[Federal Register Volume 70, Number 70 (Wednesday, April 13, 2005)]
[Rules and Regulations]
[Pages 19666-19669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-7352]



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Part V





Department of Housing and Urban Development





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24 CFR Part 203



Schedule for Submission of One-Time and Up-Front Mortgage Insurance 
Premiums; Final Rule

  Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / 
Rules and Regulations  

[[Page 19666]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4690-F-02]
RIN 2502-AH67


Schedule for Submission of One-Time and Up-Front Mortgage 
Insurance Premiums

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

ACTION: Final rule.

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SUMMARY: This rule makes final a proposed rule that would have, in 
recognition of the increased efficiencies created by the electronic 
processing of payments, shortened the remittance period for mortgage 
insurance premiums (MIPs) from 15 calendar days to three business days 
(Monday through Friday, exclusive of Federal holidays) for both one-
time and up-front MIPs. In response to public comment, the remittance 
period is set at 10 calendar days in this final rule. This final rule 
also, in response to public comment, delays the effective date for six 
months from the date of publication in the Federal Register to allow 
lenders to adapt their electronic systems to the new requirements.

DATES: Effective Date: October 11, 2005.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of 
Single Family Program Development, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-8000, at 
(202) 708-2121 (this is not a toll-free number). Persons with hearing 
or speech impairments may access these numbers through TTY by calling 
the toll-free Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 203(c)(1) of the National Housing Act authorizes the 
Secretary to set the premium charge for insurance of mortgages under 
Title II of the National Housing Act. In a June 23, 1983, final rule 
(48 FR 28804) that followed a proposed rule and public comment, HUD 
established the one-time MIP for single-family programs, citing 
improved cash management for HUD without increased burdens on 
borrowers. The specific programs affected by this one-time MIP are 
listed in 24 CFR 203.259a, and include loans for refinancing loans 
insured under the National Housing Act (see 24 CFR 203.43(c)); 
mortgages in Hawaiian Home Lands (see 24 CFR 203.43i); and loans which 
are obligations of the Mutual Mortgage Insurance Fund which were 
executed before July 1, 1991.
    Section 203(c)(2) of the National Housing Act authorizes the up-
front MIP, implemented at 24 CFR 203.284 (and 24 CFR 203.285 for 15-
year loans), which applies to all other mortgages executed on or after 
July 1, 1991 that are obligations of the Mutual Mortgage Insurance 
Fund. The up-front MIP requires the payment of a single premium of up 
to 2.25 percent of the original insured principal balance of the 
mortgage, and annual payments of .50 percent of the remaining insured 
principal balance for stated periods of time that vary depending on the 
original principal obligation of the mortgage.
    Since April 7, 1993, it has been mandatory for lenders to make up-
front MIP payments in the single-family insurance program through an 
electronic system. (See, e.g., Mortgagee Letter 94-25.) The one-time 
MIP is remitted electronically as well. (See, e.g., Mortgagee Letter 
96-33.) Electronic submission allows for MIPs to be paid more quickly 
than the 15-day period allowed prior to the effective date of this 
rule.

B. The Notice of Proposed Rulemaking (NPRM)

    The NPRM, published on August 21, 2002 (67 FR 54313), proposed 
amending 24 CFR 203.280 and 203.282 to reduce the remittance period for 
the up-front and one-time MIP in affected single-family programs from 
15 calendar days to 3 business days (Monday through Friday, excluding 
Federal holidays), and to adjust the late charge provisions 
accordingly. Affected single family programs include mortgages that are 
obligations of the Mutual Mortgage Insurance Fund and refinancings 
under 24 CFR 203.43(c) (see 24 CFR 203.259a). The time period was 
proposed to be calculated from the date of loan closing. However, in 
the case of refinancing, the NPRM proposed that the three-day period 
would be counted from the date of disbursement of the mortgage proceeds 
rather than the date of loan closing, in order to take into account the 
fact that refinancing borrowers have three days to exercise a right of 
rescission.
    Current 24 CFR 203.284 and 285 include the remittance rules in 
203.280 by cross reference (see 24 CFR 203.284(f) and 203.285(c)). The 
NPRM proposed to clarify this relationship by referencing 24 CFR 
203.284 and 203.285 in 24 CFR 203.280.

C. This Final Rule

    This final rule amends 24 CFR 203.280 and 203.282 to reduce the 
remittance period for the up-front and one-time MIP in affected single-
family programs from 15 calendar days to 10 calendar days, and to 
adjust the late charge provisions accordingly. While the NPRM had 
proposed 3 days, HUD has reconsidered that time limit in response to 
considerations raised by public commenters. In addition, after 
considering alternatives proposed by commenters, the rule provides 
that, for both original loans and refinancings, the 10-day remittance 
period will be counted from the date of disbursement of the mortgage 
proceeds or the date of loan closing, whichever is later. Finally, in 
order to accommodate the need for lending institutions to adjust their 
systems, HUD is delaying the effective date of this final rule for 180 
days.

D. Public Comments

    The public comment period closed on October 21, 2002. HUD received 
24 comments on the proposed rule. Comments were received from mortgage 
lenders, a state housing development authority, a national association 
of mortgage lenders, and a national association of community banks.
    Comment: Three days is an insufficient time for remittance of MIPs. 
All commenters made comments criticizing the three-day remittance 
period. Most of these commenters stated that the three-day period is 
not realistic or practical given actual business practices. Two 
commenters stated that even with the 15-day period, ``we sometimes have 
to fund these out of our operating funds while waiting for the arrival 
of the checks.'' Four commenters stated that three days is not 
realistic, as the closing packages are not even back from the 
attorney's office within three days. Four commenters stated that the 
process of getting the closed loan documents from the settlement agents 
can take up to five days. Then, an audit is performed and checks are 
processed which takes another three days. One commenter stated that it 
believed that no lender would be able to comply with this rule, 
because, typically, a title company does not return closed files to 
lenders in a sufficient time.
    Several commenters stated that the three-day rule would not be 
appropriate because it could result in MIPs having to be paid before 
the loan proceeds are disbursed. One commenter stated that a vast 
number of purchase loans do not close and fund all on the same date. 
Title Companies take anywhere from two to four days to return papers 
and

[[Page 19667]]

checks to the lenders. HUD would then be requiring those lenders to pay 
the UFMIP before they have even received the cash from the loan 
funding. Three days is not practical for all lenders. Another commenter 
similarly observed that in 50% of its retail loan closings, three days 
or more elapse between closing and disbursement of proceeds. Three 
commenters stated that HUD assumes that the lender has the closed loan 
package the day of closing, but in reality, the lender will not have 
the package until a minimum of one day after the closing, possibly 
longer. No lender should be forced into submitting the MIP until it has 
the closed loan package and the security instrument.
    Three commenters stated that the period should be shortened to 
seven business days, instead of three. Another commenter stated that 
its up-front funds are included in closing packages that arrive in 
seven business days from closing regardless of transaction type.
    Two commenters stated that the proposed remittance period would 
only work if the overall process was changed. One of these commenters 
suggested that three days would only work if HUD required the closing 
agents to electronically transfer the funds when they disburse. Another 
commenter stated that until the remittance process is streamlined, 
there should be no reduction in the 15-day period.
    Response: HUD agrees in principle with the comments that three 
business days may be inadequate for submission of the mortgage 
insurance premiums. Consequently, HUD will extend the submission period 
from the proposed three business days to 10 calendar days. In place of 
the 3 business days originally proposed, this will be less disruptive 
to existing lender processes. HUD disagrees that the remittance process 
should be streamlined as a condition for this rule. In fact, the 
process was streamlined in 1993 to require electronic funds transfer 
while the 15 calendar days remittance period, which dated from prior, 
non-electronic paper processes, remained in effect.
    Comment: Eleven commenters stated that the proposed three-day 
remittance period would have a significant impact on their businesses. 
Three commenters stated that the proposal would have a major impact on 
lenders and closing agents, since lenders might need to increase staff, 
or transfer staff, to be able to make the 3-day rule and avoid 
penalties. Another commenter similarly stated that a three-day 
remittance period would have a significant negative impact on the 
company. Shortening the period would require a complete revision of 
procedures and an increase in expenses, which would either have to be 
absorbed by the company or passed on to the borrower. Two commenters 
stated that the short time frame would unfairly require lenders either 
to have to advance funds out of their own accounts or pay a penalty.
    Two commenters quantified the economic impact. One commenter stated 
that if the rule changes from 15 to 3 days, this translates to an 
approximate corporate loss of $16,000.00 monthly from payments of late 
fees to HUD. Another commenter stated that data shows that the 
commenter paid 8% in three days, 72% within 10 calendar days, 91% 
within 13 days and 94% within 15 calendar days. Under the proposed 
rule, the remaining premiums would cost the company $656,702.
    One commenter stated that the rule could be a large enough 
financial burden that FHA lenders could possibly re-think their 
business models and ultimately stop originating HUD/FHA loans.
    One commenter stated that shortening the transmittal time frame 
would not allow lenders to properly validate data coming in from front-
end systems and outside title companies.
    One commenter stated that the shorter time frame would negatively 
impact first-time and low- and moderate-income borrowers because the 
three-day remittance period would reduce the number of FHA loans that 
lenders could originate.
    Response: HUD has no way of determining the accuracy of reported 
expenses that would be incurred by lenders, including late fees, should 
the three-day remittance rule be put into effect. However, HUD does 
agree that the three-day submission period as proposed could require 
submission of the upfront MIP from the lender's corporate funds. 
Consequently, HUD is adopting a ten-calendar days remittance period. 
This longer remittance period will avoid potential economic burdens.
    Comment: Ten commenters suggested alternatives to the proposed 3-
day remittance period. Three commenters suggested that 5 days would be 
preferable. Three other commenters stated that a 10-day remittance 
period would meet HUD's objectives while allowing lenders to maintain a 
high level of accuracy, reduce refund requests and not further 
jeopardize the insuring process. One commenter stated that the time 
could feasibly be shortened to 10 calendar days or 8 business days. One 
commenter stated that Home Equity Conversion Mortgage (HECM) lenders 
should be given seven business days to remit their MIPs. One commenter 
stated generally that HUD should adopt a more reasonable time period.
    Response: As stated in response to other comments, HUD has agreed 
to adopt a 10-day remittance period. HUD believes that a 10-day 
remittance period is practical for lenders and will meet HUD's policy 
goals as stated in the NPRM. Initial premiums on HECM loans were not 
covered by the proposed rule, but may be addressed in a separate 
rulemaking.
    Comment: Six commenters stated that there was increased risk for 
lenders with ``cancelled'' loans (loans that do not close because of 
borrower rescission).
    Two commenters stated that loans that are scheduled to close do not 
always close. Loan companies will pay the up-front MIP from corporate 
funds for these ``cancelled close'' loans because the three-day period 
is too short for the cancelled status to be communicated to the 
company. For loans that are cancelled, the company will have to request 
a refund, which takes several months.
    Fives commenters (including one of the above commenters) stated 
that with the shorter time period, lenders risk remitting funds for a 
loan that has cancelled. Refunds from HUD are not timely, and in some 
cases, are made to the applicant instead of the lender.
    Response: HUD accepts the arguments of lenders that on refinances 
the remittance of MIP could occur on a loan where the borrower has 
exercised the right of rescission notwithstanding that the MIP 
remittance period begins following the right of rescission. However, 
HUD believes that ten calendar days should prove sufficient for lenders 
to communicate with their closing and post-closing staff that the right 
to rescind has been invoked by the borrower and, thus, eliminate 
payment of the MIP on a mortgage that has been rescinded. In addition, 
this final rule will start the MIP remittance period on the later of 
the date of loan closing or the date of disbursement of the mortgage 
proceeds. This change should also help prevent a conflict between the 
remittance of the MIP and the borrower's right of rescission.
    Comment: Three commenters disagreed with the proposal in the NPRM 
that the beginning of the time period for remittance of the MIP for 
loans, except for refinancings, would be the date of loan closing.
    Commenters suggested that the beginning date should be the 
recording of the mortgage; the actual funding of the loan; or the 
disbursement date of the loan proceeds, since the disbursement date is 
the most consistent easily

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identified date representing the date amortization of the loan begins.
    Response: HUD does not agree that recordation of the mortgage 
should start the MIP remittance period. Most lenders do not know when 
the mortgage is recorded and requiring entry of that date into HUD's 
system of records would be an unnecessary burden to the lender. HUD 
does agree, however, that the date of disbursement of the loan 
proceeds, for both purchase money mortgage and refinance transactions, 
would be an easily understood and recognizable trigger date for 
starting the remittance period and will thus adopt this suggestion as a 
possible alternative to the date of loan closing. The date of 
disbursement of the loan proceeds may occur later than the closing date 
in the case of refinancings. The loan disbursement date is easily 
identifiable on the HUD-1 settlement statement by the date of the 
beginning of per diem interest charges. HUD will look to that entry 
when auditing lenders for compliance with this revised remittance 
period.
    HUD is modifying its data collection systems to require lenders to 
enter the date of disbursement (i.e., the date the closing agent 
transfers control of the loan proceeds, at which time the borrower 
becomes liable for interest charges) into the system. This final rule 
provides that the remittance period will start on the date of closing 
or the date of disbursement of the mortgage proceeds, whichever is 
later. Once this final rule becomes effective, lenders will have to 
input the loan disbursement date in order to use the electronic system.
    Comment: Six commenters stated that a three-day remittance period 
will be much more difficult for mortgage companies with decentralized 
offices.
    Five commenters stated that it will be much more difficult to 
control the accuracy of mortgage insurance payments in the 
decentralized environment (from main office to branches), possibly 
leading to a need for refunds from HUD (which are slow to be paid), or 
additional late fees.
    One commenter stated that its automated system requires a minimum 
of three business days to get the data into transmission form. As a 
nationwide lender, that commenter stated that it does not receive the 
necessary documents until day two or three.
    Response: HUD is adopting a ten-calendar day remittance period. HUD 
believes that such a period will be adequate for data transmission 
within decentralized lender environments.
    Comment: One commenter stated that, in the Commonwealth of 
Virginia, settlement agents cannot disburse funds collected at closing 
for the MIP until after recordation of the deed of trust, which in the 
Commonwealth of Virginia could be two days after closing. (Virginia 
Code 6.1-2.13)
    Response: HUD recognizes this issue and believes that the ten-day 
remittance rule, along with the adoption of the later of date of 
closing or date of disbursement of the loan proceeds as the beginning 
of the remittance period, accommodates the needs of lenders making FHA 
loans in Virginia.
    Comment: One commenter commented that if the rule does go into 
effect, HUD should give an assurance that refunds will be handled in a 
timely manner. In addition, it would be helpful to have a contact 
person at HUD for refund issues.
    Response: The adoption of a 10-day remittance period will generally 
eliminate the need for additional refunds that might have occurred had 
the rule gone into effect as proposed. Since this final rule makes no 
change in refunds, refunds will continue to be handled as they are 
currently, in accordance with the instructions on HUD's web site at 
http://www.hud.gov/offices/hsg/comp/premiums/at_ref.cfm.
    Comment: One commenter asked, if the rule is published as proposed, 
that HUD impose a six-month delayed implementation time to allow 
lenders enough time to update systems and change processes.
    Response: HUD recognizes that lenders face significant systems 
issues whenever their trading partners make such changes. For this 
reason HUD agrees that the implementation of this final rule will not 
take place for six months following publication of the final rule in 
the Federal Register.
    Comment: One commenter stated that Home Equity Conversion Mortgage 
(HECM) loans should be specifically excluded from this rule in final 
form. This commenter stated that its understanding was that HECM loans 
were not intended to be covered by the rule.
    Response: Initial premiums on HECM loans were not covered by the 
proposed rule, but may be addressed in a separate rulemaking. Since 
there is no indication in the rule that HECM loans are covered, it is 
not necessary to explicitly exclude them.
    Comment: One commenter stated that HUD should leave the 15-day rule 
in effect, or simply impose a penalty on those lenders that HUD has 
deemed to have abused the rule.
    Response: The purpose of this rule is not to penalize lenders or 
adopt harsher measures. Rather, HUD seeks to both clarify when the 
remittance period begins, and to revise its procedures to reflect 
electronic MIP remittance rather than the mailing of checks to a lock-
box upon which the original 15-calendar day period was based. As to 
those few lenders that have abused the existing 15-calendar day 
remittance period, HUD prefers to prevent such abuse rather than 
attempt to take action after discovering the abuse. Therefore, HUD 
declines to adopt the suggested approach.
    In addition to these comments, one commenter supported the overall 
goals of the rule. No response to this comment is required.

Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this document 
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 2502-0423. 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 Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this final rule, and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. Because of the 
streamlining of operations and the changes made by this final rule to 
accommodate current business practices, this final imposes no 
significant burdens on business.

Environmental Impact

    This final rule does not direct, provide for assistance of loan and 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this 
final rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an

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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 final 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) 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 final 
rule does not impose any federal mandates on any state, local, or 
tribal government, or on the private sector, within the meaning of 
UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number applicable to 
this rule is 14.117.

List of Subjects for 24 CFR Part 203

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


0
For the reasons stated in the preamble, HUD amends 24 CFR part 203 as 
follows:

PART 203--SINGLE FAMILY HOUSING MORTGAGE INSURANCE

0
1. The authority citation for 24 CFR part 203 continues to read as 
follows:

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

Subpart B--Contract Rights and Obligations

0
2. Revise 24 CFR 203.280 to read as follows:


Sec.  203.280  One-time or Up-front MIP.

    For mortgages for which a one-time or up-front MIP is to be charged 
in accordance with Sec. Sec.  203.259a, 203.284, or 203.285, the 
mortgagee shall, as a condition to the endorsement of the mortgage for 
insurance, pay to the Commissioner for the account of the mortgagor, in 
a manner prescribed by the Commissioner, a premium representing the 
total obligation for the insuring of the mortgage by the Commissioner 
or the up-front portion of the total obligation, as applicable, within 
10 calendar days after the date of loan closing or within 10 calendar 
days after the date of disbursement of the mortgage proceeds, whichever 
is later.
0
3. Revise 24 CFR 203.282 to read as follows:


Sec.  203.282  Mortgagee's late charge and interest.

    (a) Payment of a one-time or up-front MIP is late if not received 
by HUD within 10 calendar days after the date of loan closing or within 
10 calendar days after the date of disbursement of the mortgage 
proceeds, whichever is later. Late payments shall include a late charge 
of four percent of the amount of the MIP.
    (b) If payment of the MIP is not received by HUD within 30 days 
after the date of loan closing or within 30 calendar days after the 
date of disbursement of the mortgage proceeds, whichever is later, the 
mortgagee will be charged additional late fees until payment is 
received at an interest rate set in conformity with the Treasury Fiscal 
Requirements Manual.

    Dated: April 4, 2005.
John C. Weicher,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 05-7352 Filed 4-12-05; 8:45 am]
BILLING CODE 4210-27-P