[Federal Register Volume 69, Number 227 (Friday, November 26, 2004)]
[Rules and Regulations]
[Pages 68784-68786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-26113]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4835-F-03]
RIN 2502-AI00


FHA TOTAL Mortgage Scorecard

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

ACTION: Final rule.

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SUMMARY: On November 21, 2003, HUD published an interim rule to codify 
the procedures that mortgagees and automated underwriting system 
vendors must follow if they opt to use the ``Technology Open to 
Approved Lenders'' (TOTAL) Mortgage Scorecard offered by the Federal 
Housing Administration (FHA). The interim rule did not alter the 
underwriting requirements applicable to FHA mortgagees. Rather, the 
interim rule defined the acronym TOTAL and provided the requirements 
and procedures for use of the TOTAL Mortgage Scorecard. This final rule 
follows publication of the November 21, 2003, interim rule. HUD did not 
receive any public comments on the interim rule. Accordingly, HUD is 
adopting the interim rule, as corrected by a technical correction 
published on January 2, 2004, without change.

DATES: Effective date: December 27, 2004.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of 
Single Family Program Development, Room 9278, 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.) Hearing- or 
speech-impaired persons may access this number by calling the toll-free 
Federal Information Relay Service number at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--HUD's November 21, 2003, Interim Rule

    On November 21, 2003 (68 FR 65824), HUD published an interim rule 
codifying the procedures that mortgagees and automated underwriting 
system vendors must follow if they opt to use the ``Technology Open to 
Approved Lenders'' (TOTAL) Mortgage Scorecard offered by the Federal 
Housing Administration (FHA). The TOTAL Mortgage Scorecard (or 
Scorecard) developed by HUD assesses the credit worthiness of FHA 
mortgagors by evaluating certain mortgage application and mortgagor 
credit information that has been statistically proven to accurately 
predict the likelihood of mortgagor default. The TOTAL Mortgage 
Scorecard is not an automated underwriting system (AUS); rather, it is 
a mathematical equation intended for use within an AUS.
    The November 21, 2003, interim rule followed a December 6, 2000 (65 
FR 76273) Federal Register notice announcing HUD's intention to deploy 
the FHA TOTAL Mortgage Scorecard. The objectives for use of the TOTAL 
Mortgage Scorecard, which were first stated in the Notice are (1) to 
provide an improved credit evaluation system for FHA loans that has 
been statistically proven to accurately predict the likelihood of 
mortgagor default while providing a uniform system protective of 
borrowers; (2) to expand access to mortgage credit for low- and 
moderate-income mortgagors and discourage unlawful discrimination 
against mortgagors protected by the Fair Housing Act and the Equal 
Credit Opportunity Act; (3) to facilitate access to, and reduce the 
cost and time associated with, originating HUD/FHA-insured mortgages; 
and (4) to encourage a standardized, industry-wide capability for 
communication and exchange of information among members of the mortgage 
lending community.
    The December 6, 2000, Notice also advised that after deployment of 
the TOTAL Mortgage Scorecard, HUD would require use of the Scorecard in 
any AUS. The Notice also indicated that users of the TOTAL Mortgage 
Scorecard would receive documentation relief and credit policy waivers 
provided by HUD. Further, the Notice advised that HUD also had 
developed a Use Agreement that established the requirements and 
responsibilities for implementation and use of the TOTAL Mortgage 
Scorecard by qualified mortgagees and others that purchase, sell, 
underwrite, or document HUD mortgage loans for mortgagees under HUD's 
Direct Endorsement program.
    While HUD could have continued, through individual approvals, to 
authorize organizations to use the TOTAL Mortgage Scorecard, HUD 
decided that a more efficient course of action would be to promulgate 
regulations for the use of the Scorecard consistent with the purpose 
and objectives described above instead of executing individual 
approvals that establish the requirements and responsibilities for use 
of the Scorecard. Accordingly, HUD issued the November 21, 2003, 
interim rule.
    The interim rule revised HUD's regulation at 24 CFR 203.251 to 
define the acronym ``TOTAL'' and revised Sec.  203.255 to establish 
specific requirements that mortgagees and vendors must abide by when 
using the TOTAL Mortgage Scorecard. The interim rule described the 
Scorecard requirements in order to assist the mortgagee in expediting 
the endorsement process. While the Scorecard is a valuable tool, its 
value depends on approved lenders properly using the Scorecard in 
accordance with HUD requirements and procedures. The preamble to the 
November 21, 2003,

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interim rule provides additional details regarding the regulatory 
amendments to 24 CFR part 203.
    A technical correction to the interim rule was published on January 
2, 2004 (69 FR 4). The January 2, 2004, document corrected the interim 
rule by changing certain references to ``mortgage'' to read 
``mortgagee.'' The January 2, 2004 document also made a technical 
correction to Sec.  203.255(b)(5)(i)(A) of the interim rule, which 
contained an outdated reference to ``approved'' AUSs. As noted in the 
preamble to the November 23, 2003, interim rule, HUD is no longer 
approving individual AUSs, and the few approvals that existed at the 
time of publication of the interim rule have since been terminated. 
Accordingly, the January 2, 2004, document corrected Sec.  
203.255(b)(5)(i)(A) by removing the reference to ``approved'' AUSs.

II. This Final Rule

    This final rule follows publication of the November 21, 2003, 
interim rule. The interim rule became effective December 22, 2003, and 
provided for a 60-day public comment period. The comment period for the 
interim rule closed on January 20, 2004. HUD did not receive any public 
comments on the interim rule. Accordingly, HUD is adopting the interim 
rule, as corrected by the technical correction published on January 2, 
2004, without change.
    Any AUS vendor that ``calls'' the Total Mortgage Scorecard, and any 
FHA-approved mortgagee that obtains a risk-assessment from the 
Scorecard, must abide by the requirements contained in this final rule. 
Only AUSs developed, operated, owned, or used by FHA-approved Direct 
Endorsement mortgagees, Fannie Mae, or Freddie Mac are permitted to 
access the Scorecard, and only FHA-approved mortgagees are able to 
obtain risk assessments using the TOTAL Mortgage Scorecard.
    As did the preceding interim rule, this final rule affirms that 
Direct Endorsement Mortgagees remain solely responsible for the 
underwriting decision. This rule does not alter the underwriting 
requirements to which FHA mortgagees must currently adhere. Rather, 
this final rule addresses the use of the TOTAL Mortgage Scorecard and 
the requirements and procedures to which FHA mortgagees must adhere if 
they opt to use the Scorecard. AUS vendors and mortgagees found to 
violate these conditions may have their access to the Scorecard 
terminated with appropriate notice. As an additional measure to ensure 
compliance with these requirements, access to the TOTAL Mortgage 
Scorecard by a FHA mortgagee will be conditioned upon the mortgagee's 
certification to comply with the requirements as provided in this rule.
    The TOTAL Mortgage Scorecard is only a tool to assist the mortgagee 
in managing its workflow and expediting the endorsement process and is 
not a substitute for the mortgagee's reasonable consideration of risk 
and credit worthiness. To help assure the TOTAL Mortgage Scorecard is 
not misused, the final rule requires mortgagees to provide full manual 
underwriting for mortgage applicants when the scorecard returns a 
``refer'' risk score. The Scorecard results must not be used as the 
basis for rejecting any mortgage applicant.

III. Findings and Certifications

Public Reporting Burden

    The information collection requirements contained in this final 
rule have been approved by the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 
assigned OMB Control Number 2502-0556. In accordance with the Paperwork 
Reduction Act, HUD 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 OMB control number.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The final rule governs access to, and use of, an automated, electronic 
tool to assist mortgagees in managing workflow and expediting the 
endorsement process. 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 
entities. Accordingly, the undersigned certifies that this rule will 
not have a significant economic impact on a substantial number of small 
entities.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the interim rule stage in accordance with HUD regulations 
at 24 CFR part 50, which implements 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 the hours 
of 7:30 a.m. and 5:30 p.m. weekdays in the Regulations Division, Office 
of General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (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 the private sector. This final rule does not 
impose any Federal mandates on any State, local, or tribal governments 
or the private sector within the meaning of the UMRA.

Executive Order 13132, Federalism

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

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
OMB determined that this rule is a ``significant regulatory action,'' 
as defined in section 3(f) of the Order (although not economically 
significant, as provided in section 3(f)(1) of the Order). Any changes 
made to the interim rule subsequent to its submission to OMB are 
identified in the docket file, which is available for public inspection 
in the Regulations Division, Office of the General Counsel, 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 Numbers for 24 CFR part 
203 are 14.117 and 14.133.

List of Subjects in 24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan

[[Page 68786]]

programs--housing and community development, Mortgage insurance, 
Reporting and recordkeeping requirements, Solar energy.

0
Accordingly, for the reasons stated in the preamble, the interim rule 
for part 203 of subpart B of Title 24 of the Code of Federal 
Regulations, published on November 21, 2003, at 68 FR 65824, as 
corrected on January 2, 2004, at 69 FR 4, is promulgated as final, 
without change.

    Dated: November 19, 2004.
John C. Weicher,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 04-26113 Filed 11-24-04; 8:45 am]
BILLING CODE 4210-27-P