[Federal Register Volume 59, Number 116 (Friday, June 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14744]


[[Page Unknown]]

[Federal Register: June 17, 1994]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner

24 CFR Parts 207, 213, 221, and 242

[Docket No. R-94-1723; FR-3603-F-01]
RIN 2502-AG19

 

Disposition of Fire and Hazard Insurance Proceeds

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

ACTION: Final rule.

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SUMMARY: This rule revises certain provisions in HUD regulations 
covering multifamily mortgage insurance which have the effect of 
requiring prior HUD endorsement before the expenditure of any fire and 
hazard insurance loss proceeds by mortgagees. Instead of this 
requirement the regulations would be revised to allow loss proceeds to 
be expended to restore or repair the property without prior HUD 
approval. The proceeds may not however, be used for any other purposes 
without prior HUD approval.

EFFECTIVE DATE: July 18, 1994.

FOR FURTHER INFORMATION CONTACT: James Tahash, Planning and Procedures 
Division, Office of Multifamily Housing Management, Room 6182, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Washington, DC 20410, voice (202) 708-3944, TDD (202) 708-4594. (These 
are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: Under existing HUD regulations (24 CFR 
207.260) in the event a loss occurs to the mortgaged property under any 
policy of fire or other hazard insurance and the mortgagee has received 
the proceeds therefrom, it shall not exercise its option under the 
mortgage to use the proceeds of the insurance for the repairing, 
replacing, or rebuilding of the premises, or apply them to the mortgage 
indebtedness, or make any other disposition of the proceeds without the 
prior written approval of the Commissioner. Through cross-referencing 
this requirement is also made applicable to other FHA multifamily 
programs i.e. Part 213 Cooperative Housing Mortgage Insurance, Part 220 
Mortgage Insurance and Insured Improvement Loans for Urban Renewal and 
Concentrated Development Areas, Part 221 Low Cost and Moderate Income 
Mortgage Insurance, Part 231 Housing Mortgage Insurance for the 
Elderly, Part 232 Mortgage Insurance for Nursing Homes, Intermediate 
Care Facilities, and Board and Care Homes, Part 234 Condominium 
Ownership Mortgage Insurance, Part 236 Mortgage Insurance and Interest 
Reduction Payments for Rental Projects, Part 241 Supplementary 
Financing for Insured Project Mortgages and Part 242 Mortgage Insurance 
for Hospitals.
    This rule revises current regulatory requirements to provide that 
the mortgagee may exercise its option to use the insurance proceeds for 
the repairing, replacing or rebuilding of the premises without prior 
HUD approval. It may not however make any other disposition of 
insurance proceeds without prior approval.
    The Department has found that its Field Office staff resources can 
be more effectively allocated to tasks other than the endorsing of 
property insurance loss drafts where the proceeds, in any event, are 
going to be used to restore or repair the property. We estimate that 
from $10,000 to $20,000 per year in staff resources could be saved by 
making this change. Mortgagees could have similar savings (from 
reduction of paperwork and check cashing steps) of from $5,000 to 
$10,000 per year. Project owners also could have savings. Approximately 
20,000 project owners, their mortgagees and their insurance agents and 
companies should benefit by eliminating this unnecessary procedural 
step.
    The rule also makes conforming revisions to 24 CFR 207.10, 213.13, 
221.521 and 242.43 of HUD regulations to provide that fire and hazard 
and insurance have attached a standard mortgagee clause making loss 
payable to the mortgagee, its successors and assigns rather than the 
current requirement that loss be payable to the mortgagee and the 
Commissioner as their interests may appear.
    Due to the strictly technical nature of this rule, the Department 
has determined that the notice and public comment procedure under Title 
5 of the United States Code is unnecessary and is therefore issuing 
this document as a final rule.

Procedural Matters

Executive Order 12866--Regulatory Planning and Review

    This rule was reviewed by the Office of Management and Budget under 
Executive Order 12866, Regulatory Planning and Review. Any changes made 
to the rule as a result of that review are clearly identified in the 
docket file which is available for public inspection in the office of 
the Department's Rules Docket Clerk, room 10276, 451 Seventh Street 
SW., Washington, DC.

Regulatory Flexibility Act

    In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility 
Act), the undersigned hereby certifies that this rule does not have a 
significant economic impact on a substantial number of small entities. 
This rule is technical in nature. It effects no substantive changes in 
HUD programs or policies.

Semiannual Agenda

    This rule was listed as item 1569 in the Department's Semiannual 
Agenda of Regulations published on April 25, 1994 (59 FR 20424, 20444) 
under Executive order 12866 and the Regulatory Flexibility Act.

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 do not have Federalism implications and, thus, 
are not subject to review under the Order. No programmatic or policy 
changes result from this rule's promulgation which would 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 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 rule is technical in nature and makes no significant change 
in existing HUD policies or programs.

Environment

    An environmental assessment is unnecessary, since internal 
administrative procedures whose content do not constitute a development 
decision affecting the physical condition of specific project areas or 
building sites is categorically excluded from the Department's National 
Environmental Policy Act procedures under 24 CFR 50.20(k).

List of Subjects

24 CFR Part 207

    Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

24 CFR Part 213

    Cooperatives, Mortgage insurance, Reporting and recordkeeping 
requirements.

24 CFR Part 221

    Low and moderate income housing, Mortgage insurance, Reporting and 
recordkeeping requirements.

24 CFR Part 242

    Hospitals, Mortgage insurance, Reporting and recordkeeping 
requirements.

    Accordingly, 24 CFR parts 207, 213, 221, and 242 are amended to 
read as follows:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    1. The authority citation for 24 CFR part 207 continues to read as 
follows:

    Authority: 12 U.S.C. 1713 and 1715b; 42 U.S.C. 3535(d). Sections 
207.258 and 207.258b are also issued under 12 U.S.C. 1701z-11(e).

    2. Section 207.10 is revised to read as follows:


Sec. 207.10  Covenant for fire insurance.

    The mortgage shall contain a covenant acceptable to the 
Commissioner binding the mortgagor to keep the property insured by a 
standard policy or policies against fire and such other hazards as the 
Commissioner, upon the insurance of the mortgage, may stipulate, in an 
amount which will comply with the coinsurance clause applicable to the 
location and character of the property, but not less than 80 percent of 
the actual cash value of the insurable improvements and equipment of 
the project. The initial coverage shall be in an amount estimated by 
the Commissioner at the time of completion of the entire project or 
units thereof. The policies evidencing such insurance shall have 
attached thereto a standard mortgagee clause making loss payable to the 
mortgagee, its successors and assigns.
    3. Paragraph (e) of Sec. 207.260 is revised to read as follows:


Sec. 207.260   Protection of mortgage security.

* * * * *
    (e) Application of insurance proceeds. (1) In the event a loss has 
occurred to the mortgaged property under any policy of fire or other 
hazard insurance and the mortgagee has received the proceeds therefrom, 
it may exercise its option under the mortgage to use the proceeds of 
such insurance for the repairing, replacing, or rebuilding of the 
premises. It may not make other disposition of such proceeds, without 
the prior written approval of the Commissioner.

    (2) If the proceeds are applied to the mortgage with such prior 
written approval and result in the payment in full of the entire 
mortgage indebtedness, the contract of mortgage insurance made with the 
Commissioner shall thereupon terminate.

    (3) If the Commissioner shall fail to give his approval to the use 
or application of such funds within 60 days after written request by 
the mortgagee, the mortgagee may use or apply such funds for any of the 
purposes specified in the mortgage without the approval of the 
Commissioner.

PART 213--COOPERATIVE HOUSING MORTGAGE INSURANCE

    4. The authority citation for 24 CFR part 213 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715e; 42 U.S.C. 3535(d).

    5. Section 213.13 is revised to read as follows:


Sec. 213.13  Covenant for fire insurance.

    The mortgage shall contain a covenant acceptable to the 
Commissioner binding the mortgagor to keep the property insured by a 
standard policy or policies against fire and such other hazards as the 
Commissioner, upon the insurance of the mortgage, may stipulate, in an 
amount which will comply with the coinsurance clause applicable to the 
location and character of the property, but not less than 80 percent of 
the actual cash value of the insurable improvements and equipment of 
the project. The initial coverage shall be in an amount estimated by 
the Commissioner at the time of completion of the entire project or 
units thereof. The policies evidencing such insurance shall have 
attached thereto a standard mortgagee clause making loss payable to the 
mortgagee, its successors and assigns.

PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE

    6. The authority citation for 24 CFR part 221 is revised to read as 
follows:

    Authority: 12 U.S.C. 1715b and 1715l; 42 U.S.C. 3535(d); sec. 
221.544(a)(3) is also issued under 12 U.S.C. 1707(a).

    7. Section 221.521 is revised to read as follows:


Sec. 221.521  Covenant for fire insurance.

    The mortgage shall contain a covenant acceptable to the 
Commissioner binding the mortgagor to keep the property insured by a 
standard policy or policies against fire and such other hazards as the 
Commissioner, upon the insurance of the mortgage, may stipulate, in an 
amount which will comply with the coinsurance clause applicable to the 
location and character of the property, but not less than 80 percent of 
the actual cash value of the insurable improvements and equipment of 
the project. The initial coverage shall be in an amount estimated by 
the Commissioner at the time of completion of the entire project or 
units thereof. The policies evidencing such insurance shall have 
attached thereto a standard mortgagee clause making loss payable to the 
mortgagee, its successors and assigns.

PART 242--MORTGAGE INSURANCE FOR HOSPITALS

    8. The authority citation for 24 CFR part 242 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715n(f), 1715z-7; 42 U.S.C. 
3535(d).

    9. Section 242.43 is revised to read as follows:


Sec. 242.43  Covenant for fire insurance.

    The mortgage shall contain a covenant acceptable to the 
Commissioner binding the mortgagor to keep the property insured by a 
standard policy or policies against fire and such other hazards as the 
Commissioner, upon the insurance of the mortgage, may stipulate, in an 
amount which will comply with the coinsurance clause applicable to the 
location and character of the property, but not less than 80 percent of 
the actual cash value of the insurable improvements and equipment of 
the project. The initial coverage shall be in an amount estimated by 
the Commissioner at the time of completion of the entire project or 
units thereof. The policies evidencing such insurance shall have 
attached thereto a standard mortgagee clause making loss payable to the 
mortgagee, its successors and assigns.

    Dated: June 9, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-14744 Filed 6-16-94; 8:45 am]
BILLING CODE 4210-27-P