[Federal Register Volume 63, Number 176 (Friday, September 11, 1998)]
[Rules and Regulations]
[Pages 48988-48994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24415]
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[[Page 48987]]
Part VII
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 50 and 1005
Loan Guarantees for Indian Housing; Direct Guarantee Processing;
Interim Rule
Federal Register / Vol. 63, No. 176 / Friday, September 11, 1998 /
Rules and Regulations
[[Page 48988]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 50 and 1005
[Docket No. FR-4241-I-01]
RIN 2577-AB78
Loan Guarantees for Indian Housing; Direct Guarantee Processing
AGENCY: Office of the Secretary, HUD.
ACTION: Interim rule.
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SUMMARY: This interim rule establishes for the section 184 Indian
Housing loan guarantee program a new ``direct guarantee'' procedure
modelled in part on the FHA single family mortgage insurance ``direct
endorsement'' procedure, under which HUD staff are not involved in the
processing or approval of individual loans before closing.
DATES: Effective date: October 13, 1998.
Comment Due Date: November 10, 1998.
ADDRESSES: Interested persons are invited to submit comments regarding
this interim rule to the Regulations Division, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410-0500. Comments should refer to
the above docket number and title. A copy of each comment submitted
will be available for public inspection and copying during regular
business hours at the above address. Facsimile (FAX) comments are not
acceptable.
FOR FURTHER INFORMATION CONTACT: Karen Garner-Wing, Director, Office of
Loan Guarantees, Office of Native American Programs, Department of
Housing and Urban Development, 1999 Broadway, Suite 3390, Denver, CO
80202. Telephone: (303) 675-1600. (This is not a toll-free number.) For
hearing- and speech-impaired persons, this number may be accessed via
TTY by calling the Federal Information Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
Background
HUD implemented its section 184 loan guarantee program for Indian
Housing through an interim rule published at 59 FR 42732 (August 18,
1994) to add a new 24 CFR part 955. The interim rule anticipated that
HUD would be involved in loan underwriting decisions. Although the rule
did not clearly say when HUD's involvement would occur--before loan
closing or simply before the certificate of guarantee was issued--HUD
anticipated that a HUD Field Office would review the application and
make its underwriting judgment before the loan closing rather than
through a post-closing loan review procedure. Based on its pre-closing
review, HUD would issue a commitment to guarantee and the lender would
close the loan in accordance with this commitment. The commitment
procedure was mentioned in interim Sec. 955.105(d)(2), which restricts
advances on construction loans to advances made as provided in the
commitment.
HUD issued a final version of part 955 on March 6, 1996 (61 FR
9052). In addition to responding to public comments on the interim
rule, HUD used the final rule as an opportunity for including part 955
in HUD's efforts to streamline its rules by eliminating repetition of
statutory requirements or provisions that could appropriately be
handled in a non-regulatory manner through administrative issuances.
However, a fuller ``Guide to Loan Guarantees for Indian Housing''
including the interim rule material removed in the final rule was
published as an Appendix to the final rule. HUD did not indicate in the
final rule any intention to change its approach to processing loans for
guarantees. The final rule also retained the reference to
``commitment'' in Sec. 955.105(d)(1).
For these reasons the Department considers it appropriate to offer
an opportunity for public comment prior to final adoption of a ``Direct
Guarantee'' alternative procedure which would dispense with commitments
and pre-loan closing underwriting review by HUD, with HUD review
occurring after loan closing but before guarantee of the loan. As
explained below, however, there would be no public benefit in delaying
the availability of the procedure to those mortgagees and mortgagors
who could benefit from it immediately upon publication of this interim
rule.
This interim rule reflects changes made and discussed as part of
the recent final rule entitled ``Implementation of the Native American
Housing Assistance and Self-Determination Act,'' published on March 12,
1998 at 63 FR 12334. In particular, part 955 has been redesignated as
part 1005.
Content of Rule
The proposed Direct Guarantee procedure for the Indian Housing Loan
Guarantee program resembles the Direct Endorsement (DE) program for FHA
single family mortgage insurance. The Department has determined that it
is not necessary for most of the processing details of this similar
Direct Guarantee program to be published in regulatory form. The key
feature of the new procedure, as described in Sec. 1005.106(a), is that
the Department's approval of the loan will occur after the loan is
closed but before the loan is guaranteed. Instead of adding extensive
new material this interim rule makes only those changes needed to avoid
conflict between part 1005 and the intended manner of implementation,
and to provide a sound legal basis for any necessary administrative
actions against lenders approved for the Direct Guarantee procedure. As
an Appendix to this rule, the Department is updating the ``Guide to
Loan Guarantees for Indian Housing'' that was published with the final
version of part 955 (now part 1005), to reflect recent legislation and
the availability of the new alternative Direct Guarantee procedure and
to make other minor improvements. The updated Appendix will not be
included in the Code of Federal Regulations.
One streamlining change is made: Sec. 1005.111 is shortened
substantially by removing language that repeated verbatim the
provisions of section 184(j) regarding housing safety and quality
standards.
The following other technical changes or corrections to part 1005
are made:
1. In Sec. 1005.103, the definition of ``mortgage'' is clarified to
include a loan with collateral other than the home. A new definition of
``trust or restricted land'' is added with the same meaning as ``trust
land'' in section 184(k)(9) of the statute. The rule currently uses the
terms ``trust land'', ``trust and restricted land'' and ``trust land or
restricted Indian land'' to describe the same property. By adopting a
single defined term and making conforming changes in Secs. 1005.101,
1005.105(f) and 1005.107(b), the Department intends to clarify that the
same rule provisions apply to land held in trust by the United States
and other land not held in trust but subject to a restriction against
alienation imposed by the United States.
2. Sections 1005.104(d) and (e) are amended to clarify that they do
not include lenders approved by the Secretary under other authorities,
such as Title I lenders approved under 24 CFR part 202.
3. Section 1005.105(d)(2) is amended to provide that loan advances
are to be made as provided in the building loan agreement instead of
the commitment, and the term ``building loan agreement'' is substituted
for ``loan agreement'' in Sec. 1005.105(d)(3).
4. Section 1005.105(d)(3) is corrected to restore a reference to
advancement to the mortgagor that was inadvertently
[[Page 48989]]
omitted, and a conforming change is made to Sec. 1005.105(d)(4).
5. The introductory language of Sec. 1005.107(b) is amended to
indicate that a leasehold of trust land rather than the land itself can
be collateral, and a reference in Sec. 1005.107(b)2) to the ``loan
form'' is corrected to refer to the ``lease form''.
6. The rule makes a non-substantive revision to Sec. 1005.112 to
improve clarity.
This interim rule also amends HUD's environmental rules at 24 CFR
50.19(b)(17) (as amended by 62 FR 15802, April 2, 1997) to apply to the
Direct Guarantee procedure the same categorical exclusion from
environmental review under the National Environmental Policy Act of
1969 (NEPA) and other Federal environmental laws and authorities that
currently applies to the FHA DE program and the recently announced FHA
Lender Insurance program for single family mortgages. As with those
programs, under the Direct Guarantee procedure HUD will have no
involvement in the processing of an individual loan before it has
closed, so that HUD cannot prevent a loan closing on the basis of an
assessment of environment factors presented by a particular property.
As with DE and Lender Insurance mortgages, Direct Guarantee loans will
be subject to requirements for the purchase of flood insurance on
structures located in special flood hazard areas mapped by the Federal
Emergency Management Agency, a prohibition of loan guarantees on
properties in the Coastal Barriers Resources System, and a requirement
for notice to purchasers of properties located in airport clear zones.
The rule also restores language that was deleted in a 1996
streamlining of 24 CFR part 50 to make clear that the categorical
exclusion of Sec. 50.19(b)(17) applies only when HUD does not review or
approve a loan before the completion of construction or rehabilitation
and the loan closing. In accordance with this limitation, the
categorical exclusion would not apply in those Direct Guarantee cases
where HUD guarantees a loan for which advances will be made during
construction; accordingly, before approving loans in those cases HUD
will be required to comply, where applicable, with the related Federal
laws and authorities listed in Sec. 50.4. A separate categorical
exclusion from the NEPA requirements of 24 CFR part 50 will apply
(Sec. 50.20(a)(3)).
In a related change, the current Sec. 1005.105(e) is revised to
reflect the new Direct Guarantee procedure and a new sentence is added
to provide that procedures similar to the FHA builder certification
procedures in 24 CFR 203.12(c)(2) will be required for proposed or new
construction. Under those procedures, a builder reviews the area for
environmental problems and hazards.
Findings and Certifications
Justification for Interim Rule
It is the general practice of the Department to provide a 60-day
public comment period on all rules in accordance with 24 CFR part 10.
However, part 10 provides that prior public procedure will be omitted
if HUD determines that it is ``impracticable, unnecessary, or contrary
to the public interest'' (24 CFR 10.1). HUD considers that this
standard has been met.
The interim rule does not require any lender currently
participating in the Indian Housing Loan Guarantee program, or that may
desire to participate in the future, to use the Direct Guaranty
procedure. Commitments to guarantee will continue to be available from
HUD in advance of loan closing for eligible loans upon application by
the lender. The interim rule simply makes available a second method of
processing, which HUD believes will have clear advantages for many
lenders and borrowers, by reducing delays that can result from limited
HUD resources in both pre-loan review and in post-loan issuance of the
guaranty. Delaying the availability of this new procedure for those
mortgagees who regard it as advantageous would not be in the public
interest.
In the interest of obtaining the fullest participation possible in
determining the proper means of administering the Indian Housing Loan
Guarantee program, the Department invites public comment on the interim
rule. The comments received within the 60-day comment period will be
considered during development of a final rule that ultimately will
supersede this interim rule.
Executive Order 12866
This interim rule was reviewed by the Office of Management and
Budget (OMB) under Executive Order 12866, Regulatory Planning and
Review. OMB determined that this rule is a ``significant regulatory
action,'' as defined in section 3(f) of the Order (although not
economically significant under section (3)(f)(1) of the Order). Any
changes made to the interim rule subsequent to its submission to OMB
are clearly identified in the docket file, which is available for
public inspection in the office of the Department's Rules Docket Clerk,
Room 10276, 451 Seventh Street SW, Washington DC, 20410.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so
doing certifies that this rule does not have a significant economic
impact on a substantial number of small entities. This interim rule
merely authorizes an alternative procedure for obtaining HUD guarantee
for an Indian Housing loan. The rule has no adverse or disproportionate
economic impact on small businesses. Small businesses are specifically
invited, however, to comment on whether this rule will significantly
affect them, and persons are invited to submit comments according to
the instructions in the DATES and ADDRESSES sections in the preamble of
this interim rule.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50 that
implement section 102(2)(C) of the National Environmental Policy Act of
1969, 42 U.S.C. 4332. The Finding of No Significant Impact is available
for public inspection and copying during regular business hours (7:30
a.m. to 5:30 p.m.) in the Office of the Rules Docket Clerk, Room 10276,
451 Seventh Street, S.W., Washington, D.C. 20410-0500.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this interim
rule would not have substantial direct effects on States or their
political subdivisions, or the relationship between the Federal
government and the States, or on the distribution of power and
responsibilities among the various levels of government. No
programmatic or policy changes would result from this interim rule that
affect the relationship between the Federal Government and State and
local governments.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal
agencies to assess the effects of their regulatory actions on State,
local, and tribal governments, and on the private sector. This rule
does not impose any Federal mandates on any State, local, or tribal
governments, or on the private
[[Page 48990]]
sector, within the meaning of the UMRA.
Catalog
The Catalog of Federal Domestic Assistance number for the Loan
Guarantees for Indian Housing program is 14.865.
List of Subjects
24 CFR Part 50
Compliance record, Environmental impact statement, Environmental
protection.
24 CFR Part 1005
Indians, Reporting and recordkeeping requirements.
Accordingly, parts 50 and 1005 of title 24 of the Code of Federal
Regulations are amended as follows:
PART 50--PROTECTION AND ENHANCEMENT OF ENVIRONMENTAL QUALITY
1. The authority citation for part 50 continues to read as follows:
Authority: 42 U.S.C. 3535(d) and 4332; and Executive Order
11991, 3 CFR, 1977 Comp., p. 123.
2. Section 50.19(b)(17) is revised to read as follows:
Sec. 50.19 Categorical exclusions not subject to the Federal laws and
authorities cited in Sec. 50.4.
* * * * *
(b) * * *
(17) HUD's insurance of one-to-four family mortgages under the
Direct Endorsement program, the insurance of one-to-four family
mortgages under the Lender Insurance program, and HUD's guarantee of
loans for one-to-four family dwellings under the Direct Guarantee
procedure for the Indian Housing loan guarantee program, without any
HUD review or approval before the completion of construction or
rehabilitation and the loan closing; and HUD's acceptance for insurance
of loans insured under Title I of the National Housing Act; however,
compliance with Secs. 50.4(b)(1) and (c)(1) and 24 CFR 51.303(a)(3) is
required.
* * * * *
PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING
3. The authority citation for part 1005 continues to read as
follows:
Authority: 42 U.S.C. 1715z-13a and 3535(d).
4. Section 1005.101 is revised to read as follows:
Sec. 1005.101 What is the applicability and scope of these
regulations?
Under the provisions of section 184 of the Housing and Community
Development Act of 1992, as amended by Native American Housing
Assistance and Self-Determination Act of 1996 (12 U.S.C. 1715z-13a),
the Department of Housing and Urban Development (the Department or HUD)
has the authority to guarantee loans for the construction, acquisition,
or rehabilitation of 1- to 4-family homes that are standard housing
located on trust or restricted land or land located in an Indian or
Alaska Native area, and for which an Indian Housing Plan has been
submitted and approved under 24 CFR part 1000. This part provides
requirements that are in addition to those in section 184.
5. Section 1005.103 is amended by revising the definition of
``mortgage'' and adding definitions of ``property'' and ``trust and
restricted land'' to read as follows:
Sec. 1005.103 What definitions are applicable to this program?
* * * * *
Mortgage means:
(1)(i) A first lien as is commonly given to secure advances on, or
the unpaid purchase price of, real estate under the laws of the
jurisdiction where the property is located and may refer to a security
instrument creating a lien, whether called a mortgage, deed of trust,
security deed, or another term used in a particular jurisdiction; or
(ii) A loan secured by collateral as required by 24 CFR 1005.107;
and
(2) The credit instrument, or note, secured thereby.
* * * * *
Property means the property constructed, acquired, or rehabilitated
with the guaranteed loan, except when the context indicates that the
term means other collateral for the loan.
* * * * *
Trust or restricted land has the meaning given to ``trust land'' in
section 184(k)(9) of the Housing and Community Development Act of 1992.
6. Section 1005.104 is amended by revising paragraphs (d) and (e)
to read as follows:
Sec. 1005.104 What lenders are eligible for participation?
* * * * *
(d) Any other lender that is supervised, approved, regulated, or
insured by any other agency of the United States; or
(e) Any other lender approved by the Secretary under this part.
7. Section 1005.105 is amended by revising paragraphs (d)(2),
(d)(3), (d)(4), (e), and (f) to read as follows:
Sec. 1005.105 What are eligible loans?
* * * * *
(d) * * *
(2) The advances may be made only as provided in the building loan
agreement;
(3) The principal amount of the mortgage is held by the mortgagee
in an interest bearing account, trust, or escrow for the benefit of the
mortgagor, pending advancement to the mortgagor or the mortgagor's
creditors as provided in the loan agreement; and
(4) The mortgage shall bear interest on the amount advanced to the
mortgagor or the mortgagor's creditors and on the amount held in an
account or trust for the benefit of the mortgagor.
(e) Environmental compliance. Prior to the Department's issuance of
a commitment to guarantee any loan or (if no commitment is issued)
prior to guarantee of any loan, there must be compliance with
environmental review procedures to the extent applicable under part 50
of this title. If the loan involves proposed or new construction, the
Department will require compliance with procedures similar to those
required by Sec. 203.12(c)(2) of this title for FHA mortgage insurance.
(f) Lack of access to private financial markets. In order to be
eligible for a loan guarantee if the property is not on trust or
restricted land, the borrower must certify that the borrower lacks
access to private financial markets. Borrower certification is the only
certification required by HUD.
8. A new Sec. 1005.106 is added to read as follows:
Sec. 1005.106 What is the Direct Guarantee procedure?
(a) General. A loan may be processed under a Direct Guarantee
procedure approved by the Department, under which the Department does
not issue commitments to guarantee or review applications for loan
guarantees before mortgages are executed by lenders approved for Direct
Guarantee processing. The Department will approve a loan before the
loan is guaranteed.
(b) Mortgagee sanctions. Depending on the nature and extent of the
noncompliance with the requirements applicable to the Direct Guarantee
procedure, as determined by the Department, the Department may take
such actions as are deemed appropriate and in accordance with published
guidelines.
9. Section 1005.107 is amended by adding a heading for paragraph
(a) and
[[Page 48991]]
by revising paragraph (a)(1), the introductory text of paragraph (b),
and the first sentence of paragraph (b)(2) to read as follows:
Sec. 1005.107 What is eligible collateral?
(a) In general. * * *
(1) The property and/or improvements to be acquired, constructed,
or rehabilitated, to the extent that an interest in such property is
not subject to the restrictions against alienation applicable to trust
or restricted land;
* * * * *
(b) Leasehold of trust or restricted land as collateral. If a
leasehold interest in trust or restricted land is used as collateral or
security for the loan, the following additional provisions apply:
(1) * * *
(2) Assumption or sale of leasehold. The lease form must contain a
provision requiring tribal consent before any assumption of an existing
lease, except where title to the leasehold interest is obtained by the
Department through foreclosure of the guaranteed mortgage or a deed in
lieu of foreclosure. * * *
* * * * *
10. Section 1005.111 is revised to read as follows:
Sec. 1005.111 What safety and quality standards apply?
Loans guaranteed under section 184 must be for dwelling units which
meet the safety and quality standards set forth in section 184(j).
11. The first sentence of Sec. 1005.112 is revised to read as
follows:
Sec. 1005.112 How do eligible lenders and eligible borrowers
demonstrate compliance with applicable tribal laws?
The lender and the borrower will each certify that they acknowledge
and agree to comply with all applicable tribal laws. * * *
Dated: August 4, 1998.
Andrew Cuomo,
Secretary.
Note: The following appendix will not be codified in the Code of
Federal Regulations.
Appendix--Guide To Loan Guarantees For Indian Housing
Section 1. Purpose, applicability and scope.
Section 2. Definitions.
Section 3. Eligible loans.
Section 4. Eligible housing.
Section 5. Eligible lenders.
Section 6. Eligible collateral.
Section 7. Procedures.
Section 8. Guarantee.
Section 9. Guarantee fee.
Section 10. Liability under guarantee.
Section 11. Transfer and assumptions.
Section 12. Disqualification of lenders and civil money penalties.
Section 12. Payment under guarantee.
Section 13. Certification of compliance with tribal laws, and
enforcement.
Section 1. Purpose, Applicability and Scope
The purpose of this guide is to present, in a single document,
the statutory and regulatory requirements, and certain other
important administrative requirements, that apply to the Loan
Guarantees for Indian Housing Program under section 184 of the
Housing and Community Development Act of 1992 (P.L. 102-550,
approved October 28, 1992, as amended by the Native American Housing
Assistance and Self-Determination Act of 1996 (P.L. 104-330.).
Although it presents the regulatory and statutory requirements in a
combined format, this guide is a secondary source for these
requirements. Title 24 of the Code of Federal Regulations is the
primary, governing source for regulatory requirements, and section
184 is the primary, governing source for statutory requirements.
Under section 184, the Department of Housing and Urban
Development (the Department) has the authority to guarantee loans
for the construction, acquisition, rehabilitation, or acquisition
and rehabilitation, of 1- to 4-family homes on trust and restricted
lands for Indians (including Alaska Natives) and certain other lands
under the jurisdiction of an Indian tribe. This guide describes the
eligibility of borrowers, lenders and property, as well as the
benefits of the Indian Loan Guarantee Program.
Section 2. Definitions
Default means the failure by a borrower to make any payment or
to perform any other obligation under the terms of a loan, if such
failure continues for a period of more than 30 days.
Department or HUD means the U. S. Department of Housing and
Urban Development.
Direct guarantee means the underwriting procedure which
qualified and approved mortgagees may use as described in 24 CFR
1005.104. The Secretary will publish guidelines for Direct guaranty
underwriting procedures and underwriter qualifications in a
Guidebook. Compliance with these guidelines is the minimum standard
of due diligence.
Guarantee Fund means the Indian Housing Loan Guarantee Fund
established under section 184(i) of the Housing and Community
Development Act of 1992.
Holder means the holder of the guarantee certificate and in this
program is variously referred to as the lender, the holder of the
certificate, the holder of the guarantee, and the mortgagee.
Indian means any person recognized as being an Indian or Alaska
Native by an Indian tribe, the Federal Government, or any State, and
includes the term ``Native American''.
Indian or Alaska Native area means the area within which an
Indian housing authority or tribally designated housing entity
(THDE), as defined in section 4 of the Native American Housing
Assistance and Self-Determination Act of 1996, is authorized to
provide housing.
Indian Housing Authority (IHA) means any entity that is
authorized to engage in or assist in the development or operation of
low-income housing for Indians or housing subject to the provisions
of section 184 and that is established either (1) by exercise of the
power of self-government of an Indian tribe independent of State
law, or (2) by operation of State law providing specifically for
housing authorities for Indians, including regional housing
authorities in the State of Alaska. The term includes tribally
designated housing entities under the Native American Housing
Assistance and Self-Determination Act of 1996.
Mortgage means:
(a)(i) A first lien as is commonly given to secure advances on,
or the unpaid purchase price of, real estate under the laws of the
jurisdiction where the property is located and may refer to a
security instrument creating a lien, whether called a mortgage, deed
of trust, security deed, or another term used in a particular
jurisdiction; or
(ii) A loan secured by collateral as required by 24 CFR
1005.107; and
(b) The credit instrument, or note, secured thereby.
Mortgagee or lender means the same as holder.
Mortgagor or borrower means the party receiving the loan, and
authorized successors or assigns.
Principal residence means the dwelling where the mortgagor
maintains (or will maintain) his or her permanent place of abode, and
typically spends (or will spend) the majority of the calendar year. A
person may have only one principal residence at any one time.
Secretary means the Secretary of Housing and Urban Development.
Section 184 means section 184 of the Housing and Community
Development Act of 1992.
Standard housing means a dwelling unit or housing that complies
with the requirements established in this guide.
Tribe or Indian tribe means any tribe, band, nation or other
organized group or community of Indians, including any Alaska Native
village or regional or village corporation as defined in or
established pursuant to the Alaska Native Claims Settlement Act,
that is recognized as eligible for the special programs and services
provided by the United States to Indians because of their status as
Indians pursuant to the Indian Self-Determination and Education
Assistance Act of 1975.
Trust or restricted land means land, title to which is held by
the United States for the benefit of an Indian or Indian tribe; or,
land, title to which is held by an Indian tribe, subject to a
restriction against alienation imposed by the United States.
Underwriting is the evaluation of documentation to determine
risk.
Section 3. Eligible Loans
(a) In general. Only fixed rate, fixed term loans with even
monthly payments are eligible under the Section 184 program.
(b) Eligible borrowers. A loan guaranteed under Section 184 may
be made to a borrower that is:
[[Page 48992]]
(1) An Indian who will occupy it as a principal residence and
who is otherwise qualified under this part;
(2) An Indian Housing Authority; or
(3) An Indian tribe.
(c) Terms of loan. The loan shall:
(1) Be made for a term not exceeding 30 years;
(2) Bear interest (exclusive of the guarantee fee and service
charges, if any) at a fixed rate agreed upon by the borrower and the
lender and determined by the Department to be reasonable, which may
not exceed the rate generally charged in the area (as determined by
the Department) for home mortgage loans not guaranteed or insured by
any agency or instrumentality of the Federal Government.
(d) Maximum loan amounts.
(1) A principal obligation may not exceed the lesser of:
(i) 97.75 percent of the appraised value of the property as of
the date the loan is accepted for guarantee (or 98.75 percent if the
value of the property is $50,000 or less); and
(ii) Amounts approved otherwise by the Department.
(2) The balance of the purchase price must involve a payment on
account of the property that may be:
(i) In cash or other property of equivalent value acceptable to
the lender and the Department, or
(ii) The value of any improvements to the property made through
the skilled or unskilled labor of the borrower, appraised in
accordance with generally acceptable practices and procedures.
(e) Construction advances. The Department may guarantee loans
from which advances will be made during construction. The Department
will provide guarantees for advances made by the mortgagee during
construction if all of the following conditions are satisfied:
(1) The mortgagor and the mortgagee execute a building loan
agreement, approved by HUD, setting forth the terms and conditions
under which advances will be made;
(2) The advances are made only as provided in the building loan
agreement;
(3) The principal amount of the mortgage is held by the
mortgagee in an interest bearing account, trust, or escrow for the
benefit of the mortgagor, pending advancement to the mortgagor to
the mortgagor's creditors as provided in the building loan
agreement; and
(4) The mortgage shall bear interest on the amount advanced to
the mortgagor or to the mortgagor's creditors and on the amount held
in an account or trust for the benefit of the mortgagor.
(f) Environmental compliance. Prior to the Department's issuance
of a commitment to guarantee any loan or (if no commitment is
issued) prior to guarantee of any loan, there must be compliance
with environmental review procedures to the extent applicable under
24 CFR part 50. If the loan involves proposed or new construction,
the Department will require compliance with procedures similar to
those required by 24 CFR 203.12(c)(2) for FHA mortgage insurance.
Section 4. Eligible Housing
(a) In general. A loan guaranteed under Section 184 may be used
for the construction, acquisition, rehabilitation, or acquisition
and rehabilitation, of a 1- to 4-family dwelling located on trust or
restricted land, or land located in an Indian area that is under the
jurisdiction of an Indian tribe for which an Indian housing plan has
been submitted and approved pursuant to Sections 102 and 103 of the
Native American Housing Assistance and Self-Determination Act of
1996 that provides for the use of loan guarantees under Section 184
to provide affordable homeownership housing in such areas.
(b) Safety and quality standards. Loans guaranteed under Section
184 shall be made only on dwelling units which meet safety and
quality standards set forth herein. Each unit must:
(1) Be decent, safe, sanitary, and modest in size and design;
(2) Conform with applicable general construction standards for
the region;
(3) Contain a heating system that:
(i) Has the capacity to maintain a minimum temperature in the
dwelling of 65 degrees Fahrenheit during the coldest weather in the
area;
(ii) Is safe to operate and maintain;
(iii) Delivers a uniform distribution of heat; and
(iv) Conforms to any applicable tribal heating code or, if there
is no applicable tribal code, an appropriate county, State, or
National code;
(4) Contain a plumbing system that:
(i) Uses a properly installed system of piping;
(ii) Includes a kitchen sink and a partitional bathroom with
lavatory, toilet, and bath or shower; and
(iii) Uses water supply, plumbing and sewage disposal systems
that conform to any applicable tribal code or, if there is no
applicable tribal code, the minimum standards established by the
applicable county or State;
(5) Contain an electrical system using wiring and equipment
properly installed to safely supply electrical energy for adequate
lighting and for operation of appliances that conforms to any
applicable tribal code or, if there is no applicable tribal code, an
appropriate county, State, or National code;
(6) Be not less than:
(i) 570 square feet in size, if designed for a family of not
more than 4 persons;
(ii) 850 square feet in size, if designed for a family of not
less than 5 and more than 7 persons; and
(iii) 1020 square feet in size, if designed for a family of not
less than 8 persons, or
(iv) The size provided under the applicable locally adopted
standards for size of dwelling units; except that the Department,
upon the request of a tribe or Indian Housing Authority, may waive
the size requirements under this paragraph; and
(7) Conform with the energy performance requirements for new
construction established by the Department under section 526(a) of
the National Housing Act.
Section 5. Eligible Lenders
(a) Required approval. The loan shall be made only by a lender
meeting qualifications established in this part, except that loans
otherwise insured or guaranteed by any agency of the Federal
Government, or made by an organization of Indians from amounts
borrowed from the United States shall not be eligible for guarantee
under this part. The following lenders are approved under this part:
(1) Any mortgagee approved by the Department of Housing and
Urban Development for participation in the single family mortgage
insurance program under title II of the National Housing Act.
(2) Any lender whose housing loans under chapter 37 of title 38,
United States Code are automatically guaranteed pursuant to section
1802(d) of such title.
(3) Any lender approved by the Department of Agriculture to make
guaranteed loans for single family housing under the Housing Act of
1949.
(4) Any other lender that is supervised, approved, regulated, or
insured by any other agency of the Federal Government.
(5) Any other lender approved by the Secretary under this part.
(b) Direct guarantee approval. To be approved for the Direct
guarantee program, a lender must be an approved mortgagee under 24
CFR 202.6, 202.7 or 203.10, or must meet the requirements of section
(a)(4) or (a)(5) above. In addition, the lender must establish that
it meets the following qualifications:
(1) The lender, or one of its principal officers, has 5 years of
experience in the origination of single family mortgages.
(2) The lender has on its permanent staff an underwriter meeting
the standards of the Secretary and authorized by the lender to bind
the lender on matters involving the origination of section 184
mortgage loans through the direct guarantee procedure.
(3) The lender must assure that its underwriter and technical
staff have been trained and are knowledgeable in the section 184
underwriting requirements.
(4) The mortgagee must submit initially two section 184 mortgage
loans, processed in accordance with the process set forth in section
7(b) of this guide. The documents required by section 7(b) will be
reviewed by the Secretary and, if acceptable, a firm commitment will
be issued prior to loan closing. If the underwriting and processing
of these two loans is satisfactory, then the lender may be approved
to close subsequent loans without a prior commitment and submit them
directly for guarantee in accordance with the process set forth in
section 7(b). Unsatisfactory performance by the lender at this stage
constitutes grounds for denial of approval for the direct guarantee
procedure or for continued pre-closing review of a lender's
submissions.
(c) Mortgagee sanctions. Depending on the nature and extent of
the noncompliance with the requirements applicable to the Direct
Guarantee procedure, as determined by the Department, the Department
may take such actions as are deemed appropriate and in accordance
with published guidelines.
Section 6. Eligible Collateral
(a) In general. A loan guaranteed under Section 184 may be
secured by any collateral authorized under Federal, State, or tribal
law
[[Page 48993]]
and determined by the lender and approved by the Department to be
sufficient to cover the amount of the loan, and may include, but is
not limited to, the following:
(1) The property and/or improvements to be acquired,
constructed, or rehabilitated, to the extent that an interest in
such property is not subject to the restrictions of trust lands
against alienation;
(2) A first and/or second mortgage on property other than trust
land;
(3) Personal property; or
(4) Cash, notes, an interest in securities, royalties,
annuities, or any other property that is transferable and whose
present value may be determined.
(b) Leasehold on trust or restricted land as collateral. If a
leasehold interest in trust or restricted land is used as collateral
for the loan, the following additional provisions apply:
(1) Approved Lease. Any land lease for a unit financed under
Section 184 must be on a form approved by both HUD and the Bureau of
Indian Affairs, U.S. Department of Interior.
(2) Assumption or sale of leasehold. If a leasehold is used as
security for the loan, the lease form must contain a provision
requiring tribal consent before any assumption of an existing lease,
except where title to the leasehold interest is obtained by the
Department through foreclosure of the guaranteed mortgage. A
mortgagee other than the Department must obtain tribal consent
before obtaining title through a foreclosure sale. Tribal consent
must be obtained on any subsequent transfer from the purchaser,
including the Department, at foreclosure sale. The lease may not be
terminated by the lessor without HUD's approval while the mortgage
is guaranteed or held by the Department.
(3) Eviction procedures. Before HUD will guarantee a loan
secured by trust or restricted land, the tribe having jurisdiction
over such property must notify the Department that it has adopted
and will enforce procedures for eviction of defaulted mortgagors
where the guaranteed loan has been foreclosed.
(i) Enforcement. If the Department determines that the tribe has
failed to enforce adequately its eviction procedures, HUD will cease
issuing guarantees for loans for tribal members except pursuant to
existing commitments by the Department or loan approvals by the
lender under the Direct Guarantee procedure. Adequate enforcement is
demonstrated where prior evictions have been completed within 60
days after the date of the notice by HUD that foreclosure was
completed.
(ii) Review. If the Department ceases issuing guarantees in
accordance with the first sentence of paragraph (c)(1) of this
section, HUD shall notify the tribe of the reasons for such action
and that the tribe may, within 30 days after notification of HUD's
action, file a written appeal with the Field Office of Native
American Programs (FONAP) Administrator. Within 30 days after
notification of an adverse decision on the appeal by the FONAP
Administrator, the tribe may file a written request for review with
the Deputy Assistant Secretary, Office of Native American Programs
(ONAP). Upon notification of an adverse decision by the Deputy
Assistant Secretary, the tribe has 30 additional days to file an
appeal with the Assistant Secretary for Public and Indian Housing.
The determination of the Assistant Secretary shall be final, but the
tribe may resubmit the issue to the Assistant Secretary for review
at any subsequent time if new evidence or changed circumstances
warrant reconsideration. (Any other administrative actions
determined to be necessary to debar a tribe from participating in
this program will be subject to the formal debarment or limited
denial of participation procedures contained in 24 CFR part 24).
Section 7. Procedures.
(a) Firm commitment procedure. Lenders that do not meet the
approval requirements of section 5(b), or lenders approved for the
direct guarantee procedure that do not process a particular loan
using that procedure, must submit an application for section 184
loan guarantee in a form prescribed by the Secretary, prior to
making the loan. If:
(1) A loan for a specified property has been approved for a
guarantee, and
(2) A specified borrower and all other proposed terms and
conditions of the loan meet the eligibility requirements for
guarantee as determined by the Secretary, the Secretary will approve
the application for guarantee by issuing a commitment setting forth
the terms and conditions of guarantee.
(b) Direct guarantee procedure. (1) In general. Under the Direct
Guarantee procedure, the Secretary does not review or approve
applications for loan guarantee before the loan is executed or issue
a firm commitment except as determined by the Secretary. Under this
program, the lender determines that the proposed loan is eligible
for guarantee under the section 184 program requirements, and
submits to the Secretary processing and closing documents that the
Secretary will identify for lenders in administrative issuances. The
Secretary then reviews the documents as needed (and, in cases
involving the guarantee of a loan from which advances will be made
during construction, completes an environmental review to the extent
required by 24 CFR 50.4) before approving and guaranteeing the loan.
(2) Use of procedure. A lender's use of the direct guarantee
procedure is voluntary. Lender who are approved for that procedure
may choose which section 184 loans are underwritten using that
procedure or the firm commitment procedure.
Section 8 Guarantee
(a) Extent of guarantee. A certificate issued in accordance with
Section 184 guarantees 100 percent of the unpaid principal and
interest of the underlying loan.
(b) Approval process. If the Department approves a loan for
guarantee and receives the required guarantee fee, the Department
will issue a certificate under Section 184 as evidence of the
guarantee. The loan is considered guaranteed when the certificate is
issued.
(c) Standard for approval. The Department may approve a loan for
guarantee under Section 184 and issue a certificate only if the
Department determines there is a reasonable prospect of repayment of
the loan. For loans under the firm commitment procedure, this
determination will be made before a firm commitment is issued and
the Secretary will issue a certificate if the loan complies with the
firm commitment. For loans under the direct guarantee procedure, the
lender must submit to the Secretary within 60 days of loan closing
properly completed documentation and certifications as required by
the Secretary, and the Department may make the required
determination after loan closing on the basis of a review of the
documents and certifications submitted by the lender.
(d) Effect. A certificate of guarantee issued under Section 184
by the Department shall be conclusive evidence of the eligibility of
the loan for guarantee under the provisions of Section 184 and the
amount of such guarantee. Such evidence shall be incontestable in
the hands of the bearer and the full faith and credit of the United
States is pledged to the payment of all amounts agreed to be paid by
the Department as security for such obligations.
(e) Fraud and misrepresentation. Nothing in Section 184 may
preclude the Department from establishing:
(1) Defenses against the original lender based on fraud or
material misrepresentation; and
(2) Establishing partial defenses, based upon regulations in
effect on the date of issuance or disbursement (whichever is
earlier), to the amount payable on the guarantee.
Section 9. Guarantee Fee
The lender shall pay to the Department, at or before the time of
issuance of the guarantee, a fee for the guarantee of loans under
Section 184, in an amount equal to 1 percent of the principal
obligation of the loan. This amount is payable by the borrower at
closing.
Section 10. Liability Under Guarantee
The liability under a guarantee provided in accordance with
Section 184 shall decrease or increase on a pro rata basis according
to any decrease or increase in the amount of the unpaid obligation
under the provisions of the loan agreement.
Section 11. Transfer and Assumptions
Notwithstanding any other provision of law, any loan guaranteed
under this part, including the security interest given for the loan,
may be sold or assigned by the lender to any financial institution
subject to examination and supervision by an agency of the Federal
Government or of any State or the District of Columbia.
Section 12. Disqualification of Lenders and Civil Money Penalties
(a) General. If the Department determines that a lender or
holder of a guarantee certificate under Section 184 has failed to
maintain adequate accounting records, to adequately service loans
guaranteed under Section 184, to exercise proper credit or
underwriting judgment, or has engaged in practices otherwise
detrimental to the interest of a borrower or the United States, the
Department may:
[[Page 48994]]
(1) Refuse, either temporarily or permanently, to guarantee any
further loans made by such lender or holder;
(2) Bar such lender or holder from acquiring additional loans
guaranteed under Section 184; and
(3) Require that such lender or holder assume not less than 10
percent of any loss on further loans made or held by the lender or
holder that are guaranteed under Section 184.
(b) Civil money penalties for intentional violations. If the
Department determines that any lender or holder of a guarantee
certificate under Section 184 has intentionally failed to maintain
adequate accounting records, to adequately service loans guaranteed
under Section 184, or to exercise proper credit or underwriting
judgement, the Department may impose a civil money penalty on such
lender or holder in the manner and amount provided under section 536
of the National Housing Act with respect to mortgagees and lenders
under such Act.
(c) Payment of loans made in good faith. Notwithstanding
paragraphs (a) and (b), the Department may not refuse to pay
pursuant to a valid guarantee on loans of a lender or holder barred
under Section 184, if the loans were previously made in good faith.
Section 13. Payment Under Guarantee
(a) Lender options.
(1) General. In the event of default by the borrower on a loan
guaranteed under this part, the holder of the guarantee certificate
shall provide written notice of the default to the Department. Upon
providing this notice, the holder of the guarantee certificate will
be entitled to payment under the guarantee (subject to the
provisions of this part) and may proceed to obtain payment in one of
the following manners:
(i) Foreclosure. The holder of the certificate may initiate
foreclosure proceedings (after providing written notice of such
action to the Department) and upon a final order by the court
authorizing foreclosure and submission to the Department of a claim
for payment under the guarantee, the Department will pay to the
holder of the certificate the pro rata portion of the amount
guaranteed (as determined in accordance with Section 9 of this
guide) plus reasonable fees and expenses as approved by the
Department. The Department will be subrogated to the rights of the
holder of the certificate and the holder shall assign the obligation
and security to the Department.
(ii) No foreclosure. Without seeking a judicial foreclosure (or
in any case in which a foreclosure proceeding initiated under
paragraph (i) of this section continues for a period in excess of 1
year), the holder of the certificate may submit to the Department a
request to assign the obligation and security interest to the
Secretary in return for payment of the claim under the guarantee.
The Department may accept assignment of the loan if the Secretary
determines that the assignment is in the best interests of the
United States. Upon assignment, the Department will pay to such
holder for a loss on any single loan an amount equal to the pro rata
portion of the amount guaranteed (as determined in accordance with
Section 9 of this guide). The Department will be subrogated to the
rights of the holder of the guarantee and the holder shall assign
the obligation and security to the Department.
(2) Requirements. Before any payment under a guarantee is made
under paragraph (1) of this section, the holder of the certificate
shall exhaust all reasonable possibilities of collection. Upon
payment, in whole or in part, to the holder, the note of judgment
evidencing the debt shall be assigned to the United States and the
holder shall have no further claim against the borrower or the
United States.
(b) Limitations on liquidation. In the event of default by the
borrower on a loan guaranteed under Section 184 involving a security
interest in restricted Indian land, the lender or the Department
will only pursue liquidation after offering to transfer the account
to an eligible tribal member, the tribe, or the Indian Housing
Authority serving the tribe or tribes. If the Department
subsequently proceeds to liquidate the account, the Department will
not sell, transfer, otherwise dispose of or alienate the property
except to one of the entities described in the preceding sentence.
Section 14. Certification of Compliance With Tribal Laws, and
Enforcement
(a) Certification. Each lender and borrower must certify to
acknowledge and agree to comply with all applicable tribal laws. An
Indian tribe with jurisdiction over the dwelling unit does not have
to be notified of individual section 184 loans unless required by
applicable tribal law.
(b) Enforcement. Failure of the lender to comply with applicable
tribal law is considered to be a practice detrimental to the
interest of the borrower and may be subject to enforcement action(s)
under section 184(g) of the statute.
[FR Doc. 98-24415 Filed 9-10-98; 8:45 am]
BILLING CODE 4210-32-P
