[Federal Register Volume 80, Number 128 (Monday, July 6, 2015)]
[Proposed Rules]
[Pages 38410-38417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16479]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-5742-P-01]
RIN 2502-AJ23


Federal Housing Administration (FHA): Single Family Mortgage 
Insurance Maximum Time Period for Filing Insurance Claims, Curtailment 
of Interest and Disallowance of Operating Expenses Incurred Beyond 
Certain Established Timeframes

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish the maximum time period 
within which an FHA-approved mortgagee must file a claim with FHA for 
insurance benefits. HUD's current regulations are silent with respect 
to a deadline by which a claim for insurance benefits must be filed 
with FHA. Due to the downturn in the housing market, which resulted in 
a significant increase in mortgage defaults, some mortgagees have 
refrained from promptly filing claims for insurance benefits and 
instead have opted to wait and file multiple claims with FHA at a 
single point in time. The uncertainty regarding a deadline by which a 
claim must be

[[Page 38411]]

filed, and the number of claims currently being filed at a single point 
in time strain FHA resources and negatively impact FHA's ability to 
project the future state of the Mutual Mortgage Insurance Fund (MMIF), 
and, consequently, the ability of FHA to fulfill its statutory 
obligation to safeguard the MMIF. To address this concern, HUD proposes 
to establish a deadline by which a mortgagee must file a claim for 
insurance benefits. This rule also proposes to revise HUD's policies 
concerning the curtailment of interest and the disallowance of certain 
expenses incurred by a mortgagee as a result of the mortgagee's failure 
to timely initiate foreclosure or timely take such other action that is 
a prerequisite to submission of a claim for insurance.

DATES: Comment Due Date: September 4, 2015.

ADDRESSES: Interested persons are invited to submit comments regarding 
this 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 
proposed 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 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: Ivery Himes, Director, Office of 
Single Family Asset Management, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street SW., Room 9172, 
Washington, DC 20410; telephone number 202-708-1672 (this is not a 
toll-free number). Persons with hearing or speech impairments may 
access this number by calling the Federal Relay Service at 800-877-8339 
(this is a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    HUD's regulations for FHA single family mortgage insurance are 
codified in 24 CFR part 203. These regulations address mortgagee 
eligibility requirements and underwriting procedures, contract rights 
and obligations, and the mortgagee's servicing obligations. These 
regulations also address action to be taken by a mortgagee when a 
mortgagor defaults on a loan, such as undertaking loss mitigation as 
provided in Sec.  203.501. However, if it is determined that the 
default is not curable, the mortgagor does not remain in the home, or 
both, the mortgagee is eligible to file a claim for insurance benefits. 
(See Sec. Sec.  203.330 through 203.417.) While the current regulations 
and related guidance \1\ and applicable claim form \2\ provide detailed 
directions about filing a claim for insurance benefits and address 
various conditions that may be applicable to the filing of a claim (for 
example, requirements applicable to the title to the property or the 
condition of the property), the regulations do not establish a deadline 
by which a mortgagee must file a claim for insurance benefits with FHA 
except for loans covered under Sec.  203.474. Under the current 
regulations, as long as the mortgagee complies with all applicable 
requirements related to a claim for insurance, the mortgagee may file 
its claim at any time. With respect to payment of the claim, generally 
FHA pays a claim based on an automated process that includes edit 
checks and performs post payment reviews.
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    \1\ See http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh/4330.4 and 
https://entp.hud.gov/pdf/mp_sfs3_cp_clminpt.pdf.
    \2\ http://www.hud.gov/offices/adm/hudclips/forms/files/27011.pdf.
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    Mortgagees generally file claims for FHA mortgage insurance within 
2 months after the date of the foreclosure sale. In recent years, 
however, some mortgagees altered this practice and opted to wait and 
file multiple claims with FHA at a single point in time. In some 
instances, mortgagees delayed filing claims for 2 years or more after 
foreclosure sales. The uncertainty regarding the timing of the filing 
of claims and the high number of claims filed all at once strain FHA 
resources. This activity has the potential to negatively impact HUD's 
ability to project the future state of the MMIF, and, consequently, 
FHA's ability to fulfill the statutory obligation to safeguard the 
MMIF. A delay in filing a claim also increases interest, property 
charges and other expenses included in the insurance benefit claim and 
can result in additional decline in the value of a property that had 
been the security for the FHA-insured mortgage foreclosed by the 
mortgagee, thereby reducing the amount FHA could recover on a real 
estate owned (REO) sales transaction. The proposed rule is designed to 
address these concerns.

II. This Proposed Rule

    Through this rule, HUD proposes to amend FHA's regulations in 
subpart B of 24 CFR part 203, which govern the contract rights and 
obligations pertaining to FHA single family mortgage insurance. The 
proposed rule would add a new Sec.  203.317a which would terminate the 
contract of insurance if the mortgagee fails to file a claim within the 
maximum time periods established in this rule. It would also amend 
Sec.  203.318 to provide that written notice of termination required by 
this section is not required for termination under new Sec.  203.317a. 
The proposed rule would add a new Sec.  203.372 that would establish a 
deadline by which an FHA-approved mortgagee (or its approved servicer) 
must file a claim for insurance benefits. In addition, the proposed 
rule would amend Sec.  203.402 to establish a deadline to be eligible 
for reimbursement of certain expenses

[[Page 38412]]

related to the filing of a claim for insurance benefits and to refine 
the process by which FHA would curtail interest and decline to 
reimburse certain expenses under this section. The proposed rule would 
also amend the heading of Sec.  203.474. These changes would only apply 
prospectively and would take effect for mortgages endorsed for 
insurance on or after the effective date of the final rule.

Termination of Contract of Insurance for Mortgagee's Failure To File a 
Claim

    New Sec.  203.317a of this proposed rule would cause the contract 
of insurance to terminate if the mortgagee fails to file a claim within 
the maximum allowable time periods for filing the claim, and the 
proposed amendment to Sec.  203.318 would exempt this type of 
termination from the written notice requirements.

Deadline by Which Mortgagee Must File a Claim for Insurance Benefits

    In general, proposed Sec.  203.372 will prohibit the filing of a 
claim for insurance benefits after the passage of a specified amount of 
time following certain events relating to the submission of a claim. 
Additionally, it will prohibit the filing of any claim more than 12 
months after expiration of a period of time from the date of default 
that is equal to the amount of time provided in the reasonable 
diligence timeframe established under Sec.  203.356(b). For purposes of 
this proposed rule, the date of default is the date defined in 24 CFR 
203.331, or 203.467 for rehabilitation loans.
    For a property acquired by the mortgagee through foreclosure, new 
Sec.  203.372 would require the mortgagee to file a claim for insurance 
benefits no later than 3 months from the occurrence of one of the 
following events, whichever is the last to occur: (1) The date of the 
foreclosure sale; (2) the date of expiration of the redemption period 
(the period allowed the mortgagor to redeem and regain ownership of the 
property); (3) the date the mortgagee acquires possession of the 
property (i.e., the property is vacant); or (4) such further time as 
the Secretary or Secretary's designee may approve in writing, but in no 
case may a claim be filed more than 12 months after expiration of a 
period of time from the date of default that is equal to the amount of 
time provided in the reasonable diligence time period established 
pursuant to Sec.  203.356(b), unless an extension is granted pursuant 
to Sec.  203.496. If a claim is not timely filed, the mortgagee retains 
ownership of the property and forfeits its right to file a claim for 
insurance benefits.
    For a property sold through a pre-foreclosure sale (PFS), or Claim 
Without Conveyance of Title (CWCOT), new Sec.  203.372 would require 
the mortgagee to file a claim for insurance benefits no later than 3 
months following the date of the closing, for PFS, and no more than 12 
months after expiration of a period of time from the date of default 
that is equal to the amount of time provided in the reasonable 
diligence time period for foreclosure, for CWCOT. If a claim is not 
timely filed, the mortgagee forfeits its right to file a claim for 
insurance benefits.
    For a property acquired by the mortgagee through a deed-in-lieu of 
foreclosure, new Sec.  203.372 would require the mortgagee to file a 
claim for insurance benefits no later than 3 months following the date 
of conveyance of the property to the mortgagee or the date of 
conveyance of the property to HUD, the date of execution of the deed by 
the mortgagor, or no more than 12 months after the expiration of a 
period of time from the date of default that is equal to the reasonable 
diligence time period for foreclosure, whichever occurs first.
    The proposed deadline for filing mortgage insurance claims will 
bring greater certainty to the claims process, thereby facilitating 
HUD's ability to comply with its statutory obligation to protect the 
FHA insurance funds. HUD believes that these time periods in which to 
submit a claim for insurance, as proposed in new Sec.  203.372, provide 
mortgagees with sufficient time to take all action necessary to file a 
claim for insurance benefits. The proposed deadlines would not deny 
mortgagees the administrative benefits of submitting multiple claims at 
one time, as long as the individual claims being filed fall within the 
relevant time periods proposed by this rule. Additionally, the filing 
of a claim will not toll the deadlines proposed in this rule or 
guarantee an extension of time in which to file or refile a claim that 
was withdrawn or denied for any reason.

Disallowance of Expenses and Requirement To Curtail Interest Due to 
Failure To Meet Established Timelines

    In addition to establishing a deadline by which a mortgagee must 
file a claim for insurance benefits, this rule proposes to amend Sec.  
203.402 to disallow expenses incurred by a mortgagee prior to the 
filing of a claim for insurance benefits where such expenses result 
from a mortgagee's failure to timely initiate foreclosure action or 
timely take such other action that is a prerequisite to submission of a 
claim for insurance as established in the part 203, subpart B, 
regulations.
    The amended Sec.  203.402 emphasizes the need to meet the timelines 
established in the part 203, subpart B, regulations that pertain to 
claim procedures and payment of insurance benefits, and where such 
deadlines are not met, FHA will not reimburse related costs. This 
proposed rule would refine the time periods in which such expenses are 
disallowed to provide only for the curtailment of interest and 
reduction in expenses incurred as a result of the mortgagee's delay. 
Specifically, in proposed Sec. Sec.  203.402(k)(1)(ii), 
203.402(k)(2)(iii), and 203.402(k)(3)(iii), the interest would be 
reduced only by the amount determined to have been incurred as a result 
of the failure of the mortgagee to comply with the specified time 
periods, rather than for the remaining duration of the life of the 
mortgage and related FHA insurance contract. The amended Sec.  203.402 
would also provide that if the claim is filed after any of the 
timeframes set forth in new paragraph (u) of this section, then the 
mortgagee must curtail expenses as provided in that paragraph. The 
dates that would trigger curtailment of expenses due to failure to meet 
a deadline on a claim that is filed timely include the following: (1) 
The timeframe for taking First Legal Action to commence foreclosure; 
(2) the reasonable diligence timeframe for the state in which the 
property is located; (3) the timeframe to convey a property after 
obtaining title and possession; (4) the timeframe for marketing a 
property; or (5) any other timeframe established under this subpart 
that is applicable to the claim for insurance benefits. If the amount 
of incurred expenses is unavailable, then the mortgagee must estimate 
the expenses incurred (as a prorated amount) as a result of not 
complying with the deadlines specified for the events numbered (1) 
through (5). However, nothing in this section limits FHA's right to 
review a claim for any reason related to protection of the MMIF.

Examples of Claim Curtailment Proration

Example 1
     The mortgagee completes First Legal Action on calendar day 
230 instead of the First Legal Action deadline, which is day 180 (i.e., 
6 months). The allowable and reasonable costs including interest, 
attorney fees, taxes, insurance, homeowner association (HOA)/
condominium association (COA) fees, maintenance, etc., incurred during 
the First Legal

[[Page 38413]]

Action completion period total $2,750. An extension was either not 
requested by the mortgagee or was requested and not approved by HUD. 
Therefore, the mortgagee must curtail $597.82 = {[(230-180)/
230]*$2,750{time}  of the First Legal Action costs.
     The reasonable due diligence timeframe (which includes 30 
days to file a claim) is 15 months from the completion of First Legal 
Action in this hypothetical example.\3\ The mortgagee conveys the 
property in conveyance condition in 13 months. The total allowable and 
reasonable costs incurred for the above-referenced timeframe for taxes, 
insurance, and maintenance is $15,085. Consequently, the mortgagee is 
not required to curtail any additional cost.
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    \3\ Reasonable diligence timeframes are established for each 
jurisdiction and updated by mortgagee letter.
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     Final Outcome: The mortgagee is required to curtail total 
claim expenses of $597.82 = ($597.82+$0).
Example 2
     A mortgagee receives a 30 day extension to evaluate a 
mortgagor for loss mitigation because the mortgagor's expenses have 
decreased since the previous evaluation for loss mitigation. However, 
the mortgagor does not qualify for loss mitigation. The mortgagee 
completes First Legal Action on calendar day 252 instead of the First 
Legal Action deadline, which is day 210 (i.e., 6 months + 30 day 
extension). The allowable and reasonable costs including interest, 
attorney fees, taxes, insurance, maintenance, HOA/COA fees, etc., 
incurred during the First Legal Action completion period total $10,061. 
Therefore, the mortgagee must curtail $1,676.83 = {[(252-210)/
252]*$10,061{time}  of the First Legal Action costs.
     The reasonable due diligence timeframe, which includes 30 
days to file a claim, is 10 months (300 calendar days) from completing 
First Legal Action in this hypothetical example.\4\ The mortgagee 
conveys the property in conveyance condition in 540 calendar days. The 
total allowable and reasonable costs incurred for the referenced 
timeframe for taxes, insurance, and maintenance is $30,200. Therefore, 
the mortgagee must curtail an additional $13,422.22 of claim cost = 
{[(540-300)/540]*$30,200{time} .
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    \4\ Reasonable diligence timeframes are established for each 
jurisdiction and updated by mortgagee letter.
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     Final Outcome: The mortgagee is required to curtail total 
claim expenses of $15,099.05 = ($1,676.83+$13,422.22).
    Existing Sec.  203.365, which pertains to documents and information 
to be furnished to the Secretary under a claim review, lists items to 
be furnished to the Secretary within 45 days after a deed is filed for 
record in the case of a conveyance claim or within 30 days after the 
closing of the pre-foreclosure sale in the case of a claim arising from 
a pre-foreclosure sale. The amended Sec.  203.402 would provide for 
review of all claims. The amended Sec.  203.402 further provides that, 
regardless of how FHA reviews a claim for insurance, if FHA determines 
that a claim includes costs not appropriately curtailed or reduced as 
established in Sec.  203.402(u)(1), FHA may reduce the claim amount or 
issue a demand for repayment of all improperly claimed expenses. FHA 
may also offset future claims if such demand for repayment is not paid 
by the mortgagee within 30 days.
    The regulatory changes proposed by this rule emphasize the 
importance of meeting established deadlines and provide for the denial 
of insurance benefits and disallowance of payment of expenses where 
such deadlines are not met.

III. Costs and Benefits of Proposed Rule

    This rule proposes to establish a maximum time period within which 
an FHA-approved mortgagee must file a claim with FHA for mortgage 
insurance benefits. Currently, there is not a required timeframe in 
which mortgagees must file claims for FHA mortgage insurance. The cost 
to mortgagees of compliance with this proposed rule is expected to be 
minimal. The cost of compliance for each loan is estimated to be $100, 
but mortgagees currently bear these costs when they file a claim. This 
cost consists of 15 minutes of supervisory review and 45 minutes of 
staff preparation.
    This proposed rule offers many important benefits to FHA, including 
certainty regarding when payment will be sought on claims and increased 
recovery on REO sales transactions. In recent years, some mortgagees 
have opted to wait and file multiple FHA mortgage insurance claims at a 
single point in time, sometimes delaying the filing of claims for 2 
years or more. See Table 1 for data on the timing of the filing of 
insurance claims. The uncertainty regarding the timing of the filing of 
claims and the high number of claims filed all at once strain FHA 
resources. This proposed rule will provide a better measurement of 
expected claims because it provides a definite date for which the 
mortgagee is no longer able to file a claim. Additionally, this 
proposed rule would ease the burden on mortgagees by allowing for the 
curtailment of interest and expenses associated with the actual delay 
of the mortgagee, rather than all interest and expenses incurred beyond 
a missed deadline until the termination of the insurance contract.

                                   Table 1--Mortgagee Filing of Claims Within Specified Time Periods From FY 2008-2014
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                                                                           Claims filed    Claims filed    Claims filed    Claims filed    Claims filed
                                                                          within 30 days   within 31-60    within 61-90    within 91-180   more than 180
                                                                             of good &    days of good &  days of good &   days of  good   days of  good
                                                             Number of      marketable      marketable      marketable     & marketable    & marketable
                       Fiscal year                            claims         title or        title or        title or        title or        title or
                                                            processed &     conveyance      conveyance      conveyance      conveyance      conveyance
                                                           paid  (Total)     extension       extension       extension       extension       extension
                                                                            expiration      expiration      expiration      expiration      expiration
                                                                             (percent)       (percent)       (percent)       (percent)       (percent)
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FY 2008.................................................          55,700           60.64           23.57            4.87            6.04            4.88
FY 2009.................................................          68,859           55.72           26.74            5.88            6.45            5.21
FY 2010.................................................          98,689           49.87           29.41            7.30            8.01            5.41
FY 2011.................................................          90,218           46.03           26.33            9.08           10.46            8.10
FY 2012.................................................         100,508           41.20           22.83            7.94           10.08           17.95
FY 2013.................................................         110,692           35.08           22.09           10.73           17.10           15.00
2014 (10/1/2013-7/18/2014)..............................          50,260           32.30           17.12           11.10           19.03           20.45
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[[Page 38414]]

    The uncertainty resulting from long-delayed filing of FHA insurance 
claims has the potential to negatively impact HUD's ability to project 
the future state of the MMIF, and, consequently, FHA's ability to 
fulfill its statutory obligation to safeguard the MMIF. Therefore, 
establishing a timeframe in which mortgagees must file FHA mortgage 
insurance claims will bring better predictability to FHA. The ability 
to better project capitalization of the MMIF will lessen the likelihood 
of FHA needing to obtain a capital infusion to support the solvency of 
the MMIF.
    When the filing of an FHA insurance claim is delayed, it also 
results in increased property charges and other expenses included in 
the insurance benefit claim and can result in additional decline in the 
value of a property that had been the security for the FHA-insured 
mortgage foreclosed by the mortgagee, thereby reducing the amount FHA 
could recover on REO sales transactions. By preventing delayed claim 
filing, FHA expects to reduce claim cost, primarily due to taxes and 
insurance, of more than $1,000 per loan for claims filed after the 
reasonable due diligence timeframes. These benefits, coupled with the 
minimal compliance costs, motivate FHA's pursuit of this new policy.

IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this document 
have been approved by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned 
OMB Control Number 2502-0429. In accordance with the Paperwork 
Reduction Act, HUD 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.

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 address an issue that has arisen recently 
and that is the high number of defaults resulting from the downturn in 
the housing market that began in late 2007 and early 2008. Until that 
point, FHA-approved mortgagees filed insurance claims within a 
reasonable time following a foreclosure of the property or the last 
event that must be taken by an FHA-approved mortgagee prior to filing 
the insurance claim. HUD understands the strain on resources placed on 
FHA-approved mortgagees facing a high number of defaults by their 
mortgagors, and that bundling and filing multiple claims at a single 
point in time may be administratively convenient for the mortgagees. 
However, submission of a high number of claims to FHA by one single 
mortgagee at one single point in time long after the triggering event 
strains FHA resources and negatively impacts FHA's ability to project 
the future state of the MMIF, and, consequently, FHA's ability to 
fulfill its statutory obligation to safeguard the MMIF. The recent 
filing of multiple claims at a single point in time has emphasized to 
FHA the need to establish a deadline for filing insurance claims, which 
are absent from the regulations. While government and the industry have 
been working diligently since 2008 to implement requirements and 
measures to be taken to avoid another housing crisis, a clear deadline 
for filing an insurance claim will benefit both FHA and FHA-approved 
mortgagees.
    HUD believes that the relevant time periods to file a claim for 
insurance benefits are reasonable periods for all FHA-approved 
mortgagees, large and small, and will not adversely affect any 
mortgagee. Additionally, HUD's existing regulations authorize the FHA 
Commissioner to extend any time period for action to be taken by FHA-
approved mortgagees under the regulations of 24 CFR part 203, subpart 
C, and this authorization allows the FHA Commissioner to take into 
consideration any difficulties that may be faced by a mortgagee to meet 
a deadline. Moreover, this rule will benefit mortgagees because it will 
require mortgagees to only curtail the expenses and interest associated 
with the length of the delay beyond a required deadline, rather than 
all otherwise permissible expenses after a missed deadline for the 
remaining life of the loan, regardless of the length of the delay. At 
present, a missed foreclosure initiation deadline by one day could 
result in interest curtailment and disallowance of expenses for the 
remaining life of the loan, through the entire foreclosure and 
conveyance process until final termination of the FHA insurance 
contract.
    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 will not 
have a significant economic impact on a substantial number of small 
entities, HUD specifically invites comments regarding any less 
burdensome alternatives to this rule that will meet HUD's objectives as 
described in the preamble to this rule.

Environmental Impact

    The proposed 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 
proposed 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 proposed 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.

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,

[[Page 38415]]

Reporting and recordkeeping requirements, Solar energy.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR part 203 as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

0
1. The authority citation for 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. Add Sec.  203.317a to read as follows:


Sec.  203.317a  Termination for mortgagee's failure to file a claim.

    For mortgages endorsed for insurance on or after [insert effective 
date], the contract of insurance shall be terminated if the mortgagee 
fails to file a claim within the maximum time periods for filing a 
claim of insurance benefits in Sec.  203.372.
0
3. Revise Sec.  203.318 to read as follows:


Sec.  203.318  Notice of termination by mortgagee.

    No contract of insurance shall be terminated until the mortgagee 
has given written notice thereof to the Commissioner within 15 calendar 
days from the occurrence of one of the approved methods of termination 
set forth in this subpart, except that such written notice is not 
required for termination of the insurance contract under Sec.  
203.317a.
0
4. Add Sec.  203.372 to read as follows:


Sec.  203.372  Maximum time period for filing a claim for insurance 
benefits.

    (a) This section applies to mortgages endorsed for insurance on or 
after [insert effective date].
    (b) No claim for insurance benefits may be filed, regardless of 
claim processing type, more than 12 months after expiration of a period 
of time from the date of default that is equal to the amount of time 
provided in the reasonable diligence timeframe established under Sec.  
203.356(b) for the jurisdiction unless the Secretary has approved an 
extension. In the event any applicable redemption period exceeds the 
claim filing timeframe as stated in the previous sentence, the 
timeframe will be extended by a period of time equal to the applicable 
redemption period, unless the conveyance is permitted by FHA during the 
redemption period.
    (c) In addition to the time period in paragraph (b) of this 
section, no conveyance, pre-foreclosure sale, or deed-in-lieu claim may 
be filed outside of the time period established by claim type under 
this paragraph.
    (1) Property acquired by foreclosure. For a property acquired by 
foreclosure, a mortgagee must file a claim for insurance benefits no 
later than 3 months from the date of the occurrence of one the 
following events, whichever event is the last to occur:
    (i) The date of the foreclosure sale;
    (ii) The date of expiration of the redemption period (the period 
allowed the mortgagor to redeem and regain ownership of the property);
    (iii) The date that the mortgagee acquires possession of the 
property (i.e., the property is vacant); or
    (iv) Such further time as the Secretary or the Secretary's designee 
may approve in writing.
    (2) Property not acquired by the Secretary. For a property not 
acquired by the Secretary that is sold through a pre-foreclosure sale 
or the claim without conveyance of title (CWCOT) process, the mortgagee 
must file a claim for insurance benefits no later than 3 months 
following the date of closing, for a pre-foreclosure sale; or the date 
determined in paragraph (b)(1) of this section, for a CWCOT.
    (3) Property acquired by means other than foreclosure. For a 
property acquired by deed-in-lieu of foreclosure, the mortgagee must 
file a claim for insurance benefits no later than 3 months from the 
date of conveyance of the property to the mortgagee or the date of 
conveyance of the property to the Secretary, whichever occurs first.
    (d) Resubmission of claims. The filing of a claim does not toll the 
time periods set forth in this section or guarantee an extension of 
time in which to file or refile a claim that has been withdrawn or 
denied for any reason, including claims resubmitted after the initial 
claim resulted in a repurchase of a loan or reconveyance of property.
0
5. Amend Sec.  203.402 to revise paragraph (k) and add paragraph (u) to 
read as follows:


Sec.  203.402  Items included in payment--conveyed and non-conveyed 
properties.

* * * * *
    (k)(1) Except as provided in paragraphs (k)(1)(i) and (ii) of this 
section, for properties conveyed to the Secretary and endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the date such 
payment is made, on the portion of the insurance benefits paid in cash, 
if such portion had been paid in debentures, and for properties 
conveyed to the Secretary and endorsed for insurance after January 23, 
2004, debenture interest at the rate specified in Sec.  203.405(b) from 
the date specified in Sec.  203.410, as applicable, to the date of 
claim payment, on the portion of the insurance benefits paid in cash.
    (i) For properties endorsed for insurance on January 24, 2004 
through [insert day before effective date]:
    (A) When the mortgagee fails to meet any one of the applicable 
requirements of Sec. Sec.  203.355, 203.356(b), 203.359, 203.360, 
203.365, 203.606(b)(l), or 203.366 within the specified time and in a 
manner satisfactory to the Secretary (or within such further time as 
the Secretary may approve in writing), the interest allowance in such 
cash payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended; and
    (B) When the mortgagee fails to meet the requirements of Sec.  
203.356(a) within the specified time and in a manner satisfactory to 
the Secretary (or within such further time as the Secretary may specify 
in writing), the interest allowance in such cash payment shall be 
computed to a date set administratively by the Secretary.
    (ii) For properties endorsed for insurance on or after [insert 
effective date]:
    (A) When the mortgagee fails to meet any one of the applicable 
requirements of Sec. Sec.  203.355, 203.356(b), 203.359, 203.360, 
203.365, 203.606(b)(l), 203.366, or 203.402(u), within the specified 
time and in a manner satisfactory to the Secretary (or within such 
further time as the Secretary may approve in writing), the interest 
allowance in such cash payment shall be reduced by the amount 
determined, based on a pro rata calculation of interest by day, to have 
been incurred as a result of the failure of the mortgagee to comply 
with the specified time period; and
    (B) When the mortgagee fails to meet the requirements of Sec.  
203.356(a) within the specified time and in a manner satisfactory to 
the Secretary (or within such further time as the Secretary may specify 
in writing), the interest allowance in such cash payment shall be 
reduced by the amount determined, based on a pro rata calculation of 
interest by day, to have been incurred as a result of the failure of 
the mortgagee to comply with the specified time period set 
administratively by the Secretary.
    (2)(i) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  
203.368 and was endorsed for insurance on or before January 23, 2004, 
an amount equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date the

[[Page 38416]]

mortgagee or a party other than the mortgagee acquires good marketable 
title to the mortgaged property, on an amount equal to the amount by 
which an insurance claim determined in accordance with Sec.  203.401(a) 
exceeds the amount of the actual claim being paid in debentures; plus
    (B) The debenture interest that would have been earned from the 
date the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property to the date when payment of 
the claim is made, on the portion of the insurance benefits paid in 
cash if such portion had been paid in debentures, except that if the 
mortgagee fails to meet any of the applicable requirements of 
Sec. Sec.  203.355, 203.356, and 203.368(i)(3) and (5) within the 
specified time and in a manner satisfactory to the Commissioner (or 
within such further time as the Commissioner may approve in writing), 
the interest allowance in such cash payment shall be computed only to 
the date on which the particular required action should have been taken 
or to which it was extended.
    (ii) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  
203.368 and was endorsed for insurance on January 24, 2004 through 
[insert day before effective date], an amount equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date 
that the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date the mortgagee or a person other than the mortgagee 
acquires good marketable title to the mortgaged property to the date 
when payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any 
of the applicable requirements of Sec. Sec.  203.355, 203.356, and 
203.368(i)(3) and (5) within the specified time and in a manner 
satisfactory to the Commissioner (or within such further time as the 
Commissioner may approve in writing), the interest allowance in such 
cash payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended.
    (iii) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  
203.368 and was endorsed for insurance on or after [insert effective 
date], an amount equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date 
that the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date the mortgagee or a person other than the mortgagee 
acquires good marketable title to the mortgaged property to the date 
when payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any 
of the applicable requirements of Sec. Sec.  203.355, 203.356, 
203.368(i)(3) and (5), and 203.402(u) within the specified time and in 
a manner satisfactory to the Commissioner (or within such further time 
as the Commissioner may approve in writing), the interest allowance in 
such cash payment shall be reduced by the amount determined, based on a 
pro rata calculation of interest by day, to have been incurred as a 
result of the failure of the mortgagee to comply with the specified 
time period.
    (3)(i) Where a claim for insurance benefits is being paid following 
a pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance on or before January 23, 2004, an amount 
equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date of the closing of the pre-foreclosure sale on an amount equal to 
the amount by which an insurance claim determined in accordance with 
Sec.  203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) The debenture interest that would have been earned, from the 
date of the closing of the pre-foreclosure sale to the date when 
payment of the claim is made, on the portion of the insurance benefits 
paid in cash, if such portion had been paid in debentures; except that 
if the mortgagee fails to meet any of the applicable requirements of 
Sec.  203.365 within the specified time and in a manner satisfactory to 
the Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (ii) Where a claim for insurance benefits is being paid following a 
pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner, in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance on January 24, 2004 through [insert day before 
effective date], an amount equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date of 
the closing of the pre-foreclosure sale, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date of the closing of the pre-foreclosure sale to the date 
when the payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any 
of the applicable requirements of Sec.  203.365 within the specified 
time and in a manner satisfactory to the Commissioner (or within such 
further time as the Commissioner may approve in writing), the interest 
allowance in such cash payment shall be computed only to the date on 
which the particular required action should have been taken or to which 
it was extended.
    (iii) Where a claim for insurance benefits is being paid following 
a pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner, in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance on or after [insert effective date], an amount 
equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date of 
the closing of the pre-foreclosure sale, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date of the closing of the pre-foreclosure sale to the date 
when the payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any 
of the applicable requirements of Sec.  203.365 within the specified 
time and

[[Page 38417]]

in a manner satisfactory to the Commissioner (or within such further 
time as the Commissioner may approve in writing), the interest 
allowance in such cash payment shall be reduced by the amount 
determined, based on a pro rata calculation of interest by day, to have 
been incurred as a result of the failure of the mortgagee to comply 
with the specified time period.
* * * * *
    (u) Disallowance of expenses due to mortgagee failure to meet 
timelines. Notwithstanding any other provision of this section, FHA may 
deny payment of any amount claimed for any expenses, such as taxes, 
special assessments, hazard insurance, forced placed insurance, flood 
insurance, homeowner association (HOA)/condominium association (COA) 
fees or dues, utilities, inspections, debris removal, and any property 
preservation and protection expenses, that were paid or incurred by or 
on behalf of the mortgagee during any period of delay or as a result of 
any delay by the mortgagee in taking any required actions prior to the 
expiration of the time periods set forth in paragraph (u)(1) of this 
section.
    (1) If a mortgagee fails to comply with any of the timeframes 
established by the Secretary for actions set forth in this paragraph, 
the mortgagee must curtail all claim expenses in accordance with 
paragraph (u)(2) of this section:
    (i) The timeframe for taking of First Legal Action to commence 
foreclosure;
    (ii) The reasonable diligence timeframes established by the state 
in which the property is located;
    (iii) The timeframe to convey a property after obtaining title and 
possession;
    (iv) The timeframe for marketing a property; or
    (v) Any other timeframe established under this subpart that is 
applicable to the mortgagee's filing of a claim for insurance benefits.
    (2) For a mortgagee that does not meet one or more of the deadlines 
in paragraph (u)(1) of this section, the mortgagee must curtail on a 
prorated basis:
    (i) Expenses in paragraph (u) of this section incurred during or as 
a result of any failure by the mortgagee to act within the applicable 
time period; or
    (ii) Expenses that are reasonably estimated to have been incurred 
during or as a result of any failure by the mortgagee to act within the 
applicable time period if the amount of expenses specifically incurred 
beyond the applicable deadline is unavailable or not itemized; and
    (iii) Any additional expenses incurred as a result of the 
mortgagee's failure to comply with the timeframe.
    (3)(i) Regardless of the review type, if FHA determines that the 
mortgagee's claim included expenses incurred after the expiration of a 
timeframe listed in paragraph (u)(1) of this section, FHA may, in its 
discretion:
    (A) Reduce the amount of insurance benefits paid to the mortgagee; 
or
    (B) Demand for repayment of all expenses that were not curtailed by 
the mortgagee.
    (ii) FHA may offset any future claims made by a mortgagee if the 
mortgagee does not satisfy any demand for repayment under paragraph 
(u)(3)(i)(B) of this section within 30 days of the date FHA issues the 
demand for repayment.
0
6. Revise the heading of Sec.  203.474 to read as follows:


Sec.  203.474  Additional limitation on claim submission for 
rehabilitation loans secured by other than a first mortgage.

* * * * *

    Dated: May 11, 2015.
Edward L. Golding,
Principal Deputy Assistant Secretary for Housing.
[FR Doc. 2015-16479 Filed 7-2-15; 8:45 am]
 BILLING CODE 4210-67-P