[Federal Register Volume 77, Number 133 (Wednesday, July 11, 2012)]
[Rules and Regulations]
[Pages 40785-40789]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16864]



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Rules and Regulations
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Federal Register / Vol. 77, No. 133 / Wednesday, July 11, 2012 / 
Rules and Regulations

[[Page 40785]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1980

RIN 0575-AC90


Single Family Housing Guaranteed Loan Program

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule implements a change in the regulations for the 
United States Department of Agriculture (USDA), Rural Housing Service 
(RHS) Section 502 Single Family Housing Guaranteed Loan Program 
(SFHGLP) (also referred to as ``Agency'') by requiring an annual fee 
for all loan obligations. This action is taken to implement authorities 
granted the Secretary of the USDA, in Sec. 102 of the Supplemental 
Appropriations Act, 2010 to collect from the lender an annual fee not 
to exceed 0.5 percent of the outstanding principal balance of the loan 
for the life of the loan. The primary intent of the annual fee is to 
make the SFHGLP subsidy neutral when used in conjunction with the one-
time up-front guarantee fee, thus eliminating the need for taxpayer 
support of the program at its current loan level.

DATES: Effective Date: July 11, 2012.

FOR FURTHER INFORMATION CONTACT: Cathy Glover, Senior Loan Specialist, 
Single Family Housing Guaranteed Loan Division, USDA Rural Development, 
Room 2241, STOP 0784, 1400 Independence Ave. SW., Washington, DC 20250, 
Telephone: (202) 720-1460, Email: cathy.glover@wdc.usda.gov.

SUPPLEMENTARY INFORMATION: 

Classification

    This final rule has been determined to be non-significant by the 
Office of Management and Budget (OMB) under Executive Order 12866.

Executive Order 12988

    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 this program, but if they do apply 
and are selected for funding, they must comply with the requirements 
applicable to the Federal program funds. This rule is not retroactive. 
It will not affect agreements entered into prior to the effective date 
of the rule. Before any judicial action may be brought regarding the 
provisions of this rule, the administrative appeal provisions of 7 CFR 
part 11 must be exhausted.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effect of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Agency generally must prepare a written statement, including a 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.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It is the determination of the 
Agency that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and, in 
accordance with the National Environmental Policy Act of 1969, 42 
U.S.C. 4321 et seq., neither an Environmental Assessment nor an 
Environmental Impact Statement is required.

Federalism--Executive Order 13132

    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

    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 change will not have a significant impact on a 
substantial number of small entities. This rule does not impose any 
significant new requirements on Agency applicants and borrowers, and 
the regulatory changes affect only Agency determination of program 
benefits for guarantees of loans made to individuals. Changes impacting 
lenders will impact all approved lenders doing business under this 
program. There is no distinction made between small and large lenders.

Intergovernmental Consultation

    This program/activity is not subject to the provisions of Executive 
Order 12372, which require intergovernmental consultation with State 
and local officials. (See the Notice related to 7 CFR part 3015, 
subpart V, at 48 FR 29112, June 24, 1983; 49 FR 22675, May 31, 1984; 50 
FR 14088, April 10, 1985).

Consultation and Coordination With Indian Tribal Governments

    Executive Order 13175 imposes requirements on Rural Development in 
the development of regulatory policies

[[Page 40786]]

that have tribal implications or preempt tribal laws. Rural Development 
has determined that the proposed rule does not have a substantial 
direct effect on one or more Indian tribe(s) or on either the 
relationship or the distribution of powers and responsibilities between 
the Federal Government and Indian tribes. Thus, this final rule is not 
subject to the requirements of Executive Order 13175. If a tribe 
determines that this rule has implications of which Rural Development 
is not aware and would like to engage in consultation with Rural 
Development on this rule, please contact Rural Development's Native 
American Coordinator at (720) 544-2911 or AIAN@wdc.usda.gov.

Programs Affected

    This program 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

    The information collection and record keeping requirements 
contained in this regulation have been approved by OMB in accordance 
with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). The 
assigned OMB control number is 0575-0078.

E-Government Act Compliance

    The Rural Housing Service 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

    The 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, familial status, 
parental 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, Assistant Secretary for Civil Rights, 
Office of the Assistant Secretary for Civil Rights, 1400 Independence 
Avenue SW., STOP 9410, Washington, DC 20250-9410, or call toll-free at 
(800) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 
(English Federal-relay) or (800) 845-6136 (Spanish Federal-relay). USDA 
is an equal opportunity provider and employer.

Background

    Public Law (Pub. L.) 111-212, ``Supplemental Appropriations Act, 
2010,'' enacted on July 29, 2010, amended Section 502(h)(8) of the 
Housing Act of 1949 (42 U.S.C. 1472 (h)(8)), as follows: ``(8) Fees.--
Notwithstanding paragraph (14)(D), with respect to a guaranteed loan 
issued or modified under this subsection, the Secretary may collect 
from the lender--(A) at the time of guarantee or modification, a fee 
not to exceed 3.5 percent of the principal obligation of the loan; and 
(B) an annual fee not to exceed 0.5 percent of the outstanding balance 
of the loan for the life of the loan.'' As a result of Public Law 111-
212, a proposed rule was published in the Federal Register on October 
28, 2011 (76 FR 66860).
    The annual fee provision is applicable to purchase and refinance 
loan transactions. The primary intent of the annual fee is to make the 
SFHGLP subsidy neutral, thus eliminating the need for taxpayer funding 
of the program at its current loan level from Congress. The annual fee 
will be charged in addition to the up-front guarantee fee. For fiscal 
year (FY) 2012, an annual fee of 0.3 percent is required for all loan 
obligations. Future changes to the annual fee will be published in 
Exhibit K, of RD Instruction 440.1 (available in any RD office).
    The annual fee for loans guaranteed under the SFHGLP will be 
calculated based on the average annual scheduled unpaid principal 
balance of the loan for the life of the loan. The annual fee will be 
calculated when the loan is closed and every 12 months thereafter until 
the loan is paid in full or no longer outstanding and the guarantee 
canceled or expired.
    Accrual of the annual fee will begin on the first of the month, 
following the month in which the loan closed. For example, if the loan 
closes on October 25, 2012, accrual of the annual fee will begin on 
November 1, 2012. An RHS ``Guarantee Fee and Annual Fee Calculator'' 
and a Guarantee Fee (GAF) Implementation Guide is available on the USDA 
LINC Training and Resource Library Web site as follows: https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do. Additional 
guidance will also be posted to the above Web site at it becomes 
available.
    The annual fee will accrue on a prorated basis for each month the 
loan is outstanding, but will only be billed to the lender and 
collected by the Agency on an annual basis or at such time the loan is 
paid in full or otherwise terminated. Generally, the servicing lender 
of record will be billed retroactively for a 12 month period on the 3rd 
business day following the 15th calendar day in the anniversary month 
in which the loan closed, and will be due to RHS on the 1st day of the 
following month. Accrual of the annual fee will begin on the 1st day of 
the month following the month in which the loan was closed (this is a 
change from the proposed rule and is explained further below). For 
example, if the loan closed on October 25, 2012, the initial bill will 
be generated by RHS on October 18th 2013 (3 business days following 
October 15, 2013); and the initial annual fee payment will be due to 
RHS on November 1, 2013. For subsequent years that the loan remains 
outstanding, the annual fee will be due on November 1st of that year 
(i.e. November 1, 2014, November 1, 2015, etc.)
    RHS may impose a late charge of 4% if the annual fee is not paid to 
RHS by the 15th day of the month in which it is due. For example, if 
the annual fee is due to RHS on November 1, 2013, a late charge will 
apply if the annual fee is not paid by November 15, 2013. Additional 
late charges will be assessed each month that the annual fee is past 
due. Future changes to the late charge will be published in Exhibit K 
of RD Instruction 440.1 (available in any RD office). Due to the new 
process and system changes associated with the annual fee, RHS will not 
impose late charges on the initial amount of annual fees due for loans 
obligated during FY 2012.
    RHS will charge the annual fee to the lender, and the lender may 
pass this fee on to the borrower. The lender may collect the fee from 
the borrower on a monthly basis by collecting \1/12\th of the annual 
fee amount in addition to the borrower's regular monthly mortgage 
payment of principal, interest, taxes and insurance (PITI). When a 
lender chooses to collect the annual fee from the borrower on a monthly 
basis, the \1/12\th collection amount must be included when calculating 
the PITI ratio. The lender remains responsible for the timely 
collection and payment to the Agency of the annual fee.
    Discussion of Public Comments Received on the October 28, 2011 
Proposed Rule: The Agency received comments from five different sources 
in response to the Proposed Rule. These comments came from advocacy 
groups,

[[Page 40787]]

home mortgage companies, community bankers and potential home loan 
applicants.
    Three commenters expressed support and appreciation of the 
importance of the SFHGLP to its targeted population of low-to-moderate 
income rural families. However, the same commenters and one additional 
commenter were concerned that the higher payments attributable to the 
new annual fee will negatively impact borrower affordability and 
potentially make eligible borrowers less willing to take out an SFHGLP 
loan, even when these loans would otherwise be the best product for 
them. For example, one commenter stated the intent of the program is to 
help people get into homes, not to make it more expensive.
    The Agency acknowledges that the borrower's monthly payment may 
increase as a result of the annual fee. Based on the Agency's average 
loan amount of $135,000 at a 3.75 percent interest rate, the borrowers' 
payment will increase on average by $20 per month over the life of the 
loan. However, in order for the Agency to continue offering the SFHGLP 
at no cost to the taxpayers, both the up-front and annual fees are 
necessary. If the Agency were to seek taxpayer funding of the program 
from Congress, it is highly likely that funding levels will decrease 
dramatically because Congress has not authorized budget authority for 
the SFHGLP since FY 2010. Without budget authority and the fees, the 
Agency estimates that there would be approximately 182,000 fewer loans 
guaranteed through the SFHGLP.
    Four commenters expressed understanding of the budgetary motivation 
for RHS shifting to an up-front and annual premium structure. However, 
only one of the four commenters was in favor of the Agency's proposal 
and believes it will be easier for the borrower to handle since the up-
front guarantee fee to purchase a home will be less (lowered to 2% from 
3.5%). The commenters that were not in favor of the annual fee believe 
budget neutrality can be achieved with a single up-front premium. For 
example, one commenter indicated subsidy neutrality could be achieved 
with a 4 percent up-front fee; and, another commenter provided an 
example that showed the average borrower will see a $19.25 increase in 
their monthly house payment because of the annual fee. The commenters 
that were not in favor of the annual fee, expressed concerns that the 
split premium may drive up the cost of home ownership for low- and 
moderate-income rural families, and therefore believe a higher single 
up-front fee structure is more beneficial to borrowers.
    The Agency does not disagree with the commenters that subsidy 
neutrality could be achieved with a higher up-front single fee 
structure. However, as an initial matter, statutory authority exists 
for both fees, and there are limits for each fee that the Agency must 
manage. In addition, the Agency determines the up-front guarantee fee 
based in part on the program's subsidy score, which constantly changes. 
The up-front guarantee fee could potentially change at any time during 
a fiscal year, and these unexpected changes would cause confusion with 
a single fee structure. Separate fee structures will allow the Agency 
better flexibility to manage the fees and the availability of 
commitment authority for the program.
    One commenter expressed concerns that refinance borrowers who took 
out SFHGLP loans with the expectation that they would only be 
responsible for payment of a single upfront guarantee fee will now be 
subject to additional costs over the life of their loan. The commenter 
was concerned that refinance borrowers may ultimately see their 
payments actually increase despite the lower interest rate.
    The Agency acknowledges that the refinance option might not be 
advantageous for all SFHGLP borrowers depending on their financial 
circumstances. However, the Agency does not impose a mandatory 
refinance requirement for SFHGLP borrowers. Therefore, if refinancing 
with an SFHGLP does not provide positive benefits for the borrowers, 
the Agency believes the borrower will continue with their current loan 
or find another funding source to refinance their SFHGLP loan. If the 
commenter was concerned that a borrower who already refinanced a loan 
before the implementation of the annual fee would now see increases in 
current loan payments due to the annual fee, the Agency repeats that 
this rule is not retroactive.
    All five commenters expressed strong disagreement with the Agency's 
proposal to make the annual fee mandatory for the ``life of the loan.'' 
The commenters were concerned that the ``life of the loan'' provision 
will impose unnecessary burden on borrowers as the annual fee will 
continue even as the loan balance declines. Further, the commenters 
pointed out the ``life of the loan'' provision is significantly 
different from that of the Federal Housing Administration (FHA) insured 
loans, and conventional loan products that require mortgage insurance. 
The commenters strongly urged the Agency to reconsider the ``life of 
the loan'' provision by eliminating the annual fee when a 78 percent 
loan-to-value (LTV) is achieved, as FHA does with monthly mortgage 
insurance premiums (MIPs).
    Since several commenters compared RHS to FHA, the Agency conducted 
an analysis comparing RHS and FHA fee structures. The results, when 
comparing an RHS purchase loan that requires an annual fee for the 
``life of the loan'' to an FHA 203b purchase loan that requires monthly 
MIP until 78 percent LTV is achieved, overall housing expenses are 
significantly less for RHS borrowers. This is due to the fact that the 
Agency's current annual fee (0.3 percent FY 2012) is much less than the 
monthly MIP for an FHA loan (115 basis points (bps) as of April 18, 
2011 and subject to change). Even, if RHS were to increase the annual 
fee to the maximum allowed (0.5 percent), it would still be 
significantly less than the current FHA MIP.
    The chart below (Chart 1--RHS/FHA Comparison) compares a RHS 
purchase loan to a FHA 203b purchase loan, and assumes the following: A 
Purchase Price of $135,000; a Term of 30 Years; an Interest Rate of 
3.75 percent; and, as applicable, that the Up-front Guarantee Fee or Up 
Front Mortgage Insurance Premium (UFMIP) is financed into the loan. In 
this scenario, the SFHGLP borrower will pay $7,352.87 in annual fees 
over the life of the loan, while the FHA borrower will pay $12,655.45 
in MIP until the LTV reaching 78 percent, which equates to 
approximately 10 years and 3 months.

      Chart 1--RHS Purchase Loan/FHA 203b Purchase Loan Comparisons
------------------------------------------------------------------------
          Loan type                RHS SFHGLP           FHA 203b loan
------------------------------------------------------------------------
Purchase Price..............  $135,000............  $135,000.
Interest Rate...............  3.75%...............  3.75%.
Loan Term...................  30 Years............  30 Years.
Down-payment Required.......  $0..................  $4,725.

[[Page 40788]]

 
Base Loan Amount............  $135,000............  $130,275.
Up-front Guarantee fee......  $2,755.10...........  N/A.
UFMIP.......................  N/A.................  $1,302.75.
Total Loan Amount...........  $137,755.00.........  $131,577.75.
Total Monthly Payment         $672.12 (P&I $637.97  $734.19 (P&I $609.35
 (includes annual fee or MIP   + monthly annual      + MIP $124.84).
 as applicable).               fee $34.15).
Annual Fee Life of Loan.....  $7,352.87...........  N/A.
Monthly MIP--Until LTV        N/A.................  $12,655.45.
 Reaches 78%.
------------------------------------------------------------------------

    In addition to the illustration in Chart 1 which compares RHS and 
FHA fee structures, the Agency's analysis of the SFHGLP Portfolio 
reveals that by 10 years and 3 months (when the LTV reaches 78 
percent), approximately 55 percent of SFHGLP borrowers will have 
already paid their loan in full and/or the guarantee will have been 
terminated. Using the example in Chart 1, by the time most RHS 
borrowers pay their loans off (10 years and 3 months), the Agency 
calculates that they would have paid $4,101.05 in annual fees compared 
to an FHA insured borrower who would have paid $12,655.45 in mortgage 
insurance premiums.
    Since all of the commenters strongly opposed the Agency's proposal 
to collect the annual fee for the life of the loan, the Agency 
conducted additional analysis to determine how subsidy neutrality could 
be achieved if the annual fee were eliminated once 78 percent LTV is 
achieved. The Agency's analysis revealed that both a higher up-front 
fee and higher annual fee would be required. Therefore, allowing the 
borrowers to pay the annual fee over the life of the loan keeps both 
the up-front fee and annual fee percentage lower for SFHGLP customers, 
making the cost of homeownership more affordable. Additionally, 
borrowers that pay off their loans prior to maturity will pay less in 
annual fees. As previously indicated, the majority of the SFHGLP 
borrowers pay their loans off by 10 years and 3 month, and using the 
loan based on the example in Chart 1, the average SFHGLP borrower will 
pay $4,101.05 in annual fees.
    The Agency acknowledges that the ``life of the loan'' provision of 
the annual fee is not an industry standard, and that it creates unique 
requirements for vendors and servicers as it relates to system 
enhancements. Therefore, the Agency will continue to study its subsidy 
model to determine if the effective period of the annual fee can be 
modified in the future. However, any future changes to the effective 
period of the annual fee will not be retroactive.
    Two commenters expressed concerns that the annual fee billing 
process will result in higher closing costs for the borrower. The 
commenters explained that since RHS proposes to collect the initial 
annual fee 12 months from the date of closing rather than 12 months 
from the first payment due date as reflected on the promissory note, 
the lender will have to collect additional funds from the borrower at 
closing to ensure sufficient funds are available to pay the annual fee 
when it is due. Therefore, the commenters suggested the Agency 
reconsider the billing method.
    The Agency agrees with the comment. Instead of initiating accrual 
of the annual fee on the date of loan closing as proposed, the accrual 
of the annual fee will begin on the 1st day of the month following the 
month in which the loan is closed. For example, if a loan closes on 
October 25, 2012, accrual of the annual fee will begin on November 1, 
2012, and the initial annual fee payment will be due to RHS on November 
1, 2013.
    As previously stated, the lender may collect \1/12\th of the annual 
fee at loan closing and \1/12\th per month starting with the first 
payment due date. This method results in the collection of 12 annual 
fee payments and will ensure sufficient funds are available when the 
annual fee comes due. Furthermore, the Agency realizes that a \1/12\th 
collection of the annual fee at loan closing will increase closing 
costs; however, based on the sample loan amount illustrated in chart 1, 
the closing costs will increase by a nominal amount of $34 for a 
borrower purchasing a $135,000 home.
    One commenter expressed concerns that the Agency has not provided 
sufficient administrative guidance on this policy change, therefore 
inhibiting the industry from revising its systems and applicable 
disclosure documents accordingly. For example, the commenter wanted to 
know if the annual fee is considered mortgage insurance. The commenter 
was concerned that if the fee were considered mortgage insurance, 
escrowing of the fee would violate Real Estate Settlement Procedures 
Act (RESPA).
    The Agency disclosed in the proposed rule that RHS will work 
closely with lenders and service bureaus on necessary system 
enhancements. Since issuance of the proposed rule, the Agency has 
worked with several lenders and service bureaus to ensure their systems 
are capable of handling the annual fee. As discussed in the background 
section of this rule, the Agency has made available a Guaranteed Fee 
Implementation Guide and a ``Guarantee and Annual Fee Calculator,'' and 
both can be found on the USDALinc Training and Resource Library Web 
site: https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do.
    Additional guidance will also be posted to the above Web site as it 
becomes available.
    While RHS does not regulate RESPA ``escrow account'' under RESPA is 
broadly defined at 24 CFR 3500.17(b) as ``any account that a servicer 
establishes or controls on behalf of a borrower to pay taxes, insurance 
premiums (including flood insurance), or other charges with respect to 
a federally related mortgage loan, including charges that the borrower 
and servicer have voluntarily agreed that the servicer should collect 
and pay.''
    Therefore, the Agency does not believe that escrowing the annual 
fee is a violation of RESPA.
    Two commenters wanted to know if a study has been conducted on the 
impact that the annual fee will have on future loan volume. The 
commenters believed that small lenders will drop out of the program due 
to the complicated nature of implementing and administering an annual 
fee and that only large lenders will adopt the change. The Agency 
realizes that any time a change is made, there is a potential for 
lenders both large and small to drop out of the program. Approximately 
80 percent of the SFHGLP loans are serviced by larger lenders. Small 
community banks are actively involved with the SFHGLP, but

[[Page 40789]]

typically do not keep such loans on their books for 30 years. Most 
small community banks originate the loans and immediately sell them to 
larger lenders/servicers. The Agency is implementing the annual fee to 
eliminate the need of taxpayer funding of the SFHGLP. Without the 
annual fee, it is likely the availability of SFHGLP guarantees would be 
reduced dramatically (approximately 182,000 fewer loans would be 
guaranteed by SFHGLP), thereby adversely affecting potential homeowners 
in rural America.
    Three commenters expressed concerns that the Agency was not 
following proper rulemaking requirements; two of the three believe the 
Regulatory Flexibility Act was not being met because the rule could 
have significant impact on small entities; and one of the three did not 
agree with the OMB designation of non-significant.
    The OMB, not RHS, has authority for determining whether a 
regulation is significant. As mentioned, within that authority, OMB has 
found this final rule to be non-significant.
    As stated in the background section of this rule, the Agency is 
implementing the annual fee as a result of Public Law 111-212, 
``Supplemental Appropriations Act, 2010,'' enacted on July 29, 2010, 
which amended Section 502(h)(8) of the Housing Act of 1949 (42 U.S.C. 
1472(h)(8)) to read as follows: ``(8) Fees.--Notwithstanding paragraph 
(14)(D), with respect to a guaranteed loan issued or modified under 
this subsection, the Secretary may collect from the lender--(A) at the 
time of guarantee or modification, a fee not to exceed 3.5 percent of 
the principal obligation of the loan; and (B) an annual fee not to 
exceed 0.5 percent of the outstanding balance of the loan for the life 
of the loan.'' Therefore, the authorizing statute for the SFHGLP 
specifically allows the Agency to implement an annual fee up to 0.5 
percent of the outstanding balance of the loan for the life of the 
loan.
    The Agency has had legal authority to implement an annual fee since 
the date of the statute (July 29, 2010), but chose not to implement the 
annual fee until October 1, 2011, to allow lenders time to make 
necessary technical adjustments to their internal systems. The purpose 
of the proposed rule was to seek comments from the public to better 
assist the Agency in writing the technical and administrative guidance 
associated with the annual fee.
    The Agency is amending 7 CFR 1980.302(a) to include a definition of 
the annual fee. The regulations at 7 CFR 1980.310(c) also are amended 
to clarify that escrow funds using loan funds may be used to pay the 
annual fee. Lastly, the Agency will amend the eligibility regulations 
at 7 CFR 1980.345(c)(1) to add the annual fee amount in determinations 
of repayment ability.

List of Subjects in 7 CFR Part 1980

    Home improvement, Loan programs--Housing and community development, 
Mortgage insurance, Mortgages, Rural areas.

    For the reason stated in the preamble, Chapter XVIII, Title 7 of 
the Code of Federal Regulations is amended as follows:

PART 1980--RURAL HOUSING LOANS

0
1. The authority citation for part 1980 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989. Subpart E also 
issued under 7 U.S.C. 1932(a).

Subpart D--Rural Housing Loans

0
2. Section 1980.302(a) is amended by adding a definition of Annual fee 
in alphabetical order to read as follows:


Sec.  1980.302  Definitions and abbreviations.

    (a) * * *
    Annual fee. A periodic amount that is based on the average annual 
scheduled unpaid principal balance of the loan and is paid by the 
servicing lender to Rural Development on an annual basis for issuance 
of a Loan Note Guarantee. The fee may be passed on to the borrower and 
included in the monthly mortgage payment of a borrower and is 
considered when calculating applicant repayment ratios.
* * * * *

0
3. Section 1980.310(c) is revised to read as follows:


Sec.  1980.310  Loan purposes.

* * * * *
    (c) The cost of establishing an escrow or reserve account for 
payment of real estate taxes, insurance premiums and/or annual fees 
when they come due.
* * * * *

0
4. Section 1980.323 is revised to read as follows:


Sec.  1980.323  Guarantee loan fees.

    The Lender will pay an up-front guarantee fee and an annual fee. 
The amount of the up-front guarantee fee and annual fee will be 
calculated based on the appropriate figure identified in exhibit K of 
subpart A of part 1810 of this chapter (RD Instruction 440.1, available 
at www.regulations.gov or any Rural Development office). The 
nonrefundable up-front guarantee fee and annual fee may be passed on to 
the borrower.
    (a) Up-front guarantee fee. The amount of the up-front guarantee 
fee is determined by multiplying the appropriate figure in Exhibit K of 
subpart A of part 1810 of this chapter, times 90 percent of the 
principal amount of the guaranteed loan amount. The Agency will collect 
the up-front guarantee fee from the lender prior to issuance of a Loan 
Note Guarantee.
    (b) Annual fee. The annual fee will be based on the average annual 
scheduled unpaid principal balance of the loan using the actual loan 
amount. The fee percentage can be found in Exhibit K of subpart A of 
part 1810 of this chapter. The annual fee will be billed to the 
servicing lender of record on an annual basis for the previous 12 
months. The Agency may assess a late charge to the lender if the annual 
fee is not paid by the due date, and the late charge may be passed on 
to the borrower.

0
5. Section 1980.345(c)(1) introductory text is revised to read as 
follows:


Sec.  1980.345  Applicant eligibility requirements for a guaranteed 
loan.

* * * * *
    (c) * * *
    (1) Monthly obligations consists of the principal, interest, taxes, 
and insurance (PITI) plus the monthly annual fee amount for the 
proposed loan (less any interest assistance under this program or any 
other assistance from a State or County sponsored program when such 
payments are made directly to the Lender on the applicant's behalf), 
homeowner and other assessments, and the applicant's long term 
obligations. Long term obligations include those obligations such as 
alimony, child support and other obligations with a remaining repayment 
period of more than 6 months and other shorter term debts that are 
considered to have a significant impact on repayment ability.
* * * * *

    Dated: June 8, 2012.
Dallas Tonsager,
Under Secretary, Rural Development.
    Dated: June 1, 2012.
Michael T. Scuse,
Acting Under Secretary, Farm and Foreign Agricultural Services.
[FR Doc. 2012-16864 Filed 7-10-12; 8:45 am]
BILLING CODE 3410-XV-P