[Federal Register Volume 78, Number 75 (Thursday, April 18, 2013)]
[Proposed Rules]
[Pages 23178-23183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-09131]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5 and 202

[Docket No. FR-5536-P-01]
RIN 2502-AJ00


Federal Housing Administration (FHA) Approval of Lending 
Institutions and Mortgagees: Streamlined Reporting Requirements for 
Small Supervised Lenders and Mortgagees

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would streamline the FHA financial 
statement reporting requirements for lenders and mortgagees who are 
supervised by federal banking agencies and whose consolidated assets do 
not meet the thresholds set by their supervising federal banking 
agencies for submission of audited financial statements (currently set 
at $500 million in consolidated assets). HUD's regulations currently 
require all supervised lenders and mortgagees to submit annual audited 
financial statements as a condition of FHA lender approval and 
recertification. Through this proposed rule, in lieu of the annual 
audited financial statements, small supervised lenders and mortgagees 
would be required to submit the unaudited financial regulatory reports 
that align with their fiscal year ends and are required to be submitted 
to their supervising federal banking agencies. Small supervised lenders 
and mortgagees would only be required to submit audited financial 
statements if HUD determines that the supervised lenders or mortgagees 
pose heightened risk to the FHA insurance fund.
    This rule does not impact FHA's annual audited financial statements 
submission requirement for nonsupervised and large supervised lenders 
and mortgagees. The rule also does not impact those supervised lenders 
and mortgagees with consolidated assets in an amount that requires that 
lenders or mortgagees submit audited financial statements to their 
respective supervising federal banking agencies. Finally, HUD has

[[Page 23179]]

taken the opportunity afforded by this proposed rule to make three 
technical changes to current regulations regarding reporting 
requirements for FHA-approved supervised lenders and mortgagees.

DATES: Comment Due Date: June 17, 2013.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule 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 
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 
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.

    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 appointment to review the public comments must be 
scheduled in advance 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 Relay Service at 800-877-8339. Copies of all comments submitted 
are available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Richard Toma, Deputy Director, Office 
of Lender Activities and Program Compliance, Office of Housing, 
Department of Housing and Urban Development, 490 L'Enfant Plaza East 
SW., Room P3214, Washington, DC 20024-8000; telephone number 202-708-
1515 (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 Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION

I. Background

    As part of HUD's efforts to strengthen risk management of the FHA 
insurance funds, HUD published a final rule on April 20, 2010, 
entitled, ``Federal Housing Administration: Continuation of FHA 
Reform--Strengthening Risk Management Through Responsible FHA-Approved 
Lenders'' (75 FR 20718). The April 20, 2010, final rule increased the 
net worth requirements for FHA-approved lenders and mortgagees, 
eliminated HUD's approval of loan correspondents, and amended the 
general approval standards for lenders and mortgagees. The goal of 
increasing the net worth requirements was to ensure that FHA-approved 
lenders and mortgagees are sufficiently capitalized. To monitor 
compliance with the net worth requirements, the April 20, 2010, final 
rule requires all lenders and mortgagees to provide annual audited 
financial statements within 90 days of their fiscal year ends as a 
condition of FHA approval and recertification. The requirement for the 
submission of annual audited financial statements applies to all FHA-
approved lenders and mortgagees, irrespective of their net worth. 
Interested readers should refer to the preamble of the April 20, 2010, 
final rule for additional information regarding the risk management 
amendments to the FHA program requirements.

II. This Proposed Rule

A. Streamlined Reporting Requirements for Small Supervised Lenders and 
Mortgagees

    Since publication of the April 20, 2010, final rule, HUD has 
determined that the FHA requirement for all supervised lenders and 
mortgagees to submit annual audited financial statements may prove to 
be prohibitively expensive for small supervised lenders and mortgagees 
who wish to participate in FHA programs. While HUD takes its 
counterparty risk management responsibilities seriously, HUD seeks to 
balance its management of risk with the execution of its mission. In 
order to ensure that FHA products and programs remain available in the 
communities served by small supervised lenders and mortgagees, HUD 
proposes through this rule to modify its annual audited financial 
statements reporting requirement for these institutions.
    Lenders and mortgagees supervised by the Board of Governors of the 
Federal Reserve System; the Federal Deposit Insurance Corporation 
(FDIC); and the National Credit Union Administration (NCUA) 
(collectively the ``federal banking agencies''), are required to submit 
audited financial statements to their respective supervising federal 
banking agencies where the lenders' or mortgagees' consolidated assets 
meet or exceed the minimum thresholds established by those federal 
banking agencies; which thresholds are all currently $500 million or 
more in consolidated assets and are currently codified at 12 CFR 
363.1(a) and 12 CFR 715.4(c). Lenders and mortgagees whose consolidated 
assets for the applicable fiscal year are less than their supervising 
federal banking agency's threshold for submission of audited financial 
statements (hereinafter ``small lenders and mortgagees'') are required 
to submit unaudited financial regulatory reports. These unaudited 
financial regulatory reports currently include a consolidated or fourth 
quarter Report of Condition and Income (Federal Financial Institutions 
Examination Council forms 031 and 041, also known as the ``Call 
Report''), a consolidated or fourth quarter Thrift Financial Report, 
and a consolidated or fourth quarter NCUA Call Report (NCUA Form 5300 
or 5310).
    In an effort to be consistent with the financial reporting 
requirements designated by the supervisory federal banking agencies for 
small lenders and mortgagees, HUD will no longer require small 
supervised lenders or mortgagees to submit audited financial 
statements. Instead, HUD will require that small supervised lenders and 
mortgagees submit the unaudited financial regulatory reports that they 
are required to submit to their supervising federal banking agencies. 
HUD has determined that the financial regulatory reports required by 
the federal banking agencies contain sufficient information for HUD to 
ensure that small supervised lenders and mortgagees are suitably 
capitalized

[[Page 23180]]

to meet potential needs associated with their participation in FHA 
lending programs, without the potentially prohibitive financial burden 
of preparing annual audited financial statements.
    In order to manage the risk to the FHA insurance fund, HUD retains 
the right to request additional financial documentation, up to and 
including audited financial statements, if HUD determines that a small 
supervised lender or mortgagee poses a heightened risk to the FHA 
insurance fund. HUD has determined that the following factors are 
relevant, but not exhaustive, in determining if a small supervised 
lender or mortgagee poses a heightened risk to the FHA insurance fund: 
(1) Failing to provide required financial submissions under Sec.  
202.6(c)(2) within the required 90-day period following the lender's or 
mortgagee's fiscal year end; (2) maintaining insufficient adjusted net 
worth or unrestricted liquid assets as required by Sec.  202.5(n); (3) 
reporting opening cash and equity balances that do not agree with the 
prior year's reported cash and equity balances; (4) experiencing an 
operating loss of 20 percent or greater of the lender's or mortgagee's 
net worth for the annual reporting period as governed by Sec.  
202.5(m)(1); (5) experiencing an increase in loan volume over the prior 
12-month period, determined by the Secretary to be significant; (6) 
undertaking significant changes to business operations, such as a 
merger or acquisition; and (7) other factors that the Secretary 
considers appropriate in indicating a heightened risk to the FHA 
insurance fund.
    Consistent with the requirements of the federal banking agencies, 
HUD will continue to require audited financial statements for 
supervised lenders and mortgagees whose consolidated assets meet or 
exceed the threshold set by the federal banking agencies, presently 
located at 12 CFR 363.1(a) and 12 CFR 715.4(c)--currently $500 million 
or more in consolidated assets. Because the asset threshold established 
by the federal banking agencies may change over time, this proposed 
rule references the regulations of the federal banking agencies instead 
of a numeric figure. HUD specifically seeks comments from small 
supervised lenders and mortgagees on whether they are required to 
provide annual audited financial statement to any other regulating 
body, such as a state agency.

B. Technical Amendments

    HUD has taken the opportunity afforded by this proposed rule to 
make three conforming amendments to current regulations regarding 
reporting requirements for FHA-approved supervised lenders and 
mortgagees. These nonsubstantive amendments will codify existing 
requirements and correct a regulatory citation. The amendments are as 
follows:
    1. Audited financial statement for large supervised lenders and 
mortgagees. The regulations at Sec.  202.7(b)(4) require that 
nonsupervised lenders and mortgagees comply with HUD's uniform 
financial reporting standards codified in 24 CFR part 5, subpart H, and 
establish requirements governing the contents of the required audited 
financial statements. While the April 20, 2010, final rule codified the 
requirement that supervised lenders also submit audited financial 
statements, it did not specify that these statements must be submitted 
in accordance with the same requirements as those applicable to 
nonsupervised institutions under Sec.  202.7(b)(4). Instead, HUD 
clarified via mortgagee letter that supervised lenders and mortgagees 
should comply with the audit requirements of Sec.  202.7(b)(4).\1\ This 
proposed rule would codify the mortgagee letter guidance by adding a 
new Sec.  202.6(b)(4) to govern audited financial statements submitted 
by supervised lenders and mortgagees. Consistent with existing 
practice, the new provision mirrors the language of Sec.  202.7(b)(4).
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    \1\ See Mortgagee Letter 2009-31, issued on September 18, 2009, 
and available at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm.
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    2. Technical correction to uniform financial reporting standards. 
The applicability section of HUD's uniform financial reporting 
regulations (Sec.  5.801) was not updated by the April 20, 2010, final 
rule. Accordingly, Sec.  5.801(a)(5) of those regulations still 
provides that the uniform financial standards apply to ``nonsupervised 
lenders, nonsupervised mortgagees, and loan correspondents.'' The April 
20, 2010, final rule eliminated HUD's approval of loan correspondents 
and clarified that supervised lenders and mortgagees are also subject 
to the uniform financial reporting requirements. This proposed rule 
would make the conforming amendments to Sec.  5.801(a)(5).
    3. Technical correction to Sec.  202.3(b). The regulation at Sec.  
202.3(b) incorrectly refers to the yearly verification report 
``required by Sec.  202.5(n)(2).'' As a result of other changes made by 
the April 20, 2010, final rule, the verification report requirement is 
now found in Sec.  202.5(m). This proposed rule corrects the outdated 
citation.

III. Costs and Benefits of the Proposed Rule

    The total cost savings from the reporting and recordkeeping burden 
for small supervised lenders and mortgagees would be approximately 
$110,770. HUD currently has 1,471 approved supervised lenders and 
mortgagees who are required to submit annual audited financial 
statements, of which HUD approximates that 857 are small supervised 
lenders and mortgagees whom this rule will benefit. Under this proposed 
rule, small supervised lenders and mortgagees would no longer be 
required to complete and submit the Online Annual Financial Statements 
and Reports, but would instead submit an electronic copy of the 
unaudited financial regulatory report that aligns with their fiscal 
year end, as required by and submitted to their supervising federal 
banking agency. Currently it takes a lender or mortgagee 3 hours to 
complete the required Online Annual Financial Statements and Reports 
submission.\2\ HUD estimates that this new requirement would take .25 
hours per lender or mortgagee. Therefore, the burden on each lender or 
mortgagee would be reduced by 2.75 hours. The cost to the lender or 
mortgagee to complete the Online Annual Financial Statements and 
Reports is $47 per hour.\3\ By submitting the unaudited financial 
regulatory report required by the lender's or mortgagee's supervised 
federal banking agency, each small supervised lender or mortgagee would 
save $129.25, resulting in a total industry savings for all 857 small 
entities of approximately $110,770. HUD recognizes that additional 
savings may result for small supervised lenders and mortgagees who no 
longer complete annual audits as a result of this rule.
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    \2\ PRA Submission 2502-0005, http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=200910-2502-005.
    \3\ Id.
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IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements for this proposed rule have 
been submitted to the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In accordance 
with the Paperwork Reduction Act, an agency may not conduct or sponsor, 
and a person is not required to respond to, a collection of 
information, unless the collection displays a currently valid OMB 
control number.

[[Page 23181]]

    This proposed rule would amend 24 CFR part 202. Part 202 currently 
contains the collection of information approved by OMB, and the OMB 
control number is 2502-0005. The collection title is, ``HUD-FHA Title 
I/Title II Lender Approval, Annual Recertification, Noncompliance 
Forms, Reports, Ginnie Mae Issuer Approval, and Credit Watch 
Termination Reinstatement.'' As proposed below, this rule would amend 
the collection of information currently required by ``item n,'' the 
online submission of annual audited financial statements by Title I and 
Title II nonsupervised lenders, supervised lenders and nonsupervised 
loan correspondents, of OMB control number 2502-0005 (hereinafter, 
Annual Audited Financial Statement). This proposed rule is estimated to 
reduce the burden in the existing information collection requirement as 
follows:

                                       Reporting and Recordkeeping Burden
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                                                                      Estimated
                                         Number of annual audited   average time
           Section reference               financial statement           for           Estimated total burden
                                               respondents           requirement
                                                                       (hours)
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Current: 24 CFR part 202 requirements.  All Lenders: 3,370 \4\...            3.00  10,110 hours.
Proposed: 24 CFR part 202 requirements  Large Supervised and all             3.00  7,753.25 hours (7,539 hours
                                         Nonsupervised Lenders:                     and 214.25 hours,
                                         2,513.                                     respectively).
                                        Small Supervised Lenders:             .25
                                         857.
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Percentage of Burden Change...........  Estimated net reduction of burden          23%
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In accordance \4\ with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
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    \4\ The current PRA states that 11,000 annual audited financial 
statements are collected, but loan correspondents are no longer HUD-
approved and required to submit annual audited financial statements.
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    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility.
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information.
    (3) Enhance the quality, utility, and clarity of the information to 
be collected.
    (4) Minimize the burden of the collection of information on those 
who are to respond; including through the use of appropriate automated 
collection techniques or other forms of information technology (e.g., 
by permitting electronic submission of responses).
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Comments must refer 
to the proposed rule by name and docket number (FR-5583-P-01) and must 
be sent to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax number: 202-395-6947; and
Reports Liaison Officer, Office of Housing, Department of Housing and 
Urban Development, 451 7th Street SW., Room 9128, Washington, DC 20410.

    Interested persons may submit comments regarding the information 
collection requirements 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.

Regulatory Review--Executive Orders 12866 and 13563

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by OMB in accordance with the 
requirements of the order. Executive Order 13563 (Improving Regulations 
and Regulatory Review) directs executive agencies to analyze 
regulations that are ``outmoded, ineffective, insufficient, or 
excessively burdensome, and to modify, streamline, expand, or repeal 
them in accordance with what has been learned.'' Executive Order 13563 
also directs that, where relevant, feasible, and consistent with 
regulatory objectives and to the extent permitted by law, agencies are 
to identify and consider regulatory approaches that reduce burdens and 
maintain flexibility and freedom of choice for the public. Accordingly, 
HUD has determined that aligning FHA's financial reporting requirements 
for small supervised lenders and mortgagees with the financial 
reporting requirements of the federal banking agencies eliminates 
unnecessary financial and administrative burdens posed by FHA's current 
requirement to submit an audited financial statement, and thereby 
enhances the ability of small supervised lenders and mortgagees to 
participate in FHA programs. HUD has concluded that the federal banking 
agencies have controls in place through examination and monitoring to 
takeover institutions experiencing significant financial distress that 
pose a risk to depositors. Therefore, the information within the 
financial regulatory reports being provided to the federal banking 
agencies is comprehensive and provides the data necessary for FHA to 
analyze a small supervised lender's or mortgagee's net worth and assets 
to determine if financial risk is posed to the FHA fund. In a case 
where a small supervised lender or mortgagee shows sign of financial 
risk, HUD retains the right to request additional financial 
documentation, up to and including audited financial statements. As a 
result, this rule was determined to not be a significant regulatory 
action under section 3(f) of Executive Order 12866, Regulatory Planning 
and Review, and therefore was not reviewed by OMB.

[[Page 23182]]

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This proposed rule would not have a significant economic impact on a 
substantial number of small entities because the rule is specifically 
intended to ease the regulatory burden on small entities. The current 
regulations require full independent audited financial statements, over 
and above what is required by federal banking agencies in their 
oversight of these small supervised lenders and mortgagees. This 
proposed rule would bring HUD's reporting practices in line with that 
of the federal banking agencies and, as discussed above, reduce the 
cost of participating in FHA programs by releasing small supervised 
lenders and mortgagees from the requirement to submit annual audited 
financial statements. Instead the rule would require the submission of 
the unaudited financial regulatory report already required by the small 
supervised lender's or mortgagee's supervising federal banking agency.
    Notwithstanding HUD's determination that this rule would not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that would meet HUD's objectives as described 
in the preamble to this rule.

Environmental Impact

    This rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction. Nor does it establish, revise, or 
provide for standards for construction or construction materials, 
manufactured housing, or occupancy. This rule is limited to the 
procedures governing the submission of financial reports by small 
supervised lenders and mortgagees applying to participate, or 
recertifying for participation, in FHA's single-family programs. 
Accordingly, under 24 CFR 50.19(c)(1), this rule is categorically 
excluded from environmental review under the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either (1) imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (2) preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and on the private sector. This proposed rule would 
not impose any federal mandates on any state, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

Catalogue of Federal Domestic Assistance

    The Catalogue of Federal Domestic Assistance Number for the 
principal FHA single-family mortgage insurance program is 14.117.

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Claims, Crime, 
Government contracts, Grant programs--housing and community 
development, Individuals with disabilities, Intergovernmental 
relations, Loan programs--housing and community development, Low and 
moderate income housing, Mortgage insurance, Penalties, Pets, Public 
housing, Rent subsidies, Reporting and recordkeeping requirements, 
Social security, Unemployment compensation, Wages.

24 CFR Part 202

    Administrative practice and procedure, Home improvement, 
Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements.

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR parts 5 and 202 to read as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

0
1. The authority citation for part 5 continues to read as follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437d, 1437f, 1437n, 3535(d), 
Sec. 327, Pub. L. 109-115, 119 Stat. 2936, and Sec. 607, Pub. L. 
109-162, 119 Stat. 3051.

0
2. Revise Sec.  5.801 paragraph (a)(5) to read as follows:


Sec.  5.801  Uniform financial reporting standards.

    (a) * * *
    (5) HUD-approved Title I and Title II supervised and nonsupervised 
lenders and mortgagees.
* * * * *

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

0
3. The authority citation for part 202 continues to read as follows:

    Authority: 12 U.S.C. 1703, 1709 and 1715b; 42 U.S.C. 3535(d).

0
4. In Sec.  202.3 paragraph (b), revise the citation to ``Sec.  202.5 
(n)(2)'' to read ``Sec.  202.5 (m)''.
0
5. Revise Sec.  202.5 paragraph (g) to read as follows:


Sec.  202.5  General approval standards.

* * * * *
    (g) Financial statements. Except as provided in Sec.  202.6(c), the 
lender or mortgagee shall furnish to the Secretary a copy of its 
audited financial statements within 90 days of its fiscal year end, 
furnish such other information as the Secretary may request, and submit 
to an examination of that portion of its records that relates to its 
Title I and/or Title II program activities.
* * * * *
0
6. In Sec.  202.6, add new paragraphs (b)(4) and (c) to read as 
follows:


Sec.  202.6  Supervised lenders and mortgagees.

* * * * *
    (b) * * *
    (4) Audit report. Except as provided in paragraph (c) of this 
section, a lender or mortgagee must:
    (i) Comply with the financial reporting requirements in 24 CFR part 
5, subpart H. Audit reports shall be based on audits performed by a 
certified public accountant, or by an independent public accountant 
licensed by a regulatory authority of a State or other political 
subdivision of the United States on or before December 31, 1970, and 
shall include:
    (A) Financial statements in a form acceptable to the Secretary, 
including a balance sheet and a statement of

[[Page 23183]]

operations and retained earnings, a statement of cash flows, an 
analysis of the mortgagee's net worth adjusted to reflect only assets 
acceptable to the Secretary, and an analysis of escrow funds; and
    (B) Such other financial information as the Secretary may require 
to determine the accuracy and validity of the audit report.
    (ii) Submit a report on compliance tests prescribed by the 
Secretary.
    (c) Financial statements requirements for small supervised lenders 
and mortgagees.
    (1) Definitions. For the purposes of this section, the following 
definitions apply:
    (i) Federal banking agency means the Board of Governors of the 
Federal Reserve System; the Federal Deposit Insurance Corporation; and 
the National Credit Union Administration; or any successor agency 
thereof.
    (ii) Small supervised lender or mortgagee means a supervised lender 
or mortgagee possessing consolidated assets below the threshold for 
required audited financial reporting as established by the federal 
banking agency that is responsible for the oversight of that supervised 
lender or mortgagee.
    (2) Financial statement requirements. Small supervised lenders and 
mortgagees shall not be subject to the requirement to submit a copy of 
an audited financial statement under Sec.  202.5(g) and the audit 
report requirements under paragraph (b)(4) of this section. Small 
supervised lenders and mortgagees are required, within 90 days of their 
fiscal year end, to furnish to the Secretary the unaudited financial 
regulatory report--a consolidated or fourth quarter Report of Condition 
and Income (Federal Financial Institutions Examination Council forms 
031 and 041, also known as the ``Call Report''), a consolidated or 
fourth quarter Thrift Financial Report, or a consolidated or fourth 
quarter NCUA Call Report (NCUA Form 5300 or 5310), or such other 
financial regulatory report as may be required--that aligns with the 
small supervised lender's or mortgagee's fiscal year end and that the 
small supervised lender or mortgagee is required to submit to their 
respective federal banking agency.
    (3) Requirement for audited financial statement and other 
information based on determination of heightened risk to the FHA 
insurance fund. If the Secretary determines that a small supervised 
lender or mortgagee poses a heightened risk to the FHA insurance fund, 
the lender or mortgagee must provide upon request, additional financial 
documentation, up to and including an audited financial statement, and 
other information as the Secretary determines necessary. The Secretary 
may determine that a small supervised lender or mortgagee poses a 
heightened risk to the FHA insurance fund based upon, but not limited 
to, one or more of the following factors:
    (i) Failing to provide required financial submissions under Sec.  
202.6(c)(2) within the required 90-day period following the lender's or 
mortgagee's fiscal year end;
    (ii) Maintaining insufficient adjusted net worth or unrestricted 
liquid assets as required by Sec.  202.5(n);
    (iii) Reporting opening cash and equity balances that do not agree 
with the prior year's reported cash and equity balances;
    (iv) Experiencing an operating loss of 20 percent or greater of the 
lender's or mortgagee's net worth for the annual reporting period as 
governed by Sec.  202.5(m)(1);
    (v) Experiencing an increase in loan volume over the prior 12-month 
period, determined by the Secretary to be significant;
    (vi) Undertaking significant changes to business operations, such 
as a merger or acquisition; and
    (vii) Other factors that the Secretary considers appropriate in 
indicating a heightened risk to the FHA insurance fund.

    Dated: March 25, 2013.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2013-09131 Filed 4-17-13; 8:45 am]
BILLING CODE 4210-67-P