[Federal Register Volume 61, Number 129 (Wednesday, July 3, 1996)]
[Rules and Regulations]
[Pages 35014-35020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16869]
[[Page 35013]]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner; Single Family Mortgage Insurance; Loss Mitigation
Procedures; Interim Rule
_______________________________________________________________________
24 CFR Parts 203 and 206
Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Rules
and Regulations
[[Page 35014]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner; Single Family Mortgage Insurance--Loss Mitigation
Procedures
24 CFR Parts 203 and 206
[Docket No. FR-4032-I-01]
RIN 2502-AG72
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: This interim rule amends 24 CFR part 203 to eliminate the
Mortgage Assignment Program and to provide that HUD may: recompense
mortgagees for using mortgage foreclosure alternatives, such as special
forbearance, loan modifications, and deeds in lieu of foreclosure; pay
the mortgagee a partial claim which would be applied to the arrearage
of a defaulted mortgage; and accept assignment of a mortgage which the
mortgagee has modified to cure the default.
DATES: Effective Date: August 2, 1996. Comments due date: September 3,
1996.
ADDRESSES: Interested persons are invited to submit comments regarding
this interim rule to the Rules Docket Clerk, Office of General Counsel,
Room 10278, Department of Housing and Urban Development, 451 Seventh
Street, S.W., Washington, D.C. 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: Joseph McCloskey, Director, Single
Family Servicing Division, Room 9178, Department of Housing and Urban
Development, 451 7th Street, SW., Washington, DC 20410, (202) 708-1672,
or, TTY for hearing and speech impaired, (202) 708-4594. (These are not
toll-free numbers.)
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act Statement
The Department is seeking approval of the information collection
requirements contained in Sec. 203.605 by the Office of Management and
Budget in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3501-3520). The OMB control number will be published in the
Federal Register upon approval. 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.
II. Background
Summary of Legislative Changes
This interim rule implements section 407 of The Balanced Budget
Downpayment Act, I (Pub. L. 104-99, approved January 26, 1996)
(Downpayment Act), which amended sections 204 and 230 of the National
Housing Act. The amendment of section 230 eliminated the current HUD
programs for Temporary Mortgage Assistance Payments and Assignment of
Mortgages at Secs. 203.640 - 203.660 of 24 CFR. This amendment did not
become effective until the passage of The Omnibus Consolidated
Rescissions and Appropriations Act of 1996 (Pub. L. 104-134, approved
April 26, 1996). However, this Appropriations Act provided that
mortgagors who had applied for relief under the Assignment Program
before April 26, 1996 will be governed by the requirements of section
230 before the amendments made by the Downpayment Act.
To continue to provide foreclosure alternatives for mortgagors, the
Downpayment Act amended sections 204 and 230 of the National Housing
Act to promote foreclosure alternatives and loss mitigation tools to be
used by mortgagees. Section 204 was amended to provide that the
Secretary may recompense mortgagees for their actions to provide
mortgage foreclosure alternatives, such as special forbearance, loan
modifications, and deeds in lieu of foreclosure. Section 230 was
amended to provide that the Secretary may pay the mortgagee a partial
claim which would be applied to the arrearage of a defaulted mortgage.
In addition, Section 230 was amended to provide that the Secretary may
accept assignment of a mortgage which the mortgagee has modified to
cure the default and where repooling of the loan is not possible. This
procedure is to be distinguished from forbearance relief for defaulted
loans, as well as from the former Mortgage Assignment Program. It
should be noted that the Downpayment Act permitted, but did not
require, the Secretary to establish these partial claim and assignment
procedures. Further, the Downpayment Act provided that no decision by
the Secretary to exercise or forego exercising his authority under
section 230 and the new authority under section 204 shall be subject to
judicial review.
Overview of HUD's Approach
The techniques to be employed under HUD's new foreclosure
alternatives/loss mitigation approach implemented by this rule will
include special forbearance plans, loan modifications, partial claims,
preforeclosure sales, deeds in lieu of foreclosure, and similar tools.
These approaches generally fall into two broad categories--(a) those
which (if utilized successfully) would result in curing the default and
retaining homeownership, and (b) those which would result in the
relinquishment of homeownership, by means of a sale to a third party or
by a voluntary conveyance of the property by deed in lieu of
foreclosure.
The Department has decided to implement a comprehensive approach
toward promoting alternatives to foreclosure, as well as loss
mitigation, which enhances lender flexibility in dealing with the
circumstances in which homeowners find themselves. This approach
describes a series of servicing actions and strategies that may be used
singly or in combination to meet those objectives; provides insurance
benefits to lenders that evaluate mortgagors with delinquent and
defaulted loans and choose appropriate steps which--when successful--
result in outcomes other than foreclosure of the mortgage; and
establishes the groundwork for Departmental monitoring of lenders'
efforts.
End of Assignment Program
In October, 1995, the General Accounting Office (GAO) issued a
report to Congress regarding HUD's Mortgage Assignment Program. After
analyzing over 68,000 mortgages assigned to HUD since 1989, the GAO
estimated that the loss to FHA per assigned mortgage would be $49,000,
compared to the estimated $27,000 FHA would have lost had the loan not
entered the Assignment Program. The GAO noted that to offset these
losses, FHA was required to charge higher mortgage insurance premiums
to new mortgagors. As a result of the GAO report, Congress, as
discussed above, has amended section 230 of the National Housing Act to
end the Mortgage Assignment Program with respect to the intake of new
applicants into that program. Therefore, references to the Assignment
Program are amended or removed accordingly in the following sections:
203.350, 203.355, 203.402a, 203.438, 203.500, 203.604, 203.606,
203.640-203.660, and 203.664-203.666.
[[Page 35015]]
Early Default Counseling
The Department emphasizes that early intervention coupled with the
use of default counseling are effective techniques for curing defaulted
mortgages. A successful servicing strategy by a mortgagee takes into
consideration each defaulted mortgage individually. Based on the
circumstances involved, the mortgagee executes a plan which will
eliminate the default and prevent a foreclosure. In an effort to
clarify misunderstandings of various alternatives available to
homeowners whose mortgages are in a defaulted status, and to reduce
delays in obtaining assistance, HUD Handbook 4330.1 REV-5,
Administration of Insured Home Mortgages, continues to require lenders
to refer those homeowners to HUD-approved housing counseling agencies
early in the default period.
Actions To Promote Foreclosure Alternatives/Loss Mitigation
Section 407(a) of the Downpayment Act amended section 204(a) of the
National Housing Act to provide that HUD may pay insurance benefits to
the mortgagee to recompense the mortgagee for its actions to provide an
alternative to the foreclosure of a mortgage that is in default. These
actions may include special forbearance, loan modification, and/or
deeds in lieu of foreclosure, all upon terms and conditions as the
mortgagee shall determine in the mortgagee's sole discretion, within
guidelines provided by HUD.
The current regulations already provide for most of these
foreclosure alternative or loss mitigation actions. Therefore,
Sec. 203.501 of the regulations, governing loss mitigation, is amended
to provide cross references to these various foreclosure alternative
actions available to mortgagees. To clarify that the claim file
requirements at Sec. 203.365(c) include claims involving these loss
mitigation actions, a new Sec. 203.605 is added to specify that
mortgagees must document that they have considered--beginning no later
than when three full monthly installments due on the mortgage are
unpaid, and continuing with monthly reevaluations while the loan
remains in default--all loss mitigation options to determine which, if
any, are appropriate before initiating foreclosure. In addition, a new
Sec. 203.412 is added to the regulations to provide that the Secretary
may pay insurance benefits to encourage mortgagees to pursue these loss
mitigation techniques.
Some of the provisions to promote loss mitigation are given a
delayed implementation date in the text of this interim rule to enable
the Department to consider any comments before making them effective in
a final rule. Thus, the reduction from nine to six months for taking
action upon default of a mortgage in Sec. 203.355, and the amendment to
the provision in Sec. 203.402(f) for varying the percentage of
foreclosure costs or the costs of acquiring a property that are
reimbursed, are made to apply only after March 1, 1997. Each of these
changes is discussed below in this preamble.
In certain cases foreclosure may be avoided where the mortgagor's
sale of the property is facilitated by the assumption of the mortgage
by a credit-worthy, owner-occupant purchaser. Although not included in
this interim rule, procedures to facilitate the use of assumptions as a
type of ``preforeclosure sale'' are being considered by HUD for future
implementation. Finally, this rule amends the regulations to provide
for the increased flexibility in the use of these foreclosure
alternative tools, as described below.
Reduction of Time for Taking Action
Concerning the reduction of the foreclosure initiation time frame
from nine months to six months, in 1991 the Department proposed to
reduce the time frame for lenders to initiate foreclosure from twelve
months to six months (56 Fed. Reg. 19212, April 25, 1991). Public
comments received indicated that the six-month deadline could not
reasonably be met due to several reasons including compliance with the
HUD Assignment Program, administrative matters, State law requirements
regarding notice, and the desire to encourage workout or forbearance
agreements with mortgagors.
The Department believes that the biggest obstacle to initiating
foreclosure within six months was the requirement to process borrower
applications for acceptance into the HUD Assignment Program. Since the
Assignment Program is no longer an option for those mortgagors who did
not apply for assignment relief on or before April 25, 1996, HUD now
believes that a shortened time frame is workable. As evidenced by this
rule, HUD also desires to encourage workout and forbearance agreements
with mortgagors. However, HUD believes that early intervention is
necessary for effective loss mitigation and that a workout must be
established before six months of arrearage has accumulated, wherever
possible.
With regard to State legal notice requirements, there should not be
a problem meeting the six month time frame, because under the new
procedures, HUD will generally permit mortgagees to make timely
preparations to initiate foreclosure, even while simultaneously
considering the various loss mitigation tools. Also, under current
regulations the foreclosure initiation time frame is stayed when the
mortgagor has entered into a special forbearance agreement or has
commenced participation in the pre-foreclosure sales procedure.
The Department specifically requests public comments on this
proposed time frame. The rule expressly provides for a delayed
implementation of the six-month time limit to permit notice and comment
on this change.
Varying the Percentage of Costs Reimbursed
Section 203.402(f) currently provides for \2/3\ reimbursement of
foreclosure and acquisition costs on mortgage insurance claims. This
regulation would amend that section to allow HUD to vary the percentage
of reimbursement by administrative issuance such as a Mortgagee Letter.
The percentage may be based on individual mortgagee performance in
mitigating loss. The Department specifically requests public comments
on this proposed change in reimbursement for foreclosure costs. The
rule has expressly provided for a delayed implementation of the
amendment in order to provide for notice and comment on this change.
The same change has also been incorporated into the Home Equity
Conversion Mortgage (HECM) rule at Sec. 206.129(d)(2)(ii).
1. Special Forbearance
Section 203.614 currently provides the conditions under which
mortgagees may enter into special forbearance agreements with
mortgagors. This interim rule amends Sec. 203.614 to provide lenders
with more flexibility in administering special forbearance, with the
exception that partial claims will not be permitted when forbearance is
extended for more than 18 months. Rather than including requirements in
the rule, HUD will provide special forbearance guidelines in Mortgagee
Letters and handbooks. A statutory requirement remains, pursuant to
section 204(a) of the National Housing Act, that a default must be due
to circumstances beyond the mortgagor's control for additional note
rate interest to be paid should a mortgage insurance claim be filed
after an unsuccessful special forbearance agreement.
In addition, Sec. 203.471, which provides for the conditions under
which mortgagees may enter into special forbearance agreements in the
case of 203(k) rehabilitation loans, is amended to be consistent with
the amendment to
[[Page 35016]]
Sec. 203.614. Finally, as noted above, a new Sec. 203.412 is added to
the regulations to provide, among other things, that HUD may pay the
mortgagee for its actions in entering into special forbearance
agreements under Sec. 203.614. At this time, HUD intends to issue a
Mortgagee Letter specifying that this amount will be $100.
2. Partial Claims
Section 407(b) of the Downpayment Act amended section 230(a) of the
National Housing Act to provide that the Secretary may establish a
program for payment of a partial claim to a mortgagee that agrees to
apply the claim amount to payment of a defaulted single family
mortgage. The amended section 230(a) provides that such payment shall
be in an amount determined by the Secretary, and shall not exceed an
amount equivalent to 12 monthly mortgage payments plus any costs
related to the default that are approved by the Secretary. In addition,
the amended section 230(a) provides that the mortgagor shall agree to
repay this amount to the Secretary, and that the Secretary may pay the
mortgagee in connection with any activities that the mortgagee is
required to undertake concerning repayment by the mortgagor of the
amount owed to the Secretary.
New Secs. 203.371 and 203.414 are added to the regulations to
provide that the mortgagee may apply for a partial claim after a period
of forbearance. The partial claim will be in the amount of the
arrearage accumulated during the forbearance period. The lender shall
apply this amount to the mortgage to bring it current and the mortgagor
shall be required to execute a subordinate mortgage in favor of the
Secretary in the amount of the partial claim. The forbearance period
may be extended until the arrearage equals the equivalent of 12 monthly
mortgage payments. The equivalent of twelve monthly payments for
mortgages with varying monthly payments, such as adjustable rate
mortgages (ARMS), graduated payment mortgages (GPMS) and growing equity
mortgages (GEMS), will be calculated by multiplying 12 times the
monthly mortgage payment due on the date of default. The Department
expects to issue guidelines to assure that such forbearances do not
extend beyond 18 calendar months. Similarly, guidelines will provide
that mortgagees may file a partial claim only after the borrower has
been delinquent for at least 4 months. Mitigation of losses through
forbearance with a subordinate mortgage would not be available to
borrowers who had the financial capacity to modify the mortgage or
obtain a new refinanced mortgage. Nor would this approach be available
to a mortgagor who could not make at least a full monthly mortgage
payment after the forbearance period.
It is expected that repayment terms of the subordinate mortgage
will vary depending on the income and debts of the mortgagor. The
subordinate mortgage may call for repayment commencing at a future date
before maturity of the insured mortgage, or may not require repayment
until a transfer of ownership of the property or payoff of the insured
mortgage. HUD guidelines will likely specify that subordinate mortgages
must be interest free.
Mortgagees can file for a partial claim under the new Sec. 203.414
if the mortgagor is able to resume full monthly payments, but not pay
off the arrearage. The claim amount will be the amount of the payments
in arrears, including costs related to the default as established by
HUD. The new regulation also permits the Secretary to require the
mortgagee to be responsible for servicing the subordinate mortgage and
provides that servicing mortgagees may be compensated for activities
that they perform on behalf of the Secretary.
3. Modifications/Recastings
Mortgagees currently have the authority under Sec. 203.616 of the
regulations to modify defaulted mortgages, in certain cases, for the
purpose of changing the amortization provisions by recasting the total
unpaid amount due over the remaining term of the mortgage, or over a
term extending not more than 10 years beyond the original maturity
date. In most cases, mortgagees cannot utilize this authority because
of secondary mortgage market restrictions. Approximately 95% of FHA-
insured mortgages are pooled in Government National Mortgage
Association (Ginnie Mae) mortgage backed securities. The pool
requirements prevent the mortgagee from keeping the mortgage in the
pool if the terms of the mortgage are modified. Thus, to modify the
terms of the mortgage, Ginnie Mae issuers must buy the mortgage out of
the Ginnie Mae pool.
Ginnie Mae requirements generally have prevented the repooling of a
modified mortgage if more than 24 months have elapsed since the date of
the first scheduled payment under the mortgage. To facilitate FHA's
loss mitigation efforts, Ginnie Mae has agreed to permit the removal of
mortgages that are 90 days or more past due from Ginnie Mae pools so
that the mortgages can be modified and repooled using the date of
modification of the mortgages as the origination date. Ginnie Mae will
provide its issuers with specific instructions and requirements for
this process. Therefore, HUD encourages mortgagees to make increased
use of loan modifications or recastings to avoid foreclosure and will
shortly provide detailed guidance in a Mortgagee Letter. A new
Sec. 203.412 is added to the regulations to provide, among other
things, that HUD may pay the mortgagee for its actions in modifying or
recasting the mortgage and repooling it. The payment would include
reimbursement for any necessary title examination and/or title
insurance policy endorsement.
In addition, Sec. 203.616 of the regulations is being amended to
allow recasting of mortgages even where the mortgage is not in default,
by agreement of the parties, although loss mitigation claims are
permitted only with respect to mortgages in default. This amendment
will allow willing mortgagees, especially state or local housing
authorities or portfolio lenders, to recast a mortgage where there may
be an imminent default if the mortgage is not recast, but where no
default has yet occurred. This procedure, in turn, can prevent adverse
impacts on mortgagors' credit ratings. A conforming amendment is made
to Sec. 203.342. The authority to allow recasting of mortgages where
the mortgage is not in default is based on the Secretary's inherent
broad authority to operate the insurance programs, and is not based on
the authority contained in sections 204 or 230 of the National Housing
Act, as amended. Those two sections generally refer only to mortgages
in default. It should be noted that, pursuant to the National Housing
Act, if a mortgage insurance claim is eventually filed, the unpaid
principal balance paid on the claim will be based on the modified
amount only where there had been a default caused by circumstances
beyond the mortgagor's control, as defined by the Secretary.
In rare circumstances, the mortgagee may not be able to repool the
modified or recast mortgage. In such situations, HUD will now be able
to approve the assignment to HUD of a mortgage modified after default.
Section 407(b) of the Downpayment Act amended section 230(b) of the
National Housing Act to provide that HUD may accept assignment of a
mortgage if the mortgage was in default and the mortgagee has modified
the mortgage to cure the default and to provide for mortgage payments
within the reasonable ability of the mortgagor to pay, at interest
rates not exceeding current market interest rates. HUD is also required
to arrange for servicing of the assigned mortgage by
[[Page 35017]]
a mortgagee, which may include the assigning mortgagee.
Section 203.350 of the regulations is amended to provide for
assignment of mortgages under the requirements just noted, and
Sec. 203.404 of the regulations is amended to provide for the amounts
the mortgagee will be reimbursed on such an assignment claim.
4. Pre-foreclosure Sales
Section 203.370 of the regulations, which provides for pre-
foreclosure sales, is amended to remove the reference to the now
obsolete Assignment Program. Section 203.402 of the regulations
currently provides in paragraphs (l) and (s) that HUD will reimburse
the mortgagee for the costs of an appraisal and a title search. Section
203.402(t) provides HUD will pay the mortgagee an administrative fee,
as authorized by the Secretary, for the mortgagee's role in
facilitating a successful pre-foreclosure sale. Presently, HUD is
reimbursing mortgagees for reasonable and customary costs of the
appraisal and title search, and $1,000 as the administrative fee for
each successful pre-foreclosure sale. The selling mortgagor is also
paid a consideration from gross sales proceeds of up to $1,000,
depending on the length of time it takes to close the sale. HUD intends
to continue these reimbursement amounts for the present, although they
are subject to change in the future.
5. Deeds in Lieu of Foreclosure
Section 203.402(p) of the regulations currently provides that in a
conveyance claim the Secretary will reimburse the mortgagee an amount
approved by the Secretary that was paid to the mortgagor as
consideration for the execution of a deed in lieu of foreclosure. This
amount is currently a maximum of $500. This interim rule amends
Sec. 203.402(p) to provide that the Secretary may also pay the
mortgagee an administrative fee for its role in facilitating a
successful deed in lieu of foreclosure. HUD intends to issue a
Mortgagee Letter specifying that this amount shall not exceed $250.
Also, this rule amends Sec. 203.402(s) to clarify that, as part of a
conveyance claim, HUD will reimburse the mortgagee for the cost of a
title search involved in determining whether it is feasible to accept a
deed in lieu of foreclosure. HUD intends to issue a Mortgagee Letter
specifying that this amount shall not exceed $250. This rule also
amends the Home Equity Conversion Mortgage (HECM) rule at
Sec. 206.129(d)(2)(i) to conform to the revised language of
Sec. 203.402(s).
III. Other Matters
Regulatory Planning and Review
This interim rule has been reviewed in accordance with Executive
Order 12866, issued by the President on September 30, 1993 (58 FR
51735, October 4, 1993). Any changes to the rule resulting from this
review are available for public inspection between 7:30 a.m. and 5:30
p.m. weekdays in the Office of the Rules Docket Clerk.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
which implement section 102(2)(C) of the National Environmental Policy
Act of 1969. The Finding of No Significant Impact is available for
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
Office of the Rules Docket Clerk.
Regulatory Flexibility Act
The Secretary, in accordance with provisions of the Regulatory
Flexibility Act (5 U.S.C. 605(b)), has reviewed this interim rule
before publication and by approving it certifies that it will not have
a significant economic impact on a substantial number of small
entities. Most of the economic impact of the interim rule will affect
the Department, which stands to benefit from the successful
implementation of the loss mitigation techniques addressed by the
interim rule.
Executive Order 12612, Federalism
HUD has determined, in accordance with Executive Order 12612,
Federalism, that this interim rule will not have a substantial, direct
effect on the States or on the relationship between the Federal
government and the States, or on the distribution of power or
responsibilities among the various levels of government, since the
interim rule involves primarily relationships between the Department
and private entities.
Executive Order 12606, The Family
HUD has determined that this interim rule would have only an
indirect impact on family formation, maintenance, and general well-
being within the meaning of Executive Order 12606, The Family, because
it would assist mortgagors in maintaining ownership of their
properties. To the extent such mortgagors consist of families, the
impact would be beneficial. As such, no further review is necessary.
Justification for Interim Rulemaking
The Omnibus Consolidated Rescissions and Appropriations Act of 1996
(the Act) directs the Department to issue interim regulations to
implement section 407 of the Downpayment Act within 30 days of the date
of enactment of the Act.
List of Subjects
24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
24 CFR Part 206
Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, parts 203 and 206 of title 24 of the Code of Federal
Regulations are amended as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority citation for part 203 is revised to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C.
3535(d).
2. Section 203.342 is revised to read as follows:
Sec. 203.342 Recasting of mortgage.
If a mortgage is recast pursuant to Sec. 203.616 subsequent to a
finding by the mortgagee that the default was due to circumstances
beyond the mortgagor's control, as defined by HUD, the principal amount
of the mortgage, as modified, shall be considered to be the ``original
principal balance of the mortgage'' as that term is used in
Sec. 203.401.
Sec. 203.350 [Removed]
3. In Sec. 203.350, the following are removed:
a. The ``Effective Date Note (1);
b. The ``Effective Date Note (2)'';
c. The second undesignated center heading ``ASSIGNMENT OF
MORTGAGE'';
d. The ``Effective Date Note (3);
e. All text of the second version of Sec. 203.350, which includes
paragraphs (a) through (d) and the information collection
parenthetical; and
f. The FR source ``[52 FR 6914, Mar. 5, 1987].
3a. In the remaining Sec. 203.350, the section heading and
paragraph (a) are revised, to read as follows:
[[Page 35018]]
Sec. 203.350 Assignment of mortgage.
(a) Assignment of modified mortgages pursuant to section 230,
National Housing Act. HUD may accept an assignment of any mortgage
covering a one-to-four family residence if the following requirements
are met:
(1) The mortgage was in default;
(2) The mortgagee has modified the mortgage under Sec. 203.616 to
cure the default and to provide for mortgage payments within the
reasonable ability of the mortgagor to pay, at an interest rate not
exceeding current market interest rates; and
(3) Such other conditions that HUD may prescribe, which may include
the requirement that the mortgagee continue to be responsible for
servicing the mortgage.
* * * * *
4. In Sec. 203.355:
a. The introductory text of paragraph (a) and paragraph (a)(2) are
revised;
b. Paragraphs (a)(3) through (a)(6) are added; and
c. Paragraphs (b), the introductory text of paragraph (c) and the
introductory text of paragraph (g) are revised; and
d. Paragraph (h) is added, to read as follows:
Sec. 203.355 Acquisition of property.
(a) In general. Upon default of a mortgage, except as provided in
paragraphs (b) through (h) of this section, the mortgagee shall take
one of the following actions within nine months from the date of
default, or within any additional time approved by the Secretary or
authorized by Secs. 203.345 or 203.346. For mortgages where the date of
default is on or after March 1, 1997, the mortgagee shall take one of
the following actions within six months of the date of default or
within such additional time approved by HUD or authorized by
Secs. 203.345 or 203.346:
* * * * *
(2) Enter into a special forbearance agreement under Sec. 203.614;
(3) Complete a refinance of the mortgage under Sec. 203.43(c);
(4) Complete a modification of the mortgage under Sec. 203.616;
(5) Complete an assumption under Sec. 203.512; or
(6) Commence foreclosure.
(b) Vacant or abandoned property. With respect to defaulted
mortgages on vacant or abandoned property, if the mortgagee discovers,
or should have discovered, that the property is vacant or abandoned,
the mortgagee must commence foreclosure within the later of 120 days
after the date the property became vacant, or 60 days after the date
the property is discovered, or should have been discovered, to be
vacant or abandoned; but no later than the number of months from the
date of default as provided in paragraph (a) of this section. The
mortgagee must not delay foreclosure on vacant or abandoned property
because of the requirements of Sec. 203.606.
(c) Prohibition of foreclosure within time limits. If the laws of
the State in which the mortgaged property is located, or Federal
bankruptcy law:
* * * * *
(g) Pre-foreclosure sale procedure. Within 60 days of the end of a
mortgagor's participation in the pre-foreclosure sale procedure, or
within the time limit described in paragraph (a) of this section,
whichever is later, if no closing of an approved pre-foreclosure sale
has occurred, the mortgagee must obtain a deed in lieu of foreclosure,
with title being taken in the name of the mortgagee or the Secretary,
or commence foreclosure. The end-of-participation date is defined as:
* * * * *
(h) Special forbearance. If the mortgagor fails to meet the
requirements of a special forbearance under Sec. 203.614 and the
failure continues for 60 days, the mortgagee must commence foreclosure
within the time limit described in paragraph (a) of this section or 90
days after the mortgagor's failure to meet the special forbearance
requirements.
Sec. 203.370 [Amended]
5. In Sec. 203.370, paragraph (c)(3) is removed, and paragraphs
(c)(4) and (c)(5) are redesignated as paragraphs (c)(3) and (c)(4).
6. A new Sec. 203.371 is added before the undesignated center
heading ``CONDITION OF PROPERTY'', to read as follows:
Sec. 203.371 Partial claim.
(a) General. Notwithstanding the conveyance, sale or assignment
requirements for payment of a claim elsewhere in this part, HUD will
pay partial FHA insurance benefits to mortgagees after a period of
forbearance, the maximum length of which HUD will prescribe, and in
accordance with this section.
(b) Requirements. The following conditions must be met for payment
of a partial claim:
(1) The mortgage has been delinquent for at least 4 months or such
other time prescribed by HUD;
(2) The amount of the arrearage has not exceeded the equivalent of
12 monthly mortgage payments;
(3) The mortgagor is able to resume making full monthly mortgage
payments;
(4) The mortgagor is not financially able to make sufficient
additional payments to repay the arrearage within a time specified by
HUD; and
(5) The mortgagor is not financially able to support monthly
mortgage payments on a modified mortgage or on a refinanced mortgage in
which the total arrearage is included.
(c) Repayment of the subordinate lien. The mortgagor must execute a
mortgage in favor of HUD with terms and conditions acceptable to HUD
for the amount of the partial claim under Sec. 203.414(a). HUD may
require the mortgagee to be responsible for servicing the subordinate
mortgage on behalf of HUD.
(d) Application for insurance benefits. Along with the prescribed
application for partial claim insurance benefits, the mortgagee shall
forward to HUD the original credit and security instruments required by
paragraph (c) of this section.
7. In Sec. 203.402, paragraphs (f), (p) and (s) are revised to read
as follows:
Sec. 203.402 Items included in payment--conveyed and non-conveyed
properties.
* * * * *
(f) Foreclosure costs or costs of acquiring the property otherwise
(including costs of acquiring the property by the mortgagee and of
conveying and evidencing title to the property to HUD, but not
including any costs borne by the mortgagee to correct title defects)
actually paid by the mortgagee and approved by HUD, in an amount not in
excess of two-thirds of such costs or $75, whichever is the greater.
For mortgages insured on or after March 1, 1997, the Secretary will
reimburse a percentage of foreclosure costs or costs of acquiring the
property, which percentage shall be determined in accordance with such
conditions as the Secretary shall prescribe. Where the foreclosure
involves a mortgage sold by the Secretary on or after August 1, 1969,
or a mortgage executed in connection with the sale of property by the
Secretary on or after such date, the mortgagee shall be reimbursed (in
addition to the amount determined under the foregoing) for any extra
costs incurred in the foreclosure as a result of a defect in the
mortgage instrument, or a defect in the mortgage transaction or a
defect in title which existed at or prior to the time the mortgage (or
its assignment by the Secretary) was filed for record, if the mortgagee
establishes to the satisfaction of the Commissioner
[[Page 35019]]
that such extra costs are over and above those customarily incurred in
the area.
* * * * *
(p) An amount approved by HUD and paid to the mortgagor as
consideration for the execution of a deed in lieu of foreclosure and,
if authorized by HUD, an administrative fee approved by HUD paid to the
mortgagee for its role in facilitating a successful deed in lieu of
foreclosure, not to be subject to the payment of debenture interest
thereon.
* * * * *
(s) Reasonable costs of the title search ordered by the mortgagee,
in accordance with procedures prescribed by HUD, to determine the
status of a mortgagor meeting all other criteria for approval to
participate in the pre-foreclosure sale procedure, or to determine if a
mortgagor meets the criteria for approval of the mortgagee's acceptance
of a deed in lieu of foreclosure.
* * * * *
Sec. 203.402a [Amended]
8. In Sec. 203.402a, paragraph (b)(1) is removed and paragraphs
(b)(2) and (b)(3) are redesignated as paragraphs (b)(1) and (b)(2).
9. In Sec. 203.404, paragraph (a)(3) is revised, and new paragraphs
(a)(5) and (a)(6) are added, to read as follows:
Sec. 203.404 Amount of payment--assigned mortgages.
* * * * *
(a) * * *
(3) Reimbursement for such costs and attorney's fees as HUD finds
were properly incurred in connection with the defaulted mortgage and
its modification and assignment to HUD.
* * * * *
(5) An administrative fee to the mortgagee for modifying the
mortgage.
(6) A fee for servicing the mortgage assigned to HUD, if HUD
requires such servicing.
* * * * *
10-11. New Secs. 203.412 and 203.414 are added before the
undesignated center heading ``CERTIFICATE OF CLAIM'', and Sec. 203.413
is reserved, to read as follows:
Sec. 203.412 Payment for foreclosure alternative actions.
Notwithstanding the conveyance, sale, or assignment requirements
for payment of a claim elsewhere in this part, HUD may pay the
mortgagee, in accordance with procedures prescribed by HUD, for the
following foreclosure alternative actions, in such amounts as HUD
determines:
(a) Assumptions under Sec. 203.512;
(b) Special forbearance under Secs. 203.471 and 203.614;
(c) Recasting or modification of defaulted mortgages under
Sec. 203.616, where the mortgagee is not reimbursed under
Sec. 203.405(a);
(d) Refinancing under Sec. 203.43(c).
Sec. 203.413 [Reserved]
Sec. 203.414 Amount of payment--partial claims.
(a) Claim amount. Where a claim for partial insurance benefits is
filed in accordance with Sec. 203.371, the amount of the insurance
benefits shall consist of the arrearage accumulated during the
forbearance period, not to exceed an amount equivalent to 12 monthly
mortgage payments, and any costs prescribed by HUD related to the
default.
(b) Servicing fee. The claim may also include a payment for
activities, such as servicing the subordinate mortgage, which HUD may
require.
12. In Sec. 203.438, paragraph (c) is revised to read as follows:
Sec. 203.438 Mortgages on Indian land insured pursuant to section 248
of the National Housing Act.
* * * * *
(c) Foreclosure by HUD. HUD may initiate foreclosure proceedings
with respect to any mortgage acquired under this section in a tribal
court, a court of competent jurisdiction or Federal district court. If
the mortgagor remains on the property following foreclosure, HUD may
seek an eviction order from the court hearing the foreclosure action.
13. Section 203.471 is revised to read as follows:
Sec. 203.471 Special forbearance.
If the mortgagee finds that a default is due to circumstances
beyond the mortgagor's control, as defined by the Secretary, the
mortgagee may grant special forbearance relief to the mortgagor in
accordance with the conditions prescribed by the Secretary.
14. In Sec. 203.473 paragraph (a) is revised to read as follows:
Sec. 203.473 Claim procedure.
(a) A claim for insurance benefits on a loan secured by a first
mortgage shall be made, and insurance benefits shall be paid, as
provided in Secs. 203.350 through 203.414.
* * * * *
15. Section 203.500 is revised to read as follows:
Sec. 203.500 Mortgage servicing generally.
This subpart identifies servicing practices of lending institutions
that HUD considers acceptable for mortgages insured by HUD. Failure to
comply with this subpart shall not be a basis for denial of insurance
benefits, but a pattern of refusal or failure to comply will be cause
for withdrawal of HUD's approval of a mortgagee. It is the intent of
the Department that no mortgagee commence foreclosure or acquisition of
a property until the requirements of this subpart have been followed.
16. Section 203.501 is amended by adding at the end of the section
the following two sentences:
Sec. 203.501 Loss mitigation.
* * * Such actions include, but are not limited to, deeds in lieu
of foreclosure under Sec. 203.357, pre-foreclosure sales under
Sec. 203.370, partial claims under Sec. 203.414, assumptions under
Sec. 203.512, special forbearance under Secs. 203.471 and 203.614, and
recasting of mortgages under Sec. 203.616. HUD may prescribe conditions
and requirements for the appropriate use of these loss mitigation
actions, concerning such matters as owner-occupancy, extent of previous
defaults, prior use of loss mitigation, and evaluation of the
mortgagor's income, credit and property.
17. In Sec. 203.552, paragraph (a) introductory text is revised to
read as follows:
Sec. 203.552 Fees and charges after endorsement.
(a) The mortgagee may collect reasonable and customary fees and
charges from the mortgagor after insurance endorsement only as provided
in this paragraph (a). The mortgagee may not collect these fees or
charges from the mortgagor if the mortgagee has been or will be
reimbursed by the Secretary for the services for which the fees or
charges are assessed.
* * * * *
Sec. 203.604 [Amended]
18. In Sec. 203.604, paragraphs (e)(2) (iii) and (iv) are removed,
and paragraph (e)(2)(v) is redesignated as paragraph (e)(2)(iii).
19. A new Sec. 203.605 is added to read as follows:
Sec. 203.605 Loss mitigation evaluation.
No later than when three full monthly installments due on the
mortgage are unpaid, the mortgagee shall evaluate all of the loss
mitigation techniques provided at Sec. 203.501 to determine which, if
any, are appropriate, and shall reevaluate monthly thereafter. The
mortgagee shall maintain documentation of such evaluations. Should a
claim for mortgage insurance benefits later be filed, the mortgagee
shall maintain this documentation in
[[Page 35020]]
the claim file under the requirements of Sec. 203.365(c).
20. In Sec. 203.606, paragraph (a) is amended by adding at the end
the following sentence, and the introductory text of paragraph (b) is
revised, to read as follows:
Sec. 203.606 Pre-foreclosure review.
(a) * * * In addition, prior to initiating any action required by
law to foreclose the mortgage, the mortgagee shall notify the mortgagor
in a format prescribed by the Secretary that the mortgagor is in
default and the mortgagee intends to foreclose unless the mortgagor
cures the default.
(b) If the mortgagee determines that any of the following
conditions has been met, the mortgagee may initiate foreclosure without
the delay in foreclosure required by paragraph (a) of this section:
* * * * *
21. Section 203.614 is revised to read as follows:
Sec. 203.614 Special forbearance.
If the mortgagee finds that a default is due to circumstances
beyond the mortgagor's control, as defined by HUD, the mortgagee may
grant special forbearance relief to the mortgagor in accordance with
the conditions prescribed by HUD.
22. Section 203.616 is revised to read as follows:
Sec. 203.616 Recasting of mortgage.
The mortgagee may modify a mortgage for the purpose of changing the
amortization provisions by recasting the total unpaid amount due over
the remaining term of the mortgage or a term not exceeding 360 months.
The mortgagee must notify HUD of such modification in a format
prescribed by HUD within 30 days of the execution of the modification
agreement.
Secs. 203.640 through 203.660 [Removed]
23. All versions of Secs. 203.640 through 203.660 are removed.
24. Section 203.664 is revised to read as follows:
Sec. 203.664 Processing defaulted mortgages on property located on
Indian land.
Before a mortgagee requests that the Secretary accept assignment
under Sec. 203.350(b) of a mortgage insured pursuant to section 248 of
the National Housing Act (Sec. 203.43h), the mortgagee must submit
documents showing that the requirements of Sec. 203.604 have been met.
25. Section 203.665 is revised to read as follows:
Sec. 203.665 Processing defaulted mortgages on property located on
Hawaiian home lands.
Before a mortgagee requests the Secretary to accept assignment
under Sec. 203.350(c) of a mortgage insured pursuant to section 247 of
the National Housing Act (Sec. 203.43i), the mortgagee must submit
documents showing that the requirements of Sec. 203.604 have been met.
26. In Sec. 203.666 paragraph (b) is revised, and paragraphs (c)
and (d) are removed, to read as follows:
Sec. 203.666 Processing defaulted mortgages on property in Allegany
Reservation of Seneca Nation of Indians.
* * * * *
(b) Claims through assignment. Before a mortgagee requests the
Secretary to accept assignment under Sec. 203.350(d) the mortgagee must
submit documents showing that the requirements of Sec. 203.604 have
been met.
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
27. The authority citation for part 206 continues to read as
follows:
Authority: 12 U.S. C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).
28. In Sec. 206.129, paragraphs (d)(2)(i) and (d)(2)(ii) are
revised to read as follows:
Sec. 206.129 Payment of claim.
* * * * *
(d) * * *
(2)(i) Items listed in Sec. 203.402 (a), (b), (c), (d), (e), (g),
(j), and (s), and Sec. 204.322(l) of this chapter.
(ii) Foreclosure costs or costs of acquiring the property actually
paid by the mortgagee and approved by HUD, in an amount not in excess
of two-thirds of such costs or $75, whichever is the greater. For
mortgages insured after March 1, 1997, HUD may reimburse a percentage
of foreclosure costs or costs of acquiring the property, which
percentage shall be determined in accordance with such conditions as
HUD shall prescribe.
* * * * *
Dated: June 5, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 96-16869 Filed 7-2-96; 8:45 am]
BILLING CODE 4210-27-P