Streamlining and Improvement of Single-Family Housing Direct Programs, Section 502 and Section 504 regulations
Rural Housing Service, Department of Agriculture (USDA RHS) is proposing to amend the current regulation for the following Single-Family Housing (SFH) Direct Programs: Section 502 Direct Loan Program and the Section 504 Loan and Grant Program. See Proposed Rule on Federal Register HERE. The Agency also intends to update the Section 306C Loan and Grant Programs, which is a program administered under the Rural Utilities Service (RUS), and where RHS is designated to make grants to eligible individuals. The intent of this proposed rule is to reduce the regulatory burdens on applicants, borrowers, and partners by enhancing program delivery, expanding customer service, promoting consistency between the direct and guaranteed SFH loan programs where feasible, and aligning the programs with current housing market conditions and mortgage loan practices. Some of the changes USDA Rural Development is proposing include the following:
- Revising language to remove reference to State Director when granting allowable exceptions for non-certified loan packaging bodies and instead address the ability for the Agency to provide approval for packagers who operate outside of the certified process a revision is needed to allow packaging fees resulting from the certified loan application packaging process outlined in 7 CFR 3550.75 to be added to the Section 502 Direct loan amount in excess of the area loan limit and appraised value of the house.
- The Agency intends to add language to 7 CFR 3550.56(b) and 7 CFR 3550.105 to prohibit lending in U.S. Geological Survey (USGS) Lava-Flow Hazard Zones 1 and 2. Adding this language to the regulation will align with the guaranteed loan program and others in the industry in protecting borrowers.
- Increase net family asset limits before consideration of assets toward a down payment requirement and to remove the down payment requirement when the borrower is purchasing a Real Estate Owned (REO) property from the Agency.
- Amend 7 CFR 3550.67(b)(1) to clarify that amounts included for repairs must be part of an initial purchase or finance loan to qualify for a 38-year term.
- Increase net family household assets for elderly families and non-elderly families before consideration of funds toward reduction of requested assistance, which is implemented under the Section 504 Loan and Grant Program
- Removal of the requirement which restricts subdividable lots in 7 CFR 3550.105(b); the Agency concluded that this prohibition is restrictive for the Section 504 program considering ownership is previously established at the time of application. This restriction is a barrier to very low-income rural homeowners in need of repairs. The site must still be determined modest for the area and cannot be used for income producing purposes.
- Include the tax service fee as an allowable loan cost exceeding security value, which is implemented under the Section 504 Loan and Grant Program.
- The Agency proposes to amend 7 CFR 3550.111, to revise the threshold for requiring an appraisal based on total Section 504 indebtedness. This amendment would increase that limit to $25,000, and works in tandem with the increased Section 504 maximum loan amount of $40,000 (previously $20,000).
- Revise the maximum grant amount to not exceed ten percent of the national average area loan limit will align with the regulatory maximum lifetime assistance in the Section 504 program. This regulatory change will allow the Agency greater responsiveness to establish future maximum grant amounts for eligible applicants.
Comments must be submitted on or before January 19, 2024 and may be submitted electronically by going to the Federal eRulemaking Portal: https://www.regulations.gov. For further information, contact Sonya Evans, Finance and Loan Analyst, SFH Direct Loan Division, Rural Housing Service, Rural Development, United States Department of Agriculture, 1400 Independence Avenue SW, Washington, DC 20250, Phone: (423) 268–4333, Email: Sonya.Evans@usda.gov
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