[Federal Register Volume 67, Number 24 (Tuesday, February 5, 2002)]
[Notices]
[Pages 5418-5420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2655]



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Part III





Department of Housing and Urban Development





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Notice of FHA Accelerated Claim Disposition Demonstration; Notice

  Federal Register / Vol. 67, No. 24 / Tuesday, February 5, 2002 / 
Notices  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4691-N-01]


Notice of FHA Accelerated Claim Disposition Demonstration

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

ACTION: Notice.

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SUMMARY: This notice announces HUD's proposal to establish the 
Accelerated Claim Disposition (ACD) Demonstration. Under the ACD 
Demonstration, HUD would pay accelerated claims on certain defaulted 
FHA-insured mortgages. HUD intends to select approximately five to nine 
mortgagees to participate in the ACD Demonstration. The demonstration 
will have a limited initial duration and will initially include 
mortgage loans secured by properties located within the jurisdiction of 
HUD's Philadelphia, Pennsylvania and Atlanta, Georgia Homeownership 
Centers (HOCs). At the conclusion of the demonstration, HUD will assess 
its success and determine whether to implement the ACD process, on a 
permanent basis, throughout the country.

DATES: Comments Due Date: April 8, 2002.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice to 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 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: Kathleen S. Malone, Director (Acting), 
Office of Asset Sales, Room 6266, U.S. Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410; telephone: 
(202) 708-2625 (this is not a toll-free telephone number). Hearing- and 
speech-impaired persons may access this telephone number via TTY by 
calling the toll-free Federal Information Relay Service at 1-800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Background

    Title VI of the Fiscal Year 1999 Departments of Veterans Affairs 
and Housing and Urban Development and Independent Agencies 
Appropriations Act (Pub.L. 105-276, approved October 21, 1998) 
(referred to as the ``FY 1999 HUD Appropriations Act'') made 
significant reforms to the claims and property disposition processes 
for the HUD-Federal Housing Administration (FHA) single family mortgage 
insurance programs. Section 601 of the FY 1999 HUD Appropriations Act 
amended section 204 of the National Housing Act (12 U.S.C. 1710) to 
make more effective the methods for paying insurance claims and 
disposing of HUD-acquired single family mortgages and properties.
    Among other changes, section 601 amended section 204(a)(1)(A) of 
the National Housing Act to authorize the Secretary of HUD to pay 
accelerated claims upon assignment on certain defaulted FHA-insured 
mortgage loans. To be eligible for payment of an accelerated claim, the 
statute generally requires that the mortgage be in default for ``not 
less than 3 full monthly installments or whenever the mortgagee is 
entitled to foreclosure for a nonmonetary default.'' Further, the 
mortgagee must assign to HUD: (1) All rights and interests arising 
under the mortgage; (2) all claims of the mortgagee against the 
mortgagor or others arising out of the mortgage transaction; (3) title 
evidence satisfactory to HUD; and (4) such records relating to the 
mortgage transaction as HUD may require.

B. The Accelerated Claim Disposition (ACD) Demonstration

    Before implementing the new accelerated claim payment process 
authorized by amended section 204 on a nationwide basis, HUD has 
decided to initially conduct a demonstration involving a finite group 
of defaulted mortgages. This demonstration--to be known as the 
Accelerated Claim Disposition (ACD) Demonstration--will allow HUD to 
assess the success of the new accelerated claim payment process and to 
address any programmatic concerns before authorizing its use throughout 
the country. The purpose of this notice is to announce HUD's intent to 
establish the ACD Demonstration, and to solicit public comments on this 
proposal. After reviewing all of the public comments on this notice, 
HUD will issue a follow-up Federal Register notice, which will formally 
establish the ACD Demonstration. All public comments will be considered 
in the development of the final notice.

II. Duration and Scope; Eligibility Requirements

A. Duration

    The ACD Demonstration will have a limited initial duration 
commencing on the effective date of the final notice establishing the 
demonstration. HUD, however, may extend the duration of the 
demonstration in order to accurately assess its effectiveness. HUD will 
announce any such extension through Federal Register notice.

B. Geographic Scope

    The demonstration will initially include mortgages secured by 
properties located within the jurisdiction of HUD's Philadelphia, 
Pennsylvania and Atlanta, Georgia Homeownership Centers (HOCs). HUD has 
four HOCs that are located in Atlanta, Georgia; Denver, Colorado; 
Philadelphia, Pennsylvania; and Santa Ana, California. Each HOC insures 
single family FHA mortgages and oversees the selling of HUD homes in a 
specified group of states.
    The Philadelphia HOC serves the states of Connecticut, Delaware, 
the District of Columbia, Maine, Maryland, Massachusetts, Michigan, New 
Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, 
Vermont, Virginia, and West Virginia. The Atlanta HOC serves the states 
of Alabama, Florida, Georgia, Kentucky, Illinois, Indiana, Mississippi, 
North Carolina, South Carolina, and Tennessee, as well as the 
Caribbean.
    HUD may decide at a future date to expand the scope of the ACD 
Demonstration to include one or more additional HOCs.

C. Participating Mortgagees

    Mortgagee participation in the ACD Demonstration is voluntary. HUD 
is currently undertaking efforts to identify mortgagees who may be 
suitable candidates for participation in the ACD Demonstration. In 
addition, HUD invites mortgagees who meet the criteria described below 
to contact HUD at the address provided in the FOR FURTHER INFORMATION 
CONTACT section of this notice to explore the possibility of 
participation in the demonstration. From among the pool of interested 
candidates who meet the criteria described below, HUD intends to select 
approximately 5-9 mortgagees to participate in the ACD Demonstration. 
HUD, however, may decide to select a smaller or larger number of 
participating mortgagees. Eligible mortgagees who are not invited to 
participate in the demonstration may be selected by HUD to serve as a 
``control group'' and provide comparative data for purposes

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of evaluating the success of the ACD Demonstration. HUD's final Federal 
Register notice establishing the ACD Demonstration will include a list 
of the mortgagees selected to participate in the demonstration.
    In order to be selected for participation in the ACD Demonstration, 
a mortgagee must satisfy all of the following criteria:
    1. Number of serviced loans. The mortgagee must currently service 
in excess of 20,000 mortgage loans secured by properties that are 
located within the jurisdiction of the Philadelphia or Atlanta HOCs.
    2. Loss mitigation performance. The mortgagee must be qualified in 
the top tier of the FHA Tiering System, which ranks mortgagees in loss 
mitigation performance. The FHA Tiering System was developed by HUD's 
National Servicing and Loss Mitigation Center and is subject to future 
refinement.
    3. Computer system capabilities. The mortgagee must have the 
technical capability to interface with the FHA Single Family Claims 
system, through the internet (using the FHA Connection System) or using 
Electronic Data Interchange (EDI) technology. In addition, the 
mortgagee must have the technical capability to interface with any 
other computer systems utilized by FHA or its contractors pertaining to 
the ACD Demonstration.
    4. Use of the Freddie Mac Early Indicator Risk Scoring System. The 
mortgagee must have the ability to run risk scoring models using the 
Freddie Mac Early Indicator risk scoring software program. Early 
Indicator is a scoring software that ranks the risk of delinquent 
loans, and determines the likelihood of a loan becoming more seriously 
delinquent or continuing through to loss. Under the system, delinquent 
loans are assigned a numeric score that corresponds to an alphabetic 
grade ranging from ``A'' (indicating a lower risk of nonpayment) to 
``F'' (indicating a higher risk of nonpayment).
    5. Other criteria. The mortgagee will be required to meet any 
additional criteria that HUD may establish regarding the eligibility of 
mortgagees for participation in the ACD Demonstration.

D. Eligible Loans

    Only certain defaulted FHA-insured loans are eligible for the new 
accelerated claim payment process. To be eligible for payment of an 
accelerated claim, the defaulted mortgage must meet the following 
criteria:
    1. The mortgage must be an FHA-insured single family mortgage loan 
on a one-unit home.
    2. The mortgage must be secured by a property located within the 
jurisdiction of HUD's Philadelphia, Pennsylvania or Atlanta, Georgia 
HOCs.
    3. The mortgage must have a loan to value ratio in excess of 90 
percent (the loan to value ratio represents the relationship between 
the amount of the mortgage loan and the value of the real estate). The 
loan to value ratio must be determined using a Broker's Price Opinion 
(BPO) and the current unpaid principal balance of the mortgage loan.
    4. The mortgagor must have a FICO score of less than 550 at the 
time of payment of the accelerated claim. (FICO stands for Fair, Issac 
and Company--the company that has developed the mathematical formulas 
used to derive FICO scores. FICO scores are commonly used by credit 
bureaus to evaluate the credit-worthiness of borrowers for a particular 
loan. The scores are continually updated to incorporate new information 
about the subject's credit history. FICO scores range from 300 to 850. 
The higher the score, the lower the credit risk of making the loan.)
    5. The mortgage must have received one of the following scores on 
the Freddie Mac Early Indicator risk scoring software system:
    a. Grade F (and the mortgagee has been unable to contact the 
borrower);
    b. Grade F (and the condition of the property is fair or poor); or
    c. Grades D, E, or F (and the property is vacant).
    6. Any additional criteria that HUD may establish regarding the 
eligibility of defaulted mortgage loans for an accelerated claim under 
the ACD Demonstration.

III. Demonstration Overview

A. Risk Scoring

    As noted above, amended section 204 of the National Housing Act 
allows HUD to pay an accelerated claim if a mortgage is in default for 
not less than three full monthly installments or whenever the mortgagee 
is entitled to foreclosure for a nonmonetary default. At the 60th day 
of delinquency, mortgagees participating in the ACD Demonstration will 
be required to begin running scoring models using the Freddie Mac Early 
Indicator Risk Scoring System to confirm the eligibility of the 
mortgage for payment of an accelerated claim. Provided that the 
mortgage meets the eligibility criteria described in paragraph II.D. of 
this notice, participating mortgagees will have the option to receive 
payment of an accelerated claim. However, in the case of a monetary 
default, HUD may only pay an accelerated claim upon the conclusion of 
the statutorily required three month period.

B. Disposition Methods

    HUD will use one or both of the following disposition methods under 
the ACD Demonstration. HUD, in its sole discretion, will determine 
which of the two disposition methods to use for particular mortgages 
under the demonstration.
    1. Joint Venture Partnership. The joint venture partnership method 
will be the primary disposition method used under the ACD 
Demonstration. Under this disposition method, HUD will sell the 
mortgages to a public-private joint venture, in which HUD will retain 
an equity interest. The public-private joint venture will be 
responsible for servicing and asset disposition. The joint venture 
partner will be selected through a competitive bidding process. HUD 
will announce the process for selection of the ACD joint venture 
partner in its final Federal Register notice establishing the ACD 
Demonstration.
    2. Special servicing with whole loan or securitization. HUD may 
also use the special servicing disposition method under the 
demonstration. The ACD Demonstration will not initially use this 
method, and HUD may decide not to use this disposition method at all 
during the course of the demonstration. Under this disposition method, 
servicing of the mortgage would be transferred to a default servicer. 
The default servicer will provide assistance to HUD in undertaking one 
or more of the following actions: (a) Foreclosing and selling the 
properties; (b) accumulating mortgages for a whole loan sale; and/or 
(c) accumulating mortgages for disposition in a securitization (with or 
without Federal credit enhancement).

C. Required Documents

    Unless otherwise specified by HUD, all documents required to be 
submitted to HUD under the ACD Demonstration must be paper originals 
signed in ink.

IV. Evaluating the Success of the ACD Demonstration

    At the conclusion of the ACD Demonstration, HUD will assess its 
success and determine whether to implement the ACD process on a 
permanent basis throughout the country. In conducting this evaluation, 
HUD will assess such factors as whether the use of the ACD process 
will: (1) Reduce loss rates; (2) reduce the cost and time associated 
with claim dispositions; and (3) enhance the ability

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of HUD to assess risk and manage the FHA mortgage insurance fund. The 
ACD Demonstration will be designed to permit ongoing review of these 
and other factors that HUD considers necessary for an accurate 
evaluation of the demonstration's success. HUD invites public comment 
on what factors it should consider in evaluating the success of the ACD 
Demonstration, as well as on appropriate methods HUD should use to 
conduct the evaluation (for example, the use of a ``control group'' of 
mortgagees, or the conducting of interviews with lenders and other ACD 
Demonstration participants).

V. Findings and Certifications

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.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating 
policies that have federalism implications and either impose 
substantial direct compliance costs on State and local governments and 
are not required by statute, or preempt State law, unless the relevant 
requirements of section 6 of the Executive Order are met. This notice 
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 (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. The proposed demonstration 
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.

    Dated: January 22, 2002.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 02-2655 Filed 2-4-02; 8:45 am]
BILLING CODE 4210-27-P