[Federal Register Volume 64, Number 30 (Tuesday, February 16, 1999)]
[Proposed Rules]
[Pages 7726-7730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3562]



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Part III





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 203



Single Family Mortgage Insurance; Informed Consumer Choice Disclosure 
Notice; Proposed Rule

  Federal Register / Vol. 64, No. 30 / Tuesday, February 16, 1999 / 
Proposed Rules  

[[Page 7726]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4411-P-01]
RIN 2502-AH30


Single Family Mortgage Insurance; Informed Consumer Choice 
Disclosure Notice

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

ACTION: Proposed rule.

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

SUMMARY: HUD is publishing this proposed rule to implement a recent 
statutory amendment to HUD's FHA Single Family Mortgage Insurance 
Program. The statutory amendment requires the original lender to 
disclose certain information, in the form of a notice, to each 
prospective borrower who has applied for an FHA-insured home mortgage; 
and HUD to develop this disclosure notice. Specifically, through the 
disclosure notice, the lender must provide the borrower with an 
analysis comparing the mortgage costs of the FHA-insured mortgage to 
the mortgage costs of other similar conventional mortgage products that 
the lender offers and for which the borrower might qualify. The 
disclosure notice must also provide information about when the 
borrower's requirement to pay FHA mortgage insurance premiums 
terminates.

DATES: Submit comments on or before March 18, 1999.

ADDRESSES: Submit your comments about this proposed rule to the Office 
of the General Counsel, Rules Docket Clerk, room 10276, Department of 
Housing and Urban Development, 451 Seventh Street, SW, Washington, DC 
20410-0500. Your comments should refer to the above docket number and 
title. We do not accept facsimile (FAX) comments. A copy of each 
communication submitted will be available for public inspection and 
copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern 
time) at the above address.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Home 
Mortgage Insurance Division, Office of Insured Single Family Housing, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Washington, DC 20410-8000, Room 9270; Telephone: (202) 708-2121 (this 
is not a toll-free number). Hearing or speech-impaired individuals may 
access this number via TTY by calling the toll-free Federal Information 
Relay Service at (800) 877-8399.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 225(a) of the Departments of Veterans Affairs and Housing 
and Urban Development, and Independent Agencies Appropriations Act, 
1999 (HUD FY 1999 Appropriations Act), Pub. L. 105-276, 112 Stat. 2461, 
amended sec. 203(b)(2) of the National Housing Act by adding at the end 
of the section the following language:

    In conjunction with any loan insured under this section, an 
original lender shall provide to each prospective borrower a 
disclosure notice that provides a one page analysis of mortgage 
products offered by that lender and for which the borrower would 
qualify. This notice shall include: (i) a generic analysis comparing 
note rate (and associated interest payments), insurance premiums, 
and other costs and fees that would be due over the life of the loan 
for a loan insured by the Secretary under this subsection with note 
rates, insurance premiums (if applicable), and other costs and fees 
that would be expected to be due if the mortgagor obtained instead 
other mortgage products offered by the lender and for which the 
borrower would qualify with similar loan-to-value ratio in 
connection with a conventional mortgage . . . assuming prevailing 
interest rates; and (ii) a statement regarding when the mortgagor's 
requirement to pay mortgage insurance premiums for a mortgage 
insured under this section would terminate or a statement that the 
requirement will terminate only if the mortgage is refinanced, paid 
off, or otherwise terminated.

    This amendment requires original lenders to provide each 
prospective FHA-insured mortgage borrower with an analysis comparing 
the mortgage costs of the FHA-insured mortgage to the mortgage costs of 
other similar conventional mortgage products that the lender offers and 
for which the borrower might qualify. The amendment also requires the 
lender to provide information to the borrower about when the borrower's 
requirement to pay FHA mortgage insurance premiums terminates.
    Section 225(b) of the FY 1999 HUD Appropriations Act directs HUD to 
develop the disclosure notice document, through which the lender must 
disclose this information. Section 225(b) also directs HUD to develop 
this notice within 150 days of enactment of the FY 1999 HUD 
Appropriations Act and to develop the notice through notice and comment 
rulemaking.
    This proposed rule includes, for comment, a model disclosure notice 
that contains the consumer information required to be disclosed by 
section 225(a). The proposed rule also provides a model format for the 
notice. The proposed rule includes an amendment to HUD's regulations at 
24 CFR part 203 that would add a new section, Sec. 203.10. Section 
203.10 would conform HUD's regulations to the statutory lender 
disclosure requirement.

II. Proposed Informed Consumer Choice Disclosure Notice

    The following provides HUD's proposal for the informed consumer 
choice disclosure notice. HUD specifically solicits comments and 
recommendations on the format of the proposed disclosure notice. FHA 
anticipates that lenders will develop generic disclosure notices that 
compare a typical FHA mortgage in the marketplace with typical 
conventional mortgages offered by that lender, using a $100,000 sales 
price (or other such amount as may be typical within the lender's 
market) and using the suggested format and instructions shown below for 
guidance.
    As conventional mortgage offerings and pricing change over time, 
lenders will be required to modify their disclosure notices 
accordingly. HUD believes that a generic disclosure notice (similar to 
those provided on ARMs) reflects the intent of Congress in enacting 
sec. 225(a) and does not impose an unreasonable burden on lenders. 
Therefore, HUD will not require a case-specific disclosure notice for 
each borrower who may qualify for both a FHA-insured mortgage and 
conventional financing. To do otherwise would significantly increase 
mortgage origination costs and be counter to the intent of the 
Paperwork Reduction Act of 1995.
    To complete the generic disclosure format shown below, lenders 
should use the following instructions. At the lenders discretion, 
lenders may add additional line items to the disclosure format, shown 
below, if the conventional financing is so unique or creative that such 
additions are necessary to make a meaningful comparison.

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II. Findings and Certifications

Justification for Shortened Comment Period

    Generally, HUD provides a 60-day public comment period on all rules 
in accordance with 24 CFR part 10. Section 225(b) of the HUD FY 1999 
Appropriations Act directs HUD to develop this rule within 150 days of 
the date of enactment. The HUD FY 1999 Appropriations Act was enacted 
on October 21, 1998. The deadline to develop this rule, therefore, is 
March 20, 1999. To assist us in meeting this deadline, we have 
shortened the public comment period to 30 days.

Paperwork Reduction Act Statement

    The proposed information collection requirements contained at 
Sec. 203.10 of this proposed rule have been submitted to the Office of 
Management and Budget (OMB) for review under sec. 3507(d) of the 
Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35. An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a valid 
control number.
    (a) In accordance with 5 CFR 1320.5(a)(1)(iv), HUD is setting forth 
the following concerning the proposed collection of information:
    (1) Title of the information collection proposal: Single Family 
Mortgage Insurance; Informed Consumer Choice Disclosure Notice
    (2) Summary of the collection of information: The information 
collection requires lenders to provide prospective borrowers with a 
disclosure notice that contains an analysis of the costs of an FHA-
insured mortgage compared with the costs of other conventional mortgage 
products that a lender offers and for which the borrower might qualify. 
In order to produce this notice, the lender would be required to 
collect information about any applicable mortgage products, such as 
interest rates, insurance premiums, and other costs and fees that would 
be due over the life of the particular mortgage product.
    (3) Description of the need for the information and its proposed 
use: The need for the disclosure notice was mandated by Congress. The 
notice would be provided to prospective borrowers who have applied for 
an FHA-insured mortgage so that they would be able to evaluate the 
overall costs of an FHA-insured mortgage versus a similar conventional 
mortgage for which the mortgagor might also qualify.
    (4) Description of the likely respondents, including the estimated 
number of likely respondents, and proposed frequency of response to the 
collection of information: Respondents would be HUD-approved lenders 
participating in the Single Family Mortgage Insurance Program. The 
estimated number of respondents is described in paragraph (5). The 
proposed frequency of responses would be variable as lenders would 
revise their disclosure notices only when their mortgage product 
offerings change.
    (5) Estimate of the total reporting and recordkeeping burden that 
will result from the collection of information:

                                                Reporting Burden:
----------------------------------------------------------------------------------------------------------------
                                       Number of                             Est. Avg. response     Est. annual
             Reference                respondents     Freq. of response         time (hours)       burden (Hrs.)
----------------------------------------------------------------------------------------------------------------
Sec.  203.10......................            9000  Varies...............  \1/2\ Hour...........            4500
----------------------------------------------------------------------------------------------------------------


                          Recordkeeping Burden
------------------------------------------------------------------------
                                             Hours per     Total annual
              Recordkeepers                recordkeeper      responses
------------------------------------------------------------------------
  There are no recordkeeping burdens associated with this disclosure
notice.
------------------------------------------------------------------------

    (b) In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting 
comments from members of the public and affected agencies concerning 
the proposed collection of information in order to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance HUD's functions, including whether 
the information will have practical utility;
    (2) Evaluate the accuracy of HUD's estimate of the proposed 
collection of information's burden;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the proposed collection of information's burden on 
respondents, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
proposed information collection requirements. Comments must be received 
within 60 days from the date of this proposal. Comments must refer to 
this proposed rule by name and docket number (FR-4411-P-01) and must be 
sent to:

Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and 
Budget, New Executive Office Building, Washington, DC 20503
and
Reports Liaison Officer, Office of the Assistant Secretary for Housing-
Federal Housing Commissioner, Department of Housing and Urban 
Development, 451 7th Street, SW, Room 9116, Washington, DC 20410

Environmental Impact

    In accordance with 24 CFR 50.19(c)(1) of HUD's regulations, this 
proposed rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Therefore, this proposed rule is categorically 
excluded from the requirements of the National Environmental Policy 
Act, 42 U.S.C. 4321-4347.

Regulatory Flexibility Act

    The Secretary has reviewed this proposed rule before publication 
and by approving it certifies, in accordance with 5 U.S.C. 605(b) (the 
Regulatory Flexibility Act), that this proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule simply

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implements a statutory disclosure requirement and provides a proposed 
format for that notice. While HUD does not anticipate that this 
proposed rule would have a significant economic impact on a substantial 
number of small entities, HUD specifically requests comments regarding 
alternatives to compliance that may be less burdensome for small 
entities.

Federalism

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

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for part 203 is 
14.117.

List of Subjects in 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, 24 CFR part 203 is proposed to be amended as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    1. 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).

    2. Add Sec. 203.10 to read as follows:


Sec. 203.10  Informed consumer choice disclosure notice.

    (a) Applicability. Before making a mortgage insured under this 
part, the mortgagee must provide a prospective mortgagor with an 
informed consumer choice disclosure notice, in a format prescribed by 
the Commissioner.
    (b) Contents of notice. The informed consumer choice disclosure 
notice must provide a generic analysis of the costs of conventional 
mortgage products, offered by the mortgagee and for which the mortgagor 
might qualify, that have similar loan-to-value ratios as the 
prospective FHA-insured mortgage.
    (c) Timing. The informed consumer choice disclosure notice must be 
provided to the prospective mortgagor within three days of signing the 
mortgage loan application for the prospective FHA-insured mortgage.
    (d) Effective date. This section applies to any application for 
FHA-insured mortgage insurance under Sec. 203(b) of the National 
Housing Act (12 U.S.C. 1709) that the mortgagee receives on or after 
[Insert effective date of the final rule].

    Dated: January 29, 1999.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 99-3562 Filed 2-12-99; 8:45 am]
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