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Loan Guarantees for Indian Housing; Direct Guarantee Processing

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[Federal Register: April 19, 2002 (Volume 67, Number 76)]
[Rules and Regulations]
[Page 19491-19497]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19ap02-13]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 50 and 1005
[Docket No. FR-4241-F-02]
RIN 2577-AB78
 
Loan Guarantees for Indian Housing; Direct Guarantee Processing

AGENCY: Office of the Secretary, HUD.
ACTION: Final rule.

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SUMMARY: This final rule for the Loan Guarantees for Indian Housing 
Program makes permanent a new direct guarantee procedure that is 
modeled on the FHA single family mortgage insurance direct endorsement 
procedure. Under this procedure, HUD staff are not involved in the 
processing or approval of individual loans before closing. The rule 
also reflects statutory changes to the program concerning environmental 
review requirements and the geographical area in which loan guarantees 
may be made.

EFFECTIVE DATE: May 20, 2002.

FOR FURTHER INFORMATION CONTACT: Paul Jurkowski, Director, Office of 
Loan Guarantee, Office of Native American Programs, Department of 
Housing and Urban Development, 1999 Broadway, Suite 3390, Denver, CO 
80202. Telephone: (303) 675-1600. (This is not a toll-free number.) For 
hearing- and speech-impaired persons, this number may be accessed via 
TTY by calling the Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Interim Rule and Public Comments

    HUD issued an interim rule on September 11, 1998 (63 FR 48987) 
amending the rule for its Section 184 Loan Guarantees for Indian 
Housing Program (24 CFR part 1005) to include a ``Direct Guarantee'' 
procedure as an alternative to regular HUD loan processing. The Direct 
Guarantee procedure dispenses with commitments and pre-loan closing 
underwriting review by HUD, with HUD review occurring after loan 
closing but before guarantee of the loan. A few other technical changes 
or corrections to part 1005 were made through the interim rule. As an 
Appendix to the interim rule, the Department also updated its ``Guide 
to Loan Guarantees for Indian Housing'' that was published with the 
final version of 24 CFR part 955 (now 24 CFR part 1005), to reflect 
recent legislation and the availability of the new alternative Direct 
Guarantee procedure and to make other minor improvements. The updated 
Appendix was not intended to be included in the Code of Federal 
Regulations.
    The interim rule also amended HUD's environmental rules at 24 CFR 
50.19(b)(17) to apply to the Direct Guarantee procedure the same 
categorical exclusion from environmental review under the National 
Environmental Policy Act of 1969 (NEPA) and other Federal environmental 
laws and authorities that currently applies to the FHA Direct 
Endorsement and Lender Insurance programs for single family mortgages. 
In a related change, existing Sec. 1005.105(e) (``Environmental 
compliance'') was revised to reflect the new Direct Guarantee procedure 
and to state that procedures similar to the FHA builder certification 
procedures in 24 CFR 203.12(c)(2) will be required for proposed or new 
construction. Under those procedures, a builder reviews the area for 
environmental problems and hazards.
    HUD received one public comment on the interim rule. The commenter 
supported the rule but urged that a borrower be informed at the time of 
loan processing of any negative conditions that would exist at the time 
of foreclosure for a Direct Guarantee that do not exist under current 
loan processing procedures. The Department is not aware of any negative 
effects of the Direct Guarantee alternative. Accordingly, no changes 
have been made to the interim rule on the basis of public comments.

Intervening Statutory Changes and Conforming Changes in Final Rule

    After the interim rule was published, section 595(e)(13) of the 
Departments of Veterans Affairs and Housing and Urban Development, and 
Independent Agencies Appropriations Act, 1999, added a new section 
184(k) to the Housing and Community Development Act of 1992. New 
subsection (k) provides that for purposes of environmental review, 
decisionmaking, and action under the National Environmental Policy Act 
of 1969 (NEPA) and any other law that furthers the purposes of that 
Act, a Section 184 loan guarantee shall be (1) treated as a grant under 
the Native American Housing Assistance and Self-Determination Act of 
1996 (NAHASDA), and (2) subject to regulations issued to carry out 
section 105 of NAHASDA. Section 105 permits the Secretary ``in lieu of 
the environmental protection procedures otherwise applicable'' to 
provide by regulation for the release of grant amounts for particular 
projects to tribes which assume all of the responsibilities for 
environmental review, decisionmaking, and action under NEPA and related 
laws that would apply if the Secretary were to undertake such projects 
as federal projects. The implementing regulations for section 105 
appear at 24 CFR 1000.18 through 1008.24 and 24 CFR part 58. Section 
1000.20 makes it clear that a tribe may choose whether to assume 
environmental review responsibilities or to have HUD perform them in 
accordance with 24 CFR part 50.
    Section 1005.105(e) of the interim rule only anticipated 
environmental review under part 50. It is amended in this final rule to 
recognize the tribal right to choose to assume environmental 
responsibilities in accordance with 24 CFR part 58. In a separate 
rulemaking procedure, HUD is developing changes to 24 CFR part 58 to 
clarify that part's applicability when a tribe assumes environmental 
review responsibilities for NAHASDA assistance or the Indian Housing 
Loan Guarantee program. A tribe may assume environmental review 
responsibilities for NAHASDA without doing so for Section 184 loan 
guarantees, and vice-versa.
    When the home involves proposed or new construction, this final 
rule requires a Builder's Certification procedure comparable to the FHA 
Builder's Certification procedure under 24 CFR 203.12(b)(2) (designated 
prior to November 15, 1999 as Sec. 203.12(c)(2)). The term 
``comparable'' is used instead of the less clear ``similar'' that was 
used in the interim rule.
    Section 595(e)(11) of Departments of Veterans Affairs and Housing 
and Urban Development, and Independent Agencies Appropriations Act, 
1999, also removed from Section 184 the language that restricted 
Section 184 assistance to an area covered by an Indian Housing Plan 
under NAHASDA. The corresponding language in Sec. 1005.101 and in the 
Appendix to part 1005 is therefore removed by this final rule.
    This final rule also corrects a cross-referencing error in the 
first sentence of Sec. 1005.107(b)(5)(ii), and amends that provision to 
reflect current HUD procedures regarding appeal of any HUD decision to 
cease issuing guarantees due to tribal failure to enforce eviction 
procedures. Finally, section 4(c) of the Appendix is changed to conform 
to HUD's rule on lead-based paint that was published on September 15, 
1999 (64 FR 50140) and amended the safety and quality standards in 
Sec. 1005.111 to reference new lead-based paint requirements.
    For clarity, HUD is publishing the entire updated Appendix to part 
1005 that sets forth the statutory and

[[Page 19493]]

regulatory requirements and additional guidance. The Appendix is not 
included in the Code of Federal Regulations.

Findings and Certifications

Executive Order 12866

    This final rule was reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this rule is a ``significant regulatory action,'' as 
defined in section 3(f) of the Order (although not economically 
significant under section (3)(f)(1) of the Order). Any changes made to 
the final rule subsequent to its submission to OMB are clearly 
identified in the docket file, which is available for public inspection 
in the office of the Department's Rules Docket Clerk, Room 10276, 451 
Seventh Street SW, Washington DC, 20410.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this final rule, and in so 
doing certifies that this rule does not have a significant economic 
impact on a substantial number of small entities. This final rule 
merely authorizes an alternative procedure for obtaining HUD guarantee 
for an Indian Housing loan. The rule has no disproportionate economic 
impact on small businesses.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
(FONSI) was made for the interim rule in accordance with HUD 
regulations at 24 CFR part 50 that implement section 102(2)(C) of the 
National Environmental Policy Act of 1969, 42 U.S.C. 4332. That FONSI 
has been updated to reflect a statutory change that permits tribal 
assumption of environmental review responsibilities for the Section 184 
program. The original FONSI and update are available for public 
inspection and copying during regular business hours (7:30 a.m. to 5:30 
p.m.) in the Office of the Rules Docket Clerk, Room 10276, 451 Seventh 
Street, SW., Washington, DC 20410-0500.

Executive Order 13132, Federalism

    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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on State, 
local, and tribal governments, and on the private sector. This rule 
does not impose any Federal mandates on any State, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

Catalog

    The Catalog of Federal Domestic Assistance number for the Loan 
Guarantees for Indian Housing program is 14.865.

List of Subjects

24 CFR Part 50

    Compliance record, Environmental assessment, Environmental impact 
statement, Environmental protection, Environmental quality, 
Environmental review policy and procedures.

24 CFR Part 1005

    Indians, Loan programs--Indians, Reporting and recordkeeping 
requirements.

    Accordingly, the interim rule amending 24 CFR parts 50 and 1005 
which was published on September 11, 1998, is adopted as a final rule 
with the following changes:

PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING

    1. The authority citation for part 1005 is revised to read as 
follows:

    Authority: 12 U.S.C. 1715z-13a; 42 U.S.C. 3535(d).

    2. Section 1005.101 is revised to read as follows:

Sec. 1005.101  What is the applicability and scope of these 
regulations?

    Under the provisions of section 184 of the Housing and Community 
Development Act of 1992, as amended by the Native American Housing 
Assistance and Self-Determination Act of 1996 (12 U.S.C. 1715z-13a), 
the Department of Housing and Urban Development (the Department or HUD) 
has the authority to guarantee loans for the construction, acquisition, 
or rehabilitation of 1- to 4-family homes that are standard housing 
located on trust or restricted land or land located in an Indian or 
Alaska Native area. This part provides requirements that are in 
addition to those in section 184.

    3. Section 1005.105 is amended by revising paragraph (e) to read as 
follows:

Sec. 1005.105  What are eligible loans?

* * * * *
    (e) Environmental compliance. (1) Section 1000.20 of this chapter 
applies to an environmental review in connection with a loan guarantee 
under this part. That section permits an Indian tribe to choose to 
assume environmental review responsibility.
    (2) Before HUD issues a commitment to guarantee any loan, or before 
HUD guarantees a loan if there is no commitment, HUD must:
    (i) Comply with environmental review procedures to the extent 
applicable under part 50 of this title, in accordance with 
Sec. 1000.20(a) and (c); or
    (ii) Approve a Request for Release of Funds and certification from 
an Indian tribe, in accordance with part 58 of this title, if the 
Indian tribe has assumed environmental review responsibility.
    (3) If the loan involves proposed or new construction, HUD will 
require compliance with procedures comparable to those required by 
Sec. 203.12(b)(2) of this title for FHA mortgage insurance.
* * * * *

    4. Section 1005.107 is amended by revising the first two sentences 
of paragraph (b)(5)(ii) to read as follows:

Sec. 1005.107  What is eligible collateral?

* * * * *
    (b) * * *
    (5) * * *
    (ii) Review. If the Department ceases issuing guarantees in 
accordance with paragraph (b)(5)(i) of this section, HUD will notify 
the tribe of the reasons for such action and that the tribe may, within 
30 days after notification of HUD's action, file a written appeal with 
the Director, Office of Loan Guarantee (OLG), Office of Native American 
Programs (ONAP). Within 30 days after notification of an adverse 
decision by the OLG Director, the tribe may file a written request for 
review with the Deputy Assistant Secretary for ONAP. * * *

    Dated: April 10, 2002.
Mel Martinez,
Secretary.

    Note: The following appendix will not be codified in the Code of 
Federal Regulations.

APPENDIX

Guide to Loan Guarantees for Indian Housing

Section 1.  Purpose, applicability and scope
Section 2. Definitions
Section 3. Eligible loans
Section 4. Eligible housing
Section 5. Eligible lenders
Section 6. Eligible collateral
Section 7. Procedures
Section 8. Guarantee
Section 9. Guarantee fee
Section 10. Liability under guarantee
Section 11. Transfer and assignment

[[Page 19494]]

Section 12. Disqualification of lenders and civil money penalties
Section 13. Payment under guarantee
Section 14. Certification of compliance with tribal laws, and 
enforcement

Section 1. Purpose, Applicability and Scope

    The purpose of this guide is to present, in a single document, 
the statutory and regulatory requirements, and certain other 
important administrative requirements, that apply to the Loan 
Guarantees for Indian Housing Program under Section 184 of the 
Housing and Community Development Act of 1992 (Pub. L. 102-550, 
approved October 28, 1992, as amended by the Native American Housing 
Assistance and Self-Determination Act of 1996 (Pub. L. 104-330). 
Although it presents the regulatory and statutory requirements in a 
combined format, this guide is a secondary source for these 
requirements. Title 24 of the Code of Federal Regulations is the 
primary, governing source for regulatory requirements, and Section 
184 is the primary, governing source for statutory requirements.
    Under Section 184, the Department of Housing and Urban 
Development (the Department) has the authority to guarantee loans 
for the construction, acquisition, rehabilitation, or acquisition 
and rehabilitation, of 1- to 4-family homes on trust and restricted 
lands for Indians (including Alaska Natives) and certain other lands 
under the jurisdiction of an Indian tribe. This guide describes the 
eligibility of borrowers, lenders and property, as well as the 
benefits of the Indian Loan Guarantee Program.

Section 2. Definitions

    Default means the failure by a borrower to make any payment or 
to perform any other obligation under the terms of a loan, if such 
failure continues for a period of more than 30 days.
    Department or HUD means the U.S. Department of Housing and Urban 
Development.
    Direct guarantee means the underwriting procedure which 
qualified and approved mortgagees may use as described in 24 CFR 
1005.104. The Secretary will publish guidelines for Direct guarantee 
underwriting procedures and underwriter qualifications in a 
Guidebook. Compliance with these guidelines is the minimum standard 
of due diligence.
    Guarantee Fund means the Indian Housing Loan Guarantee Fund 
established under Section 184(i) of the Housing and Community 
Development Act of 1992.
    Holder means the holder of the guarantee certificate and in this 
program is variously referred to as the lender, the holder of the 
certificate, the holder of the guarantee, and the mortgagee.
    Indian means any person recognized as being an Indian or Alaska 
Native by an Indian tribe, the Federal Government, or any State, and 
includes the term ``Native American''.
    Indian or Alaska Native area means the area within which an 
Indian housing authority or tribally designated housing entity 
(TDHE), as defined in Section 4 of the Native American Housing 
Assistance and Self-Determination Act of 1996, is authorized to 
provide housing.
    Indian Housing Authority (IHA) means any entity that is 
authorized to engage in or assist in the development or operation of 
low-income housing for Indians or housing subject to the provisions 
of Section 184 and that is established either (1) by exercise of the 
power of self-government of an Indian tribe independent of State 
law, or (2) by operation of State law providing specifically for 
housing authorities for Indians, including regional housing 
authorities in the State of Alaska. The term includes tribally 
designated housing entities under the Native American Housing 
Assistance and Self-Determination Act of 1996.
    Mortgage means:
    (1)(i) A first lien as is commonly given to secure advances on, 
or the unpaid purchase price of, real estate under the laws of the 
jurisdiction where the property is located and may refer to a 
security instrument creating a lien, whether called a mortgage, deed 
of trust, security deed, or another term used in a particular 
jurisdiction; or
    (ii) A loan secured by collateral as required by 24 CFR 
1005.107; and
    (2) The credit instrument, or note, secured thereby.
    Mortgagee or lender means the same as holder.
    Mortgagor or borrower means the party receiving the loan, and 
authorized successors or assigns.
    Principal residence means the dwelling where the mortgagor 
maintains (or will maintain) his or her permanent place of abode, 
and typically spends (or will spend) the majority of the calendar 
year. A person may have only one principal residence at any one 
time.
    Secretary means the Secretary of Housing and Urban Development.
    Section 184 means Section 184 of the Housing and Community 
Development Act of 1992.
    Standard housing means a dwelling unit or housing that complies 
with the requirements established in this guide.
    Tribe or Indian tribe means any tribe, band, nation or other 
organized group or community of Indians, including any Alaska Native 
village or regional or village corporation as defined in or 
established pursuant to the Alaska Native Claims Settlement Act, 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians pursuant to the Indian Self-Determination and Education 
Assistance Act of 1975.
    Trust or restricted land means land, title to which is held by 
the United States for the benefit of an Indian or Indian tribe; or, 
land, title to which is held by an Indian tribe, subject to a 
restriction against alienation imposed by the United States.
    Underwriting is the evaluation of documentation to determine 
risk.

Section 3. Eligible Loans

    (a) In general. Only fixed rate, fixed term loans with even 
monthly payments are eligible under the Section 184 program.
    (b) Eligible borrowers. A loan guaranteed under Section 184 may 
be made to a borrower that is:
    (1) An Indian who will occupy it as a principal residence and 
who is otherwise qualified under part 1005;
    (2) An Indian Housing Authority; or
    (3) An Indian tribe.
    (c) Terms of loan. The loan must:
    (1) Be made for a term not exceeding 30 years;
    (2) Bear interest (exclusive of the guarantee fee and service 
charges, if any) at a fixed rate agreed upon by the borrower and the 
lender and determined by the Department to be reasonable, which may 
not exceed the rate generally charged in the area (as determined by 
the Department) for home mortgage loans not guaranteed or insured by 
any agency or instrumentality of the Federal Government.
    (d) Maximum loan amounts.
    (1) A principal obligation may not exceed the lesser of:
    (i) 97.75 percent of the appraised value of the property as of 
the date the loan is accepted for guarantee (or 98.75 percent if the 
value of the property is $50,000 or less); and
    (ii) Amounts approved otherwise by the Department.
    (2) The balance of the purchase price must involve a payment on 
account of the property that may be:
    (i) In cash or other property of equivalent value acceptable to 
the lender and the Department; or
    (ii) The value of any improvements to the property made through 
the skilled or unskilled labor of the borrower, appraised in 
accordance with generally acceptable practices and procedures.
    (e) Construction advances. The Department may guarantee loans 
from which advances will be made during construction. The Department 
will provide guarantees for advances made by the mortgagee during 
construction if all of the following conditions are satisfied:
    (1) The mortgagor and the mortgagee execute a building loan 
agreement, approved by HUD, setting forth the terms and conditions 
under which advances will be made;
    (2) The advances are made only as provided in the building loan 
agreement;
    (3) The principal amount of the mortgage is held by the 
mortgagee in an interest bearing account, trust, or escrow for the 
benefit of the mortgagor, pending advancement to the mortgagor or 
the mortgagor's creditors as provided in the building loan 
agreement; and
    (4) The mortgage must bear interest on the amount advanced to 
the mortgagor or to the mortgagor's creditors and on the amount held 
in an account or trust for the benefit of the mortgagor.
    (f) Environmental compliance. Section 1000.20 of the regulations 
under the Native American Housing Assistance and Self-Determination 
Act of 1996 (24 CFR 1000.20), which permits a Tribe to choose to 
assume Federal environmental review responsibility, applies to an 
environmental review in connection with a loan guarantee under the 
Section 184 program. Before HUD issues a

[[Page 19495]]

loan guarantee under the program, and before it issues any 
commitment, HUD must:
    (1) Comply with environmental review procedures to the extent 
applicable under 24 CFR part 50, in accordance with Sec. 1000.20(a) 
and (c); or
    (2) Approve a Request for Release of Funds and certification 
from the tribe in accordance with 24 CFR part 58, when the tribe has 
assumed environmental responsibility.
    (3) If the loan involves proposed or new construction, HUD will 
require a Builder Certification under procedures comparable to those 
required by 24 CFR 203.12(b)(2) for FHA mortgage insurance.

Section 4. Eligible Housing

    (a) In general. A loan guaranteed under Section 184 may be used 
for the construction, acquisition, rehabilitation, or acquisition 
and rehabilitation, of a 1- to 4-family dwelling located on trust or 
restricted land, or land located in an Indian or Alaska Native area.
    (b) Safety and quality standards. Loans guaranteed under Section 
184 may be made only on dwelling units which meet safety and quality 
standards set forth herein. Each unit must:
    (1) Be decent, safe, sanitary, and modest in size and design;
    (2) Conform with applicable general construction standards for 
the region;
    (3) Contain a heating system that:
    (i) Has the capacity to maintain a minimum temperature in the 
dwelling of 65 degrees Fahrenheit during the coldest weather in the 
area;
    (ii) Is safe to operate and maintain;
    (iii) Delivers a uniform distribution of heat; and
    (iv) Conforms to any applicable tribal heating code or, if there 
is no applicable tribal code, an appropriate county, State, or 
National code;
    (4) Contain a plumbing system that:
    (i) Uses a properly installed system of piping;
    (ii) Includes a kitchen sink and a partitional bathroom with 
lavatory, toilet, and bath or shower; and
    (iii) Uses water supply, plumbing and sewage disposal systems 
that conform to any applicable tribal code or, if there is no 
applicable tribal code, the minimum standards established by the 
applicable county or State;
    (5) Contain an electrical system using wiring and equipment 
properly installed to safely supply electrical energy for adequate 
lighting and for operation of appliances that conforms to any 
applicable tribal code or, if there is no applicable tribal code, an 
appropriate county, State, or National code;
    (6) Be not less than:
    (i) 570 square feet in size, if designed for a family of not 
more than 4 persons;
    (ii) 850 square feet in size, if designed for a family of not 
less than 5 and more than 7 persons; and
    (iii) 1020 square feet in size, if designed for a family of not 
less than 8 persons; or
    (iv) The size provided under the applicable locally adopted 
standards for size of dwelling units; except that the Department, 
upon the request of a tribe or Indian Housing Authority, may waive 
the size requirements under this paragraph; and
    (7) Conform with the energy performance requirements for new 
construction established by the Department under Section 526(a) of 
the National Housing Act.
    (c) Lead-based paint. The relevant requirements of the Lead-
Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the 
Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 
4851-4856) and implementing regulations at 24 CFR part 35, subparts 
A, B, H, J, K, M, and R apply to the Section 184 program.

Section 5. Eligible Lenders

    (a) Required approval. The loan may be made only by a lender 
meeting qualifications established in this guide, except that loans 
otherwise insured or guaranteed by any agency of the Federal 
government, or made by an organization of Indians from amounts 
borrowed from the United States are not eligible for guarantees 
under part 1005. The following lenders are approved under this 
guide:
    (1) Any mortgagee approved by the Department of Housing and 
Urban Development for participation in the single family mortgage 
insurance program under title II of the National Housing Act.
    (2) Any lender whose housing loans under chapter 37 of title 38, 
United States Code are automatically guaranteed pursuant to Section 
1802(d) of such title.
    (3) Any lender approved by the Department of Agriculture to make 
guaranteed loans for single family housing under the Housing Act of 
1949.
    (4) Any other lender that is supervised, approved, regulated, or 
insured by any other agency of the Federal government.
    (5) Any other lender approved by the Secretary under this part.
    (b) Direct guarantee approval. To be approved for the Direct 
guarantee program, a lender must be an approved mortgagee under 24 
CFR 202.6, 202.7 or 203.10, or must meet the requirements of Section 
(a)(4) or (a)(5) of this guide. In addition, the lender must 
establish that it meets the following qualifications:
    (1) The lender, or one of its principal officers, has 5 years of 
experience in the origination of single family mortgages.
    (2) The lender has on its permanent staff an underwriter meeting 
the standards of the Secretary and authorized by the lender to bind 
the lender on matters involving the origination of Section 184 
mortgage loans through the direct guarantee procedure.
    (3) The lender must assure that its underwriter and technical 
staff have been trained and are knowledgeable in the Section 184 
underwriting requirements.
    (4) The mortgagee must submit initially two Section 184 mortgage 
loans, processed in accordance with the process set forth in Section 
7(b) of this guide. The documents required by Section 7(b) will be 
reviewed by the Secretary and, if acceptable, a firm commitment will 
be issued prior to loan closing. If the underwriting and processing 
of these two loans is satisfactory, then the lender may be approved 
to close subsequent loans without a prior commitment and submit them 
directly for guarantee in accordance with the process set forth in 
Section 7(b). Unsatisfactory performance by the lender at this stage 
constitutes grounds for denial of approval for the direct guarantee 
procedure or for continued pre-closing review of a lender's 
submissions.
    (5) To process single close construction loans using the Direct 
Guarantee procedure, one of the lender's test cases must be a single 
close construction loan. If a lender is approved for Direct 
Guarantee processing without submitting an acceptable single close 
construction test case, the lender must submit a single close 
construction test case in full compliance with Section 184 program 
requirements and receive a Section 184 firm commitment for the test 
case, before the lender will be approved for single close 
construction processing using the Direct Guarantee procedure.
    (c) Mortgagee sanctions. Depending on the nature and extent of 
the noncompliance with the requirements applicable to the Direct 
Guarantee procedure, as determined by the Department, the Department 
may take such actions as are deemed appropriate and in accordance 
with published guidelines.

Section 6. Eligible Collateral

    (a) In general. A loan guaranteed under Section 184 may be 
secured by any collateral authorized under Federal, State, or tribal 
law and determined by the lender and approved by the Department to 
be sufficient to cover the amount of the loan. Collateral may 
include, but is not limited to, the following:
    (1) The property and/or improvements to be acquired, 
constructed, or rehabilitated, to the extent that an interest in 
such property is not subject to the restrictions of trust lands 
against alienation;
    (2) A first and/or second mortgage on property other than trust 
land;
    (3) Personal property; or
    (4) Cash, notes, an interest in securities, royalties, 
annuities, or any other property that is transferable and whose 
present value may be determined.
    (b) Leasehold on trust or restricted land as collateral. If a 
leasehold interest in trust or restricted land is used as collateral 
for the loan, the following additional provisions apply:
    (1) Approved Lease. Any land lease for a unit financed under 
Section 184 must be on a form approved by both HUD and the Bureau of 
Indian Affairs, U.S. Department of Interior.
    (2) Assumption or sale of leasehold. If a leasehold is used as 
security for the loan, the lease form must contain a provision 
requiring tribal consent before any assumption of an existing lease, 
except where title to the leasehold interest is obtained by the 
Department through foreclosure of the guaranteed mortgage. A 
mortgagee other than the Department must obtain tribal consent 
before obtaining title through a foreclosure sale. Tribal consent 
must be obtained on any subsequent transfer from the purchaser, 
including the Department, at foreclosure sale. The lease may not be 
terminated by the lessor without HUD's approval while the mortgage 
is guaranteed or held by the Department.
    (3) Eviction procedures. Before HUD will guarantee a loan 
secured by trust or restricted land, the tribe having jurisdiction 
over such

[[Page 19496]]

property must notify the Department that it has adopted and will 
enforce procedures for eviction of defaulted mortgagors where the 
guaranteed loan has been foreclosed.
    (i) Enforcement. If the Department determines that the tribe has 
failed to enforce adequately its eviction procedures, HUD will cease 
issuing guarantees for loans for tribal members except pursuant to 
existing commitments by the Department or loan approvals by the 
lender under the Direct Guarantee procedure. Adequate enforcement is 
demonstrated where prior evictions have been completed within 60 
days after the date of the notice by HUD that foreclosure was 
completed.
    (ii) Review. If the Department ceases issuing guarantees in 
accordance with the preceding sentence, HUD will notify the tribe of 
the reasons for such action and that the tribe may, within 30 days 
after notification of HUD's action, file a written appeal with the 
Director, Office of Loan Guarantee (OLG), Office of Native American 
Programs (ONAP). Within 30 days after notification of an adverse 
decision on the appeal by the OLG Director, the tribe may file a 
written request for review with the Deputy Assistant Secretary for 
ONAP. Upon notification of an adverse decision by the Deputy 
Assistant Secretary, the tribe has 30 additional days to file an 
appeal with the Assistant Secretary for Public and Indian Housing. 
The determination of the Assistant Secretary will be final, but the 
tribe may resubmit the issue to the Assistant Secretary for review 
at any subsequent time if new evidence or changed circumstances 
warrant reconsideration. (Any other administrative actions 
determined to be necessary to debar a tribe from participating in 
this program will be subject to the formal debarment or limited 
denial of participation procedures contained in 24 CFR part 24.)

Section 7. Procedures

    (a) Firm commitment procedure. Lenders that do not meet the 
approval requirements of Section 5(b) of this guide, or lenders 
approved for the direct guarantee procedure that do not process a 
particular loan using that procedure, must submit an application for 
Section 184 loan guarantee in a form prescribed by the Secretary, 
prior to making the loan. If:
    (1) A loan for a specified property has been approved for a 
guarantee, and
    (2) A specified borrower and all other proposed terms and 
conditions of the loan meet the eligibility requirements for 
guarantee as determined by the Secretary, the Secretary will approve 
the application for guarantee by issuing a commitment setting forth 
the terms and conditions of guarantee.
    (b) Direct guarantee procedure.
    (1) In general. Under the Direct Guarantee procedure, the 
Secretary does not review or approve applications for loan guarantee 
before the loan is executed or issue a firm commitment except as 
determined by the Secretary. Under this program, the lender 
determines that the proposed loan is eligible for guarantee under 
the Section 184 program requirements, and submits to the Secretary 
processing and closing documents that the Secretary will identify 
for lenders in administrative issuances. The Secretary then reviews 
the documents as needed. In cases involving the guarantee of a loan 
from which advances will be made during construction, before 
guaranteeing a loan HUD must either complete an environmental review 
to the extent required by 24 CFR part 50, or approve a Request for 
Release of Funds and certification submitted in accordance with 24 
CFR part 58 by a tribe that has assumed the Federal environmental 
review responsibility for the loan guarantee in accordance with 24 
CFR 1000.20.
    (2) Use of procedure. A lender's use of the direct guarantee 
procedure is voluntary. Lenders who are approved for that procedure 
may choose which Section 184 loans are underwritten using that 
procedure or the firm commitment procedure.

Section 8. Guarantee

    (a) Extent of guarantee. A certificate issued in accordance with 
Section 184 guarantees 100 percent of the unpaid principal and 
interest of the underlying loan.
    (b) Approval process. If the Department approves a loan for 
guarantee and receives the required guarantee fee, the Department 
will issue a certificate under Section 184 as evidence of the 
guarantee. The loan is considered guaranteed when the certificate is 
issued.
    (c) Standard for approval. The Department may approve a loan for 
guarantee under Section 184 and issue a certificate only if the 
Department determines there is a reasonable prospect of repayment of 
the loan. For loans under the firm commitment procedure, this 
determination will be made before a firm commitment is issued and 
the Secretary will issue a certificate if the loan complies with the 
firm commitment. For loans under the direct guarantee procedure, the 
lender must submit to the Secretary within 60 days of loan closing 
properly completed documentation and certifications as required by 
the Secretary, and the Department may make the required 
determination after loan closing on the basis of a review of the 
documents and certifications submitted by the lender.
    (d) Effect. A certificate of guarantee issued under Section 184 
by the Department is conclusive evidence of the eligibility of the 
loan for guarantee under the provisions of Section 184 and the 
amount of such guarantee. Such evidence is incontestable in the 
hands of the bearer and the full faith and credit of the United 
States is pledged to the payment of all amounts agreed to be paid by 
the Department as security for such obligations.
    (e) Fraud and misrepresentation. Nothing in Section 184 may 
preclude the Department from establishing:
    (1) Defenses against the original lender based on fraud or 
material misrepresentation; and
    (2) Establishing partial defenses, based upon regulations in 
effect on the date of issuance or disbursement (whichever is 
earlier), to the amount payable on the guarantee.

Section 9. Guarantee Fee

    The lender must pay to the Department, at or before the time of 
issuance of the guarantee, a fee for the guarantee of loans under 
Section 184, in an amount equal to 1 percent of the principal 
obligation of the loan. This amount is payable by or on behalf of 
the borrower at closing.

Section 10. Liability Under Guarantee

    The liability under a guarantee provided in accordance with 
Section 184 will decrease or increase on a pro rata basis according 
to any decrease or increase in the amount of the unpaid obligation 
under the provisions of the loan agreement.

Section 11. Transfer and Assignment

    Notwithstanding any other provision of law, any loan guaranteed 
under part 1005, including the security interest given for the loan, 
may be sold or assigned by the lender to any financial institution 
subject to examination and supervision by an agency of the Federal 
Government or of any State or the District of Columbia.

Section 12. Disqualification of Lenders and Civil Money Penalties

    (a) General. If the Department determines that a lender or 
holder of a guarantee certificate under Section 184 has failed to 
maintain adequate accounting records, to adequately service loans 
guaranteed under Section 184, to exercise proper credit or 
underwriting judgment, or has engaged in practices otherwise 
detrimental to the interest of a borrower or the United States, the 
Department may:
    (1) Refuse, either temporarily or permanently, to guarantee any 
further loans made by such lender or holder;
    (2) Bar such lender or holder from acquiring additional loans 
guaranteed under Section 184; and
    (3) Require that such lender or holder assume not less than 10 
percent of any loss on further loans made or held by the lender or 
holder that are guaranteed under Section 184.
    (b) Civil money penalties for intentional violations. If the 
Department determines that any lender or holder of a guarantee 
certificate under Section 184 has intentionally failed to maintain 
adequate accounting records, to adequately service loans guaranteed 
under Section 184, or to exercise proper credit or underwriting 
judgment, the Department may impose a civil money penalty on such 
lender or holder in the manner and amount provided under Section 536 
of the National Housing Act with respect to mortgagees and lenders 
under such Act.
    (c) Payment of loans made in good faith. Notwithstanding 
paragraphs (a) and (b), the Department may not refuse to pay 
pursuant to a valid guarantee on loans of a lender or holder barred 
under Section 184, if the loans were previously made in good faith.

Section 13. Payment Under Guarantee

    (a) Lender options.
    (1) General. In the event of default by the borrower on a loan 
guaranteed under part 1005, the holder of the guarantee certificate 
must provide written notice of the default to the Department. Upon 
providing this notice, the holder of the guarantee certificate will 
be entitled to payment under the guarantee (subject to the 
provisions of part 1005) and

[[Page 19497]]

may proceed to obtain payment in one of the following manners:
    (i) Foreclosure. The holder of the certificate may initiate 
foreclosure proceedings (after providing written notice of such 
action to the Department) and upon a final order by the court 
authorizing foreclosure and submission to the Department of a claim 
for payment under the guarantee, the Department will pay to the 
holder of the certificate the pro rata portion of the amount 
guaranteed (as determined in accordance with Section 9 of this 
guide) plus reasonable fees and expenses as approved by the 
Department. The Department will be subrogated to the rights of the 
holder of the certificate and the holder must assign the obligation 
and security to the Department.
    (ii) No foreclosure. Without seeking a judicial foreclosure (or 
in any case in which a foreclosure proceeding initiated under 
paragraph (i) of this Section continues for a period in excess of 1 
year), the holder of the certificate may submit to the Department a 
request to assign the obligation and security interest to the 
Secretary in return for payment of the claim under the guarantee. 
The Department may accept assignment of the loan if the Secretary 
determines that the assignment is in the best interests of the 
United States. Upon assignment, the Department will pay to such 
holder for a loss on any single loan an amount equal to the pro rata 
portion of the amount guaranteed (as determined in accordance with 
Section 9 of this guide). The Department will be subrogated to the 
rights of the holder of the guarantee and the holder must assign the 
obligation and security to the Department.
    (2) Requirements. Before any payment under a guarantee is made 
under paragraph (1) of this Section, the holder of the certificate 
must exhaust all reasonable possibilities of collection. Upon 
payment, in whole or in part, to the holder, the note or judgment 
evidencing the debt must be assigned to the United States and the 
holder will have no further claim against the borrower or the United 
States.
    (b) Limitations on liquidation. In the event of default by the 
borrower on a loan guaranteed under Section 184 involving a security 
interest in restricted Indian land, the lender or the Department 
will only pursue liquidation after offering to transfer the account 
to an eligible tribal member, the tribe, or the Indian Housing 
Authority serving the tribe or tribes. If the Department 
subsequently proceeds to liquidate the account, the Department will 
not sell, transfer, otherwise dispose of, or alienate the property 
except to one of the entities described in the preceding sentence.

Section 14. Certification of Compliance With Tribal Laws, and 
Enforcement

    (a) Certification. Each lender and borrower must certify to 
acknowledge and agree to comply with all applicable tribal laws. An 
Indian tribe with jurisdiction over the dwelling unit does not have 
to be notified of individual Section 184 loans unless required by 
applicable tribal law.
    (b) Enforcement. Failure of the lender to comply with applicable 
tribal law is considered to be a practice detrimental to the 
interest of the borrower and may be subject to enforcement action(s) 
under Section 184(g) of the statute.

[FR Doc. 02-9511 Filed 4-18-02; 8:45 am]
BILLING CODE 4210-33-P

 
 

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