[Federal Register Volume 66, Number 180 (Monday, September 17, 2001)]
[Proposed Rules]
[Pages 48080-48083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23049]



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Part II





Department of Housing and Urban Development





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24 CFR Part 200



Nonprofit Organization Participation in Certain FHA Single Family 
Activities; Placement and Removal Procedures; Proposed Rule

  Federal Register / Vol. 66, No. 180 / Monday, September 17, 2001 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-4585-P-01]
RIN 2502-AH49


Nonprofit Organization Participation in Certain FHA Single Family 
Activities; Placement and Removal Procedures

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish regulatory placement and 
removal procedures for HUD's Nonprofit Organization Roster. The Roster 
lists nonprofit organizations that HUD has determined are qualified to 
participate in certain specified Federal Housing Administration (FHA) 
single family activities. These activities may include acting as a 
mortgagor; purchasing HUD's Real Estate Owned (REO) Properties (HUD 
Homes) at a discount; providing secondary financing; and imposing legal 
restrictions on conveyance as part of affordable housing programs. 
Presently, there are no regulatory procedures for placing a nonprofit 
organization on, nor for removing a poorly performing nonprofit 
organization from, the Roster. HUD believes that the establishment of 
these placement and removal procedures will better protect participants 
in the FHA single family programs and safeguard FHA insurance funds.

DATES: Comments Due Date: November 16, 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, Department of Housing and Urban 
Development, 451 Seventh Street SW, Room 9266, Washington, DC 20410-
8000; phone (202) 708-2700 (this is not a toll-free number). For 
hearing- and speech-impaired persons, this number may be accessed via 
TTY (text telephone) by calling the Federal Information Relay Service 
at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Nonprofit organizations are important partners in HUD's efforts to 
further affordable housing opportunities for low and moderate income 
persons through the Federal Housing Administration (FHA) single family 
programs. FHA's single family regulations recognize a special role for 
nonprofit organizations in conjunction with the origination of new 
mortgages, disposition of homes by HUD, imposing legal restrictions on 
conveyance as part of affordable housing programs, and providing 
secondary financing.
    The special role provided for nonprofit organizations in these 
regulations is intended only for those organizations that are 
financially viable and actively involved in the furthering of 
affordable housing in their communities. To this end, HUD has 
established the FHA Nonprofit Organization Roster. The Roster lists 
nonprofit organizations that HUD has determined are qualified to 
participate in certain specified FHA single family activities. FHA 
maintains the Roster to provide a means for mortgagees and the general 
public to verify if nonprofit organizations are qualified to 
participate in specified FHA activities. This Roster is an important 
part of the FHA Single Family Mortgage Insurance program because 
nonprofit organizations that are placed on the Roster are considered to 
be an asset to FHA in increasing homeownership opportunities and 
protecting FHA insurance funds.

II. This Proposed Rule

    This proposed rule would establish regulatory placement and removal 
procedures for the FHA Nonprofit Organization Roster. The proposed rule 
would establish subpart F to part 200 of the FHA regulations. Two 
regulatory sections would be established by this proposed rule--
Sec. 200.194 (which would prescribe the procedures for placement of a 
nonprofit organization on the Roster) and Sec. 200.195 (which would set 
forth the removal process for a poorly performing nonprofit 
organization).

A. Placement Procedures

    Section 200.194 would state the requirement that a nonprofit 
organization must be on the FHA Nonprofit Organization Roster in order 
to be recognized as a nonprofit organization under the regulations. The 
section would also require the nonprofit organization to complete an 
application for placement on the Roster in a form (or materials) 
prescribed by HUD (which may require an affordable housing program 
narrative for the activities the nonprofit organization proposes to 
carry out). The nonprofit organization would be required to specify in 
its application those FHA activities which it proposes to carry out.
    HUD may approve the nonprofit organization to participate in all, 
or only some, of the FHA activities specified in its application. If 
the application is incomplete, HUD will provide the applicant with a 
period of time to correct the deficiencies. HUD will reject an 
application if the nonprofit organization fails to submit a program 
that complies with applicable regulations, Mortgagee Letters, or other 
standards or instructions issued by HUD. The placement of the nonprofit 
organization on the Roster would expire in two years. The nonprofit 
organization would be required to re-apply for placement on the Roster 
before the expiration of the two year period.
    The proposed rule would not include substantive requirements to be 
met by a nonprofit organization. It would be in addition to, and not a 
substitute for, any substantive requirements stated in a specific 
applicable provision of the FHA regulations. For example, 
Sec. 203.18(f)(3)(ii) requires a nonprofit mortgagor to meet the 
statutory requirements of section 203(g)(2)(B)(ii) of the National 
Housing Act (12 U.S.C. 1701 et seq.)--i.e., to be tax-exempt under 
section 501(c)(3) of the Internal Revenue Code and to intend to sell 
the mortgaged property to low- or moderate-income persons. Section 
203.41(a)(5) (which is also referenced in Sec. 203.32(b) for purposes 
of secondary financing) requires section 501(c)(3) status for a 
nonprofit organization, and also requires ``two years experience as a 
provider of low- or moderate-income housing; * * * a voluntary board; 
and * * * [that] no part of its net earnings inur[e] to the benefit of 
any member, founder, contributor or individual.'' This rule does not 
propose to alter those substantive requirements for nonprofit 
organizations that appear in current regulations.

B. Removal Procedures

    Proposed Sec. 200.195 would establish regulatory procedures for the 
removal of a poorly performing nonprofit organization from the Roster. 
The proposed removal procedures would supplement HUD's existing 
debarment, suspension and limited denial of participation remedies.

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    The proposed rule provides that HUD may remove a nonprofit 
organization from the Roster for any cause that it determines to be 
detrimental to FHA or its programs. Cause for removal includes, but is 
not limited to:
    1. Failure to comply with applicable regulations, Mortgagee Letters 
or other written instructions and standards issued by HUD.
    2. Failure to comply with applicable Civil Rights requirements.
    3. Holding a significant number of FHA-insured mortgages that are 
in default, foreclosure, or claim status (in determining the number 
considered ``significant,'' HUD may compare the number of insured 
mortgages held by the nonprofit organization against the similar 
holdings of other nonprofit organizations). HUD intends to develop 
additional guidance on how it will determine what constitutes a 
``significant'' number of defaults, foreclosures, or claims for 
purposes of possible removal from the Roster. HUD specifically invites 
public comment on what number should be considered ``significant,'' and 
on what additional information should be provided in this guidance.
    4. Being debarred or suspended, subject to a limited denial of 
participation, or otherwise sanctioned by HUD.
    5. Failure to further all objectives described in the affordable 
housing program narrative.
    6. Misrepresentation or fraudulent statements.
    7. Failure to respond within a reasonable time to HUD inquiries, 
including recertification requests or other requests for further 
documentation.
    HUD will provide the nonprofit organization with written notice of 
the proposed removal. This notice would state the reasons and the 
duration of the proposed removal. The nonprofit organization would be 
given not less than 20 days from the date of the removal notice to 
submit a written response appealing the proposed removal. The nonprofit 
organization would also have the right to submit a written request for 
a conference along with the written response. This procedure would not 
be applicable, however, if the nonprofit organization has been debarred 
or suspended, subject to a limited denial of participation, or 
otherwise sanctioned by HUD.
    A HUD official, designated by the Secretary, would review the 
nonprofit organization's appeal and send the nonprofit organization a 
final decision either affirming, modifying, or cancelling the removal 
from the Roster. The HUD official designated by the Secretary to review 
the appeal would not be someone involved in HUD's initial removal 
decision. HUD would respond with a decision within 30 days of receiving 
the appeal or, if the nonprofit organization has requested a 
conference, within 30 days after the completion of the conference. HUD 
may extend the 30-day period by providing written notice to the 
nonprofit organization.
    If the nonprofit organization does not submit a timely written 
response, the removal would become effective 20 days after the date of 
HUD's initial removal notice (or after a longer period provided in the 
notice). If the nonprofit organization submits a written response, and 
the removal decision is affirmed or modified, the removal would become 
effective on the date of HUD's notice affirming or modifying its 
initial removal decision.
    The proposed addition of Sec. 200.195 would not prohibit HUD from 
debarring, suspending, issuing a limited denial of participation, 
seeking a false claims action, or taking such other action against a 
nonprofit organization as provided for in 24 CFR part 24 (entitled 
``Government Debarment and Suspension and Governmentwide Requirements 
for Drug-Free Workplace (Grants)''), or from seeking any other remedy 
against a nonprofit organization available to HUD by statute or 
otherwise.
    A nonprofit organization that has been removed from the Roster may 
apply for placement on the Roster after the period for the removal of 
the nonprofit organization from the Roster has expired.

III. 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 Department's Rules Docket Clerk, 
Room 10276, 451 Seventh Street, SW., Washington, DC 20410-0500.

Paperwork Reduction Act

    The information collection requirements described in proposed 
Sec. 200.194 have been approved by the Office of Management and Budget 
(OMB) in connection with Mortgagee Letter 00-8, and assigned OMB 
Control Number 2502-0540. HUD invites public comment on the information 
collections contained in this proposed rule and Mortgagee Letter 00-8. 
All public comments will be considered in the development of the final 
rule and may result in revisions to the information collection 
requirements for the FHA Nonprofit Organizations Roster contained in 
the Mortgagee Letter. In accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501-3520), an agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless the collection displays a valid control number.

Environmental Impact

    This proposed rule would establish placement and removal procedures 
for HUD's Nonprofit Organization Roster. The proposed rule would 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, 
in accordance with 24 CFR 50.19(c)(1), this proposed rule is 
categorically excluded from the requirements of the National 
Environmental Policy Act (42 U.S.C. 4321 et seq.).

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. Although 
many nonprofit organizations affected by this rule are small entities, 
compliance with the rule is not expected to have a substantive economic 
impact. The rule does not discriminate against small entities or 
disadvantage them competitively.
    The proposed rule would establish the procedure by which a 
nonprofit organization, who has violated FHA single family mortgage 
insurance program requirements, may be removed from HUD's Nonprofit 
Organization Roster. Accordingly, to the extent that the proposed rule 
would impact small entities it will be as a result of actions taken by 
small entities themselves--that is, violation of single family program 
regulations and requirements. Further, the proposed rule would provide 
several procedural safeguards designed to

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minimize any potential impact on small entities. For example, the rule 
grants a nonprofit organization, selected for removal from the Roster, 
the opportunity to provide a written response and to request a 
conference regarding a proposed removal. The rule also specifies that 
the official designated by HUD to review an appeal may not be the same 
HUD official involved in the initial removal decision.
    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 numbers for the 
principal FHA single family programs are 14.117 and 14.133.

List of Subjects in 24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, Housing standards, 
Incorporation by reference, Lead poisoning, Loan programs--housing and 
community development, Minimum property standards, Mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social security, Unemployment 
compensation, Wages.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR part 200 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

    1. The authority citation for 24 CFR part 200 continues to read as 
follows:

    Authority: 12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535(d).

    2. Add subpart F to read as follows:

Subpart F--Placement and Removal Procedures for Participation in 
FHA Programs

Nonprofit Organizations
Sec.
200.194   Placement of nonprofit organization on Nonprofit 
Organization Roster.
200.195   Removal of nonprofit organization from Nonprofit 
Organization Roster.

Subpart F--Placement and Removal Procedures for Participation in 
FHA Programs

Nonprofit Organizations


Sec. 200.194  Placement of nonprofit organization on Nonprofit 
Organization Roster.

    (a) Nonprofit Organization Roster. HUD maintains a roster of 
nonprofit organizations that are qualified to participate in certain 
specified FHA activities. In order to be recognized as a nonprofit 
organization for purposes of single family regulations in this chapter, 
an organization must:
    (1) Be included in the Roster; and
    (2) Comply with any requirements stated in a specific applicable 
provision of the regulations.
    (b) Application. To be included in the Roster, a nonprofit 
organization must apply to HUD using an application (or materials) in a 
form prescribed by HUD (which may require an affordable housing program 
narrative for the activities the nonprofit organization proposes to 
carry out). The nonprofit organization must specify in its application 
the FHA activities it proposes to carry out.
    (c) HUD response to application. HUD's review of the application 
will result in one of the following:
    (1) Approval of the nonprofit organization to participate in all, 
or some, of the FHA activities specified in its application and the 
addition of the nonprofit organization to the Roster.
    (2) Rejection due to deficiencies in the application. HUD will 
provide the nonprofit organization with a period to correct these 
deficiencies.
    (3) Rejection due to the nonprofit organization's failure to submit 
a program that complies with applicable regulations, Mortgagee Letters, 
or other standards or instructions issued by HUD.
    (d) Re-application after two years. The placement of a nonprofit 
organization on the Roster expires after two years. The nonprofit 
organization must re-apply for placement on the Roster, in accordance 
with paragraph (b) of this section, before expiration of the two-year 
period.


Sec. 200.195  Removal of nonprofit organization from Nonprofit 
Organization Roster.

    (a) Cause for removal. HUD may remove a nonprofit organization from 
the FHA Nonprofit Organization Roster established under Sec. 200.194. 
Removal may be for any cause that HUD determines to be detrimental to 
FHA or any of its programs, including but not limited to:
    (1) Failure to comply with applicable regulations, Mortgagee 
Letters or other written instructions or standards issued by HUD;
    (2) Failure to comply with applicable Civil Rights requirements;
    (3) Holding a significant number of FHA-insured mortgages that are 
in default, foreclosure, or claim status (in determining the number 
considered ``significant,'' HUD may compare the number of insured 
mortgages held by the nonprofit organization against the similar 
holdings of other nonprofit organizations);
    (4) Being debarred or suspended, subject to a limited denial of 
participation, or otherwise sanctioned by HUD;
    (5) Failure to further all objectives described in the affordable 
housing program narrative;
    (6) Misrepresentation or fraudulent statements; or
    (7) Failure to respond within a reasonable time to HUD inquiries, 
including recertification requests or other requests for further 
documentation.
    (b) Procedure for removal. A nonprofit organization that is 
debarred or suspended or subject to a limited denial of participation 
will be automatically removed from the FHA Nonprofit Organization 
Roster. In all other cases, the following procedure for removal 
applies:
    (1) HUD will give the nonprofit organization written notice of the

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proposed removal. The notice will include the reasons for the proposed 
removal and the duration of the proposed removal.
    (2) The nonprofit organization will have 20 days from the date of 
the notice (or longer, if provided in the notice) to submit a written 
response appealing the proposed removal and to request a conference. A 
request for a conference must be in writing and must be submitted along 
with the written response.
    (3) A HUD official will review the appeal and provide an informal 
conference if requested. The HUD official will send a response either 
affirming, modifying, or cancelling the removal. The HUD official will 
not be someone who was involved in HUD's initial removal decision. HUD 
will respond with a decision within 30 days of receiving the response, 
or, if the nonprofit organization has requested a conference, within 30 
days after the completion of the conference. HUD may extend the 30-day 
period by providing written notice to the nonprofit organization.
    (4) If the nonprofit organization does not submit a timely written 
response, the removal will be effective 20 days after the date of HUD's 
initial removal notice (or after a longer period provided in the 
notice). If a written response is submitted, and the initial removal 
decision is affirmed or modified, the removal will be effective on the 
date of HUD's notice affirming or modifying the initial removal 
decision.
    (c) Placement on the Roster after removal. A nonprofit organization 
that has been removed from the FHA Nonprofit Organization Roster may 
apply for placement on the Roster (in accordance with Sec. 200.194) 
after the nonprofit organization's removal from the Roster has expired. 
An application will be rejected if the period for the nonprofit 
organization's removal from the Roster has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against a nonprofit organization, as provided in 24 
CFR part 24, or from seeking any other remedy against a nonprofit 
organization available to HUD by statute or otherwise.

    Dated: July 2, 2001.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 01-23049 Filed 9-14-01; 8:45 am]
BILLING CODE 4210-27-P