[Federal Register Volume 79, Number 165 (Tuesday, August 26, 2014)]
[Rules and Regulations]
[Pages 50838-50840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20215]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 203
[Docket No. FR-5744-F-02]
RIN 2502-AJ20
Federal Housing Administration (FHA): Adjustable Rate Mortgage
Notification Requirements and Look-Back Period for FHA-Insured Single
Family Mortgages
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule revises FHA's regulations governing its single
family adjustable rate mortgage (ARM) program to align FHA interest
rate adjustment and notification regulations with the requirements for
notifying mortgagors of ARM adjustments, as required by the regulations
implementing the Truth in Lending Act (TILA), as recently revised by
the Consumer Financial Protection Bureau (CFPB). The final rule
requires that an interest rate adjustment resulting in a corresponding
change to the mortgagor's monthly payment for an ARM have a 45-day
look-back period. The final rule also requires that the mortgagee of an
FHA-insured ARM comply with the disclosure and notification
requirements of the 2013 TILA Servicing Rule, including at least a 60-
day but no more than 120 day advance notice of an adjustment to a
mortgagor's monthly payment.
DATES: Effective Date: January 10, 2015.
FOR FURTHER INFORMATION CONTACT: Patricia J. McClung, Acting Director,
Office of Single Family Program Development, Office of Housing,
Department of Housing and Urban Development, 451 7th Street SW., Room
9278, Washington, DC 20410; telephone number 202-708-3175 (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--the May 8, 2014 Proposed Rule
On May 8, 2014, HUD published a proposed rule in the Federal
Register, at 79 FR 26376, to revise the look-back period for an FHA-
insured ARM from 30 to 45 days, and to require that the mortgagee of an
FHA-insured ARM provide at least a 60-day, but no more than 120 day,
advance notice of an adjustment to a mortgagor's monthly payment. This
change was in response to the final rule of the ``Mortgage Servicing
Rules Under the Truth in Lending Act (Regulation Z)'' \1\ published as
a final rule on February 14, 2013 in the Federal Register at 78 FR
10902. This February 2013 final rule, referred to in this preamble as
the 2013 TILA Servicing Rule, set the ARM adjustment notice requirement
to a period of between 60 days (minimum) and 120 days (maximum) before
the newly adjusted payment is due. Additionally, the 2013 TILA
Servicing Rule established 45 days as the minimum ARM look-back period.
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\1\ The CFPB initially published the rule on its Web site:
http://www.consumerfinance.gov/regulations/2013-real-estate-settlement-procedures-act-regulation-x-and-truth-in-lending-act-regulation-z-mortgage-servicing-final-rules/.
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HUD's May 8, 2014, rule proposed to revise the regulations in 24
CFR 203.49 to establish a 45-day look-back period for an FHA-insured
ARM, and to require that the mortgagee of an FHA-insured ARM provide at
least a 60-day, but no more than 120 day, advance notice of an
adjustment to a mortgagor's monthly payment, in conformance with the
CFPB's regulations. In the preamble to the 2013 TILA Servicing Rule,
the CFPB stated that FHA's current 30-day look-back period did not
provide sufficient time to notify the mortgagor of an interest rate and
monthly payment adjustment. To allow HUD sufficient time to comply with
the notification requirements of the 2013 TILA Servicing Rule, the CFPB
delayed the effective date of the notification requirements in the 2013
TILA Servicing Rule to January 10, 2015, for ARMs insured by FHA with a
30-day look-back period. Therefore, FHA-
[[Page 50839]]
insured ARMs originated on or after January 10, 2015, must comply with
the new notification requirements of the 2013 TILA Servicing Rule.
II. This Final Rule
This final rule follows publication of the May 8, 2014, proposed
rule and adopts that proposed rule without change. The public comment
period for the proposed rule closed on June 9, 2014, and HUD received 9
public comments. While HUD received 9 public comments on this rule,
only 6 of the comments pertained to HUD's rule. With respect to the
other 3 comments, two were general comments on the state of the housing
market. The remaining comment pertains to another agency's rule and was
inadvertently submitted to the rulemaking docket for HUD's rule.
Section III of this preamble discusses the comments received on the
proposed rule.
III. Discussion of Public Comments Received on May 8, 2014, Proposed
Rule
The public commenters included mortgage lenders, industry trade
associations, and individuals. Commenters were generally supportive of
HUD's proposal to change the look-back period and notification
requirements on FHA-insured ARMs.
Comment: Change effective date of proposed rule and implement as
soon as possible. A commenter requested that HUD implement the rule as
soon as practicable to better provide clarity and certainty to the
mortgage industry. The commenter stated that it will need to implement
the proposed change ahead of a possible effective date due to the
technological and procedural changes necessary for implementation.
HUD Response: HUD appreciates the industry's support of this rule
and desire for a quick implementation. FHA's policy change regarding
the look-back period must be in effect by January 10, 2015 in order to
be in compliance with the 2013 TILA Servicing Rule. To ensure
uniformity for Ginnie Mae issuers, HUD is using the CFPB end date of
January 10, 2015.
Comment: Final rule should explicitly state it applies only to
forward mortgages. A commenter requested that the rule be amended to
clearly document that this change is only applicable to ``forward'' FHA
single family mortgages.
HUD Response: HUD appreciates the commenters point, and notes that
the proposed regulatory text in Sec. 203.49(d)(2) explicitly referred
to ``forward mortgages'' in reference to the 45 day look-back period.
HUD is adopting the proposed regulatory text.
Comment: Proposed rule is silent on borrower initiated rate reset.
A commenter identified that FHA's proposed rule, as well as the CFPB's
2013 TILA Servicing Rule, are both silent on the potential for a
borrower initiated rate reset, which the commenter stated is a feature
currently offered in the market and gaining market acceptance. The
commenter recommended that language be included in the final rule that
the rule only applies to lender/servicer/creditor initiated rate resets
and carves out borrower initiated rate resets from being subject to the
proposed 60-120 day advanced notice of adjustment.
HUD Response: HUD appreciates the commenter providing information
about this mortgage product. However, HUD does not have the authority
to exempt lenders offering this mortgage product from the minimum ARM
notification requirements set forth in the CFPB's 2013 TILA Servicing
Rule. HUD defers to the CFPB to make a determination on this issue. At
this time, FHA insures ARMs that are adjusted at a set fixed interval
by the mortgagee.
Comment: Against any type of regulatory change to FHA. A commenter
expressed opposition to any type of change to FHA. In the commenter's
opinion, the old rules related to Real Estate Settlement Procedures Act
(RESPA) and TILA were fine, and the new CFPB regulation is ``backward
and confusing'' compared to the old good faith estimate that had all
the charges detailed.
HUD Response: The passage of The Dodd-Frank Wall Street Reform and
Consumer Protection Act (Public Law 111-203, approved July 21, 2010)
(Dodd-Frank), transferred oversight and responsibility of RESPA and
TILA to the CFPB. Following passage of Dodd-Frank, the CFPB revised
Regulation Z in the 2013 TILA Servicing Rule, and changed the periods
for advance notice of rate adjustments. Since FHA's look-back period
notification requirement were inconsistent with the 2013 TILA Servicing
Rule requirements as published in January of 2013, mortgagees
originating loans insured by FHA and VA had until January 10, 2015 to
comply the 2013 TILA Servicing Rule requirements. Therefore, this final
rule is necessary to ensure that FHA-insured mortgages are in
compliance with the 2013 TILA Servicing Rule.
IV. Findings and Certifications
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 the Office of Management and
Budget (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.
As discussed above in this preamble, this final rule aligns the
look-back requirements for FHA-insured ARMs to the revised TILA
notification requirements established in the 2013 TILA Servicing Rule.
Since this final rule adopts without amendment the proposed rule, which
was determined to not be a significant regulatory action under section
3(f) of Executive Order 12866, Regulatory Planning and Review, there is
no further review by OMB.
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.
As discussed in this preamble, this final rule aligns the look-back
requirements for FHA-insured ARMs to the revised TILA notification
requirements established in the 2013 TILA Servicing Rule. HUD does not
have the discretion not to align its ARM notification requirements with
new TILA requirements established by the CFPB as implemented by the
CFPB in its 2013 TILA Servicing Rule. The revised look-back period and
disclosure requirements would apply to FHA-approved mortgagees
originating ARMs in January 2015, whether or not HUD takes action. It
is HUD's position that it is important for FHA regulations to be in
compliance with TILA, and therefore HUD has initiated this rulemaking.
In
[[Page 50840]]
this rule, HUD adopted the minimum look-back period, 45 days, which
would allow FHA-approved mortgagees to meet the TILA minimum
requirements governing notification to borrowers.
As the CFPB noted in its rulemaking, that the majority of ARMs in
the conventional market have look-back periods of 45 days or longer.
With the 2013 TILA Servicing Rule having taken effect on January 10,
2014, any lenders originating in the conventional market ARMs that did
not have a minimum look-back period of 45 days, have now adjusted to
the new TILA requirements.
As with the amendments to the look-back period, the revisions to
the disclosure requirements simply conform HUD requirements to the 2013
TILA Servicing Rule and the procedures currently followed in the
conventional mortgage lending market.
For the reasons presented, the undersigned certifies that this rule
will not have a significant economic impact on a substantial number of
small entities.
Environmental Impact
The final 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, or establish, revise or provide for
standards for construction or construction materials, manufactured
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this
final 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 (i) imposes substantial direct compliance costs on state and
local governments and is not required by statute, or (ii) preempts
state law, unless the agency meets the consultation and funding
requirements of section 6 of the Executive order. This final 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 final 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.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number for Mortgage
Insurance-Homes is 14.117.
List of Subjects in 24 CFR Part 203
Hawaiian Natives, Home improvement, Indians-lands, Loan programs-
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
Accordingly, for the reasons discussed in this preamble, HUD amends
24 CFR part 203 as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
0
1. The authority citation for 24 CFR part 203 continues to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, and
1717z-21; 42 U.S.C. 3535(d).
0
2. In Sec. 203.49, revise the third sentence of paragraph (d)(2) and
paragraph (h) to read as follows:
Sec. 203.49 Eligibility of adjustable rate mortgages.
* * * * *
(d) * * *
(2) * * * The current index figure shall be the most recent index
figure available 30 days before the date of each interest rate
adjustment, except that for forward mortgages originated on or after
January 10, 2015, 30 days shall mean 45 days.
* * * * *
(h) Disclosures. The mortgagee of an adjustable rate mortgage shall
provide mortgagors with the disclosures in the timing, content, and
format required by the regulations implementing the Truth in Lending
Act (15 U.S.C. 1601 et seq.) at 12 CFR 1026.20(c) and (d).
* * * * *
Dated: August 20, 2014.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2014-20215 Filed 8-25-14; 8:45 am]
BILLING CODE 4210-67-P