E6-7901. Notice of Availability of Hurricane Disaster Assistance-Section 502 Guaranteed Loan Program

AGENCY:

Rural Housing Service, USDA.

ACTION:

Notice of funding availability.

SUMMARY:

The Rural Housing Service, an agency within the USDA Rural Development mission area, provides housing loan guarantees to rural residents through its Section 502 Guaranteed Loan Program. The Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico and Pandemic Influenza Act, 2006 (Act), Pub. L. 109-148 (12/30/05) provides USDA Rural Development with additional authorities and resources to address the damage caused by hurricanes that occurred during the 2005 calendar year. The intent of this NOFA is to introduce a temporary Mortgage Recovery Advance Program for existing Section 502 Guaranteed Loan Program borrowers impacted by certain 2005 hurricanes.

DATES:

Effective Date: May 24, 2006 to April 30, 2007.

FOR FURTHER INFORMATION CONTACT:

Stuart Walden, Senior Loan Specialist, Section 502 Guaranteed Loan Program—STOP 0784 (Room 2250), U.S. Department of Agriculture, Rural Housing Service, 1400 Independence Ave. SW., Washington, DC 20250-0784.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The paperwork burden has been cleared by the Office of Management and Budget (OMB) under OMB Control Number 0575-0078.

Overview

Based upon the extensiveness and the magnitude of the damage to housing in the Gulf Coast Region, USDA Rural Development's Section 502 Guaranteed Loan Program is making $500,000 available for assistance for Mortgage Recovery Advances. These funds will be made available on a first-come, first-served basis. Additional funding for this initiative is not expected. Funding for this initiative will be derived from funds made available through the Act.

A Notice of Funds Availability (NOFA) related to the Act (71 FR 12671-74, March 13, 2006) provided access to the following funding levels for USDA Rural Development single family housing programs in designated disaster areas:

• $1,293,103,000 in deliverable Section 502 guaranteed homeownership funds;
• $175,593,000 in deliverable Section 502 direct homeownership funds;
• $34,188,000 in deliverable Section 504 direct repair/rehabilitation loans; and
• $20,000,000 in deliverable Section 504 direct repair/rehabilitation grants.

Expanding the assistance made available under the Act to cover Mortgage Recovery Advances will reduce, slightly, the amount of funds made available for new Section 502 Guaranteed Loans provided for through the Act's provisions. It is anticipated that there will be ample funding for new loan Section 502 Guaranteed Loan activity.

USDA Rural Development intends to expand the single family housing program options made available by the Act and the March 13, 2006, NOFA through the availability of a Mortgage Recovery Advance program for existing Section 502 Guaranteed Loan Program borrowers ( herein referred to as “borrowers”) who are in default on their housing loans due to 2005 hurricane-related impacts. Mortgage Recovery Advances will reduce foreclosure rates and overall guaranteed loan losses for USDA Rural Development in affected areas. As a home retention and loss mitigation option, eligible delinquent borrowers may receive a one-time advance from their loan servicer in an amount equal to not more than 12 months past due mortgage payments, to include past due principal, interest, taxes, and insurance. Mortgage Recovery Advances are designed to assist borrowers who do not currently have the ability to support their normal monthly mortgage obligation due to a verifiable loss of income, increase in living expenses attributable to the hurricanes, and who have exhausted other home retention loss mitigation options. The advance would be applied directly to the eligible borrowers' delinquent mortgage installments in order to bring the loan into a current and performing status.

Only approved lenders, as prescribed in 7 CFR section 1980.308 may hold Section 502 Guaranteed loans. Loan servicers processing Mortgage Recovery Advances described in the Notice may not always be approved holding lenders. Approved holding lenders are responsible for the actions of any loan servicer they may employ for servicing section 502 guaranteed loans.

Upon application, loan servicers will be reimbursed by USDA Rural Development for eligible advances made under the Mortgage Recovery Advance program. The advance amount will be recorded as a junior lien on the property, and the borrower is required to repay Rural Development at the earlier of when the Section 502 Guaranteed Loan is paid off or when the borrower no longer owns the property. This debt will be evidenced by a promissory note and mortgage or deed of trust.

Designated Disaster Area

The designated disaster area shall be those Presidentially-declared areas eligible for individual assistance in the states of Alabama, Florida, Louisiana, Mississippi, and Texas in accordance with the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121 et seq.

Description of Assistance

Under the Section 502 Guaranteed Loan Program's Mortgage Recovery Advance program, a loan servicer may, as provided in this NOFA, advance funds on behalf of a borrower in an amount necessary to reinstate a defaulted loan, and file a request to USDA Rural Development to be reimbursed for the amount of the advance.

All Mortgage Recovery Advances will require Agency approval prior to settlement. Each eligible advance that is executed by a loan servicer will entitle them to a one-time compensation payment of $500.00 from Rural Development to defray expenses associated with the action.

Borrower Qualifications

Borrowers must meet the following requirements to be eligible for a Mortgage Recovery Advance:

(1) The borrower's loan default must have resulted from one or more of the 2005 hurricanes, such as water or wind damage to the dwelling, increase in expenses, or loss of income as a result of the disaster.

(2) The borrower must have lived or worked in a designated disaster area at the time of the disaster.

(3) The borrower must have been current on their Section 502 Guaranteed Loan, including those accounts performing under a repayment plan or forbearance agreement, prior to the disaster.

(4) The borrower's account must be in arrears at least four but not more than twelve installments. The loan servicer's Mortgage Recovery Advance will include, in addition to the initial four delinquent installments, only the amount necessary to meet the borrower's arrearages, not to exceed the equivalent of 12 months of past due principal, interest, taxes, and hazard insurance. The lender or holder is requested to perform an escrow analysis prior to filing the claim to ensure that the partial claim payment made on behalf of the mortgagor represents, as accurately as possible, the escrow amounts required for taxes and insurance.

(5) The borrower must not be eligible for other home retention loss mitigation options, such a repayment plan, loan forbearance arrangement, or loan modification. Accounts that are fewer than four installments past due should be serviced using these traditional loss mitigation workout tools.

(6) The account must not have been referred for foreclosure.

(7) The borrower must not currently have the ability to support their normal monthly mortgage obligation due to the verifiable loss of income or increase in living expenses or costs from property damage to their principal residence attributable to the disaster.

(8) The borrower must continue occupying the property as a primary residence or intend to resume occupancy on a permanent basis when the residence becomes habitable. The impacted property must be habitable or capable of being repaired to be habitable.

(9) The borrower must have the demonstrated ability to resume making their regularly scheduled mortgage payment once the Mortgage Recovery Advance has been applied to their account.

Loan Servicer Requirements

General liquidation requirements for Section 502 Guaranteed Loans are found in 7 CFR section 1980.374. This provision requires that loan servicers submit a plan to USDA Rural Development when an account is 90 days or greater delinquent, and a method other than foreclosure will be used to resolve the delinquency.

Loan servicers must demonstrate that borrowers eligible for the Mortgage Recovery Advance program have homes that are in a habitable condition or will be repaired to a habitable condition, and that they can resume making their regularly scheduled mortgage loan payments after the Mortgage Recovery Advance is paid, using the following standards:

(a) Estimate the borrower's anticipated monthly net income for the same period, making necessary adjustments for income fluctuations.

(b) Estimate the borrower's normal monthly living expenses (food, utilities, etc.) including debt service on the mortgage and other scheduled and anticipated obligations.

(c) Subtract expenses from income to determine the amount of surplus income available each month.

Loan Servicers must receive prior approval from USDA Rural Development before they make a Mortgage Recovery Advance with a defaulted borrower.

Loan servicers will be required to have the borrowers execute a Mortgage Recovery Advance promissory note and mortgage or deed-of-trust perfecting a lien for USDA Rural Development for the amount of the Mortgage Recovery Advance. These RD forms are available by contacting the USDA Rural Development, Single Family Housing Guaranteed Loan Division, at [phone], or by e-mail at: [e-mail]. Loan servicers will file the mortgage or deed of trust in the appropriate local real estate records.

Repayment Terms

(a) The Mortgage Recovery Advance note and subordinate mortgage or deed-of-trust must be recorded in favor of USDA Rural Development and will be interest free.

(b) No monthly or periodic payments are required; however, borrowers may voluntarily submit partial payments without incurring any prepayment penalty.

(c) The note is due at the earlier of:

(1) The payoff of the first lien mortgage and the guaranteed note; or

(2) When the borrower transfers title to the property by voluntary or involuntary means.

(d) USDA Rural Development will collect this Federal debt from the borrower by any available means if the advance is not repaid based on the terms outlined in the promissory note and mortgage or deed-of-trust.

(e) Repayments of all or parts of Mortgage Recovery Advances must be collected and remitted to Rural Development by the loan servicer, or they may be remitted directly to USDA Rural Development by the borrower. To remit a payment via check, payable to USDA Rural Development, include the check and along with the borrower's name and taxpayer identification (ID) number to: USDA Rural Development, Cash Management Branch, FC-363, Attention: Mortgage Recovery Advance, P.O. Box 200011, St. Louis, Missouri 63120-0011.

To remit a payment electronically, contact USDA Rural Development's Cash Management Branch at [phone] and ask for instructions for Remittance Express.

Filing a Claim for Reimbursement

A claim for reimbursement of the Mortgage Recovery Advance program must be submitted to the Agency within 60 days of the advance being executed by the borrower through their signature on the promissory note, but no later than April 30, 2007.

When filing the claim for reimbursement to USDA Rural Development, the loan servicer must:

(1) Submit a copy of the promissory note and filed mortgage or deed of trust;

(2) Include a summary of the amount of the funds advanced, including the monthly principal, interest, taxes, and insurance amount, and other account information indicating the borrower's arrearage before the advance as well as the present status of the account as of the date of the advance;

(3) Provide the name, address, and tax ID number for the loan servicer; and

(4) Provide the name, address, and phone number of a contact person for the loan servicer that can answer questions about the reimbursement request.

The Agency will pay the one-time $500 payment to the servicer with the reimbursement.

Subsequent Borrower Default

(1) Borrowers will be eligible for only one Mortgage Recovery Advance.

(2) If a borrower defaults on their loan after receiving a Mortgage Recovery Advance and a loss claim is filed by the loan servicer due to the default, any reimbursement issued for the Mortgage Recovery Advance to the servicer on behalf of the borrower will be credited toward the maximum loan guarantee amount payable by USDA Rural Development under the guarantee.

Emergency Declaration

Consistent with Proclamation 7925 issued by President Bush, the USDA Rural Development Mission Area has determined that it would be impracticable, unnecessary, and contrary to public interest to delay the effective date of this Notice for any reason.

Dated: May 18, 2006.

David J. Villano,

Acting Administrator, Rural Housing Service.