[Federal Register Volume 65, Number 189 (Thursday, September 28, 2000)]
[Proposed Rules]
[Pages 58338-58339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-24949]



[[Page 58337]]

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Part III





Department of Housing and Urban Development





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24 CFR Part 221



Discontinuation of the Section 221(d)(2) Mortgage Insurance Program; 
Proposed Rule

  Federal Register / Vol. 65, No. 189 / Thursday, September 28, 2000 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 221

[Docket No. FR-4588-P-01]
RIN 2502-AH50


Discontinuation of the Section 221(d)(2) Mortgage Insurance 
Program

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would discontinue HUD's section 221(d)(2) 
mortgage insurance program. Through this program, HUD insures mortgage 
loans made by private lenders to finance the purchase, construction, or 
rehabilitation of low-cost, one- to four-family housing. The section 
221(d)(2) program is rarely used by homebuyers, primarily due to its 
low mortgage limits. Further, the program provides few homeownership 
opportunities not already made available by other HUD mortgage 
insurance programs. Accordingly, HUD proposes to no longer enter into 
new contracts for mortgage insurance under the program. The proposed 
rule would remove those provisions of the section 221(d)(2) regulations 
concerning eligibility for participation in the program, and replace 
them with a savings clause. The rule, however, would retain those 
regulatory provisions regarding the contract rights and servicing 
responsibilities for existing program participants.

DATES: Comments due date: November 27, 2000.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500. Communications should 
refer to the above docket number and title. Facsimile (FAX) comments 
are not acceptable. A copy of each communication submitted will be 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of 
Single Family Program Development, Office of Insured Single Family 
Housing, Room 9266, U.S. Department of Housing and Urban Development, 
451 Seventh Street, SW., Washington, DC 20410-8000; telephone (202) 
708-2700 (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) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--The Section 221(d)(2) Single Family Mortgage 
Insurance Program

    Section 221(d)(2) of the National Housing Act (12 U.S.C. 
1715l(d)(2)), authorizes HUD to insure private lenders against loss 
from default on mortgage loans made to finance the purchase, 
construction, or rehabilitation of low-cost, one- to four-family homes. 
The regulations implementing the section 221(d)(2) program are located 
in 24 CFR part 221. The program is administered by HUD's Office of 
Housing-Federal Housing Administration (FHA).
    The section 221(d)(2) program is rarely used by homebuyers, 
primarily due to its low mortgage limits. The maximum mortgage under 
the program is $31,000 for a single-family home ($36,000 in high cost 
areas). For a larger family with five or more persons, the limit is 
$36,000 ($42,000 in high-cost areas). Due to these low mortgage limits, 
which are established by statute, the program is not attractive to the 
majority of homebuyers. In Fiscal Year 1999, HUD insured 1,009 section 
221(d)(2) mortgages, representing less than $32 million of FHA's total 
$120 billion in mortgage origination. During the last three fiscal 
years, FHA has endorsed only 4,821 section 221(d)(2) mortgages.
    The section 221(d)(2) program provides few homeownership 
opportunities not already made available by other HUD mortgage 
insurance programs, primarily the single family home mortgage insurance 
programs authorized by section 203 of the National Housing Act (12 
U.S.C. 1709) (implemented by HUD in 24 CFR part 203), and the 
condominium mortgage insurance program authorized by section 234 of the 
National Housing Act (12 U.S.C. 1715y) (implemented by HUD in 24 CFR 
part 234).
    The section 203 and section 234 programs have eligibility 
requirements and underwriting procedures that are almost identical to 
those of the section 221(d)(2) program. In addition, these programs 
have the benefit of much higher mortgage limits. For example, the 
maximum mortgage for a single family dwelling under the section 203(b) 
and section 234(c) programs ranges from $121,296 to $219,849, depending 
upon location. Although the section 221(d)(2) program does permit some 
additional financing of closing costs, the low volume of mortgages 
originated under the program suggests that this is not a significant 
benefit to homebuyers.
    For these reasons--the infrequent use of section 221(d)(2) mortgage 
insurance by homebuyers, and the easy availability of alternative FHA 
mortgage insurance products--HUD has decided to discontinue the section 
221(d)(2) program.

II. This Proposed Rule

    This proposed rule would remove the HUD regulations establishing 
the eligibility requirements for section 221(d)(2) mortgage insurance 
in subpart A of 24 CFR part 221. A savings clause would be retained in 
subpart A of the part 221 regulations to provide that the authority to 
insure section 221(d)(2) mortgages is terminated, except that HUD will 
endorse for insurance validly processed mortgages under direct 
endorsement where the credit worksheet was signed by the mortgagee's 
underwriter before the effective date of the final rule. The savings 
clause would also provide that subpart A, as it existed immediately 
before the termination date, will continue to govern the rights and 
obligations of insured mortgage lenders, mortgagors, and HUD with 
respect to section 221(d)(2) single family loans insured before the 
effective date of the final rule, and to the aforementioned direct 
endorsement loans.

III. Findings and Certifications

Environmental Impact

    A Finding of No Significant Impact 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. 4223). The Finding of No Significant Impact is 
available for public inspection between the hours of 7:30 a.m. and 5:30 
p.m. weekdays in the Office of the Rules Docket Clerk, Office of 
General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC.

Regulatory Flexibility Act

    The Secretary has reviewed this proposed rule before publication, 
and by approving it certifies, in accordance with the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), that this proposed rule would not 
have a significant economic impact on a substantial number of small 
entities. The reasons for HUD's determination are as follows.
    As noted above, the section 221(d)(2) program is rarely used by 
homebuyers.

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Mortgage lenders eligible to participate in the section 221(d)(2) 
program are also generally eligible to participate in other, 
alternative, FHA single family mortgage insurance programs that are 
preferred by homebuyers (such as the section 203 and section 234(c) 
programs). Accordingly, HUD's decision to discontinue the section 
221(d)(2) program is not anticipated to have a significant economic 
impact on a substantial number of mortgage lenders participating in 
these FHA programs.
    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.

Executive Order 13132, Federalism

    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 proposed rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) 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 proposed rule would not 
impose any Federal mandates on any State, local, or tribal governments, 
or on the private sector, within the meaning of the Unfunded Mandates 
Reform Act of 1995.

Catalog of Federal Domestic Assistance Number

    The Catalog of Federal Domestic Assistance program number 
applicable to 24 CFR part 221 is 14.120: Mortgage Insurance--Homes for 
Low/Moderate Income Families.

List of Subjects in 24 CFR Part 221

    Low and moderate income housing, Mortgage insurance, Reporting and 
recordkeeping requirements.
    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR part 221 to read as follows:

PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE

    1. The authority citation for part 221 is revised to read as 
follows:

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

    2. Subpart A is revised to read as follows:

Subpart A--Eligibility Requirements--Low Cost Homes--Savings Clause


Sec. 221.1  Savings clause.

    (a) Effective [insert effective date of final rule], the authority 
to insure mortgages under section 221(d)(2) of the National Housing Act 
(12 U.S.C. 1715l(d)(2)) for low cost and moderate income mortgage 
insurance is terminated, except that HUD will endorse for insurance 
validly processed mortgages under direct endorsement where the credit 
worksheet was signed by the mortgagee's underwriter before [insert 
effective date of final rule].
    (b) Subpart A of this part, as it existed immediately before 
[insert effective date of final rule], will continue to govern the 
rights and obligations of insured mortgage lenders, mortgagors, and HUD 
with respect to section 221(d)(2) single family loans insured before 
[insert effective date of final rule], or in accordance with paragraph 
(a) of this section, pursuant to the applicable provisions of this 
subpart.

    Dated: August 24, 2000.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner
[FR Doc. 00-24949 Filed 9-27-00; 8:45 am]
BILLING CODE 4210-27-P