[Federal Register Volume 60, Number 126 (Friday, June 30, 1995)]
[Rules and Regulations]
[Pages 34136-34138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16128]



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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. FR-3766-F-01]
RIN 2502-AG37


Electronic Payment of Periodic Mortgage Insurance Premiums; Final 
Rule

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

ACTION: Final rule.

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SUMMARY: This final rule amends HUD's Single Family Mortgage Insurance 
regulations. This rule authorizes the Federal Housing Administration 
(FHA) Commissioner to require that periodic mortgage insurance premiums 
(MIP) be remitted electronically. The purpose of this rule is to reduce 
the servicing costs to mortgage lenders and to enhance HUD operations.

EFFECTIVE DATE: July 31, 1995.

FOR FURTHER INFORMATION CONTACT: Anne L. Baird-Bridges, Acting 
Director, Single Family Insurance Operations Division, Room 2246, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Washington, DC 20410, telephone (202) 708-2438, or (202) 708-4594 
(TDD). These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1985, the Department of Housing and Urban Development (HUD) 
implemented the Automated Clearing House (ACH) program, with voluntary 
participation by mortgagees, for electronic payment of up-front 
mortgage insurance premiums (MIP) for single family mortgages that are 
obligations of the Mutual Mortgage Insurance Fund. In 1989, HUD 
implemented the ACH program on a voluntary basis for electronic payment 
of periodic (monthly) MIP for single family insured mortgages. In these 
single family mortgages, mortgagees collected mortgage insurance 
premiums on a monthly basis from the mortgagors and promptly remitted 
them to HUD as required by section 530 of the National Housing Act. 
These premiums are sometimes referred to as section 530 premiums to 
distinguish them from the risk-based premium segment that was adopted 
later in July 1991, although regulations under section 530 also apply 
to that segment. In 1992, HUD made the ACH program available on a 
voluntary basis to the risk-based premium segment of periodic MIP.
    On June 9, 1992, HUD published a proposed rule in the Federal 
Register (57 FR 24424) that would amend the Title II regulations to 
permit the Federal Housing Administration (FHA) Commissioner to require 
that all up-front premium payments be made electronically through ACH. 
HUD received five comments in response to that proposed rule. Two 
comments were from automated clearing house associations, and expressed 
general approval of HUD's proposal. Two comments were from national 
trade associations; both were favorable to the proposal, although one 
expressed a number of technical operational concerns. The fifth 
comment, from a small lender, expressed a similar concern to one raised 
by one of the trade associations, namely the financial impact on small 
lenders.
    On March 8, 1993, HUD published a final rule in the Federal 
Register (58 FR 12901) that was unchanged from the proposed rule. 
However, due to the concerns communicated in the comments, HUD allowed 
a one-year grace period for institutions making 300 or fewer new FHA 
single family loans per year.

II. The Method of Electronic Payment

    HUD's policy prior to this final rule allowed mortgage lenders to 
remit payment of periodic (monthly) mortgage insurance premiums (MIP) 
either by mailing checks and remittance forms to the NationsBank 
lockbox contractor or electronically through the Automated Clearing 
House (ACH) program at Mellon Bank. This final rule will require the 
electronic payment of all periodic MIP.
    In the ACH program, periodic premium collections (also referred to 
as section 530 premiums and risk-based premiums) are processed from 
mortgagees and confirmations are remitted back to the mortgagees 
electronically, using remote terminals or microcomputers with modems in 
lieu of sending checks with HUD forms. Through ACH, the mortgagee's 
terminal or microcomputer operator keys in the transaction data, which 
is transmitted to Mellon Bank.
    Each day at 8 p.m. EST, the Mellon Telecash System originates an 
ACH file of debit transactions based on the data keyed by the 
mortgagee. When the debit transactions have been processed, the ACH 
will transmit the periodic premium data to HUD's premium collection 
system. Through this ACH process, the debit amount is drawn from the 
designated lender's bank account 

[[Page 34137]]
electronically the next day, or can be ``warehoused'' and drawn on the 
lender's bank account on a future date. The corresponding credit entry 
will update HUD's account located at Mellon Bank. If the lender's bank 
is unable to receive an ACH entry, a paper Depository Transfer Check 
(DTC) is used.
    The processing of late charges will not change through the ACH 
process. Late charges will still be assessed if a payment is not 
received by the 10th of the month. Interest will still be due if the 
payment is made more than 20 days after the 10th of the month. In the 
ACH program, the late charge and interest amount can be entered on the 
input screen.
    Under this final rule, periodic MIP for all mortgages insured under 
the General Insurance Fund, the Special Insurance Fund, and the 
periodic risk-based segment of MIP for more recent mortgages insured 
under the Mutual Mortgage Insurance Fund will be collected 
electronically. Excluded under periodic risk-based MIP are condominium 
GPMs, GEMs, and ARMs which are not insured under section 203(b) of the 
National Housing Act. Also excluded are any section 203(b) mortgages 
insured pursuant to sections 233(e) (older declining areas), 238(c) 
(military impacted areas), 247 (Indian reservations), and 248 (Hawaiian 
home lands), since those mortgages are not obligations of the Mutual 
Mortgage Insurance Fund. HUD will transmit specific administrative 
instructions implementing this rule to all HUD-approved mortgagees 
before the rule's effective date.
III. Benefits of Electronic Payment

    The method of electronic payment provides many benefits to the 
mortgage lenders that will reduce their servicing costs and enhance 
operations. The advantages of electronic payment are:
    (1) The electronic transfer of debits and credits in the ACH 
program can increase the lender's control of payment initiation and 
funds availability.
    (2) Banking costs are reduced. Electronic transfers costs less than 
paper check and wire transfers.
    (3) Accounting reconciliation is reduced. Payments are computerized 
and cash application is more automated than with manual systems.
    (4) Built-in edits can reduce data errors created by manual 
recording.
    (5) The chance of lost or late mail is eliminated.
    Although mortgage lender participation in the ACH transfer system 
for collecting periodic MIP has been minimal, electronic payment 
provides reduced servicing costs and enhanced operations to lenders as 
well as HUD.

IV. This Final Rule

    This final rule amends the Single Family Mortgage Insurance 
regulations to authorize the FHA Commissioner to require the electronic 
payment of periodic MIP. In addition, the rule will correct an 
inadvertent omission of the language that permits HUD to require 
electronic payment of up-front MIP. The final rule for the electronic 
payment of up-front mortgage insurance premiums, published in the 
Federal Register on March 8, 1993 (58 FR 12901), inadvertently deleted 
a reference in Sec. 203.259a to new Sec. 203.285 regarding risk-based 
MIP for 15-year mortgages. HUD had added that reference in an interim 
rule published in the Federal Register on October 14, 1992 (57 FR 
46980). When HUD issued the October 1992 interim rule in final form on 
July 30, 1993 (58 FR 41003), it added one reference to Sec. 203.285, 
but left out the sentence about electronic MIP. A corrective rule 
issued on March 24, 1994 (59 FR 13882) added a second reference to 
Sec. 203.285, but that correction still left out the sentence on 
electronic MIP.

V. Justification for Final Rulemaking

    In general, HUD publishes a rule for public comment before issuing 
a rule for effect, in accordance with its own regulations on rulemaking 
(24 CFR part 10). However, part 10 provides for exceptions from that 
general rule when HUD finds good cause to omit advance notice and 
public participation. The good cause requirement is satisfied when 
prior public procedure is ``impracticable, unnecessary, or contrary to 
the public interest'' (24 CFR 10.1). HUD finds that good cause exists 
to publish this rule for effect without first soliciting public 
comment. Because of its experience in promulgating the amendment to the 
Title II regulations for electronic payment of insurance premiums 
through ACH and the voluntary participation in the ACH program by some 
lenders in the electronic payment of periodic MIP, as described in the 
``Background'' section of this preamble, HUD finds that prior public 
procedure is unnecessary.

VI. Regulatory Reform

    Consistent with Executive Order 12866 and President Clinton's 
memorandum of March 4, 1995 to all Federal departments and agencies on 
the subject of Regulatory Reinvention, HUD is reviewing all its 
regulations to determine whether they can be eliminated, streamlined, 
or consolidated with other regulations. As part of this review, HUD has 
reviewed this rule and determined that it furthers the President's 
objectives on regulatory reform. With this rule, HUD more closely 
conforms its practices with those in the private sector, by adopting an 
advanced technological process that relieves a paperwork and financial 
burden on lenders.
VI. 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 
implements a program that will enhance operations and be cost 
beneficial for all participating lenders.

Environmental Impact Statement

    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, 
this rule is categorically excluded from the requirements of the 
National Environmental Policy Act. The rule relates solely to internal 
administrative procedures, the content of which do not involve a 
development decision or affect the physical condition of project areas 
or building sites, but only relate to the performance of accounting, 
auditing, and fiscal functions.

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. 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 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 

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significant change in existing HUD policies or programs will result 
from promulgation of this rule, as those policies and programs relate 
to family concerns.

Regulatory Agenda

    This rule was listed as item number 1415 in HUD's Semiannual Agenda 
of Regulations published on May 8, 1995 (60 FR 23368, 23370) 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 and 1715u; 42 U.S.C. 
3535(d).


    2. Section 203.259a is amended by adding a new sentence to the end 
of paragraph (b), to read as follows:


Sec. 203.259a  Scope.

* * * * *
    (b) * * * In the cases that the Commissioner deems appropriate, the 
Commissioner may require, by means of instructions communicated to all 
affected mortgages, that up-front MIP be remitted electronically.
* * * * *
    3. A new Sec. 203.269 is added to the end of the undesignated 
center heading ``Mortgage Insurance Premiums--Periodic Payment'', to 
read as follows:
Sec. 203.269  Method of payment of periodic MIP.

    In cases that the Commissioner deems appropriate, the Commissioner 
may require, by means of instructions communicated to all affected 
mortgagees, that periodic MIP be remitted electronically.
    4. Section 203.284 is amended by revising paragraph (f) to read as 
follows:


Sec. 203.284  Calculation of up-front and annual MIP on or after July 
1, 1991.

* * * * *
    (f) Applicability of other sections. The provisions of 
Secs. 203.261, 203.264, 203.266, 203.267, 203.268(a)(1), 203.269, 
203.280, and 203.282 are applicable to mortgages subject to premiums 
under this section.
* * * * *
    5. Section 203.285 is amended by revising paragraph (c) to read as 
follows:


Sec. 203.285  Fifteen-year mortgages: Calculation of up-front and 
annual MIP on or after December 26, 1992.

* * * * *
    (c) Applicability of certain provisions. The provisions of 
Secs. 203.261, 203.266, 203.267, 203.268, 203.269, 203.280, and 203.282 
are applicable to mortgages subject to premiums under this section. The 
provisions of paragraphs (d), (e), and (g) of Sec. 203.284 also shall 
be applicable to mortgages subject to premiums under this section.
* * * * *
    Dated: June 20, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-16128 Filed 6-29-95; 8:45 am]
BILLING CODE 4210-27-P