[Federal Register Volume 84, Number 87 (Monday, May 6, 2019)]
[Proposed Rules]
[Pages 19748-19750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09124]


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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 204

[Docket No. FR-6051-A-01]


Federal Housing Administration (FHA): Single-Family Loan Sale 
Program; Advance Notice of Proposed Rulemaking and Request for Public 
Comment

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

ACTION: Advance notice of proposed rulemaking and request for public 
comment.

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

SUMMARY: This notice seeks comments regarding FHA's Single-Family Loan 
Sale Program (the Program). The Program has been operating under 
demonstration and general disposition authority, through which 
eligible, single-family mortgage loans assigned to FHA in exchange for 
claim payment and mortgage notes are sold competitively to maximize 
recoveries and strengthen the FHA Mutual Mortgage Insurance Fund 
(``MMIF''). FHA is seeking comments from the public to improve program 
practices and procedures as FHA transitions the Program from a 
demonstration to a permanent program. FHA will consider the comments 
submitted in developing a permanent program for assigning defaulted 
Single-Family mortgage loans to FHA and disposing of the assigned loans 
through loan sales.

DATES: Comment Due Date: Written comments must be received on or before 
July 5, 2019.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice. Comments should refer to the above docket number and 
title. There are two methods for submitting comment.
    1. Submission of comments by mail: Comments may be submitted by 
mail to the HUD Regulations Division, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street SW, Washington, DC 20410-
8000; telephone: (202) 708-2625 (this is not a toll-free number), or 
toll free (800) 481-9895. Hearing- or speech-impaired individuals may 
access these numbers through TTY by calling the Federal Relay Service 
at (800) 877-8339 (this is a toll-free number).
    2. Electronic submission of comments: Comments may be submitted 
electronically through the Federal eRulemaking Portal at 
www.regulations.gov. FHA 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 FHA, and enables FHA to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov website can be viewed by other commenters and 
interested members of the public. Commenters should follow 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 this notice.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    3. Public inspection of public comments: All properly submitted 
comments and communications submitted to FHA 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) 402-
5731 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: John Lucey, Director, FHA Office of 
Asset Sales, Office of Housing, Department of Housing and Urban 
Development, 451 7th Street SW, Washington, DC 20410-8000; telephone: 
(202) 708-2625 (this is not a toll-free number), or toll-free: (800) 
481-9895. Hearing- or speech-impaired individuals may access these 
numbers through TTY by calling the Federal Relay Service at: (800) 877-
8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    Since 2002, FHA has operated a demonstration program to implement 
the general authority under section 204 of the National Housing Act, 12 
U.S.C. 1710, as amended by section 601 of the Fiscal Year 1999 
Departments of Veterans Affairs and Housing and Urban Development and 
Independent Agencies Appropriations Act (Pub. L. 105-276, approved 
October 21, 1998) (``FY 1999 Appropriations Act''). Section 601 of the 
FY 1999 Appropriations Act amended section 204 to make more effective 
the methods for paying insurance claims and disposing of FHA-acquired 
single family mortgages and properties.\1\ Over the years, FHA has 
adopted various names to refer to this demonstration, including the 
Accelerated Claim and Asset Disposition (ACD) Demonstration, the Single 
Family Loan Sales (``SFLS'') Program, and the Distressed Asset 
Stabilization Program (``DASP''). Nonetheless, FHA has continuously 
operated the demonstration for the purpose of selecting a cost- and 
mission-effective method of paying insurance claims and disposing of 
acquired notes or properties under the FHA Single-Family insurance 
programs. Section 204 grants FHA discretion to implement a range of 
disposition alternatives. This statutory provision provides FHA the 
flexibility to consider and make adjustments based upon current market 
and economic factors and conditions. Exercising this authority helps to 
effectively manage FHA's defaulted assets and minimizes losses to the 
MMIF, thereby helping to satisfy the Secretary's fiduciary duty to 
preserve the insurance fund.
---------------------------------------------------------------------------

    \1\ See 12 U.S.C. 1710(a) & (g).
---------------------------------------------------------------------------

    By notice published in the Federal Register on February 5, 2002, 
FHA announced its intention to establish the ACD Demonstration to 
``address any programmatic concerns'' and ``assess its success and 
determine whether to implement the ACD process on a permanent basis, 
throughout the country.'' \2\ As stated in the notice, ``[m]ortgagee 
participation in the ACD [demonstration] is voluntary,'' and interested 
persons could submit comments.\3\ Approximately eight months after 
publishing the February 5,

[[Page 19749]]

2002 Notice, FHA published an additional notice responding to public 
comments and conducted its first sale of defaulted mortgages through 
the ACD Demonstration.\4\
---------------------------------------------------------------------------

    \2\ See FR-4691-N-01, Notice of FHA Accelerated Claim 
Disposition (ACD) Demonstration, 67 FR 5418 (February 5, 2002).
    \3\ Id.
    \4\ See Notice of FHA Accelerated Claim Disposition 
Demonstration, 67 FR 66038 (October 29, 2002).
---------------------------------------------------------------------------

    On June 5, 2006, FHA issued an Advance Notice of Proposed 
Rulemaking (``ANPR'') that solicited public comment ``on HUD's ACD 
program before HUD proceeds to issue a proposed rule that will commence 
the rulemaking process that will result in the codification of the 
requirements for the ACD program.'' \5\ The ANPR solicited public 
comments in an effort to make ``possible improvements to the program,'' 
including the most efficient way to ``maximize the return to the FHA 
insurance fund'' by ``minimiz[ing] the time an asset is held.'' \6\ On 
April 30, 2007, FHA published a regulatory agenda providing public 
notice that FHA had withdrawn the ANPR effective March 1, 2007.\7\ 
Rather than proceed to rulemaking at that time, FHA adopted additional 
modifications to the demonstration, including changing the disposition 
method from joint venture to whole note sales.
---------------------------------------------------------------------------

    \5\ See Accelerated Claim and Asset Disposition (ACD) Program; 
Advanced Notice of Proposed Rulemaking, 71 FR 32392 (June 5, 2006).
    \6\ Id.
    \7\ See HUD Semiannual Regulatory Agenda, 72 FR 22694 (April 30, 
2007).
---------------------------------------------------------------------------

II. This Document

    FHA is considering notice-and-comment rulemaking to transition the 
Program from a demonstration to a permanent program. Accordingly, FHA 
is evaluating potential modifications to the Program to manage FHA's 
defaulted assets and minimize losses to the MMIF, thereby helping to 
satisfy the Secretary's fiduciary duty to preserve the insurance fund. 
The Program goals are to ensure that FHA's public policy objectives are 
addressed and that returns to the MMIF from the claim payment and final 
disposition of each asset are maximized.
    A key objective of potential changes to the Program is to continue 
to provide flexibility for the management of defaulted notes. Without 
the Program, after conducting loss mitigation, lenders in most cases 
would be required to foreclose the defaulted loans to perfect an 
insurance claim. If the properties could not be sold to a third party 
at foreclosure or a second-chance auction, the lender would be required 
to convey the property to FHA in order to be paid a mortgage insurance 
claim, incurring legal and holding costs that increase the financial 
cost to FHA through claim payment. Properties conveyed to FHA would 
increase FHA's REO inventory, posing an additional financial burden on 
FHA for asset management costs. Disposing of delinquent loans shortens 
the period between default and claim payment, reducing the financial 
exposure to the MMIF for costs incurred after default. Implementing the 
Program as a permanent program will enable FHA to better manage the 
claims process for defaulted loans, establish a permanent, efficient 
disposition structure for loans, and reduce the overall financial 
exposure of the MMIF.
    Comments received in response to this notice will inform FHA on 
potential options to improve program participation, performance, and 
enforcement. The objective of seeking comments is to gather input from 
the public that will be used to review current single family forward 
note sale program requirements, including those pertaining to asset 
eligibility, the assignment claims process, loan delivery, sale 
structure, purchaser requirements, and enforcement mechanisms. This 
information will be applied to develop a regulatory framework for 
single family forward note sales that provides clarity about the 
requirements and objectives of the Program for all participants and 
stakeholders.
    Separate from single family forward note sales, the Department has 
conducted four competitive sales of HUD-Held Home Equity Conversion 
Mortgages (HECMs) as part of the HUD-Held Vacant Loan Sales. The loans 
sold in these offerings have been confirmed to be vacant and all 
borrowers, co-borrowing spouses, or non-borrowing spouse have been 
confirmed to be deceased. These sales were pursuant to section (d) of 
Public Law 105-276 (1998), codified at 12 U.S.C. 1710(g), and pursuant 
to section 255 of the National Housing Act (12 U.S.C. 1715z-20).
    Each of these sales were announced via separate Federal Register 
Notice and were publicly advertised.\8\
---------------------------------------------------------------------------

    \8\ See 81 FR 84610 (November 23, 2016); 82 FR 26708 (June 8, 
2017); and 83 FR 9533 (March 6, 2018).
---------------------------------------------------------------------------

III. Request for Public Comment

    This notice offers the opportunity for the public to provide 
information and recommendations on the design of a permanent Single-
Family Loan Sale Program, including asset eligibility, the assignment 
claims process, loan delivery, sale structure, purchaser requirements, 
and enforcement mechanisms. FHA will consider all public comments 
received and subsequently issue a proposed rule. At that time, FHA will 
accept further public comments on the proposed permanent program 
structure. FHA is particularly interested in public comments addressing 
the following issues:

3.0 Obstacles, Benefits, and Drawbacks

3.0.1 FHA Single Family Loan Sale Servicers

    (1) What obstacles exist to participation in the Program and how 
can those obstacles be addressed?
    (2) What factors are relevant to the decision to submit loans for 
claim payment through the Program versus alternative assignment 
options?
    (3) What, if any, monetary costs have been or will be incurred 
through program participation, including but not limited to, 
administrative and overhead costs?
    (4) What challenges have been or will be encountered in assigning 
and delivering loans to the Program?
    (5) What are the benefits to participating in the Program?
    a. Are any measurements available with respect to benefits from the 
Program?
    b. Were there any unanticipated benefits from participation in the 
Program?
    (6) What are the greatest drawbacks involved in participating and 
filing assignment claims through the Program?
    a. Are any metrics available that should be collected to track 
drawbacks?
    b. How and why, if at all, have any program participants changed, 
modified, or discontinued participation due to unanticipated 
consequences or drawbacks?

3.0.1.1 Administrative Issues

    (1) Resources:
    a. What FHA-supplied resources or assistance (e.g., program 
support) do servicers require for participation in the Program as an 
alternative claim payment mechanism?
    b. What resources would be helpful?
    (2) Planning process:
    a. Beginning with the initial planning phase, what amount of time 
is needed by servicers to implement any necessary changes in 
procedures, protocols, computer programs, or technology platform, etc., 
to enable participation in the Program?
    b. What are the steps in the process and how long will each take?
    (3) Administrative obstacles:
    a. What administrative obstacles exist to participation in the 
Program (e.g.,

[[Page 19750]]

reallocation of personnel and resources, reprogramming and 
reconfiguration of computer and other systems)?
    b. How can those obstacles be addressed?
    (4) Post-Sale Servicing considerations:
    a. What obstacles were encountered in servicing loans post-sale?

3.0.2 FHA Single Family Loan Sale Bidders & Purchasers

    (1) What loan characteristics are most desirable in the loans 
offered through the Program?
    (2) What type of loan pooling are most desirable for the loans 
offered through the Program?
    (3) Were the due diligence materials supplied in the past sales 
satisfactory?
    (4) What additional due diligence materials would be helpful?
    (5) What amount of time is needed by bidders to evaluate due 
diligence materials to enable participation in the Program?
    (6) What are the greatest obstacles for someone interested in 
purchasing notes?
    a. What sorts of entities have the actual capacity to purchase and 
service notes and has that population changed over the Program's 
existence?
    b. Has purchaser eligibility, based on requirements imposed by FHA, 
been an issue?
    c. What are the benefits and drawbacks of partnership participation 
in the Program (e.g., for-profit purchasers partnering with 
nonprofits)? Should the Program do more to facilitate such 
partnerships?
Post-Sale Servicing
    (1) Post-sale considerations:
    a. Were obstacles encountered servicing loans post-sale?
    b. What were the strategies used for loan disposition following 
purchase and which proved successful?
    (2) What changes, if any, should FHA consider to purchaser 
performance reporting requirements (e.g., reporting on borrower 
outcomes)? What are the expected benefits and trade-offs of such 
changes?

3.1 Community Impacts

    (1) What benefits has the Program provided communities?
    (2) What, if any, adverse effects has the Program had on 
communities?
    (3) What changes, if any, in the sale structure, loan eligibility 
criteria, or post-sale requirements on purchasers would improve 
community impacts? What are the policy trade-offs (e.g., potential 
adverse impact on bid pricing) of such changes?

3.2 Other Comments

    In addition to the subject areas described above, FHA welcomes any 
other input that interested parties believe would contribute to the 
successful design and permanent implementation of the Program.

    Dated: April 17, 2019.
John Garvin,
General Deputy Assistant Secretary for Housing.
[FR Doc. 2019-09124 Filed 5-3-19; 8:45 am]
 BILLING CODE 4210-67-P