Proposed Rule2022-26097
Strengthening the Section 184 Indian Home Loan Guarantee Program
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Published
December 21, 2022
Issuing agencies
Housing and Urban Development Department
Abstract
This proposed rule would revise the regulations governing the Section 184 Indian Home Loan Guarantee Program ("Section 184 Program") to fiscally strengthen the program by clarifying rules for Lenders, Tribes, and Borrowers. As the program has experienced an increase in demand, it now requires an update to the implementing regulations to minimize potential risk and increase program participation by financial institutions. This proposed rule strives to modernize and enhance the Section 184 Program by adding participation and eligibility requirements for Lenders and other financial institutions. This proposed rule would also clarify the rules governing Tribal participation in the program, establish underwriting requirements, specify rules on the closing and endorsement process, establish stronger and clearer servicing requirements, establish program rules governing claims submitted by Servicers and paid by HUD, and add standards governing monitoring, reporting, sanctions and appeals. This rule would add new definitions and make statutory conforming amendments, including the categorical exclusion of the Section 184 program in HUD's environmental review regulations. Ultimately, the changes made by this proposed rule would promote program sustainability, increase Borrower protections, and provide clarity for new and existing Lenders who participate in the program.
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[Federal Register Volume 87, Number 244 (Wednesday, December 21, 2022)]
[Proposed Rules]
[Pages 78324-78379]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26097]
[[Page 78323]]
Vol. 87
Wednesday,
No. 244
December 21, 2022
Part III
Department of Housing and Urban Development
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24 CFR Parts 58 and 1005
Strengthening the Section 184 Indian Home Loan Guarantee Program;
Proposed Rule
Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 /
Proposed Rules
[[Page 78324]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 58 and 1005
[Docket No. FR-5593-P-01]
RIN 2577-AD01
Strengthening the Section 184 Indian Home Loan Guarantee Program
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, U.S. Department of Housing and Urban Development (HUD).
ACTION: Proposed rule.
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SUMMARY: This proposed rule would revise the regulations governing the
Section 184 Indian Home Loan Guarantee Program (``Section 184
Program'') to fiscally strengthen the program by clarifying rules for
Lenders, Tribes, and Borrowers. As the program has experienced an
increase in demand, it now requires an update to the implementing
regulations to minimize potential risk and increase program
participation by financial institutions. This proposed rule strives to
modernize and enhance the Section 184 Program by adding participation
and eligibility requirements for Lenders and other financial
institutions. This proposed rule would also clarify the rules governing
Tribal participation in the program, establish underwriting
requirements, specify rules on the closing and endorsement process,
establish stronger and clearer servicing requirements, establish
program rules governing claims submitted by Servicers and paid by HUD,
and add standards governing monitoring, reporting, sanctions and
appeals. This rule would add new definitions and make statutory
conforming amendments, including the categorical exclusion of the
Section 184 program in HUD's environmental review regulations.
Ultimately, the changes made by this proposed rule would promote
program sustainability, increase Borrower protections, and provide
clarity for new and existing Lenders who participate in the program.
DATES: Comment Due Date: March 17, 2023.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule. All submissions and communications must refer to
the above docket number and title. To receive consideration as public
comments, comments must be submitted through one of two methods,
specified below.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW, Room 10276,
Washington, DC 20410-0500. Due to security measures at all Federal
agencies, however, submission of comments by mail often results in
delayed delivery. To ensure timely receipt of comments, HUD recommends
that comments submitted by mail be submitted at least two weeks in
advance of the public comment deadline.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
<a href="http://www.regulations.gov">www.regulations.gov</a>. HUD strongly encourages commenters to submit
comments electronically. Electronic submission of comments allows the
commenter maximum time to prepare and submit a comment, ensures timely
receipt by HUD, and enables HUD to make them immediately available to
the public. Comments submitted electronically through the
<a href="http://www.regulations.gov">www.regulations.gov</a> website can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
rule.
No Facsimile Comments. Facsimile (fax) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at
the above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). HUD welcomes and is prepared to
receive calls from individuals who are deaf or hard of hearing, as well
as individuals with speech and communication disabilities. To learn
more about how to make an accessible telephone call, please visit
<a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>. Copies of all comments submitted by the due date will be available
for inspection and downloading at <a href="http://www.regulations.gov">www.regulations.gov</a>.
FOR FURTHER INFORMATION CONTACT: Krisa Johnson, Director, Office of
Loan Guarantee, Office of Native American Programs, Office of Public
and Indian Housing, Department of Housing and Urban Development, 451
7th Street SW, Room 4108, Washington, DC 20410; telephone number 202-
402-4978 (this is not a toll-free number). HUD welcomes and is prepared
to receive calls from individuals who are deaf or hard of hearing, as
well as individuals with speech and communication disabilities. To
learn more about how to make an accessible telephone call, please visit
<a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>.
SUPPLEMENTARY INFORMATION:
I. Background
Section 184 of the Housing and Community Development Act of 1992
(Pub. L. 102-550, approved October 28, 1992) (12 U.S.C. 1715z-13a), as
amended by the Native American Housing Assistance and Self-
Determination Act of 1996 (Pub. L. 104-330, approved October 26, 1996),
the 2013 Consolidated and Further Continuing Appropriations Act (Pub.
L. 113-6, approved March 26, 2013), the 2015 Consolidated and Further
Continuing Appropriations Act (Pub. L. 113-235, approved December 16,
2014), and the Consolidated Appropriations Act, 2021 (Pub. L. 116-260,
approved December 27, 2020) (Section 184 statute), authorize the
Section 184 Program to provide access to sources of private financing
to Indian families, Tribes and Tribally Designated Housing Entities
(TDHEs) who otherwise could not acquire housing financing because of
the unique legal status of Trust Land. The Section 184 Program provides
HUD with the authority to provide access to sources of private
financing for Indian families, Tribes and TDHEs that otherwise could
not obtain private financing because of the unique legal status of
Trust Lands by guaranteeing loans to eligible persons and entities.
Since its inception, the number of loans guaranteed under the Section
184 Program has significantly increased. At the same time, the program
regulations have never been substantially revised to accommodate the
exponential growth of the program. Generally, improvements on Trust
Land, are alienable, but conditions and restrictions apply.
Consequently, financial institutions may struggle with utilizing the
land interest as Security in mortgage lending transactions. To address
this concern, the Section 184 Program provides a loan guarantee to
approved Direct Guarantee lenders in the event of Borrower default. The
guarantee is paid from the Section 184 Loan Guarantee Fund (Fund) for
up to 100 percent of the unpaid principal balance as well as any
reasonable fees
[[Page 78325]]
and expenses approved by the Secretary.
Following the enactment of Section 184 on August 18, 1994, HUD
published an interim rule (59 FR 42732) codifying regulations for the
Section 184 Program at 24 CFR part 955, and on March 6, 1996, HUD
published a final rule (61 FR 9052). With the enactment of the Native
American Housing Assistance and Self-Determination Act of 1996
(NAHASDA), HUD published a final rule on March 12, 1998, implementing
NAHASDA amendments to the Section 184 Program as well as re-designating
24 CFR part 995 as 24 CFR part 1005 (63 FR 12334). On September 11,
1998, HUD published an interim final rule (63 FR 48988) establishing a
direct guarantee procedure similar to that in the Direct Endorsement
Program under the Federal Housing Authority (FHA) single family
mortgage insurance program. The interim final rule adopted procedures
that permitted HUD to review and guarantee a loan after loan closing
and made minimum changes to allow for any necessary administrative
actions against approved Direct Guarantee Lenders. The final rule
making these changes permanent was issued on April 19, 2002 (67 FR
19491).
The Fund receives annual appropriations to cover some of the
program costs and charges and an upfront and annual fee to the borrower
to support the remaining program costs. The demand for the program has
increased steadily each year. In 1995, the first year of the program,
HUD guaranteed less than 20 Section 184 Guaranteed Loans. Over the last
10 years, HUD has consistently guaranteed thousands of loans worth
hundreds of millions of dollars annually. To date, the Fund has
guaranteed over $7.5 billion in loans. While the program has grown
exponentially, the program regulations have not been substantially
revised to reflect this significant growth. As the volume in the
program increases, so does the risk to the Fund. The proposed
regulations will help to mitigate the risk associated with this
increased volume.
The 2013 Consolidated and Further Continuing Appropriations Act
(Pub. L. 113-6, approved March 26, 2013) (2013 Appropriations Act)
amended section 184(d) of the Housing and Community Development Act of
1992 to authorize HUD to increase the fee for the guarantee of loans up
to 3-percent of the principal obligation of the loan and to establish
and collect annual premium payments in an amount not exceeding one
percent of the remaining guaranteed balance (excluding the portion of
the remaining balance attributable to the fee collected at the time of
the issuance of the guarantee). On March 5, 2014, HUD published a
Federal Register Notice (79 FR 12520) announcing an increase in the
one-time Loan Guarantee Fee that Borrowers pay at loan closing from a
then-existing 1 percent to 1.5 percent of Guaranteed Loan amount. By
Federal Register Notice published on October 7, 2014 (79 FR 60492), HUD
exercised its new annual premium authority to implement an annual
premium to the Borrower in the amount of 0.15 percent of the remaining
loan balance until the unpaid principal balance, excluding the Upfront
Loan Guarantee Fee, reaches 78 percent of the lower of the initial
sales price or appraised value based on the initial Amortization
Schedule. By Federal Register Notice published on November 1, 2016 (81
FR 75836), HUD once again exercised its new annual premium authority to
implement an annual premium to the Borrower in the amount of 0.25
percent of the remaining loan balance. These new fees allowed HUD to
meet the current demands of the Section 184 Program.
The Consolidated and Further Continuing Appropriations Act (Pub. L.
113-235) (approved December 16, 2014) (2015 Appropriations Act) amended
Section 184(h)(1)(B) of the Housing and Community Development Act of
1992 to require the exhausting of all reasonable possibilities of
collection by the Holder of the guarantee, to include a good faith
consideration of loan modification, and to meet standards for servicing
Section 184 Guaranteed Loans in default, as determined by the
Secretary.
The Office of Audit of the HUD Office of Inspector General (OIG)
audited the Section 184 Program and issued Audit Report Number: 2015-
LA-0002 on July 6, 2015. The report found that HUD did not adequately
monitor, track, and evaluate participating Direct Guarantee and Non-
Direct Guarantee Lenders to ensure that loans guaranteed by the program
were being underwritten in accordance with the Section 184 processing
guidelines. The OIG gave many recommendations, including: HUD develop
and implement policies and procedures for monitoring, tracking,
underwriting, and evaluating the Section 184 Program; standardize
monthly delinquency reports; deny payments for claims on loans that
have material underwriting deficiencies; take enforcement actions
against certain Direct Guarantee and Non-Direct Guarantee Lenders; and
ensure that only underwriters that are approved by HUD are underwriting
Section 184 Guaranteed Loans. The corrective action plan proposed by
OIG and agreed upon by HUD includes the development of new regulations
to provide additional structure to the program and a platform for
policies and procedures to manage the program and address these
findings.
II. This Proposed Rule
As the Section 184 Program assists more eligible Borrowers and
entities, the Fund faces more program expenses and increased risk. HUD
is proposing these regulatory changes to make the program sustainable,
protect Borrowers, address weaknesses identified by the OIG, provide
clarity for new and existing Direct Guarantee and Non-Direct Guarantee
Lenders, and reduce and eliminate inappropriate and unreasonable Claim
payment requests from Servicers. This proposed rule is designed to
strengthen and modernize the Section 184 Program, as well as protect
the Fund. This proposed rule would enhance and fill the gap in the
existing regulations by modifying and adopting industry standards and
best practices, as well as relevant FHA regulations and guidance.
This proposed rule would reorganize the Section 184 Program's
regulations by removing outdated sections and replacing them with the
following: definitions, eligibility requirements for Lenders, rules
governing participation by Indian Tribes, underwriting requirements,
rules on the closing and endorsement process, loan fees, servicing
requirements submission of Claims, and standards governing monitoring,
reporting, sanctions and appeals.
Proposed Organization of New Part 1005
This rule proposes to divide HUD's regulations in 24 CFR part 1005
in nine subparts: Subpart A would comprise of general program
requirements; subpart B would discuss Lender and eligibility
requirements; subpart C would cover requirements for Tribal
participation; subpart D would contain underwriting requirements for
eligible Borrowers, eligible Properties, and loan types; subpart E
would include requirements for closing a Section 184 Guaranteed Loan
and receiving endorsement approval from HUD; subpart F would provide
the requirements for calculation, collection, and submission of the
Section 184 Guaranteed Loan fees; subpart G would cover the
requirements for Servicers to manage Section 184 Guaranteed Loans and
steps to take when a Section 184 Guaranteed Loan is in default; subpart
H would contain the requirements to submit Claims on Section 184
Guaranteed Loans; and subpart I would include report requirements and
sanctions to for
[[Page 78326]]
noncompliance with Section 184 Program regulations. Unless otherwise
noted in this proposed rule, HUD is proposing to codify current
practices. Where a section is a new requirement, it is noted.
A. General Program Requirements (Subpart A)
Purpose Sec. 1005.101. Section 1005.101 would address the purpose
of the part 1005 regulations and provide that the regulations in part
1005 implement the Section 184 Program.
Definitions Sec. 1005.103. The proposed rule includes definitions
for the terms found in the existing Section 184 Program regulations,
which HUD has revised to better reflect how the terms are currently
used by the Section 184 Program or to reflect policy shifts:
``default,'' ``Indian,'' ``property,'' ``Section 184,'' and ``Trust or
Restricted Land''. In the proposed regulations, the term ``Section
184'' is further revised to ``Section 184 Guaranteed Loan,'' and the
term ``Trust or Restricted Land'' is further revised to ``Trust Land''.
The proposed rule does not include the terms ``Mortgage'' and
``Mortgagee'', which were previously used in the existing regulation,
because the terms are no longer used in the program and are obsolete.
These terms are replaced by the terms ``Loan'' and ``Lender,''
respectively, as currently proposed in Sec. 1005.103.
Additionally, HUD has included new terms that are commonly used by
the Section 184 Program in practice. This regulation would formalize
these definitions for the program. The following terms would provide
clarity and ensure consistency in the implementation of the various
parts of the Section 184 Program regulations: ``Acquisition Cost,''
``Amortization,'' ``Amortization Schedule,'' ``Annual Loan Guarantee
Fee,'' ``BIA,'' ``Borrower,'' ``Claim,'' ``Conflict of Interest,''
``Date of default,'' ``day,'' ``Direct Guarantee Lender,'' ``Eligible
Nonprofit Organization,'' ``Financial Statements'' ``Firm Commitment,''
``First Legal Action,'' ``Good and Marketable Title,'' ``Holder,''
``Identity of Interest,'' ``Indian Family,'' ``Indian Housing Loan
Guarantee Fund,'' ``lease or leasehold interest,'' ``Lender,''
``Loan,'' ``Loan Guarantee Certificate,'' ``Loan Guarantee Fee,''
``Loss Mitigation,'' ``month or monthly,'' ``Non-Direct Guarantee
Lender,'' ``Origination or originate,'' ``Owner of Record,'' ``Partial
Payment,'' ``Section 184 Guaranteed Loan,'' ``Section 184 Approved
Program Area,'' ``Section 184 Program Guidance,'' ``Security,''
``Servicer,'' ``Sponsor,'' ``Sponsored Entity,'' ``Tax-exempt bond
financing,'' ``Title Status Report,'' ``Tribe,'' ``Tribally Designated
Housing Entity (TDHE),'' ``Trust Land,'' and ``Upfront Loan Guarantee
Fee.''
B. Lender Eligibility & Requirements (Subpart B)
This subpart includes Lender eligibility and the application
process to participate in the Section 184 Program as a Non-Direct
Guarantee or Direct Guarantee Lender.
Lender approval and participation Sec. 1005.201. This section
describes the two types of Lenders approved to participate in the
Section 184 Program: Lenders deemed approved by statute and Lenders
approved by HUD. This section would require that Lenders submit to HUD
an application for participation in accordance with the level of
activity a Lender wants to engage in, as prescribed by Section 184
Program Guidance. This proposed section is consistent with current
program policy, practice, and/or procedure.
Lenders deemed approved by statute Sec. 1005.203. This section is
a restatement of what is an eligible Lender under the statute. In
response to comments received during Tribal consultation, this section
specifically references Community Development Financial Institutions
(CDFIs) as being included as a `Lender approved by statute.' This
proposed section is consistent with current program policy, practice,
and/or procedure.
Lenders required to obtain Secretarial approval Sec. 1005.205.
This section addresses qualifications for participation in HUD's
Section 184 Program if a Lender is not approved under the statutory
approved listed in Sec. 1005.203. A Lender would be required to submit
an application, as prescribed by Section 184 Program Guidance, for HUD
to determine the capacity of the financial institution to participate
in the Section 184 Program. This application would include establishing
a Lender's qualifications based on the following: business formation
verification, certifications related to employees and officers,
Financial Statements, quality control plan, identification of branch
offices, certification of conflict and interest, licensing
certification, verification of minimum net worth, and identification of
operating area. HUD will review documentation submitted under this
section and make a determination if the requesting financial
institution is qualified to be a Lender under the Section 184 Program.
If a Lender is approved to participate in the Section 184 Program, HUD
would send written notification of approval. If HUD determines that the
Lender does not meet the requirements of subpart B, HUD would send
written notice of the denial, which may be appealed to HUD in
accordance with the appeal procedure set forth in the regulation.
Lender participation options Sec. 1005.207. This section describes
the two levels of Lender participation in the Section 184 Program, Non-
Direct Guarantee Lender and Direct Guarantee Lender, along with the
allowed eligible activities for each level of participation. This
section proposes to establish a new requirement that eligible Lenders
must select their desired participation level by submitting an
application to HUD. A participation level must be selected by the
Lender and approved by HUD before initiating any Section 184 program
activities.
Direct Guarantee Lender application process Sec. 1005.209. This
section details the application requirements for Lenders to apply to
become a Direct Guarantee Lender in the Section 184 Program. These
proposed requirements HUD believes are necessary to ensure that Direct
Guarantee Lenders meet certain minimum requirements including having a
certain level of experience in origination, underwriting, and servicing
of mortgage loans. Additionally, Lenders must submit a quality control
plan.
Direct Guarantee Lender approval Sec. 1005.211. This section
addresses what constitutes HUD approval for Lenders applying to
participate in the Section 184 Program as a Direct Guarantee Lender
under Sec. 1005.209. This section addresses the process HUD would
follow to notify Lenders of their approval as Direct Guarantee Lenders
under the program. HUD would provide written notification to the
Lender, and the Lender would need to certify to being in compliance
with all program requirements and agree to ensure that any Sponsored
Entities also comply with all program requirements. This section is an
addition to HUD's current practice.
Non-Direct Guarantee Lender application, approval, and Direct
Guarantee Lender sponsorship Sec. 1005.213. This section describes the
sponsorship relationship between a Direct Guarantee Lender and a Non-
Direct Guarantee Lender and the general responsibilities of a Direct
Guarantee Lender as the Sponsor. Each Sponsor is responsible to HUD for
the actions of the Sponsored Entity and must ensure that HUD records
remain up to date by informing HUD regarding any changes of the
Sponsored Entity. This section
[[Page 78327]]
seeks to align with HUD's current practice.
Annual reporting requirements Sec. 1005.215. This section would
require annual reporting on Section 184 Guaranteed Loan performance
data from Direct Guarantee Lenders, their Sponsored Entities. It also
provides for HUD to establish additional annual reporting requirements
as provided in Section 184 Program Guidance. The section would be a new
requirement to track the performance of the program and participating
Direct and Non-Direct Guarantee Lenders to ensure the protection of the
Fund.
Quality control plan Sec. 1005.217. This section proposes to
implement the requirement that Lenders participating in the Section 184
Program have a written quality control plan and the contents of that
plan. The purpose of the quality control plan is to ensure Lender
compliance with Section 184 Program requirements and protect HUD and
the Lenders from unacceptable risks. A Lender would be required to
adopt and implement a quality control plan that fully complies with
Section 184 Program Guidance. This requirement incorporates existing
Quality Control Plan policies and adds new requirements, such as
paragraphs (c) and (d) in Sec. 1005.217.
Other requirements Sec. 1005.219. This section describes proposed
additional Direct Guarantee Lender and Non-Direct Guarantee Lender
requirements, including compliance with pertinent Tribal, Federal, and
State, and laws, dual employment, reporting requirements, records
retention, all of which are proposed to place in regulations current
program policy, practice, and/or procedure.
This section also includes a proposed new requirement that HUD may
set for lenders a minimum level of lending on Trust Land. While this
program was designed to bring mortgage capital to Trust Lands, the
majority of loans guaranteed by the Program are made on fee simple
land. In order to address this concern, this rule proposes to set forth
a new requirement for lenders participating in the program to actively
market, originate, and underwrite loans on Trust Land. HUD is
interested in increasing lending on Trust Land to further the
objectives of the Section 184 Program and provide additional
homeownership opportunities on Trust Lands. In this section, HUD
proposes to set, by Federal Register, a minimum lending amount for
direct guarantee lenders on Trust Lands. All Lenders would be required
to ensure that they comply with these additional requirements to remain
as a participant in the program. While HUD is not proposing a specific
minimum level of lending on Trust Land in this proposed rule, HUD is
interested in receiving feedback on what this minimum level of lending
should be and if such minimum requirement would help with the
underlying goal of the provision.
Business change reporting Sec. 1005.221. This section would
require Lenders participating in the Section 184 Program to notify HUD
within a timeframe as prescribed by Section 184 Program Guidance of any
changes in a Lender's legal structure or staffing or any new sanctions
against the Lender. HUD is proposing to require this notification to
reduce risk and monitor the stability of the lender.
Annual recertification Sec. 1005.223. This section would implement
the mandatory submission of an annual recertification by all Direct
Guarantee and Non-Direct Guarantee Lenders, as prescribed by Section
184 Program Guidance. HUD is proposing to require recertification to
ensure that Direct Guarantee and Non-Direct Guarantee Lenders continue
to meet program eligibility requirements and to reduce the risk to HUD
and the Fund. This section also would require the Direct Guarantee
Lender and Non-Direct Guarantee Lender to submit Financial Reports and
updated contact information. This section is consistent with HUD's
current practice.
Program ineligibility Sec. 1005.225. This section describes the
circumstances under which HUD would determine that a Direct Guarantee
Lender or Non-Direct Guarantee Lender is ineligible to participate the
Section 184 Program. This section is intended to reduce risk to the
Fund as well and align with current industry standards.
C. Lending on Trust Land (Subpart C)
This subpart proposes requirements for Tribal participation in the
Section 184 Program when Tribes want to make Trust Land or Restricted
Fee Land available under the Section 184 Program. This section requires
a partnership between HUD, the Tribe, the Direct Guarantee Lender,
Servicer and the Borrower. The Tribe is a critical partner in the
ability of the program to operate on Tribal Lands. For the program to
operate on Trust Lands, certain Tribal ordinances must be in place.
Tribes interested in participating in the Program would be required to
submit to HUD evidence of the required legal and administrative
framework necessary to ensure HUD or the Servicer have the ability to
enforce the lien in case of default.
Tribal legal and administrative framework Sec. 1005.301. This
section outlines the legal and the administrative framework necessary
when a Tribe seeks to allow eligible Borrowers place a mortgage lien on
Trust Land under the Section 184 Program. The proposed rule would
specify requirements governing foreclosure and assignments, property
disposition, eviction procedures, lien priority, and leasing, which are
an addition to the regulation to codify current policy, practice and/or
procedure. These requirements are necessary to protect Borrowers,
Tribes, TDHEs, Lenders and the Fund from unnecessary financial risks.
This section proposes new language to be included in the Tribal lease
that would allow a Tribe to assign the lease to HUD, and HUD would
transfer the lease to a successor lessee, as approved by the Tribe.
This language has been added because there have been instances when a
Borrower is in default, their Section 184 Guaranteed Loan has been
assigned to HUD, and the Borrower has vacated the property before
foreclosure. The Tribe, THDE or a trial member is interested in
purchasing the property, but the sale cannot happen because the
defaulted Borrower remains on the lease. The proposed language gives
the Tribe the authority to assign the lease to HUD so the sale of the
property can move forward without having to wait until HUD obtains the
lease through foreclosure.
Tribal application Sec. 1005.303. This section includes the
application requirements for Tribes interested in bringing the Section
184 Program to their Trust Lands. The application must include a copy
of documents related to the Tribe's legal and administrative framework,
including but not limited to a Tribe's foreclosure, eviction, lease,
and priority lien ordinances, all cross-referenced ordinances in those
sections, and any other documents in accordance with Section 184
Program Guidance. HUD is proposing this section to ensure that Tribes
have the necessary legal structure in the event of a default on Trust
Land and to ensure that HUD is provided first lien priority.
Approval of Tribal application Sec. 1005.305. This section would
specify that HUD will provide written notification to Tribes upon the
completion of its review of a Tribe's application submitted in
accordance with Sec. 1005.303 and would provide the opportunity for
Tribes to resubmit missing, incomplete, or deficient applications. This
proposed section is consistent with current program policy, practice,
and/or procedure.
[[Page 78328]]
Tribal recertification Sec. 1005.307. This section would implement
the mandatory submission of an annual recertification by all Tribes
participating in the Section 184 Program and the contents of such
recertification, in accordance with Section 184 Program Guidance. HUD
proposes to require recertification to ensure that the Tribe continues
to meet program eligibility requirements. This section would also
require the Tribe to update contact information. This proposed section
is intended to keep current on Tribal contacts and to confirm that
there have been no changes to relevant ordinances and the Tribal lease.
Duty to report changes Sec. 1005.309. This section would require
Tribes participating in the Section 184 Program to report to HUD any
current changes in the Tribe's contact information, or proposed changes
to foreclosure, eviction lease and lien priority ordinances. This
section is a new requirement to ensure HUD notification of these
changes and to reduce the risk to HUD and the Fund.
HUD Notification of any lease default Sec. 1005.311. This section
would mandate, when there is any default of the lease by the Borrower,
including a nonpayment of leasehold rent, the lessor shall notify HUD
within 30 days of default, or as set forth in the lease agreement. This
section is proposed to ensure notification of a delinquency to HUD and
allow HUD to explore early Loss Mitigation actions and to reduce the
risk of potential loss to the Fund.
Tribal reporting requirements Sec. 1005.313. This section provides
HUD with the ability to require Section 184 program-related reports
from Tribes approved under Sec. 1005.305. HUD intends to use this new
requirement as a placeholder in the event, at a future date, HUD is in
need of Section 184 Program information from approved Tribes that is
not anticipated in Sec. Sec. 1005.307 and 1005.309. If HUD determines
additional information the Section 184 Program from Tribes is needed,
it would publish these requirements in Section 184 Program Guidance and
complete the necessary Paperwork Reduction Act process requesting input
on the additional burden associated with the requested reports.
D. Underwriting (Subpart D)
This subpart includes the requirements for a loan to be guaranteed
by the Section 184 program. The subpart is organized into four
sections: eligible Borrowers, eligible Properties, eligible loans, and
underwriting.
Eligible Borrowers Sec. 1005.401. This section provides that to be
eligible to participate in the Section 184 Program, a Borrower must be
an Indian Family, Indian Tribe, or TDHE. This section would require an
Indian Family to document its status as American Indian or Alaska
Native through evidence as prescribed by Section 184 Program Guidance.
This section is a revision of the language found in Sec. 1005.105(b)
of the current regulations; the existing regulation is proposed to be
moved into a new section and aligns with current procedures.
Principal Residence Sec. 1005.403. This section sets forth the
occupancy requirements for Borrowers in relation to the property
interest that secures the Section 184 Guaranteed Loan. HUD also defines
the qualifications for a non-occupant Co-Borrower. As the program has
evolved, it has allowed for non-occupant co-Borrowers as a way to
expand homeownership opportunities for Borrowers who may need
assistance with their mortgage and have a family member willing to take
on the financial responsibility for the Section 184 Guaranteed Loan.
Non-occupant co-Borrowers must be related by blood, or be able to
document a family-type, longstanding, and substantial relationship not
arising out of the loan transaction. This section is a revision of
existing Sec. 1005.105(b)(1).
Borrower residency status Sec. 1005.405. This section describes
the residence status requirements to be considered an eligible Borrower
in the Section 184 Loan Guarantee program. In addition to the
requirements set forth in Sec. 1005.401, an eligible Borrower must be
a U.S. citizen; lawful permanent resident alien; or a non-permanent
resident alien. Documentation to support the lawful residency status
must be provided. This proposed section is consistent with current
program policy, practice, and/or procedure.
Relationship of income to loan payments Sec. 1005.407. This
section provides that a Borrower's income must be sufficient to cover
the costs of Section 184 Guaranteed Loan payments plus any other long-
term obligations. This section also describes the requirement for a
minimum qualifying threshold when an eligible Borrower has a co-
Borrower that will not occupy the home. Additionally, HUD also would
require that the determination of the adequacy of a Borrower's income
be free from discrimination. In particular, this section adds new
language requiring that the determination of adequacy of Borrower
income shall be made without regard to, among other things, Borrower's
source of income or location of the property. HUD believes these two
proposed non-discrimination provisions further the statutory purpose of
the program to ``provide access to sources of private financing to
Indian families, Indian housing authorities, and Indian tribes, who
otherwise could not acquire housing financing because of the unique
status of Indian lands.'' 12 U.S.C. 1715z-13a(a). With respect to the
proposed prohibition of discrimination based on the Borrower's source
of income, HUD seeks to address instances where lenders may disapprove
of the Borrower's income streams related to Borrower's Tribal status
(such as Tribal payments a Borrower may receive from his or her Tribe
or from traditional tribal income sources). With respect to the
proposed prohibition of discrimination based on property location, HUD
seeks to address instances where lenders may decide to only approve
loans involving fee simple properties and uniformly reject loan
applications solely because Borrower chooses to finance a home on
Tribal trust property. Other than the newly added provisions regarding
non-discrimination based on property location and sources of income,
this section is consistent with current practice, policy, and/or
procedure.
Credit standing Sec. 1005.409. This section is proposing,
consistent with current policy and practice, that no minimum credit
score is required to qualify for a Section 184 Guaranteed Loan.
However, Direct Guarantee Lenders are required to analyze the
Borrower's credit history and payment patterns to determine credit
worthiness. This section also revises the existing guidance that if a
Borrower previously defaulted on a Section 184 Guaranteed Loan, they
are ineligible to apply for another Section 184 Guaranteed Loan. To
conform with industry practice, HUD is proposing that these Borrowers
may apply for a Section 184 Guaranteed Loan after a waiting period as
prescribed by HUD.
Disclosure and verification of Social Security and Employer
Identification Numbers or Tax Identification Number Sec. 1005.411.
This section would require that Borrowers must meet the requirements
for the disclosure and verification of social security, employer and
tax identification numbers. Disclosure and verification of this
information minimizes fraud and adds protections for the Fund and is
consistent with HUD's current practice, policy, and/or procedure.
Acceptable title Sec. 1005.413. To be considered acceptable title,
a Section 184 Guaranteed Loan must be on real estate held in fee simple
land or Trust Land. Where title evidences a lease that
[[Page 78329]]
is used in conjunction with the Section 184 Guaranteed Loan, the lease
must comply with Sec. 1005.301, and must have a remaining term which
exceeds the maturity date of the Section 184 Guaranteed Loan by ten
years. This proposed section is consistent with current program policy,
practice, and/or procedure.
Sale of property Sec. 1005.415. This section would require that
the property be purchased from the Owner of Record and that the Direct
Guarantee Lender provide evidence of ownership. Additionally, this
section would establish the requirements for documentation and timing
restrictions on property re-sales to prevent flipping of the property
for financial gain by the Borrower. This proposed section is consistent
with current program policy, practice, and/or procedure.
Location of property Sec. 1005.417. This section would establish
that a property must be used for residential purposes and be located
within an approved Section 184 Approved Program Area to be eligible for
a Section 184 Guaranteed Loan. This proposed section is consistent with
current program policy, practice, and/or procedure.
Requirements for standard housing Sec. 1005.419. This proposed
section lists the minimum required property standards for properties
under the Section 184 Program. This section also explains environmental
review requirements and responsibilities and includes requirements for
flood insurance, the Coastal Barrier Resource System and Special
Airport Hazards. With respect to minimum required property standards,
this proposed section requires the property to be: decent, safe,
sanitary and modest in size and design, conform with applicable general
construction standards for the region, containing a heating system,
contain a plumbing system, contain an electrical system, meet minimum
square footage requirements, and conform with energy performance
requirements for new construction. This proposed section revises
existing Sec. 1005.111(a) consistent with current practices, policies,
and/or procedures.
Certification of appraisal amount Sec. 1005.421. This section
would require the contract for sale to be satisfactory to HUD and where
the seller agrees to provide a certification of appraisal establishing
the amount of the appraised value of the property. This protects the
Borrower and the Fund by ensuring the guaranteed loan is secured by a
property where the true value has been established. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Legal restrictions on Conveyance Sec. 1005.423. This section
proposes to define and establish permitted legal restrictions that may
be placed on a property guaranteed by a Section 184 loan. This section
would allow for restrictions on Conveyance only to enrolled Tribal
members when the property is located on Trust Land, the acceleration of
a mortgage subject to tax exempt bond funding where it no longer meets
the Federal requirements, and property with approved restrictions
established for occupancy for the elderly. This regulation would
provide Tribes with the maximum flexibility available to best serve
their Tribal members. This proposed section is consistent with current
program policy, practice, and/or procedure.
Rental properties Sec. 1005.425. This section proposes the
conditions under which a Section 184 Guaranteed Loan may be used to
purchase a one- to four-family unit property where one unit will be
owner occupied and the additional units may be rented. This section
clarifies that one- to four-family unit Properties owned by the Tribe
or TDHE will not be subject to the same conditions. This section
clarifies the two allowable exceptions to the Principal Residence
requirements in Sec. 1005.403 and is consistent with current program
policy, practice, and/or procedure.
Refinancing Sec. 1005.427. This section proposes to include the
criteria to refinance a qualified loan under the Section 184 Program
and presents the three types of allowable refinance transactions: Rate
and Term, Streamline and Cash Out. This section would require a maximum
term for the new loan to be 30 years and a payment history on the
existing loan that meets the standards established by HUD. It would
also prohibit Lenders from requiring a minimum outstanding principal
amount on the existing loan and clarifies the treatment of financed
Upfront Loan Guarantee Fees. This proposed section is consistent with
current program policy, practice, and/or procedure.
Eligibility of Loans covering manufactured homes Sec. 1005.429.
This section provides eligibility requirements for the financing of
one-family manufactured homes. This section would establish the minimum
square footage for a unit, the requirement to meet the National
Manufactured Home Construction and Safety Standards and have a
certification label, and the requirement of siting on a permanent
foundation that meets the applicable installation standards and adheres
to the manufacturer's installation instructions. This regulation is
required to ensure the safety of the Borrower and the value of the
collateral. This proposed section is consistent with current program
policy, practice, and/or procedure and would align with FHA standards.
Acceptance of individual residential water purification Sec.
1005.431. This section proposes requirements for properties that do not
have access to a continuing supply of safe and potable water, without
use of a water purification system. It would require the applicable
official's specification of the water purification equipment approval
standard, certification by Tribal, State or health authority, and
Borrower notices and certification. This section would require a
certification by a Tribal, State, or local health authority that it has
determined the water supply meets the entity's quality standards for
drinking water. Additionally, this section would require written
notification to the Borrower when the contract is ratified that the
property does not have access to a continuing supply of safe and
potable water without a purification system, a water safety report
identifying contaminants and associated health hazards, and a good
faith estimate of maintenance and replacement costs. The Borrower must
sign a certification they have received all of this information prior
to underwriter approval. This regulation would provide the Borrower
with full disclosure of maintenance and upkeep costs of an individual
water purification system and health and safety provisions. This
proposed section is consistent with current program policy, practice,
and/or procedure and would align with industry standards.
Builder warranty Sec. 1005.433. This section proposes that a
builder must submit a warranty that the property is constructed in
substantial conformity with the plans and specifications for newly
constructed Properties guaranteed by the Section 184 Program. This
proposed section is consistent with current program policy, practice,
and/or procedure and would align with industry standards.
Eligible collateral Sec. 1005.435. This section proposes what
collateral is acceptable for a Section 184 Guaranteed Loan. The
proposed section would require that the collateral be authorized and
not prohibited by Tribal, Federal, State, or local law and must be
sufficient to cover the amount of the loan as determined by the Direct
Guarantee Lender and approved by HUD. This section would revise
existing Sec. 1005.107 of the current regulations and be consistent
with current practices, policies, and/or procedures.
[[Page 78330]]
Loan provisions Sec. 1005.437. This proposed section provides the
details for loan provisions required for a Section 184 Guaranteed Loan,
including loan form, loan multiples, loan payments, loan maturity,
property standards, disbursements and prepayment. This section would
revise existing Sec. 1005.105(a).
Loan lien Sec. 1005.439. This section proposes lien requirements
for a Section 184 Guaranteed Loan. After the loan offered for guarantee
has been recorded, the property must be free and clear of any other
liens, unless prior approval has been granted by HUD for a junior lien.
This section proposes conditions for a junior lien, which covers
periodic payments, ability to pay considerations, loan to value
limitations, prohibition of balloon payments earlier than 10 years,
requirement for the junior lien to be due and payable upon sale or
refinance of the Section 184 Guaranteed Loan, and the acceptability of
prepayments at any time without the requirement for a prepayment
penalty. In addition, a junior lien may be provided as a means to
reduce that Borrower's monthly payments. This type of junior lien would
require pre-approval from HUD, shall not require the payment of any
principal or interest until the property securing the junior lien is
sold or the Section 184 Guaranteed Loan is refinanced, and shall not
require principal and interest payments, so long as the property is
owner occupied and, where applicable, shall provide forgiveness of the
junior lien at the end of the term. Lastly, if a junior lien is related
to tax exempt bond financing or low-income housing tax credits, HUD
approval is also required. This proposed section is consistent with
current program policy, practice, and/or procedure.
Section 184 Guaranteed Loan limit Sec. 1005.441. This section
would establish HUD's authority to set the maximum loan limits for
Section 184 Approved Program Areas. HUD may revise these maximum limits
periodically. This proposed section is consistent with current program
policy, practice, and/or procedure.
Loan amount Sec. 1005.443. This section proposes the minimum
required investment from the Borrower based on the difference between
the sales price and the base loan amount. It also would provide the
methodology for calculating the base loan amount and would establish
the maximum and minimum principal loan amounts. This investment must
come from the Borrower's own funds, gifts, or Tribal, State, or local
funds awarded to the Borrower. The regulation is required to balance
the risk to the Fund and the unique requirements of Native American
Borrowers. This proposed section is consistent with current program
policy, practice, and/or procedure.
Case numbers Sec. 1005.445. This section explains when and how to
obtain a Section 184 case number. Direct Guarantee Lenders must have an
active loan application for a Borrower and a specific property. The
case number request must include proof of Tribal enrollment or Alaska
Native status, verification that the property is located in a Section
184 Approved Program Area, confirmation that the Loan does not exceed
the Section 184 Loan Limit, and be submitted in manner prescribed in
the Section 184 Program Guidance. Case numbers will be automatically
cancelled after a period identified by HUD if a reservation of funds
request is not received and processed by HUD. HUD may allow for the
extension as prescribed. This proposed section is consistent with
current program policy, practice, and/or procedure.
Maximum age of Loan documents Sec. 1005.447. This section proposes
the maximum age of loan documents at the time of underwriting and loan
closing. Documents reviewed at underwriting may not be older than 60
days and all documents may not be more than 120 days old at closing.
Certain documents will be exempt from these time frames if they are not
affected by the passage of time. This proposed section is consistent
with current program policy, practice, and/or procedure.
Qualified mortgage Sec. 1005.449. This section explains that
Section 184 Guaranteed Loans are afforded safe harbor as qualified
mortgages that meet the ability-to-pay requirements. This section is a
revision of the existing Sec. 1005.120 and conforms to current
practices, policies, and/or procedures.
Agreed interest rate Sec. 1005.451. This section would require
that a Loan must have an interest rate that is agreed upon by the
Direct Guarantee Lender and Borrower and is determined by HUD to be
reasonable. This regulation is necessary to ensure Borrowers are not
being charged inflated interest rates attributable to risk-based
pricing for minimum loan amounts, credit scores, or other risks, when
the Direct Guarantee Lender is receiving a 100 percent guarantee
against any loss due to default. This risk-based pricing requirement
would be a new requirement and is intended to protect the Borrower from
inflated interest rates, which may impact loan performance and the
Fund.
Amortization provisions Sec. 1005.453. This section proposes that
a Loan's Amortization provisions be satisfactory to HUD, monthly
payments by the Borrower, and that the principal and interest payments
each month shall be substantially the same. This section is a revision
of existing Sec. 1005.105(a) and is consistent with current practices,
policies, and/or procedures.
Direct guarantee underwriting Sec. 1005.455. This section outlines
proposed requirements for direct guarantee underwriting including
underwriter due diligence, evaluation of the Borrower, and assumptions.
This section is a revision of the existing Sec. 1005.106(a), outlining
the direct guarantee procedure. Direct Guarantee underwriters must
exercise the same level of due diligence as if they were entirely
dependent on the property as Security to protect their investment. An
acceptable quality control plan and compliance with HUD prescribed
underwriting guidelines are the minimum standard of due diligence.
Direct Guarantee underwriters shall evaluate the Borrower's credit
characteristics, adequacy, and stability of income to make payments on
all obligations and the available assets. This section also would
require all assumptions of an existing Section 184 Guaranteed Loan be
underwritten using the same Borrower eligibility and underwriting
standards in this subpart. This section is consistent with current
program policy, practice, and/or procedure.
Appraisal Sec. 1005.457. This section would establish the
requirement for the appraisal of a property to be used to obtain a
Section 184 Guaranteed Loan, the selection of an appraiser, appraisal
standards, validity period for appraisals, possible extensions of the
validity period, and possible sanctions when the requirements listed
under the section are not met. A property appraisal for the Section 184
Program must be done in accordance with the Uniform Standards of
Professional Appraisal Practice and the Fair Housing Act (42 U.S.C.
3601-19); however, HUD may establish alternative requirements in
Section 184 Program Guidance. The Direct Guarantee Lender must select
an appraiser currently on the FHA Appraiser Roster and the Direct
Guarantee Lender must not discriminate in its selection of the
appraiser. The appraiser must be knowledgeable in the market where the
property is located. The appraisal and related documents must satisfy
FHA, Fannie Mae, or Freddie Mac requirements. In addition, the Direct
Guarantee Lender may be subject to sanctions permitted under
[[Page 78331]]
Sec. 1005.907 for submitting an appraisal that does not meet the
requirements described. This proposed section would codify current
program policy, practice, and/or procedure and aligns with industry
standards.
Loan submission to HUD for Direct Guarantee Sec. 1005.459. This
section proposes a 60-day timeframe in which an endorsement case binder
must be sent to HUD after closing. This section also outlines the
additional documentation required for a late submission greater than 60
days after closing. The Direct Guarantee Lender would be required to
submit a late endorsement request with documentation affirming the loan
is not currently in default, all escrow accounts are current, all loan
guarantee fees are current, and a statement that neither the Direct
Guarantee Lender nor its agents have provided funds to bring or keep
the loan current or bring about the appearance of a satisfactory
payment history. This proposed section is consistent with current
practices, policies, and procedures. This section does propose an
exception to the proposed current endorsement practice, which provides
that with prior approval from HUD, consistent with Section 184 program
guidance, the Direct Guarantee Lender or Servicer may provide funds to
bring or keep the Section 184 Guaranteed Loan current in the event the
Borrower agrees to Loss Mitigation before HUD provides endorsement, as
the case with some Borrowers during the COVID-19 National Emergency.
HUD issuance of Firm Commitment Sec. 1005.461. This section
proposes that HUD may underwrite, consistent with specific underwriting
criteria, and issue a Firm Commitment. This proposed section is
consistent with HUD's current practice, policy, and/or procedure.
E. Closing and Endorsement (Subpart E)
This subpart includes requirements for closing a Section 184
Guaranteed Loan and receiving endorsement approval from HUD. The
subpart is organized into two sections: closing, and endorsement and
post-closing.
Direct Guarantee Lender closing requirements Sec. 1005.501. This
section would provide the required documentation for closing a loan
under the program, including: chain of ownership, title search and
Title Status Report, closing in compliance with Direct Guarantee Lender
approval, closing in the Lender's name, required forms and language in
documents, projected escrow, closing costs and fees, per diem interest
and interest credits, Borrower authorization of Tribal notice,
signatures, and other requirements. This documentation is necessary to
ensure that the Loan may be eligible for a Loan Guarantee under the
program. This proposed section is consistent with current program
policy, practice, and/or procedure.
Contents of endorsement case binder Sec. 1005.503. This section
proposes HUD requirements for the contents of the endorsement case
binder. The endorsement case binder is required by HUD and includes
certain documentation necessary for HUD to determine program compliance
and to issue a Loan Guarantee Certificate to the Lender. The actual
contents of the endorsement case binder shall be in a format as
prescribed by Section 184 Program Guidance. This proposed section is
consistent with current program policy, practice, and/or procedure.
Payment of Upfront Loan Guarantee Fee Sec. 1005.505. This section
would require the Direct Guarantee Lender to provide evidence of the
remittance of the Upfront Loan Guarantee Fee, as required under Sec.
1005.607. This proposed section is consistent with current program
policy, practice, and/or procedure.
Borrower's payments to include other charges and escrow payments
Sec. 1005.507. This section proposes the charges and escrow payments
that the Direct Guarantee Lender must include as part of the Section
184 Guaranteed Loan monthly payment. This section also proposes how
these payments should be managed by the Lender and disallows the
recovery from the Borrowers of payment of additional premiums to
protect the interest of the Lender. This proposed section is consistent
with current program policy, practice, and/or procedure.
Application of payments Sec. 1005.509. This section would require
that all monthly payments made by the Borrower to the Servicer shall be
aggregated into a single monthly payment, and that the Servicer shall
apply the Borrower's funds in accordance with Sec. 1005.715. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Late fee Sec. 1005.511. This section would establish the ability
for a Servicer to charge a late charge to the Borrower when a Section
184 Guaranteed Loan payment is 15 or more days in arrears. It also
would establish maximum late charge of four percent of the overdue
payment of principal and interest, or any other amount as established
by HUD through public notice with an opportunity for comment. This
section is intended to provide a deterrent for the Borrower to make
payments outside of the applicable payment period and to reduce risk to
the Direct Guarantee Lender and the Fund. This proposed section is
consistent with current program policy, practice, and/or procedure.
Borrower's payments when Section 184 Guaranteed Loan is executed
Sec. 1005.513. This section outlines what payments from what parties
are required upon execution of the Section 184 Guaranteed Loan,
including the one-time Upfront Loan Guarantee Fee or any portion
payable pursuant to Sec. 1005.603; and all other applicable monthly
charges pursuant to Sec. 1005.507, including the annual Section 184
Guaranteed Loan fee pursuant to Sec. 1005.607, covering the period
from the closing date to the due date of the first installment payment
under the Section 184 Guaranteed Loan. This proposed section is
consistent with current program policy, practice, and/or procedure.
Charges, fees, or discounts Sec. 1005.515. This section proposes a
list of allowable charges, fees, or discounts a Direct Guarantee Lender
may collect from the Borrower at Origination of a Section 184
Guaranteed Loan. These charges/fees include costs to cover origination
and closing; recording fees and recording taxes; credit report; survey;
title examination; title insurance premium and any appraisal or
inspection; such other reasonable and customary charges as may be
authorized by HUD; reasonable and customary charges in the nature of
discounts; and interest calculations in accordance with Sec. 1005.501.
Before the Loan may be guaranteed by the Section 184 Program, the
Direct Guarantee Lender must provide HUD a listing of all charges,
fees, or discounts collected from the Borrower by the Lender.
For an assumption of an existing Section 184 Guaranteed Loan,
processing fees must be based on actual costs and the Direct Guarantee
Lender may not charge more than the reasonable and customary allowable
cost without HUD approval. Fees for assumptions may include, but are
not limited to, credit report, verification of employment and the
execution of additional release of liability forms. Additional fees
over and above assumption fees cannot be assessed for Section 184
Guaranteed Loans on Trust Lands. HUD may establish limitations on the
amount charged for origination, closing, and assumptions. This proposed
section is consistent with current program policy, practice, and/or
procedure.
[[Page 78332]]
Certificate of nondiscrimination by the Direct Guarantee Lender
Sec. 1005.517. This section would require that Direct Guarantee
Lenders, when applicable, certify to HUD specific nondiscrimination
practices required of Direct Guarantee Lenders, including:
nondiscrimination based on race, color, religion, sex, disability,
familial status, or national origin, except as provided by law; and
prohibiting any restrictive covenant, other than permissible
restrictions on Trust Land, on such property relating to race, color,
religion, sex, disability, familial status, or national origin and
recognizing such prohibited restrictive covenants as being illegal,
void, and disclaimed. A civil action for preventative relief may be
brought by the Attorney General in any appropriate U.S. District Court
against any person responsible for a violation of this certification.
This section is intended to protect the Borrower from discrimination,
and is consistent with current program policy, practice, and/or
procedure.
Creation of the contract Sec. 1005.519. This section describes
when a Loan shall be considered guaranteed under the program and that
the Direct Guarantee Lender and HUD are bound by the requirements set
forth in this regulation as if the two parties were in an executed
contract relating to the loan. This proposed section is consistent with
current program policy, practice, and/or procedure.
Lender pre-endorsement review and requirements Sec. 1005.521. This
section would require a pre-endorsement review of the endorsement case
binder by the Direct Guarantee Lender prior to the submission of the
endorsement case binder to HUD and describes the parameters of this
review. This review must be conducted by Direct Guarantee Lender staff
not involved in the origination, processing, or underwriting of the
loan, and the case binder must include all documentation the Direct
Guarantee Lender used to approve the loan. Upon finalizing the pre-
endorsement review, the Direct Guarantee Lender must certify that all
required documents were submitted and meet the requirements of Sec.
1005.503. This proposed new requirement would provide additional
assurances that the Direct Guarantee Lender is making prudent
judgements when approving the loans and following HUD program polices,
practice, and procedures.
HUD pre-endorsement review Sec. 1005.523. This section proposes
Lender's submission deadline and HUD's process for a pre-endorsement
review. Before endorsement, HUD will review the endorsement case binder
submitted by the Direct Guarantee Lender to ensure that the loan meets
all statutory, regulatory, and administrative requirements. Following
this review, if the loan is determined to be eligible, HUD will issue a
Loan Guarantee Certificate. HUD may reject an endorsement case binder
if HUD finds that the certification or documentation is false,
misleading, or constitutes fraud or is a misrepresentation on the part
of any party, or that the loan fails to meet a statutory or regulatory
requirement. HUD will inform the Direct Guarantee Lender in writing the
reasons for the determination and any corrective actions that may be
taken. The HUD pre-endorsement review is intended to reduce the risk
for fraud and program non-compliance that could negatively impact the
Fund, and is consistent with current program policy, practice, and/or
procedure.
Loan Guarantee Certificate Sec. 1005.525. This section proposes
the conditions under which HUD will issue a Loan Guarantee Certificate.
The Loan Guarantee Certificate is evidence of the HUD guarantee and is
issued after HUD completes a review of the Lender's endorsement case
binder and determines the case binder is in compliance with all
applicable Section 184 requirements. HUD may issue a Loan Guarantee
Certificate for a loan on Trust Land before HUD receives all required
Trailing Documents, provided that the Direct Guarantee Lender agrees to
indemnify HUD. The indemnification agreement between HUD and the Direct
Guarantee Lender will terminate once all required documentation is
received in a form and manner that is acceptable by HUD. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Post-endorsement review Sec. 1005.527. This section proposes the
process for HUD to conduct a post-endorsement review of the endorsement
case binder, including, but not limited to a quality control review.
Following the issuance of the Loan Guarantee Certificate, HUD may
review all documents required by Sec. 1005.503. Based upon this
review, if HUD determines that the Loan does not satisfy the
requirements of the program, HUD may cancel the Section 184 Loan
Guarantee Certificate, may request indemnification from the Direct
Guarantee Lender, or sanction the Direct Guarantee Lender pursuant to
Sec. 1005.907. This proposed section is consistent with current
program policy, practice, and/or procedure.
Indemnification Sec. 1005.529. This section proposes that an
Originating Direct Guarantee Lender must indemnify HUD when a claim has
been filed or when HUD discovers an underwriting deficiency in a pre-
or post-endorsement review. In this instance, the Originating Direct
Guarantee Lender shall indemnify HUD or HUD may deny the Claim.
Underwriting deficiencies may include, but not limited to, fraud or
misrepresentation by the Originating Direct Guarantee Lender. If
indemnification is necessary, HUD will request indemnification in
writing that the Originating Direct Guarantee Lender will reimburse HUD
if a subsequent holder of the loan files a Claim and HUD suffers a
financial loss. This proposed section is intended to protect HUD from
financial risk from possible underwriting deficiencies and aligns with
industry standards.
F. Section 184 Guaranteed Loan Fees (Subpart F)
This subpart includes the requirements for calculation, collection,
and submission of the Section 184 Loan Guarantee Fee.
Scope and method of payment Sec. 1005.601. This section includes
the statutory requirements of a one-time, Upfront Loan Guarantee Fee
and a recurring Annual Loan Guarantee Fee, for all Section 184
Guaranteed Loans. This section revises existing Sec. 1005.109 of the
current regulations and is consistent with current program policy,
practice, and/or procedure.
Upfront Loan Guarantee Fee Sec. 1005.603. This section mandates
that an Upfront Loan Guarantee Fee, not exceeding three percent of the
principal obligation of the loan, as determined by HUD, is to be paid
at closing. The amount of the Upfront Fee will be prescribed by HUD
through a notice in the Federal Register. This fee is statutorily
required and necessary to credit the Fund to provide for payments under
the guarantee, in addition to congressional appropriation.
Remittance of Upfront Loan Guarantee Fee Sec. 1005.605. This
section would require the Direct Guarantee Lender to submit to HUD the
Upfront Loan Guarantee Fee within 15 days of loan closing.
Additionally, this section would require the Direct Guarantee Lender to
provide an account reconciliation of the Upfront Loan Guarantee Fee in
the time and manner as may be prescribed by HUD. This proposed section
codifies current program practices, policy, and/or procedure.
Annual Loan Guarantee Fee Sec. 1005.607. This section would
require an Annual Loan Guarantee Fee to be collected from the Borrower
on a monthly basis, as determined by HUD
[[Page 78333]]
and published in the Federal Register. This section would also
authorize the Servicer to collect monthly payments from the Borrower in
an amount equal to one-twelfth of the annual loan guarantee premium and
the ability for the Borrower to prepay their Section 184 Guaranteed
Loan. These payments are included in the Amortization Schedule issued
with the Loan approval. The Annual Loan Guarantee Fee is statutorily
required and necessary to credit the Fund to provide for payments under
the guarantee, in addition to congressional appropriation. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Remittance of Annual Loan Guarantee Fee Sec. 1005.609. This
section would require the Servicer to submit to HUD the Annual Loan
Guarantee Fees collected from the Borrower no later than the 15th day
of each month, beginning in the month in which the Borrower is required
to make the first monthly loan payment. If the Servicer is late
submitting the monthly installment of the Annual Loan Guarantee Fee,
the Servicer must pay a penalty in accordance with Sec. 1005.611. The
Annual Loan Guarantee Fee no longer applies when the loan to value
ratio equals an amount less than 78 percent, in accordance with Sec.
1005.607. The Servicer must refund to the Borrower any excess Annual
Loan Guarantee Fees collected when the loan-to-value ratio is less than
78 percent, within 30 days of the overpayment.
This section also would require that the Servicer continue to
collect the Annual Loan Guarantee Fee on a monthly basis without regard
to delinquent payments, prepayments, agreements to postpone payments,
or agreements to recast the loan. When transferring a Section 184
Guaranteed Loan to another Servicer, this section would require an
account reconciliation of the Upfront Guarantee Fee and Annual Loan
Guarantee to the new Servicer. When transfer of servicing between
Servicers results in a missed monthly payment(s) of the Annual Loan
Guarantee Fee to HUD, the acquiring Servicer shall pay the overdue
payment(s) in a lump sum to HUD within 30 days of acquisition of the
loan and include any applicable penalties in accordance with Sec.
1005.611. This section clarifies the circumstances of the on-going
payment of the monthly payment of the Annual Loan Guarantee Fee and
sets a timeframe for submission of this payment even when the loan is
sold between Direct Guarantee Lenders or to a Servicer. This proposed
section is consistent with current program policy, practice, and/or
procedure.
HUD imposed penalties Sec. 1005.611. This section proposes the
circumstances in which HUD may impose civil monetary penalties on
Direct Guarantee Lenders and Servicers related to the collection and
submission of Loan Guarantee Fees. This section also prohibits seeking
recovery of the penalty from the Borrower. Direct Guarantee Lenders may
incur penalties for failure to timely remit Upfront Loan Guarantee Fee.
Servicers may incur penalties for failure to timely remit the monthly
installment of the Annual Loan Guarantee Fee to HUD, failure to adjust
the amount of the Annual Loan Guarantee Fee, and failure to cease
collection of the Annual Loan Guarantee Fee. A reasonable penalty or
fee will be prescribed by HUD in Section 184 Program Guidance. HUD is
proposing allowing a monetary penalty for the late or non-submission of
the Annual Loan Guarantee Fee to encourage Lenders and Servicers to pay
on a timely basis.
G. Servicing (Subpart G)
This subpart includes the requirements for Servicers to manage
Section 184 Guarantee Loans and steps to take when a Borrower defaults
on a Section 184 Guaranteed Loan. The subpart is organized into four
sections: servicing loans generally, servicing defaulted loans, Loss
Mitigation and assignment, foreclosure and Conveyance.
Section 184 Guaranteed Loan servicing generally Sec. 1005.701.
This proposed section provides an overview of subpart G, HUD servicing
expectations and requirements for servicing Section 184 Guaranteed
Loans.
Servicer eligibility and application process Sec. 1005.703. This
section proposes that a Direct Guarantee Lender, Non-Direct Guarantee
Lenders or other financial institution must be an approved mortgage
Servicer for FHA or another agency of the Federal Government. Direct
Guarantee Lenders, and Non-Direct Guarantee Lenders are required to
apply to be a Servicer, in accordance with Section 184 Program
Guidance. This proposed section is intended to ensure that Servicers
have the experience and qualifications and have the processes in place
to properly service Section 184 Guaranteed Loans to provide quality
customer service to Native American Borrowers.
Servicer approval Sec. 1005.705. This section proposes what
constitutes HUD approval for a Direct Guarantee Lenders, Non-Direct
Guarantee Lenders and other financial institutions applying to be
Servicers in the Section 184 Program under Sec. 1005.703. This section
addresses the process HUD will follow to notify interested Non-Director
Guarantee Lenders and financial institutions seeking HUD approval to be
a Servicer under the program. HUD will provide written notification of
its approval and the approved Servicer must agree to comply with all
program requirements. This includes the notification by the Servicer to
HUD of any acquisition or sale of Section 184 Guaranteed Loans. This
proposed section would be complimentary to the new requirement under
Sec. 1005.703.
Responsibility for servicing Sec. 1005.707. This section proposes
a Servicer's responsibilities under the Section 184 Program, which
includes, program compliance, using a sub-Servicer, changing Servicers,
transferring servicing rights, reporting requirements, program
ineligibility, and records retention. This section proposes new
requirements for the Servicer in the areas of annual recertification
and business change reporting. HUD is proposing these new requirements
to reduce risk and monitor the stability of the Servicer.
Providing information to Borrower and HUD Sec. 1005.709. This
section proposes Servicer requirements for providing information to the
Borrower on the Section 184 Guaranteed Loan. Servicers must provide
loan information to Borrowers and arrange for individual loan
consultation on request. The Servicer must establish written procedures
and controls to assure prompt responses to inquiries. All Borrowers
must be informed annually of the system available for obtaining answers
to loan inquiries and the office to which requests may be presented.
Within 30 days after the end of each calendar year, the Servicer must
furnish to the Borrower a statement of the interest paid, and of the
taxes disbursed from the escrow account during the preceding year. At
the Borrower's request, the Servicer must furnish a statement of the
escrow account sufficient to enable the Borrower to reconcile the
account. Each Servicer must deliver to the Borrower a written notice of
any transfer of the servicing rights of the loan. Finally, Servicers
must respond to HUD requests for information concerning individual
accounts within a timeframe prescribed by Section 184 Program Guidance.
HUD is proposing these requirements to ensure that acceptable
procedures exist so that Servicers can readily provide loan information
to Borrowers and HUD. This proposed section is consistent with current
program policy, practice, and/or procedure.
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Assumption and release of personal liability Sec. 1005.711. This
section proposes the requirements and the process for assumption of a
Section 184 Guaranteed Loan. Eligible Borrowers may assume a Section
184 Guaranteed Loan. The new Borrower must be determined to be
creditworthy under subpart D. For loans securing Properties on Trust
Lands, the lease document may require Tribal and Bureau of Indian
Affairs (BIA) approval of the assignment of the lease to the new
Borrower. Servicers should not proceed to closing on the assumption
until and unless the Tribe has assigned the leasehold to the new
Borrower, and it has been approved by the BIA. Servicers may only
collect fees for an assumption in accordance with this section. With
respect to release of liability, this section would provide that at
closing, the Servicer must release the existing Borrower from any
personal liability on a form approved by HUD and the new Borrower
assumes personal liability of the loan. Finally, upon completion of an
assumption, a Servicer is required to provide copies of the documents
to HUD. HUD will issue a revised Loan Guarantee Certificate and
additional processing instructions. These changes ensure clear
guidelines exist to govern the assumption and associated release of
personal liability, such as ensuring that Borrowers that assume loans
meet minimum creditworthiness standards. This proposed section is
consistent with current program policy, practice, and/or procedure.
Due-on-sale provision Sec. 1005.713. This section mandates a due-
on-sale clause permitting acceleration for all Section 184 Guaranteed
Loans. The Servicer must accelerate the loan, subject to HUD prior
approval, so long as the acceleration is permitted by applicable
Tribal, Federal, or State law This proposed section is consistent with
current program policy, practice, and/or procedure.
Application of Borrower payments Sec. 1005.715. This section would
establish the order in which the Servicer applies Borrower payments
authorized under Sec. 1005.509 and the proposal is consistent with
current program policy, practice, and/or procedure.
Administering escrow accounts Sec. 1005.717. This section would
establish the requirements for administering escrow accounts and
deposits from a Section 184 Guaranteed Loan. The Servicer may not use
escrow funds for any purpose other than that for which they were
received. It must segregate escrow commitment deposits, work completion
deposits, and all periodic payments received on account of leasehold
rents on Trust Land, taxes, assessments, monthly installments of
Section 184 annual loan guarantee fees and insurance charges or
premiums and must deposit such funds with one or more financial
institutions in a special account or accounts that are fully insured by
the Federal Deposit Insurance Corporation or the National Credit Union
Administration. The Servicer must also adhere to the requirements as
prescribed by Section 184 Program Guidance for escrow funds related to
leasehold rents on Trust Lands. The Servicer is responsible for making
escrow disbursements before bills become delinquent and must establish
controls to ensure that bills payable from the escrow fund or the
information needed to pay such bills is obtained on a timely basis.
Penalties for late payments for items payable from the escrow account
must not be charged to the Borrower unless the penalty was the direct
result of the Borrower's error or omission. This section also mandates
that the Servicer use the procedures set forth in the Consumer
Financial Protection Bureau's (CFPB) Real Estate Settlement Procedures
Act (RESPA) regulations at 12 CFR 1024.17 to compute the amount of the
escrow, the methods of collection and accounting, and the payment of
the bills for which the money has been escrowed. The Servicer is
prohibited from initiating foreclosure for a default related to escrow
payment shortfalls resulting from an adjustment pursuant to this
section. Finally, when a Section 184 Guaranteed Loan is terminated
voluntarily or because of Borrower's prepayment in full of the unpaid
principal balance, amounts in the escrow account designated to pay any
HUD required program fees must be remitted to HUD. When a loan is
prepaid in full, amounts held in escrow for taxes, hazard insurance, or
rents due under a tribal lease must be promptly released to the
Borrower. HUD is proposing this section to ensure clear guidelines on
how Servicers must administer escrow accounts. This proposed section is
consistent with current practices, policies and/or procedures, aligns
with industry standards, and cross references RESPA requirements, as
implemented in CFPB regulations.
Fees and costs after endorsement Sec. 1005.719. This section sets
forth the allowable fees and charges from the Servicer to the Borrower
after HUD's endorsement of the Section 184 Guaranteed Loan. Permissible
fees and charges include certain late charges, charges for processing
or reprocessing a check returned as uncollectible, fees for processing
a change of ownership of the mortgaged property, fees and charges for
arranging a substitution of liability in connection with the sale or
transfer of the Section 184 property, charges for processing a request
for credit approval on behalf of an assumption or substitute Borrower,
charges for substitution of a hazard insurance policy, charges for
modification of the Section 184 Guaranteed Loan involving a recorded
agreement for extension of term or re-Amortization, fees and charges
for processing a partial release of the property, certain attorney's
and trustee's fees and expenses actually incurred, escrow charges, a
trustee's fee, property preservation expenses incurred, fees permitted
for providing a beneficiary notice under applicable Tribal or State
law, and such other reasonable and customary charges as may be
authorized by HUD. This section also would provide that reasonable and
customary fees must be based upon the actual cost of the work
performed, including out-of-pocket expenses. HUD may establish maximum
fees and charges, which are reasonable and customary in different
areas. Unless otherwise provided, no fee or charge may be based on a
percentage of either the face amount of the loan or the unpaid
principal balance due on the Section 184 Guaranteed Loan. This section
proposes to clarify the range of fees and charges that can and cannot
be charged by Servicers participating in the program proposes change
consistent with HUD's current practice, policy, and/or procedure.
Enforcement of late fees Sec. 1005.721. This section proposes when
and how late charges must be applied by a Servicer. It would provide
that Servicers are prohibited from commencing foreclosure when the
Borrower's only default is his or her failure to pay a late charge or
charges. A late charge attributable to a particular installment payment
due may not be deducted from that installment. However, if the Servicer
notifies the Borrower of the obligation to pay a late charge, that
charge may be deducted from any subsequent payment. This section also
would provide that a payment may be returned because of failure to
include a late charge only if the Servicer notifies the Borrower before
imposition of the charge of the amount of the monthly payment, the date
when the late charge will be imposed and either the amount of the late
charge or the total amount due when the late charge is included. This
section prohibits a late charge from being imposed on the Borrower with
respect to any payment on the Section
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184 Guaranteed Loan during the 60 day period beginning on the effective
date of transfer of the servicing rights of a Section 184 Guaranteed
Loan. This section would provide that if a payment is received by the
old Servicer prior to the due date, no late charges may be assessed by
the new Servicer. Finally, this section would provide that a Servicer
is prohibited from imposing a late fee for failure to pay a late fee,
consistent with CFPB regulations. HUD is proposing this addition to
consistent with current program practices, policies, procedures, to
conform the regulations to CFPB's Truth in Lending regulations, and to
ensure that Servicers comply with fair rules governing late charges and
is intended align with industry standards.
Partial payments Sec. 1005.723. This proposed section provides
that a Servicer must have a written policy available to the public on
how it handles Partial Payments and outlines the acceptable actions
when a Servicer receives a Partial Payment from a Borrower. It also
proposes to provide that upon receipt of a Partial Payment, a Servicer
must provide to the Borrower a copy of the Servicer's written Partial
Payment policy and a letter explaining how it will handle the received
Partial Payment. The Servicer may accept a Partial Payment and apply it
to the Borrower's account, identify it with the Borrower's account
number and hold it in a trust account pending disposition, or return
the Partial Payment to the Borrower. This proposal is necessary to
ensure clear guidelines on how Servicers are to manage Partial Payments
and would provide Servicers with various options and is intended to
codify current practice, policy, and/or procedure.
Handling prepayments Sec. 1005.725. This section would require
that a Servicer accept pre-payment at any time and details how the
interest on the debt is calculated for prepayments. This proposed
section is consistent with codifies current practices, policies, and/or
procedures, and ensures that Borrowers who want to make prepayments on
their Section 184 Guaranteed Loans have the option to do so.
Substitute Borrowers Sec. 1005.727. This section proposes when a
Borrower requests the substitution of a co-Borrower on the Section 184
Guaranteed Loan. A remaining original Borrower must still be on the
loan. It would provide that where an original Borrower requests the
substitution of a co-Borrower on the loan, a Non-Direct Guarantee
Servicer must obtain HUD approval for the substitution. A Direct
Guarantee Lender may approve an eligible substitute Borrower who meets
program eligibility requirements and need not obtain further specific
approval from HUD. This proposed section is meant to provide clear
guidelines to Servicers and Borrowers on how to manage the substitution
of Borrowers consistent with current practice, policy, and/or
procedure.
Section 184 Guaranteed Loan collection action Sec. 1005.729. This
section would require the Servicer to take prompt action to collect
amounts due from Borrowers and to exhaust all reasonable possibilities
of collection before initiating foreclosure or assignment. This
proposed regulation is necessary to ensure that Servicers meet
standards for serving Section 184 Guaranteed in default and provide
Borrowers with a good faith consideration of available Loss Mitigation
options to avoid default, foreclosure, or both. This section is
designed to ensure that risks to the Fund are minimized, and that all
available reasonable loan collection and Loss Mitigation options have
been considered by the Servicer. This proposed section is consistent
with current program policy, practice, and/or procedure.
Default notice to Borrower Sec. 1005.731. This section outlines
the proposed requirements for contacting a defaulted Borrower,
including live contact and written notice. This includes a requirement
to contact all Borrowers, whether they live in the same or different
locations. Servicers are required to establish or make good faith
efforts to establish live contact with a defaulting Borrower no later
than the 36th day of the Borrower's default and promptly inform the
Borrower about the availability of Loss Mitigation options. This
section also would provide that Servicers must give written notice to
each Borrower in default no later than the end of the 45th day of a
Borrower's default. This section also governs what must be included in
the required written notice and would provide that nothing in this
section shall require a Servicer to communicate with a Borrower in a
manner otherwise prohibited by applicable Tribal, Federal, or State
law. This section is necessary to ensure that Servicers present a
minimum level of notice of default and consider Loss Mitigation options
to prevent foreclosure and other unnecessary losses and risks to the
Fund. HUD is proposing this addition consistent with current program
practices, policies, and/or procedures and to conform to CFPB
regulations and industry standards.
Loss mitigation application, timelines, and appeals Sec. 1005.733.
This section would provide specific expectations when a Servicer
processes a Borrower's Loss Mitigation application. It proposes to
provide five days to acknowledge receipt of the application, determine
if the application is complete or incomplete, and, if incomplete,
notify the Borrower of documentation that is still required and inform
the Borrower that submission of the missing documents must occur within
fourteen days. Within fourteen days of receipt of a complete
application, the Servicer must evaluate the application.
This section also would provide that Servicers are required to
provide written notification: (1) of all available Loss Mitigation
options; (2) to encourage Borrowers to review all available Loss
Mitigation options and to contact the Servicer with any questions; (3)
to encourage Borrowers to consider pursuing simultaneous Loss
Mitigation options; (4) to inform Borrowers that if no Loss Mitigation
option is elected or if they fail, the Servicer may proceed with filing
of the First Legal Action at 180 days of default; and (5) to inform
Borrowers that at the filing of first legal action or the assignment of
the loan to HUD, the Servicer will no longer offer or allow a pre-
foreclosure sale as an alternative to foreclosure, and that the only
available and remaining alternative to foreclosure will be a lease-in-
lieu or deed-in-lieu of foreclosure, subject to applicable Tribal,
Federal, or State law. Borrowers may appeal within 14 days of receipt
of the Servicer's Loss Mitigation determination, in writing, that the
Servicer re-evaluate the Borrower's Loss Mitigation application. The
Servicer will be required to re-evaluate the Borrower's Loss Mitigation
application within 30 days, but may not use the same staff that made
the initial Loss Mitigation determination and must notify the Borrower
of its appeal decision. If the Borrower submits a timely written
appeal, the 180-day deadline to initiate foreclosure will be suspended
during the appeal process. This section is being proposed to provide
clear guidelines to both Servicers and Borrowers on the Loss Mitigation
application process and associated appeals, to minimize risks and
losses to the Fund, and to avoid foreclosure when possible. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Occupancy inspection Sec. 1005.735. This section proposes
occupancy inspection as a visual inspection by the Servicer, defines
occupancy follow-up as an attempt to communicate with the
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Borrower through various means to determine occupancy status, and would
provide the requirements for occupancy inspections and occupancy
follow-ups while a Borrower is in default. It also governs occupancy
inspections conducted during a Borrower's bankruptcy.
HUD is proposing this regulation to ensure that clear guidelines
exist for Servicers governing occupancy inspections. Servicers may find
the need to conduct occupancy inspections to determine whether a
property has become vacant or abandoned, and to confirm the identity of
any occupants. HUD is requiring Servicers to conduct occupancy follow-
ups and to attempt to conduct continuing inspections, if necessary,
every 25-35 days from the last inspection until the occupancy status is
determined. This is designed to ensure that Servicers proactively work
to determine the status of each property subject to a loan guaranteed
under the program, that is in default, and to minimize costs and risks
to the Fund. This proposed section is consistent with current program
policy, practice, and/or procedure.
Vacant property procedures Sec. 1005.737. This section would set
forth the requirements when a property has been determined vacant or
abandoned based on an occupancy or occupancy follow-up inspection. This
provision includes a notice requirement to the Borrowers of
determination of vacancy or abandonment, which is sent to the property
address and all known addresses of Borrowers. If occupancy is found
through the delivery confirmation process, the Servicer must continue
pursuing Loss Mitigation efforts until the Servicer can proceed to
First Legal Action. On the other hand, if the Servicer verifies through
the delivery confirmation process or other method that the property is
vacant or abandoned, then the Servicer must secure and maintain the
property through appropriate property preservation actions, initiate
the First Legal Action or assign a Trust Land loan to HUD within 120
days after date of default, continue to perform vacant property
inspections every 25-35 days, and retain documentation in the servicing
file.
HUD is proposing this section to ensure that clear guidelines exist
for Servicers who manage vacant or abandoned Properties. While not
common, a small number of Properties assisted under the Section 184
Program have previously been abandoned. In such cases, it is critical
that Servicers remain proactive in verifying the occupancy status of
such Properties and ensuring that they are processed and disposed of in
a timely manner. Vacant or abandoned Properties can attract criminal
activity and serve as an additional blight to Trust Land. These
guidelines will also help preserve collateral and prevent unnecessary
losses and risks to the Fund. This proposed section is consistent with
current program policy, practice, and/or procedure, and aligns with
industry standards.
Loss mitigation Sec. 1005.739. This section proposes the Loss
Mitigation options and review requirements when a Borrower defaults on
a Section 184 Guaranteed Loan. This section would require that
Servicers utilize various Loss Mitigation options, if practical, within
180 days of the date of default. Loss mitigation options include: (1)
forbearance plan, (2) assumption, (3) trial payment plan agreement for
a loan modification, (4) pre-foreclosure sale, or (5) deed-in-lieu or
lease-in-lieu of foreclosure. Within 180 days of default, if the
Borrower is offered a Loss Mitigation option other than loan
modification and fails to meet the Loss Mitigation requirements, the
Servicer is required, within 5 days of the Loss Mitigation default, to
determine whether the Borrower should continue with the current Loss
Mitigation option or reassess the Borrower. If no time or very limited
time remains within 180 days of default, the Servicer will not be
required to reassess the Borrower for another Loss Mitigation option.
This section also would provide that if a Borrower is performing
under a Loss Mitigation option that does not reinstate the loan at 180
days of default but subsequently fails to perform, the Servicer must
take First Legal Action within 5 days of the Loss Mitigation option
default. Servicers must maintain documentation of all evaluations and
Loss Mitigation actions. Finally, Servicers that fail to engage in and
comply with required Loss Mitigation may be subject to enforcement
action by HUD, including possible sanctions.
HUD is proposing this addition to the regulation to ensure
Servicers review Loss Mitigation options to prevent foreclosures, to
maintain Native American Borrowers in their homes, to the extent
practicable, and to minimize any resulting losses and risks to the
Fund. This proposed section is consistent with current program
practices, policies, and/or procedures, and conforms to CFPB
regulations and industry standards.
Notice to Tribe and BIA--Borrower default Sec. 1005.741. This
proposed section compliments HUD's current practice and policy to
notify the BIA when a Borrower defaults on a Section 184 Guaranteed
Loan, in accordance with applicable requirements under 25 CFR part 162.
This section also includes a new requirement for Servicers. When given
consent by the Borrower, Servicers must notify the Borrower's Tribe
when a Borrower defaults on Section 184 Guaranteed Loan. This proposed
section addresses a request made during Tribal consultation in which
Tribal representatives expressed a desire to be notified when a member
has defaulted on their Section 184 Guaranteed Loan, so that the Tribe
may provide financial assistance, if available.
Relief for Borrower in military service Sec. 1005.743. This
proposed section outlines the options for Borrowers who are in military
service, in addition to benefits afforded under other applicable laws,
including postponement of principal payments, forbearance, and
postponement of foreclosure. This section is being proposed to provide
accommodations for Borrowers that are persons in ``military service,''
as such term is defined in the Servicemembers Civil Relief Act (50
U.S.C. 3901, et seq.). This proposed section is consistent with current
program policy, practice, and/or procedure, and aligns with industry
standards.
Forbearance plans Sec. 1005.745. This section proposes forbearance
options a Servicer may offer to defaulting Borrowers. This section sets
out the requirements for informal forbearance, formal forbearance,
unemployment forbearance, and servicemember forbearance. Each type has
its own agreement requirements, duration period requirements, property
condition requirements, and required documents. HUD is proposing this
regulation to ensure that several options are available for defaulting
Borrowers. This proposed section is consistent with current program
policy, practice, and/or procedure, and aligns with industry standards.
Assumption Sec. 1005.747. This section would require Servicers to
explore loan assumption as a Loss Mitigation option. HUD is proposing
this regulation to provide another Loss Mitigation option for a
Borrower that has defaulted on their guaranteed loan. This proposed
section is consistent with current program policy, practice, and/or
procedure, and aligns with industry standards.
Loan modification Sec. 1005.749. This section proposes loan
modifications as a Loss Mitigation option and sets forth the
eligibility and qualifications necessary for a Servicer to approve a
Borrower's application and the required property conditions. This
section also discusses
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the use of trial payment plans, the execution of loan modification
documents that conform to all applicable Tribal, Federal, and State
laws, and when the Servicer must provide modified loan guarantee
documents to HUD. HUD is proposing this regulation to provide another
Loss Mitigation option for Borrowers in default. This proposed section
is consistent with current program policy, practice, and/or procedure.
Pre-foreclosure sale Sec. 1005.751. This section would provide
authority for pre-foreclosure sale as a Loss Mitigation option. The
requirements specified for this review include: surchargeable
calculation of the Borrower's cash reserve contribution, condition of
title for both fee simple and Trust Land Properties, verification of
discharge of all junior liens, and listing the property at no less than
the value determined in the required appraisal. The Servicer would be
required to send all required pre-foreclosure documentation to HUD and
send an approval to participate agreement and required addendum notice
to the Borrower.
This section also would provide Tribal notification of the option
to assume the Section 184 Guaranteed Loan or purchase the either the
Note or the property. The section sets out the requirements for the
Borrower in securing a real estate broker and required clauses in the
contract between the Servicer and broker, as well as the time period
for the Borrower to market the property in listings. For all pre-
foreclosure sale Properties, the Servicer is required to conduct
property inspections and maintenance, and the Borrower is required to
disclose any damage that has occurred immediately. If damage has
occurred, the Servicer is required to work with the Borrower to file
hazard insurance claims. The section sets out the responsibilities for
the seller in receiving sufficient bids, reviewing the sales contract,
as well as closing and post-closing responsibilities. The section
details early termination initiated by both the Borrower and the
Servicer, and how to proceed in the event the Borrower fails to
complete the pre-foreclosure sale. HUD is proposing this regulation to
provide an additional option for defaulted Borrowers. This is a new
loss mitigation option for the Section 184 Program. HUD is proposing
this section to give Native American Borrowers comparable loss
mitigation options to Borrowers in other loan guarantee programs.
Deed-in-lieu/lease-in-lieu of foreclosure Sec. 1005.753. This
section would require the use of deed-in-lieu/lease-in-lieu of
foreclosure as a Loss Mitigation option. This section also sets out the
required documents to effectuate the transfer and, upon Conveyance to
HUD, the Servicer must file for record the required documents within
two days and report to HUD. The Servicer must also comply with all
applicable Federal, State, Tribal, and local reporting requirements.
HUD is proposing this regulation in order to provide an additional
option for Borrowers in default. This proposed section is consistent
with current program policy, practice, and/or procedure and aligns with
industry standards.
Incentive payments to Borrower Sec. 1005.755. This section
proposes that HUD may authorize incentive payments to the Borrower when
Borrowers complete certain loss mitigation options and when Borrowers
agree to vacate the property after foreclosure to avoid an eviction.
This section also proposes that HUD may authorize incentive payments to
Lender and Servicer for their completion of certain Loss Mitigation
options and incentive payments to Tribes and TDHEs when they assist HUD
in the loss mitigation, sale or transfer of the Trust Land property.
HUD plans to provide further guidance on the incentives in Section 184
Program Guidance. HUD is proposing this new authority to encourage
Borrowers' and Servicers' participation in Loss Mitigation, to avoid
the time and expense of foreclosing on the property and evicting the
Borrower after foreclosure.
Property on Trust Land--Tribal first right of refusal; foreclosure
or assignment Sec. 1005.757. This section proposes the timeframe in
which a Servicer must contact a Tribe or TDHE and offer an option to
assume or purchase the property or the Note under Sec. 1005.757(a)
when a defaulted loan pertains to property that is located on Trust
Land, as well as the TDHE or Tribe's acceptance of the offer. This
section also allows for the Servicer to choose between foreclosure or
assignment to HUD for a defaulted Section 184 Guaranteed Loan located
on Trust Lands. HUD is proposing this regulation to clarify options
available to the Servicer but also to ensure timely action. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Fee simple properties--foreclosure or assignment with HUD approval
Sec. 1005.759. This section proposes the requirement for Servicers to
initiate foreclosures or request the ability to assign a defaulted
property to HUD. HUD may approve assignments under limited
circumstances. HUD is proposing this regulation in order to ensure that
Servicers timely initiate foreclosure proceedings and is consistent
with current policy, practice and/or procedure.
First Legal Action deadline and automatic extensions Sec.
1005.761. This section proposes to provide a timeline for the
initiation of foreclosure by the Servicer on defaulted Section 184
Guaranteed Loans. This proposed section is consistent with current
program policy, practice, and/or procedure and aligns with industry
standards.
Assignment of the Section 184 Guaranteed Loan Sec. 1005.763. This
section presents the requirements for assigning a defaulted Section 184
Guaranteed Loan to HUD. This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Inspection and preservation of Properties Sec. 1005.765. This
section proposes that the Servicer comply with inspection requirements
under Sec. 1005.737 when the Servicer knows or should know the
property is vacant or abandoned. The section also proposes to require
that the Servicer take action to preserve and protect the property
until Conveyance to HUD. HUD is proposing this section in order to
ensure the Servicer continues to inspect and preserve the property.
This proposed section is consistent with current program policy,
practice, and procedure and aligns with industry standards.
Property condition Sec. 1005.767. This section would mandate the
condition of the property and the Servicer's responsibilities at the
time a property is transferred to HUD through Conveyance or assignment.
This proposed section is consistent with current program policy,
practice, and/or procedure.
Conveyance of property to HUD at or after foreclosure; time of
Conveyance Sec. 1005.769. This section proposes the methods and
timeframe in which a Servicer may convey a property to HUD after
foreclosure, including HUD notification of the Conveyance. HUD is
proposing this section in order to ensure the Servicer timely conveys
the property to HUD. This proposed section is consistent with current
program policy, practice, and/or procedure and aligns with industry
standards.
Acceptance of property by HUD Sec. 1005.771. This section would
establish the date which HUD is deemed to have accepted an assignment
of a Section 184 Guaranteed Loan, or title to and possession of a
property. HUD is proposing this section to clarify when HUD has
accepted title to a conveyed
[[Page 78338]]
property. This proposed section is consistent with current program
policy, practice, and/or procedure and aligns with industry standards.
H. Claims (Subpart H)
This subpart includes the requirements for Servicers to submit
claims to HUD. The subpart is organized into five sections: claims
application, submission categories, and types; submission of claims;
property title transfers and title waivers; condition of the property;
and payment of guarantee benefits.
Purpose Sec. 1005.801. This section proposes the purpose of this
subpart which is to set forth the requirements applicable to a
submission of an application for loan guarantee benefits (Claim
submission). It explains that Servicers must comply with regulations
presented in subpart H and process details included in Section 184
Program Guidance. This subpart also sets forth requirements processing
and payment of Claim. This proposed section is consistent with current
program policy, practice, and/or procedure.
Claim case binder; HUD authority to review records Sec. 1005.803.
This section would require Servicers to maintain a Claim case binder
for a minimum of five years after the final Claim has been paid and
allow HUD access to the case binder. Section 1005.803(b) allows HUD
access to the Claim case binder at any time and would provide that
Servicer denial of HUD access to any of the files may subject the
Servicer to sanctions under Sec. Sec. 1005.905 and 1005.907. Section
1005.803(c) would provide that the Servicer must make available to HUD
any request for Claim files within three business days of the request.
This proposed section is consistent with current practices and
establishes new timeframes for Servicers to respond to HUD's request
for a Claim case binder. These policies are necessary to ensure HUD has
appropriate oversight of the program.
Effect of noncompliance Sec. 1005.805. This section proposes to
establish the actions HUD may take if a Claim case binder does not
comply with the requirements of subpart D, including: rejecting the
claim, paying the claim but demanding reimbursement from the
Originating Direct Guarantee Lender, reconveying the property or
reassigning the deed of trust or mortgage in accordance with Sec.
1005.849 and sanctions in accordance with Sec. Sec. 1005.905 and
1005.907. Further, it would establish actions HUD may take if it finds
the Servicer failed to service the Section 184 Guaranteed Loan in
accordance with subpart G, committed fraud, known or should have known
of fraud or material misrepresentation in violation of this part. These
include holding the claim to remedy the deficiency, rejecting expenses
under Sec. 1005.807(b), reconveying the property or reassigning the
deed of trust or mortgage in accordance with Sec. 1005.849,
administrative offset, sanctions in accordance with Sec. Sec. 1005.905
and 1005.907, and other remedies as determined by HUD. This section
also limits the expenses that can be changed when a reconveying the
property or reassigning the deed of trust or mortgage. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Claim submission categories Sec. 1005.807. This section lists the
three Claim submission categories. The three Claim categories are:
payment of the unpaid principal balance; reimbursement of eligible
reasonable expenses up to assignment, Conveyance or transfer of the
property; and supplemental claims for eligible expenses incurred that
were omitted from the Servicer's prior submission or for a calculation
error made by the Servicer or HUD. This proposed section is consistent
with current program policy, practice, and/or procedure.
Claim types Sec. 1005.809. This section would establish five Claim
types, which are submitted based on property disposition, timeframes
for Claim submission, and the documentation required for each Claim
type. The five Claim types are: Conveyance; assignment of the loan;
post-foreclosure claims without Conveyance of title; pre-foreclosure
sale; and supplemental claims.
Paragraph (a) would provide for a Claim when the Servicer conveys
the property to HUD after foreclosure or execution of a deed-in-lieu or
lease-in-lieu. The Servicer has 45 days from date the deed to HUD is
executed to submit the Conveyance Claim. For fee simple properties, the
section would require final title policy. For Trust Land Properties, a
Title Status Report from the Bureau of Indian Affairs evidencing
ownership vested to HUD is required. Where Servicer is unable to obtain
a Title Status Report from the Bureau of Indian Affairs, the Servicer
may submit a Claim on the 45th day in accordance with Claim processing
instructions that HUD will provide. Lenders must submit claims related
to reimbursable eligible expenses no later than the 60th day of the
date the deed is executed to HUD, unless extension of time is given by
HUD.
Paragraph (b) describes the assignment of the Section 184
Guaranteed Loan and would require the Servicer to submit a Claim no
later than 45 days from the date of the assignment of the Section 184
Guaranteed Loan to HUD is executed. The section would require the
Servicer provide a final title policy or, where applicable, a certified
Title Status Report evidencing the assignment of the mortgage to HUD.
Where the Servicer is unable to comply with the documentation from
title policy or Title Status Report, the Servicer may submit a Claim on
the 45th day in accordance with processing instructions from HUD. For
assignment of a Section 184 Guaranteed Loan, the Servicer must submit a
Claim for reimbursable expenses, if any, within 45 days of the date the
loan assignment is executed. This section would require the Servicer to
certify that the Section 185 Guaranteed Loan is in first lien position
and prior to all mechanics' and materialmen's liens filed for record,
the amount due and owing under the loan, there are no offsets or
counterclaims, the Servicer has good right to assign, and has met the
property inspection and property preservation requirements of this
part.
Paragraph (c) explains the post-foreclosure claims without
Conveyance of title requirements and addresses when a third-party
purchases fee simple Properties at foreclosure. The Servicer must
submit a Claim to HUD no later than 180 days from the date the deed to
the third-party is executed. Paragraph (d) is the pre-foreclosure sale
Claim. It authorizes claims when a property is sold prior to
foreclosure in accordance with HUD's pre-foreclosure sale requirements
at Sec. 1005.751 or Sec. 1005.753. The Servicer must submit a Claim
no later than 45 days from the date the deed or assignment of the lease
to the third-party is executed.
Paragraph (e) discusses supplemental claims, and limits Servicers
to one supplemental Claim for each Claim related to the payment of
unpaid principal balance and reimbursement of eligible reasonable
expenses. Paragraph (e) limits supplemental claims to reasonable
eligible expenses incurred on the date of Conveyance of the property or
assignment of the Section 184 Guaranteed Loan, when invoices are
received after payment of the Claim or when there is a calculation
error made by the Servicer or HUD. Supplemental claims must be
submitted within six months of when the Servicer files a Claim for
reimbursement of eligible reasonable expenses. Any supplemental claims
received after the six-month period will not be reviewed or paid by
HUD. This section makes clear any supplemental Claim paid by HUD shall
[[Page 78339]]
be considered final satisfaction of the loan guarantee.
Proposed paragraphs (a) through (d) are consistent with HUD's
existing policies, practices, and procedures with the exception of
paragraph (b)(4), which proposes to implement a new Servicer
certification requirement. Proposed paragraph (e) is consistent, in
part, with HUD's existing policies, practices, and procedures, but
proposes to add a new requirement that supplemental claims are time
limited to a 6-month window. These policies are proposed to ensure HUD
maintains its fiduciary duty to protect the Fund and reduce its risk
against Claim payments that do not meet Section 184 requirements.
Claims supporting documentation Sec. 1005.811. This section
proposes to require Servicers to submit supporting documentation
required for each Claim to the satisfaction of HUD. Such documentation
will be provided for in Section 184 Program Guidance. This proposed
section is consistent with current program policy, practice, and/or
procedure.
Upfront and Annual Loan Guarantee Fee reconciliation Sec.
1005.813. This section proposes to require Lenders to submit, as part
of a Claim submission under Sec. 1005.807(b), a reconciliation
evidencing the payment of the Annual Loan Guarantee Fee to HUD. This
section proposes a new process to ensure Lenders can verify they have
paid all Loan Guarantee Fees prior to HUD payment of any claims.
Conditions for withdrawal of claim Sec. 1005.815. This section
provides the conditions under which a Servicer can withdraw a Claim
submission after there has been a Conveyance. HUD will permit
withdrawal of the application when a Servicer accepts a reconveyance of
the property under a deed which warrants against the acts of HUD and
all claiming by, through or under HUD, promptly files a reconveyance
for record; accepts without continuation the title evidence it
furnished to HUD; and reimburses HUD for property expenditures HUD
incurred after Conveyance to HUD. This proposed section is consistent
with HUD's current practice, policy, and/or procedure.
Conveyance of Good and Marketable Title Sec. 1005.817. This
section proposes to mandate that a property have Good and Marketable
Title when conveyed to HUD from a Lender. This proposed section is
consistent with current program, policy and/or practice. Within this
section, HUD is proposing a new timeframe in which a Servicer must
correct any title defects. HUD is proposing that the Servicer make this
correction in 60 days, or the Servicer must reimburse HUD for the cost
of holding the property until any defect is corrected or until HUD
reconveys the property to the Servicer. This proposed time frame is
intended to help ensure timely action by the Servicer to correct title
defects.
Types of satisfactory title evidence Sec. 1005.819. This section
would provide six types of title evidence that may be submitted with a
Claim submission. The permissible types of title evidence include: fee
or owner's title policy; Lender's policy of title insurance; abstract
and legal opinion; torrens or similar certificate; title standard of
U.S., Tribal, or State government; and Title Status Report issued by
the Bureau of Indian Affairs. This proposed section is consistent with
current program policy, practice, and/or procedure.
Coverage of title evidence Sec. 1005.821. This section would
establish that evidence of title or Title Status Report shall be
executed subsequent to the filing for record of the deed or assignment
to HUD. The title evidence must show that, according to public records,
there are not, as of the date of the recordation of the deed or
assignment to HUD, any outstanding prior liens, including any past due
and unpaid ground rents, general taxes, or special assessments, if
applicable. This proposed section is consistent with current program
policy, practice, and/or procedure.
Waived title objections for properties on fee simple land Sec.
1005.823. This section would provide that reasonable title objections
for fee simple properties shall be waived by HUD. Reasonable title
objections will be prescribed in Section 184 Program Guidance. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Waived title objections for properties on Trust Land Sec.
1005.825. This section proposes that HUD shall not object to title
restrictions placed on Trust Land by a Tribe or the Bureau of Indian
Affairs, so long as those restrictions do not adversely impact the
property or marketability. This proposed section is consistent with
current program policy, practice, and/or procedure.
Damage or neglect Sec. 1005.827. This section would provide a
Lender's responsibilities when a property has suffered damage or
neglect and HUD's remedy when a damaged property is conveyed to HUD
without prior notice or approval. Section 1005.827(a) would provide
that if a property has been damaged by fire, flood, earthquake,
tornado, or due to Lender's failure to take action to protect and
preserve the property, the Servicer must submit a Claim to the hazard
insurance policy, and the damage must be repaired before Conveyance of
the property or assignment of the loan to HUD.
Paragraph (b) would provide that if the property damage is not
covered by a hazard insurance policy, the Servicer must notify HUD of
the damage. Servicer may not convey until directed to do so by HUD. If
HUD requires the Servicer to repair the damage before Conveyance, HUD
may reimburse Servicer for reasonable payments not in excess of HUD's
estimate of the cost of repair, less any insurance recovery or require
the Lender to repair the damage before Conveyance at the Servicer's own
expense.
Paragraph (c) would provide that in the event the Servicer conveys
property to HUD without repair to the damage or without notice to HUD
of the damage, HUD may, after notice, reconvey the property to the
Servicer and seek reimbursement for expenses HUD incurred in connection
with the Conveyance. This proposed section is consistent with current
program policy, practice, and/or procedure.
Certificate of property condition Sec. 1005.829. This section
would require a Servicer to submit a certification of property
condition as part of the Claim submission. This section would provide
that, as part of the Claim submission, the Servicer certifies the
property was undamaged by fire, flood, earthquake, or tornado, was
undamaged due to failure of the Servicer to act, and undamaged while
the property was in possession of the Borrower. Alternatively, if the
property was damaged, the Servicer includes a copy of the HUD approval
to convey the property in damaged condition.
Paragraph (b) would provide that, in the absence of evidence to the
contrary, the Servicer's certificate or description of the damage shall
be accepted by HUD as establishing the condition of the property, as of
the date of the filing of the deed or assignment of the loan. This
proposed section is consistent with current program policy, practice,
and/or procedure, and to ensure Servicers confirm the property is
conveyed to HUD undamaged.
Cancellation of hazard insurance Sec. 1005.831. This section
proposes to provide that Servicers shall cancel any hazard insurance
policy as of the date of the filing for record of the deed to HUD,
subject to certain conditions. The conditions include: (1) the amount
of the return premium, due to the Servicer because of such
cancellation, may be calculated on a ``short-rate'' basis and reported
on fiscal data, and the amount shall be deducted from the total amount
[[Page 78340]]
claimed; (2) If the Servicer's calculation of the return premium is
less than the actual return, the amount of the difference between the
actual refund and the calculated amount shall be remitted to HUD,
accompanied by the carrier's or agent's statement; (3) If the
Servicer's calculation of the return premium is more than the actual
return, the Servicer may include in its Claim submission, the statement
of the amount of the refund from the insurance carrier or agent, and
include the amount of the difference as an eligible cost in accordance
with Sec. 1005.843(a)(3). This proposed section is consistent with
current program policy, practice, and/or procedure.
Method of payment Sec. 1005.833. This section would establish that
HUD will make payment of guarantee benefits by electronic transfer of
funds for all approved claim submissions. This proposed section is
consistent with current program policy, practice, and/or procedure.
Claim payment not conclusive evidence of claim meeting all HUD
requirements Sec. 1005.835. This section proposes to provide that any
payment of claim by HUD is not conclusive evidence of a Servicer's
compliance with Section 184 Program requirements. HUD reserves the
right to conduct post-claim payment review of any claim file within 5
years from the date of last claim payment. This section states when
non-compliance with any requirements of this part is identified, HUD
may take appropriate post-claim action against the Servicer. This
section is a codification of existing policy, practice, and procedure
with the exception of the five-year period. The proposed five-year
period is necessary to ensure uniformity in the time frame for HUD to
conduct post-claim reviews of the loan file.
Payment of claim: unpaid principal balance Sec. 1005.837. This
section would state that HUD will pay claims for unpaid principal
balance submitted under Sec. 1005.807(a), minus any receipts for the
sale or transfer of the property. This proposed section is consistent
with current program policy, practice, and/or procedure.
Payment of claim: interest on unpaid principal balance Sec.
1005.839. This section would establish the payment timeframe for
interest payments on the unpaid principal balance. HUD shall pay
interest on the unpaid principal balance from the date of default to
the earlier of the following: the execution of the deed to the Lender,
HUD, or third-party; execution of Conveyance of deed to either Lender,
HUD, or third-party; execution of the assignment of the loan to HUD; or
expiration of the reasonable diligence timeframes as prescribed by
Section 184 Program Guidance. This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Payment of claim: reimbursement of eligible and reasonable costs
Sec. 1005.841. This section proposes to provide that reimbursement of
eligible and reasonable costs under Sec. 1005.807(b) shall be paid as
part of the guarantee benefits. HUD will prescribe reasonable costs
that are eligible for reimbursement in Section 184 Program Guidance.
This proposed section is consistent with current program policy,
practice, and/or procedure and aligns with industry standards.
Reductions to the Claim submission amount Sec. 1005.843. This
section proposes the circumstances under which Lenders should reduce
their Claim amount. The Servicer shall reduce its Claim when the
following amounts are received by the Lender: amounts received by the
Servicer instituting foreclosure or acquisition of the property by
direct Conveyance or otherwise after default; amounts received by the
Servicer from any source relating to the property on the account of
rent or other income after deducting reasonable expenses incurred in
handling the property; and all cash retained by the Lender, including
amounts held or deposited for the account of the Borrower or to which
is entitled under the loan transaction that have not been applied in
reduction of the principal loan indebtedness. This proposed section is
consistent with current program policy, practice, and/or procedure and
aligns with industry standards.
Rights and liabilities under the Indian Housing Loan Guarantee Fund
Sec. 1005.845. This section would state that Borrowers and Lenders
shall not have any vested right in the Fund nor be subject to any
liability arising under such Fund. In addition, that the Indian Housing
Loan Guarantee Fund will be credited and debited in accordance with 12
U.S.C. 1715z-13a(i)(2). This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Final payment Sec. 1005.847. This section would establish the
conditions for final payment from HUD to the Lender. Paragraph (a)
would provide that payment of the Claim shall be deemed as final
payment to the Servicer and that the Servicer would have no further
claims against the Borrower or HUD. The provision further states final
payment to the Servicer does not preclude HUD from seeking
reimbursement of costs and return of amounts from the Servicer when
there is a reconveyance to the Lender.
Paragraph (b) would provide that when there is a reconveyance to
the Servicer, and the Servicer reimburses HUD for all expenses and
returns all Claim amounts paid, the final payment to the Servicer
restriction under Sec. 1005.849(a) will not apply. The section makes
clear that in the event the Servicer resubmits a Claim after
reconveyance to the Servicer, then the Servicer shall not be reimbursed
for any expenses incurred after the date of the HUD Conveyance. This
proposed section is consistent with current program policy, practice,
and/or procedure.
Reconveyance and reassignment Sec. 1005.849. This section proposes
actions HUD may take when there is a reconveyance of a property or a
reassignment of the deed of trust or mortgage back to the Holder.
Paragraph (a) would provide that HUD may reconvey the property to the
Holder due to an Originating Direct Guarantee Lender or Servicer's
noncompliance with the requirements of this part or if there is a
withdrawal of a Claim for benefits in accordance with Sec. 1005.815.
Paragraph (b) proposes to provide that HUD may take action against the
Holder, including, but not limited to, seeking reimbursement of all
Claim costs paid. Paragraph (c) proposes to provide that where HUD has
conveyed the property or reassigned the deed of trust or mortgage back
to the Holder, and a Claim is subsequently resubmitted, the Holder will
not be reimbursed for any expenses incurred after the date of the HUD
Conveyance or assignment. This proposed section is consistent with
current program policy, practice, and/or procedure and aligns with
industry standards.
Reimbursement of expenses to HUD Sec. 1005.851. This section would
establish a Holder or the Originating Direct Guarantee Lender
reimbursement responsibilities when HUD determines it will reconvey of
a property previously conveyed to HUD under the claims process. This
section proposes that when there is a reconveyance or reassignment by
HUD, to the Holder or the Originating Direct Guarantee Lender, or when
HUD determines noncompliance, the Holder or the Originating Direct
Guarantee Lender shall reimburse HUD for all Claim costs paid, HUD's
cost of holding the property, and reimbursement plus interest on the
loan guarantee benefits from the date the loan guarantee benefits were
paid to the date HUD
[[Page 78341]]
receives the refund from the Holder. The interest rate shall be in
conformity with the Treasury Fiscal Requirements Manual. This proposed
section is consistent with current program policy, practice, and/or
procedure and aligns with industry standards.
I. Lender Program Performance, Reporting, Sanctions, and Appeals
(Subpart I)
Direct Guarantee Lender, Holder, or Servicer performance reviews
Sec. 1005.901. This section would establish HUD's authority to conduct
periodic performance reviews of Direct Guarantee Lenders, Non-Direct
Guarantee Lenders, Holders, and Servicers. These reviews will include,
but are not limited to, an evaluation of compliance with this
regulation. Monitoring reviews ensure that Direct Guarantee Lenders,
Non-Direct Guarantee Lenders, Holders, and Servicers are complying with
the requirements of the program and reduces risk to the Fund. This
proposed section is consistent with current program policy, practice,
and procedure and aligns with industry standards.
Direct Guarantee Lender, Holder, or Servicer reporting and
certifications Sec. 1005.903. This section proposes to mandate Direct
Guarantee Lenders, Non-Direct Guarantee Lenders, or Servicers provide
timely and accurate reports and certifications to HUD and provides HUD
the authority to subject the Lender to sanctions for failure to submit
such documents. This proposed section is consistent with current
program policy, practice, and/or procedure.
Direct Guarantee Lender, Holder, or Servicer notice of sanctions
Sec. 1005.905. This section would state that HUD will provide notice
to the Direct Guarantee Lender, Non-Direct Guarantee Lender, Holder, or
Servicer of the specific-noncompliance and, where applicable, allow for
a reasonable time to return to compliance, prior to any sanctions or
civil money penalties If the Direct Guarantee Lender, Non-Direct
Guarantee Lender, Holder, or Servicer fails to return to compliance,
HUD shall provide written notice of the sanction or civil money
penalties to be imposed and the basis for the action. This proposed
section is consistent with current program policy, practice, and/or
procedure and aligns with industry standards.
Direct Guarantee Lender, Holder, or Servicer sanctions and civil
money penalties Sec. 1005.907. This section proposes that sanctions
and civil money penalties may be imposed by HUD when a Direct Guarantee
Lender, Non-Direct Guarantee Lender, Holder, or Servicer fails to
comply with this part. Such compliance may include complying with
Section 184 Program Guidance when it specifically provides reasonable
times, processes, and procedures for complying with part 1005
requirements. This includes: termination from the program; bar the
Direct Guarantee Lender, or Holder from acquiring additional loans
guaranteed under this section; require that the Direct Guarantee Lender
assume not less than 10 percent of any loss on further loans made by
the Direct Guarantee Lender; require that the Direct Guarantee Lender,
Non-Direct Guarantee Lender, Holder, or Servicer comply with a
corrective action plan or amend Direct Guarantee Lender, Non-Direct
Guarantee Lender, or Servicer's quality control plan; or impose a civil
money penalty on the Direct Guarantee Lender, Non-Direct Guarantee
Lender, Holder, or Servicer in the manner and amount provided pursuant
to Section 184 of the Native American Assistance and Self-Determination
Act of 1996 (12 U.S.C. 1715z-13a) and 24 CFR part 30. This proposed
section is statutorily authorized and is intended to protect the Fund
and Section 184 Program integrity by allowing HUD to sanction poorly
performing Direct Guarantee Lenders, Non-Direct Guarantee Lenders,
Holders, or Servicers.
Direct Guarantee Lender, Holder, or Servicer appeals process Sec.
1005.909. This section would establish an appeal process for Non-Direct
Guarantee Lenders, Direct Guarantee Lenders, and Servicers to appeal a
denial of participation in the Section 184 Program and to appeal
sanctions or civil money penalties imposed pursuant to Sec. 1005.907.
This proposed section is intended to provide Lenders the opportunity to
appeal a decision to HUD for HUD's reconsideration.
HUD's Part 58 Regulations
Currently Tribes may elect to assume environmental responsibility
for Section 184 Guaranteed Loans pursuant to 24 CFR part 58, requiring
Tribes to ensure applicable environmental requirements are met. HUD
proposes to not have Tribes assume environmental responsibility for the
Section 184 Program for fee simple Properties that are located outside
of a reservation in order to streamline the environmental review
process and relieve the burden upon Tribes. It is impractical to have a
Tribe assume environmental responsibilities for Section 184 Guaranteed
Loans on fee simple Properties outside of a reservation, which may be
located far from the reservation of the Borrower's Tribe. Forgoing
Tribal involvement and responsibility for Federal environmental review
on such properties will increase the efficiency in providing HUD
assistance, as well as relieve the Tribes of a burden. Accordingly, the
proposed rule would revise Sec. 58.1(b), which lists the programs that
are subject to part 58, to indicate that Indian Housing Loan Guarantees
under Section 184 are subject to part 58 for Properties on trust land
and on fee land within a reservation. Thus, Properties not on trust
land not on fee land within a reservation shall be subject to Sec.
50.19(b)(17).
For loan guarantees that are subject to part 58, part 58 indicates
which activities are categorically excluded from environmental
assessment under the National Environmental Policy Act (42 U.S.C. 4321,
et seq.) (NEPA) and which categorically excluded activities remain
subject to related Federal environmental laws and authorities listed in
Sec. 58.5. HUD's existing regulation at Sec. 58.35(b) lists a number
of programs that are categorically excluded from assessment under NEPA
and not subject to such related authorities, and this proposed rule
would add to the list HUD's guarantee of loans for one- to four-family
dwellings under the Direct Guarantee procedure for the Section 184
Program where there is no review or approval of the application for the
loan guarantee by HUD or the responsible entity, or approval of the
loan guarantee by HUD, before the execution of the contract for
construction or rehabilitation and the loan closing.\1\ The proposed
rule would update HUD's categorical exclusions and increase efficiency
in providing HUD assistance, as well as reducing reduce costs
associated with HUD's environmental review process to eliminate
unnecessary regulatory burdens that impede affordable housing
development.
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\1\ A comparable categorical exclusion for loan guarantees under
the Section 184 Direct Guarantee procedure is already contained in
24 CFR part 50, which applies when a Tribe declines to assume
environmental review responsibilities and HUD performs any required
environmental review. See 24 CFR 50.19(b)(17). The proposed
exclusion under part 58 would adapt the existing exclusion to apply
when a Tribe assumes environmental responsibilities, where there is
no HUD review or approval of the application for the loan guarantee
by HUD or the responsible entity, or approval of the loan guarantee
by HUD before the completion of construction or rehabilitation and
the loan closing.
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Specific Question for Comment--Environmental Regulations
HUD invites comments on the proposal to shift environmental
responsibility from Tribes to HUD for
[[Page 78342]]
fee simple Properties that are located outside of a reservation.
III. Tribal Consultation
HUD's policy is to consult with Indian Tribes early in the
rulemaking process on matters that have Tribal implications.
Accordingly, HUD began consulting with Indian Tribes in February 2018.
HUD held eleven in-person Tribal consultation sessions before the
regulations in this proposed rule were drafted. As draft subparts of
the regulation were completed, HUD held three additional in-person
consultations to solicit Tribal feedback on each subpart. On April 4,
2019, HUD sent out a copy of the full draft proposed rule to all Tribal
leaders and directors of TDHEs for review and comment. The Tribal
comment period was originally from April 4, 2019, to June 4, 2019, but
it was extended to June 30, 2019, after Tribal leaders requested more
time to review the draft proposed rule. During this time, HUD also held
two in-person Tribal consultations and two national teleconferences to
review the draft proposed rule.
Tribal feedback has been an integral part of the process to develop
this proposed rule. Throughout the consultation process, HUD used
Tribal feedback to refine and improve this proposed rule. Tribal
comments included areas such as Lender relationships and
qualifications, loan limits, rate and fees, loan processing, Borrower
qualifications, eligible units, Section 184 Approved Program Area,
Tribal courts, and Tribal involvement. HUD considered all written
comments submitted to HUD, as well as recorded comments received from
in-person Tribal consultation sessions, and revised the proposed rule
as appropriate.
IV. Findings and Certifications
Regulatory Review--Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both the costs and
benefits of reducing costs, of harmonizing rules, and of promoting
flexibility.
Under Executive Order 12866 (Regulatory Planning and Review), a
determination must be made whether a regulatory action is significant
and, therefore, subject to review by the Office of Management and
Budget (OMB) in accordance with the requirements of the order. This
proposed rule, as discussed above, would introduce changes to make the
program sustainable, protect Borrowers, address recommendations by the
OIG in areas such as Lender underwriting and the claims process, and
provide clarity for new and existing Lenders who participate in the
Section 184 Program. These changes would allow for Lenders to serve the
growing demand for the program and introduce stronger governing
regulations to reduce the increased risk to the Fund.
Many current and potential Section 184 Lenders and Servicers
participate in the FHA single family mortgage program. Where
appropriate, aligning the new Section 184 regulations with the FHA
single family mortgage program regulations should also minimize costs
to new and existing Lenders. Additionally, clarifying servicing
requirements will protect the Borrowers by requiring Servicers to
consider Loss Mitigation options for Borrowers. Moreover, the added
requirements and protections will help to reduce losses to the Fund and
thereby allow the Section 184 Program to provide additional loans and
decrease the cost of the loans to eligible Borrowers.
This rule was determined to be a significant regulatory action
under section 3(f) of Executive Order 12866, Regulatory Planning and
Review, and therefore was reviewed by OMB. However, this rule was not
deemed to be economically significant. Because program participants
have long followed the substantive standards that this rule would
establish, HUD anticipates that this rule will have little to no
economic effect.
The docket file is available for public inspection in the
Regulations Division, Office of General Counsel, Room 10276, 451 7th
Street SW, Washington, DC 20410-0500. Due to security measures at the
HUD Headquarters building, please schedule an appointment to review the
docket file by calling the Regulations Division at 202-708-3055 (this
is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service at 800-877-8339 (this is a toll-free number).
Paperwork Reduction Act
Currently, the Section 184 Program has an existing information
collection requirement previously approved by the OMB under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB
control number 2577-0200. The proposed rule would modify some of the
documents in this information collection and would create new documents
to bring additional efficiency and accountability to the program. In
accordance with the Paperwork Reduction Act, an agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a valid OMB control number.
The proposed rule would amend the existing Lender and Direct
Guarantee Lender application process. Under Sec. 1005.207, HUD would
require all Lenders to select a level of participation in the Section
184 Program on a form prescribed by HUD. This form requests detailed
information about the Lender, in addition to the participation level.
This proposed revision of the Lender application process would allow
HUD to more closely track how many, and the type of, Lenders
participating in the program. The proposed rule would request
information that would give HUD further assurances that the Lenders
participating in the Section 184 Program have the experience, staffing,
and financial resources to follow program guidelines.
Currently the Section 184 Program uses FHA forms as part of
securing a loan on a manufactured home, assumptions, and pre-
foreclosure sale process. This has led to confusion by Lenders over
which information to submit, since the Section 184 Program may require
the same information collected on the FHA form. As part of the proposed
rule, under Sec. Sec. 1005.429(a)(3)(iv), 1005.711(c), and
1005.751(h)(1), (s)(2), and (t)(1), HUD would develop and gain
approval, when required, of forms similar to the FHA documents, but
specific to the Section 184 Program, which would reduce the paperwork
burden on the Lenders.
The proposed rule would establish new requirements in the areas of
annual Lender and Tribal Recertification Sec. Sec. 1005.223(a) and
1005.307 to provide additional accountability when changes occur that
might impact a Lender or Tribe's eligibility for the program. The
proposed rule would establish new requirements for Tribal application
under Sec. 1005.303 to clarify the information a Tribe needs to submit
when seeking HUD approval of eligibility to guarantee loans on a its
Tribal Land.
Based on comments received during Tribal consultation, the proposed
rule at Sec. 1005.501(j), would establish a new loan closing document,
signed by the
[[Page 78343]]
Borrower, in which the Borrower may elect to authorize the Lender to
notify the Borrower's Tribe in the event of default. Tribes requested
this notification so they may assist the Borrower with default if such
assistance was available.
Under Sec. 1005.769(b), HUD has new requirement for Lenders
conveying a property to HUD at or after foreclosure, to submit a
notification of Conveyance advising HUD of the filing of such
Conveyance.
The total annual estimated paperwork burden for the proposed rule
is 520.41 hours. The overall new paperwork burden for the proposed
rule, as compared to the burden under the previous rule, is 303.7
hours. The bulk of this time is related to the new loan closing
document required in Sec. 1005.501(j), which would allow the Borrower
to elect Tribal notification in the event of default. This form would
be required for each loan guaranteed by the program. The estimated
burden for this form is 5 minutes, and the program's total loan volume
is 3,750 loans for a total of 187.5 hours of estimated annual burden.
The burden of the information collections in this rule is estimated
as follows:
Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Estimated
Number of Number of average time Estimated
Section reference respondents responses per for requirement annual burden
respondent (in hours) (in hours)
----------------------------------------------------------------------------------------------------------------
1005.207.................................... 32 1 0.08 2.56
1005.223(a)................................. 150 1 0.25 37.5
1005.303.................................... 6 1 0.33 1.98
1005.307.................................... 226 1 0.17 38.42
1005.429(a)(3)(iv).......................... 350 1 0.03 10.5
1005.501(b)................................. 3750 1 0.05 187.5
1005.501(j)................................. 3750 1 0.05 187.5
1005.711(c)................................. 5 1 0.05 0.25
1005.751(h)(1).............................. 25 1 0.15 3.75
1005.751(s)(2).............................. 25 1 0.25 6.25
1005.751(t)(1).............................. 25 1 0.25 6.25
1005.769(b)................................. 115 1 0.33 37.95
-------------------------------------------------------------------
Total Paperwork Burden for the New Rule. ............... ............... ............... 520.41
----------------------------------------------------------------------------------------------------------------
In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments
from members of the public and affected agencies concerning this
collection of information to:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond, including through the use of appropriate automated
collection techniques or other forms of information technology, e.g.,
permitting electronic submission of responses.
Interested persons are invited to submit comments regarding the
information collection requirements in this rule. Comments must refer
to the proposal by name and docket number (FR-5593-P-01) and must be
sent to:
HUD Desk Officer: Office of Management and Budget, New Executive
Office Building, Washington, DC 20503, Fax: (202) 395-6947, and Reports
Liaison Officer, Office of Public and Indian Housing, Department of
Housing and Urban Development, Room, 451 7th Street SW, Washington, DC
20410.
Interested persons may submit comments regarding the information
collection requirements electronically through the Federal eRulemaking
Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. HUD strongly encourages
commenters to submit comments electronically. Electronic submission of
comments allows the commenter maximum time to prepare and submit a
comment, ensures timely receipt by HUD, and enables HUD to make them
immediately available to the public. Comments submitted electronically
through the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website can be viewed by other
commenters and interested members of the public. Commenters should
follow the instructions provided on that site to submit comments
electronically.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.),
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
As discussed above, this rule would provide clarity for new and
existing Lenders who participate in the Section 184 Program.
Participation in the Section 184 Program is voluntary. HUD does not
believe the additional requirements will have a significant impact on
small entities.
Notwithstanding HUD's determination that this rule will not have a
significant economic impact on a substantial number of small entities,
HUD specifically invites comments regarding less burdensome
alternatives to this rule that will meet HUD's objectives, as described
in this preamble.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on State and local
governments and is not required by statute, or the rule preempts State
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive order. This proposed rule would not have
federalism implications and would not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
[[Page 78344]]
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made in accordance with HUD regulations at 24 CFR
part 50, which implement Section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is
available for public inspection at <a href="https://www.hud.gov/codetalk">https://www.hud.gov/codetalk</a> and
between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office
of General Counsel, Department of Housing and Urban Development, 451
7th Street SW, Room 10276, Washington, DC 20410-0500. Due to security
measures at the HUD Headquarters building, an advance appointment to
review the docket file must be scheduled by calling the Regulations
Division at 202-708-3055 (this is not a toll-free number). Hearing or
speech-impaired individuals may access this number through TTY by
calling the toll-free Federal Relay Service at 800-877-8339.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) proposes to establish requirements
for Federal agencies to assess the effects of their regulatory actions
on State, local, and Tribal governments, and on the private sector.
This proposed rule does not impose any Federal mandates on any State,
local, or Tribal government, or on the private sector, within the
meaning of the UMRA.
List of Subjects
24 CFR Part 58
Community development block grants, Environmental impact
statements, Grant programs-housing and community development, Reporting
and recordkeeping requirements.
24 CFR Part 1005
Indians, Loan programs-Indians, Reporting and recordkeeping
requirements.
For the reasons stated in the preamble, HUD proposes to amend 24
CFR parts 58 and 1005 as follows:
PART 58--ENVIRONMENTAL REVIEW PROCEDURES FOR ENTITIES ASSUMING HUD
ENVIRONMENTAL RESPONSIBILITIES
0
1. The authority citation for part 58 continues to read as follows:
Authority: 12 U.S.C. 1707 note, 1715z-13a(k); 25 U.S.C. 4115 and
4226; 42 U.S.C. 1437x, 3535(d), 3547, 4321-4335, 4852, 5304(g),
12838, and 12905(h); title II of Pub. L. 105-276; E.O. 11514 as
amended by E.O. 11991, 3 CFR, 1977, Comp., p. 123.
0
2. In Sec. 58.1, revise paragraph (b)(11) to read as follows:
Sec. 58.1 Purpose and applicability.
* * * * *
(b) * * *
(11) Indian Housing Loan Guarantees authorized by section 184 of
the Housing and Community Development Act of 1992 on trust land and on
fee land within a reservation, in accordance with section 184(k) (12
U.S.C. 1715z-13a(k)); and
* * * * *
0
3. In Sec. 58.35, add paragraph (b)(8) to read as follows:
Sec. 58.35 Categorical exclusions.
* * * * *
(b) * * *
(8) HUD's guarantee of loans for one- to-four family dwellings on
trust land and on fee land within a reservation under the Direct
Guarantee procedure for the Section 184 Indian Housing loan guarantee
program without any review or approval of the application for the loan
guarantee by HUD or the responsible entity or approval of the loan
guarantee by HUD before the execution of the contract for construction
or rehabilitation and the loan closing.
* * * * *
0
4. Revise part 1005 to read as follows:
PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING
Subpart A--General Program Requirements
Sec.
1005.101 Purpose.
1005.103 Definitions.
Subpart B--Lender Eligibility & Requirements
1005.201 Lender approval and participation.
1005.203 Lenders deemed approved by statute.
1005.205 Lenders required to obtain Secretarial approval.
1005.207 Lender participation options.
1005.209 Direct Guarantee Lender application process.
1005.211 Direct Guarantee Lender approval.
1005.213 Non-Direct Guarantee Lender application, approval, and
Direct Guarantee Lender sponsorship.
1005.215 Annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Annual recertification.
1005.225 Program ineligibility.
Subpart C--Lending on Trust Land
1005.301 Tribal legal and administrative framework.
1005.303 Tribal application.
1005.305 Approval of Tribal application.
1005.307 Tribal recertification.
1005.309 Duty to report changes.
1005.311 HUD notification of any lease default.
1005.313 Tribal reporting requirements.
Subpart D--Underwriting
Eligible Borrowers
1005.401 Eligible Borrowers.
1005.403 Principal Residence.
1005.405 Borrower residency status.
1005.407 Relationship of income to loan payments.
1005.409 Credit standing.
1005.411 Disclosure and verification of Social Security and Employer
Identification Numbers or Tax Identification Number.
Eligible Properties
1005.413 Acceptable title.
1005.415 Sale of property.
1005.417 Location of property.
1005.419 Requirements for standard housing.
1005.421 Certification of appraisal amount.
1005.423 Legal restrictions on Conveyance.
1005.425 Rental properties.
1005.427 Refinancing.
1005.429 Eligibility of Loans covering manufactured homes.
1005.431 Acceptance of individual residential water purification.
1005.433 Builder warranty.
Eligible Loans
1005.435 Eligible collateral.
1005.437 Loan provisions.
1005.439 Loan lien.
1005.441 Section 184 Guaranteed Loan limit.
1005.443 Loan amount.
1005.445 Case numbers.
1005.447 Maximum age of Loan documents.
1005.449 Qualified mortgage.
1005.451 Agreed interest rate.
1005.453 Amortization provisions.
Underwriting
1005.455 Direct guarantee underwriting.
1005.457 Appraisal.
1005.459 Loan submission to HUD for Direct Guarantee.
1005.461 HUD issuance of Firm Commitment.
Subpart E--Closing and Endorsement
Closing
1005.501 Direct Guarantee Lender closing requirements.
1005.503 Contents of the endorsement case binder.
1005.505 Payment of Upfront Loan Guarantee Fee.
1005.507 Borrower's payments to include other charges and escrow
payments.
1005.509 Application of payments.
1005.511 Late fee.
1005.513 Borrower's payments when Section 184 Guaranteed Loan is
executed.
1005.515 Charges, fees, or discounts.
1005.517 Certificate of nondiscrimination by the Direct Guarantee
Lender.
[[Page 78345]]
Endorsement and Post-Closing
1005.519 Creation of the contract.
1005.521 Lender pre-endorsement review and requirements.
1005.523 HUD pre-endorsement review.
1005.525 Loan Guarantee Certificate.
1005.527 Post-endorsement review.
1005.529 Indemnification.
Subpart F--Section 184 Guaranteed Loan Fees
1005.601 Scope and method of payment.
1005.603 Upfront Loan Guarantee Fee.
1005.605 Remittance of Upfront Loan Guarantee Fee.
1005.607 Annual Loan Guarantee Fee.
1005.609 Remittance of Annual Loan Guarantee Fee.
1005.611 HUD imposed penalties.
Subpart G--Servicing
Servicing Section 184 Guaranteed Loans Generally
1005.701 Section 184 Guaranteed Loan servicing generally.
1005.703 Servicer eligibility and application process.
1005.705 Servicer approval.
1005.707 Responsibility for servicing.
1005.709 Providing information to Borrower and HUD.
1005.711 Assumption and release of personal liability.
1005.713 Due-on-sale provision.
1005.715 Application of Borrower payments.
1005.717 Administering escrow accounts.
1005.719 Fees and costs after endorsement.
1005.721 Enforcement of late fees.
1005.723 Partial payments.
1005.725 Handling prepayments.
1005.727 Substitute Borrowers.
Servicing Default Section 184 Guaranteed Loans
1005.729 Section 184 Guaranteed Loan collection action.
1005.731 Default notice to Borrower.
1005.733 Loss mitigation application, timelines, and appeals.
1005.735 Occupancy inspection.
1005.737 Vacant property procedures.
Servicing Default Section 184 Guaranteed Loans under the Loss
Mitigation Program
1005.739 Loss mitigation.
1005.741 Notice to Tribe and BIA--Borrower default.
1005.743 Relief for Borrower in military service.
1005.745 Forbearance plans.
1005.747 Assumption.
1005.749 Loan modification.
1005.751 Pre-foreclosure sale.
1005.753 Deed-in-lieu/lease-in-lieu of foreclosure.
1005.755 Incentive payments to Borrower.
Assignment of the Loan to HUD, Foreclosure, and Conveyance
1005.757 Property on Trust Land--Tribal first right of refusal;
foreclosure or assignment.
1005.759 Fee simple land properties--foreclosure or assignment with
HUD approval.
1005.761 First Legal Action deadline and automatic extensions.
1005.763 Assignment of the Section 184 Guaranteed Loan.
1005.765 Inspection and preservation of properties.
1005.767 Property condition.
1005.769 Conveyance of property to HUD at or after foreclosure; time
of Conveyance.
1005.771 Acceptance of property by HUD.
Subpart H--Claims
Claims Application, Submission Categories, and Types
1005.801 Purpose.
1005.803 Claim case binder; HUD authority to review records.
1005.805 Effect of noncompliance.
1005.807 Claim submission categories.
1005.809 Claim types.
Submission of Claims
1005.811 Claims supporting documentation.
1005.813 Upfront and Annual Loan Guarantee Fee reconciliation.
1005.815 Conditions for withdrawal of claim.
Property Title Transfers and Title Waivers
1005.817 Conveyance of Good and Marketable Title.
1005.819 Types of satisfactory title evidence.
1005.821 Coverage of title evidence.
1005.823 Waived title objections for properties on fee simple land.
1005.825 Waived title objections for properties on Trust Land.
Condition of the Property
1005.827 Damage or neglect.
1005.829 Certificate of property condition.
1005.831 Cancellation of hazard insurance.
Payment of Guarantee Benefits
1005.833 Method of payment.
1005.835 Claim payment not conclusive evidence of claim meeting all
HUD requirements.
1005.837 Payment of claim: unpaid principal balance.
1005.839 Payment of claim: interest on unpaid principal balance.
1005.841 Payment of claim: reimbursement of eligible and reasonable
costs.
1005.843 Reductions to the claim submission amount.
1005.845 Rights and liabilities under the Indian Housing Loan
Guarantee Fund.
1005.847 Final payment.
1005.849 Reconveyance and reassignment.
1005.851 Reimbursement of expenses to HUD.
Subpart I--Lender Program Performance, Reporting, Sanctions, and
Appeals
1005.901 Direct Guarantee Lender, Holder, or Servicer performance
reviews.
1005.903 Direct Guarantee Lender, Holder, or Servicer reporting and
certifications.
1005.905 Direct Guarantee Lender, Holder, or Servicer notice of
sanctions.
1005.907 Direct Guarantee Lender, Holder, or Servicer sanctions and
civil money penalties.
1005.909 Direct Guarantee Lender, Holder, or Servicer appeals
process.
Authority: 12 U.S.C. 1715z-13a; 15 U.S.C. 1639c; 42 U.S.C.
3535(d).
Subpart A--General Program Requirements
Sec. 1005.101 Purpose.
This part implements the Section 184 Indian Home Loan Guarantee
Program (``Section 184 Program'') authorized under Section 184 of the
Housing and Community Development Act of 1992, as amended, codified at
12 U.S.C. 1715z-13a. Section 184 authorizes the U.S. Department of
Housing and Urban Development (HUD) to establish a loan guarantee
program for American Indian and Alaskan Native families, Tribes and
Tribally Designated Housing Entities (TDHE). The loans guaranteed under
the Section 184 Program are used to construct, acquire, refinance, or
rehabilitate one- to four-family standard housing located on Trust
Land, land located in an Indian or Alaska Native area, and Section 184
Approved Program Area. These regulations apply to Lenders, Servicers
and Tribes seeking to or currently participating in the Section 184
Program.
Sec. 1005.103 Definitions.
The following definitions apply throughout this part:
Acquisition Cost means the sum of the sales price or construction
cost for a property and the cost of allowable repairs or improvements
for the same property, less any unallowable sales concession(s). For
the purposes of this definition, the term ``sales concession'' means an
inducement to purchase a property paid by the seller to consummate a
sales transaction.
Amortization means the calculated schedule of repayment of a
Section 184 Guaranteed Loan in full, through structured, regular
payments of principal and interest within a certain time frame.
Amortization Schedule means the document generated at the time of
loan approval outlining the Borrower's schedule of payments of
principal and interest for the life of the loan and the unpaid
principal balance with and without financed Upfront Loan Guarantee Fee,
where applicable.
Annual Loan Guarantee Fee means a fee calculated on an annual basis
and paid in monthly installments by the Borrower, which is collected by
the Servicer and remitted to HUD for the purposes of financing the
Indian Housing Loan Guarantee Fund.
BIA means the United States Department of Interior, Bureau of
Indian Affairs.
[[Page 78346]]
Borrower means each and every individual on the mortgage
application. For the purposes of servicing the loan, Borrower refers to
each and every original Borrower who signed the note and their heirs,
executors, administrators, assigns, and approved substitute Borrowers.
Borrower includes Tribes and TDHEs.
Claim means the Servicer's application to HUD for payment of
benefits under the Loan Guarantee Certificate for a Section 184
Guaranteed Loan.
Conflict of Interest means any party to the transaction who has a
direct or indirect personal business or financial relationship
sufficient to appear that it may cause partiality or influence the
transaction, or both.
Date of default means the day after the Borrower's obligation to
make a loan payment or perform an obligation under the terms of the
loan, Loss Mitigation plan, or any other agreement with the Direct
Guarantee Lender was due.
Day means calendar day, except where the term ``business day'' is
used.
Default means when the Borrower has failed to make a loan payment
or perform an obligation under the terms of the Section 184 Guaranteed
Loan, Loss Mitigation plan, lease, or any other agreement with the
Direct Guarantee Lender.
Direct Guarantee Lender means a Lender approved by HUD under Sec.
1005.211 to originate, underwrite, close, service, purchase, hold, or
sell Section 184 Guaranteed Loans.
Eligible Nonprofit Organization means a nonprofit organization
established under Tribal law or organization of the type described in
section 501(c)(3) of the Internal Revenue Code of 1986 as an
organization exempt from taxation under section 501(a) of the Code,
which has:
(1) Two years' experience as a provider of low- or moderate-income
housing;
(2) A voluntary board; and
(3) No part of its net earnings inuring to the benefit of any
member, founder, contributor or individual.
Financial Statements means audited financial statements or other
financial records as required by HUD.
Firm Commitment means a commitment by HUD to reserve funds, for a
specified period of time, to guarantee a Loan under the Section 184
program, when a Loan for a specific Borrower and property meets
standards as set forth in subpart D of this part.
First Legal Action means the first public action required by Tribal
or State law to foreclose, such as filing a complaint or petition,
recording a notice of default, or publication of a notice of sale.
Good and Marketable Title means title that contains exceptions or
restrictions, if any, which are permissible under subpart D of this
part; and any objections to title that have been waived by HUD or
otherwise cleared; and any discrepancies have been resolved to ensure
the Section 184 Guaranteed Loan is in first lien position. In the case
of Section 184 Guaranteed Loans on Trust Land, Good and Marketable
Title includes the ownership rights of the improvements as reported in
the Title Status Report issued by the BIA.
Holder means an entity that holds title to a Section 184 Guaranteed
Loan and has the right to enforce the mortgage agreement.
Identity of Interest means a sales transaction between family
members, business partners, or other business affiliates.
Indian means a person who is recognized as being an Indian or
Alaska Native Federally by a recognized Indian Tribe, a regional or
village corporation as defined in the Alaska Native Claims Settlement
Act, or a State recognized Tribe eligible to receive assistance under
Title I of the Native American Housing Assistance and Self-
Determination Act of 1996 (NAHASDA).
Indian Family means one or more persons maintaining a household
where at least one Borrower is an Indian.
Indian Housing Loan Guarantee Fund or Fund means a fund established
at the U.S. Department of Treasury for the purpose of providing loan
guarantees under the Section 184 Program.
Lease or leasehold interest means a written contract between a
Borrower and a Tribe, entity, or individual, whereby the Borrower, as
lessee, is granted a right of possession of Trust Land for a specific
purpose and duration, according to applicable Tribal, Federal, or State
law.
Lender means a financial institution engaging in mortgage lending
that is eligible to participate in the Section 184 Program under Sec.
1005.203 or Sec. 1005.205, but has not yet had a program participation
level approved under Sec. 1005.207.
Loan means a loan application or mortgage loan that has not
received a Loan Guarantee Certificate.
Loan Guarantee Certificate means evidence of endorsement by HUD of
a Loan for guarantee issued under Sec. 1005.525.
Loss Mitigation means an alternative to foreclosure offered by the
Holder of a Section 184 Guaranteed Loan that is made available through
the Servicer to the Borrower.
Non-Direct Guarantee Lender means a Lender approved by HUD under
Sec. 1005.207 who has selected a level of program participation
limited to originating Section 184 Guaranteed Loans.
Month or monthly means thirty days in a month, regardless of the
actual number of days.
Origination or originate means the process by which the Lender
accepts a new loan application along with all required supporting
documentation. Origination does not include underwriting the loan.
Owner of Record means, for fee simple properties, the owner of
property as shown on the records of the recorder in the county where
the property is located. For properties held in trust by the United
States, the current lessee or owner of property, as shown on the Title
Status Report provided by the BIA.
Partial Payment means a Borrower payment of any amount less than
the full amount due under the terms of the Section 184 Guaranteed Loan
at the time the payment is tendered.
Property means a one to four-family dwelling that meets the
requirements for standard housing under Sec. 1005.419 and located on
Trust Land, land located in an Indian or Alaska Native area, or Section
184 Approved Program Area.
Section 184 Approved Program Area means the Indian Housing Block
Grant (IHBG) Formula Area as defined in 24 CFR 1000.302 or any other
area approved by HUD, in which HUD may guarantee Loans.
Section 184 Guaranteed Loan is a Loan that has received a Loan
Guarantee Certificate.
Section 184 Program Guidance means administrative guidance
documents that may be issued by HUD, including but not limited to
Federal Register Notices, Dear Lender Letters, handbooks, guidebooks,
manuals, and user guides.
Security means any collateral authorized under existing Tribal,
Federal, or State law.
Servicer means a Direct Guarantee Lender that chooses to services
Section 184 Guaranteed Loans or a Non-Direct Guarantee Lender or a
financial institution approved by HUD under Sec. 1005.705 to service
Section 184 Guaranteed Loans.
Sponsor means an approved Direct Guarantee Lender that enters into
a relationship with a Non-Direct Guarantee Lender or another Direct
Guarantee Lender (Sponsored Entity), whereby the Sponsor provides
underwriting, closing, purchasing, and holding of Section 184
Guaranteed Loans and may provide servicing.
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Sponsored Entity means a Non-Direct Guarantee or Direct Guarantee
Lender operating under an agreement with a Sponsor to originate Section
184 Guaranteed Loans in accordance with Sec. 1005.213.
Tax-exempt bond financing means financing which is funded in whole
or in part by the proceeds of qualified mortgage bonds described in
section 143 of the Internal Revenue Code of 1986 on which the interest
is exempt from Federal income tax. The term does not include financing
by qualified veterans' mortgage bonds as defined in section 143(b) of
the Code.
Title Status Report is defined in 25 CFR 150.2, as may be amended.
Tribe means any Indian 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 (43 U.S.C. 1601, et seq.),
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.
Tribally Designated Housing Entity (TDHE) means any entity as
defined in the Indian Housing Block Grant Program under the Native
American Housing Assistance and Self Determination Act at 25 U.S.C.
4103(22).
Trust Land means land title which is held by the United States for
the benefit of an Indian or Tribe or title which is held by a Tribe
subject to a restriction against alienation imposed by the United
States or Tribe. This definition shall include but is not limited to
allotted, restricted fee, or assigned trust lands.
Upfront Loan Guarantee Fee means a fee, paid by the Borrower at
closing, collected by the Direct Guarantee Lender and remitted to HUD
for the purposes of financing the Indian Housing Loan Guarantee Fund.
Subpart B--Lender Eligibility & Requirements
Sec. 1005.201 Lender approval and participation.
(a) Approval types. The Section 184 Program has two types of Lender
approval:
(1) Lenders deemed approved by statute, as described in Sec.
1005.203; or
(2) Lenders required to obtain secretarial approval under Sec.
1005.205.
(b) Lender participation. In accordance with Sec. 1005.207,
approved Lenders must select a level of program participation and
submit a completed application package, as prescribed by Section 184
Program Guidance, to participate in the Section 184 program.
Sec. 1005.203 Lenders deemed approved by statute.
(a) The following Lenders are deemed approved by statute:
(1) Any mortgagee approved by HUD for participation in the single-
family mortgage insurance program under Title II of the National
Housing Act;
(2) Any Lender whose housing loans under the U.S. Department of
Veterans Affairs, 38 U.S.C. chapter 37, are automatically guaranteed
pursuant to 38 U.S.C. 3702(d);
(3) Any Lender approved by the U.S. Department of Agriculture to
make Guaranteed Loans for single family housing under the Housing Act
of 1949; and
(4) Any other Lender that is supervised, approved, regulated, or
insured by any other Federal agency of the United States, including but
not limited to Community Development Financial Institutions.
(b) [Reserved]
Sec. 1005.205 Lenders required to obtain Secretarial approval.
(a) Lender application process. Lenders not meeting the
requirements of Sec. 1005.203 must apply to HUD for approval to
participate in the Section 184 Program by submitting to HUD a completed
application package, as prescribed by Section 184 Program Guidance. The
application must establish that the Lender meets the following
qualifications:
(1) Business form. The Lender shall be a corporation or other
chartered institution, a permanent organization having succession, or a
partnership, organized under Tribal or State law.
(i) Partnership requirements. A partnership must meet the following
requirements:
(A) Each general partner must be a corporation or other chartered
institution consisting of two or more partners.
(B) One general partner must be designated as the managing general
partner. The managing general partner shall also comply with the
requirements specified in Sec. 1005.205(a)(1)(i)(C) and (D). The
managing general partner must have as its principal activity the
management of one or more partnerships, all of which are mortgage
lending institutions or property improvement or manufactured home
lending institutions, and must have exclusive authority to deal
directly with HUD on behalf of each partnership. Newly admitted
partners must agree to the management of the partnership by the
designated managing general partner. If the managing general partner
withdraws or is removed from the partnership for any reason, a new
managing general partner shall be substituted, and HUD must be notified
in writing within 15 days of the substitution.
(C) The partnership agreement shall specify that the partnership
shall exist for a minimum term of ten years, as required by HUD. All
Section 184 Guaranteed Loans held by the partnership shall be
transferred to a Lender approved under this part prior to the
termination of the partnership. The partnership shall be specifically
authorized to continue its existence if a partner withdraws.
(D) HUD must be notified in writing within 15 days of any
amendments to the partnership agreement that would affect the
partnership's actions under the Section 184 Program.
(ii) Use of business name. The Lender must use its HUD-registered
business name in all advertisements and promotional materials related
to the Guaranteed Loan. HUD-registered business names include any alias
or ``doing business as'' (DBA) on file with HUD. The Lender must keep
copies of all print and electronic advertisements and promotional
materials for a period of 2 years from the date that the materials are
circulated or used to advertise.
(2) Identification and certification of employees. The Lender shall
identify personnel and certify that they are trained and competent to
perform their assigned responsibilities in mortgage lending, including
origination, servicing, collection, and Conveyance activities, and
shall maintain adequate staff and facilities to originate or service
mortgages, or both, in accordance with applicable Tribal, Federal, or
State requirements, to the extent it engages in such activities.
(3) Identification and certification of officers. The Lender shall
identify officers and certify that all employees who will sign
applications for Guaranteed Loans on behalf of the Lender shall be
corporate officers or shall otherwise be authorized to bind the Lender
in the Origination transaction. The Lender shall certify that only
authorized person(s) report on guarantees, purchases, and sales of
Guaranteed Loans to HUD for the purpose of obtaining or transferring
guarantee coverage.
(4) Financial statements. The Lender shall:
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(i) Furnish to HUD a copy of its most current annual audited
financial statement.
(ii) Furnish such other information as HUD may request; and
(iii) Submit to examination of the portion of its records that
relates to its activities under the Section 184 Program.
(5) Quality control plan. The Lender shall submit a written quality
control plan in accordance with Sec. 1005.217.
(6) Identification of branch offices. A Lender may maintain branch
offices. A financial institution's branch office must be registered
with HUD to originate or submit applications for Guaranteed Loans. The
financial institution shall remain responsible to HUD for the actions
of its branch offices.
(7) Certification of conflict of interest policy. The Lender must
certify that the lender shall not pay anything of value, directly or
indirectly, in connection with any Guaranteed Loan to any person or
entity if such person or entity has received any other consideration
from the seller, builder, or any other person for services related to
such transactions or related to the purchase or sale of the property,
except that consideration, approved by HUD, may be paid for services
actually performed. The Lender shall not pay a referral fee to any
person or organization.
(8) Licensing certification. A Lender shall certify that it has not
been refused a license and has not been sanctioned by any Tribal,
Federal, or State, or authority in which it will originate Section 184
Guaranteed Loans.
(9) Minimum net worth. Irrespective of size, a Lender shall have a
net worth of not less an amount as established by Section 184 Program
Guidance.
(10) Identification of operating area. The Lender must submit a
list of states in which they wish to participate in the Section 184
Program and evidence of Lender's license to operate in those states, as
may be prescribed by Section 184 Program Guidance.
(11) Other. Other qualifications by notice for comment.
(b) HUD approval. HUD shall review applications under Sec.
1005.203(a) and any other publicly available information related to the
Lender, its officers, and employees. If HUD determines the Lender meets
the requirements for participation in this subpart, HUD shall provide
written notification of the approval to be a Section 184 Lender.
(c) Limitations on approval. A Lender may only operate in the
Section 184 Approved Program Area where they are licensed.
(d) Denial of participation. A Lender may be denied approval to
become a Section 184 Lender if HUD determines the Lender does not meet
the qualification requirements of this subpart. HUD will provide
written notification of denial and that decision may be appealed in
accordance with the procedures set forth in Sec. 1005.909.
Sec. 1005.207 Lender participation options.
(a) Levels of participation. Lenders must choose one of two levels
of program participation, a Non-Direct Guarantee Lender or a Direct
Guarantee Lender and submit an application to participate on a form
prescribed by Section 184 Program Guidance. A participation level must
be selected by the Lender and approved by HUD before initiating any
Section 184 Program activities.
(b) Non-Direct Guarantee Lender. (1) A Non-Direct Guarantee Lender
originates Loans.
(2) A Non-Direct Guarantee Lender must be a Sponsored Entity under
Sec. 1005.213.
(3) A Non-Direct Guarantee Lender must submit documentation
supporting their eligibility as a Lender under Sec. 1005.203 or
approved by HUD under Sec. 1005.205 and other documentation as
prescribed by Section 184 Program Guidance to HUD through their
Sponsor.
(c) Direct Guarantee Lender. (1) A Direct Guarantee Lender may
originate, underwrite, close, service, purchase, hold, and sell Section
184 Guaranteed Loans.
(2) A Direct Guarantee Lender may sponsor Non-Direct Guarantee
Lenders or other Direct Guarantee Lenders in accordance with Sec.
1005.213.
(3) To become a Direct Guarantee Lender, Lenders must submit
additional documentation as provided in Sec. 1005.209 and obtain HUD
approval under Sec. 1005.211.
Sec. 1005.209 Direct Guarantee Lender application process.
(a) Lenders must apply to HUD for approval to participate in the
Section 184 Program as a Direct Guarantee Lender. Lenders must submit a
completed application package in accordance with Section 184 Program
Guidance.
(b) To be approved as a Direct Guarantee Lender, a Lender must
establish in its application that it meets the following
qualifications:
(1) Eligibility under Sec. 1005.203 or HUD approval under Sec.
1005.205, as evidenced by approval documents and most recent
recertification documents.
(2) Has a principal officer with a minimum of five years'
experience in the origination of Loans guaranteed or insured by an
agency of the Federal Government. HUD may approve a Lender with less
than five years of experience, if a principal officer has had a minimum
of five years of managerial experience in the origination of loans
guaranteed or insured by an agency of the Federal Government.
(3) Has on its permanent staff an underwriter(s) that meets the
following criteria:
(i) Two years' experience underwriting loans guaranteed or insured
by an agency of the Federal Government;
(ii) Is an exclusive employee of the Lender;
(iii) Authorized by the Lender to obligate the Lender on matters
involving the origination of Loans;
(iv) Is registered with HUD as an underwriter and continues to
maintain such registration; and
(v) Other qualifications by notice for comment.
(c) The Lender must submit a list of states or geographic regions
in which it is licensed to operate, evidenced by submitting the active
approvals for each State or region, and declare its interest in
participating in the Section 184 Program.
(d) The Lender must submit the quality control plan as required by
its approving agency, modified for the Section 184 Program.
(e) If a Lender wants to service Section 184 Guaranteed Loans as
Direct Guarantee Lender, they must meet qualifications and submit an
application in accordance with Sec. 1005.703.
Sec. 1005.211 Direct Guarantee Lender approval.
HUD shall review all documents submitted by a Lender under Sec.
1005.209 and make a determination of conditional approval or denial.
(a) Conditional approval. Conditional approval is signified by
written notification from HUD that the Lender is a conditionally
approved Direct Guarantee Lender under the Section 184 Program subject
to the following conditions:
(1) The Lender signs an agreement to comply with requirements of
this part, and any applicable Tribal, Federal, or State law.
(2) If applicable, the Lender submits a list of entities it
currently sponsors under another Federal loan program and intends to
sponsor in the Section 184 Program. This list shall include the
following for each Sponsored Entity:
(i) Contact information, including mailing address, phone number,
and email address for corporate officers.
[[Page 78349]]
(ii) The Federal tax identification number (TIN) for the Sponsored
Entity, and
(iii) Names and Nationwide Multistate Licensing System and Registry
numbers for all loan originators and processors.
(3) The Lender certifies it monitors and provides oversight of
Sponsored Entities to ensure compliance with this part, and any
applicable Tribal, Federal, or State law.
(4) The Lender must, for each underwriter, submit a number,
prescribed by Section 184 Program Guidance, of test endorsement case
binders, which meet the requirements of subparts D and E of this part.
Unsatisfactory performance by an underwriter during HUD's test case
review may constitute grounds for denial of approval to participate as
a Direct Guarantee Lender. If participation is denied, such denial is
effective immediately and may be appealed in accordance with the
procedures set forth in Sec. 1005.909.
(5) The Lender will operate only in accordance with the Lender's
licensing in Section 184 Approved Program Areas.
(b) Final approval. Final approval is signified by written
notification from HUD that the Lender is an approved Direct Guarantee
Lender under the Section 184 Program without further submission of test
case endorsement case binders to HUD. HUD retains the right to request
additional test cases as determined necessary.
(c) Limitations on approval. (1) A Lender may only operate as a
Direct Guarantee Lender in accordance with the Lender's Tribal or State
licensing and within Section 184 Approved Program Areas.
(2) The Lender must employ and retain an underwriter with the
qualifications as provided in Sec. 1005.209(b)(3). Failure to comply
with this provision may subject the Lender to sanctions under Sec.
1005.907.
(d) Denial of participation. A Lender may be denied approval to
become a Direct Guarantee Lender if HUD determines the Lender does not
meet the qualification requirements of this subpart. HUD will provide
written notification of denial and that decision may be appealed in
accordance with the procedures set forth in Sec. 1005.909.
Sec. 1005.213 Non-Direct Guarantee Lender application, approval, and
Direct Guarantee Lender sponsorship.
(a) Sponsorship. A Sponsorship is a contractual relationship
between a Sponsor and a Sponsored Entity.
(b) General responsibility requirements of a Sponsor. (1) The
Sponsor must determine the eligibility of a Lender and submit to HUD,
as prescribed in Section 184 Program Guidance, a recommendation for
approval under Sec. 1005.207(b) or evidence of HUD approval under
Sec. 1005. 205(b) or Sec. 1005.211(b).
(2) Upon HUD approval of eligibility under Sec. 1005.207(b), or
HUD acknowledgement of the evidence of HUD approval under Sec.
1005.205(b) or Sec. 1005.211(b), the Sponsor may enter into a
Sponsorship with the Sponsored Entity.
(3) The Sponsor must notify HUD of changes in a Sponsorship within
10 days.
(4) The Sponsor must provide HUD-approved training to the Sponsored
Entity on the requirements of the Section 184 Program before the
Sponsored Entity may originate Section 184 Guaranteed Loans for the
Sponsor.
(5) Each Sponsor shall be responsible to HUD for the actions of its
Sponsored Entity in originating Loans. If Tribal or State law requires
specific knowledge by the Sponsor or the Sponsored Entity, HUD shall
presume the Sponsor had such knowledge and shall remain liable.
(6) The Sponsor is responsible for conducting quality control
reviews of the Sponsored Entity's origination case binders and Loan
performance to ensure compliance with this part and any other Tribal,
Federal, State, or law requirements.
(7) The Sponsor is responsible for maintaining all records for
loans originated by a Sponsored Entity in accordance with this part.
(8) A Sponsor must notify HUD of any changes in a sponsorship
within 15 days.
(c) Responsibilities of the Sponsored Entity. A Sponsor must ensure
that a Sponsored Entity complies with this part and any other Tribal,
Federal, State, or law requirements.
Sec. 1005.215 Annual reporting requirements.
Direct Guarantee Lenders must submit an annual report on Loan
performance, including that of all Sponsored Entities, where
applicable, along with any other required reporting under Sec.
1005.903 and other such reports as prescribed by Section 184 Program
Guidance.
Sec. 1005.217 Quality control plan.
(a) A quality control plan sets forth a Lender's procedures for
ensuring the quality of the Lender's Section 184 Guaranteed Loan
origination, underwriting, closing, and/or servicing. The purpose of
the quality control plan is to ensure Lender's compliance with Section
184 Program requirements and protect HUD and Lender from unacceptable
or unreasonable risks. A Lender must adopt and implement a quality
control plan.
(b) A quality control plan must:
(1) Be maintained and updated, as needed, to comply with all
applicable Section 184 Program requirements.
(2) Cover all policies and procedures, whether performed by the
Lender or an agent, to ensure full compliance with all Section 184
Program requirements.
(3) Provide the Lender with information sufficient to adequately
monitor and oversee the Lender's compliance and measure performance, as
it relates to the Lender's Section 184 Guaranteed Loan activity.
(4) Require the Lender to retain all quality control plan related
documentation, including selection criteria, review documentation,
findings, and actions to mitigate findings, for a period of three years
from initial quality control review, or from the last action taken to
mitigate findings, whichever is later.
(5) Allow the Lender to use employees or agents to perform the
quality control functions, so long as they do not directly participate
in any loan administration processes as outlined in Section 184 Program
Guidance.
(6) Ensure the Lender assumes full responsibility for any agent's
conduct of quality control reviews.
(7) Require the Lender to train all staff, agents working with the
Section 184 Program on Loan administration and quality control
processes and provide staff access to all current Section 184 legal
authorities and policy guidance. The Lender must retain copies of
training documentation for all staff working on the Section 184 Program
in accordance with Sec. 1005.219(d)(3). Failure to comply with the
training and documentation requirements may subject the Lender to
sanctions in accordance with Sec. 1005.907.
(8) Ensure that the Lender's employees, agents, are eligible to
participate in the Section 184 Program. Any designated employees,
agents, deemed ineligible shall be restricted from participating in the
program in the Section 184 Program.
(9) Ensure the Borrower's information maintained related to the
Section 184 Guaranteed Loan are used only for the purpose for which
they were received and follow all applicable Federal, State, and Tribal
requirements.
(10) Require the Lender to refer any suspected fraud or material
misrepresentation by any party whatsoever directly to HUD's Office of
[[Page 78350]]
Inspector General (OIG) and the Office of Native American Programs.
(11) Require the Lender to report all material deficiencies and
submit a corrective action plan to HUD within a timeframe as prescribed
by Section 184 Program Guidance.
(12) Require the Lender to conduct appropriate Loan level quality
control procedures, in accordance with requirements as prescribed by
Section 184 Program Guidance.
(13) Require that the Lender maintain complete and accurate records
of the Section 184 Guaranteed Loans which are selected for the quality
control sample for a timeframe as prescribed by Section 184 Program
Guidance.
(14) Require the Lender to review a random statistical sample of
rejected loan applications within 90 days from the end of the month in
which the decision was made. The reviews must be conducted no less
frequently than monthly and with the goal to ensure that the reasons
given for the rejection were valid and each rejection received
concurrence of an appropriate staff person with sufficient approval
authority. The Lender must submit a report of this review in form and
timeframe as prescribed in Section 184 Program Guidance.
(c) Lenders to applying be a Direct Guarantee Lender under Sec.
1005.209, must submit a quality control plan in accordance with
paragraph (b) of this section and include the following additional
requirements:
(1) Require the Lender to collect and forward all Loan Guarantee
Fees in accordance with the Section 184 Program requirements, with
sufficient documentation evidencing the timely collection and payment
of the fees to HUD.
(2) Require the Lender to verify that the endorsement case binder
is submitted to HUD for guarantee within required time frames.
(3) Require the Lender to review a random statistical sample of its
endorsement case binders for potential fraud, material
misrepresentations, or other findings on a quarterly basis. The Lender
must investigate and determine if fraud, material misrepresentation or
other findings occurred.
(4) Require the Lender to perform quality control review of its
Sponsored Entities in the same manner and under the same conditions as
required for the Lender's own operation.
(5) Where applicable, require the Sponsor to apply paragraphs
(b)(7) through (8) of this section to its Sponsored Entities.
(d) All Sponsored Entities shall comply with paragraph (b) of this
section and provide a quality control plan directly to their Sponsor in
accordance with their sponsorship agreement.
Sec. 1005.219 Other requirements.
(a) Federal law. All Direct Guarantee Lenders, Non-Director
Guarantee Lenders, and Servicers must comply with all applicable
Federal laws which impact mortgage-related activities.
(b) Dual employment. All Non-Direct Guarantee Lenders and Direct
Guarantee Lenders must require its employees to be exclusive employees,
unless the Lender has determined that the employee's other employment,
including any self-employment, does not create a Conflict of Interest.
(c) Reporting requirements. All Direct Guarantee Lenders must
submit reports in accordance with Sec. 1005.903. Unless requested
directly by HUD, Non-Direct Guarantee Lenders must submit required
reports to their Sponsor, under this part or any requirements as
prescribed by Section 184 Program Guidance, or any special request for
information within the time frames prescribed in the request.
(d) Records retention. Records retention requirements are as
follows:
(1) Direct Guarantee Lenders must maintain an endorsement case
binder for a period of three years beyond the date of satisfaction or
maturity date of the Loan, whichever is sooner. However, where there is
a payment of claim, the endorsement case binder must be retained for a
period of at least five years after the final claim has been paid.
Section 184 Program Guidance shall prescribe additional records
retention time depending on the circumstances of the claim.
(2) All Direct Guarantee Lender and Non-Direct Guarantee Lenders
must retain personnel files of employees for one year beyond the
employee's separation.
(3) All Direct Guarantee Lenders and Non-Direct Guarantee Lenders
must follow the applicable records retention requirements imposed by
applicable Tribal, Federal, and State laws and regulations.
(4) Direct Guarantee Lenders and Non-Direct Guarantee Lenders must
maintain the quality control plan records for a period prescribed in
Sec. 1005.217(b)(4).
(e) Minimum level of lending on Trust Land. (1) Direct Guarantee
Lenders must actively market, originate, underwrite, and close Loans on
Trust Land. A Sponsor must ensure its Sponsored Entities actively
market and originate loans on Trust Land. HUD may impose a minimum
level of lending on Tribal Trust Land, which may be adjusted
periodically, through publication in the Federal Register.
(2) Failure to meet the minimum level of lending on Trust Land may
result in sanctions in accordance with Sec. Sec. 1005.905 and
1005.907.
(3) HUD may grant exceptions for Direct Guarantee Lenders and Non-
Direct Guarantee Lenders licensed and doing business in a State or
States with limited Trust Lands. The process for Lenders to request the
exception will be prescribed by Section 184 Program Guidance.
Sec. 1005.221 Business change reporting.
(a) Within a timeframe as prescribed by Section 184 Program
Guidance, Direct Guarantee Lenders shall provide written notification
to HUD, in such a form as prescribed by Section 184 Program Guidan
[…truncated; see source link]Indexed from Federal Register on December 21, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.