Rule2024-05515
Strengthening the Section 184 Indian Housing Loan Guarantee Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 20, 2024
Effective
June 18, 2024
Issuing agencies
Housing and Urban Development Department
Abstract
This final rule amends the regulations governing the Section 184 Indian Housing Loan Guarantee Program ("Section 184 Program") to strengthen the program by clarifying rules for stakeholders. As the program has experienced an increase in demand, it is necessary that HUD update the Section 184 Program implementing regulations to minimize potential risk and increase program participation by financial institutions. This final rule adds participation and eligibility requirements for Lender Applicants, Direct Guarantee Lenders, Non- Direct Guarantee Lenders, Holders and Servicers and other financial institutions. This final rule clarifies the rules governing Tribal participation in the program, establishes underwriting requirements, specifies rules on the closing and endorsement process, establishes stronger and clearer servicing requirements, establishes program rules governing claims submitted by Servicers and paid by HUD, and adds standards governing monitoring, reporting, sanctions, and appeals. This final rule adds new definitions and makes statutory conforming amendments, including the categorical exclusion of the Section 184 Program in HUD's environmental review regulations. Ultimately, the changes made by this final rule promote program sustainability, increase Borrower protections, and provide clarity for new and existing Lenders who participate in the program. This final rule follows the publication of a proposed rule on December 21, 2022, and takes into consideration the comments received in response to that proposed rule and during the Tribal consultations.
Full Text
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<title>Federal Register, Volume 89 Issue 55 (Wednesday, March 20, 2024)</title>
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[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Rules and Regulations]
[Pages 20032-20092]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05515]
[[Page 20031]]
Vol. 89
Wednesday,
No. 55
March 20, 2024
Part III
Department of Housing and Urban Development
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24 CFR Parts 58 and 1005
Strengthening the Section 184 Indian Housing Loan Guarantee Program;
Final Rule
Federal Register / Vol. 89 , No. 55 / Wednesday, March 20, 2024 /
Rules and Regulations
[[Page 20032]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 58 and 1005
[Docket No. FR-5593-F-02]
RIN 2577-AD01
Strengthening the Section 184 Indian Housing Loan Guarantee
Program
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, U.S. Department of Housing and Urban Development (HUD).
ACTION: Final rule.
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SUMMARY: This final rule amends the regulations governing the Section
184 Indian Housing Loan Guarantee Program (``Section 184 Program'') to
strengthen the program by clarifying rules for stakeholders. As the
program has experienced an increase in demand, it is necessary that HUD
update the Section 184 Program implementing regulations to minimize
potential risk and increase program participation by financial
institutions. This final rule adds participation and eligibility
requirements for Lender Applicants, Direct Guarantee Lenders, Non-
Direct Guarantee Lenders, Holders and Servicers and other financial
institutions. This final rule clarifies the rules governing Tribal
participation in the program, establishes underwriting requirements,
specifies rules on the closing and endorsement process, establishes
stronger and clearer servicing requirements, establishes program rules
governing claims submitted by Servicers and paid by HUD, and adds
standards governing monitoring, reporting, sanctions, and appeals. This
final rule adds new definitions and makes statutory conforming
amendments, including the categorical exclusion of the Section 184
Program in HUD's environmental review regulations. Ultimately, the
changes made by this final rule promote program sustainability,
increase Borrower protections, and provide clarity for new and existing
Lenders who participate in the program. This final rule follows the
publication of a proposed rule on December 21, 2022, and takes into
consideration the comments received in response to that proposed rule
and during the Tribal consultations.
DATES: Effective June 18, 2024.
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 or 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.
Native American households face a number of housing challenges,
including overcrowding and a lack of affordable housing in Tribal
areas.\1\ These challenges stem in part from barriers to mortgage
lending in these communities. There are several unique challenges to
mortgage lending in Tribal areas, including their often-remote
locations, the specialized situation of observing Tribal courts and
laws, and the unique Trust Land status of much of the land in Tribal
areas. Trust Land includes, but not is not limited to land where the
Federal Government holds legal title for the benefit of a Tribe or
individual Tribal member. Before a lien can be placed on a property, it
must receive Federal approval through the U.S. Department of the
Interior's Bureau of Indian Affairs. Consequently, financial
institutions may struggle with utilizing the land interest as security
in mortgage lending transactions. By mitigating risk to private lenders
through the loan guarantee, the Section 184 Program addresses barriers
to mortgage lending in Tribal areas, helping to increase housing
supply, relieve overcrowding, and expand homeownership in these
underserved communities.
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\1\ Mortgage Lending on Tribal Land: A Report From the
Assessment of American Indian, Alaska Native, and Native Hawaiian
Housing Needs. HUD, Office of Policy Development and Research,
January 2017, available at: <a href="https://www.huduser.gov/portal/publications/NAHSC-Lending.html">https://www.huduser.gov/portal/publications/NAHSC-Lending.html</a>.
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A lack of access to mortgage credit also poses challenges to Native
American households outside of Tribal areas, where they have
historically experienced lower homeownership and higher home loan
denial rates than other groups.\2\ Like in other historically
underserved markets, prospective borrowers are likely to have limited
experience dealing with mainstream financial institutions and to have
limited incomes, assets, and credit histories. The Section 184 Program
is also available to members of federally recognized Tribes in many
areas beyond Tribal areas, where it similarly promotes homeownership
opportunities among this underserved community by mitigating risk to
lenders.
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\2\ Id.
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Since its inception in 1994, the number of loans guaranteed under
the Section 184 Program has significantly increased from an average of
105 loans per year the first five Fiscal Years (FYs 2994-1995) the
program operated to an average of 2,531 loans per year for the past
five fiscal years (FYs 2018-2023). In total, the Section 184 Program
has guaranteed over 56,000 loans totaling over $10 billion. However,
the program regulations have not been substantially revised since
publication in 1996.
In 2015, the Office of Audit of the HUD Office of Inspector General
(OIG) audited the Section 184 Program, Report Number 2015-LA-0002, and
recommended that 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.
On December 21, 2022 (87 FR 78324), HUD published a proposed rule
to strengthen the Section 184 Program by
[[Page 20033]]
clarifying rules for program stakeholders. Specifically, the rule
proposed revisions to minimize potential risk, increase program
participation by financial institutions, and modernize and enhance the
Section 184 Program by adding participation and eligibility
requirements for Lenders and other financial institutions. The proposed
rule also included revisions to the rules governing Tribal
participation in the program, established underwriting requirements,
specified rules on the closing and endorsement process, established
stronger and clearer servicing requirements, established program rules
governing claims submitted by Servicers and paid by HUD, and added
standards governing monitoring, reporting, sanctions, and appeals. The
proposed rule not only addressed the corrective actions proposed by OIG
and agreed upon by HUD but set a regulatory foundation for the Section
184 Program to support the continued growth of the program, and more
importantly, to ensure that it can positively impact the lives of
Native Americans by providing an opportunity for homeownership.
Additional details about the Section 184 Program may be found in the
background of the December 21, 2022, proposed rule.
II. Changes Made at the Final Rule Stage
In consideration of the public comments, the Tribal consultations,
and HUD's experience implementing the Section 184 Program, this section
of the preamble lists some of the changes HUD made to the December 21,
2022, proposed rule. In general, the final rule revised the regulation
to be more inclusive of Tribal land types, including allotted and other
Tribal lands.
1. This final rule incorporates a new severability provision at
Sec. 1005.102. As described in Sec. 1005.102, in the event that any
portion of this final rule is declared invalid or stayed, it is HUD's
intent that the remaining portions of the final rule be severable. If
any provision of this regulation is held to be invalid or
unenforceable, facially or as applied, the provision shall be severable
from the remainder of the regulation, or such application shall be
considered severable from any valid or enforceable application of such
provision.
2. In Sec. 1005.205(a)(9), HUD revised the minimum net worth
Lender Applicants must have to obtain Secretarial approval to
participate in the Section 184 Program. Specifically, HUD established a
net worth of at least one million dollars, or amount as provided in
Section 184 Program Guidance, for Lender Applicants to participate in
the Section 184 Program. HUD made this revision to provide lenders a
clear baseline for meeting this condition of approval and to ensure
that Lender Applicants participating in the Section 184 Program are
solvent.
3. In Sec. 1005.217(a), HUD expanded the types of lenders subject
to the Quality Control (QC) requirements to include Direct Guarantee
Lenders and Non-Direct Guarantee Lenders because ensuring these lenders
comply with the QC requirements is essential to mitigating risk to the
Section 184 Program.
4. In Sec. 1005.217(b)(8), HUD revised the requirements for the
Lender Applicant's quality control plan. This final rule establishes
that a quality control plan must require the Lender Applicant, Direct
Guarantee or Non-Direct Guarantee Lender to report all material
deficiencies and submit a corrective action plan to HUD ``within 30
days.'' Additionally, HUD added Sec. 1005.217(b)(8)(13) to require the
Lender Applicant to comply with any other administrative requirement as
may be prescribed by Section 184 Program Guidance. These revisions help
to ensure that Section 184 Guaranteed Loans comply with the Section 184
Program requirements.
5. In Sec. 1005.205(a)(4)(i), HUD removed the requirement that
financial statements be audited as cost prohibitive and inconsistent
with generally accepted industry standard financial documents. HUD will
outline requirements for the financial statement in program guidance.
While financial statements are still required, removing the ``audited''
requirement should assist lenders in submitting mandatory financial
information.
6. In Sec. 1005.301(a), HUD is clarifying in paragraph (a)(3) that
Tribes are required to assist, where practical, in facilitating loss
mitigation efforts when notified of the Borrower's default in
accordance with Sec. 1005.501(j) or when the Tribe receives notice
pursuant to Sec. 1005.759. Examples of a Tribe facilitating in loss
mitigation efforts, where practical, could include the Tribe providing
financial and/or non-financial assistance to Borrower. Non-financial
assistance could be default counseling, budget counseling, helping
Borrower identify potential purchasers, or encouraging the Borrower to
execute a Lease-in-Lieu of foreclosure. HUD also added a new
requirement in paragraph (a)(4) that Tribes report any unsecured vacant
units to HUD. HUD clarified Sec. 1005.737 to provide that the Servicer
may be notified by HUD that the Tribe or TDHE has determined that a
unit is vacant or abandoned, triggering the Servicer's responsibility
to notify all Borrowers of the determination that the property is
vacant or abandoned.
7. In Sec. 1005.409(b), HUD established a 7-year waiting period
for Borrowers who have previously defaulted on a Section 184 Guaranteed
Loan which resulted in a Claim payment by HUD. This revision helps to
minimize potential risk to the Section 184 Program.
8. In Sec. 1005.419(a)(6)(v), HUD removed ``for properties on
Trust Land'', which restricts minimum square footage waivers to
properties on Trust Land. This revision expands the waiver to all types
of properties, to account for various situations, including when a
Tribe purchases fee simple property.
9. In Sec. 1005.419(c), HUD added new property standard
requirements for properties with multiple dwelling units to be
consistent with the industry standard on how these units are financed.
10. In Sec. 1005.427(c) ``General Requirements,'' HUD moved
paragraphs (2) and (5) from paragraph (f) ``Cash-Out Refinance,''
because these requirements apply to all types of requirements. Further,
in Sec. 1005.427(d)(2) HUD added paragraph (iii) to further clarify
that construction loans less than a year are considered ``rate and
term'' construction loans.
11. In Sec. 1005.437(g) HUD is clarifying that it is not
guaranteeing each individual advance made by the Direct Guarantee
Lender during construction and that the entire loan is being guaranteed
by HUD once a Loan Guarantee Certificate is issued. In addition, at
Sec. 1005.437(h), HUD added a requirement that changes to the loan
agreement must be approved and documented by the Direct Guarantee
Lender before the construction advance, notwithstanding paragraph
(g)(1)(ii) of this section.
12. In Sec. 1005.439, HUD clarified that junior liens do not
require the prior approval of HUD, and that the Direct Guarantee
Lenders will evaluate a junior lien only when the lien is part of the
Section 184 loan package.
13. In Sec. 1005.447, HUD revised the maximum age of loan
documents from 60 days to 120 days after closing to provide more
flexibility to both the Direct Guarantee Lenders and the Borrowers. To
further flexibility, HUD also removed the time limitation regarding the
maximum age of documents whose validity for underwriting purposes is
not affected by the passage of time.
14. In Sec. 1005.457(b), HUD added a provision that allows HUD to
establish guidance regarding the use of alternatives to appraisers
identified on
[[Page 20034]]
the Federal Housing Administration Appraiser Roster. This change
provides flexibility to obtain an appraisal from non-FHA certified
appraisers in remote and rural areas, often attributable to Trust
Lands.
15. In Sec. 1005.511, HUD clarifies that the Servicer may collect
from the Borrower a late fee of up to four percent of principal and
interest for payments 15 days or more in arrears.
16. In Sec. 1005.609(b), HUD clarifies that the annual fee stops
when the loan to value ratio is less than 78 percent. HUD also
clarified that the monthly annual fee charge will remain the same as
reflected in the amortization schedule, even with prepayments, until
the 78 percent threshold is reached.
17. In Sec. 1005.609(d), HUD removed the 78 percent threshold, and
retained the ability to establish the Annual Loan Guarantee Fee
termination by notice in the Federal Register. This will provide
flexibility to quickly respond to unforeseen circumstances.
18. In Sec. 1005.709(f), HUD clarified the period by which
servicers must respond to HUD's request for information regarding an
individual account. Specifically, HUD revised the paragraph by setting
a three-day time period floor in which Servicers must respond to HUD's
written or electronic requests for information concerning individual
accounts. HUD retains the ability to set other timeframes by Section
184 Program Guidance. This revision will improve the efficiency of the
Section 184 Program.
19. In Sec. 1005.729, HUD added that no Servicer shall commence
foreclosure, or assignor acquire title to a property until the
requirements of this subpart have been completed. The intent of this
revision is to prevent the borrower from losing the asset until and
unless the lender complies with all servicing requirements.
20. In Sec. 1005.731, HUD significantly revised this section by
removing default notice requirements from the rule. HUD took this
action to align the Section 184 Program with Federal, State and Tribal
laws concerning notice of default.
21. In Sec. 1005.739, HUD added loss mitigation advances as a loss
mitigation option. This will provide Borrowers with another option to
remain in their homes. HUD also revised this section to provide that
the servicer must conduct occupancy inspections in accordance with
Sec. 1005.735. If the property is confirmed to be vacant or abandoned,
the servicer must conduct property preservation in accordance with
Sec. 1005.737.
22. In Sec. 1005.745, HUD added paragraph (g) which provides that
HUD may provide for a temporary special forbearance in response to a
disaster or national emergency. This provision will add more
flexibility and allow for HUD to respond to unforeseen events, such as
national emergencies.
23. In Sec. 1005.747, HUD clarified that assumptions associated
with loss mitigation must result in the cure of the default and
reinstatement of the Section 184 Guaranteed Loan.
24. In Sec. 1005.749(c), HUD removed the loan modification
eligibility requirement that 85 percent of a borrower's surplus income
must be insufficient to cure arrears within six months. This allows for
more Borrowers to be eligible for loan modification.
25. In Sec. 1005.751, HUD established loss mitigation advance
requirements, including borrower eligibility and the terms of the
advances. For example, to be eligible for a loss mitigation advance,
the Borrower's Section 184 Guaranteed Loan must be 90 days past due,
the Property is owner occupied, and the Borrower has the ability to
continue making on-time payments. Additionally, loss mitigation
advances must include arrearages and cannot exceed 30 percent of the
unpaid balance as of the date of default. These revisions help to
provide loss mitigation options to Borrowers and ensure that the
Section 184 Program is solvent.
26. 1005.753(d) Removed the cash reserve requirement to match FHA
standards. FHA no longer imposes this requirement on borrowers
participating in the Pre-foreclosure Sale loss mitigation option. HUD
has chosen to consistently apply the Pre-foreclosure Sale requirements.
27. In Sec. 1005.753(m), HUD established a 90-day pre-foreclosure
sale marketing period for the sale of the property, with a maximum 120-
day marketing period. This provides Borrowers with more clarity
concerning pre-foreclosure sales.
28. In Sec. 1005.759, HUD provided a definition Tribal First Right
of Refusal and established a 60-day period for Tribes to respond to the
Tribal First Right of Refusal.
29. In Sec. 1005.809, HUD revised paragraph (a)(1) to match the
industry standard of two days to submit a claim and clarified the
delivery requirements for claims under Sec. 1005.807(a)(4).
Additionally, HUD revised the timeframes provided in paragraphs (c) and
(d) to reflect industry standards. Specifically, a Servicer must submit
a post-foreclosure claim to HUD 30 days from the date Property is
conveyed to a third party to align with FHA standards. Similarly, when
a property is sold or conveyed prior to foreclosure, the Servicer must
submit a claim to HUD no later than 30 days from the date the sale or
conveyance is executed.
30. In Sec. 1005.909(a), HUD clarified that Lender Applicants that
are denied participation in the Section 184 Program have 15 days to
appeal the decision. This revision adds more certainty to the appeals
process.
III. Summary of Public Comments
The public comment period for the December 22, 2022, proposed rule
closed on March 17, 2023. HUD received 33 distinct comments relating to
the proposed rule's request for public comments. The comments were from
the lenders, Tribes, Tribally Designated Housing Entities (TDHEs), and
housing and banking interest groups and associations. This summary of
comments addresses the most significant issues raised by the commenters
and HUD's response to those issues.
General Support
Several commenters expressed support for the Section 184 Program
and HUD's rulemaking effort to meet increased programmatic and
operational demands as utilization of the program increases. These
commenters suggested that HUD prioritize program requirements that:
facilitate expansion of the program, increase flexibility to
accommodate the unique needs of the Native American community, and
accommodate operational demands on lenders looking to close or
securitize loans insured under the program.
HUD Response: HUD appreciates this positive feedback and the time
taken by the commenters to review HUD's proposed rule. HUD does have a
priority to expand the program, as shown in its recent Dear Lender
Letter 2023-02 on Tribal expansion areas and the Biden Administration's
proposal to expand eligibility of the program to the entire United
States. HUD will also work to market the program and educate potential
new lenders and Tribes on the program, as well as continue to work with
the Bureau of Indian Affairs (BIA) and other Federal agencies to expand
the program.
General Opposition
Several commenters expressed general opposition to HUD's proposed
rule, stating concerns that the proposed rule comes with onerous
requirements, sanctions, and penalties that would make it difficult for
Tribes and lenders, especially Native CDFIs, to participate in the
program, or could even weaken the program. One commenter expressed
opposition out of concern for possible unintended negative effects on
the
[[Page 20035]]
Tribal borrowers participating in the program.
HUD Response: HUD appreciates all the concerns raised by the
commenters. HUD does not believe that the proposed rule will deter
Tribes and Direct Guarantee and Non-Direct Guarantee Lenders from
participating in the program. Most of HUD's proposed rule codified
current program practices. New requirements such as Sec. Sec. 1005.527
and 1005.529 are necessary based on program growth and to address
concerns identified internally by the Office of Native American
Programs (ONAP) and HUD's Office of Inspector General (OIG). Further,
to the extent any entity participating in the Section 184 Program
believes a regulatory waiver is needed, these entities have the option
to submit a waiver request to HUD. HUD disagrees that this rule will
have the effect of weakening the program, in particular the Loan
Guarantee Certificate (LGCs). This rule codifies the practice where
Direct Guarantee Lenders are fully accountable for any non-compliance
with any Section 184 requirement, even after the LGCs are issued.
Ensuring Direct Guarantee Lenders are accountable for their non-
compliance with Section 184 requirements, even in cases when the non-
compliance may not be initially detected by HUD, is fundamental to the
program's integrity. The HUD remedy of seeking indemnification from
originating Direct Guarantee when the non-compliance warrants it,
serves not only to strengthen the program as a whole, but strengthens
the value of the LGC for all Holders.
HUD understands the desire for more Native Community Development
Financial Institution (CDFI) participation in lending as a Non-Direct
Guarantee Lender. HUD's regulations explicitly list that CDFIs are
eligible entities. Further, given that the rule codifies current
program eligibility requirements and that several CDFIs already
participate, HUD does not believe the regulation will make it
impossible for small Native CDFIs to become Direct Guarantee or Non-
Direct Guarantee Lenders. As these Native CDFIs grow and build
capacity, they will have the ability to become Section 184 Direct
Guarantee Lenders.
Negotiated Rulemaking and Tribal Engagement
A commenter stated that HUD's failure to establish a negotiated
rulemaking committee to develop the Section 184 Program regulations is
a violation of Federal law. Another strongly encouraged HUD to create a
Tribal Workgroup for any future regulatory changes to the Section 184
Program, based on HUD's Tribal Consultation Policy. The commenter noted
that a workgroup would allow for more detailed input over a longer
period of time and would provide a format for Tribal leaders to work
together to create mutually beneficial policy suggestions.
HUD Response: HUD disagrees with the commenter that negotiated
rulemaking is required to issue Section 184 Program regulations since
the program's authorizing legislation does not require negotiated
rulemaking. The requirement for negotiated rulemaking only applies to
the Indian Housing Block Grant program as authorized by Native American
Housing Assistance and Self Determination Act of 1996, as amended
(NAHASDA) (25 U.S.C. 4101). The 184 Program is authorized by Housing
Community Development Act of 1992, as amended (42 U.S.C. 1715z-13a),
not NAHASDA, therefore negotiated rulemaking is not required. HUD did
conduct extensive Tribal consultation before drafting the proposed
rule, however, holding over 21 consultation sessions over a period of 6
years and sending out draft versions of the proposed rule for Tribal
comment and review prior to and in addition to the 60-day public
comment period provided by the proposed rule. Based on these efforts,
HUD believes that it has met its Tribal consultation obligations. HUD
will continue to solicit feedback from all Section 184 stakeholders
regarding the development of program policy, as appropriate.
Guidance Rather Than Regulations
Commenters stressed that HUD should utilize program guidance,
including handbooks, to address issues that may need to follow market
trends, rather than set requirements in regulations. Commenters
explained that the program needs to have the flexibility to accommodate
the diversity of the different Tribes and their needs, and the
flexibility to quickly adjust guidance as market conditions change and
operational constraints emerge. Commenters stated that HUD should
preserve the ability to make programmatic changes in a manner where
formal notice-and comment rulemaking is not required every time a
slight change is needed.
HUD Response: HUD is committed to ensuring that the Section 184
Program has the flexibility to address market changes and other
operational contingencies. Based on public comment, HUD has reviewed
the rule and strengthened the program's flexibility by incorporating
references to program guidance where appropriate, without losing the
enforceability of the key provisions of the program.
Outreach, Training, and Homeownership Counseling
Commenters generally requested increased outreach and training for
lenders and Native CDFIs. The commenters explained that they wanted to
ensure that Native CDFIs are able to become approved lenders without
too many hurdles and capacity restraints. The commenters also stated
that loan volume on Tribal Trust and Restricted Lands would increase if
CDFIs and Native CDFIs were provided training. Other commenters
suggested educating Tribes and TDHEs about their potential role in
facilitating homeownership opportunities in their communities to Tribes
and offering homeownership counseling to borrowers residing on
reservations.
HUD Response: HUD supports increased outreach and training to
Direct Guarantee and Non-Direct Guarantee Lenders (including Native
CDFIs) and Tribes to encourage participating in the program, as well as
providing training to existing Direct Guarantee Lenders and Tribes on
how to best navigate the program and comply with the new regulations.
HUD has engaged specifically with CDFIs to become more involved in the
program and will continue to explore ways to engage Native CDFIs. Once
the final rule is published and effective, HUD intends to conduct a
series of training and outreach sessions in different formats: virtual
trainings, pre-recorded video trainings and in-person trainings.
HUD also supports homeownership counseling for borrowers; however,
the Section 184 Program as authorized does not provide for
homeownership counseling. Tribes may use their Indian Housing
Development Block Grant (IHBG) funding for homeownership counseling.
Additionally, HUD's Office of Housing Counseling can provide additional
resources and connect Tribes with homeownership counseling partners.
Consumer Protection Law Applicability
One commenter recommended that specific consumer protection laws
and regulations apply to mortgage lenders, servicers, and originators
under the proposed rule: the Real Estate Settlement Procedures Act
(RESPA), See, Title 12, Chapter 27 of the United States Code, 12 U.S.C.
2601-2617, and the Truth in Lending Act (TILA) 15 U.S.C. 1601 et seq.,
as well as both those acts enabling regulations referred to as
Regulation X (12 CFR part 1024) and Regulation Z (12 CFR 1026). (0015)
[[Page 20036]]
HUD Response: Based on public comments, HUD has revised the rule to
state Direct Guarantee Lender, Non-Direct Guarantee Lender, Holder, and
Servicers' compliance with all applicable Tribal, Federal, and State
laws that impact mortgage-related activities are required. HUD plans to
provide further guidance on the Real Estate Settlement Procedures Act
(RESPA) and Truth in Lending Act (TILA) in Section 184 Program
Guidance.
Section 184 Program Data
A commenter suggested that the proposed rule should require lenders
and originators to be subject to the Home Mortgage Disclosure Act (or
HMDA) (28 U.S.C. 2801 et seq.) and its enabling Regulation C, and to
require data similar to what is collected under the Community
Reinvestment Act (CRA). The commenter stated that this data would
assist Tribal Nations better serve the housing needs of their citizen
members and to better advocate for banks and lending institutions to
invest in Tribal communities. Another commenter suggested that HUD
should provide data about loan volume by State and reservation to
better understand how the Section 184 Program is working.
HUD Response: HUD appreciates the comments regarding data
collection and how data can be used to promote homeownership and
investments in Indian Country. HUD does not have rulemaking authority
over HMDA or CRA. However, HUD will explore the possibility of
providing public data on the program's performance. Until such data is
published, Tribes may request program data on as needed basis in
support of their housing and homeownership programs.
Alignment With Federal Housing Administration (FHA) Single-Family
Framework
Commenters suggested that the Section 184 requirements should
closely align with those of the FHA single-family program where it
would not result in negative impact to Tribal communities served by the
program. Commenters explained that this may increase lender
participation in the Section 184 Program, would enable borrowers to
take advantage of benefits that FHA borrowers receive, and would allow
for consistency within the industry. One commenter explained that for
the Section 184 Program to remain a competitive choice for lenders, the
program should not be dramatically different in a financially
detrimental way to lenders and servicers which could result in offering
more FHA and non-Section 184 loans.
Other commenters were opposed to directly aligning with FHA
regulations out of concern that an FHA-type program is not appropriate
for Tribes, Tribal nations, and related entities.
HUD Response: HUD appreciates the comments and understands lenders'
desire to have uniformity with FHA and Tribes' desire to keep the
program unique to address Tribal specific circumstances. HUD notes,
however, that FHA's single-family mortgage programs and the Section 184
Program have separate statutory authorities, which means one program
may have the authority to operate in a way that the other cannot. In
fact, because FHA's Section 248 Mortgage Insurance Programs on Indian
Reservations and Other Restricted Lands (12 U.S.C. 1715z-13) was and
continues to be unpopular among Tribal borrowers, Congress established
the Section 184 Program in 1992 to give HUD greater flexibilities to
encourage lending to Native borrowers than what FHA's Section 248
program required and allowed (59 FR 42732 (August 18, 1994)).
As a result, there are areas where the two programs are similar and
there are areas where they are deliberately dissimilar. In drafting the
proposed rule, HUD took a balanced approach between the program's
intent to serve Native American communities and providing consistency
for Direct Guarantee and Non-Direct Guarantee Lenders. Specifically,
HUD reviewed the FHA single family regulations and, where possible,
adopted, or modified regulations as appropriate for the 184 Program,
while still keeping the program's unique flexibilities and focus on
serving Native American communities.
Automated Underwriting
Commenters suggested that HUD should adopt an automated
underwriting system similar to FHA's system to modernize the program,
increase consistency with other government programs, attract new
lenders and comply with Sec. 1005.451 regarding risk-based pricing.
HUD Response: HUD appreciates the commenters' suggestion to adopt
an automated underwriting system similar to that used by FHA. However,
manual underwriting is one of the cornerstones of the Section 184
Program to make the program more accessible to Native American
borrowers. Manual underwriting allows the program to take into account
the borrower's income and credit from non-traditional sources. HUD will
consider future changes to permit automated underwriting when
sufficient Section 184 programmatic and systems safeguards can be in
place.
Evidence of Title
One commenter expressed concern that the current process does not
adequately address the title process involving restricted fee land. The
commenter states HUD's demand for New York based Land Title Searches,
Land Title Abstracts, and Land Title Insurance is not a requirement to
access the Section 184 Program.
HUD Response: HUD appreciates the comment regarding evidence of
title for restricted fee land. HUD will provide administrative guidance
on the title process involving restricted fee land and other types of
trust land.
Evictions Following Foreclosure
One commenter suggested that the lender should be responsible for
evicting a borrower after a foreclosure has occurred.
HUD Response: When Holders, Direct Guarantee Lenders or Servicers
initiate and complete foreclosure, whether on fee simple or trust land,
Holders, Direct Guarantee Lenders or Servicers are responsible for
evicting the borrower when the borrower fails to vacate the property.
Default
One commenter recommended the Tribe or TDHE be the borrower if the
loan goes into default. HUD would then be able to review the case and
discuss with the Tribe or TDHE the loss mitigations options, and if
they weren't practical within 90 days of default, then the file will be
submitted to HUD. The commenter reasoned that HUD has always indicated
that Tribal borrowers would be dealt with Government to Government, and
that should be the case here.
HUD Response: HUD appreciates the commenter's input and support of
Tribal engagement. However, there are Federal consumer protection laws
protecting the borrower when a loan goes into default. These laws are
designed to keep the borrower in the home, if possible, and the legal
relationship at time of default is between the borrower and the lender.
To achieve some of what the commenter proposed, the final rule allows
for the Tribes to be notified of borrower default if the borrower
chooses this option. Once notified of the borrower's default, the Tribe
may choose how to assist the borrower during loss mitigation.
[[Page 20037]]
Specific Recommendations for Changes to the Proposed Rule
Sec. 58.35 Categorical Exclusions
A commenter sought clarification on whether the environmental
review, under Sec. 58.35(b)(8) would be required; and if it is
required, whether it would be completed prior to the loan closing.
HUD Response: HUD appreciates the comment regarding the Categorical
Exclusions. An environmental review is required prior to closing.
Section 184 Program Guidance will provide information on how this will
be implemented.
Sec. 1005.103 Definitions
Commenters expressed general support for the expansion of the term
``Lender.'' Commenters noted that it would encourage Tribes to build
capacity internally and that HUD should focus on expanding capacity for
Native lenders. However, one commenter requested clarification around
the term noting its reference to a financial institution that has not
yet been approved by HUD. The commenter noted that while the definition
of ``Lender'' distinguishes it from direct and non-direct guarantee
lenders, this defined term appears to be used inconsistently, applying
to lenders approved under Sec. 1005.207. Another commenter suggested
that ``Default'' and ``Date of default'' should be capitalized
throughout the proposed rule to show that they are being used as
defined terms.
Other commenters stated that the definition of ``Tribal Land''
should be very broad, not limited to lands that are leased. The
commenters explained that the 184 Program allows for Tribes, housing
authorities, and TDHEs to borrow, but Tribes do not have leasehold
ownership in their own lands held in trust by the BIA. Commenters
stated that the proposed regulation needs to be inclusive of all Tribal
land to allow new concepts to be developed. There are currently Tribes
who have Land Use Deeds in lieu of leases that are allowed to use the
184 Program.
The commenters also noted that while allotted lands are included in
the definition of ``Trust Lands'', they are missing from the specific
paragraphs regulating the lending on Tribal lands. The commenters
recommended that allotted lands should be included in the regulations
everywhere the regulations mention fee simple and leasehold interests.
The commenters further noted that allotted lands and other Tribal lands
are missing in various parts of the regulation, including how to
appraise allotted lands and the appropriate documents to mortgage.
Another commenter recommended that a clear definition of what
Native American lands are eligible under the 184 Program should be
included in the rule and that it be expansive enough to capture the
congressional intent of the 184 Program. The commenter explained that
without providing a clear definition as to what Native American lands
are eligible, many Native Americans on reservations are going to
continue to experience extreme difficulty with accessing the Section
184 Program which Congress intended to assist them.
One commenter noted that Sec. 1005.203 paragraph (a)(1) uses
``mortgagee'' which should be replaced with the term ``Lender.'' The
same is true for the term ``Mortgage'' which has been replaced by the
term ``Loan.'' The commenter stated that the term ``mortgage'' is used
throughout the entirety of the proposed rule; in most cases, this term
should be replaced with the term ``Loan.''
HUD Response: HUD appreciates commenters' input but has not edited
the final rule to capitalize defined terms. HUD has, however, reviewed
the use of the defined term ``Lender'' and has replaced ``Lender'' with
``Lender Applicant'', ``Non-Direct Guarantee Lender,'' ``Direct
Guarantee Lender'', or ``Servicer,'' as appropriate. HUD also revised
the definition of ``Trust Land'' to be more expansive and inclusive of
allotted lands throughout the final rule; HUD removed the term
``leasehold interest'' and replaced it with ``property interest.''
HUD disagrees with the commenter's suggestion to replace
``mortgagee'' with ``lender'' in Sec. 1005.203(a)(1). The language in
Sec. 1005.203(a)(1) (paragraph (a) of this final rule) is verbatim
from 12 U.S.C. 1715z-13a(b)(4)(A), which also uses the word
``mortgagee'' in the context of FHA's single family mortgage insurance
program. Additionally, HUD disagrees with the commenter that the term
``mortgage'' should be replaced with the term ``loan'' wherever
``mortgage'' appears in the final rule. While HUD defined ``loan'' and
``Section 184 Guaranteed Loan'' in Sec. 1005.103, there are instances
where ``mortgage'' is properly used to reference another Federal
program or requirement, or an industry-standard practice. Nevertheless,
HUD reviewed the final rule to ensure ``loan'', ``Section 184
Guaranteed Loan'' and ``mortgage'' were properly used and made
corrections where errors in usage appeared.
Sec. 1005.205 Lender Applicants Required To Obtain Secretarial
Approval
Commenters stated that requiring sponsored entities to provide an
audited financial statement, rather than the industry standard
financial documents, is not prudent, is very cost prohibitive, and
would deter lenders from offering Section 184 products. One commenter
explained that this requirement would make access to qualified lenders
more difficult, which would negatively impact Tribal members and
communities.
One commenter suggested that the requirement in Sec.
1005.205(a)(8) that a lender not have a licensed refused or received a
government sanction should be limited to the lending practices of the
lender.
HUD Response: HUD agrees with commenters that requiring ``audited''
financial statements may be a burden for some Lender Applicants and
Direct Guarantee Lenders. As a result, HUD has revised Sec.
1005.205(a)(4)(i) by removing the term ``audited.'' HUD has also
provided that Section 184 Program Guidance will explain when audited
and non-audited financial statements may be needed. HUD also agrees
with the comment that the denial of a license or government sanctions
of a lender should be limited to the Direct Guarantee Lender's lending
practices. HUD has revised Sec. 1005.205(a)(8) to limit the lender
certification to issues related to lender's lending activity.
Sec. 1005.213 Non-Direct Guarantee Lender Application, Approval, and
Direct Guarantee Lender Sponsorship
Commenters proposed that notification in Sec. 1005.213(b)(3) and
(8) be changed to ``within 30 days'' to conform to industry standard.
HUD Response: HUD appreciates the commenters' recommendation.
However, to ensure HUD has up to date information on who Direct
Guarantee Lenders are sponsoring and to protect Section 184 Program
integrity, it is critical that lenders notify HUD within 10 days when
there are changes to the lenders' sponsorship. Additionally, HUD
deleted in this section paragraph (b)(8) because it is redundant and
inconsistent with paragraph (b)(3).
Sec. 1005.217 Quality Control Plan
One commenter noted that the requirement to complete a monthly
review of a sampling of rejected loan applications and a written report
of the review would be onerous to lenders and may keep lenders from
participating in the Program. Other commenters
[[Page 20038]]
objected to the proposed monthly reviews, reporting, and tracking
requirements, explaining that these requirements will be burdensome to
small Tribes and lenders.
HUD Response: Lender Applicants, Direct Guarantee and Non-Direct
Guarantee Lenders must have an effective quality control plan to ensure
their Section 184 loans are compliant with Section 184 requirements and
to protect HUD and Lender Applicants, Direct Guarantee and Non-Direct
Guarantee Lenders from unacceptable or unreasonable risks and the
borrower from erroneous negative decisions. As provided for in Sec.
1005.217(b)(8), one method HUD will use to detect issues or anomalies
in Lender Applicants, Direct Guarantee and Non-Direct Guarantee
Lenders' Section 184 lending is by reviewing a random statistical
sampling of the Lender Applicants, Direct Guarantee and Non-Direct
Guarantee Lenders' rejected Section 184 loans. Having this data is
essential to HUD maintaining Section 184 Program integrity.
Sec. 1005.219 Other Requirements
Several commenters supported establishing HUD's ability to set a
trust land lending requirement for lenders as proposed in this section.
One commenter recommended that HUD base this requirement on historic
numbers of trust loans closed within each state. Commenters also
recommended that the required percentage could be lower than the state
average, but some requirement should be in place to prohibit lenders
who have no interest in serving Tribal members and communities in a
meaningful way. Another commenter stated that if imposed, the
requirement should be reasonable and should not be imposed in a way
that discourages lenders from participating and making loans under the
Program. Another commenter suggested that lenders should be given an
opportunity to submit a plan for originating a minimum level of loans
on trust lands. Lastly, the commenter suggested that if HUD retains the
requirement to originate loans on trust lands, HUD should provide a
minimum one-year timeframe that will allow the lender time to market
loans on trust lands and create relationships with relevant Tribal
departments or staff on Tribal lands.
Some commenters opposed establishing HUD's ability to set trust
lending requirements for lender participation. These commenters
explained that many of their villages are on trust lands and do not
have a local bank resulting in Tribal members having insufficient
access to financial services. As an alternative to this requirement,
commenters recommended that HUD work with Federal partner agencies such
as the Bureau of Indian Affairs (BIA) to establish processes to make
the Section 184 Program practical and accessible on Trust Lands, noting
that the Program's focus and intent should be on developing
homeownership opportunities to all Alaska Native and Native American
families.
One commenter was concerned that there may be unintended
consequences if lenders are subject to a required percentage of loans
and recommended that HUD exercise caution. The commenter noted that it
is an unfortunate reality that making loans on Tribal land is
significantly more difficult than it is on fee simple lands. The
commenter further explained that the number of lenders participating in
the Section 184 Program is already small. If lenders that cannot meet
the required percentage of loans on trust land are faced with the
possibility of ``sanctions and civil money penalties'' under Sec. Sec.
1005.905 and 1005.907 of the proposed Section 184 Program regulations,
the commenter was concerned that they may simply stop participating in
the Program.
Another commenter suggested, instead of establishing lending
requirements, that HUD offer incentives to lenders who opt to take
advantage of market opportunities on trust land. For example, the
commenter suggested that if the property is located on trust land, this
section could increase a lender's portion of the guaranteed fee or
offer priority processing.
HUD Response: HUD appreciates the many comments, in support of and
in opposition to, this section of the regulation concerning the minimum
level of Trust Land lending. HUD acknowledges that Trust Land lending
is a complex issue and there may not be a ``one size fits all''
approach to Trust Land lending. HUD intends on developing a minimum
level of Trust Land lending policy that is reasonable, achievable, and
serves to promote and not hinder Trust Land homeownership opportunities
for Indian families. HUD anticipates seeking Tribal and Direct
Guarantee Lender input as HUD researches the issue further prior to
implementing the minimum level of trust land lending requirement.
Sec. 1005.223 Annual Recertification
One commenter proposed that Sec. 1005.223(b)(2) be clarified to
include good standing with the ONAP Office of Loan Guarantee rather
than for problems outside of past due or default. One commenter stated
the recertification requirements seem unrealistic given HUD's staffing
levels. The commenter suggested that HUD should consider requiring
recertification every five years.
HUD Response: HUD agrees with the comment that Sec. 1005.223(b)(2)
should be clarified and will provide further administrative guidance.
However, HUD does not agree that the Direct Guarantee Lender
recertification requirements are unrealistic and that the
certifications should be every five years. HUD believes annual
recertifications from Direct Guarantee Lenders are necessary for the
proper administration of the Section 184 Program.
Sec. 1005.301 Tribal Legal and Administrative Framework
Several commenters suggested that the proposed rule exclude BIA
involvement because some Tribes do not use the BIA for mortgageable
land assignments. Rather, the commenters suggested that the guidelines
should address Tribal Assignments for those Tribes that do have the
mortgageable land assignments.
A commenter suggested giving lenders notice of all current HUD
approved leases. The commenters noted that currently, there is no way
for a lender to know which leases have been approved without submitting
this to HUD for review.
Other commenters recommended that the assignment of lease
provisions should include the lender in situations where the lender is
unable to assign the loan to HUD and must pursue the foreclosure,
eviction, and resale of the property to an eligible Tribal member.
HUD Response: HUD appreciates the extensive commenters received on
this section. HUD recognizes not all Trust Land involves the BIA.
Accordingly, HUD revised the regulations by inserting ``where
applicable'' in provisions which references BIA involvement. With
respect to the comment that there is no way for lenders to know which
Tribal leases have been approved by HUD, HUD anticipates providing
administrative guidance that will assist Direct Guarantee Lenders in
verifying which Tribal leases are HUD approved.
With respect to the comments that the lease provision should
include addressing situations where the lender is unable to assign the
loan to HUD and must pursue foreclosure in Tribal court, HUD disagrees.
Whether a Holder or Servicer must assign, could assign, or is unable to
assign the loan to HUD is not an issue for the lease to address. When
HUD exercises its discretion to accept the assignment, the requirements
of
[[Page 20039]]
Holder or Servicer assignment of the loan can be found at Sec.
1005.765. HUD notes that paragraph (b)(1) of this section is not
intended to provide that all Trust land loans must be assigned to HUD.
Under current policy, the Holder and Servicer always retains the option
to not assign the mortgage to HUD and pursue foreclosure in Tribal
court. HUD further notes that acceptance of loan assignment remains at
HUD's discretion. HUD revised Sec. 1005.765(b) to make this point
clear. In cases where HUD does not accept assignment and the Holder or
Servicer is otherwise unable to assign the loan or prefers not to
assign, the Holder or Servicer would proceed with foreclosure in Tribal
court.
Sec. 1005.301(b)(1)(i) Tribal Courts
Commenters recommended that HUD should recognize Tribal courts as
the only legitimate court regarding foreclosures on trust land. One
commenter stated that HUD lenders and servicers show proper respect and
deference to Tribal courts during the foreclosure process, which
includes having legal counsel appear in Tribal courts when necessary
for foreclosure and eviction and adhering to applicable Tribal laws.
Commenters also noted that paragraph Sec. 1005.301(b)(1)(i) requires
Tribes to grant Federal Court jurisdiction so that HUD can foreclose on
a default of a Section 184 Guaranteed Loan, however, some Tribal
leasehold mortgage codes do not allow recognition of Federal
jurisdiction and conflict with this requirement.
HUD Response: HUD appreciates the commentor's input. HUD respects
the sovereignty of Tribes and the jurisdiction of Tribal Courts as well
as the ability to conduct business related to trust land in Tribal
court. However, when a Trust Land loan is assigned to HUD, the Federal
Government must be able to protect the Section 184 program and its
Federal interest in Federal court. Therefore, the rule requires Tribes
to allow for foreclosures to occur in Federal Court in cases where HUD
must foreclose. Nevertheless, it is HUD's hope that with the expansive
loss mitigation options available to defaulted borrowers, including
incentive payments to Tribes, Holder or Servicers, and defaulted
borrowers as established in Sec. 1005.757, and a stronger partnership
between Tribes, Holder and Servicer, and HUD to effectuate loss
mitigation, trust land foreclosure referrals to DOJ will become
increasingly rare. Accordingly, HUD makes no changes to paragraph
(b)(1)(i) of this section.
Sec. 1005.301(b)(1)(ii) Foreclosure Ordinances
One commenter noted that Sec. 1005.301(b)(1)(ii) requires that
foreclosure ordinances allow for the reassignment of leases to HUD or
the issuance of new leases to HUD and reassignment of leases to the
Tribe. The commenter explained that for some Tribes, a significant
amount of their Tribal trust land is allotted to individual Tribal
members who may also wish to approve new leaseholders. The commenter
asked how the proposed requirements incorporate or contemplate the
rights of those who hold shares in allotted Tribal trust land. Another
commenter recommended that the word ``lease'' in Sec.
1005.301(b)(1)(ii) be changed to ``leasehold'' or ``leased property''.
A third commenter inquired how individual allotted Trust Land would be
treated under paragraph (b)(1)(ii) of this section.
HUD Response: Based on these comments, HUD revised Sec.
1005.301(b)(1)(ii) and made a technical correction to state more
generally the Tribe's legal ordinances must allow for the borrower's
property interest (and not just leasehold interest) to be assigned to
HUD or Holder. HUD will provide administrative guidance to address the
rights of Tribal members who hold shares in allotted Tribal trust land.
Sec. 1005.301(b)(1)(iii) Lease Assignment
One commenter stated Sec. 1005.301(b)(1)(iii), which allows a
Tribe to assign a lease to HUD without the consent of the borrower and
without foreclosure, ignores the contractual rights a borrower may have
in the lease, the loan, and through the foreclosure process. The
commenter recommended providing for assignment of a lease from a
borrower to HUD within the terms of the lease.
HUD Response: HUD appreciates the comment but maintains that the
Tribe should have the discretion to assign the lease to HUD when the
Section 184 Loan has been assigned to HUD when the Section 184 Loan is
in default. While Sec. 1005.301(b)(5)(ii)(G) establishes a mandatory
lease provision giving Tribes the ability to assign the lease to HUD,
we emphasize Tribes have the discretion to assign the lease to HUD or
not when the borrower defaults on the Section 184 Loan. To the extent a
Tribe as the lessor of the leasehold interest, wishes to exercise this
discretion to assign the lease to HUD, it would be pursuant to the
mandatory lease terms. To address the commenter's concern that the
proposed regulation enables Tribes to ignore the contractual rights a
borrowers may have in a lease, HUD revised Sec. 1005.301(b)(5)(ii)(G)
(and Sec. 1005.301(b)(1)(iii)) to expressly require Tribes provide due
process to the lessees in accordance with Tribal laws if a Tribe
intends to assign the lease to HUD.
Sec. 1005.301(b)(4) Lien Priority
A commenter stated that Sec. 1005.301(b)(4)(ii), which requires
any second lien on title to trust land be approved by the Tribe and BIA
and recorded by BIA, makes sense for a second mortgage through a
financial institution, but it is impractical when it is related to a
contractor's liens and tribally funded liens. Another commenter stated
that a Tribe should not be required under Sec. 1005.301(b)(4) to apply
state law to determine a mortgage as the priority lien. The commenter
also noted that the requirement that a Section 184 loan be satisfied
before all other obligations seems to prohibit full satisfaction on a
secondary loan made for purposes of providing down payment assistance,
inconsistent with Sec. 1005.439. The commenter further noted that the
majority of junior loans are for terms less than thirty years.
Another commenter stated that its code has an exception for
allowing a Section 184 Guaranteed Loan to have first lien priority when
there is a Tribal leasehold tax lien, which appears to conflict with
Sec. 1005.301(b)(4). A separate commenter stated that the purpose of
HUD's proposal in paragraph (b)(4) appears to only be ensuring that the
Section 184 mortgage becomes the first priority debt to be satisfied
before any other debt, such as secondary liens. According to the
commenter, on some Reservations the land cannot be pledged for any
debts and thus raises questions regarding how the secondary lien holder
can take ``possession'' of the home. Further, acquiring a home mortgage
on a Tribal reservation is so rare that there are likely very few first
priority loans. A commenter proposed, as an alternative for Tribal
Nations that manage and control their own land systems, a certification
process that confirms their legal system meets the proposed
requirements contained in paragraph Sec. 1005.301(b)(4).
Another commenter stated that if a contractor is not paid for a job
completed on trust land, or any other land, it will secure its material
and labor costs with a lien on the property. The commenter further
stated that contractors will not go through the process of seeking
approvals before pursuing their rights under the
[[Page 20040]]
contractor lien laws. The commenter stated that if this requirement
remains part of the rule, it is inevitable that some contractors
unfortunately learn that they do not have the right to an immediate
lien on trust land, or perhaps any right to a lien should a Tribe
refuse to approve these types of liens. The commenter further noted
that once these incidents occur, there will be a threat of contractors'
refusal to work on properties on trust land given the additional steps
and risks should their bill remain unpaid should the trust land be
secured by a Section 184 loan.
HUD Response: HUD appreciates the various comments on Sec.
1005.301(b)(4) of the regulation. HUD agrees with the comment that BIA
approval is not always required. HUD has revised paragraph
(b)(4)(ii)(B) and elsewhere in the regulations to provide for ``BIA, as
applicable''. HUD does not believe the lien provisions under Sec.
1005.301(b)(4) are inconsistent with Sec. 1005.439. Additionally, HUD
intends on providing program guidance on lien priority as it relates to
mechanics' liens, tribally funded liens, and Tribal leasehold tax
liens.
Sec. 1005.301(b)(5) Lease Provisions for Trust Land
Several Commenters stated that Sec. 1005.301(b)(5)(ii) be revised
to recognize that other Federal and Tribal leasing regulations may
apply, including, but not limited to those under 25 U.S.C. 415. Another
commenter noted that this paragraph requires Tribes to draft their own
lease in compliance with 25 CFR part 162. The commenter further noted
that certain Tribes adopted their own leasing codes to regulate the
leasing of Tribal lands in accordance with 25 U.S.C. 415.
Other commenters proposed removing ``property address'' from Sec.
1005.301(b)(5)(ii)(C) or clarifying that it would only be required if
applicable or assigned. The commenter explained that for new
construction properties, the property address is not typically
available at the time the lease is created and that it is not usually
available until construction has started or until construction is fully
completed. The commenters proposed moving the lease term in Sec.
1005.301(b)(5)(ii)(D) from the regulation and making it part of the
guidelines instead.
These commenters also proposed clarifying that refinances should be
50-year term with at least 10 years remaining after maturity of the
loan. The commenters noted that the remaining term should be written to
provide as much flexibility as necessary. A separate commenter asked
whether the paragraph should require a ``maximum'' 50-year term, rather
than a ``minimum'' 50-year term. The commenter explained that if a
Tribal Nation member has the financial capabilities to meet a shorter
loan term, they should be able to do so. Another commenter proposed the
Sec. 1005.301(b)(5)(ii)(E) and (H) should clearly state that a lease
cannot be assigned without foreclosure or consent of the lessee.
HUD Response: HUD appreciates the numerous comments regarding the
lease provisions under Sec. 1005.301(b)(5). HUD agrees with the
comment that Tribal leases must be in compliance with all applicable
Federal requirements and not just 25 CFR part 162, where applicable.
HUD has revised Sec. 1005.301(b)(5)(ii) and removed the citation to
the BIA regulation and in its place inserted ``Federal requirements''.
HUD disagrees with the comment to remove ``property address'' from
paragraph (b)(5)(ii)(C). HUD will provide administrative guidance on
this paragraph when a property address is not available in the context
of new construction.
HUD also appreciates the comments regarding providing the borrower
with 10 additional years beyond the payoff of the mortgage to enjoy the
property. This regulation codifies current practice. HUD has this
policy as a protection for the borrower for their quiet enjoyment to
ensure after loan maturity the borrower has some meaningful years left
to remain in the property. HUD will continue this policy for the
benefit of the borrower.
Finally, HUD has not removed the lease term in the regulation from
Sec. 1005.301(b)(5)(ii)(D). However, HUD agrees that flexibility in
the lease term provisions would be beneficial to HUD. HUD revised this
paragraph to by inserting the clause ``unless another term is approved
by the Secretary'' so HUD will have the administrative ability to
require a different minimum lease term.
Sec. 1005.303 Tribal Application
One commenter asked if the proposed rule provided an allowance
(e.g., grandfathering) for Tribal Nations who already participate in
the Section 184 Program and may already have Section 184 loans on their
reservations.
HUD Response: HUD does not intend for Tribes currently approved for
the Section 184 Program to reapply to participate in the Section 184
Program when the final rule goes into effect. However, Tribes currently
approved to participate may still be required to provide copies of the
current ordinances and lease under Sec. 1005.301 and show all
requirements in Sec. Sec. 1005.307 through 313 are being met. HUD will
provide guidance on what Tribes may need to do to ensure their
transition into the final rule.
Sec. 1005.307 Tribal Recertification
One commenter stated that the certification requirements for Tribes
are burdensome and should be removed because they place a hinderance on
Tribes' and members' ability to qualify for the Section 184 Program.
Other commenters objected to an annual recertification, stating that an
annual recertification can be administratively burdensome and can
potentially limit growth among our small Tribes with limited resources.
These commenters recommended that Tribes have a 3-year recertification
process under this section. Other commenters recommended that the
Tribal recertification process should be a simple process of the Tribe
certifying no changes to their previously approved legal structures.
Commenters also suggested that HUD maintain an Approved Lease Database
that lenders and Tribes could reference to make sure the correct format
is being used prior to closing.
HUD Response: HUD appreciates the commenters' concern that an
annual recertification may be burdensome to Tribes. HUD agrees with the
commenters' suggestion that the Tribal recertification be a simple
process for Tribes to inform HUD that there have been no changes to the
Tribes' legal and administrative framework and contact information. HUD
made no changes to this regulation in response to the public comments.
HUD appreciates the commenters' suggestion that HUD maintain a database
of approved Section 184 Tribal leases. HUD will explore the viability
of this suggestion further.
Sec. 1005.309 Duty To Report Changes
One commenter stated that this section needs to be specific as to
which entity this written notification will be provided. Another
commenter noted that many Tribes have no one designated to carry out
Section 184 duties, and that this proposed rule makes it hard for
Tribes to carry out the program.
HUD Response: The purpose of this regulation is to enable HUD to be
timely informed of any proposed changes to the Tribe's foreclosure,
eviction, lease, and lien priority ordinances and contact information.
To provide clarity to the regulation, HUD revised the last sentence of
the Sec. 1005.309 to make clear HUD will provide notification to the
Tribe regarding whether the proposed
[[Page 20041]]
ordinance changes meet Section 184 requirements.
Sec. 1005.311 HUD Notification of Any Lease Default
Commenters noted that instances where a borrower is current with
their loan but delinquent on their land lease has caused situations
where the Tribe has attempted to cancel the lease thereby endangering
the loan collateral. These commenters recommended that HUD consider
requiring that lease payments be handled through a borrower's escrow
account with the servicer in the same way that property taxes and
hazard insurance are handled.
Other commenters stated that the proposed rule only requires a
Tribe to notify HUD of lease default within 30 days of default and
proposed that HUD should provide written notification to the lender
after receiving the Tribe's notice of lease default. Other than
defaults unrelated to the loan, Tribes are not aware of a default on
the loan until a lender sends a notice of the right of first refusal.
The commenters stated that, in many cases, notice is received at the
same time a lender files a foreclosure action, and that a Tribe is not
aware of the default until the lender or borrower requests an
assignment of the lease. The commenter recommended that HUD be required
to notify a Tribe once HUD acts on its guarantee. This will, according
to the commenters, allow the Tribe and HUD to work in a coordinated
effort on loss mitigation actions.
HUD Response: HUD appreciates the comments regarding this section
of the regulation. The comment recommending that lease payments be
handled through a borrower's escrow account has already been addressed
in Sec. 1005.507. Under that section, borrower's monthly payment must
include, among other things, ``ground rents'', which includes lease
payments from the Tribal member to the Tribe.
Regarding the comment that HUD should notify the Tribe of the
borrower's default on the loan once HUD pays out a claim to the Holder
or Servicer, under Sec. 1005.759 the regulation establishes a
timeframe for when the Tribe receives the right of first refusal.
However, the Tribe could potentially receive notice of the borrower's
default even sooner than the Holder or Servicer's issuance of the Right
of First Refusal if the borrower elects to provide consent for the
Holder or Servicer to disclose to the Tribe his or her default under
Sec. 1005.501(j). HUD intends on providing training to Holder and
Servicer and outreach to borrowers to encourage borrowers to consent to
Tribal notifications so that Tribal interventions can occur sooner when
Tribal borrowers are in trouble.
Sec. 1005.313 Tribal Reporting Requirements
Commenters recommended that HUD seek feedback from Tribal entities
on the impact of additional review reporting requirements, stating that
quarterly or semiannually, may be just as effective and less
burdensome. Commenters also recommended that although additional
reporting and program data requests will be posted through guidance and
will go through the necessary Paperwork Reduction Act process, HUD
should receive feedback from Tribal entities on the impact of
additional reporting requirements or on what type of data HUD might
request from Tribes. Another commenter questioned what the requirements
would entail and who within the Tribe would be responsible for these
reports.
HUD Response: HUD appreciates the commenters' recommendation that
HUD obtain feedback from Tribes before implementing this regulation.
The regulation does not specify the frequency of the Tribal reporting
requirement. HUD will provide administrative guidance on what
information will be collected and how often. Prior to implementing this
regulation, HUD intends to seek feedback from Tribes on the Tribal
reporting requirement and on whether an equally effective and less
burdensome information collection process could be achieved.
Sec. 1005.401 Eligible Borrowers
A commenter suggested that either Sec. 1005.401(a) or (c) should
be amended to clarify that eligible Borrowers with a Section 184 loan
on their principal residence may sign as a non-occupant, co-Borrower on
a separate Section 184 loan, provided they meet all loan qualifications
with the additional loan. The commenter noted that Sec. 1005.401(a)
only limits eligible Borrowers to one Section 184 loan at a time, and
that paragraph (c) of this section allows a non-occupant co-Borrower on
Section 184 loans. The commenter further noted that often, when a non-
occupant co-Borrower is included on a mortgage loan, it is a parent of
a child making one of their first purchases of real estate.
Commenters also suggested allowing second homes on Tribal trust
land, noting that Tribal borrowers would like to have a presence on
their Tribal homeland but primarily live on non-Tribal lands for work
or other reasons. These commenters also noted situations of a family
home where the occupant dies, and the heirs would like to retain the
property. In this situation, commenters explained that under the
proposed rule the heirs' only option would be to move into the house,
which may not be practicable for their current life situation.
HUD Response: HUD acknowledges there can be a need for a family
member to assist another family member as they embark on the path to
homeownership and supports the recommendation to allow an individual
with an existing Section 184 Guaranteed Loan to be a non-occupying co-
borrower in accordance with the Section 184 Program Guidance. This
shift will provide wealth building opportunities for more Native
families. Accordingly, HUD revised Sec. 1005.401(c) to provide an
exception to the rule that an Indian Family is limited to one Section
184 Guaranteed Loan at a time. The exception will provide that an
existing Section 184 borrower may be a non-occupant co-borrower on only
one other Section 184 loan, so long as the non-occupant co-borrower
loan also meets Sec. 1005.403. Relatedly, HUD has made conforming
technical changes to Sec. 1005.403 to provide greater clarity on the
non-occupant co-borrower requirements.
Lastly, HUD appreciates the commenters' suggestion to allow a
borrower to have multiple Section 184 Guaranteed Loans which would
include second homes. HUD believes, however, that the mission of the
Section 184 Program is to increase homeownership for Native American
borrowers. As a result, HUD is not making this change.
Sec. 1005.405 Borrower Residency Status
A commenter noted that ``U.S. Citizen, or lawful permanent
resident, or non-permanent resident'' does not appear to describe
Native Americans consistent with 8 U.S.C. 1359, which provides that:
``Nothing in this subchapter shall be construed to affect the right of
American Indians born in Canada to pass the borders of the United
States, but such right shall extend only to persons who possess at
least 50 per centum of blood of the American Indian race.''
HUD Response: HUD appreciates the commenters suggestion but notes
that 8 U.S.C. 1359 governs movement across borders and not permanent
residency status. As a result, HUD has not revised Sec. 1005.405 in
response to this comment.
Sec. 1005.407 Relationship of Income to Loan Payments
A commenter recommended that the terms ``age'' and ``sexual
orientation'' be added to the nondiscrimination provision in Sec.
1005.407(b). Other
[[Page 20042]]
commenters expressed support for the addition the nondiscrimination
provision in Sec. 1005.407(b). One stated that this provision advances
not just the statutory purpose of the Program to provide access to
sources of financing to Native American families, housing authorities
and Tribes, but it is also consistent with fair lending provisions
which seek to root out discrimination in credit markets.
Other commenters recommended that the provisions prohibiting
discrimination based on income stream should also include Tribal
sources of income. These commenters explained that HUD currently
requires two years of receipt and averages the last two years instead
of using the current amount. According to the commenters, this is
discriminatory towards Tribal governments and members and should be
changed.
One commenter noted that without including some type of `test' with
respect to mortgage underwriters automated or electronic underwriting
that the rule will fall far short of detecting and stopping such
discrimination. The commenter recommended that the proposed rule
require lenders and originators to attest that their automated
underwriter software meets the requirements needed to originate loans
under the Section 184 Program including the prohibition against Native
income and loan location discrimination. The commenter further
recommended that HUD develop an automated underwriting program to use
with the Section 184 Program (e.g., Scorecard or Native Advantage),
particularly with the data HUD is about to receive under the Section
184 Program, and to make that available to lenders, originators, and
Native Housing Counselors or Agencies located on Tribal reservations
who are trying to assist Native American participation in the Section
184 Program.
Other commenters objected to this section's requirement that the
occupying borrower meet a minimum qualifying threshold when there is a
co-borrower that will not occupy the home. These commenters reasoned
this could have a negative impact for protected classes and first-time
homebuyers. Finally, one commenter stated that under Sec.
1005.407(a)(2), requiring the occupying borrower to meet a minimum
qualifying threshold when a non-occupying borrower is on the loan could
result in disparate impact for protected classes and first-time
homebuyers.
HUD Response: HUD appreciates the extensive comments received on
this section of the regulation. HUD agrees with the comment that
``age'' should be added to the non-discrimination provision in
paragraph (b) of the section as ``age'' is a protected class under the
Equal Credit Opportunity Act. HUD has inserted ``age'' into the list of
protected categories. With regards to the comment suggesting the non-
discrimination provision in Sec. 1005.407(b) expressly reference
``Tribal sources of income'', HUD believes this is unnecessary. This
paragraph states more broadly there can be no discrimination based on
the ``source of income of the borrower'', which would naturally include
Tribal sources of income. With regards to the comment that ``sexual
orientation'' should be added, this protected class is already
referenced in the regulation, and has been maintained in this final
rule in accordance with Executive Order 13988, ``Preventing and
Combating Discrimination on the Basis of Gender Identity or Sexual
Orientation'' \3\ and HUD's February 2021 implementation memorandum.\4\
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\3\ 86 FR 7023, January 25, 2021.
\4\ Available at <a href="https://www.hud.gov/sites/dfiles/PA/documents/HUD_Memo_EO13988.pdf">https://www.hud.gov/sites/dfiles/PA/documents/HUD_Memo_EO13988.pdf</a>.
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With regards to the comments suggesting HUD develop a test to
detect discrimination in the lenders' automated underwriting of Section
184 borrowers, HUD disagrees with the comment. The Section 184 Program
currently does not allow automated underwriting and, as a result, there
would be no test to develop to detect discrimination. HUD will consider
future changes to permit automated underwriting when sufficient Section
184 programmatic and systems safeguards can be in place.
With regards to the commenters' recommendation that the occupying
borrower meet minimum qualifying threshold when there is a non-occupant
co-borrower under paragraph (a)(2) of this section, HUD appreciates the
commenters' concerns. However, when an occupying borrower and a non-
occupant co-borrower are on the same loan, it is critical that the
occupying borrower meet a minimum qualifying threshold to avoid the
situation where as soon as the other non-occupant co-borrower no longer
can contribute towards the mortgage, the occupying co-borrower faces
default. Exempting the occupying borrower from meeting a minimum
qualifying threshold will cause undue and unnecessary risks to the
Section 184 Program.
Sec. 1005.409 Credit Standing
Commenters recommended a default waiting period of 36 months which
is consistent with other loan programs. Other commenters stated that
this section codifies a current practice of not having a credit score
that impacts the borrower's ability to qualify for a Section 184 Loan.
The commenters suggested that this section continue to be a guideline/
policy and not set in stone in the regulations. Another commenter
stated that prohibiting the use of credit scores to measure a
borrower's creditworthiness is contrary to their use by the lending
industry. The commenter recommended that a Section 184 lender should
have the discretion to use credit scores, along with credit history and
payment patterns, to evaluate credit worthiness.
HUD Response: HUD appreciates the commenters recommendations for a
36-month waiting period for borrowers who previously defaulted on a
Section 184 loan. As mentioned above, HUD considered the comments and
has adopted a seven-year waiting period, or other period as may be
prescribed by Section 184 Program Guidance, to minimize risk to the
program. The seven-year waiting period only applies when the borrower
defaults on the Section 184 Loan and there is claim payment by HUD. HUD
has a long-standing prohibition of the use of credit scores for the
Section 184 Program. As a result, HUD has not revised this section to
provide Direct Guarantee Lenders the discretion to use credit scores.
Direct Guarantee Lenders are able to evaluate the credit worthiness of
Native borrowers without using credit scores. HUD will continue this
time-tested successful practice for the benefit of Native borrowers.
Sec. 1005.413 Acceptable Title
Commenters expressed concern that this requirement does not provide
any risk mitigation to HUD due to the unique status and marketability
issues of trust land properties. The commenters explained that this
requirement would cause issues for borrowers with trust loans in having
to redo leases and eliminating it would benefit borrowers. Commenters
requested that HUD consider instead the necessity of having a lease on
trust property that exceeds the mortgage term by ten years, which is
standard in the industry. One commenter also suggested adding to this
section ``including but not limited to leasehold, Allotted and Land Use
Deed''. The commenter explained that this language currently permits
land types and would include other land types that evolve over time and
need to be permitted.
Another commenter proposed that that Tribal Nations be recognized
as being able to provide both Acceptable Title and Property Ownership
Report for
[[Page 20043]]
Section 184 Program purposes, thereby reducing delays in the loan
approval process.
HUD Response: HUD does not believe that this provision will cause
issues for borrowers with Trust Land loans, possibly requiring these
borrowers to redo leases. Tribes approved to participate in the Section
184 Program are required to have their Section 184 Tribal leases
approved by HUD prior to any mortgage lending on Tribal Trust Land. As
a result, it is highly unlikely a Section 184 lease would ever need to
be redone solely because of the requirement under Sec. 1005.413.
HUD also appreciates the comment that Tribal Nations be permitted
provide acceptable title and property ownership reports for the Section
184 Program. HUD will explore further the feasibility of this proposal
and what safeguards, if any, HUD must adopt to ensure there are no
increased risks to the program should this proposal be implemented.
Sec. 1005.415 Sale of Property
One commenter recommended that Sec. 1005.415(c) be revised to
provide that all sales occurring within 180 days of acquisition require
additional documentation, such as a second appraisal. The commenter
further recommended that the additional documentation should be
described in these paragraphs because they are vague as written. The
commenter noted that restrictions on eligible borrowers' ability to
purchase flipped or remodeled homes reduces their opportunities to
purchase. The commenter also stated that the use of ``property
flipping'' in the title of paragraph (c)(4) of Sec. 1005.415 is
misplaced and unnecessary. Specifically, the commenter noted that Sec.
1005.415(c)(2) and (3) do not include the term ``property flipping''
and the fact that a home is sold for a higher price within 12 months of
purchase does not unequivocally mean it was flipped. The commenter
stated that if the goal of this section is to require additional
documentation for properties that were flipped, then there must be a
definition for the same that involves construction.
HUD Response: HUD appreciates the numerous comments received
regarding this section of the regulation. This section is vital to
ensure that Holder and Servicers understand the legal requirements
regarding sales of a home involving a Section 184 borrower. HUD
disagrees with the comment to revise Sec. 1005.415(c). Paragraph (c)
relates to time restrictions on resale and is divided into paragraphs
(c)(1) through (3). Each of these paragraphs properly lay out an
important component of this section. HUD agrees that the term
``property flipping'' should not be used in paragraph (c)(4). HUD
disagrees that there should be definition for the same that involves
construction. This section equally applies to new construction.
Sec. 1005.419 Requirements for Standard Housing
One commenter stated that Sec. 1005.419(a) provides that heating,
plumbing, and electrical systems must conform with any applicable
Tribal code, and if there is no applicable Tribal code, an appropriate
local, state, or national code. The commenter recommended that
conformance with an international code be included alongside the other
types of codes to use in place of an applicable Tribal code.
Other commenters recommended that paragraph (a)(6) of this section
should allow for a minimum square footage of ``not less than 200 square
feet in size, if designed for a family of not more than 2 persons.''
These commenters explained that ``tiny homes'' provides affordable
housing options to Tribes faced with skyrocketing home costs on
reservations and have been shown to be successful on reservations.
Other commenters proposed moving this paragraph from this final rule
and making it part of the guidelines instead.
One commenter proposed removing ``for properties on Trust Land''
from paragraph (a)(6)(v) as Tribes can have Fee Simple and Restricted
Fee on and off the reservations. The commenter explained that removing
this would allow Tribes with all land types to be able to request the
waiver of the square footage requirement.
Other commenters proposed that the requirements of paragraph (e) of
Sec. 1005.419 be rewritten to allow a property to be eligible for a
Section 184 loan guarantee if the building located with a Special Flood
Hazard Area (SFHA) is insurable by any flood insurance. These
commenters stated that Tribes should not be subject to flood insurance
under the National Flood Insurance Program (NFIP), as States are exempt
from this requirement. The commenter also explained that Letters of Map
Amendments (LOMAs), Letters of Map Revision (LOMRs), and NFIP Elevation
Certificates are not available to communities, including Tribes, that
are not a part of the NFIP. The commenters recommended that the rule be
written to allow a property on a SFHA to be eligible so long as the
flood risks are mitigated, and flood insurance is obtained. These
commenters stated that the majority of Tribes in the U.S. are not
participants of the NFIP but are able to mitigate their flood risks and
obtain flood insurance from reputable insurance companies outside the
NFIP. Finally, another commenter noted that the environmental review
process is often a burden to lenders, with HUD and the BIA having
separate requirements. The commenter recommended that a streamlined
process and single form should be agreed to for a consolidated
environmental review process that is completed by the Tribe or its
assignee at the time of the lease.
HUD Response: HUD appreciates the numerous comments regarding this
section of the proposed rule. HUD has considered the suggestion to
reference international codes in paragraph (a) in this section and has
accepted the suggestion to utilize the International Building Code.
HUD also appreciates the comments suggesting a lower minimum square
footage requirement for paragraph (a)(6) of Sec. 1005.419. However,
this section derives from section 184(j)(6) of the Act and HUD has no
ability to on its own waive this statutory provision. However, as
discussed above, the Act provides that upon the request of a Tribe or a
TDHE, HUD may waive the minimum square footage requirements.
HUD appreciates the comment regarding paragraph (d)(4), but HUD has
decided to adopt the same standard as used by the FHA-family forward
mortgage program. HUD agrees with the comment regarding private flood
insurance and has revised the provision to allow for private flood
insurance.
Sec. 1005.421 Certification of Appraisal Amount
One commenter noted that there are few, if any, qualified Native
American restricted land appraisers, and that determining the market
comparison is extremely difficult. The commenter stated that the
current option of utilizing replacement cost or actual cost for new
units in lieu of an appraisal continues to be the most practical method
of determining value. The commenter also stated that in most real
estate transactions, the buyer and or his bank is responsible for
determining (appraisal) value, and not the seller.
Another commenter recommended that HUD provide a fuller definition
of the term ``appraisal,'' similar to requirements in other HUD and
Fannie Mae contexts where opportunities for alternative appraisal
methods are provided. Furthermore, the commenter, citing a Brookings
Institution report, noted concerns about discrimination in the home
mortgage process for Native Americans, as there is potential bias in
home appraisals occurring on Tribal
[[Page 20044]]
reservations. The commenter recommended that the requirements should
require lenders and originators to attest that appraisals used come
from competent appraisers, and who, like the Consumer Financial
Protection Bureau (CFPB) requires appraisers to attest that the
appraisal conforms with ``the Fair Housing Act and Equal Credit
Opportunity Act.''
HUD Response: HUD appreciates the comments regarding the challenges
of appraising property located on restricted lands and the request for
a definition of appraisal. This section requires an appraisal to be
completed, which would require the seller to allow an appraiser to
access the property, to inspect the subject property, and prepare an
appraisal report. HUD has addressed the concerns of the commenters
regarding Fair Housing Act and the Equal Credit Opportunity Act in
Sec. 1005.457. As a result, HUD is revising this section by
referencing the Fair Housing Act and the Equal Credit Opportunity Act,
along with revising the language for clarity regarding HUD's ability to
provide for appraisal alternative requirements.
Sec. 1005.423 Legal Restrictions on Conveyance
One commenter suggested that this section should be updated to
allow for leases and sales with third party consent from a governmental
entity or agency, master lessee, and planned community authorities.
Another commenter suggested that paragraph (b)(4) of this section be
revised to clarify that restrictions which do not restrict conveyance
are not impacted by this rule, i.e., covenants on a subdivision
continue to apply.
HUD Response: HUD appreciates commenters' input and recognizes the
concerns raised regarding third party consent and clarification of
restrictions on conveyance. HUD will provide further administrative
guidance to address commenters' concerns.
Sec. 1005.425 Rental Properties
A commenter recommended that paragraph (b) of Sec. 1005.425, which
contains the phrase ``one- to four-unit properties'', should be changed
to ``properties'' since that term defines the phrase. Additionally, the
commenter stated ``Property'' or ``Properties'' should be capitalized
throughout the proposed rule since they are being used to describe the
dwellings identified under the definition of ``Property''.
HUD Response: As discussed previously, HUD defined ``property'' in
Sec. 1005.103 to mean one to four-family dwellings and is consistent
with current policy. HUD has not capitalized the term throughout the
regulations. HUD made further changes to Sec. 1005.425 to clarify that
there is one Section 184 Guaranteed Loan per ``property,'' and a
``property'' may be one to four-family dwellings.
Sec. 1005.427 Refinancing
One commenter recommended moving this entire section to guidance,
with a reference to new construction financing, whether it be
refinancing the construction loan, reimbursement of funds spent or a
combination.
HUD Response: HUD appreciates the comment but has not moved the
entire section to guidance. However, HUD did add paragraph (d) to this
section to clarify that construction loans less than one year old are
included under rate and term refinance.
Sec. 1005.429 Eligibility of Loans Covering Manufactured Homes
Several commenters sought clarity concerning the standards for
manufactured homes, including a time frame for Tribal Nations to come
into compliance with this section, and whether this section applies to
existing homes and 184 Program loans located on Tribal reservations.
HUD Response: With respect to manufactured homes located on fee
simple properties, HUD is not changing the standards for manufactured
homes. These manufactured homes must continue to conform to the
National Manufactured Housing Construction and Safety Standards Act of
1974, as amended (HUD Standards). Under Sec. 1005.429(b), this section
applies to manufactured homes on Trust Land, HUD revised this section
to clarify in the absence of Tribal laws addressing installation
standards, provisions of Sec. 1005.429(a)(1), (3), and (4), and any
applicable Section 184 Program Guidance shall apply. HUD will provide
an effective date and compliance date for the final rule, allowing
Tribes ample time to review and implement the new regulations.
Sec. 1005.431 Acceptance of Individual Residential Water Purification
One commenter stated that paragraph (c)(1) of Sec. 1005.431 should
be revised since it is not within the control of the lender when a
borrower receives notice of the need for water purification or when the
borrower signs a sales contract, and that this should be stated in the
real estate law and stricken from regulations. The commenter also
stated that Sec. 1005.431(c)(2)(ii) provides that the lender would be
responsible for providing a Good Faith Estimate of the ongoing
maintenance and replacement costs of the equipment and that this would
not be within the lender's scope of knowledge. Another commenter
recommended that the proposed rule clarify the type of proof required
to show compliance under this section.
HUD Response: HUD appreciates this comment but does not believe
that Sec. 1005.431(c)(1) should be revised. While it is true that a
Direct Guarantee Lender may not have control of the timing of when a
borrower receives the notice under Sec. 1005.431(c)(1), HUD requires
the borrower to receive the notice under (c)(1) of this section as one
of the conditions of loan eligibility under the Section 184 Program.
Therefore, Direct Guarantee Lenders must ensure that the notification
occurred before the signing of the contract for the loan to be eligible
under the program. HUD agrees that the lender is not responsible for
providing the borrower a Good Faith Estimate as required under
paragraph (c)(2)(ii) of this section. To clarify, this is a transaction
between the seller of the property and the borrower. However, HUD is
requiring the lender to obtain a copy of the document from the borrower
and submit it with the loan package.
Sec. 1005.435 Eligible Collateral
One commenter suggested that the proposed rule expand the amount
constituting the collateral amount to all costs that have been expended
by the borrower, or on behalf of the borrower, including water, sewage,
or driveway installation, similar to Sec. 1005.443. Another commenter
recommended that the proposed rule clarify whether a leasehold interest
on trust land can be considered part of the eligible collateral.
HUD Response: HUD appreciates commenters' input. As a program and
industry practice, all costs paid by the borrower are not factored into
the value of the collateral. The value of the collateral is determined
by a property appraisal which includes all eligible improvements.
Further clarification will be provided in Section 184 Program Guidance.
Additionally, this section specifically states that the Trust Land,
which is secured by the leasehold interest, is not considered eligible
collateral. HUD will provide additional clarity on what constitutes
eligible collateral in administrative guidance.
Sec. 1005.437 Loan Provisions
One commenter proposed that paragraph (g) of this section be
revised to reflect the current process for guarantee and construction.
The commenters noted that the proposed rule does not mirror the current
process
[[Page 20045]]
and does not provide lenders with certainty that HUD will guarantee the
loan because that determination will be made at closing. The commenter
further stated that the proposed rule indicates HUD may guarantee
advances as they happen. However, according to the commenter, the loan
is fully funded at closing, as the construction funds are deposited
into a construction account and the advances are paid out of that
account. Currently, the loan is guaranteed just like any other loan
with the same documentation and is typically in place prior to the
construction being finished. The proposed requirements will cause
delays with construction if each advance must wait to be guaranteed,
and the current language indicates the advance ``may'' be guaranteed,
indicating that some draws could be denied a guarantee, which will put
undue risk or burden on the Tribal borrower, Tribes, TDHEs, and the
lenders. The commenter opined that if the guarantee is no longer going
to be done after closing when the funds are put into the construction
account and done only with each advance it will have a major negative
impact on the borrowers and reservations.
HUD Response: HUD appreciates the extensive comments received on
the topic of the Single-Close construction program. Based on
commenters' suggestion regarding Sec. 1005.437(g), HUD has revised
this paragraph to make clear that HUD is not guaranteeing each
individual advance made by the Direct Guarantee Lender during
construction. Further, HUD added paragraphs (h) that changes to the
building Loan Agreement must be approved and documented by the Direct
Guarantee Lender prior to the construction advance and (i), which
requires the Direct Guarantee Lender to submit a construction
completion package to HUD, as prescribed in Section 184 Program
Guidance. HUD revised paragraph (g) by removing paragraph (g)(2) to
remove any requirements for HUD to approve construction advances. HUD
inserted paragraph (h) to address changes to the Loan Agreement and
paragraph (i) to address the documentation HUD shall require upon
construction completion. HUD intends on providing administrative
guidance and future training on the Single-Close Construction program.
Sec. 1005.439 Loan Lien
Several commenters noted that the requirement for prior approval by
HUD of second mortgage liens will primarily affect tribally sponsored
homeownership assistance programs and stated that HUD already has well
defined rules around second liens and there is no need to change them.
These commenters explained that this proposal will add to the closing
timeframes and negatively impact Native borrowers. Some commenters
noted that contractors' and tribally funded liens must be considered,
and if a contractor or Tribe properly or improperly records a junior
lien on the property's title, it should not invalidate the senior lien
and should not accelerate the payment for the borrower. Other
commenters noted that the proposal to prohibit interest and principal
payments and require loan forgiveness conflicts with many of the
homeownership assistance programs. Commenters provided a list of
Tribes, TDHEs, and Tribal communities that would be negatively
affected.
Another commenter sought clarification regarding whether the
proposed requirements would limit the Tribal down payment assistance
(DPA) as a second mortgage. The commenter explained that many DPA
grants are awarded as second forgivable mortgages. The commenter noted
concern that if DPA was limited, borrowers might be likely to use other
programs. A separate commenter stated that, as written, Sec.
1005.439(b) is contrary to the original intentions of the Section 184
Program, which are to provide more flexibility and opportunities for
eligible borrowers. The commenter contended that HUD's proposals would
reduce the options eligible borrowers have because it allows junior
liens to only come from Direct Guarantee Lenders. Eligible borrowers
can only receive one Section 184 loan on their principal residence,
which must come from a Direct Guarantee Lender, and limiting their
options for a separate junior lien ``is futile.'' The commenter also
stated that there is nothing in this section or the proposed rule
allowing for a junior lien to be placed on the property's title by a
contractor or the member's Tribe.
HUD Response: HUD appreciates the numerous comments received on the
loan lien section. It was not HUD's intention that Direct Guarantee
Lenders seek HUD approval when there will be a junior lien on the
property or to change existing HUD policies on junior liens. Rather, it
is HUD's intention that where there will be a junior lien, the junior
lien conditions must satisfy the requirements outlined in Sec.
1005.439 (b) through (d), where applicable, and to continue to allow
junior liens from Tribes, TDHEs and downpayment assistance programs.
HUD revised paragraph (b) of this section to provide greater clarity as
to HUD's intent. HUD will provide administrative guidance on the
commonly acceptable junior liens held by Section 184 borrowers, such as
liens by Tribes, TDHEs and contractor's liens and liens related to
downpayment assistance programs.
Sec. 1005.443 Loan Amount
One commenter noted a technical change stating that ``lessor'' in
paragraph (b)(ii) should be ``lesser''.
HUD Response: HUD has corrected this typographical error.
Sec. 1005.445 Case Numbers
Several commenters stated that case numbers may only be obtained by
lender or Sponsored Entity, but paragraph (b) of this section
specifically identifies the Direct Guarantee Lender. The commenters
recommended that HUD clarify whether a sponsored broker is allowed to
order their own case number or if their sponsoring lender is required
to request a case number.
HUD Response: HUD appreciates commentors' input. Under Sec.
1005.445 a sponsored broker is not allowed to order their own case
number. HUD has revised the regulation to clarify that only the Direct
Guarantee Lender can request a case number.
Sec. 1005.447 Maximum Age of Loan Documents
Commenters suggested that this section should require review and
revision at minimum on an annual basis. One commenter also proposed
adding title commitments to adhere to state expirations. The commenter
noted that Tribal Resolutions are typically accepted based on number
units or maximum dollar and typically expire based on their content,
not based on a date. Another commenter noted that administrative
difficulties and delays cause borrowers to not meet deadlines related
to the maximum age of loan documents. One commenter stated that this
section does not consider the impacts of BIA rules and processes.
HUD Response: HUD agrees with the commenters' that title documents
should be included in this section and has revised the language to
include title documents reviewed at closing in addition to documents
reviewed at underwriting. Additionally, HUD agrees that the section
should be more flexible regarding the maximum age of these documents
and has revised this section so that the age of the documents will be
described by Section 184 Program Guidance.
Sec. 1005.451 Agreed Interest Rate
Several commenters opposed the prohibition on risk-based pricing.
They explained that risk-based pricing is an
[[Page 20046]]
accepted practice in the mortgage industry, including the Government
Sponsored Entities, and that it benefits some borrowers based upon
their personal credit history and loan size and negatively impacts
others. The commenters further noted that risk-based pricing reflects
the added costs of servicing smaller loans and loans with a higher risk
of default; however, in practice, the 100 percent loan guarantee rarely
reimburses the servicer for 100 percent of their losses from a default.
HUD Response: HUD disagrees with the comments regarding risk-based
pricing. The Section 184 Program offers up to 100 percent reimbursement
for the unpaid principal balance and interest, along with reimbursement
of Holders and Servicers eligible costs in the case of borrower's
default on the Section 184 Loan when Holders and Servicers comply with
all applicable Section 184 requirements. Therefore, HUD does not permit
risk-based pricing on Section 184 Loans. The major secondary market
organizations, such as Freddie Mac and Fannie Mae, have specifically
exempted risk-based pricing for Section 184 Loans.
Sec. 1005.457 Appraisal
A number of commenters stated that the appraisal requirements would
eliminate the ability of lenders to select a non-FHA certified
appraiser in cases where there is no FHA-certified appraiser available.
These commenters explained that many Tribal borrowers and Tribal
reservations are in very rural and remote areas where it is difficult
and expensive to find an appraiser. According to the commenters,
limiting lenders to the FHA Appraiser Roster will prevent some Tribes
and Tribal homebuyers from receiving Section 184 loans and will
dramatically raise the cost for others. Additionally, the commenters
stated that there are not many cost comparison properties on the market
and recommended allowing cost-based appraisals for new construction as
well.
One commenter recommended broadening the pool of eligible
appraisers. The commenter noted that the current proposal states, ``The
appraiser must be knowledgeable in the market where the property is
located''. According to the commenter, this requires upfront competency
leading into the assignment, which could be rather limited in certain
markets. The commenter explained that a broader approach would allow
appraisers to gain competency during the assignment, which would
maintain consistency with the Uniform Standards of Professional
Appraisal Practice (USPAP). The commenter further explained that this
approach would allow appraisers to ``acquire the necessary competency
to perform the assignment'' even after accepting the assignment.
Another commenter recommended, for Native American borrowers
purchasing properties in less remote areas, the lenders serving those
borrowers should be able to use Automated Valuation Model (``AVM'')
systems that have a proven track record of being accurate and non-
discriminatory. The commenter stated that by embracing this technology
HUD can save these Tribal borrowers significant costs while ensuring
that they are not subject to discriminatory appraisal practices, among
many other benefits.
Separate commenters sought clarification on whether the age of the
appraisals should be 120 or 180 days to align with recent Mortgagee
Letter 2022-11. Further, the commenter proposed additional language to
allow for cost-basis appraisal and allowing Tribes and TDHEs to utilize
master appraisals for the same floor plan on a similar site or for
leaseholds where there is no land value included. Finally, a commenter
proposed amending Sec. 1005.457(a), which reads ``HUD may establish
alternative requirements,'' to read instead, ``HUD has established
alternative requirements,'' which would reflect current policy. The
commenter stated that without such guidance Native American borrowers
located on-reservation will continue to experience delay, if not
outright discrimination, guised as a requirement if the language is not
amended.
HUD Response: HUD recognizes the challenge remote locations can
present when appraising real estate. To address this, the regulation
provides HUD with discretion to establish alternative requirements when
necessitated by the location of the property and availability of
appraisers in the area. HUD agrees with the comment regarding the
validity period for an appraisal and has revised the regulation to
provide for a validity period to 180 days or any other period as may be
prescribed by Section 184 Program Guidance.
Sec. 1005.501 Direct Guarantee Lender Closing Requirements
One commenter asked why ``Trust Land'' in paragraph (a)(2) of this
section receives its own special guidance in a document outside the
proposed rule. The commenter stated there is no language in the statute
limiting the Section 184 Program to just Trust lands, and in fact the
statute provides for eligibility for Native Americans living on
``otherwise restricted land;'' the commenter cited 12 U.S.C. 1715z-13
and 1715z-13a. The commenter explained that without addressing or
providing additional guidance for Native American borrowers who reside
on ``otherwise restricted land'' over which their Nation has
``governmental jurisdiction'', and such lands are not held in trust,
they will continue to experience significant barriers in trying to
obtain on-reservation home financing.
Several commenters recommended this section better align with
current guidance, noting that that Sec. 1005.501(d), requiring the
Direct Guarantee Lender to close the loan will cause major issues with
correspondent lenders who do not have underwriting staff. The
commenters further stated that this will lead those lenders to use
another program, such as FHA, instead of the Section 184 Program. Other
commenters stated that closing in the Direct Guarantee Lender's name
may deter new lenders from the Section 184 Program. These commenters
also noted that the requirement to have a Section-184 certified
underwriter on staff may deter many lenders from entering the Program.
Another commenter referencing Sec. 1005.501(e) and (f) stated that
this program was created with an understanding that Congress through
HUD might have some ongoing subsidy requirements to make the Program
viable. The commenter further stated that it would be appropriate for
HUD to confer with Tribes and Congress to identify how that
appropriation would be decreasing over the years as Tribes learn how to
encourage lending through expedited leasing (Hearth Act), Tribal court
training, and focused Tribal code.
One commenter identified an incorrect cross-reference to Sec.
1005.713 in paragraph (f), which provides for establishment of an
escrow account and repair completion escrow account in accordance with
Sec. 1005.713--but that section pertains to a Due-on-Sale provision
that must be contained in a Section 184 Guaranteed Loan. Another
commenter recommended that Sec. 1005.501(j) be revised so that Tribes
can receive notice of a member's default so they can assist with loss
mitigation, as it does under the current rules. The commenter explained
that allowing Tribes the opportunity to assist with loss mitigation
will further satisfy the purpose of the rule because it will add
protections against the loss of the underlying security for loan
servicers and encourage more servicers to participate in the Section
184 Program.
Another commenter expressed concerns with Sec. 1005.501(j), which
[[Page 20047]]
provides that Tribes are the beneficiary owners of Tribal trust lands.
The commenter noted that for all practical purposes, Tribes own the
land being leased to the Tribal member and are entitled to notice upon
default. According to the commenter, many Tribal mortgage laws require
the lender to send a notice of the right of first refusal at some time
after default. Requiring a borrower's consent prior to providing notice
of default to a Tribe is contrary to many Tribal mortgage laws, and is
contrary to proposed Sec. 1005.311, which requires a Tribe to notify
HUD of lease violations regardless of a borrower's consent. The
commenter recommended that the requirements clearly state that a
Section 184 lender will notify the borrower that a Tribe may be
notified of default regardless of whether a borrower consents.
Other commenters recommended that the release form provided by HUD
to the borrower at closing allow the lender and HUD ``to notify the
Tribe [or another entity as designated by the borrower] in the event of
default.'' The commenter noted that this would allow the borrower to
designate the entity that assisted them to qualify for the mortgage,
such as a nonprofit, Native CDFI, or TDHE, and would help ensure that
early intervention and foreclosure prevention education occur early
enough to avoid foreclosure. The commenter suggested that, at closing,
the Tribe and homebuyers should be able to choose if a HUD Housing
Counseling Agency should be contacted for assistance.)
Other commenters stated that paragraph (a)(3) of the section does
not conform with the flexibility provided to borrowers in Sec.
1005.501(j). The commenter explained that if a borrower elects not to
give notice to its Tribe pursuant to Sec. 1005.501(j), then a Tribe
will not receive notice under Sec. 1005.741(a)(2) and will not be able
to fulfill its requirements under paragraph Sec. 1005.501(a)(3).
Another commenter asked how HUD planned to implement the requirement
that Tribes assist in facilitating loss mitigation efforts and in the
disposition of defaulted properties. The commenter noted that many
Tribes have decided to stay out of the default process and let lenders
perform their jobs.
HUD Response: HUD appreciates the extensive comments on this
section of the regulation. With regards to the comment asking HUD why
Trust Land has its own provisions under Sec. 1005.501(a)(2), it is
because Trust Land encompasses more than one land status type, and each
land status type may have its own distinct requirements and challenges.
HUD considered the many comments received suggesting HUD incorporate as
much flexibility as possible in this section so that the many nuances
of Trust Land lending can be addressed. HUD believes that the
flexibility provided by this regulation allows it to address the
nuances of Trust Land lending. HUD appreciates the comment regarding
``otherwise restricted fee'' language that commenter quoted from the
Housing Act of 1992, as amended, and incorporated the term ``restricted
fee'' into the definition of ``Trust Land'' in this regulation.
Regarding the comments received concerning paragraph (d) of this
section, which requires Direct Guarantee Lenders to close the loan in
the Direct Guarantee Lender's name, HUD disagrees that this provision
will negatively impact the program. Because HUD will only be working
directly with Direct Guarantee Lenders in all aspects related to loan
origination, underwriting, and closing, naturally then the loan must
close in the Direct Guarantee Lender's name. HUD has corrected the
incorrect cross-reference in paragraph (f) of this section to properly
cite to Sec. 1005.717.
With respect to the comment regarding Sec. 1005.501(j), HUD does
not agree that Tribes should automatically receive notice of borrower's
default. It is important that borrowers have the option whether to
disclose the default to the Tribe or not early in the process.
Borrowers may have privacy concerns regarding sharing default
information with the Tribe. Through outreach or marketing of Tribal
assistance programs, Tribes should encourage Tribal borrowers to elect
disclosure so that help can be provided to defaulted borrowers as early
as possible in the process. HUD also does not agree that paragraph (j)
be revised to allow the borrower to elect to disclose to another third-
party, which may include the TDHE, nonprofit, or housing counseling
agencies, as examples. However, the borrower can reach out to a third
party directly if the borrower chooses to.
HUD does not agree with the comment that paragraph Sec.
1005.501(a)(3) does not conform with the flexibility provided to
borrowers in Sec. 1005.501(j). While a borrower may elect to not
provide notice to his or her Tribe pursuant to Sec. 1005.501(j), it
does not mean the Tribe would not receive the notice of borrower's
default, thereby making it impossible for a Tribe to comply with
paragraph (a)(3). When a borrower elects not notify the Tribe under
Sec. 1005.501(j), a Tribe will still receive a first right of refusal
under Sec. 1005.759. Nevertheless, HUD revised paragraph (a)(3) to
make it clear that when Tribes receive notice of borrower's default
under Sec. Sec. 1005.501(j) or 1005.759, Tribes shall assist in
facilitating loss mitigation efforts and in the disposition of Trust
Land properties.
HUD believes that Tribes are a vital partner in the Section 184
Program, especially in cases involving defaulted borrowers on Trust
Land. It is critical that Tribes engage the borrower and Holder and/or
Servicer and assist in loss mitigation and disposition wherever
possible. HUD will provide further guidance on what ``assist, where
practical, in facilitating loss mitigation and disposition'' (Sec.
1005.501(a)(3)) of the property means for Tribes in administrative
guidance.
Sec. 1005.507 Borrower's Payments To Include Other Charges and Escrow
Payments
Commenters recommended that the proposed rule clarify whether there
is reimbursement for force placed insurance when a Borrower lets their
policy lapse. The commenters also recommended adding an option to
escrow for annual lease payments on Tribal leaseholds to avoid default
and complications associated with the notice to HUD and lender.
HUD Response: HUD will provide administrative guidance pursuant to
Sec. 1005.507(a)(7) regarding Holder or Servicer's purchase of force
placed insurance when borrowers let their policy lapse. Regarding the
comment on annual lease payments, under this section borrower's monthly
payment must include, among other things, ``ground rents'', which
includes lease payments from the Tribal member to the Tribe. HUD had
provided additional language at Sec. 1005.507(a)(1) and will provide
administrative guidance on the collection of Tribal leasehold payments
for escrow under this regulation.
Sec. 1005.517 Certificate of Nondiscrimination by the Direct Guarantee
Lender
One commenter stated that Sec. 1005.517(a)(1) and (2) list several
items regarding nondiscrimination including race, sex, and handicap.
The commenter recommended that the terms ``age'' and ``sexual
orientation'' be added to these lists.
HUD Response: HUD agrees in part with the commentor. HUD has
included ``gender identity'' and ``sexual orientation'' in both
paragraphs (a)(1) and (2), in accordance with Executive Order 13988,
``Preventing and Combatting Discrimination on the Basis of Gender
Identity or Sexual Orientation'' and HUD's February 2021
[[Page 20048]]
implementing memorandum and included ``age'' in paragraph (a)(1). The
Equal Credit Opportunity Act provides for the prohibition based on
``age'' in the context of making a loan, but there is no Federal
statute providing for ``age'' as a protected class with regards to
restrictive covenants.
Sec. 1005.527 Post-Endorsement review
Commenters stated that if a loan guarantee certificate can be
revoked after endorsement, then it is not a guarantee but instead
insured like FHA. The commenters strongly stated that this weakens the
guarantee and may cause lenders to lose faith in the benefits of this
100 percent guarantee loan.
HUD Response: Commenters misunderstand this regulation. This
regulation is not stating the Loan Guarantee Certificate can be revoked
after endorsement. Rather, HUD may request indemnification from the
originating Direct Guarantee Lender and impose sanctions on the Direct
Guarantee Lender and Sponsored Entity in the event of noncompliance,
pursuant to Sec. Sec. 1005.905 and 1005.907.
Sec. 1005.529 Indemnification
A commenter recommended that indemnification should only be
required when it is proven that the originating Direct Guarantee
Lenders had a deficiency in underwriting or due to fraud or
misrepresentation.
HUD Response: HUD appreciates the commenter's input; however, HUD
has determined that this regulation may require that the originating
Direct Guarantee Lender indemnify any Section 184 Guaranteed Loan where
it finds an underwriting deficiency and the Section 184 Guaranteed Loan
should not have been approved.
Sec. 1005.603 Upfront Loan Guarantee Fee
Commenters objected to the maximum 3 percent Upfront Loan Guarantee
Fee. Commenters stated that the market has stabilized since the 2008
foreclosure crisis, HUD has not provided sufficient justification for
the high fees, and that the high fees negatively impact affordability
for Tribal borrowers. Another commenter recommended a 1 percent upfront
fee model as an alternative (and 0 percent for the monthly premium, see
Sec. 1005.607 in this summary). Another commenter noted that many
Tribes and TDHEs were unaware of the Upfront Loan Guarantee Fee.
Commenters recommended that Section 184 refinance borrowers should
get a credit against their new Guarantee Fee. Commenters explained that
a Tribe or native borrower that chooses to refinance a Section 184 loan
is charged a loan guarantee fee of up to 3 percent of the loan balance
of the new loan even though they previously paid HUD to guarantee the
virtually identical loan. In addition, commenters stated that new loan
represents a lower risk to HUD due to a lower loan-to-value and
interest rate in most cases.
Another commenter stated that these fees would counteract the
reduced rates by adding as much as 4 percent of the principal
obligation each year. The commenter further stated that the fees would
eliminate the competitive nature of Section 184 loans, and that the
fees serve only the financial institutions, not Tribal members and
communities. The commenter also recommended that the existing loan
guarantee fee should not be increased from its current maximum.
HUD Response: Under 12 U.S.C. 1715z-13a(d), the Section 184 Program
is authorized to charge ``an amount not exceeding 3 percent of the
principal obligation of the loan.'' This section codifies that
authority and restates that any ``Up-front Loan Guarantee Fee'' set by
HUD will first be published in the Federal Register. Pursuant to 12
U.S.C. 1715z-13a(i), the Up-front Loan Guarantee Fee funds, in part,
the Indian Housing Loan Guarantee Fund (Fund). The Fund pays for, among
other things, claim payments to Holders and expenses incurred by HUD in
the disposition of HUD foreclosed properties. The Fund may not be used
for crediting borrowers as doing so would violate the statutory
requirements of the Section 184 Program.
In 2022, HUD conducted an analysis of the program's portfolio,
including default rate and credit subsidy data, and determined the
program could support a reduction in the loan guarantee fees charged on
new loans. Subsequently on May 4, 2023, HUD published a Federal
Register Notice (88 FR 28598), informing the public it would be
exercising its legal authority to decrease the ``Upfront Loan Guarantee
Fee'' from 1.50 to 1.00 percent and the ``Annual Loan Guarantee Fee''
from 0.25 to 0.00 percent for all new or updated Section 184 firm
commitments after July 1, 2023.
Sec. 1005.605 Remittance of Upfront Loan Guarantee Fee
Several commenters objected to the 15-day timeline for lenders to
remit the ``Upfront Loan Guarantee Fee'' stating that it would be
administratively burdensome to small Tribes and lenders.
HUD Response: HUD appreciates the comments and understands the
commenters' concerns. Small Tribes and Direct Guarantee Lenders will
not be impacted by this timeline. This section codifies current program
practice and applies only to Direct Guarantee Lenders closing Section
184 guaranteed loans.
Sec. 1005.607 Annual Loan Guarantee Fee
Commenters objected to the ``Annual Loan Guarantee Fee's'' maximum
of 1 percent of the principal obligation of the loan. Commenters stated
that the market has long since stabilized since the 2008 foreclosure
crisis and HUD has not justified the need for these high fees which
negatively impact affordability for Tribal borrowers. One commenter
recommended a 0 percent monthly premium model (and 1 percent upfront,
see Sec. 1005.603 in this summary).
HUD Response: HUD appreciates the commenter's input. Similar to the
response for Sec. 1005.603, the program is authorized by statute to
charge up to a one percent ``Annual Loan Guarantee Fee.'' This section
codifies that authority and restates that any ``Annual Loan Guarantee
Fee'' set by HUD will first be published in the Federal Register. When
collected, the purpose of this fee is to pay for certain programmatic
expenses, such as claim payments to Holders and to fund expenses HUD
incurs in the disposition of HUD foreclosed properties. Additionally,
as previously stated in Sec. 1005.603, effective July 1, 2023, HUD has
eliminated this fee by reducing it to 0.00 percent.
Sec. 1005.609 Remittance of Annual Loan Guarantee Fee
One commenter recommended that HUD cease collecting the monthly
installment of the Annual Loan Guarantee Fee when the amortized loan-
to-value ratio equals an amount less than 80 percent, instead of the 78
percent published in the proposed rule. The commenter stated that this
small increase in percentage will bring the Section 184 Program in line
with the standard found in the Homeowners Protection Act of 1998 for
Private Mortgage Insurance and would equate to approximately a year's
worth of annual fee payments, providing a small benefit to Tribal
borrowers.
HUD Response: In consideration of this comment, HUD removed the
specific requirement of 78 percent loan to value ratio and provided HUD
the ability to establish the Annual Loan Guarantee Fee termination
threshold by notice in the Federal Register. This will
[[Page 20049]]
provide flexibility to quickly respond to unforeseen economic
conditions.
Sec. 1005.611 HUD Imposed Penalties
One commenter proposed removing the monetary penalties on lenders
and servicers related to the collection and submission of loan
guarantee fees, stating that sanctioning lenders for not meeting HUD
timelines would discourage lenders from participating in the Section
184 Program.
HUD Response: HUD disagrees with the commenter's statement. This
regulation codifies current program practice, and the program has not
observed any negative impacts from this practice which has been in
place for over a decade.
Sec. 1005.703 Servicer Eligibility and Application Process
One commenter stated that requiring servicers to submit an
application for participation and recertify annually would discourage
servicers from participating in Section 184 Program.
HUD Response: HUD is requiring servicers to submit applications for
participation to make sure servicers have the experience and
qualifications necessary to best serve Native American borrowers and
successfully service Section 184 Guaranteed Loans. Annual
recertification is not intended to be a cumbersome process and is
necessary to make sure the servicers retain their capability to service
Section 184 Guaranteed Loans and to notify HUD of any staffing or
contact changes.
One commenter suggested that in light of the ``unique legal status
of Indian lands . . .'' (see 12 U.S.C. 1715z-13a) no servicer should be
permitted to waive into becoming a servicer under the Section 184
Program. The commenter further stated that all entities wishing to
become servicers under the Section 184 Program should be required to
undergo mandatory training for not only the Section 184 Program, but
also be knowledgeable regarding the legal systems of the Tribal Nations
of the on-reservation Section 184 Programs loans they will be
servicing.
HUD Response: To clarify, HUD's intention under Sec. 1005.703(c)
is to allow qualified servicers that are currently participating in the
program but are not a Federally approved mortgage servicers to submit a
request to be considered a servicer without other Federal agency
approval. HUD will provide guidance regarding the exception in the
Section 184 Program Guidance. HUD anticipates training servicers once
the final rule is published and intends to include a section on Tribal
Nation legal systems as part of that training. HUD made minor technical
corrections to Sec. 1005.703(c) for greater clarity.
Sec. 1005.711 Assumption and Release of Personal Liability
A commenter stated that if the assuming borrower has been assigned
the leasehold and, in the end, does not move forward with the
assumption, then the existing borrower no longer has rights to the
subject property. The same commenter noted that under paragraph (a) of
this section, requiring approval from HUD and other parties would
likely cause extreme delays in the process and reduce the effectiveness
of the ability to assume a loan.
HUD Response: HUD agrees with the commenter and clarifies that the
assignment of leasehold interest or property interest occurs at
closing. Further, HUD agrees that requiring HUD approval of assumptions
could reduce the effectiveness of the process and has removed this
requirement from the section, except in cases where the Holder or
Servicer is not a Direct Guarantee Lender and would not be able to
underwrite the assuming borrower.
Sec. 1005.713 Due-on-Sale Provision
One commenter stated that it is unclear why a servicer would be
required to seek HUD approval to accelerate a loan. Another commenter
stated that under Sec. 1005.713(a), requiring the servicer to advise
HUD of any sale or other transfer that occurs without the approval of
the lender, and to seek HUD's approval to enforce the Due on Sale
provision, can create delays which prevent timely resolution of the
issue.
HUD Response: HUD appreciates the comments on the due-on-sale
provision. HUD has revised the language to clarify the HUD approval to
accelerate is required when ``any prohibited sale or transfer occurs.''
Sec. 1005.729 Section 184 Guaranteed Loan Collection Action
One commenter suggested adding the following to the end of the
paragraph: ``It is the intent of the Department that no mortgagee shall
commence foreclosure or acquire title to a property until the
requirements of this subpart have been followed.'' The commenter
explained that servicers should not proceed with foreclosure unless
they have complied with the servicing framework that the regulations
create and have fully evaluated borrowers for alternatives to
foreclosure. The commenter further explained that to ensure compliance,
HUD should incorporate language from FHA's default servicing
regulation, 24 CFR 203.500. The commenter noted that its proposed
language has been in force for FHA-insured servicers since 1997 and has
provided important clarity on servicer obligations.)
HUD Response: HUD agrees with the commenter and has revised this
section to provide that a servicer cannot commence foreclosure or
acquire title to a property until the requirements of the subpart have
been followed.
Sec. 1005.733 Loss Mitigation Application, Timelines, and Appeals
Commenters expressed concerns with the proposed timelines in Sec.
1005.733(a) and (b). These commenters explained that promulgating
requirements that overlap or conflict with CFPB requirements including
RESPA and FHA loan processes, will make it more challenging for HUD to
adapt to changes in RESPA and could create inconsistencies with other
agencies. One commenter recommended that HUD delete paragraphs (a) and
(b) and noted that HUD should not include these requirements in a
regulation as the requirements may soon become outdated if RESPA
changes. Another commenter stated that paragraph (a) of this section
should rely on RESPA regulations to cover incomplete applications.
Another commenter suggested a ``more reasonable'' timeline for a
customer to return documents for an incomplete application.
Another commenter recommended deleting the following language from
paragraph Sec. 1005.733(c)(5), ``and that the primary alternative to
foreclosure shall be a deed in lieu/lease-in-lieu of foreclosure,'' and
replacing it with ``but the servicer may still offer alternative loss
mitigation options, subject to applicable Tribal, Federal, or State law
or contractual requirements.'' According to the commenter, this would
clarify that loss mitigation is not cut off after the first legal
action. The commenter also proposed that HUD revise the language in
Sec. 1005.733(d) from ``14 days from the date of notification of the
servicer's loss mitigation determination'' to ``30 days from the date
of notification,'' since borrowers need more than 14 days from the date
of notification to appeal loss mitigation decisions.
HUD Response: HUD agrees with the general concept that Holders,
Direct Guarantee Lenders and Servicers must follow all applicable
Federal requirements, including RESPA and any other regulations
promulgated by CFPB. In response to the comment, HUD added language in
Sec. 1005.701, which covers general requirements for Section 184
[[Page 20050]]
guaranteed loan servicing. The new language requires that ``Holders and
Servicers must follow all current loss mitigation processes based on
applicable Tribal, Federal, or State law.'' Similarly, Sec. 1005.731
provided requirements that were duplicative with CFPB. Therefore, HUD
removed these requirements and added new language that Servicers must
provide notice of default to borrowers based on applicable Tribal,
Federal, or State law.
HUD believes the timelines in Sec. 1005.733(a) and (b) are
necessary for the successful administration of the loss mitigation
options under the Section 184 Program and declines to revise these
sections accordingly.
HUD did not substantively revise the language in Sec. 1005.733(c)
as recommended by the commenter. CFPB does not regulate what loss
mitigation options may be available to borrowers when the servicer
completes filing of first legal action. HUD is free to limit loss
mitigation options available to borrower upon the servicer's filing of
first legal action. Based however on prior public comments requesting
HUD incorporate as much flexibility in the regulations as possible, HUD
revised Sec. 1005.733(c)(5) to add that ``HUD may permit other loss
mitigation on a case-by-case basis if requested by the Servicer.''
Finally, HUD did not revise the deadline in Sec. 1005.733(d) for
borrower to appeal to 30 days as recommended by the commenter. HUD
believes 14 days is sufficient time for borrower to file an appeal.
Sec. 1005.735 Occupancy Inspection
A commenter recommended that the servicer provide advance notice to
a designated Tribal entity prior to any occupancy inspection, and that
a designated Tribal representative be required to be present at the
property during the inspection. In addition, the commenter suggested
that the Tribal entity should be a member of a Tribal housing
department or law enforcement officer. According to the commenter, this
would provide respect for a Tribe's sovereign lands and add a level of
safety to the inspection requirement.
HUD Response: HUD agrees with the commenter and has included
language that requires servicers to contact the Tribe in advance of an
occupancy inspection. HUD revised the regulation to allow Tribes and
the servicers to develop agreeable methods of communication and
protocols when conducting an occupancy inspection.
Sec. 1005.737 Vacant Property Procedures
One commenter suggested that the Tribe should be a part of the
servicing process to determine if a house has been abandoned or is
vacant. The commenter further stated the Tribe must be empowered to
secure the house by an independent determination of a Tribal official
that the house is abandoned and therefore, remedial, rehabilitation,
and security services can be implemented by the Tribe. Another
commenter recommended that the section title of the section be revised
to ``Vacant and abandoned property procedures,'' as it applies to
abandoned properties as well. Lastly, some commenters proposed that
this section should clarify if seven days are meant to be calendar days
or business days.
HUD Response: HUD made several revisions to this section based on
commenters' suggestions. The section now allows for the Tribe to
determine if a property is vacant or abandoned and requires servicers
to notify the Tribe if it determines a property is vacant or abandoned.
Further, HUD has added ``abandoned'' to the title of the section and
has expanded the timeframe for Tribal First Right of Refusal and the
completion of First Legal Action.
Sec. 1005.739 Loss Mitigation
One commenter recommended deleting the requirement in Sec.
1005.739 (a) to comply with ``12 CFR 1024.41'' and replace it with
``1024.41, as it might be amended from time to time, or any additional
or successor regulation that governs the same subject matter.'' The
commenter explained that given the CFPB's recent Request for
Information (RFI) on loss mitigation, the CFPB may make changes to
servicer obligations under a RESPA rulemaking, and therefore HUD should
expand its coverage beyond this regulation and incorporate changes,
deletions, or expansions.
Another commenter stated that the 180-day grace period in paragraph
(b) of this section is too long because seasonal fluctuations within
that period causes damage to the property. The commenter recommended
that the proposed requirements should include provisions for interim
protective actions by the Tribe to weatherize and winterize the house.
Another commenter noted that its understanding of HUD's proposed
language is that if a customer applies beyond 180 days of delinquency,
the servicer cannot evaluate that application. Other commenters
recommended including partial claim/loss mitigation advance option as a
loss mitigation option, which have been the most popular options to
resolve COVID and other borrower-related delinquencies. The commenters
noted that this would be consistent with FHA requirements and would
increase the usage of the Section 184 Program.
Another commenter recommended establishing assumptions as a
standalone process outside of the loss mitigation process, similar to
the FHA. The commenter explained this would help a confirmed successor
in interest complete assumptions without manually reinstating the
account. One commenter recommended deleting Sec. 1005.739(d)
requirement for a full financial assessment of the borrower at time of
default. The commenter explained that in response to the pandemic,
streamlined modifications did not rely on a full financial assessment
of the borrower. Instead, the loss mitigation modification options
target reducing the borrower's monthly payment without considering the
borrower's income or debt. The commenter further noted that requiring a
full financial assessment may hamper HUD's ability to provide
streamlined payment relief modifications. The commenter recommended
developing modification criteria through agency guidance instead of
through a regulation.
Commenters also recommended placing Sec. 1005.739(f) in guidance
or extending the timeframes to align with FHA, due to the complex
nature of servicing and to make the process more customer friendly.
HUD Response: HUD has revised this section by removing the
reference to 12 CFR 1024.41 since Sec. 1005.701 now provides that
servicers must follow all Tribal, State and Federal requirements on
loss mitigation, so citing the CFPB regulation is redundant. HUD also
included the option of a loss mitigation advance under Sec.
1005.739(c)(4) and added a new section, Sec. 1005.751, on loss
mitigation advances. HUD inadvertently omitted the reference to loss
mitigation advance in Sec. 1005.739(c)(4) and added a new regulation
for loss mitigation advances at Sec. 1005.751 and renumbered all
subsequent regulations accordingly. HUD clarified Sec. 1005.739(f) to
provide that, when a borrower fails a loss mitigation option within 180
days of default, the servicer has 45 days from the failure date to
initiate another loss mitigation option. Further, HUD clarified that
the servicer shall complete First Legal Action in accordance with Sec.
1005.763 or Tribal First Right of Refusal in accordance with Sec.
1005.759 if a borrower does not accept, is not eligible for, or fails
loss mitigation.
Additionally, HUD revised this section to provide that the servicer
must conduct occupancy inspections in accordance with Sec. 1005.735
and, if the unit is confirmed to be vacant or
[[Page 20051]]
abandoned, the servicer must conduct property preservation in
accordance with Sec. 1005.737. With respect to Sec. Sec. 1005.735 and
1005.737, HUD added language to ensure that it can, by Section 184
Program Guidance, extend these deadlines to address national emergency
or disaster situations. With respect to Sec. 1005.739, HUD added
language that provides HUD the flexibility to enhance loss mitigation
options to borrowers when there is a national emergency or disaster and
publish such alternative timeframes in Section 184 Program Guidance.
Sec. 1005.741 Notice to Tribe and BIA--Borrower Default
Commenters suggested including ``TDHE'' where appropriate in this
section, similar to Sec. 1005.757. The commenters stated that the
intent of this recommendation is to connect a borrower with resources,
and, in Alaska, 196 Tribes have their housing programs and services
through Regional Housing Authorities.
Related to Sec. 1005.741(a), one commenter stated that a Section
184 lender should not be required to obtain borrower consent to give
notice to the Tribe. The commenter further stated that BIA is no longer
responsible for leases approved by a HEARTH Tribe. Another commenter
recommended that notifications of borrower default or of Tribal rights
of first refusal should clearly outline deadlines and steps for a Tribe
to take when they elect to exercise their ROFR or if they will assist a
borrower in redeeming the loan. One commenter proposed that Sec.
1005.741(a)(2) should be stricken.
One commenter suggested that HUD should add in Sec. 1005.741(b),
``and foreclosure process'' after ``notification process,'' which would
clarify that HUD follows the industry standard and seeks to allow
borrowers to pursue loss mitigation options, including home retention
options, even after the foreclosure process has been initiated.
HUD Response: HUD declines the commenter's suggestion to include
the TDHE in part of the notification process. For purposes of the
Section 184 Program, HUD's relationship is with the Tribe as the entity
with the authority to issue ordinances that support the program. A
Tribe may choose a TDHE to be its point of contact for the program.
Based on previous Tribal comments, the regulation includes the option
for a borrower to select Tribal notification if they go into default,
so that if the Tribe has resources to assist the borrower, they may do
so earlier in the loss mitigation process rather than at the end of the
process. This section deals specifically with when, during the loss
mitigation process, a Tribe and/or the BIA is notified. Section
1005.741 states that loss mitigation should have happened concurrent
with Tribal/BIA notification.
Sec. 1005.743 Relief for Borrower in Military Service
A commenter agreed with suspending the foreclosure process and
delaying the first legal action in this situation but stated that their
experience indicates that HUD does not take these valid delays into
account when reimbursing a servicer for its expenses. To retain
lenders' and servicers' interest in the Section 184 Program, the
commenters requested that HUD be more considerate of delays that are
valid and out of the servicers' control.
HUD Response: HUD appreciates the input by the commenter. HUD has
built in additional timeframes within the loss mitigation process to
account for delays. Further, Holders and Servicers experiencing delays
out of their control can request an extension for the filing of first
legal, as is the current policy and will be further described in
administrative guidance.
Sec. 1005.745 Forbearance Plans
One commenter proposed deleting Sec. 1005.745(b) through (f) and
moving these provisions to a PIH notice. The commenter stated that
while HUD should establish forbearance as a loss mitigation option, it
should follow FHA's lead in 24 CFR 203.614 and save eligibility
criteria for PIH notices and handbooks. The commenter stated that
including eligibility requirements in regulations unnecessarily hampers
agency efforts at creating an effective loss mitigation system. Both
the formal forbearance and special forbearance provisions of the
section require borrowers to submit supporting documentation to obtain
forbearance. However, the response to the pandemic by institutions such
as the Urban Institute, which credited forbearance access during the
pandemic, demonstrated that it may be valuable to streamline access to
forbearance in particular situations and not require documents. The
commenter concluded that HUD should allow streamlined forbearance when
necessary.
Another commenter recommended that HUD remove the requirement from
Sec. 1005.745(c)(1)(ii) and simplify the formal forbearance process by
mirroring the FHA formal forbearance process. Similarly, for paragraph
(c)(2) of this section, the commenter suggested mirroring the FHA
process to make it more customer- and servicer-friendly.
HUD Response: HUD agrees with the comment to streamline access to
forbearance process and has added additional language that allows HUD
to establish a special forbearance in response to a national emergency
or disaster. HUD will also provide additional guidance on the process
in the Section 184 Program Guidance.
Sec. 1005.747 Assumption
A commenter sought clarification on whether the person assuming the
loan is responsible for making the loan current and suggested that HUD
address this in guidance.
HUD Response: In response to the commenter, HUD added additional
language to clarify that with an assumption associated with loss
mitigation, the person assuming the loan must cure the default and
reinstate the Section 184 Guaranteed Loan.
Sec. 1005.749 Loan Modification
One commenter stated that HUD's proposed text includes detailed
eligibility rules for loan modifications and many of those rules are
borrowed from outdated FHA Handbook provisions, which HUD should not
codify in its regulations. For example, the commenter stated that FHA
no longer requires an assessment of ``surplus income,'' signatures on
trial payment plans, and a twelve-month loan seasoning period prior to
modification. According to the commenter, FHA has removed these
requirements to minimize barriers to modifications, yet HUD's proposed
rule would make these rules difficult to amend even after, in FHA's
experience, they have weakened loss mitigation. This commenter proposed
removing all Sec. 1005.749(b) through (e) and moving this to a PIH
notice instead.
One commenter suggested replacing Sec. 1005.749(b) with language
stating, ``The servicer must offer the borrower any modification that
the borrower is eligible to receive under relevant HUD guidance.'' The
commenter stated that while HUD should establish forbearance as a loss
mitigation option, it should follow FHA's lead in 24 CFR 203.616 and
save eligibility criteria for loan modifications for PIH notices and
handbooks.
Another commenter stated that requiring the servicer to ``seek
HUD's approval'' under paragraph (c)(2) of this section for any
subsequent loan modifications after the first one is likely to cause
delays, frustration, and anxiety for the borrower if a response is not
provided timely by HUD. Another commenter recommended that the proposed
30 days proposed by
[[Page 20052]]
paragraph (e)(2) of this section be reduced to 14 days at minimum. The
commenter explained that this will help the servicer to start trials
and complete modifications early, and that there is no such timeline
for FHA customers.
HUD Response: HUD appreciates commenter's input and has revised the
regulation mirror the current FHA loan modification requirements, as
appropriate. HUD has removed the requirement for surplus income. HUD
declines to accept the commenter's proposal to remove the HUD approval
for subsequent loan modifications (beyond the Borrower's very first
loan modification). HUD has found in the past that multiple loan
modifications have not resolved the Borrower's delinquency. To provide
for additional flexibility in the future, HUD added language that
allows modification of the Borrower's eligibility criteria in the event
of a national emergency or disaster.
Sec. 1005.753 Pre-Foreclosure Sale
One commenter expressed concern about the cost to the lenders of
servicing loans that default. The commenter stated that the
requirements of this section recognize a short sale opportunity but
again refer several times to appraisal which may be further compounded
by lack of market data and the availability of licensed contractors
that can make repairs on defaulted units. Another commenter urged HUD
to remove Sec. 1005.753(b) through (u) and move the requirements from
guidance to PIH notices. The commenter noted that the proposed text for
this section provides far too many details about the pre-foreclosure
sale program and will significantly limit HUD's ability to make any
changes.
Another commenter stated that the term ``Government'' in paragraph
(q) this section is not a defined term and therefore lacks specificity
as to which it applies. The commenter also noted that the definition
for ``Arm's Length Transaction'' in Sec. 1005.749(r)(2) should be
moved to the definitions section in Sec. 1005.103.
HUD Response: HUD appreciates commenters' input. As discussed in
Sec. 1005.457, HUD has revised the appraisal standards based on public
comment to allow HUD to establish alternative requirements depending on
the area and availability of an appraiser. HUD removed paragraph (d) of
this section because FHA no longer requires defaulted borrowers to
provide a cash contribution in its pre-foreclosure sale program. In
paragraph (g) of this section, HUD has increased the market value
timeframe from 120 days to 180 days to match FHA standards based on
public comment. Further, HUD has clarified Sec. 1005.749(q) to provide
that it is the HUD's repair cost estimate. HUD kept the definition for
``Arm's Length Transaction'' in paragraph Sec. 1005.749(r)(2) since it
is a definition only used within Subpart G and is not used throughout
the rule.
Sec. 1005.755 Deed-in-Lieu/Lease-in-Lieu of Foreclosure (Formerly
1005.753)
One commenter suggested that in Sec. 1005.755(a)(1), the words
``if applicable'' should be added after the words ``the BIA''.
HUD Response: HUD does not accept the commenter's suggestion. While
some Tribes have the authority to issue their own leases without BIA
approval, BIA is responsible for the recordation of all leases.
Sec. 1005.757 Incentive Payments (Formerly Sec. 1005.755)
A commenter sought clarification on when and how much incentive is
expected to be authorized under this section. The commenter noted that
``may'' can also mean ``may not'' and this would be a significant
difference from FHA loans, resulting in lower participation in the
Section 184 Program.
HUD Response: This section establishes HUD's ability to offer
incentive payments to the borrower, Tribe, TDHE, Holder or servicer,
which will be a new feature to the program. HUD prefers to maintain
discretion and flexibility in establishing incentives as a new
component of the program.
Sec. 1005.759 Property on Trust Land--Tribal First Right of Refusal;
Foreclosure or Assignment (Formerly Sec. 1005.757)
A commenter proposed clarifying the timeframe for the right of
first refusal for the Tribes. The commenter noted that typically a
Tribe has at least 60 days or potentially longer to accept if they
choose to do so. Another commenter noted that the term ``Tribal Land''
used in Sec. 1005.779(a) is an undefined term and recommended that the
term be replaced with ``Trust Land.''
A commenter supported the authorization of the first right of
refusal of foreclosed property meeting certain conditions and updated
valuations, in Sec. 1005.759(a). Some commenters also suggested that
HUD should adopt the U.S. Department of Agriculture's (USDA) practice
of using a net recovery value to determine the purchase price when a
Tribe chooses to exercise its first right of refusal. Finally, another
commenter stated that no assignment of the lease under Sec.
1005.759(c) should occur without consent of the Borrower or without
foreclosure.
HUD Response: HUD appreciates commenters' input. Based on these
comments, HUD has provided a definition of Tribal First Right of
Refusal and has clarified the timeframe and circumstances for when it
should occur. The servicer must provide Tribal First Right of Refusal
to the Tribe within 14 days of specified actions and the Tribe has 60
days to respond to the Tribal First Right of Refusal. HUD also made the
technical change of ``Tribal Land'' to ``Trust Land''.
Sec. 1005.763 First Legal Action Deadline and Automatic Extensions
(Formerly Sec. 1005.761)
Several commenters stated that 180 days under Sec. 1005.763(a)
does not provide lenders with sufficient time, as it takes that amount
of time to implement loss mitigation efforts. These commenters sought
clarification under Sec. 1005.763(a) if ``must initiate'' is the same
as ``file'' for First Legal Action. And one commenter suggested
removing the cross reference in paragraph (a) to the definition of
``First Legal Action'' in Sec. 1005.103, as this is extraneous and not
necessary.
In paragraph (b) of this section, a commenter sought clarification
regarding whether HUD uses a 30-day auto-extension to extend the First
Legal Action deadlines instead of the industry standard of a 90-day
auto-extension. Another commenter recommended that HUD clarify
paragraph Sec. 1005.763(b)(2) regarding what is required to be
completed within 30 days of the borrower's failure of loss mitigation.
The existing guidelines state ``complete First Legal Filing'' or
``initiate foreclosure action''.
Finally, a commenter sought clarification regarding delays caused
by bankruptcy filing or federally declared disaster declarations under
Sec. 1005.763(c). The commenter noted that both are valid external
influences extending the first legal filing period and out of the
servicer's control. Therefore, the commenter requested that the
extension process be outlined in guidelines instead of the regulations.
HUD Response: HUD appreciates the commenters' input. HUD has
revised the definition of filing for first legal action in Sec.
1005.103 to provide ``the first notice or filing required by applicable
law for any judicial or non-judicial foreclosure process.'' HUD added
clarifying language to this section that the filing of first legal
action must be complete within the given timeframe. Additionally, HUD
has added clarifying language to Sec. 1005.763(b) which
[[Page 20053]]
outlines the timeframes and circumstances for automatic extensions to
the filing for first legal action. As previously stated, Holders and
Servicers experiencing delays out of their control can request an
extension for the filing of first legal action, as is the current
policy and will be further described in the Section 184 Guidebook.
Sec. 1005.765 Assignment of the Section 184 Guaranteed Loan (Formerly
Sec. 1005.763)
A commenter stated that the required documents (recorded assignment
from the county, updated Title Status Report from the BIA) typically
take longer than 5 days and proposed extending the timeframe in
guidance rather than regulations.
Other commenters stated that under Sec. 1005.763(a)(4)(ii), most
of the properties assigned to HUD are occupied because there has been
no notice to the borrowers about vacating the property. The commenters
stated that vacancy is not a requirement for an assignment and
requiring approval for this common situation will cause delays in
completing the assignment. The commenters also noted that completing
the assignment has a strict timeframe defined by HUD, which, if not
met, results in curtailments of the advance amounts reimbursed by HUD,
and requiring HUD approval will increase losses that are outside the
servicer's control. (0008, 0018)
HUD Response: HUD appreciates the commenter's input. HUD has
revised Sec. 1005.765 to clarify that that the servicer must submit
the executed assignment for recordation to the appropriate jurisdiction
or BIA within five days of either receiving HUD approval for assignment
for fee simple Properties or completing Tribal First Right of Refusal
in accordance with Sec. 1005.759. HUD does not expect that the
recordation process will be complete in five days. HUD further
clarifies that the servicer has 45 days to submit evidence of this
assignment and request for recordation in accordance with Sec. 1005.
809(b). Further HUD deleted the language formerly at paragraph Sec.
1005.763(a)(4)(ii). It is not HUD's intention to remove an occupying
borrower, or for the servicer to receive prior HUD approval to complete
the assignment. Further, HUD has removed the former Sec.
1005.763(a)(i) through (iii) since they are redundant based on changes
made to Sec. 1005.729.
Sec. 1005.767 Inspection and Preservation of Properties (Formerly
Sec. 1005.765)
One commenter suggested that paragraph (a) of this section should
include a provision providing that a direct letter from the Tribe
informing the property is abandoned or vacant is sufficient to trigger
the servicer's obligation to secure the property. The commenter further
recommended that the provision permit the Tribe to secure the property
in the absence of a response from the servicer. The commenter also
recommended that the proposed rule should contain a procedure to
determine disputed questions of fact, and evidentiary standards for the
fact finder to opine on the disputed questions of facts. The commenter
explained that the Tribe should be able to take self-help measures to
secure and rehabilitate the vacant or abandoned house, and offset the
costs against the Service Provider, if the disputed facts are proven by
the Tribe.
HUD Response: HUD agrees with commenter that a Tribe's notice to
HUD that the property is vacant or abandoned is sufficient to trigger
the servicer's obligation to secure the property. Therefore, HUD
revised Sec. 1005.737 that the servicer may be notified by HUD when
the Tribe determines a unit is vacant or abandoned and that the Tribe
should be notified by the servicer that the unit is vacant or
abandoned.
Sec. 1005.769 Property Condition (Formerly Sec. 1005.767)
A commenter stated that the term ``Damage to Property by Waste'' in
paragraph (b) of this section is unclear and that revising the
paragraph by adding ``damage, deterioration or neglect'' committed by
borrower would provide clarity.
HUD Response: HUD agrees with this comment and has revised Sec.
1005.769(b) to provide ``waste, deterioration or neglect''. Further,
HUD revised the title of the paragraph to convey the requirements of
the paragraph more broadly. Additionally, HUD provided additional
clarity by inserting ``documented'' before the word ``damage'' to make
clear servicer must document the damage.
Sec. 1005.773 Acceptance of Property by HUD (Formerly Sec. 1005.771)
Commenters stated that Part A claims are usually not paid for many
months after the claim is filed, and that Sec. 1005.773(c) would
unreasonably result in the servicer incurring costs during HUD's
decision period to pay the claim. The commenter recommended that HUD
reimburse the lender to maintain the property for this length of time.
Similarly, the commenters stated that Sec. 1005.773(a)(1) through (3),
(b)(1) through (3), and (c) significantly depart from the current
Section 184 Program and place additional burden on the servicer. The
commenters recommended that Sec. 1005.807 be expanded to clarify that
the servicer will be reimbursed until HUD accepts the property.
HUD Response: HUD appreciates the commenters' concerns and has
worked to provide claim payments in a timely manner, once the claim
payment is submitted in a format requested by HUD and includes all
documents necessary to file a claim. In accordance with Sec. 1005.839,
the claim is paid based on the earlier of the execution of deed-in-
lieu/lease-in-lieu of foreclosure; the execution of the conveyance to
either servicer, HUD or a third-party; the execution of the assignment
of the Section 184 Guaranteed Loan to HUD; the expiration of the
reasonable diligence timeframe; or other event as prescribed by Section
184 Program Guidance. As a result, HUD is revising Sec. 1005.807(b) to
address the reimbursement of reasonable expenses and provide that HUD
will establish reasonable exceptions in Section 184 Program Guidance.
Several commenters stated the servicers needed guidance on expenses
related to loans in default. The commenter stated that current program
practice leaves a gap in expenses between when a foreclosure is
completed and when a property is conveyed to HUD. As a result, the
servicer incurs expenses to maintain and protect the property and
cannot recover these expenses through a claim. The commenters believe
that requiring servicers to absorb unreimbursed losses to protect
properties for HUD is not a reasonable policy, nor is it in line with
how FHA, VA, USDA, and the GSEs handle similar issues.
HUD Response: HUD thanks the commenters for the comments. HUD
incorporated the interest on unpaid principal balance and reimbursement
for reasonable costs policies from HUD's April 30, 2019, letter to
lenders into Sec. Sec. 1005.839 and 1005.841. With respect to
reimbursement of reasonable expenses, HUD has revised Sec. 1005.807(b)
to provide HUD with the flexibility to provide exceptions regarding the
reimbursement of reasonable expenses. HUD will provide administrative
guidance on reimbursement of reasonable expenses.
[[Page 20054]]
Sec. 1005.807 Claim Submission Categories
A commenter sought clarification in Sec. 1005.807(a), (b), and (c)
of the term ``Conveyance'' and when it is completed. Under paragraph
(b), commenters also sought clarification of the provision ``execution
of assignment,'' and proposed to include the reimbursement of the final
title work, as this is required under Sec. 1005.819(a)(1). The
commenter also proposed the addition of a claim for loss mitigation
incentives and loss mitigation advance.
HUD Response: HUD appreciates the request for clarification. Under
this final rule, HUD will use the same earlier of deadlines for payment
of reimbursable claim expenses as is outlined in Sec. 1005.839(a)
through (e) for reimbursement of interest payments. HUD has clarified
Sec. 1005.807 to specifically set the deadline for reimbursement and
will provide exceptions by Section 184 Program Guidance.
Sec. 1005.809 Claim Types
One commenter asked HUD to confirm, under Sec. 1005.809(a)(1),
whether the initial conveyance claim to HUD would need to be submitted
to HUD within 45 days from the executed deed instead of the industry
standard of two days when submitted electronically. This commenter also
asked HUD to confirm, under Sec. 1005.809(a)(2) and (3), whether HUD
provides title approval, similar to current industry standard. The
commenter further sought clarification as to whether servicers will be
able to submit a B Claim after the 60 days for claim payment under
paragraph (a)(4) of the section. In Sec. 1005.809(c), the commenter
asked HUD to confirm whether the Conveyance Without Title Claims
(CWCOT) are submitted to HUD within 180 days from when a property is
conveyed to HUD, which is different from the industry standard to
submit CWCOT within 30 days from receipt of third-party proceeds.
The commenter asked HUD to confirm in Sec. 1005.809(d) whether the
pre-foreclosure claims (PFS) are to be submitted to HUD within 45 days
of sale date, while the industry standard is 30 days from the closing
date (settlement date on HUD-1). The commenter also asked HUD to
confirm whether under paragraph (d) of the section, a Deed-in-Lieu
(DIL) is to be submitted to HUD within 45 days of executed conveyance
deed to HUD, while industry standard is 30 days from executed
conveyance deed.
Finally, the commenter also asked whether under Sec. 1005.809(e)
servicers are only allowed to submit supplemental claims to HUD for
only conveyance and assignment claims, because based on the industry
standards, servicers can file supplemental claims for conveyance,
assignment, PFS, DIL, and CWCOT. (0023) Lastly, the commenter asked HUD
to confirm if supplemental claims under paragraph (e)(2) are to be
submitted to HUD within 6 months from final claim (Part B) submitted
date, because the industry standard is supplemental claims are filed
within six months from final claim payment date (advice of payment
settlement date or wire date). (0023)
HUD Response: HUD agrees with many of the comments on this section.
Accordingly, HUD has revised paragraph (a)(1) to match the industry
standard of two days and to clarify the delivery requirement for claims
under Sec. 1005.807(a)(4). Section 184 Program Guidance will provide
instructions on the submission of final title. HUD has also revised
paragraphs (c) and (d) of the section to reflect industry standards.
Section Sec. 1005.809(e) has also been revised to clarify Supplemental
Claims may be submitted for all claim types found in Sec. Sec.
1005.809(a) through (d).
Sec. 1005.817 Conveyance of Good and Marketable Title
One commenter found the current paragraph (a) unnecessary as its
sole purpose is to cite to Sec. 1005.103 as the location of the ``Good
and Marketable Title'' definition.
HUD Response: HUD agrees with the commenter and deleted paragraph
(a) since it is unnecessary to restate a term that is defined in
section Sec. 1005.103.
Sec. 1005.821 Coverage of Title Evidence
One commenter stated that a Title Status Report (TSR) does not
always show certain information such as outstanding prior liens,
including any past-due and unpaid ground rents, general taxes, or
special assessments. The commenter further stated that while this
information may be included in title commitments, title commitments
sometimes are not available for trust land. As a result, the commenter
recommended that paragraph (a) of the section be revised to remove,
``The evidence of title or TSR further show that, according to the
public records, there are no outstanding prior liens, including any
past-due and ground rents, general taxes or special assessments, if
applicable, on the date of Conveyance or assignment'' to ensure the
borrowers' ability to comply:
HUD Response: HUD appreciates commenters' input. HUD has revised
paragraph (a) of this section to expand the eligible sources of
information acceptable to verify all liens have been released and there
are no outstanding rents, taxes, or special assessments. Additionally,
the initial TSR provided by the BIA will disclose all existing
encumbrances. If these encumbrances no longer appear on the Final TSR,
they have been released by the BIA.
Sec. 1005.835 Claim Payment Not Conclusive Evidence of Claim Meeting
All HUD Requirements
One commenter disfavored HUD's ability to review a loan file up to
five years after claim payment. The commenter believed this has the
effect of weakening the loan guarantee.
HUD Response: HUD appreciates the commenters' input but does not
agree permitting HUD to review a loan after claim payment has the
effect of weaking the loan guarantee. Lenders and servicers are always
required to comply with all applicable Section 184 regulations. The
final rule does not change this current policy to be consistent with
FHA, which has no official limitation on the timeframe it has to review
a loan post-endorsement or post-claim. Accordingly, HUD removed the
five-year reference in the regulation. HUD will provide information
regarding monitoring and quality control reviews of Direct Guarantee
Lenders in the Section 184 Program Guidance.
IV. 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.
[[Page 20055]]
In addition to the Tribal consultation sessions held before and
during the drafting of the proposed rule, HUD conducted ten additional
consultations during the public comment period. HUD held six regional
consultation sessions and four national consultation sessions between
December 2022 and March 2023. During these consultation sessions, HUD
mainly answered questions participants had about the proposed rule. HUD
did receive comments about setting a minimum threshold of Trust land
lending (Sec. 1005.219(e)) and possible data collection from Tribal
participants (Sec. 1005.313). HUD considered these comments during the
drafting of the final rule and will continue to consider these comments
during the drafting of any subsequent Federal Register Notice or other
Section 184 Program Guidance related to these two sections.
Tribal feedback has been an integral part of the process to develop
the rule. Throughout the consultation process, HUD used Tribal feedback
to refine and improve this 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.
V. Findings and Certifications
Regulatory Review--Executive Orders 12866, 13563, and 14094
Pursuant to Executive Order 12866 (Regulatory Planning and Review),
a determination must be made whether a regulatory action is
significant, and therefore, subject to review by OMB in accordance with
the requirements of the order. Executive Order 13563 (Improving
Regulations and Regulatory Review) directs executive agencies to
analyze regulations that are ``outmoded, ineffective, insufficient, or
excessively burdensome, and to modify, streamline, expand, or repeal
them in accordance with what has been learned.'' Executive Order 13563
also directs that, where relevant, feasible, and consistent with
regulatory objectives, and to the extent permitted by law, agencies are
to identify and consider regulatory approaches that reduce burdens and
maintain flexibility and freedom of choice for the public. Executive
Order 14094 (Modernizing Regulatory Review) amends section 3(f) of
Executive Order 12866 (Regulatory Planning and Review), among other
things.
Under Executive Order 12866 (Regulatory Planning and Review), as
amended by Executive Order 14094 (Modernizing Regulatory Review), a
determination must be made whether a regulatory action is significant
and, therefore, subject to review by OMB in accordance with the
requirements of the order. This final rule, as discussed above,
introduces changes to make the program sustainable, protect Borrowers,
address recommendations by the OIG in areas such as underwriting and
the claims process, and provide clarity for new and existing Direct and
Non-Direct Guarantee Lenders, Holders and Servicers who participate in
the Section 184 Program. These changes allow for Holders, Servicers,
Direct Guarantee Lenders and Non-Direct Guarantee 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 Direct Guarantee and Non-
Direct Guarantee 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 final rule was determined to be a significant regulatory
action under section 3(f) of Executive Order 12866 (Regulatory Planning
and Review) as amended by Executive Order 14094 (Modernizing Regulatory
Review), and therefore was reviewed by OMB. However, this final rule
was not deemed to be significant under Section 3(f)(1). Because program
participants have long followed the substantive standards that this
final rule would establish, HUD anticipates that this final 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). HUD welcomes
and is prepared to receive calls from individuals who are deaf or hard
of hearing, as well as individuals with speech or 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>.
Paperwork Reduction Act
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
control number. The information collection requirements contained in
this proposed rule have been approved by the OMB under the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control
number 2577-0200.
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 final 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 has
determined that this rule would not have a significant economic impact
on a substantial number of small entities.
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 final rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.
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.
[[Page 20056]]
4332(2)(C)). The FONSI is available for public inspection at both
<a href="https://www.regulations.gov">https://www.regulations.gov</a> and <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).). HUD
welcomes and is prepared to receive calls from individuals who are deaf
or hard of hearing, as well as individuals with speech or 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>.
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 final 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 amends 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, 35 FR
4247, 3 CFR, 1966-1970, Comp., p. 902, as amended by E.O. 11991, 3
CFR, 1977, Comp., p. 123; E.O. 13807, 3 CFR, 2017, Comp.; p. 369)
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 an Indian reservation, and on fee land owned by the
Indian Tribe outside of the Tribe's Indian reservation boundaries, 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 an Indian reservation and on fee land
owned by the Indian Tribe outside the Tribe's Indian Reservation
boundaries, 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.
1005.102 Severability.
1005.103 Definitions.
Subpart B--Lender Eligibility and Requirements
1005.201 Lender Applicant approval and participation.
1005.203 Lender Applicants deemed approved by statute.
1005.205 Lender Applicants required to obtain Secretarial approval.
1005.207 Lender Applicants 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 Direct Guarantee Lender annual reporting requirements.
1005.217 Quality control plan.
1005.219 Other requirements.
1005.221 Business change reporting.
1005.223 Direct Guarantee Lender Annual recertification
requirements.
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 annual recertification.
1005.309 Tribal duty to report proposed changes and actual 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 endorsement.
1005.461 HUD issuance of Firm Commitment.
Subpart E--Closing and Endorsement
Closing
1005.501 Direct Guarantee Lender closing requirements.
1005.503 Contents of endorsement case binder.
1005.505 Payment of Upfront Loan Guarantee Fee.
[[Page 20057]]
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.
Endorsement and Post-Closing
1005.519 Creation of the contract.
1005.521 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 Up-Front Loan Guarantee Fee.
1005.605 Remittance of Up-Front 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 or abandoned 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 Loss mitigation advance
1005.753 Pre-foreclosure sale.
1005.755 Deed-in-lieu/lease-in-lieu of foreclosure.
1005.757 Incentive payments.
Assignment of the Loan to HUD; Foreclosure and Conveyance
1005.759 Property on Trust Land--Tribal First Right of Refusal;
foreclosure or assignment
1005.761 Fee simple land properties--foreclosure or assignment with
HUD approval.
1005.763 First Legal Action deadline and automatic extensions.
1005.765 Assignment of the Section 184 Guaranteed Loan.
1005.767 Inspection and preservation of properties.
1005.769 Property condition.
1005.771 Conveyance of property to HUD at or after foreclosure; time
of conveyance.
1005.773 HUD acceptance of assignment or conveyance.
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 Up-front 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--Performance Reviews, Reporting, Sanctions, and Appeals
1005.901 Performance reviews.
1005.903 Reporting and certifications.
1005.905 Notice of sanctions.
1005.907 Sanctions and civil money penalties.
1005.909 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 Housing 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 Lender Applicants,
Holders, Direct and Non-Direct Guarantee Lenders, Servicers and Tribes
seeking to or currently participating in the Section 184 Program.
Sec. 1005.102 Severability.
Any provision of this part held to be invalid or unenforceable as
applied to any action should be construed so as to continue to give the
maximum effect to the provision permitted by law, unless such holding
is that the provision of this part is invalid and unenforceable in all
circumstances, in which event the provision should be severable from
the remainder of this part and shall not affect the remainder thereof.
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.
[[Page 20058]]
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 the 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.
Borrower means every individual on the mortgage application. For
the purposes of servicing the loan, Borrower refers to every original
Borrower who signed the note and their heirs, executors,
administrators, assigns, and approved substitute Borrowers. Borrowers
include 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.
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.
Direct Guarantee Lender means a Lender approved by HUD under Sec.
1005.21 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 notice or filing required by
applicable law for any judicial or non-judicial foreclosure process.
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 by HUD; 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, evidence of
Good and Marketable Title must be reported in the Title Status Report
issued by the BIA, or other HUD approved document issued by the Tribe,
as prescribed by Section 184 Program Guidance and the document
evidences the property interest rights.
Holder means an entity that is named on the Promissory Note and any
successor or assigns for the Section 184 Guaranteed Loan and has the
right and responsibilities to enforce the Section 184 requirements and
the Holder's interests arising under the mortgage or deed of trust.
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 by a federally 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 Applicant means:
(1) 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;
(2) The financial institution has applied or will apply to HUD for
approval to participate in the Section 184 Program; and
(3) Has not received approval from HUD.
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 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, originate, or originating 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 the
property as shown on the records of the recorder in the county where
the property is located. For Trust Land Properties, the current lessee
or owner of property, as shown on the Title Status Report provided by
the BIA or other HUD approved document issued by the Tribe, as
prescribed by Section 184 Program Guidance and the document evidences
the property interest rights.
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 one to four-family dwellings that meet 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 Guaranteed Loan is a Loan that has received a Loan
Guarantee Certificate.
[[Page 20059]]
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 Program Guidance means administrative guidance
documents that may be issued by HUD, including but not limited to
Federal Register documents, Dear Lender Letters, handbooks, guidebooks,
manuals, and user guides.
Security means any collateral authorized und
[…truncated; see source link]Indexed from Federal Register on March 20, 2024.
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.