[Federal Register Volume 60, Number 33 (Friday, February 17, 1995)]
[Rules and Regulations]
[Pages 9297-9298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3975]



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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner
24 CFR Parts 207, 213, 221, and 236
[Docket No. R-95-1660; FR-3342-F-03]
RIN 2502-AG04

Deletion of Value Criterion in Section 223(a)(7) Refinancing
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: Section 223(a)(7) of the National Housing Act authorizes HUD 
to insure mortgages given to refinance existing HUD-insured mortgages. 
In the past, HUD's implementing regulations have prohibited the 
refinanced mortgage amount from exceeding a stated percentage of the 
value of the property. This value criterion precluded some troubled 
projects from lowering their debt service payments and gaining a more 
sound financial footing. On October 26, 1993, HUD published an interim 
rule in the Federal Register deleting the value criterion from the HUD 
regulations implementing Section 223(a)(7), which was extended by a 
notice published on October 26, 1994. This rule makes final the 
policies contained in the October 26, 1993, interim rule.

EFFECTIVE DATE: March 20, 1995.

FOR FURTHER INFORMATION CONTACT: Jane Luton, Acting Director, Policies 
and Procedures Division, Department of Housing and Urban Development, 
451 Seventh Street, SW., Room 6142, Washington, DC 20410. Telephone 
number (202) 708-2556; and TDD (202) 708-4594. (These are not toll-free 
numbers.)

SUPPLEMENTARY INFORMATION:

Background

    Section 223(a)(7) of the National Housing Act (12 U.S.C. 
1715n(a)(7)) (the Act) authorizes HUD to insure mortgages given to 
refinance existing HUD-insured mortgages under any section or title of 
the Act. Due to requirements of the Act, the HUD regulations 
implementing Section 223(a)(7) limit the principal amount of the 
refinanced mortgage to the amount of the original insured mortgage. 
Additionally, HUD's implementing regulations had prohibited the 
refinanced mortgage amount from exceeding a stated percentage of the 
Federal Housing Commissioner's estimate of value of the project after 
completion of any repairs or improvements to the property. Unlike the 
original-value limitation noted above, this value criterion was not a 
statutory requirement.
    The value criterion precluded many troubled projects from 
refinancing their HUD-insured mortgages, thus preventing them from 
lowering their debt service payments and gaining a sounder financial 
footing. Because Section 223(a)(7) mortgages are already limited by the 
amount of the original insured mortgage, HUD felt the public interest 
and HUD's Insurance Fund would be better served by allowing these loans 
to be refinanced to take advantage of lower interest rates.
    Therefore, on October 26, 1993, HUD published an interim rule (58 
FR 57558) removing the value criterion from its regulations 
implementing Section 223(a)(7). The effect of the interim rule was 
extended by a notice published on October 26, 1994 (59 FR 53731). This 
rule makes final the policies contained in the October 26, 1993, 
interim rule.

Comments on the October 26, 1993, Interim Rule

    By the expiration of the comment period on the October 26, 1993, 
interim rule, HUD had received only two comments, both from the same 
commenter.
    The first comment addressed the backlog of applications languishing 
in some HUD offices and requested that HUD Field Offices be notified 
that Section 223(a)(7) refinancing applications already in process 
should be given priority over those received after the effective date 
of the interim rule. The preamble to the interim rule established 
processing priorities, in order to better manage the increased workload 
anticipated as a result of the rule change. Supplemental instructions 
were provided to HUD Field Office staff and mortgagees through issuance 
of HUD Notice H93-89 and Mortgagee Letter 93-39, both dated November 
24, 1993, addressing processing priorities and other issues. Inasmuch 
as the [[Page 9298]] priorities are no longer applicable, HUD has not 
adopted the comment in this final rule.
    The interim rule's preamble refers to deletion of the 90 percent-
of-value criterion. The commenter noted that Section 223(a)(7) 
applications refinancing loans insured pursuant to section 223(f) of 
the Act are subject to an 85 percent-of-value limitation, in lieu of 90 
percent. The commenter believed this could cause confusion and 
recommended that the rule explicitly eliminate the 85 percent loan-to-
value limitation. Although the specific language of the regulatory 
change is clear, HUD accepts the commenter's suggestion that the 
explanation of the change should be clarified to avoid confusion. 
Because there are also instances (in 24 CFR 221.560(a)(1)(iii) and 24 
CFR 236.40(b)(1)(iii)) where the value criterion limited the maximum 
insurable mortgage amount to 100 percent-of-value in lieu of 90 percent 
or 85 percent, HUD is revising the preamble simply to state that HUD is 
deleting the value criterion in Section 223(a)(7) refinancing.

Other Matters

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities. The rule 
deletes a counterproductive restriction that unnecessarily limits the 
refinancing of certain HUD-insured mortgages. By removing this 
restriction, HUD hopes to avoid unnecessary defaults by viable projects 
and resulting losses to HUD's Insurance Fund.

Environmental Review

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20 of the HUD regulations, the 
policies and procedures contained in this rule relate only to the 
establishment of loan limits and approval of mortgage refinancing under 
section 223(a)(7) of the National Housing Act, 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. The rule is limited 
to removing an unnecessary restriction on refinancing certain HUD-
insured mortgages at more favorable rates.

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 would 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.

Regulatory Agenda

    This rule was listed as sequence 1793 in HUD's Semiannual Agenda of 
Regulations published on November 14, 1994 (59 FR 57632, 57654), under 
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 213

    Cooperatives, Mortgage insurance, Reporting and recordkeeping 
requirements.

24 CFR Part 221

    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.

    Accordingly, the interim rule published in the Federal Register on 
October 26, 1993 (58 FR 57558), entitled, ``Parts 207, 213, 221, and 
236, Deletion of the 90-Percent-of-Value Criterion in Section 223(a)(7) 
Refinancing'', is adopted as final with the following change:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    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).

    Dated: February 8, 1995.
Jeanne K. Engel,
General Deputy Assistant Secretary for Housing-Federal Housing 
Commissioner.
[FR Doc. 95-3975 Filed 2-16-95; 8:45 am]
BILLING CODE 4210-27-P