[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]]
_______________________________________________________________________
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