[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]
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Proposed Rules
Federal Register
________________________________________________________________________
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that identified outdated language and policies that not only needed to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proposed rule to remove outdated regulatory language and policies.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
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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