[Federal Register Volume 62, Number 16 (Friday, January 24, 1997)]
[Rules and Regulations]
[Pages 3766-3770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1647]



[[Page 3765]]

_______________________________________________________________________

Part III





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 291



Sale of HUD-Held Single Family Mortgages; Final Rule

  Federal Register / Vol. 62, No. 16 / Friday, January 24, 1997 / Rules 
and Regulations  

[[Page 3766]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 291

[Docket No. FR-3814-F-04]
RIN 2502-AG42


Sale of HUD-Held Single Family Mortgages; Final Rule

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

ACTION: Final rule.

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SUMMARY: This document represents the final rulemaking for an interim 
rule that HUD published in the Federal Register on August 31, 1995 
regarding the sale of HUD-held single family mortgage loans. This rule 
adopts the interim rule as final, and makes certain changes to the 
rule's provisions.

EFFECTIVE DATE: March 25, 1997.

FOR FURTHER INFORMATION CONTACT: Joseph McCloskey, Director, Single 
Family Servicing Division, Office of Housing, Room 9178, Department of 
Housing and Urban Development, 451 Seventh Street SW., Washington, DC 
20410, telephone (202) 708-1672. (This telephone number is not toll-
free.) Hearing- or speech-impaired individuals may access this number 
via TTY by calling the Federal Information Relay Service at (800) 877-
8339.
SUPPLEMENTARY INFORMATION:

Background

    HUD established its policies and procedures for the sale of HUD-
held single family mortgage loans through an interim rule published in 
the Federal Register on August 31, 1995 (60 FR 45331), and corrected on 
October 6, 1995 (60 FR 52296).1 As described in the preamble to 
the August 31, 1995 interim rule, HUD is conducting a program of 
regular sales of all HUD-owned single family mortgage loans in order to 
decrease HUD's inventory of assigned mortgage loans and to reduce 
further losses to the Federal Housing Administration (FHA) mortgage 
insurance funds. The sale of both single family and multifamily 
mortgage loans is a key component of President Clinton's initiative to 
reinvent HUD.
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    \1\ HUD extended the effectiveness of the interim rule through a 
notice published in the Federal Register on August 27, 1996 (61 FR 
43966). That notice provided that the provisions of the interim rule 
will be effective until the final rule is published and becomes 
effective.
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    In the August 31, 1995 interim rule, HUD invited the public to 
comment on these policies and procedures. HUD has not, however, 
received any comments on the interim rule.

Success of the Sales Program

    In conducting the single family mortgage loan sale program, HUD is 
promoting the National Housing Goals established in section 2 of the 
Housing Act of 1949 (42 U.S.C. 1441) by helping to provide a ``decent 
home and a suitable living environment for every American family.'' One 
of the policies behind the National Housing Goals is that private 
enterprise must be encouraged to serve the nation's housing needs. HUD 
has determined that transferring servicing functions to private 
entities greatly improves the servicing of these mortgages. In 
addition, HUD has emphasized the protection of the mortgagors' rights 
to foreclosure avoidance relief, both in the regulations and the Loan 
Sale Agreement.
    HUD's first three sales under the single family mortgage loan sale 
program were very successful. In the first sale, conducted on October 
25, 1995, HUD sold 9,870 single family mortgage loans in an auction, 
and an additional 3,111 loans in a competitive re-offering held a week 
later. These loans carried an aggregate unpaid principal balance (UPB) 
of approximately $522 million, and the winning bids averaged 75 percent 
of the mortgage loans' UPB and generated approximately $8.3 million in 
Federal budget savings.
    In the second sale, conducted on March 20, 1996, HUD auctioned 
16,231 single family mortgage loans, carrying a UPB of approximately 
$743 million. The winning bid was 83.57 percent of UPB. This sale 
generated $140 million in budget savings, according to the calculations 
of the Office of Management and Budget (OMB).
    In the third sale, conducted on September 4, 1996, HUD auctioned 
16,996 single family mortgage loans, carrying a UPB of approximately 
$804.5 million. The winning bid averaged 90.759 percent of UPB. The 
third sale generated approximately $164 million in budget savings.

Changes in this Final Rule

    Due to the successful results of HUD's first three sales of single 
family mortgage loans, and to the fact that HUD has received no public 
comments on the August 31, 1995 interim rule (60 FR 45331), this final 
rule contains only the following changes to the interim rule:
    1. The final rule deletes Sec. 291.300, which provided that the 
provisions of the interim rule would be effective until September 30, 
1996, unless HUD adopted the interim provisions as final (with or 
without changes) or published a notice in the Federal Register 
extending the effectiveness. With the publication of this final rule, 
which adopts the interim provisions as final with changes, Sec. 291.300 
is obsolete.
    2. The final rule includes in Sec. 291.301 a definition of ``Bid 
package,'' which did not appear in the interim rule. HUD determined 
that including this definition, which describes the contents of the bid 
package, will make the regulations clearer.
    This final rule also includes in Sec. 291.301 a new definition of 
``Payment plan agreement.'' For the purposes of certain assigned 
mortgage loans, this term represents a forbearance agreement between 
the purchaser and the mortgagor for payments after the expiration of an 
initial 36-month forbearance period. Paragraph 11 of this preamble, 
below, further describes the use of this term.
    3. The final rule provides parenthetical information regarding 
mortgage loans assigned to HUD under section 230(b) of the National 
Housing Act. Since the publication of the August 31, 1995 interim rule, 
the Balanced Budget Downpayment Act, I (Pub. L. 104-99; approved 
January 26, 1996) replaced the language of section 230 of the National 
Housing Act. Section 230(b) of the National Housing Act had previously 
authorized the Secretary to take assignment of a defaulted mortgage 
loan and provide assistance to the defaulted borrower. The new language 
in section 230 authorizes the Secretary to pay partial claims and to 
facilitate mortgage modifications by taking assignment of performing 
mortgage loans after they have been modified to cure the default. 
Congress provided that the ``old'' section 230(b) assignment program 
requirements (those that appeared in section 230(b) prior to the 
January 26, 1996 amendment) would continue to govern with regard to 
mortgage loans for which the borrower applied for assignment prior to 
April 26, 1996 (the date of enactment of the Omnibus Consolidated 
Rescissions and Appropriations Act of 1996 (Pub. L. 104-134; approved 
April 26, 1996)). While the Secretary can no longer accept assignments 
of mortgage loans under the old section 230(b) assignment program 
(unless the application for assignment was made before April 26, 1996), 
HUD still has such mortgage loans in its inventory that it wishes to 
sell. Therefore, this final rule adds parenthetical information 
throughout the rule to clarify that HUD is referring to the old section 
230(b) assignment program, and to mortgage loans assigned under that 
program, in these mortgage sale regulations, rather than to the

[[Page 3767]]

newly enacted section 230 modification and assignment process enacted 
January 26, 1996 (see, e.g., the definition of ``Single family mortgage 
loan'' in Sec. 291.301).
    HUD may also decide to sell the mortgage loans that it acquires in 
the future through the newly enacted section 230 modification and 
assignment process. HUD has determined that the provisions of this 
final rule would accommodate this decision, since the definition of 
``Single family mortgage loan'' in Sec. 291.301 would include such 
mortgage loans.
    4. This final rule uses the term ``Loan Sale Agreement'' 
throughout, rather than the term ``Mortgage Loan Sale Agreement.'' 
``Loan Sale Agreement'' is the term actually used in the agreement 
between HUD and the purchaser. This final rule simply conforms the 
regulations to the correct terminology.
    5. This final rule provides that individuals or entities that are 
suspended from doing business with HUD, in addition to those that are 
debarred, will not be eligible to bid in a sale under this sales 
program. As provided in the August 31, 1995 interim rule (60 FR 45331), 
HUD initially determined that an individual or entity would be 
ineligible to bid if they were on HUD's most recent ``Consolidated List 
of Debarred, Suspended or Ineligible Contractors and Grantees,'' if 
they were on probation or under a limited denial of participation, or 
if they were subject to a withdrawal of approval or other sanctions. 
While HUD amended the interim rule on October 6, 1995 (60 FR 52296) to 
exclude only those individuals or entities that had been debarred, HUD 
has determined through its experience in the initial sales that it is 
also necessary to exclude individuals and entities that have been 
suspended. Since HUD protects the interests of homeowners with 
mortgages that it previously insured, owned, and serviced, HUD will 
ensure that bidders are not otherwise suspended from doing business 
with the agency.
    6. This final rule simplifies Sec. 291.304(d)(1)(i) of the interim 
rule (Sec. 291.304(f)(1) of this final rule) regarding the 
circumstances under which HUD can reject a bid. Section 291.304(a) of 
both the interim rule and this final rule requires that all bids must 
be submitted in accordance with the bid package instructions. However, 
the interim rule mentioned in Sec. 291.304(d)(1)(i) one circumstance 
under which a bidder would not be in compliance with the instructions--
if the bidder changes the documents prescribed in the bid package. This 
final rule amends that provision simply to track the clearer language 
in Sec. 291.304(a).
    7. This final rule reorganizes the provisions in Sec. 291.306 of 
the interim rule. That section of the interim rule, with the heading 
``Closing requirements,'' described the requirements for earnest money 
deposits, the execution of the Loan Sale Agreement, and HUD's 
withdrawal of loans from a bidding pool. However, earnest money 
deposits are submitted during the bidding process, rather than the 
closing process. Similarly, the bidder submits an executed copy of the 
Loan Sale Agreement with its bid; HUD then executes the Loan Sale 
Agreement when it accepts the successful bid. Therefore, this rule will 
move these requirements to Secs. 291.304 and 291.305, and will provide 
appropriate information regarding the closing process in Sec. 291.306.
    8. This final rule clarifies Sec. 291.307(a) by providing that all 
mortgage loans purchased through the mortgage loan sale program must be 
serviced by a mortgagee that has servicing approval by HUD. Although 
the Loan Sale Agreement already contains this specification, HUD has 
determined that including it in the regulations will avoid confusion.
    9. This final rule clarifies Sec. 291.307(b) of the interim rule 
regarding the continuation of the mortgagor's rights, in order to avoid 
any confusion about the purchaser's right to foreclose. The interim 
rule provided that the purchaser and servicer will be fully bound by 
the Loan Sale Agreement, including any mortgagor rights to forbearance. 
However, this final rule will clarify that the purchaser and the 
servicer must service these loans in accordance with the servicing 
requirements in the Loan Sale Agreement in order to preserve the 
mortgagors' rights under the assignment program, and must ensure that 
these requirements have been followed prior to initiating foreclosure.
    10. This final rule streamlines Sec. 291.307(c)(1) regarding the 
servicing requirements for assigned mortgage loans within the initial 
36-month forbearance period. This final rule provides generally that 
the purchaser must service these mortgage loans in essentially the same 
manner as HUD serviced the loans while HUD held them. Specific 
servicing requirements will be set forth in the Loan Sale Agreement for 
each sale.
    The purpose of the assignment program is to enable the homeowner to 
avoid foreclosure and retain ownership of the property. Therefore, the 
assignment program provides certain rights to the mortgagor regarding 
such forms of relief as forbearance. Even if HUD sells the mortgage 
loans, HUD and the purchaser must guarantee that the mortgagors' rights 
under the assignment program will be protected during the first 36 
months of assignment. While the regulations must therefore provide the 
purchaser's general responsibility in servicing these mortgage loans, 
it is unnecessary to specify all aspects of HUD's servicing policies in 
the regulations. Specific servicing requirements are set forth in the 
Loan Sale Agreement, which will primarily reflect the provisions of HUD 
Handbook 4330.2 REV-1, Mortgage Assignment Processing and Secretary-
Held Servicing (March 1991).
    11. This final rule clarifies Sec. 291.307(c)(2) regarding the 
servicing requirements for assigned mortgage loans after the expiration 
of the 36-month forbearance period. First, this final rule uses the 
term ``Payment plan agreement'' (in Secs. 291.301 and 291.307(c)(2)) to 
represent a forbearance agreement between the purchaser and the 
mortgagor for payments after the expiration of the initial 36-month 
forbearance period. The interim rule used the terms ``new forbearance 
agreement'' and ``outstanding forbearance agreement,'' which could be 
confused with the initial forbearance agreement in effect during the 
36-month period after assignment. This clarifying change should help 
avoid confusion.
    Second, this final rule clarifies that the purchaser must renew 
payment plan agreements upon their expiration at least through and 
including the expiration of the original term of the mortgage loan, so 
long as the mortgagor has complied with the prior agreement. 
Furthermore, a purchaser may only foreclose if a mortgagor defaults in 
making payments required under the most recent payment plan agreement 
and cannot or will not reinstate. This requirement has been in the Loan 
Sale Agreement. HUD has decided to include the provision in the final 
rule, as well, in order to clarify and emphasize the requirement.
    Third, this final rule removes a sentence from Sec. 291.307(c)(2) 
that is redundant and potentially confusing. This rule removes the 
sentence providing that a purchaser may take any lawful action to 
ensure that arrearages do not continue to increase. HUD has determined 
that Sec. 291.307(c)(2) of this final rule accurately and clearly 
presents the servicing requirements without this sentence.
    12. This final rule revises Sec. 291.307(c)(3) of the interim rule 
regarding the servicing requirements for mortgages assigned to HUD 
under

[[Page 3768]]

section 221(g)(4) of the National Housing Act. Section 291.307(c)(3) of 
the interim rule provided that a purchaser of such mortgages must 
provide a defaulting mortgagor ``foreclosure avoidance relief that is 
substantially equivalent to that which the mortgagor could have 
otherwise sought under section 230 of the National Housing Act'' (60 FR 
45334). While HUD was under no legal obligation to provide such relief, 
due to administrative and recordkeeping concerns, HUD at its discretion 
provided foreclosure avoidance relief analogous to section 230 for 
loans assigned to HUD under 221(g)(4). However, with the recent 
amendment to section 230 of the National Housing Act (described above 
in paragraph 3 of this preamble), the foreclosure avoidance relief 
under the old section 230 assignment program is no longer available. 
Therefore, HUD will not require purchasers to provide forbearance for 
221(g)(4) mortgage loans that are current, and this final rule removes 
that obsolete reference. This final rule also removes a similar 
reference in Sec. 291.307(b).
    Section 291.307(c)(3) of this final rule will provide, however, 
that 221(g)(4) mortgage loans that are not current are subject to 
forbearance agreements and the servicing requirements in 
Sec. 291.307(c)(1) and (c)(2).
    13. This final rule removes Sec. 291.307(c)(4) of the interim rule 
regarding purchase money mortgages (PMMs) that were not part of the 
settlements resulting from the Ferrell litigation actions. 2 As a 
result of the Ferrell litigation, HUD agreed to provide certain 
foreclosure avoidance relief to mortgagors with FHA insured mortgages. 
Section 291.307(c)(4) of the interim rule provided only that a 
purchaser of non-Ferrell PMMs does not have to provide relief under 
section 230 of the National Housing Act. This paragraph is unnecessary, 
since it does not contain any regulatory requirements.
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    \2\ The history of the Ferrell litigation is described in Brown 
v. Lynn, 385 F. Supp. 986 (N.D. Ill., 1974). The litigation resulted 
in a 1976 stipulation and consent decree, Ferrell v. Hills, (N.D. 
Ill., E.D., July 29, 1976), which was then replaced by the Amended 
Stipulation in August 1979.
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    14. For mortgages subsidized under section 235 of the National 
Housing Act, this final rule clarifies the status of assistance payment 
contracts. Furthermore, this final rule provides the Secretary with 
essential flexibility when reducing the interest rates on the loans. As 
described in the interim rule, when HUD sells these loans, the 
assistance payments contracts will terminate. To minimize the effect of 
this termination on the mortgagors, this final rule removes the complex 
formula provided in Sec. 291.307(d) of the interim rule, and it allows 
the Secretary to reduce the interest rate to that which will adequately 
compensate the mortgagors for the termination of assistance.

Findings and Certifications

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action,'' as defined in 
section 3(f) of the Order. Any changes made to this rule as a result of 
that review are clearly identified in the docket file. The docket file 
and the Economic Analysis prepared for this rule are available for 
public inspection between 7:30 a.m. and 5:30 p.m. in the Office of the 
Rules Docket Clerk, Department of Housing and Urban Development, Room 
10276, 451 Seventh Street, SW., Washington, DC 20410.

Environmental Impact

    The policies and procedures contained in this rule do not direct, 
provide for assistance or loan and mortgage insurance for, or otherwise 
govern or regulate property acquisition, disposition, lease, 
rehabilitation, alteration, demolition, or new construction, or set out 
or provide for standards for construction or construction materials, 
manufactured housing, or occupancy, within the meaning of 24 CFR 
50.19(c)(1). Therefore they are categorically excluded from the 
requirements of the National Environmental Policy Act.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
States or their political subdivisions, on the relationship between the 
Federal Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Specifically, 
the requirements of this rule relate to the sale of certain HUD assets, 
and do not impinge upon the relationship between the Federal Government 
and State and local governments. As a result, this 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. This rule will protect mortgagors' rights relative 
to forbearance, assistance, or reinstatement. Since this rule will not 
significantly change the rights of mortgagors or their families, no 
further review under the order is necessary.

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 doing so 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities. This rule contains only the 
minimum requirements necessary to operate the single family mortgage 
loan sale program, and it will not affect the ability of small 
entities, relative to larger entities, to bid for and acquire HUD-held 
mortgages.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. 
L. 104-4; approved March 22, 1995), establishes requirements for 
Federal agencies to assess the effects of their regulatory actions on 
State, local, and tribal governments, and on the private sector. This 
rule does not impose any Federal mandates on any State, local, or 
tribal governments, or on the private sector, within the meaning of the 
UMRA.

Congressional Review of Major Final Rules

    This rule is a ``major rule'' as defined in the Administrative 
Procedure Act (5 U.S.C. 804(2)).

List of Subjects in 24 CFR Part 291

    Community facilities, Conflict of interests, Homeless, Lead 
poisoning, Low and moderate income housing, Mortgages, Reporting and 
recordkeeping requirements, Surplus government property.
    Accordingly, for the reasons stated in the preamble, 24 CFR part 
291, subpart D is amended as follows:
    a. The interim rule published August 31, 1995 (60 FR 45331); 
corrected on October 6, 1995 (60 FR 52296); and extended on August 27, 
1996 (61 FR 43966), is adopted as final; and
    b. Is further amended as follows:
    1. The authority citation for 24 CFR part 291 continues to read as 
follows:

    Authority: 12 U.S.C. 1709 and 1715b; 42 U.S.C. 1441, 1441a, 
1551a, and 3535(d).


[[Page 3769]]


    2. Subpart D is revised to read as follows:

Subpart D--Sale of HUD-Held Single Family Mortgage Loans

Sec.
291.301  Definitions.
291.302  Purpose and general policy.
291.303  Eligible bidders.
291.304  Bidding process.
291.305  Selection of bids and execution of Loan Sale Agreement.
291.306  Closing requirements.
291.307  Servicing requirements.

Subpart D--Sale of HUD-Held Single Family Mortgage Loans


Sec. 291.301  Definitions.

    For purposes of this subpart, the following definitions apply:
    Bid package means the documents prepared for bidders in a mortgage 
loan sale, and includes the following: An Executive Summary containing 
information on FHA single family mortgage loan sales and background on 
HUD programs; a description of post-sale servicing requirements; due 
diligence information and reports; mortgage loan information; a copy of 
the Loan Sale Agreement and its exhibits; bidding and closing 
information; and such other information and requirements as the 
Secretary may determine necessary.
    Payment plan agreement, for purposes of Sec. 291.307(c)(2), means 
an agreement between the purchaser and the mortgagor for payments after 
the 36-month period of statutorily authorized forbearance relief has 
expired.
    Single family mortgage loan means a mortgage loan on a single 
family property assigned to HUD under section 230(b) of the National 
Housing Act (as that subsection existed prior to January 26, 1996) (12 
U.S.C. 1715u), a mortgage loan on a single family property insured by 
HUD under section 221 of the National Housing Act (12 U.S.C. 1715l), a 
mortgage loan on a single family property issued in connection with the 
settlement of the Ferrell litigation, a purchase money mortgage loan 
issued by HUD on a single family property sold from HUD's inventory 
that was not connected with the settlement of the Ferrell litigation, 
or any other single family mortgage loan owned by HUD and representing 
an asset to HUD's Title II mortgage insurance funds.
    Single family property means a residence with one to four dwelling 
units.


Sec. 291.302  Purpose and general policy.

    This subpart sets forth HUD's policy and procedures for the sale of 
HUD-held single family mortgage loans. In general, HUD will sell both 
performing and nonperforming HUD-held single family mortgage loans. HUD 
will sell all mortgage loans without recourse and without FHA 
insurance. HUD will package pools of single family mortgage loans for 
sale to the general public on a competitive basis; however, HUD may 
sell mortgage loans to government-sponsored enterprises (GSEs) on a 
negotiated basis. Nothing in this subpart shall be construed to prevent 
HUD from packaging single family mortgage loans with other types of HUD 
assets for sale. The Secretary retains full discretion to offer any 
qualifying pool of mortgage loans for sale and to withhold or withdraw 
any offered pool of mortgage loans from sale. However, when HUD offers 
a qualifying mortgage loan for sale, the procedures set out in this 
subpart and in the bid package will govern the sale of HUD-held single 
family mortgage loans.


Sec. 291.303  Eligible bidders.

    HUD will provide information on the eligibility of bidders in the 
bid package, a notice in the Federal Register, or other means, at the 
Secretary's full discretion. However, an individual, partnership, 
corporation, or other legal entity will not be eligible to bid for any 
loan pool, either as an individual or a participant, if at the time of 
the sale, that individual or entity is debarred or suspended from doing 
business with HUD under 24 CFR part 24.


Sec. 291.304  Bidding process.

    (a) Submission of bids. All bids must be submitted to HUD in 
accordance with instructions in the bid package for a particular sale.
    (b) Effect of bid. By submitting a bid, the bidder is making an 
offer to purchase single family mortgage loans as presented in the bid 
package. Submission of a bid constitutes acceptance of the terms and 
conditions set forth in the bid package. Along with the bid, the bidder 
must submit an executed copy of the Loan Sale Agreement, which is 
included in the bid package.
    (c) Earnest money deposits. The bidder must submit to HUD, along 
with its bid, an earnest money deposit in an amount to be determined by 
HUD. The earnest money deposit is nonrefundable to the winning bidder 
and will be credited toward the purchase price.
    (d) Termination of offering. HUD reserves the right to terminate an 
offering in whole or in part at any time before the bid date.
    (e) Withdrawal of loans. HUD reserves the right, in its sole 
discretion and for any reason whatsoever, to withdraw loan assets from 
a pool prior to the bid date. Any earnest money deposits relating to 
withdrawn loan assets will be retained by HUD and credited toward the 
total purchase price of the remaining loan assets in the pool, in 
accordance with the Loan Sale Agreement. After the bid date, HUD can 
withdraw mortgage loans in accordance with the Loan Sale Agreement.
    (f) Rejection of bids. (1) HUD may, in its sole discretion, reject 
any bid under the following circumstances:
    (i) If the bid does not conform with the instructions in the bid 
package; or
    (ii) If, in HUD's sole discretion, it determines that such action 
would be in the best interests of the U.S. Government.
    (2) HUD can also issue a conditional rejection that will become an 
acceptance upon fulfillment of HUD's requests.
    (g) Withdrawal of bids. A bidder may withdraw a previously 
submitted bid in accordance with the instructions in the bid package 
for a particular sale.
    (h) Bids by brokers or agents. Any bid by a broker or agent for a 
principal must be in the name of the principal and signed by the 
broker/agent as the attorney-in-fact for the principal. All such bid 
documents must be executed so as to bind the principal by the broker/
agent as the attorney-in-fact. A power of attorney satisfactory to HUD 
as to form and content must be submitted with each bid.


Sec. 291.305  Selection of bids and execution of Loan Sale Agreement.

    HUD will evaluate bids, select successful bids, and notify the 
successful bidder in a manner set forth in the bid package. HUD will 
complete the execution of the Loan Sale Agreement when it accepts the 
successful bid.


Sec. 291.306  Closing requirements.

    (a) Closing date payment. On the closing date, the purchaser must 
pay to HUD the closing date payment, consisting of the balance of the 
amount due on the bid price, as adjusted in accordance with the Loan 
Sale Agreement.
    (b) Closing documents. HUD will execute and deliver to the 
purchaser a bill of sale transferring title to the mortgage loans sold 
in the sale. The purchaser must deliver to HUD the documents required 
at closing, in addition to the closing date payment.


Sec. 291.307  Servicing requirements.

    (a) Use of HUD-approved servicing mortgagees. All mortgage loans 
must be serviced by HUD-approved servicing mortgagees for the remaining 
life of the mortgage loans. A purchaser that is not

[[Page 3770]]

a HUD-approved servicing mortgagee must retain a HUD-approved servicing 
mortgagee to service the mortgage loans.
    (b) Continuation of mortgagor rights. The purchaser may take all 
lawful steps to collect the amounts due under the mortgage loans. These 
steps may include foreclosure, but only after the servicer has provided 
all required forms of relief for the mortgagor in accordance with 
paragraph (c) of this section. The purchaser and its servicer, and any 
subsequent transferee of or servicer for the mortgage loan, will be 
fully bound by the terms of the Loan Sale Agreement, including those 
terms that provide the mortgagor with any rights regarding forbearance, 
assistance, or reinstatement of the mortgage loan.
    (c) Purchaser's protection of mortgagor's rights. (1) Assigned 
mortgage loans during forbearance period. This paragraph (c)(1) 
explains how a purchaser (or a servicer of a purchased mortgage loan) 
must service a mortgage loan that was assigned to HUD under section 
230(b) of the National Housing Act (as that subsection existed prior to 
January 26, 1996), for which not more than 36 months has expired since 
the mortgage loan assignment was accepted by the Secretary. Such a 
purchaser must service these mortgage loans in essentially the same 
manner as HUD was required to service the loans while HUD held them. 
Specific servicing requirements will be set forth in the Loan Sale 
Agreement for each sale.
    (2) Assigned mortgage loans after the initial 36-month forbearance 
period. This paragraph (c)(2) explains how a purchaser (or a servicer 
of a purchased mortgage loan) must service a mortgage loan that was 
assigned to HUD under section 230(b) of the National Housing Act (as 
that subsection existed prior to January 26, 1996), for which more than 
36 months has expired since the mortgage loan assignment was accepted 
by the Secretary.
    (i) Such purchaser may require the mortgagor to pay at least the 
full monthly payment due under the mortgage loan. A purchaser may also 
require a mortgagor to pay increased monthly mortgage loan payments 
under a renewed payment plan agreement to reduce the amount in arrears 
if the mortgagor's available income (as calculated according to the 
Loan Sale Agreement) can support the increased payments. A purchaser 
must renew payment plan agreements at least through and including the 
expiration of the original term of the mortgage loan, so long as the 
mortgagor complies with the prior payment plan agreement.
    (ii) If the mortgagor defaults under a payment plan agreement 
established by the purchaser, the mortgagor shall have the right to 
reinstate the most recent payment plan agreement if the mortgagor makes 
a lump sum payment in an amount necessary to cure the default. If the 
mortgagor defaults under the most recent payment plan agreement and 
does not reinstate, the purchaser may terminate the payment plan 
agreement and take such action as may be permitted under the terms of 
the mortgage.
    (iii) The purchaser's right to demand payment of a reinstatement 
amount from the mortgagor may be limited by the terms of the Loan Sale 
Agreement.
    (3) Section 221 Mortgages. This paragraph (c)(3) explains how a 
purchaser (or a servicer of a purchased mortgage) must service a 
mortgage assigned to HUD under section 221(g)(4) of the National 
Housing Act.
    (i) Current section 221(g)(4) mortgage loans. Section 221(g)(4) 
mortgage loans that are current as of the closing date are not subject 
to the servicing requirements set forth in paragraphs (c)(1) and (c)(2) 
of this section.
    (ii) Defaulted section 221(g)(4) mortgage loans. With respect to 
any section 221(g)(4) mortgage loan as to which a payment default has 
occurred, and as to which HUD, as of the closing date, was providing or 
had agreed to provide forbearance relief, the purchaser must continue 
to provide forbearance relief and must service such mortgage loans as 
set forth in paragraphs (c)(1) and (c)(2) of this section.
    (d) Section 235 mortgage loans--(1) Assistance payments contract. 
If, prior to the mortgage loan sale, the assistance payments contract 
has not been previously terminated under 24 CFR 235.375(a), the 
contract will terminate as to each mortgage loan upon the sale of the 
mortgage loan. The purchasing mortgagee will therefore not receive any 
assistance payments on behalf of the mortgagor for any Section 235 
mortgage loan sold.
    (2) Reduction in interest rates. For a Section 235 mortgage loan 
that was accompanied by an assistance payments contract that was still 
in effect on the date of the sale, the Secretary will reduce the 
interest rate on the mortgage loan to a rate to be determined by the 
Secretary.

    Dated: December 17, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 97-1647 Filed 1-23-97; 8:45 am]
BILLING CODE 4210-27-P