[Federal Register Volume 59, Number 222 (Friday, November 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28509]


[[Page Unknown]]

[Federal Register: November 18, 1994]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner

24 CFR Part 203
[Docket No. R-94-1761; FR-3775-F-01]

 

Mortgagor Income Stability Requirement for Single Family Mortgage 
Insurance

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

ACTION: Final rule.

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SUMMARY: HUD is repealing the mortgagor income stability requirement 
for single family mortgage insurance. The current regulation requires 
that a mortgagor's (borrower's) income continue for the first five 
years of the mortgage term in order for the mortgagee (lender) to 
include it in the mortgagor's qualifying ratios. HUD feels this five-
year test for all income sources is too strict. By abolishing the 
regulation, the Federal Housing Commissioner will be free to establish 
income stability criteria as he believes appropriate for a particular 
income source and the mortgage product being offered.

EFFECTIVE DATE: December 19, 1994.

FOR FURTHER INFORMATION CONTACT:
Morris E. Carter, Director, Single Family Development Division, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC, 20410; telephone (202) 708-2700; Hearing or speech-
impaired individuals may call HUD's TDD number (202) 708-4594. (These 
telephone numbers are not toll free.).

SUPPLEMENTARY INFORMATION:

I. Background

    Under the single family home mortgage insurance program, the 
Federal Housing Administration (FHA) provides insurance for private 
lenders against loss on mortgages financing one- to four-family 
dwellings. This program is governed by the HUD regulations at 24 CFR 
part 203.
    The regulations at 24 CFR 203.33 set forth requirements concerning 
the relationship between the mortgagor's income and the mortgage 
payments. Specifically, 24 CFR 203.33(a) requires that the mortgagor 
establish that his or her gross income is, and will be, adequate to 
meet the periodic payments required by the mortgage, as well as any 
other long term obligations. Paragraph (b) of this section requires 
that only stable income expected to continue for approximately the 
first five years of the mortgage term be included in Sec. 203.33(a)'s 
income adequacy calculation.
    HUD is repealing 24 CFR 203.33(b). Experience has shown that the 
current five year projection of income is neither reasonable nor is it 
required by the Veteran's Administration, the government-sponsored 
enterprises of the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation, or the private mortgage 
insurers. These entities have established different criteria for income 
stability determination depending on the income source and other 
variables. HUD feels the FHA Commissioner should be permitted the same 
latitude.
    By abolishing 24 CFR 203.33(b), the Commissioner will be free to 
establish income stability criteria as he sees appropriate for a 
particular income source and the mortgage product being offered. This 
will also enhance the Commissioner's ability to respond to a changing 
mortgage market.

II. Justification for Final Rule Making

    It is HUD's policy to publish rules for public comment before their 
issuance for effect, in accordance with its own regulations on 
rulemaking found at 24 CFR part 10. However, part 10 provides that 
prior public procedure will be omitted if HUD determines that it is 
``impracticable, unnecessary, or contrary to the public interest'' (24 
CFR 10.1). HUD finds that it is unnecessary to solicit prior public 
comment before publishing this rule for effect, because this rule is 
merely eliminating a burdensome requirement which denies borrowers 
homeownership opportunities. HUD will still maintain reasonable and 
adequate underwriting standards.

III. Other Matters

A. 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.

B. 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. Specifically, 
this rule is directed towards applicants and participants in HUD's 
single family mortgage insurance program. It effects no changes in the 
current relationships between the federal government, the states and 
their political subdivisions in connection with this program.

C. 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. This rule eliminates a cumbersome administrative requirement for 
borrowers participating in HUD's single family mortgage insurance 
program. No significant change in existing HUD policies or programs 
will result from the promulgation of this rule, as those policies and 
programs relate to family concerns.

E. 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 impact on a 
substantial number of small entities. This rule does not significantly 
alter FHA insurance benefits, but removes a strict impediment to those 
applying for mortgage insurance. Accordingly, this rule will not have a 
significant economic impact on a substantial number of small entities.

F. Regulatory Agenda

    This final rule was listed as item 1791 in the Department's 
Semiannual Agenda of Regulations published on November 14, 1994 (59 FR 
57632, 57654) in accordance with Executive Order 12866 and the 
Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 203

    Hawaiian natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

    Accordingly, 24 CFR part 203 is amended as follows.

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

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

    Authority: 12 U.S.C. 1709, 1710, 1715b; 42 U.S.C. 3535(d). In 
addition, subpart C is also issued under 12 U.S.C. 1715(u).

    2. Section 203.33 is amended by removing paragraph (b), and by 
redesignating paragraph (c) as paragraph (b).

    Dated: November 4, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 94-28509 Filed 11-17-94; 8:45 am]
BILLING CODE 4210-27-P