[Federal Register Volume 61, Number 229 (Tuesday, November 26, 1996)]
[Rules and Regulations]
[Pages 60158-60163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29925]
[[Page 60157]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 200, et al.
Streamlining the Single Family Components of the Single Family-
Multifamily Regulations; Final Rule
Federal Register / Vol. 61, No. 229 / Tuesday, November 26, 1996 /
Rules and Regulations
[[Page 60158]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 200, 213, 220, 221, 233, and 234
[Docket No. FR-4112-F-01]
RIN 2502-AG80
Streamlining the Single Family Components of the Single Family-
Multifamily Regulations
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This final rule amends primarily the single family components
of HUD's regulations for certain FHA single family and multifamily
housing mortgage insurance programs. In an effort to comply with the
President's regulatory reform initiatives, this rule streamlines these
regulations by eliminating regulatory provisions that are redundant,
obsolete, or otherwise unnecessary.
EFFECTIVE DATE: December 26, 1996.
FOR FURTHER INFORMATION CONTACT: Richard K. Manuel, Director of the
Home Mortgage Insurance Division, Department of Housing and Urban
Development, Room 9272, 451 Seventh Street, SW, Washington, DC 20410,
telephone number (202) 708-2700 (this is not a toll-free number). A
telecommunications device for hearing- and speech-impaired persons
(TTY) is available at (800) 877-8339 (Federal Information Relay
Service).
SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a
memorandum to all Federal departments and agencies regarding regulatory
reinvention. In response to this memorandum, HUD conducted a page-by-
page review of its regulations to determine which could be eliminated,
consolidated, or otherwise improved. HUD determined that the
regulations for certain Federal Housing Administration (FHA) programs
could be improved and streamlined by eliminating obsolete and
unnecessary provisions, and by consolidating provisions that were
repeated throughout several sets of regulations. Therefore, on April 1,
1996 (61 FR 14396), HUD published a final rule streamlining the
regulations for certain FHA single family housing, multifamily housing,
and health care facility mortgage insurance programs. Today's final
rule will continue HUD's efforts to streamline its FHA regulations by
amending the single family components of parts 220, 221, and 234 to
eliminate regulatory provisions that are redundant, obsolete, or
otherwise unnecessary. Today's final rule will also remove the single
family components of the obsolete program in part 213, and both the
single family and the multifamily components of the regulations for the
obsolete program in part 233. This final rule will thereby eliminate
approximately 44 pages of unnecessary regulations.
I. Single Family Streamlining
A. Part 220
The Mortgage Insurance and Insured Improvement Loans for Urban
Renewal and Concentrated Development Areas Program (part 220) is
relatively inactive; there were few new loans insured in FY 1996, and
HUD does not anticipate that this volume will increase. The April 1,
1996 final rule (61 FR 14396) streamlined the multifamily components of
the regulations in part 220. Today's final rule will similarly
streamline the single family components of these regulations by
removing the eligibility provisions in subpart A. HUD has determined
that it is unnecessary to retain these requirements because the
statute, supplemented by the contract of insurance and HUD handbooks,
will be sufficient. HUD is, however, retaining the provisions in these
regulations regarding contract rights and obligations, because they are
necessary for the continued administration of the outstanding loans
insured under the program.
B. Part 221
Several single family provisions of HUD's regulations in part 221
for the Low Cost and Moderate Income Mortgage Insurance Program are
duplicative or obsolete. Specifically, this final rule streamlines
these provisions by correcting Sec. 221.1(a), which contains a general
cross-reference to the single family mortgage insurance regulations in
part 203, along with a list of the exceptional sections in part 203
that do not apply to mortgages insured under section 221 of the
National Housing Act (12 U.S.C. 1715l) (the Act). Although Sec. 203.17
(Mortgage provisions) appears on this list of exceptions, the
requirements of Sec. 203.17 actually do apply to mortgages insured
under section 221 of the Act, and in fact there are provisions within
part 221 that duplicate those requirements. Therefore, this final rule
removes Sec. 203.17 from the list of exceptions in Sec. 221.1, and it
also removes those provisions that duplicate the requirements in
Sec. 203.17. This rule also removes Sec. 203.46, which no longer
exists, from the list of exceptions in Sec. 221.1. This rule removes
Secs. 221.60 and 221.65, which are obsolete due to the inactivity of
the mortgage insurance programs under sections 221(h) and 221(i) of the
Act to which they apply. This rule also removes several other
provisions that are duplicative either of part 203 or of the statute,
or that are obsolete.
C. Part 234
Several provisions in HUD's regulations for the Condominium
Ownership Mortgage Insurance Program in part 234 repeat the general
single family mortgage insurance regulations in part 203. Therefore,
this final rule will amend subpart A of part 234, which contains the
eligibility requirements, to provide a general cross-reference to the
similar eligibility requirements in subpart A of part 203. Subpart A of
part 234 will retain those eligibility provisions that are unique to
the Condominium Ownership Mortgage Insurance Program.
II. Obsolete Programs
A. Part 213
There was no new loan activity in fiscal year (FY) 1996 in the
single family component of HUD's Cooperative Housing Mortgage Insurance
Program in part 213. HUD has determined that, due to the changes in the
housing market and other factors, the single family component of this
program is obsolete. Therefore, this final rule will remove the single
family regulations in part 213 (subparts C, D, and E). A ``savings
clause'' will be maintained in part 213 providing that the single
family regulations in effect immediately before December 26, 1996 will
continue to apply to any existing mortgages.
B. Part 233
HUD's regulations for the Experimental Housing Mortgage Insurance
Program in part 233 are also obsolete. This program has been inactive
for approximately 15 years. In accordance with the President's National
Homeownership Strategy (May 1995), HUD will consider whether the
program would effectively promote technological advances in
homebuilding products. If HUD decides to expand and promote the
program, it will develop new and more appropriate regulations at that
time. Therefore, this final rule will remove the substance of the
regulations in part 233, including both the single family and the
multifamily components. A ``savings clause'' will be maintained in part
200, subpart W (Sec. 200.1302), providing that the regulations in
effect immediately before December 26, 1996
[[Page 60159]]
will continue to apply to any existing mortgages.
III. Clarifications and Corrections
HUD is taking the opportunity in this final rule to clarify or
correct certain provisions in its FHA regulations. First, this rule
corrects a provision of the April 1, 1996 final rule (61 FR 14396). In
an earlier final rule published in the Federal Register on September
11, 1995, HUD established a new Sec. 200.1301 to contain the savings
clauses for several expiring FHA programs. In the April 1, 1996 final
rule, HUD intended to add a list of additional expiring programs to a
new Sec. 200.1302. Due to an error, however, rather than adding a new
Sec. 200.1302, the April 1, 1996 rule inadvertently revised
Sec. 200.1301, supplanting the list of programs initially issued in
Sec. 200.1301 on September 11, 1995. To correct this error, the Federal
Register published a correction document on October 17, 1996 (61 FR
54267), which effectively reestablished Sec. 200.1301 as it appeared in
the September 11, 1995 rule, and added a new Sec. 200.1302 as HUD
intended in the April 1, 1996 rule.
While that error in the April 1, 1996 final rule has been
corrected, today's final rule will correct another error. In the
preamble to the April 1, 1996 rule, on page 14397, toward the bottom of
the first column, HUD states that ``Part 222 which pertains to
Servicepersons Mortgage Insurance Program is an expired program. No
more mortgages are insured under this program. The part will be removed
and a savings clause will be retained.'' HUD inadvertently omitted part
222 from the savings clause for additional expiring programs (see 61 FR
14404-05). Therefore, this final rule will correct the provision for
additional expiring programs in Sec. 200.1302 to include part 222.
Second, this rule clarifies a new provision in Sec. 234.26
regarding requirements for the insurance of mortgages on individual
units in condominium projects that have not received FHA approval in
advance. On May 29, 1996 (61 FR 26962), HUD published a final rule in
the Federal Register that added paragraph (i) to Sec. 234.26 to permit
such ``spot loans'' if the project meets certain criteria. In
Sec. 234.26(i)(1)(vi), HUD requires that for projects with fewer than
30 units, no more than 20 percent of the units in the project may be
encumbered by FHA-insured mortgages. This final rule clarifies that for
projects with four units (20 percent of which would be less than one
whole unit), only one unit may be encumbered by an FHA-insured
mortgage.
IV. Justification for Final Rulemaking
HUD generally publishes a rule for public comment before issuing a
rule for effect, in accordance with its own regulations on rulemaking
in 24 CFR part 10. However, part 10 provides for exceptions to the
general rule if the agency finds good cause to omit advance notice and
public participation. The good cause requirement is satisfied when
prior public procedure is ``impracticable, unnecessary, or contrary to
the public interest'' (24 CFR 10.1). HUD finds that good cause exists
to publish this rule for effect without first soliciting public
comment. This rule merely removes obsolete and unnecessary regulatory
provisions, and consolidates repetitive requirements; it does not
establish or affect substantive policy. Therefore, prior public comment
is unnecessary.
Findings and Certifications
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this final rule, and in so
doing certifies that this rule will not have a significant economic
impact on a substantial number of small entities. This rule merely
streamlines regulations by removing unnecessary provisions. The rule
will have no adverse or disproportionate economic impact on small
businesses.
Environmental Impact
This streamlining final rule will not have an environmental impact.
When HUD was developing its final rule published on April 1, 1996 (61
FR 14396) that streamlined the regulations for certain FHA single
family housing, multifamily housing, and health care facility mortgage
insurance programs, a Finding of No Significant Impact with respect to
the environment was made in accordance with HUD regulations at 24 CFR
part 50, which implements section 102(2)(C) of the National
Environmental Policy Act of 1969 (NEPA). That Finding applies to
today's final rule, which continues HUD's streamlining efforts by
primarily amending the single family components of those regulations.
The Finding is available for public inspection between 7:30 a.m. and
5:30 p.m. weekdays in the Office of the Rules Docket Clerk, Office of
the General Counsel, Department of Housing and Urban Development, Room
10276, 451 Seventh Street, SW, Washington, DC 20410.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this 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. No programmatic or policy changes
will result from this rule that would affect 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 will not have
the potential for significant impact on family formation, maintenance,
or general well-being, and thus is not subject to review under the
Order. No significant change in existing HUD policies or programs will
result from promulgation of this rule.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal
agencies to assess the effects of their regulatory actions on State,
local, and tribal governments, and on the private sector. This rule
does not impose any Federal mandates on any State, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
List of Subjects
24 CFR Part 200
Administrative practice and procedure, Claims, Equal employment
opportunity, Fair housing, Home improvement, Housing standards,
Incorporation by reference, Lead poisoning, Loan programs--housing and
community development, Minimum property standards, Mortgage insurance,
Organization and functions (Government agencies), Penalties, Reporting
and recordkeeping requirements, Social security, Unemployment
compensation, Wages.
24 CFR Part 213
Cooperatives, Mortgage insurance, Reporting and recordkeeping
requirements.
24 CFR Part 220
Home improvement, Loan programs--housing and community development,
[[Page 60160]]
Mortgage insurance, Reporting and recordkeeping requirements, Urban
renewal.
24 CFR Part 221
Low and moderate income housing, Mortgage insurance, Reporting and
recordkeeping requirements.
24 CFR Part 233
Home improvement, Loan programs--housing and community development,
Mortgage insurance, Reporting and recordkeeping requirements.
24 CFR Part 234
Condominiums, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, chapter II of title 24 of the Code of Federal
Regulations is amended as follows:
PART 200--INTRODUCTION TO FHA PROGRAMS
1. The authority citation for 24 CFR part 200 continues to read as
follows:
Authority: 12 U.S.C. 1701-1715z-18; 42 U.S.C. 1436a and 3535(d).
2. In subpart W, section 200.1302 is revised to read as follows:
Sec. 200.1302 Additional expiring programs--savings clause.
No new loan assistance, additional participation, or new loans are
being insured under the programs listed in this section.
(a) Any existing loan assistance, ongoing participation, or insured
loans under the following programs will continue to be governed by the
regulations in effect as they existed immediately before May 1, 1996:
Part 215 Rent Supplement Payments Program
Part 222 Serviceperson's Mortgage Insurance Program
Part 237 Special Mortgage Insurance for Low and Moderate Income
Families
(b) Any existing loan assistance, ongoing participation, or insured
loans under the following program will continue to be governed by the
regulations in effect as they existed immediately before December 26,
1996:
Part 233 Experimental Housing Mortgage Insurance Program
PART 213--COOPERATIVE HOUSING MORTGAGE INSURANCE
3. The authority citation for part 213 continues to read as
follows:
Authority: 12 U.S.C. 1715b, 1715e; 42 U.S.C. 3535(d).
4. Subpart C consisting of Sec. 213.501, is revised to read as
follows:
Subpart C--Individual Properties Released From Project Mortgage;
Expiring Program
Sec. 213.501 Savings clause.
No new loans are being insured under the Cooperative Housing
Mortgage Insurance Program for individual properties released from a
project mortgage. Any existing insured loans on individual properties
released from a project mortgage under this program will continue to be
governed by the regulations on eligibility requirements, contract
rights and obligations, and servicing responsibilities in effect as
they existed immediately before December 26, 1996.
Subparts D and E--[Removed]
5. In part 213, subpart D (consisting of Secs. 213.751 and 213.752)
and subpart E (consisting of Sec. 213.800) are removed.
PART 220--MORTGAGE INSURANCE AND INSURED IMPROVEMENT LOANS FOR
URBAN RENEWAL AND CONCENTRATED DEVELOPMENT AREAS
6. The authority citation for part 220 continues to read as
follows:
Authority: 12 U.S.C. 1713, 1715b, 1715k; 42 U.S.C. 3535(d).
Subpart A--[Removed]
7. In part 220, subpart A (consisting of Secs. 220.1 through
220.249) is removed.
PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE
8. The authority citation for 24 CFR part 221 continues to read as
follows:
Authority: 12 U.S.C. 1715b, 1715l; 42 U.S.C. 3535(d). Section
221.544(a)(3) is also issued under 12 U.S.C. 1707(a).
9. Section 221.1 is amended by revising paragraph (a) to read as
follows:
Sec. 221.1 Cross-reference.
(a) All of the provisions of subpart A, part 203 of this chapter
concerning eligibility requirements of mortgages covering one- to four-
family dwellings under section 203 of the National Housing Act (12
U.S.C. 1709) apply to mortgages on dwellings insured under section 221
of the National Housing Act (12 U.S.C. 1715l), except the following
provisions:
Sec.
203.18 Maximum mortgage amount.
203.18a Solar energy system.
203.18b Increased mortgage amount.
203.19 Mortgagor's minimum investment.
203.28 Economic soundness of project.
203.42 Rental properties.
203.43h Eligibility of mortgages on Indian land insured pursuant to
section 248 of the National Housing Act.
203.43i Eligibility of mortgages on Hawaiian Home Lands insured
pursuant to section 247 of the National Housing Act.
203.43j Eligibility of mortgages on Allegany Reservation of Seneca
Nation of Indians.
203.45 Eligibility of graduated payment mortgages.
203.49 Eligibility of adjustable rate mortgages.
203.50 Eligibility of rehabilitation loans.
203.51 Applicability.
* * * * *
Secs. 221.3 and 221.5 [Removed]
10. Sections 221.3 and 221.5 are removed.
11. Section 221.20 is amended by revising paragraph (c) to read as
follows:
Sec. 221.20 Maximum mortgage amount--loan-to-value limitation.
* * * * *
(c) Definitions. As used in the section, the terms principal
residence, secondary residence, eligible non-occupant mortgagor, undue
hardship, and vacation home are defined in Sec. 203.18(f) of this
chapter.
* * * * *
Secs. 221.25, 221.30, 221.32, 221.35, and 221.45 [Removed]
12. Sections 221.25, 221.30, 221.32, 221.35, and 221.45 are
removed.
13. Section 221.50 is amended by revising paragraph (a) to read as
follows:
Sec. 221.50 Mortgagor's minimum investment.
(a) At the time the mortgage on a single-family dwelling is
insured, a mortgagor other than a mortgagor qualifying as a ``displaced
family'' (as that term is defined in section 221(f) of the Act) shall
have paid in cash or its equivalent at least 3 percent of the
Commissioner's estimate of the acquisition cost of the property.
* * * * *
Secs. 221.57, 221.60, 221.65, and 221.70 [Removed]
14. Sections 221.57, 221.60, 221.65, and 221.70 are removed.
PART 233--EXPERIMENTAL HOUSING MORTGAGE INSURANCE
15. Part 233 is removed.
PART 234--CONDOMINIUM OWNERSHIP MORTGAGE INSURANCE
16. The authority citation for 24 CFR part 234 continues to read as
follows:
Authority: 12 U.S.C. 1715b and 1715y; 42 U.S.C. 3535(d). Section
234.520(a)(2)(ii) is also issued under 12 U.S.C. 1707(a).
[[Page 60161]]
17. In part 234, subpart A is revised to read as follows:
Subpart A--Eligibility Requirements--Individually Owned Units
Sec.
234.1 Cross-reference.
234.3 Definitions.
234.17 Mortgagor and mortgagee requirements for maintaining flood
insurance coverage.
234.26 Project requirements.
234.54 Eligibility of assigned mortgages and mortgages covering
acquired property.
234.63 Location of property.
234.65 Nature of title.
234.66 Free assumability; exceptions.
Subpart A--Eligibility Requirements--Individually Owned Units
Sec. 234.1 Cross-reference.
(a) All of the provisions of subpart A of part 203 of this chapter
concerning eligibility requirements of mortgages covering one- to four-
family dwellings under section 203 of the National Housing Act (12
U.S.C. 1709) apply to mortgages on individually owned units insured
under section 234 of the National Housing Act (12 U.S.C. 1715y), except
the following provisions:
Sec.
203.12 Mortgage insurance on proposed or new construction in a new
subdivision.
203.14 Builders' warranty.
203.18a Solar energy system.
203.18c One-time or up-front mortgage insurance premium excluded
from limitations on maximum mortgage amounts.
203.38 Location of dwelling.
203.42 Rental properties.
203.43c Eligibility of mortgages involving a dwelling unit in a
cooperative housing development.
203.43d Eligibility of mortgages in certain communities.
203.43f Eligibility of mortgages covering manufactured homes.
203.43g Eligibility of mortgages in certain communities.
203.43h Eligibility of mortgages on Indian land insured pursuant to
section 248 of the National Housing Act.
203.43i Eligibility of mortgages on Hawaiian Home Lands insured
pursuant to section 247 of the National Housing Act.
203.43j Eligibility of mortgages on Allegany Reservation of Seneca
Nation of Indians.
203.50 Eligibility of rehabilitation loans.
(b) For the purposes of this subpart, all references in part 203 of
this chapter to section 203 of the Act shall be construed to refer to
section 234 of the Act.
Sec. 234.3 Definitions.
The terms Act, Beginning of amortization, Commissioner, FHA,
Insured Mortgage, Mortgage, Mortgagee, Mortgagor, and State, as used in
this part, are defined in Sec. 203.251 of this chapter. The following
terms, as used in this part, are defined as follows:
Bona fide tenants' organization means an association of tenants
formed by the tenants to promote their interests in a particular
project, with membership in the association open to each tenant, and
all requirements of the association applying equally to every tenant.
Common areas and facilities means those areas of the project and of
the property upon which it is located that are for the use and
enjoyment of the owners of family units located in the project. The
areas may include the land, roofs, main walls, elevators, staircases,
lobbies, halls, parking space and community and commercial facilities.
Conversion means the date on which all documents necessary to
create a condominium under State law (and under local law, where
applicable) have been recorded.
Family unit means a one-family unit including the undivided
interest in the common areas and facilities, and such restricted common
areas and facilities as may be designated.
Project means a structure or structures containing four or more
family units.
Project mortgage means a mortgage which is or has been insured
under any of the FHA multifamily housing programs, other than sections
213(a)(1) and 213(a)(2) of the Act (12 U.S.C. 1715e).
Restricted common areas and facilities means those areas and
facilities restricted to a particular family unit or number of family
units.
Tenant means the occupant(s) named in the lease or rental agreement
of a housing unit in a project as of the date the condominium
conversion documents are properly filed for the project, or as of the
date on which the occupants are notified by management of intent to
convert the project to a condominium, whichever is earlier.
Sec. 234.17 Mortgagor and mortgagee requirements for maintaining flood
insurance coverage.
The maintenance of flood insurance coverage on the project by the
condominium association will satisfy the requirements of Sec. 203.16a
of this chapter if such coverage protects the interest of the mortgagor
in the family unit. For this purpose, ``the interest of the mortgagor''
is defined as insurance coverage equal to the replacement cost of the
project less land costs.
Sec. 234.26 Project requirements.
No mortgage shall be eligible for insurance unless the following
requirements are met:
(a) Location of family unit. The family unit shall be located in a
project that the Commissioner determines to be acceptable.
(b) Plan of condominium ownership. The project in which the unit is
located shall have been committed to a plan of condominium ownership by
a deed, or other recorded instrument, that is acceptable to the
Commissioner.
(c) Releases. The family unit shall have been released from any
mortgage covering the project or any part of the project.
(d) Certificate by mortgagee. The mortgagee shall certify that:
(1) The deed of the family unit and the deed or other recorded
instrument committing the project to a plan of condominium ownership
comply with legal requirements of the jurisdiction.
(2) The mortgagor has good marketable title to the family unit,
subject only to a mortgage that is a valid first lien on the family
unit.
(3) The family unit is assessed and subject to assessment for taxes
pertaining only to that unit.
(e) Conditions and provisions. (1) The Commissioner may require
such conditions and provisions as the Commissioner determines are
necessary for the protection of consumers and the public interest.
(2) An application for mortgage insurance of a unit will not be
approved if approval would result in less than 80 percent of the FHA-
insured mortgages covering units in the project being occupied by
mortgagors or co-mortgagors as a principal residence or a secondary
residence (as these terms are defined in Sec. 203.18 of this chapter).
(3) In addition to the other requirements of this section, in order
for a project to be acceptable to the Secretary, at least 51 percent of
all family units (including units not covered by FHA-insured mortgages)
must be occupied by the owners as a principal residence or a secondary
residence (as these terms are defined in Sec. 203.18 of this chapter),
or must have been sold to owners who intend to meet this occupancy
requirement.
(f) Limitations on conversion of rental housing to condominium use.
With respect to a family unit in any project that was converted from
rental housing, no insurance will be provided under this section
unless:
(1) The conversion occurred more than one year before the
application for insurance; or
(2) The mortgagor or comortgagor was a tenant of a unit in the
rental housing project converted to condominium use; or
[[Page 60162]]
(3) The conversion of the property is sponsored by a bona fide
tenants' organization representing a majority of the households in the
project.
(g) Projects covered by an insured or Secretary-held mortgage. In
addition to the requirements contained in paragraphs (a) through (f) of
this section, projects which are covered by an FHA-insured project
mortgage, or by a mortgage held by the Secretary, must be in compliance
with a conversion plan approved by the Commissioner. The conversion
plan shall provide for:
(1) The termination by payment in full of the mortgage or by
voluntary termination of the insurance contract covering any HUD/FHA-
insured or Secretary-held mortgage on the project, unless the
Commissioner determines that the Commissioner's interests, and those of
the individuals purchasing the family units, are best served by not
requiring the termination of the insurance or payment in full of the
mortgage.
(2) On release of a family unit from the project mortgage, payment
shall be made on the outstanding balance of the project mortgage in an
amount equal to the share of the balance determined by HUD to be
attributable to the family unit.
(3) The project mortgagee shall certify that, notwithstanding any
provisions of the mortgage covering prepayment, no charge is
contemplated or has been collected for prepayment in full of the
project mortgage.
(h) Projects not covered by an insured or Secretary-held mortgage.
In addition to the requirements contained in paragraphs (a) through (f)
of this section, projects which are not covered by an insured project
mortgage or by a Secretary-held mortgage and which have not been
approved by the Department of Veterans Affairs for its guaranty,
insurance, or direct loan programs shall meet the requirements of this
paragraph. Except with the approval of the Commissioner for the purpose
of constructing or converting the project in phases or stages, any
special right of the declarant (as declarant and not as a unit owner)
to do any or all of the following must have expired or must have been
waived in a recorded instrument:
(1) Add land or units to the condominium;
(2) Convert common elements into additional units or limited common
elements;
(3) Withdraw land from the condominium;
(4) Use easements through the common elements for the purpose of
making improvements within the condominium or within any adjacent land;
or
(5) Convert a unit into two or more units, common elements, or into
two or more units and common elements.
(i) Notwithstanding the requirements of paragraphs (a) through (h)
of this section, a loan on a single unit in an unapproved condominium
project (spot loan) may qualify for mortgage insurance under this part.
(1) The project must meet the following criteria:
(i) All units, common elements, and facilities--including those
that are part of any master association--must have been completed, and
the project cannot be subject to additional phasing or annexation. The
project must provide for undivided ownership of common areas by unit
owners;
(ii) Control of the owners' association must have been turned over
to the unit purchasers, and the unit purchasers must have been in
control for at least one year;
(iii) At least 90 percent of the total units in the project must
have been conveyed to the unit purchasers, and at least 51 percent of
the total units in the project must have been conveyed to purchasers
who are occupying the units as their principal residences or second
homes. No single entity (the same individual, investor group,
partnership, or corporation) may own more than 10 percent of the total
units in the project;
(iv) The units in the project must be owned in fee simple or be an
eligible leasehold interest, as described in Sec. 234.65, and the unit
owners must have sole ownership interest in, and right to the use of,
the project's facilities, common elements, and limited common elements
including parking, recreational facilities, etc.;
(v) The project must be covered by hazard, flood, and liability
insurance acceptable to the Commissioner;
(vi) For projects with more than 30 units, no more than 10 percent
of the total units in the project may be encumbered by FHA-insured
mortgages. (If endorsement would result in more than 10 percent of the
units in such a project being encumbered by FHA-insured mortgages, the
condominium project must be approved under paragraphs (a) through (h)
of this section.) For projects with between 5 and 30 units inclusive,
no more than 20 percent of the total units may be encumbered by FHA-
insured mortgages. For projects with four units, only one unit may be
encumbered by an FHA-insured mortgage under the spot loan procedure of
this paragraph (i); and
(vii) The assumability provisions of Sec. 234.66 must be satisfied.
(2) Lenders must perform an underwriting analysis and certify that
a project satisfies the eligibility criteria for a spot loan in a
condominium project that has not been approved by FHA. Lenders may use
information from the appraiser, the owners' association, the management
company, the real estate broker, and the project developer, but the
lender must ensure the accuracy of the information obtained from these
sources.
(Approved by the Office of Management and Budget under control
number 2502-0513.)
Sec. 234.54 Eligibility of assigned mortgages and mortgages covering
acquired property.
The Commissioner may insure under this part, without regard to any
limitation upon eligibility contained in this subpart (except that the
property must be located in a condominium project approved under
Sec. 234.26), any mortgage assigned to the Commissioner in connection
with payment under a contract of mortgage insurance, or executed in
connection with a sale by the Commissioner of any property acquired in
the settlement of an insurance claim under any section or title of the
Act.
Sec. 234.63 Location of property.
The mortgage, to be eligible for insurance, shall be on property
located in a State, as defined in Sec. 203.251 of this chapter, and not
located on ``Hawaiian home lands,'' as that term is defined in section
247(d)(2) of the Act.
Sec. 234.65 Nature of title.
A mortgage, to be eligible for insurance, shall be on a fee
interest in, or on a leasehold interest in, a one-family unit in a
project including an undivided interest in the common areas and
facilities, and such restricted common areas and facilities as may be
designated. To be eligible, a leasehold interest shall be under a lease
for not less than 99 years which is renewable, or under a lease having
a period of not less than 10 years to run beyond the maturity date of
the mortgage.
Sec. 234.66 Free assumability; exceptions.
For purposes of HUD's policy of free assumability with no
restrictions, as provided in Sec. 203.41 of this chapter, the
definition of Legal restrictions on conveyance in Sec. 203.41(a)(3) of
this chapter does not include rights of first refusal held by a
condominium association for a project approved by the Secretary under
this subpart prior to September 10, 1993.
18. Section 234.251 is revised to read as follows:
[[Page 60163]]
Sec. 234.251 Definitions.
The definitions in Sec. 203.251 of this chapter apply to this
subpart.
Sec. 234.256 [Amended]
19. Section 234.256 is amended by revising paragraphs (a), (b),
(e), and (f), to read as follows:
(a) Selling mortgagor. The requirements for the selling mortgagor
are set forth in Sec. 203.258(a) of this chapter.
(b) Purchasing mortgagor. (1) If the dwelling is a principal or
secondary place of residence, the requirements for the purchasing
mortgagor are set forth in Sec. 203.258(b)(1) of this chapter.
* * * * *
(e) Direct endorsement. Requirements for the direct endorsement
program are set forth in Sec. 203.258(f) of this chapter.
(f) Substitute mortgagor is defined in Sec. 203.258(f) of this
chapter.
20. Section 234.259 is revised to read as follows:
Sec. 234.259 Claim procedure--graduated payment mortgages.
Section 203.436 of this chapter applies to mortgages under this
subpart.
Dated: November 6, 1996.
Stephanie A. Smith,
General Deputy Assistant Secretary for Housing-Federal Housing
Commissioner.
[FR Doc. 96-29925 Filed 11-25-96; 8:45 am]
BILLING CODE 4210-27-P
