[Federal Register Volume 60, Number 221 (Thursday, November 16, 1995)]
[Rules and Regulations]
[Pages 57676-57679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28306]
[[Page 57675]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner
_______________________________________________________________________
24 CFR Part 203
Single Family Mortgage Insurance--Special Forbearance Procedures; Final
Rule
Federal Register / Vol. 60, No. 221 / Thursday, November 16, 1995 /
Rules and Regulations
[[Page 57676]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner
24 CFR Part 203
[Docket No. FR-3626-F-02]
RIN 2502-AG20
Single Family Mortgage Insurance--Special Forbearance Procedures
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This final rule permits the mortgagee and the mortgagor to
enter into a special forbearance agreement without obtaining the prior
approval of HUD requiring the payment of the arrearage before maturity
of the mortgage. It also eliminates the present gap in reimbursement of
debenture interest that occurs if the mortgagor files a petition in
bankruptcy after entering into a special forbearance agreement. The
purpose of this change is to encourage mortgagees to make greater use
of special forbearance procedures when the mortgagor is temporarily
unable to make full regular mortgage payments. When special forbearance
agreements are utilized, but subsequently fail, mortgagees are entitled
to collect all unpaid interest on their claim, from the oldest unpaid
installment to foreclosure initiation. Generally this provides for
inclusion of at least two additional months of interest on the
insurance claim reimbursement.
EFFECTIVE DATE: This final rule is effective on December 18, 1995.
FOR FURTHER INFORMATION CONTACT: Joseph McCloskey, Director, Single
Family Servicing Division, Room 9178, Department of Housing and Urban
Development, 451 Seventh Street, SW., Washington, DC 20410, (202) 708-
1672, or, for hearing and speech impaired, (202) 708-4594. (These are
not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This rule revises current HUD regulations governing forbearance
procedures in the context of the servicing of FHA insured single-family
home mortgage loans. HUD currently has two special forbearance
procedures. Under 24 CFR 203.614(a), the mortgagee must obtain prior
approval from HUD for the special forbearance agreement to be valid. A
special forbearance agreement with HUD approval may require increased
payments prior to mortgage maturity. Under 24 CFR 203.614(b), the
mortgagee may reduce or suspend the mortgagor's required payments
during the forbearance period without HUD approval, but may not
increase payments to recover arrearage until after mortgage maturity.
This rule adds a new paragraph (c) to Sec. 203.614, which will permit
the mortgagee to reduce the required payments to an amount not less
than 50% of the regular mortgage payments for a forbearance period of
up to nine (9) months. On expiration of the forbearance period, but no
sooner than four (4) months after the execution of the agreement, the
mortgagee may, without HUD approval, increase the required payments to
not more than one and one-half (1\1/2\) times the regular payment
amount until all arrearages are repaid.
Limitations
The new procedure contains several limitations to keep arrearages
from accumulating to an amount that the mortgagor cannot reasonably be
expected to repay before loan maturity. These limitations include:
The agreement must be executed not later than the due date
of the seventh unpaid monthly installment;
The monthly payments may be reduced but not suspended;
The period of reduced payments may not exceed nine (9)
months;
The increase in payments may not be required earlier than
four (4) months after execution of the agreement;
The first payment may be any amount mutually agreed upon
by the mortgagor and mortgagee, and must be due within 30 days of
execution of the agreement; and
The agreement is not considered a valid special
forbearance agreement until the first required payment under the terms
of the agreement is made.
If greater forbearance relief is needed, the mortgagee can utilize
the existing forbearance procedures, or can provide a less restrictive
work out plan under which the mortgagee may not be entitled to the
payment of additional note interest on that portion of the claim
covered by the special forbearance.
Conditions for New Procedures
The conditions for granting the new form of special forbearance
relief are as follows:
(1) As under the existing regulations, the mortgagor must establish
to the satisfaction of the mortgagee that the mortgagor does not own
other property subject to an FHA-insured mortgage and that the default
was caused by circumstances beyond the control of the mortgagor.
(2) During the forbearance period, the forbearance agreement must
provide for payment of not less than 50 percent of the regular mortgage
payments, nor more than the regular mortgage payments. The Secretary,
by administrative instruction, may permit a different required minimum
percentage, but in no event will it be more than 100 percent of the
regular mortgage payment.
(3) The period of reduced payments may not exceed nine (9) monthly
payments after execution of the forbearance agreement.
(4) The agreement must provide for an increase in payments, in
order to recover arrearage accruing prior to and during the forbearance
period. The increase in the payments is to begin no earlier than four
(4) months after execution of the agreement.
(5) The increased payments may not exceed one and one-half (1\1/2\)
times the regular mortgage installments.
(6) The agreement must provide for resumption of the regular
mortgage payments after the total amount of arrearage is repaid.
(7) The agreement must be executed no later than the due date of
the seventh full unpaid monthly payment.
(8) The agreement must require that the first payment is due within
30 days of the execution of the agreement.
(9) The agreement is not a valid special forbearance agreement
until the first required payment under the terms of the agreement is
made.
Other Changes
Current regulations have the effect that if State law, bankruptcy,
or assignment considerations preclude a mortgagee from initiating
foreclosure within 90 days after the mortgagor fails to meet the
requirements of a special forbearance agreement, then neither mortgage
nor debenture interest is paid on the insurance claim for the period
from 90 days after the date of the mortgagor's failure to meet the
requirements of a special forbearance agreement until the date
foreclosure is initiated (Secs. 203.402a and 203.410(a)(3)). This rule
eliminates this lapse in interest payments by revising
Sec. 203.410(a)(3) to provide that debenture interest payments begin
the day after the date to which mortgage interest is computed.
In addition, current regulations do not specifically identify
mortgage assignment consideration as a possible reason for delaying
foreclosure
[[Page 57677]]
initiation; this rule has been expanded to do so.
Section 203.355 has been amended to add paragraph (h), which
requires that, if the mortgagor fails to meet the requirements of a
special forbearance agreement and the failure continues for a period of
60 days, the mortgagee must initiate foreclosure within the later of
nine (9) months after the date of default, or 90 days following the
mortgagor's failure to meet the special forbearance requirements.
Finally, the rule makes a conforming revision to Sec. 203.355(c).
This section currently requires mortgagees to commence foreclosure
within 60 days after the expiration of any prohibition on foreclosure
that is found in State law or Federal bankruptcy law when such
prohibition did not permit commencement of foreclosure within
prescribed time requirements. The rule also applies this 60-day
requirement when such prohibitions do not permit the commencement of
foreclosure after the mortgagor's failure to meet the requirements of a
special forbearance agreement.
Public Comments
The Department published a proposed rule on January 23, 1995 at 60
FR 4391.
Six commenters responded to the proposed rule: one association,
three mortgage lenders, one consultant and one provider of legal
services. Three of the six generally supported the rule, but
recommended certain changes. Another commenter fully agreed with the
rule as proposed. Two of the comments took issue with the need for any
amendment to the rule, indicating that the existing regulation already
authorized some of the proposed rule's features. The Department is
persuaded by those comments indicating that the proposed rule may have
been too restrictive to encourage widespread use. Consequently, the
final rule contains several revisions.
Below is a listing of the comments received and the Department's
responses.
1. Two commenters indicated that any ``reasonable'' arrangement
that would be acceptable to the mortgagee should qualify as a special
forbearance, and the test of whether the agreement was ``reasonable''
should rest with a subsequent review of the file. HUD acknowledges that
a mortgagee should and does have the flexibility to enter into any
reasonable arrangement that is acceptable to that mortgagee to cure a
default. However, with respect to such arrangement qualifying as a
``special forbearance'' agreement entitling the mortgagee to
significant additional amounts on a claim payment, HUD has a
responsibility to place such restrictions as are deemed appropriate to
safeguard against the possibility of overpayments from the Insurance
Funds. With regard to evaluating the appropriateness of the agreement
through a post-claim review of the file, the rule is specifically
intended to avoid this. If all the requirements of this new special
forbearance rule are met, HUD does not intend to second-guess the
mortgagee's decision after the fact.
2. One commenter indicated that the criterion requiring payments
under the agreement to be not less than 50% had no intrinsic value and
therefore should be modified. As the rule specifically provides for the
ability of the Commissioner to adjust this criterion at any time
through administrative instruction, HUD does not agree that this
criterion should be removed. After the Department has had some
practical experience with this regulation, a decision will be made as
to whether an adjustment to the minimum acceptable payment is
advisable.
3. One commenter indicated that requiring the execution of the
agreement within four (4) months of delinquency may prove to be too
restrictive and therefore counterproductive. The Department is
persuaded by this argument and this criterion has been liberalized in
the final rule. Agreements which are executed by the due date of the
seventh unpaid monthly installment will meet the criteria for a valid
special forbearance agreement.
4. One commenter indicated that the period during which reduced
payments are allowed was too short and did not provide the mortgagee
with sufficient flexibility. The Department is persuaded by this
comment and has revised the final rule to extend the allowable period
of reduced payments from six (6) to nine (9) months.
5. Several commenters indicated in general comments that the final
rule could be made more useful if the eligibility criteria were revised
to be less restrictive. As indicated above, the Department is persuaded
by this general observation as evidenced by language contained in the
final rule that eases some of the criteria contained in the proposed
rule.
The following is a summary of the revisions contained in the final
rule.
(1) The period within which an agreement may be entered has been
extended from four (4) months to the due date of the seventh full
unpaid installment.
(2) The period the mortgagee may provide forbearance has been
extended from six (6) months to nine (9) months.
(3) The period of time the mortgagee must wait after executing the
agreement before it can require increased payments has been reduced
from six (6) months to four (4) months.
(4) The agreement can allow up to 30 days after execution before
the initial payment is required, rather than requiring payment to be
made at the time the agreement is executed.
6. Two of the commenters disagreed with the need for this rule,
indicating that the existing regulation already enables mortgagees to
increase payments under special forbearance agreements without HUD
approval. In addition, both of these commenters indicated that the
proposed rule would adversely affect the interest of mortgagees with
respect to mortgages already insured or approved for insurance, and
therefore should be prospective only, under the provisions of
Sec. 203.499. HUD has made a determination that the current regulation
does not authorize the mortgagee to increase payments under a special
forbearance agreement prior to the maturity date without HUD approval.
HUD, therefore, disagrees that this rulemaking is unnecessary, and HUD
maintains its position that this change is necessary to enable the
mortgagee to increase payments under an agreement that qualifies as a
``special forbearance'' agreement, prior to the loan maturity date. HUD
disagrees with the assertion that this rule would have a negative
impact on loans already insured. The use of this additional special
forbearance provision is completely elective on the part of the
mortgagee; furthermore, HUD sees no adverse effect on loans currently
insured. To the contrary, HUD believes this additional special
forbearance provision provides a significant benefit to the mortgagee.
Therefore, it is HUD's position that the prospectivity requirement of
Sec. 203.499 is not applicable to this rule.
Other Matters
Environmental Impact
In accordance with 40 CFR 1508.4 of the regulations of the Council
on Environmental Quality and 24 CFR 50.20 (a) and (l) of the HUD
regulations, the policies and procedures contained in this rule relate
only to loan terms and individual actions involving single-family
housing and, therefore, are categorically excluded from the
requirements of the National Environmental Policy Act.
[[Page 57678]]
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule would 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 rule is not subject to review under the Order. Specifically, the
requirements of this rule are directed to lenders and do not impinge
upon the relationship between the Federal government and State and
local governments.
Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
order 12606, The Family, has determined that this rule would not have
potential for significant impact on family formation, maintenance, and
general well-being, and, thus, is not subject to review under the
Order. No significant change in existing HUD policies or programs would
result from promulgation of this rule, as those policies and programs
relate to family concerns.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so
doing certifies that this rule would not have a significant economic
impact on a substantial number of small entities. The rule would
permit, but would not require, use of a special forbearance procedure
by mortgagees. In addition, the number of cases to which the procedure
would apply is limited.
Catalog of Federal Domestic Assistance.
The Catalog of Federal Domestic Assistance program number is
14.117.
List of Subjects in 24 CFR Part 203
Hawaiian Natives, Home improvement, Loan programs--housing and
community development, Mortgage insurance, Reporting and record keeping
requirements, Solar energy.
Accordingly, part 203 of title 24 of the Code of Federal
Regulations is amended as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority citation for part 203 continues to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b and 1715u; 42 U.S.C.
3535(d).
2. In Sec. 203.355, the introductory text of paragraph (a) and
paragraph (c) are revised and new paragraph (h) is added, to read as
follows:
Sec. 203.355 Acquisition of property.
(a) In general. Except as provided in paragraphs (b) through (h) of
this section, upon default of a mortgage the mortgagee shall take one
of the following actions. Such action shall be taken within nine (9)
months from the date of default, or within any additional time approved
by the Secretary or authorized by Secs. 203.345, 203.346, or
Secs. 203.650 through 203.660:
* * * * *
(c) Prohibiting of foreclosure within time limits. If assignment
consideration under Secs. 203.650 through 203.660, the laws of the
State in which the mortgaged property is located, or Federal bankruptcy
law:
(1) Do not permit the commencement of foreclosure within the time
limits described in paragraphs (a), (b), (g), and (h) of this section,
the mortgagee must commence foreclosure within 60 days after the
expiration of the time during which foreclosure is prohibited; or
(2) Require the prosecution of a foreclosure to be discontinued,
the mortgagee must recommence the foreclosure within 60 days after the
expiration of the time during which foreclosure is prohibited.
* * * * *
(h) Special Forbearance. If the mortgagor fails to meet the
requirements of a special forbearance under Sec. 203.614 and the
failure continues for 60 days, the mortgagee must commence foreclosure
within the later of nine (9) months after the date of default or 90
days after the mortgagor's failure to meet the special forbearance
requirements.
3. Section 203.402a is revised to read as follows:
Sec. 203.402a Reimbursement for uncollected interest.
The mortgagee shall be entitled to receive an allowance in the
insurance settlement for unpaid mortgage interest if the mortgagor
fails to meet the requirements of a forbearance agreement entered into
pursuant to Sec. 203.614 and this failure continues for a period of 60
days. The interest allowance shall be computed to:
(a) The earliest of the applicable following dates, except as
provided in paragraph (b) of this section:
(1) The date of the initiation of foreclosure;
(2) The date of the acquisition of the property by the mortgagee by
means other than foreclosure;
(3) The date the property was acquired by the Commissioner under a
direct conveyance from the mortgagor;
(4) Ninety days following the date the mortgagor fails to meet the
requirements of the forbearance agreement, or such other date as the
Commissioner may approve in writing prior to the expiration of the 90-
day period; or
(5) The date the mortgagee sends the mortgagor notice of
eligibility to participate in the Pre-Foreclosure Sale procedure; or
(b) The date foreclosure is initiated or a deed in lieu is
obtained, or the date such actions were required by Sec. 203.355(c),
whichever is earlier, if the commencement of foreclosure within the
time limits described in Sec. 203.355(a), (b), (g), or (h) is precluded
by:
(1) Assignment consideration under Secs. 203.650-203.660;
(2) The laws of the State in which the mortgaged property is
located; or
(3) Federal bankruptcy law.
4. In Sec. 203.410, the heading of paragraph (a) is revised and
paragraph (a)(3) is revised to read as follows:
Sec. 203.410 Issue date of debentures.
(a) Conveyed properties, claims without conveyance, pre-foreclosure
sales--* * *
(3) As of the day after the date to which mortgage interest is
computed as specified in Sec. 203.402a, if the insurance settlement
includes an allowance for uncollected interest in connection with a
special forbearance.
* * * * *
5. In Sec. 203.614, a new paragraph (c) is added, to read as
follows:
Sec. 203.614 Conditions of special forbearance.
* * * * *
(c) The mortgagee may grant special forbearance relief providing
for increased mortgage payments without the approval of the Secretary,
subject to the following conditions:
(1) The conditions of paragraph (b)(1) of this section are met;
(2) The agreement is executed not later than the due date of the
seventh full unpaid monthly payment;
(3) Within 30 days after the date of the execution of the
agreement, the mortgagor must pay an amount agreed upon by the
mortgagor and the mortgagee, but not less than the first monthly
installment due under the agreement;
(4) The agreement is not valid until the full initial payment is
made under the terms of the agreement.
[[Page 57679]]
(5) The written special forbearance agreement shall:
(i) Provide for the payment for a period not to exceed nine (9)
months after execution of the agreement, of:
(A) Not less than 50 percent of the regular mortgage payments, but
not more than the regular mortgage payment; or
(B) Such other percentage as the Secretary, by administrative
instruction, may determine, but in no event more than the regular
mortgage payment;
(ii) Provide for an increase of payments to not more than one and
one-half (1\1/2\) times the regular mortgage payments, commencing no
sooner than four (4) months after execution of the agreement; and
(iii) Provide for resumption of the regular mortgage payments after
the total unpaid amount accruing prior to and during the forbearance
period is repaid.
Dated: November 8, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-28306 Filed 11-15-95; 8:45 am]
BILLING CODE 4210-27-P
