[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