[Federal Register Volume 62, Number 79 (Thursday, April 24, 1997)]
[Rules and Regulations]
[Pages 20080-20088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10282]



[[Page 20079]]

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Part IV





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 24, 25, 30, 200, 201, 202, 203, 206, 241, 266 and 3500

Approval of Lending Institutions and Mortgagees Streamlining; Final 
Rule

  Federal Register / Vol. 62, No. 79 / Thursday, April 24, 1997 / Rules 
and Regulations  

[[Page 20080]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 24, 25, 30, 200, 201, 202, 203, 206, 241, 266 and 3500

[Docket No. FR-4106-F-01]
RIN 2502-AG78


Approval of Lending Institutions and Mortgagees Streamlining; 
Final Rule

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule amends regulations at 24 CFR part 202 relating 
to the Approval of Lending Institutions and Mortgagees. In an effort to 
comply with the President's regulatory reform initiatives, these 
amendments streamline part 202 by removing provisions that are 
duplicative and unnecessary and by simplifying the organization of text 
that is being retained. It is not the purpose of this rule to introduce 
substantive changes, and none have been made.

EFFECTIVE DATE: May 27, 1997.

FOR FURTHER INFORMATION CONTACT: Lynn S. Herbert, Director, Lender 
Approval and Recertification Division, Office of Lender Activities and 
Program Compliance, Room B-133-P3214, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410. Telephone: 
(202) 708-3976. (This is not a toll-free number.) For hearing- and 
speech-impaired persons, this number may be accessed via TTY by calling 
the Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a 
memorandum to all Federal departments and agencies regarding regulatory 
reinvention. In response to this memorandum, the Department of Housing 
and Urban Development (HUD) conducted a page-by-page review of its 
regulations to determine which could be eliminated, consolidated, or 
otherwise improved. HUD has determined that part 202, setting forth 
regulations for the Approval of Lending Institutions and Mortgagees, 
can be streamlined by combining many provisions of its subparts A and B 
in order to remove provisions which are duplicative and need not be 
repeated. As a result of this streamlining, general provisions that had 
been set forth separately for Title I lenders and Title II mortgagees 
are now consolidated in a new subpart A. A new subpart B contains 
provisions specific to each of the five classes of institutions that 
are eligible for approval as a lender or mortgagee, or both. Last is a 
new subpart C that contains provisions uniquely applicable to either 
Title I or Title II programs. Conforming changes have also been made to 
other parts of 24 CFR.

Justification for Final Rulemaking

    HUD generally publishes a rule for public comment before issuing a 
rule for effect, in accordance with its own regulations on rulemaking 
in 24 CFR part 10. However, part 10 provides for exceptions to the 
general rule if the agency determines that there is good cause for 
omitting advance notice and public participation. The good cause 
requirement is satisfied when prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest'' (24 
CFR 10.1). HUD finds that this rule falls within that exception. These 
amendments merely remove unnecessary regulatory provisions. They 
contain policy that is already established and has been previously 
expressed, and they in no way affect the substance of existing 
provisions. Solicitation of public comment is therefore unnecessary.

Other Matters

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this final rule, and in so 
doing certifies that this rule does not have a significant economic 
impact on a substantial number of small entities. This rule merely 
streamlines regulations by removing unnecessary provisions. The rule 
has no adverse or disproportionate economic impact on small businesses.

Environmental Impact

    This rulemaking is exempt from the environmental review procedures 
under HUD regulations in 24 CFR part 50 that implement section 
102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 
4332) because of the exemption under Sec. 50.19(c)(1) which pertains to 
``the approval of policy documents that 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 to provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy.'' This rulemaking simply amends an existing 
regulation by eliminating administrative provisions and does not alter 
the environmental effect of the regulations being amended.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
does 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. No programmatic or policy changes 
result from this rule that affect 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 
the potential for significant impact on family formation, maintenance, 
or general well-being, and thus is not subject to review under the 
Order. No significant change in existing HUD policies or programs 
result from promulgation of this rule.

List of Subjects

24 CFR Part 24

    Administrative practice and procedure, Drug abuse, Government 
contracts, Government procurement, Grant programs, Loan programs, 
Reporting and recordkeeping requirements.

[[Page 20081]]

24 CFR Part 25

    Administrative practice and procedure, Loan programs--housing and 
community development, Organization and functions (Government 
agencies).

24 CFR Part 30

    Administrative practice and procedure, Grant programs--housing and 
community development, Loan programs--housing and community 
development, Mortgages, Penalties.

24 CFR Part 200

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

24 CFR Part 201

    Health facilities, Historic preservation, Home improvement, Loan 
programs--housing and community development, Manufactured homes, 
Mortgage insurance, Reporting and recordkeeping requirements.

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 206

    Aged, Condominiums, Loan programs--housing and community 
development, Mortgage insurance, Reporting and recordkeeping 
requirements.

24 CFR Part 241

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

24 CFR Part 266

    Aged, Fair housing, Intergovernmental relations, Mortgage 
insurance, Low and moderate income housing, Reporting and recordkeeping 
requirements.

24 CFR Part 3500

    Consumer protection, Condominiums, Housing, Mortgages, Mortgage 
servicing, Reporting and recordkeeping requirements.

    Accordingly, in title 24 of the Code of Federal Regulations, parts 
24, 25, 30, 200, 201, 202, 203, 206, 241, 266 and 3500 are amended to 
read as follows:

PART 24--GOVERNMENT DEBARMENT AND SUSPENSION AND GOVERNMENTWIDE 
REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)

    1. The authority citation for 24 CFR part 24 continues to read as 
follows:

    Authority: Executive Order 12549, secs. 5151-5160, Drug-Free 
Workplace Act of 1988, Pub. L. 100-690, Title V, Subtitle D, (41 
U.S.C. 701 et seq.); sec. 7(d), Department of Housing and Urban 
Development Act (42 U.S.C. 3535(d)).

    2. Section 24.110 is amended by revising paragraph (a)(3)(ii) to 
read as follows:


Sec. 24.110  Coverage.

    (a) * * *
    (3) * * *
    (ii) Sanctions under this part against mortgagees and lenders 
approved by HUD to participate in Federal Housing Administration 
programs may be initiated only with the approval of the Mortgagee 
Review Board.
* * * * *

PART 25--MORTGAGEE REVIEW BOARD

    3. The authority citation for 24 CFR part 25 continues to read as 
follows:

    Authority: 12 U.S.C. 1708(c), 1708(d), 1709(s), and 1735(f)-14; 
42 U.S.C. 3535(d).

    4. Section 25.2 is amended by revising the final sentence to read 
as follows:


Sec. 25.2  Establishment of Board.

    * * * With respect to actions taken against Title I lenders and 
loan correspondents, the Board may redelegate its authority to take 
administrative actions for failure to remain in compliance with the 
requirements for approval in 24 CFR 202.5(i), 202.5(n), 202.7(b)(4), 
202.8(b)(1) and 202.8(b)(3).
    5. Section 25.3 is amended by revising the definitions of 
``Lender'' and ``Loan correspondent'' to read as follows:


Sec. 25.3  Definitions.

* * * * *
    Lender. A financial institution as defined in paragraphs (a) and 
(b) of the definition of lender in Sec. 202.2 of this title.
    Loan correspondent. A financial institution as defined in paragraph 
(c) of the definition of lender in Sec. 202.2 of this title.
* * * * *
    6. Section 25.9 is amended by revising paragraphs (x) and (cc) to 
read as follows:


Sec. 25.9  Grounds for an administrative action.

* * * * *
    (x) Failure to submit a report required under 24 CFR 202.12(c) 
within the time determined by the Commissioner, or to commence or 
complete a plan for corrective action under that section within the 
time agreed upon by the Commissioner.
* * * * *
    (cc) Violation by a Title I lender or loan correspondent of any of 
the applicable provisions of this section or 24 CFR 202.11(a)(2).
* * * * *

PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT

    7. The authority citation for 24 CFR part 30 continues to read as 
follows:

    Authority: 12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, 1735f-15; 
15 U.S.C. 1717a; 42 U.S.C. 3535(d).

    8. Section 30.320 is amended by revising paragraph (k) to read as 
follows:


Sec. 30.320  Violations by mortgagees and lenders.

* * * * *
    (k) Makes a payment that is prohibited under 24 CFR 202.5(l);
* * * * *

PART 200--INTRODUCTION TO FHA PROGRAMS

    9. The authority citation for 24 CFR part 200 continues to read as 
follows:

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

    10. Section 200.10 is revised to read as follows:


Sec. 200.10  Lender requirements.

    The requirements set forth in part 202 of this chapter regarding 
approval, recertification, withdrawal of approval, approval for 
servicing, report requirements and conditions for supervised 
mortgagees, nonsupervised mortgagees, investing mortgagees, and 
governmental and similar institutions, apply to these programs.

[[Page 20082]]

PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS

    11. The authority citation for 24 CFR part 201 continues to read:

    Authority: 12 U.S.C. 1703; 42 U.S.C. 1436a and 3535(d).


Sec. 201.10  [Amended]

    12. Section 201.10 is amended to remove the last sentence of 
paragraph (g).
    13. Section 201.20 is amended by adding paragraph (a)(3) to read as 
follows:


Sec. 201.20  Property improvement loan eligibility.

    (a) * * *
    (3) For any property improvement loan or combination of such loans 
on the same property with a total principal balance in excess of 
$15,000, the borrower shall have equity in the property being improved 
at least equal to the loan amount. However, this requirement shall not 
be applicable to any loan originated by or on behalf of a governmental 
institution to provide assistance to a low- or moderate-income family 
or individual. Acceptable procedures for determining the market value 
of the property and evaluating whether the borrower has sufficient 
equity in the property will be established by the Secretary and 
published in the Federal Register.
* * * * *
    14. Section 201.26 is amended by revising paragraph (a)(1)(iii) to 
read as follows:


Sec. 201.26  Conditions for loan disbursement.

    (a) * * *
    (1) * * *
    (iii) For any loan or combination of loans on the same property 
with a total unpaid principal balance in excess of $15,000, the 
borrower has equity in the property being improved at least equal to 
the loan amount, except that this requirement shall not be applicable 
to any loan originated by or on behalf of a governmental institution to 
provide assistance to a low- or moderate-income family or individual.
* * * * *
    15. Part 202 is revised to read as follows:

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

Subpart A--General Requirements

Sec.
202.1  Purpose.
202.2  Definitions
202.3  Approval status for lenders and mortgagees.
202.4  Request for determination of compliance.
202.5  General approval standards.

Subpart B--Classes of Lenders and Mortgagees

202.6  Supervised lenders and mortgagees.
202.7  Nonsupervised lenders and mortgagees.
202.8  Loan correspondent lenders and mortgagees.
202.9  Investing lenders and mortgagees.
202.10  Governmental institutions, Government-sponsored enterprises, 
Public Housing Agencies and State housing agencies.

Subpart C--Title I and Title II Specific Requirements

202.11  Title I.
202.12  Title II.

    Authority: 12 U.S.C. 1703, 1709 and 1715b; 42 U.S.C. 3535(d).

Subpart A--General Requirements


Sec. 202.1  Purpose.

    This part establishes minimum standards and requirements for 
approval by the Secretary of lenders and mortgagees to participate in 
the Title I and Title II programs.


Sec. 202.2  Definitions.

    Act means the National Housing Act.
    Claim means a single family insured mortgage for which the 
Secretary pays an insurance claim within 18 months after endorsement 
for insurance.
    Default means a single family insured mortgage in default for 90 or 
more days within 1 year after endorsement for insurance.
    Lender or Title I lender means a financial institution that:
    (a) Holds a valid Title I Contract of Insurance and is approved by 
the Secretary under this part as a supervised lender under Sec. 202.6, 
a nonsupervised lender under Sec. 202.7, an investing lender under 
Sec. 202.9 or a governmental or similar institution under Sec. 202.10;
    (b) Is under suspension or held a Title I contract that has been 
terminated but remains responsible for servicing or selling Title I 
loans that it holds and is authorized to file insurance claims on such 
loans; or
    (c) Is a loan correspondent approved for Title I programs only 
under Sec. 202.8.
    Loan or Title I loan means a loan authorized for insurance under 
Title I of the Act.
    Mortgage, Title II mortgage or insured mortgage means a mortgage or 
a loan insured under Title II of the Act.
    Mortgagee or Title II mortgagee means a mortgage lender which is 
approved to participate in the Title II programs as a supervised 
mortgagee under Sec. 202.6, a nonsupervised mortgagee under Sec. 202.7, 
a loan correspondent under Sec. 202.8, an investing mortgagee under 
Sec. 202.9 or a governmental or similar institution under Sec. 202.10.
    Multifamily mortgagee means a mortgagee approved to participate 
only in multifamily Title II programs, except that for purposes of 
Sec. 202.8(b)(1) the term also means a mortgagee approved to 
participate in both single family and multifamily Title II programs.
    Normal rate means the rate of defaults and claims on insured 
mortgages for the geographic area served by a HUD field office, or 
other area designated by the Secretary, in which a mortgagee originates 
mortgages.
    Origination approval agreement means the Secretary's agreement that 
a mortgagee is approved to originate single family insured mortgages.
    Title I program(s) means an insurance program or programs 
authorized by Title I of the Act.
    Title II program(s) means an insurance program or programs 
authorized by Title II or Title XI of the Act.


Sec. 202.3  Approval status for lenders and mortgagees.

    (a) Initial approval. A lender or mortgagee may be approved for 
participation in the Title I or Title II programs upon filing a request 
for approval on a form prescribed by the Secretary and signed by the 
applicant. The approval form shall be accompanied by such documentation 
as may be prescribed by the Secretary.
    (1) Approval is signified by:
    (i) The Secretary's agreement that the lender or mortgagee is 
considered approved under the Title I or Title II programs, except as 
otherwise ordered by the Mortgagee Review Board or an officer or 
subdivision of the Department to which the Mortgagee Review Board has 
delegated its power, unless the lender or mortgagee voluntarily 
relinquishes its approval;
    (ii) Consent by the lender or mortgagee to comply at all times with 
the general approval requirements of Sec. 202.5, and with additional 
requirements governing the particular class of lender or mortgagee for 
which it was approved as described under subpart B at Secs. 202.6-
202.10; and
    (iii) Under the Title I program, the issuance of a Contract of 
Insurance or approval as a loan correspondent lender which constitutes 
an agreement between the Secretary and the lender and which governs 
participation in the Title I program.
    (2) Limitations on approval:
    (i) Separate approval as lender or mortgagee is required for 
participation

[[Page 20083]]

in the Title I or Title II programs, respectively. Application must be 
made, and approval will be granted, on the basis of one or both 
categories of programs, as is appropriate.
    (ii) Separate approval as mortgagee is required for the Single 
Family Mortgage Insurance Programs and for the Multifamily Mortgage 
Insurance Programs. Application must be made, and approval will be 
granted, on the basis of either or both categories, as is appropriate.
    (iii) In addition to the requirements for approval as a Title II 
mortgagee, the Secretary may from time to time issue eligibility 
requirements for participation in specific programs, such as the Direct 
Endorsement program.
    (iv) A Title II mortgagee may be approved to operate either on a 
nationwide basis or on a geographically restricted basis in only those 
areas designated by the Secretary.
    (v) A Title I lender may originate loans or purchase advances of 
credit only within a geographic lending area approved by the Secretary. 
Expansion of this lending area shall be subject to a determination by 
the Secretary that the lender is able to originate loans in compliance 
with part 201 of this chapter within such expanded area.
    (3) Authorized agents. A mortgagee approved under Sec. 202.6, 
Sec. 202.7 or Sec. 202.10 as a nonsupervised mortgagee, supervised 
mortgagee or governmental or similar institution may, with the approval 
of the Secretary, designate a nonsupervised or supervised mortgagee as 
authorized agent for the purpose of submitting applications for 
mortgage insurance in its name and on its behalf.
    (b) Recertification. On each anniversary of the approval of a 
lender or mortgagee, the Secretary will determine whether 
recertification, i.e., continued approval, is appropriate. The 
Secretary will review the yearly verification report required by 
Sec. 202.5(n)(2) and other pertinent documents, ascertain that all 
application and annual fees have been paid, and request any further 
information needed to decide upon recertification.
    (c) Termination. (1) Termination of the Title I Contract of 
Insurance.
    (i) Notice. A Contract of Insurance may be terminated in accordance 
with its terms by the Secretary or by the Secretary's designee upon 
giving the lender at least 5 days prior written notice.
    (ii) Informal meeting. If requested, and before expiration of the 
5-day notice period, a lender shall be entitled to an informal meeting 
with the Department official taking action to terminate the Contract of 
Insurance.
    (iii) Effect of termination. Termination of a Contract of Insurance 
shall not affect:
    (A) The Department's obligation to provide insurance coverage with 
respect to eligible loans originated before the termination, unless 
there was fraud or misrepresentation;
    (B) A lender's obligation to continue to pay insurance charges or 
premiums and meet all other obligations, including servicing, 
associated with eligible loans originated before termination; or
    (C) A lender's right to apply for and be granted a new Title I 
Contract of Insurance, provided that the requirements for approval 
under this part are met.
    (2) Termination of the origination approval agreement.
    (i) Scope and frequency of review. Every three months, the 
Secretary will review the number of defaults and claims on mortgages 
originated by each mortgagee in the geographic area served by a HUD 
field office. For this purpose and for all other purposes under 
paragraph (c) of this section, a mortgage is considered to be 
originated in the same Federal fiscal year in which it is insured. The 
Secretary may also review the performance of a mortgagee's branch 
offices individually and may impose the sanctions provided for in this 
section on a branch as well as on a mortgagee's overall operation.
    (ii) Effect of default and claim rate determination.
    (A) If a mortgagee had a rate of defaults and claims on insured 
mortgages originated in an area during the Federal fiscal year which 
was in excess of 200 percent of the normal rate, and in excess of the 
national default and claim rate for insured mortgages, the Secretary 
will notify the mortgagee that its origination approval agreement shall 
be terminated 60 days after notice was given, without action by the 
Mortgagee Review Board, except as provided in paragraph (c)(2)(ii)(C) 
of this section.
    (B) Before the Secretary sends the termination notice, the 
Secretary shall review the census tract area concentrations of the 
defaults and claims. If the Secretary determines that the excessive 
rate is the result of mortgage lending in under-served areas, the 
Secretary may determine not to terminate the origination approval 
agreement.
    (C) Prior to termination the mortgagee may request an informal 
conference with the Deputy Assistant Secretary for Single Family 
Housing or that official's designee. After considering relevant reasons 
and factors beyond the mortgagee's control that contributed to the 
excessive default and claim rates, the Deputy Assistant Secretary for 
Single Family Housing or designee may withdraw the termination notice 
and notify the mortgagee that it is being placed on credit watch 
status.
    (iii) Credit watch status. If a mortgagee had a rate of defaults 
and claims on insured mortgages originated in an area during a Federal 
fiscal year which was greater than 150 percent but equal to or less 
than 200 percent of the normal rate, the Secretary will notify the 
mortgagee that it is being placed on credit watch status. Before the 
credit watch notice is sent, the Secretary shall review the census 
tract area concentrations of the defaults and claims. If the Secretary 
determines that the excessive rate is the result of mortgage lending in 
under-served areas, the Secretary may determine not to place the 
mortgagee on credit watch status.
    (iv) Effect of credit watch status. Insured mortgages originated 
during a 6 month period from the date of the credit watch notice will 
be reviewed for excessive default rates. A mortgagee will be removed 
from credit watch status if the rate of defaults and claims for the 6 
month tracking period decreases to 150 percent or less of the normal 
rate 1 year after that 6 month tracking period. The origination 
approval agreement for a mortgagee on credit watch status may be 
terminated if the mortgagee's rate of defaults and claims on insured 
mortgages originated in an area during the 6 month tracking period is 
more than 150 percent of the normal rate 1 year after that 6 month 
tracking period. The Secretary shall provide 60 days notice and an 
opportunity for an informal conference, as required by paragraph 
(c)(2)(ii)(C) of this section, to a mortgagee which will have its 
origination approval agreement terminated subsequent to a credit watch.
    (v) Rights and obligations in the event of termination. If a 
mortgagee's origination approval agreement is terminated, it may not 
originate single family insured mortgages unless a new origination 
approval agreement is accepted by the Secretary, notwithstanding any 
other provision of this part except Sec. 202.3(c)(2)(v)(A). Termination 
of the origination approval agreement shall not affect:
    (A) The Secretary's ability to insure eligible mortgages, absent 
fraud or misrepresentation, if the mortgagor and all terms and 
conditions of the mortgage had been approved before the termination by 
the Direct Endorsement mortgagee or were covered by a firm commitment 
issued by the Secretary;

[[Page 20084]]

however, no other mortgages originated by the mortgagee shall be 
insured unless a new origination approval agreement is accepted by the 
Secretary;
    (B) A mortgagee's obligation to continue to pay insurance premiums 
and meet all other obligations, including servicing, associated with 
insured mortgages;
    (C) A mortgagee's right to apply for a new origination approval 
agreement provided that the mortgagee is still an approved mortgagee, 
the general approval standards of Sec. 202.5 and the specific 
requirements of Secs. 202.6, 202.7, 202.8, 202.10 and 202.12(c) 
continue to be met, and the Secretary determines that the underlying 
causes for termination have been satisfactorily remedied; or
    (D) A mortgagee's right to purchase insured mortgages or to service 
its own portfolio or the portfolios of other mortgagees with which it 
has a servicing contract.
    (d) Withdrawal and suspension of approval. Lender or mortgagee 
approval may be suspended or withdrawn by the Mortgagee Review Board as 
provided in part 25 of this title.


Sec. 202.4  Request for determination of compliance.

    Pursuant to section 539(a) of the Act, any person may file a 
request that the Secretary determine whether a lender or mortgagee is 
in compliance with Sec. 202.12(a) or with provisions of this chapter 
implementing sections 223(a)(7) and 535 of the Act such as 
Secs. 201.10(g), 203.18d and 203.43(c)(5) of this chapter (only section 
535 applies to lenders). The request for determination shall be made to 
the following address: Department of Housing and Urban Development, 
Office of Lender Activities and Program Compliance, 451 Seventh Street 
SW., Washington, DC, 20410. The Secretary shall inform the requestor of 
the disposition of the request. The Secretary shall publish in the 
Federal Register the disposition of any case referred by the Secretary 
to the Mortgagee Review Board.


Sec. 202.5  General approval standards.

    To be approved for participation in the Title I or Title II 
programs, and to maintain approval, a lender or mortgagee shall meet 
and continue to meet the general requirements of paragraphs (a)-(n) of 
this Sec. 202.5 (except as provided in Sec. 202.10(b)) and the 
requirements for one of the eligible classes of lenders or mortgagees 
in Secs. 202.6 through 202.10.
    (a) Business form. The lender or mortgagee shall be a corporation 
or other chartered institution, a permanent organization having 
succession or a partnership. A partnership must meet the requirements 
of paragraphs (a)(1) through (4) of this section.
    (1) Each general partner must be a corporation or other chartered 
institution consisting of two or more persons.
    (2) One general partner must be designated as the managing general 
partner. The managing general partner shall comply with the 
requirements of paragraphs (b), (c) and (f) of this section. The 
managing general partner must have as its principal activity the 
management of one or more partnerships, all of which are mortgage 
lenders or property improvement or manufactured home lenders, and must 
have exclusive authority to deal directly with the Secretary on behalf 
of each partnership. Newly admitted partners must agree to the 
management of the partnership by the designated managing general 
partner. If the managing general partner withdraws or is removed from 
the partnership for any reason, a new managing general partner shall be 
substituted, and the Secretary shall be immediately notified of the 
substitution.
    (3) The partnership agreement shall specify that the partnership 
shall exist for the minimum term of years required by the Secretary. 
All insured mortgages and Title I loans held by the partnership shall 
be transferred to a lender or mortgagee approved under this part prior 
to the termination of the partnership. The partnership shall be 
specifically authorized to continue its existence if a partner 
withdraws.
    (4) The Secretary must be notified immediately of any amendments to 
the partnership agreement which would affect the partnership's actions 
under the Title I or Title II programs.
    (b) Employees. The lender or mortgagee shall employ competent 
personnel trained to perform their assigned responsibilities in 
consumer or mortgage lending, including origination, servicing and 
collection activities, and shall maintain adequate staff and facilities 
to originate and service mortgages or Title I loans, in accordance with 
applicable regulations, to the extent the mortgagee or lender engages 
in such activities.
    (c) Officers. All employees who will sign applications for mortgage 
insurance on behalf of the mortgagee or report loans for insurance 
shall be corporate officers or shall otherwise be authorized to bind 
the lender or mortgagee in the origination transaction. The lender or 
mortgagee shall ensure that an authorized person reports all 
originations, purchases, and sales of Title I loans or Title II 
mortgages to the Secretary for the purpose of obtaining or transferring 
insurance coverage.
    (d) Escrows. The lender or mortgagee shall not use escrow funds for 
any purpose other than that for which they were received. It shall 
segregate escrow commitment deposits, work completion deposits, and all 
periodic payments received under loans or insured mortgages on account 
of ground rents, taxes, assessments, and insurance charges or premiums, 
and shall deposit such funds with one or more financial institutions in 
a special account or accounts that are fully insured by the Federal 
Deposit Insurance Corporation or the National Credit Union 
Administration, except as otherwise provided in writing by the 
Secretary.
    (e) Servicing. A lender shall service or arrange for servicing of 
the loan in accordance with the requirements of part 201 of this 
chapter. A mortgagee shall service or arrange for servicing of the 
mortgage in accordance with the servicing responsibilities contained in 
subpart C of part 203 and in part 207 of this chapter, with all other 
applicable regulations contained in this title, and with such 
additional conditions and requirements as the Secretary may impose.
    (f) Business changes. The lender or mortgagee shall provide prompt 
notification to the Secretary of all changes in its legal structure, 
including, but not limited to, mergers, terminations, name, location, 
control of ownership, and character of business.
    (g) Financial statements. The lender or mortgagee shall, upon 
request by the Secretary, furnish a copy of its latest financial 
statement, furnish such other information as the Secretary may request, 
and submit to an examination of that portion of its records which 
relates to its Title I and/or Title II program activities.
    (h) Quality control plan. The lender or mortgagee shall implement a 
written quality control plan, acceptable to the Secretary, that assures 
compliance with the regulations and other issuances of the Secretary 
regarding loan or mortgage origination and servicing.
    (i) Fees. The lender or mortgagee unless approved under 
Sec. 202.10, shall pay an application fee and annual fees, including 
additional fees for each branch office authorized to originate Title I 
loans or submit applications for mortgage insurance, at such times and 
in such amounts as the Secretary may require. The mortgagee may 
identify additional classes or groups of lenders or mortgagees that may 
be exempt from one or more of these fees.
    (j) Ineligibility. Neither the lender or mortgagee, nor any 
officer, partner,

[[Page 20085]]

director, principal or employee of the lender or mortgagee shall:
    (1) Be suspended, debarred or otherwise restricted under part 24 or 
part 25 of this title, or under similar procedures of any other Federal 
agency;
    (2) Be indicted for, or have been convicted of, an offense which 
reflects upon the responsibility, integrity or ability of the lender or 
mortgagee to participate in the Title I or Title II programs;
    (3) Be subject to unresolved findings as a result of HUD or other 
governmental audits or investigations; or
    (4) Be engaged in business practices that do not conform to 
generally accepted practices of prudent mortgagees or that demonstrate 
irresponsibility.
    (k) Branch offices. A lender may, upon approval by the Secretary, 
maintain branch offices for the origination of Title I loans. A branch 
office of a mortgagee must be registered with the Department in order 
to originate mortgages or submit applications for mortgage insurance. 
The lender or mortgagee shall remain fully responsible to the Secretary 
for the actions of its branch offices.
    (l) Conflict of interest. A mortgagee may not pay anything of 
value, directly or indirectly, in connection with any insured mortgage 
transaction or transactions to any person or entity if such person or 
entity has received any other consideration from the mortgagor, seller, 
builder, or any other person for services related to such transactions 
or related to the purchase or sale of the mortgaged property, except 
that consideration approved by the Secretary may be paid for services 
actually performed. The mortgagee shall not pay a referral fee to any 
person or organization.
    (m) Reports. Each lender and mortgagee must submit a yearly 
verification report on a form prescribed by the Secretary. Upon 
application for approval and with each annual recertification, each 
lender and mortgagee must submit a certification that it has not been 
refused a license and has not been sanctioned by any State or States in 
which it will originate insured mortgages or Title I loans. In 
addition, each mortgagee shall file the following:
    (1) An audited or unaudited financial statement, within 30 days of 
the end of each fiscal quarter in which the mortgagee experiences an 
operating loss of 20 percent of its net worth, and until the mortgagee 
demonstrates an operating profit for two consecutive quarters or until 
the next recertification, whichever is the longer period; and
    (2) A statement of net worth within 30 days of the commencement of 
voluntary or involuntary bankruptcy, conservatorship, receivership or 
any transfer of control to a Federal or State supervisory agency.
    (n) Net worth. (1) Each supervised or nonsupervised lender or 
mortgagee approved under Secs. 202.6 and 202.7 shall have a net worth 
of not less than $250,000 in assets acceptable to the Secretary. Each 
supervised or nonsupervised mortgagee, except a multifamily mortgagee, 
shall have additional net worth in excess of $250,000 of not less than 
one percent of the mortgage volume exceeding $25,000,000 in value, but 
total net worth is not required to exceed $1,000,000. Mortgage volume 
is calculated as of the end of the fiscal year being audited and equals 
the sum of:
    (i) The aggregate original principal amount of mortgages that the 
mortgagee originated and that were insured during the fiscal year or 
the mortgagee purchased as a sponsor from its loan correspondent(s) 
during the fiscal year; and
    (ii) The aggregate principal amount, as of the end of the fiscal 
year, of all mortgages that are serviced by the mortgagee at the end of 
the fiscal year but were not counted as mortgages originated by the 
mortgagee or purchased from its loan correspondent(s).
    (2) Net worth requirements for loan correspondent lenders or 
mortgagees approved under Sec. 202.8 are described in that section.

Subpart B--Classes of Lenders and Mortgagees


Sec. 202.6  Supervised lenders and mortgagees.

    (a) Definition. A supervised lender or mortgagee is a financial 
institution which is a member of the Federal Reserve System or an 
institution whose accounts are insured by the Federal Deposit Insurance 
Corporation or the National Credit Union Administration. A supervised 
mortgagee may submit applications for mortgage insurance. A supervised 
lender or mortgagee may originate, purchase, hold, service or sell 
loans or insured mortgages, respectively.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, a supervised lender or mortgagee shall meet 
the following requirements:
    (1) Net worth. The net worth requirements appear in Sec. 202.5(n).
    (2) Liquid assets. A Title II mortgagee shall have liquid assets 
consisting of cash or its equivalent acceptable to the Secretary in the 
amount of 20 percent of its net worth, up to a maximum liquidity 
requirement of $100,000.
    (3) Notification. A lender or mortgagee shall promptly notify the 
Secretary in the event of termination of its supervision by its 
supervising agency.
    (4) Fidelity bond. A Title II mortgagee shall have fidelity bond 
coverage and errors and omissions insurance acceptable to the Secretary 
and in an amount required by the Secretary, or alternative insurance 
coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.


Sec. 202.7  Nonsupervised lenders and mortgagees.

    (a) Definition. A nonsupervised lender or mortgagee is a lending 
institution which has as its principal activity the lending or 
investing of funds in real estate mortgages, consumer installment 
notes, or similar advances of credit, or the purchase of consumer 
installment contracts, and which is not approved under any other 
section of this part. A nonsupervised mortgagee may submit applications 
for mortgage insurance. A supervised lender or mortgagee may originate, 
purchase, hold, service or sell insured mortgages, respectively.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, a nonsupervised lender or mortgagee shall 
meet the following requirements:
    (1) Net worth. The net worth requirements appear in Sec. 202.5(n).
    (2) Liquid assets. The mortgagee shall have liquid assets 
consisting of cash or its equivalent acceptable to the Secretary in the 
amount of 20 percent of its net worth, up to a maximum liquidity 
requirement of $100,000.
    (3) Credit source--(i) Title I. A lender shall have and maintain a 
reliable warehouse line of credit or other funding program acceptable 
to the Secretary of not less than $500,000 for use in originating or 
purchasing Title I loans.
    (ii) Title II. Except for multifamily mortgagees, a mortgagee shall 
have a warehouse line of credit or other mortgage funding program 
acceptable to the Secretary which is adequate to fund the mortgagee's 
average 60 day origination operations, but in no event shall the 
warehouse line of credit or funding program be less than $1,000,000.
    (4) Audit report. (i) A lender or mortgagee shall file an audit 
report with

[[Page 20086]]

the Secretary within 90 days of the close of its fiscal year (or within 
an extended time if an extension is granted in the sole discretion of 
the Secretary) and at such other times as may be requested. Audit 
reports shall be based on audits performed by a certified public 
accountant, or by an independent public accountant licensed by a 
regulatory authority of a state or other political subdivision of the 
United States on or before December 31, 1970, and shall include:
    (A) A financial statement in a form acceptable to the Secretary, 
including a balance sheet and a statement of operations and retained 
earnings, and analysis of the mortgagee's net worth adjusted to reflect 
only assets acceptable to the Secretary, and an analysis of escrow 
funds; and
    (B) Such other financial information as the Secretary may require 
to determine the accuracy and validity of the audit report.
    (ii) A mortgagee must submit a report on compliance tests 
prescribed by the Secretary.
    (5) Fidelity bond. A Title II mortgagee shall have fidelity bond 
coverage and errors and omissions insurance acceptable to the Secretary 
and in an amount required by the Secretary, or alternative insurance 
coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.


Sec. 202.8  Loan correspondent lenders and mortgagees.

    (a) Definitions--Loan correspondent. (1) A loan correspondent 
lender does not hold a Title I Contract of Insurance and may not 
purchase or hold loans but may be approved to originate Title I direct 
loans for sale or transfer to a sponsor or sponsors which holds a valid 
Title I Contract of Insurance and is not under suspension.
    (2) A loan correspondent mortgagee is a mortgagee that has as its 
principal activity the origination of mortgages for sale or transfer to 
its sponsor or sponsors or that meets the definition of a supervised 
mortgagee in Sec. 202.6(a) but applies for approval as a loan 
correspondent mortgagee. A loan correspondent mortgagee may originate 
mortgages and submit applications for mortgage insurance but it may not 
hold, purchase or service insured mortgages, except that a loan 
correspondent mortgagee meeting the definition of a supervised 
mortgagee in Sec. 202.6(a) may service insured mortgages in its own 
portfolio.
    Sponsor. (1) With respect to Title I programs, a sponsor is a 
lender that holds a valid Title I Contract of Insurance and meets the 
net worth requirement for the class of lender to which it belongs.
    (2) With respect to Title II programs, a sponsor is a mortgagee 
which holds a valid origination approval agreement, is approved to 
participate in the Direct Endorsement program, and meets the net worth 
requirement for the class of mortgagee to which it belongs.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, a loan correspondent lender or mortgagee 
shall meet the following requirements:
    (1) Net worth. A loan correspondent lender or mortgagee shall have 
a net worth of not less than $50,000 in assets acceptable to the 
Secretary, plus an additional $25,000 for each branch office authorized 
by the Secretary, up to a maximum requirement of $250,000, except that 
a multifamily mortgagee shall have a net worth of not less than 
$250,000 in assets acceptable to the Secretary.
    (2) Notification. A loan correspondent lender or mortgagee and each 
of its sponsors shall provide prompt notification to the Secretary if 
their loan correspondent agreement is terminated.
    (3) Audit report. A loan correspondent lender or mortgagee shall 
file an audit report with the Secretary within 90 days of the close of 
its fiscal year (or within such extended time as may be granted by in 
the sole discretion of the Secretary), and at such other times as the 
Secretary may request, except that a loan correspondent mortgagee 
meeting the definition of Sec. 202.6(a) need not file annual audit 
reports. Audit reports shall be based on audits performed by a 
certified public accountant, or by an independent public accountant 
licensed by a regulatory authority of a state or other political 
subdivision of the United States on or before December 31, 1970, and 
shall include:
    (i) A financial statement, in a form acceptable to the Secretary, 
including a balance sheet, statement of operations and retained 
earnings, an analysis of the net worth adjusted to reflect only assets 
acceptable to the Secretary and an analysis of escrow funds; and
    (ii) Such other financial information as the Secretary may require 
to determine the accuracy and validity of the audit report.
    (4) Liquid assets. A loan correspondent mortgagee shall maintain 
liquid assets consisting of cash or its equivalent acceptable to the 
Secretary in the amount of 20 percent of its net worth, up to a maximum 
liquidity requirement of $100,000.
    (5) A loan correspondent lender or mortgagee may sell or transfer 
loans or mortgages only to its sponsors, although a loan correspondent 
mortgagee may sell to a mortgagee that is not a sponsor with the 
Secretary's approval. There is no limitation on the number of sponsors 
that a loan correspondent lender or mortgagee may have and no 
limitation on the number of loan correspondents that a lender or 
mortgagee may sponsor.
    (6) Each sponsor must obtain approval of its loan correspondent 
lenders or mortgagees from the Secretary.
    (7) Each sponsor shall be responsible to the Secretary for the 
actions of its loan correspondent lenders or mortgagees in originating 
loans or mortgages, unless applicable law or regulation requires 
specific knowledge on the part of the party to be held responsible. If 
specific knowledge is required, the Secretary will presume that a 
sponsor has knowledge of the actions of its loan correspondent lenders 
or mortgagees in originating loans or mortgages and the sponsor is 
responsible for those actions unless it can rebut the presumption with 
affirmative evidence.
    (8) A loan correspondent mortgagee shall comply with the warehouse 
line of credit requirements of Sec. 202.7(b)(3)(ii), unless there is a 
written agreement by its sponsor to fund all mortgages originated by 
the loan correspondent mortgagee.
    (9) For mortgages processed through Direct Endorsement under 
Secs. 203.5 and 203.255(b) of this chapter, underwriting shall be the 
responsibility of the Direct Endorsement sponsor and the mortgage shall 
be closed in the loan correspondent mortgagee's own name or the name of 
the sponsor that will purchase the loan. For mortgages not processed 
through Direct Endorsement, the mortgage must be both underwritten and 
closed in the loan correspondent's own name.
    (10) A loan correspondent lender shall close all loans in its own 
name prior to sale or transfer of the loans to its sponsor.


Sec. 202.9  Investing lenders and mortgagees.

    (a) Definition. An investing lender or mortgagee is an organization 
that is not approved under any other section of this part. An investing 
lender or mortgagee may purchase, hold or sell Title I loans or Title 
II mortgages, respectively, but may not originate Title I loans or 
Title II mortgages in its own name or submit applications for the 
insurance of mortgages. An investing mortgagee may not service Title I 
loans or Title II mortgages without prior approval of the Secretary. An 
investing lender or

[[Page 20087]]

mortgagee is not required to meet a net worth requirement.
    (b) Additional requirements. In addition to the general approval 
requirements in Sec. 202.5, an investing lender or mortgagee shall meet 
the following requirements:
    (1) Funding arrangements. An investing lender or mortgagee shall 
have, or have made arrangements for, funds sufficient to support a 
projected investment of at least $1,000,000 in property improvement, 
manufactured home or real estate loans or mortgages.
    (2) Officers and staff. In lieu of the staffing and facilities 
requirements in Sec. 202.5(b), an investing lender or mortgagee shall 
have officers or employees who are capable of managing its activities 
in purchasing, holding, and selling Title I loans or Title II 
mortgages.
    (3) Fidelity bond. An investing mortgagee shall maintain fidelity 
bond coverage and errors and omissions insurance acceptable to the 
Secretary and in an amount required by the Secretary, or alternative 
insurance coverage approved by the Secretary, that assures the faithful 
performance of the responsibilities of the mortgagee.


Sec. 202.10  Governmental institutions, Government-sponsored 
enterprises, public housing agencies and State housing agencies.

    (a) Definition. A Federal, State or municipal governmental agency, 
a Federal Reserve Bank, a Federal Home Loan Bank, the Federal Home Loan 
Mortgage Corporation, or the Federal National Mortgage Association may 
be an approved lender or mortgagee. A mortgagee approved under this 
section may submit applications for Title II mortgage insurance. A 
lender or mortgagee approved under this section may originate, 
purchase, service or sell Title I loans and insured mortgages, 
respectively. A mortgagee or lender approved under this section is not 
required to meet a net worth requirement. A mortgagee shall maintain 
fidelity bond coverage and errors and omissions insurance acceptable to 
the Secretary and in an amount required by the Secretary, or 
alternative insurance coverage approved by the Secretary, that assures 
the faithful performance of the responsibilities of the mortgagee. 
There are no additional requirements beyond the general approval 
requirements in Sec. 202.5 or as provided under paragraph (b) of this 
section.
    (b) Public housing agencies and State housing agencies. Under such 
terms and conditions as the Secretary may prescribe and notwithstanding 
the general requirements of Sec. 202.5 or the requirements of paragraph 
(a) of this section, a public housing agency or its instrumentality or 
a State housing agency may be approved as a mortgagee for the purpose 
of originating and holding multifamily mortgages funded by issuance of 
tax exempt obligations by the agency.
    (c) Audit requirements. The insuring of loans and mortgages under 
the Act constitutes ``financial assistance'' for purposes of audit 
requirements set out in part 44 of this title. State and local 
governments (as defined in 24 CFR 44.2) that receive insurance as 
lenders and mortgagees shall conduct audits in accordance with HUD 
audit requirements at part 44 of this title.

Subpart C--Title I and Title II Specific Requirements


Sec. 202.11  Title I.

    (a) Administrative actions.--(1) Types of action. In addition to 
termination of the Contract of Insurance, certain sanctions may be 
imposed under the Title I program. The administrative actions that may 
be applied are set forth in 24 CFR 25.5. Civil money penalties may be 
imposed against Title I lenders and mortgagees pursuant to Sec. 25.12 
and part 30 of this title.
    (2) Grounds for action. Administrative actions shall be based upon 
both the grounds set forth in Sec. 25.9 and as follows:
    (i) Failure to properly supervise and monitor dealers under the 
provisions of part 201 of this title;
    (ii) Exhaustion of the general insurance reserve established under 
part 201 of this title;
    (iii) Maintenance of a Title I claims/loan ratio representing an 
unacceptable risk to the Department; or
    (iv) Transfer of a Title I loan to a party that does not have a 
valid Title I Contract of Insurance.
    (b) [Reserved].


Sec. 202.12  Title II.

    (a) Tiered pricing.--(1) General requirements. (i) Prohibition 
against excess variation. The customary lending practices of a 
mortgagee for its single family insured mortgages shall not provide for 
a variation in mortgage charge rates that exceeds two percentage 
points. A variation is determined as provided in paragraph (a)(6) of 
this section.
    (ii) Customary lending practices. The customary lending practices 
of a mortgagee include all single family insured mortgages originated 
by the mortgagee, including those funded by the mortgagee or purchased 
from the originator if requirements of the mortgagee have the effect of 
leading to violation of this section by the originator. The 
responsibility of sponsors of loan correspondent mortgagees is also 
governed by Sec. 202.8(b)(7).
    (iii) Basis for permissible variations. Any variations in the 
mortgage charge rate up to two percentage points under the mortgagee's 
customary lending practices must be based on actual variations in fees 
or cost to the mortgagee to make the mortgage loan, which shall be 
determined after accounting for the value of servicing rights generated 
by making the loan and other income to the mortgagee related to the 
loan. Fees or costs must be fully documented for each specific loan.
    (2) Area. For purposes of this section, an area is:
    (i) An area used by HUD for purposes of Sec. 203.18(a) of this 
chapter to determine the median 1-family house price for an area; or
    (ii) The area served by a HUD field office but excluding any area 
included in paragraph (a)(2)(i) of this section.
    (3) Mortgage charges. Mortgage charges include any charges under 
the mortgagee's control and not collected for the benefit of third 
parties. Examples are interest, discount points and origination fees.
    (4) Interest rate. Whenever a mortgagee offers a particular 
interest rate for a mortgage type in an area, it may not restrict the 
availability of the rate in the area on the basis of the principal 
amount of the mortgage. A mortgagee may not direct mortgage applicants 
to any specific interest rate category on the basis of mortgage size.
    (5) Mortgage charge rate. The mortgage charge rate is defined as 
the amount of mortgage charges for a mortgage expressed as a percentage 
of the initial principal amount of the mortgage.
    (6) Determining excess variations. Variation in mortgage charge 
rates for a mortgage type is determined by comparing all mortgage 
charge rates offered by the mortgagee within an area for the mortgage 
type for a designated day or other time period, including mortgage 
charge rates for all actual mortgage applications.
    (7) Mortgage type. A mortgage type for purposes of paragraph (a)(6) 
of this section will include those mortgages that are closely parallel 
in important characteristics affecting pricing and charges, such as 
level of risk or processing expenses. The Secretary may develop 
standards and definitions regarding mortgage types.
    (8) Recordkeeping. Mortgagees are required to maintain records on 
pricing

[[Page 20088]]

information, satisfactory to the Secretary, that would allow for 
reasonable inspection by HUD for a period of at least 2 years. 
Additionally, many mortgagees are required to maintain racial, ethnic, 
and gender data under the regulations implementing the Home Mortgage 
Disclosure Act (12 U.S.C. 2801-2810).
    (b) Servicing. Any mortgagee that services mortgages must be 
approved by the Secretary under Sec. 202.6, Sec. 202.7 or Sec. 202.10, 
or be specifically approved for servicing under Sec. 202.9(a).
    (c) Report and corrective plan requirements. If a mortgagee 
approved for participation in Title II programs is notified by the 
Secretary that it had a rate of defaults and claims on HUD-insured 
mortgages during the preceding year, or during recent years, which was 
higher than the normal rate, it shall submit a report, within 60 days, 
containing an explanation for the above-normal rate of defaults and 
claims, and, if required by the Secretary, a plan for corrective action 
with regard to mortgages in default and its mortgage processing system 
in general.

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    16. The authority citation for 24 CFR part 203 continues to read as 
follows:

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

    17. Section 203.3 is amended by revising paragraph (d)(1)(iii) to 
read as follows:


Sec. 203.3  Approval of mortgagees for Direct Endorsement.

* * * * *
    (d) * * *
    (1) * * *
    (iii) Make changes in the quality control plan required by 
Sec. 202.5(h) of this chapter; and
* * * * *
    18. Section 203.5 is amended by revising the second sentence of 
paragraph (c) to read as follows:


Sec. 203.5  Direct Endorsement process.

* * * * *
    (c) * * * Mortgagee procedures that evidence such due diligence 
shall be incorporated as part of the quality control plan required 
under Sec. 202.5(h) of this chapter. * * *
* * * * *

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

    19. The authority citation for 24 CFR part 206 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).

    20. Section 206.9 is amended by revising paragraph (b) to read as 
follows:
* * * * *
    (b) HUD approved mortgagees. Any mortgagee authorized under 
paragraph (a) of this section and approved under part 202 of this 
chapter, except an investing mortgagee approved under Sec. 202.9 of 
this chapter, is eligible to apply for insurance. A mortgagee approved 
under Secs. 202.6, 202.7, 202.9 or 202.10 of this chapter may purchase, 
hold and sell mortgages insured under this part without additional 
approval.

PART 241--SUPPLEMENTARY FINANCING FOR INSURED PROJECT MORTGAGES

    21. The authority citation for 24 CFR part 241 continues to read as 
follows:

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

    22. Section 241.1040 is amended to read as follows:


Sec. 241.1040  Eligible lenders.

    Lenders approved as mortgagees under Secs. 202.6, 202.7 or 202.9 of 
this chapter are eligible for insurance of equity loans under this 
subpart.

PART 266--HOUSING FINANCE AGENCY RISK-SHARING PROGRAM FOR INSURED 
AFFORDABLE MULTIFAMILY PROJECT LOANS

    23. The authority citation for 24 CFR part 266 continues to read as 
follows:

    Authority: 12 U.S.C. 1707; 42 U.S.C. 3535(d).

    24. Section 266.100 is amended by revising the first sentence of 
paragraph (a) to read as follows:


Sec. 266.100  Qualified housing finance agency (HFA).

    (a) To participate in the program, an HFA must apply and be 
specifically approved for the pilot program described in this part, in 
addition to being approved as a mortgagee under Sec. 202.10. * * *
* * * * *

PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT

    25. The authority citation for 24 CFR part 3500 continues to read 
as follows:

    Authority: 12 U.S.C. 2601 et seq., 42 U.S.C. 3535(d).

    26. Section 3500.2 is amended by revising the final sentence of the 
definition of ``mortgage broker'' to read as follows:


Sec. 3500.2  Definitions.

* * * * *
    Mortgage broker * * * A loan correspondent approved under 
Sec. 202.8 of this title for Federal Housing Administration programs is 
a mortgage broker for purposes of this part.
* * * * *
    Dated: April 9, 1997.
Andrew Cuomo,
Secretary.
[FR Doc. 97-10282 Filed 4-23-97; 8:45 am]
BILLING CODE 4210-32-P