[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]



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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  

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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

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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

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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.

0
Accordingly, HUD amends 24 CFR part 206 as follows:

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

0
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).


0
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.
* * * * *

0
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