[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24188]
[[Page Unknown]]
[Federal Register: September 30, 1994]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing Federal Housing
Commissioner
24 CFR Parts 200, 203, 207, 220, 221, 235, 236, 237, 241 and 242
[Docket No. R-94-1751; FR-3434-F-02]
RIN 2502-AG01
Payment of Insurance Claims by Book Entry Form of Debentures and
Statute of Limitations on Payment of Distributive Shares
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule implements provisions in the Housing and Community
Development Act of 1992 that authorize the Secretary to pay mortgage
insurance claims with book entry forms of debentures and establish a
statute of limitations on payments of Mutual Mortgage Insurance Fund
distributive shares.
EFFECTIVE DATE: October 31, 1994.
FOR FURTHER INFORMATION CONTACT: Christopher Peterson, Director, Office
of Mortgage Insurance Accounting and Servicing, Room 2108, Department
of Housing and Urban Development, 451 Seventh Street, SW, Washington,
DC 20410, telephone: voice (202) 708-1046; the telecommunications
device for the deaf (TDD) telephone number is (202) 708-4594. (These
are not toll-free numbers.)
SUPPLEMENTARY INFORMATION: This rule implements two provisions
contained in the Housing and Community Development Act of 1992, Pub. L.
102-550, approved October 28, 1992 (the 1992 Act). Section 516 of the
1992 Act amends sections 204, 207, 220 and 221(g), of the National
Housing Act to authorize the Secretary of HUD to pay virtually any
mortgage insurance claim in book entry or other form of debentures an
well as in the current certificated registered form. Section 508 of the
1992 Act establishes a 6-year statute of limitation on the payment of
distributive shares from the Mutual Mortgage Insurance Fund.
Authority To Pay Mortgage Insurance Claims With Book Entry and Other
Forms of Debentures
The rule amends parts 200, 203, 207, 220, 221, 235, 236, 237, 241
and 242 of title 24 of the Code of Federal Regulations to authorize
payment of mortgage insurance claims with book entry or other forms of
debentures.
Under HUD's mortgage insurance programs, when a mortgage goes into
default, the mortgagee is entitled to receive insurance benefits that
are payable in cash or debentures. HUD currently pays most, but not
all, claims in cash. One notable exception is that, under section
221(g)(4) of the National Housing Act, holders of single family
mortgages insured under section 221 that are current after 20 years
from final endorsement may assign the mortgages to HUD and receive
debentures in exchange. Holders of current section 221 multifamily
mortgages may likewise assign such mortgages to HUD in exchange for
debentures if the mortgage is not sold through the auction process
mandated by section 221(g)(4)(C). HUD also issues debentures for the
difference between the amount of redeemed debentures and the amount of
the mortgage insurance premium due, when mortgagees pay their MIP and
then exercise their right to send in the debentures for redemption.
Since 1938, the Department of the Treasury has acted as Fiscal
Agent for the Federal Housing Administration and HUD with respect to
debentures, and has carried out debenture processing functions on FHA's
and HUD's behalf. Since 1988, Treasury has delegated much of the
debenture processing functions to the Federal Reserve Bank of
Philadelphia (FRBP) acting in its capacity as Fiscal Agent of the
United States. The computer system used by FRBP is designed to
accommodate use of book entry, as well as certificated debentures.
Processing book entry debentures is considerably less costly than
processing certificated debentures. Section 516 of the 1992 Act
provides explicit statutory authority for HUD to convert to a book
entry system.
Under current statutory authority, FRBP issues certificated
debentures in multiples of $50, and issues a cash adjustment for the
balance. The certificated debenture system is extremely cumbersome and
expensive to administer, since FRBP must have the debenture stock
printed, store and handle the debenture stock under secure conditions,
process the issuance of debentures manually, transmit the debentures
physically, and issue the cash adjustment separately. The certificated
debentures are also cumbersome and expensive for holders to store and
negotiate. Such debentures must be held under secure conditions, and
the pledging and assignment through physical transfer could cause
delays or lead to loss or theft.
Because of these considerations, Treasury and a number of Federal
government agencies have switched from certificated to book entry
securities, a shift paralleled in the equity and corporate and
municipal bond markets. However, since Congress apparently contemplated
the use of certificated debentures when it enacted the current
provisions of sections 204, 207, and 220 of the National Housing Act,
Section 516 of the 1992 Act was enacted to clarify HUD's authority to
pay claims through the issuance of book entry debentures.
With enactment of section 516, the book entry system administered
by FRBP can be put into operation. Effective with this rule, HUD will
have authority to issue debentures in book entry form. HUD intends to
implement this authority in the very near future with respect to
issuance of all new debentures. An announcement of the implementation
will be made prior to its effective date. Also, once this new authority
is implemented, debentures issued for amounts remaining after payment
of mortgage insurance premiums may also be in book entry form. In
addition, holders of outstanding certificated debentures may, at their
option, exchange such debentures for book entry securities. Debentures
in book entry form will not thereafter be exchangeable for debentures
in certificated form. Book entry debentures will be issued in a minimum
amount of one dollar and increments of one cent. This will allow
debentures to be issued in virtually the exact amount payable to the
holder, with no cash adjustment. Interest and principal payments on
book entry debentures will be made by direct deposit (electronic funds
transfer) to the account and financial institution designated by the
owners of the debentures. Considerable savings will accrue, both to the
Federal government and to holders of debentures, by thus bringing the
FHA debenture process into conformity with modern commercial practices.
Establish a Statute of Limitations on Payments of Distributive Shares
The rule also implements section 508 of the 1992 Act by amending 24
CFR Part 203 to establish a six-year statute of limitations within
which an individual who is eligible for the payment of a distributive
share could claim his or her distributive share. The amendment also
transfers amounts no longer eligible for distribution because of the
statute of limitations from the Participating Reserve Account to the
General Surplus Account to help ensure the actuarial soundness of the
Mutual Mortgage Insurance Fund.
Publication as Final Rule
It is the policy of the Department to publish rules for public
comment before developing a rule for effect. However, in a particular
case where notice and public comment are not required by statute, the
procedure for advance public comment may be omitted if the Department
determines that it is impracticable, unnecessary, or contrary to the
public interest. In this case, revisions to the regulations are limited
to those needed to reflect the clear Congressional mandate to effect a
6-year statute of limitations on claims for distributive shares and to
provide authority to issue debentures in book entry form. The
Department would not be able to change the minimal provisions it is
setting forth in this rule in response to public comments because of
the specificity of the statute being implemented. Consequently, we
believe it unnecessary to accept and review public comments before
putting into effect these statutory provisions.
Other Matters
Regulatory Flexibility
In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility
Act), the undersigned hereby certifies that this rule does have a
significant economic impact on a substantial number of small entities.
The rule implements Congressional mandates which will prove cost
beneficial for affected business entities both large and small.
NEPA
Under HUD regulations (24 CFR 50.20(k)), this rule is exempt from
the requirements of the National Environmental Policy Act as set forth
in 24 CFR Part 50. The rule relates to internal administrative
procedures, the content of which does not involve development
decisions, and does not affect the physical condition of project areas
or building sites but only relates to the payment of insurance claims
and distributive shares.
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. The rule does not
effect any change in current relationships between HUD, the private
sector and state and local governmental entities.
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 Agenda. This rule was listed as item 1597 in the
Department's Semiannual Agenda of Regulations published on April 25,
1994 (59 FR 20424, 20450) in accordance with Executive Order 12866 and
the Regulatory Flexibility Act.
List of Subjects
24 CFR Part 200
Administrative practice and procedure, Claims, Equal employment
opportunity, Fair housing, Housing standards, Incorporation by
reference, Lead poisoning, Loan programs--housing community
development, Minimum property standards, Mortgage insurance,
Organization and functions (Government agencies), Reporting and
recordkeeping requirements, Social security, Unemployment compensation,
Wages.
24 CFR Part 203
Mortgage insurance.
24 CFR Part 207
Manufactured homes, Mortgage insurance, Reporting and recordkeeping
requirements, Solar energy.
24 CFR Part 220
Home improvement, Loan programs--housing and community development,
Mortgage insurance, Reporting and recordkeeping requirements, Urban
renewal.
24 CFR Part 221
Low and moderate income housing, Mortgage insurance, Reporting and
recordkeeping requirements.
24 CFR Part 235
Condominiums, Cooperatives, Grant programs--housing and community
development, Low and moderate income housing, Mortgage insurance,
Reporting and recordkeeping requirements.
24 CFR Part 236
Grant programs--housing and community development, Low and moderate
income housing, Mortgage insurance, Rent subsidies, Reporting and
recordkeeping requirements.
24 CFR Part 237
Grant programs--housing and community development, Low and moderate
income housing, Mortgage insurance.
24 CFR Part 241
Energy conservation, Home improvement, Loan programs--housing and
community development, Mortgage insurance, Reporting and recordkeeping
requirements, Solar energy.
24 CFR Part 242
Hospitals, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, in chapter II of title 24 Code of Federal Regulations,
parts 200, 203, 207, 220, 221, 235, 236, 237, 241, and 242, are amended
as follows:
PART 200--INTRODUCTION
1. The authority citation for 24 CFR part 200 is revised to read as
follows:
Authority: 12 U.S.C. 1701-1715z-18, 1701s, and 1715z-11; 42
U.S.C. 3535(d), 3543, and 3544.
2. In Sec. 200.157, paragraphs (b), (c), (d), (e), and (f)(1) are
revised to read as follows:
Sec. 200.157 Provisions and characteristics of debentures.
* * * * *
(b) Registration and denominations. Debentures in certificated form
are issued in denominations of $50, $100, $500, $1,000 and $10,000 with
the name of the owner inscribed on the face of the certificate.
Debentures in book entry form are issued in a minimum amount of one
dollar and in increments of one cent with the name of the owner
recorded in an account master record on the books of the Treasury.
(c) Rate of interest and interchangeability. Debentures carry a
rate of interest prescribed by the Commissioner but not in excess of an
annual rate determined by the Secretary of the Treasury in accordance
with prescribed statutory formula involving yields or prices of
outstanding marketable obligations of the United States. Debentures in
certificated form of the same series bearing the same interest rate and
having the same maturity date shall be freely interchangeable between
the various authorized denominations and may be exchanged for similar
debentures in book entry form. Debentures in book entry form cannot be
exchanged for debentures in certificated form.
(d) Negotiability and Redemption. Debentures in certificated form
are negotiable and, if in book entry form, are transferable in the
manner described in applicable Treasury regulations. Debentures are
fully guaranteed as to principal and interest by the United States.
Debentures are redeemable on call issued by the Commissioner.
(e) Payment of principal and interest. Principal and interest on
debentures shall be payable when due at the Department of the Treasury,
Washington, DC, or any Government agency or agencies in the United
States which the Secretary of the Treasury may from time to time
designate for that purpose. The principal and interest shall be payable
to the owner whose name shall be inscribed on the debenture in
certificated form, to the owner designated as assignee as shown by
executed assignments for maturing or called certificated debentures, or
to the owner whose name shall be recorded in the account master record
of the book entry debentures.
(f) Transfer and use--(1) In general. Debentures in certificated
form are negotiable and, if in book entry form, are transferable in the
manner described in applicable Treasury regulations. They may be used
by approved mortgagees in lieu of cash for payment of FHA mortgage
insurance premiums.
* * * * *
3. In Sec. 200.158, the introductory text is revised and paragraphs
(c) and (d) are removed, to read as follows:
Sec. 200.158 Applicability of Treasury regulations to debenture
transactions.
The Department of the Treasury acts as fiscal agent for the
Commissioner in connection with transactions and operations relating to
debentures. Treasury's General Regulations Governing U.S. Securities
(31 CFR Part 306) and its Supplemental Regulations Governing Federal
Housing Administration Debentures (31 CFR Part 337) have been and are
adopted as revised and amended, to the extent applicable, as the
regulations of the Commissioner governing the issuance of, transactions
in and redemption of debentures, including the payment of interest
thereon with the following exceptions:
* * * * *
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
4. The authority citation for 24 CFR part 203 continues to read as
follows:
Authority: 12 U.S.C. 1709, 1715b; 42 U.S.C. 3535(d).
5. Paragraph (r) of Sec. 203.251 is revised to read as follows:
Sec. 203.251 Definitions.
* * * * *
(r) Debentures means registered, transferable securities in
certificated or book entry form which are valid and binding
obligations, issued in the name of the Mutual Mortgage Insurance Fund
in accordance with the provisions of this part; such debentures are the
primary liability of the Mutual Mortgage Insurance Fund and are
unconditionally guaranteed as to principal and interest by the United
States.
* * * * *
6. Section 203.408 is revised to read as follows:
Sec. 203.408 Form and amounts of debentures.
Debentures issued under this part shall be in such form and
amounts; and shall be subject to such term and conditions; and shall
include such provisions for redemption, if any, as may be prescribed by
the Secretary, with the approval of the Secretary of the Treasury; and
may be in book entry or certificated registered form, or such other
form as the Secretary by regulation may prescribe.
7. Section 203.411 is revised to read as follows:
Sec. 203.411 Cash adjustment.
Any difference of less than $50 between the amount of debentures to
be issued to the mortgagee and the total amount of the mortgagee's
claim, as approved by the Commissioner, may be adjusted by the issuance
of a check in payment thereof.
8. A new Sec. 203.427 is added after Sec. 203.426 and at the end of
the undesignated center heading, ``Mutual Mortgage Insurance Fund and
Distributive Shares'', to read as follows:
Sec. 203.427 Statute of limitations on payment of distributive shares.
The Commissioner shall not distribute any distributive share to an
eligible mortgagor under Sec. 203.423 beginning on the date which is
six years after the date the Commissioner first transmitted written
notification of eligibility to the last known address of the mortgagor,
unless the mortgagor has applied in accordance with procedures
prescribed by the Commissioner for payment of the share within the six-
year period. The Commissioner shall transfer any amounts no longer
eligible for distribution under this section from the Participating
Reserve Account to the General Surplus Account.
9. Paragraph (f) of Sec. 203.440 is revised to read as follows:
Sec. 203.440 Definitions.
* * * * *
(f) Debentures means registered, transferable securities in book
entry or certificated form which are valid and binding obligations,
unconditionally guaranteed as to principal and interest by the United
States.
10. Section 203.483 is revised to read as follows:
Sec. 203.483 Forms and amounts of debentures.
Debentures issued under this part shall be in such form and
amounts; and shall be subject to such terms and conditions; and shall
include such provisions for redemption, if any, as may be prescribed by
the Secretary, with the approval of the Secretary of the Treasury; and
may be in book entry or certificated registered form, or such other
form as the Secretary by regulation may prescribe.
11. Section 203.487 is revised to read as follows:
Sec. 203.487 Cash adjustment.
Any difference of less than $50 between the amount of debentures to
be issued to the lender and the total amount of the lender's claim, as
approved by the Commissioner, may be adjusted by the issuance of a
check in payment thereof.
PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE
12. The authority citation for 24 CFR part 207 continues to read as
follows:
Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C.
3335(d).
13. Section 207.259 is amended by revising paragraph (e)(5), to
read as follows:
Sec. 207.259 Insurance benefits.
* * * * *
(e) * * *
(5) Be issued in such forms and amounts; and be subject to such
terms and conditions; and include such provisions for redemption, if
any, as may be prescribed by the Secretary, with the approval of the
Secretary of the Treasury; and may be in book entry or certificated
registered form, or such other form as the Secretary by regulation may
prescribe.
* * * * *
PART 220--MORTGAGE INSURANCE AND INSURED IMPROVEMENT LOANS FOR
URBAN RENEWAL AND CONCENTRATED DEVELOPMENT AREAS
14. The authority citation for 24 CFR part 220 continues to read as
follows:
Authority: 12 U.S.C. 1713, 1715b, 1715k; 42 U.S.C. 3535(d).
15. Section 220.836 is revised to read as follows:
Sec. 220.836 Form and amounts of debentures.
Debentures issued under subpart D of this part shall be in such
form and amounts; and shall be subject to such terms and conditions;
and shall include such provisions for redemption, if any, as may be
prescribed by the Secretary, with the approval of the Secretary of the
Treasury; and may be in book entry or certificated registered form, or
such other form as the Secretary by regulation may prescribe.
16. Section 220.842 is revised to read as follows:
Sec. 220.842 Cash adjustment.
Any difference of less than $50 between the amount of debentures to
be issued to the lender and the total amount of the lender's claim, as
approved by the Commissioner, may be adjusted by the issuance of a
check in payment thereof.
PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE
17. The authority citation for 24 CFR part 221 is revised to read
as follows:
Authority: 12 U.S.C. 1707(a), 1715b, and 17151, 42 U.S.C.
3535(d).
18. Section 221.780 is revised to read as follows:
Sec. 221.780 Issuance of debentures.
Upon the exercise of the assignment option and the satisfactory
performance of the requirements as to assignment set out in
Sec. 207.258 of this chapter, the Commissioner shall issue the assignor
mortgagee debentures having a total par value equal to the amount of
the original principal obligation of the mortgage which was unpaid on
the date of the assignment, plus accrued interest to such date.
PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE
FACILITIES, AND BOARD AND CARE HOMES
19. The authority citation for 24 CFR part 232 continues to read as
follows:
Authority: 12 U.S.C. 1715(b), 1715w, 1715z(9); 42 U.S.C.
3535(d).
20. Section 232.893 is revised to read as follows:
Sec. 232.893 Cash adjustment.
Any difference of less than $50 between the amount of debentures to
be issued to the lender and the total amount of the lender's claim, as
approved by the Commissioner, may be adjusted by the issuance of a
check in payment thereof.
PART 235--MORTGAGE INSURANCE AND ASSISTANCE PAYMENTS FOR
HOMEOWNERSHIP AND PROJECT REHABILITATION
21. The authority citation for 24 CFR part 235 continues to read as
follows:
Authority: 12 U.S.C. 1715b and 1715z; 42 U.S.C. 3535(d).
22. Section 235.215 is revised to read as follows:
Sec. 235.215 Method of paying insurance benefits.
If the application for insurance benefits is acceptable to the
Secretary, the insurance claim shall be paid in cash, unless the
mortgagee files a written request with the application for payment in
debentures.
PART 236--MORTGAGE INSURANCE AND INTEREST REDUCTION PAYMENT FOR
RENTAL PROJECTS
23. The authority citation for 24 CFR part 236 continues to read as
follows:
Authority: 12 U.S.C. 1715b and 1715z-1; 42 U.S.C. 3535(d).
24. Paragraph (a) of Sec. 236.265 is revised to read as follows:
Sec. 236.265 Payment of insurance benefits.
* * * * *
(a) Insurance claims shall be paid in cash unless the mortgagee
files a written request for payment in debentures.
* * * * *
PART 237--SPECIAL MORTGAGE INSURANCE FOR LOW AND MODERATE INCOME
FAMILIES
25. The authority citation for 24 part 237 is revised to read as
follows:
Authority: 12 U.S.C. 1709, 1715b, 1715z-2; 42 U.S.C. 3535(d).
26. Section 237.260 is revised to read as follows:
Sec. 237.260 Method of paying insurance benefits.
If the application for insurance benefits is acceptable to the
Commissioner, the insurance claim shall be paid in cash, unless the
mortgagee files a written request with the application for payment in
debentures.
PART 241--SUPPLEMENTARY FINANCING FOR INSURED MULTIFAMILY PROJECTS
27. The authority citation for 24 CFR part 241 is revised to read
as follows:
Authority: 12 U.S.C. 1715b, 1715z-6; 42 U.S.C. 3535(d).
28. Section 241.893 is revised to read as follows:
Sec. 241.893 Cash adjustment.
Any difference of less than $50 between the amount of debentures to
be issued to the lender and the total amount of the lender's claim, as
approved by the Commissioner, may be adjusted by the issuance of a
check in payment thereof.
PART 242--MORTGAGE INSURANCE FOR HOSPITALS
29. The authority citation for 24 CFR part 242 is revised to read
as follows:
Authority: 12 U.S.C. 1715b, 1715n(t), 1715z-7; 42 U.S.C.
3535(d).
30. Section 242.260 is revised to read as follows:
Sec. 242.260 Insurance benefits.
All of the provisions of Sec. 207.259 of this chapter relating to
insurance benefits apply to mortgages on hospitals insured under this
subpart, except that in a case where the mortgage involves the
financing or refinancing of an existing hospital pursuant to
Sec. 242.93 and the commitment for insuring such mortgage is issued on
or after April 1, 1969, the insurance claim shall be paid in cash
unless the mortgagee files a written request for payment in debentures.
Dated: September 21, 1994.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing--Federal Housing
Commissioner.
[FR Doc. 94-24188 Filed 9-29-94; 8:45 am]
BILLING CODE 4210-27-P
