[Federal Register Volume 61, Number 140 (Friday, July 19, 1996)]
[Rules and Regulations]
[Pages 37798-37801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18354]
[[Page 37797]]
_______________________________________________________________________
Part II
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 203 and 221
Single Family Mortgage Insurance Premium; Final Rule
Federal Register / Vol. 61, No. 140 / Friday, July 19, 1996 / Rules
and Regulations
[[Page 37798]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 203 and 221
[Docket No. FR-3899-F-02]
RIN 2502-AG55
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner; Single Family Mortgage Insurance Premium
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule makes final the proposed rule published by the
Department on January 26, 1996, which proposed many benefits to the
mortgage lenders that would reduce their servicing costs and the
confusion generated by adjustments to the annual mortgage insurance
premium (MIP) on cases not endorsed within the first six months after
amortization. The rule changes the method of payment and the
reconciliation schedule and clarifies the due date. It is expected that
the changes will result in an increase in MIP income, thereby
strengthening the FHA insurance fund. Also, costly reconciliation now
done by HUD will be cut.
Specifically, the rule provides that the FHA Commissioner can
accrue MIP from the beginning of amortization (as defined in 24 CFR
203.251) on all Section 530 (of the National Housing Act) loans and
risk-based loans, no matter what time frame exists between the
endorsement date and the beginning of amortization. It also amends the
existing regulation by requiring that mortgagees pay the monthly
installments as due on or before the 10th of the month, whether or not
collected from the mortgagor. A new system is being developed (and
expected to be operational by Summer 1997) which would produce a
monthly notice of premiums due, and the reconciliation will be made
monthly by the lender when the premium is paid. A new Single Family
Premium Collection Subsystem-Periodic (SFPCS-P) is being developed (and
expected to be operational by Summer 1997) which will produce a monthly
notice of premiums due, and the reconciliation will be made monthly by
the lender when the MIP is paid, thus eliminating the requirement for
annual reconciliation.
EFFECTIVE DATE: August 19, 1996.
FOR FURTHER INFORMATION CONTACT: John L. Stahl, Acting Director, Office
of Mortgage Insurance Accounting and Servicing, Room 2108, Department
of Housing and Urban Development, 451 7th Street, SW, Washington, DC
20410, telephone (202) 708-1046. For telephone communication, contact
Anne Baird-Bridges, Single Family Insurance Operations Division, at
(202) 708-2438. Hearing or speech-impaired individuals may call HUD's
TTY number (202) 708-4594. These are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
Background
Section 320 of the Housing and Community Development Act of 1980
(Pub.L. 96-399) amended Title V of the National Housing Act (the Act)
(12 U.S.C. 1702 et seq.) to add a new section 530. Section 530
requires, with respect to insurance of mortgages under Title II of the
Act, the payment of MIPs upon receipt from the borrower, except HUD may
approve payment of such premiums within 24 months of such receipt if
the financial institution or mortgagee pays interest to the insurance
fund. On July 15, 1982, at 47 FR 30750, the Department published a
final rule that implemented section 530 by requiring mortgagees to pay
the MIP in installments due on or before the 10th day of the month
following the month in which payments are due from the mortgagors. On
June 23, 1983, at 48 FR 28794, the Department published a final rule
which set forth the requirement that the borrower pay a single premium
when the mortgage loan is closed, which represents the total premium
obligation for the insured loan. This change applied to all new
mortgages insured under the Mutual Mortgage Insurance Fund; therefore,
after the change took effect, section 530 was limited to mortgages
insured under the Special Risk and General Insurance Funds.
Section 530 loans include all FHA loans endorsed prior to September
30, 1983, and all FHA loans insured under the Special Risk and General
Insurance Funds after September 1983. Lenders are required to remit
annual MIP in 12 monthly payments totalling one-half of one percent of
the average outstanding principal obligation of the mortgage.
The risk-based premium became effective on July 1, 1991, for all
loans insured under the provisions of the Mutual Mortgage Insurance
Fund, in accordance with the Omnibus Budget Reconciliation Act of 1990
(Pub.L. 101-508) and the National Affordable Housing Act of 1990
(Pub.L. 101-625). Sections 203.284 and 203.285 of title 24 of the Code
of Federal Regulations were promulgated to implement the provisions
governing risk-based premiums (See 57 FR 15208, April 24, 1992, and 58
FR 40996, July 30, 1993). Risk-based premiums have two components: The
up-front premium and the periodic premium. Periodic premiums on risk-
based loans are collected over a set number of years, depending on the
loan-to-value ratio of the mortgage. Premium payments are paid in
twelve monthly installments totalling one-half of one percent of the
remaining insured principal balance of the mortgage, minus any amounts
included to finance up-front MIP. However, there is an exception under
Sec. 203.285 for any mortgage with a term of 15 years or less, which
requires premium payments totalling one-fourth of one percent of the
insured principal balance.
This Rule
On January 26, 1996, the Department published a proposed rule at 61
FR 2644. The public was afforded a 60-day comment period. No changes to
the January 26, 1996 proposed rule are needed as a result of the
comments. Therefore, this final rule adopts the proposed rule without
change. Below is a discussion of the changes made by this rule.
This rule changes the method of payment and the reconciliation
schedule and clarifies the due date. Specifically, the rule provides
that the FHA Commissioner can accrue MIP from the beginning of
amortization (as defined in 24 CFR 203.251) on all Section 530 and
risk-based loans, no matter what time frame exists between the
endorsement date and the beginning of amortization. It also amends the
existing regulation by requiring that mortgagees pay the monthly
installments as due on or before the 10th of the month, whether or not
collected from the mortgagor.
The rule revises Secs. 203.262, 203.264, and 203.265 to reflect the
new policy on monthly payment of MIPs. The revised provisions also
apply to risk-based premiums under Secs. 203.284 and 203.285.
Sections 203.262 and 203.264 apply to the scheduled payments.
Existing Sec. 203.264 requires that ``any portion of the periodic MIP
received by the mortgagee from the mortgagor on or after September 1,
1982, shall be paid to the Commissioner on or before the tenth of the
month following the month in which it was received,'' provided that the
full annual MIP be paid by the tenth of the month following the
anniversary date of amortization. At the initiation of
[[Page 37799]]
the Section 530 Program, mortgagees were offered two payment options:
a. The Basic Monthly Payment Method. According to this method, the
lender remits on a monthly basis, on or before the tenth of each month,
a payment equal to all Section 530 MIP amounts collected from
mortgagors during the preceding month, plus any portion of annual MIP
remaining due for the current anniversary month whether collected or
not.
b. Optional Monthly Payment Method. According to this method, the
lender remits a monthly payment equal to \1/12\th of the total of all
annual Section 530 MIPs for all mortgages in the mortgagee's servicing
portfolio for the month, plus any annual premiums remaining due,
without regard to MIP amounts collected from mortgagors.
Most lenders opt to pay the premiums as due. HUD systems are set up
to reconcile remittances of MIP, late charges, and interest based on
payment of monthly premiums by the 10th of the month; exceptions must
be manually processed. This rule eliminates the option to pay the
premiums when collected.
The two provisions to be modified for Section 530 loans also apply
to the periodic portion of risk-based loans. Mortgagees submitting
risk-based monthly premiums have been following HUD's policy on
adjustment of initial MIP depending on the date of endorsement, and
have been given the option of paying monthly premiums (1) ``as due'' or
(2) ``as collected''.
Section 530 and risk-based monthly premium payments will be due on
the first of the month after the beginning of amortization (as defined
in 24 CFR 203.251) and must be received on or before the tenth.
Reconciliation between amounts expected by HUD and amounts remitted by
the lender will be accomplished after the date of endorsement, when the
insurance information has been fed into the FHA Single Family Insurance
System. As soon as possible after endorsement, HUD will begin verifying
that the lender has paid the required monthly premiums due at that time
on each case, and will begin notifying the lender on a monthly basis of
any discrepancies existing between expected, versus remitted, amounts.
Until SFPCS-P is implemented, lenders will continue to reconcile risk-
based monthly premiums at case level using MGIC Investor Services
Corporation, and Section 530 monthly premiums at portfolio level based
on the Advance Notice of Annual Premiums for Anniversary Due Date,
which is being sent by HUD.
New Secs. 203.262 and 203.264 authorize the FHA Commissioner to
accrue annual premiums from the beginning of amortization (as defined
in 24 CFR 203.251) on all Section 530 and risk-based loans, no matter
what time frame exists between the endorsement date and the beginning
of amortization. This rule also deletes Sec. 203.263 which provides for
an adjustment on the accrual date of the initial annual MIP depending
on the date of endorsement of the loan. Section 203.268 is revised to
provide that if the insurance contract is terminated, the lender will
pay a portion of the MIP prorated from the beginning of amortization
(as defined in 24 CFR 203.251) to the month in which the loan is
terminated. The final monthly payment will be due on the first of the
month following termination.
The changes made by this rule provide many benefits to the mortgage
lenders that reduce their servicing costs and the confusion generated
by adjustments to MIP on cases not endorsed within the first six months
after amortization. The result expected is an increase in MIP income,
thereby strengthening the FHA insurance fund. The changes cut down on
the costly reconciliation now done by HUD. (The cost of reconciliation
on Section 530 and monthly risk based premiums exceeded $7.5 million in
FY 1994.)
According to research completed on FY 1993 cases, approximately 7%
of cases were not endorsed within the first six months of amortization.
Currently some lenders escrow the premiums received from the homeowners
on Section 530 and risk-based loans and remit the premiums to HUD at
the beginning of amortization rather than when the case is endorsed for
insurance. This has led to much confusion and variations in the
computation of initial premiums due, because some contingencies cannot
be foreseen at settlement; i.e., endorsement before the beginning of
amortization. The revised regulation prevents confusion for those cases
endorsed outside the six-month window by requiring lenders to follow
the same guidelines for all cases needing periodic MIP.
MIP income is expected to increase by approximately $15 million per
year. This amount represents the reduction in premiums now taken by the
lenders for both Section 530 loans and risk-based loans, when the loans
are endorsed over six months from the beginning of amortization.
Lenders should not receive a reduction in monthly MIP due because of
late endorsement for the following reasons:
a. This is inconsistent with HUD's policy on one-time and up-front
MIP. These amounts are paid within 15 days of closing, and no reduction
is given based on the date of endorsement. On risk based loans,
Sec. 203.284 requires payment of periodic MIP for a specific number of
years, depending on the loan-to-value ratio. When the loan is endorsed
after the six-month window, the period of time for which payments are
due is being reduced.
b. Often the late endorsement results from late submission of the
closing package by the lenders to the Field Office.
The new Sec. 203.264 requires that payment of the periodic MIP be
received from the mortgagee on or before the tenth day of the month
following the month in which it was due from the mortgagor. For
example, for a case closed in August and amortized in September, the
initial premium is payable to HUD by the lender no later than October
10. Monthly reconciliation replaces annual reconciliation. Once SFPCS-P
is implemented, monthly notices will reflect a breakdown by case number
and by month of the cumulative amounts of monthly premium, late charge,
and interest due.
The rule changes the method of payment, and the reconciliation
schedule, and clarifies the due date. Payment of the periodic MIP by
the lender is to be made monthly, regardless when collected. Upon
implementation of SFPCS-P, a monthly notice from HUD will be sent and
reconciliation will be made monthly by the lender when the MIP payment
is paid, thus eliminating the requirement for annual reconciliation.
MIP shall be due, and payable to the Commissioner, no later than the
tenth day of the month.
Lenders will be informed that they are responsible for all loans in
their portfolio for which monthly payments are due, even if they do not
appear on the monthly notice. Because of servicing transfers,
endorsement delays, and terminations, monthly notices may not reflect
the current status of the lender's portfolio and may require
reconciliation.
The current Single Family Monthly Collection System used for MIP
collection is not set up to reconcile payments received under the
``Payment as Received'' option. The new SFPCS-P is not being set up to
reconcile these payments either. The system enhancements necessary to
accommodate this option would not be cost effective, and are not
necessary, because most lenders have chosen the other option anyway.
It should be noted that Sec. 203.284(f) ``Applicability of Other
Sections'' does not include Sec. 203.264 as applicable to
[[Page 37800]]
mortgages covered by Sec. 203.284, although HUD has taken the position
that this provision is properly applicable to mortgages with risk-based
premiums. This rule re-inserts a reference to Sec. 203.264 that was
inadvertently deleted when that section was published as a final rule
(See 57 FR 15209, April 24, 1992). The rule also inserts references to
Secs. 203.262 and 203.265 in lieu of the current Secs. 203.284 (d) and
(e) which are being deleted. Similar changes are made to
Sec. 203.285(c).
Public Comments
Comments were received from three commenters on the January 26,
1996 proposed rule: One housing development fund and two mortgage
corporations. One of the mortgage corporations fully supports the
proposed rule. Below is a listing of the comments presented from the
other two commenters. After each comment is the Department's response.
Comment: There are terminology conflicts between the regulations
and the HUD approved Deed of Trust, and clarification of the terms and
the changes to the HUD approved forms are requested before the rule
goes into effect.
Response: HUD Handbook 4165.1 REV-1 CHG. 3, Endorsement for
Insurance for Home Mortgage Premiums (Single Family) dated November 30,
1995 contains new model mortgage and note forms which remove
conflicting terminology. These changes became mandatory on June 1,
1996.
Comment: The reconciliation of the initial notice produced after
the SFPCS-P is completed will most likely contain thousands of
unmatched items for each lender. These will result from years of
unreconciled service transfers, terminations, incorrect case numbers,
and endorsement delays. Therefore, the commenter strongly urges the
Department to conduct a preliminary audit to quantify the extent of the
reconciliation required by both the lenders and HUD and then determine
an approach and implementation date.
Response: Since SFPCS-P is being designed to capture MIP payments
at case level, bills will contain detailed information to enable
lenders to reconcile their portfolios each billing period. Unidentified
cases will not be carried forward on SFPCS-P. HUD is working to resolve
all unidentified cases separately.
Comment: There should be some standard established and required for
the endorsement process. The commenter is concerned that the
elimination of the financial penalty could result in far more than
seven percent of the cases taking more than six months to be endorsed,
which could further complicate the ongoing reconciliation process.
Response: As long as a mortgage is submitted to HUD within 60 days
of closing as required by 24 CFR 203.255(b), HUD is committed to
proceeding within a reasonable time with its pre-endorsement review and
subsequent endorsement if the mortgage is determined to be eligible for
insurance. In nearly all cases that do not raise questions of
eligibility, the Mortgage Insurance Certificate (MIC) should be issued
long before the first half of the amortization year has expired. HUD
policy to date has not permitted Field Offices to deliberately delay
issuance of the MIC until the end of the first half of the amortization
year. HUD's Processing Center in Denver is meeting our national goal by
processing cases for endorsement in 10 days with a reject rate of six
percent or under.
Comment: The examples for timing of remittances and final payments
on terminations need clarification.
Response: To further clarify the example for the timing of
remittance as set forth in the proposed rule, the example has been
revised to read as follows: For a case closed in August with
amortization beginning in September, the initial premium is payable to
HUD by the lender no later than October 10.
For terminations, the final monthly payment would be due on the
first of the month following termination and payable to HUD no later
than the 10th of the month following termination. For example, if a
case is terminated in August, the final monthly payment would be
payable to HUD no later than September 10.
Other Matters
Environmental Review
A Finding of No Significant Impact with respect to the environment
was made in accordance with the HUD regulation at 24 CFR part 50, which
implements section 102(2) (C) of the National Environmental Policy Act
of 1969, for the January 26, 1996 proposed rule. Since this final rule
makes no changes to the proposed rule, the Finding of No Significant
Impact for the proposed 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.
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 does not have a significant economic impact on
a substantial number of small entities. A review of the universe of
approved mortgagees indicates that only a small percentage of them have
assets of less than $10 million. These can be considered ``small
entities'' for purposes of this regulation. The number of ``small
entities'' affected, therefore, is not substantial. Further, HUD
records indicate smaller companies hold relatively few insured
mortgages, and they tend to concentrate their business in the
conventional mortgage market. Thus, even for those ``small entities''
affected, the impact is expected to be relatively insignificant.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
states or their political subdivisions, or the relationship between the
federal government and the states, or on the distribution of power and
responsibilities among the various levels of government. As a result,
the rule is not subject to review under the order.
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 would
result from promulgation of this rule, as those policies and programs
relate to family concerns.
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 221
Low and moderate income housing, Mortgage insurance, Reporting and
recordkeeping requirements.
[[Page 37801]]
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number is 14.117.
Accordingly, the Department amends parts 203 and 221 of title 24 of
the Code of Federal Regulations 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, 1715b; 42 U.S.C. 3535(d). Subpart C
also is issued under 12 U.S.C. 1715u.
2. Section 203.262 is revised to read as follows:
Sec. 203.262 Due date of periodic MIP.
The full initial and each annual MIP shall be due and payable to
the Commissioner no later than the 10th day after the amortization
anniversary date.
Sec. 203.263 [Removed]
3. Section 203.263 is removed.
4. Section 203.264 is revised to read as follows:
Sec. 203.264 Payment of periodic MIP.
The mortgagee shall pay each MIP in twelve equal monthly
installments. Each monthly installment shall be due and payable to the
Commissioner no later than the tenth day of each month, beginning in
the month in which the mortgagor is required to make the first monthly
mortgage payment or, if later, in September.
5. In Sec. 203.265, paragraph (a) is revised to read as follows:
Sec. 203.265 Mortgagee's late charge and interest.
(a) Periodic MIP which are received by the Commissioner after the
payment dates prescribed by Secs. 203.262 and 203.264 shall include a
late charge of four percent of the amount paid.
* * * * *
6. Section 203.268 is amended by revising paragraph (a) to read as
follows:
Sec. 203.268 Pro rata payment of periodic MIP.
(a) If the insurance contract is terminated before the due date of
the initial MIP, the mortgagee shall pay a portion of the MIP prorated
from the beginning of amortization, as defined in Sec. 203.251, to the
date of termination.
* * * * *
7. Section 203.284 is amended by removing and reserving paragraphs
(d) and (e) and revising paragraph (f) to read as follows:
Sec. 203.284 Calculation of up-front and annual MIP on or after July
1, 1991.
* * * * *
(d) [Removed and reserved]
(e) [Removed and reserved]
(f) Applicability of other sections. The provisions of
Secs. 203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 203.268,
203.269, 203.280, and 203.282 are applicable to mortgages subject to
premiums under this section.
* * * * *
8. Section 203.285 is amended by revising paragraph (c) to read as
follows:
Sec. 203.285 Fifteen-year mortgages: Calculation of up-front and
annual MIP on or after December 26, 1992.
* * * * *
(c) Applicability of certain provisions. The provisions of
Secs. 203.261, 203.262, 203.264, 203.265, 203.266, 203.267, 203.268,
203.269, 203.280, 203.282, 203.284(c), and 203.284(g) are applicable to
mortgages subject to premiums under this section.
* * * * *
PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE
9. The authority citation for part 221 is revised to read as
follows:
Authority: 12 U.S.C. 1715b, 1715l; 42 U.S.C. 3535(d). Section
221.544(a)(3) is also issued under 12 U.S.C. 1707(a).
Sec. 221.251 [Amended]
10. Section 221.251(a) is amended by removing from the list
``203.263 Adjustment of initial MIP.''
Dated: July 10, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 96-18354 Filed 7-18-96; 8:45 am]
BILLING CODE 4210-27-P