[Federal Register Volume 83, Number 128 (Tuesday, July 3, 2018)]
[Rules and Regulations]
[Pages 31038-31042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14212]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-5457-F-02]
RIN 2502-AJ03


Streamlining Inspection Requirements for Federal Housing 
Administration (FHA) Single-Family Mortgage Insurance: Removal of the 
FHA Inspector Roster

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule streamlines the inspection requirements for 
FHA single-family mortgage insurance by removing the regulations for 
the FHA Inspector Roster (Roster). The Roster is a list of inspectors 
approved by FHA as eligible to determine if the construction quality of 
a one- to four-unit property is acceptable as security for an FHA-
insured loan. The removal of the Roster regulations is based on the 
recognition of the sufficiency and quality of inspections carried out 
by certified inspectors and other qualified individuals. This final 
rule follows publication of a February 6, 2013, proposed rule, and 
takes into consideration the public comments received on the proposed 
rule.

DATES: Effective date: August 2, 2018.

FOR FURTHER INFORMATION CONTACT: Elissa Saunders, Director, Office of 
Single Family Program Development, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street SW, Room 9184, 
Washington, DC 20410-8000; telephone number 202-708-2121 (this is not a 
toll-free

[[Page 31039]]

number). Persons with hearing or speech impairments may access this 
number via TTY by calling the Federal Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--HUD's February 6, 2013, Proposed Rule

    On February 6, 2013, at 78 FR 8448, HUD published a proposed rule 
to streamline the inspection and home warranty requirements for FHA 
single-family home insurance. As part of this rule, HUD proposed to 
eliminate the Roster,\1\ which lists inspectors, approved by HUD, to 
perform inspections in the limited circumstances when either: (1) A 
local jurisdiction did not already perform its own inspections for new 
construction, and issue building permits and certificates of occupancy; 
or (2) when the inspection of a structural repair or renovation was not 
performed by a licensed professional as specified by regulation. (See 
24 CFR 200.170(b)). HUD originally established the Roster to 
standardize the inspection process for properties with FHA-insured 
mortgages. Before the Roster, cities and states developed their own 
building codes, which had little uniformity or consistency with each 
other. Now, however, the International Residential Code (IRC) is in use 
or adopted in 49 states, the District of Columbia, Puerto Rico, Guam, 
and the U.S. Virgin Islands.\2\ The International Code Council (ICC), 
which developed the IRC, also certifies Combination Inspectors (CIs) 
and Residential Combination Inspectors (RCIs). To be certified by the 
ICC, CIs and RCIs must pass a rigorous set of examinations, which 
includes testing their knowledge of the IRC. As a result, there is no 
longer a need for HUD to maintain and administer its own 
standardization process for inspectors.
---------------------------------------------------------------------------

    \1\ Codified at 24 CFR 200.170-200.172.
    \2\ http://www.iccsafe.org/wp-content/uploads/stateadoptions.pdf.
---------------------------------------------------------------------------

    For local jurisdictions that do not provide building code 
enforcement and requisite documentation, the rule proposed to accept 
inspections by an RCI, who is also licensed or certified as a home 
inspector in accordance with the applicable state and local 
requirements governing the licensing or certification of such 
inspectors in the respective jurisdiction. For jurisdictions who have 
an absence of RCIs, the rule proposed to require lenders to obtain an 
inspection performed by a third party who is a registered architect, a 
professional engineer, or a trades person or contractor and has met the 
licensing and bonding requirements of the state in which the property 
is located.
    As part of the same publication, HUD also proposed to eliminate its 
requirement that borrowers purchase a 10-year protection plan for all 
high loan-to-value mortgages in order to qualify for FHA mortgage 
insurance. HUD had combined the two proposals as they both involved 
streamlining requirements for FHA single-family mortgage insurance. 
However, the two proposals are distinct and the regulations unrelated. 
In addition to covering separate subjects, the regulations applied to 
different parties. The procedures and requirements related to the 
Roster applied to inspectors and lenders, while the regulations 
regarding 10-year protection plans applied to homebuilders, lenders, 
and borrowers. The public comments reflect this distinction, in that 
they treated these proposals separately, with the exception of 
expressions of general support for both proposals. In order to properly 
address the separate comments received on each proposal and to be more 
transparent about the how the regulatory changes will affect different 
parties, this final rule only deals with elimination of the Roster. HUD 
is addressing elimination of the 10-year protection plan requirement in 
a separate rule.
    Interested readers are referred to the preamble of the February 6, 
2013, proposed rule for additional historical background and 
explanation of the proposed regulatory changes.

II. This Final Rule; Change to February 6, 2013, Proposed Rule

    After considering public comment, HUD is making one change to the 
February 6, 2013, proposed rule. As discussed above, HUD proposed to 
accept inspections from RCIs for local jurisdictions that do not 
provide building code enforcement and requisite documentation. This 
final rule provides that HUD will also accept inspections performed by 
CIs, who are subject to the same rigorous ICC requirements required for 
RCI certification, and have also passed tests in the same disciplines 
for commercial buildings. HUD determined that the change is warranted 
due to similarity in the certification requirements between RCIs and 
CIs. Moreover, as more fully discussed in the following section of this 
preamble, expanding the number of inspectors certified by the ICC that 
are eligible to perform inspections will help to address the concern 
expressed by a commenter that some jurisdictions lack a sufficient 
number of RCIs.

III. Discussion of the Public Comments Related to the Elimination of 
HUD's Inspector Roster

    The public comment period for the February 6, 2013, proposed rule 
closed on April 8, 2013. HUD received 7 public comments, 5 of which 
provided comments on the elimination of the Roster requirement. These 
comments were submitted by the ICC, a housing trade association, a 
mortgage company, a homebuilder, and an individual.\3\ Below is a 
summary of the significant issues pertaining to the Roster raised by 
these comments, and HUD's responses to these comments.
---------------------------------------------------------------------------

    \3\ The public comments on the proposed rule are available for 
download from the Regulations.gov website at the following link: 
http://www.regulations.gov/#!docketBrowser;rpp=25;po=0;dct=PS;D=HUD-
2013-0011.
---------------------------------------------------------------------------

    In response to the general solicitation of public comments, HUD 
received the following comments and provides the following responses:
    Comment: Include CIs as allowed inspectors. One commenter suggested 
that HUD accept inspections from ICC-certified CIs who have passed the 
required tests for RCI certification, as well as passed tests in the 
same disciplines for commercial buildings. The commenter wrote that 
this change would increase the pool of inspectors from 3,666 (RCIs) to 
5,892 (RCIs and CIs), and help avoid confusion as to whether only RCIs 
meet the requirements of the rule, or whether those certified for both 
Residential and Commercial Inspection who are certified as Combination 
Inspectors also meet the requirements of the rule.
    HUD Response. HUD has adopted the change suggested by the 
commenter. The final rule provides that in jurisdictions that do not 
provide building code enforcement and requisite documentation, the 
lender must, in order to ensure compliance with FHA requirements, 
select an RCI or CI certified by the ICC who is licensed or certified 
as a home inspector in accordance with the applicable state and local 
requirements. CIs are subject to the same rigorous ICC certification 
requirements as RCIs and, therefore, their inclusion is consistent with 
HUD's stated policy goals in accepting inspection performed by RCIs. 
Further, HUD agrees with the commenter that the change will expand the 
pool of qualified inspectors and avoid confusion.
    Comment: With Limited Number of RCIs, Allow Original Loan Appraiser 
to Complete Final Inspection. One commenter wrote that due to the 
limited number of current RCI inspectors, the

[[Page 31040]]

proposed process will be less efficient and more subjective than HUD 
anticipated. The commenter wrote that while the use of a building 
permit/certificate of occupancy may be feasible with existing 
residences, the timing of these related to new home construction would 
be problematic. The commenter wrote that with reduced options and 
precarious timelines, the opportunity for additional costs and closing 
delays will increase for homeowners. The commenter suggested that HUD 
allow the original appraiser to complete the final inspection. 
According to the commenter this is acceptable under Federal National 
Mortgage Association (Fannie Mae), United States Department of 
Agriculture, and United States Department of Veterans Affairs 
guidelines. The commenter wrote that because mortgage lenders maintain 
an FHA approved appraiser list, or work with an appraisal management 
company which does so, the process would be an extension of an 
efficient and accepted process, which would continue to provide 
protections for both homebuyers and HUD.
    HUD Response. HUD has not revised the rule in response to this 
comment. As an initial matter, HUD notes that inspections are only 
required where the local jurisdiction does not provide building code 
enforcement and documentation. HUD specifically solicited comment on 
the number of qualified RCIs. Based on the data provided by the ICC, 
HUD continues to believe there are sufficient number of ICC-certified 
inspectors to allow for inspections in the limited circumstances 
contemplated by the rule.\4\ As discussed in the preamble to the 
February 6, 2013, proposed rule, HUD believes that the overall effect 
of removing the Roster will be to increase the number of competent 
inspectors, since inspectors currently on the Roster will no longer 
have an advantage of the exclusive market power of inspecting FHA-
insured homes. Moreover, HUD is amending the proposed rule to further 
expand the pool of eligible inspectors to include CIs. In the absence 
of such ICC-certified inspectors, the lender may obtain an inspection 
performed by a third party, who is a registered architect, a 
professional engineer, or a trades person or contractor, and who has 
met the licensing and bonding requirements of the State in which the 
property is located.
---------------------------------------------------------------------------

    \4\ Please refer to the end of this section of the preamble for 
the information on the number of ICC-certified inspectors.
---------------------------------------------------------------------------

    With respect to the suggestion that HUD allow appraisers to conduct 
the required inspections, HUD agrees that appraisers have always played 
a vital role in FHA's mission to provide affordable homeownership by 
accurately assessing the value of a home. While other Federal agencies 
may allow appraisers to conduct inspections to determine construction 
quality, HUD continues to believe that limiting the conduct of required 
inspections to ICC-certified inspectors and other qualified, licensed 
and bonded professionals is the best means to safeguard FHA and the 
Federal taxpayer.
    In addition to the general solicitation of public comments on the 
February 6, 2013, proposed rule, HUD specifically requested comments on 
two issues.
    First, HUD advised that it had been unable to determine the number 
of jurisdictions for which there may be an absence of RCIs and 
specifically requested information on this issue. In response, the ICC 
advised that there are 3,666 RCIs and 2,226 CIs around the country, 
with nearly every state having at least 4 inspectors certified as RCIs 
or CIs. Massachusetts, Maine, North Dakota, South Dakota, Rhode Island, 
and Vermont each have only one certified inspector. However, the ICC 
said that in each of these states, there are additional individuals 
possessing three, and sometime four, of the required four underlying 
certifications to achieve the RCI, or seven or eight of the underlying 
certifications for the CI. The ICC said it believes that if this 
proposed requirement is implemented, many eligible inspectors will 
apply for appropriate certification. The ICC said it believes that 
there are sufficient numbers in every state to allow for inspectors in 
all of the 50 states, but that in some cases, nearby out of state 
travel may be required by the inspector.
    In addition to the foregoing issue, HUD specifically sought comment 
on whether, for jurisdictions for which RCIs are not available, HUD 
should require the lender, in selecting a non-RCI, albeit an individual 
licensed and bonded under State law, to select a registered architect, 
engineer, trades person, or contractor with a minimum of 5 years' 
experience. HUD did not receive any comments in response to this issue.

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 Regulation 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.
    This rule was determined to be a ``significant regulatory action'' 
as defined in section 3(f) of Executive Order 12866 (although not an 
economically significant regulatory action, as provided under section 
3(f)(1) of the Executive Order). The removal of these regulations is 
consistent with goals of Executive Order 13563.
    The rule does not rise to the level of an economically 
``significant regulatory action'' under section 3(f)(1) of Executive 
Order 12866. HUD expects the elimination of the national Inspector 
Roster to have economic benefits and costs. However, neither the 
economic costs nor the benefits of the elimination are greater than the 
$100 million threshold that determines economic significance under 
Executive Orders 12866 and 13563. The preamble to the February 6, 2013, 
proposed rule at 78 FR 8453-8454, provided a discussion of the 
anticipated costs and benefits of the regulatory amendments. Please see 
the below section on the summary of benefits and costs, which 
summarizes and updates the costs and benefits of the regulatory 
changes.

Executive Order 13771

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017. This 
final rule is considered an E.O. 13771 deregulatory action. Details on 
the estimated cost savings of this final rule can be found in the 
rule's economic analysis.

Summary of Benefits and Costs of Final Rule

    There are two effects of eliminating the FHA Inspector Roster 
requirement: A reduction in paperwork burden to the Federal Government 
and potential, but not probable, gains in consumer surplus from 
enhanced competition.
    First, no longer requiring that an inspector be on the Roster 
creates savings by reducing the administrative costs necessary to 
maintain the Roster.

[[Page 31041]]

HUD anticipates cost savings of approximately $62,870. This estimate is 
based on the following: Savings of $46,350 for elimination of 
Applications for Fee or Roster Inspector designation forms and copy of 
state certification (based on 3,090 inspector applications or 
respondents times a response per respondent times 0.5 burden hours per 
response times at cost of $30 per hour); savings of $11,520 for 
elimination of the fielding with inspectors and data input into FHA 
Connection; and savings of $5,000 for the elimination of maintenance of 
the Roster database.
    Second, relaxing restrictions to entry of inspectors would expand 
the set of inspectors from which lenders may choose for the inspection 
of a home where the mortgage is to be insured by FHA. Inspectors 
currently on the Roster would lose the ability to exploit any market 
power conveyed by the current Roster requirements.
    The market outcome (effect on price, quantity, and quality of 
service) of eliminating supply restrictions depends upon whether there 
is excess demand for inspector services. It appears that the Inspector 
Roster is not a binding restriction. Only a very limited number of FHA 
loans would be affected by eliminating the Roster. FHA data reveals 
that the number of FHA-insured properties requiring an inspection by an 
RCI or other qualified individual where an RCI is unavailable 
represents a small percentage of total loans. During 2017, only 877 
(0.07 percent) out of the 1,233,428 endorsed loans required the use of 
a Roster inspector. The average cost for Roster inspector services was 
estimated at $200 in 2016. This fee is not significantly different (and 
not greater than) the average fee charged by inspectors. Given the 
small number of loans initially reserved to inspectors from the Roster 
and the lack of divergence in cost, the cost for inspector service 
would not be affected. However, an elimination of the Roster could 
result in a small transfer of business activity away from inspectors on 
the Roster.
    The quality of inspection is not likely to suffer because of the 
elimination of the Roster. Current industry standards and local 
regulations are sufficiently rigorous to render HUD's standards 
redundant. To become an RCI, applicants must undergo a rigorous 
examination and certification process that is even more robust than the 
Inspector Roster qualification process. On the rare occasion that an 
RCI is unavailable in a particular jurisdiction, the professional 
qualifications and length of experience for other qualified individuals 
are sufficiently high thresholds to mitigate the concern of inadequate 
inspections.
    The docket file is available for public inspection in the 
Regulations Division, Office of General Counsel, Department of Housing 
and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 
20410-0500. Due to security measures at the HUD Headquarters building, 
please schedule an appointment to review the docket file by calling the 
Regulation Division at 202-402-3055 (this is not a toll-free number). 
Individuals with speech or hearing impairments may access this number 
via TTY by calling the toll-free Federal Relay Service at 800-877-8339.

Paperwork Reduction Act

    The information collection requirements contained in this rule 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 Numbers 2502-0538 (Application for Fee or Roster Personnel 
Designation (form HUD-92563)), and 2502-0189 (pertaining to the 
Compliance Inspection Report (form HUD-92051) and the Mortgagee's 
Assurance of Completion (form HUD-92300)). 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.

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 rule is a deregulatory action taken by HUD that will lower 
barriers to entry to FHA business by removing redundant professional 
certifications. As previously noted, an elimination of the Roster could 
result in a small transfer of business activity away from inspectors on 
the Roster, but there is no reason to believe this transfer will be 
significant. There is no detectable wage premium for inspectors on the 
FHA Roster, and the Roster has been used for less than 0.1 percent of 
FHA's loans in recent years. Therefore, the undersigned certifies that 
this rule will not have a significant impact on a substantial number of 
small entities.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of No Significant 
Impact is available for public inspection between the hours of 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW, Washington, DC 20410-0500.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments or is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule will 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 rule does not 
impose any federal mandates on any State, local, or tribal governments, 
or on the private sector, within the meaning of 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 in 24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing standards, Lead poisoning, Loan 
programs--housing and community development, Mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social security, Unemployment 
compensation, Wages.


[[Page 31042]]


    Accordingly, for the reasons discussed in the preamble, HUD amends 
24 CFR part 200 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

0
1. The authority citation for part 200 continues to read as follows:

    Authority:  12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535(d).

0
2. In Sec.  200.145, add paragraph (c) to read as follows:


Sec.  200.145   Property and mortgage assessment.

* * * * *
    (c) For all new construction as well as structural repairs and/or 
renovations of existing properties, to the extent that an inspection is 
required to determine if construction quality of a one- to four-unit 
property is acceptable as security for an FHA-insured loan, the 
following requirements apply:
    (1)(i) In areas where local jurisdictions provide building code 
enforcement and the requisite documentation, the lender shall provide a 
copy of:
    (A) The building permit, or its equivalent, and a copy of the 
certificate of occupancy, or its equivalent; or
    (B) A satisfactory inspection notice for work completed, or its 
equivalent.
    (ii) The documentation provided under paragraph (c)(1)(i) of this 
section shall be considered satisfactory evidence of completion of the 
work.
    (2) In jurisdictions that do not provide building code enforcement 
and requisite documentation, three inspections are required for new 
construction. For existing construction, only one inspection and 
certification of work completed for structural repairs and renovations 
is required. For both new and existing construction, the lender shall, 
in order to ensure compliance with FHA requirements:
    (i) Select a Residential Combination Inspector (or its successor 
designation) or a Combination Inspector (or its successor designation) 
certified by the International Code Council (or its successor 
organization) who is licensed or certified as a home inspector in 
accordance with the applicable State and local requirements governing 
the licensing or certification of those jurisdictions that license or 
certify such inspectors in the respective jurisdiction. The lender 
shall provide a certification from such inspector that the new 
construction and/or structural repair or renovation work is completed 
satisfactorily and in compliance with any applicable building code.
    (ii) In the absence of such Residential Combination Inspector and 
Combination Inspector, the lender shall obtain an inspection performed 
by a third party, who is a registered architect, a professional 
engineer, or a trades person or contractor, and who has met the 
licensing and bonding requirements of the State in which the property 
is located. The lender shall provide a certification from such 
inspector that the inspector is licensed and bonded under applicable 
State law, and that the new construction and/or structural repair or 
renovation work is completed satisfactorily and in compliance with any 
applicable building code.


Sec. Sec.  200.170 through 200.172   [Removed]

0
3. Remove the undesignated center heading ``FHA Inspector Roster'' and 
Sec. Sec.  200.170 through 200.172.

    Dated: June 26, 2018.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2018-14212 Filed 7-2-18; 8:45 am]
 BILLING CODE 4210-67-P