Multifamily Housing Program Update to the Credit Report Process

<RULE> DEPARTMENT OF AGRICULTURE <SUBAGY>Rural Housing Service</SUBAGY> <CFR>7 CFR Parts 1910, 1955, and 3560</CFR> <DEPDOC>[Docket No. RHS-24-MFH-0042]</DEPDOC> <RIN>RIN 0575-AD30</RIN> <SUBJECT>Multifamily Housing Program Update to the Credit Report Process</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Rural Housing Service, U.S. Department of Agriculture (USDA). <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Rural Housing Service (RHS or Agency), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), is publishing a final rule to update its regulation on how credit reports are obtained for the purposes of determining eligibility and feasibility for Multifamily Housing (MFH) Programs. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective January 30, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Abby Boggs, Branch Chief, Program Support Branch, Production and Preservation Division, Multifamily Housing, Rural Development, U.S. Department of Agriculture, 1400 Independence Avenue SW, Washington, DC 20250, telephone: 615-490-1371; or email: <E T="03">Abby.Boggs@usda.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Statutory Authority</HD> The Direct-MFH Loan and Grant program is authorized under sections 514, 515, 516 of title V of the Housing Act of 1949, as amended; 42 U.S.C. 1471 <E T="03">et seq.;</E> and implemented under 7 CFR part 3560. Section 510(k) of title V the Housing Act of 1949 (42 U.S.C. 1480(k)), as amended, authorizes the Secretary of Agriculture to promulgate rules and regulations as deemed necessary to carry out the purpose of that title. <HD SOURCE="HD1">I. Background</HD> The RHS, an agency of the USDA, offers a variety of programs to build or improve housing and essential community facilities in rural areas. RHS offers loans, grants, and loan guarantees for Single- and Multifamily housing, childcare centers, fire and police stations, hospitals, libraries, nursing homes, schools, first responder vehicles and equipment, and housing for farm laborers. RHS also provides technical assistance loans and grants in partnership with non-profit organizations, Indian Tribes, State and Federal Government agencies, and local communities. Title V of the Housing Act of 1949 (Act) authorized the USDA to make housing loans to farmers to enable them to provide habitable dwellings for themselves or their tenants, lessees, sharecroppers, and laborers. The USDA then expanded opportunities in rural areas, making housing loans and grants to rural residents through the Single-Family Housing (SFH) and Multifamily Housing (MFH) Programs. The RHS operates the Direct MFH Loan and Grant Programs. The direct loan program provides loans to eligible borrowers unable to get financing through traditional lenders. Multifamily direct loans feature terms and conditions that support the development or preservation of affordable rural rental housing for low-income, elderly, or disabled people. Loan funds can be used for all construction hard costs and land-related costs, including land acquisition and development. <HD SOURCE="HD1">II. Discussion of Final Rule</HD> The RHS published a proposed rule in the <E T="04">Federal Register</E> on March 29, 2024 [89 FR 22094], to change the process by which credit reports are obtained to determine credit worthiness, eligibility, and feasibility for applicants and borrowers for MFH funding, transfers, and servicing actions. A 60-day comment period was provided for the proposed rule, which closed on May 28, 2024. The Agency received comments from two (2) respondents. Neither comment is applicable to the specific contents of the proposed rule. Of the comments received, one respondent manages a USDA-RD property and provided concerns for tenants providing their own credit report to live in the complex, which is not what this rule will allow, and one respondent's comment was made anonymously about leasing and selling public land to the government, which is not applicable to the subject matter of this rule. No changes were made in this final rule as a result of public comments. RHS regulation 7 CFR 3560.56(d)(5) provides that for initial loan applications, eligibility and feasibility of a housing proposal will be determined based on, amongst other requirements, an analysis of current credit reports. Currently, the agency collects a credit report fee from applicants during the application process and agency staff obtains the required credit report through a contract with a credit reporting agency. RHS has relied on various internal guidance documents to staff to provide information on this credit report process. By not having the credit report process clearly codified, the Agency makes the process unnecessarily complicated for the applicant and Agency staff. When the Multifamily Housing Program realigned all staff members to the National Office level, applicants were required to submit the credit report fee electronically to the Agency's Business Center Servicing Office using a payment link. The process for creating the payment link is cumbersome. Agency staff must determine and notify the applicant of the credit report fee applicable for the applicant's particular request. Agency staff will request the Servicing Office to create a staged payment link for the fee through a SharePoint portal. Once the payment link is created, the Servicing Office notifies the requesting Agency staff and provides the payment link. Agency staff, in turn, notifies the applicant of the payment link and the applicant must process the payment before the link expires in 30 days. After the applicant's payment processes successfully, the Agency orders the credit report from a contracted bureau. This final rule will amend 7 CFR part 3560 to require that in lieu of applicants and borrowers submitting credit report fees, the Agency will require applicants and borrowers to provide the credit report(s). In accordance with 18 U.S.C. 1001, applicants that submit false, fictitious, or fraudulent materials shall be fined or imprisoned not more than 5 years. It is the Agency's expectation that this regulation update for obtaining credit reports will align the Agency with current industry practices and create an efficiency for applicants and borrowers by streamlining the application process. <HD SOURCE="HD1">III. Summary of Changes</HD> The Agency will make the following revisions as published in the proposed rule. No changes were made in this final rule as a result of public comments. (1) Add the definition of <E T="03">Current Comprehensive Credit Report</E> to 7 CFR 3560.11. (2) Update 7 CFR 3560.56(d)(5) to include the requirements of a valid credit report which must address both the entity and the actual individual principals, partners, members, etc., within the applicant entity, including any sub-entities who are responsible for controlling the ownership and operations of the entity. (3) Update 7 CFR 3560.405 to include the requirement for a credit report in cases of change to the borrower's organization structure or entity's controlling interest. (4) Update 7 CFR 3560.406 to include the requirement for a credit report for approval of transfers and sales. (5) Establish a new subpart R within 7 CFR part 3560 to provide detailed requirements of the credit reporting process. In addition, this final rule will include conforming changes to rescind 7 CFR part 1910, subparts B and C, and 7 CFR 1955.118, which are outdated. <HD SOURCE="HD1">IV. Regulatory Information</HD> <HD SOURCE="HD2">Executive Order 12372, Intergovernmental Review of Federal Programs</HD> These loans and grants are subject to the provisions of Executive Order 12372, which requires intergovernmental consultation with State and local officials to foster the intergovernmental partnership and strengthen federalism by relying on State and local processes for the coordination and review of proposed Federal financial assistance and direct Federal development. Applicants for the Direct Multifamily Housing Loan and Grant program are required to contact their State's Single Point of Contact (SPOC) to submit their Statement of Activities and find out more information on how to comply with the State's process under Executive Order 12372. To locate a SPOC for your State, the Office of Management and Budget (OMB) has an official SPOC list on its website <E T="03">https://www.whitehouse.gov/omb/office-federal-financial-management/spoc-list/.</E> For those States that have a home page for their designated SPCO, a direct link has been provided by clicking on the State name. SPOC information is also available in any RD Agency office or on the RD Agency's website. States that are not listed on the OMB website have chosen not to participate in the intergovernmental review process, and therefore, do not have a SPOC. If you are located within a State that does not have a SPOC, you may send application materials directly to the Federal RD awarding agency. RHS conducts intergovernmental consultations for each loan in accordance with 2 CFR part 415, subpart C. <HD SOURCE="HD2">Executive Order 12866, Regulatory Planning and Review</HD> This final rule has been determined to be not significant and, therefore, was not reviewed by the Office of Management and Budget (OMB) under Executive Order 12866. <HD SOURCE="HD2">Executive Order 12988, Civil Justice Reform</HD> This final rule has been reviewed under Executive Order 12988. In accordance with this rulemaking: (1) unless otherwise specifically provided, all State and local laws that conflict with this rulemaking will be preempted; (2) no retroactive effect will be given to this rulemaking except as specifically prescribed in the rule; and (3) administrative ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 27k characters. 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