[Federal Register Volume 88, Number 40 (Wednesday, March 1, 2023)]
[Proposed Rules]
[Pages 12906-12908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04191]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 202

[Docket No. FR-6321-P-01]


Changes in Branch Office Registration Requirements

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

ACTION: Proposed rule.

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SUMMARY: The U.S. Department of Housing and Urban Development (HUD) is 
publishing this proposed rule to revise HUD's regulations for branch 
office registration requirements. To make mortgage industry standards 
more flexible and modernized, the proposed rule would remove the 
requirement that lenders and mortgagees register with HUD each branch 
office where they conduct Federal Housing Administration (FHA) 
business.

DATES: Comment Due Date: May 1, 2023.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule. There are two methods for submitting public 
comments. All submissions must refer to the above docket number and 
title.
    1. Submission of Comments by Mail. Members of the public may submit 
comments 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 standard mail 
often results in delayed delivery. To ensure timely receipt of 
comments, HUD recommends that comments submitted by standard mail be 
submitted at least two weeks in advance of the deadline. HUD will make 
all comments received by mail available to the public at https://www.regulations.gov.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
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 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 the 
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. All 
submissions must refer to the docket number and title of the 
proposed rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD are 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 
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). HUD welcomes and is prepared to receive calls from 
individuals who are deaf or hard of hearing, as well as individuals 
with speech or communication disabilities. To learn more about how to 
make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all 
comments submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Timothy Laramie, Mortgagee Approval 
Analyst, U.S. Department of Housing and Urban Development, 451 7th 
Street SW, Washington, DC 20410, telephone number 202-402-6814 (this is 
not a toll-free number). HUD welcomes and is prepared to receive calls 
from individuals who are deaf or hard of hearing, as well as 
individuals with speech or communication disabilities. To learn more 
about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

[[Page 12907]]


SUPPLEMENTARY INFORMATION: 

I. Background

    Prior to 1995, HUD required each mortgagee office to get approval 
from the HUD field office(s) located where the mortgagee intended to 
submit mortgages for insurance endorsement, with the exception of 
refinance cases.\1\ After 1995, HUD expanded the geographic areas where 
mortgagees were allowed to originate FHA-insured mortgages. This 
combined HUD field offices that were geographically close together into 
a ``lending area'' and permitted mortgagees to conduct business with 
several field offices within that area. HUD required that mortgagees 
``maintain at least one approved branch office within a `lending area' 
from which loans are submitted to the FHA Field Offices within the 
lending area.'' \2\
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    \1\ See HUD, Mortgagee Letter 95-36: Mortgagee Approval--Single 
Family Loan Production--Revised Mortgagee/Program Requirements, Aug. 
2, 1995, https://www.hud.gov/sites/documents/DOC_20554.TXT.
    \2\ See also HUD Handbook 4060.1 REV-1, Mortgagee Approval 
Handbook I (4060.1)--Chapter 5 Part A. Branch Offices, https://www.hud.gov/sites/documents/40601C5HSGH.PDF.
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    In 2005, HUD announced three changes to the geographic areas where 
mortgagees originated loans.\3\ The first change expanded the 
geographic areas where a registered office can conduct FHA business to 
all HUD field office jurisdictions within groups of States. The second 
change reduced the number of branches required to conduct FHA business 
nationwide from 25 to 13 using the revised lending areas. The third 
change allowed mortgagees to have a single office approved to do 
nationwide ``direct'' lending via the internet and/or a call center.
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    \3\ HUD, Mortgagee Letter 05-40: Revisions to Single Family 
Origination Lending Areas and Nationwide Lending, Oct. 20, 2005, 
https://www.hud.gov/sites/documents/DOC_20553.doc.
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    Currently, HUD follows its policy from HUD Handbook 4000.1 that was 
established in September of 2015. This policy calls a geographic area 
where a branch office is permitted to conduct FHA business an ``Area 
Approved for Business'' (AAFB).\4\ HUD Handbook 4000.1 states that all 
branch offices that are registered with HUD will initially be granted a 
nationwide AAFB to conduct FHA business; however, the registered branch 
``may only exercise its authority to originate or underwrite FHA 
mortgages in those states where the mortgagee fully complies with state 
origination and/or underwriting licensing and approval requirements.''
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    \4\ See HUD Handbook 4000.1 I.A.4b, Single Family Lending Area 
(4000.1), https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-062022.pdf.
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    Under 24 CFR 202.5(k), approved FHA mortgagees and lenders can, 
upon approval by the Secretary, maintain branch offices to originate 
Title I or Title II loans \5\ or submit applications for mortgage 
insurance; however, the branch office must be registered with HUD. 
Under 24 CFR 202.5(m), to retain FHA approval, a mortgagee or lender 
must complete FHA's recertification process annually. The 
recertification process requires submission of financial data that 
includes details about total FHA activity conducted during the fiscal 
year, as well as a certification that each lender and mortgagee has not 
been refused a license and has not been sanctioned by any state or 
states in which it will originate insured mortgages or Title I loans.
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    \5\ Title I and Title II loans are mortgages or fixed-rate loans 
issued by the Federal Housing Administration (FHA) for home 
improvements and buying property.
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II. Proposed Rule

    In this proposed rule, HUD seeks to update its regulations by 
eliminating the requirement that a lender or mortgagee must register 
with HUD all branch offices where it conducts FHA business. This 
proposed rule would revise 24 CFR 202.5(k) to instead give mortgagees 
and lenders the option to register and maintain branch offices with 
HUD, which would allow them to be placed on HUD's Lender List Search 
page.\6\ In addition, the proposed rule would revise 24 CFR 202.5(i) to 
make fees applicable to each branch office that a mortgagee or lender 
registers with HUD rather than applying fees to each branch office 
where they are authorized to conduct FHA business. This proposed change 
is based on the mortgage industry's evolution over time and the 
advancement of technology. Today, there is no longer a need to maintain 
several branch offices to conduct FHA business nationwide. While the 
mortgage industry has evolved, the regulations for branch office 
registration requirements have remained the same.
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    \6\ See https://www.hud.gov/program_offices/housing/sfh/lender/lenderlist.
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    Prior to the COVID-19 pandemic, the mortgage industry experienced 
an upward trend in the use of remote service delivery and use of 
technology to complete loan applications.\7\ During the COVID-19 
pandemic, remote service delivery and the use of technology became the 
norm and furthered the shift away from in-person, face-to-face 
interactions. As the mortgage industry has evolved, HUD has found it 
necessary to update its regulations to become more modernized and less 
antiquated, which would increase homeownership opportunities in 
underserved urban and rural areas.
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    \7\ See e.g. Fiserv, Inc., Expectations & Experiences: Borrowing 
and Wealth Management (2019) (One consumer trend survey found that 
65 percent of recent mortgage applicants reported using computers or 
mobile devices to complete at least a portion of the application). 
https://www.fiserv.com/en/about-fiserv/resource-center/consumer-research/expectations-experiences-borrowing-and-wealth-management-fall-2019.html.
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    Additionally, mortgagees, lenders, banks, and credit unions have 
expressed dissatisfaction with the requirement to register branch 
offices and have asked HUD what can be done to make the FHA process 
more flexible. The industry views the branch office requirement as 
burdensome and a hinderance to entities wanting to participate in FHA 
programs. HUD agrees that the requirement to register branch offices 
has become cumbersome and no longer aligns with the way the industry 
operates. Additionally, the requirement is somewhat redundant as branch 
offices will still need to be licensed by the state according to the 
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE 
Act).\8\ The SAFE Act instructs states to adopt loan originator 
licensing and registration requirements that meet the minimum standards 
determined by the SAFE Act.\9\ This proposed rule would provide less of 
an administrative burden for existing mortgagees and lenders and 
eliminate barriers for entities interested in FHA programs. In addition 
to providing relief for the mortgage industry, it may also encourage 
more mortgagees and lenders to originate FHA-insured mortgages.
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    \8\ HOUSING AND ECONOMIC RECOVERY ACT OF 2008, Public Law 110-
289, July 30, 2008, 122 Stat 2654.
    \9\ 12 U.S.C. 5701-5710 and 24 CFR part 3400.
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    Removing the requirement to register branch offices would not 
affect HUD's monitoring of mortgagees and lenders. HUD would continue 
to maintain oversight and risk management of mortgagees and lenders who 
would remain responsible to FHA for the actions of its branch offices 
and employees. As always, branch office employees would need to work 
through a mortgagee or lender to conduct FHA business. When an FHA loan 
is originated, enough information is collected to monitor the 
performance of mortgagees and lenders such as the underwriters, 
originators, and location of the loan. HUD can monitor mortgagees and 
lenders even without the specific branch office identification. 
Additionally, HUD would continue to monitor the origination and 
underwriting authority for each

[[Page 12908]]

mortgagee and lender under 81 Areas Approved for Business that 
correspond to HUD field office jurisdictions.\10\ Furthermore, HUD's 
Office of Lender Activities and Program Compliance--Quality Assurance 
Division (QAD) would continue to monitor FHA lenders quarterly to 
determine if Credit Watch Termination is warranted against a 
lender.\11\
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    \10\ See 24 CFR 202.3(c)(2)(i) stating that HUD ``will review, 
on an ongoing basis, the number of defaults and claims on mortgages 
originated, underwritten, or both, by each mortgagee in the 
geographic area served by a HUD field office.''
    \11\ FHA may terminate a lender's authority to underwrite FHA-
insured loans in any HUD field office jurisdiction where the lender 
has an excessive rate of early defaults and claims. See 24 CFR 
202.3(c)(2).
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    HUD does not foresee any negative impacts to risk management and 
oversight caused by this proposed rule change. The regulation would be 
updated to evolve along with the mortgage industry and reflect its 
business practices, mortgagees and lenders would be given more 
flexibility when conducting FHA business, and HUD would be able to 
address concerns expressed by banks, credit unions and banking industry 
trade associations. Moreover, the proposed changes would remove an 
operational and regulatory burden, which could result in more banks and 
credit unions participating in FHA programs. Ultimately, this would 
benefit homebuyers, who would have increased access to FHA-insured 
mortgage products as the number of banks and credit unions 
participating in FHA programs increased.

III. 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 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.
    This proposed rule was determined to be a ``significant regulatory 
action'' as defined in Section 3(f) of the order (although not an 
economically significant regulatory action under the order). The 
proposed rule would revise 24 CFR 202.5(i) and (k) to update HUD's 
regulation to conform with the mortgage industry's evolving business 
practices. Additionally, the proposed rule would lessen the 
administrative burden on mortgagees and lenders.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (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 does not impose any Federal mandates on any state, local, or 
tribal government, or on the private sector, within the meaning of the 
UMRA.

Environmental Review

    This proposed rule does not direct, provide for assistance or loan 
and mortgage insurance for, or otherwise govern or regulate real 
property acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this 
proposed rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

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 proposed rule would remove the requirement that lenders and 
mortgagees register with HUD each branch office where they conduct FHA 
business. This would not create an undue burden on small entities, 
instead it would eliminate the burden for all mortgagees and lenders of 
having to register branch offices with HUD and pay the associated fees. 
HUD has determined that this proposed rule will not have a significant 
economic impact on a substantial number of small entities.

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 proposed rule would 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.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520), 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 Office of Management and Budget 
(OMB) control number. The information collection requirements contained 
in this proposed rule have been approved by OMB under the Paperwork 
Reduction Act and assigned OMB control number 2502-0059.

List of Subjects in 24 CFR Part 202

    Administrative practice and procedure, Home improvement, 
Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements.

    Accordingly, for the reasons stated in the preamble above, HUD 
proposes to amend 24 CFR part 202 as follows:

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

0
1. The authority citation for part 202 continues to read as follows:

    Authority: 12 U.S.C. 1703, 1709 and 1715b; 42 U.S.C. 3535(d).


Sec.  202.5  [Amended]

0
2. In Sec.  202.5:
0
a. In paragraph (i), remove the words ``authorized to originate Title I 
loans or submit applications for mortgage insurance'' and add in their 
place the words ``that the lender or mortgagee registers with the 
Department'';
0
b. In paragraph (k), add the words ``or mortgagee'' after ``A lender'' 
in the first sentence, and remove the second sentence.

Julia R. Gordon,
Assistant Secretary of Office of Housing--Federal Housing 
Administration.
[FR Doc. 2023-04191 Filed 2-28-23; 8:45 am]
BILLING CODE 4210-67-P