[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