[Federal Register Volume 61, Number 25 (Tuesday, February 6, 1996)]
[Rules and Regulations]
[Pages 4580-4584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2455]




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Part III





Department of Housing and Urban Development





_______________________________________________________________________



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



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24 CFR Part 290



Sale of HUD-Held Multifamily Mortgages; Final Rule

  Federal Register / Vol. 61, No. 25 / Tuesday, February 6, 1996 / 
Rules and Regulations   

[[Page 4580]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Part 290

[Docket No. FR-3970-I-01]
RIN 2502-AG59


Sale of HUD-Held Multifamily Mortgages

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

ACTION: Interim rule.

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SUMMARY: This rule adds two provisions which conform the mortgage sale 
regulations to Departmental policy statements made in the preamble to 
the proposed and final rule.1 First, in the sale of delinquent 
mortgages on partially-assisted and subsidized projects, HUD will 
require the assumption of federal rental subsidy contracts by project 
purchasers, including foreclosure purchasers. In addition, mortgage 
purchasers may not foreclose in a manner that would terminate such 
assisted tenants' leases. Second, owners of partially-assisted and 
subsidized projects will continue to be subject to a prohibition 
against discriminating against certificate and voucher holders after a 
mortgage sale without insurance. In addition, owners of both subsidized 
and unsubsidized projects with mortgages that are delinquent when sold 
by HUD must agree to record a covenant running with the land to 
continue this obligation through the maturity date of the mortgage, as 
part of the consideration of a loan restructuring or compromise of the 
mortgage indebtedness with the mortgage purchaser. Alternatively, if 
the mortgage purchaser forecloses, this nondiscrimination obligation 
would become applicable to the project purchaser at foreclosure.

    \1\  This rule and the policies contained in this rule are 
intended to satisfy HUD's obligations under the settlement agreement 
in Walker v. Kemp, No. C 87 2628 (N.D. Cal.).
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    The Department is also providing guidance to the public on its 
interpretation of the current rule excluding delinquent unsubsidized 
mortgages from sale where HUD believes that foreclosure is unavoidable 
and the project is occupied by unassisted very low-income tenants who 
would be likely to pay in excess of 30 percent of their adjusted 
monthly income if the mortgage were to be sold and then foreclosed.

DATES: Effective date: March 7, 1996.
    Comment due date: April 8, 1996.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Rules Docket Clerk, Office of General Counsel, 
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 between 7:30 a.m. 
and 5:30 p.m. weekdays at the above address. Faxed comments will not be 
accepted.

FOR FURTHER INFORMATION CONTACT: Audrey Hinton, Associate Director for 
Program Operations, Office of Multifamily Asset Management and 
Disposition, Office of Housing, Room 6160, Department of Housing and 
Urban Development, 451 Seventh Street, S.W., Washington, D.C. 20410, 
telephone (202) 708-3730, Ext. 2691. Hearing or speech-impaired 
individuals may call HUD's TDD number (202) 708-4594 or 1-800-877-8399 
(Federal Information Relay Service TDD). (Other than the ``800'' 
number, these are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Background

    The source of the Secretary's authority to sell, transfer and 
otherwise deal with multifamily mortgages is section 207(l) of the 
National Housing Act (12 U.S.C. 1713(l)), section 7(i) of the 
Department of Housing and Urban Development Act (42 U.S.C. 3535(i)), 
and section 203 of the Housing and Community Development Act Amendments 
of 1978, as amended, (12 U.S.C. 1701z-11) (``the 1978 Act''). Section 
203 of the 1978 Act also addresses the terms and conditions under which 
HUD-held mortgages may be sold, distinguishing between mortgages 
securing subsidized and unsubsidized projects and authorizing the 
Secretary to enter into negotiated sales of mortgages on subsidized 
projects with state and local housing agencies.
    A final mortgage sale rule was published on September 22, 1994 at 
59 FR 48726, following public notice and a 60-day comment period on a 
proposed rule, published on April 11, 1994 at 59 FR 17500. The final 
rule became effective on October 24, 1994.
    Subsequently, the mortgage sale regulations were included in a 
comprehensive revision of 24 CFR part 290. This is an interim rule, 
published and made effective on March 2, 1995 at 60 FR 11487. The 
September 22, 1994 mortgage sale rules were renumbered. Moreover, the 
final rule text was adapted to a new question and answer format, 
designed to enhance the accessibility of HUD's regulations to the 
general public. The March 2, 1995 interim rule includes a new goal 
section for the mortgage sale program, 24 CFR 290.3(b), based on 
language in the preamble to the proposed rule. It also includes a 
definition section, 24 CFR 290.5, applicable to all subparts of the 290 
regulations. The mortgage sale regulations are currently codified at 24 
CFR part 290, subpart I, in the April 1, 1995 edition of the Code of 
Federal Regulations.
    The following section-by-section analysis describes the amendments 
made by this rule and related matters.

Section 290.110 How will HUD sell unsubsidized mortgages?

    This rule does not amend Sec. 290.110. Rather, the preamble 
provides an informational explanation of how this provision has been 
and will be implemented by HUD and in particular, discusses the 
provision requiring the exclusion of certain delinquent mortgages from 
sale.
    By way of background, Congress clarified the Secretary's broad 
discretion in selling mortgages on unsubsidized projects in section 
101(b) of the Multifamily Housing Property Disposition Reform Act of 
1994 (``the 1994 Act'') by adding section 203(k)(4) to the 1978 Act, as 
amended (12 U.S.C. 1701z-11(k)(4)). Under section 203(k)(4), the 
Secretary is expressly authorized to sell mortgages held on 
unsubsidized projects on any terms and conditions the Secretary 
prescribes, notwithstanding any other provision of law. The 1994 Act 
also changed the definitions of ``subsidized'' and ``unsubsidized'' 
projects, set forth in section 203(b)(2) of the 1978 Act, as amended. 
The category of unsubsidized projects was expanded to include 
partially-assisted projects (those projects without mortgage interest 
subsidies and with project-based rental subsidies for 50% or less of 
the units). (12 U.S.C. 1701z-11(b)(2); 24 CFR 290.5.) The final 
mortgage sale rule, published on September 22, 1994, as well as the 
March 2, 1995 interim rule, reflect the changes made in the 1994 Act.
    Consistent with the current rule, the Department plans to sell 
unsubsidized mortgages without FHA insurance, on a competitive basis. 
Section 290.110 permits the sale of unsubsidized mortgages with or 
without FHA mortgage insurance. To date, HUD has sold all such 
mortgages (current and delinquent) without insurance and 

[[Page 4581]]
intends to continue this policy and practice for all future sales. 
Further, Sec. 290.100 is explicit that all unsubsidized mortgages will 
be sold on a competitive basis. This reflects the Department's policy 
and practice, including plans for the sale of mortgages on partially-
assisted projects. The preamble to the September 24, 1994 final rule 
(59 FR 48727) suggested the possibility of specialized auctions for 
these mortgages involving a group of investors selected, in part, on 
the basis of their commitment to preserving the economically integrated 
rental use of the housing. This is no longer the Department's plan. The 
mechanism for preserving the mixed-income nature of partially-assisted 
housing will be the continuation of federal rental subsidies pursuant 
to Sec. 290.112 and continuation of the owners' duty to refrain from 
unreasonably refusing to lease units to certificate and voucher 
holders, including current and future tenants, pursuant to Sec. 290.114 
of this interim rule.
    Section 290.110(b) permits the sale of delinquent unsubsidized 
mortgages without FHA mortgage insurance but excludes certain mortgages 
from sale. Under Sec. 290.110(b), HUD will not sell a mortgage if HUD 
believes that foreclosure is unavoidable and the project securing the 
mortgage is occupied by very low-income tenants who are not receiving 
federal rental housing assistance and who are or might become rent-
burdened (paying rent in excess of 30% of adjusted monthly income) if 
the mortgage were to be sold and foreclosed. When formulating this 
rule, HUD took into consideration tenant protections under the property 
disposition provisions of the statute, section 203(g) of the 1978 Act, 
as amended (12 U.S.C. 1701z-11(g)). If HUD forecloses on a mortgage, 
then for a two-year period following disposition of the project, rents 
for pre-existing unassisted very low-income tenants cannot be increased 
by the purchaser to such an extent that these tenants would become 
rent-burdened. Further, such tenants, who were already rent-burdened 
prior to disposition, receive a rent freeze for a two-year period. (See 
preamble to the proposed rule, 59 FR 17502 (April 13, 1994) and to the 
final rule, 59 FR 48727 (September 22, 1994).)
    The preambles to the proposed and final rules do not indicate how 
HUD would interpret and apply the phrase ``foreclosure is unavoidable'' 
and no public comments were offered on this specific issue. HUD's 
practice has been to consider foreclosure to be ``unavoidable'' if 
legal notice of the foreclosure sale has been published or HUD has 
initiated foreclosure sale marketing activities. Picking one or more 
procedural steps results in the application of a uniform, objective 
standard by the agency. However, these benchmarks are not predictive of 
whether ``foreclosure is unavoidable'' in any given situation and have 
been questioned by owners and other affected parties in specific cases. 
In theory and in practice, a borrower might offer HUD (or a mortgage 
purchaser if the loan were to be sold) an acceptable workout agreement 
late in the foreclosure process or seek approval to transfer the 
property to a purchaser who offers to invest resources to cure the 
mortgage delinquency.
    HUD has reconsidered its practice and decided to advise the public 
of the circumstances that will give rise to a determination that 
foreclosure is unavoidable for purposes of Sec. 290.110(b). In the 
future, HUD plans to use different but objective guidelines, ones that 
relate more closely to Congressional intent in giving HUD broad 
discretion in the management and disposition of its portfolio of 
unsubsidized mortgages. In the sale of delinquent unsubsidized 
mortgages, HUD's primary objective is to avoid foreclosures by 
maximizing opportunities for private sector loan restructurings. This 
is the most expeditious way to restore properties to stable operating 
condition, which benefits all current and future tenants and affected 
communities.
    First, HUD's general practice will be to consider foreclosure to be 
unavoidable if the project is occupied and HUD is mortgagee-in-
possession (``MIP''). Typically, HUD seeks MIP status where the owner 
has abandoned the property or where necessary to protect the health and 
safety of residents while HUD pursues a foreclosure action. In these 
circumstances, prospects for a successful loan restructuring are remote 
and the probability of foreclosure is high. While not a constraint on 
the exercise of the Secretary's discretion to sell unsubsidized 
mortgages under section 203(k)(4) of the 1978 Act, as amended, it 
should be noted that, when HUD is MIP, it has certain statutory duties 
with respect to the operation of a project. (See, e.g., sections 
203(d)(2) and 203(j)(1) of the 1978 Act.)
    Second, even when the agency is not MIP, HUD's general practice 
will be to consider foreclosure to be unavoidable where HUD has 
determined that the property may be vacated by a foreclosure sale 
purchaser for demolition, rebuilding, conversion of use or substantial 
rehabilitation resulting in temporary relocation of more than 90 days 
or permanent displacement of residents. (See section 203 (g) and (j) of 
the 1978 Act, as amended; 24 CFR 290.42 and 290.88.) Typically, HUD's 
decision will be reflected in the foreclosure sale bid package and in 
its foreclosure sale notices sent to tenants and local government 
pursuant to section 203(c)(3)(A) of the 1978 Act, as amended; 24 CFR 
290.22. Implementation of such foreclosure terms, including provision 
of tenant relocation assistance, requires ongoing HUD involvement and 
control. HUD's general practice will be to exclude the mortgages on 
such projects from its sale program.
    Neither HUD's earlier practice nor this revised guideline is 
intended to create new binding norms. It simply interprets the 
underlying standard which continues to be whether foreclosure is 
unavoidable and whether unassisted very low-income tenants are or would 
become rent-burdened if the mortgage were to be sold and foreclosed.

Section 290.112 What are the requirements for continuing federal rental 
subsidy contracts?

    The preamble to the proposed mortgage sale rule stated that ``The 
Department will sell delinquent mortgages on such projects that it 
believes can be worked out. While the Department would not expect it to 
be needed, purchasers of such mortgages would retain the option of 
foreclosure because the ability to foreclose facilitates workout 
activity.'' (See 59 FR 17501.) As discussed earlier, this reflects the 
Department's current policy and experience. Yet, no matter how 
prescient the Department might be in selecting delinquent mortgages for 
sale, some post-sale foreclosures will inevitably occur. HUD believes 
that this eventuality must be addressed more fully and prescriptively 
than it was in the proposed and final rule. Potential investors, 
project owners and tenants would benefit from a clearer statement of 
HUD's policies and loan sale requirements.
    In the preamble to the April 13, 1994 proposed rule, HUD stated 
that ``Under this rule, HUD would require that purchasers of mortgages 
agree not to induce any project owner to terminate a project-based 
Section 8 assistance contract, and, in the event of foreclosure, to 
assume any Section 8 contract.'' (59 FR 17502) HUD received a comment 
that this policy and related statements should be included in the rule 
text and that ``purchasers of mortgages should be required to impose 

[[Page 4582]]
upon any purchaser of a project at foreclosure the obligation to accept 
the existing Section 8 contract.'' (National Housing Law Project 
letter, June 10, 1994, page 6.) In the preamble to the September 22, 
1994 final rule, HUD rejected this change as unnecessary while agreeing 
with the policy content of the comment. (59 FR 48727) Section 8 housing 
assistance continues when a purchaser at foreclosure, with HUD's 
approval, agrees to assume the obligations of the housing assistance 
payments contract. However, the legal basis for requiring the 
assumption of such contracts by a project purchaser, including a 
foreclosure purchaser, warrants clarification.
    Section 290.112 of this rule implements HUD's authority under 
section 203(k) of the 1978 Act to include this requirement in its 
mortgage sale documents. As a term or condition of buying a delinquent 
HUD-held mortgage, the mortgage purchaser and its successors or assigns 
must agree to assume project-based and tenant-based rental subsidy 
contracts, in the event it acquires title to the project. Further, the 
mortgage purchaser and its successors and assigns must also agree to 
record a covenant as a condition of a loan restructuring, or acceptance 
of an owner's discounted pay-off of the debt, or in the event of 
foreclosure, in the foreclosure deed. The covenant will require the 
assumption of any federal rental subsidy contract by any project 
purchaser, for any sale occurring during the life of such subsidy 
contract. The covenant will expire on the date the last project-based 
federal rental subsidy contract expires by its own terms.
    Imposition of this condition on a mortgage purchaser and 
indirectly, on a current or future project owner, is well within the 
scope of HUD's discretion. If an owner has been spared from 
foreclosure, which typically carries significant adverse tax 
consequences, and has received the benefit of a loan restructuring or 
discounted pay-off from the mortgage sale purchaser, the owner has 
received consideration for recording this covenant. Extracting a public 
policy quid pro quo from the owner, in the form of a covenant requiring 
future owners to assume federal project-based and tenant-based rental 
assistance contracts, further assures that HUD's mortgage sale program 
benefits low-income tenants.
    As indicated by the ``except where otherwise approved by HUD'' 
language in Sec. 290.112, HUD retains its authority under the rental 
subsidy contract and applicable program regulations to reject the 
assignment of a subsidy contract to a foreclosure purchaser or other 
purchaser, to terminate the contract, and to provide certificates or 
vouchers to assisted tenants. The obligation of a purchaser to assume a 
federal subsidy contract does not imply any obligation on the part of 
HUD to approve the assignment of the contract to a new project owner.
    In HUD's discussion of the ongoing nature of Section 8 contracts 
post-foreclosure in the preamble to the proposed rule, it was assumed, 
sub silentio, that tenant leases entered into pursuant to such 
contracts would also remain in effect. Under most state laws, these 
leases could be terminated by foreclosure, raising a question about the 
rights of assisted tenants in occupancy. This rule is intended to 
eliminate any uncertainty about this by requiring the mortgage 
purchaser and its successors and assigns, in the event of a foreclosure 
of the mortgage, to foreclose in a manner that does not interfere with 
any lease of tenants receiving existing federal project-based or 
tenant-based rental assistance. Subject to this limitation, the rule is 
not intended to alter or otherwise affect the good cause eviction 
standards or other procedural requirements provided by HUD's 
regulations. (See, e.g., 24 CFR part 247 and Secs. 880.607 and 
881.607.)
    The Department is considering adopting requirements safeguarding 
the possessory rights of unassisted tenants in the event of a 
foreclosure. This is consistent with the congressional statement of 
policy that the administration of federal housing and development 
programs should minimize involuntary displacement of persons from homes 
and neighborhoods, 42 U.S.C. 5313 (note). Specifically, HUD would 
require that existing leases of unassisted tenants be maintained after 
foreclosure for a period equal to the remaining term of the lease or 
one year, whichever period is shorter, if the leases could otherwise be 
extinguished under state foreclosure law. This is analogous to the 
obligation imposed on foreclosure sale purchasers when HUD forecloses 
under the Multifamily Mortgage Foreclosure Act of 1981, as amended, 12 
U.S.C. 3713(c); 24 CFR 27.45(b). This requirement was not raised in the 
April 13, 1994 proposed rule. HUD has not included a provision in this 
rule and will take public comment into consideration before adding such 
a provision through a final rule.
    On or about the mortgage sale closing date, HUD also will take 
steps to provide notice, through posting or otherwise, to tenants in 
projects covered by Sec. 290.112. The notice will inform tenants that 
HUD has sold the mortgage on their project and will advise them of the 
continuation of federal rent subsidy and of the tenant lease 
protections in event of foreclosure. HUD will advise tenants of their 
right to enforce these requirements.

Section 290.114 What policies apply concerning nondiscrimination in 
admitting certificate and voucher holders?

    This new section would continue in effect, after a mortgage sale 
without FHA mortgage insurance, policies against an owner's 
unreasonable refusal to lease to Section 8 certificate and voucher 
holders. As explained herein, owners of subsidized and some 
unsubsidized (partially-assisted) projects are bound by this 
nondiscrimination provision while HUD insures or holds the mortgage. 
All purchasers of HUD foreclosed properties, whether formerly 
subsidized or unsubsidized, are subject to a comparable requirement.
    This rule effectuates HUD's intent, as set forth in the preamble to 
the proposed mortgage sale rule. (59 FR 17502) In response to public 
comment, HUD declined to include in the regulation, itself, a 
nondiscrimination prohibition on the grounds that the requirement was 
imposed by other regulations. (59 FR 48727) The Department had in mind 
section 8(t) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(t)), which contains a prohibition against refusing to lease to 
certificate or voucher holders. Its applicability to project owners 
that have received Section 8 is not affected by HUD's sale of these 
mortgages. However, HUD now recognizes that another applicable 
provision, section 183(c) of the Housing and Community Development Act 
of 1987 (42 U.S.C. Sec. 1437f note)(the ``1987 Act''), covers 
additional types of projects (such as a 221(d)(3)(BMIR) or Section 236 
project without Section 8 LMSA). Upon sale of the mortgage without 
insurance, section 183(c) coverage would be terminated.
    Section 183(c) of the 1987 Act provides that, while HUD insures or 
holds a mortgage, ``No owner of a subsidized project, as defined in 
section 203(i)(2) of the Housing and Community Development Amendments 
of 1978 Act, as amended by section 181(h) of this Act [the 1987 Act]'' 
shall refuse to lease any available unit to Section 8 certificate or 
voucher holders.'' Section 203(i)(2) was repealed by the complete 
amendment of section 203 in section 101 of the 1994 Act. Section 203(b) 
of the 1978 Act, as amended by the 1994 Act, nonetheless, makes it 
clear that the previous definition of ``subsidized project'' continues 
to apply for purposes of 

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section 183(c). Therefore, although partially-assisted projects 
(projects with market-rate mortgages and with project-based rental 
assistance, but on no more than 50 percent of the units) are 
``unsubsidized projects'' for purposes of mortgage sales and project 
sales under section 203 of the 1978 Act, they are ``subsidized 
projects'' for purposes of section 183(c).
    The purpose of this new Sec. 290.114 is to provide a clear basis 
for HUD to impose, as a term or condition in its sale of certain 
mortgages, a prohibition on discrimination against Section 8 
certificate or voucher holders. Section 290.114(a) contains a 
nondiscrimination requirement comparable to section 183(c). Section 
290.114(c) applies this requirement to all projects that were subject 
to section 183(c) immediately before a mortgage sale without FHA 
mortgage insurance. If HUD continued to hold the mortgage, the 
nondiscrimination obligation would terminate when the mortgage 
obligation was satisfied, whether through a prepayment or regular 
mortgage amortization. Therefore, the rule similarly limits the period 
of this obligation with respect to current mortgages on partially-
assisted projects and subsidized projects sold without FHA insurance.
    Section 290.114(d) requires, for any mortgage that is delinquent at 
the time HUD offers it for sale, that the mortgage purchaser impose a 
nondiscrimination covenant as a condition of any loan restructuring, 
acceptance of a discounted pay-off of the debt from the owner, or in 
the event of foreclosure, in the foreclosure deed. The covenant would 
be applicable for a period equal to the remaining term of the HUD 
mortgage. For the reasons discussed in the explanation of Sec. 290.112, 
extracting a public policy quid pro quo from the owner, in the form of 
a covenant not to discriminate against Section 8 certificate or voucher 
holders, is an appropriate means to further assure that HUD's mortgage 
sale program benefits lower income tenants.
    With respect to delinquent mortgages that are foreclosed by 
mortgage purchasers, or their successors or assigns, the rule simply 
assures parity with the treatment of projects foreclosed by HUD. 
Section 204 of the 1978 Act (12 U.C.C. 1701z-12), directs HUD to 
require a purchaser of any HUD-owned multifamily project to not 
unreasonably refuse to lease units to certificate holders that rent at 
or below Section 8 fair market rents. This provision also applies to a 
party that outbids HUD at the foreclosure sale and acquire title. (See 
24 CFR 290.30 and 290.46.) Accordingly, Sec. 290.114(d) applies to the 
sale of all delinquent HUD-held mortgages, including delinquent 
mortgages securing unsubsidized projects with no project-based 
assistance.
    Section 290.114(a) excludes unsubsidized mortgages securing 
projects with no project-based assistance if they are current at the 
time HUD offers them for sale. The Department has excluded these 
projects because they are not subject to section 183(c) of the 1987 Act 
immediately before HUD sells the mortgages and are not at risk of 
foreclosure, making future coverage under section 204 of the 1978 Act, 
discussed below, an irrelevant factor.

Other Matters

Executive Order 12866

    This rule was reviewed by the Office of Management and Budget (OMB) 
under Executive Order 12866, Regulatory Planning and Review. Any 
changes made to the rule as a result of that review are clearly 
identified in the docket file, which is available for public inspection 
in the office of the Department's Rules Docket Clerk, room 10276, 451 
Seventh Street SW, Washington, D.C.

Regulatory Reinvention

    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, the Department is reviewing all 
its regulations to determine whether certain regulations 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 at the final rule stage in accordance with the President's 
regulatory reform initiatives. In addition to comments on the substance 
of these regulations, the Department welcomes comments on how this 
interim rule may be made more understandable and less burdensome.

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 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 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 HUD administrative 
procedures, and do not impinge upon the relationship between 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 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 Flexibility Act

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

Justification for Interim Rulemaking

    In general, the Department 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 where the agency 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) The Department finds that prior public comment is unnecessary 
because adequate opportunity to comment on the two regulatory 
provisions added by this rule has already been provided. The policies 
implemented by Secs. 290.112 and 290.114 were discussed in the April 
1994 proposed mortgage sale rule and in 

[[Page 4584]]
the September 1994 final rule. In both documents, these policies were 
described as existing HUD policy, and HUD received public comment 
requesting that the policies be included in the rule itself. When the 
Department published the September 1994 final rule, it did not include 
the policies in the rule, not from a disagreement with the commenter 
over the substance of the policy, but because the Department believed 
that the policies could be implemented without adding regulatory 
provisions. As discussed above in the section-by-section analysis, 
there are limitations in existing authority that could allow for less 
than full and effective implementation of either of these policies. 
Further, inclusion of these requirements in announcements of future 
mortgage sales or in HUD loan sale documents may not provide adequate 
notice to tenants, owners and prospective investors of these 
obligations. On further consideration, therefore, the Department is 
establishing express regulatory bases for these policies.

List of Subjects in 24 CFR part 290

    Low and moderate income housing, Mortgage insurance.
    Accordingly part 290 of Title 24 of the Code of Federal Regulations 
is amended as follows:

PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY 
PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD 
MORTGAGES

    1. The authority citation for part 290 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b; 
42 U.S.C. 3535(d) and 3535(i).

    2. New Secs. 290.112 and 290.114 are added to read as follows:


Sec. 290.112  What are the requirements for continuing federal rental 
subsidy contracts?

    For any mortgage that, at the time HUD offers the mortgage for sale 
without FHA mortgage insurance, is delinquent and secures a subsidized 
project or unsubsidized project that receives any of the forms of 
assistance enumerated in paragraph (4)(i) to (4)(iv) of the 
``subsidized project'' definition in Sec. 290.5:
    (a) The mortgage purchaser and its successors and assigns shall 
require the mortgagor to record a covenant running with the land as 
part of any loan restructuring or of a final compromise of the mortgage 
debt and shall include a covenant in any foreclosure deed executed in 
connection with the mortgage. The covenant shall continue in effect 
until the last federal project-based rental assistance contract expires 
by its own terms. The covenant shall provide that, except where 
otherwise approved by HUD, a project purchaser shall agree to assume 
the obligations of any outstanding--
    (1) Project-based federal rental subsidy contract; and
    (2) Tenant-based Section 8 housing assistance payments contract 
with a public housing agency and the related lease.
    (b) In the event of foreclosure of the mortgage sold by HUD, the 
mortgage purchaser and its successors and assigns shall not foreclose 
in a manner that interferes with any lease related to federal project-
based assistance or any lease related to tenant-based, Section 8 
housing assistance payments.


Sec. 290.114  What policies apply concerning nondiscrimination in 
admitting certificate and voucher holders?

    (a) Nondiscrimination requirement. For any mortgage described in 
paragraph (c) or (d) of this section that HUD sells without FHA 
mortgage insurance, the project owner shall not unreasonably refuse to 
lease a dwelling unit offered for rent, offer or sell cooperative 
stock, or otherwise discriminate in the terms of tenancy or cooperative 
purchase and sale because any tenant or purchaser is a certificate or 
voucher holder under 24 CFR part 982.
    (b) Inapplicability to current mortgages securing unsubsidized 
projects that receive no project-based assistance. The 
nondiscrimination requirements of this section do not apply to any 
mortgage, that is current under the terms of the mortgage, at the time 
HUD offers it for sale, if the mortgage secures an unsubsidized project 
that does not receive any of the forms of project-based assistance 
enumerated in paragraph (4)(i) to (4)(iv) of the ``subsidized project'' 
definition in Sec. 290.5.
    (c) Applicability to mortgages securing unsubsidized projects 
receiving project-based assistance (partially-assisted projects) or 
securing subsidized projects. (1) The nondiscrimination requirement in 
paragraph (a) of this section applies to the project owner upon the 
sale of a mortgage without FHA mortgage insurance if, at the time HUD 
offers the it for sale, the mortgage secures:
    (i) An unsubsidized project that receives any of the forms of 
assistance enumerated in paragraph (4)(i) to (4)(iv) of the 
``subsidized project'' definition in Sec. 290.5; or
    (ii) A subsidized project, as defined in Sec. 290.5.
    (2) This requirement shall continue in effect until the mortgage is 
paid in full, including by a mortgage prepayment, except as provided in 
paragraph (d) of this section.
    (d) Covenant requirement for all delinquent mortgages sold without 
FHA mortgage insurance. This paragraph (d) applies to the sale of any 
mortgage that is delinquent at the time HUD offers it for sale without 
FHA mortgage insurance, without regard to the subsidy status of the 
project. The mortgage purchaser and its successors and assigns shall 
require the mortgagor to record a covenant running with the land as 
part of any loan restructuring or final compromise of the mortgage debt 
and shall include a covenant in any foreclosure deed executed in 
connection with the mortgage. The covenant shall set forth the 
nondiscrimination requirement in paragraph (a) of this section. The 
covenant shall continue in effect until a date that is the same as the 
maturity date of the mortgage sold by HUD.

    Dated: January 11, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 96-2455 Filed 2-5-96; 8:45 am]
BILLING CODE 4210-27-P