USDA Notice on Housing Loan Program Pilot Test Environment

Content

ACTION:

Notice.

SUMMARY:

The Rural Housing Service (RHS), a division of the Rural Development Agency within the United States Department of Agriculture
(USDA), is implementing the Lender Interactive Test Environment (LITE) Delegated Authority Pilot Program for the Section 502
Single Family Housing Guaranteed Loan Program (SFHGLP). The purpose of this pilot program is to test a change in the SFHGLP
loan approval process by replacing the Agency's pre-closing loan approval requirement with the delegation of loan approval
authority to eligible lenders, consistent with the Delegated Authority final rule (
Federal Register
Docket Number RHS-21-SFH-0017). This pilot program is authorized under 42 U.S.C. 1476(b). This notice provides detailed information
about the pilot program, including eligibility criteria, application process, operational procedures, monitoring, and oversight
mechanisms.

DATES:

The effective date of the pilot program is September 1, 2026. The pilot program will continue for two years, ending September
28, 2028.

FOR FURTHER INFORMATION CONTACT:

Sara Thieleke, Deputy Director, Policy, Analysis, and Communications Branch, Single Family Housing Guaranteed Loan Division,
Rural Development, U.S. Department of Agriculture, Email: sara.thieleke@usda.gov; Phone: (314) 457-5242.

SUPPLEMENTARY INFORMATION:

Authority

Title V, Section 502 of the Housing Act of 1949, as amended; 42 U.S.C. 1472; 42 U.S.C. 1476(b).

Acronyms

CFR Code of Federal Regulations

GUS Guaranteed Underwriting System

LITE Lender Interactive Test Environment

RHS Rural Housing Service

§ Section

SFHGLP Single Family Housing Guaranteed Loan Program

USDA U.S. Department of Agriculture

Background

The Section 502 Guaranteed Loan Program, regulated by 7 CFR part 3555, offers a 90% loan note guarantee to approved lenders
to assist low- and moderate-income households in purchasing adequate, modest, safe, and sanitary dwellings as their primary
residence in eligible rural areas. The SFHGLP provides opportunities for applicants lacking sufficient resources to acquire,
build, rehabilitate, improve, or relocate a dwelling in a rural area.

To streamline the SFHGLP, the RHS has been working on incorporating a delegated authority process for eligible lenders through
a final rule (“Delegated Authority”) (
Federal Register
Docket Number RHS-21-SFH-0017). While the necessary technology advancements needed for full implementation of Delegated Authority
are in process, RHS has established the LITE Delegated Authority Pilot Program to phase in and test Delegated Authority in
a controlled environment. The pilot will permit participating LITE Delegated Lenders to approve loans and obtain Loan Note
Guarantees with limited Agency involvement. The objective of this pilot is to test the implementation of Delegated Authority
by streamlining and expediting loan approvals, similar to the efficiencies seen in the Federal Housing Administration and
the Department of Veterans Affairs programs, thereby leveraging the expertise of private-sector lenders to balance growing
demand and limited federal resources.

This notice outlines the new LITE Delegated Authority Pilot Program under the Section 502 SFHGLP.

Eligibility Requirements

Lenders interested in participating must notify the Agency at LITEPilot@usda.gov. To qualify for the pilot program, lenders must demonstrate above-average loan performance based on delinquencies, loss claims,
and default rates over the past two years when compared to the SFHGLP portfolio; have originated at least 10 SFHGLP loans
in the last 12 months; and be current on all lender certifications, fees, and loan requirements. Lenders must have a satisfactory
compliance record, with no failed Corrective Action Reviews or Reduced Sample Reviews for the past 24 months. The Agency will
review qualifications for the pilot program as lenders submit notifications. The number of lenders approved for LITE Delegated
Lender status will be contingent on the progress of the Agency's system modifications, budgetary constraints, portfolio performance,
and availability of resources required to perform lender oversight and monitoring. Selection criteria will include lender
performance metrics and the number of volunteer lenders.

Operational Procedures

Approved lenders and their agents operating under the LITE Delegated program must continue to utilize the Agency's automated
loan underwriting and closing systems for all supported loan submissions. When manual submissions are necessary due to Guaranteed
Underwriting System (GUS) limitations, lenders must follow the Manual Submission Job Aid procedures which can be located on
the USDA LINC Training and Resource Library located at https://www.rd.usda.gov/resources/usda-linc-training-resource-library/loan-origination. All aspects of loan origination, processing, closing,

  and servicing must strictly comply with published regulations and handbook guidelines. For LITE Delegated Lenders, the organization
  will perform the pre-closing loan approval process and manage post-closing issuance of the Loan Note Guarantee with minimal
  Agency oversight. These lenders have the delegated authority to approve loans either through the Agency's automated underwriting
  system, or by manually underwriting a file not supported by GUS. Processing times vary by submission type. GUS submissions
  will be completed within 2 business hours, while manual submissions will follow standard processing timeframes.

After closing, LITE Delegated Authority submissions qualify for a streamlined closing process. LITE Delegated Lenders will
use the Lender Loan Closing system to enter basic loan closing information and authorize electronic payment of the upfront
Guarantee Fee and USDA Technology Fee via the Pay.gov system. Documentation uploads are only required if specifically requested by the Agency. The Agency will issue the Loan Note
Guarantee within two business days of receipt, retrievable from the Agency's Lender Loan Closing system. The Loan Note Guarantee
is backed by the full faith and credit of the United States as per § 3555.108. Consequently, the LITE Delegated Lender is
responsible for ensuring that both the applicant and the property meet the eligibility requirements and certification for
the loan guarantee under subparts C, D, and E of 7 CFR part 3555, as well as the environmental requirements in § 3555.5.

Variance From Procedures (for LITE Delegated Lenders)

The Agency is modifying the procedures for LITE Delegated Lenders as follows:

Environmental Reviews: SFHGLP loans are generally considered categorical exclusions under 7 CFR 1b. If there is an extraordinary circumstance, the
LITE Delegated Lender must notify the Agency to decide the appropriate course of action.

Appraisal Reviews: Agency administrative appraisal reviews under § 3555.107(d)(4) are inapplicable to loans approved via LITE delegated authority.
LITE Delegated Lenders are responsible for ensuring that appraisal reports meet all requirements under § 3555.107(d).

Application Priority Processing: The requirements under § 3555.107(a) for prioritizing applications do not apply to LITE Delegated Lenders as adequate budget
authority exists.

Conflict of Interest: When a conflict of interest is disclosed by either the borrower or a Rural Development employee, as described in § 3555.8,
the LITE Delegated Lender is required to document the disclosure in the permanent loan file. However, since Delegated Lenders
will process pre-closing and post-closing activities with limited Agency assistance, reassignment of the application as described
in § 3555.8(d) is not required.

Pilot Program Evaluation and Oversight

The LITE Delegated Authority Pilot Program will be tested in a controlled environment. Any technological shortcomings encountered
during the pilot program will be addressed through a workaround process provided to participating lenders. The program's effectiveness
will be evaluated through comprehensive file reviews. Participating lenders will be required to submit fully documented, post-closing,
loan submissions for evaluation. Initially, the Agency will review the first 5 to 15 loan files submitted by participating
lenders, depending on loan volume. Additionally, 2% of files originated each month, per lender, will be reviewed utilizing
the existing compliance review process. Should any concerns regarding regulatory or statutory non-compliance be identified
during these reviews, participating lenders will be given 90 days from the date of notification by the Agency to make the
necessary corrections. Failure to address these issues within the stipulated timeframe will result in the lender's removal
from the pilot program. Furthermore, SFHGLP Senior Leadership retains the right to withdraw approval and participation in
the program for any lender found to be engaging in misconduct. If a lender violates program guidelines or fails to meet eligibility
standards, the Agency may issue cease and desist letters to halt improper actions. Additionally, all loans are subject to
future indemnification per § 3555.108(d).

The requirements for LITE Delegated Lender status include meeting the general eligibility criteria in § 3555.51, having participated
in the SFHGLP for at least two years, and maintaining above-average performance standards in delinquency, default, and loss
claim rates. Eligibility is reassessed every two years, requiring lenders to be registered in SAM, complete mandatory recertification
training, and respond within the timeframe specified in the agency notification provided to the Lender. Guarantee fees must
be paid electronically at loan closing. LITE Delegated Lenders are required to continuously maintain these standards and are
subject to regular assessments. To maintain eligibility, lenders must enter into a User Agreement to receive automated notifications
and ensure compliance with § 3555.107. The Agency reserves the right to adjust, modify, or cancel the pilot program based
on budget, performance, and integrity considerations.

In the event that modifications are made to the performance metrics for new LITE Delegated Lenders, existing LITE Delegated
Lenders will retain their status, and the Agency will provide a reasonable timeframe to meet the new performance metrics to
continue retaining LITE Delegated Lender status. Any modifications made to the performance metrics for LITE Delegated Lenders
will be publicly announced through a notice in the
Federal Register
. The Agency will conduct lender approvals at a limited pace to foster smooth implementation of the LITE Delegated Authority
Pilot Program. The rollout will be phased in to allow the Agency some control over the number of loans guaranteed by LITE
Delegated Lenders throughout the pilot program. The Agency will evaluate the performance and efficacy of the process and make
any necessary adjustments. The Agency will continue to phase in new lenders as the process is refined. The number of lenders
approved for LITE Delegated Lender status will be contingent on the progress of the Agency's systems modifications, budgetary
constraints, portfolio performance, and availability of resources required to perform lender oversight and monitoring.

The Agency has the right to suspend or terminate any lender's delegated status for reasons including, but not limited to,
approving loans that do not meet Agency loan program guidelines; providing data to the Agency's automated underwriting system
that is not supported by documentation retained by the lender; maintaining a portfolio that does not meet the established
delinquency, loss claim, and default rate performance metrics; and an inability to meet the criteria described in § 3555.51,
“Lender eligibility.” Adverse decisions made by the Agency may be appealed to the USDA National Appeals Division in accordance
with 7 CFR 3555.4.

The Agency is implementing ongoing monitoring and oversight for LITE Delegated Lenders from two perspectives: Monitoring Performance
and Lender Oversight.

Monitoring Performance: Loan-level data is collected from lenders each month through the Electronic Status

  Reporting system. This data is compiled, reviewed, and monitored by the Agency every month to determine portfolio performance
  as well as risks and trends in delinquency, default, and loss claim rates. This loan level data will be collected and analyzed
  to provide the Agency with information regarding their performance.

Lender Oversight Reviews/Examinations: The Agency's Quality Assurance and Lender Oversight Division will establish a regular process specifically for LITE Delegated
Lenders to ensure adherence to Agency loan program requirements in 7 CFR part 3555 and ongoing eligibility for the program.
This process involves reviewing and examining multiple aspects of mortgage origination and servicing, based on a representative
sample of loans, financial requirements, and portfolio performance.

Lender Oversight reviews will be conducted on lenders within the first 12 months of participation in the LITE Delegated Authority
Pilot Program. Lenders will be notified of the current process, and the oversight review will be consistent with established
procedures.

Participating lenders will be required to submit fully documented loan submissions for evaluation. Lenders must provide comprehensive
and complete documentation for each loan they originate under the program. The documentation must include all necessary information
to support the loan application and ensure it meets the program's eligibility criteria.

The Agency may request a fully documented case file at any time from the lender for review if additional loan documentation
is determined necessary for risk management. An ineligible loan may result in future indemnification and/or loss claim payment
reduction/denial.

A report will be provided, with findings and observations recorded and communicated back to the lender or servicer, along
with any suggestions for improvement. If necessary, the lender will have the opportunity to implement a Corrective Action
Plan to address any deficiencies and will receive guidance, be provided with training, and given the opportunity to improve
their performance. Recurring findings identified through the Lender Oversight process may result in additional reviews and
examinations and may adversely affect a lender's LITE Delegated Lender status.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, the information collection requirements associated with the programs,
as covered in this notice, have been approved by the Office of Management and Budget (OMB) under OMB Control Number 0575-0179.
The regulatory waivers for this pilot program contain no new reporting or recordkeeping burdens.

National Environmental Policy Act

All recipients under this notice are subject to the requirements of 7 CFR part 1b.

Federal Funding Accountability and Transparency Act

All applicants, in accordance with 2 CFR part 25, must be registered in SAM and have a UEI number as stated in Section D.3
of this notice. All recipients of Federal financial assistance are required to report information about first-tier sub-awards
and executive total compensation in accordance with 2 CFR part 170.

Civil Rights Act

All awards of Federal financial assistance made under this NOFO are subject to applicable civil rights laws, which may include
Title VI of the Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975,
Title VIII of the Civil Rights Act of 1968, Title IX of the Education Amendments Act of 1973, and the Equal Credit Opportunity
Act of 1974.

Equal Opportunity for Religious Organizations

a. Faith-based organizations may apply for this award on the same basis as any other organization, as set forth at, and subject
to the protections and requirements of, this part and any applicable constitutional and statutory requirements, including
42 U.S.C. 2000bb et seq. USDA will not, in the selection of recipients, discriminate for or against an organization on the basis of the organization's
religious character, motives, or affiliation, or lack thereof, or on the basis of conduct that would not be considered grounds
to favor or disfavor a similarly situated secular organization.

b. A faith-based organization that participates in this program will retain its independence from the Government and may continue
to carry out its mission consistent with religious freedom and conscience protections in Federal law. Religious accommodations
may also be sought under many of these religious freedom and conscience protection laws.

c. A faith-based organization may not use direct Federal financial assistance from USDA to support or engage in any explicitly
religious activities except when consistent with the Establishment Clause of the First Amendment and any other applicable
requirements. An organization receiving Federal financial assistance also may not, in providing services funded by USDA, or
in their outreach activities related to such services, discriminate against a program beneficiary or prospective program beneficiary
on the basis of religion, a religious belief, a refusal to hold a religious belief, or a refusal to attend or participate
in a religious practice.

Non-Discrimination Statement

In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) civil rights regulations and policies,
the USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited
from discriminating based on race, color, national origin, religion, sex, disability, age, marital status, family/parental
status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights
activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint
filing deadlines vary by program or incident.

Persons with disabilities who require alternative means of communication for program information (e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the State or local Agency that administers the
program or contact USDA through the Telecommunications Relay Service at 711 (voice and TTY). Additionally, program information
may be made available in languages other than English.

To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD-3027, found online
at https://www.usda.gov/about-usda/general-information/staff-offices/office-assistant-secretary-civil-rights/how-file-pro ram-discrimination-complaint and at any USDA office or write a letter addressed to USDA and provide in the letter all of the information requested in the
form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or letter to USDA by:

(1) Mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, Washington,
DC 20250-9410; or

(2) Fax: (833) 256-1665 or (202) 690-7442; or

(3) Email: Program.Intake@usda.gov.

USDA is an equal opportunity provider, employer, and lender.

George Kelly, Administrator, Rural Housing Service. [FR Doc. 2026-05394 Filed 3-18-26; 8:45 am] BILLING CODE 3410-XV-P

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