[Federal Register Volume 67, Number 186 (Wednesday, September 25, 2002)]
[Notices]
[Pages 60516-60518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24271]



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Part III





Department of Housing and Urban Development





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HUD's Loss Mitigation Default Counseling Demonstration Program; Notice

  Federal Register / Vol. 67, No. 186 / Wednesday, September 25, 2002 / 
Notices  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4706-N-01]


HUD's Loss Mitigation Default Counseling Demonstration Program

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

ACTION: Notice.

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SUMMARY: This Notice announces the Department's intent to conduct a 
limited demonstration program to gauge the demand for and the 
usefulness of including in the loss mitigation actions the 
reimbursement to mortgagees for default counseling provided to 
borrowers by HUD approved Housing Counseling Agencies (HCAs). Such 
counseling may be of particular assistance to borrowers in certain 
targeted areas where default rates exceed national averages and/or 
predatory lending practices have been identified by the Department. 
This demonstration will also further the concept of mitigating 
insurance claim losses to the Department by increasing mortgagors' 
access to counseling.

DATES: Comment Due Date: November 25, 2002.

ADDRESSES: Interested persons are invited to submit comments and 
responses to the Rules Docket Clerk, Office of the 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) responses are not 
acceptable. A copy of each response will be available for public 
inspection and copying during regular business hours (7:30 a.m. to 5:30 
p.m. eastern time) at the above address.

FOR FURTHER INFORMATION CONTACT: Laurie Anne Maggiano, Director, Single 
Family Asset Management and Disposition Division, Room 9286, U.S. 
Department of Housing and Urban Development, 451 7th Street, SW., 
Washington, DC 20410-8000; telephone (202) 708-1672 (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 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The Department has operated the Loss Mitigation program since 1996, 
and has, in working with lenders, steadily increased the number of 
mortgagors who successfully avoided foreclosure or, in those instances 
where the mortgagors did not have the financial means to retain their 
homes, helped them avoid the stigma of foreclosure through the use of 
deeds in lieu of foreclosure or pre-foreclosure sales.
    The Department is encouraged by the steadily increasing usage of 
loss mitigation options by mortgagees. However, there remain geographic 
areas where default and foreclosure rates are significantly higher than 
national averages for FHA insured loans and where conditions associated 
with predatory lending practices are observed.
    The Department consistently takes appropriate enforcement actions 
to ensure that mortgagees follow HUD/FHA loss mitigation requirements. 
Among loss mitigation tools, counseling can be effective in helping 
mortgagors avoid foreclosure when possible. Additionally, effective 
counseling minimizes the risk to the mortgage insurance funds.
    Because mortgagors who require counseling are already financially 
stressed, it is necessary to ensure that the counseling will be offered 
free of charge to mortgagors who want such counseling. HUD/FHA's 
experience has been that Housing Counseling Agencies (HCAs) are often 
backlogged with cases in geographic areas where there is a high 
incidence of default. Counseling agencies receive limited grant funds 
from HUD and other sources, and thus may not have the capability to 
hire additional staff to deal with an increased workload. This 
demonstration program would address this issue by enabling mortgagees 
to pay for default counseling in targeted areas via a $200.00 voucher. 
The mortgagees would then be reimbursed by HUD/FHA from FHA mortgage 
insurance funds. In order to encourage borrowers to obtain counseling, 
HUD/FHA will request mortgagees participating in the demonstration 
project to inform delinquent borrowers in the target area that default 
counseling is available at no cost through a participating HCA. The 
borrower will obtain the counseling, and upon completion of the 
counseling the HCA will make a loss mitigation recommendation to the 
borrower's mortgage holder. The mortgagee will pay the HCA for the 
counseling received and will be reimbursed by HUD.
    HUD's payment from the insurance fund for Loss Mitigation actions 
that provides an alternative to foreclosure is authorized by 12 U.S.C 
1715u and 24 CFR 203.501. This demonstration adds default counseling as 
an effective tool in reducing claims and assisting mortgagors.

II. This Notice

    The Department has decided to conduct a limited demonstration 
program to gauge the demand for, and the usefulness of, reimbursement 
to mortgagees for payments made to HCAs who provide counseling to 
delinquent mortgagors to avoid foreclosure. This is key in these 
specific targeted areas where default rates exceed national averages 
and/or where possible predatory lending practices have been identified. 
The Department intends to obtain feedback from participating 
mortgagees, HCAs and other parties so that an assessment of the 
demonstration can be made and a decision rendered as to whether the 
program should be continued or expanded. The demonstration should also 
be helpful in determining appropriate program criteria and procedures 
if the decision is made to continue the program after the demonstration 
ends.
    Under this demonstration, reimbursement for default counseling as a 
loss mitigation tool will not be provided on a nationwide basis, but 
rather offered only in specific targeted areas. HUD/FHA has developed a 
model for determining areas that have high default and claim rates that 
may be indicative of predatory lending practices. HUD's proposed 
procedures will further examine these areas and refine the model.
    The demonstration program, which will last 12 months from 
commencement date, will be conducted in areas that have default rates 
well above the national average for FHA loans. The demonstration may be 
extended another 6 months at the discretion of the Assistant Secretary 
for Housing-Federal Housing Commissioner. The greater Miami, Florida 
area, including both Dade and Broward counties, are the initial target 
areas. HUD/FHA may decide to expand the demonstration to include 
additional areas or may subsequently remove some of the designated 
areas. Additional areas may be added at the discretion of the 
Department. HUD/FHA may remove either an HCA or lender from 
participation if the participant demonstrates sufficient evidence of 
non-compliance.

III. Authority for Demonstration

    HUD is promulgating this Notice pursuant to 42 U.S.C 3542 of the 
Housing and Urban-Rural Recovery Act of 1983 (Pub. L. 98-181), which 
states that no HUD demonstration program not expressly authorized in 
law may begin

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until a description of the program is published in the Federal 
Register, and that a comment period of 60 calendar days following the 
date of publication shall be provided, in which HUD shall fully 
consider any public comments submitted with respect to the program.
    Upon publication of this Notice, the public is invited to comment 
for a 60-day period on policies, procedures, estimated savings and 
other aspects of the proposed program. At the conclusion of this 
period, comments received will be reviewed and, if necessary, another 
Notice will be published setting forth any changes in requirements 
necessary to conduct this initial demonstration. If no comments are 
received or the comments received do not indicate that the changes are 
needed in these initially established criteria and procedures, the 
demonstration will take effect and begin 60 days from the date of this 
notice. For purposes of initiating and evaluating this demonstration, 
certain procedures and eligibility criteria will be adopted, as 
discussed below.

IV. Notification of Program

    This demonstration program will be operated by selected mortgagees 
and HCAs doing business in targeted areas. Four mortgagees will 
participate in this demonstration program along with all HUD approved 
HCAs in Dade and Broward Counties who are determined to be qualified to 
provide default counseling as of the date of the Memorandum of 
Understanding (MOU). If it is consistent with the goals and objectives 
of the Demonstration Program, additional mortgagees and/or HCAs may be 
added during the demonstration program period at the sole discretion of 
HUD. This action will be done by a modification of the MOU. The 
participating lenders were selected based upon the size of their 
portfolios and rate of default in their target area. HUD will develop 
and submit for signature a MOU between the selected mortgagees, HCAs, 
and the Department. Mortgagees will be asked to notify mortgagors of 
the availability of this program in the targeted areas covered by this 
demonstration program when the mortgagors go into default under the 
terms of their mortgages. Notification will be by a form letter 
informing the mortgagor to contact qualified HCAs or their mortgage 
lenders to obtain advice and assistance in determining options for 
resolving the delinquency.
    The HCAs participating in the demonstration will provide 
comprehensive default counseling. As part of the counseling process 
HCAs will use loss mitigation analysis software, if available, to 
analyze foreclosure prevention options and recommend a specific course 
of action to the borrower and the mortgagee. All recommendations shall 
be in compliance with HUD's loss mitigation requirements as identified 
in Mortgagee Letter 2000-5. Participating mortgagees will work 
cooperatively with the HCAs to ensure that the most appropriate loss 
mitigation option is implemented in each case. Following delivery of 
counseling services, the HCA will provide a voucher signed by the 
borrower, certifying that default counseling has been provided. Upon 
receipt of the voucher, the mortgagee will pay the HCA $200 per case. 
HUD will reimburse mortgagees for all qualified counseling vouchers. 
The MOU will provide detailed information outlining roles and 
responsibilities of all parties.

V. Program Requirements

    In order for a participating mortgagee to be eligible to obtain 
reimbursement for payment for housing default counseling as part of 
loss mitigation, the following must be present:
    (1) There must be a mortgagor who is an owner-occupant in a single-
family dwelling unit with a mortgage insured under section 203(b), 235, 
234(c), 221(d)2 or 203(k) of the National Housing Act, 12 U.S.C. 
1709(b), 12 U.S.C. 1715l (d)(2), or 12 U.S.C. 1715y(c).
    (2) The mortgagor must have an account that is in default, i.e., 30 
days after the first uncorrected failure to perform any obligation 
under the mortgage.
    (3) The single-family dwelling unit must be located within the 
designated target area.
    (4) The mortgagee must have sent the mortgagor a notice prescribed 
by HUD informing the mortgagor that housing default counseling is 
available.

VI. Evaluating the Success of the Demonstration

    During the demonstration, HUD will track loan performance data 
against established benchmarks for the subject loans and a control 
group of loans. At the conclusion of the Demonstration, HUD will 
utilize this data to assess success and determine whether to implement 
a default counseling voucher loss mitigation claim option on a 
permanent basis either throughout the country or in targeted markets. 
In conducting this evaluation HUD will assess the following factors: 
(1) Whether default counseling is an effective loss mitigation tool; 
and (2) whether to establish additional program criteria and 
procedures. HUD is also committed to establishing lender incentives for 
utilization of default counseling vouchers.
    The primary objectives of the Housing Counseling Demonstration are 
to reduce foreclosures and increase use of loss mitigation workouts in 
the demonstration area. To measure the program's success and to ensure 
an effective evaluation of the program, HUD intends to establish 
baseline data for each of the four participating lenders that includes:
    1. Monthly and Annual Foreclosure Rates--The monthly rate will be 
calculated by dividing the number of foreclosures in the target area by 
the number of loans with FHA insurance in force for the targeted area, 
for each of the prior 12 months corresponding to the demonstration 
period. The annual baseline foreclosure rate will be established by 
averaging the 12 monthly rates.
    2. Quarterly Workout Ratio--Using the current formula for our tier 
ranking system (formal forbearances + loss mitigation claims divided by 
formal forbearances + loss mitigation claims + foreclosures) HUD 
intends to calculate a quarterly workout ratio representing only 
activity in the target area. The most recent quarterly workout ratio 
will be used as the baseline.
    HUD intends to use these indicators to track and report performance 
of each participating lender within the target area. HUD's anticipated 
benchmarks for success for each lender are (1) a 10% or greater 
reduction in their annual foreclosure rate, (2) an improvement each 
consecutive quarter in their workout ratio, and (3) that each lender 
attain or maintain an 80% workout to foreclosure ratio for target area 
activity by the end of the demonstration period.
    HUD also intends to establish a control group that will consist of 
all other FHA loans in the target area. HUD will calculate a 
foreclosure rate, by dividing target area foreclosures for all lenders 
except the demonstration participants, by loans with insurance in force 
for all lenders except demonstration participants. Similarly the 
workout ratio will exclude demonstration participants but otherwise be 
computed and tracked as described above.

VII. Other Provisions

    The Headquarters office of HUD will work together with the National 
Servicing Center in Oklahoma to evaluate the results of the 
demonstration and determine whether the program should be expanded.

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VIII. Findings and Certifications

Public Reporting Burden

    The method of providing the documentation to verify the claim for 
reimbursement will result in information collection requirements. This 
requirement has been submitted to the Office of Management and Budget 
(OMB) for review under the provisions of the Paperwork Reduction Act 
(44 U.S.C. 3501-3520). This is the only new information collection 
requirement that is being established in conjunction with this new 
rule. 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. HUD has obtained an emergency 
approval from OMB so that the reimbursement for default counseling can 
proceed until final approval is obtained. That emergency number 
evidencing approval is 2502-0549. The HCA will be reimbursed each time 
a completed Loss Mitigation Package is referred to the lender. Each 
referral must be documented by the HCA. HUD will reimburse the lender 
for each paid counseling claim. A single response to the information 
collection requirement would be required per default counseling 
referral. HUD estimates that the average time per response would be no 
more than 30 minutes. Accordingly, the estimated annual burden that 
would be imposed by the proposed information collection requirement is 
4,120 hours.
    The burden of the new information collection requirement in this 
Notice is estimated as follows:

                                       Reporting and Recordkeeping Burden
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                                                                                     Estimated
                                                                                   average time      Estimated
         Section reference            Number of parties     Number of responses         for        annual burden
                                                               per respondent       requirement     (in hours)
                                                                                    (in hours)
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IV................................  see below*...........  varies...............              .5           4120
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*The number of parties: 4 lenders have volunteered to participate in this Demonstration and 7 Housing Counseling
  Agencies. Each will have dedicated staff assigned to work on this Demonstration.
Total Reporting and Recordkeeping Burden (Hours).......4120

    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;
    (4) Minimize the burden of the collection of information on those 
who are to respond including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received within 60 days from the date of this proposal. Comments must 
refer to the proposal by name and docket number (FR-4706-N-01) 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 Gloria Diggs, Reports Liaison Officer, Office of the 
Assistant Secretary for Housing-Federal Housing Commissioner, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
9116, Washington, DC 20410.

Environmental Impact

    This Notice does 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. Accordingly, under 24 CFR 50.19(c)(1), this 
Notice 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 an agency 
from publishing any rule or similar regulatory item that has federalism 
implications if it 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 
demonstration program notice 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 demonstration program 
notice 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: July 11, 2002.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 02-24271 Filed 9-24-02; 8:45 am]
BILLING CODE 4210-27-P