On Nov. 25, 2019, a Proposed Rule was published in the Federal Register to seek comments on proposed changes that would increase program flexibility, allow more borrowers to access affordable loans, better align single family housing direct programs with best practices, and enable the programs to be more responsive to economic conditions and trends. Comments are due on or before Jan. 24, 2020.

Summarizing the key components, the proposed changes include the following:

(1) Revising and adding specific definitions to § 3550.10:

  • Revise the definition of modest housing, which would allow for the financing of existing modest homes with pools as a result of limited housing stock in rural areas.
  • Remove the definition of national average area loan limit to align with Final Rule changes in August 2019.
  • Revise the definition of the PITI ratio to include homeowner’s association dues and other recurring, housing-related assessments to more accurately calculate the front end, PITI ratio for housing related costs; and in turn, calculating a more accurate Total Debt ratio on the back end.
  • Add definition for principal residence aligning with the SFH guaranteed loan program.

(2) Revising § 3550.52(a) to allow a new borrower to use new loan funds to purchase a dwelling from an existing RHS borrower.

(3) Revising the packaging fee requirements in § 3550.52(d)(6) to allow the Agency more flexibility to specify packaging fees for the non-certified loan application process, and to ensure non-certified packaging fees reflect the level of service provided and the prevailing cost to provide the service.

(4) Revising § 3550.53(c) and removing (c)(1) through (3) to remove the overly restrictive primary residence requirements for military personnel and students.

(5) Revising § 3550.53(g) and removing § 3550.53(g)(1) through (5) to include the new definition of PITI for clarity; and to revise repayment ability ratio thresholds to use the same ratios for both low- and very-low income applicants (which will help ensure equal treatment of applicants across the income categories and improve the marketability of the program) and to increase the ratios by a small percentage to reflect common industry tolerances. This change, in conjunction with automated underwriting technology, will address risk layers and reduce the frequent requests for PITI ratio waivers due to compensating factors.

(6) Revising § 3550.55(c) introductory text and (c)(4) and (5) so that application processing priorities are applied on a regular basis, and not just during periods of insufficient funding. Current regulations only trigger priorities in application processing when funding is insufficient. However, applying these priorities on a regular basis, not just during insufficient funding, will provide clear processing priorities for RHS staff. In the case of applications with equivalent priority status that are received on the same day, preference will be extended to applicants qualifying for a veterans’ preference.

This proposed change recognizes that RHS has limited staff resources and that complete applications need to be prioritized for processing, as well as for funding when funds are limited. While the goal is to determine an applicant’s eligibility for the program within 30 days of receiving a complete application regardless of their priority ranking and the availability of funds, the priority ranking will direct Agency staff how to prioritize their work processes and better meet urgent needs. The proposed amendment would also give fourth priority to applications submitted via an intermediary through the certified application packaging process outlined in § 3550.75. Currently, RHS may temporarily classify these applications as fourth priority when determined appropriate—the proposed change would make the fourth priority status permanent and applicable at all times. The change in priority does not impact the priority of any other category and will recognize and encourage the participation and interest of intermediaries in the direct SFH program. Intermediaries are valuable to the program by helping attract program applicants, training certified packagers, and performing quality assurance reviews of applications.

Other priorities remain unchanged including existing customers who request subsequent loans to correct health and safety hazards, loans related to the sale of REO property or ownership transfer of an existing RHS financed property, hardships including applicants living in deficient housing for more than six months, homeowners in danger of losing property through foreclosure, applicants constructing dwellings in an approved self-help project, and applicants obtaining other funds in an approved leveraging proposal. Veterans’ preference also remains a priority in accordance with 42 U.S.C. 1477. To further emphasize these priorities, the Agency proposes to also make funding available in accordance with same priorities as application processing.

(7) Revising § 3550.56(b)(3) to remove the requirement that the value of the site must not exceed 30 percent of the “as improved” market value of the property.

(8) Revising § 3550.59(a)(2) to remove the requirement that the amount of a junior lien, when it is a grant or a forgivable affordable housing product, may not exceed the market value by more than 5 percent (i.e. up to a 105% loan to value ratio).

(9) Revising § 3550.67(c) to allow more small Section 502 direct loans to be repaid in periods of up to 10 years.

(10) Removing the language in § 3550.103(e) regarding a waiver of the requirement that applicants must be unable to obtain financial assistance at reasonable terms and conditions from non-RHS credit or grant sources and lack the personal resources to meet their needs.

(11) Revising § 3550.108(b)(1) to modify the requirement for title insurance and a closing agent for certain secured Section 504 loans of $7,500 and greater. This revision would remove the specific dollar threshold for loans which would require title insurance and closing agent.

(12) Revising § 3550.112(a) to revise the Section 504 maximum loan amount of $20,000, so that the sum of all outstanding section 504 loans to one borrower and for one dwelling may not exceed an amount determined by the Agency, based on factors such as average loan amount and repair costs.

(13) Removing the lifetime maximum assistance of $7,500 for a Section 504 grant and allowing the Agency to apply a lifetime grant limit to any one household or one dwelling.

(14) Revising the Section 504 loan term requirements to specify that the loan term will be 20 years.

(15) Revising the recapture requirements in § 3550.162(b) to specify when Principal Reduction Attributable to Subsidy (PRAS) is, or is not, collected.

(16) Revising the payment moratorium requirements in § 3550.207 to require reamortization of each loan coming off a moratorium. This revision would require reamortization after a moratorium regardless of repayment ability, which would reduce foreclosures and better serve borrowers.

Comments on the proposed rule must be received on or before Jan. 24, 2020. Comments are invited through the Federal eRulemaking Portal at http://www.regulations.gov. For the full Proposed Rule and submission instructions see: https://www.regulations.gov/document?D=RHS-19-SFH-0020-0001.