[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