[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: 94-7490]


[[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 3500

[Docket No. R-94-1653; FR-3382-C-04]
RIN 2502-AG13

 

Amendments to Regulation X, the Real Estate Settlement Procedures 
Act Regulation (Subordinate Liens), Final Rule; Correction

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

ACTION: Final rule; correction.

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SUMMARY: The Department is publishing corrections to the final rule on 
Amendments to Regulation X, the Real Estate Settlement Procedures Act 
Regulation (Subordinate Liens), published February 10, 1994 (59 FR 
6505).

DATES: Effective date: August 9, 1994, except that the corrections and 
clarifications in Sec. 3500.5(b) are effective upon publication.

FOR FURTHER INFORMATION CONTACT: Grant E. Mitchell, Senior Attorney for 
RESPA, Office of General Counsel, room 10252 (202) 708-1550, Department 
of Housing and Urban Development, 451 Seventh Street, SW., Washington, 
DC 20410-0500. The TDD number is (202) 708-4594. (These are not toll-
free numbers.)

SUPPLEMENTARY INFORMATION:

Background

    On February 10, 1994, the Department issued amendments to its 
regulations to implement sections 908 and 951 of the Housing and 
Community Development Act of 1992 (Pub. L. 102-550, approved October 
28, 1992) (Act). That Act expanded the coverage of RESPA to include 
mortgages secured by subordinate liens, and restated the Department's 
authority over refinancing transactions. The Department's final rule of 
February 10, 1994 adopted certain definitions and disclosure 
requirements of the Truth in Lending Act (TILA) and its implementing 
regulation, Regulation Z, to minimize the burden on lenders and others 
in complying with different or conflicting definitions and disclosure 
requirements for transactions also covered by the TILA.

Need for Correction

    As published, the preamble and the final rule contain material that 
may be misleading and is in need of correction or clarification.
    For example, some readers have erroneously interpreted a provision 
in the preamble (at the end of the first column of 59 FR 6508) that was 
intended to clarify treatment of certain specific owner-occupied 
programs of the Federal Housing Administration (FHA) as modifying the 
entire business purpose exemption. With one exception, the business 
purpose exemption of Regulation X extends to all business purpose 
transactions exempted under Regulation Z, and persons may rely on 
Regulation Z in determining whether the exemption applies. The one 
exception is loans to individuals to acquire, refinance, improve, or 
maintain 1- to 4-family residential properties used, or to be used, for 
rental purposes; these transactions have been determined by the 
Department to be covered by RESPA. An individual who has voluntarily 
chosen to act as a sole proprietorship is not considered an individual 
under the exception to the business purpose exemption; however, a 
lender may not require sole proprietorship status as a condition for 
making the loan. The preamble has been amended by isolating the FHA-
related language, and clarifying language is included in 
Sec. 3500.5(b)(2) of the rule.
    Questions have also been raised regarding the title of the HUD-1A 
form--Optional Form for Transactions without Sellers. It is called 
``optional,'' which is synonymous with ``alternative'' in this context, 
because the HUD-1 can be used for all transactions, using the 
borrower's side of the form where there is no seller, or the HUD-1A can 
be used for borrower-only transactions. As clarified in this 
correction, pursuant to Sec. 3500.8, one or the other of these forms 
must be used, except for open-end lines of credit (home equity plans) 
under the Truth in Lending Act and Regulation Z, for which neither form 
is required.
    On the HUD-1A, unlike the HUD-1, there is no reference to 
assumption fees, because no such fees are contemplated in refinance or 
subordinate lien transactions. By this document, however, the 
Department also clarifies that it has no objection if form or software 
companies leave line 807 blank on the HUD-1A and use line 808 for 
mortgage broker fees, so that the treatment of disclosure in the HUD-1 
and HUD-1A is more parallel.

Correction of Publication

    Accordingly, FR Doc. 94-3035, the final rule (FR-3382) on 
Amendments to Regulation X, the Real Estate Settlement Procedures Act 
Regulation (Subordinate Liens), published on February 10, 1994 (59 FR 
6505), is corrected as follows:
    1. On page 6508, in the first column, in the preamble, at the end 
of the first paragraph under Item 7, the following two sentences are 
added:
    The exemptions requested in comments (a), (c), and (d) were 
effectively adopted as part of the business purpose exemption. Comment 
(b) was not adopted in its entirety, because the Department chose not 
to exempt loans to individuals (natural persons) to acquire, refinance, 
improve, or maintain 1- to 4-family residential rental properties.
    2. On page 6508, in the second paragraph under Item 7 in the 
preamble, the first sentence is removed and the following sentence is 
substituted in its place:
    The Department decided generally to adopt the ``business purpose'' 
exemption of Regulation Z, but does not include in the business purpose 
exemption a loan to one or more natural persons to acquire, refinance, 
improve or maintain 1- to 4-family residential properties used or to be 
used for rental purposes. An individual choosing to act as a sole 
proprietorship is not an individual under this rule.
    3. On page 6508, in the first column and continuing in the second 
column, in the third paragraph under Item 7 in the preamble, the last 
two sentences in the paragraph are removed and a new Item 7A is added 
in their place, to include the following heading and text:

7A. FHA-Related Transactions

    Questions have arisen under the eligibility standards of certain 
FHA owner-occupancy programs where both an individual and a living 
trust (or a corporation, association, or partnership) are named on the 
note or deed. For purposes of the relevant FHA programs, this dual 
denomination on the note or deed continues to satisfy the owner-
occupied program definitions. These transactions are covered by RESPA.


Sec. 3500.2  [Corrected]

    4. On page 6511, in the third column, in the definition in 
Sec. 3500.2 of ``federally related mortgage loan'', the last sentence 
in paragraph (2) is removed from paragraph (2) and is redesignated as a 
separate paragraph (3).


Sec. 3500.5  [Corrected]

    5. On page 6512, in the third column, in Sec. 3500.5, paragraph 
(b)(1)(ii) is corrected by removing the word ``and'' at the end of the 
paragraph and adding the word ``or'' in its place.
    6. On page 6512, in the third column, and continuing on page 6513, 
in the first column, in Sec. 3500.5, paragraph (b)(2) is clarified by 
removing the period before the last sentence and adding a comma in its 
place, and by removing the last sentence and by adding the following 
clause and two sentences in its place:
    (b) * * *
    (2) * * *
    * * * and persons may rely on Regulation Z in determining whether 
the exemption applies. Notwithstanding the foregoing, the exemption in 
this section for business purpose loans does not include any loan to 
one or more persons acting in an individual capacity (natural persons) 
to acquire, refinance, improve, or maintain 1- to 4-family residential 
property used, or to be used, to rent to other persons. An individual 
who voluntarily chooses to act as a sole proprietorship is not 
considered to be acting in an individual capacity for purposes of this 
part.
 * * * * *


Sec. 3500.7  [Corrected]

    7. On page 6514, in the second column, in Sec. 3500.7, paragraph 
(f) is corrected by removing the parentheses in the citation ``12 CFR 
226.5(b)'', to read ``12 CFR 226.5b''.


Sec. 3500.8  [Corrected]

    8. On page 6514, in the second column, in Sec. 3500.8, the last 
sentence of paragraph (a) is removed and the following two sentences 
are added in its place:
    (a) * * * Either the HUD-1 or the HUD-1A, as appropriate, shall be 
used for every RESPA-covered transaction, unless its use is 
specifically exempted, but the HUD-1 or HUD-1A may be modified as 
permitted under this part. The use of the HUD-1 or HUD-1A is exempted 
for open-end lines of credit (home-equity plans) covered by the Truth 
in Lending Act and Regulation Z.
* * * * *


Sec. 3500.9  [Corrected]

    9. On page 6515, in the first column, in Sec. 3500.9, paragraph (b) 
is corrected by removing the clause ``paragraphs (a)(3), (6), and 
(11)'' at the end of the section and adding in its place the clause 
``paragraphs (a)(3) and (6)''.

    Authority: 12 U.S.C. 2601 et seq.

    Dated: March 24, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-7490 Filed 3-29-94; 8:45 am]
BILLING CODE 4210-27-P