Rule2022-02467
Single Family Housing Guaranteed Loan Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 7, 2022
Effective
May 9, 2022
Issuing agencies
Agriculture DepartmentRural Housing Service
Abstract
The Rural Housing Service (RHS or Agency), is implementing changes to Single-Family Housing Guaranteed Loan Program (SFHGLP) to mandate the use of the Guaranteed Underwriting System (GUS) and the Lender Loan Closing System (LLC) by approved lenders. The Agency's mandated use of GUS in loan originations and the LLC for loan closings will allow the Agency to decrease time-consuming and expensive manual file reviews, improve performance monitoring and reduce program risk of the guaranteed loan portfolio.
Full Text
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<title>Federal Register, Volume 87 Issue 25 (Monday, February 7, 2022)</title>
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[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Rules and Regulations]
[Pages 6773-6777]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-02467]
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
7 CFR Part 3555
[Docket No. RHS-20-SFH-0025]
RIN 0575-AD21
Single Family Housing Guaranteed Loan Program
AGENCY: Rural Housing Service, U.S. Department of Agriculture (USDA).
ACTION: Final rule.
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SUMMARY: The Rural Housing Service (RHS or Agency), is implementing
changes to Single-Family Housing Guaranteed Loan Program (SFHGLP) to
mandate the use of the Guaranteed Underwriting System (GUS) and the
[[Page 6774]]
Lender Loan Closing System (LLC) by approved lenders. The Agency's
mandated use of GUS in loan originations and the LLC for loan closings
will allow the Agency to decrease time-consuming and expensive manual
file reviews, improve performance monitoring and reduce program risk of
the guaranteed loan portfolio.
DATES: This final rule is effective May 9, 2022.
FOR FURTHER INFORMATION CONTACT: Ticia Weare, Finance and Loan Analyst,
Single Family Housing Guaranteed Loan Division, Rural Development, U.S.
Department of Agriculture, STOP 0784, Room 2250, South Agriculture
Building, 1400 Independence Avenue SW, Washington, DC 20250-0784.
Telephone: (702) 407-1400 x6001; or email: <a href="/cdn-cgi/l/email-protection#aadec3c9c3cb84ddcfcbd8cfeadfd9cecb84cdc5dc"><span class="__cf_email__" data-cfemail="65110c060c044b120004170025101601044b020a13">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Background
Rural Housing Service (RHS or Agency) is an agency of the U.S.
Department of Agriculture. RHS is issuing a final rule to amend the
Single-Family Housing Guaranteed Loan Program (SFHGLP) regulations
found in 7 CFR part 3555, subparts C and D, by updating the regulations
to align the Agency's program with the mortgage industry expectations
in the domain of information technology.
In order to provide efficient and timely delivery of the SFHGLP, it
is necessary to streamline the processing of SFHGLP applications using
automation initiatives as much as possible. The Agency is revising the
regulation to mandate that lenders utilize GUS and the LLC systems for
all supported applications and loan closing files. Mandatory use of GUS
and the LLC will allow uniformity in application submissions,
consistency in the timely processing of loan requests and will save
time and administrative costs for both lenders and the Agency by
eliminating the requirement for paper file storage, shredding costs,
and mail with overnight courier fees.
GUS is compatible with the Loan Origination Systems and Point of
Sale vendors that are widely accepted throughout the industry. All
SFHGLP loan products are supported by GUS, except for streamlined-
assist refinance transactions and select pilot programs. Lenders will
continue to submit manually underwritten files for these types of
transactions by electronic means approved by the Agency. These loans
are different from loans downgraded in GUS for manual underwriting--the
downgraded loans will continue to be submitted via GUS for a manual
review. Mandatory use of the automated underwriting system not only
offers ease to lenders when uploading closing documents and payment of
the guarantee and technology fees using the LLC, but efficiently and
effectively allows Agency staff the capability to review loan
applications, increases lender's ability to transfer loans to program
investors, and lessens the timeframe for underwriting and processing
loan approvals.
GUS is a robust automated system that processes application
requests and provides specific loan closing data to the lender and the
Agency. It offers added benefits to the lender's decision-making
process by producing underwriting findings reports and reliable credit
data for managing borrower risks.\1\ Expanded use of the system will
maximize the impact of core agency programs and drive innovation that
will remove obstacles that delay loan production.
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\1\ GUS is a tool that helps evaluate the credit risk but does
not replace the informed judgment of the experienced underwriter's
decision and does not serve the sole basis for making a final loan
decision. See 7 CFR 3555.107(b).
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This final rule will change how the agency receives loan requests
by mandating the use of GUS for all supported loan type submissions and
the LLC for all loan submissions. Currently, the Agency allows approved
lenders to submit applications for loan guarantee requests by mail,
electronic mail (email) or GUS.
Discussion of Public Comments Received on January 19, 2021 Proposed
Rule
On November 17, 2020, RHS published a proposed rule for comments on
the mandatory use of GUS for SFHGLP (85 FR 73241). The Agency received
comments from eighteen respondents including Banks, Credit Unions, and
other interested parties. Specific public comments are addressed below:
Comment: Two respondents' comments were unrelated to the proposed
rule. One was an inquiry for small business loan assistance and the
other, a business advertisement.
Agency Response: The Agency has determined that no action is
required.
Comment: Two respondents commented that the benefit of the proposed
rule will improve efficiency and effectiveness; however, they are
concerned with the elimination of manual underwriting considering the
automated underwriting system may be inadequate for certain credit risk
scenarios and want to ensure an accommodation is considered for these
scenarios.
Agency Response: The Agency has determined that no action is
required, the manual underwriting process remains unchanged for the
following GUS recommendations of ``Refer, Refer with Caution''.
Comment: Eight respondents commented they are concerned that the
requirement for all lenders to submit requests through GUS would
eliminate manual underwriting for submissions that receive a GUS
recommendation of ``Refer or Refer with Caution''. In addition,
applicants without a credit score may be unable to apply.
Agency Response: The use of alternate credit and the manual
underwriting process remains unchanged for the following GUS
recommendations: Refer, Refer with Caution. The Agency has provided
clarification in Sec. 3555.107(c)(1) and Sec. 3555.107(c)(2), by
adding language explaining loans with GUS recommendations of ``Refer
and Refer with Caution'' will continue to be manually underwritten.
Clarification was added to Sec. 3555.107(i)(4), explaining all closed
loans including manual submissions are required to use Rural
Development's automated systems.
Comment: Four respondents commented in favor of the proposed rule
and indicate the rule will create a positive impact on consistency and
efficiency.
Agency Response: The Agency has determined that no action is
required.
Comment: Two respondents commented in opposition to the proposed
rule, one citing a possible adverse impact on smaller lenders with
limited resources who rely on manual submissions and the other cited
concerns over accuracy of the data input as well as an economic impact
the proposed rule may have.
Agency Response: The Agency has determined that no action is
required. The Agency does not anticipate a barrier to program
participation and offers two opportunities to participate: (1) Through
a connection with the lender's point of sale or loan origination
system, (2) entering loan application information directly into GUS.
GUS is available to all approved lenders with eAuthentication
credentials. The Agency has an established process for lenders to
obtain eAuthentication credentials online that is free, easy, and does
not create a burden to the lender. It is anticipated that the rule will
provide more consistent and timely reviews which will benefit all
lenders including small lenders.
[[Page 6775]]
Summary of Changes to Rule
A summary of the changes includes amending 7 CFR 3555.107(b)
introductory text and (b)(1), (3),and (6), to reflect that the use of
the Agency's automated underwriting system will be required for all
supported submissions by alternate means, such as email or hard copy,
will not be permitted and therefore the Agency will eliminate
references to such submission methods.
This final rule also amends Sec. 3555.107(c) and add paragraphs
(c)(1) and (2) to describe the two types of loans that will continue to
be manually underwritten. First, loan products not supported by the
automated origination system, such as streamlined-assist refinance
transactions and select pilot programs, must be manually underwritten
and submitted via secure email or other electronic means approved by
the Agency. Second, loans downgraded in the Agency's automated
origination system require manual underwriting, although lenders will
continue to submit the loan documentation via the Agency's automated
systems.
Concurrently, Sec. 3555.107(i)(4) will be amended to require all
loan closing documentation to be submitted via the Agency's automated
systems.
Regulations Sec. 3555.151(h)(2) will also be amended to clarify
procedures for manually underwritten loans. The loan files for manually
underwritten loans will continue to be submitted through the automated
underwriting system but require full documentation review, and credit
score validation or compensating factors.
Statutory Authority
Section 510(k) of Title V the Housing Act of 1949 (42 U.S.C.
1480(k)), as amended, authorizes the Secretary of the Department of
Agriculture to promulgate rules and regulations as deemed necessary to
carry out the purpose of that title.
Executive Orders and Acts
Executive Order 12866, Classification
This rule has been determined to be not significant for the
purposes of Executive Order 12866 and, therefore, has not been reviewed
by the Office of Management and Budget (OMB).
Executive Order 12988, Civil Justice Reform
This rule has been reviewed under Executive Order 12988. In
accordance with this rule: (1) Unless otherwise specifically provided,
all state and local laws that conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule except
as specifically prescribed in the rule; and (3) administrative
proceedings of the National Appeals Division of the Department of
Agriculture (7 CFR part 11) must be exhausted before bringing suit in
court that challenges action taken under this rule.
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 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.
National Environmental Policy Act
In accordance with the National Environmental Policy Act of 1969,
Public Law 91-190, this final rule has been reviewed in accordance with
7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency
has determined that (i) this action meets the criteria established in 7
CFR 1970.53(f); (ii) no extraordinary circumstances exist; and (iii)
the action is not ``connected'' to other actions with potentially
significant impacts, is not considered a ``cumulative action'' and is
not precluded by 40 CFR 1506.1. Therefore, the Agency has determined
that the action does not have a significant effect on the human
environment, and therefore 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
final rule impose substantial direct compliance costs on state and
local governments. Therefore, consultation with the States is not
required.
Regulatory Flexibility Act
The final 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 on this document that this final
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 nor does it require any more action on the
part of a small business than required of a large entity.
Executive Order 12372, Intergovernmental Review of Federal Programs
This program is not subject to the requirements of Executive Order
12372, ``Intergovernmental Review of Federal Programs,'' as implemented
under USDA's regulations at 7 CFR part 3015.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This Executive order imposes requirements on RHS in the development
of regulatory policies that have tribal implications or preempt tribal
laws. RHS has determined that the final 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 final rule
is not subject to the requirements of Executive Order 13175. If tribal
leaders are interested in consulting with RHS on this final rule, they
are encouraged to contact USDA's Office of Tribal Relations or RD's
Native American Coordinator at: <a href="/cdn-cgi/l/email-protection#06474f4748467375626728616970"><span class="__cf_email__" data-cfemail="43020a020d03363027226d242c35">[email protected]</span></a> to request such a
consultation.
Programs Affected
The program affected by this final rule is listed in the Assistance
Listing Number 10.410, Very Low to Moderate Income Housing Loans
(Section 502 Rural Housing Loans).
Paperwork Reduction Act
This final rule contains no new reporting or recordkeeping burdens
under OMB control number 0575-0179 that would require approval under
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
[[Page 6776]]
Civil Rights Impact Analysis
Rural Development has reviewed this final rule in accordance with
USDA Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify
any major civil rights impacts the rule might have on program
participants on the basis of age, race, color, national origin, sex,
disability, marital or familial status. Based on the review and
analysis of the rule and all available data, issuance of this final
rule is not likely to negatively impact low and moderate-income
populations, minority populations, women, Indian tribes or persons with
disability, by virtue of their age, race, color, national origin, sex,
disability, or marital or familial status.
E-Government Act Compliance
Rural Development is committed to the E-Government Act, which
requires Government agencies in general to provide the public the
option of submitting information or transacting business electronically
to the maximum extent possible.
USDA Non-Discrimination Policy
In accordance with Federal civil rights laws and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Mission Areas, agencies, staff offices, 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.
Program information may be made available in languages other than
English. Persons with disabilities who require alternative means of
communication to obtain program information (e.g., Braille, large
print, audiotape, American Sign Language) should contact the
responsible Mission Area, agency, or staff office; the USDA TARGET
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service
at (800) 877-8339.
To file a program discrimination complaint, a complainant should
complete a Form AD-3027, USDA Program Discrimination Complaint Form,
which can be obtained online at <a href="https://www.ocio.usda.gov/document/ad-3027">https://www.ocio.usda.gov/document/ad-3027</a>, from any USDA office, by calling (866) 632-9992, or by writing a
letter addressed to USDA. The letter must contain the complainant's
name, address, telephone number, and a written description of the
alleged discriminatory action in sufficient detail to inform the
Assistant Secretary for Civil Rights (ASCR) about the nature and date
of an alleged civil rights violation. The completed AD-3027 form or
letter must be submitted 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; or
(2) Fax: (833) 256-1665 or (202) 690-7442; or
(3) Email: <a href="/cdn-cgi/l/email-protection#1161637e7663707c3f787f65707a7451646275703f767e67"><span class="__cf_email__" data-cfemail="e191938e8693808ccf888f95808a84a194928580cf868e97">[email protected]</span></a>.
USDA is an equal opportunity provider, employer, and lender.
List of Subjects in 7 CFR Part 3555
Construction, Eligible loan purpose, Home improvement, Loan
programs--housing and community development, Loan terms, Mortgage
insurance, Mortgages, Rural areas.
For the reasons discussed in the preamble, the Agency is amending 7
CFR part 3555 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.
Subpart C--Loan Requirements
0
2. Amend Sec. 3555.107 by revising paragraphs (b) introductory text,
(b)(1), (3), and (6), (c), and (i)(4) to read as follows:
Sec. 3555.107 Applications for and issuance of the loan guarantee.
* * * * *
(b) Automated underwriting. Approved lenders are required to
process SFHGLP loans using Rural Development's automated systems. The
automated underwriting system is a tool to help evaluate credit risk
but does not substitute or replace the careful judgment of experienced
underwriters and shall not be the exclusive determination on extending
credit. The lender must apply for and receive approval from Rural
Development to utilize the automated underwriting system. Rural
Development reserves the right to terminate the lender's use of the
automated underwriting system.
(1) Lenders are responsible for ensuring all data is true and
accurately represented in the automated underwriting system.
* * * * *
(3) The use of Rural Development's automated underwriting system
subjects the lender to indemnification requirements in accordance with
Sec. 3555.108.
* * * * *
(6) Lenders will validate findings based on the output report of
the automated underwriting system.
* * * * *
(c) Manual underwriting. Loans requiring manual underwriting
(manually underwritten loans) are described in paragraphs (c)(1) and
(2) of this section. For manually underwritten loans, full
documentation, and verification in accordance with subparts C, D, and E
of this part will be submitted to Rural Development when requesting a
guarantee and maintained in the lender's file. The documentation will
confirm the applicant's eligibility, creditworthiness, repayment
ability, eligible loan purpose, adequate collateral, and satisfaction
of other regulatory requirements. The following types of loans require
manual underwriting:
(1) Loans downgraded by Rural Development's automated system. These
loans are manually underwritten by the lender and submitted utilizing
Rural Development's automated system.
(2) Loans that are not supported by Rural Development's automated
systems. These loans are manually underwritten by the lender and
submitted by secure email or other electronic means approved by the
Agency.
* * * * *
(i)* * *
(4) For all loan submissions, evidence of documentation supporting
the properly closed loan will be submitted using Rural Development's
automated systems.
* * * * *
Subpart D--Underwriting the Applicant
0
3. Amend Sec. 3555.151 by revising paragraph (h)(2) introductory text
to read as follows:
Sec. 3555.151 Eligibility requirements.
* * * * *
(h) * * *
(2) The repayment ratio may exceed the percentage in paragraph
(h)(1) of this section when certain compensating factors exist. The
handbook, HB-1-3555, Appendix I, located at <a href="https://www.rd.usda.gov/sites/default/files/hb-1-3555.pdf">https://www.rd.usda.gov/sites/default/files/hb-1-3555.pdf</a>, will provide examples of
[[Page 6777]]
when a debt ratio waiver may be granted. The automated underwriting
system will consider any compensating factors in determining when the
variance is appropriate. Loans downgraded in the automated underwriting
system which must be manually underwritten will require the lender to
document compensating factors. The presence of compensating factors
does not strengthen a ratio exception when multiple layers of risk are
present in the application. Acceptable compensating factors, supporting
documentation, and maximum ratio thresholds, will be further defined
and clarified in the handbook. Compensating factors include but are not
limited to:
* * * * *
Joaquin Altoro,
Administrator, Rural Housing Service.
[FR Doc. 2022-02467 Filed 2-4-22; 8:45 am]
BILLING CODE 3410-XV-P
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