[Federal Register Volume 61, Number 18 (Friday, January 26, 1996)]
[Proposed Rules]
[Pages 2644-2647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1305]
[[Page 2643]]
_______________________________________________________________________
Part V
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 203 and 221
Single Family Mortgage Insurance Premium; Proposed Rule
Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 /
Proposed Rules
[[Page 2644]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner
24 CFR Parts 203 and 221
[Docket No. FR-3899-P-01]
RIN 2502-AG55
Single Family Mortgage Insurance Premium
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would provide many benefits to the mortgage
lenders that would reduce their servicing costs and the confusion
generated by adjustments to the annual mortgage insurance premium (MIP)
on cases not endorsed within the first six months after amortization.
The rule would change the method of payment, and the reconciliation
schedule, and clarify the due date. The changes would result in an
increase in MIP income, thereby strengthening the FHA insurance fund.
Also, it would cut down on the costly reconciliation now done by HUD.
Specifically, this proposed rule would provide that the FHA
Commissioner can accrue MIP from the beginning of amortization (as
defined in 24 CFR 203.251) on all Section 530 (of the National Housing
Act) loans and risk-based loans, no matter what time frame exists
between the endorsement date and the beginning of amortization. It
would also amend the existing regulation by requiring that mortgagees
pay the monthly installments as due on or before the 10th of the month,
whether or not collected from the mortgagor. A new system is being
developed (and expected to be operational by January 1997) which would
produce a monthly notice of premiums due, and the reconciliation would
be made monthly by the lender when the premium is paid. There would be
no requirement for annual reconciliation.
DATES: Comment due date: March 26, 1996.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Rules Docket Clerk, Office of General Counsel, Room
10276, Department of Housing and Urban Development, 451 Seventh Street
SW., Washington, DC 20410-0500.
Communications should refer to the above docket number and title.
Facsimile (FAX) comments are not acceptable. A copy of each
communication submitted will be available for public inspection and
copying between 7:30 a.m. and 5:30 p.m. weekdays at the above address.
FOR FURTHER INFORMATION CONTACT: Christopher Peterson, Director, Office
of Mortgage Insurance Accounting and Servicing, Room 2108, Department
of Housing and Urban Development, 451 7th Street SW., Washington, DC
20410, telephone (202) 708-1046. For telephone communication, contact
Anne Baird-Bridges, Single Family Insurance Operations Division, at
(202) 708-2438. Hearing or speech-impaired individuals may call HUD's
TDD number (202) 708-4594. These are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
Background
Section 320 of the Housing and Community Development Act of 1980
(Pub. L. 96-399) amended Title V of the National Housing Act (the Act)
(12 U.S.C. 1702 et seq.) to add a new section 530. Section 530
requires, with respect to insurance of mortgages under Title II of the
Act, the payment of MIPs upon receipt from the borrower, except HUD may
approve payment of such premiums within 24 months of such receipt if
the financial institution or mortgagee pays interest to the insurance
fund. On July 15, 1982, at 47 FR 30750, the Department published a
final rule that implemented section 530 by requiring mortgagees to pay
the MIP in installments due on or before the 10th day of the month
following the month in which payments are due from the mortgagors. On
June 23, 1983, at 48 FR 28794, the Department published a final rule
which set forth the requirement that the borrower pay a single premium
when the mortgage loan is closed, which represents the total premium
obligation for the insured loan. This change applied to all new
mortgages insured under the Mutual Mortgage Insurance Fund; therefore,
after the change took effect, section 530 was limited to mortgages
insured under the Special Risk and General Insurance Funds.
Section 530 loans include all FHA loans endorsed prior to September
30, 1983, and all FHA loans insured under the Special Risk and General
Insurance Funds after September 1983. Lenders are required to remit
annual MIP in 12 monthly payments totalling one-half of one percent of
the average outstanding principal obligation of the mortgage.
The risk-based premium became effective on July 1, 1991, for all
loans insured under the provisions of the Mutual Mortgage Insurance
Fund, in accordance with the Omnibus Budget Reconciliation Act of 1990
(Pub. L. 101-508) and the National Affordable Housing Act of 1990 (Pub.
L. 101-625). Sections 203.284 and 203.285 of title 24 of the Code of
Federal Regulations were promulgated to implement the provisions
governing risk-based premiums (See 57 FR 15208, April 24, 1992, and 58
FR 40996, July 30, 1993). Risk-based premiums have two components: the
up-front premium and the periodic premium. Periodic premiums on risk-
based loans are collected over a set number of years, depending on the
loan-to-value ratio of the mortgage. Premium payments are paid in
twelve monthly installments totalling one-half of one percent of the
insured principal balance of the mortgage, minus any amounts included
to finance up-front MIP. However, there is an exception under
Sec. 203.285 for any mortgage with a term of 15 years or less, which
requires premium payments totalling one-fourth of one percent of the
insured principal balance.
Proposed Change
This rule proposes to change the method of payment and the
reconciliation schedule, and to clarify the due date. Specifically,
this proposed rule would provide that the FHA Commissioner can accrue
MIP from the beginning of amortization (as defined in 24 CFR 203.251)
on all Section 530 and risk-based loans, no matter what time frame
exists between the endorsement date and the beginning of amortization.
It would also amend the existing regulation by requiring that
mortgagees pay the monthly installments as due on or before the 10th of
the month, whether or not collected from the mortgagor. A monthly
notice of premiums due would be sent, and reconciliation would be made
monthly by the lender when the MIP payment is made. There would be no
requirement for annual reconciliation.
This rule proposes to revise Secs. 203.262, 203.264, and 203.265 to
reflect the new policy on monthly payment of MIPs. The revised
provisions would also apply to risk-based premiums under Secs. 203.284
and 203.285.
Sections 203.262 and 203.264 apply to the scheduled payments.
Existing Sec. 203.264 requires that ``any portion of the periodic MIP
received by the mortgagee from the mortgagor on or after September 1,
1982, shall be paid to the Commissioner on or before the tenth of the
month following the month in which it was received,'' provided that
[[Page 2645]]
the full annual MIP be paid by the tenth of the month following the
anniversary date of amortization. At the initiation of the Section 530
Program, mortgagees were offered two payment options:
a. The Basic Monthly Payment Method. According to this method, the
lender remits on a monthly basis, on or before the tenth of each month,
a payment equal to all Section 530 MIP amounts collected from
mortgagors during the preceding month, plus any portion of annual MIP
remaining due for the current anniversary month whether collected or
not.
b. Optional Monthly Payment Method. According to this method, the
lender remits a monthly payment equal to \1/12\th of the total of all
annual Section 530 MIPs for all mortgages in the mortgagee's servicing
portfolio for the month, plus any annual premiums remaining due,
without regard to MIP amounts collected from mortgagors.
Most lenders opt to pay the premiums as due. This proposed rule
would eliminate the option to pay the premiums when collected. HUD
systems are set up to reconcile remittances of MIP, late charges, and
interest based on payment of monthly premiums by the 10th of the month;
exceptions must be manually processed.
The two provisions to be modified for Section 530 loans also apply
to the periodic portion of risk-based loans. Mortgagees submitting
risk-based monthly premiums have been following HUD's policy on
adjustment of initial MIP depending on the date of endorsement, and
have been given the option of paying monthly premiums (1) ``as due'' or
(2) ``as collected''.
Section 530 and risk-based monthly payments would be recorded in
the Single Family Premium Collection Subsystem, which is now being
designed. Monthly premiums would be due on the first of the month after
the beginning of amortization (as defined in 24 CFR 203.251) and must
be received on or before the tenth. Reconciliation between amounts
expected by HUD and amounts remitted by the lender would be
accomplished after the date of endorsement, when the insurance
information has been fed into the FHA Single Family Insurance System.
As soon as possible after endorsement, HUD would begin verifying that
the lender has paid the required monthly premiums due at that time on
each case, and would begin notifying the lender on a monthly basis of
any discrepancies existing between expected, versus remitted, amounts.
Until the new system is implemented, lenders would continue to
reconcile risk-based monthly premiums at case level using MGIC Investor
Services Corporation, and Section 530 monthly premiums at portfolio
level based on the Advance Notice of Annual Premiums for Anniversary
Due Date, which is being sent by HUD.
The proposed new Secs. 203.262 and 203.264 would authorize the FHA
Commissioner to accrue annual premiums from the beginning of
amortization (as defined in 24 CFR 203.251) on all Section 530 and
risk-based loans, no matter what time frame exists between the
endorsement date and the beginning of amortization. This rule also
proposes to delete Sec. 203.263 which provides for an adjustment on the
accrual date of the initial annual MIP depending on the date of
endorsement of the loan. Section 203.268 would be revised to provide
that if the insurance contract is terminated, the lender would pay a
portion of the MIP prorated from the beginning of amortization (as
defined in 24 CFR 203.251) to the month in which the loan is
terminated. The final monthly payment would be due on the first of the
month following termination.
The changes proposed in this rule would provide many benefits to
the mortgage lenders that would reduce their servicing costs and the
confusion generated by adjustments to MIP on cases not endorsed within
the first six months after amortization. The result would be an
increase in MIP income, thereby strengthening the FHA insurance fund.
The proposed changes would cut down on the costly reconciliation now
done by HUD. (The cost of reconciliation on Section 530 and monthly
risk based premiums exceeded $7.5 million in FY 1994.)
According to research completed on FY 1993 cases, approximately 7%
of cases were not endorsed within the first six months of amortization.
Currently some lenders escrow the premiums received from the homeowners
on Section 530 and risk-based loans and remit the premiums to HUD at
the beginning of amortization rather than when the case is endorsed for
insurance. This has led to much confusion and variations in the
computation of initial premiums due, because some contingencies cannot
be forseen at settlement; i.e., endorsement before the beginning of
amortization. The revised regulation would prevent confusion for those
cases endorsed outside the six-month window by requiring lenders to
follow the same guidelines for all cases needing periodic MIP.
MIP income would increase by approximately $15 million per year.
This amount represents the reduction in premiums now taken by the
lenders for both Section 530 loans and risk-based loans, when the loans
are endorsed over six months from the beginning of amortization.
Lenders should not receive a reduction in monthly MIP due because of
late endorsement for the following reasons:
a. This is inconsistent with HUD's policy on one-time and up-front
MIP. These amounts are paid within 15 days of closing, and no reduction
is given based on the date of endorsement. On risk based loans,
Sec. 203.284 requires payment of periodic MIP for a specific number of
years, depending on the loan-to-value ratio. When the loan is endorsed
after the six-month window, the period of time for which payments are
due is being reduced.
b. Often the late endorsement results from late submission of the
closing package by the lenders to the Field Office.
The new Sec. 203.264 would require that payment of the periodic MIP
be received from the mortgagee on or before the tenth day of the month
following the month in which it was due from the mortgagor. For
example, for a case closed in August, the initial premium would be
remitted by the lender by September 10. Monthly reconciliation would
replace annual reconciliation. Once the new system is implemented,
monthly notices would reflect a breakdown by case number and by month
of the cumulative amounts of monthly premium, late charge, and interest
due.
The proposed rule changes the method of payment, and the
reconciliation schedule, and clarifies the due date. Payment of the
periodic MIP by the lender would be made monthly, regardless when
collected. Upon implementation of the new system, a monthly notice from
HUD would be sent and reconciliation would be made monthly by the
lender when the MIP payment is made. There would be no requirement for
annual reconciliation. Remittances would be due, not payable, on or
before the tenth day of the month.
Lenders would be informed that they are responsible for all loans
in their portfolio for which monthly payments are due, even if they do
not appear on the monthly notice. Because of servicing transfers,
endorsement delays, and terminations, monthly notices may not reflect
the current status of the lender's portfolio and may require
reconciliation.
The proposed changes would provide benefits to the mortgage lenders
and to HUD. Most lenders choose the ``payment when due'' option; the
choice is made by the lender when they begin
[[Page 2646]]
to send in premiums and is indicated on the Form 2748 or 2752. The
lender may change from the ``Payment as Received'' to the ``Payment
When Due'' option without permission, but must receive permission from
Headquarters before changing from the ``Payment When Due'' to the
``Payment as Received'' option.
The current Single Family Premium Collection System (A31) used for
MIP collection is not set up to reconcile payments received under the
``Payment as Received'' option. The new Single Family Premiums
Collection System (SFPCS) is not being set up to reconcile these
payments either. The system enhancements necessary to accommodate this
option would not be cost effective, and are not necessary, because most
lenders have chosen the other option anyway.
It should be noted that Sec. 203.284(f) ``Applicability of Other
Sections'' does not include Sec. 203.264 as applicable to mortgages
covered by Sec. 203.284, although HUD has taken the position that this
provision is properly applicable to mortgages with risk-based premiums.
This rule would re-insert a reference to Sec. 203.264 that was
inadvertently deleted when that section was published as a final rule
(See 57 FR 15209, April 24, 1992). The rule would also insert
references to Secs. 203.262 and 203.265 in lieu of the current
Secs. 203.284(d) and (e) which are being deleted. Similar changes would
be made to Sec. 203.285(c).
Other Matters
Environmental Review
A Finding of No Significant Impact with respect to the environment
has been made in accordance with the HUD regulation at 24 CFR part 50,
which implements section 102(2)(C) of the National Environmental Policy
Act of 1969. The Finding of No Significant Impact is available for
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
Office of the Rules Docket Clerk.
Executive Order 12866
This proposed rule was reviewed by the Office of Management and
Budget (OMB) under Executive Order 12866 on Regulatory Planning and
Review, issued by the President on September 30, 1993. Any changes made
in this interim rule as a result of that review are clearly identified
in the docket file, which is available for public inspection in the
office of the Department's Rules Docket Clerk, Room 10276, 451 Seventh
Street SW., Washington, DC.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing
certifies that this rule would not have a significant economic impact
on a substantial number of small entities. A review of the universe of
approved mortgagees indicates that only a small percentage of them have
assets of less than $10 million. These can be considered ``small
entities'' for purposes of this regulation. The number of ``small
entities'' affected, therefore, is not substantial. Further, HUD
records indicate smaller companies hold relatively few insured
mortgages, and they tend to concentrate their business in the
conventional mortgage market. Thus, even for those ``small entities''
affected, the impact is expected to be relatively insignificant.
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.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this rule does 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.
List of Subjects
24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
List of Subjects
24 CFR Part 221
Low and moderate income housing, Mortgage insurance, Reporting and
recordkeeping requirements.
Accordingly, the Department proposes to amend Subtitle B, Chapter
II, Subchapter B, of Title 24 of the Code of Federal Regulations as
follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority for part 203 would continue to read as follows:
Authority: 12 U.S.C. 1709, 1715b; 42 U.S.C. 3535(d).
Subpart C also is issued under 12 U.S.C. 1715u.
2. Section 203.262 would be revised to read as follows:
Sec. 203.262 Due date of periodic MIP.
The full initial and each annual MIP shall be due and payable no
later than the 10th day after the amortization anniversary date.
Sec. 203.263 [Removed]
3. Section 203.263 would be removed.
4. Section 203.264 would be revised to read as follows:
Sec. 203.264 Payment of periodic MIP.
The mortgagee shall pay each MIP in twelve equal monthly
installments. Each monthly installment shall be due and payable to the
Secretary no later than the tenth day of each month, beginning in the
month in which the mortgagor is required to make the first monthly
mortgage payment or, if later, in (insert the first month after the
effective date of the rule).
5. In Sec. 203.265, paragraph (a) would be revised to read as
follows:
Sec. 203.265 Mortgagee's late charge and interest.
(a) Periodic MIP which are received by the Commissioner after the
payment dates prescribed by Secs. 203.262 and 203.264 shall include a
late charge of four percent of the amount paid.
* * * * *
6. In Sec. 203.268, paragraph (a) would be revised to read as
follows:
Sec. 203.268 Pro rata payment of periodic MIP.
(a) If the insurance contract is terminated before the due date of
the initial MIP, the mortgagee shall pay a portion of the MIP prorated
from the beginning of amortization, as defined in Sec. 203.251, to the
date of termination.
* * * * *
7. In Sec. 203.284, paragraphs (d) and (e) would be removed, and
paragraph (f) would be revised to read as follows:
Sec. 203.284 Calculation of up-front and annual MIP on or after July
1, 1991.
* * * * *
[[Page 2647]]
(f) Applicability of other sections. The provisions of
Secs. 203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 203.268,
203.280, and 203.282 are applicable to mortgages subject to premiums
under this section.
* * * * *
8. In Sec. 203.285, paragraph (c) would be revised to read as
follows:
Sec. 203.285 Fifteen-year mortgages: Calculation of up-front and
annual MIP on or after December 26, 1992.
* * * * *
(c) Applicability of certain provisions. The provisions of
Secs. 203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 203.268,
203.280, 203.282, and 203.284(g) are applicable to mortgages subject to
premiums under this section.
* * * * *
PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE
9. The authority for part 221 would continue 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).
Sec. 221.251 [Amended]
10. In Sec. 221.251, paragraph (a) would be amended by removing the
reference to ``203.263 Adjustment of initial MIP.''
Dated: November 8, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 96-1305 Filed 1-25-96; 8:45 am]
BILLING CODE 4210-27-P
