[Federal Register Volume 60, Number 169 (Thursday, August 31, 1995)]
[Rules and Regulations]
[Pages 45331-45335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21449]



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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Part 291

[Docket No. FR-3814-I-01]
RIN 2502-AG42


Sale of HUD-Held Single Family Mortgages

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

ACTION: Interim rule.

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SUMMARY: This interim rule sets forth HUD's policies and procedures for 
the sale of HUD-held single family mortgages. HUD intends to sell a 
large portion of its single family mortgages, including both performing 
and nonperforming mortgages, without recourse and without FHA 
insurance. HUD intends to sell these mortgages to reduce losses to the 
FHA fund, decrease its inventory of single family mortgages, and 
improve the servicing of these mortgages.

DATES: Effective Date: October 2, 1995.
    Sunset Provision: Sections 291.300 through 291.307 shall expire and 
shall not be in effect after September 30, 1996, unless prior to 
September 30, 1996, HUD publishes a final rule adopting the interim 
rule with or without changes, or publishes a notice in the Federal 
Register to extend the effective date of the interim rule.
    Comments due date: October 30, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Office of the General Counsel, Rules Docket 
Clerk, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW., Washington, DC 20410. Communications should refer 
to the above docket number and title. A copy of each communication 
submitted will be available for public inspection and copying during 
regular business hours (7:30 a.m.-5:30 p.m. eastern time) at the above 
address. HUD will not accept comments sent by facsimile (FAX).

FOR FURTHER INFORMATION CONTACT: Joseph Bates, Director, Single Family 
Servicing, Office of Housing, Room 9178, Department of Housing and 
Urban Development, 451 Seventh Street SW., Washington, D.C. 20410, 
telephone (202) 708-1672. Hearing- or speech-impaired individuals may 
call the TDD number (202) 708-4594. (These telephone numbers are not 
toll-free.)

SUPPLEMENTARY INFORMATION:

Background

    The Department of Housing and Urban Development's (HUD's) inventory 
of single family mortgages is large and growing. Since October 1986, 
HUD's portfolio of single family mortgages has increased from 
approximately 49,000 to its current level of approximately 90,000. This 
portfolio consists of: (1) mortgages assigned pursuant to section 230 
of the National Housing Act, (2) mortgages assigned pursuant to section 
221(g)(4) of the National Housing Act (automatically assigned 
mortgages), and (3) purchase money mortgages issued when HUD sold 
single family properties from its own inventory or issued a mortgage in 
connection with the settlement of Ferrell v. Pierce. In the future, HUD 
anticipates that it will acquire between 17,000 and 20,000 new single 
family mortgages each year.
    Although most of the single family mortgages in HUD's inventory 
have outstanding delinquencies under the mortgage, about 60 percent of 
these mortgages are current under forbearance agreements. Almost 40 
percent of these mortgages are in default on their mortgage obligations 
under forbearance and repayment agreements. Another 20 percent have 
little hope of ever paying off arrearages and so remain in danger of 
foreclosure over time. The Office of Management and Budget has 
acknowledged the problems associated with HUD-held single family 
mortgages by designating single family loan servicing a High Risk Area. 
Internal audits by HUD's Inspector General (IG) have also found 
significant deficiencies with HUD's management of its portfolio of 
single family mortgages, and the IG has recommended that HUD implement 
a single family mortgage sale program.
    In June 1994, HUD held a preliminary sale of nonperforming loans, 
which benefitted HUD (and therefore the public treasury) in two ways. 
First, the sale brought a price that was higher than the recovery rate 
on foreclosures of these loans. Second, if HUD had kept these loans in 
the Secretary-held portfolio, foreclosures would have occurred over a 
period of years; therefore the sale eliminated continued debt accruals. 
Furthermore, HUD's experience selling performing loans (section 
221(g)(4)) leads it to believe that their value will be higher in the 
private sector, where greater flexibilities in loan servicing will 
increase collection rates and reduce the potential for default and 
foreclosure over time. HUD also benefits from the sale of all loans 
because HUD's staff is then freed to focus on more mission-critical 
elements of insurance operations. Therefore, to reduce future losses to 
the FHA fund and decrease HUD's inventory of assigned mortgages, HUD 
intends to conduct a program of regular sales of all HUD-owned single 
family mortgages. During the first 12 months following the effective 
date of this sales program, HUD intends to sell approximately 40,000 
performing and nonperforming mortgages totaling approximately $2.0 
billion.
Section 230 Assignment Program

    HUD's portfolio includes defaulted mortgages assigned to HUD 
pursuant to section 230 of the National Housing Act. These mortgages 
were originated by a private lender and insured by HUD under title II 
of the National Housing Act. Most of these loans are market rate, 
unsubsidized loans. However, a very small percentage of the loans in 
HUD's portfolio are subsidized under section 235 of the National 
Housing Act.
    Before a mortgage can be assigned to HUD, the following conditions 
must be met: (1) The mortgagor must receive a notice of the mortgagee's 
intention to foreclose; (2) At least three full monthly mortgage 
payments remain unpaid; (3) The property is the mortgagor's principal 
place of residence; (4) The mortgagor does not own other property 
subject to a mortgage insured or held by HUD; (5) Circumstances beyond 
the mortgagor's control caused the default and rendered the mortgagor 
unable to correct the delinquency within a reasonable time or make full 
mortgage payments; and (6) There is a reasonable prospect that the 
mortgagor will be able to resume full mortgage payments after a period 
of reduced or suspended payments (not to exceed 36 months), and will be 
able to pay the mortgage in full either by its maturity date or, if 
necessary, within 10 years following the maturity date.
    Under this Section 230 assignment program, HUD assumes the mortgage 
lenders' rights and obligations under the mortgages (in return for 
payment of the lenders' mortgage insurance claims) and works out 
forbearance agreements to allow the homeowners to pay delinquencies 
over the periods of the mortgages. In addition to forbearance relief, 
homeowners whose mortgages are accepted for the section 230 mortgage 
assignment program may be entitled to make reduced or suspended 
payments for up to 36 months. After this initial 36 months, mortgagors 
must pay at least 

[[Page 45332]]
the full monthly amount due under the mortgage, plus an additional 
amount to pay off the accrued default amount (as the mortgagor's income 
permits). The mortgage term may be extended up to 120 months if 
necessary to pay off the entire mortgage debt, including the accrued 
default.

Section 235 Mortgages

    With regard to the Section 235 mortgages, 24 CFR 235.375(a)(1) 
states that the assistance payments contract shall terminate when the 
insurance contract terminates (except for an assignment to the 
Secretary). Therefore, HUD will not be making any assistance payments 
to the purchasing mortgagees on behalf of the mortgagors for these 
mortgages. However, to minimize the effect on mortgagors of the sale of 
these mortgages and the termination of assistance payments, HUD will 
cause a reduction in the interest rates on the mortgages to a rate that 
is the higher of the floor rate that was in effect when the loan was 
made or the effective rate that the mortgagor is paying at the time of 
the reduction in the rate. The floor rate for each mortgage is 
contained on form HUD9300.

Mortgages Acquired as Automatic Assignments

    HUD's portfolio also includes automatically assigned mortgages 
insured pursuant to section 221 of the National Housing Act, with 
special privileges under section 221(g)(4) of that Act. Section 
221(g)(4) of the National Housing Act provides a ``put'' to the holders 
of certain pre-November 1983 mortgages. These lenders were granted the 
right to assign FHA-insured mortgages back to FHA at par in the 21st 
year of the mortgage, provided that each mortgage was not in default at 
the expiration of 20 years from the date the mortgage was endorsed for 
insurance, and all documentation was in order. Since automatically 
assigned mortgages were current when assigned to HUD, these mortgagors 
have not had occasion to request and obtain foreclosure avoidance 
relief in a manner provided under the Section 230 assignment program.

Purchase Money Mortgages

    HUD's portfolio also includes certain purchase money mortgages that 
were given in the early 1980s to facilitate sales of HUD properties 
acquired as a result of foreclosure claims. These mortgages have a 
variety of terms and conditions, but the mortgagors do not have rights 
under Section 230 or the Ferrell court settlements.
    The remaining purchase money mortgages in HUD's portfolio resulted 
from settlement of various Ferrell litigation actions. Mortgagors who 
should have been accepted for mortgage assignment were provided with 
mortgages similar to their foreclosed mortgage, and the replacement 
purchase money mortgages were created on properties that had been in 
HUD's inventory of acquired properties. These mortgagors have 
continuing rights under Section 230 and the Ferrell stipulation. In 
some cases there are also second mortgages recorded.

Sales Policy

    HUD intends to sell any or all of these single family mortgages, 
regardless of the ways in which HUD acquired them, including both 
performing and nonperforming mortgages. The mortgages will be sold 
without FHA insurance and without recourse to HUD. However, limited 
representations and warranties may be provided as will be described in 
the Mortgage Loan Sales Agreements.
    For ease of marketing, and to maximize its return, HUD will package 
the mortgages with the assistance of a financial advisor. These pools 
of mortgages could contain any combination of performing and 
nonperforming mortgages, automatically assigned mortgages, mortgages 
assigned to HUD pursuant to section 230 of the National Housing Act, or 
purchase money mortgages. Furthermore, nothing in this interim rule 
shall be construed to prevent HUD from packaging single family 
mortgages with other types of HUD assets for sale.
    While HUD may pool the different categories of HUD-held mortgages 
for purposes of selling the mortgage, each category of mortgages will 
carry its own servicing requirements. For example, mortgagors under 
section 221(g)(4) may have a future right of assignment-like relief. 
Therefore, the servicer of such a mortgage would have to offer the same 
or similar forbearance relief as is available in the Section 230 
assignment program before being able to foreclose upon the mortgage.
    Any investor determined eligible by the Secretary may bid to 
purchase a pool of single family HUD-held mortgages. However, HUD will 
require that the purchaser place the mortgages with a HUD-approved 
mortgagee for servicing for the remaining life of the mortgages. In 
addition, parties whose names currently appear on HUD's most recent 
``Consolidated List of Debarred, Suspended or Ineligible Contractors 
and Grantees,'' or who are on probation, under a limited denial of 
participation, subject to a withdrawal of approval, or otherwise 
sanctioned, are ineligible to bid, either as an individual or 
participant, for any of the loan pools.

Sales Procedure

    Under this interim rule, HUD will make available a sample of the 
mortgage loan files to prospective bidders for due diligence work for a 
period of time before the bidding deadline. The interim rule does not, 
however, contain details as to the sales procedure and terms of the 
sale. For each sale, HUD intends to publish the procedures for the sale 
and the terms of the sale in the Bid Package.
Justification for Interim Rule

    HUD generally publishes a rule for public comment before issuing a 
rule for effect, in accordance with its own regulations on rulemaking 
at 24 CFR part 10. However, part 10 provides that prior public 
procedure will be omitted if HUD determines that it is ``impracticable, 
unnecessary, or contrary to the public interest'' (24 CFR 10.1). As 
noted above in the ``Background'' section of this preamble, both the 
Office of Management and Budget and HUD's Inspector General have noted 
the deficiencies in HUD's management of its single family mortgage 
portfolio. Unless a program of regular mortgage sales is implemented 
immediately, HUD's mortgage servicing problems will grow increasingly 
worse, with continued losses to the FHA fund. Therefore, HUD finds that 
prior public procedure would be contrary to the public interest. 
However, HUD is allowing for a full 60-day public comment period, after 
which it will consider the relevant issues raised by the commenters in 
its development of a final rule.
    In establishing this single family mortgage sales program, HUD is 
acting consistently with the National Housing Goals established in 
section 2 of the Housing Act of 1949 (42 U.S.C. 1441). HUD has 
determined that, due to its scarce staff resources, transferring 
servicing functions to the private sector will greatly improve the 
servicing of these mortgages. In addition, HUD has carefully considered 
the protection of mortgagors' rights to foreclosure avoidance relief, 
both in the provisions of this interim rule (Sec. 291.307) and in the 
terms of the sales agreements. Therefore, HUD is furthering the 
national goal of providing a ``decent home and a suitable living 
environment for every American family.''
    HUD has adopted a policy of setting an expiration date for an 
interim rule, so that the regulatory provisions will expire unless a 
final rule is published before that date. This ``sunset'' 

[[Page 45333]]
provision appears in Sec. 291.300 of this interim rule, and provides 
that the interim rule will expire on the date 13 months from 
publication.

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, this 
interim rule, at the final rule stage, may undergo revisions in 
accordance with the President's regulatory reform initiatives. In 
addition to comments on the substance of these regulations, HUD 
welcomes comments on how this interim rule may be made more 
understandable and less burdensome.

Other Matters

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this interim 
rule under Executive Order 12866, Regulatory Planning and Review. Any 
changes made to the interim rule as a result of that review are clearly 
identified in the docket file, which is available for public inspection 
in the office of HUD's Rules Docket Clerk, Room 10276, 451 Seventh 
Street, S.W., Washington, DC 20410.

Environmental Impact

    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, 
the policies and procedures contained in this interim rule relate only 
to HUD administrative procedures, 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 interim 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 interim rule relate to the 
sale of certain HUD assets, and do not impinge upon the relationship 
between the Federal government and State and local governments. As a 
result, the interim rule is not subject to review under the Order.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this interim rule does not 
have potential for significant impact on family formation, maintenance, 
and general well-being. This interim rule will protect mortgagors' 
rights relative to forbearance, assistance, or reinstatement. Since 
this interim rule will not significantly change the rights of 
mortgagors or their families, no further review under the Order is 
necessary.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this interim rule, and in 
doing so certifies that this interim rule will not have a significant 
economic impact on a substantial number of small entities. This interim 
rule will not affect the ability of small entities, relative to larger 
entities, to bid for and acquire HUD-held mortgages.

Regulatory Agenda

    This interim rule was listed as item number 1433 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 291

    Community facilities, Conflict of interests, Homeless, Lead 
poisoning, Low and moderate income housing, Mortgages, Reporting and 
recordkeeping requirements, Surplus government property.

    Accordingly, for the reasons stated in the preamble, a new subpart 
D is added to 24 CFR part 291 to read as follows:

PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY

    1. The authority citation for part 291 continues to read as 
follows:

    Authority: 12 U.S.C. 1709 and 1715b; 42 U.S.C. 1441, 1441a, 
1551a, and 3535(d).


    2. A new subpart D, consisting of Secs. 291.300 through 291.307, is 
added to read as follows:

Subpart D--Sale of Hud-Held Single Family Mortgages

Sec.
291.300  Effective date.
291.301  Definitions.
291.302  Purpose and general policy.
291.303  Eligible bidders.
291.304  Bidding process.
291.305  Evaluation and selection of bids.
291.306  Closing requirements.
291.307  Servicing requirements.

Subpart D--Sale of Hud-Held Single Family Mortgages


Sec. 291.300  Effective date.

    Sections 291.300 through 291.307 shall expire and shall not be in 
effect after September 30, 1996, unless prior to September 30, 1996, 
HUD publishes a final rule adopting the interim rule with or without 
changes, or publishes a notice in the Federal Register to extend the 
effective date of Secs. 291.300 through 291.307.


Sec. 291.301  Definitions.

    For purposes of this part, the following definitions apply:
    Single family mortgage means a mortgage on a single family property 
assigned to HUD pursuant to Section 230 of the National Housing Act, a 
mortgage on a single family property insured by HUD pursuant to Section 
221 of the National Housing Act, a mortgage on a single family property 
issued in connection with the settlement of Ferrell v. Pierce, a non-
Ferrell purchase money mortgage issued by HUD on a single family 
property sold from HUD's inventory, or any other single family mortgage 
owned by HUD and representing an asset to HUD's title II mortgage 
insurance funds.
    Single family property means a residence containing a dwelling for 
one to four families.


Sec. 291.302  Purpose and general policy.

    This part sets forth HUD's policy and procedures for the sale of 
HUD-held single family mortgages. In general, HUD will sell both 
performing and nonperforming HUD-held single family mortgages. HUD will 
sell all mortgages without recourse and without FHA insurance. HUD will 
package pools of single family mortgages for sale to the general public 
on a competitive basis; however, HUD may sell mortgages to government-
sponsored enterprises (GSEs) on a negotiated basis. Nothing in this 
part shall be construed to prevent HUD from packaging single family 
mortgages with other types of HUD assets for sale. The Secretary 
retains full discretion to offer any qualifying pool of mortgages for 
sale and to withhold or withdraw any offered pool of mortgages from 
sale. However, when HUD offers a qualifying mortgage for sale, the 
procedures set out in this part and in the Bid Package will govern the 
sale of HUD-held single family mortgages. 

[[Page 45334]]



Sec. 291.303  Eligible bidders.

    HUD will provide information on the eligibility of bidders in the 
Bid Package, a Notice in the Federal Register, or other means, at the 
Secretary's full discretion. However, an individual, partnership, 
corporation, or other legal entity will not be eligible to bid for any 
loan pool, either as an individual or a participant, if at the time of 
the sale that individual or entity is:
    (a) On HUD's most recent ``Consolidated List of Debarred, Suspended 
or Ineligible Contractors and Grantees'';
    (b) On probation or under a limited denial of participation; or
    (c) Subject to a withdrawal of approval or other sanctions.


Sec. 291.304  Bidding process.

    (a) Submission of bids. All bids must be submitted to HUD in 
accordance with instructions in the Bid Package for a particular sale.
    (b) Effect of bid. By submitting a bid, the bidder is making an 
offer to purchase single family mortgage loans as presented in the Bid 
Package. Submission of a bid shall constitute acceptance of the terms 
and conditions set forth in the Bid Package and the Mortgage Loan Sale 
Agreement.
    (c) Termination of bid. HUD reserves the right to terminate an 
offering in whole or in part at any time.
    (d) Rejection of bids. (1) HUD may, in its sole discretion, reject 
any bid under the following circumstances:
    (i) If the bidder changes the documents prescribed in the Bid 
Package;
    (ii) If, in HUD's sole discretion, it determines that such action 
would be in the best interests of the U.S. Government.
    (2) HUD can also issue a conditional rejection that will become an 
acceptance upon fulfillment of HUD's requests.
    (e) Withdrawal of bids. A bidder may withdraw a previously 
submitted bid in accordance with the instructions in the Bid Package 
for a particular sale.
    (f) Bids by brokers or agents. Any bid by a broker or agent for a 
principal must be in the name of the principal and signed by the 
broker/agent as the attorney-in-fact for the principal. All such bid 
documents must be executed so as to bind the principal by the broker/
agent as the attorney-in-fact. A power of attorney satisfactory to HUD 
as to form and content must be submitted with such bids on any pool.


Sec. 291.305  Evaluation and selection of bids.

    HUD will evaluate bids, approve successful bids, and notify the 
successful bidder in a manner set forth in the Bid Package.


Sec. 291.306  Closing requirements.

    (a) Earnest money deposit. An earnest money deposit will be 
required in an amount to be determined by HUD and must be submitted to 
HUD by Fed Wire within 24 hours (counting only business days) of 
notification of approval of the winning bid. The earnest money deposit 
is nonrefundable to the winning bidder and will be credited toward the 
purchase price.
    (b) Execution of Mortgage Loan Sale Agreement. At closing, the 
successful bidder and HUD will execute a Mortgage Loan Sale Agreement.
    (c) Withdrawal of Loans. HUD reserves the right, in its sole 
discretion and for any reason whatsoever, to withdraw loan assets from 
a pool prior to the closing date. Any earnest money deposits relating 
to withdrawn loan assets will be retained by HUD and credited toward 
the total purchase price of the remaining loan assets in the pool, in 
accordance with the Mortgage Loan Sale Agreement.


Sec. 291.307  Servicing requirements.

    (a) Use of HUD-approved Mortgagees. All mortgages must be serviced 
by HUD-approved mortgagees for the remaining life of the mortgage. A 
purchaser that is not a HUD/FHA approved mortgagee must retain a HUD/
FHA approved mortgagee to service the mortgage.
    (b) Continuation of Mortgagor Rights. The purchaser may take all 
lawful steps to collect the amounts due under the mortgages, including 
foreclosure of the mortgages. However, the purchaser and its servicer, 
and any subsequent transferee of the mortgage loan, shall be fully 
bound by the terms of the Mortgage Loan Sale Agreement, including those 
terms that provide the mortgagor with any rights regarding forbearance, 
assistance, or reinstatement of the mortgage. The Mortgage Loan Sale 
Agreement will contain provisions for substantially equivalent relief 
to the relief provided by section 230 of the National Housing Act, if 
such relief is applicable to the mortgage.
    (c) Purchasers' Protection of Mortgagor's Rights. (1) Assigned 
mortgages during forbearance period. This paragraph (c)(1) explains how 
a purchaser (or a servicer of a purchased mortgage) must service a 
mortgage that was assigned to HUD under section 230 of the National 
Housing Act, for which less than 36 months has expired since the 
mortgage was assigned to the Secretary. Such a purchaser is entitled to 
collect from the mortgagor a full, reduced, or suspended payment, 
depending upon mortgagor income available for application to the 
mortgage, under a forbearance agreement. If a mortgagor defaults under 
the forbearance agreement, the purchaser may allow reinstatement if the 
mortgagor pays all or a substantial part of the arrearages accrued 
under the forbearance agreement, including late charges.
    (2) Assigned mortgages after forbearance period. This paragraph 
(c)(2) explains how a purchaser (or a servicer of a purchased mortgage) 
must service a mortgage that was assigned to HUD under section 230 of 
the National Housing Act, for which more than 36 months have expired 
since the mortgage was assigned to the Secretary. Such a purchaser may 
require a minimum payment of the full monthly payment due under the 
mortgage. A purchaser may take any lawful action to ensure that 
arrearages do not continue to increase. A purchaser may require a 
mortgagor to pay increased monthly mortgage payments under a new 
forbearance agreement to reduce the amount in arrears if the mortgagor 
has available income to support the increased payments. A purchaser 
shall allow a mortgagor who defaults in making required payments to 
reinstate. Reinstatement is accomplished by acceptance of a payment 
that represents the additional arrearage the mortgagor has incurred 
from the time the mortgagor failed to make a required monthly payment 
under any outstanding forbearance agreement, or under the terms of the 
mortgage if the forbearance agreement has expired. If a mortgagor 
repeatedly defaults in making required mortgage payments, a purchaser 
may decline to allow mortgagors to reinstate the mortgages.
    (3) Section 221 Mortgages. This paragraph (c)(3) explains how a 
purchaser (or a servicer of a purchased mortgage) must service a 
mortgage assigned to HUD under section 221(g)(4) of the National 
Housing Act. Such a purchaser must provide a mortgagor who defaults 
under the terms of the mortgage foreclosure avoidance relief that is 
substantially equivalent to that which the mortgagor could have 
otherwise sought under section 230 of the National Housing Act if the 
mortgage was still insured by HUD.
    (4) Non-Ferrell Purchase Money Mortgages. A purchaser of purchase 
money mortgages that did not result from the settlements of the various 
Ferrell litigation actions does not have to provide relief under 
section 230 of the National Housing Act, as such relief is described in 
paragraphs (c)(1) and (c)(2) of this section.
    (d) Section 235 Mortgages. Since the assistance payments contract 
will terminate upon the sale of the 

[[Page 45335]]
mortgages, in accordance with 24 CFR 235.375(a)(1), the purchasing 
mortgagees will not receive any assistance payments from the Secretary 
on behalf of the mortgagors. However, the Secretary will cause a 
reduction in the interest rates on the mortgages to a rate that is the 
higher of the floor rate that is shown on the form HUD9300 for the 
particular mortgage, or the effective rate of interest that the 
mortgagor is paying at the time that the reduction in interest is made.

    Dated: June 20, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-21449 Filed 8-30-95; 8:45 am]
BILLING CODE 4210-27-P