RD Instruction 1980-D

Table of Contents

Page 1

(Revision 1)

PART 1980 - General

Subpart D - Rural Housing Loans

## [TABLE OF CONTENTS]{.underline}

## 

[Sec]{.underline}. [Page]{.underline}

1980.301 Introduction. 1

\(a\) Policy. 1

\(b\) Program objective. 1

\(c\) Program administration. 1

\(d\) Nondiscrimination. 2

1980.302 Definitions and abbreviations. 2

1980.303 - 1980.307 \[Reserved\] 9

1980.308 Full faith and credit. 9

1980.309 Lender participation in guaranteed RH loans. 9

\(a\) Qualification. 9

\(b\) Lender approval. 10

\(c\) RHCDS review for Lender eligibility. 12

\(d\) Handling applications for Lender eligibility. 12

\(e\) Lender sale of guaranteed loans. 13

\(f\) Lender responsibility. 13

\(g\) Monitoring a Lender\'s origination and\
servicing of loans. 14

\(h\) Termination of Lender eligibility. 15

\(i\) RHCDS responsibility. 16

1980.310 Loan purposes. 16

1980.311 Loan limitations and special provisions. 17

\(a\) Prohibited loan purposes. 17

\(b\) Limitations. 17

\(c\) Subdivisions. 18

1980.312 Rural area designation. 18

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Table of Contents

Page 2

(Revision 1)

[Sec]{.underline}. [Page]{.underline}

1980.313 Site and building requirements. 18

\(a\) Rural area. 18

\(b\) Access. 18

\(c\) Water and water/waste disposal system. 19

\(d\) Environmental concerns. 19

\(e\) Modest house. 19

\(f\) Thermal standards. 19

\(g\) Existing dwelling. 20

\(h\) Repairs. 20

\(i\) Manufactured homes. 20

1980.314 Loans on leasehold interests. 21

\(a\) Unable to obtain fee title. 21

\(b\) Unexpired term. 21

1980.315 Escrow accounts for exterior development. 21

1980.316 Environmental requirements. 22

1980.317 Equal opportunity and nondiscrimination\
requirements in use, occupancy, rental, or\
sale of housing. 22

\(a\) Compliance. 22

\(b\) Reporting. 22

\(c\) Forms and requirements. 23

1980.318 Flood and mudslide hazard area precautions. 25

\(a\) Dwelling location. 25

\(b\) Flood insurance. 25

1980.319 Other Federal, State, and local requirements. 26

1980.320 Interest rate. 26

1980.321 Terms of loan repayment. 26

\(a\) Note. 26

\(b\) Term. 26

1980.322 Loan guarantee limits. 26

1980.323 Guarantee fee. 27

1980.324 Charges and fees by Lender. 27

\(a\) Routine charges and fees. 27

\(b\) Late payment charges. 27

RD Instruction 1980-D

Table of Contents

Page 3

(Revision 1)

[Sec]{.underline}. [Page]{.underline}

1980.325 Transactions which will not be guaranteed. 28

\(a\) Lease payments. 28

\(b\) Loans made by other Federal agencies. 28

1980.326 - 1980.329 \[Reserved\] 28

1980.330 Applicant equity requirements. 28

1980.331 Collateral. 28

\(a\) General. 28

\(b\) Third party liens, suits pending, etc. 29

\(c\) All collateral must secure the entire loan. 29

1980.332 \[Reserved\] 29

1980.333 Promissory notes and security instruments. 29

\(a\) Loan instruments. 29

\(b\) Interest assistance instruments. 29

1980.334 Appraisal of property serving as collateral. 29

\(a\) Qualified appraiser. 30

\(b\) Appraisal report. 30

\(c\) Agency review. 31

\(d\) State Director responsibilities. 31

\(e\) Training of staff. 31

\(f\) Types of reviews. 31

1980.335 - 1980.339 \[Reserved\] 32B

1980.340 Acquisition, construction, and development. 32B

\(a\) Acquisition of property. 32B

\(b\) New construction. 32B

\(c\) Development. 32B

1980.341 Inspections of construction and

compliance reviews. 32C

\(a\) Qualified inspectors. 32C

\(b\) Inspections. 32C

\(c\) Water and water/waste disposal. 33

1980.342 - 1980.344 \[Reserved\] 33

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Table of Contents

Page 4

[Sec]{.underline}. [Page]{.underline}

1980.345 Applicant eligibility requirements for a

guaranteed loan. 33

\(a\) Eligible income. 33

\(b\) Adequate and dependable income. 34

\(c\) Determining repayment ability. 34

\(d\) Credit history. 36

\(e\) Previous RHCDS loan. 37

\(f\) Other Federal debts. 37

1980.346 Other eligibility criteria. 38

1980.347 Annual income. 39

1980.348 Adjusted annual income. 43

1980.349 - 1980.350 \[Reserved\] 44

1980.351 Requests for reservation of funds. 44

1980.352 \[Reserved\] 44

1980.353 Filing and processing applications. 45

\(a\) Loan priorities. 45

\(b\) Preference. 45

\(c\) Applications. 45

\(d\) Filing applications. 46

\(e\) Verifying information provided. 47

1980.354 RHCDS review of applications. 49

\(a\) Issuance of commitment. 49

\(b\) Incomplete applications. 50

\(c\) Denial. 50

1980.355 Review of requirements. 50

\(a\) Accepting conditions. 50

\(b\) Cancelling commitment. 50

1980.356 - 1980.359 \[Reserved\] 50

1980.360 Conditions precedent to issuance of the

loan note guarantee. 51

\(a\) Lender certification. 51

\(b\) Inspections. 52

\(c\) Lender agreement. 52

\(d\) Lender file. 52

RD Instruction 1980-D

Table of Contents

Page 5

(Revision 1)

[Sec]{.underline}. [Page]{.underline}

1980.361 Issuance of loan note guarantee. 52

\(a\) Loan note guarantee. 52

\(b\) Refusal to execute contract. 52

\(c\) Cancellation of obligations. 52

1980.362 \[Reserved\] 53

1980.363 Review of loan closing. 53

1980.364 - 1980.365 \[Reserved\] 53

1980.366 Transfer and assumption. 53

\(a\) General. 53

\(b\) Eligible transferee. 53

\(c\) Determinations by the Lender. 53

\(d\) Changes in the promissory note or\
security instrument. 54

\(e\) Release of liability. 54

\(f\) Forms and case numbers. 54

\(g\) Lender\'s application to RHCDS. 54

\(h\) Notations and notices. 55

\(i\) Interest assistance. 55

\(j\) Closing the transfer and assumption. 55

\(k\) Loan note guarantee. 55

\(l\) Material furnished to RHCDS after closing. 55

\(m\) RHCDS responsibility. 56

1980.367 Unauthorized sale or transfer of the property. 56

1980.368 - 1980.369 \[Reserved\] 57

1980.370 Loan servicing. 57

\(a\) Normal loan servicing. 57

\(b\) Other servicing requirements. 58

\(c\) Servicing options. 58

\(d\) Lender reporting to RHCDS. 58

\(e\) RHCDS responsibilities. 58

1980.371 Defaults by the borrower. 59

1980.372 Protective advances. 60

1980.373 \[Reserved\] 60

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Table of Contents

Page 6

(Revision 1)

[Sec]{.underline}. [Page]{.underline}

1980.374 Liquidation. 60

\(a\) Expeditious liquidation. 60

\(b\) Maximum collection. 61

\(c\) Allowable liquidation costs. 61

\(d\) Servicing plan. 61

\(e\) Handling shared equity. 62

1980.375 Reinstatement of the borrower\'s account. 62

1980.376 Loss payments. 62

\(a\) Loss payment. 62

\(b\) Denial or reduction of loss claims. 64

1980.377 Future recovery. 65

\(a\) Estimated claims. 65

\(b\) Verification of sale. 66

\(c\) Compliance reviews. 66

1980.378 - 1980.389 \[Reserved\] 66

1980.390 Interest assistance. 66

\(a\) Policy. 66A

\(b\) Processing interest assistance agreements. 66A

\(c\) Amount of interest assistance. 67

\(d\) Shared equity. 67

\(e\) Eligibility. 67

\(f\) Processing interest assistance. 69

\(g\) Interest assistance modification. 70

\(h\) Eligibility review. 71

\(i\) Cancellation of interest assistance. 73

\(j\) Overpayment. 74

\(k\) Unauthorized use of loan funds. 75

\(l\) Appeals. 75

\(m\) Reinstatement of interest assistance. 75

1980.391 Equity sharing. 75

\(a\) Determining the amount of shared equity. 75

\(b\) Miscellaneous provisions. 78

\(c\) Affordable housing proposals. 78

RD Instruction 1980-D

Table of Contents

Page 7

(Revision 1)

[Sec]{.underline}. [Page]{.underline}

1980.392 Mortgage Credit Certificates (MCCs) and Funded

Buydown Accounts. 78

\(a\) MCCs. 78

\(b\) Funded Buydown Accounts. 79

1980.393 - 1980.396 \[Reserved\] 79

1980.397 Exception authority. 80

1980.398 Unauthorized assistance and other deficiencies. 80

\(a\) Unauthorized assistance. 80

\(b\) Initial determination of unauthorized

assistance. 80

\(c\) Notification to Lender. 81

\(d\) Lender noncompliance. 81

\(e\) Categories of unauthorized assistance. 81

\(f\) Borrower noncompliance. 82

\(g\) RHCDS error oversight. 82

1980.399 Appeals. 82

\(a\) Appealable decisions. 82

\(b\) Nonappealable decisions. 82

1980.400 \[Reserved\] 83

Exhibits to Subpart D:

Exhibit A - List of Forms Used in the Agency\'s RH Guaranteed\
Loan Instruction 1980-D

Exhibit B - Loans Made On or Before March 28, 1989

Exhibit C - Income Limits

Exhibit D - Fee Schedule for Guaranteed Housing Loan Processing and\
Servicing Activities

Exhibit E - Lenders Guaranteed Rural Housing List of Agency
Instructions\
and Exhibits

Exhibit F - Income Exempted by Federal Statute

## 

## o0o

(06-21-95) SPECIAL PN

RD Instruction 1980-D

PART 1980 - GENERAL

Subpart D - Rural Housing Loans

§1980.301 [Introduction]{.underline}.

\(a\) [Policy]{.underline}. This subpart contains regulations for single
family Rural Housing (RH) loan guarantees by the Rural Housing and
Community Development Service (RHCDS) and applies to lenders, borrowers,
and other parties involved in making, guaranteeing, servicing, holding
or liquidating such loans. Any processing or servicing activity
conducted pursuant to this subpart involving authorized assistance to
RHCDS employees, members of their families, known close relatives, or
business or close personal associates is subject to the provisions of
subpart D of part 1900 of this chapter. Applicants for this assistance
are required to identify any known relationship or association with an
RHCDS employee.

\(b\) [Program objective]{.underline}. The basic objective of the
guaranteed RH loan program is to assist eligible households in obtaining
adequate but modest, decent, safe, and sanitary dwellings and related
facilities for their own use in rural areas by guaranteeing sound RH
loans which otherwise would not be made without a guarantee. Guarantees
issued under this subpart are limited to loans to applicants with
incomes that do not exceed income limits as provided in exhibit C of RD
Instruction 1980-D (available in any RHCDS office).

\(c\) [Program administration]{.underline}. The guaranteed RH loan
program is administered by the Administrator through a State Director
who serves each State through District Directors and County Supervisors.
The local contact person and focal point for loan processing and loan
servicing shall be designated by the State Director. The State Director
is responsible for determining the eligibility of lenders within their
jurisdiction. The Administrator shall determine the eligibility of
multi-State or national lenders. State Directors shall not issue
supplements to this subpart without the prior approval of the Assistant
Administrator, Housing, except as specifically provided in this subpart.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

DISTRIBUTION: WSDC Guaranteed Loans

General

## 1

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.301 (Con.)

> \(d\) [Nondiscrimination]{.underline}. Loan guarantees and services
> provided under this subpart are subject to various civil rights
> statutes. Assistance shall not be denied to any person or applicant
> based on race, sex, national origin, color, familial status, religion,
> age, or physical or mental disability (the applicant must possess the
> capacity to enter into a legal contract for services). The Consumer
> Protection Act provides that the applicant may not be denied
> assistance based on receipt of income from public assistance or
> because the applicant has, in good faith, exercised any right provided
> under the Act.

§1980.302 [Definitions and abbreviations]{.underline}.

\(a\) The following definitions are applicable to RH loans:

[Agency]{.underline}. Rural Housing and Community Development Service
(RHCDS).

[Applicant]{.underline}. The party applying to a Lender for a loan.

[Approval official]{.underline}. An RHCDS employee with delegated loan
approval authority under subpart A of part 1901 of this chapter
consistent with the amount and type of loan considered.

[Borrower]{.underline}. Collectively, all parties who applied for and
received a specific guaranteed loan from an eligible Lender.

[Coapplicant]{.underline}. An adult member of the household who joins
the applicant in applying to a lender for a loan.

[Conditional commitment]{.underline}. RHCDS\'s notice to the Lender that
the material it has submitted is approved subject to the completion of
all conditions and requirements set forth in the notice.

[Development standard]{.underline}. The current edition of any of the
model building, plumbing, mechanical, and electrical codes listed in
exhibit E to subpart A of part 1924 of this chapter applicable to single
family residential construction or other similar codes adopted by RHCDS
for use in the State.

## 2

##  

§1980.302 (a) (Con.) RD Instruction 1980-D

[Disabled person]{.underline}. A person who is unable to engage in any
substantially gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or which has
lasted or is expected to last for a continuous period of not less than
12 months. The disability is expected to be of long or indefinite
duration; substantially impede the person\'s ability to live
independently; and is of such a nature that the person\'s ability to
live independently could be improved by more suitable housing
conditions. In the case of an individual who has attained the age of 55
and is blind, disability is defined as inability by reason of such
blindness to engage in substantially gainful activity requiring skills
or abilities comparable to those of any gainful activity in which the
individual has previously engaged with some regularity over a
substantial period of time. Receipt of veteran\'s benefits for
disability, whether service-oriented or otherwise, does not
automatically establish disability. A disabled person also includes a
person with a developmental disability. A developmental disability means
a severe, chronic disability of a person which:

\(1\) Is attributable to a mental or physical impairment or a
combination of mental and physical impairments;

\(2\) Is manifested before the person attains age 22;

\(3\) Is likely to continue indefinitely;

\(4\) Results in substantial functional limitations in one or more of
the following areas of major life activity:

\(i\) Self-care,

\(ii\) Receptive and expressive language,

\(iii\) Learning,

\(iv\) Mobility,

\(v\) Self-direction,

\(vi\) Capacity for independent living, and

\(vii\) Economic self-sufficiency; and

\(5\) Reflects the person\'s need for a combination and sequence of
special care, treatment, or other services which are of lifelong or
extended duration and are individually planned and coordinated.

## 3

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.302 (a) (Con.)

[Displaced homemaker]{.underline}. An individual who is an adult; has
not worked full-time full-year (2,080 hours) in the labor force for a
number of years but has during such years worked primarily without
remuneration to care for the home and family; and is unemployed or
underemployed and is experiencing difficulty in obtaining or upgrading
employment.

[Elderly family]{.underline}. An elderly family consists of one of the
following:

\(1\) A person who is the head, spouse, or sole member of a household
and who is 62 years of age or older or who is disabled and is the
applicant/borrower or the coapplicant/coborrower; or

\(2\) Two or more unrelated elderly (age 62 or older), disabled persons
who are living together, at least one of whom is the applicant/borrower
or coapplicant/coborrower; or

\(3\) In the case of a family where a deceased borrower/

coborrower or spouse was at least 62 years old or disabled, the
surviving household members shall continue to be classified as an
\"elderly family\" for the purpose of determining adjusted income even
though the surviving members may not meet the definition of elderly
family on their own, provided:

\(i\) They occupied the dwelling with the deceased family member at the
time of his/her death; and

\(ii\) If one of the surviving members is the spouse of the deceased
family member, the surviving family shall be classified as an elderly
family only until the remarriage of the surviving spouse; and

\(iii\) At the time of death, the dwelling of the deceased family member
was financed under Title V of the Housing Act of 1949, as amended.

[Eligible lender]{.underline}. A Lender meeting the criteria outlined in
§1980.309 of this subpart who has requested and received RHCDS approval
for participation in the program.

[Existing dwelling]{.underline}. A dwelling which has been completed for
more than 1 year as evidenced by an occupancy permit or a similar
document.

[Extended family]{.underline}. A family unit comprised of adult
relatives who live together with the other members of the household, for
reasons of physical dependency, economics, and/or social custom, who,
under other circumstances, could maintain separate households. A typical
example is parents living with their adult children.

## 4

##  

1980.302 (a) (Con.) RD Instruction 1980-D

[Federal National Mortgage Association (Fannie Mae) rate]{.underline}.
The rate authorized in exhibit B of subpart A of part 1810 of this
chapter (RD Instruction 440.1, available in any RHCDS office).

[Finance Office]{.underline}. The office which maintains RHCDS\'s
financial records.

[First-time homebuyer]{.underline}. Any individual who (and whose
spouse) has had no present ownership in a principal residence during the
3 year period ending on the date of purchase of the property acquired
with a guaranteed loan under this subpart. A first-time homebuyer
includes displaced homemakers and single parents even though they might
have owned, or resided in, a dwelling with a spouse. This definition is
used to determine RHCDS processing priority in accordance with §1980.353
of this subpart.

[Guaranteed loan]{.underline}. A loan made, held, and serviced by a
Lender for which RHCDS has entered into an agreement with the Lender in
accordance with this subpart.

[Household or family]{.underline}. The applicant, coapplicant, and all
other persons who will make the applicant\'s dwelling their primary
residence for all or part of the next 12 months. The temporary absence
of a child from the home due to placement in foster care shall not be
taken into account in considering family composition and size. Foster
children placed in the borrower\'s home and live-in aides shall not be
counted as members of the household.

[Interest assistance]{.underline}. Loan assistance payments made by
RHCDS to the Lender on behalf of the borrower.

[Lender]{.underline}. The organization making, holding, and/or servicing
the loan which is guaranteed under the provisions of this subpart. The
Lender is also the party requesting the guarantee. The Lender includes
an entity purchasing an RHCDS guaranteed loan. A purchasing Lender
acquires all the privileges, duties, and responsibilities of the
originating Lender. The Lender is primarily responsible for originating,
underwriting, servicing, and, where necessary, liquidating the loan and
disposing of the property in a manner consistent with maximizing the
Government\'s interest.

[Lender agreement]{.underline}. Form RD 1980-16, \"Agreement for
Participation in Single Family Housing Guaranteed/Insured Loan Programs
of the United States Government,\" is the signed master agreement
between RHCDS and the Lender setting forth the Lender\'s loan
responsibilities for loan processing and servicing guaranteed RH loans.

## 5

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.302 (a) (Con.)

[Lender record change]{.underline}. Form RD 1980-11, \"Guaranteed Rural
Housing Lender Record Change,\" is the Lender\'s notice to RHCDS of a
change of Lender or a change of servicer.

[Liquidation]{.underline}. Liquidation of the loan occurs when the
Lender acquires title to the security, a third party buys the property
at the foreclosure sale, or the borrower sells the property to a third
party in order to avoid or cure a default situation with the prior
approval of the Lender and RHCDS. In States providing a redemption
period, the Lender does not typically acquire title until after
expiration of the redemption period.

[Liquidation expense]{.underline}. The Lender\'s cost of liquidation
including those costs that do not qualify as a protective advance.

[Loan note guarantee]{.underline}. Form RD 1980-17, \"Loan Note
Guarantee,\" is the signed commitment issued by RHCDS setting forth the
terms and conditions of the guarantee.

[Manufactured home]{.underline}. A structure built to the Federal
Manufactured Home Construction and Safety Standards and RHCDS thermal
requirements.

[Master interest assistance agreement]{.underline}. Form RD 1980-12,
\"Master Interest Assistance and Shared Equity Agreement with Promissory
Note,\" is the agreement between RHCDS, the borrower, and the Lender
which provides the basis for payment of interest assistance and shared
equity.

[Minor]{.underline}. A person under 18 years of age. Neither the
applicant, coapplicant, or spouse may be counted as a minor. Foster
children placed in the borrower\'s home are not counted as minors for
the purpose of determination of annual or adjusted income.

[Net family assets]{.underline}. Include:

\(1\) The value of equity in real property, savings, individual
retirement account\'s (IRA), demand deposits, and the market value of
stocks, bonds, and other forms of capital investments, but exclude:

\(i\) Interests in Indian Trust land,

\(ii\) The value of the dwelling and a minimum adequate site,

## 

## 

## 

## 6

##  

§1980.302 (a) (Con.) RD Instruction 1980-D

\(iii\) Cash on hand which will be used to reduce the amount of the
loan,

\(iv\) The value of necessary items of personal property such as
furniture and automobiles and the debts against them,

\(v\) The assets that are a part of the business, trade, or farming
operation in the case of any member of the household who is actively
engaged in such operation, and

\(vi\) The value of a trust fund that has been established and the trust
is not revocable by, or under the control of, any member of the
household, so long as the funds continue to be held in trust.

\(2\) The value of any business or household assets disposed of by a
member of the household for less than fair market value (including
disposition in trust, but not in a foreclosure or bankruptcy sale)
during the 2 years preceding the date of application, in excess of the
consideration received therefore. In the case of a disposition as part
of a separation or divorce settlement, the disposition shall not be
considered to be less than fair market value if the household member
receives important consideration not measurable in dollar terms.

[Net proceeds]{.underline}. The proceeds remaining from the property
after it is sold or its net value as determined in accordance with this
subpart. The determination of net proceeds depends upon whether the
property is sold or acquired by the Lender. Net proceeds may be
determined using the appraised value and subtracting authorized
deductions when the Lender acquires the property.

[Protective advance]{.underline}. Advances made by the Lender when the
borrower is in liquidation or otherwise in default to protect or
preserve the security itself from loss or destruction.

[Qualifying income]{.underline}. The amount of the applicant\'s income
which the lender determines is adequate and dependable enough to
consider for repayment ability. This figure may be different from the
adjusted income which is used for RHCDS program eligibility. Qualifying
income is typically less than adjusted income unless the applicant has
income from the sources listed in §1980.347(e) of this subpart.

[Rural area]{.underline}. An area meeting the requirements of §1980.312
of this subpart. Rural areas are designated on maps available in the
RHCDS office servicing that area.

## 7

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.302 (a) (Con.)

[Single parent]{.underline}. An individual who is unmarried or legally
separated from a spouse and has custody or joint custody of one or more
minor children or is pregnant.

[State Director]{.underline}. Director of RHCDS programs within a State
Office area.

[Veteran]{.underline}. A veteran is a person who has been discharged or
released from the active forces of the United States Army, Navy, Air
Force, Marine Corps, or Coast Guard under conditions other than
dishonorable discharge including \"clemency discharges\" and who served
on active duty in such forces:

\(1\) from April 6, 1917, through March 31, 1921;

\(2\) from December 7, 1941, through December 31, 1946;

\(3\) from June 27, 1950, through January 31, 1955; or

\(4\) for more than 180 days, any part of which occurred after January
31, 1955, but on or before May 7, 1975.

\(b\) The following abbreviations are applicable to this subpart:

[Fannie Mae]{.underline} - Federal National Mortgage Association.

[FCS]{.underline} - Farm Credit Service.

[FHA]{.underline} - Federal Housing Administration.

[Freddie Mac]{.underline} - Federal Home Loan Mortgage Corporation.

[Ginnie Mae]{.underline} - Government National Mortgage Association.

[HUD]{.underline} - Department of Housing and Urban Development.

[IRS]{.underline} - Internal Revenue Service.

[MCCs]{.underline} - Mortgage Credit Certificates.

[PITI]{.underline} - Principal, Interest, Taxes, and Insurance.

[RHCDS]{.underline} - Rural Housing and Community Development Service.

[URAR]{.underline} - Uniform Residential Appraisal Report.

[VA]{.underline} - Department of Veterans Affairs.

## 8

##  

RD Instruction 1980-D

§§1980.303 - 1980.307 \[Reserved\]

§1980.308 [Full faith and credit]{.underline}.

The loan note guarantee constitutes an obligation supported by the full
faith and credit of the United States and is incontestable except for
fraud or misrepresentation of which the Lender has actual knowledge at
the time it becomes such Lender or which the Lender participates in or
condones. Misrepresentation includes negligent misrepresentation. A note
which provides for the payment of interest on interest shall not be
guaranteed. Any guarantee or assignment of a guarantee attached to or
relating to a note which provides for the payment of interest on
interest is void. Notwithstanding the prohibition of interest on
interest, interest may be capitalized in connection with reamortization
over the remaining term with written concurrence of RHCDS. The loan note
guarantee will be unenforceable to the extent any loss is occasioned by
violation of usury laws, negligent servicing, or failure to obtain the
required security regardless of the time at which RHCDS acquires
knowledge of the foregoing. Negligent servicing is defined as servicing
that is inconsistent with this subpart and includes the failure to
perform those services which a reasonably prudent Lender would perform
in servicing its own loan portfolio of loans that are not guaranteed.
The term includes not only the concept of a failure to act, but also not
acting in a timely manner or acting contrary to the manner in which a
reasonably prudent Lender would act up to the time of loan maturity or
until a final loss is paid. Any losses occasioned will be unenforceable
to the extent that loan funds are used for purposes other than those
authorized in this subpart. When the Lender conducts liquidation in an
expeditious manner, in accordance with the provisions of §1980.374 of
this subpart, the loan note guarantee shall cover interest until the
claim is paid within the limit of the guarantee.

§1980.309 [Lender participation in guaranteed RH loans]{.underline}.

\(a\) [Qualification]{.underline}. The following Lenders are eligible to
participate in the RHCDS guaranteed RH loan program upon presentation of
evidence of said approval and execution of Form RD 1980-16.

\(1\) Any State housing agency;

\(2\) Any Lender approved by HUD as a supervised or nonsupervised
mortgagee for submission of one to four family housing applications for
Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae
mortgage backed securities;

## 9

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.309 (a) (Con.)

\(3\) Any Lender approved as a supervised or nonsupervised mortgagee for
the VA;

\(4\) Any Lender approved by Fannie Mae for participation in one to four
family mortgage loans;

\(5\) Any Lender approved by Freddie Mac for participation in one to
four family mortgage loans;

\(6\) An FCS institution with direct lending authority; and

\(7\) Any Lender participating in other RHCDS, Rural Business and
Cooperative Development Service, Rural Utilities Service, and/or
Consolidated Farm Service Agency guaranteed loan programs.

\(b\) [Lender approval]{.underline}. A Lender listed in paragraph (a) of
this section must request a determination of eligibility in order to
participate as an originating Lender in the program. Requests may be
made to the State Office serving the State jurisdiction or to the
National Office when multiple State jurisdictions are involved.

\(1\) The Lender must provide the following information to RHCDS:

\(i\) Evidence of approval, as appropriate, for the criteria under
paragraph (a) of this section, which the Lender meets.

\(ii\) The Lender\'s Tax Identification Number.

\(iii\) The name of an official of the Lender who will serve as a
contact for RHCDS regarding the Lender\'s guaranteed loans.

\(iv\) A list of names, titles, and responsibilities of the Lender\'s
principal officers.

\(v\) An outline of the Lender\'s internal loan criteria for issues of
credit history and repayment ability and a copy of the Lender\'s quality
control plan for monitoring production and servicing activities.

\(vi\) An executed Form AD 1047, \"Certification Regarding Debarment,
Suspension, or Other Matters - Primary Covered Transactions.\"

## 10

##  

§1980.309 (b) (Con.) RD Instruction 1980-D

\(2\) The Lender must agree to:

\(i\) Obtain and keep itself informed of all program regulations and
guidelines including all amendments and revisions of program
requirements and policies.

\(ii\) Process and service RHCDS guaranteed loans in accordance with
Agency regulations.

\(iii\) Permit RHCDS employees or its designated representatives to
examine or audit all records and accounts related to any RHCDS loan
guarantee.

\(iv\) Be responsible for the servicing of the loan, or if the loan is
to be sold, sell only to an entity which meets the provisions of
paragraph (a) of this section.

\(v\) Use forms which have been approved by FHA, Fannie Mae, Freddie
Mac, or, for FCS Lenders, use the appropriate FCS forms.

\(vi\) Maintain its approval if qualification as an RHCDS Lender was
based on approval by HUD, VA, Fannie Mae, or Freddie Mac including
maintaining the minimum allowable net capital, acceptable levels of
liquidity, and any required fidelity bonding and/or mortgage servicing
errors and omissions policies required by HUD, VA, Fannie Mae, or
Freddie Mac, as appropriate.

\(vii\) Operate its facilities in a prudent and business-like manner.

\(viii\) Assure that its staff is well trained and experienced in loan
origination and/or loan servicing functions, as necessary, to assure the
capability of performing all of the necessary origination and servicing
functions.

\(ix\) Notify RHCDS in writing if the Lender:

\(A\) Ceases to meet any financial requirements of the entity under
which the Lender qualified for RHCDS eligibility;

\(B\) Becomes insolvent;

## 11

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.309 (b)(2)(ix) (Con.)

\(C\) Has filed for bankruptcy protection, has been forced into
involuntary bankruptcy, or has requested an assignment for the benefit
of creditors;

\(D\) Has taken any action to cease operations or discontinue servicing
or liquidating any or all of its portfolio of RHCDS guaranteed loans;

\(E\) Has any change in the Lender name, location, address, or corporate
structure;

\(F\) Has become delinquent on any Federal debt or has been debarred,
suspended, or sanctioned by any Federal agency or in accordance with any
applicable State licensing or certification requirements.

\(c\) [RHCDS review for Lender eligibility]{.underline}. RHCDS will
assure that the Lender\'s request for eligibility to originate loans is
complete, that neither the Lender nor any of its principal officers have
been debarred from doing business with the Government, and will notify
the Lender within 15 calendar days of the receipt of a request of the
decision or the need for additional information. The following are the
steps required for reviewing a request for Lender eligibility:

\(1\) Check current \"Lists of Parties Excluded from Federal
Procurement/Nonprocurement Programs\" to determine whether the Lender or
any of its principal officers have been debarred from doing business
with the Government.

\(2\) Review and verify the Lender\'s evidence of approval under
paragraph (b) of this section. Obtaining the Lender\'s Fannie Mae,
Freddie Mac, or FHA ID number will typically be sufficient verification.

\(d\) [Handling applications for Lender eligibility]{.underline}. Upon
determination of a Lender\'s eligibility to originate loans, RHCDS and
the Lender will execute Form RD 1980-16. The application material will
be retained by RHCDS for all eligible Lenders. Form RD 1980-16
establishes the Lender\'s authorization for participation in the program
as an originator, servicer, or holder of RHCDS single family mortgage
loans. Form RD 1980-16 shall be in effect until terminated by either the
Agency or the Lender in accordance with the terms of Form RD 1980-16 and
this subpart. The RHCDS approval official will provide newly approved
Lenders with forms needed by the Lender as outlined in exhibit A of RD
Instruction 1980-D (available in any RHCDS office) and the materials in
exhibit E of RD Instruction 1980-D (available in any RHCDS office).

## 12

##  

§1980.309 (Con.) RD Instruction 1980-D

## 

\(e\) [Lender sale of guaranteed loans]{.underline}. Loans guaranteed
under this subpart may be sold only to entities which meet the
qualifications in paragraphs (a) and (b) of this section or directly to
Fannie Mae or Freddie Mac. Such entities are referred to as a Lender and
are to be treated as a Lender for all purposes under this subpart. The
selling Lender shall provide the original loan note guarantee to the
purchasing Lender. The selling Lender is responsible for reporting the
sale of any loan to RHCDS within 30 days using Form RD 1980-11,
\"Guaranteed Rural Housing Lender Record Change.\" The purchasing Lender
must execute a Lender Agreement or have a valid Lender Agreement on file
with RHCDS. The purchasing Lender shall succeed to all rights, title,
and interest of the Lender under the loan note guarantee. Any necessary
or convenient assignments or other instruments relating to the loan and
any other actions necessary or convenient to perfect or record such
transaction are the responsibility of the purchasing Lender. The
purchasing Lender assumes the obligations of and will be bound by and
will comply with all covenants, agreements, terms, and conditions
contained in any note, security instrument, loan note guarantee, and of
any outstanding agreements in connection with such loan purchased. The
purchasing Lender shall be subject to any defenses, claims, or setoffs
that RHCDS would have against the Lender if the Lender had continued to
hold the loan.

\(f\) [Lender responsibility]{.underline}. The Lender will be
responsible for the processing, servicing, and liquidation (if
necessary) of the loan. The Lender may use agents, correspondents,
branches, financial experts, or other institutions in carrying out its
responsibilities. Lenders are fully responsible for their own actions
and the actions of those acting on the Lender\'s behalf.

\(1\) [Processing]{.underline}. The Lender must abide by limitations on
loan purposes, loan limitations, interest rates, and terms set forth in
this subpart. The Lender will obtain, complete, and submit to RHCDS the
items required in §1980.353(c) of this subpart. The Lender may utilize
the services of a non-RHCDS approved Lender for originating residential
loans. The RHCDS approved Lender is responsible for the loan
underwriting and for obtaining the RHCDS conditional commitment. The
agent may close the loan in its name provided the loan is immediately
transferred to the approved lender to whom the guarantee will be issued.

## 13

(Revision 1)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.309(d) (Con.)

\(2\) [Servicing]{.underline}. Lenders are fully responsible for
servicing and protecting the security for all guaranteed loans. When
servicing is carried out by a third party, the Lender will inform RHCDS
of the name and address of the servicer.

\(3\) [Liquidation]{.underline}. The Lender will complete any
liquidation of loans guaranteed under the provisions of Form RD 1980-16.
Loss claims will be submitted on Form RD 1980-20, \"Rural Housing
Guarantee Report of Loss.\" The loss report will be accompanied by
supporting information to outline disposition of all security pledged to
secure the loan. The Lender shall also effect collection of the debt
from other assets of the borrower to the extent possible.

\(4\) [Counseling]{.underline}. Lenders are encouraged to offer or
provide for home ownership counseling. Lenders may require first-time
homebuyers to undergo such counseling if it is reasonably available in
the local area. When home ownership counseling is provided or sponsored
by RHCDS or another Federal agency in the local area, the Lender must
require the borrower to successfully complete the course.

\(g\) [Monitoring a Lender\'s origination and servicing of
loans]{.underline}. RHCDS will conduct certain reviews of the Lender\'s
operations as provided in this section. Form RD 1980-16 sets forth the
terms the lender must follow to participate in RHCDS single family
mortgage loans. The lender agreement, signed by both the Agency and the
lender, states that the lender will make available all records
pertaining to the RHCDS program for review by the agency. If RHCDS
determines that the Lender is not fulfilling the obligations of Form RD
1980-16 or that the Lender fails to maintain the required criteria, the
Lender will be notified in writing of the deficiencies. If the Lender
fails to make the required corrections, RHCDS will proceed as provided
in paragraph (h) of this section. (Revised 06-13-07, PN 410.)

> \(1\) [Purpose of Lender Monitoring and Oversight]{.underline}. The
> monitoring process is a Compliance Review of Lenders and/or Servicers
> participating in the RHCDS guaranteed RH loan program. The purpose of
> the review is to determine compliance with Agency regulations.
> (Revised 06-13-07, PN 410.)
>
> \(2\) [Frequency and content of Lender and/or Servicer monitoring
> review]{.underline}. A Compliance Review Guide provides the format and
> content for the review of Lender and/or Servicer functions. The
> Compliance Review Guide must be followed to review the specific
> functions of the Lender and/or Servicer. (Revised 06-13-07, PN 410.)

14

(Revision 1)

RD Instruction 1980-D

§ 1980.309(g)(2) (Con.)

> \(i\) [New Lender Compliance Review]{.underline}. RHCDS may review
> loans developed by a newly eligible Lender to assure compliance with,
> and understanding of, Agency regulations. Thereafter, the Lender will
> be subject to a review provided in paragraph (g)(2)(ii)or paragraph
> (g)(2)(iii) of this section.
>
> (Revised 06-13-07, PN 410.)
>
> \(ii\) [Two-year review.]{.underline} RHCDS will perform a compliance
> review on a sufficient sampling of loans originated and/or serviced by
> each Lender and/or Servicer every 2 years, or more often if necessary,
> who originates 25 or more loans per year or services a portfolio of 50
> or more loans.
>
> (Revised 06-13-07, PN 410.)
>
> \(iii\) [Five-year review]{.underline}. RHDCS will perform a
> compliance review on a sufficient sampling of loans originated and/or
> serviced by each Lender and/or Servicer every 5 years, or more often
> if necessary, who originates less than 25 loans per year or services a
> portfolio of less than 50 loans.
>
> (Revised 06-13-07, PN 410.)
>
> \(iv\) [Other reviews]{.underline}. RHCDS may elect to conduct more
> frequent compliance reviews when major trends or weaknesses, such as
> loan delinquencies, loan losses, failure to submit required data and
> reports, or other influencing factors related to assuring that the
> Government's interest is adequately protected, have been noted,
> regardless of the volume of loans originated or serviced. (Revised
> 06-13-07, PN 410.)
>
> \(3\) [Planning compliance reviews]{.underline}. (Revised 06-13-07, PN
> 410.)
>
> \(i\) [Annual Planning and Location]{.underline}. Compliance Reviews
> will be performed on each Lender and/or Servicer as noted in
>
> §1980.309(g)(2). An annual plan will be developed for conducting
> Lender and/or Servicer compliance reviews. Compliance Reviews may be
> conducted as an on-site review at the Lender and/or Servicer's
> location or as a desk review at the Agency.
>
> \(i\) [Review Team]{.underline}. The team should be comprised of
> personnel that are knowledgeable of the Lender and/or Servicer
> functions to be reviewed.

14A

(Added 06-13-07, PN 410)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.309(g) (Con.)

> \(4\) [Conducting Compliance Reviews]{.underline}. The National Office
> will manage nationally approved Lender and/or Servicer Compliance
> Reviews. The National Office may elect to perform a review on a State
> based Lender and/or Servicer. States will perform Compliance Reviews
> on State-approved Lender and/or Servicer operations.
>
> (Added 06-13-07, PN 410.)

\(i\) RHCDS will determine the length of time needed to conduct the
Lender and/or Servicer Compliance Review based upon the type of review
or complexity. The length of time must be sufficient to permit the team
members to perform a complete review.

> \(ii\) Review team members will utilize the Compliance Review Guide
> when planning, conducting and reporting reviews.

(i) Three possible types of reviews may be performed. A loan origination
    review is applicable to Lenders who perform all or a portion of the
    following functions: underwriting, processing and closing. A loan
    servicing review is applicable to a Servicer which is performing all
    or a portion of the following functions: reporting, loss mitigation,
    loss claims, and property disposition. An expanded review is
    performed for Lender and Servicers that are both originating and
    servicing loans.

> \(5\) [Report of Findings]{.underline}. (Added 06-13-07, PN 410.)
>
> \(i\) Findings will be communicated to the Lender and/or Servicer
> verbally and in writing.
>
> \(ii\) Reviewers will work with the Lender and/or Servicer to correct
> findings identified.
>
> \(6\) [Follow-up and reporting]{.underline}. (Added 06-13-07, PN 410.)
>
> \(i\) The clearance and follow-up process commences upon issuance of
> the findings report.
>
> \(ii\) Periodic follow-up with the reviewed Lender and/or Servicer
> will continue on any findings remaining open until the report can be
> closed.

14B

(Added 06-13-07, PN 410)

RD Instruction 1980-D

§ 1980.309(g)(6) (Con.)

> \(iii\) For State Compliance Reviews, the State may request additional
> assistance from the National Office in resolving open findings if the
> Lender and/or Servicer are unresponsive to follow-up. Requests for
> assistance should include the State's recommendation to the National
> Office in resolving findings.
>
> \(iv\) Upon closure of the review or expiration of any follow-up
> period, a report will be prepared summarizing the review performed. A
> copy of the report will be forwarded to the National Office,
> Guaranteed Loan Division.
>
> \(7\) [Maintenance of Compliance Review records]{.underline}.
> Supporting documentation consists of all documents completed during
> the review and additional data and/or correspondence at all stages of
> the review. The documentation will be maintained in the operational
> file. (Added 06-13-07, PN 410.)
>
> \(8\) [Annual Report]{.underline}. Annually, by November 30 of each
> year, the Agency will prepare a report summarizing all Compliance
> Reviews conducted in the previous fiscal year. The report will
> identify problems identified, common areas of weaknesses among Lender
> and/or Servicers reviewed, common areas of strengths identified,
> recommendations for improvement in Lender and/or Servicer compliance
> with program requirements and any recommendations to the Agency for
> reduction of risks to the Agency resulting in noncompliance with
> requirements. (Added 06-13-07, PN 410.)

\(h\) [Termination of Lender eligibility]{.underline}. The Lender
remains eligible as long as the Lender meets the criteria in paragraph
(a) of this section unless that Lender\'s status is revoked by RHCDS or
by another Federal agency. RHCDS shall revoke the eligible Lender status
of any Lender who fails to comply with requirements of paragraphs (b) or
(e) of this section. Status may also be revoked if the Lender violates
the terms of Form RD 1980-16, fails to properly service any guaranteed
loan, or fails to adequately protect the interests of the Lender and the
Government. If the Lender is determined to be no longer eligible, the
Lender will continue to service any outstanding loans guaranteed under
this subpart which is held by the Lender or RHCDS may require the Lender
to transfer the servicing of the loan. In addition to revocation of
eligible Lender status, the Lender may be debarred by RHCDS. In seeking
to debar the Lender, RHCDS will comply with the provisions of RD
Instruction 1940-M (available in any RHCDS office). A Lender that has
been debarred must obtain the services of another Lender that meets the
provisions of this subpart to service any outstanding loans guaranteed
under this subpart which are held by said Lender.

15

(Revision 2)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.309 (Con.)

\(i\) [RHCDS responsibility]{.underline}.

\(1\) Lender Agreement. The State Director will maintain the original of
Form RD 1980-16 in an operational file for each eligible Lender. A copy
of Form RD 1980-16 will also be placed in the RHCDS borrower\'s docket
at the time Form RD 1980-17, \"Loan Note Guarantee,\" is issued.

\(2\) Contact point. The RHCDS contact point for Lenders regarding loan
guarantees shall be the field office which serves the area in which the
security is located.

> \(3\) Ongoing compliance. The State Director will advise Lenders about
> the need: to underwrite loans according to Agency regulations, to
> process and approve loans in accordance with program instructions, to
> review loan applications for accuracy and completeness, not to exceed
> income limits, that borrowers have adequate loan repayment ability and
> acceptable credit histories, that loss claims include only supportable
> costs and any excess costs will be denied, and to regularly check
> Rural Development's website for new issuances related to program
> requirements. (Added 03-21-07, PN 407.)

§ 1980.310 [Loan purposes]{.underline}.

The purpose of a loan guaranteed under this subpart must be to acquire a
completed dwelling and related facilities to be used by the applicant as
a primary residence. The loan may be to purchase a new dwelling or an
existing dwelling. The guaranteed loan may be for \"take out\" financing
for a loan to construct a new dwelling or improve an existing dwelling
when the construction financing is arranged in connection with the loan
package. The loan may include funds for the purchase and installation of
necessary appliances, energy saving measures, and storm cellars.
Incidental expenses for tax monitoring services, architectural,
appraisal, survey, environmental, and other technical services may be
included. Subject to § 1980.311 of this subpart, eligible loan purposes
also include:

\(a\) Necessary related facilities such as a garage, storage shed,
walks, driveway, and water and/or sewage facilities including reasonable
connection fees for utilities which the buyer is required to pay.

\(b\) Special design features or equipment necessary to accommodate a
physically disabled member of the household.

## 

## 16

## (Revision 2)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.309 (Con.)

\(c\) The cost of establishing an escrow account for real estate taxes
and/or insurance premiums.

\(d\) Title clearance, title insurance, and loan closing; stock in a
cooperative lending agency necessary to obtain the loan; and, for
low-income applicants only, loan discount points to reduce the note
interest rate from the rate authorized in § 1980.320 of this subpart not
exceeding the amount typical for the area.

\(e\) Provide funds for seller equity and/or essential repairs when an
existing guaranteed loan is to be assumed simultaneously.

## 16A

## (Added 03-21-07, PN 407)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.311 [Loan limitations and special provisions]{.underline}.

\(a\) [Prohibited loan purposes]{.underline}. Conditional commitments
will not be issued if loan funds are to be used for:

\(1\) Payment of construction draws.

\(2\) The purchase of furniture or other personal property except for
essential equipment and materials authorized in accordance with\
§ 1980.310 of this subpart.

\(3\) Refinancing RHCDS debts, debts owed the Lender (other than
construction/development, financing incurred in conjunction with the
proposed loan), or debts on a manufactured home.

\(4\) Purchase or improvement of income-producing land, or buildings to
be used principally for income-producing purposes, or buildings not
essential for RH purposes, or to buy or build buildings which are
largely or in part specifically designed to accommodate a business or
income-producing enterprise.

\(5\) Payment of fees, charges, or commissions, such as finder\'s fees
for packaging the applications or placement fees for the referral of a
prospective applicant to RHCDS.

\(6\) Improving the entry of a homestead entryman or desert entryman
prior to receipt of patent.

\(7\) Purchase a dwelling with an in-ground swimming pool.

\(b\) [Limitations]{.underline}. The principal purpose of the loan,
except for a subsequent loan to an existing borrower, must be to buy or
build a dwelling. The loan may include additional funds in accordance
with\
§ 1980.310 of this subpart. The amount of the loan may not exceed the
maximum dollar limitation of Section 203 (b)(2) of the National Housing
Act (12 U.S.C. 1702). Each State Office will obtain the most current
information from their State HUD office and maintain the listing of
maximum loan amounts for distribution to field offices and lenders.

\(1\) A loan for the acquisition of a newly constructed dwelling that
meets the requirements of §1980.341(b) of this subpart may be made for
up to 100 percent of the appraised value or the cost of acquisition and
any necessary development including those purposes in §1980.310 of this
subpart, whichever is less.

## 17

## (Revision 1)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.311(b) (Con.)

\(2\) A loan for the acquisition of an existing dwelling and
development, if any, in conjunction with the acquisition of an existing
dwelling may be made for up to 100 percent of the appraised value or the
cost of acquisition and necessary development including those purposes
in § 1980.310 of this subpart, whichever is less.

\(3\) A loan for the acquisition of a newly constructed dwelling (a
dwelling that does not meet the definition for an existing dwelling)
that does not meet the requirements of § 1980.341(b) of this subpart is
limited to 90 percent of the present market value.

\(c\) [Subdivisions]{.underline}. Housing units may be financed in
existing subdivisions approved by local, regional, State, or Federal
government agencies before issuance of a conditional commitment. The
subdivision must meet the requirements of § 1901.203 of subpart E of
part 1901 of this chapter. An existing subdivision is one in which the
local government has accepted the subdivision plan, its principal
developments and right-of-ways, the construction of streets, water and
water/waste disposal systems, and utilities; is at a point which
precludes any major changes; and provisions are in place for continuous
maintenance of the streets and the water and water/waste disposal
systems. A dwelling served by a homeowners association (HOA) may be
accepted when the project has been approved or accepted by HUD, VA,
Fannie Mae, or Freddie Mac.

§ 1980.312 [Rural area designation]{.underline}.

A rural area is an area which is identified as rural by Rural
Development in accordance with 7 CFR part 3550. Current county maps
showing ineligible areas are available in Rural Development field
offices.

(Revised 01-23-03, SPECIAL PN.)

§ 1980.313 [Site and building requirements]{.underline}.

\(a\) [Rural area]{.underline}. The property on which the loan is made
must be located in a designated rural area as identified in § 1980.312
of this subpart. A nonfarm tract to be purchased or improved with loan
funds must not be closely associated with farm service buildings.

\(b\) [Access]{.underline}. The property must be contiguous to and have
direct access from a street, road, or driveway. Streets and roads must
be hard surfaced or all-weather surface.

## 18

## (Revision 1) 

§1980.313 (Con.) RD Instruction 1980-D

\(c\) [Water and water/waste disposal system]{.underline}. A nonfarm
tract on which a loan is to be made must have an adequate water and
water/waste disposal system and other related facilities. Water and
water/waste disposal systems serving the site must be approved by a
state or local government agency. When the site is served by a privately
owned and centrally operated water and water/waste disposal system, the
system must meet the design requirements of the State Department of
Health or comparable reviewing and regulatory agency. Written
verification must be obtained from the regulatory agency that the
private water and water/waste system complies with the Safe Drinking
Water Act (42 U.S.C. §300F et. seq.) and the Clean Water Act (33 U.S.C.
§1251 et. seq.), respectively. A system owned and/or operated by a
private party must have a legally binding agreement which allows
interested third parties, such as the Lender, to enforce the obligation
of the operator to provide satisfactory service at reasonable rates.

\(d\) [Environmental concerns]{.underline}. The RHCDS approval official
will comply with the siting and environmental requirements contained in
subpart G of part 1940 of this chapter. RHCDS State environmental
coordinators will assure that County Supervisors are aware of the
environmentally sensitive areas.

\(e\) [Modest house]{.underline}. Dwellings financed must provide
decent, safe, and sanitary housing and be modest in cost. A dwelling
that can be purchased with a loan not exceeding the maximum dollar
limitation of Section 203 (b)(2) of the National Housing Act (12 U.S.C.
1702) is considered modest. Generally, the value of the site must not
exceed 30 percent of the total value of the property. When the value of
the site is typical for the area, as evidenced by the appraisal, and the
site cannot be subdivided into two or more sites, the 30 percent
limitation may be exceeded.

\(f\) [Thermal standards]{.underline}. Dwellings financed shall meet the
standards outlined in exhibit D of subpart A of part 1924 of this
chapter except for an existing dwelling, if documentation is provided to
establish that the actual cost of heating and cooling is not
significantly greater than those costs for a dwelling that meets
RHCDS\'s thermal standards. If the dwelling is excepted, only the
perimeter of the house at the band beam and the heat ducts in unheated
basements or crawlspace must be insulated.

## 19

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.313 (Con.)

\(g\) [Existing dwelling]{.underline}. An existing dwelling financed
must be cost effective to the applicant including reasonable costs of
utilities and maintenance for the area. Loan guarantees may be made on
an existing manufactured home when it meets the provisions of

paragraph (i)(2)(i) of this section.

\(h\) [Repairs]{.underline}. Any dwelling financed with an RHCDS
guarantee must be structurally sound, functionally adequate, and placed
in good repair prior to issuance of Form RD 1980-17 except as provided
in §1980.315 of this subpart.

\(i\) [Manufactured homes]{.underline}. New units that meet the
requirements of exhibit J of subpart A of part 1924 of this chapter and
purchased through RHCDS approved dealer-contractors may be considered
for a guaranteed loan under this subpart. The Lender may obtain a list
of RHCDS approved models and dealer-contractors from any RHCDS office in
the area served.

\(1\) Loans may be guaranteed for the following purposes when the
security covers both the unit and the lot:

\(i\) A new unit and related site development work on a site owned or
purchased by the applicant which meets the requirements and limitations
of this section or a leasehold meeting the provisions of §1980.314 of
this subpart.

\(ii\) Transportation and set-up costs for a new unit.

\(2\) Loans may not be guaranteed for:

\(i\) An existing unit and site unless it is already financed with a
Section 502 RH direct or guaranteed loan, is being sold from RHCDS
inventory, or is being sold from the Lender\'s inventory provided the
Lender acquired possession of the unit through a loan guaranteed under
this subpart.

\(ii\) The purchase of a site without also financing the unit.

\(iii\) Existing debts owed by the applicant/borrower.

\(iv\) A unit without an affixed certification label indicating the unit
was constructed in accordance with the Federal Manufactured Home
Construction and Safety Standards.

## 20

##  

§1980.313 (i)(2) (Con.) RD Instruction 1980-D

\(v\) Alteration or remodeling of the unit when the initial loan is
made.

\(vi\) Furniture, including movable articles of personal property such
as drapes, beds, bedding, chairs, sofas, lamps, tables, televisions,
radios, stereo sets, and similar items. Items such as wall-to-wall
carpeting, refrigerators, ovens, ranges, clothes washers or dryers,
heating or cooling equipment, or similar items, may be financed.

\(vii\) Any unit not constructed to the RHCDS thermal standards as
identified by an affixed label for the winter degree day zone where the
unit will be located.

§1980.314 [Loans on leasehold interests]{.underline}.

A loan may be guaranteed if made on a leasehold owned or being acquired
by the applicant when the Lender determines that long-term leasing of
homesites is a well established practice and such leaseholds are freely
marketable in the area provided the Lender determines and certifies to
RHCDS that:

\(a\) [Unable to obtain fee title]{.underline}. The applicant is unable
to obtain fee title to the property.

\(b\) [Unexpired term]{.underline}. The lease has an unexpired term of
at least

40 years from the date of approval.

§1980.315 [Escrow accounts for exterior development]{.underline}.

When proposed exterior development work cannot be completed because of
weather and the work remaining to be done does not affect the livability
of the dwelling, an escrow account [for exterior development
only]{.underline} may be established by the originating lender if the
following conditions are met:

\(a\) A signed contract and bid schedule is in effect for the proposed
exterior development work.

\(b\) The contract for development work must provide for completion
within 120 days.

## 21

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.315 (Con.)

\(c\) The Lender agrees to obtain a final inspection report and advise
RHCDS when the work has been completed.

\(d\) The escrow account must be funded in an amount sufficient to
assure the completion of the remaining work. This figure should be 150
percent of the cost of completion but may be higher if the Lender
determines a higher amount is needed.

§1980.316 [Environmental requirements]{.underline}.

The requirements of subpart G of part 1940 of this chapter apply to loan
guarantees made under this subpart. Lenders and applicants must
cooperate with RHCDS in the completion of these requirements. Lenders
must become familiar with these requirements so that they can advise
applicants and reduce the probability of unacceptable applications being
submitted to RHCDS. RHCDS may require that Lenders and/or applicants
obtain information for completing environmental assessments when
necessary. The RHCDS approval official will utilize adequate, reliable
information in completion of the environmental review. Sources of
information include, but are not limited to, the State Natural Resource
Management Guide (available in any RHCDS office) and, as necessary, the
technical expertise available within the Agency as well as other
agencies and organizations to assist in the completion of the
environmental review.

§1980.317 [Equal opportunity and nondiscrimination requirements in use,
occupancy, rental, or sale of housing]{.underline}.

\(a\) [Compliance]{.underline}. Loans guaranteed under this subpart are
subject to the provisions of various civil rights statutes. RHCDS and
the Lender may not discriminate against any person in making guaranteed
housing loans available, or impose different terms and conditions for
the availability of these loans based on a person\'s race, color,
familial status, religion, sex, age, physical or mental disability, or
national origin, provided the applicant possesses the capacity to enter
into a legal contract for services. These requirements will be discussed
with the applicant, builder, developer, and other parties involved as
early in the negotiations as possible.

\(b\) [Reporting]{.underline}. If there is indication of noncompliance
with these requirements, the matter will be reported by the borrower,
Lender, or RHCDS personnel to the Administrator or the Director, Equal
Opportunity Staff. Complaints and compliance will be handled by RHCDS in
accordance with subpart E of part 1901 of this chapter.

## 22

##  

§1980.317 (Con.) RD Instruction 1980-D

\(c\) [Forms and requirements]{.underline}. In accordance with Executive
Order 11246, the following equal opportunity and nondiscrimination forms
and requirements are applicable when the loan guarantee involves a
construction contract between the borrower and the contractor that is
more than \$10,000. The Lender is responsible for seeing that the
requirements of paragraphs (c)(1) through (c)(5) of this section are
met:

\(1\) [Equal Opportunity Agreement]{.underline}. Before loan closing,
each borrower whose loan involves a construction contract of more than
\$10,000 must execute Form RD 400-1, \"Equal Opportunity Agreement,\" or
the equivalent HUD form.

\(2\) [Construction contract or subcontract in excess of
\$10,000]{.underline}. If the contract or a subcontract exceeds
\$10,000:

\(i\) The contractor or subcontractor must submit the Form RD 400-6,
\"Compliance Statement,\" before or as a part of the bid or negotiation.

\(ii\) An Equal Opportunity Clause must be part of each contract and
subcontract.

\(iii\) With notification of the contract award, the contractor must
receive Form RD 400-3, \"Notice to Contractors and Applicants,\" signed
by an RHCDS approval official, with an attached Equal Employment
Opportunity poster. Posters in Spanish must be provided and displayed
where a significant portion of the population is Spanish speaking.

\(iv\) Under Executive Order 11246 and Executive Order 11375, the
contractor or subcontractor, subject to the requirements of paragraph
(c)(5) of this section, is prohibited from discriminating because of
race, color, religion, sex, or national origin to ensure equality of
opportunity in all aspects of employment.

\(3\) [One hundred or more employees and construction contract or
subcontract exceeds \$10,000]{.underline}. If the contractor or
subcontractor has 100 or more employees and the contract or subcontract
is for more than \$10,000, in addition to the requirements of paragraph
(c)(2) of this section, an annual report must be filed on or before
March 31. Failure to file timely, complete, and

## 23

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.317 (c)(3) (Con.)

accurate reports constitutes noncompliance with the Equal Opportunity
Clause. Report forms are distributed by the Joint Reporting Committee
and any questions on this form should be addressed by the contractor or
subcontractor to the Joint Reporting Committee, 1800 G Street, NW.,
Washington, D.C. 20006.

\(4\) [Fifty or more employees and construction contract or subcontract
exceeds \$50,000]{.underline}. If the contract or subcontract is more
than \$50,000 and the contractor or subcontractor has 50 or more
employees, in addition to the requirements of paragraph (c)(2) of this
section, each such contractor or subcontractor must be informed that the
contractor or subcontractor must develop a written affirmative action
compliance program for each of the contractor\'s or subcontractor\'s
establishments and put it on file in each of the personnel offices
within 120 days of the commencement of the contract or subcontract.

\(5\) [Compliance reviews]{.underline}. Compliance reviews must be made
during construction inspections to determine whether the required
posters are displayed, the facilities are not segregated, and there is
no evidence of discrimination in employment. Findings of the borrower or
Lender (when inspections are made) will be documented in writing. If
there is any evidence of noncompliance, the borrower or Lender will be
made to achieve voluntary compliance. If the effort fails, the
Compliance Review Officer will report all the facts in writing to the
Administrator, Rural Housing and Community Development Service, 14th and
Independence SW., Washington, D.C. 20250, Attention: Equal Opportunity
Officer.

\(6\) [Employee complaints]{.underline}. Any employee of or applicant
for employment with such contractors or subcontractors may file a
written complaint of discrimination with RHCDS.

\(i\) A written complaint of alleged discrimination must be signed by
the complainant and should include the following information:

\(A\) The name and address (including telephone number, if any) of the
complainant.

\(B\) The name and address of the person committing the alleged
discrimination.

## 24

##  

§1980.317 (c)(6)(i) (Con.) RD Instruction 1980-D

\(C\) A description of the acts considered to be discriminatory.

\(D\) Any other pertinent information that will assist in the
investigation and resolution of the complaint.

\(ii\) Such complaint must be filed not later than 180 days from the
date of the alleged discrimination, unless the time for filing is
extended by RHCDS for good cause shown by the complainant.

§1980.318 [Flood or mudslide hazard area precautions]{.underline}.

RHCDS policy is to discourage lending in designated flood and mudslide
hazard areas. Loan guarantees shall not be issued in designated
flood/mudslide hazard areas unless there is no practical alternative.

\(a\) [Dwelling location]{.underline}. Dwellings and building
improvements located in special flood or mudslide hazard areas, as
designated by the Federal Emergency Management Agency (FEMA) may be
financed under this subpart only if:

\(1\) The community, as a result of such designation by FEMA as a
special flood or mudslide prone area, has an approved flood plain area
management plan.

\(2\) The dwelling location and construction plans and specifications
for new buildings or improvements to existing buildings comply with an
approved flood plain area management plan as mentioned in paragraph
(a)(1) of this section.

\(3\) Potential environmental impacts and feasible alternatives have
been fully considered by RHCDS in accordance with the requirements of
subpart G of part 1940 of this chapter.

\(4\) The first floor elevation is above the 100-year flood zone
elevation.

\(b\) [Flood insurance]{.underline}. If the dwelling is located in a
special flood or mudslide hazard area, flood insurance must be purchased
by the borrower prior to loan closing and maintained thereafter. (See
subpart B of part 1806 of this chapter (RD Instruction 426.2)).

## 25

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.319 [Other Federal, State, and local requirements]{.underline}.

In addition to the specific requirements of this subpart, on all
proposals financed with an RHCDS guarantee, Lenders and/or applicants
must coordinate with all appropriate Federal, State, and local agencies.
Applicants and/or Lenders will be required to comply with any Federal,
State, or local laws, regulatory commission rules, ordinances, and
regulations which exist at the time Form RD 1980-17 is issued which
affect the dwelling including, but not limited to:

\(a\) Borrowing money and giving security therefore;

\(b\) Land use zoning;

\(c\) Health, safety, and sanitation standards; and

\(d\) Protection of the environment and consumer affairs.

§1980.320 [Interest rate]{.underline}.

The interest rate must not exceed the established, applicable usury
rate. Loans guaranteed under this subpart must bear a fixed interest
rate over the life of the loan. The rate shall be agreed upon by the
borrower and the Lender and must not be more than the Lender\'s
published rate for VA first mortgage loans with no discount points or
the current Fannie Mae rate as defined in §1980.302(a) of this subpart,
whichever is higher. The Lender must document the rate and the date it
was determined.

§1980.321 [Terms of loan repayment]{.underline}.

\(a\) [Note]{.underline}. Principal and interest shall be due and
payable monthly as provided in the promissory note.

\(b\) [Term]{.underline}. The term for final maturity shall be not less
than

30 years from the date of the note and not more than 30 years from the
date of the first scheduled payment.

§1980.322 [Loan guarantee limits]{.underline}.

The amount of the loan guarantee is 90 percent of the principal amount
of the loan.

\(a\) The maximum loss payment under the guarantee of Single Family
Housing loans is the lesser of:

\(1\) Any loss of an amount equal to 90 percent of the principal amount
actually advanced to the borrower, or

## 26

##  

§1980.322 (a) (Con.) RD Instruction 1980-D

\(2\) Any loss sustained by the Lender of an amount up to

35 percent of the principal amount actually advanced to the borrower,
plus 85 percent of any additional loss sustained by the Lender of an
amount up to the remaining 65 percent of the principal amount actually
advanced to the borrower.

\(b\) Loss includes only:

\(1\) Principal and interest evidenced by the guaranteed loan note;

\(2\) Any loan subsidy due and owing; and

\(3\) Any principal and interest indebtedness on RHCDS approved
protective advances for protection and preservation of security.

\(c\) Interest (including any subsidy) shall be covered by the loan note
guarantee to the date of the final loss settlement when the Lender
conducts liquidation in an expeditious manner in accordance with the
provisions of §1980.376 of this subpart.

§1980.323 [Guarantee fee]{.underline}.

The Lender will pay a nonrefundable fee which may be passed on to the
borrower. The amount of the fee is determined by multiplying the figure
in exhibit K of subpart A of part 1810 of this chapter (RD Instruction
440.1, available in any RHCDS office) times 90 percent of the principal
amount of the loan.

§1980.324 [Charges and fees by Lender]{.underline}.

\(a\) [Routine charges and fees]{.underline}. The Lender may establish
the charges and fees for the loan, provided they are the same as those
charged other applicants for similar types of transactions.

\(b\) [Late payment charges]{.underline}. Late payment charges will not
be covered by the guarantee. Such charges may not be added to the
principal and interest due under any guaranteed note. Late charges may
be made only if:

\(1\) [Maximum amount]{.underline}. The maximum amount does not exceed
the percentage of the payment due as prescribed by HUD or Fannie Mae or
Freddie Mac.

## 27

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.324 (b) (Con.)

\(2\) [Routine]{.underline}. They are routinely made by the Lender in
similar types of loan transactions.

\(3\) [Payments received]{.underline}. Payments have not been received
within the customary timeframe allowed by the Lender. The term \"payment
received\" means that the payment in cash, check, money order, or
similar medium has been received by the Lender at its main office,
branch office, or other designated place of payment.

\(4\) [Calculating charges]{.underline}. The Lender does not change the
rate or method of calculating the late payment charges to increase
charges while the loan note guarantee is in effect.

\(5\) [Interest-assisted loans]{.underline}. The Lender will not
penalize or charge any fee to the borrower when the only delinquency is
a loan subsidy payment, which the Lender is entitled to but has not
received.

§1980.325 [Transactions which will not be guaranteed]{.underline}.

\(a\) [Lease payments]{.underline}. Payments made on a lease will not be
guaranteed.

\(b\) [Loans made by other Federal agencies]{.underline}. Loans made by
other Federal agencies will not be guaranteed. This does not preclude
guarantees of loans made by an FCS institution with direct lending
authority. This also does not preclude loans made by state or local
government agencies assisted by a Federal agency.

§§1980.326 - 1980.329 \[Reserved\]

§1980.330 [Applicant equity requirements]{.underline}.

A loan to purchase a new or existing dwelling may be made up to the
appraised market value of the security.

§1980.331 [Collateral]{.underline}.

\(a\) [General]{.underline}. The entire loan must be secured by a first
lien on the property being financed (second lien when the loan is for a
subsequent loan to an existing borrower or there is a transfer and
assumption of an existing loan) and the Lender will maintain this lien
priority. The Lender is responsible for assurance that proper and
adequate security interest is obtained, maintained in existence, and of
record to protect the interests of the Lender and RHCDS.

## 28

##  

§1980.331 (Con.) RD Instruction 1980-D

\(b\) [Third party liens, suits pending, etc]{.underline}. Among other
things in obtaining the required security, it is necessary to ascertain
that there are no adverse claims or liens against the property or the
borrower, and that there are no suits pending or anticipated that would
affect the property or the borrower.

\(c\) [All collateral must secure the entire loan]{.underline}. The
Lender will not take separate collateral, including but not limited to
mortgage insurance, to secure that portion of the loss not covered by
the guarantee.

§1980.332 \[Reserved\]

§1980.333 [Promissory notes and security instruments]{.underline}.

\(a\) [Loan instruments]{.underline}. The Lender may use its own forms
for promissory notes, real estate mortgages, including deeds of trust
and similar instruments, and security agreements provided there are no
provisions that are in conflict or otherwise inconsistent with the
provisions of §1980.309(b)(2)(v) of this subpart. The Lender is
responsible for determining that the security instruments are adequate
and are properly maintained of record.

\(b\) [Interest assistance instruments]{.underline}. When the loan
guarantee is authorized from interest assisted funds, RHCDS will provide
the Lender with the necessary forms and security instruments related to
the interest assistance. The Lender will complete Form RD 1980-12,
assure that the closing agent properly records a junior mortgage or deed
of trust which grants RHCDS a lien on the security in order to protect
RHCDS\'s equity share subject only to the first mortgage or deed of
trust to the Lender or other authorized prior lien, and forward the
agreements and recorded instruments to RHCDS.

§1980.334 [Appraisal of property serving as collateral]{.underline}.

An appraisal of all property serving as security for the proposed loan
will be completed and submitted to RHCDS for review with the request for
loan guarantee. The Lender may pass the cost of the appraisal on to the
borrower. The appraisal must have been completed within 6 months of the
date the request for a conditional commitment is submitted to RHCDS.

## 29

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.334 (Con.)

\(a\) [Qualified appraiser]{.underline}. The Lender will use an
appraiser that is properly licensed or certified, as appropriate, to
make residential real estate appraisals in accordance with the criteria
set forth by the Appraiser Qualification Board (AQB) of the Appraisal
Foundation regardless of the amount of the loan. Appraisers may not
discriminate against any person in making or performing appraisal
services because of race, color, familial status, religion, sex, age,
disability, or national origin.

\(b\) [Appraisal report]{.underline}. Residential appraisals will be
completed using the sales comparison (market) and cost approach to
market value.

\(1\) [URAR]{.underline}. The appraiser will use the most recent
revision of the URAR.

\(i\) The \"Estimated Reproduction Cost-New of Improvements\" section of
the form must be completed when the dwelling is less than 1 year old.

\(ii\) Not less than three comparable sales, which are not more than 12
months old, will be used unless the appraiser provides documentation
that such comparables are not available in the area. Comparable sales
should be located as close as possible to the subject dwelling. When the
need arises to use a comparable sale that is a considerable distance
from the subject, the appraiser must use his or her knowledge of the
area and apply good judgment in selecting comparable sales that are the
best indicators of value for the subject property.

\(2\) [Supporting documentation]{.underline}. A narrative explanation
supporting unusual adjustments must be attached to the appraisal.

\(3\) [Photographs]{.underline}. The appraisal report must include
photographs which clearly provide front, rear, and street scene views of
the subject property and a front view for each comparable sale used in
the completion of the appraisal.

## 30

##  

RD Instruction 1980-D

§ 1980.334 (Con.)

\(c\) [Agency review]{.underline}. The Agency approval official will
perform an administrative review as described in the section (available
in any Agency office). (Revised 09-27-06, PN 402.)

\(1\) The Lender Agency will be required to correct or complete any
appraisal returned by the Agency for corrective action.

\(2\) The Lender is responsible for communicating and initiating
corrective action with the appraiser. The corrected appraisal will be
subject to the same review process described in this section.

> \(3\) The Lender will no longer use an appraiser determined by the
> Agency to not meet the requirements of this section. The Agency will
> notify the Lender that appraisals performed by that appraiser will no
> longer be accepted.

\(d\) [State Director responsibilities]{.underline}. The State Director
will designate or delegate authority to the Housing Program Director to
designate qualified personnel to conduct technical and field appraisal
reviews. These employees, as review appraisers, must have recent
relevant, documented appraisal experience or other factors which clearly
establish the reviewer\'s qualifications. The State Director will
designate Rural Development staff to perform administrative reviews.
(Added 06-21-06, PN 399.)

\(e\) [Training of staff.]{.underline} State Directors will determine
and establish the training needs for Rural Development staff completing
administrative reviews. The State Director will also provide training
when necessary to assure adequate administrative reviews are being
completed. (Added 06-21-06, PN 399.)

\(f\) [Types of reviews]{.underline}. There are three types of reviews
for appraisals, namely \"Administrative,\" \"Technical Desk\" and
\"Technical Field.\" An administrative review will always be done and a
sufficient number of technical desk and technical field reviews will be
completed to ensure that the Agency is getting quality appraisals for
the Guaranteed Loan Program. An explanation of the types and frequencies
of the reviews are as follows: (Added 06-21-06, PN 399.)

## 31

## (Revision 2)

(6-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.334(f) (Con.)

\(1\) [Administrative review]{.underline}. An administrative review is
the least detailed of the reviews and will be done on all appraisals. It
is made to determine whether the appraisal presents an appropriate value
for market conditions. The reviewer determines whether the appraisal is
complete, the mathematics are correct, there is a proper number of
current comparables, and that the comparable sales approach was used to
establish market value.

\(i\) Administrative reviews done by Field staff on Form RD 1922-15,
\"Administrative Appraisal Review for Single Family Housing,\" will be
signed, dated, and retained in the file for scanning. This review should
be completed prior to issuance of the Conditional Commitment (Form RD
1980-18).

\(ii\) If there is a deficiency with an appraisal, the loan approval
official should communicate the deficiency to the lender. These
deficiencies should include items that affect loan security, value
conclusions, or unacceptable property conditions.

\(2\) [Technical Desk Review.]{.underline} A technical review is to
determine whether the appraisal made by the appraiser meets the
technical requirements of the Uniform Standards of Professional
Appraisal Practices (USPAP) as promulgated by the Appraisal Foundation.
The reviewer must be satisfied, that the appraiser presented an
appraisal that was complete, mathematically correct, the reasoning
clear, and the value conclusion supported.

\(i\) Technical reviews will be done in Section A of Form RD 1922-14,
\"Residential Appraisal Review for Single Family Housing.\" Technical
reviews should be done in a \"spot check\" method established by the
State Director. The schedule of the \"spot checks\" should vary annually
to ensure adequate controls are established for program operations.
Field offices will be advised of these schedules and all changes.

\(ii\) The State Director will establish the percentage of appraisals
that will have technical reviews. The National Office recommends a
minimum of 5 percent or more. These reviews should insure that
appraisers continue to meet the requirements of USPAP. They also provide
a method of internal control for the appraisal review staff.

## 32

## (Revision 2) 

RD Instruction 1980-D

§ 1980.334(f)(2) (Con.)

\(iii\) A technical review may be requested by Field staff when problems
are detected on the administrative review that can not or will not be
addressed by the submitting lender or original appraiser. These problems
must be significant and result in an appraisal which does not support
the value conclusion. Field staffs will document the nature of their
concerns utilizing Form RD 1922-15. The Field staff will then forward
the appraisal to the State Office appraisal review staff or other
reviewers for a technical and/or field review prior to approval of the
loan.

\(3\) [Technical Field Review]{.underline}. Field reviews will be
completed to determine if the appraiser has followed accepted appraisal
techniques and arrived at a logical conclusion. These will be completed
by the appraisal reviewer in Section B of Form RD 1922-14. Field reviews
should be completed within 30 days of the completion of the technical
review. Field reviews will be done on a \"spot check\" basis established
by the State Director. The State Director will establish the number of
field reviews to be completed.

\(i\) The reviewer will sign and date Form RD 1922-14 and attach a
photocopy of the reviewed residential appraisal forms. The reviewer\'s
signature indicates both the appraisal and the appraisal review were
conducted in accordance with USPAP. The State Director and the appraisal
review staff are responsible for the overall administration of
residential appraisal compliance and training within the geographic
jurisdiction of the State Office. Appropriate actions will be initiated
by the State Director and appraisal review staff to ensure compliance
with USPAP and National Office policies governing the residential
appraisal process.

\(ii\) The State Director is required to establish internal management
controls and systems to document and substantiate residential appraisal
compliance activities, which will be evaluated during State Internal
Reviews, Single Family Housing program reviews, or Management Control
Reviews.

32A

(Added 06-21-06, PN 399)

(6-21-95) SPECIAL PN

RD Instruction 1980-D

§§ 1980.335 - 1980.339 \[Reserved\]

§ 1980.340 [Acquisition, construction, and development]{.underline}.

\(a\) [Acquisition of property]{.underline}. The Lender is responsible
for seeing that the property to be acquired with loan funds is acquired
as planned and that the required security interest is obtained.

\(b\) [New construction]{.underline}. A new dwelling financed with a
guaranteed loan must:

\(1\) Have been built in accordance with building plans and
specifications that contain approved building code certifications
(eligible certifiers are listed in § 1924.5(f)(1)(iii) of subpart A of
part 1924 of this chapter).

\(2\) Conform to RHCDS thermal standards (exhibit D of subpart A of part
1924 of this chapter).

\(i\) The builder may certify conformance with RHCDS thermal standards
contained in paragraph IV A of exhibit D of subpart A of part 1924 of
this chapter.

\(ii\) A qualified, registered architect or a qualified, registered
engineer must certify conformance with RHCDS thermal standards contained
in paragraph IV C of exhibit D of subpart A of part 1924 of this
chapter.

\(c\) [Development]{.underline}. The Lender and borrower are responsible
for seeing that the loan purposes are accomplished and loan funds are
properly utilized. This includes, but is not limited to, seeing that:

\(1\) The applicable development standards are adhered to;

\(2\) Drawings and specifications are certified and complied with;

\(3\) Adequate water, electric, heating, waste disposal, and other
necessary utilities and facilities are obtained;

\(4\) Equal opportunity and nondiscrimination requirements are met,
(see\
§ 1980.317 of this subpart); and

\(5\) A builder\'s warranty is issued when new construction, repair, or
rehabilitation is involved, which provides for at least 1 year\'s
warranty from the date of completion or acceptance of the work.

32B

(Added 06-21-06, PN 399)

RD Instruction 1980-D

§ 1980.341 [Inspections of construction and compliance
reviews]{.underline}.

\(a\) [Qualified inspectors]{.underline}. Inspections will be made
during construction by a construction inspector deemed qualified and
approved by the Lender. A qualified inspector is one that a reasonable
person would hire to perform an inspection of his/her own dwelling.

\(b\) [Inspections]{.underline}. Inspections shall be done by a party
the Lender determines to be qualified, such as a HUD approved fee
inspector. The sale agreement shall identify which party (i.e.,
purchaser or seller) is responsible to obtain and pay for required
inspections and certifications. In connection with inspections involving
construction contracts, equal opportunity and nondiscrimination
compliance reviews must be made as required by § 1980.317 of this
subpart.

\(1\) For existing dwellings, inspections must be made to determine that
the dwelling:

\(i\) Meets the current requirements of HUD Handbook 4150.1 and 4905.1
(available from the HUD Ordering Desk 1-800-767-7468).

\(ii\) Meets the thermal standards per § 1980.313(f) of this subpart.

## 32C

## (Added 06-21-06, PN 399)

## (6-21-95) SPECIAL PN 

§1980.341 (b) (Con.) RD Instruction 1980-D

## 

## 

\(2\) For a newly constructed dwelling, when construction is planned,
the Lender must see that the following inspections are made in addition
to any additional inspections the Lender deems appropriate:

\(i\) When footings and foundations are ready to be poured but prior to
back-filling.

\(ii\) When shell is closed in but plumbing, electrical, and mechanical
work are still exposed.

\(iii\) When construction is completed prior to occupancy.

\(iv\) Inspections under paragraphs (b)(2)(i) and (ii) of this section
are not required when the builder supplies an insured 10 year warranty
plan acceptable under the requirements of exhibit L of subpart A of part
1924 of this chapter.

\(c\) [Water and water/waste disposal]{.underline}. The Lender will see
that the water and water/waste disposal systems have been approved by a
State or local government agency.

§§1980.342 - 1980.344 \[Reserved\]

§1980.345 [Applicant eligibility requirements for a guaranteed
loan]{.underline}.

Applicants who meet the requirements of this section are eligible for a
loan guaranteed under this subpart. Applicants desiring loan assistance
as provided in this subpart must file loan applications with a Lender
that meets the requirements set forth in §1980.309 of this subpart. The
Lender may accept applications filed through its agents, correspondents,
branches, or other institutions. The Lender must have at least one
personal interview with the applicant to verify the information on the
application and to obtain a complete picture of the applicant\'s
financial situation. The interview may take place by telephone or
face-to-face.

\(a\) [Eligible income]{.underline}. The applicant\'s adjusted annual
income determined in accordance with §1980.348 of this subpart may not
exceed the applicable income limit in exhibit C of RD Instruction 1980-D
(available in any RHCDS office) at the time of issuance of Form RD
1980-18, \"Conditional Commitment for Single Family Housing Loan
Guarantee.\" Adjusted annual income is used to determine eligibility for
the RHCDS loan guarantee.

## 33

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.345 (Con.)

\(b\) [Adequate and dependable income]{.underline}. The applicant (and
coapplicant, if applicable) has adequate and dependably available
income. The applicant\'s history of income and the history of the
typical annual income of others in the area with similar types of
employment will be considered in determining whether the applicant\'s
income is adequate and dependable.

\(1\) A farm or nonfarm business loss must be considered in determining
repayment ability.

\(2\) A loss may not be used to offset other income in order to qualify
for or increase the amount of RHCDS assistance.

\(c\) [Determining repayment ability]{.underline}. In considering
whether the applicant has adequate repayment ability, the Lender must
calculate a total debt ratio. The applicant\'s total debt ratio is
calculated by dividing the applicant\'s monthly obligations by gross
monthly income.

\(1\) Monthly obligation consists of the principal, interest, taxes, and
insurance (PITI) for the proposed loan (less any interest assistance
under this program or any other assistance from a State or County
sponsored program when such payments are made directly to the Lender on
the applicant\'s behalf), homeowner and other assessments, and the
applicant\'s long term obligations. Long term obligations include those
obligations such as alimony, child support and other obligations with a
remaining repayment period of more than 6 months and other shorter term
debts that are considered to have a significant impact on repayment
ability.

\(i\) [Cosigned obligations]{.underline}. Debts which have been cosigned
by the applicant for another party must be considered unless the
applicant provides evidence (usually canceled checks of the co-obligor
or other third party) that it has not been necessary to make payments
over the past 12 months.

\(ii\) [Liability on a previous mortgage]{.underline}. When the
applicant has disposed of a property through a sale, trade, or transfer
without a release of liability, the debt must be considered unless the
applicant provides evidence (usually canceled checks of the new owners)
that the new owners have successfully made payments over the past 12
months.

## 34

##  

§1980.345 (c) (Con.) RD Instruction 1980-D

\(2\) Income, for the purpose of determining the total debt ratio,
includes the total qualifying income of the applicant, coapplicant, and
any other member of the household who will be a party to the note.

\(i\) An applicant\'s qualifying income may be different than the
\"adjusted annual income\" which is used to determine program
eligibility. In considering qualifying income, the Lender must determine
whether there is a historical basis to conclude that the income is
likely to continue. Typically, income of less than 24 months duration
should not be included in qualifying income. If the applicant is
obligated to pay child care costs, the amount of any Federal tax credit
for which the applicant is eligible may be added to the applicant\'s
qualifying income.

\(ii\) In considering income that is not subject to Federal income tax,
the amount of tax savings attributable to the nontaxable income may be
added for use with the repayment ratios. Adjustments for other than the
applicable tax rate are not authorized. The Lender must verify that the
income is not subject to Federal income tax and that the income (and its
nontax status) is likely to continue. The Lender must fully document and
support any adjustment made.

\(3\) The applicant meets RHCDS requirements for repayment ability when
the applicant\'s total debt ratio is less than or equal to 41 percent
and the ratio of the proposed PITI to income does not exceed 29 percent.

\(4\) Applicants who do not meet the requirements of this section will
be considered ineligible unless another adult in the household has
adequate income and wishes to join in the application as a coapplicant.
The combined incomes and debts then may be considered in determining
repayment ability.

\(5\) If the applicant\'s total debt ratio and/or PITI ratio exceed the
maximum authorized ratio, the Lender may request RHCDS concurrence in
allowing a higher ratio based on compensating factors. Acceptable
compensating factors include, but are not limited to, the applicant
having a history over the previous 12 month period of devoting a similar
percentage of income to housing expense to that of the proposed loan, or
accumulating savings which, when added to the applicant\'s housing
expense and shows a capacity to make payments on the proposed loan. A
low total debt ratio, by itself, does not compensate for a high PITI.

## 35

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.345 (Con.)

\(d\) [Credit history]{.underline}. The applicant must have a credit
history which indicates a reasonable ability and willingness to meet
obligations as they become due.

\(1\) Any or all of the following are indicators of an unacceptable
credit history unless the cause of the problem was beyond the
applicant\'s control and the criteria in paragraph (d)(3) of this
section are met:

\(i\) Incidents of more than one debt payments being more than 30 days
late if the incidents have occurred within the last 12 months. This
includes more than one late payment on a single account.

\(ii\) Loss of security due to a foreclosure if the foreclosure has
occurred within the last 36 months.

\(iii\) Outstanding tax liens or delinquent Government debts with no
satisfactory arrangements for payments, no matter what their age as long
as they are currently delinquent and/or due and payable.

\(iv\) A court-created or affirmed obligation (judgment) caused by
nonpayment that is currently outstanding or has been outstanding within
the last 12 months.

\(v\) Two or more rent payments paid 30 days or more past due within the
last 3 years.

\(vi\) Accounts which have been converted to collections within the last
12 months (utility bills, hospital bills, etc.).

\(vii\) Collection accounts outstanding, with no satisfactory
arrangements for payments, no matter what their age as long as they are
currently delinquent and/or due and payable.

\(viii\) Any debts written off within the last 36 months.

## 36

##  

§1980.345 (d) (Con.) RD Instruction 1980-D

\(2\) The following will not indicate an unacceptable credit history:

\(i\) \"No history\" of credit transactions by the applicant.

\(ii\) A bankruptcy in which applicant was discharged more than 36
months before application.

\(iii\) A satisfied judgment or foreclosure with no loss of security
which was completed more than 12 months before the date of application.

\(3\) The Lender may consider mitigating circumstances to establish the
borrower\'s intent for good credit when the applicant provides
documentation that:

\(i\) The circumstances were of a temporary nature, were beyond the
applicant\'s control, and have been removed (e.g., loss of job; delay or
reduction in government benefits or other loss of income; increased
expenses due to illness, death, etc.); or

\(ii\) The adverse action or delinquency was the result of a refusal to
make full payment because of defective goods or services or as a result
of some other justifiable dispute relating to the goods or services
purchased or contracted for.

\(e\) [Previous RHCDS loan]{.underline}. RHCDS shall determine whether
the applicant has had a previous RHCDS debt which was settled, or is
subject to settlement, or whether RHCDS otherwise suffered a loss on a
loan to the applicant. If RHCDS suffered any loss related to a previous
loan, a loan guarantee shall not be issued unless RHCDS determines the
RHCDS loss was beyond the applicant\'s control, and any identifiable
reasons for the loss no longer exist.

\(f\) [Other Federal debts]{.underline}. The loan approval official will
check HUD\'s Credit Alert Interactive Voice Response System (CAIVRS) to
determine if the applicant is delinquent on a Federal debt. The Lender
will clearly document both its CAIVRS identifying number and the
borrower and coborrower\'s CAIVRS access code near the signature line on
the mortgage application form. No decision to deny credit can be based
solely on the results of the CAIVRS inquiry. If CAIVRS identifies a
delinquent Federal debt, the Lender will immediately

## 37

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.345 (f) (Con.)

suspend processing of the application. The applicant will be notified
that processing has been suspended and will be asked to contact the
appropriate Federal agency, at the telephone number provided by CAIVRS,
to resolve the delinquency. When the applicant provides the Lender with
official documentation that the delinquency has been paid in full or
otherwise resolved, processing of the application will be continued. An
outstanding judgment obtained by the United States in a Federal Court
(other than the United States Tax Court), which has been recorded, shall
cause the applicant to be ineligible to receive a loan guarantee until
the judgment is paid in full or otherwise satisfied. RHCDS loan
guarantee funds may not be used to satisfy the judgment. If the judgment
remains unsatisfied or if the applicant is delinquent on a Federal debt
and is unable to resolve the delinquency, the Lender will reject the
applicant.

§1980.346 [Other eligibility criteria]{.underline}.

The applicant must:

\(a\) Be a person who does not own a dwelling in the local commuting
area or owns a dwelling which is not structurally sound, functionally
adequate.

\(b\) Be without sufficient resources to provide the necessary housing
and be unable to secure the necessary conventional credit without an
RHCDS guarantee upon terms and conditions which the applicant could
reasonably be expected to fulfill.

\(c\) Be a natural person (individual) who resides as a citizen in any
of the 50 States, the Commonwealth of Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, the Commonwealth of the Northern
Marianas, Federated States of Micronesia, and the Republics of the
Marshall Islands and Palau, or a noncitizen who resides in one of the
foregoing areas after being legally admitted to the U.S. for permanent
residence or on indefinite parole.

\(d\) Possess legal capacity to incur the loan obligation and have
reached the legal age of majority in the State or have had the
disability of minority removed by court action.

## 38

##  

§1980.346 (Con.) RD Instruction 1980-D

\(e\) Have the potential ability to personally occupy the home on a
permanent basis. Because of the probability of their moving after
graduation, full-time students will not be granted loans unless:

\(1\) The applicant intends to make the home his or her permanent
residence and there are reasonable prospects that employment will be
available in the area after graduation, and

\(2\) An adult member of the household will be available to make
inspections if the home is being constructed.

§1980.347 [Annual income]{.underline}.

Annual income determinations will be thoroughly documented in the
Lender\'s casefile. Historical data based on the past 12 months or
previous fiscal year may be used if a determination cannot logically be
made. Annual income to be considered includes:

\(a\) Current verified income, either part-time or full-time, received
by the applicant/borrower and all adult members of the household,
including any coapplicant/coborrower.

\(b\) If any other adult member of the household is not presently
employed but there is a recent history of such employment, that
person\'s income will be considered unless the applicant/borrower and
the person involved sign a statement that the person is not presently
employed and does not intend to resume employment in the foreseeable
future, or if interest assistance is involved, during the term of the
Interest Assistance Agreement. The statement will be filed in the
applicant/borrower\'s loan file.

\(c\) Income from such sources as seasonal type work of less than\
12 months duration, commissions, overtime, bonuses, and unemployment
compensation must be computed as the estimated annual amount of such
income for the upcoming 12 months. Consideration should be given to
whether the income is dependable based on verification by the employer
and the applicant\'s history of such income over the previous 24 months.

\(d\) The following [are]{.underline} included in annual income:

\(1\) The gross amount, before any payroll deductions, of wages and
salaries, overtime pay, commissions, fees, tips, bonuses, and other
compensation for personal services of all adult members of the
household.

## 39

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.347 (d) (Con.)

## 

## 

\(2\) The [net]{.underline} income from operation of a farm, business,
or profession. Consider the following:

\(i\) Expenditures for business or farm expansion and payments of
principal on capital indebtedness shall not be used as deductions in
determining income. A deduction is allowed in the manner prescribed by
IRS regulations only for interest paid in amortizing capital
indebtedness.

\(ii\) Farm and nonfarm business losses are considered \"zero\" in
determining annual income.

\(iii\) A deduction, based on straight line depreciation, is allowed in
the manner prescribed by IRS regulations for the exhaustion, wear and
tear, and obsolescence of depreciable property used in the operation of
a trade, farm, or business by a member of the household. The deduction
must be based on an itemized schedule showing the amount of straight
line depreciation that could be claimed for Federal income tax purposes.

\(iv\) Any withdrawal of cash or assets from the operation of a farm,
business, or profession will be included in income, except to the extent
the withdrawal is reimbursement of cash or assets invested in the
operation by a member of the household.

\(v\) A deduction for verified business expenses, such as for lodging,
meals, or fuel, for overnight business trips made by salaried employees,
such as long-distance truck drivers, who must meet these expenses
without reimbursement.

\(3\) Interest, dividends, and other net income of any kind from real or
personal property, including:

\(i\) The share received by adult members of the household from income
distributed from a trust fund.

\(ii\) Any withdrawal of cash or assets from an investment except to the
extent the withdrawal is reimbursement of cash or assets invested by a
member of the household.

## 40

##  

§1980.347 (d)(3) (Con.) RD Instruction 1980-D

\(iii\) Where the household has net family assets, as defined in
§1980.302(a) of this subpart, in excess of \$5,000, the greater of the
actual income derived from all net family assets or a percentage of the
value of such assets based on the current passbook savings rate.

\(4\) The full amount of periodic payments received from social security
(including social security received by adults on behalf of minors or by
minors intended for their own support), annuities, insurance policies,
retirement funds, pensions, disability or death benefits, and other
similar types of periodic receipts.

\(5\) Payments in lieu of earnings; such as unemployment, disability and
worker\'s compensation, and severance pay.

\(6\) Public assistance except as indicated in paragraph (e)(2) of this
section.

\(7\) Periodic allowances, such as:

\(i\) Alimony and/or child support awarded in a divorce decree or
separation agreement, unless the payments are not received and a
reasonable effort has been made to collect them through the official
entity responsible for enforcing such payments and they are not received
as ordered; or

\(ii\) Recurring monetary gifts or contributions from someone who is not
a member of the household.

\(8\) Any amount of educational grants or scholarships or VA benefits
available for subsistence after deducting expenses for tuition, fees,
books, and equipment.

\(9\) All regular pay, special pay (except for persons exposed to
hostile fire), and allowances of a member of the armed forces who is the
applicant/borrower or coapplicant/coborrower, whether or not that family
member lives in the unit.

\(10\) The income of an applicant\'s spouse, unless the spouse has been
living apart from the applicant for at least 3 months (for reasons other
than military or work assignment), or court proceedings for divorce or
legal separation have been commenced.

## 41

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.347 (Con.)

\(e\) The following are not included in annual income but may be
considered in determining repayment ability:

\(1\) Income from employment of minors (including foster children) under
18 years of age. The applicant and spouse are not considered minors.

\(2\) The value of the allotment provided to an eligible household under
the Food Stamp Act of 1977.

\(3\) Payments received for the care of foster children.

\(4\) Casual, sporadic, or irregular cash gifts.

\(5\) Lump-sum additions to family assets such as inheritances; capital
gains; insurance payments from health, accident, hazard, or worker\'s
compensation policies; and settlements for personal or property losses
(except as provided in paragraph (d)(5) of this section).

\(6\) Amounts which are granted specifically for, or in reimbursement
of, the cost of medical expenses.

\(7\) Amounts of education scholarships paid directly to the student or
to the educational institution and amounts paid by the Government to a
veteran for use in meeting the costs of tuition, fees, books, and
equipment. Any amounts of such scholarships or veteran\'s payments,
which are not used for the aforementioned purposes and are available for
subsistence, are considered to be income. Student loans are not
considered income.

\(8\) The hazardous duty pay to a service person applicant/borrower or
spouse away from home and exposed to hostile fire.

\(9\) Any funds that a Federal statute specifies must not be used as the
basis for denying or reducing Federal financial assistance or benefits.
(Listed in exhibit F of RD Instruction 1980-D, available in any RHCDS
office.)

\(f\) Income of live-in aides who are not relatives of the applicant or
members of the household will not be counted in calculating annual
income and will not be considered in determination of repayment ability.

## 42

##  

RD Instruction 1980-D

§1980.348 [Adjusted annual income]{.underline}.

Adjusted annual income is annual income as determined in §1980.347 of
this subpart less the following:

\(a\) A deduction of \$480 for each member of the family residing in the
household, other than the applicant, spouse, or coapplicant, who is:

\(1\) Under 18 years of age;

\(2\) Eighteen years of age or older and is disabled as defined in
§1980.302(a) of this subpart; or

\(3\) A full-time student aged 18 or older.

\(b\) A deduction of \$400 for any elderly family as defined in
§1980.302(a) of this subpart.

\(c\) A deduction for the care of minors 12 years of age or under, to
the extent necessary to enable a member of the applicant/borrower\'s
family to be gainfully employed or to further his or her education. The
deduction will be based only on monies reasonably anticipated to be paid
for care services and, if caused by employment, must not exceed the
amount of income received from such employment. Payments for these
services may not be made to persons whom the applicant/

borrower is entitled to claim as dependents for income tax purposes.
Full justification for such deduction must be recorded in detail in the
loan docket.

\(d\) A deduction of the amount by which the aggregate of the following
expenses of the household exceeds 3 percent of gross annual income:

\(1\) Medical expenses for any elderly family (as defined in
§1980.302(a) of this subpart). This includes medical expenses for any
household member the applicant/borrower anticipates incurring over the
ensuing 12 months and which are not covered by insurance (e.g., dental
expenses, prescription medicines, medical insurance premiums,
eyeglasses, hearing aids and batteries, home nursing care, monthly
payments on accumulated major medical bills, and full-time nursing or
institutional care which cannot be provided in the home for a member of
the household); and

## 43

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.348 (d) (Con.)

\(2\) Reasonable attendant care and auxiliary apparatus expenses for
each disabled member of any household to the extent necessary to enable
any member of such household (including such disabled member) to be
employed.

§§1980.349 - 1980.350 \[Reserved\]

§1980.351 [Requests for reservation of funds]{.underline}.

Upon receipt of a viable loan application and prior to loan
underwriting, the Lender may request a reservation of loan guarantee
funds for the loan application. The request should be made as follows:

\(a\) The Lender must have a complete application on file that clearly
indicates the borrower has sufficient qualifying income and an adequate
credit history.

\(b\) The reservation shall be valid for 60 days. The Lender must submit
a request for a loan guarantee on or before the expiration date of the
reservation. [Substitutions of borrowers or dwellings are not
authorized]{.underline}.

\(c\) Reservations may be granted only when adequate funding authority
is available. Reservations issued are subject to the availability of
funds. Reservations will not exceed 90 percent of the funds available
during that quarter. Adequate funding shall be maintained by the State
Director for all unexpired reservations issued.

\(d\) The RHCDS approval official will issue a reservation number to the
Lender. The reservation number is a sequential number of four or more
digits preceded by the RHCDS State and County code for the proposed loan
applicant and the current fiscal year (i.e., 54058950001 would be the
first reservation number issued for State Code 54, County Code 058,
Fiscal Year 95).

\(e\) All reservations will expire at the end of 60 days or no later
than the pooling date published in subpart L of part 1940 of this
chapter, whichever occurs first.

\(f\) The State Director will assure that all Lenders are timely
notified regarding the status of loan funds. Agency policy is to process
funding requests within 1 day if possible.

§1980.352 \[Reserved\]

## 44

##  

RD Instruction 1980-D

## 

## 

§1980.353 [Filing and processing applications]{.underline}.

\(a\) [Loan priorities]{.underline}. Complete applications will be
considered by RHCDS in the order received from Lenders authorized to
participate in the program except as provided in paragraph (b) of this
section.

\(b\) [Preference]{.underline}. Preference is considered when there is a
shortage of funds and there is more than one request for a conditional
commitment or reservation of funds ready for approval. Applications for
guarantees on loans to first-time homebuyers or veterans, their spouses,
or children of deceased servicemen who died during one of the periods
described in the definition of \"Veteran\" in §1980.302(a) of this
subpart will be given preference by RHCDS. Displaced homemakers and
single parents are first-time homebuyers even though they previously
owned or resided in a dwelling with a spouse.

\(c\) [Applications]{.underline}. If upon completion of the loan
underwriting process of an application, the Lender concludes that the
application can be considered for an RHCDS guarantee, the Lender will
provide written documentation addressing each of the loan eligibility
requirements of this subpart and the basis for the conclusion in the
applicant\'s file. The Lender will submit a request for the guarantee
using Form RD 1980-21, \"Request for Single Family Housing Loan
Guarantee.\" The form should contain or be supplemented with all of the
following information:

\(1\) Name, address, telephone number, social security number, age,
citizenship status of the applicant, and number of persons in the
household.

\(2\) Amount of loan request and proposed use of loan funds.

\(3\) Name, address, contact person, and telephone number of the
proposed Lender.

\(4\) Anticipated loan rates and terms, the date and amount of the
Fannie Mae or VA rate used to determine the interest rate, and the
Lender\'s certification that the proposed rate is in compliance with
§1980.320 of this subpart.

\(5\) Statement from the Lender that it will not make the loan as
requested by the applicant without the proposed guarantee and that the
applicant has been advised in writing that the applicant is subject to
criminal action if he or she knowingly and willfully gives false
information to obtain a federally guaranteed loan.

## 45

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.353 (c) (Con.)

\(6\) If the applicant is not a United States citizen, evidence of being
legally admitted for permanent residence or indefinite parole.

\(7\) The applicant\'s sex, race, and veteran status and whether
applicant is a first-time homebuyer.

\(8\) An appraisal report including information about the dwelling
location with respect to neighborhood and community services and
facilities, business and industrial enterprises, and streets or roads
serving the housing.

\(9\) Credit report obtained by the Lender.

\(10\) Form RD 400-1 for construction contracts costing more than
\$10,000.

\(11\) Evidence of compliance with the Privacy Act of 1974. Form RD
410-9, \"Statement Required by the Privacy Act,\" may be used for this
purpose.

\(12\) Lender\'s loan underwriting analysis (repayment ability, credit
worthiness, and security value).

\(13\) Form AD 1048, \"Certification Regarding Debarment, Suspension,
Ineligibility and Voluntary Exclusion - Lower Tier Covered
Transactions,\" signed by the borrower.

\(14\) A statement signed by the borrower acknowledging that the
borrower understands that RHCDS approval of the guarantee is required
and is subject to the availability of funds.

\(15\) A copy of a valid verification of income for each adult member of
the household.

\(16\) A copy of the purchase agreement or bid for construction
contract.

\(d\) [Filing applications]{.underline}. The requirements of the Right
to Financial Privacy Act of 1978 must be met as follows:

\(1\) Within 3 days of the receipt of a complete application from a
Lender for a guarantee for a loan, RHCDS will forward Form RD 410-7,
\"Notification to Applicant on Use of Financial Information from
Financial Institution,\" to the loan applicant.

## 46

##  

RD Instruction 1980-D

§ 1980.353(d) (Con.)

\(2\) RHCDS will notify Lenders and other financial institutions to
which RHCDS makes a direct request for financial records. The
notification will read as follows:

> \"I certify that the United States Department of Agriculture, acting
> through the Rural Housing and Community Development Service, has
> complied with the applicable provisions of
>
> Title XI, Public Law 95-630, in seeking financial information
> regarding (applicant).\"
>
> \_\_\_\_\_\_\_\_\_\_\_\_
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Date Approval Official

\(3\) Under no circumstances may financial information obtained under
this subpart be disseminated to any other department or agency of the
Federal Government (other than the Office of the Inspector General
(OIG)) without express approval of the Office of General Counsel (OGC).

\(e\) [Verifying information provided]{.underline}. Written
documentation from third parties is the preferred method of verifying
information. Verifications must pass directly from the source of
information to the Lender and shall not pass through the hands of a
third party or applicant.

\(1\) [Income verification]{.underline}. Employment verifications and
other income verifications obtained in accordance with this paragraph
are valid for 120 days (180 days for proposed new construction). Income
verifications must be valid at the time Form RD 1980-18 is issued.

\(i\) Form RD 1910-5, \"Request for Verification of Employment,\" or the
equivalent HUD/FHA/VA or Fannie Mae form will be used to verify
employment income of the loan applicant except when the applicant is
self-employed. The form will be signed by the applicant or borrower or
accompanied by an authorization for a release of information form signed
by the applicant or borrower and sent directly to the employer by the
Lender. The Lender should also obtain copies of the applicant\'s three
most recent paycheck stubs. The information in the employer verification
should be compared to the information in the paycheck stubs for
consistency.

## 47

## (Revision 1)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.353(e)(1) (Con.)

\(ii\) Income information that cannot be obtained by use of Form RD
1910-5 will be obtained in writing from third parties to the extent
possible.

\(iii\) Alimony and/or child support payments will be verified by
obtaining a copy of the divorce decree or other legal document
indicating the amount of the payments. When the applicant states that
less than the amount awarded is received, the Lender will request
documentation from the official entity through which payments are
received or from another third party able to provide the verification
when payment is not made through an official entity indicating the
amounts and dates of payments to the applicant during the previous 12
months.

\(iv\) When it is not feasible to verify income in paragraph (e)(1)(iii)
of this section through third parties, the Lender is authorized to
accept an affidavit from the applicant stating the effort made to
collect the amount awarded and the amounts and dates of payments
received during the previous 12 months.

\(v\) Applicants and borrowers deriving their income from a farming or
business enterprise will provide current documentation of the income and
expenses of the operation. In addition, historic information from the
previous fiscal year must be presented.

\(vi\) Social Security, pension, and disability income may be verified
by obtaining a copy of the most recent award or benefit letter prepared
and signed by the authorizing agency. This verification will be
considered valid only for 1 year from the date of the award or benefit
letter.

\(2\) [Verification of disability]{.underline}. Form RD 1944-4 will be
used to verify disability in cases where State Review Board or Social
Security records are not available. Receipt of veteran\'s benefits for
disability, whether service-oriented or otherwise, does not
automatically establish disability.

\(3\) [Verification of alien status]{.underline}. Aliens are required to
present acceptable documentation of their status. HB-1-3550 outlines the
acceptable forms of documentation. (Revised 01-23-03, SPECIAL PN.)

## 48

## (Revision 1) 

RD Instruction 1980-D

§ 1980.353(e) (Con.)

\(4\) [Verification of credit history and current debt]{.underline}. The
Lender shall determine all liabilities of all parties responsible for
repayment of the proposed loan. Credit reporting information must pass
directly between the Lender and the credit reporting agency or source.

\(i\) Mortgage credit reports shall be used to determine
creditworthiness unless the applicant resides in a remote rural area and
conclusive or sufficient information would not be available. Information
relative to judgments, garnishments, foreclosures, and bankruptcies must
be obtained when a credit report is not obtained.

\(ii\) The credit report must be the most recent revision of the
Residential Mortgage Credit Report form and meet the standards
prescribed by Fannie Mae, Freddie Mac, HUD, VA, or RHCDS.

§ 1980.354 [RHCDS review of applications]{.underline}.

RHCDS will review the application for completeness to determine whether
the proposed loan is to an eligible applicant for an eligible loan
purpose, for documentation that there is reasonable assurance of
repayment ability and sufficient collateral, and to determine that the
environmental requirements of §1980.316 of this subpart are met. RHCDS
approval officials will notify the Lender of the approval status of the
application or the reason the request cannot be processed within 48
hours of receipt.

> \(a\) [Issuance of commitment]{.underline}. If RHCDS determines the
> application is eligible:
>
> \(1\) [Funding authority is available]{.underline}. The approval
> official will obligate the loan and issue Form RD 1980-18 to the
> Lender. The Lender can assure that funding authority is available by
> submitting a request for reservation of funds in accordance with
> §1980.351 of this subpart.
>
> \(i\) Prepare and process Form RD 1940-3, \"Request for Obligation of
> Funds Guaranteed Loans.\" (Revised 05-19-04,\
> PN 374.)

## 49

## (Revision 1)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.354(a)(1) (Con.)

> \(ii\) Prepare Form RD 1980-18 listing all approval requirements and
> send an original and one copy to the Lender provided adequate
> authority is available. Form RD 1980-18 shall be valid for a period of
> 90 days with an option by Rural Development to renew for an additional
> 90 days. The approval official must assure that funds have been
> properly obligated before sending Form RD 1980-18 to the Lender.
>
> \(2\) [Nonavailability of funding authority]{.underline}. The approval
> official will advise the Lender that the application meets the
> Agency\'s eligibility criteria but funds are not available.
>
> \(b\) [Incomplete applications]{.underline}. RHCDS will contact the
> Lender by telephone if Form RD 1980-20 is incomplete. Incomplete
> applications will be returned to the Lender if the package will not or
> cannot be made complete within 3 working days.
>
> \(c\) [Denial]{.underline}. If RHCDS determines it is unable to
> guarantee the loan, the Lender will be informed in writing. Such
> notification will include the reasons for denial of the guarantee and
> appropriate appeal or review rights. Appeals will be handled as
> provided in §1980.399 of this subpart.

§ 1980.355 [Review of requirements]{.underline}.

Upon the Lender\'s review of Form RD 1980-18, the Lender may determine
whether to accept the conditions outlined in it.

\(a\) [Accepting conditions]{.underline}. Immediately after reviewing
the conditions and requirements in Form RD 1980-18 and the options
listed on the back of the form, the Lender may proceed with loan
closing. If the conditions cannot be met, the Lender and borrower may
propose alternate conditions to RHCDS. The RHCDS approval official may
negotiate any revisions consistent with this subpart. These alternatives
will be considered and the Lender will be advised of RHCDS\'s decision.
If altered conditions are accepted by RHCDS, Form RD 1980-18 will be
revised as appropriate.

\(b\) [Cancelling commitment]{.underline}. If the Lender indicates in
the acceptance or rejection of conditions that it desires to obtain a
loan note guarantee and subsequently decides prior to loan closing that
it no longer wants a loan note guarantee, the Lender should immediately
advise the RHCDS approval official.

§§ 1980.356 - 1980.359 \[Reserved\]

## 50

## (Revision 1) 

RD Instruction 1980-D

§1980.360 [Conditions precedent to issuance of the loan note
guarantee]{.underline}.

\(a\) [Lender certification]{.underline}. Using the reverse side of Form
RD 1980-18, the Lender must certify to RHCDS that:

\(1\) No major changes have been made in the Lender\'s loan conditions
and requirements since the issuance of Form RD 1980-18, except those
approved in writing by RHCDS. In the event the interest rate has not
been fixed at the time Form RD 1980-18 is issued, and the interest rate
increases between the time of issuance of Form RD 1980-18 and loan
closing, the Lender should note the change when submitting the package
to RHCDS for loan guarantee. If either or both of the underwriting
ratios are exceeded as a result of the interest rate increase, the
Lender should list the compensating factors that demonstrate that
sufficient repayment ability still exists.

\(2\) All planned property acquisition has been completed and:

\(i\) all development has been completed; or

\(ii\) an escrow account has been established in accordance with
§1980.315 of this subpart.

\(3\) Required insurance coverage is in effect and an escrow account has
been established for the payment of taxes and insurance.

\(4\) Truth-in-lending requirements have been met.

\(5\) All equal employment opportunity and nondiscrimination
requirements have been met.

\(6\) The loan has been properly closed by a party skilled and
experienced in conducting loan closings and the required security
instruments, including any required shared equity instruments, have been
obtained and recorded in the appropriate office in a timely and accurate
manner.

\(7\) The borrower has a marketable (clean and defensible) title to the
property then owned by the borrower, subject to the instrument securing
the loan to be guaranteed, and any other exceptions approved in writing
by RHCDS.

\(8\) Lien priorities are consistent with the requirements of Form RD
1980-18.

## 51

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.360 (a) (Con.)

\(9\) The loan proceeds have been disbursed for purposes and in amounts
consistent with Form RD 1980-18.

\(10\) There has been no adverse change in the borrower\'s situation
since Form RD 1980-18 was issued by RHCDS.

\(11\) All other requirements of Form RD 1980-18 have been met.

\(b\) [Inspections]{.underline}. The Lender will certify to RHCDS that
inspections in accordance with §1980.341 of this subpart have been
completed.

\(c\) [Lender agreement]{.underline}. There must be a valid Form RD
1980-17 on file.

\(d\) [Lender file]{.underline}. The Lender will maintain a file for
each guaranteed RH loan containing originals or copies, as appropriate,
of all documents pertaining to that loan.

§1980.361 [Issuance of loan note guarantee]{.underline}.

\(a\) [Loan note guarantee]{.underline} (Form RD 1980-17). When the
Lender has certified that all requirements have been met, delivered a
completed Form RD 1980-19, \"Guaranteed Loan Closing Report,\" and paid
the guarantee fee, the RHCDS approval official will execute Form RD
1980-17. The original will be provided to the Lender and be attached to
the note. A conformed copy with a copy of the note will be retained by
RHCDS.

\(b\) [Refusal to execute contract]{.underline}. If RHCDS determines
that it cannot execute the loan note guarantee because all requirements
have not been met, it will promptly inform the Lender of the reasons
using a denial letter form and give the Lender a reasonable period to
satisfy the objections. RHCDS may grant additional time as it considers
necessary and reasonable under the circumstances if the Lender makes a
request within the given time period. If the objections are satisfied
within the time allowed, RHCDS will issue the guarantee. Otherwise, the
Lender will be informed of the appropriate appeal or review rights in
accordance with §1980.399 of this subpart and subpart B of part 1900 of
this chapter.

\(c\) [Cancellation of obligations]{.underline}. If the conditions for
the guarantee cannot be met after allowance for the completion of the
appeal process, RHCDS will prepare and process Form RD 1940-10,
\"Cancellation of U.S. Treasury Check and/or Obligation,\" through the
field office terminal system.

## 52

##  

RD Instruction 1980-D

§1980.362 \[Reserved\]

§1980.363 [Review of loan closing]{.underline}.

The Lender must provide RHCDS with documentation that all of the closing
conditions have been met within 10 days of issuance of Form RD 1980-17.
Upon a review, RHCDS will notify the Lender of any deficiencies noted
during the review and that the guarantee may be jeopardized if the
deficiencies are not corrected. The Lender is responsible for
deficiencies regardless of whether RHCDS discovers them in the loan
closing review and/or notifies the Lender at that time. RHCDS reviews do
not constitute any waiver of fraud, misrepresentation, or failure of
judgment by the Lender.

§§1980.364 - 1980.365 \[Reserved\]

§1980.366 [Transfer and assumption]{.underline}.

\(a\) [General]{.underline}. Lenders may, but are not required to,
permit a transfer to an eligible applicant. A transfer and assumption
must be approved by RHCDS in writing. Transfers without assumption are
not authorized. Transfers and assumptions under this subpart are subject
to the RHCDS guarantee fee.

\(b\) [Eligible transferee]{.underline}. An eligible transferee is one
who meets the eligibility requirements of this subpart and includes
situations involving transfers of housing in an area that has ceased to
be rural. Loans made and guaranteed under this subpart prior to

March 29, 1989, may be transferred to an applicant meeting all
eligibility requirements of this subpart except the applicant\'s
adjusted annual income may exceed the maximum income for the area by not
more than 10 percent.

\(c\) [Determinations by the Lender]{.underline}. Before the transfer
and assumption can be approved with the guarantee remaining in force,
the Lender must determine that all of the following conditions can be
met:

\(1\) The transferee is an eligible applicant.

\(2\) The transferee will assume the total remaining debt and acquire
all of the property securing the guaranteed loan balance.

\(3\) The transfer and assumption would not be made without the
continuation of the loan guarantee.

## 53

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.366 (c) (Con.)

## 

\(4\) The market value of the security being acquired by the transferee
is at least equal to the secured indebtedness against it.

\(5\) The priority of the existing lien securing the guaranteed loan
will be maintained or improved.

\(6\) Proper hazard insurance will be obtained.

\(7\) The transfer and assumption can be properly closed and the
conveyance instruments will be filed, registered, or recorded, as
appropriate.

\(8\) The transferor acknowledges continued liability for the debt in
writing.

\(d\) [Changes in the promissory note or security
instrument]{.underline}. If the assumption will result in changes in the
repayment schedule or the interest rate, the changes must be approved by
the present debtors since they will remain liable for the debt. Any
changes in rates and terms must not exceed rates and terms allowed for
new loans under this subpart and cannot exceed the interest rate on the
initial loan. The debt must not exceed the amount remaining due on the
original loan. The term of the loan may cover a period of up to 30 years
from the date of transfer and assumption. The Lender\'s request for
approval to RHCDS will be accompanied by:

\(1\) An explanation of the reasons for the proposed change in the rates
and terms.

\(2\) A statement that the Lender\'s determinations required by
paragraph (c) of this section can be made.

\(e\) [Release of liability]{.underline}. The Lender may not release the
transferor of liability.

\(f\) [Forms and case numbers]{.underline}. The assumption may be made
on the Lender\'s assumption agreement form. The assumption agreement
must contain the RHCDS case numbers of the transferor and the
transferee.

\(g\) [Lender\'s application to RHCDS]{.underline}. The Lender must
submit the items outlined in §1980.353(e) of this subpart to RHCDS, in
addition to items required in this section.

## 54

##  

§1980.366 (Con.) RD Instruction 1980-D

\(h\) [Notations and notices]{.underline}. The Lender must notify RHCDS
whether the loan and security can be properly assumed and transferred.
The Lender shall assure that the conveyance instruments are properly
filed, registered, or recorded, as appropriate. Upon completion of the
transfer and assumption, the Lender must provide RHCDS a copy of the
transfer and assumption agreement. The Lender may present Form RD
1980-17 to RHCDS if it desires RHCDS to note the transfer and assumption
on the form. If a new note is obtained, it will also be attached to Form
RD 1980-17.

\(i\) [Interest assistance]{.underline}. The original borrower\'s Form
RD 1980-12 may be transferred to an eligible transferee. Equity sharing,
if any, owed by the transferor must be determined and collected at the
time the loan is assumed and title to the property is transferred. See
§1980.391.

\(j\) [Closing the transfer and assumption]{.underline}. As soon as the
Lender has obtained RHCDS approval, the Lender may proceed with closing
the transaction. The closing must include, but need not be limited to,
the proper execution and delivery of the conveyance and assumption
documents, compliance with any legal requirements, and actions necessary
to perfect the transfer and the required lien priority.

\(k\) [Loan note guarantee]{.underline}. The existing Form RD 1980-17
will continue to be in effect. RHCDS will note the transfer and
assumption on the original Form RD 1980-17 by completing the Assumption
Agreement block by inserting the name of the assuming party.

\(l\) [Material furnished to RHCDS after closing]{.underline}.
Immediately after closing, the Lender must furnish to RHCDS:

\(1\) A conformed copy of the executed assumption agreement.

\(2\) A statement showing:

\(i\) Any changes made in the provisions of the promissory note or
security instruments.

\(ii\) That all conditions and requirements of paragraph (b) of this
section have been met.

\(iii\) That the required insertions have been made per paragraph (h) of
this section.

## 55

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.366 (Con.)

\(m\) [RHCDS responsibility]{.underline}. The RHCDS approval official
may consent to any transfer and assumption consistent with this subpart.
The RHCDS approval official shall notify the Lender of the decision in
writing. If disapproved, the appropriate appeal rights will be given to
the Lender. A copy of the assumption agreement and a copy of any new
promissory note will be maintained in the RHCDS loan file.

\(1\) [Notification of Lender]{.underline}. The RHCDS approval official
will review the proposed transfer and assumption and notify the Lender
of the decision in writing. The request for transfer and assumption will
be treated as an application for guaranteed loan assistance and will be
handled in accordance with §1980.353 of this subpart. The Lender may
proceed with the transfer and assumption upon obtaining RHCDS approval.

\(2\) [Review of closing documents]{.underline}. The RHCDS approval
official or designee is responsible for the review and approval of the
executed assumption agreement and the original statement required from
the Lender in paragraph (d) of this section.

\(i\) [Errors and omissions]{.underline}. If upon review of the
conformed documents RHCDS finds any errors or omissions, the review
official will return the defective material to the Lender so that errors
and omissions may be corrected. If the original assumption agreement
contains the same defects, it will be necessary to have the assuming
parties, the transferors, and the Lender initial the changes.

\(ii\) [Notification of Finance Office]{.underline}. If the material is
in order, or upon correction per paragraph(m)(2)(i) of this section, the
review official will complete and submit Form RD 1980-7, \"Notification
of Transfer and Assumption of a Guaranteed Loan,\" and Form RD 1980-50,
\"Add, Delete, or Change Guaranteed Loan Borrower Information,\" to the
Finance Office.

§1980.367 [Unauthorized sale or transfer of the property]{.underline}.

RHCDS consent is required to continue with the RHCDS guarantee in the
event of a sale or transfer of the property in accordance with §1980.366
of this subpart. If the property is transferred without RHCDS consent,
the Lender must take one of the following actions:

\(a\) Obtain RHCDS consent if the conditions of §1980.366 of this
subpart can be met;

## 56

##  

§1980.367 (Con.) RD Instruction 1980-D

\(b\) Satisfy the RHCDS guarantee and continue with the loan without the
guarantee; or

\(c\) Notify the borrower and the transferee of the default and service
the loan in accordance with §1980.371 of this subpart.

§§1980.368 - 1980.369 \[Reserved\]

§1980.370 [Loan servicing]{.underline}.

RHCDS encourages Lenders to provide borrowers with the maximum
opportunity to become successful homeowners. Lenders should provide
sufficient servicing and counseling to meet the objectives of the loan.
Loan servicing should be approached as a preventive action rather than a
curative action. Prompt followup by the Lender on delinquent payments
and early recognition and solution of problems are keys to resolving
many delinquent loan cases. The Lender shall perform those services
which a reasonable and prudent Lender would perform in servicing its own
portfolio of loans that are not guaranteed.

\(a\) [Normal loan servicing]{.underline}. The Lender is responsible for
servicing the loan under Form RD 1980-16 and this subpart even if the
Lender has engaged a third party to service the loan on its behalf.
Normal servicing includes:

\(1\) Receiving all payments as they fall due and proper application of
payments to principal and interest and escrow accounts for taxes
(including special assessments) and insurance.

\(2\) Establishment and maintenance of an escrow account to pay real
estate taxes and assessments and required hazard and flood insurance on
the security. All escrow accounts must be fully insured by the Federal
Deposit Insurance Corporation (FDIC). The Lender is responsible for
maintaining escrow funds in a reasonable and prudent manner and for
assuring that real estate taxes and assessments and required hazard and
flood insurance are paid in a timely manner even if it requires
advancing the Lender\'s own funds. The monthly payment may be adjusted
when it is not adequate to meet established charges of the escrow
account for the coming year. Escrow funds may be used only for the
purpose for which they were collected.

\(3\) Obtaining compliance with the covenants, loan agreement, (if any),
security instruments, and any supplemental agreements and notifying the
borrower in writing of any violations.

## 57

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.370 (Con.)

\(b\) [Other servicing requirements]{.underline}. Other servicing
requirements include taking actions to offset the effects of liens,
probate proceedings, and other legal actions. The Lender\'s
responsibility includes assuring that:

\(1\) Insurance loss payments, condemnation awards, or similar proceeds
are applied on debts in accordance with lien priorities on which the
guarantee was based, or to rebuild or otherwise acquire needed
replacement collateral.

\(2\) The borrower complies with laws and ordinances applicable to the
loan and the collateral.

\(3\) The borrower is not released of liability for the loan except as
provided in Agency regulations.

\(c\) [Servicing options]{.underline}. The Lender should make every
effort to assist borrowers who are cooperative and willing to make a
good faith effort to cure the delinquency. The Lender should consider
the borrower\'s financial condition in attempting to work out repayment
agreements. The Lender may revise the payment schedule of the loan on a
temporary basis with the written concurrence of the borrower. Changes in
the loan repayment such as reamortization of the unpaid balance within
the remaining term of the loan may be done with prior written RHCDS
concurrence. Reamortization shall not change the amount of the loan
guarantee.

\(d\) [Lender reporting to RHCDS]{.underline}. Reports on Lender
servicing case loads and performance are required as follows:

\(1\) [Monthly report]{.underline}. The Lender must prepare and submit a
report using Form RD 1980-81, \"Guaranteed Rural Housing Borrower
Default Status,\" identifying each borrower with a loan that is more
than 30 days delinquent. The Lender may use the Agency\'s form or
generate its own similar form provided the format is the same.

\(2\) [Annual report]{.underline}. The Lender must prepare and submit a
report on the status of each guaranteed loan, as of December 31, using
Form RD 1980-80, \"Guaranteed Rural Housing Loan Status Report.\" The
Lender may use the Agency\'s form or generate its own similar form
provided the format is the same.

\(e\) [RHCDS responsibilities]{.underline}.

The RHCDS approval official:

## 58

##  

RD Instruction 1980-D

§ 1980.370(e) (Con.)

\(1\) Must establish an office management system for guaranteed housing
loans and monitor the loans for Rural Development; Applications for loan
guarantees will be maintained using Form\
RD 1905-4, \"Application Processing Card - Individual,\" or its
equivalent on the Management Record System. (Revised 02-24-05, SPECIAL
PN.)

\(2\) Must assure that the necessary reports and information from the
Lender are obtained as needed;

\(3\) May consult with the State Office on any servicing problem and if
it cannot be handled at the State level, the State Office may request
the assistance of the National Office.

\(4\) Will review the Lender\'s annual report to protect the
Government\'s interest.

§ 1980.371 [Defaults by the borrower]{.underline}.

Default occurs when the borrower fails to perform under any covenant of
the mortgage or Deed of Trust and the failure continues for 30 days. The
Lender will negotiate in good faith in an attempt to resolve any
problem. The borrower must be given a reasonable opportunity to bring
the account current before any foreclosure proceedings are started.

\(a\) The Lender must make a reasonable attempt to contact the borrower
if the payment is not received by the 20th day after it is due.

\(b\) The Lender must make a reasonable attempt to arrange and hold an
interview with the borrower for the purpose of resolving the delinquent
account before the loan becomes 60 days delinquent. The interview may be
conducted by either a face-to-face meeting or by telephone. Reasonable
effort consists of not less than one letter sent to the borrower at the
property address via certified mail or similar method which the borrower
refuses to accept or fails to respond.

## 59

## (Revision 1)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.371 (Con.)

\(c\) If the Lender is unable to make contact with the borrower, the
Lender must determine whether the property has been abandoned and the
value of the security is in jeopardy before the account becomes two
payments delinquent.

\(d\) When the loan becomes three payments delinquent, the Lender must
report borrower delinquencies to credit repositories and make a decision
with regard to liquidation of the account. The Lender may proceed with
liquidation of the account unless there are extenuating circumstances.

§ 1980.372 [Protective advances]{.underline}.

Protective advances must constitute an indebtedness of the borrower to
the Lender and be secured by the security instrument. Protective
advances are advances made for expenses of an emergency nature necessary
to preserve or protect the physical security. Attorney fees are not a
protective advance. The Lender will not make protective advances in lieu
of an additional loan. In order to assure that a protective advance over
\$500 will be included in the loss payment, Lenders are encouraged to
obtain prior RHCDS approval.

§ 1980.373 \[Reserved\]

§ 1980.374 [Liquidation]{.underline}.

If the Lender concludes the liquidation of a guaranteed loan account is
necessary because of one or more defaults or third party actions that
the borrower cannot or will not cure or eliminate within a reasonable
period of time, the Lender will notify RHCDS of the decision to
liquidate. Initiation of foreclosure begins with the first public action
required by law such as filing a complaint or petition, recording a
notice of default, or publication of a notice of sale. Foreclosure must
be initiated within 90 days of the date the decision to liquidate is
made unless the foreclosure has been delayed by law. When there is a
legal delay (such as bankruptcy), foreclosure must be started within 60
days after it becomes possible to do so.

\(a\) [Expeditious liquidation]{.underline}. Once the decision to
liquidate has been made, the Lender must proceed in an expeditious
manner. Lenders must exercise due diligence in completing the
foreclosure process. Lenders are expected to complete foreclosure within
the timeframes that are reasonable for the State in which the property
is located.

## 60

## (Revision 1) 

§1980.374 (Con.) RD Instruction 1980-D

\(b\) [Maximum collection]{.underline}. The Lender is expected to make
the maximum collection possible on the indebtedness. The Lender will
consider the possibility of recovery of any deficiency apart from the
acquisition or sale of collateral. The Lender will submit a
recommendation on such recovery considering the borrower\'s assets and
ability to pay, prospects of future recovery, the costs of pursuing such
recovery, recommendation for obtaining a judgment, and the
collectability of a judgment in view of the borrower\'s assets.

\(c\) [Allowable liquidation costs]{.underline}. Certain reasonable
liquidation costs (costs similar to those charged for like services in
the area) will be allowed during the liquidation process. No in-house
expenses of the Lender will be allowed including, but not limited to,
employee salaries, staff lawyers, travel, and overhead. Liquidation
costs are deducted from the gross sales proceeds of the collateral when
the Lender has conducted the liquidation.

\(d\) [Servicing plan]{.underline}. The Lender must submit a servicing
plan to RHCDS when the account is 90 days delinquent and a method other
than foreclosure is recommended to resolve delinquency. RHCDS encourages
Lenders and delinquent borrowers to explore an acceptable alternative to
foreclosure to reduce loss and expenses of foreclosure. Although prior
approval is not required in all cases, the Agency may reject a plan that
does not protect the Government\'s interest.

\(1\) [Continuation with the borrower]{.underline}. The Lender may
continue with the borrower when a clear and realistic plan to eliminate
the delinquency is presented. The Lender must fully document the
borrower\'s prospects of success and make this information available to
RHCDS upon request.

\(2\) [Voluntary liquidation]{.underline}. RHCDS may accept the
Lender\'s plan to use voluntary liquidation when the plan clearly
addresses the responsibilities of the parties, the Lender maintains
oversight of the progress of the sale, the property is listed for sale
at a price in-line with its market value (if there is not already a bona
fide purchaser for the dwelling), and the expected cost to the
Government is the same as or less than the cost of foreclosure.

\(3\) [Deed-in-lieu of foreclosure]{.underline}. The Lender may take a
deed-in-lieu of foreclosure from the borrower when it will not result in
a cost to the Government in excess of that expected for foreclosure.

## 61

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.374 (d) (Con.)

\(4\) [Other methods]{.underline}. RHCDS may accept a proposal submitted
by the Lender that is not specifically addressed in but is consistent
with the provisions of this subpart if the Lender fully documents how
the proposal will result in a savings to the Government.

\(e\) [Handling shared equity]{.underline}. Interest assistance payments
made under §1980.390 of this subpart will not be subject to shared
equity if the loan is liquidated in accordance with Form RD 1980-16
unless:

\(1\) The property is sold at or prior to foreclosure for an amount
exceeding the Lender\'s unpaid balance and costs of foreclosure, or

\(2\) A junior lienholder takes over the Lender\'s loan.

§1980.375 [Reinstatement of the borrower\'s account]{.underline}.

The Lender may reinstate an account when all delinquent payments and any
funds that were advanced to pay authorized expenses are paid or as
required under State law. When the Lender wishes to consider other
offers by the borrower to bring the account current, the Lender must
obtain RHCDS concurrence.

§1980.376 [Loss payments]{.underline}.

Settlement of the guarantee will be processed in accordance with this
section.

\(a\) [Loss payment]{.underline}. Loss payments will be made within 60
days of the Lender\'s properly filed claim. The Lender must submit its
loss claim within 30 calendar days of loan liquidation. The claim may
include interest on the unpaid principal accrued to final loss
settlement. RHCDS will pay interest within the limits of the guarantee
to the date the claim is paid when the Lender promptly and properly
files the claim.

\(1\) [Determination of loss payment]{.underline}. To calculate the loss
payment, first determine the unpaid debt by adding the unpaid principal
and interest on the loan and the unpaid balance for principal and
interest on authorized protective advances. The net proceeds from the
property will be first applied to the unpaid debt. Any other proceeds
recovered by the Lender from other sources shall also be applied to the
unpaid debt. Determination of net proceeds will be different depending
on which of the following circumstances are involved.

## 62

##  

§1980.376 (a)(1) (Con.) RD Instruction 1980-D

\(i\) If, at liquidation, title to the property is conveyed to a bona
fide third-party purchaser, then final loss payment will be based on the
net sale proceeds received for the property.

\(ii\) If, at liquidation, title to the property is conveyed to the
Lender, then the Lender must prepare and submit a property disposition
plan to RHCDS for RHCDS concurrence. The plan will address the Lender\'s
proposed method for sale of the property, the estimated value and
minimum sale price, itemized estimated costs of the sale, and any other
information that could impact the amount of loss on the loan. The Lender
is allowed up to 6 months from the date the property is acquired to sell
the property. Upon the Lender\'s written request, RHCDS will authorize
one extension period not to exceed 30 days to close the sale of a
purchase offer accepted near the end of the 6-month period. Net proceeds
will be based on the net proceeds received for the property when the
sale is conducted in accordance with the plan as approved by RHCDS. If
no sale offer is accepted within the 6-month period, then the RHCDS
approval official will obtain and use a liquidation value appraisal of
the property. When an appraisal is obtained, the amount of the net
proceeds from the security is then determined by subtracting a cost
factor, which is found in exhibit D of RD Instruction 1980-D (available
in any RHCDS office), from the current market value.

\(iii\) If a deficiency judgment is obtained, the Lender must enforce
the judgment against the borrower before loss settlement if the current
situation provides a reasonable prospect of recovery. A loss payment
will be made when the Lender holds a deficiency judgment but there are
not current prospects of collection, even if there may be in the future.

\(2\) [Payment procedure]{.underline}. RHCDS will pay losses on the loan
according to the terms of Form RD 1980-17 unless RHCDS has determined
there is cause for reduction of the loss amount. See §1980.377 of this
subpart for future recovery by the Lender.

\(i\) If there is no dispute between RHCDS and the Lender regarding the
amount of the loss and the Lender\'s eligibility for payment of loss,
RHCDS will pay the loss within the limits of the guarantee.

## 63

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.376 (a)(2) (Con.)

\(ii\) If RHCDS and the Lender do not agree on the amount of the loss,
or RHCDS has determined that part of the loss is not payable to the
Lender under the terms of Form RD 1980-17, RHCDS will pay the undisputed
portion. The disputed portion of the claim will be treated as an adverse
decision and the Lender may appeal.

\(iii\) When RHCDS has cause to believe that Lender fraud or other
Lender actions negating the guarantee exist, no loss payment may be made
unless the situation is resolved.

\(3\) The RHCDS approval official will conduct an audit of the account
and review the loan in its entirety to determine why the loan failed and
whether any reason exists for reducing or denying the loss claim. This
information will be documented in the RHCDS casefile.

\(4\) If a Lender\'s loss claim is denied or reduced, the RHCDS approval
official will notify the Lender of all of the reasons for the action
within 10 days of the decision and its opportunity to appeal the
decision as set forth in §1980.399 of this subpart and subpart B of part
1900 of this chapter.

\(5\) The RHCDS approval official is authorized to approve loss payments
in amounts of up to 50 percent of his/her delegated loan approval
authority in accordance with exhibit D of

subpart A of part 1901 of this chapter (available in any RHCDS office).

\(b\) [Denial or reduction of loss claims]{.underline}. The RHCDS
approval official will fully document any loss claim which is denied or
reduced including an analysis of how the amount of the reduction was
determined. A connection must be made between the Lender\'s action or
failure to act and the loss amount on the loan. The amount of loss
occasioned by such action will be established. This information will be
made available to the Lender upon request. A Lender\'s loss claim may be
denied or reduced by RHCDS when:

\(1\) The Lender has committed fraud. (Denial of claim.)

\(2\) The Lender claims items not authorized under RHCDS regulations.
(Reduced by amount of unauthorized claim.)

\(3\) The Lender violated usury laws. (Reduction for amount of loss
caused by the violation.)

## 64

##  

RD Instruction 1980-D

§ 1980.376(b) (Con.)

\(4\) The Lender failed to obtain required security and/or maintain the
security position. (Reduction for loss attributed to failure.)

\(5\) Loan funds were used for unauthorized purposes. (Reduction by
unauthorized amount.)

\(6\) The Lender was negligent in loan servicing. Negligent servicing is
a failure to perform those services which a reasonably prudent Lender
would perform in servicing its own portfolio of loans that are not
guaranteed. The term includes a failure to act, a failure to act in a
timely manner, or acting in a manner contrary to that in which a
reasonably prudent Lender would act. (Reduction for loss amount
attributable to Lender negligence.) Examples of negligent servicing
include:

\(i\) A failure to contact the borrower in a timely manner when the
borrower\'s account goes into default.

\(ii\) A failure to pay real estate taxes or hazard insurance when due.

\(iii\) A failure to notify RHCDS within required time limits when the
borrower defaults on the loan.

\(iv\) A failure to request loan subsidy when the borrower was eligible
for loan subsidy and loan subsidy was available (subsidized loans only).

\(v\) A failure to protect security during the liquidation phase.

\(7\) The Lender delayed filing the loss claim. (Reduction in claim for
interest accrued because the claim was not filed.)

§ 1980.377 [Future recovery]{.underline}. (Revised 12-21-05, PN 393.)

The proceeds of any amounts recovered shall be shared in proportion to
the amount of loss borne between RHCDS and the Lender. Although the
Lender\'s actual loss may be different than the amount on which loss
settlement was based, the proportion of recovery sharing must be based
on the loss percentage upon which the loss payment calculation was
based.

\(a\) [Estimated claims]{.underline}. When an estimated claim is paid,
the Agency will advise the lender, servicer, or payee, as appropriate,
of the following:

## 

## 65

## (Revision 1)

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§ 1980.377(a) (Con.)

\(1\) the estimated sale price (appraised value) used to calculate the
claim,

\(2\) that future recovery may be due if the actual sale price exceeds
the estimated sale price,

\(3\) when and how to report future recovery of sale proceeds,

and

\(4\) the consequences of failure to report future recoveries, including
agency monitoring and the possible termination of lender eligibility.

\(b\) [Verification of sale]{.underline}.

\(1\) The Agency will flag claims that were paid based on estimated sale
proceeds and contact the lender 6 months after loss claim payment to
inquire about the REO status if the actual sale information has not been
received.

\(2\) If the REO has been sold, the Agency will request the lender to
submit HUD-1, Settlement Statement, or similar document as verification
of the sale amount.

\(3\) Agency follow-up should continue until the sale information is
received.

\(c\) [Compliance reviews]{.underline}.

\(1\) Lender monitoring reviews conducted under section 1980.309(g)
should include review of lender compliance with future recovery loss
sharing provisions.

\(2\) For Nationally-approved lenders, report non-compliance with
requests for sale information or payment of future recovery to the
National Office Single Family Housing Guaranteed Loan Division.

\(3\) For State-approved lenders, consider non-compliance with requests
for sale information or payment of future recovery as grounds for a
lender monitoring review under RD Instruction 1980-D, § 1980.309(g)(3).

§§ 1980.378 - 1980.389 \[Reserved\]

## 66

## (Revision 1) 

RD Instruction 1980-D

§ 1980.390 [Interest assistance]{.underline}.

In order to assist low-income borrowers in the repayment of the loan,
RHCDS is authorized to provide interest assistance payments subject to
the availability of funds. Regardless of what date a borrower\'s loan
payment is due each month, interest assistance payments will be made by
RHCDS directly to the Lender on or before the 15th day of the month in
which the borrower\'s payment is due.

\(a\) [Policy]{.underline}. It is the policy of RHCDS to grant interest
assistance on guaranteed loans to low-income borrowers to assist them in
obtaining and retaining decent, safe, and sanitary dwellings and related
facilities as long as the borrower remains eligible for payments when
funds are available for interest assistance. Interest assistance must be
established for the borrower at the time the loan guarantee is
authorized.

\(b\) [Processing interest assistance agreements]{.underline}. The
Lender will process the Form RD 1980-13 \"Annual Interest Assistance
Agreement,\" and submit it to RHCDS for approval.

\(1\) RHCDS will reimburse the Lender in the amounts authorized in
exhibit D of RD Instruction 1980-D (available in any RHCDS office) for
the cost of processing the agreement. The fee will be paid upon receipt
of a valid agreement which has been coded as requiring a processing fee
payment. The processing fee is payable when:

\(i\) A new agreement is made with the borrower except at the time of
loan closing.

\(ii\) The borrower had an agreement for the previous year and a new
agreement is made for the current year.

\(iii\) The borrower is eligible for but not presently on interest
assistance and enters into a new Form RD 1980-13.

\(iv\) The borrower has a change in circumstances which requires a
revision to the current agreement. When the change in circumstances
results in an agreement with less than 90 days remaining, the agreement
for the subsequent year will be prepared at the same time. This action
is considered one agreement.

\(2\) A processing fee will not be paid when the revision to an existing
agreement is required due to an error on the part of the Lender or the
borrower.

## 66A

## (Added 12-21-05, PN 393) 

§1980.390 (Con.) RD Instruction 1980-D

## 

## 

\(c\) [Amount of interest assistance]{.underline}.

\(1\) The amount of interest assistance granted will be the difference
between the monthly installment due on the promissory note eligible for
interest assistance and the amount the borrower would pay if the note
were amortized at the rate corresponding to the borrower\'s income range
as outlined in Form RD 1980-12.

\(2\) The basis for the amount of interest assistance for each loan is
determined by the amount of interest assistance authorized to the Agency
as shown in exhibit D of RD Instruction 1980-D (available in any RHCDS
office) and the note interest rate.

\(3\) A borrower receiving a loan in a high cost area will be granted an
additional 1 percent interest assistance in order to assist the borrower
up to the maximum rate in exhibit D of RD Instruction 1980-D (available
in any RHCDS office).

\(i\) The Administrator may designate an area as a high cost area for
interest assistance purposes. Such designation may be granted when the
State Director makes a written request for it and provides documentation
that low-income borrowers in the area could not afford to purchase a
dwelling under the interest assistance table in exhibit D of RD
Instruction 1980-D (available in any RHCDS office). The area must also
be designated by HUD as a high cost area. The amount of additional
interest assistance for high cost areas is 1 percent; however, in no
case will more interest assistance be granted than the amount necessary
to reach the lowest floor rate in exhibit D of RD Instruction 1980-D
(available in any RHCDS office).

\(ii\) The change in a designation to (or from) a high cost area will
not affect existing loans. An individual\'s loan eligibility for high
cost designation is determined at the time of issuance of Form RD
1980-18 for loan guarantee.

\(d\) [Shared equity]{.underline}. Prior to loan closing, the Lender
will advise the applicant that interest assistance is subject to equity
sharing.

\(e\) [Eligibility]{.underline}. To be eligible for interest assistance,
a borrower must personally occupy the dwelling and must meet the
following additional requirements:

## 67

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.390 (e) (Con.)

\(1\) [Initial loans]{.underline}. Interest assistance may be granted at
the time the loan note guarantee is issued, or an assumption is
processed in accordance with §1980.366 of this subpart, when:

\(i\) The borrower\'s adjusted income at the time of loan guarantee
approval did not exceed the applicable low-income limit, the loan
guarantee was funded from interest assisted guaranteed loan funds, and a
Form RD 1980-12 was completed at closing if the borrower is ever to
receive interest assistance.

\(ii\) The borrower\'s net family assets do not exceed the maximum
allowable amount as per exhibit D of RD Instruction 1980-D (available in
any RHCDS office) unless an exception is authorized. The calculation of
net family assets will exclude the value of the dwelling and a minimum
adequate dwelling site, cash on hand which will be used to reduce the
amount of the loan, and household goods and personal automobile and the
debts against them. The Lender may request an exception at the time the
initial application is submitted to RHCDS for a loan guarantee. For the
purpose of determining whether an exception is justified, consideration
will be given to the nature of the assets upon which a borrower is
currently dependent for a livelihood or which could be used to reduce or
eliminate the need for interest assistance. The District Director may
authorize exceptions of net family assets up to \$20,000. The State
Director may submit cases for which the net family assets exceeds
\$20,000 to the National Office for authorization to grant assistance.

\(iii\) The loan was approved as a subsidized guaranteed loan on or
after April 17, 1991.

\(iv\) The amount of interest assistance will be \$20 or more per month
in accordance with the provisions of paragraph (c)(1) of this section.
Interest assistance in amounts of less than \$20 per month will not be
granted.

\(2\) [Existing loans]{.underline}. Interest assistance may be granted
at any time after loan closing if:

\(i\) The requirements of paragraphs (e)(1)(i), (e)(1)(iii), and
(e)(1)(iv) of this section are met.

## 68

##  

§1980.390 (e)(2) (Con.) RD Instruction 1980-D

## 

## 

\(ii\) The borrower\'s adjusted annual income does not exceed the
low-income limit.

\(iii\) The borrower requests interest assistance through the Lender or
the Lender determines that interest assistance is needed to enable the
borrower to repay the loan.

\(iv\) The Lender processes Form RD 1980-13 and submits it to RHCDS for
approval.

\(f\) [Processing interest assistance]{.underline}. The Lender will
process interest assistance agreements in accordance with this section.
Form RD 1980-13 will be executed by the Lender and borrower and
forwarded to RHCDS for approval.

\(1\) [Amount of interest assistance]{.underline}. The amount of
interest assistance for which a borrower is eligible will be determined
by use of Form RD 1980-13 as outlined in paragraph (c) of this section.

> \(i\) [Determination of income]{.underline}. The Lender is responsible
> for determining the borrower\'s annual and adjusted annual income as
> outlined in §§1980.347 and 1980.348 of this subpart. Income of all
> persons occupying the dwelling will be verified in accordance with
> §1980.347 of this subpart.

\(ii\) [Effective period]{.underline}. Form RD 1980-13 will be for a
12-month period.

\(2\) [Interest assistance agreements]{.underline}. Form RD 1980-12 will
be executed for each qualifying loan at loan closing provided funds are
available for interest assistance at the time the guarantee is issued.
This agreement establishes the conditions and maximum amounts of
interest assistance for the life of the loan. Each year, Form RD 1980-13
will be used to determine the amount of interest assistance for the
coming 12 months.

\(i\) The Lender will determine the borrower\'s adjusted annual income,
document the calculations, and complete Form RD 1980-13.

\(ii\) The borrower will review Form RD 1980-13 and sign the form
signifying that all information is correct as shown.

## 69

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.390 (f)(2) (Con.)

\(iii\) If the information contained on Form RD 1980-13 appears correct,
RHCDS will then approve the agreement and make monthly payments to the
Lender on behalf of the borrower.

\(iv\) When the borrower\'s income is within the low-income limits but
the provisions of paragraphs (e)(1)(ii) or (e)(1)(iv) of this section
preclude granting interest assistance, Form RD 1980-12 must be executed
if the borrower desires to be considered for interest assistance at a
later date due to a change in circumstances.

\(g\) [Interest assistance modification]{.underline}. A change in the
borrower\'s circumstances after the effective date of Form RD 1980-13
will be handled as follows:

\(1\) [RHCDS required modifications before expiration]{.underline}. The
borrower is responsible for reporting any increases in income exceeding
\$100 per month to the Lender. The Lender is not responsible for
monitoring the borrower\'s income. The Lender must process a revised
Form RD 1980-13 when a reported increase in the borrower\'s income
results in the need for less interest assistance in accordance with
paragraph (c) of this section.

\(2\) [Additional interest assistance before expiration]{.underline}.
The borrower may request and the Lender may process a modification of
the Form RD 1980-13 and submit the modified agreement to RHCDS when:

\(i\) The borrower\'s adjusted annual income decreases by more than
\$100 per month;

\(ii\) The interest assistance calculation per paragraph (c) of this
section indicates that the borrower is eligible for an additional \$20
interest assistance per month; and

\(iii\) There are interest assistance funds available if the amount
needed by the borrower exceeds the initial floor rate established at the
time the loan was closed per paragraph (c) of this section.

\(3\) [Other changes in the borrower\'s circumstances]{.underline}. When
one coborrower has left the dwelling, interest assistance based on the
remaining coborrower\'s income may be extended if:

## 70

##  

§1980.390 (g)(3) (Con.) RD Instruction 1980-D

## 

## 

\(i\) The remaining coborrower is occupying the dwelling, owns a legal
interest in the property, and is liable for the debt;

\(ii\) The remaining coborrower certifies as to who lives in the house;

\(iii\) Separation is not due only to work assignment or military
orders; and

\(iv\) The remaining coborrower is informed and agrees that should the
coborrower begin to live in the dwelling, that the coborrower\'s income
will then be counted toward annual income and interest assistance may be
reduced or cancelled.

\(4\) [Effect of modification]{.underline}. A Form RD 1980-13 modified
as per paragraph (g)(1), (g)(2), or (g)(3) of this section is valid for
the remainder of the agreement period.

\(5\) [Correction of interest assistance agreement]{.underline}. When an
error by RHCDS or the Lender resulted in too little interest assistance
being granted, a corrected agreement will be prepared effective the date
of the error if the error results in granting \$20 or more per month
less interest assistance than the borrower was eligible to receive. The
Lender must return any overpayment made by the borrower unless an
agreement is reached to apply the funds to the loan as an extra payment.

\(h\) [Eligibility review]{.underline}. Borrowers receiving interest
assistance will be reviewed annually within 30 to 60 days prior to the
anniversary date of the loan. All existing agreements must be reviewed
and processed for the upcoming 12 months during the review period.
Interest assistance will not be renewed if the amount that the borrower
qualifies for is less than \$20 per month.

\(1\) [Initiation of renewal action]{.underline}. At least 15 but not
more than 30 days prior to the beginning of the annual review period,
RHCDS will mail a list of borrowers whose interest assistance agreements
are to be reviewed, to the Lender. The Lender will obtain written
verification of the income of each borrower and all adult members of the
borrower\'s household and conduct the review.

## 71

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.390 (h)(1) (Con.)

\(i\) [Borrower responsibility]{.underline}. The borrower will:

\(A\) Report the income of each adult member of the household to the
Lender;

\(B\) Assure that each household member has provided sufficient
information on that person\'s income for the Lender to conduct the
review; and

\(C\) Cooperate in the Lender\'s efforts to verify income.

\(ii\) [RHCDS actions]{.underline}. RHCDS will:

\(A\) Maintain a list of borrowers for a record of interest assistance
agreements processed.

\(B\) Review the calculations of adjusted annual income and document the
results in the running case record. The County Supervisor will utilize
\"Wage Matching\" if available.

\(C\) Retain the original of the Form RD 1980-13 and send two copies to
the Lender.

\(D\) Notify the Lender in writing of any errors

noted in processing and the necessary corrective actions.

\(E\) When the information received for the interest assistance review
period indicates that the borrower\'s income exceeds the previous
year\'s income by

20 percent or more, RHCDS will determine when the change in income
occurred and whether the borrower failed to report an increase as
required. If any interest assistance has been overpaid, the overpayment
will be collected from the borrower in the following manner:

([1]{.underline}) If the borrower is eligible for further interest
assistance, the amount of overpayment will be deducted from future
interest assistance payments at the rate of 1/12 per month unless the
borrower repays the interest assistance in a lump sum.

## 72

##  

RD Instruction 1980-D

§ 1980.390(h)(1)(ii)(E) (Con.)

([2]{.underline}) If the borrower is not eligible for further interest
assistance or the amount of interest assistance is not sufficient to
cover the overpayment, the repayment schedule will be negotiated in such
a manner as to minimize the possibility that the repayment of the loan
will suffer. The preferred method of collection in this circumstance is
lump sum. Interest assistance repayment will never take more than 12
months unless prior authorization is obtained from the State Director.
(Revised 10-28-03, SPECIAL PN.)

([3]{.underline}) If RHCDS is unable to collect the interest assistance
by deductions or voluntary repayment by the borrower, the RHCDS
servicing official will obtain the advice of the State or National
Office as appropriate.

\(2\) [Processing interest assistance renewals not reviewed during the
review period]{.underline}. The Lender may process interest assistance
renewals not completed during the review period as follows:

\(i\) The amount of interest assistance will be based on the borrower\'s
current annual income.

\(ii\) The effective date will be:

\(A\) The expiration period of the previous Form

RD 1980-13 if the RHCDS approval official determines failure to renew
was the fault of RHCDS or the Lender.

\(B\) The next payment due date following approval in all other cases.

\(3\) [Interest assistance form]{.underline}. Interest assistance
payments will not be made after the expiration date unless RHCDS
receives and approves a new Form RD 1980-13.

\(i\) [Cancellation of interest assistance]{.underline}.

\(1\) An existing Form RD 1980-13 will be cancelled under the following
circumstances:

## 

## 

## 

## 

## 

## 73

## (Revision 1)

## (06-21-95) SPECIAL PN 

## RD Instruction 1980-D

§ 1980.390(i) (Con.)

\(i\) When the borrower has never occupied the dwelling, the interest
assistance will be cancelled as of the date of issuance of the
guarantee. The Lender will refund all interest assistance payments to
RHCDS.

\(ii\) The cancellation will be effective on the date on which the
earliest action occurs which causes the cancellation or the date the
Lender became aware of the situation if the date cannot be determined
when:

\(A\) The borrower ceases to occupy, sells, or conveys title to the
dwelling.

\(B\) The borrower has received improper interest assistance and a
corrected agreement will not be submitted.

\(C\) The borrower has had an increase in income and is no longer
eligible for interest assistance.

\(D\) The security is acquired by the Lender.

\(E\) The Lender formally declares the loan to be in default and
accelerates the loan.

\(2\) The RHCDS servicing office will notify the Finance Office of the
effective date for cancellation using Form RD 1980-13. The Finance
Office will process the cancellation and notify the RHCDS servicing
office of any interest assistance payments made after the effective
date. The servicing office will collect the overpaid interest assistance
from the Lender.

\(j\) [Overpayment]{.underline}. When the Lender becomes aware of
circumstances that have resulted in an overpayment of interest
assistance for any reason, except as provided in paragraph (k) of this
section, the following actions will be taken:

\(1\) The Lender will immediately notify RHCDS.

\(2\) The borrower will be notified and the Form RD 1980-13 will be
corrected.

\(3\) A repayment agreement acceptable to RHCDS will be reached.

## 

## 

## 

## 

## 

## 74

## (Revision 1) 

§1980.390 (Con.) RD Instruction 1980-D

## 

## 

\(k\) [Unauthorized use of loan funds]{.underline}. When RHCDS becomes
aware that the Lender allowed loan funds to be used for unauthorized
purposes, interest assistance paid on said amounts will promptly repaid
by the Lender. The Lender may work out a repayment agreement with the
borrower but is expected to make every effort to minimize the adverse
impact on the borrower\'s repayment ability.

\(l\) [Appeals]{.underline}. All applicants/borrowers and Lenders will
be notified of their appeal rights in accordance with §1980.399 of this
subpart when RHCDS denies, reduces, cancels, or refuses to renew
interest assistance.

\(m\) [Reinstatement of interest assistance]{.underline}. The RHCDS
approval official may authorize reinstatement of the borrower\'s
interest assistance if it was cancelled because the loan was accelerated
and if the acceleration was withdrawn with RHCDS approval. The approval
official will notify the Finance Office via memorandum of the
reinstatement.

§1980.391 [Equity sharing]{.underline}.

The policy of RHCDS is to collect all or a portion of interest
assistance granted on a guaranteed RH loan when any of the events
described in paragraph (a) of this section occur, if equity exists in
the security. The RHCDS approval official will remit the shared equity
proceeds to the Finance Office using Form RD 451-2, and Form\
RECD 1980-87, \"Shared Equity Payment.\"

\(a\) [Determining the amount of shared equity]{.underline}. The RHCDS
approval official will calculate shared equity when a borrower\'s
account is settled by payment-in-full (including refinancing) of the
outstanding indebtedness, the transfer of title, or when the borrower
ceases to occupy the property. The calculation of shared equity when the
account is in liquidation will be handled in accordance with
§1980.374(e) of this subpart.

\(1\) [How to calculate]{.underline}. The amount of shared equity will
be based on the amount of interest assistance granted on the loan, the
appreciation in property value between the closing date of the loan and
the date the account is satisfied or acquired by the Lender via
liquidation action, the period of time the loan is outstanding, the
amount of original equity the borrower has in the property, and the
value of capital improvements to the

## 75

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.391 (a)(1) (Con.)

property, as defined in this section. Shared equity will be the lesser
of the interest assistance granted or the amount of value appreciation
available for shared equity. Value appreciation available for shared
equity means the market value of the property less all debts secured by
prior liens, sales expenses, any original borrower equity, principal
reduction, and value added by any capital improvements.

\(i\) [Market value]{.underline}. Market value of the property as of the
date the loan is to be paid in full or the date the borrower ceases to
occupy and will be documented by one of the following:

\(A\) A sales contract which reasonably represents the fair market value
based on the Lender\'s and RHCDS approval official\'s knowledge of the
property and the area.

\(B\) Lender\'s appraisal when the loan will be refinanced provided the
appraisal reasonably represents the fair market value.

\(C\) If the items listed in either paragraph (a)(1)(i)(A) or
(a)(1)(i)(B) of this section are not available, another current
appraisal, if readily available, when the appraiser meets the
qualifications of §1980.334 of this subpart.

\(D\) When the account is being paid off from insurance proceeds, the
most recent appraisal available if the Lender or RHCDS can document that
it represents an accurate indication of the value at the time the
dwelling was damaged or destroyed. If not, the best information
available will be used to determine the market value. The RHCDS approval
official will interview the borrower to determine the extent of
improvements, if any, and the general condition of the property at the
time of loss. The amount of the insurance payment is generally a good
indication of value; however, tax records or comparable sales will be
considered.

\(E\) RHCDS appraisal, with prior approval of the State Director.

## 76

##  

§1980.391 (a)(1) (Con.) RD Instruction 1980-D

\(ii\) [Prior liens]{.underline}. Prior liens refers to the amount of
liens that are prior to the Lender\'s liens and include, but may not be
limited to, prior mortgages and real estate taxes and assessments levied
against the property.

\(iii\) [Sale/refinancing expenses]{.underline}. Sale/refinancing
expenses include, but are not limited to, expenses commonly associated
with the sale or refinancing of real estate that are not reimbursed,
such as sales commissions, advertising costs, recording fees, pro rata
taxes, points based on the current interest rate, appraisal fees,
transfer tax, deed preparation fee, loan origination fee, etc. In
refinancing situations, only those expenses necessary to finance the
amount of the current RHCDS debt are allowed. Shared equity may be
calculated using estimated expenses if actual expenses cannot be
obtained and the RHCDS approval official is satisfied with the estimated
amount and the prorating of the expenses are accurate for this
transaction.

\(iv\) [Original borrower equity]{.underline}. Original equity consists
of a contribution by the borrower that reduces the amount of the loan
below the market value. The contribution may be in the form of cash
and/or value of the lot if the home was constructed on the borrower\'s
property.

\(v\) [Capital improvements]{.underline}. Capital improvements will be
considered to the extent that they do not exceed market value
contribution as indicated by a sales comparison analysis. Generally, the
value added by improvements will be the difference in market value at
the time of sale and market value without capital improvements. Cost of
the improvement will not be considered, only contribution to value.
Maintenance cost and replacement of short-lived depreciable items are
normal expenses associated with home ownership and are not considered
capital improvements.

\(2\) [Other considerations]{.underline}.

\(i\) [Overpayments of interest assistance]{.underline}. When RHCDS has
overpaid interest assistance and the overpaid amounts remain uncollected
at the time shared equity is calculated, the overpaid amount will be
added to shared equity.

## 77

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.391 (a)(2) (Con.)

\(ii\) [Multiple loans]{.underline}. When a borrower has more than one
loan and elects to pay only some of the loans, shared equity will not be
calculated unless the remaining loan(s) is not subject to shared equity.
Shared equity will be calculated when the account is paid in full taking
into consideration all of the interest assistance granted on the
account.

\(b\) [Miscellaneous provisions]{.underline}.

\(1\) [Changes in terms]{.underline}. Shared equity will not be
calculated when an account is reamortized.

\(2\) [Junior liens]{.underline}. Junior liens are not considered in the
shared equity calculation. In the event a junior lienholder forecloses,
the RHCDS approval official will calculate shared equity before
providing the lienholder with a pay-off figure, which is in addition to
any amounts still due the Lender on the loan in the same manner as
paragraph (a) of this section.

\(c\) [Affordable housing proposals]{.underline}. Shared equity under an
affordable housing innovation (such as limited equity or a State or
County sponsored shared equity) will be calculated in accordance with
this subpart unless prior written approval is obtained from RHCDS.
Proposals that deviate from this subpart must be reviewed and approved
in the National Office prior to issuance of Form RD 1980-17.

§1980.392 [Mortgage Credit Certificates (MCCs) and Funded Buydown
Accounts]{.underline}.

\(a\) [MCCs]{.underline}. MCCs are authorized under the Tax Reform Act
of 1986 and allow the borrower to receive a Federal tax credit for a
percentage of their mortgage interest payment. They may be used by RHCDS
guaranteed RH borrowers to improve their repayment ability for the loan.
MCCs impact on the borrower\'s tax liability. MCCs may be used with
interest assisted loans when the amount of the tax credit is based on
the amount of interest actually paid by the borrower. MCCs are subject
to shared equity of a portion of any \"gain\" realized on the property
when sold within 10 years after purchase. If the loan is also an RHCDS
interest assisted loan, RHCDS shall receive priority for shared equity
repayment. Income taxes are complex issues; RHCDS employees and Lenders
are not expected to be able to identify all issues impacting the
borrower\'s taxes. Lenders should encourage borrowers to consult with a
tax advisor.

## 78

##  

§1980.392 (a) (Con.) RD Instruction 1980-D

## 

## 

\(1\) When the Lender is participating in an MCC program the amount of
the tax credit is considered as an additional resource available for
repayment of the loan when the credit is taken on a monthly basis from
withholding.

\(2\) The Lender will submit a copy of the MCC and a copy of the
applicant\'s Form IRS W-4, \"Employee\'s Withholding Allowance
Certificate,\" along with the other materials for the loan guarantee
request. The amount of tax credit is limited to the applicant\'s maximum
tax liability.

\(i\) The MCC must show the rate of credit allowed.

\(ii\) The Form IRS W-4 must reflect that the borrower is taking the tax
credit on a monthly basis.

\(iii\) The Lender will certify that the borrower has completed and
processed all of the necessary documents to obtain the tax credit in
accordance with this section.

\(b\) [Funded Buydown Accounts]{.underline}. A funded buydown account is
a prepaid arrangement between a builder or a seller and a Lender that is
designed to improve applicant\'s repayment ability. Funded buydown
accounts are permitted when the Lender obtains prior RHCDS concurrence.
RHCDS will consider buydown accounts when there are compensating factors
which indicate the borrower\'s ability to meet the expected increases in
loan payment. The seller, Lender or other third party must place funds
in an escrow account with monthly releases scheduled directly to the
Lender to reduce the borrower\'s monthly payment during the early years
of the loan. The maximum reduction which may be considered is 2 percent
below the note rate, even though the actual buydown may be for more.
Reductions in buydown assistance may not result in an increase in the
interest rate paid by the borrower of more than 1 percent per year. The
borrower shall not be required to repay escrowed buydown funds. Funds
must be escrowed with a state or federally supervised Lender. Funded
buydown accounts must be fully funded for the buydown period. Buydown
periods must be at least 12 months for each 1 percent of the buydown.

§§1980.393 - 1980.396 \[Reserved\]

## 79

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

## 

§1980.397 [Exception authority]{.underline}.

The Administrator may, in individual cases, make an exception to any
requirement or provision of this subpart or address any omission of this
subpart which is not inconsistent with the authorizing statute or other
applicable law if the Administrator determines that application of the
requirement, or provision, or failure to take action in the case of an
omission would adversely affect the Government\'s financial interest.
The Administrator will exercise this authority upon request of the State
Director with the recommendation of the Assistant Administrator for
Housing. Requests for exception must be made in writing accompanied by
the borrower\'s casefile in cases involving specific borrowers and
supported with documentation to explain the adverse effect, proposed
alternative courses of action, and to show how the adverse effect will
be eliminated or minimized if the exception is granted.

## 

§1980.398 [Unauthorized assistance and other deficiencies]{.underline}.

This section prescribes the policies and procedures for servicing loan
guarantees issued under this subpart when the borrower was not eligible
for all or part of the financial assistance received in the form of a
loan guarantee or other improper processing or servicing actions taken
by the Lender.

> \(a\) [Unauthorized assistance]{.underline}. Unauthorized assistance
> includes, but is not limited to, issuance of Form RD 1980-17 when the
> borrower was not eligible for the loan or the borrower was eligible
> but the loan was not made for authorized purposes. Unauthorized
> assistance in the form of interest assistance is discussed in
> §1980.390 of this subpart.
>
> \(b\) [Initial determination of unauthorized assistance]{.underline}.
> Unauthorized assistance may be identified through audits conducted by
> the OIG, United States Department of Agriculture (USDA), through
> reviews conducted by RHCDS or its agents, or through other means. The
> reasons for the unauthorized assistance being received by the Lender
> must be well documented in the RHCDS casefile and may include:
>
> \(1\) Submission of false or inaccurate information by the Lender;
>
> \(2\) Submission of false or inaccurate information by the borrower;

## 80

##  

§1980.398 (b) (Con.) RD Instruction 1980-D

> \(3\) Error by RHCDS personnel; or
>
> \(4\) Error by the Lender.
>
> \(c\) [Notification to Lender]{.underline}. RHCDS will notify the
> Lender of unauthorized assistance by \"Certified Mail, Return Receipt
> Requested.\" The letter will specify in detail the reason(s) the
> assistance is determined to be unauthorized.
>
> \(d\) [Lender noncompliance]{.underline}. The RHCDS approval official
> will consider the seriousness of the deficiency.
>
> \(e\) [Categories of unauthorized assistance]{.underline}.
>
> \(1\) [Minor deficiency]{.underline}. A minor deficiency is one that
> does not change the eligibility of the borrower, the eligibility of
> the property, or amount of the loan. Such incidents will be brought to
> the Lender\'s attention in writing. Examples of minor deficiencies
> include improperly completed builder certifications, use of an
> outdated credit report, or use of an outdated income verification.
> Minor deficiencies also include those significant deficiencies when
> the Lender is willing and able to correct the problem such as
> obtaining flood insurance for a dwelling located in a flood hazard
> area and assuring the escrow amount is sufficient.
>
> \(2\) [Significant deficiency]{.underline}. A significant deficiency
> is one that creates a significant risk of loss to the Government, or
> involves acceptance of a borrower or property not permitted by Agency
> regulations. Such cases may result in probation or withdrawal of the
> Lender\'s approval for program participation. Examples of significant
> deficiencies include gross miscalculation of income, acceptance of
> property that is severely deficient of the required standards, missing
> builder certifications, and construction changes that materially
> affect value without proper change orders.
>
> \(3\) [Fraud or misrepresentation]{.underline}. A deficiency that
> involves an action by the Lender to misrepresent either the financial
> capacity of the borrower or the condition of the property being
> financed may, in addition to any criminal and civil penalties, result
> in referral to the Regional OIG, a withdrawal of RHCDS approval, or
> debarment proceedings. Examples of this type of deficiency include
> falsified Verifications of Employment, false certifications, reporting
> a delinquent loan as being current, and omitting conditions relating
> to the health and safety of a property.

## 81

(06-21-95) SPECIAL PN

RD Instruction 1980-D

§1980.398 (Con.)

> \(f\) [Borrower noncompliance]{.underline}.
>
> \(1\) [RHCDS error oversight]{.underline}. When the borrower receives
> unauthorized assistance solely due to an error or oversight, the
> Lender may continue with the guaranteed loan.
>
> \(2\) [Fraud or misrepresentation]{.underline}. In all cases where the
> borrower noncompliance was based on fraud or misrepresentation, the
> case will be referred to the OIG and the National Office with a
> recommendation on disposition of the case.
>
> \(g\) [RHCDS error oversight]{.underline}. When the borrower receives
> unauthorized assistance due to an error or oversight by RHCDS, the
> Lender may continue with the guaranteed loan.

§1980.399 [Appeals]{.underline}.

The borrower and the Lender respectively can appeal an RHCDS
administrative decision that directly and adversely impacts them.
Decisions made by the Lender are not covered by this paragraph even if
RHCDS concurrence is required before the Lender can proceed. Appeals
will be conducted in accordance with the rules of the National Appeals
Division, USDA.

\(a\) [Appealable decisions]{.underline}.

\(1\) The borrower and the Lender must jointly execute the written
request for an alleged adverse decision made by RHCDS. The Lender need
not be an active participant in the appeal process.

\(2\) The Lender only may appeal cases where RHCDS has denied or reduced
the amount of a loss payment to the Lender.

\(b\) [Nonappealable decisions]{.underline}.

\(1\) The Lender\'s decision as to whether to make a loan is not subject
to appeal.

\(2\) The Lender\'s decision to deny servicing relief is not subject to
appeal.

\(3\) The Lender\'s decision to accelerate the account is not subject to
appeal.

## 82

##  

RD Instruction 1980-D

§1980.400 \[Reserved\]

Attachments: Exhibits A, B, C, D, E, and F.

## o0o

## 83

## 

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Exhibit A

Page 1

(Revision 2)

List of Forms Used in the Agency\'s RH Guaranteed Loan Instruction
1980-D

Form

Number Title of Purpose of Form

\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

400-1 Equal pportunity Agreement Used by RHCDS to

obtain required E.O.

agreements from

contractors.

400-3 Notice to Contractors and Used by RHCDS to

Applicants notify contractors

and applicants of

E.O. requirements.

400-6 Compliance Statement Used by RHCDS to

obtain statement of

compliance with E.O.

requirements from

applicant.

410-7 Notification to Applicant Used by RHCDS to

on Use of Financial notify applicant on

Information from Financial its use of financial

Institution information.

451-2 Schedule of Remittances Used by RHCDS to

remit overpayments

of interest

assistance to the

Finance Office.

1905-4 Application and Processing Used by RHCDS to

Card \-- Individual maintain application

processing records.

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Exhibit A

Page 2

(Revision 2)

Form

Number Title of Purpose of Form

\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

1910-5 Request for Verification Used by Lender to

of Employment obtain written

verification of

applicant/borrower

employment.

1940-3 Request for Obligation of Used by RHCDS to

Funds Guaranteed Loans notify Finance

Office of loan

guarantee approval.

1940-10 Cancellation of U.S. Used by RHCDS to

Treasury Check and/or notify Finance

Obligation Office of a

deobligation of

loan guarantee.

1944-4 Certification of Disability Used by Lender

or Handicap to verify an

applicant\'s

eligibility for

certain adjustments

to income.

1980-11 Guaranteed Rural Housing Used by one Lender

Lender Record Change to report the sale

of the loan note

to another Lender.

1980-12 Master Interest Assistance Used by RHCDS to

and Shared Equity Agreement establish the basis

with Promissory Note for the amount of

interest assistance

to be paid over the

life of the loan.

RD Instruction 1980-D

Exhibit A

Page 3

Form

Number Title of Purpose of Form

\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

1980-13 Annual Interest Assistance Used by RHCDS to

Agreement establish the amount

of interest

assistance to be

paid for the

upcoming 12 months.

1980-14 Interest Assistance Used by RHCDS to

Shared Equity Determination determine the amount

of interest

assistance to be

repaid.

1980-16 Agreement For Participation Used by RHCDS and

In Single Family Housing Lender to

Guaranteed/Insured Loan memorialize

Programs of the United States agreements regarding

Government. Rural Housing Loan

guarantees.

1980-17 Loan Note Guarantee Used by RHCDS to

issue the Guarantee

on a loan made under

this subpart.

1980-18 Conditional Commitment for Used by RHCDS to set

Single Family Housing Loan forth the conditions

Guarantee for issuance of loan

note guarantee and

used by Lender to

accept conditions.

1980-19 Guaranteed Loan Closing Used by Lender to

Report report closing of a

guaranteed loan to

RHCDS and to remit

guarantee fee.

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Exhibit A

Page 4

Form

Number Title of Purpose of Form

\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

1980-20 Rural Housing Guarantee Used by Lender to

Report of Loss report loss on a

guaranteed loan or

to report collection

recovery on a

previously paid

loss. Used by RHCDS

to determine the

amount of the loss

payment.

1980-21 Request for Single Family Used by Lender to

Housing Loan Guarantee submit a request for

a rural housing loan

guarantee to RHCDS.

1980-86 Reservation of Funds Used by Lender to

submit a request for

reservation of

funds and by RHCDS

to confirm

reservation.

1980-87 Shared Equity Payment Used by RHCDS to

notify Finance

Office of shared

Equity Payment.

URAR Uniform Residential Used by appraiser to

Appraisal Report determine market

value of dwelling.

## o0o 

RD Instruction 1980-D

Exhibit B

## Loans Made On or Before March 28, 1989

[Servicing Loan Guarantees]{.underline}.

Loans guaranteed before March 28, 1989, will be serviced in accordance
with he Loan Note Guarantee and Lender\'s Agreement for the loan.

[Transfers and Assumptions]{.underline}.

A loan made and guaranteed under subpart D of part 1980 prior to

March 29, 1989, may be transferred to an applicant meeting all
eligibility requirements of this subpart except the applicant\'s
adjusted annual income may exceed the moderate income limit by not more
than 10 percent of the moderate income limit for the area. Eligible
applicant also includes an applicant who meets the eligibility
requirements of this subpart except that the housing being transferred
is in an area which has ceased to be rural.

## o0o

(06-21-95) SPECIAL PN

Exhibit C in PDF ONLY.

RD Instruction 1980-D

Exhibit D

Fee Schedule for Guaranteed Housing Loan Processing and Servicing
Activities

Fee paid to Lender for processing renewals

and revisions of interest assistance agreements \-- \$40.00

Factor used to estimate Real Estate Owned (REO) property management and
disposition costs for loss claims on unsold REO under §
1980.376(a)(1)(ii) of this subpart -- 11.87 percent of appraised value

The chart below will serve as the basis for determining the amount of
interest assistance paid by the government and the amount that the
borrower will be responsible for payment of the Promissory Note in the
attached agreement. The actual amounts for which each party is
responsible will be reflected in Form RD 1980-12, \"Master Interest
Assistance and Shared Equity Agreement with Promissory Note.\"

Percentage of Median Income \| Interest Assistance

When the Borrower\'s income is: \| Borrower\'s High Cost Area

[More than]{.underline} [But Less than]{.underline} \| [Floor Rate
is]{.underline}: [Floor Rate is]{.underline}:

55 percent 60 percent \| 3 percent 3 percent

60 percent 65 percent \| 4 percent 3 percent

65 percent 70 percent \| 5 percent 4 percent

70 percent 75 percent \| 6 percent 5 percent

75 percent 80 percent \| 7 percent 6 percent

o0o

(02-23-00) PN 317

RD Instruction 1980-D

Exhibit E

## LENDERS GUARANTEED RURAL HOUSING

## LIST OF AGENCY INSTRUCTIONS AND EXHIBITS

I. PURPOSE: This exhibit prescribes the necessary Agency Instructions
and exhibits which must be provided to approved Guaranteed Section 502
Rural Housing (RH) Lenders, in order for the Lenders to develop
application packages for submission to Rural Development field offices.

II\. POLICY: State Directors shall provide all eligible Guaranteed
Section 502 RH Lenders with copies of Agency Instructions and exhibits
listed in this exhibit, including training of the Lender\'s staff, to
ensure that the Lender understands Rural Development guaranteed RH loan
requirements prior to submission of guaranteed RH loan packages. State
Directors shall assemble the regulations and exhibits into a Lenders
Manual and provide the Lender with an appropriate number of copies of
the Manual to assist the Lender\'s staff in developing application
packages in a timely manner.

III\. LIST OF AGENCY INSTRUCTIONS AND EXHIBITS:

1\. RD Instruction 1924-A, Exhibit D, \"Thermal Performance

Construction Standards.\"

2\. RD Instruction 1924-A, Exhibit E, \"Voluntary National Model

Building Codes.\"

3\. HB-1-3550, \"Direct Single Family Housing Loans and Grants\"

4\. Rural Development Rural Area Eligibility Maps.

5\. RD Instruction 1980-D, Exhibit A, \"List of Forms Used in the

Agency\'s RH Guaranteed Loan Instruction 1980-D.\"

6\. RD Instruction 1980-D, Exhibit C, \"Income Limits.\"

7\. All required Agency forms identified in RD Instruction 1980-D,

Exhibit A (cited above).

8\. RD Instruction 440.1, Exhibit K, which contains the guarantee

fee structure.

9\. Current directory of Agency Field Offices.

10\. RD Instruction 1980-D.

## o0o

(01-23-03) SPECIAL PN

RD Instruction 1980-D

Exhibit F

Page 1

INCOME EXEMPTED BY FEDERAL STATUTE

Revenue which a Federal statute exempts shall not be considered as
income or used as a basis for determining eligibility for a Rural
Housing and Community Development Service (RHCDS) loan, payment credit
assistance, or denying or reducing Federal financial assistance or
benefits to which the recipient would otherwise be entitled.

In addition to the exempted income outlined under §1980.347 (e)(9) of
this subpart, the following are not included in annual income but may be
considered in determining repayment ability:

\(1\) The imminent danger duty pay to a service person
applicant/borrower or spouse away from home and exposed to hostile fire.
Amounts of imminent danger pay for military personnel stationed in the
Combat Zone are excluded from annual income effective August 2, 1990.
Any military pay received by persons serving in the Combat Zone received
on or after January 17, 1991, is excluded from annual income. The Combat
Zone, as defined by the Presidential Executive Order 12744 dated January
21, 1991, consists of the Persian Gulf, the Red Sea, the Gulf of Oman,
that portion of the Arabian Sea that lies north of 10 degrees north
latitude and west of 68 degrees east longitude, the Gulf of Aden, the
total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar,
and the United Arab Emirates. Immediately upon notification by the
family, or based on information from a knowledgeable source that a
member of the household was serving in the Combat Zone, the loan
approval official shall redetermine the household income retroactive to
January 17, 1991, and adjust the applicant/borrower\'s payment
assistance accordingly.

\(2\) Payments to volunteers under the Domestic Volunteer Service Act of
1973, including but not limited to:

\(a\) National Volunteer Antipoverty Programs which include VISTA, Peace
Corps, Service Learning Programs, and Special Volunteer Programs.

\(b\) National Older American Volunteer Programs for persons age 60 and
over which include Retired Senior Volunteer Programs, Foster Grandparent
Program, Older American Community Services Program, and National
Volunteer Programs to Assist Small Business and Promote Volunteer
Service to Persons with Business Experience, Service Corps of Retired
Executives (SCORE), and Active Corps of Executives (ACE).

(06-21-95) SPECIAL PN

RD Instruction 1980-D

Exhibit F

Page 2

\(3\) Payments received after January 1, 1989 from the Agent Orange
Settlement Fund or any other fund established pursuant to the settlement
in the \"In Re Agent Orange\" product liability litigations, M.D.L. No.
381 (E.D.N.Y.).

\(4\) Payments received under the \"Alaska Native Claims Settlement
Act\" or the \"Maine Indian Claims Settlement Act.\" (A more detailed
explanation will be provided in a State Supplement by the State
Directors for Alaska and Maine.)

\(5\) Income derived from certain submarginal land of the United States
that is held in trust for certain American Indian tribes.

\(6\) Payments or allowances made under the Department of Health and
Human Services Low-Income Home Energy Assistance Program.

\(7\) Payments received from the Job Training Partnership Act.

\(8\) Income derived from the disposition of funds of the Grand River
Band of Ottawa Indians.

\(9\) The first \$2,000 of per capita shares received from judgment
funds awarded by the Indian Claims Commission or the Court of Claims, or
from funds held in trust for an American Indian tribe by the Secretary
of Interior.

\(10\) Payments received from programs funded under Title V of the Older
Americans Act of 1965.

\(11\) The value of the allotment provided to an eligible household
under the Food Stamp Act of 1977.

\(12\) Any other income which is exempted under Federal statute.

o0o