[Federal Register Volume 60, Number 49 (Tuesday, March 14, 1995)]
[Rules and Regulations]
[Pages 13834-13837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6158]




[[Page 13833]]

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Part III





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner



_______________________________________________________________________



24 CFR Parts 25, 201, and 202



Approval of Lending Institutions and Mortgagees; Investing Lenders in 
the Title I Property Improvement and Manufactured Home Insurance 
Programs; Final Rule

  Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 / Rules 
and Regulations   
[[Page 13834]] 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner

24 CFR Parts 25, 201, and 202

[Docket No. R-95-1769; FR-3847-F-01]
RIN 2502-AG43


Approval of Lending Institutions and Mortgagees; Investing 
Lenders in the Title I Property Improvement and Manufactured Home 
Insurance Programs

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule amends the regulations that govern the 
approval of lending institutions to participate in the property 
improvement and manufactured home loan insurance programs under Title 
I, section 2 of the National Housing Act. The rule creates a new 
category of approved lending institutions, to be known as ``investing 
lenders,'' and provides minimum requirements and criteria for their 
approval and operation. In addition, this rule makes conforming changes 
to several HUD regulations.

EFFECTIVE DATE: April 13, 1995.

FOR FURTHER INFORMATION CONTACT: Karen Garner-Wing, Director, Lender 
Approval and Recertification Division, Room 9146, U.S. Department of 
Housing and Urban Development, 451 Seventh Street SW., Washington, D.C. 
20410. Telephone 202-708-3976, ext. 2024. Hearing- or speech-impaired 
individuals may call the Office of Housing's TDD number, 202-708-4594. 
(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Introduction

    Under Title I, section 2 of the National Housing Act (12 U.S.C. 
1703), the Department insures approved lending institutions against 
losses sustained as a result of borrower defaults on property 
improvement loans and manufactured home loans. The regulations 
governing the approval of lending institutions to participate in the 
Title I property improvement and manufactured home loan insurance 
programs are found in 24 CFR part 202.
    This final rule amends part 202 to create a new category of 
approved lending institutions, to be known as ``investing lenders.'' 
This change will provide opportunities for a wider range of financial 
institutions, including charitable and nonprofit associations and 
pension funds, to invest in Title I loans, without the obligation of 
maintaining the staff and facilities needed for loan origination and 
servicing.
    By making greater levels of capital available, both the property 
improvement and manufactured home loan programs will benefit. Increased 
capital investment in Title I loans will help expand the availability 
of the property improvement loan program to all areas of the nation, 
and will increase its use in carrying out community revitalization and 
the rehabilitation of housing for low- and moderate-income families. In 
addition, making more funds available for Title I loans will help make 
the manufactured home loan program a more competitive financing vehicle 
to enable first-time buyers to achieve homeownership.
    The rule adds a new Sec. 202.2(f), which defines an ``investing 
lender'' as a financial institution, including a charitable or 
nonprofit organization or pension fund, which is approved by the 
Secretary to purchase, hold, and sell loans that have been originated 
and insured under the Title I program. An investing lender may not 
originate Title I loans in its own name, and it may not service such 
loans except with the prior approval of the Secretary.
    In addition to the general approval requirements applicable to all 
Title I lenders, the rule adds a new Sec. 202.7 that establishes the 
following additional requirements for approval as an investing lender:
    1. An investing lender must have lawful authority to purchase, 
hold, and sell Title I property improvement and manufactured home loans 
in its own name. Since a Title I loan correspondent is not authorized 
to report loans for insurance, an investing lender may purchase loans 
only from a lender holding a valid Title I contract of insurance, and 
not from a loan correspondent.
    2. An investing lender must have, or have made arrangements for, 
funds sufficient to support a projected investment of at least 
$1,000,000 in property improvement and manufactured home loans. For 
example, the investing lender may have a warehouse line of credit or 
other funding program that would meet this requirement.
    3. In lieu of the staffing and facilities requirements in 
Sec. 202.3(b), an investing lender must have officers or employees who 
are capable of managing its activities in purchasing, holding, and 
selling Title I loans.
    4. An investing lender must be responsible for the servicing of the 
Title I loans that it holds, through contractual or other arrangements 
with another lender holding a valid Title I contract of insurance, but 
it may not directly service such loans except with the prior approval 
of the Secretary.

Conforming and Clarifying Amendments

    The Department is also amending other sections of parts 25, 201, 
and 202 to conform them to the changes outlined above and to clarify 
the text of the regulations. The rule includes the following 
amendments:
    1. The last sentence of Sec. 25.2 is amended to clearly list those 
violations of the Title I lender approval requirements in part 202 that 
are subject to redelegation by the Mortgagee Review Board.
    2. In Sec. 25.3, the definition of ``lender'' is amended to more 
closely conform to the definition of this term in parts 201 and 202. In 
addition, a definition of ``loan correspondent'' is added, and the 
definition of ``mortgagee'' is revised to include Title I lenders and 
loan correspondents, as provided for in section 202(c)(7) of the 
National Housing Act (12 U.S.C. 1708(c)(7)).
    3. Section 25.9(cc) is amended to correct an obsolete reference to 
the section in part 202 that lists the grounds for an administrative 
action against a Title I lender or loan correspondent.
    4. In Secs. 201.2(o) and 202.2(a), the definition of ``lender'' is 
amended to specify that a Title I lender may be approved for the 
purpose of holding Title I loans.
    5. Section 202.3(c) is amended to clarify that a corporate officer 
or other person authorized to bind the lender shall be responsible for 
reporting all originations, purchases, and sales of Title I loans to 
the Secretary for the purpose of obtaining or transferring insurance 
coverage.
    6. In Sec. 202.7, which has been redesignated Sec. 202.8, paragraph 
(c)(3) is amended to correct an obsolete reference to the Title I 
lender approval requirements.
    7. In Sec. 202.8 (redesignated Sec. 202.9), the introductory text 
to paragraph (a) is amended to clarify that, for purposes of that 
section, the term ``lender'' also includes loan correspondents. In 
addition, paragraph (b)(8) is amended to change an obsolete reference 
to the Under Secretary and to correct a typographical error.

Justification for Final Rulemaking

    The requirements for approval as an investing lender in 
Secs. 202.2(f) and 202.7 [[Page 13835]] are based upon Sec. 202.16, 
which contains the approval requirements for an investing mortgagee in 
HUD's mortgage insurance programs. Section 202.16 had its genesis in an 
interim rule published in the Federal Register on July 30, 1980 (45 FR 
50561). One of the provisions added by the interim rule was Sec. 203.6 
to create a new class of investing mortgagees. Although the Department 
solicited public comments, it received no comments with regard to 
Sec. 203.6.
    In 1991, the Department published a proposed rule that would revise 
the mortgagee approval regulations and move them from part 203 to part 
202 (see 56 FR 29100, June 25, 1991). In this proposed rule, the 
section on investing mortgagees would be redesignated as Sec. 202.16 
and would incorporate the existing requirements for investing 
mortgagees found in Sec. 203.6, except that trusts would no longer be 
eligible to be approved as mortgagees. None of the public comments 
received on the June 25, 1991 proposed rule addressed the provisions of 
Sec. 202.16, and the proposed rule was published in the Federal 
Register essentially without change in a final rule on December 9, 1992 
(57 FR 58326).
    As previously stated, creation of a new category of investing 
lender will provide opportunities for a wider range of financial 
institutions, including charitable and nonprofit associations and 
pension funds, to invest in Title I loans and make greater levels of 
capital available to these programs. Considering the past experience 
with the investing mortgagee provision, the Department believes that 
publishing a proposed rule and requesting public comments on these 
regulatory changes would be unnecessary. Therefore, the Department 
finds good cause to omit prior public procedure, and promulgates these 
changes as a final rule.

Findings and Other Matters

Environmental Impact

    Under HUD's regulations implementing the National Environmental 
Policy Act at 24 CFR 50.20(k), this rule is exempt from the 
requirements of an environmental finding. The rule relates solely to 
internal administrative procedures that do not involve a development 
decision or affect the physical condition of project areas or building 
sites, but only relate to criteria and requirements for the approval of 
lending institutions to participate in HUD loan insurance programs.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this final rule, and in so 
doing certifies that this final rule would not have a significant 
economic impact on a substantial number of small entities. The majority 
of institutions that would participate in the Title I program as 
investing lenders are large financial institutions and pension funds.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that 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, the requirements of 
this rule relate solely to the approval of lending institutions, and 
will not impinge upon the relationship between the Federal government 
and State and local governments. As a result, the rule is not subject 
to review under the Order.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12606, The Family, has determined that this rule 
will not have potential for significant impact on family formation, 
maintenance, or general well-being, and thus, is not subject to review 
under the Order. The rule relates solely to the approval of lending 
institutions. No significant changes in existing HUD policies or 
programs will result from promulgation of this rule.

Regulatory Agenda

    This rule was not listed in the Department's Semiannual Agenda of 
Regulations published November 14, 1994 (59 FR 57632) under Executive 
Order 12291 and the Regulatory Flexibility Act.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program numbers are:

14.110  Manufactured Home Loan Insurance--Financing Purchase of 
Manufactured Homes as Principal Residences of Borrowers;
14.142  Property Improvement Loan Insurance for Improving All Existing 
Structures and Building of New Nonresidential Structures; and
14.162  Mortgage Insurance--Combination and Manufactured Home Lot 
Loans.

List of Subjects

24 CFR Part 25

    Administrative practice and procedure, Loan programs--housing and 
community development, Organization and functions (Government 
agencies).

24 CFR Part 201

    Health facilities, Historic preservation, Home improvement, Loan 
programs--housing and community development, Manufactured homes, 
Mortgage insurance, Reporting and recordkeeping requirements.

24 CFR Part 202

    Administrative practice and procedure, Home improvement, 
Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements.

    Accordingly, 24 CFR parts 25, 201, and 202 are amended as follows:

PART 25--MORTGAGEE REVIEW BOARD

    1. The authority citation for 24 CFR part 25 continues to read as 
follows:

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

    2. Section 25.2 is amended by revising the last sentence to read as 
follows:


Sec. 25.2  Establishment of Board.

    * * * With respect to actions taken against Title I lenders and 
loan correspondents, the Mortgagee Review Board may redelegate its 
authority to take administrative actions for failure to remain in 
compliance with the requirements for approval in 24 CFR 202.3(j), 
202.4(a), 202.5 (a) and (c), and 202.6 (a) and (e).
    3. Section 25.3 is amended by revising the definitions of 
``Lender'' and ``Mortgagee'', and by adding a definition of ``Loan 
correspondent'' in alphabetical order, to read as follows:


Sec. 25.3  Definitions.

* * * * *
    Lender. A financial institution that holds a valid Title I contract 
of insurance and is approved by the Secretary under 24 CFR part 202 to 
originate, purchase, hold, service, and/or sell loans insured under 24 
CFR part 201. In matters involving the imposition of civil money 
penalties, the term ``lender'' also includes a financial institution 
that holds a Title I contract of insurance that has been terminated, 
but that remains responsible for [[Page 13836]] servicing or selling 
Title I loans that it holds and is authorized to file insurance claims 
on such loans.
* * * * *
    Loan correspondent. A financial institution approved by the 
Secretary to originate direct loans under Title I, section 2 of the 
National Housing Act, 12 U.S.C. 1703, for sale or transfer to a 
sponsoring lending institution that holds a valid Title I contract of 
insurance and that is not under suspension.
    Mortgagee. For purposes of this regulation, the term ``mortgagee'' 
includes:
    (1) The original lender under the mortgage, as that term is defined 
at sections 201(a) and 207(a)(1) of the National Housing Act, 12 U.S.C. 
1707(a) and 1713(a)(1);
    (2) A lender or loan correspondent as defined in this section; or
    (3) A branch office or subsidiary of the mortgagee, lender, or loan 
correspondent. The term ``mortgagee'' also includes successors and 
assigns of the mortgagee, lender, or loan correspondent, as are 
approved by the Commissioner.
* * * * *
    4. Section 25.9 is amended by revising paragraph (cc) to read as 
follows:


Sec. 25.9  Grounds for an administrative action.

* * * * *
    (cc) Violation by a Title I lender or loan correspondent of any of 
the applicable provisions of this section or of 24 CFR 202.9(b).
* * * * *

PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS

    5. The authority citation for 24 CFR part 201 continues to read as 
follows:

    Authority: 12 U.S.C. 1703; 42 U.S.C. 3535(d).

    6. Section 201.2 is amended by revising paragraph (o) to read as 
follows:


Sec. 201.2  Definitions.

* * * * *
    (o) Lender means a financial institution that:
    (1) Holds a valid Title I contract of insurance and is approved by 
the Secretary under 24 CFR part 202 to originate, purchase, hold, 
service, and/or sell loans insured under this part; or
    (2) Is under suspension or holds a Title I contract of insurance 
that has been terminated, but that remains responsible for servicing or 
selling Title I loans that it holds and is authorized to file insurance 
claims on such loans. For purposes of loan origination under subparts 
A, B, and C of this part, the term ``lender'' also includes a ``loan 
correspondent'' as defined in paragraph (q) of this section.
* * * * *

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

    7. The authority citation for 24 CFR part 202 continues to read as 
follows:

    Authority: 12 U.S.C. 1703, 1709, and 1715b; 42 U.S.C. 3535(d).

    8. Section 202.2 is amended by revising paragraph (a) and by adding 
a new paragraph (f) to read as follows:


Sec. 202.2  Definitions.

* * * * *
    (a) Lender means a financial institution that:
    (1) Holds a valid Title I contract of insurance and is approved by 
the Secretary under this part to originate, purchase, hold, service, 
and/or sell loans insured under 24 CFR part 201; or
    (2) Is under suspension or holds a Title I contract of insurance 
that has been terminated, but that remains responsible for servicing or 
selling Title I loans that it holds and is authorized to file insurance 
claims on such loans.
* * * * *
    (f) Investing lender means a financial institution, including a 
charitable or nonprofit organization or pension fund, that is approved 
under this part to purchase, hold, and sell loans that have been 
originated and insured under 24 CFR part 201. An investing lender may 
not originate Title I loans in its own name, and it may not service 
such loans except with the prior approval of the Secretary.
    9. Section 202.3 is amended by revising paragraph (c) to read as 
follows:


Sec. 202.3  General approval requirements.

* * * * *
    (c) It shall ensure that a corporate officer or other person 
authorized to bind the lender shall be responsible for reporting all 
originations, purchases, and sales of Title I loans to the Secretary 
for the purpose of obtaining or transferring insurance coverage.
* * * * *
    10. Part 202 is amended by redesignating Secs. 202.7 and 202.8 as 
Secs. 202.8 and 202.9, respectively, and by adding a new Sec. 202.7 to 
read as follows:


Sec. 202.7  Requirements for investing lenders.

    In addition to the general approval requirements in Sec. 202.3, a 
financial institution shall meet the following requirements to qualify 
as an investing lender:
    (a) An investing lender shall have lawful authority to purchase, 
hold, and sell Title I property improvement and manufactured home loans 
in its own name.
    (b) An investing lender shall have, or have made arrangements for, 
funds sufficient to support a projected investment of at least 
$1,000,000 in property improvement and manufactured home loans.
    (c) In lieu of the staffing and facilities requirements in 
Sec. 202.3(b), an investing lender shall have officers or employees who 
are capable of managing its activities in purchasing, holding, and 
selling Title I loans.
    (d) An investing lender shall be responsible for the servicing of 
the Title I loans that it holds, through contractual or other 
arrangements with another lender holding a valid Title I contract of 
insurance, but it may not directly service such loans except with the 
prior approval of the Secretary.
    11. Newly designated Sec. 202.8 is amended by revising paragraph 
(c)(3) to read as follows:


Sec. 202.8  Termination of insurance contract.

* * * * *
    (c) * * *
    (3) A lender's right to apply for and be granted a new Title I 
contract of insurance, provided that the requirements for approval 
under this subpart are met.
    12. Newly designated Sec. 202.9 is amended by revising the 
paragraph (a) introductory text and paragraph (b)(8) to read as 
follows:


Sec. 202.9  Administrative actions.

    (a) General. Administrative actions that may be taken against Title 
I lenders are set forth in 24 CFR 25.5 and paragraph (a) of this 
section. Civil money penalties may also be imposed against Title I 
lenders in accordance with 24 CFR 25.13 and 24 CFR part 30. For 
purposes of this section, the term ``lender'' shall also include loan 
correspondents as defined in Sec. 202.2(b) of this subpart.
* * * * *
    (b) * * *
    (8) Such other reason as the Mortgagee Review Board, Secretary, 
Deputy Secretary, or Hearing Officer, as appropriate, determines to be 
justified. Such reasons include, but are not limited to, failure to 
exercise prudent credit judgment; failure to observe proper business 
practices; failure to observe proper loan origination or servicing 
procedures; or failure to [[Page 13837]] comply with HUD requirements 
or other requirements of law or regulation.
* * * * *
    Dated: February 8, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing Federal Housing Commissioner.
[FR Doc. 95-6158 Filed 3-13-95; 8:45 am]
BILLING CODE 4210-27-P