Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25629

producers approve the order as

proposed to be amended by proceedings

concerning the Class II price (59 FR

64524) and the M–W price (60 FR 7290).

Referendum Order To Determine

Producer Approval; Determination of

Representative Period; and Designation

of Referendum Agent

It is hereby directed that a referendum

be conducted to determine whether the

issuance of the order regulating the

handling of milk in the Paducah,

Kentucky, marketing area, as amended

by decisions issued on December 2,

1994 (59 FR 64524) and on January 27,

1995 (60 FR 7290), is approved by at

least two-thirds of the producers, or by

producers who produced at least twothirds of the total milk produced during

the representative period.

The month of February 1995 is hereby

determined to be the representative

period for the conduct of such

referendum.

Donald R. Nicholson is hereby

designated agent of the Secretary to

conduct such referendum in accordance

with the procedure for the conduct of

referenda (7 CFR 900.300 et seq.).

Such referendum shall be completed

on or before 15 days from the issuance

of this referendum order.

List of Subjects in 7 CFR Part 1099

Milk marketing orders.

Authority: 7 U.S.C. 601–674.

Dated: May 8, 1995.

David R. Shipman,

Acting Deputy Assistant Secretary, Marketing

and Regulatory Programs.

[FR Doc. 95–11791 Filed 5–11–95; 8:45 am]

BILLING CODE: 3410–02–P

Rural Housing and Community

Development Service

Rural Business and Cooperative

Development Service

Rural Utilities Service

Consolidated Farm Service Agency

7 CFR Parts 1910, 1944, 1951, and 1965

RIN 0575–AA35

Single Family Rural Housing Loans

AGENCIES: Rural Housing and

Community Development Service, Rural

Business and Cooperative Development

Service, Rural Utilities Service and

Consolidated Farm Service Agency;

USDA.

ACTION: Proposed rule.

SUMMARY: The Rural Housing and

Community Development Service

(RHCDS) proposes to revise its

regulations for Single Family Rural

Housing (‘‘RH’’) Loans. Under the

reorganization of the Department of

Agriculture, RHCDS is the successor to

the former Farmers Home

Administration for the administration of

rural housing programs under the

Housing Act of 1949. References to

RHCDS will also include actions of

FmHA prior to the reorganization.

Regulations regarding Receiving and

Processing Applications, Planning and

Performing Site Development Work,

Borrower Supervision, Servicing and

Collection of Single Family Housing

Loan Accounts, and Security Servicing

for Single Family Rural Housing Loans

are also impacted by the proposed

revisions. This action is taken to

implement the provisions of section 315

of the Housing and Community

Development Act of 1987, Pub. L. 100–

242, to improve the delivery of the

program to the public, provide for the

orderly processing of loan applications,

reduce workload of RHCDS field staffs,

to conform the section 502 RH program

with the Guaranteed Rural Housing

Loan program and industry standards,

and to notify the public of the Agency’s

policy.

Note: The Department of Agriculture

Reorganization Act of 1994, Pub. L. 103–354,

was signed on October 13, 1994. This

established a National Appeals Division

(NAD) which replaced the FmHA National

Appeals Staff. The National Appeals Division

is currently in the process of writing new

regulations. The Final Rule will be made

consistent with any new regulations

promulgated by the National Appeals

Division.

DATES: Comments must be received on

or before July 11, 1995.

ADDRESSES: Submit written comments,

in duplicate, to the Office of the Chief,

Rural Economic and Community

Development, U.S. Department of

Agriculture, Ag Box 0743, Room 6348,

South Agriculture Building, 14th and

Independence SW., Washington, DC

20250. All written comments will be

available for public inspection at the

above address during normal working

hours.

FOR FURTHER INFORMATION CONTACT:

Betsy McDaniel, Senior Loan Specialist,

Rural Housing and Community

Development Service, USDA, Ag Box

0783, Room 5334, South Agriculture

Building, 14th and Independence SW.,

Washington, DC 20250, Telephone (202)

720–1474.

SUPPLEMENTARY INFORMATION:

Classification

This rule has been determined to be

significant and was reviewed by the

Office of Management and Budget under

Executive Order 12866.

Regulatory Flexibility Act

The Administrator of Rural Housing

and Community Development Service

has determined that this action will not

have a significant economic impact on

a substantial number of small entities

because the regulatory changes affect

RHCDS processing of section 502 loans

and individual applicant eligibility for

the program.

Environmental Impact Statement

This document has been reviewed in

accordance with 7 CFR part 1940,

subpart G, ‘‘Environmental Program.’’ It

is the determination of RHCDS that this

proposed 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, Pub. L. 91–190, an

Environmental Impact Statement is not

required.

Programs Affected

This program is listed in the Catalog

of Federal Domestic Assistance under

No. 10.410, Low Income Housing Loans.

Intergovernmental Consultation

For the reason set forth in the final

rule related Notice to 7 CFR part 3015,

subpart V, 48 FR 29115, June 24, 1983,

this program is excluded from the scope

of Executive Order (E.O.) 12372 which

requires intergovernmental consultation

with State and local officials.

Civil Justice Reform

This proposed regulation has been

reviewed in light of E.O. 12778 and

meets the applicable standards provided

in sections 2(a) and 2(b) of that Order.

Provisions within this part which are

inconsistent with State law are

controlling. All administrative remedies

pursuant to 7 CFR part 1900, subpart B

must be exhausted prior to filing suit.

Paperwork Reduction Act

The information collection

requirements contained in these

regulations have been approved by the

Office of Management and Budget

(OMB) under the provisions of 44 U.S.C.

Chapter 35 and have been assigned

OMB control numbers 0575–0134,

0575–0099, and 0575–0062, in

accordance with the Paperwork

Reduction Act of 1980 (44 U.S.C. 3507).
25630 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

This proposed rule does not revise or

impose any new information collection

or recordkeeping requirement from

those approved by OMB, for those

mentioned above. The revised

information collection contained in

0575–0059 and 0575–0060 will be

submitted for approval to OMB. Public

reporting for this collection of

information is estimated to vary from 5

minutes to 1.5 hours per response, with

an average of .41 hours per response,

including time for reviewing

instructions, searching existing data

sources, gathering and maintaining the

data needed, and completing and

reviewing the collection of information.

Please send written comments on the

information collection aspect of the rule

to the Office of Information Regulatory

Affairs, OMB, Attention: Desk Officer

for USDA, Washington, DC 20503.

Please send a copy of your comments to

Jack Holston, Agency Clearance Officer,

USDA, RECD, Ag Box 0743,

Washington, DC 20250.

Discussion

Background

Many of Rural Housing and

Community Development Service’s

(RHCDS’s) single family housing size

and amenity restrictions have been

criticized as being too rigid and

restrictive to best serve the housing

needs of low income families as well as

providing adequate security for the

Agency. In the past, these restrictions

served to limit the size and cost of

properties financed, and to control the

associated home ownership costs of

RHCDS applicants/borrowers. RHCDS

feels that a different approach can

provide the control necessary to allow

applicants the freedom to select the

home of their choice which best suits

their individual needs and still ensure

that RHCDS meets its mission and that

its financial interest is adequately

secured.

During Fiscal Year (FY) 1991, FmHA

published regulations in connection

with the Cranston-Gonzales National

Affordable Housing Act for its

Guaranteed RH program. Those

regulations provided that the amount of

the RHCDS guaranteed loan may not

exceed the maximum dollar limitation

of section 203(b) of the National

Housing Act (12 U.S.C. 1702). RHCDS

now proposes to use 85 percent of the

same maximum dollar limitations

applicable to the guaranteed program for

the direct single family RH program.

The Agency has determined that an 85

percent limitation for the direct single

family housing program should curtail

luxury type amenities, size, and cost,

and will generally result in modest

housing similar to that presently

financed by the Agency under this

program. This will greatly simplify and

standardize the properties acceptable

under the section 502 single family

housing program and achieve the

balance previously discussed. This

change will result in the elimination of

specific characteristics, amenities, and

restrictions relative to ‘‘modest

housing,’’ and substitute reliance by the

Agency on the percentile of maximum

dollar limitation established by the

Housing and Urban Development

(HUD), hereafter called ‘‘CAPs,’’ for

determining the type and dollar amount

of housing to be financed. In

conjunction with this change, the

Agency recognizes the need to change

the manner in which subsidy is

provided on these loans.

In order to provide sufficient subsidy

to enable low-income applicants/

borrowers to show repayment ability but

at the same time make the applicant/

borrower the true decision-maker

concerning all aspects of the property

that meets his or her housing needs,

RHCDS proposes to provide subsidy

which will result in a reduced payment

based on the adjusted family income

percentile of the area median income or

the minimum percentage of adjusted

family income, whichever is greater.

The minimum percentage of adjusted

family income will be based on the

income category the applicant/borrower

falls into and will include principal,

interest, taxes, and insurance. These

percentages are reasonable amounts to

pay for housing expenses. This would

provide for a maximum rate of subsidy

and encourage the family to purchase a

modestly priced property within its

repayment ability.

At the same time, the Agency desires

to move away from the use of a

‘‘budget’’ when determining the

applicant/borrower’s repayment ability

and proposes to use payment ratios in

the general manner as set forth in its

guaranteed housing instructions. This is

more in line with industry standards

and it is anticipated that this change

will remove much of the subjectivity

and controversy related to its current

method of determining repayment

ability. The Agency proposes to use a

principal, interest, taxes, and insurance

(PITI) ratio of 29 percent and a monthly

obligation to income (MOTI) ratio of 41

percent in the direct single family

housing program.

In addition to the above changes,

RHCDS proposes to revise its

application loan processing procedures

to provide that State Directors will hold

a separate reserve of loan funds for

priority loan applications which will be

processed immediately upon receipt.

Priority applications include hardships,

as determined by the State Director on

a case-by-case basis, including

applications from persons living in

deficient housing for more than 6

months; applications for refinancing of

non-RHCDS loans, servicing type loan

applications including financing for the

purchase of Government-owned

inventory properties and subsequent

loans for essential improvements or

repairs, and applications for mutual

Self-Help Housing loans. It is

anticipated that this will direct loan

funds to those applicants with the

greatest need, reduce backlogs of

applications on hand, and better meet

Agency objectives.

The Agency has conducted an indepth study involving 25 counties in

California, Delaware, Florida, Georgia,

Iowa, Maine, Maryland, Mississippi,

and Nevada. These states were selected

because of the volume of loans closed in

these states and their geographic

diversity, and to provide a diversified

range of income ranges and housing

costs in order to determine appropriate

income ratios, loan limits, and payment

assistance to utilize in this proposal.

Ninety-four percent of this sample

control group would continue to qualify

for payment assistance under the

proposed terms. The Agency has

provided for increased payment

assistance in high cost areas, exceptions

to published ratios in special situations,

increased loan limits for larger or

disabled families, and in areas where

the applicant is unable to obtain lower

cost housing. These provisions will

result in assisting applicants who do not

qualify within the new parameters, so

they can be handled on an individual

basis. RHCDS feels confident that the

single family housing loan program will

continue to serve the same clientele as

it has historically served. The data

generated as a result of this study

supports the proposed revisions, which

will result in stimulation economic

growth, providing objectivity in the

administration of the single family

housing program, making the program

more equitable to RHCDS applicants

and borrowers, and expanding housing

choices for RHCDS applicants, based on

their repayment ability, so that they can

maximize their housing benefits to their

individual needs.

The Agency is considering the

possibility of implementing a 20 year

balloon payment using a 33 or 38 year

amortization in the final regulation.

This proposal is consistent with the

position that the Section 502 program is

temporary financing to enable a very
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25631

low- or low-income family to obtain

affordable housing. The objective of the

program is to eventually graduate the

borrower to other conventional sources

of credit. The majority of RHCDS

existing borrowers pay their loans in

full within 12 years of loan closing. In

additions to this, the provision related

to this topic in the text is Section

1944.25 Rates and terms, paragraph (b)

Amortization.

Prior Requests for Comments

In order to allow the public an

opportunity to voice their concerns

regarding the proposed revisions, FmHA

published an Advance Notice of

Proposed Rule Making in the Federal

Register on Tuesday, April 28, 1992, (57

FR 17858), which outlined the major

issues proposed for revision and

provided for a 30-day comment period

which ended on May 28, 1992.

Note: At the time of the Advance Notice of

Proposed Rule Making, the Agency referred

to its ‘‘Interest Credit Assistance’’ program

for single family housing loans. This rule

proposes to rename this program to

‘‘Payment Assistance’’ and all future

references in this proposal are under that

title.

Twenty-five comments were received

in response to the Advance Notice of

Proposed Rule Making. Fourteen

comments were from RHCDS or other

Federal Agency personnel. Two

comments were received from groups

representing public utilities (electric

and gas companies). In addition, nine

comments were received from

individuals and various public interest

groups. All of the comments received

were considered in the development of

this proposed rule. Comments were on

the following issues which were

addressed in the Advance Notice of

Proposed Rule Making:

I. Use of the HUD ‘‘CAPs’’ in Defining

‘‘Modest’’ Housing

As stated previously, existing RHCDS

single family housing regulations have

restricted the type of housing financed

by limiting the size, design, and

amenities of the dwelling. The Advance

Notice proposed eliminating all such

restrictions relative to ‘‘modest’’

housing and proposed that financing be

limited to the dollar ‘‘CAP’’ established

by HUD. Twenty-four respondents

commented on this proposal. Fifteen of

the respondents submitted comments in

support of this revision; five

respondents were against the proposal;

and four had mixed feelings. Most

respondents had both pro and con

comments. Those respondents who

supported the concept of the proposal,

felt that the revision would improve

RHCDS’s image, remove the stigma of

‘‘subsidized’’ housing, provide for

flexibility of architectural design,

provide freedom of choice for RHCDS

applicants, reduce the number of

appeals, simplify procedures, provide

greater time savings, and provide

uniformity in the definition of modest

housing nationwide. In addition, these

respondents felt that the proposal would

provide for appreciation in the market

value of RHCDS properties and

increased equity for homeowners, and

would alleviate problems with local

governments and help to promote lowincome housing.

Several of the respondents had

problems with the use of the HUD

‘‘CAPs’’ stating they were not equitable,

being too high in some areas and too

low in others and that they were

inflexible and hard to change, providing

bias to existing homeowners and Real

Estate Brokers. Based on these

comments, the Agency proposes to use

85 percent of the HUD mortgage limits

but has incorporated procedures for

increasing the CAPs in certain

situations. Other respondents felt that

the CAPs would result in higher priced

housing which, together with market

inflation, would result in a need for

higher subsidies. One respondent felt

that it would force lower income

families into older, cheaper units.

Based on the study done by the

Agency to measure the effects of the use

of HUD CAPs, proposed changes to the

payment assistance program, and the

use of income ratios for determining

repayment ability, the Agency feels that

the price of housing financed would be

limited not only by the HUD CAP, but

by the market value of the property as

reflected on a current real estate

appraisal, and the applicant’s

repayment ability based on the

proposed income ratios and the revised

method of granting payment assistance.

The study does not indicate that this

change will result in lower-income

families being forced into older, cheaper

units.

Several respondents expressed

concern that RHCDS programs were

becoming more like HUD programs and

that the use of the CAPs would result in

less control for RHCDS. Many of the

respondents felt that the use of the HUD

CAPs discriminates against ‘‘one

person’’ and ‘‘large’’ households and felt

that the use of CAPs would eliminate

RHCDS financing in some areas where

the CAPs are not in line with the cost

of housing in the area. The Agency has

revised the proposal to address these

concerns in § 1944.17. There was also

concern expressed regarding potential

size and additional cost items if the

definition of modest housing is

changed. The Agency feels that

increased housing costs will be limited

due to the new method of calculating

payment assistance.

In accordance with the Energy Policy

Act of 1992, Public Law 102–486, the

Agency has adopted the Council of

American Building Officials (CABO)

Model Energy Code, 1992 (MEC–92) for

new construction of single family homes

other than manufactured homes. The

Agency has deleted specific loan

approval authorities in the field, relying

instead on the established HUD CAP

limits adopted. In addition, the Agency

has agreed to grant a waiver to allow the

loan to exceed market value for

handicapped-accessible homes by no

more than the cost of the amenities.

RHCDS has decided not to adopt

recommendations to restrict financing

on housing constructed prior to 1953 in

order to avoid problems with lead based

paint, provide safeguards describing

minimum standards allowed under

RHCDS financing, establish RHCDS

CAPs based on the State Directors’

knowledge of their individual areas, and

require 40 percent of very low-income

housing on all conditional

commitments. However, the Agency has

provided for waivers on CAP limits

under certain circumstances and has

included a requirement that repairs

required as a condition of loan approval

will be performed, after loan closing, in

accordance with HUD Handbook 4905–

1, ‘‘1–4 Family Living Units,’’ (available

in any RHCDS field office). The Agency

will continue to adhere to its present

requirements contained in subpart A of

part 1924 of this chapter regarding new

construction and will require all

dwellings repaired with RH loan funds

to be structurally sound, functionally

adequate, and placed in good repair. All

dwellings financed must still provide

decent, safe, and sanitary housing.

II. The Use of Income Ratios Instead of

a Family Budget for Determining

Repayment Ability

In the past, RHCDS has utilized a

family budget to determine debt

repayment. Twenty-one respondents

commented on the proposal to eliminate

the family budget as a determinant of

repayment ability and instead rely on

the use of income ratios similar to those

used in the single family guaranteed

housing program. Ten respondents were

in favor of this proposal and ten

opposed. The remaining respondent

indicated a need for additional

information before making a decision.

Those respondents who supported

this revision felt that adoption of this

proposal would result in considerable
25632 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

savings in time and effort, would

provide for simplification of the

eligibility process, would result in fewer

appeals, and would eliminate

subjectivity. In addition, there were

several comments that the family budget

is subjective in nature, difficult to

defend, and useless without clear

guidelines for individual cost items. It

was generally felt by these respondents

that adopting the use of income ratios as

a determinate of an applicant’s

repayment ability would be consistent

with industry standards and a benefit to

RHCDS and loan applicants.

Several of the respondents opposed to

this measure stated that income ratios

were not appropriate for RHCDS

clientele. It was felt that the low- and

very low-income groups that RHCDS

assists live within their TOTAL income

and not a percent of their income, and

that these were high risk loans requiring

a high degree of accuracy when

determining repayment ability. Several

respondents felt that income ratios

would result in loans to people without

repayment ability due to their high

percentage of living expenses. Another

area of concern was the difficulty of

developing ratios which would work for

households, in all situations,

nationwide. They felt that ratios were

inflexible and would rule out those who

do not fit the mold but who have

repayment ability, and it was feared that

the use of ratios would eliminate many

very low- and low-income families.

There were recommendations that

flexibility be built into the income ratios

for adjustments where projected costs

are equal to or less than current rent,

that ‘‘non-income’’ benefits be

incorporated into the calculation, that

compensating factors such as used by

Fannie Mae be included, and that an

allowance be provided for the lower end

of the income structure.

Two respondents suggested an indepth study be made to analyze where

the PITI and MOTI ratios should be set,

and one respondent suggested

combining ratios with the family budget

for borderline cases with justification

for expenses which are deemed by

RHCDS to be abnormally low. In

addition, there were several

recommendations relative to actual

ratios which should be used.

All of these comments were taken

under consideration when arriving at

the ratios established. The study

undertaken by the Agency supports the

use of a 29 percent PITI ratio; 94 percent

of existing RHCDS borrowers would still

qualify using this ratio. The decision to

use a 29 percent ratio is supported by

the fact that it is the same ratio used in

the Agency’s guaranteed housing loan

program. The Agency proposes to

establish the MOTI ratio at 41 percent.

Both ratios will be based on the

applicant’s gross income.

The Agency’s experience with income

ratios in the guaranteed housing

program and the study recently

conducted indicates the proposed

system should provide consistency in

determining repayment ability in a

better, less subjective manner that will

improve our underwriting criteria and

loan portfolio and be consistent with

industry standards. Based on the

comments received and the results of

the study conducted, the Agency has

incorporated exceptions to the use of

income ratios when repayment ratios do

not support adequate repayment ability

for the proposed loan, if the applicant

can demonstrate a history of meeting

equal or greater housing related costs in

the past 6 months in similar financial

circumstances than projected housing

costs, or where the applicant

demonstrates that the use of a budget is

a better determinant of repayment

ability than ratios for their particular

circumstances. Income ratios proposed

are contained in § 1944.8(a)(3).

Other objections to this proposal

included concerns that the Agency

would no longer be a source of

supervised credit, would lose valuable

skills in money management that are

still needed for loan servicing, and

would require additional training to

adapt to the new system. The Agency

feels that a supervisory counseling role

is fundamental to its mission and does

not foresee a change in this regard.

RHCDS will continue to be a ‘‘hands

on’’ Agency and will provide credit and

financial counseling to suit each

applicant’s individual needs to assure

the applicant’s success as a homeowner.

Where the applicant does not

demonstrate adequate repayment

ability, or otherwise meet loan making

criteria, RHCDS is prepared to discuss

and advise the applicant regarding other

alternatives such as reducing amenities,

increasing sources of income, reduction

of debt load, obtaining a cosigner, or

constructing the home by the self-help

method.

III. Revision of the Payment Assistance

Calculation

RHCDS proposes to revise their

method of providing ‘‘payment

assistance’’ on new loans. As noted

previously, this program was formerly

known as ‘‘interest credit assistance.’’

Under this proposal, only procedures

for payment assistance that will be

processed in connection with loan

processing will be included in subpart

A of part 1944. All other payment

assistance and deferred mortgage

payment actions, including renewals

and other servicing actions are

transferred to subpart G of part 1951.

(a) Existing Payment Assistance System

Currently, RHCDS calculates the

amount of payment assistance needed

based on a formula which takes into

consideration the annual real estate

taxes and property insurance premiums

to be paid by the applicant/borrower

and their adjusted family income. Under

the current program, a borrower pays 20

percent of the borrower’s adjusted

family income for PITI (but never less

than the loan amortized at a 1 percent

interest rate). This procedure has given

the applicant little incentive to look for

an inexpensive home since the payment

by the borrower generally did not

increase drastically as a result of a

higher loan amount. Under this

program, an applicant/borrower must

have a very low- or low-adjusted income

to initially receive payment assistance.

However, many applicants/borrowers

with acceptable income levels who

obtain small loans, will often not qualify

for payment assistance under the

present procedure since their PITI is

less than 20 percent. This has resulted

in inequities in the system.

(b) Proposed Payment Assistance

System

As explained above, under the current

method of providing payment

assistance, many families attempting to

purchase inexpensive homes are denied

assistance if the formula does not

indicate that PITI will exceed 20 percent

of adjusted family income. Conversely,

many other applicants, purchasing

homes in the higher cost ranges, receive

maximum payment assistance even

though their incomes are often in the

higher ranges allowable under the

program. To eliminate these inequities,

the proposed method will provide a

range of equivalent rates of interest for

all new loans (including assumptions),

and subsequent loans of existing

borrowers based on area median

income, regardless of the amount of the

loan. The chart for determining the

appropriate interest rate paid by RHCDS

applicants/borrowers on loans closed

after this rule becomes effective, is

defined in § 1944.34(c). Exceptions have

been incorporated which will provide

for additional assistance where needed

to allow very low- and low-income

applicants to obtain or retain housing or

to allow very low-, low-, or moderateincome RHCDS borrowers to retain

housing.

The proposed payment assistance

system includes floors which are
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25633

minimum percentages of adjusted gross

income. The floor for very low-income

is 22 percent and for low-income is 26

percent of adjusted family income. A

new borrower will pay PITI at the

minimum percentage floor of adjusted

gross income or at the equivalent

interest rate, whichever is greater. For

loans closed under the proposed system,

the borrower will never pay more than

the note interest rate for the monthly

installment.

It is intended that this proposal will

encourage applicants to shop for a home

within their repayment ability instead of

relying on the higher cost of a home to

drive the equivalent interest rate down

to 1 percent which often results under

the current system of payment

assistance.

The interest rates established for each

income level were based on the results

of a study conducted by the Agency.

The Agency ran a comparison between

the proposed system and the old system

on a control group in nine states. The

new system will result in slightly higher

payments for new borrowers in the

higher range of income. Existing RHCDS

borrowers who are currently receiving

payment assistance, will continue under

the system in effect prior to the effective

date of this rule.

Under the current system, the

payment assistance agreement is

effective for a 12-month period based on

the applicant/borrower’s projected,

verified income. The Agency proposes

to revise the renewal period for selfemployed borrowers to coincide with

the borrower’s business fiscal year. The

Agency also proposes to eliminate the

limit on the amount of net family assets

an applicant/borrower may have when

qualifying for payment assistance.

(c) Responses to the Advance Notice of

Proposed Rule Making

Nineteen respondents commented on

this proposal. Five of these comments

supported the proposal, eight were

opposed, and six respondents indicated

they needed more information before

deciding. Those respondents who

supported this concept stated they felt

the proposal would save considerable

effort and time, would simplify the

process, would be more fair, would be

easier to define and defend, would

provide an incentive to seek less costly

housing, would stimulate the rural

economy and save on subsidy, and

would provide the applicant/borrower a

means to see the range of payments up

front so they could budget future costs

accordingly.

Of those respondents who were not in

support of this proposal, several felt that

the lowest-income families would be

penalized since they pay the largest

portion of income toward housing costs

and this method could result in families

paying more than 30 percent for their

housing costs. One respondent felt that

the system would be ineffective in their

area since median income is skewed

due to a large population of low-income

college students. Several respondents

felt that the proposed system would be

nonresponsive to individual applicant/

borrower’s needs, would exclude more

families than it includes, did not

provide for an applicant/borrower’s

future loss of income, and could result

in more loan failures. There were also

comments that there would be high

costs involved in retraining RHCDS

employees in the new system.

The original proposal provided that

applicants/borrowers whose homes

were located in a high cost area as

established by HUD would

automatically qualify for a reduction in

their equivalent interest rate of 1

percent. One respondent felt that the

Agency was experiencing problems in

high cost and high real estate tax areas

in the single family housing guaranteed

program which would be intensified in

the section 502 loan program. Several

respondents were not clear how the

additional 1 percentage point subsidy in

a high cost area would help. The

Agency has re-examined this issue and

has decided to revise this provision by

providing exception authority for a

reduction in the equivalent rate of

interest by 1 percentage point, when

applicants in high cost areas lack

repayment ability without additional

payment assistance.

In addition to the above, there were

two recommendations for specific

subsidy rates to be utilized. There was

also a suggestion to calculate annual

income on the basis of past earnings

rather than on projected income. The

Agency is mandated to utilize the same

calculations for annual income as are

used by HUD, therefore, this suggestions

was not adopted. There appeared to be

an opinion that once the equivalent

interest rate was set based on the

family’s income at the time of loan

approval it could never be changed

downward, and that only applicants/

borrowers living in high cost areas

would be eligible for an equivalent

interest rate of 1 percent. Neither of

these assumptions are correct.

There was a recommendation that

RHCDS allow a change in payment

assistance when a borrower’s income

increases; this will be handled under

the sliding scale, the same as a loss of

income. One respondent suggested a

change in the recapture calculation and

this regulation is in the process of being

revised. There was a recommendation

that the payment assistance agreement,

deferral, and recapture forms be

consolidated. The Agency has partially

accepted this recommendation by use of

a separate payment assistance/deferral/

repayment form for applicants/

borrowers receiving deferral assistance.

We urge all readers to thoroughly

review this proposal and provide us

with their detailed recommendations for

any changes suggested.

IV. Revision of the Method Used for

Selection and Processing of

Applications

The Agency intends to streamline its

method of selecting and processing loan

applications. When this section was

revised, ‘‘Fund Allocation’’ was

included under § 1944.26 and

‘‘Application Processing’’ was

completely revised and transferred to

§ 1944.27. Those instructions for

application processing located in

subpart A of part 1910 which were

exclusive to Single Family Housing

applications have been moved to

subpart A of part 1944, which already

contained some application processing

instructions. This section now contains

a clear definition of a complete RH

application and guidance for dealing

with an incomplete RH application.

In the past, RHCDS has often required

that an application package include a

credit report fee as well as information

on the house to be financed at the time

of application, despite the fact that there

were often large backlogs of applications

on hand or a lack of loan funds. This

resulted in delays to prospective sellers

of property and the need for

reverification of information, sometimes

at additional cost. Under the proposed

rule, RHCDS will access HUD’s Credit

Alert Interactive Voice Response System

(CAIVRS) to determine if the applicant

is delinquent on a Federal debt. If a

delinquent Federal debt is identified

through CAIVRS, processing on the

application will be suspended and the

applicant notified to contact the

appropriate Federal agency to resolve

the delinquency. An outstanding

judgment obtained by the United States

in a Federal Court (other than the

United States Tax Court), which has

been recorded, shall cause the applicant

to be ineligible for loan assistance until

the judgment is paid in full or otherwise

resolved. When the delinquency has

been paid in full or otherwise resolved,

processing of the application will be

continued; RHCDS loan funds may not

be used to satisfy an outstanding

judgment. If a judgment remains

outstanding or the applicant is unable to

resolve a Federal debt delinquency, the
25634 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

application will be rejected and the

applicant notified of the rights of

appeal. In addition, RHCDS will order

an on-line profile credit report, where

available, on each application received.

Derogative credit reported will be

discussed with the applicant and

information on the address and

telephone number of the credit

repository provided so that the

applicant may resolve potential credit

problems. Applicants will not be

rejected on the basis of the on-line

credit report; this service is provided for

the primary purpose of allowing the

applicant to identify potential credit

problems prior to paying a fee for a

credit report and to clarify the

difference between eligibility for

program assistance and loan approval.

RHCDS will make a preliminary

determination of eligibility upon receipt

of an application based on the

information provided on the application

form and the information received as a

result of the CAIVRS inquiry and online credit report. A final determination

of eligibility will be made after the

application is selected for processing

and all information necessary to

determine eligibility for the RH program

has been verified.

Under current regulations, the Agency

assigns a processing priority to each

application. The County Supervisor

selects a number of applications to be

processed each quarter based on

assigned priority and availability of loan

funds. The Agency has determined that

this system does not adequately serve

the neediest applicants and facilitate

efficient loan processing.

The Agency proposes to provide for a

separate reserve of loan funds to be held

by the State Director for priority

applications. This reserve will include

hardship cases as determined by the

State Director, including applicants

living in deficient housing, applications

for refinancing of debts, servicing type

loans to existing RHCDS borrowers for

essential improvements or repairs, loans

for the purchase of Government-owned

inventory properties, subsequent loans

in connection with assumptions of

existing RHCDS loans, and mutual selfhelp housing loans. These priority

applications as well as applications for

the purchase of Government-owned

inventory property or assumption of

existing RHCDS loans, will be processed

immediately, and will not compete for

the same pool of funds as other

applications. All other applications will

be considered for processing in date

order.

If an applicant is clearly not eligible,

an applicant may be rejected upon

receipt of the application. Applications

received from persons who appear to

meet basic eligibility requirements for

the program will be held until funding

is available. Each quarter the County

Supervisor, with guidance from the

District Office, will select enough

applicants/borrowers to potentially fund

175 percent of the anticipated quarterly

allotment. This figure is an

administrative determination based on

information available for applications

on hand, percent of applications

rejected and withdrawn, and number of

loans closed per quarter. It is

anticipated that almost half of the

applications selected for processing will

not be processed to the point of loan

closing due to ineligibility, marital

changes, lack of interest, and other

reasons.

Applicants/borrowers selected will be

advised in writing that they have 30

days to supply information needed for

verifying data submitted on their

applications, including any fees for

credit reports, so a final determination

of eligibility can be made. Detailed

guidance is provided regarding the

means of verifying data. The proposed

regulation continues RHCDS’s general

policy that written income verification

is the preferred method of income

verification. When an applicant/

borrower’s eligibility for an RH loan is

determined, the income verification

must not be more than 90-days old. In

addition, RHCDS will continue to

require a copy of the applicant/

borrower’s most recently filed income

tax return and will randomly spot-check

reported wages through wage matching

sources, where available, for 5 percent

of all applications where all adult

members of the household are employed

full-time. Income for all other

applicants/borrowers, including those

with non-taxable income, will be

confirmed through this source where it

is available. Applicants/borrowers who

are supposed to receive court ordered

alimony or child support but who

actually do not receive it, may certify

that they have exhausted all efforts to

collect same, and in such cases, the

alimony/child support will not be

included in the applicant/borrower’s

annual income. The applicant interview

section has been expanded to include

discussion of all new requirements such

as income ratios, HUD CAPs, and

penalties connected with providing

false information.

Once a final determination of

eligibility has been made, the Agency

will issue a ‘‘Certificate of Eligibility,’’

valid for 90 days, to eligible RH

applicants who have been selected for

processing. The applicant may take the

certificate to real estate agents, builders,

and sellers to verify eligibility for an

RHCDS loan. The certificate will not

guarantee that adequate funds are

available, but is intended to assist

applicants in locating an adequate home

within their repayment ability and

reduce application processing time. The

applicant will be required to submit

information on the dwelling to be

financed within 90 days or the

application will be withdrawn unless an

extension is granted. There will be a

maximum of two 60-day extensions

allowed if the applicant is actively

working on supplying the requested

information.

Time guidelines for RHCDS actions

have been added. Appraisals will

generally be completed within 30 days

of submission of information requested

by RHCDS. After the appraisal is

completed and required loan approval

information has been received, a loan

will usually be approved within 30

days. If no funding is available, it will

be held as an approved loan until the

next quarter’s funding becomes

available.

Sixteen comments were received as a

result of the summary of proposed

revisions published as a Notice of

Proposed Rule Making; eight supported

the proposal, three opposed it, and five

indicated they did not have enough

information to make an evaluation.

Those who supported the proposal felt

it was a positive approach, would

reduce and help manage backlogs of

applications, would address the most

urgent cases according to need, would

result in considerable time savings and

be less difficult to explain, and would

result in greater assurance of fund

availability for Self-Help Housing

applications.

Of those respondents who did not

support this proposal, several felt the

proposed system had potential for

discrimination, that it would extend the

selection/approval period by an

additional 30 days and there was no

provision for people living in

substandard housing to be handled as a

priority. It should be noted that the

hardship reserve established by the

State Director does include applicants

living in substandard housing and there

has been no extension of the application

selection/approval time. The Agency

finds no basis for the comment

regarding the potential for

discrimination.

There were also comments that the

Certificate of Eligibility would create a

lot of extra work for RHCDS with little

or no benefit and was valueless since

RHCDS was the lender. The certificate

will provide information on the

maximum loan limit, the repayment
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25635

ratios, and the effective interest rate

based on the applicant’s projected

income. It will be the responsibility of

the Real Estate Broker, contractor, or

packager to work with the applicant to

find a suitable home that fits within the

repayment parameters of the certificate.

RHCDS feels there is little extra work

created by this form, that it will

encourage Real Estate Brokers and

contractors to work with an applicant in

finding suitable housing, and would

provide for the orderly processing of

loan applications.

One respondent felt that 175 percent

of the allocation for loan processing was

too restrictive, and another felt that the

number of applications processed

should be left to the discretion of the

State Director based on local conditions.

The Agency states that 175 percent is

the minimum required and is, therefore,

not restrictive. It was also decided to

make this a nationwide requirement in

order to provide consistency in the

program.

A recommendation was made to

retain the National Office’s annual

‘‘pooling’’ of loan funds; there is no plan

to eliminate this provision. Another

recommendation was made to provide

for sufficient funds in the priority

reserve pool; the proposal allows the

State Director to determine the amount

retained in this pool based on historical

or other data available. Other

suggestions included restricting the

Certificate of Eligibility to applicants

who have submitted all information

necessary for loan processing, requiring

a sales agreement for a completed

application, and limiting the Certificate

of Eligibility renewal to one 90-day

period.

Restricting the certificate as

requested, would negate the purpose for

the form. The information on the

Certificate will assist the applicant to

find suitable housing at a price the

applicant can afford. Once the house is

found, data necessary for an appraisal

and loan processing is submitted to the

RHCDS field office. Extensions to this

90-day period will only be granted

when the applicant presents evidence

that the applicant is actively working on

supplying the information requested.

There will be a maximum of two 60-day

extensions allowed.

One respondent requested a definition

of hardship so as to eliminate politics,

and to include persons living in

substandard housing as a hardship. The

definition of hardship is left to the

discretion of the State Director on a

case-by-case basis but will include

persons living in deficient housing as

defined in § 1944.2 for more than 6

months. The Agency feels that it would

be too restrictive to place a definition on

what constitutes a hardship since it is

impossible to address every situation,

but a new definition for deficient

housing has been included.

The last comment was a suggestion to

separate low- and very low-income

application processing. The Agency

feels this would be too cumbersome and

has not included this suggestion in the

proposed rule.

Other Changes Proposed

In addition to the four issues

addressed in the Advance Notice of

Proposed Rule, the Agency proposes to

make the following changes in subpart

A of part 1944 regarding single family

housing loans:

General

The section dealing with denial of

loans and services on a discriminatory

basis has been revised to include the

term ‘‘familial status’’ as required under

the Fair Housing Amendments Act of

1988. This section has also been revised

to provide that applicants for assistance

are required to identify any known

relationship or association with an

RHCDS employee and provides for

reasonable accommodations for

applicants with developmental

disabilities as required under the 1988

amendments to the Fair Housing Act

and the Americans with Disabilities Act

of 1990. This revision also provides for

the collection of fees for real estate

appraisals.

Definitions

Several new definitions have been

added and some existing definitions

have been revised to more clearly

describe annual payment borrowers,

certificate of eligibility, conditional

commitment, cosigners, deficient

housing, elderly family, existing

dwellings, household or family, income,

insurance, live-in aides, median income,

minors, monthly payment borrowers,

net family assets, payment assistance,

and real estate taxes.

Loan Purposes

The proposed change incorporates the

provisions of § 315 of the Housing and

Community Development Act of 1987,

Pub.L. 100–242, which added § 501(i) of

the Housing Act of 1949; loan funds

may be used to pay loan packaging fees

when the application is packaged by

qualified public or private nonprofit

organizations exempt under the Internal

Revenue Code of 1986. Packaging fees

are not authorized for inventory

property sales. In addition, the cost of

personal liability insurance for SelfHelp Housing applicants/borrowers has

been added as an authorized loan

purpose. A section has also been

included to allow the purchase of single

family housing units located in Planned

Unit Developments (PUDs) under

certain conditions.

Loan Restrictions

The restriction against incomeproducing property has been revised to

more clearly define those types of homebased operations that will be allowed

under certain conditions, such as the

production of crafts, child care facilities,

etc. Small businesses which are run

from the home which do not require

specifically designed features to

accommodate the enterprise will not be

restricted; however, housing related

expenses which are claimed as business

expense deductions for income tax

purposes, such as real estate taxes,

mortgage interest, etc., will not be

allowed when determining income

eligibility for RHCDS assistance.

The restriction against packaging fees

has been lifted as it pertains to public

and private non-profit organizations.

Restrictions regarding loans to former

RHCDS borrowers who sold their homes

within the last 2 years have been

deleted. Restrictions regarding

applicants/borrowers who have

demonstrated an inability to carry out

the required obligations of the loan have

been removed and transferred to the

section dealing with other eligibility

requirements.

The Agency has further clarified that

funds may not be used to refinance

debts on a manufactured home and that

loan funds may not be used to pay off

existing RHCDS debts in lieu of an

assumption.

Income

RHCDS is required by the Housing

Act of 1949, as amended, to use income

definitions established by HUD;

however, several definitions have been

revised or added for clarification

purposes. Income definitions have been

revised to include cost of living

allowances (COLAs) or other proposed

increases in income expected to take

place on or before loan approval, loan

closing, or the effective date of the

payment assistance agreement.

Clarification has been added regarding

allowance of deductions for verified

business related expenses which are not

reimbursed for salaried employees.

Revisions have been made to allow the

applicant/borrower to certify that court

awarded alimony and/or child support

is not being received after all reasonable

efforts for enforcing same have been

exhausted. Amounts received for

educational scholarships and allowable
25636 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

deductions have been more clearly

defined. Income which a Federal statute

exempts has been removed from this

section and transferred to exhibit J

(available in any RHCDS field office).

Income of live-in aides is defined.

The 6-month waiting period is being

removed where the spouse is living

apart from the household and separation

or divorce proceedings have not been

initiated. The proposal clarifies that

medical expenses anticipated for an

elderly family may be for any household

member.

Income Eligibility Requirements

As noted previously, the Agency has

moved from determining repayment

ability on the basis of a budget and is

relying on income ratios. As a result of

the study conducted by the Agency,

where ratios do not support adequate

repayment for the proposed loan,

exceptions to the use of ratios have been

added where the applicant can present

evidence of meeting similar costs in

similar circumstances over the past 6

months or where the use of a budget is

a better method of determining

repayment ability for a particular

applicant/borrower’s circumstances.

Income ratios have been defined in

§ 1944.8(a)(3). The proposal also

clarifies the responsibilities of a

cosigner on an RHCDS loan.

Other Eligibility Requirements

The Agency has included a provision

that applicants will be expected to

utilize nonessential liquid assets to

reduce the amount of loan needed.

Information on verification of alien

status has been transferred to exhibit B

(available in any RHCDS field office).

Credit history standards have been

slightly liberalized to allow up to two

debt payments more than 30 days late

within the last 12 months and to allow

one rent payment paid 30 days or more

past due within the last 2 years. In

addition, the section dealing with

outstanding collection accounts has

been rewritten to clarify that collection

accounts paid off within 3 months of

filing an application for RHCDS

assistance will be considered as an

indicator of an unacceptable credit

history unless there is a record of

regular payments maintained prior to

the final payment. This clarification was

necessary to prohibit persons with

unsatisfactory credit from paying off

this indebtedness for the sole purpose of

obtaining an RHCDS loan.

Pursuant to the Federal Debt

Collection Act of 1990, Pub. L. 101–647

(Nov. 29, 1990), prohibits making a loan

to an applicant/borrower who has a

judgment which is or could become a

lien against the debtor’s property for a

debt owed to the United States

Government until the judgment is paid

in full or otherwise satisfied. The

RHCDS Administrator may waive this

requirement upon making a

determination that it is in the best

interest of the Government to do so.

In addition to referral for criminal

prosecution, RHCDS plans to debar

applicants/borrowers who have falsified

applications and/or income information

submitted to RHCDS for program

eligibility purposes. Applicants/

borrowers who have a documented

history of inability to carry out the

required obligations of a RHCDS RH

loan will be denied assistance.

Rural Areas

This section has been revised to

require a ‘‘buffer’’ zone of open space

incorporated as an ineligible area when

new boundaries are drawn. Rapid

growth areas and eligible areas within

an Metropolitan Statistical Area (MSA)

will be reviewed for eligibility every 3

years or more often as needed, instead

of the 5-year review required for other

areas. In addition, RHCDS is now

required to consult with local planning

boards, where available, at the time of

each review to assure that open spaces

identified are not scheduled for

development in the near future. These

changes are a direct result of

recommendations made by the Office of

Inspector General (OIG) during past

audits.

Site Requirements

Currently, RHCDS generally restricts

financing to sites of 1 acre or less. Due

to the large number of exceptions which

have been requested, the Agency

proposes to broaden its definition of an

adequate site to include those sites

which cannot be subdivided into two or

more sites under current zoning

ordinance requirements for the area. In

addition, the proposal clarifies the

requirements for other than central

waste and water disposal systems, and

requires a legally binding agreement

which allows interested third parties to

enforce the obligation of the owner/

operator of privately owned water and

waste/water disposal systems to provide

satisfactory service at reasonable rates.

Ownership Requirements

Buyers and sellers under a recorded

land purchase contract must convert the

purchaser’s interest to a deed/mortgage

or trust deed situation prior to loan

closing.

Conditions for allowable leases are

simplified and changed to require that

unless the loan is guaranteed by a

public agency or Indian housing

authority, the remaining term of the

lease must be at least 150 percent

greater than the term of the RHCDS

loan. If the loan is guaranteed by a

public agency or Indian housing

authority, the remaining term must be at

least 2 years longer than the repayment

period of the RHCDS loan. In no case

may the remaining term of the lease be

less than 15 years.

Dwelling Requirements

All references to modest housing,

characteristics of new dwellings,

dwelling designs and materials,

prohibited features and amenities, and

permitted features have been removed.

Homes financed must still provide

decent, safe, and sanitary housing but

loan amounts will be limited to 85

percent of the HUD established

mortgage limits unless an exception is

granted. In-ground swimming pools and

income producing properties are still

prohibited except as discussed under

loan restrictions. The section on existing

dwellings has been revised to provide

for inspections by RHCDS or

disinterested third parties. Repairs to

existing dwellings will be done after

loan closing and performed in

accordance with HUD Handbook

4905.1, ‘‘1–4 Family Living Units.’’

Maximum Loan Amounts

RHCDS recognizes that the revision

allowing fees for appraisals as an

authorized loan purpose will likely

result in the need for loan funds in

excess of the purchase price of the

dwelling. Most applicants/borrowers

would not be expected to have the

resources to pay this additional cost.

RHCDS believes it is necessary to allow

the financing of this fee. The Agency

proposes a revision to permit loans in

excess of the appraised value or the

purchase price of the dwelling

(whichever is less) for most program

type loans.

The loan amount may not exceed 85

percent of the maximum dollar

limitation of section 203(b) of the

National Housing Act (12 U.S.C. 1702),

unless authorized by the State Director

or RHCDS Administrator. These

amounts are the HUD established CAPs

and are available from any HUD office.

Exceptions to these loan limits are

provided for where the existing HUD

mortgage limit is insufficient to provide

adequate housing for RHCDS

applicants/borrowers or where different

mortgage limits exist in adjoining areas

of the same community. Exceptions

have also been provided for the needs

of larger families or to accommodate a

disabled or disabled household member.
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25637

Security Requirements

The section on mortgage insurance

has been revised to clarify what is

needed in State supplements when

financing is provided to a holder of

possessory rights on an American

Indian reservation or State-owned land.

The section on best mortgage

obtainable has been revised to provide

that title clearance and legal services

required under subpart B of part 1927

are waived when taking a real estate

mortgage to secure a subsequent loan to

an existing RHCDS borrower for

minimal essential repairs which are

necessary to preserve the Government’s

security.

The proposed regulation contains a

new provision regarding the amount of

attorney fees permitted for foreclosures

on prior mortgages when RHCDS is

requested to take a subordinate lien

position. The current regulation

prohibits the charge of a flat fee of more

than 5 percent; the proposal will limit

these costs to that customary for the

area.

The section on life estates has been

revised to provide for a guardian or

conservator for the remainder interests

of a person who is not legally

competent. Land purchase contracts

must be converted to a deed/mortgage

situation to be considered for financing.

Refinancing Non-RHCDS Debts

This section has been renamed and

the section dealing with refinancing of

RHCDS debts has been moved to the

section dealing with loan restrictions.

This section has been revised to clarify

that refinancing of non-RHCDS debts is

not permitted on manufactured homes.

In addition, this section has been

broadened to permit refinancing of a

debt that is not currently delinquent

when it is clear that the applicant will

be unable to continue to maintain

payments for reasons beyond the

applicant’s control, and this will likely

result in the applicant’s loss of the

dwelling at an early date if the debt is

not refinanced. The Agency has

removed its restriction on the use of

loan funds to refinance non-RHCDS

debts on building sites without a

dwelling under certain conditions.

Loans to Farm Ownership (FO),

Individual Soil and Water (SW) and

Recreation (RL) Borrowers

This section has been removed from

subpart A of part 1944 as being

unnecessary. There are no restrictions

on such loans.

Technical Services

As noted previously, there will be an

appraisal fee charged for each

application involving an appraisal.

Sales of a Government-owned inventory

property do not require an appraisal,

and, therefore, no appraisal fee will be

charged in these cases. This fee will be

the applicant/borrower’s responsibility

and may be included as a loan cost if

the applicant/borrower chooses.

Appraisals will generally be completed

within 30 days of receipt of the

information requested when the

Certificate of Eligibility is issued to the

applicant.

The collection of appraisal fees has

been waived for appraisals done for

subsequent loans being made to existing

RHCDS borrowers for minimal essential

repairs necessary to protect the

Government’s security.

The limit on total indebtedness

necessitating a real estate appraisal has

been raised from $7,500 to $15,000.

There has also been a change to indicate

that a real estate appraisal is not

required when making a loan to an

existing RHCDS borrower where the

existing real estate appraisal indicates

the property value is sufficient to secure

the total real estate indebtedness when

the total debt, including the planned

loan, does not exceed the amount of the

original loan.

Rates and Terms

This section has been revised to

remove the paragraph regarding the

source of funds, reword the section on

eligibility for 38-year terms, and remove

the section dealing with Repair and

Rehabilitation loans. Under the revised

payment assistance method, there is no

benefit in making these loans and the

authority for same is removed.

Preparation of Loan Docket

This section has been removed from

the body of the instruction and

transferred to exhibit E (available in any

RHCDS field office).

Loan Approval

Time guidelines have been included

to provide that loans will generally be

approved within 30 days of receipt of

information needed to complete the

loan docket.

Loan Closing

This section has been revised to

require that all new loans will be closed

on a monthly basis with the exception

of existing RHCDS borrowers who have

annual payment promissory notes.

Deferred Mortgage Payments

This section has been revised to

clarify the provisions of the program.

The Agency has increased the

percentage of PITI used in the

calculation to determine eligibility for

deferred mortgage payments from 20

percent of adjusted family income to 29

percent of gross annual income.

Applicants whose PITI ratio exceeds 29

percent of gross annual income will be

considered for a longer term loan; if the

PITI ratio, calculated at a 1 percent

equivalent rate of interest for the

maximum loan term still exceeds 29

percent of gross annual income, the

applicant will qualify for additional

subsidy in the amount of .25 percent of

the payment at the 1 percent equivalent

rate of interest.

Subsequent Loans

A requirement that a new credit

report will be obtained for all applicants

for subsequent loans has been included.

Reference has been made to the waiver

of title clearance and appraisal fees for

subsequent loans made for essential

repairs as provided in § § 1944.18 and

1944.24.

Mutual Self-Help Housing

This section has been rewritten for

clarification.

Housing Demonstration Programs

Section 1944.41 has been added to

this subpart to authorize demonstration

housing programs. In the past,

demonstration programs have been

utilized to study the effects of various

ways to provide housing to meet the

objectives of the RHCDS RH program in

ways that could not have been

accomplished otherwise based on

existing regulations. Demonstration

programs will be announced prior to

implementation.

Conditional Commitments

A conditional commitment is

assurance by the Agency to an owner,

qualified builder, or dealer-contractor

that a dwelling offered for sale will be

acceptable for purchase by a qualified

RH loan applicant under specified

limited conditions. In the past,

commitments has been limited to the

construction of new housing or the

rehabilitation of existing housing. The

Agency has revised this section to allow

a conditional commitment on an

existing house, with or without repairs.

This will allow a seller of a home to

obtain a conditional commitment prior

to finding a buyer for the property.

The loan limit for a conditional

commitment is currently the appraised

value of the property, less closing costs.

Based on the revision of the maximum

loan amount discussed previously, the

Agency proposes to remove the

requirement that the commitment

amount be reduced by the amount of
25638 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

loan closing costs. In addition, the

Agency proposes to increase the charge

for a conditional commitment fee to

cover the cost of a real estate appraisal

and required inspections. The holder of

the conditional commitment will be

reimbursed for the appraisal portion of

the fee at the time of loan closing in an

amount equal to the appraisal fee

charged to the RHCDS loan applicant.

Existing houses will be eligible for

conditional commitments to address the

needs in those areas with an abundance

of existing, eligible housing. The

restriction on 15 outstanding

conditional commitments in any one

County has been removed.

An exception has been incorporated

under certain conditions to allow

construction to begin prior to obligation

of loan funds for a qualified loan

applicant. These exceptions will

generally be limited to situations where

it is necessary to begin construction

because of impending weather

conditions, and it is likely that funding

will be forthcoming shortly. Under this

type of exception, sales agreements

must be modified to outline the

circumstances under which the loan has

been approved, and provide an option

for the contractor to terminate the sales

agreement if the loan is not funded and

closed within 90 days. In these

situations, the conditional commitment

issued on the property to be constructed

will be honored by RHCDS for the

remaining commitment period to allow

the commitment holder the opportunity

of finding another eligible loan

applicant. The prior RHCDS loan

applicant will be issued a Certificate of

Eligibility so that the applicant may

locate another suitable dwelling.

Rural Housing Disaster Loans and

Construction Financing for Builders by

Private Credit Sources

These sections have been deleted

from this subpart.

Exhibits to Subpart A of Part 1944.

The exhibits to this regulation are not

required to be published. They contain

administrative requirements and will be

available at any RHCDS field office

upon publication of the regulation.

Other Affected Regulations

Conforming changes which are

necessary to other regulations as a result

of revisions proposed to subpart A of

part 1944 will be done at publication of

the Final Rule. Revisions were

necessary to the following regulations as

noted, due to the revisions proposed to

subpart A of part 1944:

Subpart A of Part 1910—Receiving and

Processing Applications

Section 1910.4 has been revised to

remove information on what constitutes

a completed RH application and

verification of information supplied

with the application and to make minor

editorial changes. This information is

now contained in subpart A of part 1944

of this chapter. Other revisions made to

conform with revisions to subpart A of

part 1944 of this chapter.

Subpart J of Part 1944—Section 504

Rural Housing Loans and Grants

This section has been revised to

provide a definition of ‘‘owneroccupant,’’ allow payment of

environmental and tax monitoring

expenses as an authorized loan purpose,

limit packaging fees to $300, and

provide for the use of a guardian or

conservator for incompetent applicants.

When evaluating an applicant’s

personal resources to meet their housing

needs, the Agency proposes to increase

the limit for liquid assets from $5,000 to

$7,500; however, excess real estate must

be included in this evaluation. In

addition, subsequent loans in areas

where the designation has recently

changed from rural to nonrural, will be

limited to essential repairs.

Due to the increased cost of materials

and labor, the Agency has found it

difficult to remove all major health and

safety hazards under existing loan and

grant limits. For this reason, the

maximum amount of section 504 loan

and grant assistance has been raised; the

maximum loan outstanding to any

owner/occupant may not exceed

$20,000 and the maximum lifetime

grant assistance to any owner/occupant

may not exceed $7,500. In addition, the

Agency has increased the amount of

total indebtedness where a real estate

appraisal is required to $20,000.

Subpart G of Part 1951—Borrower

Supervision, Servicing, and Collection

of Single Family Housing Loan

Accounts

A new section has been added for

payment assistance. Corrections,

renewals, and cancellations of payment

assistance agreements and payment

assistance granted as a servicing action

on existing loans will be handled under

this section.

Clarification has been added

regarding the preparation of payment

assistance agreements for applicants/

borrowers who claim to have no income

and situations where the coapplicant/

coborrower has left the dwelling due to

domestic discord.

While loans may be made only to lowor very low-income applicants who will

receive payment assistance, this

assistance will also be available to

existing RHCDS borrowers with

incomes that do not exceed the

moderate income limit. Corrections on

existing agreements will be processed

when information is available to

indicate a change in family income that

would change the amount of authorized

payment assistance in accordance with

§ 1944.34(c). Applicants/borrowers will

be required to present a copy of their

most recently filed federal income tax

return unless exempted from filing a

return.

Subpart C of Part 1965—Security

Servicing for Single Family Rural

Housing Loans

Minor changes have been made to

bring this instruction into line with

proposed changes to subpart A of part

1944 relative to minimum adequate sites

and modest housing.

List of Subjects in 7 CFR Parts 1910,

1944, 1951, and 1965

Accounting servicing, Administrative

practice and procedure, Aged,

Applications, Credit, Grant programs—

Housing and community development,

Home improvement, Loan programs—

Housing and community development,

Housing standards, Low- and moderateincome housing, Low- and moderateincome housing—rental, Low- and

moderate-income housing—Servicing,

Marital status discrimination, Mobile

homes, Mortgages, Nonprofit

organizations, Rural areas, Rural

housing, Sex discrimination, Subsidies.

Therefore, as proposed, Chapter XVIII,

Title 7, Code of Federal Regulations is

amended as follows:

PART 1910—GENERAL

1. The authority citation for part 1910

continues to read as follows:

Authority: 7 U.S.C. 1989, 42 U.S.C. 1480,

5 U.S.C. 301.

Subpart A—Receiving and Processing

Applications

2. Section 1910.4 (a) is revised to read

as follows:

§ 1910.4 Processing applications.

* * * * *

(a) Completed RH applications.

Completed applications are those as

described in § 1944.27 of subpart A of

part 1944 (copies available in any

RHCDS field office), and all applications

for Rural Housing loans will be

processed as outlined in that

instruction.

* * * * *
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25639

3. Section 1910.5 is amended by

revising the reference ‘‘1944.4(c)’’ to

read ‘‘1944.9.’’ in the last sentence of

paragraph (c)(6) and by adding a new

paragraph (e) to read as follows:

§ 1910.5 Evaluating applications.

* * * * *

(e) Delinquency on a Federal debt.

The Department of Housing and Urban

Development’s Credit Alert Interactive

Voice Response System (CAIVRS) will

be used to help determine if an

applicant is delinquent on any Federal

debt.

§ 1910.6 [Amended]

4. Section 1910.6(g) is amended in the

first sentence by revising the words

‘‘Rural Housing’’ to read ‘‘RH’’ and by

revising the reference ‘‘§ 1944.26’’ to

read ‘‘§ 1944.27.’’

PART 1944—HOUSING

7. The authority citation for part 1944

continues to read as follows:

Authority: 7 U.S.C. 1989, 42 U.S.C. 1480,

5 U.S.C. 301.

8. Subpart A of part 1944 is revised

to read as follows:

Subpart A—Section 502 Rural Housing

Loan Policies, Procedures, and

Authorizations

Sec.

1944.1 General.

1944.2 Definitions.

1944.3 Loan purposes.

1944.4 Loan restrictions.

1944.5 Annual income.

1944.6 Adjusted annual income.

1944.7 [Reserved]

1944.8 Income eligibility requirements.

1944.9 Other eligibility requirements.

1944.10 Rural area designation.

1944.11 Site requirements.

1944.12–1944.14 [Reserved]

1944.15 Ownership requirements.

1944.16 Dwelling requirements.

1944.17 Maximum loan amounts.

1944.18 Security requirements.

1944.19–1944.21 [Reserved]

1944.22 Refinancing non-RHCDS debts.

1944.23 [Reserved]

1944.24 Technical services.

1944.25 Rates and terms.

1944.26 Fund allocation.

1944.27 Application processing.

1944.28–1944.30 [Reserved]

1944.31 Loan approval.

1944.32 [Reserved]

1944.33 Loan closing.

1944.34 Payment assistance.

1944.35 Deferred mortgage payments.

1944.36 [Reserved]

1944.37 Subsequent section 502 RH loans.

1944.38 Mutual Self-Help Housing.

1944.39 RH loans to RHCDS employees and

loan closing officials.

1944.40 [Reserved]

1944.41 Housing demonstration programs.

1944.42–1944.44 [Reserved]

1944.45 Conditional commitments.

1944.46 Appeals.

1944.47–1944.48 [Reserved]

1944.49 FmHA Instructions.

1944.50 [Reserved]

Subpart A—Section 502 Rural Housing

Loan Policies, Procedures, and

Authorizations

§ 1944.1 General.

This Subpart sets forth the policies

and procedures and delegates authority

for making section 502 Rural Housing

(‘‘RH’’) loans to individuals under title

V of the Housing Act of 1949, as

amended. The objective of section 502

RH loans is to provide eligible persons

who will live in rural areas with an

opportunity to own adequate but

modest, decent, safe, and sanitary

dwellings and related facilities. The

requirements of subpart E of part 1901

will be applied as appropriate. Loans

and services provided under this

subpart shall not be denied to any

person or applicant based on race, sex,

national origin, color, religion, marital

status, familial status, age, physical or

mental disabled (applicant must possess

the capacity to enter into a legal contract

for services or have a court appointed

guardian/conservator empowered to

obligate the applicant in real estate

matters), receipt of income from public

assistance, or because the applicant/

borrower has, in good faith, exercised

any right under the Consumer

Protection Act.

(a) In compliance with the 1988

amendments to the Fair Housing Act

and the Americans with Disabilities Act

of 1990, reasonable accommodations

must be given to individuals who are

developmentally disabled so that they

have the opportunity to become

successful homeowners. When an

applicant or an applicant’s

representative indicates the existence of

a disability during the loan process, e.g.

by requesting the Rural Housing and

Community Development Service

(RHCDS) disability deduction to income

due to mental or physical disability or

through verification of income from a

Federal or state government source

because of mental or physical disability,

RHCDS must ask the applicant or the

applicant’s representative what

reasonable accommodations should be

made in order for the loan to be

processed. The reasonable

accommodation request must be

provided to RHCDS by the applicant or

the applicant’s representative.

Reasonable accommodations can

include allowing a court appointed

guardian or conservator to execute

appropriate loan making and loan

closing documents on behalf of the

applicant; the court order must show

that the guardian/conservator has the

power and responsibility to obligate the

applicant in real estate matters and a

copy of the court order must be made

a part of the loan docket.

(b) Any processing or servicing

activity conducted pursuant to this

subpart involving authorized assistance

to RHCDS employees, members of their

families, known close relatives, or

business or close personal associates, is

subject to the provisions of subpart D of

part 1900. Applicants for this assistance

are required to identify any known

relationship or association with an

RHCDS employee.

(c) RHCDS will collect fees for credit

reports, real estate appraisals, and

conditional commitment applications

when appropriate. RHCDS may use its

own employees or other agents or

institutions in carrying out its

responsibilities under this subpart.

§ 1944.2 Definitions.

The following definitions apply to

this subpart:

Annual payment borrowers.

Borrowers who signed promissory notes

providing for annual payments,

including borrowers converted to

monthly payments through the use of

Form FmHA 1951–34, ‘‘Direct Payment

Plan Change.’’

Certificate of Eligibility. Certificate

issued by RHCDS to applicants who

have received a final determination of

eligibility after verification of all

income. Applicants can present this to

real estate agents, builders and sellers to

provide their eligibility documentation.

Conditional Commitment. Assurance

from RHCDS, in exchange for a specific

fee, to an owner, qualified builder, or

dealer-contractor that a dwelling offered

for sale will be acceptable for purchase

by a qualified RH loan applicant under

specified limited conditions.

Cosigner. A party who joins in the

execution of a promissory note to

compensate for any deficiency in the

borrower’s repayment. The cosigner

becomes jointly liable to comply with

the terms of the note in the event of the

borrower’s default, but is not entitled to

any interest in the security or borrower

rights. If the security is transferred to

the cosigner, the cosigner may assume

the RHCDS indebtedness on program or

nonprogram terms, as applicable.

Deficient housing. A dwelling which

meets one or more of the following

conditions:

(1) Lacks complete plumbing; i.e. no

bathtub or shower, wash basin, flush

toilet, or hot running water for the

exclusive use of the occupant;
25640 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

(2) Lacks adequate heating;

(3) Is physically deteriorated or

structurally unsound; i.e. roof leaks,

falling plaster or sheetrock, extensive

termite or wood rot damage, dangerous

electrical service; or

(4) Overcrowding situations which

will be corrected after loan closing; i.e.

more than 2 persons per bedroom.

Disabled person. A person who is

unable to engage in any substantially

gainful activity by reason of any

medically determinable physical or

mental impairment expected to result in

death or which has lasted or is expected

to last for a continuous period of not

less than 12 months. The disability is

expected to be of long or indefinite

duration; substantially impede his/her

ability to live independently; and is of

such a nature that the person’s ability to

live independently could be improved

by more suitable housing conditions. In

the case of an individual who has

attained the age of 55 and is blind,

disability is defined as inability by

reason of such blindness to engage in

any substantially gainful activity

requiring skills or abilities comparable

to those of any gainful activity in which

the individual has previously engaged

with some regularity over a substantial

period of time. Receipt of veteran’s

benefits for disability, whether serviceoriented or otherwise, does not

automatically establish disability. A

disabled person also includes a person

with a developmental disability. A

developmental disability means a

severe, chronic disability of a person

which:

(1) Is attributable to a mental or

physical impairment or combination of

mental and physical impairments;

(2) Is manifested before the person

attains age 22;

(3) Is likely to continue indefinitely;

(4) Results in substantial functional

limitations in three or more of the

following areas of major life activity:

(i) Self-care,

(ii) Receptive and expressive

language,

(iii) Learning,

(iv) Mobility,

(v) Self-direction,

(vi) Capacity for independent living,

(vii) Economic self-sufficiency; and

(5) Reflects the person’s need for a

combination and sequence of special

care, treatment, or other services which

are of lifelong or extended duration, and

are individually planned and

coordinated.

Elderly family. An elderly family

consists of one of the following:

(1) A person who is the head, spouse

or sole member of a family and who is

62 years of age or older, or who is

disabled and is the applicant/borrower

or the coapplicant/coborrower; or

(2) Two or more persons who are

living together, at least one of whom is

age 62 or older, disabled and who is the

applicant/borrower or coapplicant/

coborrower; or

(3) In the case of a family where the

deceased borrower, coborrower, or

spouse, was at least 62 years old,

disabled, the surviving household

member shall continue to be classified

as an ‘‘elderly family’’ for the purpose

of determining adjusted income even

though the surviving member or

members may not meet the definition of

elderly family on their own, provided:

(i) They occupied the dwelling with

the deceased family member at the time

of the death; and,

(ii) If one of the surviving family

members is the spouse of the deceased

family member, the surviving family

shall be classified as an elderly family

only until the remarriage of the

surviving spouse; and,

(iii) At the time of the death of the

deceased family member, the dwelling

was financed under title V of the

Housing Act of 1949.

Equivalent interest rate. The interest

rate charged under payment assistance.

It is determined by a comparison of the

borrower’s adjusted annual income to

the median income for the area where

the security property is located, based

on income figures published by the

Department of Housing and Urban

Development (‘‘HUD’’) as reflected in

exhibit C (available in any RHCDS field

office).

Existing dwelling. A dwelling which

is:

(1) More than 1 year old; or

(2) Less than 1 year old but the

dwelling is covered by an approved 10-

year warranty plan as described in

subpart A of part 1924 and the

contractor provides complete plans and

specifications, together with a

certification that construction was

completed in compliance with said

plans and specifications, applicable

building codes, and thermal

performance standards (‘‘TPS’’) for new

construction. In addition, the contractor

must provide evidence that the

contractor meets any licensing

requirements in the state and is an

approved builder in good standing

under the approved 10-year warranty

plan.

Extended family. A family unit

comprised of adult relatives who live

together with the other members of the

household, for reasons of physical

dependency, economics, and/or social

custom, who, under other

circumstances, could maintain separate

households. A typical example would

be parents living with their adult

children.

Farm. Includes the total acreage of

one or more tracts of land which:

(1) Is owned by the applicant/

borrower;

(2) Is operated as a single unit;

(3) Is in agricultural production; and

(4) Annually will produce agricultural

commodities for sale and home use with

a gross annual value equivalent to $400

in 1944.

Full-time student. A person who is

carrying a subject load that is

considered full-time for day students

(excluding correspondence courses)

under the standards and practices of the

educational institution attended. An

educational institution includes a

vocational school with a diploma or

certificate program, as well as an

institution offering a college degree.

Household or family. The applicant/

borrower, coapplicant/coborrower, and

all other persons who will make the

applicant/borrower’s dwelling their

primary residence for all or part of the

next 12 months (excluding foster

children placed in the home and live-in

aides). Children who are members of the

family, but have been removed and

placed in foster care, will be counted as

residents of the household. Children

who are subject to a joint custody

agreement and live in the unit at least

50 percent of the time are considered to

be household members.

Income. Income limits (the definitions

of which are included below in order

from the lowest to the highest) are

contained in exhibit C (available in any

RHCDS field office).

(1) Very-low income. An adjusted

annual income that does not exceed the

very low-income limit according to size

of household as established by HUD for

the county or Metropolitan Statistical

Area (‘‘MSA’’) where the property is or

will be located.

(2) Low-income. An adjusted annual

income greater than the very lowincome limit but that does not exceed

the low income limit according to size

of household as established by HUD for

the county or MSA where the property

is or will be located.

(3) Moderate-income. An adjusted

annual income greater than the lowincome limit but that does not exceed

the maximum limit for moderateincome households.

(4) Above moderate-income. An

adjusted annual income that exceeds the

maximum limit for moderate-income

households.

Insurance. The insurance required by

RHCDS as a condition of loan approval,

including fire and extended coverage
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25641

insurance and flood insurance when

applicable.

Live-in aides. Persons living in the

household for the sole purpose of

providing essential care and well being

for an elderly, or disabled household

member. Live-in aides cannot be related

to a household member and would not

be living in the unit except to provide

essential supportive services.

Median income. An adjusted median

annual income for the size of household

as established by HUD for the county or

MSA where the property is or will be

located.

Metropolitan Statistical Area (MSA).

MSAs are defined according to a set of

detailed standards prepared by the

Federal Committee on MSAs. An area

qualifies as an MSA if it contains a city

of at least 50,000 population or an

urbanized area of at least 50,000 with a

total metropolitan population of at least

100,000. MSAs are defined in terms of

entire counties, except in the six New

England states where they are defined in

terms of cities and towns. An MSA may

also include additional counties having

strong economic and social ties to the

central county. The term Standard

Metropolitan Statistical Area (SMSA)

was in use prior to the June 30, 1983,

effective date of the MSA terminology.

Minor. For the purposes of

determining adjusted annual income,

this definition is restricted to persons

under 18 years of age. Neither the head

of household nor spouse may be

counted as a minor. Foster children are

not counted as minors for determining

annual or adjusted annual income.

Monthly payment borrowers.

Borrowers who signed promissory notes

providing for payment of monthly

installments.

Net family assets. Include:

(1) The value of equity in real

property (other than the dwelling or

site); cash on hand; savings; checking

accounts; demand deposits; and the

market value of stocks, bonds, and other

forms of capital investments, including

voluntary retirement plans that are

accessible to the applicant/borrower

such as individual retirement accounts

(IRAs), 401(k) plans, and Keogh

accounts, as well as amounts that can be

withdrawn from other retirement and

pension funds without retiring or

terminating employment, but exclude:

(i) Interests in American Indian trust

land,

(ii) Cash on hand which will be used

to reduce the amount of the loan,

(iii) The value of necessary items of

personal property such as furniture and

automobile,

(iv) The assets that are a part of the

business, trade, or farming operation in

the case of any member of the

household who is actively engaged in

such operation, and

(v) The value of a trust fund that has

been established where the trust is not

revocable by, or under the control of,

any member of the household, so long

as the fund continues to be held in trust.

(2) The value of any business or

household assets disposed of by a

member of the household for less than

fair market value (including disposition

in trust, but not in a foreclosure or

bankruptcy sale) during the 2 years

preceding the date of application, in

excess of the consideration received

therefor. In the case of a disposition as

part of a separation or divorce

settlement, the disposition shall not be

considered to be for less than fair

market value if the household member

receives important consideration not

measurable in dollar terms.

Nonfarm tract. A parcel of land that

is not a farm and is located in a rural

area, or a building site that is part of a

farm, and which secures an RH loan in

accordance with § 1944.18(b)(10).

Place. An area containing a

concentration of inhabitants within a

determinable unincorporated area.

Real estate taxes. Real estate taxes

mean the amount of real estate taxes and

assessments estimated to be due and

payable on the dwelling and the

dwelling site, reduced by the amount of

any tax exemption available to the

borrower, regardless of whether such an

exemption is actually claimed. Tax

exemptions may include such things as

homestead exemptions, special

exemptions for low-income families,

senior citizens, veterans, and others.

Rehabilitation. Major repairs and

improvements to existing dwellings

such as the installation or completion of

bathroom facilities, installation of major

items of equipment, additions, or

structural changes.

Senior citizen. Is a person who is 62

years of age or older.

Town. Is a municipality similar to a

city but does not include a New

England-type town which resembles a

township or county in most States.

Urban area. Either a town, village,

city, place, or any associated

combination thereof which, with the

immediately adjacent densely settled

areas, has a population in excess of the

limits prescribed in 1944.10 (a)(2)(i) and

(ii).

§ 1944.3 Loan purposes.

(a) A loan may be made to an eligible

applicant/borrower for the following

purposes:

(1) To buy, build, rehabilitate,

improve, or relocate a dwelling and

provide related facilities for use by the

applicant/borrower as a permanent

residence.

(2) To buy, build, rehabilitate,

improve, or relocate a dwelling, and

provide related facilities for a farm

owner to provide housing to be

occupied by the farm manager, tenants,

sharecroppers, or farm laborers.

(3) To refinance secured debts or

unsecured debts as provided in

§ 1944.22, except for manufactured

homes.

(b) A loan made under paragraph (a)

(1) or (2) of this section may be used to:

(1) Purchase, in fee title, a minimum

adequate site, as outlined in § 1944.11

on which the improvements are or will

be located, if the applicant/borrower

does not own an adequate site.

(2) Pay reasonable acquisition costs

for a leasehold interest in a minimum

adequate site at the time of making the

initial RH loan.

(3) Provide an adequate and safe

water supply or an adequate waste/

water disposal facility.

(4) Provide site preparation, including

grading, foundation plantings, seeding

or sodding of lawns, trees, walks, yard

fences, and driveways to building sites.

(5) Purchase and install essential

equipment in the dwelling including

items such as a range, refrigerator,

clothes washer or clothes dryer, if these

items are normally sold with dwellings

in the area, and if purchase of these

items is not the primary purpose of the

loan.

(6) Provide special design features or

equipment when necessary because of

physical disability of the applicant/

borrower or of a member of the

household.

(7) Purchase and install approved

energy saving measures and approved

furnaces and space heaters which use a

type of fuel that is commonly used, and

is economical and dependably available.

(8) Provide storm cellars and similar

protective structures.

(9) Pay incidental expenses such as

legal fees, costs of title clearance, and

loan closing services; appraisal,

surveying, environmental, tax

monitoring, and other technical

services; personal liability insurance

fees for self-help housing borrowers;

and incidental expenses authorized in

exhibit G (available in any RHCDS field

office).

(10) Pay lender fees and points in

connection with participation loans,

(except as provided in § 1944.4), which

are customary, reasonable, and do not

exceed the amount typical for the area.

(11) Pay reasonable connection fees

for utilities such as water, sewer,

electricity and gas, which are required
25642 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

to be paid by the borrower and which

cannot be paid from other funds.

(12) Pay the borrower’s share of Social

Security taxes for labor hired by the

borrower in connection with making the

planned improvements.

(13) Pay real estate taxes which are

due and payable on the building and

site owned by the applicant at the time

of closing an initial loan, if this amount

is not a part of the loan.

(14) Establish escrow accounts for the

payment of real estate taxes or property

insurance premiums in those States

where the use of escrow accounts is

authorized by the National Office.

(15) Provide living area for all

members of the applicant/borrower’s

household, including ‘‘extended

family.’’

(16) Finance the purchase of single

family housing units located in a

Planned Unit Development with a

Homeowners’ Association that has

employed professional management,

with prior National Office approval.

(17) Pay fees for the development and

packaging of loan applications and

related actions to public and private

nonprofit organizations which are tax

exempt under the Internal Revenue

Code of 1986 (except when restricted

under § 1944.4) when:

(i) The loan has been packaged in

accordance with exhibit A to FmHA

instruction 1944–A (available in any

RHCDS field office) and the limitations

of § 1944.17, and

(ii) The charges are reasonable

considering:

(A) The amount and purpose of the

assistance,

(B) The repayment ability of the

recipient, and

(C) The cost of similar services in the

same or a similar rural area.

(iii) The State Director may issue a

State Supplement outlining what is

considered a reasonable amount for his/

her jurisdiction.

§ 19 44.4 Loan restrictions.

Loan funds may not be used to:

(a) Make a new loan to pay off

existing RHCDS debts in lieu of a

transfer with assumption.

(b) Refinance:

(1) RHCDS debts, except as authorized

under § 1951.318.

(2) Debts on a manufactured home.

(c) Purchase or improve incomeproducing land, or buildings to be used

principally for income-producing

purposes, or buildings not essential for

RH purposes, or buy or build buildings

which are either largely, or in part,

specifically designed to accommodate a

business or income-producing

enterprise. (Home based operations such

as child care, home/beauty product

sales, the production of crafts, etc., that

do not require specifically designed

features to accommodate the enterprise,

are not restricted under this subpart;

however, housing related expenses such

as mortgage interest, real estate taxes,

and insurance, which may be claimed as

business expense deductions for income

tax purposes, will not be allowed when

determining annual income for RHCDS

assistance.)

(d) Pay fees, charges, or commissions,

such as finders’ fees, fees for packaging

the application (except as provided in

§ 1944.3), or placement fees for the

referral of a prospective applicant to

RHCDS.

(e) Pay packaging fees (as provided

under § 1944.3) for the purchase of an

RHCDS inventory property or where the

packager is receiving a grant under

subpart B of part 1944.

(f) Improve the entry of a homestead

entryman or desert entryman prior to

receipt of patent.

(g) Finance manufactured homes

which are not constructed and installed

in accordance with exhibit F to FmHA

instruction 1944–A and exhibit J of

subpart A of part 1924. (Both exhibits

are available in any RHCDS field office.)

§ 1944.5 Annual income.

Annual income determinations will

be thoroughly documented in the case

file. Historical data based on the past 12

months or last fiscal year may be used

if a determination of expected income

cannot logically be made. Annual

income will be calculated as follows:

(a) Current verified income, either

part-time or full-time, received by the

applicant/borrower and all adult

members of the household including the

spouse is derived by multiplying:

(1) An hourly wage by 2080 hours (for

part-time employment use anticipated

annual hours); or

(2) A weekly wage by 52 weeks; or

(3) A biweekly wage by 26 weeks; or

(4) A monthly wage by 12 months.

(b) If the spouse or any other adult

member of the household is not

presently employed but there is a recent

history of such employment, that

person’s income will be projected

unless the applicant/borrower or the

person involved signs a statement that

the person is not presently employed

and does not intend to resume

employment in the foreseeable future,

or, if payment assistance is involved,

during the term of the payment

assistance agreement.

(c) Income from such sources as

seasonal work of less than 12 months

duration, commissions, overtime,

bonuses, and unemployment

compensation will be computed as the

estimated annual amount of such

income for the ensuing 12 months.

Temporary income such as

unemployment benefits, worker’s

compensation, etc., will be projected

over 12 months when computing

payment assistance on an annual basis.

Historical data based on the past 12

months may be used if a determination

of expected income cannot logically be

made.

(d) The following are included in

annual income:

(1) The gross amount, before any

payroll deductions, of wages and

salaries, overtime pay, commissions,

fees, tips, bonuses, and other

compensations for personal services of

all adult members of the household. If

a cost of living allowance or a proposed

increase in income has been estimated

to take place on or before loan approval,

loan closing, or the effective date of the

payment assistance agreement, it will be

included as income.

(2) The net income from the operation

of a farm, business, or profession. The

following provisions apply:

(i) Expenditures for business or farm

expansion, capital improvements, or

payments of principal on capital

indebtedness shall not be used as

deductions in determining income. A

deduction is allowed in the manner

prescribed by Internal Revenue Service

(IRS) regulations only for interest paid

in amortizing capital indebtedness.

(ii) Farm and nonfarm business losses

are considered ‘‘0’’ in determining

annual income.

(iii) A deduction, based on straight

line depreciation, is allowed in the

manner prescribed by IRS regulations

for the exhaustion, wear and tear, and

obsolescence of depreciable property

used in the operation of a trade, farm,

or business by a member of the

household. The deduction must be

based on an itemized schedule showing

the amount of straight line depreciation

actually claimed for Federal income tax

purposes.

(iv) Any withdrawal of cash or assets

from the operation of a farm, business,

or profession will be included in

income, except to the extent the

withdrawal is reimbursement of cash or

assets invested in the operation by a

member of the household.

(v) A deduction is allowed for verified

business expenses, such as lodging,

meals, and fuel, for overnight business

trips made by salaried employees, such

as long-distance truck drivers, who must

meet these expenses without

reimbursement.

(vi) Housing related expenses for the

property being financed such as
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25643

mortgage interest, real estate taxes, and

insurance, which may be claimed as

business expense deductions for income

tax purposes, will not be deducted from

annual income.

(3) Interest, dividends, and other net

income of any kind from real or

personal property, including:

(i) The share received by adult

members of the household from income

distributed from a trust fund.

(ii) Any withdrawal of cash or assets

from an investment except to the extent

the withdrawal is reimbursement of

cash or assets invested by a member of

the household.

(iii) Where the household has net

family assets, as defined in § 1944.2, in

excess of $5,000, the greater of the

actual income derived from all net

family assets or a percentage of the

value of such assets based on the

current passbook savings rate, as

determined by RHCDS.

(4) The full amount of periodic

payments received from Social Security

(including Social Security received by

adults on behalf of minors or by minors

intended for their own support),

annuities, insurance policies, retirement

funds, pensions, disability or death

benefits, and other similar types of

periodic receipts. Amounts received

from the United States Government

which are attributable to underpayment

of benefits for one or more prior months

shall be excluded in the calculation of

annual income as provided in 42 U.S.C.

1382b.

(5) Payments in lieu of earnings, such

as unemployment and disability

compensation, worker’s compensation,

and severance pay.

(6) Public assistance except as

indicated in exhibit J to FmHA

instruction 1994–A (available in any

RHCDS field office).

(7) Periodic allowances, such as:

(i) Alimony and child support

awarded in a divorce decree or

separation agreement, unless the

applicant/borrower certifies the

payments are not received, and the

applicant/borrower provides

documentation to RHCDS that a

reasonable effort has been made to

collect the payments through the official

entity responsible for enforcing such

payments; or

(ii) Recurring monetary gifts or

contributions from someone who is not

a member of the household.

(8) Any amount of educational grants

or scholarships or Veterans

Administration (VA) benefits available

for subsistence after deducting expenses

for tuition, fees, books, and equipment.

(9) All regular pay, special pay

(except for persons exposed to hostile

fire), and allowances of a member of the

armed forces who is the applicant/

borrower or spouse, whether or not that

family member lives in the home.

(e) The following are not included in

annual income but will be considered in

determining repayment ability:

(1) Income over $1,000 from

employment of minors (including foster

children) under 18 years of age. The

applicant/borrower, coapplicant/

coborrower, or spouse may never be

considered minors.

(2) Payments received for the care of

foster children.

(3) The income of an applicant/

borrower’s spouse, when the spouse has

been living apart from the applicant/

borrower (for reasons other than

military or work assignment), or court

proceedings for divorce or legal

separation have been commenced.

(4) Casual, sporadic, or irregular cash

gifts.

(5) Lump-sum additions to family

assets such as inheritances, capital

gains, insurance payments included

under health, accident, hazard, or

worker’s compensation policies, and

settlements for personal or property

losses (except as provided in paragraph

(d)(5) of this section).

(6) Amounts which are granted

specifically for, or in reimbursement of,

the cost of medical expenses.

(7) The full amount of student

financial assistance paid directly to the

student or to the educational institution;

(8) Reparation payments paid by a

foreign government arising out of the

Holocaust. If an applicant for an RHCDS

loan was deemed ineligible because the

applicant’s income exceeded the low

income (moderate income for

guaranteed loans) because of the

applicant’s Nazi persecution benefits,

the RHCDS approval official should

notify the applicant to reapply for a

loan.

(9) Any earned income tax credit will

not be counted as part of annual

income, but will remain part of the

applicant’s income for purposes of

repayment ability.

(10) Any other revenue which a

Federal statute exempts shall not be

considered income or used as a basis for

determining eligibility for an RHCDS

loan, payment assistance, or denying or

reducing Federal financial assistance or

benefits to which the recipient would

otherwise be entitled. For information

on additional financial assistance which

is considered exempt income under

Federal statutes, refer to exhibit J

(available in any RHCDS field office).

(f) Income of live-in aides as

described in § 1944.2, will not be

counted when calculating annual

income and will not be considered in

determination of repayment ability.

§ 1944.6 Adjusted annual income.

Adjusted annual income is annual

income as determined in § 1944.5 less

the following:

(a) A deduction of $480 for each

member of the family residing in the

household, as defined by § 1944.2, other

than the applicant/borrower,

coapplicant/coborrower, or spouse who

is:

(1) Under 18 years of age; or

(2) Eighteen years of age or older and

is disabled as defined in § 1944.2; or

(3) A full-time student aged 18 or

older.

(b) A deduction of $400 for any

elderly family as defined in § 1944.2.

(c) A deduction for the care of minors

12 years of age or under, to the extent

necessary to enable a member of the

applicant/borrower’s family to be

gainfully employed or to further his/her

education. The deduction will be based

only on monies reasonably anticipated

to be paid for care services and, if

caused by employment, must not exceed

the amount of income received from

such employment. Payments for these

services may not be made to persons

whom the applicant/borrower is entitled

to claim as dependents for income tax

purposes.

(d) A deduction of the amount by

which the aggregate of the following

expenses of the household exceeds 3

percent of gross annual income:

(1) Medical expenses for any elderly

family as defined in § 1944.2. This

includes medical expenses, for any

household member, the applicant/

borrower anticipates incurring over the

ensuing 12 months which are not

covered by insurance. Examples of

medical expenses are dental expenses,

prescription medicines, medical

insurance premiums, eyeglasses,

hearing aids and batteries, the cost of

home nursing care, the costs of

transportation to and from medical

treatment, monthly payments on

accumulated major medical bills, and

cost of full-time nursing or institutional

care which cannot be provided in the

home for a member of the household;

and

(2) Reasonable attendant care and

auxiliary apparatus expenses for each

disabled member of any household to

the extent necessary to enable any

member of such household (including

such disabled member) to be employed.

§ 1944.7 [Reserved]

§ 1944.8 Income eligibility requirements.

(a) Repayment Ability. An applicant/

borrower is eligible for a section 502 RH
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loan only if the following requirements

are met:

(1) Income limit. The adjusted annual

income as defined in § 1944.6 at the

time of loan approval does not exceed

the applicable income limit in exhibit C

to FMHA instruction 1944–A (available

in any RHCDS field office).

(2) Adequate and dependable income.

The applicant/borrower (and

coapplicant/coborrower, if applicable),

has adequate and dependably available

income. The determination of income

dependability will include

consideration of the applicant/

borrower’s past history of annual

income and/or the history of the typical

annual income of others in the area with

similar types of employment. Such

income must be sufficient to meet the

income ratios described in

§ 1944.8(a)(3), as modified by

§ § 1944.34 and 1944.35.

(3) Determining repayment ability. In

considering whether the applicant/

borrower has adequate repayment

ability, RHCDS must calculate the

principal, interest, taxes, and insurance

(PITI) and monthly obligation to income

(MOTI) ratios. The PITI ratio is

calculated by dividing the monthly PITI

for the proposed loan (less any payment

assistance for which the applicant/

borrower may qualify) by the gross

monthly family income. The MOTI ratio

is calculated by dividing the applicant/

borrower’s monthly obligations by total

gross monthly family income.

(i) Monthly obligation consists of the

PITI for the proposed loan (less any

payment assistance for which the

applicant/borrower may qualify),

homeowner and other assessments, and

long term obligations. Long term

obligations include those obligations

such as alimony, child support, child

care, and other obligations with a

remaining repayment period of more

than 6 months, other shorter term

obligations that are considered to have

a significant impact on repayment

ability, plus 5 percent of the current

balance on all revolving credit cards.

(ii) Income, for the purpose of

determining these ratios, includes the

total gross monthly income of the

applicant/borrower, coapplicant/

coborrower, and any other member of

the household who will be a party to the

note, including any income that may be

excepted under § 1944.5.

(iii) The applicant/borrower is

considered to have repayment ability

when the proposed PITI and MOTI

ratios are less than or equal to a PITI

ratio of 29 percent and a MOTI ratio of

41 percent as defined in § 1944.8(a)(3).

Applicants whose PITI ratio exceeds the

ratio shall be considered for deferred

mortgage assistance as provided in

§ 1944.35.

(iv) When the ratios do not support

repayment of the proposed loan, at the

applicant/borrower’s request, RHCDS

may make an exception to the above

income ratio calculations under the

following circumstances or

compensating factors:

(A) When the applicant presents

documented evidence of having met

housing related costs in the past 6

months that are equal to or greater than

the projected housing costs after

approval of the proposed loan. These

housing costs must have been

maintained when the applicant’s

household income was equal to or less

than the current annual income, and the

applicant’s household debt load was

equal to or greater than the current debt

load. Projected housing costs will

include the RHCDS monthly payment

after application of any payment

assistance for which the applicant may

qualify, projected real estate taxes and

assessments, premiums for required

property and/or flood insurance,

estimated utility and maintenance costs,

and any other costs expected to be

incurred with home ownership.

(B) When the applicant/borrower

presents evidence that, due to unusual

circumstances a budget form should be

utilized to determine repayment ability

in lieu of repayment ratios. In these

circumstances, a budget will be

prepared jointly between RHCDS and

the applicant/borrower to determine the

applicant/borrower’s repayment ability.

(b) Additional coapplicant.

Applicants/borrowers applying who do

not meet the requirements of paragraph

(a)(2) of this section will be considered

ineligible unless other adults in the

household have adequate income and

wish to join in the application as a

coapplicant. The combined incomes and

obligations shall then be considered in

determining repayment ability.

(c) Cosigner. RHCDS will also

consider the use of a cosigner when the

applicant/borrower applying for

assistance does not meet the

requirements of paragraph (a)(2) of this

section. Cosigners must have adequate

and dependably available income

sufficient to repay any deficit in the

applicant/borrower’s repayment ability.

Cosigners are subject to the same

determination of repayment ability

outlined in paragraph (a)(3) of this

section as the applicant/borrower, with

the amount of the applicant/borrower’s

repayment deficiency considered as part

of the cosigner’s PITI ratio. The cosigner

may be an individual or an entity but

may not be a member of the applicant/

borrower’s household.

§ 1944.9 Other eligibility requirements.

In addition to the income eligibility

requirements of § 1944.8 the applicant/

borrower must:

(a) Qualify as one of the following:

(1) A person who does not own a

dwelling (except for refinancing

purposes), or owns a dwelling which is

not structurally sound, functionally

adequate, or large enough to

accommodate the needs of the

applicant/borrower, or,

(2) A farmowner without decent, safe,

and sanitary housing for the

farmowner’s own use or for the use of

farm tenants, sharecroppers, farm

laborers, or farm manager.

(b) Be without sufficient resources to

provide the necessary housing or related

facilities, and be unable to secure the

necessary credit from other sources

upon terms and conditions which the

applicant/borrower could reasonably be

expected to fulfill. If the applicant/

borrower has only an undivided interest

in the land to be improved, those coowners whose execution of the mortgage

is required under § 1944.18(b)(8) must

also be unable to provide the

improvement with their own resources

or obtain the necessary credit elsewhere,

either individually or jointly with the

applicant/borrower. Applicants/

borrowers are expected to reduce the

need for loan funds by utilizing

available nonessential assets and/or

cash on hand; however, IRAs, SEPs,

401(k) plans, and similar personal

retirement accounts do not have to be

liquidated when considering other

resources. Reasonable reserves may be

retained for unforeseen events.

(c) Be a natural person (individual)

who resides as a citizen in any of the 50

states, the Commonwealth of Puerto

Rico, the U.S. Virgin Islands, Guam,

American Samoa, the Commonwealth of

the Northern Marianas, the Federated

States of Micronesia, the Republic of

Palau, or the Republic of the Marshall

Islands, or a noncitizen who resides in

one of the foregoing areas after being

legally admitted for permanent

residence or on parole. An applicant

who indicates that the applicant is not

a United States citizen on the

application is required to submit

evidence that the applicant has been

lawfully admitted to the country as a

permanent resident. Exhibit B (available

in any RHCDS field office) provides

additional information for evaluating

alien status for these applicants.

Verification is only required when the

applicant indicates the applicant is not

a U.S. citizen.

(d) Possess legal capacity to incur the

loan obligation (or have a court

appointed guardian/conservator who is
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25645

empowered to obligate the applicant in

real estate matters), and have reached

the legal age of majority in the state, or

have had the disability of minority

removed.

(e) Have the potential ability to

personally occupy the home on a

permanent basis. Due to the probability

of moving after graduation, full-time

students will not be granted loans

unless:

(1) The applicant intends to make the

home a permanent residence and there

are reasonable prospects that

employment will be available in the

area after graduation and

(2) An adult member of the household

will be available to make inspections if

the home is being constructed and to

sign checks for work performed.

(f) Have a credit history which

indicates a reasonable ability and

willingness to meet obligations as they

become due.

(1) Any or all of the following are

indicators of an unacceptable credit

history unless RHCDS determines that

the cause was beyond the applicant/

borrower’s control (except for Federal

judgments described in paragraph

(f)(1)(i) of this section), and satisfies the

criteria in paragraph (f)(3) of this

section:

(i) An outstanding judgment obtained

by the United States in a Federal Court

(other than the United States Tax Court),

which has been recorded, shall cause

the applicant to be ineligible for any

loan or grant until the judgment is paid

in full or otherwise satisfied. RHCDS

loan or grant funds may not be used to

satisfy the judgment. Questions

regarding whether or not a judgment is

still outstanding should be directed to

the Office of the General Counsel. The

Administrator may waive the rejection

of an application based on verification

of an outstanding Federal judgment

upon specific determination that it is in

the best interest of the Government to

do so. Verification of delinquent Federal

debt and processing of applications with

such debt must comply with

§ 1944.27(b)(4).

(ii) Incidents of more than two

secured or unsecured debt payments

being more than 30 days late if the

incidents have occurred within the last

12 months. This includes more than two

late payments on a single account.

Instances of more than two late

payments may be waived in the event

that the RHCDS loan will result in a

significant reduction in shelter costs,

which will contribute to improved debt

payment ability.

(iii) Loss of security due to a

foreclosure if the foreclosure has been

completed within the last 36 months.

(iv) An outstanding IRS tax lien.

(v) Other outstanding tax liens with

no satisfactory arrangements for

payments.

(vi) A court-created or affirmed

obligation (judgment), caused by nonpayment, that is currently outstanding

or has been outstanding within the last

12 months, not including hospital or

state motor vehicle liens described

under § 1944.17.

(vii) Two or more rent payments paid

30 days or more past due, that have

occurred within the last 2 years.

Notwithstanding the previous sentence,

if there have been no other credit

problems in the applicant’s last two

year’s general credit history, only the

past rental year will be considered.

Instances of more than two late

payments may be waived in the event

that the RHCDS loan will result in a

significant reduction in shelter costs,

which will contribute to improved debt

payment capability.

(viii) Accounts which have been

converted to collections within the last

12 months (utility bills, medical debts,

etc.).

(ix) Collection accounts outstanding

with no satisfactory, reasonable

arrangements for repayment, or

collection accounts which have been

outstanding within the last 12 months

which were paid in full within 3

months of filing an application for

RHCDS assistance, where there is no

record of regular payment being

maintained on the account prior to

receipt of the final payment.

(x) Non-RHCDS debts written off

within the last 36 months.

(xi) RHCDS debts which were debt

settled pursuant to subpart B of part

1956, or by release from personal

liability under subpart A of part 1955 or

subpart C of part 1965, or debt

settlement is being considered except

where the conditions of § 1944.9(g) can

be met.

(2) The following will not indicate an

unacceptable credit history:

(i) ‘‘No history’’ of credit transactions

by the applicant/borrower.

(ii) A bankruptcy in which the

applicant received a discharge more

than 36 months before the date of

application.

(iii) A satisfied judgment, or

foreclosure with no monetary loss

which was completed more than 12

months before the date of application.

(3) When an applicant/borrower has

an unacceptable credit history, an

exception may be considered by the

loan approval official (except for

Federal judgments described in

paragraph (f)(1)(i) of this section) when

the applicant/borrower provides

documentation that:

(i) The circumstances were of a

temporary nature, were beyond the

applicant/borrower’s control, and have

been removed. Examples: loss of job;

delay or reduction in benefits, or other

loss of income; increased expenses due

to illness, death, etc.

(ii) The adverse action or delinquency

was the result of a refusal to make full

payment because of defective goods or

services or as a result of some other

justifiable dispute relating to the goods

or services purchased or contracted for.

(4) Applicants will be advised of

adverse credit which is discovered as a

result of an on-line profile credit report

at the time of application and will be

provided the telephone number and

address of the credit repository so that

the applicant may contact the repository

directly to correct the negative or

incorrect information or discuss the

circumstances of the credit problem

with the RHCDS staff. Applicants will

not be rejected on the basis of

information contained in an on-line

credit report; however, once a full

written credit report is received by

RHCDS, it will be the responsibility of

the applicant/borrower to work directly

with the credit repository to correct any

erroneous credit bureau records. The

credit history cannot be determined

satisfactory until:

(i) The credit repository issues a

corrected report, showing that the error

has been removed, or

(ii) The credit repository has not

issued a corrected report within 30 days

of the applicant’s submission of

disputed credit information but the

applicant/borrower submits conclusive

proof, acceptable to RHCDS, that the

report is in error, such as creditor

correspondence, court documents, etc.

(g) Meet the following conditions if

the applicant had any previous RHCDS

debt settled pursuant to subpart B of

part 1956, or by release from personal

liability under subpart A of part 1955 or

subpart C of part 1965, or debt

settlement is being considered:

(1) RHCDS must determine that

failure to pay the debt was the result of

circumstances beyond the applicant’s

control, or the conditions which

necessitated the debt settlement or

release, other than weather hazards,

disasters, or price fluctuations, have

been or will be removed by making the

loan, and

(2) Before causing the applicant to

incur any expense in connection with

the loan, with the exception of the cost

of a credit report, RHCDS must

determine the applicant’s eligibility and

notify the applicant of same.
25646 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

(h) Have the ability to carry out the

required obligations of the loan. If the

applicant has demonstrated inability to

do so by recent failure to maintain a

former residence in a habitable and

responsible manner, or by unauthorized

conversion or alteration of the structure,

or by creating a public nuisance in or

around a former residence, RHCDS must

determine that the reasons contributing

to such inability have been removed and

are not likely to recur.

(i) Provide accurate and truthful

application and financial information to

RHCDS at the time of application.

Applicants who have failed to fully

disclose financial and application

information will be denied program

assistance.

§ 1944.10 Rural area designation.

(a) For the purposes of this subpart, a

rural area is:

(1) Open country which is not part of

or associated with an urban area.

(2) Any town, village, city, or place,

including the immediately adjacent

densely settled area, which is not part

of or associated with an urban area and

which:

(i) Has a population not in excess of

10,000 if it is rural in character, or

(ii) Has a population in excess of

10,000 but not in excess of 20,000, and

(A) Is not contained within an MSA,

and

(B) Has a serious lack of mortgage

credit for low- and moderate-income

households as determined by the

Secretary of Agriculture and the

Secretary of HUD.

(3) An area classified as a rural area

prior to October 1, 1990, (even if within

an MSA), with a population exceeding

10,000, but not in excess of 25,000,

which is rural in character, and has a

serious lack of mortgage credit for lowand moderate-income families. This is

effective through receipt of census data

for the year 2000.

(b) A determination that open

country, or any town, village, city, or

place is not part of or associated with an

urban area must include a finding that

any densely populated section of the

area in question is separated from the

densely populated section of any

adjacent urban area by open spaces.

Open spaces include undeveloped,

agricultural, or sparsely settled areas.

Other spaces such as physical barriers

(e.g., rivers, canals), public parks,

commercial and industrial

developments, small areas reserved for

recreational purposes, recognized open

spaces for which development is

planned, and similar nonresidential

areas, are not considered open spaces

for the purpose of this program. RHCDS

files must contain documentation that

local planning boards, where available,

were contacted at the time of each

review to verify that areas considered as

open spaces are not scheduled for

development in the next 5 years.

(c) Two or more towns, villages,

cities, and places may have contiguous

boundaries, and each be considered

separately if they are not otherwise

associated with each other, and their

densely populated areas are not

contiguous, as determined after

consideration of paragraphs (a) and (b)

of this section.

(d) Population count in any area will

be taken from the decennial U.S. Census

of Population, national population

updates published by the Bureau of the

Census, any special population census

conducted by the Bureau of the Census,

and the following:

(1) Significant new development on

the periphery of ineligible areas which

requires a change in boundaries.

(2) Redesignation of corporate limits

by local authorities which affects the

eligibility status of an area.

(e) In determining population count

for area eligibility, consideration must

be given to developed areas in counties

or states which are contiguous to, and,

therefore, a part of developed areas in

other counties or states. This

determination must be made in

agreement between the State Directors

concerned.

(f) In order to ensure that the RH

program is limited to eligible areas,

RHCDS will periodically review areas

under their jurisdiction. If the review

shows that an area is not rural, RHCDS

will limit the RH program in that area

after the date of the decision, to the loan

purposes prescribed in paragraph

(i) of this section.

(g) [Reserved]

(h) [Reserved]

(i) If an area designation is changed

from rural to nonrural, loans may be

made only in the following instances:

(1) Applications received by RHCDS

prior to the change of designation may

be processed.

(2) New conditional commitments

may be issued and existing conditional

commitments will be honored only in

conjunction with the approval of RH

loan applications which were received

prior to the date the area was designated

nonrural.

(3) Inventory property sales and

transfers by assumption may be

processed in such areas as authorized by

§ 1955.103(q) or § 1965.126,

respectively.

(4) Subsequent loans may be made on

property in an area where the

designation was changed from rural to

nonrural after the initial loan was made:

(i) To make necessary repairs.

(ii) To pay equity in connection with

an assumption and transfer of an RH

loan.

§ 1944.11 Site requirements.

(a) Location. The property on which

the loan is made must be located on a

farm, or in a designated rural area as

defined in § 1944.10, or in an area

where the designation has been changed

as provided in § 1944.10(i) and must

also meet the requirements of subpart G

of part 1940. A nonfarm tract to be

purchased or improved with loan funds

must not include farm service buildings.

(b) Access. The property must be

contiguous to and have direct access

from a street, road, or driveway that

meets the applicable requirements of

§ 1924.115(b) (Site access).

(c) Minimum adequate site. A

nonfarm tract on which a loan is to be

made must have an adequate water and/

or wastewater disposal system, other

related facilities, and a yard, or those

items must be provided with loan funds.

The site must be of a size that it cannot

be subdivided into two or more

adequate sites under existing zoning

ordinance requirements for the area.

(1) When the site is served by a

centrally owned and operated water

and/or wastewater disposal system, the

system must meet the applicable water

and wastewater disposal system

requirements of subpart C of part 1924

as well as the design requirements of the

state Department of Health or

comparable reviewing and regulatory

agency.

(2) Written verification must be

obtained from the regulatory agency that

the wastewater disposal systems comply

with the Safe Water Drinking Act and

the Clean Water Act, respectively. There

must be assurance of continuous service

at reasonable rates for central water and

wastewater disposal systems. A system

owned or operated by a private party

must have a legally irrevocable

agreement which allows interested third

parties to enforce the obligation of the

operator to provide satisfactory service

at reasonable rates.

§§ 1944.12–1944.14 [Reserved]

§ 1944.15 Ownership requirements.

(a) After the loan is closed, the

borrower must have an interest in the

property to be purchased, improved, or

refinanced, which qualifies as one of the

following:

(1) Full marketable title.

(2) The buyer and the seller will

convert the purchaser’s interest under a
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25647

recorded land purchase contract to a

deed/mortgage situation with full

marketable title prior to loan closing.

(3) An undivided fee interest if the coowners meet the security requirements

imposed by § 1944.18(b)(8).

(4) A life estate interest with rights of

present possession, control, and

beneficial use of the property if the

remaindermen meet the security

requirements imposed by

§ 1944.18(b)(9).

(5) Leasehold interest if all of the

following conditions are met:

(i) The applicant/borrower is unable

to obtain fee title to the property and the

rent charged for the lease does not

exceed the rate being paid for similar

leases.

(ii) The lessor owns the fee simple

title. This paragraph does not apply to

American Indians with leasehold

interests on tribal allotted or trust land.

(iii) Neither the leasehold nor the fee

simple title is subject to a prior lien,

unless RHCDS authorizes acceptance of

the prior lien prior to approval of the

loan. The amount of the RH loan plus

any prior liens shall not exceed the

market value of the leasehold.

(iv) The written lease contains the

following provisions:

(A) The lessor’s consent to the RH

mortgage.

(B) Reasonable security of tenure. The

borrower’s interest must not be subject

to summary forfeiture or cancellation.

(C) The right of RHCDS to foreclose

the RH mortgage and sell without

restrictions that would adversely affect

the market value of the security.

(D) The right of RHCDS to bid at

foreclosure sale or to accept voluntary

conveyance of the security in lieu of

foreclosure.

(E) The right of RHCDS, after

acquiring the leasehold through

foreclosure or voluntary conveyance in

lieu of foreclosure, or in event of

abandonment by the borrower, to

occupy the property or sublet it, and to

sell for cash or credit. In case of an

inventory property sale of the leasehold,

the right of RHCDS to take a mortgage

with rights similar to those under the

original RH mortgage.

(F) The right of the borrower, in the

event of default or inability to continue

with the lease and the RH loan, to

transfer the leasehold, subject to the RH

mortgage, to an eligible transferee with

assumption of the RH debt.

(G) Advance written notice of at least

90 days to RHCDS of lessor’s intention

to cancel or terminate the lease.

(H) Negotiated provisions as to the

liability of RHCDS for unpaid rentals or

other charges accrued at the time

RHCDS acquires possession of the

property or title to the leasehold, and

those which become due during

RHCDS’s possession or ownership,

pending further servicing or liquidation.

(I) [Reserved]

(v) An unexpired term which is at

least 150 percent of the term of the

RHCDS loan, unless the RHCDS loan is

guaranteed by a public authority, Indian

tribe, or Indian Housing Authority, in

which case the unexpired term of the

lease must be at least 2 years longer than

the repayment period of the loan;

provided that: in no case may the

unexpired term of the lease be less than

15 years.

(6) Possessory rights on an American

Indian reservation or State-owned land

if the security requirements imposed by

§ 1944.18 are met.

(7) The interest of an American Indian

in land held in severalty under trust

patents or deeds containing restrictions

against alienation if the security

requirements imposed by

§ 1944.18(b)(3) are met.

(b) If an applicant’s title to any part

of the property does not qualify as an

ownership interest under paragraph (a)

of this section, an RH loan may

nevertheless be made, if:

(1) The defect cannot be cured at a

reasonable cost, and

(2) No improvements to be

constructed or repaired with loan funds

will be located on the parcel to which

title is defective, and

(3) No security value will be accorded

to the parcel to which title is defective.

§ 1944.16 Dwelling Requirements.

Dwellings financed must provide

decent, safe, and sanitary housing. Costs

of dwellings financed cannot exceed 85

percent of the maximum dollar

limitation established under section

203(b) of the National Housing Act (12

U.S.C. § 1702) (available from any HUD

office) unless authorized by RHCDS

under § 1944.17(g). Loans shall not be

approved for dwellings containing inground swimming pools or structures

designed for income-producing facilities

or purposes.

(a) New dwellings. Construction must

meet the requirements contained in

subpart A of part 1924 as well as the

thermal performance standards for new

construction outlined in exhibit D of

subpart A of part 1924.

(b) Existing dwellings. Consideration

should be given to financing existing

dwellings in areas with a good supply

of competitively priced, suitable

housing. Homes financed should be

affordable to the applicant/borrower,

including operating and maintenance

costs.

(1) Loans will not be made on an

existing manufactured home unless it is

already financed by RHCDS or is being

sold from RHCDS inventory.

(2) Existing homes, including those

already in the program, must be

inspected by RHCDS or by a

disinterested third party inspector to

determine that the dwelling meets the

criteria outlined in paragraphs (b)(2)(i),

(ii), and (iii) of this section. The sales

agreement must identify the party (i.e.,

purchaser or seller) who has accepted

responsibility for obtaining and paying

for these inspections and certifications.

Inspections are not required on public

water and wastewater disposal systems.

RHCDS inventory property will be

inspected and repaired in accordance

with the subpart B of part 1955. The

inspector will:

(i) Determine that the dwelling is

structurally sound, functionally

adequate, in good repair, or will be

placed in good repair with loan funds,

and meets the ‘‘General’’ requirements

in Guide 2 of subpart A of part 1924

(available in any RHCDS field office).

(ii) Certify that the dwelling meets

thermal performance standards for

existing dwellings required in exhibit D

of subpart A of part 1924.

(iii) Certify that the dwelling has

adequate electrical, heating, plumbing,

water, and wastewater disposal systems,

and is free of termites and other wood

damaging pests and organisms.

(c) Repairs. Any dwelling repaired

with RH funds must be structurally

sound, functionally adequate, and be

placed in good repair with loan funds.

If the loan is not more than $7,500 and

is scheduled for repayment in not more

than 15 years from the date of the note,

the dwelling may lack some equipment

or features such as a complete bath,

kitchen cabinets, closets, or completed

finished interior in some rooms. Such

dwellings must meet the housing needs

of the applicant/borrower and provide

decent, safe, and sanitary living

conditions when the improvements

financed with the loan are completed.

Repairs required as a condition of loan

approval will be performed in

accordance with HUD Handbook

4905.1, ‘‘1–4 Family Living Units’’

(available in any RHCDS field office),

after loan closing. Repairs on

manufactured homes are limited to

those financed by a subsequent loan for

existing homes currently financed with

a section 502 RH loan, inventory

property sales, and transfers.

(d) Improvements. Improvements

financed with loan funds must be on

land which, after loan closing, is part of

a tract owned by the borrower in
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accordance with § 1944.15(a), or on an

easement appurtenant to such a tract.

(e) Manufactured homes. Exhibit F to

FMHA instruction 1944–A (available in

any RHCDS field office) contains

supplemental information concerning

construction requirements for

manufactured homes.

§ 1944.17 Maximum loan amounts.

The amount of the loan may not

exceed 85 percent of the maximum

dollar limitation of section 203(b) of the

National Housing Act (12 U.S.C. § 1702)

(available from any HUD office) unless

authorized by RHCDS as an exception.

A loan may exceed the market value or

the equity value in the security property

by the appraisal fee. Applicants/

borrowers are expected to reduce the

need for loan funds by using available

non-essential assets including cash on

hand as outlined under § 1944.9.

(a) The maximum loan amount will be

the lesser of the cost of:

(1) The acquisition and any necessary

development or

(2) The market value of the security,

less the unpaid principal balance and

past-due interest of any other liens

against the security property, plus an

appraisal fee, for the following types of

dwellings:

(i) An existing dwelling, as described

in § 1944.2, including one being

financed by transfer or inventory

property sale, except as provided in

exhibit F (available in any RHCDS field

office).

(ii) A new dwelling when any one of

the following conditions exist:

(A) A conditional commitment was

issued in accordance with § 1944.45.

(B) The RH loan will be closed prior

to the start of construction, and

construction conforms to the

requirements contained in subpart A of

part 1924.

(C) The required construction

inspections were made by the Federal

Housing Administration (FHA) or

Veterans Administration (VA). If

qualified under this paragraph, a

complete set of plans and specifications

must be submitted together with copies

of construction phase inspection reports

or certification by FHA or VA indicating

the dwelling was built in accordance

with approved plans and specifications.

The builder will also furnish a

certification of compliance with RHCDS

thermal standards for new construction

as required by exhibit D of subpart A of

part 1924 (available in any RHCDS field

office).

(D) The manufactured home and site

meet the requirements in exhibit F and

exhibit J of subpart A of part 1924 of

this chapter. (These exhibits are

available in any RHCDS field office.)

(b) A loan will be limited to 90

percent of the market value of the

security, plus an appraisal fee, for any

dwelling that does not meet the

requirements of paragraph (a) of this

section, with the exception of

manufactured housing units.

(c) Notwithstanding the provisions of

paragraph (a) of this section, a loan on

a dwelling which causes the total

secured indebtedness to exceed the

requirements of paragraph (a) of this

section, may be made when the excess

indebtedness is all or part of a lien held

by a public body (except for a lien

arising out of a judgment against the

applicant/borrower in favor of the

United States in a Federal Court other

than the United States Tax Court),

hospital, or welfare institution for

advances made for medical bills,

welfare payments, or state motor vehicle

judgments provided:

(1) The applicant/borrower is unable

to settle or compromise such lien

sufficiently to avoid exceeding the

market value;

(2) The lien securing the excess

amount will at all times be inferior to

the RHCDS mortgage securing the initial

loan and any subsequent loan or

advances determined by the RHCDS to

be reasonably necessary to carry out the

purpose of the initial loan or to protect

the Government’s financial interest;

(3) The existence of the excess lien

will not jeopardize the security or

servicing so as to preclude the making

of a sound RH loan;

(4) The applicant/borrower has the

ability to meet any payments on the

excess debt as they become due or are

likely to become due.

(d) Notwithstanding the provisions of

paragraph (a) of this section, when a

subsequent loan for closing costs only is

made simultaneously with an inventory

property sale (as provided in

§ 1955.117(f) or a transfer, the total

indebtedness may exceed the sale price

or market value of the security property,

whichever is less, by no more than 1

percent.

(e) Notwithstanding the provisions of

paragraph (a) of this section, when

RHCDS is refinancing the loan of an

existing RHCDS borrower in accordance

with § 1951.318, the debt may exceed

the market value of the security

property to the extent necessary to

refinance the borrower’s outstanding

indebtedness plus closing costs required

in connection with the refinancing.

(f) Notwithstanding the provisions of

paragraph (a) of this section, when a

subsequent loan is needed for repairs

essential to protect the Government’s

security interest, the total RHCDS

indebtedness may exceed the market

value of the security by no more than

the amount of the subsequent loan

consisting of the cost of essential repairs

and reasonable closing costs.

(g) RHCDS may grant exceptions to

allow the amount of the loan to exceed

85 percent of the maximum dollar

limitation of section 203(b) of the

National Housing Act (12 U.S.C. § 1702)

may be granted under the following

conditions:

(1) RHCDS may increase the loan

amount in selected areas when the

existing mortgage limit is insufficient to

provide adequate housing for RHCDS

applicants and modest housing costs in

the area exceed maximum loan limits or

where different maximum loan limits

exist in adjacent areas of the same

community, for example: One limit on

one side of the street compared to a

higher limit on the other side.

(2) RHCDS may increase the loan

amount where necessary to

accommodate the specific needs of the

family such as a larger home to correct

overcrowding situations for

exceptionally large households and

reasonable accommodations for a

disabled household member. When the

request is to allow reasonable

accommodations for a disabled

household member, the additional loan

amount will not exceed the cost of the

special features provided and the

amount of the appraisal fee.

§ 1944.18 Security requirements.

(a) Adequate security. Except as

provided below, to protect the interests

of RHCDS, all loans must be adequately

secured. Except as provided in

§ 1944.17(c) and paragraph (b) of this

section, a loan is adequately secured

only when all of the following

requirements are met:

(1) RHCDS obtains at closing a

mortgage on all ownership interests in

the entire tract.

(2) No liens prior to the RHCDS

mortgage exist at the time of closing,

and no junior liens are likely to be taken

immediately subsequent to or at the

time of closing.

(3) The provisions of subpart B of part

1927 regarding title clearance and the

use of legal services are complied with.

(4) The property improvements and

proposed improvements are totally on

the site and do not encroach on

adjoining property. RHCDS may require

a survey, at the buyer’s or seller’s

expense.

(b) Exceptions. Exceptions to the

usual security requirements will be

made only as follows:
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(1) Note only. A loan of $2,500 or less,

scheduled for repayment in not more

than 10 years from the date of the note,

that is not subject to recapture of

subsidy in accordance with subpart I of

part 1951, may be secured by the

borrower’s promissory note alone when

RHCDS determines that:

(i) The applicant/borrower has a

credit history which indicates an ability

and willingness to pay debts when they

are due;

(ii) The applicant/borrower will have

sufficient income to readily meet all

obligations; and

(iii) The applicant/borrower’s equity

in the real estate as improved, equals, or

exceeds the amount of the proposed

loan.

(2) Mortgage insurance. When the

applicant/borrower is the holder of

possessory rights on an American

Indian reservation or State-owned land,

adequate security is required. This may

include mortgage insurance

guaranteeing payment from a state

agency or American Indian tribe. States

will issue a state supplement covering

special security and title clearance

requirements needed for loans of this

type.

(3) American Indian land. American

Indian land in trust or restricted status

acquired with an RH loan will remain

in trust or restricted status. These

mortgages must be approved by the

Secretary of the Department of the

Interior. A State Supplement will be

issued to prescribe the actions to be

taken by RHCDS personnel to

implement the making of loans under

such conditions.

(4) Best mortgage obtainable. Loans of

$7,500 or less scheduled for repayment

in not more than 15 years from the date

of the note and subsequent loans made

for minimal essential repairs necessary

to preserve the Government’s security

must be secured by a mortgage, except

as provided in paragraph (b)(1) of this

section, but title clearance and the use

of legal services in accordance with

subpart B of part 1927 are not required

unless the loan approval official

determines that the procedures in

subpart B of part 1927 are necessary to

assure repayment or accomplish the

objective of the loan. Evidence of

ownership must be in accordance with

§ 1944.24(d)(2).

(5) Leasehold. When the applicant/

borrower owns only a leasehold interest

will treat the lessee’s interest like any

other type of ownership interest in

determining whether a mortgage on the

leasehold is required. The lease must

meet the requirements of § 1944.15(a)(5)

(iv) and (v). In any state in which

applicants/borrowers are likely to own a

leasehold interest, the State Director

will issue a State Supplement outlining

the technical requirements for making

such loans.

(6) Security by junior lien. RHCDS

may take a junior mortgage as security

for an RH loan if the tract, which will

secure the RHCDS mortgage, provides

adequate security for the entire prior

lien debt and the RH loan, and

(i) The prior mortgage does not

contain provisions that may jeopardize

RHCDS’s security position or the

applicant/borrower’s ability to repay the

loan, such as provisions for future

advances, forfeiture, cancellation,

foreclosure without adequate notice to

junior lienholders, attorney’s fees

exceeding those customary for the area

in cases of foreclosure; or

(ii) Such provisions are satisfactorily

limited, modified, or waived; and

(iii) The conditions set forth in

subpart B of part 1927 are met.

(7) Liens junior to RHCDS lien. Liens

junior to the RHCDS lien will be

allowed at closing or immediately

subsequent to closing only when:

(i) The junior lien will not interfere

with the purpose or repayment of the

RH loan, and

(ii) The total amount of the RH loan,

the junior lien, and any prior liens will

not exceed the market value of the

security except as provided in

§ 1944.17(c), and

(iii) The conditions set forth in

subpart B of part 1927 are met.

(8) Undivided interest. When the

applicant/borrower owns an undivided

interest in the property, the co-owners’

interests need not be included in the

mortgage in the following instances:

(i) When one or more of the co-owners

are not legally competent (and there is

no representative who can legally

consent to the mortgage) or cannot be

located, or the ownership rights are

divided among such a large number of

co-owners that it is not practical for all

their interests to be mortgaged, the

mortgaging of interests not exceeding 50

percent may be excluded from the

security requirements upon prior

approval by RHCDS. All legally

competent co-owners using or

occupying the property will be required

to sign the mortgage. Co-owners will be

required to sign the note when

necessary for a sound loan or to obtain

the required security. The loan may not

exceed the value of the percentage of the

market value of the property

represented by the interests of the

owners who sign the mortgage. In

determining such value, consideration

will be given to any adverse effect

which might result from sale of the

mortgaged interests separately from the

nonmortgaged interests.

(ii) When the applicant/borrower

owns only an undivided interest in a

building site which will be a part of the

farm, the interest of the applicant/

borrower’s co-owners may be excluded

from the security requirements upon

approval by RHCDS if:

(A) The market value of the jointly

owned tract is at least equal to the debts

against it (including the RHCDS loan),

and

(B) The applicant/borrower’s

participation in the joint ownership of

part of the farm and its operations has

been and is likely to continue to be

successful.

(9) Life estate. When the applicant/

borrower owns a life estate interest in

the property, the remainder interests

need not be included in the mortgage if

one or more of the persons holding

remainder interests are not legally

competent (and there is no

representative who can legally consent

to the mortgage) or cannot be located, or

if the remainder rights are divided

among such a large number of people

that it is not practicable to obtain the

signatures of all the remainder interests.

In the instance of numerous heirs, the

mortgaging of remainder interests, not

exceeding 50 percent of the total

remainder interest may be excluded

from the security requirements upon

prior approval by RHCDS. In such cases,

the loan may not exceed the value of the

property owned by the persons

executing the mortgage.

(10) Farm dwelling. When the

applicant/borrower is the owner of a

farm, a mortgage may be taken only on

the dwelling and dwelling site provided

the following conditions can be met:

(i) The tract to be mortgaged must not

include farm service buildings, must be

in a good residential location, be

otherwise suitable as a residential type

of nonfarm tract, provide adequate

security for the loan, be contiguous to

and have direct access to a public road,

or

(ii) The tract to be mortgaged must

contain at least enough land to clearly

provide adequate security for the loan

and to make the tract readily saleable in

the area.

(11) Land purchase contract. When

the ownership interest is by virtue of a

land purchase contract (as described in

§ 1927.52), the transaction must be

converted to a deed/mortgage situation

prior to loan closing and meet the

conditions of § 1944.22(b)(6) prior to

loan closing.

(c) Additional security. When

necessary to supplement the applicant/

borrower’s equity in the farm or
25650 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

nonfarm tract on which the dwelling is

located, or to facilitate servicing the

loan, RHCDS may also require a

mortgage on other real estate owned by

the applicant/borrower.

(d) Assignment of income from real

estate to be mortgaged. Income to be

received by the borrower from royalties,

leases, or other existing agreements

under which the value of the real estate

security will be depreciated will be

assigned and disposed of in accordance

with applicable portions of subpart C of

part 1965, and the provisions for written

consent of any prior lienholder. In small

nonfarm tract cases, RHCDS may

authorize withholding transmittal of

assignments to lessees for execution

until production begins.

§ § 1944.19–1944.21 [Reserved]

§ 1944.22 Refinancing non-RHCDS debts.

(a) Loan funds may be used for

refinancing non-RHCDS debts on a

dwelling (except for manufactured

homes) if the debt was incurred by the

applicant prior to the date the

application was filed and the following

conditions can be met:

(1) The debt was incurred for

purposes for which a section 502 RH

loan could be made or is a protective

advance by the mortgagee for items

covered by the mortgage to be

refinanced, including accrued interest,

insurance premiums, real estate tax

advances, or preliminary foreclosure

costs.

(2) The debt must be a lien against the

property which will be security for the

RH loan. The promissory note and

security instrument for the debt to be

refinanced must represent rates and

terms that were typical and customary

for long-term residential financing in

the area at the time the debt was

incurred.

(3) A loan to refinance a qualified

secured debt may also include shortterm or unsecured debts, if necessary to

establish a sound repayment ability, if

such short-term or unsecured debts

were incurred for authorized section

502 RH loan purposes and are not a

significant portion of the loan.

(4) Payments on the debt are so

seriously delinquent or, if not

delinquent, it must be evident that the

applicant will be unable to continue to

maintain payments, for reasons beyond

the control of the applicant, and the

applicant is likely to lose the dwelling

at an early date if the debt is not

refinanced. Such delinquency must be

due to loss of employment or household

income, illness, or other such similar

events or unforeseen circumstances.

(5) A statement must be obtained from

the creditor for each debt to be

refinanced showing the purpose for

which the debt was incurred, the date

on which it was incurred, the final due

date, interest rate, amount and

frequency of installments, unpaid

principal and accrued interest, and

amount of delinquency, if any.

(6) Refinancing such debts will not

jeopardize the required priority of the

RHCDS security instrument.

(b) Loan funds may be used for

refinancing non-RHCDS debts on a

building site without a dwelling when

the applicant is unable to pay the debt

from personal resources and failure to

authorize the use of RH funds to pay

such costs would prevent the applicant

from acquiring decent, safe, and sanitary

housing and the following conditions

can be met:

(1) The site meets the conditions

prescribed in § 1944.11(c).

(2) The debt was incurred prior to the

date of application for the sole purpose

of purchasing the site.

(3) The debt is a lien against the

property which will be used as security

for the RH loan. The promissory note

and security instrument for the debt

represent rates and terms that were

typical and customary for short-term

residential financing in the area at the

time the debt was incurred.

(4) The refinancing loan will include

adequate funds for constructing a

modest dwelling on the site for the use

of the applicant, which conforms with

the requirements of § 1944.16(a).

(5) A statement must be obtained from

the creditor for each debt to be

refinanced showing the purpose for

which the debt was incurred, the date

on which it was incurred, the final date

due, interest rate, amount and frequency

of installments, unpaid principal and

accrued interest, and amount of

delinquency, if any.

(6) Refinancing such debts will not

jeopardize the required priority of the

RHCDS security instrument.

(c) If a loan of $5,000 or more is

necessary for repairs to correct major

deficiencies and make the dwelling

decent, safe, and sanitary, an existing

lien which meets the requirements of

paragraphs (a)(1), (2), (3), and (5) of this

section may be refinanced regardless of

delinquency, if necessary for the

applicant to have repayment ability for

the existing loan and the requested loan

for repairs.

(d) Debts or costs incurred after the

date of application may be refinanced if

the costs were incurred for:

(1) Fees for legal, architectural, and

other technical services, or

(2) Materials, construction, or site

acquisition.

(e) RHCDS may authorize the use of

RH funds to pay costs provided for in

paragraphs (d)(1) and (2) of this section

only when RHCDS retains the same lien

priority as the debt to be refinanced and

all of the following conditions exist:

(1) The costs were incurred after the

applicant filed a written application for

a loan but before the loan was closed.

In the event of a subsequent loan to

complete improvements previously

planned, the costs must have been

incurred after the initial loan was

closed.

(2) The applicant is unable to pay

such costs from personal resources or to

obtain credit from other sources and

failure to authorize the use of RH funds

to pay such costs would jeopardize the

applicant’s capability of repaying the

loan.

(3) The construction or repair work

conforms to that shown on the building

plans and specifications or the RHCDS

Development Plan, when applicable,

and the costs were incurred for

authorized Section 502 RH loan

purposes.

§ 1944.23 [Reserved]

§ 1944.24 Technical services.

(a) Planning and performing

construction work. Any construction

work will be planned and completed in

accordance with subpart A of part 1924

or a lesser standard as may be

prescribed by RHCDS for demonstration

type loans.

(b) Planning and performing site

development work. Any site

development will be planned and

completed in accordance with subpart C

of part 1924, except as provided for

manufactured homes in exhibit J of

subpart A of part 1924. Subdivisions

will be accepted by RHCDS without

further processing when the developer

provides written evidence of current

subdivision acceptance by HUD or VA

and the developer provides proof of

compliance with exception conditions

established by HUD or VA.

(c) Appraisals. Appraisals will be

required as follows:

(1) When a mortgage will be taken to

secure a total indebtedness of more than

$15,000, an appraisal of the security

property will be made. The loan can

exceed the market value of the security

by the amount of an appraisal fee. A fee

will be charged for each application for

a section 502 RH loan when an

appraisal is needed for initial and

subsequent loans and assumptions. Fees

will be waived for appraisals done for

subsequent loans to existing RHCDS
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25651

borrowers for minimal essential repairs

that are necessary to protect

Government security property. The fee

will be collected at loan closing by the

closing agent.

(2) When the total indebtedness will

be $15,000 or less, an appraisal of the

real estate or leasehold interest is not

required, unless RHCDS is uncertain as

to the adequacy of the security.

(3) Real estate mortgaged as additional

security will be appraised when it

represents a substantial portion of the

security for the loan or when requested

by the loan approving official.

(d) Title clearance and legal services.

(1) When real estate will be taken as

security (including a mortgage on a

leasehold), except on a best mortgage

obtainable basis, title clearance and

legal services for making and closing the

loan will be provided in accordance

with subpart B of part 1927. Title

clearance and legal services will not be

requested until the loan is approved.

(2) When real estate will not be

mortgaged or when the best real estate

mortgage obtainable is taken as security

without title clearance or use of legal

services, the applicant will be required

to submit evidence of ownership of the

farm or nonfarm tract. When RHCDS is

uncertain as to whether or not the

applicant is a qualified owner, such

action will be taken as RHCDS considers

necessary, such as requiring the

applicant to furnish additional

information. No loan will be made if

RHCDS has actual knowledge that the

applicant does not have valid title to the

property.

§ 1944.25 Rates and terms.

(a) Interest rate. The interest rate

charged by RHCDS will be the lower of

the rates in effect at the time of loan

approval or loan closing. Interest rates

are specified in exhibit B of FmHA

Instruction 440.1 (available in any

RHCDS field office) for the type of

assistance involved.

(b) Amortization. Loans will be

scheduled for repayment over a period

that will not exceed the expected useful

life of the property as a dwelling. Only

one of the amortization periods listed in

this paragraph may be used for a

borrower. Each loan will be scheduled

for repayment from the date of the

promissory note, for a period not to

exceed one of the following as

applicable:

(1) Thirty-three years for initial and

subsequent loans.

(2) Thirty-eight years for initial loans

(subsequent loans may be made for a

period not to exceed the remaining

years of the initial loan) when the

following conditions are met:

(i) Adjusted annual income does not

exceed 60 percent of the median income

for the area as reflected in exhibit C,

(available in any RHCDS field office),

and

(ii) The longer term is necessary to

show repayment ability, with or without

mortgage payment deferral.

(3) Thirty years for manufactured

homes.

(4) Ten years for loans not exceeding

$2,500 which are not secured by a real

estate mortgage.

(c) Payment Assistance. Borrowers

may be eligible for a non-cash credit

which may reduce the borrower’s

scheduled payment to a level equivalent

to amortizing the loan to as low as 1

percent. The policies and procedures for

granting and servicing payment

assistance are set forth in § 1944.34 and

subpart G of part 1951, respectively.

§ 1944.26 Fund allocation.

State Directors will maintain an

adequate reserve to fund hardship

applications, servicing type loans, and

the state’s portion of funds for Mutual

Self-Help Housing loans. Reserve funds

will be used for:

(a) Hardship applications. (1)

Hardships as determined by the State

Director on a case-by-case basis,

including applications from persons

living in deficient housing as defined in

§ 1944.2, for more than 6 months.

(2) Refinancing non-RHCDS debts in

accordance with § § 1944.22(a) and

1951.315.

(b) Servicing type loans. (1) Financing

for the purchase of Government-owned

inventory properties;

(2) Subsequent loans for essential

improvements or repairs;

(3) Subsequent loans in connection

with inventory property sales or

transfers with assumption of the RHCDS

indebtedness.

(c) Mutual Self-Help Housing Loans.

Homes must be located in an RHCDS

approved self-help project.

§ 1944.27 Application processing.

(a) Accepting applications. RHCDS

will accept completed applications in

accordance with subpart A of part 1910.

(1) Complete applications. A

completed application will consist of

Form FmHA 410–4, ‘‘Application for

Rural Housing Assistance (Nonfarm

Tract) Uniform Residential Loan

Application’’ (hereafter called URLA)

and an RHCDS form for verifying

employment, for each employer, all of

which are available in any RHCDS field

office.

(2) Incomplete applications. If the

application is not dated and signed or

sections are not properly completed, it

may be returned for completion.

(3) Packaged applications. Builders,

brokers, contractors, the applicant/

borrower, and others, including not-forprofit organizations, may package loan

applications in accordance with exhibit

A (available in any RHCDS field office).

Builders and sellers holding conditional

commitments may also assist

applicants/borrowers in applying for an

RH loan.

(b) Processing steps. (1) [Reserved)

(2) Complete applications will be

processed in the order received, in

accordance with subpart A of part 1910

and subpart E of part 1901, except that

preference will be given to applications

for Mutual Self-Help Housing loans,

loan servicing purposes, purchase of an

inventory property, assumption of an

existing RHCDS loan, and to applicants

who qualify as a hardship, as outlined

in § 1944.26; veterans preference, as

outlined in subpart A of part 1910, will

apply.

(3) [Reserved]

(4) If HUD’s Credit Alert Interactive

Voice Response System (CAIVRS)

identifies a delinquent Federal debt,

RHCDS will immediately suspend

processing of the application and the

applicant will be notified in writing of

the suspension and will be asked to

contact the appropriate Federal agency,

at the telephone number provided by

CAIVRS, to resolve the delinquency.

When the applicant provides RHCDS

with official documentation that the

delinquency has been paid in full or

otherwise resolved, processing of the

application will be continued. After 30

days from the suspension notification, if

CAIVRS indicates the existence of an

unsatisfied judgment in the favor of the

United States, or if the applicant

remains delinquent on a Federal debt

and is unable to resolve the

delinquency, the applicant will be

rejected. The RHCDS Administrator may

grant an exception to this requirement if

it is in the best interest of the

Government to do so.

(5) If an on-line profile credit report,

where available, reveals adverse credit

information, the applicant will be given

the opportunity to correct the adverse

information. Applicants will not be

rejected or withdrawal encouraged

based on information provided in the

on-line credit report. This service is

provided for the sole purpose of

providing assistance to the applicant by

identifying any credit problems at the

beginning of the loan process and to

clarify the difference between eligibility

for program assistance and loan

approval.

(c) Determination of eligibility and

notification to applicant. Eligibility

determination will be made regardless
25652 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

of ranking or funding levels. If an

applicant/borrower is determined

ineligible because the applicant’s

income is too high, RHCDS may advise

the applicant/borrower that applicant

may qualify for the purchase of a

Government inventory property or the

assumption of an existing RHCDS

borrower’s loan on nonprogram terms

and may be counseled regarding the RH

guaranteed loan program. If an

applicant/borrower is given an adverse

decision, the applicant/borrower will be

given appeal rights as provided in

subpart B of part 1900. The letter will

contain the Equal Credit Opportunity

Act (ECOA) paragraph set forth in

subpart A of part 1910.

(1) Delayed processing. When

available loan funds are not adequate to

complete the processing of all

applications as they are received, or a

large backlog of applications exists

which prohibits immediate processing

of the application, a preliminary

determination of eligibility may be

made based on the information

provided by the applicant/borrower.

(i) If available funds are not adequate,

applicants/borrowers who appear

eligible at the time of application will be

advised in writing within 30 days of

filing of the application of their

preliminary eligibility determination

and the estimated waiting period. They

should be further advised that a final

determination of eligibility will be made

when loan funds are available for the

processing of their application.

(ii) Where there are more than 50

unprocessed applications on hand,

RHCDS will inform each applicant/

borrower, at least every 6 months, of the

current funding status and provide an

estimate of when the loan is anticipated

to be processed. At that time, the

applicant/borrower should be advised to

contact RHCDS if they are still

interested in funding, and that the

application will be withdrawn in 30

days if there is no response.

(2) Immediate processing. Where

there is no backlog, available loan funds

are adequate, and the application can be

processed in a timely manner, RHCDS

shall make a preliminary determination

of eligibility based on information

submitted by the applicant/borrower

and will request additional information

as necessary to make a final

determination of eligibility.

(i) On-line profile credit reports may

be used to allow a means for the

applicant to determine if there is

adverse credit information on the

applicant’s record prior to payment of

the credit report fee.

(ii) The age of the applicant/borrower

will not be considered except as

provided in § 1944.9.

(iii) Repayment ability will be

evaluated in accordance with § 1944.8.

(iv) RHCDS will apply the objective

standards of credit evaluation, outlined

in § 1944.9, for each applicant/borrower.

All applications will be considered

under the same standards.

(v) [Reserved]

(d)Selection for processing. (1)

Completed applications for a reserve

funding category, as outlined in

§ 1944.26, as well as applications for the

assumption of an existing RHCDS loan,

will be processed upon receipt.

(2) All other completed applications

will be selected for processing in the

order received, as funding becomes

available. Selected applicants/borrowers

have 30 days to provide information

required under paragraph (e) of this

section (including any fees for credit

reports) for a final determination of

eligibility. Selected applicants/

borrowers who do not respond to this

30-day notice will be rejected.

Applications selected will be funded in

the order that information is received,

until all available loan funds are

exhausted. Selected applicants/

borrowers who respond affirmatively to

the first notice, but who are not funded

within the quarter will be held over and

counted as a selected applicant for the

next quarterly allotment. If all requested

information is not received within 45

days after the second written selection

notification, the application will be

rejected.

(e) Verification of information. (1)

Income verification. All applicants/

borrowers will be required to submit a

complete, legible copy of their most

recently filed Federal income tax return

(showing the applicant’s signature)

unless exempted from filing a return.

The return shall be stored in a secure

place separate from the loan docket to

prevent any wrongful release of the tax

return information. In cases where a tax

preparer has provided the applicant

with copies of the return, one of the

copies which has the original signature

of the tax preparer should be signed by

the applicant and submitted. In Puerto

Rico applicants/borrowers must submit

a signed photocopy of the most recently

filed state income tax returns.

Applicants who do not have signed

photocopies of their Federal returns

should contact their Regional Internal

Revenue Service. In addition to copies

of tax returns, other income verification

may be required.

(i) Applicant/borrowers will complete

such forms as required by RHCDS. A

form will be used to verify employment

income of each borrower/applicant

except for self-employment.

(ii) RHCDS may confirm reported

wages and earnings, including ‘‘nontaxable income’’ with the Department of

Labor or similar agency where this

information is available.

(iii) Applicants/borrowers deriving

their income from a farming or business

enterprise, must provide current

documentation of income and expenses.

This information must not be older than

the previous fiscal year.

(iv) Applicants must provide a copy

of the most recent award or benefit letter

prepared and signed by the authorizing

agency to verify Social Security,

pension, and disability income. In

addition, the Cost-of-Living (COLA) in

Social Security Benefits and

Supplemental Security Income

Payments Notice, Social Security

Benefit Statement, Forms SSA–1099 and

SSA–1042, or Notice of Change in

Benefits may be required for

documentation of Social Security and/or

Supplemental Security Income.

(v) The applicant must provide a copy

of the divorce decree or other legal

document indicating the amount of the

payments to verify alimony and/or child

support payments. When the applicant/

borrower states that less than the

amount awarded is received, RHCDS

may request documentation from the

official entity through which payments

are received, or other third parties

capable of providing the verification

when payment is not made through an

official entity, indicating the dates and

amounts of payments made to the

applicant/borrower during the previous

12 months.

(vi) Income information that cannot

be obtained by use of RHCDS forms will

be obtained in writing from

knowledgeable third parties to the

extent possible. When it is not feasible

to verify income through third parties,

RHCDS may accept an affidavit from the

applicant/borrower; in the case of child

support or alimony, the affidavit must

state the effort made to collect the

amount awarded, and the amounts and

dates of payments received during the

previous 12 months.

(2) Verification of alien status. Aliens

are required to present documentation

of their status. Exhibit B (available in

any RHCDS field office) outlines the

acceptable forms of documentation.

(3) Verification of disability or

handicap. Form FmHA 1944–4,

‘‘Certification of Disability or

Handicap,’’ is used to verify disability

or handicap in cases where State

Review Boards or Social Security

records are not available. When Form

FmHA 1944–4 contains information
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25653

which could affect the applicant/

borrower’s eligibility, the applicant/

borrower may be required to furnish

his/her physician’s written opinion

regarding the applicant/borrower’s

capacity to incur the loan obligation.

(4) [Reserved]

(5) [Reserved]

(f) Applicant interview. After

verification of all information necessary

for making a final determination of

eligibility but prior to issuance of the

Certificate of Eligibility, the borrower/

applicant will submit to a personal

interview with RHCDS. The applicant/

borrower may be accompanied by an

advisor but the applicant/borrower or

court appointed guardian/conservator

must be personally responsive to all

questions or issues during the interview.

During the interview, RHCDS and the

applicant/borrower will:

(1) Verify information concerning

persons who will occupy the dwelling

and on whose income eligibility for the

loan and payment assistance is based.

Applicants/borrowers who may be able

to obtain other credit will be expected

to apply for same from a lender making

loans for similar purposes. If requested,

the applicant/borrower will have the

lender indicate the amount, interest

rate, and terms of housing credit the

lender would be willing to extend to the

applicant/borrower.

(2) Reach an understanding that

failure of the applicants/borrowers to

fully disclose financial and application

information or material falsification or

concealment of such information will

result in a denial of assistance and

possible penalties.

(3) [Reserved]

(4) [Reserved]

(5) [Reserved]

(6) [Reserved]

(g) Issuance of ‘‘Certificate of

Eligibility.’’ Once all information has

been verified and eligibility has been

determined, a ‘‘Certificate of Eligibility’’

will be issued to all applicants/

borrowers selected for further

processing. The certificate will be valid

for a period not to exceed 90 days. The

certificate will not be issued to

applicants/borrowers who have

submitted packaged applications that

already contain information necessary

to complete a real estate appraisal.

(1) Appraisals. After the Certificate of

Eligibility is issued the applicant/

borrower has 90 days to provide

information needed to complete the real

estate appraisal on the property to be

financed.

(i) Information requested will include

a copy of the option or sales agreement;

a legal description of the property; a

direction map; certified building plans

and specifications or repair estimates as

appropriate; copies of existing surveys,

title information, and tax bills; and

other information deemed necessary by

the appraiser.

(ii) The applicant/borrower must

advise RHCDS if they wish to have the

cost of the real estate appraisal included

in the loan funds.

(iii) Appraisals will generally be

completed within 30 days of the date

information requested is received.

(2) Extensions or withdrawals. At the

end of 90 days, if the applicant/

borrower has not submitted the

information requested, the application

will be deemed withdrawn unless an

extension is approved based on

evidence that the applicant/borrower is

actively working on supplying the

necessary information. A maximum of

two 60-day extensions can be approved.

(h) Appeals. If the decision on the

applicant/borrower’s request for

assistance is unfavorable, the applicant/

borrower will be notified of the

appropriate appeal rights in accordance

with subpart B of part 1900. The

applicant/borrower will be notified that

a new application may be filed when

curative action is taken to remove the

reasons for rejection.

(i) Accountability. Applicants/

borrowers should be made aware of the

accountability requirements of persons

paid to influence the making of an

RHCDS housing loan and/or grant as

described in subpart S of part 1940.

§§ 1944.28–1944.30 [Reserved]

§ 1944.31 Loan approval.

(a) RHCDS employees are authorized

to approve or disapprove loans, as

delegated, in accordance with subpart A

of part 1901.

(b) All loan approvals are subject to

the availability of funds.

(c) [Reserved]

(d) [Reserved]

(e) If title evidence is required in

accordance with subpart B of part 1927

or in accordance with any special

requirements for the loan but is not

included in the docket, the loan may be

approved subject to the applicant/

borrower furnishing the required title

evidence. When the applicant/borrower

furnishes required title evidence,

RHCDS will proceed with processing

the loan. In those cases in which the

title evidence does not comply with the

conditions specified, the docket will be

reconsidered by the approval official.

§ 1944.32 [Reserved]

§ 1944.33 Loan closing.

(a) Reverification of income. If a loan

made on program terms will be closed

or the payment assistance agreement

will be executed more than 90 days after

the date of the last verification of

employment, or if there is evidence to

indicate the applicant/borrower’s

financial status has changed

significantly, the applicant/borrower’s

income will be reverified in accordance

with § 1944.27 and the amount of

payment assistance will be determined

on the basis of the applicant/borrower’s

new income, based on the schedules

defined in § 1944.34(c). If the adjusted

income is such that the applicant/

borrower is no longer eligible for

payment assistance, the loan may be

closed if there is documented evidence

to clearly indicate other credit is not

available and the applicant/borrower

has adequate repayment ability based on

the revised income and PITI for the

proposed loan. Payment assistance may

be granted if the applicant/borrower’s

income was at or below the low-income

level at the time of loan approval but

payment assistance will not be granted

if the adjusted income exceeds the

moderate-income limit set forth in

exhibit C (available in any RHCDS field

office).

(b) Promissory note. An RHCDS

approved ‘‘Promissory Note’’ will be

prepared and signed in accordance with

subpart B of part 1927. Payments of

principal and interest will be deferred

during the period the dwelling is not

suitable for occupancy as a residence

because of construction or repairs. If the

loan is closed before any funds are

advanced by RHCDS or loan funds are

distributed by multiple advance,

accrued interest is added to principal

and repaid in regular amortized

installments (payment alternative I)

after the deferment period. The monthly

payment provision will be used for all

borrowers except existing RHCDS

borrowers whose previous loans were

made on an annual payment basis. If the

annual payment provision is used and

installments are not to be deferred, the

amount of the first installment will be

determined by RHCDS after considering

the immediate debt paying ability of the

borrower. The amount of the first

installment may not be less than an

amount equal to interest on the loan

from the date of loan closing to the next

January 1.

(c) Real estate mortgage. An RHCDS

approved real estate mortgage form will

be used for loans to be secured by a real

estate mortgage.

(d) Collection of the first installment.

If the annual payment provision of the

note is used and payments are not to be

deferred, the first installment of a loan

closed during December will be paid at

the time of loan closing.
25654 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

(e) Hazard insurance. Buildings on

the property taken as security for the

loan will be insured in accordance with

subparts A and B of part 1806 (FmHA

Instructions 426.1 and 426.2 as

appropriate). The policy and a paid

receipt for 1 full year’s premium must

be presented by the applicant/borrower

at loan closing.

(f) [Reserved]

(g) [Reserved]

(h) [Reserved]

(i) Effective date of loan closing. A

loan secured by a real estate mortgage is

closed when the mortgage is filed for

record and the expected lien is

obtained. In other cases, a loan is closed

when the borrower executes the note

and any other required instruments.

§ 1944.34 Payment assistance.

(a) General. It is the policy of RHCDS

to grant payment assistance on loans to

qualified applicants to assist them in

obtaining and retaining decent, safe, and

sanitary dwellings and related facilities.

This section pertains to the granting of

payment assistance connected with loan

making activities. All other provisions

dealing with payment assistance are

contained in subparts G and I of part

1951.

(b) Approval authority. RHCDS

officials who are authorized to approve

section 502 RH loans are also authorized

to approve payment assistance.

(c) Amount of Payment Assistance.

Payment assistance granted will be the

difference between the installment due

on the promissory note and the amount

the borrower would pay if the note were

amortized at a rate equivalent to that

relating to the borrower’s income range

or the amount of principal and interest

due based on the floor calculation in

accordance with this section. The floor

is a minimum percentage of adjusted

family income which the borrower must

pay for PITI. Very low-income

borrowers will pay a minimum of 22

percent and low-income borrowers will

pay a minimum of 26 percent of their

adjusted family income for PITI or the

payment determined at the equivalent

interest rate, whichever is greater. The

equivalent interest rate is determined by

a comparison of the borrower’s adjusted

annual income as determined in

§ 1944.6 to the median income for the

area where the security property is

located, based on income figures

published by HUD as reflected in

exhibit C (available in any RHCDS field

office). The following chart is to be used

for determining the equivalent interest

rate paid by the applicant/borrower

when eligible for payment assistance,

for loan making and loan servicing for

loans closed after the effective date of

this issuance. EXCEPTION: Present

RHCDS borrowers who are currently

receiving payment assistance as of the

date of this issuance, will be reviewed

under the system in effect prior to the

effective date of this issuance. Any other

exception to the use of these interest

rates or minimum percentages of

adjusted family income will be made by

the RHCDS Administrator under

§ 1944.34(h). Median income is that

reflected in Exhibit C to FmHA

instruction F144–A (available in any

RHCDS field office). In determining

percents, rounding should not be used.

PERCENTAGE OF MEDIAN INCOME—EQUIVALENT RATE OF INTEREST

When the applicant/borrower’s adjusted income is—

Equal to or more

than— But less than— Then the equivalentrate of interest is—1

00 percent ................ 50.01 percent of median income ........................................................................................................ 1 percent.

50.01 percent ........... 55 percent of median income ............................................................................................................. 2 percent.

55 percent ................ 60 percent of median income ............................................................................................................. 3 percent.

60 percent ................ 65 percent of median income ............................................................................................................. 4 percent.

65 percent ................ 70 percent of median income ............................................................................................................. 5 percent.

70 percent ................ 75 percent of median income ............................................................................................................. 6 percent.

75 percent ................ 80.01 percent of median income ........................................................................................................ 6.5 percent.

80.01 percent ........... 90 percent of median income ............................................................................................................. 7.5 percent.

90 percent ................ 100 percent of median income ........................................................................................................... 8.5 percent.

100 percent .............. 110 percent of median income ........................................................................................................... 9 percent.

110 percent .............. or more than median income .............................................................................................................. 9.5 percent.

1Or note rate, whichever is less; in no case will the effective interest rate be less than 1 percent except as provided in § 1944.35.

(d) Recapture. Borrowers who receive

payment assistance must agree to

provisions for recapture of payment

assistance the borrower may receive

during the life of the loan. See subpart

I of part 1951.

(e) Eligibility. To be eligible for

payment assistance, an applicant/

borrower must qualify for a section 502

RH loan, must personally occupy the

dwelling, and must meet the following

additional requirements:

(1) Initial loans including inventory

property sales. Payment assistance may

be granted at loan closing if:

(i) The applicant/borrower’s adjusted

annual income, at the time of loan

approval, did not exceed the applicable

low-income limit in exhibit C to FMHA

instruction 1944–A (available in any

RHCDS field office).

(ii) The term of the loan will not be

less than 25 years.

(2) Subsequent loans. Payment

assistance may be granted on

subsequent loans which meet the terms

of paragraph (e)(1) of this section. If

payment assistance is presently being

granted on the initial loan and the

applicant/borrower’s adjusted income

does not exceed the moderate-income

limit, it may also be granted on a

subsequent loan, providing the term of

the subsequent loan is 25 years or more.

(3) Assumptions. Payment assistance

may be granted to an applicant/

borrower assuming an RH loan on new

rates and terms, provided the assuming

parties qualify according to paragraph

(e)(1) of this section. Payment assistance

may only be granted on ‘‘same term’’

assumptions if the original loan was

approved on or after August 1, 1968.

(f) Processing payment assistance. (1)

General. The adjusted payment for

which an applicant/borrower qualifies

after application of payment assistance

will be stated in the most current

payment assistance agreement. Payment

assistance agreements will be for a 12-

month period, with the following

exceptions:

(i) Self-employed borrowers. For a

self-employed applicant/borrower, the

initial payment assistance agreement

will run from the effective date to 3

months after the end of the applicant/

borrower’s business fiscal year, but not

more than a 12-month period. This will
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25655

allow subsequent agreements to

coincide with the applicant/borrower’s

business fiscal year with a 3-month

over-lap to provide sufficient time for

the applicant/borrower to supply

verification of the previous year’s

income.

(ii) Unemployed borrowers. For an

applicant/borrower receiving

unemployment benefits, the agreement

will be effective for the period during

which the applicant/borrower will

receive unemployment benefits, or, if

the period is unknown, no longer than

6 months. The expiration date of the

agreement will be established by

RHCDS.

(iii) Annual payment borrowers. For

an applicant/borrower currently paying

an annual installment, who receives a

subsequent loan, the initial payment

assistance agreement including the

subsequent loan will be in effect until

the next January 1.

(2) [Reserved]

(3) [Reserved]

(g) Applicant notice of right to appeal.

All applicants/borrowers who request

and are denied payment assistance may

appeal in accordance with subpart B of

part 1900.

(h) Exceptions. RHCDS may make

exceptions to proposed transactions in

which the conditions prescribed in the

foregoing paragraphs of this section

cannot be met. This paragraph is

primarily intended to be used for those

cases in which the granting of payment

assistance is necessary for the applicant/

borrower to retain or obtain a dwelling

for the applicant/borrower’s own use,

and there are no other means to do so.

RHCDS may authorize a further

reduction of the equivalent rate of

interest in high cost areas as determined

by HUD when there is evidence to

indicate that there is no adequate,

lower-cost housing available to the

applicant which would reduce the

applicant’s need for additional subsidy;

the housing to be financed is

comparable in cost to housing financed

for very low-income applicants in the

area; and the applicant will be unable to

acquire adequate housing unless

additional subsidy is authorized. This

exception is limited to an additional

percentage point reduction in the

equivalent rate of interest but in no

event may the equivalent rate of interest

be less than 1 percent except as

authorized in § 1944.35. A high cost

area is an area which has been

designated as high cost by HUD under

the maximum dollar limitation of

section 203(b) of the National Housing

Act (12 U.S.C. 1702) (available from any

HUD office).

§ 1944.35 Deferred mortgage payments.

(a) General. It is the policy of RHCDS

to defer 25 percent of the installment

amount at the 1 percent equivalent

interest rate to qualified RHCDS

borrowers, to assist them in obtaining

decent, safe, and sanitary dwellings and

related facilities. Only principal and

interest can be deferred.

(b) Approval authority. RHCDS

officials authorized to approve section

502 RH loans are also authorized to

approve the deferral.

(c) Eligibility. In order to qualify for

deferred mortgage payments under this

section, the following conditions must

exist:

(1) The applicant/borrower’s adjusted

family income, at the time of initial loan

approval, must not exceed the

applicable very low-income limits in

exhibit C to FMHA instruction 1944–A

(available in any RHCDS field office);

(2) The term of the loan is 38 years,

or 30 years for manufactured housing

units;

(3) The applicant/borrower qualifies

for the maximum payment assistance

(equivalent to an interest rate of no more

than 1 percent) allowable under

§ 1944.34;

(4) The applicant/borrower’s PITI,

calculated at 1 percent equivalent

interest rate for 38 years, exceeds 29

percent of the gross annual income; and,

(5) The initial deferral assistance

under this section is granted in

connection with the initial loan closing;

or deferral assistance is being renewed,

without interruption, during the 15-year

period from the effective date of the

initial agreement.

(d) Amount and terms of deferral. (1)

The deferral amount is determined as

follows:

(i) The applicant/borrower will be the

maximum payment assistance allowable

under § 1944.34.

(ii) RHCDS will calculate the

applicant/borrower’s PITI based on the

equivalent 1 percent interest rate for 38

years (30 years for manufactured

housing units), and the annual real

estate taxes and insurance due for the

current year (or escrow amounts for real

estate taxes and insurance premiums

due during the current year, where

applicable).

(A) If the amount of real estate taxes

due for the initial agreement is less than

a typical year’s taxes (such as in new

construction), then ‘‘eligibility’’ for

deferral assistance will be determined

based on the amount of taxes due in a

typical year but the ‘‘amount’’ of

deferral for which the applicant/

borrower qualifies will always be based

upon actual taxes due for the current

year. This may result in the applicant/

borrower being eligible for assistance

but not qualifying for deferral in the first

year. Although there may not be any

portion of the payment deferred in the

first year, the 15-year period for

assistance will still be calculated from

the date of loan closing.

(B) For renewals of deferral

assistance, only the regularly scheduled

PITI due for the current year calculated

at 1 percent equivalent interest rate for

38 years, will be considered when

calculating the deferral amount.

Protective advances, additional payment

agreements, and other payment

agreements will not be considered in

this calculation.

(iii) If the reduced PITI calculated at

1 percent for 38 years (30 years for

manufactured housing units) still

exceeds 29 percent of gross annual

income, the deferred mortgage payment

will be 75 percent of the monthly

installment amount at the 1 percent

equivalent interest rate amortized over

38 years.

(2) Deferred mortgage payments will

be effective for a 12-month period. The

effective date will coincide with the

anniversary date of the payment

assistance agreement. Deferred mortgage

assistance may be continued, without

interruption, for up to 15 years after the

effective date of the initial agreement. A

borrower who no longer qualifies for

deferred mortgage assistance because of

an increase in income, will not receive

deferred mortgage assistance again, even

if income decreases at a later date.

(3) Any principal deferred will accrue

interest at rate of 1 percent per annum.

Interest deferred under this section will

not accrue interest and will not be

converted to principal through

reamortization or other servicing action.

(e) Review process. The borrower’s

income, taxes, and insurance will be

reviewed annually to determine

eligibility for continued deferred

mortgage assistance and payment

assistance. The review for both types of

assistance shall be performed

simultaneously. It is not the

responsibility of RHCDS to monitor

changes in the borrower’s income. If a

borrower whose payments are being

deferred experiences a change in

income that qualifies under subpart G of

part 1951 for a change in payment

assistance, the borrower should request

a review for deferred mortgage payment

assistance. Adjustments to deferred

mortgage assistance and payment

assistance will be effective as of the date

of income change.

(1) Annual review. The annual review

will be scheduled to take place during

the payment assistance review period as
25656 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

defined in subpart G of part 1951

(available in any RHCDS field office).

(2) Responsibilities of the borrower.

Before a deferral will be approved, the

borrower must:

(i) Provide RHCDS with income

verification, as described in § 1944.27;

(ii) Provide RHCDS with information

needed to complete the deferral section

of the Payment Assistance/Deferral/

Repayment Agreement;

(iii) Review and sign appropriate

RHCDS forms and documents, and

(iv) Participate in an interview to

review the deferral information.

(3) [Reserved]

(4) [Reserved]

(f) Cancellation of deferred mortgage

payments. Deferred mortgage payments

may be canceled for any of the

conditions in subpart G of part 1951.

Once a borrower goes off of deferred

mortgage payments, the borrower is not

eligible to receive this assistance again.

Deferred payments may only be

continued for up to 15 years after the

effective date of the initial payment

assistance agreement.

(g) Recapture. The amount deferred is

subject to repayment and recapture in

accordance with subpart I of part 1951.

(h) Appeal/review rights. Because the

deferred mortgage regulations are based

on the objective application of formulas,

deferred mortgage payment calculations

are not appealable; however, a review

may be requested in accordance with

subpart B of part 1900. Applicants/

borrowers who request and are denied

deferred mortgage payments, or whose

deferral amount has been reduced,

canceled, or not renewed based on

contested income calculations, may

appeal that decision in accordance with

subpart B of part 1900.

§ 1944.36 [Reserved]

§ 1944.37 Subsequent section 502 RH

loans.

Subsequent section 502 RH loans may

be made to existing borrowers for the

same purposes and under the same

conditions and limitations as an initial

loan, except as provided in this section.

A new credit report is required for all

applicants for subsequent loans in

accordance with § 1944.27.

(a) The subsequent loan will be

processed in the same manner as an

initial loan, except that a new appraisal

report will be required in accordance

with § 1944.24 only when real estate

will be taken as security and at least one

of the following conditions exists:

(1) The property was not appraised in

connection with the initial loan;

(2) The latest appraisal report of the

real estate is over 2 years old;

(3) The physical characteristics of the

property have changed significantly;

(4) RHCDS is uncertain of the

adequacy of the security; or

(5) The subsequent loan is in

connection with a transfer of an existing

loan subject to subsidy recapture in

accordance with subpart I of part 1951.

(b) A subsequent RH loan may be

made on a note-only basis, provided the

amount of the subsequent loan plus the

unpaid principal balance of any prior

note-only RH loans do not exceed

$2,500. Applicants/borrowers for such

loans must meet the requirements of

§ 1944.18.

(c) [Reserved]

(d) The subsequent loan will bear

interest at a rate determined in

accordance with exhibit B of FmHA

Instruction 440.1 (available in any

RHCDS field office).

(e) A subsequent loan may be made to

permit the remaining borrower, if

eligible, to purchase the equity of a

departing coborrower.

(f) When an area designation has been

changed from rural to non-rural,

subsequent RH loans may be made only

in accordance with the provisions of

§ 1944.10.

(g) The loan approval official may

authorize reamortization of a prior RH

loan at the time a subsequent loan is

made in those cases in which it is

determined that the borrower cannot

reasonably be expected to meet

installments due unless the account is

reamortized. If the account is

reamortized, the reamortization must be

in accordance with subpart G of part

1951.

(h) Title clearance and appraisal fees

for subsequent loans to existing RHCDS

borrowers for minimal essential repairs

to protect the Government’s security

will be handled in accordance with

§ § 1944.18 and 1944.24.

§ 1944.38 Mutual Self-Help Housing.

Low-income applicants may build

their homes by participating in a Mutual

Self-Help Housing project.

(a) An eligible organization must file

a preapplication with the District Office

for a Self-Help Technical Assistance

grant. RHCDS will issue Form AD–622,

‘‘Notice of Preapplication Review

Action,’’ if the grant request is

approved. If the grantee is eligible but

there are no available grant and/or loan

funds, processing of RH applications

will not begin until authorized by

RHCDS.

(b) The value of homes financed

under this section must be no greater

than the equivalent value of most

modest homes built in the area, as

described in § 1944.403.

§ 1944.39 RH loans to RHCDS employees

and loan closing officials.

RHCDS employees, and loan closing

agents, or members of their families may

obtain a section 502 RH loan subject to

the provisions of this subpart:

(a) Written evidence indicating the

applicant/borrower’s inability to obtain

the needed credit elsewhere will be

included in the application.

(b) Applications will be processed

and loans will be serviced according to

subpart D of part 1900.

(c) Loans, inventory property sales, or

assumption agreements will not be

approved under this authority for any of

the following purposes:

(1) Buying RHCDS inventory

property;

(2) Buying RHCDS security property

from a borrower; or

(3) Buying RHCDS security property

at foreclosure sale.

§ 1944.40 [Reserved]

§ 1944.41 Housing demonstration

programs.

RHCDS may authorize demonstration

programs that may not be consistent

with some of the provisions of this

chapter. Those demonstration programs

will be clearly identified as such.

§§ 1944.42–1944.44 [Reserved]

§ 1944.45 Conditional commitments.

(a) General. A conditional

commitment is assurance from RHCDS

to a qualified builder, dealer-contractor,

or seller that a dwelling to be offered for

sale will be acceptable for purchase by

qualified RH loan applicants if accepted

by RHCDS and/or built or rehabilitated

in accordance with RHCDS approved

plans, specifications, and regulations,

and priced at not more than a specified

amount. The conditional commitment

does not reserve funds nor does it assure

that an eligible loan applicant will be

available to buy the dwelling. The

conditional commitment is not effective

if the area does not remain rural.

(b) Eligibility. To be eligible for

conditional commitments, the builder,

dealer-contractor, or seller must:

(1) Be the owner as defined in

§ 1944.15, prior to the beginning of any

planned construction, of the site on

which the dwelling is located or to be

built, except as set out in subpart G of

part 1822 (FmHA Instruction 444.8).

(2) Have the experience and ability to

complete any proposed work in a

competent and professional manner.

(3) Be financially responsible and

have the ability to finance or obtain

financing for any proposed construction

or rehabilitation.

(4) Comply with the requirements of

subpart E of part 1901 and all applicable
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25657

laws, regulations, and Executive Orders

relating to equal opportunity.

(5) Plan to build or rehabilitate

dwellings which will qualify for

purchase by RH applicants and which

will be in compliance with all

applicable laws, ordinances, and codes.

(6) Have the legal capacity to enter

into the required agreements and the

actual capacity to carry them out.

(c) Limitations. (1) Conditional

commitments will be issued only in

cases where the commitment applicant’s

selling price does not exceed the

commitment price, which will never be

more than the lower of the appraised

value or the maximum loan amount as

contained in § 1944.17.

(2) Conditional commitments will be

issued by RHCDS for new homes to be

constructed, new manufactured homes,

or existing homes (other than

manufactured).

(3) Conditional commitments for new

or substantially rehabilitated dwellings

will not be issued after construction has

started.

(4) The total number of conditional

commitments issued in any locality will

not exceed the number of homes for

which there is an immediate and ready

market in that locality. In addition, the

total number of conditional

commitments outstanding in the area

served by an RHCDS field office will not

exceed the number on which the

approval official can reasonably expect

to be able to approve RH loans within

3 months after the houses covered by

the commitments are completed,

considering the availability of loan

funds, and the number of applications

in any RHCDS field office.

(5) The period of the conditional

commitment will be for 12 months from

the date of issuance. The commitment

may be extended for an additional 6

months because of unexpected delays in

construction caused by such factors as

bad weather or materials shortages or

marketing difficulties.

(6) When five or more conditional

commitments have been issued to one

recipient during a 12-month period, an

affirmative marketing plan will be

required in accordance with

§ 1901.203(c).

(d) Conditional commitments

involving packaging of applications. A

conditional commitment may be made

to a seller, builder, or dealer-contractor

who packages a RH application for an

applicant to buy the property. In cases

where the dwelling is presold and is to

be constructed for sale only to a specific

applicant and the information on the

house and the loan applicant is

submitted at the same time, all of the

following conditions must be met:

(1) The conditional commitment will

not be approved until the RH loan has

been approved;

(2) Construction will not begin until

loan funds are obligated for the RH loan.

RHCDS may make an exception to this

requirement when it appears likely that

funding will be forthcoming and it is

necessary to begin construction because

of weather conditions or similar

circumstances provided the

commencement of construction prior to

closing the RH loan will not jeopardize

RHCDS’s lien priority.

(i) In these situations, the sales

agreement must indicate that the loan

has been approved but not funded and

must provide that if the loan is not

closed within 90 days of the date of

approval, the contractor may, in writing,

terminate the sales agreement and sell

the home to another party. If the sales

agreement is terminated, the conditional

commitment will be honored for

another eligible RHCDS loan applicant

for the remaining period of the

commitment, providing the contractor

has met all other requirements of this

subpart.

(ii) If the sales agreement is

terminated, a Certificate of Eligibility

will be issued to the loan applicant in

accordance with § 1944.27.

(3) The RH loan will be closed only

after the dwelling is constructed or the

required rehabilitation completed and

final inspection has been made.

(e) Fees. Each commitment applicant

will pay a fee for each conditional

commitment at the time an application

is submitted. Fees are established in

exhibit G (available in any field office).

Conditional commitment contractors

will be reimbursed at the time the

section 502 RH loan is closed for an

amount equal to the fee the section 502

RH applicant is charged for the real

estate appraisal.

(f) Processing applications. (1)

Applications for conditional

commitments will be submitted on

Form FmHA 1944–36, ‘‘Application for

Conditional Commitment.’’ Attachments

as required by on the form will be

included for each individual dwelling

for which a conditional commitment is

requested.

(2) [Reserved]

(3) Evaluation of applications. The

commitment applicant must meet the

requirements of paragraphs (b) and (c) of

this section, and the dwelling and site

must meet the requirements of this

subpart and subpart A of part 1924 and

comply with all local codes and

ordinances. The property must meet the

requirements of subpart C of part 1924

and subpart G of part 1940. If the

commitment applicant, dwelling, and

site qualify, an appraisal will be

obtained in accordance with subpart C

of part 1922.

(4) Failure of applicant or dwelling to

qualify. If the application is denied for

failure to meet the requirements of

paragraph (b) (2) or (3) of this section,

the applicant may appeal in accordance

with subpart B of part 1900.

(i) The application fee will be

refunded if for any reason preliminary

inspection of the property or

investigation of the commitment

applicant indicates that a conditional

commitment will not be issued.

(ii) Application fees will not be

refunded for any property on which the

required appraisal has been made.

(5) Conditional commitment

approval. The commitment price may

not exceed the loan approval authority

for section 502 RH loans. See subpart A

of part 1901.

(g) Inspections. Failure to correct any

deficiencies or to complete the work in

accordance with plans and

specifications approved by RHCDS will

be a basis for canceling the conditional

commitment. The applicant must allow

RHCDS access for the purpose of

inspection. See subpart A of part 1924.

(h) Changes in plans, specifications,

and/or commitment price. RHCDS may

approve changes in plans and

specifications that are consistent with

the applicable development standard

and exhibit D of subpart A of part 1924.

If the changes are requested after an

option has been executed by an RH

applicant, the change will be approved

only if the applicant and the

commitment holder agree to the request

in writing. If a change will reduce or

increase the appraised value of the

property, RHCDS will revise the

commitment price and inform the

commitment holder. Also, in cases

when the holder of a commitment

reports to RHCDS that costs associated

with the construction or repair of a

dwelling have increased, RHCDS may

increase the commitment price provided

the property has not been optioned by

an RH applicant, and RHCDS

determines that the increase is clearly

justified, the circumstances causing the

price increase were beyond the

commitment holder’s control, and the

value of the property is adequate to

permit the increased commitment price.

A revised appraisal report will be

prepared.

(i) Cancellation of outstanding

conditional commitments.

(1) Conditional commitments may be

canceled when construction of the

dwelling is not begun within 60 days

after the commitment is issued.
25658 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

(2) Conditional commitments will be

canceled when construction is not in

accordance with all RHCDS

requirements, approved plans,

specifications, or the applicable

development standards, and the builder

does not make corrections necessary for

compliance.

(j) [Reserved]

(k) Builder’s warranty. The builder or

seller, as appropriate, will execute an

RHCDS approved ‘‘Builder’s Warranty,’’

or provide a 10-year insured warranty

when construction is completed or the

loan to buy the dwelling is closed.

§ 1944.46 Appeals.

Any applicant/borrower who requests

and is denied assistance or who has a

right denied, reduced, or canceled may

appeal the action in accordance with

subpart B of part 1900. If a decision is

not appealable, such as decisions based

on verified income or clear and

objective statutory or regulatory

requirements, the applicant/borrower

may request review rights pursuant to

subpart B of part 1900.

§ 1944.47–1944.48 [Reserved]

§ 1944.49 FmHA Instructions.

Detailed FmHA Instructions for

administering this subpart are available

in any RHCDS field office.

§ 1944.50 [Reserved]

Subpart J—Section 504 Rural Housing

Loans and Grants

9. Section 1944.453(d) is added to

read as follows:

§ 1944.453 Definitions.

* * * * *

(d) Owner/occupant. Adults living in

the household who have ownership

rights in the property at the time a loan

or grant is closed.

10. Section 1944.456 is amended by

inserting ‘‘, environmental, tax

monitoring,’’ after the word

‘‘architectural’’ in paragraph (i); by

inserting ‘‘, not to exceed $300,’’ after

the word ‘‘fees’’ in paragraph (m)

introductory text; by removing

paragraph (m)(2); by redesignating

paragraph (m)(3) as paragraph (m)(2);

and by adding a new paragraph (m)(3)

to read as follows:

§ 1944.456 Loan and grant purposes.

* * * * *

(m) * * *

(3) The package is acceptable and the

request is funded.

11. Section 1944.457 is amended by

revising the heading; by inserting the

word ‘‘loan’’ after the word ‘‘Maximum’’

in paragraph (a)(1); by removing the

word ‘‘individual’’ in paragraphs (a)(1)

and (2) and inserting the words ‘‘owner/

occupant’’ in its place; by revising

‘‘$15,000’’ to read ‘‘$20,000’’ at the end

of paragraph (a)(1); by revising ‘‘$5,000’’

to read ‘‘$7,500’’ at the end of paragraph

(a)(2); and by revising paragraph (a)(4)

to read as follows:

§ 1944.457 Loan and grant restrictions and

record keeping.

* * * * *

(a) * * *

(4) Document the amount of grant

provided each grantee on a list of

Section 504 recipients and retain it in

the office operational file. The list will

contain the names of all owner/

occupants at the time of the grant

closing. The list must include the

following information recorded at the

time a section 504 grant is made:

(i) Grantee’s names, address, and case

number;

(ii) Amount of the grant; and

(iii) Date grant was closed.

* * * * *

12. Section 1944.458(d)(1) is revised

to read as follows:

§ 1944.458 Eligibility requirements.

* * * * *

(d) * * *

(1) Evaluation of personal resources

will exclude the dwelling and a

minimum adequate site, personal

automobile, household goods, and

liquid assets up to $7,500. Liquid assets

are cash or other assets that can be

converted to cash in 90 days or less.

Real estate acreage larger than a

minimum adequate site will not be

excluded from the evaluation.

* * * * *

13. Section 1944.461(b)(3)

introductory text is amended by

removing the word ‘‘remaindermen’s’’

before the word ‘‘interests’’ in the first

sentence and inserting the word

‘‘remainder’’ in its place, and by

revising paragraphs (b)(3)(i), (iii), and

(iv) to read as follows:

§ 1944.461 Security and other

requirements.

* * * * *

(b) * * *

(3) * * *

(i) One or more of the holders of

remainder interests is not legally

competent (and there is no guardian or

conservator who can consent to the

mortgage), cannot be located, or the

remainder rights are divided among

such a large number of people that it is

not practical to obtain the signatures of

all the remainder interests;

* * * * *

(iii) All legally competent persons (or

the guardian or conservator for any

person who is not legally competent)

holding remainder interests who are

using or occupying the dwelling sign

the mortgage; and,

(iv) The loan does not exceed the

market value of the portion of the

property represented by the remainder

interests of the persons signing the

mortgage.

* * * * *

14. Section 1944.463 is amended by

inserting the words ‘‘and/or other

construction development’’ after the

words ‘‘safety hazards’’ in the first

sentence of paragraph (a) introductory

text; by inserting the words ‘‘security is

taken and’’ after the word ‘‘when,’’ and

by revising ‘‘$7,500’’ to read ‘‘$15,000’’

in the first sentence of paragraph (d)

introductory text, by removing the word

‘‘Total FMHA indebtedness’’ from the

first sentence of paragraphs (e)(1) and

(e)(2) and inserting the word

‘‘assistance’’ in their place, and by

revising paragraph (d)(1) to read as

follows:

§ 1944.463 Technical services.

* * * * *

(d) * * *

(1) On a nonfarm tract or small farm,

or on a leasehold interest in a nonfarm

tract or small farm, an estimate of value

(limited vs. complete appraisal) will be

done in accordance with subpart C of

part 1922, based on the direct sales

comparison approach only, utilizing the

most recent comparable sales data

available. The Uniform Residential

Appraisal Report (URAR) will be used

for this purpose. These appraisals will

be done by RHCDS employees having a

good understanding of appraisal

concepts and adequate appraisal

training. A small farm, for the purpose

of this subpart, is a farm as defined in

§ 1944.2 which has value primarily as a

residence rather than for the production

of agricultural commodities, and

repayment of the RH loan is not

dependent on farm income.

* * * * *

15. Section 1944.467 is amended by

removing paragraphs (a)(3), (d), and (h);

by removing and reserving paragraph (c)

by redesignating paragraphs (e), (f), and

(g) as paragraphs (d), (e), and (f)

respectively; by revising the

introductory text of paragraph (a), and

by adding a new paragraph (a)(3) to read

as follows:

§ 1944.467 Processing applications.

(a) Application. Application for

Section 504 assistance will be made on

Form FmHA 410–4, ‘‘Application for

Rural Housing Assistance (Non-farm

Tract) Uniform Residential Loan

Application’’, (hereafter called URLA)
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 25659

which is available at any RHCDS field

offices, and the application will be

processed in accordance with § 1944.27

using applicable forms from exhibit E,

available in any RHCDS field office.

* * * * *

(3) Actions taken under this subpart

are subject to the environmental

requirements of subpart G of part 1940.

* * * * *

(c) [Reserved]

§ 1944.468 [Amended]

16. Section 1944.468 is amended by

removing the words ‘‘must not be over

90 days old.’’ at the end of paragraph (b)

and inserting the words ‘‘are as

prescribed in subpart A of this part).’’

§ 1944.469 [Amended]

17. Section 1944.469 is amended by

removing and reserving paragraphs (b)

and (c):

18. Section 1944.472 is amended by

adding new language at the end of the

paragraph to read as follows:

§ 1944.472 Subsequent Section 504 loans

and/or grants.

* * * If the area designation has

changed from rural to nonrural,

subsequent loans and grants will be

made only for essential repairs.

PART 1951–GENERAL

19. The authority citation for Part

1951 continues to read as follows:

Authority: 7 U.S.C. 1989, 42 U.S.C. 1480,

5 U.S.C. 301.

Subpart G—Borrower Supervision,

Servicing, and Collection of Single

Family Housing Loan Accounts

§§ 1951.313–1951.319 [Redesignated as

§§ 1951.314–1951.320]

20. Sections 1951.313 through

1951.319 are redesignated as

§§ 1951.314 through 1951.320 and a

new 1951.313 is added to read as

follows:

§ 1951.313 Payment assistance.

(a) General. The correction, renewal,

and cancellation of payment assistance

agreements and payment assistance

granted as a servicing action on existing

loans is handled under this section.

Recapture of payment assistance will be

calculated and repaid in accordance

with subpart I of this part.

(b) [Reserved]

(c) Existing loans. Payment assistance

may be granted at any time after loan

closing if the following conditions are

met.

(1) The loan was approved on or after

August 1, 1968.

(2) The borrower personally occupies

the dwelling unless determined

uninhabitable by RHCDS or is

temporarily not occupied for reasons

such as seasonal or migratory

employment, military call-up, or

hospitalization.

(3) The borrower’s adjusted annual

income does not exceed the moderateincome limit contained in exhibit C to

FmHA Instruction 1944A (available in

any RHCDS field office).

(i) If there is not a reasonable

expectation that current income will

continue for 12 months, income will be

projected for the period expected rather

than for 12 months. For example, if a

borrower is receiving unemployment

benefits, the payment assistance

agreement will be effective for the

period of the benefits. At the end of the

benefit period or earlier if circumstances

change, the borrower’s situation will be

reviewed and appropriate action taken

based on current circumstances.

(ii) [Reserved]

(iii) If one coborrower has left the

dwelling due to domestic discord,

payment assistance may be based on the

remaining borrower’s income if the

following conditions are met:

(A) The remaining coborrower is

occupying the dwelling, owns a legal

interest in the property, is liable for the

debt, and agrees to notify RHCDS if the

other coborrower returns.

(B) Legal papers have been filed to

commence divorce or legal separation, a

restraining order has been obtained, or

one coborrower has not been living in

the dwelling for at least 3 months.

Payment assistance will not be granted

if separation is due to work assignment

or military order.

(4) The term of the loan at closing was

at least 25 years. If an account has been

reamortized and the term of the loan

was at least 25 years initially, payment

assistance may be granted even though

the term of the reamortized loan is less

than 25 years. If the term of the loan was

less than 25 years prior to

reamortization, the reamortized term

must be at least 25 years.

(5) The amount of payment assistance

granted will be based upon the

borrower’s adjusted family income

compared to median income for the area

where the property is located as

determined by § 1944.34(c).

(6) Payment assistance may be granted

retroactively for up to 6 months if the

conditions described in paragraphs

(c)(1) through (c)(5) of this section

existed at the time.

(d) Correction. A corrected payment

assistance agreement will be prepared

under the following circumstances.

(1) Change in income. RHCDS is not

responsible for monitoring changes in a

borrower’s income. If RHCDS becomes

aware of income changes outside of the

renewal period that will change the

amount of authorized payment

assistance as defined in § 1944.34(c), a

new 12-month agreement will be

prepared effective the due date

following the date RHCDS became

aware of the change.

(2) Insufficient payment assistance. If

a borrower received less payment

assistance than the borrower was

eligible to receive, a corrected

agreement will be prepared. The

effective date of the corrected agreement

will be the same date as the agreement

being replaced.

(3) Unauthorized assistance. If a

borrower received unauthorized

payment assistance, the account will be

serviced in accordance with Subpart M

of this part. This includes situations

where the borrower did not advise

RHCDS of income increases as required

on the Payment Assistance/Deferral/

Repayment form.

(e) Renewal—(1) Contractors. State

Directors are authorized to enter into

contracts for the processing of payment

assistance renewals. Renewal contracts

will cover all required actions except

approval or cancellation of payment

assistance.

(2) [Reserved]

(i) Borrower Interview. The borrower

must be available for an interview

during each renewal period.

(ii) Determination of eligibility.

Adjusted annual income will be

determined and documented in the file.

All borrowers will be required to submit

a copy of their most recent Federal

income tax return. In addition, income

for wage earning borrowers will be

verified by use of an RHCDS form

(available in any RHCDS field office),

and wage matching, if available.

Borrowers receiving social security or

retirement benefits must provide copies

of their most recent benefit/award

letters. Payment assistance will not be

renewed if the borrower’s adjusted

family income exceeds the moderateincome limit, (available in any RHCDS

field office) or if the borrower does not

occupy the dwelling.

(iii) Renewals not completed prior to

expiration of existing agreement. If not

due to RHCDS error, the effective date

of the renewal will be the next due date

after the date of approval. If due to

RHCDS error, the effective date will be

the expiration date of the previous

agreement.

(3) Termination of foreclosure action.

If a payment assistance agreement

expired after a problem case report

recommending foreclosure was

submitted and the foreclosure action

was terminated prior to sale or payment
25660 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

in full, payment assistance will be

renewed effective as of the expiration

date of the previous agreement if

RHCDS is to continue with the loan.

(4) [Reserved]

(f) Cancellation. Payment assistance

will be canceled when any of the

following conditions occur:

(1) The borrower has never occupied

the dwelling and RHCDS will not

continue with the loan. Cancellation

will be effective as of the date of loan

closing or amortization effective date,

whichever is appropriate.

(2) The borrower ceases to occupy the

dwelling. Cancellation will be effective

the payment due date following the date

of non-occupancy if known; otherwise,

the payment due date following the date

RHCDS became aware of the situation.

(3) The borrower has received

improper payment assistance as

determined in accordance with subpart

M of this part and a corrected

agreement will not be submitted.

Cancellation will be effective the

payment due date following the date

RHCDS became aware of the situation.

(4) The borrower is no longer eligible

for payment assistance due to an

increase in income. Cancellation will be

effective the payment due date

following the date RHCDS became

aware of the increase.

(5) The borrower sells or title to the

security property is otherwise

transferred. Cancellation will be

effective the payment due date prior to

the date title transferred. When security

property is acquired by RHCDS,

cancellation will be effective the

payment due date prior to the date of

acquisition.

(g) [Reserved]

(h) Notice of right for review or

appeal. All borrowers who request and

are denied payment assistance or whose

payment assistance is reduced,

canceled, or not renewed may appeal or

request a review in accordance with

subpart B of part 1900 of this chapter.

(i) [Reserved]

(j) Hardship waiver. The approval

official may submit to the District

Director any situation in which the

borrower cannot meet the conditions of

paragraphs (c) and (e) of this section and

it is determined that without payment

assistance the borrower would

experience extreme hardship or lose the

property through foreclosure. A waiver

may be granted if the above can be

determined and the borrower has no

other means of retaining the dwelling.

PART 1965—REAL PROPERTY

21. The authority citation for part

1965 continues to read as follows:

Authority: 7 U.S.C. 1989; 42 U.S.C. 1480;

5 U.S.C. 301.

Subpart C—Security Servicing for

Single Family Rural Housing Loans

§ 1965.126 [Amended]

22. Section 1965.126 is amended by

removing the words ‘‘serve as a

minimum adequate site for another

dwelling.’’ and inserting the words ‘‘be

subdivided and sold.’’ in their place at

the end of the first sentence of

paragraph (b)(3); by removing the

second, third, and fourth sentences and

the word ‘‘however’’ and the comma

preceding it in the last sentence of

paragraph (b)(4)(i); and by adding the

words ‘‘except as provided in § 1944.17

of subpart A of part 1944 of this

chapter,’’ following the words ‘‘being

assumed’’ in the first sentence of

paragraph (b)(8).

Dated: March 23, 1995.

Michael V. Dunn,

Acting Under Secretary for Rural Economic

and Community Development.

[FR Doc. 95–11308 Filed 5–11–95; 8:45 am]

BILLING CODE 3410–07–U

DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation

and Enforcement

30 CFR Part 935

[OH–233; Amendment Number 69R]

Ohio Regulatory Program; Revision of

Administrative Rules

AGENCY: Office of Surface Mining

Reclamation and Enforcement (OSM),

Interior.

ACTION: Proposed rule; reopening and

extension of public comment period.

SUMMARY: OSM is reopening the public

comment period for a revised

amendment to the Ohio regulatory

program (hereinafter referred to as the

Ohio program) under the Surface

Mining Control and Reclamation Act of

1977. This revised amendment was

initiated by Ohio and is intended to

make the Ohio program as effective as

the corresponding Federal regulations

concerning appeal procedures for

remedial actions regarding prohibited

financial interests.

This document sets forth the times

and locations that the Ohio program and

the proposed amendment to that

program will be available for public

inspection, the comment period during

which interested persons may submit

written comments on the proposed

amendments, and the procedures that

will be followed regarding the public

hearing, if one is requested.

DATES: Written comments must be

received on or before 4:00 p.m., E.D.T.

on May 30, 1995. If requested, a public

hearing on the proposed amendments

will be held at 1:00 p.m., E.D.T. on May

22, 1995. Requests to speak at the

hearing must be received on or before

4:00 p.m., E.D.T. on May 19, 1995.

ADDRESSES: Written comments and

requests to speak at the hearing should

be mailed or hand-delivered to Mr.

Robert H. Mooney, Acting Director,

Columbus Field Office, at the address

listed below.

Copies of the Ohio program, the

proposed amendment, and all written

comments received in response to this

document will be available for public

review at the addresses listed below

during normal business hours, Monday

through Friday, excluding holidays.

Each requester may receive one free

copy of the proposed amendment by

contacting OSM’s Columbus Field

Office.

Office of Surface Mining Reclamation

and Enforcement, Columbus Field

Office, 4480 Refugee Road, Suite 201,

Columbus, Ohio 43232, Telephone:

(614) 866–0578.

Ohio Department of Natural Resources,

Division of Reclamation, 1855

Fountain Square Court, Building H–3,

Columbus, Ohio 43224, Telephone:

(614) 265–6675.

FOR FURTHER INFORMATION CONTACT: Mr.

Robert H. Mooney, Acting Director,

Columbus Field Office, (614) 866–0578.

SUPPLEMENTARY INFORMATION:

I. Background on the Ohio Program

On August 16, 1982, the Secretary of

the Interior conditionally approved the

Ohio program. Information on the

general background of the Ohio program

submissions, including the Secretary’s

findings, the disposition of comments,

and a detailed explanation of the

conditions of approval of the Ohio

program, can be found in the August 10,

1982, Federal Register (47 FR 34688).

Subsequent actions concerning the

conditions approval and program

amendments are identified at 30 CFR

935.11, 935.12, 935.15, and 935.16.

II. Proposed Amendment

The Ohio Department of Natural

Resources, Division of Reclamation

(Ohio) submitted proposed Program

Amendment Number 69 by letter dated

September 22, 1994 (Administrative

Record No. OH–2059). In this

amendment, Ohio proposed to revise

two rules at Ohio Administrative Code

(OAC) sections 1501:13–1–03 and 13–7–