[Federal Register Volume 60, Number 147 (Tuesday, August 1, 1995)]
[Rules and Regulations]
[Pages 39236-39239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18790]




[[Page 39235]]

_______________________________________________________________________

Part V





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Secretary



_______________________________________________________________________



24 CFR Parts 25, 26, and 202



Mortgagee Review Board; Proceedings Before a Hearing Officer; Approval 
of Lending Institutions and Mortgagees; Technical Amendments; Final 
Rule

  Federal Register / Vol. 60, No. 147 / Tuesday, August 1, 1995 / Rules 
and Regulations   

[[Page 39236]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Parts 25, 26, and 202

[Docket No. FR-3065-F-04]
RIN 2501-AB24


Mortgagee Review Board; Proceedings Before a Hearing Officer; 
Approval of Lending Institutions and Mortgagees; Technical Amendments

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule; technical amendments.

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

SUMMARY: This rule changes the Department's regulations governing 
sanctions imposed by the Mortgagee Review Board. The rule also makes 
conforming changes to the regulations concerning HUD's hearing officers 
and approval of Title I lenders, consistent with the revisions herein 
and in the recent revisions to 24 CFR part 24. The changes to the 
Mortgagee Review Board actions are intended to follow more closely the 
statutory provisions set forth at 12 U.S.C. 1708(c). These revisions 
are necessary to comply with the President's directive to streamline 
agency operations throughout the executive branch. The revisions are 
also an element in the Government reinvention process at the 
Department.

EFFECTIVE DATE: August 31, 1995.

FOR FURTHER INFORMATION CONTACT: Emmett N. Roden, Assistant General 
Counsel for Administrative Proceedings, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
10251, Washington, DC 20410, telephone (202) 708-2350. The telephone 
number for the hearing impaired (TDD) is (202) 708-9300. These are not 
toll-free numbers.

SUPPLEMENTARY INFORMATION: Section 202(c) of the National Housing Act 
(12 U.S.C. 1708(c)) established the Mortgagee Review Board (the Board). 
Section 202(c)(4) directs the Board to ``hold a hearing on the record'' 
concerning certain sanctions it has taken against a mortgagee, if the 
mortgagee so requests within 30 days notice of the Board's action. 
However, the Department's regulations have delegated the Board's 
authority to hold hearings to hearing officers (administrative law 
judges and Board of Contract Appeals judges). These proceedings have 
proven extremely time-consuming and expensive. Accordingly, this rule 
provides for the Board to delegate its hearing authority to a hearing 
official who will conduct informal hearings under stated time 
limitations, thereby streamlining the hearing process. The rule further 
provides that the hearing official may, at his or her discretion, refer 
matters to an administrative law judge or Board of Contract Appeals 
judge, or to another ``independent'' official for findings of fact. The 
term ``independent'' means that the other official will not be a member 
of the Board or employed within an office acting as an advisor to the 
Board as that term is described at Sec. 25.4(b).
    The rule also implements the 1992 amendments to section 202 (Pub. 
L. 102-550, approved October 28, 1992). These amendments limited the 
duration of a suspension issued by the Board to one year, unless 
extended for a period not longer than six months to protect the public 
interest, or unless extended with the mortgagee's agreement. The 
amendments also clarified that the term ``mortgagee'' includes a lender 
or loan correspondent approved under Title I of the National Housing 
Act.
    In addition, the final rule reinstates a provision of 24 CFR 25.9 
that the Department inadvertently deleted by a September 9, 1993 
revision to the rule (58 FR 47379). This section (former Sec. 25.9(x)) 
cited as grounds for an administrative action the failure by a 
mortgagee to remit, or timely remit, mortgage insurance premiums, loan 
insurance charges, late charges, or interest penalties to the 
Department. The final rule revises the current Sec. 25.9(x) and moves 
the miscellaneous offense provision at Sec. 25.9(w) to a more logical 
position at the end of Sec. 25.9. The rule also restores provisions 
limiting discovery in Sec. 25.8 that the Department inadvertently 
deleted in the proposed rule.
    The rule also makes conforming changes to the Department's 
regulations at 24 CFR parts 26 and 202, governing hearing officers and 
Title I lenders, respectively, consistent with these revisions to the 
Board's regulations and revisions to 24 CFR part 24, published in the 
Federal Register June 26, 1995 (60 FR 33037, 33046).

Discussion of Public Comment

    On December 20, 1994 (59 FR 65700) the Department published a 
proposed rule amending 24 CFR parts 25 and 26 of the Code of Federal 
Regulations. One comment was received, from the Administrative 
Conference of the United States (ACUS).
    Comment: The commenter urged the Department to follow procedures 
similar to those proposed in Recommendation 95-2, ``Debarment and 
Suspension from Federal Programs,'' adopted by ACUS on January 18, 
1995. ACUS Recommendation item II recommends that cases involving 
disputed issues of material fact be referred to administrative law 
judges, military judges, administrative judges of boards of contract 
appeals, or similarly independent hearing officers for hearings and 
preparation of (1) findings of fact, (2) a recommended decision, or (3) 
an initial decision, subject to agency appeal. Item II of the ACUS 
Recommendations also recommends that debarring officials be senior 
agency officials who are guaranteed sufficient independence to provide 
due process, and that such officials ensure that information used as 
the basis for a sanction appear in the administrative record of the 
decision.
    Response: It should be noted that Board sanctions are substantially 
different from suspensions and debarments. Unlike those sanctions, 
which have Government-wide effect, the most severe Board sanction 
involves withdrawal of a mortgagee's license, previously granted by the 
Department, to participate in the insured mortgage programs of the 
Federal Housing Administration (FHA). Board sanctions are imposed only 
after the subject mortgagees have received advance notice of the 
allegations against them and an opportunity to respond to those 
allegations. A majority of the Board, composed of several of the 
Department's highest officials, must vote to impose a sanction. 
Considerable independence is thus statutorily guaranteed with respect 
to every Board action.
    Furthermore, the governing statute provides, at section 
202(c)(4)(B), that upon receipt of a request for a hearing ``the Board 
shall hold a hearing on the record * * *.'' Accordingly, a hearing 
official must be designated by the Board, and all hearings must be 
recorded.
    However, in response to this comment and to reflect comparable 
revisions to the Department's final rule on suspensions and debarments, 
published in the Federal Register on June 26, 1995, this rule was 
revised to adopt procedures similar to the first suggested hearing 
method in ACUS Recommendation Item II. Thus, a hearing official 
designated by the Board shall conduct hearings on Board sanctions, and 
may, at his or her discretion, refer factual disputes to an 
administrative law judge, member of the Department's Board of Contract 
Appeals, or other independent official for findings of fact.

[[Page 39237]]


Findings and Other Matters

National Environmental Policy Act

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of the Department's 
regulations, the policies and procedures contained in this rule relate 
only to administrative decisions, which do not constitute development 
decisions and do not affect the physical condition of a project area or 
building. Therefore, this rule is categorically excluded from the 
requirements of the National Environmental Policy Act.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 
605(b)), the Secretary hereby certifies that this rule would not have a 
significant economic impact on a substantial number of small entities. 
The rule implements statutory authority intended to protect the 
Department's programs from abusive practices, but it will have no 
adverse or disproportionate economic impact on small businesses.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this final rule does not 
have potential for significant impact on family formation, maintenance, 
and general well-being. No significant change in existing policies or 
programs will result from promulgation of this rule, as those policies 
and programs relate to family concerns. Therefore, the rule is not 
subject to review under the Order.

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 final rule is not subject to review under the Order.

Semiannual Agenda

    This rule was listed as item 1379 in the Department's Semiannual 
Agenda published on May 8, 1995 (60 FR 23368, 23369) under Executive 
Order 12866 and the Regulatory Flexibility Act.

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 26

    Administrative practice and procedure.
24 CFR Part 202

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

    Accordingly, 24 CFR parts 25, 26, and 202 are amended as follows:

PART 25--MORTGAGEE REVIEW BOARD

    1. The authority citation for part 25 is revised to read as 
follows:

    Authority: 12 U.S.C. 1708(c), 1708(d), 1709(s), 1715b and 
1735(f)-14; 42 U.S.C. 3535(d).

    2. Section 25.2 is revised to read as follows:


Sec. 25.2  Establishment of Board.

    The Mortgagee Review Board (the Board) was established in the 
Federal Housing Administration, which is in the Office of the Assistant 
Secretary for Housing--Federal Housing Commissioner, by section 
202(c)(1) of the National Housing Act (12 U.S.C. 1708(c)(1)), as added 
by section 142 of the Department of Housing and Urban Development 
Reform Act of 1989 (Pub. L. 101-235, approved December 15, 1989). 
Except as limited by this part, the Board shall exercise all of the 
functions of the Secretary with respect to administrative actions 
against mortgagees and lenders and such other functions as are provided 
in this part. The Board may, in its discretion, approve the initiation 
of a suspension or debarment action against a mortgagee or lender by 
any Suspending or Debarring Official under part 24 of this subtitle A. 
The Board shall have all powers necessary and incident to the 
performance of these functions. The Board may redelegate its authority 
to review submissions and conduct hearings under Sec. 25.8. The Board 
may also redelegate its authority to impose administrative sanctions on 
the grounds specified in Secs. 25.9 (e), (h), and (u), and to take all 
other nondiscretionary acts. With respect to actions taken against 
Title I lenders and loan correspondents, the 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. In Sec. 25.3, definitions for ``Hearing officer'' and for 
``Hearing official'' are added in alphabetical order, to read as 
follows:


Sec. 25.3  Definitions.

* * * * *
    Hearing officer. An Administrative Law Judge or Board of Contract 
Appeals judge authorized by the Secretary, or by the Secretary's 
designee, to issue findings of fact or other appropriate findings under 
Sec. 25.8(d)(2).
    Hearing official. An official designated by the Board to conduct 
hearings under Sec. 25.8.
* * * * *
    4. Section 25.5 is amended by revising paragraphs (c)(1), (c)(2), 
and (d)(4)(iii), to read as follows:


Sec. 25.5  Administrative actions.

* * * * *
    (c) Suspension--(1) General. The Board may issue an order 
temporarily suspending a mortgagee's HUD/FHA approval if there exists 
adequate evidence of violation(s) under Sec. 25.9 and continuation of 
the mortgagee's HUD/FHA approval, pending or at the completion of any 
audit, investigation, or other review, or such administrative or other 
legal proceedings as may ensue, would not be in the public interest or 
in the best interests of the Department. Suspension shall be based upon 
adequate evidence.
    (2) Duration. A suspension shall last for a specified period of 
time, but not less than 6 months and generally not more than 1 year. 
The Board may extend the suspension for an additional 6 months if it 
determines that the extension is in the public interest. These time 
limits may also be extended upon the voluntary written agreement of the 
mortgagee.
* * * * *
    (d) * * *
    (4) * * *
    (iii) Upon receipt of the Board's decision under Sec. 25.8(e).
* * * * *
    5. Section 25.7 is revised to read as follows:
Sec. 25.7  Notice of administrative action.

    Whenever the Board takes an action to issue a letter of reprimand, 
to place a mortgagee on probation, or to suspend or withdraw a 
mortgagee's approval, the Board shall promptly notify the mortgagee in 
writing of the 

[[Page 39238]]
determination. Except for a letter of reprimand, the notice shall 
describe the nature and duration of the administrative action, shall 
specifically state the violations, and shall set forth the findings of 
the Board. The notice shall inform the mortgagee of its right to a 
hearing, pursuant to Sec. 25.8, regarding the administrative action 
(except for a letter of reprimand) and of the manner and time in which 
to request a hearing. A supplemental notice may be issued in the 
discretion of the Board to add or modify the reasons for the action.
    6. Section 25.8 is revised to read as follows:


Sec. 25.8  Hearings and hearing request.

    (a) Hearing request. A mortgagee that is issued a probation, 
suspension, or withdrawal action is entitled to a hearing on the 
record. The mortgagee shall submit its request for a hearing within 30 
days of receiving the Board's notice of administrative action. The 
request shall be addressed to the Board Docket Clerk, Department of 
Housing and Urban Development, 451 7th Street SW., Washington, D.C. 
20410. The request shall specifically respond to the violations set 
forth in the notice of administrative action. If the mortgagee fails to 
request a hearing within 30 days after receiving the notice of 
administrative action, the Board's action shall become final.
    (b) Procedural rules. The hearing official shall hold a de novo 
hearing within 30 days of HUD's receipt of the mortgagee's request, 
unless the mortgagee requests a later hearing date. The mortgagee or 
its representative shall be afforded an opportunity to appear, submit 
documentary evidence, present witnesses, and confront any witness the 
agency presents. The parties shall not be allowed to present members of 
the Board as witnesses. At the mortgagee's request, a transcribed 
record of the hearing shall be made available at cost to the mortgagee.
    (c) Hearing location. The hearing shall generally be held in 
Washington, D.C. However, upon a showing of undue hardship or other 
cause, the hearing official may, in his or her discretion, order the 
hearing to be held in a location other than Washington, D.C.
    (d) Hearing official's recommendation. (1) The hearing official 
shall issue written findings and a recommended decision to the Board 
within 45 days after the conclusion of the hearing, unless the hearing 
official extends this period for good cause or refers a matter for 
findings of fact or other appropriate findings pursuant to paragraph 
(d)(2)(i) of this section. The findings and recommendation shall be 
based upon the facts as found, together with any information and 
argument submitted by the parties and any other information in the 
administrative record.
    (2) Referral to a hearing officer or other independent official. 
(i) The hearing official may, at his or her discretion, refer disputed 
material facts to a hearing officer or other independent official for 
findings of fact. The hearing official may also, at his or her 
discretion, refer other issues to a hearing officer or other 
independent official for appropriate findings. The hearing official 
shall provide the parties with notice of the referral. The hearing 
official may reject the findings, in whole or in part, only after 
specifically determining them to be arbitrary and capricious or clearly 
erroneous.
    (ii) The provisions of part 26 of this subtitle A shall be 
applicable to proceedings before a hearing officer, with the following 
limitations:
    (A) No appeal to the Secretary may be taken under Secs. 26.24 
through 26.26 of this subtitle A with respect to any order or decision 
by the hearing officer.
    (B) Discovery shall be limited to exclude requests for answers to 
interrogatories, requests for admissions, and production of documents 
that either do not pertain to the appealing mortgagee, or pertain to 
reviews or audits by the Department or administrative actions by the 
Board against mortgagees other than the appealing mortgagee. Members of 
the Board shall not be subject to deposition, nor shall they be 
required to testify at any hearing.
    (iii) Proceedings before a hearing officer or other independent 
official shall commence within 45 days after referral by the hearing 
official, unless the parties agree to an extension of time. The hearing 
officer or other independent official shall issue the requested 
findings of fact or other appropriate findings to the hearing official 
within 30 days after the conclusion of such proceedings. The time 
limitations of this paragraph may be extended upon issuance of a 
written notice describing good cause for such extension.
    (iv) The hearing official shall provide a recommended decision to 
the Board within 15 days after the findings are issued.
    (v) [Reserved].
    (e) Decision by the Board. The Board shall issue its decision 
within 15 days after the hearing official issues the recommended 
decision. The Board's decision shall be mailed to the mortgagee, and 
shall serve as the final agency action concerning the mortgagee.
    7. Section 25.9 is amended by revising paragraphs (i), (w), (x), 
and (bb), and by adding paragraph (ee), to read as follows:


Sec. 25.9  Grounds for an administrative action.

* * * * *
    (i) Failure or refusal of an approved mortgagee to comply with an 
order of the Board, the Secretary, the hearing official, hearing 
officer or other independent official to whom matters are referred 
under Sec. 25.8(d)(2).
* * * * *
    (w) Failure to remit, or timely remit, mortgage insurance premiums, 
loan insurance charges, late charges, or interest penalties to the 
Department;
    (x) Failure to submit a report required under 24 CFR Sec. 202.19 
within the time determined by the Commissioner, or to commence or 
complete a plan for corrective action under that section within the 
time agreed upon by the Commissioner;
* * * * *
    (bb) Breach by the mortgagee of a fiduciary duty owed by it to any 
person as defined in Sec. 25.3, including GNMA and the holder of any 
mortgage-backed security guaranteed by GNMA, with respect to an insured 
loan or mortgage transaction.
* * * * *
    (ee) Any other reason the Board or the Secretary determines to be 
so serious as to justify an administrative sanction.


Sec. 25.12  [Amended]

    8. In Sec. 25.12, paragraph (a) is amended by removing the words 
``Hearing Officer,'' from the fifth sentence, and by adding in their 
place the words ``hearing official,'' and by removing the last sentence 
of the paragraph.
    9. Section 25.16 is revised to read as follows:


Sec. 25.16  Prohibition against modification of Board orders.

    No hearing official, hearing officer, or other independent official 
before whom proceedings are conducted under Sec. 25.8 shall modify or 
otherwise disturb in any way an order or notice by the Board.


Sec. 25.17  [Removed and reserved]

    10. Section 25.17 is removed and reserved.

PART 26--PROCEEDINGS BEFORE A HEARING OFFICER

    11. The authority citation for part 26 is revised to read as 
follows:

    Authority: 42 U.S.C. 3535(d).


[[Page 39239]]

    12. Section 26.1 is amended by revising the second sentence to read 
as follows:


Sec. 26.1  Purpose.

    * * * These rules of procedure apply to hearings with respect to 
determinations by the Multifamily Participation Review Committee 
pursuant to 24 CFR part 200, subpart H, to hearings conducted pursuant 
to referrals by debarring or suspending officials under 24 CFR part 24, 
and to hearings conducted pursuant to referrals by a hearing official 
under 24 CFR part 25, unless such regulations at 24 CFR parts 24, 25, 
or 200, provide otherwise. * * *
    13. The authority citation for part 202 continues to read as 
follows:

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

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

    14. In Sec. 202.9, paragraph (a) is revised, and paragraphs (c) and 
(d) are removed, 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 Sec. 25.5 of this title. Civil money 
penalties may also be imposed against Title I lenders in accordance 
with Sec. 25.13 of this title and 24 CFR part 30. For purposes of this 
section, the term ``lender'' shall also include a loan correspondent as 
defined in Sec. 202.2(b).
* * * * *
    Dated: July 24, 1995.
Henry G. Cisneros,
Secretary.
[FR Doc. 95-18790 Filed 7-31-95; 8:45 am]
BILLING CODE 4210-32-P