RD Instruction 1904-B

PART 1904 - BORROWER CASE CLASSIFICATION

Subpart B - Classification of Single Family Housing Borrower Accounts

§1904.51 [Purpose]{.underline}.

\(a\) This subpart prescribes the policies and procedures for the
classification of all active Single Family Housing (SFH) borrower
accounts. As used in this subpart, SFH includes Section 502 and Section
504 Rural Housing (RH) loans in addition to nonprogram (NP) loans for a
Single Family residence. This subpart does not apply to Guaranteed
Housing loans. Borrowers who have both RH and Farmer Program (FP)
accounts will be classified in accordance with RD Instruction 2006-W.
Office of Management and Budget Circular A-129 requires all Federal
Agencies which have loan programs to implement a loan classification
system. The objectives of the system are to:

\(1\) assess the quality of the Agency\'s loan portfolio;

\(2\) estimate loan losses to the government;

\(3\) assess the need for special loan servicing; and

\(4\) improve the management of the Agency\'s loan programs.

\(b\) Borrower account classification is an internal administrative
function and will not directly affect the borrower in a positive or
negative manner. The County Office staff will not disclose SFH borrower
account classifications to Credit Bureaus or other lenders. A
borrower\'s account classification will not affect the borrower\'s
eligibility for future Rural Development assistance. Account
classifications are not appealable.

§1904.52 [Definitions]{.underline}.

As used in this subpart, the following definitions apply:

\(a\) [Security value]{.underline}. Market value of the security based
on the most recent appraisal minus any prior liens. If the most recent
appraisal is more than 5 years old or if the market value of the
security has changed significantly since the last appraisal, the County
Supervisor will estimate security value based on the current market
conditions. New appraisals are not required solely for the purpose of
classification.

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DISTRIBUTION: WSDC General

Borrower Case

Classification

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RD Instruction 1904-B

§1904.52 (Con.)

\(b\) [Estimated loss amount]{.underline}. The unpaid Rural Development
loan balances plus the estimated liquidation allowance minus the
estimated security value. For the purpose of classifying SFH accounts
the estimated liquidation allowance will be considered to be 10 percent
of the estimated security value. The data automation system will
calculate the estimated loss amount, based upon the security value, as
provided by the County Supervisor, and the unpaid Rural Development loan
balance, as shown in the system records.

\(c\) [Security]{.underline}.

\(1\) [Secured]{.underline}. Security value is equal to or greater than
existing unpaid Rural Development loan balances (and any prior liens)
and a valid mortgage, deed of trust, or leasehold exists on property.
(Revised 02-05-92, PN 181).

\(2\) [Undersecured]{.underline}. Security value is less than amount of
existing unpaid Rural Development loan balances (and any prior liens)
and a valid mortgage, deed of trust, or leasehold exists on property.
(Revised 02-05-92, PN 181).

\(3\) [Unsecured]{.underline}. Any loan where there is no security; i.e.

Section 502 or 504 Note-Only or Collection Only.

\(d\) [Security value and code]{.underline}. To properly classify each
borrower\'s account(s), the County Supervisor will enter the security
value as defined in §1904.52 (a) and the security code as noted below
for each borrower through the Automated Discrepancy Processing System,
using the 8N transaction. The following security codes are to be
entered:

\(1\) Enter code 1 for first mortgage or deed of trust on real estate.

\(2\) Enter code 2 for junior mortgage or deed of trust on real estate.

\(3\) Enter code 3 for promissory note only.

\(e\) [Classification category]{.underline}. An estimate of the degree
of risk associated with an account. The following classification
categories and codes are used for SFH borrower accounts:

\(1\) [Problemless (Classification Code 6)]{.underline}.

\(i\) A monthly payment account - an account which is current or 1 to 3
scheduled installments past due and is secured; or

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RD Instruction 1904-B

§1904.52 (e)(1) (Con.)

\(ii\) An annual payment account - an account which is current or is
past due by not more than 25 percent of the scheduled installment
[and]{.underline} is secured.

\(2\) [Substandard (Classification Code 7)]{.underline}.

\(i\) A monthly payment account - an account which is current or 1 to 3
scheduled installments past due [and]{.underline} is unsecured or
undersecured; or

\(ii\) An annual payment account - an account which is current or is
past due by not more than 25 percent of the scheduled installment
[and]{.underline} is unsecured or undersecured; or

\(iii\) A monthly payment account - an account which is more than 3
scheduled installments past due [and]{.underline} is secured; or

\(iv\) An annual payment account - an account which is past due by more
than 25 percent of the scheduled installment [and]{.underline} is
secured.

\(3\) [Loss (Classification Code 8)]{.underline}.

\(i\) A monthly payment account - an account which is more than 3
scheduled installments past due [and]{.underline} is unsecured or
undersecured; or

\(ii\) An annual payment account - an account which is past due by more
than 25 percent of the scheduled installment [and]{.underline} is
unsecured or undersecured.

(All Collection Only are classified as a loss.)

§1904.53 [County Supervisor responsibilities]{.underline}.

The County Supervisor will verify the accuracy of the classification of
all SFH accounts in his/her office.

§1904.54 [Methodology]{.underline}.

The methodology for classifying accounts is based on Rural
Development\'s loan security position and the payment status of the
account. The County Supervisor will determine the security value and
security code. The estimated loss amount and classification code will be
automatically computed.

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RD Instruction 1904-B

§1904.55 [Establishing and changing classifications]{.underline}.

\(a\) The classification of existing borrowers will be reviewed annually
between June 30 and September 30. The County Supervisor will not be
responsible for monitoring the classification of SFH borrowers other
than during the review period. The County Office will receive an annual
classification report from the Finance Office containing all SFH
borrowers as of June 30. The County Supervisor will review this report
to ensure that all existing SFH borrowers are classified correctly. If,
during the annual review, the County Supervisor determines that a
borrower\'s circumstances have changed sufficiently to require
reclassification, the County Supervisor will determine the security
value and security code before September 30.

\(b\) All new SFH Section 502 and 504 borrowers and NP loans for a
Single Family residence will be classified during the next review period
after the loan is closed. The County Supervisor will use the annual
classification report to identify any SFH borrowers not previously
classified. (Revised 11-12-93, SPECIAL PN.)

\(c\) If for some reason the County Office must correct the database for
selected loan classification data, manual override capability is
available via the 8N transaction.

§1904.56 [District Director responsibilities]{.underline}.

The District Director will review the classification of SFH borrowers as
part of the normal supervisory reviews conducted in each County Office.
The District Director will ensure that all new borrowers are classified
correctly and that all borrowers previously classified are reviewed
annually and reclassified if necessary.

§1904.57 [State Director responsibilities]{.underline}.

\(a\) [Implementation]{.underline}. The State Director will ensure that
all County Supervisors and District Directors understand the
classification system, and their respective responsibilities.

\(b\) [Monitoring]{.underline}.

\(1\) Ensure that District Directors include reviews of account
classifications in their County Office visits and evaluation reviews.

\(2\) Include a review of account classifications as part of the County
Office program reviews conducted by the State Office housing staff.

§§1904.58 - 1904.100 \[Reserved\]

oOo

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