[Federal Register Volume 65, Number 36 (Wednesday, February 23, 2000)]
[Rules and Regulations]
[Pages 9084-9087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4193]



[[Page 9083]]

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

Part III





Department of Housing and Urban Development





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



24 CFR Parts 25 and 30



Amendments to HUD's Mortgagee Review Board and Civil Money Penalty 
Regulations; Final Rule

  Federal Register / Vol. 65, No. 36 / Wednesday, February 23, 2000 / 
Rules and Regulations  

[[Page 9084]]


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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 25 and 30

[Docket No. FR-4308-I-01]
RIN 2501-AC44


Amendments to HUD's Mortgagee Review Board and Civil Money 
Penalty Regulations

AGENCY: Office of the Secretary, HUD.

ACTION: Interim rule.

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

SUMMARY: This interim rule makes conforming changes to HUD regulations 
to reflect statutory changes made by the Multifamily Assisted Housing 
Reform and Affordability Act of 1997 (the Multifamily Reform Act). 
Among other amendments, the Multifamily Reform Act provides that a 
suspension issued by the HUD Mortgagee Review Board is effective, 
without previous 30-day written notice of violation to the mortgagee, 
if there is sufficient evidence that immediate action is required to 
protect the financial interests of HUD or the public. The Multifamily 
Reform Act also expanded the list of persons and types of violations 
subject to a civil money penalty under HUD's insured housing programs. 
The interim rule also makes three clarifying, non-substantive 
amendments to these regulations. The first clarifies under what 
conditions HUD's Mortgagee Review Board may issue a suspension. The 
second amendment clarifies the effect of a suspension or withdrawal 
issued by the Board. The third clarifies that the Assistant Secretary 
for Public and Indian Housing may initiate a civil money penalty under 
the section 184 Indian housing loan guarantee program.

DATES: Effective Date: March 24, 2000.
Comments Due Date: April 24, 2000.

FOR FURTHER INFORMATION CONTACT: Dane Narode, Deputy Chief Counsel for 
Administrative Proceedings, Departmental Enforcement Center, Room B-
133, Department of Housing and Urban Development, 451 Seventh Street, 
SW, Washington, DC 20410; telephone (202) 708-2350 (this is not a toll-
free number). Hearing or speech-impaired persons may access this number 
via TTY by calling the toll-free Federal Information Relay Service at 
1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. The Multifamily Assisted Housing Reform and Affordability Act of 
1997

    On October 27, 1997, President Clinton signed into law the 
Multifamily Assisted Housing Reform and Affordability Act of 1997 
(Title V of the Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act, 1998) (Public 
Law 105-65) (the ``Multifamily Reform Act'' or ``Act''). The 
Multifamily Reform Act made several amendments to strengthen HUD's 
enforcement authority under the National Housing Act (12 U.S.C. 1701 et 
seq.), which establishes the statutory framework for HUD's insured 
housing programs. These programs are administered by HUD's Office of 
Housing-Federal Housing Administration (FHA).
    Among other amendments, the Multifamily Reform Act provides that 
suspensions issued by the HUD Mortgagee Review Board are effective, 
without previous 30-day written notice of violation to the mortgagee, 
if there is sufficient evidence that immediate action is required to 
protect the financial interests of HUD or the public. The Multifamily 
Reform Act also expanded the list of persons and types of violations 
subject to a civil money penalty under HUD's FHA programs.

II. This Interim Rule--Implementing the Multifamily Reform Act

A. General

    This interim rule updates HUD's FHA enforcement regulations to 
reflect the statutory amendments described above. Specifically, the 
interim rule amends the regulations at 24 CFR part 25 (which 
establishes the procedures governing HUD's Mortgagee Review Board) and 
24 CFR part 30 (which implements HUD's civil money penalty provisions). 
The statutory amendments were effective upon enactment of the 
Multifamily Reform Act. This interim rule merely conforms HUD's FHA 
enforcement regulations to reflect the amended provisions of the 
National Housing Act. Nonetheless, HUD is issuing these amendments on 
an interim basis, and invites public comment on the regulatory 
amendments made by this interim rule. These regulatory amendments are 
described below:

B. Section 551 of the Multifamily Reform Act--Amendment to HUD's 
Mortgagee Review Board Regulations

    Section 202(c) of the National Housing Act (12 U.S.C. 1708) 
establishes the HUD Mortgagee Review Board, which ``is empowered to 
initiate the issuance of a letter of reprimand, the probation, 
suspension or withdrawal of any mortgagee found to be engaging in 
activities in violation of [FHA] requirements or the nondiscrimination 
requirements of the Equal Credit Opportunity Act, the Fair Housing Act, 
or Executive Order 11063.'' Section 202(c)(4)(A) of the National 
Housing Act, however, requires that the Mortgagee Review Board provide 
a mortgagee with 30 days written notice before taking any such action. 
HUD's regulations implementing section 202(c) are located in 24 CFR 
part 25 (entitled ``Mortgagee Review Board'').
    Section 551 of the Multifamily Reform Act amended section 202(c) of 
the National Housing Act to provide that a suspension is effective upon 
issuance, without the prior 30-day written notice, ``if the Board 
determines that there exists adequate evidence that immediate action is 
required to protect the financial interests of [HUD] or the public.'' 
This rule updates 24 CFR 25.5 (entitled ``Administrative actions'') and 
25.6 (entitled ``Notice of violation'') to reflect the amendment made 
by section 551 of the Multifamily Reform Act.

C. Section 553 of the Multifamily Reform Act--Amendment to HUD's Civil 
Money Penalty Regulations

    Section 536 of the National Housing Act (12 U.S.C. 1735f-14) 
governs the imposition of a civil money penalty against certain 
participants in FHA programs who knowingly and materially violate 
specified program requirements. Before enactment of the Multifamily 
Reform Act, civil money penalties under section 536 were limited to 
mortgagees approved under the National Housing Act and lenders holding 
a contract of insurance under title I of the National Housing Act.
    Section 553 of the Multifamily Reform Act expanded the list of 
persons against whom HUD may impose a civil money penalty to include 
any principal, officer, or employee of such mortgagee or lender, or 
other participants in either a mortgage insured under the National 
Housing Act or any loan that is covered by a contract of insurance 
under title I of the National Housing Act, or a provider of assistance 
to the borrower in connection with any such mortgage or loan. Section 
553 list examples of individuals who may be subject to such a penalty, 
including sellers, borrowers, closing agents, title companies, real 
estate agents, mortgage brokers, appraisers, loan correspondents, and 
dealers. This interim rule expands the list to include consultants, 
contractors, subcontractors, and inspectors.
    Section 553 of the Multifamily Reform Act also specifies the types 
of violations for which these individuals and entities may be subject 
to a civil money penalty. These violations are:
    (1) Submission to the Secretary of information that was false, in 
connection with any mortgage insured

[[Page 9085]]

under the National Housing Act, or any loan that is covered by a 
contract of insurance under title I of the National Housing Act;
    (2) Falsely certifying to the Secretary or submitting to the 
Secretary a false certification by another person or entity in 
connection with any mortgage insured under the National Housing Act, or 
any loan that is covered by a contract of insurance under title I of 
the National Housing Act; and
    (3) Failure by a loan correspondent or dealer to submit to the 
Secretary information which is required by regulation or directives in 
connection with any loan that is covered by a contract of insurance 
under title I of the National Housing Act.
    HUD's regulations at 24 CFR part 30 (entitled ``Civil Money 
Penalties: Certain Prohibited Conduct'') implement HUD's civil money 
penalty provisions. This interim rule creates a new Sec. 30.36 to 
implement the statutory amendments made by section 553 of the 
Multifamily Reform Act.

III. This Interim Rule--Clarifying Amendments

A. Mortgagee Review Board's Ability To Issue Suspensions

    In addition to implementing sections 551 and 553 of the Multifamily 
Reform Act, this interim rule makes a clarifying amendment to HUD's 
Mortgagee Review Board regulations at 24 CFR part 25. The regulation at 
Sec. 25.5(d) describes the conditions under which the Mortgagee Review 
Board may issue a suspension. Currently, this regulation provides that 
the Board may issue a suspension ``based upon adequate evidence,'' but 
does not specify what the adequate evidence must consist of or how long 
the suspension may last. This interim rule clarifies that a suspension 
must be based on adequate evidence of violation(s) under Sec. 25.9 
(which lists the causes for an administrative action), ``and if 
continuation of the mortgagee's HUD/FHA approval pending the completion 
of any audit, investigation, or other review, or other administrative 
or legal proceedings as may ensue, would not be in the public interest 
or in the best interests of HUD.'' This is the longstanding standard 
that HUD has consistently used to govern the issuance of suspensions 
under Sec. 25.5. The rule would, therefore, not establish a new 
requirement or standard, but would merely conform HUD's regulations to 
existing agency practice.
    This standard was formerly codified at 25.5(d) (see the April 1, 
1995 edition of title 24 of the Code of Federal Regulations) and was 
removed as part of HUD's January 9, 1996 (60 FR 684) final rule, which 
made various streamlining and clarifying amendments to 24 CFR part 25. 
HUD has determined that re-codification of this standard will enhance 
the clarity of its Mortgagee Review Board regulations.
    Although this amendment would not substantively alter the substance 
or meaning of Sec. 25.5(d), HUD welcomes public comment on the 
amendment. All public comments will be considered in the development of 
the final rule.

B. Effect of Suspension or Withdrawal Issued by Mortgagee Review Board.

    This interim rule revises Sec. 25.5 to clarify the effects of a 
suspension or withdrawal issued by the Mortgagee Review Board. These 
amendments are not substantive, but are designed to make the part 25 
regulations easier to understand. Among other such changes, the rule 
clarifies that the prohibition on the origination of new loans by 
suspended or withdrawn mortgagees covers both title I and title II 
loans under the National Housing Act.

C. Civil Money Penalties for Indian Housing Loan Guarantee Program

    This interim rule also makes a clarifying, non-substantive change 
to Sec. 30.40, which describes civil money penalties under the Indian 
housing loan guarantee program. The amendment clarifies that the 
Assistant Secretary for Public and Indian Housing has been delegated 
the authority to initiate civil money penalties under this program.

III. Other Amendments Made by the Multifamily Reform Act Not 
Implemented by This Interim Rule

    In addition to the statutory amendments described above, the 
Multifamily Reform Act made several other revisions to HUD's FHA and 
public and assisted housing programs. For example, section 561 of the 
Multifamily Reform Act expands the list of persons and types of 
violations subject to a civil money penalty under section 537 of the 
National Housing Act. Further, section 563 of the Multifamily Reform 
Act amends the United States Housing Act of 1937 (the statutory 
authority for HUD's public and assisted housing programs) to provide 
for the imposition of civil money penalties for noncompliance with 
Section 8 Housing Assistance Payment contracts. The Multifamily Reform 
Act directs that HUD implement these statutory amendments using notice 
and comment rulemaking procedures. Accordingly, the amendments made by 
sections 561 and 563 of the Multifamily Reform Act will be the subject 
of a separate HUD proposed rule.

IV. Small Entities and HUD Enforcement Actions

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub.L. 104-121, 110 Stat. 847, approved March 29, 1996) (``SBREFA'') 
provides, among other things, for agencies to establish specific 
policies or programs to assist small entities. Small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. On May 21, 1998 (63 FR 28214), HUD published a Federal 
Register notice describing HUD's actions on implementation of SBREFA.
    Section 223 of SBREFA requires agencies that regulate the 
activities of small entities to establish a policy or program to reduce 
or, under appropriate circumstances, waive civil penalties when a small 
entity violates a statute or regulation. Where penalties are determined 
appropriate, HUD's policy is to consider: (1) The nature of the 
violation (the violation must not be one that is repeated or multiple, 
willful, criminal or poses health or safety risks), (2) whether the 
entity has shown a good faith effort to comply with the regulations; 
and (3) the resources of the regulated entity.
    With respect to the imposition of civil money penalties, HUD is 
cognizant that section 222 of the SBREFA requires the Small Business 
and Agriculture Regulatory Enforcement Ombudsman to ``work with each 
agency with regulatory authority over small businesses to ensure that 
small business concerns that receive or are subject to an audit, on-
site inspection, compliance assistance effort or other enforcement 
related communication or contact by agency personnel are provided with 
a means to comment on the enforcement activity conducted by this 
personnel.'' To implement this statutory provision, the Small Business 
Administration has requested that agencies include the following 
language on agency publications and notices which are provided to small 
businesses concerns at the time the enforcement action is undertaken. 
The language is as follows:

Your Comments Are Important

    The Small Business and Agriculture Regulatory Enforcement 
Ombudsman and 10 Regional Fairness Boards were established to 
receive comments from small businesses about federal agency 
enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to 
small business. If you wish to comment on the enforcement actions of

[[Page 9086]]

[insert agency name], call 1-888-REG-FAIR (1-888-734-3247).

    As HUD stated in its May 21, 1998 Federal Register notice, HUD 
intends to work with the Small Business Administration to provide small 
entities with information on the Fairness Boards and National Ombudsman 
program, at the time enforcement actions are taken, to ensure that 
small entities have the full means to comment on the enforcement 
activity conducted by HUD.

V. 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. Part 10 provides for exceptions to the general rule 
if HUD 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). For the following reasons, HUD finds 
that good cause exists to publish this rule for effect without first 
soliciting public comment because prior public comment is unnecessary.
    This interim rule updates HUD's FHA enforcement regulations at 24 
CFR parts 25 and 30 to conform these regulations to the statutory 
amendments made by the Multifamily Reform Act. HUD does not have the 
discretion to modify these statutory requirements based on public 
comment. The interim rule tracks the language of the Multifamily Reform 
Act, and does not expand, elaborate or interpret this language. These 
amendments do no more than conform HUD's regulations to existing 
statutory authority.
    The rule also clarifies under what conditions the HUD Mortgagee 
Review Board may issue a suspension. The rule also clarifies the effect 
of a suspension or withdrawal issued by the Board. Further, the rule 
clarifies that the Assistant Secretary for Public and Indian Housing 
has been delegated the authority to initiate civil money penalties 
under the Indian housing loan guarantee program. These amendments do 
not modify the scope or substance of the existing regulations. Rather, 
the amendments will help to eliminate confusion and conform the 
regulations to existing HUD practice.
    Although HUD has determined that, it is unnecessary for HUD to 
solicit public comment before issuing this rule for effect, HUD is 
issuing these amendments on an interim basis and invites public comment 
on the interim rule. All public comments will be considered in the 
development of the final rule.

VI. Findings and Certifications

Environmental Impact

    In accordance with 24 CFR 50.19(c)(1) of the Department's 
regulations, this interim 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 interim rule is 
categorically excluded from the requirements of the National 
Environmental Policy Act (42 U.S.C. 4321 et seq.).

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This interim rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing 
certifies that this is not anticipated to have a significant economic 
impact on a substantial number of small entities. As discussed in this 
preamble, the rule makes conforming changes to HUD regulations in 24 
CFR parts 25 and 30 to reflect statutory changes made to the National 
Housing Act by the Multifamily Reform Act. These changes are not 
discretionary on the part of HUD. These changes are applicable 
regardless of whether HUD revises its regulations to reflect these 
statutory amendments.
    The purpose of the legislation, as noted earlier in the preamble, 
is to grant additional enforcement tools to HUD to use against those 
who violate agreements and program requirements. The Multifamily Reform 
Act expanded the list of persons and the types of violations subject to 
civil money penalties under HUD's insured housing programs for the 
purpose of protecting the FHA insurance fund. To the extent that these 
statutory changes impact small entities it will be as a result of 
actions taken by small entities themselves--that is, violation of 
multifamily program regulations and requirements.
    The rule also makes three clarifying, non-substantive amendments to 
these regulations. The first clarifies under what conditions HUD's 
Mortgagee Review Board may issue a suspension. The second amendment 
clarifies the effect of a suspension or withdrawal issued by the Board. 
The third clarifies that the Assistant Secretary for Public and Indian 
Housing has been delegated the authority to initiate civil money 
penalties under the Indian housing loan guarantee program. These 
amendments do not impose new regulatory requirements, but codify 
existing HUD practice.
    Accordingly, HUD has determined that this interim rule will have no 
adverse or disproportionate economic impact on small entities. 
Notwithstanding HUD's determination that this rule will not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 establishes 
requirements for Federal agencies to assess the effects of their 
regulatory actions on State, local, and tribal governments and the 
private sector. This rule does not impose a Federal mandate that will 
result in the expenditure by State, local, and tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year.

List of Subjects

24 CFR Part 25

    Administrative practice and procedure, Loan programs--housing and 
community development, Organization and functions (Government 
agencies).

24 CFR Part 30

    Administrative practice and procedure, Loan programs--housing and 
community development, Mortgages, Penalties.

PART 25--MORTGAGEE REVIEW BOARD

    1. The authority citation for 24 CFR part 25 continues to read as 
follows:


[[Page 9087]]


    Authority: 12 U.S.C. 1708(c), 1708(d), 1709(s), 1715b and 
1735(f)-14; 42 U.S.C. 3535(d).

    2. In Sec. 25.5, revise paragraphs (d) and (e)(1) to read as 
follows:


Sec. 25.5  Administrative actions.

* * * * *
    (d) Suspension. (1) Cause for suspension. The Board may issue a 
suspension if there is adequate evidence of violation(s) under 
Sec. 25.9, and if continuation of the mortgagee's HUD/FHA approval 
pending the completion of any audit, investigation, or other review, or 
other administrative or legal proceedings as may ensue, would not be in 
the public interest or in the best interests of HUD.
    (2) Effect of suspension. (i) During the period of suspension, HUD 
will not endorse any mortgage originated by the suspended mortgagee 
under the Title II program unless prior to the date of suspension:
    (A) A firm commitment has been issued relating to any such 
mortgage; or
    (B) A Direct Endorsement underwriter has approved the mortgagor for 
any such mortgage.
    (ii) During the period of suspension, a lender or loan 
correspondent may not originate new Title I loans under its Title I 
Contract of Insurance or apply for a new Contract of Insurance.
    (3) Effective date of suspension. A suspension issued pursuant to 
Sec. 25.6(c) is effective upon issuance. Any other suspension is 
effective upon receipt of the notice of suspension by the mortgagee.
    (e) Withdrawal. (1) Effect of withdrawal. (i) During the period of 
withdrawal, HUD will not endorse any mortgage originated by the 
withdrawn mortgagee under the Title II program unless prior to the date 
of withdrawal:
    (A) A firm commitment has been issued relating to any such 
mortgage; or
    (B) A Direct Endorsement underwriter has approved the mortgagor for 
any such mortgage.
    (ii) During the period of withdrawal, a lender or loan 
correspondent may not originate new Title I loans under its Title I 
Contract of insurance or apply for a new Contract of Insurance. The 
Board may limit the geographical extent of the withdrawal, or limit its 
scope (e.g., to either the single family or multifamily activities of a 
withdrawn mortgagee). Upon the expiration of the period of withdrawal, 
the mortgagee may file a new application for approval under 24 CFR part 
202.
* * * * *

    3. Section 25.6 is amended by adding a new paragraph (c) to read as 
follows:


Sec. 25.6  Notice of violation.

* * * * *
    (c) Exception for immediate suspension. If the Board determines 
that there exists adequate evidence that immediate action is required 
to protect the financial interests of the Department or the public, the 
Board may take a suspension action without having previously issued a 
notice of violation.

PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT

    4. The authority citation for 24 CFR part 30 continues to read as 
follows:

    Authority: 12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, 1735f-15; 
15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 3535(d).

    5. Add Sec. 30.36 to read as follows:


Sec. 30.36  Other participants in FHA programs.

    (a) General. The Assistant Secretary for Housing-Federal Housing 
Commissioner (or his/her designee) may initiate a civil money penalty 
action against any principal, officer, or employee of a mortgagee or 
lender, or other participants in either a mortgage insured under the 
National Housing Act or any loan that is covered by a contract of 
insurance under title I of the National Housing Act, or a provider of 
assistance to the borrower in connection with any such mortgage or 
loan, including:
    (1) Sellers;
    (2) Borrowers;
    (3) Closing agents;
    (4) Title companies;
    (5) Real estate agents;
    (6) Mortgage brokers;
    (7) Appraisers;
    (8) Loan correspondents;
    (9) Dealers;
    (10) Consultants;
    (11) Contractors;
    (12) Subcontractors; and
    (13) Inspectors.
    (b) Knowing and material violations. The Assistant Secretary for 
Housing-Federal Housing Commissioner or his/her designee may impose a 
civil penalty on any person or entity identified in paragraph (a) of 
this section who knowingly and materially:
    (1) Submits false information to the Secretary in connection with 
any mortgage insured under the National Housing Act (12 U.S.C. 1701 et 
seq.), or any loan that is covered by a contract of insurance under 
title I of the National Housing Act;
    (2) Falsely certifies to the Secretary or submits a false 
certification by another person or entity to the Secretary in 
connection with any mortgage insured under the National Housing Act or 
any loan that is covered by a contract of insurance under title I of 
the National Housing Act; or
    (3) Is a loan dealer or correspondent and fails to submit to the 
Secretary information which is required by regulations or directives in 
connection with any loan that is covered by a contract of insurance 
under title I of the National Housing Act.
    (c) Amount of penalty. The maximum penalty is $5,500 for each 
violation, up to a limit of $1,100,000 for all violations committed 
during any one-year period. Each violation shall constitute a separate 
violation as to each mortgage or loan application.

    6. Revise Sec. 30.40(a) to read as follows:


Sec. 30.40  Loan guarantees for Indian housing.

    (a) General. The Assistant Secretary for Public and Indian Housing 
(or his/her designee) may initiate a civil money penalty action against 
any mortgagee or holder of a guarantee certificate who knowingly and 
materially violates the provisions of 12 U.S.C. 1715z-13a(g)(2) 
concerning loan guarantees for Indian housing.
* * * * *

    Dated: January 18, 2000.
Andrew Cuomo,
Secretary.
[FR Doc. 00-4193 Filed 2-22-00; 8:45 am]
BILLING CODE 4210-32-P