Loan Guarantees for Indian Housing

SUMMARY: This interim rule sets forth regulations to implement the

Indian Loan Guarantee Program authorized by section 184 of the Housing

and Community Development Act of 1992. The purpose of the program is to

provide loan guarantees that will make private financing available to

Native Americans in restricted lands where no source of financing is

currently available.

DATES: Effective date: September 19, 1994.

Comments due date: October 17, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding

this interim rule to the Rules Docket Clerk, Office of General Counsel,

Room 10276, Department of Housing and Urban Development, 451 Seventh

Street, SW., Washington, DC 20410-0500. Communications should refer to

the above docket number and title. Facsimile (FAX) comments are not

acceptable. A copy of each communication submitted will be available

for public inspection and copying between 7:30 a.m. and 5:30 p.m.

weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Dominic Nessi, Director, Office of

Native American Programs, Room B-133, Department of Housing and Urban

Development, Washington, DC 20410; telephone (202) 755-0032 (voice) or

(202) 708-0850 (TDD for speech or hearing impaired individuals). These

are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

The information collection requirements contained in this interim

rule have been submitted to the Office of Management and Budget (OMB)

for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-

3520). No person may be subjected to a penalty for failure to comply

with these information collection requirements until they have been

approved and assigned an OMB control number. The OMB control number,

when assigned, will be announced by separate notice in the Federal

Register.

The public reporting burden for each of these collections of

information is estimated to include the time for reviewing and

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Information on the estimated public

reporting burden is provided under the preamble heading, Other Matters.

Send comments regarding this burden estimate or any other aspect of

this collection of information, including suggestions for reducing this

burden, to the Department of Housing and Urban Development, Rules

Docket Clerk, 451 Seventh Street, SW, Room 10276, Washington, DC 20410;

and to the Office of Information and Regulatory Affairs, Office of

Management and Budget, Attention Desk Officer for HUD, Washington, DC

20503.

II. Background

Section 184 of the Housing and Community Development Act of 1992

(HCDA 1992) (Pub. L. 102-550, approved October 28, 1992) authorized the

establishment of the Indian Housing Loan Guarantee Fund (the Fund) to

provide access to sources of private financing to Indian families and

Indian housing authorities who otherwise could not acquire housing

financing because of the unique legal status of Indian trust land. In

general, these lands, held in trust by the United States for the

benefit of an Indian or Indian tribe, are inalienable. Trust lands

under this program also include lands to which the title is held by an

Indian tribe subject to a restriction against alienation imposed by the

United States. Because titles to individual plots do not convey, and

liens do not attach, conventional mortgage lending practices do not

operate in this forum.

The Fund addresses these obstacles to mortgage financing by

guaranteeing loans made to Indian families or Indian housing

authorities to construct, acquire, or rehabilitate 1- to 4-family

dwellings that are standard housing and are located on trust land or

land located in an Indian or Alaska Native area. Loans may be made by

any lender approved by the Secretary of Housing and Urban Development,

the Secretary of Agriculture, or the Secretary of Veterans Affairs; or,

any lender which is supervised, approved, regulated or insured by any

agency of the Federal Government.

Although HCDA 1992 authorized the establishment of the Loan

Guarantee Fund for fiscal years 1993 and 1994, no funds were

appropriated until 1994. One million dollars was appropriated in FY

1994 to capitalize the guarantee fund allowing the Department to extend

$7 million in loan guarantees.

The traditional Indian Housing program targets and serves the

neediest among the Native American population--the low- and very low-

income families. While a large number of Native Americans fall into

these income groups, there are families who live on reservations, or

who wish to return to their Native land, whose incomes would allow them

to afford a home loan, but who cannot construct a home in Indian

country because of the unique legal status of Indian land. The Indian

Loan Guarantee program will assist these persons in attaining

homeownership on their native land.

Notwithstanding the availability of mortgage insurance under the

Federal Housing Administration's Section 248 program, the private

lending market has been reluctant to provide mortgage money in Indian

country. The limited use of that program has been due in large part to

the lack of awareness of the availability of mortgage insurance by both

borrowers and lenders. In addition, until very recently the program was

limited in applicability because it did not allow insurance of the

construction loan, and it adheres to the underwriting, mortgage credit,

and appraisal standards of the non-Indian, single-family mortgage

insurance program. These standards may not be appropriate in Indian

country. A real deterrent of Section 248 for Indian tribes is the

potential for transfer of the home to a non-Indian in the event of

default and foreclosure. The new program under this interim rule has

features that are more appropriate for the Native American culture, and

the potential for a unit to be transferred to a non-Indian is avoided.

Perhaps the most significant feature of the statute authorizing

this new program is that it permits loans to be secured by any

collateral authorized under Federal, State, or local law. This

innovative approach addresses the basic difference in providing housing

loans for Indian trust lands, the fact that interests in these land are

encumbered in ways that land interests in conventional mortgage markets

are not. This element of uncertainty has certainly played a role in the

failure of private lenders to provide mortgage services for Indian

trust lands. This interim rule, in addition to making loan guarantees

available, makes clear, at Sec. 955.111, that the collateral for loans

to construct, acquire, or rehabilitate one- to four- family dwellings

on trust land need not consist of real property and the improvements

upon it, but may consist of anything of value determined by the lender

and approved by the Department to be sufficient to cover the amount of

the loan, and may include, but is not limited to, the property and/or

improvements to be acquired, constructed, or rehabilitated, to the

extent that an interest in such property is not subject to the

restrictions of trust lands against alienation; a first or second

mortgage on property other than trust land; personal property; or cash,

notes, an interest in securities, royalties, annuities, or any other

property that is transferable and whose present value may be

determined. This use of various forms of collateral is consistent with

the targeting of moderate income families, as discussed above, as the

primary beneficiaries of this program.

This interim rule follows the statutory language very closely, and

imposes additional regulatory requirements only where necessary to

implement the program. The statute provides that a loan may be

guaranteed for approval under this program only where ``there is a

reasonable prospect of repayment of the loan.'' The interim rule,

therefore, adds a number of requirements taken from the Department's

conventional mortgage programs to address this issue.

One requirement that is added, at Sec. 955.111(b)(3), is to tie

loan eligibility, where trust land is the collateral for the loan, to

the presence of eviction procedures. Before HUD will issue any

commitment to guarantee such a loan on Indian land, the tribe having

jurisdiction over such property must certify to the Department that it

has adopted and will enforce procedures for eviction of defaulted

mortgagors where the guaranteed loan has been foreclosed.

In other instances where the statute has placed the interpretation

of a provision within the Department's discretion, the Department has

attempted to provide the broadest interpretation, as discussed below.

The law allows the guarantee to cover ``up to'' 100 percent of the

unpaid principal and interest. The regulation provides, at

Sec. 955.113(a), for 100 percent coverage. This position is based on

the FHA mortgage insurance programs which insure 100 percent of the

principal and interest and provide for payment of other allowable

expenses in the event of a claim.

A loan term of ``up to'' 30 years is allowed at Sec. 955.105(b)(1),

as permitted by the statute, but is not required, because there may be

instances where terms less than 30 years will be desirable to both the

borrower and lender. The Department has determined that this program

should have the flexibility to guarantee most standard loan products,

with the exception of adjustable rate mortgages. In a totally new

lending environment, the uncertainty of an adjustable rate would create

an unnecessary risk to the borrower, the lender and the Department.

Section 184 requires the Department to set forth requirements for

standard housing. These requirements are established at

Sec. 955.107(b)(1), and conform with those established for the FHA

single family mortgage insurance programs.

Other Matters

Justification for Interim Rulemaking

The Department has determined that this interim rule should be

adopted without the delay occasioned by requiring prior notice and

comment. This interim rule simply constitutes the implementation of

statutory language with the exercise of little or no discretion on the

part of the Department. As such, prior notice and comment are

unnecessary under 24 CFR Part 10. Section 955.125 is added to implement

a Department-wide policy that provides for the expiration of interim

rules within a set period of time if they are not issued in final form

before the end of the period. The expiration period may be extended by

notice published in the Federal Register. The expiration date for this

interim rule is July 31, 1995.

Impact on Small Entities

The Department, in accordance with the Regulatory Flexibility Act

(5 U.S.C. 605(b)), has reviewed this interim rule before publication

and by approving it certifies that this interim rule does not have a

significant economic impact on a substantial number of small entities.

Specifically, this interim rule implements a loan guarantee program

targeted to a very specific population, and is not expected to affect a

substantial number of small entities.

Environmental Review

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR Part 50,

which implement section 102(2)(C) of the National Environmental Policy

Act of 1969. The Finding of No Significant Impact is available for

public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk.

Federalism Impact

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that the policies

contained in this interim rule will not have substantial direct effects

on states or their political subdivisions, or the relationship between

the federal government and the states, or on the distribution of power

and responsibilities among the various levels of government. As a

result, the interim rule is not subject to review under the order.

Specifically, the requirements of this interim rule are directed to

individual borrowers and financial institutions.

Impact on the Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this interim rule has

potential for significant impact on family formation, maintenance, and

general well-being. The Indian Loan Guarantee Program will make it

possible for Native American families to build or acquire homes on

their Native lands where homeownership opportunities have been very

limited in the past. Accordingly, since the impact on the family is

beneficial, no further review is considered necessary.

Regulatory Agenda

This interim rule was listed as item 1682 in the Department's

Semiannual Agenda of Regulations published on April 25, 1994 (59 FR

20424, 20469) in accordance with Executive Order 12866 and the

Regulatory Flexibility Act.

Public Reporting Burden

The information collection requirements contained in this interim

rule have been submitted to the Office of Management and Budget under

the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The

Department has determined that the following provisions contain

information collection requirements:

------------------------------------------------------------------------

Estimated

No. of Frequency average Estimated

Sections respondents respondents response annual

time (in burden (in

hours) hours)

------------------------------------------------------------------------

Reporting burden:

Individuals

955.105........ 150 1 2 300

Lending

Institutions

955.113,

955.115,

955.119,

955.123........ 15 10 8 1,200

Tribes 955.105.. 15 1 1 15

---------------------------------------------------

Total

reporting

burden....... ........... ........... ........... 1,515

Recordkeeping

burden: 955.105,

955.115, 955.119,

955.123 15 12 .24 43.2

---------------------------------------------------

Total

recordkeeping

burden....... ........... ........... ........... 43.2

------------------------------------------------------------------------

List of Subjects in 24 CFR Part 955

Indians, Loan programs--Indians, Reporting and recordkeeping

requirements.

Accordingly, chapter IX of title 24 of the Code of Federal

Regulations is amended by adding a new part 955, consisting of

Secs. 955.101 through 955.125, as follows:

PART 955--LOAN GUARANTEES FOR INDIAN HOUSING

Sec.

955.101 Applicability and scope.

955.103 Definitions.

955.105 Eligible loans.

955.107 Eligible housing.

955.109 Eligible lenders.

955.111 Eligible collateral.

955.113 Certificate of guarantee.

955.115 Guarantee fee.

955.117 Liability under guarantee.

955.119 Transfer and assumptions.

955.121 Disqualification of lenders and civil money penalties.

955.123 Payment under guarantee.

955.125 Expiration of interim rule.

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

Sec. 955.101 Applicability and scope.

(a) General. Under the provisions of section 184 of the Housing and

Community Development Act of 1992 (Pub. L. 102-550, approved October

28, 1992), the Department of Housing and Urban Development has the

authority to guarantee loans for the construction, acquisition, or

rehabilitation of 1- to 4-family homes to be owned by Native Americans

on restricted Indian lands. This part describes the eligibility of

borrowers, lenders and property, as well as the benefits of the Indian

Loan Guarantee Program.

(b) Other HUD regulations and requirements. The provisions of this

part are supplemented by parts in other chapters of title 24 of the

Code of Federal Regulations, as applicable.

Sec. 955.103 Definitions.

Default means the failure by a borrower to make any payment or to

perform any other obligation under the terms of a loan, and such

failure continues for a period of more than 30 days.

Department means the U.S. Department of Housing and Urban

Development (HUD).

Guarantee Fund means the Indian Housing Loan Guarantee Fund

established under section 184(i) of the Housing and Community

Development Act of 1992.

Indian means any person recognized as being Indian or Alaska Native

by an Indian tribe, the Federal Government, or any State, and includes

the term ``Native American''.

Indian area means the area within which an Indian housing authority

is authorized to provide housing.

Indian Housing Authority (IHA) means any entity that is authorized

to engage in or assist in the development or operation of low-income

housing for Indians and that is established either:

(1) By exercise of the power of self-government of an Indian tribe

independent of State law; or

(2) By operation of State law providing specifically for housing

authorities for Indians, including regional housing authorities in the

State of Alaska.

Mortgage as used in this part, means a first lien as is commonly

given to secure advances on, or the unpaid purchase price of, real

estate under the laws of the jurisdiction where the property is located

and may refer both to a security instrument creating a lien, whether

called a mortgage, deed of trust, security deed, or another term used

in a particular jurisdiction, as well as the credit instrument, or

note, secured thereby.

Principal residence means the dwelling where the mortgagor

maintains (or will maintain) his or her permanent place of abode, and

typically spends (or will spend) the majority of the calendar year. A

person may have only one principal residence at any one time.

Secretary means the Secretary of Housing and Urban Development.

Standard housing means a dwelling unit or housing that complies with

the requirements established in this part.

Tribe means any tribe, band, pueblo, group, community, or nation of

Indians or Alaska Natives.

Trust land means land, title to which is held by the United States

for the benefit of an Indian or Indian tribe; or, land, title to which

is held by an Indian tribe, subject to a restriction against alienation

imposed by the United States.

Sec. 955.105 Eligible loans.

(a) Eligible borrowers. A loan guaranteed under this part may be

made to a borrower that is:

(1) An Indian who will occupy it as a principal residence and who

is otherwise qualified under this part; or

(2) An Indian Housing Authority.

(b) Terms of loan. The loan shall:

(1) Be made for a term not exceeding 30 years;

(2) Bear interest (exclusive of the guarantee fee and service

charges, if any) at a fixed rate agreed upon by the borrower and the

lender and determined by the Department to be reasonable, which may not

exceed the rate generally charged in the area (as determined by the

Department) for home mortgage loans not guaranteed or insured by any

agency or instrumentality of the Federal Government.

(c) Maximum mortgage amounts. (1) A principal obligation may not

exceed:

(i) An amount equal to the sum of:

(A) 97 percent of the first $25,000 of the appraised value of the

property, as of the date the loan is accepted for guarantee; and

(B) 95 percent of such value in excess of $25,000; and

(ii) Amounts approved otherwise by the Department under this

section.

(2) The balance of the purchase price must involve a payment on

account of the property that may be:

(i) In cash or other property of equivalent value acceptable to the

lender and the Department; or

(ii) The value of any improvements to the property made through the

skilled or unskilled labor of the borrower, appraised in accordance

with generally acceptable practices and procedures.

(d) Construction advances. The Department may guarantee loans from

which advances will be made during construction. The Department will

provide guarantees for advances made by the mortgagee during

construction if all of the following conditions are satisfied:

(1) The mortgagor and the mortgagee execute a building loan

agreement, approved by HUD, setting forth the terms and conditions

under which advances will be made;

(2) The advances are made only as provided in the commitment;

(3) The principal amount of the mortgage is held by the mortgagee

in an interest bearing account, trust, or escrow for the benefit of the

mortgagor, pending advancement to the mortgagor or to his or her

creditors as provided in the loan agreement; and

(4) The mortgage shall bear interest on the amount advanced to the

mortgagor or to his or her creditors and on the amount held in an

account or trust for the benefit of the mortgagor.

(e) Prohibited loans. Adjustable rate mortgages are not permitted

under this program.

Sec. 955.107 Eligible housing.

(a) In general. A loan guaranteed under this part may be used for

the construction, acquisition, or rehabilitation of 1- to 4-family

dwellings located on trust land or land located in an Indian area.

(b) Safety and quality standards. Loans guaranteed under this part

shall be made only on dwelling units which meet safety and quality

standards set forth herein. Each unit must:

(1) Be decent, safe, sanitary, and modest in size and design;

(2) Conform with applicable general construction standards for the

region;

(3) Contain a heating system that:

(i) Has the capacity to maintain a minimum temperature in the

dwelling of 65 degrees Fahrenheit during the coldest weather in the

area;

(ii) Is safe to operate and maintain;

(iii) Delivers a uniform distribution of heat; and

(iv) Conforms to any applicable tribal heating code or, if there is

not applicable tribal code, an appropriate county, State, or National

code;

(4) Contain a plumbing system that:

(i) Uses a properly installed system of piping;

(ii) Includes a kitchen sink and a partitional bathroom with

lavatory, toilet, and bath or shower; and

(iii) Uses water supply, plumbing and sewage disposal systems that

conform to any applicable tribal code or, if there is no applicable

tribal code, the minimum standards established by the applicable county

or State;

(5) Contain an electrical system using wiring and equipment

properly installed to safely supply electrical energy for adequate

lighting and for operation of appliances that conforms to any

applicable tribal code or, if there is no applicable tribal code, an

appropriate county, State, or National code;

(6) Be not less than:

(i) 570 square feet in size, if designed for a family of not more

than 4 persons;

(ii) 850 square feet in size, if designed for a family of not less

than 5 and more than 7 persons; and

(iii) 1020 square feet in size, if designed for a family of not

less than 8 persons; or

(iv) The size provided under the applicable locally adopted

standards for size of dwelling units; except that the Department, upon

the request of a tribe or Indian housing authority, may waive the size

requirements under this paragraph; and

(7) Conform with the energy performance requirements for new

construction established by the Department under section 526(a) of the

National Housing Act (12 U.S.C. 1735f-4).

Sec. 955.109 Eligible lenders.

The loan shall be made only by a lender approved by and meeting

qualifications established in this part, except that loans otherwise

insured or guaranteed by any agency of the Federal Government, or made

by an organization of Indians from amounts borrowed from the United

States shall not be eligible for guarantee under this part. The

following lenders are deemed to be approved under this part:

(a) Any mortgagee approved by the Department of Housing and Urban

Development for participation in the single family mortgage insurance

program under title II of the National Housing Act (12 U.S.C. 1707).

(b) Any lender whose housing loans under chapter 37 of title 38,

United States Code are automatically guaranteed pursuant to section

1802(d) of such title.

(c) Any lender approved by the Department of Agriculture to make

guaranteed loans for single family housing under the Housing Act of

1949 (42 U.S.C. 1441).

(d) Any other lender that is supervised, approved, regulated, or

insured by any agency of the Federal Government.

Sec. 955.111 Eligible collateral.

(a) In general. A loan guaranteed under this part may be secured by

any collateral authorized under Federal, State, or tribal law and

determined by the lender and approved by the Department to be

sufficient to cover the amount of the loan, and may include, but is not

limited to, the following:

(1) The property and/or improvements to be acquired, constructed,

or rehabilitated, to the extent that an interest in such property is

not subject to the restrictions of trust lands against alienation;

(2) A first or second mortgage on property other than trust land;

(3) Personal property; or

(4) Cash, notes, an interest in securities, royalties, annuities,

or any other property that is transferable and whose present value may

be determined.

(b) Trust land as collateral. If trust land is used as collateral

for the loan, the following additional provisions apply:

(1) Approved Lease. Any land lease for a unit financed under this

part must be on a form approved by both HUD and the Bureau of Indian

Affairs, U.S. Department of Interior.

(2) Assumption or sale of leasehold. If a leasehold is used as

security for the loan, the loan form must contain a provision requiring

tribal consent before any assumption of an existing lease, except where

title to the leasehold interest is obtained by the Department through

foreclosure of the guaranteed mortgage. A mortgagee other than the

Department must obtain tribal consent before obtaining title through a

foreclosure sale. Tribal consent must be obtained on any subsequent

transfer from the purchaser, including the Department, at foreclosure

sale. The lease may not be terminated by the lessor without HUD's

approval while the mortgage is guaranteed or held by the Department.

(3) Priority of loan obligation. Any tribal government whose courts

have jurisdiction to hear foreclosures must enact a law providing for

the satisfaction of a loan guaranteed or held by the Department before

other obligations (other than tribal leasehold taxes against the

property assessed after the property is mortgaged) are satisfied.

(4) Eviction procedures. Before HUD will guarantee a loan secured

by trust land, the tribe having jurisdiction over such property must

certify to the Department that it has adopted and will enforce

procedures for eviction of defaulted mortgagors where the guaranteed

loan has been foreclosed.

(i) Enforcement. If the Department determines that the tribe has

failed to enforce adequately its eviction procedures, HUD will cease

issuing guarantees for loans for tribal members except pursuant to

existing commitments. Adequate enforcement is demonstrated where prior

evictions have been completed within 60 days after the date of the

notice by HUD that foreclosure was completed.

(ii) Review. If the Department ceases issuing guarantees in

accordance with the first sentence of paragraph (c)(1) of this section,

HUD shall notify the tribe of the reasons for such action and that the

tribe may, within 60 days after notification of HUD's action, file a

written appeal with the Field Office of Native American Programs

(FONAP) Administrator. Within 60 days after notification of an adverse

decision of the appeal by the FONAP Administrator, the tribe may file a

written request for review with the headquarters Director, Office of

Native American Programs (ONAP). Upon notification of an adverse

decision by the ONAP Director, the tribe has 60 additional days to file

an appeal with the Assistant Secretary for Public and Indian Housing.

The determination of the Assistant Secretary shall be final, but the

tribe may resubmit the issue to the Assistant Secretary for review at

any subsequent time if new evidence or changed circumstances warrant

reconsideration. (Any other administrative actions determined to be

necessary to debar a tribe from participating in this program will be

subject to the formal debarment procedures contained in 24 CFR part

24).

Sec. 955.113 Certificate of guarantee.

(a) Extent of guarantee. A certificate issued in accordance with

this section guarantees 100 percent of the unpaid principal and

interest of the underlying loan.

(b) Approval process. Before the Department approves any loan for

guarantee under this part, the lender shall submit the application or

the loan to the Department for examination. If the Department approves

the loan for guarantee, the Department will issue a certificate under

this part as evidence of the guarantee.

(c) Standard for approval. (1) The Department may approve a loan

for guarantee under this part and issue a certificate under this

section only if the Department determines there is a reasonable

prospect of repayment of the loan based on criteria established

pursuant to this part.

(2) The Department will assure that the value of the property has

been established in accordance with current regulatory and

administrative requirements.

(3) Before approval of a loan for guarantee, the Department will

assure that all required environmental reviews pursuant to 24 CFR Part

50 have been performed and, if necessary, all findings have been

successfully resolved.

(d) Effect. A certificate of guarantee issued under this section by

the Department shall be conclusive evidence of the eligibility of the

loan for guarantee under the provisions of this part and the amount of

such guarantee. Such evidence shall be incontestable in the hands of

the bearer and the full faith and credit of the United States is

pledged to the payment of all amounts agreed to be paid by the

Department as security for such obligations.

(e) Fraud and misrepresentation. Nothing in this part may preclude

the Department from establishing:

(1) Defenses against the original lender based on fraud or material

misrepresentation; and

(2) Establishing partial defenses, based upon regulations in effect

on the date of issuance or disbursement (whichever is earlier), to the

amount payable on the guarantee.

Sec. 955.115 Guarantee fee.

The lender shall pay to the Department, at the time of issuance of

the guarantee, a fee for the guarantee of loans under this section, in

an amount equal to 1 percent of the principal obligation of the loan.

This amount is payable by the borrower at closing.

Sec. 955.117 Liability under guarantee.

The liability under a guarantee provided in accordance with this

part shall decrease or increase on a pro rata basis according to any

decrease or increase in the amount of the unpaid obligation under the

provisions of the loan agreement.

Sec. 955.119 Transfer and assumptions.

Notwithstanding any other provision of law, any loan guaranteed

under this part, including the security given for the loan, may be sold

or assigned by the lender to any financial institution subject to

examination and supervision by an agency of the Federal Government or

of any State or the District of Columbia.

Sec. 955.121 Disqualification of lenders and civil money penalties.

(a) General. If the Department determines that any lender or holder

of a guarantee certificate under Sec. 955.113 has failed to maintain

adequate accounting records, to adequately service loans guaranteed

under this section to exercise proper credit or underwriting judgement,

or has engaged in practices otherwise detrimental to the interest of a

borrower or the United States, the Department may:

(1) Refuse, either temporarily or permanently, to guarantee any

further loans made by such lender or holder;

(2) Bar such lender or holder from acquiring additional loans

guaranteed under this section; and

(3) Require that such lender or holder assume not less than 10

percent of any loss on further loans made or held by the lender or

holder that are guaranteed under this section.

(b) Civil money penalties for intentional violations. If the

Department determines that any lender or holder of a guarantee

certificate under Sec. 955.113 has intentionally failed to maintain

adequate accounting records, to adequately service loans guaranteed

under this section, or to exercise proper credit or underwriting

judgement, the Department may impose a civil money penalty on such

lender or holder in the manner and amount provided under section 536 of

the National Housing Act (12 U.S.C. 1735f-14) with respect to

mortgagees and lenders under such Act.

(c) Payment of loans made in good faith. Notwithstanding paragraphs

(a) and (b) of this section, the Department may not refuse to pay

pursuant to a valid guarantee on loans of a lender or holder barred

under this section if the loans were previously made in good faith.

Sec. 955.123 Payment under guarantee.

(a) Lender options. (1) General. In the event of default by the

borrower on a loan guaranteed under this part, the holder of the

guarantee certificate shall provide written notice of the default to

the Department. Upon providing this notice, the holder of the guarantee

certificate will be entitled to payment under the guarantee (subject to

the provisions of this part) and may proceed to obtain payment in one

of the following manners:

(i) Foreclosure. The holder of the certificate may initiate

foreclosure proceedings in a court of competent jurisdiction (after

providing written notice of such action to the Department) and upon a

final order by the court authorizing foreclosure and submission to the

Department of a claim for payment under the guarantee, the Department

will pay to the holder of the certificate the pro rata portion of the

amount guaranteed (as determined in accordance with Sec. 955.117) plus

reasonable fees and expenses as approved by the Department. The

Department will be subrogated to the rights of the holder of the

guarantee and the lender holder shall assign the obligation and

security to the Department.

(ii) No foreclosure. Without seeking a judicial foreclosure (or in

any case in which a foreclosure proceeding initiated under paragraph

(a)(1)(i) of this section continues for a period in excess of 1 year),

the holder of the guarantee may submit to the Department a claim for

payment under the guarantee and the Department will only pay to such

holder for a loss on any single loan an amount equal to 90 percent of

the pro rata portion of the amount guaranteed (as determined in

accordance with Sec. 955.117). The Department will be subrogated to the

rights of the holder of the guarantee and the holder shall assign the

obligation and security to the Department.

(2) Requirements. Before any payment under a guarantee is made

under paragraph (a)(1) of this section, the holder of the guarantee

shall exhaust all reasonable possibilities of collection. Upon payment,

in whole or in part, to the holder, the note of judgement evidencing

the debt shall be assigned to the United States and the holder shall

have no further claim against the borrower or the United States.

(b) Assignment by the Department. Notwithstanding paragraph (a) of

this section, upon receiving notice of default on a loan guaranteed

under this section from the holder of the guarantee, the Department may

accept assignment of the loan if the Department determines that the

assignment is in the best interests of the United States. Upon

assignment the Department will pay to the holder of the guarantee the

pro rata portion of the amount guaranteed (as determined in accordance

with Sec. 955.117). The Department will be subrogated to the rights of

the holder of the guarantee and the holder shall assign the obligation

and security to the Department.

(c) Limitations on liquidation. In the event of a default by the

borrower on a loan guaranteed under this section involving a security

interest in tribal allotted or trust land, the Department will only

pursue liquidation after offering to transfer the account to an

eligible tribal member, the tribe, or the Indian housing authority

serving the tribe or tribes. If the Department subsequently proceeds to

liquidate the account, the Department will not sell, transfer,

otherwise dispose of or alienate the property except to one of the

entities described in the preceding sentence.

Sec. 955.125 Expiration of interim rule.

This part shall expire and shall not be in effect after July 31,

1995, unless it is published as a final rule or the Department

publishes a notice in the Federal Register to extend the effective

date.

Dated: August 10, 1994.

Joseph Shuldiner,

Assistant Secretary for Public and Indian Housing.

[FR Doc. 94-20250 Filed 8-17-94; 8:45 am]

BILLING CODE 4210-33-P