[Federal Register Volume 85, Number 196 (Thursday, October 8, 2020)]
[Notices]
[Pages 63570-63572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22338]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-7024-N-42]


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

AGENCY: Office of the Chief Information Officer, HUD.

ACTION: Notice.

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SUMMARY: HUD has submitted the proposed information collection 
requirement described below to the Office of Management and Budget 
(OMB) for review, in accordance with the Paperwork Reduction Act. The 
purpose of this notice is to allow for an additional 30 days of public 
comment.

DATES: Comments Due Date: November 9, 2020.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposal. Written comments and recommendations for the proposed 
information collection should be sent within 30 days of publication of 
this notice to www.reginfo.gov/public/do/Start Printed Page 
15501PRAMain. Find this particular information collection by selecting 
``Currently under 30-day Review--Open for Public Comments'' or by using 
the search function.

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. Persons with hearing 
or speech impairments may access this number through TTY by calling the 
toll-free Federal Relay Service at (800) 877-8339. This is not a toll-
free number. Copies of available documents submitted to OMB may be 
obtained from Ms. Pollard.

SUPPLEMENTARY INFORMATION: This notice informs the public that HUD has 
submitted to OMB a request for approval of the information collection 
described in Section A. The Federal Register notice that solicited 
public comment on the information collection for a period of 60 days 
was published on May 18, 2020 at 85 FR 29736.

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

[[Page 63571]]

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.
    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.
    (5) Ways to minimize the burden of the collection of information on 
those who are respond, including the use of automated collection 
techniques or other forms of information technology.
    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.
    Authority: Section 3507 of the Paperwork Reduction Act of 1995, 44 
U.S.C. Chapter 3507.

[[Page 63572]]

    Department Reports Management Officer for the Office of the Chief 
Information Officer,
    Colette Pollard, having reviewed and approved this document, is 
delegating the authority to electronically sign this document to 
submitter, Nacheshia Foxx, who is the Federal Register Liaison for HUD, 
for purposes of publication in the Federal Register.

    Dated: October 5, 2020.
Nacheshia Foxx,
Federal Register Liaison for the Department of Housing and Urban 
Development.
[FR Doc. 2020-22338 Filed 10-7-20; 8:45 am]
BILLING CODE 4210-67-P