[Federal Register Volume 59, Number 183 (Thursday, September 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23522]


[[Page Unknown]]

[Federal Register: September 22, 1994]


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Part VI





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner



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24 CFR Parts 207 and 290




Sale of HUD-Held Multifamily Mortgages; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Parts 207 and 290

[Docket No. R-94-1709; FR-3549-F-02]
RIN 2502-AG18

 
Sale of HUD-Held Multifamily Mortgages

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

ACTION: Final rule.

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SUMMARY: This rule sets forth the basic policies and procedures that 
govern the disposition of HUD-held multifamily project mortgages.1 
In general, the Department will sell both current mortgages and 
delinquent mortgages. However, the Department will not sell delinquent 
mortgages if foreclosure is unavoidable and the project securing the 
mortgage is occupied by low-income tenants who are not receiving 
housing assistance and would be likely to pay rent in excess of 30 
percent of their adjusted monthly income if HUD sold the mortgage. In 
addition, mortgages on subsidized properties will only be sold with 
Federal Housing Administration (FHA) mortgage insurance or equivalent 
tenant protections; mortgages for unsubsidized projects may be sold 
without FHA insurance.

    \1\This rule and the policies contained in this rule are 
intended to satisfy HUD's obligations under the settlement agreement 
in Walker v. Kemp, No. C 87 2628 (N.D. Cal.), with regard to the 
---------------------------------------------------------------------------
Exhibit B mortgages.

EFFECTIVE DATE: The effective date of this rule will be October 24, 
1994, unless a subsequent notice announcing an earlier effective date 
---------------------------------------------------------------------------
is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Frank Malone, Director, Office of 
Preservation and Property Disposition, Office of Housing, Room 6272, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410, telephone (202) 708-3555. Hearing or speech-
impaired individuals may call HUD's TDD number (202) 708-4594. (These 
telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Background

    On April 13, 1994, the Department published a proposed rule on the 
sale of HUD-held multifamily mortgages (59 FR 17500). Two days earlier, 
on April 11, 1994, President Clinton approved the Multifamily Property 
Disposition Reform Act of 1994 (Pub. L. 103-233) (Multifamily Property 
Disposition Act). Section 101(b) of the Multifamily Property 
Disposition Act revised section 203 of the Housing and Community 
Development Amendments of 1978 (12 U.S.C. 1701z-11) (HCD Amendments of 
1978). This final rule incorporates technical changes to section 203 of 
the HCD Amendments of 1978, as amended by section 101(b) of the 
Multifamily Property Disposition Act, as those provisions affect the 
sale of HUD-held mortgages. HUD will be publishing, shortly, an interim 
rule to implement the statutory amendments affecting the management and 
disposition of HUD-owned multifamily projects.

Summary of Comments--Generally

    The Department received a total of 11 comments on this proposed 
rule. The majority of the comments dealt with features of the 
Department's planned mortgage sale program rather than with specifics 
of the proposed rule. However, two commenters made recommendations 
regarding the negotiated sale of subsidized mortgages to State and 
local governments, and one commenter recommended changes to the 
proposed rule. All of the comments are discussed in more detail below, 
and, when appropriate, are addressed in the text of the rule.
    Only the National Housing Law Project (NHLP) focused specifically 
upon the text of the proposed rule. The NHLP acknowledged HUD's 
authority to sell HUD-held mortgages, but urged that ``the utmost care 
should be taken to ensure that low-income tenants do not lose benefits 
to which they are entitled.''
    With regard to the sale of subsidized mortgages with insurance, the 
NHLP stated that: ``The mere act of selling with insurance will not 
necessarily by itself satisfy the statutory goal of continuing the 
protections for each project that are at least as advantageous as the 
prior program's.'' The NHLP sought assurance that, at a minimum, the 
regulatory protections contained in, for example, the regulatory 
agreement, note, and program regulations also would apply.
    This concern is consistent with the Department's intent to preserve 
existing tenant protections. Consequently, the rule has been modified 
to include statutory language prohibiting the Secretary from selling 
any mortgages held by the Secretary on any subsidized project unless 
the sale is made part of a transaction that ensures that the project 
will continue to operate, at least until the maturity date of the loan 
or mortgage, in a manner that will provide rental housing on terms at 
least as advantageous to existing and future tenants as the terms 
required by the program under which the original loan or mortgage was 
made or insured. In other words, sale of a HUD-held subsidized mortgage 
will not affect the existing regulatory agreement, prepayment 
restrictions, flexible subsidy agreements, rental subsidy contracts, or 
other applicable program regulations and housing policies.
    The NHLP also sought clarification that purchase money mortgages 
(PMMs) for previously subsidized projects will be treated like 
subsidized mortgages. The Department so intends and has modified the 
rule to make this evident.
    The NHLP requested that a project with any project-based Section 8 
assistance be treated as a subsidized project and be sold with 
insurance. However, doing so would be contrary to the Multifamily 
Property Disposition Act. In the Multifamily Property Disposition Act, 
Congress revised the definition of a subsidized project for the 
mortgage sale program (see section 203(b)(2)). Under the prior law (see 
section 203(i)(2)), a project that had any rent supplement assisted 
units was a subsidized project. The requirement that more than 50 
percent of the units had to be assisted for the project to be a 
subsidized project applied only to assistance provided under the United 
States Housing Act of 1937 (other than with certificate and voucher 
assistance). Finally, under the former law for purposes of mortgage 
sales, any unit assisted under the United States Housing Act of 1937 
(other than certificate and voucher assistance) made the project a 
subsidized project.
    Under the new statutory definition of subsidized project, the more 
than 50 percent of the units provision applies to all forms of project-
based rental assistance listed. Also, there is no longer an exception 
from the 50 percent requirement for mortgage sales. Thus, under the new 
law the definition of ``subsidized project'' is the same for the 
purpose of disposing of HUD-owned projects and for mortgage sales.
    The definition of ``subsidized project'' in this final rule 
conforms to the statutory definition of ``subsidized project.'' 
Accordingly, projects that are not Section 236, Section 221(d)(3) BMIR, 
or Section 202 projects and have some units, but not more than 50 
percent of the units, assisted with project-based rental assistance are 
under both the statute and the rule ``unsubsidized projects.'' However, 
the Department acknowledges that such partially assisted, unsubsidized 
mortgages merit special treatment. Therefore, the Department plans to 
sell these mortgages in specialized auctions to investors who will be 
selected, in part, on the basis of their commitment to preserving the 
economically integrated nature of the rental housing.
    The NHLP also suggested that unsubsidized projects with affordable 
rents be treated as though they were subsidized and be sold with 
insurance. Adoption of this approach would be inconsistent with 
congressional direction. Therefore, the Department must reject this 
approach. The statute defines ``subsidized project'' as a project that 
is receiving assistance: (1) Under the section 221(d)(5) (Below Market 
Interest Rate) or the section 236 (Interest Reduction Payments) 
programs; (2) under the section 202 direct loan program; or (3) in the 
form of rental assistance for more than 50 percent of its units under 
the section 8, section 23, rent supplement or rental assistance 
payments (``RAP'') programs. This rule merely adopts the statutory 
definition of ``subsidized project'' as the regulatory definition.
    The NHLP recommended that HUD move certain statements regarding the 
availability of Section 8 assistance to tenants in unsubsidized 
projects from the preamble of the proposed rule to the regulatory text. 
The statements in the preamble describe HUD standards which are already 
addressed in other HUD regulations. As such, there is no need to repeat 
these standards in the mortgage sale rule.
    The NHLP asked why HUD would not sell mortgages without insurance 
to mortgagees that are HUD-approved as well as to mortgagees that are 
not HUD-approved. In fact, HUD plans to offer the mortgages for sale to 
both types of mortgagees. The NHLP also questioned the wisdom of 
selling mortgages to mortgagees that are not HUD-approved, on the 
ground that HUD will have little regulatory leverage over such 
mortgagees. HUD expects that HUD's relationship with such mortgagees 
will be governed by and enforceable under the terms and conditions of 
the loan sale.
    The NHLP recommended that HUD impose certain requirements in the 
event that a delinquent mortgage is restructured by a purchaser. 
Specifically, the NHLP recommended that the purchaser/mortgagor should 
agree:
    (1) Not to discriminate against Certificate and Voucher holders 
merely because of their status as Certificate or Voucher holders;
    (2) To accept a project-based Section 8 contract if offered, as 
long as the rents charged at the project are within 120 percent of the 
Section 8 Fair Market Rents;
    (3) To require good cause eviction for all tenants; and
    (4) To require that the owner provide good repair and maintenance.
    HUD's ability to regulate a mortgage restructuring will depend upon 
whether the mortgage is subsidized or unsubsidized. In the case of a 
delinquent subsidized mortgage, where the mortgage will be insured upon 
sale, HUD's oversight can be expected to be close and prescriptive; 
however, in the case of delinquent unsubsidized mortgages, where the 
mortgages will not be insured upon sale, HUD does not expect to 
regulate a mortgage restructuring closely.
    In section 290.202(b) of the proposed rule, HUD stated that: 
``Delinquent mortgages will not be sold if: (1) HUD believes that 
foreclosure is unavoidable; and (2) the project securing the mortgage 
is occupied by low-income tenants who are not receiving housing 
assistance, but who would receive assistance [under section 203 of the 
Housing and Community Development Amendments of 1978] if HUD foreclosed 
upon the mortgage.'' The NHLP recommended that HUD not sell delinquent 
unsubsidized mortgages ``if it believes that foreclosure is 
unavoidable, and the project * * * is occupied by low-income tenants 
who are not receiving housing assistance but could do so if HUD 
foreclosed upon the mortgage.'' HUD has changed this section in the 
final rule to conform with the new Multifamily Property Disposition 
Act.
    Under section 203(a) of the prior law, HUD was directed to preserve 
as affordable all units in unsubsidized projects that were occupied by 
low-income families. This statutory requirement was generally met at 
foreclosure or sale by placing project-based Section 8 assistance on 
units that were occupied by low-income families. Thus, under the prior 
law the import of Sec. 290.202(b) would have been that, in general, HUD 
would not sell unsubsidized projects where foreclosure was unavoidable 
and there were unassisted low-income tenants in occupancy.
    Under the new law, however, HUD is under no obligation when 
foreclosing or selling an unsubsidized project to provide Section 8 
assistance to low-income tenants if those tenants were not already 
receiving some form of tenant-based assistance (see section 
203(e)(1)(D)). HUD's only obligation upon foreclosure or sale in this 
regard (and it applies only to very low-income families that would have 
to pay more than 30 percent of their adjusted monthly income for rent, 
not to all low-income families) is to ensure that their rent is not 
increased for two years (see section 203(g)). These low-income tenants 
would receive Section 8 assistance only if HUD makes an administrative 
decision to provide more Section 8 assistance than is required by 
statute. Thus, the import of Sec. 290.202(b) in the final rule is that 
HUD generally will sell unsubsidized projects where foreclosure was 
unavoidable and there are unassisted low-income tenants in occupancy. 
HUD intends to foreclose delinquent unsubsidized mortgages only if it 
makes a determination that unassisted tenants would receive assistance 
(including assistance available on a discretionary basis) if HUD were 
to foreclose.
    Finally, the NHLP recommended that HUD not sell delinquent, 
partially assisted, unsubsidized mortgages facing foreclosure. As noted 
above, HUD acknowledges that these mortgages require special treatment, 
and they will be sold only under conditions that preserve the rental 
housing for economically integrated rental use.

Negotiated Sales to State and Local Agencies

    The National Council of State Housing Agencies (NCSHA) and the 
Illinois Housing Development Authority (IHDA) responded to HUD's 
request for comments on the negotiated sale of mortgages to State and 
local agencies authorized by section 203(k)(3) of the Housing and 
Community Development Act Amendments of 1978. Both strongly supported 
such sales and described the unique qualifications that State housing 
finance agencies (HFAs) have to assist HUD in preserving the 
availability and affordability of the projects securing the loans for 
low- and moderate-income rental use. Specific comments and HUD's 
responses are summarized below.

Subsidy Contracts

    NCSHA recommended that HUD assign Section 8 subsidy contract 
administration to HFAs. HUD is willing to consider this recommendation, 
subject to agreement on fees and the concern raised in conjunction with 
regulatory agreements.

Regulatory Agreements

    NCSHA recommended that HUD assign broad regulatory authority to 
HFAs, including allowing HFAs to set rents and require owners to enter 
into HFA management contracts. HUD is concerned that there is no 
mechanism for restraining costs if the HFA performs financing and 
regulatory functions and also administers the Section 8 contract. HUD 
would like to explore how to combine regulatory authority with 
incentives to contain costs. Otherwise it is HUD's view that States may 
either administer Section 8 subsidy contracts or regulate rents, but 
not both, in order to preserve the checks and balances vital to a sound 
subsidy system.

Windfall Profits

    NCSHA recommended and HUD concurs that mortgage insurance should be 
limited to the purchase price of a mortgage or the unpaid principal 
balance, whichever is lower. In addition, HUD would not permit resale 
of mortgages for capital gains, even if the gains are passed through to 
HUD.

Servicing

    NCSHA recommended that ``[w]hen an HFA requests it, HUD should turn 
over servicing functions to it upon its purchase of the loan.'' HUD 
intends to turn over mortgage servicing functions upon the sale of a 
loan in every case.

Delinquent Loans

    NCSHA recommended splitting mortgages into financially viable and 
inviable portions, with HUD retaining the inviable portion. HUD does 
not wish to use this method for restoring a mortgage to financial 
soundness, because it is inconsistent with the overall objective of 
reducing the HUD-held inventory and HUD servicing responsibility. In 
addition, strategies that involve owner consent, such as creating new 
mortgage documents, may add a party to the negotiations and complicate 
the transaction. HUD would consider other approaches that meet mutual 
goals.

Long-Term Affordability

    NCSHA recommended that HUD extend the mortgage insurance period 
when purchasers negotiate an extension of the affordability period, so 
the insurance would be coterminous with the financing. HUD would need 
more information on what is being proposed in order to assess this 
recommendation, e.g. what ``financing'' is being proposed? FHA 
insurance runs with the mortgage; any additional insurance period would 
require careful consideration and review.

Refinancing

    NCSHA recommended that HUD permit HFAs to restructure high-interest 
rate loans through Section 223(a)(7) refinancing. HUD-held mortgages 
are not eligible for Section 223(a)(7) refinancing, and subsidized 
mortgages generally are not eligible for prepayment. However, as part 
of the restructuring of the mortgage, HUD will consider modifying 
mortgages to lower above-market interest rates (and to reduce subsidy 
payments, as appropriate) prior to mortgage sale. Such reduction would 
be considered in any pricing.

Due Diligence

    NCSHA recommended that HUD work with HFAs to disseminate 
information on mortgages and permit HFAs to perform adequate and timely 
due diligence. HUD intends to cooperate fully with HFAs in their 
conduct of needed due diligence on the mortgages in which they are 
interested.

Warranties and Representations

    NCSHA recommended that, among other representations, HUD warrant 
and represent that purchased loans are secured by projects that are in 
full compliance with their regulatory agreements and subsidy contracts 
and that the loans are current in their debt service and escrow and 
reserve payments. HUD's view is that not all of these representations 
and warranties may be appropriate for the subperforming mortgages that 
are the focus of this negotiated sale program. HUD proposes to discuss 
these representations in conjunction with necessary due diligence and a 
specific portfolio of mortgages identified for sale.

Interstate Mortgage Pools

    NCSHA recommended consideration of the formation of interstate 
mortgage pools, to lower administrative burdens and transaction costs. 
HUD will consider such pools as long as the results are consistent with 
the overall objectives of the negotiated sale program, including hands-
on servicing by the purchasing agency.

Others

    In addition, NCSHA and IHDA recommended that HUD negotiate the sale 
of both unsubsidized mortgages with Section 8 contracts and 
nonperforming unsubsidized mortgages. As noted above, HUD intends to 
sell partially assisted, unsubsidized mortgages in specialized auctions 
to investors that will be selected in part on the basis of their 
commitment to preserving the economically integrated nature of this 
rental housing. In addition, HUD intends to sell nonperforming 
unsubsidized mortgages to the highest bidder in competitive auctions 
that are designed to put local and national bidders on equal footing. 
Given the high degree of investor interest in HUD's unsubsidized 
mortgage portfolio and the Department's aim of reducing losses to the 
FHA insurance fund, the Department cannot justify reserving 
unsubsidized mortgages for purchase only by State and local agencies. 
Depending upon the terms of a sale, however, these agencies may 
participate with other investors in the purchase of these mortgages.

HUD Mortgage Sale Program

    Several comments focused upon the mechanics of HUD's auction 
program. Both JBS & Associates, Inc., a national real estate and loan 
marketing firm, and Ross-Dove Company, Inc., an auctioneering firm, 
recommended that HUD use open outcry auctions as one method of 
disposition to sell multifamily mortgages. HUD will consider the use of 
open outcry auctions for some of its mortgage sales.
    The Real Estate Capital Recovery Association (RECRA), a trade 
association representing both real estate workout specialists and real 
estate purchasers, recommended that HUD develop a strategy and schedule 
for disposing of the HUD-held inventory; determine the best disposition 
strategy for mortgages on a case-by-case basis; and make greater use of 
the private sector in managing, foreclosing, and selling assets. In 
addition, RECRA recommended against giving mortgagors two purchase 
opportunities--i.e., the opportunity to payoff their mortgages and to 
bid in an auction. RECRA believed both: (1) that HUD's ability to 
negotiate a payoff would be improved if the mortgagor could not 
participate in the auction; and (2) that other bidders would not want 
to bid against the mortgagor who is most knowledgeable about the 
property. The terms and conditions under which a mortgagor may be 
permitted to bid on its mortgage are best decided in the light of the 
particular facts of a mortgage sale, such as whether the mortgages are 
being sold separately or in pools or are current or delinquent. 
Accordingly, HUD will announce any such terms and conditions in the 
mortgage sales announcement and by notice to affected mortgagors. HUD 
will consider these comments and other factors in setting these terms 
and conditions.
    The National Leased Housing Association (NLHA) supported the 
proposed rule, but believed that it should have gone further in 
spelling out the details of HUD's mortgage sale program, in order to 
provide an opportunity for public comment. In particular, NLHA wanted 
more detail regarding the FHA mortgage insurance programs to be used, 
the minimum bid requirements, any borrower right of first refusal and 
right to bid policies, and the nature of the bid process. It 
recommended that mortgages be sold individually, bidders have adequate 
time in which to perform due diligence, and workout agreements be 
permitted to be terminated by agreement between the new mortgagee and 
the mortgagor. All of this advice is well-taken. The Department has 
consulted widely, and will continue to consult, in the development of 
its mortgage sales program, but does not believe that such details 
concerning mortgage sale procedures should be codified in regulation. 
Instead, the Department intends to adopt mortgage sale policies that 
are consistent with these regulations and are suited to the 
characteristics of the mortgages offered for sale. This approach also 
will allow the Department to learn from experience and feedback from 
all affected parties as it pursues a series of mortgage sales. Auction 
procedures will be spelled out in a bid package distributed prior to 
each auction.
    One mortgagor recommended a carefully considered set of policies 
for mortgage settlements with owners. These recommendations will be 
considered as HUD works with its financial advisor to develop a 
mortgage settlement policy. A law firm urged special attention to 
participation by small investors in the mortgage sale program, 
including negotiated sales to small investors. HUD seeks to encourage 
participation by small investors by offering nonperforming mortgages in 
small pools; however, it is not authorized to negotiated sales to 
private entities. A development and property management firm 
recommended against the sale of HUD-held mortgages on the ground that 
they would be too deeply discounted; however, if they were sold, the 
firm recommended that the mortgages be sold individually, rather than 
in pools, to receive the highest price. HUD will determine whether to 
offer mortgages individually, in pools, or both, based on the 
characteristics of the mortgages offered for sale and other terms and 
conditions of the auction. The Chinese-American Golden Age Association 
recommended the sale of Section 202 loans. HUD is considering various 
options for these mortgages at the present time.

Section-by-Section Changes From Proposed Rule

    Some of the provisions in the final rule have been reformatted, to 
aid in clarity. Substantive changes made to the proposed rule are 
identified below:

Section 207.270

    A new provision has been added to part 207 which authorizes the 
Department to modify the terms of the mortgage reinsurance pursuant to 
section 223(c) of the National Housing Act when the Department sells a 
mortgage with FHA insurance. This change is necessary to take into 
account the fact that mortgages may be sold to investors at a discount 
rate due to fluctuating interest rates. When mortgages are sold at a 
discount rate, HUD will adjust the amount of the reinsurance to reflect 
the purchase price of the mortgage, not the original mortgage amount. 
HUD will determine the amount of the reinsurance at the time of the 
mortgage sale. This regulatory change codifies existing Departmental 
policy for mortgage sales.

Section 290.3

    The definition of subsidized mortgage has been clarified to 
indicate that purchase money mortgages (PMMs) for previously subsidized 
projects will be treated like subsidized mortgages. The definition of 
subsidized project has been conformed with the Multifamily Property 
Disposition Act.

Section 290.200

    Language has been added to the section describing the purpose of 
the new subpart D, Sale of HUD-held mortgages, to state that, except 
for negotiated sales to State and local governments, HUD will sell 
mortgages on a competitive basis. Language has also been added to 
explain that the Secretary retains full discretion to offer any 
qualifying mortgage for sale and to withhold or withdraw any offered 
mortgage from sale. The procedures set out in the remaining sections of 
this subpart apply only when the Secretary has determined that a 
qualifying mortgage is to be sold.

Section 290.201(a)

    The Department agrees with commenters that existing tenant 
protections should be preserved. Consequently, a paragraph has been 
added to include language from section 203(k)(1) of the HCD Amendments 
of 1978, prohibiting the Secretary from selling a HUD-held mortgage on 
a subsidized project unless the sale is made part of a transaction that 
meets certain qualifications. The transaction must ensure that the 
project will continue to operate at least until the maturity date of 
the loan or mortgage in a manner that will provide rental housing on 
terms at least as advantageous to existing and future tenants as the 
terms required by the program under which the original mortgage was 
insured.

Section 290.202(b)(2)

    The language has been changed to incorporate the changes made by 
the Multifamily Property Disposition Act in the treatment of 
unsubsidized projects.

Other Matters

Executive Order 12866

    This rule was reviewed by the Office of Management and Budget (OMB) 
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, D.C.

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations, 
the policies and procedures contained in this rule relate only to HUD 
administrative procedures and, therefore, are categorically excluded 
from the requirements of the National Environmental Policy 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 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. Specifically, the 
requirements of this rule are directed to HUD administrative 
procedures, and do not impinge upon the relationship between 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. No significant change in existing HUD policies or programs will 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities. This rule will not affect the 
ability of small entities, relative to larger entities, to bid for and 
acquire HUD-held mortgages that HUD decides to sell.

Justification for Final Rulemaking

    In general, the Department publishes a rule for public comment 
before issuing a rule for effect, in accordance with its own 
regulations on rulemaking, 24 CFR part 10. However, part 10 does 
provide for exceptions from that general rule where the agency finds 
good cause to omit advance notice and public participation. The good 
cause requirement is satisfied when prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest.'' (24 
CFR 10.1) The Department finds that good cause exists to publish 
section 207.270 of this rule for effect without first soliciting public 
comment, in that prior public procedure is unnecessary because the 
Department is merely codifying an existing earlier policy.

Regulatory Agenda

    This final rule was listed as sequence number 1579 in the 
Department's Semiannual Agenda of Regulations published on April 25, 
1994 (59 FR 20424, 20446) in accordance with Executive Order 12866 and 
the Regulatory Flexibility Act.

List of Subjects

24 CFR Part 207

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

24 CFR Part 290

    Low and moderate income housing, Mortgage insurance.

    For the reasons stated in the preamble, part 207 and part 290 of 
title 24 of the Code of Federal Regulations is amended as follows:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    1. The authority citation for part 207 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C. 
3535(d).

    2. Subpart B is amended by adding a new undesignated center heading 
to follow immediately after Sec. 207.263, and by adding a new 
Sec. 207.270 to read as follows:

Reinsured Mortgages


Sec. 207.270  Special Reinsurance Provisions.

    The terms, method and amount for payment of insurance benefits for 
mortgages reinsured pursuant to section 223(c) of the National Housing 
Act may be modified by the terms of the Commissioner's endorsement of 
the note for reinsurance.

PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY 
PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD 
MORTGAGES

    3-4. The authority citation for part 290 continues to read as 
follows:

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b; 
42 U.S.C. 3535(d).

    5. Section 290.1 is revised to read as follows:


Sec. 290.1  Applicability.

    This part applies to HUD-owned multifamily housing projects and to 
rental housing projects that are subject to mortgages held by HUD. 
Specific provisions, as noted in the rule text, apply only to ``rental 
housing projects'' (including HUD-owned rental housing projects) as 
defined in Sec. 290.3.
    6. In Sec. 290.3, definitions for ``subsidized mortgage,'' 
``subsidized project'' and ``unsubsidized mortgage'' are added in 
alphabetical order to read as follows:


Sec. 290.3  Definitions.

* * * * *
    Subsidized mortgage means a mortgage, including a purchase money 
mortgage, on a subsidized project.
    Subsidized project means a rental project that is receiving, or 
immediately before its mortgage was foreclosed by HUD or the project 
was acquired by HUD pursuant to this regulation was receiving, any of 
the following types of assistance:
    (1) Below market interest rate mortgage insurance under the proviso 
of section 221(d)(5) of the National Housing Act (hereinafter, a BMIR 
project);
    (2) Interest reduction payments made in connection with mortgages 
insured under section 236 of the National Housing Act (hereinafter, a 
236 project);
    (3) Direct loans made under section 202 of the Housing Act of 1959 
(hereinafter, a 202 project);
    (4) Assistance, to more than 50 percent of the units in the 
project, in the form of:
    (i) Rent supplement payments under section 101 of the Housing and 
Urban Development Act of 1965 (hereinafter, Rent Supp);
    (ii) Additional assistance payments under section 236(f)(2) of the 
National Housing Act (hereinafter, RAP);
    (iii) Housing assistance payments under section 23 of the United 
States Housing Act of 1937 (as in effect before January 1, 1975) 
(hereinafter, Sec. 23); or
    (iv) Housing assistance payments under section 8 of the United 
States Housing Act of 1937 (excluding payments made for tenant-based 
assistance under section 8) (hereinafter, project-based section 8).
* * * * *
    Unsubsidized mortgage means any HUD-held mortgage that is not a 
subsidized mortgage.
* * * * *
    7. A new Subpart D, consisting of Secs. 290.200 through 290.202 is 
added, to read as follows:

Subpart D--Sale of HUD-Held Mortgages

290.200  Purpose and applicability of Civil Rights Requirements.
290.201  Sale of subsidized HUD-held mortgages.
290.202  Sale of unsubsidized HUD-held mortgages.

Subpart D--Sale of HUD-Held Mortgages


Sec. 290.200  Purpose and applicability of Civil Rights Requirements.

    (a) Purpose. The purpose of this subpart is to set out HUD's policy 
regarding the sale of subsidized and unsubsidized HUD-held mortgages. 
Except as otherwise provided in Sec. 290.201(b)(ii), the Department 
will sell mortgages on a competitive basis. The Secretary retains full 
discretion to offer any qualifying mortgage for sale and to withhold or 
withdraw any offered mortgage from sale. However, when a qualifying 
mortgage is offered for sale, the procedures set out in this part will 
govern the sale.
    (b) Applicability of Civil Rights Requirements. Nothing in this 
subpart relieves HUD or housing that receives federal financial 
assistance from federal civil rights requirements, including section 
504 of the Rehabilitation Act, Title VI of the Civil Rights Act of 
1964, Title VIII of the Civil Rights Act of 1968, the Age 
Discrimination Act of 1975, Executive Order 11063, and related 
regulations and requirements. This includes housing in which less than 
50% of the units are receiving housing assistance payments under either 
Section 23 or Section 8 of the United States Housing Act of 1937 and 
housing in which the rent of any unit is paid by a Section 8 
certificate or voucher.


Sec. 290.201  Sale of subsidized HUD-held mortgages.

    (a) Tenant protections preserved. HUD will only sell subsidized 
mortgages if the sale is part of a transaction that will ensure that 
the project subject to the mortgage will continue to operate, at least 
until the maturity date of the mortgage, in a manner that will provide 
rental housing on terms at least as advantageous to existing and future 
tenants as the terms required by the program under which the mortgage 
was insured prior to its assignment. HUD's policy for selling 
subsidized HUD-held mortgages is set out in paragraphs (b) and (c) of 
this section.
    (b) Current mortgages. HUD may sell current mortgages, as follows:
    (1) Current mortgages with FHA mortgage insurance will be sold 
either:
    (i) On a competitive basis to FHA-approved mortgagees; or
    (ii) On a negotiated basis, to State or local governments, or to a 
group of investors that includes an agency of a State or local 
government, if:
    (A) The terms of the sale include an agreement by the State or 
local government, or an agency of the State or local government, to:
    (1) Act as mortgagee or owner of a beneficial interest in the 
mortgage; and
    (2) Ensure that the project will maintain occupancy by the tenant 
group originally intended to be served by the subsidized housing 
program; and
    (B) The sales price is the best price that the Secretary can obtain 
from an agency of a State or local government while maintaining 
occupancy for the tenant group originally intended to be served by the 
subsidized housing program.
    (2) Current mortgages without FHA mortgage insurance will be sold 
if HUD can offer protections equivalent to those listed for an insured 
sale in paragraph (b)(1) of this section.
    (c) Delinquent mortgages. Delinquent mortgages will be sold only 
if, as part of the sales transaction:
    (1) The mortgages are restructured; and
    (2) Either FHA mortgage insurance or equivalent protections are 
provided.


Sec. 290.202  Sale of unsubsidized HUD-held mortgages.

    HUD's policy for selling unsubsidized HUD-held mortgages is as 
follows:
    (a) Current mortgages may be sold with or without FHA mortgage 
insurance.
    (b) Delinquent mortgages may be sold without FHA mortgage 
insurance. However, delinquent mortgages will not be sold if:
    (1) HUD believes that foreclosure is unavoidable; and
    (2) The project securing the mortgage is occupied by very low-
income tenants who are not receiving housing assistance and would be 
likely to pay rent in excess of 30 percent of their adjusted monthly 
income if HUD sold the mortgage.

    Dated: September 16, 1994.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing-Federal Housing 
Commissioner.
[FR Doc. 94-23522 Filed 9-21-94; 8:45 am]
BILLING CODE 4210-27-P