05-2429. Direct Single Family Housing Loans and Grants

AGENCY:

Rural Housing Service, USDA.

ACTION:

Direct final rule.

SUMMARY:

Through this action, the Rural Housing Service (RHS) is revising and clarifying the definition for an existing dwelling and a new dwelling or unit, removing specific dollar limits with regards to insurance deductible clauses, and establishing the amount of insurance required to conform to industry standards. These changes are being made to make more clear what constitutes an existing and a new dwelling, and to conform insurance coverage requirements to industry standards. The intended effect is to improve the delivery and implementation of the Direct Single Family Housing programs.

DATES:

This rule is effective April 25, 2005, unless we receive written adverse comments or written notices of intent to submit adverse comments on or before April 11, 2005.

ADDRESSES:

You may submit comments to this rule by any of the following methods:

• Agency Web site: http://rdinit.usda.gov/​regs/​. Follow the instructions for submitting comments on the Web site.
• E-Mail: [e-mail]. Include the RIN number (0575-AC54) in the subject line of the message.
• 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 Avenue, SW., Washington, DC 20250-0742.
• Hand Delivery/Courier: Submit written comments via Federal Express Mail or another mail courier service requiring a street address to the Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, 300 7th Street, SW., Washington, DC 20024.

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

FOR FURTHER INFORMATION CONTACT:

Janet L. Carter, Senior Loan Specialist, Rural Housing Service, Stop 0783; 1400 Independence Avenue, SW., Washington, DC 20250-0783; Telephone: [phone]; Fax: [phone]; e-mail: [e-mail].

SUPPLEMENTARY INFORMATION:

Classification

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

Paperwork Reduction Act of 1995

The information collection requirements contained in this regulation have been approved by OMB under the provisions of 44 U.S.C. chapter 35 and have been assigned OMB control number 0575-0172, in accordance with the Paperwork Reduction Act (PRA) of 1995. This rule does not impose any new or modified information collection requirements.

GPEA Statement

RHS is committed to compliance with the Government Paperwork Elimination Act (GPEA), which requires Government agencies, in general to provide the public the option of submitting information or transacting business electronically to the maximum extent possible.

Civil Justice Reform

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. In accordance with this rule: (1) All State and local laws and regulations that are in conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) administrative proceedings in accordance with the regulations of the National Appeals Division of USDA in 7 CFR part 11 must be exhausted before bringing suit in court challenging action taken under this rule, unless those regulations specifically allow bringing suit at an earlier time.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. L. 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, 2 U.S.C. 1532, RHS 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 RHS to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule. This 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.

Programs Affected

The programs affected by this final rule are 10.410 Very Low to Moderate Income Housing Loans and 10.417 Very Low-Income Housing Repair Loans and Grants.

Intergovernmental Consultation

For the reasons set forth in the final rule related Notice to 7 CFR part 3015, subpart V, these programs are not subject to Executive Order 12372 which requires intergovernmental consultation with State and local officials.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” It is the determination of RHS 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, Pub. L. 91-190, an Environmental Impact Statement is not required.

Regulatory Flexibility Act

This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has determined and certified by signature of this document that this rule will not have a significant economic impact on a substantial number of small entities since this rulemaking action does not involve a new or expanded program.

Background

It is the policy of RHS to publish rules determined to be non-controversial and unlikely to result in adverse comments as direct final rules. RHS Policy for direct final rules was published on March 27, 2003 at 68 FR 14889. No adverse comments are anticipated on the changes in this rule. Adverse comments suggest that the rule should not be adopted or that a change should be made to the rule. Unless any adverse comments are received within 60 days of publication, this rule will be effective 75 days from the date of publication.

Definition of Existing Dwelling

According to 7 CFR 3550.10, an existing dwelling is currently defined as a dwelling that is more than 1 year old, or less than 1 year old and covered by an approved 10-year warranty plan. 7 CFR 3550.10 further defines a new dwelling as a dwelling that is to be constructed, or an already-existing dwelling that is less than 1 year old and is not covered by an approved 10-year warranty plan. This gives the impression that the major difference between a new and existing dwelling is coverage by a 10-year warranty plan. This has been a cause for much confusion with field staff, applicants, contractors, and Realtors. The 10-year warranty allows the Agency to provide full financing on homes that are less than 1 year old when there is not other means of adequate and verifiable documentation of construction quality of new dwellings. This change will simplify the definitions of new and existing homes but does not otherwise change any policy on how new and existing homes are financed. The only anticipated impact of this change is clarity on what constitutes a new or existing dwelling for the purposes of financial assistance through the Direct Single Family Housing programs. No change will result from this revision regarding the applicability or value of a 10-year warranty.

Insurance Deductible Clauses

According to 7 CFR 3550.61(b) and 7 CFR 3550.110(b) essential buildings must be insured in an amount at least equal to the balance of the secured debts. Many companies are reluctant to issue policies when the coverage is well in excess of the replacement value of the home. This is a particular problem in areas of high land costs and makes it extremely difficult for borrowers/homeowners to secure affordable insurance coverage. In addition, according to 7 CFR 3550.61(d) and 7 CFR 3550.110(d) loss deductible clauses may not exceed $250 or 1 percent of the insurance coverage, whichever is greater. The deductible for any 1 building may not exceed $750. The cost of housing has risen dramatically and so has the cost of insurance. Some companies are reluctant to provide coverage with deductible clauses with a low dollar threshold. This makes it very difficult for new homeowners to secure affordable insurance coverage.

The change in this requirement conforms with industry standards and will adequately protect both the borrower's and the government's interest. With this change, the borrower will be asked to insure their house in an amount that is the lesser of 100% of the insurable value (i.e. the cost to restore the property back to its state prior to a loss) of the house or the unpaid principal balance. The loss deductible clause requirement will be based on the higher of 1% of the face value of the policy or $1,000 unless state law requires a higher maximum deductible amount. This change will make it easier for applicants to secure affordable insurance coverage.

List of Subjects in 7 CFR Part 3550

• Administrative practice and procedure
• Conflict of interests
• Environmental impact statements
• Equal credit opportunity
• Fair housing
• Accounting
• Grant programs—Housing and community development
• Housing
• Loan programs—Housing and community development
• Low and moderate income housing
• Manufactured homes
• Reporting and recordkeeping requirements
• Rural areas
• Subsidies

For the reasons stated in the preamble, chapter XXXV, Title 7 of the Code of Federal Regulations, is amended as follows:

PART 3550—DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

1. The authority citation for part 3550 continues to read as follows:

Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

Subpart A—General

Section 3550.10 is amended by revising definitions for “existing dwelling or unit” and “new dwelling” to read as follows:

§ 3550.10

Definitions.

* * * * *

Existing dwelling or unit. A dwelling or unit that has either been previously owner-occupied or has been completed for more than 1 year as evidenced by an occupancy permit, certificate of occupancy or similar document issued by the local authority.

* * * * *

New dwelling or unit. A dwelling that is to be constructed, or a dwelling that is less than 1 year old as evidenced by an occupancy permit, certificate of occupancy or similar document issued by the local authority and has never been occupied.

* * * * *

Subpart B—Section 502 Origination

2. Section 3550.61 is amended by revising paragraphs (b) and (d)(1) to read as follows:

§ 3550.61

Insurance.

* * * * *

(b) Amount. The dwelling and any other essential buildings must be insured in an amount that is the lesser of 100% of the insurable value (i.e. the cost to restore the property back to its state prior to a loss) of the house or the unpaid principal balance.

* * * * *

(d) * * *

(1) Loss deductible clauses for required insurance coverage may not exceed the higher of 1% of the face value of the policy or $1,000 unless state law requires a higher maximum deductible amount.

* * * * *

Subpart C—Section 504 Origination and Section 306C Water and Waste Disposal Grants

3. Section 3550.110 is amended by revising paragraphs (b) and (d)(1) to read as follows:

§ 3550.110

Insurance (loans only).

* * * * *

(b) Amount. The dwelling and any other essential buildings must be insured in an amount that is the lesser of 100% of the insurable value of the house or the unpaid principal balance.

* * * * *

(d) * * *

(1) Loss deductible clauses for required insurance coverage may not exceed the higher of 1% of the face value of the policy or $1,000 unless state law requires a higher maximum deductible amount.

* * * * *

Dated: December 27, 2004.

Russell T. Davis,

Administrator, Rural Housing Service.