[Federal Register Volume 88, Number 136 (Tuesday, July 18, 2023)]
[Proposed Rules]
[Pages 45863-45867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15033]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5 and 202

[Docket No. FR-6291-P-01]
RIN 2502-AJ60


Revision of Investing Lenders and Investing Mortgagees 
Requirements and Expansion of Government-Sponsored Enterprises 
Definition

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Department of Housing and Urban Development, HUD.

ACTION: Proposed rule.

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SUMMARY: HUD proposes to revise the requirements for investing lenders 
and investing mortgagees to gain or maintain status as a Federal 
Housing Administration (FHA) approved lender or mortgagee. This 
proposed revision would make FHA's approval requirements consistent 
with investing mortgagees' and investing lenders' risk, reduce barriers 
to FHA approval for new investing mortgagees and investing lenders, and 
increase access to capital for all FHA-approved mortgagees and lenders. 
HUD also proposes to make clarifying edits to ensure that certification 
language is applicable to investing lenders and investing mortgagees. 
In addition, HUD proposes to define the Government-Sponsored 
Enterprises (GSEs) separately from other governmental-type entities to 
ensure that FHA requirements specific to loan origination do not 
improperly apply to the GSEs. Finally, HUD proposes to eliminate 
obsolete language related to lender and mortgagee net worth 
requirements.

DATES: Comment Due Date: September 18, 2023.

ADDRESSES: There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Electronic Submission of Comments. Comments may be submitted 
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 comments immediately available 
to the public. Comments submitted electronically through 
www.regulations.gov can be viewed by other commenters and interested 
members of the public. Commenters should follow the instructions 
provided on that website to submit comments electronically.
    2. 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.

    Note:
    To receive consideration as a public comment, comments must be 
submitted through one of the two methods specified above.

    Public Inspection of Public Comments. HUD will make all properly 
submitted comments and communications available for public inspection 
and copying during regular business hours at the above address. Due to 
security measures at the HUD Headquarters building, you must schedule 
an appointment in advance to review the public comments 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: Volky Garcia, Division Director, 
Department of Housing and Urban Development, 451 7th Street SW,

[[Page 45864]]

Washington, DC 20410, telephone 202-402-8229 (this is not a toll-free 
number), email [email protected]. 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.

SUPPLEMENTARY INFORMATION:

I. Background

    Current HUD regulations at 24 CFR part 202, subpart A, establish 
minimum standards and requirements for approval by the Secretary of 
lenders and mortgagees to participate in FHA's Title I and Title II 
programs. Subpart B identifies the classes of lender and mortgagee 
eligible to participate in FHA's Title I and Title II programs and 
outlines additional class-specific requirements for participation in 
FHA's Title I and Title II programs.
    In 2010, HUD amended 24 CFR part 202, subpart A, to include 
investing lenders and investing mortgagees as a class of lender and 
mortgagee subject to HUD's net worth requirements currently found at 
Sec.  202.5(n). At the time the investing lender and investing 
mortgagee net worth requirement change was made in 2010, HUD also 
incorporated new financial reporting, audit, and quality control plan 
requirements for investing lenders and investing mortgagees into 
various HUD handbooks; however, no corresponding updates were made to 
24 CFR part 202, subpart B, to reflect these investing lender and 
investing mortgagee requirements. Additionally, in 2010, FHA increased 
the minimum net worth requirements applicable to certain classes of 
lenders and mortgagees in 24 CFR part 202. These new net worth 
requirements were phased in over a period of three years, beginning on 
May 20, 2010, and becoming fully phased in by May 20, 2013. The net 
worth requirements during that three-year transition period are now 
obsolete, but the phased-in net worth requirements language remains in 
HUD's regulations.
    Current HUD regulations in Sec.  202.10 also identify the class of 
lenders and mortgagees that qualify as governmental institutions, 
Government-Sponsored Enterprises, public housing agencies, and State 
housing agencies. Currently, the various GSEs \1\ are included in the 
same definition as Federal, State, or municipal governmental agencies 
and Federal Reserve Banks at Sec.  202.10(a). For several years, 
certain GSEs have contended that they do not have the infrastructure 
that other lenders and mortgagees listed in Sec.  202.10 have in place 
to ensure compliance with FHA requirements related to loan and mortgage 
origination because they cannot originate loans or mortgages. FHA has 
reviewed the mission and structure of the GSEs and determined that they 
should not be subject to FHA requirements specific to loan and mortgage 
origination because the GSEs do not originate loans or mortgages.
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    \1\ The GSEs are the Federal Home Loan Banks, the Federal Home 
Loan Mortgage Corporation (commonly known as Freddie Mac), and the 
Federal National Mortgage Association (commonly known as Fannie 
Mae).
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II. This Proposed Rule

    Through this proposed rule, HUD proposes to make multiple changes 
to 24 CFR part 202. HUD's proposed changes are described more fully in 
each of the below sections.

A. Requirements for Investing Lenders and Investing Mortgagees

    HUD proposes to state that investing lenders and investing 
mortgagees must comply with applicable audit and financial statement 
requirements by adding language to Sec.  202.9 that incorporates audit 
report, financial statement, and other financial information 
requirements, similar to the requirements for supervised and 
nonsupervised lenders and mortgagees found in Sec. Sec.  202.6(b)(4) 
and 202.7(b)(3), respectively. These proposed audit and financial 
statement requirements would also include adding investing lenders and 
investing mortgagees as types of lenders and mortgagees that must 
comply with HUD's uniform financial reporting standards, as described 
in Sec.  5.801(a)(5).
    HUD is also proposing to make explicit that investing lenders and 
investing mortgagees must comply with FHA's annual certification 
requirements at Sec.  202.5(m). Currently, FHA's annual certification 
regulation contains language primarily directed at lenders and 
mortgagees that originate insured mortgages or Title I loans. HUD 
proposes to update the annual certification requirement language in 
Sec.  202.5(m) to reference any lender or mortgagee, including 
investing lenders and investing mortgagees, that originates, purchases, 
holds, sells, or services insured mortgages or Title I loans.
    HUD is also proposing to clarify at Sec.  202.5(h) that investing 
lenders and investing mortgagees without servicing authority do not 
have to implement a written quality control plan.

B. Government-Sponsored Enterprises

    HUD proposes to separately define the GSEs from other Federal, 
State, or municipal governmental agencies and Federal Reserve Banks as 
described in Sec.  202.10(a). This proposed change is appropriate 
because, unlike the other governmental-type institutions listed in 
Sec.  202.10(a), the GSEs do not originate loans or mortgages. By 
separately defining the GSEs, it would be clear that the GSEs do not 
perform loan or mortgage origination activities and therefore are not 
subject to FHA requirements specific to loan or mortgage origination.
    Specifically, HUD proposes to individually define the term GSE by 
creating a separate paragraph (b) in Sec.  202.10. The GSEs would be 
identified as the Federal Home Loan Banks, the Federal Home Loan 
Mortgage Corporation (commonly known as Freddie Mac), and the Federal 
National Mortgage Association (commonly known as Fannie Mae). The 
proposed GSE definition would make clear that GSE lenders or mortgagees 
may purchase, service, or sell, but not originate, loans and mortgages. 
The proposed GSE definition would also make explicit that the GSE 
lenders or mortgagees must meet the general approval requirements in 
Sec.  202.5, but that GSE lenders or mortgagees are not required to 
meet the net worth requirement provided in Sec.  202.5.

C. Obsolete Language

    The phased-in net worth requirements for 2010 and 2011 currently 
found at Sec.  202.5(n)(2) expired in 2013. HUD proposes to delete 
paragraph (n)(2) because the language is now obsolete.

D. Technical Amendments and Administrative Edits

    As part of HUD's review of 24 CFR part 202 and in proposing the 
changes described above, HUD identified several technical or non-
substantive edits to 24 CFR part 202 that would improve the clarity and 
readability of the part. HUD proposes the following edits to 24 CFR 
part 202 to improve its clarity and readability:
    1. In Sec.  202.5(n)(1), HUD is proposing to update the paragraph 
to change the word ``section'' to ``this section (n).'' This change 
would make it more clear to which text the paragraph is referring. 
Additionally, HUD proposes to update paragraph (n)(1) to change the 
word ``entities'' to ``institutions.'' This change would make the text 
of the paragraph more consistent because the term ``institutions'' is 
used in an earlier sentence in the paragraph.

[[Page 45865]]

    2. In Sec.  202.5(n)(3)(i)-(ii),\2\ HUD is proposing minor 
grammatical changes intended to improve the readability of the 
paragraphs and does not make any changes to the substantive meaning of 
the text. Additionally, HUD proposes to update paragraph (n)(3)(ii) to 
remove the phrases ``minimum'' and ``is required'' from the paragraph. 
These changes are proposed because the quoted terms are duplicative in 
meaning of other phrases in the paragraph.
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    \2\ Consistent with the proposed change described in section C. 
Obsolete Language of this proposed rule, these paragraphs would be 
redesignated as (n)(2)(i) and (n)(2)(ii), respectively.
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    3. In Sec.  202.9(b)(3), HUD is proposing to add the phrase 
``investing lender or investing mortgagee'' to the text to make 
explicit that the paragraph applies to both investing lenders and 
investing mortgagees.
    4. In Sec.  202.10(c),\3\ HUD is proposing to update the citations 
of Sec. Sec.  200.40 and 200.69 listed in the paragraph to 2 CFR 200.1. 
This change is appropriate because the identified section numbers from 
2 CFR part 200 have been updated. This change will direct the reader to 
the appropriate citation.
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    \3\ Consistent with the proposed change described in section B. 
Government-Sponsored Enterprises of this proposed rule, this 
paragraph would be redesignated as (d).
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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) emphasizes the 
importance of quantifying both costs and benefits, reducing costs, 
harmonizing rules, and promoting flexibility. The order also 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 further 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. As discussed above, this proposed rule, if 
finalized, would be limited to defining GSEs under a separate 
definition within 24 CFR 202.10; clarifying the audit, financial 
statement, and certification requirements of investing lenders and 
investing mortgagees; and eliminating obsolete language within 24 CFR 
part 202 regarding lenders and mortgagees net worth requirements. OMB 
has reviewed this proposed rule and determined that it is not 
significant under Executive Orders 12866 and 13563.

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 changes proposed in this rule are limited to defining GSEs under a 
separate definition within Sec.  202.10; clarifying the audit, 
financial statement, and certification requirements of investing 
lenders and investing mortgagees; and eliminating obsolete language 
within 24 CFR part 202 regarding lenders and mortgagees net worth 
requirements. HUD anticipates that this proposed rule, if finalized, 
will have no economic impact.
    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 impact 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 has been made 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 FONSI is 
available for public inspection during regular business hours 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). 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.

Executive Order 13132, Federalism

    Executive Order 13132 (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

24 CFR Part 5

    Administrative practice and procedure; Aged; Claims; Crime; 
Government contracts; Grant programs-housing and community development; 
Individuals with disabilities; Intergovernmental relations; Loan 
programs-housing and community development; Low and moderate income 
housing; Mortgage Insurance; Penalties; Pets; Public housing; Rent 
subsidies; Reporting and recordkeeping requirements; Social security; 
Unemployment compensation; Wages.

24 CFR Part 202

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

    For the reasons stated above, HUD proposes to amend 24 CFR parts 5 
and 202 as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

0
1. The authority citation for part 5 continues to read as follows:


[[Page 45866]]


    Authority: 12 U.S.C. 1701x; 42 U.S.C. 1437a, 1437c, 1437f, 
1437n, 3535(d); Sec. 327, Pub. L. 109-115, 119 Stat. 2396; Sec. 607, 
Pub. L. 109-162, 119 Stat. 3051 (42 U.S.C. 14043e et seq.); E.O. 
13279, 67 FR 77141, 3 CFR, 2002 Comp., p. 258; E.O. 13559, 75 FR 
71319, 3 CFR, 2010 Comp., p. 273; E.O 13831, 83 FR 20715, 3 CFR, 
2018 Comp., p. 806; 42 U.S.C. 2000bb et seq.

0
2. Revise Sec.  5.801(a)(5) to read as follows:


Sec.  5.801  Uniform financial reporting standards.

    (a) * * *
    (5) HUD-approved Title I and Title II supervised, nonsupervised, 
and investing lenders and investing mortgagees.
* * * * *

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

0
3. 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).

0
4. In Sec.  202.5:
0
a. Revise paragraph (h);
0
b. Revise the second sentence of the introductory text of paragraph 
(m);
0
c. Revise paragraphs (n)(1) and (2); and
0
d. Remove paragraph (n)(3).
    The revisions read as follows:


Sec.  202.5  General approval standards

* * * * *
    (h) Quality control plan. Lenders or mortgagees, unless approved 
under Sec.  202.9 without servicing authority, shall implement a 
written quality control plan, acceptable to the Secretary, that assures 
compliance with the regulations and other issuances of the Secretary 
regarding loan or mortgage origination and servicing.
* * * * *
    (m) * * * Upon application for approval and with each annual 
recertification, each lender and mortgagee must submit a certification 
that it has not been refused a license and has not been sanctioned by 
any state or states in which it will originate, purchase, hold, sell, 
or service insured mortgages or Title I loans. * * *
* * * * *
    (n) * * *
    (1) Applicability. The requirements of paragraph (n) apply to 
approved supervised and nonsupervised lenders and mortgagees under 
Sec.  202.6 and Sec.  202.7, and approved investing lenders and 
investing mortgagees under Sec.  202.9. For ease of reference, these 
institutions are referred to as ``approved lenders or mortgagees'' for 
purposes of paragraph (n). These requirements also apply to applicants 
for FHA approval under Sec. Sec.  202.6, 202.7, and 202.9. For ease of 
reference, these institutions are referred to as ``applicants'' for 
purposes of paragraph (n).
    (2) Requirements.
    (i) Single family net worth requirements. Irrespective of size, 
each applicant and each approved lender or mortgagee for participation 
solely under the FHA single family programs shall have a net worth of 
not less than $1 million, plus an additional net worth of one percent 
of the total volume, in excess of $25 million, of FHA single family 
insured mortgages originated, underwritten, purchased, or serviced 
during the prior fiscal year, up to a maximum required net worth of 
$2.5 million. No less than 20 percent of the applicant's or approved 
lender's or mortgagee's required net worth must be liquid assets 
consisting of cash or its equivalent acceptable to the Secretary.
    (ii) Multifamily net worth requirements. Irrespective of size, each 
applicant for approval and each approved lender or mortgagee for 
participation solely under the FHA multifamily programs shall have a 
net worth of not less than $1 million. For those multifamily approved 
lenders or mortgagees that also engage in mortgage servicing, an 
additional net worth of one percent of the total volume, in excess of 
$25 million, of FHA multifamily mortgages originated, purchased, or 
serviced during the prior fiscal year, up to a maximum required net 
worth of $2.5 million. For multifamily approved lenders or mortgagees 
that do not perform mortgage servicing, an additional net worth of one 
half of one percent of the total volume, in excess of $25 million, of 
FHA multifamily mortgages originated during the prior fiscal year, up 
to a maximum required net worth of $2.5 million. No less than 20 
percent of the applicant's or approved lender's or mortgagee's required 
net worth must be liquid assets consisting of cash or its equivalent 
acceptable to the Secretary.
    (iii) Dual participation net worth requirements. Irrespective of 
size, each applicant for approval and each approved lender or mortgagee 
that is a participant in both FHA single family and multifamily 
programs must meet the net worth requirements as set forth in paragraph 
(n)(2)(i) of this section.
0
6. In Sec.  202.9:
0
a. Revise the section heading;
0
b. In paragraph (a), the introductory text to paragraph (b), paragraph 
(b)(1), and paragraph (b)(2) remove the words ``investing lender or 
mortgagee'' and add, in their place, the words ``investing lender or 
investing mortgagee''; and
0
c. Revise paragraph (b)(3) and add paragraph (b)(4).
    The revisions and additions read as follows:


Sec.  202.9  Investing lenders and investing mortgagees.

* * * * *
    (b) * * *
    (3) Fidelity bond. An investing lender or investing mortgagee shall 
maintain fidelity bond coverage and errors and omissions insurance 
acceptable to the Secretary and in an amount required by the Secretary, 
or alternative insurance coverage approved by the Secretary, that 
assures the faithful performance of the responsibilities of the 
mortgagee.
    (4) Audit Report. A lender or mortgagee must comply with the 
financial reporting requirements in 24 CFR part 5, subpart H. Audit 
reports shall be based on audits performed by a certified public 
accountant, or by an independent public accountant licensed by a 
regulatory authority of a State or other political subdivision of the 
United States on or before December 31, 1970. Audit reports shall 
include:
    (i) A financial statement in a form acceptable to the Secretary, 
including a balance sheet and a statement of operations and retained 
earnings, a statement of cash flows, an analysis of the lender's or 
mortgagee's net worth adjusted to reflect only assets acceptable to the 
Secretary, and an analysis of escrow funds; and
    (ii) Such other financial information as the Secretary may require 
to determine the accuracy and validity of the audit report.
* * * * *
0
7. In Sec.  202.10:
0
a. Revise paragraph (a);
0
b. Redesignate paragraph (b) as (c); and
0
c. Add new paragraphs (b) and (d).
    The revisions and additions read as follows:


Sec.  202.10  Governmental institutions, Government-Sponsored 
Enterprises, public housing agencies and State housing agencies.

    (a) Federal, State, and municipal governmental agencies and Federal 
Reserve Banks. A Federal, State, or municipal government agency or a 
Federal Reserve Bank may be an approved lender or mortgagee. A 
mortgagee approved under this paragraph may submit applications for 
Title II mortgage insurance. A lender or mortgagee approved under this 
paragraph may originate, purchase, service, or sell Title I loans and 
insured

[[Page 45867]]

mortgages, respectively. A mortgagee or lender approved under this 
paragraph is not required to meet a net worth requirement. A lender or 
mortgagee shall maintain fidelity bond coverage and errors and 
omissions insurance acceptable to the Secretary and in an amount 
required by the Secretary, or alternative insurance coverage approved 
by the Secretary, that assures the faithful performance of the 
responsibilities of the mortgagee. There are no additional requirements 
beyond the general approval requirements in Sec.  202.5 or as provided 
under paragraph (c) of this section.
    (b) Government-Sponsored Enterprises. The Government-Sponsored 
Enterprises are the Federal Home Loan Banks, Federal Home Loan Mortgage 
Corporation, and Federal National Mortgage Association. A Government-
Sponsored Enterprise may be an approved lender or mortgagee. A lender 
or mortgagee approved under this paragraph may purchase, service, or 
sell Title I loans and insured mortgages, respectively. A mortgagee or 
lender approved under this paragraph is not required to meet a net 
worth requirement. There are no additional requirements beyond the 
general approval requirements in Sec.  202.5.
* * * * *
    (d) Audit requirements. The insuring of loans and mortgages under 
the Act constitutes ``Federal financial assistance'' (as defined in 2 
CFR 200.1) for purposes of audit requirements set out in 2 CFR part 
200, subpart F. Non-Federal entities (as defined in 2 CFR 200.1) that 
receive insurance as lenders and mortgagees shall conduct audits in 
accordance with 2 CFR part 200, subpart F.

Julia R. Gordon,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2023-15033 Filed 7-17-23; 8:45 am]
BILLING CODE 4210-67-P