[Federal Register Volume 65, Number 235 (Wednesday, December 6, 2000)]
[Proposed Rules]
[Pages 76520-76521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30989]



[[Page 76519]]

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

Part VI





Department of Housing and Urban Development





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



24 CFR Part 30



Treble Damages for Failure to Engage in Loss Mitigation; Advance Notice 
of Proposed Rulemaking

  Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / 
Proposed Rules  

[[Page 76520]]


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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 30

[Docket No. FR 4553-A-01]
RIN 2501-AC66


Treble Damages for Failure To Engage in Loss Mitigation; Advance 
Notice of Proposed Rulemaking

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

ACTION: Advance notice of proposed rulemaking.

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

SUMMARY: This notice announces HUD's intention to issue a proposed rule 
to amend HUD's Civil Money Penalty regulations to provide for damages 
of three times the amount of any mortgage insurance benefit claimed by 
the mortgagee for any mortgage as to which the mortgagee failed to 
engage in loss mitigation actions. Current regulations provide that HUD 
may initiate a civil money penalty action against mortgagees and 
lenders for certain prohibited conduct, including failure to service 
FHA insured mortgages in accordance with FHA regulations. However, in 
1998, Congress amended the National Housing Act, as more particularly 
described below, to add a triple penalty to the existing civil money 
penalty system for a mortgagee's failure to engage in loss mitigation. 
Specifically, HUD seeks comments regarding the best regulatory 
procedures and structures for implementing this Congressional mandate. 
This notice therefore solicits public comment on the subject prior to 
publication of a proposed rule.

DATES: Comment Due Date: February 5, 2001.

ADDRESSES: Interested persons are invited to submit comments and 
responses to the Rules Docket Clerk, Office of the 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) responses are not 
acceptable. A copy of each response 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: Jack Tautges, Office of The Deputy 
Assistant Secretary for Single Family Housing, Room 9184, Department of 
Housing and Urban Development, 451 Seventh Street SW., Washington, 
D.C., 20410, telephone (202) 708-1672 (this is not a toll-free number). 
Hearing or speech-impaired individuals may access these numbers via TTY 
by calling the Federal Information Relay Service at 1-800-877-8339 
(this is a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 601(f), (g) and (h) of the Department of Veteran's Affairs 
and Housing and Urban Development and Independent Agencies 
Appropriations Act (1999) (Pub. L. 105-276, approved October 21, 1998) 
amended sections 230, 536(a), and 536(b)(1) of the National Housing Act 
(``NHA'')(12 U.S.C. 1715u, 12 U.S.C. 1735f-14(a)(2) and 12 U.S.C. 
1735f-14(b)(1), respectively) to add a triple penalty for failure to 
engage in loss mitigation to the existing civil money penalty system. 
Among other things, the statute now requires that, upon the default of 
a single family mortgage insured under Title II of the National Housing 
Act, it is mandatory for the mortgagee to engage in loss mitigation 
actions (including, but not limited to, special forbearance, loan 
modification, and deeds in lieu of foreclosure) for the purpose of 
providing alternatives to foreclosure. Also, added to the actions in 
section 536(b) for which the Secretary ``may impose a civil money 
penalty on the mortgagee or lender'' is ``failure to engage in loss 
mitigation actions as provided in section 230(a) of this Act [i.e., the 
NHA].'' See section 536(b)(1)(I), 12 U.S.C. 1735f-14(b)(1)(I). In the 
case of such failure, ``the penalty shall be in the amount of three 
times the amount of any insurance benefits claimed by the mortgagee 
with respect to any mortgage'' as to which such failure occurred. See 
section 536(a)(2), 12 U.S.C. 1735f-14(a)(2).
    The regulation relating to civil money penalties for mortgagees who 
engage in prohibited acts is found at 24 CFR 30.35. This regulation was 
promulgated in its current form on September 24, 1996 (61 FR 50215) and 
technically amended on February 26, 1998 (63 FR 9742). The regulation 
currently provides for a maximum penalty of $5,500 for each violation, 
up to a maximum of $1,100,000 for all violations committed within any 
one-year period. A variety of prohibited acts are covered, including, 
generally, a failure to service a mortgage in accordance with 24 CFR 
part 203. See 24 CFR 30.35(a)(10). The requirement to engage in loss 
mitigation is set forth primarily at 24 CFR 203.501, which cross-
references actions including, but not limited to, deeds in lieu of 
foreclosure (24 CFR 203.357); special forbearance (24 CFR 203.471, 
203.614); partial claims (24 CFR 203.414); assumptions (24 CFR 
203.512); and recasting of mortgages (24 CFR 203.616). In addition, 
regulations require lenders to engage in a loss mitigation evaluation 
to determine which loss mitigation options are appropriate (24 CFR 
203.605).
    Ordinary civil penalties will remain in effect for failure to 
engage in a variety of required servicing functions, including, but not 
limited to: pre-foreclosure review to ensure that all servicing 
requirements have been met (24 CFR 203.606); giving each mortgagor in 
default the notice of default (24 CFR 203.602); and monthly reporting 
concerning all properties that are 90 days or more delinquent (24 CFR 
203.332).

This Advance Notice of Proposed Rulemaking

    HUD plans to issue a proposed rule implementing the new requirement 
to assess treble damages when a mortgagee fails to engage in any loss 
mitigation activities with cooperative and qualified mortgagors. HUD's 
goals are to foster an increase in loss mitigation efforts by lenders, 
to decrease losses to FHA's insurance fund, to help borrowers retain 
their homes, to integrate the pre-existing civil money penalty system 
with the new requirement of treble damages, and to avoid punishing 
lenders who have overall good records.
    To that end, HUD plans to propose a rule that would assess treble 
damages considering both single-loan performance and overall portfolio 
performance. As to a single loan that goes into default, HUD proposes 
to regard a lender as having failed to engage in loss mitigation if the 
lender has failed to perform the loss mitigation evaluation under 24 
CFR 203.605 and then take the appropriate loss mitigation action(s). In 
that case, the lender would be potentially subject to treble damages. 
As a further step, HUD proposes to establish a system of analyzing a 
mortgagee's loss mitigation efforts portfolio-wide by using a tiered 
scoring system based on performance ratios of loss mitigation actions 
divided by Real Estate Owned (``REO''). Based on the loss mitigation/
REO ratio established, HUD plans to propose to group lenders in four 
tiers in relation to the mean or some other identified score. HUD plans 
to propose a system in which lenders in the top three tiers, i.e., 
those who have relatively good records of making loss mitigation 
efforts, would not be subject to treble damages, and those in the 
bottom tier who violate the regulation would be subject to treble 
damages.

[[Page 76521]]

    HUD specifically invites comments on this proposed tiering system, 
including comments regarding the specific tier structure based on 
performance ratios of loss mitigation actions to REO. HUD also welcomes 
suggestions regarding other factors, if any, that commenters believe 
should be included in the ratio.
    In addition, HUD welcomes general comments regarding the proposed 
rule. HUD will review all public comments submitted in connection with 
preparing the proposed rule on this subject. HUD will promulgate a 
proposed rule that implements a system for assessing treble damages 
against mortgagees who fail to engage in loss mitigation with 
cooperative and qualified borrowers.

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this advance 
notice of proposed rulemaking (ANPR) under Executive Order 12866, 
Regulatory Planning and Review, issued by the President on September 
30, 1993. Any changes made in this ANPR subsequent to its submission to 
OMB are identified in the docket file, which is available for public 
inspection during regular business hours in the Office of the Rules 
Docket Clerk, Office of the General Counsel, Department of Housing and 
Urban Development, Room 10276, 451 Seventh Street, S.W., Washington, DC 
20410.

    Dated: November 29, 2000.
William C. Apgar,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 00-30989 Filed 12-5-00; 8:45 am]
BILLING CODE 4210-27-P