[Federal Register Volume 74, Number 143 (Tuesday, July 28, 2009)]
[Notices]
[Pages 37238-37240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17854]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5305-N-01]
RIN 2502-AZ00


Housing and Economic Recovery Act of 2008: Pilot Program for 
Automated Process for Borrowers Without Sufficient Credit History; 
Solicitation of Comments on Program Design

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

ACTION: Notice.

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SUMMARY: The Housing and Economic Recovery Act of 2008 requires that 
HUD carry out a pilot program to establish, and make available to 
mortgagees, an automated process for providing alternative credit 
rating information, which might include rent, utilities, and insurance 
payment histories, etc., for mortgagors and prospective mortgagors who 
have insufficient credit histories for determining their credit 
worthiness. With this notice, HUD commences the process for development 
of the mandated pilot program and solicits public comment and 
suggestions for a practicable design of the pilot program that is 
consistent with statutory goals, program requirements, and fair lending 
standards, and includes comment on how the pilot program might align 
with existing Federal Housing Administration policy regarding 
nontraditional credit verification. Comments addressing the 
information, data, and experience necessary to support an evaluation of 
the operation, performance, and fair lending compliance of a pilot are 
welcome as well. All comments will be considered in the development of 
the pilot program.

DATES: Comment Due Date: September 28, 2009.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
10276, Washington, DC 20410-0500. Communications must refer to the 
above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.


[[Page 37239]]


    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available 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 through TTY by calling the Federal Information 
Relay Service at 800-877-8339. Copies of all comments submitted are 
available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Margaret Burns, Director, Office of 
Single Family Program Development, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street, SW., Room 9278, 
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.

SUPPLMENTARY INFORMATION:

I. Background

    The Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 122 
Stat. 2654, approved July 30, 2008) (HERA) made significant and 
comprehensive reforms to the National Housing Act (12 U.S.C. 1701 et 
seq.), which governs Federal Housing Administration (FHA) programs. 
Section 2124 of HERA adds a new section 258 to the National Housing Act 
(12 U.S.C. 1701 et seq.) that requires the Secretary of HUD to ``carry 
out a pilot program to establish, and make available to mortgagees, an 
automated process for providing alternative credit rating information 
for mortgagors and prospective mortgagors who have insufficient credit 
histories for determining their credit worthiness.'' \1\ ``Such 
alternative credit rating information may include rent, utilities, and 
insurance payment histories, and such other information as the 
Secretary considers appropriate.'' In addition, section 258 allows the 
Secretary to restrict the program to first-time homebuyers and limits 
annual loan volume under the pilot program to 5 percent of FHA's prior-
year aggregate loan volume for the duration of the pilot program, which 
ends July 30, 2013. The Government Accountability Office is charged 
with providing Congress with a report on the number of additional 
mortgagors served using the automated process and the impact on the 
safety and soundness of the insurance funds supporting the pilot 
program mortgages, by July 30, 2010.
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    \1\ Note that HERA inadvertently established two sections 257 of 
the National Housing Act. Section 1402 of HERA also added a new 
section 257 to the National Housing Act, which established the HOPE 
for Homeowners Program. The Helping Families Save Their Homes Act of 
2009 (Pub. L. 111-22, approved May 20, 2009) addressed this issue 
through a technical correction designating the HERA pilot program as 
a new section 258 to the National Housing Act.
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    FHA has long permitted mortgagees to establish a borrower's credit 
history through nontraditional means, including the compilation of 
performance on rental payments, utility bills, telephone and cellular 
phone services, cable television service, payments to local stores, 
etc. Mortgagee Letter 2008-11 (issued on April 29, 2008) provides 
further guidance on the issue, and states that ``FHA has no objection 
to the use of various service providers now operating that are able to 
develop a bill payment history, as well as a score by obtaining rental 
payment history, utility trade-lines, and other common recurring non-
reporting bill payments. While * * * [FHA does] not endorse any 
particular service provider, FHA approved lenders may use such services 
to develop a credit history for borrowers with no or little traditional 
credit.'' A copy of Mortgagee Letter 2008-11 may be downloaded at 
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm.
    The pilot program authorized by section 258 of the National Housing 
Act builds upon this past FHA practice by requiring that HUD establish 
an automated process for providing alternative, or nontraditional, 
credit information.

II. This Notice--Solicitation of Public Comment on Automated Process

    Through publication of this notice, HUD starts the process for 
developing the mandated pilot program and solicits public comment and 
suggestions for a practicable design of the pilot program that is 
consistent with statutory goals, program requirements, and fair lending 
standards and includes comment on how various pilot programs might 
align with existing FHA policy regarding nontraditional credit 
verification. Comments addressing the information, data, and experience 
necessary to support an evaluation of the operation, performance, and 
fair lending compliance of a pilot program are welcome as well.
    In particular, HUD is interested in obtaining feedback on the 
following questions:
    1. What automated processes for providing alternative credit rating 
information for mortgagors and prospective mortgagors who have 
insufficient credit histories for determining their credit worthiness 
are currently available and operational?
    2. For operational automated processes identified in question 1, 
what factors or information is utilized to develop the alternative 
credit histories and in what form is the information passed on to end-
user mortgagees--i.e., individual items to be assembled into a credit 
profile by end user, items aggregated into a summary profile or score 
with distributional reference points, individual and summary 
information in combination, etc.?
    3. Which operational automated processes identified in questions 1 
and 2 currently can be uniformly applied everywhere in the United 
States and, if not, what impediments must be overcome before uniform 
and universal application is possible?
    4. What new and universally available automated processes for 
providing alternative credit rating information might be developed and 
maintained with reasonable accommodation and investment by industry and 
government? Conversely, are there aspects of manual processes with 
little potential for automation?
    5. For current and potential new automated processes, what criteria 
and validation methods should be employed to evaluate the relative 
strength and reliability of alternative processes for establishing 
accurate and predictive credit profiles? What relevant evaluative 
information already exists?
    6. Which current or potential new automated processes would be 
likely to prove most beneficial for mortgagees, mortgagors, and FHA and 
why? For example, such benefits could include acceleration of 
origination and improving the quality of underwriting.
    7. How would automated processes affect the potential for fraud or 
misrepresentation during underwriting?
    8. If no single automated process was universally feasible, how 
might HUD ensure equal treatment of equals processed by differing HUD-
provided systems?
    9. Is there any reason the Secretary should not limit the pilot 
program to first-time homebuyers?
    10. What is the total size and characteristics of borrowers who 
potentially would use automated

[[Page 37240]]

histories? What are the implications of these characteristics for 
design and implementation of automated processes?
    11. How should the pilot program be structured with respect to 
geographic coverage, to ensure representative results? What criteria 
should be employed in selecting pilot locations and participants? What 
control groups could be used to support a rigorous evaluation?
    12. What additional concerns should be considered in structuring 
the pilot program and evaluation design to ensure a successful pilot 
evaluation?
    13. What safeguards to ensure compliance with applicable fair 
lending and nondiscrimination requirements would be most effective?
    14. What are any statutory or regulatory obstacles to automated 
processes?
    As noted in the ADDRESSES section of this notice, all public 
comments submitted to HUD will be made available for public inspection. 
Accordingly, commenters are cautioned against submitting proprietary or 
confidential information not intended for public disclosure. All 
information solicited in this notice is solely for the purpose of 
assisting HUD in designing the pilot program, and does not imply that 
HUD will be contracting with any provider of automated credit 
evaluation services for purposes of the pilot program. Comments must be 
submitted by the deadline date established in the DATES section of this 
notice, and in accordance with the instructions contained in the 
ADDRESSES section of this notice.
    HUD will consider all public comments in the development of the 
pilot program. HUD will announce the establishment of the pilot program 
in a follow-up Federal Register notice that is based on the 
consideration of these comments.

    Dated: July 21, 2009.
David H. Stevens,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. E9-17854 Filed 7-27-09; 8:45 am]
BILLING CODE 4210-67-P