Strengthening the Section 184 Indian Housing Loan Guarantee Program, 20032-20092 [2024-05515]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Rules and Regulations]
[Pages 20032-20092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05515]



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Vol. 89

Wednesday,

No. 55

March 20, 2024

Part III





Department of Housing and Urban Development





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24 CFR Parts 58 and 1005





Strengthening the Section 184 Indian Housing Loan Guarantee Program; 
Final Rule

Federal Register / Vol. 89 , No. 55 / Wednesday, March 20, 2024 / 
Rules and Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 58 and 1005

[Docket No. FR-5593-F-02]
RIN 2577-AD01


Strengthening the Section 184 Indian Housing Loan Guarantee 
Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, U.S. Department of Housing and Urban Development (HUD).

ACTION: Final rule.

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SUMMARY: This final rule amends the regulations governing the Section 
184 Indian Housing Loan Guarantee Program (``Section 184 Program'') to 
strengthen the program by clarifying rules for stakeholders. As the 
program has experienced an increase in demand, it is necessary that HUD 
update the Section 184 Program implementing regulations to minimize 
potential risk and increase program participation by financial 
institutions. This final rule adds participation and eligibility 
requirements for Lender Applicants, Direct Guarantee Lenders, Non-
Direct Guarantee Lenders, Holders and Servicers and other financial 
institutions. This final rule clarifies the rules governing Tribal 
participation in the program, establishes underwriting requirements, 
specifies rules on the closing and endorsement process, establishes 
stronger and clearer servicing requirements, establishes program rules 
governing claims submitted by Servicers and paid by HUD, and adds 
standards governing monitoring, reporting, sanctions, and appeals. This 
final rule adds new definitions and makes statutory conforming 
amendments, including the categorical exclusion of the Section 184 
Program in HUD's environmental review regulations. Ultimately, the 
changes made by this final rule promote program sustainability, 
increase Borrower protections, and provide clarity for new and existing 
Lenders who participate in the program. This final rule follows the 
publication of a proposed rule on December 21, 2022, and takes into 
consideration the comments received in response to that proposed rule 
and during the Tribal consultations.

DATES: Effective June 18, 2024.

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 or 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.
    Native American households face a number of housing challenges, 
including overcrowding and a lack of affordable housing in Tribal 
areas.\1\ These challenges stem in part from barriers to mortgage 
lending in these communities. There are several unique challenges to 
mortgage lending in Tribal areas, including their often-remote 
locations, the specialized situation of observing Tribal courts and 
laws, and the unique Trust Land status of much of the land in Tribal 
areas. Trust Land includes, but not is not limited to land where the 
Federal Government holds legal title for the benefit of a Tribe or 
individual Tribal member. Before a lien can be placed on a property, it 
must receive Federal approval through the U.S. Department of the 
Interior's Bureau of Indian Affairs. Consequently, financial 
institutions may struggle with utilizing the land interest as security 
in mortgage lending transactions. By mitigating risk to private lenders 
through the loan guarantee, the Section 184 Program addresses barriers 
to mortgage lending in Tribal areas, helping to increase housing 
supply, relieve overcrowding, and expand homeownership in these 
underserved communities.
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    \1\ Mortgage Lending on Tribal Land: A Report From the 
Assessment of American Indian, Alaska Native, and Native Hawaiian 
Housing Needs. HUD, Office of Policy Development and Research, 
January 2017, available at: https://www.huduser.gov/portal/publications/NAHSC-Lending.html.
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    A lack of access to mortgage credit also poses challenges to Native 
American households outside of Tribal areas, where they have 
historically experienced lower homeownership and higher home loan 
denial rates than other groups.\2\ Like in other historically 
underserved markets, prospective borrowers are likely to have limited 
experience dealing with mainstream financial institutions and to have 
limited incomes, assets, and credit histories. The Section 184 Program 
is also available to members of federally recognized Tribes in many 
areas beyond Tribal areas, where it similarly promotes homeownership 
opportunities among this underserved community by mitigating risk to 
lenders.
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    \2\ Id.
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    Since its inception in 1994, the number of loans guaranteed under 
the Section 184 Program has significantly increased from an average of 
105 loans per year the first five Fiscal Years (FYs 2994-1995) the 
program operated to an average of 2,531 loans per year for the past 
five fiscal years (FYs 2018-2023). In total, the Section 184 Program 
has guaranteed over 56,000 loans totaling over $10 billion. However, 
the program regulations have not been substantially revised since 
publication in 1996.
    In 2015, the Office of Audit of the HUD Office of Inspector General 
(OIG) audited the Section 184 Program, Report Number 2015-LA-0002, and 
recommended that 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.
    On December 21, 2022 (87 FR 78324), HUD published a proposed rule 
to strengthen the Section 184 Program by

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clarifying rules for program stakeholders. Specifically, the rule 
proposed revisions to minimize potential risk, increase program 
participation by financial institutions, and modernize and enhance the 
Section 184 Program by adding participation and eligibility 
requirements for Lenders and other financial institutions. The proposed 
rule also included revisions to the rules governing Tribal 
participation in the program, established underwriting requirements, 
specified rules on the closing and endorsement process, established 
stronger and clearer servicing requirements, established program rules 
governing claims submitted by Servicers and paid by HUD, and added 
standards governing monitoring, reporting, sanctions, and appeals. The 
proposed rule not only addressed the corrective actions proposed by OIG 
and agreed upon by HUD but set a regulatory foundation for the Section 
184 Program to support the continued growth of the program, and more 
importantly, to ensure that it can positively impact the lives of 
Native Americans by providing an opportunity for homeownership. 
Additional details about the Section 184 Program may be found in the 
background of the December 21, 2022, proposed rule.

II. Changes Made at the Final Rule Stage

    In consideration of the public comments, the Tribal consultations, 
and HUD's experience implementing the Section 184 Program, this section 
of the preamble lists some of the changes HUD made to the December 21, 
2022, proposed rule. In general, the final rule revised the regulation 
to be more inclusive of Tribal land types, including allotted and other 
Tribal lands.
    1. This final rule incorporates a new severability provision at 
Sec.  1005.102. As described in Sec.  1005.102, in the event that any 
portion of this final rule is declared invalid or stayed, it is HUD's 
intent that the remaining portions of the final rule be severable. If 
any provision of this regulation is held to be invalid or 
unenforceable, facially or as applied, the provision shall be severable 
from the remainder of the regulation, or such application shall be 
considered severable from any valid or enforceable application of such 
provision.
    2. In Sec.  1005.205(a)(9), HUD revised the minimum net worth 
Lender Applicants must have to obtain Secretarial approval to 
participate in the Section 184 Program. Specifically, HUD established a 
net worth of at least one million dollars, or amount as provided in 
Section 184 Program Guidance, for Lender Applicants to participate in 
the Section 184 Program. HUD made this revision to provide lenders a 
clear baseline for meeting this condition of approval and to ensure 
that Lender Applicants participating in the Section 184 Program are 
solvent.
    3. In Sec.  1005.217(a), HUD expanded the types of lenders subject 
to the Quality Control (QC) requirements to include Direct Guarantee 
Lenders and Non-Direct Guarantee Lenders because ensuring these lenders 
comply with the QC requirements is essential to mitigating risk to the 
Section 184 Program.
    4. In Sec.  1005.217(b)(8), HUD revised the requirements for the 
Lender Applicant's quality control plan. This final rule establishes 
that a quality control plan must require the Lender Applicant, Direct 
Guarantee or Non-Direct Guarantee Lender to report all material 
deficiencies and submit a corrective action plan to HUD ``within 30 
days.'' Additionally, HUD added Sec.  1005.217(b)(8)(13) to require the 
Lender Applicant to comply with any other administrative requirement as 
may be prescribed by Section 184 Program Guidance. These revisions help 
to ensure that Section 184 Guaranteed Loans comply with the Section 184 
Program requirements.
    5. In Sec.  1005.205(a)(4)(i), HUD removed the requirement that 
financial statements be audited as cost prohibitive and inconsistent 
with generally accepted industry standard financial documents. HUD will 
outline requirements for the financial statement in program guidance. 
While financial statements are still required, removing the ``audited'' 
requirement should assist lenders in submitting mandatory financial 
information.
    6. In Sec.  1005.301(a), HUD is clarifying in paragraph (a)(3) that 
Tribes are required to assist, where practical, in facilitating loss 
mitigation efforts when notified of the Borrower's default in 
accordance with Sec.  1005.501(j) or when the Tribe receives notice 
pursuant to Sec.  1005.759. Examples of a Tribe facilitating in loss 
mitigation efforts, where practical, could include the Tribe providing 
financial and/or non-financial assistance to Borrower. Non-financial 
assistance could be default counseling, budget counseling, helping 
Borrower identify potential purchasers, or encouraging the Borrower to 
execute a Lease-in-Lieu of foreclosure. HUD also added a new 
requirement in paragraph (a)(4) that Tribes report any unsecured vacant 
units to HUD. HUD clarified Sec.  1005.737 to provide that the Servicer 
may be notified by HUD that the Tribe or TDHE has determined that a 
unit is vacant or abandoned, triggering the Servicer's responsibility 
to notify all Borrowers of the determination that the property is 
vacant or abandoned.
    7. In Sec.  1005.409(b), HUD established a 7-year waiting period 
for Borrowers who have previously defaulted on a Section 184 Guaranteed 
Loan which resulted in a Claim payment by HUD. This revision helps to 
minimize potential risk to the Section 184 Program.
    8. In Sec.  1005.419(a)(6)(v), HUD removed ``for properties on 
Trust Land'', which restricts minimum square footage waivers to 
properties on Trust Land. This revision expands the waiver to all types 
of properties, to account for various situations, including when a 
Tribe purchases fee simple property.
    9. In Sec.  1005.419(c), HUD added new property standard 
requirements for properties with multiple dwelling units to be 
consistent with the industry standard on how these units are financed.
    10. In Sec.  1005.427(c) ``General Requirements,'' HUD moved 
paragraphs (2) and (5) from paragraph (f) ``Cash-Out Refinance,'' 
because these requirements apply to all types of requirements. Further, 
in Sec.  1005.427(d)(2) HUD added paragraph (iii) to further clarify 
that construction loans less than a year are considered ``rate and 
term'' construction loans.
    11. In Sec.  1005.437(g) HUD is clarifying that it is not 
guaranteeing each individual advance made by the Direct Guarantee 
Lender during construction and that the entire loan is being guaranteed 
by HUD once a Loan Guarantee Certificate is issued. In addition, at 
Sec.  1005.437(h), HUD added a requirement that changes to the loan 
agreement must be approved and documented by the Direct Guarantee 
Lender before the construction advance, notwithstanding paragraph 
(g)(1)(ii) of this section.
    12. In Sec.  1005.439, HUD clarified that junior liens do not 
require the prior approval of HUD, and that the Direct Guarantee 
Lenders will evaluate a junior lien only when the lien is part of the 
Section 184 loan package.
    13. In Sec.  1005.447, HUD revised the maximum age of loan 
documents from 60 days to 120 days after closing to provide more 
flexibility to both the Direct Guarantee Lenders and the Borrowers. To 
further flexibility, HUD also removed the time limitation regarding the 
maximum age of documents whose validity for underwriting purposes is 
not affected by the passage of time.
    14. In Sec.  1005.457(b), HUD added a provision that allows HUD to 
establish guidance regarding the use of alternatives to appraisers 
identified on

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the Federal Housing Administration Appraiser Roster. This change 
provides flexibility to obtain an appraisal from non-FHA certified 
appraisers in remote and rural areas, often attributable to Trust 
Lands.
    15. In Sec.  1005.511, HUD clarifies that the Servicer may collect 
from the Borrower a late fee of up to four percent of principal and 
interest for payments 15 days or more in arrears.
    16. In Sec.  1005.609(b), HUD clarifies that the annual fee stops 
when the loan to value ratio is less than 78 percent. HUD also 
clarified that the monthly annual fee charge will remain the same as 
reflected in the amortization schedule, even with prepayments, until 
the 78 percent threshold is reached.
    17. In Sec.  1005.609(d), HUD removed the 78 percent threshold, and 
retained the ability to establish the Annual Loan Guarantee Fee 
termination by notice in the Federal Register. This will provide 
flexibility to quickly respond to unforeseen circumstances.
    18. In Sec.  1005.709(f), HUD clarified the period by which 
servicers must respond to HUD's request for information regarding an 
individual account. Specifically, HUD revised the paragraph by setting 
a three-day time period floor in which Servicers must respond to HUD's 
written or electronic requests for information concerning individual 
accounts. HUD retains the ability to set other timeframes by Section 
184 Program Guidance. This revision will improve the efficiency of the 
Section 184 Program.
    19. In Sec.  1005.729, HUD added that no Servicer shall commence 
foreclosure, or assignor acquire title to a property until the 
requirements of this subpart have been completed. The intent of this 
revision is to prevent the borrower from losing the asset until and 
unless the lender complies with all servicing requirements.
    20. In Sec.  1005.731, HUD significantly revised this section by 
removing default notice requirements from the rule. HUD took this 
action to align the Section 184 Program with Federal, State and Tribal 
laws concerning notice of default.
    21. In Sec.  1005.739, HUD added loss mitigation advances as a loss 
mitigation option. This will provide Borrowers with another option to 
remain in their homes. HUD also revised this section to provide that 
the servicer must conduct occupancy inspections in accordance with 
Sec.  1005.735. If the property is confirmed to be vacant or abandoned, 
the servicer must conduct property preservation in accordance with 
Sec.  1005.737.
    22. In Sec.  1005.745, HUD added paragraph (g) which provides that 
HUD may provide for a temporary special forbearance in response to a 
disaster or national emergency. This provision will add more 
flexibility and allow for HUD to respond to unforeseen events, such as 
national emergencies.
    23. In Sec.  1005.747, HUD clarified that assumptions associated 
with loss mitigation must result in the cure of the default and 
reinstatement of the Section 184 Guaranteed Loan.
    24. In Sec.  1005.749(c), HUD removed the loan modification 
eligibility requirement that 85 percent of a borrower's surplus income 
must be insufficient to cure arrears within six months. This allows for 
more Borrowers to be eligible for loan modification.
    25. In Sec.  1005.751, HUD established loss mitigation advance 
requirements, including borrower eligibility and the terms of the 
advances. For example, to be eligible for a loss mitigation advance, 
the Borrower's Section 184 Guaranteed Loan must be 90 days past due, 
the Property is owner occupied, and the Borrower has the ability to 
continue making on-time payments. Additionally, loss mitigation 
advances must include arrearages and cannot exceed 30 percent of the 
unpaid balance as of the date of default. These revisions help to 
provide loss mitigation options to Borrowers and ensure that the 
Section 184 Program is solvent.
    26. 1005.753(d) Removed the cash reserve requirement to match FHA 
standards. FHA no longer imposes this requirement on borrowers 
participating in the Pre-foreclosure Sale loss mitigation option. HUD 
has chosen to consistently apply the Pre-foreclosure Sale requirements.
    27. In Sec.  1005.753(m), HUD established a 90-day pre-foreclosure 
sale marketing period for the sale of the property, with a maximum 120-
day marketing period. This provides Borrowers with more clarity 
concerning pre-foreclosure sales.
    28. In Sec.  1005.759, HUD provided a definition Tribal First Right 
of Refusal and established a 60-day period for Tribes to respond to the 
Tribal First Right of Refusal.
    29. In Sec.  1005.809, HUD revised paragraph (a)(1) to match the 
industry standard of two days to submit a claim and clarified the 
delivery requirements for claims under Sec.  1005.807(a)(4). 
Additionally, HUD revised the timeframes provided in paragraphs (c) and 
(d) to reflect industry standards. Specifically, a Servicer must submit 
a post-foreclosure claim to HUD 30 days from the date Property is 
conveyed to a third party to align with FHA standards. Similarly, when 
a property is sold or conveyed prior to foreclosure, the Servicer must 
submit a claim to HUD no later than 30 days from the date the sale or 
conveyance is executed.
    30. In Sec.  1005.909(a), HUD clarified that Lender Applicants that 
are denied participation in the Section 184 Program have 15 days to 
appeal the decision. This revision adds more certainty to the appeals 
process.

III. Summary of Public Comments

    The public comment period for the December 22, 2022, proposed rule 
closed on March 17, 2023. HUD received 33 distinct comments relating to 
the proposed rule's request for public comments. The comments were from 
the lenders, Tribes, Tribally Designated Housing Entities (TDHEs), and 
housing and banking interest groups and associations. This summary of 
comments addresses the most significant issues raised by the commenters 
and HUD's response to those issues.

General Support

    Several commenters expressed support for the Section 184 Program 
and HUD's rulemaking effort to meet increased programmatic and 
operational demands as utilization of the program increases. These 
commenters suggested that HUD prioritize program requirements that: 
facilitate expansion of the program, increase flexibility to 
accommodate the unique needs of the Native American community, and 
accommodate operational demands on lenders looking to close or 
securitize loans insured under the program.
    HUD Response: HUD appreciates this positive feedback and the time 
taken by the commenters to review HUD's proposed rule. HUD does have a 
priority to expand the program, as shown in its recent Dear Lender 
Letter 2023-02 on Tribal expansion areas and the Biden Administration's 
proposal to expand eligibility of the program to the entire United 
States. HUD will also work to market the program and educate potential 
new lenders and Tribes on the program, as well as continue to work with 
the Bureau of Indian Affairs (BIA) and other Federal agencies to expand 
the program.

General Opposition

    Several commenters expressed general opposition to HUD's proposed 
rule, stating concerns that the proposed rule comes with onerous 
requirements, sanctions, and penalties that would make it difficult for 
Tribes and lenders, especially Native CDFIs, to participate in the 
program, or could even weaken the program. One commenter expressed 
opposition out of concern for possible unintended negative effects on 
the

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Tribal borrowers participating in the program.
    HUD Response: HUD appreciates all the concerns raised by the 
commenters. HUD does not believe that the proposed rule will deter 
Tribes and Direct Guarantee and Non-Direct Guarantee Lenders from 
participating in the program. Most of HUD's proposed rule codified 
current program practices. New requirements such as Sec. Sec.  1005.527 
and 1005.529 are necessary based on program growth and to address 
concerns identified internally by the Office of Native American 
Programs (ONAP) and HUD's Office of Inspector General (OIG). Further, 
to the extent any entity participating in the Section 184 Program 
believes a regulatory waiver is needed, these entities have the option 
to submit a waiver request to HUD. HUD disagrees that this rule will 
have the effect of weakening the program, in particular the Loan 
Guarantee Certificate (LGCs). This rule codifies the practice where 
Direct Guarantee Lenders are fully accountable for any non-compliance 
with any Section 184 requirement, even after the LGCs are issued. 
Ensuring Direct Guarantee Lenders are accountable for their non-
compliance with Section 184 requirements, even in cases when the non-
compliance may not be initially detected by HUD, is fundamental to the 
program's integrity. The HUD remedy of seeking indemnification from 
originating Direct Guarantee when the non-compliance warrants it, 
serves not only to strengthen the program as a whole, but strengthens 
the value of the LGC for all Holders.
    HUD understands the desire for more Native Community Development 
Financial Institution (CDFI) participation in lending as a Non-Direct 
Guarantee Lender. HUD's regulations explicitly list that CDFIs are 
eligible entities. Further, given that the rule codifies current 
program eligibility requirements and that several CDFIs already 
participate, HUD does not believe the regulation will make it 
impossible for small Native CDFIs to become Direct Guarantee or Non-
Direct Guarantee Lenders. As these Native CDFIs grow and build 
capacity, they will have the ability to become Section 184 Direct 
Guarantee Lenders.

Negotiated Rulemaking and Tribal Engagement

    A commenter stated that HUD's failure to establish a negotiated 
rulemaking committee to develop the Section 184 Program regulations is 
a violation of Federal law. Another strongly encouraged HUD to create a 
Tribal Workgroup for any future regulatory changes to the Section 184 
Program, based on HUD's Tribal Consultation Policy. The commenter noted 
that a workgroup would allow for more detailed input over a longer 
period of time and would provide a format for Tribal leaders to work 
together to create mutually beneficial policy suggestions.
    HUD Response: HUD disagrees with the commenter that negotiated 
rulemaking is required to issue Section 184 Program regulations since 
the program's authorizing legislation does not require negotiated 
rulemaking. The requirement for negotiated rulemaking only applies to 
the Indian Housing Block Grant program as authorized by Native American 
Housing Assistance and Self Determination Act of 1996, as amended 
(NAHASDA) (25 U.S.C. 4101). The 184 Program is authorized by Housing 
Community Development Act of 1992, as amended (42 U.S.C. 1715z-13a), 
not NAHASDA, therefore negotiated rulemaking is not required. HUD did 
conduct extensive Tribal consultation before drafting the proposed 
rule, however, holding over 21 consultation sessions over a period of 6 
years and sending out draft versions of the proposed rule for Tribal 
comment and review prior to and in addition to the 60-day public 
comment period provided by the proposed rule. Based on these efforts, 
HUD believes that it has met its Tribal consultation obligations. HUD 
will continue to solicit feedback from all Section 184 stakeholders 
regarding the development of program policy, as appropriate.

Guidance Rather Than Regulations

    Commenters stressed that HUD should utilize program guidance, 
including handbooks, to address issues that may need to follow market 
trends, rather than set requirements in regulations. Commenters 
explained that the program needs to have the flexibility to accommodate 
the diversity of the different Tribes and their needs, and the 
flexibility to quickly adjust guidance as market conditions change and 
operational constraints emerge. Commenters stated that HUD should 
preserve the ability to make programmatic changes in a manner where 
formal notice-and comment rulemaking is not required every time a 
slight change is needed.
    HUD Response: HUD is committed to ensuring that the Section 184 
Program has the flexibility to address market changes and other 
operational contingencies. Based on public comment, HUD has reviewed 
the rule and strengthened the program's flexibility by incorporating 
references to program guidance where appropriate, without losing the 
enforceability of the key provisions of the program.

Outreach, Training, and Homeownership Counseling

    Commenters generally requested increased outreach and training for 
lenders and Native CDFIs. The commenters explained that they wanted to 
ensure that Native CDFIs are able to become approved lenders without 
too many hurdles and capacity restraints. The commenters also stated 
that loan volume on Tribal Trust and Restricted Lands would increase if 
CDFIs and Native CDFIs were provided training. Other commenters 
suggested educating Tribes and TDHEs about their potential role in 
facilitating homeownership opportunities in their communities to Tribes 
and offering homeownership counseling to borrowers residing on 
reservations.
    HUD Response: HUD supports increased outreach and training to 
Direct Guarantee and Non-Direct Guarantee Lenders (including Native 
CDFIs) and Tribes to encourage participating in the program, as well as 
providing training to existing Direct Guarantee Lenders and Tribes on 
how to best navigate the program and comply with the new regulations. 
HUD has engaged specifically with CDFIs to become more involved in the 
program and will continue to explore ways to engage Native CDFIs. Once 
the final rule is published and effective, HUD intends to conduct a 
series of training and outreach sessions in different formats: virtual 
trainings, pre-recorded video trainings and in-person trainings.
    HUD also supports homeownership counseling for borrowers; however, 
the Section 184 Program as authorized does not provide for 
homeownership counseling. Tribes may use their Indian Housing 
Development Block Grant (IHBG) funding for homeownership counseling. 
Additionally, HUD's Office of Housing Counseling can provide additional 
resources and connect Tribes with homeownership counseling partners.

Consumer Protection Law Applicability

    One commenter recommended that specific consumer protection laws 
and regulations apply to mortgage lenders, servicers, and originators 
under the proposed rule: the Real Estate Settlement Procedures Act 
(RESPA), See, Title 12, Chapter 27 of the United States Code, 12 U.S.C. 
2601-2617, and the Truth in Lending Act (TILA) 15 U.S.C. 1601 et seq., 
as well as both those acts enabling regulations referred to as 
Regulation X (12 CFR part 1024) and Regulation Z (12 CFR 1026). (0015)

[[Page 20036]]

    HUD Response: Based on public comments, HUD has revised the rule to 
state Direct Guarantee Lender, Non-Direct Guarantee Lender, Holder, and 
Servicers' compliance with all applicable Tribal, Federal, and State 
laws that impact mortgage-related activities are required. HUD plans to 
provide further guidance on the Real Estate Settlement Procedures Act 
(RESPA) and Truth in Lending Act (TILA) in Section 184 Program 
Guidance.

Section 184 Program Data

    A commenter suggested that the proposed rule should require lenders 
and originators to be subject to the Home Mortgage Disclosure Act (or 
HMDA) (28 U.S.C. 2801 et seq.) and its enabling Regulation C, and to 
require data similar to what is collected under the Community 
Reinvestment Act (CRA). The commenter stated that this data would 
assist Tribal Nations better serve the housing needs of their citizen 
members and to better advocate for banks and lending institutions to 
invest in Tribal communities. Another commenter suggested that HUD 
should provide data about loan volume by State and reservation to 
better understand how the Section 184 Program is working.
    HUD Response: HUD appreciates the comments regarding data 
collection and how data can be used to promote homeownership and 
investments in Indian Country. HUD does not have rulemaking authority 
over HMDA or CRA. However, HUD will explore the possibility of 
providing public data on the program's performance. Until such data is 
published, Tribes may request program data on as needed basis in 
support of their housing and homeownership programs.

Alignment With Federal Housing Administration (FHA) Single-Family 
Framework

    Commenters suggested that the Section 184 requirements should 
closely align with those of the FHA single-family program where it 
would not result in negative impact to Tribal communities served by the 
program. Commenters explained that this may increase lender 
participation in the Section 184 Program, would enable borrowers to 
take advantage of benefits that FHA borrowers receive, and would allow 
for consistency within the industry. One commenter explained that for 
the Section 184 Program to remain a competitive choice for lenders, the 
program should not be dramatically different in a financially 
detrimental way to lenders and servicers which could result in offering 
more FHA and non-Section 184 loans.
    Other commenters were opposed to directly aligning with FHA 
regulations out of concern that an FHA-type program is not appropriate 
for Tribes, Tribal nations, and related entities.
    HUD Response: HUD appreciates the comments and understands lenders' 
desire to have uniformity with FHA and Tribes' desire to keep the 
program unique to address Tribal specific circumstances. HUD notes, 
however, that FHA's single-family mortgage programs and the Section 184 
Program have separate statutory authorities, which means one program 
may have the authority to operate in a way that the other cannot. In 
fact, because FHA's Section 248 Mortgage Insurance Programs on Indian 
Reservations and Other Restricted Lands (12 U.S.C. 1715z-13) was and 
continues to be unpopular among Tribal borrowers, Congress established 
the Section 184 Program in 1992 to give HUD greater flexibilities to 
encourage lending to Native borrowers than what FHA's Section 248 
program required and allowed (59 FR 42732 (August 18, 1994)).
    As a result, there are areas where the two programs are similar and 
there are areas where they are deliberately dissimilar. In drafting the 
proposed rule, HUD took a balanced approach between the program's 
intent to serve Native American communities and providing consistency 
for Direct Guarantee and Non-Direct Guarantee Lenders. Specifically, 
HUD reviewed the FHA single family regulations and, where possible, 
adopted, or modified regulations as appropriate for the 184 Program, 
while still keeping the program's unique flexibilities and focus on 
serving Native American communities.

Automated Underwriting

    Commenters suggested that HUD should adopt an automated 
underwriting system similar to FHA's system to modernize the program, 
increase consistency with other government programs, attract new 
lenders and comply with Sec.  1005.451 regarding risk-based pricing.
    HUD Response: HUD appreciates the commenters' suggestion to adopt 
an automated underwriting system similar to that used by FHA. However, 
manual underwriting is one of the cornerstones of the Section 184 
Program to make the program more accessible to Native American 
borrowers. Manual underwriting allows the program to take into account 
the borrower's income and credit from non-traditional sources. HUD will 
consider future changes to permit automated underwriting when 
sufficient Section 184 programmatic and systems safeguards can be in 
place.

Evidence of Title

    One commenter expressed concern that the current process does not 
adequately address the title process involving restricted fee land. The 
commenter states HUD's demand for New York based Land Title Searches, 
Land Title Abstracts, and Land Title Insurance is not a requirement to 
access the Section 184 Program.
    HUD Response: HUD appreciates the comment regarding evidence of 
title for restricted fee land. HUD will provide administrative guidance 
on the title process involving restricted fee land and other types of 
trust land.

Evictions Following Foreclosure

    One commenter suggested that the lender should be responsible for 
evicting a borrower after a foreclosure has occurred.
    HUD Response: When Holders, Direct Guarantee Lenders or Servicers 
initiate and complete foreclosure, whether on fee simple or trust land, 
Holders, Direct Guarantee Lenders or Servicers are responsible for 
evicting the borrower when the borrower fails to vacate the property.

Default

    One commenter recommended the Tribe or TDHE be the borrower if the 
loan goes into default. HUD would then be able to review the case and 
discuss with the Tribe or TDHE the loss mitigations options, and if 
they weren't practical within 90 days of default, then the file will be 
submitted to HUD. The commenter reasoned that HUD has always indicated 
that Tribal borrowers would be dealt with Government to Government, and 
that should be the case here.
    HUD Response: HUD appreciates the commenter's input and support of 
Tribal engagement. However, there are Federal consumer protection laws 
protecting the borrower when a loan goes into default. These laws are 
designed to keep the borrower in the home, if possible, and the legal 
relationship at time of default is between the borrower and the lender. 
To achieve some of what the commenter proposed, the final rule allows 
for the Tribes to be notified of borrower default if the borrower 
chooses this option. Once notified of the borrower's default, the Tribe 
may choose how to assist the borrower during loss mitigation.

[[Page 20037]]

Specific Recommendations for Changes to the Proposed Rule

Sec.  58.35 Categorical Exclusions
    A commenter sought clarification on whether the environmental 
review, under Sec.  58.35(b)(8) would be required; and if it is 
required, whether it would be completed prior to the loan closing.
    HUD Response: HUD appreciates the comment regarding the Categorical 
Exclusions. An environmental review is required prior to closing. 
Section 184 Program Guidance will provide information on how this will 
be implemented.
Sec.  1005.103 Definitions
    Commenters expressed general support for the expansion of the term 
``Lender.'' Commenters noted that it would encourage Tribes to build 
capacity internally and that HUD should focus on expanding capacity for 
Native lenders. However, one commenter requested clarification around 
the term noting its reference to a financial institution that has not 
yet been approved by HUD. The commenter noted that while the definition 
of ``Lender'' distinguishes it from direct and non-direct guarantee 
lenders, this defined term appears to be used inconsistently, applying 
to lenders approved under Sec.  1005.207. Another commenter suggested 
that ``Default'' and ``Date of default'' should be capitalized 
throughout the proposed rule to show that they are being used as 
defined terms.
    Other commenters stated that the definition of ``Tribal Land'' 
should be very broad, not limited to lands that are leased. The 
commenters explained that the 184 Program allows for Tribes, housing 
authorities, and TDHEs to borrow, but Tribes do not have leasehold 
ownership in their own lands held in trust by the BIA. Commenters 
stated that the proposed regulation needs to be inclusive of all Tribal 
land to allow new concepts to be developed. There are currently Tribes 
who have Land Use Deeds in lieu of leases that are allowed to use the 
184 Program.
    The commenters also noted that while allotted lands are included in 
the definition of ``Trust Lands'', they are missing from the specific 
paragraphs regulating the lending on Tribal lands. The commenters 
recommended that allotted lands should be included in the regulations 
everywhere the regulations mention fee simple and leasehold interests. 
The commenters further noted that allotted lands and other Tribal lands 
are missing in various parts of the regulation, including how to 
appraise allotted lands and the appropriate documents to mortgage.
    Another commenter recommended that a clear definition of what 
Native American lands are eligible under the 184 Program should be 
included in the rule and that it be expansive enough to capture the 
congressional intent of the 184 Program. The commenter explained that 
without providing a clear definition as to what Native American lands 
are eligible, many Native Americans on reservations are going to 
continue to experience extreme difficulty with accessing the Section 
184 Program which Congress intended to assist them.
    One commenter noted that Sec.  1005.203 paragraph (a)(1) uses 
``mortgagee'' which should be replaced with the term ``Lender.'' The 
same is true for the term ``Mortgage'' which has been replaced by the 
term ``Loan.'' The commenter stated that the term ``mortgage'' is used 
throughout the entirety of the proposed rule; in most cases, this term 
should be replaced with the term ``Loan.''
    HUD Response: HUD appreciates commenters' input but has not edited 
the final rule to capitalize defined terms. HUD has, however, reviewed 
the use of the defined term ``Lender'' and has replaced ``Lender'' with 
``Lender Applicant'', ``Non-Direct Guarantee Lender,'' ``Direct 
Guarantee Lender'', or ``Servicer,'' as appropriate. HUD also revised 
the definition of ``Trust Land'' to be more expansive and inclusive of 
allotted lands throughout the final rule; HUD removed the term 
``leasehold interest'' and replaced it with ``property interest.''
    HUD disagrees with the commenter's suggestion to replace 
``mortgagee'' with ``lender'' in Sec.  1005.203(a)(1). The language in 
Sec.  1005.203(a)(1) (paragraph (a) of this final rule) is verbatim 
from 12 U.S.C. 1715z-13a(b)(4)(A), which also uses the word 
``mortgagee'' in the context of FHA's single family mortgage insurance 
program. Additionally, HUD disagrees with the commenter that the term 
``mortgage'' should be replaced with the term ``loan'' wherever 
``mortgage'' appears in the final rule. While HUD defined ``loan'' and 
``Section 184 Guaranteed Loan'' in Sec.  1005.103, there are instances 
where ``mortgage'' is properly used to reference another Federal 
program or requirement, or an industry-standard practice. Nevertheless, 
HUD reviewed the final rule to ensure ``loan'', ``Section 184 
Guaranteed Loan'' and ``mortgage'' were properly used and made 
corrections where errors in usage appeared.
Sec.  1005.205 Lender Applicants Required To Obtain Secretarial 
Approval
    Commenters stated that requiring sponsored entities to provide an 
audited financial statement, rather than the industry standard 
financial documents, is not prudent, is very cost prohibitive, and 
would deter lenders from offering Section 184 products. One commenter 
explained that this requirement would make access to qualified lenders 
more difficult, which would negatively impact Tribal members and 
communities.
    One commenter suggested that the requirement in Sec.  
1005.205(a)(8) that a lender not have a licensed refused or received a 
government sanction should be limited to the lending practices of the 
lender.
    HUD Response: HUD agrees with commenters that requiring ``audited'' 
financial statements may be a burden for some Lender Applicants and 
Direct Guarantee Lenders. As a result, HUD has revised Sec.  
1005.205(a)(4)(i) by removing the term ``audited.'' HUD has also 
provided that Section 184 Program Guidance will explain when audited 
and non-audited financial statements may be needed. HUD also agrees 
with the comment that the denial of a license or government sanctions 
of a lender should be limited to the Direct Guarantee Lender's lending 
practices. HUD has revised Sec.  1005.205(a)(8) to limit the lender 
certification to issues related to lender's lending activity.
Sec.  1005.213 Non-Direct Guarantee Lender Application, Approval, and 
Direct Guarantee Lender Sponsorship
    Commenters proposed that notification in Sec.  1005.213(b)(3) and 
(8) be changed to ``within 30 days'' to conform to industry standard.
    HUD Response: HUD appreciates the commenters' recommendation. 
However, to ensure HUD has up to date information on who Direct 
Guarantee Lenders are sponsoring and to protect Section 184 Program 
integrity, it is critical that lenders notify HUD within 10 days when 
there are changes to the lenders' sponsorship. Additionally, HUD 
deleted in this section paragraph (b)(8) because it is redundant and 
inconsistent with paragraph (b)(3).
Sec.  1005.217 Quality Control Plan
    One commenter noted that the requirement to complete a monthly 
review of a sampling of rejected loan applications and a written report 
of the review would be onerous to lenders and may keep lenders from 
participating in the Program. Other commenters

[[Page 20038]]

objected to the proposed monthly reviews, reporting, and tracking 
requirements, explaining that these requirements will be burdensome to 
small Tribes and lenders.
    HUD Response: Lender Applicants, Direct Guarantee and Non-Direct 
Guarantee Lenders must have an effective quality control plan to ensure 
their Section 184 loans are compliant with Section 184 requirements and 
to protect HUD and Lender Applicants, Direct Guarantee and Non-Direct 
Guarantee Lenders from unacceptable or unreasonable risks and the 
borrower from erroneous negative decisions. As provided for in Sec.  
1005.217(b)(8), one method HUD will use to detect issues or anomalies 
in Lender Applicants, Direct Guarantee and Non-Direct Guarantee 
Lenders' Section 184 lending is by reviewing a random statistical 
sampling of the Lender Applicants, Direct Guarantee and Non-Direct 
Guarantee Lenders' rejected Section 184 loans. Having this data is 
essential to HUD maintaining Section 184 Program integrity.
Sec.  1005.219 Other Requirements
    Several commenters supported establishing HUD's ability to set a 
trust land lending requirement for lenders as proposed in this section. 
One commenter recommended that HUD base this requirement on historic 
numbers of trust loans closed within each state. Commenters also 
recommended that the required percentage could be lower than the state 
average, but some requirement should be in place to prohibit lenders 
who have no interest in serving Tribal members and communities in a 
meaningful way. Another commenter stated that if imposed, the 
requirement should be reasonable and should not be imposed in a way 
that discourages lenders from participating and making loans under the 
Program. Another commenter suggested that lenders should be given an 
opportunity to submit a plan for originating a minimum level of loans 
on trust lands. Lastly, the commenter suggested that if HUD retains the 
requirement to originate loans on trust lands, HUD should provide a 
minimum one-year timeframe that will allow the lender time to market 
loans on trust lands and create relationships with relevant Tribal 
departments or staff on Tribal lands.
    Some commenters opposed establishing HUD's ability to set trust 
lending requirements for lender participation. These commenters 
explained that many of their villages are on trust lands and do not 
have a local bank resulting in Tribal members having insufficient 
access to financial services. As an alternative to this requirement, 
commenters recommended that HUD work with Federal partner agencies such 
as the Bureau of Indian Affairs (BIA) to establish processes to make 
the Section 184 Program practical and accessible on Trust Lands, noting 
that the Program's focus and intent should be on developing 
homeownership opportunities to all Alaska Native and Native American 
families.
    One commenter was concerned that there may be unintended 
consequences if lenders are subject to a required percentage of loans 
and recommended that HUD exercise caution. The commenter noted that it 
is an unfortunate reality that making loans on Tribal land is 
significantly more difficult than it is on fee simple lands. The 
commenter further explained that the number of lenders participating in 
the Section 184 Program is already small. If lenders that cannot meet 
the required percentage of loans on trust land are faced with the 
possibility of ``sanctions and civil money penalties'' under Sec. Sec.  
1005.905 and 1005.907 of the proposed Section 184 Program regulations, 
the commenter was concerned that they may simply stop participating in 
the Program.
    Another commenter suggested, instead of establishing lending 
requirements, that HUD offer incentives to lenders who opt to take 
advantage of market opportunities on trust land. For example, the 
commenter suggested that if the property is located on trust land, this 
section could increase a lender's portion of the guaranteed fee or 
offer priority processing.
    HUD Response: HUD appreciates the many comments, in support of and 
in opposition to, this section of the regulation concerning the minimum 
level of Trust Land lending. HUD acknowledges that Trust Land lending 
is a complex issue and there may not be a ``one size fits all'' 
approach to Trust Land lending. HUD intends on developing a minimum 
level of Trust Land lending policy that is reasonable, achievable, and 
serves to promote and not hinder Trust Land homeownership opportunities 
for Indian families. HUD anticipates seeking Tribal and Direct 
Guarantee Lender input as HUD researches the issue further prior to 
implementing the minimum level of trust land lending requirement.
Sec.  1005.223 Annual Recertification
    One commenter proposed that Sec.  1005.223(b)(2) be clarified to 
include good standing with the ONAP Office of Loan Guarantee rather 
than for problems outside of past due or default. One commenter stated 
the recertification requirements seem unrealistic given HUD's staffing 
levels. The commenter suggested that HUD should consider requiring 
recertification every five years.
    HUD Response: HUD agrees with the comment that Sec.  1005.223(b)(2) 
should be clarified and will provide further administrative guidance. 
However, HUD does not agree that the Direct Guarantee Lender 
recertification requirements are unrealistic and that the 
certifications should be every five years. HUD believes annual 
recertifications from Direct Guarantee Lenders are necessary for the 
proper administration of the Section 184 Program.
Sec.  1005.301 Tribal Legal and Administrative Framework
    Several commenters suggested that the proposed rule exclude BIA 
involvement because some Tribes do not use the BIA for mortgageable 
land assignments. Rather, the commenters suggested that the guidelines 
should address Tribal Assignments for those Tribes that do have the 
mortgageable land assignments.
    A commenter suggested giving lenders notice of all current HUD 
approved leases. The commenters noted that currently, there is no way 
for a lender to know which leases have been approved without submitting 
this to HUD for review.
    Other commenters recommended that the assignment of lease 
provisions should include the lender in situations where the lender is 
unable to assign the loan to HUD and must pursue the foreclosure, 
eviction, and resale of the property to an eligible Tribal member.
    HUD Response: HUD appreciates the extensive commenters received on 
this section. HUD recognizes not all Trust Land involves the BIA. 
Accordingly, HUD revised the regulations by inserting ``where 
applicable'' in provisions which references BIA involvement. With 
respect to the comment that there is no way for lenders to know which 
Tribal leases have been approved by HUD, HUD anticipates providing 
administrative guidance that will assist Direct Guarantee Lenders in 
verifying which Tribal leases are HUD approved.
    With respect to the comments that the lease provision should 
include addressing situations where the lender is unable to assign the 
loan to HUD and must pursue foreclosure in Tribal court, HUD disagrees. 
Whether a Holder or Servicer must assign, could assign, or is unable to 
assign the loan to HUD is not an issue for the lease to address. When 
HUD exercises its discretion to accept the assignment, the requirements 
of

[[Page 20039]]

Holder or Servicer assignment of the loan can be found at Sec.  
1005.765. HUD notes that paragraph (b)(1) of this section is not 
intended to provide that all Trust land loans must be assigned to HUD. 
Under current policy, the Holder and Servicer always retains the option 
to not assign the mortgage to HUD and pursue foreclosure in Tribal 
court. HUD further notes that acceptance of loan assignment remains at 
HUD's discretion. HUD revised Sec.  1005.765(b) to make this point 
clear. In cases where HUD does not accept assignment and the Holder or 
Servicer is otherwise unable to assign the loan or prefers not to 
assign, the Holder or Servicer would proceed with foreclosure in Tribal 
court.
Sec.  1005.301(b)(1)(i) Tribal Courts
    Commenters recommended that HUD should recognize Tribal courts as 
the only legitimate court regarding foreclosures on trust land. One 
commenter stated that HUD lenders and servicers show proper respect and 
deference to Tribal courts during the foreclosure process, which 
includes having legal counsel appear in Tribal courts when necessary 
for foreclosure and eviction and adhering to applicable Tribal laws. 
Commenters also noted that paragraph Sec.  1005.301(b)(1)(i) requires 
Tribes to grant Federal Court jurisdiction so that HUD can foreclose on 
a default of a Section 184 Guaranteed Loan, however, some Tribal 
leasehold mortgage codes do not allow recognition of Federal 
jurisdiction and conflict with this requirement.
    HUD Response: HUD appreciates the commentor's input. HUD respects 
the sovereignty of Tribes and the jurisdiction of Tribal Courts as well 
as the ability to conduct business related to trust land in Tribal 
court. However, when a Trust Land loan is assigned to HUD, the Federal 
Government must be able to protect the Section 184 program and its 
Federal interest in Federal court. Therefore, the rule requires Tribes 
to allow for foreclosures to occur in Federal Court in cases where HUD 
must foreclose. Nevertheless, it is HUD's hope that with the expansive 
loss mitigation options available to defaulted borrowers, including 
incentive payments to Tribes, Holder or Servicers, and defaulted 
borrowers as established in Sec.  1005.757, and a stronger partnership 
between Tribes, Holder and Servicer, and HUD to effectuate loss 
mitigation, trust land foreclosure referrals to DOJ will become 
increasingly rare. Accordingly, HUD makes no changes to paragraph 
(b)(1)(i) of this section.
Sec.  1005.301(b)(1)(ii) Foreclosure Ordinances
    One commenter noted that Sec.  1005.301(b)(1)(ii) requires that 
foreclosure ordinances allow for the reassignment of leases to HUD or 
the issuance of new leases to HUD and reassignment of leases to the 
Tribe. The commenter explained that for some Tribes, a significant 
amount of their Tribal trust land is allotted to individual Tribal 
members who may also wish to approve new leaseholders. The commenter 
asked how the proposed requirements incorporate or contemplate the 
rights of those who hold shares in allotted Tribal trust land. Another 
commenter recommended that the word ``lease'' in Sec.  
1005.301(b)(1)(ii) be changed to ``leasehold'' or ``leased property''. 
A third commenter inquired how individual allotted Trust Land would be 
treated under paragraph (b)(1)(ii) of this section.
    HUD Response: Based on these comments, HUD revised Sec.  
1005.301(b)(1)(ii) and made a technical correction to state more 
generally the Tribe's legal ordinances must allow for the borrower's 
property interest (and not just leasehold interest) to be assigned to 
HUD or Holder. HUD will provide administrative guidance to address the 
rights of Tribal members who hold shares in allotted Tribal trust land.
Sec.  1005.301(b)(1)(iii) Lease Assignment
    One commenter stated Sec.  1005.301(b)(1)(iii), which allows a 
Tribe to assign a lease to HUD without the consent of the borrower and 
without foreclosure, ignores the contractual rights a borrower may have 
in the lease, the loan, and through the foreclosure process. The 
commenter recommended providing for assignment of a lease from a 
borrower to HUD within the terms of the lease.
    HUD Response: HUD appreciates the comment but maintains that the 
Tribe should have the discretion to assign the lease to HUD when the 
Section 184 Loan has been assigned to HUD when the Section 184 Loan is 
in default. While Sec.  1005.301(b)(5)(ii)(G) establishes a mandatory 
lease provision giving Tribes the ability to assign the lease to HUD, 
we emphasize Tribes have the discretion to assign the lease to HUD or 
not when the borrower defaults on the Section 184 Loan. To the extent a 
Tribe as the lessor of the leasehold interest, wishes to exercise this 
discretion to assign the lease to HUD, it would be pursuant to the 
mandatory lease terms. To address the commenter's concern that the 
proposed regulation enables Tribes to ignore the contractual rights a 
borrowers may have in a lease, HUD revised Sec.  1005.301(b)(5)(ii)(G) 
(and Sec.  1005.301(b)(1)(iii)) to expressly require Tribes provide due 
process to the lessees in accordance with Tribal laws if a Tribe 
intends to assign the lease to HUD.
Sec.  1005.301(b)(4) Lien Priority
    A commenter stated that Sec.  1005.301(b)(4)(ii), which requires 
any second lien on title to trust land be approved by the Tribe and BIA 
and recorded by BIA, makes sense for a second mortgage through a 
financial institution, but it is impractical when it is related to a 
contractor's liens and tribally funded liens. Another commenter stated 
that a Tribe should not be required under Sec.  1005.301(b)(4) to apply 
state law to determine a mortgage as the priority lien. The commenter 
also noted that the requirement that a Section 184 loan be satisfied 
before all other obligations seems to prohibit full satisfaction on a 
secondary loan made for purposes of providing down payment assistance, 
inconsistent with Sec.  1005.439. The commenter further noted that the 
majority of junior loans are for terms less than thirty years.
    Another commenter stated that its code has an exception for 
allowing a Section 184 Guaranteed Loan to have first lien priority when 
there is a Tribal leasehold tax lien, which appears to conflict with 
Sec.  1005.301(b)(4). A separate commenter stated that the purpose of 
HUD's proposal in paragraph (b)(4) appears to only be ensuring that the 
Section 184 mortgage becomes the first priority debt to be satisfied 
before any other debt, such as secondary liens. According to the 
commenter, on some Reservations the land cannot be pledged for any 
debts and thus raises questions regarding how the secondary lien holder 
can take ``possession'' of the home. Further, acquiring a home mortgage 
on a Tribal reservation is so rare that there are likely very few first 
priority loans. A commenter proposed, as an alternative for Tribal 
Nations that manage and control their own land systems, a certification 
process that confirms their legal system meets the proposed 
requirements contained in paragraph Sec.  1005.301(b)(4).
    Another commenter stated that if a contractor is not paid for a job 
completed on trust land, or any other land, it will secure its material 
and labor costs with a lien on the property. The commenter further 
stated that contractors will not go through the process of seeking 
approvals before pursuing their rights under the

[[Page 20040]]

contractor lien laws. The commenter stated that if this requirement 
remains part of the rule, it is inevitable that some contractors 
unfortunately learn that they do not have the right to an immediate 
lien on trust land, or perhaps any right to a lien should a Tribe 
refuse to approve these types of liens. The commenter further noted 
that once these incidents occur, there will be a threat of contractors' 
refusal to work on properties on trust land given the additional steps 
and risks should their bill remain unpaid should the trust land be 
secured by a Section 184 loan.
    HUD Response: HUD appreciates the various comments on Sec.  
1005.301(b)(4) of the regulation. HUD agrees with the comment that BIA 
approval is not always required. HUD has revised paragraph 
(b)(4)(ii)(B) and elsewhere in the regulations to provide for ``BIA, as 
applicable''. HUD does not believe the lien provisions under Sec.  
1005.301(b)(4) are inconsistent with Sec.  1005.439. Additionally, HUD 
intends on providing program guidance on lien priority as it relates to 
mechanics' liens, tribally funded liens, and Tribal leasehold tax 
liens.
Sec. 1005.301(b)(5) Lease Provisions for Trust Land
    Several Commenters stated that Sec.  1005.301(b)(5)(ii) be revised 
to recognize that other Federal and Tribal leasing regulations may 
apply, including, but not limited to those under 25 U.S.C. 415. Another 
commenter noted that this paragraph requires Tribes to draft their own 
lease in compliance with 25 CFR part 162. The commenter further noted 
that certain Tribes adopted their own leasing codes to regulate the 
leasing of Tribal lands in accordance with 25 U.S.C. 415.
    Other commenters proposed removing ``property address'' from Sec.  
1005.301(b)(5)(ii)(C) or clarifying that it would only be required if 
applicable or assigned. The commenter explained that for new 
construction properties, the property address is not typically 
available at the time the lease is created and that it is not usually 
available until construction has started or until construction is fully 
completed. The commenters proposed moving the lease term in Sec.  
1005.301(b)(5)(ii)(D) from the regulation and making it part of the 
guidelines instead.
    These commenters also proposed clarifying that refinances should be 
50-year term with at least 10 years remaining after maturity of the 
loan. The commenters noted that the remaining term should be written to 
provide as much flexibility as necessary. A separate commenter asked 
whether the paragraph should require a ``maximum'' 50-year term, rather 
than a ``minimum'' 50-year term. The commenter explained that if a 
Tribal Nation member has the financial capabilities to meet a shorter 
loan term, they should be able to do so. Another commenter proposed the 
Sec.  1005.301(b)(5)(ii)(E) and (H) should clearly state that a lease 
cannot be assigned without foreclosure or consent of the lessee.
    HUD Response: HUD appreciates the numerous comments regarding the 
lease provisions under Sec.  1005.301(b)(5). HUD agrees with the 
comment that Tribal leases must be in compliance with all applicable 
Federal requirements and not just 25 CFR part 162, where applicable. 
HUD has revised Sec.  1005.301(b)(5)(ii) and removed the citation to 
the BIA regulation and in its place inserted ``Federal requirements''. 
HUD disagrees with the comment to remove ``property address'' from 
paragraph (b)(5)(ii)(C). HUD will provide administrative guidance on 
this paragraph when a property address is not available in the context 
of new construction.
    HUD also appreciates the comments regarding providing the borrower 
with 10 additional years beyond the payoff of the mortgage to enjoy the 
property. This regulation codifies current practice. HUD has this 
policy as a protection for the borrower for their quiet enjoyment to 
ensure after loan maturity the borrower has some meaningful years left 
to remain in the property. HUD will continue this policy for the 
benefit of the borrower.
    Finally, HUD has not removed the lease term in the regulation from 
Sec.  1005.301(b)(5)(ii)(D). However, HUD agrees that flexibility in 
the lease term provisions would be beneficial to HUD. HUD revised this 
paragraph to by inserting the clause ``unless another term is approved 
by the Secretary'' so HUD will have the administrative ability to 
require a different minimum lease term.
Sec.  1005.303 Tribal Application
    One commenter asked if the proposed rule provided an allowance 
(e.g., grandfathering) for Tribal Nations who already participate in 
the Section 184 Program and may already have Section 184 loans on their 
reservations.
    HUD Response: HUD does not intend for Tribes currently approved for 
the Section 184 Program to reapply to participate in the Section 184 
Program when the final rule goes into effect. However, Tribes currently 
approved to participate may still be required to provide copies of the 
current ordinances and lease under Sec.  1005.301 and show all 
requirements in Sec. Sec.  1005.307 through 313 are being met. HUD will 
provide guidance on what Tribes may need to do to ensure their 
transition into the final rule.
Sec.  1005.307 Tribal Recertification
    One commenter stated that the certification requirements for Tribes 
are burdensome and should be removed because they place a hinderance on 
Tribes' and members' ability to qualify for the Section 184 Program. 
Other commenters objected to an annual recertification, stating that an 
annual recertification can be administratively burdensome and can 
potentially limit growth among our small Tribes with limited resources. 
These commenters recommended that Tribes have a 3-year recertification 
process under this section. Other commenters recommended that the 
Tribal recertification process should be a simple process of the Tribe 
certifying no changes to their previously approved legal structures. 
Commenters also suggested that HUD maintain an Approved Lease Database 
that lenders and Tribes could reference to make sure the correct format 
is being used prior to closing.
    HUD Response: HUD appreciates the commenters' concern that an 
annual recertification may be burdensome to Tribes. HUD agrees with the 
commenters' suggestion that the Tribal recertification be a simple 
process for Tribes to inform HUD that there have been no changes to the 
Tribes' legal and administrative framework and contact information. HUD 
made no changes to this regulation in response to the public comments. 
HUD appreciates the commenters' suggestion that HUD maintain a database 
of approved Section 184 Tribal leases. HUD will explore the viability 
of this suggestion further.
Sec.  1005.309 Duty To Report Changes
    One commenter stated that this section needs to be specific as to 
which entity this written notification will be provided. Another 
commenter noted that many Tribes have no one designated to carry out 
Section 184 duties, and that this proposed rule makes it hard for 
Tribes to carry out the program.
    HUD Response: The purpose of this regulation is to enable HUD to be 
timely informed of any proposed changes to the Tribe's foreclosure, 
eviction, lease, and lien priority ordinances and contact information. 
To provide clarity to the regulation, HUD revised the last sentence of 
the Sec.  1005.309 to make clear HUD will provide notification to the 
Tribe regarding whether the proposed

[[Page 20041]]

ordinance changes meet Section 184 requirements.
Sec.  1005.311 HUD Notification of Any Lease Default
    Commenters noted that instances where a borrower is current with 
their loan but delinquent on their land lease has caused situations 
where the Tribe has attempted to cancel the lease thereby endangering 
the loan collateral. These commenters recommended that HUD consider 
requiring that lease payments be handled through a borrower's escrow 
account with the servicer in the same way that property taxes and 
hazard insurance are handled.
    Other commenters stated that the proposed rule only requires a 
Tribe to notify HUD of lease default within 30 days of default and 
proposed that HUD should provide written notification to the lender 
after receiving the Tribe's notice of lease default. Other than 
defaults unrelated to the loan, Tribes are not aware of a default on 
the loan until a lender sends a notice of the right of first refusal. 
The commenters stated that, in many cases, notice is received at the 
same time a lender files a foreclosure action, and that a Tribe is not 
aware of the default until the lender or borrower requests an 
assignment of the lease. The commenter recommended that HUD be required 
to notify a Tribe once HUD acts on its guarantee. This will, according 
to the commenters, allow the Tribe and HUD to work in a coordinated 
effort on loss mitigation actions.
    HUD Response: HUD appreciates the comments regarding this section 
of the regulation. The comment recommending that lease payments be 
handled through a borrower's escrow account has already been addressed 
in Sec.  1005.507. Under that section, borrower's monthly payment must 
include, among other things, ``ground rents'', which includes lease 
payments from the Tribal member to the Tribe.
    Regarding the comment that HUD should notify the Tribe of the 
borrower's default on the loan once HUD pays out a claim to the Holder 
or Servicer, under Sec.  1005.759 the regulation establishes a 
timeframe for when the Tribe receives the right of first refusal. 
However, the Tribe could potentially receive notice of the borrower's 
default even sooner than the Holder or Servicer's issuance of the Right 
of First Refusal if the borrower elects to provide consent for the 
Holder or Servicer to disclose to the Tribe his or her default under 
Sec.  1005.501(j). HUD intends on providing training to Holder and 
Servicer and outreach to borrowers to encourage borrowers to consent to 
Tribal notifications so that Tribal interventions can occur sooner when 
Tribal borrowers are in trouble.
Sec. 1005.313 Tribal Reporting Requirements
    Commenters recommended that HUD seek feedback from Tribal entities 
on the impact of additional review reporting requirements, stating that 
quarterly or semiannually, may be just as effective and less 
burdensome. Commenters also recommended that although additional 
reporting and program data requests will be posted through guidance and 
will go through the necessary Paperwork Reduction Act process, HUD 
should receive feedback from Tribal entities on the impact of 
additional reporting requirements or on what type of data HUD might 
request from Tribes. Another commenter questioned what the requirements 
would entail and who within the Tribe would be responsible for these 
reports.
    HUD Response: HUD appreciates the commenters' recommendation that 
HUD obtain feedback from Tribes before implementing this regulation. 
The regulation does not specify the frequency of the Tribal reporting 
requirement. HUD will provide administrative guidance on what 
information will be collected and how often. Prior to implementing this 
regulation, HUD intends to seek feedback from Tribes on the Tribal 
reporting requirement and on whether an equally effective and less 
burdensome information collection process could be achieved.
Sec.  1005.401 Eligible Borrowers
    A commenter suggested that either Sec.  1005.401(a) or (c) should 
be amended to clarify that eligible Borrowers with a Section 184 loan 
on their principal residence may sign as a non-occupant, co-Borrower on 
a separate Section 184 loan, provided they meet all loan qualifications 
with the additional loan. The commenter noted that Sec.  1005.401(a) 
only limits eligible Borrowers to one Section 184 loan at a time, and 
that paragraph (c) of this section allows a non-occupant co-Borrower on 
Section 184 loans. The commenter further noted that often, when a non-
occupant co-Borrower is included on a mortgage loan, it is a parent of 
a child making one of their first purchases of real estate.
    Commenters also suggested allowing second homes on Tribal trust 
land, noting that Tribal borrowers would like to have a presence on 
their Tribal homeland but primarily live on non-Tribal lands for work 
or other reasons. These commenters also noted situations of a family 
home where the occupant dies, and the heirs would like to retain the 
property. In this situation, commenters explained that under the 
proposed rule the heirs' only option would be to move into the house, 
which may not be practicable for their current life situation.
    HUD Response: HUD acknowledges there can be a need for a family 
member to assist another family member as they embark on the path to 
homeownership and supports the recommendation to allow an individual 
with an existing Section 184 Guaranteed Loan to be a non-occupying co-
borrower in accordance with the Section 184 Program Guidance. This 
shift will provide wealth building opportunities for more Native 
families. Accordingly, HUD revised Sec.  1005.401(c) to provide an 
exception to the rule that an Indian Family is limited to one Section 
184 Guaranteed Loan at a time. The exception will provide that an 
existing Section 184 borrower may be a non-occupant co-borrower on only 
one other Section 184 loan, so long as the non-occupant co-borrower 
loan also meets Sec.  1005.403. Relatedly, HUD has made conforming 
technical changes to Sec.  1005.403 to provide greater clarity on the 
non-occupant co-borrower requirements.
    Lastly, HUD appreciates the commenters' suggestion to allow a 
borrower to have multiple Section 184 Guaranteed Loans which would 
include second homes. HUD believes, however, that the mission of the 
Section 184 Program is to increase homeownership for Native American 
borrowers. As a result, HUD is not making this change.
Sec.  1005.405 Borrower Residency Status
    A commenter noted that ``U.S. Citizen, or lawful permanent 
resident, or non-permanent resident'' does not appear to describe 
Native Americans consistent with 8 U.S.C. 1359, which provides that: 
``Nothing in this subchapter shall be construed to affect the right of 
American Indians born in Canada to pass the borders of the United 
States, but such right shall extend only to persons who possess at 
least 50 per centum of blood of the American Indian race.''
    HUD Response: HUD appreciates the commenters suggestion but notes 
that 8 U.S.C. 1359 governs movement across borders and not permanent 
residency status. As a result, HUD has not revised Sec.  1005.405 in 
response to this comment.
Sec.  1005.407 Relationship of Income to Loan Payments
    A commenter recommended that the terms ``age'' and ``sexual 
orientation'' be added to the nondiscrimination provision in Sec.  
1005.407(b). Other

[[Page 20042]]

commenters expressed support for the addition the nondiscrimination 
provision in Sec.  1005.407(b). One stated that this provision advances 
not just the statutory purpose of the Program to provide access to 
sources of financing to Native American families, housing authorities 
and Tribes, but it is also consistent with fair lending provisions 
which seek to root out discrimination in credit markets.
    Other commenters recommended that the provisions prohibiting 
discrimination based on income stream should also include Tribal 
sources of income. These commenters explained that HUD currently 
requires two years of receipt and averages the last two years instead 
of using the current amount. According to the commenters, this is 
discriminatory towards Tribal governments and members and should be 
changed.
    One commenter noted that without including some type of `test' with 
respect to mortgage underwriters automated or electronic underwriting 
that the rule will fall far short of detecting and stopping such 
discrimination. The commenter recommended that the proposed rule 
require lenders and originators to attest that their automated 
underwriter software meets the requirements needed to originate loans 
under the Section 184 Program including the prohibition against Native 
income and loan location discrimination. The commenter further 
recommended that HUD develop an automated underwriting program to use 
with the Section 184 Program (e.g., Scorecard or Native Advantage), 
particularly with the data HUD is about to receive under the Section 
184 Program, and to make that available to lenders, originators, and 
Native Housing Counselors or Agencies located on Tribal reservations 
who are trying to assist Native American participation in the Section 
184 Program.
    Other commenters objected to this section's requirement that the 
occupying borrower meet a minimum qualifying threshold when there is a 
co-borrower that will not occupy the home. These commenters reasoned 
this could have a negative impact for protected classes and first-time 
homebuyers. Finally, one commenter stated that under Sec.  
1005.407(a)(2), requiring the occupying borrower to meet a minimum 
qualifying threshold when a non-occupying borrower is on the loan could 
result in disparate impact for protected classes and first-time 
homebuyers.
    HUD Response: HUD appreciates the extensive comments received on 
this section of the regulation. HUD agrees with the comment that 
``age'' should be added to the non-discrimination provision in 
paragraph (b) of the section as ``age'' is a protected class under the 
Equal Credit Opportunity Act. HUD has inserted ``age'' into the list of 
protected categories. With regards to the comment suggesting the non-
discrimination provision in Sec.  1005.407(b) expressly reference 
``Tribal sources of income'', HUD believes this is unnecessary. This 
paragraph states more broadly there can be no discrimination based on 
the ``source of income of the borrower'', which would naturally include 
Tribal sources of income. With regards to the comment that ``sexual 
orientation'' should be added, this protected class is already 
referenced in the regulation, and has been maintained in this final 
rule in accordance with Executive Order 13988, ``Preventing and 
Combating Discrimination on the Basis of Gender Identity or Sexual 
Orientation'' \3\ and HUD's February 2021 implementation memorandum.\4\
---------------------------------------------------------------------------

    \3\ 86 FR 7023, January 25, 2021.
    \4\ Available at https://www.hud.gov/sites/dfiles/PA/documents/HUD_Memo_EO13988.pdf.
---------------------------------------------------------------------------

    With regards to the comments suggesting HUD develop a test to 
detect discrimination in the lenders' automated underwriting of Section 
184 borrowers, HUD disagrees with the comment. The Section 184 Program 
currently does not allow automated underwriting and, as a result, there 
would be no test to develop to detect discrimination. HUD will consider 
future changes to permit automated underwriting when sufficient Section 
184 programmatic and systems safeguards can be in place.
    With regards to the commenters' recommendation that the occupying 
borrower meet minimum qualifying threshold when there is a non-occupant 
co-borrower under paragraph (a)(2) of this section, HUD appreciates the 
commenters' concerns. However, when an occupying borrower and a non-
occupant co-borrower are on the same loan, it is critical that the 
occupying borrower meet a minimum qualifying threshold to avoid the 
situation where as soon as the other non-occupant co-borrower no longer 
can contribute towards the mortgage, the occupying co-borrower faces 
default. Exempting the occupying borrower from meeting a minimum 
qualifying threshold will cause undue and unnecessary risks to the 
Section 184 Program.
Sec. 1005.409 Credit Standing
    Commenters recommended a default waiting period of 36 months which 
is consistent with other loan programs. Other commenters stated that 
this section codifies a current practice of not having a credit score 
that impacts the borrower's ability to qualify for a Section 184 Loan. 
The commenters suggested that this section continue to be a guideline/
policy and not set in stone in the regulations. Another commenter 
stated that prohibiting the use of credit scores to measure a 
borrower's creditworthiness is contrary to their use by the lending 
industry. The commenter recommended that a Section 184 lender should 
have the discretion to use credit scores, along with credit history and 
payment patterns, to evaluate credit worthiness.
    HUD Response: HUD appreciates the commenters recommendations for a 
36-month waiting period for borrowers who previously defaulted on a 
Section 184 loan. As mentioned above, HUD considered the comments and 
has adopted a seven-year waiting period, or other period as may be 
prescribed by Section 184 Program Guidance, to minimize risk to the 
program. The seven-year waiting period only applies when the borrower 
defaults on the Section 184 Loan and there is claim payment by HUD. HUD 
has a long-standing prohibition of the use of credit scores for the 
Section 184 Program. As a result, HUD has not revised this section to 
provide Direct Guarantee Lenders the discretion to use credit scores. 
Direct Guarantee Lenders are able to evaluate the credit worthiness of 
Native borrowers without using credit scores. HUD will continue this 
time-tested successful practice for the benefit of Native borrowers.
Sec.  1005.413 Acceptable Title
    Commenters expressed concern that this requirement does not provide 
any risk mitigation to HUD due to the unique status and marketability 
issues of trust land properties. The commenters explained that this 
requirement would cause issues for borrowers with trust loans in having 
to redo leases and eliminating it would benefit borrowers. Commenters 
requested that HUD consider instead the necessity of having a lease on 
trust property that exceeds the mortgage term by ten years, which is 
standard in the industry. One commenter also suggested adding to this 
section ``including but not limited to leasehold, Allotted and Land Use 
Deed''. The commenter explained that this language currently permits 
land types and would include other land types that evolve over time and 
need to be permitted.
    Another commenter proposed that that Tribal Nations be recognized 
as being able to provide both Acceptable Title and Property Ownership 
Report for

[[Page 20043]]

Section 184 Program purposes, thereby reducing delays in the loan 
approval process.
    HUD Response: HUD does not believe that this provision will cause 
issues for borrowers with Trust Land loans, possibly requiring these 
borrowers to redo leases. Tribes approved to participate in the Section 
184 Program are required to have their Section 184 Tribal leases 
approved by HUD prior to any mortgage lending on Tribal Trust Land. As 
a result, it is highly unlikely a Section 184 lease would ever need to 
be redone solely because of the requirement under Sec.  1005.413.
    HUD also appreciates the comment that Tribal Nations be permitted 
provide acceptable title and property ownership reports for the Section 
184 Program. HUD will explore further the feasibility of this proposal 
and what safeguards, if any, HUD must adopt to ensure there are no 
increased risks to the program should this proposal be implemented.
Sec.  1005.415 Sale of Property
    One commenter recommended that Sec.  1005.415(c) be revised to 
provide that all sales occurring within 180 days of acquisition require 
additional documentation, such as a second appraisal. The commenter 
further recommended that the additional documentation should be 
described in these paragraphs because they are vague as written. The 
commenter noted that restrictions on eligible borrowers' ability to 
purchase flipped or remodeled homes reduces their opportunities to 
purchase. The commenter also stated that the use of ``property 
flipping'' in the title of paragraph (c)(4) of Sec.  1005.415 is 
misplaced and unnecessary. Specifically, the commenter noted that Sec.  
1005.415(c)(2) and (3) do not include the term ``property flipping'' 
and the fact that a home is sold for a higher price within 12 months of 
purchase does not unequivocally mean it was flipped. The commenter 
stated that if the goal of this section is to require additional 
documentation for properties that were flipped, then there must be a 
definition for the same that involves construction.
    HUD Response: HUD appreciates the numerous comments received 
regarding this section of the regulation. This section is vital to 
ensure that Holder and Servicers understand the legal requirements 
regarding sales of a home involving a Section 184 borrower. HUD 
disagrees with the comment to revise Sec.  1005.415(c). Paragraph (c) 
relates to time restrictions on resale and is divided into paragraphs 
(c)(1) through (3). Each of these paragraphs properly lay out an 
important component of this section. HUD agrees that the term 
``property flipping'' should not be used in paragraph (c)(4). HUD 
disagrees that there should be definition for the same that involves 
construction. This section equally applies to new construction.
Sec.  1005.419 Requirements for Standard Housing
    One commenter stated that Sec.  1005.419(a) provides that heating, 
plumbing, and electrical systems must conform with any applicable 
Tribal code, and if there is no applicable Tribal code, an appropriate 
local, state, or national code. The commenter recommended that 
conformance with an international code be included alongside the other 
types of codes to use in place of an applicable Tribal code.
    Other commenters recommended that paragraph (a)(6) of this section 
should allow for a minimum square footage of ``not less than 200 square 
feet in size, if designed for a family of not more than 2 persons.'' 
These commenters explained that ``tiny homes'' provides affordable 
housing options to Tribes faced with skyrocketing home costs on 
reservations and have been shown to be successful on reservations. 
Other commenters proposed moving this paragraph from this final rule 
and making it part of the guidelines instead.
    One commenter proposed removing ``for properties on Trust Land'' 
from paragraph (a)(6)(v) as Tribes can have Fee Simple and Restricted 
Fee on and off the reservations. The commenter explained that removing 
this would allow Tribes with all land types to be able to request the 
waiver of the square footage requirement.
    Other commenters proposed that the requirements of paragraph (e) of 
Sec.  1005.419 be rewritten to allow a property to be eligible for a 
Section 184 loan guarantee if the building located with a Special Flood 
Hazard Area (SFHA) is insurable by any flood insurance. These 
commenters stated that Tribes should not be subject to flood insurance 
under the National Flood Insurance Program (NFIP), as States are exempt 
from this requirement. The commenter also explained that Letters of Map 
Amendments (LOMAs), Letters of Map Revision (LOMRs), and NFIP Elevation 
Certificates are not available to communities, including Tribes, that 
are not a part of the NFIP. The commenters recommended that the rule be 
written to allow a property on a SFHA to be eligible so long as the 
flood risks are mitigated, and flood insurance is obtained. These 
commenters stated that the majority of Tribes in the U.S. are not 
participants of the NFIP but are able to mitigate their flood risks and 
obtain flood insurance from reputable insurance companies outside the 
NFIP. Finally, another commenter noted that the environmental review 
process is often a burden to lenders, with HUD and the BIA having 
separate requirements. The commenter recommended that a streamlined 
process and single form should be agreed to for a consolidated 
environmental review process that is completed by the Tribe or its 
assignee at the time of the lease.
    HUD Response: HUD appreciates the numerous comments regarding this 
section of the proposed rule. HUD has considered the suggestion to 
reference international codes in paragraph (a) in this section and has 
accepted the suggestion to utilize the International Building Code.
    HUD also appreciates the comments suggesting a lower minimum square 
footage requirement for paragraph (a)(6) of Sec.  1005.419. However, 
this section derives from section 184(j)(6) of the Act and HUD has no 
ability to on its own waive this statutory provision. However, as 
discussed above, the Act provides that upon the request of a Tribe or a 
TDHE, HUD may waive the minimum square footage requirements.
    HUD appreciates the comment regarding paragraph (d)(4), but HUD has 
decided to adopt the same standard as used by the FHA-family forward 
mortgage program. HUD agrees with the comment regarding private flood 
insurance and has revised the provision to allow for private flood 
insurance.
Sec.  1005.421 Certification of Appraisal Amount
    One commenter noted that there are few, if any, qualified Native 
American restricted land appraisers, and that determining the market 
comparison is extremely difficult. The commenter stated that the 
current option of utilizing replacement cost or actual cost for new 
units in lieu of an appraisal continues to be the most practical method 
of determining value. The commenter also stated that in most real 
estate transactions, the buyer and or his bank is responsible for 
determining (appraisal) value, and not the seller.
    Another commenter recommended that HUD provide a fuller definition 
of the term ``appraisal,'' similar to requirements in other HUD and 
Fannie Mae contexts where opportunities for alternative appraisal 
methods are provided. Furthermore, the commenter, citing a Brookings 
Institution report, noted concerns about discrimination in the home 
mortgage process for Native Americans, as there is potential bias in 
home appraisals occurring on Tribal

[[Page 20044]]

reservations. The commenter recommended that the requirements should 
require lenders and originators to attest that appraisals used come 
from competent appraisers, and who, like the Consumer Financial 
Protection Bureau (CFPB) requires appraisers to attest that the 
appraisal conforms with ``the Fair Housing Act and Equal Credit 
Opportunity Act.''
    HUD Response: HUD appreciates the comments regarding the challenges 
of appraising property located on restricted lands and the request for 
a definition of appraisal. This section requires an appraisal to be 
completed, which would require the seller to allow an appraiser to 
access the property, to inspect the subject property, and prepare an 
appraisal report. HUD has addressed the concerns of the commenters 
regarding Fair Housing Act and the Equal Credit Opportunity Act in 
Sec.  1005.457. As a result, HUD is revising this section by 
referencing the Fair Housing Act and the Equal Credit Opportunity Act, 
along with revising the language for clarity regarding HUD's ability to 
provide for appraisal alternative requirements.
Sec.  1005.423 Legal Restrictions on Conveyance
    One commenter suggested that this section should be updated to 
allow for leases and sales with third party consent from a governmental 
entity or agency, master lessee, and planned community authorities. 
Another commenter suggested that paragraph (b)(4) of this section be 
revised to clarify that restrictions which do not restrict conveyance 
are not impacted by this rule, i.e., covenants on a subdivision 
continue to apply.
    HUD Response: HUD appreciates commenters' input and recognizes the 
concerns raised regarding third party consent and clarification of 
restrictions on conveyance. HUD will provide further administrative 
guidance to address commenters' concerns.
Sec.  1005.425 Rental Properties
    A commenter recommended that paragraph (b) of Sec.  1005.425, which 
contains the phrase ``one- to four-unit properties'', should be changed 
to ``properties'' since that term defines the phrase. Additionally, the 
commenter stated ``Property'' or ``Properties'' should be capitalized 
throughout the proposed rule since they are being used to describe the 
dwellings identified under the definition of ``Property''.
    HUD Response: As discussed previously, HUD defined ``property'' in 
Sec.  1005.103 to mean one to four-family dwellings and is consistent 
with current policy. HUD has not capitalized the term throughout the 
regulations. HUD made further changes to Sec.  1005.425 to clarify that 
there is one Section 184 Guaranteed Loan per ``property,'' and a 
``property'' may be one to four-family dwellings.
Sec.  1005.427 Refinancing
    One commenter recommended moving this entire section to guidance, 
with a reference to new construction financing, whether it be 
refinancing the construction loan, reimbursement of funds spent or a 
combination.
    HUD Response: HUD appreciates the comment but has not moved the 
entire section to guidance. However, HUD did add paragraph (d) to this 
section to clarify that construction loans less than one year old are 
included under rate and term refinance.
Sec.  1005.429 Eligibility of Loans Covering Manufactured Homes
    Several commenters sought clarity concerning the standards for 
manufactured homes, including a time frame for Tribal Nations to come 
into compliance with this section, and whether this section applies to 
existing homes and 184 Program loans located on Tribal reservations.
    HUD Response: With respect to manufactured homes located on fee 
simple properties, HUD is not changing the standards for manufactured 
homes. These manufactured homes must continue to conform to the 
National Manufactured Housing Construction and Safety Standards Act of 
1974, as amended (HUD Standards). Under Sec.  1005.429(b), this section 
applies to manufactured homes on Trust Land, HUD revised this section 
to clarify in the absence of Tribal laws addressing installation 
standards, provisions of Sec.  1005.429(a)(1), (3), and (4), and any 
applicable Section 184 Program Guidance shall apply. HUD will provide 
an effective date and compliance date for the final rule, allowing 
Tribes ample time to review and implement the new regulations.
Sec.  1005.431 Acceptance of Individual Residential Water Purification
    One commenter stated that paragraph (c)(1) of Sec.  1005.431 should 
be revised since it is not within the control of the lender when a 
borrower receives notice of the need for water purification or when the 
borrower signs a sales contract, and that this should be stated in the 
real estate law and stricken from regulations. The commenter also 
stated that Sec.  1005.431(c)(2)(ii) provides that the lender would be 
responsible for providing a Good Faith Estimate of the ongoing 
maintenance and replacement costs of the equipment and that this would 
not be within the lender's scope of knowledge. Another commenter 
recommended that the proposed rule clarify the type of proof required 
to show compliance under this section.
    HUD Response: HUD appreciates this comment but does not believe 
that Sec.  1005.431(c)(1) should be revised. While it is true that a 
Direct Guarantee Lender may not have control of the timing of when a 
borrower receives the notice under Sec.  1005.431(c)(1), HUD requires 
the borrower to receive the notice under (c)(1) of this section as one 
of the conditions of loan eligibility under the Section 184 Program. 
Therefore, Direct Guarantee Lenders must ensure that the notification 
occurred before the signing of the contract for the loan to be eligible 
under the program. HUD agrees that the lender is not responsible for 
providing the borrower a Good Faith Estimate as required under 
paragraph (c)(2)(ii) of this section. To clarify, this is a transaction 
between the seller of the property and the borrower. However, HUD is 
requiring the lender to obtain a copy of the document from the borrower 
and submit it with the loan package.
Sec.  1005.435 Eligible Collateral
    One commenter suggested that the proposed rule expand the amount 
constituting the collateral amount to all costs that have been expended 
by the borrower, or on behalf of the borrower, including water, sewage, 
or driveway installation, similar to Sec.  1005.443. Another commenter 
recommended that the proposed rule clarify whether a leasehold interest 
on trust land can be considered part of the eligible collateral.
    HUD Response: HUD appreciates commenters' input. As a program and 
industry practice, all costs paid by the borrower are not factored into 
the value of the collateral. The value of the collateral is determined 
by a property appraisal which includes all eligible improvements. 
Further clarification will be provided in Section 184 Program Guidance. 
Additionally, this section specifically states that the Trust Land, 
which is secured by the leasehold interest, is not considered eligible 
collateral. HUD will provide additional clarity on what constitutes 
eligible collateral in administrative guidance.
Sec.  1005.437 Loan Provisions
    One commenter proposed that paragraph (g) of this section be 
revised to reflect the current process for guarantee and construction. 
The commenters noted that the proposed rule does not mirror the current 
process

[[Page 20045]]

and does not provide lenders with certainty that HUD will guarantee the 
loan because that determination will be made at closing. The commenter 
further stated that the proposed rule indicates HUD may guarantee 
advances as they happen. However, according to the commenter, the loan 
is fully funded at closing, as the construction funds are deposited 
into a construction account and the advances are paid out of that 
account. Currently, the loan is guaranteed just like any other loan 
with the same documentation and is typically in place prior to the 
construction being finished. The proposed requirements will cause 
delays with construction if each advance must wait to be guaranteed, 
and the current language indicates the advance ``may'' be guaranteed, 
indicating that some draws could be denied a guarantee, which will put 
undue risk or burden on the Tribal borrower, Tribes, TDHEs, and the 
lenders. The commenter opined that if the guarantee is no longer going 
to be done after closing when the funds are put into the construction 
account and done only with each advance it will have a major negative 
impact on the borrowers and reservations.
    HUD Response: HUD appreciates the extensive comments received on 
the topic of the Single-Close construction program. Based on 
commenters' suggestion regarding Sec.  1005.437(g), HUD has revised 
this paragraph to make clear that HUD is not guaranteeing each 
individual advance made by the Direct Guarantee Lender during 
construction. Further, HUD added paragraphs (h) that changes to the 
building Loan Agreement must be approved and documented by the Direct 
Guarantee Lender prior to the construction advance and (i), which 
requires the Direct Guarantee Lender to submit a construction 
completion package to HUD, as prescribed in Section 184 Program 
Guidance. HUD revised paragraph (g) by removing paragraph (g)(2) to 
remove any requirements for HUD to approve construction advances. HUD 
inserted paragraph (h) to address changes to the Loan Agreement and 
paragraph (i) to address the documentation HUD shall require upon 
construction completion. HUD intends on providing administrative 
guidance and future training on the Single-Close Construction program.
Sec.  1005.439 Loan Lien
    Several commenters noted that the requirement for prior approval by 
HUD of second mortgage liens will primarily affect tribally sponsored 
homeownership assistance programs and stated that HUD already has well 
defined rules around second liens and there is no need to change them. 
These commenters explained that this proposal will add to the closing 
timeframes and negatively impact Native borrowers. Some commenters 
noted that contractors' and tribally funded liens must be considered, 
and if a contractor or Tribe properly or improperly records a junior 
lien on the property's title, it should not invalidate the senior lien 
and should not accelerate the payment for the borrower. Other 
commenters noted that the proposal to prohibit interest and principal 
payments and require loan forgiveness conflicts with many of the 
homeownership assistance programs. Commenters provided a list of 
Tribes, TDHEs, and Tribal communities that would be negatively 
affected.
    Another commenter sought clarification regarding whether the 
proposed requirements would limit the Tribal down payment assistance 
(DPA) as a second mortgage. The commenter explained that many DPA 
grants are awarded as second forgivable mortgages. The commenter noted 
concern that if DPA was limited, borrowers might be likely to use other 
programs. A separate commenter stated that, as written, Sec.  
1005.439(b) is contrary to the original intentions of the Section 184 
Program, which are to provide more flexibility and opportunities for 
eligible borrowers. The commenter contended that HUD's proposals would 
reduce the options eligible borrowers have because it allows junior 
liens to only come from Direct Guarantee Lenders. Eligible borrowers 
can only receive one Section 184 loan on their principal residence, 
which must come from a Direct Guarantee Lender, and limiting their 
options for a separate junior lien ``is futile.'' The commenter also 
stated that there is nothing in this section or the proposed rule 
allowing for a junior lien to be placed on the property's title by a 
contractor or the member's Tribe.
    HUD Response: HUD appreciates the numerous comments received on the 
loan lien section. It was not HUD's intention that Direct Guarantee 
Lenders seek HUD approval when there will be a junior lien on the 
property or to change existing HUD policies on junior liens. Rather, it 
is HUD's intention that where there will be a junior lien, the junior 
lien conditions must satisfy the requirements outlined in Sec.  
1005.439 (b) through (d), where applicable, and to continue to allow 
junior liens from Tribes, TDHEs and downpayment assistance programs. 
HUD revised paragraph (b) of this section to provide greater clarity as 
to HUD's intent. HUD will provide administrative guidance on the 
commonly acceptable junior liens held by Section 184 borrowers, such as 
liens by Tribes, TDHEs and contractor's liens and liens related to 
downpayment assistance programs.
Sec.  1005.443 Loan Amount
    One commenter noted a technical change stating that ``lessor'' in 
paragraph (b)(ii) should be ``lesser''.
    HUD Response: HUD has corrected this typographical error.
Sec.  1005.445 Case Numbers
    Several commenters stated that case numbers may only be obtained by 
lender or Sponsored Entity, but paragraph (b) of this section 
specifically identifies the Direct Guarantee Lender. The commenters 
recommended that HUD clarify whether a sponsored broker is allowed to 
order their own case number or if their sponsoring lender is required 
to request a case number.
    HUD Response: HUD appreciates commentors' input. Under Sec.  
1005.445 a sponsored broker is not allowed to order their own case 
number. HUD has revised the regulation to clarify that only the Direct 
Guarantee Lender can request a case number.
Sec.  1005.447 Maximum Age of Loan Documents
    Commenters suggested that this section should require review and 
revision at minimum on an annual basis. One commenter also proposed 
adding title commitments to adhere to state expirations. The commenter 
noted that Tribal Resolutions are typically accepted based on number 
units or maximum dollar and typically expire based on their content, 
not based on a date. Another commenter noted that administrative 
difficulties and delays cause borrowers to not meet deadlines related 
to the maximum age of loan documents. One commenter stated that this 
section does not consider the impacts of BIA rules and processes.
    HUD Response: HUD agrees with the commenters' that title documents 
should be included in this section and has revised the language to 
include title documents reviewed at closing in addition to documents 
reviewed at underwriting. Additionally, HUD agrees that the section 
should be more flexible regarding the maximum age of these documents 
and has revised this section so that the age of the documents will be 
described by Section 184 Program Guidance.
Sec.  1005.451 Agreed Interest Rate
    Several commenters opposed the prohibition on risk-based pricing. 
They explained that risk-based pricing is an

[[Page 20046]]

accepted practice in the mortgage industry, including the Government 
Sponsored Entities, and that it benefits some borrowers based upon 
their personal credit history and loan size and negatively impacts 
others. The commenters further noted that risk-based pricing reflects 
the added costs of servicing smaller loans and loans with a higher risk 
of default; however, in practice, the 100 percent loan guarantee rarely 
reimburses the servicer for 100 percent of their losses from a default.
    HUD Response: HUD disagrees with the comments regarding risk-based 
pricing. The Section 184 Program offers up to 100 percent reimbursement 
for the unpaid principal balance and interest, along with reimbursement 
of Holders and Servicers eligible costs in the case of borrower's 
default on the Section 184 Loan when Holders and Servicers comply with 
all applicable Section 184 requirements. Therefore, HUD does not permit 
risk-based pricing on Section 184 Loans. The major secondary market 
organizations, such as Freddie Mac and Fannie Mae, have specifically 
exempted risk-based pricing for Section 184 Loans.
Sec.  1005.457 Appraisal
    A number of commenters stated that the appraisal requirements would 
eliminate the ability of lenders to select a non-FHA certified 
appraiser in cases where there is no FHA-certified appraiser available. 
These commenters explained that many Tribal borrowers and Tribal 
reservations are in very rural and remote areas where it is difficult 
and expensive to find an appraiser. According to the commenters, 
limiting lenders to the FHA Appraiser Roster will prevent some Tribes 
and Tribal homebuyers from receiving Section 184 loans and will 
dramatically raise the cost for others. Additionally, the commenters 
stated that there are not many cost comparison properties on the market 
and recommended allowing cost-based appraisals for new construction as 
well.
    One commenter recommended broadening the pool of eligible 
appraisers. The commenter noted that the current proposal states, ``The 
appraiser must be knowledgeable in the market where the property is 
located''. According to the commenter, this requires upfront competency 
leading into the assignment, which could be rather limited in certain 
markets. The commenter explained that a broader approach would allow 
appraisers to gain competency during the assignment, which would 
maintain consistency with the Uniform Standards of Professional 
Appraisal Practice (USPAP). The commenter further explained that this 
approach would allow appraisers to ``acquire the necessary competency 
to perform the assignment'' even after accepting the assignment.
    Another commenter recommended, for Native American borrowers 
purchasing properties in less remote areas, the lenders serving those 
borrowers should be able to use Automated Valuation Model (``AVM'') 
systems that have a proven track record of being accurate and non-
discriminatory. The commenter stated that by embracing this technology 
HUD can save these Tribal borrowers significant costs while ensuring 
that they are not subject to discriminatory appraisal practices, among 
many other benefits.
    Separate commenters sought clarification on whether the age of the 
appraisals should be 120 or 180 days to align with recent Mortgagee 
Letter 2022-11. Further, the commenter proposed additional language to 
allow for cost-basis appraisal and allowing Tribes and TDHEs to utilize 
master appraisals for the same floor plan on a similar site or for 
leaseholds where there is no land value included. Finally, a commenter 
proposed amending Sec.  1005.457(a), which reads ``HUD may establish 
alternative requirements,'' to read instead, ``HUD has established 
alternative requirements,'' which would reflect current policy. The 
commenter stated that without such guidance Native American borrowers 
located on-reservation will continue to experience delay, if not 
outright discrimination, guised as a requirement if the language is not 
amended.
    HUD Response: HUD recognizes the challenge remote locations can 
present when appraising real estate. To address this, the regulation 
provides HUD with discretion to establish alternative requirements when 
necessitated by the location of the property and availability of 
appraisers in the area. HUD agrees with the comment regarding the 
validity period for an appraisal and has revised the regulation to 
provide for a validity period to 180 days or any other period as may be 
prescribed by Section 184 Program Guidance.
Sec.  1005.501 Direct Guarantee Lender Closing Requirements
    One commenter asked why ``Trust Land'' in paragraph (a)(2) of this 
section receives its own special guidance in a document outside the 
proposed rule. The commenter stated there is no language in the statute 
limiting the Section 184 Program to just Trust lands, and in fact the 
statute provides for eligibility for Native Americans living on 
``otherwise restricted land;'' the commenter cited 12 U.S.C. 1715z-13 
and 1715z-13a. The commenter explained that without addressing or 
providing additional guidance for Native American borrowers who reside 
on ``otherwise restricted land'' over which their Nation has 
``governmental jurisdiction'', and such lands are not held in trust, 
they will continue to experience significant barriers in trying to 
obtain on-reservation home financing.
    Several commenters recommended this section better align with 
current guidance, noting that that Sec.  1005.501(d), requiring the 
Direct Guarantee Lender to close the loan will cause major issues with 
correspondent lenders who do not have underwriting staff. The 
commenters further stated that this will lead those lenders to use 
another program, such as FHA, instead of the Section 184 Program. Other 
commenters stated that closing in the Direct Guarantee Lender's name 
may deter new lenders from the Section 184 Program. These commenters 
also noted that the requirement to have a Section-184 certified 
underwriter on staff may deter many lenders from entering the Program.
    Another commenter referencing Sec.  1005.501(e) and (f) stated that 
this program was created with an understanding that Congress through 
HUD might have some ongoing subsidy requirements to make the Program 
viable. The commenter further stated that it would be appropriate for 
HUD to confer with Tribes and Congress to identify how that 
appropriation would be decreasing over the years as Tribes learn how to 
encourage lending through expedited leasing (Hearth Act), Tribal court 
training, and focused Tribal code.
    One commenter identified an incorrect cross-reference to Sec.  
1005.713 in paragraph (f), which provides for establishment of an 
escrow account and repair completion escrow account in accordance with 
Sec.  1005.713--but that section pertains to a Due-on-Sale provision 
that must be contained in a Section 184 Guaranteed Loan. Another 
commenter recommended that Sec.  1005.501(j) be revised so that Tribes 
can receive notice of a member's default so they can assist with loss 
mitigation, as it does under the current rules. The commenter explained 
that allowing Tribes the opportunity to assist with loss mitigation 
will further satisfy the purpose of the rule because it will add 
protections against the loss of the underlying security for loan 
servicers and encourage more servicers to participate in the Section 
184 Program.
    Another commenter expressed concerns with Sec.  1005.501(j), which

[[Page 20047]]

provides that Tribes are the beneficiary owners of Tribal trust lands. 
The commenter noted that for all practical purposes, Tribes own the 
land being leased to the Tribal member and are entitled to notice upon 
default. According to the commenter, many Tribal mortgage laws require 
the lender to send a notice of the right of first refusal at some time 
after default. Requiring a borrower's consent prior to providing notice 
of default to a Tribe is contrary to many Tribal mortgage laws, and is 
contrary to proposed Sec.  1005.311, which requires a Tribe to notify 
HUD of lease violations regardless of a borrower's consent. The 
commenter recommended that the requirements clearly state that a 
Section 184 lender will notify the borrower that a Tribe may be 
notified of default regardless of whether a borrower consents.
    Other commenters recommended that the release form provided by HUD 
to the borrower at closing allow the lender and HUD ``to notify the 
Tribe [or another entity as designated by the borrower] in the event of 
default.'' The commenter noted that this would allow the borrower to 
designate the entity that assisted them to qualify for the mortgage, 
such as a nonprofit, Native CDFI, or TDHE, and would help ensure that 
early intervention and foreclosure prevention education occur early 
enough to avoid foreclosure. The commenter suggested that, at closing, 
the Tribe and homebuyers should be able to choose if a HUD Housing 
Counseling Agency should be contacted for assistance.)
    Other commenters stated that paragraph (a)(3) of the section does 
not conform with the flexibility provided to borrowers in Sec.  
1005.501(j). The commenter explained that if a borrower elects not to 
give notice to its Tribe pursuant to Sec.  1005.501(j), then a Tribe 
will not receive notice under Sec.  1005.741(a)(2) and will not be able 
to fulfill its requirements under paragraph Sec.  1005.501(a)(3). 
Another commenter asked how HUD planned to implement the requirement 
that Tribes assist in facilitating loss mitigation efforts and in the 
disposition of defaulted properties. The commenter noted that many 
Tribes have decided to stay out of the default process and let lenders 
perform their jobs.
    HUD Response: HUD appreciates the extensive comments on this 
section of the regulation. With regards to the comment asking HUD why 
Trust Land has its own provisions under Sec.  1005.501(a)(2), it is 
because Trust Land encompasses more than one land status type, and each 
land status type may have its own distinct requirements and challenges. 
HUD considered the many comments received suggesting HUD incorporate as 
much flexibility as possible in this section so that the many nuances 
of Trust Land lending can be addressed. HUD believes that the 
flexibility provided by this regulation allows it to address the 
nuances of Trust Land lending. HUD appreciates the comment regarding 
``otherwise restricted fee'' language that commenter quoted from the 
Housing Act of 1992, as amended, and incorporated the term ``restricted 
fee'' into the definition of ``Trust Land'' in this regulation.
    Regarding the comments received concerning paragraph (d) of this 
section, which requires Direct Guarantee Lenders to close the loan in 
the Direct Guarantee Lender's name, HUD disagrees that this provision 
will negatively impact the program. Because HUD will only be working 
directly with Direct Guarantee Lenders in all aspects related to loan 
origination, underwriting, and closing, naturally then the loan must 
close in the Direct Guarantee Lender's name. HUD has corrected the 
incorrect cross-reference in paragraph (f) of this section to properly 
cite to Sec.  1005.717.
    With respect to the comment regarding Sec.  1005.501(j), HUD does 
not agree that Tribes should automatically receive notice of borrower's 
default. It is important that borrowers have the option whether to 
disclose the default to the Tribe or not early in the process. 
Borrowers may have privacy concerns regarding sharing default 
information with the Tribe. Through outreach or marketing of Tribal 
assistance programs, Tribes should encourage Tribal borrowers to elect 
disclosure so that help can be provided to defaulted borrowers as early 
as possible in the process. HUD also does not agree that paragraph (j) 
be revised to allow the borrower to elect to disclose to another third-
party, which may include the TDHE, nonprofit, or housing counseling 
agencies, as examples. However, the borrower can reach out to a third 
party directly if the borrower chooses to.
    HUD does not agree with the comment that paragraph Sec.  
1005.501(a)(3) does not conform with the flexibility provided to 
borrowers in Sec.  1005.501(j). While a borrower may elect to not 
provide notice to his or her Tribe pursuant to Sec.  1005.501(j), it 
does not mean the Tribe would not receive the notice of borrower's 
default, thereby making it impossible for a Tribe to comply with 
paragraph (a)(3). When a borrower elects not notify the Tribe under 
Sec.  1005.501(j), a Tribe will still receive a first right of refusal 
under Sec.  1005.759. Nevertheless, HUD revised paragraph (a)(3) to 
make it clear that when Tribes receive notice of borrower's default 
under Sec. Sec.  1005.501(j) or 1005.759, Tribes shall assist in 
facilitating loss mitigation efforts and in the disposition of Trust 
Land properties.
    HUD believes that Tribes are a vital partner in the Section 184 
Program, especially in cases involving defaulted borrowers on Trust 
Land. It is critical that Tribes engage the borrower and Holder and/or 
Servicer and assist in loss mitigation and disposition wherever 
possible. HUD will provide further guidance on what ``assist, where 
practical, in facilitating loss mitigation and disposition'' (Sec.  
1005.501(a)(3)) of the property means for Tribes in administrative 
guidance.
Sec.  1005.507 Borrower's Payments To Include Other Charges and Escrow 
Payments
    Commenters recommended that the proposed rule clarify whether there 
is reimbursement for force placed insurance when a Borrower lets their 
policy lapse. The commenters also recommended adding an option to 
escrow for annual lease payments on Tribal leaseholds to avoid default 
and complications associated with the notice to HUD and lender.
    HUD Response: HUD will provide administrative guidance pursuant to 
Sec.  1005.507(a)(7) regarding Holder or Servicer's purchase of force 
placed insurance when borrowers let their policy lapse. Regarding the 
comment on annual lease payments, under this section borrower's monthly 
payment must include, among other things, ``ground rents'', which 
includes lease payments from the Tribal member to the Tribe. HUD had 
provided additional language at Sec.  1005.507(a)(1) and will provide 
administrative guidance on the collection of Tribal leasehold payments 
for escrow under this regulation.
Sec.  1005.517 Certificate of Nondiscrimination by the Direct Guarantee 
Lender
    One commenter stated that Sec.  1005.517(a)(1) and (2) list several 
items regarding nondiscrimination including race, sex, and handicap. 
The commenter recommended that the terms ``age'' and ``sexual 
orientation'' be added to these lists.
    HUD Response: HUD agrees in part with the commentor. HUD has 
included ``gender identity'' and ``sexual orientation'' in both 
paragraphs (a)(1) and (2), in accordance with Executive Order 13988, 
``Preventing and Combatting Discrimination on the Basis of Gender 
Identity or Sexual Orientation'' and HUD's February 2021

[[Page 20048]]

implementing memorandum and included ``age'' in paragraph (a)(1). The 
Equal Credit Opportunity Act provides for the prohibition based on 
``age'' in the context of making a loan, but there is no Federal 
statute providing for ``age'' as a protected class with regards to 
restrictive covenants.
Sec.  1005.527 Post-Endorsement review
    Commenters stated that if a loan guarantee certificate can be 
revoked after endorsement, then it is not a guarantee but instead 
insured like FHA. The commenters strongly stated that this weakens the 
guarantee and may cause lenders to lose faith in the benefits of this 
100 percent guarantee loan.
    HUD Response: Commenters misunderstand this regulation. This 
regulation is not stating the Loan Guarantee Certificate can be revoked 
after endorsement. Rather, HUD may request indemnification from the 
originating Direct Guarantee Lender and impose sanctions on the Direct 
Guarantee Lender and Sponsored Entity in the event of noncompliance, 
pursuant to Sec. Sec.  1005.905 and 1005.907.
Sec.  1005.529 Indemnification
    A commenter recommended that indemnification should only be 
required when it is proven that the originating Direct Guarantee 
Lenders had a deficiency in underwriting or due to fraud or 
misrepresentation.
    HUD Response: HUD appreciates the commenter's input; however, HUD 
has determined that this regulation may require that the originating 
Direct Guarantee Lender indemnify any Section 184 Guaranteed Loan where 
it finds an underwriting deficiency and the Section 184 Guaranteed Loan 
should not have been approved.
Sec.  1005.603 Upfront Loan Guarantee Fee
    Commenters objected to the maximum 3 percent Upfront Loan Guarantee 
Fee. Commenters stated that the market has stabilized since the 2008 
foreclosure crisis, HUD has not provided sufficient justification for 
the high fees, and that the high fees negatively impact affordability 
for Tribal borrowers. Another commenter recommended a 1 percent upfront 
fee model as an alternative (and 0 percent for the monthly premium, see 
Sec.  1005.607 in this summary). Another commenter noted that many 
Tribes and TDHEs were unaware of the Upfront Loan Guarantee Fee.
    Commenters recommended that Section 184 refinance borrowers should 
get a credit against their new Guarantee Fee. Commenters explained that 
a Tribe or native borrower that chooses to refinance a Section 184 loan 
is charged a loan guarantee fee of up to 3 percent of the loan balance 
of the new loan even though they previously paid HUD to guarantee the 
virtually identical loan. In addition, commenters stated that new loan 
represents a lower risk to HUD due to a lower loan-to-value and 
interest rate in most cases.
    Another commenter stated that these fees would counteract the 
reduced rates by adding as much as 4 percent of the principal 
obligation each year. The commenter further stated that the fees would 
eliminate the competitive nature of Section 184 loans, and that the 
fees serve only the financial institutions, not Tribal members and 
communities. The commenter also recommended that the existing loan 
guarantee fee should not be increased from its current maximum.
    HUD Response: Under 12 U.S.C. 1715z-13a(d), the Section 184 Program 
is authorized to charge ``an amount not exceeding 3 percent of the 
principal obligation of the loan.'' This section codifies that 
authority and restates that any ``Up-front Loan Guarantee Fee'' set by 
HUD will first be published in the Federal Register. Pursuant to 12 
U.S.C. 1715z-13a(i), the Up-front Loan Guarantee Fee funds, in part, 
the Indian Housing Loan Guarantee Fund (Fund). The Fund pays for, among 
other things, claim payments to Holders and expenses incurred by HUD in 
the disposition of HUD foreclosed properties. The Fund may not be used 
for crediting borrowers as doing so would violate the statutory 
requirements of the Section 184 Program.
    In 2022, HUD conducted an analysis of the program's portfolio, 
including default rate and credit subsidy data, and determined the 
program could support a reduction in the loan guarantee fees charged on 
new loans. Subsequently on May 4, 2023, HUD published a Federal 
Register Notice (88 FR 28598), informing the public it would be 
exercising its legal authority to decrease the ``Upfront Loan Guarantee 
Fee'' from 1.50 to 1.00 percent and the ``Annual Loan Guarantee Fee'' 
from 0.25 to 0.00 percent for all new or updated Section 184 firm 
commitments after July 1, 2023.
Sec.  1005.605 Remittance of Upfront Loan Guarantee Fee
    Several commenters objected to the 15-day timeline for lenders to 
remit the ``Upfront Loan Guarantee Fee'' stating that it would be 
administratively burdensome to small Tribes and lenders.
    HUD Response: HUD appreciates the comments and understands the 
commenters' concerns. Small Tribes and Direct Guarantee Lenders will 
not be impacted by this timeline. This section codifies current program 
practice and applies only to Direct Guarantee Lenders closing Section 
184 guaranteed loans.
Sec.  1005.607 Annual Loan Guarantee Fee
    Commenters objected to the ``Annual Loan Guarantee Fee's'' maximum 
of 1 percent of the principal obligation of the loan. Commenters stated 
that the market has long since stabilized since the 2008 foreclosure 
crisis and HUD has not justified the need for these high fees which 
negatively impact affordability for Tribal borrowers. One commenter 
recommended a 0 percent monthly premium model (and 1 percent upfront, 
see Sec.  1005.603 in this summary).
    HUD Response: HUD appreciates the commenter's input. Similar to the 
response for Sec.  1005.603, the program is authorized by statute to 
charge up to a one percent ``Annual Loan Guarantee Fee.'' This section 
codifies that authority and restates that any ``Annual Loan Guarantee 
Fee'' set by HUD will first be published in the Federal Register. When 
collected, the purpose of this fee is to pay for certain programmatic 
expenses, such as claim payments to Holders and to fund expenses HUD 
incurs in the disposition of HUD foreclosed properties. Additionally, 
as previously stated in Sec.  1005.603, effective July 1, 2023, HUD has 
eliminated this fee by reducing it to 0.00 percent.
Sec.  1005.609 Remittance of Annual Loan Guarantee Fee
    One commenter recommended that HUD cease collecting the monthly 
installment of the Annual Loan Guarantee Fee when the amortized loan-
to-value ratio equals an amount less than 80 percent, instead of the 78 
percent published in the proposed rule. The commenter stated that this 
small increase in percentage will bring the Section 184 Program in line 
with the standard found in the Homeowners Protection Act of 1998 for 
Private Mortgage Insurance and would equate to approximately a year's 
worth of annual fee payments, providing a small benefit to Tribal 
borrowers.
    HUD Response: In consideration of this comment, HUD removed the 
specific requirement of 78 percent loan to value ratio and provided HUD 
the ability to establish the Annual Loan Guarantee Fee termination 
threshold by notice in the Federal Register. This will

[[Page 20049]]

provide flexibility to quickly respond to unforeseen economic 
conditions.
Sec.  1005.611 HUD Imposed Penalties
    One commenter proposed removing the monetary penalties on lenders 
and servicers related to the collection and submission of loan 
guarantee fees, stating that sanctioning lenders for not meeting HUD 
timelines would discourage lenders from participating in the Section 
184 Program.
    HUD Response: HUD disagrees with the commenter's statement. This 
regulation codifies current program practice, and the program has not 
observed any negative impacts from this practice which has been in 
place for over a decade.
Sec.  1005.703 Servicer Eligibility and Application Process
    One commenter stated that requiring servicers to submit an 
application for participation and recertify annually would discourage 
servicers from participating in Section 184 Program.
    HUD Response: HUD is requiring servicers to submit applications for 
participation to make sure servicers have the experience and 
qualifications necessary to best serve Native American borrowers and 
successfully service Section 184 Guaranteed Loans. Annual 
recertification is not intended to be a cumbersome process and is 
necessary to make sure the servicers retain their capability to service 
Section 184 Guaranteed Loans and to notify HUD of any staffing or 
contact changes.
    One commenter suggested that in light of the ``unique legal status 
of Indian lands . . .'' (see 12 U.S.C. 1715z-13a) no servicer should be 
permitted to waive into becoming a servicer under the Section 184 
Program. The commenter further stated that all entities wishing to 
become servicers under the Section 184 Program should be required to 
undergo mandatory training for not only the Section 184 Program, but 
also be knowledgeable regarding the legal systems of the Tribal Nations 
of the on-reservation Section 184 Programs loans they will be 
servicing.
    HUD Response: To clarify, HUD's intention under Sec.  1005.703(c) 
is to allow qualified servicers that are currently participating in the 
program but are not a Federally approved mortgage servicers to submit a 
request to be considered a servicer without other Federal agency 
approval. HUD will provide guidance regarding the exception in the 
Section 184 Program Guidance. HUD anticipates training servicers once 
the final rule is published and intends to include a section on Tribal 
Nation legal systems as part of that training. HUD made minor technical 
corrections to Sec.  1005.703(c) for greater clarity.
Sec.  1005.711 Assumption and Release of Personal Liability
    A commenter stated that if the assuming borrower has been assigned 
the leasehold and, in the end, does not move forward with the 
assumption, then the existing borrower no longer has rights to the 
subject property. The same commenter noted that under paragraph (a) of 
this section, requiring approval from HUD and other parties would 
likely cause extreme delays in the process and reduce the effectiveness 
of the ability to assume a loan.
    HUD Response: HUD agrees with the commenter and clarifies that the 
assignment of leasehold interest or property interest occurs at 
closing. Further, HUD agrees that requiring HUD approval of assumptions 
could reduce the effectiveness of the process and has removed this 
requirement from the section, except in cases where the Holder or 
Servicer is not a Direct Guarantee Lender and would not be able to 
underwrite the assuming borrower.
Sec.  1005.713 Due-on-Sale Provision
    One commenter stated that it is unclear why a servicer would be 
required to seek HUD approval to accelerate a loan. Another commenter 
stated that under Sec.  1005.713(a), requiring the servicer to advise 
HUD of any sale or other transfer that occurs without the approval of 
the lender, and to seek HUD's approval to enforce the Due on Sale 
provision, can create delays which prevent timely resolution of the 
issue.
    HUD Response: HUD appreciates the comments on the due-on-sale 
provision. HUD has revised the language to clarify the HUD approval to 
accelerate is required when ``any prohibited sale or transfer occurs.''
Sec.  1005.729 Section 184 Guaranteed Loan Collection Action
    One commenter suggested adding the following to the end of the 
paragraph: ``It is the intent of the Department that no mortgagee shall 
commence foreclosure or acquire title to a property until the 
requirements of this subpart have been followed.'' The commenter 
explained that servicers should not proceed with foreclosure unless 
they have complied with the servicing framework that the regulations 
create and have fully evaluated borrowers for alternatives to 
foreclosure. The commenter further explained that to ensure compliance, 
HUD should incorporate language from FHA's default servicing 
regulation, 24 CFR 203.500. The commenter noted that its proposed 
language has been in force for FHA-insured servicers since 1997 and has 
provided important clarity on servicer obligations.)
    HUD Response: HUD agrees with the commenter and has revised this 
section to provide that a servicer cannot commence foreclosure or 
acquire title to a property until the requirements of the subpart have 
been followed.
Sec.  1005.733 Loss Mitigation Application, Timelines, and Appeals
    Commenters expressed concerns with the proposed timelines in Sec.  
1005.733(a) and (b). These commenters explained that promulgating 
requirements that overlap or conflict with CFPB requirements including 
RESPA and FHA loan processes, will make it more challenging for HUD to 
adapt to changes in RESPA and could create inconsistencies with other 
agencies. One commenter recommended that HUD delete paragraphs (a) and 
(b) and noted that HUD should not include these requirements in a 
regulation as the requirements may soon become outdated if RESPA 
changes. Another commenter stated that paragraph (a) of this section 
should rely on RESPA regulations to cover incomplete applications. 
Another commenter suggested a ``more reasonable'' timeline for a 
customer to return documents for an incomplete application.
    Another commenter recommended deleting the following language from 
paragraph Sec.  1005.733(c)(5), ``and that the primary alternative to 
foreclosure shall be a deed in lieu/lease-in-lieu of foreclosure,'' and 
replacing it with ``but the servicer may still offer alternative loss 
mitigation options, subject to applicable Tribal, Federal, or State law 
or contractual requirements.'' According to the commenter, this would 
clarify that loss mitigation is not cut off after the first legal 
action. The commenter also proposed that HUD revise the language in 
Sec.  1005.733(d) from ``14 days from the date of notification of the 
servicer's loss mitigation determination'' to ``30 days from the date 
of notification,'' since borrowers need more than 14 days from the date 
of notification to appeal loss mitigation decisions.
    HUD Response: HUD agrees with the general concept that Holders, 
Direct Guarantee Lenders and Servicers must follow all applicable 
Federal requirements, including RESPA and any other regulations 
promulgated by CFPB. In response to the comment, HUD added language in 
Sec.  1005.701, which covers general requirements for Section 184

[[Page 20050]]

guaranteed loan servicing. The new language requires that ``Holders and 
Servicers must follow all current loss mitigation processes based on 
applicable Tribal, Federal, or State law.'' Similarly, Sec.  1005.731 
provided requirements that were duplicative with CFPB. Therefore, HUD 
removed these requirements and added new language that Servicers must 
provide notice of default to borrowers based on applicable Tribal, 
Federal, or State law.
    HUD believes the timelines in Sec.  1005.733(a) and (b) are 
necessary for the successful administration of the loss mitigation 
options under the Section 184 Program and declines to revise these 
sections accordingly.
    HUD did not substantively revise the language in Sec.  1005.733(c) 
as recommended by the commenter. CFPB does not regulate what loss 
mitigation options may be available to borrowers when the servicer 
completes filing of first legal action. HUD is free to limit loss 
mitigation options available to borrower upon the servicer's filing of 
first legal action. Based however on prior public comments requesting 
HUD incorporate as much flexibility in the regulations as possible, HUD 
revised Sec.  1005.733(c)(5) to add that ``HUD may permit other loss 
mitigation on a case-by-case basis if requested by the Servicer.'' 
Finally, HUD did not revise the deadline in Sec.  1005.733(d) for 
borrower to appeal to 30 days as recommended by the commenter. HUD 
believes 14 days is sufficient time for borrower to file an appeal.
Sec.  1005.735 Occupancy Inspection
    A commenter recommended that the servicer provide advance notice to 
a designated Tribal entity prior to any occupancy inspection, and that 
a designated Tribal representative be required to be present at the 
property during the inspection. In addition, the commenter suggested 
that the Tribal entity should be a member of a Tribal housing 
department or law enforcement officer. According to the commenter, this 
would provide respect for a Tribe's sovereign lands and add a level of 
safety to the inspection requirement.
    HUD Response: HUD agrees with the commenter and has included 
language that requires servicers to contact the Tribe in advance of an 
occupancy inspection. HUD revised the regulation to allow Tribes and 
the servicers to develop agreeable methods of communication and 
protocols when conducting an occupancy inspection.
Sec.  1005.737 Vacant Property Procedures
    One commenter suggested that the Tribe should be a part of the 
servicing process to determine if a house has been abandoned or is 
vacant. The commenter further stated the Tribe must be empowered to 
secure the house by an independent determination of a Tribal official 
that the house is abandoned and therefore, remedial, rehabilitation, 
and security services can be implemented by the Tribe. Another 
commenter recommended that the section title of the section be revised 
to ``Vacant and abandoned property procedures,'' as it applies to 
abandoned properties as well. Lastly, some commenters proposed that 
this section should clarify if seven days are meant to be calendar days 
or business days.
    HUD Response: HUD made several revisions to this section based on 
commenters' suggestions. The section now allows for the Tribe to 
determine if a property is vacant or abandoned and requires servicers 
to notify the Tribe if it determines a property is vacant or abandoned. 
Further, HUD has added ``abandoned'' to the title of the section and 
has expanded the timeframe for Tribal First Right of Refusal and the 
completion of First Legal Action.
Sec.  1005.739 Loss Mitigation
    One commenter recommended deleting the requirement in Sec.  
1005.739 (a) to comply with ``12 CFR 1024.41'' and replace it with 
``1024.41, as it might be amended from time to time, or any additional 
or successor regulation that governs the same subject matter.'' The 
commenter explained that given the CFPB's recent Request for 
Information (RFI) on loss mitigation, the CFPB may make changes to 
servicer obligations under a RESPA rulemaking, and therefore HUD should 
expand its coverage beyond this regulation and incorporate changes, 
deletions, or expansions.
    Another commenter stated that the 180-day grace period in paragraph 
(b) of this section is too long because seasonal fluctuations within 
that period causes damage to the property. The commenter recommended 
that the proposed requirements should include provisions for interim 
protective actions by the Tribe to weatherize and winterize the house. 
Another commenter noted that its understanding of HUD's proposed 
language is that if a customer applies beyond 180 days of delinquency, 
the servicer cannot evaluate that application. Other commenters 
recommended including partial claim/loss mitigation advance option as a 
loss mitigation option, which have been the most popular options to 
resolve COVID and other borrower-related delinquencies. The commenters 
noted that this would be consistent with FHA requirements and would 
increase the usage of the Section 184 Program.
    Another commenter recommended establishing assumptions as a 
standalone process outside of the loss mitigation process, similar to 
the FHA. The commenter explained this would help a confirmed successor 
in interest complete assumptions without manually reinstating the 
account. One commenter recommended deleting Sec.  1005.739(d) 
requirement for a full financial assessment of the borrower at time of 
default. The commenter explained that in response to the pandemic, 
streamlined modifications did not rely on a full financial assessment 
of the borrower. Instead, the loss mitigation modification options 
target reducing the borrower's monthly payment without considering the 
borrower's income or debt. The commenter further noted that requiring a 
full financial assessment may hamper HUD's ability to provide 
streamlined payment relief modifications. The commenter recommended 
developing modification criteria through agency guidance instead of 
through a regulation.
    Commenters also recommended placing Sec.  1005.739(f) in guidance 
or extending the timeframes to align with FHA, due to the complex 
nature of servicing and to make the process more customer friendly.
    HUD Response: HUD has revised this section by removing the 
reference to 12 CFR 1024.41 since Sec.  1005.701 now provides that 
servicers must follow all Tribal, State and Federal requirements on 
loss mitigation, so citing the CFPB regulation is redundant. HUD also 
included the option of a loss mitigation advance under Sec.  
1005.739(c)(4) and added a new section, Sec.  1005.751, on loss 
mitigation advances. HUD inadvertently omitted the reference to loss 
mitigation advance in Sec.  1005.739(c)(4) and added a new regulation 
for loss mitigation advances at Sec.  1005.751 and renumbered all 
subsequent regulations accordingly. HUD clarified Sec.  1005.739(f) to 
provide that, when a borrower fails a loss mitigation option within 180 
days of default, the servicer has 45 days from the failure date to 
initiate another loss mitigation option. Further, HUD clarified that 
the servicer shall complete First Legal Action in accordance with Sec.  
1005.763 or Tribal First Right of Refusal in accordance with Sec.  
1005.759 if a borrower does not accept, is not eligible for, or fails 
loss mitigation.
    Additionally, HUD revised this section to provide that the servicer 
must conduct occupancy inspections in accordance with Sec.  1005.735 
and, if the unit is confirmed to be vacant or

[[Page 20051]]

abandoned, the servicer must conduct property preservation in 
accordance with Sec.  1005.737. With respect to Sec. Sec.  1005.735 and 
1005.737, HUD added language to ensure that it can, by Section 184 
Program Guidance, extend these deadlines to address national emergency 
or disaster situations. With respect to Sec.  1005.739, HUD added 
language that provides HUD the flexibility to enhance loss mitigation 
options to borrowers when there is a national emergency or disaster and 
publish such alternative timeframes in Section 184 Program Guidance.
Sec.  1005.741 Notice to Tribe and BIA--Borrower Default
    Commenters suggested including ``TDHE'' where appropriate in this 
section, similar to Sec.  1005.757. The commenters stated that the 
intent of this recommendation is to connect a borrower with resources, 
and, in Alaska, 196 Tribes have their housing programs and services 
through Regional Housing Authorities.
    Related to Sec.  1005.741(a), one commenter stated that a Section 
184 lender should not be required to obtain borrower consent to give 
notice to the Tribe. The commenter further stated that BIA is no longer 
responsible for leases approved by a HEARTH Tribe. Another commenter 
recommended that notifications of borrower default or of Tribal rights 
of first refusal should clearly outline deadlines and steps for a Tribe 
to take when they elect to exercise their ROFR or if they will assist a 
borrower in redeeming the loan. One commenter proposed that Sec.  
1005.741(a)(2) should be stricken.
    One commenter suggested that HUD should add in Sec.  1005.741(b), 
``and foreclosure process'' after ``notification process,'' which would 
clarify that HUD follows the industry standard and seeks to allow 
borrowers to pursue loss mitigation options, including home retention 
options, even after the foreclosure process has been initiated.
    HUD Response: HUD declines the commenter's suggestion to include 
the TDHE in part of the notification process. For purposes of the 
Section 184 Program, HUD's relationship is with the Tribe as the entity 
with the authority to issue ordinances that support the program. A 
Tribe may choose a TDHE to be its point of contact for the program. 
Based on previous Tribal comments, the regulation includes the option 
for a borrower to select Tribal notification if they go into default, 
so that if the Tribe has resources to assist the borrower, they may do 
so earlier in the loss mitigation process rather than at the end of the 
process. This section deals specifically with when, during the loss 
mitigation process, a Tribe and/or the BIA is notified. Section 
1005.741 states that loss mitigation should have happened concurrent 
with Tribal/BIA notification.
Sec.  1005.743 Relief for Borrower in Military Service
    A commenter agreed with suspending the foreclosure process and 
delaying the first legal action in this situation but stated that their 
experience indicates that HUD does not take these valid delays into 
account when reimbursing a servicer for its expenses. To retain 
lenders' and servicers' interest in the Section 184 Program, the 
commenters requested that HUD be more considerate of delays that are 
valid and out of the servicers' control.
    HUD Response: HUD appreciates the input by the commenter. HUD has 
built in additional timeframes within the loss mitigation process to 
account for delays. Further, Holders and Servicers experiencing delays 
out of their control can request an extension for the filing of first 
legal, as is the current policy and will be further described in 
administrative guidance.
Sec.  1005.745 Forbearance Plans
    One commenter proposed deleting Sec.  1005.745(b) through (f) and 
moving these provisions to a PIH notice. The commenter stated that 
while HUD should establish forbearance as a loss mitigation option, it 
should follow FHA's lead in 24 CFR 203.614 and save eligibility 
criteria for PIH notices and handbooks. The commenter stated that 
including eligibility requirements in regulations unnecessarily hampers 
agency efforts at creating an effective loss mitigation system. Both 
the formal forbearance and special forbearance provisions of the 
section require borrowers to submit supporting documentation to obtain 
forbearance. However, the response to the pandemic by institutions such 
as the Urban Institute, which credited forbearance access during the 
pandemic, demonstrated that it may be valuable to streamline access to 
forbearance in particular situations and not require documents. The 
commenter concluded that HUD should allow streamlined forbearance when 
necessary.
    Another commenter recommended that HUD remove the requirement from 
Sec.  1005.745(c)(1)(ii) and simplify the formal forbearance process by 
mirroring the FHA formal forbearance process. Similarly, for paragraph 
(c)(2) of this section, the commenter suggested mirroring the FHA 
process to make it more customer- and servicer-friendly.
    HUD Response: HUD agrees with the comment to streamline access to 
forbearance process and has added additional language that allows HUD 
to establish a special forbearance in response to a national emergency 
or disaster. HUD will also provide additional guidance on the process 
in the Section 184 Program Guidance.
Sec.  1005.747 Assumption
    A commenter sought clarification on whether the person assuming the 
loan is responsible for making the loan current and suggested that HUD 
address this in guidance.
    HUD Response: In response to the commenter, HUD added additional 
language to clarify that with an assumption associated with loss 
mitigation, the person assuming the loan must cure the default and 
reinstate the Section 184 Guaranteed Loan.
Sec.  1005.749 Loan Modification
    One commenter stated that HUD's proposed text includes detailed 
eligibility rules for loan modifications and many of those rules are 
borrowed from outdated FHA Handbook provisions, which HUD should not 
codify in its regulations. For example, the commenter stated that FHA 
no longer requires an assessment of ``surplus income,'' signatures on 
trial payment plans, and a twelve-month loan seasoning period prior to 
modification. According to the commenter, FHA has removed these 
requirements to minimize barriers to modifications, yet HUD's proposed 
rule would make these rules difficult to amend even after, in FHA's 
experience, they have weakened loss mitigation. This commenter proposed 
removing all Sec.  1005.749(b) through (e) and moving this to a PIH 
notice instead.
    One commenter suggested replacing Sec.  1005.749(b) with language 
stating, ``The servicer must offer the borrower any modification that 
the borrower is eligible to receive under relevant HUD guidance.'' The 
commenter stated that while HUD should establish forbearance as a loss 
mitigation option, it should follow FHA's lead in 24 CFR 203.616 and 
save eligibility criteria for loan modifications for PIH notices and 
handbooks.
    Another commenter stated that requiring the servicer to ``seek 
HUD's approval'' under paragraph (c)(2) of this section for any 
subsequent loan modifications after the first one is likely to cause 
delays, frustration, and anxiety for the borrower if a response is not 
provided timely by HUD. Another commenter recommended that the proposed 
30 days proposed by

[[Page 20052]]

paragraph (e)(2) of this section be reduced to 14 days at minimum. The 
commenter explained that this will help the servicer to start trials 
and complete modifications early, and that there is no such timeline 
for FHA customers.
    HUD Response: HUD appreciates commenter's input and has revised the 
regulation mirror the current FHA loan modification requirements, as 
appropriate. HUD has removed the requirement for surplus income. HUD 
declines to accept the commenter's proposal to remove the HUD approval 
for subsequent loan modifications (beyond the Borrower's very first 
loan modification). HUD has found in the past that multiple loan 
modifications have not resolved the Borrower's delinquency. To provide 
for additional flexibility in the future, HUD added language that 
allows modification of the Borrower's eligibility criteria in the event 
of a national emergency or disaster.
Sec.  1005.753 Pre-Foreclosure Sale
    One commenter expressed concern about the cost to the lenders of 
servicing loans that default. The commenter stated that the 
requirements of this section recognize a short sale opportunity but 
again refer several times to appraisal which may be further compounded 
by lack of market data and the availability of licensed contractors 
that can make repairs on defaulted units. Another commenter urged HUD 
to remove Sec.  1005.753(b) through (u) and move the requirements from 
guidance to PIH notices. The commenter noted that the proposed text for 
this section provides far too many details about the pre-foreclosure 
sale program and will significantly limit HUD's ability to make any 
changes.
    Another commenter stated that the term ``Government'' in paragraph 
(q) this section is not a defined term and therefore lacks specificity 
as to which it applies. The commenter also noted that the definition 
for ``Arm's Length Transaction'' in Sec.  1005.749(r)(2) should be 
moved to the definitions section in Sec.  1005.103.
    HUD Response: HUD appreciates commenters' input. As discussed in 
Sec.  1005.457, HUD has revised the appraisal standards based on public 
comment to allow HUD to establish alternative requirements depending on 
the area and availability of an appraiser. HUD removed paragraph (d) of 
this section because FHA no longer requires defaulted borrowers to 
provide a cash contribution in its pre-foreclosure sale program. In 
paragraph (g) of this section, HUD has increased the market value 
timeframe from 120 days to 180 days to match FHA standards based on 
public comment. Further, HUD has clarified Sec.  1005.749(q) to provide 
that it is the HUD's repair cost estimate. HUD kept the definition for 
``Arm's Length Transaction'' in paragraph Sec.  1005.749(r)(2) since it 
is a definition only used within Subpart G and is not used throughout 
the rule.
Sec.  1005.755 Deed-in-Lieu/Lease-in-Lieu of Foreclosure (Formerly 
1005.753)
    One commenter suggested that in Sec.  1005.755(a)(1), the words 
``if applicable'' should be added after the words ``the BIA''.
    HUD Response: HUD does not accept the commenter's suggestion. While 
some Tribes have the authority to issue their own leases without BIA 
approval, BIA is responsible for the recordation of all leases.
Sec.  1005.757 Incentive Payments (Formerly Sec.  1005.755)
    A commenter sought clarification on when and how much incentive is 
expected to be authorized under this section. The commenter noted that 
``may'' can also mean ``may not'' and this would be a significant 
difference from FHA loans, resulting in lower participation in the 
Section 184 Program.
    HUD Response: This section establishes HUD's ability to offer 
incentive payments to the borrower, Tribe, TDHE, Holder or servicer, 
which will be a new feature to the program. HUD prefers to maintain 
discretion and flexibility in establishing incentives as a new 
component of the program.
Sec.  1005.759 Property on Trust Land--Tribal First Right of Refusal; 
Foreclosure or Assignment (Formerly Sec.  1005.757)
    A commenter proposed clarifying the timeframe for the right of 
first refusal for the Tribes. The commenter noted that typically a 
Tribe has at least 60 days or potentially longer to accept if they 
choose to do so. Another commenter noted that the term ``Tribal Land'' 
used in Sec.  1005.779(a) is an undefined term and recommended that the 
term be replaced with ``Trust Land.''
    A commenter supported the authorization of the first right of 
refusal of foreclosed property meeting certain conditions and updated 
valuations, in Sec.  1005.759(a). Some commenters also suggested that 
HUD should adopt the U.S. Department of Agriculture's (USDA) practice 
of using a net recovery value to determine the purchase price when a 
Tribe chooses to exercise its first right of refusal. Finally, another 
commenter stated that no assignment of the lease under Sec.  
1005.759(c) should occur without consent of the Borrower or without 
foreclosure.
    HUD Response: HUD appreciates commenters' input. Based on these 
comments, HUD has provided a definition of Tribal First Right of 
Refusal and has clarified the timeframe and circumstances for when it 
should occur. The servicer must provide Tribal First Right of Refusal 
to the Tribe within 14 days of specified actions and the Tribe has 60 
days to respond to the Tribal First Right of Refusal. HUD also made the 
technical change of ``Tribal Land'' to ``Trust Land''.
Sec.  1005.763 First Legal Action Deadline and Automatic Extensions 
(Formerly Sec.  1005.761)
    Several commenters stated that 180 days under Sec.  1005.763(a) 
does not provide lenders with sufficient time, as it takes that amount 
of time to implement loss mitigation efforts. These commenters sought 
clarification under Sec.  1005.763(a) if ``must initiate'' is the same 
as ``file'' for First Legal Action. And one commenter suggested 
removing the cross reference in paragraph (a) to the definition of 
``First Legal Action'' in Sec.  1005.103, as this is extraneous and not 
necessary.
    In paragraph (b) of this section, a commenter sought clarification 
regarding whether HUD uses a 30-day auto-extension to extend the First 
Legal Action deadlines instead of the industry standard of a 90-day 
auto-extension. Another commenter recommended that HUD clarify 
paragraph Sec.  1005.763(b)(2) regarding what is required to be 
completed within 30 days of the borrower's failure of loss mitigation. 
The existing guidelines state ``complete First Legal Filing'' or 
``initiate foreclosure action''.
    Finally, a commenter sought clarification regarding delays caused 
by bankruptcy filing or federally declared disaster declarations under 
Sec.  1005.763(c). The commenter noted that both are valid external 
influences extending the first legal filing period and out of the 
servicer's control. Therefore, the commenter requested that the 
extension process be outlined in guidelines instead of the regulations.
    HUD Response: HUD appreciates the commenters' input. HUD has 
revised the definition of filing for first legal action in Sec.  
1005.103 to provide ``the first notice or filing required by applicable 
law for any judicial or non-judicial foreclosure process.'' HUD added 
clarifying language to this section that the filing of first legal 
action must be complete within the given timeframe. Additionally, HUD 
has added clarifying language to Sec.  1005.763(b) which

[[Page 20053]]

outlines the timeframes and circumstances for automatic extensions to 
the filing for first legal action. As previously stated, Holders and 
Servicers experiencing delays out of their control can request an 
extension for the filing of first legal action, as is the current 
policy and will be further described in the Section 184 Guidebook.
Sec.  1005.765 Assignment of the Section 184 Guaranteed Loan (Formerly 
Sec.  1005.763)
    A commenter stated that the required documents (recorded assignment 
from the county, updated Title Status Report from the BIA) typically 
take longer than 5 days and proposed extending the timeframe in 
guidance rather than regulations.
    Other commenters stated that under Sec.  1005.763(a)(4)(ii), most 
of the properties assigned to HUD are occupied because there has been 
no notice to the borrowers about vacating the property. The commenters 
stated that vacancy is not a requirement for an assignment and 
requiring approval for this common situation will cause delays in 
completing the assignment. The commenters also noted that completing 
the assignment has a strict timeframe defined by HUD, which, if not 
met, results in curtailments of the advance amounts reimbursed by HUD, 
and requiring HUD approval will increase losses that are outside the 
servicer's control. (0008, 0018)
    HUD Response: HUD appreciates the commenter's input. HUD has 
revised Sec.  1005.765 to clarify that that the servicer must submit 
the executed assignment for recordation to the appropriate jurisdiction 
or BIA within five days of either receiving HUD approval for assignment 
for fee simple Properties or completing Tribal First Right of Refusal 
in accordance with Sec.  1005.759. HUD does not expect that the 
recordation process will be complete in five days. HUD further 
clarifies that the servicer has 45 days to submit evidence of this 
assignment and request for recordation in accordance with Sec.  1005. 
809(b). Further HUD deleted the language formerly at paragraph Sec.  
1005.763(a)(4)(ii). It is not HUD's intention to remove an occupying 
borrower, or for the servicer to receive prior HUD approval to complete 
the assignment. Further, HUD has removed the former Sec.  
1005.763(a)(i) through (iii) since they are redundant based on changes 
made to Sec.  1005.729.
Sec.  1005.767 Inspection and Preservation of Properties (Formerly 
Sec.  1005.765)
    One commenter suggested that paragraph (a) of this section should 
include a provision providing that a direct letter from the Tribe 
informing the property is abandoned or vacant is sufficient to trigger 
the servicer's obligation to secure the property. The commenter further 
recommended that the provision permit the Tribe to secure the property 
in the absence of a response from the servicer. The commenter also 
recommended that the proposed rule should contain a procedure to 
determine disputed questions of fact, and evidentiary standards for the 
fact finder to opine on the disputed questions of facts. The commenter 
explained that the Tribe should be able to take self-help measures to 
secure and rehabilitate the vacant or abandoned house, and offset the 
costs against the Service Provider, if the disputed facts are proven by 
the Tribe.
    HUD Response: HUD agrees with commenter that a Tribe's notice to 
HUD that the property is vacant or abandoned is sufficient to trigger 
the servicer's obligation to secure the property. Therefore, HUD 
revised Sec.  1005.737 that the servicer may be notified by HUD when 
the Tribe determines a unit is vacant or abandoned and that the Tribe 
should be notified by the servicer that the unit is vacant or 
abandoned.
Sec.  1005.769 Property Condition (Formerly Sec.  1005.767)
    A commenter stated that the term ``Damage to Property by Waste'' in 
paragraph (b) of this section is unclear and that revising the 
paragraph by adding ``damage, deterioration or neglect'' committed by 
borrower would provide clarity.
    HUD Response: HUD agrees with this comment and has revised Sec.  
1005.769(b) to provide ``waste, deterioration or neglect''. Further, 
HUD revised the title of the paragraph to convey the requirements of 
the paragraph more broadly. Additionally, HUD provided additional 
clarity by inserting ``documented'' before the word ``damage'' to make 
clear servicer must document the damage.
Sec.  1005.773 Acceptance of Property by HUD (Formerly Sec.  1005.771)
    Commenters stated that Part A claims are usually not paid for many 
months after the claim is filed, and that Sec.  1005.773(c) would 
unreasonably result in the servicer incurring costs during HUD's 
decision period to pay the claim. The commenter recommended that HUD 
reimburse the lender to maintain the property for this length of time. 
Similarly, the commenters stated that Sec.  1005.773(a)(1) through (3), 
(b)(1) through (3), and (c) significantly depart from the current 
Section 184 Program and place additional burden on the servicer. The 
commenters recommended that Sec.  1005.807 be expanded to clarify that 
the servicer will be reimbursed until HUD accepts the property.
    HUD Response: HUD appreciates the commenters' concerns and has 
worked to provide claim payments in a timely manner, once the claim 
payment is submitted in a format requested by HUD and includes all 
documents necessary to file a claim. In accordance with Sec.  1005.839, 
the claim is paid based on the earlier of the execution of deed-in-
lieu/lease-in-lieu of foreclosure; the execution of the conveyance to 
either servicer, HUD or a third-party; the execution of the assignment 
of the Section 184 Guaranteed Loan to HUD; the expiration of the 
reasonable diligence timeframe; or other event as prescribed by Section 
184 Program Guidance. As a result, HUD is revising Sec.  1005.807(b) to 
address the reimbursement of reasonable expenses and provide that HUD 
will establish reasonable exceptions in Section 184 Program Guidance.
    Several commenters stated the servicers needed guidance on expenses 
related to loans in default. The commenter stated that current program 
practice leaves a gap in expenses between when a foreclosure is 
completed and when a property is conveyed to HUD. As a result, the 
servicer incurs expenses to maintain and protect the property and 
cannot recover these expenses through a claim. The commenters believe 
that requiring servicers to absorb unreimbursed losses to protect 
properties for HUD is not a reasonable policy, nor is it in line with 
how FHA, VA, USDA, and the GSEs handle similar issues.
    HUD Response: HUD thanks the commenters for the comments. HUD 
incorporated the interest on unpaid principal balance and reimbursement 
for reasonable costs policies from HUD's April 30, 2019, letter to 
lenders into Sec. Sec.  1005.839 and 1005.841. With respect to 
reimbursement of reasonable expenses, HUD has revised Sec.  1005.807(b) 
to provide HUD with the flexibility to provide exceptions regarding the 
reimbursement of reasonable expenses. HUD will provide administrative 
guidance on reimbursement of reasonable expenses.

[[Page 20054]]

Sec.  1005.807 Claim Submission Categories
    A commenter sought clarification in Sec.  1005.807(a), (b), and (c) 
of the term ``Conveyance'' and when it is completed. Under paragraph 
(b), commenters also sought clarification of the provision ``execution 
of assignment,'' and proposed to include the reimbursement of the final 
title work, as this is required under Sec.  1005.819(a)(1). The 
commenter also proposed the addition of a claim for loss mitigation 
incentives and loss mitigation advance.
    HUD Response: HUD appreciates the request for clarification. Under 
this final rule, HUD will use the same earlier of deadlines for payment 
of reimbursable claim expenses as is outlined in Sec.  1005.839(a) 
through (e) for reimbursement of interest payments. HUD has clarified 
Sec.  1005.807 to specifically set the deadline for reimbursement and 
will provide exceptions by Section 184 Program Guidance.
Sec.  1005.809 Claim Types
    One commenter asked HUD to confirm, under Sec.  1005.809(a)(1), 
whether the initial conveyance claim to HUD would need to be submitted 
to HUD within 45 days from the executed deed instead of the industry 
standard of two days when submitted electronically. This commenter also 
asked HUD to confirm, under Sec.  1005.809(a)(2) and (3), whether HUD 
provides title approval, similar to current industry standard. The 
commenter further sought clarification as to whether servicers will be 
able to submit a B Claim after the 60 days for claim payment under 
paragraph (a)(4) of the section. In Sec.  1005.809(c), the commenter 
asked HUD to confirm whether the Conveyance Without Title Claims 
(CWCOT) are submitted to HUD within 180 days from when a property is 
conveyed to HUD, which is different from the industry standard to 
submit CWCOT within 30 days from receipt of third-party proceeds.
    The commenter asked HUD to confirm in Sec.  1005.809(d) whether the 
pre-foreclosure claims (PFS) are to be submitted to HUD within 45 days 
of sale date, while the industry standard is 30 days from the closing 
date (settlement date on HUD-1). The commenter also asked HUD to 
confirm whether under paragraph (d) of the section, a Deed-in-Lieu 
(DIL) is to be submitted to HUD within 45 days of executed conveyance 
deed to HUD, while industry standard is 30 days from executed 
conveyance deed.
    Finally, the commenter also asked whether under Sec.  1005.809(e) 
servicers are only allowed to submit supplemental claims to HUD for 
only conveyance and assignment claims, because based on the industry 
standards, servicers can file supplemental claims for conveyance, 
assignment, PFS, DIL, and CWCOT. (0023) Lastly, the commenter asked HUD 
to confirm if supplemental claims under paragraph (e)(2) are to be 
submitted to HUD within 6 months from final claim (Part B) submitted 
date, because the industry standard is supplemental claims are filed 
within six months from final claim payment date (advice of payment 
settlement date or wire date). (0023)
    HUD Response: HUD agrees with many of the comments on this section. 
Accordingly, HUD has revised paragraph (a)(1) to match the industry 
standard of two days and to clarify the delivery requirement for claims 
under Sec.  1005.807(a)(4). Section 184 Program Guidance will provide 
instructions on the submission of final title. HUD has also revised 
paragraphs (c) and (d) of the section to reflect industry standards. 
Section Sec.  1005.809(e) has also been revised to clarify Supplemental 
Claims may be submitted for all claim types found in Sec. Sec.  
1005.809(a) through (d).
Sec.  1005.817 Conveyance of Good and Marketable Title
    One commenter found the current paragraph (a) unnecessary as its 
sole purpose is to cite to Sec.  1005.103 as the location of the ``Good 
and Marketable Title'' definition.
    HUD Response: HUD agrees with the commenter and deleted paragraph 
(a) since it is unnecessary to restate a term that is defined in 
section Sec.  1005.103.
Sec.  1005.821 Coverage of Title Evidence
    One commenter stated that a Title Status Report (TSR) does not 
always show certain information such as outstanding prior liens, 
including any past-due and unpaid ground rents, general taxes, or 
special assessments. The commenter further stated that while this 
information may be included in title commitments, title commitments 
sometimes are not available for trust land. As a result, the commenter 
recommended that paragraph (a) of the section be revised to remove, 
``The evidence of title or TSR further show that, according to the 
public records, there are no outstanding prior liens, including any 
past-due and ground rents, general taxes or special assessments, if 
applicable, on the date of Conveyance or assignment'' to ensure the 
borrowers' ability to comply:
    HUD Response: HUD appreciates commenters' input. HUD has revised 
paragraph (a) of this section to expand the eligible sources of 
information acceptable to verify all liens have been released and there 
are no outstanding rents, taxes, or special assessments. Additionally, 
the initial TSR provided by the BIA will disclose all existing 
encumbrances. If these encumbrances no longer appear on the Final TSR, 
they have been released by the BIA.
Sec.  1005.835 Claim Payment Not Conclusive Evidence of Claim Meeting 
All HUD Requirements
    One commenter disfavored HUD's ability to review a loan file up to 
five years after claim payment. The commenter believed this has the 
effect of weakening the loan guarantee.
    HUD Response: HUD appreciates the commenters' input but does not 
agree permitting HUD to review a loan after claim payment has the 
effect of weaking the loan guarantee. Lenders and servicers are always 
required to comply with all applicable Section 184 regulations. The 
final rule does not change this current policy to be consistent with 
FHA, which has no official limitation on the timeframe it has to review 
a loan post-endorsement or post-claim. Accordingly, HUD removed the 
five-year reference in the regulation. HUD will provide information 
regarding monitoring and quality control reviews of Direct Guarantee 
Lenders in the Section 184 Program Guidance.

IV. 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.

[[Page 20055]]

    In addition to the Tribal consultation sessions held before and 
during the drafting of the proposed rule, HUD conducted ten additional 
consultations during the public comment period. HUD held six regional 
consultation sessions and four national consultation sessions between 
December 2022 and March 2023. During these consultation sessions, HUD 
mainly answered questions participants had about the proposed rule. HUD 
did receive comments about setting a minimum threshold of Trust land 
lending (Sec.  1005.219(e)) and possible data collection from Tribal 
participants (Sec.  1005.313). HUD considered these comments during the 
drafting of the final rule and will continue to consider these comments 
during the drafting of any subsequent Federal Register Notice or other 
Section 184 Program Guidance related to these two sections.
    Tribal feedback has been an integral part of the process to develop 
the rule. Throughout the consultation process, HUD used Tribal feedback 
to refine and improve this 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.

V. Findings and Certifications

Regulatory Review--Executive Orders 12866, 13563, and 14094

    Pursuant to Executive Order 12866 (Regulatory Planning and Review), 
a determination must be made whether a regulatory action is 
significant, and therefore, subject to review by OMB in accordance with 
the requirements of the order. Executive Order 13563 (Improving 
Regulations and Regulatory Review) directs executive agencies to 
analyze regulations that are ``outmoded, ineffective, insufficient, or 
excessively burdensome, and to modify, streamline, expand, or repeal 
them in accordance with what has been learned.'' Executive Order 13563 
also directs that, where relevant, feasible, and consistent with 
regulatory objectives, and to the extent permitted by law, agencies are 
to identify and consider regulatory approaches that reduce burdens and 
maintain flexibility and freedom of choice for the public. Executive 
Order 14094 (Modernizing Regulatory Review) amends section 3(f) of 
Executive Order 12866 (Regulatory Planning and Review), among other 
things.
    Under Executive Order 12866 (Regulatory Planning and Review), as 
amended by Executive Order 14094 (Modernizing Regulatory Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by OMB in accordance with the 
requirements of the order. This final rule, as discussed above, 
introduces changes to make the program sustainable, protect Borrowers, 
address recommendations by the OIG in areas such as underwriting and 
the claims process, and provide clarity for new and existing Direct and 
Non-Direct Guarantee Lenders, Holders and Servicers who participate in 
the Section 184 Program. These changes allow for Holders, Servicers, 
Direct Guarantee Lenders and Non-Direct Guarantee 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 Direct Guarantee and Non-
Direct Guarantee 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 final rule was determined to be a significant regulatory 
action under section 3(f) of Executive Order 12866 (Regulatory Planning 
and Review) as amended by Executive Order 14094 (Modernizing Regulatory 
Review), and therefore was reviewed by OMB. However, this final rule 
was not deemed to be significant under Section 3(f)(1). Because program 
participants have long followed the substantive standards that this 
final rule would establish, HUD anticipates that this final 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). HUD welcomes 
and is prepared to receive calls from individuals who are deaf or hard 
of hearing, as well as individuals with speech or 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.

Paperwork Reduction Act

    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 
control number. The information collection requirements contained in 
this proposed rule have been approved by the OMB under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control 
number 2577-0200.

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 final 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 has 
determined that this rule would not have a significant economic impact 
on a substantial number of small entities.

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 final rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

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.

[[Page 20056]]

4332(2)(C)). The FONSI is available for public inspection at both 
https://www.regulations.gov and 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).). HUD 
welcomes and is prepared to receive calls from individuals who are deaf 
or hard of hearing, as well as individuals with speech or 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.

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 final 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 amends 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, 35 FR 
4247, 3 CFR, 1966-1970, Comp., p. 902, as amended by E.O. 11991, 3 
CFR, 1977, Comp., p. 123; E.O. 13807, 3 CFR, 2017, Comp.; p. 369)


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 an Indian reservation, and on fee land owned by the 
Indian Tribe outside of the Tribe's Indian reservation boundaries, 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 an Indian reservation and on fee land 
owned by the Indian Tribe outside the Tribe's Indian Reservation 
boundaries, 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.
1005.102 Severability.
1005.103 Definitions.
Subpart B--Lender Eligibility and Requirements
1005.201 Lender Applicant approval and participation.
1005.203 Lender Applicants deemed approved by statute.
1005.205 Lender Applicants required to obtain Secretarial approval.
1005.207 Lender Applicants 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 Direct Guarantee Lender annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Direct Guarantee Lender Annual recertification 
requirements.
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 annual recertification.
1005.309 Tribal duty to report proposed changes and actual 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 endorsement.
1005.461 HUD issuance of Firm Commitment.
Subpart E--Closing and Endorsement

Closing

1005.501 Direct Guarantee Lender closing requirements.
1005.503 Contents of endorsement case binder.
1005.505 Payment of Upfront Loan Guarantee Fee.

[[Page 20057]]

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.

Endorsement and Post-Closing

1005.519 Creation of the contract.
1005.521 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 Up-Front Loan Guarantee Fee.
1005.605 Remittance of Up-Front 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 or abandoned 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 Loss mitigation advance
1005.753 Pre-foreclosure sale.
1005.755 Deed-in-lieu/lease-in-lieu of foreclosure.
1005.757 Incentive payments.

Assignment of the Loan to HUD; Foreclosure and Conveyance

1005.759 Property on Trust Land--Tribal First Right of Refusal; 
foreclosure or assignment
1005.761 Fee simple land properties--foreclosure or assignment with 
HUD approval.
1005.763 First Legal Action deadline and automatic extensions.
1005.765 Assignment of the Section 184 Guaranteed Loan.
1005.767 Inspection and preservation of properties.
1005.769 Property condition.
1005.771 Conveyance of property to HUD at or after foreclosure; time 
of conveyance.
1005.773 HUD acceptance of assignment or conveyance.
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 Up-front 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--Performance Reviews, Reporting, Sanctions, and Appeals
1005.901 Performance reviews.
1005.903 Reporting and certifications.
1005.905 Notice of sanctions.
1005.907 Sanctions and civil money penalties.
1005.909 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 Housing 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 Lender Applicants, 
Holders, Direct and Non-Direct Guarantee Lenders, Servicers and Tribes 
seeking to or currently participating in the Section 184 Program.


Sec.  1005.102   Severability.

    Any provision of this part held to be invalid or unenforceable as 
applied to any action should be construed so as to continue to give the 
maximum effect to the provision permitted by law, unless such holding 
is that the provision of this part is invalid and unenforceable in all 
circumstances, in which event the provision should be severable from 
the remainder of this part and shall not affect the remainder thereof.


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.

[[Page 20058]]

    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 the 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.
    Borrower means every individual on the mortgage application. For 
the purposes of servicing the loan, Borrower refers to every original 
Borrower who signed the note and their heirs, executors, 
administrators, assigns, and approved substitute Borrowers. Borrowers 
include 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.
    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.
    Direct Guarantee Lender means a Lender approved by HUD under Sec.  
1005.21 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 notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process.
    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 by HUD; 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, evidence of 
Good and Marketable Title must be reported in the Title Status Report 
issued by the BIA, or other HUD approved document issued by the Tribe, 
as prescribed by Section 184 Program Guidance and the document 
evidences the property interest rights.
    Holder means an entity that is named on the Promissory Note and any 
successor or assigns for the Section 184 Guaranteed Loan and has the 
right and responsibilities to enforce the Section 184 requirements and 
the Holder's interests arising under the mortgage or deed of trust.
    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 by a federally 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 Applicant means:
    (1) 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;
    (2) The financial institution has applied or will apply to HUD for 
approval to participate in the Section 184 Program; and
    (3) Has not received approval from HUD.
    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 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, originate, or originating 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 the 
property as shown on the records of the recorder in the county where 
the property is located. For Trust Land Properties, the current lessee 
or owner of property, as shown on the Title Status Report provided by 
the BIA or other HUD approved document issued by the Tribe, as 
prescribed by Section 184 Program Guidance and the document evidences 
the property interest rights.
    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 one to four-family dwellings that meet 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 Guaranteed Loan is a Loan that has received a Loan 
Guarantee Certificate.

[[Page 20059]]

    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 Program Guidance means administrative guidance 
documents that may be issued by HUD, including but not limited to 
Federal Register documents, 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 service 
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.
    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, or any successor 
section, 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 the Tribe. This definition shall include but is not limited 
to Tribal, individual, assigned trust, or restricted fee 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 and Requirements


Sec.  1005.201   Lender Applicant approval and participation.

    (a) Approval types. The Section 184 Program has two types of Lender 
Applicant approvals:
    (1) Lender Applicants deemed approved by statute, as described in 
Sec.  1005.203; or
    (2) Lender Applicants required to obtain secretarial approval under 
Sec.  1005.205.
    (b) Lender Applicant participation. In accordance with Sec.  
1005.207, Lender Applicants 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   Lender Applicants deemed approved by statute.

    The following Lender Applicants are deemed approved by statute:
    (a) Any mortgagee approved by HUD for participation in the single-
family mortgage insurance program under title II of the National 
Housing Act;
    (b) Any Lender Applicant whose housing loan under chapter 37 of 
title 38, United States Code are automatically guaranteed pursuant to 
38 U.S.C. 3702(d);
    (c) Any Lender Applicant approved by the U.S. Department of 
Agriculture to make Guaranteed Loans for single family housing under 
the Housing Act of 1949; and
    (d) Any other Lender Applicant 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.


Sec.  1005.205   Lender Applicants required to obtain Secretarial 
approval.

    (a) Lender Applicant application process. Lender Applicants 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 Applicant 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 paragraphs (a)(1)(i)(C) and (D) of this 
section. 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 Applicant 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 Applicant 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

[[Page 20060]]

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 
Applicant 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 
Applicant shall identify officers and certify that all employees who 
will sign applications for Guaranteed Loans on behalf of the Lender 
Applicant shall be corporate officers or shall otherwise be authorized 
to bind the Lender in the Origination transaction. The Lender Applicant 
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 Applicant shall:
    (i) Furnish to HUD a copy of its most current annual financial 
statements, as prescribed by Section 184 Program Guidance.
    (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 Applicant shall submit a 
written quality control plan in accordance with Sec.  1005.217.
    (6) Identification of branch offices. A Lender Applicant 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 
Applicant 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 Applicant shall not 
pay a referral fee to any person or organization.
    (8) Licensing certification. A Lender Applicant shall certify that 
it has not been refused a license or has not been sanctioned by any 
Tribal, Federal, State, or other authority related to any lending 
activity.
    (9) Minimum net worth. Irrespective of size, a Lender Applicant 
shall have a net worth of not less than $1 million, or amount as 
provided in Section 184 Program Guidance.
    (10) Identification of operating area. The Lender Applicant must 
submit a list of states in which they wish to participate in the 
Section 184 Program and evidence of Lender Applicant's license to 
operate in those states, as may be prescribed by Section 184 Program 
Guidance.
    (11) Other qualifications. 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 Applicant, its officers, and employees. If HUD determines the 
Lender Applicant meets the requirements for participation in this 
subpart, HUD shall provide written notification of the approval to be a 
Non-Direct Guarantee Lender.
    (c) Limitations on approval. A Lender Applicant may only operate in 
the Section 184 Approved Program Area where they are licensed.
    (d) Denial of participation. A Lender Applicant may be denied 
approval to become a Section 184 Lender if HUD determines the Lender 
Applicant 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 Applicant participation options.

    (a) Levels of participation. Lender Applicants 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 Applicant 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, Lender Applicants 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) For purposes of this section, Lender Applicants shall include 
Non-Direct Guarantee Lenders, Lender Applicants and financial 
institutions approved by HUD to only service under Sec.  1005.705. 
Lender Applicants may apply to HUD for approval to participate in the 
Section 184 Program as a Direct Guarantee Lender. Lenders Applicants 
must submit a completed application package in accordance with Section 
184 Program Guidance.
    (b) To be approved as a Direct Guarantee Lender, a Lender Applicant 
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 applicant 
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 Applicant;
    (iii) Authorized by the Lender Applicant to obligate the Lender 
Applicant on matters involving the origination of Loans;

[[Page 20061]]

    (iv) Is registered with HUD as an underwriter and continues to 
maintain such registration; and
    (v) Other qualifications as may be prescribed by Section 184 
Program Guidance.
    (c) The Lender Applicant 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 Applicant must submit the quality control plan as 
required by its approving agency, modified for the Section 184 Program.
    (e) If a Lender Applicant wants to service Section 184 Guaranteed 
Loans as Direct Guarantee Lender, they must meet qualifications and 
apply in accordance with Sec.  1005.703.


Sec.  1005.211   Direct Guarantee Lender approval.

    HUD shall review all documents submitted by a Lender Applicant 
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 Applicant is a 
conditionally approved Direct Guarantee Lender under the Section 184 
Program subject to the following conditions:
    (1) The Lender Applicant signs an agreement to comply with 
requirements of this part, and any applicable Tribal, Federal, or State 
law; and
    (2) If applicable, the Lender Applicant 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.
    (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 Applicant 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 Applicant must, for each underwriter, submit ten 
test endorsement case binders, or a number prescribed by Section 184 
Program Guidance, which meet the requirements of subparts D and E. 
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; and
    (5) The Lender Applicant 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 Applicant 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 Applicant 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 Applicant 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 Applicant to 
sanctions under Sec.  1005.907.
    (d) Denial of participation. A Lender Applicant may be denied 
approval to become a Direct Guarantee Lender if HUD determines the 
Lender Applicant 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. Sec.  1005. 205(b) or 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.
    (7) The Sponsor is responsible for maintaining all records for 
Loans Originated by a Sponsored Entity in accordance with this part.
    (c) Responsibilities of the Sponsored Entity. A Sponsor must ensure 
that a Sponsored Entity complies with this part and any other Tribal, 
Federal, or State law requirements.


Sec.  1005.215   Direct Guarantee Lender annual reporting requirements.

    Direct Guarantee Lenders must submit an annual report on Loan 
performance, including reporting on all its 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 Applicant, Direct 
Guarantee Lender, or Non-Direct Guarantee Lender's procedures for 
ensuring the quality of the Direct Guarantee or Non-Direct Guarantee 
Lender's Section 184 Guaranteed Loan Origination, underwriting, 
closing, and/or servicing, as applicable. The purpose of the quality 
control plan is to ensure the Lender Applicant, Direct Guarantee and 
non-Direct Guarantee Lender's compliance with Section 184 Program 
requirements and protect HUD and the entities from unacceptable or 
unreasonable risks. A Lender Applicant, Direct Guarantee Lender, and 
Non-Direct Guarantee 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

[[Page 20062]]

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 Applicant, Direct Guarantee or Non-Direct 
Guarantee 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 Applicant, Direct Guarantee or Non-Direct 
Guarantee 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 Applicant, Direct Guarantee or Non-Direct 
Guarantee Lender assumes full responsibility for any agent's conduct of 
quality control reviews.
    (7) Require the Lender Applicant, Direct Guarantee or Non-Direct 
Guarantee 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, Direct Guarantee or Non-Direct Guarantee 
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 Direct Guarantee Lender and Non-Direct 
Guarantee Lender to sanctions in accordance with Sec.  1005.907.
    (8) Require the Lender Applicant, Direct Guarantee or Non-Direct 
Guarantee 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 of ensuring 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 
Applicant, Direct Guarantee or Non-Direct Guarantee Lender must submit 
a report of this review in form and timeframe as prescribed in Section 
184 Program Guidance.
    (9) Ensure that the Lender Applicant, Direct Guarantee or Non-
Direct Guarantee Lender's employees and agents are eligible to 
participate in the Section 184 Program. Any employees or agents deemed 
ineligible shall be restricted from participating in the Section 184 
Program.
    (10) Require the Lender Applicant, Direct Guarantee or Non-Direct 
Guarantee Lender to refer any suspected fraud or material 
misrepresentation by any party whatsoever directly to HUD's Office of 
Inspector General (OIG) and the Office of Native American Programs.
    (11) Require the Lender Applicant, Direct Guarantee or Non-Direct 
Guarantee Lender to report all material deficiencies and submit a 
corrective action plan to HUD within 30 days, or a timeframe as 
prescribed by Section 184 Program Guidance.
    (12) Require the Lender Applicant, Direct Guarantee or Non-Direct 
Guarantee Lender to conduct appropriate Loan level quality control 
procedures, in accordance with Section 184 Program Guidance.
    (13) Require the Lender Applicant to comply with any other 
administrative requirement as may be prescribed by Section 184 Program 
Guidance.
    (c) Lender Applicants applying to 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 Applicant 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 Applicant to verify that the endorsement 
case binder is submitted to HUD for guarantee within required time 
frames.
    (3) Require the Lender Applicant 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 
Applicant must investigate and determine if fraud, material 
misrepresentation or other findings occurred.
    (4) Require the Lender Applicant 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 paragraph (b) 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) Tribal, Federal, and State law. All Holders, Direct Guarantee 
Lenders, Non-Direct Guarantee Lenders and Servicers must comply with 
all applicable Tribal, Federal, and State 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 Non-Direct Guarantee and Direct Guarantee 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. Non-Direct Guarantee 
Lenders must submit required reports to their Sponsor, under this part 
or any requirements as prescribed by Section 184 Program Guidance.
    (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 Lenders 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.
    (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 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.

[[Page 20063]]

    (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 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   Direct Guarantee Lender Annual recertification 
requirements.

    (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 or 
sanctioned by any Tribe, State, or Federal entity or other governmental 
authority related to any lending activity;
    (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.
    (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) All reports.
    (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 a request must be presented to HUD 
at least 30 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.
    (1) 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.
    (2) [Reserved]


Sec.  1005.225   Program ineligibility.

    A Lender Applicant, 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:
    (a) 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;
    (b) Indicted for, or have been convicted of, an offense that 
reflects adversely upon the integrity, competency, or fitness to meet 
the responsibilities of the Lender, 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;
    (c) Found to have unresolved findings as a result of HUD or other 
governmental audit, investigation, or review;
    (d) Engaged in business practices that do not conform to generally 
accepted practices of prudent Lender Applicants, Direct or Non-Direct 
Guarantee Lenders or that demonstrate irresponsibility;
    (e) 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;
    (f) 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
    (g) In violation of 12 U.S.C. 1715z-13a.

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 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) When Tribes are notified of the Borrower's default in 
accordance with Sec.  1005.501(j) or when the Tribe receives notice of 
Tribal right of first refusal pursuant to Sec.  1005.759, Tribes must 
assist, where practical, in facilitating loss mitigation and 
disposition, such as assisting with identifying potential purchasers or 
identifying Tribal members who may wish to assume the loan, encouraging 
Borrower to execute Lease-in-Lieu, and providing other general 
assistance to the Borrower.
    (4) Tribes must notify HUD in writing when the Tribe determines a 
property is vacant or abandoned and the property is not secured by the 
Servicer or HUD.
    (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

[[Page 20064]]

unwilling or unable to successfully complete loss mitigation in 
accordance with subpart G of this part; and Servicer either completes 
First Legal Action against the Borrower, or assigns the loan to HUD 
after completing Tribal first right of refusal in accordance with Sec.  
1005.759:
    (i) The Tribe must demonstrate that a foreclosure will be processed 
through the legal systems having jurisdiction over the Section 184 
Guaranteed Loan. A foreclosure must be held in a court of competent 
jurisdiction, which includes Federal courts, when HUD forecloses on the 
property.
    (ii) Foreclosure ordinances must allow for the legal systems with 
jurisdiction to assign Borrower's property interest to HUD or Holder.
    (iii) Where applicable, if the Holder assigns the Section 184 
Guaranteed Loan to HUD without initiating or completing the foreclosure 
process, or the property becomes vacant and abandoned during the loss 
mitigation or foreclosure process, the Tribe may assign the lease to 
HUD to facilitate disposition of the property, so long as the Tribe 
provides due process to the lessee in compliance with Tribal law.
    (2) Property disposition. Once a lease is vacated or reassigned, or 
the property interest has otherwise been conveyed to HUD or the Holder, 
the Tribe or the TDHE shall work with HUD or the Holder 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 conveyance of the property 
interest to HUD or the Holder; 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 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 Tribe and/or BIA, as applicable.
    (5) Lease provisions for Trust Land. Where applicable, the lease 
provisions for Trust Land must meet the following requirements:
    (i) Tribes may use a HUD model lease for Section 184 Guaranteed 
Loan lending on Trust Land. The Tribe may make modifications to the HUD 
model lease, with the approval of HUD and, as applicable, BIA.
    (ii) Tribes may draft their own lease in compliance with Federal 
requirements and contain mandatory lease terms and language as 
prescribed in Section 184 Program Guidance, with approval of HUD and, 
as applicable, BIA. At a minimum the lease must:
    (A) Identify lessor;
    (B) Identify the lessee;
    (C) Provide a legal description of the land and identify the 
property address covered by the lease;
    (D) The lease must have a minimum term of 50 years unless an 
extended term is approved by the Secretary. For refinances or lease 
transfers the lease must have a remaining term which exceeds the 
maturity date of the Loan by a minimum of ten years, or other period as 
prescribed by Section 184 Program Guidance.
    (E) The lease must be executed by all interested parties to be 
enforceable;
    (F) The Tribe shall require HUD consent for any lease termination 
or assignment of the lease when the Section 184 Guaranteed Loan is 
secured by the property.
    (G)(1) The lease must contain the following provision: ``In the 
case of a default on a Section 184 Guaranteed Loan:
    (i) The lessee may assign the lease and deliver possession of the 
leased premises, including any improvements thereon, to HUD; or
    (ii) The lessor may assign the lease and deliver possession of the 
leased premises, including any improvements thereon, to HUD when the 
Tribe has provided due process to lessee in compliance with Tribal law.
    (2) HUD may transfer this lease and the leased premises to a 
successor lessee if the successor lessee is another member of the Tribe 
or Tribal entity, as approved by the Tribe.''
    (H) Lease language as prescribed by Section 184 Program Guidance.
    (I) 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 annual 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   Tribal duty to report proposed changes and actual 
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. Tribes shall obtain HUD approval of the changes in 
the foreclosure, eviction, lease, and lien priority ordinances. HUD 
will provide written notification to the Tribe of HUD's review of the 
proposed ordinance changes and advise the Tribe 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.

[[Page 20065]]

Sec.  1005.313   Tribal reporting requirements.

    The Tribe shall provide 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. Eligible Borrowers are Indian Families, 
Tribes, or TDHEs.
    (b) Documentation. Indian Family Borrowers must document their 
status as American Indian or Alaska Native through evidence as 
prescribed by Section 184 Program Guidance.
    (c) Limitation on the number of loans. An Indian Family Borrower is 
limited to one Section 184 Guaranteed Loan, for primary residence, at a 
time unless the Indian Family Borrower is a non-occupant co-Borrower on 
one other Section 184 Guaranteed Loan. An Indian Family Borrower and/or 
non-occupant co-Borrower must meet all other applicable requirements of 
this subpart and any guidance provided in Section 184 Program Guidance.


Sec.  1005.403   Principal Residence.

    (a) Principal Residence. Means the dwelling where the Indian Family 
Borrower maintains as a permanent place of abode. An Indian Family 
Borrower may have only one Principal Residence at any one time.
    (b) Occupancy requirement. An Indian Family Borrower must occupy 
the property as a Principal Residence. Borrowers who are a TDHE or a 
Tribe do not need to occupy the property as a Principal Residence and 
are not subject to the occupancy requirement.
    (c) Non-occupant co-Borrower. A co-Borrower who does not occupy the 
property as a principal resident is permitted and is not subject to 
paragraphs (a) and (b) of this section. A non-occupant co-Borrower must 
be related by blood, or an unrelated individual who can document 
evidence of a family-type, longstanding, and substantial relationship 
not arising out of the loan transaction. A non-occupant co-Borrower 
must meet all other applicable requirements of this subpart and any 
requirements as may be established in Section 184 Program Guidance.


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 
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 age, race, color, national origin, religion, sex (including 
gender identity and sexual orientation), familial status, disability, 
marital status, source of income of the Borrower, 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 Loan which resulted in a Claim payment by HUD, the Borrower 
shall be subject to a 7-year waiting period or other 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 
other property interest on Trust Land. Where the 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 and submit to HUD documentation verifying that the seller is the 
Owner of Record as part of the application for a loan guarantee under 
the Section 184 Program. Documentation must conform with the 
requirements set out in Section 184 Program Guidance. This 
documentation may include, but is not limited to, a property ownership 
history report from the State or local government, a copy of the 
recorded deed or other HUD approved document issued by the Tribe, as 
provided by Section 184 Program Guidance and the document evidences the 
property interest rights, as permitted by this subpart 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 the 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 under the Section 184 
Program.
    (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 
under the Section 184 Program.
    (ii) However, HUD will require that the Direct Guarantee Lender 
obtain additional documentation if the re-sale price is 100 percent 
over the purchase

[[Page 20066]]

price. Such documentation must include a second appraisal from 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 may be required, as prescribed by 
Section 184 Program Guidance.
    (4) Authority to address property re-sales occurring between 181 
days and 12 months following acquisition. (i) If the re-sale date is 
more than 181 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 under the Section 184 Program.
    (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 Section 
184 Program Guidance.
    (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 under the Section 
184 Program.
    (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 
federally declared 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. Each dwelling unit located on a property 
guaranteed under the Section 184 Program must:
    (1) Be decent, safe, sanitary, and modest in size and design;
    (2) Conform with International Building Code, applicable general 
construction standards for the region, or other code as prescribed by 
Section 184 Program Guidance;
    (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 
International Building Code, or other code as prescribed by Section 184 
Program Guidance.
    (4) Contains a plumbing system that:
    (i) Uses a properly installed system of piping;
    (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 building code or, if there is no 
applicable Tribal code, the minimum building standards established by 
the appropriate local or State code, or the International Building 
Code, or other code as prescribed by Section 184 Program Guidance;
    (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 International Building Code, or other code 
as prescribed by Section 184 Program Guidance;
    (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 TDHE, HUD may waive the 
minimum square footage requirements under paragraphs (a)(6)(i) through 
(iv) of this section.
    (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) One to four dwelling unit properties. Properties containing one 
to four dwelling units:
    (1) Must meet local zoning requirements;
    (2) For 2-4 dwelling unit properties, units may be attached or 
detached; and
    (3) Must have all dwelling unit(s) located on the property and 
included in the parcel legal description recorded under the loan.
    (d) 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.
    (e) Environmental review procedures. (1) The regulations in 24 CFR 
1000.20 apply to an environmental review for Trust Land and for fee 
land within an Indian reservation, and on fee land owned by the Indian 
Tribe outside of the Tribe's Indian reservation

[[Page 20067]]

boundaries, 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 24 CFR part 58 or 50, as appropriate.
    (3) If the Loan involves proposed or new construction, HUD will 
require the Direct Guarantee 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;
    (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.
    (f) Flood insurance--(1) Special Flood Hazard Areas. 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 
unless insurance under the National Flood Insurance Program (NFIP), or 
notwithstanding 24 CFR 58.6(a), private flood insurance in lieu of NFIP 
insurance is secured for the property.
    (2) 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 Guaranteed Loan 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., notwithstanding 24 CFR 58.6(a),
    (3) Required flood insurance amount. Where flood insurance is 
required under paragraph (f)(1) of this section, flood insurance, 
whether NFIP insurance or private flood insurance in lieu of NFIP, must 
be maintained for the life of the Section 184 Guaranteed Loan in an 
amount that is not less than the lessor of:
    (i) The project cost less the estimated land cost;
    (ii) The outstanding principal balance of the loan; or,
    (iii) For NFIP insurance only, the maximum amount available with 
respect to the property improvements;
    (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 provide all eligibility documentation 
obtained under paragraph (e)(2) of this section.
    (g) 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.
    (h) 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.


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 paragraphs 
(b)(1) through (4) of this section:
    (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 financing 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.

[[Page 20068]]

    (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, Federal, 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 a 
property, which may contain up to four dwelling units. The Borrower 
must occupy one unit on the property 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 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 applicable Section 184 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 (c) through (f) of this section.
    (c) General requirements. All types of refinances are subject to 
the following requirements:
    (1) The term of the refinancing 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 Up-Front Loan Guarantee Fee was financed as part of the 
existing Section 184 Guaranteed Loan, 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 Up-Front 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.
    (5) The new loan must meet all other applicable Section 184 
requirements, including maximum loan to value ratios, as prescribed by 
Section 184 Program Guidance.
    (d) Rate and Term Refinance Transaction. (1) Rate and term 
refinance is the refinancing of an existing mortgage 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 Transaction must meet the following 
requirements:
    (i) The new 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 new 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.
    (iii) The new Loan is not subject to paragraphs (d)(2)(i) and (ii) 
of this section for an existing mortgage used to construct the property 
and where the property has been completed for less than one year. The 
new loan must be in an amount not to exceed the unpaid principal 
balance plus loan closing charges and allowable fees approved by HUD, 
plus, at Borrower's option, additional construction costs paid in cash 
by the Borrower, that were not included in the original construction 
contract.
    (e) Streamline Refinance Transaction. Streamline Refinance 
Transaction refers to the refinance of an existing Section 184 
Guaranteed Loan requiring limited Borrower credit documentation and 
underwriting.
    (1) The new loan must be in an amount that does not exceed the 
unpaid principal balance of the existing Section 184 Guaranteed Loan.
    (2) The new loan 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 new loan must be 
subject to an appraisal.
    (f) Cash-out refinance transaction. (1) A Cash-out refinance 
transaction is when the new Loan is made for an amount larger than the 
existing mortgage's 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 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:
    (a) For manufactured homes located on a fee simple property. (1) A 
manufactured home, as erected on the property, 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(s) and site, shall 
constitute a loan on a property, and classified and taxed as real 
estate, as applicable.
    (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) A manufactured home shall be erected on a site-built permanent 
foundation and shall be permanently attached thereto by anchoring 
devices adequate for all loads in accordance with 24 CFR part 3286. 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 property not addressed by the Manufactured Home 
Construction and Safety Standards shall

[[Page 20069]]

meet or exceed applicable requirements of the Minimum Property 
Standards (MPS).
    (ii) The space beneath a 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) A manufactured home shall be braced and stiffened before it 
leaves the factory to resist racking and potential damage during 
transportation.
    (iv) Section 1005.433 is modified to the extent provided in this 
paragraph. 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) A 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 
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 on Trust Land shall meet manufactured home installation standards 
pursuant to Tribal laws, if any. In the absence of Tribal laws, the 
requirements in paragraphs (a)(1), (3), and (4) of this section shall 
apply and other such requirements as established by Section 184 Program 
Guidance.


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 
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.

[[Page 20070]]

Eligible Loans


Sec.  1005.435   Eligible collateral.

    A Section 184 Guaranteed Loan 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 amortized.
    (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. HUD may guarantee loans 
from which advances will be made during construction when all 
applicable Section 184 Program requirements are met and all the 
following conditions are satisfied:
    (1) The Direct Guarantee Lender and Borrower execute a building 
Loan agreement, in the form prescribed by Section 184 Program Guidance, 
setting forth the terms and conditions under which advances will be 
made.
    (2) The advances may be made only as provided in the building loan 
agreement.
    (3) 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 building loan agreement;
    (4) 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.
    (h) Changes to the Loan Agreement. Notwithstanding paragraph (g)(2) 
of this section, changes to the building loan Agreement must be 
approved and documented by the Direct Guarantee Lender prior to the 
construction advance.
    (i) Documentation. Direct Guarantee Lender must submit a 
construction completion package to HUD, as prescribed in Section 184 
Program guidance.
    (j) Prepayment privilege. The Loan must contain a provision 
permitting the Borrower to prepay the Loan in whole or in part at any 
time. The Loan may not provide for the payment of any fee or penalty 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. The property may be subject to a junior lien held 
by a Tribe, Direct Guarantee Lender, TDHE, Federal, State, local 
government, or an Eligible Nonprofit Organization. Where applicable, a 
junior lien when intended to be utilized in conjunction with a Section 
184 loan, must be evaluated in the Section 184 underwriting process by 
the Direct Guarantee underwriter in accordance with Section 184 Program 
Guidance. In cases where a junior lien is recorded after the Section 
184 Loan Guarantee Certificate is issued, the junior lien must comply 
with this section.
    (1) Periodic payments, if any, 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 prior 
HUD acceptance, 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:
    (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

[[Page 20071]]

the date the Section 184 Program 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 lesser 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 Up-Front Loan Guarantee Fee. The 
Section 184 Guaranteed Loan limit may only be exceeded by the amount of 
the Up-Front 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.
    (b) To obtain a case number, the Direct Guarantee Lender must:
    (1) Have an active loan application from a Borrower(s) with an 
identified property;
    (2) Provide evidence of borrower eligibility, as prescribed in 
Sec.  1005.401(a);
    (3) Verify that the property is located in a Section 184 Approved 
Program Area;
    (4) Confirm that the Loan does not exceed the Section 184 Loan 
limit; and
    (5) Submit Loan specific information as prescribed in Section 184 
Program Guidance.
    (c) Case numbers are automatically cancelled after a period as 
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 and at loan closing may not be 
older than the 120 days, or another time period prescribed by Section 
184 Program Guidance. 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 time 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, the 
adequacy and stability of the Borrower's 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 all applicable Federal requirements, including but not 
limited to the Uniform Standards of Professional Appraisal Practice, 
Equal Credit Opportunity Act (15 U.S.C. 1691-1691f), and the Fair 
Housing Act (42 U.S.C. 3601-19). HUD may establish alternative 
requirements to Uniform Standards of Professional Appraisal Practice, 
when necessitated by location and availability of an appraiser, 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 
(including gender identity and sexual orientation), disability, 
familial status, national origin, or age in the selection of an 
appraiser. HUD may establish guidance regarding the alternatives to the 
use of an appraiser identified on the Federal Housing Administration 
Appraiser Roster, when necessitated by a rural or remote location and 
the availability of an appraiser.
    (c) 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.
    (d) A Direct Guarantee Lender that submits, or causes to be 
submitted, an

[[Page 20072]]

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.
    (e) The validity period of appraisals is 180 days or as provided by 
Section 184 Program Guidance.
    (f) Where the initial appraisal report will be more than 180 days 
at closing, an appraisal update may be performed to extend the 
appraisal validity period prior to closing, in accordance with Section 
184 Program Guidance. The updated appraisal is valid for one year after 
the effective date of the initial appraisal report; and
    (g) The appraisal shall meet other guidance as prescribed in 
Section 184 Program Guidance.


Sec.  1005.459   Loan submission to HUD for endorsement.

    (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, Direct Guarantee 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 prescribed in Section 184 Program 
Guidance.
    (f) Projected escrow. The Direct Guarantee Lender must establish an 
escrow account in accordance with Sec.  1005.717 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 and on a form provided by HUD, the Borrower must elect 
whether to authorize the Direct Guarantee Lender or Servicer to notify 
the Tribe in the event of a default, as prescribed in the Section 184 
Program Guidance.
    (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 Loan monthly payment the following charges and escrow 
payments:
    (1) The ground rents, if any, when the Tribe or TDHE does not have 
an existing withholding or payment policy in place;
    (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;
    (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:
    (7) Other charges as allowed in Section 184 Program Guidance.
    (b) The Section 184 Guaranteed Loan shall further provide that such 
payments shall be held by the Direct

[[Page 20073]]

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 of 
up to 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 Up-Front 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;
    (vii) Reasonable and customary charges in the nature of discounts; 
and
    (viii) Interest calculations in accordance with Sec.  1005.501(i).
    (ix) Such other reasonable and customary charges as may be 
authorized by HUD.
    (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 age, race, color, religion, sex 
(including gender identity and sexual orientation), disability, 
familial status, or national origin, source of income of the Borrower, 
location of the property, or because the Borrower exercised any right 
under the Consumer Credit Protection Act, 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 (including gender identity and sexual orientation), 
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. The Direct Guarantee 
Lender is 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   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 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:

[[Page 20074]]

    (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, unless otherwise approved by HUD, 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 is ineligible, HUD will provide the Direct 
Guarantee Lender with 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. HUD's issuance of the Loan 
Guarantee Certificate does not preclude HUD from conducting post-
endorsement reviews under Sec.  1005.527, seeking indemnification under 
Sec.  1005.529, or imposing sanctions from originating Direct Guarantee 
Lender, Holder and/or Servicer under Sec. Sec.  1005.905 and 1005.907.
    (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, where applicable, 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 TSR that identifies that the BIA or Tribe 
approved and recorded the mortgage instrument and residential lease 
related to the Section 184 Loan, as 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 Section 184 
Guaranteed Loan should not have been approved, HUD may request the 
originating Direct Guarantee Lender 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 Up-Front Loan Guarantee 
Fee, and a recurring Annual Loan Guarantee Fee where applicable, 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   Up-Front Loan Guarantee Fee.

    At settlement, the Direct Guarantee Lender will collect from the 
Borrower a one-time Up-Front 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 Up-Front Loan Guarantee Fee.

    The Direct Guarantee Lender shall remit the Up-Front 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 Up-Front Loan Guarantee 
Fee in the time and manner as may be prescribed in Section 184 Program 
Guidance.

[[Page 20075]]

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) Where applicable, 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) Where applicable, subject to the exception in paragraph (d) of 
this section, the Servicer shall continue to collect from the Borrower, 
as established by a schedule provided in Sec.  1005.607(b) 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. Any 
changes to the Annual Loan Guarantee Fee will be published in the 
Federal Register.
    (c) Where applicable, 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) Where applicable, 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 the Annual Loan 
Guarantee Fee termination threshold loan-to-value ratio as established 
by the Secretary in the Federal Register and 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 falls 
below the threshold established by the Secretary in the Federal 
Register, 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, if any, in accordance with the 
schedule provided in Sec.  1005.607(b) shall not be refundable to the 
Borrower.
    (f) Where applicable, 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 Holder, Direct Guarantee 
Lender or Servicer shall not recover or attempt to recover from the 
Borrower any penalties HUD imposes upon the Holder, Direct Guarantee 
Lender or Servicer.
    (b) Failure of Direct Guarantee Lender to timely remit Up-Front 
loan guarantee to HUD. (1) The Direct Guarantee Lender shall include a 
late fee if the Up-Front Loan Guarantee Fee is not remitted to HUD 
within 15 days of settlement.
    (2) Failure to remit the Up-Front 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 the15th 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 Holder 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 Holder 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. Late fees and penalty amounts 
under this section shall be prescribed by HUD in Section 184 Program 
Guidance.

[[Page 20076]]

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 
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 Holder 
and/or Servicer to sanctions pursuant to subpart I. Holders and 
Servicers must comply with all applicable Tribal, Federal, and State 
requirements related to mortgage servicing.


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 Lender or other financial 
institution must be an approved mortgage Servicer for 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) Direct Guarantee Lenders servicing Section 184 Guaranteed Loans 
prior to June 18, 2024 may request an exemption from paragraph (a) of 
this section.


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.
    (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 Holder and 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 15 days of the transfer, or timeframe as prescribed by Section 
184 Program Guidance.
    (3) The acquiring Servicer shall provide notice to the Borrower of 
the transfer of servicing in accordance with applicable Tribal, Federal 
and/or State 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 former 
Servicer (or former 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, within 15 days of transfer, or other time period 
as prescribed by Section 184 Program Guidance, of the transfer of 
servicing rights through the 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) Where applicable, 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 comply with any other reporting requirements 
under Sec.  1005.903.
    (4) The Servicer's failure to submit required reports on time may 
subject the Holder and/or Servicer to sanctions and civil money 
penalties pursuant to Sec. Sec.  1005.905 and 1005.907.
    (f) Business change reporting. Within a timeframe and on a 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 or another Federal 
agency 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

[[Page 20077]]

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
    (2) Indicted for, or have been convicted of, an offense during the 
7-year period preceding the date of the application for licensing and 
registration, or at any time preceding such date of the application, if 
such indictment or conviction 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.
    (ii) [Reserved]


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 applicable 
Tribal, Federal and/or State laws, 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 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 applicable Tribal, Federal and/
or State laws. Servicers must respond to Borrower inquiries pertaining 
to the transfer of Servicing in accordance applicable Tribal, Federal 
and/or State laws.
    (f) Servicers must respond to HUD's written or electronic requests 
for information concerning individual accounts within three business 
days, or other 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 an eligible substitute Borrower(s), 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 or Holder 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) As applicable, a lease approved by HUD, the 
Tribe or the BIA in the new Borrower's name is required. Servicers 
shall not proceed to closing on the assumption until and unless the 
Tribe has consented to assign the property interest to the new Borrower 
at closing. Where applicable, a final certified Title Status Report 
documenting the assignment of the lease or recordation of a new lease 
is required.
    (ii) Where applicable, 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).
    (iii) Other requirements prescribed in Section 184 Program 
Guidance.
    (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 review the assumption for compliance prior to issuing 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, as prescribed by Section 184 Program Guidance. 
The Servicer shall promptly advise HUD of any prohibited sale or other 
transfer of the property or leasehold interest that occurs. The 
Servicer must request

[[Page 20078]]

approval from HUD to accelerate the Loan when any prohibited sale or 
transfer occurs. If acceleration is permitted by applicable Tribal, 
Federal, or State law, the Servicer shall certify as to the legal 
authority as part of the request for 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;
    (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 Servicers, as may be prescribed 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 applicable Tribal, 
Federal, or State laws, 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 below. 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, Federal and/or State law, if such a fee is not 
otherwise prohibited by the applicable law(s); 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 but unpaid by the Borrower shall not justify Servicer's 
return of Borrower's payment. 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

[[Page 20079]]

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.
    (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 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, without specific approval from HUD. The 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. No Servicer shall 
commence foreclosure, assign the loan to HUD, or acquire title to a 
property until the requirements of this subpart have been completed.


Sec.  1005.731   Default notice to Borrower.

    The Servicer shall provide notice to the Borrower as prescribed 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;
    (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 the 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;
    (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. HUD may 
permit other loss mitigation on a case-by-case basis if requested by 
the Servicer.
    (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, or any other deadline as may be prescribed by Section 
184 Program Guidance. 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

[[Page 20080]]

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 in the servicing case binder 
with evidence that it timely contacted the attorney or trustee.
    (f) Occupancy inspections on Trust Land. Servicers must make an 
initial contact with the Tribe in advance of any occupancy inspection 
on Trust Land to review the Tribe's protocol for conducting occupancy 
inspections. After the initial contact, Servicers must contact the 
Tribe in advance of an occupancy inspection on Trust Land in accordance 
with the Tribe's protocol.
    (g) Alternative deadlines. HUD may prescribe alternative extended 
deadlines to the requirements in paragraphs (c) and (d) of this section 
through Section 184 Program Guidance.
    (h) 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 or abandoned property procedures.

    If the Servicer determines through an occupancy inspection or 
occupancy follow-up that the property is vacant or abandoned, or if the 
Servicer is notified by HUD that the Tribe or the TDHE determined 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 and loss mitigation 
as required by Sec. Sec.  1005.729 and 1005.739 until the Servicer has 
the authority to proceed to First Legal Action in accordance with Sec.  
1005.763 or Tribal First Right of Refusal in accordance with Sec.  
1005.759.
    (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:
    (i) Notify the Tribe that the property is vacant or abandoned; and
    (ii) Complete Tribal First Right of Refusal under Sec.  1005.759;
    (4) For fee simple Properties, complete First Legal Action within 
30 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 
provided in Section 184 Program Guidance.
    (c) Alternative deadlines. HUD may prescribe alternative extended 
deadlines to the time requirements of this section in Section 184 
Program Guidance.
    (d) 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.
    (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, or any extended timeframe 
prescribed by Section 184 Program Guidance.
    (c) Loss mitigation options include:
    (1) A forbearance plan;
    (2) Assumption;
    (3) A loan modification;
    (4) Loss mitigation advance;
    (5) Pre-foreclosure sale;
    (6) A deed-in-lieu/lease-in-lieu of foreclosure; or
    (7) 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 in Section 184 
Program Guidance for the eligibility and appropriate use of loss 
mitigation options.
    (f) Within 180 days of default, or any extended timeframe 
prescribed by Section 184 Guidance, if the Borrower fails to meet their 
loss mitigation option requirements, the Servicer shall have up to 45 
days from the date of the failure of the loss mitigation to determine 
whether the Borrower should continue with the current loss mitigation 
option or have Borrower enter into an alternate loss mitigation option.
    (g) If a Borrower does not accept, is not eligible for, or fails 
loss mitigation, the Servicer shall complete First Legal Action in 
accordance with Sec.  1005.763 or Tribal First Right of Refusal in 
accordance with Sec.  1005.759.
    (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.
    (j) HUD may provide alternative requirements to this section when 
there

[[Page 20081]]

is a national emergency or disaster and publish such alternative 
requirements in Section 184 Program Guidance.


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, where applicable, for Section 184 Guaranteed Loan 
property that is on Trust Land, in accordance with applicable BIA 
requirements; and,
    (2) The Tribe, where applicable, 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 and/or BIA, as applicable.


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 a 
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 complete First Legal Action to 
acquire the property or Tribal notice under Sec.  1005.759(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 and/or suspended 
payments and specific terms for the repayment plan. During the 
Forbearance period, where Borrower is in compliance with the 
Forbearance plan, the Servicer shall not proceed to First Legal Action 
or complete Tribal First Right of Refusal notice under Sec.  1005.759 
until expiration or default of the Agreement.
    (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; or
    (ii) 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 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. It is a formal forbearance 
plan with a written agreement executed by the Servicer and Borrower, 
allowing for reduced or suspended payments and such plan may include 
specific terms for repayment.
    (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

[[Page 20082]]

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.
    (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 the 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 
agreement. 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.
    (g) Other special forbearances. HUD may provide for a special 
forbearance in response to a disaster or other national emergency or 
other circumstances approved by the Secretary.


Sec.  1005.747   Assumption.

    The Servicer shall explore assumption as a loss mitigation option 
with the Borrower in accordance with Sec.  1005.711. Assumptions 
associated with loss mitigation must result in the cure of the default 
and reinstatement of the Section 184 Guaranteed Loan.


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 receive 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 percentage of net income shall be 
prescribed by HUD.
    (7) The Borrower's monthly payment, which consists of principal, 
interest, taxes, insurance, and other escrow, can be reduced by the 
greater of 10 percent of the existing monthly Section 184 Guaranteed 
Loan payment amount but no less than $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.

[[Page 20083]]

    (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) Trial payment plan failure. 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   Loss mitigation advance.

    (a) General. A loss mitigation advance is a reimbursement by HUD to 
the Holder for the advancement of funds on behalf of the Borrower in 
the amount necessary to assist in the reinstatement of the Borrower's 
Section 184 Guaranteed Loan. The loss mitigation advance is a 
subordinate lien in favor of HUD. More than one loss mitigation advance 
may be made to an eligible Borrower.
    (b) Borrower eligibility. To be eligible for a loss mitigation 
advance:
    (1) The Borrower's Section 184 Guaranteed Loan is 90 or more days 
past due:
    (2) The Borrower has the ability to resume making on-time monthly 
loan payments and the property is owner occupied.
    (3) [Reserved]
    (c) Terms. The loss mitigation advance shall:
    (1) Include all arrearages, which refers to any amounts needed to 
bring the Borrower's Section 184 Guaranteed Loan current;
    (2) Provide that all prior loss mitigation advances, if any, in 
total must not exceed 30 percent of the unpaid principal balance as of 
the date of default;
    (3) Include any other terms and conditions, as may be prescribed by 
Section 184 Program Guidance; and
    (4) Along with another loss mitigation, where applicable, fully 
reinstate the Section 184 Guaranteed Loan upon the Borrower's 
acceptance of the loss mitigation advance.


Sec.  1005.753   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) The default was due to an adverse and unavoidable financial 
situation impacting the Borrower;
    (3) The property has a current fair market value that is equal to 
or less than the unpaid principal balance;
    (4) The Borrower elected the pre-foreclosure sale option within 120 
days, or any other date as prescribed by Section 184 Program Guidance, 
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, and 
these amounts are not reimbursable by HUD. 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 (p) of 
this regulation where a hazard insurance claim must be filed.
    (d) Condition of title or Title Status Report. (1) For Section 184 
Guaranteed

[[Page 20084]]

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.
    (e) Discharge of junior liens. The Servicer must contact all junior 
lienholders to verify the Borrower has secured a discharge of the 
junior liens.
    (f) 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 have the property appraised in 
accordance with Sec.  1005.457 and 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) 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.
    (iv) Paragraph (f)(2)(iii) of this section is not applicable to 
property on Trust Land unless there is a viable real estate market;
    (v) Under paragraph (f)(2)(iii) of this section, 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.
    (g) 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
    (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.
    (h) Delivery of documents to Borrower. Documents listed under 
paragraphs (g)(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.
    (i) Copies to HUD. The Servicer must send signed copies of the 
documents in paragraphs (g)(1) and (2) of this section to HUD within 15 
days of receipt from the Borrower.
    (j) 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.
    (k) 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.
    (l) 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.
    (m) Pre-foreclosure sale marketing, settlement period, failure to 
complete pre-foreclosure sale. The Borrower has seven days, or other 
timeframe as prescribed by Section 184 Program Guidance 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 period of 90 days, or other 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 
120 days from the execution date of the Approval to Participate 
Agreement and the date of the property settlement. If there is a signed 
contract of sale, but property settlement has not occurred by the end 
of the 120 Days, the marketing period may be extended up to 60 days 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 complete First Legal 
Action within 30 days or Tribal First Right of Refusal within 14 days 
of the Borrower's deadline to respond or actual rejection response 
date, whichever is sooner.
    (n) Property inspections and maintenance. The Servicer shall 
inspect the property in accordance with

[[Page 20085]]

Sec.  1005.735 and follow Sec.  1005.739, where applicable.
    (o) 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.
    (p) 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 
Secretary's repair cost estimate.
    (q) 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, and
    (2) Arm's length transaction. 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 as backup offer until a 
determination has been made on the previously submitted offer.
    (r) 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.
    (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;
    (v) Third-party fees incurred by the Servicer or Borrower to 
negotiate a pre-foreclosure sale; and
    (vi) Any other costs as may be prohibited in Section 184 Program 
Guidance.
    (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.
    (s) 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-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.
    (t) Early termination of pre-foreclosure participation--(1) 
Borrower-initiated termination. The Servicer must permit a Borrower to 
voluntarily terminate participation in the pre-

[[Page 20086]]

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.  1005.755. 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.  1005.763 
and 1005.765.


Sec.  1005.755   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 a 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, or other 
HUD approved document issued by the Tribe, as prescribed by Section 184 
Program Guidance evidencing assignment to HUD without any objectionable 
encumbrances.
    (7) The property must meet the property conditions under Sec.  
1005.769. HUD may consent to conveyance of the property by deed-in-
lieu/lease-in-lieu of foreclosure when property does not meet Sec.  
1005.769 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 convey the property to HUD 
in accordance with Sec.  1005.771.
    (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.  1005.757   Incentive payments.

    As an alternative to foreclosure, or eviction where applicable, as 
prescribed by Section 184 Program Guidance, 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) Holders or Servicers for their completion of certain loss 
mitigation options; and
    (c) Tribes or 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.  1005.759   Property on Trust Land--Tribal First Right of Refusal; 
foreclosure or assignment.

    (a) Tribal First Right of Refusal is written notice to the Tribe of 
the options to assume the Section 184 Guaranteed Loan or purchase the 
Note based on the current unpaid principal balance or appraised value 
for any property on Trust Land or other reasonable options as 
prescribed by Section 184 Program Guidance.
    (b) The Servicer shall provide Tribal First Right of Refusal no 
later than 14 days, or any extended timeframe prescribed by Section 184 
Program Guidance, after the earlier of:
    (1) Any lease provision addressing Tribal First Right of Refusal;
    (2) 120 days after default, unless the Borrower is in active loss 
mitigation;
    (3) Failure of loss mitigation after 180 days from default;
    (4) The failure of loss mitigation after an extension of the loss 
mitigation period under Sec.  1005.739(f).
    (5) The date the property was determined vacant or abandoned in 
accordance Sec.  1005.737 or the earliest date the Servicer should have 
known the property was vacant or abandoned.
    (b) The Tribe shall have either the time frame provided in the 
lease or, if not defined in the lease, 60 days, or any extended 
timeframe prescribed by Section 184 Program Guidance, to accept or 
decline the offer of Tribal First Right of Refusal.
    (c) If the Tribe declines or does not respond to the Tribal First 
Right of Refusal within 60 days, or any extended timeframe prescribed 
by Section 184 Guidance, the Servicer must either complete First Legal 
Action or assignment to HUD, within the timeframes prescribed in 
Sec. Sec.  1005.763 and 1005.765.
    (d) Any costs associated with failure to initiate Tribal First 
Right of Refusal may be deemed ineligible for claim payment.


Sec.  1005.761   Fee simple 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.  1005.753 and 
1005.755, the Servicer must complete First Legal Action on the Section 
184 Guaranteed Loan pursuant to Sec.  1005.763.
    (b) Under limited circumstances, HUD may approve an assignment of a 
Section 184 Guaranteed Loan to HUD for fee simple land properties.

[[Page 20087]]

Sec.  1005.763   First Legal Action deadline and automatic extensions.

    (a) Deadline for First Legal Action. The Servicer must complete 
First Legal Action, within 180 days of default, unless a later date is 
authorized under this part.
    (b) Automatic extensions to the First Legal Action deadline. HUD 
permits automatic extensions to the First Legal Action deadline for the 
following reasons and 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 First 
Legal Action within the deadline designated above, then the Servicer 
must complete 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 at 180 days of default and the Borrower subsequently 
fails loss mitigation, First Legal Action must be completed within 30 
days of the loss mitigation failure or the Borrower's request to 
terminate the loss mitigation plan, whichever is sooner.
    (3) If the Borrower does not continue with their current loss 
mitigation option or enter into an alternative loss mitigation option 
during the 45-day period under Sec.  1005.739(f), the First Legal 
Action must be completed within 30 days or
    (4) If a Tribal First Right of Refusal was offered under Sec.  
1005.759, and the Servicer decides to pursue foreclosure in Tribal 
court, instead of assigning the Loan to HUD, First Legal Action must be 
completed within 30 days of completing the Tribal First Right of 
Refusal.
    (c) Other extensions. Other necessary and reasonable extensions may 
be allowed, as prescribed by Section 184 Program Guidance.
    (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 completing First Legal Action.
    (e) Submission of claim. The Servicer must submit a claim to HUD 
within 45 days from the date the foreclosure was complete in accordance 
with Sec.  1005.809(a) or (c).


Sec.  1005.765   Assignment of the Section 184 Guaranteed Loan.

    (a) Fee simple land properties. (1) The assignment of Section 184 
Guaranteed Loans involving fee simple land properties requires prior 
HUD approval. The Servicer must submit a request for an assignment 
within 135 days of default, or any extended timeframe prescribed by 
Section 184 Program Guidance, unless the Servicer has determined the 
property is vacant pursuant to Sec.  1005.737.
    (2) The Servicer shall have five business days from HUD approval, 
or any extended timeframe prescribed by Section 184 Program Guidance, 
to submit the executed assignment for recordation with the appropriate 
jurisdiction.
    (b) Properties on Trust Land. HUD may accept assignment of the 
Section 184 Guaranteed Loan if HUD determines that the assignment is in 
the best interest of the United States. In cases where HUD accepts the 
assignment, upon completing the Tribal First Right of Refusal in 
accordance with Sec.  1005.759, the Servicer shall have five business 
days, or any extended timeframe prescribed by Section 184 Program 
Guidance, to submit the executed assignment for recordation with the 
BIA, as applicable, or other HUD approved document, as prescribed by 
Section 184 Program Guidance, that evidences the assignment.
    (c) 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 submitting the assignment for recordation.
    (d) Submission of Claim. The Servicer shall have 45 days to submit 
the assignment and evidence of recordation as part of a Claim in 
accordance with 1005.809(b). The Servicer shall submit to HUD evidence 
of the filing and of a Claim in a manner so prescribed by Section 184 
Program Guidance.
    (e) Acceptance by HUD. HUD will accept assignment of the Section 
184 Guaranteed Loan in accordance with 1005.773.


Sec.  1005.767   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 or is not otherwise prohibited by 
Tribal, State, or Federal law. Taking ``appropriate action'' includes 
First Legal Action or assignment within the time required by Sec. Sec.  
1005.763 and 1005.765, as applicable.


Sec.  1005.769   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.  1005.765, 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. The Servicer shall not be liable for 
documented damage to the property by waste, deterioration, or neglect 
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.  1005.765.


Sec.  1005.771   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 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 Holder to HUD. The Holder shall acquire Good 
and Marketable Title and transfer the property to HUD within 30 days of 
the later 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,

[[Page 20088]]

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 business 
days after execution. The Servicer must document evidence of the 
submission in the file.


Sec.  1005.773   HUD acceptance of assignment or conveyance.

    (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 or other legal 
instrument conveying the property interest to the HUD, the Servicer 
remains responsible for ensuring compliance with this part, including 
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 a Claim for a Section 184 
Guaranteed Loan benefits to HUD. The Servicer's submission of the Claim 
shall be in compliance with this subpart and must follow the process 
details as set forth in Section 184 Program Guidance. This subpart also 
sets forth requirements for processing and payment of the 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, 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:
    (1) The Servicer failed to service the Section 184 Guaranteed Loan 
in accordance with subpart G of this part;
    (2) The Servicer committed fraud or a material misrepresentation; 
or
    (3) The Servicer had known or should have known of fraud or a 
material misrepresentation in violation of this part.
    (4) HUD may take one or more of the following 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.
    (vi) Pursue sanctions against the Servicer or Holder pursuant to 
Sec. Sec.  1005.905 and 1005.907.
    (vii) 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, including 
interest, from the Date of Default to the earlier of the deadlines 
provided in Sec.  1005.839(a) through (e). Allowable reasonable 
exceptions will be provided by Section 184 Program Guidance; and
    (c) Supplemental claim for eligible reasonable expenses incurred 
prior to the earlier of the deadlines provided in Sec.  1005.839(a)(1) 
through (5), for expenses 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 based upon the type of property disposition. The Servicer shall 
submit claims within timeframes established below or any extended 
timeframe prescribed by Section 184 Program Guidance. The Claim types 
are:
    (a) Conveyance. When the property is deeded to HUD through 
foreclosure:
    (1) The Servicer must submit a claim under Sec.  1005.807(a) to HUD 
no later than 2 business days from the date the deed to HUD is 
executed.
    (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, in 
accordance with Sec.  1005.817.
    (ii) Trust Land. The claim must include a certified Title Status 
Report evidencing HUD's property interest through foreclosure.
    (3) In cases where the Servicer is unable to comply with paragraph

[[Page 20089]]

(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 15 days following the submission of a claim under Sec.  
1005.807(a).
    (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.
    (2)(i) Trust Land. The claim must include the recorded assignment 
and 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) The assignment of the Section 184 Guaranteed Loan to HUD meets 
the requirements of Sec.  1005.765.
    (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 30 
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.  1005.753 or Sec.  1005.755, the Servicer must submit a claim 
under Sec.  1005.807(a) and (b) to HUD no later than 30 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) through (d) 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 of the claim submission 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 Claims


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   Up-front and Annual Loan Guarantee Fee reconciliation.

    (a) The Servicer must include in the claims case binder a 
reconciliation evidencing the payment of the Up-front 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) 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.
    (b) Conveyance of property without Good and Marketable Title. (1) 
If the title to the property conveyed by the Holder to HUD does not 
have Good and Marketable Title, the Holder must correct any title 
defect within 60 days after receiving notice from HUD, or 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 Holder 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 Holder 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 Holder, 
as described in paragraph (b)(3) of this section. The daily holding 
costs to be charged to the Holder 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 Holder and the Holder must reimburse HUD in accordance with 
Sec. Sec.  1005.849 and 1005.851.

[[Page 20090]]

Sec.  1005.819   Types of satisfactory title evidence.

    The following types of title evidence shall be satisfactory to HUD:
    (a) 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 
Holder and HUD, ``and their successors and assigns, as their interests 
may appear'', with the consent of the title company endorsed thereon.
    (b) 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 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;
    (c) 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;
    (d) Torrens or similar certificate. A Torrens or similar title 
certificate;
    (e) 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
    (f) Title Status Report. Certified Title Status Report issued by 
the BIA or other comparable document approved by HUD in accordance with 
Section 184 Program Guidance, 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.


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, the Title Status Report or direct verification from the Tribe or 
TDHE, shall further show that, according to the public or Tribal 
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.  1005.767 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 Holder 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 Holder 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.  1005.767; 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.
    (b) If the Holder'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 Holder'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(c).

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.

[[Page 20091]]

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 subparts D or G of this part. HUD reserves the 
right to conduct post-claim payment review of claims. 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.

    HUD shall pay interest on the unpaid principal balance from the 
date of default to the earlier of the following:
    (a) The execution of deed-in-lieu/lease-in-lieu of foreclosure;
    (b) The execution of the conveyance to either Holder, HUD or a 
third-party;
    (c) The execution of the assignment of the Section 184 Guaranteed 
Loan to HUD;
    (d) The expiration of the reasonable diligence timeframe; or
    (e) Other event as prescribed by Section 184 Program Guidance.


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 Holder shall reduce the claim when the following amounts are 
received or held by the Holder:
    (a) All amounts received by the Holder to the account of the 
borrower after default.
    (b) All amounts received by the Holder from any source relating to 
the property on account of rent, reimbursement or other payments.
    (c) All cash retained by the Holder including amounts held or 
deposited in 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.


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 Holder's 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 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 Holder 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 additional 
processes as 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) 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.

Subpart I--Program Performance, Reporting, Sanctions, and Appeals


Sec.  1005.901   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 written 
notice of its assessment and any proposed corrective action, if 
applicable.


Sec.  1005.903   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

[[Page 20092]]

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   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 sanctions and civil money penalties to be imposed and the basis for 
the action.


Sec.  1005.907   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 of 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 
Holder'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, or Holder reasonable time to return to compliance.
    (b) HUD 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, or Holders 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.


Sec.  1005.909   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 15 days, or other timeframe as 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.

Adrianne Todman,
Deputy Secretary.
[FR Doc. 2024-05515 Filed 3-19-24; 8:45 am]
BILLING CODE 4210-67-P