[Federal Register Volume 62, Number 237 (Wednesday, December 10, 1997)]
[Rules and Regulations]
[Pages 65180-65182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32250]
[[Page 65179]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 201, 202 and 203
Termination of an Approved Mortgagee's Origination Approval Agreement;
Final Rule
Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 /
Rules and Regulations
[[Page 65180]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 201, 202 and 203
[Docket No. FR-4239-I-01]
RIN 2502-AG99
Termination of an Approved Mortgagee's Origination Approval
Agreement
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Interim rule.
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SUMMARY: This interim rule clarifies and makes minor changes to 24 CFR
parts 202 and 203 to improve the provisions regarding termination of a
single family mortgagee's origination approval agreement with FHA. The
interim rule also corrects errors in 24 CFR parts 201 and 202.
DATES: Effective date: January 9, 1998.
Comment due date: February 9, 1998.
FOR FURTHER INFORMATION CONTACT: Phillip Murray, Director, Office of
Lender Activities and Program Compliance, Department of Housing and
Urban Development, Room B-133-P3214, 451 Seventh Street, SW,
Washington, DC 20410, telephone number (202) 708-1515 (this is not a
toll-free number). A telecommunications device for hearing-and speech-
impaired persons (TTY) is available at (800) 877-8339 (Federal
Information Relay Service).
SUPPLEMENTARY INFORMATION:
Part 202 of title 24 contains the Department's requirements for
approval of lenders and mortgagees for FHA insurance programs. The
Department reorganized and streamlined part 202 by a recent final rule
without making any substantive changes (62 FR 20080, April 24, 1997).
The Department also published an interim rule announcing the Lender
Insurance program (62 FR 30222, June 2, 1997). This new interim rule
includes minor substantive changes to part 202 and corrections to the
streamlining and Lender Insurance rules.
Part 202 is amended to state more clearly the provisions regarding
termination of an FHA-approved single family mortgagee's origination
approval agreement (OAA). The following matters are clarified or
changed in Sec. 202.3(d):
When a mortgagee has a default and claim rate sufficient
to support termination of the OAA under the standards of part 202,
termination is at the discretion of the Secretary even if the
Department in a previous time period could have, but did not, place the
mortgagee on credit watch. This is a clarification of the Department's
current interpretation.
A mortgagee will not be permitted to apply for a new OAA
for 6 months after termination of an OAA. There is currently no delay
required for an application for a new OAA.
Claims and defaults will be measured for 24 months after a
mortgage is insured, instead of the current 18 months for claims and 1
year for defaults. Two references to tracking a mortgagee's default and
claims for originations ``during a Federal fiscal year'' are deleted as
inconsistent with the uniform 24-month tracking period.
Corrections to the April 24, 1997 final rule include:
Sections 201.20(a)(3) and 201.26(a)(1)(iii), which had
been removed by an interim rule (61 FR 19797-8, May 2, 1996), were
inadvertently restored in modified form by the final rule and are now
removed again.
The United States Code citation for the National Housing
Act, which was inadvertently omitted, is added to the definition of
``Act'' in Sec. 202.2.
The definition of ``mortgage'' in Sec. 202.2 is corrected
to include mortgages insured under title XI of the National Housing Act
to be consistent with the definition of ``Title II program'' which
includes title XI.
Two minor editorial corrections are made to Sec. 202.5: a
comma is inserted in the first sentence of Sec. 202.5(i) and ``that''
is inserted in Sec. 202.5(n)(1)(i) to improve clarity.
``And'' is changed to ``an'' in Sec. 202.7(b)(4)(i)(A).
In addition, language is added to Secs. 203.3 and 203.4 that
clarifies HUD's current position that a mortgagee with a terminated OAA
also has its approval under the Direct Endorsement and Lender Insurance
programs terminated without further procedures.
Other Matters
Justification for Interim Rulemaking
HUD generally publishes a rule for public comment before issuing a
rule for effect, in accordance with its own regulations on rulemaking
in 24 CFR part 10. However, part 10 provides for exceptions to the
general rule if 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). HUD finds that good cause exists
to publish this rule for effect without first soliciting public
comment. However, HUD is allowing for a full 60-day public comment
period on the provisions of this interim rule, and HUD will consider
the relevant issues raised by the commenters in its development of a
final rule for the Lender Insurance program.
Many of the changes are corrections or clarifications that do not
alter substantive policy currently in effect. Some of the changes are
made for administrative efficiency without any likely substantive
effect on mortgagees, such as the use of calendar years and uniform 24
month periods to measure default and claim rates. The new explicit
prohibition against applying for a new OAA within 6 months of
termination supplements the current requirement that HUD must determine
that the underlying cause of the termination must have been
satisfactorily remedied before a new origination approval agreement
would be approved. Under current practice it is highly unlikely that
HUD could ever make that determination within 6 months of a
termination. The new provision is an administrative measure designed to
avoid futile applications by the mortgagee that must be processed by
HUD personnel even when denial is virtually certain.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim 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 merely
clarifies and makes minor changes and corrections to the existing
regulations. The rule will have no adverse or disproportionate economic
impact on small businesses. Small entities are specifically invited,
however, to comment on whether this rule will significantly affect
them, and persons are invited to submit comments according to the
instructions in the DATES and ADDRESSES sections in the preamble of
this interim rule.
Environmental Impact
This rulemaking is exempt from the environmental review procedures
under HUD regulations in 24 CFR part 50 that implement section
102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C.
4332) because of the exemption under Sec. 50.19(c)(1) which pertains to
``the approval of policy documents that do not direct, provide for
assistance or loan and mortgage insurance for, or otherwise govern or
regulate property acquisition,
[[Page 65181]]
disposition, lease, rehabilitation, alteration, demolition, or new
construction, or set out to provide for standards for construction or
construction materials, manufactured housing, or occupancy.'' This
rulemaking simply amends an existing regulation regarding termination
of a mortgagee's approval to originate insured mortgages and does not
alter the environmental effect of the regulations being amended. The
regulation being amended was also exempt under Sec. 50.19(c)(1), as
stated at 62 FR 20080, April 24, 1997.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that 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. No programmatic or policy changes
will result from this rule that would affect the relationship between
the Federal Government and State and local governments.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (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
does not impose any Federal mandates on any State, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
Catalog
The Catalog of Federal Domestic Assistance number for the programs
affected by this interim rule are 14.117 and 14.142.
List of Subjects
24 CFR Part 201
Health facilities, Historic preservation, Home improvement, Loan
programs--housing and community development, Manufactured homes,
Mortgage insurance, Reporting and recordkeeping requirements.
24 CFR Part 202
Administrative practice and procedure, Home improvement,
Manufactured homes, Mortgage insurance, Reporting and recordkeeping
requirements.
24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
Accordingly, parts 201, 202 and 203 of title 24 of the Code of
Federal Regulations are amended as follows:
PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS
1. The authority citation for 24 CFR part 201 is revised to read as
follows:
Authority: 12 U.S.C. 1703 and 3535(d).
Sec. 201.20 [Amended]
2. Section 201.20 is amended by removing paragraph (a)(3).
3. Section 201.26 is amended by revising paragraph (a)(1) to read
as follows:
Sec. 201.26 Conditions for loan disbursement.
(a) * * *
(1) The lender shall ensure that the following conditions are met:
(i) The borrower is eligible for a property improvement loan in
accordance with Sec. 201.20(a) (1) or (2); and
(ii) The interest of the borrower in the property is valid, through
such title or other evidence as are generally acceptable to prudent
lending institutions and leading attorneys in the community in which
the property is situated.
* * * * *
PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES
4. 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).
5. Section 202.2 is amended by revising the definitions of ``Act'',
``Claim'', ``Default'', and ``Mortgage, Title II mortgage or insured
mortgage'', to read as follows:
Sec. 202.2 Definitions.
Act means the National Housing Act (12 U.S.C. 1702 et seq.)
Claim means a single family insured mortgage for which the
Secretary pays an insurance claim within 24 months after the mortgage
is insured.
Default means a single family insured mortgage in default for 90 or
more days within 24 months after the mortgage is insured.
* * * * *
Mortgage, Title II mortgage or insured mortgage means a mortgage or
loan insured under Title II or Title XI of the Act.
* * * * *
6. Section 202.3 is amended by revising paragraph (c)(2)(ii)(A),
the first sentence of paragraph (c)(2)(iii), and paragraph (c)(2)(v)(C)
to read as follows:
Sec. 202.3 Approval status for lenders and mortgagees.
* * * * *
(c) * * *
(2) * * *
(ii) * * *
(A) The Secretary may notify a mortgagee that its origination
approval agreement will terminate 60 days after notice is given, if the
mortgagee had a rate of defaults and claims on insured mortgages
originated in an area which exceeded 200 percent of the normal rate,
and exceeded the national default and claim rate for insured mortgages.
The notice may be given without action by the Mortgagee Review Board
even if the Secretary previously had the right to issue a credit watch
notice to the mortgagee under this section but did not do so.
* * * * *
(iii) Credit watch status. The Secretary may notify a mortgagee
that it is on credit watch status if the mortgagee had a rate of
defaults and claims on insured mortgages originated in an area which
exceeded 150 percent, but not 200 percent, of the normal rate. * * *
* * * * *
(v) * * *
(C) A mortgagee's right to apply for a new origination approval
agreement if it continues to be an approved mortgagee meeting the
general standards of Sec. 202.5 and the specific requirements of
Secs. 202.6. 202.7. 202.8 or 202.10, and 202.12, if the mortgagee has
had no origination approval agreement for at least 6 months, and if the
Secretary determines that the underlying causes for termination have
been satisfactorily remedied; or
* * * * *
7. Section 202.5 is amended by revising the first sentence of
paragraph (i) and paragraph (n)(1)(i) to read as follows:
Sec. 202.5 General approval standards.
* * * * *
(i) * * * The lender or mortgagee, unless approved under
Sec. 202.10, shall pay an application fee and annual fees, including
additional fees for each branch office authorized to originate Title I
loans or submit applications for mortgage insurance, at such times and
[[Page 65182]]
in such amounts as the Secretary may require. * * *
* * * * *
(n) * * *
(1) * * *
(i) The aggregate original amount of insured mortgages that the
mortgagee originated and that were insured during the fiscal year, or
that the mortgagee purchased as a sponsor from its loan
correspondent(s) during the fiscal year; and
* * * * *
8. Section 202.7 is amended by revising paragraph (b)(4)(i)(A) to
read as follows:
Sec. 202.7 Nonsupervised lenders and mortgagees.
* * * * *
(b) * * *
(4) * * *
(i) * * *
(A) A financial statement in a form acceptable to the Secretary,
including a balance sheet and a statement of operations and retained
earnings, an analysis of the mortgagee's net worth adjusted to reflect
only assets acceptable to the Secretary, and an analysis of escrow
funds; and
* * * * *
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
4. The authority citation for 24 CFR part 203 is revised to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C.
3535(d).
5. Section 203.3 is amended by adding a new paragraph (d)(2)(iv) to
read as follows:
Sec. 203.3 Approval of mortgagees for Direct Endorsement.
* * * * *
(d) * * *
(2) * * *
(iv) Termination of an origination approval agreement under part
202 of this chapter for a mortgagee or one or more branch offices
automatically terminates Direct Endorsement approval for the mortgagee
or the branch office or offices without any further requirement to
comply with this paragraph.
6. Section 203.4 is amended by adding a new sentence at the end of
paragraph (d) to read as follows:
Sec. 203.4 Approval of mortgagees for Lender Insurance.
* * * * *
(d) * * * Termination of an origination approval agreement under
part 202 of this chapter or termination of Direct Endorsement approval
under Sec. 203.3(d)(2) for a mortgagee or one or more branch offices
automatically terminates Lender Insurance approval for the mortgagee or
the branch office or offices without any further requirement to comply
with this paragraph.
Dated: October 22, 1997.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 97-32250 Filed 12-9-97; 8:45 am]
BILLING CODE 4210-27-P
