[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Rules and Regulations]
[Pages 14410-14417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7640]




[[Page 14409]]

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Part VI





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 200, 232, and 241



Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner: Revision of FHA Multifamily Processing and Fees; Final 
Rule

  Federal Register / Vol. 61, No. 63 / Monday, April 1, 1996 / Rules 
and Regulations  

[[Page 14410]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200, 232, and 241

[Docket No. FR-3349-F-02]
RIN 2502-AF74


Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner; Revision of FHA Multifamily Processing and Fees

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

ACTION: Final rule.

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

SUMMARY: This rule amends FHA multifamily processing regulations to: 
increase processing/commitment fees; recognize a feasibility processing 
stage for substantial rehabilitation projects and impose a fee for this 
processing; require the project sponsor to request a preapplication 
conference; and eliminate the conditional commitment processing stage 
for all but Section 242 hospital mortgages, and Section 223(f) 
acquisition/refinancing mortgages.

EFFECTIVE DATE: May 1, 1996.

FOR FURTHER INFORMATION CONTACT: Jane Luton, Director, New Products 
Division, Office of Multifamily Housing Development, Room 6138, 
Department of Housing and Urban Development, 451 Seventh Street SW., 
Washington, DC 20410-8000, telephone (202) 708-2556. (This is not a 
toll-free telephone number.) Hearing- or speech-impaired may access 
this number via TTY by calling the Federal Information Relay Service at 
1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

    The information collection requirements contained in Sec. 290.45 of 
this rule have been approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520), and assigned OMB control number 2502-0029. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a valid 
control number.

A. Rule Description

    This rule amends various relevant parts of title 24 of the Code of 
Federal Regulations to effect the following changes in its processing 
procedures for FHA insurance of multifamily project mortgages. This 
final rule is based on a proposed rule published on July 1, 1993 at 58 
FR 35724. The section numbering in this rule differs from the proposed 
rule. This final rule conforms to the consolidation of the FHA 
multifamily mortgage insurance program regulations set forth in another 
final rule published elsewhere in today's Federal Register.
1. Increase in Processing Fees
    Multifamily mortgage insurance processing and commitment fees 
currently do not cover expenses incurred by the Department. A Price 
Waterhouse study estimates that during a 7-year period (FY 1985-FY 
1991), fees collected (based on $3/$1,000 of the mortgage amount) 
covered only 68 percent to 92 percent of HUD's costs. (These costs were 
basically local HUD Office Housing costs--they did not include overhead 
costs or personnel outside of the local HUD office Multifamily 
Development Division.)
    Implementation of the Delegated Processing program has resulted in 
an even greater shortfall. Under this program, HUD pays outside 
contractors to perform underwriting services. Fees charged by delegated 
processors are based on their cost of doing business, not on a 
percentage of the mortgage amount. The Price Waterhouse study, although 
based on a limited sample, indicated that fees collected by HUD covered 
only 61 percent of costs incurred. (Implementation of Technical 
Discipline Contracts (TDCs), should result in similar deficiencies in 
costs versus fees collected.)
    Under this rule, HUD regulations are amended to more adequately 
cover HUD costs by increasing the aggregate fees to $5/$1,000 (from the 
current $3/$1,000) of the mortgage amount. This increase will be within 
the statutory limitation prescribed in Section 207(d) of the National 
Housing Act. Section 207(d) provides that appraisal and inspection 
charges ``shall not aggregate more than 1 per centum, of the original 
principal face amount of the mortgage.'' With the exception of Section 
223(f) acquisition/refinancing mortgages, inspection fees are currently 
based on, and will remain at, not to exceed $5/$1,000 of the mortgage 
amount. Consequently, to remain within the statutory limitation of 1 
percent, total processing/commitment fees cannot be increased by more 
than $2/$1,000 (for a total processing/commitment fee of $5/$1,000). 
This rule does not change the fees related to mortgage insurance 
processing and commitment for hospitals under Section 242.
2. Feasibility Processing Stage with Fee
    Feasibility processing for substantial rehabilitation projects is 
recognized by program handbooks as an optional processing stage but it 
is not recognized by regulation. For this reason, HUD is not able to 
charge a processing fee, even though feasibility processing requires 
substantially more effort than Site Appraisal and Market Analysis 
(SAMA) processing for new construction projects, which are covered by 
regulation and for which a fee is chargeable.
    The inability to charge a fee has significantly contributed to the 
processing deficit cited above, particularly when a case drops out 
after the feasibility analysis is completed. In such cases, HUD also 
loses the opportunity to collect a fee for future processing. 
Furthermore, under Delegated Processing and Technical Discipline 
Contracts (TDCs), outside contractors must be paid, regardless of 
whether HUD collects a fee. Collecting a fee to help offset the costs 
of paying the contractors is simply a sound business practice.
    Consequently, this rule describes feasibility processing for 
multifamily substantial rehabilitation projects and reflects long-held 
HUD policy and practice that issuance of a feasibility letter is not 
binding upon the Department. It is a generally known fact that, in 
cases involving substantial rehabilitation, unanticipated major 
structural problems may be found at a later stage and may result in a 
dramatic increase in the total cost of rehabilitation. Also, 
substantial rehabilitation can involve complex readaptation of 
buildings, originally constructed for a non-residential purpose, that 
may require major architectural changes in the scope of the work, and 
consequently, in the Department's conclusions relative to the 
feasibility of the proposed project. In addition, substantive 
rehabilitation may come as a result of having to make the multifamily 
housing projects accessible to persons with disabilities. This rule 
reflects current HUD policy in stating that determinations found in a 
feasibility letter are not to be binding upon the Department and may be 
changed in whole or in part at a later time. The feasibility letter may 
even be unilaterally terminated by the Commissioner if found necessary.
3. Preapplication Conference
    One of the goals of the Office of Housing is to speed up mortgage 
insurance processing. Submission of complete, well-documented 
applications by sponsors/mortgagees is essential to expeditious 
processing. Only if applications are complete, and time is not wasted 
by going back to the sponsor/mortgagee, can processing time

[[Page 14411]]
goals be met. Consequently, the rule permits the local HUD Office to 
determine if participation in a preapplication conference is required 
as a condition to submission of an initial application. This 
requirement will apply in all cases (except for part 242 insurance on 
hospital mortgages, and part 241(f) insurance on equity and acquisition 
loans) and will include any application by a project sponsor for an 
operating loss loan.
    During the preapplication conference, sponsors will meet with the 
local HUD Office staff to present a project idea, discuss program FHEO 
requirements and be advised of any known market or environmental 
concerns. Contents of the application, including required exhibits, 
will be identified and discussed. In addition, if the proposal is 
obviously ineligible for mortgage insurance, the sponsor will be so 
advised. If a proposal appears eligible, the local HUD Office will 
determine when an application can be expected so that it can consider, 
based on work load and other priorities, whether it might be a 
candidate for in-house processing, delegated processing or TDC 
contracting.
4. Elimination of Conditional Commitment Stage
    To speed the processing cycle, the rule eliminates the conditional 
commitment processing stage for all applications for loans for 
acquisition or refinancing of existing construction pursuant to Section 
223(f). Sponsors have the option of submitting an application for SAMA 
(or feasibility) or firm commitment processing.
    As is now the case, the SAMA (or feasibility) letter is not a 
commitment to insure the mortgage, nor does it bind HUD to issue a firm 
commitment to insure. The purpose of a firm commitment also remains 
unchanged. It will be issued only after completion of technical 
processing and will evidence HUD's approval of the application.
    After issuing a SAMA letter, HUD technical staff will provide 
liaison services to the sponsor's design architect in the development 
of preliminary drawings, and specifications which must be submitted 
within a time period set forth in the SAMA letter with a processing fee 
and in a form prescribed by HUD. HUD will review and comment on the 
drawings and specifications which will be provided to the sponsor for 
use in preparing the firm commitment application. The fee will be equal 
to $1.00 per $1,000 of the mortgage amount.
    A preliminary work write-up and outline specifications will be 
required for a feasibility application. Final documents, including 
final cost estimates, will be submitted at the firm commitment 
application stage.
5. Application Fees
    The rule imposes a fee for feasibility processing (which HUD has 
previously performed without charge) and modifies the overall existing 
fee structure which currently requires an aggregate of $3.00 per $1,000 
for all processing stages. The modified fee structure imposes an 
aggregate fee of $5.00 per $1,000 of mortgage amount, to be distributed 
among all processing stages.
Substantial Rehabilitation
    A fee of $3.00 per $1,000 is charged at the feasibility stage for 
substantial rehabilitation projects. The balance of $2.00 per $1,000 
will be charged at the firm commitment stage.
New Construction
    A fee of $1.00 per $1,000 is charged at the SAMA stage, $1.00 per 
$1,000 for the review of plans and specifications, and the balance of 
$3.00 per $1,000 will be charged at the firm commitment stage.
Section 223(f)  Loans
    Projects to be acquired or refinanced pursuant to Section 223(f) 
will be subject to a conditional commitment processing fee of $3.00 per 
$1,000 and a firm commitment fee of $2.00 per $1,000.
Loan to Cover Operating Losses
    A combined application and commitment fee of $5 per $1,000 of the 
loan amount shall be submitted with the application for firm 
commitment.
6. Update of Nondiscrimination Provisions
    This rule also updates the nondiscrimination requirements in 
Sec. 241.640 to reflect current statutory and regulatory prohibitions 
against discrimination on the basis of age, disability or familial 
status.
7. Change In Section 223(f) Inspection Fees
    This final rule contains a provision not contained in the proposed 
rule relating to section 223(f) inspection fees. This change is being 
implemented as a result of changing program experience under the 
section 223(f) refinance program.
    The nature of projects currently being considered for Section 
223(f) mortgage insurance is significantly different from those 
typically submitted when the fee schedule for 223(f) projects was 
promulgated for full and coinsurance on August 25, 1987. At that time a 
vast majority of the projects were near or at the regulation's upper 
repair limits. Currently, HUD is receiving many applications for 
refinance to reduce interest rates under the subject program, where 
project repairs are very nominal.
    The August 25, 1987, regulation provides for a two-tier inspection 
fee schedule. One consideration against using a single-tier one percent 
inspection fee rate, as was recognized at the time this regulation was 
first issued, was that where repairs are minimal, the fee would not 
cover the actual cost of making the inspection. This concern is still 
valid. This rule does, however, replace the current rigid $30 per 
dwelling unit minimum fee with authority in the Commissioner to 
establish a minimum project inspection fee. This fee will be 
periodically reviewed and may be adjusted upward or downward as 
necessary. Initially, the fee will be administratively set at $500 
since $500 is the apparent minimum rate that a contractor will charge 
HUD for a project inspection regardless of the total work that will 
have to be inspected.
    This change will lower the inspection fees for all projects larger 
than 17 dwelling units for which the repair costs are $3,000 per 
dwelling unit or less. Furthermore, for the sake of uniformity this 
change is also being incorporated in 24 CFR 232.906(d) covering 
inspection fees on mortgage insurance for nursing homes and related 
facilities.

B. Proposed Rule and Public Response

    The Department received a total of 9 comments in response to the 
July 1, 1993, proposed rule (58 FR 35724): eight from private mortgage 
companies or developers and one from a national trade organization, The 
National Association of Home Builders.
    Seven comments expressed general approval of the rule but set forth 
specific objections/recommendations. Two commenters (private companies) 
expressed general opposition to the rule but raised very similar 
objections/recommendations as those generally approving of the rule.
    The following specific objections/recommendations were raised in 
connection with the rule.
    1. Increase in Processing Fees. Five commenters questioned the 
manner in which the rule raises processing fees across the board on a 
fixed basis without regard to the wide variations in types and size of 
FHA applications.
    With respect to loan size a number of points were raised:
    
[[Page 14412]]

    a. FHA is now priced to attract most strongly the business on which 
it loses money in processing--the ``little'' loans which it 
``subsidizes'' by charging far less than the processing costs.
    b. FHA is already now priced to be richly profitable on larger 
loans, which currently pay an above market price for processing to the 
extent they pay more than about $20,000.
    c. A price change to 0.5% will inevitably drive away larger loan 
business that was profitable, making the problem worse.
    d. A price change to 0.5% will leave FHA still dramatically 
underpriced and attractive to the ``little'' loans, on which FHA will 
continue to lose money in processing.
    A second objection is that the cost of processing varies greatly 
not only because of loan size but also because of loan type. A 223(f) 
refinancing request is relatively easy to process because there is an 
existing property with demonstrated rents and occupancy. A 221(d) loan 
is inherently more difficult. The property does not yet exist. Plans 
must be reviewed. Cost must be reviewed. Far greater judgment must be 
brought to bear to evaluate what levels can be prudently anticipated 
for rents, expenses, and vacancies.
    Clearly, the cost to FHA in processing a 223(f) loan is not the 
same as that for a 221(d) loan. It would, therefore, be reasonable to 
charge more for 221(d) work than for 223(f) work. Indeed, if the 
underlying goal was to have the cases on which FHA presently loses 
money in processing bear more of their own costs, it would be entirely 
reasonably to thus differentiate.
    One basic recommendation to address this situation would be 
retention of the current 0.3% fee structure with the addition of both 
minimum fees (so the smaller loans cover more of their processing 
costs, as they would be obliged to do if using any alternative 
financing source) and maximum fees (so as to limit the structural 
disincentive that currently drives the larger and more profitable 
business away from FHA as a source).
    This would provide a ``more level playing field'' across the entire 
spectrum of loan sizes.
    A similar dollar differentiation would be made with respect to 
refinancing as opposed to new construction or substantial 
rehabilitation mortgages.
    HUD Response: HUD insures mortgages made by private lending 
institutions to finance: the construction or rehabilitation of 
multifamily rental housing; the purchase or refinance of existing 
multifamily or nursing home projects; and the construction or 
rehabilitation of nursing homes, intermediate care facilities, assisted 
living facilities, and board and care homes. Mortgage insurance is a 
contingent Federal liability which is not included in computing the 
Federal deficit. However, it is part of the ongoing discussion about 
the deficit. The Federal Credit Reform Act of 1990 requires that the 
budgetary treatment of all direct loan and loan guarantee programs 
recognize, at the front end, the net cost to the Federal Government 
resulting from these transactions. The Department is required to 
estimate the amount that it might lose on all multifamily project 
mortgages it insures and must request ``credit subsidy'' as part of its 
budget each Fiscal Year (FY) to cover those losses. Beginning in FY 
1992, each HUD budget has included a request for credit subsidy. 
Because of current budgetary constraints credit subsidy dollars are a 
scarce resource. Large and small projects use up the credit subsidy 
dollars at an equal rate. The Department believes this provides the 
level playing field referenced above.
    A number of commenters indicated that the fees charged on large 
loans subsidize small loans. One commenter indicated that the current 
market price for processing a loan was about $20,000. Other comments 
indicate that the increased fee will drive away larger loans and HUD 
will continue to lose money in processing. On the surface it would 
appear that the Department's fee structure is excessive. However, no 
other financing source currently matches all the benefits available 
with HUD mortgage insurance. For example, the Section 221(d)(4) program 
provides mortgage insurance for the construction loan and permanent 
loan (for up to 40 years with a level annuity payment plan), a maximum 
mortgage based on 90 percent of the estimated replacement cost, and a 
nonrecourse loan. Further, HUD insurance is a credit enhancement that 
provides access to reduced financing costs and the secondary market.
2. Mandatory Preapplication Conferences
    Five commenters took issue with these provisions in the rule. The 
consensus was that:
    1. Preapplication conferences should never be required (and should 
be discouraged as a relatively counterproductive use of staff time) on 
all refinancing transactions. This would specifically include 223(a)(7) 
and 223(f) refinancings.
    2. Preapplication conferences should be optional at the local HUD 
Office level on new construction and substantial rehabilitation 
proposals. Such conferences are not universally necessary and the 
proposed rule would unnecessarily restrict local HUD Office flexibility 
in this matter. The result of requiring conferences in all cases will 
be wasteful and unneeded delays in FHA processing.
    HUD Response: As previously stated, one of the Office of Housing's 
goals is to speed up mortgage insurance processing. The submission of 
complete well-documented applications by sponsors/mortgagors is 
essential to expeditious processing. The Department cannot process 
loans expeditiously and meet its time goals if applications are 
incomplete, and time is wasted by going back to the sponsor/mortgagor. 
However, based on comments from Industry and the local HUD Offices, HUD 
realizes that a national solution like a mandatory preapplication 
conference does not take into account the experience level of the 
development team. Therefore, the Department has modified the proposed 
regulation to accommodate differing levels of sophistication and 
experience. The local HUD Office will decide, on a case-by-case basis, 
if a preapplication conference is necessary. The Department, however, 
strongly recommends a preapplication conference for all new mortgage 
insurance applications involving new sponsors/mortgagors.
3. Requiring Technical Liaison by HUD Staff
    Two commenters said that the rule proposal requiring HUD technical 
staff to provide liaison services to Sponsor's design architect in 
development of drawings, specifications, and cost estimates is 
unrealistic. They noted that the local HUD Offices they have dealt with 
have generally lacked the staff, expertise and time to commit to this 
significant undertaking.
    HUD Response: Local HUD Offices are being given the tools necessary 
to commit to this activity. Previously, the Department provided the 
local HUD Office with delegated processing and technical assistance 
contracts to level their workload. To enhance the skill level of the 
local HUD Office staff, HUD is currently streamlining the underwriting 
process, developing computer systems that will free local HUD Office 
staff from the rote aspects of their duties, and providing both formal 
and informal training. Therefore, the Department is confident that the 
local HUD Offices will be able to perform this task.

[[Page 14413]]

4. Efficient Processing by HUD Staff
    Three commenters raised the issue of efficient processing by local 
HUD Office staff. The following is an example of a typical comment:

    Although we do not disagree with the imposition of a fee at the 
SAMA or Feasibility stage, we believe that those applicants who are 
paying fees for both SAMA or Feasibility (as appropriate) and Firm 
Commitment applications should, in consideration of fees paid, 
obtain processing within the time frames as per the HUD regulations 
and handbooks. Currently, this is not happening; processing times 
are now indeterminate. Applicants have paid fees and are unable to 
obtain response from the HUD Offices as to when applications will be 
processed and returned to the Sponsor/applicants, which is 
unreasonable, notwithstanding of the amount of fees charged. Such 
delays in processing are causing tremendous carrying costs to 
Sponsors, Architects, Contractors, and HUD approved lenders.

    HUD Response: The Department recognizes that processing delays are 
costly to the Industry and to HUD. For this reason the Department is 
undergoing the process of reinvention and reorganization. Short term 
measures to reduce the workload were made available to local HUD 
Offices in the form of Delegated Processing and Technical Assistance 
Contracts. The Department is currently looking at the underwriting 
process to determine which activities can prudently be modified or 
eliminated altogether. Ultimately, the Multifamily Production Branch in 
the local HUD Office will have a more efficient operation.
5. Site Appraisal and Market Analysis (SAMA)
    Two commenters questioned the need for a review of preliminary 
plans, etc., after SAMA approval. One made the following 
recommendation.

    The proposed rule creates a new mandatory processing step for 
all sponsors who utilize the SAMA processing stage. This new step 
would occur after SAMA approval and would require sponsors to submit 
preliminary drawings, specifications and cost estimates, with a 
processing fee, to HUD for review and comment. While this step would 
be very useful to certain sponsors who desire HUD input on these 
documents, it would delay processing for those projects with designs 
that had previously been approved by HUD and with costs that the 
sponsor felt would be acceptable to HUD at the firm commitment 
stage. Therefore, we suggest that this step be optional at the 
election of the sponsor.

    HUD Response: The Department needs to interact with the development 
team of a proposed project at this critical stage. The local HUD 
Office's continuous liaison during the design development is critical 
for streamlining the underwriting process. However, based on Industry 
comments the Department has modified the process. The local HUD Office 
will not request the owner's cost estimates nor will it produce cost 
estimates during the interim period. Of course, if the development team 
is using a previously approved design then the local HUD Office input 
will be greatly reduced.
6. Replace SAMA With Feasibility Stage
    One commenter made this recommendation:

    I agree with your proposal to charge a fee at Feasibility 
comparable to the required at SAMA. I feel a better approach, 
however, would be to replace the SAMA stage with Feasibility for new 
construction as well. This system, which prevailed in the early 
1970's, would give a more detailed first look which would, I 
believe, offer early euthanasia to infeasible projects and expedite 
processing of those that make it to the Firm stage.

    HUD Response: The Department disagrees with this recommendation 
since it would slow down the processing of proposed new construction 
projects while at the same time increasing the sponsor's out-of-pocket 
cost. SAMA processing establishes the land value fully improved, the 
acceptability of the proposed project site, the proposed composition, 
number and size of the units, the market for the number of proposed 
units, and the acceptability of the proposed unit rents. To do 
feasibility processing, the sponsor would need to supply, as part of 
the application package, drawings and specifications. The sponsor would 
incur substantial cost without knowing if there was a market for the 
project. In turn, the Department would have to review the plans and 
specifications before determining a market exists for the proposed 
project.
7. Mortgagee Has Option To Go Directly to Final Processing Stage
    One commenter recommended that the rule be revised to set forth 
more clearly this option of the mortgagee.
    HUD Response: The Department's existing administrative policy 
permits combining different stages of processing. However, over the 
years there has been some confusion over this policy. To clarify 
existing Departmental policy, this rule modifies the regulations to 
state that at the option of the local HUD Office the SAMA/Feasibility 
processing may be combined with the firm commitment processing. 
However, HUD recommends this approach only in the case of an 
experienced development team.
8. Charge Application Fees for Section 202 Projects
    One commenter asked why application fees are not also charged in 
connection with Section 202 projects for the elderly and disabled. The 
commenter claimed much more time and effort go into the underwriting of 
such projects.
    HUD Response: The Section 202/811 Capital Advance Program does not 
involve mortgage insurance. This program provides funding to nonprofit 
organizations that house the elderly and persons with disabilities, two 
under-served segments of the general housing population. Since the 
funding comes directly from the Department, there is no reason to 
charge any processing fees. Further, the Department recognizes that the 
program is labor intensive and has established a working group to look 
at ways to streamline the program.

C. Other Matters

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. The economic impact of this 
rule is not significant, and affects small and large entities equally.
Environment
    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 
internal administrative procedures whose content does not constitute a 
development decision nor affect the physical condition of project areas 
on building sites 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 do not have federalism implications and, thus, 
are not subject to review under the order. No programmatic or policy 
changes result from its promulgation which would affect the existing 
relationship between the federal government and state and local 
government.

[[Page 14414]]

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.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, Housing standards, 
Incorporation by reference, Lead poisoning, Loan programs--housing and 
community development, Minimum property standards, Mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social security, Unemployment 
compensation, Wages.

24 CFR Part 232

    Fire prevention, Health facilities, Loan programs--health, Loan 
programs--housing and community development, Mortgage insurance, 
Nursing homes, Reporting and recordkeeping requirements.

24 CFR Part 241

    Energy conservation, Home improvement, Loan programs--housing and 
community development, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

    Accordingly, 24 CFR parts 200, 232, and 241 are amended as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

    1. The authority citation for part 200 continues to read as 
follows:

    Authority: 12 U.S.C. 1701-1715z-18; 42 U.S.C. 3535(d).

    2. The text of Sec. 200.40 is added to read as follows:


Sec. 200.40  HUD fees.

    The following fees apply to mortgages to be insured under this 
part.
    (a) Application fee--SAMA letter (for new construction). An 
application fee of $1 per thousand dollars of the requested mortgage 
shall accompany the application for a SAMA letter. An additional fee of 
$1 per thousand dollars of the requested mortgage amount shall be 
charged for the review of plans and specifications.
    (b) Application fee--feasibility letter (for substantial 
rehabilitation). An application fee of $3 per thousand dollars of the 
requested mortgage amount shall accompany the application for a 
feasibility letter.
    (c) Application fee--conditional commitment. For a mortgage being 
insured under section 223(f) of the Act (12 U.S.C. 1715n), an 
application-commitment fee of $3 per thousand dollars of the requested 
mortgage amount shall accompany an application for conditional 
commitment. For a mortgage being insured under section 242 of the Act 
(12 U.S.C. 1715z-7), an application fee of $1.50 per thousand dollars 
of the amount loaned shall be paid to the Commissioner at the time the 
hospital proposal is submitted to the Secretary of Health and Human 
Services for approval.
    (d) Application fee--firm commitment: General. (1) Except as 
provided in paragraph (d)(2) of this section, an application for firm 
commitment shall be accompanied by an application-commitment fee which, 
when added to any prior fees received in connection with applications 
for a SAMA letter or a feasibility letter will aggregate $5 per 
thousand dollars of the requested mortgage amount to be insured. The 
payment of an application-commitment fee shall not be required in 
connection with an insured mortgage involving the sale by the 
government of housing or property acquired, held or contracted pursuant 
to the Atomic Energy Community Act of 1955 (42 U.S.C. 2301 et seq.).
    (2) Application fee--firm commitment: Hospitals. A firm-commitment 
fee which, when added to the application fee, shall aggregate $3 per 
thousand dollars of the amount of the loan set forth in the firm 
commitment shall be paid within 30 days after the date of the 
commitment. If the payment of a commitment fee is not received by the 
Commissioner within 30 days after the date of issuance of the 
commitment, the commitment shall expire on the 30th day.
    (e) Inspection fee. (1) In general. The firm commitment may provide 
for the payment of an inspection fee in an amount not to exceed $5 per 
thousand dollars of the commitment. If an inspection fee is required, 
it shall be paid as follows:
    (i) If the case involves insurance of advances, at the time of 
initial endorsement; or
    (ii) If the case involves insurance upon completion, before the 
date construction is begun.
    (2) Existing projects. For a mortgage being insured under section 
223(f) of the Act, if the application provides for the completion of 
repairs, replacements and/or improvements (repairs), the Commissioner 
will charge an inspection fee equal to one percent (1%) of the cost of 
the repairs. However, where the Commissioner determines the cost of 
repairs is minimal, the Commissioner may establish a minimum inspection 
fee that exceeds one percent of the cost of repairs and can 
periodically increase or decrease this minimum fee.
    (f) Fees on increases--(1) In general. Paragraph (f)(1) of this 
section applies to all applications except applications involving 
hospitals.
    (i) Increase in firm commitment before endorsement. An application, 
filed before initial endorsement (or before endorsement in a case 
involving insurance upon completion), for an increase in the amount of 
an outstanding firm commitment shall be accompanied by a combined 
additional application and commitment fee. This combined additional fee 
shall be in an amount which will aggregate $5 per thousand dollars of 
the amount of the requested increase. If an inspection fee was required 
in the original commitment, an additional inspection fee shall be paid 
in an amount computed at the same dollar rate per thousand dollars of 
the amount of increase in commitment as was used for the inspection fee 
required in the original commitment. When insurance of advances is 
involved, the additional inspection fee shall be paid at the time of 
initial endorsement. When insurance upon completion is involved, the 
additional inspection fee shall be paid before the date construction is 
begun or if construction has begun, it shall be paid with the 
application for increase.
    (ii) Increase in mortgage between initial and final endorsement. 
Upon an application, filed between initial and final endorsement, for 
an increase in the amount of the mortgage, either by amendment or by 
substitution of a new mortgage, a combined additional application and 
commitment fee shall accompany the application. This combined 
additional fee shall be in an amount which will aggregate $5 per 
thousand dollars of the amount of the increase requested. If an 
inspection fee was required in the original commitment, an additional 
inspection fee shall accompany the application in an amount not to 
exceed the $5 per thousand dollars of the amount of the increase 
requested.
    (iii) Loan to cover operating losses. In connection with a loan to 
cover operating losses (see Sec. 200.22), a

[[Page 14415]]
combined application and commitment fee of $5 per thousand dollars of 
the amount of the loan applied for shall be submitted with the 
application for a firm commitment. No inspection fee shall be required.
    (2) Hospitals. Paragraph (f)(2) of this section applies to 
applications in connection with a mortgage to be insured under section 
242 of the Act.
    (i) Increase in commitment prior to endorsement. Upon an 
application, filed prior to initial endorsement (or prior to 
endorsement in a case involving insurance upon completion), for an 
increase in the amount of an outstanding commitment, an additional 
application fee of $1.50 per thousand dollars computed on the amount of 
the increase requested shall accompany the application. Any increase in 
the amount of a commitment shall be subject to the payment of an 
additional commitment fee which, when added to the additional 
application fee, will aggregate $3 per thousand dollars of the amount 
of the increase. The additional commitment fee shall be paid within 30 
days after the date of the amended commitment. If the additional 
commitment fee is not paid within 30 days, the commitment for the 
increased amount will expire and the previous commitment will be 
reinstated. If an inspection fee was required in the original 
commitment, an additional inspection fee shall be paid in an amount not 
to exceed $5 per thousand dollars of the amount of increase in 
commitment. Where insurance of advances is involved, the additional 
inspection fee shall be paid at the time of initial endorsement. Where 
insurance upon completion is involved, the additional inspection fee 
shall be paid prior to the date construction is begun or within 30 days 
after the date of the issuance of the amended commitment, if 
construction has begun.
    (ii) Increase in mortgage between initial and final endorsement. 
Upon an application, filed between initial and final endorsement, for 
an increase in the amount of the mortgage, either by amendment or by 
substitution of a new mortgage, an additional application fee of $1.50 
per thousand dollars computed on the amount of the increase requested 
shall accompany the application. The approval of any increase in the 
amount of the mortgage shall be subject to the payment of an additional 
commitment fee which, when added to the additional application fee, 
will aggregate $3 per thousand dollars of the amount of the increase 
granted. If an inspection fee was required in the original commitment, 
an additional inspection fee shall be paid in an amount not to exceed 
$5 per thousand dollars of the amount of the increase granted. The 
additional commitment and inspection fees shall be paid within 30 days 
after the increase is granted.
    (g) Reopening of expired commitments. An expired commitment may be 
reopened if a request for reopening is received by the Commissioner 
within 90 days of the expiration of the commitment. The reopening 
request shall be accompanied by a fee of 50 cents per thousand dollars 
of the amount of the expired commitment. If the reopening request is 
not received by the Commissioner within the required 90-day period, a 
new application, accompanied by the required application and commitment 
fee, must be submitted.
    (h) Transfer fee. Upon application for approval of a transfer of 
physical assets or the substitution of mortgagors, a transfer fee of 50 
cents per thousand dollars shall be paid on the original face amount of 
the mortgage in all cases, except that a transfer fee shall not be paid 
where both parties to the transfer transaction are nonprofit 
organizations.
    (i) Refund of fees. If the amount of the commitment issued or 
increase in mortgage granted is less than the amount applied for, the 
Commissioner shall refund the excess amount of the application and 
commitment fees submitted by the applicant. If an application is 
rejected before it is assigned for processing, or in such other 
instances as the Commissioner may determine, the entire application and 
commitment fee or any portion thereof may be returned to the applicant. 
Commitment, inspection and reopening fees may be refunded, in whole or 
in part, if it is determined by the Commissioner that there is a lack 
of need for the housing or that the construction or financing of the 
project has been prevented because of condemnation proceedings or other 
legal action taken by a governmental body or public agency, or in such 
other instances as the Commissioner may determine. A transfer fee may 
be refunded only in such instances as the Commissioner may determine.
    (j) Fees not required. The payment of an application, commitment, 
inspection, or reopening fee shall not be required in connection with 
the insurance of a mortgage involving the sale by the Secretary of any 
property acquired under any section or title of the Act.
    3. The text of Sec. 200.45 is added to read as follows:


Sec. 200.45  Processing of applications.

    (a) Preapplication conference. Except for mortgages insured under 
section 241(f) or 242 of the Act, the local HUD Office will determine 
whether participation in such a conference is required as a condition 
to submission of an initial application for either a site appraisal and 
market analysis (SAMA) letter (for new construction), a feasibility 
letter (for substantial rehabilitation), or for a firm commitment. The 
project sponsor may elect (after the preapplication conference if 
required) to submit an application for a SAMA or a feasibility letter 
(as appropriate), or for a firm commitment for insurance depending upon 
the completeness of the drawings, specifications and other required 
exhibits. An application for a SAMA or feasibility letter may be 
submitted by the project sponsor. An application for a firm commitment 
for insurance must be submitted by both the project sponsor and an 
approved mortgagee. Applications shall be submitted to the local HUD 
Office on HUD-approved forms. No application will be considered unless 
accompanied by all exhibits required by the form and program handbooks. 
At the option of the local HUD Office, the SAMA/Feasibility letter 
stage of processing can be combined with the firm commitment stage of 
processing.
    (b) Firm commitment requirement. An application for a firm 
commitment must be made by an approved mortgagee for any project for 
which a mortgagor seeks mortgage insurance under the Act.
    (c) Staged applications. Staged applications leading to an 
application for firm commitment shall be made as determined appropriate 
by the Commissioner, and in accordance with such terms and conditions 
established by the Commissioner. The intermediate stages to firm 
commitment may include a site appraisal and market analysis (SAMA) 
letter stage or a feasibility letter stage and a conditional 
commitment. The conditional commitment stage applies only to mortgages 
to be insured pursuant to section 223(f) of the Act.
    (d) Effect of SAMA letter, feasibility letter, and firm 
commitment--(1) SAMA letter. (i) The issuance of a SAMA letter 
indicates completion of the site appraisal and market analysis stage to 
determine initial acceptability of the site and recognition of a 
specific market need. The SAMA letter is not a commitment to insure a 
mortgage for the proposed project and does not bind the Commissioner to 
issue a firm commitment to insure. The SAMA letter precedes the later 
submission of acceptable plans and specifications for the proposed 
project and is limited to advising the applicant as to the following 
determinations of the Commissioner, which shall not be

[[Page 14416]]
changed to the detriment of an applicant, if the application for a firm 
commitment is received before expiration of the SAMA letter:
    (A) The land value fully improved (with off-site improvements 
installed);
    (B) The acceptability of the proposed project site, the proposed 
composition, number and size of the units and the market for the number 
of proposed units. Where the application is not acceptable as 
submitted, but can be made acceptable by a change in the number, size, 
or composition of the units, the SAMA letter may establish the specific 
lesser number of units which would be acceptable and any acceptable 
alternative plan for the composition and size of units; and
    (C) The acceptability of the unit rents proposed. Where rent levels 
are unacceptable, the SAMA letter may establish specific rents which 
are acceptable.
    (ii) After receiving a SAMA letter, the sponsor shall submit design 
drawings and specifications in a timeframe prescribed by the 
Commissioner. The Commissioner will review and comment on design 
development and the drawings and specifications. The comments will be 
provided to the sponsor for use in preparing a firm commitment 
application.
    (2) Feasibility letter. The issuance of a feasibility letter 
indicates approval of the preliminary work write-up and outline 
specifications and completion of technical processing involving the 
estimated rehabilitation cost of the project, the ``as is'' value of 
the site, the detailed estimates of operating expenses and taxes, the 
specific unit rents, the vacancy allowance, and the estimated mortgage 
amount. The issuance of a feasibility letter is not a commitment to 
insure a mortgage for the proposed project and does not bind the 
Commissioner to issue a firm commitment to insure. Determinations found 
in a feasibility letter are not to be binding upon the Department and 
may be changed in whole or in part at any later point in time. The 
letter may even be unilaterally terminated by the Commissioner if found 
necessary.
    (3) Conditional commitment. The issuance of a Section 223(f) 
conditional commitment indicates completion of technical processing 
involving the estimated value of the property, the detailed estimates 
of rents, operating expenses and taxes and an estimated mortgage 
amount.
    (e) Term of SAMA letter, feasibility letter, and conditional 
commitment. A SAMA letter, a feasibility letter, and a conditional 
commitment shall be effective for whatever term is specified in the 
respective letter or commitment.
    (f) Rejection of an application. A significant deviation in an 
application from the Commissioner's terms or conditions in an earlier 
stage application commitment or agreement shall be grounds for 
rejection. The fees paid to such date shall be considered as having 
been earned notwithstanding such rejection. (Approved by the Office of 
Management and Budget under control number 2502-0029.)

PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE 
FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES.

    4. The authority citation 24 CFR part 232 is revised to read as 
follows:

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

    5. Section 232.906 is revised to read as follows:


Sec. 232.906  Processing of applications and required fees.

    (a) Processing of applications. The local HUD Office will determine 
whether participation in a preapplication conference is required as a 
condition to submission of an initial application for either a 
conditional or firm commitment. After the preapplication conference an 
application for a conditional or firm commitment for insurance of a 
mortgage on a project shall be submitted by the sponsor and an approved 
mortgagee. Such application shall be submitted to the local HUD Office 
on a HUD approved form. An application may, at the option of the 
applicant, be submitted for a firm commitment omitting the conditional 
commitment stage. No application shall be considered unless accompanied 
by all exhibits required by the form and program handbooks. An 
application may be made for a commitment which provides for the 
insurance of the mortgage upon completion of any improvements or for a 
commitment which provides, in accordance with standards established by 
the Commissioner, for the completing of specified repairs and 
improvements after endorsement.
    (b) Application fee--conditional commitment. An application-
commitment fee of $3 per thousand dollars of the requested mortgage 
amount shall accompany an application for conditional commitment.
    (c) Application fee--firm commitment. An application for firm 
commitment shall be accompanied by an application-commitment fee of $5 
per thousand dollars of the requested mortgage amount to be insured 
less any amount previously received for a conditional commitment.
    (d) Inspection fee. Where an application provides for the 
completion of repairs, replacements and/or improvements (repairs), the 
Commissioner will charge an inspection fee equal to one percent (1%) of 
the cost of the repairs. However, where the Commissioner determines the 
cost of repairs is minimal, the Commissioner may establish a minimum 
inspection fee that exceeds one percent of the cost of repairs and can 
periodically increase or decrease this minimum fee.
    (e) Cross-reference. The provisions of paragraphs (f)(1) (Fee on 
increases), (g) (Reopening of expired commitments), (h) (Transfer fee), 
(i) (Refund of fees), and (j) (Fees not required) of Sec. 200.40 of 
this chapter apply to applications submitted under subpart E of this 
part.

PART 241-- SUPPLEMENTARY FINANCING FOR INSURED PROJECT MORTGAGES

    6. The authority citation for part 241 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715z-6; 42 U.S.C. 3535(d).

    7. Section 241.505 is revised to read as follows.


Sec. 241.505  Processing of applications and required fees.

    (a) Preapplication conference. The local HUD Office will determine 
whether participation in a preapplication conference is required as a 
condition to submission of an initial application for a firm commitment 
for insurance of an energy savings improvement loan on a project. An 
application for a firm commitment for insurance must be submitted by 
both the project sponsor and an approved lender. Applications shall be 
submitted to the local HUD Office on HUD-approved forms. No application 
will be considered unless accompanied by all exhibits required by the 
form and program handbooks.
    (b) Application for firm commitment. An application for a firm 
commitment shall be accompanied by the payment of an application fee of 
$5 per thousand dollars of the requested loan amount to be insured.
    (c) Cross-reference. The provisions of paragraphs (e) (Inspection 
fee), (f)(1) (Fee on increases), (g) (Reopening of expired 
commitments), (i) (Refund of fees), and (j) (Fees not required) of 
Sec. 200.40 of this chapter apply to

[[Page 14417]]
applications submitted under subpart E of this part.
    8. Section 241.510 is revised to read as follows:


Sec. 241.510  Commitments

    (a) Firm Commitment. The issuance of a firm commitment indicates 
the Commissioner's approval of the application for insurance and sets 
forth the terms and conditions upon which the loan will be insured.
    (b) Types of firm commitment. (1) Where the amount of the loan is 
$250,000 or more, the firm commitment may provide for the insurance of 
advances of loan money made during construction or may provide for the 
insurance of the loan after completion of the improvements.
    (2) Where the amount of the loan is less than $250,000, the firm 
commitment shall provide for insurance of the loan after completion of 
the improvements.
    (c) Term of commitment. (1) A firm commitment to insure advances 
shall be effective for a period of not more than 60 days from the day 
of issuance.
    (2) A firm commitment to insure upon completion shall be effective 
for a designated term within which the borrower is required to begin 
construction, and if construction is begun as required, the commitment 
shall be effective for such additional period, estimated by the 
Commissioner, as will allow for completion of construction.
    (3) The term of a firm commitment may be extended in such a manner 
as the Commissioner may prescribe.
    9. Section 241.640 is revised to read as follows:


Sec. 241.640  Employment discrimination prohibited.

    Any contract or subcontract executed for the performance of 
constructing the improvements to the project shall provide that there 
shall be no discrimination against any employee or applicant for 
employment because of race, color, religion, sex, familial status, 
disability, age, or national origin.
    10. Section 241.1015 is revised to read as follows:


Sec. 241.1015  Processing of applications and required fees.

    (a) Application. An application for the issuance of a firm 
commitment for insurance of an equity or acquisition loan on a project 
shall be submitted by an approved lender and by the owner or purchaser 
of the project to the Commissioner on a form prescribed by the 
Commissioner. No application shall be considered unless the exhibits 
called for by such forms are furnished.
    (b) Commitment Fees. An application for a firm commitment shall be 
accompanied by the payment of an application-commitment fee of $5.00 
per thousand dollars of the requested loan amount to be insured.
    11. Section 241.1020 is revised to read as follows:


Sec. 241.1020  Commitments.

    (a) Firm Commitment. The issuance of a firm commitment indicates 
the Commissioner's approval of the application for insurance and sets 
forth the terms and conditions upon which the equity or acquisition 
loan will be insured. The firm commitment may provide for the insurance 
of advances of the equity or acquisition loan immediately upon 
endorsement of the note.
    (b) Term of Commitment. (1) A firm commitment is effective for 
whatever term is specified in the text of the commitment.
    (2) The term of a firm commitment may be extended in such manner as 
the Commissioner may prescribe.
    (c) Reopening of expired commitments. An expired firm commitment 
may be reopened if a request for reopening is received by the 
Commissioner within 90 days of the expiration of the commitment. The 
reopening request shall be accompanied by a fee of 50 cents per 
thousand dollars of the amount of the expired commitment. If the 
reopening request is not received by the Commissioner within the 
required 90-day period, a new application, accompanied by the required 
application and commitment fee, must be submitted.

    Date: March 22, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 96-7640 Filed 3-29-96; 8:45 am]
BILLING CODE 4210-27-P