[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: 94-14745]


[[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
[Docket No. N-94-3785; FR-3724-N-01]

 

Interest Rate for the Section 235(r) Mortgage Insurance Program

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

ACTION: Notice of change in interest rate.

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SUMMARY: This notice announces a change in the maximum interest rate 
for mortgages to be insured under section 235(r) of the National 
Housing Act. The section 235(r) maximum interest rate is to be 
determined by the Secretary of HUD and published in the Federal 
Register. Mortgage market conditions now dictate that the Secretary 
increase the section 235(r) maximum rate from 8.00 percent to 8.50 
percent. There is no change being made in the maximum margin of 
additional percentage points that may be added to the maximum rate if 
the established conditions are met. Therefore, the maximum for the 
premium section 235(r) interest rate will be 10.00 percent (8.50 
percent for the rate of interest and 1.50 percent for the margin of 
additional percentage points).

EFFECTIVE DATE: June 17, 1994.

FOR FURTHER INFORMATION CONTACT: John N. Dickie, Director, Program 
Evaluation Division, Room B-133, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410; telephone 
(202) 755-7470, Ext. 117; (TDD) (202) 708-4594. (These are not toll-
free numbers.)

SUPPLEMENTARY INFORMATION: Section 235(r) of the National Housing Act 
(12 U.S.C. 1715z) authorizes the Secretary to insure mortgages that 
refinance existing mortgages insured under section 235. The purpose of 
the program is to reduce the interest rate insured and assisted under 
section 235 in order that the assistance payments the Department pays 
on behalf of mortgagors may be reduced. The regulations implementing 
the program are contained in subpart H of 24 CFR part 235--refinancing 
of mortgages under section 235(r).
    The interest rate for these loans is set by the Secretary and 
published in the Federal Register as authorized by 24 CFR 
235.1202(b)(3). The previous section 235(r) interest rate of 8.00 
percent was published in the Federal Register on April 21, 1994 (59 FR 
19021). The Department has determined that market conditions dictate a 
change in the section 235(r) interest rate. The change will take effect 
on the date of publication of this notice.
    The most recent HUD survey of Mortgage Market conditions (i.e., 
Secondary Market Prices and Yields), an OMB-designated Principal 
Federal Indicator, found that the dominant national FHA rate being 
quoted to potential homebuyers for ``lock-in'' commitments of 60 days 
or more was 8.50 percent on April 1, 1994, with an average of .32 
points, and an effective interest rate of 8.55 percent. The 8.50 
percent rate was dominant in most parts of the country.
    Most FHA mortgages are funded in the GNMA mortgage-backed 
securities market. There is a 50 basis point spread between FHA 
contract interest rates and GNMA coupon rates (this covers the GNMA 
guarantee fee and servicing cost). On May 12, 1994, the GNMA 7.50 
percent coupon securities (8.00 percent FHA loans) were priced at about 
5 points discount. This level of discount tends to impede FHA loans to 
finance home purchases. On the other hand, the GNMA 8.00 percent 
security (8.50 percent FHA loans) was trading in the two-month forward 
market at around two points discount, while the 8.50 percent GNMA 
coupons (9.00 percent FHA mortgages) continued to trade at over par 
(i.e., premium). Under the FHA negotiated rate/points provisions a two 
point discount for 8.50 percent FHA mortgages would not be burdensome.
    It is expected that secondary market prices will stabilize in the 
near term at the 8.50 percent contract rate. The May 1, 1994, Blue Chip 
Financial Forecast showed that after mortgage rates rose in the first 
quarter of 1994, the average forecast was that mortgage rates would 
stabilize in the second, third and fourth quarters. The May summary 
forecast of Data Resources Incorporated projects a rise in 30 year 
Treasury rates during the second quarter (which is half over), then 
stable rates in the third and fourth quarters.
    Adjusting the section 235(r) rate to 8.50 percent will bring this 
rate back into line with the rest of the FHA current production loans. 
Therefore, the maximum rate for section 235(r) mortgages is 8.50 
percent beginning with the publication date of this notice. The maximum 
margin of additional percentage points that may be added to the maximum 
rate under 24 CFR 235.1202(b)(3)(i)(B) will remain at 1.50 percent.
    The subject matter of this notice is categorically excluded from 
HUD's environmental clearance procedures, in accordance with 24 CFR 
50.20(l). For that reason, no environmental finding has been prepared 
for this notice.

    Dated: June 10, 1994.

Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-14745 Filed 6-16-94; 8:45 am]
BILLING CODE 4210-27-P