[Federal Register Volume 86, Number 109 (Wednesday, June 9, 2021)]
[Proposed Rules]
[Pages 30555-30558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11937]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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Federal Register / Vol. 86, No. 109 / Wednesday, June 9, 2021 / 
Proposed Rules

[[Page 30555]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

[Docket No. RHS-21-SFH-0003]
RIN 0575-AD22


Single Family Housing Guaranteed Loan Program

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

ACTION: Proposed rule.

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SUMMARY: The Rural Housing Service (RHS or Agency), proposes to amend 
the current regulation for the Single Family Housing Guaranteed Loan 
Program (SFHGLP) to update the requirements for Federally supervised 
lenders, minimum net worth and experience for non-supervised lenders, 
approved lender participation requirements, treatment of applicants 
with delinquent child support payments and builder credit requirements. 
These changes would promote an efficient and robust management and 
oversight structure of lenders in the SFHGLP, strengthen underwriting 
practices by denying loan guarantees for applicants who are subject to 
administrative offset to collect delinquent child support payments and 
streamline requirements for screening builder-contractors by lenders.

DATES: Comments must be submitted on or before August 9, 2021.

ADDRESSES: Comments may be submitted by going to the Federal 
eRulemaking Portal: Go to http://www.regulations.gov and in the 
``Search Documents'' box, enter the Docket Number (RHS-21-SFH-0003) or 
the RIN# 0575-AD22, and click the ``Search'' button. To submit a 
comment, choose the ``Comment Now!'' button. Information on using 
Regulations.gov, including instructions for accessing documents, 
submitting comments, and viewing the docket after the close of the 
comment period, is available under the ``Help'' tab at the top of the 
Home page.
    Other Information: Additional information about Rural Development 
and its programs is available on the internet at http://www.rurdev.usda.gov/index.html.
    All comments will be available for public inspection online at the 
Federal eRulemaking Portal (https://www.regulations.gov).

FOR FURTHER INFORMATION CONTACT: Ana Placencia, Finance and Loan 
Analyst, Single Family Housing Guaranteed Loan Division, Rural 
Development, U.S. Department of Agriculture, STOP 0784, Room 2250, 
South Agriculture Building, 1400 Independence Avenue SW, Washington, DC 
20250-0784, telephone: (254) 721-0770; or email: 
<a href="/cdn-cgi/l/email-protection#debfb0bff0aeb2bfbdbbb0bdb7bf9eabadbabff0b9b1a8"><span class="__cf_email__" data-cfemail="0e6f606f207e626f6d6b606d676f4e7b7d6a6f20696178">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Background

    Rural Housing Service (RHS) is issuing a proposed rule to amend the 
Single-Family Housing Guaranteed Loan Program (SFHGLP) regulations as 
outlined in 7 CFR part 3555, subparts B, C and D by updating the 
regulations to strengthen oversight and management of the growing 
SFHGLP portfolio. The revisions align with the standards for managing 
credit programs recommended by the Office of Management and Budget 
(OMB) for Federally supervised lenders, minimum net worth, minimum 
experience for non-supervised lenders, and approved lender 
participation requirements. The revisions would also provide guidance 
for processing applicants with delinquent child support payments and 
relaxes builder requirements to better align with the credit program 
requirements of other Federal agencies.

Discussion of the Rule

(1) Minimum Net Worth Requirements for Non-Supervised Lenders

    Currently, the Agency does not impose minimum financial or 
experience criteria for non-supervised lenders. Non-supervised lenders 
(i.e., lenders not supervised by federal entities listed in Sec.  
3555.51(a)(8)) that do not meet the minimum capital and financial 
requirements are considered to have a weak financial position that may 
pose an incremental risk to the program. The Agency proposes to amend 
Sec.  3555.51 and add paragraph (b)(i) and (ii) to reflect that non-
supervised lenders must have a minimum adjusted net worth of $250,000, 
or at least $50,000 in working capital plus one percent of the total 
volume in excess of $25 million in guaranteed loans originated, 
serviced or purchased during the lender's prior fiscal year, up to a 
maximum required adjusted net worth of $2.5 million and one or more 
lines of credit with a minimum aggregate of $1 million. The proposed 
financial thresholds are based on recommendations of a third-party 
contractor's analysis \1\ of participating lenders. The contractor's 
recommendation for adopting these capital and financial requirements 
for non-supervised lenders was derived from an analysis of the capital 
and net worth requirements of recognized sources or eligibility 
determinations outlined in Sec.  3555.51(a). Establishing minimum 
financial requirements for non-supervised lenders would potentially 
reduce the Agency's risk of doing business with entities that have 
insufficient financial resources. Lenders that meet these minimum 
financial requirements also demonstrate trustworthiness that would 
contribute to the success of the SFHGLP. The contractor recommendation 
was determined using a combination approach of the Veterans 
Administration (VA) base requirement and adding the volume component, 
which is structured and capped following the FHA standard, see Falcon 
Capital Advisor, CLIN 0003 Report. The flexibility would allow the 
Agency to adjust the requirements in the technical handbook without 
requiring revisions to the regulatory language.
---------------------------------------------------------------------------

    \1\ Falcon Capital Advisors, CLIN 0003 Report, Capital and 
Financial Requirements for Non-Regulated Lenders available at 
https://www.rd.usda.gov/page/usda-linc-training-resource-library.
---------------------------------------------------------------------------

    This action will align lender approval requirements with those of 
other Federal credit programs and incorporates best practice 
recommendations outlined in Office of Management and Budget (OMB) 
Circular A-129.\2\
---------------------------------------------------------------------------

    \2\ Available at: https://fiscal.treasury.gov/files/dms/circ-a129-upd-0113.pdf. OMB requires credit granting agencies to 
establish and publish in the Federal Register specific eligibility 
criteria for lender or servicer participation in Federal credit 
programs, including qualification requirements for principal 
officers and staff of the lender or servicer. OMB Circular A-129, p. 
12.

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[[Page 30556]]

(2) Federally Supervised Lenders

    Currently, the regulation requires that all lenders approved for 
participation in the SFHGLP must provide additional information to 
demonstrate its ability to originate, underwrite and service loans. 
However, the Agency has determined that lenders that are Federally 
supervised and meet the criteria in the current Sec.  3555.51(a)(8) 
have demonstrated ability and should not be required to provide 
additional documentation. The proposal will alleviate the process for 
obtaining Agency approval, reduce the required lender documentation and 
reflect a more streamlined process for Federally supervised lenders.
    A summary of the changes includes amending 7 CFR 3555.51(a)(8) to 
eliminate (a)(8)(iv) because it refers to the Office of Thrift 
Supervision (OTS), which no longer exists. Furthermore, the current 
Sec.  3555.51(a)(9) and (10) is intended to provide a path for lenders 
that are not regulated by state or federal agencies and do not meet the 
requirements of (a)(1) through (8) an opportunity to participate in the 
SFHGLP. Therefore, the Agency also proposes to amend the introductory 
texts of Sec.  3555.51(a)(9) and (10) to clarify that when lenders 
cannot meet the demonstrated ability criteria outlined under Sec.  
3555.51(a)(1) through (8), those lenders must submit additional 
documentation to demonstrate their ability to originate loans.

(3) Approved Lender Participation Requirements

    Lenders must meet applicable requirements in order to begin and 
continue participation in the SFHGLP. Currently, the Agency generally 
reviews each lender every 2 years to ensure compliance. However, this 
process is not codified in the regulations. Therefore, the Agency 
proposes to amend Sec.  3555.51 and add paragraph (c) under SFHGLP 
participation requirements, to clarify that lender eligibility will be 
reviewed every 2 years for continued participation in the SFHGLP. The 
proposal will also add a requirement that principal officers of lenders 
must have a minimum of 2 years of experience in originating or 
servicing guaranteed mortgage loans as recommended in OMB Circular A-
129. In order to be deemed eligible for continued lender participation 
in the SFHGLP, the lender and its principal officers must continue to 
meet all the criteria as outlined in Sec.  3555.51 which, as proposed 
to be amended, would include (a) specific experience in underwriting 
and servicing loans, (b) financial requirements for non-supervised 
lenders, and (c) SFHGLP participation requirements.

(4) Builder-Contractor Requirements

    At present, Sec.  3555.105(b)(4) and (5) require that builder-
contractors have acceptable credit histories free of judgments, 
collections, or liens related to previous projects the builder-
contractor was involved with and that they not have a criminal history. 
Currently, the lender is responsible for obtaining the [builder-
contractor's] credit history and background checks. However, the Agency 
has determined that these requirements are not the industry standard. 
The builder-contractor's ability to participate in such projects should 
be based on the applicant's and lender's review of the builder-
contractor's experience, reputation and financial ability to complete 
the project in a timely, efficient and competent manner. The proposal 
would remove Sec.  3555.105(b)(4) and (5). The changes would streamline 
screening requirements, reduce administrative burden on the lender and 
would also align with other Federal programs, including the Direct 
Section 502 loan program, which do not have such requirements for 
builder-contractors. The Agency is specifically soliciting comments on 
the impact of eliminating the credit and criminal background checks for 
building contractors.

(5) Applicants Delinquent on Child Support

    Currently, the Agency does not have explicit instructions on how 
lenders should treat an applicant's delinquent child support payments 
that are subject to collection by federal administrative offset. The 
Agency considers delinquent child support payments subject to 
administrative offset a significant derogatory obligation and an 
indication that an applicant does not have the reasonable ability or 
willingness to meet their obligations. Furthermore, it would be against 
the federal government's interest to guarantee a loan for an applicant 
from whom the federal government is simultaneously pursuing collection 
for a delinquent debt. Therefore, RHS proposes to amend Sec.  
3555.151(i) to specify that borrowers with delinquent child support 
payments subject to collection by administrative offset are ineligible 
unless the payments are brought current, the debt is paid in full, or 
otherwise satisfied.

Statutory Authority

    Section 510(k) of Title V the Housing Act of 1949 (42 U.S.C. 
1480(k)), as amended, authorizes the Secretary of the Department of 
Agriculture to promulgate rules and regulations as deemed necessary to 
carry out the purpose of that title.

Executive Order 12866, Classification

    This rule has been determined to be not significant for the 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

Executive Order 12988, Civil Justice Reform

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Except where specified, all state and local laws and 
regulations that are in direct conflict with this rule will be 
preempted. Federal funds carry federal requirements. No person is 
required to apply for funding under SFHGLP, but if they do apply and 
are selected for funding, they must comply with the requirements 
applicable to the federal program funds. This rule is not retroactive. 
It will not affect agreements entered into prior to the effective date 
of the rule. Before any judicial action may be brought regarding the 
provisions of this rule, the administrative appeal provisions of 7 CFR 
part 11 must be exhausted.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effect of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Agency generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector, of $100 
million, or more, in any one year. When such a statement is needed for 
a rule, section 205 of the UMRA generally requires the Agency to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for state, local, and tribal 
governments or the private sector. Therefore, this rule is not subject 
to the requirements of sections 202 and 205 of the UMRA.

[[Page 30557]]

National Environmental Policy Act

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

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the states is not required.

Regulatory Flexibility Act

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

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is not subject to the requirements of Executive Order 
12372, ``Intergovernmental Review of Federal Programs,'' as implemented 
under USDA's regulations at 7 CFR part 3015.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the rule does not have a substantial 
direct effect on one or more Indian tribe(s) or on either the 
relationship or the distribution of powers and responsibilities between 
the federal government and Indian tribes. Thus, this rule is not 
subject to the requirements of Executive Order 13175. If tribal leaders 
are interested in consulting with RHS on this rule, they are encouraged 
to contact USDA's Office of Tribal Relations or RD's Native American 
Coordinator at: <a href="/cdn-cgi/l/email-protection#4b0a020a050b3c2f28653e382f2a652c243d"><span class="__cf_email__" data-cfemail="eeafa7afa0ae998a8dc09b9d8a8fc0898198">[email protected]</span></a> to request such a consultation.

Programs Affected

    The program affected by this proposed rule is listed in the Catalog 
of Federal Domestic Assistance under Number 10.410, Very Low to 
Moderate Income Housing Loans (Section 502 Rural Housing Loans).

Paperwork Reduction Act

    This rule contains no new reporting or recordkeeping burdens under 
OMB control number 0575-0179 that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

Civil Rights Impact Analysis

    Rural Development has reviewed this rule in accordance with USDA 
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any 
major civil rights impacts the rule might have on program participants 
on the basis of age, race, color, national origin, sex, disability, 
marital or familial status. Based on the review and analysis of the 
rule and all available data, issuance of this Final Rule is not likely 
to negatively impact low and moderate-income populations, minority 
populations, women, Indian tribes or persons with disability, by virtue 
of their age, race, color, national origin, sex, disability, or marital 
or familial status.

E-Government Act Compliance

    Rural Development is committed to the E-Government Act, which 
requires Government agencies in general to provide the public the 
option of submitting information or transacting business electronically 
to the maximum extent possible.

Nondiscrimination Statement

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
agencies, offices, and employees, and institutions participating in or 
administering USDA Programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the responsible 
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or 
contact USDA through the Federal Relay Service at (800) 877-8339. 
Additionally, program information may be made available in languages 
other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and 
at any USDA office or write a letter addressed to USDA and provide in 
the letter all of the information requested in the form. To request a 
copy of the complaint form, call (866) 632-9992. Submit your completed 
form or letter to USDA by: mail: U.S. Department of Agriculture, Office 
of the Assistant Secretary for Civil Rights, 1400 Independence Avenue 
SW, Washington, DC 20250-9410; or
    (1) Email: <a href="/cdn-cgi/l/email-protection#c18e808281b4b2a5a0efa6aeb7"><span class="__cf_email__" data-cfemail="c48b858784b1b7a0a5eaa3abb2">[email protected]</span></a>
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 3555

    Construction, Eligible loan purpose, Home improvement, Loan 
programs--housing and community development, Loan terms, Mortgage 
insurance, Mortgages, and Rural areas.

    For the reasons discussed in the preamble, the Agency is proposing 
to amend 7 CFR part 3555 as follows:

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

0
1. The authority citation for part 3555 continues to read as follows:

    Authority:  5 U.S.C. 301; 42 U.S.C. 1471 et seq.

0
2. Amend Sec.  3555.51 by:
0
(a) Revising paragraph (a)(8);
0
(b) Revising the introductory text of paragraphs (a)(9) and (10);
0
(c) Revising paragraph (b) and (b)(1);
0
(d) Adding paragraph (c).
    The revisions and additions read as follows:


Sec.  3555.51   Lender eligibility.

* * * * *
    (a) * * *
    (8) A Federally supervised lender. Acceptable sources of Federal 
supervision include:
    (i) Being a member of the Federal Reserve System;

[[Page 30558]]

    (ii) The Federal Deposit Insurance Corporation (FDIC);
    (iii) The National Credit Union Administration (NCUA);
    (iv) The Office of the Comptroller of the Currency (OCC);
    (v) The Federal Housing Finance Board regulating lenders within the 
Home Loan Bank (FHLB) system.
    (9) If lenders cannot meet the requirements under (a)(1) through 
(8), they may demonstrate its ability to originate and underwrite loans 
by submitting appropriate documentation, examples of which include, but 
are not limited to: * * *
    (10) A lender that proposes to service loans that cannot meet 
(a)(1) through (8) must demonstrate its ability by submitting 
appropriate documentation, examples of which include but are not 
limited to: * * *
    (b) Financial Requirements for Non-Supervised Lenders. All lenders 
not covered in paragraph (8) of this section, must have:
    (i) A minimum adjusted net worth of $250,000, or $50,000 in working 
capital plus one percent of the total volume in excess of $25 million 
in guaranteed loans originated, serviced or purchased during the 
lender's prior fiscal year, up to a maximum required adjusted net worth 
of $2.5 million, and
    (ii) one or more lines of credit with a minimum aggregate of one 
million dollars.
* * * * *
    (c) SFHGLP participation requirements Lenders and their agents must 
comply with the following requirements:
    (1) Keep up to date, and comply with, all Agency regulations and 
handbooks, including all amendments and revisions of program 
requirements and policies. Lenders must also comply with all other 
applicable federal, state, and local laws, rules, and requirements, 
including those under the purview of the Consumer Financial Protection 
Bureau, such as the Real Estate Settlement Procedures Act and the Truth 
in Lending Act. Lenders who originate a minimal number loans, as 
determined by the Agency, in a 24 month time frame may be required to 
take updated training to ensure a lender's continued knowledge of the 
program;
    (2) Regularly check Rural Development's website for new issuances 
related to the program;
    (3) Underwrite loans according to Rural Development regulations and 
process and approve loans in accordance with program instructions;
    (4) Review loan applications for accuracy and completeness;
    (5) Ensure that applicant income limits are not exceeded;
    (6) Ensure that borrowers have adequate loan repayment ability and 
acceptable credit histories;
    (7) Ensure that loss claims include only supportable costs;
    (8) Cooperate fully with Agency reporting and monitoring 
requirements;
    (9) Comply with limitations on loan purposes, loan limitations, 
interest rates, and loan terms;
    (10) Inform Rural Development immediately after the sale, transfer, 
or change of servicers of any Agency guaranteed loan;
    (11) Maintain reasonable and prudent business practices consistent 
with generally accepted mortgage industry standards, such as 
maintaining fidelity bonding;
    (12) Remain responsible for servicing even if servicing has been 
contracted to a third party;
    (13) Use Rural Development, HUD, Fannie Mae, or Freddie Mac forms, 
unless otherwise approved by Rural Development;
    (14) Maintain eligibility under paragraph (a) of this section;
    (15) Notify Rural Development if there are any material changes in 
organization or practices;
    (16) Be neither debarred nor suspended from participation in 
Federal programs, not debarred, suspended or sanctioned under state 
licensing and certification laws and regulations;
    (17) Notify Rural Development in the event of its bankruptcy or 
insolvency;
    (18) Remain free from default and delinquency on any debt owed to 
the Federal government;
    (19) Allow Rural Development or its representative access to the 
lender's records, including, but not limited to, records necessary for 
on-site and desk reviews of the lender's operation and the operations 
of any of its agents to verify compliance with Agency regulations and 
guidelines;
    (20) Maintain adequate operational quality control and reporting 
procedures to prevent fraud;
    (21) Maintain complete loan files with all required documentation 
that is accessible by Agency upon request for review;
    (22) Execute a lender's agreement provided by Rural Development;
    (23) Evidence that principal officers must have a minimum of two 
years of experience in originating or servicing guaranteed mortgage 
loans; and
    (24) Provide documentation as required by the Agency to be reviewed 
every two years for continued lender participation.
* * * * *


Sec.  3555.105   [Amended]

0
4. Amend Sec.  3555.105 by removing paragraphs (b)(4) and (5) and 
renumbering paragraph (b)(6) as appropriate.
0
5. Amend Sec.  3555.151 by adding paragraph (i)(9) to read as follows:


Sec.  3555.151   Eligibility Requirements.

* * * * *
    (i) * * *
    (9) Applicants with delinquent child support payments subject to 
collection by administrative offset are ineligible unless the payments 
are brought current, the debt is paid in full, or otherwise satisfied.
* * * * *

Chadwick Parker,
Acting Administrator, Rural Housing Service.
[FR Doc. 2021-11937 Filed 6-8-21; 8:45 am]
BILLING CODE 3410-XV-P


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