[Federal Register Volume 63, Number 149 (Tuesday, August 4, 1998)]
[Notices]
[Pages 41702-41703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20800]
[[Page 41701]]
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Part VI
Department of Housing and Urban Development
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Secondary Market for Non-Conforming Mortgage Loans to Low-Wealth
Borrowers: Advance Notice of Demonstration Program; Notice
Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 /
Notices
[[Page 41702]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-4348-N-01]
RIN 2502-AH20
Secondary Market for Non-Conforming Mortgage Loans to Low-Wealth
Borrowers; Advance Notice of Demonstration Program
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Advance notice of demonstration program.
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SUMMARY: HUD's fiscal year 1998 Appropriations Act set aside $10
million for grants to certain nonprofit organizations to demonstrate
methods of expanding homeownership opportunities for low-income
borrowers by expanding the secondary market for non-conforming home
mortgage loans to low-wealth borrowers. This advance notice solicits
public input so that HUD can develop meaningful guidelines for
selecting the organizations and operating the demonstration program.
DATES: Comment Due Date: September 3, 1998.
ADDRESSES: Interested persons are invited to submit comments and
responses to the Rules Docket Clerk, Office of the 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) responses are not
acceptable. A copy of each response will be available for public
inspection and copying during regular business hours (7:30 a.m. to 5:30
p.m. eastern time) at the above address.
FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Home
Mortgage Insurance Division, Office of Insured Single Family Housing,
Department of Housing and Urban Development, Room 9266, 451 Seventh
Street SW, Washington, DC 20410; telephone (202) 708-2700. (This is not
a toll-free number). Hearing or speech-impaired individuals may access
these numbers via TTY by calling the Federal Information Relay Service
at (800) 877-8339 (this is a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The Departments of Veterans Affairs and Housing and Urban
Development, and Independent Agencies Appropriations Act (Pub. L. 105-
65; approved October 27, 1997) (FY 1998 Appropriations Act) set aside
$10 million from the HOME investment partnerships program for grants to
up to three organizations that are exempt from Federal taxation under
section 501(c)(3) of the Internal Revenue Code. The organizations are
to be selected on a competitive basis to demonstrate methods of
expanding homeownership opportunities for low-income borrowers through
expanding the secondary market for non-conforming home mortgage loans
to low-wealth borrowers. The Conference Report to the FY 1998
Appropriations Act (H.R. Rep. No. 297, 105th Cong., 1st Sess. 103
(1997)), which provides guidance from Congress on its legislative
intent, states that the conferees ``underscore their intention that the
demonstration program focus solely on strategies to expand the
secondary market for affordable home mortgage credit from private
lenders.''
Criteria for the Selection of Grantees
Statutory selection criteria. In selecting the grantees for this
demonstration program, the FY 1998 Appropriations Act provides the
following criteria for selecting such grantees:
--Experience working with lenders who make non-conforming loans to low-
income borrowers;
--Experience in expanding the secondary market for such loans (to low-
income borrowers);
--Demonstrated success in carrying out such activities, including
raising non-Federal grants and capital on concessionary terms for the
purpose of expanding the secondary market for loans in the previous 2
years in amounts equal or exceeding the amount awarded; and
--Demonstrated ability to provide data on the performance of such loans
sufficient to allow for future analysis of the investment risk of such
loans.
Report Language Criteria. The Conference Report states that the
grantees should be selected based on the criteria in the statute and
contained in the House Report (H.R. Rep. No. 175, 105th Cong., 1st
Sess. 37 (1997)). The House Report identifies the following selection
criterion:
--The ability to adequately collect data on the underwriting and
performance of the loans purchased; further, the portfolios should
consist of loans that are non-conforming due to high loan-to-value
ratio, missed payments, credit blemishes, or a lack of credit.
The conferees further establish that priority in the selection
criteria shall be accorded to those organizations that have the
following characteristics:
--Statewide or multi-state service areas;
--Sophisticated existing (emphasis added) data collection capabilities,
including adequate loan portfolio monitoring and analysis systems;
--A demonstrated strong track record of leveraging public sector funds;
and willingness to match funds awarded under the demonstration program
with non-Federal funds; and
--A mix between rural and urban loans.
Questions for Commenters
In order for HUD to develop meaningful guidelines for selecting the
organizations and operating the demonstration program, HUD is seeking
public input on several particular issues. HUD also encourages
commenters to provide any additional input that would be useful in
designing this demonstration program.
A. The FY 1998 Appropriations Act defines the purpose of the
demonstration as follows: ``to demonstrate methods of expanding
homeownership opportunities for low-income borrowers through expanding
the secondary market for non-conforming home mortgage loans to low-
wealth borrowers.''
1. What should be the desired and expected outcomes of the
demonstration program?
2. How should HUD define a ``low-wealth'' borrower for this
demonstration program?
B. The Conference Report indicates that Congress intends to place a
responsibility on the applicant to go beyond addressing the immediate
credit needs of lower-income borrowers to one of developing a strategy
to expand the secondary market for affordable home mortgage credit by
private lenders: ``[T]he conferees underscore strategies to expand the
secondary market for affordable home mortgage credit from private
lenders.''
1. What would be the characteristics of an effective strategy?
2. What are the best measures to assess a strategy's potential
impact on the future availability of private credit to low-wealth
borrowers?
C. The FY 1998 Appropriations Act identifies several criteria for
the selection of an applicant, one of which is ``experience in working
with lenders who make non-conforming loans to low-income borrowers.''
1. What factors might HUD consider in defining ``experience working
with lenders'' for this demonstration program? What factors might be
more (or less) relevant in an applicant's experience working with
lenders?
2. a ``non-conforming loan'' IS generally defined as a loan that
does not
[[Page 41703]]
meet Fannie Mae and Freddie Mac underwriting criteria. Should other
definitions, such as an unseasoned loan, a loan that may require a
second loan committee review, one that has a low mortgage or credit
score, or a loan that does not meet conventional appraisal standards be
considered? Should the definition include FHA loans?)
D. Another selection criterion identified by the FY 1998
Appropriations Act is ``experience in expanding the secondary market
for such loans [i.e., non-conforming loans to low-income borrowers].''
1. How should HUD assess the applicant's experience in expanding
the secondary market for such loans for this demonstration program?
(Examples: By the applicant's volume of such loans sold on the
secondary market? By the applicant's experience with the origination of
non-conforming loans?)
2. The House Report indicates that the demonstration portfolios
should consist of loans that are non-conforming due to high loan-to-
value ratio, missed payments, credit blemishes, or a lack of credit.
Are these factors adequate, or are there other factors that HUD should
evaluate?
3. Are there any compensating characteristics among such borrowers
that are not criteria recognized in conventional or standard
underwriting guidelines? If so, what are they and how might HUD
consider them as part of the demonstration program?
E. Another selection criterion identified by the FY 1998
Appropriations Act is ``demonstrated success in carrying out such
activities including raising non-Federal grants and capital on
concessionary terms for the purpose of expanding the secondary market
for loans in the previous two years in amounts equal or exceeding the
amount awarded.''
1. How should HUD determine ``demonstrated success'' for this
program? (Examples: By the amount of capital raised? By the types of
activities undertaken? Working with lenders who make non-conforming
loans to low-income borrowers and expanding the secondary market for
such loans?)
2. For purposes of the demonstration program, is there a preferred
use of the funds? (Examples: as capital reserves, for loan
originations, for the purchase of loans, for loan guarantees). Should
the efficiency of leverage in the use of the funds be a requirement?
F. The FY 1998 Appropriations Act also requires that the selected
applicant must ``have demonstrated the ability to provide data on the
performance of such loans sufficient to allow for future analysis of
the investment risk of such loans.''
1. What information does HUD need to collect? (Examples:
information regarding delinquencies and defaults, restructured loans,
claims, reasons for poor loan performance, availability of pre-/post-
purchase counseling, an analysis by the applicant of the reasons behind
good/poor loan performance?) Should the information collected be
predefined and made uniform for all applicants (e.g., defining the time
period for a ``default'')?
2. How frequently and for how long a duration of time should this
information be reported?
3. In order to maximize the credibility and impact of the
demonstration, the conferees expect HUD to give priority to applicants
that have ``sophisticated existing data collection capabilities,
including adequate loan portfolio monitoring and analysis.'' How might
HUD assess data collection capability?
4. The conferees expect the Secretary to give priority to
organizations that have statewide or multi-state service areas, and
have a mix of urban and rural loans. How important is a diversified
portfolio in assessing investment risk for purposes of the criterion
described above?
5. Should automated mortgage finance tools, such as credit or
mortgage scoring, be evaluated in this demonstration? Are there other
tools that should be examined?
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this advance
notice of a demonstration program under Executive Order 12866,
Regulatory Planning and Review, issued by the President on September
30, 1993. Any changes made in this document subsequent to its
submission to OMB are identified in the docket file, which is available
for public inspection during regular business hours in the Office of
the Rules Docket Clerk, Office of the General Counsel, Department of
Housing and Urban Development, Room 10276, 451 Seventh Street SW,
Washington, DC 20410.
Dated: July 29, 1998.
Ira Peppercorn,
General Deputy Assistant Secretary for Housing-Federal Housing
Commissioner.
[FR Doc. 98-20800 Filed 8-3-98; 8:45 am]
BILLING CODE 4210-27-P
