[Federal Register Volume 60, Number 14 (Monday, January 23, 1995)]
[Proposed Rules]
[Pages 4391-4393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1633]



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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-95-1759; FR-3626-P-01]
RIN 2502-AG20


Single Family Mortgage Insurance--Special Forbearance Procedures

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would permit the mortgagee and the 
mortgagor to enter into a special forbearance agreement requiring the 
payment of arrearages before maturity of the mortgage without obtaining 
the prior approval of HUD. It would also eliminate the present gap in 
reimbursement of debenture interest that occurs if the mortgagor files 
a petition in bankruptcy after entering into a special forbearance 
agreement. The purpose of this change is to encourage mortgagees to 
make greater use of special forbearance procedures when the mortgagor 
is temporarily unable to make full regular mortgage payments.

DATES: Comment due date: March 24, 1995.

ADDRESSEES: Interested persons are invited to submit comments regarding 
this rule to the Rules Docket Clerk, Office of the General Counsel, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Washington, D.C. 20410-0500. Communications should refer 
to the above docket number and title. A copy of each communication 
submitted will be available for public inspection between 7:30 a.m. and 
5:30 p.m. at the above address. Facsimile (FAX) comments are not 
acceptable.

FOR FURTHER INFORMATION CONTACT: Joseph Bates, Director, Single Family 
Servicing Division, Room 9178, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, D.C. 20410, (202) 
706-1672, or, for hearing and speech impaired, (202) 706-4594. (These 
are not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This rule would revise current HUD regulations governing 
forbearance procedures in connection with FHA insurance of single-
family homes. Under the present forbearance procedures (24 CFR 203.614 
(a) and (b)), the mortgagee may suspend or reduce the mortgagor's 
required payments for the forbearance period, but may not increase 
payments to recover arrearages until after mortgage maturity unless the 
mortgagee obtains prior approval from HUD. This rule proposes to add a 
new paragraph (c) to Sec. 203.614, which would permit the mortgagee to 
reduce the required payments to an amount not less than 50% of the 
regular mortgage payments for a forbearance period of up to 6 months. 
On expiration of the forbearance period, the mortgagee may increase the 
required payments to not more than 1\1/2\ times the regular payment 
amount until all arrearages are repaid.

Limitations

    The new procedure contains several limitations that are intended to 
avoid arrearages accumulating to an amount that the mortgagor cannot 
reasonably be expected to repay before maturity. These limitations 
include:
     Not more than four monthly payments may be due and unpaid 
at the time of execution of the forbearance agreement;
     The monthly payments may be reduced but not suspended;
     The period of reduced payments may not exceed 6 months;
     The increase in payments may not be required until 6 
months after execution of the agreement; and
     The first monthly payment must be made at the time of 
execution of the agreement.
    If greater forbearance relief is needed, the mortgagee may utilize 
the existing forbearance procedures, under which the mortgagee may not 
recover [[Page 4392]] arrearages until after mortgage maturity without 
HUD's prior approval.

Conditions for New Procedures

    The conditions for granting the new form of forbearance relief are 
as follows:
    (1) As under the current regulations, the mortgagor must establish 
to the satisfaction of the mortgagee that the mortgagor does not own 
other property subject to a FHA-insured mortgage and that the default 
was caused by circumstances beyond the control of the mortgagor.
    (2) During the period established, the forbearance agreement must 
provide for payment of not less than 50 percent of the regular mortgage 
payments, nor more than the regular mortgage payments. The Secretary 
may adjust the required minimum percentage on a national or regional 
basis as economic conditions may indicate.
    (3) The period of reduced payments may not exceed 6 months after 
execution of the forbearance agreement.
    (4) The agreement must provide for an increase in payments, in 
order to recover arrearages accruing prior to and during the 
forebearance period. The increase in the payments is to begin no 
earlier than 6 months after execution of the agreement.
    (5) The increased payments may not exceed 1\1/2\ times the regular 
mortgage payments.
    (6) The agreement must provide for resumption of the regular 
mortgage payments after the total amount of arrearages is repaid.
    (7) The agreement must be executed no later than the date on which 
four full monthly payments are due and unpaid.
    (8) At the time the agreement is executed, the mortgagor must pay 
an amount agreed upon by the mortgagor and the mortgagee, but not less 
than the first monthly installment due under the agreement.

Other Changes

    Current regulations (Secs. 203.650-.660) have the effect that if 
State law, bankruptcy, or assignment considerations preclude a 
mortgagee from initiating foreclosure within 90 days after the 
mortgagor fails to meet the requirements of a special forbearance 
agreement, then neither mortgage or debenture interest is paid on the 
insurance claim for the period from 90 days after the date of the 
mortgagor's failure to meet the requirements of a special forbearance 
agreement until the date foreclosure is initiated (Secs. 203.402a and 
203.410(a)(3)). The proposed rule would avoid this lapse in interest 
payments by revising Sec. 203.410(a)(3) to provide that debenture 
interest payments will begin the day after the date to which mortgage 
interest is computed.
    In addition, the current regulations do not specifically identify 
assignment consideration as a possible cause for delaying foreclosure 
initiation; the proposed rule has been expanded to do so.
    Finally, the rule would make a conforming revision to 
Sec. 203.355(c). This section currently requires mortgagees to commence 
foreclosure within 60 days after the expiration of any prohibition on 
foreclosure that is found in State law or Federal bankruptcy law. The 
rule would also apply this 60-day requirement to foreclosures that are 
commenced due to the mortgagor's failure to meet the requirements of a 
special foreclosure agreement.

Other Matters

Executive Order 12866

    This proposed rule was reviewed by the Office of Management and 
Budget (OMB) under Executive Order 12866, Regulatory Planning and 
Review. Any changes made to the proposed 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, DC 20410.

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20 (a) and (l) of the HUD 
regulations, the policies and procedures contained in this rule relate 
only to loan terms and individual actions involving single-family 
housing 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 would 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 lenders and do not impinge 
upon the relationship 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 would 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 would 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so 
doing certifies that this rule would not have a significant economic 
impact on a substantial number of small entities. The rule would 
permit, but would not require, use of a special forbearance procedure 
by mortgagees. In addition, the number of cases to which the procedure 
would apply is limited.

Regulatory Agenda

    This rule was listed in the Department's Semiannual Agenda of 
Regulations published on April 25, 1994 (59 FR 202424, 20443), in 
accordance with Executive Order 12866 and the Regulatory Flexibility 
Act.

    The Catalog of Federal Domestic Assistance program number is 
14.117.

List of Subjects in 24 CFR Part 203

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

    Accordingly, part 203 of title 24 of the Code of Federal 
Regulations is proposed to be amended as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    1. The authority citation for part 203 would continue to read as 
follows:

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

    2. In Sec. 203.355, the introductory text of paragraph (a) and 
paragraph (c) would be revised and new paragraph (h) would be added, to 
read as follows:


Sec. 203.355  Acquisition of property.

    (a) In general. Except as provided in paragraphs (b) through (h) of 
this section, upon default of a mortgage the mortgagee shall take one 
of the following actions. Such action shall be taken within 9 months 
from the date of [[Page 4393]] default, or within any additional time 
approved by the Secretary or authorized by Secs. 203.345, 203.346, or 
203.650 through 203.660:
* * * * *
    (c) Prohibiting of foreclosure within time limits. If assignment 
consideration under Secs. 203.650 through 203.660, the laws of the 
State in which the mortgaged property is located, or Federal bankruptcy 
law:
    (1) Do not permit the commencement of foreclosure within the time 
limits described in paragraphs (a), (b), (g), and (h) of this section, 
the mortgagee must commence foreclosure within 60 days after the 
expiration of the time during which foreclosure is prohibited; or
    (2) Require the prosecution of a foreclosure to be discontinued, 
the mortgagee must recommence the foreclosure within 60 days after the 
expiration of the time during which foreclosure is prohibited.
* * * * *
    (h) Special forbearance. The mortgagee must commence foreclosure or 
obtain a deed-in-lieu of foreclosure, with title being taken in the 
name of the mortgagee or the Secretary, within 90 days following the 
date the mortgagor fails to meet the requirements of a special 
forbearance under Sec. 203.614.
    3. Section 203.402a would be revised to read as follows:


Sec. 203.402a  Reimbursement for uncollected interest.

    The mortgagee shall be entitled to receive an allowance in the 
insurance settlement for unpaid mortgage interest if the mortgagor 
fails to meet the requirements of a forbearance agreement entered into 
pursuant to Sec. 203.614 and this failure continues for a period of 60 
days. The interest allowance shall be computed to:
    (a) The earliest of the applicable following dates, except as 
provided in paragraph (b) of this section:
    (1) The date of the initiation of foreclosure;
    (2) The date of the acquisition of the property by the mortgagee by 
means other than foreclosure;
    (3) The date the property was acquired by the Commissioner under a 
direct conveyance from the mortgagor;
    (4) Ninety days following the date the mortgagor fails to meet the 
requirements of the forbearance agreement, or such other date as the 
Commissioner may approve in writing prior to the expiration of the 90-
day period; or
    (5) The date the mortgagee sends the mortgagor notice of 
eligibility to participate in the Pre-Foreclosure Sale procedure; or
    (b) The date foreclosure is initiated or a deed in lieu is 
obtained, or the date such actions were required by Sec. 203.355(c), 
whichever is earlier, if the commencement of foreclosure within the 
time limits described in Sec. 203.355 (a), (b), (g), or (h) is 
precluded by:
    (1) Assignment consideration under Secs. 203.650 through 203.660;
    (2) The laws of the State in which the mortgaged property is 
located; or
    (3) Federal bankruptcy law.
    4. In Sec. 203.410, the heading of paragraph (a) would be 
italicized and paragraph (a)(3) would be revised to read as follows:


Sec. 203.410  Issue date of debentures.

    (a) Conveyed properties, claims without conveyance, pre-foreclosure 
sales--* * *
    (3) As of the day after the date to which mortgage interest is 
computed as specified in Sec. 203.402a, if the insurance settlement 
includes an allowance for uncollected interest in connection with a 
special forbearance.
* * * * *
    5. In Sec. 203.614, a new paragraph (c) would be added, to read as 
follows:


Sec. 203.614  Conditions of special forbearance.

* * * * *
    (c) The mortgagee may grant special forbearance relief providing 
for increased mortgage payments without the approval of the Secretary, 
subject to the following conditions:
    (1) The conditions of paragraph (b)(1) of this section are met;
    (2) The agreement is executed not later than the date on which four 
full monthly payments are due and unpaid;
    (3) At the time of execution of the agreement, the mortgagor must 
pay an amount agreed upon by the mortgagor and the mortgagee, but not 
less than the first monthly installment due under the agreement;
    (4) The written forbearance agreement shall:
    (i) Provide for the payment for a period not to exceed 6 months 
after execution of the agreement of:
    (A) Not less than 50 percent of the regular mortgage payments; or
    (B) Such percentage as the Secretary, by administrative 
instruction, may determine, but not more than the regular mortgage 
payment;
    (ii) Provide for an increase of payments to not more than 1\1/2\ 
times the regular mortgage payments, commencing no sooner than 6 months 
after execution of the agreement; and
    (iii) Provide for resumption of the regular mortgage payments after 
the total unpaid amount accruing prior to and during the forbearance 
period is repaid.

    Dated: November 4, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-1633 Filed 1-20-95; 8:45 am]
BILLING CODE 4210-27-P