[Federal Register Volume 69, Number 147 (Monday, August 2, 2004)]
[Proposed Rules]
[Pages 46210-46213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16782]



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Part II





Department of Housing and Urban Development





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24 CFR Parts 200, 207 and 232



HUD Multifamily Rental Projects and Health Care Facility Closing 
Documents: Revisions and Updates and Notice of Information Collection; 
Proposed Rule and Notice

  Federal Register / Vol. 69, No. 147 / Monday, August 2, 2004 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200, 207, and 232

[Docket No. FR-4883-P-01; HUD-2004-0004]
RIN 2502-AI11


HUD Multifamily Rental Projects and Health Care Facilities: 
Regulatory Revisions

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend certain Federal Housing 
Administration (FHA) regulations to update these regulations to reflect 
current HUD policy in the area of multifamily rental projects and 
health care facilities. In developing a set of comprehensive documents 
for use in the FHA mortgage programs for multifamily rental projects 
and health care facilities (excluding hospitals), HUD identified 
outdated language and policies that not only needed to be changed in 
closing documents but also in HUD's regulations. Elsewhere in today's 
Federal Register, HUD is publishing a notice that solicits comments on 
revisions and updates to the closing documents.

DATES: Comment Due Date: October 1, 2004.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Rules Docket Clerk, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Communications should refer to the 
above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 8 a.m. and 5 p.m. weekdays at 
the above address.

FOR FURTHER INFORMATION CONTACT: Gains E. Hopkins, Jr., Office of 
General Counsel, Room 9230, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-0500; 
telephone (202) 708-4090 (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

    The regulatory changes proposed in this rule arise from HUD's 
comprehensive review over the last year of multifamily rental project 
and health care facility closing forms and documents. In 1999, HUD 
developed the Multifamily Accelerated Processing (MAP) initiative. 
During the MAP development process, HUD noted that the FHA documents 
used for multifamily rental project and health care facility closings 
had not been amended or revised in any significant fashion since the 
1960s. It became clear during the development of the MAP initiative 
that all of HUD's multifamily closing forms (closing documents) 
required thorough review and, in many cases, revision to reflect 
modern-day terms and inclusion of conditions that offer the requisite 
protection to all parties to the transaction, consistent with modern 
real estate and mortgage lending laws and procedures. The notice 
published elsewhere in today's Federal Register identifies revisions 
and updates to the closing documents and describes in detail HUD's 
review process that resulted in the changes to the closing documents. 
The notice clarifies that the revisions to the closing documents do not 
cover the forms for HUD's Section 202 Housing for the Elderly program 
(Section 202) and Section 811 Housing for Persons with Disabilities 
(Section 811) program. Documents for the Section 202 and Section 811 
programs will be revised in the near future.
    In the process of updating and revising the closing documents, HUD 
recognized that revisions and updates were needed to certain 
corresponding FHA regulations on which the authority for the closing 
documents is based. These regulations also were found to be outdated. 
This rule identifies the changes that the Department intends to make to 
its regulations in 24 CFR parts 200, 207 and 232.

24 CFR Part 200

    The requirements for commitment and endorsement of a mortgage note 
are provided in 24 CFR part 200, subpart A. Generally, where specific 
closing documents are referenced in 24 CFR part 200, subpart A, the 
regulations in this subpart provide that the referenced documents be in 
a form prescribed by HUD. The subpart also iterates other closing 
requirements that are reflected in the closing documents.
    One regulatory change to part 200, subpart A, prompted by the 
review and updating of the closing documents pertains to ``tenants in 
common'' as an eligible mortgagor entity. HUD intends to remove 
tenancies in common as eligible mortgagor entities, except for 
tenancies in common comprised only of natural persons. No tenancy in 
common that includes any entity, such as a partnership or a limited 
liability company, that is not a natural person would be eligible as a 
mortgagor. In this rule, HUD amends Sec.  200.5, which defines an 
eligible mortgagor under HUD's multifamily and health care facility 
mortgage insurance programs, to reflect the removal of tenants in 
common as an eligible mortgagor entity.

24 CFR Part 207

    Section 207.255. Included in the update of the closing documents is 
a revision of the security instrument (HUD 94000M). As part of the 
revision to this document, HUD developed a new two-tiered default 
scheme. Class A is for financial defaults, which give the lender an 
immediate right to an insurance fund claim. Class B is for all other 
bases for default, and requires the prior written approval of HUD for 
the lender to make an insurance fund claim. Class B would include 
several new bases for default derived, in part, from the Freddie Mac 
model. These include fraud or material misrepresentation or omission by 
the borrower, its officers, directors, trustees, general partners, 
members, managers, or guarantors (1) in the application for the HUD-
insured loan; (2) in the application for financial assistance, other 
than the HUD-insured loan; (3) in any financial statement, rent roll, 
or other report or information provided by the borrower during the term 
of the Indebtedness; and (4) in any request for lender's consent to any 
proposed action. Other new bases for default would include the 
commencement of a forfeiture action or proceeding, which in the 
lender's reasonable judgment could result in the loss of the property 
or impairment of the lien. HUD has revised 24 CFR 207.255 to reflect 
this two-tiered default scheme. As provided in 24 CFR 207.255, once a 
default exists under the security instrument and continues for a 
minimum period of 30 days, the lender would become eligible to receive 
mortgage insurance benefits.
    In addition to reflecting the new two-tiered default system, Sec.  
207.255 would be revised to clarify that the purpose of the section is 
to define ``default'' and ``date of default'' for purposes of filing an 
insurance claim with the FHA Commissioner. Also, editorial revisions 
would be made to improve the readability of this section.
    Section 207.256. Minor editorial changes would also be made to 
Sec.  207.256 to improve readability and to

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clarify which provisions in Sec.  207.255 would be cross-referenced in 
Sec.  207.256.
    Sections 207.256a, 207.256b, and 207.257. Minor editorial changes 
would be made to these sections to improve readability. None of the 
changes would alter the substance of these provisions.
    Section 207.258. HUD is also proposing to amend Sec.  207.258, 
which provides insurance claim requirements, to conform this regulation 
to the requirements included in paragraph 24 of the ``Mortgagee's 
Certificate'' (HUD 92434M), one of which is that the mortgagee must 
request a three-month extension of the 45-day deadline prescribed by 
Sec.  207.258 for a mortgage funded with the proceeds of state or local 
bonds, Government National Mortgage Association (Ginnie Mae) mortgage-
backed securities, or other bond obligations specified by HUD, any of 
which contains a lock-out or penalty provision.

24 CFR Part 232

    The new health care facility regulatory agreement has been revised 
to reflect the policy to regulate lessees of health care facilities to 
the same extent as owners of health care facilities. Although the 
Department has always taken the position that any lessee or sublessee 
would be subject to the same regulatory controls to which the owner is 
subjected under a regulatory agreement, this is the first time this 
policy has been clearly stated in writing. HUD's regulation in 24 CFR 
232.4 also would be revised to reflect this policy.
    HUD invites comment on these proposed changes, and also invites 
public comment on additional changes that would be necessary to avoid 
conflicts between HUD's regulations and the proposed revision of the 
closing documents in the notice published elsewhere in today's Federal 
Register.

II. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements resulting from changes to 
the multifamily rental project and health care facility closing 
documents have been submitted to the Office of Management and Budget 
(OMB) for review under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520) (the Act). The notice on revisions to the closing documents, 
published elsewhere in today's Federal Register, presents the estimated 
reporting burden under the Act and meets the publication requirements 
of the Act. Under the Act, 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.

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 proposed rule does not 
impose any federal mandate on any state, local, or tribal government or 
the private sector within the meaning of UMRA.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
for this rule has been made in accordance with HUD regulations at 24 
CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332). The Finding of No 
Significant Impact is available for public inspection between 8 a.m. 
and 5 p.m. weekdays 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.

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 proposed rule is limited 
to making certain conforming amendments to FHA regulations that address 
multifamily rental projects and health care facilities to ensure their 
consistency with the recent update and revision of the documents used 
for multifamily rental project and health care facility closings. 
Notwithstanding HUD's determination that this rule would not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that would meet HUD's objectives as described 
in this preamble.

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 reviewed this proposed rule 
under Executive Order 12866 (entitled ``Regulatory Planning and 
Review''). OMB determined that this proposed 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 change made to the proposed rule subsequent to its 
submission to OMB is identified in the docket file, which is available 
for public inspection in the office of the Rules Docket Clerk, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC, 20410-0500.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for Mortgage 
Insurance for the Purchase or Refinancing of Existing Multifamily 
Housing Projects is 14.155, and for Mortgage Insurance for Nursing 
Homes, Intermediate Care Facilities, Board and Care Homes and Assisted 
Living Facilities is 14.129.

List of Subjects

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.

24 CFR Part 207

    Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

24 CFR Part 232

    Fire prevention, Health facilities, Loan programs--health, Loan 
programs--housing and community development, Mortgage insurance, 
Nursing homes, Reporting and recordkeeping requirements.


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    Accordingly, for the reasons discussed in this preamble, HUD 
proposes to amend 24 CFR parts 200, 207, and 232 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

    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).

    2. Revise Sec.  200.5 to read as follows:


Sec.  200.5  Eligible mortgagor.

    The mortgagor shall be comprised of one or more natural persons or 
entities acceptable to the Commissioner, as limited by the applicable 
section of the Act, and shall possess the powers necessary and 
incidental to operating the project. Tenancies in common are not 
eligible mortgagor entities, except for tenancies in common comprised 
only of natural persons.

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    3. The authority citation for part 207 continues to read as 
follows:

    Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C. 
3535(d).

    4. Revise Sec.  207.255 to read as follows:


Sec.  207.255  Defaults for purposes of insurance claim.

    This section defines ``default'' and ``date of default'' for 
purposes of a mortgagee filing an insurance claim with the 
Commissioner.
    (a) The following shall be considered a default under the terms of 
a mortgage insured under this subpart:
    (1) Failure of the mortgagor to make any payment due under the 
mortgage (also referred to as a ``Class A Event of Default'' in certain 
mortgage security instruments); or
    (2) A violation of any other covenant under the provisions of the 
mortgage, if the mortgagee, because of such violation, has accelerated 
the debt subject to any necessary HUD approval (also referred to as a 
``Class B Event of Default'' in certain mortgage security instruments).
    (b) For purposes of a mortgagee filing an insurance claim with the 
Commissioner, the failure of the mortgagor to make any payment due 
under an operating loss loan or under the original mortgage shall be 
considered a default under both the operating loss loan and original 
mortgage.
    (c) If a default as defined in paragraphs (a) and (b) of this 
section continues for a minimum period of 30 days, the mortgagee shall 
be entitled to receive the benefits of the insurance provided for the 
mortgage, subject to the procedures in this subpart.
    (d) For the purposes of this section the date of default shall be:
    (1) The date of the first failure to make a monthly payment that 
subsequent payments by the mortgagor are insufficient to cover when 
those subsequent payments are applied by the mortgagee to the overdue 
monthly payments in the order in which they became due; or
    (2) The date of the first uncorrected violation of a covenant or 
obligation for which the mortgagee has accelerated the debt.
    5. Revise Sec.  207.256 to read as follows:


Sec.  207.256  Notice to the Commissioner of default.

    (a) If a default as defined in Sec.  207.255(a) or (b) is not cured 
within the grace period of 30 days provided under Sec.  207.255(c), the 
mortgagee must, within 30 days after the date of the end of the grace 
period, notify the Commissioner of the default, in the manner 
prescribed in 24 CFR part 200, subpart B.
    (b) The mortgagee must give notice to the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B, of the mortgagor's 
violation of any covenant, whether or not the mortgagee has accelerated 
the debt.
    6. Revise Sec.  207.256a to read as follows:


Sec.  207.256a  Reinstatement of defaulted mortgage.

    If, after default and prior to the completion of foreclosure 
proceedings, the mortgagor cures the default, the insurance shall 
continue on the mortgage as if a default had not occurred, provided the 
mortgagee gives notice of reinstatement to the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B.
    7. Revise Sec.  207.256b to read as follows:


Sec.  207.256b  Modification of mortgage terms.

    (a) The mortgagor and the mortgagee may, with the approval of the 
Commissioner, enter into an agreement that extends the time for curing 
a default under the mortgage or modifies the payment terms of the 
mortgage.
    (b) The Commissioner's approval of the type of agreement specified 
in paragraph (a) of this section shall not be given, unless the 
mortgagor agrees in writing that, during such period as payments by the 
mortgagor to the mortgagee are less than the amounts required under the 
terms of the original mortgage, the mortgagee will hold in trust for 
disposition, as directed by the Commissioner, all rents or other funds 
derived from the secured property that are not required to meet actual 
and necessary expenses arising in connection with the operation of such 
property, including amortization charges under the mortgage.
    (c) The Commissioner may exempt a mortgagor from the requirement of 
paragraph (b) of this section in any case where the Commissioner 
determines that such exemption does not jeopardize the interests of the 
United States.
    8. Revise Sec.  207.257 to read as follows:


Sec.  207.257  Commissioner's right to require acceleration.

    Upon receipt of notice of violation of a covenant, as provided for 
in Sec.  207.256(b), or otherwise being appraised of the violation of a 
covenant, the Commissioner reserves the right to require the mortgagee 
to accelerate payment of the outstanding principal balance due in order 
to protect the interests of the Commissioner.
    9. In Sec.  207.258, revise paragraph (a) and the first sentence of 
the introductory language of paragraph (b) to read as follows:


Sec.  207.258  Insurance claim requirements.

    (a) Alternative election by mortgagee. When the mortgagee becomes 
eligible to receive mortgage insurance benefits pursuant to Sec.  
207.255(c), the mortgagee must, within 45 days after the date of 
eligibility, give the Commissioner notice, in the manner prescribed in 
24 CFR part 200, subpart B, of its intention to file an insurance claim 
and of its election either to assign the mortgage to the Commissioner, 
as provided in paragraph (b) of this section, or to acquire and convey 
title to the Commissioner, as provided in paragraph (c) of this 
section. For mortgages funded with the proceeds of state or local 
bonds, GNMA mortgage-backed securities, or other bond obligations 
specified by HUD, any of which contains a lock-out or penalty 
provision, the mortgagee must, in the event of a default during the 
term of the prepayment lock-out or penalty (i.e., prior to the date on 
which prepayments may be made with a penalty):
    (1) Request an extension of the deadline for filing notice of the 
mortgagee's intention to file an insurance claim and the mortgagee's 
election to assign the mortgage or acquire and convey title in 
accordance with the mortgagee certificate;
    (2) Assist the mortgagor in arranging refinancing to cure the 
default and avert

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an insurance claim, if HUD grants the requested (or a shorter) 
extension of notice filing deadline;
    (3) Report to HUD at least monthly on any progress in arranging 
refinancing;
    (4) Cooperate with HUD in taking reasonable steps in accordance 
with prudent business practices to avoid an insurance claim;
    (5) Require successors or assigns to certify in writing that they 
agree to be bound by these conditions for the remainder of the term of 
the prepayment lock-out or penalty; and
    (6) After completion of any refinancing, notify HUD of a 
delinquency when a payment is not received by the 15th day after the 
date the payment is due.
    (b) Assignment of mortgage to Commissioner. If the mortgagee elects 
to assign the mortgage to the Commissioner, the mortgagee shall, at any 
time within 30 days after the date of notice of the election, file its 
application for insurance benefits and assign to the Commissioner, in 
such manner as the Commissioner may require, any credit instrument and 
the realty and chattel security instruments. * * *
* * * * *

PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE 
FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES

    10. The authority citation for part 232 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715w, and 1715z(9); 42 U.S.C. 
3535(d).

    11. In subpart A, add a new Sec.  232.4, to read as follows:


Sec.  232.4  Lessees and sublessees.

    Where a lessee or sublessee holds rights, powers or authorities to 
act, which would be held by the mortgagor in the absence of a lease, 
the lessee or sublessee is subject to program requirements to the same 
extent as the mortgagor under the Section 232 program.

    Dated: June 29, 2004.
Sean Cassidy,
General Deputy, Assistant Secretary for Housing.
[FR Doc. 04-16782 Filed 7-27-04; 8:45 am]
BILLING CODE 4210-27-P