[Federal Register Volume 88, Number 205 (Wednesday, October 25, 2023)]
[Proposed Rules]
[Pages 73245-73249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23344]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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Federal Register / Vol. 88, No. 205 / Wednesday, October 25, 2023 / 
Proposed Rules

[[Page 73245]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3560

[Docket No. RHS-23-MFH-0019]
RIN 0575-AD29


Changes Related to Insurance Requirements in Multi-Family Housing 
(MFH) Direct Loan and Grant Programs

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural 
Development (RD) agency of the United States Department of Agriculture 
(USDA), proposes to amend its regulation to implement changes related 
to insurance requirements under the Multi-Family Housing (MFH) Direct 
Loan and Grant programs. The intent of this proposed rule is to align 
RD insurance coverage types, amounts, and deductibles with affordable 
housing industry standards to simplify the coverage amounts, deductible 
limits, and improve the customer experience with updated and 
understandable insurance requirements.

DATES: Comments on the proposed rule must be received on or before 
December 26, 2023.

ADDRESSES: Comments may be submitted electronically by the Federal 
eRulemaking Portal: Go to https://www.regulations.gov and, in the 
``Search Field'' box, labeled ``Search for dockets and documents on 
agency action,'' enter the following docket number: (RHS-23-MFH-0019) 
or RIN# 0575-AD29. To submit or view public comments, click the 
``Search'' button, then select the following document title: (Changes 
Related to Insurance Requirements in Multi-Family Housing (MFH) Direct 
Loan and Grant Programs) from the ``Search Results,'' and select the 
``Comment'' button. Before inputting your comments, you may also review 
the ``Commenter's Checklist'' (optional). Insert your comments under 
the ``Comment'' title, click ``Browse'' to attach files (if available). 
Input your email address and select ``Submit Comment.'' Information on 
using Regulations.gov, including instructions for accessing documents, 
submitting comments, and viewing the docket after the close of the 
comment period, is available through the site's ``FAQ'' link.
    Other Information: Additional information about RD and its programs 
is available on the internet at https://www.rurdev.usda.gov/index.html.
    All comments will be available for public inspection online at the 
Federal eRulemaking Portal (https://www.regulations.gov).

FOR FURTHER INFORMATION CONTACT: Michael Resnik, Director, Multi-Family 
Housing Asset Management Division, Rural Housing Service, United States 
Department of Agriculture, 1400 Independence Avenue SW, Washington, DC 
20250-0782, Telephone: (202) 430-3114 (this is not a toll-free number), 
or email: <a href="/cdn-cgi/l/email-protection#4c01252f242d2920621e293f2225270c393f282d622b233a"><span class="__cf_email__" data-cfemail="276a4e444f46424b09754254494e4c675254434609404851">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

    The Rural Housing Service (RHS) offers a variety of programs to 
build or improve housing and essential community facilities in rural 
areas. RHS offers loans, grants, and loan guarantees for single and 
multifamily housing, childcare centers, fire and police stations, 
hospitals, libraries, nursing homes, schools, first responder vehicles 
and equipment, and housing for farm laborers. RHS also provides 
technical assistance loans and grants in partnership with non-profit 
organizations, Indian tribes, state and Federal government agencies, 
and local communities.
    The Title V of the Housing Act of 1949 (Act) authorized USDA to 
make housing loans to farmers to enable them to provide habitable 
dwellings for themselves or their tenants, lessees, sharecroppers, and 
laborers. USDA then expanded opportunities in rural areas, making 
housing loans and grants to rural residents through the Single-Family 
Housing (SFH) and Multi-Family Housing (MFH) Programs.
    RHS operates the MFH direct loan and grant programs by providing 
direct loans or grants to affordable multi-family rental housing for 
low income, elderly, disabled individuals and families, or domestic 
farm workers in eligible rural areas. The programs are covered by the 7 
CFR part 3560, Direct Multi-Family Housing Loans and Grants and are: 
(1) Section 515, Rural Rental Housing loans, which finances multi-
family units in rural areas; (2) Section 514 and 516 Farm Labor Housing 
loans and grants, which finances farm labor housing; or (3) Section 
521, Rental Assistance, which finances project-based tenant rent 
subsidy.
    As required by the Agency under the 7 CFR part 3560, borrowers are 
required to purchase and maintain property insurance on all buildings 
included as security for an Agency loan, to avoid a non-monetary loan 
default. Regulations require borrowers to provide fidelity coverage, 
liability insurance and various other insurance coverage to protect 
against losses or damages.

II. Purpose of This Regulatory Action

    Currently, 7 CFR part 3560 consists of outdated insurance 
requirements. The coverage amounts and deductible limits were 
established in the interim rule (69 FR 69031-69176) that was published 
November 26, 2004. The changes proposed by this regulatory action will 
update insurance coverage and deductible requirements to current dollar 
values. The agency intends to align RD insurance coverages and 
deductible limits with affordable housing industry standards. The 
intent of this proposed rule is to improve the customer experience with 
updated and understandable insurance requirements.
    The insurance premiums, including those for hazard/property 
insurance required by the Agency, are increasing due to changes in the 
insurance industry, such as the increasing of insurance rates in part 
due to increase catastrophic events. Our stakeholders will benefit from 
these proposed changes through lower insurance premiums and more 
flexibility in choices of coverage and deductibles. The current low 
deductible limits result in higher premiums. This proposed rule will 
allow higher deductible limits and will provide flexibility to the 
owner to select a deductible that can lower the premium costs.
    When a disaster has occurred and the coverage was less than the 
industry standard of 80% of replacement cost value, the Agency has seen 
the loss of needed multifamily housing properties. Due to insufficient 
coverage amounts,

[[Page 73246]]

the property was not able to be rebuilt and the communities in need of 
affordable housing have lost housing units. This proposed rule intends 
to assist stakeholders by providing the financial capacity to build-
back needed affordable housing units. Our rural communities will 
benefit and be able to maintain affordable housing units.
    This proposed rule is expected to result in a stronger, more 
resilient portfolio of properties, improved oversight of critical areas 
and will reduce portfolio financial risk with more consistent coverage 
amounts and deductible limits. This proposed rule will create a more 
streamlined and positive customer experience with RHS MFH programs.

III. Summary of Changes

    RHS proposes to amend 7 CFR 3560.4, 3560.62, and 3560.105 to 
implement changes related to insurance requirements for the MFH Direct 
Housing Loans and Grants program.
    The proposed changes are highlighted as follows:

7 CFR 3560, Subpart A

    (1) In Sec.  3560.4(b), the Agency is removing the reference to 7 
CFR part 1806, subpart B--National Flood Insurance. The flood insurance 
requirement for the covered programs is required in Sec.  3560.105.

7 CFR 3560, Subpart B

    (2) In Sec.  3560.62(d), the Agency is updating the current format 
to be more reader friendly and adding changes that would require 
Worker's Compensation insurance and business income insurance. The 
Worker's Compensation insurance requirement would implement current 
Agency policy. The business income insurance requirement would provide 
protection and financial relief to borrowers who suffer income loss due 
to damage or destruction at their rental property.

7 CFR 3560, Subpart C

    (3) The Agency proposes to update the insurance coverages and 
deductible requirements for the MFH Direct Loan and Farm Labor Housing 
programs to current dollars. The Agency's research for the proposed 
updates include a review of data from other federal housing agencies 
such as Housing and Urban Development (HUD) and Freddie Mac, coupled 
with state agencies and private sector affordable housing data. This 
data is used by the Agency as an indicator of industry standards for 
the insurance requirements.
    Adding Worker's Compensation insurance and Business Income 
insurance requirements, would be consistent with housing industry 
standards. This change would also be consistent with the proposed 
change for 7 CFR 3560.62(d).
    In Sec.  3560.105, the Agency is making the following changes:
    (i) Update language in paragraph (b)(1) to state that insurance is 
required, on or prior to loan or grant closing rather than prior to 
loan approval. Also, update language to clarify when insurance is 
required if there is interim financing or the Agency is providing 
multiple loan advances.
    (ii) Update paragraph (b)(4) to state that the Agency must be named 
as loss co-payee or mortgagee, regardless of lien position, which 
provides consistency with Agency subordination agreement documents.
    (iii) Update paragraph (c)(4) to state that insurance is required 
on or prior to loan or grant closing rather than prior to loan 
approval. This is consistent with the proposed change to Sec.  
3560.105(b)(1).
    (iv) Include windstorm coverage in the general types of coverage as 
noted in hazard insurance in paragraph (f)(1)(i). And add a caveat to 
(f)(2)(i) that Windstorm Coverage is an other type of insurance the 
Agency may require when it is specifically excluded from the All-Risk 
policy. This is consistent with current hazard (or property) insurance 
industry standard.
    (v) Update paragraph (f)(1)(iii) to include the amount of coverage 
requirement to provide consistency with current Agency policy.
    (vi) Add paragraph (f)(1)(v) to include business income loss 
insurance in the list of minimum property insurance that borrowers must 
acquire. This change is consistent with the proposed change for 7 CFR 
part 3560.62(d).
    (vii) Update paragraph (f)(3) from a depreciated replacement value 
or unpaid loan balance, to a ``not less than a percentage of insurable 
replacement cost value,'' which is a percentage that is consistent with 
affordable housing industry standards for the minimum property 
insurance coverage.
    (viii) Remove paragraph (f)(3)(ii) because its intent is 
duplicative of paragraph (f)(3)(i). And paragraph (f)(3)(iii) will be 
redesignated to the new paragraph (f)(3)(ii) and revise the minimum 
flood insurance coverage to the lesser of, not less than a percentage 
of insurable replacement cost value, or maximum amount of insurance 
available under the National Flood Insurance Act, which is consistent 
with affordable housing industry standards.
    (ix) Update the language in paragraph (f)(4) to consolidate the 
relevant content of this paragraph and remove the sub-bullet content 
that references depreciated replacement value which is no longer 
relevant.
    (x) Update the language in paragraph (f)(7) by adding an additional 
option for insurance settlement claims to be placed in an other 
supervised account.
    (xi) Update the language in paragraph(f)(9)(i)(A) and (B) and 
adding a paragraph (f)(9)(i)(C) to the hazard/property insurance 
deductible limits to a ``not to exceed'' amount that is based on the 
coverage amount, instead of the current deductible calculation formula. 
The current Agency limitations on the deductible limit contributes to 
rising premium costs for the project. This change will allow for larger 
deductible limits which in turn, will make the project's insurance 
premiums more affordable.
    (xii) Update the language in paragraph (f)(9)(iii) regarding the 
deductible amount of windstorm coverage to have the same deductible 
limits as hazard/property insurance, which will create consistency 
among deductibles and in turn, makes it easier for the borrower to be 
in compliance with insurance requirements.
    (xiii) Update the language in paragraph (f)(9)(iv) regarding the 
earthquake deductible limit to allow deductibles that do not exceed 20 
percent of the coverage amount. This will increase the deductible limit 
and align the deductible with affordable housing industry standards.
    (xiv) Add new paragraph (f)(11) to include policy requirements for 
cancellation, standard form of Non-Contribution Mortgage Clause, and 
loss payee.
    (xv) Revise language in paragraph (h)(2)(ii) by removing the 
fidelity coverage deductible chart and replacing it with a new 
deductible limit based on a ``not to exceed amount.'' Also, revising 
the fidelity coverage amount to a specific percentage of proposed 
annual rental income with a minimum limit, instead of the Agency's 
current policy of a formula based calculation. This change will 
simplify the coverage calcuation, align the coverage amount and 
deductible limit with affordable housing industry standard, create 
consistency among insurance deductibles, and in turn make it easier for 
the borrower to be in compliance with insurance requirements.
    (xvi) Update to the definition of worker's compensation insurance 
based on industry standards will be added and becomes paragraph (i). 
The current paragraph (i) (Taxes) will become paragraph (j).

[[Page 73247]]

IV. Regulatory Information

Statutory Authority

    Title V the Housing Act of 1949 (42 U.S.C. 1480 et. seq.), as 
amended, authorizes the Secretary of the Department of Agriculture to 
promulgate rules and regulations as deemed necessary to carry out the 
purpose of that title, as implemented under 7 CFR part 3560.

Executive Order 12372, Intergovernmental Review of Federal Programs

    These loans and grants are subject to the provisions of Executive 
Order 12372, which requires intergovernmental consultation with state 
and local officials. RHS conducts intergovernmental consultations for 
each loan and grants in accordance with 2 CFR part 415, subpart C.

Executive Order 12866, Regulatory Planning and Review

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

Executive Order 12988, Civil Justice Reform

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

Executive Order 13132, Federalism

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

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This Executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the proposed rule does not have a 
substantial direct effect on one or more Indian tribe(s) or on either 
the relationship or the distribution of powers and responsibilities 
between the Federal Government and Indian tribes. Thus, this proposed 
rule is not subject to the requirements of Executive Order 13175. If 
tribal leaders are interested in consulting with RHS on this 
rulemaking, they are encouraged to contact USDA's Office of Tribal 
Relations or RD's Tribal Coordinator at: <a href="/cdn-cgi/l/email-protection#6928202827291c1a0d08470e061f"><span class="__cf_email__" data-cfemail="713038303f31040215105f161e07">[email protected]</span></a> to request such 
a consultation.

National Environmental Policy Act

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

Regulatory Flexibility Act

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

Unfunded Mandates Reform Act (UMRA)

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

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by OMB and have been assigned OMB control 
number 0575-0189. This proposed rule contains no new reporting and 
recordkeeping requirements that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

E-Government Act Compliance

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

Civil Rights Impact Analysis

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

Assistance Listing

    The programs affected by this regulation is listed in the 
Assistance Listing Catalog (formerly Catalog of Federal Domestic 
Assistance) under numbers 10.405 and, 10.415.

Non-Discrimination Statement

    In accordance with Federal civil rights laws and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Mission Areas, agencies, staff offices, employees, and institutions

[[Page 73248]]

participating in or administering USDA programs are prohibited from 
discriminating based on race, color, national origin, religion, sex, 
gender identity (including gender expression), sexual orientation, 
disability, age, marital status, family/parental status, income derived 
from a public assistance program, political beliefs, or reprisal or 
retaliation for prior civil rights activity, in any program or activity 
conducted or funded by USDA (not all bases apply to all programs). 
Remedies and complaint filing deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; or the Federal Relay 
Service at 711.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at, www.usda.gov/sites/default/files/documents/ad-3027.pdf from any USDA office, by calling (866) 632-9992, 
or by writing a letter addressed to USDA. The letter must contain the 
complainant's name, address, telephone number, and a written 
description of the alleged discriminatory action in sufficient detail 
to inform the Assistant Secretary for Civil Rights (ASCR) about the 
nature and date of an alleged civil rights violation. The completed AD-
3027 form or letter must be submitted to USDA by: from any USDA office, 
by calling (866) 632-9992, or by writing a letter addressed to USDA. 
The letter must contain the complainant's name, address, telephone 
number, and a written description of the alleged discriminatory action 
in sufficient detail to inform the Assistant Secretary for Civil Rights 
(ASCR) about the nature and date of an alleged civil rights violation. 
The completed AD-3027 form or letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: <a href="/cdn-cgi/l/email-protection#b3e3c1dcd4c1d2de9dfaddc7d2d8d6f3c6c0d7d29dd4dcc5"><span class="__cf_email__" data-cfemail="0353716c6471626e2d4a6d7762686643767067622d646c75">[email protected]</span></a>.
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 3560

    Accounting, Administrative practice and procedure, Aged, Conflict 
of interest, Government property management, Grant programs-housing and 
community development, Insurance, Loan programs-agriculture, Loan 
programs-housing and community development, Low- and moderate- income 
housing, Migrant labor, Mortgages, Nonprofit organizations, Public 
housing, Rent subsidies, Reporting and recordkeeping requirements, 
Rural areas.

    For the reasons set forth in the preamble, RHS proposes to amend 7 
CFR part 3560 as follows:

PART 3560--DIRECT MULT-FAMILY HOUSING LOANS AND GRANTS

0
1. The authority citation for part 3560 continues read as follows:

    Authority: 42 U.S.C. 1480.

0
2. Amend Sec.  3560.4 by revising paragraph (b) to read as follows:


Sec.  3560.4  Compliance with other Federal requirements.

* * * * *
    (b) National flood insurance. The National Flood Insurance Act of 
1968, as amended by the Flood Disaster Protection Act of 1973; and the 
National Flood Insurance Reform Act of 1994.
* * * * *
0
3. Amend Sec.  3560.62 by revising paragraph (d) to read as follows:


Sec.  3560.62  Technical, legal, insurance, and other services.

* * * * *
    (d) Insurance. Applicants must meet the property, liability, flood, 
Worker's Compensation, business income loss, and fidelity insurance 
requirements in Sec.  3560.105.
    (1) Applicants must have property and liability coverage at loan 
closing as well as flood insurance, if needed.
    (2) Fidelity coverage must be in force as soon as there are assets 
within the organization, and it must be obtained before any loan funds 
or interim financing funds are made available to the borrower.
    (3) If the property has permanent and/or part-time employees 
assigned directly to the project, Worker's Compensation, also known as 
employer's liability coverage, must be obtained before interim 
financing funds are made available to the borrower, or prior to loan or 
grant closing, whichever occurs first.
    (4) Upon completion of construction or rehabilitation of the 
project, or any portion thereof that allows for occupancy, the Owner 
shall obtain business income loss insurance.
* * * * *
0
4. Amend Sec.  3560.105 by:
0
a. Revising paragraphs (b)(1) and (4), (c)(4), and (f)(1)(i) and (iii);
0
b. Adding paragraph (f)(1)(v);
0
c. Revising paragraphs (f)(2)(i), (f)(3) introductory text, and 
(f)(3)(ii);
0
d. Removing paragraph (f)(3)(iii);
0
e. Revising paragraphs (f)(4), (f)(7) introductory text, and (f)(9)(i), 
(iii), and (iv);
0
f. Adding paragraph (f)(11);
0
g. Revising paragraph (h)(2)(ii);
0
h. Redesignating paragraph (i) as paragraph (j); and
0
i. Adding a new paragraph (j).
    The revisions and additions read as follows:


Sec.  3560.105  Insurance and taxes.

* * * * *
    (b) * * *
    (1) On or prior to the date of loan or grant closing, applicants 
must provide documentary evidence that insurance requirements have been 
met. The borrower must maintain insurance in accordance with 
requirements of their loan or grant documents and this section until 
the loan is repaid or the terms of the grant expire. If interim 
financing is obtained or the Agency provides for multiple advances for 
construction or rehabilitation, evidence of builder's risk insurance is 
required prior to the start of construction or rehabilitation.
* * * * *
    (4) The Agency must be named as loss co-payee or mortgagee as it 
appears on all property insurance policies.
* * * * *
    (c) * * *
    (4) If the best insurance policy a borrower can obtain at the time 
the borrower receives the loan or grant contains a loss deductible 
clause greater than that allowed by paragraph (f)(9) of this section, 
the insurance policy and an explanation of the reasons why more 
adequate insurance is not available must be submitted to the Agency for 
approval prior to the date of loan or grant closing.
* * * * *
    (f) * * *
    (1) * * *
    (i) Hazard insurance. A policy which generally covers loss or 
damage by fire, smoke, lightning, windstorms, hail, explosion, riot, 
civil commotion, aircraft, and vehicles. These policies may also be 
known as ``Property Insurance,'' ``Fire and Extended Coverage,'' 
``Homeowners,'' ``All Physical Loss,'' or ``Broad Form'' policies.
* * * * *
    (iii) Builder's risk insurance. A policy that insures 100 percent 
of the estimated

[[Page 73249]]

cost value of the project under construction or rehabilitation, or 
applicable State required coverage limits, if more stringent.
* * * * *
    (v) Business income loss. Business income or rent loss coverage 
provides coverage for the loss of rental income incurred due to a 
property loss during a 12-month period.
    (2) * * *
    (i) Windstorm Coverage if specifically excluded from the All-Risk 
policy.
* * * * *
    (3) For property insurance, the minimum coverage amount must equal 
the ``Total Estimated Reproduction Cost of New Improvements,'' as 
reflected in the housing project's most recent appraisal. At a minimum, 
property insurance coverage must not be less than 80 percent of the 
insurable replacement cost value, unless such coverage is financially 
unfeasible for the housing project.
* * * * *
    (ii) When required by paragraph (f)(1) of this section, the 
coverage amount for flood insurance must not be less than 80 percent of 
the insurable replacement value, or the maximum amount of insurance 
available with respect to the project under the National Flood 
Insurance Act, whichever is less. The policy shall show the Owner as 
insured and shall show loss, if any, payable to the United States of 
America acting through the RHS Service or its successor agency.
    (4) Except for flood insurance, property insurance is not required 
if the housing project is in a condition which the Agency determines 
makes insurance coverage not economical.
* * * * *
    (7) When the Agency is in the first lien position and an insurance 
settlement represents a satisfactory adjustment of a loss, the 
insurance settlement will be deposited in the housing project's general 
operating account unless the settlement exceeds $5,000. If the 
settlement exceeds $5,000, the funds will be placed in the reserve 
account or other supervised account for the housing project.
* * * * *
    (9) * * *
    (i) Hazard/property insurance. * * *
    (A) For a project with less than or equal to $1,000,000 of 
coverage, no deductible greater than $10,000 per occurrence.
    (B) For a project with more than $1,000,000 but less than or equal 
to $2,000,000 of coverage, no deductible greater than $25,000 per 
occurrence.
    (C) For a project with more than $2,000,000 of coverage, no 
deductible greater than $50,000 per occurrence.
* * * * *
    (iii) Windstorm coverage. When windstorm coverage is excluded from 
the ``All Risk'' policy, the deductible is as identified in (f)(9)(i) 
of this section.
    (iv) Earthquake coverage. If the borrower obtains earthquake 
coverage, the Agency is to be named as a loss payee. The deductible 
should be no more than 20 percent of the coverage amount.
* * * * *
    (11) Each policy shall meet the following requirements:
    (i) Policy may not be cancelled or modified without at least thirty 
(30) days prior written notice to the Agency (the clause shall not 
state that the insurer will ``endeavor'' to send such notice or that no 
liability attaches to the insurer for failure to send such notice.)
    (ii) Policy shall provide that any loss otherwise payable 
thereunder shall be payable notwithstanding any act or negligence of 
Borrower which might, absent such agreement, result in a forfeiture of 
all or part of such insurance payment.
    (iii) Such insurance policies shall name the Owner as the Insured 
and shall carry a standard form of Non-Contribution Mortgage Clause 
showing loss or damage, if any, payable to the Owner and the ``United 
States of America acting through the Rural Housing Service or its 
successor agency,'' as its interest may appear.
* * * * *
    (h) * * *
    (2) * * *
    (ii) Fidelity coverage amount and deductible as follows:
    (A) Coverage amount. An amount at least equal to 25 percent of the 
operational cash sources per the project's proposed annual budget or 
$50,000 whichever is greater, unless greater amounts are required by 
the Owner. Where the operational cash sources for a project are 
substantially below the minimum $50,000 bonding requirement for 
operation, with Agency approval, the bond may be reduced to an amount 
sufficient to cover at least 25 percent of the operational cash 
sources.
    (B) Deductible. No greater than $15,000 per occurrence.
* * * * *
    (i) Workers' compensation insurance. This insurance coverage, which 
may also be known as employer's liability coverage, provides benefits 
to employees who suffer work-related injuries or illnesses. Workers' 
compensation insurance is required for permanent and part-time staff 
assigned directly to the project.
    (j) Taxes. The borrower is responsible for paying all taxes and 
assessments on a housing project before they become delinquent.
* * * * *

Yvonne Hsu,
Acting Administrator, Rural Housing Service.
[FR Doc. 2023-23344 Filed 10-24-23; 8:45 am]
BILLING CODE 3410-XV-P


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