[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Rules and Regulations]
[Pages 2984-2988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1084]
[[Page 2983]]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 206
Home Equity Conversion Mortgages; Consumer Protection Measures Against
Excessive Fees; Final Rule
Federal Register / Vol. 64, No. 11 / Tuesday, January 19, 1999 /
Rules and Regulations
[[Page 2984]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 206
[Docket No. FR-4306-F-02]
RIN 2502-AH10
Home Equity Conversion Mortgages; Consumer Protection Measures
Against Excessive Fees
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This final rule implements several measures designed to
provide protection to elderly homeowners in connection with HUD's Home
Equity Conversion Mortgage (HECM) insurance program. The HECM program
offers FHA-insured first mortgages providing payments to elderly
homeowners based on the accumulated equity in their homes. These FHA-
insured HECMs are commonly referred to as ``reverse mortgages.'' The
rule is designed to protect homeowners in the HECM program from
becoming liable for payment of excessive fees for third-party provided
services of little or no value. This rule takes into consideration the
comments received on a March 16, 1998 proposed rule.
EFFECTIVE DATE: February 18, 1999.
FOR FURTHER INFORMATION CONTACT: Vance Morris, Director, Home Mortgage
Insurance Division, Room 9266, Department of Housing and Urban
Development, 451 Seventh Street, SW, Washington, DC 20410. Telephone:
(202) 708-2700. (This is not a toll-free number.) For hearing- and
speech-impaired persons, this number may be accessed via TTY by calling
the Federal Information Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
Background
On March 17, 1997, HUD issued Mortgagee Letter 97-07, which
prohibited FHA-approved lenders from being involved in transactions for
HECMs referred by estate planning entities charging what HUD deemed to
be exorbitant fees. Two estate planners engaged in the business of
making referrals for reverse mortgages sued, seeking a temporary
restraining order (TRO) and preliminary injunction to require HUD to
withdraw the Mortgagee Letter on the ground that notice and comment
rulemaking procedures should have been followed. A TRO was issued on
March 26, 1997, and a preliminary injunction followed on April 11,
1997. Mortgagee Letter 97-07 was then withdrawn.
Due to the Secretary's concern about the need to protect senior
citizens from practices that may subvert the HECM process, the
Secretary decided that HUD should issue a proposed rule based on the
consumer protection authority contained in section 255 of the National
Housing Act as it then existed (see proposed rule published on March
16, 1998, 63 FR 12930).
With respect to the FHA insurance program for HECMs, current FHA
requirements strictly limit the fees that a mortgagee can collect. The
FHA regulations currently do not have any express provisions that
protect mortgagors from fees collected by third parties. The proposed
rule was intended to fill that gap. The public comment period ended on
May 15, 1998, and HUD has taken these comments into account in the
preparation of this final rule.
Congress has now enacted legislation to specifically address the
problem to which the proposed rule was directed, and this action makes
it unnecessary for HUD to rely solely on the previously-existing
authority under the National Housing Act. Section 593(e) of the
Departments of Veterans Affairs and Housing and Urban Development, and
Independent Agencies Appropriations Act, 1999 (P.L. 105-276 approved
October 21, 1998) amended section 255 of the National Housing Act to
require that: (1) a HECM shall have been executed by a mortgagor who
has received full disclosure, as prescribed by the HUD Secretary, of
all costs charged to the mortgagor, which disclosure shall clearly
state which charges are required to obtain the HECM and which are not,
and (2) a HECM shall have been made with such restrictions as the HUD
Secretary determines to be appropriate to ensure that the mortgagor
does not fund any unnecessary or excessive costs for obtaining the
HECM. Section 593(e)(2) directs HUD to issue a final rule no later than
90 days after section 593(e) takes effect (i.e., by January 19, 1999),
after notice and opportunity for public comment. Section 593 does not
require that the notice and public comment procedure occur after,
rather than before, enactment of section 593. HUD has concluded that
the previously published proposed rule is fully consistent with the
requirements of section 593, with one exception, and that all
interested persons have been provided with an adequate opportunity for
public comment, consistent with the desires of the Congress and the
demands of HUD's ``rule on rules'' in 24 CFR part 10. In order to
address the one exception, HUD is adding an express requirement (based
on statutory language) for a statement to the mortgagor of which
charges are required and which are not. Therefore, HUD is proceeding
with this final rule after considering the public comment previously
submitted.
Section 593(e) also provides for immediate implementation of
section 593, even in advance of consideration of public comments,
through an interim notice procedure, if necessary. HUD already had
received and reviewed public comments on the proposed rule by the time
section 593 took effect and has taken those comments into account in
this final rule. Therefore, HUD believes the procedure that it has
followed, which accorded the public an opportunity to comment on a
proposed rule that addressed the subjects of section 593(e), more than
satisfies the intent of section 593.
Public Comments
The Department received 8 comments on its proposed rule. The
comments are summarized below by pertinent section of the proposed
rule, with other comments summarized at the end.
1. Section 206.3--Definition of ``Estate Planning Service Firm''
Comment: Two commenters supported the definition but urged that it
be extended to include an individual or entity that charges an annuity
premium paid for by mortgage proceeds, if the premium is not disclosed
as part of the total cost of the mortgage under the Truth in Lending
Act regulations for reverse mortgages.
Response: The final rule includes this suggestion.
Comment: A commenter argued against use of the term ``estate
planning service firm'' (while not arguing against the substance of the
definition) as unfair to legitimate financial planning/estate planning
firms. The lender suggested the narrower term ``referral service
firm''.
Response: The firms that engaged in the practices that led HUD and
Congress to conclude that protective measures were needed did not
characterize themselves as engaging in ``referrals'' but as providing
estate planning services and HUD concludes that a broad label--with a
careful definition that does not focus solely on referrals--is
appropriate. The definition permits any legitimate provider of services
that is concerned that its services may be impaired by overbreadth of
the rule to be exempted from the rule by HUD.
Comment: A commenter argued that the definition should explicitly
[[Page 2985]]
recognize bona fide mortgage brokers in the same manner that bona fide
attorneys, accountants and financial advisors are recognized.
Response: The rule provides special recognition of individuals or
companies ``in the bona fide business of generally providing tax or
other legal or financial advice''. It recognizes that, in the ordinary
course of their business of providing advice, such individuals or
companies are likely to routinely provide to clients who are elderly
homeowners information and advice that may overlap with the information
that counselors are required to provide under the HECM program. The
rule provides that charging a fee for such advice--if the fee is not
contingent on obtaining a loan--does not by itself make the individual
or company an estate planning service firm for purposes of the rule.
The rule mentions attorneys and accountants as examples of individuals
or companies who may qualify for this exception because their ordinary
business is providing advice. In contrast, mortgage brokers typically
provide to prospective borrowers services such as locating available
sources of loans, prequalifying borrowers, and assisting them in
applying for a loan. A mortgage broker may provide some information
similar to that provided by a HECM counselor in the course of providing
its brokerage services, but prospective borrowers would be unlikely to
seek out a mortgage broker solely for the purpose of obtaining
information or advice for a fee, rather than for obtaining services for
a fee. It is unlikely that a typical mortgage broker business would be
characterized--as required by the rule--as being in the business of
generally providing tax or other legal or financial advice. For this
reason, HUD has concluded that specific mention of mortgage brokers in
connection with this part of the definition of estate planning service
firm is unwarranted.
Comment: A commenter interpreted this definition as making explicit
that housing counseling agencies may charge fees to borrowers, and
applauded this position, and another commenter who noticed a reference
to counselor fees urged HUD to clarify whether counselors can charge
fees, how much, and who can bear the costs. If borne by the consumer,
the commenter said they should be included in HECM financing.
Response: Under HUD's program of grants to HUD-approved housing
counselors, the counselor is not authorized to charge counseling fees
for HUD-related clients except in fiscal years where no funds are given
to the counseling agency by HUD. In that instance, the basis for any
fees charged to a HUD-related client must be consistent with local
practice and not duplicate other sources of HUD funding. Clients
affected must be informed of the agency's fee structure in advance of
services being provided.
2. Section 206.29--Initial Disbursement of Mortgage Proceeds
Comment: Two commenters who supported this provision urged that the
lender be permitted to disburse an annuity premium if disclosed as part
of the total cost of the mortgage under the Truth in Lending Act
regulations for reverse mortgages.
Response: The final rule includes this suggestion.
Comment: A commenter requested that the phrase ``disbursed at
closing'' be clarified because funds are actually not disbursed at
closing because of a 3-day wait imposed by the Truth in Lending Act's
right of rescission.
Response: The final rule includes this suggestion.
Comment: Two commenters believed that section 206.3 would permit
counselors' fees and asked why mortgage proceeds could not be disbursed
directly to counselors. One other commenter agreed and urged that all
fees permitted to be paid by a mortgagee under HUD's Handbook 4235.1
REV-1 (including specifically mortgage broker fees and counselor fees)
be disbursable to those parties at closing. That commenter interpreted
Sec. 206.29 and 206.31 together as reaching this result but requested
clarification.
Response: See the previous response regarding counselor fees.
Mortgage broker fees are allowed now under the HECM program only if the
broker is engaged independently by the mortgagor and is paid from a
source other than the mortgage proceeds. A broker's fee is prohibited
if there is any financial interest between the broker and the
mortgagee. The broker agreement must be submitted with the mortgage
insurance application. Broker's fees can never be paid by the lender
from HECM proceeds.
Comment: A commenter supported permitting disbursement of funds at
closing to pay contractors who performed repairs required as a
condition of closing.
Response: HUD supports this suggestion as long as the lender
certifies that the work was done according to the appraiser's
requirements based on HUD Handbook 4905.1 (Requirements for Existing
Housing for One to Four Family Units) and in accordance with standard
FHA requirements for repairs required by appraisers. The final rule
includes this change.
3. Section 206.32--No Outstanding Unpaid Obligations
Comment: A commenter specifically supported this provision, and
commented that it could provide important protection against
unscrupulous home repair firms and others in addition to the estate
planning service firms that are the main target of the rule.
Response: No response required.
Comment: A commenter supported Sec. 206.32(b) forbidding use of
initial HECM payments to pay estate planning service firms, but opposed
Sec. 206.32(a), which prohibits mortgagor obligations that are incurred
in connection with the mortgage transaction but will not be paid off at
closing (except for certain repairs or mortgage servicing charges). The
commenter interpreted this as precluding later use of HECM proceeds to
pay outstanding bills that may have been part of the impetus for
obtaining the HECM.
Response: This section does not prevent HECM proceeds from being
used to pay bills that were incurred without any connection with the
mortgage transaction (for example, pre-existing medical bills), or
prevent use of HECM proceeds to pay obligations incurred after the
closing. The section targets only those who charge excessive fees in
connection with obtaining the HECM.
Comment: Two commenters urged that Sec. 206.32 be deleted in its
entirety because of the difficulty for a lender to determine what
homeowner obligations exist and ensure that they would be discharged at
closing. One of the commenters said it would not object if a lender's
obligation were limited to requesting information.
Response: Paragraph (a) of Sec. 206.32 is similar to Sec. 203.32
for ``forward'' mortgages. As with that requirement, the lender is
expected to ask the borrower and may rely on the information provided
by the borrower in the absence of other information indicating that the
borrower's answer is inaccurate or incomplete. Paragraph (b) focusses
on the specific concern of borrowers using the initial disbursement of
HECM proceeds to pay unreasonable or excessive fees to estate service
planning firms. Section 203.29 prevents direct disbursement to such
firms, and paragraph (b) of Sec. 203.32 provides the lender with
further assurance that the borrower understands that the borrower
cannot use cash disbursed to the borrower as part of the initial
disbursement to pay such firms as a
[[Page 2986]]
means of getting around the direct disbursement prohibition. A lender
can rely on information provided by the borrower in complying with this
section; for example, the lender should ask whether the homeowner has a
contract with an estate planning service firm (with an explanation of
how to recognize such a firm) and it will be sufficient to annotate the
application form noting a negative response. Lenders should note that
under Sec. 206.43(b)(1) a lender has to have to make ``sufficient
inquiry'' of a borrower who is taking a large initial cash
disbursement, in order to confirm that Sec. 203.32(b) will not be
violated.
4. Section 206.41--Additional Information To Be Provided by Counselors
Comment: Four commenters commented favorably on this provision, but
one of them urged that it be expanded to address any obligation that
homeowners may believe they have to pay for home repairs or annuities
and not just services provided by the estate planning service firms.
Another commenter also supported expansion to cover annuities, and
urged use of a form disclosure about annuities.
Response: The Department is considering this suggestion, but is not
making changes in the rule at this time.
5. Section 206.43(a)--Additional Information To Be Provided by
Mortgagees
Comment: One commenter supported this provision as written while
another urged that it be deleted. The latter commenter felt that a
lender should not be responsible for disclosure of costs paid outside
of closing, or if so, the lender should be able to rely exclusively on
a borrower certification on the loan application.
Response: The lender is only required to ask the borrower for the
additional information and note on the loan application that the
borrower was asked.
6. Section 206.43(b)--Limitations on Lump Sum Disbursement by
Mortgagees
Comment: Three commenters supported this provision; one commenter
urged that it be deleted or modified so that the information covered
should be handled through the loan application and also suggested an
overlap with information provided by the counselor.
Response: HUD wanted to emphasize the importance of this rule, and
to ensure that the lender has made every effort to ensure that the HECM
proceeds were not going to a party ineligible to receive funds from the
initial disbursement.
7. Other Comments.
a. Lack of Statutory Authority
Comments: A commenter argued that the proposed rule is beyond HUD's
current statutory authority because Congress authorized a program to
increase the number of reverse mortgages and the proposed rule would
reduce the availability of reverse by eliminating ``a proven source of
promotion of reverse mortgages.'' The commenter also argued that the
rule was a ``subterfuge'' for regulating third parties even though
HUD's regulatory authority is limited to lenders.
Response: Even before amendment, section 255 of the National
Housing Act and section 7(d) of the Department of Housing and Urban
Development Act contained ample authority for a regulation to protect
elderly homeowners against special risks identified by HUD in
connection with the HECM program (see, e.g, sections 255(c)(2),
255(f)(5) and 255(k)(2)(E) of the National Housing Act.) HUD believes
that any doubt about the scope of HUD's authority to implement these
measures to protect elderly homeowners was settled when Congress
enacted legislation and specifically requiring HUD to proceed with this
final rule.
b. There is no Need for the Rule
Comment: The commenter described the rule as arbitrary and
irrational because there was no factual basis to conclude that any
abuse of elderly homeowners existed.
Response: HUD received many complaints that senior homeowners were
being charged excessive fees for services that HUD or mortgagees
provide for little or no charge. In any event, Congress felt that past
abuse and the potential for future abuse was so serious that it
mandated action by HUD.
c. Simpler Proposal Needed
Comment: One commenter did not comment on any specific provision of
the proposed rule, but stated that it is difficult to obtain
information about the HECM and that the proposed rule would make it
harder. The commenter suggested that publishing a book about reverse
mortgages could violate the rule. The commenter suggested as an
alternative approach limiting any information provider to $150 for any
size mortgage.
Response: The rule only targets information providers that meet the
definition of ``estate planning service firms''--primarily firms that
charge excessive fees for information and services that one can receive
for little or no charge and that are contingent on the elderly
homeowner receiving a HECM loan. The rule should not interfere with
book publishing, which can supplement HUD's own efforts to publicize
the availability and benefits of HECMs. HUD's Homeownership Centers and
field offices distribute housing information, including information on
HECMs, in numerous homeownership fairs through the country. The
American Association of Retired Persons (AARP), National Center for
Home Equity Conversion (NCHEC), many lenders and other entities have
publicized the HECM program through various means including newsletters
and radio broadcasts. Articles have been published in senior community
newspapers and seminars have been given in senior community centers.
The Housing Clearinghouse's toll-free number is provided on the
Internet's World Wide Web. HUD continually looks for ways to improve,
update and increase its marketing of this program to the public, but it
will not tolerate abuse of elderly homeowners in the guise of providing
legitimate information and services.
d. Mortgage Broker Fees
Comment: A commenter urged an additional provision that would allow
mortgage broker fees for HECMs only if the broker performs settlement
services as defined by RESPA and if the sum of the mortgage broker fee
plus the loan origination fee does not exceed the $1800 loan
origination fee that may be financed through a HECM.
Response: HUD cannot consider this comment for the final rule
because it is outside the scope of matters exposed to public comment in
the proposed rule.
Changes Made in Final Rule
New paragraphs (e) and (f) are added to Sec. 206.29 to permit (1)
disbursement of an annuity premium at closing if the premium was
disclosed under the Truth in Lending Act regulations for reverse
mortgages, and (2) payment of contractors who performed repairs
required as a condition of closing if the lender makes a certification
in accordance with standard FHA requirements for repairs required by
appraisers. Section 206.29 is also amended to clarify that it applies
to the initial disbursement of funds at closing (if the 3-day
rescission period under the Truth in Lending Act regulations does not
apply because of, e.g., a waiver in accordance with those regulations)
or after closing (in the usual case when the 3-day rescission period
does apply so
[[Page 2987]]
that no funds are disbursed at closing). The final rule also contains
minor language and formatting changes in Sec. 206.43, and adds an
express requirement for a clear statement of which charges are required
and which are not as required by section 593(e)(1)(C) of P.L. 105-276.
Findings and Certifications
Paperwork Reduction Act Statement
The information collection requirements in Secs. 206.32, 206.41 and
206.43 of this rule have been submitted to the Office of Management and
Budget (OMB) for review and approval under section 3507(d) of the
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). OMB has
approved the submission and assinged the following control number:
2502-0534. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the
collection request displays a valid control number.
Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.) (the RFA), the Secretary, by approval of this rule, certifies
that this rule does not have a significant economic impact on a
substantial number of small entities. The rule codifies HUD's policy
regarding consumer protection which is consistent with current part 206
provisions and the National Housing Act requirements, as amended by
section 539(e) of the Departments of Veterans Affairs and Housing and
Urban Development, and Independent Agencies Appropriations Act, 1999.
This rule is designed to protect homeowners in the HECM program from
becoming liable for payment of excessive fees for third-party provided
services of little or no value. This rule imposes no significant
economic impact on law-abiding entities, small or large.
HUD's RFA provision in the March 16, 1998 proposed rule
specifically invited small entities to comment on whether the proposed
regulatory amendments would significantly affect them (see 63 FR 12930,
at 12932). Only one commenter responded to this request. The commenter
questioned HUD's assertion that the rule would not have a significant
economic impact on a substantial number of small entities.
Specifically, the commenter wrote that the rule might have an adverse
impact on businesses that ``may'' be small entities within the meaning
of the RFA. However, the commenter did not offer any data in support of
its statement that the rule might potentially have a significant
economic impact on a substantial number of small entities.
Environmental Impact
This final rule is exempt from environmental review requirements
under 24 CFR 50.19(c)(1). This rule amends an existing regulation by
increasing the information available to mortgagors and by limiting the
manner in which funds are disbursed.
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 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 rule is not subject to review under the Order.
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.
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this final rule
under Executive Order 12866, Regulatory Planning and Review as a
significant regulatory action (but not economically significant).
Catalog. The Catalog of Federal Domestic Number for the HECM
program is 14.183.
List of Subjects in 24 CFR Part 206
Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, part 206 of the Code of Federal Regulations is amended
as follows:
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
1. The authority citation for part 206 continues to read as
follows:
Authority: 12 U.S.C. 1715b, 1715z-20; 42 U.S.C. 3535(d).
2. Section 206.3 is amended by adding a new definition of ``estate
planning service firm'' to read as follows:
Sec. 206.3 Definitions.
* * * * *
Estate planning service firm means an individual or entity that is
not a mortgagee approved under part 202 of this chapter or a housing
counseling agency approved under Sec. 206.41 and that charges a fee
that is:
(1) Contingent on the homeowner obtaining a mortgage loan under
this part, except the origination fee authorized by Sec. 206.31 or a
fee specifically authorized by the Secretary; or
(2) For information that homeowners must receive under Sec. 206.41,
except a fee by:
(i) A housing counseling agency approved under Sec. 206.41; or
(ii) An individual or company, such as an attorney or accountant,
in the bona fide business of generally providing tax or other legal or
financial advice; or
(3) For other services that the provider of the services represents
are, in whole or in part, for the purpose of improving an elderly
homeowner's access to mortgages covered by this part, except where the
fee is for services specifically authorized by the Secretary.
* * * * *
3. A new Sec. 206.29 is added to read as follows:
Sec. 206.29 Initial disbursement of mortgage proceeds.
Mortgage proceeds may not be disbursed at the initial disbursement
or after closing (upon expiration of the 3-day rescission period under
12 CFR part 226, if applicable) except:
(a) Disbursements to the mortgagor, a relative or legal
representative of the mortgagor, or a trustee for benefit of the
mortgagor;
(b) Disbursements for the initial MIP under Sec. 206.105(a);
(c) Fees that the mortgagee is authorized to collect under
Sec. 206.31;
(d) Amounts required to discharge any existing liens on the
property;
(e) An annuity premium, if the premium was disclosed as part of the
total cost of the mortgage under the disclosures required by 12 CFR
part 226; and
(f) Funds required to pay contractors who performed repairs as a
condition of closing, in accordance with standard FHA requirements for
repairs required by appraisers.
4. A new Sec. 206.32 is added as follows:
[[Page 2988]]
Sec. 206.32 No outstanding unpaid obligations.
In order for a mortgage to be eligible under this part, a mortgagor
must establish to the satisfaction of the mortgagee that:
(a) After the initial payment of loan proceeds under
Sec. 206.25(a), there will be no outstanding or unpaid obligations
incurred by the mortgagor in connection with the mortgage transaction,
except for repairs to the property required under Sec. 206.47 and
mortgage servicing charges permitted under Sec. 206.207(b); and
(b) The initial payment will not be used for any payment to or on
behalf of an estate planning service firm.
5. Section 206.41 is amended by revising paragraph (b) to read as
follows:
Sec. 206.41 Counseling.
* * * * *
(b) Information to be provided. A counselor must discuss with the
mortgagor:
(1) The information required by section 255(f) of the National
Housing Act;
(2) Whether the mortgagor has signed a contract or agreement with
an estate planning service firm that requires, or purports to require,
the mortgagor to pay a fee on or after closing that may exceed amounts
permitted by the Secretary or this part; and
(3) If such a contract has been signed under Sec. 206.41(b)(2), the
extent to which services under the contract may not be needed or may be
available at nominal or no cost from other sources, including the
mortgagee.
* * * * *
6. A new Sec. 206.43 is added to read as follows:
Sec. 206.43 Information to mortgagor.
(a) Disclosure of costs of obtaining mortgage. The mortgagee must
ensure that the mortgagor has received full disclosure of all costs of
obtaining the mortgage. The mortgagee must ask the mortgagor about any
costs or other obligations that the mortgagor has incurred to obtain
the mortgage, as defined by the Secretary, in addition to providing the
Good Faith Estimate required by Sec. 3500.7 of this title. The
mortgagee must clearly state to the mortgagor which charges are
required to obtain the mortgage and which are not required to obtain
the mortgage.
(b) Lump sum disbursement. (1) If the mortgagor requests that at
least 25% of the principal limit amount (after deducting amounts
excluded in the following sentence) be disbursed at closing to the
mortgagor (or as otherwise permitted by Sec. 206.29), the mortgagee
must make sufficient inquiry at closing to confirm that the mortgagor
will not use any part of the amount disbursed for payments to or on
behalf of an estate planning service firm, with an explanation of
Sec. 206.32 as necessary or appropriate.
(2) This paragraph does not apply to any part of the principal
limit used for the following:
(i) Initial MIP under Sec. 206.105(a) or fees and charges allowed
under Sec. 206.31(a) paid by the mortgagee from mortgage proceeds
instead of by the mortgagor in cash; and
(ii) Amounts set aside under Sec. 206.47 for repairs, under
Sec. 206.205(f) for property charges, or Sec. 206.207(b).
Dated: January 12, 1999.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 99-1084 Filed 1-15-99; 8:45 am]
BILLING CODE 4210-27-P
