[Federal Register Volume 87, Number 63 (Friday, April 1, 2022)]
[Proposed Rules]
[Pages 19037-19039]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06875]


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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-6263-P-01]
RIN 2502-AJ59


Increased Forty-Year Term for Loan Modifications

AGENCY: Office of Housing, HUD.

ACTION: Proposed rule.

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

SUMMARY: HUD's current regulations allow mortgagees to modify a Federal 
Housing Administration (FHA) insured mortgage by recasting the total 
unpaid loan for a term limited to 360 months to cure a borrower's 
default. This proposed rule would amend HUD's current regulation to 
allow for mortgagees to recast the total unpaid loan for a new term 
limit of 480 months. Increasing the maximum term limit to 480 months 
would allow mortgagees to further reduce the borrower's monthly payment 
as the outstanding balance would be spread over a longer time frame, 
providing more borrowers with FHA-insured mortgages the ability to 
retain their homes after default. This change would also align FHA with 
modifications available to borrowers with mortgages backed by the 
Federal National Mortgage Association (Fannie Mae) and the Federal Home 
Loan Mortgage Corporation (Freddie Mac), which both currently provide a 
40-year loan modification option.

DATES: Comment Due Date: May 31, 2022.

ADDRESSES: HUD invites interested persons to submit comments to the 
Office of the General Counsel, Regulations Division, Department of 
Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500. Communications should refer to the above 
docket number and title and should contain the information specified in 
the ``Request for Comments'' section. There are two methods for 
submitting public comments.
    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. Due to security measures at all federal 
agencies, however, submission of comments by mail often results in 
delayed delivery. To ensure timely receipt, HUD recommends that 
comments be mailed at least two weeks in advance of the public comment 
deadline.
    2. Electronic Submission of Comments. Comments may also be 
submitted electronically through the Federal eRulemaking Portal at 
http://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 comments 
immediately available to the public. Comments submitted electronically 
through the 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 using one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
notice.

    No Facsimile Comments. Facsimile (fax) comments are not acceptable.
    Public Inspection of Comments. All 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 HUD Headquarters, an advance appointment to review 
the public comments must be scheduled by calling the Regulations 
Division at 202-708-3055. This is not a toll-free number. Copies of all 
comments submitted are available for inspection and downloading at 
http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Elissa Saunders, Department of Housing 
and Urban Development, 451 7th Street SW, Suite 9278, Washington, DC 
20410-4000; telephone number 202-708-2121 (this is not a toll-free 
number). Persons with hearing or speech impairments may contact the 
numbers above via TTY by calling the Relay Service at 800-877-8339 
(this is a toll-free number).

SUPPLEMENTARY INFORMATION: 

I. Background

    The Federal Housing Administration (FHA) was established by 
Congress in 1934 to improve nationwide housing standards, to provide 
employment and stimulate industry, to improve conditions with respect 
to home mortgage financing, to prevent speculative excesses in new 
mortgage investment, and to eliminate the necessity for costly second 
mortgage

[[Page 19038]]

financing.\1\ HUD's regulations for Title II FHA single family forward 
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 a mortgagee's obligations 
to offer loss mitigation options when a mortgagor defaults on a loan, 
as provided in 24 CFR 203.501.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 1701 et seq.
---------------------------------------------------------------------------

    Mortgagees are required to consider utilizing deeds in lieu of 
foreclosure, pre-foreclosure sales, partial claims, assumptions, 
special forbearance, and recasting of mortgages.\2\ In 1996, the 
Balanced Budget Downpayment Act, I (Pub. L. 104-99, approved January 
26, 1996) amended sections 204 and 230 of the National Housing Act to 
provide that HUD may pay insurance benefits to a mortgagee to 
recompense the mortgagee for its actions to provide an alternative to 
the foreclosure of a mortgage that is in default. These actions may 
include special forbearance, loan modification, and/or deeds in lieu of 
foreclosure, all upon terms and conditions as the mortgagee shall 
determine in the mortgagee's sole discretion, within guidelines 
provided by HUD.\3\ In response, HUD promulgated an interim final rule 
(61 FR 35014, July 3, 1996), followed by a final rule (62 FR 60124, 
November 6, 1997) adding loss mitigation options to 24 CFR part 203. 
One of these options allows mortgagees to modify a mortgage for the 
purpose of changing the amortization provisions and recasting the total 
unpaid amount due for a term not exceeding 360 months from the date of 
the modification.\4\
---------------------------------------------------------------------------

    \2\ 24 CFR 203.501.
    \3\ 12 U.S.C. 1715u.
    \4\ 24 CFR 203.616.
---------------------------------------------------------------------------

II. This Proposed Rule

    HUD proposes to amend 24 CFR 203.616, which allows a mortgagee to 
modify a mortgage for the purpose of changing the amortization 
provisions by recasting the total unpaid amount due for a new term, by 
replacing the current maximum of 360 months with a new maximum of 480 
months.
    Allowing mortgagees to provide a 40-year loan modification would 
support HUD's mission of fostering homeownership by assisting more 
borrowers with retaining their homes after a default episode while 
mitigating losses to FHA's Mutual Mortgage Insurance (MMI) Fund. HUD 
believes there are situations in which a mortgagee seeks to engage in 
loss mitigation but is unable to provide loss mitigation to a degree 
sufficient to prevent default. In such cases, an additional 120 months 
on the length of the recast mortgage would allow for a lower, more 
sustainable monthly payment.
    Many borrowers who have become delinquent would have difficulty 
making payments at the monthly rate of their mortgage before default. 
Therefore, a lower monthly payment is a key element to bring the 
mortgage current, prevent imminent re-default, and ultimately retain 
their home and continue to build wealth through homeownership. HUD 
anticipates that a 40-year loan modification as part of loss mitigation 
could decrease a borrower's monthly principal and interest payment by a 
meaningful amount sufficient to prevent several thousand borrowers a 
year from foreclosure by increasing a borrower's ability to afford the 
modified payment. Given the large number of FHA-insured mortgages that 
have been originated or refinanced in the past few years in a 
historically low interest rate environment, simply extending out the 
term of a mortgage in default for another 30 years at a similar 
interest rate would not provide a substantial reduction to a borrower's 
monthly mortgage payment.
    Additionally, borrowers impacted by the COVID-19 pandemic, 
including those who may re-default in the future after having received 
a loss mitigation option under COVID-19 policies, may need a 40-year 
loan modification to obtain affordable monthly payments that would 
allow them to stay in their homes. This would also reduce losses to the 
MMI Fund as fewer properties would be sold at a loss in foreclosure or 
out of FHA's real estate-owned (REO) inventory.\5\
---------------------------------------------------------------------------

    \5\ It is also worth noting that, per its recent press release, 
Ginnie Mae is now permitting the pooling of 40-year mortgages for 
the purposes of providing FHA loan modifications with lower payments 
to help keep borrowers in their homes. Ginnie Mae's mortgage-backed 
securities include the requirement that loans must be 90 or more 
days delinquent or have successfully completed a trial payment plan 
before they can be bought out of a Ginnie Mae pool.
---------------------------------------------------------------------------

    All else held equal, borrowers who choose a 40-year loan 
modification would be subject to slower equity accumulation and 
additional interest payments over the course of the modified mortgage 
relative to a 30-year loan modification. However, to the extent a 40-
year modification helps borrowers avoid foreclosure, the slower equity 
accumulation and additional interest would be greatly outweighed by the 
benefits of being able to retain their homes. Moreover, a borrower is 
not obligated to carry the loan for 40 years. FHA data indicates that 
the average life of a 30-year FHA-insured mortgage is approximately 
seven years, although it is possible that prepayment behavior could be 
different with a longer-term loan.
    The 40-year mortgage remains rare but has become more commonly 
recognized in the mortgage industry. The Government Sponsored 
Enterprises (GSEs), Fannie Mae and Freddie Mac, both allow for 40-year 
mortgage loan modifications.\6\ The National Credit Union Association 
also allows for 40-year mortgages and a federal credit union may set 
the maturity date for modified or refinanced mortgages beyond the 
regulatory 40-year maturity limit as long as the terms of the original 
loan were no more than 40 years. The U.S. Department of Agriculture 
allows for loan modification up to 40 years where certain conditions 
are met above the requirements for a 30-year loan modification.\7\ By 
allowing 40-year loan modifications, HUD would align with the GSEs, 
NCUA, and USDA and ensure that FHA borrowers receive comparable 
opportunities for home retention.
---------------------------------------------------------------------------

    \6\ See D2-3.2-07: Fannie Mae Flex Modification (09/09/2020), 
available at: https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D2-Assisting-a-Borrower-Who-is-Facing-Default-or/Chapter-D2-3-Fannie-Mae-s-Home-Retention-and-Liquidation/Section-D2-3-2-Home-Retention-Workout-Options/D2-3-2-07-Fannie-Mae-Flex-Modification/1042575201/D2-3-2-07-Fannie-Mae-Flex-Modification-09-09-2020.htm; Freddie Mac Flex 
Modification Reference Guide, March 2021, available at: https://sf.freddiemac.com/content/_assets/resources/pdf/other/flex_mod_ref_guide.pdf.
    \7\ For more information, see 7 CFR 3555.304.
---------------------------------------------------------------------------

III. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Pursuant to 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 Regulations 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.

[[Page 19039]]

    This proposed rule was determined to be a ``significant regulatory 
action'' because it is likely to have an annual effect on the economy 
of $100 million or more. This proposed rule would increase available 
loss mitigation options for borrowers and enable more borrowers to 
avoid foreclosure and remain in their homes. HUD also anticipates that 
this would have a positive effect on the FHA MMI Fund by lowering 
defaults. The docket file is available for public inspection on http://www.regulations.gov and 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 Regulations 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 Relay Service 
at 800-877-8339 (this is a toll-free 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. 
The change of this proposed rule would be limited to requiring 
mortgagees to consider and, where appropriate, utilize an extended term 
limit. Mortgagees are already required to consider mortgage 
modification so this change should not have an economic impact on 
mortgagees. If there is an economic effect on mortgagees, it would fall 
equally on all mortgagees. Further, HUD anticipates that allowing an 
additional loss mitigation tool would have a net positive economic 
impact on mortgagees by decreasing the number of defaults and therefore 
the costs associated with those defaults.
    Accordingly, the undersigned certifies that the proposed 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 effect 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

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made at the proposed rule stage, 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 remains applicable to this final rule 
and 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, 
Department of Housing and Urban Development, 451 Seventh Street SW, 
Room 10276, Washington, DC 20410. Due to security measures at the HUD 
Headquarters building, please schedule an appointment to review the 
FONSI 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 via TTY by calling the Federal Relay Service at 
(800) 877-8339.

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 
does not have federalism implications and does 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.

List of Subjects in 24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians-lands, Loan programs-
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, and Solar energy.

    For the reasons discussed in the preamble, HUD proposes to amend 24 
CFR part 203 as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

0
1. The authority for 24 CFR part 203 continues to read as follows:

    Authority:  12 U.S.C. 1707, 1709, 1710, 1715b, 1715z-16, 1715u, 
and 1715z-21; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).


Sec.  203.616   [Amended]

0
2. Amend Sec.  203.616 by removing the number ``360'' and adding in its 
place, the number ``480''.

Lopa P. Kolluri,
Principal Deputy Assistant Secretary, Office of Housing-Federal Housing 
Administration.
[FR Doc. 2022-06875 Filed 3-31-22; 8:45 am]
BILLING CODE 4210-67-P