2011-21910. Approval of Farm Credit System Lending Institutions in FHA Mortgage Insurance Programs

AGENCY:

Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would amend HUD regulations to enable the direct lending institutions of the Farm Credit System to seek approval to participate in the Federal Housing Administration (FHA) mortgage insurance programs as approved mortgagees and lenders. Recent difficulties in mortgage finance markets have reduced the availability of housing credit in rural areas. HUD proposes to extend FHA mortgagee and lender eligibility to the Farm Credit System to provide an additional avenue for mortgage financing in these areas.

DATES:

Comment Due Date: October 25, 2011.

ADDRESSES:

Interested persons are invited to submit comments regarding this proposed rule to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 20410-0500. Communications must refer to the above docket number and title. There are two methods for submitting public comments. All submissions must refer to the above docket number and title.

1. Submission of Comments by Mail . Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 20410-0500.

2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the http://www.regulations.gov Web site can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically.

Note:

To receive consideration as public comments, comments must be submitted through one of the two methods specified above. Again, all submissions must refer to the docket number and title of the rule.

No Facsimile Comments. Facsimile (Fax) comments are not acceptable.

Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying between 8 a.m. and 5 p.m. weekdays at the above address. Due to security measures at the HUD Headquarters building, an appointment to review the public comments must be scheduled in advance by calling the Regulations Division at 202-708-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Information Relay Service at 800-877-8339. Copies of all comments submitted are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Office of Lender Activities and Program Compliance, Department of Housing and Urban Development, 451 7th Street, SW., Washington, DC 20410-8000; telephone number 202-708-1515 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

Section 203(b)(1) of the National Housing Act (12 U.S.C. 1709(b)(1)) (NHA) provides that in order for a mortgage to be eligible for Federal Housing Administration (FHA) mortgage insurance under Title II of the NHA, the mortgage shall “* * * have been made to, and held by, a mortgagee approved by the Secretary as responsible and able to service the mortgage properly.” Similar approval provisions for lenders are contained in Title I, section 2 of the NHA (12 U.S.C. 1703), which authorizes FHA insurance of lending institutions. Specifically, section 2(a) of the NHA provides that the Secretary of HUD is authorized to insure lenders “which the Secretary finds to be qualified by experience of facilities. * * *” The regulations that implement these statutory mandates are codified at 24 CFR part 202 (entitled “Approval of Lending Institutions and Mortgagees”). The regulations establish several categories of mortgagees and lenders, based upon government association or supervision, capital net worth, and the mortgage or lending functions in which the applicants for FHA approval intend to engage.

The part 202 regulations do not currently provide for FHA approval of lending institutions that are part of the Farm Credit System. The Farm Credit System is a federally chartered network of borrower-owned lending institutions composed of cooperatives and related service organizations. The mission of the Farm Credit System is to provide sound and dependable credit to American farmers, ranchers, producers, or harvesters of aquatic products, their cooperatives, and farm-related businesses. The lending institutions that comprise the Farm Credit System make appropriately structured loans (including loans for the purchase of moderately priced homes in rural areas) to qualified individuals and businesses at competitive rates, and provide financial services and advice to those persons and businesses. Federal oversight by the Farm Credit Administration provides for the safety and soundness of participating lending institutions.

The four farm credit banks, one agricultural credit bank (hereinafter collectively referred to as the Farm Credit banks), and their direct lender associations (the Agricultural Credit Associations) comprise the major functional entities of the Farm Credit System. The Farm Credit banks are government-sponsored enterprises (GSEs) and must operate within limits established by the Farm Credit Act of 1971, as amended (12 U.S.C. 2001 et seq.). In general, the Farm Credit banks provide services and funds to local Agricultural Credit Associations that, in turn, provide short-, intermediate-, and long-term credit to farmers, ranchers, producers, and harvesters of aquatic products, and to rural residents for moderately priced housing. The Agricultural Credit Associations also make loans for basic agricultural processing and marketing activities, and to farm-related businesses.

The Farm Credit banks collectively issue debt securities in the national and international money markets through the Federal Farm Credit Banks Funding Corporation and use this capital to provide borrowers with access to reliable and competitive credit. The full financial strength of all of the Farm Credit banks stands behind the debt issued on behalf of the Farm Credit System. In addition, investors in Farm Credit System debt are protected by the assets of the self-funded Farm Credit System Insurance Fund, which is administered by the Farm Credit System Insurance Corporation. Additional information regarding the Farm Credit System is available on the Farm Credit Administration Web site at http://www.fca.gov/​index.html.

II. This Proposed Rule

This proposed rule would amend HUD's mortgagee and lender approval regulations at 24 CFR part 202 to enable the direct lending institutions of the Farm Credit System to seek approval to participate in the mortgage insurance programs under the NHA as FHA-approved mortgagees and lenders. At the time HUD originally published its part 202 regulations in 1997, given the then-ready availability of mortgage credit and the existence of other mortgage assistance programs for rural housing, there was little need to include the Farm Credit Banks and Agricultural Credit Associations. However, the downturn in the mortgage lending market has prompted HUD to reconsider this omission. As lenders strive to increase capital reserves and tighten underwriting standards, and as private mortgage insurers retreat from some markets, the availability of financing for housing is reduced, particularly in rural areas. HUD proposes to extend FHA mortgagee and lender eligibility to the Farm Credit System to provide an additional avenue for mortgage financing in rural areas. Participation in FHA programs incentivizes lenders to make mortgage credit available by insuring them against potential losses in the event of defaults. Further, FHA-insured mortgage loans can be securitized by Ginnie Mae and sold in the secondary market, which can significantly improve the availability of funds and permit more favorable interest rates than would otherwise be likely.

FHA proposes to amend 24 CFR 202.10, which lists the governmental institutions and GSEs eligible to participate in FHA programs, by adding the Agricultural Credit Associations as eligible for FHA approval as Government mortgagees and lenders. Approval of Farm Credit System direct-lending institutions would be based on the same requirements applicable to other GSEs under § 202.10. HUD believes the proposed extension of FHA program eligibility will better enable the direct-lending institutions of the Farm Credit System to provide sound and dependable mortgage credit to rural communities.

III. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

The Office of Management and Budget (OMB) reviewed this proposed rule under Executive Order 12866 (entitled “Regulatory Planning and Review”). The proposed rule has been determined to be a “significant regulatory action,” as defined in section 3(f) of the Order, but not economically significant, as provided in section 3(f)(1) of the Order.

Based on Farm Credit Administration (FCA) data, HUD determined it is reasonable to assume a 5 percent increase in the origination of FHA-insured mortgages by Farm Credit System institutions as a result of this proposed rule. Based on the approximately 44,000 rural FCA home loans originated in 2010, FHA could expect an additional 2,200 loans annually. Given this loan volume, the effects of this rule will not in any year exceed the $100 million threshold for an economically significant action as set forth by Executive Order 12866.

The docket file for this proposed rule is available for public inspection in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 20410-0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at 202-402-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Information Relay Service at 800-877-8339.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.

This proposed rule would not impose any new regulatory requirements or economic burdens on small entities. Indeed, the rule imposes no new requirements on any entities. Rather, the proposed rule would merely provide an option for direct lending institutions of the Farm Credit System to participate in HUD's mortgage insurance programs under the NHA as FHA-approved supervised lenders and mortgagees. Farm Credit System institutions wishing to participate in the programs would be required to comply with FHA mortgagee and lender approval requirements; however, participation in the mortgage insurance programs is voluntary. Accordingly, to the extent that the proposed rule has any economic impact, it would be to confer the economic benefit of participating in the FHA mortgage insurance programs to those financial institutions of the Farm Credit System that voluntarily elect to seek approval as FHA-approved mortgagees or lenders.

For the above reasons, the undersigned has determined that the final rule will not have a significant economic impact on a substantial number of small entities. Notwithstanding HUD's determination that this rule will not have a significant effect on a substantial number of small entities, HUD specifically invites comments regarding any less burdensome alternatives to this rule that will meet HUD's objectives as described in the preamble to this rule.

Environmental Impact

This rule does not direct, provide for assistance or loan and mortgage insurance for, or otherwise govern or regulate, real property acquisition, disposition, leasing, rehabilitation, alteration, demolition, or new construction, or establish, revise, or provide for standards for construction or construction materials, manufactured housing, or occupancy. This rule is limited to the eligibility of those entities that may be approved as FHA-approved lenders. Accordingly, under 24 CFR 50.19(c)(1), this rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132, Federalism

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial direct compliance costs on state and local governments and is not required by statute, or the rule preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule would not have federalism implications and would not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

Paperwork Reduction Act

The information collection requirements contained in this notice have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB Control Number 2502-0005. In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection displays a currently valid OMB control number.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (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 would 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 in 24 CFR Part 202

• Administrative practice and procedure
• Home improvement
• Manufactured homes
• Mortgage insurance
• Reporting and recordkeeping requirements

Accordingly, for the reasons stated in the preamble above, HUD proposes to amend 24 CFR part 202 as follows:

PART 202—APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

1. The authority citation for part 202 continues to read as follows:

Authority: 12 U.S.C. 1703, 1709, and 1715b; 42 U.S.C. 3535(d).

2. In § 202.10, revise the first sentence of paragraph (a) to read as follows:

§ 202.10

Governmental institutions, Government-sponsored enterprises, public housing agencies and State housing agencies.

(a) Definition. A Federal, State or municipal governmental agency, a Federal Reserve Bank, a Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or an Agricultural Credit Association affiliated with a Farm Credit Bank or Agricultural Credit Bank, may be an approved mortgagee or lender. * * *

* * * * *

Dated: August 22, 2011.

Carol J. Galante,

Acting Assistant Secretary for Housing—Federal Housing Commissioner.