2011-27945. Single Family Housing Guaranteed Loan Program

AGENCY:

Rural Housing Service, Rural Business-Cooperative Services, Rural Utilities Service, Farm Service Agency, USDA.

ACTION:

Proposed rule.

SUMMARY:

The United States Department of Agricultural (USDA), Rural Housing Service (RHS) proposes a change to its Single Family Housing Guaranteed Loan Program (SFHGLP) regulation. The proposed action is taken to implement authorities granted the Secretary of the USDA, in Sec. 102 of the Supplemental Appropriations Act, 2010 (Pub. L. 111-212, July 29, 2010) to collect from the lender an annual fee not to exceed 0.5 percent of the outstanding principal balance of the loan for the life of the loan. The intent of the annual fee is to make the SFHGLP subsidy neutral when used in conjunction with the one-time guarantee fee, thus eliminating the need for taxpayer support of the program. For Fiscal Year (FY) 2012, an annual fee of 0.3 percent of the outstanding principal balance will be required in order that the SFHGLP may maintain subsidy neutrality. Beginning with all loans obligated on or after October 1, 2011, RHS proposes to charge an annual fee of 0.3 percent of the outstanding principal balance of the loan for the life of the loan.

DATES:

Written or email comments on the proposed rule must be received on or before December 27, 2011.

ADDRESSES:

You may submit comments on this proposed rule by any one of the following methods:

• Email: [e-mail]. Include “RIN No. 0575-AC90” in the subject line of the message.
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments electronically.
• Mail: Submit written comments via the U.S. Postal Service to the Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, STOP 0742, 1400 Independence Ave., SW., Washington, DC 20250-0742.
• Hand Delivery/Courier: Submit written comments via Federal Express mail, or other courier service requiring a street address to the Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, DC 20024.

All written comments will be available for public inspection during regular work hours at the 300 7th Street, SW., 7th Floor address listed above.

FOR FURTHER INFORMATION CONTACT:

Cathy Glover, Senior Loan Specialist, Single Family Housing Guaranteed Loan Division, USDA Rural Development, Room 2250, STOP 0784, 1400 Independence Ave., SW., Washington, DC 20250, Telephone: [phone], Email: [e-mail].

SUPPLEMENTARY INFORMATION:

Classification

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

Executive Order 12988

This 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 this program, but if they do apply and are selected for funding, they must comply with the requirements applicable to the Federal program funds. This rule is not retroactive. It will not affect agreements entered into prior to the effective date of the rule. Before any judicial action may be brought regarding the provisions of this rule, the administrative appeal provisions of 7 CFR part 11 must be exhausted.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effect of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, the Agency generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector, of $100 million, or more, in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires the Agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This proposed rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, and tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940, 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.

Federalism—Executive Order 13132

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

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) the undersigned has determined and certified by signature of this document that this rule change will not have a significant impact on a substantial number of small entities. This rule does not impose any significant new requirements on Agency applicants and borrowers, and the regulatory changes affect only Agency determinations of program benefits for guarantees of loans made to individuals.

Intergovernmental Consultation

This program/activity is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. (See the Notice related to 7 CFR part 3015, subpart V, at 48 FR 29112, June 24, 1983; 49 FR 22675, May 31, 1984; 50 FR 14088, April 10, 1985).

Programs Affected

This program 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. 3501 et seq.). The assigned OMB control number is 0575-AC83.

E-Government Act Compliance

The Rural Housing Service 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.

Background

As a result of Public Law 111-212, “Supplemental Appropriations Act, 2010,” enacted on July 29, 2010, Section 502 (h)(8) of the Housing Act of 1949 (42 U.S.C. 1472 (h) (8)), was amended to read as follows: “(8) Fees.—Notwithstanding paragraph (14) (D), with respect to a guaranteed loan issued or modified under this subsection, the Secretary may collect from the lender—“(A) at the time of issuance of the guarantee or modification, a fee not to exceed 3.5 percent of the principal obligation of the loan; and “(B) an annual fee not to exceed 0.5 percent of the outstanding principal balance of the loan for the life of the loan.”

The annual fee provision is applicable to purchase and refinance loan transactions. The intent of the annual fee is to make the SFHGLP subsidy neutral, thus eliminating the need for taxpayer support of the program. RHS has determined that in order for the SFHGLP to maintain subsidy neutrality, beginning with loans obligated on or after October 1, 2011, an annual fee of 0.3 percent will be charged on the outstanding principal balance of the loan for the life of the loan.

RHS currently collects an upfront guarantee fee of 3.5 percent for purchase loans, and 1 percent for refinance loan transactions. The lender collects the upfront guarantee fee from the borrower at the time of loan closing. The borrower either pays the upfront guarantee fee from personal funds, or the fee may be included in the guaranteed loan amount. The proposed annual fee of 0.3 percent will be collected in addition to the upfront guarantee fee.

RHS operational systems currently do not accommodate the annual fee provision. RHS will take steps necessary to enhance the operational systems in the coming months so that an annual fee of 0.3 percent may be collected on all loans obligated on or after October 1, 2011. RHS is aware that lenders will need time to enhance their systems, and intends to work closely with lenders and service bureaus to ensure they can support the proposed annual fee requirement in the shortest possible timeframe. Supporting documentations for servicers as well as training materials for loan originators and servicers will be developed by RHS prior to implementation of the annual fee.

RHS proposes to structure the annual fee as follows:

(1) Determining the Annual Fee: The annual fee will be calculated based on the guaranteed loan amount and on the average annual scheduled unpaid principal balance for the life of the loan. The fee will be calculated when the loan is made and every 12 months thereafter, until the loan is paid in full or no longer outstanding and the guarantee is cancelled or expired. For example, to determine the annual fee for a $100,000 loan (guaranteed amount), 6% interest rate, 30 year term, calculate as follows:

a. Step 1: Compute the average annual scheduled unpaid principal balance (UPB). The average annual scheduled UPB for year 1, for a $100,000 loan = $99,443.244 is $99,443.24 (standard 5-3-3 rounding)

b. Step 2: Compute Annual Fee based off the average annual UPB. Based on an annual fee of.3%, $99,443.24 x .3% = $298.33 (rounded up to the next cent)

c. Step 3: Compute monthly escrow required for annual fee. $298.33/12 = $24.87 (rounded up to the next cent).

(2) Annual Fee Billing

a. Lenders will be billed retroactively for a 12 month period, commencing on the first anniversary of the loan and each anniversary thereafter. For example, if the loan closes on November 1, 2011, the lender will be billed for the initial fee on December 1, 2012.

b. The annual fee payment will be due to RHS by the 15th calendar day after each anniversary of the loan. Using the example above, the initial annual fee will be due to RHS by no later than December 15, 2012.

c. If the fee is not paid by the due date, RHS will assess a late fee of 4 percent of the billed amount on the 16th calendar day after the bill is due. If the annual fee for a loan is still unpaid after 30 days, RHS may assess additional late fees on the delinquent fee amount.

d. Although, RHS will collect the fee annually, lenders may establish an escrow account to collect the fee from the borrower on a monthly basis.

(3) The Annual Fee will be collected through Pay.Gov as follows:

a. Fully web-based for lenders with 3,000 or less loans; and

b. An overnight matching batch process for lenders with greater than 3,000 loans.

List of Subjects in 7 CFR Part 1980

• Home improvement
• Loan programs—Housing and community development
• Mortgage insurance
• Mortgages
• Rural areas

For the reason stated in the preamble, Chapter XVIII, Title 7 of the Code of Federal Regulations is proposed to be amended as follows:

PART 1980—GENERAL

(1) The authority citation for part 1980 continues to read as follows:

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989. Subpart E also issued under 7 U.S.C. 1932(a).

Subpart D—Rural Housing Loans

(2) Section 1980.323 is revised to read as follows:

§ 1980.323

Guarantee loan fees.

The Lender will pay an up-front guarantee fee, and will also be charged an annual fee. The amount of the up-front guarantee fee and annual fee will be calculated based on the figure identified in exhibit K of subpart A of part 1810 of this chapter (RD Instruction 440.1, available in any Rural Development office). The nonrefundable fees may be passed on to the borrower.

(a) Up-front guarantee fee. The amount of the up-front guarantee fee is determined by multiplying the appropriate figure in RD Instruction 440.1, Exhibit K, times 90 percent of the principal amount of the loan.

(b) Annual fee. The annual fee will be based on the average annual scheduled unpaid principal balance of the guaranteed loan amount. The fee percentage can be found in RD Instruction 440.1, Exhibit K. The Agency will assess a late fee for annual fees not timely paid.

* * * * *

Dated: July 19, 2011.

Dallas Tonsanger,

Under Secretary, Rural Development.

Dated: August 2, 2011.

Michael Scuse,

Acting Under Secretary, Farm and Foreign Agriculture Services.