[Federal Register Volume 59, Number 150 (Friday, August 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19177]


[[Page Unknown]]

[Federal Register: August 5, 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-F-01]

 

Termination of FHA Single Family Coinsurance Program

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

ACTION: Final rule.

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SUMMARY: This rule terminates the authority of the FHA Commissioner, to 
insure mortgage loans made for the financing of single family homes on 
a coinsurance basis. The purpose of the rule is to terminate a program 
found by the Department to be one whose usefulness and utilization by 
lenders is outweighed by the demands it makes on limited departmental 
resources.

EFFECTIVE DATE: September 6, 1994.

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, 1992 and 1993 was 6,830 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.

Issuance of a Proposed Rule and Public Comment

    On March 30, 1994, the Department published a proposed rule which 
would terminate FHA's single family coinsurance program (59 FR 14809). 
One written comment has been received by the public concerning this 
proposal. The Savings and Community Bankers of America, representing 
more than 1800 savings and community financial institutions, fully 
supported termination of the program citing essentially the same 
reasons as are set forth above under the heading Supplemental 
Information.

Other Matters

Regulatory Flexibility Act

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

Semiannual Agenda

    This rule was listed under the Office of Housing (Sequence No. 
1568) in the Department's Semiannual Regulatory Agenda published on 
April 25, 1994 (59 FR 20424, 20443) under Executive Order 12866 and the 
Regulatory Flexibility Act.

Environment

    Under HUD regulations (24 CFR 50.20(k)), this rule is exempt from 
the requirements of the National Environmental Policy Act as set forth 
in 24 CFR Part 50. The rule relates to internal administrative 
procedures, the content of which does not involve development 
decisions, and does not affect the physical condition of project areas 
or building sites but only relates to the amount and manner of payment 
of FHA insurance claims and distributive shares.

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 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 rule is not subject to review under the Order. The 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 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 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 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 is revised, in its entirety, to read 
as follows:

PART 204--COINSURANCE

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


Sec. 204.1  Termination of program.

    Effective December 29, 1994, 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 the termination date. This part 204, 
as it existed immediately before the termination date, 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: July 15, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-19177 Filed 8-4-94; 8:45 am]
BILLING CODE 4210-27-P