[Federal Register Volume 62, Number 237 (Wednesday, December 10, 1997)]
[Rules and Regulations]
[Pages 65180-65182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32250]



[[Page 65179]]

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Part III





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 201, 202 and 203



Termination of an Approved Mortgagee's Origination Approval Agreement; 
Final Rule

  Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / 
Rules and Regulations  

[[Page 65180]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 201, 202 and 203

[Docket No. FR-4239-I-01]
RIN 2502-AG99


Termination of an Approved Mortgagee's Origination Approval 
Agreement

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

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule clarifies and makes minor changes to 24 CFR 
parts 202 and 203 to improve the provisions regarding termination of a 
single family mortgagee's origination approval agreement with FHA. The 
interim rule also corrects errors in 24 CFR parts 201 and 202.

DATES: Effective date: January 9, 1998.
    Comment due date: February 9, 1998.

FOR FURTHER INFORMATION CONTACT: Phillip Murray, Director, Office of 
Lender Activities and Program Compliance, Department of Housing and 
Urban Development, Room B-133-P3214, 451 Seventh Street, SW, 
Washington, DC 20410, telephone number (202) 708-1515 (this is not a 
toll-free number). A telecommunications device for hearing-and speech-
impaired persons (TTY) is available at (800) 877-8339 (Federal 
Information Relay Service).

SUPPLEMENTARY INFORMATION:

    Part 202 of title 24 contains the Department's requirements for 
approval of lenders and mortgagees for FHA insurance programs. The 
Department reorganized and streamlined part 202 by a recent final rule 
without making any substantive changes (62 FR 20080, April 24, 1997). 
The Department also published an interim rule announcing the Lender 
Insurance program (62 FR 30222, June 2, 1997). This new interim rule 
includes minor substantive changes to part 202 and corrections to the 
streamlining and Lender Insurance rules.
    Part 202 is amended to state more clearly the provisions regarding 
termination of an FHA-approved single family mortgagee's origination 
approval agreement (OAA). The following matters are clarified or 
changed in Sec. 202.3(d):
     When a mortgagee has a default and claim rate sufficient 
to support termination of the OAA under the standards of part 202, 
termination is at the discretion of the Secretary even if the 
Department in a previous time period could have, but did not, place the 
mortgagee on credit watch. This is a clarification of the Department's 
current interpretation.
     A mortgagee will not be permitted to apply for a new OAA 
for 6 months after termination of an OAA. There is currently no delay 
required for an application for a new OAA.
     Claims and defaults will be measured for 24 months after a 
mortgage is insured, instead of the current 18 months for claims and 1 
year for defaults. Two references to tracking a mortgagee's default and 
claims for originations ``during a Federal fiscal year'' are deleted as 
inconsistent with the uniform 24-month tracking period.
    Corrections to the April 24, 1997 final rule include:
     Sections 201.20(a)(3) and 201.26(a)(1)(iii), which had 
been removed by an interim rule (61 FR 19797-8, May 2, 1996), were 
inadvertently restored in modified form by the final rule and are now 
removed again.
     The United States Code citation for the National Housing 
Act, which was inadvertently omitted, is added to the definition of 
``Act'' in Sec. 202.2.
     The definition of ``mortgage'' in Sec. 202.2 is corrected 
to include mortgages insured under title XI of the National Housing Act 
to be consistent with the definition of ``Title II program'' which 
includes title XI.
     Two minor editorial corrections are made to Sec. 202.5: a 
comma is inserted in the first sentence of Sec. 202.5(i) and ``that'' 
is inserted in Sec. 202.5(n)(1)(i) to improve clarity.
     ``And'' is changed to ``an'' in Sec. 202.7(b)(4)(i)(A).
    In addition, language is added to Secs. 203.3 and 203.4 that 
clarifies HUD's current position that a mortgagee with a terminated OAA 
also has its approval under the Direct Endorsement and Lender Insurance 
programs terminated without further procedures.

Other Matters

Justification for Interim 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 finds good cause to omit 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 good cause exists 
to publish this rule for effect without first soliciting public 
comment. However, HUD is allowing for a full 60-day public comment 
period on the provisions of this interim rule, and HUD will consider 
the relevant issues raised by the commenters in its development of a 
final rule for the Lender Insurance program.
    Many of the changes are corrections or clarifications that do not 
alter substantive policy currently in effect. Some of the changes are 
made for administrative efficiency without any likely substantive 
effect on mortgagees, such as the use of calendar years and uniform 24 
month periods to measure default and claim rates. The new explicit 
prohibition against applying for a new OAA within 6 months of 
termination supplements the current requirement that HUD must determine 
that the underlying cause of the termination must have been 
satisfactorily remedied before a new origination approval agreement 
would be approved. Under current practice it is highly unlikely that 
HUD could ever make that determination within 6 months of a 
termination. The new provision is an administrative measure designed to 
avoid futile applications by the mortgagee that must be processed by 
HUD personnel even when denial is virtually certain.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. This rule merely 
clarifies and makes minor changes and corrections to the existing 
regulations. The rule will have no adverse or disproportionate economic 
impact on small businesses. Small entities are specifically invited, 
however, to comment on whether this rule will significantly affect 
them, and persons are invited to submit comments according to the 
instructions in the DATES and ADDRESSES sections in the preamble of 
this interim rule.

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,

[[Page 65181]]

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 regarding termination 
of a mortgagee's approval to originate insured mortgages and does not 
alter the environmental effect of the regulations being amended. The 
regulation being amended was also exempt under Sec. 50.19(c)(1), as 
stated at 62 FR 20080, April 24, 1997.

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 
will not have substantial direct effects on States or their political 
subdivisions, or the relationship between the Federal Government and 
the States, or on the distribution of power and responsibilities among 
the various levels of government. No programmatic or policy changes 
will result from this rule that would affect the relationship between 
the Federal Government and State and local governments.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) 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.

Catalog

    The Catalog of Federal Domestic Assistance number for the programs 
affected by this interim rule are 14.117 and 14.142.

List of Subjects

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.

    Accordingly, parts 201, 202 and 203 of title 24 of the Code of 
Federal Regulations are amended as follows:

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

    1. The authority citation for 24 CFR part 201 is revised to read as 
follows:

    Authority: 12 U.S.C. 1703 and 3535(d).


Sec. 201.20  [Amended]

    2. Section 201.20 is amended by removing paragraph (a)(3).
    3. Section 201.26 is amended by revising paragraph (a)(1) to read 
as follows:


Sec. 201.26  Conditions for loan disbursement.

    (a) * * *
    (1) The lender shall ensure that the following conditions are met:
    (i) The borrower is eligible for a property improvement loan in 
accordance with Sec. 201.20(a) (1) or (2); and
    (ii) The interest of the borrower in the property is valid, through 
such title or other evidence as are generally acceptable to prudent 
lending institutions and leading attorneys in the community in which 
the property is situated.
* * * * *

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

    4. The authority citation for part 202 continues to read as 
follows:

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

    5. Section 202.2 is amended by revising the definitions of ``Act'', 
``Claim'', ``Default'', and ``Mortgage, Title II mortgage or insured 
mortgage'', to read as follows:


Sec. 202.2  Definitions.

    Act means the National Housing Act (12 U.S.C. 1702 et seq.)
    Claim means a single family insured mortgage for which the 
Secretary pays an insurance claim within 24 months after the mortgage 
is insured.
    Default means a single family insured mortgage in default for 90 or 
more days within 24 months after the mortgage is insured.
* * * * *
    Mortgage, Title II mortgage or insured mortgage means a mortgage or 
loan insured under Title II or Title XI of the Act.
* * * * *
    6. Section 202.3 is amended by revising paragraph (c)(2)(ii)(A), 
the first sentence of paragraph (c)(2)(iii), and paragraph (c)(2)(v)(C) 
to read as follows:


Sec. 202.3  Approval status for lenders and mortgagees.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (A) The Secretary may notify a mortgagee that its origination 
approval agreement will terminate 60 days after notice is given, if the 
mortgagee had a rate of defaults and claims on insured mortgages 
originated in an area which exceeded 200 percent of the normal rate, 
and exceeded the national default and claim rate for insured mortgages. 
The notice may be given without action by the Mortgagee Review Board 
even if the Secretary previously had the right to issue a credit watch 
notice to the mortgagee under this section but did not do so.
* * * * *
    (iii) Credit watch status. The Secretary may notify a mortgagee 
that it is on credit watch status if the mortgagee had a rate of 
defaults and claims on insured mortgages originated in an area which 
exceeded 150 percent, but not 200 percent, of the normal rate. * * *
* * * * *
    (v) * * *
    (C) A mortgagee's right to apply for a new origination approval 
agreement if it continues to be an approved mortgagee meeting the 
general standards of Sec. 202.5 and the specific requirements of 
Secs. 202.6. 202.7. 202.8 or 202.10, and 202.12, if the mortgagee has 
had no origination approval agreement for at least 6 months, and if the 
Secretary determines that the underlying causes for termination have 
been satisfactorily remedied; or
* * * * *
    7. Section 202.5 is amended by revising the first sentence of 
paragraph (i) and paragraph (n)(1)(i) to read as follows:


Sec. 202.5  General approval standards.

* * * * *
    (i) * * * 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

[[Page 65182]]

in such amounts as the Secretary may require. * * *
* * * * *
    (n) * * *
    (1) * * *
    (i) The aggregate original amount of insured mortgages that the 
mortgagee originated and that were insured during the fiscal year, or 
that the mortgagee purchased as a sponsor from its loan 
correspondent(s) during the fiscal year; and
* * * * *
    8. Section 202.7 is amended by revising paragraph (b)(4)(i)(A) to 
read as follows:


Sec. 202.7  Nonsupervised lenders and mortgagees.

* * * * *
    (b) * * *
    (4) * * *
    (i) * * *
    (A) A financial statement in a form acceptable to the Secretary, 
including a balance sheet and a statement of operations and retained 
earnings, an analysis of the mortgagee's net worth adjusted to reflect 
only assets acceptable to the Secretary, and an analysis of escrow 
funds; and
* * * * *

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    4. The authority citation for 24 CFR part 203 is revised to read as 
follows:

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

    5. Section 203.3 is amended by adding a new paragraph (d)(2)(iv) to 
read as follows:


Sec. 203.3  Approval of mortgagees for Direct Endorsement.

* * * * *
    (d) * * *
    (2) * * *
    (iv) Termination of an origination approval agreement under part 
202 of this chapter for a mortgagee or one or more branch offices 
automatically terminates Direct Endorsement approval for the mortgagee 
or the branch office or offices without any further requirement to 
comply with this paragraph.
    6. Section 203.4 is amended by adding a new sentence at the end of 
paragraph (d) to read as follows:


Sec. 203.4  Approval of mortgagees for Lender Insurance.

* * * * *
    (d) * * * Termination of an origination approval agreement under 
part 202 of this chapter or termination of Direct Endorsement approval 
under Sec. 203.3(d)(2) for a mortgagee or one or more branch offices 
automatically terminates Lender Insurance approval for the mortgagee or 
the branch office or offices without any further requirement to comply 
with this paragraph.

    Dated: October 22, 1997.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 97-32250 Filed 12-9-97; 8:45 am]
BILLING CODE 4210-27-P