[Federal Register Volume 75, Number 218 (Friday, November 12, 2010)]
[Proposed Rules]
[Pages 69363-69369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28420]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / 
Proposed Rules  

[[Page 69363]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200 and 207

[Docket No. FR-5393-P-01]
RIN 2502-AI95


HUD Multifamily Rental Projects: Regulatory Revisions

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend certain Federal Housing 
Administration (FHA) regulations to update these regulations to reflect 
current HUD policy in the area of multifamily rental projects. On 
January 21, 2010, HUD issued for public comment a comprehensive set of 
closing documents for use in FHA multifamily rental projects. As noted 
in the January 21, 2010, notice, the issuance of revised multifamily 
rental project closing documents for public comments is HUD's effort to 
restart the update of these documents that first commenced in 2004, but 
was not completed. In 2004, HUD also issued a companion proposed rule 
that identified outdated language and policies that not only needed to 
be changed in closing documents but also in HUD's regulations. 
Consistent with the restart of the updating of multifamily rental 
project closing documents, HUD is once again issuing a corresponding 
proposed rule to remove outdated regulatory language and policies. 
Neither the closing documents issued for comment on January 21, 2010, 
nor this proposed rule include changes to regulations affecting health 
care forms for nursing homes, intermediate care facilities, board and 
care homes, and assisted living facilities. HUD will propose changes to 
those documents separately.
    Through update of the multifamily rental project closing documents 
and the update of certain regulations as provided in this proposed 
rule, HUD strives to have its documents and regulations reflect current 
terminology, lending laws, and practices with respect to multifamily 
projects.

DATES: Comment Due Date: December 13, 2010.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Rules Docket Clerk, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 7th Street, 
SW., 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 Seventh Street, SW., Room 10276, 
Washington, DC 20410-0001.
    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 
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. 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 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 http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: John Daly, Associate General Counsel 
for Insured Housing, Office of General Counsel, Department of Housing 
and Urban Development, 451 7th Street, SW., Washington, DC 20410-0500; 
telephone 202-708-1274 (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

    By notice published in the Federal Register on January 21, 2010 (75 
FR 3544), HUD started anew the process for updating the multifamily 
rental project closing documents (closing documents), a process that 
first commenced with issuance of a notice published on August 2, 2004 
(69 FR 46214). The update of the closing documents commenced in 2004 
and restarted in 2010 does not include update of hospital closing 
documents. Many of these documents, as explained in both the 2004 and 
2010 notices, have not been revised in years and need updating to 
ensure that the documents are consistent with modern real estate and 
lending laws.
    In addition to the closing documents, the update effort that 
commenced in 2004 included a proposed rule published on August 2, 2004 
(69 FR 46210) that would update certain FHA regulations, which like 
many of the closing documents, did not reflect current real estate and 
lending practices. This proposed rule issued in today's Federal 
Register restarts the process to update regulations first identified in 
2004 as needing revisions to be consistent with revised closing 
documents. The regulatory changes proposed in this rule are similar to 
those proposed in 2004, and arise from HUD's review of the closing 
documents over the last several years.

[[Page 69364]]

    This proposed rule identifies the changes that HUD intends to make 
to its regulations in 24 CFR parts 200 and 207. The preamble to this 
proposed rule also includes a discussion of the public comments 
formally submitted on the August 2, 2004 proposed rule, and provides 
HUD's response to those comments. While HUD addresses the prior public 
comments received, HUD emphasizes that it is starting anew with this 
proposed rule process and welcomes comments on all issues.

II. This Proposed Rule

Part 200

    The requirements for commitment and endorsement of a mortgage note 
are provided in 24 CFR part 200, subpart A. Generally, where specific 
closing documents are referenced in 24 CFR part 200, subpart A, the 
regulations in this subpart provide that the referenced documents be in 
a form prescribed by HUD. The subpart also iterates other closing 
requirements that are reflected in the closing documents.
    Section 200.5. Regulatory changes to part 200, subpart A, prompted 
by the review and updating of the closing documents pertain to natural 
persons and ``tenants in common'' as eligible mortgagor entities. In 
the August 2004 rule, HUD had proposed removing tenancies in common as 
eligible mortgagor entities, except for tenancies in common comprised 
only of natural persons. In this rule, HUD proposes to amend Sec.  
200.5, which defines an eligible mortgagor under HUD's multifamily 
mortgage insurance programs, to reflect the removal of natural persons 
and the complete removal of tenants in common as eligible mortgagor 
entities.
    Section 200.88. A revision of the Note is included in the update of 
the closing documents (HUD 94001M) published on January 21, 2010. HUD 
is revising the Note with respect to late charges, to provide that the 
late charge applies when the lender does not receive payment within 10 
days after the payment is due. The change responds to comment HUD 
received that suggested that standardizing the time when the late fee 
applies would facilitate compliance by Ginnie Mae issuers with their 
obligation to make payments to investors. HUD is revising 24 CFR 200.88 
to reflect this change.

Part 207

    Section 207.255. Included in the update of the closing documents is 
a revision of the security instrument (HUD 94000M). As part of the 
revision to this document, HUD developed a new two-tiered default 
scheme. Class A, as proposed in 2004 and now, on the basis of public 
comments, named ``Monetary Event of Default'' is for financial 
defaults, which give the lender an immediate right to an insurance fund 
claim. Class B, as proposed in 2004 and now, on the basis of public 
comments, named ``Covenant Event of Default'' is for all other bases 
for default, and requires the prior written approval of HUD for the 
lender to make an insurance fund claim. The Covenant Event of Default 
category would include several new bases for default derived, in part, 
from the Freddie Mac model. These include fraud or material 
misrepresentation or omission by the borrower, its officers, directors, 
trustees, general partners, members, managers, or guarantors (1) in the 
application for the HUD-insured loan; (2) in the application for 
financial assistance, other than the HUD-insured loan; (3) in any 
financial statement, rent roll, or other report or information provided 
by the borrower during the term of the Indebtedness; and (4) in any 
request for lender's consent to any proposed action. Other new bases 
for default would include the commencement of a forfeiture action or 
proceeding, which in the lender's reasonable judgment could result in 
the loss of the property or impairment of the lien. HUD has revised 24 
CFR 207.255 to reflect this two-tiered default scheme. As provided in 
24 CFR 207.255, once a default exists under the security instrument and 
continues for a minimum period of 30 days, the lender would become 
eligible to receive mortgage insurance benefits.
    In addition to reflecting the new two-tiered default system, Sec.  
207.255 would be revised to clarify that the purpose of the section is 
to define ``default'' and ``date of default'' for purposes of filing an 
insurance claim with the FHA Commissioner. Also, editorial revisions 
would be made to improve the readability of this section.
    Section 207.256. Minor editorial changes would also be made to 
Sec.  207.256 to improve readability and to clarify which provisions in 
Sec.  207.255 would be cross-referenced in Sec.  207.256.
    Sections 207.256a, 207.256b, and 207.257. Minor editorial changes 
would be made to these sections to improve readability, and some 
changes have been made to correspond to changes made to the closing 
documents that were published in the January 21, 2010 Notice.
    Section 207.258. HUD is also proposing to amend Sec.  207.258, 
which provides insurance claim requirements, to provide, consistent 
with existing HUD practice and policy, that the mortgagee request a 
three-month extension of the 45-day deadline prescribed by Sec.  
207.258 for a mortgage funded with the proceeds of state or local 
bonds, Government National Mortgage Association (Ginnie Mae) mortgage-
backed securities, or other bond obligations specified by HUD, any of 
which contains a lock-out or penalty provision.
    Section 207.259. HUD is proposing to amend Sec.  207.259 by adding 
a new paragraph (b)(2)(vi). This proposed amendment would pertain to 
cases of a covenant default when the Commissioner, pursuant to Sec.  
207.257, has requested the mortgagee to accelerate payment of the 
outstanding principal balance due under an insured mortgage, and the 
mortgagee does not comply promptly with such request. In such cases, 
mortgage insurance benefits, if requested, will be reduced by an amount 
equal to the difference between the project's market value as of the 
date of the Commissioner's request and the project's market value on 
the date the mortgagee makes an election to assign the mortgage, or 
convey title to the project, as determined by appraisal procedures 
established by the Commissioner.

III. Discussion of Public Comments on 2004 Proposed Rule

    The public comment period on the August 2, 2004, proposed rule 
closed on October 2, 2004. HUD received 10 public comments on the 
proposed rule. Comments were submitted by lenders, home builders, and 
realty organizations. The following discussion presents the significant 
issues, questions, and suggestions submitted by public commenters, and 
HUD's response to these issues, questions and suggestions. Citations to 
specific sections of the closing documents in the summaries of public 
comment, below, refer to the versions of closing documents originally 
published for public comment on August 2, 2004.

Eligible Mortgagor (24 CFR 200.5)

    Comment: Commenters stated that tenants in common (TICs) should not 
be eliminated as eligible mortgagors and that the option should remain 
open. Commenters pointed out that at the time comments were solicited 
in 2004 Fannie Mae and Freddie Mac were seeing an increasing number of 
TICs borrowers due to a growing number of Like-Kind exchanges. They 
suggested that HUD require a Tenants-in-Common Agreement dealing with 
such issues as serial bankruptcy, dispute resolution and forced sale 
and partition and that failure to comply with the Agreement

[[Page 69365]]

would be an event of default under the Security Instrument.
    HUD response: HUD notes the concerns raised by the commenters. 
Based on comments received in 2004 and subsequently on the closing 
documents, HUD is now proposing in the closing documents, namely the 
Security Instrument, that the borrower be a single asset entity. 
Ownership by an individual has been abandoned by the commercial lending 
industry, is not a sound practice and is not a current practice in the 
insurance programs. Both the natural person and tenants in common 
structure of ownership is generally inconsistent with HUD's proposed 
requirements that borrowers should be an entity that can qualify as a 
single asset mortgagor. FHA's financing requirement (non-recourse, 
single-asset mortgagor entity) and asset management capabilities are 
different from Fannie Mae and Freddie Mac.

Late Charge (24 CFR 200.88)

    Comment: During the 2010 solicitation of comments on HUD's 
multifamily closing documents, HUD received a comment that 
standardizing the time when the late fee applies would facilitate 
compliance by Ginnie Mae issuers with their obligation to make payments 
to investors.
    HUD response: HUD concurs with this comment and consequently is 
proposing a corresponding change to the regulations, making the late 
charge applicable 10 days in arrears.

Defaults for Purposes of Insurance Claim (Two-Tiered Default) (24 CFR 
207.255)

    Comment: A commenter stated that the regulatory language provides 
that if a default continues for a minimum period of 30 days, the 
mortgagee shall be entitled to receive the benefits of the insurance 
provided for the mortgage. The commenter suggested that the regulatory 
language be revised to make the period of default in the regulation 
consistent with the language in the Security Instrument to ensure that 
the 30-day time period in the regulations is the 30-day grace period 
that exists under the Security Instrument and the Note, and is not 
sequential to that grace period.
    HUD response: HUD reviewed this language, but believes there is no 
confusion on the time period, and therefore has not made a change to 
the language.
    Comment: One commenter suggested that allowing HUD to require a 
lender to declare a default and accelerate the Security Instrument due 
to a default under the Regulatory Agreement is overly broad.
    HUD response: HUD has, in the companion Notice published on January 
21, 2010, addressed issues raised by commenters on the proposed rule. 
Namely, HUD concurred that the bases for Class B/Covenant Event of 
Defaults were overly broad, and has added a ``materiality'' standard to 
breach of the covenants under the mortgage as a criterion for Class B/
Covenant Event of Defaults. HUD has added that change into the proposed 
regulation as well.
    Comment: One commenter suggested that language be added to 24 CFR 
207.255, to cover acceleration required by the FHA Commissioner, as 
that new authority is provided under 24 CFR 207.257 of the proposed 
regulation.
    HUD response: HUD believes the language in the regulation is 
already sufficiently broad to cover this provision.
    Comment: One commenter suggested that HUD should publish for 
comment specific criteria that would be used in determining whether to 
grant approval for an insurance claim.
    HUD response: HUD believes the criteria is already quite specific 
and needs no further clarification.

Modification of Mortgage Terms (24 CFR 207.256b)

    Comment: One commenter suggested that HUD add language to make it 
clear that if, as is common practice, the mortgage is modified and the 
default is simultaneously cured, technically entering default for the 
purposes of an insurance claim would be automatically withdrawn.
    HUD response: HUD did not make this change. It is HUD's view that a 
modified mortgage would not be considered to be in default after the 
modification was put in place.
    Comment: One commenter suggested that cash flow generated during a 
workout should be held by the mortgagor in trust for disposition, as 
existing regulations provide, rather than by the mortgagee.
    HUD response: HUD recognizes the concerns raised by this commenter 
and has adopted a change in the regulation to allow the mortgagor or 
the mortgagee, as may be appropriate in the particular situation to 
hold the cash flow generated during a work out.

Commissioner's Right To Require Acceleration (24 CFR 207.257)

    Comment: One commenter noted that there should be no mandatory 
acceleration.
    HUD response: The regulation does not require mandatory 
acceleration, but rather reserves to HUD the right to require the 
mortgagee to accelerate.

Mortgagee Notice of Election To Assign for Insurance Benefits (24 CFR 
207.258)

    Comment: One commenter noted that the proposed regulation 
unnecessarily elevates policies promulgated in Mortgagee Letters and 
Certificates to regulatory language.
    HUD response: HUD has included these provisions in the regulation 
because codification offers, among other things, an easily identifiable 
location for these requirements.
    Comment: Commenters suggested that the proposed language does not 
specify the length of the required extension of the deadline to assign.
    HUD response: HUD notes that it has retained current regulatory 
language that allows the Commissioner to extend the 30 day period 
during which the mortgagee may file its application for insurance for a 
period not to exceed 60 days.
    Comment: A commenter stated that in situations where the mortgagee 
believes it would be futile to delay assignment, it may be in the best 
interest of HUD, the investors, and the mortgagee to assign promptly 
rather than seek the extension.
    HUD response: HUD agrees with this comment, and notes that 24 CFR 
207.257 provides that the Commissioner reserves the right to require 
the mortgagee to accelerate payment in order to protect the interests 
of the Commissioner upon receipt of notice of violation of a covenant. 
The Commissioner can exercise this discretion to take an assignment.
    Comment: A commenter stated that if the requirement to seek an 
extension is made mandatory by regulation, it would be more onerous for 
a mortgagee to obtain a waiver in instances warranting one.
    HUD response: HUD notes that this new language does not mandate an 
extension. Section 207.258 of HUD's regulations (24 CFR 207.258) allows 
the mortgagee to assign the mortgage or to acquire and convey title to 
the Commissioner. Further, it will not be more onerous for a mortgagee 
to obtain a waiver simply because this language is in regulatory form 
rather than in a mortgagee letter.
    Comment: One commenter noted that there is no definition of ``other 
bond obligations'' here, although ``other bond obligation'' is defined 
in Mortgagee Letter 87-9 Mortgage Prepayment Provisions for HUD-Insured 
and Coinsured Multifamily Projects (Mortgagee Letter 87-9) and in 
Chapter 12 of the Multifamily Accelerated

[[Page 69366]]

Processing (MAP) Guide. At least ``participation certificates,'' a 
commonly used arrangement, should be added.
    HUD response: HUD agrees and has added ``participation 
certificates'' and other bond obligations to the definition.
    Comment: A commenter stated that the mortgagee community is 
concerned that elevating the contractual duties between HUD and 
mortgagees to regulatory obligations may be construed by aggressive 
litigants as creating third-party benefits to them.
    HUD response: There is no change in the substance of the 
mortgagee's obligations if the provisions are found in the Mortgagee 
Letter or in the regulation, so there are no additional third party 
benefits beyond the notice provided in regulatory format.
    Comment: One commenter noted that rather than requiring the 
mortgagee to ``assist'' in obtaining refinancing, it would be more 
prudent for the mortgagee to be obligated to ``cooperate.''
    HUD response: HUD's position is that ``assist'' is the appropriate 
terminology in Mortgagee Letter 87-9, and that consistency in the rule 
should assure that HUD will continue to interpret this provision as it 
has in the past.
    Comment: One commenter noted that the parenthetical clause at the 
end of the introductory paragraph should be revised from ``Prior to the 
date on which prepayments may be made with penalty'' to ``prior to the 
date on which prepayments may be made without penalty'' to conform to 
Mortgagee Letter 87-9 and the new draft Lender's Certificate. (Document 
No. HUD-92434M (Rev. XX/06)
    HUD response: The language quoted in the comment is incorrect. 
Mortgagee Letter 87-9, and the Mortgagee Certificate (69 FR 46269) 
proposed in August 2004 both state: ``Prior to the date on which 
prepayments may be made with a penalty of one percent or less.'' HUD 
has also retained the ``with penalty'' language in Section 24(a) of the 
new Lender's Certificate proposed January 21, 2010.
    Comment: Paragraph (a)(1) of 24 CFR 207.258 should provide for an 
automatic 90-day extension of the deadline for filing notice of the 
mortgagee's election upon request. An automatic 90-day extension will 
allow a servicer to stop wasting time and money to obtain an extension 
and provides investors some knowledge and certainty as to the status of 
the assignment process for the loan.
    HUD response: HUD declined this recommendation as the mortgagee 
currently has the option of selecting a 30 day extension, and 
additional, if requested and approved, 60-day extension.
    Comment: Paragraph (a)(5) of 24 CFR 207.258 requiring a successor 
to certify compliance with regulations is not necessary, since the 
regulations are part of the Contract of Insurance.
    HUD response: The certification is required. There is no change in 
policy, and the notice provided by including this provision in the 
regulations improves the probability that potentially affected parties 
are aware of this requirement.
    Comment: One commenter noted that paragraph (a)(6) of 24 CFR 
207.258 was unclear with respect to ``after completion of any 
refinancing.'' The commenter recommended that ``after commencement of 
amortization of the mortgage'' should be used, as similar language is 
used with respect to ``Improvements'' in the Building Loan Agreement 
documents, and because the project could actually be refinanced with a 
non-HUD program.
    HUD response: HUD has adopted the recommendation.
    Comment: One commenter noted that paragraph (a)(6) of 24 CFR 
207.258 should be changed to require the mortgagee to notify HUD if 
payment was not received by the 16th day after the date on which such 
payment is due.
    HUD response: HUD has modified this provision to be consistent with 
the late charge established under 24 CFR 200.88. HUD is revising the 
Note (HUD 94001M) with respect to late charges, to provide that the 
late charge applies when the lender does not receive payment within 10 
days after the payment is due. That change responds to comment HUD 
received that suggested that standardizing the time when the late fee 
applies would facilitate compliance by Ginnie Mae issuers with their 
obligation to make payments to investors. HUD is consequently revising 
24 CFR 207.258 to be consistent with the late charge in the Note and 
with the proposed changes in 24 CFR 200.88 previously described.
    Comment: One commenter noted that a clause should be added at the 
end of paragraph (a) of 24 CFR 207.258 to provide the mortgagee with 
reasonable notice of a decision not to grant an extension in order to 
prepare the necessary documents and to provide for denial of an 
extension request when such a denial is warranted.
    HUD response: HUD is sympathetic to the concern expressed by the 
commenter. To address this issue, HUD proposed to add a sentence to 
Sec.  207.258(b) providing that a mortgagee may consider failure to 
receive an extension notice within 30 days, a denial of the request for 
an extension. In addition, HUD has taken the opportunity afforded by 
this proposed rule to reorganize Sec.  207.258(b) by breaking down the 
lengthy paragraph into several shorter paragraphs. The reorganization 
does not affect the substance of Sec.  207.258(b) but will clarify and 
improve the readability of the regulatory provision.

IV. Justification for Shortened Comment Period

    For HUD rules issued for public comment, it is HUD's policy to 
afford the public ``not less than sixty days for submission of 
comments'' (24 CFR 10.1). In cases in which HUD determines that a 
shorter public comment period may be appropriate, it is also HUD's 
policy to provide an explanation of why the public comment period has 
been abbreviated.
    In this case, with one exception and minor changes, HUD is 
resubmitting for public comment the same regulatory amendments 
presented in HUD's proposed rule published on August 2, 2004 (69 FR 
46210). The one regulatory amendment not proposed in 2004, was the 
proposed amendment to Sec.  200.88. All other regulatory provisions 
presented for public comment in this rule are the same as those 
proposed for amendment in 2004, with minor changes, in a few places, 
with some of the proposed language changes. As discussed in this 
preamble, HUD received only 10 public comments on the proposed 
regulatory amendments in the 2004 proposed rule.
    Given that this is the second time that HUD is issuing for comment, 
almost the identical amendments, HUD believes that a 30-day public 
comment period is sufficient.

V. Findings and Certifications

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 the private sector. This proposed rule does not 
impose any Federal mandate on any State, local, or tribal government or 
the private sector within the meaning of UMRA.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
for this rule has been made 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)). The Finding of 
No Significant Impact is

[[Page 69367]]

available for public inspection between 8 a.m. and 5 p.m. weekdays in 
the Regulations Division, Room 10276, Office of the General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, please schedule an appointment to review the 
docket file by calling the Regulations Division at 202-402-3055 (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.

Impact on Small Entities

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule is limited to making certain conforming amendments to 
FHA regulations that address multifamily rental projects to ensure 
their consistency with the recent update and revision of the documents 
used for multifamily rental project and health care facility closings. 
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 would not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that would meet HUD's objectives as described 
in this preamble.

Federalism Impact

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

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for Mortgage 
Insurance for the Purchase or Refinancing of Existing Multifamily 
Housing Projects is 14.155.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, Housing standards, 
Incorporation by reference, Lead poisoning, Loan programs--housing and 
community development, Minimum property standards, Mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social Security, Unemployment 
compensation, Wages.

24 CFR Part 207

    Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

    Accordingly, for the reasons discussed in this preamble, HUD 
proposes to amend 24 CFR parts 200 and 207 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

    1. The authority citation for 24 CFR part 200 continues to read as 
follows:

    Authority: 12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535(d).

    2. Revise Sec.  200.5 to read as follows:


Sec.  200.5  Eligible mortgagor.

    The mortgagor shall be a single asset mortgagor entity acceptable 
to the Commissioner, as limited by the applicable section of the Act, 
and shall possess the powers necessary and incidental to operating the 
project. Natural persons and tenancies in common are not eligible 
mortgagor entities.
    3. Revise Sec.  200.88 to read as follows:


Sec.  200.88  Late charge.

    The mortgage may provide for the collection by the mortgagee of a 
late charge in accordance with terms, conditions and standards of the 
Commissioner for each dollar of each payment to interest or principal 
more than 10 days in arrears to cover the expense involved in handling 
delinquent payments. Late charges shall be separately charged to and 
collected from the mortgagor and shall not be deducted from any 
aggregate monthly payment.

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    4. The authority citation for part 207 continues to read as 
follows:

    Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C. 
3535(d).

    5. Revise Sec.  207.255 to read as follows:


Sec.  207.255  Defaults for purposes of insurance claim.

    This section defines ``default'' and ``date of default'' for 
purposes of a mortgagee filing an insurance claim with the 
Commissioner.
    (a) The following shall be considered a default under the terms of 
a mortgage insured under this subpart:
    (1) Failure of the mortgagor to make any payment due under the 
mortgage (also referred to as a ``Monetary Event of Default'' in 
certain mortgage security instruments); or
    (2) A material violation of any other covenant under the provisions 
of the mortgage, if because of such violation, the mortgagee has 
accelerated the debt, subject to any necessary HUD approval (also 
referred to as a ``Covenant Event of Default'' in certain mortgage 
security instruments).
    (b) For purposes of a mortgagee filing an insurance claim with the 
Commissioner, the failure of the mortgagor to make any payment due 
under an operating loss loan or under the original mortgage shall be 
considered a default under both the operating loss loan and original 
mortgage.
    (c) If a default as defined in paragraphs (a) or (b) of this 
section continues for a minimum period of 30 days, the mortgagee shall 
be entitled to receive the benefits of the insurance provided for the 
mortgage, subject to the procedures in this subpart.
    (d) For the purposes of this section the date of default shall be:
    (1) The date of the first failure to make a monthly payment that 
subsequent payments by the mortgagor are insufficient to cover when 
those subsequent payments are applied by the mortgagee to the overdue 
monthly payments in the order in which they became due; or
    (2) The date of the first uncorrected violation of a covenant or 
obligation for which the mortgagee has accelerated the debt.
    6. Revise Sec.  207.256 to read as follows:


Sec.  207.256  Notice to the Commissioner of default.

    (a) If a default as defined in Sec.  207.255(a) or (b) is not cured 
within the grace period of 30 days provided under Sec.  207.255(c), the 
mortgagee must,

[[Page 69368]]

within 30 days after the date of the end of the grace period, notify 
the Commissioner of the default, in the manner prescribed in 24 CFR 
part 200, subpart B.
    (b) The mortgagee must give notice to the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B, of the mortgagor's 
violation of any covenant, whether or not the mortgagee has accelerated 
the debt.
    7. Revise Sec.  207.256a to read as follows:


Sec.  207.256a  Reinstatement of defaulted mortgage.

    If, after default and prior to the completion of foreclosure 
proceedings, the mortgagor cures the default, the insurance shall 
continue on the mortgage as if a default had not occurred, provided the 
mortgagee gives notice of reinstatement to the Commissioner, in the 
manner prescribed in 24 CFR part 200, subpart B.
    8. Revise Sec.  207.256b to read as follows:


Sec.  207.256b  Modification of mortgage terms.

    (a) The mortgagor and the mortgagee may, with the approval of the 
Commissioner, enter into an agreement that extends the time for curing 
a default under the mortgage or modifies the payment terms of the 
mortgage.
    (b) The Commissioner's approval of the type of agreement specified 
in paragraph (a) of this section shall not be given, unless the 
mortgagor agrees in writing that, during such period as payments by the 
mortgagor to the mortgagee are less than the amounts required under the 
terms of the original mortgage, the mortgagor or mortgagee, as may be 
appropriate in the particular situation will hold in trust for 
disposition, as directed by the Commissioner, all rents or other funds 
derived from the secured property that are not required to meet actual 
and necessary expenses arising in connection with the operation of such 
property, including amortization charges under the mortgage.
    (c) The Commissioner may exempt a mortgagor from the requirement of 
paragraph (b) of this section in any case where the Commissioner 
determines that such exemption does not jeopardize the interests of the 
United States.
    9. Revise Sec.  207.257 to read as follows:


Sec.  207.257  Commissioner's right to require acceleration.

    Upon receipt of notice of violation of a covenant, as provided for 
in Sec.  207.256(b), or otherwise being apprised of the violation of a 
covenant, the Commissioner reserves the right to require the mortgagee 
to accelerate payment of the outstanding principal balance due in order 
to protect the interests of the Commissioner.
    10. Amend Sec.  207.258, as follows:
    a. Revise paragraph (a);
    b. Redesignate paragraphs (b)(1) through (b) (5) as (b)(2) through 
(b)(6) respectively;
    c. Redesignate the undesignated introductory paragraph of paragraph 
(b) as paragraph (b)(1); and
    d. Revise newly designated paragraph (b)(1), to read as follows:


Sec.  207.258  Insurance claim requirements.

    (a) Alternative election by mortgagee. When the mortgagee becomes 
eligible to receive mortgage insurance benefits pursuant to Sec.  
207.255(c), the mortgagee must, within 45 days after the date of 
eligibility, give the Commissioner notice, in the manner prescribed in 
24 CFR part 200, subpart B, of its intention to file an insurance claim 
and of its election either to assign the mortgage to the Commissioner, 
as provided in paragraph (b) of this section, or to acquire and convey 
title to the Commissioner, as provided in paragraph (c) of this 
section. For mortgages funded with the proceeds of State or local 
bonds, GNMA mortgage-backed securities, participation certificates, or 
other bond obligations specified by HUD (such as an agreement under 
which the insured mortgagee has obtained the mortgage funds from third 
party investors and has agreed in writing to repay such investors at a 
stated interest rate and in accordance with a fixed repayment 
schedule), any of which contains a lock-out or penalty provision, the 
mortgagee must, in the event of a default during the term of the 
prepayment lock-out or penalty (i.e., prior to the date on which 
prepayments may be made with a penalty):
    (1) Request an extension of the deadline for filing notice of the 
mortgagee's intention to file an insurance claim and the mortgagee's 
election to assign the mortgage or acquire and convey title in 
accordance with the mortgagee certificate;
    (2) Assist the mortgagor in arranging refinancing to cure the 
default and avert an insurance claim, if HUD grants the requested (or a 
shorter) extension of notice filing deadline;
    (3) Report to HUD at least monthly on any progress in arranging 
refinancing;
    (4) Cooperate with HUD in taking reasonable steps in accordance 
with prudent business practices to avoid an insurance claim;
    (5) Require successors or assigns to certify in writing that they 
agree to be bound by these conditions for the remainder of the term of 
the prepayment lock-out or penalty; and
    (6) After commencement of amortization of the refinanced mortgage, 
notify HUD of a delinquency when a payment is not received by the 10th 
day after the date the payment is due.
    (b) Assignment of mortgage to Commissioner. (1) Timeframe; request 
for extension.
    (i) If the mortgagee elects to assign the mortgage to the 
Commissioner, the mortgagee shall, at any time within 30 days after the 
date of notice of the election, file its application for insurance 
benefits and assign to the Commissioner, in such manner as the 
Commissioner may require, any applicable credit instrument and the 
realty and chattel security instruments.
    (ii) The Commissioner may extend this 30-day period by written 
notice that a partial payment of insurance claim under Sec.  207.258b 
is being considered. A mortgagee may consider failure to receive a 
notice of an extension approval by the end of the 30-day time period a 
denial of the request for an extension.
    (iii) The extension shall be for such term, not to exceed 60 days, 
as the Commissioner prescribes; however, the Commissioner's 
consideration of a partial payment of claim, or the Commissioner's 
request that a mortgagee accept partial payment of a claim in 
accordance with Sec.  207.258b, shall in no way prejudice the 
mortgagee's right to file its application for full insurance benefits 
within either the 30-day period or any extension prescribed by the 
Commissioner.
    (iv) The requirements of paragraphs (b)(2) through (b)(6) of this 
section shall also be met by the mortgagee.
* * * * *
    11. In Sec.  207.259, add a new paragraph (b)(2)(vi) to read as 
follows:


Sec.  207.259  Insurance benefits.

* * * * *
    (b) * * *
    (2) * * *
    (vi) When there is a covenant default as defined in Sec.  
207.255(a)(2) and a mortgagee refuses to comply promptly with the 
Commissioner's request to accelerate payment pursuant to Sec.  207.257, 
an amount equal to the difference between the project's market value as 
of the date of the Commissioner's request and the project's market 
value as of the date the mortgagee makes an election to assign the 
mortgage, or convey title to the project, as determined by appraisal

[[Page 69369]]

procedures established by the Commissioner.
* * * * *

    Dated: October 25, 2010.
David H. Stevens,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2010-28420 Filed 11-10-10; 8:45 am]
BILLING CODE 4210-67-P