[Federal Register Volume 69, Number 217 (Wednesday, November 10, 2004)]
[Proposed Rules]
[Pages 65324-65327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24989]



[[Page 65323]]

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Part IV





Department of Housing and Urban Development





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24 CFR Part 203



Revisions to the Single Family Mortgage Insurance Program; Proposed 
Rule

  Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / 
Proposed Rules  

[[Page 65324]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4831-P-01; HUD-2004-0007]
RIN 2502-AI03


Revisions to the Single Family Mortgage Insurance Program

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

ACTION: Proposed rule.

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SUMMARY: To reflect recent statutory changes, this proposed rule 
revises certain regulations under the single family mortgage insurance 
program that govern actions by mortgagees with respect to mortgages in 
default. The rule also amends other regulations under the program to 
make them consistent with industry practices. The Department believes 
that these changes will help to increase the administrative efficiency 
of the single family mortgage insurance program.

DATES: Comment Due Date: January 10, 2005.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Interested persons may also submit 
comments electronically through either:
     The Federal eRulemaking Portal at: http://www.regulations.gov; or
     The HUD electronic Web site at: www.epa.gov/feddocket. 
Follow the link entitled View Open HUD Dockets. Commenters should 
follow the instructions provided on that site to submit comments 
electronically.
    Facsimile (fax) comments are not acceptable. In all cases, 
communications must refer to the docket number and title. All comments 
and communications submitted will be available, without revision, for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Copies are also available for inspection and downloading 
at www.epa.gov/feddocket.

FOR FURTHER INFORMATION CONTACT: Joseph McCloskey, Office of the Deputy 
Assistant Secretary for Single Family Housing, Department of Housing 
and Urban Development, Room 9172, 451 Seventh Street, SW., Washington, 
DC 20410-8000; telephone (202) 708-1672 (this is not a toll-free 
number). Hearing- and speech-impaired persons may access this number 
through TTY by calling the toll free Federal Information Relay Service 
at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The Department's regulations governing the procedures, rights, and 
servicing responsibilities, among other things, arising out of a 
mortgage insured under the single family mortgage insurance program of 
the Federal Housing Administration (FHA) generally are codified at 24 
CFR part 203. Statutory amendments enacted by the Departments of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Act, 1999 (Pub. L. 105-276, approved October 
21, 1998) (FY1999 Appropriations Act), and other changes in practices 
and procedures require changes to the regulations at 24 CFR 203.23, 
203.24, 203.359, 203.370, 203.371, 203.389, 203.402, 203.604, and 
203.605.

II. This Proposed Rule

    This rule would amend 24 CFR 203.23(a) to require a provision in 
the mortgage for the payment of homeowner or condominium association 
fees among the other payments that the mortgagor is required to make 
under the mortgage. Several states have enacted legislation that gives 
condominium and homeowners' associations the right to file a lien for 
non-payment of association fees by a mortgagor, resulting in a lien 
that has priority over the FHA-insured mortgage. HUD has performed a 
study on the various state laws applicable to the priority of the 
homeowners' and condominium association fees and charges. There is 
great variance among the states with respect to how they treat the lien 
status of condominium association fees and charges. Some states have 
established a priority or ``super lien'' for six months, but the time 
that the six-month period begins to run varies. Also, the time that the 
lien for the fees and charges is perfected varies by state. As a 
result, HUD has experienced difficulty in several jurisdictions where 
the condominium or homeowners' association has started foreclosure 
proceedings under its lien. In addition, even where the lien for fees 
and assessments is not senior to the mortgage, there are many questions 
raised as to whether the mortgagee should pay the unpaid fees before 
conveying the property to the Secretary. HUD has been apprised that 
other states are contemplating legislation that would make these 
assessments prior liens.
    Further, HUD desires to protect the viability of homeowners' and 
condominium associations by providing a method whereby there would be 
greater assurance of these associations' collecting their fees. HUD 
also wants to protect those homeowners who do pay their fees from being 
assessed for maintenance and other expenses that cannot be paid because 
other homeowners do not pay their fees. It is also a costly process to 
have attorneys handle redemption of the property, if the homeowners' or 
condominium association forecloses on its lien. Therefore, the 
amendment to Sec.  203.23 would require mortgagees of FHA-insured 
mortgages endorsed on or after the effective date of this rule to 
collect as part of the monthly mortgage payment an escrow of the 
amounts necessary for the payment of these fees when they become due.
    A corresponding amendment is made to 24 CFR 203.24(a)(1) to provide 
for the application by the mortgagee of that part of the monthly 
payment received from the mortgagor for condominium or homeowners' 
association fees.
    This rule also would amend 24 CFR 203.359(b)(2). After reviewing 
its experience with the application of this regulation, HUD has 
concluded that amendment of this regulation is warranted to better 
protect the insurance fund. HUD's experience has shown that too many 
mortgagees have not pursued conveying the foreclosed property to the 
Secretary with the diligence that the regulation contemplated. 
Consequently, the Department has been forced to pay additional interest 
on the outstanding debt pending recordation of the deed to the 
Secretary by the mortgagee. The amended regulation would provide that 
the deed to the Secretary must be recorded within 30 days after the 
later of the acquisition of possession of the property by the mortgagee 
or the expiration of the redemption period.
    The rule would amend Sec.  203.370 by removing the existing 
language in paragraph (c)(4) and substituting therefor the amendatory 
language in section 601(a) of the FY1999 HUD Appropriations Act, which 
amended section 204 of the National Housing Act (12 U. S. C. 1710). 
Section 204 now provides for the payment of insurance benefits by the 
Secretary in a preforeclosure sale of the property if, among other 
things, ``the mortgagor has received an appropriate disclosure, as 
determined by the Secretary.'' Formerly, section 204 required 
counseling. The revised language of 24 CFR 203.370(c)(4) reflects the 
cited language

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from section 601(a) of the FY1999 HUD Appropriations Act.
    HUD proposes in this rule to add a new paragraph 6 to 24 CFR 
203.371(b) to provide that, along with the existing requirements that 
must be satisfied for payment of a partial claim, the mortgagor must 
have made a minimum number of monthly payments as prescribed by the 
Secretary.
    In Sec.  203.371, paragraph (d) would be revised to provide that 
HUD must receive the original of the note and security instrument no 
later than 60 days after the date of the execution of the note and the 
security instrument. Section 203.371(d) would allow submission by the 
mortgagee of a copy of the security instrument with the date and time 
of the recording stamped by the recorder's office, if the original 
document is not available. A certification from the recorder's office 
that the security instrument has been recorded and stating the date of 
recordation also would be acceptable. If the mortgagee does not provide 
the original of the note and the security agreement (or the stamped 
copy or certification as provided above) to HUD by the 60-day deadline, 
HUD will require reimbursement of the amount of the partial claim paid 
to the mortgagee, including the incentive. If the mortgagee meets the 
60-day requirement by providing HUD with the original note and a copy 
of the security instrument with a stamp or certification as described 
above, the mortgagee will have six months from the date of the 
execution of the security instrument to provide HUD with the original 
of the security instrument. If the security instrument is not provided 
to HUD by the six-month deadline, then HUD will require reimbursement 
of the claim, including the incentive.
    This proposed rule also would amend 24 CFR 203.389 to add 
``aviation easements'' approved by the Secretary at the time of the 
mortgage origination to the list of easements in paragraph (b)(1) to 
which the Commissioner may not raise objection in taking title to 
property covered by an insured mortgage in default. This amendment 
recognizes that, since the regulation was last updated in 1976, 
aviation easements have become fairly common with the growth in the 
number of airports.
    In 24 CFR 203.402, paragraphs (a) and (j) are revised to 
incorporate new items that would be included in insurance benefits paid 
by HUD with respect to conveyed and non-conveyed properties. In 
paragraph (a), language is added that provides for an amount to be 
included in the claim payment of a utility fee, if it is a lien prior 
to the mortgage. HUD also has added language to paragraph (a) that 
would permit HUD to reimburse mortgagees for payments of homeowners' 
association and condominium fees if, because of a default of a 
mortgagor, in making escrow payments, the mortgagee has to pay these 
fees. This amendment would affect only mortgages endorsed on or after 
the effective date of this rule. The revision to paragraph (j) will 
eliminate the need for approval by the Secretary, prior to the issuance 
of a mortgage, of a covenant that provides for charges and fees for the 
administration, operation, and maintenance of community-owned property. 
The requirement for Secretary approval has not been in effect for some 
time. Section 203.604(c)(2) would be revised to eliminate the 
requirement of a face-to-face meeting if the mortgaged property is 
within 200 miles of the mortgagee or a branch office thereof. Even if 
the mortgagee does have an office, or a branch office, within 200 
miles, a face-to-face meeting would not be necessary if the servicer 
does not have an office or a branch within 200 miles. The revision is 
being made since servicers, rather than holding mortgagees, take the 
necessary actions required when a mortgagor is delinquent. As revised, 
Sec.  203.604(c)(2) would provide that a face-to-face meeting is no 
longer required if ``The mortgaged property is not within 200 miles of 
the servicer [the reference to mortgagee has been removed] or a branch 
office of the servicer.''
    The revision to 24 CFR 203.605 clarifies the existing language 
regarding the deadline for the mortgagee to complete its loss 
mitigation evaluation. HUD has always considered 90 days of delinquency 
to be the appropriate amount of time required to ensure that a borrower 
would have an opportunity to respond to requests from the mortgagee and 
for the mortgagee to complete its review for loss mitigation. The 
existing language (``no later than when three full monthly installments 
* * * are unpaid'') was intended to allow the mortgagee to the end of 
the third month of delinquency to complete the loss mitigation 
evaluation, i.e., while three payments were still unpaid, but before 
four payments had become unpaid. However, this language created an 
ambiguity, causing some mortgagees to believe that they were required 
to complete the loss mitigation review by the day the account became 
three full payments due and unpaid. To remove any ambiguity and to make 
clear the intent of the rule, the revision to 24 CFR 203.605 provides 
in part that: ``Before the account becomes four payments due and 
unpaid, the mortgagee shall evaluate all of the loss mitigation 
techniques provided in Sec.  203.501 to determine which, if any, is 
appropriate, and shall reevaluate monthly thereafter.''

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 an economically 
significant regulatory action under the Order). Any changes made to the 
rule as a result of that review are identified in the docket file, 
which is available for public inspection in the Regulations Division, 
Room 10276, 451 Seventh Street, SW., Washington, DC 20410-0500.

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(2)(C). The Finding of 
No Significant Impact is available for public inspection between 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Office of the General 
Counsel, Department of Housing and Urban Development, Room 10276, 451 
Seventh Street, SW., Washington, DC 20410-5000.

Unfunded Mandates Reform Act

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

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule would not have a significant 
economic impact on a substantial number of small entities. There are no 
anti-competitive discriminatory aspects of the rule with regard to 
small entities, and there are not any unusual procedures that would 
need to be complied with by small

[[Page 65326]]

entities. The rule revises certain regulations under the Single Family 
Mortgage Insurance program to improve the efficiency of the program. 
Although HUD has determined that this rule would not have a significant 
economic impact on a substantial number of small entities, HUD welcomes 
comments regarding 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 rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
State and local governments nor preempt State law within the meaning of 
the Executive Order.

List of Subjects in 24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians-lands, Loan programs-
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number is 14.117.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR part 203 as follows:

PART 203-SINGLE FAMILY MORTGAGE INSURANCE

    1. The authority citation for part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C. 
3535(d).

    2. Amend Sec.  203.23 by removing the word ``and'' at the end of 
paragraph (a)(4), by redesignating existing paragraph (a)(5) as (a)(6) 
and revising it, and by adding a new paragraph (a)(5) to read as 
follows:


Sec.  203.23  Mortgagor's payments to include other charges.

    (a) * * *
    (5) For mortgages endorsed for insurance on or after the effective 
date of this rule, homeowner association or condominium association 
fees, as appropriate; and
    (6) Fire and other hazard insurance premiums, if any. The mortgage 
shall further provide that such payments shall be held by the mortgagee 
in a manner satisfactory to the Commissioner for the purpose of paying 
such ground rents, taxes, assessments, insurance premiums, and (for 
mortgages endorsed on or after the effective date of this rule), 
homeowners' or condominium association fees before the same become 
delinquent, for the benefit and account of the mortgagor. The mortgage 
also must make provisions for adjustments in case the estimated amount 
of such taxes, assessments, insurance premiums, and fees shall prove to 
be more, or less, than the actual amount thereof so paid by the 
mortgagor. Such payments shall be held in an escrow subject to Sec.  
203.550.
* * * * *
    3. Amend Sec.  203.24 by revising paragraph (a)(1) to read as 
follows:


Sec.  203.24  Application of payments.

    (a) * * *
    (1) Premium charges under the contract of insurance (other than a 
one-time or up-front mortgage insurance premium paid in accordance with 
Sec. Sec.  203.280, 203.284, and 203.285), charges for ground rents, 
taxes, special assessments, flood insurance premiums, if required, fire 
and other hazard insurance premiums, and (for mortgages endorsed on or 
after the effective date of this rule), homeowners' and condominium 
association fees and charges, if applicable.
* * * * *
    4. Amend Sec.  203.359 by revising paragraph (b)(2) to read as 
follows:


Sec.  203.359  Time of conveyance to the Secretary.

* * * * *
    (b) * * *
    (2) Direct conveyance. In cases where the mortgagee arranges for a 
direct conveyance of the property to the Secretary, the mortgagee must 
ensure that the property is transferred to the Secretary within 30 days 
of the later of acquiring possession of the property or the expiration 
of the redemption period.
    5. Amend Sec.  203.370 by revising paragraph (c)(4) to read as 
follows:


Sec.  203.370  Pre-foreclosure sales.

* * * * *
    (c) * * *
    (4) Must have received an appropriate disclosure, as prescribed by 
the Secretary.
    6. Amend Sec.  203.371 by revising paragraphs (b)(4) and (b)(5), by 
adding a new paragraph (b)(6), and by revising paragraph (d), to read 
as follows:


Sec.  203.371  Partial claim.

* * * * *
    (b) * * *
    (4) The mortgagor is not financially able to make sufficient 
additional payments to repay the arrearage within a time frame 
specified by HUD;
    (5) The mortgagor is not financially qualified to support monthly 
mortgage payments on a modified mortgage or on a refinanced mortgage in 
which the total arrearage is included; and
    (6) The mortgagor must have made a minimum number of monthly 
payments as prescribed by the Secretary.
* * * * *
    (d) Application for insurance benefits. The mortgagee shall provide 
HUD with the original credit instrument and the original security 
instrument no later than 60 days following the date of their execution. 
If the original security instrument is not yet available, the mortgagee 
shall provide HUD with a copy of the security instrument on which the 
date and time of the recording of the original is stamped by the 
recorder's office. If the recorder's office cannot stamp the copy, HUD 
will accept a certification from the recorder's office that the 
original has been recorded and the date of the recordation. If the 
mortgagee does not provide the original of the note and security 
instrument (or the stamped copy or certification as provided above) 
within the 60-day deadline, the mortgagee shall be required to 
reimburse the amount of the claim paid, including the incentive. If the 
mortgagee meets the 60-day requirement with the original note and a 
stamped or certified copy of the security instrument, the mortgagee 
shall have 6 months from the date of the execution of the security 
instrument to provide HUD with the original of the security instrument. 
If the security instrument is not provided within 6 months, HUD will 
require reimbursement of the claim payment, including the incentive.
    7. Amend Sec.  203.389 by revising paragraph (b)(1) to read as 
follows:


Sec.  203.389  Waived title objections.

* * * * *
    (b)(1) Aviation easements, which were approved by the Secretary at 
the time of the origination of the mortgage, and other customary 
easements for public utilities, party walls, driveways, and other 
purposes.
* * * * *
    8. Amend Sec.  203.402 by revising paragraphs (a) and (j) to read 
as follows:


Sec.  203.402  Items included in payment--conveyed and nonconveyed 
properties.

* * * * *
    (a) Taxes, ground rents, water rates, and utility charges which are 
liens prior

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to the mortgage; and homeowners' or condominium association fees when 
the mortgagee is required to escrow the fees under Sec.  203.23, but 
the mortgagor has defaulted in the payment of the escrow and the 
mortgagee pays such fees for and on account of the mortgagor.
* * * * *
    (j) Charges for the repair or maintenance of the mortgaged property 
required by and in an amount approved by the Secretary; charges for 
condominium and homeowners' association fees which the mortgagee 
advanced for and on behalf of the mortgagor for those mortgages 
endorsed for insurance before the effective date of the rule.
* * * * *
    9. Amend Sec.  203.604 by revising paragraph (c)(2) to read as 
follows:


Sec.  203.604  Contact with the mortgagor

* * * * *
    (c) * * *
    (2) The mortgaged property is not within 200 miles of the servicer, 
or a branch office of the servicer.
* * * * *
    10. Revise Sec.  203.605 to read as follows:


Sec.  203.605  Loss mitigation evaluation.

    Before the account becomes four installments due and unpaid, the 
mortgagee shall evaluate all of the loss mitigation techniques provided 
in Sec.  203.501 to determine which techniques, if any, are 
appropriate, and shall reevaluate monthly thereafter. The mortgagee 
shall maintain documentation of such evaluations. Should a claim for 
mortgage insurance benefits later be filed, the mortgagee shall 
maintain this documentation in the claim file under the requirements of 
Sec.  203.365(c).

    Dated: August 27, 2004.
John C. Weicher,
Assistant Secretary for Housing--Federal Housing Commissioner.
Sean Cassidy,
General Deputy Assistant, Secretary for Housing.
[FR Doc. 04-24989 Filed 11-9-04; 8:45 am]
BILLING CODE 4210-27-P