[Federal Register Volume 73, Number 5 (Tuesday, January 8, 2008)]
[Rules and Regulations]
[Pages 1434-1436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-32]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 206



Home Equity Conversion Mortgages (HECMs): Determination of Maximum 
Claim Amount; and Eligibility for Discounted Mortgage Insurance Premium 
for Certain Refinanced HECM Loans; Interim Rule

  Federal Register / Vol. 73, No. 5 / Tuesday, January 8, 2008 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 206

[Docket No. FR-5129-I-01]
RIN 2502-AI49


Home Equity Conversion Mortgages (HECMs): Determination of 
Maximum Claim Amount; and Eligibility for Discounted Mortgage Insurance 
Premium for Certain Refinanced HECM Loans

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

ACTION: Interim rule.

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SUMMARY: This rule makes two technical changes to HUD's Home Equity 
Conversion Mortgage (HECM) program. First, the rule extends the date 
for calculating the maximum claim amount in the HECM program from the 
date of the underwriter's receipt of the appraisal report to the date 
of closing. This change provides a more easily verifiable and more 
easily identifiable date. Second, this rule corrects an unintended 
consequence that results in a situation where HECM loans that are not 
in default but have been assigned pursuant to regulatory provisions, 
and remain in effect, are not eligible to be refinanced with a 
discounted initial mortgage insurance premium (MIP). This rule would 
permit such HECM loans to be eligible for the discounted initial MIP 
upon refinancing, in accordance with the purpose of the HECM program, 
which is to improve the financial situation of elderly homeowners.

DATES: Effective Date: February 7, 2008.
    Comment Due Date: March 10, 2008.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Office of General Counsel, Rules Docket 
Clerk, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Room 10276, Washington, DC 20410-0001. Communications should refer 
to the above docket number and title.
    Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically, because doing so allows the commenter maximum 
time to prepare and submit a comment, ensures timely receipt by HUD, 
and enables HUD to make the comment immediately available for viewing 
by other commenters and interested members of the public. Commenters 
should follow the instructions provided on that site to submit comments 
electronically.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable. 
In all cases, communications must refer to the docket number and title.
    Public Inspection of Public Comments. All comments and 
communications submitted to HUD will be available, without charge, for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at (202) 708-3055 (this 
is not a toll-free number). Individuals with speech or hearing 
impairments may access this number via TTY by calling the Federal 
Information Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

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

SUPPLEMENTARY INFORMATION: 

I. Background

A. Maximum Claim Amount

    Section 255 of the National Housing Act (12 U.S.C. 1715z-20) (the 
Act) authorizes the Federal Housing Administration (FHA) to insure HECM 
loans to enable elderly homeowners to convert the equity in their homes 
to streams of income or lines of credit. Section 255(g) of the Act (12 
U.S.C. 1715z-20(g)) provides that ``in no case may the benefits of 
insurance under this section exceed the maximum dollar amount 
established under section 203(b)(2) of the Act for one-family 
residences in the area in which the dwelling subject to the mortgage 
under this section is located.''
    HUD's HECM regulations are found in 24 CFR part 206. HUD's 
regulation at 24 CFR 206.3 defines ``Maximum claim amount'' as the 
``lesser of the appraised value of the property or maximum dollar 
amount for an area established by the Secretary for a one-family 
residence under section 203(b)(2) of the Act (as adjusted where 
applicable under section 214 of the Act).'' Section 203(b)(2) of the 
Act (12 U.S.C. 1709(b)(2)) provides for maximum mortgage amounts. 
Section 203(b)(2)(A) provides that the maximum insurable amount is the 
lesser of: (1) In the case of a one-family residence, 95 percent of the 
median one-family house price in the area, as determined by the 
Secretary; or (2) 87 percent of the dollar amount limitation determined 
under section 305(a)(2) of the Federal Home Loan Mortgage Corporation 
Act (Freddie Mac) for a residence of similar size, as specified in 12 
U.S.C. 1709(b)(2)(A)(ii) of the Act. Finally, section 203(b)(2)(B) of 
the Act provides for a ceiling amount based on the sum of the amount of 
the mortgage insurance premium paid at the time the mortgage is insured 
and a percentage of the appraised value of the property.
    This interim rule revises the point in time at which the appraised 
value of the property and the maximum dollar amount for an area under 
12 U.S.C. 1709(b)(2) are compared to determine the maximum claim 
amount. The definition of ``maximum claim amount'' currently codified 
in HUD's regulations in 24 CFR 206.3 provides that both of these values 
``must be as of the date the Direct Endorsement Lender or Lender 
Insurance Underwriter receives the appraisal report.'' Experience, 
however, has shown that the appraisal report received date is not the 
best date to use as a benchmark for property valuation for mortgage 
insurance purposes. This is because HUD's reporting systems do not 
capture the date the appraisal report is received by the Direct 
Endorsement underwriter or Lender Insurance underwriter, which means 
the date cannot be later audited or verified. The date of closing is a 
more practical and verifiable benchmark date. Additionally, using the 
closing date will automatically allow for larger equity payments when 
FHA's mortgage limits increase between the date the case number is 
assigned and the date the loan closes, in cases where the property's 
appraised value meets or exceeds the new jurisdictional FHA maximum 
mortgage. This rule would therefore change the calculation date for 
determining the maximum claim amount to the closing date. The rule 
revises only the calculation date. There is no change to when the 
appraisal report is submitted and no requirement, under this regulatory 
revision, for a second appraisal. Additionally, this rule, upon 
becoming effective, would not result in an increased maximum claim 
amount for

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loans insured before this rule takes effect.

B. Refinancing

    Section 201 of the American Homeownership and Economic Opportunity 
Act of 2000 (Pub. L. 106-569, approved December 27, 2000) amended 
section 255(k) of the Act (12 U.S.C. 1715z-20(k)) to authorize the 
refinancing of existing HECM loans by adding the following at 12 U.S.C. 
1715z-20(k)(1):

    The Secretary may, upon application by a mortgagee, insure under 
this subsection any mortgage given to refinance an existing home 
equity conversion mortgage insured under this section.

    In addition, 12 U.S.C. 1715z-20(k)(4) was added to permit the 
Secretary to reduce the initial MIP for refinanced HECM loans.
    Following the statutory change, HUD published a proposed rule 
seeking public comment on a new 24 CFR 206.53. Proposed Sec.  206.53(a) 
provided for refinancings of HECM loans ``presently insured'' under 24 
CFR part 206. The preamble of the proposed rule indicates that this 
section is meant to provide for the refinancing of ``an existing 
HECM.'' (See 66 FR 30278, June 5, 2001.) The proposed rule did not 
include a provision for a discounted initial MIP for refinanced HECM 
loans.
    HUD followed this proposed rule with an interim rule on March 25, 
2004 (69 FR 15586), which took into account public comments received on 
the proposed rule. In response to public comment requesting that HUD 
exercise its statutory authority, the interim rule provided for a 
discounted initial MIP and for additional public comments on the 
discounted initial MIP, because of the absence of that provision from 
the proposed rule. (See 69 FR 15587, 15591.) The preamble to the 
interim rule refers to this discounted MIP as being applicable to ``the 
existing HECM loan being refinanced.'' (See 69 FR 15587.) However, the 
interim rule retained the regulatory text language of Sec.  206.53(a) 
providing for refinancing of ``presently insured'' HECM loans (69 FR 
15591). This interim rule was inadvertently made final, without change 
to the regulatory text referring to ``presently insured,'' by final 
rule published on December 15, 2004 (69 FR 75204).
    It is the phrase ``presently insured'' (where the statute itself 
only speaks in terms of loans that are ``insured'' by HUD) in Sec.  
206.53(a) that gives rise to the issue addressed in this rule. In the 
HECM context, the phrase has the unintended consequence of excluding 
certain loans from consideration for the reduced initial MIP. The March 
2004 interim rule provided in Sec.  206.53(c) for a reduced initial MIP 
for HECM loans that are refinanced. (See 69 FR 15591.) However, because 
the language of Sec.  206.53(a) limits refinancings under section 
255(k) of the Act to HECM loans ``presently insured,'' the interim rule 
unintentionally created a class of HECM loans that are existing loans 
but are considered not eligible for the favorable MIP under the HECM 
refinancing regulations.
    The issue that there is a category of HECM loans that may not be 
viewed as eligible for the reduced initial MIP arises from the fact 
that the HECM program permits certain assignments of notes to HUD. 
These notes are not in default, but are assigned to HUD under the 
regulatory provisions at 24 CFR 206.107(a)(1) and 206.121(b). 
Nonetheless, the phrase ``presently insured'' in Sec.  206.53(a) is 
viewed as excluding these mortgages from the lower MIP for HECM loan 
refinancings. These loans are not in default status and, therefore, are 
``existing HECM loans'' that the preambles to both the 2001 proposed 
rule and the 2004 interim rule indicate are intended to be covered by 
the favorable HECM refinancing provisions.
    The regulatory sections under which these non-default assignments 
take place are 24 CFR 206.107(a)(1) and 206.121(b). Under Sec.  
206.107(a)(1), the mortgagee may elect to assign the mortgage to HUD if 
the mortgage balance is equal to or greater than 98 percent of the 
maximum claim amount, and if certain other conditions are met, as 
stated in the regulation. Under the assignment in Sec.  206.121(b), the 
assignment may occur when the mortgagee fails to make timely payments. 
In either case, the loan continues in existence, and should be eligible 
for the discounted initial MIP for HECM refinancings. Instead, loans in 
this status are now considered only eligible for the more expensive 
MIPs for regular loans. HECM borrowers are in these cases 
unintentionally penalized by an assignment action and prevented from 
refinancing with the benefits of a statutorily authorized reduced MIP.

II. This Interim Rule

    In order to establish a more rational date for the calculation of 
the maximum claim amount, the rule removes the second sentence of the 
definition of ``maximum claim amount'' in 24 CFR 206.3, which currently 
reads:

    Both the appraised value and the maximum dollar amount for the 
area must be as of the date the Direct Endorsement Lender or Lender 
Insurance Underwriter receives the appraisal report.

and revises the first sentence to read:

    Maximum claim amount means the lesser of the appraised value of 
the property, as determined by the appraisal used in underwriting 
the loan, or the maximum dollar amount for an area established by 
the Secretary for a one-family residence under section 203(b)(2) of 
the National Housing Act (as adjusted where applicable under section 
214 of the National Housing Act) as of the date of loan closing.

    In order to address the unintended consequences of the terminology 
restricting the provisions relating to insurance of refinanced HECM 
loans to ``presently insured'' loans rather than to all existing HECM 
loans, the rule revises the last sentence of Sec.  206.53(a) to remove 
the term ``presently'' and clarify that the refinancing provisions 
apply to ``existing'' HECM loans, including those assigned under 
Sec. Sec.  206.107(a)(1) and 206.121(b). This change makes these HECM 
loans eligible for the reduced MIP rate for refinanced HECM loans.

III. Justification for Interim Rulemaking

    HUD generally publishes regulatory changes for public comment 
before issuing them for effect, in accordance with its own regulations 
on rulemaking in 24 CFR part 10. Part 10, however, does provide in 
Sec.  10.1 for exceptions from that general rule where the Department 
finds good cause to omit advance notice and public participation. The 
good cause requirement is satisfied when the prior public procedure is 
``impracticable, unnecessary, or contrary to the public interest.'' The 
Department finds that good cause exists to publish this interim rule 
for effect without first soliciting public comment.
    The change being made to the maximum claim amount date is a 
procedural one, which creates no detriment or presents any 
administrative burden to HECM-insured borrowers or the public 
generally. HUD's regulations require the date that the maximum claim 
amount is to be established, but the date currently in the regulations 
is not one that is normally documented in HUD's systems. Moving the 
date the maximum claim amount is calculated to the date of closing 
would have no adverse consequences and would provide a more precise 
date that can be tracked by the Federal Housing Administration's 
systems. Since this is merely a procedural matter, advance public 
comment is not necessary.
    Similarly, the eligibility of non-default HECM loans assigned to 
HUD under provisions particular to the HECM program has no potential 
risk of

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harm to either HECM-insured borrowers or the public generally, and only 
a benefit. The intent of the HECM program is to improve the financial 
situation or otherwise meet the needs of elderly homeowners (12 U.S.C. 
1715z-20(c)(1)). It is clear from the face of the statute that the 
authorization for a reduced MIP was intended to apply to all 
refinancings of existing HECM loans originated with HUD insurance, not 
only ones ``presently insured.'' Section 1715z-20(k)(1), refers to 
``any mortgage given to refinance an existing home equity conversion 
mortgage insured under this section [emphasis added].'' Section 1715z-
20(k)(4), in turn, permits reduced MIPs for ``a mortgage financed and 
insured under this subsection.'' The statute does not provide an 
exception for non-defaulted loans assigned, essentially, to protect the 
elderly mortgagor. Therefore, this change would be both beneficial to 
the public and simply remove an unintended consequence of the 
refinancing provisions. Advance public comment is, therefore, 
determined unnecessary. HUD will, however, consider all comments 
received on this interim rule when developing the final rule.

IV. Findings and Certifications

Environmental Impact

    The interim rule involves external administrative or fiscal 
requirements or procedures that are related to loan limits and rate or 
cost determinations and that do not constitute a development decision 
affecting the physical condition of specific project areas or building 
sites. Accordingly, under 24 CFR 50.19(c)(6), this rule is 
categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).

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.
    This proposed rule would not have a significant impact on entities 
because the establishment of a date of maximum claim amount is an 
automated process and merely changing the date as of which the 
calculation is made imposes no additional burden on any entity. 
Allowing for discounted MIPs for refinancings provides a benefit to 
borrowers and presents no impact on any business entities.
    Accordingly, the undersigned certifies that this rule will not have 
a significant economic impact on a substantial number of small 
entities. Notwithstanding HUD's determination that this rule will not 
have a significant effect on a substantial number of small entities, 
HUD specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives, as described 
in the preamble to this rule.

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 would not have 
federalism implications and would 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 (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 proposed rule will 
not impose any federal mandates on any state, local, or tribal 
governments, or on the private sector, within the meaning of UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance (CFDA) Program number is 
14.183.

List of Subjects in 24 CFR Part 206

    Aged, Condominiums, Loan programs--housing and community 
development, Mortgage insurance, Reporting and recordkeeping 
requirements.


0
Accordingly, for the reasons stated above, HUD amends 24 CFR part 206 
as follows:

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

0
1. The authority citation for 24 CFR part 206 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).


0
2. Amend Sec.  206.3 to revise the definition of ``Maximum claim 
amount'' to read as follows:


Sec.  206.3  Definitions.

* * * * *
    Maximum claim amount means the lesser of the appraised value of the 
property, as determined by the appraisal used in underwriting the loan, 
or the maximum dollar amount for an area established by the Secretary 
for a one-family residence under section 203(b)(2) of the National 
Housing Act (as adjusted where applicable under section 214 of the 
National Housing Act) as of the date of loan closing. Closing costs 
must not be taken into account in determining appraised value.
* * * * *

0
3. Revise the last sentence of 24 CFR 206.53(a) to read as follows:


Sec.  206.53  Refinancings.

    (a) * * * HUD may, upon application by a mortgagee, insure any 
mortgage given to refinance an existing home equity conversion mortgage 
insured under this part, including loans assigned to the Secretary as 
described in Sec.  206.107(a)(1) and Sec.  206.121(b) under this part.
* * * * *

    Dated: November 29, 2007.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
 [FR Doc. E8-32 Filed 1-7-08; 8:45 am]
BILLING CODE 4210-67-P