[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Proposed Rules]
[Pages 28547-28550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13154]
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3555
RIN 0575-AD10
Single Family Housing Guaranteed Loan Program
AGENCY: Rural Housing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: The Rural Housing Service (RHS or Agency) proposes to amend
the current regulation for the Single Family Housing Guaranteed Loan
Program (SFHGLP) on the subject of Single Close Combination
Construction to Permanent Loans. The Agency proposes to amend the
regulation to provide increased flexibility in loan terms that affect
the costs of interim construction financing and the viability of
combination construction to permanent loans on the secondary market in
a manner which will enable more lenders to make these combination
construction to permanent loans to SFHGLP borrowers. Specifically, the
Agency proposes to: Allow and define a maximum interest rate for
interim construction financing that is different than the underlying
rate; allow for the escrow or reserve of regularly scheduled principal,
interest, taxes and insurance (PITI) payments; and remove the
requirement for loan modification or re-amortization once construction
is complete.
DATES: Written or email comments on the proposed rule must be received
on or before August 20, 2018 to be assured for consideration.
ADDRESSES: You may submit comments on this proposed rule by any one of
the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments electronically.
Mail: Submit written comments via the U.S. Postal Service
to the Branch Chief, Regulations and Paperwork Management Branch, U.S.
Department of Agriculture, STOP 0742, 1400 Independence Ave. SW,
Washington, DC 20250-0742.
Hand Delivery/Courier: Submit written comments via Federal
Express mail, or other courier service requiring a street address to
the Branch Chief, Regulations and Paperwork
[[Page 28548]]
Management Branch, U.S. Department of Agriculture, 1400 Independence
Avenue SW, Washington, DC 20250-0742.
FOR FURTHER INFORMATION CONTACT: Kate Jensen, Finance and Loan Analyst,
Single Family Housing Guaranteed Loan Division, STOP 0784, Room 2250,
USDA Rural Development, South Agriculture Building, 1400 Independence
Avenue SW, Washington, DC 20250-0784, telephone: (503) 810-6855, email
is [email protected].
SUPPLEMENTARY INFORMATION:
Executive Order 12866, Classification
This proposed rule has been determined to be non-significant and
therefore was not reviewed by the Office of Management and Budget (OMB)
under Executive Order 12866.
Executive Order 12988, Civil Justice Reform
This proposed rule has been reviewed under Executive Order 12988,
Civil Justice Reform. Except where specified, all State and local laws
and regulations that are in direct conflict with this rule will be
preempted. Federal funds carry Federal requirements. No person is
required to apply for funding under SFHGLP, but if they do apply and
are selected for funding, they must comply with the requirements
applicable to the Federal program funds. This proposed 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 proposed 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 1970,
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, Public
Law 91-190, neither an Environmental Assessment nor an Environmental
Impact Statement is required.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on States, on the relationship between the national
government and States, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on State and local
governments. Therefore, consultation with the States is not required.
Regulatory Flexibility Act
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.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
Executive Order 13175 imposes requirements on RHS in the
development of regulatory policies that have tribal implications or
preempt tribal laws. RHS 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 proposed rule is not subject to the requirements of
Executive Order 13175. If a tribe determines that this rule has
implications of which RHS is not aware and would like to engage with
RHS on this rule, please contact USDA's Native American Coordinator at
(720) 544-2911 or [email protected].
Executive Order 12372, Intergovernmental Consultation
These loans are subject to the provisions of Executive Order 12372,
which require intergovernmental consultation with State and local
officials. RHS conducts intergovernmental consultations for each SFHGLP
loan in accordance with 2 CFR part 415, subpart C.
Programs Affected
The program affected by this regulation 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. Chapter 35). The
assigned OMB control number is 0575-0179.
E-Government Act Compliance
The Agency 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 Policy
In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Agencies, offices, and employees, and institutions participating in or
administering USDA programs are prohibited from discriminating based on
race, color, national origin, religion, sex, gender identity (including
gender expression), sexual orientation, disability, age, marital
status, family/parental status, income derived from a public assistance
program, political beliefs, or reprisal or retaliation for prior civil
rights activity, in any program or activity conducted or funded by USDA
(not all bases apply to all programs). Remedies and complaint filing
deadlines vary by program or incident.
Persons with disabilities who require alternative means of
communication for program information (e.g., Braille, large
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print, audiotape, American Sign Language, etc.) should contact the
responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and
TTY) or contact USDA through the Federal Relay Service at (800) 877-
8339. Additionally, program information may be made available in
languages other than English.
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at http://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or
write a letter addressed to USDA and provide in the letter all of the
information requested in the form. To request a copy of the complaint
form, call (866) 632-9992. Submit your completed form or letter to USDA
by:
(1) Mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
20250-9410;
(2) Fax: (202) 690-7442; or
(3) Email: [email protected].
USDA is an equal opportunity provider, employer, and lender.
Background Information
In order to encourage new construction purchase opportunities for
rural applicants and increase lender utilization of SFHGLP Combination
Construction to Permanent Loans in rural communities, the Agency
proposes to revise the regulation pertaining to combination
construction permanent loans. The proposed revisions will align the
Agency's construction to permanent loans with industry standards.
Lenders would be able to recapture interest accrued on a warehouse or
business line of credit during the course of construction. An
additional option is for lenders to escrow or set aside in reserves
regularly scheduled fully amortized PITI payments for the construction
period.
Currently, a lender is restricted to using the promissory note rate
for the life of the loan, including during the construction phase. The
restriction discourages lenders from making combination construction to
permanent loans because lenders may have difficulty covering the higher
costs of construction or warehouse lines of credit associated with the
construction phases. If a lender uses a warehouse line of credit in
order to finance the cost of construction, the lender is responsible
for any cost associated with the use of those funds. The proposed
changes to 7 CFR 3555.104 will allow for a modified interim
construction interest rate that is no more than 200 basis points above
the underlying promissory note rate. After the construction period, the
rate will revert back to the promissory note rate, or a lower interest
rate. This practice is common in the traditional construction to
permanent loan industry, and allows lenders to cover higher
construction phase line of credit costs. The Agency will publish the
maximum allowable interim construction interest rate in RD Instruction
440.1, available in any Rural Development Office) or online at: http://www.rd.usda.gov/publications/regulations-guidelines. After construction
is completed, lenders who used the interim construction interest rate
must revert to the underlying promissory note rate or lower. The Agency
also proposes to amend 7 CFR 3555.105(c) so that the cost of the
interim construction interest rate may qualify as an eligible
construction loan purpose.
Current regulations impede the ability to sell or transfer a loan
to an investor on the secondary market at loan closing because lenders
do not have a viable method to ensure that consistent, equal principal
and interest payments are made to investors during the construction
phase. Construction to permanent loans must be modified and re-
amortized at the end of the construction period pursuant to 7 CFR
3555.105(d), and there is no authority for lenders to establish an
escrow or reserve for payments of consistent, equal principal and
interest payments to investors during the construction phase. To
address this issue, the Agency proposes to amend 7 CFR 3555.105 by
making post-construction modification or re-amortization optional, as
well as allowing lenders to establish an escrow or reserve in an amount
of up to 12 months of the fully amortized regularly scheduled PITI
payments over the construction period. This provides lenders with the
increased ability to place SFHGLP construction to permanent loans in
the secondary market at loan closing. Please note that 7 CFR
3555.105(d)(4) already allows for the establishment of reserves for
interest, taxes and insurance--the proposed amendment is for an
additional principal reserve account in order to achieve a 30 year
amortization of PITI payments.
The regulatory revisions will reduce the burden of construction
financing on small and medium sized lenders, streamline the program,
encourage program utilization, and provide the lender the ability to
quickly transfer closed loans to program investors.
Lastly, the Agency proposes to correct 7 CFR 3555.104(a)(4) to
clarify that if the interest rate increases between the issuance of a
conditional commitment and the loan closing, the lender must submit a
new request for new conditional commitment. Current language states
that the lender must note the increased interest rate in the closing
loan package--however this is not consistent with the terms of the
conditional commitment or current practice. Lenders do submit new
requests for conditional commitments in the event of an increase in
interest rate before closing.
List of Subjects in 7 CFR Part 3555
Home improvement, Loan Programs--Housing and community development,
Eligible loan purpose, Construction, Loan terms, Mortgages, Rural
areas.
Therefore, chapter XXXV, title 7 of the Code of Federal Regulations
is proposed to be amended as follows:
PART 3555--GUARANTEED RURAL HOUSING PROGRAM
0
1. The authority citation for Part 3555 continues to read as follows:
Authority: 5 U.S.C. 301; 42 U.S.C. 1471 et seq.
Subpart C--Loan Requirements
0
2. Amend Sec. 3555.104 by revising paragraph (a)(4)and adding new
paragraph (e) to read as follows:
Sec. 3555.104 Loan Terms.
(a) * * *
(4) If the interest rate increases between the time of the issuance
of the conditional commitment and the loan closing, the lender must
submit a new request for a conditional commitment with the updated
interest rate.
* * *
(e) Combination construction and permanent loans. For the purpose
of combination construction permanent loans:
(1) The lender may charge an interest rate for interim construction
financing that exceeds the underlying promissory note rate by an amount
determined by the Agency. The maximum allowable interim construction
interest rate will be published in RD Instruction 440.1, available in
any Rural Development Office or online at: http://www.rd.usda.gov/publications/regulations-guidelines.
(2) After construction ends, the interest rate must revert to a
rate that is no higher than the underlying promissory note rate.
0
3. Amend Sec. 3555.105 by:
0
a. Adding paragraph (c)(2)(iv);
0
b. Revising paragraph (d)(1) and the first sentence of paragraph (d)(6)
by
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replacing the first ``will'' with ``may''; and
0
c. Adding paragraph (d)(7).
Sec. 3555.105 Combination construction and permanent loans.
* * * * *
(c) * * *
(2) * * *
(iv) An interim construction financing interest rate as provided
for in Sec. 3555.104(e).
* * *
(d) * * *
(1) * * *. An interim construction financing interest rate may be
used in accordance with Sec. 3555.104(e).
* * * * *
(7) Lenders may establish a reserve for up to 12 months of the
regularly scheduled (amortized) principal payments, to ensure full PITI
payments during the construction period. In such cases, a loan
modification or re-amortization is not required after construction is
complete.
* * * * *
Dated: May 23, 2018.
Joel C. Baxley,
Administrator, Rural Housing Service.
[FR Doc. 2018-13154 Filed 6-19-18; 8:45 am]
BILLING CODE 3410-XV-P