[Federal Register Volume 59, Number 60 (Tuesday, March 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7265]
[[Page Unknown]]
[Federal Register: March 29, 1994]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Part 221
[Docket No. R-94-1551; FR-3009-P-01]
RIN 2502-AF27
Auction of Section 221 Multifamily Mortgages
AGENCY: Office of the Assistant Secretary of Housing-Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would revise current regulations governing
the assignment of mortgages insured under section 221 of the National
Housing Act to conform with changes made by section 2201 of the Omnibus
Budget Reconciliation Act of 1990) (approved November 5, 1990).
(Section 336 of the National Affordable Housing Act, enacted later,
contains identical provisions.) Section 2201 establishes a procedure
whereby the Secretary of HUD, in lieu of accepting the assignment of a
section 221 mortgage, shall arrange for the auction sale of the
mortgage.
DATES: Comments due date: May 31, 1994.
ADDRESSES: Interested persons are invited to submit comments on the
proposed 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. Communications should refer to the
above docket number and title. 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: Audrey Hinton, Office of Multifamily
Housing Preservation and Property Disposition, Department of Housing
and Urban Development, 451 Seventh Street, SW., Washington, DC 20410,
telephone (202) 708-3555. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: The information collection requirements
contained in this proposed rule have been approved by the Office of
Management and Budget, under section 3504(h) of the Paperwork Reduction
Act of 1980 (44 U.S.C. 3501-3520), and assigned OMB control number
2502-0460.
Section 2201 of the Omnibus Budget Reconciliation Act of 1990,
approved November 5 1990, requires HUD to implement its provisions
within thirty days from the date of enactment and provides that
implementation shall not be subject to the requirement of the issuance
of regulations. Through administrative action, the Department commenced
implementation of section 2201 effective December 5, 1990.
Before its amendment by section 2201 of the Omnibus Budget
Reconciliation Act of 1990, (Pub. L. 101-508, approved November 5,
1990), section 221(g)(4) of the National Housing Act (NHA) gave
mortgagees holding current mortgages insured under a conditional or
firm commitment issued before November 30, 1983 under section 221 of
the NHA an option to assign the mortgage to HUD at the end of twenty
years from the date of final endorsement. The statute further provided
that, upon assignment, HUD would issue to the mortgagee ten-year
debentures bearing interest at the ``going Federal rate'' with a face
amount equal to the amount of the unpaid principal balance of the
mortgage as of the date of the assignment.
Section 2201 provides for a new auction process to replace the
prior section 221(g)(4) assignment option. It provides that when a
mortgagee elects to assign a mortgage to HUD under section 221(g)(4),
the Secretary will, in lieu of accepting the assignment, arrange an
auction sale of the mortgage and pay the purchaser monthly interest
enhancement payments that are equal to the difference between the
mortgage note interest rate and the bid rate accepted by HUD applied to
the declining principal balance.
Before enactment of section 2201, the Department took assignment of
a mortgage under section 221(g)(4) and issued ten-year debentures as
described above. HUD makes interest payments on the debentures
semiannually, and the face amount of the debenture is paid at maturity
or at redemption of the debenture by HUD. HUD holds the assigned
mortgage and receives monthly mortgage payments for the remaining term
of the mortgage (typically, about 20 years) or until prepayment,
default, foreclosure or sale of the mortgage. Under the auction process
authorized by section 2201, HUD does not take assignment of the
mortgage or issue debentures; instead, HUD makes monthly interest
enhancement payments to or receives interest sharing payments from the
purchasing mortgagee, depending on whether the bid rate is higher or
lower than the note rate. These payments would continue until maturity,
prepayment, voluntary termination of insurance, default and full
payment of insurance benefits, or initiation of foreclosure proceedings
by the mortgagee in cases where the mortgagee does not intend to file a
claim for insurance benefits.
Section 2201 required HUD to implement the auction procedure within
30 days of enactment, i.e., by December 5, 1990. It further provided
that early implementation need not be subject to the requirement of
prior issuance of regulations in the Federal Register. The Department
has held several auctions and anticipates that additional auctions will
be held before the effective date of this rule. All notices of election
to assign made after December 5, 1990, are subject to the provisions of
section 2201.
Only mortgages that are current as of the twentieth anniversary
after final endorsement, and for which the mortgagee makes its election
to assign within the one-year ``window'' set forth in 24 CFR 221.775,
are eligible for inclusion in the auction. In addition, mortgages
previously sold by the Government National Mortgage Association (GNMA)
or the Federal Housing Administration (FHA) with the assignment option
deleted are not eligible for inclusion in the auction sale. The selling
mortgagee must certify that the mortgage submitted for inclusion in the
auction is eligible and that the assignment option has not been
deleted.
All mortgagees participating in the auction sale must be HUD-
approved mortgagees. There is nothing in section 2201 to preclude the
mortgagee of record from participating in the auction of the mortgages.
An approved mortgagee may assign, transfer or pledge a purchased
mortgage or a partial interest in a purchased mortgage by way of a
participation certificate or other mortgage-backed obligations in a
form acceptable to the Commissioner, under the terms and conditions
prescribed in 24 CFR section 207.261.
Section 2201 provides that HUD shall encourage participation in the
auction by state housing finance agencies, nonprofit organizations,
tenant organizations, and qualified mortgagees participating in a plan
of action under the Emergency Low Income Housing Preservation and
Resident Homeownership Act of 1987, as amended by the Low-Income
Housing and Resident Homeownership Act of 1990. The proposed rule
provides that any of these entities that are HUD-approved mortgagees
may participate in the auction. Otherwise, they may participate by
purchasing participation certificates or mortgage-backed securities
from purchasing mortgagees. The Department invites comments on other
ways to encourage the participation of these types of organizations.
Finally, it should be noted that, in January of each year, the
Department will be submitting to the Congress a report which will
include statements of the number of mortgages auctioned and sold and
their value, the amount of subsidies committed to the program, the
ability of the Department to coordinate the program with the incentives
provided under the Emergency Low Income Housing Preservation and
Resident Homeownership Act of 1987 as amended or any subsequent Act,
and the costs and benefits derived from the program for the federal
government.
Procedural Matters
Regulatory Flexibility Act
In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility
Act), the undersigned hereby certifies that this proposed rule does not
have a significant economic impact on a substantial number of small
entities. This new auction procedure provides selling mortgagees
essentially the same amount of benefits provided under the earlier
section 221(g)(4) assignment procedure. Participation by purchasing
mortgagees is completely voluntary.
Regulatory Agenda
This proposed rule was listed as sequence number 1515 in the
Department's Semiannual Agenda of Regulations published on October 25,
1993 (58 FR 56402, 56425) in accordance with Executive Order 12291 and
the Regulatory Flexibility Act.
Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this proposed 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.
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 proposed rule will not have federalism implications
when implemented and, thus, are not subject to review under the Order.
The proposed rule does not change in any way existing relationships
between HUD, the states, or local governments.
Environment
An environmental assessment is unnecessary, since internal
administrative procedures whose content does not constitute a
development decision affecting the physical condition of specific
project areas or building sites is categorically excluded from the
Department's National Environmental Policy Act procedures under 24 CFR
50.20(k).
The Catalog of Federal Domestic Assistance program number is
14.135.
List of Subjects in 24 CFR Part 221
Low and moderate income housing, Mortgage insurance, Reporting and
recordkeeping requirements.
Accordingly, 24 CFR part 221 would be amended to read as follows:
PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE
1. The authority citation for 24 CFR part 221 would continue to
read as follows:
Authority: 12 U.S.C. 1715b and 17151; 42 U.S.C. 3535(d); sec.
221.544(a)(3) is also issued under 12 U.S.C. 1707(a).
2. Section 221.770 would be revised to read as follows:
Sec. 221.770 Assignment option.
Subject to the provisions of Secs. 221.791 through 221.797, a
mortgagee holding a mortgage insured pursuant to a conditional or firm
commitment issued on or before November 30, 1983 (or in the Direct
Endorsement Program, a property appraisal report signed by the
mortgagee's approval underwriter on or before November 30, 1983) has
the option to assign, transfer and deliver to the Commissioner the
original credit instrument and the mortgage securing it, provided that
the mortgage is not in default at the expiration of 20 years from the
date of final endorsement of the credit instrument. In processing a
mortgagee's claim for insurance benefits under this section, the
Commissioner may direct the mortgagee to assign, transfer, and deliver
the original credit instrument, and the mortgage securing it, directly
to the Government National Mortgage Association (GNMA). Upon
assignment, transfer, and delivery either to the Commissioner or to
GNMA, as directed, the mortgage insurance contract shall terminate and
the mortgagee shall be entitled to receive insurance benefits in
accordance with Sec. 221.780.
3. Part 221, subpart D, would be amended by adding a new
undesignated center heading following Sec. 221.790; and by adding new
Secs. 221.791 through 221.797, to read as follows:
Subpart D--Contract Rights and Obligations--Moderate Income
Projects
* * * * *
Auction of Part 221 Moderate Income Project Mortgages
Sec. 221.791 Auction of mortgages eligible for assignment under
section 221(g)(4).
All notices by a mortgagee of its election to exercise its
assignment option under Secs. 221.770 through 221.790 made after
December 5, 1990 shall be subject to this section and to Secs. 221.792
through 221.797. For mortgages for which such election was made on or
before December 5, 1990, the Commissioner will continue processing the
claim unless the mortgagee requests that the mortgage be subject to
Secs. 221.792 through 221.797.
Sec. 221.792 Auction sale in lieu of assignment.
(a)(1) With reference to any mortgage for which an election to
assign under Sec. 221.770 was transmitted to the Commissioner after
December 5, 1990, and which is eligible for assignment under that
section, the Commissioner, in lieu of accepting the assignment, will
arrange for a public auction and sale of the beneficial interests in
the mortgage loan through an auction and sale of:
(i) The mortgage loan, or;
(ii) Participation certificates or other mortgage-backed
obligations in a form acceptable to the Commissioner.
(2) The Commissioner may structure the beneficial interests of any
or all of the mortgages to be sold in the auction. The Commissioner
will arrange the auction and sale at a price, to be paid to the selling
mortgagee, consisting of the unpaid principal balance of the mortgage
as of the date of sale plus accrued mortgage interest to the date of
sale.
(b) The auction sale procedure set forth in Secs. 221.791 through
221.797 shall not affect any low-income affordability restrictions
applicable to a project under:
(1) The original regulatory agreement;
(2) A use agreement entered into under the provisions of part 248
of this chapter; or
(3) Any other agreements providing federal assistance to the
housing or its tenants.
(c) Once a mortgage has been sold in accordance with the procedures
set forth in Secs. 221.791 through 221.797, the mortgage will continue
to be insured under this part, but the mortgage will be ineligible for
assignment under Sec. 221.770.
Sec. 221.793 Eligible mortgagees.
All mortgagees participating in the auction sale as bidders must be
HUD-approved mortgagees in good standing, i.e., not under a temporary
denial of participation, not the subject of a charge issued following a
reasonable cause determination under the Fair Housing Act, not on
probation, or suspended from doing business with HUD. A mortgagee of
record may bid on a mortgage that it holds. State housing finance
agencies, mortgagees participating in a plan of action under part 248
of this chapter, non-profit organizations and tenant associations may
(if they are HUD-approved mortgagees in good standing) participate by
submitting bids, or may, regardless of whether they are HUD-approved
mortgagees, participate by such means as the purchase of participation
certificates or mortgage-backed securities from a participating
mortgagee.
Sec. 221.794 Project information.
(a) A mortgagee electing to assign its mortgage shall provide the
Commissioner and persons bidding at the auction sale with the following
information:
(1) Project name, address and HUD project number;
(2) The principal mortgage balance and current interest rate as of
the date of the election to assign;
(3) Interest rate on the original mortgage, maturity date,
amortization type, and monthly payment to principal and interest;
(4) Annual fee for servicing mortgage expressed in basis points
(percentage);
(5) Description of the characteristics of the original credit
instrument;
(6) The level and duration of applicable federal or other
subsidies;
(7) Copies of physical inspection reports completed within the past
year but not yet submitted to the Commissioner;
(8) A statement of fiscal status of the mortgage at the time of
election, including a certification that, as of the date of the
election to assign the mortgage, the mortgage is current (that is, that
no payment due under the mortgage or mortgage note is more than 30 days
late and the mortgagee has not declared a default based on the
mortgagor's failure to perform any other covenant under the provisions
of the mortgage); and
(9) Any other information the Commissioner determines to be
necessary and sets forth in administrative instructions.
(b) The mortgagee of record shall provide to the purchasing
mortgagee all documents necessary to assume liability for the payment
of mortgage insurance premiums to the Commissioner with respect to the
mortgage, including a certification that mortgage insurance premiums
payable to HUD are current.
(c) The Commissioner shall provide information to persons bidding
at the auction regarding the status of the property with reference to
the provisions of part 248 of this chapter (Prepayment of Low-income
Housing Mortgages), including:
(1) Information on eligibility to prepay the mortgage;
(2) A statement whether the owner has filed a notice of intent to
prepay or a plan of action;
(3) Details with respect to any incentives that have been provided
in lieu of the exercise of prepayment rights; and
(4) Types of subsidy provided to the project owner under a plan of
action, excluding non-project-based certificates or vouchers under part
882 or 887 of this title.
(Approved by the Office of Management and Budget under control
number 2502-0460)
Sec. 221.795 Terms and conditions of auction-sale.
(a) After receiving the information described in Sec. 221.794(a),
the Commissioner will advertise for an auction sale of the mortgage.
The auction sale announcement will include the date, time and place of
the auction, and requirements governing warranties, handling of
escrows, assignment of winning bids, and other matters.
(b) The auction will be held at any time during the six-month
period after receiving the information described in Sec. 221.794(a),
but not before two months after receiving the mortgagee's written
notice of its intent to assign its mortgage to the Commissioner.
(c) In any auction sale, the Commissioner will accept the lowest
interest rate bid by an eligible bidder that the Commissioner
determines to be acceptable. Where there are identical bids, the
earlier bid will be accepted. Notice of the accepted bid will be
published in the Federal Register.
(d) Closing of the sale will take place between the seller and the
purchaser. Except in extraordinary circumstances, as determined by the
Commissioner (who may allow for an extension of no more than 60
calendar days), the sale of the mortgage shall be closed no later than
30 business days after the winning bid has been accepted by the
Commissioner.
(e) At closing, the purchaser shall pay the seller the unpaid
principal balance of the mortgage, as of the date of closing, plus
accrued interest at the mortgage rate to that date. In addition, the
purchaser will pay the seller an amount (to be reimbursed by the
Commissioner) equal to the difference between the ``debenture rate'' in
effect as of the date of the seller's election to assign the mortgage
and the mortgage note rate, applied to the declining unpaid principal
balance of the mortgage for the period beginning 60 days after the date
of its election and ending on the closing date.
(f) (1) If any one of the following conditions occurs:
(i) No bids are received;
(ii) Bids received are not acceptable to the Commissioner; or
(iii) The sale is not closed within the time prescribed in
paragraph (d) of this section, the mortgagee shall retain the right to
assign the mortgage to the Commissioner under the provisions of
Secs. 221.770 through 221.780.
(2) At HUD's discretion, a mortgage may be included in one
additional auction. Under these circumstances, the insurance benefits
shall include an amount equal to the difference between the ``debenture
rate'' in effect on the date of the mortgagee's election to assign the
mortgage and the mortgage note rate, applied to the declining unpaid
principal balance of the mortgage for the period beginning 60 days
after the date of election until the date of the closing of the
mortgage sale, if any, resulting from the second auction or the date of
recordation.
(g) (1) The purchasing mortgagee may purchase all mortgage loans,
participation certificates, or mortgage-backed securities with either:
(i) Servicing rights released to the purchasing mortgagee, or;
(ii) Servicing rights retained by the current servicer.
(2) Regardless of whether the bidder elects to have the servicing
rights retained or released by the seller, HUD's interest enhancement
payments (or the purchasing mortgagee's interest sharing payments) will
be based on the difference between the stated interest on the mortgage
and the bid rate accepted by the Commissioner. In cases where the
winning bidder elects to have servicing retained by the seller, the
seller would be obligated to pass through to the purchaser the cash
flow on the mortgage, minus the servicing fee.
Sec. 221.796 Interest enhancement payments.
(a) Where the bid rate accepted by the Commissioner under
Sec. 221.795(c) is more than the stated interest rate on the mortgage,
the Commissioner will provide to the purchaser, and any subsequent
holder that is a HUD-approved mortgagee, monthly interest enhancement
payments based on the difference between the bid rate accepted by the
Commissioner and the stated interest rate on the mortgage. Where the
bid rate accepted by the Commissioner under Sec. 221.795(c) is less
than the stated interest rate on the mortgage, the purchaser, and any
subsequent holder, will provide the Commissioner monthly interest
sharing payments based on the difference between the stated interest
rate on the mortgage and the bid rate accepted by the Commissioner.
(b) The interest enhancement or interest sharing payments will be
paid in accordance with the scheduled amount in an amortization
schedule provided by the Commissioner, and will not take into account
prepayments or delinquencies by the mortgagor, except as provided by
the Commissioner in the Fiscal Instructions. Interest enhancement or
interest sharing payments will be paid on the first day of each month
following timely receipt of a properly completed billing form in
accordance with the time period stipulated by the Commissioner.
Interest enhancement or interest sharing payments will be made by a
method to be determined by the Commissioner. Interest enhancement or
interest sharing payments will not be subject to the Prompt Payment Act
and will not accrue interest on late payments.
(c) Interest enhancement or sharing payments will be provided until
the earlier of:
(1) The maturity date of the loan;
(2) Prepayment of the loan in full;
(3) Default and full payment of insurance benefits by the
Commissioner;
(4) Voluntary termination of mortgage insurance; or
(5) Initiation of foreclosure proceedings by the mortgagee in cases
where the mortgagee does not give the Commissioner written notice of
its election to acquire and convey title to the Commissioner.
(d) Interest enhancement payments will be treated by the mortgagee
as interest paid on the mortgage.
Sec. 221.797 Termination.
Section 221(g)(4)(C)(viii) of the National Housing Act (12 U.S.C.
17151) provides that section 221(g)(4)(C), which authorizes the auction
of mortgages in lieu of assignment to the Commissioner, shall not apply
after September 30, 1995. Consequently, Secs. 221.791 through 221.797
will be terminated or revised in the future on the basis of the
expiration or amendment of section 221(g)(4)(C) of the Act.
Dated: March 17, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-7265 Filed 3-28-94; 8:45 am]
BILLING CODE 4210-27-P
