[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Rules and Regulations]
[Pages 2984-2988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1084]



[[Page 2983]]

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Part IV





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 206



Home Equity Conversion Mortgages; Consumer Protection Measures Against 
Excessive Fees; Final Rule

  Federal Register / Vol. 64, No. 11 / Tuesday, January 19, 1999 / 
Rules and Regulations  

[[Page 2984]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 206

[Docket No. FR-4306-F-02]
RIN 2502-AH10


Home Equity Conversion Mortgages; Consumer Protection Measures 
Against Excessive Fees

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

ACTION: Final rule.

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

SUMMARY: This final rule implements several measures designed to 
provide protection to elderly homeowners in connection with HUD's Home 
Equity Conversion Mortgage (HECM) insurance program. The HECM program 
offers FHA-insured first mortgages providing payments to elderly 
homeowners based on the accumulated equity in their homes. These FHA-
insured HECMs are commonly referred to as ``reverse mortgages.'' The 
rule is designed to protect homeowners in the HECM program from 
becoming liable for payment of excessive fees for third-party provided 
services of little or no value. This rule takes into consideration the 
comments received on a March 16, 1998 proposed rule.

EFFECTIVE DATE: February 18, 1999.

FOR FURTHER INFORMATION CONTACT: Vance Morris, Director, Home Mortgage 
Insurance Division, Room 9266, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410. Telephone: 
(202) 708-2700. (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:

Background

    On March 17, 1997, HUD issued Mortgagee Letter 97-07, which 
prohibited FHA-approved lenders from being involved in transactions for 
HECMs referred by estate planning entities charging what HUD deemed to 
be exorbitant fees. Two estate planners engaged in the business of 
making referrals for reverse mortgages sued, seeking a temporary 
restraining order (TRO) and preliminary injunction to require HUD to 
withdraw the Mortgagee Letter on the ground that notice and comment 
rulemaking procedures should have been followed. A TRO was issued on 
March 26, 1997, and a preliminary injunction followed on April 11, 
1997. Mortgagee Letter 97-07 was then withdrawn.
    Due to the Secretary's concern about the need to protect senior 
citizens from practices that may subvert the HECM process, the 
Secretary decided that HUD should issue a proposed rule based on the 
consumer protection authority contained in section 255 of the National 
Housing Act as it then existed (see proposed rule published on March 
16, 1998, 63 FR 12930).
    With respect to the FHA insurance program for HECMs, current FHA 
requirements strictly limit the fees that a mortgagee can collect. The 
FHA regulations currently do not have any express provisions that 
protect mortgagors from fees collected by third parties. The proposed 
rule was intended to fill that gap. The public comment period ended on 
May 15, 1998, and HUD has taken these comments into account in the 
preparation of this final rule.
    Congress has now enacted legislation to specifically address the 
problem to which the proposed rule was directed, and this action makes 
it unnecessary for HUD to rely solely on the previously-existing 
authority under the National Housing Act. Section 593(e) of the 
Departments of Veterans Affairs and Housing and Urban Development, and 
Independent Agencies Appropriations Act, 1999 (P.L. 105-276 approved 
October 21, 1998) amended section 255 of the National Housing Act to 
require that: (1) a HECM shall have been executed by a mortgagor who 
has received full disclosure, as prescribed by the HUD Secretary, of 
all costs charged to the mortgagor, which disclosure shall clearly 
state which charges are required to obtain the HECM and which are not, 
and (2) a HECM shall have been made with such restrictions as the HUD 
Secretary determines to be appropriate to ensure that the mortgagor 
does not fund any unnecessary or excessive costs for obtaining the 
HECM. Section 593(e)(2) directs HUD to issue a final rule no later than 
90 days after section 593(e) takes effect (i.e., by January 19, 1999), 
after notice and opportunity for public comment. Section 593 does not 
require that the notice and public comment procedure occur after, 
rather than before, enactment of section 593. HUD has concluded that 
the previously published proposed rule is fully consistent with the 
requirements of section 593, with one exception, and that all 
interested persons have been provided with an adequate opportunity for 
public comment, consistent with the desires of the Congress and the 
demands of HUD's ``rule on rules'' in 24 CFR part 10. In order to 
address the one exception, HUD is adding an express requirement (based 
on statutory language) for a statement to the mortgagor of which 
charges are required and which are not. Therefore, HUD is proceeding 
with this final rule after considering the public comment previously 
submitted.
    Section 593(e) also provides for immediate implementation of 
section 593, even in advance of consideration of public comments, 
through an interim notice procedure, if necessary. HUD already had 
received and reviewed public comments on the proposed rule by the time 
section 593 took effect and has taken those comments into account in 
this final rule. Therefore, HUD believes the procedure that it has 
followed, which accorded the public an opportunity to comment on a 
proposed rule that addressed the subjects of section 593(e), more than 
satisfies the intent of section 593.

Public Comments

    The Department received 8 comments on its proposed rule. The 
comments are summarized below by pertinent section of the proposed 
rule, with other comments summarized at the end.

1. Section 206.3--Definition of ``Estate Planning Service Firm''

    Comment: Two commenters supported the definition but urged that it 
be extended to include an individual or entity that charges an annuity 
premium paid for by mortgage proceeds, if the premium is not disclosed 
as part of the total cost of the mortgage under the Truth in Lending 
Act regulations for reverse mortgages.
    Response: The final rule includes this suggestion.
    Comment: A commenter argued against use of the term ``estate 
planning service firm'' (while not arguing against the substance of the 
definition) as unfair to legitimate financial planning/estate planning 
firms. The lender suggested the narrower term ``referral service 
firm''.
    Response: The firms that engaged in the practices that led HUD and 
Congress to conclude that protective measures were needed did not 
characterize themselves as engaging in ``referrals'' but as providing 
estate planning services and HUD concludes that a broad label--with a 
careful definition that does not focus solely on referrals--is 
appropriate. The definition permits any legitimate provider of services 
that is concerned that its services may be impaired by overbreadth of 
the rule to be exempted from the rule by HUD.
    Comment: A commenter argued that the definition should explicitly

[[Page 2985]]

recognize bona fide mortgage brokers in the same manner that bona fide 
attorneys, accountants and financial advisors are recognized.
    Response: The rule provides special recognition of individuals or 
companies ``in the bona fide business of generally providing tax or 
other legal or financial advice''. It recognizes that, in the ordinary 
course of their business of providing advice, such individuals or 
companies are likely to routinely provide to clients who are elderly 
homeowners information and advice that may overlap with the information 
that counselors are required to provide under the HECM program. The 
rule provides that charging a fee for such advice--if the fee is not 
contingent on obtaining a loan--does not by itself make the individual 
or company an estate planning service firm for purposes of the rule. 
The rule mentions attorneys and accountants as examples of individuals 
or companies who may qualify for this exception because their ordinary 
business is providing advice. In contrast, mortgage brokers typically 
provide to prospective borrowers services such as locating available 
sources of loans, prequalifying borrowers, and assisting them in 
applying for a loan. A mortgage broker may provide some information 
similar to that provided by a HECM counselor in the course of providing 
its brokerage services, but prospective borrowers would be unlikely to 
seek out a mortgage broker solely for the purpose of obtaining 
information or advice for a fee, rather than for obtaining services for 
a fee. It is unlikely that a typical mortgage broker business would be 
characterized--as required by the rule--as being in the business of 
generally providing tax or other legal or financial advice. For this 
reason, HUD has concluded that specific mention of mortgage brokers in 
connection with this part of the definition of estate planning service 
firm is unwarranted.
    Comment: A commenter interpreted this definition as making explicit 
that housing counseling agencies may charge fees to borrowers, and 
applauded this position, and another commenter who noticed a reference 
to counselor fees urged HUD to clarify whether counselors can charge 
fees, how much, and who can bear the costs. If borne by the consumer, 
the commenter said they should be included in HECM financing.
    Response: Under HUD's program of grants to HUD-approved housing 
counselors, the counselor is not authorized to charge counseling fees 
for HUD-related clients except in fiscal years where no funds are given 
to the counseling agency by HUD. In that instance, the basis for any 
fees charged to a HUD-related client must be consistent with local 
practice and not duplicate other sources of HUD funding. Clients 
affected must be informed of the agency's fee structure in advance of 
services being provided.

2. Section 206.29--Initial Disbursement of Mortgage Proceeds

    Comment: Two commenters who supported this provision urged that the 
lender be permitted to disburse an annuity premium if disclosed as part 
of the total cost of the mortgage under the Truth in Lending Act 
regulations for reverse mortgages.
    Response: The final rule includes this suggestion.
    Comment: A commenter requested that the phrase ``disbursed at 
closing'' be clarified because funds are actually not disbursed at 
closing because of a 3-day wait imposed by the Truth in Lending Act's 
right of rescission.
    Response: The final rule includes this suggestion.
    Comment: Two commenters believed that section 206.3 would permit 
counselors' fees and asked why mortgage proceeds could not be disbursed 
directly to counselors. One other commenter agreed and urged that all 
fees permitted to be paid by a mortgagee under HUD's Handbook 4235.1 
REV-1 (including specifically mortgage broker fees and counselor fees) 
be disbursable to those parties at closing. That commenter interpreted 
Sec. 206.29 and 206.31 together as reaching this result but requested 
clarification.
    Response: See the previous response regarding counselor fees. 
Mortgage broker fees are allowed now under the HECM program only if the 
broker is engaged independently by the mortgagor and is paid from a 
source other than the mortgage proceeds. A broker's fee is prohibited 
if there is any financial interest between the broker and the 
mortgagee. The broker agreement must be submitted with the mortgage 
insurance application. Broker's fees can never be paid by the lender 
from HECM proceeds.
    Comment: A commenter supported permitting disbursement of funds at 
closing to pay contractors who performed repairs required as a 
condition of closing.
    Response: HUD supports this suggestion as long as the lender 
certifies that the work was done according to the appraiser's 
requirements based on HUD Handbook 4905.1 (Requirements for Existing 
Housing for One to Four Family Units) and in accordance with standard 
FHA requirements for repairs required by appraisers. The final rule 
includes this change.

3. Section 206.32--No Outstanding Unpaid Obligations

    Comment: A commenter specifically supported this provision, and 
commented that it could provide important protection against 
unscrupulous home repair firms and others in addition to the estate 
planning service firms that are the main target of the rule.
    Response: No response required.
    Comment: A commenter supported Sec. 206.32(b) forbidding use of 
initial HECM payments to pay estate planning service firms, but opposed 
Sec. 206.32(a), which prohibits mortgagor obligations that are incurred 
in connection with the mortgage transaction but will not be paid off at 
closing (except for certain repairs or mortgage servicing charges). The 
commenter interpreted this as precluding later use of HECM proceeds to 
pay outstanding bills that may have been part of the impetus for 
obtaining the HECM.
    Response: This section does not prevent HECM proceeds from being 
used to pay bills that were incurred without any connection with the 
mortgage transaction (for example, pre-existing medical bills), or 
prevent use of HECM proceeds to pay obligations incurred after the 
closing. The section targets only those who charge excessive fees in 
connection with obtaining the HECM.
    Comment: Two commenters urged that Sec. 206.32 be deleted in its 
entirety because of the difficulty for a lender to determine what 
homeowner obligations exist and ensure that they would be discharged at 
closing. One of the commenters said it would not object if a lender's 
obligation were limited to requesting information.
    Response: Paragraph (a) of Sec. 206.32 is similar to Sec. 203.32 
for ``forward'' mortgages. As with that requirement, the lender is 
expected to ask the borrower and may rely on the information provided 
by the borrower in the absence of other information indicating that the 
borrower's answer is inaccurate or incomplete. Paragraph (b) focusses 
on the specific concern of borrowers using the initial disbursement of 
HECM proceeds to pay unreasonable or excessive fees to estate service 
planning firms. Section 203.29 prevents direct disbursement to such 
firms, and paragraph (b) of Sec. 203.32 provides the lender with 
further assurance that the borrower understands that the borrower 
cannot use cash disbursed to the borrower as part of the initial 
disbursement to pay such firms as a

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means of getting around the direct disbursement prohibition. A lender 
can rely on information provided by the borrower in complying with this 
section; for example, the lender should ask whether the homeowner has a 
contract with an estate planning service firm (with an explanation of 
how to recognize such a firm) and it will be sufficient to annotate the 
application form noting a negative response. Lenders should note that 
under Sec. 206.43(b)(1) a lender has to have to make ``sufficient 
inquiry'' of a borrower who is taking a large initial cash 
disbursement, in order to confirm that Sec. 203.32(b) will not be 
violated.

4. Section 206.41--Additional Information To Be Provided by Counselors

    Comment: Four commenters commented favorably on this provision, but 
one of them urged that it be expanded to address any obligation that 
homeowners may believe they have to pay for home repairs or annuities 
and not just services provided by the estate planning service firms. 
Another commenter also supported expansion to cover annuities, and 
urged use of a form disclosure about annuities.
    Response: The Department is considering this suggestion, but is not 
making changes in the rule at this time.

5. Section 206.43(a)--Additional Information To Be Provided by 
Mortgagees

    Comment: One commenter supported this provision as written while 
another urged that it be deleted. The latter commenter felt that a 
lender should not be responsible for disclosure of costs paid outside 
of closing, or if so, the lender should be able to rely exclusively on 
a borrower certification on the loan application.
    Response: The lender is only required to ask the borrower for the 
additional information and note on the loan application that the 
borrower was asked.

6. Section 206.43(b)--Limitations on Lump Sum Disbursement by 
Mortgagees

    Comment: Three commenters supported this provision; one commenter 
urged that it be deleted or modified so that the information covered 
should be handled through the loan application and also suggested an 
overlap with information provided by the counselor.
    Response: HUD wanted to emphasize the importance of this rule, and 
to ensure that the lender has made every effort to ensure that the HECM 
proceeds were not going to a party ineligible to receive funds from the 
initial disbursement.

7. Other Comments.

a. Lack of Statutory Authority
    Comments: A commenter argued that the proposed rule is beyond HUD's 
current statutory authority because Congress authorized a program to 
increase the number of reverse mortgages and the proposed rule would 
reduce the availability of reverse by eliminating ``a proven source of 
promotion of reverse mortgages.'' The commenter also argued that the 
rule was a ``subterfuge'' for regulating third parties even though 
HUD's regulatory authority is limited to lenders.
    Response: Even before amendment, section 255 of the National 
Housing Act and section 7(d) of the Department of Housing and Urban 
Development Act contained ample authority for a regulation to protect 
elderly homeowners against special risks identified by HUD in 
connection with the HECM program (see, e.g, sections 255(c)(2), 
255(f)(5) and 255(k)(2)(E) of the National Housing Act.) HUD believes 
that any doubt about the scope of HUD's authority to implement these 
measures to protect elderly homeowners was settled when Congress 
enacted legislation and specifically requiring HUD to proceed with this 
final rule.
b. There is no Need for the Rule
    Comment: The commenter described the rule as arbitrary and 
irrational because there was no factual basis to conclude that any 
abuse of elderly homeowners existed.
    Response: HUD received many complaints that senior homeowners were 
being charged excessive fees for services that HUD or mortgagees 
provide for little or no charge. In any event, Congress felt that past 
abuse and the potential for future abuse was so serious that it 
mandated action by HUD.
c. Simpler Proposal Needed
    Comment: One commenter did not comment on any specific provision of 
the proposed rule, but stated that it is difficult to obtain 
information about the HECM and that the proposed rule would make it 
harder. The commenter suggested that publishing a book about reverse 
mortgages could violate the rule. The commenter suggested as an 
alternative approach limiting any information provider to $150 for any 
size mortgage.
    Response: The rule only targets information providers that meet the 
definition of ``estate planning service firms''--primarily firms that 
charge excessive fees for information and services that one can receive 
for little or no charge and that are contingent on the elderly 
homeowner receiving a HECM loan. The rule should not interfere with 
book publishing, which can supplement HUD's own efforts to publicize 
the availability and benefits of HECMs. HUD's Homeownership Centers and 
field offices distribute housing information, including information on 
HECMs, in numerous homeownership fairs through the country. The 
American Association of Retired Persons (AARP), National Center for 
Home Equity Conversion (NCHEC), many lenders and other entities have 
publicized the HECM program through various means including newsletters 
and radio broadcasts. Articles have been published in senior community 
newspapers and seminars have been given in senior community centers. 
The Housing Clearinghouse's toll-free number is provided on the 
Internet's World Wide Web. HUD continually looks for ways to improve, 
update and increase its marketing of this program to the public, but it 
will not tolerate abuse of elderly homeowners in the guise of providing 
legitimate information and services.
d. Mortgage Broker Fees
    Comment: A commenter urged an additional provision that would allow 
mortgage broker fees for HECMs only if the broker performs settlement 
services as defined by RESPA and if the sum of the mortgage broker fee 
plus the loan origination fee does not exceed the $1800 loan 
origination fee that may be financed through a HECM.
    Response: HUD cannot consider this comment for the final rule 
because it is outside the scope of matters exposed to public comment in 
the proposed rule.

Changes Made in Final Rule

    New paragraphs (e) and (f) are added to Sec. 206.29 to permit (1) 
disbursement of an annuity premium at closing if the premium was 
disclosed under the Truth in Lending Act regulations for reverse 
mortgages, and (2) payment of contractors who performed repairs 
required as a condition of closing if the lender makes a certification 
in accordance with standard FHA requirements for repairs required by 
appraisers. Section 206.29 is also amended to clarify that it applies 
to the initial disbursement of funds at closing (if the 3-day 
rescission period under the Truth in Lending Act regulations does not 
apply because of, e.g., a waiver in accordance with those regulations) 
or after closing (in the usual case when the 3-day rescission period 
does apply so

[[Page 2987]]

that no funds are disbursed at closing). The final rule also contains 
minor language and formatting changes in Sec. 206.43, and adds an 
express requirement for a clear statement of which charges are required 
and which are not as required by section 593(e)(1)(C) of P.L. 105-276.

Findings and Certifications

Paperwork Reduction Act Statement

    The information collection requirements in Secs. 206.32, 206.41 and 
206.43 of this rule have been submitted to the Office of Management and 
Budget (OMB) for review and approval under section 3507(d) of the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). OMB has 
approved the submission and assinged the following control number: 
2502-0534. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless the 
collection request displays a valid control number.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) (the RFA), the Secretary, by approval of this rule, certifies 
that this rule does not have a significant economic impact on a 
substantial number of small entities. The rule codifies HUD's policy 
regarding consumer protection which is consistent with current part 206 
provisions and the National Housing Act requirements, as amended by 
section 539(e) of the Departments of Veterans Affairs and Housing and 
Urban Development, and Independent Agencies Appropriations Act, 1999. 
This rule is designed to protect homeowners in the HECM program from 
becoming liable for payment of excessive fees for third-party provided 
services of little or no value. This rule imposes no significant 
economic impact on law-abiding entities, small or large.
    HUD's RFA provision in the March 16, 1998 proposed rule 
specifically invited small entities to comment on whether the proposed 
regulatory amendments would significantly affect them (see 63 FR 12930, 
at 12932). Only one commenter responded to this request. The commenter 
questioned HUD's assertion that the rule would not have a significant 
economic impact on a substantial number of small entities. 
Specifically, the commenter wrote that the rule might have an adverse 
impact on businesses that ``may'' be small entities within the meaning 
of the RFA. However, the commenter did not offer any data in support of 
its statement that the rule might potentially have a significant 
economic impact on a substantial number of small entities.

Environmental Impact

    This final rule is exempt from environmental review requirements 
under 24 CFR 50.19(c)(1). This rule amends an existing regulation by 
increasing the information available to mortgagors and by limiting the 
manner in which funds are disbursed.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the rule is not subject to review under the Order.

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.

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this final rule 
under Executive Order 12866, Regulatory Planning and Review as a 
significant regulatory action (but not economically significant).
    Catalog. The Catalog of Federal Domestic Number for the HECM 
program is 14.183.

List of Subjects in 24 CFR Part 206

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

    Accordingly, part 206 of the Code of Federal Regulations is amended 
as follows:

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

    1. The authority citation for part 206 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715z-20; 42 U.S.C. 3535(d).

    2. Section 206.3 is amended by adding a new definition of ``estate 
planning service firm'' to read as follows:


Sec. 206.3  Definitions.

* * * * *
    Estate planning service firm means an individual or entity that is 
not a mortgagee approved under part 202 of this chapter or a housing 
counseling agency approved under Sec. 206.41 and that charges a fee 
that is:
    (1) Contingent on the homeowner obtaining a mortgage loan under 
this part, except the origination fee authorized by Sec. 206.31 or a 
fee specifically authorized by the Secretary; or
    (2) For information that homeowners must receive under Sec. 206.41, 
except a fee by:
    (i) A housing counseling agency approved under Sec. 206.41; or
    (ii) An individual or company, such as an attorney or accountant, 
in the bona fide business of generally providing tax or other legal or 
financial advice; or
    (3) For other services that the provider of the services represents 
are, in whole or in part, for the purpose of improving an elderly 
homeowner's access to mortgages covered by this part, except where the 
fee is for services specifically authorized by the Secretary.
* * * * *
    3. A new Sec. 206.29 is added to read as follows:


Sec. 206.29  Initial disbursement of mortgage proceeds.

    Mortgage proceeds may not be disbursed at the initial disbursement 
or after closing (upon expiration of the 3-day rescission period under 
12 CFR part 226, if applicable) except:
    (a) Disbursements to the mortgagor, a relative or legal 
representative of the mortgagor, or a trustee for benefit of the 
mortgagor;
    (b) Disbursements for the initial MIP under Sec. 206.105(a);
    (c) Fees that the mortgagee is authorized to collect under 
Sec. 206.31;
    (d) Amounts required to discharge any existing liens on the 
property;
    (e) An annuity premium, if the premium was disclosed as part of the 
total cost of the mortgage under the disclosures required by 12 CFR 
part 226; and
    (f) Funds required to pay contractors who performed repairs as a 
condition of closing, in accordance with standard FHA requirements for 
repairs required by appraisers.
    4. A new Sec. 206.32 is added as follows:

[[Page 2988]]

Sec. 206.32  No outstanding unpaid obligations.

    In order for a mortgage to be eligible under this part, a mortgagor 
must establish to the satisfaction of the mortgagee that:
    (a) After the initial payment of loan proceeds under 
Sec. 206.25(a), there will be no outstanding or unpaid obligations 
incurred by the mortgagor in connection with the mortgage transaction, 
except for repairs to the property required under Sec. 206.47 and 
mortgage servicing charges permitted under Sec. 206.207(b); and
    (b) The initial payment will not be used for any payment to or on 
behalf of an estate planning service firm.
    5. Section 206.41 is amended by revising paragraph (b) to read as 
follows:


Sec. 206.41  Counseling.

* * * * *
    (b) Information to be provided. A counselor must discuss with the 
mortgagor:
    (1) The information required by section 255(f) of the National 
Housing Act;
    (2) Whether the mortgagor has signed a contract or agreement with 
an estate planning service firm that requires, or purports to require, 
the mortgagor to pay a fee on or after closing that may exceed amounts 
permitted by the Secretary or this part; and
    (3) If such a contract has been signed under Sec. 206.41(b)(2), the 
extent to which services under the contract may not be needed or may be 
available at nominal or no cost from other sources, including the 
mortgagee.
* * * * *
    6. A new Sec. 206.43 is added to read as follows:


Sec. 206.43  Information to mortgagor.

    (a) Disclosure of costs of obtaining mortgage. The mortgagee must 
ensure that the mortgagor has received full disclosure of all costs of 
obtaining the mortgage. The mortgagee must ask the mortgagor about any 
costs or other obligations that the mortgagor has incurred to obtain 
the mortgage, as defined by the Secretary, in addition to providing the 
Good Faith Estimate required by Sec. 3500.7 of this title. The 
mortgagee must clearly state to the mortgagor which charges are 
required to obtain the mortgage and which are not required to obtain 
the mortgage.
    (b) Lump sum disbursement. (1) If the mortgagor requests that at 
least 25% of the principal limit amount (after deducting amounts 
excluded in the following sentence) be disbursed at closing to the 
mortgagor (or as otherwise permitted by Sec. 206.29), the mortgagee 
must make sufficient inquiry at closing to confirm that the mortgagor 
will not use any part of the amount disbursed for payments to or on 
behalf of an estate planning service firm, with an explanation of 
Sec. 206.32 as necessary or appropriate.
    (2) This paragraph does not apply to any part of the principal 
limit used for the following:
    (i) Initial MIP under Sec. 206.105(a) or fees and charges allowed 
under Sec. 206.31(a) paid by the mortgagee from mortgage proceeds 
instead of by the mortgagor in cash; and
    (ii) Amounts set aside under Sec. 206.47 for repairs, under 
Sec. 206.205(f) for property charges, or Sec. 206.207(b).

    Dated: January 12, 1999.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 99-1084 Filed 1-15-99; 8:45 am]
BILLING CODE 4210-27-P