claim
submission after there has been a Conveyance. HUD will permit
withdrawal of the application when a Servicer accepts a reconveyance of
the property under a deed which warrants against the acts of HUD and
all claiming by, through or under HUD, promptly files a reconveyance
for record; accepts without continuation the title evidence it
furnished to HUD; and reimburses HUD for property expenditures HUD
incurred after Conveyance to HUD. This proposed section is consistent
with HUD's current practice, policy, and/or procedure.
Conveyance of Good and Marketable Title Sec. 1005.817. This
section proposes to mandate that a property have Good and Marketable
Title when conveyed to HUD from a Lender. This proposed section is
consistent with current program, policy and/or practice. Within this
section, HUD is proposing a new timeframe in which a Servicer must
correct any title defects. HUD is proposing that the Servicer make this
correction in 60 days, or the Servicer must reimburse HUD for the cost
of holding the property until any defect is corrected or until HUD
reconveys the property to the Servicer. This proposed time frame is
intended to help ensure timely action by the Servicer to correct title
defects.
Types of satisfactory title evidence Sec. 1005.819. This section
would provide six types of title evidence that may be submitted with a
Claim submission. The permissible types of title evidence include: fee
or owner's title policy; Lender's policy of title insurance; abstract
and legal opinion; torrens or similar certificate; title standard of
U.S., Tribal, or State government; and Title Status Report issued by
the Bureau of Indian Affairs. This proposed section is consistent with
current program policy, practice, and/or procedure.
Coverage of title evidence Sec. 1005.821. This section would
establish that evidence of title or Title Status Report shall be
executed subsequent to the filing for record of the deed or assignment
to HUD. The title evidence must show that, according to public records,
there are not, as of the date of the recordation of the deed or
assignment to HUD, any outstanding prior liens, including any past due
and unpaid ground rents, general taxes, or special assessments, if
applicable. This proposed section is consistent with current program
policy, practice, and/or procedure.
Waived title objections for properties on fee simple land Sec.
1005.823. This section would provide that reasonable title objections
for fee simple properties shall be waived by HUD. Reasonable title
objections will be prescribed in Section 184 Program Guidance. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Waived title objections for properties on Trust Land Sec.
1005.825. This section proposes that HUD shall not object to title
restrictions placed on Trust Land by a Tribe or the Bureau of Indian
Affairs, so long as those restrictions do not adversely impact the
property or marketability. This proposed section is consistent with
current program policy, practice, and/or procedure.
Damage or neglect Sec. 1005.827. This section would provide a
Lender's responsibilities when a property has suffered damage or
neglect and HUD's remedy when a damaged property is conveyed to HUD
without prior notice or approval. Section 1005.827(a) would provide
that if a property has been damaged by fire, flood, earthquake,
tornado, or due to Lender's failure to take action to protect and
preserve the property, the Servicer must submit a Claim to the hazard
insurance policy, and the damage must be repaired before Conveyance of
the property or assignment of the loan to HUD.
Paragraph (b) would provide that if the property damage is not
covered by a hazard insurance policy, the Servicer must notify HUD of
the damage. Servicer may not convey until directed to do so by HUD. If
HUD requires the Servicer to repair the damage before Conveyance, HUD
may reimburse Servicer for reasonable payments not in excess of HUD's
estimate of the cost of repair, less any insurance recovery or require
the Lender to repair the damage before Conveyance at the Servicer's own
expense.
Paragraph (c) would provide that in the event the Servicer conveys
property to HUD without repair to the damage or without notice to HUD
of the damage, HUD may, after notice, reconvey the property to the
Servicer and seek reimbursement for expenses HUD incurred in connection
with the Conveyance. This proposed section is consistent with current
program policy, practice, and/or procedure.
Certificate of property condition Sec. 1005.829. This section
would require a Servicer to submit a certification of property
condition as part of the Claim submission. This section would provide
that, as part of the Claim submission, the Servicer certifies the
property was undamaged by fire, flood, earthquake, or tornado, was
undamaged due to failure of the Servicer to act, and undamaged while
the property was in possession of the Borrower. Alternatively, if the
property was damaged, the Servicer includes a copy of the HUD approval
to convey the property in damaged condition.
Paragraph (b) would provide that, in the absence of evidence to the
contrary, the Servicer's certificate or description of the damage shall
be accepted by HUD as establishing the condition of the property, as of
the date of the filing of the deed or assignment of the loan. This
proposed section is consistent with current program policy, practice,
and/or procedure, and to ensure Servicers confirm the property is
conveyed to HUD undamaged.
Cancellation of hazard insurance Sec. 1005.831. This section
proposes to provide that Servicers shall cancel any hazard insurance
policy as of the date of the filing for record of the deed to HUD,
subject to certain conditions. The conditions include: (1) the amount
of the return premium, due to the Servicer because of such
cancellation, may be calculated on a ``short-rate'' basis and reported
on fiscal data, and the amount shall be deducted from the total amount
[[Page 78340]]
claimed; (2) If the Servicer's calculation of the return premium is
less than the actual return, the amount of the difference between the
actual refund and the calculated amount shall be remitted to HUD,
accompanied by the carrier's or agent's statement; (3) If the
Servicer's calculation of the return premium is more than the actual
return, the Servicer may include in its Claim submission, the statement
of the amount of the refund from the insurance carrier or agent, and
include the amount of the difference as an eligible cost in accordance
with Sec. 1005.843(a)(3). This proposed section is consistent with
current program policy, practice, and/or procedure.
Method of payment Sec. 1005.833. This section would establish that
HUD will make payment of guarantee benefits by electronic transfer of
funds for all approved claim submissions. This proposed section is
consistent with current program policy, practice, and/or procedure.
Claim payment not conclusive evidence of claim meeting all HUD
requirements Sec. 1005.835. This section proposes to provide that any
payment of claim by HUD is not conclusive evidence of a Servicer's
compliance with Section 184 Program requirements. HUD reserves the
right to conduct post-claim payment review of any claim file within 5
years from the date of last claim payment. This section states when
non-compliance with any requirements of this part is identified, HUD
may take appropriate post-claim action against the Servicer. This
section is a codification of existing policy, practice, and procedure
with the exception of the five-year period. The proposed five-year
period is necessary to ensure uniformity in the time frame for HUD to
conduct post-claim reviews of the loan file.
Payment of claim: unpaid principal balance Sec. 1005.837. This
section would state that HUD will pay claims for unpaid principal
balance submitted under Sec. 1005.807(a), minus any receipts for the
sale or transfer of the property. This proposed section is consistent
with current program policy, practice, and/or procedure.
Payment of claim: interest on unpaid principal balance Sec.
1005.839. This section would establish the payment timeframe for
interest payments on the unpaid principal balance. HUD shall pay
interest on the unpaid principal balance from the date of default to
the earlier of the following: the execution of the deed to the Lender,
HUD, or third-party; execution of Conveyance of deed to either Lender,
HUD, or third-party; execution of the assignment of the loan to HUD; or
expiration of the reasonable diligence timeframes as prescribed by
Section 184 Program Guidance. This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Payment of claim: reimbursement of eligible and reasonable costs
Sec. 1005.841. This section proposes to provide that reimbursement of
eligible and reasonable costs under Sec. 1005.807(b) shall be paid as
part of the guarantee benefits. HUD will prescribe reasonable costs
that are eligible for reimbursement in Section 184 Program Guidance.
This proposed section is consistent with current program policy,
practice, and/or procedure and aligns with industry standards.
Reductions to the Claim submission amount Sec. 1005.843. This
section proposes the circumstances under which Lenders should reduce
their Claim amount. The Servicer shall reduce its Claim when the
following amounts are received by the Lender: amounts received by the
Servicer instituting foreclosure or acquisition of the property by
direct Conveyance or otherwise after default; amounts received by the
Servicer from any source relating to the property on the account of
rent or other income after deducting reasonable expenses incurred in
handling the property; and all cash retained by the Lender, including
amounts held or deposited for the account of the Borrower or to which
is entitled under the loan transaction that have not been applied in
reduction of the principal loan indebtedness. This proposed section is
consistent with current program policy, practice, and/or procedure and
aligns with industry standards.
Rights and liabilities under the Indian Housing Loan Guarantee Fund
Sec. 1005.845. This section would state that Borrowers and Lenders
shall not have any vested right in the Fund nor be subject to any
liability arising under such Fund. In addition, that the Indian Housing
Loan Guarantee Fund will be credited and debited in accordance with 12
U.S.C. 1715z-13a(i)(2). This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Final payment Sec. 1005.847. This section would establish the
conditions for final payment from HUD to the Lender. Paragraph (a)
would provide that payment of the Claim shall be deemed as final
payment to the Servicer and that the Servicer would have no further
claims against the Borrower or HUD. The provision further states final
payment to the Servicer does not preclude HUD from seeking
reimbursement of costs and return of amounts from the Servicer when
there is a reconveyance to the Lender.
Paragraph (b) would provide that when there is a reconveyance to
the Servicer, and the Servicer reimburses HUD for all expenses and
returns all Claim amounts paid, the final payment to the Servicer
restriction under Sec. 1005.849(a) will not apply. The section makes
clear that in the event the Servicer resubmits a Claim after
reconveyance to the Servicer, then the Servicer shall not be reimbursed
for any expenses incurred after the date of the HUD Conveyance. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Reconveyance and reassignment Sec. 1005.849. This section proposes
actions HUD may take when there is a reconveyance of a property or a
reassignment of the deed of trust or mortgage back to the Holder.
Paragraph (a) would provide that HUD may reconvey the property to the
Holder due to an Originating Direct Guarantee Lender or Servicer's
noncompliance with the requirements of this part or if there is a
withdrawal of a Claim for benefits in accordance with Sec. 1005.815.
Paragraph (b) proposes to provide that HUD may take action against the
Holder, including, but not limited to, seeking reimbursement of all
Claim costs paid. Paragraph (c) proposes to provide that where HUD has
conveyed the property or reassigned the deed of trust or mortgage back
to the Holder, and a Claim is subsequently resubmitted, the Holder will
not be reimbursed for any expenses incurred after the date of the HUD
Conveyance or assignment. This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Reimbursement of expenses to HUD Sec. 1005.851. This section would
establish a Holder or the Originating Direct Guarantee Lender
reimbursement responsibilities when HUD determines it will reconvey of
a property previously conveyed to HUD under the claims process. This
section proposes that when there is a reconveyance or reassignment by
HUD, to the Holder or the Originating Direct Guarantee Lender, or when
HUD determines noncompliance, the Holder or the Originating Direct
Guarantee Lender shall reimburse HUD for all Claim costs paid, HUD's
cost of holding the property, and reimbursement plus interest on the
loan guarantee benefits from the date the loan guarantee benefits were
paid to the date HUD
[[Page 78341]]
receives the refund from the Holder. The interest rate shall be in
conformity with the Treasury Fiscal Requirements Manual. This proposed
section is consistent with current program policy, practice, and/or
procedure and aligns with industry standards.
I. Lender Program Performance, Reporting, Sanctions, and Appeals
(Subpart I)
Direct Guarantee Lender, Holder, or Servicer performance reviews
Sec. 1005.901. This section would establish HUD's authority to conduct
periodic performance reviews of Direct Guarantee Lenders, Non-Direct
Guarantee Lenders, Holders, and Servicers. These reviews will include,
but are not limited to, an evaluation of compliance with this
regulation. Monitoring reviews ensure that Direct Guarantee Lenders,
Non-Direct Guarantee Lenders, Holders, and Servicers are complying with
the requirements of the program and reduces risk to the Fund. This
proposed section is consistent with current program policy, practice,
and procedure and aligns with industry standards.
Direct Guarantee Lender, Holder, or Servicer reporting and
certifications Sec. 1005.903. This section proposes to mandate Direct
Guarantee Lenders, Non-Direct Guarantee Lenders, or Servicers provide
timely and accurate reports and certifications to HUD and provides HUD
the authority to subject the Lender to sanctions for failure to submit
such documents. This proposed section is consistent with current
program policy, practice, and/or procedure.
Direct Guarantee Lender, Holder, or Servicer notice of sanctions
Sec. 1005.905. This section would state that HUD will provide notice
to the Direct Guarantee Lender, Non-Direct Guarantee Lender, Holder, or
Servicer of the specific-noncompliance and, where applicable, allow for
a reasonable time to return to compliance, prior to any sanctions or
civil money penalties If the Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer fails to return to compliance,
HUD shall provide written notice of the sanction or civil money
penalties to be imposed and the basis for the action. This proposed
section is consistent with current program policy, practice, and/or
procedure and aligns with industry standards.
Direct Guarantee Lender, Holder, or Servicer sanctions and civil
money penalties Sec. 1005.907. This section proposes that sanctions
and civil money penalties may be imposed by HUD when a Direct Guarantee
Lender, Non-Direct Guarantee Lender, Holder, or Servicer fails to
comply with this part. Such compliance may include complying with
Section 184 Program Guidance when it specifically provides reasonable
times, processes, and procedures for complying with part 1005
requirements. This includes: termination from the program; bar the
Direct Guarantee Lender, or Holder from acquiring additional loans
guaranteed under this section; require that the Direct Guarantee Lender
assume not less than 10 percent of any loss on further loans made by
the Direct Guarantee Lender; require that the Direct Guarantee Lender,
Non-Direct Guarantee Lender, Holder, or Servicer comply with a
corrective action plan or amend Direct Guarantee Lender, Non-Direct
Guarantee Lender, or Servicer's quality control plan; or impose a civil
money penalty on the Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer in the manner and amount provided pursuant
to Section 184 of the Native American Assistance and Self-Determination
Act of 1996 (12 U.S.C. 1715z-13a) and 24 CFR part 30. This proposed
section is statutorily authorized and is intended to protect the Fund
and Section 184 Program integrity by allowing HUD to sanction poorly
performing Direct Guarantee Lenders, Non-Direct Guarantee Lenders,
Holders, or Servicers.
Direct Guarantee Lender, Holder, or Servicer appeals process Sec.
1005.909. This section would establish an appeal process for Non-Direct
Guarantee Lenders, Direct Guarantee Lenders, and Servicers to appeal a
denial of participation in the Section 184 Program and to appeal
sanctions or civil money penalties imposed pursuant to Sec. 1005.907.
This proposed section is intended to provide Lenders the opportunity to
appeal a decision to HUD for HUD's reconsideration.
HUD's Part 58 Regulations
Currently Tribes may elect to assume environmental responsibility
for Section 184 Guaranteed Loans pursuant to 24 CFR part 58, requiring
Tribes to ensure applicable environmental requirements are met. HUD
proposes to not have Tribes assume environmental responsibility for the
Section 184 Program for fee simple Properties that are located outside
of a reservation in order to streamline the environmental review
process and relieve the burden upon Tribes. It is impractical to have a
Tribe assume environmental responsibilities for Section 184 Guaranteed
Loans on fee simple Properties outside of a reservation, which may be
located far from the reservation of the Borrower's Tribe. Forgoing
Tribal involvement and responsibility for Federal environmental review
on such properties will increase the efficiency in providing HUD
assistance, as well as relieve the Tribes of a burden. Accordingly, the
proposed rule would revise Sec. 58.1(b), which lists the programs that
are subject to part 58, to indicate that Indian Housing Loan Guarantees
under Section 184 are subject to part 58 for Properties on trust land
and on fee land within a reservation. Thus, Properties not on trust
land not on fee land within a reservation shall be subject to Sec.
50.19(b)(17).
For loan guarantees that are subject to part 58, part 58 indicates
which activities are categorically excluded from environmental
assessment under the National Environmental Policy Act (42 U.S.C. 4321,
et seq.) (NEPA) and which categorically excluded activities remain
subject to related Federal environmental laws and authorities listed in
Sec. 58.5. HUD's existing regulation at Sec. 58.35(b) lists a number
of programs that are categorically excluded from assessment under NEPA
and not subject to such related authorities, and this proposed rule
would add to the list HUD's guarantee of loans for one- to four-family
dwellings under the Direct Guarantee procedure for the Section 184
Program where there is no review or approval of the application for the
loan guarantee by HUD or the responsible entity, or approval of the
loan guarantee by HUD, before the execution of the contract for
construction or rehabilitation and the loan closing.\1\ The proposed
rule would update HUD's categorical exclusions and increase efficiency
in providing HUD assistance, as well as reducing reduce costs
associated with HUD's environmental review process to eliminate
unnecessary regulatory burdens that impede affordable housing
development.
---------------------------------------------------------------------------
\1\ A comparable categorical exclusion for loan guarantees under
the Section 184 Direct Guarantee procedure is already contained in
24 CFR part 50, which applies when a Tribe declines to assume
environmental review responsibilities and HUD performs any required
environmental review. See 24 CFR 50.19(b)(17). The proposed
exclusion under part 58 would adapt the existing exclusion to apply
when a Tribe assumes environmental responsibilities, where there is
no HUD review or approval of the application for the loan guarantee
by HUD or the responsible entity, or approval of the loan guarantee
by HUD before the completion of construction or rehabilitation and
the loan closing.
---------------------------------------------------------------------------
Specific Question for Comment--Environmental Regulations
HUD invites comments on the proposal to shift environmental
responsibility from Tribes to HUD for
[[Page 78342]]
fee simple Properties that are located outside of a reservation.
III. Tribal Consultation
HUD's policy is to consult with Indian Tribes early in the
rulemaking process on matters that have Tribal implications.
Accordingly, HUD began consulting with Indian Tribes in February 2018.
HUD held eleven in-person Tribal consultation sessions before the
regulations in this proposed rule were drafted. As draft subparts of
the regulation were completed, HUD held three additional in-person
consultations to solicit Tribal feedback on each subpart. On April 4,
2019, HUD sent out a copy of the full draft proposed rule to all Tribal
leaders and directors of TDHEs for review and comment. The Tribal
comment period was originally from April 4, 2019, to June 4, 2019, but
it was extended to June 30, 2019, after Tribal leaders requested more
time to review the draft proposed rule. During this time, HUD also held
two in-person Tribal consultations and two national teleconferences to
review the draft proposed rule.
Tribal feedback has been an integral part of the process to develop
this proposed rule. Throughout the consultation process, HUD used
Tribal feedback to refine and improve this proposed rule. Tribal
comments included areas such as Lender relationships and
qualifications, loan limits, rate and fees, loan processing, Borrower
qualifications, eligible units, Section 184 Approved Program Area,
Tribal courts, and Tribal involvement. HUD considered all written
comments submitted to HUD, as well as recorded comments received from
in-person Tribal consultation sessions, and revised the proposed rule
as appropriate.
IV. Findings and Certifications
Regulatory Review--Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both the costs and
benefits of reducing costs, of harmonizing rules, and of promoting
flexibility.
Under Executive Order 12866 (Regulatory Planning and Review), a
determination must be made whether a regulatory action is significant
and, therefore, subject to review by the Office of Management and
Budget (OMB) in accordance with the requirements of the order. This
proposed rule, as discussed above, would introduce changes to make the
program sustainable, protect Borrowers, address recommendations by the
OIG in areas such as Lender underwriting and the claims process, and
provide clarity for new and existing Lenders who participate in the
Section 184 Program. These changes would allow for Lenders to serve the
growing demand for the program and introduce stronger governing
regulations to reduce the increased risk to the Fund.
Many current and potential Section 184 Lenders and Servicers
participate in the FHA single family mortgage program. Where
appropriate, aligning the new Section 184 regulations with the FHA
single family mortgage program regulations should also minimize costs
to new and existing Lenders. Additionally, clarifying servicing
requirements will protect the Borrowers by requiring Servicers to
consider Loss Mitigation options for Borrowers. Moreover, the added
requirements and protections will help to reduce losses to the Fund and
thereby allow the Section 184 Program to provide additional loans and
decrease the cost of the loans to eligible Borrowers.
This rule was determined to be a significant regulatory action
under section 3(f) of Executive Order 12866, Regulatory Planning and
Review, and therefore was reviewed by OMB. However, this rule was not
deemed to be economically significant. Because program participants
have long followed the substantive standards that this rule would
establish, HUD anticipates that this rule will have little to no
economic effect.
The docket file is available for public inspection in the
Regulations Division, Office of General Counsel, Room 10276, 451 7th
Street SW, Washington, DC 20410-0500. Due to security measures at the
HUD Headquarters building, please schedule an appointment to review the
docket file by calling the Regulations Division at 202-708-3055 (this
is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service at 800-877-8339 (this is a toll-free number).
Paperwork Reduction Act
Currently, the Section 184 Program has an existing information
collection requirement previously approved by the OMB under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB
control number 2577-0200. The proposed rule would modify some of the
documents in this information collection and would create new documents
to bring additional efficiency and accountability to the program. In
accordance with the Paperwork Reduction Act, an agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a valid OMB control number.
The proposed rule would amend the existing Lender and Direct
Guarantee Lender application process. Under Sec. 1005.207, HUD would
require all Lenders to select a level of participation in the Section
184 Program on a form prescribed by HUD. This form requests detailed
information about the Lender, in addition to the participation level.
This proposed revision of the Lender application process would allow
HUD to more closely track how many, and the type of, Lenders
participating in the program. The proposed rule would request
information that would give HUD further assurances that the Lenders
participating in the Section 184 Program have the experience, staffing,
and financial resources to follow program guidelines.
Currently the Section 184 Program uses FHA forms as part of
securing a loan on a manufactured home, assumptions, and pre-
foreclosure sale process. This has led to confusion by Lenders over
which information to submit, since the Section 184 Program may require
the same information collected on the FHA form. As part of the proposed
rule, under Sec. Sec. 1005.429(a)(3)(iv), 1005.711(c), and
1005.751(h)(1), (s)(2), and (t)(1), HUD would develop and gain
approval, when required, of forms similar to the FHA documents, but
specific to the Section 184 Program, which would reduce the paperwork
burden on the Lenders.
The proposed rule would establish new requirements in the areas of
annual Lender and Tribal Recertification Sec. Sec. 1005.223(a) and
1005.307 to provide additional accountability when changes occur that
might impact a Lender or Tribe's eligibility for the program. The
proposed rule would establish new requirements for Tribal application
under Sec. 1005.303 to clarify the information a Tribe needs to submit
when seeking HUD approval of eligibility to guarantee loans on a its
Tribal Land.
Based on comments received during Tribal consultation, the proposed
rule at Sec. 1005.501(j), would establish a new loan closing document,
signed by the
[[Page 78343]]
Borrower, in which the Borrower may elect to authorize the Lender to
notify the Borrower's Tribe in the event of default. Tribes requested
this notification so they may assist the Borrower with default if such
assistance was available.
Under Sec. 1005.769(b), HUD has new requirement for Lenders
conveying a property to HUD at or after foreclosure, to submit a
notification of Conveyance advising HUD of the filing of such
Conveyance.
The total annual estimated paperwork burden for the proposed rule
is 520.41 hours. The overall new paperwork burden for the proposed
rule, as compared to the burden under the previous rule, is 303.7
hours. The bulk of this time is related to the new loan closing
document required in Sec. 1005.501(j), which would allow the Borrower
to elect Tribal notification in the event of default. This form would
be required for each loan guaranteed by the program. The estimated
burden for this form is 5 minutes, and the program's total loan volume
is 3,750 loans for a total of 187.5 hours of estimated annual burden.
The burden of the information collections in this rule is estimated
as follows:
Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Estimated
Number of Number of average time Estimated
Section reference respondents responses per for requirement annual burden
respondent (in hours) (in hours)
----------------------------------------------------------------------------------------------------------------
1005.207.................................... 32 1 0.08 2.56
1005.223(a)................................. 150 1 0.25 37.5
1005.303.................................... 6 1 0.33 1.98
1005.307.................................... 226 1 0.17 38.42
1005.429(a)(3)(iv).......................... 350 1 0.03 10.5
1005.501(b)................................. 3750 1 0.05 187.5
1005.501(j)................................. 3750 1 0.05 187.5
1005.711(c)................................. 5 1 0.05 0.25
1005.751(h)(1).............................. 25 1 0.15 3.75
1005.751(s)(2).............................. 25 1 0.25 6.25
1005.751(t)(1).............................. 25 1 0.25 6.25
1005.769(b)................................. 115 1 0.33 37.95
-------------------------------------------------------------------
Total Paperwork Burden for the New Rule. ............... ............... ............... 520.41
----------------------------------------------------------------------------------------------------------------
In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments
from members of the public and affected agencies concerning this
collection of information to:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond, including through the use of appropriate automated
collection techniques or other forms of information technology, e.g.,
permitting electronic submission of responses.
Interested persons are invited to submit comments regarding the
information collection requirements in this rule. Comments must refer
to the proposal by name and docket number (FR-5593-P-01) and must be
sent to:
HUD Desk Officer: Office of Management and Budget, New Executive
Office Building, Washington, DC 20503, Fax: (202) 395-6947, and Reports
Liaison Officer, Office of Public and Indian Housing, Department of
Housing and Urban Development, Room, 451 7th Street SW, Washington, DC
20410.
Interested persons may submit comments regarding the information
collection requirements electronically through the Federal eRulemaking
Portal at https://www.regulations.gov. HUD strongly encourages
commenters to submit comments electronically. Electronic submission of
comments allows the commenter maximum time to prepare and submit a
comment, ensures timely receipt by HUD, and enables HUD to make them
immediately available to the public. Comments submitted electronically
through the https://www.regulations.gov website can be viewed by other
commenters and interested members of the public. Commenters should
follow the instructions provided on that site to submit comments
electronically.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.),
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
As discussed above, this rule would provide clarity for new and
existing Lenders who participate in the Section 184 Program.
Participation in the Section 184 Program is voluntary. HUD does not
believe the additional requirements will have a significant impact on
small entities.
Notwithstanding HUD's determination that this rule will not have a
significant economic impact on a substantial number of small entities,
HUD specifically invites comments regarding less burdensome
alternatives to this rule that will meet HUD's objectives, as described
in this preamble.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on State and local
governments and is not required by statute, or the rule preempts State
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive order. This proposed rule would not have
federalism implications and would not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
[[Page 78344]]
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made in accordance with HUD regulations at 24 CFR
part 50, which implement Section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is
available for public inspection at https://www.hud.gov/codetalk and
between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office
of General Counsel, Department of Housing and Urban Development, 451
7th Street SW, Room 10276, Washington, DC 20410-0500. Due to security
measures at the HUD Headquarters building, an advance appointment to
review the docket file must be scheduled by calling the Regulations
Division at 202-708-3055 (this is not a toll-free number). Hearing or
speech-impaired individuals may access this number through TTY by
calling the toll-free Federal Relay Service at 800-877-8339.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) proposes to establish requirements
for Federal agencies to assess the effects of their regulatory actions
on State, local, and Tribal governments, and on the private sector.
This proposed rule does not impose any Federal mandates on any State,
local, or Tribal government, or on the private sector, within the
meaning of the UMRA.
List of Subjects
24 CFR Part 58
Community development block grants, Environmental impact
statements, Grant programs-housing and community development, Reporting
and recordkeeping requirements.
24 CFR Part 1005
Indians, Loan programs-Indians, Reporting and recordkeeping
requirements.
For the reasons stated in the preamble, HUD proposes to amend 24
CFR parts 58 and 1005 as follows:
PART 58--ENVIRONMENTAL REVIEW PROCEDURES FOR ENTITIES ASSUMING HUD
ENVIRONMENTAL RESPONSIBILITIES
0
1. The authority citation for part 58 continues to read as follows:
Authority: 12 U.S.C. 1707 note, 1715z-13a(k); 25 U.S.C. 4115 and
4226; 42 U.S.C. 1437x, 3535(d), 3547, 4321-4335, 4852, 5304(g),
12838, and 12905(h); title II of Pub. L. 105-276; E.O. 11514 as
amended by E.O. 11991, 3 CFR, 1977, Comp., p. 123.
0
2. In Sec. 58.1, revise paragraph (b)(11) to read as follows:
Sec. 58.1 Purpose and applicability.
* * * * *
(b) * * *
(11) Indian Housing Loan Guarantees authorized by section 184 of
the Housing and Community Development Act of 1992 on trust land and on
fee land within a reservation, in accordance with section 184(k) (12
U.S.C. 1715z-13a(k)); and
* * * * *
0
3. In Sec. 58.35, add paragraph (b)(8) to read as follows:
Sec. 58.35 Categorical exclusions.
* * * * *
(b) * * *
(8) HUD's guarantee of loans for one- to-four family dwellings on
trust land and on fee land within a reservation under the Direct
Guarantee procedure for the Section 184 Indian Housing loan guarantee
program without any review or approval of the application for the loan
guarantee by HUD or the responsible entity or approval of the loan
guarantee by HUD before the execution of the contract for construction
or rehabilitation and the loan closing.
* * * * *
0
4. Revise part 1005 to read as follows:
PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING
Subpart A--General Program Requirements
Sec.
1005.101 Purpose.
1005.103 Definitions.
Subpart B--Lender Eligibility & Requirements
1005.201 Lender approval and participation.
1005.203 Lenders deemed approved by statute.
1005.205 Lenders required to obtain Secretarial approval.
1005.207 Lender participation options.
1005.209 Direct Guarantee Lender application process.
1005.211 Direct Guarantee Lender approval.
1005.213 Non-Direct Guarantee Lender application, approval, and
Direct Guarantee Lender sponsorship.
1005.215 Annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Annual recertification.
1005.225 Program ineligibility.
Subpart C--Lending on Trust Land
1005.301 Tribal legal and administrative framework.
1005.303 Tribal application.
1005.305 Approval of Tribal application.
1005.307 Tribal recertification.
1005.309 Duty to report changes.
1005.311 HUD notification of any lease default.
1005.313 Tribal reporting requirements.
Subpart D--Underwriting
Eligible Borrowers
1005.401 Eligible Borrowers.
1005.403 Principal Residence.
1005.405 Borrower residency status.
1005.407 Relationship of income to loan payments.
1005.409 Credit standing.
1005.411 Disclosure and verification of Social Security and Employer
Identification Numbers or Tax Identification Number.
Eligible Properties
1005.413 Acceptable title.
1005.415 Sale of property.
1005.417 Location of property.
1005.419 Requirements for standard housing.
1005.421 Certification of appraisal amount.
1005.423 Legal restrictions on Conveyance.
1005.425 Rental properties.
1005.427 Refinancing.
1005.429 Eligibility of Loans covering manufactured homes.
1005.431 Acceptance of individual residential water purification.
1005.433 Builder warranty.
Eligible Loans
1005.435 Eligible collateral.
1005.437 Loan provisions.
1005.439 Loan lien.
1005.441 Section 184 Guaranteed Loan limit.
1005.443 Loan amount.
1005.445 Case numbers.
1005.447 Maximum age of Loan documents.
1005.449 Qualified mortgage.
1005.451 Agreed interest rate.
1005.453 Amortization provisions.
Underwriting
1005.455 Direct guarantee underwriting.
1005.457 Appraisal.
1005.459 Loan submission to HUD for Direct Guarantee.
1005.461 HUD issuance of Firm Commitment.
Subpart E--Closing and Endorsement
Closing
1005.501 Direct Guarantee Lender closing requirements.
1005.503 Contents of the endorsement case binder.
1005.505 Payment of Upfront Loan Guarantee Fee.
1005.507 Borrower's payments to include other charges and escrow
payments.
1005.509 Application of payments.
1005.511 Late fee.
1005.513 Borrower's payments when Section 184 Guaranteed Loan is
executed.
1005.515 Charges, fees, or discounts.
1005.517 Certificate of nondiscrimination by the Direct Guarantee
Lender.
[[Page 78345]]
Endorsement and Post-Closing
1005.519 Creation of the contract.
1005.521 Lender pre-endorsement review and requirements.
1005.523 HUD pre-endorsement review.
1005.525 Loan Guarantee Certificate.
1005.527 Post-endorsement review.
1005.529 Indemnification.
Subpart F--Section 184 Guaranteed Loan Fees
1005.601 Scope and method of payment.
1005.603 Upfront Loan Guarantee Fee.
1005.605 Remittance of Upfront Loan Guarantee Fee.
1005.607 Annual Loan Guarantee Fee.
1005.609 Remittance of Annual Loan Guarantee Fee.
1005.611 HUD imposed penalties.
Subpart G--Servicing
Servicing Section 184 Guaranteed Loans Generally
1005.701 Section 184 Guaranteed Loan servicing generally.
1005.703 Servicer eligibility and application process.
1005.705 Servicer approval.
1005.707 Responsibility for servicing.
1005.709 Providing information to Borrower and HUD.
1005.711 Assumption and release of personal liability.
1005.713 Due-on-sale provision.
1005.715 Application of Borrower payments.
1005.717 Administering escrow accounts.
1005.719 Fees and costs after endorsement.
1005.721 Enforcement of late fees.
1005.723 Partial payments.
1005.725 Handling prepayments.
1005.727 Substitute Borrowers.
Servicing Default Section 184 Guaranteed Loans
1005.729 Section 184 Guaranteed Loan collection action.
1005.731 Default notice to Borrower.
1005.733 Loss mitigation application, timelines, and appeals.
1005.735 Occupancy inspection.
1005.737 Vacant property procedures.
Servicing Default Section 184 Guaranteed Loans under the Loss
Mitigation Program
1005.739 Loss mitigation.
1005.741 Notice to Tribe and BIA--Borrower default.
1005.743 Relief for Borrower in military service.
1005.745 Forbearance plans.
1005.747 Assumption.
1005.749 Loan modification.
1005.751 Pre-foreclosure sale.
1005.753 Deed-in-lieu/lease-in-lieu of foreclosure.
1005.755 Incentive payments to Borrower.
Assignment of the Loan to HUD, Foreclosure, and Conveyance
1005.757 Property on Trust Land--Tribal first right of refusal;
foreclosure or assignment.
1005.759 Fee simple land properties--foreclosure or assignment with
HUD approval.
1005.761 First Legal Action deadline and automatic extensions.
1005.763 Assignment of the Section 184 Guaranteed Loan.
1005.765 Inspection and preservation of properties.
1005.767 Property condition.
1005.769 Conveyance of property to HUD at or after foreclosure; time
of Conveyance.
1005.771 Acceptance of property by HUD.
Subpart H--Claims
Claims Application, Submission Categories, and Types
1005.801 Purpose.
1005.803 Claim case binder; HUD authority to review records.
1005.805 Effect of noncompliance.
1005.807 Claim submission categories.
1005.809 Claim types.
Submission of Claims
1005.811 Claims supporting documentation.
1005.813 Upfront and Annual Loan Guarantee Fee reconciliation.
1005.815 Conditions for withdrawal of claim.
Property Title Transfers and Title Waivers
1005.817 Conveyance of Good and Marketable Title.
1005.819 Types of satisfactory title evidence.
1005.821 Coverage of title evidence.
1005.823 Waived title objections for properties on fee simple land.
1005.825 Waived title objections for properties on Trust Land.
Condition of the Property
1005.827 Damage or neglect.
1005.829 Certificate of property condition.
1005.831 Cancellation of hazard insurance.
Payment of Guarantee Benefits
1005.833 Method of payment.
1005.835 Claim payment not conclusive evidence of claim meeting all
HUD requirements.
1005.837 Payment of claim: unpaid principal balance.
1005.839 Payment of claim: interest on unpaid principal balance.
1005.841 Payment of claim: reimbursement of eligible and reasonable
costs.
1005.843 Reductions to the claim submission amount.
1005.845 Rights and liabilities under the Indian Housing Loan
Guarantee Fund.
1005.847 Final payment.
1005.849 Reconveyance and reassignment.
1005.851 Reimbursement of expenses to HUD.
Subpart I--Lender Program Performance, Reporting, Sanctions, and
Appeals
1005.901 Direct Guarantee Lender, Holder, or Servicer performance
reviews.
1005.903 Direct Guarantee Lender, Holder, or Servicer reporting and
certifications.
1005.905 Direct Guarantee Lender, Holder, or Servicer notice of
sanctions.
1005.907 Direct Guarantee Lender, Holder, or Servicer sanctions and
civil money penalties.
1005.909 Direct Guarantee Lender, Holder, or Servicer appeals
process.
Authority: 12 U.S.C. 1715z-13a; 15 U.S.C. 1639c; 42 U.S.C.
3535(d).
Subpart A--General Program Requirements
Sec. 1005.101 Purpose.
This part implements the Section 184 Indian Home Loan Guarantee
Program (``Section 184 Program'') authorized under Section 184 of the
Housing and Community Development Act of 1992, as amended, codified at
12 U.S.C. 1715z-13a. Section 184 authorizes the U.S. Department of
Housing and Urban Development (HUD) to establish a loan guarantee
program for American Indian and Alaskan Native families, Tribes and
Tribally Designated Housing Entities (TDHE). The loans guaranteed under
the Section 184 Program are used to construct, acquire, refinance, or
rehabilitate one- to four-family standard housing located on Trust
Land, land located in an Indian or Alaska Native area, and Section 184
Approved Program Area. These regulations apply to Lenders, Servicers
and Tribes seeking to or currently participating in the Section 184
Program.
Sec. 1005.103 Definitions.
The following definitions apply throughout this part:
Acquisition Cost means the sum of the sales price or construction
cost for a property and the cost of allowable repairs or improvements
for the same property, less any unallowable sales concession(s). For
the purposes of this definition, the term ``sales concession'' means an
inducement to purchase a property paid by the seller to consummate a
sales transaction.
Amortization means the calculated schedule of repayment of a
Section 184 Guaranteed Loan in full, through structured, regular
payments of principal and interest within a certain time frame.
Amortization Schedule means the document generated at the time of
loan approval outlining the Borrower's schedule of payments of
principal and interest for the life of the loan and the unpaid
principal balance with and without financed Upfront Loan Guarantee Fee,
where applicable.
Annual Loan Guarantee Fee means a fee calculated on an annual basis
and paid in monthly installments by the Borrower, which is collected by
the Servicer and remitted to HUD for the purposes of financing the
Indian Housing Loan Guarantee Fund.
BIA means the United States Department of Interior, Bureau of
Indian Affairs.
[[Page 78346]]
Borrower means each and every individual on the mortgage
application. For the purposes of servicing the loan, Borrower refers to
each and every original Borrower who signed the note and their heirs,
executors, administrators, assigns, and approved substitute Borrowers.
Borrower includes Tribes and TDHEs.
Claim means the Servicer's application to HUD for payment of
benefits under the Loan Guarantee Certificate for a Section 184
Guaranteed Loan.
Conflict of Interest means any party to the transaction who has a
direct or indirect personal business or financial relationship
sufficient to appear that it may cause partiality or influence the
transaction, or both.
Date of default means the day after the Borrower's obligation to
make a loan payment or perform an obligation under the terms of the
loan, Loss Mitigation plan, or any other agreement with the Direct
Guarantee Lender was due.
Day means calendar day, except where the term ``business day'' is
used.
Default means when the Borrower has failed to make a loan payment
or perform an obligation under the terms of the Section 184 Guaranteed
Loan, Loss Mitigation plan, lease, or any other agreement with the
Direct Guarantee Lender.
Direct Guarantee Lender means a Lender approved by HUD under Sec.
1005.211 to originate, underwrite, close, service, purchase, hold, or
sell Section 184 Guaranteed Loans.
Eligible Nonprofit Organization means a nonprofit organization
established under Tribal law or organization of the type described in
section 501(c)(3) of the Internal Revenue Code of 1986 as an
organization exempt from taxation under section 501(a) of the Code,
which has:
(1) Two years' experience as a provider of low- or moderate-income
housing;
(2) A voluntary board; and
(3) No part of its net earnings inuring to the benefit of any
member, founder, contributor or individual.
Financial Statements means audited financial statements or other
financial records as required by HUD.
Firm Commitment means a commitment by HUD to reserve funds, for a
specified period of time, to guarantee a Loan under the Section 184
program, when a Loan for a specific Borrower and property meets
standards as set forth in subpart D of this part.
First Legal Action means the first public action required by Tribal
or State law to foreclose, such as filing a complaint or petition,
recording a notice of default, or publication of a notice of sale.
Good and Marketable Title means title that contains exceptions or
restrictions, if any, which are permissible under subpart D of this
part; and any objections to title that have been waived by HUD or
otherwise cleared; and any discrepancies have been resolved to ensure
the Section 184 Guaranteed Loan is in first lien position. In the case
of Section 184 Guaranteed Loans on Trust Land, Good and Marketable
Title includes the ownership rights of the improvements as reported in
the Title Status Report issued by the BIA.
Holder means an entity that holds title to a Section 184 Guaranteed
Loan and has the right to enforce the mortgage agreement.
Identity of Interest means a sales transaction between family
members, business partners, or other business affiliates.
Indian means a person who is recognized as being an Indian or
Alaska Native Federally by a recognized Indian Tribe, a regional or
village corporation as defined in the Alaska Native Claims Settlement
Act, or a State recognized Tribe eligible to receive assistance under
Title I of the Native American Housing Assistance and Self-
Determination Act of 1996 (NAHASDA).
Indian Family means one or more persons maintaining a household
where at least one Borrower is an Indian.
Indian Housing Loan Guarantee Fund or Fund means a fund established
at the U.S. Department of Treasury for the purpose of providing loan
guarantees under the Section 184 Program.
Lease or leasehold interest means a written contract between a
Borrower and a Tribe, entity, or individual, whereby the Borrower, as
lessee, is granted a right of possession of Trust Land for a specific
purpose and duration, according to applicable Tribal, Federal, or State
law.
Lender means a financial institution engaging in mortgage lending
that is eligible to participate in the Section 184 Program under Sec.
1005.203 or Sec. 1005.205, but has not yet had a program participation
level approved under Sec. 1005.207.
Loan means a loan application or mortgage loan that has not
received a Loan Guarantee Certificate.
Loan Guarantee Certificate means evidence of endorsement by HUD of
a Loan for guarantee issued under Sec. 1005.525.
Loss Mitigation means an alternative to foreclosure offered by the
Holder of a Section 184 Guaranteed Loan that is made available through
the Servicer to the Borrower.
Non-Direct Guarantee Lender means a Lender approved by HUD under
Sec. 1005.207 who has selected a level of program participation
limited to originating Section 184 Guaranteed Loans.
Month or monthly means thirty days in a month, regardless of the
actual number of days.
Origination or originate means the process by which the Lender
accepts a new loan application along with all required supporting
documentation. Origination does not include underwriting the loan.
Owner of Record means, for fee simple properties, the owner of
property as shown on the records of the recorder in the county where
the property is located. For properties held in trust by the United
States, the current lessee or owner of property, as shown on the Title
Status Report provided by the BIA.
Partial Payment means a Borrower payment of any amount less than
the full amount due under the terms of the Section 184 Guaranteed Loan
at the time the payment is tendered.
Property means a one to four-family dwelling that meets the
requirements for standard housing under Sec. 1005.419 and located on
Trust Land, land located in an Indian or Alaska Native area, or Section
184 Approved Program Area.
Section 184 Approved Program Area means the Indian Housing Block
Grant (IHBG) Formula Area as defined in 24 CFR 1000.302 or any other
area approved by HUD, in which HUD may guarantee Loans.
Section 184 Guaranteed Loan is a Loan that has received a Loan
Guarantee Certificate.
Section 184 Program Guidance means administrative guidance
documents that may be issued by HUD, including but not limited to
Federal Register Notices, Dear Lender Letters, handbooks, guidebooks,
manuals, and user guides.
Security means any collateral authorized under existing Tribal,
Federal, or State law.
Servicer means a Direct Guarantee Lender that chooses to services
Section 184 Guaranteed Loans or a Non-Direct Guarantee Lender or a
financial institution approved by HUD under Sec. 1005.705 to service
Section 184 Guaranteed Loans.
Sponsor means an approved Direct Guarantee Lender that enters into
a relationship with a Non-Direct Guarantee Lender or another Direct
Guarantee Lender (Sponsored Entity), whereby the Sponsor provides
underwriting, closing, purchasing, and holding of Section 184
Guaranteed Loans and may provide servicing.
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Sponsored Entity means a Non-Direct Guarantee or Direct Guarantee
Lender operating under an agreement with a Sponsor to originate Section
184 Guaranteed Loans in accordance with Sec. 1005.213.
Tax-exempt bond financing means financing which is funded in whole
or in part by the proceeds of qualified mortgage bonds described in
section 143 of the Internal Revenue Code of 1986 on which the interest
is exempt from Federal income tax. The term does not include financing
by qualified veterans' mortgage bonds as defined in section 143(b) of
the Code.
Title Status Report is defined in 25 CFR 150.2, as may be amended.
Tribe means any Indian Tribe, band, nation, or other organized
group or community of Indians, including any Alaska Native village or
regional or village corporation as defined in or established pursuant
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601, et seq.),
that is recognized as eligible for the special programs and services
provided by the United States to Indians because of their status as
Indians pursuant to the Indian Self Determination and Education
Assistance Act of 1975.
Tribally Designated Housing Entity (TDHE) means any entity as
defined in the Indian Housing Block Grant Program under the Native
American Housing Assistance and Self Determination Act at 25 U.S.C.
4103(22).
Trust Land means land title which is held by the United States for
the benefit of an Indian or Tribe or title which is held by a Tribe
subject to a restriction against alienation imposed by the United
States or Tribe. This definition shall include but is not limited to
allotted, restricted fee, or assigned trust lands.
Upfront Loan Guarantee Fee means a fee, paid by the Borrower at
closing, collected by the Direct Guarantee Lender and remitted to HUD
for the purposes of financing the Indian Housing Loan Guarantee Fund.
Subpart B--Lender Eligibility & Requirements
Sec. 1005.201 Lender approval and participation.
(a) Approval types. The Section 184 Program has two types of Lender
approval:
(1) Lenders deemed approved by statute, as described in Sec.
1005.203; or
(2) Lenders required to obtain secretarial approval under Sec.
1005.205.
(b) Lender participation. In accordance with Sec. 1005.207,
approved Lenders must select a level of program participation and
submit a completed application package, as prescribed by Section 184
Program Guidance, to participate in the Section 184 program.
Sec. 1005.203 Lenders deemed approved by statute.
(a) The following Lenders are deemed approved by statute:
(1) Any mortgagee approved by HUD for participation in the single-
family mortgage insurance program under Title II of the National
Housing Act;
(2) Any Lender whose housing loans under the U.S. Department of
Veterans Affairs, 38 U.S.C. chapter 37, are automatically guaranteed
pursuant to 38 U.S.C. 3702(d);
(3) Any Lender approved by the U.S. Department of Agriculture to
make Guaranteed Loans for single family housing under the Housing Act
of 1949; and
(4) Any other Lender that is supervised, approved, regulated, or
insured by any other Federal agency of the United States, including but
not limited to Community Development Financial Institutions.
(b) [Reserved]
Sec. 1005.205 Lenders required to obtain Secretarial approval.
(a) Lender application process. Lenders not meeting the
requirements of Sec. 1005.203 must apply to HUD for approval to
participate in the Section 184 Program by submitting to HUD a completed
application package, as prescribed by Section 184 Program Guidance. The
application must establish that the Lender meets the following
qualifications:
(1) Business form. The Lender shall be a corporation or other
chartered institution, a permanent organization having succession, or a
partnership, organized under Tribal or State law.
(i) Partnership requirements. A partnership must meet the following
requirements:
(A) Each general partner must be a corporation or other chartered
institution consisting of two or more partners.
(B) One general partner must be designated as the managing general
partner. The managing general partner shall also comply with the
requirements specified in Sec. 1005.205(a)(1)(i)(C) and (D). The
managing general partner must have as its principal activity the
management of one or more partnerships, all of which are mortgage
lending institutions or property improvement or manufactured home
lending institutions, and must have exclusive authority to deal
directly with HUD on behalf of each partnership. Newly admitted
partners must agree to the management of the partnership by the
designated managing general partner. If the managing general partner
withdraws or is removed from the partnership for any reason, a new
managing general partner shall be substituted, and HUD must be notified
in writing within 15 days of the substitution.
(C) The partnership agreement shall specify that the partnership
shall exist for a minimum term of ten years, as required by HUD. All
Section 184 Guaranteed Loans held by the partnership shall be
transferred to a Lender approved under this part prior to the
termination of the partnership. The partnership shall be specifically
authorized to continue its existence if a partner withdraws.
(D) HUD must be notified in writing within 15 days of any
amendments to the partnership agreement that would affect the
partnership's actions under the Section 184 Program.
(ii) Use of business name. The Lender must use its HUD-registered
business name in all advertisements and promotional materials related
to the Guaranteed Loan. HUD-registered business names include any alias
or ``doing business as'' (DBA) on file with HUD. The Lender must keep
copies of all print and electronic advertisements and promotional
materials for a period of 2 years from the date that the materials are
circulated or used to advertise.
(2) Identification and certification of employees. The Lender shall
identify personnel and certify that they are trained and competent to
perform their assigned responsibilities in mortgage lending, including
origination, servicing, collection, and Conveyance activities, and
shall maintain adequate staff and facilities to originate or service
mortgages, or both, in accordance with applicable Tribal, Federal, or
State requirements, to the extent it engages in such activities.
(3) Identification and certification of officers. The Lender shall
identify officers and certify that all employees who will sign
applications for Guaranteed Loans on behalf of the Lender shall be
corporate officers or shall otherwise be authorized to bind the Lender
in the Origination transaction. The Lender shall certify that only
authorized person(s) report on guarantees, purchases, and sales of
Guaranteed Loans to HUD for the purpose of obtaining or transferring
guarantee coverage.
(4) Financial statements. The Lender shall:
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(i) Furnish to HUD a copy of its most current annual audited
financial statement.
(ii) Furnish such other information as HUD may request; and
(iii) Submit to examination of the portion of its records that
relates to its activities under the Section 184 Program.
(5) Quality control plan. The Lender shall submit a written quality
control plan in accordance with Sec. 1005.217.
(6) Identification of branch offices. A Lender may maintain branch
offices. A financial institution's branch office must be registered
with HUD to originate or submit applications for Guaranteed Loans. The
financial institution shall remain responsible to HUD for the actions
of its branch offices.
(7) Certification of conflict of interest policy. The Lender must
certify that the lender shall not pay anything of value, directly or
indirectly, in connection with any Guaranteed Loan to any person or
entity if such person or entity has received any other consideration
from the seller, builder, or any other person for services related to
such transactions or related to the purchase or sale of the property,
except that consideration, approved by HUD, may be paid for services
actually performed. The Lender shall not pay a referral fee to any
person or organization.
(8) Licensing certification. A Lender shall certify that it has not
been refused a license and has not been sanctioned by any Tribal,
Federal, or State, or authority in which it will originate Section 184
Guaranteed Loans.
(9) Minimum net worth. Irrespective of size, a Lender shall have a
net worth of not less an amount as established by Section 184 Program
Guidance.
(10) Identification of operating area. The Lender must submit a
list of states in which they wish to participate in the Section 184
Program and evidence of Lender's license to operate in those states, as
may be prescribed by Section 184 Program Guidance.
(11) Other. Other qualifications by notice for comment.
(b) HUD approval. HUD shall review applications under Sec.
1005.203(a) and any other publicly available information related to the
Lender, its officers, and employees. If HUD determines the Lender meets
the requirements for participation in this subpart, HUD shall provide
written notification of the approval to be a Section 184 Lender.
(c) Limitations on approval. A Lender may only operate in the
Section 184 Approved Program Area where they are licensed.
(d) Denial of participation. A Lender may be denied approval to
become a Section 184 Lender if HUD determines the Lender does not meet
the qualification requirements of this subpart. HUD will provide
written notification of denial and that decision may be appealed in
accordance with the procedures set forth in Sec. 1005.909.
Sec. 1005.207 Lender participation options.
(a) Levels of participation. Lenders must choose one of two levels
of program participation, a Non-Direct Guarantee Lender or a Direct
Guarantee Lender and submit an application to participate on a form
prescribed by Section 184 Program Guidance. A participation level must
be selected by the Lender and approved by HUD before initiating any
Section 184 Program activities.
(b) Non-Direct Guarantee Lender. (1) A Non-Direct Guarantee Lender
originates Loans.
(2) A Non-Direct Guarantee Lender must be a Sponsored Entity under
Sec. 1005.213.
(3) A Non-Direct Guarantee Lender must submit documentation
supporting their eligibility as a Lender under Sec. 1005.203 or
approved by HUD under Sec. 1005.205 and other documentation as
prescribed by Section 184 Program Guidance to HUD through their
Sponsor.
(c) Direct Guarantee Lender. (1) A Direct Guarantee Lender may
originate, underwrite, close, service, purchase, hold, and sell Section
184 Guaranteed Loans.
(2) A Direct Guarantee Lender may sponsor Non-Direct Guarantee
Lenders or other Direct Guarantee Lenders in accordance with Sec.
1005.213.
(3) To become a Direct Guarantee Lender, Lenders must submit
additional documentation as provided in Sec. 1005.209 and obtain HUD
approval under Sec. 1005.211.
Sec. 1005.209 Direct Guarantee Lender application process.
(a) Lenders must apply to HUD for approval to participate in the
Section 184 Program as a Direct Guarantee Lender. Lenders must submit a
completed application package in accordance with Section 184 Program
Guidance.
(b) To be approved as a Direct Guarantee Lender, a Lender must
establish in its application that it meets the following
qualifications:
(1) Eligibility under Sec. 1005.203 or HUD approval under Sec.
1005.205, as evidenced by approval documents and most recent
recertification documents.
(2) Has a principal officer with a minimum of five years'
experience in the origination of Loans guaranteed or insured by an
agency of the Federal Government. HUD may approve a Lender with less
than five years of experience, if a principal officer has had a minimum
of five years of managerial experience in the origination of loans
guaranteed or insured by an agency of the Federal Government.
(3) Has on its permanent staff an underwriter(s) that meets the
following criteria:
(i) Two years' experience underwriting loans guaranteed or insured
by an agency of the Federal Government;
(ii) Is an exclusive employee of the Lender;
(iii) Authorized by the Lender to obligate the Lender on matters
involving the origination of Loans;
(iv) Is registered with HUD as an underwriter and continues to
maintain such registration; and
(v) Other qualifications by notice for comment.
(c) The Lender must submit a list of states or geographic regions
in which it is licensed to operate, evidenced by submitting the active
approvals for each State or region, and declare its interest in
participating in the Section 184 Program.
(d) The Lender must submit the quality control plan as required by
its approving agency, modified for the Section 184 Program.
(e) If a Lender wants to service Section 184 Guaranteed Loans as
Direct Guarantee Lender, they must meet qualifications and submit an
application in accordance with Sec. 1005.703.
Sec. 1005.211 Direct Guarantee Lender approval.
HUD shall review all documents submitted by a Lender under Sec.
1005.209 and make a determination of conditional approval or denial.
(a) Conditional approval. Conditional approval is signified by
written notification from HUD that the Lender is a conditionally
approved Direct Guarantee Lender under the Section 184 Program subject
to the following conditions:
(1) The Lender signs an agreement to comply with requirements of
this part, and any applicable Tribal, Federal, or State law.
(2) If applicable, the Lender submits a list of entities it
currently sponsors under another Federal loan program and intends to
sponsor in the Section 184 Program. This list shall include the
following for each Sponsored Entity:
(i) Contact information, including mailing address, phone number,
and email address for corporate officers.
[[Page 78349]]
(ii) The Federal tax identification number (TIN) for the Sponsored
Entity, and
(iii) Names and Nationwide Multistate Licensing System and Registry
numbers for all loan originators and processors.
(3) The Lender certifies it monitors and provides oversight of
Sponsored Entities to ensure compliance with this part, and any
applicable Tribal, Federal, or State law.
(4) The Lender must, for each underwriter, submit a number,
prescribed by Section 184 Program Guidance, of test endorsement case
binders, which meet the requirements of subparts D and E of this part.
Unsatisfactory performance by an underwriter during HUD's test case
review may constitute grounds for denial of approval to participate as
a Direct Guarantee Lender. If participation is denied, such denial is
effective immediately and may be appealed in accordance with the
procedures set forth in Sec. 1005.909.
(5) The Lender will operate only in accordance with the Lender's
licensing in Section 184 Approved Program Areas.
(b) Final approval. Final approval is signified by written
notification from HUD that the Lender is an approved Direct Guarantee
Lender under the Section 184 Program without further submission of test
case endorsement case binders to HUD. HUD retains the right to request
additional test cases as determined necessary.
(c) Limitations on approval. (1) A Lender may only operate as a
Direct Guarantee Lender in accordance with the Lender's Tribal or State
licensing and within Section 184 Approved Program Areas.
(2) The Lender must employ and retain an underwriter with the
qualifications as provided in Sec. 1005.209(b)(3). Failure to comply
with this provision may subject the Lender to sanctions under Sec.
1005.907.
(d) Denial of participation. A Lender may be denied approval to
become a Direct Guarantee Lender if HUD determines the Lender does not
meet the qualification requirements of this subpart. HUD will provide
written notification of denial and that decision may be appealed in
accordance with the procedures set forth in Sec. 1005.909.
Sec. 1005.213 Non-Direct Guarantee Lender application, approval, and
Direct Guarantee Lender sponsorship.
(a) Sponsorship. A Sponsorship is a contractual relationship
between a Sponsor and a Sponsored Entity.
(b) General responsibility requirements of a Sponsor. (1) The
Sponsor must determine the eligibility of a Lender and submit to HUD,
as prescribed in Section 184 Program Guidance, a recommendation for
approval under Sec. 1005.207(b) or evidence of HUD approval under
Sec. 1005. 205(b) or Sec. 1005.211(b).
(2) Upon HUD approval of eligibility under Sec. 1005.207(b), or
HUD acknowledgement of the evidence of HUD approval under Sec.
1005.205(b) or Sec. 1005.211(b), the Sponsor may enter into a
Sponsorship with the Sponsored Entity.
(3) The Sponsor must notify HUD of changes in a Sponsorship within
10 days.
(4) The Sponsor must provide HUD-approved training to the Sponsored
Entity on the requirements of the Section 184 Program before the
Sponsored Entity may originate Section 184 Guaranteed Loans for the
Sponsor.
(5) Each Sponsor shall be responsible to HUD for the actions of its
Sponsored Entity in originating Loans. If Tribal or State law requires
specific knowledge by the Sponsor or the Sponsored Entity, HUD shall
presume the Sponsor had such knowledge and shall remain liable.
(6) The Sponsor is responsible for conducting quality control
reviews of the Sponsored Entity's origination case binders and Loan
performance to ensure compliance with this part and any other Tribal,
Federal, State, or law requirements.
(7) The Sponsor is responsible for maintaining all records for
loans originated by a Sponsored Entity in accordance with this part.
(8) A Sponsor must notify HUD of any changes in a sponsorship
within 15 days.
(c) Responsibilities of the Sponsored Entity. A Sponsor must ensure
that a Sponsored Entity complies with this part and any other Tribal,
Federal, State, or law requirements.
Sec. 1005.215 Annual reporting requirements.
Direct Guarantee Lenders must submit an annual report on Loan
performance, including that of all Sponsored Entities, where
applicable, along with any other required reporting under Sec.
1005.903 and other such reports as prescribed by Section 184 Program
Guidance.
Sec. 1005.217 Quality control plan.
(a) A quality control plan sets forth a Lender's procedures for
ensuring the quality of the Lender's Section 184 Guaranteed Loan
origination, underwriting, closing, and/or servicing. The purpose of
the quality control plan is to ensure Lender's compliance with Section
184 Program requirements and protect HUD and Lender from unacceptable
or unreasonable risks. A Lender must adopt and implement a quality
control plan.
(b) A quality control plan must:
(1) Be maintained and updated, as needed, to comply with all
applicable Section 184 Program requirements.
(2) Cover all policies and procedures, whether performed by the
Lender or an agent, to ensure full compliance with all Section 184
Program requirements.
(3) Provide the Lender with information sufficient to adequately
monitor and oversee the Lender's compliance and measure performance, as
it relates to the Lender's Section 184 Guaranteed Loan activity.
(4) Require the Lender to retain all quality control plan related
documentation, including selection criteria, review documentation,
findings, and actions to mitigate findings, for a period of three years
from initial quality control review, or from the last action taken to
mitigate findings, whichever is later.
(5) Allow the Lender to use employees or agents to perform the
quality control functions, so long as they do not directly participate
in any loan administration processes as outlined in Section 184 Program
Guidance.
(6) Ensure the Lender assumes full responsibility for any agent's
conduct of quality control reviews.
(7) Require the Lender to train all staff, agents working with the
Section 184 Program on Loan administration and quality control
processes and provide staff access to all current Section 184 legal
authorities and policy guidance. The Lender must retain copies of
training documentation for all staff working on the Section 184 Program
in accordance with Sec. 1005.219(d)(3). Failure to comply with the
training and documentation requirements may subject the Lender to
sanctions in accordance with Sec. 1005.907.
(8) Ensure that the Lender's employees, agents, are eligible to
participate in the Section 184 Program. Any designated employees,
agents, deemed ineligible shall be restricted from participating in the
program in the Section 184 Program.
(9) Ensure the Borrower's information maintained related to the
Section 184 Guaranteed Loan are used only for the purpose for which
they were received and follow all applicable Federal, State, and Tribal
requirements.
(10) Require the Lender to refer any suspected fraud or material
misrepresentation by any party whatsoever directly to HUD's Office of
[[Page 78350]]
Inspector General (OIG) and the Office of Native American Programs.
(11) Require the Lender to report all material deficiencies and
submit a corrective action plan to HUD within a timeframe as prescribed
by Section 184 Program Guidance.
(12) Require the Lender to conduct appropriate Loan level quality
control procedures, in accordance with requirements as prescribed by
Section 184 Program Guidance.
(13) Require that the Lender maintain complete and accurate records
of the Section 184 Guaranteed Loans which are selected for the quality
control sample for a timeframe as prescribed by Section 184 Program
Guidance.
(14) Require the Lender to review a random statistical sample of
rejected loan applications within 90 days from the end of the month in
which the decision was made. The reviews must be conducted no less
frequently than monthly and with the goal to ensure that the reasons
given for the rejection were valid and each rejection received
concurrence of an appropriate staff person with sufficient approval
authority. The Lender must submit a report of this review in form and
timeframe as prescribed in Section 184 Program Guidance.
(c) Lenders to applying be a Direct Guarantee Lender under Sec.
1005.209, must submit a quality control plan in accordance with
paragraph (b) of this section and include the following additional
requirements:
(1) Require the Lender to collect and forward all Loan Guarantee
Fees in accordance with the Section 184 Program requirements, with
sufficient documentation evidencing the timely collection and payment
of the fees to HUD.
(2) Require the Lender to verify that the endorsement case binder
is submitted to HUD for guarantee within required time frames.
(3) Require the Lender to review a random statistical sample of its
endorsement case binders for potential fraud, material
misrepresentations, or other findings on a quarterly basis. The Lender
must investigate and determine if fraud, material misrepresentation or
other findings occurred.
(4) Require the Lender to perform quality control review of its
Sponsored Entities in the same manner and under the same conditions as
required for the Lender's own operation.
(5) Where applicable, require the Sponsor to apply paragraphs
(b)(7) through (8) of this section to its Sponsored Entities.
(d) All Sponsored Entities shall comply with paragraph (b) of this
section and provide a quality control plan directly to their Sponsor in
accordance with their sponsorship agreement.
Sec. 1005.219 Other requirements.
(a) Federal law. All Direct Guarantee Lenders, Non-Director
Guarantee Lenders, and Servicers must comply with all applicable
Federal laws which impact mortgage-related activities.
(b) Dual employment. All Non-Direct Guarantee Lenders and Direct
Guarantee Lenders must require its employees to be exclusive employees,
unless the Lender has determined that the employee's other employment,
including any self-employment, does not create a Conflict of Interest.
(c) Reporting requirements. All Direct Guarantee Lenders must
submit reports in accordance with Sec. 1005.903. Unless requested
directly by HUD, Non-Direct Guarantee Lenders must submit required
reports to their Sponsor, under this part or any requirements as
prescribed by Section 184 Program Guidance, or any special request for
information within the time frames prescribed in the request.
(d) Records retention. Records retention requirements are as
follows:
(1) Direct Guarantee Lenders must maintain an endorsement case
binder for a period of three years beyond the date of satisfaction or
maturity date of the Loan, whichever is sooner. However, where there is
a payment of claim, the endorsement case binder must be retained for a
period of at least five years after the final claim has been paid.
Section 184 Program Guidance shall prescribe additional records
retention time depending on the circumstances of the claim.
(2) All Direct Guarantee Lender and Non-Direct Guarantee Lenders
must retain personnel files of employees for one year beyond the
employee's separation.
(3) All Direct Guarantee Lenders and Non-Direct Guarantee Lenders
must follow the applicable records retention requirements imposed by
applicable Tribal, Federal, and State laws and regulations.
(4) Direct Guarantee Lenders and Non-Direct Guarantee Lenders must
maintain the quality control plan records for a period prescribed in
Sec. 1005.217(b)(4).
(e) Minimum level of lending on Trust Land. (1) Direct Guarantee
Lenders must actively market, originate, underwrite, and close Loans on
Trust Land. A Sponsor must ensure its Sponsored Entities actively
market and originate loans on Trust Land. HUD may impose a minimum
level of lending on Tribal Trust Land, which may be adjusted
periodically, through publication in the Federal Register.
(2) Failure to meet the minimum level of lending on Trust Land may
result in sanctions in accordance with Sec. Sec. 1005.905 and
1005.907.
(3) HUD may grant exceptions for Direct Guarantee Lenders and Non-
Direct Guarantee Lenders licensed and doing business in a State or
States with limited Trust Lands. The process for Lenders to request the
exception will be prescribed by Section 184 Program Guidance.
Sec. 1005.221 Business change reporting.
(a) Within a timeframe as prescribed by Section 184 Program
Guidance, Direct Guarantee Lenders shall provide written notification
to HUD, in such a form as prescribed by Section 184 Program Guidance
of:
(1) All changes in the Direct Guarantee Lender or Sponsored
Entity's legal structure, including, but not limited to, mergers,
acquisitions, terminations, name, location, control of ownership, and
character of business;
(2) Staffing changes with senior leadership and Loan underwriters
for Direct Guarantee Lenders and Sponsored Entities; and
(3) Any sanctions by another supervising entity.
(b) Failure to report changes within a reasonable timeframe
prescribed in Section 184 Program Guidance may result in sanctions in
accordance with Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.223 Annual recertification.
(a) All Direct Guarantee Lenders are subject to annual
recertification on a date and form as prescribed by Section 184 Program
Guidance.
(b) With each annual recertification, Direct Guarantee Lenders must
submit updated contact information, continued eligibility documentation
and other pertinent materials as prescribed by Section 184 Program
Guidance, including but not limited to:
(1) A certification that it has not been refused a license by any
Tribe, State, or Federal entity;
(2) A certification that the Direct Guarantee Lender is in good
standing with any Tribe, State, or Federal entity in which it will
perform Direct Guarantee Lender activities; and
(3) Renewal documents and certification of continued eligibility
from an authorizing entity listed in Sec. 1005.203.
(4) Lenders approved under Sec. 1005.205 must submit documentation
supporting continued eligibility as prescribed by Section 184 Program
Guidance.
[[Page 78351]]
(c) All Sponsored Entities shall comply with this requirement and
provide the annual recertification documentation directly to their
Sponsor in accordance with their sponsorship agreement.
(d) Direct Guarantee Lenders must also submit the following in
accordance with Section 184 Program Guidance:
(1) a certification that the Direct Guarantee Lender continues to
meet the direct guarantee program eligibility requirements in
accordance with Sec. 1005.209;
(2) A list of all Sponsored Entities with which the Direct
Guarantee Lender has a sponsorship relationship, and a certification of
their continued eligibility; and
(3) Any reports required in accordance with Section 184 Program
Guidance.
(e) Direct Guarantee Lenders must retain documentation related to
the continued eligibility of their Sponsored Entities for a period as
prescribed by Section 184 Program Guidance.
(f) Direct Guarantee Lenders may request an extension of the
recertification deadline, but such request must be presented at least
45 days before the recertification deadline.
(g) HUD will review the annual recertification submission and may
request any further information required to determine recertification.
(h) HUD will provide written notification of approval to continue
participation in the Section 184 Program or denial. A denial may be
appealed pursuant to Sec. 1005.909.
(i) If an annual recertification is not submitted by a reasonable
deadline prescribed in Section 184 Program Guidance, HUD may subject
the Direct Guarantee Lender to sanctions under Sec. 1005.907.
Sec. 1005.225 Program ineligibility.
(a) Ineligibility. A Direct Guarantee Lender or Non-Direct
Guarantee Lender may be deemed ineligible for Section 184 Program
participation when HUD becomes aware that the entity or any officer,
partner, director, principal, manager or supervisor, loan processor,
loan underwriter, or loan originator of the entity was:
(1) Suspended, debarred, under a limited denial of participation
(LDP), or otherwise restricted under 2 CFR part 2424, or under similar
procedures of any other Federal agency;
(2) Indicted for, or have been convicted of, an offense that
reflects adversely upon the integrity, competency, or fitness to meet
the responsibilities of the Direct Guarantee Lender or Non-Direct
Guarantee Lender to participate in the Title I or Title II programs of
the National Housing Act, or Section 184 Program;
(3) Found to have unresolved findings as a result of HUD or other
governmental audit, investigation, or review;
(4) Engaged in business practices that do not conform to generally
accepted practices of prudent Lenders or that demonstrate
irresponsibility;
(5) Convicted of, or have pled guilty or nolo contendere to, a
felony related to participation in the real estate or mortgage loan
industry during the 7-year period preceding the date of the application
for licensing and registration, or at any time preceding such date of
application, if such felony involved an act of fraud, dishonesty, or a
breach of trust or money laundering;
(6) In violation of provisions of the Secure and Fair Enforcement
Mortgage Licensing Act of 2008 (12 U.S.C. 5101, et seq.) or any
applicable provision of Tribal or State law; or
(7) In violation of 12 U.S.C. 1715z-13a.
(b) [Reserved]
Subpart C--Lending on Trust Land
Sec. 1005.301 Tribal legal and administrative framework.
(a) Tribal requirements. (1) A Tribe seeking to allow eligible
Borrowers to place a mortgage lien on Trust Land under the Section 184
Program must apply to HUD for approval to participate in the program.
(2) Tribes electing to make Trust Land or restricted fee land
available under the Section 184 Program must provide to HUD a legal and
administrative framework for leasing, foreclosure and eviction on Trust
Land to protect the interests of the Borrower, Tribe, Direct Guarantee
Lender, and HUD.
(3) Approved Tribes shall assist in facilitating Loss Mitigation
efforts and assist in the disposition of defaulted properties on Trust
Land.
(b) Legal and administrative framework. A Tribe may enact legal
procedures through Tribal council resolution or any other recognized
legislative action. These procedures must be legally enforceable and
include the following requirements:
(1) Foreclosure and assignment. When a Borrower is in default, and
is unwilling or unable to successfully complete Loss Mitigation in
accordance with subpart G of this part; and Servicer either initiates
First Legal Action against the Borrower, or assigns the Loan to HUD
after offering the Tribe the option to assume the Section 184
Guaranteed Loan or purchase the property under Sec. 1005.757(a):
(i) The Tribe must demonstrate that a foreclosure will be processed
through the legal systems having jurisdiction over the Section 184
Guaranteed Loan. Jurisdiction must include Federal Court jurisdiction
when HUD forecloses on the property.
(ii) Foreclosure ordinances must allow for the legal systems with
jurisdiction to reassign the lease to HUD or provide for a new lease to
be issued to HUD in the event the lease is vacated.
(iii) If the Holder assigns the Loan to HUD without initiating or
completing the foreclosure process, or the property becomes vacant
during the Loss Mitigation or foreclosure process, the Tribe may assign
the lease to HUD to facilitate disposition of the property.
(2) Property disposition. Once a lease is vacated or reassigned,
the Tribe or the TDHE shall work with HUD to sell the property to an
eligible party.
(3) Eviction. The Tribe must have a legal and administrative
framework implementing eviction procedures, allowing for the expedited
removal of the borrower in default, all household residents, and any
unauthorized occupants of the property. Eviction procedures must enable
the Servicer or the Tribe to secure possession of the property.
Eviction may be required upon:
(i) The completion of a foreclosure;
(ii) The involuntary termination of the lease;
(iii) The reassignment of the lease; or
(iv) The sale of the property.
(4) Lien priority. Section 184 Guaranteed Loans must be in a first
lien position securing the property.
(i) To ensure that each Section 184 Guaranteed Loan holds a first
lien position, the Tribe must enact an ordinance that either:
(A) Provides for the satisfaction of the Section 184 Guaranteed
Loan before any and all other obligations; or
(B) Follows State law to determine the priority of liens against
the property. If a Tribal jurisdiction spans two or more states, the
State in which the property is located is the applicable State law.
(ii) For a lien to be considered valid on Trust Land, the lien must
be:
(A) Approved by the Tribe and BIA, as applicable; and
(B) Recorded by the BIA.
(5) Lease provisions for Trust Land. The lease provisions for Trust
Land must meet the following requirements:
(i) Tribes may use a model lease available from HUD for Section 184
Guaranteed Loan lending on Trust Land. The Tribe may use a rider to
make modifications to the model lease, with the approval of HUD and
BIA.
(ii) Tribes may draft their own lease in compliance with 25 CFR
part 162 and
[[Page 78352]]
contain mandatory lease terms and language as prescribed in Section 184
Program Guidance, with approval of HUD and BIA.
(A) Identify lessor.
(B) Identify the lessee (Tribe, TDHE, enrolled member of the Tribe
or HUD).
(C) Legal description of the land and property address covered by
the lease.
(D) The lease must have a minimum term of 50 years. For refinances
the lease must have a remaining term which exceeds the maturity date of
the loan by a minimum of ten years.
(E) In the event of lessee default under the lease, the lease shall
allow the servicer to accelerate the Section 184 Guaranteed Loan and
foreclose or assign the Section 184 Guaranteed Loan to HUD, with HUD
approval.
(F) The lease must be executed by all interested parties to be
enforceable.
(G) Lender and HUD consent shall be required for any lease
termination when the Section 184 Guaranteed Loan is secured by the
property.
(H) The Tribal lease must contain the following provision: ``If
lessee default(s) on a Section 184 Guaranteed Loan, under which the
lease and improvements on the leased premises are pledged as security,
the lessee or lessor may assign the lease and deliver possession of the
leased premises, including any improvements thereon, to HUD. HUD may
transfer this lease and the leased premises to a successor lessee;
provided, however, that the lease may only be transferred to another
member of the Tribe or Tribal entity, as approved by the Tribe.''
(I) lease language as prescribed by Section 184 Program Guidance.
(J) The lease must also provide that in the event of foreclosure,
the lease will not be subject to any forfeiture or reversion and will
not be otherwise subject to termination.
Sec. 1005.303 Tribal application.
A Tribe shall submit an application on a form prescribed by HUD.
The application must include a copy of the Tribe's foreclosure,
eviction, lease, priority lien ordinances, all cross-referenced
ordinances in those sections, and any other documents in accordance
with Section 184 Program Guidance.
Sec. 1005.305 Approval of Tribal application.
HUD shall review applications under Sec. 1005.303 and where all
requirements of Sec. 1005.301 are met, HUD shall provide written
notification of the approval of the Tribe to participate in the Section
184 Program. If HUD determines the application is incomplete, or the
documents submitted do not comply with the requirements of this subpart
or any process prescribed in Section 184 Program Guidance, HUD will
work with the Tribe to cure the deficiencies before there is a denial
of the application.
Sec. 1005.307 Tribal recertification.
A Tribe shall recertify annually to HUD whether it continues to
meet the requirements of this subpart, on a form and by a deadline
prescribed by Section 184 Program Guidance. Recertification shall
include Tribal certification of no changes to the Tribe's foreclosure,
eviction, lease, and lien priority ordinances. The Tribe shall provide
any updated contact information and similar information that may be
required under Section 184 Program Guidance.
Sec. 1005.309 Duty to report changes.
Based on the timeframe as prescribed by Section 184 Program
Guidance, the Tribe must notify HUD of any proposed changes in the
Tribe's foreclosure, eviction, lease, and lien priority ordinances or
contact information. HUD shall require approval of the changes in the
foreclosure, eviction, lease, and lien priority ordinances. HUD will
provide written notification of the review of the changes and determine
whether the updated documents meet the requirements of this subpart.
Sec. 1005.311 HUD notification of any lease default.
In cases where the lessee is in default under the lease for any
reason, the lessor shall provide written notification to HUD within 30
days of the lease default.
Sec. 1005.313 Tribal reporting requirements.
The Tribe shall provide timely and accurate reports and
certifications to HUD, as may be prescribed by Section 184 Program
Guidance.
Subpart D--Underwriting
Eligible Borrowers
Sec. 1005.401 Eligible Borrowers.
(a) Eligible Borrowers are Indian Families, Tribes, or TDHEs.
Indian Family Borrowers are limited to one Section 184 Guaranteed Loan
at a time.
(b) Indian Family Borrowers must document their status as American
Indian or Alaska Native through evidence as prescribed by Section 184
Program Guidance.
Sec. 1005.403 Principal Residence.
(a) Principal Residence. Means the dwelling where the Borrower
maintains as a permanent place of abode. A Borrower may have only one
Principal Residence at any one time.
(b) Occupancy requirement. Borrowers who are an Indian Family must
occupy the property as a Principal Residence. Borrowers who are a TDHE
or Tribe do not need to occupy the property as a Principal Residence.
(c) Non-occupant Co-Borrower. A co-Borrower who does not occupy the
property as a principal resident is permitted. A Non-occupant Co-
Borrower must be related by blood (e.g., parent-child, siblings, aunts-
uncles/nieces-nephews), or an unrelated individual who can document
evidence of a family-type, longstanding, and substantial relationship
not arising out of the loan transaction.
Sec. 1005.405 Borrower residency status.
(a) An eligible Borrower who is an Indian must be:
(1) A U.S. citizen;
(2) A lawful permanent resident alien; or
(3) A non-permanent resident alien.
(b) Documentation must be provided to the Direct Guarantee Lender
to support lawful residency status as defined in the Immigration and
Nationality Act, codified at 8 U.S.C. 1101, et seq.
Sec. 1005.407 Relationship of income to loan payments.
(a) Adequacy of Borrower gross income. (1) All Borrowers must
establish, in accordance with Section 184 Program Guidance, that their
gross income is and will be adequate to meet:
(i) The periodic payments required by the Loan to be guaranteed by
the Section 184 Program; and
(ii) Other long-term obligations.
(2) In cases where there is a Non-occupant Co-Borrower, the
occupying Borrower must meet a minimum qualifying threshold, in
accordance with Section 184 Program Guidance.
(b) Non-discrimination. Determinations of adequacy of Borrower
income under this section shall be made in a uniform manner without
regard to race, color, national origin, religion, sex (including gender
identity and sexual orientation), familial status, disability, marital
status, source of income of the Borrower, or location of the property.
Sec. 1005.409 Credit standing.
(a) A Borrower must have a general credit standing satisfactory to
HUD. A Direct Guarantee Lender must not use a Borrower's credit score
when evaluating the Borrower's credit worthiness. The Direct Guarantee
Lender must analyze the Borrower's credit history and payment pattern
to determine credit worthiness.
(b) If a Borrower had a previous default on a Section 184
Guaranteed
[[Page 78353]]
Loan which resulted in a claim payment by HUD, the Borrower shall be
subject to a reasonable waiting period, as may be prescribed by Section
184 Program Guidance.
Sec. 1005.411 Disclosure and verification of Social Security and
Employer Identification Numbers or Tax Identification Number.
All Borrowers must meet applicable requirements for the disclosure
and verification of Social Security, Employer Identification Numbers,
or Tax Identification Numbers.
Eligible Properties
Sec. 1005.413 Acceptable title.
To be considered acceptable title, a Section 184 Guaranteed Loan
must be secured by an interest in real estate held in fee simple or a
leasehold interest on Trust Land. Where title evidences a lease that is
used in conjunction with the Section 184 Guaranteed Loan on Trust Land,
the lease must comply with relevant provisions of Sec. 1005.301.
Sec. 1005.415 Sale of property.
(a) Owner of Record requirement. The property must be or have been
purchased from the Owner of Record and the transaction may not involve
or had not involved any sale or assignment of the sales contract.
(b) Supporting documentation. The Direct Guarantee Lender shall
obtain documentation verifying that the seller is the Owner of Record
and must submit this documentation to HUD as part of the application
for a Section 184 Guaranteed Loan. This documentation may include, but
is not limited to, a property ownership history report from the Tribe,
State, or local government, a copy of the recorded deed from the
seller, or other documentation (such as a copy of a property tax bill,
title commitment, or binder) demonstrating the seller's ownership.
(c) Time restrictions on re-sales--(1) General. The eligibility of
a property for a Loan guaranteed by HUD is dependent on the time that
has elapsed between the date the seller acquired the property (based
upon the date of settlement) and the date of execution of the sales
contract that will result in the HUD guarantee (the re-sale date). The
Direct Guarantee Lender shall obtain documentation verifying compliance
with the time restrictions described in this paragraph and must submit
this documentation to HUD as part of the application for Section 184
Guaranteed Loan, in accordance with Sec. 1005.501.
(2) Re-sales occurring 90 days or less following acquisition. If
the re-sale date is 90 days or less following the date of acquisition
by the seller, the property is not eligible for a Loan to be guaranteed
by HUD.
(3) Re-sales occurring between 91 days and 180 days following
acquisition. (i) If the re-sale date is between 91 days and 180 days
following acquisition by the seller, the property is generally eligible
for a Section 184 Guaranteed Loan.
(ii) However, HUD will require that the Direct Guarantee Lender
obtain additional documentation if the re-sale price is 100 percent
over the purchase price. Such documentation must include a second
appraisal from another a different appraiser. The Direct Guarantee
Lender may also document its Loan file to support the increased value
by establishing that the increased value results from the
rehabilitation of the property.
(iii) Additional documentation, as may prescribed by notice for
comment.
(4) Authority to address property flipping for re-sales occurring
between 91 days and 12 months following acquisition. (i) If the re-sale
date is more than 90 days after the date of acquisition by the seller,
but before the end of the twelfth month after the date of acquisition,
the property is eligible for a Loan to be guaranteed by HUD.
(ii) However, HUD may require that the Direct Guarantee Lender
provide additional documentation to support the re-sale value of the
property if the re-sale price is 5 percent or greater than the lowest
sales price of the property during the preceding 12 months (as
evidenced by the contract of sale). At HUD's discretion, such
documentation must include, but is not limited to, a second appraisal
from a different appraiser. HUD may exclude re-sales of less than a
specific dollar amount from the additional value documentation
requirements.
(iii) If the additional value documentation supports a value of the
property that is more than 5 percent lower than the value supported by
the first appraisal, the lower value will be used to calculate the
maximum principal loan amount under Sec. 1005.443. Otherwise, the
value supported by the first appraisal will be used to calculate the
maximum principal loan amount.
(iv) Additional value documentation may be prescribed by notice for
comment.
(5) Re-sales occurring more than 12 months following acquisition.
If the re-sale date is more than 12 months following the date of
acquisition by the seller, the property is eligible for a loan
guaranteed by HUD.
(d) Exceptions to the time restrictions on sales. The time
restrictions on sales described in paragraph (b) of this section do not
apply to:
(1) Sales by HUD of real estate owned (REO) properties under 24 CFR
part 291 and of single-family assets in revitalization areas pursuant
to section 204 of the National Housing Act (12 U.S.C. 1710);
(2) Sales by an agency of the United States Government of REO
single family properties pursuant to programs operated by such
agencies;
(3) Sales of properties by Tribes, TDHEs, State, or local
governments, or Eligible Nonprofit Organizations approved to purchase
HUD REO single family properties at a discount with resale
restrictions;
(4) Sales of properties that were acquired by the sellers by death,
devise, or intestacy;
(5) Sales of properties purchased by an employer or relocation
agency in connection with the relocation of an employee;
(6) Sales of properties by Tribes, TDHEs, State and local
government agencies; and
(7) Only upon announcement by HUD through issuance of a notice,
sales of properties located in areas designated by the President as
Federal disaster areas. The notice will specify how long the exception
will be in effect.
(8) HUD may approve other exceptions on a case-by-case basis.
Sec. 1005.417 Location of property.
At the time a loan is guaranteed, the property must be for
residential use under Tribal, State, or local law and be located within
a Section 184 Approved Program Area.
Sec. 1005.419 Requirements for standard housing.
(a) General standards. Every property guaranteed under the Section
184 Program must:
(1) Be decent, safe, sanitary, and modest in size and design.
(2) Conform with applicable general construction standards for the
region.
(3) Contain a heating system that:
(i) Has the capacity to maintain a minimum temperature in the
dwelling of 65 degrees Fahrenheit during the coldest weather in the
area;
(ii) Is safe to operate and maintain;
(iii) Delivers a uniform distribution of heat; and
(iv) Conforms to any applicable Tribal heating code, or if there is
no applicable Tribal code, an appropriate local, State, or national
code.
(4) Contains a plumbing system that:
(i) Uses a properly installed system of piping;
[[Page 78354]]
(ii) Includes a kitchen sink and partitional bathroom with
lavatory, toilet, and bath or shower; and
(iii) Uses water supply, plumbing, and sewage disposal systems that
conform to any applicable Tribal code or, if there is no applicable
Tribal code, the minimum standards established by the appropriate
local, State, or national code.
(5) Contain an electrical system using wiring and equipment
properly installed to safely supply electrical energy for adequate
lighting and for operation of appliances that conforms to any
applicable Tribal code or, if there is no applicable Tribal code, an
appropriate local, State, or national code.
(6) Meets minimum square footage requirements and be not less than:
(i) 570 square feet in size, if designed for a family of not more
than 4 persons;
(ii) 850 square feet in size, if designed for a family of not less
than 5 and not more than 7 persons;
(iii) 1020 square feet in size, if designed for a family of not
less than 8 persons; or
(iv) Current locally adopted standards for size of dwelling units,
documented by the Direct Guarantee Lender.
(v) Upon the written request of a Tribe, or THDE, HUD may waive the
minimum square footage requirements under paragraphs (a)(6)(i) through
(iv) of this section for properties located on Trust Land.
(7) Conform with the energy performance requirements for new
construction established by HUD under section 526(a) of the National
Housing Act (12 U.S.C. 1735f-4(a)).
(b) Additional requirements. HUD may prescribe any additional
requirements to permit the use of various designs and materials in
housing acquired under this part.
(c) Lead-based paint. The relevant requirements of the Lead-Based
Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential
Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856),
and implementing regulations at 24 CFR part 35, subparts A, B, H, J, K,
M, and R, shall apply.
(d) Environmental review procedures. (1) The regulations in 24 CFR
1000.20 applies to an environmental review for Trust Land and for fee
land within a reservation in connection with a Loan guaranteed under
this part. That section permits a Tribe to choose to assume
environmental review responsibility.
(2) Before HUD issues a commitment to guarantee any Loan, or before
HUD guarantees a Loan if there is no commitment, the Tribe or HUD must
comply with environmental review procedures to the extent applicable
under part 58 or part 50 of this title, as appropriate.
(3) If the Loan involves proposed or new construction, HUD will
require the Lender to submit a signed Builder's Certification of Plans,
Specifications and Site (Builder's Certification). The Builder's
Certification must be in a form prescribed by Section 184 Program
Guidance and must cover:
(i) Flood hazards;
(ii) Noise;
(iii) Explosive and flammable materials storage hazards;
(iv) Runway clear zones/clear zones;
(v) Toxic waste hazards; and
(vi) Other foreseeable hazards or adverse conditions (i.e., rock
formations, unstable soils or slopes, high ground water levels,
inadequate surface drainage, springs, etc.) that may affect the health
and safety of the occupants or the structural soundness of the
improvements.
(4) The Builder's Certification must be provided to the appraiser
for reference before the performance of an appraisal on the property.
(e) Special Flood Hazard Areas and Coastal Barrier Resource System.
A property is not eligible for a Section 184 loan guarantee if a
residential building and related improvements to the property are
located within a Special Flood Hazard Area (SFHA) designated by a FEMA
Flood Insurance Rate Map and insurance under the National Flood
Insurance Program (NFIP) is not available in the community; or the
improvements are, or are proposed to be, located within the Coastal
Barrier Resources System.
(1) Eligibility for new construction in SFHAs. If any portion of
the dwelling, related structures, or equipment essential to the value
of the property and subject to flood damage is located within an SFHA,
the property is not eligible for a Section 184 loan guarantee unless
the Direct Guarantee Lender obtains from FEMA a final Letter of Map
Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes
the property from the SFHA; or obtains a FEMA National Flood Insurance
Program Elevation Certificate (FEMA Form 086-0-33) prepared by a
licensed engineer or surveyor. The elevation certificate must document
that the lowest floor including the basement of the residential
building, and all related improvements/equipment essential to the value
of the property, is built at or above the 100-year flood elevation in
compliance with the NFIP criteria, and flood insurance must be
obtained.
(2) Eligibility for existing construction in SFHAs. When any
portion of the residential improvements is determined to be located
within an SFHA, flood insurance must be obtained and maintained.
(3) Required flood insurance amount for properties located within
an SFHA. Flood insurance must be maintained for the life of the Section
184 Guaranteed Loan in an amount that at a minimum equals the project
cost less the estimated land cost; the outstanding principal balance of
the loan; or the maximum amount of NFIP insurance available with
respect to the property improvements, whichever is the least.
(4) Required documentation. The Direct Guarantee Lender must obtain
a Life of Loan Flood Certification for all Properties. If applicable,
the Direct Guarantee Lender must also obtain a FEMA Letter of Map
Amendment; FEMA Letter of Map Revision; or FEMA National Flood
Insurance Program Elevation Certificate (FEMA Form 086-0-33).
(5) Restrictions on property within Coastal Barrier Resources
System. In accordance with the Coastal Barrier Resources Act, a
property is not eligible for a Section 184 loan guarantee if the
improvements are or are proposed to be located within the Coastal
Barrier Resources System.
(f) Airport hazards--(1) Existing construction. If a property is
existing construction and is located within a Runway Clear Zone (also
known as a Runway Protection Zone) at a civil airport or within a Clear
Zone at a military airfield, the Direct Guarantee Lender must obtain a
Borrower's acknowledgement of the hazard.
(2) New construction. If a new construction property is located
within a Runway Clear Zone (also known as a Runway Protection Zone) at
a civil airport or within a Clear Zone at a military airfield, the
Direct Guarantee Lender must reject the property for loan guarantee.
Properties located in Accident Potential Zone 1 (APZ 1) at a military
airfield may be eligible for a Section 184 loan guarantee provided that
the Direct Guarantee Lender determines that the property complies with
Department of Defense guidelines.
Sec. 1005.421 Certification of appraisal amount.
A Section 184 Guaranteed Loan must be accompanied by a sales
contract satisfactory to HUD, executed by the seller, whereby the
seller agrees that before any sale of the property, the seller will
deliver to the purchaser of the property a certification of the
appraisal, in a form satisfactory to HUD, setting forth the amount of
the appraised value of the property.
[[Page 78355]]
Sec. 1005.423 Legal restrictions on Conveyance.
(a) Legal Restrictions on Conveyance means any provision in any
legal instrument, law or regulation applicable to the Borrower or the
mortgaged property, including but not limited to a lease, deed, sales
contract, declaration of covenants, declaration of condominium, option,
right of first refusal, will, or trust agreement, that attempts to
cause a Conveyance (including a lease) made by the Borrower to:
(1) Be void or voidable by a third party;
(2) Be the basis of contractual liability of the Borrower for
breach of an agreement not to convey, including rights of first
refusal, pre-emptive rights or options related to Borrower efforts to
convey;
(3) Terminate or subject to termination all or a part of the
interest held by the Borrower in the property if a Conveyance is
attempted;
(4) Be subject to the consent of a third party;
(5) Be subject to limits on the amount of sales proceeds retainable
by the seller; or
(6) Be grounds for acceleration of the Guaranteed Loan or increase
in the interest rate.
(b) Section 184 Guaranteed Loans shall not be subject to any Legal
Restrictions on Conveyance, except for restrictions in this paragraph
(b):
(1) A lease or any other legal document that restricts the
assignment of interest in properties held in trust or otherwise
restricted to an eligible Indian Family.
(2) A mortgage funded through tax-exempt Bond F and includes a due-
on-sale provision in a form approved by HUD that permits the Direct
Guarantee Lender to accelerate a mortgage that no longer meets Federal
requirements for tax-exempt bond financing or for other reasons
acceptable to HUD. A mortgage funded through tax-exempt bond financing
shall comply with all form requirements prescribed under this subpart
and shall contain no other provisions designed to enforce compliance
with Federal or State requirements for tax-exempt bond financing.
(3) A mortgaged property subject to protective covenants which
restrict occupancy by, or transfer to, persons of a defined population
if:
(i) The restrictions do not have an undue effect on marketability
as determined in the original plan.
(ii) The restrictions do not constitute illegal discrimination and
are consistent with the Fair Housing Act and all other applicable
nondiscrimination laws under Tribal, State, or local law, where
applicable.
(4) HUD shall require that the previously approved restrictions
automatically terminate if the lease or title to the mortgaged property
is transferred by foreclosure, deed-in-lieu/lease-in-lieu of
foreclosure, or if the loan is assigned to HUD.
Sec. 1005.425 Rental properties.
(a) When a Borrower is an Indian Family. A Section 184 Guaranteed
Loan may be used to purchase, construct, rehabilitate, or refinance an
up to four-unit property. The Borrower must occupy one unit as a
Principal Residence and may rent the additional units.
(b) When the Borrower is a Tribe or TDHE. There is no limit to the
number of one- to four-unit properties a Tribe or TDHE may purchase or
own with a Section 184 Guaranteed Loan(s) on or off Trust Land.
However, the Tribe or TDHE must meet all Borrower program requirements.
Sec. 1005.427 Refinancing.
(a) Refinance eligibility. HUD may permit a Borrower to refinance
any qualified mortgage, including an existing Section 184 Guaranteed
Loan, so long as the Borrower and property meet all Section 184 Program
requirements.
(b) Types of refinances. HUD may guarantee a Rate and Term
refinance, a Streamline refinance, or a Cash-Out refinance, consistent
with paragraphs (d) through (f) of this section.
(c) General requirements. All types of refinances are subject to
the following requirements:
(1) The term of the refinancing Loan may not exceed a term of 30
years.
(2) The Borrower must have a payment history on the existing
mortgage that is acceptable to HUD.
(3) The Direct Guarantee Lender may not require a minimum principal
amount to be outstanding on the loan secured by the existing mortgage.
(4) If an Upfront Loan Guarantee Fee was financed as part of the
existing mortgage, no refund will be given. However, the maximum amount
of the refinancing Loan computed in accordance with Sec. 1005.443 may
be increased by the amount of the Upfront Loan Guarantee Fee associated
with the new refinancing Loan and exceed the applicable Section 184
Guaranteed Loan limit as established by HUD for an area pursuant to
Sec. 1005.441.
(d) Rate and term refinance. (1) Rate and term refinance is the
refinancing of an existing mortgage loan for the purpose of changing
the interest rate or term, or both, of a loan without advancing new
funds on the loan, with the exception of allowable closing costs.
(2) A Rate and Term Refinance Loan must meet the following
requirements:
(i) The Loan must be in an amount that does not exceed the lesser
of the original principal amount of the existing mortgage; or the sum
of the unpaid principal balance of the existing mortgage plus loan
closing charges and allowable fees approved by HUD.
(ii) The Loan must result in a reduction in regular monthly
payments by the Borrower, except when refinancing a mortgage for a
shorter term will result in an increase in the Borrower's regular
monthly payments.
(e) Streamline Refinance. Streamline Refinance refers to the
refinance of an existing Section 184 Guaranteed Loan requiring limited
Borrower credit documentation and underwriting.
(1) A Streamline Refinance Loan must be in an amount that does not
exceed the unpaid principal balance of the existing Section 184
Guaranteed Loan and meet all other applicable Section 184 Program
requirements.
(2) A Streamline Refinance with an appraisal may be in the amount
equal to the unpaid principal balance of the existing mortgage plus
Loan closing charges and allowable fees approved by HUD. The refinanced
Loan must be subject to an appraisal and meet all other applicable
Section 184 Program requirements.
(f) Cash-Out refinance. (1) A Cash-Out refinance is when a Section
184 Guaranteed Loan is made for a Loan amount larger than the existing
unpaid principal balance, utilizing the property's equity.
(2) A Cash-Out refinance Loan amount cannot exceed a maximum loan
to value ratio, as established by HUD.
(3) A Borrower may elect to receive a portion of equity in the form
of cash in an amount up to a reasonable maximum allowed amount, as
prescribed by Section 184 Program Guidance.
(4) All cash advances, except cash amounts to the Borrower, must be
used for approved purposes in accordance with HUD and BIA requirements,
and must be supported by verified documentation.
(5) The Cash-Out refinance must meet all other applicable Section
184 Program requirements.
Sec. 1005.429 Eligibility of Loans covering manufactured homes.
A Loan covering a manufactured home (as defined in 24 CFR part
3280), shall be eligible for a Section 184 Guaranteed Loan when the
following requirements have been met:
[[Page 78356]]
(a) For manufactured homes located on a fee simple site. (1) The
manufactured home, as erected on site, must be installed in accordance
with 24 CFR part 3286; conform with property standards under Sec.
1005.419; and shall have been constructed in accordance with 24 CFR
part 3280, as evidenced by the certification label.
(2) The Loan shall cover the manufactured home and site, shall
constitute a Loan on a property classified and taxed as real estate.
(3) In the case of a manufactured home which has not been
permanently erected on a site for more than one year prior to the date
of the application for the Loan Guarantee Certificate:
(i) The manufactured home shall be erected on a site-built
permanent foundation that meets or exceeds applicable requirements of
the Minimum Property Standards (MPS) for one- and two-family property,
in accordance with 24 CFR 200.929(b)(1) and shall be permanently
attached thereto by anchoring devices adequate for all loads identified
in the MPS. The towing hitch or running gear, which includes axles,
brakes, wheels, and other parts of the chassis that operate only during
transportation, shall have been removed. The finished grade level
beneath the manufactured home shall be at least two feet above the 100-
year return frequency flood elevation. The site, site improvements, and
all other features of the mortgaged property not addressed by the
Manufactured Home Construction and Safety Standards shall meet or
exceed applicable requirements of the MPS.
(ii) The space beneath the manufactured home shall be enclosed by
continuous foundation-type construction designed to resist all forces
to which it is subject without transmitting forces to the building
superstructure. The enclosure shall be adequately secured to the
perimeter of the manufactured home and be constructed of materials that
conform to MPS requirements for foundations.
(iii) The manufactured home shall be braced and stiffened before it
leaves the factory to resist racking and potential damage during
transportation.
(iv) Section 1005.431 is modified to the extent provided in this
paragraph (a). Applications relating to the guarantee of Loans under
this paragraph (a) must be accompanied by an agreement in a form
satisfactory to HUD executed by the seller or manufacturer or such
other person as HUD may require, agreeing that in the event of any sale
or Conveyance of the property within a period of one year beginning
with the date of initial occupancy, the seller, manufacturer, or such
other person will, at the time of such sale or Conveyance, deliver to
the purchaser or owner of such property the manufacturer's warranty on
a form prescribed by HUD. This warranty shall provide that the
manufacturer's warranty is in addition to and not in derogation of all
other rights and remedies the purchaser or owner may have, and a
warranty in form satisfactory to HUD warranting that the manufactured
home, the foundation, positioning, and anchoring of the manufactured
home to its permanent foundation, and all site improvements are
constructed in substantial conformity with the plans and specifications
(including amendments thereof or changes and variations therein which
have been approved in writing by HUD) on which HUD has based its
valuation of the property. The warranty shall also expressly state that
the manufactured home sustained no hidden damage during transportation,
and if the manufactured home is a double-wide, that the sections were
properly joined and sealed. The warranty must provide that upon the
sale or Conveyance of the property and delivery of the warranty, the
seller, builder, or such other person will promptly furnish HUD with a
conformed copy of the warranty establishing by the purchaser's receipt
thereon that the original warranty has been delivered to the purchaser
in accordance with this section.
(4) In the case of a manufactured home which has been permanently
erected on a site for more than one year prior to the date of the
application for the Section 184 Guaranteed Loan:
(i) The manufactured home shall be permanently anchored to and
supported by permanent footings and shall have permanently installed
utilities that are protected from freezing. The space beneath the
manufactured home shall be a properly enclosed crawl space.
(ii) The site, site improvements, and all other features of the
mortgaged property not addressed by 24 CFR parts 3280 and 3286 shall
meet or exceed HUD requirements. The finished grade level beneath the
manufactured home shall be at or above the 100-year return frequency
flood elevation.
(b) For manufactured homes located on Trust Land. Manufactured
homes built and installed on Trust Land, shall meet manufactured home
installation standards pursuant to Tribal laws, if any. In the absence
of Tribal laws, the requirements in paragraph (a) of this section shall
apply.
Sec. 1005.431 Acceptance of individual residential water
purification.
If a property does not have access to a continuing supply of safe
and potable water as part of its plumbing system without the use of a
water purification system, the requirements of this section apply. The
Direct Guarantee Lender must provide appropriate documentation with the
submission for a Section 184 Guaranteed Loan to address each of the
requirements of this section.
(a) Equipment. Water purification equipment must be approved by a
nationally recognized testing laboratory acceptable to Tribal, State,
or local health authority.
(b) Certification by Tribal, State, or local health authority. A
Tribal, State, or local health authority certification must be
submitted to HUD, which certifies that a point-of entry or point-of-use
water purification system is used for the water supply, the treatment
equipment meets the requirements of the Tribal, State, or local health
authority, and has been determined to meet Tribal, State, or local
health authority quality standards for drinking water. If neither
Tribal, State, nor local health authority standards are applicable,
then quality shall be determined in accordance with standards set by
the Environmental Protection Agency (EPA) pursuant to the Safe Drinking
Water Act. (EPA standards are prescribed in the National Primary
Drinking Water requirements, 40 CFR parts 141 and 142.)
(c) Borrower notices and certification. (1) The prospective
Borrower must have received written notification, when the Borrower
signs a sales contract, that the property does not have access to a
continuing supply of safe and potable water without the use of a water
purification system to remain safe and acceptable for human
consumption.
(2) Prior to final ratification of the sales contract, the Borrower
must have received:
(i) A water safety report identifying specific contaminants in the
water supply serving the property, and the related health hazard
arising from the presence of those contaminants.
(ii) A written good faith estimate of the maintenance and
replacement costs of the equipment necessary to assure continuing safe
drinking water.
(3) The prospective Borrower must sign a certification,
acknowledging the required notices have been received by the Borrower,
in the form prescribed by Section 184 Program Guidance, at the time the
application for mortgage credit approval is signed by the Direct
Guarantee Lender. The required certification must be submitted to HUD
[[Page 78357]]
with the request for the Loan Guarantee Certificate.
Sec. 1005.433 Builder warranty.
(a) Applications relating to proposed construction must be
accompanied by an agreement in a form satisfactory to HUD, executed by
the seller or builder or such other person as HUD may require, and
agreeing that in the event of any sale or Conveyance of the property,
within a period of one year beginning with the date of initial
occupancy, the seller, builder, or such other person will, at the time
of such sale or Conveyance, deliver to the purchaser or owner of such
property a warranty in a form satisfactory to HUD, warranting that the
property is constructed in substantial conformity with the plans and
specifications (including amendments thereof or changes and variations
therein which have been approved in writing by HUD) on which HUD has
based on the valuation of the property.
(b) Such agreement must provide that upon the sale or Conveyance of
the property and delivery of the warranty, the seller, builder, or such
other person will promptly furnish HUD with a confirmed copy of the
warranty, establishing by the purchaser's receipt thereon that the
original warranty has been delivered to the purchaser in accordance
with this section.
Eligible Loans
Sec. 1005.435 Eligible collateral.
A Section 184 Loan Guarantee may be secured by any collateral
authorized under existing Federal law or applicable State or Tribal
law. The collateral must be sufficient to cover the amount of the loan,
as determined by the Direct Guarantee Lender and approved by HUD.
Improvements on Trust Lands may be considered as eligible collateral.
Trust Land cannot be considered as part of the eligible collateral.
Sec. 1005.437 Loan provisions.
(a) Loan form. (1) The Loan shall be in a form meeting the
requirements of HUD. HUD may prescribe loan closing documents. For each
case in which HUD does not prescribe loan closing documents, HUD shall
require specific language in the Loan which shall be uniform for every
Loan. HUD may also prescribe the language or substance of additional
provisions for all Loans, as well as the language or substance of
additional provisions for use only in particular jurisdictions.
(2) Each Loan shall also contain any provisions necessary to create
a valid and enforceable Security interest under Tribal law or the laws
of the jurisdiction in which the property is located.
(b) Loan multiples. A Loan, in whole dollars, shall be in an amount
not to exceed the maximum principal loan amount (as calculated under
Sec. 1005.443) for the area where the property is located.
(c) Payments. The Loan payments shall:
(1) Be due on the first of the month;
(2) Contain complete Amortization provisions in accordance with
Sec. 1005.453 and an Amortization period not in excess of the term of
the Loan; and
(3) Provide for payments to principal and interest to begin no
later than the first day of the month, 60 days after the date the Loan
is executed. For closings taking place within the first seven days of
the month, interest credit is acceptable.
(d) Maturity. The Loan shall have a repayment term of not more than
the maximum period as approved by HUD and fully amortizing.
(e) Property standards. The Loan must be a first lien upon the
property that conforms with the requirements for standard housing under
Sec. 1005.419.
(f) Disbursement. The entire principal amount of the Loan must have
been disbursed to the Borrower or to the Borrower's creditors for the
Borrower's account and with the Borrower's consent.
(g) Disbursement for construction advances. (1) HUD may guarantee
Loans from which advances will be made during construction. HUD will
provide guarantees for advances made by the Direct Guarantee Lender
during construction when all the following conditions are satisfied:
(i) The Direct Guarantee Lender and Borrower execute a building
Loan agreement, approved by HUD, setting forth the terms and conditions
under which advances will be made.
(ii) The advances may be made only as provided in the building
agreement.
(iii) The principal amount of the Loan is held by the Direct
Guarantee Lender in an interest-bearing account, trust, or escrow for
the benefit of the Borrower, pending advancement to the Borrower or
Borrower's creditors as provided in the loan agreement.
(iv) The Loan shall bear interest on the amount advanced to the
Borrower or the Borrower's creditors and on the amount held in an
account or trust for the benefit of the Borrower.
(2) Notwithstanding the requirements in paragraph (g)(1) of this
section, upon request of the Lender, HUD may provide for the approval
of advances prior to construction.
(h) Prepayment privilege. The Loan must contain a provision
permitting the Borrower to prepay the Loan in whole or in part at any
time and in any amount. The Loan may not provide for the payment of any
fee on account of such prepayment.
Sec. 1005.439 Loan lien.
(a) First lien. A Borrower must establish that, after the Loan
offered for guarantee has been recorded, the property will be free and
clear of all liens other than such Loan, and that there will not be
outstanding any other unpaid obligations contracted in connection with
the loan transaction or the purchase of the property, except
obligations that are secured by property or collateral owned by the
Borrower independently of the property.
(b) Junior lien. With prior approval of HUD, the property may be
subject to a junior lien held by a Direct Guarantee Lender or a Tribe
or instrumentality, TDHE, Federal, State, local government, or an
Eligible Nonprofit Organization. Unless the junior lien is for the
purpose described in paragraph (c) of this section, it shall meet the
following requirements:
(1) Periodic payments shall be collected monthly and be
substantially the same;
(2) The monthly Loan payments for the Section 184 Guaranteed Loan
and the junior lien shall not exceed the Borrower's reasonable ability
to pay, as determined by HUD;
(3) The sum of the principal amount of the Section 184 Guaranteed
Loan and the junior lien shall not exceed the loan-to-value limitation
applicable to the Section 184 Program, and shall not exceed the loan
limit for the area, except as otherwise permitted by HUD;
(4) The repayment terms shall not provide for a balloon payment
before ten years unless approved by HUD;
(5) The junior lien must become due and payable on sale or
refinancing of the secured property covered by the Section 184
Guaranteed Loan, unless otherwise approved by HUD; and
(6) The junior lien shall contain a provision permitting the
Borrower to prepay the junior lien in whole or in part at any time and
shall not require a prepayment penalty.
(c) Junior liens to reduce Borrower monthly payments. With the
prior approval of HUD, the property may be subject to a junior lien
advanced to reduce the Borrower's monthly payments on the Section 184
Guaranteed Loan following the date it is guaranteed, if the junior lien
meets the following requirements:
[[Page 78358]]
(1) The junior lien shall not provide for any payment of principal
or interest until the property securing the junior lien is sold or the
Section 184 Guaranteed Loan is refinanced, at which time the junior
lien shall become due and payable.
(2) The junior lien shall not provide for any payment of principal
or interest so long as the occupancy requirements are met; and, where
applicable, shall provide for forgiveness of the junior lien amount at
the end of the term of the junior lien.
(d) Junior liens related to tax-exempt bond financing and low-
income housing tax credits. HUD approval shall be required when
Borrower seeks to encumber property with a junior lien pursuant to
Sec. 1005.423(b).
Sec. 1005.441 Section 184 Guaranteed Loan limit.
The Section 184 Guaranteed Loan limit is the level set by HUD for
the Section 184 Approved Program Area and is based upon the location of
the property. The limit that is in effect on the date the Section 184
case number is issued in accordance with Sec. 1005.445 shall apply,
regardless of the closing date. The limit shall be revised periodically
by HUD and published in Section 184 Program Guidance.
Sec. 1005.443 Loan amount.
(a) Minimum required investment. The Borrower is required to make a
minimum investment in the property. This investment must come from the
Borrower's own funds, gifts, or Tribal, State, or local funds awarded
to the Borrower. The minimum investment in the property is the
difference between the sales price and the base loan amount.
(b) Calculating base loan amount. (1) The base loan amount is
determined by calculating:
(i) 97.75 percent of the appraised value of the property or the
Acquisition Cost, whichever is less; or
(ii) 98.75 percent of the lessor of the appraised value or sales
price when the appraised value or sales price is $50,000 or less.
(2) The base loan amount cannot exceed the Section 184 Guaranteed
Loan limits established under Sec. 1005.441.
(c) Maximum principal loan amount. The maximum principal loan
amount is the base loan amount and the Upfront Loan Guarantee Fee. The
Section 184 Guaranteed Loan limit may only be exceeded by the amount of
the Upfront Loan Guarantee Fee.
(d) Minimum principal loan amount. A Direct Guarantee Lender may
not require a minimum loan amount for a Section 184 Guaranteed Loan.
Sec. 1005.445 Case numbers.
(a) Section 184 case numbers may only be obtained by a Direct
Guarantee Lender when the Direct Guarantee Lender or its Sponsored
Entity has an active loan application from a Borrower(s) and a property
is identified.
(b) To obtain a case number, the Direct Guarantee Lender must:
(1) Provide evidence of Tribal enrollment or Alaska Native status;
(2) Verify that the property is located in a Section 184 Approved
Program Area;
(3) Confirm that the Loan does not exceed the Section 184 Loan
limit; and
(4) Submit Loan specific information as prescribed in Section 184
Program Guidance.
(c) Case numbers are automatically cancelled after a limited period
is identified in Section 184 Program Guidance, unless a Firm Commitment
is issued, or an extension is granted by HUD in accordance with Section
184 Program Guidance prior to the expiration of the case number.
Sec. 1005.447 Maximum age of Loan documents.
Documents reviewed at underwriting may not be older than 60 days
and may not be more than 120 days old at the Loan closing date.
Documents whose validity for underwriting purposes is not affected by
the passage of time, such as divorce decrees or tax returns, are not
subject to the 60- and 120-day limitations.
Sec. 1005.449 Qualified mortgage.
A Section 184 Guaranteed Loan, except for mortgage transactions
exempted under 15 U.S.C. 1639c(b)(3)(ii), is afforded safe harbor as a
qualified mortgage that meets the ability-to-repay requirements in 15
U.S.C. 1639c(a).
Sec. 1005.451 Agreed interest rate.
The Loan shall bear interest at the rate agreed upon by the Direct
Guarantee Lender and the Borrower and determined by HUD to be
reasonable. The agreed upon interest rate may not exceed the rate
generally charged in the area for mortgage loans not guaranteed or
insured by any agency or instrumentality of the Federal Government, or
a rate determined by HUD, whichever is lower. The agreed upon interest
rate must not take into consideration a Borrower's credit score in
accordance with Sec. 1005.409 and must not be based on risk-based
pricing.
Sec. 1005.453 Amortization provisions.
The Loan must contain complete Amortization provisions satisfactory
to HUD, requiring payments due on the first day of each month by the
Borrower. The sum of the principal and interest payments in each month
shall be substantially the same.
Underwriting
Sec. 1005.455 Direct guarantee underwriting.
(a) Underwriter due diligence. A Direct Guarantee Lender shall
exercise the same level of care which it would exercise in obtaining
and verifying information for a Loan in which the Direct Guarantee
Lender would be entirely dependent on the property as Security to
protect its investment. Direct Guarantee Lender procedures that
evidence such due diligence shall be incorporated as part of the
quality control plan required under Sec. 1005.219. Compliance with
HUD-prescribed underwriting guidelines shall be the minimum standard of
due diligence in underwriting the Loans. Failure to comply with HUD-
prescribed underwriting guidelines may result in sanctions in
accordance with Sec. Sec. 1005.905 and 1005.907.
(b) Evaluating the Borrower(s) qualifications. The Direct Guarantee
Lender shall evaluate the Borrower's credit characteristics, adequacy,
and stability of income to meet the periodic payments under the Loan
and all other obligations, the adequacy of the Borrower's available
assets to close the transaction, the Borrower's management capacity and
grant performance, if applicable, and render an underwriting decision
in accordance with applicable regulations, policies, and procedures.
(c) Assumption. Applications for the assumption of an existing
Section 184 Guaranteed Loan shall be underwritten using the same
Borrower eligibility and underwriting standards in accordance with this
subpart.
Sec. 1005.457 Appraisal.
(a) A Direct Guarantee Lender shall have the property appraised in
accordance with the Uniform Standards of Professional Appraisal
Practice and the Fair Housing Act (42 U.S.C. 3601-19). HUD may
establish alternative requirements to Uniform Standards of Professional
Appraisal Practice and publish such alternative requirements in Section
184 Program Guidance.
(b) A Direct Guarantee Lender must select an appraiser identified
on the Federal Housing Administration Appraiser Roster, compiled in
accordance with 24 CFR part 200, subpart G. The Direct Guarantee Lender
shall not discriminate on the basis of race, color, religion, sex,
disability, familial status national origin, or age in the selection of
an appraiser.
[[Page 78359]]
(c) The appraiser must be knowledgeable in the market where the
property is located.
(d) A Direct Guarantee Lender and an appraiser must ensure that an
appraisal and related documentation satisfy Federal Housing
Administration, Fannie Mae, or Freddie Mac appraisal requirements, and
both bear responsibility for the quality of the appraisal in satisfying
such requirements.
(e) A Direct Guarantee Lender that submits, or causes to be
submitted, an appraisal or related documentation that does not satisfy
requirements under paragraphs (a) through (d) of this section may be
subject to sanctions by HUD pursuant to Sec. Sec. 1005.905 and
1005.907.
(f) The validity period of appraisals is 120 days:
(1) The validity period for an appraisal may be extended for 30
days at the option of the Direct Guarantee Lender if the Direct
Guarantee Lender has obtained a Firm Commitment.
(2) If the transaction will not close within 120 days or 150 days
with an approved extension, then the Direct Guarantee Lender must
update the appraisal. The appraisal must be updated before the 120th-
day validity period, or 150th day if extended, has expired. The updated
appraisal is valid for an additional 120 days after the effective date
of the initial appraisal report that is being updated.
(g) The Direct Guarantee Lender may request an extension of the
120-day validity period for up to two additional 120-day extensions
requests. HUD may request an updated appraisal during the extension
periods.
Sec. 1005.459 Loan submission to HUD for Direct Guarantee.
(a) Deadline for submission. Within 60 days after the date of
closing the loan, a Direct Guarantee Lender must submit an endorsement
case binder to HUD, in accordance with Sec. 1005.503.
(b) Late submission. If the endorsement case binder is submitted
past 60 days, the Direct Guarantee Lender must include, as part of the
case binder, a late endorsement request with supporting documentation,
affirming:
(1) The Loan is not currently in default;
(2) All escrow accounts for taxes, hazard insurance, and monthly
Loan Guarantee Fees are current;
(3) Neither the Direct Guarantee Lender nor Servicer provided the
funds to bring or keep the loan current or to bring about the
appearance of acceptable payment history; and
(4) Notwithstanding paragraph (b)(3) of this section, with prior
approval from HUD, Lender or Servicer may provide funds to bring or
keep the loan current.
Sec. 1005.461 HUD issuance of Firm Commitment.
HUD may underwrite and issue a Firm Commitment when it is in the
interest of HUD.
Subpart E--Closing and Endorsement
Closing
Sec. 1005.501 Direct Guarantee Lender closing requirements.
The Direct Guarantee Lender shall close the Loan in accordance with
the following:
(a) Chain of title/interest. (1) For fee simple properties, the
Direct Guarantee Lender must obtain evidence of all prior ownership
within 12 months of the case number assignment date. The Direct
Guarantee Lender must review the evidence of prior ownership to
determine any undisclosed Identity of Interest transactions.
(i) If an Identity of Interest is discovered, the Direct Guarantee
Lender must review for any possible Conflict of Interest.
(ii) As a requirement of closing, all Borrowers must execute a
Section 184 Borrower's Certification, addressing any Identity of
Interest and Conflict of Interest.
(2) For Trust Land transactions, the requirements for the
determination of ownership title interest shall be prescribed by HUD in
Section 184 Program Guidance.
(b) Title/Title Status Report. The Direct Guarantee Lender must
ensure that all objections to title binder/initial certified Title
Status Report have been cleared, and any discrepancies have been
resolved, to ensure that the Section 184 Guaranteed Loan will be in
first Security interest position.
(c) Closing in compliance with Direct Guarantee Lender approval.
The Direct Guarantee Lender must instruct the settlement agent to close
the Section 184 Guaranteed Loan on the same terms or on the same
assumptions in which it was underwritten and approved.
(d) Closing in the Direct Guarantee Lender's name. A Section 184
Guaranteed Loan must close in the name of the Direct Guarantee Lender
issuing the underwriting approval.
(e) Required HUD documents at closing. The Direct Guarantee Lender
must use the forms and language as may be prescribed in Section 184
Program Guidance.
(f) Projected escrow. The Direct Guarantee Lender must establish an
escrow account in accordance with Sec. 1005.713 and the Real Estate
Settlement Procedures Act and any other escrow requirements as
prescribed under applicable Tribal and Federal laws and regulations.
(g) Closing costs and fees. The Direct Guarantee Lender may charge
the Borrower reasonable and customary fees in accordance with Sec.
1005.515.
(h) Closing date. The closing date must occur before the expiration
of the Firm Commitment.
(i) Per diem interest and interest credits. The Direct Guarantee
Lender may collect per diem interest from the closing date to the date
Amortization begins. Alternatively, the Direct Guarantee Lender may
begin Amortization up to 7 days prior to the closing date and provide a
per diem interest credit. Any per diem interest credit may not be used
to meet Borrower's minimum required investment. Per diem interest must
be computed using a factor of 1/365th of the annual rate.
(j) Authorization of Tribal notification in the event of default.
At closing, the Borrower must, on a form provided by HUD, elect whether
to authorize the Direct Guarantee Lender and HUD to notify the Tribe in
the event of a default.
(k) Signatures. Direct Guarantee Lender must ensure that the note,
Security instrument, and all closing documents are signed by the
required parties.
(l) Other requirements. Direct Guarantee Lender shall close the
Loan in accordance with any applicable Tribal, State, or Federal
requirements. Direct Guarantee Lenders must execute any other documents
as may be required by applicable Tribal, Federal, or State law.
Sec. 1005.503 Contents of endorsement case binder.
The Direct Guarantee Lender's endorsement case binder shall be
submitted in a format as prescribed by HUD and contain the documents
meeting the requirements of Sec. 1005.501 and any other documents
supporting the Direct Guarantee Lender's underwriting determination.
Sec. 1005.505 Payment of Upfront Loan Guarantee Fee.
The Direct Guarantee Lender, shall provide evidence of the
remittance of the Upfront Loan Guarantee Fee, as required under Sec.
1005.607, in accordance with a process provided by HUD in Section 184
Program Guidance.
Sec. 1005.507 Borrower's payments to include other charges and escrow
payments.
(a) The Direct Guarantee Lender must include in the Section 184
Guaranteed
[[Page 78360]]
Loan monthly payment the following charges and escrow payments:
(1) The ground rents, if any;
(2) Annual Loan Guarantee Fee, as prescribed in Sec. 1005.607, if
any;
(3) The estimated amount of all taxes;
(4) Special assessments, if any;
(5) Flood insurance premiums, if flood insurance is required; and
(6) Fire and other hazard insurance premiums, except master policy
premiums payable to a condominium association or a Tribe and paid
directly by the Borrower.
(b) The Section 184 Guaranteed Loan shall further provide that such
payments shall be held by the Direct Guarantee Lender in a manner
satisfactory to HUD for the purpose of paying such ground rents, taxes,
assessments, and insurance premiums before the same become delinquent,
for the benefit and account of the Borrower. The Section 184 Guaranteed
Loan must also make provisions for adjustments in case the estimated
amount of such taxes, assessments, and insurance premiums shall prove
to be more, or less, than the actual amount thereof so paid by the
Borrower. Such payments shall be held in an escrow subject to Sec.
1005.717.
(c) The Borrower shall not be required to pay premiums for fire or
other hazard insurance which protects only the interests of the Direct
Guarantee Lender, or for life or disability income insurance, or fees
charged for obtaining information necessary for the payment of property
taxes. The foregoing does not apply to charges made or penalties
exacted by the taxing authority, except that a penalty assessed, or
interest charged, by a taxing authority for failure to timely pay taxes
or assessments shall not be charged by the Direct Guarantee Lender to
the Borrower if the Direct Guarantee Lender had sufficient funds in
escrow for the account of the Borrower to pay such taxes or assessments
prior to the date on which penalty or interest charges are imposed.
Sec. 1005.509 Application of payments.
All monthly payments to be made by the Borrower to the Servicer
shall be added together, and the aggregate amount shall be paid by the
Borrower each month in a single payment by the Borrower, in accordance
with the Loan documents. The Servicer shall apply the Borrower's funds
in accordance with Sec. 1005.715.
Sec. 1005.511 Late fee.
When the monthly Section 184 Guaranteed Loan payment is 15 or more
days in arrears, the Servicer may collect from Borrower a late fee, not
to exceed four percent of the overdue payment of principal and
interest, or any other limit as established by HUD through public
notice with an opportunity for comment. The late fee provision must
appear on the note executed at closing.
Sec. 1005.513 Borrower's payments when Section 184 Guaranteed Loan is
executed.
The Borrower must pay to the Direct Guarantee Lender, upon
execution of the Section 184 Guaranteed Loan, where applicable, the:
(a) One-time Upfront Loan Guarantee Fee or any portion payable
pursuant to Sec. 1005.603; and
(b) All other applicable monthly charges pursuant to Sec.
1005.507, including the Annual Loan Guarantee Fee pursuant to Sec.
1005.607 covering the period from the closing date to the due date of
the first installment payment under the Section 184 Guaranteed Loan.
Sec. 1005.515 Charges, fees, or discounts.
(a) The Direct Guarantee Lender must ensure that all fees charged
and disclosure requirements at closing to the Borrower comply with all
applicable Tribal, Federal, State, and local laws.
(b) The Direct Guarantee Lender may collect from the Borrower the
following charges, fees, or discounts at closing:
(1) A charge to compensate the Direct Guarantee Lender for expenses
incurred in originating and closing the Loan. HUD may establish
limitations on the amount of any such charge in Section 184 Program
Guidance.
(2) Reasonable and customary amounts, but not more than the amount
actually paid by the Direct Guarantee Lender, for any of the following
items:
(i) Recording fees and recording taxes or other charges incident to
recordation;
(ii) Credit report;
(iii) Survey, if required by Direct Guarantee Lender or Borrower;
(iv) Title examination;
(v) Title insurance, if any;
(vi) Fees paid to an appraiser or inspector approved by HUD for the
appraisal and inspection, if required, of the property. The Direct
Guarantee Lender may collect from the Borrower the reasonable and
customary amounts for such appraisals and inspections;
(vii) Such other reasonable and customary charges as may be
authorized by HUD;
(viii) Reasonable and customary charges in the nature of discounts;
and
(ix) Interest calculations in accordance with Sec. 1005.501(i).
(c) All charges, fees, or discounts are subject to review by HUD
after endorsement.
Sec. 1005.517 Certificate of nondiscrimination by the Direct
Guarantee Lender.
(a) Where applicable, a Direct Guarantee Lender shall certify to
HUD as to each of the following:
(1) That neither the Direct Guarantee Lender, nor anyone authorized
to act for the Direct Guarantee Lender, will refuse to sell, after the
making of a bona fide offer, or refuse to negotiate for the sale
otherwise make unavailable or deny the property covered by the Section
184 Guaranteed Loan to any eligible purchaser or discriminate in making
a loan or engaging in a residential real estate-related transaction (as
defined in 42 U.S.C. 3605) because of race, color, religion, sex,
disability, familiar status, or national origin, except as provided by
law.
(2) That any restrictive covenant, other than permissible
restrictions on Trust Land, on such property relating to race, color,
religion, sex, disability, familial status, or national origin is
hereby illegal, unenforceable, or void.
(b) That civil action for preventative relief may be brought by the
Attorney General in any appropriate U.S. District Court against any
person responsible for a violation of this certification.
Endorsement and Post-Closing
Sec. 1005.519 Creation of the contract.
The Loan shall be a Section 184 Guaranteed Loan from the date of
the issuance of a Loan Guarantee Certificate, from the date of the
endorsement of the credit instrument, or from the date of HUD's
electronic acknowledgement to the Direct Guarantee Lender that the Loan
is guaranteed, as applicable. HUD and the Direct Guarantee Lender are
thereafter bound by the regulations in this subpart with the same force
and to the same extent as if a separate contract had been executed
relating to the Section 184 Guaranteed Loan, including the provisions
of the regulations in this subpart and 12 U.S.C. 1715z-13a.
Sec. 1005.521 Lender pre-endorsement review and requirements.
Direct Guarantee Lender must complete a pre-endorsement review of
the endorsement case binder. This review must be conducted by staff not
involved in the originating, processing, or underwriting of the Loan.
This review must also confirm that the Loan was underwritten by an
approved Direct Guarantee Lender. The endorsement case binder must
contain all documentation relied upon by the Direct Guarantee Lender to
justify its decision to approve the Loan in accordance with subpart D
of this part. Upon finalizing the pre-endorsement review, the Direct
Guarantee Lender
[[Page 78361]]
must certify that all required documents are submitted and meet the
requirements of Sec. 1005.503.
Sec. 1005.523 HUD pre-endorsement review.
(a) Direct Guarantee Lender shall submit to HUD within 60 days
after the date of the closing of the Loan, or such additional time as
permitted by HUD, the endorsement case binder;
(b) Upon submission by a Direct Guarantee Lender of the endorsement
case binder containing those documents required by Sec. 1005.503, HUD
will review the documents to ensure that the Loan meets all statutory,
regulatory, and administrative requirements, including but not limited
to:
(1) There is no fee, late charge, or interest due to HUD;
(2) The Loan was not in default when submitted for the Loan
Guarantee Certificate or if submitted for guarantee more than 60 days
after the date of closing, the Loan shows an acceptable payment
history; and
(3) The Loan was underwritten by an approved Direct Guarantee
Lender.
(c) Upon review, if HUD determines the loan to meet program
requirements, HUD will issue a Loan Guarantee Certificate. If HUD
determines the Loan it be ineligible, HUD will provide the Direct
Guarantee Lender a written determination and specify any available
corrective actions that may be available. If there is information
indicating that any certification or required document is false,
misleading, or constitutes fraud or misrepresentation on the part of
any party, or that the loan fails to meet a statutory or regulatory
requirement, HUD will conduct a complete audit of the endorsement case
binder. Repeated submission of deficient endorsement case binders may
subject the Direct Guarantee Lender to sanctions or civil money
penalties pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.525 Loan Guarantee Certificate.
(a) HUD shall issue a Loan Guarantee Certificate as evidence of the
guarantee when HUD completes a review of the Direct Guarantee Lender's
endorsement case binder and determines the Loan complies with all
applicable Section 184 Program requirements in this part.
(b) HUD may issue a Loan Guarantee Certificate for a Loan involving
a Security interest in Trust Land before HUD receives the required
trailing documents from BIA, if the Direct Guarantee Lender agrees to
indemnify HUD. The indemnification agreement between HUD and the Direct
Guarantee Lender will terminate only upon receipt of the Trailing
Documents in a form and manner acceptable to HUD. Trailing Documents
may include the following documents:
(1) A final certified Title Status Report (TSR) that identifies
that the BIA approved and recorded the mortgage instrument and
residential lease related to the Section 184 Loan, if applicable;
(2) A certified true copy of the recorded mortgage instrument;
(3) A certified true copy of the recorded lease, if applicable;
(4) A certified true copy of the recorded executed mortgage release
documents for all prior mortgages identified on the initial certified
TSR, if applicable; and
(5) A certified true copy of any BIA approved and executed
subordination agreements.
(c) The Loan Guarantee Certificate is conclusive evidence of the
eligibility of the Loan for guarantee under this part. Such evidence
will be incontestable in the hands of the bearer and the full faith and
credit of the United States is pledged to the payment of amounts agreed
to be paid by HUD as Security for such obligations.
(d) This section may not be construed to preclude HUD from
conducting a post-endorsement review. With respect to the original
Direct Guarantee Lender, HUD may establish defenses against the
original Direct Guarantee Lender based on fraud or material
misrepresentation. This section may not be construed to bar HUD from
establishing partial defenses to the amount payable on the Section 184
Guaranteed Loan.
Sec. 1005.527 Post-endorsement review.
(a) HUD may review an endorsement case binder at any time,
including but not limited to a quality control review of all documents
in Sec. 1005.503.
(b) Within three business days of a request by HUD, the Direct
Guarantee Lender must make available for review, or forward to HUD,
copies of the identified endorsement case binder(s).
(c) A Direct Guarantee Lender's failure to provide HUD access to
any files may be grounds for sanctions in accordance with Sec. Sec.
1005.905 and 1005.907.
(d) Based on HUD's review under paragraph (a) of this section, if
HUD determines that:
(1) The Loan does not satisfy the requirements of subpart F of this
part;
(2) The Direct Guarantee Lender or Sponsored Entity committed fraud
or a material misrepresentation; or
(3) The Direct Guarantee Lender or Sponsored Entity had known or
should have known of fraud or a material misrepresentation in violation
of this part, such that the Loan should not have been approved by the
Direct Guarantee Lender.
(e) HUD may request indemnification from the originating Direct
Guarantee Lender and impose sanctions on the Direct Guarantee Lender
and Sponsored Entity pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.529 Indemnification.
(a) When HUD conducts a pre- or post-endorsement review and HUD
determines there is an underwriting deficiency where the Loan should
not have been approved, HUD may request the originating Direct
Guarantee to indemnify HUD.
(b) Underwriting deficiencies with respect to the Section 184
Guaranteed Loan may include but is not limited to fraud or
misrepresentation by the originating Direct Guarantee Lender.
(c) HUD will notify the originating Direct Guarantee Lender in
writing when an indemnification is required.
(d) Under an indemnification, the originating Direct Guarantee
Lender must reimburse HUD when a subsequent Holder files a claim and
HUD suffers a financial loss.
(e) If the originating Direct Guarantee Lender fails to indemnify
HUD, HUD may impose sanctions pursuant to Sec. Sec. 1005.905 and
1005.907.
Subpart F--Section 184 Guaranteed Loan Fees
Sec. 1005.601 Scope and method of payment.
HUD shall charge a one-time Section 184 Upfront Loan Guarantee Fee
and a recurring Annual Loan Guarantee Fee, which will be collected by a
Direct Guarantee Lender or Servicer as required by Sec. Sec. 1005.603
and 1005.607 and remitted to HUD as required by Sec. Sec. 1005.605 and
1005.609. The fees collected by the Direct Guarantee Lender or Servicer
on behalf of HUD shall be payable to HUD in cash, in the manner
prescribed by Section 184 Program Guidance.
Sec. 1005.603 Upfront Loan Guarantee Fee.
At settlement, the Direct Guarantee Lender will collect from the
Borrower a one-time Upfront Loan Guarantee Fee in an amount, not
exceeding three percent of the principal obligation of the Section 184
Guaranteed Loan. The amount will be set by HUD through a notice in the
Federal Register.
Sec. 1005.605 Remittance of Upfront Loan Guarantee Fee.
The Direct Guarantee Lender shall remit the Upfront Loan Guarantee
Fee to HUD within 15 days after settlement, using the payment system as
prescribed by Section 184 Program Guidance. The Direct Guarantee Lender
shall provide an account reconciliation of the Upfront
[[Page 78362]]
Loan Guarantee Fee in the time and manner as may be prescribed in
Section 184 Program Guidance.
Sec. 1005.607 Annual Loan Guarantee Fee.
(a) Percentage of Annual Loan Guarantee Fee. Where applicable the
Servicer must collect a monthly installment for the Annual Loan
Guarantee Fee from the Borrower in an amount, not exceeding one percent
of the principal obligation of the loan. The percentage used to
calculate the Annual Loan Guarantee Fee amount will be prescribed by
notice in the Federal Register.
(b) Payment of Annual Loan Guarantee Fee. Where applicable, the
Section 184 Guaranteed Loan shall require monthly payments by the
Borrower to the Servicer in an amount equal to one-twelfth of the
Annual Loan Guarantee Fee, payable by the Servicer to HUD in accordance
with the Amortization Schedule issued with the Loan approval.
(c) Amortization Schedule. The amount of the Borrower's monthly
installment will be based on an Amortization Schedule as prescribed in
Section 184 Program Guidance.
Sec. 1005.609 Remittance of Annual Loan Guarantee Fee.
(a) Monthly installment of the Annual Loan Guarantee Fee shall be
due and payable to HUD no later than the 15th day of each month,
beginning in the month in which the Borrower is required to make the
first monthly loan payment. Monthly payments of the Annual Loan
Guarantee Fee must be submitted using a HUD prescribed payment system,
as prescribed by Section 184 Program Guidance.
(b) Subject to the exception in paragraph (d) of this section, the
Servicer shall continue to collect from the Borrower and pay HUD the
monthly installment of the Annual Loan Guarantee Fee, without taking
into account Borrower's default, Loss Mitigation, prepayments,
agreements to postpone payments, or agreements to recast the loan.
(c) The Servicer shall adjust the monthly installment of the Annual
Loan Guarantee Fee in accordance the schedule provided in Sec.
1005.607(b). Notwithstanding paragraph (a) of this section, the
Servicer shall refund to the Borrower any overpayment of Annual Loan
Guarantee Fees collected from the Borrower, due to a delayed adjustment
of the Loan Guarantee Fee, within 30 days of the overpayment. Failure
to refund the Borrower within this timeframe will result in a penalty
in accordance with Sec. 1005.611.
(d) The Servicer shall cease collecting the monthly installment of
the Annual Loan Guarantee Fee when the amortized loan to value ratio
equals an amount less than 78 percent, as established by a schedule
provided in Sec. 1005.607(b). Notwithstanding paragraph (a) of this
section, the Servicer shall refund to the Borrower any overpayment of
Annual Loan Guarantee Fees collected when the loan-to-value ratio is
less than 78 percent, within 30 days of the overpayment. Failure to
refund the Borrower within this timeframe will result in penalty in
accordance with Sec. 1005.611.
(e) Annual Loan Guarantee Fees paid in accordance with the schedule
provided in Sec. 1005.607(b) shall not be refundable to the Borrower.
(f) If the Servicer submits the monthly installment of the Annual
Loan Guarantee Fee to HUD after the due date, the amount paid must
include the required payment of penalties pursuant to Sec.
1005.611(c).
(g)(1) When transfer of servicing occurs in accordance with Sec.
1005.707:
(i) The schedule of monthly installment payments provided in Sec.
1005.607(b) must be provided to the new Servicer; and
(ii) The account reconciliation of the Upfront Guarantee Fee and
Annual Loan Guarantee Fee due and remitted to HUD must be provided to
the new Servicer.
(2) The new Servicer is responsible for compliance with all
requirements of this part, including, but not limited to, any
outstanding Annual Loan Guarantee Fee payments and penalties owed to
HUD, or any Annual Loan Guarantee Fee adjustments or refunds due to the
Borrower.
(3) If a transfer results in missed monthly installment(s) of the
Annual Loan Guarantee Fee, the new Servicer shall pay the overdue
installment(s) in a lump sum to HUD within 30 days of acquisition of
the loan and include any applicable penalties in accordance with Sec.
1005.611.
(h) The Direct Guarantee Lender shall provide an account
reconciliation of the Annual Loan Guarantee Fee in the time and manner
as may be prescribed in Section 184 Program Guidance.
Sec. 1005.611 HUD imposed penalties.
(a) Prohibited penalty pass through. The Direct Guarantee Lender or
Servicer shall not recover or attempt to recover from the Borrower any
penalties HUD imposes upon the Direct Guarantee Lender or Servicer.
(b) Failure of Direct Guarantee Lender to timely remit Upfront loan
guarantee to HUD. (1) The Direct Guarantee Lender shall include a late
fee if the Upfront Loan Guarantee Fee to is not remitted to HUD within
15 days of settlement.
(2) Failure to remit the Upfront Loan Guarantee Fee, with a late
fee where applicable, may result in HUD rejecting the endorsement or
claim case binder.
(c) Failure of Servicer to timely remit the monthly installment of
the Annual Loan Guarantee Fee to HUD. (1) The Servicer shall include a
late fee for each monthly installment of the Annual Loan Guarantee Fee
remitted to HUD after the 15th of each month.
(2) Failure to remit monthly installment of the Annual Loan
Guarantee Fee to HUD, with late fee, may result in HUD rejecting the
claim case binder, where applicable.
(d) Failure of Servicer to adjust the amount of the Annual Loan
Guarantee Fee. (1) When a Servicer fails to make the annual adjustment
to the amount of the monthly installment of the Annual Loan Guarantee
Fee in accordance with Sec. 1005.607(b), the Servicer shall, in
addition to reimbursing the Borrower as required in Sec. 1005.609(c),
pay HUD a penalty for each month the Servicer collects an overpayment
of the Annual Loan Guarantee Fee.
(2) The Servicer shall provide annual written notice, in the manner
prescribed by Section 184 Program Guidance to the Borrower prior to the
scheduled change in the monthly installment of the Annual Loan
Guarantee Fee, with such advance notice as required by 12 CFR 1026.9,
or other applicable Federal law.
(e) Failure to cease collection of the Annual Loan Guarantee Fee.
When a Servicer fails to cease collection of the monthly installment of
the Annual Loan Guarantee Fee after the loan to value ratio reaches the
threshold described in Sec. 1005.609(d), the Servicer shall, in
addition to reimbursing the Borrower as required in Sec. 1005.609(d),
pay HUD a penalty for each month the Servicer collects an overpayment
of the Annual Loan Guarantee Fee.
(f) Late fee and penalty amounts. All reasonable late fees and
penalty amounts under this section shall be prescribed by HUD.
Subpart G--Servicing
Servicing Section 184 Guaranteed Loans Generally
Sec. 1005.701 Section 184 Guaranteed Loan servicing generally.
This subpart identifies the servicing requirements for Section 184
Guaranteed Loans. All Section 184 Guaranteed Loans must be serviced by
Section 184 approved Servicers, including Section 184 Guaranteed Loans
[[Page 78363]]
owned by Holders. Holders are responsible for all servicing actions,
including the acts of its Servicers. Servicers are responsible for
their actions in servicing Section 184 Guaranteed Loans, including
actions taken on behalf of, or at the direction of, the Holder. Failure
to comply with this subpart may result in the reduction of the claims
amount in accordance with subpart H of this part or may subject
Servicer to sanctions pursuant to subpart I of this part. HUD requires
Servicers to comply all applicable Tribal, Federal, and State
requirements.
Sec. 1005.703 Servicer eligibility and application process.
(a) To be eligible to service Section 184 Guaranteed Loans, a
Direct Guarantee Lender, Non-Direct Guarantee Lenders, or other
financial institution must be an approved mortgage Servicer for the
Federal Housing Authority (FHA) or another agency of the Federal
Government.
(b) All eligible Direct Guarantee Lenders, Non-Direct Guarantee
Lenders and other financial institutions must apply to become a
Servicer in accordance with Section 184 Program Guidance.
(c) As of [EFFECTIVE DATE OF FINAL RULE], Direct Guarantee Lenders
servicing Section 184 Guaranteed Loans may request a waiver of Sec.
1005.703(a).
Sec. 1005.705 Servicer approval.
(a) Final approval. Approval is signified by:
(1) Written notification from HUD that the Direct Guarantee Lender,
Non-Direct Guarantee Lender, or other financial institution is approved
as a Servicer under the Section 184 Program; and
(2) Agreement by the Direct Guarantee Lender, Non-Direct Guarantee
Lender, or other financial institution to comply with requirements of
this part and any applicable Federal, State, or Tribal law requirement.
(b) Limitations on approval. The Direct Guarantee Lender, Non-
Direct Guarantee Lender or other financial institution may only be
approved to service Section 184 Guaranteed Loans in areas where the
Direct Guarantee Lender, Non-Direct Guarantee Lender, or financial
institution is licensed, as applicable.
(c) Denial of participation. A Direct Guarantee Lender, Non-Direct
Guarantee Lender, or other financial institution may be denied approval
to become a Servicer if HUD determines the Direct Guarantee Lender,
Non-Direct Guarantee Lender, or other financial institution does not
meet the qualification requirements of Sec. 1005.703. HUD will provide
written notification of denial and of the right to submit a written
appeal in accordance with Sec. 1005.909.
Sec. 1005.707 Responsibility for servicing.
(a) Program compliance. (1) The Servicer must participate in HUD
training on the Section 184 program and comply with this part and all
Tribal, State, and Federal requirements.
(2) A Servicer shall provide written notification to HUD of any
changes that affect qualifications under this subpart within a
timeframe prescribed by Section 184 Program Guidance.
(b) Sub-Servicer. (1) If a Servicer elects to use a sub-Servicer,
the sub-Servicer must be an approved Servicer under Sec. 1005.705.
(2) Servicers are responsible for the actions of their sub-
Servicers. The Servicer shall remain fully responsible to HUD for
Section 184 Guaranteed Loan servicing in accordance with this subpart,
and the actions of a sub-Servicer shall be considered the actions of
the Servicer.
(c) Change in Servicer. (1) When the responsibility of servicing a
Section 184 Guaranteed Loan is transferred from one Servicer to
another, the acquiring Servicer shall assume responsibility for
compliance with this part, this includes addressing any noncompliance
by the former Servicer.
(2) The former Servicer must notify HUD of the change in Servicer
within a timeframe and format prescribed by Section 184 Program
Guidance.
(3) The acquiring Servicer shall provide notice to the Borrower of
the transfer of servicing in accordance with 12 CFR 1024.33, or other
Federal laws that may require such notice.
(4) HUD will hold the acquiring Servicer responsible for errors,
omissions, and unresolved HUD review findings on the part of the losing
Servicer (or losing sub-Servicer), discovered after the transfer is
reported even when the errors or omissions took place prior to the
transfer.
(d) Transfer of servicing rights. The Servicer must submit written
notification to HUD, in a timeframe prescribed by Section 184 Program
Guidance, of the transfer of servicing rights through the of
acquisition or sale of any Section 184 Guaranteed Loans.
(e) Reporting requirements. (1) On a date and manner established by
Section 184 Program Guidance, the Servicer shall report to HUD the
status of all Section 184 Guaranteed Loans in its servicing portfolio.
(2) Servicer shall provide an Annual Loan Guarantee Fee
reconciliation to the Borrower and HUD, in a manner and timeframe as
prescribed by Section 184 Program Guidance.
(3) Servicer must also comply with any other reporting requirements
under Sec. 1005.903.
(4) The Servicer's failure to submit required reports on time may
subject the Servicer to sanctions and civil money penalties pursuant to
Sec. Sec. 1005.905 and 1005.907.
(f) Business change reporting. Within a timeframe and form as
prescribed by Section 184 Program Guidance, the Servicer shall provide
written notification to HUD of:
(1) All changes in the Servicer's legal structure, including, but
not limited to, mergers, acquisitions, terminations, name, location,
control of ownership, and character of business;
(2) Staffing changes related to servicing Section 184 Guaranteed
Loans; and
(3) Any sanctions by another supervising entity.
(4) Failure to report changes within the timeframe prescribed in
Section 184 Program Guidance may result in sanctions in accordance with
Sec. Sec. 1005.905 and 1005.907.
(g) Annual recertification. (1) All Servicers are subject to annual
recertification on a date and manner as prescribed by Section 184
Program Guidance. With each annual recertification, Servicers must
submit updated contact information, current FHA recertification status,
and other pertinent documents as prescribed by Section 184 Program
Guidance.
(2) Servicers may request an extension of the recertification
deadline in accordance with Section 184 Program Guidance.
(3) HUD will review the annual recertification submission and may
request any further information required to determine recertification.
HUD will provide written notification of approval to continue
participation in the Section 184 Program or denial. A denial may be
appealed pursuant to Sec. 1005.909.
(4) If an annual recertification is not submitted by the reasonable
deadline as prescribed in Section 184 Program Guidance, HUD may subject
the Servicer to sanctions under Sec. 1005.907.
(h) Program ineligibility. Servicer may be deemed ineligible for
Section 184 Program participation when HUD becomes aware that the
entity or any officer, partner, director, principal, manager, or
supervisor of the entity was:
(1) Suspended, debarred, under a limited denial of participation
(LDP), or otherwise restricted under 2 CFR part 2424, or under similar
procedures of any other Federal agency;
[[Page 78364]]
(2) Indicted for, or have been convicted of, an offense that
reflects adversely upon the integrity, competency, or fitness to meet
the responsibilities of the Servicer to participate in the Title I or
Title II programs of the National Housing Act, or Section 184 Program;
(3) Found to have unresolved findings as a result of HUD or other
governmental audit, investigation, or review;
(4) Engaged in business practices that do not conform to generally
accepted practices of prudent Servicers or that demonstrate
irresponsibility;
(5) Convicted of, or have pled guilty or nolo contendere to, a
felony related to participation in the real estate or mortgage Loan
industry during the 7-year period preceding the date of the application
for licensing and registration, or at any time preceding such date of
application, if such felony involved an act of fraud, dishonesty, or a
breach of trust or money laundering;
(6) In violation of provisions of the Secure and Fair Enforcement
Mortgage Licensing Act of 2008 (12 U.S.C. 5101, et seq.) or any
applicable provision of Tribal or State law; or
(7) In violation of 12 U.S.C. 1715z-13a or any other requirement
established by HUD.
(i) Records retention. Servicers must maintain the servicing case
binder for a period of three years beyond the date of satisfaction or
maturity date of the Loan, whichever is sooner. However, where there is
a payment of claim, the claim case binder must be retained for a period
of at least five years after the final claim has been paid. Section 184
Program Guidance shall prescribe additional records retention time
depending on the circumstances of the claim.
Sec. 1005.709 Providing information to Borrower and HUD.
(a) Servicers shall provide Section 184 Guaranteed Loan information
to Borrowers and arrange for individual loan consultation on request.
The Servicer must establish written procedures and controls to assure
prompt responses to inquiries. At a minimum, the Servicer must provide
contact information to the Borrower in accordance with 12 CFR 1024.36
and 1026.41, including:
(1) A written address a Borrower can use to request and submit
information; and
(2) A toll-free telephone number a Borrower can use to verbally ask
questions and seek information.
(b) All Borrowers must be informed of the system available for
obtaining answers to loan inquiries, the Servicer's office from which
needed information may be obtained, and reminded of the system at least
annually.
(c) Within 30 days after the end of each calendar year, the
Servicer shall furnish to the Borrower a statement of the interest
paid, and of the taxes disbursed from the escrow account during the
preceding year.
(d) At the Borrower's request, the Servicer shall furnish a
statement of the escrow account sufficient to enable the Borrower to
reconcile the account.
(e) Each Servicer of a Section 184 Guaranteed Loan shall deliver to
the Borrower a written notice of any transfer of the Servicing of the
Section 184 Guaranteed Loan. The notice must be sent in accordance with
12 CFR 1024.33(b)(3) and shall contain the information required by 12
CFR 1024.33(b)(4). Servicers must respond to Borrower inquiries
pertaining to the transfer of Servicing in accordance with 12 CFR
1024.33.
(f) Servicers must respond to HUD's written or electronic requests
for information concerning individual accounts within a reasonable
timeframe established by Section 184 Program Guidance, or the deadline
placed by other applicable law, whichever is sooner.
Sec. 1005.711 Assumption and release of personal liability.
(a) Assumption. Section 184 Guaranteed Loans may be fully assumed
by eligible substitute Borrowers, if such assumption is approved by HUD
and other required parties, including but not limited to a Tribe, TDHE,
or the BIA. HUD approval will be based on the following:
(1) Creditworthiness. At least one person acquiring ownership must
be determined to be creditworthy under subpart D of this part. If the
Servicer is approved as a Direct Guarantee Lender, the Servicer
performs a creditworthiness determination under Sec. 1005.409. If the
Servicer is not approved as a Direct Guarantee Lender, then the
Servicer shall request a creditworthiness determination in a manner
prescribed by Section 184 Program Guidance.
(2) Trust Lands. (i) The lease document may require Tribal and BIA
approval of the assignment of the lease to the new Borrower. Servicers
shall not proceed to closing on the assumption until and unless the
Tribe has assigned the leasehold to the new Borrower, and it has been
approved by the BIA.
(ii) The lease may contain other Conveyance restrictions. Servicer
must review the lease for Conveyance restrictions and ensure the lease
complies with Sec. 1005.303(b)(2).
(b) Fees. The Servicer may collect from the Borrower the following
fees and costs:
(1) A charge to compensate the Direct Guarantee Lender for
reasonable and necessary expenses incurred as part of the assumption
review and processing. HUD may establish limitations on the amount of
any such charge.
(2) Reasonable and customary costs, but not more than the amount
actually paid by the Direct Guarantee Lender, for any of the following
items: credit report, verification of employment and the execution of
additional release of liability forms.
(3) Additional fees and costs over and above the assumption fee and
reasonable and customary costs cannot be assessed.
(c) Release of liability. At closing, the Servicer must release the
existing Borrower from any personal liability on a form approved by
HUD; the eligible and approved substitute Borrower assumes personal
liability of the Section 184 Guaranteed Loan when the release is
executed.
(d) Modification of Loan Guarantee Certificate. Upon completion of
an assumption, the Servicer shall submit copies of the documentation
required in this section to HUD, in a manner and form prescribed by
HUD. HUD will subsequently issue a revised Loan Guarantee Certificate.
Sec. 1005.713 Due-on-sale provision.
A Section 184 Guaranteed Loan shall contain a due-on-sale clause
permitting acceleration, in a form prescribed by Section 184 Program
Guidance. The Servicer shall promptly advise HUD of any sale or other
transfer that occurs without the approval of the Direct Guarantee
Lender. If acceleration is permitted by applicable Tribal, Federal, or
State law, the Servicer shall certify as to the legal authority and
seek HUD's approval, in a form and manner prescribed by Section 184
Program Guidance. Within 30 days of receipt of HUD approval to
accelerate, the Servicer shall notify the Borrower of default and
acceleration.
Sec. 1005.715 Application of Borrower payments.
(a) Servicer shall comply with Sec. 1005.509 with respect to the
application of Borrower payments. The Servicer shall apply the payments
in the following order:
(1) Escrow items, including monthly payments of the Annual Loan
Guarantee Fee, rents, taxes, special assessments, and if required,
flood insurance, fire and other hazard insurance premiums;
[[Page 78365]]
(2) Interest accrued on the Section 184 Guaranteed Loan;
(3) Principal of the Section 184 Guaranteed Loan; and
(4) Late charges, if permitted under the terms of the Section 184
Guaranteed Loan and subject to such conditions as HUD may prescribe.
(b) Partial Payments shall be applied in accordance with Sec.
1005.723.
Sec. 1005.717 Administering escrow accounts.
(a) The Servicer shall not use escrow funds for any purpose other
than that for which they were received. It shall segregate escrow
commitment deposits, work completion deposits, and all periodic
payments received on account of leasehold rents, taxes, assessments,
monthly payments of Annual Loan Guarantee Fee, and insurance charges or
premiums, and shall deposit such funds with one or more financial
institutions in a special account or accounts that are fully insured by
the Federal Deposit Insurance Corporation or the National Credit Union
Administration. Leasehold rents on Trust Lands may require additional
escrow segregation by Servicer's which HUD will prescribe in Section
184 Program Guidance.
(b) It is the Servicer's responsibility to ensure timely escrow
disbursements and their proper application. Servicers must establish
controls to ensure that accounts payable from the escrow account or the
information needed to pay such accounts payable is obtained on a timely
basis. Penalties for late payments for accounts payable from the escrow
account must not be charged to the Borrower or HUD unless the Servicer
can show that the penalty was the direct result of the Borrower's error
or omission. The Servicer shall further comply with all requirements
set forth in 12 CFR 1024.17, including method of calculations related
to escrow, the methods of collection and accounting, and the payment of
the accounts payable for which the money has been escrowed.
(c) The Servicer shall not initiate foreclosure for escrow account
shortfalls resulting from advances made pursuant to this section.
(d) When a Loan Guarantee Certificate is terminated voluntarily or
due to Borrower's prepayment, in total satisfaction of the Section 184
Guaranteed Loan, amounts in the escrow account designated to pay any
HUD required program fees shall be remitted to HUD in a form approved
by HUD at the time of the required reporting related to the voluntary
termination or prepayment. When a Section 184 Guaranteed Loan is
prepaid in full, amounts held in escrow for taxes, hazard insurance, or
rents, if applicable, that are not yet due or incurred, shall be
released to the Borrower.
Sec. 1005.719 Fees and costs after endorsement.
(a) After endorsement, the Servicer may collect reasonable and
customary fees and costs from the Borrower only as provided in
paragraphs (a)(1) through (14) of this section. The Servicer may
collect these fees or costs from the Borrower only to the extent that
the Servicer is not reimbursed for such fees or costs by HUD.
Permissible fees and costs include:
(1) Late fee in accordance with Sec. 1005.511;
(2) Costs for processing or reprocessing a check returned as
uncollectible (where bank policy permits, the Servicer must deposit a
check for collection a second time before assessing an insufficient
funds charge);
(3) Fees for processing a change of ownership of the property;
(4) Fees and costs for processing an assumption of the Section 184
Guaranteed Loan in connection with the sale or transfer of the
property;
(5) Costs for processing a request for credit approval incurred in
the course of processing an assumption or substitute Borrower;
(6) Costs for substitution of a hazard insurance policy at other
than the expiration of term of the existing hazard insurance policy;
(7) Costs for modification of the Section 184 Guaranteed Loan
requiring recordation of the agreement, including those for extension
of term or re-Amortization;
(8) Fees and costs for processing a partial release of the
property;
(9) Attorney's and trustee's fees and costs actually incurred
(including the cost of appraisals and advertising) when a Section 184
Guaranteed Loan has been referred to foreclosure counsel and
subsequently the Section 184 Guaranteed Loan is reinstated. No
attorney's fee and cost that exceeds the reasonable limits prescribed
by Section 184 Program Guidance may be collected from the Borrower,
unless approved by HUD;
(10) A trustee's fee, if the Security instrument provides for
payment of such a fee, for execution of a satisfactory release when the
deed of trust is paid in full;
(11) Where permitted by the Security instrument, attorney's fees
and costs actually incurred in the defense of any suit or legal
proceeding wherein the Servicer shall be made a party thereto by reason
of the Section 184 Guaranteed Loan. No attorney's fee may be charged
for the services of the Servicer's staff attorney or other employee;
(12) Property preservation costs incurred, subject to reasonable
limits prescribed by Section 184 Program Guidance, or otherwise
approved by HUD;
(13) Fees permitted for providing a beneficiary notice under
applicable Tribal or State law, if such a fee is not otherwise
prohibited by applicable law, under 12 CFR 1024.36; and
(14) Such other reasonable and customary costs as may be authorized
by HUD.
(b) Reasonable and customary fees must be based upon the actual
cost of the work performed, including out-of-pocket expenses. HUD may
establish maximum fees and costs which are reasonable and customary in
different geographic areas. Except as provided in this part, no fee or
costs shall be based on a percentage of either the face amount of the
Section 184 Guaranteed Loan or the unpaid principal balance due.
Sec. 1005.721 Enforcement of late fees.
(a) A Servicer shall not commence foreclosure when the Borrower's
only default is his or her failure to pay a late fee(s).
(b) A late fee that may be assessed under the Section 184
Guaranteed Loan shall not justify return of a payment submission.
However, if the Servicer thereafter notifies the Borrower of his
obligation to pay a late fee, such a fee may be deducted from any
subsequent payment or payments submitted by the Borrower or on his
behalf if this is not inconsistent with the terms of the Section 184
Guaranteed Loan. Partial Payments shall be treated as provided in Sec.
1005.723.
(c) A payment submission may be returned because of failure to
include a late fee only if the Servicer notifies the Borrower before
imposition of the charge of the amount of the monthly payment, the date
when the late fee will be imposed, and either the amount of the late
charge or the total amount due when the late fee is included.
(d) During the 60-day period beginning on the effective date of
transfer of the Servicing of a Section 184 Guaranteed Loan, a late fee
shall not be assessed. If a payment is received by the prior Servicer
on or before the due date (including any applicable grace period
allowed by the Section 184 Guaranteed Loan), no late fees shall be
assessed by the new Servicer.
[[Page 78366]]
(e) A Servicer shall not assess a late fee for failure to pay a
late fee, as prohibited under 12 CFR 1026.36.
Sec. 1005.723 Partial payments.
(a) A Servicer must have a written policy on how it handles Partial
Payments, in compliance with this section and that policy shall be
readily available to the public.
(b) Upon receipt of a Partial Payment, a Servicer must provide to
the Borrower a copy of the Servicer's written Partial Payment policy
and a letter explaining how it will handle the received Partial
Payment. The Servicer may:
(1) Accept a Partial Payment and either apply it to the Borrower's
account;
(2) Identify it with the Borrower's account number and hold it in a
trust account pending disposition; or
(3) Return the Partial Payment(s) to the Borrower.
Sec. 1005.725 Handling prepayments.
Notwithstanding the terms of the Section 184 Guaranteed Loan, the
Servicer shall accept a prepayment at any time and in any amount.
Monthly interest on the Section 184 Guaranteed Loan must be calculated
on the actual unpaid principal balance of the Section 184 Guaranteed
Loan as of the date the prepayment is received, and not as of the next
payment due date.
Sec. 1005.727 Substitute Borrowers.
Where an original Borrower requests the substitution of an existing
Borrower on the Section 184 Guaranteed Loan:
(a) A Servicer who is Non-Direct Guarantee Lender or financial
institution must obtain HUD approval for the substitution. A remaining
original Borrower must be maintained and continue to be personally
liable for the Section 184 Guaranteed Loan, notwithstanding any
discharge entered in accordance with applicable Tribal, Federal, or
State law.
(b) A Servicer who is a Direct Guarantee Lender may, subject to
limitations established by HUD, approve an eligible substitute Borrower
that meets the requirements for Section 184 Guaranteed Loans which they
own or service, and need not obtain further without specific approval
from HUD. A remaining original Borrower must be maintained and continue
to be personally liable for the Section 184 Guaranteed Loan,
notwithstanding any discharge entered in accordance with applicable
Tribal, Federal, or State law.
Servicing Default Section 184 Guaranteed Loans
Sec. 1005.729 Section 184 Guaranteed Loan collection action.
A Servicer shall take prompt action to collect amounts due from
Borrowers to minimize the number of accounts in default status. The
Servicer must exhaust all reasonable possibilities of collection,
including assessing the Borrower's financial circumstances for Loss
Mitigation options in accordance with Sec. 1005.739.
Sec. 1005.731 Default notice to Borrower.
(a) Live contact. (1) The Servicer shall establish or make good
faith efforts to establish live contact with a Borrower in default not
later than the 36th day of the Borrower's default and, promptly after
establishing live contact, inform such Borrower about the availability
of Loss Mitigation options.
(2) A good faith effort to establish live contact consists of
reasonable steps under the circumstances to reach a Borrower, including
telephoning a Borrower on more than one occasion and, if unable to
establish live contact, sending written or electronic communication
encouraging a Borrower to establish live contact with the Servicer.
(b) Written notice. The Servicer shall give written notice of
default to the Borrower, in a format approved by HUD, no later than the
end of the 45th day of a Borrower default. The Servicer must contact
the Borrower, whether the Borrower lives in the same or a different
location. If an account is reinstated and again enters default, a new
default notice shall be sent to the Borrower, except that the Servicer
is not required to send a second default notice to the same Borrower
more often than once during any 180-day period. The Servicer may give
additional or more frequent notices of default, at its discretion.
(c) Content of the written notice. The notice required by paragraph
(b) of this section shall include:
(1) A statement encouraging the Borrower to contact the Servicer;
(2) Servicer contact information, including but not limited to the
telephone number to access Servicer personnel and the Servicer's
mailing address;
(3) A statement providing a brief description of examples of Loss
Mitigation options that may be available from the Servicer and a
statement how a Borrower may obtain more information about Loss
Mitigation options;
(4) An outline of all critical Servicing deadlines under this
subpart, including but not limited to the Servicer timeframe for
evaluating a complete Loss Mitigation application, deadline for
Borrower to select a Loss Mitigation option, Tribal notice under Sec.
1005.757(a), if applicable, and the process for filing First Legal
Action;
(5) Disclosure to the Borrower that they may be eligible for
additional protections under Consumer Financial Protection Bureau
regulations in 12 CFR chapter X;
(6) A Loss Mitigation application and submission instructions,
including a statement that delays in submission of the Loss Mitigation
application or incomplete submissions shall reduce the availability of
certain Loss Mitigation options to the Borrower;
(7) The manner in which a Borrower can access the HUD list of
homeownership counselors or counseling organizations, including a
website(s) or toll-free telephone(s); and
(8) A statement informing the Borrower that the Servicer may make
information available to local credit bureaus and prospective
creditors.
(d) Conflicts with other law. Nothing in this section shall require
a Servicer to communicate with a Borrower in a manner otherwise
prohibited by applicable Tribal, Federal, or State law.
Sec. 1005.733 Loss mitigation application, timelines, and appeals.
(a) Servicer response to Loss Mitigation application. Within five
days after the Servicer receives the Borrower's Loss Mitigation
application, the Servicer must, in writing:
(1) Acknowledge receipt of the application;
(2) Determine if the application is complete or incomplete; and
(3) If incomplete, notify the Borrower which documentation is
required and missing, and that submission of the missing documents is
required no later than fourteen days from the date of the response to
provide missing documents to the Servicer. If Borrower does not timely
submit the requested documents, the Servicer must initiate live contact
with the Borrower.
(b) Servicer timeframe for evaluating complete Loss Mitigation
application. Within fourteen days of receipt of a complete application
from Borrower, the Servicer must evaluate the application.
(c) Notification of Servicer determination. The Servicer shall
provide written notification: (1) Informing the Borrower of all
available Loss Mitigation options;
(2) Encouraging the Borrower to review all available Loss
Mitigation options and to contact the Servicer with any questions;
[[Page 78367]]
(3) Encouraging Borrowers, when feasible, to consider pursuing
simultaneous Loss Mitigation options, to the extent it is offered by
the Servicer;
(4) Informing the Borrower that if no Loss Mitigation option is
elected or if all elected Loss Mitigation options fail, the Servicer
may proceed with Tribal notice under Sec. 1005.757(a) or First Legal
Action at 180 days of default in accordance with Sec. 1005.757 or
Sec. 1005.761; and
(5) Informing the Borrower that, upon First Legal Action or the
assignment of the Section 184 Guaranteed Loan to HUD, the Servicer may
no longer offer or authorize a pre-foreclosure sale as an alternative
to foreclosure, and that the primary alternative to foreclosure shall
be a deed-in-lieu/lease-in-lieu of foreclosure, subject to applicable
Tribal, Federal, or State law or contractual requirements.
(d) Appeal. (1) If, after the Borrower receives the Servicer's Loss
Mitigation options, the Borrower disagrees with Servicer's Loss
Mitigation determination, the Borrower may appeal in writing and
request that the Servicer re-evaluate the Borrower's Loss Mitigation
application. The Borrower must submit its appeal no later than 14 days
from the date of notification of the Servicer's Loss Mitigation
determination. Upon receipt of the Borrower's appeal of the Servicer's
Loss Mitigation determination, the Servicer shall re-evaluate the
Borrower's Loss Mitigation application within thirty days but may not
use the same staff that made the initial Loss Mitigation determination
and shall notify the Borrower of its appeal decision in writing.
(2) If the Borrower submits a timely written appeal, the 180-day
deadline for First Legal Action shall be suspended during the appeal
process.
Sec. 1005.735 Occupancy inspection.
(a) Occupancy inspection. An occupancy inspection is a visual
inspection of a Section 184 Guaranteed Loan property by the Servicer to
determine if the property is vacant or abandoned and to confirm the
identity of any occupants.
(b) Occupancy follow-up. An occupancy follow-up is an attempt to
communicate with the Borrower via letter, telephone, or other method of
communication, other than on-site inspection, to determine occupancy
when the Section 184 Guaranteed Loan remains in default after the
initial occupancy inspection that did not result in determination of
the Borrower's occupancy status.
(c) Initial occupancy inspection. The Servicer must perform the
initial occupancy inspection after the 45th day of default but no later
than the 60th day of the default when:
(1) A payment has not been received within 45 days of the due date
or for any other defaults under the Section 184 Guaranteed Loan; and
(2) Efforts to reach the Borrower or occupant have been
unsuccessful.
(d) Occupancy follow-ups and continued inspections. If the Servicer
is unable to determine the Borrower's occupancy status through the
initial occupancy inspection, the Servicer must perform occupancy
follow-ups and, if necessary, occupancy inspections every 25-35 days
from the last inspection until the occupancy status is determined.
(e) Occupancy inspections during bankruptcy. When payments are not
submitted and a Borrower is a debtor in bankruptcy, the Servicer must
contact either the bankruptcy trustee or the Borrower's bankruptcy
attorney, if the Borrower is represented, for information concerning
the occupancy status of the property or if an occupancy inspection is
necessary or requires authorization. If the Servicer cannot determine
that the property is vacant or abandoned during the period of the
automatic stay, the Servicer must document the servicing case binder
with evidence that it timely contacted the attorney or trustee.
(f) Conflicts with other law. Nothing in this section shall require
a Servicer to conduct an inspection when prohibited by applicable
Tribal, Federal, State, or local law.
Sec. 1005.737 Vacant property procedures.
If the Servicer determines through an occupancy inspection or
occupancy follow-up that the property is vacant or abandoned, the
Servicer must send a letter, via certified mail or other method
providing delivery confirmation, to all Borrowers at the property
address, or other known address of Borrower, informing them of the
Servicer's determination that the property is vacant or abandoned. This
letter must include the Servicer's contact information.
(a) If occupancy is verified through the delivery confirmation, the
Servicer shall continue pursuing collection efforts required by Sec.
1005.729 until the Servicer has the authority to proceed to First Legal
Action.
(b) If the Servicer verifies through the delivery confirmation
process that the property is vacant or abandoned; then the Servicer
shall:
(1) Commence first-time vacant property inspection;
(2) Take appropriate property preservation and protection actions
to secure and maintain the property;
(3) For properties on Trust Land, initiate Tribal First Right of
Refusal notice under Sec. 1005.757(a) within seven days;
(4) For fee simple properties, initiate First Legal Action within
seven days;
(5) Continue to perform vacant property inspections every 25-35
days until the default is cured, the property is disposed of, or the
bankruptcy court has granted approval for the Servicer to contact the
Borrower or to take any required property preservation actions; and
(6) Retain documentation in the servicing case binder providing
evidence of activities required by HUD in this section or otherwise
directed by HUD.
(c) Conflicts with other law. Nothing in this section shall require
a Servicer to communicate with a Borrower in a manner prohibited by
applicable Tribal, Federal, or State law.
Servicing Default Section 184 Guaranteed Loans Under the Loss
Mitigation Program
Sec. 1005.739 Loss mitigation.
(a) The purpose of Loss Mitigation is to attempt to cure the
Borrower's default and minimize financial loss to HUD. Servicer must
also comply with 12 CFR 1024.41 and any applicable Tribal, Federal, and
State requirements.
(b) The Servicer must offer a Loss Mitigation option, if applicable
to the Borrower and if practical under the circumstances, within 180
days of the date of default.
(c) Loss mitigation options include:
(1) A forbearance plan;
(2) Assumption;
(3) A loan modification;
(4) Pre-foreclosure sale;
(5) A deed-in-lieu/lease-in-lieu of foreclosure; or
(6) Other options, as may be prescribed in Section 184 Program
Guidance.
(d) A Loss Mitigation review shall, to the greatest extent
possible, be based on a full financial assessment of the Borrower at
time of default, and the collection technique(s) must take into account
the circumstances particular to each Borrower.
(e) HUD may prescribe conditions and requirements for the
eligibility and appropriate use of Loss Mitigation options.
(f) Within 180 days of default, if the Borrower is offered a Loss
Mitigation option, other than loan modification, and subsequently fails
to meet the Loss
[[Page 78368]]
Mitigation option requirements, the Servicer shall within the time
period as may be established by Section 184 Program Guidance of the
failure of the Loss Mitigation, determine whether Borrower should
continue with the current Loss Mitigation option or reassess the
Borrower for an alternate Loss Mitigation option.
(1) Upon competition of the Loss Mitigation assessment, the
Servicer must notify the Borrower within two days of the Loss
Mitigation option failure and any possible additional Loss Mitigation
options.
(2) The Borrower shall respond to the Servicer within seven days
and accept any offer of Loss Mitigation, or the Servicer will proceed
with foreclosure or Tribal First Right of Refusal notice under Sec.
1005.757(a).
(g) If the Borrower is satisfactorily performing under a Loss
Mitigation option, other than a loan modification, at 180 days after
default but subsequently fails to perform, the Servicer shall follow 12
CFR part 1024 (Regulation X) and, for Trust Land, initiate Tribal First
Right of Refusal notice under Sec. 1005.757(a) within five days of the
Loss Mitigation option failure.
(h) Documentation must be maintained for the initial and all
subsequent evaluations and resulting Loss Mitigation actions in the
servicing case binder in accordance with Sec. 1005.219(d)(2).
(i) A Servicer that is found to have failed to engage in and comply
with Loss Mitigation as required under this subpart may be subject to
enforcement action by HUD, including but not limited to sanctions under
Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.741 Notice to Tribe and BIA--Borrower default.
(a) When two consecutive Section 184 Guaranteed Loan payments are
in default or sixty days after other default under the Section 184
Guaranteed Loan, the Servicer shall provide notice of default to:
(1) The BIA, for Section 184 Guaranteed Loan property that is on
Trust Land, in accordance with applicable requirements under 25 CFR
part 162; and,
(2) The Tribe, for any Section 184 Guaranteed Loan property where a
Borrower has provided consent of notification in accordance with Sec.
1005.501(j).
(b) The Servicer shall continue exploring Loss Mitigation options,
consistent with the requirements under this subpart, with the Borrower
during the notification process to the Tribe or BIA.
Sec. 1005.743 Relief for Borrower in military service.
(a) Postponement of principal payments. If the Borrower is a person
in ``military service,'' as such term is defined in the Servicemembers
Civil Relief Act (50 U.S.C. 3901-4043), the Servicer may, by written
agreement with the Borrower, postpone for the period of military
service and three months thereafter any part of the monthly payment
which represents the Amortization of principal. The agreement shall
contain a provision for the resumption of monthly payments after such
period in amounts which will completely amortize the Section 184
Guaranteed Loan within the maturity as provided in the original loan
term.
(b) Forbearance. Forbearance plans may be available to Borrowers in
military service pursuant to Sec. 1005.745(e).
(c) Postponement of foreclosure. If at any time during default the
Borrower is a person in ``military service,'' as such term is defined
in the Servicemembers Civil Relief Act, the period during which the
Borrower is in such military service shall be excluded in computing the
period within which the Servicer shall commence First Legal Action to
acquire the property or Tribal notice under Sec. 1005.757(a). No
postponement or delay in the prosecution of foreclosure proceedings
during the period the Borrower is in such military service shall be
construed as failure on the part of the Servicer to exercise reasonable
diligence in prosecuting such proceedings to completion as required by
this subpart.
Sec. 1005.745 Forbearance plans.
(a) General. Forbearance plans are arrangements between a Servicer
and Borrower that may allow for a period of reduced or suspended
payments and specific terms for the repayment plan.
(b) Informal forbearance. Informal forbearance plans are oral
agreements, where permitted under Tribal or State law, between a
Servicer and Borrower allowing for reduced or suspended payments and
may provide specific terms for repayment.
(1) Eligibility. The Servicer may offer an informal forbearance
plan to a Borrower with a delinquent Section 184 Guaranteed Loan who is
not experiencing a loss of income or an increase in living expenses
that can be verified.
(2) Duration. The period shall be three months or less.
(c) Formal forbearance. Formal forbearance plans are written
agreements executed by the Servicer and Borrower, allowing for reduced
or suspended payments and such plans may include specific terms for
repayment.
(1) Eligibility. The Servicer may offer a formal forbearance plan
when:
(i) The Borrower is not experiencing a loss of income or increase
in living expenses that can be verified;
(ii) The Servicer determines that 85 percent of the Borrower's
surplus income is sufficient to reinstate within six months; or
(iii) If the Servicer determines that the Borrower is otherwise
ineligible for other Loss Mitigation options but has sufficient surplus
income or other assets that could repay the indebtedness.
(2) Agreement. The Servicer shall execute a written agreement with
the Borrower outlining the terms and conditions of the formal
forbearance. The Servicer must include in the formal forbearance
agreement a provision for the resumption of monthly payments on a date
certain, with repayment in amounts which will completely reinstate the
Section 184 Guaranteed Loan no later than the original maturity date.
The Servicer must retain in the servicing case binder a copy of the
written formal forbearance agreement postponing principal and interest
payments.
(3) Duration. The repayment period shall be equal to or greater
than three months but not to exceed six months, unless authorized by
HUD.
(4) Required documents. The Servicer must obtain from the Borrower
any necessary supporting documentation and retain this documentation in
the servicing case binder.
(5) Property condition. The Servicer must conduct any review it
deems necessary, including a property inspection, when the Servicer has
reason to believe that the physical condition of the property adversely
impacts the Borrower's use or ability to support the debt as follows:
(i) Financial information provided by the Borrower indicating large
expenses for property maintenance;
(ii) The Servicer receives notice from local government or other
third parties
regarding property condition; or
(iii) The property may be affected by a disaster event.
(iv) If significant maintenance costs contributed to the default or
are affecting the Borrower's ability to make payments under the loan or
formal forbearance agreement, the Servicer may provide in the formal
forbearance agreement a period of loan forbearance
[[Page 78369]]
during which repairs specified in the agreement will be completed at
the Borrower's expense.
(d) Special forbearance-unemployment. The special forbearance-
unemployment Loss Mitigation option is available when one or more of
the Borrowers has become unemployed and the loss of employment has
negatively affected the Borrower's ability to continue to make their
monthly Section 184 Guaranteed Loan payment.
(1) Eligibility. The Servicer must ensure that the Borrower meets
all the following eligibility requirements:
(i) The Section 184 Guaranteed Loan must be at least three months
in default.
(ii) The Borrower is experiencing a verified loss of income or
increase in living expenses due to loss of employment.
(iii) The Borrower must continue to occupy the property as a
Principal Residence.
(iv) The Borrower must have a verified unemployment status and no
Borrower is currently receiving continuous income; or an analysis of
the Borrower's financial information indicates that special
forbearance-unemployment is the best or only option available for the
Borrower.
(2) Agreement. The Servicer shall execute a written special
forbearance-unemployment agreement with the Borrower outlining the
terms and conditions of the special forbearance--unemployment. The
Servicer must include in the special forbearance-unemployment agreement
a provision for the resumption of monthly payments on a date certain,
with repayment in amounts which will completely reinstate the Section
184 Guarantee Loan no later than the original maturity. The Servicer
must retain in the servicing case binder a copy of the written special
forbearance-unemployment agreement postponing principal and interest
payments.
(3) Duration. The repayment period shall not exceed six months.
During this repayment period where Borrower is in compliance with the
Special Forbearance-Unemployment Agreement, the Servicer shall not
proceed to filing of First Legal Action or initiating Tribal First
Right of Refusal notice under Sec. 1005.757(a) until expiration or
default of the Agreement.
(4) Required documents. The Servicer must obtain from the Borrower
such supporting third party documentation, including receipts of
unemployment benefits or an affidavit signed by the Borrower, stating
the date that the Borrower became unemployed and stating that the
Borrower is actively seeking, and is available, for employment. The
Servicer must retain this documentation in the servicing case binder.
(5) Property condition. The Servicer must conduct any review it
deems necessary, including a property inspection, when the Servicer has
reason to believe that the physical condition of the property adversely
impacts the Borrower's use or ability to support the debt as follows:
(i) Financial information provided by the Borrower indicating large
expenses for property maintenance;
(ii) The Servicer receives notice from local government or other
third parties regarding property condition; or
(iii) The property may be affected by a disaster event.
(iv) If significant maintenance costs contributed to the default or
are affecting the Borrower's ability to make payments under the Section
184 Guaranteed Loan or special forbearance-unemployment agreement, the
Servicer may provide in the special forbearance-unemployment agreement
a period of forbearance during which repairs specified in the agreement
will be completed at the Borrower's expense.
(e) Special forbearance-servicemember. The Servicer may, by written
special forbearance-servicemember agreement with the Borrower, postpone
any part of the monthly Section 184 Guaranteed Loan that represents
amortization of principal, for the period permitted by HUD under Sec.
1005.743.
(1) Eligibility. The servicemember must be in active-duty military
service and meet the criteria established in 50 U.S.C. 3911. Dependents
of servicemembers are entitled to protections in limited situations per
the Servicemembers Civil Relief Act, as amended.
(2) Duration. The repayment period shall be for the period of
military service and three months thereafter.
(3) Required documents. The Borrower shall provide Servicer with a
copy of the servicemember's deployment orders.
(4) Agreement. (i) The Servicer shall execute a written special
forbearance-servicemember agreement with the Borrower outlining the
terms and conditions of the special forbearance-servicemember. The
Servicer must include in the special forbearance-servicemember
agreement a provision for the resumption of monthly payments on a date
certain, with repayment in amounts which will completely reinstate the
Section 184 Guaranteed Loan no later than the original maturity date.
The Servicer must retain in the servicing case binder a copy of the
written special forbearance-servicemember agreement postponing
principal and interest payments.
(ii) The Servicer shall comply with all applicable requirements
under the Servicemembers Civil Relief Act.
(f) Continued review and re-evaluation. The Servicer shall monitor
the Borrower's compliance with an agreement under Sec. 1005.743 every
30 days, until the end of the agreement.
Sec. 1005.747 Assumption.
The Servicer shall explore assumption as a Loss Mitigation option
with the Borrower in accordance with Sec. 1005.711.
Sec. 1005.749 Loan modification.
(a) General. A Section 184 Guaranteed Loan modification may include
a change in one or more of the following: interest rate; capitalization
of delinquent principal, interest or escrow items; or re-amortization
of the balance due. A Section 184 Guaranteed Loan modification may not
be used as a means to reinstate the Section 184 Guaranteed Loan prior
to sale or assumption.
(b) Eligibility. The Servicer must ensure that the Borrower is able
to support the monthly loan payment after the loan is modified.
(c) Borrower qualifications. The Servicer must ensure that the
Borrower meets the following eligibility criteria:
(1) At least 12 months have elapsed since the closing date of the
original Section 184 Guaranteed Loan.
(2) The Borrower has not executed a loan modification agreement in
the past 24 months. The number of loan modification agreements may be
limited as prescribed by Section 184 Program Guidance. The Servicer may
approve the first loan modification agreement under the Loan, and HUD
must approve any subsequent loan modifications.
(3) The Borrower's default is due to a verified loss of income or
increase in living expenses.
(4) One or more Borrowers receives continuous income sufficient to
support the monthly payment under the modified rate and term, although
not sufficient to sustain the original Section 184 Guaranteed Loan and
repay the arrearage.
(5) The Borrower's minimum surplus income and percentage of net
income shall be prescribed by HUD.
(6) Eighty-five percent of the Borrower's surplus income is
insufficient to cure arrears within six months.
(7) The Borrower's monthly payment, which consists of principal,
interest,
[[Page 78370]]
taxes, insurance, and other escrow, can be reduced by the greater of 10
percent of the existing monthly Section 184 Guaranteed Loan payment
amount or $100, using an agreed upon interested rate in accordance with
Sec. 1005.451 and amortizing for a term up to 30 years or any other
period as may be prescribed by HUD.
(8) The Borrower has successfully completed a three-month trial
payment plan based on the Section 184 Guaranteed Loan estimated
modification monthly payment amount.
(d) Property conditions. The Servicer must conduct any review it
deems necessary, including a property inspection, when the Servicer has
reason to believe that the physical conditions of the property
adversely impact the Borrower's use or ability to support the debt as
follows:
(1) Financial information provided by the Borrower indicates large
expenses for property maintenance;
(2) The Servicer receives notice from local government or other
third parties regarding property condition; or
(3) The property is affected by a disaster event.
(e) Trial payment plans. A trial payment plan is a written
agreement executed by all parties on the Section 184 Guaranteed Loan,
for a minimum period of three months, during which the Borrower must
make the agreed-upon consecutive monthly payments prior to execution of
the final loan modification.
(1) Trial payment plan terms. The Servicer must ensure that the
following apply to interest rates and monthly payment amounts under
trial payment plan:
(i) The interest rate for the trial payment plan and the loan
modification must in accordance with Sec. 1005.451.
(ii) The interest rate is established when the trial payment plan
is offered to the Borrower.
(iii) The established monthly loan modification payment must be the
same or less than the established monthly trial payment.
(2) Start of trial payments. The Servicer must send the proposed
trial payment plan agreement to the Borrower at least 30 days before
the date the first trial payment is due.
(3) Trial payment plan signatures. (i) All parties on the Section
184 Guaranteed Loan and all parties that will be subject to the
modified loan must execute the trial payment plan agreement unless:
(A) A Borrower or co-Borrower is deceased;
(B) A Borrower and a co-Borrower are divorced; or
(C) A Borrower or co-Borrower on the Section 184 Guaranteed Loan
has been released from liability as the result of an approved
substitute Borrower.
(ii) When a Borrower uses a non-Borrower household member's income
to qualify for a loan modification, the non-Borrower household member
must be on the modified note and Section 184 Guaranteed Loan and sign
the trial payment plan agreement.
(4) Application of trial payments. The Servicer must treat payments
made under the trial payment plan as Partial Payments, held in a
suspense account and applied in accordance with procedures in the
Section 184 Program Guidance and applicable Federal regulations.
(5) End of trial payment plan period. The Servicer must offer the
Borrower a permanent loan modification after the Borrower's successful
completion of a trial payment plan.
(6) Trial payment plan failure. The Borrower fails a trial payment
plan when one of the following occurs:
(i) The Borrower does not return the executed trial payment plan
agreement within the month the first trial payment is due;
(ii) The Borrower vacates or abandons the property; or
(iii) The Borrower does not make a scheduled trial payment plan
payment by the last day of the month it was due.
(7) Alternatives to foreclosure after trial payment plan failure.
If a Borrower fails to successfully complete a trial payment plan, the
Servicer must:
(i) Provide notice to the Borrower of the failure to comply with
the trial payment plan; and
(ii) Offer the Borrower the opportunity for a deed-in-lieu/lease-
in-lieu of foreclosure, with seven days to respond to the offer.
(8) Funds remaining at the end of trial payment period. (i) At the
end of a successful trial payment plan, any remaining funds that do not
equal a full payment must be applied to any escrow shortage or be used
to reduce the amount that would be capitalized onto the principal
balance.
(ii) If the Borrower does not complete the trial payment plan, the
Servicer must apply all funds held in suspense to the Borrower's
account in the established order of priority.
(9) Reporting of trial payment plans. The Servicer must report the
trial payment plans to HUD in the manner prescribed in Section 184
Program Guidance.
(f) Loan modification documents. HUD does not require a specific
format for the loan modification documents; however, the Servicer must
use documents that conform to all applicable Tribal, Federal, and State
laws.
(g) Post-modification review and modification of Loan Guarantee
Certificate. Upon completion of a successful trial payment plan and
within 30 days of the execution of the loan modification documents, the
Servicer shall provide copies of the loan modification documents to
HUD. The Servicer shall comply with additional processing instructions
as prescribed by Section 184 Program Guidance.
Sec. 1005.751 Pre-foreclosure sale.
(a) General. A pre-foreclosure sale, also known as a short sale,
refers to the sale of real estate that generates proceeds that are less
than the amount owed on the property and any junior lien holders have
agreed to release their liens and forgive the deficiency balance on the
real estate.
(b) Eligibility. To be eligible for a pre-foreclosure sale, a
Servicer must ensure:
(1) The Section 184 Guaranteed Loan was originated at least 12
months prior to default;
(2) Default was due to an adverse and unavoidable financial
situation impacting the Borrower;
(3) The property has a current fair market value that equal to or
less than the unpaid principal balance;
(4) The Borrower elected the pre-foreclosure sale option within 120
days from default; and
(5) All other requirements of the pre-foreclosure sale Loss
Mitigation option under this section are met.
(c) Surchargeable damages. Surchargeable damage is damage to the
Section 184 Guaranteed Loan property caused by fire, flood, earthquake,
tornado, boiler explosion (for condominiums only) or Servicer neglect.
The Servicer is responsible for the cost of surchargeable damage. The
Servicer must request HUD approval before approving the use of the pre-
foreclosure sale Loss Mitigation option when the property has sustained
surchargeable damage. If the damage is not surchargeable damage, the
Servicer is not required to obtain HUD approval prior to approving the
Approval to Participate Agreement with Borrower. The Servicer must
comply with paragraph (l) of this section where a hazard insurance
claim must be filed.
(d) Cash reserves. Before executing a pre-foreclosure sale
agreement as described in paragraph (h) of this section, Servicer must
calculate the Borrower's cash reserve contribution.
(1) The cash reserve contribution shall come from non-retirement
liquid assets, which may be available for withdrawal
[[Page 78371]]
or liquidation from Borrower's financial institutions. Servicer shall
calculate the total cash reserves using the highest ending balance of
each cash reserve asset.
(2) The Servicer must require the Borrower with cash reserves
greater than the contribution threshold to contribute 20 percent of the
total amount exceeding the contribution threshold towards the Section
184 Guaranteed Loan debt. The Servicer must not require the Borrower to
contribute more than the difference between the unpaid principal
balance and the appraised value of the property. The Servicer must give
written notice to the Borrower designating the amount of the Borrower's
cash reserve contribution that is to be applied towards the
transaction.
(3) If the cash reserve calculation returns an amount at or below
the contribution threshold amount, or a negative amount, the Servicer
is not required to obtain a contribution from the Borrower in
connection with the transaction.
(e) Condition of title or Title Status Report. (1) For Section 184
Guaranteed Loans on fee simple lands, a Servicer must ensure the
property has Good and Marketable Title. Before approving a pre-
foreclosure sale Loss Mitigation option, the Servicer must obtain title
evidence or a preliminary report verifying that the title is not
impaired by unresolvable title defects or junior liens that cannot be
discharged.
(2) For Section 184 Guaranteed Loans on Trust Land, the Servicer
shall obtain a certified Title Status Report from the BIA. Before
approving a pre-foreclosure sale Loss Mitigation option, the Servicer
must verify that the property is not encumbered by unresolvable title
defects or junior liens that cannot be discharged.
(f) Discharge of junior liens. The Servicer must contact all junior
lienholders to verify the Borrower has secured a discharge of the
junior liens.
(g) Property list price and valuation--(1) List price. The Servicer
must ensure that the Borrower lists the property for sale at no less
than the ``as-is'' value, as determined by an appraisal completed in
accordance with the requirements in Sec. 1005.457.
(2) Appraisals. The Servicer must obtain a standard electronically
formatted appraisal performed by an FHA Appraiser Roster pursuant to
the following requirements:
(i) The appraisal must contain an ``as-is'' fair market value for
the subject property;
(ii) A copy of the appraisal must be provided to HUD. A copy of the
appraisal must be provided to the Borrower or sales agent, upon
request;
(iii) The ``as-is'' fair market value used for a pre-foreclosure
sale transaction is valid for 120 days; and
(iv) A Servicer must present HUD with a request for a variance to
approve a pre-foreclosure sale transaction if one of the following
conditions exists:
(A) The current appraised value of the property is less than the
unpaid principal balance by an amount of $75,000 or greater;
(B) The appraised value is less than 50 percent of the unpaid
principal balance; or
(C) The appraisal is deemed unacceptable because the as-is value
cannot be affirmed using a broker's price opinion or automated
valuation model within 10 percent of the value. This section is not
applicable to property on Trust Land unless there is a viable real
estate market;
(v) The Servicer must note on the variance request the specific
reason for the request and attach any supporting documents needed for
HUD review;
(vi) The Servicer must obtain HUD approval before authorizing the
marketing of the property; and
(vii) All pre-foreclosure appraisals must be accompanied by a
broker's price opinion or an automated valuation model, unless the
property is located on Trust Land.
(h) Required documents. After determining that a Borrower and
property meet the pre-foreclosure sale eligibility requirements, the
Servicer shall send to the Borrower:
(1) Pre-foreclosure Sale Approval to Participate Agreement. The
agreement, on a form prescribed by Section 184 Program Guidance, shall
list the pre-foreclosure sale requirements, including the date by which
the Borrower's sales contract must be executed during the pre-
foreclosure sale marketing period and applicable cash reserve amount;
and
(2) Pre-foreclosure addendum. The addendum shall be in the form
prescribed by Section 184 Program Guidance. The pre-foreclosure sale
addendum must be fully executed at closing.
(i) Delivery of documents to Borrower. Documents listed under
paragraphs (h)(1) and (2) of this section must be sent to the Borrower
via methods providing delivery confirmation with a date and time stamp
of delivery. The Servicer must inform the Borrower that the documents
must be signed and returned to the Servicer within 10 days of receipt.
(j) Copies to HUD. The Servicer must send signed copies of the
documents in paragraphs (h)(1) and (2) of this section to HUD within 15
days of receipt from the Borrower.
(k) Tribal notification for properties on Trust Land. At the same
time the Servicer sends the approval to participate agreement to the
Borrower, in accordance with the requirements as prescribed by Section
184 Program Guidance, the Servicer shall send a notice to the Tribe and
the TDHE of the option to assume the Section 184 Guaranteed Loan or
purchase the property.
(l) Use of a real estate broker. The Borrower is responsible for
retaining the services of a HUD-approved real estate broker/agent
within seven days of the signed approval to participate agreement. For
Trust Land, the Borrower may request, through the Servicer, an
exception to this section. If an exception is granted, HUD will work
with the Borrower, Servicer and Tribe or TDHE to sell the property or
pursue another Loss Mitigation option.
(m) Required listing disclosure. The Servicer shall require the
listing agreement between the seller and the agent/broker to include
the following cancellation clause: ``Seller may cancel this Agreement
prior to the ending date of the listing period without advance notice
to the Broker, and without payment of a commission or any other
consideration if the property is conveyed to HUD or the Holder. The
sale completion is subject to approval by the Servicer and HUD.'' This
section is not applicable to property on Trust Land unless a HUD-
approved real estate broker/agent is utilized.
(n) Pre-foreclosure sale marketing, settlement period, failure to
complete pre-foreclosure sale. The Borrower has a timeframe, as
prescribed by Section 184 Program Guidance, seven days from the date of
the signed approval to participate agreement to market the property in
the Multiple Listing Service, or other marketing resource if the
property is on Trust Land.
(1) The property must be marketed in the Multiple Listing Service
or other marketing resource for a timeframe as prescribed by Section
184 Program Guidance before Borrower may consider any offers.
(2) During the marketing period, Servicers must conduct a monthly
review of the property's marketing status with the real estate broker/
agent or the Tribe or TDHE, for property on Trust Land.
(3) The maximum marketing period for the sale of the property is
four months from the execution date of the approval to participate
agreement and the date of the property settlement. If
[[Page 78372]]
there is a signed contract of sale, but property settlement has not
occurred by the end of the fourth month, the marketing period may be
extended up to two months to allow for closing to occur.
(4) Within 30 days of the end the marketing period, or no earlier
than 120 days of default, whichever is later, if no settlement has
occurred, Servicer shall provide electronic or written notice to the
Borrower of the Borrower's default under the pre-foreclosure sale
agreement and present the agreed upon deed-in-lieu/lease-in-lieu of
foreclosure, with title being taken in the name of the Secretary. The
Borrower shall have ten days from the date of the notice to respond in
writing or by electronic means. If the Servicer receives no response or
if the Servicer receives notice of the Borrower's rejection of the
alternative to foreclosure, the Servicer must initiate First Legal
Action or Tribal First Right of Refusal within five days of the
Borrower's deadline to respond or actual rejection response date,
whichever is sooner.
(o) Property inspections and maintenance. The Servicer shall
inspect the property in accordance with Sec. 1005.735 and follow Sec.
1005.739, where applicable.
(p) Disclosure of damage after pre-foreclosure sale approval. In
the event the property becomes damaged, the Borrower must report damage
to the Servicer in accordance with the pre-foreclosure sale agreement.
When the Servicer becomes aware that the property has sustained damage
after a Borrower has received the approval to participate agreement,
the Servicer must evaluate the property to determine if it continues to
qualify for the pre-foreclosure sale program or terminate participation
if the extent of the damage changes the property's fair market value.
(q) Hazard insurance claim. Where applicable, the Servicer must
work with the Borrower to file a hazard insurance claim and either: use
the proceeds to repair the property; or adjust the claim by the amount
of the insurance settlement (non-surchargeable damage) or the
Government's repair cost estimate.
(r) Evaluation of offers. The Servicer must receive from the
listing real estate broker/agent an offer that yields the highest net
return to HUD and meets HUD's requirements for bids, as follows:
(1) Real estate broker/agent to ensure execution of documents. The
real estate broker/agent must ensure that the accepted offer and the
pre-foreclosure sale addendum are signed by all applicable parties
before submitting to the Servicer for approval.
(2) Arm's Length Transaction. The transaction must be an Arm's
Length Transaction meaning the transaction must be between two
unrelated parties who are each acting in their own best interest.
(3) Back-up offers. Once an offer has been submitted to the
Servicer for approval, the real estate broker/agent must retain any
offer that the seller elects to hold for ``back-up'' until a
determination has been made on the previously submitted offer.
(s) Contract approval by Servicer--(1) Review of sales contract. In
reviewing the contract of sale, the Servicer must:
(i) Ensure that the pre-foreclosure sale is an outright sale of the
property and not a sale by assumption.
(ii) Review the sales documentation to determine that there are no
hidden terms or special agreements existing between any of the parties
involved in the pre-foreclosure sale transaction; and no contingencies
that might delay or jeopardize a timely settlement.
(iii) Determine that the property was marketed pursuant to HUD
requirements in this part.
(iv) Not approve a Borrower for a pre-foreclosure sale if the
Servicer knows or has reason to know of the Borrower's fraud or
misrepresentation of information.
(2) Sales Contract Review period. After receiving an executed
contract of sale and pre-foreclosure sale addendum from the Borrower,
the Servicer must send to the Borrower a Sales Contract Review, on a
form prescribed by Section 184 Program Guidance, no later than five
business days after the Servicer's receipt of an executed contract for
sale.
(3) Net sale proceeds. (i) Net sale proceeds are the proceeds of a
pre-foreclosure sale, calculated by subtracting reasonable and
customary closing and settlement costs from the property sales price.
(ii) Regardless of the property sale price, a Servicer may only
approve a pre-foreclosure sale contract for sale if the net sale
proceeds are at or above minimum allowable thresholds established by
HUD. The net sale proceeds must conform to the requirements on the Pre-
Foreclosure Sale Approval to Participate Agreement.
(iii) The Servicer is liable for any claim overpayment on a pre-
foreclosure sale transaction that closes with less than the required
net sale proceeds, unless a variance has been granted by HUD.
(4) Unacceptable settlement costs. The Servicer must not include
the following costs in the Net Sale Proceeds calculation:
(i) Repair reimbursements or allowances;
(ii) Home warranty fees;
(iii) Discount points or loan fees;
(iv) Servicer's title insurance fee; and
(v) Third-party fees incurred by the Servicer or Borrower to
negotiate a pre-foreclosure sale.
(5) Other third-party fees. (i) With the exception of reasonable
and customary real estate commissions, the Servicer must ensure that
third-party fees incurred by the Servicer or Borrower to negotiate a
pre-foreclosure sale are not included on the Closing Disclosure or
similar legal documents unless explicitly permitted by Tribal or State
law.
(ii) The Servicer, its agents, or any outsourcing firm it employs
must not charge any fee to the Borrower for participation in the pre-
foreclosure sale.
(t) Closing and post-closing responsibilities. For the purpose of
this section, with respect to Trust Land, the closing agent may be
selected by the Tribe or TDHE.
(1) Closing worksheet. Prior to closing, the Servicer must provide
the closing agent with a Closing Worksheet, on a form prescribed by
HUD, listing all amounts payable from net sale proceeds; and a pre-
foreclosure sale addendum signed by all parties.
(2) Servicer review of final terms of pre-foreclosure sale
transaction. The Servicer will receive from the closing agent a
calculation of the actual net sale proceeds and a copy of the Closing
Disclosure or similar legal document. The Servicer must ensure that:
(i) The final terms of the pre-foreclosure sale transaction are
consistent with the purchase contract;
(ii) Only allowable settlement costs have been deducted from the
seller's proceeds;
(iii) The net sale proceeds will be equal to or greater than the
allowable thresholds;
(iv) A Closing Worksheet form is included in the claim case binder;
and
(v) It reports the pre-foreclosure sale to consumer reporting
agencies.
(3) Closing agent responsibilities after final approval. Once the
Servicer gives final approval for the pre-foreclosure sale and the
settlement occurs, the closing agent must:
(i) Pay the expenses out of the Net Sale Proceeds and forward the
Net Sale Proceeds to the Servicer;
(ii) Forward a copy of the Closing Disclosure or similar legal
document to the Servicer to be included in the claim case binder no
later than three business days after the pre-foreclosure sale
transaction closes; and,
(iii) Sign the pre-foreclosure sale addendum on or before the date
the pre-
[[Page 78373]]
foreclosure sale transaction closes, unless explicitly prohibited by
Tribal or State statute.
(4) Satisfaction of debt. Upon receipt of the portion of the net
sale proceeds designated for Section 184 Guaranteed Loan satisfaction,
the Servicer must apply the funds to the outstanding balance and
discharge any remaining debt, release the lien in the appropriate
jurisdiction, and may file a claim.
(5) Discharge of junior liens. The Servicer must verify the pre-
foreclosure sale will result in the discharge of junior liens as
follows:
(i) If the Borrower has the financial ability, the Borrower must be
required to satisfy or otherwise obtain release of liens.
(ii) If no other sources are available, the Borrower may obligate
up to a maximum amount from sale proceeds towards discharging the liens
or encumbrances, such maximum amount will be prescribed by HUD.
(u) Early termination of pre-foreclosure participation--(1)
Borrower-initiated termination. The Servicer must permit a Borrower to
voluntarily terminate participation in the pre-foreclosure sale Loss
Mitigation option at any time.
(2) Servicer-initiated termination. The Servicer shall terminate a
Borrower's pre-foreclosure sale program participation for any of the
following reasons:
(i) Discovery of unresolvable title problems;
(ii) Determination that the Borrower is not acting in good faith to
market the property;
(iii) Significant change in property condition or value;
(iv) Re-evaluation based on new financial information provided by
the Borrower that indicates that the case does not qualify for the pre-
foreclosure sale option; or
(v) Borrower has failed to complete a pre-foreclosure sale within
the time limits prescribed by Section 184 Program Guidance and no
extensions of time have been granted by HUD.
(3) Notification of pre-foreclosure sale program participation
termination. The Servicer must forward to the Borrower a written
explanation for terminating their program participation. This letter is
to include the ``end-of-participation'' date for the Borrower.
(4) Failure to complete a pre-foreclosure sale. Should the Borrower
be unable to complete a pre-foreclosure sale transaction, the Servicer
must proceed with a deed-in-lieu/lease-in-lieu of foreclosure in
accordance with Sec. 1005.753. If the Servicer is unable to obtain a
deed-in-lieu/lease-in-lieu of foreclosure, the Servicer must proceed to
First Legal Action or assignment in accordance with Sec. Sec. 1005.761
and 1005.763.
Sec. 1005.753 Deed-in-lieu/lease-in-lieu of foreclosure.
(a) Requirements. In lieu of instituting or completing a
foreclosure, the Servicer or HUD may acquire a property by voluntary
Conveyance from the Borrowers. Conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure is allowed subject to the Servicer's
compliance with the following requirements:
(1) The lease-in-lieu of foreclosure for property on Trust Land
shall be approved by the Tribe prior to execution and by the BIA at
recordation.
(2) The Section 184 Guaranteed Loan is in default at the time of
the deed-in-lieu/lease-in-lieu of foreclosure is executed and
delivered.
(3) The Section 184 Guaranteed Loan is satisfied of record as a
part of the consideration for such Conveyance.
(4) The deed-in-lieu/lease-in-lieu of foreclosure from the Borrower
contains a covenant which warrants against the acts of the grantor and
all claiming by, through, or under the grantor and conveys Good and
Marketable Title, or for leases, assigns without objectionable
encumbrances.
(5) With respect to Section 184 Guaranteed Loans on fee simple
lands, the Servicer transfers to HUD Good and Marketable Title
accompanied by satisfactory title evidence.
(6) With respect to Section 184 Guaranteed Loans on Trust Lands,
the Servicer provides to HUD a certified Title Status Report evidencing
assignment to HUD without any objectionable encumbrances.
(7) The property must meet the property conditions under Sec.
1005.767. HUD may consent to Conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure when property does not meet Sec.
1005.767 in accordance with procedures in Section 184 Program Guidance.
(b) Required documentation. A written agreement must be executed by
the Borrower and Servicer which contains all of the conditions under
which the deed-in-lieu/lease-in-lieu of foreclosure will be accepted.
(c) Conveyance to Servicer. Upon execution of the deed-in-lieu/
lease-in-lieu of foreclosure document(s), the Servicer must file for
record no later than two business days from receipt.
(d) Conveyance to HUD, where applicable. After evidence of
recordation is available, the Servicer shall immediately convey the
property to HUD in accordance with Sec. 1005.769.
(e) Reporting for credit purposes. The Servicer must comply with
all applicable Tribal, Federal, State, and local reporting
requirements, including but not limited to reporting to credit
reporting agencies.
Sec. 1005.755 Incentive payments.
As an alternative to foreclosure, or eviction where applicable, HUD
may authorize an incentive payment to:
(a) Borrowers that complete certain Loss Mitigation options or for
their agreement to vacate the property after foreclosure, under the
terms established by the Secretary;
(b) Lenders and Servicers for their completion of certain Loss
Mitigation options; and (c) Tribes and TDHEs for their assistance in
Loss Mitigation, sale, or transfer of the Trust Land property.
Assignment of the Loan to HUD, Foreclosure, and Conveyance
Sec. 1005.757 Property on Trust Land--Tribal first right of refusal;
foreclosure or assignment.
(a) For any property on Tribal Land, the Servicer shall provide
written notice to the Tribe or TDHE of the option to assume the Section
184 Guaranteed Loan or purchase the property at the earlier of:
(1) Any lease provision addressing Tribal First Right of Refusal;
(2) 120 days after default; or
(3) The exhaustion of all Loss Mitigation options.
(b) The Tribe or TDHE shall have either the time frame provided in
the lease or, if not defined in the lease, 60 days to accept or decline
the option to assume the Section 184 Guaranteed Loan or purchase the
property based on the current appraised value or other purchase price.
(c) Unless a Borrower has completed a pre-foreclosure sale or a
lease-in-lieu of foreclosure in accordance with Sec. Sec. 1005.751 and
1005.753, the Servicer must either initiate First Legal Action or
assignment to HUD, within the timeframes prescribed in Sec. Sec.
1005.761 and 1005.763.
(d) Any costs associated with failure to initiate Tribal First
Right of Refusal may be deemed ineligible for claim payment.
Sec. 1005.759 Fee simple land properties--foreclosure or assignment
with HUD approval.
(a) Unless a Borrower has completed a pre-foreclosure sale or a
deed-in-lieu of foreclosure in accordance with Sec. Sec. 1005.751 and
1005.753, the Servicer must initiate First Legal Action on the
[[Page 78374]]
Section 184 Guaranteed Loan pursuant to Sec. 1005.761.
(b) Under limited circumstances, HUD may approve an assignment of a
Section 184 Guaranteed Loan to HUD for fee simple land properties.
Sec. 1005.761 First Legal Action deadline and automatic extensions.
(a) Deadline for First Legal Action. The Servicer must initiate
First Legal Action, as defined in Sec. 1005.103, within 180 days of
default, unless a later date is authorized under this part.
(b) Automatic extensions to the First Legal Action deadline. The
Section 184 Program allows for automatic extension to the First Legal
Action deadline for the following reasons and separate HUD approval is
not required.
(1) If Federal law or the laws of the Tribe or State, in which the
Section 184 Guaranteed Loan property is located, do not permit the
commencement of First Legal Action within the deadline designated in
paragraph (a) of this section, then the Servicer must accomplish First
Legal Action within 30 days after the expiration of the time during
which First Legal Action is prohibited; or
(2) If the Borrower is in compliance with an approved Loss
Mitigation plan. However, upon Borrower's default or failure under the
Loss Mitigation plan and expiration of response period in any required
notice or Borrower's request to terminate participation in the Loss
Mitigation plan, the Servicer shall refer the Loan to legal counsel
within five days. First Legal Action must be initiated within 30 days
of the default or Borrower's request to terminate the Loss Mitigation
plan.
(3) Other necessary and reasonable automatic extensions may be
allowed, as prescribed by Section 184 Program Guidance.
(c) Compliance with Federal law. The First Legal Action must be in
compliance with all applicable Federal law, including but not limited
to regulations imposed by the Consumer Financial Protection Bureau.
(d) Notice to HUD. The Servicer must provide notice to HUD, in a
form as may be prescribed in Section 184 Program Guidance, within 15
days of accomplishing First Legal Action.
Sec. 1005.763 Assignment of the Section 184 Guaranteed Loan.
(a) Prerequisites for assignment to HUD. (1) Prior to assignment to
HUD, one of the following conditions must have been met:
(i) The Servicer has completed its review of the Borrower's Loss
Mitigation request, determined that the Borrower does not qualify for a
Loss Mitigation option, and properly notified the Borrower of this
decision and, where the Borrower has initiated a timely appeal, the
appeal process has been completed or the Borrower's period to appeal
has expired.
(ii) The Borrower has failed to perform under an agreement on a
Loss Mitigation option, and the Servicer has determined that the
Borrower is ineligible for other Loss Mitigation options or is unable
to complete an additional Loss Mitigation option within 180 days of
default.
(iii) The Servicer has been unable to determine the Borrower's
eligibility for any Loss Mitigation option due to the Borrower's
failure to respond to the Servicer's efforts to contact the Borrower.
(2) Where applicable, the Servicer has complied with the Right of
First Refusal requirements of Sec. 1005.757(a).
(3) Where applicable, the Servicer has complied with all Tribal law
requirements.
(4) The Servicer shall conduct an occupancy inspection in
accordance with Sec. 1005.735. (i) If the property is vacant or
abandoned, secure the property in accordance with Sec. 1005.737(b)(2).
(ii) If the property is occupied, request and obtain approval from
HUD to assign the property.
(b) Timeframes--(1) Fee simple land properties. The assignment of
fee simple land properties requires prior HUD approval. The request for
an assignment must be no earlier than 180 days of default, unless the
Servicer has determined the property is vacant pursuant to Sec.
1005.737. Upon the Servicer's timely certification of compliance with
paragraphs (a)(1) through (4) of this section and HUD's approval of the
assignment, the Holder shall have five days to execute and cause the
appropriate documents to be filed, to accomplish assignment to HUD and
submit to HUD evidence of the filing and a claim in a manner so
prescribed by Section 184 Program Guidance.
(2) Properties on Trust Land. The assignment must be no earlier
than 180 days after the date of default, unless the Servicer has
determined the property is vacant pursuant to Sec. 1005.737. Upon the
Servicer's timely certification of compliance with paragraphs (a)(1)
through (4) of this section, the Holder shall have five days cause the
appropriate documents to be filed, to accomplish assignment to HUD. The
Servicer shall submit to HUD evidence of the filing and of a claim in a
manner so prescribed by Section 184 Program Guidance.
Sec. 1005.765 Inspection and preservation of properties.
(a) If at any time the Servicer knows or should have known the
property is vacant or abandoned, the Servicer shall comply with the
inspection requirements under Sec. 1005.737.
(b) The Servicer shall take appropriate action to protect and
preserve the property until its Conveyance to HUD, if such action does
not constitute an illegal trespass. Taking ``appropriate action''
includes the commencement of First Legal Action or assignment within
the time required by Sec. Sec. 1005.761 and 1005.763, as applicable.
Sec. 1005.767 Property condition.
(a) Condition at time of transfer. (1) When the property is
transferred, or a Section 184 Guaranteed Loan is assigned to HUD in
accordance with Sec. 1005.763, the property must be undamaged by fire,
earthquake, flood, tornado, and Servicer neglect, except as set forth
in this subpart.
(2) A vacant property must be in broom-swept condition, meaning the
property is, at a minimum, reasonably free of dust and dirt, and free
of hazardous materials or conditions, personal belongings, and interior
and exterior debris.
(3) A vacant property is secured and, if applicable, winterized.
(b) Damage to property by waste. The Servicer shall not be liable
for damage to the property by waste committed by the Borrower, or
heirs, successors, or assigns.
(c) Servicer responsibility. The Servicer shall be responsible for:
(1) Damage by fire, flood, earthquake, or tornado;
(2) Damage to or destruction of property which is vacant or
abandoned when such damage or destruction is due to the Servicer's
failure to take reasonable action to inspect, protect, and preserve
such property as required by Sec. 1005.737; and
(3) Any damage, whatsoever, that the property has sustained while
in the possession of the Servicer, when the property has been conveyed
to HUD without notice or approval by HUD as required by Sec. 1005.763.
Sec. 1005.769 Conveyance of Property to HUD at or after foreclosure;
time of Conveyance.
(a) At or after foreclosure, the Servicer shall convey the property
to HUD by one of the following:
(1) Direct Conveyance to HUD. The Servicer shall cause for the deed
to be transferred directly to HUD. The
[[Page 78375]]
Servicer shall be responsible for determining that such Conveyance will
comply with all provisions of this part, including conveying Good and
Marketable Title and producing satisfactory title evidence to HUD.
(2) Conveyance by the Servicer to HUD. The Servicer shall acquire
Good and Marketable Title and transfer the property to HUD within 30
days of the earlier of:
(i) Execution of the foreclosure deed;
(ii) Acquiring possession of the property;
(iii) Expiration of the redemption period;
(iv) Such further time as may be necessary to complete the title
examination and perfect the title; or
(v) Such further time as HUD may approve in writing.
(b) On the date the deed is filed for record, the Servicer shall
notify HUD, on a form prescribed by HUD, advising HUD of the filing of
such Conveyance and shall assign all rights without recourse or
warranty any or all claims which the Servicer has acquired in
connection with the loan transaction, and as a result of the
foreclosure proceedings or other means by which the Servicer acquired
or conveyed such property, except such claims as may have been released
with the approval of HUD. The Servicer must file for record the deed no
later than two days after execution. The Servicer must document
evidence of the submission in the file.
Sec. 1005.771 Acceptance of property by HUD.
(a) Effective date of assignment. HUD accepts the assignment of a
Section 184 Guaranteed Loan when:
(1) The Servicer has assigned the Section 184 Guaranteed Loan to
HUD;
(2) The Servicer has provided HUD evidence of the recordation; and
(3) HUD pays a claim for the unpaid principal balance under Sec.
1005.807(a).
(b) Effective date of Conveyance. HUD accepts Conveyance of the
property when:
(1) The Servicer has deeded the property to HUD;
(2) The Servicer has provided HUD evidence of the recordation; and
(3) HUD pays a claim for the unpaid principal balance under Sec.
1005.807(a)
(c) Servicer ongoing obligation. Notwithstanding the assignment of
the Section 184 Guarantee Loan or the filing of the deed to the HUD,
the Servicer remains responsible for ensuring compliance with this
part, including and any loss or damage to the property, and such
responsibility is retained by the Servicer until the claim has been
paid by HUD.
Subpart H--Claims
Claims Application, Submission Categories, and Types
Sec. 1005.801 Purpose.
This subpart sets forth requirements that are applicable to a
Servicer's submission of an application for Section 184 Guaranteed Loan
benefits to HUD. The Servicer's submission of the claim shall be in
compliance with this subpart and process details as set forth by HUD in
Section 184 Program Guidance. This subpart also sets forth requirements
processing and payment of claim.
Sec. 1005.803 Claim case binder; HUD authority to review records.
(a) A Servicer must maintain a claim case binder for each claim
submitted for payment in accordance with Sec. 1005.219(d)(2). The
claim case binder must contain documentation supporting all information
submitted in the claim.
(b) HUD may review a claim case binder and the associated
endorsement case binder at any time. A Servicer's denial of HUD access
to any files may be grounds for sanctions in accordance with Sec. Sec.
1005.905 and 1005.907.
(c) Within three business days of a request by HUD, the Servicer
must make available for review, or forward to HUD, copies of identified
claim case binders.
Sec. 1005.805 Effect of noncompliance.
(a) When a claim case binder is submitted to HUD for consideration,
HUD may conduct a post-endorsement review in accordance with Sec.
1005.527. If HUD determines that the Section 184 Guaranteed Loan does
not satisfy the requirements of subpart D of this part, HUD will take
one or more of the following actions:
(1) Reject the claim submission when the Holder is the originating
Direct Guarantee Lender.
(2) Pay the claim to the current Holder and demand reimbursement of
the claim from the originating Direct Guarantee Lender.
(3) Reconvey the property or reassign the deed of trust or mortgage
in accordance with Sec. 1005.849.
(4) Pursue sanctions against the originating Direct Guarantee
Lender or Sponsored Entity pursuant to Sec. Sec. 1005.905 and
1005.907.
(b) When reviewing a claim case binder, if HUD determines one or
more of the conditions in paragraph (b)(1) of this section to be true,
HUD may take one or more of the actions listed in paragraph (b)(2) of
this section:
(1) Conditions. (i) The Servicer failed to service the Section 184
Guaranteed Loan in accordance with subpart G of this part;
(ii) The Servicer committed fraud or a material misrepresentation;
or
(iii) The Servicer had known or should have known of fraud or a
material misrepresentation in violation of this part.
(2) Actions. (i) Place a hold on processing the claim for
reimbursement of eligible reasonable expenses under Sec. 1005.807(b)
and provide the Servicer the opportunity to remedy the deficiency.
(ii) Reject the claim for reimbursement of eligible reasonable
expenses under Sec. 1005.807(b) partially or in its entirety.
(iii) Reconvey the property or reassign the deed of trust or
mortgage in accordance with Sec. 1005.849, where applicable, and
require the Holder to refund the claim payment of the unpaid principal
balance under Sec. 1005.807(a) and expenses under Sec. 1005.807(b).
The Holder may resubmit the claim when the deficiencies identified by
HUD are cured.
(iv) Pursue administrative offset for any unpaid amounts owed to
HUD pursuant to 24 CFR part 17.
(v) Pursue sanctions against the Servicer or Holder pursuant to
Sec. Sec. 1005.905 and 1005.907.
(vi) Pursue other remedies as determined by HUD.
(c) If a property is reconveyed or the deed of trust or mortgage is
reassigned to the Holder, the Holder may not be reimbursed for any
expenses incurred after Conveyance or reassignment.
(d) If a claim is resubmitted after reconveyance or reassignment
and HUD determines a decrease in the value of the property at the time
of the resubmission, HUD may reduce the claim payment accordingly.
Sec. 1005.807 Claim submission categories.
There are three claim submission categories:
(a) Payment of the unpaid principal balance;
(b) Reimbursement of eligible reasonable expenses, as prescribed by
Section 184 Program Guidance, up to the execution of the assignment or
date of Conveyance of the property of the property to HUD or a third
party; and
(c) Supplemental claim for eligible reasonable expenses incurred
prior to the assignment, Conveyance, or transfer of the property to a
third party, for which the expenses were omitted from the Servicer's
prior claim or for a calculation error made by either Servicer or HUD.
Sec. 1005.809 Claim types.
HUD recognizes five different claim types. The Servicer must submit
a claim
[[Page 78376]]
based upon the type of property disposition. The Servicer shall submit
claims within timeframes established in this section. The claim types
are:
(a) Conveyance. When the property is deeded to HUD through or after
foreclosure or by deed-in-lieu or lease-in-lieu of foreclosure:
(1) The Servicer must submit a claim under Sec. 1005.807(a) to HUD
no later than 45 days from the date the deed to HUD is executed, unless
an extension of time is granted by HUD.
(2)(i) Fee simple land. The claim must include the final title
policy evidencing HUD's ownership through foreclosure or transfer of
the ownership of the property through deed-in-lieu to HUD.
(ii) Trust Land. The claim must include a certified Title Status
Report evidencing HUD's leasehold interest through foreclosure or the
transfer of the mortgage and leasehold interest to HUD through lease-
in-lieu.
(3) In cases where the Servicer is unable to comply with paragraph
(a)(2)(ii) of this section, the Servicer shall submit the claim pending
the certified Title Status Report in accordance with the time frame
specified in paragraph (a)(1) of this section.
(4) Servicers must submit claims under Sec. 1005.807(b) no later
than 60 days after the date the deed to HUD is executed, unless an
extension of time is granted by HUD.
(b) Assignment of the loan. When the Holder assigns the Section 184
Guaranteed Loan to HUD:
(1) The Servicer must submit a claim under Sec. 1005.807(a) and
(b) no later than 45 days from the date of the assignment of the
Section 184 Guaranteed Loan to HUD is executed, unless an extension of
time is granted by HUD.
(2)(i) Trust Land. The claim must include a certified Title Status
Report evidencing the assignment of the mortgage to HUD.
(ii) Fee simple land. The claim must include the final title policy
providing coverage through the transfer of the mortgage to HUD.
(3) In cases where the Servicer is unable to comply with paragraph
(b)(2)(i) of this section, the Servicer shall submit the claim pending
the certified Title Status Report in accordance with the time frame
specified in paragraph (b)(1) of this section.
(4) At the time of assignment of the Section 184 Guaranteed Loan,
the Servicer shall certify to HUD that:
(i) Priority of Section 184 Guaranteed Loan. The Section 184
Guaranteed Loan has priority over all judgments, mechanics' and
materialmen's liens, or any other liens, regardless of when such liens
attached, unless approved by HUD;
(ii) Amount due. The amount reported to HUD in accordance with
Sec. 1005.707(d) prior to assignment is verified to be due and owing
under the Section 184 Guaranteed Loan;
(iii) Offsets or counterclaims and authority to assign. There are
no offsets or counterclaims thereto and the Holder has the authority to
assign; and
(iv) Assignment. The assignment of the Section 184 Guaranteed Loan
to HUD meets the requirements of Sec. 1005.763.
(c) Post-foreclosure claims without Conveyance of title. When a
third-party purchases the property at foreclosure, the Servicer must
submit a claim under Sec. 1005.807(a) and (b) to HUD no later than 180
days from the date the property is conveyed to the third-party. If the
Holder purchases the property at foreclosure and subsequently sells the
property, the Servicer may submit a claim under this section.
(d) Pre-foreclosure sale, deed-in-lieu, or lease-in-lieu. When a
property is sold or conveyed prior to foreclosure in accordance with
Sec. Sec. 1005.751 or 1005.753, the Servicer must submit a claim under
Sec. 1005.807(a) and (b) to HUD no later than 45 days from the date
the sale or Conveyance is executed.
(e) Supplemental claim. The Servicer shall be limited to one
supplemental claim for each claim under submission categories in
paragraphs (a) and (b) of this section.
(1) The supplemental claim shall be limited to:
(i) Reasonable eligible expenses incurred up to the date of
Conveyance of the property or assignment of the Section 184 Guaranteed
Loan, when invoices are received after the payment of the claim under
Sec. 1005.807(b); or
(ii) Calculation error(s) made by either the Servicer or HUD.
(2) Supplemental claims must be submitted within six months of the
claim submission under Sec. 1005.807(b). Supplemental claims received
after six months will not be reviewed or paid by HUD.
(3) Any supplemental claim paid by HUD shall be considered final
satisfaction of the Loan Guarantee Certificate.
Submission of Claim
Sec. 1005.811 Claims supporting documentation.
The Servicer shall submit supporting documentation to the
satisfaction of HUD for each claim. Such documentation will be provided
for in Section 184 Program Guidance.
Sec. 1005.813 Upfront and Annual Loan Guarantee Fee reconciliation.
(a) The Servicer must include in the claims case binder a
reconciliation evidencing the payment of the Upfront and Annual Loan
Guarantee Fees to HUD.
(b) Where the Servicer fails to comply with paragraph (a) of this
section or the reconciliation shows unpaid amounts owed to HUD, and the
unpaid amounts, along with late fees, have not been satisfied by the
Servicer, HUD shall reject the claim.
(c) The Servicer may resubmit the claim after providing the
reconciliation required under paragraph (a) of this section or after
the Annual Loan Guarantee Fee amounts, along with late fees, owed to
HUD are paid by the Servicer.
(d) Allowance to resubmit in accordance with paragraph (c) of this
section shall not be construed to extend any deadlines to file claims
specified in this subpart.
Sec. 1005.815 Conditions for withdrawal of claim.
With HUD's consent, a Holder may withdraw a claim. When HUD consent
is granted, the Holder shall agree, where applicable, in writing that
it will:
(a) Accept a reconveyance of the property under a Conveyance which
warrants against the acts of HUD and all claiming by, through or under
HUD;
(b) Promptly file for record the reconveyance from HUD;
(c) Accept without continuation, the title evidence which the
Servicer furnished to HUD; and
(d) Reimburse HUD for the expenditures and amounts set forth in
Sec. 1005.851.
Property Title Transfers and Title Waivers
Sec. 1005.817 Conveyance of Good and Marketable Title.
(a) Definition. Good and Marketable Title is defined in Sec.
1005.103.
(b) Satisfactory Conveyance of title and transfer of possession.
The Servicer shall tender to HUD a satisfactory Conveyance of title and
transfer of possession of the property. The deed or other instrument of
Conveyance shall convey Good and Marketable Title to the property,
which shall be accompanied by title evidence satisfactory to HUD.
(c) Conveyance of property without Good and Marketable Title. (1)
If the title to the property conveyed by the Servicer to HUD is not
Good and Marketable Title, the Servicer must correct any title defect
within 60 days after receiving notice from HUD, or
[[Page 78377]]
within such further time as HUD may approve in writing.
(2) If the defect is not corrected within 60 days, or such further
time as HUD approves in writing, the Servicer must reimburse HUD's
costs of holding the property. Such holding costs accrue on a daily
basis and include interest on the amount of the loan guarantee benefits
paid to the Servicer at an interest rate set in conformity with the
Treasury Fiscal Requirements Manual from the date of such notice to the
date the defect is corrected or until HUD reconveys the property to the
Servicer, as described in paragraph (c)(3) of this section. The daily
holding costs to be charged to the Servicer shall also include the
costs specified in Sec. 1005.851.
(3) If the title defect is not corrected within a reasonable time,
as determined by HUD, HUD will, after notice, reconvey the property to
the Servicer and the Servicer must reimburse HUD in accordance with
Sec. Sec. 1005.849 and 1005.851.
Sec. 1005.819 Types of satisfactory title evidence.
(a) The following types of title evidence shall be satisfactory to
HUD:
(1) Fee or owner's title policy. A fee or owner's policy of title
insurance, a guaranty or guarantee of title, or a certificate of title,
issued by a title company, duly authorized by law and qualified by
experience to issue such instruments. If an owner's policy of title
insurance is furnished, it shall show title in HUD's name and inure to
the benefit of the Department. The policy must be drawn in favor of the
Servicer and HUD, and their successors and assigns, as their interests
may appear, with the consent of the title company endorsed thereon;
(2) Policy of title insurance. A Holder's policy of title insurance
supplemented by an abstract and an attorney's certificate of title
covering the period subsequent to the date of the loan, the terms of
the policy shall be such that the liability of the title company will
continue in favor of the HUD after title is conveyed to HUD. The policy
must be drawn in favor of the Servicer and HUD, and their successors
and assigns, as their interests may appear, with the consent of the
title company endorsed thereon;
(3) Abstract and legal opinion. An abstract of title prepared by an
abstract company or individual engaged in the business of preparing
abstracts of title and accompanied by the legal opinion as to the
quality of such title signed by an attorney at law experienced in
examination of titles. If title evidence consists of an abstract and an
attorney's certificate of title, the search shall extend for at least
forty years prior to the date of the certificate to a well-recognized
source of good title;
(4) Torrens or similar certificate. A Torrens or similar title
certificate;
(5) Title standard of U.S., Tribal, or State government. Evidence
of title conforming to the standards of a supervising branch of the
Government of the United States or of any Tribe, State or Territory
thereof; or
(6) Title Status Report. Certified Title Status Report issued by
the BIA shall not be more than sixty (60) days from the date of the
Sec. 1005.807(a) claim submission. Extensions may be granted under
certain reasonable circumstances, as prescribed by Section 184 Program
Guidance.
(b) [Reserved]
Sec. 1005.821 Coverage of title evidence.
(a) Evidence of title or Title Status Report shall include the
recordation of the Conveyance or assignment to HUD. The evidence of
title or the Title Status Report shall further show that, according to
the public records, there are no outstanding prior liens, including any
past-due and unpaid ground rents, general taxes or special assessments,
if applicable, on the date of Conveyance or assignment.
(b) If the title evidence and Title Status Report are acceptable
generally in the community in which the property is situated, such
title evidence and Title Status Report shall be satisfactory to HUD and
shall be considered Good and Marketable Title. In cases of
disagreement, HUD will make the final determination in its sole
discretion.
Sec. 1005.823 Waived title objections for properties on fee simple
land.
Reasonable title objections for fee simple land properties shall be
waived by HUD. Reasonable title objections will be prescribed in
Section 184 Program Guidance.
Sec. 1005.825 Waived title objections for properties on Trust Land.
HUD shall not object to title restrictions placed on the tract of
Trust Land by the Tribe or the BIA so long as those restrictions do not
adversely impact the property or marketability.
Condition of the Property
Sec. 1005.827 Damage or neglect.
(a) If the property has been damaged by fire, flood, earthquake, or
tornado, or if the property has suffered damage because of the
Servicer's failure to take action as required by Sec. 1005.765 or for
any other reason, the Servicer must submit a claim to the hazard
insurance policy, as applicable and the damage must be repaired before
Conveyance of the property or assignment of the Section 184 Guaranteed
Loan to HUD.
(b) If the property has been damaged as described in paragraph (a)
of this section and the damage is not covered by a hazard insurance
policy, the Servicer must provide notice of such damage to HUD. The
property may not be conveyed or assigned until directed to do so by
HUD. Upon receipt of such notice, HUD will either:
(1) Allow the Holder to convey the damaged property;
(2) Require the Servicer to repair the damage before Conveyance,
and HUD will reimburse the Holder for reasonable payments, not in
excess of HUD's estimate of the cost of repair, less any hazard
insurance recovery; or
(3) Require the Servicer to repair the damage before Conveyance, at
the Holder's own expense.
(c) In the event the damaged property is conveyed to HUD without
prior notice or approval as provided in paragraph (a) or (b) of this
section, HUD may, after notice, reconvey the property and demand
reimbursement to HUD for the expenses in accordance with Sec. Sec.
1005.849 and 1005.851.
Sec. 1005.829 Certificate of property condition.
(a) As part of the claim submission, the Servicer shall either:
(1) Certify that as of the date of the deed or assignment of the
loan to HUD the property was:
(i) Undamaged by fire, flood, earthquake, or tornado;
(ii) Undamaged due to failure of the Servicer to act as required by
Sec. 1005.765; and,
(iii) Undamaged while the property was in the possession of the
Borrower; or,
(2) Include a copy of HUD's authorization to convey the property in
damaged condition.
(b) In the absence of evidence to the contrary, the Servicer's
certificate or description of the damage shall be accepted by HUD as
establishing the condition of the property, as of the date of the deed
or assignment of the Section 184 Guaranteed Loan.
Sec. 1005.831 Cancellation of hazard insurance.
The Holder shall cancel any hazard insurance policy as of the date
of the deed to HUD, subject to the following conditions:
(a) The amount of premium refund due to the Servicer resulting from
such cancellation must be deducted from the total amount claimed.
[[Page 78378]]
(b) If the Servicer's calculation of the premium refund is less
than the actual premium refund, the amount of the difference between
the actual refund and the calculated refund shall be remitted to HUD,
accompanied by the insurance company's or agent's statement.
(c) If the Servicer's calculation of the premium refund is more
than the actual refund, the Servicer must include in a supplemental
claim submission in accordance with Sec. 1005.809(c), accompanied by
the insurance company's or agent's statement, the amount of the
difference as an eligible cost in accordance with Sec. 1005.843(a)(3).
Payment of Guarantee Benefits
Sec. 1005.833 Method of payment.
If the claim is acceptable to HUD, payment of the guarantee
benefits shall be made by electronic transfer of funds to the Holder or
other such allowable payment method.
Sec. 1005.835 Claim payment not conclusive evidence of claim meeting
all HUD requirements.
Payment of any claim by HUD is not conclusive evidence of
compliance with the subpart D or G of this part. HUD reserves the right
to conduct post-claim payment review of claims filed within five years
from the date of the last claim payment. Where non-compliance with any
requirements of this part is identified, HUD will take appropriate
action against the Holder, originating Direct Guarantee Lender, and/or
Servicer, including but not limited to HUD's remedies under Sec.
1005.805 and sanctions under Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.837 Payment of claim: unpaid principal balance.
HUD will pay a claim under Sec. 1005.807(a) in the amount of the
unpaid principal balance less all receipts for the sale or transfer of
the property, if applicable, in accordance with the requirements of
this subpart.
Sec. 1005.839 Payment of claim: interest on unpaid principal balance.
(a) HUD shall pay interest on the unpaid principal balance from the
date of default to the earlier of the following:
(1) The execution of deed-in-lieu/lease-in-lieu of foreclosure;
(2) The execution of the Conveyance to either Servicer, HUD, or a
third-party;
(3) The execution of the assignment of the Section 184 Guaranteed
Loan to HUD; or
(4) The expiration of the reasonable diligence timeframe, as
prescribed by Section 184 Program Guidance.
(b) [Reserved]
Sec. 1005.841 Payment of claim: reimbursement of eligible and
reasonable costs.
The claim will be paid in accordance with Sec. 1005.807(b) and
will include eligible and reasonable costs, as prescribed by Section
184 Program Guidance.
Sec. 1005.843 Reductions to the claim submission amount.
(a) A Servicer shall reduce the claim when the following amounts
are received or held by the Servicer:
(1) All amounts received by the Servicer from account of the loan
after default.
(2) All amounts received by the Servicer from any source relating
to the property on account of rent, reimbursement, or other income
after deducting reasonable expenses incurred in handling the property.
(3) All cash retained by the Servicer including amounts held or
deposited for the account of the Borrower or to which it is entitled
under the loan transaction that have not been applied in reduction of
the principal loan indebtedness.
(b) [Reserved]
Sec. 1005.845 Rights and liabilities under Indian Housing Loan
Guarantee Fund.
(a) No Borrower, Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer shall have any vested right in the Indian
Housing Loan Guarantee Fund.
(b) No Borrower, Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer shall be subject to any liability arising
under the Indian Housing Loan Guarantee Fund.
(c) The Indian Housing Loan Guarantee Fund will be credited and
debited in accordance with 12 U.S.C. 1715z-13a(i)(2).
Sec. 1005.847 Final payment.
(a) HUD's payment of a claim(s) shall be deemed as final payment to
the Holder, notwithstanding the ability to present additional claim(s)
in accordance with Sec. 1005.807 as applicable. The Holder shall have
no further rights against the Borrower or HUD when there is a final
payment. This paragraph (a) does not preclude HUD from seeking
reimbursement of costs and return of amounts from the Holder or
originating Direct Guarantee Lender pursuant to Sec. Sec. 1005.849 and
1005.851.
(b) In cases where HUD reconveys the property to the Holder and HUD
is reimbursed for all expenses and returns all amounts pursuant to
Sec. Sec. 1005.849 and 1005.851, provisions under paragraph (a) of
this section shall not apply. However, the resubmission of the claim,
if any, shall be subject to Sec. 1005.849(b) and any reasonable
processes requirements as may be prescribed by Section 184 Program
Guidance.
Sec. 1005.849 Reconveyance and reassignment.
(a) HUD may reconvey the property or reassign the deed of trust or
mortgage to the Holder due to:
(1) Originating Direct Guarantee Lender or Servicer's noncompliance
with this part or any requirements as prescribed by Section 184 Program
Guidance; or
(2) An authorized withdrawal of a claim in accordance with Sec.
1005.815.
(b) HUD may take appropriate action against the Holder associated
with the reconveyance or reassignment authorized in paragraph (a) of
this section, including but not limited to, seeking reimbursement of
all claim costs paid by HUD and carrying costs incurred by HUD in
accordance with Sec. 1005.851.
(c) Notwithstanding any other provision in this subpart, in cases
where HUD has conveyed the property or reassigned the deed of trust or
mortgage back to the Holder in accordance with Sec. 1005.851, and
where the Servicer resubmits the claim, HUD will not reimburse the
Holder any expenses incurred after the date of the HUD Conveyance or
assignment.
(d) Additional reasonable and necessary restrictions may be
imposed, as prescribed by Section 184 Program Guidance.
Sec. 1005.851 Reimbursement of expenses to HUD.
Where reconveyance or reassignment is sought by HUD pursuant to
Sec. 1005.849 or when HUD determines noncompliance the Holder or the
originating Direct Guarantee Lender shall reimburse HUD for:
(a) All claim costs paid by HUD.
(b) HUD's cost of holding the property, including but not limited
to expenses based on the estimated taxes, maintenance and operating
expenses of the property, and administrative expenses. Adjustments
shall be made by HUD for any income received from the property.
(c) The reimbursement shall include interest on the amount of the
claim payment returned by the Holder or the originating Direct
Guarantee Lender from the date the claim was paid to the date HUD
receives the reimbursement from Holder or the originating Direct
Guarantee Lender. The interest rate set shall be in conformity with the
Treasury Fiscal Requirements Manual.
[[Page 78379]]
Subpart I--Lender Program Performance, Reporting, Sanctions, and
Appeals
Sec. 1005.901 Direct Guarantee Lender, Holder, or Servicer
performance reviews.
HUD may conduct periodic performance reviews of Direct Guarantee
Lenders, Non-Direct Guarantee Lenders, Holders, and Servicers. These
may include analytical reviews, customer surveys, and on-site or remote
monitoring reviews. These reviews may include, but are not limited to,
an evaluation of compliance with this part. HUD will provide a written
notice of its assessment and any proposed corrective action, if
applicable.
Sec. 1005.903 Direct Guarantee Lender, Holder, or Servicer reporting
and certifications.
(a) The Direct Guarantee Lender, Non-Direct Guarantee Lender, or
Servicer shall provide timely and accurate reports and certifications
to HUD, which may include but is not limited to reports in connection
with performance reviews under Sec. 1005.901, any special request for
information from HUD, and any reasonable reports prescribed by Section
184 Program Guidance, within reasonable time frames prescribed by HUD.
(b) The Direct Guarantee Lender, Non-Direct Guarantee Lender, or
Servicer's failure to provide timely and accurate reports and
certifications to HUD may subject the Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder, or Servicer to sanctions and civil
money penalties pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.905 Direct Guarantee Lender, Holder, or Servicer notice of
sanctions.
(a) Prior to the notice of sanctions or civil money penalties, HUD
shall inform the Direct Guarantee Lender, Non-Direct Guarantee Lender,
Holder, or Servicer of the specific non-compliance with this part and,
where applicable, afford the Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer a reasonable time, as prescribed
in Section 184 Program Guidance to return to compliance.
(b) If it is determined that the Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder, or Servicer fails to return to
compliance within the allowed time, HUD shall provide written notice of
the sanction and civil money penalties to be imposed and the basis for
the action.
Sec. 1005.907 Direct Guarantee Lender, Holder, or Servicer sanctions
and civil money penalties.
(a) Where the Direct Guarantee Lender, Non-Direct Guarantee Lender,
Holder, or Servicer fails to comply with this part, including failure
to maintain adequate accounting records, failure to adequately service
loans, or failure to exercise proper credit or underwriting judgment,
or becomes ineligible to participate pursuant to Sec. 1005.225, or has
engaged in practices otherwise detrimental to the interest of a
Borrower or the United States, including but not limited to, failure to
provide timely reporting, or failure to follow underwriting
requirements set forth in this part, or failure to comply with Section
184 Program Guidance when it specifically provides times, processes,
and procedures for complying with the requirements in this part, HUD
may take any combination of the following actions:
(1) Either temporarily or permanently terminate a Director
Guarantee Lender or Non-Direct Guarantee Lender's status. If such
action is taken and the terminated Direct Guarantee Lender wishes to
maintain servicing rights to the Section 184 Guaranteed Loans, the
terminated Direct Guarantee Lender must seek HUD approval as prescribed
in Section 184 Program Guidance.
(2) Bar the Direct Guarantee Lender or Holder from acquiring
additional Section 184 Guaranteed Loans.
(3) Require that the Direct Guarantee Lender assume not less than
10 percent of any loss on further Section 184 Guaranteed Loans made by
the Direct Guarantee Lender.
(4) Require that the Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer comply with a corrective action plan or
amend the Direct Guarantee Lender, Non-Direct Guarantee Lender, or
Servicer's quality control plan, subject to HUD approval, to remedy the
non-compliance with this part and any process prescribed by Section 184
Program Guidance. The plan shall also address methods to prevent the
reoccurrence of any practices that are detrimental to the interest of
the Borrower or HUD. The corrective action plan or amended quality
control plan shall afford the Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer reasonable time to return to
compliance.
(5) If HUD determines any Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer has intentionally failed to
maintain adequate accounting records, to adequately service loans
guaranteed under this section, or to exercise proper credit or
underwriting judgment, the Assistant Secretary for Public and Indian
Housing (and his/her designee) is authorized pursuant to 12 U.S.C.
1715z-13a(g)(2) to impose civil money penalties upon Direct Guarantee
Lenders, Non-Direct Guarantee Lender, Holders, or Servicers, as set
forth in 24 CFR part 30. The violations for which a civil money penalty
may be imposed are listed in subpart B of 24 CFR part 30.
(b) [Reserved]
Sec. 1005.909 Direct Guarantee Lender, Holder, or Servicer appeals
process.
(a) Lenders denied participation in the Section 184 Program
pursuant to subpart B of this part, or a Direct Guarantee Lender, Non-
Direct Guarantee Lender, Holder or Servicer subject to sanctions
pursuant to Sec. 1005.907, may appeal to HUD's Office of Loan
Guarantee within a timeframe prescribed in Section 184 Program
Guidance. After consideration of the Lender, Direct Guarantee Lender,
Non-Direct Guarantee Lender, Holder, or Servicer's appeal, HUD shall
advise the Lender, Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer in writing whether the denial is rescinded,
modified or affirmed. The Lender, Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer may then appeal such decision to
the Deputy Assistant Secretary for Office of Native American Programs,
or his or her designee. A decision by the Deputy Assistant Secretary or
designee shall constitute final agency action.
(b) Hearings to challenge the imposition of civil money penalties
shall be conducted according to the applicable rules of 24 CFR part 30.
Dominique Blom,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 2022-26097 Filed 12-20-22; 8:45 am]
BILLING CODE 4210-67-P
