[Federal Register Volume 72, Number 190 (Tuesday, October 2, 2007)]
[Rules and Regulations]
[Pages 56156-56161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-19459]



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Part III





Department of Housing and Urban Development





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24 CFR Part 203



Revisions to the Single Family Mortgage Insurance Program; Final Rule

  Federal Register / Vol. 72, No. 190 / Tuesday, October 2, 2007 / 
Rules and Regulations  

[[Page 56156]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4831-F-02]
RIN 2502-AI03


Revisions to the Single Family Mortgage Insurance Program

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

ACTION: Final rule.

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SUMMARY: This final rule revises HUD's regulations under the single 
family mortgage insurance program that govern actions by mortgagees 
with respect to mortgages in default to implement recent statutory 
changes. The rule also amends 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. This final rule follows a 
proposed rule published on November 10, 2004, and takes into 
consideration and adopts changes in response to the public comments 
received.

DATES: Effective Date: November 1, 2007.

FOR FURTHER INFORMATION CONTACT: Ivery Himes, Director, Asset 
Management and Disposition Division, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 9172, 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 November 10, 2004, Proposed Rule

    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, necessitate 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. On November 10, 2004, at 69 FR 65324, HUD published a 
proposed rule to implement these statutory amendments and make these 
provisions consistent with industry practice. Specifically, HUD's 
November 10, 2004, rule proposed the following changes.

A. Proposed Changes to Provisions of FHA Mortgage: Escrow for 
Condominium and Homeowner Association Fees

    HUD proposed to amend 24 CFR 203.23(a) to require a provision in 
the mortgage for the payment by the mortgagor of homeowner or 
condominium association fees. Toward this end, HUD proposed to amend 
Sec.  203.23 to require mortgagees of FHA-insured mortgages endorsed on 
or after the effective date of the final 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. HUD also proposed 
amending Sec.  203.24(a)(1) to require the mortgagor to assign that 
part of the monthly payment received from the mortgagor for condominium 
or homeowners' association fees.

B. Proposed Changes to FHA Mortgage Claim Procedures

    HUD also proposed to amend a number of its claims procedures. 
Initially, HUD proposed to revise Sec.  203.359(b)(2) to 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. HUD also proposed to amend 
procedures for the payment of pre-foreclosure claims to implement 
section 601(a) of the FY1999 HUD Appropriations Act. Specifically, HUD 
proposed to amend Sec.  203.370 to provide for the payment of insurance 
benefits by the Secretary in a pre-foreclosure sale of the property if, 
among other things, ``the mortgagor has received an appropriate 
disclosure, as determined by the Secretary.'' Finally, HUD proposed to 
amend Sec.  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. Section 203.371(d) would also 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.

C. Proposed Changes to FHA Title Requirements

    HUD proposed to amend Sec.  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 Federal Housing 
Commissioner may not raise objection in taking title to property 
covered by an insured mortgage in default.

D. Proposed Changes to Payment of Insurance Benefits

    HUD proposed to revise Sec.  203.402(a) and (j) to incorporate new 
items that would be included in insurance benefits paid by HUD with 
respect to conveyed and non-conveyed properties. Specifically, in 
paragraph (a), HUD proposed that an amount be included in the claim 
payment of a utility fee, if it is a lien prior to the mortgage. HUD 
also proposed language 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. Finally, HUD proposed a revision to 
paragraph (j) to 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.

E. Proposed Changes to Mortgagee Actions and Forbearance

    Finally, HUD proposed amending two provisions that outline 
responsibilities of the mortgagee. HUD proposed amending Sec.  
203.604(c)(2) 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. HUD also proposed amending Sec.  203.605 to clarify the 
deadline for the mortgagee to complete its loss mitigation evaluation 
by requiring the mortgagee to evaluate, before the account becomes four 
payments due and unpaid, all of the loss mitigation techniques provided 
in Sec.  203.501 to determine which, if any, is appropriate and to 
reevaluate monthly thereafter.
    For a detailed discussion of the proposed regulations, please see 
the preamble to the proposed rule, at 69 FR 65324-65325.

II. This Final Rule

    This final rule takes into consideration the public comments 
received on the November 10, 2004, proposed rule. The following 
highlights

[[Page 56157]]

the notable changes made at this final rule stage.
    Initially, HUD proposed amending Sec. Sec.  203.23 and 203.24 to 
require the payment of homeowner or condominium association fees, among 
the other payments that the mortgagor is required to make under the 
mortgage. Based on public comments received on these provisions, HUD 
has determined that a mandatory escrow requirement for condominium and 
homeowners association fees is not feasible. Therefore, HUD has removed 
the corresponding homeowner and condominium association fee provisions 
that were proposed at Sec.  203.402(a) and (j).
    Second, in response to industry comments, HUD has determined that 
it will be difficult in some jurisdictions to be able to receive the 
recorded, original security instrument from the recording authority and 
ensure that they are received by HUD within 60 days from execution, as 
contained in the proposed rule. Accordingly, HUD has revised Sec.  
203.371(d) to provide that HUD must receive the original credit 
instrument no later than 60 days after the date of execution and the 
recorded, original security instrument not later than 6 months after 
the date of execution. Where the mortgagee is experiencing a delay from 
the recording authority, it may request an extension of time from HUD.
    Third, HUD had proposed to revise Sec.  203.604(c)(2) 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. In 
consideration of the comments received, HUD has determined that the 
requirements in Sec.  203.604 require additional consideration. As a 
result, HUD is planning a comprehensive revision that will revise Sec.  
203.604. Because HUD determined that the face-to-face meeting 
requirement should be reconsidered in a new proposed rule, this final 
rule does not effectuate the revisions to Sec.  203.604(c)(2) that were 
contained in the proposed rule.
    Although HUD proposed to amend Sec.  203.359(b)(2) to revise the 
timing requirements for direct conveyance procedures, it has determined 
not to proceed with this change in this final rule. As proposed, the 
revision provided 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. 
After further review, HUD believes that additional investigation is 
needed before establishing the revised time frame. Therefore, HUD is 
considering further change and clarification for the timing of direct 
conveyancing procedures and may issue new time frames in a future 
rulemaking.
    Finally, HUD proposed revising Sec.  203.605 to clarify the 
deadline for the mortgagee to complete its loss mitigation evaluation. 
After publication of the proposed rule, a change to Sec.  203.605 was 
promulgated in the final rule entitled, ``Treble Damages for Failure to 
Engage in Loss Mitigation'' that was published in the Federal Register 
on April 26, 2005, at 70 FR 21572. Because the proposed change to Sec.  
203.605 has already been codified, HUD will not be revising Sec.  
203.605 in this final rule.

III. Discussion of Public Comments on the November 10, 2004, Proposed 
Rule

    The public comment period on the proposed rule closed on January 
10, 2005. HUD received 32 public comments from a diverse group of 
commenters representing mortgage companies, condominium owners, 
lenders, industry groups for mortgage bankers, title insurance 
companies, realtors, homeowners associations, an attorney, and 
homeowner advocacy groups. The following provides a discussion of key 
issues raised by public commenters and HUD's responses to these issues.

A. Escrow for Condominium and Homeowners Association Fees

    Comment: The escrow requirement should be preserved in the final 
rule. Two commenters offered support for the escrow requirement. These 
commenters wrote that the proposal would help maintain the financial 
viability of condominium and homeowner associations. However, one of 
the commenters suggested several modifications and clarifications to 
the escrow requirement. First, the commenter suggested that HUD clarify 
that full payment of fees is due at the beginning of the year (either 
fiscal or calendar). Second, the commenter suggested that any remaining 
assessments should be due upon purchase of the property and not 
deferred until the end of the first year of the new mortgage. This 
commenter also recommended that the final rule should define the term 
``assessment'' to ensure that funds not intended to fall within the 
scope of the rule are not escrowed.
    HUD response: HUD appreciates the feedback provided by the 
commenters, but has determined that a mandatory escrow requirement for 
condominium and homeowners association fees is not feasible and has 
removed the requirement in this final rule.
    Comment: The proposed escrow requirement will limit the 
availability of FHA financing, thereby creating an obstacle for 
homeowners seeking FHA financing. These commenters stated that 
homebuyers would be required to prepay condominium fees at the time of 
closing, thereby substantially increasing downpayment costs. The 
commenters wrote that the increased out-of-pocket costs would 
discourage many homebuyers from purchasing homes with FHA-insured 
mortgages.
    HUD response: Regardless of whether the fees are paid directly by 
the mortgagor or through the escrow account, the mortgagors are 
responsible for payment of the homeowners or condominium association 
fees. Therefore, HUD believes that escrowing those fees would not 
affect the affordability of the mortgage. Notwithstanding, HUD has 
determined that a mandatory escrow requirement for all FHA-insured 
condominium and homeowners association fees is not feasible and has 
removed the requirement in this final rule.
    Comment: The escrow requirement would impose undue burden on 
condominium and homeowners associations, as well as servicers. The 
commenters stated that many of the condominium associations are small 
and would find it difficult to keep track of the various servicers to 
whom to send their bills.
    HUD response: The Department agrees with the commenters in that the 
mortgagees and the condominium and homeowners associations, as well as 
servicers, would need to track additional information if the fees were 
escrowed. The mortgagees would need to maintain the identity of the 
condominium or homeowners association, and the condominium and 
homeowners association would need to maintain the identity of the 
mortgagee servicing the mortgage. As stated above, HUD has determined 
that a mandatory escrow requirement for all FHA-insured condominium and 
homeowners association fees is not feasible. Therefore, HUD has removed 
the requirement in this final rule.
    Comment: The escrow requirement will increase costs and 
administrative burden for HUD. Several commenters wrote that HUD's 
costs would increase substantially when servicers are required to 
advance escrow funds for delinquent loans. The commenters suggested 
that the costs to HUD for repayment of these escrow advances would 
outweigh any benefit to HUD in avoiding the relatively small number of

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liens or delinquencies that occur under the current system. The 
commenters also stated that, unlike taxes and insurance, condominium 
fees are often paid on a monthly or quarterly basis. The commenters 
wrote that the administrative costs of tracking the fees would prove 
prohibitive for HUD.
    HUD response: HUD disagrees that escrowing for the condominium and 
homeowners association fees would increase costs for the Department. 
Currently, in priority states, HUD is already reimbursing mortgagees 
for the costs in discharging the liens placed upon properties for 
nonpayment. HUD expects its net cost to decrease, as there should be 
fewer situations in which the condominium or homeowners association 
needs to place a lien for nonpayment. Although HUD believes its costs 
would decrease, HUD has determined that the proposed mandatory escrow 
requirement is not feasible and has removed the requirement in this 
final rule.
    Comment: The proposed escrow requirement is not necessary because 
condominium association liens do not present a title problem in the 
majority of states. One commenter wrote that the issue of unpaid or 
delinquent condominium fees appears to affect a small percentage of FHA 
loans and does not justify the imposition of the escrow requirement for 
the entire population of FHA loans subject to condominium fees. Another 
commenter stated that several states have begun efforts to resolve the 
public policy issues involved in homeowner association regulation. This 
commenter further opined that these efforts would be undermined by 
HUD's proposed rule.
    HUD response: The Department agrees with the commenter that there 
are currently more non-priority states than priority states. There is a 
change, however, occurring within the industry for more states to 
provide for the condominium and homeowner associations to be able to 
place a priority lien for nonpayment. HUD has determined, however, that 
a mandatory escrow requirement for all FHA-insured condominium and 
homeowners association fees is not feasible and has removed the 
requirement in this final rule.
    Comment: There is no legal basis for the proposed escrow 
requirement. Two commenters questioned HUD's authority to create a 
policy that guarantees payment of condominium fees where there is no 
legal obligation to do so and no actual benefit to the FHA insurance 
fund.
    HUD response: Section 203 of the National Housing Act (12 U.S.C. 
1709) provides the Secretary with authority to insure mortgages and 
establish related terms by which the mortgages are insured. HUD 
believes that it is prudent public policy for HUD to promulgate 
regulations that will assist in strengthening U.S. neighborhoods. When 
condominium and homeowner association fees go unpaid, the neighborhood 
suffers because of deferred maintenance or even deferred capital 
improvements. It is HUD's responsibility to establish policies that 
help ensure the stability of neighborhoods. Notwithstanding, HUD has 
determined that a mandatory escrow requirement for all FHA-insured 
condominium and homeowners association fees is not feasible and has 
removed the requirement in this final rule.
    Comment: HUD should consider alternatives to the proposed escrow 
requirement. Several commenters opposed to the escrow requirement 
suggested possible alternatives that might accomplish HUD's goal. For 
example, one commenter suggested that HUD should establish stronger 
qualifying criteria to ensure that a borrower can meet its obligation 
before being approved for FHA financing. This commenter also suggested 
that HUD should require disclosure of the fees and the possibility of 
future increases. Another commenter suggested that HUD should implement 
a regulation that ensures its lien is superior, thus avoiding the 
administrative and legal concerns raised by the escrow requirement. A 
third commenter recommended that before implementing the escrow 
requirement, HUD examine options such as appropriate forbearance 
language and repayment plan alternatives.
    HUD response: HUD acknowledges the commenters' suggestions and 
appreciates the recommendations. HUD has, however, determined that the 
proposed escrow requirement is not feasible and has removed the 
proposed requirement in this final rule.

B. Claim Procedures

    Comment: In cases where the mortgagee arranges for a direct 
conveyance of the property to the Secretary, HUD should clarify that if 
a third party has caused a delay, through no fault of the servicer, 
then HUD will consider granting an extension. One commenter, offering 
support for the proposed changes to Sec.  203.359(b)(2), asked HUD to 
state whether it will grant extensions to the 30-day conveyance 
requirement.
    HUD response: HUD appreciates the suggestion offered by the 
commenter. Although HUD is not effectuating changes to Sec.  
203.359(b)(2) in this final rule, it is contemplating revision of the 
direct conveyance provisions. As stated in section II of this preamble, 
HUD is considering further change and clarification for the timing of 
direct conveyance procedures and may issue a new provision in a future 
rulemaking.
    Comment: The final rule should state whether the proposed change to 
Sec.  203.370(c)(4), which would require a disclosure statement in all 
pre-foreclosure sales, replaces the debt-counseling requirement for 
these sales.
    HUD response: The revised disclosure requirement replaces the 
previous requirement for the mortgagor to receive homeownership 
counseling and to provide a counseling certification to that effect. 
Counseling will always be encouraged for all mortgagors considering the 
use of a pre-foreclosure sale (PFS) as a means of loss mitigation. This 
regulatory change is implemented to improve consistency between 24 CFR 
203.370(c)(4) and statutory language in section 204(a)(D) of the 
National Housing Act.
    Comment: Because the timing of submission of partial claim 
documents is outside the servicer's control, the proposed requirement 
that HUD must receive the original of the note and security instrument 
no later than 60 days after the date of execution is unreasonable. 
According to the commenters, certain jurisdictions experience extensive 
delays in handling the recording and mailing of documents. These 
commenters stated that the proposed rule provision authorizing a 
servicer to provide a certified copy would be insufficient to address 
these concerns, because it would be equally difficult to obtain such a 
copy from a recorder's office. To address these concerns, the 
commenters suggested several alternative timing requirements. For 
example, some of the commenters recommended that the 60-day requirement 
should run from the date the servicer receives the original recorded 
security instrument from the recorder's office. One commenter suggested 
that the servicer should be permitted to submit a copy of the 
unrecorded documents within 60 days of execution, followed by 
submission of the original recorded documents within 120 days of 
execution. Another commenter suggested the same remedy, but with time 
frames of 90 days for submission of the unrecorded document and 12 
months for submission of the recorded instrument. One commenter urged 
that HUD continue to work on development of an online system to replace 
the manual process necessary to

[[Page 56159]]

request extensions for delivering partial claim documents.
    HUD response: The Department agrees with several of the industry 
comments that it will be impossible in some jurisdictions to be able to 
receive the recorded security instruments from the recording authority 
and to ensure that they are received by HUD within 60 days from 
execution. However, several commenters agreed that all mortgagees 
should be able to provide copies of the documents filed for recordation 
within the initial 60-day time frame and then forward the recorded 
documents to HUD at a later date. The industry was varied in the timing 
of when it recommended that the recorded documents should be received 
by HUD. Those recommendations ranged from 90 days to 12 months. As 
such, the Department has set the time requirement for receipt of the 
recorded security instrument at 6 months from the date of execution. 
The deadline for delivery of the original note to HUD remains at 60 
days after the date of execution. Where the lender is experiencing a 
delay from the recording authority, it may request an extension of time 
from HUD.
    Comment: The penalty for failure to meet partial claim submission 
deadline is too severe. Several commenters objected to the penalties 
for failure to provide the partial claim documents, consisting of the 
original note and recorded security instrument, within 60 days of 
execution. The proposed rule provided that if the servicer misses the 
submission deadline, HUD will require reimbursement of the amount of 
the entire partial claim payment. The commenters stated that this 
penalty is severe because it is based upon a third party's actions over 
which servicers have no control. The commenters also wrote that the 
penalties are not based upon the actual harm suffered by HUD. The 
commenters wrote that the penalties are so severe that the unintended 
consequences of the rule will be that servicers will view the use of 
partial claims as unreasonably risky and will be reluctant to offer 
such plans to borrowers for fear of incurring enormous, yet 
uncontrollable, penalties.
    HUD response: HUD considered the industry comments concerning the 
deadline for partial claims and acknowledges the difficulty in some 
jurisdictions to be able to receive the recorded security instruments 
from the recording authority. This delay makes it difficult to ensure 
that the recorded documents are received by HUD within the proposed 60-
day period. Therefore, HUD has set the time requirement for receipt of 
the original note at no later than 60 days and the original of the 
security instrument not later than 6 months from the date of execution. 
Where the lender is experiencing a delay from the recording authority, 
it may request an extension of time from HUD.
    Comment: In the final rule, HUD should clarify the minimum number 
of payments required for payment of partial claim. Two commenters 
requested additional clarification regarding the proposed amendment to 
Sec.  203.371(b), which would establish the requirements for payment of 
a partial claim. Under the proposed rule, the mortgagor would have made 
a ``minimum number of monthly payments as prescribed by the Secretary'' 
to be eligible for payment of a partial claim. The commenters requested 
that the final rule provide greater specificity regarding how many 
payments would constitute a ``minimum number.'' One of the commenters 
suggested that the final rule establish a requirement of four monthly 
payments.
    HUD response: Numerous factors that affect the financial situation 
of the mortgagor must be considered in making payment determinations. 
HUD believes it is in the best interests of all parties to make the 
minimum number of payments determinations on a case-by-case basis. 
Thus, HUD has not revised the provision in this final rule and has 
clarified that determinations are made on a case-by-case basis.

C. Face-To-Face Interview Requirement

    Comment: The face-to-face meeting requirement is obsolete and 
unnecessary and should be removed in the final rule. Several commenters 
stated that the meeting requirement was adopted nearly 30 years ago, 
before the current collection, delinquency assistance, and loss 
mitigation measures were in place. The commenters also stated that 
under HUD's current regulations and guidelines, as well as self-imposed 
guidelines, servicers have multiple contacts with delinquent borrowers. 
These communication efforts include notices and monthly statements 
indicating that a borrower's payment is past due, loss mitigation 
letters commencing on the 60th day of delinquency, a ``how to avoid 
foreclosure'' pamphlet, and (should matters reach that far) a 
foreclosure notice.
    HUD response: HUD agrees with the commenters and has determined 
that amending the existing requirement is appropriate. As the 
Department has already relieved the industry from a requirement to 
conduct a face-to-face meeting as a requirement for loan origination, 
it may also be time to make a similar change with respect to FHA's 
servicing requirements. However, the Department strongly believes that 
there must be a minimum standard for mortgagees to attempt to contact a 
delinquent mortgagor. The earlier the mortgagee reaches a delinquent 
mortgagor to discuss options for bringing the mortgage current, the 
greater are its chances in resolving the delinquency. Therefore, the 
Department will propose a comprehensive revision of Sec.  203.604 in a 
subsequent rulemaking that will invite industry comments. As a result, 
HUD has determined not to pursue changes to the face-to-face 
requirement and has removed its proposal in this final rule. The 
current Sec.  203.604 will remain effective.
    Comment: The face-to-face meeting requirement may violate the Fair 
Debt Collection Practices Act. Two commenters suggested that a face-to-
face meeting in a borrower's home might cast the servicer as a ``debt 
collector'' acting in violation of the Fair Debt Collection Practices 
Act.
    HUD response: As explained in response to the previous comment, HUD 
is not pursuing the change to Sec.  203.604(c)(2) at this time, but is 
considering a new proposed rule that would invite industry comments 
about improving the face-to-face meeting requirements.
    Comment: Face-to-face meetings are economically burdensome, give 
preferential treatment to borrowers fortunate to live within the 200-
mile limitation over other borrowers, and place the employees of 
mortgagees at risk of bodily harm. One commenter explained that 
servicers would be required to incur exorbitant travel and training 
expenses in order to comply with this requirement, since servicers are 
expected to use trained personnel who are familiar with the borrower's 
account and loss mitigation procedures. Another commenter suggested 
that borrowers who are facing the potential loss of their home are 
likely to be uncooperative, frustrated, and angry. Other commenters 
recommended that, for the safety of a servicer's employees and to 
ensure compliance with loss mitigation requirements, personal visits 
should take place at the servicer's office or at a HUD counseling 
agency, and not at the mortgagor's home.
    HUD response: HUD agrees that amending the existing requirement is 
appropriate. As discussed, HUD is developing a proposed rule that will 
comprehensively revise Sec.  203.604 and will invite industry comment. 
Accordingly, this final rule does not

[[Page 56160]]

adopt any changes to the current Sec.  203.604.
    Comment: HUD should clarify which ``branches'' or ``offices are 
subject to the face-to-face meeting requirement.'' One commenter stated 
that many large servicers have numerous servicing sites, only some of 
which may service FHA loans. The commenter asked HUD to clarify whether 
servicing sites that do not service FHA loans are subject to the face-
to-face requirement. The commenter wrote that employees at such sites 
are not trained on FHA loss mitigations and other loan requirements. 
Another commenter wrote that the proposed rule might be misinterpreted 
to apply to origination offices. According to this commenter, this 
would conflict with HUD's long-standing position that the face-to-face 
requirement refers to servicing offices and not to origination offices 
of the lender.
    HUD response: As explained above, HUD is not pursuing the change to 
Sec.  203.604(c)(2) at this time, but is considering a new proposed 
rule that would invite industry comments about improving the face-to-
face meeting requirements.
    Comment: The final rule should provide for the use of investigators 
to locate ``no contact'' borrowers. One commenter suggested that the 
final rule should provide for the use of third-party investigative 
companies to locate delinquent borrowers that lenders are unable to 
locate and contact.
    HUD response: As explained above, HUD is not making a change at 
this time, but is considering a new proposed rule that would invite 
industry comments about improving the face-to-face meeting 
requirements. Because HUD is still considering the comments received on 
this requirement and because HUD plans to issue a proposed rule that 
would revise the section, HUD is not making any change to the current 
regulations at Sec.  203.604.

D. Mortgagee Action and Forbearance

    Comment: In the final rule, HUD should clarify whether the 
accelerated claim disposition (ACD) demonstration criteria for the 
transfer for ACD loans will be affected by the rule.
    HUD response: In the November 10, 2004, proposed rule, HUD sought 
to clarify Sec.  203.605 regarding the deadline for the mortgagee to 
complete its loss mitigation evaluation. The proposed revision would 
make clear 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.
    Subsequent to publication of the November 10, 2004, proposed rule, 
a change to Sec.  203.605 was promulgated in the final rule for treble 
damages that was published in the Federal Register on April 26, 2005, 
at 70 FR 21572. Because the proposed change to Sec.  203.605 was 
addressed in that final rule, HUD will not be further updating this 
regulation at this time. HUD also has no plans to change the existing 
criteria for selection of cases for possible participation in the 
Accelerated Claim Disposition (ACD) program.

IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) and assigned OMB control number 2502-0404. 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.

Environmental Impact

    A Finding of No Significant Impact (FONSI) 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(2)(C)). A 
supplemental FONSI was made for this final rule. Both are available for 
public inspection between the hours of 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., Room 10276, 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, please schedule an advance appointment to review 
the FONSI by calling the Regulations Division at (202) 708-3055 (this 
is not a toll-free telephone number). Hearing- or speech-impaired 
individuals may access this number through TTY by calling the toll-free 
Federal Information Relay Service at (800) 877-8339.

Unfunded Mandates Reform Act

    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 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 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. 
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. The rule revises 
certain regulations under the Single Family Mortgage Insurance program 
to improve the efficiency of the program. Accordingly, the undersigned 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.

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.

0
Accordingly, for the reasons described in the preamble, HUD amends 24 
CFR part 203 to read as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

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


[[Page 56161]]


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


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2. Revise Sec.  203.370(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.

0
3. Revise Sec.  203.371(b)(4), (b)(5), add a new paragraph (b)(6), and 
revise 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 on a case-by-case basis.
* * * * *
    (d) Application for insurance benefits. Along with the prescribed 
application for partial claim insurance benefits, the mortgagee shall 
provide HUD with the original credit instrument no later than 60 days 
after execution. The mortgagee shall provide HUD with the original 
security instrument, required by paragraph (c) of this section, no 
later than 6 months following the date of execution. If the mortgagee 
experiences a delay from the recording authority, it may request an 
extension of time, in writing, from HUD. If the mortgagee does not 
provide the original of the note and security instrument within the 
prescribed deadlines, the mortgagee shall be required to reimburse the 
amount of the claim paid, including the incentive.

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4. Revise Sec.  203.389(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.
* * * * *

0
5. Revise Sec.  203.402(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 that are 
liens prior to the mortgage.
* * * * *
    (j) Charges for the administration, operation, maintenance, or 
repair of community-owned property or the maintenance or repair of the 
mortgaged property, paid by the mortgagee for the purpose of 
discharging an obligation arising out of a covenant filed for record 
prior to the issuance of the mortgage; and charges for the repair or 
maintenance of the mortgaged property required by, and in an amount 
approved by, the Secretary under Sec.  203.379 of this part.
* * * * *

    Dated: September 24, 2007.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
 [FR Doc. E7-19459 Filed 10-1-07; 8:45 am]
BILLING CODE 4210-67-P