[Federal Register Volume 85, Number 96 (Monday, May 18, 2020)]
[Notices]
[Pages 29736-29738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10516]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-7027-N-13]


60-Day Notice of Proposed Information Collection: HUD Multifamily 
Rental Project Closing Documents; OMB Control No.: 2502-0598

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

ACTION: Notice.

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SUMMARY: HUD is seeking approval from the Office of Management and 
Budget (OMB) for the information collection described below in 
accordance with the Paperwork Reduction Act (PRA). The purpose of this 
notice is to allow for 60 days of public comment.

DATES: Comments Due Date: July 17, 2020.

ADDRESSES: Interested persons are invited to submit comments regarding 
this information collection. Comments should refer to the collection by 
name and/or OMB Control Number and should be sent to: Colette Pollard, 
Reports Management Officer, QDAM, Department of Housing and Urban 
Development, 451 7th Street SW, Room 4176, Washington, DC 20410-5000; 
telephone 202-402-3400 (this is not a toll-free number) or email at 
[email protected] for a copy of the proposed forms or other 
available information. Persons with hearing or speech impairments may 
access this number through TTY by calling the toll-free Federal Relay 
Service at (800) 877-8339.

FOR FURTHER INFORMATION CONTACT: Colette Pollard, Reports Management 
Officer, QDAM, Department of Housing and Urban Development, 451 7th 
Street SW, Washington, DC 20410; email Colette Pollard at 
[email protected] or telephone 202-402-3400. This is not a toll-
free number. Persons with hearing or speech impairments may access this 
number through TTY by calling the toll-free Federal Relay Service at 
(800) 877-8339.
    Copies of the documents to be submitted to OMB may be provided by 
Ken Doresky.

SUPPLEMENTARY INFORMATION: This notice informs the public that HUD is

[[Page 29737]]

seeking approval from OMB for the information collection described in 
Section A.

A. Overview of Information Collection

    Title of Information Collection: HUD Multifamily Rental Project 
Closing Documents.
    OMB Approval Number: 2502-0598.
    OMB Expiration Date: 09/30/2021.
    Type of Request: Revision of currently approved collection.
    Form Number Being Revised: HUD-92420M.
    Description of the need for the information and proposed use: The 
form, Subordination Agreement, HUD-92420M, is used in FHA-insured 
multifamily rental project loan closings with secured, publicly 
financed secondary debt, often to promote affordable housing. The 
document is used to subordinate such secured, secondary financing to 
the lien of the FHA-insured mortgage, which must be in a first lien 
position as required by the National Housing Act (12 U.S.C. 1701 et. 
seq.), on terms and conditions that are legally and administratively 
acceptable to HUD.
    The Subordination Agreement is part of a larger information 
collection (OMB Control No. 2502-0598) that consists of numerous other 
closing forms (Closing Documents) used in FHA-insured multifamily 
transactions. The Closing Documents, including the Subordination 
Agreement, were last updated pursuant to the Paperwork Reduction Act 
(PRA) in 2018. However, HUD was not able to complete its review of 
public comments received in connection with the 30-day Federal Register 
notice (83 FR 29815; 30-day notice) published for the previous PRA 
renewal for the Closing Documents prior to the OMB deadline. Therefore, 
when HUD initiates a new PRA process for the Closing Documents later 
this year, it will include, as a starting point, changes HUD 
anticipated making in response to the public comments received with the 
30-day notice.
    Notwithstanding, due to concerns that state and local housing 
finance agencies (HFAs) have expressed concerning certain terms and 
conditions in the 2018 Subordination Agreement, HUD is initiating this 
separate PRA renewal effort in order to allow HFAs and other interested 
members of the public an opportunity to comment on the form and HUD to 
make agreed upon changes on a more immediate timeline. It is HUD's goal 
that the PRA process for the Subordination Agreement will result in a 
form that is widely accepted by HFAs to promote greater efficiency and 
consistency in the FHA multifamily closing process, while also allowing 
flexibility for HFA requested changes necessary for state or local law, 
as discussed immediately below.

Revisions to the Subordination Agreement

    HUD added the following instruction at the request of OMB given 
HUD's policy of considering requested Subordination Agreement changes 
to accommodate state or local law: ``HUD will consider requested 
changes to this form that are necessary to comply with state or local 
law. All such requests must be accompanied by a substantive explanation 
prepared by counsel to the Subordinate Lender. HUD's written acceptance 
of any changes for state or local law will result in a template 
Subordination Agreement--Public, for a given jurisdiction and program. 
Consistent with the PRA, permission to use any such HUD-approved 
template will expire upon implementation of the next OMB-approved 
version of this form. When a new OMB form is issued, public lenders may 
request HUD consideration of changes to the new form in accordance with 
the level of flexibility the new form provides.'' HUD notes that the 
underlying PRA burden estimate for the Subordination Agreement now 
accounts for any legal opinions that may be required to justify state 
or local law changes.
    Similarly, HUD added an instruction in section 3(b) to ensure the 
Subordination Agreement is consistent with existing HUD policy allowing 
an exception (on a case-by-case basis) to the requirement that the 
subordinate loan mature no earlier than the FHA-insured senior loan for 
deal-specific situations where the resulting risk is appropriately 
underwritten. Outside of this allowance to permit maturity of the 
subordinate loan before the FHA-insured senior loan and other existing 
instructions allowing flexibility for certain other terms (e.g., 
section 3(c)(4) exception to prohibition against compounding interest 
for LIHTC transactions), HUD does not anticipate accommodating deal-
specific requests for additional changes to the form. HFAs and other 
interested parties are encouraged to request, and provide a rationale 
for, any changes deemed necessary during this PRA process.
    In response to the 30-day notice, one commenter objected to section 
3(c) that requires HUD language be inserted into the subordinate note 
because many subordinate lenders use pre-approved template documents. 
HUD rejects this comment because FHA-insured multifamily financing is a 
national program that requires uniformity to ensure fairness and 
efficiency in closings. Thus, it is critical that every subordinate 
loan contain the HUD required language in order to accomplish this 
goal. HUD is, however, sympathetic to the fact that various HFAs have 
templates that must go through an approval process; therefore, HUD will 
permit the HUD-required subordinate note language to be incorporated by 
reference into the subordinate note.
    HUD also rejects a comment objecting to section 3(c)(3) that 
restricts a transfer of the subordinate note without HUD consent. 
Section 3(c)(3) reflects HUD's longstanding policy that Surplus Cash 
Notes are not negotiable instruments or transferable without HUD 
consent. This policy has been in existence since at least 2011, and 
since 2002 with the then applicable Secondary Financing Rider that was 
included in the 2002 MAP Guide The rationale behind this policy is that 
HUD needs to be able to assess whether such transfers will cause 
unacceptable risk to the project.
    A commenter objected to the language in section 3(c)(6) that the 
terms and provisions of the subordinate lender's note are enforceable 
by HUD and cannot be amended without HUD's consent. HUD rejects this 
comment. This is standard language in several of the Closing Documents. 
Changing the terms of the subordinate loan without HUD consent could 
negatively impact HUD.
    In response to an informal comment received from an outside party 
concerning the policy change previously made in in section 6(b) to 
allow subordinate lenders to exercise their remedies for subordinate 
loan defaults after a 180-day standstill, HUD proposes to explicitly 
clarify that such exercise of remedies is only available for covenant 
events of default, and not monetary events of default. This 
clarification is consistent with the rationale discussed in the 60-day 
Federal Register notice published on September 5, 2017 (82 FR 41977).
    One commenter took issue with the section 7(b) prohibition against 
a cross-default provision in the subordinate loan documents. HUD 
rejects this comment as a cross-default prohibition has been in the 
form since its adoption in 2011. Numerous transactions with public 
secondary debt have closed without any objection to the prohibition, 
which can also be found in the MAP Guide. The FHA lender and HUD must 
control what happens to the property in the event of a default under 
the FHA-insured loan and whether to remove the borrower through a 
foreclosure, not the subordinate lender.

[[Page 29738]]

    One commenter objected to the requirement in section 10(c) that the 
maturity on the subordinate loan automatically be extended if the FHA 
loan is extended due to a deferment of amortization or forbearance. HUD 
rejects this comment as the language in question reflects current MAP 
Guide policy to reserve this protection as insurer of the first 
mortgage loan to allow maximum flexibility in distressed project 
situations.
    HUD agrees with an HFA's request to remove language in section 
10(e) that would force a subordinate lender to allow an ownership 
change and assumption of its loan upon HUD approval. Further, HUD also 
agrees with an HFA's request to remove the requirement in section 10(f) 
that limits the funds the subordinate lender can receive upon transfer 
or sale of the property to 75% of net proceeds; HUD will be making a 
corresponding change to remove this requirement from the MAP Guide.
    Respondents (i.e., affected public): FHA lenders, borrowers, 
housing finance agencies and other government agencies that support 
affordable housing, and HFA counsel.
    Estimated Number of Respondents: 17,468.
    Estimated Number of Responses: 17,468.
    Frequency of Response: Once per annum.
    Average Hours per Response: 1.5 hours.
    Total Estimated Burden: 14,286.85.

B. Solicitation of Public Comment

    This notice is soliciting comments from members of the public and 
affected parties concerning the collection of information described in 
Section A on the following:
    (1) Whether the proposed collection of information is necessary for 
the proper performance of the functions of the agency, including 
whether the information will have practical utility.
    (2) The accuracy of the agency's estimate of the burden of the 
proposed collection of information.
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected.
    (4) Ways to minimize the burden of the collection of information on 
those who are to respond; including through the use of appropriate 
automated collection techniques or other forms of information 
technology, e.g., permitting electronic submission of responses.
    HUD requests that commenters provide comments and proposed changes 
in narrative and/or bulleted form, accompanied by a detailed 
explanation and rationale for each requested change. Commenters may 
include in their detailed explanation and rationale the relevant 
excerpt(s) from the Subordination Agreement with redlines/strikeouts.

C. Authority

    Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. 
Chapter 3507.

    Dated: May 12, 2020.
Nacheshia Foxx,
Federal Register Liaison for the Department for Housing and Urban 
Development.
[FR Doc. 2020-10516 Filed 5-15-20; 8:45 am]
BILLING CODE 4210-67-P