[Federal Register Volume 59, Number 61 (Wednesday, March 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7476]


[[Page Unknown]]

[Federal Register: March 30, 1994]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Part 204

[Docket No. R-94-1717; FR-3418-P-01]
RIN 2502-AG00

 

Termination of FHA Single Family Coinsurance Program

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to terminate the authority of the FHA 
Commissioner, currently set out in existing regulations, to insure 
mortgage loans made for the financing of single family homes on a 
coinsurance basis. The purpose of the proposed rule is to terminate a 
program that has been found by the Department, after extensive 
analysis, to be one whose usefulness and utilization by lenders is 
outweighed by the demands it makes on limited departmental resources.

DATES: Comments due date: May 31, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, Office of General 
Counsel, room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410. Comments should refer to the 
above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 7:30 a.m. and 5:30 pm. 
weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Morris Carter, Director, Single Family 
Development Division, room 9272, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410; telephone 
(voice) (202) 708-2700; (TDD) (202) 708-4594. (These are not toll-free 
numbers.)

SUPPLEMENTARY INFORMATION: FHA Coinsurance was first authorized under 
the Housing and Urban Development Act of 1974 which added a new section 
244 to the National Housing Act. In February of 1976, the Department 
implemented a program of coinsurance for the financing of single family 
homes--24 CFR part 204.
    The intent of this new coinsurance program was to improve the 
quality of mortgage originations and servicing, to streamline HUD 
insurance processing, and to improve the quality and timeliness of 
service to the mortgage applicants. This was to be achieved through the 
sharing of risk between HUD and the mortgagees and through the 
delegation of a significant portion of processing to mortgage 
originators, including the complete processing of appraisal and 
mortgage credit applications, and the disposition of property in the 
event of default and foreclosure.
    The two main incentives for participation in the program were to be 
a lender's ability to choose its own appraisers and to share the 
premium income with the Department depending on the performance of the 
lender's book of business for coinsured loans.
    Despite these incentives, the Department has endorsed very few 
coinsured single family mortgages. The combined volume for fiscal years 
1990, 1991, and 1992 was 5,680 loans nationwide, with the bulk coming 
from one lender, Crown Mortgage, doing business in Illinois. The 
remainder of coinsured loans were originated by four lenders located in 
New York or Texas.
    Contributing to this lack of lender interest in the program has 
been the advent of Direct Endorsement which has blunted many of the 
benefits attributable to the coinsurance program, especially the 
delegation of processing to the lenders. While the sharing of premium 
income is a substantial benefit, most lenders, due to their financial 
situation, are in no position to share even a 10 percent risk exposure. 
(A lender is not permitted to obtain reinsurance of its potential or 
actual loss.) Also, few, if any lenders, wish to be burdened with the 
task of disposing of foreclosed property.
    A Secretarial task force on financial management has recommended 
that this coinsurance program be terminated giving the following 
reasons:
    1. The demands the program makes on the Department's resources 
outweigh its usefulness and utilization by lenders. From a programmatic 
standpoint, it does not make sense to devote scarce staff resources to 
a program as rarely used as coinsurance. Mortgage Insurance and 
Accounting (MIAS) Staff spend about one half a staff year running this 
program. Coinsurance requires MIAS to maintain a separate computer 
system to track coinsurance reserves and administer claim payments. 
Reserve payouts must be calculated and processed each year as well. 
Furthermore, the Chicago Office, which handles most of the coinsurance 
program's volume, estimates that in FY 1991, one-half a staff year was 
used to run the program. At least this much staff time was consumed by 
the program for the remainder of the country.
    2. One of the incentives for program participation, the lender's 
ability to choose its own appraisers, will be nullified when this 
feature is applied in the future to the Direct Endorsement program, 
through the Department's implementation of section 202(e)(3) of the 
National Housing Act.
    3. Participating lenders tend to ``cherry pick'' loans for 
coinsurance processing, with the riskier loans assigned to the Direct 
Endorsement program. All participating coinsurance lenders are also 
participating in the Direct Endorsement program.
    4. Elimination of this program will not result in a reduction of 
avenues of mortgage credit for first time and low-and -moderate income 
homebuyers.

Other Matters

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 
605(b)), the Undersigned certifies that this proposed rule does not 
have a significant economic impact on a substantial number of small 
entities. Experience under the coinsurance programs affected by this 
proposed rule has not demonstrated any substantial impact on small 
entities.

Semiannual Agenda

    This proposed rule was listed as item 1506 in the Department's 
Semiannual Regulatory Agenda published on October 25, 1993 (58 FR 
56402, 56423) under Executive Order 12291 and the Regulatory 
Flexibility Act.

Environment

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations in 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant Impact is available for 
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the 
office of the Rules Docket Clerk at the above address.

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 proposed 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 proposed rule is not subject to review under the 
Order. The proposed rule will not affect the basic availability of FHA 
insured single family mortgage financing assistance--merely the methods 
under which such financing can be secured. No programmatic or policy 
changes would result from this rule's promulgation which affect 
existing relationships between the 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 proposed 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. The proposed rule is limited to terminating a 
specific means for delivery of FHA insurance which has proved to be 
unworkable and a drain on the FHA staff resources. Other single family 
programs of HUD, specifically the direct endorsement program, will be 
improved upon and reemphasized in conjunction with this proposed rule.

(The Catalog of Federal Domestic Assistance program number is 
14.117.)

List of Subjects in 24 CFR Part 204

    Mortgage insurance.

    Accordingly, 24 CFR part 204 would be revised to read as follows:

PART 204--COINSURANCE

    AUTHORITY: 12 U.S.C. 1715b and 1715z-9; 42 U.S.C. 3535(d).


Sec. 204.1  Termination of program.

    Effective [Insert date 90 days from effective date of final rule] 
the authority to coinsure mortgages under this part is terminated, 
except that the department will honor legally binding and validly 
issued borrower approvals issued by lenders before [Insert Date 90 days 
after date of publication of the final rule in the Federal Register]. 
This part 204, as it existed as of April 1, 1994, will continue to 
govern the rights and obligations of coinsured lenders, mortgagors, and 
the Department of Housing and Urban Development with respect to loans 
coinsured under this part.

    Dated: March 16, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-7476 Filed 3-29-94; 8:45 am]
BILLING CODE 4210-27-P