7 CFR Part 3550 — Direct Single Family Housing Loans and Grants

PART 3550—DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS Authority: 5 U.S.C. 301; 42 U.S.C. 1480. Source: 61 FR 59779, Nov. 22, 1996, unless otherwise noted. Subpart A—General § 3550.1 Applicability. This part sets forth policies for the direct single family housing loan programs operated by the Rural Housing Service (RHS) of the U.S. Department of Agriculture (USDA). It addresses the requirements of sections 502 and 504 of the Housing Act of 1949, as amended, and includes policies regarding both loan and grant origination and servicing. Procedures for implementing these regulations can be found in program handbooks, available in any Rural Development office. Any provision on the expenditure of funds under this part is contingent upon the availability of funds. § 3550.2 Purpose. The purpose of the direct RHS single family housing loan programs is to provide low- and very low-income people who will live in rural areas with an opportunity to own adequate but modest, decent, safe, and sanitary dwellings and related facilities. The section 502 program offers persons who do not currently own adequate housing, and who cannot obtain other credit, the opportunity to acquire, build, rehabilitate, improve, or relocate dwellings in rural areas. The section 504 program offers loans to very low-income homeowners who cannot obtain other credit to repair or rehabilitate their properties. The section 504 program also offers grants to homeowners age 62 or older who cannot obtain a loan to correct health and safety hazards or to make the unit accessible to household members with disabilities. § 3550.3 Civil rights. RHS will administer its programs fairly, and in accordance with both the letter and the spirit of all equal opportunity and fair housing legislation and applicable executive orders. Loans, grants, services, and benefits provided under this part shall not be denied to any person based on race, color, national origin, sex, religion, marital status, familial status, age, physical or mental disability, receipt of income from public assistance, or because the applicant has, in good faith, exercised any right under the Consumer Credit Protection Act (15 U.S.C. 1601 et seq. § 3550.4 Reviews and appeals. Whenever RHS makes a decision that is adverse to a participant, RHS will provide the participant with written notice of such adverse decision and the participant's rights to a USDA National Appeals Division hearing in accordance with 7 CFR part 11. Any adverse decision, whether appealable or non-appealable may be reviewed by the next-level RHS supervisor. § 3550.5 Environmental requirements. (a) Policy. (b) Regulatory references. [61 FR 59779, Nov. 22, 1996, as amended at 81 FR 11048, Mar. 2, 2016] § 3550.6 State law or State supplement. State and local laws and regulations, and the laws of federally recognized Indian tribes, may affect RHS implementation of certain provisions of this regulation, for example, with respect to the treatment of liens, construction, or environmental policies. Supplemental guidance may be issued in the case of any conflict or significant differences. § 3550.7 Demonstration programs. From time to time, RHS may authorize limited demonstration programs. The purpose of these demonstration programs is to test new approaches to offering housing under the statutory authority granted to the Secretary. Therefore, such demonstration programs may not be consistent with some of the provisions contained in this part. However, any program requirements that are statutory will remain in effect. Demonstration programs will be clearly identified as such. § 3550.8 Exception authority. An RHS official may request, and the Administrator or designee may make, an exception to any requirement or provision of this part or address any omission of this part that is consistent with the applicable statute if the Administrator determines that application of the requirement or provision, or failure to take action in the case of an omission, would adversely affect the Government's interest. § 3550.9 Conflict of interest. (a) Objective. (1) Are not themselves the applicant or borrower; (2) Are not members of the family or close known relatives of the applicant or borrower; (3) Do not have an immediate working relationship with the applicant or borrower, the employee related to the applicant or borrower, or the employee who would normally conduct the activity; or (4) Do not have a business or close personal association with the applicant or borrower. (b) Applicant or borrower responsibility. (c) RHS employee responsibility. [61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996; 75 FR 59060, Sept. 27, 2010] § 3550.10 Definitions. Acceleration. Adjusted income. Adjustment. Agency-approved intermediary. Agency-certified loan application packager. Amortized payment. Applicant. Assumption. Borrower. Cancellation. Compromise. Conditional commitment. Cosigner. Cross-collateralized loan. Custodial property. Daily simple interest. Dealer-contractor. Debt instrument. Deferred mortgage payments. Deficient housing. Elderly family. (1) A person who is the head, spouse, or sole member of a family and who is 62 years of age or older, or who is disabled, and is an applicant or borrower; (2) Two or more persons who are living together, at least 1 of whom is age 62 or older, or disabled, and who is an applicant or borrower; or (3) In the case of a family where the deceased borrower or spouse was at least 62 years old or disabled, the surviving household member shall continue to be classified as an elderly family for the purpose of determining adjusted income, even though the surviving members may not meet the definition of elderly family on their own, provided: (i) They occupied the dwelling with the deceased family member at the time of the death; (ii) If one of the surviving family members is the spouse of the deceased family member, the family shall be classified as an elderly family only until the remarriage of the surviving spouse; and (iii) At the time of the death of the deceased family member, the dwelling was financed under title V of the Housing Act of 1949, as amended. Escrow account. Existing dwelling or unit. False information. Full-time student. Hazard. Household. Housing Act of 1949, as amended. et seq. HUD. Inaccurate information. Indian reservation. Interest credit. Junior lien. Legal alien. Leveraged loan. Live-in aide. Low income. Major hazard. Manufactured home. Market value. Mobile home. Moderate income. Modest housing. Modular or panelized home. Moratorium. Mortgage. National average area loan limit. Net family assets. Net recovery value. New dwelling or unit. Nonprogram (NP) interest rate. NP property. NP terms. Offset. Participant. Payment assistance. Payment subsidy. Person with disability. PITI ratio. Principal reduction attributed to subsidy (PRAS). Principal residence. i.e., Prior lien. Program-eligible applicant. Program-eligible property. Program terms. Property. Protective advances. Qualified employer. Real estate taxes. Recapture amount. Recipient. REO. Repayment income. RHS. RHS employee. RHS interest rate. Rural area. Rural Development. Scheduled payment. Secured loan. Security property. Subsidy. Total debt ratio. Unauthorized assistance. U.S. citizen. USDA. Unsecured loan. Value appreciation. Very low-income. Veterans' preference. [61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 70 FR 6552, Feb. 8, 2005; 72 FR 73255, Dec. 27, 2007; 73 FR 49592, Aug. 22, 2008; 79 FR 74016, Dec. 15, 2014; 80 FR 23678, Apr. 29, 2015; 84 FR 29038, June 21, 2019; 87 FR 6770, Feb. 7, 2022; 90 FR 203, Jan. 3, 2025] § 3550.11 State Director assessment of homeownership education. (a) State Directors will assess the availability of certified homeownership education in their respective states on an as-needed basis but at a minimum every three years and maintain an updated listing of providers and their reasonable costs. (b) The order of preference for homeownership education formats will be determined by the Agency based on factors such as industry practice and availability. (c) Homeownership education must include a letter or certificate of completion and be provided by homeownership education counselors that are certified by any of the following: (1) The Department of Housing and Urban Development (HUD); (2) NeighborWorks America (NWA); (3) The National Federation of Housing Counselors (NFHC); (4) National American Indian Housing Council (NAIHC); or (5) The State Housing Finance Agency or other qualified organization approved by the State Director. (d) The provider will issue a letter or certificate of completion to document that the borrower has satisfactory knowledge of these minimum topics: (1) Preparing for homeownership (evaluate readiness to go from rental to homeownership), (2) Budgeting (pre and post-purchase), (3) Credit counseling, (4) Shopping for a home, (5) Lender differences (predatory lending), (6) Obtaining a mortgage (mortgage process, different types of mortgages), (7) Loan closing (closing process, documentation, closing costs), (8) Post-occupancy counseling (delinquency and foreclosure prevention), (9) Life as a homeowner (homeowner warranties, maintenance and repairs), (e) The provider may tailor the homeownership education training to the needs of the borrower to ensure satisfactory knowledge of the topics listed in paragraph (d) of this section. [72 FR 5156, Feb. 5, 2007, as amended at 87 FR 6770, Feb. 7, 2022] §§ 3550.12-3550.49 [Reserved] § 3550.50 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 3 hours per response, with an average of 1 1/2 [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002] Subpart B—Section 502 Origination § 3550.51 Program objectives. Section 502 of the Housing Act of 1949, as amended authorizes the Rural Housing Service (RHS) to provide financing to help low- and very low-income persons who cannot obtain credit from other sources obtain adequate housing in rural areas. Resources for the section 502 program are limited, and therefore, applicants are required to use section 502 funds in conjunction with funding or financing from other sources, if feasible. Sections 3550.52 through 3550.73 set forth the requirements for originating loans on program terms. Section 3550.74 describes the differences for originating loans on nonprogram (NP) terms. § 3550.52 Loan purposes. Section 502 funds may be used to buy, build, rehabilitate, improve, or relocate an eligible dwelling and provide related facilities for use by the borrower as a permanent residence. In limited circumstances section 502 funds may be used to refinance existing debt. (a) Purchases from existing RHS borrowers. (b) Refinancing non-RHS loans. (1) In the case of loans for existing dwellings, if: (i) Due to circumstances beyond the applicant's control, the applicant is in danger of losing the property, the debt is over $5,000, and the debt was incurred for eligible program purposes prior to loan application or was a protective advance made by the mortgagee for items covered by the loan to be refinanced, including accrued interest, insurance premiums, real estate tax advances, or preliminary foreclosure costs; or (ii) If a loan of $5,000 or more is necessary for repairs to correct major deficiencies and make the dwelling decent, safe and sanitary and refinancing is necessary for the borrower to show repayment ability, regardless of the delinquency. (2) In the case of loans for a building site without a dwelling, if: (i) The debt to be refinanced was incurred for the sole purpose of purchasing the site; (ii) The applicant is unable to acquire adequate housing without refinancing; and (iii) The RHS loan will include funds to construct an appropriate dwelling on the site for the applicant's use. (3) Debts incurred after the date of RHS loan application but before closing may be refinanced if the costs are incurred for eligible loan purposes and any construction work conforms to the standards specified in this part. (c) Refinancing RHS debt. (d) Eligible costs. (1) Reasonable expenses related to obtaining the loan, including legal, architectural and engineering, technical, title clearance, and loan closing fees; and appraisal, surveying, environmental, tax monitoring, and other technical services; and personal liability insurance fees for Mutual Self-Help borrowers. (2) The cost of providing special design features or equipment when necessary because of a physical disability of the applicant or a member of the household. (3) Reasonable connection fees, assessments, or the pro rata installment costs for utilities such as water, sewer, electricity, and gas for which the borrower is liable and which are not paid from other funds. (4) Reasonable and customary lender charges and fees if the RHS loan is being made in combination with a leveraged loan. (5) Real estate taxes that are due and payable on the property at the time of closing and for the establishment of escrow accounts for real estate taxes, hazard and flood insurance premiums, and related costs. (6) Packaging fees resulting from the certified loan application packaging process outlined in § 3550.75. The Agency will determine the limit, based on factors such as the level of service provided and the prevailing cost to provide the service, and such cap will not exceed two percent of the national average area loan limit. Nominal packaging fees not resulting from the certified loan application process are an eligible cost provided the fee does not exceed a limit determined by the Agency based on the level and cost of service factors, but no greater than one half percent of the national average area loan limit; the loan application packager is a nonprofit, tax exempt partner that received an exception to all or part of the requirements outlined in § 3550.75 from the applicable Rural Development State Director; and the packager gathers and submits the information needed for the Agency to determine if the applicant is eligible along with a fully completed and signed uniform residential loan application. (7) Purchasing and installing essential equipment in the dwelling, including ranges, refrigerators, washers or dryers, if these items are normally sold with dwellings in the area and if the purchase of these items is not the primary purpose of the loans. (8) Purchasing and installing approved energy savings measures and approved furnaces and space heaters that use fuel that is commonly used, economical, and dependably available. (9) Providing site preparation, including grading, foundation plantings, seeding or sodding, trees, walks, yard fences, and driveways to a building site. (10) Reasonable fees for homeownership education as determined by the State Director under § 3550.11 of this subpart. Such fees may be added to the loan amount in excess of the area loan limit and appraised value of the house. (e) Loan restrictions. (1) Purchase an existing manufactured home (unless the unit was constructed in conformance with Federal Manufactured Home Construction and Safety Standards (FMHCSS) as evidenced by both an affixed HUD Certification label and HUD Data Plate on or after a date determined by the Agency, considering factors such as industry standards and practices; and has not been previously installed on a different homesite or had any alterations since construction in the factory (except for porches, decks or other structures which were built to engineered designs or were approved and inspected by local code officials), or for any other purposes prohibited in § 3550.73(b). (2) Purchase or improve income-producing land or buildings to be used principally for income-producing purposes. (3) Pay fees, commissions, or charges to for-profit entities related to loan packaging or referral of prospective applicants to RHS. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 72 FR 5157, Feb. 5, 2007; 80 FR 23678, Apr. 29, 2015; 87 FR 6771, Feb. 7, 2022; 90 FR 203, Jan. 3, 2025] § 3550.53 Eligibility requirements. (a) Income eligibility. (b) Citizenship status. (c) Principal residence. (d) Eligibility of current homeowners. (1) Current homeowners may receive RHS loan funds to: (i) Refinance an existing loan under the conditions outlined in § 3550.52(b); (ii) Purchase a new dwelling if the current dwelling is deficient housing as defined in § 3550.10; or (iii) Make necessary repairs to the property which is financed with an affordable non- RHS loan. (2) Current homeowners with an RHS loan may receive a subsequent loan. (e) Legal capacity. (f) Suspension or debarment. (g) Repayment ability. (1) An applicant is considered to have repayment ability when the monthly amount required for payment of principal, interest, taxes, and insurance (PITI), does not exceed thirty-three percent of the applicant's repayment income (PITI ratio). In addition, the monthly amount required to pay PITI plus recurring monthly debts must not exceed forty-one percent of the applicant's repayment income (total debt ratio). (2) If the applicant's PITI ratio and total debt ratio exceed the percentages specified by the Agency by a minimal amount, compensating factors may be considered. Examples of compensating factors include payment history (if applicant has historically paid a greater share of income for housing with the same income and debt level), savings history, job prospects, and adjustments for nontaxable income. (3) If an applicant does not meet the repayment ability requirements in this paragraph (g), the applicant can have another party join the application as a cosigner, have other household members join the application, or both. (h) Credit qualifications. (1) Indicators of unacceptable credit include: (i) Payments on any account where the amount of the delinquency exceeded one installment for more than 30 days within the last 12 months. (ii) Payments on any account which was delinquent for more than 30 days on two or more occasions within a 12-month period. (iii) A foreclosure which has been completed within the last 36 months. (iv) An outstanding Internal Revenue Service tax lien or any other outstanding tax liens with no satisfactory arrangement for payment. (v) A court-created or court-affirmed obligation or judgment caused by nonpayment that is currently outstanding or has been outstanding within the last 12 months, except for those excluded in paragraph (i)(2) of this section. (vi) Two or more rent payments paid 30 or more days late within the last 2 years. If the applicant has experienced no other credit problems in the past 2 years, only 1 year of rent history will be evaluated. Rent payment history requirements may be waived if the RHS loan will reduce shelter costs significantly and contribute to an improved repayment ability. (vii) Outstanding collection accounts with a record of irregular payment with no satisfactory arrangements for repayment, or collection accounts that were paid in full within the last 6 months. (viii) Non-agency debts written off within the last 36 months unless paid in full at least 12 months ago. (ix) Agency debts that were debt settled within the last 36 months or are being considered for debt settlement. (x) Delinquency on a federal debt. (2) The following will not be considered indicators of unacceptable credit: (i) A bankruptcy in which debts were discharged more than 36 months prior to the date of application or where an applicant successfully completed a bankruptcy debt restructuring plan and has demonstrated a willingness to meeting obligations when due for the 12 months prior to the date of application. (ii) A judgment satisfied more than 12 months before the date of application. (3) When an application is rejected because of unacceptable credit, the applicant will be informed of the reason and source of information. (i) Homeownership education. Whether such homeownership education is reasonably available will be determined based on factors including, but not limited to: Distance, travel time, geographic obstacles, and cost. On a case-by-case basis, the State Director also may grant an exception, provided the applicant borrower documents a special need, such as a disability, that would unduly impede completing a homeownership course in a reasonably available format. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002; 72 FR 5157, Feb. 5, 2007; 84 FR 29038, June 21, 2019; 87 FR 6771, Feb. 7, 2022] § 3550.54 Calculation of income and assets. (a) Repayment income. (b) Annual income. (1) Earned income of persons under the age of 18 unless they are a borrower or a spouse of a member of the household; (2) Payments received for the care of foster children or foster adults; (3) Amounts granted for or in reimbursement of the cost of medical expenses; (4) Earnings of each full-time student 18 years of age or older, except the head of household or spouse, that are in excess of any amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended; (5) Temporary, nonrecurring, or sporadic income (including gifts); (6) Lump sum additions to family assets such as inheritances; capital gains; insurance payments under health, accident, or worker's compensation policies; settlements for personal or property losses; and deferred periodic payments of supplemental security income and Social Security benefits received in a lump sum; (7) Any earned income tax credit; (8) Adoption assistance in excess of any amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended; (9) Amounts received by the family in the form of refunds or rebates under State or local law for property taxes paid on the dwelling; (10) Amounts paid by a State agency to a family with a developmentally disabled family member living at home to offset the cost of services and equipment needed to keep the developmentally disabled family member at home; (11) The full amount of any student financial aid; and (12) Any other revenue exempted by a Federal statute; a list of which is available from any Rural Development office. (c) Adjusted income. (1) For each household member, except the head of household or spouse, who is under 18 years of age, 18 years of age or older with a disability, or a full-time student, the amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended. (2) A deduction of reasonable expenses for the care of minor 12 years of age or under that: (i) Enable a family member to work or to further a member's education; (ii) Are not reimbursed or paid by another source; and (iii) In the case of expenses to enable a family member to work do not exceed the amount of income earned by the family member enabled to work. (3) Expenses related to the care of household members with disabilities that: (i) Enable a family member to work; (ii) Are not reimbursed from insurance or another source; and (iii) Are in excess of three percent of the household's annual income. (4) For any elderly family, a deduction in the amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended. (5) For elderly households only, a deduction for household medical expenses that are not reimbursed from insurance or another source and which in combination with any expenses related to the care of household members with disabilities described in paragraph (c)(3) of this section, are in excess of three percent of the household's annual income. (d) Net family assets. (1) Net family assets include, but are not limited to: (i) Equity in real property or other capital investments, other than the dwelling or site; (ii) Cash on hand and funds in savings or checking accounts; (iii) Amounts in trust accounts that are available to the household; (iv) Stocks, bonds, and other forms of capital investments that are accessible without retiring or terminating employment; (v) Lump sum receipts such as lottery winnings, capital gains, inheritances; and (vi) Personal property held as an investment. (2) Net family assets do not include: (i) Interest in American Indian restricted land; (ii) Cash on hand which will be used to reduce the amount of the loan; (iii) The value of necessary items of personal property; (iv) Assets that are part of the business, trade, or farming operation of any member of the household who is actively engaged in such operation; (v) Amounts in voluntary retirement plans such as individual retirement accounts (IRAs), 401(k) plans, and Keogh accounts (except at the time interest assistance is initially granted); (vi) The value of an irrevocable trust fund or any other trust over which no member of the household has control; (vii) Cash value of life insurance policies; (viii) The value of tax advantaged college savings plans (529 plan, Coverdell Education Savings Account, etc.); (ix) The value of tax advantaged health or medical savings or spending accounts; and (x) Other amounts deemed by the Agency not to constitute net family assets. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 84 FR 29038, June 21, 2019] § 3550.55 Applications. (a) Application submissions. (b) Application processing. (2) An applicant may voluntarily withdraw an application at any time. (3) RHS may periodically request in writing that applicants reconfirm their interest in obtaining a loan. RHS may withdraw the application of any applicant who does not respond within the specified timeframe. (4) Applicants who are eligible will be notified in writing. If additional information becomes available that indicates that the original eligibility determination may have been incorrect, or that circumstances have changed, RHS may reconsider the application and the applicant may be required to submit additional information. (5) Applicants who are ineligible will be notified in writing and provided with the specific reasons for the rejection. (c) Selection for processing and funding. (1) First priority will be given to existing customers who request subsequent loans to correct health and safety hazards. (2) Second priority will be given to loans related to the sale of an REO property or the transfer of an exisiting RHS financed property. (3) Third priority will be given to applicants facing housing related hardships including applicants who have been living in deficient housing for more than 6 months, current homeowners in danger of losing a property through foreclosure, and other circumstances determined by RHS on a case-by-case basis to constitute a hardship. (4) Fourth priority will be given to applicants seeking loans for the construction of dwellings in an RHS-approved Mutual Self-Help project, loan application packages funneled through an Agency-approved intermediary under the certified loan application packaging process, and loans that will leverage funding or financing from other sources at a level published in the program handbook. (5) Applications from applicants who do not qualify for priority consideration in paragraph (c)(1), (2), (3), or (4) of this section will be selected for processing after all applications with priority status have been processed. (d) Applicant timeframe. [61 FR 59779, Nov. 22, 1996, as amended at 80 FR 23678, Apr. 29, 2015; 87 FR 6771, Feb. 7, 2022] § 3550.56 Site requirements. (a) Rural areas. (1) New conditional commitments will be made and existing conditional commitments will be honored only in conjunction with an applicant for a section 502 loan who applied for assistance before the area designation changed. (2) REO property sales and transfers with assumption may be processed. (3) Subsequent loans may be made either in conjunction with a transfer with assumption of an RHS loan or to repair properties that have RHS loans. (b) Site standards. (1) The site must not be large enough to subdivide into more than one site under existing local zoning ordinances and (2) The site must not include farm service buildings, though small outbuildings such as a storage shed may be included. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022] § 3550.57 Dwelling requirements. (a) Modest dwelling. (1) Area-wide exception. (2) Individual exceptions. (b) New dwellings. (c) Existing dwellings. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 72 FR 70222, Dec. 11, 2007; 87 FR 6772, Feb. 7, 2022] § 3550.58 Ownership requirements. After the loan is closed, the borrower must have an acceptable interest in the property as evidenced by one of the following. (a) Fee-simple ownership. (b) Secure leasehold interest. (c) Life estate interest. (d) Undivided interest. (e) Possessory rights. [61 FR 59779, Nov. 22, 1996, as amended at 90 FR 203, Jan. 3, 2025] § 3550.59 Security requirements. Before approving any loan, RHS will impose requirements to secure its interests. (a) Adequate security. (1) RHS obtains at closing a mortgage on all ownership interests in the security property or the requirements of § 3550.58 are satisfied. (2) No liens prior to the RHS mortgage exist at the time of closing and no junior liens are likely to be taken immediately after or at the time of closing, unless the other liens are taken as part of a leveraging strategy or the RHS loan is essential for repairs. Any lien senior to the RHS lien must secure an affordable non-RHS loan. Liens junior to the RHS lien may be allowed at loan closing if the junior lien will not interfere with the purpose or repayment of the RHS loan. When the junior lien involves a grant or a forgivable affordable housing product, the total debt may exceed the market value provided: (i) The RHS loan is fully secured (with allowable exceptions for the tax service fee, appraisal fee, homebuyer education and initial escrow for taxes and insurance); (ii) The junior lien is for an authorized loan purpose identified in § 3550.52; and (iii) The grant or forgivable affordable housing product comes from a recognized grant source such as a Community Development Block Grant or a HOME Investment Partnerships Program (HOME). (3) The provisions of 7 CFR part 1927, subpart B regarding title clearance and the use of legal services have been followed. (4) Existing and proposed property improvements are totally on the site and do not encroach on adjoining property. (b) Guaranteed payment. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002; 87 FR 6772, Feb. 7, 2022] § 3550.60 Escrow account. RHS may require that customers deposit into an escrow account amounts necessary to ensure that the account will contain sufficient funds to pay real estate taxes, hazard and flood insurance premiums, and other related costs when they are due in accordance with the Real Estate Settlement and Procedures Act of 1974 (RESPA) (12 U.S.C. 2601, et seq. § 3550.61 Insurance. (a) Borrower responsibility. Any borrower with a secured indebtedness in excess of $15,000 at the time of loan approval must furnish and continually maintain hazard insurance on the security property, with companies, in amounts, and on terms and conditions acceptable to RHS including a “loss payable clause” payable to RHS to protect the Government's interest. (b) Amount. The borrower is required to insure the dwelling and any other essential buildings in an amount equal to the insurable value of the dwelling and other essential buildings. However, in cases where the borrower's outstanding secured indebtedness is less than the insurable value of the dwelling and other essential buildings, the borrower may elect a lower coverage provided it is not less than the outstanding secured indebtedness. If the borrower fails, or is unable, to insure the secured property, RHS will force place insurance and charge the cost to the borrower's account. Force place insurance only provides insurance coverage to the Agency and does not provide any direct coverage or benefit to the borrower. The amount of the lender-placed coverage will generally be the property's last known insured value. (c) Flood insurance. (d) Losses. (2) Customers must immediately notify RHS of any loss or damage to insured property and collect the amount of the loss from the insurance company. (3) Depending on the amount of the loss, RHS may require that loss payments be supervised. All repairs and replacements done by or under the direction of the borrower, or by contract, will be planned, performed, inspected, and paid for in accordance with 7 CFR part 1924, subpart A. (4) When insurance funds remain after all repairs, replacements, and other authorized disbursements have been made, the funds will be applied in the following order: (i) Prior liens, including delinquent property taxes. (ii) Past-due amounts. (iii) Protective advances due. (iv) Released to the customer if the RHS debt is adequately secured. (5) If a loss occurs when insurance is not in force, the borrower is responsible for making the needed repairs or replacements and ensuring that the insurance is reinstated on the property. (6) If the borrower is not financially able to make the repairs, RHS may take one of the following actions: (i) Make a subsequent loan for repairs. (ii) Subordinate the RHS lien to permit the borrower to obtain funds for needed repairs from another source. (iii) Permit the borrower to obtain funds secured by a junior lien from another source. (iv) Make a protective advance to protect the Government's interest. (v) Accelerate the account. [61 FR 59779, Nov. 22, 1996, as amended at 70 FR 6552, Feb. 8, 2005; 73 FR 49592, Aug. 22, 2008] § 3550.62 Appraisals. (a) Requirement. (b) Fees. § 3550.63 Maximum loan amount. Total secured indebtedness must not exceed the area loan limit or market value limitations specified in paragraphs (a) or (b) of this section, whichever is lower. Any loan amount for the RHS appraisal, tax monitoring fee, and the charge to establish an escrow account for taxes and insurance will not be subject to the limitations specified below. This section does not apply to loans on NP terms. (a) Area loan limit. (2) The maximum loan limit calculated under paragraph (a)(1) will be reduced in the following situations: (i) When the applicant owns the site or is purchasing the site at a sales price below market value, the market value of the lot will be deducted from the maximum loan limit, and (ii) When an applicant is receiving a housing grant or other form of affordable housing assistance for purposes other than closing costs, the amount(s) of such grants and affordable housing assistance will be deducted from the maximum loan limit. (3) The maximum loan limit for self-help housing will be calculated by adding the total of the market value of the lot (including reasonable and typical costs of site development), the cost of construction, and the value of sweat equity. The total of these three factors cannot exceed the limit established in paragraph (a)(1) of this section. (b) Market value limitation. (2) The market value limitation is 90 percent of market value for new dwellings for which adequate documentation of construction quality is not available. (3) The market value limitation can be increased by: (i) Up to one percent, if RHS makes a subsequent loan for closing costs only, in conjunction with the sale of an REO property or an assumption. (ii) The amount necessary to make a subsequent loan for repairs necessary to protect the Government's interest, and reasonable closing costs. (iii) The amount necessary to refinance an existing borrower's RHS loans, plus closing costs associated with the new loan. [61 FR 59779, Nov. 22, 1996; 61 FR 65266, Dec. 11, 1996, as amended at 67 FR 78330, Dec. 24, 2002; 84 FR 29038, June 21, 2019] § 3550.64 Down payment. Elderly families must use any net family assets in excess of $20,000 towards a down payment on the property. Non-elderly families must use net family assets in excess of $15,000 towards a down payment on the property. Applicants may contribute assets in addition to the required down payment to further reduce the amount to be financed. [73 FR 49593, Aug. 22, 2008] § 3550.65 [Reserved] § 3550.66 Interest rate. Loans will be written using the applicable RHS interest rate in effect at loan approval or loan closing, whichever is lower. Information about current interest rates is available in any Rural Development office. [67 FR 78330, Dec. 24, 2002] § 3550.67 Repayment period. Loans will be scheduled for repayment over a period that does not exceed the expected useful life of the property as a dwelling. The loan repayment period will not exceed: (a) Thirty-three years in all cases except as noted in paragraphs (b), (c), and (d) of this section. (b) Thirty-eight years: (1) For initial loans, or subsequent loans made in conjunction with an assumption, if the applicant's adjusted income does not exceed 60 percent of the area adjusted median income and the longer term is necessary to show repayment ability. (2) For subsequent loans not made in conjunction with an assumption if the applicant's initial loan was for a period of 38 years, the applicant's adjusted income at the time the subsequent loan is approved does not exceed 60 percent of area adjusted median income, and the longer terms is necessary to show repayment ability. (c) Ten years for loans not exceeding an amount determined by the Agency based on factors such as the performance of unsecured loans in the Agency's portfolio and the Agency's budgetary needs, but not to exceed eight percent of the national average area loan limit. (d) Thirty years for manufactured homes. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022] § 3550.68 Payment subsidies. RHS administers three types of payment subsidies: interest credit, payment assistance method 1, and payment assistance method 2. Payment subsidies are subject to recapture when the borrower transfers title or ceases to occupy the property. (a) Eligibility for payment subsidy. (2) Payment subsidy may be granted for initial loans or subsequent loans made in conjunction with an assumption only if the term of the loan is 25 years or more. (3) Payment subsidy may be granted for subsequent loans not made in conjunction with an assumption if the initial loan was for a term of 25 years or more. (b) Determining type of payment subsidy. (2) If a borrower receiving payment assistance using payment assistance method 1 receives a subsequent loan, payment assistance method 2 will be used to calculate the subsidy for the initial loan and subsequent loan. (3) A borrower who has never received payment subsidy, or who has stopped receiving interest credit or payment assistance method 1, and at a later date again qualifies for a payment subsidy, will receive payment assistance method 2. (4) A borrower may not opt to change payment assistance methods. (c) Calculation of payment assistance. (1) Payment Assistance Method 2. (i) The annualized promissory note installments for the combined RHS loan and eligible leveraged loans plus the cost of taxes and insurance less twenty-four percent of the borrower's adjusted income, or (ii) The annualized promissory note installment for the RHS loan less amount the borrower would pay if the loan were amortized at an interest rate of one percent. (2) Payment Assistance Method 1. (i) The floor payment, which is defined as a minimum percentage of adjusted income that the borrower must pay for PITI: 22 percent for very low-income borrowers, 24 percent for low-income borrowers with adjusted income below 65 percent of area adjusted median, and 26 percent for low-income borrowers with adjusted incomes between 65 and 80 percent of area adjusted median; or (ii) The annualized note rate installment and the payment at the equivalent interest rate, which is determined by a comparison of the borrower's adjusted income to the adjusted median income for the area in which the security property is located. The following chart is used to determine the equivalent interest rate. When the applicant's adjusted income is: Percentage of Median Income and the Equivalent Interest Rate Equal to or more than: BUT less than: THEN the equivalent interest rate is* 00% 50.01 of adjusted median income 1% 50.01% 55 of adjusted median income 2% 55% 60 of adjusted median income 3% 60% 65 of adjusted median income 4% 65% 70 of adjusted median income 5% 70% 75 of adjusted median income 6% 75% 80.01 of adjusted median income 6.5% 80.01% 90 of adjusted median income 7.5% 90% 100 of adjusted median income 8.5% 100% 110% of adjusted median income 9% 110% Or more than adjusted median income 9.5% * Or note rate, whichever is less; in no case will the equivalent interest rate be less than one percent. (d) Calculation of interest credit. (1) Twenty percent of the borrower's adjusted income less the cost of real estate taxes and insurance, or (2) The amount the borrower would pay if the loan were amortized at an interest rate of 1 percent. (e) Annual review. [72 FR 73255, Dec. 27, 2007, as amended at 79 FR 28810, May 20, 2014; 84 FR 29038, June 21, 2019] § 3550.69 Deferred mortgage payments. For qualified borrowers, RHS may defer up to 25 percent of the monthly principal and interest payment at 1 percent for up to 15 years. This assistance may be granted only at initial loan closing and is reviewed annually. Deferred mortgage payments are subject to recapture when the borrower transfers title or ceases to occupy the property. (a) Eligibility. (1) The applicants adjusted income at the time of initial loan approval does not exceed the applicable very low-income limits. (2) The loan term is 38 years, or 30 years for a manufactured home. (3) The applicant's payments for principal and interest, calculated at a one percent interest rate for the maximum allowable term, plus estimated costs for taxes and insurance exceeds: (i) For applicants receiving payment assistance, 29 percent of the applicants repayment income by more than $10 per month; or (ii) For applicants receiving interest credit, 20 percent of adjusted income by more than $10 per month. (b) Amount and terms. (i) For applicants receiving payment assistance, 29 percent of the applicants repayment income. (ii) For applicants receiving interest credit, 20 percent of adjusted income. (2) Deferred mortgage payment agreements will be effective for a 12-month period. (3) Deferred mortgage assistance may be continued for up to 15 years after loan closing. Once a borrower becomes ineligible for deferred mortgage assistance, the borrower can never again receive deferred mortgage assistance. (c) Annual review. § 3550.70 Conditional commitments. A conditional commitment is a determination by RHS that a dwelling offered for sale will be acceptable for purchase by a qualified RHS loan applicant if it is built or rehabilitated in accordance with RHS-approved plans, specifications, and regulations and priced within the lesser of the property's appraised value or the applicable maximum load limit. The conditional commitment does not reserve funds, does not guarantee funding, and does not ensure that an eligible loan applicant will be available to buy the dwelling. (a) Eligibility. (1) Have an adequate ownership interest in the property, as defined in § 3550.58, prior to the beginning of any planned construction; (2) Have the experience and ability to complete any proposed work in a competent and professional manner; (3) Have the legal capacity to enter into the required agreements; (4) Be financially responsible and have the ability to finance or obtain financing for any proposed construction or rehabilitation; and (5) Comply with the requirements of 7 CFR part 1901, subpart E and all applicable laws, regulations, and Executive Orders relating to equal opportunity. Anyone who receives 5 or more conditional commitments during a 12-month period must obtain RHS approval of an affirmative marketing plan. (b) Limitations. (c) Commitment period. (d) Conditional commitments involving packaging of applications. (1) The conditional commitment will not be approved until the applicant's loan has been approved; (2) Construction will not begin until loan funds are obligated for the loan. Exceptions may be made when it appears likely that funding will be forthcoming and as long as the RHS lien priority is not jeopardized. The sales agreement must indicate that the loan has been approved but not funded and must provide that if the loan is not closed within 90 days of the date of approval, the contractor may terminate the sales agreement and sell the property to another party. If the sales agreement is terminated, the conditional commitment will be honored for another eligible loan applicant for the remaining period of the commitment; and (3) The RHS loan will be closed only after the dwelling is constructed or the required rehabilitation completed and final inspection has been made. (e) Fees. (f) Failure of conditional commitment applicant or dwelling to qualify. (g) Changes in plans, specifications, or commitment price. (1) The property price does not exceed the maximum loan limit and increases in costs are due to factors beyond the control of the commitment holder; and (2) The requested changes are justifiable and appropriate. (h) Builder's warranty. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002] § 3550.71 Special requirements for condominiums. RHS loans may be made for condominium units under the following conditions: (a) The unit is in a project approved or accepted by U.S. Department of Housing and Urban Development (HUD), the Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac). (b) The condominium project complies with the requirements of the condominium enabling statute and all other applicable laws. Any right of first refusal in the condominium documents will not impair the rights of RHS to: (1) Foreclose or take title to a condominium unit pursuant to the remedies in the mortgage; (2) Accept a deed in lieu of foreclosure in the event of default by a mortgagor; and (3) Sell or lease a unit acquired by RHS. (c) If RHS obtains title to a condominium unit pursuant to the remedies in its mortgage or through foreclosure, RHS will not be liable for more than 6 months of the unit's unpaid regularly budgeted dues or charges accrued before acquisition of the title to the unit by RHS. The homeowners association's lien priority may include costs of collecting unpaid dues. (d) In case of condemnation or substantial loss to the units or common elements of the condominium project, unless at least two-thirds of the first mortgagees or unit owners of the individual condominium units have given their consent, the homeowners association may not: (1) By act or omission seek to abandon or terminate the condominium project; (2) Change the pro rata interest or obligations of any condominium unit in order to levy assessments or charges, allocate distribution of hazard insurance proceeds or condemnation awards, or determine the pro rata share of ownership of each condominium unit in the common elements; (3) Partition or subdivide any condominium unit; (4) Seek to abandon, partition, subdivide, encumber, sell, or transfer the common elements by act or omission (the granting of easements for public utilities or other public purposes consistent with the intended use of the common elements by the condominium project is not a transfer within the meaning of this clause); or (5) Use hazard insurance proceeds for losses to any condominium property (whether units or common elements) for other than the repair, replacement, or reconstruction of the condominium property. (e) All taxes, assessments, and charges that may become liens prior to the first mortgage under local law relate only to the individual condominium units and not to the condominium project as a whole. (f) No provision of the condominium documents gives a condominium unit owner or any other party priority over any rights of RHS as first or second mortgagee of the condominium unit pursuant to its mortgage in the case of a payment to the unit owner of insurance proceeds or condemnation awards for losses to or taking of condominium units or common elements. (g) If the condominium project is on a leasehold the underlying lease provides adequate security of tenure as described in § 3550.58(b). (h) At least 70 percent of the units have been sold. Multiple purchases of condominium units by one owner are counted as one sale when determining if the sales requirement has been met. (i) No more than 15 percent of the unit owners are more than 1 month delinquent in payment of homeowners association dues or assessments at the time the RHS loan is closed. § 3550.72 Community land trusts. Eligible dwellings located on land owned by a community land trust may be financed if: (a) The loan meets all the requirements of this subpart; and (b) Any restrictions, imposed by the community land trust on the property or applicant are: (1) Reviewed and accepted by RHS before loan closing; and (2) Automatically and permanently terminated upon foreclosure or acceptance by RHS of a deed in lieu of foreclosure. § 3550.73 Manufactured homes. With the exception of the restrictions and additional requirements contained in this section, section 502 loans on manufactured homes are subject to the same conditions as all other section 502 loans. (a) Eligible costs. (1) Purchase of an eligible unit, transportation, and set-up costs, and purchase of an eligible site if not already owned by the applicant; (2) Site development work in accordance with 7 CFR part 1924, subpart A: (3) Subsequent loans in conjunction with an assumption or sale of an REO property; or (4) Subsequent loans for repairs of units financed under section 502. (b) Loan restrictions. (1) An existing unit and site unless it is already financed with a section 502 loan; or is an RHS REO property; or the unit was constructed in conformance with FMHCSS standards as evidenced by both an affixed HUD Certification label and a HUD Data Plate on or after date determined by the Agency, is installed on a permanent foundation which meets HUD regulations and 7 CFR part 1924, subpart A, exhibit J, and has not been previously installed on a different homesite or had any alterations since construction in the factory, except as specified in the program handbook. (2) The purchase of a site without also financing the unit. (3) Alteration or remodeling of the unit when the initial loan is made. (4) Furniture, including movable articles of personal property such as drapes, beds, bedding, chairs, sofas, divans, lamps, tables, televisions, radios, stereo sets, and other similar items of personal property. Furniture does not include wall-to-wall carpeting, refrigerators, ovens, ranges, washing machines, clothes dryers, heating or cooling equipment, or other similar items. (c) Loan term. (d) Construction and development. (e) Contract requirements. (f) Lien release requirements. (g) Warranty requirements. [61 FR 59779, Nov. 22, 1996, as amended at 90 FR 203, Jan. 3, 2025] § 3550.74 Nonprogram loans. NP terms may be extended to applicants who do not qualify for program credit, or for properties that do not qualify as program properties, when it is in the best interest of the Government. NP loans are originated and serviced according to the requirements for program loans except as indicated in this section. (a) Purpose. (1) Sale of an REO property. (2) Assumption of an existing program loan on new rates and terms. If additional funds are required to purchase the property, the applicant must obtain them from another source. (3) Conversion of a program loan that has received unauthorized assistance. (4) Continuation of a loan on a portion of a security property when the remainder is being transferred and the RHS debt is not paid in full. (b) Terms. (i) For an applicant who intends to occupy the property, the term will not exceed 30 years. (ii) For other applicants, the term will not exceed 10 years. If more favorable terms are necessary to facilitate the sale, the loan may be amortized over a period of up to 20 years with payment in full due not later than 10 years from the date of closing. (iii) An applicant with an NP loan under paragraph (b)(1)(i) of this section who wishes to retain the property and purchase a new property with RHS credit must purchase the second property according to the terms of paragraph (b)(1)(ii) of this section, even if the new property will serve as the applicant's principal residence. (2) NP loans are written at the NP interest rate in effect at the time of loan approval. (3) NP borrowers are not eligible for payment assistance or a moratorium. (c) Additional requirements. (2) NP applicants must make a down payment based upon the purchase price and whether the applicant intends to personally occupy the property or use it for other purposes. (3) NP applicants cannot finance loan closing costs or escrow, tax service, or appraisal fees. (d) Reduced restrictions. (2) NP applicants are not required to occupy the property. (3) NP applicants are not subject to leasing restrictions. (e) Waiver of costs. § 3550.75 Certified loan application packaging process. Persons interested in applying for a section 502 loan may, but are not required to, submit an application through the certified loan application packaging process. (a) General. (b) Process requirements. (1) Agency-certified loan application packager. (i) Have at least one year of affordable housing loan origination and/or affordable housing counseling experience; (ii) Be employed (either as an employee or as an independent contractor) by a qualified employer as outlined in paragraph (b)(2) of this section; (iii) Complete an Agency-approved loan application packaging course and successfully pass the corresponding test as specified in paragraph (c) of this section; and (iv) Submit applications to the Agency via an intermediary if determined necessary by a State Director. (2) Qualified employer. (i) Be a nonprofit organization or public agency in good standing in the State(s) of its operation. (ii) Be tax exempt under the Internal Revenue Code and be engaged in affordable housing per their regulations, articles of incorporation, or bylaws. (iii) Notify the Agency and the applicant if they or their Agency-certified packager(s) are the developer, builder, seller of, or have any other such financial interest in the property for which the application package is submitted. The Agency may disallow a particular qualified employer and/or Agency-certified packager from receiving part or all of a packaging fee if the Agency determines that the financial interest is improper or the qualified employer or Agency-certified packager has a history of improperly using its position when there has been a financial interest in the property. (iv) Prepare an affirmative fair housing marketing plan for Agency approval as outlined in RD Instruction 1901-E (or in any superseding guidance provided in the impending RD Instruction 1940-D). (v) Submit applications to the Agency via an intermediary if determined necessary by a State Director. (3) Agency-approved intermediaries. (i) Be a section 501(c)(3) nonprofit organization or public agency in good standing in the State(s) of its operation with the capacity to serve multiple qualified employers and their Agency-certified loan application packagers throughout an entire State or preferably throughout entire States and with the capacity to perform quality assurance reviews on a large volume of packaged loan applications within an acceptable period of time as determined by the Agency; (ii) Be engaged in affordable housing in accordance with their regulations, articles of incorporation, or bylaws; (iii) Be financially viable and demonstrate positive operating performance as evidenced by an independent audit paid for by the applicant seeking to be an intermediary; (iv) Have at least five years of verifiable experience with the Agency's direct single family housing loan programs; (v) Demonstrate that their quality assurance staff has experience with packaging, originating, or underwriting affordable housing loans. (vi) Develop and implement quality control procedures designed to prevent submission of incomplete or ineligible application packages to the Agency; (vii) Ensure that their quality assurance staff complete an Agency-approved loan application packaging course and successfully pass the corresponding test; (viii) Not be the developer, builder, seller of, or have any other such financial interest in the property for which the application package is submitted; and (ix) Provide supplemental training, technical assistance, and support to certified loan application packagers and qualified employers to promote quality standards and accountability; and to address areas for improvement and any changes in program guidance. (c) Loan application packaging courses. (1) Loan application packagers. (i) An in-depth review of the section 502 direct single family housing loan program and the regulations and laws that govern the program (including civil rights lending laws such as the Equal Credit Opportunity Act, Fair Housing Act, and Section 504 of the Rehabilitation Act of 1973); (ii) A detailed discussion on the program's application process and borrower/property eligibility requirements; (iii) An examination of the Agency's loan underwriting process which includes the use of payment subsidies; and (iv) The roles and responsibilities of a loan application packager and the Agency staff. (2) Intermediaries. (3) Non-Agency trainers. (d) Confidentiality. (e) Retaining designation. (f) Revocation. (1) The rate of submitted packaged loan applications that receive RHS approval is below the acceptable limit as determined by the Agency; (2) The rate of submitted packaged loan applications from very low-income applicants is below the acceptable level as determined by the Agency; (3) Violation of applicable regulations, statutes and other guidance; or (4) No viable packaged loan applications are submitted to the Agency in any consecutive 12-month period. [80 FR 23678, Apr. 29, 2015] §§ 3550.75-3550.99 [Reserved] § 3550.100 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 3 hours per response, with an average of 1 1/2 [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78330, Dec. 24, 2002] Subpart C—Section 504 Origination and Section 306C Water and Waste Disposal Grants § 3550.101 Program objectives. This subpart sets forth policies for administering loans and grants under section 504(a) of title V of the Housing Act of 1949, as amended. Section 504 loans and grants are intended to help very low-income owner-occupants in rural areas repair their properties. This subpart also covers Water and Waste Disposal (WWD) Grants to individuals authorized by Section 306C(b) of the Consolidated Farm and Rural Development Act, (7 U.S.C. 1926c). [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002] § 3550.102 Grant and loan purposes. (a) Grant funds. (b) Loan funds. (c) Eligibility of mobile and manufactured homes. (1) The applicant owns the home and site and has occupied the home prior to filing an application with RHS; and (2) The mobile or manufactured home is on a permanent foundation or will be put on a permanent foundation with section 504 funds. (d) Eligible costs. (1) Reasonable expenses related to obtaining the loan or grant, including legal, architectural and engineering, title clearance, and loan closing fees; and appraisal, surveying, environmental, tax monitoring, and other technical services. (2) The cost of providing special design features or equipment when necessary because of a physical disability of the applicant or a member of the household. (3) Reasonable connection fees, assessments, or the pro rata installation costs for utilities such as water, sewer, electricity, and gas for which the borrower is liable and which are not paid from other funds. (4) Real estate taxes that are due and payable on the property at the time of closing and for the establishment of escrow accounts for real estate taxes, hazard and flood insurance premiums, and related costs. (5) Fees to public and private nonprofit organizations that are tax exempt under the Internal Revenue Code for the development and packaging of applications. (e) Restrictions on uses of loan or grant funds. (1) Assist in the construction of a new dwelling. (2) Make repairs to a dwelling in such poor condition that when the repairs are completed, the dwelling will continue to have major hazards. (3) Move a mobile home or manufactured home from one site to another. (4) Pay for off-site improvements except for the necessary installation and assessment costs for utilities. (5) Refinance any debt or obligation of the applicant incurred before the date of application except for the installation and assessment costs of utilities; or subject to the availability of funds and program priorities as determined by RHS, refinance of an existing RHS loan in accordance with § 3550.201 as a special servicing option, including but not limited to refinancing at the end of a moratorium. (6) Pay fees, commission, or charges to for-profit entities related to loan packaging or referral of prospective applicants to RHS. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022] § 3550.103 Eligibility requirements. To be eligible, applicants must meet the following requirements: (a) Owner-occupant. (b) Age (grant only). (c) Income eligibility. (d) Citizenship status. (e) Need and use of personal resources. (f) Legal capacity. (g) Suspension or debarment. (h) Repayment ability (loans only). (1) If an applicant does not meet the repayment ability requirements, the applicant can have another party join the application as a cosigner. (2) If an applicant does not meet the repayment ability requirements, the applicant can have other household members join the application. (i) Credit qualifications. (1) Indicators of unacceptable credit include: (i) Payments on any account where the amount of the delinquency exceeded one installment for more than 30 days within the last 12 months. (ii) Payments on any account which was delinquent for more than 30 days on two or more occasions within a 12-month period. (iii) Loss of security due to a foreclosure if the foreclosure has been completed within the last 36 months. (iv) An outstanding Internal Revenue Service tax lien or any other outstanding tax liens with no satisfactory arrangement for payment. (v) A court-created or court-affirmed obligation or judgment caused by nonpayment that is currently outstanding or has been outstanding within the last 12 months, except for those excluded by paragraphs (i)(2)(i) and (i)(2)(ii) of this section. (vi) Outstanding collection accounts with a record of irregular payment with no satisfactory arrangements for repayment, or collection accounts that were paid in full within the last 6 months. (vii) Non-agency debts written off within the last 36 months or paid in full at least 12 months ago. (viii) Agency debts that were debt settled within the last 36 months or are being considered for debt settlement. (ix) Delinquency on a federal debt. (2) The following will not be considered indicators of unacceptable credit: (i) A bankruptcy in which debts were discharged more than 36 months prior to the date of application or where an applicant successfully completed a bankruptcy debt restructuring plan and has demonstrated a willingness to meet obligations when due for the 12 months prior to the date of application. (ii) A non-foreclosure judgment satisfied more than 12 months before the date of application. (3) When an application is rejected because of unacceptable credit, the applicant will be informed of the reason and source of information. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 73 FR 49593, Aug. 22, 2008; 80 FR 9911, Feb. 24, 2015; 87 FR 6772, Feb. 7, 2022] § 3550.104 Applications. (a) Application submissions. (b) Application processing. (2) An applicant may voluntarily withdraw an application at any time. (3) RHS may periodically request in writing that applicants reconfirm their interest in obtaining a loan or grant. RHS may withdraw the application of any applicant who does not respond within the specified timeframe. (4) Applicants who are eligible will be notified in writing. If additional information becomes available that indicates that the original eligibility determination may have been in error or that circumstances have changed, RHS may reconsider the application and the applicant may be required to submit additional information. (5) Applicants who are ineligible will be notified in writing and provided with the specific reasons for the rejection. (c) Processing priorities. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022] § 3550.105 Site requirements. (a) Rural areas. (b) Not subdividable. § 3550.106 Dwelling requirements. (a) Modest dwelling. (b) Post-repair condition. (c) Construction standards. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 72 FR 70222, Dec. 11, 2007; 87 FR 6772, Feb. 7, 2022] § 3550.107 Ownership requirements. The applicant must have an acceptable ownership interest in the property as evidenced by one of the following: (a) Full fee ownership. (b) Secure leasehold interest. (c) Life estate interest. (d) Undivided interest. (1) In the case of unsecured loans or grants, if any co-owners living or planning to live in the dwelling sign the repayment agreement. (2) In the case of a secured loan, when one or more of the co-owners are not legally competent (and there is no representative who can legally consent to the mortgage), cannot be located, or the ownership interests are divided among so large a number of co-owners that it is not practical for all of their interests to be mortgaged, their interests not exceeding 50 percent may be excluded from the security requirements. In such cases, the loan may not exceed the value of the property interests owned by the persons executing the mortgage. (e) Possessory rights. (f) Land purchase contract. (g) Alternative evidence of ownership. (1) Records of the local taxing authority that show the applicant as owner and that demonstrate that real estate taxes for the property are paid by the applicant. (2) Affidavits by others in the community stating that the applicant has occupied the property as the apparent owner for a period of not less than 10 years, and is generally believed to be the owner. (3) Any instrument, whether or not recorded, which is commonly accepted as evidence of ownership. § 3550.108 Security requirements (loans only). When the total section 504 indebtedness is $7,500 or more, the property will be secured by a mortgage on the property, leasehold interest, or land purchase contract. (a) RHS does not require a first lien position, but the total of all debts on the secured property may not exceed the value of the security, except by the amount of any required contributions to an escrow account for taxes and insurance and any required appraisal fee. (b) Title clearance and the use of legal services generally must be conducted in accordance with 7 CFR part 1927, subpart B. These requirements need not be followed for: (1) Loans where the total section 504 indebtedness does not exceed an amount determined by the Agency based on factors such as average costs for title insurance and closing agents compared to average housing repair costs, but no greater than twenty percent of the national average area loan limit. (2) Subsequent loans made for minimal essential repairs necessary to protect the Government's interest. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 87 FR 6772, Feb. 7, 2022] § 3550.109 Escrow account (loans only). RHS may require that borrowers deposit into an escrow account amounts necessary to ensure that the account will contain sufficient funds to pay real estate taxes, hazard and flood insurance premiums, and other related costs when they are due in accordance with the Real Estate Settlement and Procedures Act of 1974 (RESPA) and section 501(e) of the Housing Act of 1949, as amended. § 3550.110 Insurance (loans only). (a) Borrower responsibility. Any borrower with a secured indebtedness in excess of $15,000 at the time of loan approval must furnish and continually maintain hazard insurance on the security property, with companies, in amounts, and on terms and conditions acceptable to RHS including a “loss payable clause” payable to RHS to protect the Government's interest. (b) Amount. The borrower is required to insure the dwelling and any other essential buildings in an amount equal to the insurable value of the dwelling and other essential buildings. However, in cases where the borrower's outstanding secured indebtedness is less than the insurable value of the dwelling and other essential buildings, the borrower may elect a lower coverage provided it is not less than the outstanding secured indebtedness. If the borrower fails, or is unable to insure the secured property, RHS will force place insurance and charge the cost to the borrower's account. Force place insurance only provides insurance coverage to the Agency and does not provide any direct coverage or benefit to the borrower. The amount of the lender-placed coverage generally will be the property's last known insured value. (c) Flood insurance. (d) Losses. (2) Borrowers must immediately notify RHS of any loss or damage to insured property and collect the amount of the loss from the insurance company. (3) RHS may require that loss payments be supervised. All repairs and replacements done by or under the direction of the borrower, or by contract, will be planned, performed, inspected, and paid for in accordance with 7 CFR part 1924, subpart A. (4) When insurance funds remain after all repairs, replacements, and other authorized disbursements have been made, the funds will be applied in the following order: (i) Prior liens, including delinquent property taxes. (ii) Delinquency on the account. (iii) Advances due for recoverable cost items. (iv) Released to the borrower if the RHS debt is adequately secured. (5) If a loss occurs when insurance is not in force, the borrower is responsible for making the needed repairs or replacements and ensuring that the insurance is reinstated on the property. (6) If the borrower is not financially able to make the repairs, RHS may take one of the following actions: (i) Make a subsequent loan for repairs. (ii) Subordinate the RHS lien to permit the borrower to obtain funds for needed repairs from another source. (iii) Permit the borrower to obtain funds secured by a junior lien from another source. (iv) Make a protective advance to protect the Government's interest. (v) Accelerate the account and demand payment in full. [61 FR 59779, Nov. 22, 1996, as amended at 70 FR 6552, Feb. 8, 2005; 73 FR 49593, Aug. 22, 2008] § 3550.111 Appraisals (loans only). An appraisal is required when the section 504 debt to be secured exceeds $15,000 or whenever RHS determines that it is necessary to establish the adequacy of the security. RHS may charge an appraisal fee. Appraisals must be made in accordance with the Uniform Standards of Professional Appraisal Practices. When other real estate is taken as additional security it will be appraised if it represents a substantial portion of the security for the loan. § 3550.112 Maximum loan and grant. (a) Maximum loan permitted. (1) Transferees who have assumed a section 504 loan and wish to obtain a subsequent section 504 loan are limited to the difference between the unpaid principal balance of the debt assumed and the maximum loan permitted. (2) For a secured loan, the total of all debts on the secured property may not exceed the value of the security, except by the amount of any required appraisal and tax monitoring fees, and the contributions to an escrow account for taxes and insurance. (b) Maximum loan based upon ability to pay. (c) Maximum grant. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6772, Feb. 7, 2022] § 3550.113 Rates and terms (loans only). (a) Interest rate. (b) Loan term. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6773, Feb. 7, 2022] § 3550.114 Repayment agreement (grants only). Grant recipients are required to sign a repayment agreement which specifies that the full amount of the grant must be repaid if the property is sold in less than 3 years from the date the grant agreement was signed. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002] § 3550.115 WWD grant program objectives. The objective of the WWD individual grant program is to facilitate the use of community water and waste disposal systems by the residents of colonias along the border between the U.S. and Mexico. WWD grants are processed the same as Section 504 grants, except as specified in this subpart. [67 FR 78331, Dec. 24, 2002] § 3550.116 Definitions applicable to WWD grants only. (a) Colonia. (b) Individual. (c) Rural areas. (d) System. (e) WWD. [67 FR 78331, Dec. 24, 2002, as amended at 80 FR 9911, Feb. 24, 2015] § 3550.117 WWD grant purposes. Grant funds may be used to pay the reasonable costs for individuals to: (a) Extend service lines from the system to their residence. (b) Connect service lines to residence's plumbing. (c) Pay reasonable charges or fees for connecting to a system. (d) Pay for necessary installation of plumbing and related fixtures within dwellings lacking such facilities. This is limited to one bathtub, sink, commode, kitchen sink, water heater, and outside spigot. (e) Construction and/or partitioning off a portion of the dwelling for a bathroom, not to exceed 4.6 square meters (48 square feet) in size. (f) Pay reasonable costs for closing abandoned septic tanks and water wells when necessary to protect the health and safety of recipients of a grant for a purpose provided in paragraph (a) or (b) of this section and is required by local or State law. (g) Make improvements to individual's residence when needed to allow the use of the water and/or waste disposal system. [67 FR 78331, Dec. 24, 2002] § 3550.118 Grant restrictions. (a) Maximum grant. (b) Limitation on use of grant funds. (1) Pay any debt or obligation of the grantees other than obligations incurred for purposes listed in § 3550.117. (2) Pay individuals for their own labor. [67 FR 78331, Dec. 24, 2002] § 3550.119 WWD eligibility requirements. In addition to the eligibility requirements of § 3550.103, WWD applicants must meet the following requirements: (a) An applicant need not be 62 years of age or older. (b) Own and occupy a dwelling located in a colonia. Evidence of ownership will be presented as outlined in § 3550.107. (c) Have a total taxable income from all individuals residing in the household that is below the most recent poverty income guidelines established by the Department of Health and Human Services. (d) Must not be delinquent on any Federal debt. (e) The household income must be verified at the time they apply for assistance through verification of employment and benefits. Federal tax returns are used as further verification of household income. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002] §§ 3550.120-3550.149 [Reserved] § 3550.150 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 3 hours per response, with an average of 1 1/2 [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78331, Dec. 24, 2002; 80 FR 81738, Dec. 31, 2015] Subpart D—Regular Servicing § 3550.151 Servicing goals. This subpart sets forth the Rural Housing Service (RHS) policies for managing the repayment of loans made under sections 502 and 504 of the Housing Act of 1949, as amended. § 3550.152 Loan payments. (a) Payment terms. (b) Application of payments. (1) Protective advances charged to the account. (2) Accrued interest due. (3) Principal due. (4) Escrow for taxes and insurance. (c) Multiple loans. (d) Application of excess payments. § 3550.153 Fees. RHS may assess reasonable fees including a tax service fee, fees for late payments, and fees for checks returned for insufficient funds. § 3550.154 Inspections. RHS or its agent may make reasonable entries upon and inspections of any property used as security for an RHS loan as necessary to protect the interest of the Government. RHS will give the borrower notice at the time of or prior to an inspection. § 3550.155 Escrow account. Escrow accounts will be administered in accordance with RESPA and section 501(e) of the Housing Act of 1949, as amended. (a) Upon creation of the escrow account, RHS may require borrowers to deposit funds sufficient to pay taxes and insurance premiums applicable to the mortgage for the period since the last payments were made and to fund a cushion as permitted by RESPA. (b) Borrowers may elect to escrow at any time during the terms of the loan if the outstanding RHS loan balance is over $2,500. (c) RHS may require borrowers to escrow in conjunction with any special servicing action. § 3550.156 Borrower obligations. (a) After receiving a loan from RHS, borrowers are expected to meet a variety of obligations outlined in the loan documents. In addition to making timely payments, these obligations include: (1) Maintaining the security property; and (2) Maintaining an adequately funded escrow account, or paying real estate taxes, hazard and flood insurance, and other related costs when due. (b) If a borrower fails to fulfill these obligations, RHS may obtain the needed service and charge the cost to the borrowers account. § 3550.157 Payment subsidy. (a) Borrowers currently receiving payment subsidy. (2) If the renewal is not completed before the expiration date of the existing agreement, the effective date of the renewal will be either the expiration date of the previous agreement if RHS error caused the delay, or the next due date after the renewal is approved in all other cases. (3) The borrower must notify RHS whenever an adult member of the household becomes employed or changes employment, there is a change in household composition, or if income increases by at least 10 percent. The household may also report decreases in income. If the change in the household's income will cause the payment for principal and interest to change by at least 10 percent, the household's payment subsidy may be adjusted for a new 12-month period. The new agreement will be effective the due date following the date the borrower's information is verified by RHS. (b) Borrowers not currently receiving payment subsidy. (c) Cancellation of payment subsidy. § 3550.158 Active military duty. The Soldiers and Sailors Relief Act requires that the interest rate charged a borrower who enters full-time active military duty after a loan is closed not exceed six percent. Active military duty does not include participation in a military reserve or the National Guard unless the borrower is called to active duty. (a) Amount of assistance. (b) Change of active military status. § 3550.159 Borrower actions requiring RHS approval. (a) Mineral leases. (1) If the proposed activity is likely to decrease the value of the security property, RHS may consent to the lease only if the borrower assigns 100 percent of the income from the lease to RHS to be applied to reduce principal and the rent to be paid is at least equal to the estimated decrease in the market value of the security. (2) If the proposed activity is not likely to decrease the value of the security property, RHS may consent to the lease if the borrower agrees to use any damage compensation received from the lessee to repair damage to the site or dwelling, or to assign it to RHS to be applied to reduce principal. (b) Subordination. (1) When it is in the best interest of the Government, subordination will be permitted if: (i) The other lender will verify that the funds will be used for purposes for which an RHS loan could be made; (ii) The prior lien debt will be on terms and conditions that the borrower can reasonably be expected to meet without jeopardizing repayment of the RHS indebtedness; (iii) Any proposed development will be planned and performed in accordance with 7 CFR part 1924, subpart A or directed by the other lender in a manner which is consistent with that subpart; and (iv) An agreement is obtained in writing from the prior lienholder providing that at least 30 days prior written notice will be given to RHS before action to foreclose on the prior lien is initiated. (2) The total amount of debt permitted when RHS subordinates its interests depends on whether the borrower pays off the RHS loan. (i) For situations in which the borrower is obtaining a subsequent loan from another source and will not pay off the RHS debt, the prior lien debt plus the unpaid balance of all RHS loans, exclusive of recapture, will not exceed the market value of the security. (ii) For situations in which RHS is subordinating only a deferred recapture amount, the prior lien debt plus the deferred recapture amount will not exceed the market value of the security. (c) Partial release of security. (1) The compensation is: (i) For sale of the security property, cash in an amount equal to the value of the security being disposed of or rights granted. (ii) For exchange of security property, another parcel of property acquired in exchange with value equal to or greater than that being disposed of. (iii) For granting an easement or right-of-way, benefits derived that are equal to or greater than the value of the security property being disposed of. (2) An appraisal must be conducted if the latest appraisal is more than 1 year old or if it does not reflect market value and the amount of consideration exceeds $5,000. The appraisal fee will be charged to the borrower. (3) The security property, after the transaction is completed, will be an adequate but modest, decent, safe, and sanitary dwelling and related facilities. (4) Repayment of the RHS debt will not be jeopardized. (5) Environmental requirements are met and environmental documentation is submitted in accordance with 7 CFR part 1970. (6) When exchange of all or part of the security is involved, title clearance is obtained before release of the existing security. (7) Proceeds from the sale of a portion of the security property, granting an easement or right-of-way, damage compensation, and all similar transactions requiring RHS consent, will be used in the following order: (i) To pay customary and reasonable costs related to the transaction that must be paid by the borrower. (ii) To be applied on a prior lien debt, if any. (iii) To be applied to RHS indebtedness or used for improvements to the security property in keeping with purposes and limitations applicable for use of RHS loan funds. Proposed development will be planned and performed in accordance with 7 CFR part 1924, subpart A and supervised to ensure that the proceeds are used as planned. (d) Lease of security property. [61 FR 59779, Nov. 22, 1996, as amended at 81 FR 11048, Mar. 2, 2016] § 3550.160 Refinancing with private credit. (a) Objective. (b) Criteria for refinancing with private credit. (c) Notice of requirement to refinance with private credit. (1) A borrower undergoing review is required to supply, within 30 days of a request from RHS, sufficient financial information to enable RHS to determine the borrowers ability to refinance with private credit. Foreclosure action may be initiated against any borrower who fails to respond. (2) When RHS determines that a borrower has the ability to refinance with private credit, the borrower will be required to refinance within 90 days. (3) Within 30 days after being notified of the requirement to refinance with private credit, a borrower may contest the RHS decision and provide additional financial information to document an inability to refinance with private credit. (d) Failure to refinance with private credit. (i) The lenders contacted. (ii) The amount of the loan requested by the borrower and the amount, if any, offered by the lenders. (iii) The rates and terms offered by the lenders or the specific reasons why other credit is not available. (iv) The information provided by the borrower to the lenders regarding the purpose of the loan. (2) If RHS determines that the borrower's submission does not demonstrate the borrower's inability to refinance with private credit, or if the borrower fails to submit the required information, foreclosure may be initiated. (e) Subordination of recapture amount. (1) The amount required to repay the RHS debt, exclusive of recapture; (2) Reasonable closing costs; (3) Up to one percent of the loan amount for loan servicing costs, if required by the lender; and (4) The cost of any necessary repairs or improvements to the security property. (f) Application for additional credit. § 3550.161 Final payment. (a) Payment in full. (b) Release of security instruments. (c) Payoff statements. (d) Suitable forms of payment. (e) Recording costs. § 3550.162 Recapture. (a) Recapture policy. (b) Amount to be recaptured General. (i) The amount of subsidy received; or (ii) A portion of the value appreciation of the property subject to recapture. In order for the value appreciation to be calculated, the borrower will provide a current appraisal, including an appraisal for any capital improvements, or arm's length sales contract as evidence of market value upon Agency request. Appraisals must meet Agency standards under § 3550.62. (2) Foreclosure or deed in lieu of foreclosure. (i) Recoverable costs (e.g. protective advances, foreclosure costs, late charges). (ii) Accrued interest. (iii) Principal. (iv) Subsidy. (3) Value appreciation. (4) Interest (c) Deferral of recapture. (d) Assumed loans. (2) When a loan is assumed under the same rates and terms as the original promissory note, recapture amounts will not be due. When the new borrower transfers title or ceases to occupy the property, all subsidy subject to recapture before and after the assumption is due. (3) When a borrower has deferred payment of recapture amounts, the deferred recapture amount may be included in the principal amount of the new loan. [77 FR 3378, Jan. 24, 2012, as amended at 87 FR 6773, Feb. 7, 2022] § 3550.163 Transfer of security and assumption of indebtedness. (a) General policy. (b) RHS approval of assumptions. (2) If a borrower transfers title to the security property with a due-on-sale clause without obtaining RHS authorization, RHS will not approve assumption of the indebtedness, and the loan will be liquidated unless RHS determines that it is in the Government's best interest to continue the loan. If RHS decides to continue the loan, the account will be serviced in the original borrower's name and the original borrower will remain liable for the loan under the terms of the security instrument. (c) Exceptions to due-on-sale clauses. (i) A transfer from the borrower to a spouse or children not resulting from the death of the borrower. (ii) A transfer to a relative, joint tenant, or tenant by the entirety resulting from the death of the borrower. (iii) A transfer to a spouse or ex-spouse resulting from a divorce decree, legal separation agreement, or property settlement agreement. (iv) A transfer to a person other than a deceased borrower's spouse who wishes to assume the loan for the benefit of persons who were dependent on the deceased borrower at the time of death, if the dwelling will be occupied by one or more persons who were dependent on the borrower at the time of death, and there is a reasonable prospect of repayment. (v) A transfer into an inter vivos trust in which the borrower does not transfer rights of occupancy in the property. (2) A transferee who obtains property through one of the types of transfer listed in paragraph (c)(1) of this section: (i) Is not required to assume the loan, and RHS is not permitted to liquidate the loan, if the transferee continues to make scheduled payments and meet all other obligations of the loan. A transferee who does not assume the loan is not eligible for payment assistance or a moratorium. (ii) May assume the loan on the rates and terms contained in the promissory note, with no down payment. If the account is past due at the time an assumption is executed, the account may be brought current by using any of the servicing methods discussed in subpart E of this part. (iii) May assume the loan under new rates and terms if the transferee applies and is program-eligible. (3) Any subsequent transfer of title, except upon death of the inheritor or between inheritors to consolidate title, will be treated as a sale. (d) Requirements for an assumption. (2) The amount the transferee will assume will be either the current market value less any prior liens and any required down payment, or the indebtedness, whichever is less. (3) For loans assumed on program terms, the interest rate charged by RHS will be the rate in effect at loan approval or loan closing, whichever is lower. For loans assumed on nonprogram terms, the interest rate will be the rate in effect at the time of loan approval. (4) If additional financing is required to purchase the property or to make repairs, RHS may approve a subsequent loan under subparts B or C of this part. (5) If an appraisal is required for an assumption on new terms, the purchaser is responsible for the appraisal fee. (6) If all or a portion of the borrower's account balance is assumed, the borrower and cosigner, if any, will be released from liability on the amount of the indebtedness assumed. If an account balance remains after the assumption, RHS may pursue debt settlement in accordance with subpart F of this part. (7) Unless it is in the Government's best interest, RHS will not approve an assumption of a secured loan if the seller fails to repay any unsecured RHS loan. (8) If a loan is secured by a property with a dwelling situated on more than a minimum adequate site and the excess property cannot be sold separately as a minimum adequate site for another dwelling, RHS may approve a transfer of the entire property. If the excess property can be sold separately as a minimum adequate site, RHS will approve assumption of only the dwelling and the minimum adequate site. If the value of the dwelling on the minimum adequate site is less than the amount of the outstanding RHS debt, the remaining debt will be secured by the excess property. The outstanding debt will be converted to an NP loan and reamortized over a period not to exceed 10 years or the final due date of the original promissory note, whichever is sooner. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002] § 3550.164 Unauthorized assistance. (a) Definition. (b) Unauthorized assistance due to false information. (2) If the recipient receives an unauthorized loan due to false information, RHS will adjust the account using the NP interest rate that was in effect when the loan was approved. The recipient must pay the account in full within 30 days. (3) If the recipient receives unauthorized subsidy due to false information, RHS will require the recipient to repay it within 30 days. The account cannot be reamortized to include the unauthorized subsidy. If the recipient repays the unauthorized subsidy, the loan may be continued. (c) Unauthorized assistance due to inaccurate information. (2) RHS will permit a recipient who receives an unauthorized loan due to inaccurate information to retain the loan under the following conditions. (i) If the inaccurate information was related to the purpose of the loan or the recipient's eligibility, with the exception of income, or the income used was incorrect, but the recipient still qualified as income-eligible, RHS will allow the recipient to continue the loan on existing terms. (ii) If a section 502 recipient's income was above the moderate-income level, RHS will convert the loan to an NP loan, using the nonprogram interest rate in effect on the date the loan was approved. (iii) If a section 504 recipient's income was above the very low-income level, RHS will apply the applicable 502 or nonprogram interest rate in effect on the date the loan was approved. (iv) If an incorrect interest rate was used, RHS will adjust the account using the correct interest rate. (3) If the recipient receives unauthorized subsidy due to inaccurate information, RHS will require the recipient to repay it within 30 days. If the recipient cannot repay it within 30 days, the account may be reamortized. If the recipient repays the unauthorized subsidy or reamortizes the loan, the loan may be continued. (d) Unauthorized grants. (e) Account servicing. (f) Accounts with no security. §§ 3550.165-3550.199 [Reserved] § 3550.200 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 3 hours per response, with an average of 1 1/2 [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002] Subpart E—Special Servicing § 3550.201 Purpose of special servicing actions. The Rural Housing Service (RHS) may approve special servicing actions to reduce the number of borrower failures that result in liquidation. Borrowers who have difficulty keeping their accounts current may be eligible for one or more available servicing options including: Payment assistance; delinquency workout agreements that temporarily modify payment terms; protective advances of funds for taxes, insurance, and other approved costs; and payment moratoriums. Subject to the availability of funds and Agency priorities, refinancing may be available as a special servicing option in accordance with § 3550.52(c). [87 FR 6773, Feb. 7, 2022] § 3550.202 Past due accounts. An account is past due if the scheduled payment is not received by the due date, or as authorized by State law. (a) Late fee. (b) Liquidation For borrowers with monthly payments. (2) For borrowers with annual payments. 3/12 (3) Subsidy recapture. [61 FR 59779, Nov. 22, 1996, as amended at 77 FR 3379, Jan. 24, 2012] § 3550.203 General servicing actions. Whenever any of the servicing actions described in this subpart result in reamortization of the account RHS may: (a) Require a borrower who currently makes annual payments, but receives a monthly income, to convert to monthly payments. (b) Require the creation and funding of an escrow account for real estate taxes and insurance, if one does not already exist for any borrower with monthly payments. (c) Convert the method of calculating interest for any account being charged daily simple interest to an amortized payment schedule. § 3550.204 Payment assistance. Borrowers who are eligible may be offered payment assistance in accordance with subpart B of this part. Borrowers who are not eligible for payment assistance because the loan was approved before August 1, 1968, or the loan was made on above-moderate or nonprogram (NP) terms, may refinance the loan in order to obtain payment assistance if: (a) The borrower is eligible to receive a loan with payment assistance; (b) Due to circumstances beyond the borrower's control, the borrower is in danger of losing the property; and (c) The property is program-eligible. § 3550.205 Delinquency workout agreements. Borrowers with past due accounts may be offered the opportunity to avoid liquidation by entering into a delinquency workout agreement that specifies a plan for bringing the account current. To receive a delinquency workout agreement, the following requirements apply: (a) A borrower who is able to do so will be required to pay the past-due amount in a single payment. (b) A borrower who is unable to pay the past-due amount in a single payment must pay monthly all scheduled payments plus an agreed upon additional amount that brings the account current within 2 years or the remaining term of the loan, whichever is shorter. (c) If a borrower becomes more than 30 days past due under the terms of a delinquency workout agreement, RHS may cancel the agreement. § 3550.206 Protective advances. RHS may pay for fees or services and charge the cost against the borrower's account to protect the Governments interest. (a) Advances for taxes and insurance. (b) Advances for costs other than taxes and insurance. (c) Repayment arrangements. (2) Amounts advanced will be due with the next scheduled payment. RHS may schedule repayment consistent with the borrowers ability to repay or reamortize the loan. (3) Advances will bear interest at the promissory note rate of the loan to which the advance was charged. § 3550.207 Payment moratorium. RHS may defer a borrowers scheduled payments for up to 2 years. NP borrowers are not eligible for a payment moratorium. (a) Borrower eligibility. (1) Due to circumstances beyond the borrower's control, the borrower is temporarily unable to continue making scheduled payments because: (i) The borrower's repayment income fell by at least 20 percent within the past 12 months; (ii) The borrower must pay unexpected and unreimbursed expenses resulting from the illness, injury, or death of the borrower or a family member; or (iii) The borrower must pay unexpected and unreimbursed expenses resulting from damage to the security property in cases where adequate hazard insurance was not available or was prohibitively expensive. (2) The borrower occupies the dwelling, unless RHS determines that it is uninhabitable. (3) The borrower's account is not currently accelerated. (b) Reviews of borrower eligibility. (i) The borrower does not respond to a request for financial information; (ii) RHS receives information indicating that the moratorium is no longer required; or (iii) In the case of a moratorium granted to pay unexpected or unreimbursed expenses, the borrower cannot show that an amount at least equal to the deferred payments has been applied toward the expenses. (2) At least 30 days before the moratorium is scheduled to expire, the borrower must provide financial information needed to process the re-amortization of the loan(s). (c) Resumption of scheduled payments. [61 FR 59779, Nov. 22, 1996, as amended at 87 FR 6773, Feb. 7, 2022] § 3550.208 Reamortization using promissory note interest rate. Reamortization using the promissory note interest rate may be authorized when RHS determines that reamortization is required to enable the borrower to meet scheduled obligations, and only if the Government's lien priority is not adversely affected. (a) Permitted uses. (1) Repay unauthorized assistance due to inaccurate information. (2) Repay principal and interest accrued and advances made during a moratorium. (3) Bring current an account under a delinquency workout agreement after the borrower has demonstrated the willingness and ability to meet the terms of the loan and delinquency workout agreement and reamortization is in the borrower's and Government's best interests. (4) Bring a delinquent account current in the case of an assumption where the due on sale clause is not triggered as described in § 3550.163(c). (5) Cover the remaining debt when a portion of the security property is being transferred but the acquisition price does not cover the outstanding debt. The remaining balance will be reamortized for a period not to exceed 10 years or the final due date of the note being reamortized, whichever is sooner. (6) Bring an account current where the National Appeals Division (NAD) reverses an adverse action, the borrower has adequate repayment ability, and RHS determines the reamortization is in the best interests of the Government and the borrower. (b) Payment term of reamortized loan. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002] § 3550.209 [Reserved] § 3550.210 Offsets. Any money that is or may become payable from the United States to an RHS borrower may be subject to administrative, salary, or Internal Revenue Service (IRS) offsets for the collection of a debt owed to RHS. (a) IRS offset. (b) Salary offset. (c) Administrative offset. (d) Offset by other federal agencies. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 69672, Nov. 19, 2002] § 3550.211 Liquidation. (a) Policy. (b) Tribal allotted or trust land. (c) Acceleration and foreclosure. (d) Voluntary liquidation. (1) Refinancing or sale. (2) Deed in lieu of foreclosure. (3) Offer by third party. (e) Bankruptcy. (2) RHS may accept conveyance of security property by the trustee in bankruptcy if the Bankruptcy Court has approved the transaction, RHS determines the conveyance is in the best interest of the Government, and RHS will acquire title free of all liens and encumbrances except RHS liens. (3) Whenever possible in a Chapter 7 Bankruptcy, a reaffirmation agreement will be signed by the borrower and approved by the court prior to discharge, if RHS decides to continue with the borrower. (f) Junior lienholder foreclosure. (g) Payment subsidy. (h) Eligibility for special servicing actions. (i) Reporting. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002] §§ 3550.212-3550.249 [Reserved] § 3550.250 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 3 hours per response, with an average of 1 1/2 [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002] Subpart F—Post-Servicing Actions § 3550.251 Property management and disposition. (a) Policy. (b) Custodial property. (c) REO property Classification. (2) Disclosing decent, safe, and sanitary defects. (3) Property on Indian tribal allotted or trust land. (4) Sale of program REO properties. (5) Sale by sealed bid or auction. (d) Special purposes. (2) RHS shall follow the standards and procedures in 42 U.S.C. 11408a for the sale or lease of an REO property to a public agency or nonprofit organization. The terms of the sale and lease, and the entity seeking to purchase or lease the REO property, must meet the requirements in 42 U.S.C. 11408a. (3) REO property may be sold under special provisions to nonprofit organizations or public bodies for the purpose of providing affordable housing to very low- and low-income families. [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002; 87 FR 6773, Feb. 7, 2022] § 3550.252 Debt settlement policies. (a) Applicability. (1) Balances remaining on loan accounts after all liquidation proceeds or credits have been applied; (2) Subsidy recapture or grant amounts due; and (3) Unauthorized assistance due. (b) Judgment. (c) Multiple loans. (d) Cosigners and claims against estates. (e) Reporting. (f) Settlement during legal or investigative action. (g) Offsets. (h) Escrow funds. § 3550.253 Settlement of a debt by compromise or adjustment. Compromise or adjustment offers may be initiated by the debtor or by RHS. RHS will approve only those compromises and adjustments that are in the best interest of the Government. (a) Compromise. (b) Adjustments. (c) Timing of offers. (2) Unsecured debts owed after the sale of the security property may be proposed for compromise or adjustment at any time. Debts that were never secured may be proposed for compromise or adjustment when they are due and payable. (d) Retention of security property. §§ 3550.254-3550.299 [Reserved] § 3550.300 OMB control number. The information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 3 hours per response, with an average of 1 1/2 [61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78332, Dec. 24, 2002]

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