[Federal Register Volume 79, Number 194 (Tuesday, October 7, 2014)]
[Notices]
[Pages 60492-60494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23969]
-----------------------------------------------------------------------
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5811-N-01]
Section 184 Indian Housing Loan Guarantee Program New Annual
Premium
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: The Section 184 Indian Housing Loan Guarantee program (Section
184 program) provides access to sources of private financing for Indian
families, Indian housing authorities, and Indian tribes that otherwise
could not acquire housing financing because of the unique legal status
of Indian land, by guaranteeing loans to eligible persons and entities.
Over the last 5 years, the Section 184 program has doubled the number
of loans and eligible families being assisted by the program. For HUD
to continue to meet the increasing demand for participation in this
program, HUD is exercising its new statutory authority to implement an
annual premium to the borrower in the amount of 0.15 percent of the
remaining loan balance until the unpaid principal balance, excluding
the upfront loan guarantee fee, reaches 78 percent of the lower of the
initial sales price or appraised value based on the initial
amortization schedule. Effective November 15, 2014 the new annual
premium of 0.15 percent of the remaining loan balance will apply to all
new loan guarantees, including refinances. This notice also provides
guidance on the cancellation of the annual premium when the loan
reaches the 78 percent loan-to-value ratio.
DATES: Effective Date: November 15, 2014.
FOR FURTHER INFORMATION CONTACT: Rodger J. Boyd, Deputy Assistant
Secretary for Native American Programs, Office of Public and Indian
Housing, Department of Housing and Urban Development, 451 7th Street
SW., Room 4126, Washington, DC 20410; telephone number 202-401-7914
(this is not a toll-free number). Persons with hearing or speech
disabilities may access this number through TTY by calling the toll-
free Federal Relay Service at 800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Section 184 of the Housing and Community Development Act of 1992
(Public Law 102-550, approved October 28, 1992), as amended by the
Native American Housing Assistance and Self-Determination Act of 1996
(Pub. L. 104-330, approved October 26, 1996), established the Section
184 program to provide access to sources of private financing to Indian
families, Indian housing authorities, and Indian tribes that otherwise
could not acquire housing financing because of the unique legal status
of Indian land. Because title to trust or restricted land is
inalienable, title cannot be conveyed to eligible Section 184 program
borrowers. As a consequence, financial institutions cannot utilize the
land as security in mortgage lending transactions. The Section 184
program addresses obstacles to mortgage financing on trust land and in
other Indian and Alaska Native areas by giving HUD the authority to
guarantee loans to eligible persons and entities to construct, acquire,
refinance, or rehabilitate one-to-four family dwellings in these areas.
The Section 184 Loan Guarantee Fund (the Fund) receives annual
appropriations to cover the cost of the program. Guarantee fees and any
other amounts, claims, notes, mortgages, contracts, and property
acquired by the Secretary under the Section 184 program reduce the
amount of appropriations needed to support the program, and together
with appropriations are used to fulfill obligations of the Secretary
with respect to the loans guaranteed under this section.
In recent years, rapidly growing demand has increased the need for
subsidy appropriations to support new loan guarantees. HUD issued loan
[[Page 60493]]
guarantee commitments for $308 million in 2008, $501 million in 2009,
$536 million in 2010, $577 million in 2011, $792 million in 2012, and
$642 million in 2013.\1\ Additionally, expenses have increased for
acquisitions, insurance, and other program costs, and HUD has seen
higher losses now that the Fund has guaranteed over $4 billion in
current loans.
---------------------------------------------------------------------------
\1\ The volume in 2013 does not represent program demand because
during FY 2013, the program was shut down for 8 weeks and did not
guarantee refinances, which typically accounts for 30 percent of the
Section 184 program's business.
---------------------------------------------------------------------------
The 2013 Consolidated and Further Continuing Appropriations Act
(Pub. L. 113-6, approved March 26, 2013) amended section 184(d) of the
Housing and Community Development Act of 1992, by authorizing the
Secretary to increase the upfront fee for the guarantee of loans up to
3 percent of the principal obligation of the loan and to establish and
collect annual premium payments in an amount not exceeding one percent
of the remaining guaranteed balance (excluding the portion of the
remaining balance attributable to the fee collected at the time of the
issuance of the guarantee) by publishing a notice in the Federal
Register. On April 4, 2014, HUD exercised its larger loan guarantee fee
authority to increase the one-time, loan guarantee fee that borrowers
pay at loan closing from 1 percent to 1.5 percent of a mortgage (79 FR
12520). This increase ensured that there would be enough funding to
meet borrower demand for all of fiscal year 2014, and reduce the amount
of subsidy needed to meet demand in future years.
II. New Annual Premium
To meet projected demand for participation in the Section 184
program for fiscal year 2015, HUD is establishing an annual premium of
0.15 percent of the remaining loan balance until the unpaid principal
balance, excluding the upfront loan guarantee fee, reaches 78 percent
of the lower of the initial sales price or appraised value based on the
initial amortization schedule on all new loans, including refinances.
With the establishment of the annual premium, the Section 184 program
will now have two sources of funds derived from the borrower (the other
being the one-time, up-front loan guarantee fee). Without an annual
premium, an appropriation of $8 million for Fiscal Year (FY) 2015 \2\
would support only about $318 million in new loan guarantee
commitments, less than half of the amount the program guaranteed in
2013. This may force HUD to limit access to the program for otherwise
eligible program participants. If HUD were to limit access to the loan
guarantee program, HUD predicts that some lenders currently
participating in the Section 184 program may choose to no longer
partner with HUD to provide mortgage lending through the Section 184
program. Without those lenders, the Section 184 program would be unable
to meet the demand for mortgage lending on trust land and in Indian and
Alaska Native areas and tribal lands, potentially causing a further
reduction in program activity.
---------------------------------------------------------------------------
\2\ Requested by the President in his FY 2015 HUD at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/hud.pdf.
---------------------------------------------------------------------------
By establishing an annual premium paid by borrowers, the credit
subsidy rate \3\ will go down, and HUD expects the program will be able
to guarantee the volume of loans predicted for FY 2015. Establishing a
0.15 percent annual premium would cost a borrower with a $175,000
mortgage (the average loan size for the program) an extra $22 a month
on the borrower's monthly payment or $264 annually. Since the 0.15
percent annual premium is tied to the loan balance, the annual premium
will decrease for the borrower every year as the loan balance declines
and then disappears after the loan-to-value ratio reaches 78 percent of
the lower of the initial sales price or appraised value based on the
initial amortization schedule. Even with these additional costs to
borrowers, the Section 184 program will still be affordable. While
paying an annual premium may be a hardship for some borrowers, HUD does
not believe that the extra cost is prohibitive and believes it will
have a limited impact on the demand for the program. However, the new
annual premium will allow HUD to continue to meet the demand for
mortgage lending transactions in fiscal year 2015 so that more Indian
and Alaska Native families have the opportunity for homeownership.\4\
To reduce some of the hardship accompanying the annual premium, HUD
provides that payment of the annual premium can be made through monthly
payments, to spread out the cost for borrowers, or annual and lump sum
payments, to keep a borrower's monthly payment lower.
---------------------------------------------------------------------------
\3\ Credit Subsidy Rate as defined in the Federal Credit Reform
Act (FCRA) of 1990, as amended by the Balanced Budget Act of 1997.
\4\ In its Congressional Justifications for HUD's FY 2015
budget, HUD announced that it would pursue a .15 percent annual
premium payment in the Section 184 program. Please see page M-5 of
HUD's Congressional Justification for the ``Indian Housing Loan
Guarantee Fund (Section 184)'' at http://portal.hud.gov/hudportal/HUD?src=/program_offices/cfo/reports/fy15_CJ.
---------------------------------------------------------------------------
III. Cancelling the Section 184 Annual Premium at 78 Percent Loan-to-
Value.
The new Section 184 annual premium applies only while the unpaid
principal balance, excluding the upfront loan guarantee fee, exceeds 78
percent of the lower of the initial sales price or appraised value
based on the initial amortization schedule. Once the mortgage amortizes
to a loan-to-value (LTV) ratio of 78 percent, collection of the annual
premium will cease. HUD will determine when the mortgage reaches the
amortized 78 percent LTV threshold based on the contract interest rate
and the LTV information provided to HUD's mortgage processing system by
the originating lender, and will cease billing the servicing lender
accordingly. HUD's calculation of the 78 percent threshold will be
predicated on the loan amount excluding the upfront loan guarantee fee.
The LTV ratio on streamline refinances performed without appraisals
will be based on data regarding the mortgage being refinanced,
including sales price and appraised value amounts residing in the HUD's
Office of Native American Program's (ONAP) mortgage processing system.
HUD will compute a new LTV ratio by dividing the new loan amount,
excluding any upfront guarantee fee, by the lower of the sales price or
appraised value amount residing in ONAP's mortgage processing system.
From this computed loan-to-value ratio, HUD will determine when the 78
percent threshold is to be reached based on the scheduled amortization.
If a computed LTV ratio is not possible, due to missing data or
previous refinancing without an appraisal, the new LTV will default to
89.99 percent unless a new appraisal is provided.
In addition to the HUD initiated annual premium cancellation
process, borrowers can also request through their lenders cancellation
of the collection of the annual premium for those mortgages that reach
the 78 percent threshold due to prepayments (principal curtailment).
Those loans reaching the 78 percent loan to value threshold sooner than
projected due to advanced payments of principal will have the annual
premium collections canceled upon the servicing lender submitting
supporting information to HUD following the borrower's request. As part
of their annual disclosures to homeowners, servicers are to notify
borrowers of their option to cancel the annual premium in advance of
the projected date by making additional payments of mortgage principal
and requesting the lender cancel the collection of the annual premium.
[[Page 60494]]
This notice establishes the annual premium of 0.15 percent of the
remaining loan balance for all new case numbers assigned on or after
November 15, 2014 until the unpaid principal balance, excluding the
upfront loan guarantee fee, reaches 78 percent of the lower of the
initial sales price or appraised value based on the initial
amortization schedule.
IV. Tribal Consultation
HUD's policy is to consult with Indian tribes early in the process
on matters that have tribal implications. Accordingly, on July 31,
2014, HUD sent letters to all tribal leaders participating in the
Section 184 program, informing them of the nature of the forthcoming
notice and soliciting comments. A summary of comments received and
responses can be found on HUD's Web site at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/ih/homeownership/184.
V. Environmental Impact
This notice involves the establishment of a rate or cost
determination that does not constitute a development decision affecting
the physical condition of specific project areas or building sites.
Accordingly, under 24 CFR 50.19(c)(6), this notice is categorically
excluded from environmental review under the National Environmental
Policy Act of 1969 (U.S.C. 4321).
Dated: October 2, 2014.
Jemine A. Bryon,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 2014-23969 Filed 10-6-14; 8:45 am]
BILLING CODE 4210-67-P