# Strengthening the Section 184 Indian Home Loan Guarantee Program > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-26097 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** December 21, 2022 - **Citation:** 87 FR 78324 ## Text DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Parts 58 and 1005 [Docket No. FR-5593-P-01] RIN 2577-AD01 Strengthening the Section 184 Indian Home Loan Guarantee Program AGENCY: Office of the Assistant Secretary for Public and Indian Housing, U.S. Department of Housing and Urban Development (HUD). ACTION: Proposed rule. SUMMARY: This proposed rule would revise the regulations governing the Section 184 Indian Home Loan Guarantee Program (“Section 184 Program”) to fiscally strengthen the program by clarifying rules for Lenders, Tribes, and Borrowers. As the program has experienced an increase in demand, it now requires an update to the implementing regulations to minimize potential risk and increase program participation by financial institutions. This proposed rule strives to modernize and enhance the Section 184 Program by adding participation and eligibility requirements for Lenders and other financial institutions. This proposed rule would also clarify the rules governing Tribal participation in the program, establish underwriting requirements, specify rules on the closing and endorsement process, establish stronger and clearer servicing requirements, establish program rules governing claims submitted by Servicers and paid by HUD, and add standards governing monitoring, reporting, sanctions and appeals. This rule would add new definitions and make statutory conforming amendments, including the categorical exclusion of the Section 184 program in HUD's environmental review regulations. Ultimately, the changes made by this proposed rule would promote program sustainability, increase Borrower protections, and provide clarity for new and existing Lenders who participate in the program. DATES: Comment Due Date: March 17, 2023. ADDRESSES: Interested persons are invited to submit comments regarding this proposed rule. All submissions and communications must refer to the above docket number and title. To receive consideration as public comments, comments must be submitted through one of two methods, specified below. 1. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410-0500. Due to security measures at all Federal agencies, however, submission of comments by mail often results in delayed delivery. To ensure timely receipt of comments, HUD recommends that comments submitted by mail be submitted at least two weeks in advance of the public comment deadline. 2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the www.regulations.gov website can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically. Note: To receive consideration as public comments, comments must be submitted through one of the two methods specified above. Again, all submissions must refer to the docket number and title of the rule. No Facsimile Comments. Facsimile (fax) comments are not acceptable. Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying between 8 a.m. and 5 p.m., weekdays, at the above address. Due to security measures at the HUD Headquarters building, an appointment to review the public comments must be scheduled in advance by calling the Regulations Division at 202-708-3055 (this is not a toll-free number). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech and communication disabilities. To learn more about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments submitted by the due date will be available for inspection and downloading at www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Krisa Johnson, Director, Office of Loan Guarantee, Office of Native American Programs, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 7th Street SW, Room 4108, Washington, DC 20410; telephone number 202-402-4978 (this is not a toll-free number). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech and communication disabilities. To learn more about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. SUPPLEMENTARY INFORMATION: I. Background Section 184 of the Housing and Community Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992) (12 U.S.C. 1715z-13a), as amended by the Native American Housing Assistance and Self-Determination Act of 1996 (Pub. L. 104-330, approved October 26, 1996), the 2013 Consolidated and Further Continuing Appropriations Act (Pub. L. 113-6, approved March 26, 2013), the 2015 Consolidated and Further Continuing Appropriations Act (Pub. L. 113-235, approved December 16, 2014), and the Consolidated Appropriations Act, 2021 (Pub. L. 116-260, approved December 27, 2020) (Section 184 statute), authorize the Section 184 Program to provide access to sources of private financing to Indian families, Tribes and Tribally Designated Housing Entities (TDHEs) who otherwise could not acquire housing financing because of the unique legal status of Trust Land. The Section 184 Program provides HUD with the authority to provide access to sources of private financing for Indian families, Tribes and TDHEs that otherwise could not obtain private financing because of the unique legal status of Trust Lands by guaranteeing loans to eligible persons and entities. Since its inception, the number of loans guaranteed under the Section 184 Program has significantly increased. At the same time, the program regulations have never been substantially revised to accommodate the exponential growth of the program. Generally, improvements on Trust Land, are alienable, but conditions and restrictions apply. Consequently, financial institutions may struggle with utilizing the land interest as Security in mortgage lending transactions. To address this concern, the Section 184 Program provides a loan guarantee to approved Direct Guarantee lenders in the event of Borrower default. The guarantee is paid from the Section 184 Loan Guarantee Fund (Fund) for up to 100 percent of the unpaid principal balance as well as any reasonable fees and expenses approved by the Secretary. Following the enactment of Section 184 on August 18, 1994, HUD published an interim rule (59 FR 42732) codifying regulations for the Section 184 Program at 24 CFR part 955, and on March 6, 1996, HUD published a final rule (61 FR 9052). With the enactment of the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA), HUD published a final rule on March 12, 1998, implementing NAHASDA amendments to the Section 184 Program as well as re-designating 24 CFR part 995 as 24 CFR part 1005 (63 FR 12334). On September 11, 1998, HUD published an interim final rule (63 FR 48988) establishing a direct guarantee procedure similar to that in the Direct Endorsement Program under the Federal Housing Authority (FHA) single family mortgage insurance program. The interim final rule adopted procedures that permitted HUD to review and guarantee a loan after loan closing and made minimum changes to allow for any necessary administrative actions against approved Direct Guarantee Lenders. The final rule making these changes permanent was issued on April 19, 2002 (67 FR 19491). The Fund receives annual appropriations to cover some of the program costs and charges and an upfront and annual fee to the borrower to support the remaining program costs. The demand for the program has increased steadily each year. In 1995, the first year of the program, HUD guaranteed less than 20 Section 184 Guaranteed Loans. Over the last 10 years, HUD has consistently guaranteed thousands of loans worth hundreds of millions of dollars annually. To date, the Fund has guaranteed over $7.5 billion in loans. While the program has grown exponentially, the program regulations have not been substantially revised to reflect this significant growth. As the volume in the program increases, so does the risk to the Fund. The proposed regulations will help to mitigate the risk associated with this increased volume. The 2013 Consolidated and Further Continuing Appropriations Act (Pub. L. 113-6, approved March 26, 2013) (2013 Appropriations Act) amended section 184(d) of the Housing and Community Development Act of 1992 to authorize HUD to increase the fee for the guarantee of loans up to 3-percent of the principal obligation of the loan and to establish and collect annual premium payments in an amount not exceeding one percent of the remaining guaranteed balance (excluding the portion of the remaining balance attributable to the fee collected at the time of the issuance of the guarantee). On March 5, 2014, HUD published a Federal Register Notice (79 FR 12520) announcing an increase in the one-time Loan Guarantee Fee that Borrowers pay at loan closing from a then-existing 1 percent to 1.5 percent of Guaranteed Loan amount. By Federal Register Notice published on October 7, 2014 (79 FR 60492), HUD exercised its new annual premium authority to implement an annual premium to the Borrower in the amount of 0.15 percent of the remaining loan balance until the unpaid principal balance, excluding the Upfront Loan Guarantee Fee, reaches 78 percent of the lower of the initial sales price or appraised value based on the initial Amortization Schedule. By Federal Register Notice published on November 1, 2016 (81 FR 75836), HUD once again exercised its new annual premium authority to implement an annual premium to the Borrower in the amount of 0.25 percent of the remaining loan balance. These new fees allowed HUD to meet the current demands of the Section 184 Program. The Consolidated and Further Continuing Appropriations Act (Pub. L. 113-235) (approved December 16, 2014) (2015 Appropriations Act) amended Section 184(h)(1)(B) of the Housing and Community Development Act of 1992 to require the exhausting of all reasonable possibilities of collection by the Holder of the guarantee, to include a good faith consideration of loan modification, and to meet standards for servicing Section 184 Guaranteed Loans in default, as determined by the Secretary. The Office of Audit of the HUD Office of Inspector General (OIG) audited the Section 184 Program and issued Audit Report Number: 2015-LA-0002 on July 6, 2015. The report found that HUD did not adequately monitor, track, and evaluate participating Direct Guarantee and Non-Direct Guarantee Lenders to ensure that loans guaranteed by the program were being underwritten in accordance with the Section 184 processing guidelines. The OIG gave many recommendations, including: HUD develop and implement policies and procedures for monitoring, tracking, underwriting, and evaluating the Section 184 Program; standardize monthly delinquency reports; deny payments for claims on loans that have material underwriting deficiencies; take enforcement actions against certain Direct Guarantee and Non-Direct Guarantee Lenders; and ensure that only underwriters that are approved by HUD are underwriting Section 184 Guaranteed Loans. The corrective action plan proposed by OIG and agreed upon by HUD includes the development of new regulations to provide additional structure to the program and a platform for policies and procedures to manage the program and address these findings. II. This Proposed Rule As the Section 184 Program assists more eligible Borrowers and entities, the Fund faces more program expenses and increased risk. HUD is proposing these regulatory changes to make the program sustainable, protect Borrowers, address weaknesses identified by the OIG, provide clarity for new and existing Direct Guarantee and Non-Direct Guarantee Lenders, and reduce and eliminate inappropriate and unreasonable Claim payment requests from Servicers. This proposed rule is designed to strengthen and modernize the Section 184 Program, as well as protect the Fund. This proposed rule would enhance and fill the gap in the existing regulations by modifying and adopting industry standards and best practices, as well as relevant FHA regulations and guidance. This proposed rule would reorganize the Section 184 Program's regulations by removing outdated sections and replacing them with the following: definitions, eligibility requirements for Lenders, rules governing participation by Indian Tribes, underwriting requirements, rules on the closing and endorsement process, loan fees, servicing requirements submission of Claims, and standards governing monitoring, reporting, sanctions and appeals. Proposed Organization of New Part 1005 This rule proposes to divide HUD's regulations in 24 CFR part 1005 in nine subparts: Subpart A would comprise of general program requirements; subpart B would discuss Lender and eligibility requirements; subpart C would cover requirements for Tribal participation; subpart D would contain underwriting requirements for eligible Borrowers, eligible Properties, and loan types; subpart E would include requirements for closing a Section 184 Guaranteed Loan and receiving endorsement approval from HUD; subpart F would provide the requirements for calculation, collection, and submission of the Section 184 Guaranteed Loan fees; subpart G would cover the requirements for Servicers to manage Section 184 Guaranteed Loans and steps to take when a Section 184 Guaranteed Loan is in default; subpart H would contain the requirements to submit Claims on Section 184 Guaranteed Loans; and subpart I would include report requirements and sanctions to for noncompliance with Section 184 Program regulations. Unless otherwise noted in this proposed rule, HUD is proposing to codify current practices. Where a section is a new requirement, it is noted. A. General Program Requirements (Subpart A) Purpose § 1005.101. Section 1005.101 would address the purpose of the part 1005 regulations and provide that the regulations in part 1005 implement the Section 184 Program. Definitions § 1005.103. The proposed rule includes definitions for the terms found in the existing Section 184 Program regulations, which HUD has revised to better reflect how the terms are currently used by the Section 184 Program or to reflect policy shifts: “default,” “Indian,” “property,” “Section 184,” and “Trust or Restricted Land”. In the proposed regulations, the term “Section 184” is further revised to “Section 184 Guaranteed Loan,” and the term “Trust or Restricted Land” is further revised to “Trust Land”. The proposed rule does not include the terms “Mortgage” and “Mortgagee”, which were previously used in the existing regulation, because the terms are no longer used in the program and are obsolete. These terms are replaced by the terms “Loan” and “Lender,” respectively, as currently proposed in § 1005.103. Additionally, HUD has included new terms that are commonly used by the Section 184 Program in practice. This regulation would formalize these definitions for the program. The following terms would provide clarity and ensure consistency in the implementation of the various parts of the Section 184 Program regulations: “Acquisition Cost,” “Amortization,” “Amortization Schedule,” “Annual Loan Guarantee Fee,” “BIA,” “Borrower,” “Claim,” “Conflict of Interest,” “Date of default,” “day,” “Direct Guarantee Lender,” “Eligible Nonprofit Organization,” “Financial Statements” “Firm Commitment,” “First Legal Action,” “Good and Marketable Title,” “Holder,” “Identity of Interest,” “Indian Family,” “Indian Housing Loan Guarantee Fund,” “lease or leasehold interest,” “Lender,” “Loan,” “Loan Guarantee Certificate,” “Loan Guarantee Fee,” “Loss Mitigation,” “month or monthly,” “Non-Direct Guarantee Lender,” “Origination or originate,” “Owner of Record,” “Partial Payment,” “Section 184 Guaranteed Loan,” “Section 184 Approved Program Area,” “Section 184 Program Guidance,” “Security,” “Servicer,” “Sponsor,” “Sponsored Entity,” “Tax-exempt bond financing,” “Title Status Report,” “Tribe,” “Tribally Designated Housing Entity (TDHE),” “Trust Land,” and “Upfront Loan Guarantee Fee.” B. Lender Eligibility & Requirements (Subpart B) This subpart includes Lender eligibility and the application process to participate in the Section 184 Program as a Non-Direct Guarantee or Direct Guarantee Lender. Lender approval and participation § 1005.201. This section describes the two types of Lenders approved to participate in the Section 184 Program: Lenders deemed approved by statute and Lenders approved by HUD. This section would require that Lenders submit to HUD an application for participation in accordance with the level of activity a Lender wants to engage in, as prescribed by Section 184 Program Guidance. This proposed section is consistent with current program policy, practice, and/or procedure. Lenders deemed approved by statute § 1005.203. This section is a restatement of what is an eligible Lender under the statute. In response to comments received during Tribal consultation, this section specifically references Community Development Financial Institutions (CDFIs) as being included as a `Lender approved by statute.' This proposed section is consistent with current program policy, practice, and/or procedure. Lenders required to obtain Secretarial approval § 1005.205. This section addresses qualifications for participation in HUD's Section 184 Program if a Lender is not approved under the statutory approved listed in § 1005.203. A Lender would be required to submit an application, as prescribed by Section 184 Program Guidance, for HUD to determine the capacity of the financial institution to participate in the Section 184 Program. This application would include establishing a Lender's qualifications based on the following: business formation verification, certifications related to employees and officers, Financial Statements, quality control plan, identification of branch offices, certification of conflict and interest, licensing certification, verification of minimum net worth, and identification of operating area. HUD will review documentation submitted under this section and make a determination if the requesting financial institution is qualified to be a Lender under the Section 184 Program. If a Lender is approved to participate in the Section 184 Program, HUD would send written notification of approval. If HUD determines that the Lender does not meet the requirements of subpart B, HUD would send written notice of the denial, which may be appealed to HUD in accordance with the appeal procedure set forth in the regulation. Lender participation options § 1005.207. This section describes the two levels of Lender participation in the Section 184 Program, Non-Direct Guarantee Lender and Direct Guarantee Lender, along with the allowed eligible activities for each level of participation. This section proposes to establish a new requirement that eligible Lenders must select their desired participation level by submitting an application to HUD. A participation level must be selected by the Lender and approved by HUD before initiating any Section 184 program activities. Direct Guarantee Lender application process § 1005.209. This section details the application requirements for Lenders to apply to become a Direct Guarantee Lender in the Section 184 Program. These proposed requirements HUD believes are necessary to ensure that Direct Guarantee Lenders meet certain minimum requirements including having a certain level of experience in origination, underwriting, and servicing of mortgage loans. Additionally, Lenders must submit a quality control plan. Direct Guarantee Lender approval § 1005.211. This section addresses what constitutes HUD approval for Lenders applying to participate in the Section 184 Program as a Direct Guarantee Lender under § 1005.209. This section addresses the process HUD would follow to notify Lenders of their approval as Direct Guarantee Lenders under the program. HUD would provide written notification to the Lender, and the Lender would need to certify to being in compliance with all program requirements and agree to ensure that any Sponsored Entities also comply with all program requirements. This section is an addition to HUD's current practice. Non-Direct Guarantee Lender application, approval, and Direct Guarantee Lender sponsorship § 1005.213. This section describes the sponsorship relationship between a Direct Guarantee Lender and a Non-Direct Guarantee Lender and the general responsibilities of a Direct Guarantee Lender as the Sponsor. Each Sponsor is responsible to HUD for the actions of the Sponsored Entity and must ensure that HUD records remain up to date by informing HUD regarding any changes of the Sponsored Entity. This section seeks to align with HUD's current practice. Annual reporting requirements § 1005.215. This section would require annual reporting on Section 184 Guaranteed Loan performance data from Direct Guarantee Lenders, their Sponsored Entities. It also provides for HUD to establish additional annual reporting requirements as provided in Section 184 Program Guidance. The section would be a new requirement to track the performance of the program and participating Direct and Non-Direct Guarantee Lenders to ensure the protection of the Fund. Quality control plan § 1005.217. This section proposes to implement the requirement that Lenders participating in the Section 184 Program have a written quality control plan and the contents of that plan. The purpose of the quality control plan is to ensure Lender compliance with Section 184 Program requirements and protect HUD and the Lenders from unacceptable risks. A Lender would be required to adopt and implement a quality control plan that fully complies with Section 184 Program Guidance. This requirement incorporates existing Quality Control Plan policies and adds new requirements, such as paragraphs (c) and (d) in § 1005.217. Other requirements § 1005.219. This section describes proposed additional Direct Guarantee Lender and Non-Direct Guarantee Lender requirements, including compliance with pertinent Tribal, Federal, and State, and laws, dual employment, reporting requirements, records retention, all of which are proposed to place in regulations current program policy, practice, and/or procedure. This section also includes a proposed new requirement that HUD may set for lenders a minimum level of lending on Trust Land. While this program was designed to bring mortgage capital to Trust Lands, the majority of loans guaranteed by the Program are made on fee simple land. In order to address this concern, this rule proposes to set forth a new requirement for lenders participating in the program to actively market, originate, and underwrite loans on Trust Land. HUD is interested in increasing lending on Trust Land to further the objectives of the Section 184 Program and provide additional homeownership opportunities on Trust Lands. In this section, HUD proposes to set, by Federal Register , a minimum lending amount for direct guarantee lenders on Trust Lands. All Lenders would be required to ensure that they comply with these additional requirements to remain as a participant in the program. While HUD is not proposing a specific minimum level of lending on Trust Land in this proposed rule, HUD is interested in receiving feedback on what this minimum level of lending should be and if such minimum requirement would help with the underlying goal of the provision. Business change reporting § 1005.221. This section would require Lenders participating in the Section 184 Program to notify HUD within a timeframe as prescribed by Section 184 Program Guidance of any changes in a Lender's legal structure or staffing or any new sanctions against the Lender. HUD is proposing to require this notification to reduce risk and monitor the stability of the lender. Annual recertification § 1005.223. This section would implement the mandatory submission of an annual recertification by all Direct Guarantee and Non-Direct Guarantee Lenders, as prescribed by Section 184 Program Guidance. HUD is proposing to require recertification to ensure that Direct Guarantee and Non-Direct Guarantee Lenders continue to meet program eligibility requirements and to reduce the risk to HUD and the Fund. This section also would require the Direct Guarantee Lender and Non-Direct Guarantee Lender to submit Financial Reports and updated contact information. This section is consistent with HUD's current practice. Program ineligibility § 1005.225. This section describes the circumstances under which HUD would determine that a Direct Guarantee Lender or Non-Direct Guarantee Lender is ineligible to participate the Section 184 Program. This section is intended to reduce risk to the Fund as well and align with current industry standards. C. Lending on Trust Land (Subpart C) This subpart proposes requirements for Tribal participation in the Section 184 Program when Tribes want to make Trust Land or Restricted Fee Land available under the Section 184 Program. This section requires a partnership between HUD, the Tribe, the Direct Guarantee Lender, Servicer and the Borrower. The Tribe is a critical partner in the ability of the program to operate on Tribal Lands. For the program to operate on Trust Lands, certain Tribal ordinances must be in place. Tribes interested in participating in the Program would be required to submit to HUD evidence of the required legal and administrative framework necessary to ensure HUD or the Servicer have the ability to enforce the lien in case of default. Tribal legal and administrative framework § 1005.301. This section outlines the legal and the administrative framework necessary when a Tribe seeks to allow eligible Borrowers place a mortgage lien on Trust Land under the Section 184 Program. The proposed rule would specify requirements governing foreclosure and assignments, property disposition, eviction procedures, lien priority, and leasing, which are an addition to the regulation to codify current policy, practice and/or procedure. These requirements are necessary to protect Borrowers, Tribes, TDHEs, Lenders and the Fund from unnecessary financial risks. This section proposes new language to be included in the Tribal lease that would allow a Tribe to assign the lease to HUD, and HUD would transfer the lease to a successor lessee, as approved by the Tribe. This language has been added because there have been instances when a Borrower is in default, their Section 184 Guaranteed Loan has been assigned to HUD, and the Borrower has vacated the property before foreclosure. The Tribe, THDE or a trial member is interested in purchasing the property, but the sale cannot happen because the defaulted Borrower remains on the lease. The proposed language gives the Tribe the authority to assign the lease to HUD so the sale of the property can move forward without having to wait until HUD obtains the lease through foreclosure. Tribal application § 1005.303. This section includes the application requirements for Tribes interested in bringing the Section 184 Program to their Trust Lands. The application must include a copy of documents related to the Tribe's legal and administrative framework, including but not limited to a Tribe's foreclosure, eviction, lease, and priority lien ordinances, all cross-referenced ordinances in those sections, and any other documents in accordance with Section 184 Program Guidance. HUD is proposing this section to ensure that Tribes have the necessary legal structure in the event of a default on Trust Land and to ensure that HUD is provided first lien priority. Approval of Tribal application § 1005.305. This section would specify that HUD will provide written notification to Tribes upon the completion of its review of a Tribe's application submitted in accordance with § 1005.303 and would provide the opportunity for Tribes to resubmit missing, incomplete, or deficient applications. This proposed section is consistent with current program policy, practice, and/or procedure. Tribal recertification § 1005.307. This section would implement the mandatory submission of an annual recertification by all Tribes participating in the Section 184 Program and the contents of such recertification, in accordance with Section 184 Program Guidance. HUD proposes to require recertification to ensure that the Tribe continues to meet program eligibility requirements. This section would also require the Tribe to update contact information. This proposed section is intended to keep current on Tribal contacts and to confirm that there have been no changes to relevant ordinances and the Tribal lease. Duty to report changes § 1005.309. This section would require Tribes participating in the Section 184 Program to report to HUD any current changes in the Tribe's contact information, or proposed changes to foreclosure, eviction lease and lien priority ordinances. This section is a new requirement to ensure HUD notification of these changes and to reduce the risk to HUD and the Fund. HUD Notification of any lease default § 1005.311. This section would mandate, when there is any default of the lease by the Borrower, including a nonpayment of leasehold rent, the lessor shall notify HUD within 30 days of default, or as set forth in the lease agreement. This section is proposed to ensure notification of a delinquency to HUD and allow HUD to explore early Loss Mitigation actions and to reduce the risk of potential loss to the Fund. Tribal reporting requirements § 1005.313. This section provides HUD with the ability to require Section 184 program-related reports from Tribes approved under § 1005.305. HUD intends to use this new requirement as a placeholder in the event, at a future date, HUD is in need of Section 184 Program information from approved Tribes that is not anticipated in §§ 1005.307 and 1005.309. If HUD determines additional information the Section 184 Program from Tribes is needed, it would publish these requirements in Section 184 Program Guidance and complete the necessary Paperwork Reduction Act process requesting input on the additional burden associated with the requested reports. D. Underwriting (Subpart D) This subpart includes the requirements for a loan to be guaranteed by the Section 184 program. The subpart is organized into four sections: eligible Borrowers, eligible Properties, eligible loans, and underwriting. Eligible Borrowers § 1005.401. This section provides that to be eligible to participate in the Section 184 Program, a Borrower must be an Indian Family, Indian Tribe, or TDHE. This section would require an Indian Family to document its status as American Indian or Alaska Native through evidence as prescribed by Section 184 Program Guidance. This section is a revision of the language found in § 1005.105(b) of the current regulations; the existing regulation is proposed to be moved into a new section and aligns with current procedures. Principal Residence § 1005.403. This section sets forth the occupancy requirements for Borrowers in relation to the property interest that secures the Section 184 Guaranteed Loan. HUD also defines the qualifications for a non-occupant Co-Borrower. As the program has evolved, it has allowed for non-occupant co-Borrowers as a way to expand homeownership opportunities for Borrowers who may need assistance with their mortgage and have a family member willing to take on the financial responsibility for the Section 184 Guaranteed Loan. Non-occupant co-Borrowers must be related by blood, or be able to document a family-type, longstanding, and substantial relationship not arising out of the loan transaction. This section is a revision of existing § 1005.105(b)(1). Borrower residency status § 1005.405. This section describes the residence status requirements to be considered an eligible Borrower in the Section 184 Loan Guarantee program. In addition to the requirements set forth in § 1005.401, an eligible Borrower must be a U.S. citizen; lawful permanent resident alien; or a non-permanent resident alien. Documentation to support the lawful residency status must be provided. This proposed section is consistent with current program policy, practice, and/or procedure. Relationship of income to loan payments § 1005.407. This section provides that a Borrower's income must be sufficient to cover the costs of Section 184 Guaranteed Loan payments plus any other long-term obligations. This section also describes the requirement for a minimum qualifying threshold when an eligible Borrower has a co-Borrower that will not occupy the home. Additionally, HUD also would require that the determination of the adequacy of a Borrower's income be free from discrimination. In particular, this section adds new language requiring that the determination of adequacy of Borrower income shall be made without regard to, among other things, Borrower's source of income or location of the property. HUD believes these two proposed non-discrimination provisions further the statutory purpose of the program to “provide access to sources of private financing to Indian families, Indian housing authorities, and Indian tribes, who otherwise could not acquire housing financing because of the unique status of Indian lands.” 12 U.S.C. 1715z-13a(a). With respect to the proposed prohibition of discrimination based on the Borrower's source of income, HUD seeks to address instances where lenders may disapprove of the Borrower's income streams related to Borrower's Tribal status (such as Tribal payments a Borrower may receive from his or her Tribe or from traditional tribal income sources). With respect to the proposed prohibition of discrimination based on property location, HUD seeks to address instances where lenders may decide to only approve loans involving fee simple properties and uniformly reject loan applications solely because Borrower chooses to finance a home on Tribal trust property. Other than the newly added provisions regarding non-discrimination based on property location and sources of income, this section is consistent with current practice, policy, and/or procedure. Credit standing § 1005.409. This section is proposing, consistent with current policy and practice, that no minimum credit score is required to qualify for a Section 184 Guaranteed Loan. However, Direct Guarantee Lenders are required to analyze the Borrower's credit history and payment patterns to determine credit worthiness. This section also revises the existing guidance that if a Borrower previously defaulted on a Section 184 Guaranteed Loan, they are ineligible to apply for another Section 184 Guaranteed Loan. To conform with industry practice, HUD is proposing that these Borrowers may apply for a Section 184 Guaranteed Loan after a waiting period as prescribed by HUD. Disclosure and verification of Social Security and Employer Identification Numbers or Tax Identification Number § 1005.411. This section would require that Borrowers must meet the requirements for the disclosure and verification of social security, employer and tax identification numbers. Disclosure and verification of this information minimizes fraud and adds protections for the Fund and is consistent with HUD's current practice, policy, and/or procedure. Acceptable title § 1005.413. To be considered acceptable title, a Section 184 Guaranteed Loan must be on real estate held in fee simple land or Trust Land. Where title evidences a lease that is used in conjunction with the Section 184 Guaranteed Loan, the lease must comply with § 1005.301, and must have a remaining term which exceeds the maturity date of the Section 184 Guaranteed Loan by ten years. This proposed section is consistent with current program policy, practice, and/or procedure. Sale of property § 1005.415. This section would require that the property be purchased from the Owner of Record and that the Direct Guarantee Lender provide evidence of ownership. Additionally, this section would establish the requirements for documentation and timing restrictions on property re-sales to prevent flipping of the property for financial gain by the Borrower. This proposed section is consistent with current program policy, practice, and/or procedure. Location of property § 1005.417. This section would establish that a property must be used for residential purposes and be located within an approved Section 184 Approved Program Area to be eligible for a Section 184 Guaranteed Loan. This proposed section is consistent with current program policy, practice, and/or procedure. Requirements for standard housing § 1005.419. This proposed section lists the minimum required property standards for properties under the Section 184 Program. This section also explains environmental review requirements and responsibilities and includes requirements for flood insurance, the Coastal Barrier Resource System and Special Airport Hazards. With respect to minimum required property standards, this proposed section requires the property to be: decent, safe, sanitary and modest in size and design, conform with applicable general construction standards for the region, containing a heating system, contain a plumbing system, contain an electrical system, meet minimum square footage requirements, and conform with energy performance requirements for new construction. This proposed section revises existing § 1005.111(a) consistent with current practices, policies, and/or procedures. Certification of appraisal amount § 1005.421. This section would require the contract for sale to be satisfactory to HUD and where the seller agrees to provide a certification of appraisal establishing the amount of the appraised value of the property. This protects the Borrower and the Fund by ensuring the guaranteed loan is secured by a property where the true value has been established. This proposed section is consistent with current program policy, practice, and/or procedure. Legal restrictions on Conveyance § 1005.423. This section proposes to define and establish permitted legal restrictions that may be placed on a property guaranteed by a Section 184 loan. This section would allow for restrictions on Conveyance only to enrolled Tribal members when the property is located on Trust Land, the acceleration of a mortgage subject to tax exempt bond funding where it no longer meets the Federal requirements, and property with approved restrictions established for occupancy for the elderly. This regulation would provide Tribes with the maximum flexibility available to best serve their Tribal members. This proposed section is consistent with current program policy, practice, and/or procedure. Rental properties § 1005.425. This section proposes the conditions under which a Section 184 Guaranteed Loan may be used to purchase a one- to four-family unit property where one unit will be owner occupied and the additional units may be rented. This section clarifies that one- to four-family unit Properties owned by the Tribe or TDHE will not be subject to the same conditions. This section clarifies the two allowable exceptions to the Principal Residence requirements in § 1005.403 and is consistent with current program policy, practice, and/or procedure. Refinancing § 1005.427. This section proposes to include the criteria to refinance a qualified loan under the Section 184 Program and presents the three types of allowable refinance transactions: Rate and Term, Streamline and Cash Out. This section would require a maximum term for the new loan to be 30 years and a payment history on the existing loan that meets the standards established by HUD. It would also prohibit Lenders from requiring a minimum outstanding principal amount on the existing loan and clarifies the treatment of financed Upfront Loan Guarantee Fees. This proposed section is consistent with current program policy, practice, and/or procedure. Eligibility of Loans covering manufactured homes § 1005.429. This section provides eligibility requirements for the financing of one-family manufactured homes. This section would establish the minimum square footage for a unit, the requirement to meet the National Manufactured Home Construction and Safety Standards and have a certification label, and the requirement of siting on a permanent foundation that meets the applicable installation standards and adheres to the manufacturer's installation instructions. This regulation is required to ensure the safety of the Borrower and the value of the collateral. This proposed section is consistent with current program policy, practice, and/or procedure and would align with FHA standards. Acceptance of individual residential water purification § 1005.431. This section proposes requirements for properties that do not have access to a continuing supply of safe and potable water, without use of a water purification system. It would require the applicable official's specification of the water purification equipment approval standard, certification by Tribal, State or health authority, and Borrower notices and certification. This section would require a certification by a Tribal, State, or local health authority that it has determined the water supply meets the entity's quality standards for drinking water. Additionally, this section would require written notification to the Borrower when the contract is ratified that the property does not have access to a continuing supply of safe and potable water without a purification system, a water safety report identifying contaminants and associated health hazards, and a good faith estimate of maintenance and replacement costs. The Borrower must sign a certification they have received all of this information prior to underwriter approval. This regulation would provide the Borrower with full disclosure of maintenance and upkeep costs of an individual water purification system and health and safety provisions. This proposed section is consistent with current program policy, practice, and/or procedure and would align with industry standards. Builder warranty § 1005.433. This section proposes that a builder must submit a warranty that the property is constructed in substantial conformity with the plans and specifications for newly constructed Properties guaranteed by the Section 184 Program. This proposed section is consistent with current program policy, practice, and/or procedure and would align with industry standards. Eligible collateral § 1005.435. This section proposes what collateral is acceptable for a Section 184 Guaranteed Loan. The proposed section would require that the collateral be authorized and not prohibited by Tribal, Federal, State, or local law and must be sufficient to cover the amount of the loan as determined by the Direct Guarantee Lender and approved by HUD. This section would revise existing § 1005.107 of the current regulations and be consistent with current practices, policies, and/or procedures. Loan provisions § 1005.437. This proposed section provides the details for loan provisions required for a Section 184 Guaranteed Loan, including loan form, loan multiples, loan payments, loan maturity, property standards, disbursements and prepayment. This section would revise existing § 1005.105(a). Loan lien § 1005.439. This section proposes lien requirements for a Section 184 Guaranteed Loan. After the loan offered for guarantee has been recorded, the property must be free and clear of any other liens, unless prior approval has been granted by HUD for a junior lien. This section proposes conditions for a junior lien, which covers periodic payments, ability to pay considerations, loan to value limitations, prohibition of balloon payments earlier than 10 years, requirement for the junior lien to be due and payable upon sale or refinance of the Section 184 Guaranteed Loan, and the acceptability of prepayments at any time without the requirement for a prepayment penalty. In addition, a junior lien may be provided as a means to reduce that Borrower's monthly payments. This type of junior lien would require pre-approval from HUD, shall not require the payment of any principal or interest until the property securing the junior lien is sold or the Section 184 Guaranteed Loan is refinanced, and shall not require principal and interest payments, so long as the property is owner occupied and, where applicable, shall provide forgiveness of the junior lien at the end of the term. Lastly, if a junior lien is related to tax exempt bond financing or low-income housing tax credits, HUD approval is also required. This proposed section is consistent with current program policy, practice, and/or procedure. Section 184 Guaranteed Loan limit § 1005.441. This section would establish HUD's authority to set the maximum loan limits for Section 184 Approved Program Areas. HUD may revise these maximum limits periodically. This proposed section is consistent with current program policy, practice, and/or procedure. Loan amount § 1005.443. This section proposes the minimum required investment from the Borrower based on the difference between the sales price and the base loan amount. It also would provide the methodology for calculating the base loan amount and would establish the maximum and minimum principal loan amounts. This investment must come from the Borrower's own funds, gifts, or Tribal, State, or local funds awarded to the Borrower. The regulation is required to balance the risk to the Fund and the unique requirements of Native American Borrowers. This proposed section is consistent with current program policy, practice, and/or procedure. Case numbers § 1005.445. This section explains when and how to obtain a Section 184 case number. Direct Guarantee Lenders must have an active loan application for a Borrower and a specific property. The case number request must include proof of Tribal enrollment or Alaska Native status, verification that the property is located in a Section 184 Approved Program Area, confirmation that the Loan does not exceed the Section 184 Loan Limit, and be submitted in manner prescribed in the Section 184 Program Guidance. Case numbers will be automatically cancelled after a period identified by HUD if a reservation of funds request is not received and processed by HUD. HUD may allow for the extension as prescribed. This proposed section is consistent with current program policy, practice, and/or procedure. Maximum age of Loan documents § 1005.447. This section proposes the maximum age of loan documents at the time of underwriting and loan closing. Documents reviewed at underwriting may not be older than 60 days and all documents may not be more than 120 days old at closing. Certain documents will be exempt from these time frames if they are not affected by the passage of time. This proposed section is consistent with current program policy, practice, and/or procedure. Qualified mortgage § 1005.449. This section explains that Section 184 Guaranteed Loans are afforded safe harbor as qualified mortgages that meet the ability-to-pay requirements. This section is a revision of the existing § 1005.120 and conforms to current practices, policies, and/or procedures. Agreed interest rate § 1005.451. This section would require that a Loan must have an interest rate that is agreed upon by the Direct Guarantee Lender and Borrower and is determined by HUD to be reasonable. This regulation is necessary to ensure Borrowers are not being charged inflated interest rates attributable to risk-based pricing for minimum loan amounts, credit scores, or other risks, when the Direct Guarantee Lender is receiving a 100 percent guarantee against any loss due to default. This risk-based pricing requirement would be a new requirement and is intended to protect the Borrower from inflated interest rates, which may impact loan performance and the Fund. Amortization provisions § 1005.453. This section proposes that a Loan's Amortization provisions be satisfactory to HUD, monthly payments by the Borrower, and that the principal and interest payments each month shall be substantially the same. This section is a revision of existing § 1005.105(a) and is consistent with current practices, policies, and/or procedures. Direct guarantee underwriting § 1005.455. This section outlines proposed requirements for direct guarantee underwriting including underwriter due diligence, evaluation of the Borrower, and assumptions. This section is a revision of the existing § 1005.106(a), outlining the direct guarantee procedure. Direct Guarantee underwriters must exercise the same level of due diligence as if they were entirely dependent on the property as Security to protect their investment. An acceptable quality control plan and compliance with HUD prescribed underwriting guidelines are the minimum standard of due diligence. Direct Guarantee underwriters shall evaluate the Borrower's credit characteristics, adequacy, and stability of income to make payments on all obligations and the available assets. This section also would require all assumptions of an existing Section 184 Guaranteed Loan be underwritten using the same Borrower eligibility and underwriting standards in this subpart. This section is consistent with current program policy, practice, and/or procedure. Appraisal § 1005.457. This section would establish the requirement for the appraisal of a property to be used to obtain a Section 184 Guaranteed Loan, the selection of an appraiser, appraisal standards, validity period for appraisals, possible extensions of the validity period, and possible sanctions when the requirements listed under the section are not met. A property appraisal for the Section 184 Program must be done in accordance with the Uniform Standards of Professional Appraisal Practice and the Fair Housing Act (42 U.S.C. 3601-19); however, HUD may establish alternative requirements in Section 184 Program Guidance. The Direct Guarantee Lender must select an appraiser currently on the FHA Appraiser Roster and the Direct Guarantee Lender must not discriminate in its selection of the appraiser. The appraiser must be knowledgeable in the market where the property is located. The appraisal and related documents must satisfy FHA, Fannie Mae, or Freddie Mac requirements. In addition, the Direct Guarantee Lender may be subject to sanctions permitted under § 1005.907 for submitting an appraisal that does not meet the requirements described. This proposed section would codify current program policy, practice, and/or procedure and aligns with industry standards. Loan submission to HUD for Direct Guarantee § 1005.459. This section proposes a 60-day timeframe in which an endorsement case binder must be sent to HUD after closing. This section also outlines the additional documentation required for a late submission greater than 60 days after closing. The Direct Guarantee Lender would be required to submit a late endorsement request with documentation affirming the loan is not currently in default, all escrow accounts are current, all loan guarantee fees are current, and a statement that neither the Direct Guarantee Lender nor its agents have provided funds to bring or keep the loan current or bring about the appearance of a satisfactory payment history. This proposed section is consistent with current practices, policies, and procedures. This section does propose an exception to the proposed current endorsement practice, which provides that with prior approval from HUD, consistent with Section 184 program guidance, the Direct Guarantee Lender or Servicer may provide funds to bring or keep the Section 184 Guaranteed Loan current in the event the Borrower agrees to Loss Mitigation before HUD provides endorsement, as the case with some Borrowers during the COVID-19 National Emergency. HUD issuance of Firm Commitment § 1005.461. This section proposes that HUD may underwrite, consistent with specific underwriting criteria, and issue a Firm Commitment. This proposed section is consistent with HUD's current practice, policy, and/or procedure. E. Closing and Endorsement (Subpart E) This subpart includes requirements for closing a Section 184 Guaranteed Loan and receiving endorsement approval from HUD. The subpart is organized into two sections: closing, and endorsement and post-closing. Direct Guarantee Lender closing requirements § 1005.501. This section would provide the required documentation for closing a loan under the program, including: chain of ownership, title search and Title Status Report, closing in compliance with Direct Guarantee Lender approval, closing in the Lender's name, required forms and language in documents, projected escrow, closing costs and fees, per diem interest and interest credits, Borrower authorization of Tribal notice, signatures, and other requirements. This documentation is necessary to ensure that the Loan may be eligible for a Loan Guarantee under the program. This proposed section is consistent with current program policy, practice, and/or procedure. Contents of endorsement case binder § 1005.503. This section proposes HUD requirements for the contents of the endorsement case binder. The endorsement case binder is required by HUD and includes certain documentation necessary for HUD to determine program compliance and to issue a Loan Guarantee Certificate to the Lender. The actual contents of the endorsement case binder shall be in a format as prescribed by Section 184 Program Guidance. This proposed section is consistent with current program policy, practice, and/or procedure. Payment of Upfront Loan Guarantee Fee § 1005.505. This section would require the Direct Guarantee Lender to provide evidence of the remittance of the Upfront Loan Guarantee Fee, as required under § 1005.607. This proposed section is consistent with current program policy, practice, and/or procedure. Borrower's payments to include other charges and escrow payments § 1005.507. This section proposes the charges and escrow payments that the Direct Guarantee Lender must include as part of the Section 184 Guaranteed Loan monthly payment. This section also proposes how these payments should be managed by the Lender and disallows the recovery from the Borrowers of payment of additional premiums to protect the interest of the Lender. This proposed section is consistent with current program policy, practice, and/or procedure. Application of payments § 1005.509. This section would require that all monthly payments made by the Borrower to the Servicer shall be aggregated into a single monthly payment, and that the Servicer shall apply the Borrower's funds in accordance with § 1005.715. This proposed section is consistent with current program policy, practice, and/or procedure. Late fee § 1005.511. This section would establish the ability for a Servicer to charge a late charge to the Borrower when a Section 184 Guaranteed Loan payment is 15 or more days in arrears. It also would establish maximum late charge of four percent of the overdue payment of principal and interest, or any other amount as established by HUD through public notice with an opportunity for comment. This section is intended to provide a deterrent for the Borrower to make payments outside of the applicable payment period and to reduce risk to the Direct Guarantee Lender and the Fund. This proposed section is consistent with current program policy, practice, and/or procedure. Borrower's payments when Section 184 Guaranteed Loan is executed § 1005.513. This section outlines what payments from what parties are required upon execution of the Section 184 Guaranteed Loan, including the one-time Upfront Loan Guarantee Fee or any portion payable pursuant to § 1005.603; and all other applicable monthly charges pursuant to § 1005.507, including the annual Section 184 Guaranteed Loan fee pursuant to § 1005.607, covering the period from the closing date to the due date of the first installment payment under the Section 184 Guaranteed Loan. This proposed section is consistent with current program policy, practice, and/or procedure. Charges, fees, or discounts § 1005.515. This section proposes a list of allowable charges, fees, or discounts a Direct Guarantee Lender may collect from the Borrower at Origination of a Section 184 Guaranteed Loan. These charges/fees include costs to cover origination and closing; recording fees and recording taxes; credit report; survey; title examination; title insurance premium and any appraisal or inspection; such other reasonable and customary charges as may be authorized by HUD; reasonable and customary charges in the nature of discounts; and interest calculations in accordance with § 1005.501. Before the Loan may be guaranteed by the Section 184 Program, the Direct Guarantee Lender must provide HUD a listing of all charges, fees, or discounts collected from the Borrower by the Lender. For an assumption of an existing Section 184 Guaranteed Loan, processing fees must be based on actual costs and the Direct Guarantee Lender may not charge more than the reasonable and customary allowable cost without HUD approval. Fees for assumptions may include, but are not limited to, credit report, verification of employment and the execution of additional release of liability forms. Additional fees over and above assumption fees cannot be assessed for Section 184 Guaranteed Loans on Trust Lands. HUD may establish limitations on the amount charged for origination, closing, and assumptions. This proposed section is consistent with current program policy, practice, and/or procedure. Certificate of nondiscrimination by the Direct Guarantee Lender § 1005.517. This section would require that Direct Guarantee Lenders, when applicable, certify to HUD specific nondiscrimination practices required of Direct Guarantee Lenders, including: nondiscrimination based on race, color, religion, sex, disability, familial status, or national origin, except as provided by law; and prohibiting any restrictive covenant, other than permissible restrictions on Trust Land, on such property relating to race, color, religion, sex, disability, familial status, or national origin and recognizing such prohibited restrictive covenants as being illegal, void, and disclaimed. A civil action for preventative relief may be brought by the Attorney General in any appropriate U.S. District Court against any person responsible for a violation of this certification. This section is intended to protect the Borrower from discrimination, and is consistent with current program policy, practice, and/or procedure. Creation of the contract § 1005.519. This section describes when a Loan shall be considered guaranteed under the program and that the Direct Guarantee Lender and HUD are bound by the requirements set forth in this regulation as if the two parties were in an executed contract relating to the loan. This proposed section is consistent with current program policy, practice, and/or procedure. Lender pre-endorsement review and requirements § 1005.521. This section would require a pre-endorsement review of the endorsement case binder by the Direct Guarantee Lender prior to the submission of the endorsement case binder to HUD and describes the parameters of this review. This review must be conducted by Direct Guarantee Lender staff not involved in the origination, processing, or underwriting of the loan, and the case binder must include all documentation the Direct Guarantee Lender used to approve the loan. Upon finalizing the pre-endorsement review, the Direct Guarantee Lender must certify that all required documents were submitted and meet the requirements of § 1005.503. This proposed new requirement would provide additional assurances that the Direct Guarantee Lender is making prudent judgements when approving the loans and following HUD program polices, practice, and procedures. HUD pre-endorsement review § 1005.523. This section proposes Lender's submission deadline and HUD's process for a pre-endorsement review. Before endorsement, HUD will review the endorsement case binder submitted by the Direct Guarantee Lender to ensure that the loan meets all statutory, regulatory, and administrative requirements. Following this review, if the loan is determined to be eligible, HUD will issue a Loan Guarantee Certificate. HUD may reject an endorsement case binder if HUD finds that the certification or documentation is false, misleading, or constitutes fraud or is a misrepresentation on the part of any party, or that the loan fails to meet a statutory or regulatory requirement. HUD will inform the Direct Guarantee Lender in writing the reasons for the determination and any corrective actions that may be taken. The HUD pre-endorsement review is intended to reduce the risk for fraud and program non-compliance that could negatively impact the Fund, and is consistent with current program policy, practice, and/or procedure. Loan Guarantee Certificate § 1005.525. This section proposes the conditions under which HUD will issue a Loan Guarantee Certificate. The Loan Guarantee Certificate is evidence of the HUD guarantee and is issued after HUD completes a review of the Lender's endorsement case binder and determines the case binder is in compliance with all applicable Section 184 requirements. HUD may issue a Loan Guarantee Certificate for a loan on Trust Land before HUD receives all required Trailing Documents, provided that the Direct Guarantee Lender agrees to indemnify HUD. The indemnification agreement between HUD and the Direct Guarantee Lender will terminate once all required documentation is received in a form and manner that is acceptable by HUD. This proposed section is consistent with current program policy, practice, and/or procedure. Post-endorsement review § 1005.527. This section proposes the process for HUD to conduct a post-endorsement review of the endorsement case binder, including, but not limited to a quality control review. Following the issuance of the Loan Guarantee Certificate, HUD may review all documents required by § 1005.503. Based upon this review, if HUD determines that the Loan does not satisfy the requirements of the program, HUD may cancel the Section 184 Loan Guarantee Certificate, may request indemnification from the Direct Guarantee Lender, or sanction the Direct Guarantee Lender pursuant to § 1005.907. This proposed section is consistent with current program policy, practice, and/or procedure. Indemnification § 1005.529. This section proposes that an Originating Direct Guarantee Lender must indemnify HUD when a claim has been filed or when HUD discovers an underwriting deficiency in a pre- or post-endorsement review. In this instance, the Originating Direct Guarantee Lender shall indemnify HUD or HUD may deny the Claim. Underwriting deficiencies may include, but not limited to, fraud or misrepresentation by the Originating Direct Guarantee Lender. If indemnification is necessary, HUD will request indemnification in writing that the Originating Direct Guarantee Lender will reimburse HUD if a subsequent holder of the loan files a Claim and HUD suffers a financial loss. This proposed section is intended to protect HUD from financial risk from possible underwriting deficiencies and aligns with industry standards. F. Section 184 Guaranteed Loan Fees (Subpart F) This subpart includes the requirements for calculation, collection, and submission of the Section 184 Loan Guarantee Fee. Scope and method of payment § 1005.601. This section includes the statutory requirements of a one-time, Upfront Loan Guarantee Fee and a recurring Annual Loan Guarantee Fee, for all Section 184 Guaranteed Loans. This section revises existing § 1005.109 of the current regulations and is consistent with current program policy, practice, and/or procedure. Upfront Loan Guarantee Fee § 1005.603. This section mandates that an Upfront Loan Guarantee Fee, not exceeding three percent of the principal obligation of the loan, as determined by HUD, is to be paid at closing. The amount of the Upfront Fee will be prescribed by HUD through a notice in the Federal Register . This fee is statutorily required and necessary to credit the Fund to provide for payments under the guarantee, in addition to congressional appropriation. Remittance of Upfront Loan Guarantee Fee § 1005.605. This section would require the Direct Guarantee Lender to submit to HUD the Upfront Loan Guarantee Fee within 15 days of loan closing. Additionally, this section would require the Direct Guarantee Lender to provide an account reconciliation of the Upfront Loan Guarantee Fee in the time and manner as may be prescribed by HUD. This proposed section codifies current program practices, policy, and/or procedure. Annual Loan Guarantee Fee § 1005.607. This section would require an Annual Loan Guarantee Fee to be collected from the Borrower on a monthly basis, as determined by HUD and published in the Federal Register . This section would also authorize the Servicer to collect monthly payments from the Borrower in an amount equal to one-twelfth of the annual loan guarantee premium and the ability for the Borrower to prepay their Section 184 Guaranteed Loan. These payments are included in the Amortization Schedule issued with the Loan approval. The Annual Loan Guarantee Fee is statutorily required and necessary to credit the Fund to provide for payments under the guarantee, in addition to congressional appropriation. This proposed section is consistent with current program policy, practice, and/or procedure. Remittance of Annual Loan Guarantee Fee § 1005.609. This section would require the Servicer to submit to HUD the Annual Loan Guarantee Fees collected from the Borrower no later than the 15th day of each month, beginning in the month in which the Borrower is required to make the first monthly loan payment. If the Servicer is late submitting the monthly installment of the Annual Loan Guarantee Fee, the Servicer must pay a penalty in accordance with § 1005.611. The Annual Loan Guarantee Fee no longer applies when the loan to value ratio equals an amount less than 78 percent, in accordance with § 1005.607. The Servicer must refund to the Borrower any excess Annual Loan Guarantee Fees collected when the loan-to-value ratio is less than 78 percent, within 30 days of the overpayment. This section also would require that the Servicer continue to collect the Annual Loan Guarantee Fee on a monthly basis without regard to delinquent payments, prepayments, agreements to postpone payments, or agreements to recast the loan. When transferring a Section 184 Guaranteed Loan to another Servicer, this section would require an account reconciliation of the Upfront Guarantee Fee and Annual Loan Guarantee to the new Servicer. When transfer of servicing between Servicers results in a missed monthly payment(s) of the Annual Loan Guarantee Fee to HUD, the acquiring Servicer shall pay the overdue payment(s) in a lump sum to HUD within 30 days of acquisition of the loan and include any applicable penalties in accordance with § 1005.611. This section clarifies the circumstances of the on-going payment of the monthly payment of the Annual Loan Guarantee Fee and sets a timeframe for submission of this payment even when the loan is sold between Direct Guarantee Lenders or to a Servicer. This proposed section is consistent with current program policy, practice, and/or procedure. HUD imposed penalties § 1005.611. This section proposes the circumstances in which HUD may impose civil monetary penalties on Direct Guarantee Lenders and Servicers related to the collection and submission of Loan Guarantee Fees. This section also prohibits seeking recovery of the penalty from the Borrower. Direct Guarantee Lenders may incur penalties for failure to timely remit Upfront Loan Guarantee Fee. Servicers may incur penalties for failure to timely remit the monthly installment of the Annual Loan Guarantee Fee to HUD, failure to adjust the amount of the Annual Loan Guarantee Fee, and failure to cease collection of the Annual Loan Guarantee Fee. A reasonable penalty or fee will be prescribed by HUD in Section 184 Program Guidance. HUD is proposing allowing a monetary penalty for the late or non-submission of the Annual Loan Guarantee Fee to encourage Lenders and Servicers to pay on a timely basis. G. Servicing (Subpart G) This subpart includes the requirements for Servicers to manage Section 184 Guarantee Loans and steps to take when a Borrower defaults on a Section 184 Guaranteed Loan. The subpart is organized into four sections: servicing loans generally, servicing defaulted loans, Loss Mitigation and assignment, foreclosure and Conveyance. Section 184 Guaranteed Loan servicing generally § 1005.701. This proposed section provides an overview of subpart G, HUD servicing expectations and requirements for servicing Section 184 Guaranteed Loans. Servicer eligibility and application process § 1005.703. This section proposes that a Direct Guarantee Lender, Non-Direct Guarantee Lenders or other financial institution must be an approved mortgage Servicer for FHA or another agency of the Federal Government. Direct Guarantee Lenders, and Non-Direct Guarantee Lenders are required to apply to be a Servicer, in accordance with Section 184 Program Guidance. This proposed section is intended to ensure that Servicers have the experience and qualifications and have the processes in place to properly service Section 184 Guaranteed Loans to provide quality customer service to Native American Borrowers. Servicer approval § 1005.705. This section proposes what constitutes HUD approval for a Direct Guarantee Lenders, Non-Direct Guarantee Lenders and other financial institutions applying to be Servicers in the Section 184 Program under § 1005.703. This section addresses the process HUD will follow to notify interested Non-Director Guarantee Lenders and financial institutions seeking HUD approval to be a Servicer under the program. HUD will provide written notification of its approval and the approved Servicer must agree to comply with all program requirements. This includes the notification by the Servicer to HUD of any acquisition or sale of Section 184 Guaranteed Loans. This proposed section would be complimentary to the new requirement under § 1005.703. Responsibility for servicing § 1005.707. This section proposes a Servicer's responsibilities under the Section 184 Program, which includes, program compliance, using a sub-Servicer, changing Servicers, transferring servicing rights, reporting requirements, program ineligibility, and records retention. This section proposes new requirements for the Servicer in the areas of annual recertification and business change reporting. HUD is proposing these new requirements to reduce risk and monitor the stability of the Servicer. Providing information to Borrower and HUD § 1005.709. This section proposes Servicer requirements for providing information to the Borrower on the Section 184 Guaranteed Loan. Servicers must provide loan information to Borrowers and arrange for individual loan consultation on request. The Servicer must establish written procedures and controls to assure prompt responses to inquiries. All Borrowers must be informed annually of the system available for obtaining answers to loan inquiries and the office to which requests may be presented. Within 30 days after the end of each calendar year, the Servicer must furnish to the Borrower a statement of the interest paid, and of the taxes disbursed from the escrow account during the preceding year. At the Borrower's request, the Servicer must furnish a statement of the escrow account sufficient to enable the Borrower to reconcile the account. Each Servicer must deliver to the Borrower a written notice of any transfer of the servicing rights of the loan. Finally, Servicers must respond to HUD requests for information concerning individual accounts within a timeframe prescribed by Section 184 Program Guidance. HUD is proposing these requirements to ensure that acceptable procedures exist so that Servicers can readily provide loan information to Borrowers and HUD. This proposed section is consistent with current program policy, practice, and/or procedure. Assumption and release of personal liability § 1005.711. This section proposes the requirements and the process for assumption of a Section 184 Guaranteed Loan. Eligible Borrowers may assume a Section 184 Guaranteed Loan. The new Borrower must be determined to be creditworthy under subpart D. For loans securing Properties on Trust Lands, the lease document may require Tribal and Bureau of Indian Affairs (BIA) approval of the assignment of the lease to the new Borrower. Servicers should not proceed to closing on the assumption until and unless the Tribe has assigned the leasehold to the new Borrower, and it has been approved by the BIA. Servicers may only collect fees for an assumption in accordance with this section. With respect to release of liability, this section would provide that at closing, the Servicer must release the existing Borrower from any personal liability on a form approved by HUD and the new Borrower assumes personal liability of the loan. Finally, upon completion of an assumption, a Servicer is required to provide copies of the documents to HUD. HUD will issue a revised Loan Guarantee Certificate and additional processing instructions. These changes ensure clear guidelines exist to govern the assumption and associated release of personal liability, such as ensuring that Borrowers that assume loans meet minimum creditworthiness standards. This proposed section is consistent with current program policy, practice, and/or procedure. Due-on-sale provision § 1005.713. This section mandates a due-on-sale clause permitting acceleration for all Section 184 Guaranteed Loans. The Servicer must accelerate the loan, subject to HUD prior approval, so long as the acceleration is permitted by applicable Tribal, Federal, or State law This proposed section is consistent with current program policy, practice, and/or procedure. Application of Borrower payments § 1005.715. This section would establish the order in which the Servicer applies Borrower payments authorized under § 1005.509 and the proposal is consistent with current program policy, practice, and/or procedure. Administering escrow accounts § 1005.717. This section would establish the requirements for administering escrow accounts and deposits from a Section 184 Guaranteed Loan. The Servicer may not use escrow funds for any purpose other than that for which they were received. It must segregate escrow commitment deposits, work completion deposits, and all periodic payments received on account of leasehold rents on Trust Land, taxes, assessments, monthly installments of Section 184 annual loan guarantee fees and insurance charges or premiums and must deposit such funds with one or more financial institutions in a special account or accounts that are fully insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. The Servicer must also adhere to the requirements as prescribed by Section 184 Program Guidance for escrow funds related to leasehold rents on Trust Lands. The Servicer is responsible for making escrow disbursements before bills become delinquent and must establish controls to ensure that bills payable from the escrow fund or the information needed to pay such bills is obtained on a timely basis. Penalties for late payments for items payable from the escrow account must not be charged to the Borrower unless the penalty was the direct result of the Borrower's error or omission. This section also mandates that the Servicer use the procedures set forth in the Consumer Financial Protection Bureau's (CFPB) Real Estate Settlement Procedures Act (RESPA) regulations at 12 CFR 1024.17 to compute the amount of the escrow, the methods of collection and accounting, and the payment of the bills for which the money has been escrowed. The Servicer is prohibited from initiating foreclosure for a default related to escrow payment shortfalls resulting from an adjustment pursuant to this section. Finally, when a Section 184 Guaranteed Loan is terminated voluntarily or because of Borrower's prepayment in full of the unpaid principal balance, amounts in the escrow account designated to pay any HUD required program fees must be remitted to HUD. When a loan is prepaid in full, amounts held in escrow for taxes, hazard insurance, or rents due under a tribal lease must be promptly released to the Borrower. HUD is proposing this section to ensure clear guidelines on how Servicers must administer escrow accounts. This proposed section is consistent with current practices, policies and/or procedures, aligns with industry standards, and cross references RESPA requirements, as implemented in CFPB regulations. Fees and costs after endorsement § 1005.719. This section sets forth the allowable fees and charges from the Servicer to the Borrower after HUD's endorsement of the Section 184 Guaranteed Loan. Permissible fees and charges include certain late charges, charges for processing or reprocessing a check returned as uncollectible, fees for processing a change of ownership of the mortgaged property, fees and charges for arranging a substitution of liability in connection with the sale or transfer of the Section 184 property, charges for processing a request for credit approval on behalf of an assumption or substitute Borrower, charges for substitution of a hazard insurance policy, charges for modification of the Section 184 Guaranteed Loan involving a recorded agreement for extension of term or re-Amortization, fees and charges for processing a partial release of the property, certain attorney's and trustee's fees and expenses actually incurred, escrow charges, a trustee's fee, property preservation expenses incurred, fees permitted for providing a beneficiary notice under applicable Tribal or State law, and such other reasonable and customary charges as may be authorized by HUD. This section also would provide that reasonable and customary fees must be based upon the actual cost of the work performed, including out-of-pocket expenses. HUD may establish maximum fees and charges, which are reasonable and customary in different areas. Unless otherwise provided, no fee or charge may be based on a percentage of either the face amount of the loan or the unpaid principal balance due on the Section 184 Guaranteed Loan. This section proposes to clarify the range of fees and charges that can and cannot be charged by Servicers participating in the program proposes change consistent with HUD's current practice, policy, and/or procedure. Enforcement of late fees § 1005.721. This section proposes when and how late charges must be applied by a Servicer. It would provide that Servicers are prohibited from commencing foreclosure when the Borrower's only default is his or her failure to pay a late charge or charges. A late charge attributable to a particular installment payment due may not be deducted from that installment. However, if the Servicer notifies the Borrower of the obligation to pay a late charge, that charge may be deducted from any subsequent payment. This section also would provide that a payment may be returned because of failure to include a late charge only if the Servicer notifies the Borrower before imposition of the charge of the amount of the monthly payment, the date when the late charge will be imposed and either the amount of the late charge or the total amount due when the late charge is included. This section prohibits a late charge from being imposed on the Borrower with respect to any payment on the Section 184 Guaranteed Loan during the 60 day period beginning on the effective date of transfer of the servicing rights of a Section 184 Guaranteed Loan. This section would provide that if a payment is received by the old Servicer prior to the due date, no late charges may be assessed by the new Servicer. Finally, this section would provide that a Servicer is prohibited from imposing a late fee for failure to pay a late fee, consistent with CFPB regulations. HUD is proposing this addition to consistent with current program practices, policies, procedures, to conform the regulations to CFPB's Truth in Lending regulations, and to ensure that Servicers comply with fair rules governing late charges and is intended align with industry standards. Partial payments § 1005.723. This proposed section provides that a Servicer must have a written policy available to the public on how it handles Partial Payments and outlines the acceptable actions when a Servicer receives a Partial Payment from a Borrower. It also proposes to provide that upon receipt of a Partial Payment, a Servicer must provide to the Borrower a copy of the Servicer's written Partial Payment policy and a letter explaining how it will handle the received Partial Payment. The Servicer may accept a Partial Payment and apply it to the Borrower's account, identify it with the Borrower's account number and hold it in a trust account pending disposition, or return the Partial Payment to the Borrower. This proposal is necessary to ensure clear guidelines on how Servicers are to manage Partial Payments and would provide Servicers with various options and is intended to codify current practice, policy, and/or procedure. Handling prepayments § 1005.725. This section would require that a Servicer accept pre-payment at any time and details how the interest on the debt is calculated for prepayments. This proposed section is consistent with codifies current practices, policies, and/or procedures, and ensures that Borrowers who want to make prepayments on their Section 184 Guaranteed Loans have the option to do so. Substitute Borrowers § 1005.727. This section proposes when a Borrower requests the substitution of a co-Borrower on the Section 184 Guaranteed Loan. A remaining original Borrower must still be on the loan. It would provide that where an original Borrower requests the substitution of a co-Borrower on the loan, a Non-Direct Guarantee Servicer must obtain HUD approval for the substitution. A Direct Guarantee Lender may approve an eligible substitute Borrower who meets program eligibility requirements and need not obtain further specific approval from HUD. This proposed section is meant to provide clear guidelines to Servicers and Borrowers on how to manage the substitution of Borrowers consistent with current practice, policy, and/or procedure. Section 184 Guaranteed Loan collection action § 1005.729. This section would require the Servicer to take prompt action to collect amounts due from Borrowers and to exhaust all reasonable possibilities of collection before initiating foreclosure or assignment. This proposed regulation is necessary to ensure that Servicers meet standards for serving Section 184 Guaranteed in default and provide Borrowers with a good faith consideration of available Loss Mitigation options to avoid default, foreclosure, or both. This section is designed to ensure that risks to the Fund are minimized, and that all available reasonable loan collection and Loss Mitigation options have been considered by the Servicer. This proposed section is consistent with current program policy, practice, and/or procedure. Default notice to Borrower § 1005.731. This section outlines the proposed requirements for contacting a defaulted Borrower, including live contact and written notice. This includes a requirement to contact all Borrowers, whether they live in the same or different locations. Servicers are required to establish or make good faith efforts to establish live contact with a defaulting Borrower no later than the 36th day of the Borrower's default and promptly inform the Borrower about the availability of Loss Mitigation options. This section also would provide that Servicers must give written notice to each Borrower in default no later than the end of the 45th day of a Borrower's default. This section also governs what must be included in the required written notice and would provide that nothing in this section shall require a Servicer to communicate with a Borrower in a manner otherwise prohibited by applicable Tribal, Federal, or State law. This section is necessary to ensure that Servicers present a minimum level of notice of default and consider Loss Mitigation options to prevent foreclosure and other unnecessary losses and risks to the Fund. HUD is proposing this addition consistent with current program practices, policies, and/or procedures and to conform to CFPB regulations and industry standards. Loss mitigation application, timelines, and appeals § 1005.733. This section would provide specific expectations when a Servicer processes a Borrower's Loss Mitigation application. It proposes to provide five days to acknowledge receipt of the application, determine if the application is complete or incomplete, and, if incomplete, notify the Borrower of documentation that is still required and inform the Borrower that submission of the missing documents must occur within fourteen days. Within fourteen days of receipt of a complete application, the Servicer must evaluate the application. This section also would provide that Servicers are required to provide written notification: (1) of all available Loss Mitigation options; (2) to encourage Borrowers to review all available Loss Mitigation options and to contact the Servicer with any questions; (3) to encourage Borrowers to consider pursuing simultaneous Loss Mitigation options; (4) to inform Borrowers that if no Loss Mitigation option is elected or if they fail, the Servicer may proceed with filing of the First Legal Action at 180 days of default; and (5) to inform Borrowers that at the filing of first legal action or the assignment of the loan to HUD, the Servicer will no longer offer or allow a pre-foreclosure sale as an alternative to foreclosure, and that the only available and remaining alternative to foreclosure will be a lease-in-lieu or deed-in-lieu of foreclosure, subject to applicable Tribal, Federal, or State law. Borrowers may appeal within 14 days of receipt of the Servicer's Loss Mitigation determination, in writing, that the Servicer re-evaluate the Borrower's Loss Mitigation application. The Servicer will be required to re-evaluate the Borrower's Loss Mitigation application within 30 days, but may not use the same staff that made the initial Loss Mitigation determination and must notify the Borrower of its appeal decision. If the Borrower submits a timely written appeal, the 180-day deadline to initiate foreclosure will be suspended during the appeal process. This section is being proposed to provide clear guidelines to both Servicers and Borrowers on the Loss Mitigation application process and associated appeals, to minimize risks and losses to the Fund, and to avoid foreclosure when possible. This proposed section is consistent with current program policy, practice, and/or procedure. Occupancy inspection § 1005.735. This section proposes occupancy inspection as a visual inspection by the Servicer, defines occupancy follow-up as an attempt to communicate with the Borrower through various means to determine occupancy status, and would provide the requirements for occupancy inspections and occupancy follow-ups while a Borrower is in default. It also governs occupancy inspections conducted during a Borrower's bankruptcy. HUD is proposing this regulation to ensure that clear guidelines exist for Servicers governing occupancy inspections. Servicers may find the need to conduct occupancy inspections to determine whether a property has become vacant or abandoned, and to confirm the identity of any occupants. HUD is requiring Servicers to conduct occupancy follow-ups and to attempt to conduct continuing inspections, if necessary, every 25-35 days from the last inspection until the occupancy status is determined. This is designed to ensure that Servicers proactively work to determine the status of each property subject to a loan guaranteed under the program, that is in default, and to minimize costs and risks to the Fund. This proposed section is consistent with current program policy, practice, and/or procedure. Vacant property procedures § 1005.737. This section would set forth the requirements when a property has been determined vacant or abandoned based on an occupancy or occupancy follow-up inspection. This provision includes a notice requirement to the Borrowers of determination of vacancy or abandonment, which is sent to the property address and all known addresses of Borrowers. If occupancy is found through the delivery confirmation process, the Servicer must continue pursuing Loss Mitigation efforts until the Servicer can proceed to First Legal Action. On the other hand, if the Servicer verifies through the delivery confirmation process or other method that the property is vacant or abandoned, then the Servicer must secure and maintain the property through appropriate property preservation actions, initiate the First Legal Action or assign a Trust Land loan to HUD within 120 days after date of default, continue to perform vacant property inspections every 25-35 days, and retain documentation in the servicing file. HUD is proposing this section to ensure that clear guidelines exist for Servicers who manage vacant or abandoned Properties. While not common, a small number of Properties assisted under the Section 184 Program have previously been abandoned. In such cases, it is critical that Servicers remain proactive in verifying the occupancy status of such Properties and ensuring that they are processed and disposed of in a timely manner. Vacant or abandoned Properties can attract criminal activity and serve as an additional blight to Trust Land. These guidelines will also help preserve collateral and prevent unnecessary losses and risks to the Fund. This proposed section is consistent with current program policy, practice, and/or procedure, and aligns with industry standards. Loss mitigation § 1005.739. This section proposes the Loss Mitigation options and review requirements when a Borrower defaults on a Section 184 Guaranteed Loan. This section would require that Servicers utilize various Loss Mitigation options, if practical, within 180 days of the date of default. Loss mitigation options include: (1) forbearance plan, (2) assumption, (3) trial payment plan agreement for a loan modification, (4) pre-foreclosure sale, or (5) deed-in-lieu or lease-in-lieu of foreclosure. Within 180 days of default, if the Borrower is offered a Loss Mitigation option other than loan modification and fails to meet the Loss Mitigation requirements, the Servicer is required, within 5 days of the Loss Mitigation default, to determine whether the Borrower should continue with the current Loss Mitigation option or reassess the Borrower. If no time or very limited time remains within 180 days of default, the Servicer will not be required to reassess the Borrower for another Loss Mitigation option. This section also would provide that if a Borrower is performing under a Loss Mitigation option that does not reinstate the loan at 180 days of default but subsequently fails to perform, the Servicer must take First Legal Action within 5 days of the Loss Mitigation option default. Servicers must maintain documentation of all evaluations and Loss Mitigation actions. Finally, Servicers that fail to engage in and comply with required Loss Mitigation may be subject to enforcement action by HUD, including possible sanctions. HUD is proposing this addition to the regulation to ensure Servicers review Loss Mitigation options to prevent foreclosures, to maintain Native American Borrowers in their homes, to the extent practicable, and to minimize any resulting losses and risks to the Fund. This proposed section is consistent with current program practices, policies, and/or procedures, and conforms to CFPB regulations and industry standards. Notice to Tribe and BIA—Borrower default § 1005.741. This proposed section compliments HUD's current practice and policy to notify the BIA when a Borrower defaults on a Section 184 Guaranteed Loan, in accordance with applicable requirements under 25 CFR part 162. This section also includes a new requirement for Servicers. When given consent by the Borrower, Servicers must notify the Borrower's Tribe when a Borrower defaults on Section 184 Guaranteed Loan. This proposed section addresses a request made during Tribal consultation in which Tribal representatives expressed a desire to be notified when a member has defaulted on their Section 184 Guaranteed Loan, so that the Tribe may provide financial assistance, if available. Relief for Borrower in military service § 1005.743. This proposed section outlines the options for Borrowers who are in military service, in addition to benefits afforded under other applicable laws, including postponement of principal payments, forbearance, and postponement of foreclosure. This section is being proposed to provide accommodations for Borrowers that are persons in “military service,” as such term is defined in the Servicemembers Civil Relief Act (50 U.S.C. 3901, et seq. ). This proposed section is consistent with current program policy, practice, and/or procedure, and aligns with industry standards. Forbearance plans § 1005.745. This section proposes forbearance options a Servicer may offer to defaulting Borrowers. This section sets out the requirements for informal forbearance, formal forbearance, unemployment forbearance, and servicemember forbearance. Each type has its own agreement requirements, duration period requirements, property condition requirements, and required documents. HUD is proposing this regulation to ensure that several options are available for defaulting Borrowers. This proposed section is consistent with current program policy, practice, and/or procedure, and aligns with industry standards. Assumption § 1005.747. This section would require Servicers to explore loan assumption as a Loss Mitigation option. HUD is proposing this regulation to provide another Loss Mitigation option for a Borrower that has defaulted on their guaranteed loan. This proposed section is consistent with current program policy, practice, and/or procedure, and aligns with industry standards. Loan modification § 1005.749. This section proposes loan modifications as a Loss Mitigation option and sets forth the eligibility and qualifications necessary for a Servicer to approve a Borrower's application and the required property conditions. This section also discusses the use of trial payment plans, the execution of loan modification documents that conform to all applicable Tribal, Federal, and State laws, and when the Servicer must provide modified loan guarantee documents to HUD. HUD is proposing this regulation to provide another Loss Mitigation option for Borrowers in default. This proposed section is consistent with current program policy, practice, and/or procedure. Pre-foreclosure sale § 1005.751. This section would provide authority for pre-foreclosure sale as a Loss Mitigation option. The requirements specified for this review include: surchargeable calculation of the Borrower's cash reserve contribution, condition of title for both fee simple and Trust Land Properties, verification of discharge of all junior liens, and listing the property at no less than the value determined in the required appraisal. The Servicer would be required to send all required pre-foreclosure documentation to HUD and send an approval to participate agreement and required addendum notice to the Borrower. This section also would provide Tribal notification of the option to assume the Section 184 Guaranteed Loan or purchase the either the Note or the property. The section sets out the requirements for the Borrower in securing a real estate broker and required clauses in the contract between the Servicer and broker, as well as the time period for the Borrower to market the property in listings. For all pre-foreclosure sale Properties, the Servicer is required to conduct property inspections and maintenance, and the Borrower is required to disclose any damage that has occurred immediately. If damage has occurred, the Servicer is required to work with the Borrower to file hazard insurance claims. The section sets out the responsibilities for the seller in receiving sufficient bids, reviewing the sales contract, as well as closing and post-closing responsibilities. The section details early termination initiated by both the Borrower and the Servicer, and how to proceed in the event the Borrower fails to complete the pre-foreclosure sale. HUD is proposing this regulation to provide an additional option for defaulted Borrowers. This is a new loss mitigation option for the Section 184 Program. HUD is proposing this section to give Native American Borrowers comparable loss mitigation options to Borrowers in other loan guarantee programs. Deed-in-lieu/lease-in-lieu of foreclosure § 1005.753. This section would require the use of deed-in-lieu/lease-in-lieu of foreclosure as a Loss Mitigation option. This section also sets out the required documents to effectuate the transfer and, upon Conveyance to HUD, the Servicer must file for record the required documents within two days and report to HUD. The Servicer must also comply with all applicable Federal, State, Tribal, and local reporting requirements. HUD is proposing this regulation in order to provide an additional option for Borrowers in default. This proposed section is consistent with current program policy, practice, and/or procedure and aligns with industry standards. Incentive payments to Borrower § 1005.755. This section proposes that HUD may authorize incentive payments to the Borrower when Borrowers complete certain loss mitigation options and when Borrowers agree to vacate the property after foreclosure to avoid an eviction. This section also proposes that HUD may authorize incentive payments to Lender and Servicer for their completion of certain Loss Mitigation options and incentive payments to Tribes and TDHEs when they assist HUD in the loss mitigation, sale or transfer of the Trust Land property. HUD plans to provide further guidance on the incentives in Section 184 Program Guidance. HUD is proposing this new authority to encourage Borrowers' and Servicers' participation in Loss Mitigation, to avoid the time and expense of foreclosing on the property and evicting the Borrower after foreclosure. Property on Trust Land—Tribal first right of refusal; foreclosure or assignment § 1005.757. This section proposes the timeframe in which a Servicer must contact a Tribe or TDHE and offer an option to assume or purchase the property or the Note under § 1005.757(a) when a defaulted loan pertains to property that is located on Trust Land, as well as the TDHE or Tribe's acceptance of the offer. This section also allows for the Servicer to choose between foreclosure or assignment to HUD for a defaulted Section 184 Guaranteed Loan located on Trust Lands. HUD is proposing this regulation to clarify options available to the Servicer but also to ensure timely action. This proposed section is consistent with current program policy, practice, and/or procedure. Fee simple properties—foreclosure or assignment with HUD approval § 1005.759. This section proposes the requirement for Servicers to initiate foreclosures or request the ability to assign a defaulted property to HUD. HUD may approve assignments under limited circumstances. HUD is proposing this regulation in order to ensure that Servicers timely initiate foreclosure proceedings and is consistent with current policy, practice and/or procedure. First Legal Action deadline and automatic extensions § 1005.761. This section proposes to provide a timeline for the initiation of foreclosure by the Servicer on defaulted Section 184 Guaranteed Loans. This proposed section is consistent with current program policy, practice, and/or procedure and aligns with industry standards. Assignment of the Section 184 Guaranteed Loan § 1005.763. This section presents the requirements for assigning a defaulted Section 184 Guaranteed Loan to HUD. This proposed section is consistent with current program policy, practice, and/or procedure and aligns with industry standards. Inspection and preservation of Properties § 1005.765. This section proposes that the Servicer comply with inspection requirements under § 1005.737 when the Servicer knows or should know the property is vacant or abandoned. The section also proposes to require that the Servicer take action to preserve and protect the property until Conveyance to HUD. HUD is proposing this section in order to ensure the Servicer continues to inspect and preserve the property. This proposed section is consistent with current program policy, practice, and procedure and aligns with industry standards. Property condition § 1005.767. This section would mandate the condition of the property and the Servicer's responsibilities at the time a property is transferred to HUD through Conveyance or assignment. This proposed section is consistent with current program policy, practice, and/or procedure. Conveyance of property to HUD at or after foreclosure; time of Conveyance § 1005.769. This section proposes the methods and timeframe in which a Servicer may convey a property to HUD after foreclosure, including HUD notification of the Conveyance. HUD is proposing this section in order to ensure the Servicer timely conveys the property to HUD. This proposed section is consistent with current program policy, practice, and/or procedure and aligns with industry standards. Acceptance of property by HUD § 1005.771. This section would establish the date which HUD is deemed to have accepted an assignment of a Section 184 Guaranteed Loan, or title to and possession of a property. HUD is proposing this section to clarify when HUD has accepted title to a conveyed property. This proposed section is consistent with current program policy, practice, and/or procedure and aligns with industry standards. H. Claims (Subpart H) This subpart includes the requirements for Servicers to submit claims to HUD. The subpart is organized into five sections: claims application, submission categories, and types; submission of claims; property title transfers and title waivers; condition of the property; and payment of guarantee benefits. Purpose § 1005.801. This section proposes the purpose of this subpart which is to set forth the requirements applicable to a submission of an application for loan guarantee benefits (Claim submission). It explains that Servicers must comply with regulations presented in subpart H and process details included in Section 184 Program Guidance. This subpart also sets forth requirements processing and payment of Claim. This proposed section is consistent with current program policy, practice, and/or procedure. Claim case binder; HUD authority to review records § 1005.803. This section would require Servicers to maintain a Claim case binder for a minimum of five years after the final Claim has been paid and allow HUD access to the case binder. Section 1005.803(b) allows HUD access to the Claim case binder at any time and would provide that Servicer denial of HUD access to any of the files may subject the Servicer to sanctions under §§ 1005.905 and 1005.907. Section 1005.803(c) would provide that the Servicer must make available to HUD any request for Claim files within three business days of the request. This proposed section is consistent with current practices and establishes new timeframes for Servicers to respond to HUD's request for a Claim case binder. These policies are necessary to ensure HUD has appropriate oversight of the program. Effect of noncompliance § 1005.805. This section proposes to establish the actions HUD may take if a Claim case binder does not comply with the requirements of subpart D, including: rejecting the claim, paying the claim but demanding reimbursement from the Originating Direct Guarantee Lender, reconveying the property or reassigning the deed of trust or mortgage in accordance with § 1005.849 and sanctions in accordance with §§ 1005.905 and 1005.907. Further, it would establish actions HUD may take if it finds the Servicer failed to service the Section 184 Guaranteed Loan in accordance with subpart G, committed fraud, known or should have known of fraud or material misrepresentation in violation of this part. These include holding the claim to remedy the deficiency, rejecting expenses under § 1005.807(b), reconveying the property or reassigning the deed of trust or mortgage in accordance with § 1005.849, administrative offset, sanctions in accordance with §§ 1005.905 and 1005.907, and other remedies as determined by HUD. This section also limits the expenses that can be changed when a reconveying the property or reassigning the deed of trust or mortgage. This proposed section is consistent with current program policy, practice, and/or procedure. Claim submission categories § 1005.807. This section lists the three Claim submission categories. The three Claim categories are: payment of the unpaid principal balance; reimbursement of eligible reasonable expenses up to assignment, Conveyance or transfer of the property; and supplemental claims for eligible expenses incurred that were omitted from the Servicer's prior submission or for a calculation error made by the Servicer or HUD. This proposed section is consistent with current program policy, practice, and/or procedure. Claim types § 1005.809. This section would establish five Claim types, which are submitted based on property disposition, timeframes for Claim submission, and the documentation required for each Claim type. The five Claim types are: Conveyance; assignment of the loan; post-foreclosure claims without Conveyance of title; pre-foreclosure sale; and supplemental claims. Paragraph (a) would provide for a Claim when the Servicer conveys the property to HUD after foreclosure or execution of a deed-in-lieu or lease-in-lieu. The Servicer has 45 days from date the deed to HUD is executed to submit the Conveyance Claim. For fee simple properties, the section would require final title policy. For Trust Land Properties, a Title Status Report from the Bureau of Indian Affairs evidencing ownership vested to HUD is required. Where Servicer is unable to obtain a Title Status Report from the Bureau of Indian Affairs, the Servicer may submit a Claim on the 45th day in accordance with Claim processing instructions that HUD will provide. Lenders must submit claims related to reimbursable eligible expenses no later than the 60th day of the date the deed is executed to HUD, unless extension of time is given by HUD. Paragraph (b) describes the assignment of the Section 184 Guaranteed Loan and would require the Servicer to submit a Claim no later than 45 days from the date of the assignment of the Section 184 Guaranteed Loan to HUD is executed. The section would require the Servicer provide a final title policy or, where applicable, a certified Title Status Report evidencing the assignment of the mortgage to HUD. Where the Servicer is unable to comply with the documentation from title policy or Title Status Report, the Servicer may submit a Claim on the 45th day in accordance with processing instructions from HUD. For assignment of a Section 184 Guaranteed Loan, the Servicer must submit a Claim for reimbursable expenses, if any, within 45 days of the date the loan assignment is executed. This section would require the Servicer to certify that the Section 185 Guaranteed Loan is in first lien position and prior to all mechanics' and materialmen's liens filed for record, the amount due and owing under the loan, there are no offsets or counterclaims, the Servicer has good right to assign, and has met the property inspection and property preservation requirements of this part. Paragraph (c) explains the post-foreclosure claims without Conveyance of title requirements and addresses when a third-party purchases fee simple Properties at foreclosure. The Servicer must submit a Claim to HUD no later than 180 days from the date the deed to the third-party is executed. Paragraph (d) is the pre-foreclosure sale Claim. It authorizes claims when a property is sold prior to foreclosure in accordance with HUD's pre-foreclosure sale requirements at § 1005.751 or § 1005.753. The Servicer must submit a Claim no later than 45 days from the date the deed or assignment of the lease to the third-party is executed. Paragraph (e) discusses supplemental claims, and limits Servicers to one supplemental Claim for each Claim related to the payment of unpaid principal balance and reimbursement of eligible reasonable expenses. Paragraph (e) limits supplemental claims to reasonable eligible expenses incurred on the date of Conveyance of the property or assignment of the Section 184 Guaranteed Loan, when invoices are received after payment of the Claim or when there is a calculation error made by the Servicer or HUD. Supplemental claims must be submitted within six months of when the Servicer files a Claim for reimbursement of eligible reasonable expenses. Any supplemental claims received after the six-month period will not be reviewed or paid by HUD. This section makes clear any supplemental Claim paid by HUD shall be considered final satisfaction of the loan guarantee. Proposed paragraphs (a) through (d) are consistent with HUD's existing policies, practices, and procedures with the exception of paragraph (b)(4), which proposes to implement a new Servicer certification requirement. Proposed paragraph (e) is consistent, in part, with HUD's existing policies, practices, and procedures, but proposes to add a new requirement that supplemental claims are time limited to a 6-month window. These policies are proposed to ensure HUD maintains its fiduciary duty to protect the Fund and reduce its risk against Claim payments that do not meet Section 184 requirements. Claims supporting documentation § 1005.811. This section proposes to require Servicers to submit supporting documentation required for each Claim to the satisfaction of HUD. Such documentation will be provided for in Section 184 Program Guidance. This proposed section is consistent with current program policy, practice, and/or procedure. Upfront and Annual Loan Guarantee Fee reconciliation § 1005.813. This section proposes to require Lenders to submit, as part of a Claim submission under § 1005.807(b), a reconciliation evidencing the payment of the Annual Loan Guarantee Fee to HUD. This section proposes a new process to ensure Lenders can verify they have paid all Loan Guarantee Fees prior to HUD payment of any claims. Conditions for withdrawal of claim § 1005.815. This section provides the conditions under which a Servicer can withdraw a Claim submission after there has been a Conveyance. HUD will permit withdrawal of the application when a Servicer accepts a reconveyance of the property under a deed which warrants against the acts of HUD and all claiming by, through or under HUD, promptly files a reconveyance for record; accepts without continuation the title evidence it furnished to HUD; and reimburses HUD for property expenditures HUD incurred after Conveyance to HUD. This proposed section is consistent with HUD's current practice, policy, and/or procedure. Conveyance of Good and Marketable Title § 1005.817. This section proposes to mandate that a property have Good and Marketable Title when conveyed to HUD from a Lender. This proposed section is consistent with current program, policy and/or practice. Within this section, HUD is proposing a new timeframe in which a Servicer must correct any title defects. HUD is proposing that the Servicer make this correction in 60 days, or the Servicer must reimburse HUD for the cost of holding the property until any defect is corrected or until HUD reconveys the property to the Servicer. This proposed time frame is intended to help ensure timely action by the Servicer to correct title defects. Types of satisfactory title evidence § 1005.819. This section would provide six types of title evidence that may be submitted with a Claim submission. The permissible types of title evidence include: fee or owner's title policy; Lender's policy of title insurance; abstract and legal opinion; torrens or similar certificate; title standard of U.S., Tribal, or State government; and Title Status Report issued by the Bureau of Indian Affairs. This proposed section is consistent with current program policy, practice, and/or procedure. Coverage of title evidence § 1005.821. This section would establish that evidence of title or Title Status Report shall be executed subsequent to the filing for record of the deed or assignment to HUD. The title evidence must show that, according to public records, there are not, as of the date of the recordation of the deed or assignment to HUD, any outstanding prior liens, including any past due and unpaid ground rents, general taxes, or special assessments, if applicable. This proposed section is consistent with current program policy, practice, and/or procedure. Waived title objections for properties on fee simple land § 1005.823. This section would provide that reasonable title objections for fee simple properties shall be waived by HUD. Reasonable title objections will be prescribed in Section 184 Program Guidance. This proposed section is consistent with current program policy, practice, and/or procedure. Waived title objections for properties on Trust Land § 1005.825. This section proposes that HUD shall not object to title restrictions placed on Trust Land by a Tribe or the Bureau of Indian Affairs, so long as those restrictions do not adversely impact the property or marketability. This proposed section is consistent with current program policy, practice, and/or procedure. Damage or neglect § 1005.827. This section would provide a Lender's responsibilities when a property has suffered damage or neglect and HUD's remedy when a damaged property is conveyed to HUD without prior notice or approval. Section 1005.827(a) would provide that if a property has been damaged by fire, flood, earthquake, tornado, or due to Lender's failure to take action to protect and preserve the property, the Servicer must submit a Claim to the hazard insurance policy, and the damage must be repaired before Conveyance of the property or assignment of the loan to HUD. Paragraph (b) would provide that if the property damage is not covered by a hazard insurance policy, the Servicer must notify HUD of the damage. Servicer may not convey until directed to do so by HUD. If HUD requires the Servicer to repair the damage before Conveyance, HUD may reimburse Servicer for reasonable payments not in excess of HUD's estimate of the cost of repair, less any insurance recovery or require the Lender to repair the damage before Conveyance at the Servicer's own expense. Paragraph (c) would provide that in the event the Servicer conveys property to HUD without repair to the damage or without notice to HUD of the damage, HUD may, after notice, reconvey the property to the Servicer and seek reimbursement for expenses HUD incurred in connection with the Conveyance. This proposed section is consistent with current program policy, practice, and/or procedure. Certificate of property condition § 1005.829. This section would require a Servicer to submit a certification of property condition as part of the Claim submission. This section would provide that, as part of the Claim submission, the Servicer certifies the property was undamaged by fire, flood, earthquake, or tornado, was undamaged due to failure of the Servicer to act, and undamaged while the property was in possession of the Borrower. Alternatively, if the property was damaged, the Servicer includes a copy of the HUD approval to convey the property in damaged condition. Paragraph (b) would provide that, in the absence of evidence to the contrary, the Servicer's certificate or description of the damage shall be accepted by HUD as establishing the condition of the property, as of the date of the filing of the deed or assignment of the loan. This proposed section is consistent with current program policy, practice, and/or procedure, and to ensure Servicers confirm the property is conveyed to HUD undamaged. Cancellation of hazard insurance § 1005.831. This section proposes to provide that Servicers shall cancel any hazard insurance policy as of the date of the filing for record of the deed to HUD, subject to certain conditions. The conditions include: (1) the amount of the return premium, due to the Servicer because of such cancellation, may be calculated on a “short-rate” basis and reported on fiscal data, and the amount shall be deducted from the total amount claimed; (2) If the Servicer's calculation of the return premium is less than the actual return, the amount of the difference between the actual refund and the calculated amount shall be remitted to HUD, accompanied by the carrier's or agent's statement; (3) If the Servicer's calculation of the return premium is more than the actual return, the Servicer may include in its Claim submission, the statement of the amount of the refund from the insurance carrier or agent, and include the amount of the difference as an eligible cost in accordance with § 1005.843(a)(3). This proposed section is consistent with current program policy, practice, and/or procedure. Method of payment § 1005.833. This section would establish that HUD will make payment of guarantee benefits by electronic transfer of funds for all approved claim submissions. This proposed section is consistent with current program policy, practice, and/or procedure. Claim payment not conclusive evidence of claim meeting all HUD requirements § 1005.835. This section proposes to provide that any payment of claim by HUD is not conclusive evidence of a Servicer's compliance with Section 184 Program requirements. HUD reserves the right to conduct post-claim payment review of any claim file within 5 years from the date of last claim payment. This section states when non-compliance with any requirements of this part is identified, HUD may take appropriate post-claim action against the Servicer. This section is a codification of existing policy, practice, and procedure with the exception of the five-year period. The proposed five-year period is necessary to ensure uniformity in the time frame for HUD to conduct post-claim reviews of the loan file. Payment of claim: [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-26097. Public record. Not legal advice.