[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24188]


[[Page Unknown]]

[Federal Register: September 30, 1994]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing Federal Housing 
Commissioner

24 CFR Parts 200, 203, 207, 220, 221, 235, 236, 237, 241 and 242

[Docket No. R-94-1751; FR-3434-F-02]
RIN 2502-AG01

 

Payment of Insurance Claims by Book Entry Form of Debentures and 
Statute of Limitations on Payment of Distributive Shares

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

ACTION: Final rule.

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SUMMARY: This rule implements provisions in the Housing and Community 
Development Act of 1992 that authorize the Secretary to pay mortgage 
insurance claims with book entry forms of debentures and establish a 
statute of limitations on payments of Mutual Mortgage Insurance Fund 
distributive shares.

EFFECTIVE DATE: October 31, 1994.

FOR FURTHER INFORMATION CONTACT: Christopher Peterson, Director, Office 
of Mortgage Insurance Accounting and Servicing, Room 2108, Department 
of Housing and Urban Development, 451 Seventh Street, SW, Washington, 
DC 20410, telephone: voice (202) 708-1046; the telecommunications 
device for the deaf (TDD) telephone number is (202) 708-4594. (These 
are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: This rule implements two provisions 
contained in the Housing and Community Development Act of 1992, Pub. L. 
102-550, approved October 28, 1992 (the 1992 Act). Section 516 of the 
1992 Act amends sections 204, 207, 220 and 221(g), of the National 
Housing Act to authorize the Secretary of HUD to pay virtually any 
mortgage insurance claim in book entry or other form of debentures an 
well as in the current certificated registered form. Section 508 of the 
1992 Act establishes a 6-year statute of limitation on the payment of 
distributive shares from the Mutual Mortgage Insurance Fund.

Authority To Pay Mortgage Insurance Claims With Book Entry and Other 
Forms of Debentures

    The rule amends parts 200, 203, 207, 220, 221, 235, 236, 237, 241 
and 242 of title 24 of the Code of Federal Regulations to authorize 
payment of mortgage insurance claims with book entry or other forms of 
debentures.
    Under HUD's mortgage insurance programs, when a mortgage goes into 
default, the mortgagee is entitled to receive insurance benefits that 
are payable in cash or debentures. HUD currently pays most, but not 
all, claims in cash. One notable exception is that, under section 
221(g)(4) of the National Housing Act, holders of single family 
mortgages insured under section 221 that are current after 20 years 
from final endorsement may assign the mortgages to HUD and receive 
debentures in exchange. Holders of current section 221 multifamily 
mortgages may likewise assign such mortgages to HUD in exchange for 
debentures if the mortgage is not sold through the auction process 
mandated by section 221(g)(4)(C). HUD also issues debentures for the 
difference between the amount of redeemed debentures and the amount of 
the mortgage insurance premium due, when mortgagees pay their MIP and 
then exercise their right to send in the debentures for redemption.
    Since 1938, the Department of the Treasury has acted as Fiscal 
Agent for the Federal Housing Administration and HUD with respect to 
debentures, and has carried out debenture processing functions on FHA's 
and HUD's behalf. Since 1988, Treasury has delegated much of the 
debenture processing functions to the Federal Reserve Bank of 
Philadelphia (FRBP) acting in its capacity as Fiscal Agent of the 
United States. The computer system used by FRBP is designed to 
accommodate use of book entry, as well as certificated debentures. 
Processing book entry debentures is considerably less costly than 
processing certificated debentures. Section 516 of the 1992 Act 
provides explicit statutory authority for HUD to convert to a book 
entry system.
    Under current statutory authority, FRBP issues certificated 
debentures in multiples of $50, and issues a cash adjustment for the 
balance. The certificated debenture system is extremely cumbersome and 
expensive to administer, since FRBP must have the debenture stock 
printed, store and handle the debenture stock under secure conditions, 
process the issuance of debentures manually, transmit the debentures 
physically, and issue the cash adjustment separately. The certificated 
debentures are also cumbersome and expensive for holders to store and 
negotiate. Such debentures must be held under secure conditions, and 
the pledging and assignment through physical transfer could cause 
delays or lead to loss or theft.
    Because of these considerations, Treasury and a number of Federal 
government agencies have switched from certificated to book entry 
securities, a shift paralleled in the equity and corporate and 
municipal bond markets. However, since Congress apparently contemplated 
the use of certificated debentures when it enacted the current 
provisions of sections 204, 207, and 220 of the National Housing Act, 
Section 516 of the 1992 Act was enacted to clarify HUD's authority to 
pay claims through the issuance of book entry debentures.
    With enactment of section 516, the book entry system administered 
by FRBP can be put into operation. Effective with this rule, HUD will 
have authority to issue debentures in book entry form. HUD intends to 
implement this authority in the very near future with respect to 
issuance of all new debentures. An announcement of the implementation 
will be made prior to its effective date. Also, once this new authority 
is implemented, debentures issued for amounts remaining after payment 
of mortgage insurance premiums may also be in book entry form. In 
addition, holders of outstanding certificated debentures may, at their 
option, exchange such debentures for book entry securities. Debentures 
in book entry form will not thereafter be exchangeable for debentures 
in certificated form. Book entry debentures will be issued in a minimum 
amount of one dollar and increments of one cent. This will allow 
debentures to be issued in virtually the exact amount payable to the 
holder, with no cash adjustment. Interest and principal payments on 
book entry debentures will be made by direct deposit (electronic funds 
transfer) to the account and financial institution designated by the 
owners of the debentures. Considerable savings will accrue, both to the 
Federal government and to holders of debentures, by thus bringing the 
FHA debenture process into conformity with modern commercial practices.

Establish a Statute of Limitations on Payments of Distributive Shares

    The rule also implements section 508 of the 1992 Act by amending 24 
CFR Part 203 to establish a six-year statute of limitations within 
which an individual who is eligible for the payment of a distributive 
share could claim his or her distributive share. The amendment also 
transfers amounts no longer eligible for distribution because of the 
statute of limitations from the Participating Reserve Account to the 
General Surplus Account to help ensure the actuarial soundness of the 
Mutual Mortgage Insurance Fund.

Publication as Final Rule

    It is the policy of the Department to publish rules for public 
comment before developing a rule for effect. However, in a particular 
case where notice and public comment are not required by statute, the 
procedure for advance public comment may be omitted if the Department 
determines that it is impracticable, unnecessary, or contrary to the 
public interest. In this case, revisions to the regulations are limited 
to those needed to reflect the clear Congressional mandate to effect a 
6-year statute of limitations on claims for distributive shares and to 
provide authority to issue debentures in book entry form. The 
Department would not be able to change the minimal provisions it is 
setting forth in this rule in response to public comments because of 
the specificity of the statute being implemented. Consequently, we 
believe it unnecessary to accept and review public comments before 
putting into effect these statutory provisions.

Other Matters

Regulatory Flexibility

    In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility 
Act), the undersigned hereby certifies that this rule does have a 
significant economic impact on a substantial number of small entities. 
The rule implements Congressional mandates which will prove cost 
beneficial for affected business entities both large and small.

NEPA

    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 payment of 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 does not 
effect any change in current relationships between HUD, the private 
sector and state and local governmental entities.

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 Agenda. This rule was listed as item 1597 in the 
Department's Semiannual Agenda of Regulations published on April 25, 
1994 (59 FR 20424, 20450) in accordance with Executive Order 12866 and 
the Regulatory Flexibility Act.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing standards, Incorporation by 
reference, Lead poisoning, Loan programs--housing community 
development, Minimum property standards, Mortgage insurance, 
Organization and functions (Government agencies), Reporting and 
recordkeeping requirements, Social security, Unemployment compensation, 
Wages.

24 CFR Part 203

    Mortgage insurance.

24 CFR Part 207

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

24 CFR Part 220

    Home improvement, Loan programs--housing and community development, 
Mortgage insurance, Reporting and recordkeeping requirements, Urban 
renewal.

24 CFR Part 221

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

24 CFR Part 235

    Condominiums, Cooperatives, Grant programs--housing and community 
development, Low and moderate income housing, Mortgage insurance, 
Reporting and recordkeeping requirements.

24 CFR Part 236

    Grant programs--housing and community development, Low and moderate 
income housing, Mortgage insurance, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 237

    Grant programs--housing and community development, Low and moderate 
income housing, Mortgage insurance.

24 CFR Part 241

    Energy conservation, Home improvement, Loan programs--housing and 
community development, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

24 CFR Part 242

    Hospitals, Mortgage insurance, Reporting and recordkeeping 
requirements.

    Accordingly, in chapter II of title 24 Code of Federal Regulations, 
parts 200, 203, 207, 220, 221, 235, 236, 237, 241, and 242, are amended 
as follows:

PART 200--INTRODUCTION

    1. The authority citation for 24 CFR part 200 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701-1715z-18, 1701s, and 1715z-11; 42 
U.S.C. 3535(d), 3543, and 3544.

    2. In Sec. 200.157, paragraphs (b), (c), (d), (e), and (f)(1) are 
revised to read as follows:


Sec. 200.157  Provisions and characteristics of debentures.

* * * * *
    (b) Registration and denominations. Debentures in certificated form 
are issued in denominations of $50, $100, $500, $1,000 and $10,000 with 
the name of the owner inscribed on the face of the certificate. 
Debentures in book entry form are issued in a minimum amount of one 
dollar and in increments of one cent with the name of the owner 
recorded in an account master record on the books of the Treasury.
    (c) Rate of interest and interchangeability. Debentures carry a 
rate of interest prescribed by the Commissioner but not in excess of an 
annual rate determined by the Secretary of the Treasury in accordance 
with prescribed statutory formula involving yields or prices of 
outstanding marketable obligations of the United States. Debentures in 
certificated form of the same series bearing the same interest rate and 
having the same maturity date shall be freely interchangeable between 
the various authorized denominations and may be exchanged for similar 
debentures in book entry form. Debentures in book entry form cannot be 
exchanged for debentures in certificated form.
    (d) Negotiability and Redemption. Debentures in certificated form 
are negotiable and, if in book entry form, are transferable in the 
manner described in applicable Treasury regulations. Debentures are 
fully guaranteed as to principal and interest by the United States. 
Debentures are redeemable on call issued by the Commissioner.
    (e) Payment of principal and interest. Principal and interest on 
debentures shall be payable when due at the Department of the Treasury, 
Washington, DC, or any Government agency or agencies in the United 
States which the Secretary of the Treasury may from time to time 
designate for that purpose. The principal and interest shall be payable 
to the owner whose name shall be inscribed on the debenture in 
certificated form, to the owner designated as assignee as shown by 
executed assignments for maturing or called certificated debentures, or 
to the owner whose name shall be recorded in the account master record 
of the book entry debentures.
    (f) Transfer and use--(1) In general. Debentures in certificated 
form are negotiable and, if in book entry form, are transferable in the 
manner described in applicable Treasury regulations. They may be used 
by approved mortgagees in lieu of cash for payment of FHA mortgage 
insurance premiums.
* * * * *
    3. In Sec. 200.158, the introductory text is revised and paragraphs 
(c) and (d) are removed, to read as follows:


Sec. 200.158  Applicability of Treasury regulations to debenture 
transactions.

    The Department of the Treasury acts as fiscal agent for the 
Commissioner in connection with transactions and operations relating to 
debentures. Treasury's General Regulations Governing U.S. Securities 
(31 CFR Part 306) and its Supplemental Regulations Governing Federal 
Housing Administration Debentures (31 CFR Part 337) have been and are 
adopted as revised and amended, to the extent applicable, as the 
regulations of the Commissioner governing the issuance of, transactions 
in and redemption of debentures, including the payment of interest 
thereon with the following exceptions:
* * * * *

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    4. The authority citation for 24 CFR part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 1709, 1715b; 42 U.S.C. 3535(d).

    5. Paragraph (r) of Sec. 203.251 is revised to read as follows:


Sec. 203.251  Definitions.

* * * * *
    (r) Debentures means registered, transferable securities in 
certificated or book entry form which are valid and binding 
obligations, issued in the name of the Mutual Mortgage Insurance Fund 
in accordance with the provisions of this part; such debentures are the 
primary liability of the Mutual Mortgage Insurance Fund and are 
unconditionally guaranteed as to principal and interest by the United 
States.
* * * * *
    6. Section 203.408 is revised to read as follows:


Sec. 203.408  Form and amounts of debentures.

    Debentures issued under this part shall be in such form and 
amounts; and shall be subject to such term and conditions; and shall 
include such provisions for redemption, if any, as may be prescribed by 
the Secretary, with the approval of the Secretary of the Treasury; and 
may be in book entry or certificated registered form, or such other 
form as the Secretary by regulation may prescribe.
    7. Section 203.411 is revised to read as follows:


Sec. 203.411  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the mortgagee and the total amount of the mortgagee's 
claim, as approved by the Commissioner, may be adjusted by the issuance 
of a check in payment thereof.
    8. A new Sec. 203.427 is added after Sec. 203.426 and at the end of 
the undesignated center heading, ``Mutual Mortgage Insurance Fund and 
Distributive Shares'', to read as follows:


Sec. 203.427  Statute of limitations on payment of distributive shares.

    The Commissioner shall not distribute any distributive share to an 
eligible mortgagor under Sec. 203.423 beginning on the date which is 
six years after the date the Commissioner first transmitted written 
notification of eligibility to the last known address of the mortgagor, 
unless the mortgagor has applied in accordance with procedures 
prescribed by the Commissioner for payment of the share within the six-
year period. The Commissioner shall transfer any amounts no longer 
eligible for distribution under this section from the Participating 
Reserve Account to the General Surplus Account.
    9. Paragraph (f) of Sec. 203.440 is revised to read as follows:


Sec. 203.440  Definitions.

* * * * *
    (f) Debentures means registered, transferable securities in book 
entry or certificated form which are valid and binding obligations, 
unconditionally guaranteed as to principal and interest by the United 
States.
    10. Section 203.483 is revised to read as follows:


Sec. 203.483  Forms and amounts of debentures.

    Debentures issued under this part shall be in such form and 
amounts; and shall be subject to such terms and conditions; and shall 
include such provisions for redemption, if any, as may be prescribed by 
the Secretary, with the approval of the Secretary of the Treasury; and 
may be in book entry or certificated registered form, or such other 
form as the Secretary by regulation may prescribe.
    11. Section 203.487 is revised to read as follows:


Sec. 203.487  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a 
check in payment thereof.

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

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

    Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C. 
3335(d).

    13. Section 207.259 is amended by revising paragraph (e)(5), to 
read as follows:


Sec. 207.259  Insurance benefits.

* * * * *
    (e) * * *
    (5) Be issued in such forms and amounts; and be subject to such 
terms and conditions; and include such provisions for redemption, if 
any, as may be prescribed by the Secretary, with the approval of the 
Secretary of the Treasury; and may be in book entry or certificated 
registered form, or such other form as the Secretary by regulation may 
prescribe.
* * * * *

PART 220--MORTGAGE INSURANCE AND INSURED IMPROVEMENT LOANS FOR 
URBAN RENEWAL AND CONCENTRATED DEVELOPMENT AREAS

    14. The authority citation for 24 CFR part 220 continues to read as 
follows:

    Authority: 12 U.S.C. 1713, 1715b, 1715k; 42 U.S.C. 3535(d).

    15. Section 220.836 is revised to read as follows:


Sec. 220.836  Form and amounts of debentures.

    Debentures issued under subpart D of this part shall be in such 
form and amounts; and shall be subject to such terms and conditions; 
and shall include such provisions for redemption, if any, as may be 
prescribed by the Secretary, with the approval of the Secretary of the 
Treasury; and may be in book entry or certificated registered form, or 
such other form as the Secretary by regulation may prescribe.
    16. Section 220.842 is revised to read as follows:


Sec. 220.842  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a 
check in payment thereof.

PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE

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

    Authority: 12 U.S.C. 1707(a), 1715b, and 17151, 42 U.S.C. 
3535(d).

    18. Section 221.780 is revised to read as follows:


Sec. 221.780  Issuance of debentures.

    Upon the exercise of the assignment option and the satisfactory 
performance of the requirements as to assignment set out in 
Sec. 207.258 of this chapter, the Commissioner shall issue the assignor 
mortgagee debentures having a total par value equal to the amount of 
the original principal obligation of the mortgage which was unpaid on 
the date of the assignment, plus accrued interest to such date.

PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE 
FACILITIES, AND BOARD AND CARE HOMES

    19. The authority citation for 24 CFR part 232 continues to read as 
follows:

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

    20. Section 232.893 is revised to read as follows:


Sec. 232.893  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a 
check in payment thereof.

PART 235--MORTGAGE INSURANCE AND ASSISTANCE PAYMENTS FOR 
HOMEOWNERSHIP AND PROJECT REHABILITATION

    21. The authority citation for 24 CFR part 235 continues to read as 
follows:

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

    22. Section 235.215 is revised to read as follows:


Sec. 235.215  Method of paying insurance benefits.

    If the application for insurance benefits is acceptable to the 
Secretary, the insurance claim shall be paid in cash, unless the 
mortgagee files a written request with the application for payment in 
debentures.

PART 236--MORTGAGE INSURANCE AND INTEREST REDUCTION PAYMENT FOR 
RENTAL PROJECTS

    23. The authority citation for 24 CFR part 236 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b and 1715z-1; 42 U.S.C. 3535(d).

    24. Paragraph (a) of Sec. 236.265 is revised to read as follows:


Sec. 236.265  Payment of insurance benefits.

* * * * *
    (a) Insurance claims shall be paid in cash unless the mortgagee 
files a written request for payment in debentures.
* * * * *

PART 237--SPECIAL MORTGAGE INSURANCE FOR LOW AND MODERATE INCOME 
FAMILIES

    25. The authority citation for 24 part 237 is revised to read as 
follows:

    Authority: 12 U.S.C. 1709, 1715b, 1715z-2; 42 U.S.C. 3535(d).

    26. Section 237.260 is revised to read as follows:


Sec. 237.260  Method of paying insurance benefits.

    If the application for insurance benefits is acceptable to the 
Commissioner, the insurance claim shall be paid in cash, unless the 
mortgagee files a written request with the application for payment in 
debentures.

PART 241--SUPPLEMENTARY FINANCING FOR INSURED MULTIFAMILY PROJECTS

    27. The authority citation for 24 CFR part 241 is revised to read 
as follows:

    Authority: 12 U.S.C. 1715b, 1715z-6; 42 U.S.C. 3535(d).

    28. Section 241.893 is revised to read as follows:


Sec. 241.893  Cash adjustment.

    Any difference of less than $50 between the amount of debentures to 
be issued to the lender and the total amount of the lender's claim, as 
approved by the Commissioner, may be adjusted by the issuance of a 
check in payment thereof.

PART 242--MORTGAGE INSURANCE FOR HOSPITALS

    29. The authority citation for 24 CFR part 242 is revised to read 
as follows:

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

    30. Section 242.260 is revised to read as follows:


Sec. 242.260  Insurance benefits.

    All of the provisions of Sec. 207.259 of this chapter relating to 
insurance benefits apply to mortgages on hospitals insured under this 
subpart, except that in a case where the mortgage involves the 
financing or refinancing of an existing hospital pursuant to 
Sec. 242.93 and the commitment for insuring such mortgage is issued on 
or after April 1, 1969, the insurance claim shall be paid in cash 
unless the mortgagee files a written request for payment in debentures.

    Dated: September 21, 1994.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing--Federal Housing 
Commissioner.
[FR Doc. 94-24188 Filed 9-29-94; 8:45 am]
BILLING CODE 4210-27-P