[Federal Register Volume 59, Number 183 (Thursday, September 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23522]
[[Page Unknown]]
[Federal Register: September 22, 1994]
_______________________________________________________________________
Part VI
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
_______________________________________________________________________
24 CFR Parts 207 and 290
Sale of HUD-Held Multifamily Mortgages; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Parts 207 and 290
[Docket No. R-94-1709; FR-3549-F-02]
RIN 2502-AG18
Sale of HUD-Held Multifamily Mortgages
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule sets forth the basic policies and procedures that
govern the disposition of HUD-held multifamily project mortgages.1
In general, the Department will sell both current mortgages and
delinquent mortgages. However, the Department will not sell delinquent
mortgages if foreclosure is unavoidable and the project securing the
mortgage is occupied by low-income tenants who are not receiving
housing assistance and would be likely to pay rent in excess of 30
percent of their adjusted monthly income if HUD sold the mortgage. In
addition, mortgages on subsidized properties will only be sold with
Federal Housing Administration (FHA) mortgage insurance or equivalent
tenant protections; mortgages for unsubsidized projects may be sold
without FHA insurance.
\1\This rule and the policies contained in this rule are
intended to satisfy HUD's obligations under the settlement agreement
in Walker v. Kemp, No. C 87 2628 (N.D. Cal.), with regard to the
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Exhibit B mortgages.
EFFECTIVE DATE: The effective date of this rule will be October 24,
1994, unless a subsequent notice announcing an earlier effective date
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is published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Frank Malone, Director, Office of
Preservation and Property Disposition, Office of Housing, Room 6272,
Department of Housing and Urban Development, 451 Seventh Street, SW.,
Washington, DC 20410, telephone (202) 708-3555. Hearing or speech-
impaired individuals may call HUD's TDD number (202) 708-4594. (These
telephone numbers are not toll-free.)
SUPPLEMENTARY INFORMATION:
Background
On April 13, 1994, the Department published a proposed rule on the
sale of HUD-held multifamily mortgages (59 FR 17500). Two days earlier,
on April 11, 1994, President Clinton approved the Multifamily Property
Disposition Reform Act of 1994 (Pub. L. 103-233) (Multifamily Property
Disposition Act). Section 101(b) of the Multifamily Property
Disposition Act revised section 203 of the Housing and Community
Development Amendments of 1978 (12 U.S.C. 1701z-11) (HCD Amendments of
1978). This final rule incorporates technical changes to section 203 of
the HCD Amendments of 1978, as amended by section 101(b) of the
Multifamily Property Disposition Act, as those provisions affect the
sale of HUD-held mortgages. HUD will be publishing, shortly, an interim
rule to implement the statutory amendments affecting the management and
disposition of HUD-owned multifamily projects.
Summary of Comments--Generally
The Department received a total of 11 comments on this proposed
rule. The majority of the comments dealt with features of the
Department's planned mortgage sale program rather than with specifics
of the proposed rule. However, two commenters made recommendations
regarding the negotiated sale of subsidized mortgages to State and
local governments, and one commenter recommended changes to the
proposed rule. All of the comments are discussed in more detail below,
and, when appropriate, are addressed in the text of the rule.
Only the National Housing Law Project (NHLP) focused specifically
upon the text of the proposed rule. The NHLP acknowledged HUD's
authority to sell HUD-held mortgages, but urged that ``the utmost care
should be taken to ensure that low-income tenants do not lose benefits
to which they are entitled.''
With regard to the sale of subsidized mortgages with insurance, the
NHLP stated that: ``The mere act of selling with insurance will not
necessarily by itself satisfy the statutory goal of continuing the
protections for each project that are at least as advantageous as the
prior program's.'' The NHLP sought assurance that, at a minimum, the
regulatory protections contained in, for example, the regulatory
agreement, note, and program regulations also would apply.
This concern is consistent with the Department's intent to preserve
existing tenant protections. Consequently, the rule has been modified
to include statutory language prohibiting the Secretary from selling
any mortgages held by the Secretary on any subsidized project unless
the sale is made part of a transaction that ensures that the project
will continue to operate, at least until the maturity date of the loan
or mortgage, in a manner that will provide rental housing on terms at
least as advantageous to existing and future tenants as the terms
required by the program under which the original loan or mortgage was
made or insured. In other words, sale of a HUD-held subsidized mortgage
will not affect the existing regulatory agreement, prepayment
restrictions, flexible subsidy agreements, rental subsidy contracts, or
other applicable program regulations and housing policies.
The NHLP also sought clarification that purchase money mortgages
(PMMs) for previously subsidized projects will be treated like
subsidized mortgages. The Department so intends and has modified the
rule to make this evident.
The NHLP requested that a project with any project-based Section 8
assistance be treated as a subsidized project and be sold with
insurance. However, doing so would be contrary to the Multifamily
Property Disposition Act. In the Multifamily Property Disposition Act,
Congress revised the definition of a subsidized project for the
mortgage sale program (see section 203(b)(2)). Under the prior law (see
section 203(i)(2)), a project that had any rent supplement assisted
units was a subsidized project. The requirement that more than 50
percent of the units had to be assisted for the project to be a
subsidized project applied only to assistance provided under the United
States Housing Act of 1937 (other than with certificate and voucher
assistance). Finally, under the former law for purposes of mortgage
sales, any unit assisted under the United States Housing Act of 1937
(other than certificate and voucher assistance) made the project a
subsidized project.
Under the new statutory definition of subsidized project, the more
than 50 percent of the units provision applies to all forms of project-
based rental assistance listed. Also, there is no longer an exception
from the 50 percent requirement for mortgage sales. Thus, under the new
law the definition of ``subsidized project'' is the same for the
purpose of disposing of HUD-owned projects and for mortgage sales.
The definition of ``subsidized project'' in this final rule
conforms to the statutory definition of ``subsidized project.''
Accordingly, projects that are not Section 236, Section 221(d)(3) BMIR,
or Section 202 projects and have some units, but not more than 50
percent of the units, assisted with project-based rental assistance are
under both the statute and the rule ``unsubsidized projects.'' However,
the Department acknowledges that such partially assisted, unsubsidized
mortgages merit special treatment. Therefore, the Department plans to
sell these mortgages in specialized auctions to investors who will be
selected, in part, on the basis of their commitment to preserving the
economically integrated nature of the rental housing.
The NHLP also suggested that unsubsidized projects with affordable
rents be treated as though they were subsidized and be sold with
insurance. Adoption of this approach would be inconsistent with
congressional direction. Therefore, the Department must reject this
approach. The statute defines ``subsidized project'' as a project that
is receiving assistance: (1) Under the section 221(d)(5) (Below Market
Interest Rate) or the section 236 (Interest Reduction Payments)
programs; (2) under the section 202 direct loan program; or (3) in the
form of rental assistance for more than 50 percent of its units under
the section 8, section 23, rent supplement or rental assistance
payments (``RAP'') programs. This rule merely adopts the statutory
definition of ``subsidized project'' as the regulatory definition.
The NHLP recommended that HUD move certain statements regarding the
availability of Section 8 assistance to tenants in unsubsidized
projects from the preamble of the proposed rule to the regulatory text.
The statements in the preamble describe HUD standards which are already
addressed in other HUD regulations. As such, there is no need to repeat
these standards in the mortgage sale rule.
The NHLP asked why HUD would not sell mortgages without insurance
to mortgagees that are HUD-approved as well as to mortgagees that are
not HUD-approved. In fact, HUD plans to offer the mortgages for sale to
both types of mortgagees. The NHLP also questioned the wisdom of
selling mortgages to mortgagees that are not HUD-approved, on the
ground that HUD will have little regulatory leverage over such
mortgagees. HUD expects that HUD's relationship with such mortgagees
will be governed by and enforceable under the terms and conditions of
the loan sale.
The NHLP recommended that HUD impose certain requirements in the
event that a delinquent mortgage is restructured by a purchaser.
Specifically, the NHLP recommended that the purchaser/mortgagor should
agree:
(1) Not to discriminate against Certificate and Voucher holders
merely because of their status as Certificate or Voucher holders;
(2) To accept a project-based Section 8 contract if offered, as
long as the rents charged at the project are within 120 percent of the
Section 8 Fair Market Rents;
(3) To require good cause eviction for all tenants; and
(4) To require that the owner provide good repair and maintenance.
HUD's ability to regulate a mortgage restructuring will depend upon
whether the mortgage is subsidized or unsubsidized. In the case of a
delinquent subsidized mortgage, where the mortgage will be insured upon
sale, HUD's oversight can be expected to be close and prescriptive;
however, in the case of delinquent unsubsidized mortgages, where the
mortgages will not be insured upon sale, HUD does not expect to
regulate a mortgage restructuring closely.
In section 290.202(b) of the proposed rule, HUD stated that:
``Delinquent mortgages will not be sold if: (1) HUD believes that
foreclosure is unavoidable; and (2) the project securing the mortgage
is occupied by low-income tenants who are not receiving housing
assistance, but who would receive assistance [under section 203 of the
Housing and Community Development Amendments of 1978] if HUD foreclosed
upon the mortgage.'' The NHLP recommended that HUD not sell delinquent
unsubsidized mortgages ``if it believes that foreclosure is
unavoidable, and the project * * * is occupied by low-income tenants
who are not receiving housing assistance but could do so if HUD
foreclosed upon the mortgage.'' HUD has changed this section in the
final rule to conform with the new Multifamily Property Disposition
Act.
Under section 203(a) of the prior law, HUD was directed to preserve
as affordable all units in unsubsidized projects that were occupied by
low-income families. This statutory requirement was generally met at
foreclosure or sale by placing project-based Section 8 assistance on
units that were occupied by low-income families. Thus, under the prior
law the import of Sec. 290.202(b) would have been that, in general, HUD
would not sell unsubsidized projects where foreclosure was unavoidable
and there were unassisted low-income tenants in occupancy.
Under the new law, however, HUD is under no obligation when
foreclosing or selling an unsubsidized project to provide Section 8
assistance to low-income tenants if those tenants were not already
receiving some form of tenant-based assistance (see section
203(e)(1)(D)). HUD's only obligation upon foreclosure or sale in this
regard (and it applies only to very low-income families that would have
to pay more than 30 percent of their adjusted monthly income for rent,
not to all low-income families) is to ensure that their rent is not
increased for two years (see section 203(g)). These low-income tenants
would receive Section 8 assistance only if HUD makes an administrative
decision to provide more Section 8 assistance than is required by
statute. Thus, the import of Sec. 290.202(b) in the final rule is that
HUD generally will sell unsubsidized projects where foreclosure was
unavoidable and there are unassisted low-income tenants in occupancy.
HUD intends to foreclose delinquent unsubsidized mortgages only if it
makes a determination that unassisted tenants would receive assistance
(including assistance available on a discretionary basis) if HUD were
to foreclose.
Finally, the NHLP recommended that HUD not sell delinquent,
partially assisted, unsubsidized mortgages facing foreclosure. As noted
above, HUD acknowledges that these mortgages require special treatment,
and they will be sold only under conditions that preserve the rental
housing for economically integrated rental use.
Negotiated Sales to State and Local Agencies
The National Council of State Housing Agencies (NCSHA) and the
Illinois Housing Development Authority (IHDA) responded to HUD's
request for comments on the negotiated sale of mortgages to State and
local agencies authorized by section 203(k)(3) of the Housing and
Community Development Act Amendments of 1978. Both strongly supported
such sales and described the unique qualifications that State housing
finance agencies (HFAs) have to assist HUD in preserving the
availability and affordability of the projects securing the loans for
low- and moderate-income rental use. Specific comments and HUD's
responses are summarized below.
Subsidy Contracts
NCSHA recommended that HUD assign Section 8 subsidy contract
administration to HFAs. HUD is willing to consider this recommendation,
subject to agreement on fees and the concern raised in conjunction with
regulatory agreements.
Regulatory Agreements
NCSHA recommended that HUD assign broad regulatory authority to
HFAs, including allowing HFAs to set rents and require owners to enter
into HFA management contracts. HUD is concerned that there is no
mechanism for restraining costs if the HFA performs financing and
regulatory functions and also administers the Section 8 contract. HUD
would like to explore how to combine regulatory authority with
incentives to contain costs. Otherwise it is HUD's view that States may
either administer Section 8 subsidy contracts or regulate rents, but
not both, in order to preserve the checks and balances vital to a sound
subsidy system.
Windfall Profits
NCSHA recommended and HUD concurs that mortgage insurance should be
limited to the purchase price of a mortgage or the unpaid principal
balance, whichever is lower. In addition, HUD would not permit resale
of mortgages for capital gains, even if the gains are passed through to
HUD.
Servicing
NCSHA recommended that ``[w]hen an HFA requests it, HUD should turn
over servicing functions to it upon its purchase of the loan.'' HUD
intends to turn over mortgage servicing functions upon the sale of a
loan in every case.
Delinquent Loans
NCSHA recommended splitting mortgages into financially viable and
inviable portions, with HUD retaining the inviable portion. HUD does
not wish to use this method for restoring a mortgage to financial
soundness, because it is inconsistent with the overall objective of
reducing the HUD-held inventory and HUD servicing responsibility. In
addition, strategies that involve owner consent, such as creating new
mortgage documents, may add a party to the negotiations and complicate
the transaction. HUD would consider other approaches that meet mutual
goals.
Long-Term Affordability
NCSHA recommended that HUD extend the mortgage insurance period
when purchasers negotiate an extension of the affordability period, so
the insurance would be coterminous with the financing. HUD would need
more information on what is being proposed in order to assess this
recommendation, e.g. what ``financing'' is being proposed? FHA
insurance runs with the mortgage; any additional insurance period would
require careful consideration and review.
Refinancing
NCSHA recommended that HUD permit HFAs to restructure high-interest
rate loans through Section 223(a)(7) refinancing. HUD-held mortgages
are not eligible for Section 223(a)(7) refinancing, and subsidized
mortgages generally are not eligible for prepayment. However, as part
of the restructuring of the mortgage, HUD will consider modifying
mortgages to lower above-market interest rates (and to reduce subsidy
payments, as appropriate) prior to mortgage sale. Such reduction would
be considered in any pricing.
Due Diligence
NCSHA recommended that HUD work with HFAs to disseminate
information on mortgages and permit HFAs to perform adequate and timely
due diligence. HUD intends to cooperate fully with HFAs in their
conduct of needed due diligence on the mortgages in which they are
interested.
Warranties and Representations
NCSHA recommended that, among other representations, HUD warrant
and represent that purchased loans are secured by projects that are in
full compliance with their regulatory agreements and subsidy contracts
and that the loans are current in their debt service and escrow and
reserve payments. HUD's view is that not all of these representations
and warranties may be appropriate for the subperforming mortgages that
are the focus of this negotiated sale program. HUD proposes to discuss
these representations in conjunction with necessary due diligence and a
specific portfolio of mortgages identified for sale.
Interstate Mortgage Pools
NCSHA recommended consideration of the formation of interstate
mortgage pools, to lower administrative burdens and transaction costs.
HUD will consider such pools as long as the results are consistent with
the overall objectives of the negotiated sale program, including hands-
on servicing by the purchasing agency.
Others
In addition, NCSHA and IHDA recommended that HUD negotiate the sale
of both unsubsidized mortgages with Section 8 contracts and
nonperforming unsubsidized mortgages. As noted above, HUD intends to
sell partially assisted, unsubsidized mortgages in specialized auctions
to investors that will be selected in part on the basis of their
commitment to preserving the economically integrated nature of this
rental housing. In addition, HUD intends to sell nonperforming
unsubsidized mortgages to the highest bidder in competitive auctions
that are designed to put local and national bidders on equal footing.
Given the high degree of investor interest in HUD's unsubsidized
mortgage portfolio and the Department's aim of reducing losses to the
FHA insurance fund, the Department cannot justify reserving
unsubsidized mortgages for purchase only by State and local agencies.
Depending upon the terms of a sale, however, these agencies may
participate with other investors in the purchase of these mortgages.
HUD Mortgage Sale Program
Several comments focused upon the mechanics of HUD's auction
program. Both JBS & Associates, Inc., a national real estate and loan
marketing firm, and Ross-Dove Company, Inc., an auctioneering firm,
recommended that HUD use open outcry auctions as one method of
disposition to sell multifamily mortgages. HUD will consider the use of
open outcry auctions for some of its mortgage sales.
The Real Estate Capital Recovery Association (RECRA), a trade
association representing both real estate workout specialists and real
estate purchasers, recommended that HUD develop a strategy and schedule
for disposing of the HUD-held inventory; determine the best disposition
strategy for mortgages on a case-by-case basis; and make greater use of
the private sector in managing, foreclosing, and selling assets. In
addition, RECRA recommended against giving mortgagors two purchase
opportunities--i.e., the opportunity to payoff their mortgages and to
bid in an auction. RECRA believed both: (1) that HUD's ability to
negotiate a payoff would be improved if the mortgagor could not
participate in the auction; and (2) that other bidders would not want
to bid against the mortgagor who is most knowledgeable about the
property. The terms and conditions under which a mortgagor may be
permitted to bid on its mortgage are best decided in the light of the
particular facts of a mortgage sale, such as whether the mortgages are
being sold separately or in pools or are current or delinquent.
Accordingly, HUD will announce any such terms and conditions in the
mortgage sales announcement and by notice to affected mortgagors. HUD
will consider these comments and other factors in setting these terms
and conditions.
The National Leased Housing Association (NLHA) supported the
proposed rule, but believed that it should have gone further in
spelling out the details of HUD's mortgage sale program, in order to
provide an opportunity for public comment. In particular, NLHA wanted
more detail regarding the FHA mortgage insurance programs to be used,
the minimum bid requirements, any borrower right of first refusal and
right to bid policies, and the nature of the bid process. It
recommended that mortgages be sold individually, bidders have adequate
time in which to perform due diligence, and workout agreements be
permitted to be terminated by agreement between the new mortgagee and
the mortgagor. All of this advice is well-taken. The Department has
consulted widely, and will continue to consult, in the development of
its mortgage sales program, but does not believe that such details
concerning mortgage sale procedures should be codified in regulation.
Instead, the Department intends to adopt mortgage sale policies that
are consistent with these regulations and are suited to the
characteristics of the mortgages offered for sale. This approach also
will allow the Department to learn from experience and feedback from
all affected parties as it pursues a series of mortgage sales. Auction
procedures will be spelled out in a bid package distributed prior to
each auction.
One mortgagor recommended a carefully considered set of policies
for mortgage settlements with owners. These recommendations will be
considered as HUD works with its financial advisor to develop a
mortgage settlement policy. A law firm urged special attention to
participation by small investors in the mortgage sale program,
including negotiated sales to small investors. HUD seeks to encourage
participation by small investors by offering nonperforming mortgages in
small pools; however, it is not authorized to negotiated sales to
private entities. A development and property management firm
recommended against the sale of HUD-held mortgages on the ground that
they would be too deeply discounted; however, if they were sold, the
firm recommended that the mortgages be sold individually, rather than
in pools, to receive the highest price. HUD will determine whether to
offer mortgages individually, in pools, or both, based on the
characteristics of the mortgages offered for sale and other terms and
conditions of the auction. The Chinese-American Golden Age Association
recommended the sale of Section 202 loans. HUD is considering various
options for these mortgages at the present time.
Section-by-Section Changes From Proposed Rule
Some of the provisions in the final rule have been reformatted, to
aid in clarity. Substantive changes made to the proposed rule are
identified below:
Section 207.270
A new provision has been added to part 207 which authorizes the
Department to modify the terms of the mortgage reinsurance pursuant to
section 223(c) of the National Housing Act when the Department sells a
mortgage with FHA insurance. This change is necessary to take into
account the fact that mortgages may be sold to investors at a discount
rate due to fluctuating interest rates. When mortgages are sold at a
discount rate, HUD will adjust the amount of the reinsurance to reflect
the purchase price of the mortgage, not the original mortgage amount.
HUD will determine the amount of the reinsurance at the time of the
mortgage sale. This regulatory change codifies existing Departmental
policy for mortgage sales.
Section 290.3
The definition of subsidized mortgage has been clarified to
indicate that purchase money mortgages (PMMs) for previously subsidized
projects will be treated like subsidized mortgages. The definition of
subsidized project has been conformed with the Multifamily Property
Disposition Act.
Section 290.200
Language has been added to the section describing the purpose of
the new subpart D, Sale of HUD-held mortgages, to state that, except
for negotiated sales to State and local governments, HUD will sell
mortgages on a competitive basis. Language has also been added to
explain that the Secretary retains full discretion to offer any
qualifying mortgage for sale and to withhold or withdraw any offered
mortgage from sale. The procedures set out in the remaining sections of
this subpart apply only when the Secretary has determined that a
qualifying mortgage is to be sold.
Section 290.201(a)
The Department agrees with commenters that existing tenant
protections should be preserved. Consequently, a paragraph has been
added to include language from section 203(k)(1) of the HCD Amendments
of 1978, prohibiting the Secretary from selling a HUD-held mortgage on
a subsidized project unless the sale is made part of a transaction that
meets certain qualifications. The transaction must ensure that the
project will continue to operate at least until the maturity date of
the loan or mortgage in a manner that will provide rental housing on
terms at least as advantageous to existing and future tenants as the
terms required by the program under which the original mortgage was
insured.
Section 290.202(b)(2)
The language has been changed to incorporate the changes made by
the Multifamily Property Disposition Act in the treatment of
unsubsidized projects.
Other Matters
Executive Order 12866
This rule was reviewed by the Office of Management and Budget (OMB)
under Executive Order 12866, Regulatory Planning and Review. Any
changes made to the 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, D.C.
Environmental Impact
In accordance with 40 CFR 1508.4 of the regulations of the Council
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations,
the policies and procedures contained in this rule relate only to HUD
administrative procedures and, therefore, are categorically excluded
from the requirements of the National Environmental Policy Act.
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. Specifically, the
requirements of this rule are directed to HUD administrative
procedures, and do not impinge upon the relationship between Federal
government and State and local governments.
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 will
result from promulgation of this rule, as those policies and programs
relate to family concerns.
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 will not have a significant economic impact on
a substantial number of small entities. This rule will not affect the
ability of small entities, relative to larger entities, to bid for and
acquire HUD-held mortgages that HUD decides to sell.
Justification for Final Rulemaking
In general, the Department publishes a rule for public comment
before issuing a rule for effect, in accordance with its own
regulations on rulemaking, 24 CFR part 10. However, part 10 does
provide for exceptions from that general rule where the agency finds
good cause to omit advance notice and public participation. The good
cause requirement is satisfied when prior public procedure is
``impracticable, unnecessary, or contrary to the public interest.'' (24
CFR 10.1) The Department finds that good cause exists to publish
section 207.270 of this rule for effect without first soliciting public
comment, in that prior public procedure is unnecessary because the
Department is merely codifying an existing earlier policy.
Regulatory Agenda
This final rule was listed as sequence number 1579 in the
Department's Semiannual Agenda of Regulations published on April 25,
1994 (59 FR 20424, 20446) in accordance with Executive Order 12866 and
the Regulatory Flexibility Act.
List of Subjects
24 CFR Part 207
Manufactured homes, Mortgage insurance, Reporting and recordkeeping
requirements, Solar energy.
24 CFR Part 290
Low and moderate income housing, Mortgage insurance.
For the reasons stated in the preamble, part 207 and part 290 of
title 24 of the Code of Federal Regulations is amended as follows:
PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE
1. The authority citation for part 207 is revised to read as
follows:
Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C.
3535(d).
2. Subpart B is amended by adding a new undesignated center heading
to follow immediately after Sec. 207.263, and by adding a new
Sec. 207.270 to read as follows:
Reinsured Mortgages
Sec. 207.270 Special Reinsurance Provisions.
The terms, method and amount for payment of insurance benefits for
mortgages reinsured pursuant to section 223(c) of the National Housing
Act may be modified by the terms of the Commissioner's endorsement of
the note for reinsurance.
PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY
PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD
MORTGAGES
3-4. The authority citation for part 290 continues to read as
follows:
Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b;
42 U.S.C. 3535(d).
5. Section 290.1 is revised to read as follows:
Sec. 290.1 Applicability.
This part applies to HUD-owned multifamily housing projects and to
rental housing projects that are subject to mortgages held by HUD.
Specific provisions, as noted in the rule text, apply only to ``rental
housing projects'' (including HUD-owned rental housing projects) as
defined in Sec. 290.3.
6. In Sec. 290.3, definitions for ``subsidized mortgage,''
``subsidized project'' and ``unsubsidized mortgage'' are added in
alphabetical order to read as follows:
Sec. 290.3 Definitions.
* * * * *
Subsidized mortgage means a mortgage, including a purchase money
mortgage, on a subsidized project.
Subsidized project means a rental project that is receiving, or
immediately before its mortgage was foreclosed by HUD or the project
was acquired by HUD pursuant to this regulation was receiving, any of
the following types of assistance:
(1) Below market interest rate mortgage insurance under the proviso
of section 221(d)(5) of the National Housing Act (hereinafter, a BMIR
project);
(2) Interest reduction payments made in connection with mortgages
insured under section 236 of the National Housing Act (hereinafter, a
236 project);
(3) Direct loans made under section 202 of the Housing Act of 1959
(hereinafter, a 202 project);
(4) Assistance, to more than 50 percent of the units in the
project, in the form of:
(i) Rent supplement payments under section 101 of the Housing and
Urban Development Act of 1965 (hereinafter, Rent Supp);
(ii) Additional assistance payments under section 236(f)(2) of the
National Housing Act (hereinafter, RAP);
(iii) Housing assistance payments under section 23 of the United
States Housing Act of 1937 (as in effect before January 1, 1975)
(hereinafter, Sec. 23); or
(iv) Housing assistance payments under section 8 of the United
States Housing Act of 1937 (excluding payments made for tenant-based
assistance under section 8) (hereinafter, project-based section 8).
* * * * *
Unsubsidized mortgage means any HUD-held mortgage that is not a
subsidized mortgage.
* * * * *
7. A new Subpart D, consisting of Secs. 290.200 through 290.202 is
added, to read as follows:
Subpart D--Sale of HUD-Held Mortgages
290.200 Purpose and applicability of Civil Rights Requirements.
290.201 Sale of subsidized HUD-held mortgages.
290.202 Sale of unsubsidized HUD-held mortgages.
Subpart D--Sale of HUD-Held Mortgages
Sec. 290.200 Purpose and applicability of Civil Rights Requirements.
(a) Purpose. The purpose of this subpart is to set out HUD's policy
regarding the sale of subsidized and unsubsidized HUD-held mortgages.
Except as otherwise provided in Sec. 290.201(b)(ii), the Department
will sell mortgages on a competitive basis. The Secretary retains full
discretion to offer any qualifying mortgage for sale and to withhold or
withdraw any offered mortgage from sale. However, when a qualifying
mortgage is offered for sale, the procedures set out in this part will
govern the sale.
(b) Applicability of Civil Rights Requirements. Nothing in this
subpart relieves HUD or housing that receives federal financial
assistance from federal civil rights requirements, including section
504 of the Rehabilitation Act, Title VI of the Civil Rights Act of
1964, Title VIII of the Civil Rights Act of 1968, the Age
Discrimination Act of 1975, Executive Order 11063, and related
regulations and requirements. This includes housing in which less than
50% of the units are receiving housing assistance payments under either
Section 23 or Section 8 of the United States Housing Act of 1937 and
housing in which the rent of any unit is paid by a Section 8
certificate or voucher.
Sec. 290.201 Sale of subsidized HUD-held mortgages.
(a) Tenant protections preserved. HUD will only sell subsidized
mortgages if the sale is part of a transaction that will ensure that
the project subject to the mortgage will continue to operate, at least
until the maturity date of the mortgage, in a manner that will provide
rental housing on terms at least as advantageous to existing and future
tenants as the terms required by the program under which the mortgage
was insured prior to its assignment. HUD's policy for selling
subsidized HUD-held mortgages is set out in paragraphs (b) and (c) of
this section.
(b) Current mortgages. HUD may sell current mortgages, as follows:
(1) Current mortgages with FHA mortgage insurance will be sold
either:
(i) On a competitive basis to FHA-approved mortgagees; or
(ii) On a negotiated basis, to State or local governments, or to a
group of investors that includes an agency of a State or local
government, if:
(A) The terms of the sale include an agreement by the State or
local government, or an agency of the State or local government, to:
(1) Act as mortgagee or owner of a beneficial interest in the
mortgage; and
(2) Ensure that the project will maintain occupancy by the tenant
group originally intended to be served by the subsidized housing
program; and
(B) The sales price is the best price that the Secretary can obtain
from an agency of a State or local government while maintaining
occupancy for the tenant group originally intended to be served by the
subsidized housing program.
(2) Current mortgages without FHA mortgage insurance will be sold
if HUD can offer protections equivalent to those listed for an insured
sale in paragraph (b)(1) of this section.
(c) Delinquent mortgages. Delinquent mortgages will be sold only
if, as part of the sales transaction:
(1) The mortgages are restructured; and
(2) Either FHA mortgage insurance or equivalent protections are
provided.
Sec. 290.202 Sale of unsubsidized HUD-held mortgages.
HUD's policy for selling unsubsidized HUD-held mortgages is as
follows:
(a) Current mortgages may be sold with or without FHA mortgage
insurance.
(b) Delinquent mortgages may be sold without FHA mortgage
insurance. However, delinquent mortgages will not be sold if:
(1) HUD believes that foreclosure is unavoidable; and
(2) The project securing the mortgage is occupied by very low-
income tenants who are not receiving housing assistance and would be
likely to pay rent in excess of 30 percent of their adjusted monthly
income if HUD sold the mortgage.
Dated: September 16, 1994.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing-Federal Housing
Commissioner.
[FR Doc. 94-23522 Filed 9-21-94; 8:45 am]
BILLING CODE 4210-27-P
