[Federal Register Volume 64, Number 57 (Thursday, March 25, 1999)]
[Rules and Regulations]
[Pages 14568-14569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7346]



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Part VI





Department of Housing and Urban Development





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24 CFR Part 203



FHA Single Family Mortgage Insurance; Statutory Changes for Maximum 
Mortgage Limit and Downpayment Requirement; Final Rule

  Federal Register / Vol. 64, No. 57 / Thursday, March 25, 1999 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4431-F-01]
RIN 2502-AH31


FHA Single Family Mortgage Insurance; Statutory Changes for 
Maximum Mortgage Limit and Downpayment Requirement

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

ACTION: Final rule.

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SUMMARY: This final rule amends provisions of current regulations to 
provide consistency with recent statutory changes for the maximum 
mortgage limit and downpayment requirements for FHA single family 
mortgage insurance programs.

EFFECTIVE DATE: April 26, 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, (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: On October 21, 1998, President Clinton 
approved the Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act, 1999, Pub. L. 
105-276. Section 212 of the Act extended on a nationwide basis, through 
September 30, 2000, the simplified downpayment calculations that have 
been in effect the previous two years for FHA-insured single family 
mortgages in Alaska and Hawaii. Section 228 of the Act permitted 
increased FHA mortgage limits for high-cost areas of the country and 
raised the basic FHA ``floor'' mortgage limit available throughout the 
country. The Department has concluded that neither provision presents 
implementation issues that require a notice-and-comment procedure 
before making the necessary conforming revisions to 24 CFR part 203.

Mortgage Limits

    As revised, 24 CFR 203.18 will no longer reproduce the statutory 
language of section 203(b)(2)(A) of the National Housing Act (NHA) 
regarding dollar amount limitations on FHA-insured mortgages. For a 
number of years, in an effort to respond to Congressional expectations 
of rapid implementation, the Department has initially implemented 
statutory changes in FHA single family mortgage limits through 
Mortgagee Letters with the intention of producing a conforming final 
rule soon afterwards. The Mortgagee Letter procedure has proven to be 
an effective means of rapidly disseminating information on the initial 
implementation of these statutory changes. However, HUD's intention to 
produce a follow-up conforming final rule rapidly has not always been 
realized in the crush of other competing regulatory priorities. For 
example, the statutory provision that first related FHA maximum 
mortgage limits to Freddie Mac's 1992 conforming loan limits was 
approved in October 1992 but not reflected in FHA regulations until the 
end of July 1993. In September 1994, the statutory provision was 
amended to substitute Freddie Mac's current conforming loan limit for 
the 1992 loan limit, but this change is not yet reflected in 
regulations.
    In recent years, because of the frequent changes in underlying 
legislation and the annual changes in mortgage limits due to changes in 
the Freddie Mac limit, the regulations have not served as an important 
or reliable vehicle for disseminating current information on mortgage 
limits to the industry or the general public. The Department has 
concluded that the public would be better served by regulations that 
make clear that the statute sets out the basic approach to maximum 
mortgage limits for an area and that HUD will implement changes in 
mortgage limits by non-regulatory administrative means following the 
procedure set forth in Sec. 203.18(h). By citing the applicable 
statutory section, the revised Sec. 203.18(a) will still serve as an 
informational tool for persons who are uncertain where the statutory 
provision is located without misleading anyone by outdated provisions.
    The Department has also updated 24 CFR 203.29(a) regarding section 
214 of the NHA and increased mortgage limits in Alaska, Hawaii, Guam 
and the Virgin Islands. Some unnecessary repetition of statutory 
language has been omitted, and the regulatory requirement that mortgage 
limit increases authorized by section 214 be published in the Federal 
Register has been replaced by a reference to Sec. 203.18(h). Section 
203.18(h) generally permits area mortgage limit changes within the 
statutory minimum and maximum levels to be established by 
administrative issuances to affected mortgagees as an alternative to 
Federal Register notice, but it has not previously been applicable to 
increases authorized by section 214 because of the regulatory language 
requiring a Federal Register notice. Section 214 specifically permits 
the Secretary to make increases by regulations ``or otherwise''. This 
does not require a Federal Register notice, and there is no 
administrative need to continue to distinguish the regulatory 
procedures for mortgage limits based on section 214 from the procedures 
for other mortgage limits.

Downpayment Simplification

    Section 203.18 is also revised to present the current requirements 
on downpayments and loan-to-value ratios in a more accessible fashion. 
In general, the revised rule refers simply to the applicable statutory 
provisions in the NHA: section 203(b)(10) on a temporary basis, with 
section 203(b)(2)(B) still in effect on a permanent basis. (Until the 
interim rule discussed below takes effect, Sec. 203.18(a)(3) will 
include the current substantive approach to implementation of 
203(b)(2)(B) for high-ratio mortgages on new homes. Readers are advised 
to consider this final rule and the interim rule together because 
Sec. 203.18(a)(3) of the interim rule, rather than this final rule, 
presents HUD's warranty policy for high-ratio mortgages, subject to 
further reconsideration after review of public comments on the interim 
rule.)
    This final rule also continues HUD's previous policy of 
distinguishing between secondary and primary residences for downpayment 
purposes by limiting insured mortgages on secondary residences to 85% 
of appraised value. Section 203(b)(10) has no effect on the calculation 
of mortgage amounts under section 203(h) of the NHA for homes for 
disaster victims or section 203(i) of the NHA for homes in outlying 
areas. Therefore, the language in Sec. 203.18(d) for section 203(i) 
mortgages remains the same except for one technical cross-reference 
change required because of the revision of Sec. 203.18(a). No changes 
are made to Sec. 203.18(e) for homes for disaster victims.
    The definition of appraised value in Sec. 203.18(f)(4) is amended 
to recognize that the loan-to-value ratios under section 203(b)(10) 
downpayment simplification are intended to be applied to appraised 
value (or sales price, if lower) without including HUD-approved closing 
costs as part of appraised value.
    In today's Federal Register, a separate interim rule is published 
regarding a substantive change in policy on warranty requirements for 
high ratio mortgages on new homes. That interim

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rule will take effect one day after this final rule. It will clarify 
the applicability of the Department's current handbook policy requiring 
a comprehensive 1-year builder's warranty for new homes, as a necessary 
step to full implementation of downpayment simplification for new homes 
and as a permanent change in policy. It will also make a substantive 
revision to Sec. 203.18(a)(3) of this final rule.

Justification for Final Rule

    HUD ordinarily provides an opportunity for the public to comment on 
HUD rules before they take effect. However, 24 CFR 10.1 permits HUD to 
dispense with notice and public procedures--through either an interim 
or a final rule--if HUD determines that notice and public procedure are 
impracticable, unnecessary or contrary to the public interest. In this 
case, public comment is both unnecessary and contrary to the public 
interest. It is unnecessary because the rule as revised simply reflects 
the statutory changes, without any other change in substance, with some 
simplification in regulatory language. Delayed effectiveness pending 
public comment would be contrary to the public interest because the 
regulations would mislead by setting forth an outdated version of the 
law.

Other Matters

Environmental Review

    This final rule is exempted from environmental review under the 
categorical exclusion in 24 CFR 50.19(c)(6).

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 final rule 
merely authorizes an alternative way of qualifying a newly-constructed 
home for a high-ratio FHA-insured mortgage. The final rule has no 
adverse or disproportionate economic impact on small businesses.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this final 
rule would 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 would result from this final rule that 
affect the relationship between the Federal Government and State and 
local governments.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance Number for the principal 
FHA single family mortgage insurance program is 14.117. This final rule 
would also apply through cross-referencing to FHA mortgage insurance 
for condominium units (14.133) and other smaller programs.

List of Subjects in 24 CFR part 203

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

    Accordingly, 24 CFR part 203 is amended to read as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    1. The authority citation for part 203 continues to read as 
follows:

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

    2. Section 203.18 is amended by revising paragraph (a), the 
introductory text of paragraph (b), paragraph (d)(1)(i), and paragraph 
(f)(4)(ii) to read as follows:


Sec. 203.18  Maximum mortgage amounts.

    (a) Mortgagors of principal or secondary residences. The principal 
amount of the mortgage must not exceed the lesser of the following 
amounts that apply:
    (1) The dollar amount limitation that applies for the area under 
section 203(b)(2)(A) of the National Housing Act including any increase 
in the dollar limitation under Sec. 203.29, as announced in accordance 
with Sec. 203.18(h);
    (2)(i) The amount based on appraised value that is permitted by 
section 203(b)(10) of the National Housing Act, if that provision is in 
effect and applies to the mortgage; or
    (ii) If section 203(b)(10) is not in effect or otherwise does not 
apply to the mortgage, the lesser of the amounts based on appraised 
value that are permitted by section 203(b)(2)(B) of the National 
Housing Act and paragraph (g) of this section;
    (3) An amount equal to 90 percent of the appraised value, if the 
dwelling is a new home that was completed 1 year or less from the date 
of the mortgage insurance application and the dwelling is neither 
approved before the beginning of construction or covered by an 
acceptable consumer protection or warranty plan as provided in section 
203(b)(2)(B) of the National Housing Act; or
    (4) An amount equal to 85 percent of the appraised value if the 
mortgage covers a dwelling that is to be occupied as a secondary 
residence (as defined in paragraph (f)(2) of this section).
    (b) Veteran qualifications. The special veteran terms provided in 
section 203(b)(2) of the National Housing Act shall apply only if the 
mortgagor submits one of the following certifications:
* * * * *
    (d) * * *
    (1) * * *
    (i) 75 percent of the dollar limitation under (a)(1).
* * * * *
    (f) * * *
    (4) * * *
    (i) * * *
    (ii) Borrower-paid closing costs allowed under Sec. 203.27(a)(1)-
(3), except that closing costs do not apply if section 203(b)(10) of 
the National Housing Act is in effect and neither sales price nor 
closing costs apply for purposes of paragraph (g) of this section.
* * * * *
    3. Section 203.29 is amended by revising paragraph (a) to read as 
follows:


Sec. 203.29  Eligible mortgages in Alaska, Guam, Hawaii, or the Virgin 
Islands.

    (a) When is an increased mortgage limit permitted for these areas? 
For Alaska, Guam, Hawaii or the Virgin Islands, the Commissioner may 
increase the maximum mortgage amount permitted by section 203(b)(2)(A) 
of the National Housing Act when authorized by section 214 of that Act, 
through the procedures described in Sec. 203.18(h).
* * * * *
    Dated: March 11, 1999.
William C. Apgar,
Assistant Secretary for Housing.
[FR Doc. 99-7346 Filed 3-24-99; 8:45 am]
BILLING CODE 4210-27-P