Streamlining and Improvement of Single Family Housing Direct Programs, 80641-80647 [2023-25314]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Housing Service

[Federal Register Volume 88, Number 222 (Monday, November 20, 2023)]
[Proposed Rules]
[Pages 80641-80647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25314]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / 
Proposed Rules

[[Page 80641]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3550

[Docket No. RHS-23-SFH-0016]
RIN 0575-AD33


Streamlining and Improvement of Single Family Housing Direct 
Programs

AGENCY: Rural Housing Service, Department of Agriculture (USDA).

ACTION: Proposed rule.

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SUMMARY: The Rural Housing Service (RHS or the Agency), an agency in 
the Rural Development (RD) mission area of the United States Department 
of Agriculture (USDA), proposes to amend the current regulation for the 
following Single Family Housing (SFH) Direct Programs: Section 502 
Direct Loan Program and the Section 504 Loan and Grant Program. The 
Agency also intends to update the Section 306C Loan and Grant Programs 
which is a program administered under the Rural Utilities Service 
(RUS), and where RHS is designated to make grants to eligible 
individuals. The intent of this proposed rule is to reduce the 
regulatory burdens on applicants, borrowers, and partners by enhancing 
program delivery, expanding customer service, promoting consistency 
between the direct and guaranteed SFH loan programs where feasible and 
aligning the programs with current housing market conditions and 
mortgage loan practices.

DATES: Comments on the proposed rule must be received on or before 
January 19, 2024.

ADDRESSES: Comments may be submitted electronically by the Federal 
eRulemaking Portal: Go to https://www.regulations.gov and, in the 
``Search for dockets and documents on agency actions'' box, enter the 
following docket number: (RHS-23-SFH-0016) or RIN# 0575-AD33. To submit 
or view public comments, click the ``Search'' button, select the 
``Documents'' tab, then select the following document title: 
``Streamlining and Improvement of Single Family Housing Direct 
Programs'' from the ``Search Results,'' and select the ``Comment'' 
button. Before inputting your comments, you may also review the 
``Commenter's Checklist'' (optional). Insert your comments under the 
``Comment'' title, click ``Browse'' to attach files (if available). 
Input your email address and select ``Submit Comment.'' Information on 
using Regulations.gov, including instructions for accessing documents, 
submitting comments, and viewing the docket after the close of the 
comment period, is available through the site's ``FAQ'' link.
    Other Information: Additional information about RD and its programs 
is available at the following website: https://www.rurdev.usda.gov.
    All comments will be available for public inspection online at the 
Federal eRulemaking Portal (https://www.regulations.gov).

FOR FURTHER INFORMATION CONTACT: Sonya Evans, Finance and Loan Analyst, 
SFH Direct Loan Division, Rural Housing Service, Rural Development, 
United States Department of Agriculture, 1400 Independence Avenue SW, 
Washington, DC 20250, Phone: (423) 268-4333, Email: 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    The RHS offers a variety of programs to build or improve housing 
and essential community facilities in rural areas. RHS offers loans, 
grants, and loan guarantees for single- and multifamily housing, 
childcare centers, fire and police stations, hospitals, libraries, 
nursing homes, schools, first responder vehicles and equipment, and 
housing for farm laborers. RHS also provides technical assistance loans 
and grants in partnership with non-profit organizations, Indian Tribes, 
State and Federal Government agencies, and local communities.
    Well built, affordable housing is essential to the vitality of 
communities in rural America. The Agency's SFH programs give families 
and individuals the opportunity to buy, build, or repair affordable 
homes located in rural America. Eligibility for these loans, loan 
guarantees, and grants is based on income and varies according to the 
average median income for each area. The RHS administers the following 
SFH Programs:
    Section 502 Direct Loan Program is implemented under 7 CFR part 
3550 and authorized by section 502 of the Housing Act of 1949, as 
amended, (42 U.S.C. 1472). The purpose of the program is to assist low- 
and very low-income applicants who currently do not own adequate 
housing and cannot obtain other credit, the opportunity to acquire, 
build, rehabilitate, improve, or relocate dwellings in rural areas.
    Section 502 Guaranteed Loan Program is implemented under 7 CFR part 
3555 and is authorized by section 502 of the Housing Act of 1949, as 
amended, (42 U.S.C. 1472). The purpose of the program is to assist low- 
and moderate-income applicants the opportunity to acquire, build, 
rehabilitate, improve, or relocate dwellings in rural areas.
    Section 504 Loan and Grant Program is implemented under 7 CFR part 
3550 and is authorized by section 504 of the Housing Act of 1949, as 
amended, (42 U.S.C. 1474). This program offers loans to very low-income 
homeowners who cannot obtain other credit to repair or rehabilitate 
their properties. The Section 504 program also offers grants to 
homeowners aged 62 or older who cannot obtain a loan to correct health 
and safety hazards or to make the unit accessible to household members 
with disabilities.
    Another RD mission area agency, the RUS, administers the Section 
306C Loan and Grant Program which is authorized by section 306C of the 
Consolidated Farm and Rural Development Act, as amended, (7 U.S.C. 
1926c), and implemented under 7 CFR part 1777 and 7 CFR part 3550. 
Under subpart C of 7 CFR part 3550, RHS makes 306C Water and Waste 
Disposal (WWD) Grants to very low-income individuals (i.e., homeowners) 
in designated colonias who cannot obtain other credit to facilitate 
access to community water and waste disposal systems. Grant funds may 
be used only to pay for costs related to connection fees and related 
costs to connect to a community or central water supply or waste system 
which may include installation of necessary plumbing and related 
fixtures, and construction or partitioning of a bathroom within 
dwellings lacking such facilities.
    The SFH program undertook a systematic review of its regulations at 
7

[[Page 80642]]

CFR part 3550 and procedures currently in place to administer its 
programs. It was determined there was a need to provide additional 
clarity and to provide consistency between interdepartmental 
regulations. The changes also address the need for program improvements 
such as revisions related to down payment requirements within the 
Direct Programs.

II. Discussion of the Proposed Rule

    This proposed rulemaking is part of the Agency's efforts to: (1) 
align, where appropriate, the direct and guaranteed SFH loan programs, 
and (2) address current housing market conditions and mortgage loan 
practices through program improvements. RHS's intention is to 
streamline its program procedures and revise regulations by removing 
outdated regulations and simplifying practices and procedures for 
borrowers and applicants.
    As the Agency reviewed its regulations at 7 CFR part 3550 and the 
procedures that are currently in place for administering the Section 
502 Direct Loan Program and the Section 504 Loan and Grant Program, 
which includes a subpart for application of the 306C WWD Grant, it was 
discovered that there is currently no express prohibition against 
lending in lava zones under these programs. The Section 502 Guaranteed 
Loan Program regulation, does, however, expressly prohibit lending in 
lava zones. The proposed change will align the aforementioned programs 
on this issue and minimize confusion for applicants and partners in the 
affected areas. The proposed changes will also clarify the terms for 
new dwellings and new construction for applicants and partners. 
Additionally, the proposed changes will assist with addressing the lack 
of affordable housing stock by providing flexibility for applicants and 
partners purchasing Real Estate Owned (REO) properties or through non-
program loan terms.
    The following information provides further details of the proposed 
rule changes:
    1. Refine the definition of ``New Dwelling or unit'' in 7 CFR 
3550.10 Definitions; add a definition for New Construction to alleviate 
confusion in the terminology; and corresponding and additional changes 
to 7 CFR 3550.53(d)(1)(ii), 7 CFR 3550.63(b)(1), 7 CFR 3550.63(b)(2), 
and 7 CFR 3550.102(e)(1), under which the Section 502 Direct Loan and 
Section 504 Loan and Grant programs are implemented:
    Section 502 Direct Loans may be used by loan recipients to purchase 
a building site and construct new housing (`new construction') or 
purchase newly constructed housing (`new dwelling'). The builder funds 
a new dwelling. The Agency funds a new construction. While the 
terminology is similar, the distinction is important because 
eligibility for the Compensation for Construction Defects Program 
(Section 509) is based on the construction timing, who funds the 
construction, and the applicant's program eligibility. The factors that 
determine the applicant's eligibility for the Compensation for 
Construction Defects Program can be found at 7 CFR 1924.265 and at the 
website: https://www.ecfr.gov/current/title-7/subtitle-B/chapter-XVIII/subchapter-H/part-1924/subpart-F/section-1924.265.
    The Agency considers funding for a new construction whether or not 
the construction has started at the time the purchase agreement was 
signed. This includes instances where the builder will retain ownership 
of the lot during construction, or the construction has commenced prior 
to closing. In these instances, the funded construction can only be 
closed after construction of the housing is completed. Alternatively, 
if the construction has not started and the Agency will provide the 
construction financing, the closing will be prior to construction. As 
noted, closing timing is based on when construction occurs and who 
funds the construction.
    The Agency proposes to clarify terms by adding the language ``prior 
to loan closing'' to the phrase ``is to be constructed'' in the 
definition of ``new dwelling or unit'' for definitions found at 7 CFR 
3550.10. The Agency proposes that this addition will provide 
clarification of the timing of construction periods that differentiate 
a new dwelling and a new construction. Furthermore, adding the language 
``at the time of loan approval'' to the phrase ``less than 1 year old'' 
clarifies the parameters of this definition.
    The addition of the term and definition for `New construction' in 7 
CFR 3550.10 is proposed to separate the terms and provide clarity 
regarding the varying construction quality documents required for new 
dwellings and new construction. Furthermore, this amendment proposes to 
support a corresponding update in 7 CFR 3550.63(b)(1).
    Removal of 7 CFR 3550.63(b)(2) will streamline market value 
limitations, thereby permitting a corresponding change to the program 
handbook to allow for a whole house inspection to serve as adequate 
documentation of construction quality for a new dwelling.
    2. Amend 7 CFR 3550.52(d)(6) to remove reference to State Director 
and replace with requirement for Agency approval when granting 
allowable exceptions for non-certified loan packaging bodies, revise 
language regarding application submission requirements, and allow 
certified packaging fees to be added to the loan in excess of the area 
loan limit and appraised value of the house, which is implemented under 
the Section 502 Direct Loan Program:
    The revision will clarify that Form 410-4, Uniform Residential Loan 
Application, is part of the application but does not constitute a full 
application package.
    Lastly, a revision is needed to allow packaging fees resulting from 
the certified loan application packaging process outlined in 7 CFR 
3550.75 to be added to the Section 502 Direct loan amount in excess of 
the area loan limit and appraised value of the house. This cost is 
similar to other allowable excess costs for critical loan-related 
services or actions, which include the appraisal fee, tax service fee, 
homeownership education fee, and initial contribution to the escrow 
account. Certified application packagers provide an integral service 
that allows many applicants to access the Direct Program who would 
otherwise not be aware of it, or who lack the resources to complete the 
application process on their own. Well-developed application packages 
submitted through the certified process help to reduce Agency 
processing time and provide the applicant with a higher priority for 
processing. This change will reflect the value the service (and its 
cost) provides the applicant.
    3. Add language to 7 CFR 3550.56(b) and 7 CFR 3550.105 to prohibit 
lending in U.S. Geological Survey (USGS) Lava-Flow Hazard Zones 1 and 
2, which will provide interdepartmental alignment between 7 CFR 3550, 
which implements the Section 502 Direct Loan Program, and the Section 
504 Loan and Grant Program, including the subpart for application of 
the 306C WWD Grant, and current regulations in 7 CFR part 3555 for the 
Section 502 Guaranteed Loan Program:
    A home located in the lava-flow hazard zones 1 and 2 represents a 
significantly hazardous risk. 7 CFR 3550.10 defines a hazard as, ``a 
condition of the property that jeopardizes the health or safety of the 
occupants or members of the community, that does not make it unfit for 
habitation (See also the definition of major hazard in this 
section.).''
    According to 7 CFR 3550.2, the purpose of the direct RHS SFH loan 
programs (the Direct Program) is to provide low- and very low-income

[[Page 80643]]

people that live in rural areas with an opportunity to own adequate, 
but modest, decent, safe, and sanitary dwellings and related 
facilities.
    Currently, the Direct Program does not have specific guidance 
related to volcanic/lava hazards. The Agency intends to add language to 
7 CFR 3550.56(b) and 7 CFR 3550.105 to prohibit lending in U.S. 
Geological Survey (USGS) Lava-Flow Hazard Zones 1 and 2. Adding this 
language to the regulation will align with the guaranteed loan program 
and others in the industry in protecting borrowers.
    4. Amend 7 CFR 3550.64 to increase net family asset limits before 
consideration of assets toward a down payment requirement and to remove 
the down payment requirement when the borrower is purchasing a REO 
property from the Agency, which is implemented under the Section 502 
Direct Loan Program:
    The Agency published a direct final rule in the Federal Register on 
August 22, 2008, revising the minimum insurance deductible amounts, 
removing specific dollar limits with regards to insurance deductible 
clauses, clarifying the amount of required dwelling coverage, and 
revising the applicant net asset limitation. An adjustment to asset 
limits for non-metropolitan median household income, set at $48,201, 
has not been updated since 2008 (73 FR 49593). Non-metropolitan median 
household income for 2022 has increased to $71,300. With the median 
household increase, there has also been a 37.6% cumulative rate of 
inflation from the years 2008 to 2022, thus increasing the cost of 
living and goods. Increasing asset limits will allow fixed income 
households the ability to hold onto assets for emergency purposes, 
rather than relying on credit in these circumstances, and for elderly 
households to hold onto funds potentially set-aside for final expenses.
    The Agency anticipates that removing the down payment requirement 
when the borrower is purchasing a REO property will: (1) increase 
borrower interest in purchasing REO properties, (2) reduce holding 
times and costs incurred by the Agency and depreciation of the 
properties; and (3) promote affordable housing in rural communities.
    5. Amend 7 CFR 3550.67(b)(1) to clarify that amounts included for 
repairs must be part of an initial purchase or finance loan to qualify 
for a 38-year term, which is implemented under the Section 502 Direct 
Loan Program:
    The intention of this revision is to clarify that amounts included 
for repairs must be part of an initial purchase or finance loan to 
qualify for a 38-year term; whereas the current language could be read 
to allow a 38-year term for initial repair-only loan through the 
Section 502 Direct Loan Program which is not consistent with Agency 
policy.
    6. Remove language in 7 CFR 3550.74(c)(2) and renumber the list 
accordingly, which is implemented under the Section 502 Direct Loan 
Program:
    The Agency proposes the removal of the down payment requirement for 
non-program loans. This proposed removal would eliminate a burdensome 
requirement for borrowers and applicants who request to purchase 
through non-program loan terms and for whom a non-program loan has been 
found to be in the Government's best interests. This removal aligns 
with another revision in this proposed rule to remove down payment 
requirements for the purchase of REOs in 7 CFR 3550.64.
    7. Remove language in 7 CFR 3550.75(b)(1)(iv) and (b)(2)(v), that 
states ``if determined necessary by a State Director'' which is 
contradictory to other instructions for certified packaging 
requirements, and is implemented under the Section 502 Direct Loan 
Program:
    Currently, it is unclear in 7 CFR 3550.75(b)(1)(iv) and (b)(2)(v) 
what authority a State Director may or may not have with regard to 
waiving the requirement that a certified packager must use an 
intermediary. There is guidance that addresses an opt-out option that 
State Directors can grant for certified loan packagers to separate from 
an intermediary, but it also outlines the requirements that a certified 
packager must meet in order to be granted this consideration. The 
removal of ``if determined necessary by a State Director'' will avoid 
any misunderstanding that a State Director can automatically waive all 
requirements for a certified packager to use an intermediary with a 
revision to instead address the allowance for the Agency to allow 
waivers when applicable.
    8. Amend 7 CFR 3550.103(e) to increase net family household assets 
for elderly families and non-elderly families before consideration of 
funds toward reduction of requested assistance, which is implemented 
under the Section 504 Loan and Grant Program and includes a subpart for 
application of the 306C WWD Grant:
    An adjustment to asset limits has not been made since the Agency 
published a direct final rule in 2008 (see, 73 FR 49593 at the website: 
https://www.federalregister.gov/documents/2008/08/22/E8-19350/direct-single-family-housing-loans-and-grants). In 2008, the non-metropolitan 
median household income was at $48,201. Non-metropolitan median 
household income for 2022 increased to $71,300. With this median 
household income increase, there has also been a 37.6% cumulative rate 
of inflation from 2008 through 2022, thus increasing the cost of living 
and goods. Increasing asset limits will allow fixed income households 
the ability to maintain assets for emergency purposes, rather than 
relying on credit in these circumstances. This change will also align 
with the proposed changes to 7 CFR 3550.64 regarding excess assets 
considered toward down payment. The Agency proposes that amending 7 CFR 
3550.103(e) to increase net family household assets for elderly 
families and non-elderly families before consideration of funds toward 
reduction of requested assistance will increase the number of eligible 
applicants.
    9. Remove the subdividable lot restrictions in 7 CFR 3550.105(b), 
which is implemented under the Section 504 Loan and Grant Program and 
includes a subpart for application of the Section 306C WWD Grant:
    The Agency has been conducting a pilot program since Fiscal Year 
2019 and has found that the removal of the requirement which restricts 
subdividable lots in 7 CFR 3550.105(b) held no risk for the Agency. The 
Agency concluded that this prohibition is restrictive for the Section 
504 program considering ownership is previously established at the time 
of application. This restriction is a barrier to very low-income rural 
homeowners in need of repairs. The site must still be determined modest 
for the area and cannot be used for income producing purposes as 
currently defined at 7 CFR 3550.10 and 7 CFR 3550.106(a). If this 
restriction is not removed, modest homes that are typical for the area 
will not be eligible for necessary repair financing.
    10. Amend 7 CFR 3550.108(a) to include the tax service fee as an 
allowable loan cost exceeding security value, which is implemented 
under the Section 504 Loan and Grant Program which includes a subpart 
for application of the 306C WWD Grant:
    The Agency believes that the inclusion of the tax service fee as an 
allowable excess cost is practical for 504 direct loans that meet the 
requirement to contribute to an escrow account for taxes and insurance, 
which also activates the requirement of tax service fee payment at 
closing. The Agency proposes that amending 7 CFR 3550.108(a) to include 
the tax service

[[Page 80644]]

fee as an allowable loan cost exceeding security value will also align 
with applicable loan costs which may exceed security value as 
designated in 7 CFR 3550.59(a)(2)(i) for the 502 Direct Program.
    11. Amend 7 CFR 3550.111, to revise the threshold for requiring an 
appraisal based on total Section 504 indebtedness, which is implemented 
under the Section 504 Loan and Grant Program and includes a subpart for 
application of the Section 306C WWD Grant Program:
    Currently, 7 CFR 3550.111 requires an appraisal when total Section 
504 indebtedness exceeds $15,000. The Agency proposes to amend 7 CFR 
3550.111, to revise the threshold for requiring an appraisal based on 
total Section 504 indebtedness. This amendment would increase that 
limit to $25,000 and works in tandem with the increased Section 504 
maximum loan amount of $40,000 (previously $20,000). The proposed 
amendment would retain the flexibility for the Loan Approval Official 
to determine if an appraisal is necessary when the assessed valuation 
by local authorities does not support a fully secured interest by the 
Agency and preserve the requirement to ensure adequate security value. 
The Agency projects that due to this proposed change, multiple benefits 
are likely, such as a reduction in appraisal orders, lower cost to loan 
applicants, and decreased application processing times.
    12. Amend 7 CFR 3550.117(d) and (e) to remove overly restrictive 
limitations and align with final regulatory revisions to 7 CFR 
1777.21(b)(4) and (5)--Section 306C WWD Loans and Grants that 
eliminated these limitations and are holding these sections as reserved 
(effective May 2, 2023), which is implemented under the 306C WWD Grant 
Program as a subpart of the Section 504 Loan and Grant Program:
    The Agency has determined that alignment of 306C Colonia programs 
governed by 7 CFR part 1777 and 7 CFR part 3550 is necessary to ensure 
equal program application. The current prohibitions limit the amount of 
assistance applicants with varying household sizes can receive causing 
unnecessary hardship for larger families. These proposed rule changes 
will provide the Agency flexibility to clarify modest design 
limitations in the program handbook, if needed. The Agency proposes 
that amending 7 CFR 3550.117 paragraphs (d) and (e) by removing overly 
restrictive limitations will align with final regulatory revisions that 
were published at 88 FR 6611 to remove 7 CFR 1777.21(b)(4) and (5)--
Section 306C WWD Loans and Grants, which were effective on May 2, 2023.
    13. Amend 7 CFR 3550.118(a) Maximum grant to an amount not to 
exceed ten percent of the national average area loan limit, which is 
implemented under the 306C WWD Grant Program as a subpart of the 
Section 504 Loan and Grant Program:
    The Agency proposed that amending 7 CFR 3550.118(a) by revising the 
maximum grant amount to not exceed ten percent of the national average 
area loan limit will align with the regulatory maximum lifetime 
assistance in the Section 504 program. This regulatory change will 
allow the Agency greater responsiveness to establish future maximum 
grant amounts for eligible applicants.

Request for Comment

    Stakeholder input is vital to ensure the proposed changes in the 
proposed rule would support the Agency's mission, while ensuring that 
new regulations and policies are reasonable and do not overly burden 
the Agency's lenders and their customers. Comments must be submitted on 
or before January 19, 2024 and may be submitted electronically by going 
to the Federal eRulemaking Portal: https://www.regulations.gov. Details 
on how to submit comments to the Federal eRulemaking Portal are in the 
ADDRESSES section of this proposed rule.

III. Summary of Changes

    The following is a summary of the Agency's intended changes in this 
proposed rule:
    (1) Amend 7 CFR part 3550 by revising the definitions found at 7 
CFR 3550.10 by:
    (i) revising the definition of ``New dwelling or unit'';
    (ii) adding a definition for ``New construction'' to clarify the 
terminology;
    (ii) and revising corresponding language at 7 CFR 
3550.53(d)(1)(ii), 7 CFR 3550.63(b)(1), 7 CFR 3550.63(b)(2), and 7 CFR 
3550.102(e)(1).
    (2) Amend 7 CFR 3550.52(d)(6) by:
    (i) Revising language to remove reference to State Director when 
granting allowable exceptions for non-certified loan packing bodies and 
instead address the ability for the Agency to provide approval for 
packagers who operate outside of the certified process;
    (ii) revising language regarding application submission 
requirements, and;
    (iii) adding language that allows certified packaging fees to be 
added to the loan in excess of the area loan limit and appraised value 
of the house.
    (3) Add language to 7 CFR 3550.56(b) and 7 CFR 3550.105 to prohibit 
lending in U.S. Geological Survey (USGS) Lava-Flow Hazard Zones 1 and 
2.
    (4) Amend 7 CFR 3550.64 by:
    (i) increasing the net family asset limits before consideration of 
assets toward a down payment requirement; and
    (ii) removing the down payment requirement when the borrower is 
purchasing a REO property from the Agency.
    (5) Amend 7 CFR 3550.67(b)(1) to clarify that amounts included for 
repairs must be part of an initial purchase or finance loan to qualify 
for a 38-year term.
    (6) Remove 7 CFR 3550.74(c)(2) and renumber the list accordingly.
    (7) Remove language in 7 CFR 3550.75(b)(1)(iv) and (b)(2)(v), which 
states ``if determined necessary by a State Director'' and rather state 
``unless waived by the Agency''.
    (8) Amend 7 CFR 3550.103(e) to increase net family household assets 
for elderly families and non-elderly families before consideration of 
funds toward reduction of requested assistance.
    (9) Remove 7 CFR 3550.105(b) which restricts subdividable lots.
    (10) Amend 7 CFR 3550.108(a) to include the tax service fee as an 
allowable loan cost exceeding security value.
    (11) Amend 7 CFR 3550.111 to revise the threshold for requiring an 
appraisal based on total Section 504 indebtedness.
    (12) Amend 7 CFR 3550.117(d) and (e) to remove overly restrictive 
limitations and align with the removal of these regulations at 7 CFR 
1777.21(b)(4) and (5)--Section 306C WWD Loans and Grants, which are now 
held as reserved.
    (13) Amend 7 CFR 3550.118(a) by revising the maximum grant amount 
to not exceed ten percent of the national average area loan limit.

IV. Regulatory Information

Statutory Authority

    These programs are authorized by Sections 502 and 504 of the 
Housing Act 1949 and by Section 306C of the Consolidated Farm and Rural 
Development Act and implemented under 7 CFR part 3550. Section 510(k) 
of Title V the Housing Act of 1949 [42 U.S.C. 1480(k)], as amended, 
authorizes the Secretary of the Department of Agriculture to promulgate 
rules and regulations as deemed necessary to carry out the purpose of 
that title.

[[Page 80645]]

Executive Order 12372, Intergovernmental Review of Federal Programs

    These programs are not subject to the requirements of Executive 
Order 12372, which require intergovernmental consultation with State 
and local officials. RHS conducts intergovernmental consultations for 
each loan in accordance with 2 CFR part 415, subpart C.

Executive Order 12866, Regulatory Planning and Review

    This proposed rule has been determined to be non-significant and, 
therefore, was not reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988. 
In accordance with this rule: (1) Unless otherwise specifically 
provided, all State and local laws that conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as specifically prescribed in the rule; and (3) administrative 
proceedings of the National Appeals Division of the Department of 
Agriculture (7 CFR part 11) must be exhausted before suing in court 
that challenges action taken under this proposed rule.

Executive Order 13132, Federalism

    The policies contained in this proposed rule do not have any 
substantial direct effect on States, on the relationship between the 
National Government and the States, or on the distribution of power and 
responsibilities among the various levels of Government. This proposed 
rule does not impose substantial direct compliance costs on State and 
local Governments; therefore, consultation with States is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This Executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the proposed rule does not have a 
substantial direct effect on one or more Indian tribe(s) or on either 
the relationship or the distribution of powers and responsibilities 
between the Federal Government and Indian tribes. Thus, this proposed 
rule is not subject to the requirements of Executive Order 13175. If 
tribal leaders are interested in consulting with RHS on this rule, they 
are encouraged to contact USDA's Office of Tribal Relations or RD's 
Native American Coordinator at: [email protected] to request such a 
consultation.

National Environmental Policy Act

    This document has been reviewed in accordance with 7 CFR part 1970, 
subpart A, ``Environmental Policies.'' RHS determined that this action 
does not constitute a major Federal action significantly affecting the 
quality of the environment. In accordance with the National 
Environmental Policy Act of 1969, Public Law 91-190, an Environmental 
Impact Statement is not required.

Regulatory Flexibility Act

    This proposed rule has been reviewed with regards to the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The 
undersigned has determined and certified by signature on this document 
that this rule will not have a significant economic impact on a 
substantial number of small entities since this rulemaking action does 
not involve a new or expanded program nor does it require any more 
action on the part of a small business than required of a large entity.

Unfunded Mandates Reform Act (UMRA)

    Title II of the UMRA, Public Law 104-4, establishes requirements 
for Federal agencies to assess the effects of their regulatory actions 
on State, local, and Tribal Governments and on the private sector. 
Under section 202 of the UMRA, Federal agencies generally must prepare 
a written statement, including cost-benefit analysis, for proposed and 
Final Rules with ``Federal mandates'' that may result in expenditures 
to State, local, or Tribal Governments, in the aggregate, or to the 
private sector, of $100 million or more in any one year. When such a 
statement is needed for a rule, section 205 of the UMRA generally 
requires a Federal agency to identify and consider a reasonable number 
of regulatory alternatives and adopt the least costly, most cost-
effective, or least burdensome alternative that achieves the objectives 
of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of title II of the UMRA) for State, local, and 
Tribal Governments or for the private sector. Therefore, this rule is 
not subject to the requirements of sections 202 and 205 of the UMRA.

Paperwork Reduction Act

    This proposed rule does not revise or impose any new information 
collection requirements from those approved by OMB Control number 0575-
0172.

E-Government Act Compliance

    RHS is committed to complying with the E-Government Act by 
promoting the use of the internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information, services, and other purposes.

Civil Rights Impact Analysis

    RHS has reviewed this rule in accordance with USDA Regulation 4300-
4, Civil Rights Impact Analysis,'' to identify any major civil rights 
impacts the rule might have on program participants on the basis of 
age, race, color, national origin, sex, or disability. After review and 
analysis of the rule and available data, implementation of the rule is 
not likely to adversely or disproportionately impact very low, low- and 
moderate-income populations, minority populations, women, Indian 
tribes, or persons with disability by virtue of their race, color, 
national origin, sex, age, disability, or marital or familiar status. 
No major civil rights impact is likely to result from this rule.

Assistance Listing

    The programs affected by this regulation are listed in the 
Assistance Listing Catalog (formerly Catalog of Federal Domestic 
Assistance) under number 10.410, 10.417, and 10.770.

Non-Discrimination Statement

    In accordance with Federal civil rights laws and USDA civil rights 
regulations and policies, the USDA, its Mission Areas, agencies, staff 
offices, employees, and institutions participating in or administering 
USDA programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission

[[Page 80646]]

Area, agency, staff office; or the Federal Relay Service at (800) 877-
8339.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.usda.gov/sites/default/files/documents/ad-3027.pdf, from any USDA office, by calling (866) 
632-9992, or by writing a letter addressed to USDA. The letter must 
contain the complainant's name, address, telephone number, and a 
written description of the alleged discriminatory action in sufficient 
detail to inform the Assistant Secretary for Civil Rights about the 
nature and date of an alleged civil rights violation.
    The completed AD-3027 form or letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, 
DC, 20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 3550

    Administrative practice and procedure, Environmental impact 
statements, Fair housing, Grant programs--housing and community 
development, Housing, Loan programs--housing and community development, 
Low and moderate income housing, Reporting and recordkeeping 
requirements, Rural areas.

    For the reasons set forth in the preamble, chapter XXXV of the 
title 7, Code of Federal Regulations is proposed to be amended to read 
as follows:

PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

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

    Authority:  5 U.S.C. 301; 42 U.S.C. 1480.

Subpart A--General

0
2. Amend Sec.  3550.10 by adding a definition for ``New construction'' 
and revising the definition for ``New dwelling or unit'' to read as 
follows:


Sec.  3550.10  Definitions.

* * * * *
    New construction. A dwelling that will be constructed after loan 
closing. The Agency will monitor construction progress and approve 
draws during the construction period. Only new construction meeting 
this definition can be considered for compensation under the Section 
509, Compensation for Construction Defects Program.
    New dwelling or unit. A dwelling that is to be constructed prior to 
loan closing, or a dwelling that is less than 1 year old at the time of 
loan approval as evidenced by an occupancy permit, certificate of 
occupancy or similar document issued by the local authority and has 
never been occupied. A new dwelling or unit cannot be considered for 
compensation under the Section 509, Compensation for Construction 
Defects Program.
* * * * *

Subpart B--Section 502 Origination

0
3. Amend Sec.  3550.52 by revising paragraph (d)(6) to read as follows:


Sec.  3550.52  Loan Purposes.

* * * * *
    (d) * * *
    (6) Packaging fees resulting from the certified loan application 
packaging process outlined in Sec.  3550.75. Such fees resulting from 
the certified loan application packaging process may be added to the 
loan amount in excess of the area loan limit and appraised value of the 
house. The Agency will determine the limit, based on factors such as 
the level of service provided and the prevailing cost to provide the 
service, and such cap will not exceed two percent of the national 
average area loan limit. Nominal packaging fees not resulting from the 
certified loan application process are an eligible cost provided the 
fee does not exceed a limit determined by the Agency based on the level 
and cost of service factors, but no greater than one half percent of 
the national average area loan limit; the loan application packager is 
a nonprofit, tax exempt partner approved by the Agency to operate 
outside the certified loan application packaging process; and the 
packager gathers and submits the information needed for the Agency to 
determine if the applicant is eligible along with a complete 
application. * * *
0
4. Amend Sec.  3550.53 by revising paragraph (d)(1)(ii) to read as 
follows:


Sec.  3550.53  Eligibility Requirements.

* * * * *
    (d) * * *
    (1) * * *
    (ii) purchase a different dwelling, if the current dwelling is 
deficient housing as defined in Sec.  3550.10; or
* * * * *
0
5. Amend Sec.  3550.56 (b)(1) by adding a comma after the word 
``ordinances'', revising paragraph (b)(2), and adding paragraph (b)(3) 
to read as follows:


Sec.  3550.56   Site Requirements.

* * * * *
    (b) * * *
    (1) The site must not be large enough to subdivide into more than 
one site under existing local zoning ordinances, and
    (2) The site must not include farm service buildings, though small 
outbuildings such as a storage shed may be included, and
    (3) The site must not be located in U.S. Geological Survey (USGS) 
lava-flow hazard zones 1 or 2.
0
6. Amend Sec.  3550.63 by revising paragraph (b) to read as follows:


Sec.  3550.63   Maximum Loan Limit.

* * * * *
    (b) Market value limitation.
    (1) The market value limitation is 100 percent of market value for 
existing housing, new dwellings, and new construction for which RHS 
will receive adequate documentation of construction quality and the 
source of such documentation is acceptable to RHS.
    (2) The market value limitation can be increased by:
    (i) Up to one percent, if RHS makes a subsequent loan for closing 
costs only, in conjunction with the sale of an REO property or an 
assumption.
    (ii) The amount necessary to make a subsequent loan for repairs 
necessary to protect the Government's interest, and reasonable closing 
costs.
    (iii) The amount necessary to refinance an existing borrower's RHS 
loans, plus closing costs associated with the new loan.
0
7. Revise Sec.  3550.64 to read as follows:


Sec.  3550.64  Down payment.

    Elderly families must use any net family assets in excess of 
$30,000 towards a down payment on the property. Non-elderly families 
must use net family assets in excess of $25,000 towards a down payment 
on the property. Applicants may contribute assets in addition to the 
required down payment to further reduce the amount to be financed. 
Agency borrowers or applicants purchasing REO properties are not 
required to provide a down payment.
0
8. Amend Sec.  3550.67 by revising paragraph (b)(1) to read as follows:


Sec.  3550.67  Repayment period.

* * * * *
    (b) * * *
    (1) For initial loans (including acquisition and repair, but 
excluding initial loans solely for repairs), or

[[Page 80647]]

subsequent loans made in conjunction with an assumption, if the 
applicant's adjusted income does not exceed 60 percent of the area 
adjusted median income and the longer term is necessary to show 
repayment ability.
* * * * *


Sec.  3550.74  [Amended]

0
9. Amend Sec.  3550.74 by removing paragraph (c)(2) and redesignating 
paragraph (c)(3) as (c)(2).
0
10. Amend Sec.  3550.75 by revising paragraphs (b)(1)(iv) and (b)(2)(v) 
to read as follows:


Sec.  3550.75   Certified Loan Application Packaging Process.

* * * * *
    (b) * * *
    (1) * * *
    (iv) Submit applications via an intermediary, unless otherwise 
waived by the Agency.
    (2) * * *
    (v) Submit applications via an intermediary, unless otherwise 
waived by the Agency.
* * * * *

Subpart C--Section 504 Origination and Section 306C Water and Waste 
Disposal Grants

0
11. Amend Sec.  3550.102 by revising paragraph (e)(1) to read as 
follows:


Sec.  3550.102  Grant and loan purposes.

* * * * *
    (e) * * *
    (1) Assist in the construction of a new dwelling or new 
construction.
* * * * *
0
12. Amend Sec.  3550.103 by revising paragraph (e) to read as follows:


Sec.  3550.103   Eligibility Requirements.

* * * * *
    (e) Need and use of personal resources. Applicants must be unable 
to obtain financial assistance at reasonable terms and conditions from 
non-RHS credit or grant sources and lack the personal resources to meet 
their needs. Elderly families must use any net family assets in excess 
of $30,000 to reduce their section 504 request. Non-elderly families 
must use any net family assets in excess of $25,000 to reduce their 
section 504 request. Applicants may contribute assets in excess of the 
aforementioned amounts to further reduce their request for assistance. 
The definition of assets for the purpose of this paragraph (e) is net 
family assets as described in Sec.  3550.54, less the value of the 
dwelling and a minimum adequate site.
* * * * *
0
13. Amend Sec.  3550.105 by revising paragraph (b) to read as follows:


Sec.  3550.105  Site Requirements.

* * * * *
    (b) Lava-flow hazard zones. The site must not be located in U.S. 
Geological Survey (USGS) lava-flow hazard zones 1 or 2.
* * * * *
0
14. Amend Sec.  3550.108 by revising paragraph (a) to read as follows:


Sec.  3550.108   Security requirements (loans only).

* * * * *
    (a) RHS does not require first lien position, but the total of all 
debts on the secured property may not exceed the value of the security, 
except by the amount of any required contributions to an escrow account 
for taxes and insurance, tax service fee, and any required appraisal 
fee.
* * * * *
0
15. Revise Sec.  3550.111 to read as follows:


Sec.  3550.111  Appraisals (loans only).

    An appraisal is required when the total section 504 indebtedness 
exceeds $25,000 or whenever RHS determines that it is necessary to 
establish the adequacy of the security. RHS may charge an appraisal 
fee. Appraisals must be made in accordance with the Uniform Standards 
of Professional Appraisal Practices. When other real estate is taken as 
additional security it will be appraised if it represents a substantial 
portion of the security for the loan.
0
16. Amend Sec.  3550.117 by revising paragraphs (d) and (e) to read as 
follows:


Sec.  3550.117  WWD grant purposes.

* * * * *
    (d) Pay for necessary installation of plumbing and related fixtures 
within dwellings lacking such facilities.
    (e) Construction and/or partitioning off a portion of the dwelling 
for a bathroom which is modest in design.
* * * * *
0
17. Amend Sec.  3550.118 by revising paragraph (a) to read as follows:


Sec.  3550.118   Grant restrictions.

    (a) Maximum grant. Lifetime assistance to any individual for 
initial or subsequent Section 306C WWD grants may not exceed ten 
percent of the national average area loan limit.
* * * * *

Yvonne Hsu,
Acting Administrator, Rural Housing Service.
[FR Doc. 2023-25314 Filed 11-17-23; 8:45 am]
BILLING CODE 3410-XV-P