[Federal Register Volume 89, Number 79 (Tuesday, April 23, 2024)]
[Rules and Regulations]
[Pages 30272-30277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08648]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5 and 202

[Docket No. FR-6291-F-02]
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: Final rule.

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SUMMARY: This rule amends the requirements for investing lenders and 
investing mortgagees to gain or maintain their status as a Federal 
Housing Administration (FHA) approved lender or mortgagee. This 
revision makes FHA's approval requirements consistent with investing 
mortgagees' and investing lenders' risk, reduces barriers to FHA 
approval for new investing mortgagees and investing lenders, and 
increases access to capital for all FHA-approved mortgagees and 
lenders. HUD is clarifying that the general annual certification 
requirement for lenders and mortgagees is applicable to investing 
lenders and investing mortgagees. HUD is also defining Government-
Sponsored Enterprises (GSEs) separately from other governmental-type 
entities to ensure that FHA requirements specific to loan origination 
do not apply to GSEs. Finally, HUD is eliminating obsolete language 
related to lender and mortgagee net worth requirements. This final rule 
adopts HUD's July 18, 2023, proposed rule with minor revisions.

DATES: Effective: May 23, 2024.

FOR FURTHER INFORMATION CONTACT: Volky Garcia, Division Director, 
Department of Housing and Urban Development, 451 7th Street SW, 
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 from 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 the

[[Page 30273]]

Secretary to approve lenders and mortgagees to participate in FHA's 
Title I and Title II programs. Subpart B identifies the classes of 
lenders and mortgagees eligible to participate in FHA's Title I and 
Title II programs and outlines additional specific requirements for 
participation in the programs.
    In 2010, HUD amended 24 CFR part 202, subpart A, to include 
investing lenders and investing mortgagees as a class of lenders and 
mortgagees 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 the investing lender and 
investing mortgagee requirements. Additionally, FHA increased the 
minimum net worth requirements applicable to certain classes of lenders 
and mortgagees in 24 CFR part 202 in 2010. 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 at Sec.  202.10 also define the classes of 
lenders and mortgagees that qualify as governmental institutions, 
Government-Sponsored Enterprises, public housing agencies, and State 
housing agencies. Currently, various GSEs \1\ are included in the Sec.  
202.10(a) definition along with 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 to ensure compliance with FHA requirements related to loan and 
mortgage origination because they cannot and do not 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. The Proposed Rule

    On July 18, 2023, HUD published for public comment a proposed rule 
(88 FR 45863) to amend 24 CFR parts 5 and 202, which govern numerous 
administrative requirements for investing lenders and investing 
mortgagees. The proposed rule sought to add investing lenders and 
investing mortgagees to the list of entities that must comply with the 
uniform financial reporting standards found in 24 CFR 5.801(a)(5). The 
rule proposed to adjust audit and certification requirements for 
investing lenders and investing mortgagees, as well as to delete 
obsolete language regarding phased-in net worth requirements currently 
found at Sec.  202.5(n)(2). In addition, the proposed rule aimed to 
clarify that investing lenders and investing mortgagees without 
servicing authority do not have to implement a written quality control 
plan under Sec.  202.5(h).

III. This Final Rule

    The final rule adopts the proposed rule with three changes. First, 
it makes a clarifying edit to the language of Sec.  202.5(h). In the 
proposed rule, HUD sought to clarify existing regulatory language and 
exempt investing lenders and investing mortgagees from the Sec.  
202.5(h) requirement that they implement a quality control plan. Public 
comments stated that the proposed language was unclear. In response, 
HUD is amending the proposed text of Sec.  202.5(h) to clarify the 
exception for investing lenders and investing mortgagees.
    The second change adds the word ``investing'' before the phrase 
``lender or mortgagee'' throughout Sec.  202.9(b)(4) to ensure 
uniformity in Sec.  202.9(b). This change is not substantive because 
the section is limited to investing lenders and investing mortgagees by 
the existing regulatory text and does not change any auditing, 
compliance, or reporting requirements. In addition, this change will 
serve to clarify who must submit audit reports under Sec.  202.9(b)(4).
    The third change is a non-substantive change that revises the first 
sentence of Sec.  202.9(a) to clarify the definition of investing 
lender or investing mortgagee. Specifically, the change adds specific 
cross-references that more clearly identify when an organization is not 
an investing lender or investing mortgagee.

IV. Public Comments

    The public comment period closed on September 18, 2023, and HUD 
received four distinct comments related to the proposed rule. The 
comments were from Housing Finance Authorities (HFAs), a nonprofit that 
works with HFAs, and an interested individual. A detailed breakdown of 
the comments and HUD responses is provided below.
    Support for the proposed annual certification requirement language 
in Sec.  202.5(m).
    Two commenters supported the proposed amendment to Sec.  202.5(m), 
which would require investing lenders and investing mortgagees to 
certify that they have not been refused a license and have not been 
sanctioned by any State(s) in which it will purchase, hold, sell, or 
service FHA-approved loans or mortgages.
    HUD Response: HUD appreciates the stakeholder feedback in support 
of the proposed amendment to Sec.  202.5(m).
    No concerns with the proposed net worth requirements in Sec.  
202.5(n).
    One commenter stated that they have no concerns with the proposed 
capital standards that would require investing lenders and investing 
mortgagees to maintain a certain net worth based on the size of their 
portfolios, as detailed by the proposed language for Sec.  202.5(n).
    HUD Response: HUD appreciates the stakeholder feedback; however, 
there is no change to the net worth requirement. Investing lenders and 
investing mortgagees are already required to comply with the general 
approval requirements in Sec.  202.5, including the net worth 
requirements in Sec.  202.5(n). The rule deletes the phased-in net 
worth requirements for years 2010 and 2011 currently found at Sec.  
202.5(n)(2) because the requirements are fully phased-in.
    The proposed rule could negatively impact the availability of FHA-
approved mortgages.
    One commenter stated that the proposed rule would reduce the 
incentives for investing lenders and investing mortgagees to originate 
or purchase FHA-insured mortgages because GSEs or other entities that 
are eligible to purchase or securitize FHA-insured mortgages would face 
``lower requirements and fees'' compared to investing lenders and 
investing mortgagees. The commenter stated that the decrease in demand 
by investing lenders and investing mortgagees could hurt the viability 
of FHA's programs and increase the financial risk to FHA's portfolio by 
centralizing lower quality loans within one institution. The commenter 
suggested that HUD monitor the impact of the rule on the availability 
of FHA-supported mortgages or loans after implementation and enact 
adjustments as needed.
    HUD Response: HUD appreciates the commenter's concerns but believes 
the

[[Page 30274]]

impact on availability will be minimal given the provisions of the rule 
are mostly clarifying in nature with limited changes. This impact is 
minimal, in part, because investing lenders and investing mortgagees 
are not authorized to originate Title I loans or Title II mortgages as 
described in Sec.  202.9(a). In Sec.  202.9, HUD further clarifies the 
definition of an investing lender and investing mortgagee and updates 
and clarifies the existing financial statement and audit requirements. 
With respect to revising the GSE definition, the regulatory text now 
aligns with the mission and structure of the GSEs. HUD will continue to 
monitor the availability of FHA-insured mortgages after this rule 
becomes effective.
    Increased risk to FHA's portfolio and the stability of the 
secondary market.
    One commenter stated that the investing requirements and 
redefinition of the GSEs under the proposed rule, when taken together, 
could shift many of the loans and mortgages under Title I and Title II 
to GSEs like Fannie Mae and Freddie Mac. According to the commenter, 
this centralization could increase the risk to FHA's portfolio as well 
as reduce the stability and liquidity in the secondary housing market. 
The commenter recommended that HUD analyze and more thoroughly consider 
the impact of the proposed rule on the stability and resilience of the 
secondary mortgage market, as well as on consumer protection.
    HUD Response: The rule makes clarifying edits and limited updates 
to Sec. Sec.  202.5, 202.9, and 202.10 with respect to the definition 
of an investing lender and investing mortgagee, investing lender and 
investing mortgagee financial statement and audit requirements, annual 
certification language, and the GSE definition. Given that the rule is 
limited to clarifying edits and minimal updates, HUD does not foresee 
that the rule will lead to investing lenders or investing mortgagees 
exiting the secondary market. Accordingly, HUD does not anticipate that 
the rule will lead to a shift of loans and mortgages to GSEs. In 
addition, the rule removes obsolete language that is no longer 
applicable and updates current regulatory citations. HUD will continue 
to monitor for any secondary market impacts after this rule becomes 
effective.
    The proposed audit requirements are burdensome and unnecessary.
    The commenter said the proposed rule would lead to HFAs, that are 
approved as investing lenders and investing mortgagees, drawing from 
resources dedicated to substantive projects to ensure compliance with 
the proposed audit requirement. According to the commenter, this would 
occur because many programs that HFAs administer do not provide 
administrative funds while others provide insufficient administrative 
funds or only enough to barely cover the costs of administering the 
programs. The commenter also said that these requirements are 
unnecessary because HFAs, as well as other State and local programs, 
are subject to substantial public oversight by State auditors, State 
executives, and State legislatures. The commenter stated that this 
oversight renders the information sought by HUD duplicative of 
existing, publicly available information.
    HUD Response: The Federal regulations found at Sec.  202.5 exempt 
HFAs from the auditing requirements, which make it unnecessary for HFAs 
to draw from resources dedicated to substantive projects to complete 
these requirements. In addition, HFAs are approved as government 
mortgagees subject to the requirements of Sec. Sec.  202.5 and 202.10, 
and the government mortgagee requirements in the HUD OIG's HUD 
Consolidated Audit Guide and the FHA Single Family Housing Policy 
Handbook 4000.1.
    HFAs with small portfolios should be exempt from Sec.  
202.9(b)(4)(i).
    One commenter requested that HUD consider excluding from some or 
all of the proposed rules HFAs which may technically own FHA mortgages 
but have a diminishing portfolio that is serviced by an FHA approved 
mortgagee. The commenter stated the proposed Sec.  202.9(b)(4)(i) 
requirement that investing lenders and investing mortgagees provide an 
analysis of escrow funds would be difficult because HFAs do not have 
access to the required knowledge or information, which is a problem 
that is amplified when the portfolio is small. The commenter stated 
that the information is instead possessed by the original or underlying 
FHA-approved mortgage and should be provided to HUD under current 
regulations.
    HUD Response: The Sec.  202.9(b)(4)(i) requirement pertaining to an 
analysis of escrow funds is only applicable to investing lenders and 
investing mortgagees. This section does not apply to HFAs, which are 
classified as government mortgagees. An HFA, as a government mortgagee, 
must only comply with the applicable requirements in Sec.  202.5, Sec.  
202.10, the HUD Consolidated Audit Guide, and the FHA Single Family 
Housing Policy Handbook 4000.1. This final rule adds language to the 
definition of investing lender or investing mortgagee in to Sec.  
202.9(a) to more clearly identify organizations that are not investing 
lenders or investing mortgagees.
    The proposed quality control plan language is unclear in Sec.  
202.5(h).
    Two commenters stated support for exempting investing lenders and 
investing mortgagees from the requirement that they implement a quality 
control plan to ensure compliance with the regulation. However, both 
commenters said the proposed language was ``difficult to parse'' 
because the clause containing the phrase ``unless approved under Sec.  
202.9 without servicing authority'' does not clearly identify that 
investing lenders and investing mortgagees are exempt from the quality 
control plan requirement. The commenters suggested the lack of clarity 
could be addressed by moving the phrase ``without servicing authority'' 
from its original clause and placing it after the opening phrase of 
``lenders or mortgagees.'' One commenter provided a second solution, 
stating the proposed rule could implement the ``eminently clear'' 
language from the preamble.
    HUD Response: HUD appreciates the commenters' suggested language 
revisions to Sec.  202.5(h) and has amended the final rule to address 
the commenters' suggestions. Specifically, HUD has moved the phrase 
``unless approved under Sec.  202.9 without servicing authority'' to 
the end of the sentence. In addition, the sentence has minor clarifying 
edits.
    Lack of clarity on whether entities would be regulated under a 
single GSE definition and if so, how it would be done.
    A commenter said that the proposed rule would expand the definition 
of GSEs to include any entity that is chartered by Congress to provide 
secondary market liquidity regardless of whether it is owned or 
controlled by the Federal Government. Specifically, the commenter 
stated that the proposed expansion to the definition of GSEs ``could 
include entities such as Ginnie Mae or Farmer Mac'' that currently have 
different levels of Federal support than Fannie Mae and Freddie Mac. 
The commenter also stated that ``the proposed rule does not specify how 
these entities would be regulated under a single definition of GSEs, or 
whether there would be a single regulator for all of them.'' The 
commenter said that this is a problem because the rule does not specify 
how these entities would be regulated by HUD in a uniform manner or 
whether there would be a single regulator for all of them. According to 
the commenter, these issues might create confusion or inconsistency in 
the

[[Page 30275]]

oversight and regulation of these entities.
    HUD Response: The final rule aims to distinguish GSEs from all 
other governmental institutions and does not change which entities fall 
under the GSE definition. HUD moved the definition of GSE into Sec.  
202.10(b) without changing the list of entities meeting the definition. 
HUD's definition of GSE, which is located at Sec.  202.10(a), includes 
the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, 
and Federal National Mortgage Association. The GSE definition does not 
include the Governmental National Mortgage Association (Ginnie Mae) or 
The Federal Agricultural Mortgage Corporation (Farmer Mac). The rule 
will not change how these entities are regulated but does make clear 
that GSEs have limited authorizations and are not subject to the FHA 
requirements that are specific to loan or mortgage origination.
    The proposed GSE definition could affect the accountability and 
transparency of entities like Ginnie Mae and Farmer Mac.
    A commenter stated that the proposed definition of GSEs could 
reduce the accountability and transparency of Ginnie Mae and Farmer 
Mac, as well as their access to Federal subsidies and support. The 
commenter said that this could happen because ``Ginnie Mae has an 
explicit guarantee from the Federal Government that its securities will 
be paid, while Farmer Mac has no explicit guarantee from the Federal 
Government but has some tax exemptions and borrowing privileges.'' This 
concern led the commenter to suggest that HUD ensure that these 
entities are subject to adequate oversight, supervision, and disclosure 
by their regulators, Congress, and the public.
    HUD Response: Current regulation combines governmental institutions 
and GSEs in its definition, requiring GSEs to follow policy specific to 
loan origination even though they do not originate FHA loans. The final 
rule defines GSEs separate and apart from all other governmental 
institutions and reduces the administrative burden of having to adhere 
to compliance requirements that are not related to the functions they 
are performing. The final rule makes clear that GSEs have limited 
authorizations and are not subject to the FHA requirements that are 
specific to loan or mortgage origination. Also, the GSE definition does 
not include Ginnie Mae and Farmer Mac. This exclusion means that 
changes to the GSE definition will not lead to transparency issues with 
Ginnie Mae and Farmer Mac. HUD does not foresee an impact on the 
secondary housing market but will continue to monitor this after the 
rule becomes effective.
    The proposed GSE definition could impact Fannie Mae's and Freddie 
Mac's conservatorship reform.
    One commenter stated that the proposed rule would affect the role 
and function of Fannie Mae and Freddie Mac in the housing finance 
system, which is currently undergoing a major reform process. The 
commenter said the reform process aims to end the conservatorship of 
Fannie Mae and Freddie Mac, which has been in place since 2008, and to 
establish a more competitive and efficient secondary mortgage market. 
The commenter warned the proposed rule could have implications for the 
timing and outcome of the reform process, as well as for the future 
structure and governance of Fannie Mae and Freddie Mac.'' The commenter 
suggested that HUD coordinate with other Federal agencies to ensure 
consistency and alignment of policies and standards related to housing 
finance reform.
    HUD Response: Certain GSEs, unlike many other lenders or 
mortgagees, do not have the infrastructure available to ensure 
compliance with FHA requirements. The final rule relieves GSEs of these 
requirements by defining GSEs separate and apart from all other 
governmental institutions. This definition makes clear that GSEs have 
limited authorizations and does not amend the programs or services 
provided by Fannie Mae and Freddie Mac. Given that the final rule only 
changes compliance requirements to ensure appropriateness with the 
limited nature of authorizations for GSEs, HUD does not believe the 
change will impact the role and function of Fannie Mae and Freddie Mac 
in the housing finance system or the Federal Housing Finance Agency's 
oversight of Fannie Mae and Freddie Mac.
    GSE exclusion based on origination authority should apply to 
similarly situated HFAs.
    One commenter stated that the reasoning provided in the proposed 
rule for excluding GSEs from FHA requirements specific to loan or 
mortgage origination, which is that GSEs cannot originate loans, is 
applicable to many HFAs. The commenter recommended that these similarly 
situated HFAs be treated like GSEs and be exempted from the loan or 
mortgage origination requirements as appropriate.
    HUD Response: HUD notes that all HFAs that currently participate in 
FHA's Title I and Title II programs are approved as government 
mortgagees authorized to perform activities associated with loan or 
mortgage origination. While FHA understands from the commenters that 
not all HFAs currently originate, or are authorized to originate, HFA 
lending activities and authorizations can change over time. HUD also 
lacks the information needed to make an informed and reasoned judgment 
on whether it is appropriate to depart from the existing requirements 
for HFAs, as well as how such a change would be implemented, at this 
time. Accordingly, FHA is maintaining the current framework in Sec.  
202.10(a) for HFAs.

V. Findings and Certifications

Regulatory Review--Executive Orders 12866, 13563, and 14094

    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 Regulation 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. Executive Order 14094 entitled ``Modernizing 
Regulatory Review'' (hereinafter referred to as the ``Modernizing 
E.O.'') amends section 3(f) of Executive Order 12866, among other 
things.
    As discussed above, this rule defines GSEs under a separate 
definition within Sec.  202.10. It clarifies the audit, financial 
statement, and certification requirements of investing lenders and 
investing mortgagees. It eliminates obsolete net worth requirements for 
investing lenders and investing 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.

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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 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. The 
minor nature of changes led HUD to conclude that the proposed rule was 
non-significant, a finding later affirmed by OMB. HUD solicited 
comments from the public at the proposed rule stage and received no 
comments suggesting that it would impose a significant economic impact 
on a substantial number of small entities. In addition, HUD is only 
making a minor clarifying edit to the final rule in response to public 
comments. Accordingly, the undersigned certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities.

Environmental Impact

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

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 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 rule does 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 in the preamble, HUD amends 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:

    Authority:  12 U.S.C. 1701x; 42 U.S.C. 1437a, 1437c, 1437f, 
1437n, 3535(d); 42 U.S.C. 2000bb et seq.; 34 U.S.C. 12471 et seq.; 
Sec. 327, Pub. L. 109-115, 119 Stat. 2396; 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. 14015, 86 FR 10007, 3 CFR, 2021 Comp., p. 517.

0
2. In Sec.  5.801, revise paragraph (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, revise paragraph (h), (m) introductory text, and 
(n)(1) and (2), and remove paragraph (n)(3) to read as follows:


Sec.  202.5  General approval standards.

* * * * *
    (h) Quality control plan. Lenders or mortgagees shall implement a 
written quality control plan, acceptable to the Secretary, that assures 
compliance with the regulations of this chapter and other issuances of 
the Secretary regarding loan or mortgage origination and servicing 
unless the lenders or mortgagees were approved under Sec.  202.9 
without servicing authority.
* * * * *
    (m) Reports. Each lender and mortgagee must submit an annual 
certification on a form prescribed by the Secretary. 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. In addition, each mortgagee shall file the following:
* * * * *
    (n) * * *
    (1) Applicability. The requirements of paragraph (n) of this 
section apply to approved supervised and nonsupervised lenders and 
mortgagees under Sec. Sec.  202.6 and 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) of this section. 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) of this 
section.
    (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.

[[Page 30277]]

    (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 and paragraph (a);
0
b. In paragraphs (b) introductory text and (b)(1) and (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 addition read as follows:


Sec.  202.9  Investing lenders and investing mortgagees.

    (a) Definition. An investing lender or investing mortgagee is an 
organization that is not approved as a supervised lender or mortgagee 
under Sec.  202.6, a nonsupervised lender or mortgagee under Sec.  
202.7, or a governmental or similar institution under Sec.  202.10. An 
investing lender or investing mortgagee may purchase, hold, or sell 
Title I loans or Title II mortgages, respectively, but may not 
originate Title I loans or Title II mortgages in its own name or submit 
applications for the insurance of mortgages. An investing lender or 
investing mortgagee may not service Title I loans or Title II mortgages 
without prior approval of the Secretary.
    (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. An investing lender or mortgagee must comply with 
the financial reporting requirements in24 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 investing 
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. Remove paragraph (c);
0
c. Redesignate paragraph (b) as paragraph (c); and
0
d. Add new paragraphs (b) and (d).
    The revision 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 (a) may submit applications for 
Title II mortgage insurance. A lender or mortgagee approved under this 
paragraph (a) may originate, purchase, service, or sell Title I loans 
and insured mortgages, respectively. A mortgagee or lender approved 
under this paragraph (a) 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 (b) may purchase, service, 
or sell Title I loans and insured mortgages, respectively. A mortgagee 
or lender approved under this paragraph (b) 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. 2024-08648 Filed 4-22-24; 8:45 am]
BILLING CODE 4210-67-P