65324 Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Proposed Rules 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 203

[Docket No. FR–4831–P–01; HUD–2004–

0007] 

RIN 2502–AI03

Revisions to the Single Family 

Mortgage Insurance Program

AGENCY: Office of the Assistant 

Secretary for Housing-Federal Housing 

Commissioner, HUD.

ACTION: Proposed rule.

SUMMARY: To reflect recent statutory 

changes, this proposed rule revises 

certain regulations under the single 

family mortgage insurance program that 

govern actions by mortgagees with 

respect to mortgages in default. The rule 

also amends other regulations under the 

program to make them consistent with 

industry practices. The Department 

believes that these changes will help to 

increase the administrative efficiency of 

the single family mortgage insurance 

program.

DATES: Comment Due Date: January 10, 

2005.

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this rule to the Regulations Division, 

Office of General Counsel, Room 10276, 

Department of Housing and Urban 

Development, 451 Seventh Street, SW., 

Washington, DC 20410–0500. Interested 

persons may also submit comments 

electronically through either: 

• The Federal eRulemaking Portal at: 

http://www.regulations.gov; or 

• The HUD electronic Web site at: 

www.epa.gov/feddocket. Follow the link 

entitled View Open HUD Dockets. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Facsimile (fax) comments are not 

acceptable. In all cases, communications 

must refer to the docket number and 

title. All comments and 

communications submitted will be 

available, without revision, for public 

inspection and copying between 8 a.m. 

and 5 p.m. weekdays at the above 

address. Copies are also available for 

inspection and downloading at 

www.epa.gov/feddocket.

FOR FURTHER INFORMATION CONTACT:

Joseph McCloskey, Office of the Deputy 

Assistant Secretary for Single Family 

Housing, Department of Housing and 

Urban Development, Room 9172, 451 

Seventh Street, SW., Washington, DC 

20410–8000; telephone (202) 708–1672 

(this is not a toll-free number). Hearingand speech-impaired persons may 

access this number through TTY by 

calling the toll free Federal Information 

Relay Service at 800–877–8339.

SUPPLEMENTARY INFORMATION: 

I. Background 

The Department’s regulations 

governing the procedures, rights, and 

servicing responsibilities, among other 

things, arising out of a mortgage insured 

under the single family mortgage 

insurance program of the Federal 

Housing Administration (FHA) 

generally are codified at 24 CFR part 

203. Statutory amendments enacted by 

the Departments of Veterans Affairs and 

Housing and Urban Development, and 

Independent Agencies Appropriations 

Act, 1999 (Pub. L. 105–276, approved 

October 21, 1998) (FY1999 

Appropriations Act), and other changes 

in practices and procedures require 

changes to the regulations at 24 CFR 

203.23, 203.24, 203.359, 203.370, 

203.371, 203.389, 203.402, 203.604, and 

203.605. 

II. This Proposed Rule 

This rule would amend 24 CFR 

203.23(a) to require a provision in the 

mortgage for the payment of homeowner 

or condominium association fees among 

the other payments that the mortgagor is 

required to make under the mortgage. 

Several states have enacted legislation 

that gives condominium and 

homeowners’ associations the right to 

file a lien for non-payment of 

association fees by a mortgagor, 

resulting in a lien that has priority over 

the FHA-insured mortgage. HUD has 

performed a study on the various state 

laws applicable to the priority of the 

homeowners’ and condominium 

association fees and charges. There is 

great variance among the states with 

respect to how they treat the lien status 

of condominium association fees and 

charges. Some states have established a 

priority or ‘‘super lien’’ for six months, 

but the time that the six-month period 

begins to run varies. Also, the time that 

the lien for the fees and charges is 

perfected varies by state. As a result, 

HUD has experienced difficulty in 

several jurisdictions where the 

condominium or homeowners’ 

association has started foreclosure 

proceedings under its lien. In addition, 

even where the lien for fees and 

assessments is not senior to the 

mortgage, there are many questions 

raised as to whether the mortgagee 

should pay the unpaid fees before 

conveying the property to the Secretary. 

HUD has been apprised that other states 

are contemplating legislation that would 

make these assessments prior liens. 

Further, HUD desires to protect the 

viability of homeowners’ and 

condominium associations by providing 

a method whereby there would be 

greater assurance of these associations’ 

collecting their fees. HUD also wants to 

protect those homeowners who do pay 

their fees from being assessed for 

maintenance and other expenses that 

cannot be paid because other 

homeowners do not pay their fees. It is 

also a costly process to have attorneys 

handle redemption of the property, if 

the homeowners’ or condominium 

association forecloses on its lien. 

Therefore, the amendment to § 203.23 

would require mortgagees of FHAinsured mortgages endorsed on or after 

the effective date of this rule to collect 

as part of the monthly mortgage 

payment an escrow of the amounts 

necessary for the payment of these fees 

when they become due. 

A corresponding amendment is made 

to 24 CFR 203.24(a)(1) to provide for the 

application by the mortgagee of that part 

of the monthly payment received from 

the mortgagor for condominium or 

homeowners’ association fees. 

This rule also would amend 24 CFR 

203.359(b)(2). After reviewing its 

experience with the application of this 

regulation, HUD has concluded that 

amendment of this regulation is 

warranted to better protect the 

insurance fund. HUD’s experience has 

shown that too many mortgagees have 

not pursued conveying the foreclosed 

property to the Secretary with the 

diligence that the regulation 

contemplated. Consequently, the 

Department has been forced to pay 

additional interest on the outstanding 

debt pending recordation of the deed to 

the Secretary by the mortgagee. The 

amended regulation would provide that 

the deed to the Secretary must be 

recorded within 30 days after the later 

of the acquisition of possession of the 

property by the mortgagee or the 

expiration of the redemption period. 

The rule would amend § 203.370 by 

removing the existing language in 

paragraph (c)(4) and substituting 

therefor the amendatory language in 

section 601(a) of the FY1999 HUD 

Appropriations Act, which amended 

section 204 of the National Housing Act 

(12 U. S. C. 1710). Section 204 now 

provides for the payment of insurance 

benefits by the Secretary in a 

preforeclosure sale of the property if, 

among other things, ‘‘the mortgagor has 

received an appropriate disclosure, as 

determined by the Secretary.’’ Formerly, 

section 204 required counseling. The 

revised language of 24 CFR 

203.370(c)(4) reflects the cited language 

Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Proposed Rules 65325

from section 601(a) of the FY1999 HUD 

Appropriations Act.

HUD proposes in this rule to add a 

new paragraph 6 to 24 CFR 203.371(b) 

to provide that, along with the existing 

requirements that must be satisfied for 

payment of a partial claim, the 

mortgagor must have made a minimum 

number of monthly payments as 

prescribed by the Secretary. 

In § 203.371, paragraph (d) would be 

revised to provide that HUD must 

receive the original of the note and 

security instrument no later than 60 

days after the date of the execution of 

the note and the security instrument. 

Section 203.371(d) would allow 

submission by the mortgagee of a copy 

of the security instrument with the date 

and time of the recording stamped by 

the recorder’s office, if the original 

document is not available. A 

certification from the recorder’s office 

that the security instrument has been 

recorded and stating the date of 

recordation also would be acceptable. If 

the mortgagee does not provide the 

original of the note and the security 

agreement (or the stamped copy or 

certification as provided above) to HUD 

by the 60-day deadline, HUD will 

require reimbursement of the amount of 

the partial claim paid to the mortgagee, 

including the incentive. If the mortgagee 

meets the 60-day requirement by 

providing HUD with the original note 

and a copy of the security instrument 

with a stamp or certification as 

described above, the mortgagee will 

have six months from the date of the 

execution of the security instrument to 

provide HUD with the original of the 

security instrument. If the security 

instrument is not provided to HUD by 

the six-month deadline, then HUD will 

require reimbursement of the claim, 

including the incentive. 

This proposed rule also would amend 

24 CFR 203.389 to add ‘‘aviation 

easements’’ approved by the Secretary at 

the time of the mortgage origination to 

the list of easements in paragraph (b)(1) 

to which the Commissioner may not 

raise objection in taking title to property 

covered by an insured mortgage in 

default. This amendment recognizes 

that, since the regulation was last 

updated in 1976, aviation easements 

have become fairly common with the 

growth in the number of airports. 

In 24 CFR 203.402, paragraphs (a) and 

(j) are revised to incorporate new items 

that would be included in insurance 

benefits paid by HUD with respect to 

conveyed and non-conveyed properties. 

In paragraph (a), language is added that 

provides for an amount to be included 

in the claim payment of a utility fee, if 

it is a lien prior to the mortgage. HUD 

also has added language to paragraph (a) 

that would permit HUD to reimburse 

mortgagees for payments of 

homeowners’ association and 

condominium fees if, because of a 

default of a mortgagor, in making 

escrow payments, the mortgagee has to 

pay these fees. This amendment would 

affect only mortgages endorsed on or 

after the effective date of this rule. The 

revision to paragraph (j) will eliminate 

the need for approval by the Secretary, 

prior to the issuance of a mortgage, of 

a covenant that provides for charges and 

fees for the administration, operation, 

and maintenance of community-owned 

property. The requirement for Secretary 

approval has not been in effect for some 

time. Section 203.604(c)(2) would be 

revised to eliminate the requirement of 

a face-to-face meeting if the mortgaged 

property is within 200 miles of the 

mortgagee or a branch office thereof. 

Even if the mortgagee does have an 

office, or a branch office, within 200 

miles, a face-to-face meeting would not 

be necessary if the servicer does not 

have an office or a branch within 200 

miles. The revision is being made since 

servicers, rather than holding 

mortgagees, take the necessary actions 

required when a mortgagor is 

delinquent. As revised, § 203.604(c)(2) 

would provide that a face-to-face 

meeting is no longer required if ‘‘The 

mortgaged property is not within 200 

miles of the servicer [the reference to 

mortgagee has been removed] or a 

branch office of the servicer.’’

The revision to 24 CFR 203.605 

clarifies the existing language regarding 

the deadline for the mortgagee to 

complete its loss mitigation evaluation. 

HUD has always considered 90 days of 

delinquency to be the appropriate 

amount of time required to ensure that 

a borrower would have an opportunity 

to respond to requests from the 

mortgagee and for the mortgagee to 

complete its review for loss mitigation. 

The existing language (‘‘no later than 

when three full monthly installments 

* * * are unpaid’’) was intended to 

allow the mortgagee to the end of the 

third month of delinquency to complete 

the loss mitigation evaluation, i.e.,

while three payments were still unpaid, 

but before four payments had become 

unpaid. However, this language created 

an ambiguity, causing some mortgagees 

to believe that they were required to 

complete the loss mitigation review by 

the day the account became three full 

payments due and unpaid. To remove 

any ambiguity and to make clear the 

intent of the rule, the revision to 24 CFR 

203.605 provides in part that: ‘‘Before 

the account becomes four payments due 

and unpaid, the mortgagee shall 

evaluate all of the loss mitigation 

techniques provided in § 203.501 to 

determine which, if any, is appropriate, 

and shall reevaluate monthly 

thereafter.’’

Findings and Certifications 

Regulatory Planning and Review 

The Office of Management and Budget 

(OMB) reviewed this rule under 

Executive Order 12866 (entitled 

‘‘Regulatory Planning and Review’’). 

OMB determined that this rule is a 

‘‘significant regulatory action’’ as 

defined in section 3(f) of the Order 

(although not an economically 

significant regulatory action under the 

Order). Any changes made to the rule as 

a result of that review are identified in 

the docket file, which is available for 

public inspection in the Regulations 

Division, Room 10276, 451 Seventh 

Street, SW., Washington, DC 20410–

0500. 

Environmental Impact 

A Finding of No Significant Impact 

with respect to the environment for this 

rule 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 

Finding of No Significant Impact is 

available for public inspection between 

8 a.m. and 5 p.m. weekdays in the 

Regulations Division, Office of the 

General Counsel, Department of 

Housing and Urban Development, Room 

10276, 451 Seventh Street, SW., 

Washington, DC 20410–5000. 

Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act 

of 1995 (2 U.S.C. 1531–1538) 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 a federal 

mandate on any state, local, or tribal 

government, or on the private sector, 

within the meaning of the Unfunded 

Mandates Reform Act of 1995. 

Regulatory Flexibility Act 

The Secretary, in accordance with the 

Regulatory Flexibility Act (5 U.S.C. 

605(b)), has reviewed this rule before 

publication and by approving it certifies 

that this rule would not have a 

significant economic impact on a 

substantial number of small entities. 

There are no anti-competitive 

discriminatory aspects of the rule with 

regard to small entities, and there are 

not any unusual procedures that would 

need to be complied with by small 

65326 Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Proposed Rules 

entities. The rule revises certain 

regulations under the Single Family 

Mortgage Insurance program to improve 

the efficiency of the program. Although 

HUD has determined that this rule 

would not have a significant economic 

impact on a substantial number of small 

entities, HUD welcomes comments 

regarding less burdensome alternatives 

to this rule that will meet HUD’s 

objectives as described in this preamble.

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 and 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 does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

State and local governments nor 

preempt State law within the meaning 

of the Executive Order.

List of Subjects in 24 CFR Part 203

Hawaiian Natives, Home 

improvement, Indians-lands, Loan 

programs-housing and community 

development, Mortgage insurance, 

Reporting and recordkeeping 

requirements, Solar energy.

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance number is 14.117.

Accordingly, for the reasons described 

in the preamble, HUD proposes to 

amend 24 CFR part 203 as follows:

PART 203–SINGLE FAMILY 

MORTGAGE INSURANCE 

1. The authority citation for part 203 

continues to read as follows:

Authority: 12 U.S.C. 1709, 1710, 1715b, 

and 1715u; 42 U.S.C. 3535(d).

2. Amend § 203.23 by removing the 

word ‘‘and’’ at the end of paragraph 

(a)(4), by redesignating existing 

paragraph (a)(5) as (a)(6) and revising it, 

and by adding a new paragraph (a)(5) to 

read as follows:

§ 203.23 Mortgagor’s payments to include 

other charges. 

(a) * * *

(5) For mortgages endorsed for 

insurance on or after the effective date 

of this rule, homeowner association or 

condominium association fees, as 

appropriate; and 

(6) Fire and other hazard insurance 

premiums, if any. The mortgage shall 

further provide that such payments 

shall be held by the mortgagee in a 

manner satisfactory to the 

Commissioner for the purpose of paying 

such ground rents, taxes, assessments, 

insurance premiums, and (for mortgages 

endorsed on or after the effective date of 

this rule), homeowners’ or 

condominium association fees before 

the same become delinquent, for the 

benefit and account of the mortgagor. 

The mortgage also must make 

provisions for adjustments in case the 

estimated amount of such taxes, 

assessments, insurance premiums, and 

fees shall prove to be more, or less, than 

the actual amount thereof so paid by the 

mortgagor. Such payments shall be held 

in an escrow subject to § 203.550.

* * * * *

3. Amend § 203.24 by revising 

paragraph (a)(1) to read as follows:

§ 203.24 Application of payments. 

(a) * * *

(1) Premium charges under the 

contract of insurance (other than a onetime or up-front mortgage insurance 

premium paid in accordance with 

§§ 203.280, 203.284, and 203.285), 

charges for ground rents, taxes, special 

assessments, flood insurance premiums, 

if required, fire and other hazard 

insurance premiums, and (for mortgages 

endorsed on or after the effective date of 

this rule), homeowners’ and 

condominium association fees and 

charges, if applicable.

* * * * *

4. Amend § 203.359 by revising 

paragraph (b)(2) to read as follows:

§ 203.359 Time of conveyance to the 

Secretary.

* * * * *

(b) * * *

(2) Direct conveyance. In cases where 

the mortgagee arranges for a direct 

conveyance of the property to the 

Secretary, the mortgagee must ensure 

that the property is transferred to the 

Secretary within 30 days of the later of 

acquiring possession of the property or 

the expiration of the redemption period. 

5. Amend § 203.370 by revising 

paragraph (c)(4) to read as follows:

§ 203.370 Pre-foreclosure sales.

* * * * *

(c) * * *

(4) Must have received an appropriate 

disclosure, as prescribed by the 

Secretary. 

6. Amend § 203.371 by revising 

paragraphs (b)(4) and (b)(5), by adding 

a new paragraph (b)(6), and by revising 

paragraph (d), to read as follows:

§ 203.371 Partial claim.

* * * * *

(b) * * *

(4) The mortgagor is not financially 

able to make sufficient additional 

payments to repay the arrearage within 

a time frame specified by HUD; 

(5) The mortgagor is not financially 

qualified to support monthly mortgage 

payments on a modified mortgage or on 

a refinanced mortgage in which the total 

arrearage is included; and 

(6) The mortgagor must have made a 

minimum number of monthly payments 

as prescribed by the Secretary.

* * * * *

(d) Application for insurance benefits.

The mortgagee shall provide HUD with 

the original credit instrument and the 

original security instrument no later 

than 60 days following the date of their 

execution. If the original security 

instrument is not yet available, the 

mortgagee shall provide HUD with a 

copy of the security instrument on 

which the date and time of the 

recording of the original is stamped by 

the recorder’s office. If the recorder’s 

office cannot stamp the copy, HUD will 

accept a certification from the recorder’s 

office that the original has been 

recorded and the date of the 

recordation. If the mortgagee does not 

provide the original of the note and 

security instrument (or the stamped 

copy or certification as provided above) 

within the 60-day deadline, the 

mortgagee shall be required to 

reimburse the amount of the claim paid, 

including the incentive. If the mortgagee 

meets the 60-day requirement with the 

original note and a stamped or certified 

copy of the security instrument, the 

mortgagee shall have 6 months from the 

date of the execution of the security 

instrument to provide HUD with the 

original of the security instrument. If the 

security instrument is not provided 

within 6 months, HUD will require 

reimbursement of the claim payment, 

including the incentive. 

7. Amend § 203.389 by revising 

paragraph (b)(1) to read as follows:

§ 203.389 Waived title objections.

* * * * *

(b)(1) Aviation easements, which were 

approved by the Secretary at the time of 

the origination of the mortgage, and 

other customary easements for public 

utilities, party walls, driveways, and 

other purposes.

* * * * *

8. Amend § 203.402 by revising 

paragraphs (a) and (j) to read as follows:

§ 203.402 Items included in payment—

conveyed and nonconveyed properties.

* * * * *

(a) Taxes, ground rents, water rates, 

and utility charges which are liens prior 

Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Proposed Rules 65327

to the mortgage; and homeowners’ or 

condominium association fees when the 

mortgagee is required to escrow the fees 

under § 203.23, but the mortgagor has 

defaulted in the payment of the escrow 

and the mortgagee pays such fees for 

and on account of the mortgagor.

* * * * *

(j) Charges for the repair or 

maintenance of the mortgaged property 

required by and in an amount approved 

by the Secretary; charges for 

condominium and homeowners’

association fees which the mortgagee 

advanced for and on behalf of the 

mortgagor for those mortgages endorsed 

for insurance before the effective date of 

the rule.

* * * * *

9. Amend § 203.604 by revising 

paragraph (c)(2) to read as follows:

§ 203.604 Contact with the mortgagor

* * * * *

(c) * * *

(2) The mortgaged property is not 

within 200 miles of the servicer, or a 

branch office of the servicer.

* * * * *

10. Revise § 203.605 to read as 

follows:

§ 203.605 Loss mitigation evaluation. 

Before the account becomes four 

installments due and unpaid, the 

mortgagee shall evaluate all of the loss 

mitigation techniques provided in 

§ 203.501 to determine which 

techniques, if any, are appropriate, and 

shall reevaluate monthly thereafter. The 

mortgagee shall maintain 

documentation of such evaluations. 

Should a claim for mortgage insurance 

benefits later be filed, the mortgagee 

shall maintain this documentation in 

the claim file under the requirements of 

§ 203.365(c).

Dated: August 27, 2004. 

John C. Weicher, 

Assistant Secretary for Housing—Federal 

Housing Commissioner. 

Sean Cassidy, 

General Deputy Assistant, Secretary for 

Housing.

[FR Doc. 04–24989 Filed 11–9–04; 8:45 am] 

BILLING CODE 4210–27–P