Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 10695 

(g) Inspection 

Except as provided by paragraph (h) of this 

AD: Within 12 months after the effective date 

of this AD, inspect to determine the part 

number and serial number of each Thales 

Avionics AOA probe, in accordance with the 

Accomplishment Instructions of Airbus 

Service Bulletin A320–34–1452, excluding 

Appendix 01, dated January 29, 2010. If any 

probe is found having part number (P/N) 

C16291AA and having a serial number listed 

in Thales Avionics Service Bulletin 

C16291A–34–007, Revision 01, dated 

December 3, 2009: Within 12 months after 

the effective date of this AD, replace the AOA 

probe, in accordance with the 

Accomplishment Instructions of Airbus 

Service Bulletin A320–34–1452, excluding 

Appendix 01, dated January 29, 2010. A 

review of airplane maintenance records is 

acceptable in lieu of this inspection if the 

part number and serial number of the 

installed AOA probes can be conclusively 

determined from that review. 

(h) Exception 

For any airplane on which Airbus 

modification 150006 (installation of Thales 

Avionics AOA probes 

P/N C16291AB) or modification 26934 

(installation of Goodrich AOA probes P/N 

0861ED) has been embodied in production 

and on which no AOA probe replacement 

has been made since first flight: The actions 

specified in paragraph (g) of this AD are not 

required. 

(i) Parts Installation 

As of the effective date of this AD, no 

person may install a Thales Avionics AOA 

probe, P/N C16291AA, having a serial 

number listed in Thales Avionics Service 

Bulletin C16291A–34–007, Revision 01, 

dated December 3, 2009, on any airplane, 

unless that Thales Avionics probe has been 

inspected, re-identified and tested, in 

accordance with the Accomplishment 

Instructions of Thales Avionics Service 

Bulletin C16291A–34–007, Revision 01, 

dated December 3, 2009. 

(j) Other FAA AD Provisions 

The following provisions also apply to this 

AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, International 

Branch, ANM–116, Transport Airplane 

Directorate, FAA, has the authority to 

approve AMOCs for this AD, if requested 

using the procedures found in 14 CFR 39.19. 

In accordance with 14 CFR 39.19, send your 

request to your principal inspector or local 

Flight Standards District Office, as 

appropriate. If sending information directly 

to the International Branch, send it to Attn: 

Sanjay Ralhan, Aerospace Engineer, 

International Branch, ANM–116, Transport 

Airplane Directorate, FAA, 1601 Lind 

Avenue SW., Renton, Washington 98057– 

3356; telephone (425) 227–1405; fax (425) 

227–1149. Information may be emailed to: 

9-ANM-116-AMOC-REQUESTS@faa.gov. 

Before using any approved AMOC, notify 

your appropriate principal inspector, or 

lacking a principal inspector, the manager of 

the local flight standards district office/ 

certificate holding district office. The AMOC 

approval letter must specifically reference 

this AD. 

(2) Airworthy Product: For any requirement 

in this AD to obtain corrective actions from 

a manufacturer or other source, use these 

actions if they are FAA-approved. Corrective 

actions are considered FAA-approved if they 

are approved by the State of Design Authority 

(or their delegated agent). You are required 

to assure the product is airworthy before it 

is returned to service. 

(k) Related Information 

Refer to MCAI European Aviation Safety 

Agency Airworthiness Directive 2011–0203, 

dated October 13, 2011; Airbus Service 

Bulletin A320–34–1452, excluding Appendix 

01, dated January 29, 2010; and Thales 

Avionics Service Bulletin C16291A–34–007, 

Revision 01, dated December 3, 2009; for 

related information. 

Issued in Renton, Washington, on February 

6, 2012. 

Ali Bahrami, 

Manager, Transport Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. 2012–4209 Filed 2–22–12; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Chapter II 

[Docket No. FR–5572–N–01] 

Federal Housing Administration (FHA) 

Risk Management Initiatives: Revised 

Seller Concessions 

AGENCY: Office of the Assistant 

Secretary for Housing—Federal Housing 

Commissioner, HUD. 

ACTION: Request for comments. 

SUMMARY: On July 15, 2010 (75 FR 

41217), HUD issued a notice seeking 

comment on three initiatives that HUD 

proposed would contribute to the 

restoration of the Mutual Mortgage 

Insurance Fund (MMIF) capital reserve 

account. On September 3, 2010 (75 FR 

54020), HUD published a follow-up 

final rule implementing the proposal to 

introduce a minimum credit score and 

reduce the maximum loan-to-value ratio 

for FHA single family mortgage 

insurance. HUD is in the process of 

implementing another notice tightening 

the underwriting standards for mortgage 

loan transactions that are manually 

underwritten. This document addresses 

the third proposal; namely, the proposal 

to reduce the amount of closing costs a 

seller may pay on behalf of a homebuyer 

purchasing a home with financing 

insured by the Federal Housing 

Administration (FHA). This document 

takes into consideration the public 

comments on the July 15, 2010, final 

rule regarding the proposed cap on 

‘‘seller concessions’’ and revises the 

proposed cap in response. HUD is 

seeking comment for 30 days on this 

revised proposal for limiting seller 

concessions. 

DATES: Comment Due Date March 26, 

2012. 

FOR FURTHER INFORMATION CONTACT: 

Karin Hill, Director, Office of Single 

Family Program Development, Office of 

Housing, Department of Housing and 

Urban Development, 451 7th Street SW., 

Room 9278, Washington, DC 20410; 

telephone number 202–708–4308 (this 

is not a toll-free number). Persons with 

hearing or speech impairments may 

access this number through TTY by 

calling the toll-free Federal Relay 

Service at 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. HUD’s July 15, 2010 Notice 

On July 15, 2010, at 75 FR 41217, 

HUD issued a notice seeking comment 

on three initiatives that HUD proposed 

would contribute to the restoration of 

the Mutual Mortgage Insurance Fund 

(MMIF) capital reserve account. The 

proposed changes were developed to 

preserve both the historical role of the 

Federal Housing Administration (FHA) 

in providing a home financing vehicle 

during periods of economic volatility 

and HUD’s social mission of helping 

underserved borrowers. In the July 15, 

2010, notice, HUD proposed the 

following: (1) To reduce the amount of 

closing costs a seller (or other interested 

third parties) may pay on behalf of a 

homebuyer purchasing a home with 

FHA-insured mortgage financing for the 

purposes of calculating the maximum 

mortgage amount; (2) to introduce a 

credit score threshold, as well as reduce 

the maximum loan-to-value (LTV) for 

borrowers with lower credit scores who 

represent a higher risk of default and 

mortgage insurance claim; and (3) to 

tighten underwriting standards for 

mortgage loan transactions that are 

manually underwritten. 

Over the past 3 years, the volume of 

FHA insurance has increased rapidly as 

private sources of mortgage finance 

retreated from the market. FHA’s share 

of the single-family mortgage market 

was estimated at 17 percent (33 percent 

for home purchase mortgages) in Fiscal 

Year (FY) 2010, up from 3.4 percent in 

FY 2007, and the dollar volume of 

insurance written has jumped from the 

$77 billion issued in FY 2007 to $319 

billion in FY 2010. The growth in the 

MMIF portfolio over such a short period 

of time coincided with worsening 


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1While the Federal Credit Reform Act of 1990 

requires that FHA (and all other government credit 

agencies) estimate and budget for the anticipated 

cost of mortgage loan guarantees, the National 

Housing Act imposes a special requirement that the 

MMIF hold an additional amount of funds in 

reserve to cover unexpected losses. FHA maintains 

these back-up funds in the MMIF capital reserve 

account, a special reserve account. 

2On November 13, 2009, HUD released an 

independent actuarial study that reported that FHA 

will likely sustain significant losses from mortgage 

loans made prior to 2009, due to the high 

concentration of seller-financed downpayment 

assistance mortgage loans and declining real estate 

values nationwide, and that the MMIF capital 

reserve relative to the amount of outstanding 

insurance in force had fallen below the statutorily 

mandated 2 percent ratio. The capital ratio 

generally reflects the reserves available (net of 

expected claims and expenses), as a percentage of 

the current portfolio, to address unexpected losses. 

The report can be found at: http://www.hud.gov/ 

offices/hsg/fhafy09annualmanagementreport.pdf. 

economic conditions that have seen 

high levels of defaults and foreclosures 

and, consequently, unacceptable risks of 

loss to the MMIF.1 The National 

Housing Act (12 U.S.C. 1701 et seq.), 

which authorizes FHA’s mortgage 

insurance, envisions that FHA will 

adjust program standards and practices, 

as necessary, to operate the MMIF on a 

financially sound basis. 

The independent actuarial study 

conducted in 2009 showed that the 

MMIF capital ratio has fallen below its 

statutorily mandated threshold.2

Consistent with HUD’s responsibility 

under the National Housing Act to 

ensure that the MMIF remains 

financially sound, HUD published the 

July 15, 2010, notice and sought public 

comment on the three proposals 

described above. The July 15, 2010, 

notice represented another step in 

HUD’s effort to preserve the MMIF and 

preserve FHA as a source of available 

credit for affordable home mortgages. 

Interested parties are referred to the July 

15, 2010, notice for details regarding the 

proposed changes to FHA requirements. 

B. The September 3, 2010 Final Rule 

Implementing New Credit Score and 

Loan-to-Value Requirements 

At the close of the public comment 

period on August 16, 2010, HUD had 

received 902 public comments in 

response to the July 15, 2010, notice. 

The majority of the public comments 

focused on the reduction in seller 

concessions. In order to provide the 

necessary additional time to consider 

the issues raised by the commenters, 

HUD decided to separately implement 

the three proposals contained in the July 

15, 2010, notice. 

On September 3, 2010, at 75 FR 

54020, HUD published a final rule 

implementing the introduction of a 

minimum credit score and the reduction 

in the maximum LTV ratio for FHA 

single family mortgage insurance. The 

September 3, 2010, final rule also 

contained a discussion of the public 

comments received in response to the 

new credit score and LTV requirements. 

The final rule advised that HUD’s 

decision on the two other proposals 

described in the July 15, 2010, notice 

would be addressed separately. 

Commencing on October 4, 2010, 

borrowers were required to have a 

minimum decision credit score of no 

less than 500 to be eligible for FHA 

financing. The LTV for FHA-insured 

mortgage loans (purchase and refinance) 

is limited to 90 percent for borrowers 

with a decision score between 500 and 

579. Maximum FHA-insured financing 

(96.5 percent LTV for purchase 

transactions and 97.75 percent for rateand-term refinance transactions) 

continues to be available for borrowers 

with credit scores at or above 580. 

However, FHA is providing a special, 

temporary allowance to permit higher 

LTV mortgage loans for borrowers with 

lower decision credit scores, so long as 

they involve a reduction of existing 

mortgage indebtedness pursuant to FHA 

program adjustments announced in 

HUD Mortgagee Letter 2010–23. 

Interested readers are referred to the 

September 3, 2010, final rule and HUD 

Mortgagee Letter 2010–29 for additional 

information regarding the new credit 

score and LTV requirements. All HUD 

Mortgagee Letters are available at: 

http://www.hud.gov/offices/adm/ 

hudclips/letters/mortgagee/. 

C. Proposed Final Rule Implementing 

Revised Manual Underwriting 

Requirement 

HUD is in the process of finalizing a 

rule implementing the revised manual 

underwriting requirements and 

addressing the public comments 

received on this proposal in response to 

the July 15, 2010, notice. The new 

manual underwriting requirements will 

reduce the risk to the MMIF and ensure 

that homebuyers are offered mortgage 

loans that are sustainable. 

As discussed in the July 15, 2010, 

notice, the purpose of mortgage 

underwriting is to determine a 

borrower’s ability and willingness to 

repay the debt and to limit the 

probability of default. An underwriter 

must consider a borrower’s credit 

history, evaluate the borrower’s capacity 

to repay the loan based on income and 

current debt, determine if cash to be 

used for closing is sufficient and from 

an acceptable source, and determine if 

the value of the collateral supports the 

amount of money being borrowed. In 

cases where the borrower has a very 

limited or nontraditional credit history, 

a credit score may not have been issued 

by the credit bureaus, or the credit score 

may be based on references that are few 

in number or do not effectively predict 

future credit worthiness. Mortgage loans 

for borrowers in this category are 

manually underwritten as are all 

‘‘Refer’’ risk classifications provided by 

FHA’s TOTAL Mortgage Score Card. 

These categories of borrowers require a 

more extensive review that can be 

tailored to circumstances to discern the 

level of risk. Manual underwriting 

guidelines are generally more stringent 

to address that higher risk level. The 

final rule will consider factors for 

manually underwritten mortgage loans. 

II. This Notice—Reduction of Seller 

Concession: Revised Proposal for 

Reducing Seller Concessions 

This notice revises the third proposal 

contained in the July 15, 2010, notice; 

namely, the proposed cap on the 

amount of ‘‘seller concessions’’ that can 

be considered as offsets to actual closing 

costs rather than inducements to 

purchase. When a homeseller pays all or 

part of the buyer’s closing costs and 

other fees, such payments are referred to 

as seller concessions. Seller concessions 

include any payment toward the 

borrower’s closing costs and other fees, 

by any third party with an interest in 

the transaction, including the seller, 

builder, developer, mortgage broker, 

lender, or Settlement Company. HUD’s 

existing policy defining seller 

concessions provides that any 

concessions exceeding 6 percent must 

be treated as inducements to purchase, 

resulting in a reduction in the FHA 

mortgage amount. 

A. Changes to the July 15, 2010, Notice 

In the July 15, 2010, notice, HUD 

proposed to cap the seller concessions 

in FHA-insured, single-family mortgage 

transactions at 3 percent of the lesser of 

the sales price or appraised value, for 

the purpose of calculating the maximum 

insured mortgage amount, reducing it 

from the 6 percent limitation currently 

in place. As discussed in the July 15, 

2010, notice, conventional mortgage 

lenders have capped allowances for 

seller concessions at 3 percent of the 

sales price on loans with LTV ratios 

similar to FHA. Loans guaranteed by the 

Department of Veterans Affairs have a 

cap on seller concessions of 4 percent of 

the sales price. In the July 15, 2010, 

notice, HUD also provided statistical 

data illustrating a higher incidence of 

home loss for borrowers who received 

seller concessions in excess of 3 

percent. The proposed cap was designed 

to align FHA’s single-family mortgage 


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3The percentage is based on the lesser of sales 

price or appraised value. 

4That amount is 6 percent of FHA’s current 

national mortgage limit ceiling of $729,750. 

5 Interest Rate Buydowns are designed to reduce 

the borrower’s monthly payment during the early 

years of the mortgage. At settlement, an escrow 

account is established and each month, the 

servicing lender draws down an amount equal to 

the difference between the principal and interest 

payment (P&I) at the Note rate, and the P&I at the 

buydown rate. For more information on FHA 

requirements for Interest Rate Buydowns, see HUD 

Handbook 4155.1 6.A.2. 

insurance programs to industry practice 

and reduce home loss among 

homebuyers relying on FHA-insured 

financing. Of the homebuyers with 

FHA-insured mortgages, 82 percent of 

such homebuyers make only the 

minimum required downpayment of 3.5 

percent. It is important, therefore, for 

HUD to assure that allowable mortgage 

amounts are appropriately adjusted for 

what may actually be inducements to 

purchase. For borrowers having more 

than the minimum required 

downpayment of 3.5 percent, this rule 

may or may not affect them. 

As noted in the preamble, the 

majority of the 902 public comments 

received in response to the July 15, 

2010, notice pertained to the proposed 

cap on seller concessions. Comments 

were submitted by mortgage lenders, 

credit unions, realtors, home builders, 

state housing finance agencies, and 

other interested organizations. After 

careful consideration of the issues 

raised by the commenters, HUD has 

decided to make the following changes 

to the proposed cap to seller 

concessions and seek public comment 

on those changes: 

• Reduce the amount of seller 

concessions permitted as offsets to 

actual closing costs to 3 percent 3 or 

$6,000, whichever is greater, but not 

allow the offsets, in any event, to exceed 

the borrower’s actual costs. This 

reduction in concession allowances 

does not apply to HUD’s Real Estate 

Owned homes and Neighborhood 

Stabilization programs, for which the 

allowance remains at 6 percent. 

• Limit acceptable uses of seller 

concessions to payments toward 

borrower closing costs, prepaid items, 

discount points, the FHA Up Front 

Mortgage Insurance Premium, and any 

Interest Rate Buydown. This revised 

definition eliminates payment 

supplements such as homeowner or 

condominium association fees, mortgage 

interest payments, and mortgage 

payment protection plans. 

To address potential future increases 

in closing costs, the $6,000 cap 

established in this notice is not static 

but tied to an index. The dollar 

limitation may increase annually, and at 

the same percentage rate as the FHA 

national loan limit floor, rounded up to 

the nearest $100 for anything at or above 

$50 increments and rounded down to 

the nearest $100 for anything below $50 

increments. For example, should the 

FHA national loan limit floor rise by 1.5 

percent, then the cap may increase to 

$6,100. Any increase in the dollar 

limitation will be announced via 

mortgagee letter, most likely in the same 

mortgagee letter that announces the new 

FHA loan limits for the upcoming 

calendar year. 

This revised proposal takes into 

consideration the disproportionately 

negative impact an across-the-board 

reduction to 3 percent would have had 

on borrowers with low and moderate 

incomes who are purchasing modestly 

priced homes. It also appropriately 

limits the dollar amount of seller 

concessions on higher-priced homes, 

which under currently policy could be 

as high as $43,785.4 Concession 

amounts above the revised-proposal 

limit would not be prohibited, but 

rather would result in a dollar-for-dollar 

reduction in the sales price for the 

purpose of calculating the maximum 

insured loan amount. 

B. Definition of Acceptable Concessions 

As part of the revised proposal on 

reducing seller concessions, HUD is also 

proposing to narrow the definition of 

acceptable concessions. In this new 

definition, HUD continues to permit 

sellers to pay for the borrower’s actual 

costs to close on the loan, as well as pay 

the Up Front Mortgage Insurance 

Premium due on the loan and fund an 

Interest Rate Buydown.5 What HUD 

proposes to eliminate are payment 

supplements offered by sellers, such as 

a year’s worth of homeowner 

association fees, 6 months’ worth of 

mortgage interest, or mortgage payment 

protection plans. HUD believes that 

these types of payment supplements, 

while permissible under current seller 

concession guidance, are really 

inducements to purchase and should be 

treated as such. The impact of this 

revised definition should be minimal on 

the housing market since the loan level 

review of FHA-insured loans revealed 

that sellers typically offer concessions 

that pay for borrowers’ actual costs to 

acquire the property, and not payment 

supplements. 

Current seller concession definition Proposed seller concession definition 

The seller and/or interested third party may contribute towards the buyer’s: 

• Closing Costs 

• Prepaid Expenses 

• Discount Points 

• Interest Rate Buydowns and other payment supplements (i.e. 

Homeowner Association fees) 

• Payments of mortgage interest for fixed-rate mortgages 

• Mortgage Payment Protection Insurance and Up-Front Mortgage 

Insurance Premium 

All other third-party contributions are considered inducements to purchase, resulting in a dollar-for-dollar reduction to the lesser of sale 

price or appraised value before applying the appropriate LTV factor 

(96.5%). This excludes closing costs and prepaid items paid by the 

lender through premium (rebate) pricing. 

The seller and/or interested third party may contribute towards the buyer’s: 

• Closing Costs 

• Prepaid Expenses 

• Discount Points 

• UFMIP 

• Interest Rate Buydowns 

All other third-party contributions are considered inducements to purchase, resulting in a dollar-for-dollar reduction to the lesser of sale 

price or appraised value before applying the appropriate LTV factor 

(96.5%). This excludes closing costs and prepaid items paid by the 

lender through premium (rebate) pricing. 

Closing costs vary from borrower to 

borrower, lender to lender, and state to 

state. These costs even vary from closing 

cost study to closing cost study, because 

each study defines closing costs in 

slightly different ways. The definition of 

closing costs for HUD’s analysis 

included fixed and variable closing 

costs, but not prepaid expenses, because 

prepaid expenses are typically financed. 

Fixed costs are those that are a fixed 

dollar amount, are not tied to a 

percentage of the loan amount, and are 

generally offered within a dollar range. 

Variable costs are those that are based 


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on a percentage of the loan amount, or 

property value. Prepaid items include 

funds needed to establish an escrow 

account, as well as state and local 

property taxes and per diem interest. 

FHA’s Upfront Mortgage Insurance 

Premium is also included in this 

category, and it is typically prepaid by 

financing into the mortgage amount. 

CATEGORIES OF CLOSING COSTS

Fixed Variable Prepaid 

Appraisal .............................................. Adjusted Origination Charge .............. Hazard/Homeowners Insurance. 

Credit Report ....................................... Lender’s Title Insurance ..................... Flood Insurance. 

Survey .................................................. Lender’s Title Insurance ..................... Homeowners/Condominium Association Fees. 

Pest Inspection .................................... Owner’s Title Insurance ...................... Upfront Mortgage Insurance Premium. 

Title Services ....................................... Transfer Tax ....................................... Taxes. 

Lien Certification .................................. ............................................................. Per Diem Interest. 

Flood Certification 

Flood Determination 

Lender Inspection 

In the July 15, 2010, notice, HUD 

clarified the definition of Interested 

Third Party. HUD is not revising the 

definition of Interested Third Party but 

clarifying the definition where it was 

vague and possibly subject to varied 

interpretation. 

Current interested third party definition Clarification of interested third party definition 

Seller or other interested parties such as real estate agents, builders, 

developers, etc., or combination of these parties.

Seller or other interested party such as a real estate agent, builder, developer, mortgage broker, lender, and/or settlement company. 

C. Statutory Authority 

FHA has determined that maintaining 

the amount of eligible seller concessions 

at 6 percent of the sales price of the 

property increases the risk of default 

and claim payment by FHA from the 

insurance fund. FHA’s determination is 

solidly based on statutory grounds in 

both the National Housing Act and the 

Department of Housing and Urban 

Development Act (42 U.S.C. 3531 et 

seq.) There are five specific statutory 

areas that support the action by FHA to 

reduce the amount of allowable seller 

concessions for FHA purposes: (1) The 

mortgagor’s ability to pay the mortgage; 

(2) the amount of funds the mortgagor 

must have available to close; (3) the 

Secretary’s fiduciary duty to the MMIF; 

(4) the capital ratio of the MMIF; and (5) 

FHA risk management. Each one of 

these five statutory grounds is explained 

in more detail below. 

1. Ability to pay mortgage payment. 

Section 203(b)(4) of the National 

Housing Act provides that the mortgage, 

in order to be eligible for insurance, 

must contain complete amortization 

provisions satisfactory to the Secretary 

requiring periodic payments by the 

mortgagor not in excess of his 

reasonable ability to pay as determined 

by the Secretary. FHA has found that 

seller concessions can, in some 

instances, affect the borrower’s ability to 

make monthly mortgage payments some 

time after the mortgage loan is closed. 

An example is when certain reoccurring 

homeownership costs are prepaid on a 

temporary basis, but then, after the 

prepayment period ends, become the 

financial burden of the mortgagor. FHA 

has found that the seller concessions 

such as prepayment of taxes or 

homeowner association fees, which then 

become due a year or two later, can 

result in mortgagors experiencing 

mortgage payment shock and 

subsequent default. This example of an 

impact on a mortgagor’s reasonable 

ability to pay illustrates a clear statutory 

basis under section 203(b)(4) of the 

National Housing Act for issuing this 

notice. 

2. Money to close. Section 

203(b)(9)(A) of the National Housing 

Act, as amended by the Housing and 

Economic Reform Act of 2008 (Pub. L. 

110–289, approved July 30, 2008), 

addresses the need for a mortgagor to 

make a minimum investment in the 

purchase of the mortgaged property. 

Under section 203(b)(9)(A) of the 

National Housing Act, the mortgagor 

shall have paid on account of the 

property an amount equal to not less 

than 3.5 percent of the appraised value 

of the property or such larger amount as 

the Secretary may determine. The 

reduction in seller concessions impacts 

on the funding that the homebuyer has 

to bring to the table to close. Indirectly, 

by reducing the amount of seller 

concessions, the Secretary is 

determining that the mortgagor must 

pay on account of the property an 

amount that can be greater than the 

minimum 3.5 percent. Requiring, 

directly or indirectly, that the mortgagor 

must come to the closing table with 

more of his own funds is clearly rooted 

in this statutory provision of the 

National Housing Act. 

3. Fiduciary Duty to the MMIF. The 

determination to decrease the allowable 

amount of seller concessions is part of 

FHA’s ongoing risk management 

practices. FHA is a large government 

insurance corporation, and has 

statutorily mandated requirements 

placed upon it to manage its financial 

affairs prudently. One of the statutes 

with such a mandate is found at section 

202(a)(3) of the National Housing Act. 

Under that section, the Secretary has a 

fiduciary duty to ensure that the MMIF 

remains financially sound. Taking 

action such as issuing this Notice 

regarding seller concessions furthers the 

Secretary’s obligation to meet the 

requirements of this section of the 

National Housing Act. Reducing 

defaults and subsequent claims for 

insurance benefits payments from the 

MMIF logically should financially help 

the MMIF. 

4. Capital Ratio of the MMIF. Coupled 

with the fiduciary duty to preserve the 

MMIF is the statutory requirement to 

maintain an adequate MMIF capital 

ratio. Under section 205(f)(2) of the 

National Housing Act, the Secretary 

shall ensure that the capital ratio of the 

MMIF is maintained at not less than 2 

percent. The ratio has fallen below this 

threshold, and this is one action of 

many that FHA is taking to address this 

statutory requirement. 

5. FHA Risk Management. Under 

section 4(b) of the Department of 

Housing and Urban Development Act, 


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6These are loans for which borrower credit scores 

are below 500, or for which the credit scores are 

below 580 if the loan-to-value ratio is above 90 

percent. 

7Loans were excluded from this analysis 

primarily because HUD was not able to discern 

from the various data submitted by lenders the 

amounts of total borrower required closing costs 

and/or the presence of seller concessions. A small 

number of loans were excluded because borrower 

credit scores were below current limits for FHA 

eligibility. 

the Secretary shall ensure that managers 

of the FHA are held accountable for 

program operations and risk 

management along with other duties. 

Because the action proposed by this 

Notice addresses risk management 

directly, reducing the amount of eligible 

seller concessions is authorized under 

this statutory provision. As is more fully 

addressed in Section III of this Notice, 

which discusses the public comments 

received on the July 15, 2010, notice, 

some program participants have 

expressed concerns that reducing the 

amount of seller concessions may 

impact the housing market at a time 

when the market is depressed. However, 

FHA also has obligations to manage the 

MMIF soundly and prudently. The 

reduction in the amount of seller 

concessions is specifically being 

implemented to directly meet these 

statutory mandates, and is being done in 

accordance with specific statutory 

authority governing required funds to 

close and the mortgagor’s ability to 

make the monthly mortgage payments. 

FHA officials would be remiss in their 

fiscal responsibilities if this action, after 

thoughtful study and analysis of 

program data and careful review of and 

taking into account the public 

comments, was not implemented. 

D. Reducing Seller Concessions 

Many of the commenters on the July 

15, 2010, notice suggested that the 

primary illustration of credit risk for 

loans with high rates of seller 

concessions was not appropriate 

because it focused on loans insured 

from 2005 to 2008, and those insurance 

endorsements had large shares with 

seller-funded downpayment assistance 

and with lower borrower credit scores 

than are acceptable to HUD today. In 

response, HUD has completed an 

analysis of 2009 and 2010 loans. These 

latter loans were originated after the use 

of seller-funded downpayments was 

made illegal, and after lenders tightened 

their own internal credit guidelines to 

eliminate the low credit score loans that 

made up a sizable portion of FHA 

insurance activity in the 2005-to-2008 

period. Loans outside of current HUD 

policy on minimum borrower credit 

scores also were excluded from the 

analysis, though they comprised only a 

small number of the 2009 and 2010 loan 

originations.6

In this new analysis, HUD addresses 

four key areas: (1) The distribution of 

closing costs and concessions in dollar 

amounts and in percent of property 

value, for different sized loans; (2) the 

introduction into the FHA portfolio of 

loans for much larger amounts than had 

been insured in previous years; (3) the 

juxtaposition of closing costs and 

concessions, by percent of property 

value; and (4) the credit risk associated 

with different levels of seller 

concessions. 

To prepare this revised proposal, 

HUD updated its data analysis to use 

more recent loan originations. While 

this does not provide the type of loan 

seasoning that demonstrates long-run 

performance and credit risk, as was 

shown in Table C of the July 15, 2010, 

notice, it does permit differentiation 

between low- and high-balanced loans 

to a degree not possible with earlier loan 

originations. Prior to passage of the 

Economic Stimulus Act of 2008, the 

FHA national loan limit ceiling was 

$369,720; after that, it rose to $729,750, 

where it remains today, which causes 

HUD to be concerned about credit risk 

from high dollar concession amounts on 

high balanced loans with high loan-tovalue ratios. 

For this analysis, HUD developed a 

data set of borrower-required closing 

costs and seller concessions that covers 

74 percent of the two million FHA 

insured home purchase loans originated 

in 2009 and 2010.7 To measure credit 

risk on these loans, HUD focused only 

on 2009 loan originations, which now 

have as much as 26 months of 

seasoning. Patterns of credit risk already 

seen in this population are likely to 

persist over the life of the loans. 

Table A shows the distribution of 

borrower-required closing costs as a 

percentage of home value. That 

information highlights how fixed-cost 

factors tend to create percentage 

amounts that are greatest for small 

balance loans. More than 70 percent of 

loans of up to $180,000 have closing 

costs in excess of 3 percent of property 

value, while among loans above 

$240,000, the share is just 26 percent. 

TABLE A—BORROWER CLOSING COSTS—BY LOAN AMOUNT AND PERCENT OF PROPERTY VALUE

[2009–2010 FHA-insured loan originations] 

Loan amt. 

($000) 

Percent of property value (rows sum to 100%) a

<=1 2 3 4 5 6 >6 

<=180 ................................................................................... 1.35 8.42 19.12 25.51 19.37 11.36 14.88

181–240 ............................................................................... 4.50 20.23 35.59 22.50 9.55 4.25 3.39 

241–360 ............................................................................... 8.63 29.80 35.40 15.35 6.26 2.88 1.68 

>360 ..................................................................................... 11.81 33.51 29.13 14.02 6.95 3.14 1.44

All .................................................................................. 4.45 18.57 30.22 22.03 11.97 6.18 6.57 

aProperty value is measured as the lesser of the purchase price and the appraisal amount. Each category here, except for the final one, represents amounts up to the percentage shown in the column heading. 

Concessions are present in 65 percent 

of FHA-insured home purchase loans. 

That rate appears to have been fairly 

constant over time; data samples taken 

by HUD on FY 2000 to 2002 home 

purchase loans insured by FHA show a 

similar rate of concessions. Table B 

provides a companion to Table A, 

highlighting the distribution of seller 

concessions, by size, in percent of home 

value. The greatest rate of use of 

concessions is for loan amounts up to 

$240,000, and the greatest share of 

concessions for amounts above 3 

percent of property value are for the 

lowest loan amount categories shown 

there, and especially for loan amounts 

up to $180,000. 


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10700 Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 

TABLE B—SELLER CONTRIBUTIONS AS A PERCENT OF PROPERTY VALUE

[2009–2010 FHA-insured loan originations] 

Loan amt. 

($000) 

Percent of property value a (rows sum to 100%) 

0 a 1 2 3 4 5 6 >6 b

<=180 ............................................................... 34.02 2.55 8.29 21.25 16.43 8.95 8.03 0.48 

181–240 ........................................................... 32.74 6.04 16.43 27.59 11.98 3.47 1.65 0.09 

241–360 ........................................................... 38.79 9.52 21.51 21.38 6.18 1.58 0.99 0.05 

>360 ................................................................. 47.28 12.54 18.96 13.93 3.73 1.91 1.61 0.04 

All ..................................................................... 34.66 5.76 14.76 24.15 12.15 4.81 3.50 0.20 

aProperty value is measured as the lesser of the purchase price and the appraisal amount. Each category here, except for the final one, represents amounts up to the percentage shown in the column heading. bShares of loans with rates of closing costs and concessions above 6 percent rose in 2010 in conjunction with a higher share of loans on 

properties with purchase prices below $50,000. 

Table C juxtaposes information from 

Tables A and B to show how concession 

rates align with closing-cost rates. 

Shaded cells represent loans for which 

concessions are generally larger than the 

closing costs. Those account for 7 

percent of all loans and 10 percent of 

loans with concessions. Table C also 

shows that the largest single 

concentration of loans (13.77 percent) is 

found where both closing costs and 

concessions are between 2 and 3 percent 

of home value. As seen in Table A, 

closing costs occur in this range for 

more than 30 percent of all homepurchase loans insured by FHA. Table 

B shows that concessions in this range 

represent 24 percent of all subject loans, 

and 37 percent of loans with 

concessions. The next largest 

concentrations seen in Table C (for 

loans with positive concessions) are for 

loans where closing costs and 

concessions are both between 1 and 2 

percent of property value (7.62 percent), 

and those where each measure is 

between 3 and 4 percent of property 

value (7.21 percent). The next highest 

concentrations also are adjacent to the 

most populated group. 

TABLE C—BORROWER CLOSING COSTS AND CONCESSIONS, IN PERCENTAGE OF PROPERTY VALUE a

[2009–2010 FHA-insured loan originations] 

Closing cost rate (% of value) 

Concessions rates (% of value) 

All 

0 b <=1 2 3 4 5 6 >6 

1 ................................................... 2.21 1.10 0.33 0.50 0.21 0.06 0.04 0.00 4.45 

2 ................................................... 7.03 1.57 7.62 1.52 0.57 0.15 0.10 0.01 18.57 

3 ................................................... 8.99 1.66 4.00 13.77 1.23 0.35 0.20 0.01 30.22 

4 ................................................... 6.74 0.81 1.66 4.72 7.21 0.49 0.37 0.02 22.03 

5 ................................................... 4.06 0.35 0.65 1.98 1.67 2.84 0.41 0.02 11.97 

6 ................................................... 2.38 0.15 0.27 0.88 0.72 0.53 1.23 0.02 6.18 

9 ................................................... 3.25 0.12 0.23 0.77 0.54 0.39 1.15 0.13 6.57 

All ................................................. 34.66 5.76 14.76 24.15 12.15 4.81 3.50 0.20 100.00 

aProperty value is the lesser of purchase price and appraisal amount. 

bAny amount up to $500 is considered zero. 

Table D provides summary statistics 

on the dollar amounts of closing costs 

and concessions, by the same four loanamount classes shown in Tables A 

and B. 

TABLE D—BORROWER CLOSING COSTS AND SELLER CONCESSIONS DESCRIPTIVE STATISTICS BY LOAN AMOUNT

Loan amt. 

($000) Cost or concession Loans 

Percentiles 

5th 25th 50th 75th 95th 

Dollar Amounts 

<=180 ............................................ Cost .............................................. 449,548 1,489 2,561 3,435 4,476 6,904 

Concession ................................... 449,548 0 0 2,049 3,251 4,900 

181–240 ........................................ Cost .............................................. 748,048 1,789 3,385 4,571 6,054 9,594 

Concession ................................... 748,048 0 0 3,000 4,703 7,012 

241–360 ........................................ Cost .............................................. 203,623 2,335 4,759 6,586 8,933 14,610 

Concession ................................... 203,623 0 0 3,150 6,468 10,062 

>360 .............................................. Cost .............................................. 69,346 3,209 6,794 9,795 14,253 23,702 

Concession ................................... 69,346 0 0 1,527 8,155 16,453 

Percentage of Home Value 

<=180 ............................................ Cost .............................................. 449,548 1.60 2.84 3.82 5.09 8.01 

Concession ................................... 449,548 0.00 0.00 2.44 3.50 5.71 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 10701 

8Loans originated in 2010 are still too new for 

there to be defined performance patterns. The 2009 

loans comprise 51.6 percent of the cases in this 

analysis. 

9HUD recognizes that not all loans for which a 

foreclosure process is started will result in loss of 

a home to the borrower and claim payment from 

FHA. However, the various rates at which 

foreclosure actions have been initiated do provide 

a valid measure for differentiating credit risk across 

groups of loans. 

TABLE D—BORROWER CLOSING COSTS AND SELLER CONCESSIONS DESCRIPTIVE STATISTICS BY LOAN AMOUNT— 

Continued 

Loan amt. 

($000) Cost or concession Loans 

Percentiles 

5th 25th 50th 75th 95th 

181–240 ........................................ Cost .............................................. 748,048 1.04 2.01 2.71 3.56 5.53 

Concession ................................... 748,048 0.00 0.00 1.75 2.87 4.04 

241–360 ........................................ Cost .............................................. 203,623 0.81 1.66 2.27 3.05 4.90 

Concession ................................... 203,623 0.00 0.00 1.11 2.23 3.49 

>360 .............................................. Cost .............................................. 69,346 0.70 1.51 2.12 3.03 4.92 

Concession ................................... 69,346 0.00 0.00 0.33 1.83 3.54 

Tables E–G parallel Tables A–C and 

provide performance information for 

loans originated in 2009.8 The defining 

metric is a ‘‘failure’’ rate, which 

includes all loans that have either 

resulted in an insurance claim (as of 

March 31, 2011), are presently in 

foreclosure processing, or else have 

gone through the foreclosure process but 

the insurance claim has not yet been 

filed or processed. HUD adopted this 

metric because present economic 

circumstances are resulting in delays 

both in foreclosure completions and in 

claim filings. In addition, focusing on 

such ‘‘failures’’ is more directly 

associated with losses to the FHA 

insurance operations than are 

delinquency rate measures.9

These tables show that, within each 

loan amount category, credit risk is 

highest for loans with larger closing 

costs and with larger concessions. For 

loan amounts above $240,000, credit 

risk rises faster and higher than it does 

for lower loan amounts, as closing cost 

and concessions each exceed 3 percent 

of property value. Table F shows that 

while the lowest risk loans are those in 

the highest loan amount category (above 

$360,000), when no concessions are 

present, the highest risk is for the same 

category of loans when concessions are 

above 4 percent of property value, and 

especially when they are above 5 

percent. In Table E, the highest loanamount group also shows the highest 

credit risk of all is when closing costs 

exceed 4 percent. 

TABLE E—TO-DATE FAILURE RATES a BY LOAN AMOUNT AND BORROWER CLOSING COST RATES

[2009 Loan originations] 

Loan amt 

($000) 

Borrower closing cost (percent of property value b) 

All 

<=1 2 3 4 5 6 >6 

<=180 ............................... 0.92 0.81 0.99 1.11 1.11 1.19 0.99 1.04 

181–240 ........................... 0.65 0.70 0.79 0.91 0.74 1.04 0.98 0.79 

241–360 ........................... 0.61 0.79 0.92 1.03 1.12 1.24 1.48 0.88 

>360 ................................. 0.63 0.62 0.86 1.22 1.70 3.73 2.32 0.93 

All ..................................... 0.66 0.73 0.85 1.00 0.98 1.20 1.02 0.89 

aFailure is defined as a loan having either resulted in an insurance claim, or in foreclosure processing today, or else a foreclosure action has 

been completed and a claim filing is pending. Data as of March 31, 2011. bProperty value is measured as the lesser of the purchase price and the appraisal amount. Each category here, except for the final one, represents amounts up to the percentage shown in the column heading. 

TABLE F—TO-DATE FAILURE RATES a BY LOAN AMOUNT AND SELLER CONCESSIONS RATES

[2009 Loan originations] 

Loan amt. 

($000) 

Seller concessions (percent of property value b) 

All 

0 b <=1 2 3 4 5 6 >6 

<=180 ........................................... 0.72 1.12 1.01 1.03 1.18 1.41 1.58 2.15 1.04 

181–240 ....................................... 0.62 0.67 0.73 0.87 1.04 1.09 1.45 1.71 0.79 

241–360 ....................................... 0.70 0.79 0.82 1.03 1.48 1.85 1.51 2.27 0.88 

>360 ............................................. 0.58 0.91 0.76 1.15 1.53 2.24 6.70 c 0.00 0.93 

All ................................................. 0.66 0.77 0.80 0.94 1.14 1.32 1.66 2.02 0.89 

aFailure is defined as a loan having either resulted in an insurance claim, or in foreclosure processing today, or else a foreclosure action has 

been completed and a claim filing is pending. Data is as of March 31, 2011. bAny amount up to $500 is considered zero; other categories represent amounts greater than the next lower limit, and up to the percentage 

listed; rows add to 100 percent. cThere are just 19 loans in this cell. 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
10702 Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 

TABLE G—TO-DATE FAILURE RATES a BY CLOSING COST (CC) AND SELLER CONCESSIONS (SC) RATES b

[2009 Loan originations] 

Closing costs (%) 

Seller concessions (%) by CC 

rate 0 c <=1 2 3 4 5 6 >6 

<= 1 .............................................. 0.55 0.69 0.57 0.80 1.05 1.36 1.28 4.35 0.66 

2 ................................................... 0.63 0.70 0.80 0.73 0.79 1.32 1.11 0.00 0.73 

3 ................................................... 0.65 0.84 0.70 0.99 1.06 1.08 1.40 1.11 0.85 

4 ................................................... 0.73 0.85 1.00 0.89 1.25 1.02 1.88 2.68 1.00 

5 ................................................... 0.61 1.00 0.90 0.80 0.90 1.44 1.64 2.74 0.98 

6 ................................................... 0.80 0.87 1.22 1.07 1.09 1.18 1.86 3.25 1.20 

>6 ................................................. 0.73 1.41 1.26 0.85 0.75 1.38 1.48 1.70 1.02 

by SC rate .................................... 0.66 0.13 0.39 0.73 0.43 0.20 0.19 0.01 0.89 

aFailure is defined as a loan having either resulted in an insurance claim, or in foreclosure processing today, or else a foreclosure action has 

been completed and a claim filing is pending. Shaded cells represent loans for which concessions are larger than closing costs. Data is as of 

March 31, 2011. b Rates are in percent of property value (lesser of purchase price and appraisal amount). 

cAny amount up to $500 is considered zero; other categories represent amounts greater than the next lower limit, and up to the percentage 

listed; rows add to 100 percent. 

E. Establishing the Seller Concession 

Percentage Cap and Dollar Limitation 

The Department recognizes that an 

across-the-board reduction in 

concession allowances could have a 

large negative impact on the ability of 

low- and moderate-income households 

to purchase moderate-priced homes. 

Thus, HUD is revising its proposed 

limitation on seller concessions to 

address comments to that effect that 

were provided in response to the July 

15, 2010, notice. Many comments 

recommended that HUD combine a 

percentage cap with a dollar limitation. 

Such a two-part proposal could directly 

address the higher credit risk of highbalance loans with large seller 

concessions, while maintaining a 

sufficiently high allowance for the 

reasonable range of closing costs found 

on moderate-priced homes. Such a twopart approach would: 

(1) Reduce the amount of concessions 

a seller (or other interested third party) 

could provide that would be considered 

in excess of actual closing costs or 

inducements to sale, and 

(2) Minimize the impact that such a 

reduction might have on affordability 

and access to homeownership for firsttime homebuyers needing the low 

downpayments permitted by FHA in 

what is still a fragile housing market. 

To determine a reasonable percentage 

cap and dollar limitation, HUD 

compared the range of actual closing 

costs for homebuyers with FHA-insured 

mortgages, as seen in Table D, with the 

credit risk characteristics of loans with 

high concessions found in Tables F and 

G. The result is a new proposal 

permitting concessions as offsets to 

actual closing costs on individual loans 

up to the greater of 3 percent or $6,000 

of the lesser of the sales price or 

appraised value. In mathematical terms, 

this limitation can be described as: 

Minimum [closing_cost, maximum 

($6,000, 0.03* property_value)] where 

property_value = min (sale price, 

appraised value) except for 203k where 

property_value = appraised_value. 

Under this proposal, the limiting 

factor on the allowable dollar amount of 

concessions will be: 

• Closing costs, when the amount is 

less than $6,000; 

• Closing costs, when they are above 

$6,000 but less than 3 percent of 

property value; 

• $6,000, when that is more than 3 

percent of property value and less than 

total closing costs; or 

• 3 percent of property value, when 

that amount is both greater than $6,000 

and less than closing costs. 

Table H provides some benchmark 

values for understanding how this 

proposal would affect homebuyers with 

minimum downpayments, at different 

loan amounts. For the homebuyer with 

a $120,000 mortgage (buying a $126,000 

home), concessions would be 

considered offsets to actual closing costs 

where closing costs are as high as 

$6,000, or 4.78 percent of the home 

value. The loan amount after which the 

3 percent of property value is greater 

than $6,000 is $194,930 (buying a 

$200,000 home). For all larger loan 

amounts, a borrower may use 

concessions as offsets to actual closing 

costs up to 3 percent of property value. 

At $360,000, concessions may be used 

to offset actual closing costs, up to 

$11,304. For a very high loan amount of 

$600,000, the 3 percent concessions 

allowance is $18,000. 

TABLE H—COMPONENTS OF THE PROPOSED LIMIT ON SELLER CONCESSIONS

[Examples at various loan amounts] 

Loan Amount a ......................................................................................... $120,000 $180,000 $194,930 $240,000 $360,000 

Property Value b ....................................................................................... $125,596 $188,394 $200,000 $251,192 $376,788 

$6,000 as a % of Value ........................................................................... 4.78% 3.18% 3.00% 2.39% 1.59% 

3.0% of Value .......................................................................................... $3,768 $5,652 $6000 $7,536 $11,304 

aPresumed to include the FHA Upfront Mortgage Insurance Premium of 1 percent. 

bBased upon borrower making the minimum downpayment of 3.5 percent. (Calculated as loan_amount/(0.965/1.01), to also account for the 

typical financing of the 1 percent upfront insurance premium.) 

Referring again to Table D, the $6,000 

limitation is generous to borrowers with 

loan amounts up to $180,000. In that 

range, $6,000 is beyond the 90th 

percentile of all borrower closing costs. 

Thus, less than 10 percent of borrowers 

with loan amounts under $180,000 

would have concession allowances that 

are less than their actual closing costs. 

For borrowers in the next loan amount 

category ($180,000–240,000), $6,000 

nearly reaches the 75th percentile of 


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Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 10703 

closing costs. However, $6,000 is not the 

binding limit for borrowers with loan 

amounts of $195,000 or greater (see 

Table H). In that range, 3 percent of the 

property value is greater than $6,000 

and becomes the amount that is 

compared with actual closing costs to 

determine maximum allowable 

concessions. 

Table I illustrates the impact of this 

revised proposal to the existing 

concessions limitation and at different 

sales prices under the proposed 

reduction. Concessions are more 

generous than the existing 6 percent 

limitation for sales prices below 

$100,000. For sales prices between 

$100,000 and $200,000, the dollar cap 

allows for seller concessions greater 

than 3 percent. Any sales price above 

$200,000 is limited to the 3 percent cap. 

TABLE I—COMPARISON OF LIMITATIONS ON SELLER CONCESSIONS

Sales price 

Existing seller 

concessions 

limitation 

Proposed reduction of 

seller concessions is 

the greater of 

Proposed 

percentage 

cap 

6 percent 3.0 percent $6,000 % 

$100,000 .......................................................................................................... $6,000 $3,000 $6,000 6.0 

$120,000 .......................................................................................................... 7,200 3,600 6,000 5.0 

$140,000 .......................................................................................................... 8,400 4,200 6,000 4.3 

$160,000 .......................................................................................................... 9,600 4,800 6,000 3.75 

$180,000 .......................................................................................................... 10,800 5,400 6,000 3.3 

$200,000 .......................................................................................................... 12,000 6,000 6,000 3.0 

$220,000 .......................................................................................................... 13,200 6,600 6,000 3.0 

$240,000 .......................................................................................................... 14,400 7,200 6,000 3.0 

$260,000 .......................................................................................................... 15,600 7,800 6,000 3.0 

$280,000 .......................................................................................................... 16,800 8,400 6,000 3.0 

$300,000 .......................................................................................................... 18,000 9,000 6,000 3.0 

The actual effects of the proposed 

limitation, when applied to the 2009 

and 2010 loan originations used in this 

analysis, are shown in Tables J and K. 

Overall, the limitation would have 

affected just 13.4 percent of those home 

purchase loans. The dollar size of the 

resulting excess contributions is shown 

in Table J. For the lowest loan amount 

group, the median effect is under 

$1,000; for the highest loan amount 

group, it is above $4,000. However, as 

seen in Table K, among the 9.7 percent 

of borrowers with loan amounts up to 

$180,000 that are affected, the binding 

constraint that creates excess 

concessions is the actual amount of 

closing costs in nearly all of those 

situations (93.4 percent). For the fewer 

than 7 percent of the affected borrowers 

in this group, the $6,000 dollar 

limitation is greater than their closing 

costs. For loan amounts above $240,000, 

the share of affected loans constrained 

by closing costs is more closely 

balanced with the share that is 

constrained by 3 percent of property 

value (56 and 44 percent, respectively). 

TABLE J—PROPOSED CONCESSIONS LIMITATION, AFFECTS BY LOAN SIZE CATEGORY

[2009–2010 FHA-insured loans] 

Loan amt. 

($000) 

Number of 

loans affected 

Share of loans 

affected % 

Dollar reductions—at various percentiles 

(affected loans only) 

5th 25th 50th 75th 95th 

<=180 ........................... 43,592 9.7 $86 $480 $988 $1,670 $3,018 

181–240 ....................... 114,726 15.3 116 664 1,434 2,562 4,900 

241–360 ....................... 30,499 15.0 150 1,001 2,247 4,106 8,160 

>360 ............................. 8,819 12.7 327 1,850 4,138 7,541 14,635 

TABLE K—PROPOSED CONCESSIONS LIMITATION SOURCE OF CONSTRAINT ON AFFECTED LOANS, BY LOAN SIZE

CATEGORY

Loan amt. 

($000) 

Binding constraint 

Closing cost 

% 

Property value 

% 

Dollar limit 

% 

<=180 ........................................................................................................................................... 93.4 0.11 6.5 

181–240 ....................................................................................................................................... 61.9 12.7 25.5 

241–360 ....................................................................................................................................... 57.0 43.0 0.04 

>360 ............................................................................................................................................. 54.2 45.7 0.05 

All ................................................................................................................................................. 67.7 16.0 16.2 

Note: Rows sum to 100%. 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
10704 Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 

F. Considering Alternative Approaches 

There were a variety of alternative 

approaches suggested by commenters. 

Some commenters recommended that 

HUD defer instituting a cap in favor of 

monitoring the performance of loans 

with seller concessions for a period of 

2 years. Others suggested adopting the 

cap used by other federal programs such 

as the Department of Veterans Affairs 

Home Loan Program or capping seller 

concessions based on the buyer’s credit 

score. While these alternatives to the 

proposed reduction all had merit, HUD 

believes that they do not sufficiently 

address the risk to the MMIF and/or 

they do not adequately mitigate the 

impact that a reduction in seller 

concessions may have had on the 

housing market. In considering all of the 

alternative approaches, HUD sought to 

achieve both of these goals. The 

comments that recommended 

combining a percentage cap with a 

dollar limitation met these goals and 

provided HUD the opportunity to revise 

this proposal in a manner that would 

both benefit the housing market and 

FHA’s Mutual Mortgage Insurance 

Fund. 

Section III of this notice discusses all 

of the significant issues raised by the 

public comments regarding the July 15, 

2010, notice’s proposed reduction in the 

allowable amount of seller concessions, 

and HUD’s responses to these issues. 

III. Discussion of the Public Comments 

Regarding Proposed Reduction in 

Sellers Concessions 

A. Support for Proposed Limit on Seller 

Concessions 

A minority of the comments 

expressed support for reducing seller 

concessions. The commenters wrote that 

the cap would require a more serious 

commitment from borrowers and should 

also help reduce risks to the FHA 

insurance funds. 

HUD Response. HUD appreciates the 

support for reducing seller concessions. 

It believes that this reduction will 

reduce risk to the MMIF, while at the 

same time preserving FHA’s mission of 

helping underserved borrowers obtain 

affordable home financing. 

B. Proposed Cap Will Be Ineffective and 

Harmful 

Comment: HUD failed to provide 

adequate justification for the proposed 

reduction, and reducing seller 

concessions will not result in reduced 

risk to FHA. Several commenters 

questioned HUD’s stated rationale for 

limiting seller concessions. The 

commenters wrote that the data 

provided in the July 15, 2010, notice 

regarding the seller concession cap 

failed to demonstrate a significant risk 

to the FHA portfolio to justify the 

change. Further, commenters 

questioned the accuracy of the statistical 

data illustrating the correlation between 

higher seller concessions and an 

increased rate of default. 

HUD Response. HUD has amended its 

proposal in response to these comments. 

The Department conducted a more 

complex analysis of portfolio 

performance involving seller 

concessions, which revealed that the 

risk to the MMIF increased for loans 

with larger closing costs and 

concessions. Table E demonstrates that 

for loan amounts in excess of $240,000 

for FY 2009, credit risk rises faster and 

higher than it does for lower loan 

amounts when closing costs and 

concessions exceed 3 percent. Table F 

shows that the highest risk exists with 

loans greater than $360,000 and 

concessions are above 4 percent. 

Comment: Proposed cap does not 

address true problems in the housing 

market. Several commenters wrote that 

the proposed cap will be ineffective 

because it fails to address the true 

causes of increased defaults. Some of 

these commenters wrote that 

unscrupulous lending practices were 

primarily responsible for the increased 

mortgage defaults, while other 

commenters pointed at artificially 

inflated appraisals and sales prices. 

HUD Response. HUD has amended its 

proposal in response to these comments. 

The Department agrees that reducing 

seller concessions alone will not 

address the true problems associated 

with increased defaults and the 

volatility in the housing market. 

However, this revised proposal, in 

conjunction with other efforts to 

strengthen enforcement actions and 

reduce risk, will help ensure that 

borrowers relying on FHA-insured 

financing have sufficient investment in 

their home purchases and are therefore 

less likely to default. This revised 

proposal will also help curtail a practice 

where seller concessions are offered an 

amount above the borrower’s actual 

costs as an offset to a higher sales price. 

Comment: Proposed cap will harm the 

housing market. Several commenters 

wrote that the proposed cap could have 

a chilling effect on the origination of 

new mortgages. Commenters wrote that 

reducing seller concessions from 

6 percent to 3 percent would reduce the 

qualified borrower pool and remove a 

large portion of borrowers who would 

otherwise be approved under stringent 

underwriting requirements. The 

commenters wrote that many FHA 

buyers require the seller’s contribution 

in order to proceed with the purchase of 

the home. Additionally the reduction in 

sellers concessions, some commenters 

argued, could result in less money 

available for post-purchase incidentals 

including home improvements and 

emergencies. 

HUD Response. HUD amended its 

proposal in response to these comments. 

HUD recognizes that borrowers with 

lower loan amounts were more 

negatively impacted by the initial 

proposal from the July 15, 2010, notice 

than borrowers with high loan amounts. 

However, as evidenced in Tables A, B, 

C, and D, the impact of any change to 

seller concessions would not be as great 

as indicated by the commenters. As 

shown in Table C, the largest single 

concentration of loans (13.77 percent) is 

where both closing costs and 

concessions are between 2 and 3 percent 

of home value. In Table A, closing costs 

occur in this range for more than 30 

percent of all home purchase loans 

insured by FHA. Table B shows that 

concessions in this range represents 37 

percent of loans with concessions. The 

next largest concentration is for loans 

where closing costs and concessions are 

between 1 and 2 percent of property 

value (7.62 percent). Table A highlights 

how fixed cost factors tend to create 

percentage amounts that are greatest for 

small balance loans. Over 70 percent of 

loans of up to $180,000 have closing 

costs in excess of 3 percent of property 

value. This difference is attributed to 

the fact that many closing costs are fixed 

(e.g., appraisals, title services, 

inspections, and flood and lien 

certifications), and not a percentage of 

loan amount (e.g., origination charge, 

title insurance). Therefore, the revised 

proposal allows for greater than 6 

percent seller concessions on loans with 

a sales price of less than $100,000 and 

allows for seller concessions greater 

than 3 percent for loans with a sales 

price up to $200,000. It is anticipated 

that this revised proposal will 

minimize, if not eliminate, the concerns 

that a reduction in seller concessions 

would have a negative impact on the 

housing market. Also, this proposal will 

assist borrowers who are less able to 

absorb the post-purchase financial costs 

of home improvements and emergency 

repairs, by not requiring them to devote 

all available funds to the acquisition of 

the home. 

Comment: Reduction in seller’s cap 

will disproportionately impact lowincome and first-time homebuyers. 

Several commenters suggested that the 

proposed seller concession cap will 

unfairly impact low-income and firsttime homebuyers. The reduction from 6 

percent to 3 percent will impact less 


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expensive properties and have a 

disparate impact on lower income 

borrowers and potential homeowners 

purchasing homes worth less than 

$150,000. The cap will burden low 

income buyers and require a higher 

percentage of cash relative to buyers 

purchasing more expensive homes. 

Additionally, commenters wrote that 

first-time homebuyers are less likely to 

have cash available to meet closing 

costs. The commenters wrote that these 

buyers rely heavily on the 6 percent 

seller’s concessions and will experience 

a greater decrease in buying power than 

second- or third-time buyers. 

HUD Response. HUD has amended its 

proposal in response to these comments 

and agrees that an across-the-board 

reduction in seller concessions had a 

disproportionately negative impact on 

low- and moderate-income borrowers 

purchasing lower priced homes. As 

noted in previous responses, this 

revised proposal allows for greater than 

6 percent seller concessions on loans 

with sales prices less than $100,000 and 

allows for seller concessions greater 

than 3 percent for loans with sales 

prices up to $200,000 (See Table I). 

Comment: Proposed cap fails to 

consider regional differences in housing 

markets. Several commenters wrote that 

the reduction in seller concessions to 

3 percent should be reevaluated to 

account for varying home prices 

regionally. Commenters wrote that 

closing costs, taxes, and insurance vary 

greatly by state. The commenters wrote 

that the 3 percent cap will have a 

variable impact on buyers depending on 

the regional market and that HUD 

should consider a more flexible marketdriven approach. 

HUD Response. HUD does not engage 

in regional eligibility and underwriting 

standards based on local market 

conditions. FHA’s role in stabilizing the 

current housing market is due to the fact 

that its programs are available under the 

same terms and conditions regardless of 

the borrower’s and subject property’s 

location. However, HUD does recognize 

that there are regional differences in the 

housing market and, therefore, it crafts 

its policies by taking these differences 

into consideration. HUD analyzed FHA 

loans from both high-cost and low-cost 

states and used a reasonable range (25th 

percentile to 75th percentile) to 

determine the appropriate cutpoints. 

HUD also reviewed various external 

closing cost studies such as by 

Bankrate.com and analyzed additional 

external data provided by an FHAapproved lender. HUD is confident that 

its own analysis is consistent with other 

reliable closing costs studies. 

C. Alternative Approaches 

Comment: HUD should defer 

instituting a cap. Several commenters 

wrote that the analysis provided in the 

July 15, 2010, notice was conducted 

prior to the implementation of other 

recently enacted FHA risk management 

initiatives and, therefore, does not take 

the beneficial impact of such changes 

into account. The commenters 

questioned whether the increase in 

average default rates was caused by the 

difference in seller concessions or by 

some other factor such as lower 

borrower credit scores. The commenters 

proposed that HUD delay implementing 

the 3 percent cap until the results and 

impacts of the other recently 

implemented FHA risk change can be 

tracked. Commenters suggested that 

HUD analyze the performance of loans 

left at a 6 percent cap for 2 years prior 

to instituting the change. 

HUD Response. HUD has amended its 

proposal in response to these comments. 

HUD believes that it has completed the 

necessary due diligence in proposing a 

reduction in seller concessions, from 

analyzing the impact on its portfolio to 

the impact a reduction would have on 

the housing market. As part of the 

analysis for this revised proposal, which 

includes performance data from FYs 

2009 and 2010, HUD did not include 

loans it no longer insures, such as those 

with credit scores below 580 and LTVs 

greater than 90 percent, as well as those 

with seller-funded downpayment 

assistance. By eliminating these loans 

from the analysis, HUD was able to 

analyze seller concessions and their 

impact on the portfolio without skewing 

the data with known factors that more 

likely contributed to the default and 

claim. Readers are referred to the 

discussion in Section II that illustrates 

the need to make these reductions while 

at the same time preserving the 6 

percent cap for those borrowers who 

need it the most; i.e., low- and 

moderate-income borrowers purchasing 

lower priced homes. 

Comment: HUD should allow for 

gradual reduction of seller concessions. 

Commenters recommended that if HUD 

plans to implement the reduction in 

seller concessions, that a gradual 

approach be used. Commenters argued 

that the 3 percent reduction would 

result in many buyers being priced out 

of the market. Commenters argued that 

a gradual approach would protect 

potential buyers and would allow HUD 

to study the impact of each change. 

HUD Response. HUD believes that its 

revised proposal has essentially the 

same effect the commenters are seeking, 

ensuring that a reduction to seller 

concessions has minimal impact on the 

housing market and that borrowers who 

need additional assistance in 

purchasing a home may receive it. As 

stated previously, this revised proposal 

allows for seller concessions greater 

than 6 percent on loans with sales 

prices less than $100,000 and permits 

seller concessions greater than 3 percent 

for loans with sales prices up to 

$200,000 (See Table I). 

Comment: Cap seller concessions by 

dollar amount in addition to percentage. 

Several commenters wrote that 

providing a dollar range in addition to 

a percentage would resolve regional and 

economic disparity issues posed by the 

proposed 3 percent cap. 

HUD Response. HUD has amended its 

proposal based on these comments and 

has proposed that seller concessions be 

reduced to 3 percent or $6,000, 

whichever is the greater (but not to 

exceed the borrower’s actual costs). Like 

the commenters, the Department 

believes that combining a cap based on 

percentage with a cap based on a dollar 

amount addresses the regional and 

economic disparities that may have 

occurred with an across-the-board 

reduction. Readers are directed to the 

discussion in Section II regarding this 

revised proposal. 

Comment: Base seller concessions on 

buyer credit score. Several commenters 

suggested that FHA adopt a graduated 

system for determining the allowable 

amount of seller concessions. 

Commenters suggested basing this 

graduated system either on income level 

or credit score. Commenters suggested 

that a graduated approach will more 

directly speak to the correlation 

between poor credit and default. Rather 

than reduce the seller contribution of 

FHA transactions to 3 percent 

universally, commenters suggested that 

FHA adjust the cap using other risk 

identifiers such as correlating the seller 

concession with credit scores. 

HUD Response. HUD believes that 

limiting seller concessions based on the 

borrower’s income level and credit score 

would not achieve its mission of 

assisting low-income borrowers 

overcome a chief obstacle to purchasing 

a home: having sufficient funds for a 

downpayment, as well as for paying all 

of their closing costs. With this revised 

proposal, HUD is striking the 

appropriate balance between its historic 

role of making it easier for families to 

purchase their homes, while at the same 

time ensuring that they have sufficient 

investment in their home purchases and 

are therefore less likely to default. 

Comment: HUD should align the 

seller concession cap with other federal 

programs. Several commenters 


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10706 Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 

suggested that if HUD implements a 

reduction in the allowable amount of 

seller concessions, that it should be 

reduced to 4 percent. This reduction 

would align it with the Department of 

Veterans Affairs Veterans’ Home Loan 

Program. 

HUD Response. HUD did consider 

aligning itself with the Department of 

Veterans Affairs Veterans’ Home Loan 

Program but found in its analysis that 

doing so would have resulted in a 

disproportionately negative impact on 

borrowers purchasing lower priced 

homes. By combining a percent cap 

with a dollar amount cap, HUD believes 

that it has addressed such disparities 

and minimizes the impact a reduction 

in seller concessions may have on the 

market. 

IV. Findings and Certification 

Executive Order 12866, Regulatory 

Planning and Review 

The Office of Management and Budget 

(OMB) reviewed this notice under 

Executive Order 12866 (entitled 

‘‘Regulatory Planning and Review’’). 

The notice was determined to be a 

‘‘significant regulatory action,’’ as 

defined in section 3(f) of the Order 

(although not economically significant, 

as provided in section 3(f)(1) of the 

Order). 

As discussed in this preamble, this 

notice proposes to reduce the amount of 

closing costs a seller may pay on behalf 

of a homebuyer purchasing a home with 

financing insured by FHA. The 

increased role of FHA in the mortgage 

lending marketplace, combined with the 

economic difficulties faced by many 

FHA borrowers, has increased the risk 

to the FHA insurance funds. While HUD 

has undertaken several steps to mitigate 

this risk and strengthen the financial 

soundness of the FHA programs, a 

reduced cap on seller concessions 

remains a vitally needed reform. 

As provided in the economic analysis 

that accompanies this notice, the 

combined compliance cost for 

borrowers and sellers under HUD’s 

proposal to reduce seller concessions 

ranges from $21 million to $97 million. 

The actual cost of compliance depends 

greatly on the state of the housing 

mortgage market. Where the mortgage 

market is healthier and private lending 

is available, the cost of compliance will 

be at the lower end of the range, and 

concomitantly at the higher end of the 

range in a slowed market in which 

private lending is substantially reduced. 

With respect to benefits, HUD expects 

its proposal to help prevent foreclosures 

in the amount of approximately $25 

million, and prevention of foreclosures 

means sustainable homeownership. 

Another highly important benefit will 

be to reduce the net losses to the FHA 

insurance fund resulting from high rates 

of insurance claims. The total gain to 

FHA from the implementation of HUD’s 

proposal as presented in this notice is 

expected to range from $60 million to 

$70 million. As the current housing 

market has shown, the importance of 

maintaining FHA as a source of credit 

for homeownership is a highly 

important benefit, which cannot be 

overstated. 

Because of the downturn in the 

housing market, FHA loans are now in 

higher demand as a result of the absence 

of sufficient private lending in the 

mortgage market. The volume of FHA 

insurance increased rapidly as private 

sources of mortgage finance retreated 

from the market. As noted earlier in this 

preamble, FHA’s share of the singlefamily mortgage market today is 

approximately 33 percent—up from 3 

percent in 2007, and the dollar volume 

of insurance written has jumped from 

the $77 billion issued in that year to 

$319 billion in 2010. Accordingly, over 

the last several years, FHA’s primary 

contribution to the public is to provide 

a financing source for affordable and 

sustained homeownership when the 

market is not achieving this goal on its 

own. FHA cannot, however, contribute 

to sustained homeownership if FHA 

itself is not sustained. 

As has been reported, FHA’s capital 

reserve ratio has fallen below the 

statutorily mandated minimum capital 

reserve ratio of 2 percent. A primary 

reason why is that the recent demands 

placed on FHA have resulted in 

increased losses to the FHA insurance 

fund. FHA has a fiduciary duty, 

imposed by statute, to preserve the 

MMIF and to maintain the capital ratio 

of the MMIF at not less than 2 percent. 

In brief, FHA must take action to reduce 

risks and eliminate losses. FHA has 

already taken several steps to reduce 

risks, and this proposal on reduced 

seller concessions is another such 

measure to do so and restore the MMIF 

to the statutory minimum capital 

reserve ratio. 

The full economic analysis is 

available for review at 

www.regulations.gov. The docket file is 

available for public inspection in the 

Regulations Division, Office of General 

Counsel, Department of Housing and 

Urban Development, 451 7th Street SW., 

Room 10276, Washington, DC 20410– 

0500. Due to security measures at the 

HUD Headquarters building, please 

schedule an appointment to review the 

docket file by calling the Regulations 

Division at 202–402–3055 (this is not a 

toll-free number). Individuals with 

speech or hearing impairments may 

access this number via TTY by calling 

the Federal Relay Service at 800–877– 

8339. 

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 notice 

reduces the seller concessions cap. The 

benefit of this action will be to reduce 

the net losses due to mortgage defaults. 

As noted in the economic analysis for 

the notice, few borrowers are served in 

the categories that would be excluded 

under the new policies, relative to the 

total FHA portfolio. Further, as noted by 

many of the public commenters on the 

July 15, 2010, notice, the policy changes 

being made by FHA aligns the seller 

concession cap with that found in the 

conventional mortgage market. The 

impact of the policy changes will, 

therefore, largely be limited to 

conforming FHA standards to 

widespread industry practice. 

Environmental Impact 

A Finding of No Significant Impact 

(FONSI) with respect to the 

environment was prepared for the July 

15, 2010, notice, 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 

remains applicable to this notice and is 

available for public inspection between 

the hours of 8 a.m. and 5 p.m. weekdays 

in the Regulations Division, Office of 

General Counsel, Department of 

Housing and Urban Development, 451 

7th Street SW., Room 10276, 

Washington, DC 20410. Due to security 

measures at the HUD Headquarters 

building, please schedule an 

appointment to review the FONSI by 

calling the Regulations Division at 202– 

708–3055 (this is not a toll-free 

number). Individuals with speech or 

hearing impairments may access this 

number via TTY by calling the Federal 

Information Relay Service at 800–877– 

8339. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any document that has 

federalism implications if the document 

either imposes substantial direct 


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Federal Register / Vol. 77, No. 36 / Thursday, February 23, 2012 / Proposed Rules 10707 

compliance costs on state and local 

governments and is not required by 

statute, or preempts state law, unless the 

agency meets the consultation and 

funding requirements of section 6 of the 

Executive Order. This document would 

not have federalism implications and 

would 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 document would 

not impose any federal mandates on any 

state, local, or tribal governments, or on 

the private sector, within the meaning of 

the UMRA. 

Dated: January 30, 2012. 

Carol J. Galante, 

Acting Assistant Secretary for Housing, 

Federal Housing Commissioner. 

[FR Doc. 2012–3934 Filed 2–22–12; 8:45 am] 

BILLING CODE 4210–67–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 147 

[Docket No. USCG–2012–0024] 

RIN 1625–AA00 

Safety Zone; NOBLE DISCOVERER, 

Outer Continental Shelf Drillship, 

Chukchi and Beaufort Seas, Alaska 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes a 

500-meter safety zone around the 

DRILLSHIP NOBLE DISCOVERER, 

while anchored or deploying and 

recovering moorings on location in 

order to drill exploratory wells at 

various prospects located in the 

Chukchi and Beaufort Seas Outer 

Continental Shelf, Alaska, from 12:01 

a.m. on July 1, 2012 through 11:59 p.m. 

on October 31, 2012. See TABLE 1. The 

purpose of the temporary safety zone is 

to protect the drillship from vessels 

operating outside the normal shipping 

channels and fairways. Placing a safety 

zone around the drillship will 

significantly reduce the threat of 

allisions, which could result in oil 

spills, and releases of natural gas, and 

thereby protect the safety of life, 

property, and the environment. Lawful 

demonstrations may be conducted 

outside of the safety zone. 

DATES: Comments and related material 

must be received by the Coast Guard on 

or before March 26, 2012. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2012–0024 using any one of the 

following methods: 

(1) Federal eRulemaking Portal: 

http://www.regulations.gov. 

(2) Fax: 202–493–2251. 

(3) Mail: Docket Management Facility 

(M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue SE., Washington, DC 20590– 

0001. 

(4) Hand delivery: Same as mail 

address above, between 9 a.m. and 

5 p.m., Monday through Friday, except 

Federal holidays. The telephone number 

is 202–366–9329. 

To avoid duplication, please use only 

one of these four methods. See the 

‘‘Public Participation and Request for 

Comments’’ portion of the 

SUPPLEMENTARY INFORMATION section 

below for instructions on submitting 

comments. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this proposed 

rule, call or email LT Jason Smilie, 

Seventeenth Coast Guard District (dpi); 

telephone 907–463–2809, 

Jason.A.Smilie@uscg.mil. If you have 

questions on viewing or submitting 

material to the docket, call Renee V. 

Wright, Program Manager, Docket 

Operations, telephone 202–366–9826. 

SUPPLEMENTARY INFORMATION: 

Public Participation and Request for 

Comments 

We encourage you to participate in 

this rulemaking by submitting 

comments and related materials. All 

comments received will be posted 

without change to http:// 

www.regulations.gov and will include 

any personal information you have 

provided. 

Submitting Comments 

If you submit a comment, please 

include the docket number for this 

rulemaking (USCG–2012–0024), 

indicate the specific section of this 

document to which each comment 

applies, and provide a reason for each 

suggestion or recommendation. You 

may submit your comments and 

material online (via http:// 

www.regulations.gov) or by fax, mail, or 

hand delivery, but please use only one 

of these means. If you submit a 

comment online via http:// 

www.regulations.gov, it will be 

considered received by the Coast Guard 

when you successfully transmit the 

comment. If you fax, hand deliver, or 

mail your comment, it will be 

considered as having been received by 

the Coast Guard when it is received at 

the Docket Management Facility. We 

recommend that you include your name 

and a mailing address, an email address, 

or a telephone number in the body of 

your document so that we can contact 

you if we have questions regarding your 

submission. 

To submit your comment online, go to 

http://www.regulations.gov, click on the 

‘‘submit a comment’’ box, which will 

then become highlighted in blue. In the 

‘‘Document Type’’ drop down menu 

select ‘‘Proposed Rule’’ and insert 

‘‘USCG–2012–0024’’ in the ‘‘Keyword’’ 

box. Click ‘‘Search’’ then click on the 

balloon shape in the ‘‘Actions’’ column. 

If you submit your comments by mail or 

hand delivery, submit them in an 

unbound format, no larger than 81⁄2; by 

11 inches, suitable for copying and 

electronic filing. If you submit 

comments by mail and would like to 

know that they reached the Facility, 

please enclose a stamped, self-addressed 

postcard or envelope. We will consider 

all comments and material received 

during the comment period and may 

change the rule based on your 

comments. 

Viewing Comments and Documents 

To view comments, as well as 

documents mentioned in this preamble 

as being available in the docket, go to 

http://www.regulations.gov, click on the 

‘‘read comments’’ box, which will then 

become highlighted in blue. In the 

‘‘Keyword’’ box, insert USCG–2012– 

0024 and click ‘‘Search.’’ Click the 

‘‘open Docket Folder’’ in the ‘‘Actions’’ 

column. 

You may also visit the Docket 

Management Facility in Room W12–140 

on the ground floor of the Department 

of Transportation West Building, 1200 

New Jersey Avenue SE., Washington, 

DC 20590, between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. We have an agreement with 

the Department of Transportation to use 

the Docket Management Facility. 

Privacy Act 

Anyone can search the electronic 

form of comments received into any of 

our dockets by the name of the 

individual submitting the comment (or 

signing the comment, if submitted on 

behalf of an association, business, labor 

union, etc.). You may review a Privacy 

Act notice regarding our public dockets 


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