Comment Submitted by Allen Jones, Bank of America

August 7, 2008 Regulations Division Office of General Counsel U.S. Department of Housing and Urban Development 451 Seventh Street, S.W. Room 10276 Washington, D.C. 20410-0500 Re: Docket No. FR-5160-P-01, 73 Fed. Reg. 32632 (June 9, 2008) Federal Housing Administration: Acceptable Payment History for Late Request for Endorsement of Mortgage for Insurance Ladies and Gentlemen: Bank of America Corporation appreciates the opportunity to comment on the above-referenced proposal (the "Proposal") issued by the U.S. Department of Housing and Urban Development (the "Department") to amend 24 C.F.R. § 203.255. We are proud to be one of the leading home finance providers in the nation and we acknowledge and applaud the Department's continuing devotion to making home ownership available to everyone. Because we share that objective, we trust that the Department will consider our comments as a means to further that objective. First, based on the Department's findings and our own records, we question whether the Proposal is justifiable. The Department's justification stated in the Proposal contradicts the Department's own risk analysis. In the Risk Analysis of Late Endorsements issued by the Department's Office of Housing/Finance and Budget/Evaluation on June 21, 2007 (Revised April 22, 2008), the Department did not find any material reasons to issue the Proposal. As indicated in the Summary and Conclusions section of the analysis: "In conclusion, while this analysis confirms the OIG finding that the inability of a borrower to make six consecutive monthly mortgage payments is an important indicator of claim potential, we cannot infer that HUD is at material risk from rescinding the six month payment rule on late endorsements with an initial default. It is the entirety of HUD’s quality assurance process for lenders and their FHA portfolios that assures the Department that eliminating the six-monthly payment rule on late endorsements with an initial default should have no material impact on the safety-and-soundness of the FHA Insurance Funds." The above conclusion also raises the issue of whether the Department would have adequate authority to issue the Proposal under the Administrative Procedures Act (5 USC § 500, et seq.). Section 553(c) of the Act requires an agency to incorporate a concise general statement of its "basis and purpose" into the adopted rule, yet how can the Department do that when, by its own written account, it has not found a basis and purpose? In addition, we believe the Proposal will unnecessarily result in a higher number of loans being ineligible for insurance. With the large volume of FHA loans that we originate, which will continue to increase over time, it is inevitable that a certain percentage of these loans will be late submissions. However, late submissions are usually caused by backlog or closing errors and have no relationship to a borrower's ability or willingness to repay the loan. Many things can happen to cause an early payment default, but the situation can be corrected well before six months have passed. A loan can be brought current in one day. Six months is longer than is needed to ascertain a consumer's commitment to repay a mortgage loan... Thus, all submissions for insurance should be accepted on the date they are received so long as the mortgage payments are current on that date, regardless of whether the submission is on time or late. This would also be consistent with the authority delegated to DE underwriters. The Proposal creates additional losses and increased costs to lenders. We understand the Department's interest in discouraging overly permissive lending practices, but do not believe the Proposal gives the Department added risk protection. As an alternative, the Department has the power to impose sanctions and financial penalties on noncompliant lenders as it deems necessary. Lenders who are found to have substandard underwriting practices may be required to indemnify the Department against future claim losses. Additionally, most loans are submitted for insurance before the first payment due date, so there is no guarantee that an early payment default will not occur with on- time endorsements. We understand that the Department's ultimate goal is to reduce defaults, and we share that goal. However, we do not believe that an elevated standard for late endorsements will achieve that goal, or that the credit risk associated with FHA loans is correlated to the timing of submissions. We conducted an analysis of FHA loans we closed during the second quarter of 2007 and, according to our records; the percentage of loans that have payment defaults during the first year is substantially the same with on-time submissions as with late submissions. For the reasons given in this letter, we strongly recommend that the Department amend subsection 203.255(c)(1)(vii) of the Proposal as follows: (c) Pre-endorsement review for Direct Endorsement. (1) Upon submission by an approved mortgagee of the documents required by paragraph (b) of this section, the Secretary will review the documents and determine that: ….. (vii) The mortgage was not in default when submitted for insurance or, if submitted for insurance more than 60 days after closing, the mortgage shows an acceptable payment history. A mortgage that meets the following factors shows an acceptable payment history: (A) All mortgage payments due are paid current on the date the mortgage lender submits the mortgage to the Secretary for insurance; have been made by the mortgagor prior to or within the month due. If any payments have been made after the month due, the loan is not eligible for endorsement until six consecutive payments have been made prior to or within the calendar month due, and; (B) All escrow accounts for taxes, hazard insurance, and mortgage insurance premiums are current and intact, except for disbursements that may have been made to cover payments for which the accounts were specifically established; and , and; (C) The mortgage lender did not provide the funds to bring and/or keep the loan current or to bring about the appearance of an acceptable payment history. We appreciate the opportunity to comment on the Proposal. If you have any questions about any aspect of this comment letter, please contact the undersigned at (703) 750-4048 or Randal Shields, Associate General Counsel, at (980) 386-8878. Very truly yours, Allen H. Jones Government Lending Enterprise Executive Bank of America