[Federal Register Volume 89, Number 23 (Friday, February 2, 2024)]
[Rules and Regulations]
[Pages 7274-7277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02023]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 202
[Docket No. FR-6321-F-02]
RIN 2502-AJ63
Changes in Branch Office Registration Requirements
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: The Office of the Assistant Secretary for Housing--Federal
Housing Commissioner is issuing final regulations to amend the
Department of Housing and Urban Development's (HUD) requirement for
branch office registration. The final rule removes the requirement that
lenders and mortgagees register each branch office where they conduct
FHA business with HUD. After considering public comments received in
response to the proposed rule HUD published on March 1, 2023, this
final rule adopts the proposed rule without change.
DATES: Effective March 4, 2024.
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.
SUPPLEMENTARY INFORMATION:
I. Background
On March 1, 2023, HUD published the ``Changes in Branch Office
Registration Requirements'' proposed rule (``the proposed rule'') in
the Federal Register. \1\ In the proposed rule, HUD sought to revise 24
CFR 202.5(k) and (i) by eliminating the requirement that a lender or
mortgagee register all branch offices used to conduct FHA business.
This change would give lenders and mortgagees (1) the option to select
which offices to register and maintain as branch offices with HUD, and
(2) make fees applicable to each branch office that a lender or
mortgagee registers with HUD, rather than applying fees to each branch
office where they are authorized to originate Title I or Title II
loans. HUD based these changes on the mortgage industry's evolution
over time, the advancement of technology, and due to no longer needing
to maintain several branch offices to conduct FHA business nationwide.
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\1\ 88 FR 12906.
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Prior to 1995, HUD required each mortgagee office to get approval
from the FHA Field Office(s) located where the lender or mortgagee
intended to submit mortgages for insurance endorsement.\2\ After 1995,
HUD expanded the geographic areas where lenders and mortgagees were
allowed to conduct FHA business. The expansion allowed FHA Field
Offices to create a ``lending area'' and permitted lenders and
mortgagees to conduct business with several FHA Field Offices within
that area. HUD required that lenders and mortgagees ``maintain at least
one approved branch office within a `lending area from which loans are
submitted to the FHA Field Offices.'' \3\ 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
[[Page 7275]]
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 are 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 lender or mortgagee fully complies with state
origination and/or underwriting licensing and approval requirements.''
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\2\ 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.
\3\ Id.; 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.
\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-080923.pdf.
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As the mortgage industry has evolved, HUD has found it necessary to
update its regulations. In response to this change, HUD published a
proposed rule on March 1, 2023, that would give lenders and mortgagees
the option to register and maintain branch offices with HUD, which
would allow them to be placed on HUD's Lender List Search page. In
addition, the proposed rule would revise 24 CFR 202.5(i) to make fees
applicable to each branch office that a lender or mortgagee registers
with HUD, rather than applying fees to each branch office where they
are authorized to conduct FHA business. These revisions were intended
to reduce the administrative burden for existing lenders and mortgagees
and eliminate barriers for entities interested in FHA programs. In
addition to providing relief for the mortgage industry, HUD's proposed
rule would provide the flexibility to encourage more lenders and
mortgagees to originate FHA-insured mortgages. Removing the requirement
to register branch offices will not affect HUD's monitoring of lenders
and mortgagees. HUD will continue to maintain oversight and risk
management of lenders and mortgagees who will remain responsible to FHA
for the actions of its branch offices and employees.
In response to public comments as discussed further below, HUD is
publishing this final rule without change from the proposed rule.
II. The Public Comments
HUD received 11 public comments on the proposed rule from various
interested parties, including individuals, lenders and mortgagees, and
business associations.
Support for the Rule
Numerous commenters supported finalizing the proposed rule.
Removing the branch office registration requirement is a needed
update in response to industry developments resulting from
technological changes and the COVID-19 Pandemic.
Commenters in support of the rule discussed the industry trend
towards remote work. These commenters described a shift away from
conducting FHA business in centralized workplaces to remote homes or
smaller, less-centralized offices as a result of pre-pandemic
technological developments and the COVID-19 pandemic shift to work from
home. One commenter stated that remote work was likely to remain a part
of the industry moving forward. Another comment stated that, due to
remote work, their business had more locations that could possibly be
considered branch offices based on the current rule.
HUD Response: HUD agrees with industry feedback that the
requirement to register branch offices has become cumbersome and no
longer aligns with the virtual environment in which 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 (12
U.S.C. 5101, et seq.) (SAFE Act). The rule may reduce administrative
burden for existing lenders and mortgagees and eliminate barriers for
entities interested in FHA programs.
Revising fee applicability to only branch offices registered with
HUD will decrease costs.
One commenter stated that altering fee applicability to apply to
only branch offices registered with HUD will lower lenders' overhead
costs and maintain low FHA origination costs.
HUD Response: HUD agrees that the rule should reduce overhead costs
of participating in FHA programs. The rule may also incentivize small
size lenders, mortgagees, banks, and credit unions to offer FHA
programs in branch offices in which they did not previously register
with HUD. Expanding the availability of FHA programs to underserved
urban and rural communities may provide homeowners with better access
to FHA-insured mortgages and loans.
Eliminating this requirement will benefit homeowners by increasing
access to FHA-insured products.
A commenter noted that the rule will likely increase the number of
banks and credit unions participating in FHA programs and improve
access for homeowners to FHA-insured mortgage products.
HUD Response: HUD agrees that removing the requirement to register
branch offices with HUD will provide lenders and mortgagees greater
flexibility and removes a burdensome administrative and financial
burden when participating in FHA programs.
As branch offices are subject to state licensing, HUD's current
requirement for branch office registration is unnecessary.
One commenter said that under the Secure and Fair Enforcement of
Mortgage Licensing Act of 2008 (SAFE Act), branch offices are still
subject to state licensing, so HUD's branch office registration
requirement is unnecessary and removing the requirement will not affect
HUD's monitoring of mortgagees.
HUD Response: HUD agrees and is revising its branch registration
requirements because all lenders and mortgagees must comply with state
licensing and approval requirements. Further, lenders and mortgagees
can only exercise the authority to conduct FHA business from those
branch office locations in which they fully comply with state licensing
and approval requirements for origination, underwriting and/or
servicing. Therefore, the current requirement to also register branch
offices with HUD has become redundant. Removing the branch office
registration requirement will not affect HUD's monitoring. HUD can
monitor lenders and mortgagees even without the specific branch office
identification, and lenders and mortgagees will still remain
responsible to FHA for the actions of its branch offices and employees.
Self-regulation by lenders will prevent unregistered branch offices
from becoming non-compliant with applicable laws.
A commenter stated that branch offices will still be overseen by
``home'' offices motivated by licensing requirements and business
reputation to ensure branch offices remain compliant. The commenter
also stated that a lender's compliance could still be enforced through
the audit process and, as lenders regularly submit loan files to FHA,
any later attempts by these lenders to alter records will alert
regulators of non-compliance.
HUD Response: HUD agrees and notes that while it will continue to
maintain oversight and risk management of lenders and mortgagees, it is
the responsibility of each lender and mortgagee to ensure compliance
with all FHA program requirements. Each lender and mortgagee is
responsible for the actions of its staff that participate in FHA
transactions. Each lender and mortgagee must continue to maintain
effective internal controls and execute risk and control procedures on
a day-to-day basis. Further, HUD has existing processes and procedures
for
[[Page 7276]]
enforcement activities to address noncompliance.
FHA lenders will continue to be monitored by HUD's Office of Lender
Activities and Program Compliance--Quality Assurance Division.
One commenter stated that the rule states that FHA lenders will
continue to be monitored by HUD's Office of Lender Activities and
Program Compliance--Quality Assurance Division. The commenter stated
that, as a result, HUD will still review the level of early defaults
and claims on mortgages originated from each lender or mortgagee in a
HUD field office's geographic area. The commenter stated lenders and
mortgagees with excessive rates of early default and claims could then
have their authority terminated by FHA.
HUD Response: The rule does not affect HUD's monitoring of lenders
and mortgagees. Further HUD's Office of Lender Activities and Program
Compliance--Quality Assurance Division will continue to monitor FHA
mortgagees quarterly to determine whether Credit Watch Termination is
warranted.
Opposition to the Rule
Some commenters opposed this rule without providing a basis for
their opposition.
HUD Response: HUD is unable to address commenters' opposition to
the rule, as they did not provide specific reasons for their
opposition.
Concerns With the Rule
There is a potential for lenders to become lax in complying with
applicable regulations if branch offices are not registered.
One commenter said that while they welcome the rule, it could
result in lenders becoming less compliant if branch offices are not
registered with HUD. The commenter stated that if offices were no
longer subject to branch inspections, lenders will be less likely to
hold branch office employees accountable.
HUD Response: HUD appreciates this comment and the concern raised.
However, as stated previously in this preamble, each lender and
mortgagee has, and will continue to have, the responsibility to manage
its risk, to comply with regulations and standards, and to carry out
its defined risk management processes. HUD will continue its proactive
monitoring of the performance for lenders and mortgagees. Further, HUD
has existing processes and procedures for enforcement activities to
address noncompliance.
There should be limitations on what an unregistered branch office
can and cannot do.
One commenter expressed concern with reduced compliance by
unregistered branch offices and suggested imposing limitations on what
an unregistered branch office can and cannot do.
HUD Response: HUD does not agree that a bifurcation between the
permitted activities for registered and unregistered branch offices is
necessary. Each lender and mortgagee has been, and will continue to be,
responsible for the actions of its staff that participate in FHA
transactions. Further lenders and mortgagees must continue to exercise
control over the management and supervision of such staff, which must
include regular and ongoing reviews of staff performance and of the
work performed. Performance monitoring will include FHA activity from
both registered and unregistered branch offices. Further, HUD currently
has existing processes and procedures for enforcement activities to
address noncompliance.
Questions about HUD's current practices and implementation of the
rule.
One commenter questioned ``if eliminating the requirement that
lenders register all branch offices conducting FHA business will affect
reporting Neighborhood Watch/Compare Ratio Data by branch office and,
if so, if it will skew the data by excessively expanding the dataset to
larger geographic parameters results?'' The commenter stated concerns
about how FHA will record branch level data without individual branch
office registration.
Another commenter had various questions regarding HUD's current
practices and implementation of the proposed rule including: ``1.
[d]oes HUD currently monitor excessive rates of early defaults and
claims based on the branch ID or mortgages originated within the
geographic area served by a HUD field office?'' ``2. If HUD monitors
based on the geographic area served by a HUD field office, and FHA
terminates the lender's authority, does that termination apply to the
entire geographic area served by a HUD field office, regardless of how
many branches serve that area, or just the branch with the excessive
rate of early defaults and claims in that geographic area?'' ``3. If
HUD monitors based on excessive rate of early defaults and claims by
branch ID, what would happen if an institution only had one branch
registered under the proposed rule?'' ``Would the entire institution be
terminated, or would the institution be terminated in that specific
geographic area where an excessive rate of early defaults and claims
occurred?'' ``4. If a lender chooses to have multiple branch IDs, would
HUD require the registered branch manager to be physically located
somewhere within the geographic area served by a HUD field office based
on the branch's physical address?'' ``5. If so, what would HUD's
expectation be for those call center branches where the employees work
remotely?'' ``In that instance, would the required office address be
the home office?'' ``Would HUD permit a branch manager to be listed
under multiple lender branch IDs (for the same lender) or would the
need for a branch manager be removed altogether, permitting a lender
``manager'' assigned by lender ID?''
HUD Response: Once the rule becomes effective, FHA branch
registration will become optional. Mortgagees that elect to register
branch offices will still be able to access branch-level data in
Neighborhood Watch, including Compare Ratios for registered branches.
For mortgagees that discontinue branch office registration or that
never had a business model that included local or regional branch
offices, Neighborhood Watch provides a variety of geographic parameters
independent of branch IDs. Most FHA monitoring processes already focus
on mortgagee-level data based on a variety of geographic areas. For
example, FHA's current Credit Watch Termination process focuses on
properties underwritten by each Direct Endorsement Mortgagee in a
particular HUD field office jurisdiction, regardless of the originating
branch. FHA expects mortgagees to conduct similar analysis, and to
continue tracking the performance of specific branches using their own
data if necessary.
HUD currently monitors excessive rates of early defaults and claims
based on mortgages originated/underwritten within the geographic area
served by a HUD field office. When FHA terminates a mortgagee's
authority through the Credit Watch Termination process, that
termination applies to the entire geographic area served by the HUD
field office, regardless of how many branches serve that area.
Currently, HUD defines a branch manager as an onsite manager for a
branch office who manages one branch office. HUD defines a regional
manager as a manager who oversees the operation of multiple branch
offices. Each lender and mortgagee must have a branch and/or regional
manager to oversee each of its branch offices. Furthermore, each lender
and mortgagee must ensure that it and its employees
[[Page 7277]]
comply with the requirements of the SAFE Act, including the licensing
and registration of its employees in the Nationwide Mortgage Licensing
System (NMLS).
III. Findings and Certifications
Regulatory Review--Executive Orders 12866, 13563, and 14094
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 Regulation 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. Executive Order 14094 entitled ``Modernizing
Regulatory Review'' (hereinafter referred to as the ``Modernizing
E.O.'') amends section 3(f) of Executive Order 12866 (Regulatory
Planning and Review), among other things.
The final rule will 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 rule will lessen the administrative burden
on lenders and mortgagees. This rule was determined not to be a
``significant regulatory action'' as defined in section 3(f) of
Executive Order 12866 as amended by Executive Order 14094 and is not an
economically significant regulatory action and therefore was not
subject to OMB review.
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 final
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 final 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 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 rule will remove the requirement that lenders and mortgagees
register with HUD each branch office where they conduct FHA business.
This will not create an undue burden on small entities, instead it will
eliminate the burden for all lenders and mortgagees of having to
register branch offices with HUD and pay the associated fees. HUD has
determined that this 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 rule will not have Federalism
implications and will 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 final 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
amends 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. Amend Sec. 202.5 by:
0
a. In paragraph (i) removing ``authorized to originate Title I loans or
submit applications for mortgage insurance'' and adding in its place
``that the lender or mortgagee registers with the Department'';
0
b. In paragraph (k), adding ``or mortgagee'' after ``A lender'' in the
first sentence of paragraph (k), and removing the second sentence.
Julia R. Gordon,
Assistant Secretary of Office of Housing--Federal Housing
Administration.
[FR Doc. 2024-02023 Filed 2-1-24; 8:45 am]
BILLING CODE 4210-67-P