[Federal Register Volume 69, Number 47 (Wednesday, March 10, 2004)]
[Rules and Regulations]
[Pages 11494-11497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5313]



[[Page 11493]]

-----------------------------------------------------------------------

Part III





Department of Housing and Urban Development





-----------------------------------------------------------------------



24 CFR Part 200



FHA Inspector Roster; Final Rule

  Federal Register / Vol. 69, No. 47 / Wednesday, March 10, 2004 / 
Rules and Regulations  

[[Page 11494]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-4720-F-02]
RIN 2502-AH76


FHA Inspector Roster

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule establishes the regulations that will govern the 
Federal Housing Administration (FHA) Inspector Roster (Roster). The 
regulations provide for placement of inspectors on the Roster, 
recertification of Roster inspectors, and removal of inspectors from 
the Roster. The rule also identifies when a mortgagee must use an 
inspector listed on the Roster.

DATES: Effective Date: April 9, 2004.

FOR FURTHER INFORMATION CONTACT: Joyce Johnson, Valuation Manager, 
Office of Single Family Program Development, Office of Housing, Room 
9266, 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). Persons with hearing or speech impairments may 
access this number through TTY by calling the toll-free Federal 
Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On October 10, 2002, HUD published a proposed rule (67 FR 63198) to 
govern the FHA Inspector Roster (Roster or FHA Roster) and provide 
eligibility standards, procedures, and requirements for applicants to 
be placed on the Roster. In addition to demonstrating professional 
experience and familiarity with HUD requirements, the proposal required 
an applicant for the Roster to provide verification of having passed 
HUD's comprehensive examination for inspectors, after such an 
examination becomes available. This rule adopts the proposed rule as 
final, with only minor editorial changes, such as the replacement of 
the term ``lender'' with the term ``mortgagee'' for consistency.
    All inspectors currently listed by HUD must be recertified 
according to the new procedures and requirements in order to maintain 
their placement on the Roster and their eligibility to inspect 
properties that will secure mortgages insured by FHA. Current 
inspectors will be permitted to conduct inspections for six months 
after this rule becomes effective, but during that six-month period 
they must apply and be approved for placement on the FHA Roster to 
continue to qualify as FHA Roster inspectors after that six-month 
period has ended.
    This rule also identifies when mortgagees must use an FHA Roster 
inspector. The FHA requires three inspections for new construction when 
the local jurisdiction in which the property is located does not 
perform inspections and has not issued both a building permit prior to 
the start of construction and a certificate of occupancy or equivalent 
document. If an FHA appraiser appraises the newly constructed property 
after an FHA Roster inspector has performed two inspections and the 
construction is 100 percent completed, the final inspection by an FHA 
Roster inspector is not necessary. In the case of existing 
construction, FHA Roster inspectors must be used where structural 
repairs have been made requiring an inspection and this inspection is 
not performed by a licensed, bonded, and registered engineer; a 
licensed home inspector; or other person specifically registered or 
licensed to conduct such inspections.
    Finally, the rule also includes a procedure for removing an FHA 
Roster inspector from the Roster for cause, generally for not complying 
with FHA requirements or procedures.

II. Summary of Public Comments

    HUD received three public comments on the October 10, 2002 proposed 
rule, for which the public comment period closed on December 9, 2002. 
Of the three comments received, two were generally in favor of the 
certification program, and the third believed the program to be 
unnecessary. Of the two commenters that believed the program may be 
useful, both had suggestions for changes to the proposed rule. The 
following discussion presents HUD's responses to the issues and 
questions raised by the comments. The discussion of comments is 
organized according to the rule section that is addressed by the 
comment.

Section 200.170 Purpose of FHA Roster Inspector

    Comment: What Will Happen in Areas Where There are Few Inspectors? 
The rule does not address the question of what will happen in areas, 
particularly rural and isolated communities, where there are not any or 
not enough inspectors available. Also areas where there are no building 
permits or local inspections may suffer from a lack of inspectors. HUD 
should allow FHA Roster appraisers to make these inspections where 
there is an inadequate number of inspectors and if there are no 
appraisers or inspectors, HUD should allow state licensed or certified 
appraisers to perform that function.
    HUD Response: Because FHA does not require the use of a Roster 
inspector for all inspections, FHA is confident there are sufficient 
numbers of Roster inspectors to support FHA activities. For new 
construction, FHA does not require an inspection by a Roster inspector 
if the local jurisdiction where the property is located performs the 
inspection and issues a building permit and certificate of occupancy 
(or equivalent). Similarly, for existing construction in which the 
repairs are not structural in nature, FHA permits mortgagees to choose 
whether to have the FHA Appraiser who completes the appraisal report to 
determine whether repairs were completed in compliance with HUD 
guidelines. Alternatively, for inspections of repaired properties that 
require architectural expertise (structural or basic system repairs), 
the final rule does require mortgagees to use an FHA Roster inspector.

Section 200.171 Placement on the Inspector Roster

    Comment: HUD Needs to Advertise the Benefits of Becoming Certified. 
Because the new testing requirement would discourage some inspectors 
from completing the requirements to become certified, HUD should 
undertake a campaign to increase awareness of the benefits of becoming 
certified so that inspectors will be encouraged to complete the 
process.
    HUD Response: The benefits of becoming certified as an FHA Roster 
inspector are outside the scope and focus of this rule. The rule is 
intended to regulate and improve the quality of certified FHA Roster 
inspectors. HUD will consider revision to the FHA Roster inspector web 
page on HUD's website www.hud.gov to provide additional program 
information and assistance in completing the requirements to become 
certified.
    Comment: State Certification Requirement Is Excessive. The 
requirement that Roster inspectors have state certification, if 
certification is required by the state in which the Roster inspector 
will operate, is excessive and at odds with what is required for being 
a qualified inspector. For example, under some circumstances, a 
mortgagee can accept a property based on the review of an FHA 
appraiser, who is not required to have training or background in 
conducting inspections. Also,

[[Page 11495]]

building permits and certificates of occupancy may be used in lieu of 
an inspection by an FHA Roster inspector. Why is HUD proposing to test 
and, in some areas, require licensing of FHA Roster inspectors if such 
exceptions are permitted?
    HUD Response: HUD disagrees that adoption of a state certification 
requirement, if the state has mandated certifications, is an excessive 
requirement. HUD believes that local problems require local solutions 
and that if the state has made a conscious effort to establish criteria 
for inspectors, HUD should not adopt a lesser standard.
    This rule recognizes but does not otherwise address the exceptions, 
which allow the mortgagee to use FHA appraisers to determine if certain 
repairs were completed in compliance with HUD's guidelines, as well as 
the use of local government building and certificate of occupancy 
inspectors. Rather, this rule is limited to those instances in which 
the mortgagee must choose an FHA Roster inspector due to the nature and 
complexity of the inspections. This rule would require appraisers to be 
listed on the FHA Roster when inspecting new construction that is less 
than 100 percent complete, or where complex repairs and improvements 
require inspectors with architectural expertise (structural or basic 
system repairs), or where the applicant is located in a state that 
requires such licensing. Since FHA Roster inspectors are primarily used 
when new construction is involved, the requirement for state licensure 
acts to ensure that participants are familiar with state and local 
building codes.
    Comment: Rule Should Grandfather-in All Inspectors Currently on FHA 
Roster Inspector List. The rule should use a grandfather clause to 
recognize all the currently listed inspectors as having met the 
recertification requirements. In states or areas where engineers or 
architects have had to meet certification and board requirements, HUD 
should allow them also to be grandfathered onto the Roster. If a person 
is allowed to utilize the grandfather clause, HUD should exempt that 
person from the examination, if that person completes a HUD-provided 
continuing education program on HUD's handbooks.
    HUD Response: FHA's goal is to ensure that inspectors on FHA's 
Roster have detailed FHA program knowledge and are aware of recent 
program changes. As FHA's single family programs are continuously 
revised, updated, and enhanced, keeping up with the latest program 
revisions is one of the key responsibilities of FHA Roster inspectors. 
The recertification of all HUD inspectors currently listed is intended 
to ensure that all FHA Roster inspectors are up to date on FHA program 
guidelines and current with state and local building codes, ordinances, 
and restrictions.

Section 200.172 Removal From the Inspector Roster

    Comment: Procedures Are Already in Place for Removal of Inspectors. 
New Procedures Not Needed. There are procedures in effect already that 
are meant to remove inspectors who are not performing their duties. 
These rules and regulations need to be enforced rather than creating 
new ones.
    HUD Response: This final rule will provide FHA clear authority to 
remove FHA Roster inspectors from the Roster and prevent their further 
participation in FHA programs. The final rule will also ensure closer 
monitoring of participating FHA Roster inspectors and help HUD maintain 
experienced and knowledgeable inspectors on its Roster.

III. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 
35), and assigned OMB control number 2502-0548. 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.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this rule and in so doing 
certifies that this rule would not have a significant economic impact 
on a substantial number of small entities. The rule establishes uniform 
requirements and procedures for being placed on or removed from HUD's 
new FHA inspector Roster. In doing so, it does not affect the amount of 
HUD-related business that will continue to be available for inspectors. 
This rule does, however, replace the existing system under which local 
HUD offices periodically select inspectors competitively according to 
standards that vary from office to office with nationwide, uniform 
requirements that open the doors of participation with HUD to all 
inspectors who qualify. The rule also clearly defines the terms for 
continued participation with HUD and provides a uniform, expeditious, 
and equitable procedure for removal from the Roster. As such, the rule 
results in an industry-wide and governmental benefit in that it 
clarifies the terms of the relationship between HUD and its fee 
inspectors.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This rule does not impose 
any federal mandate on any state, local, or tribal government or the 
private sector within the meaning of the UMRA.

Environmental Impact

    This final rule does not direct, provide for assistance or loan or 
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 
final rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Federalism Impact

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

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``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 economically 
significant, as provided in section 3(f)(1) of the Order). Any changes 
made to the rule subsequent to its submission to OMB

[[Page 11496]]

are identified in the docket file, which is available for public 
inspection in the Regulations Division, Room 10276, Office of the 
General Counsel, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500.

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.

0
Accordingly, HUD amends 24 CFR part 200 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

0
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).


0
2. In subpart F, add Sec. Sec.  200.170 through 200.172, under a new 
undesignated center heading ``FHA Inspector Roster'' to read as 
follows:

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

FHA Inspector Roster

Sec.
200.170 FHA Inspector Roster; Mortgagee and inspector requirements.
200.171 Placement on the Inspector Roster.
200.172 Removal from the Inspector Roster.


Sec.  200.170  FHA Inspector Roster; Mortgagee and inspector 
requirements.

    (a) General. The FHA Inspector Roster (Roster) is a list of the 
inspectors selected by FHA as eligible to determine if the construction 
quality of a one- to four-unit property is acceptable as security for 
an FHA insured loan.
    (b) Mortgagee requirement. Only an inspector included on the Roster 
may be selected by a mortgagee to determine if the construction quality 
of a property is acceptable as security for an FHA insured loan, as 
follows:
    (1) For new construction, the FHA requires three inspections by 
Roster inspectors; and
    (2) For existing construction, the FHA requires an inspection by a 
Roster inspector where structural repairs have been made requiring an 
inspection and this inspection is not performed by a licensed, bonded, 
and registered engineer; a licensed home inspector; or other person 
specifically registered or licensed to conduct such inspections.
    (3) The requirements of paragraph (b)(1) of this section do not 
apply if:
    (i) The local jurisdiction where the newly constructed one- to 
four-unit property is located performs the inspections and issues a 
building permit prior to construction and a certificate of occupancy or 
equivalent document; or
    (ii) When the new construction is 100 percent complete, an 
appraiser who is on FHA's Appraiser Roster appraises the property and 
an FHA Roster inspector has already performed two inspections.
    (c) Inspector requirement. To be eligible to conduct inspections as 
required by paragraph (b) of this section, an inspector must be listed 
on the Roster, except that any inspector already otherwise listed by 
HUD as eligible to conduct inspections as of April 9, 2004, may conduct 
inspections until October 12, 2004, without being listed on the Roster.
    (d) Effect of placement on the Roster. Placement of an inspector on 
the Roster only qualifies an inspector to be selected by a mortgagee to 
determine if the construction quality of a property is acceptable as 
security for an FHA-insured loan. Placement on the Roster does not 
guarantee that any mortgagee will select an inspector. Use of an 
inspector placed on the Roster also does not create or imply any 
warranty or endorsement concerning the inspected property by HUD to a 
prospective homebuyer or any other party.


Sec.  200.171  Placement on the Inspector Roster.

    (a) Application. To be considered for placement on the Roster, an 
inspector must apply to HUD using an application (or materials) in a 
form prescribed by HUD.
    (b) Eligibility. To be eligible for placement on the Roster, an 
inspector must demonstrate the following to HUD:
    (1) A minimum of three years experience in one or more 
construction-related fields;
    (2) Possession of an inspector's state or local license or 
certification, if licensing or certification is required by the state 
or local jurisdiction in which the inspector will operate;
    (3) Certification that the applicant inspector has read and fully 
understands the inspection requirements, including any update to those 
requirements, of:
    (i) HUD Handbook 4905.1 REV-1 (Requirements for Existing Housing, 
One to Four Family Units);
    (ii) HUD Handbook 4910.1 (Minimum Property Standards for Housing);
    (iii) HUD Handbook 4145.1 REV-2 (Architectural Processing and 
Inspections for Home Mortgage Insurance);
    (iv) HUD Handbooks 4150.1 and 4150.2 (Valuation Analysis for Home 
Mortgage Insurance);
    (v) HUD Handbook 4930.3G (Permanent Foundations Guide for 
Manufactured Housing);
    (vi) The applicable local, state, or Council of American Building 
Officials (CABO) code; and
    (vii) The HUD requirements at 24 CFR 200.926; and
    (4) Verification that the inspector has taken and passed HUD's 
comprehensive examination for inspectors, after such an examination 
becomes available. Inspectors who are included on the Roster on the 
date when the requirement for the examination becomes effective have 
until six months following that date to pass the comprehensive exam. 
Failure to pass the examination by the deadline date constitutes cause 
for removal under Sec.  200.172.


Sec.  200.172  Removal from the Inspector Roster.

    (a) Cause for removal. HUD may remove an inspector from the Roster 
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, suspended, or subject to a limited denial of 
participation;
    (5) Misrepresentation or fraudulent statements;
    (6) Failure to retain standing as a state or local government 
licensed or certified inspector, where such a license or certificate is 
required;
    (7) Failure to respond within a reasonable time to HUD inquiries or 
requests for documentation; or
    (8) Being listed on HUD's Credit Alert Interactive Voice Response 
System (CAIVRS).
    (b) Procedure for removal. An inspector that is debarred, 
suspended, or subject to a limited denial of participation will be 
automatically removed from the Roster. In all other cases, the 
following procedure for removal will be followed:
    (1) HUD will give the inspector written notice of the proposed 
removal.

[[Page 11497]]

The notice will state the reasons for and the duration of the proposed 
removal.
    (2) The inspector will have 20 days after the date of the notice 
(or longer, if provided in the notice) to submit a written response 
appealing the proposed removal and requesting a conference. A request 
for a conference must be in writing and must be submitted with the 
written response.
    (3) A HUD official will review the appeal and send a response 
either affirming, modifying, or canceling 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 after receiving the 
appeal or, if the inspector 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 inspector.
    (4) If the inspector 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. An inspector who has been 
removed from the Roster may apply for placement on the Roster (in 
accordance with Sec.  200.171) after the period of the inspector's 
removal from the Roster has expired. An application will be rejected if 
the period for the inspector's removal from the list has not expired.
    (d) Other action. Nothing in this section prohibits HUD from taking 
such other action against an inspector, as provided in 24 CFR part 24, 
or from seeking any other remedy against an inspector available to HUD 
by statute or otherwise.

    Dated: February 24, 2004.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 04-5313 Filed 3-9-04; 8:45 am]
BILLING CODE 4210-27-P