[Federal Register Volume 64, Number 199 (Friday, October 15, 1999)]
[Rules and Regulations]
[Pages 56108-56111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26972]



[[Page 56107]]

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Part V





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 200, 203, and 234



Single Family Mortgage Insurance; Clarification of Floodplain 
Requirements Applicable to New Construction; Final Rule

  Federal Register / Vol. 64, No. 199 / Friday, October 15, 1999/ Rules 
and Regulations  

[[Page 56108]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200, 203, and 234

[Docket No. FR-4323-F-02]
RIN 2502-AH16


Single Family Mortgage Insurance; Clarification of Floodplain 
Requirements Applicable to New Construction

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

ACTION: Final rule.

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

SUMMARY: This final rule adopts revisions to HUD's regulations 
concerning flood hazard exposure and single family mortgage insurance 
published for public comment in a proposed rule on April 30, 1999. 
These revisions provide mortgagees with an additional means of 
complying with HUD's single family flood hazard regulations and clarify 
a number of provisions in HUD's single family mortgage insurance 
regulations. HUD considered the comments received on the April 30, 1999 
proposed rule, but is adopting the revisions published in the proposed 
rule without change.

DATES: Effective Date: November 15, 1999.

FOR FURTHER INFORMATION CONTACT: Mark Holman, Chief, Mortgage 
Underwriting and Insurance Branch, Office of Insured Single Family 
Housing, U.S. Department of Housing and Urban Development, 451 Seventh 
Street, SW, Room 9270, Washington, DC 20410-8000; telephone (202) 708-
2121 (this is not a toll-free telephone number). Hearing-or speech-
impaired persons may access this number via TTY by calling the toll-
free Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

a. The April 30, 1999 Proposed Rule

    On April 30, 1999, HUD published a rule (64 FR 23480) for public 
comment that proposed certain revisions to HUD's regulations concerning 
flood hazard exposure and single family mortgage insurance. The 
revisions permit mortgagees to obtain an Elevation Certificate as an 
alternative to a final Letter of Map Amendment or Revision for 
submission with the Builder's Certification of Plans, Specifications, 
and Site when property improvements are located in a Special Flood 
Hazard Area. The revisions clarify that all provisions of 
Sec. 200.926d(c)(4) apply to one- to four-unit homes and to 
communities, whether or not the community has adopted criteria for site 
development. The revisions also clarify that structures are subject to 
the same elevation requirements, whether or not they have basements. 
Finally, the revisions remove obsolete provisions concerning 
subdivisions and improved area processing and make a number of 
conforming changes.

b. This Final Rule

    This final rule adopts the revisions published in the April 30, 
1999 proposed rule without change. The public comment period for the 
proposed rule closed on June 29, 1999. HUD received 14 comments. 
Commenters included trade associations, government agencies, lending 
institutions, and housing developers. HUD appreciates the suggestions 
offered by commenters and carefully considered the issues raised by 
them. For the reasons discussed below, however, we have chosen not to 
implement these suggestions. This section of the preamble presents a 
summary of the issues raised by the public commenters and HUD's 
responses to their comments.
    Comment--Require submission of other evidence of compliance in 
addition to elevation certificate. One commenter wrote that an 
elevation certificate (EC) alone does not document compliance with 
National Floodplain Insurance Program (NFIP) floodplain management 
requirements. The commenter suggested that the final rule require, in 
addition to an elevation certificate, the submission of other evidence 
from the community that indicates that property improvements comply 
with the community's floodplain management regulations. The commenter 
listed a number of documents that could be required to satisfy this 
requirement, including a building permit and a certificate of occupancy 
issued by the community.
    HUD Response. HUD agrees that the EC alone does not document 
compliance with NFIP floodplain management requirements. We do not 
believe, however, that it is necessary to require additional 
documentation of compliance because local procedures already require 
these documents. For example, it is absolutely necessary for a builder 
to obtain a building permit from local authorities before construction 
commences. Similarly, all properties submitted to HUD for endorsement 
must have been issued an occupancy permit by local authorities prior to 
submission. Requiring these additional documents, therefore, is 
unnecessary, would be a duplication of effort, and would run counter to 
the principle of streamlining government processes.
    Comment--Required flood insurance that is lesser of the outstanding 
balance of the mortgage, value of building, or maximum amount of NFIP 
insurance available. One commenter was concerned about the language in 
Sec. 203.16a(c) that states that flood insurance must be maintained in 
an amount equal to either ``the outstanding balance of the mortgage, 
less estimated land costs, or the maximum amount of the NFIP insurance 
available with respect to the property improvements, whichever is 
less.'' The commenter wrote that subtracting the estimated land cost 
from the outstanding balance of the mortgage could result in situations 
where no flood insurance is required on a mortgaged building. The 
commenter suggested requiring that the amount of flood insurance be at 
least equal to the lesser of the outstanding balance of the mortgage, 
the value of the building, or the maximum amount of NFIP insurance 
available.
    HUD Response. While HUD appreciates the commenter's suggestion, the 
provision contained in Sec. 203.16a(c) is not a direct subject of this 
rulemaking. Consequently, we have not made any changes in response to 
this comment. HUD, however, will consider this issue as a subject for a 
future rulemaking.
    Comment--HUD should conduct eight-step analysis required by 
Executive Order 11988. One commenter wrote that the proposed rule, in 
effect, waives the full eight-step process required by Executive Order 
11988 (entitled ``Floodplain Management'') for individual mortgage 
transactions. The commenter suggested that HUD should perform an 
analysis applying the eight-step process to the transactions covered 
under the proposed rule. The commenter suggested that the analysis 
should balance the adverse impacts of placing fill in some floodplains 
against any benefits of the current rule in discouraging floodplain 
development by requiring letters of map amendment (LOMA) and letters of 
map revision (LOMR).
    HUD Response. The commenter has misinterpreted HUD's regulations. 
The FHA single family mortgage insurance program, both for new 
construction (which this rule addresses) as well as for existing 
construction, is not subject to the requirements of Executive Order 
11988. HUD regulations at 24 CFR part 55 specifically address our 
responsibilities and procedures regarding the Executive Order. Prior to 
1993, single family new construction

[[Page 56109]]

was analyzed in an environmental assessment, which included the 
requirements of the Executive Order's eight-step analysis through HUD 
subdivision processing procedures. However, we terminated subdivision 
processing and approval in 1993. Currently, all applications for 
mortgage endorsement (insurance) are submitted to HUD by lenders after 
the structure has been built and the applicable local entity has 
determined that it meets floodplain and other requirements.
    Comment--Clarify when flood insurance must be purchased. One 
commenter wrote that the preamble to the proposed rule was not clear 
about when flood insurance must be purchased. The commenter suggested 
that the preamble to the final rule should clarify that flood insurance 
must be purchased when an EC is submitted, but not when a LOMA or LOMR 
is submitted.
    HUD Response. The commenter's understanding about when flood 
insurance must be purchased is correct. Whenever an EC is utilized, it 
indicates that improvements are in the base floodplain, and, therefore, 
flood insurance is mandatory. HUD will make this requirement clear in 
its processing documents and will advise lenders by issuing a Mortgagee 
Letter.
    Comment--Clarify rule and extend comment period. Two commenters 
urged HUD to clarify the proposed rule and requested that HUD extend 
the comment period in order to accomplish this.
    HUD Response. The commenters did not specify what aspects of the 
proposed rule needed clarification, and they gave no other 
justification for extending the comment period. Therefore, we have not 
extended the comment period. It is important to note, however, that we 
accepted and considered all comments received on the proposed rule, 
including those that were received shortly after the close of the 
comment period.
    Comment--Permit mortgage insurance in those portions of alluvial 
fans that pose the same or less risk as riverine special flood hazards. 
A number of commenters suggested that HUD should treat alluvial fans 
that pose the same or less risk as riverine special flood hazards the 
same as riverine special flood hazards for the purpose of issuing FHA 
mortgage insurance. These commenters wrote that these areas pose no 
more severe a threat than do riverine areas, and addressing them in the 
final rule will open up many areas to affordable housing that have 
previously been closed. Two commenters suggested certain additional 
engineering certification requirements for allowing construction on 
alluvial fans.
    HUD Response. HUD appreciates these commenters' concern for 
building affordable housing. Specific provisions concerning alluvial 
fans, however, are not the subject of this rulemaking. HUD's 
prohibition on mortgage insurance for properties in alluvial fans is 
based on the hazard posed by location in an alluvial fan and is not 
dependent on the availability from the Federal Emergency Management 
Agency (FEMA) of a LOMA or LOMR, which is no longer required under this 
rule. Adding provisions to specifically address alluvial fans in this 
rule would require the publication of a new proposed rule for public 
comment, which would delay the publication of this final rule. In 
addition, any decision to permit alluvial fans would require serious 
and detailed engineering and hydrological studies and analysis. These 
studies, of FEMA identified and designated alluvial fan areas, would be 
extremely time consuming and costly to conduct on a ``area by area'' 
basis. The reliance on certifications would be meaningless until such 
time as FEMA completes their currently ongoing studies of alluvial fans 
and makes a formal determination and issues guidance, requirements, and 
regulations regarding the safety aspects of alluvial fans that should 
be considered and taken into account. For the preceding reasons, we 
have decided not to specifically address alluvial fans in this 
rulemaking and have decided to proceed with the publication of this 
final rule.
    Comment--Add provision acknowledging Voluntary Affirmative 
Marketing Agreement. One commenter suggested adding the following 
language to Sec. 203.12(b)(3) at the end of the first paragraph:

    In lieu of submission of an Affirmative Fair Housing Marketing 
Plan, if the builder or developer is, either through a state or 
local home builder association or directly, a signatory to the 
Voluntary Affirmative Marketing Agreement (VAMA) between HUD and the 
National Association of Home Builders, the builder or developer may 
meet the requirement of this section by certifying to this effect on 
the Builder's Certification of Plans, Specifications and Site.

    HUD Response. While HUD appreciates the commenter's suggestion, the 
suggestion is outside the scope of this rulemaking. However, it should 
be noted that the provision that the commenter suggests is already part 
of HUD procedures. Box 11 of the Builder's Certification of Plans, 
Specifications, & Site allows a builder to certify that they are a 
signatory in good standing to a Voluntary Affirmative Marketing 
Agreement in lieu of submission of an Affirmative Fair Housing 
Marketing Plan.
    Comment--Include ``back-to-back'' units in Sec. 200.926(a)(1). One 
commenter suggested that the language in Sec. 200.926(a)(1) be expanded 
to include units that are ``back-to-back'' as well as units that are 
``side-to-side.'' The commenter suggested using the language ``where 
the units are joined in some manner with adjacent living units.''
    HUD Response. We have reviewed this suggestion, but do not believe 
any change or additional language is necessary. Section 200.926 applies 
to any one- to four-family structure, regardless of whether it is side-
by-side, back-to-back, stacked, or configured as a duplex, triplex, or 
fourplex.

II. Findings and Certifications

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332). The FONSI is 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the Office of the Rules Docket Clerk, Room 10276, 451 
Seventh Street, SW, Washington, DC 20410.

Paperwork Reduction Act Statement

    The information collection requirement contained at Sec. 203.12 of 
this final rule has been approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501-3520) and assigned OMB control number 2502-0496. 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.

Regulatory Flexibility Act

    The Secretary, in accordance with section 3(a) of the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), has reviewed this final rule before 
publication, and by approving it certifies that this rule would not 
have a significant economic impact on a substantial number of small 
entities.
    This final rule serves two primary purposes. First, it allows 
mortgagees greater flexibility by permitting them to comply with 
floodplain requirements through the submission of an additional type of 
document. Second, the final rule

[[Page 56110]]

removes obsolete provisions and makes clarifying amendments to the 
regulations. These changes reflect HUD's current interpretation of its 
regulations and would not increase the regulations' burden. These 
changes are being made in order to make the regulations clearer and 
more accurate.

Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612 (entitled ``Federalism''), has determined that 
the policies contained in this final rule do 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.

III. List of Subjects

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 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

24 CFR Part 234

    Condominiums, Mortgage insurance, Reporting and recordkeeping 
requirements.

PART 200--INTRODUCTION TO FHA PROGRAMS

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

PART 234--CONDOMINIUM OWNER MORTGAGE INSURANCE

    For the reasons stated in the preamble, HUD amends 24 CFR parts 
200, 203, and 234 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

    1. 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).

    2. Revise Sec. 200.926(a)(1) to read as follows:


Sec. 200.926  Minimum property standards for one and two family 
dwellings.

    (a) * * * (1) Applicable structures. The standards identified or 
contained in this section, and in Secs. 200.926a-200.926e, apply to 
single family detached homes, duplexes, three-unit homes, and to living 
units in a structure where the units are located side-by-side in town 
house fashion. Section 200.926d(c)(4) also applies to four-unit homes.
* * * * *
    3. Amend Sec. 200.926d as follows:
    a. Revise paragraph (c)(1)(ii);
    b. Revise paragraph (c)(1)(iii);
    c. Revise paragraph (c)(4)(iv); and
    d. Remove paragraph (c)(4)(vii):


Sec. 200.926d  Construction requirements.

* * * * *
    (c) * * *
    (1) * * *
    (ii) With the exception of paragraph (c)(4) of this section, these 
site design standards apply only in communities that have not adopted 
criteria for site development applicable to one and two family 
dwellings.
    (iii) Single family detached houses situated on individual lots 
located on existing streets with utilities need not comply with the 
requirements of paragraphs (c)(2) and (c)(3) of this section.
* * * * *
    (4) * * *
    (iv)(A) In all cases in which a Direct Endorsement (DE) mortgagee 
or a Lender Insurance (LI) mortgagee seek to insure a mortgage on a 
newly constructed one-to four-family dwelling (including a newly 
erected manufactured home) that was processed by the DE or LI 
mortgagee, the DE or LI mortgagee must determine whether the property 
improvements (dwelling and related structures/equipment essential to 
the value of the property and subject to flood damage) are located in a 
100-year floodplain, as designated on maps of the Federal Emergency 
Management Agency. If so, the DE mortgagee, before submitting the 
application for insurance to HUD, or the LI mortgagee, before 
submitting all the required data regarding the mortgage to HUD, must 
obtain:
    (1) A final Letter of Map Amendment (LOMA);
    (2) A final Letter of Map Revision (LOMR); or
    (3) A signed Elevation Certificate documenting that the lowest 
floor (including basement) of the property improvements is built at or 
above the 100-year flood elevation in compliance with National Flood 
Insurance program criteria 44 CFR 60.3 through 60.6.
    (B) Under the DE program, these mortgages are not eligible for 
insurance unless the DE mortgagee submits the LOMA, LOMR, or Elevation 
Certificate to HUD with the mortgagee's request for endorsement.
* * * * *

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    4. 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).

    5. Revise Sec. 203.12 to read as follows:


Sec. 203.12  Mortgage insurance on proposed or new construction.

    (a) Applicability. This section applies to an application for 
insurance of a mortgage on a one-to four-family dwelling, unless the 
mortgage will be secured by a dwelling that:
    (1) Was completed more than one year before the date of the 
application for insurance or, under the Direct Endorsement Program, was 
completed more than one year before the date of the appraisal; or
    (2) Is being sold to a second or subsequent purchaser.
    (b) Procedures. (1) Applications for insurance to which this 
section applies will be processed in accordance with procedures 
prescribed by the Secretary. These procedures may only provide for 
endorsement for insurance of a mortgage covering a dwelling that is:
    (i) Approved under the Direct Endorsement Program or the Lender 
Insurance Program; or
    (ii) Located in a subdivision approved by the Rural Housing 
Service.
    (2) The mortgagee must submit a signed Builder's Certification of 
Plans, Specifications and Site (Builder's Certification). The Builder's 
Certification must be in a form prescribed by the Secretary and must 
cover:
    (i) Flood hazards;
    (ii) Noise;
    (iii) Explosive and flammable materials storage hazards;
    (iv) Runway clear zones/clear zones;
    (v) Toxic waste hazards;
    (vi) Other foreseeable hazards or adverse conditions (i.e., rock 
formations, unstable soils or slopes, high ground water levels, 
inadequate surface drainage, springs, etc.) that may affect the health 
and safety of the occupants or the structural soundness of

[[Page 56111]]

the improvements. The Builder's Certification must be provided to the 
appraiser for reference before the performance of an appraisal on the 
property.
    (3) If a builder (or developer) intends to sell five or more 
properties in a subdivision, an Affirmative Fair Housing Marketing Plan 
(AFHMP) that meets the requirements of 24 CFR part 200, subpart M must 
be submitted and approved by HUD no later than the date of the first 
application for mortgage insurance in that subdivision. Thereafter, 
applications for insurance on other properties sold by the same builder 
(or developer) in the same subdivision may make reference to the 
existing previously approved AFHMP.
    6. Revise Sec. 203.16a to read as follows:


Sec. 203.16a  Mortgagor and mortgagee requirement for maintaining flood 
insurance coverage.

    (a) If the mortgage is to cover property improvements (dwelling and 
related structures/equipment essential to the value of the property and 
subject to flood damage) that:
    (1) Are located in an area designated by the Federal Emergency 
Management Agency (FEMA) as a floodplain area having special flood 
hazards, or
    (2) Are otherwise determined by the Commissioner to be subject to a 
flood hazard, and if flood insurance under the National Flood Insurance 
Program (NFIP) is available with respect to these property 
improvements, the mortgagor and mortgagee shall be obligated, by a 
special condition to be included in the mortgage commitment, to obtain 
and to maintain NFIP flood insurance coverage on the property 
improvements during such time as the mortgage is insured.
    (b) No mortgage may be insured that covers property improvements 
located in an area that has been identified by FEMA as an area having 
special flood hazards, unless the community in which the area is 
situated is participating in the National Flood Insurance Program and 
such insurance is obtained by the mortgagor. Such requirement for flood 
insurance shall be effective one year after the date of notification by 
FEMA to the chief executive officer of a flood prone community that 
such community has been identified as having special flood hazards.
    (c) The flood insurance must be maintained during such time as the 
mortgage is insured in an amount at least equal to either the 
outstanding balance of the mortgage, less estimated land costs, or the 
maximum amount of the NFIP insurance available with respect to the 
property improvements, whichever is less.

PART 234--CONDOMINIUM OWNER MORTGAGE INSURANCE

    7. The authority citation for 24 CFR part 234 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b and 1715y; 42 U.S.C. 3535(d). Section 
234.520(a)(2)(ii) is also issued under 12 U.S.C. 1707(a).


Sec. 234.1  [Amended]

    8. In Sec. 234.1, remove the words ``Mortgage insurance on proposed 
or new construction in a new subdivision'' and add, in their place, the 
words ``Mortgage insurance on proposed or new construction''.
* * * * *
    Dated: October 8, 1999.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 99-26972 Filed 10-12-99; 3:10 pm]
BILLING CODE 4210-27-P