[Federal Register Volume 66, Number 108 (Tuesday, June 5, 2001)]
[Proposed Rules]
[Pages 30278-30281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14120]



[[Page 30277]]

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Part III





Department of Housing and Urban Development





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24 CFR Part 206



Home Equity Conversion Mortgage (HECM) Program; Insurance for Mortgages 
To Refinance Existing HECMs; Proposed Rule

  Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 206

[Docket No. FR-4667-P-01]
RIN 2502-AH63


Home Equity Conversion Mortgage (HECM) Program; Insurance for 
Mortgages To Refinance Existing HECMs

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend HUD's regulations for the Home 
Equity Conversion Mortgage (HECM) Program to implement the recent 
amendments made by section 201(a) of the American Homeownership and 
Economic Opportunity Act of 2000. The HECM Program enables older 
homeowners to withdraw some of the equity in their home in the form of 
payments for life, a fixed term, or at intervals through a line of 
credit. Section 201(a) authorizes HUD to offer mortgage insurance for 
refinancing of existing HECMs, and provides consumer safeguards for 
such refinancings.

DATES: Comments Due Date: July 5, 2001.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, 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-
2121 (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 Home Equity Conversion Mortgage (HECM) Program helps homeowners 
62 years of age or older, who have paid off their mortgages or have 
small mortgage balances, to stay in their homes while using some of 
their equity. The program enables these homeowners to get financing 
with a Federal Housing Administration (FHA) insured reverse mortgage--a 
mortgage that converts equity into income. The FHA insures HECM loans 
to protect lenders against loss. Such a loss could occur if amounts 
withdrawn exceed equity when the property is sold. The statutory 
authority for the HECM Program is section 255 of the National Housing 
Act (12 U.S.C. 1715z-20) (the NHA). HUD's implementing regulations are 
located at 24 CFR part 206 (entitled ``Home Equity Conversion Mortgage 
Insurance''). More information on the HECM Program can be found at 
HUD's website at www.hud.gov/buying/reverse.cfm.
    Section 201 of the American Homeownership and Economic Opportunity 
Act of 2000 (Pub. L. 106-569, 114 Stat. 2944, 2948, approved December 
27, 2000) makes several changes to the HECM Program. Among other 
amendments, section 201(a) adds a new section 255(k) to the NHA (the 
existing subsection (k), concerning funding for counseling and consumer 
education, was redesignated as subsection (m)). New section 255(k) 
authorizes FHA to offer mortgage insurance for refinancing existing 
HECMs, and establishes several requirements concerning such 
refinancings for the protection of homeowners and to expedite the 
refinancing process. For example, the statute establishes an ``anti-
churning'' disclosure requirement for HECM refinancings, and authorizes 
the waiver of the HECM counseling requirements under certain 
circumstances. Expedited procedures for refinancing will enable elderly 
homeowners to quickly take advantage of declining interest rates and 
increasing home prices in particular areas.
    In addition to the statutory changes concerning HECM refinancings, 
section 201 also made amendments to the HECM Program regarding housing 
cooperatives (section 201(b)) and the waiver of up-front premiums for 
mortgages to fund long-term care insurance (section 201(c)). These 
statutory changes are not implemented by this proposed rule, but may be 
the subject of future HUD rulemaking.

II. This Proposed Rule

A. General

    This proposed rule would implement new section 255(k) of the NHA. 
Specifically, the proposed rule would create a new Sec. 206.53, which 
contains the requirements applicable for a refinanced HECM to be 
eligible for mortgage insurance. Section 206.53 would provide that HUD 
may, upon application by a mortgagee, insure any mortgage (that meets 
the HECM Program requirements) given to refinance an existing HECM. 
Except as otherwise provided in Sec. 206.53, all of the requirements in 
24 CFR part 206 would apply to HECM refinancings.

B. Anti-Churning Disclosure

    New section 255(k)(2) of the NHA establishes an ``anti-churning'' 
disclosure requirement, which is designed to ensure that homeowners are 
made aware of the costs associated with a HECM refinancing. The anti-
churning disclosure must be provided to borrowers in addition to the 
disclosures already required under Sec. 206.43 of the existing HECM 
regulations.
    The proposed rule would implement the anti-churning disclosure 
requirement in paragraph (c) of Sec. 206.53. New Sec. 206.53(c) would 
require that the mortgagee provide to the mortgagor, in addition to the 
other required disclosures for the HECM Program, a good faith estimate 
of:
    1. The total cost of the refinancing to the mortgagor (the proposed 
rule defines the term ``total cost of the refinancing'' to mean the sum 
of the allowable charges and fees permitted under Sec. 206.31 and the 
initial mortgage insurance premium (MIP) described in Sec. 206.105(a)); 
and
    2. The increase in the mortgagor's principal limit as measured by 
the estimated initial principal limit on the mortgage to be insured 
less the current principal limit on the HECM that is being refinanced. 
(The term ``principal limit'' is defined at Sec. 206.3 of the existing 
HECM regulations and is not being changed by this proposed rule.)
    New section 255(k)(2) of the NHA requires that HUD, through 
regulation, establish ``an appropriate time period'' for submission of 
the anti-churning disclosure. The proposed rule would implement this 
statutory directive by adopting the timing requirements applicable to 
the Good Faith Estimate required under the Real Estate Settlement 
Procedures Act (RESPA). The RESPA Good Faith Estimate is a required 
disclosure under the HECM Program (see Sec. 206.43(a)). By conforming 
the timing of the new anti-churning disclosure to the existing RESPA 
disclosure, the proposed rule will minimize the administrative burden 
imposed on lenders, and help to

[[Page 30279]]

ensure that borrowers are provided with all required disclosures at a 
single time.

C. Waiver of Counseling Requirement

    1. General. Because HECM borrowers can be vulnerable to fraudulent 
or predatory lending abuses, the HECM Program requires that a mortgagor 
receive reverse mortgage housing counseling from a HUD-approved housing 
counseling agency as a condition for obtaining HECM financing (see 
Sec. 206.41). However, the mortgagor who is refinancing a HECM would 
previously have received the required counseling when obtaining FHA 
insured mortgage financing for the initial HECM. Accordingly, new 
section 255(k)(3) of the NHA provides that such mortgagors may elect to 
forego housing counseling if certain requirements are satisfied. The 
new statute establishes three conditions that must be met in order to 
waive the housing counseling requirement:
    a. The mortgagor has received the anti-churning disclosure;
    b. The increase in the mortgagor's principal limit (as described in 
the anti-churning disclosure) exceeds the total cost of the refinancing 
by an amount established by HUD; and
    c. The time between the closing on the original HECM and the 
application for refinancing does not exceed 5 years.
    2. Second condition for waiver of the housing counseling 
requirement. HUD proposes that the second condition for a waiver be 
satisfied if the increase in the mortgagor's principal limit exceeds 
five times the total cost of the refinancing. Housing counseling is an 
important component of HUD's efforts to protect borrowers participating 
in the HECM Program from predatory lending abuses. While no one set of 
abusive practices or terms characterizes a predatory mortgage loan, 
such loans frequently contain excessive, often hidden, fees. In 
establishing the amount required for the second waiver criterion, HUD 
has attempted to assure that mortgagors who may be subject to such 
predatory fees receive housing counseling. At the same time, HUD is 
cognizant of the statutory intent to waive a potentially duplicative 
requirement for HECM mortgagors who wish to refinance and who have 
already received counseling. Accordingly, HUD proposes to establish a 
high threshold for waiver of the housing counseling requirement. HUD 
believes that a refinanced HECM with an increase in the principal limit 
that does not exceed the proposed threshold is more likely to contain 
the excessive fees that frequently characterize predatory loans.
    The amount necessary to satisfy the second condition for a waiver 
would not be specified in the regulatory text. This amount may need to 
be updated on a periodic basis due to changes in the available 
financial data, or changes in the housing market. Codification of the 
threshold amount would require that HUD use rulemaking procedures each 
time the amount is revised. Rulemaking is a potentially lengthy process 
that may delay HUD's ability to quickly update this figure in response 
to rapidly changing circumstances. Accordingly, HUD proposes to 
announce any changes to the second waiver criterion through Federal 
Register notice. In order to provide HECM program participants with 
sufficient time to adjust to any such change, HUD will delay the 
effective date of the revision for a period of not less than 30-days 
following publication in the Federal Register notice. After 
consideration of the public comments on this proposed rule, HUD will 
announce the initial threshold amount in the preamble to the final 
rule.
    3. Third condition for waiver of the housing counseling 
requirement. With regards to the third condition for waiver of the 
counseling requirement, HUD notes that the statutory language refers to 
the ``original'' HECM that is to be refinanced. Accordingly, a 
refinancing mortgagor would be required to receive housing counseling 
if more than 5 years have passed since closing on the mortgagor's first 
HECM, regardless of whether less than 5 years have passed since a 
previous refinancing.

D. Limit on Origination Fee

    New section 255(k)(6) of the NHA permits HUD to ``establish a limit 
on the origination fee that may be charged to a mortgagor'' for a HECM 
refinancing. HUD proposes to adopt the existing limit on HECM 
origination fees for purposes of HECM refinancings. Specifically, the 
origination fee on a refinanced HECM would be limited to the greater of 
$2,000 or two percent of the maximum claim amount on the refinanced 
reverse mortgage (see HUD Mortgagee Letter 00-10, issued on March 8, 
2000). Although this proposed rule would adopt the existing HECM 
origination fee limits for HECM refinancings, different limits may be 
established for ``original'' HECMs and refinanced HECMs at a later 
date. As with the current origination fee limits for the HECM Program, 
the limits for HECM refinancings would not be specified in the 
regulatory text.
    The proposed rule would also revise Sec. 206.31(a)(1) of the 
existing HECM regulations (which concerns origination fees) to clarify 
that the origination fee may be fully financed with the mortgage. 
Further, any origination fee limit shall include any fees paid to 
correspondent mortgagees approved by the Secretary. HUD also proposes 
to adopt a new process for revising the origination fee limits for the 
HECM Program (this procedure would apply to both HECM financing and 
refinancings). Specifically, HUD will announce any changes to the 
origination fee limits through publication of a Federal Register 
notice. Further, in order to provide program participants with 
sufficient time to adjust to any such change, HUD will delay the 
effective date of the revision for a period of not less than 30-days 
following publication in the Federal Register.

E. Reduction of Up-Front HECM Mortgage Insurance Premium

    For a refinancing mortgage, new section 255(k)(4) of the NHA 
authorizes HUD to reduce the amount of the initial MIP otherwise 
collected on a HECM (equal to 2 percent of the maximum claim amount--
see Sec. 206.105(a)). Section 255(k)(4) requires that any such 
reduction be based on the results of a statutorily mandated actuarial 
study to determine the adequacy of the insurance premiums collected for 
HECM refinancings. Further, the statute requires that HUD conduct the 
actuarial study no later than 180 days after enactment of the American 
Homeownership and Economic Opportunity Act of 2000. The required 
actuarial study is currently under development. As provided by the 
statute, HUD may, based on the findings of the study, determine that a 
reduction in the initial MIP for HECM refinancings is appropriate. HUD 
will implement any such reduction through a proposed rule and will 
provide the public with an opportunity to comment on the proposed MIP 
reduction.

III. Justification for Reduced Comment Period

    It is the general practice of the Department to provide a 60-day 
public comment period on all proposed rules. The Department, however, 
is reducing its usual 60-day public comment period to 30 days for this 
proposed rule. Section 201(a)(2) of the American Homeownership and 
Economic Opportunity Act of 2000 requires that HUD's final regulations 
implementing new section 255(k) of the NHA take effect no later than 
180 days after enactment. The reduced 30 day comment period is 
necessary to help ensure that the final rule is effective by the 
statutory deadline date, and to provide sufficient time for compliance 
with all applicable rulemaking requirements (such as the statutory 15-

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day prepublication Congressional review requirements and the 30-day 
delayed effective date requirements of section 7(o) of the Department 
of HUD Act (42 U.S.C. 3535(d)).

IV. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the Order (although not an economically significant 
regulatory action under the Order). Any changes made to this rule as a 
result of that review are identified in the docket file, which is 
available for public inspection in the office of the Department's Rules 
Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-
0500.

Information Collection Requirements

    The information collection requirements contained in Sec. 206.53(c) 
have been submitted to the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In 
accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid OMB 
control number.
    The burden of the information collections in this proposed rule is 
estimated as follows:

                                       Reporting and Recordkeeping Burden
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                                                                                   Estimated
                                                                  Number of       average time      Estimated
              Section reference                  Number of      responses  per        for         annual  burden
                                                  parties         respondent      requirement       (in hours)
                                                                                   (in hours)
----------------------------------------------------------------------------------------------------------------
206.53(c) anti-churning disclosure..........           4,000                1               .5            2,000
----------------------------------------------------------------------------------------------------------------

    Total Reporting and Recordkeeping Burden: 2,000 hours.
    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond; including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received within sixty (60) days from the date of this proposal. 
Comments must refer to the proposal by name and docket number (FR-4667) 
and must be sent to: Joseph F. Lackey, Jr., HUD Desk Officer, Office of 
Management and Budget, New Executive Office Building, Washington, DC 
20503; and Ethelene Washington, Reports Liaison Officer, Office of the 
Assistant Secretary for Housing--Federal Housing Commissioner, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
9114, Washington, DC 20410.

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 the private sector. This proposed rule does not impose 
any Federal mandates on any State, local, or tribal governments or the 
private sector within the meaning of Unfunded Mandates Reform Act of 
1995.

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.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) (the RFA), has reviewed and approved this proposed rule 
and in so doing certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The reasons 
for HUD's determination are as follows.
    The proposed regulatory amendments are not discretionary, but are 
mandated by statute. These amendments authorizes FHA mortgage insurance 
for HECM refinancings, and provide consumer safeguards for such 
refinancings. The amendments would impose minimal, if any, economic 
costs on small lenders and other participants in the HECM Program. For 
example, the origination fee limits that would be established under 
this proposed rule for HECM refinancings do not impose any economic 
burden on lenders (the same fee limits are already applicable original 
financing under the HECM Program). The anti-churning disclosure 
(although a new information collection requirement) also does not add 
new costs or impose additional economic burdens on lenders.
    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 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.

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Catalog of Domestic Assistance Number

    The Catalog of Domestic Assistance Number for the HECM program is 
14.871.

List of Subjects in 24 CFR Part 206

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

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR part 206 as follows:

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

    1. The authority citation for 24 CFR part 206 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).

    2. Revise Sec. 206.31(a)(1) to read as follows:


Sec. 206.31  Allowable charges and fees.

    (a) * * *
    (1) A charge to compensate the mortgagee for expenses incurred in 
originating and closing the mortgage loan, which may be fully financed 
with the mortgage. The Secretary may establish limitations on the 
amount of any such charge. Any limitation on the origination fee shall 
include any fees paid to correspondent mortgagees approved by the 
Secretary. HUD will publish any such limit in the Federal Register at 
least 30-days before the limitation takes effect.
* * * * *
    3. Add Sec. 206.53 under a new undesignated heading ``REFINANCING 
OF EXISTING HOME EQUITY CONVERSION MORTGAGES'' to read as follows:


Sec. 206.53  Refinancings.

    (a) General. This section implements section 255(k) of NHA. Except 
as otherwise provided in this section, all requirements applicable to 
the insurance of home equity conversion mortgages under this part apply 
to the insurance of refinancings under this section. HUD may, upon 
application by a mortgagee, insure any mortgage given to refinance an 
existing home equity conversion mortgage presently insured under this 
part.
    (b) Definition of ``total cost of the refinancing.'' For purposes 
of paragraphs (c) and (d) of this section, the term ``total cost of the 
refinancing'' means the sum of the allowable charges and fees permitted 
under Sec. 206.31 and the initial MIP described in Sec. 206.105(a).
    (c) Anti-churning disclosure. (1) Contents of anti-churning 
disclosure. In addition to the disclosures required under Sec. 206.43, 
the mortgagee shall provide to the mortgagor a good faith estimate of:
    (i) The total cost of the refinancing to the mortgagor; and
    (ii) The increase in the mortgagor's principal limit as measured by 
the estimated initial principal limit on the mortgage to be insured 
less the current principal limit on the home equity conversion mortgage 
that is being refinanced under this section.
    (2) Timing of anti-churning disclosure. The mortgagee shall provide 
the anti-churning disclosure concurrently with the Good Faith Estimate 
required under Sec. 3500.7 of this title.
    (d) Waiver of counseling requirement. The mortgagor may elect not 
to receive counseling under Sec. 206.41, but only if:
    (1) The mortgagor has received the anti-churning disclosure 
required under paragraph (c) of this section.
    (2) The increase in the mortgagor's principal limit (as provided in 
the anti-churning disclosure) exceeds the total cost of the refinancing 
by an amount established by the Secretary through Federal Register 
notice. HUD may periodically update this amount through publication of 
a notice in the Federal Register. Publication of any such revised 
amount will occur at least 30-days before the revision becomes 
effective.
    (3) The time between the date of the closing on the original home 
equity conversion mortgage and the date of the application for 
refinancing under this section does not exceed 5 years (even if less 
than five years have passed since a previous refinancing under this 
section).

    Dated: April 19, 2001.
Mel Martinez,
Secretary.
[FR Doc. 01-14120 Filed 6-4-01; 8:45 am]
BILLING CODE 4210-27-P