[Federal Register Volume 77, Number 15 (Tuesday, January 24, 2012)]
[Rules and Regulations]
[Pages 3377-3379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1268]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 77, No. 15 / Tuesday, January 24, 2012 /
Rules and Regulations
[[Page 3377]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3550
RIN 0575-AC81
Direct Single Family Housing Loans and Grants
AGENCY: Rural Housing Service, USDA.
ACTION: Final rule.
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SUMMARY: Through this action, the Rural Housing Service (RHS) amends
its regulations for the Direct Single Family Housing Loans by
reinstating language in the Single Family Housing (SFH) recapture
regulation to enable full repayment of the entire subsidy in event of
foreclosure or deed-in-lieu of foreclosure (voluntary conveyance). This
action clarifies that in the event of foreclosure or deed-in-lieu of
foreclosure (voluntary conveyance) the RHS will recapture the full
subsidy from the value of the property.
DATES: Effective: February 23, 2012.
FOR FURTHER INFORMATION CONTACT: Michael S. Feinberg, Chief, Loan
Origination Branch, Single Family Housing Direct Loan Division, Rural
Housing Service, Stop 0783, 1400 Independence Avenue SW., Washington,
DC 20250-0783, Telephone: (202) 720-1474.
SUPPLEMENTARY INFORMATION:
Classification
This rule has been determined to be not significant and was not
reviewed by the Office of Management and Budget (OMB) under Executive
Order 12866.
Paperwork Reduction Act of 1995
There are no new reporting and recordkeeping requirements
associated with this rule.
E-Government Act Compliance
The 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.
Civil Justice Reform
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. In accordance with that 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), 2
U.S.C. 1501 et seq., 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, 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.
Programs Affected
The programs affected by this proposed rule are 10.410, Low to
Moderate Income Housing Loans, and 10.417, Very Low-Income Housing
Repair Loans and Grants.
Intergovernmental Consultation
For the reasons set forth in the final rule published at 7 CFR part
3015, subpart V, and the related notice (48 FR 29115), these programs
are not subject to Executive Order 12372, which requires
intergovernmental consultation with State and local officials.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' It is the determination of RHS
that this action does not constitute a major Federal action
significantly affecting the quality of the human environment, and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Regulatory Flexibility Act
This 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 of this document that this rule
will not have a significant economic impact on a substantial number of
small entities. This rule reinstates a requirement on Agency applicants
and borrowers; however, the requirement of full subsidy recapture in
event of foreclosure or voluntary conveyance will apply solely to the
individual applicants and borrowers of Section 502 Direct Single Family
Housing financing and will not apply to small entities. There will be
no significant information collection or regulatory requirements
imposed on small entities under this rule.
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 substantial direct compliance costs on State and local
Governments. Therefore, consultation with the States is not required.
[[Page 3378]]
Background
In the event of a foreclosure or deed in lieu of foreclosure
(voluntary conveyance), the original recapture regulation promulgated
on October 1, 1979, (7 CFR part 1951, subpart I (1980)) provided for
recapture of the full amount of subsidy granted in determining the
balance owed. However, when the Section 502 SFH direct loan program was
restructured on November 22, 1996, the revised recapture regulation, 7
CFR 3550.162, omitted this provision. Therefore, because of the
omission of the critical language in the regulation, full recovery is
not currently supported by regulatory authority.
Foreclosure or deed in lieu of foreclosure is a last resort to
protect the Government's interest after all other servicing actions
have failed. Recovery of some or the entire payment subsidy provided to
direct single family housing borrowers or ``recapture'' is provided for
by statute in 42 U.S.C. 1490a (a)(1)(D). The statute gives the
Secretary broad discretion in determining the amount of the subsidy
recapture.
A proposed rule was published on March 5, 2010, [75 FR 10194--
10195] to provide clear regulatory authority in 7 CFR part 3550 for
full recovery of the payment assistance subsidy that the borrower has
received in the event of foreclosure or deed in lieu of foreclosure.
This final rule further clarifies the subsidy repayment requirement in
event of foreclosure or deed in lieu of foreclosure by restoring the
original regulatory authority and policy of full recovery of the
subsidy in these situations in 7 CFR 3550.162(b)(2). The Subsidy
Repayment Agreement (Form RD 3550-12) signed by the borrower has been
revised accordingly to reflect the language of the regulation.
This rule also clarifies in 7 CFR 3550.162(b)(2) that the borrower
will not be personally liable for any deficiency in repayment of the
full subsidy to the Agency and the Agency will not seek to recover
unpaid subsidy from assets of the borrower other than the property
which was security for the loan. This policy was stated in the original
recapture regulation promulgated on October 1, 1979, but
unintentionally omitted from 7 CFR 3550.162 when the program was
restructured in 1996.
No comments were received on the Proposed Rule; however, the Agency
made a several changes to the proposed rule for organization and
clarification purposes. The Agency revised paragraph (a) to clarify
that ``payment subsidy'' includes subsidy from the former interest
credit program, and that foreclosure and deed in lieu of foreclosure
are examples of situations in which ``the borrower transfers title or
ceases to occupy the property.'' The Agency also clarified that
recapture would include the amount of principal reduction attributed to
subsidy (PRAS), except in cases of foreclosure and deed in lieu of
foreclosure. PRAS would have benefitted borrowers with loans receiving
interest credit subsidy between October 1, 1979 and December 31, 1989.
This limited recapture of PRAS is consistent with the Subsidy Repayment
Agreement used during that time.
The Agency also moved some language from proposed paragraph (a) to
paragraph (b)(2) to more clearly distinguish its recapture procedure
for foreclosure and deed in lieu of foreclosure from other situations.
The Agency further explained its current policy on how liquidation
proceeds are to be applied to a borrower's debt to make clear that no
preference is made to recover subsidy from security proceeds.
Subparagraph (b)(1)(General) was clarified for non-foreclosure/deed
in lieu of foreclosure cases, to reference the calculation for value
appreciation under the applicable Subsidy Repayment Agreement (SRA).
These agreements have been revised over the years and will be enforced
according to their terms and current regulations to the extent not
inconsistent with the applicable agreements. The paragraph also was
clarified to specify current Agency procedure that upon Agency request
borrowers will provide property appraisals, including those for any
capital improvements, or arm's length sales contracts to establish
market value for determining value appreciation. Agency appraisal
standards are found in 7 CFR 3550.62.
Existing policies for deferral of recapture and recapture when the
loan is assumed by a third party have been reinserted as paragraphs (c)
and (d) of 7 CFR 3550.162. A discount is available when the borrower
timely pays recapture at settlement or upon notice instead of deferring
payment until the property is sold or vacated. This discount amount is
consistent with current 25% discount policy under the Subsidy Repayment
Agreement and handbook procedures. No change in policy was intended in
the proposed rule on these issues.
A cross-reference to 7 CFR 3550.162 was added to 3550.202(b)
concerning the acceleration of past due accounts.
List of Subjects in 7 CFR Part 3550
Accounting, Housing, Loan programs--Housing and community
development, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, chapter XXXV, Title 7 of
the Code of Federal Regulations, is amended as follows:
PART 3550--DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS
0
1. The authority citation for part 3550 continues to read as follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1480.
Subpart D--Regular Servicing
0
2. Section 3550.162 is revised to read as follows:
Sec. 3550.162 Recapture.
(a) Recapture policy. Borrowers with loans approved or assumed on
or after October 1, 1979, will be required to repay subsidy amounts
received through payment subsidy (including the former interest credit
program) or deferred mortgage assistance in accordance with paragraph
(b) of this section. Amounts to be recaptured are due and payable when
the borrower transfers title or ceases to occupy the property,
including but not limited to, in the event of foreclosure or deed in
lieu of foreclosure. Such recapture will include the amount of
principal reduction attributed to subsidy (for loans subject to
recapture that were approved, and received interest credit, between
October 1, 1979, and December 31, 1989), except in cases of foreclosure
and deed in lieu of foreclosure.
(b) Amount to be recaptured. (1) General. The amount to be
recaptured is the amount of principal reduction attributed to subsidy
plus the lesser of:
(i) The amount of subsidy received; or
(ii) A portion of the value appreciation of the property subject to
recapture. In order for value appreciation to be calculated, the
borrower will provide a current appraisal, including an appraisal for
any capital improvements, or arm's length sales contract as evidence of
market value upon Agency request. Appraisals must meet Agency standards
under Sec. 3550.62.
(2) Foreclosure or deed in lieu of foreclosure. Notwithstanding
paragraph (b)(1) of this section, the amount to be recaptured in a
foreclosure or deed in lieu of foreclosure is the amount of subsidy
received, not including any principal reduction attributed to subsidy.
Foreclosure actions will seek to recover such amounts only from the
[[Page 3379]]
proceeds of the property. Liquidation proceeds (in the case of
foreclosure) or the net recovery value (in the case of deed in lieu of
foreclosure) will be applied or credited to the borrower's debt in
accordance with the security agreement in the following order:
(i) Recoverable costs (e.g. protective advances, foreclosure costs,
late charges).
(ii) Accrued interest.
(iii) Principal.
(iv) Subsidy.
(3) Value appreciation. The value appreciation of property with a
cross-collateralized loan is based on the market value of the dwelling
and lot. If located on a farm, the lot size would be a typical lot for
a single family housing property.
(4) Interest reduced from the promissory note rate to six percent
under the Servicemembers Civil Relief Act (SCRA) is not subject to
recapture.
(c) Deferral of recapture. If the borrower refinances or otherwise
pays in full without transfer of title and continues to occupy the
property, the amount of recapture will be calculated in accordance with
paragraph (a) of this section but payment of recapture may be deferred,
interest free, until the property is sold or vacated. If the recapture
amount is deferred, the Agency mortgage can be subordinated when in the
Government's best interest but will not be released nor the promissory
note satisfied until the Agency is paid in full. In situations where
deferral of recapture is an option, recapture will be discounted if
paid in full at the time of settlement or timely paid after Agency
notification to the borrower that recapture is due.
(d) Assumed loans. (1) When a loan subject to recapture is assumed
under new rates and terms, the recapture amount may be paid in full by
the seller or included in the principal amount assumed by the buyer.
(2) When a loan is assumed under the same rates and terms as the
original promissory note, recapture amounts will not be due. When the
new borrower transfers title or ceases to occupy the property, all
subsidy subject to recapture before and after the assumption is due.
(3) When a borrower has deferred payment of recapture amounts, the
deferred recapture amount may be included in the principal amount of
the new loan.
Subpart E--Special Servicing
0
3. Section 3550.202 is amended by adding paragraph (b)(3) to read as
follows:
Sec. 3550.202 Past due accounts.
* * * * *
(b) * * *
(3) Subsidy recapture. Acceleration under this section will take
into account any subsidy recapture due under Sec. 3550.162.
Dated: January 16, 2012.
Tammye Trevi[ntilde]o,
Administrator, Rural Housing Service.
[FR Doc. 2012-1268 Filed 1-23-12; 8:45 am]
BILLING CODE 3410-XV-P