[Federal Register Volume 60, Number 92 (Friday, May 12, 1995)]
[Proposed Rules]
[Pages 25629-25660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11308]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Rural Housing and Community Development Service
Rural Business and Cooperative Development Service
Rural Utilities Service
Consolidated Farm Service Agency
7 CFR Parts 1910, 1944, 1951, and 1965
RIN 0575-AA35
Single Family Rural Housing Loans
AGENCIES: Rural Housing and Community Development Service, Rural
Business and Cooperative Development Service, Rural Utilities Service
and Consolidated Farm Service Agency; USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Housing and Community Development Service (RHCDS)
proposes to revise its regulations for Single Family Rural Housing
(``RH'') Loans. Under the reorganization of the Department of
Agriculture, RHCDS is the successor to the former Farmers Home
Administration for the administration of rural housing programs under
the Housing Act of 1949. References to RHCDS will also include actions
of FmHA prior to the reorganization. Regulations regarding Receiving
and Processing Applications, Planning and Performing Site Development
Work, Borrower Supervision, Servicing and Collection of Single Family
Housing Loan Accounts, and Security Servicing for Single Family Rural
Housing Loans are also impacted by the proposed revisions. This action
is taken to implement the provisions of section 315 of the Housing and
Community Development Act of 1987, Pub. L. 100-242, to improve the
delivery of the program to the public, provide for the orderly
processing of loan applications, reduce workload of RHCDS field staffs,
to conform the section 502 RH program with the Guaranteed Rural Housing
Loan program and industry standards, and to notify the public of the
Agency's policy.
Note: The Department of Agriculture Reorganization Act of 1994,
Pub. L. 103-354, was signed on October 13, 1994. This established a
National Appeals Division (NAD) which replaced the FmHA National
Appeals Staff. The National Appeals Division is currently in the
process of writing new regulations. The Final Rule will be made
consistent with any new regulations promulgated by the National
Appeals Division.
DATES: Comments must be received on or before July 11, 1995.
ADDRESSES: Submit written comments, in duplicate, to the Office of the
Chief, Rural Economic and Community Development, U.S. Department of
Agriculture, Ag Box 0743, Room 6348, South Agriculture Building, 14th
and Independence SW., Washington, DC 20250. All written comments will
be available for public inspection at the above address during normal
working hours.
FOR FURTHER INFORMATION CONTACT: Betsy McDaniel, Senior Loan
Specialist, Rural Housing and Community Development Service, USDA, Ag
Box 0783, Room 5334, South Agriculture Building, 14th and Independence
SW., Washington, DC 20250, Telephone (202) 720-1474.
SUPPLEMENTARY INFORMATION:
Classification
This rule has been determined to be significant and was reviewed by
the Office of Management and Budget under Executive Order 12866.
Regulatory Flexibility Act
The Administrator of Rural Housing and Community Development
Service has determined that this action will not have a significant
economic impact on a substantial number of small entities because the
regulatory changes affect RHCDS processing of section 502 loans and
individual applicant eligibility for the program.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' It is the determination of RHCDS
that this proposed 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, Pub. L.
91-190, an Environmental Impact Statement is not required.
Programs Affected
This program is listed in the Catalog of Federal Domestic
Assistance under No. 10.410, Low Income Housing Loans.
Intergovernmental Consultation
For the reason set forth in the final rule related Notice to 7 CFR
part 3015, subpart V, 48 FR 29115, June 24, 1983, this program is
excluded from the scope of Executive Order (E.O.) 12372 which requires
intergovernmental consultation with State and local officials.
Civil Justice Reform
This proposed regulation has been reviewed in light of E.O. 12778
and meets the applicable standards provided in sections 2(a) and 2(b)
of that Order. Provisions within this part which are inconsistent with
State law are controlling. All administrative remedies pursuant to 7
CFR part 1900, subpart B must be exhausted prior to filing suit.
Paperwork Reduction Act
The information collection requirements contained in these
regulations have been approved by the Office of Management and Budget
(OMB) under the provisions of 44 U.S.C. Chapter 35 and have been
assigned OMB control numbers 0575-0134, 0575-0099, and 0575-0062, in
accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 3507).
[[Page 25630]] This proposed rule does not revise or impose any new
information collection or recordkeeping requirement from those approved
by OMB, for those mentioned above. The revised information collection
contained in 0575-0059 and 0575-0060 will be submitted for approval to
OMB. Public reporting for this collection of information is estimated
to vary from 5 minutes to 1.5 hours per response, with an average of
.41 hours per response, including time for reviewing instructions,
searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing the collection of information.
Please send written comments on the information collection aspect of
the rule to the Office of Information Regulatory Affairs, OMB,
Attention: Desk Officer for USDA, Washington, DC 20503. Please send a
copy of your comments to Jack Holston, Agency Clearance Officer, USDA,
RECD, Ag Box 0743, Washington, DC 20250.
Discussion
Background
Many of Rural Housing and Community Development Service's (RHCDS's)
single family housing size and amenity restrictions have been
criticized as being too rigid and restrictive to best serve the housing
needs of low income families as well as providing adequate security for
the Agency. In the past, these restrictions served to limit the size
and cost of properties financed, and to control the associated home
ownership costs of RHCDS applicants/borrowers. RHCDS feels that a
different approach can provide the control necessary to allow
applicants the freedom to select the home of their choice which best
suits their individual needs and still ensure that RHCDS meets its
mission and that its financial interest is adequately secured.
During Fiscal Year (FY) 1991, FmHA published regulations in
connection with the Cranston-Gonzales National Affordable Housing Act
for its Guaranteed RH program. Those regulations provided that the
amount of the RHCDS guaranteed loan may not exceed the maximum dollar
limitation of section 203(b) of the National Housing Act (12 U.S.C.
1702). RHCDS now proposes to use 85 percent of the same maximum dollar
limitations applicable to the guaranteed program for the direct single
family RH program. The Agency has determined that an 85 percent
limitation for the direct single family housing program should curtail
luxury type amenities, size, and cost, and will generally result in
modest housing similar to that presently financed by the Agency under
this program. This will greatly simplify and standardize the properties
acceptable under the section 502 single family housing program and
achieve the balance previously discussed. This change will result in
the elimination of specific characteristics, amenities, and
restrictions relative to ``modest housing,'' and substitute reliance by
the Agency on the percentile of maximum dollar limitation established
by the Housing and Urban Development (HUD), hereafter called ``CAPs,''
for determining the type and dollar amount of housing to be financed.
In conjunction with this change, the Agency recognizes the need to
change the manner in which subsidy is provided on these loans.
In order to provide sufficient subsidy to enable low-income
applicants/borrowers to show repayment ability but at the same time
make the applicant/borrower the true decision-maker concerning all
aspects of the property that meets his or her housing needs, RHCDS
proposes to provide subsidy which will result in a reduced payment
based on the adjusted family income percentile of the area median
income or the minimum percentage of adjusted family income, whichever
is greater. The minimum percentage of adjusted family income will be
based on the income category the applicant/borrower falls into and will
include principal, interest, taxes, and insurance. These percentages
are reasonable amounts to pay for housing expenses. This would provide
for a maximum rate of subsidy and encourage the family to purchase a
modestly priced property within its repayment ability.
At the same time, the Agency desires to move away from the use of a
``budget'' when determining the applicant/borrower's repayment ability
and proposes to use payment ratios in the general manner as set forth
in its guaranteed housing instructions. This is more in line with
industry standards and it is anticipated that this change will remove
much of the subjectivity and controversy related to its current method
of determining repayment ability. The Agency proposes to use a
principal, interest, taxes, and insurance (PITI) ratio of 29 percent
and a monthly obligation to income (MOTI) ratio of 41 percent in the
direct single family housing program.
In addition to the above changes, RHCDS proposes to revise its
application loan processing procedures to provide that State Directors
will hold a separate reserve of loan funds for priority loan
applications which will be processed immediately upon receipt. Priority
applications include hardships, as determined by the State Director on
a case-by-case basis, including applications from persons living in
deficient housing for more than 6 months; applications for refinancing
of non-RHCDS loans, servicing type loan applications including
financing for the purchase of Government-owned inventory properties and
subsequent loans for essential improvements or repairs, and
applications for mutual Self-Help Housing loans. It is anticipated that
this will direct loan funds to those applicants with the greatest need,
reduce backlogs of applications on hand, and better meet Agency
objectives.
The Agency has conducted an in-depth study involving 25 counties in
California, Delaware, Florida, Georgia, Iowa, Maine, Maryland,
Mississippi, and Nevada. These states were selected because of the
volume of loans closed in these states and their geographic diversity,
and to provide a diversified range of income ranges and housing costs
in order to determine appropriate income ratios, loan limits, and
payment assistance to utilize in this proposal. Ninety-four percent of
this sample control group would continue to qualify for payment
assistance under the proposed terms. The Agency has provided for
increased payment assistance in high cost areas, exceptions to
published ratios in special situations, increased loan limits for
larger or disabled families, and in areas where the applicant is unable
to obtain lower cost housing. These provisions will result in assisting
applicants who do not qualify within the new parameters, so they can be
handled on an individual basis. RHCDS feels confident that the single
family housing loan program will continue to serve the same clientele
as it has historically served. The data generated as a result of this
study supports the proposed revisions, which will result in stimulation
economic growth, providing objectivity in the administration of the
single family housing program, making the program more equitable to
RHCDS applicants and borrowers, and expanding housing choices for RHCDS
applicants, based on their repayment ability, so that they can maximize
their housing benefits to their individual needs.
The Agency is considering the possibility of implementing a 20 year
balloon payment using a 33 or 38 year amortization in the final
regulation. This proposal is consistent with the position that the
Section 502 program is temporary financing to enable a very
[[Page 25631]] low- or low-income family to obtain affordable housing.
The objective of the program is to eventually graduate the borrower to
other conventional sources of credit. The majority of RHCDS existing
borrowers pay their loans in full within 12 years of loan closing. In
additions to this, the provision related to this topic in the text is
Section 1944.25 Rates and terms, paragraph (b) Amortization.
Prior Requests for Comments ---------
In order to allow the public an opportunity to voice their concerns
regarding the proposed revisions, FmHA published an Advance Notice of
Proposed Rule Making in the Federal Register on Tuesday, April 28,
1992, (57 FR 17858), which outlined the major issues proposed for
revision and provided for a 30-day comment period which ended on May
28, 1992.
Note: At the time of the Advance Notice of Proposed Rule Making,
the Agency referred to its ``Interest Credit Assistance'' program
for single family housing loans. This rule proposes to rename this
program to ``Payment Assistance'' and all future references in this
proposal are under that title.
Twenty-five comments were received in response to the Advance
Notice of Proposed Rule Making. Fourteen comments were from RHCDS or
other Federal Agency personnel. Two comments were received from groups
representing public utilities (electric and gas companies). In
addition, nine comments were received from individuals and various
public interest groups. All of the comments received were considered in
the development of this proposed rule. Comments were on the following
issues which were addressed in the Advance Notice of Proposed Rule
Making:
I. Use of the HUD ``CAPs'' in Defining ``Modest'' Housing
As stated previously, existing RHCDS single family housing
regulations have restricted the type of housing financed by limiting
the size, design, and amenities of the dwelling. The Advance Notice
proposed eliminating all such restrictions relative to ``modest''
housing and proposed that financing be limited to the dollar ``CAP''
established by HUD. Twenty-four respondents commented on this proposal.
Fifteen of the respondents submitted comments in support of this
revision; five respondents were against the proposal; and four had
mixed feelings. Most respondents had both pro and con comments. Those
respondents who supported the concept of the proposal, felt that the
revision would improve RHCDS's image, remove the stigma of
``subsidized'' housing, provide for flexibility of architectural
design, provide freedom of choice for RHCDS applicants, reduce the
number of appeals, simplify procedures, provide greater time savings,
and provide uniformity in the definition of modest housing nationwide.
In addition, these respondents felt that the proposal would provide for
appreciation in the market value of RHCDS properties and increased
equity for homeowners, and would alleviate problems with local
governments and help to promote low-income housing.
Several of the respondents had problems with the use of the HUD
``CAPs'' stating they were not equitable, being too high in some areas
and too low in others and that they were inflexible and hard to change,
providing bias to existing homeowners and Real Estate Brokers. Based on
these comments, the Agency proposes to use 85 percent of the HUD
mortgage limits but has incorporated procedures for increasing the CAPs
in certain situations. Other respondents felt that the CAPs would
result in higher priced housing which, together with market inflation,
would result in a need for higher subsidies. One respondent felt that
it would force lower income families into older, cheaper units.
Based on the study done by the Agency to measure the effects of the
use of HUD CAPs, proposed changes to the payment assistance program,
and the use of income ratios for determining repayment ability, the
Agency feels that the price of housing financed would be limited not
only by the HUD CAP, but by the market value of the property as
reflected on a current real estate appraisal, and the applicant's
repayment ability based on the proposed income ratios and the revised
method of granting payment assistance. The study does not indicate that
this change will result in lower-income families being forced into
older, cheaper units.
Several respondents expressed concern that RHCDS programs were
becoming more like HUD programs and that the use of the CAPs would
result in less control for RHCDS. Many of the respondents felt that the
use of the HUD CAPs discriminates against ``one person'' and ``large''
households and felt that the use of CAPs would eliminate RHCDS
financing in some areas where the CAPs are not in line with the cost of
housing in the area. The Agency has revised the proposal to address
these concerns in Sec. 1944.17. There was also concern expressed
regarding potential size and additional cost items if the definition of
modest housing is changed. The Agency feels that increased housing
costs will be limited due to the new method of calculating payment
assistance.
In accordance with the Energy Policy Act of 1992, Public Law 102-
486, the Agency has adopted the Council of American Building Officials
(CABO) Model Energy Code, 1992 (MEC-92) for new construction of single
family homes other than manufactured homes. The Agency has deleted
specific loan approval authorities in the field, relying instead on the
established HUD CAP limits adopted. In addition, the Agency has agreed
to grant a waiver to allow the loan to exceed market value for
handicapped-accessible homes by no more than the cost of the amenities.
RHCDS has decided not to adopt recommendations to restrict
financing on housing constructed prior to 1953 in order to avoid
problems with lead based paint, provide safeguards describing minimum
standards allowed under RHCDS financing, establish RHCDS CAPs based on
the State Directors' knowledge of their individual areas, and require
40 percent of very low-income housing on all conditional commitments.
However, the Agency has provided for waivers on CAP limits under
certain circumstances and has included a requirement that repairs
required as a condition of loan approval will be performed, after loan
closing, in accordance with HUD Handbook 4905-1, ``1-4 Family Living
Units,'' (available in any RHCDS field office). The Agency will
continue to adhere to its present requirements contained in subpart A
of part 1924 of this chapter regarding new construction and will
require all dwellings repaired with RH loan funds to be structurally
sound, functionally adequate, and placed in good repair. All dwellings
financed must still provide decent, safe, and sanitary housing.
II. The Use of Income Ratios Instead of a Family Budget for Determining
Repayment Ability
In the past, RHCDS has utilized a family budget to determine debt
repayment. Twenty-one respondents commented on the proposal to
eliminate the family budget as a determinant of repayment ability and
instead rely on the use of income ratios similar to those used in the
single family guaranteed housing program. Ten respondents were in favor
of this proposal and ten opposed. The remaining respondent indicated a
need for additional information before making a decision.
Those respondents who supported this revision felt that adoption of
this proposal would result in considerable [[Page 25632]] savings in
time and effort, would provide for simplification of the eligibility
process, would result in fewer appeals, and would eliminate
subjectivity. In addition, there were several comments that the family
budget is subjective in nature, difficult to defend, and useless
without clear guidelines for individual cost items. It was generally
felt by these respondents that adopting the use of income ratios as a
determinate of an applicant's repayment ability would be consistent
with industry standards and a benefit to RHCDS and loan applicants.
Several of the respondents opposed to this measure stated that
income ratios were not appropriate for RHCDS clientele. It was felt
that the low- and very low-income groups that RHCDS assists live within
their TOTAL income and not a percent of their income, and that these
were high risk loans requiring a high degree of accuracy when
determining repayment ability. Several respondents felt that income
ratios would result in loans to people without repayment ability due to
their high percentage of living expenses. Another area of concern was
the difficulty of developing ratios which would work for households, in
all situations, nationwide. They felt that ratios were inflexible and
would rule out those who do not fit the mold but who have repayment
ability, and it was feared that the use of ratios would eliminate many
very low- and low-income families. There were recommendations that
flexibility be built into the income ratios for adjustments where
projected costs are equal to or less than current rent, that ``non-
income'' benefits be incorporated into the calculation, that
compensating factors such as used by Fannie Mae be included, and that
an allowance be provided for the lower end of the income structure.
Two respondents suggested an in-depth study be made to analyze
where the PITI and MOTI ratios should be set, and one respondent
suggested combining ratios with the family budget for borderline cases
with justification for expenses which are deemed by RHCDS to be
abnormally low. In addition, there were several recommendations
relative to actual ratios which should be used.
All of these comments were taken under consideration when arriving
at the ratios established. The study undertaken by the Agency supports
the use of a 29 percent PITI ratio; 94 percent of existing RHCDS
borrowers would still qualify using this ratio. The decision to use a
29 percent ratio is supported by the fact that it is the same ratio
used in the Agency's guaranteed housing loan program. The Agency
proposes to establish the MOTI ratio at 41 percent. Both ratios will be
based on the applicant's gross income.
The Agency's experience with income ratios in the guaranteed
housing program and the study recently conducted indicates the proposed
system should provide consistency in determining repayment ability in a
better, less subjective manner that will improve our underwriting
criteria and loan portfolio and be consistent with industry standards.
Based on the comments received and the results of the study conducted,
the Agency has incorporated exceptions to the use of income ratios when
repayment ratios do not support adequate repayment ability for the
proposed loan, if the applicant can demonstrate a history of meeting
equal or greater housing related costs in the past 6 months in similar
financial circumstances than projected housing costs, or where the
applicant demonstrates that the use of a budget is a better determinant
of repayment ability than ratios for their particular circumstances.
Income ratios proposed are contained in Sec. 1944.8(a)(3).
Other objections to this proposal included concerns that the Agency
would no longer be a source of supervised credit, would lose valuable
skills in money management that are still needed for loan servicing,
and would require additional training to adapt to the new system. The
Agency feels that a supervisory counseling role is fundamental to its
mission and does not foresee a change in this regard. RHCDS will
continue to be a ``hands on'' Agency and will provide credit and
financial counseling to suit each applicant's individual needs to
assure the applicant's success as a homeowner. Where the applicant does
not demonstrate adequate repayment ability, or otherwise meet loan
making criteria, RHCDS is prepared to discuss and advise the applicant
regarding other alternatives such as reducing amenities, increasing
sources of income, reduction of debt load, obtaining a cosigner, or
constructing the home by the self-help method.
III. Revision of the Payment Assistance Calculation
RHCDS proposes to revise their method of providing ``payment
assistance'' on new loans. As noted previously, this program was
formerly known as ``interest credit assistance.'' Under this proposal,
only procedures for payment assistance that will be processed in
connection with loan processing will be included in subpart A of part
1944. All other payment assistance and deferred mortgage payment
actions, including renewals and other servicing actions are transferred
to subpart G of part 1951.
(a) Existing Payment Assistance System
Currently, RHCDS calculates the amount of payment assistance needed
based on a formula which takes into consideration the annual real
estate taxes and property insurance premiums to be paid by the
applicant/borrower and their adjusted family income. Under the current
program, a borrower pays 20 percent of the borrower's adjusted family
income for PITI (but never less than the loan amortized at a 1 percent
interest rate). This procedure has given the applicant little incentive
to look for an inexpensive home since the payment by the borrower
generally did not increase drastically as a result of a higher loan
amount. Under this program, an applicant/borrower must have a very low-
or low-adjusted income to initially receive payment assistance.
However, many applicants/borrowers with acceptable income levels who
obtain small loans, will often not qualify for payment assistance under
the present procedure since their PITI is less than 20 percent. This
has resulted in inequities in the system.
(b) Proposed Payment Assistance System
As explained above, under the current method of providing payment
assistance, many families attempting to purchase inexpensive homes are
denied assistance if the formula does not indicate that PITI will
exceed 20 percent of adjusted family income. Conversely, many other
applicants, purchasing homes in the higher cost ranges, receive maximum
payment assistance even though their incomes are often in the higher
ranges allowable under the program. To eliminate these inequities, the
proposed method will provide a range of equivalent rates of interest
for all new loans (including assumptions), and subsequent loans of
existing borrowers based on area median income, regardless of the
amount of the loan. The chart for determining the appropriate interest
rate paid by RHCDS applicants/borrowers on loans closed after this rule
becomes effective, is defined in Sec. 1944.34(c). Exceptions have been
incorporated which will provide for additional assistance where needed
to allow very low- and low-income applicants to obtain or retain
housing or to allow very low-, low-, or moderate-income RHCDS borrowers
to retain housing.
The proposed payment assistance system includes floors which are
[[Page 25633]] minimum percentages of adjusted gross income. The floor
for very low-income is 22 percent and for low-income is 26 percent of
adjusted family income. A new borrower will pay PITI at the minimum
percentage floor of adjusted gross income or at the equivalent interest
rate, whichever is greater. For loans closed under the proposed system,
the borrower will never pay more than the note interest rate for the
monthly installment.
It is intended that this proposal will encourage applicants to shop
for a home within their repayment ability instead of relying on the
higher cost of a home to drive the equivalent interest rate down to 1
percent which often results under the current system of payment
assistance.
The interest rates established for each income level were based on
the results of a study conducted by the Agency. The Agency ran a
comparison between the proposed system and the old system on a control
group in nine states. The new system will result in slightly higher
payments for new borrowers in the higher range of income. Existing
RHCDS borrowers who are currently receiving payment assistance, will
continue under the system in effect prior to the effective date of this
rule.
Under the current system, the payment assistance agreement is
effective for a 12-month period based on the applicant/borrower's
projected, verified income. The Agency proposes to revise the renewal
period for self-employed borrowers to coincide with the borrower's
business fiscal year. The Agency also proposes to eliminate the limit
on the amount of net family assets an applicant/borrower may have when
qualifying for payment assistance.
(c) Responses to the Advance Notice of Proposed Rule Making
Nineteen respondents commented on this proposal. Five of these
comments supported the proposal, eight were opposed, and six
respondents indicated they needed more information before deciding.
Those respondents who supported this concept stated they felt the
proposal would save considerable effort and time, would simplify the
process, would be more fair, would be easier to define and defend,
would provide an incentive to seek less costly housing, would stimulate
the rural economy and save on subsidy, and would provide the applicant/
borrower a means to see the range of payments up front so they could
budget future costs accordingly.
Of those respondents who were not in support of this proposal,
several felt that the lowest-income families would be penalized since
they pay the largest portion of income toward housing costs and this
method could result in families paying more than 30 percent for their
housing costs. One respondent felt that the system would be ineffective
in their area since median income is skewed due to a large population
of low-income college students. Several respondents felt that the
proposed system would be nonresponsive to individual applicant/
borrower's needs, would exclude more families than it includes, did not
provide for an applicant/borrower's future loss of income, and could
result in more loan failures. There were also comments that there would
be high costs involved in retraining RHCDS employees in the new system.
The original proposal provided that applicants/borrowers whose
homes were located in a high cost area as established by HUD would
automatically qualify for a reduction in their equivalent interest rate
of 1 percent. One respondent felt that the Agency was experiencing
problems in high cost and high real estate tax areas in the single
family housing guaranteed program which would be intensified in the
section 502 loan program. Several respondents were not clear how the
additional 1 percentage point subsidy in a high cost area would help.
The Agency has re-examined this issue and has decided to revise this
provision by providing exception authority for a reduction in the
equivalent rate of interest by 1 percentage point, when applicants in
high cost areas lack repayment ability without additional payment
assistance.
In addition to the above, there were two recommendations for
specific subsidy rates to be utilized. There was also a suggestion to
calculate annual income on the basis of past earnings rather than on
projected income. The Agency is mandated to utilize the same
calculations for annual income as are used by HUD, therefore, this
suggestions was not adopted. There appeared to be an opinion that once
the equivalent interest rate was set based on the family's income at
the time of loan approval it could never be changed downward, and that
only applicants/borrowers living in high cost areas would be eligible
for an equivalent interest rate of 1 percent. Neither of these
assumptions are correct.
There was a recommendation that RHCDS allow a change in payment
assistance when a borrower's income increases; this will be handled
under the sliding scale, the same as a loss of income. One respondent
suggested a change in the recapture calculation and this regulation is
in the process of being revised. There was a recommendation that the
payment assistance agreement, deferral, and recapture forms be
consolidated. The Agency has partially accepted this recommendation by
use of a separate payment assistance/deferral/repayment form for
applicants/borrowers receiving deferral assistance.
We urge all readers to thoroughly review this proposal and provide
us with their detailed recommendations for any changes suggested.
IV. Revision of the Method Used for Selection and Processing of
Applications
The Agency intends to streamline its method of selecting and
processing loan applications. When this section was revised, ``Fund
Allocation'' was included under Sec. 1944.26 and ``Application
Processing'' was completely revised and transferred to Sec. 1944.27.
Those instructions for application processing located in subpart A of
part 1910 which were exclusive to Single Family Housing applications
have been moved to subpart A of part 1944, which already contained some
application processing instructions. This section now contains a clear
definition of a complete RH application and guidance for dealing with
an incomplete RH application.
In the past, RHCDS has often required that an application package
include a credit report fee as well as information on the house to be
financed at the time of application, despite the fact that there were
often large backlogs of applications on hand or a lack of loan funds.
This resulted in delays to prospective sellers of property and the need
for reverification of information, sometimes at additional cost. Under
the proposed rule, RHCDS will access HUD's Credit Alert Interactive
Voice Response System (CAIVRS) to determine if the applicant is
delinquent on a Federal debt. If a delinquent Federal debt is
identified through CAIVRS, processing on the application will be
suspended and the applicant notified to contact the appropriate Federal
agency to resolve the delinquency. An outstanding judgment obtained by
the United States in a Federal Court (other than the United States Tax
Court), which has been recorded, shall cause the applicant to be
ineligible for loan assistance until the judgment is paid in full or
otherwise resolved. When the delinquency has been paid in full or
otherwise resolved, processing of the application will be continued;
RHCDS loan funds may not be used to satisfy an outstanding judgment. If
a judgment remains outstanding or the applicant is unable to resolve a
Federal debt delinquency, the [[Page 25634]] application will be
rejected and the applicant notified of the rights of appeal. In
addition, RHCDS will order an on-line profile credit report, where
available, on each application received. Derogative credit reported
will be discussed with the applicant and information on the address and
telephone number of the credit repository provided so that the
applicant may resolve potential credit problems. Applicants will not be
rejected on the basis of the on-line credit report; this service is
provided for the primary purpose of allowing the applicant to identify
potential credit problems prior to paying a fee for a credit report and
to clarify the difference between eligibility for program assistance
and loan approval. RHCDS will make a preliminary determination of
eligibility upon receipt of an application based on the information
provided on the application form and the information received as a
result of the CAIVRS inquiry and on-line credit report. A final
determination of eligibility will be made after the application is
selected for processing and all information necessary to determine
eligibility for the RH program has been verified.
Under current regulations, the Agency assigns a processing priority
to each application. The County Supervisor selects a number of
applications to be processed each quarter based on assigned priority
and availability of loan funds. The Agency has determined that this
system does not adequately serve the neediest applicants and facilitate
efficient loan processing.
The Agency proposes to provide for a separate reserve of loan funds
to be held by the State Director for priority applications. This
reserve will include hardship cases as determined by the State
Director, including applicants living in deficient housing,
applications for refinancing of debts, servicing type loans to existing
RHCDS borrowers for essential improvements or repairs, loans for the
purchase of Government-owned inventory properties, subsequent loans in
connection with assumptions of existing RHCDS loans, and mutual self-
help housing loans. These priority applications as well as applications
for the purchase of Government-owned inventory property or assumption
of existing RHCDS loans, will be processed immediately, and will not
compete for the same pool of funds as other applications. All other
applications will be considered for processing in date order.
If an applicant is clearly not eligible, an applicant may be
rejected upon receipt of the application. Applications received from
persons who appear to meet basic eligibility requirements for the
program will be held until funding is available. Each quarter the
County Supervisor, with guidance from the District Office, will select
enough applicants/borrowers to potentially fund 175 percent of the
anticipated quarterly allotment. This figure is an administrative
determination based on information available for applications on hand,
percent of applications rejected and withdrawn, and number of loans
closed per quarter. It is anticipated that almost half of the
applications selected for processing will not be processed to the point
of loan closing due to ineligibility, marital changes, lack of
interest, and other reasons.
Applicants/borrowers selected will be advised in writing that they
have 30 days to supply information needed for verifying data submitted
on their applications, including any fees for credit reports, so a
final determination of eligibility can be made. Detailed guidance is
provided regarding the means of verifying data. The proposed regulation
continues RHCDS's general policy that written income verification is
the preferred method of income verification. When an applicant/
borrower's eligibility for an RH loan is determined, the income
verification must not be more than 90-days old. In addition, RHCDS will
continue to require a copy of the applicant/borrower's most recently
filed income tax return and will randomly spot-check reported wages
through wage matching sources, where available, for 5 percent of all
applications where all adult members of the household are employed
full-time. Income for all other applicants/borrowers, including those
with non-taxable income, will be confirmed through this source where it
is available. Applicants/borrowers who are supposed to receive court
ordered alimony or child support but who actually do not receive it,
may certify that they have exhausted all efforts to collect same, and
in such cases, the alimony/child support will not be included in the
applicant/borrower's annual income. The applicant interview section has
been expanded to include discussion of all new requirements such as
income ratios, HUD CAPs, and penalties connected with providing false
information.
Once a final determination of eligibility has been made, the Agency
will issue a ``Certificate of Eligibility,'' valid for 90 days, to
eligible RH applicants who have been selected for processing. The
applicant may take the certificate to real estate agents, builders, and
sellers to verify eligibility for an RHCDS loan. The certificate will
not guarantee that adequate funds are available, but is intended to
assist applicants in locating an adequate home within their repayment
ability and reduce application processing time. The applicant will be
required to submit information on the dwelling to be financed within 90
days or the application will be withdrawn unless an extension is
granted. There will be a maximum of two 60-day extensions allowed if
the applicant is actively working on supplying the requested
information.
Time guidelines for RHCDS actions have been added. Appraisals will
generally be completed within 30 days of submission of information
requested by RHCDS. After the appraisal is completed and required loan
approval information has been received, a loan will usually be approved
within 30 days. If no funding is available, it will be held as an
approved loan until the next quarter's funding becomes available.
Sixteen comments were received as a result of the summary of
proposed revisions published as a Notice of Proposed Rule Making; eight
supported the proposal, three opposed it, and five indicated they did
not have enough information to make an evaluation. Those who supported
the proposal felt it was a positive approach, would reduce and help
manage backlogs of applications, would address the most urgent cases
according to need, would result in considerable time savings and be
less difficult to explain, and would result in greater assurance of
fund availability for Self-Help Housing applications.
Of those respondents who did not support this proposal, several
felt the proposed system had potential for discrimination, that it
would extend the selection/approval period by an additional 30 days and
there was no provision for people living in substandard housing to be
handled as a priority. It should be noted that the hardship reserve
established by the State Director does include applicants living in
substandard housing and there has been no extension of the application
selection/approval time. The Agency finds no basis for the comment
regarding the potential for discrimination.
There were also comments that the Certificate of Eligibility would
create a lot of extra work for RHCDS with little or no benefit and was
valueless since RHCDS was the lender. The certificate will provide
information on the maximum loan limit, the repayment
[[Page 25635]] ratios, and the effective interest rate based on the
applicant's projected income. It will be the responsibility of the Real
Estate Broker, contractor, or packager to work with the applicant to
find a suitable home that fits within the repayment parameters of the
certificate. RHCDS feels there is little extra work created by this
form, that it will encourage Real Estate Brokers and contractors to
work with an applicant in finding suitable housing, and would provide
for the orderly processing of loan applications.
One respondent felt that 175 percent of the allocation for loan
processing was too restrictive, and another felt that the number of
applications processed should be left to the discretion of the State
Director based on local conditions. The Agency states that 175 percent
is the minimum required and is, therefore, not restrictive. It was also
decided to make this a nationwide requirement in order to provide
consistency in the program.
A recommendation was made to retain the National Office's annual
``pooling'' of loan funds; there is no plan to eliminate this
provision. Another recommendation was made to provide for sufficient
funds in the priority reserve pool; the proposal allows the State
Director to determine the amount retained in this pool based on
historical or other data available. Other suggestions included
restricting the Certificate of Eligibility to applicants who have
submitted all information necessary for loan processing, requiring a
sales agreement for a completed application, and limiting the
Certificate of Eligibility renewal to one 90-day period.
Restricting the certificate as requested, would negate the purpose
for the form. The information on the Certificate will assist the
applicant to find suitable housing at a price the applicant can afford.
Once the house is found, data necessary for an appraisal and loan
processing is submitted to the RHCDS field office. Extensions to this
90-day period will only be granted when the applicant presents evidence
that the applicant is actively working on supplying the information
requested. There will be a maximum of two 60-day extensions allowed.
One respondent requested a definition of hardship so as to
eliminate politics, and to include persons living in substandard
housing as a hardship. The definition of hardship is left to the
discretion of the State Director on a case-by-case basis but will
include persons living in deficient housing as defined in Sec. 1944.2
for more than 6 months. The Agency feels that it would be too
restrictive to place a definition on what constitutes a hardship since
it is impossible to address every situation, but a new definition for
deficient housing has been included.
The last comment was a suggestion to separate low- and very low-
income application processing. The Agency feels this would be too
cumbersome and has not included this suggestion in the proposed rule.
Other Changes Proposed
In addition to the four issues addressed in the Advance Notice of
Proposed Rule, the Agency proposes to make the following changes in
subpart A of part 1944 regarding single family housing loans:
General
The section dealing with denial of loans and services on a
discriminatory basis has been revised to include the term ``familial
status'' as required under the Fair Housing Amendments Act of 1988.
This section has also been revised to provide that applicants for
assistance are required to identify any known relationship or
association with an RHCDS employee and provides for reasonable
accommodations for applicants with developmental disabilities as
required under the 1988 amendments to the Fair Housing Act and the
Americans with Disabilities Act of 1990. This revision also provides
for the collection of fees for real estate appraisals.
Definitions
Several new definitions have been added and some existing
definitions have been revised to more clearly describe annual payment
borrowers, certificate of eligibility, conditional commitment,
cosigners, deficient housing, elderly family, existing dwellings,
household or family, income, insurance, live-in aides, median income,
minors, monthly payment borrowers, net family assets, payment
assistance, and real estate taxes.
Loan Purposes
The proposed change incorporates the provisions of Sec. 315 of the
Housing and Community Development Act of 1987, Pub.L. 100-242, which
added Sec. 501(i) of the Housing Act of 1949; loan funds may be used to
pay loan packaging fees when the application is packaged by qualified
public or private nonprofit organizations exempt under the Internal
Revenue Code of 1986. Packaging fees are not authorized for inventory
property sales. In addition, the cost of personal liability insurance
for Self-Help Housing applicants/borrowers has been added as an
authorized loan purpose. A section has also been included to allow the
purchase of single family housing units located in Planned Unit
Developments (PUDs) under certain conditions.
Loan Restrictions
The restriction against income-producing property has been revised
to more clearly define those types of home-based operations that will
be allowed under certain conditions, such as the production of crafts,
child care facilities, etc. Small businesses which are run from the
home which do not require specifically designed features to accommodate
the enterprise will not be restricted; however, housing related
expenses which are claimed as business expense deductions for income
tax purposes, such as real estate taxes, mortgage interest, etc., will
not be allowed when determining income eligibility for RHCDS
assistance.
The restriction against packaging fees has been lifted as it
pertains to public and private non-profit organizations. Restrictions
regarding loans to former RHCDS borrowers who sold their homes within
the last 2 years have been deleted. Restrictions regarding applicants/
borrowers who have demonstrated an inability to carry out the required
obligations of the loan have been removed and transferred to the
section dealing with other eligibility requirements.
The Agency has further clarified that funds may not be used to
refinance debts on a manufactured home and that loan funds may not be
used to pay off existing RHCDS debts in lieu of an assumption.
Income
RHCDS is required by the Housing Act of 1949, as amended, to use
income definitions established by HUD; however, several definitions
have been revised or added for clarification purposes. Income
definitions have been revised to include cost of living allowances
(COLAs) or other proposed increases in income expected to take place on
or before loan approval, loan closing, or the effective date of the
payment assistance agreement. Clarification has been added regarding
allowance of deductions for verified business related expenses which
are not reimbursed for salaried employees. Revisions have been made to
allow the applicant/borrower to certify that court awarded alimony and/
or child support is not being received after all reasonable efforts for
enforcing same have been exhausted. Amounts received for educational
scholarships and allowable [[Page 25636]] deductions have been more
clearly defined. Income which a Federal statute exempts has been
removed from this section and transferred to exhibit J (available in
any RHCDS field office). Income of live-in aides is defined.
The 6-month waiting period is being removed where the spouse is
living apart from the household and separation or divorce proceedings
have not been initiated. The proposal clarifies that medical expenses
anticipated for an elderly family may be for any household member.
Income Eligibility Requirements
As noted previously, the Agency has moved from determining
repayment ability on the basis of a budget and is relying on income
ratios. As a result of the study conducted by the Agency, where ratios
do not support adequate repayment for the proposed loan, exceptions to
the use of ratios have been added where the applicant can present
evidence of meeting similar costs in similar circumstances over the
past 6 months or where the use of a budget is a better method of
determining repayment ability for a particular applicant/borrower's
circumstances. Income ratios have been defined in Sec. 1944.8(a)(3).
The proposal also clarifies the responsibilities of a cosigner on an
RHCDS loan.
Other Eligibility Requirements
The Agency has included a provision that applicants will be
expected to utilize nonessential liquid assets to reduce the amount of
loan needed. Information on verification of alien status has been
transferred to exhibit B (available in any RHCDS field office).
Credit history standards have been slightly liberalized to allow up
to two debt payments more than 30 days late within the last 12 months
and to allow one rent payment paid 30 days or more past due within the
last 2 years. In addition, the section dealing with outstanding
collection accounts has been rewritten to clarify that collection
accounts paid off within 3 months of filing an application for RHCDS
assistance will be considered as an indicator of an unacceptable credit
history unless there is a record of regular payments maintained prior
to the final payment. This clarification was necessary to prohibit
persons with unsatisfactory credit from paying off this indebtedness
for the sole purpose of obtaining an RHCDS loan.
Pursuant to the Federal Debt Collection Act of 1990, Pub. L. 101-
647 (Nov. 29, 1990), prohibits making a loan to an applicant/borrower
who has a judgment which is or could become a lien against the debtor's
property for a debt owed to the United States Government until the
judgment is paid in full or otherwise satisfied. The RHCDS
Administrator may waive this requirement upon making a determination
that it is in the best interest of the Government to do so.
In addition to referral for criminal prosecution, RHCDS plans to
debar applicants/borrowers who have falsified applications and/or
income information submitted to RHCDS for program eligibility purposes.
Applicants/borrowers who have a documented history of inability to
carry out the required obligations of a RHCDS RH loan will be denied
assistance.
Rural Areas
This section has been revised to require a ``buffer'' zone of open
space incorporated as an ineligible area when new boundaries are drawn.
Rapid growth areas and eligible areas within an Metropolitan
Statistical Area (MSA) will be reviewed for eligibility every 3 years
or more often as needed, instead of the 5-year review required for
other areas. In addition, RHCDS is now required to consult with local
planning boards, where available, at the time of each review to assure
that open spaces identified are not scheduled for development in the
near future. These changes are a direct result of recommendations made
by the Office of Inspector General (OIG) during past audits.
Site Requirements
Currently, RHCDS generally restricts financing to sites of 1 acre
or less. Due to the large number of exceptions which have been
requested, the Agency proposes to broaden its definition of an adequate
site to include those sites which cannot be subdivided into two or more
sites under current zoning ordinance requirements for the area. In
addition, the proposal clarifies the requirements for other than
central waste and water disposal systems, and requires a legally
binding agreement which allows interested third parties to enforce the
obligation of the owner/operator of privately owned water and waste/
water disposal systems to provide satisfactory service at reasonable
rates.
Ownership Requirements
Buyers and sellers under a recorded land purchase contract must
convert the purchaser's interest to a deed/mortgage or trust deed
situation prior to loan closing.
Conditions for allowable leases are simplified and changed to
require that unless the loan is guaranteed by a public agency or Indian
housing authority, the remaining term of the lease must be at least 150
percent greater than the term of the RHCDS loan. If the loan is
guaranteed by a public agency or Indian housing authority, the
remaining term must be at least 2 years longer than the repayment
period of the RHCDS loan. In no case may the remaining term of the
lease be less than 15 years.
Dwelling Requirements
All references to modest housing, characteristics of new dwellings,
dwelling designs and materials, prohibited features and amenities, and
permitted features have been removed. Homes financed must still provide
decent, safe, and sanitary housing but loan amounts will be limited to
85 percent of the HUD established mortgage limits unless an exception
is granted. In-ground swimming pools and income producing properties
are still prohibited except as discussed under loan restrictions. The
section on existing dwellings has been revised to provide for
inspections by RHCDS or disinterested third parties. Repairs to
existing dwellings will be done after loan closing and performed in
accordance with HUD Handbook 4905.1, ``1-4 Family Living Units.''
Maximum Loan Amounts
RHCDS recognizes that the revision allowing fees for appraisals as
an authorized loan purpose will likely result in the need for loan
funds in excess of the purchase price of the dwelling. Most applicants/
borrowers would not be expected to have the resources to pay this
additional cost. RHCDS believes it is necessary to allow the financing
of this fee. The Agency proposes a revision to permit loans in excess
of the appraised value or the purchase price of the dwelling (whichever
is less) for most program type loans.
The loan amount may not exceed 85 percent of the maximum dollar
limitation of section 203(b) of the National Housing Act (12 U.S.C.
1702), unless authorized by the State Director or RHCDS Administrator.
These amounts are the HUD established CAPs and are available from any
HUD office. Exceptions to these loan limits are provided for where the
existing HUD mortgage limit is insufficient to provide adequate housing
for RHCDS applicants/borrowers or where different mortgage limits exist
in adjoining areas of the same community. Exceptions have also been
provided for the needs of larger families or to accommodate a disabled
or disabled household member. [[Page 25637]]
Security Requirements
The section on mortgage insurance has been revised to clarify what
is needed in State supplements when financing is provided to a holder
of possessory rights on an American Indian reservation or State-owned
land.
The section on best mortgage obtainable has been revised to provide
that title clearance and legal services required under subpart B of
part 1927 are waived when taking a real estate mortgage to secure a
subsequent loan to an existing RHCDS borrower for minimal essential
repairs which are necessary to preserve the Government's security.
The proposed regulation contains a new provision regarding the
amount of attorney fees permitted for foreclosures on prior mortgages
when RHCDS is requested to take a subordinate lien position. The
current regulation prohibits the charge of a flat fee of more than 5
percent; the proposal will limit these costs to that customary for the
area.
The section on life estates has been revised to provide for a
guardian or conservator for the remainder interests of a person who is
not legally competent. Land purchase contracts must be converted to a
deed/mortgage situation to be considered for financing.
Refinancing Non-RHCDS Debts
This section has been renamed and the section dealing with
refinancing of RHCDS debts has been moved to the section dealing with
loan restrictions. This section has been revised to clarify that
refinancing of non-RHCDS debts is not permitted on manufactured homes.
In addition, this section has been broadened to permit refinancing of a
debt that is not currently delinquent when it is clear that the
applicant will be unable to continue to maintain payments for reasons
beyond the applicant's control, and this will likely result in the
applicant's loss of the dwelling at an early date if the debt is not
refinanced. The Agency has removed its restriction on the use of loan
funds to refinance non-RHCDS debts on building sites without a dwelling
under certain conditions.
Loans to Farm Ownership (FO), Individual Soil and Water (SW) and
Recreation (RL) Borrowers
This section has been removed from subpart A of part 1944 as being
unnecessary. There are no restrictions on such loans.
Technical Services
As noted previously, there will be an appraisal fee charged for
each application involving an appraisal. Sales of a Government-owned
inventory property do not require an appraisal, and, therefore, no
appraisal fee will be charged in these cases. This fee will be the
applicant/borrower's responsibility and may be included as a loan cost
if the applicant/borrower chooses. Appraisals will generally be
completed within 30 days of receipt of the information requested when
the Certificate of Eligibility is issued to the applicant.
The collection of appraisal fees has been waived for appraisals
done for subsequent loans being made to existing RHCDS borrowers for
minimal essential repairs necessary to protect the Government's
security.
The limit on total indebtedness necessitating a real estate
appraisal has been raised from $7,500 to $15,000. There has also been a
change to indicate that a real estate appraisal is not required when
making a loan to an existing RHCDS borrower where the existing real
estate appraisal indicates the property value is sufficient to secure
the total real estate indebtedness when the total debt, including the
planned loan, does not exceed the amount of the original loan.
Rates and Terms
This section has been revised to remove the paragraph regarding the
source of funds, reword the section on eligibility for 38-year terms,
and remove the section dealing with Repair and Rehabilitation loans.
Under the revised payment assistance method, there is no benefit in
making these loans and the authority for same is removed.
Preparation of Loan Docket
This section has been removed from the body of the instruction and
transferred to exhibit E (available in any RHCDS field office).
Loan Approval
Time guidelines have been included to provide that loans will
generally be approved within 30 days of receipt of information needed
to complete the loan docket.
Loan Closing
This section has been revised to require that all new loans will be
closed on a monthly basis with the exception of existing RHCDS
borrowers who have annual payment promissory notes.
Deferred Mortgage Payments
This section has been revised to clarify the provisions of the
program. The Agency has increased the percentage of PITI used in the
calculation to determine eligibility for deferred mortgage payments
from 20 percent of adjusted family income to 29 percent of gross annual
income. Applicants whose PITI ratio exceeds 29 percent of gross annual
income will be considered for a longer term loan; if the PITI ratio,
calculated at a 1 percent equivalent rate of interest for the maximum
loan term still exceeds 29 percent of gross annual income, the
applicant will qualify for additional subsidy in the amount of .25
percent of the payment at the 1 percent equivalent rate of interest.
Subsequent Loans
A requirement that a new credit report will be obtained for all
applicants for subsequent loans has been included. Reference has been
made to the waiver of title clearance and appraisal fees for subsequent
loans made for essential repairs as provided in Sec. Sec. 1944.18 and
1944.24.
Mutual Self-Help Housing
This section has been rewritten for clarification.
Housing Demonstration Programs
Section 1944.41 has been added to this subpart to authorize
demonstration housing programs. In the past, demonstration programs
have been utilized to study the effects of various ways to provide
housing to meet the objectives of the RHCDS RH program in ways that
could not have been accomplished otherwise based on existing
regulations. Demonstration programs will be announced prior to
implementation.
Conditional Commitments
A conditional commitment is assurance by the Agency to an owner,
qualified builder, or dealer-contractor that a dwelling offered for
sale will be acceptable for purchase by a qualified RH loan applicant
under specified limited conditions. In the past, commitments has been
limited to the construction of new housing or the rehabilitation of
existing housing. The Agency has revised this section to allow a
conditional commitment on an existing house, with or without repairs.
This will allow a seller of a home to obtain a conditional commitment
prior to finding a buyer for the property.
The loan limit for a conditional commitment is currently the
appraised value of the property, less closing costs. Based on the
revision of the maximum loan amount discussed previously, the Agency
proposes to remove the requirement that the commitment amount be
reduced by the amount of [[Page 25638]] loan closing costs. In
addition, the Agency proposes to increase the charge for a conditional
commitment fee to cover the cost of a real estate appraisal and
required inspections. The holder of the conditional commitment will be
reimbursed for the appraisal portion of the fee at the time of loan
closing in an amount equal to the appraisal fee charged to the RHCDS
loan applicant.
Existing houses will be eligible for conditional commitments to
address the needs in those areas with an abundance of existing,
eligible housing. The restriction on 15 outstanding conditional
commitments in any one County has been removed.
An exception has been incorporated under certain conditions to
allow construction to begin prior to obligation of loan funds for a
qualified loan applicant. These exceptions will generally be limited to
situations where it is necessary to begin construction because of
impending weather conditions, and it is likely that funding will be
forthcoming shortly. Under this type of exception, sales agreements
must be modified to outline the circumstances under which the loan has
been approved, and provide an option for the contractor to terminate
the sales agreement if the loan is not funded and closed within 90
days. In these situations, the conditional commitment issued on the
property to be constructed will be honored by RHCDS for the remaining
commitment period to allow the commitment holder the opportunity of
finding another eligible loan applicant. The prior RHCDS loan applicant
will be issued a Certificate of Eligibility so that the applicant may
locate another suitable dwelling.
Rural Housing Disaster Loans and Construction Financing for Builders by
Private Credit Sources
These sections have been deleted from this subpart.
Exhibits to Subpart A of Part 1944.
The exhibits to this regulation are not required to be published.
They contain administrative requirements and will be available at any
RHCDS field office upon publication of the regulation.
Other Affected Regulations
Conforming changes which are necessary to other regulations as a
result of revisions proposed to subpart A of part 1944 will be done at
publication of the Final Rule. Revisions were necessary to the
following regulations as noted, due to the revisions proposed to
subpart A of part 1944:
Subpart A of Part 1910--Receiving and Processing Applications
Section 1910.4 has been revised to remove information on what
constitutes a completed RH application and verification of information
supplied with the application and to make minor editorial changes. This
information is now contained in subpart A of part 1944 of this chapter.
Other revisions made to conform with revisions to subpart A of part
1944 of this chapter.
Subpart J of Part 1944--Section 504 Rural Housing Loans and Grants
This section has been revised to provide a definition of ``owner-
occupant,'' allow payment of environmental and tax monitoring expenses
as an authorized loan purpose, limit packaging fees to $300, and
provide for the use of a guardian or conservator for incompetent
applicants. When evaluating an applicant's personal resources to meet
their housing needs, the Agency proposes to increase the limit for
liquid assets from $5,000 to $7,500; however, excess real estate must
be included in this evaluation. In addition, subsequent loans in areas
where the designation has recently changed from rural to nonrural, will
be limited to essential repairs.
Due to the increased cost of materials and labor, the Agency has
found it difficult to remove all major health and safety hazards under
existing loan and grant limits. For this reason, the maximum amount of
section 504 loan and grant assistance has been raised; the maximum loan
outstanding to any owner/occupant may not exceed $20,000 and the
maximum lifetime grant assistance to any owner/occupant may not exceed
$7,500. In addition, the Agency has increased the amount of total
indebtedness where a real estate appraisal is required to $20,000.
Subpart G of Part 1951--Borrower Supervision, Servicing, and Collection
of Single Family Housing Loan Accounts
A new section has been added for payment assistance. Corrections,
renewals, and cancellations of payment assistance agreements and
payment assistance granted as a servicing action on existing loans will
be handled under this section.
Clarification has been added regarding the preparation of payment
assistance agreements for applicants/borrowers who claim to have no
income and situations where the coapplicant/coborrower has left the
dwelling due to domestic discord.
While loans may be made only to low- or very low-income applicants
who will receive payment assistance, this assistance will also be
available to existing RHCDS borrowers with incomes that do not exceed
the moderate income limit. Corrections on existing agreements will be
processed when information is available to indicate a change in family
income that would change the amount of authorized payment assistance in
accordance with Sec. 1944.34(c). Applicants/borrowers will be required
to present a copy of their most recently filed federal income tax
return unless exempted from filing a return.
Subpart C of Part 1965--Security Servicing for Single Family Rural
Housing Loans
Minor changes have been made to bring this instruction into line
with proposed changes to subpart A of part 1944 relative to minimum
adequate sites and modest housing.
List of Subjects in 7 CFR Parts 1910, 1944, 1951, and 1965
Accounting servicing, Administrative practice and procedure, Aged,
Applications, Credit, Grant programs--Housing and community
development, Home improvement, Loan programs--Housing and community
development, Housing standards, Low- and moderate-income housing, Low-
and moderate-income housing--rental, Low- and moderate-income housing--
Servicing, Marital status discrimination, Mobile homes, Mortgages,
Nonprofit organizations, Rural areas, Rural housing, Sex
discrimination, Subsidies.
Therefore, as proposed, Chapter XVIII, Title 7, Code of Federal
Regulations is amended as follows:
PART 1910--GENERAL
1. The authority citation for part 1910 continues to read as
follows:-
Authority: 7 U.S.C. 1989, 42 U.S.C. 1480, 5 U.S.C. 301.
Subpart A--Receiving and Processing Applications
2. Section 1910.4 (a) is revised to read as follows:
Sec. 1910.4 Processing applications.
* * * * *
(a) Completed RH applications. Completed applications are those as
described in Sec. 1944.27 of subpart A of part 1944 (copies available
in any RHCDS field office), and all applications for Rural Housing
loans will be processed as outlined in that instruction.
* * * * * [[Page 25639]]
3. Section 1910.5 is amended by revising the reference
``1944.4(c)'' to read ``1944.9.'' in the last sentence of paragraph
(c)(6) and by adding a new paragraph (e) to read as follows:
Sec. 1910.5 Evaluating applications.
* * * * *
(e) Delinquency on a Federal debt. The Department of Housing and
Urban Development's Credit Alert Interactive Voice Response System
(CAIVRS) will be used to help determine if an applicant is delinquent
on any Federal debt.
Sec. 1910.6 [Amended]
4. Section 1910.6(g) is amended in the first sentence by revising
the words ``Rural Housing'' to read ``RH'' and by revising the
reference ``Sec. 1944.26'' to read ``Sec. 1944.27.''
PART 1944--HOUSING
7. The authority citation for part 1944 continues to read as
follows:
Authority: 7 U.S.C. 1989, 42 U.S.C. 1480, 5 U.S.C. 301.
8. Subpart A of part 1944 is revised to read as follows:
Subpart A--Section 502 Rural Housing Loan Policies, Procedures, and
Authorizations
Sec.
1944.1 General.-
1944.2 Definitions.
1944.3 Loan purposes.-
1944.4 Loan restrictions.
1944.5 Annual income.
1944.6 Adjusted annual income.-
1944.7 [Reserved]-
1944.8 Income eligibility requirements.-
1944.9 Other eligibility requirements.-
1944.10 Rural area designation.-
1944.11 Site requirements.-
1944.12-1944.14 [Reserved]-
1944.15 Ownership requirements.-
1944.16 Dwelling requirements.-
1944.17 Maximum loan amounts.-
1944.18 Security requirements.-
1944.19-1944.21 [Reserved]-
1944.22 Refinancing non-RHCDS debts.-
1944.23 [Reserved]
1944.24 Technical services.-
1944.25 Rates and terms.
1944.26 Fund allocation.
1944.27 Application processing.-
1944.28-1944.30 [Reserved]
1944.31 Loan approval.
1944.32 [Reserved]
1944.33 Loan closing.-
1944.34 Payment assistance.
1944.35 Deferred mortgage payments.-
1944.36 [Reserved]
1944.37 Subsequent section 502 RH loans.-
1944.38 Mutual Self-Help Housing.-
1944.39 RH loans to RHCDS employees and loan closing officials.-
1944.40 [Reserved]-
1944.41 Housing demonstration programs.
1944.42-1944.44 [Reserved]
1944.45 Conditional commitments.-
1944.46 Appeals.
1944.47-1944.48 [Reserved]
1944.49 FmHA Instructions.
1944.50 [Reserved]
Subpart A--Section 502 Rural Housing Loan Policies, Procedures, and
Authorizations
Sec. 1944.1 General.
This Subpart sets forth the policies and procedures and delegates
authority for making section 502 Rural Housing (``RH'') loans to
individuals under title V of the Housing Act of 1949, as amended. The
objective of section 502 RH loans is to provide eligible persons who
will live in rural areas with an opportunity to own adequate but
modest, decent, safe, and sanitary dwellings and related facilities.
The requirements of subpart E of part 1901 will be applied as
appropriate. Loans and services provided under this subpart shall not
be denied to any person or applicant based on race, sex, national
origin, color, religion, marital status, familial status, age, physical
or mental disabled (applicant must possess the capacity to enter into a
legal contract for services or have a court appointed guardian/
conservator empowered to obligate the applicant in real estate
matters), receipt of income from public assistance, or because the
applicant/borrower has, in good faith, exercised any right under the
Consumer Protection Act.
(a) In compliance with the 1988 amendments to the Fair Housing Act
and the Americans with Disabilities Act of 1990, reasonable
accommodations must be given to individuals who are developmentally
disabled so that they have the opportunity to become successful
homeowners. When an applicant or an applicant's representative
indicates the existence of a disability during the loan process, e.g.
by requesting the Rural Housing and Community Development Service
(RHCDS) disability deduction to income due to mental or physical
disability or through verification of income from a Federal or state
government source because of mental or physical disability, RHCDS must
ask the applicant or the applicant's representative what reasonable
accommodations should be made in order for the loan to be processed.
The reasonable accommodation request must be provided to RHCDS by the
applicant or the applicant's representative. Reasonable accommodations
can include allowing a court appointed guardian or conservator to
execute appropriate loan making and loan closing documents on behalf of
the applicant; the court order must show that the guardian/conservator
has the power and responsibility to obligate the applicant in real
estate matters and a copy of the court order must be made a part of the
loan docket.
(b) Any processing or servicing activity conducted pursuant to this
subpart involving authorized assistance to RHCDS employees, members of
their families, known close relatives, or business or close personal
associates, is subject to the provisions of subpart D of part 1900.
Applicants for this assistance are required to identify any known
relationship or association with an RHCDS employee.
(c) RHCDS will collect fees for credit reports, real estate
appraisals, and conditional commitment applications when appropriate.
RHCDS may use its own employees or other agents or institutions in
carrying out its responsibilities under this subpart.
Sec. 1944.2 Definitions.
The following definitions apply to this subpart:
Annual payment borrowers. Borrowers who signed promissory notes
providing for annual payments, including borrowers converted to monthly
payments through the use of Form FmHA 1951-34, ``Direct Payment Plan
Change.''
Certificate of Eligibility. Certificate issued by RHCDS to
applicants who have received a final determination of eligibility after
verification of all income. Applicants can present this to real estate
agents, builders and sellers to provide their eligibility
documentation.
Conditional Commitment. Assurance from RHCDS, in exchange for a
specific fee, to an owner, qualified builder, or dealer-contractor that
a dwelling offered for sale will be acceptable for purchase by a
qualified RH loan applicant under specified limited conditions.
Cosigner. A party who joins in the execution of a promissory note
to compensate for any deficiency in the borrower's repayment. The
cosigner becomes jointly liable to comply with the terms of the note in
the event of the borrower's default, but is not entitled to any
interest in the security or borrower rights. If the security is
transferred to the cosigner, the cosigner may assume the RHCDS
indebtedness on program or nonprogram terms, as applicable.
Deficient housing. A dwelling which meets one or more of the
following conditions:
(1) Lacks complete plumbing; i.e. no bathtub or shower, wash basin,
flush toilet, or hot running water for the exclusive use of the
occupant; [[Page 25640]]
(2) Lacks adequate heating;
(3) Is physically deteriorated or structurally unsound; i.e. roof
leaks, falling plaster or sheetrock, extensive termite or wood rot
damage, dangerous electrical service; or
(4) Overcrowding situations which will be corrected after loan
closing; i.e. more than 2 persons per bedroom.
Disabled person. A person who is unable to engage in any
substantially gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or which has
lasted or is expected to last for a continuous period of not less than
12 months. The disability is expected to be of long or indefinite
duration; substantially impede his/her ability to live independently;
and is of such a nature that the person's ability to live independently
could be improved by more suitable housing conditions. In the case of
an individual who has attained the age of 55 and is blind, disability
is defined as inability by reason of such blindness to engage in any
substantially gainful activity requiring skills or abilities comparable
to those of any gainful activity in which the individual has previously
engaged with some regularity over a substantial period of time. Receipt
of veteran's benefits for disability, whether service-oriented or
otherwise, does not automatically establish disability. A disabled
person also includes a person with a developmental disability. A
developmental disability means a severe, chronic disability of a person
which:
(1) Is attributable to a mental or physical impairment or
combination of mental and physical impairments;
(2) Is manifested before the person attains age 22;
(3) Is likely to continue indefinitely;
(4) Results in substantial functional limitations in three or more
of the following areas of major life activity:
(i) Self-care,
(ii) Receptive and expressive language,
(iii) Learning,
(iv) Mobility,
(v) Self-direction,
(vi) Capacity for independent living,
(vii) Economic self-sufficiency; and
(5) Reflects the person's need for a combination and sequence of
special care, treatment, or other services which are of lifelong or
extended duration, and are individually planned and coordinated.
Elderly family. An elderly family consists of one of the following:
(1) A person who is the head, spouse or sole member of a family and
who is 62 years of age or older, or who is disabled and is the
applicant/borrower or the coapplicant/coborrower; or
(2) Two or more persons who are living together, at least one of
whom is age 62 or older, disabled and who is the applicant/borrower or
coapplicant/coborrower; or
(3) In the case of a family where the deceased borrower,
coborrower, or spouse, was at least 62 years old, disabled, the
surviving household member shall continue to be classified as an
``elderly family'' for the purpose of determining adjusted income even
though the surviving member or members may not meet the definition of
elderly family on their own, provided:
(i) They occupied the dwelling with the deceased family member at
the time of the death; and,
(ii) If one of the surviving family members is the spouse of the
deceased family member, the surviving family shall be classified as an
elderly family only until the remarriage of the surviving spouse; and,
(iii) At the time of the death of the deceased family member, the
dwelling was financed under title V of the Housing Act of 1949.
Equivalent interest rate. The interest rate charged under payment
assistance. It is determined by a comparison of the borrower's adjusted
annual income to the median income for the area where the security
property is located, based on income figures published by the
Department of Housing and Urban Development (``HUD'') as reflected in
exhibit C (available in any RHCDS field office).
Existing dwelling. A dwelling which is:
(1) More than 1 year old; or
(2) Less than 1 year old but the dwelling is covered by an approved
10-year warranty plan as described in subpart A of part 1924 and the
contractor provides complete plans and specifications, together with a
certification that construction was completed in compliance with said
plans and specifications, applicable building codes, and thermal
performance standards (``TPS'') for new construction. In addition, the
contractor must provide evidence that the contractor meets any
licensing requirements in the state and is an approved builder in good
standing under the approved 10-year warranty plan.
Extended family. A family unit comprised of adult relatives who
live together with the other members of the household, for reasons of
physical dependency, economics, and/or social custom, who, under other
circumstances, could maintain separate households. A typical example
would be parents living with their adult children.
Farm. Includes the total acreage of one or more tracts of land
which:
(1) Is owned by the applicant/borrower;
(2) Is operated as a single unit;
(3) Is in agricultural production; and
(4) Annually will produce agricultural commodities for sale and
home use with a gross annual value equivalent to $400 in 1944.
Full-time student. A person who is carrying a subject load that is
considered full-time for day students (excluding correspondence
courses) under the standards and practices of the educational
institution attended. An educational institution includes a vocational
school with a diploma or certificate program, as well as an institution
offering a college degree.
Household or family. The applicant/borrower, coapplicant/
coborrower, and all other persons who will make the applicant/
borrower's dwelling their primary residence for all or part of the next
12 months (excluding foster children placed in the home and live-in
aides). Children who are members of the family, but have been removed
and placed in foster care, will be counted as residents of the
household. Children who are subject to a joint custody agreement and
live in the unit at least 50 percent of the time are considered to be
household members.
Income. Income limits (the definitions of which are included below
in order from the lowest to the highest) are contained in exhibit C
(available in any RHCDS field office).
(1) Very-low income. An adjusted annual income that does not exceed
the very low-income limit according to size of household as established
by HUD for the county or Metropolitan Statistical Area (``MSA'') where
the property is or will be located.
(2) Low-income. An adjusted annual income greater than the very
low-income limit but that does not exceed the low income limit
according to size of household as established by HUD for the county or
MSA where the property is or will be located.
(3) Moderate-income. An adjusted annual income greater than the
low-income limit but that does not exceed the maximum limit for
moderate-income households.
(4) Above moderate-income. An adjusted annual income that exceeds
the maximum limit for moderate-income households.
Insurance. The insurance required by RHCDS as a condition of loan
approval, including fire and extended coverage [[Page 25641]] insurance
and flood insurance when applicable.
Live-in aides. Persons living in the household for the sole purpose
of providing essential care and well being for an elderly, or disabled
household member. Live-in aides cannot be related to a household member
and would not be living in the unit except to provide essential
supportive services.
Median income. An adjusted median annual income for the size of
household as established by HUD for the county or MSA where the
property is or will be located.
Metropolitan Statistical Area (MSA). MSAs are defined according to
a set of detailed standards prepared by the Federal Committee on MSAs.
An area qualifies as an MSA if it contains a city of at least 50,000
population or an urbanized area of at least 50,000 with a total
metropolitan population of at least 100,000. MSAs are defined in terms
of entire counties, except in the six New England states where they are
defined in terms of cities and towns. An MSA may also include
additional counties having strong economic and social ties to the
central county. The term Standard Metropolitan Statistical Area (SMSA)
was in use prior to the June 30, 1983, effective date of the MSA
terminology.
Minor. For the purposes of determining adjusted annual income, this
definition is restricted to persons under 18 years of age. Neither the
head of household nor spouse may be counted as a minor. Foster children
are not counted as minors for determining annual or adjusted annual
income.
Monthly payment borrowers. Borrowers who signed promissory notes
providing for payment of monthly installments.
Net family assets. Include:
(1) The value of equity in real property (other than the dwelling
or site); cash on hand; savings; checking accounts; demand deposits;
and the market value of stocks, bonds, and other forms of capital
investments, including voluntary retirement plans that are accessible
to the applicant/borrower such as individual retirement accounts
(IRAs), 401(k) plans, and Keogh accounts, as well as amounts that can
be withdrawn from other retirement and pension funds without retiring
or terminating employment, but exclude:
(i) Interests in American Indian trust land,
(ii) Cash on hand which will be used to reduce the amount of the
loan,
(iii) The value of necessary items of personal property such as
furniture and automobile,
(iv) The assets that are a part of the business, trade, or farming
operation in the case of any member of the household who is actively
engaged in such operation, and
(v) The value of a trust fund that has been established where the
trust is not revocable by, or under the control of, any member of the
household, so long as the fund continues to be held in trust.
(2) The value of any business or household assets disposed of by a
member of the household for less than fair market value (including
disposition in trust, but not in a foreclosure or bankruptcy sale)
during the 2 years preceding the date of application, in excess of the
consideration received therefor. In the case of a disposition as part
of a separation or divorce settlement, the disposition shall not be
considered to be for less than fair market value if the household
member receives important consideration not measurable in dollar terms.
Nonfarm tract. A parcel of land that is not a farm and is located
in a rural area, or a building site that is part of a farm, and which
secures an RH loan in accordance with Sec. 1944.18(b)(10).
Place. An area containing a concentration of inhabitants within a
determinable unincorporated area.
Real estate taxes. Real estate taxes mean the amount of real estate
taxes and assessments estimated to be due and payable on the dwelling
and the dwelling site, reduced by the amount of any tax exemption
available to the borrower, regardless of whether such an exemption is
actually claimed. Tax exemptions may include such things as homestead
exemptions, special exemptions for low-income families, senior
citizens, veterans, and others.
Rehabilitation. Major repairs and improvements to existing
dwellings such as the installation or completion of bathroom
facilities, installation of major items of equipment, additions, or
structural changes.
Senior citizen. Is a person who is 62 years of age or older.
Town. Is a municipality similar to a city but does not include a
New England-type town which resembles a township or county in most
States.
Urban area. Either a town, village, city, place, or any associated
combination thereof which, with the immediately adjacent densely
settled areas, has a population in excess of the limits prescribed in
1944.10 (a)(2)(i) and (ii).
Sec. 1944.3 Loan purposes.
(a) A loan may be made to an eligible applicant/borrower for the
following purposes:
(1) To buy, build, rehabilitate, improve, or relocate a dwelling
and provide related facilities for use by the applicant/borrower as a
permanent residence.
(2) To buy, build, rehabilitate, improve, or relocate a dwelling,
and provide related facilities for a farm owner to provide housing to
be occupied by the farm manager, tenants, sharecroppers, or farm
laborers.
(3) To refinance secured debts or unsecured debts as provided in
Sec. 1944.22, except for manufactured homes.
(b) A loan made under paragraph (a) (1) or (2) of this section may
be used to:
(1) Purchase, in fee title, a minimum adequate site, as outlined in
Sec. 1944.11 on which the improvements are or will be located, if the
applicant/borrower does not own an adequate site.
(2) Pay reasonable acquisition costs for a leasehold interest in a
minimum adequate site at the time of making the initial RH loan.
(3) Provide an adequate and safe water supply or an adequate waste/
water disposal facility.
(4) Provide site preparation, including grading, foundation
plantings, seeding or sodding of lawns, trees, walks, yard fences, and
driveways to building sites.
(5) Purchase and install essential equipment in the dwelling
including items such as a range, refrigerator, clothes washer or
clothes dryer, if these items are normally sold with dwellings in the
area, and if purchase of these items is not the primary purpose of the
loan.
(6) Provide special design features or equipment when necessary
because of physical disability of the applicant/borrower or of a member
of the household.
(7) Purchase and install approved energy saving measures and
approved furnaces and space heaters which use a type of fuel that is
commonly used, and is economical and dependably available.
(8) Provide storm cellars and similar protective structures.
(9) Pay incidental expenses such as legal fees, costs of title
clearance, and loan closing services; appraisal, surveying,
environmental, tax monitoring, and other technical services; personal
liability insurance fees for self-help housing borrowers; and
incidental expenses authorized in exhibit G (available in any RHCDS
field office).
(10) Pay lender fees and points in connection with participation
loans, (except as provided in Sec. 1944.4), which are customary,
reasonable, and do not exceed the amount typical for the area.
(11) Pay reasonable connection fees for utilities such as water,
sewer, electricity and gas, which are required [[Page 25642]] to be
paid by the borrower and which cannot be paid from other funds.
(12) Pay the borrower's share of Social Security taxes for labor
hired by the borrower in connection with making the planned
improvements.
(13) Pay real estate taxes which are due and payable on the
building and site owned by the applicant at the time of closing an
initial loan, if this amount is not a part of the loan.
(14) Establish escrow accounts for the payment of real estate taxes
or property insurance premiums in those States where the use of escrow
accounts is authorized by the National Office.
(15) Provide living area for all members of the applicant/
borrower's household, including ``extended family.''
(16) Finance the purchase of single family housing units located in
a Planned Unit Development with a Homeowners' Association that has
employed professional management, with prior National Office approval.
(17) Pay fees for the development and packaging of loan
applications and related actions to public and private nonprofit
organizations which are tax exempt under the Internal Revenue Code of
1986 (except when restricted under Sec. 1944.4) when:
(i) The loan has been packaged in accordance with exhibit A to FmHA
instruction 1944-A (available in any RHCDS field office) and the
limitations of Sec. 1944.17, and
(ii) The charges are reasonable considering:
(A) The amount and purpose of the assistance,
(B) The repayment ability of the recipient, and
(C) The cost of similar services in the same or a similar rural
area.--
(iii) The State Director may issue a State Supplement outlining
what is considered a reasonable amount for his/her jurisdiction.
Sec. 19 44.4 Loan restrictions.
Loan funds may not be used to:
(a) Make a new loan to pay off existing RHCDS debts in lieu of a
transfer with assumption.
(b) Refinance:
(1) RHCDS debts, except as authorized under Sec. 1951.318.
(2) Debts on a manufactured home.
(c) Purchase or improve income-producing land, or buildings to be
used principally for income-producing purposes, or buildings not
essential for RH purposes, or buy or build buildings which are either
largely, or in part, specifically designed to accommodate a business or
income-producing enterprise. (Home based operations such as child care,
home/beauty product sales, the production of crafts, etc., that do not
require specifically designed features to accommodate the enterprise,
are not restricted under this subpart; however, housing related
expenses such as mortgage interest, real estate taxes, and insurance,
which may be claimed as business expense deductions for income tax
purposes, will not be allowed when determining annual income for RHCDS
assistance.)
(d) Pay fees, charges, or commissions, such as finders' fees, fees
for packaging the application (except as provided in Sec. 1944.3), or
placement fees for the referral of a prospective applicant to RHCDS.
(e) Pay packaging fees (as provided under Sec. 1944.3) for the
purchase of an RHCDS inventory property or where the packager is
receiving a grant under subpart B of part 1944.
(f) Improve the entry of a homestead entryman or desert entryman
prior to receipt of patent.
(g) Finance manufactured homes which are not constructed and
installed in accordance with exhibit F to FmHA instruction 1944-A and
exhibit J of subpart A of part 1924. (Both exhibits are available in
any RHCDS field office.)
Sec. 1944.5 Annual income.
Annual income determinations will be thoroughly documented in the
case file. Historical data based on the past 12 months or last fiscal
year may be used if a determination of expected income cannot logically
be made. Annual income will be calculated as follows: -
(a) Current verified income, either part-time or full-time,
received by the applicant/borrower and all adult members of the
household including the spouse is derived by multiplying:
(1) An hourly wage by 2080 hours (for part-time employment use
anticipated annual hours); or
(2) A weekly wage by 52 weeks; or
(3) A biweekly wage by 26 weeks; or
(4) A monthly wage by 12 months.
(b) If the spouse or any other adult member of the household is not
presently employed but there is a recent history of such employment,
that person's income will be projected unless the applicant/borrower or
the person involved signs a statement that the person is not presently
employed and does not intend to resume employment in the foreseeable
future, or, if payment assistance is involved, during the term of the
payment assistance agreement.
(c) Income from such sources as seasonal work of less than 12
months duration, commissions, overtime, bonuses, and unemployment
compensation will be computed as the estimated annual amount of such
income for the ensuing 12 months. Temporary income such as unemployment
benefits, worker's compensation, etc., will be projected over 12 months
when computing payment assistance on an annual basis. Historical data
based on the past 12 months may be used if a determination of expected
income cannot logically be made.
(d) The following are included in annual income:
(1) The gross amount, before any payroll deductions, of wages and
salaries, overtime pay, commissions, fees, tips, bonuses, and other
compensations for personal services of all adult members of the
household. If a cost of living allowance or a proposed increase in
income has been estimated to take place on or before loan approval,
loan closing, or the effective date of the payment assistance
agreement, it will be included as income.
(2) The net income from the operation of a farm, business, or
profession. The following provisions apply:
(i) Expenditures for business or farm expansion, capital
improvements, or payments of principal on capital indebtedness shall
not be used as deductions in determining income. A deduction is allowed
in the manner prescribed by Internal Revenue Service (IRS) regulations
only for interest paid in amortizing capital indebtedness.
(ii) Farm and nonfarm business losses are considered ``0'' in
determining annual income.
(iii) A deduction, based on straight line depreciation, is allowed
in the manner prescribed by IRS regulations for the exhaustion, wear
and tear, and obsolescence of depreciable property used in the
operation of a trade, farm, or business by a member of the household.
The deduction must be based on an itemized schedule showing the amount
of straight line depreciation actually claimed for Federal income tax
purposes.
(iv) Any withdrawal of cash or assets from the operation of a farm,
business, or profession will be included in income, except to the
extent the withdrawal is reimbursement of cash or assets invested in
the operation by a member of the household.
(v) A deduction is allowed for verified business expenses, such as
lodging, meals, and fuel, for overnight business trips made by salaried
employees, such as long-distance truck drivers, who must meet these
expenses without reimbursement.
(vi) Housing related expenses for the property being financed such
as [[Page 25643]] mortgage interest, real estate taxes, and insurance,
which may be claimed as business expense deductions for income tax
purposes, will not be deducted from annual income.
(3) Interest, dividends, and other net income of any kind from real
or personal property, including:
(i) The share received by adult members of the household from
income distributed from a trust fund.
(ii) Any withdrawal of cash or assets from an investment except to
the extent the withdrawal is reimbursement of cash or assets invested
by a member of the household.
(iii) Where the household has net family assets, as defined in
Sec. 1944.2, in excess of $5,000, the greater of the actual income
derived from all net family assets or a percentage of the value of such
assets based on the current passbook savings rate, as determined by
RHCDS.
(4) The full amount of periodic payments received from Social
Security (including Social Security received by adults on behalf of
minors or by minors intended for their own support), annuities,
insurance policies, retirement funds, pensions, disability or death
benefits, and other similar types of periodic receipts. Amounts
received from the United States Government which are attributable to
underpayment of benefits for one or more prior months shall be excluded
in the calculation of annual income as provided in 42 U.S.C. 1382b.
(5) Payments in lieu of earnings, such as unemployment and
disability compensation, worker's compensation, and severance pay.
(6) Public assistance except as indicated in exhibit J to FmHA
instruction 1994-A (available in any RHCDS field office).
(7) Periodic allowances, such as:
(i) Alimony and child support awarded in a divorce decree or
separation agreement, unless the applicant/borrower certifies the
payments are not received, and the applicant/borrower provides
documentation to RHCDS that a reasonable effort has been made to
collect the payments through the official entity responsible for
enforcing such payments; or
(ii) Recurring monetary gifts or contributions from someone who is
not a member of the household.
(8) Any amount of educational grants or scholarships or Veterans
Administration (VA) benefits available for subsistence after deducting
expenses for tuition, fees, books, and equipment.
(9) All regular pay, special pay (except for persons exposed to
hostile fire), and allowances of a member of the armed forces who is
the applicant/borrower or spouse, whether or not that family member
lives in the home.
(e) The following are not included in annual income but will be
considered in determining repayment ability:
(1) Income over $1,000 from employment of minors (including foster
children) under 18 years of age. The applicant/borrower, coapplicant/
coborrower, or spouse may never be considered minors.
(2) Payments received for the care of foster children.
(3) The income of an applicant/borrower's spouse, when the spouse
has been living apart from the applicant/borrower (for reasons other
than military or work assignment), or court proceedings for divorce or
legal separation have been commenced.
(4) Casual, sporadic, or irregular cash gifts.
(5) Lump-sum additions to family assets such as inheritances,
capital gains, insurance payments included under health, accident,
hazard, or worker's compensation policies, and settlements for personal
or property losses (except as provided in paragraph (d)(5) of this
section).
(6) Amounts which are granted specifically for, or in reimbursement
of, the cost of medical expenses.
(7) The full amount of student financial assistance paid directly
to the student or to the educational institution;
(8) Reparation payments paid by a foreign government arising out of
the Holocaust. If an applicant for an RHCDS loan was deemed ineligible
because the applicant's income exceeded the low income (moderate income
for guaranteed loans) because of the applicant's Nazi persecution
benefits, the RHCDS approval official should notify the applicant to
reapply for a loan.
(9) Any earned income tax credit will not be counted as part of
annual income, but will remain part of the applicant's income for
purposes of repayment ability.
(10) Any other revenue which a Federal statute exempts shall not be
considered income or used as a basis for determining eligibility for an
RHCDS loan, payment assistance, or denying or reducing Federal
financial assistance or benefits to which the recipient would otherwise
be entitled. For information on additional financial assistance which
is considered exempt income under Federal statutes, refer to exhibit J
(available in any RHCDS field office).
(f) Income of live-in aides as described in Sec. 1944.2, will not
be counted when calculating annual income and will not be considered in
determination of repayment ability.
Sec. 1944.6 Adjusted annual income.
Adjusted annual income is annual income as determined in
Sec. 1944.5 less the following:
(a) A deduction of $480 for each member of the family residing in
the household, as defined by Sec. 1944.2, other than the applicant/
borrower, coapplicant/coborrower, or spouse who is:
(1) Under 18 years of age; or
(2) Eighteen years of age or older and is disabled as defined in
Sec. 1944.2; or
(3) A full-time student aged 18 or older.
(b) A deduction of $400 for any elderly family as defined in
Sec. 1944.2.
(c) A deduction for the care of minors 12 years of age or under, to
the extent necessary to enable a member of the applicant/borrower's
family to be gainfully employed or to further his/her education. The
deduction will be based only on monies reasonably anticipated to be
paid for care services and, if caused by employment, must not exceed
the amount of income received from such employment. Payments for these
services may not be made to persons whom the applicant/borrower is
entitled to claim as dependents for income tax purposes.
(d) A deduction of the amount by which the aggregate of the
following expenses of the household exceeds 3 percent of gross annual
income:
(1) Medical expenses for any elderly family as defined in
Sec. 1944.2. This includes medical expenses, for any household member,
the applicant/borrower anticipates incurring over the ensuing 12 months
which are not covered by insurance. Examples of medical expenses are
dental expenses, prescription medicines, medical insurance premiums,
eyeglasses, hearing aids and batteries, the cost of home nursing care,
the costs of transportation to and from medical treatment, monthly
payments on accumulated major medical bills, and cost of full-time
nursing or institutional care which cannot be provided in the home for
a member of the household; and
(2) Reasonable attendant care and auxiliary apparatus expenses for
each disabled member of any household to the extent necessary to enable
any member of such household (including such disabled member) to be
employed.
Sec. 1944.7 [Reserved]
Sec. 1944.8 Income eligibility requirements.
(a) Repayment Ability. An applicant/borrower is eligible for a
section 502 RH [[Page 25644]] loan only if the following requirements
are met:
(1) Income limit. The adjusted annual income as defined in
Sec. 1944.6 at the time of loan approval does not exceed the applicable
income limit in exhibit C to FMHA instruction 1944-A (available in any
RHCDS field office).
(2) Adequate and dependable income. The applicant/borrower (and
coapplicant/coborrower, if applicable), has adequate and dependably
available income. The determination of income dependability will
include consideration of the applicant/borrower's past history of
annual income and/or the history of the typical annual income of others
in the area with similar types of employment. Such income must be
sufficient to meet the income ratios described in Sec. 1944.8(a)(3), as
modified by Sec. Sec. 1944.34 and 1944.35.
(3) Determining repayment ability. In considering whether the
applicant/borrower has adequate repayment ability, RHCDS must calculate
the principal, interest, taxes, and insurance (PITI) and monthly
obligation to income (MOTI) ratios. The PITI ratio is calculated by
dividing the monthly PITI for the proposed loan (less any payment
assistance for which the applicant/borrower may qualify) by the gross
monthly family income. The MOTI ratio is calculated by dividing the
applicant/borrower's monthly obligations by total gross monthly family
income.
(i) Monthly obligation consists of the PITI for the proposed loan
(less any payment assistance for which the applicant/borrower may
qualify), homeowner and other assessments, and long term obligations.
Long term obligations include those obligations such as alimony, child
support, child care, and other obligations with a remaining repayment
period of more than 6 months, other shorter term obligations that are
considered to have a significant impact on repayment ability, plus 5
percent of the current balance on all revolving credit cards.
(ii) Income, for the purpose of determining these ratios, includes
the total gross monthly income of the applicant/borrower, coapplicant/
coborrower, and any other member of the household who will be a party
to the note, including any income that may be excepted under
Sec. 1944.5.
(iii) The applicant/borrower is considered to have repayment
ability when the proposed PITI and MOTI ratios are less than or equal
to a PITI ratio of 29 percent and a MOTI ratio of 41 percent as defined
in Sec. 1944.8(a)(3). Applicants whose PITI ratio exceeds the ratio
shall be considered for deferred mortgage assistance as provided in
Sec. 1944.35.
(iv) When the ratios do not support repayment of the proposed loan,
at the applicant/borrower's request, RHCDS may make an exception to the
above income ratio calculations under the following circumstances or
compensating factors:
(A) When the applicant presents documented evidence of having met
housing related costs in the past 6 months that are equal to or greater
than the projected housing costs after approval of the proposed loan.
These housing costs must have been maintained when the applicant's
household income was equal to or less than the current annual income,
and the applicant's household debt load was equal to or greater than
the current debt load. Projected housing costs will include the RHCDS
monthly payment after application of any payment assistance for which
the applicant may qualify, projected real estate taxes and assessments,
premiums for required property and/or flood insurance, estimated
utility and maintenance costs, and any other costs expected to be
incurred with home ownership.
(B) When the applicant/borrower presents evidence that, due to
unusual circumstances a budget form should be utilized to determine
repayment ability in lieu of repayment ratios. In these circumstances,
a budget will be prepared jointly between RHCDS and the applicant/
borrower to determine the applicant/borrower's repayment ability.
(b) Additional coapplicant. Applicants/borrowers applying who do
not meet the requirements of paragraph (a)(2) of this section will be
considered ineligible unless other adults in the household have
adequate income and wish to join in the application as a coapplicant.
The combined incomes and obligations shall then be considered in
determining repayment ability.
(c) Cosigner. RHCDS will also consider the use of a cosigner when
the applicant/borrower applying for assistance does not meet the
requirements of paragraph (a)(2) of this section. Cosigners must have
adequate and dependably available income sufficient to repay any
deficit in the applicant/borrower's repayment ability. Cosigners are
subject to the same determination of repayment ability outlined in
paragraph (a)(3) of this section as the applicant/borrower, with the
amount of the applicant/borrower's repayment deficiency considered as
part of the cosigner's PITI ratio. The cosigner may be an individual or
an entity but may not be a member of the applicant/borrower's
household.
Sec. 1944.9 Other eligibility requirements.
In addition to the income eligibility requirements of Sec. 1944.8
the applicant/borrower must:
(a) Qualify as one of the following:
(1) A person who does not own a dwelling (except for refinancing
purposes), or owns a dwelling which is not structurally sound,
functionally adequate, or large enough to accommodate the needs of the
applicant/borrower, or,
(2) A farmowner without decent, safe, and sanitary housing for the
farmowner's own use or for the use of farm tenants, sharecroppers, farm
laborers, or farm manager.
(b) Be without sufficient resources to provide the necessary
housing or related facilities, and be unable to secure the necessary
credit from other sources upon terms and conditions which the
applicant/borrower could reasonably be expected to fulfill. If the
applicant/borrower has only an undivided interest in the land to be
improved, those co-owners whose execution of the mortgage is required
under Sec. 1944.18(b)(8) must also be unable to provide the improvement
with their own resources or obtain the necessary credit elsewhere,
either individually or jointly with the applicant/borrower. Applicants/
borrowers are expected to reduce the need for loan funds by utilizing
available nonessential assets and/or cash on hand; however, IRAs, SEPs,
401(k) plans, and similar personal retirement accounts do not have to
be liquidated when considering other resources. Reasonable reserves may
be retained for unforeseen events.
(c) Be a natural person (individual) who resides as a citizen in
any of the 50 states, the Commonwealth of Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, the Commonwealth of the Northern
Marianas, the Federated States of Micronesia, the Republic of Palau, or
the Republic of the Marshall Islands, or a noncitizen who resides in
one of the foregoing areas after being legally admitted for permanent
residence or on parole. An applicant who indicates that the applicant
is not a United States citizen on the application is required to submit
evidence that the applicant has been lawfully admitted to the country
as a permanent resident. Exhibit B (available in any RHCDS field
office) provides additional information for evaluating alien status for
these applicants. Verification is only required when the applicant
indicates the applicant is not a U.S. citizen.
(d) Possess legal capacity to incur the loan obligation (or have a
court appointed guardian/conservator who is [[Page 25645]] empowered to
obligate the applicant in real estate matters), and have reached the
legal age of majority in the state, or have had the disability of
minority removed.
(e) Have the potential ability to personally occupy the home on a
permanent basis. Due to the probability of moving after graduation,
full-time students will not be granted loans unless:
(1) The applicant intends to make the home a permanent residence
and there are reasonable prospects that employment will be available in
the area after graduation and
(2) An adult member of the household will be available to make
inspections if the home is being constructed and to sign checks for
work performed.
(f) Have a credit history which indicates a reasonable ability and
willingness to meet obligations as they become due.
(1) Any or all of the following are indicators of an unacceptable
credit history unless RHCDS determines that the cause was beyond the
applicant/borrower's control (except for Federal judgments described in
paragraph (f)(1)(i) of this section), and satisfies the criteria in
paragraph (f)(3) of this section:
(i) An outstanding judgment obtained by the United States in a
Federal Court (other than the United States Tax Court), which has been
recorded, shall cause the applicant to be ineligible for any loan or
grant until the judgment is paid in full or otherwise satisfied. RHCDS
loan or grant funds may not be used to satisfy the judgment. Questions
regarding whether or not a judgment is still outstanding should be
directed to the Office of the General Counsel. The Administrator may
waive the rejection of an application based on verification of an
outstanding Federal judgment upon specific determination that it is in
the best interest of the Government to do so. Verification of
delinquent Federal debt and processing of applications with such debt
must comply with Sec. 1944.27(b)(4).
(ii) Incidents of more than two secured or unsecured debt payments
being more than 30 days late if the incidents have occurred within the
last 12 months. This includes more than two late payments on a single
account. Instances of more than two late payments may be waived in the
event that the RHCDS loan will result in a significant reduction in
shelter costs, which will contribute to improved debt payment ability.
(iii) Loss of security due to a foreclosure if the foreclosure has
been completed within the last 36 months.
(iv) An outstanding IRS tax lien.
(v) Other outstanding tax liens with no satisfactory arrangements
for payments.
(vi) A court-created or affirmed obligation (judgment), caused by
non-payment, that is currently outstanding or has been outstanding
within the last 12 months, not including hospital or state motor
vehicle liens described under Sec. 1944.17.
(vii) Two or more rent payments paid 30 days or more past due, that
have occurred within the last 2 years. Notwithstanding the previous
sentence, if there have been no other credit problems in the
applicant's last two year's general credit history, only the past
rental year will be considered. Instances of more than two late
payments may be waived in the event that the RHCDS loan will result in
a significant reduction in shelter costs, which will contribute to
improved debt payment capability.
(viii) Accounts which have been converted to collections within the
last 12 months (utility bills, medical debts, etc.).
(ix) Collection accounts outstanding with no satisfactory,
reasonable arrangements for repayment, or collection accounts which
have been outstanding within the last 12 months which were paid in full
within 3 months of filing an application for RHCDS assistance, where
there is no record of regular payment being maintained on the account
prior to receipt of the final payment.
(x) Non-RHCDS debts written off within the last 36 months.
(xi) RHCDS debts which were debt settled pursuant to subpart B of
part 1956, or by release from personal liability under subpart A of
part 1955 or subpart C of part 1965, or debt settlement is being
considered except where the conditions of Sec. 1944.9(g) can be met.
(2) The following will not indicate an unacceptable credit history:
(i) ``No history'' of credit transactions by the applicant/
borrower.
(ii) A bankruptcy in which the applicant received a discharge more
than 36 months before the date of application.
(iii) A satisfied judgment, or foreclosure with no monetary loss
which was completed more than 12 months before the date of application.
(3) When an applicant/borrower has an unacceptable credit history,
an exception may be considered by the loan approval official (except
for Federal judgments described in paragraph (f)(1)(i) of this section)
when the applicant/borrower provides documentation that:
(i) The circumstances were of a temporary nature, were beyond the
applicant/borrower's control, and have been removed. Examples: loss of
job; delay or reduction in benefits, or other loss of income; increased
expenses due to illness, death, etc.
(ii) The adverse action or delinquency was the result of a refusal
to make full payment because of defective goods or services or as a
result of some other justifiable dispute relating to the goods or
services purchased or contracted for.
(4) Applicants will be advised of adverse credit which is
discovered as a result of an on-line profile credit report at the time
of application and will be provided the telephone number and address of
the credit repository so that the applicant may contact the repository
directly to correct the negative or incorrect information or discuss
the circumstances of the credit problem with the RHCDS staff.
Applicants will not be rejected on the basis of information contained
in an on-line credit report; however, once a full written credit report
is received by RHCDS, it will be the responsibility of the applicant/
borrower to work directly with the credit repository to correct any
erroneous credit bureau records. The credit history cannot be
determined satisfactory until:
(i) The credit repository issues a corrected report, showing that
the error has been removed, or
(ii) The credit repository has not issued a corrected report within
30 days of the applicant's submission of disputed credit information
but the applicant/borrower submits conclusive proof, acceptable to
RHCDS, that the report is in error, such as creditor correspondence,
court documents, etc.
(g) Meet the following conditions if the applicant had any previous
RHCDS debt settled pursuant to subpart B of part 1956, or by release
from personal liability under subpart A of part 1955 or subpart C of
part 1965, or debt settlement is being considered:
(1) RHCDS must determine that failure to pay the debt was the
result of circumstances beyond the applicant's control, or the
conditions which necessitated the debt settlement or release, other
than weather hazards, disasters, or price fluctuations, have been or
will be removed by making the loan, and
(2) Before causing the applicant to incur any expense in connection
with the loan, with the exception of the cost of a credit report, RHCDS
must determine the applicant's eligibility and notify the applicant of
same. [[Page 25646]]
(h) Have the ability to carry out the required obligations of the
loan. If the applicant has demonstrated inability to do so by recent
failure to maintain a former residence in a habitable and responsible
manner, or by unauthorized conversion or alteration of the structure,
or by creating a public nuisance in or around a former residence, RHCDS
must determine that the reasons contributing to such inability have
been removed and are not likely to recur.
(i) Provide accurate and truthful application and financial
information to RHCDS at the time of application. Applicants who have
failed to fully disclose financial and application information will be
denied program assistance.
Sec. 1944.10 Rural area designation.
(a) For the purposes of this subpart, a rural area is:
(1) Open country which is not part of or associated with an urban
area.
(2) Any town, village, city, or place, including the immediately
adjacent densely settled area, which is not part of or associated with
an urban area and which:
(i) Has a population not in excess of 10,000 if it is rural in
character, or
(ii) Has a population in excess of 10,000 but not in excess of
20,000, and
(A) Is not contained within an MSA, and
(B) Has a serious lack of mortgage credit for low- and moderate-
income households as determined by the Secretary of Agriculture and the
Secretary of HUD.
(3) An area classified as a rural area prior to October 1, 1990,
(even if within an MSA), with a population exceeding 10,000, but not in
excess of 25,000, which is rural in character, and has a serious lack
of mortgage credit for low- and moderate-income families. This is
effective through receipt of census data for the year 2000.
(b) A determination that open country, or any town, village, city,
or place is not part of or associated with an urban area must include a
finding that any densely populated section of the area in question is
separated from the densely populated section of any adjacent urban area
by open spaces. Open spaces include undeveloped, agricultural, or
sparsely settled areas. Other spaces such as physical barriers (e.g.,
rivers, canals), public parks, commercial and industrial developments,
small areas reserved for recreational purposes, recognized open spaces
for which development is planned, and similar nonresidential areas, are
not considered open spaces for the purpose of this program. RHCDS files
must contain documentation that local planning boards, where available,
were contacted at the time of each review to verify that areas
considered as open spaces are not scheduled for development in the next
5 years.
(c) Two or more towns, villages, cities, and places may have
contiguous boundaries, and each be considered separately if they are
not otherwise associated with each other, and their densely populated
areas are not contiguous, as determined after consideration of
paragraphs (a) and (b) of this section.
(d) Population count in any area will be taken from the decennial
U.S. Census of Population, national population updates published by the
Bureau of the Census, any special population census conducted by the
Bureau of the Census, and the following:
(1) Significant new development on the periphery of ineligible
areas which requires a change in boundaries.
(2) Redesignation of corporate limits by local authorities which
affects the eligibility status of an area.
(e) In determining population count for area eligibility,
consideration must be given to developed areas in counties or states
which are contiguous to, and, therefore, a part of developed areas in
other counties or states. This determination must be made in agreement
between the State Directors concerned.
(f) In order to ensure that the RH program is limited to eligible
areas, RHCDS will periodically review areas under their jurisdiction.
If the review shows that an area is not rural, RHCDS will limit the RH
program in that area after the date of the decision, to the loan
purposes prescribed in paragraph
(i) of this section.
(g) [Reserved]
(h) [Reserved]
(i) If an area designation is changed from rural to nonrural, loans
may be made only in the following instances:
(1) Applications received by RHCDS prior to the change of
designation may be processed.
(2) New conditional commitments may be issued and existing
conditional commitments will be honored only in conjunction with the
approval of RH loan applications which were received prior to the date
the area was designated nonrural.
(3) Inventory property sales and transfers by assumption may be
processed in such areas as authorized by Sec. 1955.103(q) or
Sec. 1965.126, respectively.
(4) Subsequent loans may be made on property in an area where the
designation was changed from rural to nonrural after the initial loan
was made:
(i) To make necessary repairs.
(ii) To pay equity in connection with an assumption and transfer of
an RH loan.
Sec. 1944.11 Site requirements.
(a) Location. The property on which the loan is made must be
located on a farm, or in a designated rural area as defined in
Sec. 1944.10, or in an area where the designation has been changed as
provided in Sec. 1944.10(i) and must also meet the requirements of
subpart G of part 1940. A nonfarm tract to be purchased or improved
with loan funds must not include farm service buildings.
(b) Access. The property must be contiguous to and have direct
access from a street, road, or driveway that meets the applicable
requirements of Sec. 1924.115(b) (Site access).
(c) Minimum adequate site. A nonfarm tract on which a loan is to be
made must have an adequate water and/or wastewater disposal system,
other related facilities, and a yard, or those items must be provided
with loan funds. The site must be of a size that it cannot be
subdivided into two or more adequate sites under existing zoning
ordinance requirements for the area.
(1) When the site is served by a centrally owned and operated water
and/or wastewater disposal system, the system must meet the applicable
water and wastewater disposal system requirements of subpart C of part
1924 as well as the design requirements of the state Department of
Health or comparable reviewing and regulatory agency.
(2) Written verification must be obtained from the regulatory
agency that the wastewater disposal systems comply with the Safe Water
Drinking Act and the Clean Water Act, respectively. There must be
assurance of continuous service at reasonable rates for central water
and wastewater disposal systems. A system owned or operated by a
private party must have a legally irrevocable agreement which allows
interested third parties to enforce the obligation of the operator to
provide satisfactory service at reasonable rates.
Secs. 1944.12-1944.14 [Reserved]
Sec. 1944.15 Ownership requirements.
(a) After the loan is closed, the borrower must have an interest in
the property to be purchased, improved, or refinanced, which qualifies
as one of the following:
(1) Full marketable title.
(2) The buyer and the seller will convert the purchaser's interest
under a [[Page 25647]] recorded land purchase contract to a deed/
mortgage situation with full marketable title prior to loan closing.
(3) An undivided fee interest if the co-owners meet the security
requirements imposed by Sec. 1944.18(b)(8).
(4) A life estate interest with rights of present possession,
control, and beneficial use of the property if the remaindermen meet
the security requirements imposed by Sec. 1944.18(b)(9).
(5) Leasehold interest if all of the following conditions are met:
(i) The applicant/borrower is unable to obtain fee title to the
property and the rent charged for the lease does not exceed the rate
being paid for similar leases.
(ii) The lessor owns the fee simple title. This paragraph does not
apply to American Indians with leasehold interests on tribal allotted
or trust land.
(iii) Neither the leasehold nor the fee simple title is subject to
a prior lien, unless RHCDS authorizes acceptance of the prior lien
prior to approval of the loan. The amount of the RH loan plus any prior
liens shall not exceed the market value of the leasehold.
(iv) The written lease contains the following provisions:
(A) The lessor's consent to the RH mortgage.
(B) Reasonable security of tenure. The borrower's interest must not
be subject to summary forfeiture or cancellation.
(C) The right of RHCDS to foreclose the RH mortgage and sell
without restrictions that would adversely affect the market value of
the security.
(D) The right of RHCDS to bid at foreclosure sale or to accept
voluntary conveyance of the security in lieu of foreclosure.
(E) The right of RHCDS, after acquiring the leasehold through
foreclosure or voluntary conveyance in lieu of foreclosure, or in event
of abandonment by the borrower, to occupy the property or sublet it,
and to sell for cash or credit. In case of an inventory property sale
of the leasehold, the right of RHCDS to take a mortgage with rights
similar to those under the original RH mortgage.
(F) The right of the borrower, in the event of default or inability
to continue with the lease and the RH loan, to transfer the leasehold,
subject to the RH mortgage, to an eligible transferee with assumption
of the RH debt.
(G) Advance written notice of at least 90 days to RHCDS of lessor's
intention to cancel or terminate the lease.
(H) Negotiated provisions as to the liability of RHCDS for unpaid
rentals or other charges accrued at the time RHCDS acquires possession
of the property or title to the leasehold, and those which become due
during RHCDS's possession or ownership, pending further servicing or
liquidation.
(I) [Reserved]
(v) An unexpired term which is at least 150 percent of the term of
the RHCDS loan, unless the RHCDS loan is guaranteed by a public
authority, Indian tribe, or Indian Housing Authority, in which case the
unexpired term of the lease must be at least 2 years longer than the
repayment period of the loan; provided that: in no case may the
unexpired term of the lease be less than 15 years.
(6) Possessory rights on an American Indian reservation or State-
owned land if the security requirements imposed by Sec. 1944.18 are
met.
(7) The interest of an American Indian in land held in severalty
under trust patents or deeds containing restrictions against alienation
if the security requirements imposed by Sec. 1944.18(b)(3) are met.
(b) If an applicant's title to any part of the property does not
qualify as an ownership interest under paragraph (a) of this section,
an RH loan may nevertheless be made, if:
(1) The defect cannot be cured at a reasonable cost, and
(2) No improvements to be constructed or repaired with loan funds
will be located on the parcel to which title is defective, and
(3) No security value will be accorded to the parcel to which title
is defective.
Sec. 1944.16 Dwelling Requirements.
Dwellings financed must provide decent, safe, and sanitary housing.
Costs of dwellings financed cannot exceed 85 percent of the maximum
dollar limitation established under section 203(b) of the National
Housing Act (12 U.S.C. Sec. 1702) (available from any HUD office)
unless authorized by RHCDS under Sec. 1944.17(g). Loans shall not be
approved for dwellings containing in-ground swimming pools or
structures designed for income-producing facilities or purposes.
(a) New dwellings. Construction must meet the requirements
contained in subpart A of part 1924 as well as the thermal performance
standards for new construction outlined in exhibit D of subpart A of
part 1924.
(b) Existing dwellings. Consideration should be given to financing
existing dwellings in areas with a good supply of competitively priced,
suitable housing. Homes financed should be affordable to the applicant/
borrower, including operating and maintenance costs.
(1) Loans will not be made on an existing manufactured home unless
it is already financed by RHCDS or is being sold from RHCDS inventory.
(2) Existing homes, including those already in the program, must be
inspected by RHCDS or by a disinterested third party inspector to
determine that the dwelling meets the criteria outlined in paragraphs
(b)(2)(i), (ii), and (iii) of this section. The sales agreement must
identify the party (i.e., purchaser or seller) who has accepted
responsibility for obtaining and paying for these inspections and
certifications. Inspections are not required on public water and
wastewater disposal systems. RHCDS inventory property will be inspected
and repaired in accordance with the subpart B of part 1955. The
inspector will:
(i) Determine that the dwelling is structurally sound, functionally
adequate, in good repair, or will be placed in good repair with loan
funds, and meets the ``General'' requirements in Guide 2 of subpart A
of part 1924 (available in any RHCDS field office).
(ii) Certify that the dwelling meets thermal performance standards
for existing dwellings required in exhibit D of subpart A of part 1924.
(iii) Certify that the dwelling has adequate electrical, heating,
plumbing, water, and wastewater disposal systems, and is free of
termites and other wood damaging pests and organisms.
(c) Repairs. Any dwelling repaired with RH funds must be
structurally sound, functionally adequate, and be placed in good repair
with loan funds. If the loan is not more than $7,500 and is scheduled
for repayment in not more than 15 years from the date of the note, the
dwelling may lack some equipment or features such as a complete bath,
kitchen cabinets, closets, or completed finished interior in some
rooms. Such dwellings must meet the housing needs of the applicant/
borrower and provide decent, safe, and sanitary living conditions when
the improvements financed with the loan are completed. Repairs required
as a condition of loan approval will be performed in accordance with
HUD Handbook 4905.1, ``1-4 Family Living Units'' (available in any
RHCDS field office), after loan closing. Repairs on manufactured homes
are limited to those financed by a subsequent loan for existing homes
currently financed with a section 502 RH loan, inventory property
sales, and transfers.
(d) Improvements. Improvements financed with loan funds must be on
land which, after loan closing, is part of a tract owned by the
borrower in [[Page 25648]] accordance with Sec. 1944.15(a), or on an
easement appurtenant to such a tract.
(e) Manufactured homes. Exhibit F to FMHA instruction 1944-A
(available in any RHCDS field office) contains supplemental information
concerning construction requirements for manufactured homes.
Sec. 1944.17 Maximum loan amounts.
The amount of the loan may not exceed 85 percent of the maximum
dollar limitation of section 203(b) of the National Housing Act (12
U.S.C. Sec. 1702) (available from any HUD office) unless authorized by
RHCDS as an exception. A loan may exceed the market value or the equity
value in the security property by the appraisal fee. Applicants/
borrowers are expected to reduce the need for loan funds by using
available non-essential assets including cash on hand as outlined under
Sec. 1944.9.
(a) The maximum loan amount will be the lesser of the cost of:
(1) The acquisition and any necessary development or
(2) The market value of the security, less the unpaid principal
balance and past-due interest of any other liens against the security
property, plus an appraisal fee, for the following types of dwellings:
(i) An existing dwelling, as described in Sec. 1944.2, including
one being financed by transfer or inventory property sale, except as
provided in exhibit F (available in any RHCDS field office).
(ii) A new dwelling when any one of the following conditions exist:
(A) A conditional commitment was issued in accordance with
Sec. 1944.45.
(B) The RH loan will be closed prior to the start of construction,
and construction conforms to the requirements contained in subpart A of
part 1924.
(C) The required construction inspections were made by the Federal
Housing Administration (FHA) or Veterans Administration (VA). If
qualified under this paragraph, a complete set of plans and
specifications must be submitted together with copies of construction
phase inspection reports or certification by FHA or VA indicating the
dwelling was built in accordance with approved plans and
specifications. The builder will also furnish a certification of
compliance with RHCDS thermal standards for new construction as
required by exhibit D of subpart A of part 1924 (available in any RHCDS
field office).
(D) The manufactured home and site meet the requirements in exhibit
F and exhibit J of subpart A of part 1924 of this chapter. (These
exhibits are available in any RHCDS field office.)
(b) A loan will be limited to 90 percent of the market value of the
security, plus an appraisal fee, for any dwelling that does not meet
the requirements of paragraph (a) of this section, with the exception
of manufactured housing units.
(c) Notwithstanding the provisions of paragraph (a) of this
section, a loan on a dwelling which causes the total secured
indebtedness to exceed the requirements of paragraph (a) of this
section, may be made when the excess indebtedness is all or part of a
lien held by a public body (except for a lien arising out of a judgment
against the applicant/borrower in favor of the United States in a
Federal Court other than the United States Tax Court), hospital, or
welfare institution for advances made for medical bills, welfare
payments, or state motor vehicle judgments provided:
(1) The applicant/borrower is unable to settle or compromise such
lien sufficiently to avoid exceeding the market value;
(2) The lien securing the excess amount will at all times be
inferior to the RHCDS mortgage securing the initial loan and any
subsequent loan or advances determined by the RHCDS to be reasonably
necessary to carry out the purpose of the initial loan or to protect
the Government's financial interest;
(3) The existence of the excess lien will not jeopardize the
security or servicing so as to preclude the making of a sound RH loan;
(4) The applicant/borrower has the ability to meet any payments on
the excess debt as they become due or are likely to become due.
(d) Notwithstanding the provisions of paragraph (a) of this
section, when a subsequent loan for closing costs only is made
simultaneously with an inventory property sale (as provided in
Sec. 1955.117(f) or a transfer, the total indebtedness may exceed the
sale price or market value of the security property, whichever is less,
by no more than 1 percent.
(e) Notwithstanding the provisions of paragraph (a) of this
section, when RHCDS is refinancing the loan of an existing RHCDS
borrower in accordance with Sec. 1951.318, the debt may exceed the
market value of the security property to the extent necessary to
refinance the borrower's outstanding indebtedness plus closing costs
required in connection with the refinancing.
(f) Notwithstanding the provisions of paragraph (a) of this
section, when a subsequent loan is needed for repairs essential to
protect the Government's security interest, the total RHCDS
indebtedness may exceed the market value of the security by no more
than the amount of the subsequent loan consisting of the cost of
essential repairs and reasonable closing costs.
(g) RHCDS may grant exceptions to allow the amount of the loan to
exceed 85 percent of the maximum dollar limitation of section 203(b) of
the National Housing Act (12 U.S.C. Sec. 1702) may be granted under the
following conditions:
(1) RHCDS may increase the loan amount in selected areas when the
existing mortgage limit is insufficient to provide adequate housing for
RHCDS applicants and modest housing costs in the area exceed maximum
loan limits or where different maximum loan limits exist in adjacent
areas of the same community, for example: One limit on one side of the
street compared to a higher limit on the other side.
(2) RHCDS may increase the loan amount where necessary to
accommodate the specific needs of the family such as a larger home to
correct overcrowding situations for exceptionally large households and
reasonable accommodations for a disabled household member. When the
request is to allow reasonable accommodations for a disabled household
member, the additional loan amount will not exceed the cost of the
special features provided and the amount of the appraisal fee.
Sec. 1944.18 Security requirements.
(a) Adequate security. Except as provided below, to protect the
interests of RHCDS, all loans must be adequately secured. Except as
provided in Sec. 1944.17(c) and paragraph (b) of this section, a loan
is adequately secured only when all of the following requirements are
met:
(1) RHCDS obtains at closing a mortgage on all ownership interests
in the entire tract.
(2) No liens prior to the RHCDS mortgage exist at the time of
closing, and no junior liens are likely to be taken immediately
subsequent to or at the time of closing.
(3) The provisions of subpart B of part 1927 regarding title
clearance and the use of legal services are complied with.
(4) The property improvements and proposed improvements are totally
on the site and do not encroach on adjoining property. RHCDS may
require a survey, at the buyer's or seller's expense.
(b) Exceptions. Exceptions to the usual security requirements will
be made only as follows: [[Page 25649]]
(1) Note only. A loan of $2,500 or less, scheduled for repayment in
not more than 10 years from the date of the note, that is not subject
to recapture of subsidy in accordance with subpart I of part 1951, may
be secured by the borrower's promissory note alone when RHCDS
determines that:
(i) The applicant/borrower has a credit history which indicates an
ability and willingness to pay debts when they are due;
(ii) The applicant/borrower will have sufficient income to readily
meet all obligations; and
(iii) The applicant/borrower's equity in the real estate as
improved, equals, or exceeds the amount of the proposed loan.
(2) Mortgage insurance. When the applicant/borrower is the holder
of possessory rights on an American Indian reservation or State-owned
land, adequate security is required. This may include mortgage
insurance guaranteeing payment from a state agency or American Indian
tribe. States will issue a state supplement covering special security
and title clearance requirements needed for loans of this type.
(3) American Indian land. American Indian land in trust or
restricted status acquired with an RH loan will remain in trust or
restricted status. These mortgages must be approved by the Secretary of
the Department of the Interior. A State Supplement will be issued to
prescribe the actions to be taken by RHCDS personnel to implement the
making of loans under such conditions.
(4) Best mortgage obtainable. Loans of $7,500 or less scheduled for
repayment in not more than 15 years from the date of the note and
subsequent loans made for minimal essential repairs necessary to
preserve the Government's security must be secured by a mortgage,
except as provided in paragraph (b)(1) of this section, but title
clearance and the use of legal services in accordance with subpart B of
part 1927 are not required unless the loan approval official determines
that the procedures in subpart B of part 1927 are necessary to assure
repayment or accomplish the objective of the loan. Evidence of
ownership must be in accordance with Sec. 1944.24(d)(2).
(5) Leasehold. When the applicant/borrower owns only a leasehold
interest will treat the lessee's interest like any other type of
ownership interest in determining whether a mortgage on the leasehold
is required. The lease must meet the requirements of Sec. 1944.15(a)(5)
(iv) and (v). In any state in which applicants/borrowers are likely to
own a leasehold interest, the State Director will issue a State
Supplement outlining the technical requirements for making such loans.
(6) Security by junior lien. RHCDS may take a junior mortgage as
security for an RH loan if the tract, which will secure the RHCDS
mortgage, provides adequate security for the entire prior lien debt and
the RH loan, and
(i) The prior mortgage does not contain provisions that may
jeopardize RHCDS's security position or the applicant/borrower's
ability to repay the loan, such as provisions for future advances,
forfeiture, cancellation, foreclosure without adequate notice to junior
lienholders, attorney's fees exceeding those customary for the area in
cases of foreclosure; or
(ii) Such provisions are satisfactorily limited, modified, or
waived; and
(iii) The conditions set forth in subpart B of part 1927 are met.
(7) Liens junior to RHCDS lien. Liens junior to the RHCDS lien will
be allowed at closing or immediately subsequent to closing only when:
(i) The junior lien will not interfere with the purpose or
repayment of the RH loan, and
(ii) The total amount of the RH loan, the junior lien, and any
prior liens will not exceed the market value of the security except as
provided in Sec. 1944.17(c), and
(iii) The conditions set forth in subpart B of part 1927 are met.
(8) Undivided interest. When the applicant/borrower owns an
undivided interest in the property, the co-owners' interests need not
be included in the mortgage in the following instances:
(i) When one or more of the co-owners are not legally competent
(and there is no representative who can legally consent to the
mortgage) or cannot be located, or the ownership rights are divided
among such a large number of co-owners that it is not practical for all
their interests to be mortgaged, the mortgaging of interests not
exceeding 50 percent may be excluded from the security requirements
upon prior approval by RHCDS. All legally competent co-owners using or
occupying the property will be required to sign the mortgage. Co-owners
will be required to sign the note when necessary for a sound loan or to
obtain the required security. The loan may not exceed the value of the
percentage of the market value of the property represented by the
interests of the owners who sign the mortgage. In determining such
value, consideration will be given to any adverse effect which might
result from sale of the mortgaged interests separately from the
nonmortgaged interests.
(ii) When the applicant/borrower owns only an undivided interest in
a building site which will be a part of the farm, the interest of the
applicant/borrower's co-owners may be excluded from the security
requirements upon approval by RHCDS if:
(A) The market value of the jointly owned tract is at least equal
to the debts against it (including the RHCDS loan), and
(B) The applicant/borrower's participation in the joint ownership
of part of the farm and its operations has been and is likely to
continue to be successful.
(9) Life estate. When the applicant/borrower owns a life estate
interest in the property, the remainder interests need not be included
in the mortgage if one or more of the persons holding remainder
interests are not legally competent (and there is no representative who
can legally consent to the mortgage) or cannot be located, or if the
remainder rights are divided among such a large number of people that
it is not practicable to obtain the signatures of all the remainder
interests. In the instance of numerous heirs, the mortgaging of
remainder interests, not exceeding 50 percent of the total remainder
interest may be excluded from the security requirements upon prior
approval by RHCDS. In such cases, the loan may not exceed the value of
the property owned by the persons executing the mortgage.
(10) Farm dwelling. When the applicant/borrower is the owner of a
farm, a mortgage may be taken only on the dwelling and dwelling site
provided the following conditions can be met:
(i) The tract to be mortgaged must not include farm service
buildings, must be in a good residential location, be otherwise
suitable as a residential type of nonfarm tract, provide adequate
security for the loan, be contiguous to and have direct access to a
public road, or
(ii) The tract to be mortgaged must contain at least enough land to
clearly provide adequate security for the loan and to make the tract
readily saleable in the area.
(11) Land purchase contract. When the ownership interest is by
virtue of a land purchase contract (as described in Sec. 1927.52), the
transaction must be converted to a deed/mortgage situation prior to
loan closing and meet the conditions of Sec. 1944.22(b)(6) prior to
loan closing.
(c) Additional security. When necessary to supplement the
applicant/borrower's equity in the farm or [[Page 25650]] nonfarm tract
on which the dwelling is located, or to facilitate servicing the loan,
RHCDS may also require a mortgage on other real estate owned by the
applicant/borrower.
(d) Assignment of income from real estate to be mortgaged. Income
to be received by the borrower from royalties, leases, or other
existing agreements under which the value of the real estate security
will be depreciated will be assigned and disposed of in accordance with
applicable portions of subpart C of part 1965, and the provisions for
written consent of any prior lienholder. In small nonfarm tract cases,
RHCDS may authorize withholding transmittal of assignments to lessees
for execution until production begins.
Sec. Sec. 1944.19-1944.21 [Reserved]
Sec. 1944.22 Refinancing non-RHCDS debts.
(a) Loan funds may be used for refinancing non-RHCDS debts on a
dwelling (except for manufactured homes) if the debt was incurred by
the applicant prior to the date the application was filed and the
following conditions can be met:
(1) The debt was incurred for purposes for which a section 502 RH
loan could be made or is a protective advance by the mortgagee for
items covered by the mortgage to be refinanced, including accrued
interest, insurance premiums, real estate tax advances, or preliminary
foreclosure costs.
(2) The debt must be a lien against the property which will be
security for the RH loan. The promissory note and security instrument
for the debt to be refinanced must represent rates and terms that were
typical and customary for long-term residential financing in the area
at the time the debt was incurred.
(3) A loan to refinance a qualified secured debt may also include
short-term or unsecured debts, if necessary to establish a sound
repayment ability, if such short-term or unsecured debts were incurred
for authorized section 502 RH loan purposes and are not a significant
portion of the loan.
(4) Payments on the debt are so seriously delinquent or, if not
delinquent, it must be evident that the applicant will be unable to
continue to maintain payments, for reasons beyond the control of the
applicant, and the applicant is likely to lose the dwelling at an early
date if the debt is not refinanced. Such delinquency must be due to
loss of employment or household income, illness, or other such similar
events or unforeseen circumstances.
(5) A statement must be obtained from the creditor for each debt to
be refinanced showing the purpose for which the debt was incurred, the
date on which it was incurred, the final due date, interest rate,
amount and frequency of installments, unpaid principal and accrued
interest, and amount of delinquency, if any.
(6) Refinancing such debts will not jeopardize the required
priority of the RHCDS security instrument.
(b) Loan funds may be used for refinancing non-RHCDS debts on a
building site without a dwelling when the applicant is unable to pay
the debt from personal resources and failure to authorize the use of RH
funds to pay such costs would prevent the applicant from acquiring
decent, safe, and sanitary housing and the following conditions can be
met:
(1) The site meets the conditions prescribed in Sec. 1944.11(c).
(2) The debt was incurred prior to the date of application for the
sole purpose of purchasing the site.
(3) The debt is a lien against the property which will be used as
security for the RH loan. The promissory note and security instrument
for the debt represent rates and terms that were typical and customary
for short-term residential financing in the area at the time the debt
was incurred.
(4) The refinancing loan will include adequate funds for
constructing a modest dwelling on the site for the use of the
applicant, which conforms with the requirements of Sec. 1944.16(a).
(5) A statement must be obtained from the creditor for each debt to
be refinanced showing the purpose for which the debt was incurred, the
date on which it was incurred, the final date due, interest rate,
amount and frequency of installments, unpaid principal and accrued
interest, and amount of delinquency, if any.
(6) Refinancing such debts will not jeopardize the required
priority of the RHCDS security instrument.
(c) If a loan of $5,000 or more is necessary for repairs to correct
major deficiencies and make the dwelling decent, safe, and sanitary, an
existing lien which meets the requirements of paragraphs (a)(1), (2),
(3), and (5) of this section may be refinanced regardless of
delinquency, if necessary for the applicant to have repayment ability
for the existing loan and the requested loan for repairs.
(d) Debts or costs incurred after the date of application may be
refinanced if the costs were incurred for:
(1) Fees for legal, architectural, and other technical services, or
(2) Materials, construction, or site acquisition.
(e) RHCDS may authorize the use of RH funds to pay costs provided
for in paragraphs (d)(1) and (2) of this section only when RHCDS
retains the same lien priority as the debt to be refinanced and all of
the following conditions exist:
(1) The costs were incurred after the applicant filed a written
application for a loan but before the loan was closed. In the event of
a subsequent loan to complete improvements previously planned, the
costs must have been incurred after the initial loan was closed.
(2) The applicant is unable to pay such costs from personal
resources or to obtain credit from other sources and failure to
authorize the use of RH funds to pay such costs would jeopardize the
applicant's capability of repaying the loan.
(3) The construction or repair work conforms to that shown on the
building plans and specifications or the RHCDS Development Plan, when
applicable, and the costs were incurred for authorized Section 502 RH
loan purposes.
Sec. 1944.23 [Reserved]
Sec. 1944.24 Technical services.
(a) Planning and performing construction work. Any construction
work will be planned and completed in accordance with subpart A of part
1924 or a lesser standard as may be prescribed by RHCDS for
demonstration type loans.
(b) Planning and performing site development work. Any site
development will be planned and completed in accordance with subpart C
of part 1924, except as provided for manufactured homes in exhibit J of
subpart A of part 1924. Subdivisions will be accepted by RHCDS without
further processing when the developer provides written evidence of
current subdivision acceptance by HUD or VA and the developer provides
proof of compliance with exception conditions established by HUD or VA.
(c) Appraisals. Appraisals will be required as follows:
(1) When a mortgage will be taken to secure a total indebtedness of
more than $15,000, an appraisal of the security property will be made.
The loan can exceed the market value of the security by the amount of
an appraisal fee. A fee will be charged for each application for a
section 502 RH loan when an appraisal is needed for initial and
subsequent loans and assumptions. Fees will be waived for appraisals
done for subsequent loans to existing RHCDS [[Page 25651]] borrowers
for minimal essential repairs that are necessary to protect Government
security property. The fee will be collected at loan closing by the
closing agent.
(2) When the total indebtedness will be $15,000 or less, an
appraisal of the real estate or leasehold interest is not required,
unless RHCDS is uncertain as to the adequacy of the security.
(3) Real estate mortgaged as additional security will be appraised
when it represents a substantial portion of the security for the loan
or when requested by the loan approving official.
(d) Title clearance and legal services. (1) When real estate will
be taken as security (including a mortgage on a leasehold), except on a
best mortgage obtainable basis, title clearance and legal services for
making and closing the loan will be provided in accordance with subpart
B of part 1927. Title clearance and legal services will not be
requested until the loan is approved.
(2) When real estate will not be mortgaged or when the best real
estate mortgage obtainable is taken as security without title clearance
or use of legal services, the applicant will be required to submit
evidence of ownership of the farm or nonfarm tract. When RHCDS is
uncertain as to whether or not the applicant is a qualified owner, such
action will be taken as RHCDS considers necessary, such as requiring
the applicant to furnish additional information. No loan will be made
if RHCDS has actual knowledge that the applicant does not have valid
title to the property.
Sec. 1944.25 Rates and terms.
(a) Interest rate. The interest rate charged by RHCDS will be the
lower of the rates in effect at the time of loan approval or loan
closing. Interest rates are specified in exhibit B of FmHA Instruction
440.1 (available in any RHCDS field office) for the type of assistance
involved.
(b) Amortization. Loans will be scheduled for repayment over a
period that will not exceed the expected useful life of the property as
a dwelling. Only one of the amortization periods listed in this
paragraph may be used for a borrower. Each loan will be scheduled for
repayment from the date of the promissory note, for a period not to
exceed one of the following as applicable:
(1) Thirty-three years for initial and subsequent loans.
(2) Thirty-eight years for initial loans (subsequent loans may be
made for a period not to exceed the remaining years of the initial
loan) when the following conditions are met:
(i) Adjusted annual income does not exceed 60 percent of the median
income for the area as reflected in exhibit C, (available in any RHCDS
field office), and
(ii) The longer term is necessary to show repayment ability, with
or without mortgage payment deferral.
(3) Thirty years for manufactured homes.
(4) Ten years for loans not exceeding $2,500 which are not secured
by a real estate mortgage.
(c) Payment Assistance. Borrowers may be eligible for a non-cash
credit which may reduce the borrower's scheduled payment to a level
equivalent to amortizing the loan to as low as 1 percent. The policies
and procedures for granting and servicing payment assistance are set
forth in Sec. 1944.34 and subpart G of part 1951, respectively.
Sec. 1944.26 Fund allocation.
State Directors will maintain an adequate reserve to fund hardship
applications, servicing type loans, and the state's portion of funds
for Mutual Self-Help Housing loans. Reserve funds will be used for:
(a) Hardship applications. (1) Hardships as determined by the State
Director on a case-by-case basis, including applications from persons
living in deficient housing as defined in Sec. 1944.2, for more than 6
months.
(2) Refinancing non-RHCDS debts in accordance with
Sec. Sec. 1944.22(a) and 1951.315.
(b) Servicing type loans. (1) Financing for the purchase of
Government-owned inventory properties;
(2) Subsequent loans for essential improvements or repairs;
(3) Subsequent loans in connection with inventory property sales or
transfers with assumption of the RHCDS indebtedness.
(c) Mutual Self-Help Housing Loans. Homes must be located in an
RHCDS approved self-help project.
Sec. 1944.27 Application processing.
(a) Accepting applications. RHCDS will accept completed
applications in accordance with subpart A of part 1910.
(1) Complete applications. A completed application will consist of
Form FmHA 410-4, ``Application for Rural Housing Assistance (Nonfarm
Tract) Uniform Residential Loan Application'' (hereafter called URLA)
and an RHCDS form for verifying employment, for each employer, all of
which are available in any RHCDS field office.
(2) Incomplete applications. If the application is not dated and
signed or sections are not properly completed, it may be returned for
completion.
(3) Packaged applications. Builders, brokers, contractors, the
applicant/borrower, and others, including not-for-profit organizations,
may package loan applications in accordance with exhibit A (available
in any RHCDS field office). Builders and sellers holding conditional
commitments may also assist applicants/borrowers in applying for an RH
loan.
(b) Processing steps. (1) [Reserved)
(2) Complete applications will be processed in the order received,
in accordance with subpart A of part 1910 and subpart E of part 1901,
except that preference will be given to applications for Mutual Self-
Help Housing loans, loan servicing purposes, purchase of an inventory
property, assumption of an existing RHCDS loan, and to applicants who
qualify as a hardship, as outlined in Sec. 1944.26; veterans
preference, as outlined in subpart A of part 1910, will apply.
(3) [Reserved]
(4) If HUD's Credit Alert Interactive Voice Response System
(CAIVRS) identifies a delinquent Federal debt, RHCDS will immediately
suspend processing of the application and the applicant will be
notified in writing of the suspension and will be asked to contact the
appropriate Federal agency, at the telephone number provided by CAIVRS,
to resolve the delinquency. When the applicant provides RHCDS with
official documentation that the delinquency has been paid in full or
otherwise resolved, processing of the application will be continued.
After 30 days from the suspension notification, if CAIVRS indicates the
existence of an unsatisfied judgment in the favor of the United States,
or if the applicant remains delinquent on a Federal debt and is unable
to resolve the delinquency, the applicant will be rejected. The RHCDS
Administrator may grant an exception to this requirement if it is in
the best interest of the Government to do so.
(5) If an on-line profile credit report, where available, reveals
adverse credit information, the applicant will be given the opportunity
to correct the adverse information. Applicants will not be rejected or
withdrawal encouraged based on information provided in the on-line
credit report. This service is provided for the sole purpose of
providing assistance to the applicant by identifying any credit
problems at the beginning of the loan process and to clarify the
difference between eligibility for program assistance and loan
approval.
(c) Determination of eligibility and notification to applicant.
Eligibility determination will be made regardless [[Page 25652]] of
ranking or funding levels. If an applicant/borrower is determined
ineligible because the applicant's income is too high, RHCDS may advise
the applicant/borrower that applicant may qualify for the purchase of a
Government inventory property or the assumption of an existing RHCDS
borrower's loan on nonprogram terms and may be counseled regarding the
RH guaranteed loan program. If an applicant/borrower is given an
adverse decision, the applicant/borrower will be given appeal rights as
provided in subpart B of part 1900. The letter will contain the Equal
Credit Opportunity Act (ECOA) paragraph set forth in subpart A of part
1910.
(1) Delayed processing. When available loan funds are not adequate
to complete the processing of all applications as they are received, or
a large backlog of applications exists which prohibits immediate
processing of the application, a preliminary determination of
eligibility may be made based on the information provided by the
applicant/borrower.
(i) If available funds are not adequate, applicants/borrowers who
appear eligible at the time of application will be advised in writing
within 30 days of filing of the application of their preliminary
eligibility determination and the estimated waiting period. They should
be further advised that a final determination of eligibility will be
made when loan funds are available for the processing of their
application.
(ii) Where there are more than 50 unprocessed applications on hand,
RHCDS will inform each applicant/borrower, at least every 6 months, of
the current funding status and provide an estimate of when the loan is
anticipated to be processed. At that time, the applicant/borrower
should be advised to contact RHCDS if they are still interested in
funding, and that the application will be withdrawn in 30 days if there
is no response.
(2) Immediate processing. Where there is no backlog, available loan
funds are adequate, and the application can be processed in a timely
manner, RHCDS shall make a preliminary determination of eligibility
based on information submitted by the applicant/borrower and will
request additional information as necessary to make a final
determination of eligibility.
(i) On-line profile credit reports may be used to allow a means for
the applicant to determine if there is adverse credit information on
the applicant's record prior to payment of the credit report fee.
(ii) The age of the applicant/borrower will not be considered
except as provided in Sec. 1944.9.
(iii) Repayment ability will be evaluated in accordance with
Sec. 1944.8.
(iv) RHCDS will apply the objective standards of credit evaluation,
outlined in Sec. 1944.9, for each applicant/borrower. All applications
will be considered under the same standards.
(v) [Reserved]
(d)-Selection for processing. (1) Completed applications for a
reserve funding category, as outlined in Sec. 1944.26, as well as
applications for the assumption of an existing RHCDS loan, will be
processed upon receipt.
(2) All other completed applications will be selected for
processing in the order received, as funding becomes available.
Selected applicants/borrowers have 30 days to provide information
required under paragraph (e) of this section (including any fees for
credit reports) for a final determination of eligibility. Selected
applicants/borrowers who do not respond to this 30-day notice will be
rejected. Applications selected will be funded in the order that
information is received, until all available loan funds are exhausted.
Selected applicants/borrowers who respond affirmatively to the first
notice, but who are not funded within the quarter will be held over and
counted as a selected applicant for the next quarterly allotment. If
all requested information is not received within 45 days after the
second written selection notification, the application will be
rejected.
(e) Verification of information. (1) Income verification. All
applicants/borrowers will be required to submit a complete, legible
copy of their most recently filed Federal income tax return (showing
the applicant's signature) unless exempted from filing a return. The
return shall be stored in a secure place separate from the loan docket
to prevent any wrongful release of the tax return information. In cases
where a tax preparer has provided the applicant with copies of the
return, one of the copies which has the original signature of the tax
preparer should be signed by the applicant and submitted. In Puerto
Rico applicants/borrowers must submit a signed photocopy of the most
recently filed state income tax returns. Applicants who do not have
signed photocopies of their Federal returns should contact their
Regional Internal Revenue Service. In addition to copies of tax
returns, other income verification may be required.
(i) Applicant/borrowers will complete such forms as required by
RHCDS. A form will be used to verify employment income of each
borrower/applicant except for self-employment.
(ii) RHCDS may confirm reported wages and earnings, including
``non-taxable income'' with the Department of Labor or similar agency
where this information is available.
(iii) Applicants/borrowers deriving their income from a farming or
business enterprise, must provide current documentation of income and
expenses. This information must not be older than the previous fiscal
year.
(iv) Applicants must provide a copy of the most recent award or
benefit letter prepared and signed by the authorizing agency to verify
Social Security, pension, and disability income. In addition, the Cost-
of-Living (COLA) in Social Security Benefits and Supplemental Security
Income Payments Notice, Social Security Benefit Statement, Forms SSA-
1099 and SSA-1042, or Notice of Change in Benefits may be required for
documentation of Social Security and/or Supplemental Security Income.
(v) The applicant must provide a copy of the divorce decree or
other legal document indicating the amount of the payments to verify
alimony and/or child support payments. When the applicant/borrower
states that less than the amount awarded is received, RHCDS may request
documentation from the official entity through which payments are
received, or other third parties capable of providing the verification
when payment is not made through an official entity, indicating the
dates and amounts of payments made to the applicant/borrower during the
previous 12 months.
(vi) Income information that cannot be obtained by use of RHCDS
forms will be obtained in writing from knowledgeable third parties to
the extent possible. When it is not feasible to verify income through
third parties, RHCDS may accept an affidavit from the applicant/
borrower; in the case of child support or alimony, the affidavit must
state the effort made to collect the amount awarded, and the amounts
and dates of payments received during the previous 12 months.
(2) Verification of alien status. Aliens are required to present
documentation of their status. Exhibit B (available in any RHCDS field
office) outlines the acceptable forms of documentation.
(3) Verification of disability or handicap. Form FmHA 1944-4,
``Certification of Disability or Handicap,'' is used to verify
disability or handicap in cases where State Review Boards or Social
Security records are not available. When Form FmHA 1944-4 contains
information [[Page 25653]] which could affect the applicant/borrower's
eligibility, the applicant/borrower may be required to furnish his/her
physician's written opinion regarding the applicant/borrower's capacity
to incur the loan obligation.
(4) [Reserved]
(5) [Reserved]
(f) Applicant interview. After verification of all information
necessary for making a final determination of eligibility but prior to
issuance of the Certificate of Eligibility, the borrower/applicant will
submit to a personal interview with RHCDS. The applicant/borrower may
be accompanied by an advisor but the applicant/borrower or court
appointed guardian/conservator must be personally responsive to all
questions or issues during the interview. During the interview, RHCDS
and the applicant/borrower will:
(1) Verify information concerning persons who will occupy the
dwelling and on whose income eligibility for the loan and payment
assistance is based. Applicants/borrowers who may be able to obtain
other credit will be expected to apply for same from a lender making
loans for similar purposes. If requested, the applicant/borrower will
have the lender indicate the amount, interest rate, and terms of
housing credit the lender would be willing to extend to the applicant/
borrower.
(2) Reach an understanding that failure of the applicants/borrowers
to fully disclose financial and application information or material
falsification or concealment of such information will result in a
denial of assistance and possible penalties.
(3) [Reserved]
(4) [Reserved]
(5) [Reserved]
(6) [Reserved]
(g) Issuance of ``Certificate of Eligibility.'' Once all
information has been verified and eligibility has been determined, a
``Certificate of Eligibility'' will be issued to all applicants/
borrowers selected for further processing. The certificate will be
valid for a period not to exceed 90 days. The certificate will not be
issued to applicants/borrowers who have submitted packaged applications
that already contain information necessary to complete a real estate
appraisal.
(1) Appraisals. After the Certificate of Eligibility is issued the
applicant/borrower has 90 days to provide information needed to
complete the real estate appraisal on the property to be financed.
(i) Information requested will include a copy of the option or
sales agreement; a legal description of the property; a direction map;
certified building plans and specifications or repair estimates as
appropriate; copies of existing surveys, title information, and tax
bills; and other information deemed necessary by the appraiser.
(ii) The applicant/borrower must advise RHCDS if they wish to have
the cost of the real estate appraisal included in the loan funds.
(iii) Appraisals will generally be completed within 30 days of the
date information requested is received.
(2) Extensions or withdrawals. At the end of 90 days, if the
applicant/borrower has not submitted the information requested, the
application will be deemed withdrawn unless an extension is approved
based on evidence that the applicant/borrower is actively working on
supplying the necessary information. A maximum of two 60-day extensions
can be approved.
(h) Appeals. If the decision on the applicant/borrower's request
for assistance is unfavorable, the applicant/borrower will be notified
of the appropriate appeal rights in accordance with subpart B of part
1900. The applicant/borrower will be notified that a new application
may be filed when curative action is taken to remove the reasons for
rejection.
(i) Accountability. Applicants/borrowers should be made aware of
the accountability requirements of persons paid to influence the making
of an RHCDS housing loan and/or grant as described in subpart S of part
1940.
Secs. 1944.28-1944.30 [Reserved]
Sec. 1944.31 Loan approval.
(a) RHCDS employees are authorized to approve or disapprove loans,
as delegated, in accordance with subpart A of part 1901.
(b) All loan approvals are subject to the availability of funds.
(c) [Reserved]
(d) [Reserved]
(e) If title evidence is required in accordance with subpart B of
part 1927 or in accordance with any special requirements for the loan
but is not included in the docket, the loan may be approved subject to
the applicant/borrower furnishing the required title evidence. When the
applicant/borrower furnishes required title evidence, RHCDS will
proceed with processing the loan. In those cases in which the title
evidence does not comply with the conditions specified, the docket will
be reconsidered by the approval official.
Sec. 1944.32 [Reserved]
Sec. 1944.33 Loan closing.
(a) Reverification of income. If a loan made on program terms will
be closed or the payment assistance agreement will be executed more
than 90 days after the date of the last verification of employment, or
if there is evidence to indicate the applicant/borrower's financial
status has changed significantly, the applicant/borrower's income will
be reverified in accordance with Sec. 1944.27 and the amount of payment
assistance will be determined on the basis of the applicant/borrower's
new income, based on the schedules defined in Sec. 1944.34(c). If the
adjusted income is such that the applicant/borrower is no longer
eligible for payment assistance, the loan may be closed if there is
documented evidence to clearly indicate other credit is not available
and the applicant/borrower has adequate repayment ability based on the
revised income and PITI for the proposed loan. Payment assistance may
be granted if the applicant/borrower's income was at or below the low-
income level at the time of loan approval but payment assistance will
not be granted if the adjusted income exceeds the moderate-income limit
set forth in exhibit C (available in any RHCDS field office).
(b) Promissory note. An RHCDS approved ``Promissory Note'' will be
prepared and signed in accordance with subpart B of part 1927. Payments
of principal and interest will be deferred during the period the
dwelling is not suitable for occupancy as a residence because of
construction or repairs. If the loan is closed before any funds are
advanced by RHCDS or loan funds are distributed by multiple advance,
accrued interest is added to principal and repaid in regular amortized
installments (payment alternative I) after the deferment period. The
monthly payment provision will be used for all borrowers except
existing RHCDS borrowers whose previous loans were made on an annual
payment basis. If the annual payment provision is used and installments
are not to be deferred, the amount of the first installment will be
determined by RHCDS after considering the immediate debt paying ability
of the borrower. The amount of the first installment may not be less
than an amount equal to interest on the loan from the date of loan
closing to the next January 1.
(c) Real estate mortgage. An RHCDS approved real estate mortgage
form will be used for loans to be secured by a real estate mortgage.
(d) Collection of the first installment. If the annual payment
provision of the note is used and payments are not to be deferred, the
first installment of a loan closed during December will be paid at the
time of loan closing. [[Page 25654]]
(e) Hazard insurance. Buildings on the property taken as security
for the loan will be insured in accordance with subparts A and B of
part 1806 (FmHA Instructions 426.1 and 426.2 as appropriate). The
policy and a paid receipt for 1 full year's premium must be presented
by the applicant/borrower at loan closing.
(f) [Reserved]
(g) [Reserved]
(h) [Reserved]
(i) Effective date of loan closing. A loan secured by a real estate
mortgage is closed when the mortgage is filed for record and the
expected lien is obtained. In other cases, a loan is closed when the
borrower executes the note and any other required instruments.
Sec. 1944.34 Payment assistance.
(a) General. It is the policy of RHCDS to grant payment assistance
on loans to qualified applicants to assist them in obtaining and
retaining decent, safe, and sanitary dwellings and related facilities.
This section pertains to the granting of payment assistance connected
with loan making activities. All other provisions dealing with payment
assistance are contained in subparts G and I of part 1951.
(b) Approval authority. RHCDS officials who are authorized to
approve section 502 RH loans are also authorized to approve payment
assistance.
(c) Amount of Payment Assistance. Payment assistance granted will
be the difference between the installment due on the promissory note
and the amount the borrower would pay if the note were amortized at a
rate equivalent to that relating to the borrower's income range or the
amount of principal and interest due based on the floor calculation in
accordance with this section. The floor is a minimum percentage of
adjusted family income which the borrower must pay for PITI. Very low-
income borrowers will pay a minimum of 22 percent and low-income
borrowers will pay a minimum of 26 percent of their adjusted family
income for PITI or the payment determined at the equivalent interest
rate, whichever is greater. The equivalent interest rate is determined
by a comparison of the borrower's adjusted annual income as determined
in Sec. 1944.6 to the median income for the area where the security
property is located, based on income figures published by HUD as
reflected in exhibit C (available in any RHCDS field office). The
following chart is to be used for determining the equivalent interest
rate paid by the applicant/borrower when eligible for payment
assistance, for loan making and loan servicing for loans closed after
the effective date of this issuance. EXCEPTION: Present RHCDS borrowers
who are currently receiving payment assistance as of the date of this
issuance, will be reviewed under the system in effect prior to the
effective date of this issuance. Any other exception to the use of
these interest rates or minimum percentages of adjusted family income
will be made by the RHCDS Administrator under Sec. 1944.34(h). Median
income is that reflected in Exhibit C to FmHA instruction F144-A
(available in any RHCDS field office). In determining percents,
rounding should not be used.
Percentage of Median Income--Equivalent Rate of Interest
----------------------------------------------------------------------------------------------------------------
When the applicant/borrower's adjusted income is--
-----------------------------------------------------------------------------------------------------------------
Then the equivalent rate
Equal to or more than-- But less than-- of interest is--\1\
----------------------------------------------------------------------------------------------------------------
00 percent-.............. 50.01 percent of median income............................ 1 percent.
50.01 percent............ 55 percent of median income............................... 2 percent.
55 percent -............. 60 percent of median income............................... 3 percent.
60 percent -............. 65 percent of median income............................... 4 percent.
65 percent -............. 70 percent of median income............................... 5 percent.
70 percent -............. 75 percent of median income............................... 6 percent.
75 percent -............. 80.01 percent of median income............................ 6.5 percent.
80.01 percent............ 90 percent of median income............................... 7.5 percent.
90 percent -............. 100 percent of median income.............................. 8.5 percent.
100 percent.............. 110 percent of median income.............................. 9 percent.
110 percent.............. or more than median income................................ 9.5 percent.
----------------------------------------------------------------------------------------------------------------
\1\Or note rate, whichever is less; in no case will the effective interest rate be less than 1 percent except as
provided in Sec. 1944.35.
(d) Recapture. Borrowers who receive payment assistance must agree
to provisions for recapture of payment assistance the borrower may
receive during the life of the loan. See subpart I of part 1951.
(e) Eligibility. To be eligible for payment assistance, an
applicant/borrower must qualify for a section 502 RH loan, must
personally occupy the dwelling, and must meet the following additional
requirements:
(1) Initial loans including inventory property sales. Payment
assistance may be granted at loan closing if:
(i) The applicant/borrower's adjusted annual income, at the time of
loan approval, did not exceed the applicable low-income limit in
exhibit C to FMHA instruction 1944-A (available in any RHCDS field
office).
(ii) The term of the loan will not be less than 25 years.
(2) Subsequent loans. Payment assistance may be granted on
subsequent loans which meet the terms of paragraph (e)(1) of this
section. If payment assistance is presently being granted on the
initial loan and the applicant/borrower's adjusted income does not
exceed the moderate-income limit, it may also be granted on a
subsequent loan, providing the term of the subsequent loan is 25 years
or more.
(3) Assumptions. Payment assistance may be granted to an applicant/
borrower assuming an RH loan on new rates and terms, provided the
assuming parties qualify according to paragraph (e)(1) of this section.
Payment assistance may only be granted on ``same term'' assumptions if
the original loan was approved on or after August 1, 1968.
(f) Processing payment assistance. (1) General. The adjusted
payment for which an applicant/borrower qualifies after application of
payment assistance will be stated in the most current payment
assistance agreement. Payment assistance agreements will be for a 12-
month period, with the following exceptions:
(i) Self-employed borrowers. For a self-employed applicant/
borrower, the initial payment assistance agreement will run from the
effective date to 3 months after the end of the applicant/borrower's
business fiscal year, but not more than a 12-month period. This will
[[Page 25655]] allow subsequent agreements to coincide with the
applicant/borrower's business fiscal year with a 3-month over-lap to
provide sufficient time for the applicant/borrower to supply
verification of the previous year's income.
(ii) Unemployed borrowers. For an applicant/borrower receiving
unemployment benefits, the agreement will be effective for the period
during which the applicant/borrower will receive unemployment benefits,
or, if the period is unknown, no longer than 6 months. The expiration
date of the agreement will be established by RHCDS.
(iii) Annual payment borrowers. For an applicant/borrower currently
paying an annual installment, who receives a subsequent loan, the
initial payment assistance agreement including the subsequent loan will
be in effect until the next January 1.
(2) [Reserved]
(3) [Reserved]
(g) Applicant notice of right to appeal. All applicants/borrowers
who request and are denied payment assistance may appeal in accordance
with subpart B of part 1900.
(h) Exceptions. RHCDS may make exceptions to proposed transactions
in which the conditions prescribed in the foregoing paragraphs of this
section cannot be met. This paragraph is primarily intended to be used
for those cases in which the granting of payment assistance is
necessary for the applicant/borrower to retain or obtain a dwelling for
the applicant/borrower's own use, and there are no other means to do
so. RHCDS may authorize a further reduction of the equivalent rate of
interest in high cost areas as determined by HUD when there is evidence
to indicate that there is no adequate, lower-cost housing available to
the applicant which would reduce the applicant's need for additional
subsidy; the housing to be financed is comparable in cost to housing
financed for very low-income applicants in the area; and the applicant
will be unable to acquire adequate housing unless additional subsidy is
authorized. This exception is limited to an additional percentage point
reduction in the equivalent rate of interest but in no event may the
equivalent rate of interest be less than 1 percent except as authorized
in Sec. 1944.35. A high cost area is an area which has been designated
as high cost by HUD under the maximum dollar limitation of section
203(b) of the National Housing Act (12 U.S.C. 1702) (available from any
HUD office).
Sec. 1944.35 Deferred mortgage payments.
(a) General. It is the policy of RHCDS to defer 25 percent of the
installment amount at the 1 percent equivalent interest rate to
qualified RHCDS borrowers, to assist them in obtaining decent, safe,
and sanitary dwellings and related facilities. Only principal and
interest can be deferred.
(b) Approval authority. RHCDS officials authorized to approve
section 502 RH loans are also authorized to approve the deferral.
(c) Eligibility. In order to qualify for deferred mortgage payments
under this section, the following conditions must exist:
(1) The applicant/borrower's adjusted family income, at the time of
initial loan approval, must not exceed the applicable very low-income
limits in exhibit C to FMHA instruction 1944-A (available in any RHCDS
field office);
(2) The term of the loan is 38 years, or 30 years for manufactured
housing units;
(3) The applicant/borrower qualifies for the maximum payment
assistance (equivalent to an interest rate of no more than 1 percent)
allowable under Sec. 1944.34;
(4) The applicant/borrower's PITI, calculated at 1 percent
equivalent interest rate for 38 years, exceeds 29 percent of the gross
annual income; and,
(5) The initial deferral assistance under this section is granted
in connection with the initial loan closing; or deferral assistance is
being renewed, without interruption, during the 15-year period from the
effective date of the initial agreement.
(d) Amount and terms of deferral. (1) The deferral amount is
determined as follows:
(i) The applicant/borrower will be the maximum payment assistance
allowable under Sec. 1944.34.
(ii) RHCDS will calculate the applicant/borrower's PITI based on
the equivalent 1 percent interest rate for 38 years (30 years for
manufactured housing units), and the annual real estate taxes and
insurance due for the current year (or escrow amounts for real estate
taxes and insurance premiums due during the current year, where
applicable).
(A) If the amount of real estate taxes due for the initial
agreement is less than a typical year's taxes (such as in new
construction), then ``eligibility'' for deferral assistance will be
determined based on the amount of taxes due in a typical year but the
``amount'' of deferral for which the applicant/borrower qualifies will
always be based upon actual taxes due for the current year. This may
result in the applicant/borrower being eligible for assistance but not
qualifying for deferral in the first year. Although there may not be
any portion of the payment deferred in the first year, the 15-year
period for assistance will still be calculated from the date of loan
closing.
(B) For renewals of deferral assistance, only the regularly
scheduled PITI due for the current year calculated at 1 percent
equivalent interest rate for 38 years, will be considered when
calculating the deferral amount. Protective advances, additional
payment agreements, and other payment agreements will not be considered
in this calculation.
(iii) If the reduced PITI calculated at 1 percent for 38 years (30
years for manufactured housing units) still exceeds 29 percent of gross
annual income, the deferred mortgage payment will be 75 percent of the
monthly installment amount at the 1 percent equivalent interest rate
amortized over 38 years.
(2) Deferred mortgage payments will be effective for a 12-month
period. The effective date will coincide with the anniversary date of
the payment assistance agreement. Deferred mortgage assistance may be
continued, without interruption, for up to 15 years after the effective
date of the initial agreement. A borrower who no longer qualifies for
deferred mortgage assistance because of an increase in income, will not
receive deferred mortgage assistance again, even if income decreases at
a later date.
(3) Any principal deferred will accrue interest at rate of 1
percent per annum. Interest deferred under this section will not accrue
interest and will not be converted to principal through reamortization
or other servicing action.
(e) Review process. The borrower's income, taxes, and insurance
will be reviewed annually to determine eligibility for continued
deferred mortgage assistance and payment assistance. The review for
both types of assistance shall be performed simultaneously. It is not
the responsibility of RHCDS to monitor changes in the borrower's
income. If a borrower whose payments are being deferred experiences a
change in income that qualifies under subpart G of part 1951 for a
change in payment assistance, the borrower should request a review for
deferred mortgage payment assistance. Adjustments to deferred mortgage
assistance and payment assistance will be effective as of the date of
income change.
(1) Annual review. The annual review will be scheduled to take
place during the payment assistance review period as
[[Page 25656]] defined in subpart G of part 1951 (available in any
RHCDS field office).
(2) Responsibilities of the borrower. Before a deferral will be
approved, the borrower must:
(i) Provide RHCDS with income verification, as described in
Sec. 1944.27;
(ii) Provide RHCDS with information needed to complete the deferral
section of the Payment Assistance/Deferral/Repayment Agreement;
(iii) Review and sign appropriate RHCDS forms and documents, and
(iv) Participate in an interview to review the deferral
information.
(3) [Reserved]
(4) [Reserved]
(f) Cancellation of deferred mortgage payments. Deferred mortgage
payments may be canceled for any of the conditions in subpart G of part
1951. Once a borrower goes off of deferred mortgage payments, the
borrower is not eligible to receive this assistance again. Deferred
payments may only be continued for up to 15 years after the effective
date of the initial payment assistance agreement.
(g) Recapture. The amount deferred is subject to repayment and
recapture in accordance with subpart I of part 1951.
(h) Appeal/review rights. Because the deferred mortgage regulations
are based on the objective application of formulas, deferred mortgage
payment calculations are not appealable; however, a review may be
requested in accordance with subpart B of part 1900. Applicants/
borrowers who request and are denied deferred mortgage payments, or
whose deferral amount has been reduced, canceled, or not renewed based
on contested income calculations, may appeal that decision in
accordance with subpart B of part 1900.
Sec. 1944.36 [Reserved]
Sec. 1944.37 Subsequent section 502 RH loans.
Subsequent section 502 RH loans may be made to existing borrowers
for the same purposes and under the same conditions and limitations as
an initial loan, except as provided in this section. A new credit
report is required for all applicants for subsequent loans in
accordance with Sec. 1944.27.
(a) The subsequent loan will be processed in the same manner as an
initial loan, except that a new appraisal report will be required in
accordance with Sec. 1944.24 only when real estate will be taken as
security and at least one of the following conditions exists:
(1) The property was not appraised in connection with the initial
loan;
(2) The latest appraisal report of the real estate is over 2 years
old;
(3) The physical characteristics of the property have changed
significantly;
(4) RHCDS is uncertain of the adequacy of the security; or
(5) The subsequent loan is in connection with a transfer of an
existing loan subject to subsidy recapture in accordance with subpart I
of part 1951.
(b) A subsequent RH loan may be made on a note-only basis, provided
the amount of the subsequent loan plus the unpaid principal balance of
any prior note-only RH loans do not exceed $2,500. Applicants/borrowers
for such loans must meet the requirements of Sec. 1944.18.
(c) [Reserved]
(d) The subsequent loan will bear interest at a rate determined in
accordance with exhibit B of FmHA Instruction 440.1 (available in any
RHCDS field office).
(e) A subsequent loan may be made to permit the remaining borrower,
if eligible, to purchase the equity of a departing coborrower.
(f) When an area designation has been changed from rural to non-
rural, subsequent RH loans may be made only in accordance with the
provisions of Sec. 1944.10.
(g) The loan approval official may authorize reamortization of a
prior RH loan at the time a subsequent loan is made in those cases in
which it is determined that the borrower cannot reasonably be expected
to meet installments due unless the account is reamortized. If the
account is reamortized, the reamortization must be in accordance with
subpart G of part 1951.
(h) Title clearance and appraisal fees for subsequent loans to
existing RHCDS borrowers for minimal essential repairs to protect the
Government's security will be handled in accordance with
Sec. Sec. 1944.18 and 1944.24.
Sec. 1944.38 Mutual Self-Help Housing.
Low-income applicants may build their homes by participating in a
Mutual Self-Help Housing project.
(a) An eligible organization must file a preapplication with the
District Office for a Self-Help Technical Assistance grant. RHCDS will
issue Form AD-622, ``Notice of Preapplication Review Action,'' if the
grant request is approved. If the grantee is eligible but there are no
available grant and/or loan funds, processing of RH applications will
not begin until authorized by RHCDS.
(b) The value of homes financed under this section must be no
greater than the equivalent value of most modest homes built in the
area, as described in Sec. 1944.403.
Sec. 1944.39 RH loans to RHCDS employees and loan closing officials.
RHCDS employees, and loan closing agents, or members of their
families may obtain a section 502 RH loan subject to the provisions of
this subpart:
(a) Written evidence indicating the applicant/borrower's inability
to obtain the needed credit elsewhere will be included in the
application.
(b) Applications will be processed and loans will be serviced
according to subpart D of part 1900.
(c) Loans, inventory property sales, or assumption agreements will
not be approved under this authority for any of the following purposes:
(1) Buying RHCDS inventory property;
(2) Buying RHCDS security property from a borrower; or
(3) Buying RHCDS security property at foreclosure sale.
Sec. 1944.40 [Reserved]
Sec. 1944.41 Housing demonstration programs.
RHCDS may authorize demonstration programs that may not be
consistent with some of the provisions of this chapter. Those
demonstration programs will be clearly identified as such.
Secs. 1944.42-1944.44 [Reserved]
Sec. 1944.45 Conditional commitments.
(a) General. A conditional commitment is assurance from RHCDS to a
qualified builder, dealer-contractor, or seller that a dwelling to be
offered for sale will be acceptable for purchase by qualified RH loan
applicants if accepted by RHCDS and/or built or rehabilitated in
accordance with RHCDS approved plans, specifications, and regulations,
and priced at not more than a specified amount. The conditional
commitment does not reserve funds nor does it assure that an eligible
loan applicant will be available to buy the dwelling. The conditional
commitment is not effective if the area does not remain rural.
(b) Eligibility. To be eligible for conditional commitments, the
builder, dealer-contractor, or seller must:
(1) Be the owner as defined in Sec. 1944.15, prior to the beginning
of any planned construction, of the site on which the dwelling is
located or to be built, except as set out in subpart G of part 1822
(FmHA Instruction 444.8).
(2) Have the experience and ability to complete any proposed work
in a competent and professional manner.
(3) Be financially responsible and have the ability to finance or
obtain financing for any proposed construction or rehabilitation.
(4) Comply with the requirements of subpart E of part 1901 and all
applicable [[Page 25657]] laws, regulations, and Executive Orders
relating to equal opportunity.
(5) Plan to build or rehabilitate dwellings which will qualify for
purchase by RH applicants and which will be in compliance with all
applicable laws, ordinances, and codes.
(6) Have the legal capacity to enter into the required agreements
and the actual capacity to carry them out.
(c) Limitations. (1) Conditional commitments will be issued only in
cases where the commitment applicant's selling price does not exceed
the commitment price, which will never be more than the lower of the
appraised value or the maximum loan amount as contained in
Sec. 1944.17.
(2) Conditional commitments will be issued by RHCDS for new homes
to be constructed, new manufactured homes, or existing homes (other
than manufactured).
(3) Conditional commitments for new or substantially rehabilitated
dwellings will not be issued after construction has started.
(4) The total number of conditional commitments issued in any
locality will not exceed the number of homes for which there is an
immediate and ready market in that locality. In addition, the total
number of conditional commitments outstanding in the area served by an
RHCDS field office will not exceed the number on which the approval
official can reasonably expect to be able to approve RH loans within 3
months after the houses covered by the commitments are completed,
considering the availability of loan funds, and the number of
applications in any RHCDS field office.
(5) The period of the conditional commitment will be for 12 months
from the date of issuance. The commitment may be extended for an
additional 6 months because of unexpected delays in construction caused
by such factors as bad weather or materials shortages or marketing
difficulties.
(6) When five or more conditional commitments have been issued to
one recipient during a 12-month period, an affirmative marketing plan
will be required in accordance with Sec. 1901.203(c).
(d) Conditional commitments involving packaging of applications. A
conditional commitment may be made to a seller, builder, or dealer-
contractor who packages a RH application for an applicant to buy the
property. In cases where the dwelling is presold and is to be
constructed for sale only to a specific applicant and the information
on the house and the loan applicant is submitted at the same time, all
of the following conditions must be met:
(1) The conditional commitment will not be approved until the RH
loan has been approved;
(2) Construction will not begin until loan funds are obligated for
the RH loan. RHCDS may make an exception to this requirement when it
appears likely that funding will be forthcoming and it is necessary to
begin construction because of weather conditions or similar
circumstances provided the commencement of construction prior to
closing the RH loan will not jeopardize RHCDS's lien priority.
(i) In these situations, the sales agreement must indicate that the
loan has been approved but not funded and must provide that if the loan
is not closed within 90 days of the date of approval, the contractor
may, in writing, terminate the sales agreement and sell the home to
another party. If the sales agreement is terminated, the conditional
commitment will be honored for another eligible RHCDS loan applicant
for the remaining period of the commitment, providing the contractor
has met all other requirements of this subpart.
(ii) If the sales agreement is terminated, a Certificate of
Eligibility will be issued to the loan applicant in accordance with
Sec. 1944.27.
(3) The RH loan will be closed only after the dwelling is
constructed or the required rehabilitation completed and final
inspection has been made.
(e) Fees. Each commitment applicant will pay a fee for each
conditional commitment at the time an application is submitted. Fees
are established in exhibit G (available in any field office).
Conditional commitment contractors will be reimbursed at the time the
section 502 RH loan is closed for an amount equal to the fee the
section 502 RH applicant is charged for the real estate appraisal.
(f) Processing applications. (1) Applications for conditional
commitments will be submitted on Form FmHA 1944-36, ``Application for
Conditional Commitment.'' Attachments as required by on the form will
be included for each individual dwelling for which a conditional
commitment is requested.
(2) [Reserved]
(3) Evaluation of applications. The commitment applicant must meet
the requirements of paragraphs (b) and (c) of this section, and the
dwelling and site must meet the requirements of this subpart and
subpart A of part 1924 and comply with all local codes and ordinances.
The property must meet the requirements of subpart C of part 1924 and
subpart G of part 1940. If the commitment applicant, dwelling, and site
qualify, an appraisal will be obtained in accordance with subpart C of
part 1922.
(4) Failure of applicant or dwelling to qualify. If the application
is denied for failure to meet the requirements of paragraph (b) (2) or
(3) of this section, the applicant may appeal in accordance with
subpart B of part 1900.
(i) The application fee will be refunded if for any reason
preliminary inspection of the property or investigation of the
commitment applicant indicates that a conditional commitment will not
be issued.
(ii) Application fees will not be refunded for any property on
which the required appraisal has been made.
(5) Conditional commitment approval. The commitment price may not
exceed the loan approval authority for section 502 RH loans. See
subpart A of part 1901.
(g) Inspections. Failure to correct any deficiencies or to complete
the work in accordance with plans and specifications approved by RHCDS
will be a basis for canceling the conditional commitment. The applicant
must allow RHCDS access for the purpose of inspection. See subpart A of
part 1924.
(h) Changes in plans, specifications, and/or commitment price.
RHCDS may approve changes in plans and specifications that are
consistent with the applicable development standard and exhibit D of
subpart A of part 1924. If the changes are requested after an option
has been executed by an RH applicant, the change will be approved only
if the applicant and the commitment holder agree to the request in
writing. If a change will reduce or increase the appraised value of the
property, RHCDS will revise the commitment price and inform the
commitment holder. Also, in cases when the holder of a commitment
reports to RHCDS that costs associated with the construction or repair
of a dwelling have increased, RHCDS may increase the commitment price
provided the property has not been optioned by an RH applicant, and
RHCDS determines that the increase is clearly justified, the
circumstances causing the price increase were beyond the commitment
holder's control, and the value of the property is adequate to permit
the increased commitment price. A revised appraisal report will be
prepared.
(i) Cancellation of outstanding conditional commitments.
(1) Conditional commitments may be canceled when construction of
the dwelling is not begun within 60 days after the commitment is
issued. [[Page 25658]]
(2) Conditional commitments will be canceled when construction is
not in accordance with all RHCDS requirements, approved plans,
specifications, or the applicable development standards, and the
builder does not make corrections necessary for compliance.
(j) [Reserved]
(k) Builder's warranty. The builder or seller, as appropriate, will
execute an RHCDS approved ``Builder's Warranty,'' or provide a 10-year
insured warranty when construction is completed or the loan to buy the
dwelling is closed.
Sec. 1944.46 Appeals.
Any applicant/borrower who requests and is denied assistance or who
has a right denied, reduced, or canceled may appeal the action in
accordance with subpart B of part 1900. If a decision is not
appealable, such as decisions based on verified income or clear and
objective statutory or regulatory requirements, the applicant/borrower
may request review rights pursuant to subpart B of part 1900.
Sec. 1944.47-1944.48 [Reserved]
Sec. 1944.49 FmHA Instructions.
Detailed FmHA Instructions for administering this subpart are
available in any RHCDS field office.
Sec. 1944.50 [Reserved]
Subpart J--Section 504 Rural Housing Loans and Grants
9. Section 1944.453(d) is added to read as follows:
Sec. 1944.453 Definitions.
* * * * *
(d) Owner/occupant. Adults living in the household who have
ownership rights in the property at the time a loan or grant is closed.
10. Section 1944.456 is amended by inserting ``, environmental, tax
monitoring,'' after the word ``architectural'' in paragraph (i); by
inserting ``, not to exceed $300,'' after the word ``fees'' in
paragraph (m) introductory text; by removing paragraph (m)(2); by
redesignating paragraph (m)(3) as paragraph (m)(2); and by adding a new
paragraph (m)(3) to read as follows:
Sec. 1944.456 Loan and grant purposes.
* * * * *
(m) * * *
(3) The package is acceptable and the request is funded.
11. Section 1944.457 is amended by revising the heading; by
inserting the word ``loan'' after the word ``Maximum'' in paragraph
(a)(1); by removing the word ``individual'' in paragraphs (a)(1) and
(2) and inserting the words ``owner/occupant'' in its place; by
revising ``$15,000'' to read ``$20,000'' at the end of paragraph
(a)(1); by revising ``$5,000'' to read ``$7,500'' at the end of
paragraph (a)(2); and by revising paragraph (a)(4) to read as follows:
Sec. 1944.457 Loan and grant restrictions and record keeping.
* * * * *
(a) * * *
(4) Document the amount of grant provided each grantee on a list of
Section 504 recipients and retain it in the office operational file.
The list will contain the names of all owner/occupants at the time of
the grant closing. The list must include the following information
recorded at the time a section 504 grant is made:
(i) Grantee's names, address, and case number;
(ii) Amount of the grant; and
(iii) Date grant was closed.
* * * * *
12. Section 1944.458(d)(1) is revised to read as follows:
Sec. 1944.458 Eligibility requirements.
* * * * *
(d) * * *
(1) Evaluation of personal resources will exclude the dwelling and
a minimum adequate site, personal automobile, household goods, and
liquid assets up to $7,500. Liquid assets are cash or other assets that
can be converted to cash in 90 days or less. Real estate acreage larger
than a minimum adequate site will not be excluded from the evaluation.
* * * * *
13. Section 1944.461(b)(3) introductory text is amended by removing
the word ``remaindermen's'' before the word ``interests'' in the first
sentence and inserting the word ``remainder'' in its place, and by
revising paragraphs (b)(3)(i), (iii), and (iv) to read as follows:
Sec. 1944.461 Security and other requirements.
* * * * *
(b) * * *
(3) * * *
(i) One or more of the holders of remainder interests is not
legally competent (and there is no guardian or conservator who can
consent to the mortgage), cannot be located, or the remainder rights
are divided among such a large number of people that it is not
practical to obtain the signatures of all the remainder interests;
* * * * *
(iii) All legally competent persons (or the guardian or conservator
for any person who is not legally competent) holding remainder
interests who are using or occupying the dwelling sign the mortgage;
and,
(iv) The loan does not exceed the market value of the portion of
the property represented by the remainder interests of the persons
signing the mortgage.
* * * * *
14. Section 1944.463 is amended by inserting the words ``and/or
other construction development'' after the words ``safety hazards'' in
the first sentence of paragraph (a) introductory text; by inserting the
words ``security is taken and'' after the word ``when,'' and by
revising ``$7,500'' to read ``$15,000'' in the first sentence of
paragraph (d) introductory text, by removing the word ``Total FMHA
indebtedness'' from the first sentence of paragraphs (e)(1) and (e)(2)
and inserting the word ``assistance'' in their place, and by revising
paragraph (d)(1) to read as follows:
Sec. 1944.463 Technical services.
* * * * *
(d) * * *
(1) On a nonfarm tract or small farm, or on a leasehold interest in
a nonfarm tract or small farm, an estimate of value (limited vs.
complete appraisal) will be done in accordance with subpart C of part
1922, based on the direct sales comparison approach only, utilizing the
most recent comparable sales data available. The Uniform Residential
Appraisal Report (URAR) will be used for this purpose. These appraisals
will be done by RHCDS employees having a good understanding of
appraisal concepts and adequate appraisal training. A small farm, for
the purpose of this subpart, is a farm as defined in Sec. 1944.2 which
has value primarily as a residence rather than for the production of
agricultural commodities, and repayment of the RH loan is not dependent
on farm income.
* * * * *
15. Section 1944.467 is amended by removing paragraphs (a)(3), (d),
and (h); by removing and reserving paragraph (c) by redesignating
paragraphs (e), (f), and (g) as paragraphs (d), (e), and (f)
respectively; by revising the introductory text of paragraph (a), and
by adding a new paragraph (a)(3) to read as follows:
Sec. 1944.467 Processing applications.
(a) Application. Application for Section 504 assistance will be
made on Form FmHA 410-4, ``Application for Rural Housing Assistance
(Non-farm Tract) Uniform Residential Loan Application'', (hereafter
called URLA) [[Page 25659]] which is available at any RHCDS field
offices, and the application will be processed in accordance with
Sec. 1944.27 using applicable forms from exhibit E, available in any
RHCDS field office.
* * * * *
(3) Actions taken under this subpart are subject to the
environmental requirements of subpart G of part 1940.
* * * * *
(c) [Reserved]
Sec. 1944.468 [Amended]
16. Section 1944.468 is amended by removing the words ``must not be
over 90 days old.'' at the end of paragraph (b) and inserting the words
``are as prescribed in subpart A of this part).''
Sec. 1944.469 [Amended]
17. Section 1944.469 is amended by removing and reserving
paragraphs (b) and (c):
18. Section 1944.472 is amended by adding new language at the end
of the paragraph to read as follows:
Sec. 1944.472 Subsequent Section 504 loans and/or grants.
* * * If the area designation has changed from rural to nonrural,
subsequent loans and grants will be made only for essential repairs.
PART 1951-GENERAL
19. The authority citation for Part 1951 continues to read as
follows:
Authority: 7 U.S.C. 1989, 42 U.S.C. 1480, 5 U.S.C. 301.
Subpart G--Borrower Supervision, Servicing, and Collection of
Single Family Housing Loan Accounts
Secs. 1951.313-1951.319 [Redesignated as Secs. 1951.314-1951.320]
20. Sections 1951.313 through 1951.319 are redesignated as
Secs. 1951.314 through 1951.320 and a new 1951.313 is added to read as
follows:
Sec. 1951.313 Payment assistance.
(a) General. The correction, renewal, and cancellation of payment
assistance agreements and payment assistance granted as a servicing
action on existing loans is handled under this section. Recapture of
payment assistance will be calculated and repaid in accordance with
subpart I of this part.
(b) [Reserved]
(c) Existing loans. Payment assistance may be granted at any time
after loan closing if the following conditions are met.
(1) The loan was approved on or after August 1, 1968.
(2) The borrower personally occupies the dwelling unless determined
uninhabitable by RHCDS or is temporarily not occupied for reasons such
as seasonal or migratory employment, military call-up, or
hospitalization.
(3) The borrower's adjusted annual income does not exceed the
moderate-income limit contained in exhibit C to FmHA Instruction 1944A
(available in any RHCDS field office).
(i) If there is not a reasonable expectation that current income
will continue for 12 months, income will be projected for the period
expected rather than for 12 months. For example, if a borrower is
receiving unemployment benefits, the payment assistance agreement will
be effective for the period of the benefits. At the end of the benefit
period or earlier if circumstances change, the borrower's situation
will be reviewed and appropriate action taken based on current
circumstances.
(ii) [Reserved]
(iii) If one coborrower has left the dwelling due to domestic
discord, payment assistance may be based on the remaining borrower's
income if the following conditions are met:
(A) The remaining coborrower is occupying the dwelling, owns a
legal interest in the property, is liable for the debt, and agrees to
notify RHCDS if the other coborrower returns.
(B) Legal papers have been filed to commence divorce or legal
separation, a restraining order has been obtained, or one coborrower
has not been living in the dwelling for at least 3 months. Payment
assistance will not be granted if separation is due to work assignment
or military order.
(4) The term of the loan at closing was at least 25 years. If an
account has been reamortized and the term of the loan was at least 25
years initially, payment assistance may be granted even though the term
of the reamortized loan is less than 25 years. If the term of the loan
was less than 25 years prior to reamortization, the reamortized term
must be at least 25 years.
(5) The amount of payment assistance granted will be based upon the
borrower's adjusted family income compared to median income for the
area where the property is located as determined by Sec. 1944.34(c).
(6) Payment assistance may be granted retroactively for up to 6
months if the conditions described in paragraphs (c)(1) through (c)(5)
of this section existed at the time.
(d) Correction. A corrected payment assistance agreement will be
prepared under the following circumstances.
(1) Change in income. RHCDS is not responsible for monitoring
changes in a borrower's income. If RHCDS becomes aware of income
changes outside of the renewal period that will change the amount of
authorized payment assistance as defined in Sec. 1944.34(c), a new 12-
month agreement will be prepared effective the due date following the
date RHCDS became aware of the change.
(2) Insufficient payment assistance. If a borrower received less
payment assistance than the borrower was eligible to receive, a
corrected agreement will be prepared. The effective date of the
corrected agreement will be the same date as the agreement being
replaced.
(3) Unauthorized assistance. If a borrower received unauthorized
payment assistance, the account will be serviced in accordance with
Subpart M of this part. This includes situations where the borrower did
not advise RHCDS of income increases as required on the Payment
Assistance/Deferral/Repayment form.
(e) Renewal--(1) Contractors. State Directors are authorized to
enter into contracts for the processing of payment assistance renewals.
Renewal contracts will cover all required actions except approval or
cancellation of payment assistance.
(2) [Reserved]
(i) Borrower Interview. The borrower must be available for an
interview during each renewal period.
(ii) Determination of eligibility. Adjusted annual income will be
determined and documented in the file. All borrowers will be required
to submit a copy of their most recent Federal income tax return. In
addition, income for wage earning borrowers will be verified by use of
an RHCDS form (available in any RHCDS field office), and wage matching,
if available. Borrowers receiving social security or retirement
benefits must provide copies of their most recent benefit/award
letters. Payment assistance will not be renewed if the borrower's
adjusted family income exceeds the moderate-income limit, (available in
any RHCDS field office) or if the borrower does not occupy the
dwelling.
(iii) Renewals not completed prior to expiration of existing
agreement. If not due to RHCDS error, the effective date of the renewal
will be the next due date after the date of approval. If due to RHCDS
error, the effective date will be the expiration date of the previous
agreement.
(3) Termination of foreclosure action. If a payment assistance
agreement expired after a problem case report recommending foreclosure
was submitted and the foreclosure action was terminated prior to sale
or payment [[Page 25660]] in full, payment assistance will be renewed
effective as of the expiration date of the previous agreement if RHCDS
is to continue with the loan.
(4) [Reserved]
(f) Cancellation. Payment assistance will be canceled when any of
the following conditions occur:
(1) The borrower has never occupied the dwelling and RHCDS will not
continue with the loan. Cancellation will be effective as of the date
of loan closing or amortization effective date, whichever is
appropriate.
(2) The borrower ceases to occupy the dwelling. Cancellation will
be effective the payment due date following the date of non-occupancy
if known; otherwise, the payment due date following the date RHCDS
became aware of the situation.
(3) The borrower has received improper payment assistance as
determined in accordance with subpart M of this part and a corrected
agreement will not be submitted. Cancellation will be effective the
payment due date following the date RHCDS became aware of the
situation.
(4) The borrower is no longer eligible for payment assistance due
to an increase in income. Cancellation will be effective the payment
due date following the date RHCDS became aware of the increase.
(5) The borrower sells or title to the security property is
otherwise transferred. Cancellation will be effective the payment due
date prior to the date title transferred. When security property is
acquired by RHCDS, cancellation will be effective the payment due date
prior to the date of acquisition.
(g) [Reserved]
(h) Notice of right for review or appeal. All borrowers who request
and are denied payment assistance or whose payment assistance is
reduced, canceled, or not renewed may appeal or request a review in
accordance with subpart B of part 1900 of this chapter.
(i) [Reserved]
(j) Hardship waiver. The approval official may submit to the
District Director any situation in which the borrower cannot meet the
conditions of paragraphs (c) and (e) of this section and it is
determined that without payment assistance the borrower would
experience extreme hardship or lose the property through foreclosure. A
waiver may be granted if the above can be determined and the borrower
has no other means of retaining the dwelling.
PART 1965--REAL PROPERTY
21. The authority citation for part 1965 continues to read as
follows:
Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301.
Subpart C--Security Servicing for Single Family Rural Housing Loans
Sec. 1965.126 [Amended]
22. Section 1965.126 is amended by removing the words ``serve as a
minimum adequate site for another dwelling.'' and inserting the words
``be subdivided and sold.'' in their place at the end of the first
sentence of paragraph (b)(3); by removing the second, third, and fourth
sentences and the word ``however'' and the comma preceding it in the
last sentence of paragraph (b)(4)(i); and by adding the words ``except
as provided in Sec. 1944.17 of subpart A of part 1944 of this
chapter,'' following the words ``being assumed'' in the first sentence
of paragraph (b)(8).
Dated: March 23, 1995.
Michael V. Dunn,
Acting Under Secretary for Rural Economic and Community Development.
[FR Doc. 95-11308 Filed 5-11-95; 8:45 am]
BILLING CODE 3410-07-U