83 FR 42618 - Single Family Housing Guaranteed Loan Program

DEPARTMENT OF AGRICULTURE
Rural Housing Service

Federal Register Volume 83, Issue 164 (August 23, 2018)

Page Range		42618-42622
FR Document		2018-18089
The Rural Housing Service (RHS or Agency) proposes to make several changes to the single-family housing guaranteed loan program (SFHGLP) regulations to streamline the loss claim process for lenders who have acquired title to property through voluntary liquidation or foreclosure; clarify that lenders must comply with applicable laws, including those within the purview of the Consumer Financial Protection Bureau; and better align loss mitigation policies with those in the mortgage industry.
Federal Register, Volume 83 Issue 164 (Thursday, August 23, 2018)
[Federal Register Volume 83, Number 164 (Thursday, August 23, 2018)]
[Proposed Rules]
[Pages 42618-42622]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-18089]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

RIN 0575-AD09


Single Family Housing Guaranteed Loan Program

AGENCY: Rural Housing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Housing Service (RHS or Agency) proposes to make 
several changes to the single-family housing guaranteed loan program 
(SFHGLP) regulations to streamline the loss claim process for lenders 
who have acquired title to property through voluntary liquidation or 
foreclosure; clarify that lenders must comply with applicable laws, 
including those within the purview of the Consumer Financial Protection 
Bureau; and better align loss mitigation policies with those in the 
mortgage industry.

DATES: Written or email comments on the proposed rule must be received 
on or before October 22, 2018 to be assured for consideration.

ADDRESSES: You may submit comments on this proposed rule by any one of 
the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Ave. SW, 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express mail, or other courier service requiring a street address to 
the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 1400 Independence Ave. SW, Washington, DC 
20250.
    All written comments will be available for public inspection during 
regular work hours at the 1400 Independence Ave. SW, address listed 
above.

FOR FURTHER INFORMATION CONTACT: Kate Jensen, Finance and Loan Analyst, 
Single Family Housing Guaranteed Loan Division, STOP 0784, Room 2250, 
USDA Rural Development, South Agriculture Building, 1400 Independence 
Avenue SW, Washington, DC 20250-0784, telephone: (503) 894-2382, email 
is [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866, Classification

    This proposed rule has been determined to be non-significant and, 
therefore was not reviewed by the Office of Management and Budget (OMB) 
under Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Except where specified, all State and local laws 
and regulations that are in direct conflict with this rule will be 
preempted. Federal funds carry Federal requirements. No person is 
required to apply for funding under SFHGLP, but if they do apply and 
are selected for funding, they must comply with the requirements 
applicable to the Federal program funds. This proposed rule is not 
retroactive. It will not affect agreements entered prior to the 
effective date of the rule. Before any judicial action may be brought 
regarding the provisions of this rule, the administrative appeal 
provisions of 7 CFR part 11 must be exhausted.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effect of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Agency generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector, of $100 
million, or more, in any one year. When such a statement is needed for 
a rule, section 205 of the UMRA generally requires the Agency to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1970, 
subpart G, ``Environmental Program.'' It is the determination of the 
Agency that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and, in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 91-190, neither an Environmental Assessment nor an Environmental 
Impact Statement is required.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) the undersigned has determined and certified by signature of this 
document that this rule change will not have a significant impact on a 
substantial number of small entities. This rule does not impose any 
significant new

[[Page 42619]]

requirements on Agency applicants and borrowers, and the regulatory 
changes affect only Agency determination of program benefits for 
guarantees of loans made to individuals.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    Executive Order 13175 imposes requirements on RHS in the 
development of regulatory policies that have Tribal implications or 
preempt tribal laws. RHS has determined that the proposed rule does not 
have a substantial direct effect on one or more Indian Tribe(s) or on 
either the relationship or the distribution of powers and 
responsibilities between the Federal Government and Indian Tribes. 
Thus, this proposed rule is not subject to the requirements of 
Executive Order 13175. If a tribe determines that this rule has 
implications of which RHS is not aware and would like to engage with 
RHS on this rule, please contact USDA's Native American Coordinator at 
(720) 544-2911 or [email protected].

Executive Order 12372, Intergovernmental Consultation

    These loans are subject to the provisions of Executive Order 12372, 
which require intergovernmental consultation with State and local 
officials. RHS conducts intergovernmental consultations for each SFHGLP 
in accordance with 2 CFR part 415, subpart C.

Programs Affected

    The program affected by this regulation is listed in the Catalog of 
Federal Domestic Assistance under Number 10.410, Very Low to Moderate 
Income Housing Loans (Section 502 Rural Housing Loans).

Paperwork Reduction Act

    The information collection and record keeping requirements 
contained in this regulation have been approved by OMB in accordance 
with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The 
assigned OMB control number is 0575-0179.

E-Government Act Compliance

    The Agency is committed to complying with the E-Government Act, to 
promote the use of the internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

Non-Discrimination Policy

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the responsible 
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or 
contact USDA through the Federal Relay Service at (800) 877-8339. 
Additionally, program information may be made available in languages 
other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at http://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or 
write a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410;
    (2) Fax: (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

Background Information

    Driven by tight credit markets in which lenders are reluctant to 
make mortgage loans without insurance or guarantees from the federal 
government, SFHGLP has grown significantly in recent fiscal years (FY); 
from $33 million in loans in 1991 to $19.2 billion in FY 2017. The 
total portfolio of the SFHGLP consists of over one million loans 
serviced by over 1,000 lenders. The expansion of the program has led 
the Agency to look for ways in which current policies and procedures 
can be revised to streamline the program, align the Agency with 
industry practices, and balance Agency resources with program demand. 
In order to help achieve these objectives, this rule proposes various 
changes to the loss claim process and loss mitigation loan servicing.

I. Loss Claims

    When a borrower stops making loan payments and goes into default, 
lenders are required to contact the borrower at prescribed intervals to 
offer various loss mitigation options to continue with the loan, come 
to an agreement to self-liquidate, or transfer the property to the 
lender through a deed-in-lieu. If these loss mitigation activities are 
unsuccessful, the lender will proceed to foreclosure where the property 
is sold to a third party or acquired into the lender's real estate 
owned (REO) portfolio. After sale of the property at the foreclosure 
sale or from the lender's REO, those proceeds are applied to the 
account. If that amount cannot satisfy the account, the lender submits 
a loss claim to the Agency using a web-based automated system or in a 
paper format. Upon payment of the loss claim payment to the lender, the 
Agency has satisfied its obligation to the lender under the loan 
guarantee.
    When a lender acquires title to a property (i.e., REO), the Agency 
requires an REO property disposition plan from the lender explaining 
how, among other things, the lender will maintain and market the 
property during the permissible marketing period. The lender must 
obtain Agency concurrence for any significant changes to the plan.
    Currently, the Agency provides two opportunities for the lender to 
file a loss claim on REO property: When the property sells during the 
permissible marketing period, or after the permissible marketing period 
(typically 9 or 12 months) if the REO property does not sell.
    If the property has sold during the permissible marketing period, 
the loss claim is paid based on the actual property sales price 
combined with the actual property liquidation, property preservation, 
and disposition costs. If the property remains unsold after the 
permissible marketing period, the loss claim is based upon a 
liquidation value real estate appraisal and preservation and 
disposition costs consistent with the most currently published U.S. 
Department of Veterans Affairs (VA) Management and Acquisition Factor 
(VA Net Value Factor) found at https://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp. When a lender receives a loss claim payment on 
unsold

[[Page 42620]]

REO, they are responsible to report the future sale of the property and 
pay future recovery if the sales price is greater than the liquidation 
value real estate appraisal amount. The proceeds are distributed so 
that the total loss to the Agency is equivalent to the loss that would 
have been incurred had the recovered amount been included in the 
initial loss calculation.
    The Agency proposes changes to the loss claim payment process when 
a lender acquires title by way of a deed-in-lieu or foreclosure sale. 
Under the proposed framework, lenders who acquire title must order a 
market value appraisal for the REO property within 15 days of acquiring 
title to the property. The loss claim request must be submitted to the 
Agency within 45 days upon receipt of the appraisal. The Agency will 
employ a loss claim model that takes into consideration various 
factors, including the market value appraisal, as well as property 
preservation and disposition costs based on the VA Management and 
Acquisition Factor costs consistent with the most currently published 
U.S. Department of Veterans Affairs (VA) Management and Acquisition 
Factor (VA Net Value Factor) found at https://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp to determine the loss claim amount. 
Because loss claims will be paid after acquisition and prior to 
marketing the REO, this will eliminate the need for REO property 
disposition plans, different loss claim calculations based on whether 
the property has sold or remains in the lender's REO portfolio, and 
claim adjustments based on future recovery. To reflect this more 
streamlined approach to loss claim processing that should deliver loss 
claim payments to lenders in a timelier fashion, the Agency will limit 
the lender to 60 days of additional interest during the loss claim 
period.
    The Agency also proposes to revise 7 CFR 3555.354, which allows 
lenders to submit a loss claim electronically or in paper format. The 
change will require all lenders to utilize a web-based system to submit 
loss claims to reduce paperwork burden to both lenders and the Agency.
    The Agency proposes to revise the definition of the settlement date 
to add the settlement date for deed-in-lieu actions. The Agency will 
define the settlement date of the deed-in-lieu as the date title is 
recorded. The current version of the regulation is silent on this 
issue.
    These proposed changes were recommended by a Lean Six Sigma task 
force that consisted of Agency staff and lenders. Lean Six Sigma is a 
methodology used to improve performance and streamline processes by 
defining, measuring, analyzing, improving, and controlling problems or 
issues. The Lean Six Sigma task force was established to develop 
solutions on improving the loss claim process, while also making the 
SFGHLP cost-effective and efficient. Benefits of the proposed loss 
claim process to the lender include: A faster claim resolution by 
elimination of the 9- and 12 month marketing periods; a simplified 
claim submission due to elimination of requirement to submit invoices, 
system notes, financial history, listing agreement, Closing Disclosure 
and other information applicable to the marketing period; elimination 
of the property disposition plan; and efficient disposition of REO 
properties due to the elimination of agency approval required for 
offers, repair bids or valuations. Benefits to the Agency include: A 
reduction of REO claim processing time to 1.5-4 hours per claim from 3-
6 hours per claim resulting in an annual savings of 26,728 staff hours 
or $927,000 in annual labor costs; elimination of property disposition 
plans resulting in a savings of 14,492 hours or $503,000 in annual 
labor costs; reduction of improper payment risk by eliminating 
consideration of actual expenditure activity within the marketing 
period; simplification and streamlining of compliance reviews by 
eliminating all post-foreclosure activity on REO claims; reduction of 
interest paid by 30 days per REO claim resulting in annual interest 
savings of $3.7 million (based on FY 2014 REO claim payments). The 
proposed change will not impact borrowers.

II. General Lender Requirement

    The Agency is proposing to amend 7 CFR 3555.51(b)(1) to clarify 
that in addition to complying with Agency laws and guidance, lenders 
must comply with other applicable federal, state and local laws, 
including those that fall under the purview of the Consumer Financial 
Protection Bureau, such as the Real Estate Settlement Procedures Act 
and the Truth in Lending Act.

III. Loss Mitigation

    In November of 2015, the Department of Treasury hosted a summit 
attended by federal agencies, mortgage lenders, consumer groups, 
investors, and mortgage service providers to discuss the future of loss 
mitigation pending the expiration of the Home Affordable Modification 
Program (HAMP) in December 2016. An important take-away from the summit 
was HAMP data showing payment reduction was key to a borrower's loss 
mitigation success. Borrowers facing financial hardship are unable to 
retain their home if the modified payment remains equal or exceeds 
their current promissory note installment.
    The proposed changes regarding loss mitigation procedures, 
described below, would continue the Agency's efforts to improve the 
effectiveness of loss mitigation by emphasizing payment reduction as 
the key component to any relief provided to the borrower while offering 
lenders and borrowers consistent loss mitigation policies that align 
with industry standard.
    The proposed changes will offer borrowers faster and greater 
payment relief early in the loss mitigation process. Historically, 
borrowers who receive less than 10 percent payment reduction have re-
defaulted at a rate greater than 60 percent. When at least a 10 percent 
payment reduction is achieved, the re-default rate is reduced by half. 
These changes would increase homeownership success and decrease 
foreclosures. The Agency expects a corresponding reduction in lender-
owned property resulting in greater community stability, as well as 
decreasing the expenses associated with foreclosure and property 
disposition.

A. Agency Concurrence on Servicing Plans and Voluntary Liquidation

    Currently, lenders must obtain Agency concurrence for a formal 
servicing plan or voluntary liquidation prior to implementation with 
the borrower. The Agency may grant lenders a waiver for concurrence.
    The Agency proposes to amend the regulation to eliminate the 
requirement for Agency concurrence on formal servicing plans and 
voluntary liquidation. The proposed change would streamline the 
servicing plan and voluntary liquidation process for lenders and 
borrowers. Lenders would still report to the Agency any servicing plans 
and voluntary liquidation options that have been adopted, but Agency 
concurrence will not be necessary beforehand. While Agency concurrence 
for these actions will not be necessary, lenders will still be 
accountable for servicing plans and voluntary liquidation actions. The 
Agency will set performance benchmarks, monitor lender performance, and 
implement any necessary corrective action plans. Performance benchmarks 
will include rates for delinquency, foreclosure, and loss claim.
    Lender performance regarding loss mitigation servicing plans and 
voluntary liquidation will be captured by the

[[Page 42621]]

Agency's existing quality control (QC) process that incorporates a set 
of questions and findings for a sample of files submitted by the lender 
during a specific time. Findings are recorded and reported back to the 
lender along with any suggestions for improvement.
    In addition, the Agency already reviews lenders on a regular basis 
for compliance with Agency requirements, and will reflect lenders' 
implementation of loss mitigation servicing plans and voluntary 
liquidation. Lender compliance reviews focus on the lender's adherence 
to Agency requirements and continuing eligibility for the program based 
on the results of individual file reviews. Lenders are provided a 
report of any findings and given an opportunity to correct issues.
    Lenders that are determined to be out of compliance through Agency 
QC or compliance reviews will be counseled, offered training, and given 
the opportunity to improve. Lenders that show little or no progress 
could be subject to enhanced oversight during the loss claim process.
    The Agency believes that eliminating the need for Agency 
concurrence for these actions will reduce the number of approval steps 
within the process and provide assistance to borrowers more quickly and 
balance Agency resources against demands. In addition, the change will 
align Agency policy with other loan guarantee programs that do not 
require a case-by-case review and rely on regular QC, lender compliance 
reviews, and data to determine lender performance and compliance with 
regulations.
    To conform with the above changes, the Agency proposes to eliminate 
references to mandatory Agency concurrence from 3555.302 regarding 
protective advances and 3555.305 regarding voluntary liquidation.

B. Trial Plan (Traditional Servicing Loan Modification)

    Pursuant to 7 CFR 3555.303(b)(3)(v) borrowers may not be required 
to complete a trial plan in order to be eligible for a traditional 
servicing loan modification. The Agency proposes to amend this 
requirement and provide flexibility to lenders to determine whether a 
trial period is warranted for a traditional servicing loan 
modification.

C. Mortgage Recovery Advance

    Lenders may use special servicing options to bring a borrower's 
mortgage payment to an income ratio as close as possible to 31 percent. 
If the borrower cannot reach the targeted payment with an extended term 
loan modification of interest rate and loan term under 3555.304(c), the 
lender may utilize a Mortgage Recovery Advance (MRA) under 3555.304(d).
    The Agency proposes to amend the language to standardize many of 
the requirements of special servicing options to increase the 
opportunity and effectiveness of lender assistance to borrowers facing 
an involuntary inability to pay their mortgage.
    The Agency proposes to allow a ``stand-alone'' MRA when a borrower 
faced a hardship but is now able to continue making payments under the 
promissory note rate and terms but cannot cure the delinquency with 
personal funds. Currently, the regulation does not provide a solution 
for this scenario. The Agency has received feedback from stakeholders 
that a stand-alone MRA in certain circumstances would be an effective 
tool to facilitate borrower's long-term repayment ability. The proposed 
stand-alone MRA would be permitted when the borrower's mortgage payment 
to income ratio is less than 31 percent. For other borrowers, the 
existing requirement to use special servicing options in the order they 
appear in 3555.304 would remain.
    The regulation is currently silent on how the servicer should treat 
the capitalization of the delinquency when using special servicing 
options. In comparison, traditional servicing options direct the lender 
through specific steps to capitalize all or a portion of the arrearage 
(PITI). Capitalization may also include foreclosure fees and costs, tax 
and insurance advances, past due Agency annual fees imposed by the 
lender, but not late charges or lender fees. Allowing the lender to 
capitalize the delinquency and these other amounts creates a clearer 
path to borrower success.
    The Agency proposes to remove the maximum limit of 12 months PITI 
when calculating the MRA maximum amount and the requirement that the 
lender reduce the maximum MRA by the sum of the arrearages advanced to 
cure the default and any foreclosure costs incurred to that point. The 
servicing industry uses a standard ``waterfall'' method where the first 
step is to capitalize the delinquency, defined as PITI, annual fees, 
legal fees, and foreclosure costs. The lender then considers changes to 
the interest rate and term extension. By focusing on the limit of 30 
percent of the unpaid principal balance, the changes would simplify the 
MRA calculation and increase the chances of the borrower becoming and 
remaining current. In addition, removal of the 12-month maximum PITI 
will bring the Agency in line with other federal programs and industry 
standards.

List of Subjects in 7 CFR Part 3555

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

    Therefore, chapter XXXV, title 7 of the Code of Federal Regulations 
is proposed to be amended as follows:

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

0
1. The authority citation for part 3555 continues to read as follows:

    Authority:  5 U.S.C. 301; 42 U.S.C. 1471 et seq.

0
2. Amend Sec.  3555.10 in the definition of Settlement date by revising 
the introductory text and adding paragraph (5) to read as follows:


Sec.  3555.10  Definitions and abbreviations.

* * * * *
    Settlement date. The settlement date, for the purpose of loss 
calculation, is:
* * * * *
    (5) The date title is acquired upon recordation of a deed-in-lieu 
of foreclosure, with prior approval of the lender.
* * * * *
0
3. Amend Sec.  3555.51 (b)(1) by adding a new sentence after the first 
sentence to read as follows:


Sec.  3555.51  Lender eligibility.

* * * * *
    (b) * * *
    (1) * * * Lenders must also comply with all other applicable 
federal, state and local laws, rules and requirements, including those 
under the purview of the Consumer Financial Protection Bureau, such as 
the Real Estate Settlement Procedures Act and the Truth in Lending Act. 
* * *
* * * * *
0
4. Amend Sec.  3555.301 by revising paragraph (h) to read as follows:


Sec.  3555.301  General servicing techniques.

* * * * *
    (h) Formal servicing plan. The lender must report to the Agency 
utilizing a web-based automated system a formal servicing plan when a 
borrower's account is 90 days or more delinquent and a method other 
than foreclosure is recommend to solve the delinquency.
0
5. Amend Sec.  3555.302 by revising paragraph (b) to read as follows:


Sec.  3555.302  Protective advances.

* * * * *

[[Page 42622]]

    (b) Advances for costs other than taxes and insurance. Protective 
advances for costs other than taxes and insurance, such as emergency 
repairs, can be made only if the borrower cannot, or will not, obtain 
an additional loan or reimbursement from an insurer or the borrower has 
abandoned the property. The lender must determine that any repairs 
funded by protective advances are cost effective. Repairs funded by 
protective advances must be planned, performed and inspected in 
accordance with Sec.  3555.202 and as further described by the Agency. 
The lender must obtain prior Agency concurrence before issuing 
protective advances under this paragraph only for protective advances 
of a significant amount as specified by the Agency.
0
6. Amend Sec.  3555.303 by revising paragraph (b)(3)(v) to read as 
follows:


Sec.  3555.303  Traditional servicing options.

* * * * *
    (b) * * *
    (3) * * *
    (v) Lenders may require that borrowers complete a trial payment 
plan prior to making scheduled payments amended by the traditional loan 
servicing loan modification.
* * * * *
0
7. Amend Sec.  3555.304 by removing and reserving paragraph (a)(2), 
revising paragraph (a)(4), revising paragraphs (c)(1)and (2), and 
revising paragraphs (d)(2) and (3) to read as follows:


Sec.  3555.304  Special servicing options.

    (a) * * *
    (2) [Reserved]
* * * * *
    (4) If the borrower currently has a mortgage payment to income 
ratio lower than 31 percent, special servicing options can be utilized 
to cure the delinquency without modifying the note. Otherwise, special 
servicing options shall be used in the order established in this 
section to bring the borrower's mortgage payment to income ratio as 
close as possible to, but not less than, 31 percent.
* * * * *
    (c) * * *
    (1) Loan modifications may capitalize all or a portion of the 
arrearage (PITI) and/or reamortization of the balance due. 
Capitalization may also include foreclosure fees and costs, tax and 
insurance advances, past due annual fees imposed by the lender, but not 
late charges or lender fees.
    (2) Loan modifications must be a fixed interest rate and cannot 
exceed the current market interest rate at the time of modification. 
When reducing the interest rate, the maximum rate is subject to 
paragraph (c)(3) of this section.
    (d) * * *
    (2) The maximum amount of a mortgage recovery advance is 30 percent 
of the unpaid principal balance as of the date of default. The Agency 
may change the maximum amount of mortgage recovery advance by 
publication in the Federal Register.
    (3) If the borrower's total monthly mortgage payment is less than 
31 percent of gross monthly income prior to an extended term loan 
modification, the mortgage recovery advance can be used as a stand-
alone option to cure the borrower's delinquency without changing the 
terms of the note.
* * * * *
0
8. Amend Sec.  3555.305 by revising the introductory text to read as 
follows:


Sec.  3555.305  Voluntary liquidation.

    The lender must have exhausted the servicing options outlined in 
Sec. Sec.  3555.302 through 3555.304 to cure the delinquency before 
considering voluntary liquidation. The methods of voluntary liquidation 
of the security property outlined in this section may be used to 
protect the interests of the Government.
* * * * *
0
9. Amend Sec.  3555.306 by revising paragraph (f) to read as follows:


Sec.  3555.306  Liquidation.

* * * * *
    (f) Lender acquisition of title. If at liquidation, the title to 
the property is conveyed to the lender, the lender will order a market 
value appraisal within 15 days of acquiring title. The appraisal must 
be completed by an appraiser to be used to pay the loss claim using a 
calculated value as provided by a model. The lender must submit the 
appraisal with a loss claim request in accordance with subpart H.
* * * * *
0
10. Amend Sec.  3555.352 by revising paragraphs (c) and (e) to read as 
follows:


Sec.  3555.352  Loss covered by the guarantee.

* * * * *
    (c) Additional interest. Additional interest on the unsatisfied 
principal accrued from the settlement date to the date the claim is 
paid, but not more than 60 days from the settlement date;
* * * * *
    (e) Liquidation costs. Reasonable and customary liquidation costs, 
such as attorney fees, market value appraisals, and foreclosure costs. 
Annual fees advanced by the lender to the Agency are ineligible for 
reimbursement when calculating the loss claim payment.
0
11. Amend Sec.  3555.353 by revising paragraphs (a) introductory text 
and (b) to read as follows:


Sec.  3555.353  Net recovery value.

* * * * *
    (a) For a property that has been sold. When a loss claim is filed 
on a property that was sold to a third party at the foreclosure sale or 
through an approved pre-foreclosure sale, net recovery value is 
calculated as follows:
* * * * *
    (b) For a property that has been acquired. When a loss claim is 
filed on a property acquired by the lender through a foreclosure sale 
or deed-in-lieu of foreclosure, net recovery value is based on an 
estimated sales price calculated using the market value, holding and 
disposition costs calculated using an acquisition and management factor 
published by the VA, and other factors as determined by the Agency. The 
lender must order the appraisal within 15 days of acquiring title to 
the property, and submit the appraisal with any loss claim request in 
accordance with subpart H of this part.
0
12. Amend Sec.  3555.354 by revising the introductory text and 
paragraph (b) to read as follows:


Sec.  3555.354  Loss claim procedures.

    All lenders must use a web-based automated system designated by the 
Agency to submit all loss claim requests.
* * * * *
    (b) REO. When the lender acquires title to the property, the lender 
must order a market value appraisal within 15 days of acquiring title. 
The lender must submit a complete loss claim package that includes the 
completed market value appraisal within 45 calendar days of receiving 
the appraisal. Loss claims submitted beyond this period of time, or 
submitted without an appraisal may be rejected or reduced by Rural 
Development. The Agency will apply an acquisition and management resale 
factor to estimate holding and disposition costs, based on the most 
current VA Management and Acquisition Factor found at https://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp.
* * * * *


Sec.  3555.356  [Removed]

0
13. Remove Sec.  3555.356.

    Dated: July 27, 2018.
Joel C. Baxley,
Administrator, Rural Housing Service.
[FR Doc. 2018-18089 Filed 8-22-18; 8:45 am]
BILLING CODE 3410-XV-P
42618 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Proposed Rules

when the requirements of paragraphs ADDRESSES: You may submit comments Unfunded Mandates Reform Act
(b)(i) and (ii) are satisfied and any on this proposed rule by any one of the Title II of the Unfunded Mandates
commercial interest is not the primary following methods: Reform Act of 1995 (UMRA), Public
interest furthered by the request. OMB • Federal eRulemaking Portal: http:// Law 104–4, establishes requirements for
ordinarily will presume that when a www.regulations.gov. Follow the Federal agencies to assess the effect of
news media requester has satisfied instructions for submitting comments. their regulatory actions on State, local,
factors (i) and (ii) above, the request is • Mail: Submit written comments via and tribal governments and the private
not primarily in the commercial interest the U.S. Postal Service to the Branch sector. Under section 202 of the UMRA,
of the requester. Disclosure to data Chief, Regulations and Paperwork the Agency generally must prepare a
brokers or others who merely compile Management Branch, U.S. Department written statement, including a cost-
and market government information for of Agriculture, STOP 0742, 1400 benefit analysis, for proposed and final
direct economic return will not be Independence Ave. SW, Washington, rules with ‘‘Federal mandates’’ that may
presumed to primarily serve the public DC 20250–0742. result in expenditures to State, local, or
interest. tribal governments, in the aggregate, or
(c) Timing of requests for fee waivers. • Hand Delivery/Courier: Submit
written comments via Federal Express to the private sector, of $100 million, or
Requests for a waiver or reduction of more, in any one year. When such a
fees should be made when the request mail, or other courier service requiring
a street address to the Branch Chief, statement is needed for a rule, section
is first submitted to OMB and should 205 of the UMRA generally requires the
address the criteria referenced above. A Regulations and Paperwork
Management Branch, U.S. Department Agency to identify and consider a
requester may submit a fee waiver reasonable number of regulatory
request at a later time so long as the of Agriculture, 1400 Independence Ave.
alternatives and adopt the least costly,
underlying record request is pending or SW, Washington, DC 20250.
most cost-effective, or least burdensome
on administrative appeal. When a All written comments will be alternative that achieves the objectives
requester who has committed to pay available for public inspection during of the rule.
fees subsequently asks for a waiver of regular work hours at the 1400 This proposed rule contains no
those fees and that waiver is denied, the Independence Ave. SW, address listed Federal mandates (under the regulatory
requester shall be required to pay any above. provisions of Title II of the UMRA) for
costs incurred up to the date the fee FOR FURTHER INFORMATION CONTACT: Kate State, local, and tribal governments or
waiver request was received. Jensen, Finance and Loan Analyst, the private sector. Therefore, this rule is
Dated: August 17, 2018. Single Family Housing Guaranteed Loan not subject to the requirements of
Mark R. Paoletta, Division, STOP 0784, Room 2250, sections 202 and 205 of the UMRA.
General Counsel and Chief FOIA Officer. USDA Rural Development, South Environmental Impact Statement
[FR Doc. 2018–18061 Filed 8–22–18; 8:45 am] Agriculture Building, 1400 This document has been reviewed in
BILLING CODE 3110–01–P
Independence Avenue SW, Washington, accordance with 7 CFR part 1970,
DC 20250–0784, telephone: (503) 894– subpart G, ‘‘Environmental Program.’’ It
2382, email is Kate.Jensen@ is the determination of the Agency that
wdc.usda.gov. this action does not constitute a major
DEPARTMENT OF AGRICULTURE
SUPPLEMENTARY INFORMATION: Federal action significantly affecting the
Rural Housing Service quality of the human environment, and,
Executive Order 12866, Classification in accordance with the National
7 CFR Part 3555 This proposed rule has been Environmental Policy Act of 1969,
determined to be non-significant and, Public Law 91–190, neither an
RIN 0575–AD09
therefore was not reviewed by the Office Environmental Assessment nor an
Environmental Impact Statement is
Single Family Housing Guaranteed of Management and Budget (OMB)
required.
Loan Program under Executive Order 12866.
Executive Order 13132, Federalism
Executive Order 12988, Civil Justice
AGENCY: Rural Housing Service, USDA. The policies contained in this rule do
Reform
ACTION: Proposed rule. not have any substantial direct effect on
This proposed rule has been reviewed States, on the relationship between the
SUMMARY: The Rural Housing Service under Executive Order 12988, Civil national government and States, or on
(RHS or Agency) proposes to make Justice Reform. Except where specified, the distribution of power and
several changes to the single-family all State and local laws and regulations responsibilities among the various
housing guaranteed loan program that are in direct conflict with this rule levels of government. Nor does this rule
(SFHGLP) regulations to streamline the will be preempted. Federal funds carry impose substantial direct compliance
loss claim process for lenders who have Federal requirements. No person is costs on State and local governments.
acquired title to property through required to apply for funding under Therefore, consultation with the States
voluntary liquidation or foreclosure; SFHGLP, but if they do apply and are is not required.
clarify that lenders must comply with selected for funding, they must comply
applicable laws, including those within with the requirements applicable to the Regulatory Flexibility Act
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the purview of the Consumer Financial Federal program funds. This proposed In compliance with the Regulatory
Protection Bureau; and better align loss rule is not retroactive. It will not affect Flexibility Act (5 U.S.C. 601 et seq.) the
mitigation policies with those in the agreements entered prior to the effective undersigned has determined and
mortgage industry. date of the rule. Before any judicial certified by signature of this document
DATES: Written or email comments on action may be brought regarding the that this rule change will not have a
the proposed rule must be received on provisions of this rule, the significant impact on a substantial
or before October 22, 2018 to be assured administrative appeal provisions of 7 number of small entities. This rule does
for consideration. CFR part 11 must be exhausted. not impose any significant new

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Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Proposed Rules 42619

requirements on Agency applicants and Non-Discrimination Policy current policies and procedures can be
borrowers, and the regulatory changes In accordance with Federal civil revised to streamline the program, align
affect only Agency determination of rights law and U.S. Department of the Agency with industry practices, and
program benefits for guarantees of loans Agriculture (USDA) civil rights balance Agency resources with program
made to individuals. regulations and policies, the USDA, its demand. In order to help achieve these
Agencies, offices, and employees, and objectives, this rule proposes various
Executive Order 13175, Consultation changes to the loss claim process and
and Coordination With Indian Tribal institutions participating in or
loss mitigation loan servicing.
Governments administering USDA programs are
prohibited from discriminating based on I. Loss Claims
Executive Order 13175 imposes race, color, national origin, religion, sex, When a borrower stops making loan
requirements on RHS in the gender identity (including gender payments and goes into default, lenders
development of regulatory policies that expression), sexual orientation, are required to contact the borrower at
have Tribal implications or preempt disability, age, marital status, family/ prescribed intervals to offer various loss
tribal laws. RHS has determined that the parental status, income derived from a mitigation options to continue with the
proposed rule does not have a public assistance program, political loan, come to an agreement to self-
substantial direct effect on one or more beliefs, or reprisal or retaliation for prior liquidate, or transfer the property to the
Indian Tribe(s) or on either the civil rights activity, in any program or lender through a deed-in-lieu. If these
relationship or the distribution of activity conducted or funded by USDA loss mitigation activities are
powers and responsibilities between the (not all bases apply to all programs). unsuccessful, the lender will proceed to
Federal Government and Indian Tribes. Remedies and complaint filing foreclosure where the property is sold to
Thus, this proposed rule is not subject deadlines vary by program or incident. a third party or acquired into the
to the requirements of Executive Order Persons with disabilities who require lender’s real estate owned (REO)
13175. If a tribe determines that this alternative means of communication for portfolio. After sale of the property at
rule has implications of which RHS is program information (e.g., Braille, large the foreclosure sale or from the lender’s
not aware and would like to engage with print, audiotape, American Sign REO, those proceeds are applied to the
RHS on this rule, please contact USDA’s Language, etc.) should contact the account. If that amount cannot satisfy
Native American Coordinator at (720) responsible Agency or USDA’s TARGET the account, the lender submits a loss
544–2911 or AIAN@wdc.usda.gov. Center at (202) 720–2600 (voice and claim to the Agency using a web-based
TTY) or contact USDA through the automated system or in a paper format.
Executive Order 12372, Federal Relay Service at (800) 877–8339. Upon payment of the loss claim
Intergovernmental Consultation Additionally, program information may payment to the lender, the Agency has
be made available in languages other satisfied its obligation to the lender
These loans are subject to the than English. under the loan guarantee.
provisions of Executive Order 12372, To file a program discrimination When a lender acquires title to a
which require intergovernmental complaint, complete the USDA Program property (i.e., REO), the Agency requires
consultation with State and local Discrimination Complaint Form, AD– an REO property disposition plan from
officials. RHS conducts 3027, found online at http:// the lender explaining how, among other
intergovernmental consultations for www.ascr.usda.gov/complaint_filing_ things, the lender will maintain and
each SFHGLP in accordance with 2 CFR cust.html and at any USDA office or market the property during the
part 415, subpart C. write a letter addressed to USDA and permissible marketing period. The
Programs Affected provide in the letter all of the lender must obtain Agency concurrence
information requested in the form. To for any significant changes to the plan.
The program affected by this request a copy of the complaint form, Currently, the Agency provides two
regulation is listed in the Catalog of call (866) 632–9992. Submit your opportunities for the lender to file a loss
Federal Domestic Assistance under completed form or letter to USDA by: claim on REO property: When the
Number 10.410, Very Low to Moderate (1) Mail: U.S. Department of property sells during the permissible
Income Housing Loans (Section 502 Agriculture, Office of the Assistant marketing period, or after the
Rural Housing Loans). Secretary for Civil Rights, 1400 permissible marketing period (typically
Independence Avenue SW, Washington, 9 or 12 months) if the REO property
Paperwork Reduction Act DC 20250–9410; does not sell.
(2) Fax: (202) 690–7442; or If the property has sold during the
The information collection and record permissible marketing period, the loss
(3) Email: program.intake@usda.gov.
keeping requirements contained in this claim is paid based on the actual
USDA is an equal opportunity
regulation have been approved by OMB property sales price combined with the
provider, employer, and lender.
in accordance with the Paperwork actual property liquidation, property
Reduction Act of 1995 (44 U.S.C. Background Information preservation, and disposition costs. If
Chapter 35). The assigned OMB control Driven by tight credit markets in the property remains unsold after the
number is 0575–0179. which lenders are reluctant to make permissible marketing period, the loss
E-Government Act Compliance mortgage loans without insurance or claim is based upon a liquidation value
guarantees from the federal government, real estate appraisal and preservation
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The Agency is committed to SFHGLP has grown significantly in and disposition costs consistent with
complying with the E-Government Act, recent fiscal years (FY); from $33 the most currently published U.S.
to promote the use of the internet and million in loans in 1991 to $19.2 billion Department of Veterans Affairs (VA)
other information technologies to in FY 2017. The total portfolio of the Management and Acquisition Factor
provide increased opportunities for SFHGLP consists of over one million (VA Net Value Factor) found at https://
citizen access to Government loans serviced by over 1,000 lenders. www.benefits.va.gov/HOMELOANS/
information and services, and for other The expansion of the program has led servicers_valeri.asp. When a lender
purposes. the Agency to look for ways in which receives a loss claim payment on unsold

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42620 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Proposed Rules

REO, they are responsible to report the methodology used to improve showing payment reduction was key to
future sale of the property and pay performance and streamline processes a borrower’s loss mitigation success.
future recovery if the sales price is by defining, measuring, analyzing, Borrowers facing financial hardship are
greater than the liquidation value real improving, and controlling problems or unable to retain their home if the
estate appraisal amount. The proceeds issues. The Lean Six Sigma task force modified payment remains equal or
are distributed so that the total loss to was established to develop solutions on exceeds their current promissory note
the Agency is equivalent to the loss that improving the loss claim process, while installment.
would have been incurred had the also making the SFGHLP cost-effective The proposed changes regarding loss
recovered amount been included in the and efficient. Benefits of the proposed mitigation procedures, described below,
initial loss calculation. loss claim process to the lender include: would continue the Agency’s efforts to
The Agency proposes changes to the A faster claim resolution by elimination improve the effectiveness of loss
loss claim payment process when a of the 9- and 12 month marketing mitigation by emphasizing payment
lender acquires title by way of a deed- periods; a simplified claim submission reduction as the key component to any
in-lieu or foreclosure sale. Under the due to elimination of requirement to relief provided to the borrower while
proposed framework, lenders who submit invoices, system notes, financial offering lenders and borrowers
acquire title must order a market value history, listing agreement, Closing consistent loss mitigation policies that
appraisal for the REO property within Disclosure and other information align with industry standard.
15 days of acquiring title to the applicable to the marketing period; The proposed changes will offer
property. The loss claim request must be elimination of the property disposition borrowers faster and greater payment
submitted to the Agency within 45 days plan; and efficient disposition of REO relief early in the loss mitigation
upon receipt of the appraisal. The properties due to the elimination of process. Historically, borrowers who
Agency will employ a loss claim model agency approval required for offers, receive less than 10 percent payment
that takes into consideration various repair bids or valuations. Benefits to the reduction have re-defaulted at a rate
factors, including the market value Agency include: A reduction of REO greater than 60 percent. When at least a
appraisal, as well as property claim processing time to 1.5–4 hours per 10 percent payment reduction is
preservation and disposition costs based claim from 3–6 hours per claim achieved, the re-default rate is reduced
on the VA Management and Acquisition resulting in an annual savings of 26,728 by half. These changes would increase
Factor costs consistent with the most staff hours or $927,000 in annual labor homeownership success and decrease
currently published U.S. Department of costs; elimination of property foreclosures. The Agency expects a
Veterans Affairs (VA) Management and disposition plans resulting in a savings corresponding reduction in lender-
Acquisition Factor (VA Net Value of 14,492 hours or $503,000 in annual owned property resulting in greater
Factor) found at https://www.benefits. labor costs; reduction of improper community stability, as well as
va.gov/HOMELOANS/servicers_ payment risk by eliminating decreasing the expenses associated with
valeri.asp to determine the loss claim consideration of actual expenditure foreclosure and property disposition.
amount. Because loss claims will be activity within the marketing period; A. Agency Concurrence on Servicing
paid after acquisition and prior to simplification and streamlining of Plans and Voluntary Liquidation
marketing the REO, this will eliminate compliance reviews by eliminating all
the need for REO property disposition post-foreclosure activity on REO claims; Currently, lenders must obtain
plans, different loss claim calculations reduction of interest paid by 30 days per Agency concurrence for a formal
based on whether the property has sold REO claim resulting in annual interest servicing plan or voluntary liquidation
or remains in the lender’s REO portfolio, savings of $3.7 million (based on FY prior to implementation with the
and claim adjustments based on future 2014 REO claim payments). The borrower. The Agency may grant
recovery. To reflect this more proposed change will not impact lenders a waiver for concurrence.
streamlined approach to loss claim borrowers. The Agency proposes to amend the
processing that should deliver loss regulation to eliminate the requirement
claim payments to lenders in a timelier II. General Lender Requirement for Agency concurrence on formal
fashion, the Agency will limit the lender The Agency is proposing to amend 7 servicing plans and voluntary
to 60 days of additional interest during CFR 3555.51(b)(1) to clarify that in liquidation. The proposed change
the loss claim period. addition to complying with Agency would streamline the servicing plan and
The Agency also proposes to revise 7 laws and guidance, lenders must voluntary liquidation process for
CFR 3555.354, which allows lenders to comply with other applicable federal, lenders and borrowers. Lenders would
submit a loss claim electronically or in state and local laws, including those still report to the Agency any servicing
paper format. The change will require that fall under the purview of the plans and voluntary liquidation options
all lenders to utilize a web-based system Consumer Financial Protection Bureau, that have been adopted, but Agency
to submit loss claims to reduce such as the Real Estate Settlement concurrence will not be necessary
paperwork burden to both lenders and Procedures Act and the Truth in beforehand. While Agency concurrence
the Agency. Lending Act. for these actions will not be necessary,
The Agency proposes to revise the lenders will still be accountable for
definition of the settlement date to add III. Loss Mitigation servicing plans and voluntary
the settlement date for deed-in-lieu In November of 2015, the Department liquidation actions. The Agency will set
actions. The Agency will define the of Treasury hosted a summit attended performance benchmarks, monitor
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settlement date of the deed-in-lieu as by federal agencies, mortgage lenders, lender performance, and implement any
the date title is recorded. The current consumer groups, investors, and necessary corrective action plans.
version of the regulation is silent on this mortgage service providers to discuss Performance benchmarks will include
issue. the future of loss mitigation pending the rates for delinquency, foreclosure, and
These proposed changes were expiration of the Home Affordable loss claim.
recommended by a Lean Six Sigma task Modification Program (HAMP) in Lender performance regarding loss
force that consisted of Agency staff and December 2016. An important take- mitigation servicing plans and voluntary
lenders. Lean Six Sigma is a away from the summit was HAMP data liquidation will be captured by the

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Document Created: 2018-08-23 00:33:11
Document Modified: 2018-08-23 00:33:11
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Proposed rule.
Dates		Written or email comments on the proposed rule must be received on or before October 22, 2018 to be assured for consideration.
Contact		Kate Jensen, Finance and Loan Analyst, Single Family Housing Guaranteed Loan Division, STOP 0784, Room 2250, USDA Rural Development, South Agriculture Building, 1400 Independence Avenue SW, Washington, DC 20250-0784, telephone: (503) 894-2382, email is [email protected]
FR Citation		83 FR 42618
RIN Number		0575-AD09
CFR Associated		Home Improvement; Loan Programs-Housing and Community Development; Mortgage Insurance; Mortgages and Rural Areas
83 FR 42618 - Single Family Housing Guaranteed Loan Program

DEPARTMENT OF AGRICULTURERural Housing Service

Federal Register Volume 83, Issue 164 (August 23, 2018)

DEPARTMENT OF AGRICULTURE
Rural Housing Service
