[Federal Register Volume 69, Number 58 (Thursday, March 25, 2004)]
[Rules and Regulations]
[Pages 15586-15591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6558]
[[Page 15585]]
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Part V
Department of Housing and Urban Development
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24 CFR Part 206
Home Equity Conversion Mortgage (HECM) Program; Insurance for Mortgages
To Refinance Existing HECMs; Interim Rule
Federal Register / Vol. 69 , No. 58 / Thursday, March 25, 2004 /
Rules and Regulations
[[Page 15586]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 206
[Docket No. FR-4667-I-02]
RIN 2502-AH63
Home Equity Conversion Mortgage (HECM) Program; Insurance for
Mortgages To Refinance Existing HECMs
AGENCY: Office of Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Interim rule.
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SUMMARY: On June 5, 2001, HUD published a proposed rule to implement
certain statutory changes to the Home Equity Conversion Mortgage (HECM)
Program made by section 201 of the American Homeownership and Economic
Opportunity Act of 2000 (AHEOA). The HECM Program enables older
homeowners to withdraw some of the equity in their home in the form of
payments for life, a fixed term, or at intervals through a line of
credit. The statutory changes include authorization to offer mortgage
insurance for refinancing of existing HECMs and providing consumers
with safeguards for such refinancing. This interim rule follows
publication of a June 5, 2001, proposed rule, and takes into
consideration the public comments received on the proposed rule. In
addition, this rule implements another statutory change to the HECM
Program authorized by AHEOA and requests comments on this regulatory
provision. Specifically, this rule provides for a reduced initial
mortgage insurance premium (MIP) on a HECM refinancing.
DATES: Effective Date: April 26, 2004.
Comment Due Date: Comments on Sec. 206.53(c) are due on May 24,
2004.
ADDRESSES: Interested persons are invited to submit comments regarding
Sec. 206.53(c)to the Regulations Division, Office of General Counsel,
Room 10276, Department of Housing and Urban Development, 451 Seventh
Street, SW., Washington, DC 20410-0500. Electronic comments may be
submitted through Regulations.gov (http://www.regulations.gov).
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 8 a.m. and 5 p.m. weekdays at the above address.
FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of
Single Family Program Development, Office of Insured Single Family
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). Individuals with speech or
hearing 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 June 5, 2001 (66 FR 30278), HUD published a proposed rule for
public comment to revise its regulations for the HECM Program. The HECM
Program helps homeowners 62 years of age or older who have paid off
their mortgages or have small mortgage balances to stay in their homes
while using some of their equity. The program enables these homeowners
to get financing with a Federal Housing Administration (FHA) insured
reverse mortgage, which is a mortgage that converts equity into income.
The FHA insures HECM loans to protect lenders against loss. Such a loss
could occur if amounts withdrawn exceed equity when the property is
sold. The statutory authority for the HECM Program is section 255 of
the National Housing Act (12 U.S.C. 1715z-20) (NHA). HUD's implementing
regulations are located at 24 CFR part 206. More information on the
HECM Program can be found on HUD's Web site at http://www.hud.gov/buying/reverse.cfm.
Section 201 of the American Homeownership and Economic Opportunity
Act of 2000 (Pub. L. 106-569, approved December 27, 2000) (AHEOA) made
several changes to the HECM Program. Among other amendments, section
201(a) of AHEOA added a new section 255(k) to the NHA, which authorizes
FHA to offer mortgage insurance for refinancing existing HECMs and
establishes several requirements concerning such refinancings for the
protection of homeowners and to expedite the refinancing process. For
example, the statute establishes an ``anti-churning'' disclosure
requirement for HECM refinancings, and authorizes the waiver of the
HECM counseling requirements under certain circumstances. These
expedited procedures for refinancing will enable elderly homeowners to
quickly take advantage of declining interest rates and increasing home
prices in particular areas.
The purpose of the June 5, 2001, proposed rule was to implement
these statutory provisions regarding refinancing. Specifically, HUD
proposed to create a new Sec. 206.53, which would contain the
requirements applicable for a refinanced HECM to be eligible for
mortgage insurance. HUD also proposed to amend Sec. 206.31 (which
concerns the allowable fees and charges that may be collected in the
origination of a HECM loan) to clarify the procedures and requirements
regarding HECM origination fees. The preamble to the proposed rule
provides more information on the proposed regulatory amendments to
HUD's HECM regulations.
II. This Interim Rule; Significant Changes Made to June 5, 2001,
Proposed Rule
This interim rule follows publication of the June 5, 2001, proposed
rule and takes into consideration the public comments received on the
proposed rule. The most significant differences between this interim
rule and the June 5, 2001, proposed rule are as follows:
1. Clarification of applicability of origination fee limit to loan
correspondents and mortgage brokers. The interim rule revises the
proposed regulatory language regarding the payment of origination fees
to loan correspondents and mortgage brokers. The interim rule more
closely tracks the language of Mortgage Letter 00-10 (issued on March
8, 2000), which provided useful guidance on the role of loan
correspondents and mortgage brokers in the HECM Program. Consistent
with the Mortgage Letter, this interim rule clarifies that the HECM
origination fee limit includes the full amount of any origination fee
paid to both mortgage brokers and loan correspondents. The mortgagor is
not permitted to pay any additional origination fee of any kind to a
mortgage broker or loan correspondent. A mortgage broker's fee can be
included as part of the origination fee only if the mortgage broker is
engaged independently by the homeowner and if there is no financial
interest between the mortgage broker and the mortgagee.
2. Timing of anti-churning disclosure. This interim rule provides
that the anti-churning disclosure must be provided at the same time as
the other disclosures required under Sec. 206.43 of the HECM
regulations.
III. Interim Regulatory Change Regarding Reduced Initial Mortgage
Insurance Premium for HECM Refinancings and Request for Public Comment
In addition to the amendments proposed in the June 5, 2001,
proposed rule, section 201 of AHEOA made several other changes to the
HECM Program that were not part of the June
[[Page 15587]]
5, 2001, proposed rule. For example, section 201 added a new section
255(k)(4) of the NHA, which authorizes HUD to reduce the amount of the
initial mortgage insurance premium (MIP) collected on a HECM
refinancing. In response to public comments that requested that HUD
exercise this statutory authority, HUD has established a reduced
initial MIP for HECM refinancings in this interim rule. Specifically,
Sec. 206.53(c) of this rule provides that the initial MIP for a HECM
refinancing may not exceed 2 percent of the increase in the maximum
claim amount (i.e., the difference between the maximum claim amount for
the new HECM loan and the maximum claim amount for the existing HECM
loan being refinanced). This regulatory provision will take effect,
along with the other amendments being made by this interim rule, on
April 26, 2004. However, in order to provide for public comments on the
amount of the MIP, HUD is issuing this regulatory provision on an
interim basis and is requesting comment for a period of 60 days on the
amount of the initial MIP. With the exception of the reduced initial
MIP provision, HUD will not consider comments submitted in response to
other provisions of this interim rule. These provisions were contained
in the June 5, 2001, proposed rule and, therefore, have already been
the subject of public comments. A discussion of the significant issues
raised by the public commenters on the June 5, 2001, proposed rule, and
HUD's responses to these comments is located in section V of this
preamble. HUD will issue a follow-up final rule addressing the
significant issues raised by the public commenters on the reduction of
the initial MIP.
IV. Announcement of the Second Criterion for Waiver of the HECM Housing
Counseling Requirement
Section 255(k)(3) provides that mortgagors refinancing a HECM may
elect to forego housing counseling if certain requirements are
satisfied. The statute establishes three conditions that must be met in
order to waive the housing counseling requirement: (1) The mortgagor
has received the required anti-churning disclosure; (2) the increase in
the mortgagor's principal limit (as described in the anti-churning
disclosure) exceeds the total cost of the refinancing by an amount
established by HUD; and (3) the time between the closing on the
original HECM and the application for refinancing does not exceed 5
years.
In the June 5, 2001, proposed rule, HUD stated that the second
condition for waiver of the housing counseling requirement would be
satisfied if the increase in the mortgagor's principal limit exceeds
five times the total cost of the refinancing. The preamble also
provided that, after consideration of the public comments received on
the proposed rule, HUD would announce the threshold amount in the
preamble to this interim rule. This interim rule announces that HUD is
adopting the proposed threshold amount without change. A discussion of
the public comments received on this matter is found in section V of
this preamble.
As provided in the preamble to the proposed rule, the amount
necessary to satisfy the second condition for a waiver will not be
specified in the regulatory text. This amount may need to be updated on
a periodic basis due to changes in the available financial data or
changes in the housing market. Codification of the threshold amount
would require that HUD use rulemaking procedures each time the amount
is revised, which may delay HUD's ability to update this figure in
response to changing conditions. Therefore, any changes to the second
waiver criterion will be announced through a Federal Register notice.
In order to provide HECM program participants with sufficient time to
adjust to any such change, HUD will delay the effective date of any
such revision for a period of not less than 30 days following
publication in the Federal Register.
V. Discussion of the Public Comments Received on the June 5, 2001,
Proposed Rule
The public comment period for the proposed rule closed on July 5,
2001. HUD received four comments on the proposed rule. Comments were
received from a public interest group representing retired persons, a
mortgage lender, and two national mortgage lending associations. Three
of the commenters expressed support for the rule and HUD's codification
of the provisions streamlining refinancing of HECM loans. All four
commenters offered suggestions to further clarify and strengthen the
rule in order to better serve the consumer. This section of the
preamble presents a summary of the significant issues raised by the
public commenters on the June 5, 2001, proposed rule and HUD's
responses to these comments.
A. Comments Regarding Allowable Origination Fees and Charges (Sec.
206.31)
Comment: Initial MIP should be reduced for HECM refinancings. Two
commenters suggested that HUD implement its statutory authority to
reduce the initial MIP for HECM refinancings. One of the commenters
offered a suggestion on how such a limit should be implemented.
HUD Response. HUD agrees with the commenters and has revised the
rule accordingly. Based upon the results of a Congressionally-mandated
actuarial study, HUD has revised the proposed rule to provide for a
reduced initial MIP for refinanced HECM loans. Section 206.53(c),
provides that the initial MIP for a HECM refinancing may not exceed 2
percent of the increase in the maximum claim amount (i.e., the
difference between the maximum claim amount for the new HECM loan and
the maximum claim amount for the existing HECM loan being refinanced).
The maximum claim amount is based upon the value of the home, and
property values have risen for almost all properties for which
refinancing would be a viable option. As noted above, however, HUD is
issuing this regulatory provision on an interim basis and is
specifically requesting public comment on the amount of the reduced
MIP.
HUD believes that the initial MIP limit announced in this rule will
result in a lower initial MIP for a refinanced HECM loan than for a
comparable ``first'' HECM loan secured by a similar property. The MIP
limit is based upon the findings of a Congressionally-mandated
actuarial study. Section 255(k)(4) of the NHA requires that any
reduction to the initial MIP must be based upon the results of an
actuarial study that analyzes the adequacy of the insurance premiums
collected for HECM refinancings with respect to several statutorily
mandated factors. HUD has completed the required study, which reviewed
several possible changes to HECM insurance premiums using several
analytical models. Among other factors, this study analyzed the
potential effects on the FHA General Insurance Fund of establishing an
initial MIP limit for HECM refinancings. The study concluded that this
reduction to the initial MIP, although lowering the expected balance of
the FHA General Insurance Fund, would not adversely impact the Fund and
would be sufficient to maintain its soundness.
A copy of the actuarial study is available for public review
between 8 a.m. and 5 p.m. weekdays, in the Regulations Division, Office
of General Counsel, Department of Housing and Urban Development, 451
Seventh Street, SW., Washington, DC 20410-0500.
Comment: HUD should establish a reduced origination fee for HECM
refinancings. One commenter wrote that HUD's proposal to adopt the
existing origination fee limits for HECM
[[Page 15588]]
refinancings would result in much higher fees than those paid by HECM
borrowers on their original loans. The commenter noted that the
existing fee limits for ``original'' HECMs are set at the greater of
$2,000 or 2 percent of the maximum claim amount (which is based on the
property value). Since property values have risen for almost all loans
where HECM refinancing is viable, the maximum origination fees for a
refinancing will be higher than for the ``original'' HECM loan. The
commenter wrote that while relatively high origination fees may be
justified for ``original'' HECM loans, they are hard to justify for
refinancings. According to the commenter, HUD allows higher fees for
HECM loans than for ``regular'' mortgage loans because of factors such
as greater marketing costs per closing, the need for more intensive
lender interaction with consumers, and a higher consumer drop-out rate.
The commenter wrote that these factors do not apply to most HECM
refinancings. For example, the commenter wrote that pre-closing
marketing costs are lower for HECM refinancings, since lenders can
readily find refinancing candidates by analyzing their portfolios of
closed HECM loans. Accordingly, the limit on origination fees for
refinancing should be less than the comparable limit for ``original''
HECM loans.
HUD Response. HUD has not revised the rule in response to this
comment. The insurance of refinancings authorized by this interim rule
is a new feature of the HECM program, and HUD is not yet in a position
to evaluate whether origination costs are lower for such refinancings.
Accordingly, at this time, HUD is not prepared to reduce the amount of
the origination fee for HECM refinancings. The fee will be the same as
the fee for original HECM loans. HUD may consider a reduction of such
fees at a later date, after it has had an opportunity to evaluate the
operation and costs associated with HECM refinancings.
Comment: HUD should permit the borrower to avoid the cost of a new
appraisal under certain circumstances. One commenter wrote that when
the original appraisal yielded a value above the applicable FHA
principal limit cap HUD should allow the borrower to avoid the cost of
a new appraisal by relying on the original.
HUD Response. HUD has not revised the rule in response to this
comment. One of the primary reasons an individual might consider
refinancing is because the value of his/her property has increased. The
best way to confirm such an increase in property value is through a new
appraisal. Further, since the condition of a property may also
deteriorate over time, there is a concern that repair and maintenance
issues may have an adverse impact on the value of some properties.
Comment: HUD should limit the fee for the re-issuance of title
insurance and waive the flood certification fee for HECM refinancings.
One commenter made this suggestion.
HUD Response. HUD has not adopted the suggestion made by the
commenter. The goal of this rule is to lower the overall cost of
refinancing HECM loans. It is expected that lenders will seek re-issue
and re-certification rates for title policies and flood certifications
when appropriate for their HECM refinance consumers.
B. Comments Regarding the Role of Mortgage Brokers and Loan
Correspondents (Sec. 206.31)
Comment: Proposed rule may inappropriately limit correspondent
mortgagee compensation. One commenter objected to the proposed language
of Sec. 206.31(a)(1) providing that the HECM origination fee limits
``shall include any fees paid to correspondent mortgagees.'' The
commenter wrote that it has always been HUD's policy that, with respect
to loans originated by correspondent mortgagees approved by the
Secretary and sponsored by an FHA-approved mortgagee, the origination
fee limit does not apply to any additional limited compensation the
correspondent might receive from the mortgagee related to the loan-
servicing rights. The commenter wrote that HUD already limits such
additional compensation at Sec. 206.207(b) of the HECM program
regulations (which concerns servicing charges). Accordingly, the
commenter recommended that HUD add an explanatory phrase to Sec.
206.31(a)(1) clarifying that the HECM origination fee limit does not
cover any loan-servicing charges provided to correspondents.
HUD Response. The commenter is correct that loan-servicing charges
paid to a loan correspondent under the HECM program are not subject to
the origination fee limit. As the commenter correctly noted, servicing
charges are covered under Sec. 206.207(b) of the HECM regulations. The
purpose of the proposed regulatory language was not to revise HUD
policy, but only to clarify that the origination fee charged to the
HECM borrower must include the full amount of any fee paid to a loan
correspondent related to the origination of the mortgage. This is
consistent with HUD's existing policy regarding HECM origination fees,
as described in Mortgagee Letter 00-10 (issued on March 8, 2000). HUD,
however, agrees that the proposed regulatory language was confusing.
The interim rule revises this language to more closely track the
language of Mortgagee Letter 00-10 for purposes of clarity and
consistency with the guidance provided in the Mortgagee Letter. A copy
of Mortgagee Letter 00-10 may be downloaded from the HUD Client
Information and Policy System (HUDCLIPS) Web site at http://www.hudclips.org.
Comment: The proposed rule appears to undercut HUD's guidance on
the role of mortgage brokers in the HECM program. Related to the
preceding comment, two commenters wrote that the proposed language of
Sec. 206.31(a)(1) rule contradicted the guidance provided in Mortgagee
Letter 00-10. The commenters wrote that the Mortgagee Letter provides
that the HECM origination fee limit includes the full amount of any
origination fee paid to both mortgage brokers and loan correspondents.
The commenters wrote that, by only referring to loan correspondent
fees, the third sentence of proposed Sec. 206.31(a)(1) appears to
undercut the guidance provided in Mortgagee Letter 00-10. According to
the commenters, the proposed regulatory language could be interpreted
to permit only loan correspondent mortgagees, and not also mortgage
brokers, to receive fees within the origination fee cap. The commenters
urged that Sec. 206.31(a)(1) be revised to more closely track the
language of the Mortgagee Letter, and explicitly provide that the
origination fee shall include fees paid to mortgage brokers under the
circumstances permitted by the Secretary.
HUD response. As noted in the response to the preceding comment,
HUD agrees that the proposed regulatory language was confusing and has
revised the language for purposes of clarity. The revised language more
closely tracks the guidance provided in Mortgagee Letter 00-10, and
clarifies that the HECM origination fee limit includes the full amount
of any fee related to the origination of the HECM loan paid to a
mortgage broker or loan correspondent.
C. Comment Regarding Procedures for HECM Refinancing (Sec. 206.53)
Comment: The proposed rule incorrectly assumes that a RESPA Good
Faith Estimate must be provided in connection with a HECM loan. The
proposed rule provides that the mortgagee must provide the anti-
churning disclosure concurrently with the Good Faith Estimate required
under RESPA. One commenter wrote that this provision incorrectly
assumes that the RESPA Good Faith Estimate must be
[[Page 15589]]
provided in connection with a HECM loan. The commenter wrote that the
source of the incorrect assumption is Sec. 206.43(a) of the HECM
program regulations, which refers to the RESPA Good Faith Estimate. The
commenter noted that HUD's RESPA regulations at 24 CFR 3500.7 provide
that ``[i]n the case of a federally related mortgage loan involving an
open-line of credit (home-equity plan) covered under the Truth in
Lending Act and Regulation Z, a lender or mortgage broker that provides
the borrowers with the disclosures required by 12 CFR 226.5b of
Regulation Z at the time the borrower applies for such loan shall be
deemed to satisfy the [Good Faith Estimate] requirements of this
section.'' According to the commenter, HECM loans are open-lines of
credit under Regulation Z and, therefore, not subject to the RESPA Good
Faith Estimate disclosure requirements.
HUD Response. HECM loans may be either open-end or closed-end lines
of credit. The commenter is correct that the RESPA regulations provide
that lenders and mortgage brokers may satisfy RESPA disclosure
requirements for open-end lines of credit if they provide borrowers
with the disclosures required under the Truth in Lending Act (TILA) and
Regulation Z. Therefore, for HECM loans that are open-end lines of
credit, lenders and mortgage brokers may satisfy RESPA disclosure
requirements if they provide the disclosures required by TILA and
Regulation Z. The RESPA Good Faith Estimate is only required for those
HECM loans that are closed-end lines of credit. The lender is
responsible for determining whether a particular HECM loan is an open-
end or closed-end line of credit, and whether the RESPA or TILA and
Regulation Z disclosure requirements are applicable to the transaction.
The references to the RESPA Good Faith Estimate contained in the
existing HECM regulations and the June 5, 2001, proposed rule were not
meant to modify or expand the scope of the RESPA disclosure
requirements. Rather, these references were designed to remind program
participants that their HECM loan might be subject to the Good Faith
Estimate RESPA requirement. HUD agrees that the reference in the
proposed rule regarding the timing of the anti-churning disclosure
might be confusing and lead to the incorrect assumption that all HECM
loans are subject to RESPA. Accordingly, this interim rule removes this
reference to RESPA and simply provides that the anti-churning
disclosure must be provided at the same time as the other disclosures
required under Sec. 206.43.
Comment: HUD should issue a Mortgagee Letter providing an
illustration of how to calculate the total cost of refinancing as
defined by the proposed rule and how it is used in determining whether
the housing counseling requirement may be waived. One commenter made
this suggestion. The commenter wrote that such an illustration would
provide additional clarity and prevent varied interpretations of the
rule.
HUD Response. HUD agrees that additional non-regulatory guidance
might be helpful in clarifying the requirements of this interim rule
and facilitating implementation of the regulatory requirements. HUD
intends to issue a Mortgagee Letter in the near future providing such
guidance, including the illustration suggested by the commenter.
Comment: HUD should reconsider the second criterion for waiver of
the housing counseling requirement. Two commenters wrote that the
proposed threshold of five times the total cost of refinancing would
require a very large increase in the principal limit and, thus, may be
unattainable by most HECM consumers. Both commenters advocated that HUD
lower the amount necessary to satisfy the second criterion. One of the
commenters recommended that HUD decrease the multiple from five times
the total cost of refinancing to two times the total cost of
refinancing. The commenter wrote that the lower threshold would still
protect seniors from ``churning'' while at the same time providing a
truly streamlined refinance option for borrowers that have already
satisfied the housing counseling requirement with their original HECM
loan.
HUD Response. HUD has not adopted these comments. In establishing
the amount required for the second waiver criterion, HUD has attempted
to assure that mortgagors who may be subject to predatory fees receive
housing counseling. At the same time, HUD is aware of the statutory
intent to waive a potentially duplicative requirement for HECM
mortgagors who wish to refinance and who have already received
counseling. Accordingly, HUD proposed to establish a relatively high
threshold of five times the total cost of the refinancing. HUD
continues to believe that a refinanced HECM with an increase in the
principal limit that does not exceed this threshold is more likely to
contain the excessive fees that frequently characterize predatory
loans. However, HUD is cognizant that the threshold may need to be
revised as a result of, among other factors, HUD's experience in
administering the HECM refinancing program, the availability of new
financial data, or changes in the housing market. The interim rule
continues to provide for a streamlined procedure for making such
updates through Federal Register notice, rather than through the
lengthier rulemaking process. In order to provide HECM program
participants with sufficient time to adjust to any such change, HUD
will delay the effective date of the revision for a period of not less
than 30 days following publication of the Federal Register notice.
D. Comment Regarding Method for Announcing Changes to Counseling Waiver
Criterion and Origination Fee Limits
Comment: HUD should consider announcing changes to the second
housing counseling waiver criterion and to the allowable origination
fee on refinanced HECMs via Mortgagee Letter rather than through the
Federal Register notice. One commenter made this suggestion. The
commenter wrote that this would be less cumbersome and a more efficient
method of implementing these changes.
HUD Response. HUD has not revised the rule in response to these
comments. Notification through Federal Register notice is required to
ensure that HECM program participants are provided with sufficient
notice of any changes to the counseling waiver threshold and
origination fee limits.
VI. Justification for Interim Rulemaking on Reduction of Initial MIP
As noted above in this preamble, this rule makes an interim change
to the HECM regulations that was not part of the June 5, 2001, proposed
rule. Specifically, Sec. 206.53(c) implements the statutory authority
provided to HUD by section 255(k) of the NHA to reduce the initial MIP
for HECM refinancings. HUD generally publishes regulatory changes for
public comment before issuing them for effect, in accordance with its
own regulations on rulemaking in 24 CFR part 10. However, part 10
provides for exceptions to the general rule if the agency finds good
cause to omit advance notice and public participation. The good cause
requirement is satisfied when prior public procedure is ``impractical,
unnecessary, or contrary to the public interest'' (see 24 CFR 10.1).
For the following reasons, HUD has determined that it would be contrary
to the public interest to delay the effectiveness of this regulatory
change in order to solicit prior public comments. Further, delaying the
effectiveness of this change to solicit comment is unnecessary, since
the
[[Page 15590]]
change will benefit consumers and have no adverse impact on lenders.
By reducing or eliminating the HECM initial MIP, the regulatory
change will reduce the costs of obtaining a HECM loan, thereby better
enabling older citizens to refinance their existing HECMs. Delaying
implementation of the change to permit prior public comment would deny
the benefits of these reduced costs to HECM consumers during the public
comment period. Lenders involved in the origination and servicing of
HECM loans will not be adversely affected by these changes, since the
initial MIP is payable to HUD and not the lenders. As noted above, the
actuarial study conducted by HUD to evaluate the adequacy of HECM
insurance premiums concluded that the reduction to the initial MIP
would not negatively impact the soundness of the FHA General Insurance
Fund. Accordingly, the regulatory change will provide an immediate
economic benefit to HECM consumers, while having minimal, if any,
adverse economic effect on lenders or HUD.
This change is being issued for effect, along with the other
amendments being made by this interim rule. However, in order to
provide an opportunity for public comment, HUD is issuing this
regulatory provision on an interim basis and is requesting public
comments on the reduced MIP. HUD will be accepting comments on this
issue for a 60-day period. HUD will issue a follow-up final rule
addressing the significant issues raised by the public commenters on
the reduction of the initial MIP.
VII. Findings and Certifications
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 this rule subsequent to its submission to OMB are identified in
the docket file, which is available for public inspection in the
Regulations Division, Room 10276, Office of General Counsel, Department
of Housing and Urban Development, 451 Seventh Street, SW., Washington,
DC 20410-0500.
Information Collection Requirements
The information collection requirements contained in Sec. 206.53
have been approved by OMB in accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2502-
0546. 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 currently valid control number.
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 mandates on any state, local, or tribal government or the
private sector within the meaning of the UMRA.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made at the proposed rule stage 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. 4332). The Finding remains
applicable to this interim rule and is available for public inspection
between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations
Division, Room 10276, Office of General Counsel, Department of Housing
and Urban Development, 451 Seventh Street, SW., Washington, DC 20410-
0500.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule and in so
doing certifies that this rule will not have a significant economic
impact on a substantial number of small entities. The reasons for HUD's
determination are as follows:
The amendments made by this interim rule will impose minimal, if
any, economic costs on small lenders and other participants in the HECM
Program. For example, the origination fee limits that will be
established under this interim rule for HECM refinancing do not impose
any economic burden on lenders (the same fee limits are already
applicable to original financing under the HECM Program). The anti-
churning disclosure (although a new information collection requirement)
also does not add new costs or impose additional economic burdens on
lenders. Neither will lenders be adversely affected by the reductions
in the initial MIP established by this interim rule, since the initial
MIP is payable to HUD and not the lenders.
Notwithstanding HUD's determination that this rule will not have a
significant economic impact 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 interim 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.
Catalog of Domestic Assistance Number
The Catalog of Domestic Assistance Number for the HECM Program is
14.871.
List of Subjects in 24 CFR Part 206
Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
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Accordingly, HUD amends 24 CFR part 206 as follows:
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
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1. The authority citation for 24 CFR part 206 continues to read as
follows:
Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).
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2. Revise Sec. 206.31(a)(1) to read as follows:
Sec. 206.31 Allowable charges and fees.
(a) * * *
(1) A charge to compensate the mortgagee for expenses incurred in
originating and closing the mortgage loan, which may be fully financed
with the mortgage. The Secretary may establish limitations on the
amount of any such charge. HUD will publish any such limit in the
Federal Register at least 30 days before the limitation takes effect.
The mortgagor is not permitted to pay any additional origination fee of
any kind to a mortgage broker or loan correspondent. A mortgage
broker's fee can be included as part of the origination fee only if the
mortgage broker is engaged independently by the
[[Page 15591]]
homeowner and if there is no financial interest between the mortgage
broker and the mortgagee.
* * * * *
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3. Add Sec. 206.53 under a new undesignated center heading
``REFINANCING OF EXISTING HOME EQUITY CONVERSION MORTGAGES'' to read as
follows:
Sec. 206.53 Refinancings.
(a) General. This section implements section 255(k) of NHA. Except
as otherwise provided in this section, all requirements applicable to
the insurance of home equity conversion mortgages under this part apply
to the insurance of refinancings under this section. HUD may, upon
application by a mortgagee, insure any mortgage given to refinance an
existing home equity conversion mortgage presently insured under this
part.
(b) Definition of ``total cost of the refinancing.'' For purposes
of paragraphs (c) and (d) of this section, the term ``total cost of the
refinancing'' means the sum of the allowable charges and fees permitted
under Sec. 206.31 and the initial MIP described in Sec. 206.105(a)
and paragraph (c) of this section.
(c) Initial MIP limit. The initial MIP paid by the mortgagee
pursuant to Sec. 206.105(a) shall not exceed two percent of the
increase in the maximum claim amount (i.e., the difference between the
maximum claim amount for the new home equity conversion mortgage and
the maximum claim amount for the existing home equity conversion
mortgage that is being refinanced).
(d) Anti-churning disclosure-- (1) Contents of anti-churning
disclosure. In addition to providing the required disclosures under
Sec. 206.43, the mortgagee shall provide to the mortgagor its best
estimate of:
(i) The total cost of the refinancing to the mortgagor; and
(ii) The increase in the mortgagor's principal limit as measured by
the estimated initial principal limit on the mortgage to be insured
less the current principal limit on the home equity conversion mortgage
that is being refinanced under this section.
(2) Timing of anti-churning disclosure. The mortgagee shall provide
the anti-churning disclosure concurrently with the disclosures required
under Sec. 206.43.
(e) Waiver of counseling requirement. The mortgagor may elect not
to receive counseling under Sec. 206.41, but only if:
(1) The mortgagor has received the anti-churning disclosure
required under paragraph (d) of this section.
(2) The increase in the mortgagor's principal limit (as provided in
the anti-churning disclosure) exceeds the total cost of the refinancing
by an amount established by the Secretary through Federal Register
notice. HUD may periodically update this amount through publication of
a notice in the Federal Register. Publication of any such revised
amount will occur at least 30 days before the revision becomes
effective.
(3) The time between the date of the closing on the original home
equity conversion mortgage and the date of the application for
refinancing under this section does not exceed five years (even if less
than five years have passed since a previous refinancing under this
section).
Dated: January 30, 2004.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 04-6558 Filed 3-24-04; 8:45 am]
BILLING CODE 4210-27-P