[Federal Register Volume 61, Number 133 (Wednesday, July 10, 1996)]
[Rules and Regulations]
[Pages 36452-36453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17559]



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Part III





Department of Housing and Urban Development





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24 CFR Part 202, et al.



Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner; Streamlining Mortgagee Requirements; Final Rule

  Federal Register / Vol. 61, No. 133 / Wednesday, July 10, 1996 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 202, 203, 221, and 234

[Docket No. FR-3957-F-02]
RIN 2502-AG57


Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner; Streamlining Mortgagee Requirements

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

ACTION: Final rule.

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SUMMARY: This rule makes final the January 26, 1996 interim rule which 
revised FHA's mortgagee requirements to streamline and make the FHA 
process more flexible for mortgagees and FHA's customers and clients.

EFFECTIVE DATE: August 9, 1996.

FOR FURTHER INFORMATION CONTACT: William M. Heyman, Director, Office of 
Lender Activities and Land Sales Registration, Room 9156, Department of 
Housing and Urban Development, 451 Seventh Street, SW, Washington, DC 
20410, telephone (voice) (202) 708-1515, (TTY) (202) 708-4594. (These 
are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Background

    Early in 1995 the FHA Single Family Business Practices Working 
Group was established to develop recommendations to streamline the FHA 
process, reduce or eliminate unnecessary requirements, promote greater 
opportunities for first-time homebuyers and minorities, and maintain a 
responsible risk management program. The Working Group was comprised of 
representatives of mortgage lenders, State and local governments, trade 
associations, realtors, government-sponsored enterprises, and other 
interested parties.
    On January 26, 1996, at 61 FR 2650, the Department published an 
interim rule on Streamlining Mortgagee Requirements. The revisions made 
by the interim rule resulted from the efforts and recommendations made 
by the Working Group. They were designed to make the FHA process more 
flexible for mortgagees, and for State and local governments and 
nonprofit associations, and also to expand homeownership opportunities. 
They were also intended to assist in making the FHA a more effective 
organization to serve the needs of our customers and clients. In 
addition, the revisions were intended to minimize the differences 
between FHA and conventional loan processing and to place greater 
reliance and accountability on mortgagees.
    The interim rule made the following changes:

--Section 202.11(a)(5) was revised to establish uniform requirements on 
the use of authorized agents by supervised and nonsupervised 
mortgagees. For conforming reasons, Secs. 202.13(e) and 202.17(d) were 
removed.
--Section 202.12(m) was revised to eliminate the requirement that a 
branch office of a mortgagee must be approved by FHA to originate FHA 
mortgages. A branch registry process is permitted. However, a 
nonsupervised loan correspondent is required to provide evidence that 
it complies with the net worth requirements for itself and all of its 
branches, as set forth in Sec. 202.12(n)(3).
--Section 202.15(c)(1) was revised to eliminate the requirement that 
loans must be closed in the name of the Loan Correspondent, and to 
permit such mortgages to be closed in either the name of the Loan 
Correspondent or its Sponsor(s).
--Section 202.15(c)(5) was revised to eliminate the compliance report 
and the report on internal control from Loan Correspondents' annual 
audited financial statements.
--Section 203.3(b)(2) was revised to eliminate the requirement that FHA 
individually approve mortgagees' Direct Endorsement underwriters and to 
establish a registry process for the underwriter. Also, the requirement 
that the technical staff utilized by the mortgagee be approved by the 
Secretary was removed. For conforming reasons, Secs. 203.3(b)(3) and 
(c) were eliminated.

Public Comments

    The public was afforded a 60-day comment period on the January 26, 
1996 interim rule. Two commenters responded: one certified public 
accountant firm and one national association of certified public 
accountants. Below is a listing of the comments presented, and the 
Department's response follows each comment.
    Comment: The commenter questions (1) Whether the auditor needs to 
meet GAO Yellow Book general requirements for education, etc., given 
the lower level of scope, and (2) is the auditor required to 
communicate indications of illegal acts to HUD if such indications are 
present?
    Response: (1) Unless engaged in other GAO Yellow Book audits, the 
auditor of a loan correspondent mortgagee would no longer have to meet 
the GAO Yellow Book education requirements. The Department notes, 
however, that Professional Standards provide that an auditor should 
obtain a level of knowledge of the auditee's business that will enable 
the auditor to plan and perform the audit in accordance with Generally 
Accepted Auditing Standards. (2) The auditor will still be required to 
report illegal acts as set forth in Handbook 2000.04 REV-1, 
Consolidated Audit Guide for Audits of HUD Programs.
    Comment: The commenter urges the issuance by the Office of the 
Inspector General of a supplement to Handbook 2000.04 REV-1, 
Consolidated Audit Guide for Audits of HUD Programs. Otherwise, the 
commenter believes there will be confusion among both loan 
correspondents and their auditors since the Consolidated Audit Guide is 
in conflict with the interim rule.
    Response: The Department is revising the Consolidated Audit Guide 
to reflect this and other changes. In the meantime, loan correspondent 
mortgagees and auditors may refer to Mortgagee Letter 96-12 for 
guidance.
    Comment: Another commenter requests that the final rule state 
whether the financial statement audits of Loan Correspondents should be 
performed in accordance with Government Auditing Standards or in 
accordance with Generally Accepted Auditing Standards (GAAS).
    Response: The Department will no longer require that financial 
statement audits of loan correspondent mortgagees be performed in 
accordance with Government Auditing Standards. Such audits, however, 
must be performed according to Generally Accepted Auditing Standards. 
Although this will not be incorporated into the final rule, it will be 
specified in the Consolidated Audit Guide and in Mortgagee Approval 
Handbook 4060.1 REV-1, both of which are being revised by the 
Department.

This Rule

    No changes are needed to the regulatory text as a result of the 
public comments received on the January 26, 1996 interim rule. 
Therefore, this final rule adopts the interim rule without substantive 
change. In addition, this final rule makes conforming changes to parts 
202, 203, 221, and 234.

Other Matters

Environmental Finding

    A Finding of No Significant Impact with respect to the environment 
was

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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, for the January 26, 1996 interim rule. Since this final rule 
makes no changes to the interim rule, the Finding of No Significant 
Impact for the interim rule shall serve as the finding for the final 
rule. 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, Office of the General Counsel, Department of 
Housing and Urban Development, Room 10276, 451 Seventh Street, S.W., 
Washington, D.C. 20410.

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 substantial direct effects on States 
or their political subdivisions, or the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the rule is not subject to review under the Order. Specifically, the 
requirements of this rule are directed to insuring mortgages and do not 
impinge upon the relationship between the Federal government and State 
and local governments.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being, and, thus, is not subject to review under the Order 
because it revises mortgagee requirements.

The Regulatory Flexibility Act

    In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility 
Act), the Secretary by his approval of this rule hereby certifies that 
this rule does not have a significant economic impact on a substantial 
number of small entities because the changes made by this rule are 
primarily procedural and will not have a significant economic impact.

List of Subjects

24 CFR Part 202

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

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 221

    Low and moderate income housing, Mortgage insurance, Reporting and 
recordkeeping requirements.

24 CFR Part 234

    Condominiums, Mortgage insurance, Reporting and recordkeeping 
requirements.

    Accordingly, under the authority of 42 U.S.C. 3535(d), chapter II 
of title 24 of the Code of Federal Regulations is amended by adopting 
as final, without change, the interim rule for ``Parts 202 and 203, 
Streamling Mortgagee Requirements'', published in the Federal Register 
on January 26, 1996 (61 FR 2650). Chapter II is also amended by further 
amending part 203, and by amending parts 221 and 234 as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    1. The authority citation for part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C. 
3535(d).


Secs. 203.51, 203.258, 203.259a, 203.359, 203.363, 203.366, 203.368, 
203.369, 203.378, 203.379, 203.380, 203.402, and 203.423  [Amended]

    2. Part 203 is amended by removing the word ``approved'' wherever 
it appears before the word ``underwriter'' in the following sections: 
Secs. 203.51(2), 203.258(c)(2), 203.259a(a)(2)(ii)(B), 203.359(b) 
introductory text, 203.363(b) paragraph heading, 203.366(b)(1), 
203.368(a)(1)(ii), 203.369(a)(1), 203.369(b), 203.378(c)(3), 
203.379(b), 203.380(a)(1)(iii), 203.402(g)(1) paragraph heading, 
203.402(g)(2) paragraph heading, and 203.423(a)(1).

PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE

    3. The authority citation for part 221 continues to read as 
follows:

    Authority: 12 U.S.C. 1707(a), 1715b, and 1715l; 42 U.S.C. 
3535(d).


Sec. 221.70  [Amended]

    7. In Sec. 221.70(a)(2), the reference to ``approved underwriter'' 
is revised to read ``underwriter''.

PART 234--CONDOMINIUM OWNERSHIP MORTGAGE INSURANCE

    8. The authority for part 234 continues to read as follows:

    Authority: 12 U.S.C. 1715b and 1715y; 42 U.S.C. 3535(d). Section 
234.520(a)(2)(ii) is also issued under 12 U.S.C. 1707(a).


 234.85  [Amended]

    9. In Sec. 234.85(a)(2), the reference to ``approved underwriter'' 
is revised to read ``underwriter''.

    Dated: July 2, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 96-17559 Filed 7-9-96; 8:45 am]
BILLING CODE 4210-27-P