[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Rules and Regulations]
[Pages 35070-35073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16594]



[[Page 35069]]

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Part IV





Department of Housing and Urban Development





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24 CFR Part 207



Mortgage Insurance Premiums in Multifamily Housing Programs; Increase 
in Certain FHA Multifamily Mortgage Insurance Premiums; Interim Rule 
and Notice

  Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules 
and Regulations  

[[Page 35070]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 207

[Docket No. FR-4679-I-01]
RIN 2502-AH64


Mortgage Insurance Premiums in Multifamily Housing Programs

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

ACTION: Interim rule.

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SUMMARY: HUD currently has statutory authority to set the mortgage 
insurance premiums (``MIP'') for multifamily programs from one-fourth 
to one percent of the outstanding principal balance per annum. However, 
HUD's current regulations currently set the MIP at a specific figure, 
one-half of one percent in most programs. This interim rule revises 
current regulations to permit the Secretary to set mortgage insurance 
premiums by program within the full range of HUD's statutory authority 
through notice, making it easier for HUD to respond more efficiently to 
changing market and programmatic conditions, and making it possible to 
continue these programs for the remainder of fiscal year 2001 and into 
2002.

DATES: Effective Date: August 1, 2001.
    Comment Due Date: August 31, 2001.

ADDRESSES: Interested persons are invited to submit comments regarding 
this 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: Michael McCullough, Director, Office 
of Multifamily Development, U.S. Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410, at (202) 
708-1142. Persons with hearing or speech impairments may access these 
numbers via TTY by calling the Federal Information Relay Service at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 203(c)(1) of the National Housing Act authorizes the 
Secretary to set the premium charge for insurance of mortgages under 
the various programs in Title II of the National Housing Act. The range 
within which the Secretary may set such charges must be between one-
fourth of one percent per annum and one percent per annum of the amount 
of the principal obligation of the mortgage outstanding at any time. 
(See 12 U.S.C. 1709(c)(1)).
    HUD's multifamily mortgage insurance program regulations have 
generally set the MIP at a specific percentage amount within the 
authorized range and have not reflected the authorized range. Thus, for 
example, 24 CFR 207.252 and 207.252a(a) have set the general MIP rate 
for most mortgage insurance programs at one-half of one percent of the 
average outstanding principal balance of the mortgage per year. There 
are other programs where the MIP has been set at the maximum authorized 
amount, for example, the first year mortgage insurance premium for 
section 223(f) specified in section 207.252b.
    Each year, Congress appropriates funds to cover HUD's credit 
subsidy needs, based on an assessment of the probable risk of loss in 
the insurance programs. The Federal Credit Reform Act of 1990, 2 U.S.C. 
661 et seq. (``FCRA'') requires that the budgetary treatment for all 
direct loan and loan guarantee programs recognize, in advance, the 
estimated net cost to the Federal Government resulting from these 
transactions. In other words, under FCRA, HUD is required to estimate 
the probable cost to the agency of all multifamily mortgages it insures 
and must request ``credit subsidy'' as part of its budget each fiscal 
year to cover those costs. For example, the most popular of HUD's 
multifamily construction programs, Section 221(d)(4), currently 
requires a subsidy of 3.35 cents for each dollar of loan insured.
    Due to greater than anticipated requests for loan insurance 
commitments by HUD, the existing credit subsidy is insufficient for HUD 
to continue the following programs: section 207 for new construction/
substantial rehabilitation and manufactured home parks, section 220 for 
housing in urban renewal areas, sections 221(d)(3), 221(d)(4), 223(d) 
operating loss loans, section 231 housing mortgage insurance for the 
elderly, Section 234(d) for condominiums, section 241(a) supplemental 
loans for multifamily projects, and HOPE VI projects under the sections 
207, 220, 221(d)(4) and 231 programs. Because of this lack of necessary 
credit subsidy, these programs will not be able to continue to operate 
throughout the fiscal year. HUD is anticipating some additional credit 
subsidy to be appropriated in the near future for the remainder of 
Fiscal Year (FY) 2001, but it will not be sufficient to fund all 
outstanding requests for commitments. In addition, it is anticipated 
that only a small amount of credit subsidy will be available in FY 
2002. For these reasons, HUD is revising certain multifamily mortgage 
insurance programs to eliminate or substantially reduce the need for 
credit subsidy by amending its regulations to allow the Secretary to 
raise mortgage insurance premiums to the full extent of his statutory 
authority. The Secretary will proceed to set the actual MIP within the 
statutory and new regulatory limits by notice as described below.

B. This Interim Rule

    This interim rule revises Subpart B ``Contract Rights and 
Obligations'' of Part 207 ``Multifamily Housing Mortgage Insurance'' so 
that the provisions on mortgage insurance premiums reflect the 
statutory language, and allow the Secretary to raise or lower mortgage 
premiums within the statutory limits through notice.
    Where ``one-half of one percent'' appears in Secs. 207.252 and 
207.252a, this interim rule changes that phrase to ``not less than one-
fourth of one percent nor more than one percent as the Secretary shall 
determine.'' Where the regulations have specified that a one percent 
premium will be charged, including during the first year mortgage 
insurance premium for the Section 223(f) program specified in 
Sec. 207.252b, and for properties located near military installations 
insured under Special Risk Insurance Fund, as set forth in 
Sec. 207.252c, the one percent premium remains and there is no change 
in the regulations to Secs. 207.252b or 207.252c. There is no change to 
regulations at Sec. 207.252d (late charge) or to Sec. 207.252e 
(electronic transmission of premiums).
    An increase as described below in the mortgage premium for 
mortgages under the section 221(d)(4), section 207, section 207 for 
mobile home parks, section 220, section 231, section 234(d) and HOPE VI 
projects under sections 207, 220, 221(d)(4), and 231 will result in a 
decrease in the credit subsidy needed for those programs for the 
remainder of FY 2001, and the elimination of credit subsidy 
requirements for FY 2002. The section 221(d)(3), section 223(d), and 
section 241(a) for apartments programs will continue to require some 
credit subsidy in both FY 2001 and FY 2002, albeit a reduced amount.

[[Page 35071]]

C. Changes in MIP

    No later than the date this interim rule becomes effective, HUD 
will issue a separate notice increasing its mortgage insurance premium 
requirements for certain multifamily programs that currently require 
credit subsidy to reduce the credit subsidy rates and the need for 
credit subsidy. Other programs will keep the premiums in effect prior 
to the notice. Based on HUD's analysis of credit subsidy needs, for the 
period from the effective date of this rule to September 30, 2001, the 
notice will change certain mortgage insurance programs, now having a 
mortgage premium of 0.5% of the outstanding principal balance of the 
insured loan, to programs with a mortgage premium of 0.8% of the 
outstanding principal balance. HUD will make future changes by notice 
as credit subsidy allocations and program needs dictate, although HUD 
currently plans to keep the 0.8% rate in effect through FY 2002. HUD 
will provide 30 days for public comment on all such future changes in 
mortgage insurance premiums. Changes made by this rule in the method 
for setting mortgage insurance premiums will be applied in accordance 
with 24 CFR 207.499.
    The mortgage insurance premiums, by program, will be:

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                  Multifamily loan program                      Percent
------------------------------------------------------------------\1\---
Section 207--Multifamily Housing--new/sub. Rehab............         0.8
Section 207--Mobile Home Parks..............................         0.8
Section 220--Housing In Urban Renewal Areas.................         0.8
Section 221(d)(3) and 221(d)(4)--Moderate Income Housing....         0.8
Section 223(a)(7) Refinancing of Insured Multifamily Project         0.5
Section 223(d) Operating Loss Loans.........................         0.8
Section 207/223(f) Purchase or Refinance--housing...........         0.5
Section 231 Housing for the Elderly.........................         0.8
Section 232 Health Care Facilities..........................         0.5
Section 232 pursuant to Section 223(f) Purchase or Refinance         0.5
 Transactions...............................................
Section 234(d) Condominium Housing..........................         0.5
Section 241(a) Additions & Improvements for Apartments......         0.8
Section 241(a) Additions & Improvements for Health Care              0.5
 Facilities.................................................
Section 242--Hospitals......................................         0.5
Title XI--Group Practice....................................         0.5
HOPE VI Projects--[207, 220, 221(d)(4) and 231].............         0.8
Low Income Tax Credit Projects [207, 220, 221(d)(4) and 231]        0.5
 without HOPE VI............................................
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\1\ Annual mortgage insurance permiums charged.

    Absent any change in law, premium rate changes will not apply to 
mortgages which have received a firm commitment and a sufficient 
obligation of credit subsidy; such mortgagees may continue to proceed 
to closing at the committed amount with the premium rate in effect 
before the change made by this rule and the notice to be issued on or 
before its effective date. An obligation of credit subsidy occurs when 
the mortgagee has notified the appropriate HUD office in writing of the 
acceptance of the firm commitment by the mortgagee and the borrower, 
and has received notice in writing from HUD that there is sufficient 
credit subsidy to cover the mortgage amount for which a firm commitment 
was received.
    All firm commitments for these programs to be issued, reissued or 
amended on or after the effective date of this rule and its 
implementing notice must be processed at the 0.8% rate. In the case of 
commitments having a sufficient obligation of credit subsidy, 
amendments to those commitments that do not affect the mortgage amount 
need not be reprocessed at the new premium rate. All projects in the 
Headquarters queue that did not receive an obligation of credit subsidy 
prior to the effective date of this rule and its implementing notice 
will, subject to the availability of credit subsidy and any conditions 
that may be imposed on such availability, not be reprocessed at the new 
rate but will continue to be processed at the rate on which the 
commitment was based. Notwithstanding the previous sentence, all 
projects in the Headquarters queue that did not receive an obligation 
of credit subsidy prior to the effective date of this rule and 
implementing notice, upon the request of the mortgagee, will be 
reprocessed at the new premium rates.
    In accordance with 24 CFR 200.40, HUD will refund to the mortgagee 
any firm commitment application fee, if the mortgagee advises the Field 
Office in writing that it wishes to withdraw its application or 
surrender its outstanding firm commitment because of the increase in 
the mortgage insurance premium.

D. Findings and Clearances

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. However, part 10 provides for exceptions to the 
general rule if the agency finds good cause to omit advanced notice and 
public participation. The good cause requirement is satisfied when 
prior public procedure is ``impractical, unnecessary, or contrary to 
the public interest'' (see 24 CFR 10.1). Because the credit subsidy 
appropriated for FY 2001 HUD mortgage insurance programs affected by 
this rule has been almost completely committed, and the additional 
credit subsidy HUD is anticipating will not suffice to cover upcoming 
requests currently in the application pipeline, HUD is facing the near-
term shutdown of those programs. It is in the public interest for those 
programs to continue so that the various low and moderate income 
multifamily projects, for which mortgage insurance is made available by 
HUD's programs, can continue to receive the HUD-insured mortgage 
funding that makes such housing possible. The business community, as 
well, needs continuity if these programs are to remain useful vehicles 
for housing production. Therefore, HUD finds that good cause exists to 
have the regulations reflect the statutory requirements so that the 
Secretary has the flexibility to adjust the MIPs within those 
requirements as necessary so that the programs can continue 
uninterrupted throughout the fiscal year. The changes being made by 
this rule are prospective only and do not affect existing commitments.
    HUD will be accepting comments on this interim rule for a 60-day 
period. HUD will consider these comments in promulgating the final 
rule.

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.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so 
doing certifies that this rule will not have a significant

[[Page 35072]]

economic impact on a substantial number of small entities. While this 
rule does raise mortgage insurance premiums in certain programs, the 
amount of increase, which is constrained by HUD's statutory 
authorization, is relatively small. Furthermore, without the increase, 
it is likely that the effect on business entities will be much greater, 
as a number of HUD's mortgage insurance programs would have to cease 
operations completely, causing hardship and uncertainty to those who 
depend upon these programs to secure mortgages. Thus, this rule acts to 
minimize adverse impacts on the business community.
    Notwithstanding HUD's determination that this rule does not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comment regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in the preamble.

Environmental Impact

    In accordance with 24 CFR 50.19(c)(6) of HUD's regulations, this 
rule involves establishment of rate or cost determinations and related 
external administrative requirements and procedures which do not 
constitute a development decision that affects the physical condition 
of specific project areas or building sites. Accordingly, under 24 CFR 
50.19(c)(6), this rule is categorically excluded from environmental 
review under the National Environmental Policy Act of 1969 (42 U.S.C. 
4321).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on State and local governments and 
is not required by statute, or preempts State law, unless the relevant 
requirements of section 6 of the Executive Order are met. This 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) 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 interim 
rule does not impose any Federal mandates on any State, local, or 
tribal governments, or on the private sector, within the meaning of the 
UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number applicable to the 
program affected by this rule is 14.134.

List of Subjects in 24 CFR Part 207

    Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.


    For the reasons stated in the preamble, HUD amends 24 CFR part 207 
as follows:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    1. The authority citation for 24 CFR part 207 is revised to read as 
follows:

    Authority: 12 U.S.C. 1701z-11(e), 1709(c)(1), 1713 and 1715b; 42 
U.S.C. 3535(d).

Subpart B--Contract Rights and Obligations--Premiums

    2. Revise Sec. 207.252 to read as follows:


Sec. 207.252  First, second and third premiums.

    The mortgagee, upon the initial endorsement of the mortgage for 
insurance, shall pay to the Commissioner a first mortgage insurance 
premium equal to not less than one-fourth of one percent nor more than 
one percent as the Secretary shall determine of the original face 
amount of the mortgage. The specific premium to be charged will be set 
forth in Federal Register notice.
    (a) If the date of the first principal payment is more than one 
year following the date of such initial insurance endorsement, the 
mortgagee, upon the anniversary of such insurance date, shall pay a 
second premium equal to not less than one-fourth of one percent nor 
more than one percent as the Secretary shall determine of the original 
face amount of the mortgage. On the date of the first principal 
payment, the mortgagee shall pay a third premium equal to not less than 
one-fourth of one percent nor more than one percent of the average 
outstanding principal obligation of the mortgage for the following year 
which shall be adjusted so as to accord with such date and so that the 
aggregate of the said three premiums shall equal the sum of:
    (1) One percent of the average outstanding principal obligation of 
the mortgage for the year following the date of initial insurance 
endorsement; and
    (2) Not less than one-fourth of one percent nor more than one 
percent per annum as the Secretary shall determine of the average 
outstanding principal obligation of the mortgage for the period from 
the first anniversary of the date of initial insurance endorsement to 
one year following the date of the first principal payment.
    (b) If the date of the first principal payment is one year, or less 
than one year following the date of such initial insurance endorsement, 
the mortgagee, upon such first principal payment date, shall pay a 
second premium equal to not less than one-fourth of one percent nor 
more than one percent as the Secretary shall determine of the average 
outstanding principal obligation of the mortgage for the following year 
which shall be adjusted so as to accord with such date and so that the 
aggregate of the said two premiums shall equal the sum of:
    (1) One percent per annum of the average outstanding principal 
obligation of the mortgage for the period from the date of initial 
insurance endorsement to the date of first principal payment; and
    (2) Not less than one-fourth of one percent nor more than one 
percent as the Secretary shall determine of the average outstanding 
principal obligation of the mortgage for the year following the date of 
the first principal payment.
    (c) Where the credit instrument is initially and finally endorsed 
for insurance pursuant to a Commitment to Insure Upon Completion, the 
mortgagee on the date of the first principal payment shall pay a second 
premium equal to not less than one-fourth of one percent nor more than 
one percent as the Secretary shall determine of the average outstanding 
principal obligation of the mortgage for the year following such first 
principal payment date which shall be adjusted so as to accord with 
such date and so that the aggregate of the said two premiums shall 
equal the sum of not less than one-fourth of one percent nor more than 
one percent per annum as the Secretary shall determine of the average 
outstanding principal obligation of the mortgage for the period from 
the date of the insurance endorsement to one year following the date of 
the first principal payment.
    (d) Until the mortgage is paid in full, or until receipt by the 
Commissioner of an application for insurance benefits, or until the 
contract of insurance is otherwise terminated with the consent of the 
Commissioner, the mortgagee, on each anniversary of the date of the 
first principal payment, shall pay an annual mortgage insurance premium 
equal to

[[Page 35073]]

not less than one-fourth of one percent nor more than one percent as 
the Secretary shall determine of the average outstanding principal 
obligation of the mortgage for the year following the date on which 
such premium becomes payable.
    (e) The premiums payable on and after the date of the first 
principal payment shall be calculated in accordance with the 
amortization provisions without taking into account delinquent payments 
or prepayments.
    (f) Premiums shall be payable in cash or in debentures at par plus 
accrued interest. All premiums are payable in advance and no refund can 
he made of any portion thereof except as hereinafter provided in this 
subpart.
    (g) Any change in mortgage insurance premiums pursuant to this 
section will apply to new commitments issued or reissued on or after 
August 1, 2001 and any notice setting mortgage insurance premiums 
issued pursuant to this section.

    3. Revise Sec. 207.252a to read as follows:


Sec. 207.252a  Premiums--operating loss loans.

    (a) The mortgagee, upon the insurance endorsement of the increase 
loan credit instrument covering the operating loss loan, shall pay to 
the Commissioner a first mortgage insurance premium of not less than 
one-fourth of one percent nor more than one percent as the Secretary 
shall determine of the original amount of the loan.
    (b) The provisions of paragraphs (d), (e), (f) and (g) of Sec. 
207.252 shall apply to operating loss loans.

    4. Add a new 24 CFR 207.254 to read as follows:


Sec. 207.254  Changes in premiums; manner of publication.

    Notice of future premium changes will be published in the Federal 
Register. The Department will propose MIP changes for multifamily 
mortgage insurance programs and provide a 30-day public comment period 
for the purpose of accepting comments on whether the proposed changes 
are appropriate. After the comments have been considered, the 
Department will publish a final notice announcing the premiums for each 
program and their effective date. The provisions of paragraph (g) of 24 
CFR 207.252 shall apply to any notice of future premium changes 
published pursuant to this section.

    Dated: June 12, 2001.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 01-16594 Filed 6-29-01; 8:45 am]
BILLING CODE 4210-27-P