Legal Opinion: CIS-0093

Index: 4.135

Subject: Disclosure of Purchasers\' Social Security Numbers

January 9, 1997

MEMORANDUM TO: John J. Coonts, Director, Office of Insured

Single Family Housing, HSI

FROM: Bruce S. Albright, Assistant General Counsel,

Single Family Mortgage Division, CIS

SUBJECT: Disclosure of Purchasers\' Social Security Numbers

Two issues have come to our attention recently concerning

FHA requirements for disclosure of social security numbers

(SSNs). The first issue, which we have discussed with members of

your staff, is the legality of requiring persons purchasing

single family property from FHA to disclose their SSNs even if

the purchases are not financed through an FHA program. The

second issue is the legality of allowing exceptions to the

requirement that applicants for an FHA-insured mortgage must

disclose their SSNs, particularly in light of a 1996 legislative

change.

Section 7 of the Privacy Act of 1974 forbids a governmental

entity from requiring persons to disclose their SSNs as a

condition of receiving any right, benefit or privilege provided

by law except when required by Federal statute. Two other

Federal statutes are pertinent to this discussion: Section 165

of the Housing and Urban Development Act of 1987 and 31 U.S.C.

7701\.

Section 165 permits HUD to require disclosure of SSNs as

follows:

SECTION 165. PREVENTING FRAUD AND ABUSE IN DEPARTMENT OF

HOUSING AND URBAN DEVELOPMENT PROGRAMS.

\(a\) DISCLOSURE OF SOCIAL SECURITY ACCOUNT NUMBER.\--As a

condition of initial or continuing eligibility for

participation in any program of the Department of Housing

and Urban Development involving loans, grants, interest or

rental assistance of any kind, or mortgage or loan

insurance, and to ensure that the level of benefits provided

under such programs is proper, the Secretary of Housing and

Urban Development may require that an applicant or

participant (including members of the household of an

applicant or participant) disclose his or her social

security account number or employer identification number to

the Secretary.

\(b\) DEFINITIONS.\--For purposes of this section, the terms

\"applicant\" and \"participant\" shall have such meanings as

the Secretary of Housing and Urban Development by regulation

shall prescribe. Such terms shall not include persons whose

involvement is only in their official capacity, such as

State or local officials or officers of lending

institutions. \[42 U.S.C. 3543\]

Section 7701(b) of 31 U.S.C. requires disclosure of SSNs as

follows:

The head of an agency administering an included Federal

loan program shall require a person applying for a loan

under a program to provide that person\'s taxpayer

identification number \[i.e, social security number of

employer identification number.\]

The key term \"included Federal loan program\" is defined by

incorporating by reference the definition in Section 6109 of the

Internal Revenue Code (IRC). Originally the definition required

an OMB determination that a program should be included.

Section 31001(y) of the Debt Collection Improvement Act of 1996

amended the IRC definition so that it now includes \"any Federal

program under which the United States or a Federal agency makes,

guarantees, or insures loans.\"

Property Disposition Issue

We understand that FHA would like to be able to require

purchasers of single family properties to provide their SSNs as a

means of ensuring that the purchasers are going to be owner-

occupants and not investors. This becomes especially important

where the owner-occupants are provided an earlier opportunity

than investors to purchase properties or are eligible for other

sales incentives.

We have reviewed the legislative history of Section 165.

The Section appears in the title labelled \"Housing Assistance\"

relating to assistance/subsidy programs. According to

Sen. Rep. 100-21, page 17, \"this information would permit HUD to

verify current wage and benefit information and avoid fraud and

abuse.\" On page 35, that report states that HUD would have \"the

option of collection of social security numbers of program

applicants or participants as a condition of initial or

continuing eligibility in HUD housing programs.\" Similarly,

H. Rep. 100-122(I), page 50, says that HUD would be able to

obtain social security numbers \"in order to insure that the level

of benefits under each program is correct.\"

An argument could be made that Section 165 should be broadly

read to allow the collection of SSNs in order to prevent fraud

and abuse of HUD\'s property disposition program. One could argue

that property disposition can be included under the category of

programs involving \"mortgage or loan insurance\" under the premise

that the disposal of acquired property is an integral part of the

single family mortgage insurance programs as a whole. Owner-occupants

may be in a position to receive special advantages

under the property disposition program and HUD has the same need

for SSNs as a tool when combatting fraud and abuse as it has for

the other programs covered by Section 165.

There are potential consequences that FHA should be aware

of, however, before proceeding with the collection of SSNs under

this authority. HUD has issued regulations to implement

Section 165 but those regulations currently do not apply to

property disposition that does not involve FHA mortgage

insurance. Section 165 requires that an \"applicant\" or

\"participant\" required to disclose an SSN be defined by

regulation so that HUD would have to issue regulations in order

to apply Section 165 of the HCD Act to property purchasers. If

FHA creates a new system of records for Privacy Act purposes by

collecting the SSNs for program enforcement purposes, FHA would

have to publish notice of that fact in the Federal Register.

It is not entirely clear that Section 165 can be broadly

interpreted to include the property disposition program as a

\"mortgage insurance or loan program.\" We question whether such a

broad interpretation is a good reading of the law. This could

lead to litigation if Housing declines to honor a contract for

the purchase of an acquired property because the purchaser fails

to disclose his or her SSN. Congress sought to mitigate such

harsh results by its passage of the Privacy Act. The court in

Doyle v. Wilson, 529 F. Supp. 1343, 1348 (D. Del. 1892), stated

that agencies are prevented from penalizing an individual from

disclosing a SSN: \"Section 7 of the Privacy Act broadly prohibits

a state \[or Federal Government\] from penalizing an individual in

any way because of his failure to reveal his social security

number upon request, except in certain narrowly defined

circumstances.\" (Emphasis provided). We question whether a

broad interpretation of Section 165 conflicts with the concept of

narrowly defining the circumstances where collection of an SSN is

authorized.

In addition to proceeding with the requirement to request

the SSN, Housing may consider other options. One is to request

that Section 165 be amended to allow specifically for the

collection of SSNs from purchasers of properties from FHA.

Another option is to make the request for a purchaser\'s SSN

strictly voluntary rather than mandatory.

Disclosure of SSNs by Applicants for Insured Mortgages

While Section 165 of the HCD Act of 1987 provides HUD with

discretionary authority to collect SSNs from participants in a

broad array of HUD programs including applicants for FHA-insured

single family mortgages, collection of SSNs is mandated by

31 U.S.C. 7701 for applicants for insured mortgages. An argument

can be made that Section 165 of the HCD Act is controlling and

that HUD has discretion to require the collection of SSNs from

some but not all applicant mortgagors. This argument is based

upon some general approaches to statutory interpretation, where

later statutes prevail over conflicting, earlier statutes, and

specific statutes prevail over more general ones.

Section 165 was enacted in early 1988 while 31 U.S.C. 7701

derives from Section 4 of the Debt Collection of 1982.

On the surface it appears that Section 165 is the later

enactment. Section 4 and 31 U.S.C. 7710 incorporate 6109 of the

IRC, however, which was amended in 1996. The 1996 amendment is

crucial; it has the effect of removing any discretion regarding

which programs are to be covered by the requirement for

disclosure of social security numbers in 31 U.S.C. 7701.

Formerly OMB had the discretion to determine coverage. Thus,

the 1996 change could be regarded as Congress\' last word on the

subject and the statute incorporating it\--31 U.S.C 7701\--as a

more recent enactment than Section 165. It is also debatable

whether Section 165 or 31 U.S.C. 7701 should be regarded as the

more specific statute. Section 165 is specifically directed to

HUD programs, but to a variety of types of programs that may have

potential for fraud and abuse but that do not necessarily involve

debt. Although 31 U.S.C. 7701 is directed to all agencies, it is

specifically concerned with a tool for efficient debt collection

whether or not fraud or abuse is involved. FHA\'s interest in

using social security numbers to further debt collection is

present even in the absence of fraud or abuse. In any event,

these general approaches to statutory interpretation are simply

guidelines that never demand a result that otherwise appears

inconsistent with legislative intent.

We believe that it is doubtful that Congress intended to

relieve FHA of its obligation to collect SSNs for all mortgagors.

There is no apparent reason why Congress would remove from OMB

the discretion to exempt any mortgage or loan insurance programs

from 31 U.S.C. 7701 but nevertheless intend that the Secretary of

HUD retain discretion to decide whether or not SSNs are needed to

aid in debt collection efforts under FHA Single Family Mortgage

Insurance Programs. Congress is unlikely to be less concerned

with effective debt collection measures in FHA programs than in

other agencies\' mortgage and loan insurance programs. If you are

in concurrence with this conclusion, FHA\'s current regulation and

handbook provision on collecting SSNs need to be re-examined for

possible revision.

The regulation, 24 CFR 203.35, was adopted in connection

with implementation of Section 165. It states

To be eligible for mortgage insurance under this part

\[203\], the mortgagor must meet the requirements for the

disclosure and verification of Social Security and

Employer Identification Numbers, as provided by part

200, Subpart U, of this chapter.

Subpart U was simplified in 1996 as part of the Department\'s

regulations streamlining effort. Subpart U now refers the reader

to a new Subpart B of 24 CFR part 5, which is a consolidated

Department-wide provision on disclosure and verification of SSNs.

The current 24 CFR 5.216(b)(1) states:

Each individual owner applicant must submit the

following information to the \[mortgagee\] when the

individual owner applicant\'s eligibility under the

program involved is being determined: (1) (i) The

complete and accurate SSNs assigned to the individual

owner applicant. . .; or (2) if an \[applicant\] has not

been assigned an SSN, a certification executed by the

individual(s) involved that meets the requirements of

paragraph (j) of this section.

The current 24 CFR 5.216(j) states: \"The certification referred

to in paragraphs. . . (b)(2). . . of this section must be in the

form and manner that HUD. . . prescribe\[s\] in applicable

administrative instructions. . . .\"

Due to the language quoted above, an individual owner

applicant does not become ineligible for FHA single family

mortgage insurance under the regulations simply because the

individual has no SSN. An alternative is permitted:

certification meeting HUD\'s administrative instructions may

be provided. Allowing this alternative is consistent with

Section 165, which is permissive, but it is not consistent with

31 U.S.C. 7701 which permits no exception. The regulation is

susceptible to an application that would lead to a violation of

31 U.S.C. 7701\--if the statutes are reconciled as interpreted as

discussed above\--through acceptance of individual applicants for

FHA-insured mortgages who lack SSNs.

The handbook for FHA Single Family Mortgage Credit Analysis,

4155.1 REV-4, paragraphs 2-2B, 3-1C and 3-2C, requires a social

security number for each borrower, co-borrower, or co-signer.

Paragraph 3-2C, however, permits an exception for \"individuals

not required to obtain a social security number, such as

employees of the World Bank, foreign employees of embassies,

etc.\" The handbook presents one type of problem: FHA has

expressly created an exception that is not permitted by

31 U.S.C. 7701. The regulation presents another type of problem:

handbook restrictions can be waived by Field Offices, as long as

regulatory and statutory provisions are not violated, and anyone

who is reviewing the legality of a waiver of the handbook

requirement for SSNs may conclude that a waiver is legally

possible and consistent with the regulations and Section 165

without addressing the statutory issue presented by

31 U.S.C. 7701. The regulation\'s implication that a SSN is not

an invariable statutory requirement for an applicant for single

family mortgage insurance can be misleading.

Housing has the option to consider one of two approaches to

correct the misleading nature of the SSN regulation.

Section 203.35 could be amended so that it excludes the

provisions of Part 5 that are inconsistent with 31 U.S.C. 7701,

or Part 5 could be amended to make clear that the \"certification\"

alternative is not available for individual applicants for FHA-insured

mortgages.

Please contact me if you have any questions regarding this

memorandum.