65180 Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Parts 201, 202 and 203

[Docket No. FR–4239–I–01]

RIN 2502–AG99

Termination of an Approved

Mortgagee’s Origination Approval

Agreement

AGENCY: Office of the Assistant

Secretary for Housing—Federal Housing

Commissioner, HUD.

ACTION: Interim rule.

SUMMARY: This interim rule clarifies and

makes minor changes to 24 CFR parts

202 and 203 to improve the provisions

regarding termination of a single family

mortgagee’s origination approval

agreement with FHA. The interim rule

also corrects errors in 24 CFR parts 201

and 202.

DATES: Effective date: January 9, 1998.

Comment due date: February 9, 1998.

FOR FURTHER INFORMATION CONTACT:

Phillip Murray, Director, Office of

Lender Activities and Program

Compliance, Department of Housing

and Urban Development, Room B–133–

P3214, 451 Seventh Street, SW,

Washington, DC 20410, telephone

number (202) 708–1515 (this is not a

toll-free number). A

telecommunications device for hearingand speech-impaired persons (TTY) is

available at (800) 877–8339 (Federal

Information Relay Service).

SUPPLEMENTARY INFORMATION:

Part 202 of title 24 contains the

Department’s requirements for approval

of lenders and mortgagees for FHA

insurance programs. The Department

reorganized and streamlined part 202 by

a recent final rule without making any

substantive changes (62 FR 20080, April

24, 1997). The Department also

published an interim rule announcing

the Lender Insurance program (62 FR

30222, June 2, 1997). This new interim

rule includes minor substantive changes

to part 202 and corrections to the

streamlining and Lender Insurance

rules.

Part 202 is amended to state more

clearly the provisions regarding

termination of an FHA-approved single

family mortgagee’s origination approval

agreement (OAA). The following matters

are clarified or changed in § 202.3(d):

• When a mortgagee has a default and

claim rate sufficient to support

termination of the OAA under the

standards of part 202, termination is at

the discretion of the Secretary even if

the Department in a previous time

period could have, but did not, place

the mortgagee on credit watch. This is

a clarification of the Department’s

current interpretation.

• A mortgagee will not be permitted

to apply for a new OAA for 6 months

after termination of an OAA. There is

currently no delay required for an

application for a new OAA.

• Claims and defaults will be

measured for 24 months after a mortgage

is insured, instead of the current 18

months for claims and 1 year for

defaults. Two references to tracking a

mortgagee’s default and claims for

originations ‘‘during a Federal fiscal

year’’ are deleted as inconsistent with

the uniform 24-month tracking period.

Corrections to the April 24, 1997 final

rule include:

• Sections 201.20(a)(3) and

201.26(a)(1)(iii), which had been

removed by an interim rule (61 FR

19797–8, May 2, 1996), were

inadvertently restored in modified form

by the final rule and are now removed

again.

• The United States Code citation for

the National Housing Act, which was

inadvertently omitted, is added to the

definition of ‘‘Act’’ in § 202.2.

• The definition of ‘‘mortgage’’ in

§ 202.2 is corrected to include mortgages

insured under title XI of the National

Housing Act to be consistent with the

definition of ‘‘Title II program’’ which

includes title XI.

• Two minor editorial corrections are

made to § 202.5: a comma is inserted in

the first sentence of § 202.5(i) and ‘‘that’’

is inserted in § 202.5(n)(1)(i) to improve

clarity.

• ‘‘And’’ is changed to ‘‘an’’ in

§ 202.7(b)(4)(i)(A).

In addition, language is added to

§§ 203.3 and 203.4 that clarifies HUD’s

current position that a mortgagee with a

terminated OAA also has its approval

under the Direct Endorsement and

Lender Insurance programs terminated

without further procedures.

Other Matters

Justification for Interim Rulemaking

HUD generally publishes a rule for

public comment before issuing a rule for

effect, in accordance with its own

regulations on rulemaking in 24 CFR

part 10. However, part 10 provides for

exceptions to the general rule if the

agency finds good cause to omit

advance notice and public participation.

The good cause requirement is satisfied

when prior public procedure is

‘‘impracticable, unnecessary, or contrary

to the public interest’’ (24 CFR 10.1).

HUD finds that good cause exists to

publish this rule for effect without first

soliciting public comment. However,

HUD is allowing for a full 60-day public

comment period on the provisions of

this interim rule, and HUD will consider

the relevant issues raised by the

commenters in its development of a

final rule for the Lender Insurance

program.

Many of the changes are corrections

or clarifications that do not alter

substantive policy currently in effect.

Some of the changes are made for

administrative efficiency without any

likely substantive effect on mortgagees,

such as the use of calendar years and

uniform 24 month periods to measure

default and claim rates. The new

explicit prohibition against applying for

a new OAA within 6 months of

termination supplements the current

requirement that HUD must determine

that the underlying cause of the

termination must have been

satisfactorily remedied before a new

origination approval agreement would

be approved. Under current practice it

is highly unlikely that HUD could ever

make that determination within 6

months of a termination. The new

provision is an administrative measure

designed to avoid futile applications by

the mortgagee that must be processed by

HUD personnel even when denial is

virtually certain.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed and approved this

interim rule, and in so doing certifies

that this rule will not have a significant

economic impact on a substantial

number of small entities. This rule

merely clarifies and makes minor

changes and corrections to the existing

regulations. The rule will have no

adverse or disproportionate economic

impact on small businesses. Small

entities are specifically invited,

however, to comment on whether this

rule will significantly affect them, and

persons are invited to submit comments

according to the instructions in the

DATES and ADDRESSES sections in the

preamble of this interim rule.

Environmental Impact

This rulemaking is exempt from the

environmental review procedures under

HUD regulations in 24 CFR part 50 that

implement section 102(2)(C) of the

National Environmental Policy Act of

1969 (42 U.S.C. 4332) because of the

exemption under § 50.19(c)(1) which

pertains to ‘‘the approval of policy

documents that do not direct, provide

for assistance or loan and mortgage

insurance for, or otherwise govern or

regulate property acquisition,
Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Rules and Regulations 65181

disposition, lease, rehabilitation,

alteration, demolition, or new

construction, or set out to provide for

standards for construction or

construction materials, manufactured

housing, or occupancy.’’ This

rulemaking simply amends an existing

regulation regarding termination of a

mortgagee’s approval to originate

insured mortgages and does not alter the

environmental effect of the regulations

being amended. The regulation being

amended was also exempt under

§ 50.19(c)(1), as stated at 62 FR 20080,

April 24, 1997.

Executive Order 12612, Federalism

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12612, Federalism, has

determined that this rule will not have

substantial direct effects on States or

their political subdivisions, or the

relationship between the Federal

Government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. No programmatic

or policy changes will result from this

rule that would affect the relationship

between the Federal Government and

State and local governments.

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 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.

Catalog

The Catalog of Federal Domestic

Assistance number for the programs

affected by this interim rule are 14.117

and 14.142.

List of Subjects

24 CFR Part 201

Health facilities, Historic

preservation, Home improvement, Loan

programs—housing and community

development, Manufactured homes,

Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 202

Administrative practice and

procedure, Home improvement,

Manufactured homes, Mortgage

insurance, Reporting and recordkeeping

requirements.

24 CFR Part 203

Hawaiian Natives, Home

improvement, Indians—lands, Loan

programs—housing and community

development, Mortgage insurance,

Reporting and recordkeeping

requirements, Solar energy.

Accordingly, parts 201, 202 and 203

of title 24 of the Code of Federal

Regulations are amended as follows:

PART 201—TITLE I PROPERTY

IMPROVEMENT AND MANUFACTURED

HOME LOANS

1. The authority citation for 24 CFR

part 201 is revised to read as follows:

Authority: 12 U.S.C. 1703 and 3535(d).

§ 201.20 [Amended]

2. Section 201.20 is amended by

removing paragraph (a)(3).

3. Section 201.26 is amended by

revising paragraph (a)(1) to read as

follows:

§ 201.26 Conditions for loan

disbursement.

(a) * * *

(1) The lender shall ensure that the

following conditions are met:

(i) The borrower is eligible for a

property improvement loan in

accordance with § 201.20(a) (1) or (2);

and

(ii) The interest of the borrower in the

property is valid, through such title or

other evidence as are generally

acceptable to prudent lending

institutions and leading attorneys in the

community in which the property is

situated.

* * * * *

PART 202—APPROVAL OF LENDING

INSTITUTIONS AND MORTGAGEES

4. 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).

5. Section 202.2 is amended by

revising the definitions of ‘‘Act’’,

‘‘Claim’’, ‘‘Default’’, and ‘‘Mortgage,

Title II mortgage or insured mortgage’’,

to read as follows:

§ 202.2 Definitions.

Act means the National Housing Act

(12 U.S.C. 1702 et seq.)

Claim means a single family insured

mortgage for which the Secretary pays

an insurance claim within 24 months

after the mortgage is insured.

Default means a single family insured

mortgage in default for 90 or more days

within 24 months after the mortgage is

insured.

* * * * *

Mortgage, Title II mortgage or insured

mortgage means a mortgage or loan

insured under Title II or Title XI of the

Act.

* * * * *

6. Section 202.3 is amended by

revising paragraph (c)(2)(ii)(A), the first

sentence of paragraph (c)(2)(iii), and

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

§ 202.3 Approval status for lenders and

mortgagees.

* * * * *

(c) * * *

(2) * * *

(ii) * * *

(A) The Secretary may notify a

mortgagee that its origination approval

agreement will terminate 60 days after

notice is given, if the mortgagee had a

rate of defaults and claims on insured

mortgages originated in an area which

exceeded 200 percent of the normal rate,

and exceeded the national default and

claim rate for insured mortgages. The

notice may be given without action by

the Mortgagee Review Board even if the

Secretary previously had the right to

issue a credit watch notice to the

mortgagee under this section but did not

do so.

* * * * *

(iii) Credit watch status. The Secretary

may notify a mortgagee that it is on

credit watch status if the mortgagee had

a rate of defaults and claims on insured

mortgages originated in an area which

exceeded 150 percent, but not 200

percent, of the normal rate. * * *

* * * * *

(v) * * *

(C) A mortgagee’s right to apply for a

new origination approval agreement if it

continues to be an approved mortgagee

meeting the general standards of § 202.5

and the specific requirements of

§§ 202.6. 202.7. 202.8 or 202.10, and

202.12, if the mortgagee has had no

origination approval agreement for at

least 6 months, and if the Secretary

determines that the underlying causes

for termination have been satisfactorily

remedied; or

* * * * *

7. Section 202.5 is amended by

revising the first sentence of paragraph

(i) and paragraph (n)(1)(i) to read as

follows:

§ 202.5 General approval standards.

* * * * *

(i) * * * The lender or mortgagee,

unless approved under § 202.10, shall

pay an application fee and annual fees,

including additional fees for each

branch office authorized to originate

Title I loans or submit applications for

mortgage insurance, at such times and
65182 Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Rules and Regulations

in such amounts as the Secretary may

require. * * *

* * * * *

(n) * * *

(1) * * *

(i) The aggregate original amount of

insured mortgages that the mortgagee

originated and that were insured during

the fiscal year, or that the mortgagee

purchased as a sponsor from its loan

correspondent(s) during the fiscal year;

and

* * * * *

8. Section 202.7 is amended by

revising paragraph (b)(4)(i)(A) to read as

follows:

§ 202.7 Nonsupervised lenders and

mortgagees.

* * * * *

(b) * * *

(4) * * *

(i) * * *

(A) A financial statement in a form

acceptable to the Secretary, including a

balance sheet and a statement of

operations and retained earnings, an

analysis of the mortgagee’s net worth

adjusted to reflect only assets acceptable

to the Secretary, and an analysis of

escrow funds; and

* * * * *

PART 203—SINGLE FAMILY

MORTGAGE INSURANCE

4. The authority citation for 24 CFR

part 203 is revised to read as follows:

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

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

5. Section 203.3 is amended by

adding a new paragraph (d)(2)(iv) to

read as follows:

§ 203.3 Approval of mortgagees for Direct

Endorsement.

* * * * *

(d) * * *

(2) * * *

(iv) Termination of an origination

approval agreement under part 202 of

this chapter for a mortgagee or one or

more branch offices automatically

terminates Direct Endorsement approval

for the mortgagee or the branch office or

offices without any further requirement

to comply with this paragraph.

6. Section 203.4 is amended by

adding a new sentence at the end of

paragraph (d) to read as follows:

§ 203.4 Approval of mortgagees for Lender

Insurance.

* * * * *

(d) * * * Termination of an

origination approval agreement under

part 202 of this chapter or termination

of Direct Endorsement approval under

§ 203.3(d)(2) for a mortgagee or one or

more branch offices automatically

terminates Lender Insurance approval

for the mortgagee or the branch office or

offices without any further requirement

to comply with this paragraph.

Dated: October 22, 1997.

Nicolas P. Retsinas,

Assistant Secretary for Housing—Federal

Housing Commissioner.

[FR Doc. 97–32250 Filed 12–9–97; 8:45 am]

BILLING CODE 4210–27–P