This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

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

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

52429 

Vol. 75, No. 165 

Thursday, August 26, 2010 

DEPARTMENT OF AGRICULTURE 

Rural Housing Service 

7 CFR Part 1980 

RIN 0575–AC85 

Guaranteed Single Family Housing 

Loans 

AGENCY: Rural Housing Service, USDA. 

ACTION: Final rule. 

SUMMARY: The Rural Housing Service 

(RHS) is amending its regulations to add 

new servicing options to the Single 

Family Housing Guaranteed Loan 

Program (SFHGLP) that lenders may 

utilize while still maintaining the 

SFHGLP loan guarantee. The Agency 

will allow lenders to extend loans for a 

term of up to 40 years from the date of 

modification. The Agency also will 

allow lenders to advance funds on 

behalf of borrowers in amounts 

necessary to bring defaulted loans 

current, up to 30 percent of the unpaid 

principal balance of the loan. Upon 

request, RHS will reimburse the lender 

for eligible advances. The intended 

effect is to reduce mortgage foreclosures 

among SFHGLP borrowers and help 

stabilize the national housing market. 

This amendment is being issued as a 

final rule pursuant to section 101(c)(1) 

of the Helping Families Save Their 

Homes Act of 2009, which authorizes 

RHS to promulgate this rule without 

regard to the notice and comment 

provisions of 5 U.S.C. 553 or the 

Statement of Policy of the Secretary of 

Agriculture effective July 24, 1971 (36 

FR 13804) relating to notices of 

proposed rulemaking and public 

participation in rulemaking. 

DATES: Effective Date: This rule is 

effective September 24th, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Stuart Walden, Senior Loan Specialist, 

Section 502 Guaranteed Loan Program— 

STOP 0784 (Room 2241), U.S. 

Department of Agriculture, Rural 

Housing Service, 1400 Independence 

Ave., SW., Washington, DC 20250–0784. 

Telephone: 202–690–4507; 202–720– 

8795; E-mail: 

stuart.walden@wdc.usda.gov. 

SUPPLEMENTARY INFORMATION: 

Classification 

This final rule has been determined to 

be not significant and has not been 

reviewed by the Office of Management 

and Budget (OMB) under Executive 

Order 12866. 

Executive Order 12988, Civil Justice 

Reform 

This rule has been reviewed under 

Executive Order 12988, Civil Justice 

Reform. In accordance with the 

Executive Order: (1) All State and local 

laws and regulations that are in conflict 

with this rule will be preempted; (2) No 

retroactive effect will be given to this 

rule; and (3) Administrative proceedings 

in accordance with the regulations of 

the National Appeals Division of USDA 

at 7 CFR part 11 must be exhausted 

before bringing suit in court challenging 

action taken under this rule unless those 

regulations specifically allow bringing 

suit at an earlier time. 

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 effects of 

their regulatory actions on State, local, 

and tribal governments and the private 

sector. Under section 202 of the UMRA 

(2 U.S.C. 1532), RHS 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 RHS to identify and consider a 

reasonable number of regulatory 

alternatives and adopt the least costly, 

more 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. 

Environmental Impact Statement 

This final rule has been reviewed in 

accordance with 7 CFR part 1940, 

subpart G, ‘‘Environmental Program.’’ 

Rural Development has determined that 

an environmental Impact Statement is 

not required because the issuance of 

regulations and instructions, as well as 

amendments to them, describing 

administrative and financial procedures 

for processing, approving, and 

implementing the Agency’s financial 

programs is categorically excluded in 

the Agency’s National Environmental 

Policy Act of 1969 (NEPA) regulation 

found at 7 CFR 1940.310(e)(3). Thus, in 

accordance with NEPA (42 U.S.C. 

4321–4347), Rural Development has 

determined that this regulation does not 

constitute a major action significantly 

affecting the quality of the human 

environment. 

Furthermore, individual awards 

under this rule are hereby classified as 

categorical exclusions according to 7 

CFR 1940.310(e)(2) (loan-closing and 

servicing activities, transfers, 

assumptions, subordinations, 

construction management activities and 

amendments and revisions to approved 

projects, including the provision of 

additional financial assistance that do 

not alter the purpose, operation, 

location, or design of the project as 

originally approved) and thus do not 

require any additional documentation. 

Executive Order 13132, Federalism 

The policies contained in this rule do 

not have any substantial direct effect on 

States, the relationship between the 

national government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government. Nor does this rule 

impose a substantial direct compliance 

cost on State and local governments. 

Therefore, consultation with the States 

is not required. 

Regulatory Flexibility Act 

In compliance with the Regulatory 

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

undersigned has determined and 

certified by signature of this document 

that this rule will not have a significant 

impact on a substantial number of small 

entities. Program requirements for the 

guaranteed single family housing 

program are the same for all approved 

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52430 Federal Register / Vol. 75, No. 165 / Thursday, August 26, 2010 / Rules and Regulations 

lenders regardless of their size. 

Borrowers are low to moderate income 

individual homebuyers, not entities. 

Intergovernmental Consultation 

This program/activity is excluded 

from the provisions of Executive Order 

12372, which require intergovernmental 

consultation with State and local 

officials. 

Programs Affected 

The program affected is listed in the 

Catalog of Federal Domestic Assistance 

as 10.410, Very Low to Moderate 

Income Housing Loans. 

Paperwork Reduction Act of 1995 

Section 101(c)(1)(C) of the Helping 

Families Save Their Homes Act of 2009 

authorizes RHS to promulgate this rule 

without regard to the Paperwork 

Reduction Act. 

E-Government Act Compliance 

RHS is committed to complying with 

the E-Government Act, to promote the 

use of the Internet and other 

information technologies to provide 

increased opportunities for citizen 

access to government information and 

services, and for other purposes. 

Non-Discrimination Statement 

USDA prohibits discrimination in all 

its programs and activities on the basis 

of race, color, national origin, age, 

disability, and where applicable, sex, 

marital status, religion, sexual 

orientation, genetic information, 

political beliefs, reprisal, or because all 

or part of an individual’s income is 

derived from any public assistance 

program. (Not all prohibited bases apply 

to all programs.) Persons with 

disabilities who require alternative 

means for communication of program 

information (Braille, large print, 

audiotape, etc.) should contact USDA’s 

TARGET Center at (202) 720–2600 

(voice and TDD). To file a complaint of 

discrimination, write to USDA, Director, 

Office of Civil Rights, 1400 

Independence Avenue, SW., 

Washington, DC 20250–9410, or call 

(800) 795–3272 (voice), or (202) 720– 

6382 (TDD). ‘‘USDA is an equal 

opportunity provider, employer, and 

lender.’’ 

Background Information 

The Helping Families Save Their 

Homes Act of 2009 was signed into law 

on May 20, 2009. Section 101 of this law 

amended section 502(h) of the Housing 

Act of 1949 (42 U.S.C. 1472(h)), which 

authorizes the RHS Section 502 

Guaranteed Loan Program. The 

amendments gave RHS the authority to 

approve the modification of guaranteed 

single family housing loans that are in 

default or facing imminent default with 

terms extended up to 40 years from the 

date of modification (section 502(h)(14) 

of the Housing Act). The amendments 

also gave RHS the authority to establish 

a program for the payment of partial 

claims to mortgagees (approved 

guaranteed lenders) who agree to apply 

the claim amount to the payment of a 

loan in default or facing imminent 

default (section 502(h)(14) of the 

Housing Act). This rule adds 7 CFR 

1980.373 to allow lenders to modify 

mortgages by reducing the interest rate 

to a level at or below a maximum 

allowable interest rate and extending 

the term of the loan up to 40 years from 

the date of loan modification 

(‘‘extended-term loan modification’’). 

RHS also will reimburse lenders for 

certain advances made on behalf of 

borrowers in default or facing imminent 

default (‘‘mortgage recovery advances’’) 

(together with extended-term loan 

modification, ‘‘special loan servicing’’). 

Lenders must receive written approval 

from RHS prior to servicing a borrower’s 

account with special loan servicing. As 

with other authorized servicing options, 

the Lender must submit a servicing plan 

to RHS pursuant to 7 CFR 1980.374 

when a borrower’s account is 90 days 

delinquent and a method other than 

foreclosure is recommended to resolve 

the delinquency. Use of special loan 

servicing does not change the terms of 

the loan note guarantee. The Agency 

hopes that the additional servicing 

authorities will help to stabilize the 

current housing market. This rule also 

amends 7 CFR 1980.302, ‘‘Definitions 

and Abbreviations,’’ to include the terms 

introduced in 7 CFR 1980.373. 

Pursuant to section 1980.373(b), 

special loan servicing shall be used to 

bring the borrower’s mortgage payment 

to income ratio as close as possible to, 

but not less than, 31 percent. The 

mortgage payment to income ratio is 

defined as the monthly mortgage 

payment (principal, interest, taxes, and 

insurance) for the modified mortgage 

divided by the borrower’s gross monthly 

income. RHS chose to target 31 percent 

of a borrower’s gross monthly income 

because 31 percent is consistent with 

the industry standard and is reasonable 

for determining a monthly mortgage 

payment that the borrower can afford. 

The U.S. Treasury Department’s Home 

Affordable Modification Program 

(HAMP) requires servicers to reduce the 

borrower’s monthly mortgage payment 

to 31 percent of the borrower’s total pretax monthly income. The Federal 

Housing Administration (FHA) and 

Department of Veterans Affairs (VA) 

also use a 31 percent target in their 

HAMP-related loan modification 

programs. The following Web sites 

provide additional information about 

HAMP: www.hmpadmin.com (for 

servicers) and http:// 

makinghomeaffordable.gov/ (for 

borrowers). Please note that while 

HAMP is a temporary program 

(currently set to expire on December 31, 

2012), the provisions of this final rule 

have no expiration date. 

Section 1980.373(b) also requires the 

Lender to verify the borrower’s income 

prior to servicing the borrower’s account 

with special loan servicing. For 

borrowers who are employed by a 

private or public organization, the 

Lender shall examine documents such 

as the borrower’s current pay stub and 

most recent Internal Revenue Service 

Form W–2. For borrowers who are selfemployed, the Lender shall examine 

documents such as the borrower’s profit 

and loss statements (for the year to date 

and the previous year) and the 

borrower’s signed tax return for the 

previous year. These verification 

measures are designed to ensure 

accuracy. 

Pursuant to section 1980.373(c), the 

Lender must consider traditional 

servicing options before considering 

special loan servicing. Specifically, the 

Lender must consider the borrower for 

a repayment agreement, special 

forbearance agreement, and loan 

modification plan with a term not to 

exceed 30 years from the date of the 

original loan. These traditional servicing 

options are detailed in the Loss 

Mitigation Guide that RHS distributes to 

all approved lenders servicing SFHGLP 

loans. If the targeted mortgage payment 

to income ratio cannot be achieved 

using traditional servicing options, then 

the Lender may consider an extendedterm loan modification. If the targeted 

mortgage payment to income ratio 

cannot be achieved using an extendedterm loan modification, then the Lender 

may consider a mortgage recovery 

advance in addition to the extendedterm loan modification. Before 

considering a mortgage recovery 

advance, the Lender must reduce the 

interest rate to the maximum allowable 

interest rate and extend the repayment 

term for 30 years from the date of loan 

modification. The Lender may reduce 

the interest rate further and/or extend 

the term of the loan for up to 40 years 

from the date of loan modification at the 

Lender’s option, but the Lender shall 

not be required to do so before utilizing 

a mortgage recovery advance. This 

sequence gives lenders some flexibility 

while encouraging lenders to achieve 

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Federal Register / Vol. 75, No. 165 / Thursday, August 26, 2010 / Rules and Regulations 52431 

the targeted mortgage payment to 

income ratio using the servicing 

option(s) that will be least expensive for 

the government. Use of the mortgage 

recovery advance is limited because the 

mortgage recovery advance will be most 

expensive for the government. By 

imposing these restrictions, RHS will 

promote the reduction of mortgage 

foreclosures in a cost-effective manner. 

Section 1980.373(d) describes 

eligibility requirements that apply to all 

special loan servicing. 

First, in order for a borrower to be 

eligible, the borrower must be in default 

or facing imminent default. A borrower 

is ‘‘facing imminent default’’ if that 

borrower is current or less than 30 days 

past due on the mortgage obligation and 

is experiencing a significant reduction 

in income or some other hardship that 

will prevent him or her from making the 

next required payment on the mortgage 

during the month in which it is due. 

Section 502(h)(14) of the Housing Act of 

1949 authorizes RHS to allow loan 

modifications and payment of partial 

claims with respect to mortgages that 

are in default or facing imminent 

default. RHS believes that establishing 

early contact with borrowers having 

difficulty making their mortgage 

payments increases the likelihood that 

such borrowers will be able to retain 

homeownership. 

Second, in order for a borrower to be 

eligible, the borrower’s total debt to 

income ratio following special loan 

servicing must not exceed 55 percent. 

Total debt to income ratio is defined as 

the borrower’s monthly mortgage 

payment plus all recurring monthly debt 

divided by the borrower’s gross monthly 

income. This requirement exists to 

control costs for the government. 

Repayment ability is substantially 

impaired when a borrower’s total debt 

to income ratio exceeds 55 percent. FHA 

uses the same eligibility standard in its 

HAMP-related loan modification 

program. In connection with this 

requirement, section 1980.373(d) 

requires the Lender to verify the 

borrower’s income and total debt prior 

to servicing the borrower’s account with 

special loan servicing. For borrowers 

who are employed by a private or public 

organization, the Lender shall verify the 

borrower’s income by examining 

documents such as the borrower’s 

current pay stub and most recent 

Internal Revenue Service Form W–2. 

For borrowers who are self-employed, 

the Lender shall verify the borrower’s 

income by examining documents such 

as the borrower’s profit and loss 

statements (for the year to date and the 

previous year) and the borrower’s 

signed tax return for the previous year. 

The Lender shall verify the borrower’s 

total debt by ordering and examining 

the borrower’s credit report. These 

verification measures are designed to 

ensure accuracy. 

Third, in order for a borrower to be 

eligible, the borrower must successfully 

complete a trial payment plan to 

demonstrate that the borrower will be 

able to make regularly scheduled 

payments as modified by the special 

loan servicing. For borrowers who are in 

default when special loan servicing is 

initiated, the trial payment plan shall be 

three months in length. For borrowers 

facing imminent default when special 

loan servicing is initiated, the trial 

payment plan shall be four months in 

length. The borrower’s monthly 

payment during the trial payment plan 

shall equal the monthly payment that 

would be owed by the borrower 

following the special loan servicing. A 

three-month trial period is the industry 

standard and a key element of HAMP. 

The trial period allows the government 

to verify that the proposed servicing 

plan will succeed in helping the 

borrower afford their home. Three 

months is sufficient time for a borrower 

to demonstrate that the new payment 

can be maintained. Borrowers facing 

imminent default must complete a fourmonth trial period. FHA also requires a 

four-month trial period for borrowers 

facing imminent default in its HAMPrelated loan modification program. 

During this trial period, the Lender shall 

service the mortgage in the same 

manner as it would service a mortgage 

under a special forbearance agreement, 

i.e., the Lender shall review the status 

of the plan each month and take 

appropriate action if the borrower is not 

complying with the terms of the plan. If 

the borrower does not successfully 

complete the trial payment plan by 

making each of the monthly payments 

on time, the borrower is not eligible for 

special loan servicing. If the borrower 

begins but does not successfully 

complete a trial payment plan, the 

Lender should consider the borrower for 

voluntary liquidation and deed in lieu 

of foreclosure before proceeding to 

foreclosure. This provision is included 

to minimize loss to the government. 

Finally, in order for a borrower to be 

eligible for special loan servicing, the 

borrower must occupy the property as 

the borrower’s primary residence at the 

time of the special loan servicing and 

intend to continue occupying the 

property as such. This requirement is 

consistent with existing SFHGLP 

regulations. It is also consistent with the 

purpose of the program—to assist 

eligible households in having adequate 

but modest, decent, safe, and sanitary 

dwellings for their own use. 

Section 1980.373(e) states that in an 

extended-term loan modification, the 

Lender shall reduce the interest rate to 

a level at or below the maximum 

allowable interest rate and extend the 

repayment term up to 40 years from the 

date of loan modification. Pursuant to 

section 1980.373(e), the interest rate 

must be fixed. Using a fixed interest rate 

makes the loan terms easy for the 

borrower to understand and reduces the 

administrative burden on the 

government. RHS may establish the 

maximum allowable interest rate by 

publishing a notice in the Federal 

Register describing how to calculate the 

rate. This will allow RHS to adapt to 

industry standards and market 

conditions. If the maximum allowable 

interest rate has not been established by 

notice in the Federal Register, the 

maximum allowable interest rate shall 

be 50 basis points greater than the most 

recent Freddie Mac Weekly Primary 

Mortgage Market Survey (PMMS) rate 

for 30-year fixed-rate mortgages (U.S. 

average), rounded to the nearest oneeighth of one percent (0.125%), as of the 

date the loan modification is executed. 

Weekly PMMS rates are published on 

the Freddie Mac Web site, and the 

Federal Reserve Board includes the 

average 30-year PMMS rate in the list of 

Selected Interest Rates that it publishes 

weekly in its Statistical Release H.15. 

This default maximum allowable 

interest rate is determined using the 

same formula used by FHA in its 

HAMP-related loan modification 

program. Section 1980.373(e) also 

requires that the term of the loan be 

extended only as long as is necessary to 

achieve the targeted mortgage payment 

to income ratio (but no longer than 40 

years) after the interest rate has been 

fixed at a level at or below the 

maximum allowable rate. This 

requirement ensures that the program 

goals are met in a cost-effective manner. 

As required by section 502(h)(14) of the 

Housing Act of 1949, expenses related 

to special loan servicing shall not be 

charged to the borrower. Such expenses 

include title search fees and recording 

fees, but not legal fees and costs related 

to a cancelled foreclosure initiated prior 

to special loan servicing. Legal fees and 

costs related to a cancelled foreclosure 

may be capitalized into the modified 

principal balance provided that such 

foreclosure costs reflect work actually 

completed prior to the date of the 

foreclosure cancellation. Late fees 

should not be capitalized into the 

modified loan. 

Pursuant to section 1980.373(f), the 

maximum mortgage recovery advance 

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52432 Federal Register / Vol. 75, No. 165 / Thursday, August 26, 2010 / Rules and Regulations 

consists of the sum of arrearages not to 

exceed 12 months of principal, interest, 

taxes, and insurance; legal fees and 

foreclosure costs related to a cancelled 

foreclosure action; and principal 

reduction. The maximum mortgage 

recovery advance is 30 percent of the 

unpaid principal balance as of the date 

of default. Section 502(h)(14) of the 

Housing Act of 1949 limits the amount 

of the partial claim to no more than 30 

percent of the unpaid principal balance 

of the mortgage plus any costs that are 

approved by the Secretary. RHS has 

decided not to take any costs into 

account in order to streamline the 

calculation of the maximum mortgage 

recovery advance. The principal 

deferment on the modified mortgage is 

determined by multiplying the unpaid 

principal balance by 30 percent and 

then reducing that amount by arrearages 

advanced to cure the default and any 

foreclosure costs incurred to that point. 

The principal deferment amount for a 

specific case shall be limited to the 

amount that will bring the borrower’s 

total monthly mortgage payment to 31 

percent of gross monthly income. 

Limiting the amount of deferred 

principal in this way ensures that the 

program goals are met in a cost-effective 

manner. As required by section 

502(h)(14) of the Housing Act of 1949, 

expenses related to special loan 

servicing shall not be charged to the 

borrower. Such expenses include title 

search fees and recording fees, but not 

legal fees and costs related to a 

cancelled foreclosure initiated prior to 

special loan servicing. Legal fees and 

foreclosure costs related to a cancelled 

foreclosure action may be included in 

the mortgage recovery advance provided 

that such foreclosure costs reflect work 

actually completed prior to the date of 

the foreclosure cancellation. Late fees 

should not be included in a mortgage 

recovery advance. 

Section 1980.373(f) also addresses 

other issues relating to mortgage 

recovery advances. Pursuant to section 

1980.373(f)(1), the Lender must have the 

borrower execute a promissory note 

payable to RHS and a mortgage or deedof-trust in recordable form perfecting a 

lien naming RHS as the secured party 

for the amount of the mortgage recovery 

advance. The Lender shall properly 

record the mortgage or deed-of-trust in 

the appropriate local real estate records 

and provide the original promissory 

note to RHS. The Lender may file a 

claim pursuant to 7 CFR 1980.376 for 

reimbursement of up to $250 for a title 

search and/or recording fees in 

connection with this promissory note 

and mortgage or deed-of-trust. RHS used 

similar procedures successfully in its 

Mortgage Recovery Advance Program 

for SFHGLP borrowers in default on 

their housing loans due to damage 

caused by certain hurricanes in 2005. 

Pursuant to section 1980.373(f)(2), prior 

to making a mortgage recovery advance, 

the Lender must perform an escrow 

analysis to ensure that the payment 

made on behalf of the borrower 

accurately reflects the escrow amount 

required for taxes and insurance. 

Section 1980.373(f)(3) discusses 

repayment of mortgage recovery 

advances. First, the mortgage recovery 

advance note and subordinate mortgage 

or deed-of-trust shall be interest-free. 

Second, borrowers are not required to 

make any monthly or periodic payments 

on the mortgage recovery advance note; 

however, borrowers may voluntarily 

submit partial payments without 

incurring any prepayment penalty. 

Third, the due date for the mortgage 

recovery advance note shall be the due 

date of the guaranteed note held by the 

Lender, as modified by the special loan 

servicing. Prior to the due date on the 

mortgage recovery advance note, 

payment in full under the note is due at 

the earlier of the following: When the 

first lien mortgage and the guaranteed 

note are paid off, or when the borrower 

transfers title to the property by 

voluntary or involuntary means. These 

provisions reflect industry practice 

under HAMP, which mandates that 

interest not accrue on deferred principal 

and that deferred principal is not due 

until the borrower pays off the loan, 

refinances, or sells the house. Fourth, 

repayment of all or part of the mortgage 

recovery advance must be remitted 

directly to RHS by the borrower. 

Finally, RHS will collect this Federal 

debt from the borrower by any available 

means if the mortgage recovery advance 

is not repaid based on the terms 

outlined in the promissory note and 

mortgage or deed-of-trust. 

Section 1980.373(f)(4) discusses how 

a Lender files a claim with RHS for 

reimbursement of a mortgage recovery 

advance. First, a claim for 

reimbursement must be submitted to 

RHS within 60 days of the advance 

being executed by the borrower through 

his or her signature on the promissory 

note. Second, when filing the claim for 

reimbursement with RHS, the Lender 

must: Submit the original promissory 

note and a copy of the filed mortgage or 

deed-of-trust; include a summary of the 

amount of the funds advanced, 

including the monthly principal, 

interest, taxes, insurance, and principal 

deferment (if applicable), and other 

account information indicating the 

borrower’s arrearage before the advance, 

as well as the present status of the 

account as of the date of the advance; 

provide the name, address, and tax ID 

number for the Lender; and provide the 

name, address, and phone number of a 

contact person for the Lender who can 

answer questions about the 

reimbursement request. These 

requirements allow RHS to exercise 

oversight and verify proper use of 

government funds for this servicing 

option. 

Pursuant to section 1980.373(f)(5), if a 

borrower defaults on his or her loan 

after receiving a mortgage recovery 

advance and a loss claim is filed by the 

Lender due to the default, any Agency 

reimbursement issued for the mortgage 

recovery advance to the Lender on 

behalf of the borrower will be credited 

toward the maximum loan guarantee 

amount payable by the Agency under 

the guarantee. RHS followed this policy 

successfully in its mortgage recovery 

advance Program for SFHGLP borrowers 

in default on their housing loans due to 

damage caused by certain hurricanes in 

2005. This credit or reduction in the 

ultimate loss claim payment is 

necessary since the mortgage recovery 

advance is a partial claim under the 

guarantee. 

List of Subjects in 7 CFR Part 1980 

Home improvement, Loan programs— 

Housing and community development, 

Mortgage insurance, Mortgages, Rural 

areas. 

■ For the reasons stated in the preamble, 

chapter XVIII, title 7 of the Code of 

Federal Regulations, is amended as 

follows: 

PART 1980—GENERAL 

■ 1. The authority citation for part 1980 

continues to read as follows: 

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 

U.S.C. 1480. 

Subpart D—Rural Housing Loans 

■ 2. Section 1980.302(a) is amended by 

adding in alphabetical order the 

definitions for ‘‘Extended-term loan 

modification,’’ ‘‘Maximum allowable 

interest rate,’’ ‘‘Mortgage payment to 

income ratio,’’ ‘‘Mortgage recovery 

advance,’’ and ‘‘Total debt to income 

ratio,’’ to read as follows: 

§ 1980.302 Definitions and abbreviations. 

(a) * * * 

Extended-term loan modification. A 

loan modification in which the Lender 

reduces the interest rate to a level at or 

below the maximum allowable interest 

rate and then extends the repayment 

term up to a maximum of 40 years from 

the date of loan modification, but only 

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Federal Register / Vol. 75, No. 165 / Thursday, August 26, 2010 / Rules and Regulations 52433 

as long as is necessary to achieve the 

targeted mortgage payment to income 

ratio. 

* * * * * 

Maximum allowable interest rate. 

RHS may establish the maximum 

allowable interest rate in an extendedterm loan modification by publishing a 

notice in the Federal Register 

describing how to calculate the 

maximum allowable interest rate. If the 

maximum allowable interest rate has 

not been established by notice in the 

Federal Register, the maximum 

allowable interest rate shall be 50 basis 

points greater than the most recent 

Freddie Mac Weekly Primary Mortgage 

Market Survey (PMMS) rate for 30-year 

fixed-rate mortgages (U.S. average), 

rounded to the nearest one-eighth of one 

percent (0.125%), as of the date the loan 

modification is executed. Weekly 

PMMS rates are published on the 

Freddie Mac Web site, and the Federal 

Reserve Board includes the average 30- 

year PMMS rate in the list of Selected 

Interest Rates that it publishes weekly in 

its Statistical Release H.15. 

* * * * * 

Mortgage payment to income ratio. 

This ratio is defined as the monthly 

mortgage payment (principal, interest, 

taxes, and insurance) divided by the 

borrower’s gross monthly income. 

* * * * * 

Mortgage recovery advance. A 

mortgage recovery advance is funds 

advanced by the Lender on behalf of a 

borrower to satisfy the borrower’s 

arrearage, pay legal fees and foreclosure 

costs related to a cancelled foreclosure 

action, and reduce principal. Upon 

request, RHS will reimburse the Lender 

for eligible mortgage recovery advances. 

The maximum mortgage recovery 

advance consists of the sum of: 

(i) Arrearages not to exceed 12 months 

of principal, interest, taxes, and 

insurance; 

(ii) legal fees and foreclosure costs 

related to a cancelled foreclosure action; 

and 

(iii) principal reduction. 

The maximum mortgage recovery 

advance is 30 percent of the unpaid 

principal balance as of the date of 

default. 

* * * * * 

Total debt to income ratio. Total debt 

to income ratio is defined as the 

borrower’s monthly mortgage payment 

plus all recurring monthly debt divided 

by the borrower’s gross monthly 

income. 

* * * * * 

■ 3. Section 1980.373 is added to read 

as follows: 

§ 1980.373 Special loan servicing. 

(a) General. As specified in this 

section, the Lender may reduce the 

interest rate to a level at or below the 

maximum allowable interest rate and 

extend the term of the loan up to 40 

years from the date of loan modification 

(‘‘extended-term loan modification’’) 

and, if necessary, advance funds on 

behalf of a borrower to satisfy the 

borrower’s arrearage, pay legal fees and 

foreclosure costs related to a cancelled 

foreclosure action, and reduce principal 

(‘‘mortgage recovery advance’’) 

(collectively, ‘‘special loan servicing’’). 

Upon request, RHS will reimburse the 

Lender for eligible mortgage recovery 

advances under the partial loss claim 

procedures of this section. Lenders must 

receive written approval from RHS prior 

to servicing a borrower’s account with 

special loan servicing. The Lender must 

submit a servicing plan to RHS pursuant 

to § 1980.374 when a borrower’s 

account is 90 days delinquent and a 

method other than foreclosure is 

recommended to resolve the 

delinquency. Use of special loan 

servicing does not change the terms of 

the loan note guarantee. 

(b) Mortgage payment to income ratio. 

This ratio is defined as the monthly 

mortgage payment (principal, interest, 

taxes, and insurance (PITI)) for the 

modified mortgage divided by the 

borrower’s gross monthly income. The 

servicing options in this section shall be 

used in the order established in 

paragraph (c) of this section to bring the 

borrower’s mortgage payment to income 

ratio as close as possible to, but not less 

than, 31 percent. Prior to servicing a 

borrower’s account with special loan 

servicing, the Lender must verify the 

borrower’s income. For borrowers who 

are employed by a private or public 

organization, the Lender shall verify the 

borrower’s income by examining 

documents such as the borrower’s 

current pay stub and most recent 

Internal Revenue Service Form W–2. 

For borrowers who are self-employed, 

the Lender shall verify the borrower’s 

income by examining documents such 

as the borrower’s profit and loss 

statements (for the year to date and the 

previous year) and the borrower’s 

signed tax return for the previous year. 

(c) Special loan servicing steps. The 

Lender must consider loan servicing 

options in the order established by this 

paragraph (c). 

(1) The Lender must consider the 

following traditional servicing options 

before considering special loan 

servicing. 

(i) Repayment agreement. A 

repayment agreement is an informal 

forbearance plan lasting three months or 

less. An informal forbearance plan is the 

best means to ensure that a 30-or 60-day 

delinquency does not escalate beyond 

the borrower’s ability to cure. 

(ii) Special forbearance agreement. A 

special forbearance plan is structured so 

that it leads to a current loan, either by 

gradually increasing monthly payments 

in an amount sufficient to repay the 

arrearage over time, or (if the borrower 

is at least three months delinquent) 

through resumption of normal payments 

for a period (generally three or more 

months) followed by a loan 

modification. The maximum arrearage 

under a special forbearance plan must 

never exceed the equivalent of 12 

months of PITI. 

(iii) Loan modification plan with a 

term not to exceed 30 years from the 

date of the original loan. A loan 

modification is a permanent change in 

one or more of the terms of a loan that 

results in a payment the borrower can 

afford and allows the loan to be brought 

current. Loan modifications may 

include a reduction in the interest rate, 

even below the market rate if necessary; 

capitalization of all or a portion of the 

arrearage (PITI); and/or reamortization 

of the balance due. The term of the loan 

modification may not exceed 30 years 

from the date of the original loan. The 

terms of the SFHGLP loan note 

guarantee do not change. The loan note 

guarantee is in effect only for 30 years 

from the date of the original loan. 

(2) If the targeted mortgage payment 

to income ratio cannot be achieved 

using traditional servicing options, then 

the Lender may consider an extendedterm loan modification. 

(3) If the targeted mortgage payment 

to income ratio cannot be achieved 

using an extended-term loan 

modification, then the Lender may 

consider a mortgage recovery advance in 

addition to the extended-term loan 

modification. Before considering a 

mortgage recovery advance, the Lender 

must reduce the interest rate to the 

maximum allowable interest rate and 

extend the repayment term for 30 years 

from the date of loan modification. The 

Lender may reduce the interest rate 

further and/or extend the term of the 

loan for up to 40 years from the date of 

loan modification at the Lender’s 

option, but the Lender shall not be 

required to do so before utilizing a 

mortgage recovery advance. 

(d) Eligibility. The following eligibility 

requirements apply to all special loan 

servicing. 

(1) The borrower must be in default or 

facing imminent default. A borrower is 

‘‘facing imminent default’’ if that 

borrower is current or less than 30 days 

past due on the mortgage obligation and 

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52434 Federal Register / Vol. 75, No. 165 / Thursday, August 26, 2010 / Rules and Regulations 

is experiencing a significant reduction 

in income or some other hardship that 

will prevent him or her from making the 

next required payment on the mortgage 

during the month in which it is due. 

The borrower must be able to document 

the cause of the imminent default, 

which may include, but is not limited 

to, one or more of the following types 

of hardship: 

(i) A reduction in or loss of income 

that was supporting the mortgage loan, 

e.g., unemployment, reduced job hours, 

reduced pay, or a decline in selfemployed business earnings. A 

scheduled temporary shutdown of the 

employer (such as for a scheduled 

vacation) would not in and by itself be 

adequate to support an imminent 

default. 

(ii) A change in household financial 

circumstances, e.g., death in family, 

serious or chronic illness, permanent or 

short-term disability. 

(2) The borrower’s total debt to 

income ratio following the special loan 

servicing must not exceed 55 percent. 

Total debt to income ratio is defined as 

the borrower’s monthly mortgage 

payment plus all recurring monthly debt 

divided by the borrower’s gross monthly 

income. Prior to servicing a borrower’s 

account with special loan servicing, the 

Lender must verify the borrower’s 

income and total debt. For borrowers 

who are employed by a private or public 

organization, the Lender shall verify the 

borrower’s income by examining 

documents such as the borrower’s 

current pay stub and most recent 

Internal Revenue Service Form W–2. 

For borrowers who are self-employed, 

the Lender shall verify the borrower’s 

income by examining documents such 

as the borrower’s profit and loss 

statements (for the year to date and the 

previous year) and the borrower’s 

signed tax return for the previous year. 

The Lender shall verify the borrower’s 

total debt by ordering and examining 

the borrower’s credit report. 

(3) The borrower must successfully 

complete a trial payment plan to 

demonstrate that the borrower will be 

able to make regularly scheduled 

payments as modified by the special 

loan servicing. For borrowers who are in 

default when special loan servicing is 

initiated, the trial payment plan shall be 

three months in length. For borrowers 

facing imminent default when special 

loan servicing is initiated, the trial 

payment plan shall be four months in 

length. The borrower’s monthly 

payment during the trial payment plan 

shall equal the monthly payment that 

would be owed by the borrower 

following the special loan servicing. 

During this trial period, the Lender shall 

service the mortgage in the same 

manner as it would service a mortgage 

under a special forbearance agreement 

(i.e., the Lender shall review the status 

of the plan each month and take 

appropriate action if the borrower is not 

complying with the terms of the plan). 

If the borrower does not successfully 

complete the trial payment plan by 

making each of the monthly payments 

on time, the borrower is not eligible for 

special loan servicing. If the borrower 

begins but does not successfully 

complete a trial payment plan, the 

Lender should consider the borrower for 

voluntary liquidation and deed in lieu 

of foreclosure before proceeding to 

foreclosure. 

(4) At the time of the special loan 

servicing, the borrower must occupy the 

property as the borrower’s primary 

residence and intend to continue 

occupying the property as such. 

(e) Extended-term loan modification. 

The Lender may modify the loan by 

reducing the interest rate to a level at or 

below the maximum allowable interest 

rate and extending the repayment term 

up to a maximum of 40 years from the 

date of loan modification. The interest 

rate must be fixed. RHS may establish 

the maximum allowable interest rate by 

publishing a notice in the Federal 

Register describing how to calculate the 

rate. If the maximum allowable interest 

rate has not been established by notice 

in the Federal Register, the maximum 

allowable interest rate shall be 50 basis 

points greater than the most recent 

Freddie Mac Weekly Primary Mortgage 

Market Survey (PMMS) rate for 30-year 

fixed-rate mortgages (U.S. average), 

rounded to the nearest one-eighth of one 

percent (0.125%), as of the date the loan 

modification is executed. Weekly 

PMMS rates are published on the 

Freddie Mac Web site, and the Federal 

Reserve Board includes the average 30- 

year PMMS rate in the list of Selected 

Interest Rates that it publishes weekly in 

its Statistical Release H.15. The term 

shall be extended only as long as is 

necessary to achieve the targeted 

mortgage payment to income ratio after 

the interest rate has been fixed at a level 

at or below the maximum allowable 

rate. Expenses related to special loan 

servicing shall not be charged to the 

borrower. Such expenses include title 

search fees and recording fees, but not 

legal fees and costs related to a 

cancelled foreclosure initiated prior to 

special loan servicing. Legal fees and 

costs related to a cancelled foreclosure 

may be capitalized into the modified 

principal balance provided that such 

foreclosure costs reflect work actually 

completed prior to the date of the 

foreclosure cancellation. Late fees 

should not be capitalized into the 

modified loan. 

(f) Mortgage recovery advance. The 

maximum mortgage recovery advance 

consists of the sum of arrearages not to 

exceed 12 months of PITI; legal fees and 

foreclosure costs related to a cancelled 

foreclosure action; and principal 

reduction. The maximum mortgage 

recovery advance is 30 percent of the 

unpaid principal balance as of the date 

of default. The principal deferment on 

the modified mortgage is determined by 

multiplying the unpaid principal 

balance by 30 percent and then reducing 

that amount by arrearages advanced to 

cure the default and any foreclosure 

costs incurred to that point. The 

principal deferment amount for a 

specific case shall be limited to the 

amount that will bring the borrower’s 

total monthly mortgage payment to 31 

percent of gross monthly income. 

Expenses related to special loan 

servicing shall not be charged to the 

borrower. Such expenses include title 

search fees and recording fees, but not 

legal fees and costs related to a 

cancelled foreclosure initiated prior to 

special loan servicing. Legal fees and 

foreclosure costs related to a cancelled 

foreclosure action may be included in 

the mortgage recovery advance provided 

that such foreclosure costs reflect work 

actually completed prior to the date of 

the foreclosure cancellation. Late fees 

should not be included in a mortgage 

recovery advance. 

(1) The Lender must have the 

borrower execute a promissory note 

payable to RHS and a mortgage or deedof-trust in recordable form perfecting a 

lien naming RHS as the secured party 

for the amount of the mortgage recovery 

advance. The Lender shall properly 

record the mortgage or deed-of-trust in 

the appropriate local real estate records 

and provide the original promissory 

note to RHS. The Lender may file a 

claim pursuant to § 1980.376 of this 

subpart for reimbursement of up to $250 

for a title search and/or recording fees 

in connection with this promissory note 

and mortgage or deed-of-trust. 

(2) Prior to making a mortgage 

recovery advance, the Lender must 

perform an escrow analysis to ensure 

that the payment made on behalf of the 

borrower accurately reflects the escrow 

amount required for taxes and 

insurance. 

(3) The following terms apply to the 

repayment of mortgage recovery 

advances: 

(i) The mortgage recovery advance 

note and subordinate mortgage or deedof-trust shall be interest-free. 

(ii) Borrowers are not required to 

make any monthly or periodic payments 

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Federal Register / Vol. 75, No. 165 / Thursday, August 26, 2010 / Rules and Regulations 52435 

on the mortgage recovery advance note; 

however, borrowers may voluntarily 

submit partial payments without 

incurring any prepayment penalty. 

(iii) The due date for the mortgage 

recovery advance note shall be the due 

date of the guaranteed note held by the 

Lender, as modified by the special loan 

servicing. Prior to the due date on the 

mortgage recovery advance note, 

payment in full under the note is due at 

the earlier of the following: 

(A) When the first lien mortgage and 

the guaranteed note are paid off; or 

(B) When the borrower transfers title 

to the property by voluntary or 

involuntary means. 

(iv) Repayment of all or part of the 

mortgage recovery advance must be 

remitted directly to RHS by the 

borrower. 

(v) RHS will collect this Federal debt 

from the borrower by any available 

means if the mortgage recovery advance 

is not repaid based on the terms 

outlined in the promissory note and 

mortgage or deed-of-trust. 

(4) The following provisions apply 

when a Lender files a claim with RHS 

for reimbursement of a mortgage 

recovery advance: 

(i) A claim for reimbursement in a 

form acceptable to RHS must be 

submitted to RHS within 60 days of the 

advance being executed by the borrower 

through his or her signature on the 

promissory note. 

(ii) When filing the claim for 

reimbursement with RHS, the Lender 

must: 

(A) Submit the original promissory 

note and a copy of the filed mortgage or 

deed-of-trust; 

(B) Include a summary of the amount 

of the funds advanced, including the 

monthly PITI and principal deferment 

(if applicable), and other account 

information indicating the borrower’s 

arrearage before the advance, as well as 

the present status of the account as of 

the date of the advance; 

(C) Provide the name, address, and tax 

ID number for the Lender; and 

(D) Provide the name, address, and 

phone number of a contact person for 

the Lender who can answer questions 

about the reimbursement request. 

(5) If a borrower defaults on his or her 

loan after receiving a mortgage recovery 

advance and a loss claim is filed by the 

Lender due to the default, any Agency 

reimbursement issued for the mortgage 

recovery advance to the Lender on 

behalf of the borrower will be credited 

toward the maximum loan guarantee 

amount payable by the Agency under 

the guarantee. 

Dated: August 18, 2010. 

Tammye Trevin ̃ o, 

Administrator Rural Housing Service. 

[FR Doc. 2010–21261 Filed 8–25–10; 8:45 am] 

BILLING CODE 3410–XV–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0860; Directorate 

Identifier 2010–NE–28–AD; Amendment 39– 

16422; AD 2010–18–09] 

RIN 2120–AA64 

Airworthiness Directives; Pratt & 

Whitney Canada (P&WC) PW530A, 

PW545A, and PW545B Turbofan 

Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule; request for 

comments. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for the 

products listed above. This AD results 

from mandatory continuing 

airworthiness information (MCAI) 

issued by an aviation authority of 

another country to identify and correct 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as: 

There have been reports of engine surge, 

lack of response to Power Lever input and 

crew commanded engine shutdown on 

PW530A/PW545A/PW545B engines powered 

aeroplanes. Investigation revealed engine 

intercompressor bleed valve/servo valve 

malfunction as the cause of the above 

problems, and that this problem is limited to 

engines fitted with low time (new or 

overhauled) bleed valve servo valves with 

either SB 30343 or 30404 incorporated. 

We are issuing this AD to prevent 

inflight loss of power of one or both of 

the engines and possible loss of control 

of the airplane. 

DATES: This AD becomes effective 

September 10, 2010. 

We must receive comments on this 

AD by September 27, 2010. The Director 

of the Federal Register approved the 

incorporation by reference of P&WC 

Alert Service Bulletin PW500–72– 

A30421, dated June 29, 2010, listed in 

the AD as of September 10, 2010. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov and follow 

the instructions for sending your 

comments electronically. 

• Mail: U.S. Department of 

Transportation, 1200 New Jersey 

Avenue, SE., West Building Ground 

Floor, Room W12–140, Washington, DC 

20590–0001. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

• Fax: (202) 493–2251. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Operations office between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this AD, the regulatory 

evaluation, any comments received, and 

other information. The street address for 

the Docket Operations office (telephone 

(800) 647–5527) is the same as the Mail 

address provided in the ADDRESSES

section. Comments will be available in 

the AD docket shortly after receipt. 

FOR FURTHER INFORMATION CONTACT: 

James Lawrence, Aerospace Engineer, 

Engine Certification Office, FAA, Engine 

and Propeller Directorate, 12 New 

England Executive Park, Burlington, MA 

01803; e-mail: james.lawrence@faa.gov; 

telephone (781) 238–7176; fax (781) 

238–7199. 

SUPPLEMENTARY INFORMATION: 

Discussion 

Transport Canada, which is the 

aviation authority for Canada, has 

issued Canada Airworthiness Directive 

CF–2010–19, dated July 7, 2010 

(referred to after this as ‘‘the MCAI’’), to 

correct an unsafe condition for the 

specified products. The MCAI states: 

There have been reports of engine surge, 

lack of response to Power Lever input and 

crew commanded engine shutdown on 

PW530A/PW545A/PW545B engines powered 

aeroplanes. Investigation revealed engine 

intercompressor bleed valve/servo valve 

malfunction as the cause of the above 

problems, and that this problem is limited to 

engines fitted with low time (new or 

overhauled) bleed valve servo valves with 

either SB 30343 or 30404 incorporated. 

You may obtain further information by 

examining the MCAI in the AD docket. 

Relevant Service Information 

P&WC has issued Alert Service 

Bulletin (ASB) PW500–72–A30421, 

dated June 29, 2010. The actions 

described in this service information are 

intended to correct the unsafe condition 

identified in the MCAI. 

FAA’s Determination and Requirements 

of This AD 

This product has been approved by 

the aviation authority of Canada, and is 

approved for operation in the United 

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