[Federal Register Volume 66, Number 206 (Wednesday, October 24, 2001)]
[Proposed Rules]
[Pages 53930-53934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26709]



[[Page 53929]]

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Part III





Department of Housing and Urban Development





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24 CFR Parts 200 and 203



Single Family Mortgage Insurance; Section 203(k) Consultant Placement 
and Removal Procedures; Proposed Rule

  Federal Register / Vol. 66, No. 206 / Wednesday, October 24, 2001 / 
Proposed Rules  

[[Page 53930]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200 and 203

[Docket No. FR-4592-P-01]
RIN 2502-AH51


Single Family Mortgage Insurance; Section 203(k) Consultant 
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 placement and removal 
procedures for HUD's list of qualified consultants under the Section 
203(k) Rehabilitation Loan Insurance program. The 203(k) Program is the 
Federal Housing Administration's (FHA's) primary program for the 
rehabilitation and repair of single family properties. A 203(k) lender 
may select a qualified independent consultant, who is an expert in the 
field of home inspection, cost estimating, and construction, to perform 
various tasks required for the rehabilitation of the property. 
Presently, there are no regulatory procedures for placing a consultant 
on, nor for removing a poorly performing consultant from, the list. HUD 
believes that the establishment of these placement and removal 
procedures will better protect 203(k) borrowers and lenders and 
safeguard FHA insurance funds.

DATES: Comments Due Date: December 24, 2001.

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, 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 Section 203(k) Rehabilitation Loan Insurance 
Program

    Section 203(k) of the National Housing Act (12 U.S.C. 1709(k)) 
authorizes HUD to insure loans for the purchase and/or rehabilitation 
and repair of residential properties. The 203(k) Program is HUD's 
primary program for the rehabilitation and repair of single family 
properties. Section 203(k) loan insurance enables homebuyers and 
homeowners to finance both the purchase (or refinance) of a house and 
the cost of its rehabilitation through a single mortgage. The 
regulations implementing the 203(k) Program are located in 24 CFR 
203.50 and 24 CFR 203.440 through 203.449. The program is administered 
by HUD's Office of Single Family Housing-Federal Housing Administration 
(FHA).
    The 203(k) Program fills a unique and important role for 
homebuyers. In the conventional loan market, a homebuyer who purchases 
a home that is in need of repair or modernization usually has to follow 
a complicated and costly process. The homebuyer must obtain financing 
to purchase the dwelling, additional financing for the rehabilitation 
work, and a permanent mortgage after rehabilitation is completed to pay 
off the interim loans. The interim acquisition and improvement loans 
often have relatively high interest rates and short repayment terms. 
The 203(k) Program was designed to address this situation. Under this 
program, a homebuyer may obtain a single loan, at a long-term fixed (or 
variable) rate, to finance both the acquisition and rehabilitation of 
the property.
    The extent of the rehabilitation covered by 203(k) loan insurance 
may range from relatively minor (though exceeding $5,000 in cost) to 
virtual reconstruction. For example, a home that has been demolished, 
or will be razed as part of rehabilitation, is eligible, provided that 
some of the existing foundation system remains in place. Section 203(k) 
loan insurance can also finance the rehabilitation of the residential 
portion of a property that has non-residential uses. In addition to 
typical home rehabilitation projects, the 203(k) Program can be used to 
convert a property of any size to a one-to four-unit dwelling.
    HUD requires that properties financed under this program meet 
certain basic health, safety, energy efficiency and structural 
standards. All improvements undertaken with loan insurance under the 
203(k) Program must comply with the HUD minimum property standards and 
all local codes and ordinances.

II. 203(k) Consultants

    One of the most time consuming and difficult parts of the 203(k) 
loan process is for the borrower to properly prepare the required cost 
estimate, work write-up, and architectural exhibits. A borrower using 
the 203(k) Program may choose to have a qualified independent 
consultant, who is an expert in the field of home inspection, cost 
estimating, and construction, perform these tasks. The use of a 
consultant by the borrower is not required. However, many borrowers 
elect to use consultants to expedite processing of their 203(k) loans.
    Although the borrower determines whether to use a consultant, the 
lender is solely responsible for selecting the 203(k) consultant and 
for determining the scope of the work to be performed by the 
consultant. The consultant must enter into a written agreement with the 
lender that completely explains what services the consultant will 
perform for the lender. Consultant fees are set in accordance with 
HUD's established fee schedule. The lender may require that the 
borrower enter into a written agreement obligating the borrower to pay 
for any or all of the consultant fees, whether or not the property is 
rehabilitated. The fee charged by the consultant may be included in the 
mortgage as a part of the cost of rehabilitation.
    In some cases, the lender may also request a consultant to conduct 
a preliminary feasibility analysis. The purpose of this analysis is to 
determine the extent of the rehabilitation work required, a rough cost 
estimate of the work, and the expected market value of the property 
after completion of the work. The analysis may be conducted before or 
after submission of the sales contract to the seller.
    The consultant may perform the required draw inspections for the 
release of funds during the construction period. The lender may also 
have the consultant conduct the plan review to ensure that the 
architectural exhibits are acceptable and comply with all applicable 
program requirements. HUD notes that the plan review is a mandatory 
step in the processing of the 203(k) loan. There is no requirement that 
the consultant conduct the plan review. However, if a consultant is not 
used to perform this function, the borrower must hire an independent 
plan reviewer.
    HUD, through its four Homeownership Centers (HOCs), maintains lists 
of qualified consultants

[[Page 53931]]

on the applicable HOC internet website.
Only those consultants included on a HOC's list of qualified 
consultants may be employed by the lender as a consultant under the 
203(k) Program. Currently, to apply for placement on the list of 
qualified consultants, a consultant must submit his or her 
qualifications to the appropriate HOC and demonstrate knowledge of 
203(k) Program requirements.

III. This Proposed Rule--Placement and Removal of 203(k) 
Consultants

A. Placement Procedures

    This proposed rule would establish the placement and removal 
procedures for 203(k) consultants in subpart F to part 200 of the FHA 
regulations (entitled ``Placement and Removal Procedures for 
Participation in FHA Programs''). Part 200 (entitled ``Introduction to 
FHA Programs'') prescribes requirements that apply to several of the 
FHA programs. The 203(k) consultant placement procedures would be 
located in a new Sec. 200.191.
    The proposed rule would provide that, to apply for placement on the 
list, a consultant must submit an application (or materials) in a form 
prescribed by HUD. To be eligible for placement on the list:
    1. The consultant must demonstrate to HUD that it has a minimum of 
three years' experience as a remodeling contractor, general contractor 
or home inspector. A state license as a state certified engineer or 
architect may be submitted in lieu of the documentation of the three 
years' experience.
    2. If located in a state that requires the licensing of home 
inspectors, the consultant would be required to submit proof of such 
licensing.
    3. The consultant must submit a narrative description of the 
consultant's ability to perform home inspections, prepare architectural 
drawings, use proper methods of cost estimating and complete draw 
inspections.
    4. The consultant must certify that it has read and fully 
understands the requirements of the HUD handbook on the 203(k) Program 
(4240.4), and all Mortgagee Letters and other instructions issued by 
HUD relating to the 203(k) Program. Copies of HUD Handbook 4240.4 and 
the HUD Mortgagee Letters concerning the 203(k) Program may be obtained 
by accessing the HUD internet Web site at http://www.hud.gov.
    5. The consultant must not be listed on the General Service 
Administration's Suspension and Debarment List, HUD's Limited Denial of 
Participation List, or HUD's Credit Alert Interactive Voice Response 
System.
    HUD also intends to develop a formal comprehensive examination on 
the 203(k) Program, which consultants would be required to pass before 
placement on the list. Consultants included on the list on the date 
this examination is enacted would have until 6 months following this 
date to pass the comprehensive test. Failure of the 203(k) consultant 
to pass the examination by the deadline date would constitute cause for 
removal from the list.
    The inclusion of a consultant on the list means only that the 
consultant has met the qualifications and conditions prescribed by the 
Secretary for placement on the list of consultants qualified for the 
203(k) Program. The inclusion of a consultant on the list does not 
create or imply a warranty or endorsement by HUD of the consultant, nor 
does it represent a warranty of any work performed by the consultant.

B. Removal Procedures

    This proposed rule would also establish regulatory standards for 
the removal of a poorly performing consultant from the list. HUD has 
determined that regulatory removal procedures are necessary to better 
protect 203(k) lenders and safeguard FHA insurance funds. The proposed 
removal procedures are largely modeled on the existing and successful 
procedures for the removal of appraisers from the FHA Appraiser Roster 
(see the final rule published on April 3, 2000 (66 FR 17974)).
    These procedures would supplement HUD's existing debarment, 
suspension and limited denial of participation remedies. The proposed 
removal procedure would provide a less lengthy process, and would fully 
protect the due process rights of consultants. The removal procedures 
would be located in new Sec. 200.192 of subpart F.
    The proposed rule provides that HUD may remove a consultant for any 
cause that HUD determines to be detrimental to HUD or its programs. 
Cause for removal includes, but is not limited to:
    1. Poor performance on a HUD quality control field review;
    2. Failure to comply with applicable regulations or other written 
instructions or standards issued by HUD;
    3. Failure to comply with applicable Civil Rights requirements;
    4. Being debarred or suspended, or subject to a limited denial of 
participation;
    5. Misrepresentation or fraudulent statements;
    6. Failure to retain standing as a state licensed architect or 
state-licensed engineer (unless the consultant can demonstrate the 
required three years' experience as a home inspector or remodeling 
contractor); or
    7. Serving, or having served, as the rehabilitation consultant for 
properties securing 203(k) mortgages of which a significant percentage 
are in foreclosure, default or claim status.
    8. Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation.
    The removal procedure proposed by this rule would require HUD to 
give a consultant written notice of a proposed decision to remove the 
consultant from the list. This notice would state the reasons for, and 
the duration of, the proposed removal. The consultant 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 consultant 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 consultant has been debarred or suspended or subject to 
a limited denial of participation.
    A HUD official, designated by the Secretary, would review the 
consultant's appeal and send the consultant a final decision either 
affirming, modifying, or cancelling the removal from the list. The HUD 
official designated by the Secretary to review the consultant's 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 consultant 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 consultant.
    If the consultant 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 consultant 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. 200.192 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 
consultant 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

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consultant available to HUD by statute or otherwise.
    A consultant who has been removed from the list may apply for 
placement on the list after the period for the consultant's removal 
from the list has expired.

C. Small Business Concerns Related to the Removal of Consultants

    With respect to removing a consultant from the list, or taking 
other appropriate enforcement action against a consultant, HUD is 
cognizant that section 222 of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (Public Law 104-121) (referred to as ``SBREFA'') 
requires the Small Business and Agriculture Regulatory Enforcement 
Ombudsman to ``work with each agency with regulatory authority over 
small businesses to ensure that small business concerns that receive or 
are subject to an audit, on-site inspection, compliance assistance 
effort or other enforcement related communication or contact by agency 
personnel are provided with a means to comment on the enforcement 
activity conducted by this personnel.'' To implement this statutory 
provision, the Small Business Administration has requested that 
agencies include the following language on agency publications and 
notices that are provided to small businesses concerns at the time the 
enforcement action is undertaken. The language is as follows:

Your Comments Are Important

    The Small Business and Agriculture Regulatory Enforcement 
Ombudsman and 10 Regional Fairness Boards were established to 
receive comments from small businesses about federal agency 
enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to 
small business. If you wish to comment on the enforcement actions of 
[insert agency name], call 1-888-REG-FAIR (1-888-734-3247).

    As HUD stated in its notice describing HUD's actions on the 
implementation of SBREFA, which was published on May 21, 1998 (63 FR 
28214), HUD intends to work with the Small Business Administration to 
provide small entities with information on the Fairness Boards and 
National Ombudsman program, at the time enforcement actions are taken, 
to ensure that small entities have the full means to comment on the 
enforcement activity conducted by HUD.

IV. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and are 
pending OMB approval. 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
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                     Number of     average  time     Estimated
                Section reference                    Number of     responses per        for        annual burden
                                                      parties       respondent      requirement     (in hours)
                                                                                    (in hours)
----------------------------------------------------------------------------------------------------------------
200.191 (Consultant Application Package)........           2,500               1               4          10,000
200.191(b)(6) (Consultant Proficiency Exam).....           2,500               1              36          90,000
----------------------------------------------------------------------------------------------------------------

    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. Under the 
provisions of 5 CFR part 1320, OMB is required to make a decision 
concerning this collection of information between 30 and 60 days after 
today's publication date. Therefore, a comment on the information 
collection requirements is best assured of having its full effect if 
OMB receives the comment within 30 days of today's publication. This 
time frame does not affect the deadline for comments to the agency on 
the proposed rule, however. Comments must refer to the proposal by name 
and docket number (FR-4592) 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.

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.

Environmental Impact

    This proposed rule would establish placement and removal procedures 
for HUD's list of qualified 203(k) rehabilitation loan consultants. 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

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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 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.
    The proposed rule would establish the procedure by which a 
consultant, who has violated FHA single family mortgage insurance 
program requirements, may be removed from HUD's list of qualified 
203(k) consultants. Accordingly, to the extent that this 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 minimize any potential impact on small entities. 
For example, the rule grants consultants, selected for removal from the 
list, 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. In addition, the 
proposed examination requirements would be ``phased-in'' for 
consultants on the list, and not take effect until six months after the 
effective date of promulgation. This delayed effective date will 
provide consultants on the list with additional time to meet the new 
requirements.
    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 Numbers

    The Catalog of Federal Domestic Assistance Number for the Section 
203(k) Rehabilitation Loan Insurance program is 14.108.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, Housing standards, 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.

24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR parts 200 and 203 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

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

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

    2. In subpart F as proposed to be added at 66 FR 48082, add a new 
undesignated centerheading and Secs. 200.190 through 200.193 to read as 
follows:

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

Sec.

Section 203(k) Rehabilitation Loan Consultants

200.190   HUD list of qualified 203(k) consultants.
200.191   Placement of 203(k) consultant.
200.192   Removal of 203(k) consultant.
200.193   Responsibilities of 203(k) consultants on the list.

Section 203(k) Rehabilitation Loan Consultants


Sec. 200.190  HUD list of qualified 203(k) consultants.

    (a) Qualified consultant list. HUD maintains a list of qualified 
consultants for use in the rehabilitation loan insurance program 
authorized by section 203(k) of the National Housing Act (12 U.S.C. 
1709(k)) (referred to as the ``203(k) Program'').
    (b) Consultant functions. Only a consultant included on the list 
may be selected by the lender to conduct any consultant function under 
the 203(k) Program (see Sec. 203.50(l) of this chapter).
    (c) Disclaimer. The inclusion of a consultant on the list means 
only that the consultant has met the qualifications and conditions 
prescribed by the Secretary for placement on the list of consultants 
qualified for the 203(k) Program. The inclusion of a consultant on the 
list does not create or imply a warranty or endorsement by HUD of the 
consultant, nor does it represent a warranty of any work performed by 
the consultant.


Sec. 200.191  Placement of 203(k) consultant.

    (a) Application. To be considered for placement on the list, a 
consultant must apply to HUD using an application (or materials) in a 
form prescribed by HUD.
    (b) Eligibility. To be eligible for placement on the list:
    (1) The consultant must demonstrate to HUD that it either:
    (i) Has at least three years' experience as a remodeling 
contractor, general contractor or home inspector; or
    (ii) Is a state-licensed architect or state-licensed engineer;
    (2) If located in a state that requires the licensing of home 
inspectors, the consultant must submit proof of such licensing;
    (3) The consultant must submit a narrative description of the 
consultant's ability to perform home inspections, prepare architectural 
drawings, use proper methods of cost estimating and complete draw 
inspections;
    (4) The consultant must certify that it has read and fully 
understands the

[[Page 53934]]

requirements of the HUD handbook on the 203(k) Program (4240.4) and all 
HUD Mortgagee Letters (see http://www.hudclips.org) and other 
instructions relating to the 203(k) Program;
    (5) The consultant must not be listed on:
    (i) The General Service Administration's Suspension and Debarment 
List;
    (ii) HUD's Limited Denial of Participation List; or
    (iii) HUD's Credit Alert Interactive Voice Response System;
    (6) The consultant must have passed a comprehensive examination on 
the 203(k) Program, if HUD has developed such an exam.
    (c) Delayed effective date of examination requirement for 
consultants currently on the list. Consultants who are included on the 
list on the date when the requirement for the examination described in 
paragraph (b)(6) of this section becomes effective have until 6 months 
following this date to pass the comprehensive exam. Failure to pass the 
examination by the deadline date constitutes cause for removal under 
Sec. 200.192.


Sec. 200.192  Removal of 203(k) consultant.

    (a) Cause for removal. HUD may remove a consultant from the list 
for any cause that HUD determines to be detrimental to HUD or its 
programs. Cause for removal includes, but is not limited to:
    (1) Poor performance on a HUD quality control field review;
    (2) Failure to comply with applicable regulations or other written 
instructions or standards issued by HUD;
    (3) Failure to comply with applicable Civil Rights requirements;
    (4) Being debarred or suspended, or subject to a limited denial of 
participation;
    (5) Misrepresentation or fraudulent statements;
    (6) Failure to retain standing as a state licensed architect or 
state-licensed engineer (unless the consultant can demonstrate the 
required three years experience as a home inspector or remodeling 
contractor);
    (7) Serving, or having served, as the rehabilitation consultant for 
properties securing 203(k) mortgages of which a significant percentage 
are in foreclosure, default or claim status; or
    (8) Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation.
    (b) Procedure for removal. A consultant that is debarred or 
suspended, or subject to a limited denial of participation will be 
automatically removed from the list. In all other cases, the following 
procedure for removal will be followed:
    (1) HUD will give the consultant written notice of the proposed 
removal. The notice will state the reasons for, and the duration of, 
the proposed removal.
    (2) The consultant 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 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 appeal or, if the consultant 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 consultant.
    (4) If the consultant 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 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 list after removal. A consultant that has been 
removed from the list may apply for placement on the list (in 
accordance with Sec. 200.191) after the period of the consultant's 
removal from the list has expired. An application will be rejected if 
the period for the consultant's removal from the list has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against a consultant, as provided in 24 CFR part 24, 
or from seeking any other remedy against a consultant available to HUD 
by statute or otherwise.


Sec. 200.193  Responsibilities of 203(k) consultants on the list.

    All consultants included on the list are responsible for:
    (a) Obtaining and reading the HUD handbook on the 203(k) Program 
(4240.4) and any updates to the handbook.
    (b) Complying with the HUD handbook on the 203(k) Program (4240.4), 
and any updates to the handbook, when performing any consultant 
function under the 203(k) Program.
    (c) Obtaining and reading all Mortgagee Letters and other 
instructions issued by HUD relating to the 203(k) Program.
    (d) Complying with all Mortgagee Letters and other instructions 
issued by HUD relating to the 203(k) Program, when undertaking any 
consultant function under the 203(k) Program.
    (e) Complying with HUD's request for documentation relating to any 
203(k) project on which the consultant has worked.
    (f) Complying with HUD's monitoring requirements relating to the 
203(k) Program.

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    3. The authority citation for 24 CFR part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C. 
3535(d).

    4. Add Sec. 203.50(l) to read as follows:


Sec. 203.50  Eligibility of rehabilitation loans.

* * * * *
    (l) Rehabilitation loan consultants. HUD maintains a list of 
qualified consultants, in accordance with Secs. 200.190-200.193 of this 
chapter. The lender may select a consultant on the list to perform one 
or more of the following tasks:
    (1) Conduct a preliminary feasibility analysis before or after the 
submission of a sales contract;
    (2) Prepare the cost estimate, work write-up, and architectural 
exhibits required for the rehabilitation of the property;
    (3) Conduct a plan review; and
    (4) Conduct the draw inspections for the release of funds during 
the construction phase of the project.

    Dated: July 12, 2001.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 01-26709 Filed 10-23-01; 8:45 am]
BILLING CODE 4210-27-P