This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

6761 

Vol. 87, No. 25 

Monday, February 7, 2022 

DEPARTMENT OF AGRICULTURE 

Rural Housing Service 

7 CFR Part 3550 

[Docket No. RHS–21–SFH–0025] 

RIN 0575–AD14 

Direct Single Family Housing Loans 

and Grants Programs 

AGENCY: Rural Housing Service, USDA. 

ACTION: Final rule. 

SUMMARY: The Rural Housing Service 

(RHS or Agency), a Rural Development 

agency of the United States Department 

of Agriculture (USDA), is issuing a final 

rule to amend its Direct Single Family 

Housing Loans and Grants (DSFHLG) 

programs regulation. This final rule 

adopts most changes as presented in the 

proposed rule published on November 

25, 2019, in the Federal Register. This 

final rule also addresses public 

comments received by the Agency and 

makes some modifications based on 

consideration of those comments, 

including revisions to the refinancing 

provisions which will help provide 

relief to homeowners who have 

difficulty keeping their accounts current 

(e.g., coming off a payment 

moratorium), based on the availability 

of funds and Agency priorities. 

DATES: Effective on March 9, 2022. 

FOR FURTHER INFORMATION CONTACT: 

Andrea Birmingham, Finance and Loan 

Analyst, Single Family Housing Direct 

Special Programs Branch, USDA Rural 

Development, STOP 0783, 1400 

Independence Ave. SW, Washington, 

DC 20250–0783, Telephone: (202) 720– 

1489. Email: andrea.birmingham@

usda.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

USDA’s 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, housing for 

farm laborers and much more. 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 purpose of the DSFHLG programs 

is to assist low-and very-low-income 

applicants to obtain decent, safe, and 

sanitary single-family housing in 

eligible rural areas. Well built, 

affordable housing is essential to the 

vitality of communities in rural 

America. RHS Programs give families 

and individuals the opportunity to buy, 

build, repair, or own safe and affordable 

homes located in rural America. 

Eligibility for these loans and grants is 

based on income; and the income limits 

are based on household size and 

location. 

The DSFHLG programs are authorized 

by sections 502 and 504 of the Housing 

Act of 1949, as amended (42 U.S.C. 1472 

and 1474). The 7 CFR part 3550 sets 

forth the requirements of the DSFHLG 

programs which includes policies 

regarding both loan and grant 

origination and servicing. The Section 

502 Direct Loan Program provides 100 

percent loan financing to assist low- and 

very low-income applicants obtain 

modest housing in eligible rural areas 

and payment assistance to increase an 

applicant’s repayment ability. The 

Section 504 Loan Program provides one 

percent interest rate loans to very lowincome homeowners in eligible rural 

areas to repair, improve, or modernize 

their home or to remove health and 

safety hazards. The Section 504 Grant 

Program provides grants to elderly very 

low-income homeowners in eligible 

rural areas to remove health and safety 

hazards, or accessibility barriers from 

their home, often in conjunction with a 

section 504 loan. 

Changes to the programs will increase 

program flexibility, allow more 

borrowers to access affordable loans, 

better align the programs with best 

practices and enable the programs to be 

more responsive to economic conditions 

and trends. 

II. Discussion of Relevant Public 

Comments 

The Agency invited public comments 

on the proposed rule, which was 

published on November 25, 2019, in the 

Federal Register (84 FR 64788). The 60- 

day comment period ended on January 

24, 2020. A total of 28 comments were 

received. Commenters included nonprofit housing organizations or 

associations representing housing 

providers and private citizens. 

(1) Comments on the definition of 

modest housing (§ 3550.10 Definitions) 

which currently prohibits in-ground 

swimming pools. 

The Agency received several 

comments on the definition of modest 

housing and the prohibition of inground swimming pools. Two 

commenters expressed concern that 

allowing for the financing of existing 

modest homes with in-ground 

swimming pools would create a 

financial burden on the borrower and 

borrowers would be unable to maintain 

and afford the costs of utility bills and 

pool treatments, which may increase 

foreclosures. 

In contrast, there were two comments 

in favor of revising the modest housing 

definition to allow in-ground swimming 

pools. The commenters both stated there 

is a lack of affordable housing in rural 

areas and this amendment would open 

the market for families looking for an 

affordable home. 

Agency Response: The Agency 

acknowledges these concerns related to 

the high utility costs and maintenance 

expenses of an in-ground swimming 

pool. However, affordable housing stock 

is very limited in many rural areas and 

this unnecessary prohibition may be a 

barrier to homeownership for applicants 

and limit access to the program. The 

revised definition of modest housing 

will also promote a degree of 

consistency with the guaranteed SFH 

loan program (which has no prohibition 

on in-ground swimming pools). 

Therefore, the Agency is adopting the 

proposed definition of modest housing 

without changes. 

(2) Comments on changing references 

to homeownership education and 

removing the requirement placed on 

State Directors to update the list of 

homeownership education providers 

annually, per § 3550.11 State Director 

Assessment of Homeowner Education. 


jspears on DSK121TN23PROD with RULES1
6762 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 

The Agency received a comment that 

did not support the proposed rule 

regarding the determination of Agency 

preference for homeownership 

education formats. The commenter 

believes this change seems to signal a 

move by the Agency, now or in the 

future, towards a heavier emphasis on 

internet-enabled homeownership 

education. 

The commenter encourages the 

Agency to include the addition of 

‘‘accessibility to the homebuyer’’ and 

‘‘quality of education’’ as additional 

factors used to determine Agency 

preference for homebuyer education 

formats. 

Agency Response: The Agency 

acknowledges the benefits of in-person 

training but adds that remote training 

has many benefits as well (e.g., selfpaced, available any time, no travel 

costs, etc.). The preference factors listed 

in the proposed § 3550.11(b)— 

availability and industry practice—are 

not an exclusive list and the Agency 

may consider other factors. Explicitly 

adding ‘‘accessibility to the homebuyer’’ 

or ‘‘quality of education’’ is unnecessary 

since the factors in the proposed 

§ 3550.11(b) are not exclusive, and 

quality issues are also addressed in 

§ 3550.11(c) and (d). The Agency is 

adopting the proposal without changes. 

(3) Comments on allowing a new 

borrower to use new loan funds to 

purchase a dwelling from an existing 

RHS borrower (§ 3550.52(a)). 

The Agency received a comment that 

supports the use of new loan funds to 

purchase a dwelling from an existing 

RHS borrower since self-help housing 

providers have experienced borrowers 

having to leave the building group prior 

to finishing their home. With the 

change, processing a new loan to a new 

qualified borrower so they can purchase 

and finish the home with the building 

group is more straightforward than 

processing an assumption with a 

subsequent loan (if needed). 

Agency Response: This revision will 

allow the Agency to responsibly, 

effectively, and fully utilize funds 

appropriated by Congress without the 

additional steps required to process and 

close an assumption loan and 

subsequent loan, thereby reducing loan 

application processing time. The 

Agency is adopting the proposal 

without changes. 

(4) Comments on revising the 

packaging fee requirements 

(§ 3550.52(d)(6)). One commenter states 

the processing fee changes seem to be 

fair and the new process of calculating 

the fees seem to make more sense. The 

new rule will take into consideration 

economy changes and amount of time 

required in processing loans which was 

not previously accounted for. 

One commenter does not oppose the 

increases in packaging fees to noncertified packagers represented in the 

proposed rule but wants to urge caution 

to the Agency when setting the new fee 

levels. Theoretically, despite the cap to 

the fee put in place by the proposed 

rule, the fee paid to non-certified 

packagers could exceed the fee paid to 

certified packagers who submit through 

an intermediary, or in a less extreme 

scenario, the fee for non-certified 

packager could approach or match the 

fee paid to certified packagers. In either 

case, the proposed rule could diminish 

the incentive for packagers to become 

certified. 

Agency Response: The rule change 

will allow the Agency more flexibility to 

specify packaging fees under the 

certified and non-certified loan 

application process. The Agency is 

adopting the proposal with changes. 

The language in § 3550.52(d)(6) will 

remove the restrictive $350 fee limit for 

non-certified packagers, which does not 

reflect the resources the non-certified 

loan packager invests in the packaging 

process. To address the concern 

regarding the fee level and ensure that 

the fee paid to a non-certified packager 

could not equal or exceed the current 

published fees resulting from the 

certified loan application packaging 

process, the Agency lowered the 

percentage and will determine a limit, 

not to exceed ‘‘one half percent of the 

national average area loan limit’’ for the 

non-certified process, rather than a 

maximum of one percent as was 

proposed. 

The Agency acknowledges the 

concern that the increased non-certified 

fee may be a disincentive for packagers 

to become certified; however, the 

Agency continues to encourage loans 

funneled through an Agency-approved 

intermediary under the certified loan 

application packaging process by 

specifying these loans for priority 

consideration when being selected for 

processing. In addition, the language in 

§ 3550.52(d)(6) will continue to state, 

‘‘The Agency will determine the limit, 

based on factors such as the level of 

service provided and the prevailing cost 

to provide the service, and such cap will 

not exceed two percent of the national 

average area loan limit.’’ This language 

allows the Agency to specify a higher 

limit for certified packaged loans 

through an intermediary. The certified 

packager and intermediary will share a 

portion of the fee, but the higher limit 

determined by the Agency will allow 

the parties to negotiate a fee structure 

that is advantageous to the certified 

packager and reflective to their 

experience. 

(5) Comments on revising repayment 

ability ratio thresholds (§ 3550.53(g) 

Repayment ability) to use the same 

ratios for both low- and very-low income 

applicants. Three commenters concur 

with making the revised principal, 

interest, taxes, and insurance (PITI) 

consistent across income categories. 

Agency Response: The Agency is 

adopting the proposal with changes 

given the portfolio’s new loan 

delinquency trends since November 

2019, which nearly doubled by October 

2020. While new loan delinquency 

trends have gradually improved since 

October 2020, they still exceed 

November 2019 rates, which has 

resulted in the need for measured and 

gradual changes to the underwriting 

standards. The proposed rule change 

included repayment ability thresholds 

for both low- and very-low income 

applicants not to exceed thirty-five (35) 

percent for PITI, and forty-three (43) 

percent for Total Debt (TD) (current 

maximum thresholds are twenty-nine 

(29) percent PITI and forty-one (41) 

percent TD for very-low income 

applicants, and thirty-three (33) percent 

PITI and forty-one (41) percent TD for 

low-income applicants). However, the 

final rule change will only revise 

repayment ability thresholds to use the 

same PITI ratio of thirty-three (33) 

percent for both low- and very- low 

income applicants. The final rule retains 

the current forty-one (41) percent TD 

maximum threshold for low- and very 

low- income applicants. Adopting the 

same PITI ratio threshold for both lowand very low-income applicants will 

help ensure equal treatment of 

applicants across the income categories 

and improve marketability of the 

program. 

(6) Comments on revising 

introductory text so that application 

processing priorities are applied on a 

regular basis, and not just during 

periods of insufficient funding 

(§ 3550.55(c)). 

One commenter does not agree that 

applications sent by a certified packager 

going through an intermediary should 

be fourth priority, but feels these 

applications should be given a higher 

priority and should be processed in 

conjunction with borrowers who are in 

need, veterans, or disabled, etc. 

One commenter supports making the 

priorities for processing of applications 

on a continual basis rather than only 

during periods of insufficient funding. 

They are generally supportive of 

including intermediary loan submittals 

to the fourth priority pool, however, 

they would like to encourage self-help 


jspears on DSK121TN23PROD with RULES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 6763 

loan submittals be consistently 

prioritized and ask the full group 

funding to be a priority during periods 

of insufficient funding. 

One commenter supports allowing the 

priority processing and funding priority 

at all times to avoid packaged 

applications from going stale while 

awaiting eligibility at RD offices. 

Agency Response: The Agency’s first, 

second and third loan application 

processing priorities are for applicants 

who have an especially serious need for 

immediate assistance and allow 

purchase of inventory properties to 

move more quickly before the property 

deteriorates or loses value. 

The fourth priority will encourage the 

participation and interest of 

intermediaries in the SFH program 

application process. Intermediaries are 

valuable to the program by helping 

attract program applicants, training 

certified packagers, and performing 

quality assurance reviews of 

applications. 

If applicants with equivalent priority 

status apply for assistance on the same 

day, applicants qualifying for a veteran’s 

preference will receive priority 

processing, which complies with 

section 507 of the Housing Act of 1949 

(42 U.S.C. 1477) which requires a 

preference for veterans. Taking into 

account statutory requirements for 

preferences, the Agency gives equal 

consideration to loan applications 

without regard to race, color, national 

origin, religion, sex, gender identity, 

sexual orientation, disability, age, 

marital status, family/parental status, 

income derived from public assistance 

program, political beliefs, or reprisal or 

retaliation for prior civil rights activity. 

Therefore, the Agency is adopting the 

proposal without changes. 

(7) Comments on revising the 

requirement that the value of the site 

must not exceed 30 percent of the ‘‘as 

improved’’ market value of the property 

(§ 3550.56(b)(3)). One commenter 

expressed the removal of the 30 percent 

rule is a welcome upgrade of the 

regulations. 

One commenter stated this change 

will better reflect overall market value 

of the subject property, not just the 

value of the land and should increase 

the availability of affordable housing in 

high-cost areas and throughout rural 

communities. Limiting the land cost, 

even when the overall appraised value 

is considered modest, has been a 

hinderance to the program. 

Agency Response: The Agency agrees 

with these comments, and the program 

has other requirements that are better 

indicators of whether the property is 

considered modest, such as, area loan 

limits, appraisals, purchase agreements 

and construction contracts. Therefore, 

the Agency is adopting the proposal 

without changes. 

(8) Comment on revising the 

requirement that the amount of a junior 

lien, when it is a grant or a forgivable 

affordable housing product, may not 

exceed the market value by more than 

five percent (§ 3550.59(a)(2)). One 

commenter supports the Agency’s 

increases to the loan-to-value ratio for 

rehab loans and grants. 

Agency Response: The Agency 

acknowledges the support. This will 

allow for more partnerships with 

nonprofits. Grants and forgivable 

affordable housing products often 

partially or completely cover the cost of 

rehabilitation to make the dwelling 

decent, safe, and sanitary, and a higher 

loan to value ratio may be tolerated in 

these instances. Therefore, the Agency 

is adopting the proposal without 

changes. 

(9) Comment on revising the 

requirement for title insurance and a 

closing agent for certain secured Section 

504 loans of $7,500 or greater 

(§ 3550.108(b)(1)). One commenter 

expressed support. 

Agency Response: The Agency 

acknowledges the support. This will 

significantly reduce loan closing costs 

incurred by the borrowers, as well as 

allow the Agency greater responsiveness 

and flexibility to address changes to 

average repair costs. Therefore, the 

Agency is adopting the proposal 

without changes. 

(10) Comment on revising the Section 

504 maximum loan amount of $20,000, 

so that the sum of all outstanding 

section 504 loans to one borrower and 

for one dwelling may not exceed an 

amount determined by the Agency 

(§ 3550.112). One commenter expressed 

support. 

Agency Response: The Agency 

acknowledges the support. This will 

allow the Agency greater responsiveness 

and flexibility to address changes to 

average repair costs. Therefore, the 

Agency is adopting the proposal 

without changes. 

(11) Comments on revising the 

payment moratorium requirements to 

require reamortization of each loan 

coming off a moratorium (§ 3550.207). 

One commenter stated that two 

provisions in 7 CFR 3550.207 continue 

to impose unnecessary barriers to 

borrower’s eligibility for a payment 

moratorium. The first is the prohibition 

on a moratorium for a loan that has been 

accelerated. Furthermore, the second is 

the requirement that the borrower’s 

repayment income have fallen by at 

least 20 percent within the past 12 

months. 

Agency Response: The Agency 

acknowledges the recommendation, 

although the comment is speaking to 

eligibility for a moratorium and not the 

proposed reamortization for every loan 

post-moratorium. However, to address 

the comment, the Agency clarifies that 

every borrower whose account is 

accelerated is/was given written and 

verbal notice of all servicing actions 

(including moratoriums) prior to the 

acceleration process. All servicing 

actions, for which the borrower may 

qualify for, are discussed with the 

borrower in detail prior to acceleration. 

The Agency then allows each borrower 

a reasonable amount of time (at least 30 

days) to apply for any and all such 

servicing options. If the borrower does 

apply for any servicing options, the 

acceleration action is withdrawn until 

those requested servicing option(s) are 

reviewed and a determination on 

eligibility is provided to the borrower 

with appeal rights on all denials. In 

light of this process which occurs before 

acceleration, allowing a moratorium 

after acceleration would not provide any 

meaningful benefit. The Agency 

believes exploring other loss mitigation 

efforts after acceleration (e.g., voluntary 

liquidation) and requiring some type of 

repayment or conveyance is more 

helpful. 

The Agency acknowledges the 

recommendation. The Agency will 

proceed with the existing language as 

written and will explore the 

recommendation of modifying the 

criteria in the future. 

(12) Comment stating RHS needs to 

update its set of loss mitigation options 

to incorporate industry standards 

developments over the past decade; in 

particular its lack of a flexible loan 

modification options allowing for 

interest rate reduction and loan term 

extension. 

Agency Response: The Agency 

acknowledges the recommendation. 

While refinancing and loan 

modification have some key differences 

there are also a number of similarities, 

including the ability to reduce the 

interest rate and extend the repayment 

term to create more affordable payments 

for the borrower. Currently, refinancing 

Agency debt is only permitted in 

accordance with § 3550.204 to allow the 

borrower to receive payment assistance 

(e.g., borrowers who were not 

previously eligible for payment 

assistance because the loan was 

approved before August 1, 1968, or the 

loan was made on above-moderate or 

nonprogram (NP) terms). More 

importantly, the Agency cannot offer 


jspears on DSK121TN23PROD with RULES1
6764 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 

loan modifications which extend the 

original loan term past 33 years (or 38 

years in very limited circumstances) 

because the timeframe for the loan is 

established by statute at section 502(a) 

of the Housing Act of 1949 (42 U.S.C. 

1472(a)). 

While the Agency is statutorily 

prohibited from offering loan 

modifications that extend the original 

loan term beyond 33 years (or 38 years 

in very limited circumstances), the 

Agency may amend the refinance 

regulations so that a new loan term 

could replace the original and does 

make such amendment with this final 

rule. The refinancing option adopted 

with this rule change is particularly 

important given the large number of 

borrowers who will be exiting a COVIDrelated payment moratorium (also 

referred to as COVID-related 

forbearances). Some of these moratoria 

lasted over a year, and a postmoratorium reamortization agreement 

would not result in affordable monthly 

payments because the original loan term 

is limited by statute. In addition, the 

American Rescue Plan Act of 2021 

provided additional budget authority 

which, given the critical need for 

flexibility in servicing direct loans, will 

be best directed towards refinancing and 

other loss mitigation options. The 

Agency is amending the regulation to 

reflect the expansion of refinancing 

availability (e.g., borrowers exiting a 

moratorium)—however such refinancing 

will be subject to the availability of 

funds and at the discretion of the 

Agency. In other words, while the final 

rule amendments will provide critical 

relief to borrowers in response to COVID 

and the Agency preserves the ability to 

provide such refinancing in the future, 

such refinancing is subject to funding 

availability and Agency discretion. 

In addition, the Agency would like to 

clarify that borrowers in moratorium 

status are not delinquent on a nontax 

federal debt upon expiration of the 

moratorium for purposes of the Debt 

Collection Improvement Act (DCIA) 

(Pub. L. 104–134) and its implementing 

regulations at 31 CFR part 285, and that 

a loan may be refinanced with a new 

loan following a moratorium. 

In consideration of comments 

received and industry practice, the 

Agency is revising § 3550.52(c) and 

§ 3550.201to allow for broader use of 

circumstances under which RHS debt 

may be refinanced, subject to 

availability of funds and Agency 

priorities. 

(13) One comment related to 

§ 3550.207(c), Resumption of scheduled 

payments, suggested that the Agency 

needs to give borrowers written notices 

that inform them about the Agency 

procedures for assessing the forgiveness 

of interest. 

Agency Response: The Agency 

acknowledges the recommendation. The 

Agency already has a meaningful 

standard in place to determine if 

interest accrued during the moratorium 

should be forgiven. Currently, all 

borrowers requesting a moratorium are 

sent a Moratorium on Payment (Fact 

Sheet) outlining the moratorium 

process, requirements, procedures, and 

impact on future payments. The Agency 

will explore expanding this document 

to include the standard utilized to 

determine when moratorium interest is 

forgiven. The standard is whether the 

borrower can afford the new, 

reamortized payment without 

forgiveness of interest. If the borrower 

can afford a reamortized payment 

without interest forgiveness, the Agency 

includes the moratorium interest in the 

re-amortization process. This standard 

best supports the borrower’s ability to 

repay the loan and the Agency’s fiscal 

responsibility to the public to carry out 

the program in a reasonable manner. If 

the borrower does not have repayment 

ability when the moratorium interest is 

included in determining the new 

payment amount, the moratorium 

interest is forgiven in the amount 

required to demonstrate repayment 

ability. As previously stated, in almost 

all cases the moratorium interest is 

forgiven prior to the re-amortization. 

The Agency does not make any changes 

in the final rule in response to this 

comment. 

(14) One comment specific to 7 CFR 

3550.207(c), Resumption of scheduled 

payments, recommends that the Agency 

must develop meaningful objective 

standards for evaluating whether all or 

part of the interest that has accrued 

during the moratorium may be forgiven. 

Agency Response: The Agency 

acknowledges the recommendation. 

Currently, all borrowers requesting a 

moratorium are sent a Moratorium on 

Payment (Fact Sheet) outlining the 

moratorium process, requirements, 

procedures, and impact on future 

payments. The Agency will explore 

expanding this document to include the 

criteria utilized to determine when 

moratorium interest is forgiven. 

However, except for a limited number of 

cases with demonstrated repayment 

ability, the Agency does forgive all 

interest accrued during the moratorium 

period. The Agency does not make any 

changes in the final rule in response to 

this comment. 

General comments on matters not 

within the scope of the proposed rule: 

(15) One commenter would like to see 

the 502 direct construction programs 

allow for an initial draw at closing to 

cover lot costs, site prep, and initial 

construction costs. Current regulations 

make it almost impossible for a 502 

applicant to build. 

Agency Response: This suggestion is 

beyond the scope of the proposed rule 

but will be taken under consideration 

for future proposed rulemaking. 

(16) One commenter stated they are 

thankful for the Agency’s efforts to bring 

the Direct and Guaranteed programs 

more in line with one another’s 

regulations. A consistent issue is that 

the regulations of one program prevents 

them from deploying that product in 

scenarios that the other program’s 

regulations would allow. Increasing the 

effectiveness of these programs is 

crucial for their region, where the 

incomes of entire communities can be 

depressed and where commercial 

lending can be difficult to access or 

entirely absent. 

Agency Response: The Agency 

acknowledges the need for consistency 

when appropriate; and acknowledges 

the need for differences based on the 

direct SFH programs’ targeted audience 

(low- and very low-income) and unique 

features (e.g., subsidy). The Agency does 

not make any changes in the final rule 

in response to this comment. 

III. Summary of Rule Changes 

Outlined below is the summary of 

changes to the 7 CFR part 3550 

regulations. 

Subpart A—General 

§ 3550.10 Definition 

The modest housing definition, which 

currently prohibits in-ground swimming 

pools, will be revised to allow for the 

financing of existing modest homes with 

swimming pools. Existing housing 

stocks are very limited in many rural 

areas, and this is an unnecessary 

prohibition to homeownership when an 

otherwise modest and affordable home 

is typical for the area but cannot be 

financed because of a swimming pool. 

The change promotes a degree of 

consistency with the guaranteed SFH 

loan program, which does not prohibit 

in-ground swimming pools. In-ground 

pools with new construction, or with 

dwellings that are purchased new, will 

still be prohibited. 

The veterans’ preference definition 

will be revised to remove obsolete 

information and streamline the 

definition by citing the definitions of a 

veteran or a family member of a 

deceased service member in 42 U.S.C. 

1477. 


jspears on DSK121TN23PROD with RULES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 6765 

A definition for principal residence 

will be added to this section. The new 

definition aligns with that used in the 

guaranteed SFH loan program and the 

mortgage industry: The primary 

residence definition will refer to the 

principal residence definition, and 

‘‘principal residence’’ is defined as the 

home domicile physically occupied by 

the owner on a permanent basis (i.e., 

lives there for the majority of the year 

and is the address of record for such 

activities as Federal income tax 

reporting, voter registration, 

occupational licensing, etc.). 

The changes noted above are 

substantively the same as the proposed 

rule. However, the proposed rule also 

included two other changes which are 

not adopted in the final rule. First, the 

proposed rule included the removal of 

the definition of national average area 

loan limit, but the Agency decided to 

keep this definition as it used as a 

benchmark for several items (e.g., 

packaging fees). Second, the proposed 

rule included a revision to the 

definition of the PITI ratio to include 

the homeowner’s association (HOA) 

dues and other recurring housingrelated assessments, but the Agency 

considered the matter further and 

determined that it cannot adopt this 

revision due to current automated 

system limitations. The Agency will 

explore other possible changes 

regarding HOA dues in the future. 

§ 3550.11 State Director Assessment of 

Homeownership Education 

In this section, paragraphs (a) and (b) 

will be revised to change references to 

‘‘homeowner education’’ to 

‘‘homeownership education’’ for 

consistency, and remove the 

requirement placed on State Directors to 

update the list of homeownership 

education providers annually. The 

Agency will require State Directors to 

update the list on an as-needed basis, 

but no less frequently than every three 

years. The Agency will determine 

preferences for education format (i.e., 

online, in-person, telephone) based on 

availability and industry practice. The 

Agency will publish the education 

format preferences in a publicly 

available format, such as the program 

handbook. These changes are adopted 

from the proposed rule without change 

and allow the Agency to be more 

responsive to changes in 

homeownership education course 

delivery and availability. 

Subpart B—Section 502 Origination 

§ 3550.52 Loan Purposes 

In this section, paragraph (a) will be 

revised to allow a new borrower to use 

new loan funds to purchase a dwelling 

from an existing RHS borrower. The 

current regulation requires the new 

borrower to assume the existing loan. 

This is revised so that the Agency will 

determine if these transactions will be 

financed using an assumption of the 

existing RHS indebtedness or new loan 

funds, depending on funding levels as 

well as program goals and needs. This 

revision is adopted from the proposed 

rule without change and allows the 

Agency to responsibly, effectively, and 

fully utilize funds appropriated by 

Congress without the additional steps 

required to process and close a loan 

assumption and subsequent new loan, 

thereby reducing loan application 

processing times. 

Also, as a result of comments received 

on the proposed rule and additional 

consideration of various factors (e.g., the 

potential need for more flexible 

refinance options when budget 

authority and circumstances deemed 

appropriate by RHS exist), paragraph (c) 

Refinancing RHS debt will be revised so 

that depending on the availability of 

funds and program priorities as 

determined by RHS, an existing RHS 

loan may be refinanced in accordance 

with § 3550.201 to allow refinancing as 

a special servicing action including, but 

not limited to, § 3550.207 to allow 

refinancing, including subsidy 

recapture, at the end of a moratorium. 

The Agency may limit the number of 

direct loans made for refinancing 

purposes based on the availability of 

funds and Agency priorities on market 

conditions and other appropriate 

factors. This revision provides the 

Agency with more flexibility pertaining 

to special servicing actions to reduce the 

number of borrower failures. 

Also, in this section, paragraph (d)(6) 

will be revised to allow the Agency 

more flexibility to specify packaging 

fees for the non-certified loan 

application process, and to ensure noncertified packaging fees reflect the level 

of service provided and the prevailing 

cost to provide the service. This revision 

is adopted from the proposed rule with 

the following changes: This final rule 

will establish the limit as determined by 

the Agency and will be no greater than 

one half percent of the national average 

area loan limit, rather than one percent 

as was proposed, and the initial limit in 

the program handbook will be $750. 

For the non-certified loan packaging 

process, the current fee may not exceed 

$350, but this limit is being revised as 

it does not necessarily reflect the time 

a non-certified loan packager invests in 

the packaging process. The Agency will 

determine the exact limit within the 

one-half percent threshold based on 

factors such as the level of service 

provided and the prevailing cost to 

provide the service and will publish the 

exact limit in a publicly available format 

such as the program handbook. For 

example, the current national average 

area loan limit is approximately 

$285,000, so the packaging fee for the 

non-certified loan packaging process 

could not exceed $1,425. The initial 

limit in the program handbook will be 

$750, which is the packaging fee 

permitted for Section 504 loan 

applications. 

This final rule also amends this 

paragraph to remove the language 

regarding a preliminary eligibility 

determination to streamline the process, 

and to clarify that the packaging fee is 

paid only if the loan closes. This 

revision is adopted from the proposed 

rule without change. 

§ 3550.53 Eligibility Requirements 

In this section, paragraph (a) will be 

revised to clarify income eligibility 

requirements when refinancing existing 

RHS debt as a special servicing action, 

in light of the discussion above and as 

a change from the proposed rule. When 

an existing RHS loan is being refinanced 

as a special servicing action in the 

limited circumstances provided in the 

revised § 3550.52 and § 3550.201, the 

household’s adjusted income must not 

exceed the applicable moderate-income 

limit for the area at the time of loan 

approval and closing. 

Currently, § 3550.53(a) requires that 

the household’s adjusted income must 

not exceed the applicable low-income 

limit for the area at the time of loan 

approval and must not exceed the 

applicable moderate-income limit for 

the area at closing. This means if an 

existing direct borrower exceeds the 

low-income limit at the time of loan 

approval for refinance, the Agency 

would be unable to approve the loan 

which limits the borrower’s ability to 

refinance and improve their chance of 

success post-moratorium. This change 

provides the Agency with flexibility by 

recognizing that holding existing 

borrowers and new applicants to the 

same standard at time of loan approval 

is detrimental to the existing borrowers 

who are having difficulty keeping their 

accounts current and demonstrate that 

they may benefit from a refinance at 

more favorable rates and terms. It would 

be harmful to the existing borrower and 

the Agency to deny an opportunity to 

refinance, and improve the affordability 


jspears on DSK121TN23PROD with RULES1
6766 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 

of the loan, simply because the borrower 

may exceed the low-income limit at 

time of approval for the refinance. 

The revision of paragraph (c) and 

removing paragraphs (c)(1) through (3) 

will remove the overly restrictive 

primary residence requirements for 

military personnel and students. These 

requirements prohibit approving loans 

for active duty military applicants, 

unless they will be discharged within a 

reasonable period; and for fulltime 

students unless there are reasonable 

prospects that employment will be 

available in the area after graduation. 

Active duty military personnel and fulltime students provide valuable service 

experience, education, and civic and 

financial contributions to rural areas. 

Providing these applicants with more 

opportunity to own modest, decent, 

safe, and sanitary homes in rural areas 

will strengthen the fabric of those 

communities. In addition, removing this 

overly restrictive language will improve 

consistency with other Federal housing 

programs such as the U. S. Department 

of Housing and Urban Development and 

the U. S. Department of Veterans 

Affairs. This revision is adopted from 

the proposed rule without change. 

Also, in this section, paragraphs (g)(1) 

through (3) will be revised and 

paragraphs (g)(4) and (5) will be 

removed. The revisions will align the 

repayment ability ratio thresholds for 

both low- and very-low income 

applicants. The revisions are adopted 

from the proposed rule with the 

following changes: The PITI ratio for 

very-low will increase to thirty-three 

percent to align with the existing lowincome PITI ratio, rather than increasing 

PITI to thirty-five percent for both 

income categories as was proposed; and 

the total debt (TD) ratio will remain at 

forty-one percent for both income 

categories, rather than increasing it to 

forty-three percent for both income 

categories as was proposed. 

This will help to ensure equal 

treatment of applicants across the 

income categories and improve the 

marketability of the program, while 

being prudent about increasing risk. 

This change, in conjunction with 

automated underwriting technology, 

will address risk layers and reduce the 

frequent requests for PITI ratio waivers 

due to compensating factors. 

The use of ‘‘homeowner’’ under this 

section in paragraph (i) will be revised 

by replacing with ‘‘homeownership’’ to 

have consistency within 7 CFR part 

3550. This revision is adopted from the 

proposed rule without change. 

§ 3550.55 Applications 

In this section, paragraph (c) 

introductory text and paragraphs (c)(4) 

and (5) will be revised to allow 

application processing priorities to be 

applied on a regular basis, and not just 

during periods of insufficient funding. 

Current regulations only trigger 

priorities in application processing 

when funding is insufficient. However, 

applying these priorities on a regular 

basis, not just during insufficient 

funding, will provide clear processing 

priorities for RHS staff. In the case of 

applications with equivalent priority 

status that are received on the same day, 

preference will be extended to 

applicants qualifying for a veterans’ 

preference. 

The change recognizes fluctuation in 

RHS staff resources, and that complete 

applications need to be prioritized for 

processing, as well as for funding when 

funds are limited. While the goal is to 

determine an applicant’s eligibility for 

the program within 30 days of receiving 

a complete application regardless of 

their priority ranking and the 

availability of funds, the priority 

ranking will direct Agency staff how to 

prioritize their work processes and 

better meet urgent needs. The 

amendment also gives fourth priority to 

applications submitted via an 

intermediary through the certified 

application packaging process outlined 

in § 3550.75. Currently, RHS may 

temporarily classify these applications 

as fourth priority when determined 

appropriate which will make the fourth 

priority status permanent and 

applicable at all times. 

The change in priority does not 

impact the priority of any other category 

and will recognize and encourage the 

participation and interest of 

intermediaries in the direct SFH 

program. Intermediaries are valuable to 

the program by helping attract program 

applicants, training certified packagers, 

and performing quality assurance 

reviews of applications. 

Other priorities remain unchanged 

including existing customers who 

request subsequent loans to correct 

health and safety hazards, loans related 

to the sale of Real Estate Owned (REO) 

property or ownership transfer of an 

existing RHS financed property, 

hardships including applicants living in 

deficient housing for more than six 

months, homeowners in danger of 

losing property through foreclosure, 

applicants constructing dwellings in an 

approved self-help project, and 

applicants obtaining other funds in an 

approved leveraging proposal. Veterans’ 

preference also remains a priority in 

accordance with 42 U.S.C. 1477. To 

further emphasize these priorities, the 

Agency will also make funding available 

in accordance with same priorities as 

application processing. 

These revisions are adopted from the 

proposed rule without change. 

§ 3550.56 Site Requirements 

Under this section, make revisions in 

paragraph (b) and remove (b)(3) to 

remove the requirement that the value 

of the site must not exceed 30 percent 

of the ‘‘as improved’’ market value of 

the property. This change is consistent 

with the guaranteed SFH loan program, 

which has no site value limitation. This 

revision is adopted from the proposed 

rule without change. 

§ 3550.57 Dwelling Requirements 

In this section, paragraph (a) will be 

revised to remove the reference to inground swimming pools for existing 

housing under the Section 502 program, 

to align the paragraph with the revised 

modest housing definition in 7 CFR 

3550.10 of this rule. This revision is 

adopted from the proposed rule without 

change. 

§ 3550.59 Security Requirements 

In this section, paragraph (a)(2) will 

be revised to remove the requirement 

that the amount of a junior lien, when 

it is a grant or a forgivable affordable 

housing product, may not exceed the 

market value by more than five percent 

(i.e., up to a 105 percent loan to value 

ratio). This is an overly restrictive 

requirement as it relates to grants and 

forgivable affordable housing products 

as these products often partially or 

completely cover the cost of 

rehabilitation to make the dwelling 

decent, safe, and sanitary, and a higher 

loan to value ratio may be tolerated in 

these instances. 

Beginning in FY 16, RHS initiated a 

pilot in a limited number of states to 

allow the State Office to approve 

leveraging arrangements where the total 

loan-to-value was more than the 105% 

limitation identified in § 3550.59(a)(2), 

provided: 

• RHS is in the senior lien position 

and the RHS loan is fully secured (with 

allowable exceptions for the tax service 

fee, appraisal fee, homebuyer education 

and initial escrow for taxes and 

insurance); 

• The junior lien is for an authorized 

loan purpose identified in § 3550.52; 

• The junior lien involves a grant or 

forgivable affordable housing product; 

and 

• The grant or forgivable affordable 

housing product comes from a 

recognized grant source such as a 


jspears on DSK121TN23PROD with RULES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 6767 

Community Development Block Grant 

or a HOME Investment Partnerships 

Program (HOME). 

The pilot has been successful because 

it has: 

• Empowered the selected State 

Offices to make timely decisions on 

loans with junior liens involving a grant 

or forgivable affordable housing 

product, and gave the junior lien holder 

the discretion to determine a total loanto-value that could be supported within 

their own program requirements; 

• Generally improved an area’s rural 

housing stock since the grants and 

forgivable affordable housing products 

are frequently used for rehabilitation 

work where the rehab cost is more than 

the enhanced value; 

• Promoted consistency with the 

guaranteed SFH loan program, which 

states that junior liens by other parties 

are permitted if the junior liens do not 

adversely affect repayment ability or the 

security for the guaranteed loan; and 

• Increased partnerships with 

nonprofits. 

This final rule codifies the positive 

aspects of the pilot so that the 

advantages will apply program wide. 

These revisions are adopted from the 

proposed rule without change. 

§ 3550.67 Repayment Period 

In this section, paragraph (c) will be 

revised to allow more small Section 502 

direct loans to be repaid in periods of 

up to ten years. The portfolio’s new loan 

delinquency nearly doubled between 

November 2019 to October 2020, and 

while new loan delinquency trends 

have gradually improved since October 

2020, they still exceed November 2019 

rates. This resulted in the need for 

measured and gradual changes, 

therefore, the revisions are adopted from 

the proposed rule with the following 

change: The threshold for determining a 

small loan as determined by the Agency 

will not exceed eight percent of the 

national average area loan limit, rather 

than ten percent as was proposed. The 

eight percent parameter provides a 

threshold that meets the Agency’s 

current practice and gives the Agency 

flexibility to increase the unsecured 

loan level within a reasonable amount 

in the future. 

The current regulation states that only 

loans of $2,500 or less must not have a 

repayment period exceeding ten years. 

In practice, loans of less than $7,500 are 

generally termed for ten years or less so 

that the loan can be unsecured (i.e., no 

mortgage or deed of trust is required) in 

accordance with the program’s 

guidance. 

This revision provides the Agency 

flexibility in setting the dollar threshold 

for smaller loans which may have a 

repayment period that does not exceed 

ten years. This threshold will be 

determined by the Agency and 

published in a publicly available format 

and will not exceed eight percent of the 

national average area loan limit. For 

example, the current national average 

area loan limit is approximately 

$285,000, so only loans of $22,800 or 

less may not have a repayment period 

exceeding ten years. During Fiscal Years 

2019 and 2020, there were 

approximately 67 loans for less than 

$23,000, with an average loan amount of 

$12,240. Of this subset of loans, there 

was a 22.5 percent increase in the 

average loan amount from FY 19 

($10,847) to FY 20 ($13,293). This 

highlights the need for additional 

flexibility as ever-increasing purchase 

and repair costs naturally increase what 

constitutes a ‘‘small’’ loan. The Agency 

will determine the threshold based on 

factors such as the Agency’s level of 

tolerance for unsecured loans and the 

performance and collection of 

unsecured loans in the Agency’s 

portfolio. 

Subpart C—Section 504 Origination and 

Section 306 Water and Waste Disposal 

Grants 

§ 3550.102 Grant and Loan Purposes 

In light of the discussion above and as 

a change from the proposed rule, the 

revision of paragraph (e)(5) will permit 

refinancing of existing 504 loans, 

depending on the availability of funds 

and program priorities as determined by 

RHS, in accordance with the revised 

§ 3550.201 to allow refinancing as a 

special servicing action to reduce the 

number of borrower failures that result 

in liquidation including, but not limited 

to, § 3550.207 to allow refinancing at the 

end of a moratorium. The Agency may 

limit the number of direct loans made 

for refinancing purposes based on the 

availability of funds and Agency 

priorities. market conditions and other 

appropriate factors. This revision 

provides the Agency with more 

flexibility pertaining to loss mitigation 

measures. 

§ 3550.103 Eligibility Requirements 

Under this section, paragraph (e) will 

be revised to remove the language in 

regarding a waiver of the requirement 

that applicants must be unable to obtain 

financial assistance at reasonable terms 

and conditions from non-RHS credit or 

grant sources and lack the personal 

resources to meet their needs. The 

regulation currently provides that this 

requirement may be waived if the 

household is experiencing medical 

expenses more than three percent of the 

household’s income. The revision 

removes the medical expense and 

waiver language. The authority to waive 

regulations on a case-by-case basis 

already exists in § 3550.8, making the 

medical expense and waiver language in 

§ 3550.103(e) unnecessary. Furthermore, 

limiting the waiver of the requirement 

to only those instances in which 

medical expenses exceed 3 percent of 

the household’s income is overly 

restrictive. This revision is adopted 

from the proposed rule without change. 

§ 3550.104 Applications 

Paragraph (c) will be revised by 

replacing ‘‘veterans preference’’ with 

‘‘veterans’ preference.’’ This is a 

grammatical correction only and is 

adopted from the proposed rule without 

change. 

§ 3550.106 Dwelling Requirements 

Paragraph (a) will be revised to 

remove the reference to in-ground 

swimming pools for the Section 504 

program, to align the paragraph with the 

revised modest housing definition in 7 

CFR 3550.10 of this rule. This revision 

is adopted from the proposed rule 

without change. 

§ 3550.108 Security Requirements 

(Loans Only) 

Paragraph (b)(1) will be revised to 

modify the requirement for title 

insurance and a closing agent for certain 

secured Section 504 loans of $7,500 and 

greater. Currently, Section 504 loans 

less than $7,500 may be closed by the 

Agency without title insurance and a 

closing agent; however, loans of $7,500 

and greater require title insurance and 

must be closed by a closing agent. 

The cost for title insurance and a 

closing agent can be unaffordable for 

very-low income borrowers with loans 

of $7,500 and greater or can potentially 

decrease the amount of loan funds 

available for needed repairs or 

improvements. This revision removes 

the specific dollar threshold for loans 

which require title insurance and a 

closing agent. Loans where the total 

section 504 indebtedness does not 

exceed an amount determined by the 

Agency, but no greater than 20 percent 

of the national average area loan limit, 

may be closed by the Agency without 

title insurance or a closing agent. Using 

this parameter gives flexibility to adjust 

for inflation over time and still results 

in a loan amount that can be closed by 

the Agency with minimal risk. The 

Agency will determine the maximum 

amount based on factors such as average 

costs for title insurance and closing 

agents compared to average housing 


jspears on DSK121TN23PROD with RULES1
6768 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 

repair costs and publish the specific 

threshold in a publicly available format 

such as the program handbook. This 

revision will significantly reduce loan 

closing costs incurred by the borrowers, 

by allowing more loans to be closed by 

the Rural Development office. This 

revision will also allow for 

responsiveness and adjustments based 

on inflationary changes and is adopted 

from the proposed rule without change. 

§ 3550.112 Maximum Loan and Grant 

The revision of paragraph (a) will 

revise the Section 504 maximum loan 

amount of $20,000, so that the sum of 

all outstanding section 504 loans to one 

borrower and for one dwelling may not 

exceed an amount determined by the 

Agency, but not greater than twenty 

percent of the national average area loan 

limit. This revision is adopted from the 

proposed rule without change. An 

initial limit of $40,000 will be used in 

the program handbook. 

The Agency will determine the 

maximum amount based on factors such 

as average loan amount and repair costs. 

Using this parameter gives flexibility to 

adjust for inflation over time and still 

results in a total outstanding loan 

amount that can be acceptable to the 

Agency. A corresponding change will 

also be made to § 3550.112(a)(1) to 

address maximum loan amounts for 

transferees who assume Section 504 

loans and wish to obtain a subsequent 

loan. The revision allows the Agency 

greater responsiveness and flexibility to 

address changes to average repair costs. 

The current national average area loan 

limit is $285,000 so the maximum loan 

assistance could not exceed $57,000; as 

stated above, an initial limit of $40,000 

will be used in the program handbook. 

The $40,000 limit is currently used 

under a pilot. 

The revision of paragraph (c) will 

remove the lifetime maximum 

assistance of $7,500 for a Section 504 

grant and replace with a maximum 

lifetime limit not to exceed ten percent 

of the national average area loan limit 

for any one household or one dwelling 

versus the five percent outlined in the 

proposed rule. Since the publication of 

the proposed rule in November 2019, 

there have been major shifts in the 

economy. According the National 

Association of Home Builder’s May 

2021 survey, building materials costs 

have on average increased 26.1 percent 

over the prior 12 months and builders 

are widely experiencing shortages in 

material. The higher percentage is 

needed given current and future 

conditions. An initial limit of $10,000 

(which is currently used under a pilot) 

will be used in the program handbook. 

Limiting this to any one household will 

eliminate applicants from applying 

separately and receiving double grant 

assistance per household. In addition to 

changing the percent used, the 

statement ‘‘no grant can be awarded 

when the household has repayment 

ability for a loan’’ that appeared in the 

proposed rule was removed. It was 

determined to be confusing given the 

allowance for loan/grant combinations. 

This revision was adopted from the 

proposed rule, with the changes noted 

above. 

§ 3550.113 Rates and Terms (Loans 

Only) 

The revision of paragraph (b) will 

revise the Section 504 loan term 

requirements to specify that the loan 

term will be 20 years. This will make 

504 loan terms consistent, increase 

affordability, and maximize repayment 

ability. This revision is adopted from 

the proposed rule without change. 

Subpart D—Regular Servicing 

§ 3550.162 Recapture 

Under this section, revising the 

recapture requirements in paragraph (b) 

to specify when Principal Reduction 

Attributable to Subsidy (PRAS) is, or is 

not, collected. The direct loan program 

provides payment assistance (subsidy), 

which may include PRAS, to help 

borrowers meet their monthly mortgage 

loan obligations. At the time of loan 

payoff, borrowers are required to repay 

all or a portion of the subsidy they 

received over the life of the loan. This 

is known as subsidy recapture. The 

amount of subsidy recapture to be 

repaid is based on the borrower’s 

subsidy repayment agreement and a 

calculation that determines the amount 

of value appreciation (equity) the 

borrower has in the property at the time 

of payoff. The changes to the regulation 

clarify when PRAS is collected and is 

consistent with the terms of the subsidy 

repayment agreements. In cases where 

the borrower has no equity in the 

property based on the recapture 

calculation, PRAS will not be collected. 

There are no changes to the current 

subsidy recapture calculation. These 

revisions are adopted from the proposed 

rule without change. 

Subpart E—Special Servicing 

§ 3550.201 Purpose of Special 

Servicing Actions 

In light of the discussion above and as 

a change from the proposed rule, this 

paragraph will be revised to include 

refinancing of RHS debt as a special 

servicing action to reduce the number of 

borrower failures that result in 

liquidation. Borrowers who have 

difficulty keeping their accounts current 

may be eligible to refinance as a special 

servicing option (e.g., exiting a 

moratorium, reamortization or other 

options are unaffordable). As with other 

special servicing options, the refinance 

special servicing option will be 

unavailable for accelerated accounts. 

The refinancing option adopted with 

this rule change is particularly 

important given the large number of 

borrowers who will be exiting a COVIDrelated payment moratorium (also 

referred to as COVID-related 

forbearances). Some of these moratoria 

lasted over a year, and a postmoratorium reamortization agreement 

would not result in affordable monthly 

payments because the original loan term 

is limited by statute. In addition, the 

American Rescue Plan Act of 2021 

provided additional budget authority 

which, given the critical need for 

flexibility in servicing direct loans, will 

be best directed towards refinancing and 

other loss mitigation options. The 

Agency is amending the regulation to 

reflect the expansion of refinancing 

availability as a special servicing action 

to help make payments more affordable 

(e.g., following a moratorium or 

reamortization)—however such 

refinancing will be subject to the 

availability of funds and at the 

discretion of the Agency. In other 

words, while the final rule amendments 

will provide critical relief to borrower in 

response to COVID and the Agency 

preserves the ability to provide such 

refinancing in the future, such 

refinancing is not a given due to factors 

such as budget authority and other 

Agency priorities. 

§ 3550.207 Payment Moratorium 

Under this section, revising the 

payment moratorium requirements to 

require reamortization of each loan 

coming off a moratorium. Currently, the 

regulation stipulates that at the end of 

a moratorium borrowers are to be 

provided a re-amortization if the Agency 

determines they can resume making 

scheduled payments, based on financial 

information provided by the borrower. 

Often these borrowers lack 

demonstrable repayment ability for the 

new installment, which then requires 

the Agency to liquidate the account. 

However, it should not be unexpected 

that a borrower may have difficulty 

demonstrating repayment ability at the 

end of a moratorium. The very purpose 

of the moratorium is to provide 

temporary payment relief to borrowers 

who have experienced circumstances 

beyond their control such as the loss of 

at least 20 percent of their income, 


jspears on DSK121TN23PROD with RULES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 6769 

unexpected expenses from illness, 

injury, death in the family, etc. 

In July 2010, due to the recession, the 

Administrator of RHS issued a decision 

memorandum approving the reamortization of all accounts following a 

moratorium; this decision has been 

supported by subsequent 

Administrators. Historical data has 

shown that borrowers whose loans are 

re-amortized after a moratorium, 

regardless of repayment ability, have no 

greater risk of becoming delinquent 

when compared to non-moratorium 

borrowers whose loans were reamortized. 

When comparing the borrower’s 

repayment history 18 months after the 

moratorium/re-amortization, 81.5 

percent of the borrowers made their 

required monthly payment and avoided 

foreclosure, making this the best option 

for the borrower and the Agency. 

Whereas, if the borrower’s repayment 

ability would have been considered, a 

large percentage of these successful 

borrowers would have lost their home 

without being given a chance to 

demonstrate their ability to repay their 

mortgage. 

This revision will require reamortization after a moratorium 

regardless of repayment ability, which 

will reduce foreclosures and better serve 

borrowers. The Agency is also clarifying 

that all or part of the interest accrued 

during the moratorium may be forgiven 

in an amount that balances affordability 

to the borrower and serving the best 

interest of the government. These 

revisions are adopted from the proposed 

rule without change. 

Subpart F—Post-Servicing Actions 

§ 3550.251 Property Management and 

Disposition 

In this section, revising paragraphs (c) 

and (d) to remove obsolete references 

and clarify the process and priorities in 

the sale or lease of REO properties. The 

revision also clarifies the sale or lease 

process and reservation periods for 

priority buyers to comply with 42 U.S.C. 

11408a. 

Under 42 U.S.C. 11408a, RHS must 

lease or sell program and nonprogram 

inventory properties to public agencies 

and nonprofits to provide transitional 

housing and to provide turnkey housing 

for tenants of such transitional housing 

and for eligible families. However, first 

priority is the sale of REO properties to 

Section 502 borrowers. 

The changes will further align 

§ 3550.251(c) and (d) with 42 U.S.C. 

11408a concerning the priority of the 

sale or lease of REO properties to 

eligible borrowers and to nonprofit 

organizations or public bodies providing 

transitional housing. 

This action will incorporate 

references to 42 U.S.C. 11408a and its 

more detailed instruction on transitional 

housing, lease and purchase procedures, 

and the employment or participation of 

homeless (or formerly homeless) 

individuals for the property being 

leased or acquired. To provide the 

maximum flexibility, the Agency will 

reserve program REO properties for no 

less than 30 days for sale to program 

eligible borrowers, as well as for sale or 

lease to a public agency or nonprofit 

organization for transitional and turnkey 

housing purposes. Upon receipt of 

written notification from a public 

agency or nonprofit organization 

seeking to purchase or lease REO 

property, the Agency shall withdraw the 

property from the market for not more 

than 30 days for the purpose of 

negotiations. If negotiations are 

unsuccessful, the REO property will be 

relisted and sold in the best interest of 

the Government. 

The expected result of this 

rulemaking is to allow the maximum 

use of the REO properties and foster 

collaboration in working to address a 

national shortage of transitional 

housing. These revisions are adopted 

from the proposed rule without change. 

IV. Regulatory Information 

Statutory Authority 

Section 510(k) of Title V the Housing 

Act of 1949 (42 U.S.C. 1480(k)), as 

amended, authorizes the Secretary of 

Agriculture to promulgate rules and 

regulations as deemed necessary to 

carry out the purpose of that title. 

Executive Order 12866 

The Office of Management and Budget 

(OMB) has designated this final rule as 

not significant under Executive Order 

12866. 

Executive Order 12988, Civil Justice 

Reform 

This final rule has been reviewed 

under Executive Order 12988, Civil 

Justice Reform. Except where specified, 

all State and local laws and regulations 

that are in direct conflict with this rule 

will be preempted. Federal funds carry 

Federal requirements. No person is 

required to apply for funding under this 

program, but if they do apply and are 

selected for funding, they must comply 

with the requirements applicable to the 

Federal program funds. This rule is not 

retroactive. It will not affect agreements 

entered into prior to the effective date 

of the rule. Before any judicial action 

may be brought regarding the provisions 

of this rule, the administrative appeal 

provisions of 7 CFR part 11 must be 

exhausted. 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA), Public 

Law 104–4, establishes requirements for 

Federal agencies to assess the effect of 

their regulatory actions on State, local, 

and tribal governments, and the private 

sector. Under section 202 of the UMRA, 

the Agency generally must prepare a 

written statement, including a costbenefit 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 the 

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 final rule contains no Federal 

mandates (under the regulatory 

provisions of Title II of the UMRA) for 

State, local, and tribal governments, or 

the private sector. Therefore, this rule is 

not subject to the requirements of 

sections 202 and 205 of the UMRA. 

Environmental Impact Statement 

This document has been reviewed in 

accordance with 7 CFR part 1970, 

subpart A, ‘‘Environmental Policies.’’ It 

is the determination of the Agency that 

this action does not constitute a major 

Federal action significantly affecting the 

quality of the human environment, and, 

in accordance with the National 

Environmental Policy Act of 1969, 

Public Law 91–190, neither an 

Environmental Assessment nor an 

Environmental Impact Statement is 

required. 

Executive Order 13132, Federalism 

The policies contained in this final 

rule do not have any substantial direct 

effect on States, on the relationship 

between the national government and 

States, or on the distribution of power 

and responsibilities among the various 

levels of government. Nor does this final 

rule impose substantial direct 

compliance costs on State and local 

governments. Therefore, consultation 

with the States is not required. 

Regulatory Flexibility Act 

In compliance with the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.) the 

undersigned has determined and 

certified by signature of this document 


jspears on DSK121TN23PROD with RULES1
6770 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 

that this rule, while affecting small 

entities, will not have an adverse 

economic impact on small entities. This 

rule does not impose any significant 

new requirements on program 

recipients, nor does it adversely impact 

proposed real estate transactions 

involving program recipients as the 

buyers. 

Executive Order 12372, 

Intergovernmental Review of Federal 

Programs 

This program/activity is not subject to 

the provisions of Executive Order 

12372, which require intergovernmental 

consultation with State and local 

officials. (See the document related to 7 

CFR part 3015, subpart V, at 48 FR 

29112, June 24, 1983; 49 FR 22675, May 

31, 1984; 50 FR 14088, April 10, 1985.) 

Executive Order 13175, Consultation 

and Coordination With Indian Tribal 

Governments 

This Executive Order imposes 

requirements in the development of 

regulatory policies that have tribal 

implications or preempt tribal laws. 

RHS has determined that the final 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 final rule is not subject to the 

requirements of Executive Order 13175. 

If tribal leaders are interested in 

consulting with the Agency on this rule, 

they are encouraged to contact USDA’s 

Office of Tribal Relations or the 

Agency’s Native American Coordinator 

at: AIAN@usda.gov to request such a 

consultation. 

Programs Affected 

The following programs, which are 

listed in the Catalog of Federal Domestic 

Assistance, are affected by this final 

rule: 

Number 10.410, Very Low to 

Moderate Income Housing Loans 

(specifically the section 502 direct and 

guaranteed loans), and Number 10.417, 

Very Low-Income Housing Repair Loans 

and Grants (specifically the section 504 

direct loans and grants). 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501 

et seq.), the information collection 

activities associated with this rule are 

covered under OMB Number: 0575– 

0172. This final rule contains no new 

reporting or recordkeeping requirements 

that would require approval under the 

Paperwork Reduction Act of 1995. 

E-Government Act Compliance 

RHS is committed to complying with 

the E-Government Act, 44 U.S.C. 3601 et 

seq., to promote the use of the internet 

and other information technologies to 

provide increased opportunities for 

citizen access to Government 

information and services, and for other 

purposes. 

V. Non-Discrimination Policy 

In accordance with Federal civil 

rights law and U.S. Department of 

Agriculture (USDA) civil rights 

regulations and policies, the USDA, its 

Agencies, offices, and employees, and 

institutions participating in or 

administering USDA programs are 

prohibited from discriminating based on 

race, color, national origin, religion, sex, 

gender identity (including gender 

expression), sexual orientation, 

disability, age, marital status, family/ 

parental status, income derived from a 

public assistance program, political 

beliefs, or reprisal or retaliation for prior 

civil rights activity, in any program or 

activity conducted or funded by USDA 

(not all bases apply to all programs). 

Remedies and complaint filing 

deadlines vary by program or incident. 

Persons with disabilities who require 

alternative means of communication for 

program information (e.g., Braille, large 

print, audiotape, American Sign 

Language, etc.) should contact the 

responsible Agency or USDA’s TARGET 

Center at (202) 720–2600 (voice and 

TTY) or contact USDA through the 

Federal Relay Service at (800) 877–8339. 

Additionally, program information may 

be made available in languages other 

than English. 

To file a program discrimination 

complaint, complete the USDA Program 

Discrimination Complaint Form, AD– 

3027, found online at https://

www.usda.gov/oascr/how-to-file-aprogram-discrimination-complaint and 

at any USDA office or write a letter 

addressed to USDA and provide in the 

letter all of the information requested in 

the form. To request a copy of the 

complaint form, call (866) 632–9992. 

Submit your completed form or letter 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; 

(2) Fax: (202) 690–7442; or 

(3) Email: OAC@usda.gov. 

USDA is an equal opportunity 

provider, employer, and lender. 

List of Subjects in 7 CFR Part 3550 

Administrative practice and 

procedure, Environmental impact 

statements, Fair housing, Grant 

programs-housing and community 

development, Housing, Loan programshousing and community development, 

low- and moderate-income housing, 

Manufactured homes, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons stated in the 

preamble, chapter XXXV, title 7 of the 

Code of Federal Regulations, is 

amended as follows: 

PART 3550—DIRECT SINGLE FAMILY 

HOUSING LOANS AND GRANTS 

■ 1. The authority citation for part 3550 

continues to read as follows: 

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

Subpart A—General 

■ 2. Section 3550.10 is amended by 

revising the definition of ‘‘Modest 

housing’’, adding a definition for 

‘‘Principal residence’’ in alphabetical 

order, and revising the definition of 

‘‘Veterans’ preference’’ to read as 

follows: 

§ 3550.10 Definitions. 

* * * * * 

Modest housing. A property that is 

considered modest for the area, has a 

market value that does not exceed the 

applicable maximum loan limit as 

established by RHS in accordance with 

§ 3550.63, and is not designed for 

income producing activities. Existing 

properties with in-ground pools may be 

considered modest; however, in-ground 

pools with new construction or with 

properties which are purchased new are 

prohibited. 

* * * * * 

Principal residence. The home 

domicile physically occupied by the 

owner on a permanent basis (i.e., lives 

there for the majority of the year and is 

the address of record for such activities 

as Federal income tax reporting, voter 

registration, occupational licensing, 

etc.). 

* * * * * 

Veterans’ preference. A preference 

extended to a veteran applying for a 

loan or grant under this part, or the 

families of deceased servicemen, who 

meet the criteria in 42 U.S.C. 1477. 

■ 3. In § 3550.11, revise paragraphs (a) 

and (b) to read as follows: 

§ 3550.11 State Director assessment of 

homeownership education. 

(a) State Directors will assess the 

availability of certified homeownership 

education in their respective states on 

an as-needed basis but at a minimum 

every three years and maintain an 


jspears on DSK121TN23PROD with RULES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 6771 

updated listing of providers and their 

reasonable costs. 

(b) The order of preference for 

homeownership education formats will 

be determined by the Agency based on 

factors such as industry practice and 

availability. 

* * * * * 

Subpart B—Section 502 Origination 

■ 4. In § 3550.52, revise paragraphs (a), 

(c), and (d)(6) to read as follows: 

§ 3550.52 Loan Purposes. 

* * * * * 

(a) Purchases from existing RHS 

borrowers. To purchase a property 

currently financed by an RHS loan, the 

new borrower will assume the existing 

RHS indebtedness or receive new loan 

funds as determined by the Agency. The 

Agency will periodically determine 

whether assumptions or new loans are 

appropriate on a program wide basis 

based on the best interest of the 

government, taking into account factors 

such as funding availability and staff 

resources. Regardless of the method, 

loan funds may be used for eligible costs 

as defined in paragraph (d) of this 

section or to permit a remaining 

borrower to purchase the equity of a 

departing co-borrower. 

* * * * * 

(c) Refinancing RHS debt. An existing 

RHS loan may be refinanced in 

accordance with § 3550.204 to allow the 

borrower to receive payment assistance. 

In addition, depending on the 

availability of funds and program 

priorities as determined by RHS, an 

existing RHS loan and the related 

subsidy recapture may be refinanced as 

allowed under § 3550.201. 

* * * * * 

(d) * * * 

(6) Packaging fees resulting from the 

certified loan application packaging 

process outlined in § 3550.75. The 

Agency will determine the limit, based 

on factors such as the level of service 

provided and the prevailing cost to 

provide the service, and such cap will 

not exceed two percent of the national 

average area loan limit. Nominal 

packaging fees not resulting from the 

certified loan application process are an 

eligible cost provided the fee does not 

exceed a limit determined by the 

Agency based on the level and cost of 

service factors, but no greater than one 

half percent of the national average area 

loan limit; the loan application packager 

is a nonprofit, tax exempt partner that 

received an exception to all or part of 

the requirements outlined in § 3550.75 

from the applicable Rural Development 

State Director; and the packager gathers 

and submits the information needed for 

the Agency to determine if the applicant 

is eligible along with a fully completed 

and signed uniform residential loan 

application. 

* * * * * 

■ 5. In § 3550.53, revise paragraphs (a), 

(c), (g), and (i) to read as follows: 

§ 3550.53 Eligibility requirements. 

(a) Income eligibility. At the time of 

loan approval, the household’s adjusted 

income must not exceed the applicable 

low-income limit for the area, and at 

closing, must not exceed the applicable 

moderate-income limit for the area (see 

§ 3550.54). When an existing RHS loan 

is being refinanced as a special servicing 

action under § 3550.201), the 

household’s adjusted income must not 

exceed the applicable moderate-income 

limit for the area at the time of loan 

approval and closing. 

* * * * * 

(c) Principal residence. Applicants 

must agree to and have the ability to 

occupy the dwelling in accordance with 

the definition found in § 3550.10. If the 

dwelling is being constructed or 

renovated, an adult member of the 

household must be available to make 

inspections and authorize progress 

payments as the dwelling is 

constructed. 

* * * * * 

(g) Repayment ability. Repayment 

ability means applicants must 

demonstrate adequate and dependably 

available income. The determination of 

income dependability will include 

consideration of the applicant’s history 

of annual income. 

(1) An applicant is considered to have 

repayment ability when the monthly 

amount required for payment of 

principal, interest, taxes, and insurance 

(PITI), does not exceed thirty-three 

percent of the applicant’s repayment 

income (PITI ratio). In addition, the 

monthly amount required to pay PITI 

plus recurring monthly debts must not 

exceed forty-one percent of the 

applicant’s repayment income (total 

debt ratio). 

(2) If the applicant’s PITI ratio and 

total debt ratio exceed the percentages 

specified by the Agency by a minimal 

amount, compensating factors may be 

considered. Examples of compensating 

factors include payment history (if 

applicant has historically paid a greater 

share of income for housing with the 

same income and debt level), savings 

history, job prospects, and adjustments 

for nontaxable income. 

(3) If an applicant does not meet the 

repayment ability requirements in this 

paragraph (g), the applicant can have 

another party join the application as a 

cosigner, have other household 

members join the application, or both. 

* * * * * 

(i) Homeownership education. 

Applicants who are first-time 

homebuyers must agree to provide 

documentation, in the form of a 

completion certificate or letter from the 

provider, that a homeownership 

education course from a certified 

provider under § 3550.11 has been 

successfully completed as defined by 

the provider. Requests for exceptions to 

the homeownership education 

requirement in this paragraph (i) will be 

reviewed and granted on an individual 

case-by-case basis. The State Director 

may grant an exception to the 

homeownership education requirement 

for individuals in geographic areas 

within the State where the State 

Director verifies that certified 

homeownership education is not 

reasonably available in the local area in 

any of the formats listed in § 3550.11(b). 

Whether such homeownership 

education is reasonably available will be 

determined based on factors including, 

but not limited to: Distance, travel time, 

geographic obstacles, and cost. On a 

case-by-case basis, the State Director 

also may grant an exception, provided 

the applicant borrower documents a 

special need, such as a disability, that 

would unduly impede completing a 

homeownership course in a reasonably 

available format. 

■ 6. In § 3550.55, revise paragraphs (c) 

introductory text and (c)(4) and (5) to 

read as follows: 

§ 3550.55 Applications. 

* * * * * 

(c) Selection for processing and 

funding. Applications will be selected 

for processing using the priorities 

specified in this paragraph (c). Within 

priority categories, applications will be 

processed in the order that the 

completed applications are received. In 

the case of applications with equivalent 

priority status that are received on the 

same day, preference will first be 

extended to applicants qualifying for a 

veterans’ preference. When funds are 

limited and eligible applicants will be 

placed on the waiting list, the priorities 

specified in this paragraph (c) will be 

used to determine the selection of 

applications for available funds. 

* * * * * 

(4) Fourth priority will be given to 

applicants seeking loans for the 

construction of dwellings in an RHSapproved Mutual Self-Help project, loan 

application packages funneled through 

an Agency-approved intermediary 


jspears on DSK121TN23PROD with RULES1
6772 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 

under the certified loan application 

packaging process, and loans that will 

leverage funding or financing from other 

sources at a level published in the 

program handbook. 

(5) Applications from applicants who 

do not qualify for priority consideration 

in paragraph (c)(1), (2), (3), or (4) of this 

section will be selected for processing 

after all applications with priority status 

have been processed. 

* * * * * 

■ 7. In § 3550.56, revise paragraphs 

(b)(1) and (2) and remove paragraph 

(b)(3). 

The revisions read as follows: 

§ 3550.56 Site requirements. 

* * * * * 

(b) * * * 

(1) The site must not be large enough 

to subdivide into more than one site 

under existing local zoning ordinances 

and 

(2) The site must not include farm 

service buildings, though small 

outbuildings such as a storage shed may 

be included. 

■ 8. In § 3550.57, revise paragraph (a) 

introductory text to read as follows: 

§ 3550.57 Dwelling requirements. 

(a) Modest dwelling. The property 

must be one that is considered modest 

for the area, must not be designed for 

income producing purposes, or have a 

market value in excess of the applicable 

maximum area loan limit, in accordance 

with § 3550.63, unless RHS authorizes 

an exception under this paragraph (a). 

An exception may be granted on a caseby-case basis to accommodate the 

specific needs of an applicant, such as 

to serve exceptionally large households 

or to provide reasonable 

accommodation for a household 

member with a disability. Any 

additional loan amount approved must 

not exceed the amount required to 

address the specific need. Existing 

properties with in-ground swimming 

pools may be considered modest; 

however, in-ground swimming pools 

with new construction or with 

properties which are purchased new are 

prohibited. 

* * * * * 

■ 9. In § 3550.59, revise paragraph (a)(2) 

to read as follows: 

§ 3550.59 Security requirements. 

* * * * * 

(a) * * * 

(2) No liens prior to the RHS mortgage 

exist at the time of closing and no junior 

liens are likely to be taken immediately 

after or at the time of closing, unless the 

other liens are taken as part of a 

leveraging strategy or the RHS loan is 

essential for repairs. Any lien senior to 

the RHS lien must secure an affordable 

non-RHS loan. Liens junior to the RHS 

lien may be allowed at loan closing if 

the junior lien will not interfere with 

the purpose or repayment of the RHS 

loan. When the junior lien involves a 

grant or a forgivable affordable housing 

product, the total debt may exceed the 

market value provided: 

(i) The RHS loan is fully secured 

(with allowable exceptions for the tax 

service fee, appraisal fee, homebuyer 

education and initial escrow for taxes 

and insurance); 

(ii) The junior lien is for an 

authorized loan purpose identified in 

§ 3550.52; and 

(iii) The grant or forgivable affordable 

housing product comes from a 

recognized grant source such as a 

Community Development Block Grant 

or a HOME Investment Partnerships 

Program (HOME). 

* * * * * 

■ 10. In § 3550.67, revise paragraph (c) 

to read as follows: 

§ 3550.67 Repayment period. 

* * * * * 

(c) Ten years for loans not exceeding 

an amount determined by the Agency 

based on factors such as the 

performance of unsecured loans in the 

Agency’s portfolio and the Agency’s 

budgetary needs, but not to exceed eight 

percent of the national average area loan 

limit. 

* * * * * 

Subpart C—Section 504 Origination 

and Section 306C Water and Waste 

Disposal Grants 

■ 11. In § 3550.102, revise paragraph 

(e)(5) to read as follows: 

§ 3550.102 Grant and loan purposes. 

* * * * * 

(e) * * * 

(5) Refinance any debt or obligation of 

the applicant incurred before the date of 

application except for the installation 

and assessment costs of utilities; or 

subject to the availability of funds and 

program priorities as determined by 

RHS, refinance of an existing RHS loan 

in accordance with § 3550.201 as a 

special servicing option, including but 

not limited to refinancing at the end of 

a moratorium. 

* * * * * 

■ 12. In § 3550.103, revise paragraph (e) 

to read as follows: 

§ 3550.103 Eligibility requirements. 

* * * * * 

(e) Need and use of personal 

resources. Applicants must be unable to 

obtain financial assistance at reasonable 

terms and conditions from non-RHS 

credit or grant sources and lack the 

personal resources to meet their needs. 

Elderly families must use any net family 

assets in excess of $20,000 to reduce 

their section 504 request. Non-elderly 

families must use any net family assets 

in excess of $15,000 to reduce their 

section 504 request. Applicants may 

contribute assets in excess of the 

aforementioned amounts to further 

reduce their request for assistance. The 

definition of assets for the purpose of 

this paragraph (e) is net family assets as 

described in § 3550.54, less the value of 

the dwelling and a minimum adequate 

site. 

* * * * * 

■ 13. In § 3550.104, revise paragraph (c) 

to read as follows: 

§ 3550.104 Applications. 

* * * * * 

(c) Processing priorities. When 

funding is not sufficient to serve all 

eligible applicants, applications for 

assistance to remove health and safety 

hazards will receive priority for 

funding. In the case of applications with 

equivalent priority status that are 

received on the same day, preference 

will be extended to applicants 

qualifying for a veterans’ preference. 

After selection for processing, requests 

for assistance are funded on a firstcome, first-served basis. 

■ 14. In § 3550.106, revise paragraph (a) 

to read as follows: 

§ 3550.106 Dwelling requirements. 

(a) Modest dwelling. The property 

must be one that is considered modest 

for the area, must not be designed for 

income producing purposes, or have a 

market value in excess of the applicable 

maximum area loan limit, in accordance 

with § 3550.63. 

* * * * * 

■ 15. In § 3550.108, revise paragraph 

(b)(1) to read as follows: 

§ 3550.108 Security requirements (loans 

only). 

* * * * * 

(b) * * * 

(1) Loans where the total section 504 

indebtedness does not exceed an 

amount determined by the Agency 

based on factors such as average costs 

for title insurance and closing agents 

compared to average housing repair 

costs, but no greater than twenty percent 

of the national average area loan limit. 

* * * * * 


jspears on DSK121TN23PROD with RULES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Rules and Regulations 6773 

■ 16. In § 3550.112, revise paragraphs 

(a) introductory text, (a)(1), and (c) to 

read as follows: 

§ 3550.112 Maximum loan and grant. 

(a) Maximum loan permitted. The 

sum of all outstanding section 504 loans 

to one household for one dwelling may 

not exceed an amount determined by 

the Agency based on factors such as 

average loan amounts and repair costs, 

but no greater than twenty percent of 

the national average area loan limit. 

(1) Transferees who have assumed a 

section 504 loan and wish to obtain a 

subsequent section 504 loan are limited 

to the difference between the unpaid 

principal balance of the debt assumed 

and the maximum loan permitted. 

* * * * * 

(c) Maximum grant. The lifetime total 

of the grant assistance to any one 

household or one dwelling may not 

exceed ten percent of the national 

average area loan limit. 

■ 17. In § 3550.113, revise paragraph (b) 

to read as follows: 

§ 3550.113 Rates and terms (loans only). 

* * * * * 

(b) Loan term. The repayment period 

for all section 504 loans will be 20 

years. 

Subpart D—Regular Servicing 

■ 18. In § 3550.162, revise paragraphs 

(b)(1) introductory text and (b)(1)(ii) to 

read as follows: 

§ 3550.162 Recapture. 

* * * * * 

(b) * * * 

(1) General. The amount to be 

recaptured is determined by a 

calculation specified in the borrower’s 

subsidy repayment agreement and is 

based on the borrower’s equity in the 

property at the time of loan pay off. If 

there is no equity based on the recapture 

calculation, the amount of principal 

reduction attributed to subsidy is not 

collected. The recapture calculation 

includes the amount of principal 

reduction attributed to subsidy plus the 

lesser of: 

* * * * * 

(ii) A portion of the value 

appreciation of the property subject to 

recapture. In order for the value 

appreciation to be calculated, the 

borrower will provide a current 

appraisal, including an appraisal for any 

capital improvements, or arm’s length 

sales contract as evidence of market 

value upon Agency request. Appraisals 

must meet Agency standards under 

§ 3550.62. 

* * * * * 

Subpart E—Special Servicing 

■ 19. Revise § 3550.201 to read as 

follows: 

§ 3550.201 Purpose of special servicing 

actions. 

The Rural Housing Service (RHS) may 

approve special servicing actions to 

reduce the number of borrower failures 

that result in liquidation. Borrowers 

who have difficulty keeping their 

accounts current may be eligible for one 

or more available servicing options 

including: Payment assistance; 

delinquency workout agreements that 

temporarily modify payment terms; 

protective advances of funds for taxes, 

insurance, and other approved costs; 

and payment moratoriums. Subject to 

the availability of funds and Agency 

priorities, refinancing may be available 

as a special servicing option in 

accordance with § 3550.52(c). 

■ 20. In § 3550.207, revise paragraphs 

(b)(2) and (c) and remove paragraph (d). 

The revisions read as follows: 

§ 3550.207 Payment moratorium. 

* * * * * 

(b) * * * 

(2) At least 30 days before the 

moratorium is scheduled to expire, the 

borrower must provide financial 

information needed to process the reamortization of the loan(s). 

(c) Resumption of scheduled 

payments. When the moratorium 

expires or is cancelled, the loan will be 

re-amortized to include the amount 

deferred during the moratorium and the 

borrower will be required to escrow. If 

the new monthly payment, after 

consideration of the maximum amount 

of payment subsidy available to the 

borrower, exceeds the borrower’s 

repayment ability, all or part of the 

interest that has accrued during the 

moratorium may be forgiven so that the 

new monthly payment optimizes both 

affordability to the borrower as well as 

the best interest of the Government. 

Subpart F—Post-Servicing Actions 

■ 21. In § 3550.251: 

■ a. Revise paragraphs (c)(4) and (5); 

■ b. Remove paragraph (c)(6); 

■ c. Revise paragraph (d)(2); 

■ d. Remove paragraph (d)(3); 

■ e. Redesignate paragraph (d)(4) as 

(d)(3). 

The revisions read as follows: 

§ 3550.251 Property management and 

disposition. 

* * * * * 

(c) * * * 

(4) Sale of program REO properties. 

For no less than 30 days after a program 

REO property is listed for sale, the 

property will be reserved for sale to 

eligible direct or guaranteed single 

family housing very-low, low- or 

moderate income applicants under this 

part or part 3555 of this title, and for 

sale or lease to nonprofit organizations 

or public bodies providing transitional 

housing and turnkey housing for tenants 

of such transitional housing in 

accordance with 42 U.S.C. 11408a. 

Offers from eligible direct or guaranteed 

single family housing applicants are 

evaluated at the listed price, not the 

offering price. Priority of offers received 

the same day from eligible direct or 

guaranteed single family housing 

applicants will be given to applicants 

qualifying for veterans’ preference, cash 

offers from highest to lowest, then credit 

offers from highest to lowest. 

Acceptable offers of equal priority 

received on the same business day are 

selected by lot. After the expiration of 

a reservation period, REO properties can 

be bought by any buyer. 

(5) Sale by sealed bid or auction. RHS 

may authorize the sale of an REO 

property by sealed bid or public auction 

when it is in the best interest of the 

Government. 

(d) * * * 

(2) RHS shall follow the standards 

and procedures in 42 U.S.C. 11408a for 

the sale or lease of an REO property to 

a public agency or nonprofit 

organization. The terms of the sale and 

lease, and the entity seeking to purchase 

or lease the REO property, must meet 

the requirements in 42 U.S.C. 11408a. 

* * * * * 

Joaquin Altoro, 

Administrator, Rural Housing Service. 

[FR Doc. 2022–02470 Filed 2–4–22; 8:45 am] 

BILLING CODE 3410–XV–P 

DEPARTMENT OF AGRICULTURE 

Rural Housing Service 

7 CFR Part 3555 

[Docket No. RHS–20–SFH–0025] 

RIN 0575–AD21 

Single Family Housing Guaranteed 

Loan Program 

AGENCY: Rural Housing Service, U.S. 

Department of Agriculture (USDA). 

ACTION: Final rule. 

SUMMARY: The Rural Housing Service 

(RHS or Agency), is implementing 

changes to Single-Family Housing 

Guaranteed Loan Program (SFHGLP) to 

mandate the use of the Guaranteed 

Underwriting System (GUS) and the 


jspears on DSK121TN23PROD with RULES1