[Federal Register Volume 89, Number 23 (Friday, February 2, 2024)]
[Rules and Regulations]
[Pages 7274-7277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02023]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 202

[Docket No. FR-6321-F-02]
RIN 2502-AJ63


Changes in Branch Office Registration Requirements

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: The Office of the Assistant Secretary for Housing--Federal 
Housing Commissioner is issuing final regulations to amend the 
Department of Housing and Urban Development's (HUD) requirement for 
branch office registration. The final rule removes the requirement that 
lenders and mortgagees register each branch office where they conduct 
FHA business with HUD. After considering public comments received in 
response to the proposed rule HUD published on March 1, 2023, this 
final rule adopts the proposed rule without change.

DATES: Effective March 4, 2024.

FOR FURTHER INFORMATION CONTACT: Timothy Laramie, Mortgagee Approval 
Analyst, U.S. Department of Housing and Urban Development, 451 7th 
Street SW, Washington, DC 20410, telephone number 202-402-6814 (this is 
not a toll-free number). HUD welcomes and is prepared to receive calls 
from individuals who are deaf or hard of hearing, as well as 
individuals with speech or communication disabilities. To learn more 
about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Background

    On March 1, 2023, HUD published the ``Changes in Branch Office 
Registration Requirements'' proposed rule (``the proposed rule'') in 
the Federal Register. \1\ In the proposed rule, HUD sought to revise 24 
CFR 202.5(k) and (i) by eliminating the requirement that a lender or 
mortgagee register all branch offices used to conduct FHA business. 
This change would give lenders and mortgagees (1) the option to select 
which offices to register and maintain as branch offices with HUD, and 
(2) make fees applicable to each branch office that a lender or 
mortgagee registers with HUD, rather than applying fees to each branch 
office where they are authorized to originate Title I or Title II 
loans. HUD based these changes on the mortgage industry's evolution 
over time, the advancement of technology, and due to no longer needing 
to maintain several branch offices to conduct FHA business nationwide.
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    \1\ 88 FR 12906.
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    Prior to 1995, HUD required each mortgagee office to get approval 
from the FHA Field Office(s) located where the lender or mortgagee 
intended to submit mortgages for insurance endorsement.\2\ After 1995, 
HUD expanded the geographic areas where lenders and mortgagees were 
allowed to conduct FHA business. The expansion allowed FHA Field 
Offices to create a ``lending area'' and permitted lenders and 
mortgagees to conduct business with several FHA Field Offices within 
that area. HUD required that lenders and mortgagees ``maintain at least 
one approved branch office within a `lending area from which loans are 
submitted to the FHA Field Offices.'' \3\ Currently, HUD follows its 
policy from HUD Handbook 4000.1 that was established in September of 
2015. This policy calls a geographic area where a

[[Page 7275]]

branch office is permitted to conduct FHA business an ``Area Approved 
for Business'' (AAFB).\4\ HUD Handbook 4000.1 states that all branch 
offices that are registered with HUD are granted a nationwide AAFB to 
conduct FHA business; however, the registered branch ``may only 
exercise its authority to originate or underwrite FHA mortgages in 
those states where the lender or mortgagee fully complies with state 
origination and/or underwriting licensing and approval requirements.''
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    \2\ See HUD, Mortgagee Letter 95-36: Mortgagee Approval--Single 
Family Loan Production--Revised Mortgagee/Program Requirements, Aug. 
2, 1995, https://www.hud.gov/sites/documents/DOC_20554.TXT.
    \3\ Id.; See also HUD Handbook 4060.1 REV-1, Mortgagee Approval 
Handbook I (4060.1)--Chapter 5 Part A. Branch Offices, https://www.hud.gov/sites/documents/40601C5HSGH.PDF.
    \4\ See HUD Handbook 4000.1 I.A.4b, Single Family Lending Area 
(4000.1), https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-080923.pdf.
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    As the mortgage industry has evolved, HUD has found it necessary to 
update its regulations. In response to this change, HUD published a 
proposed rule on March 1, 2023, that would give lenders and mortgagees 
the option to register and maintain branch offices with HUD, which 
would allow them to be placed on HUD's Lender List Search page. In 
addition, the proposed rule would revise 24 CFR 202.5(i) to make fees 
applicable to each branch office that a lender or mortgagee registers 
with HUD, rather than applying fees to each branch office where they 
are authorized to conduct FHA business. These revisions were intended 
to reduce the administrative burden for existing lenders and mortgagees 
and eliminate barriers for entities interested in FHA programs. In 
addition to providing relief for the mortgage industry, HUD's proposed 
rule would provide the flexibility to encourage more lenders and 
mortgagees to originate FHA-insured mortgages. Removing the requirement 
to register branch offices will not affect HUD's monitoring of lenders 
and mortgagees. HUD will continue to maintain oversight and risk 
management of lenders and mortgagees who will remain responsible to FHA 
for the actions of its branch offices and employees.
    In response to public comments as discussed further below, HUD is 
publishing this final rule without change from the proposed rule.

II. The Public Comments

    HUD received 11 public comments on the proposed rule from various 
interested parties, including individuals, lenders and mortgagees, and 
business associations.

Support for the Rule

    Numerous commenters supported finalizing the proposed rule.
    Removing the branch office registration requirement is a needed 
update in response to industry developments resulting from 
technological changes and the COVID-19 Pandemic.
    Commenters in support of the rule discussed the industry trend 
towards remote work. These commenters described a shift away from 
conducting FHA business in centralized workplaces to remote homes or 
smaller, less-centralized offices as a result of pre-pandemic 
technological developments and the COVID-19 pandemic shift to work from 
home. One commenter stated that remote work was likely to remain a part 
of the industry moving forward. Another comment stated that, due to 
remote work, their business had more locations that could possibly be 
considered branch offices based on the current rule.
    HUD Response: HUD agrees with industry feedback that the 
requirement to register branch offices has become cumbersome and no 
longer aligns with the virtual environment in which the industry 
operates. Additionally, the requirement is somewhat redundant as branch 
offices will still need to be licensed by the state according to the 
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (12 
U.S.C. 5101, et seq.) (SAFE Act). The rule may reduce administrative 
burden for existing lenders and mortgagees and eliminate barriers for 
entities interested in FHA programs.
    Revising fee applicability to only branch offices registered with 
HUD will decrease costs.
    One commenter stated that altering fee applicability to apply to 
only branch offices registered with HUD will lower lenders' overhead 
costs and maintain low FHA origination costs.
    HUD Response: HUD agrees that the rule should reduce overhead costs 
of participating in FHA programs. The rule may also incentivize small 
size lenders, mortgagees, banks, and credit unions to offer FHA 
programs in branch offices in which they did not previously register 
with HUD. Expanding the availability of FHA programs to underserved 
urban and rural communities may provide homeowners with better access 
to FHA-insured mortgages and loans.
    Eliminating this requirement will benefit homeowners by increasing 
access to FHA-insured products.
    A commenter noted that the rule will likely increase the number of 
banks and credit unions participating in FHA programs and improve 
access for homeowners to FHA-insured mortgage products.
    HUD Response: HUD agrees that removing the requirement to register 
branch offices with HUD will provide lenders and mortgagees greater 
flexibility and removes a burdensome administrative and financial 
burden when participating in FHA programs.
    As branch offices are subject to state licensing, HUD's current 
requirement for branch office registration is unnecessary.
    One commenter said that under the Secure and Fair Enforcement of 
Mortgage Licensing Act of 2008 (SAFE Act), branch offices are still 
subject to state licensing, so HUD's branch office registration 
requirement is unnecessary and removing the requirement will not affect 
HUD's monitoring of mortgagees.
    HUD Response: HUD agrees and is revising its branch registration 
requirements because all lenders and mortgagees must comply with state 
licensing and approval requirements. Further, lenders and mortgagees 
can only exercise the authority to conduct FHA business from those 
branch office locations in which they fully comply with state licensing 
and approval requirements for origination, underwriting and/or 
servicing. Therefore, the current requirement to also register branch 
offices with HUD has become redundant. Removing the branch office 
registration requirement will not affect HUD's monitoring. HUD can 
monitor lenders and mortgagees even without the specific branch office 
identification, and lenders and mortgagees will still remain 
responsible to FHA for the actions of its branch offices and employees.
    Self-regulation by lenders will prevent unregistered branch offices 
from becoming non-compliant with applicable laws.
    A commenter stated that branch offices will still be overseen by 
``home'' offices motivated by licensing requirements and business 
reputation to ensure branch offices remain compliant. The commenter 
also stated that a lender's compliance could still be enforced through 
the audit process and, as lenders regularly submit loan files to FHA, 
any later attempts by these lenders to alter records will alert 
regulators of non-compliance.
    HUD Response: HUD agrees and notes that while it will continue to 
maintain oversight and risk management of lenders and mortgagees, it is 
the responsibility of each lender and mortgagee to ensure compliance 
with all FHA program requirements. Each lender and mortgagee is 
responsible for the actions of its staff that participate in FHA 
transactions. Each lender and mortgagee must continue to maintain 
effective internal controls and execute risk and control procedures on 
a day-to-day basis. Further, HUD has existing processes and procedures 
for

[[Page 7276]]

enforcement activities to address noncompliance.
    FHA lenders will continue to be monitored by HUD's Office of Lender 
Activities and Program Compliance--Quality Assurance Division.
    One commenter stated that the rule states that FHA lenders will 
continue to be monitored by HUD's Office of Lender Activities and 
Program Compliance--Quality Assurance Division. The commenter stated 
that, as a result, HUD will still review the level of early defaults 
and claims on mortgages originated from each lender or mortgagee in a 
HUD field office's geographic area. The commenter stated lenders and 
mortgagees with excessive rates of early default and claims could then 
have their authority terminated by FHA.
    HUD Response: The rule does not affect HUD's monitoring of lenders 
and mortgagees. Further HUD's Office of Lender Activities and Program 
Compliance--Quality Assurance Division will continue to monitor FHA 
mortgagees quarterly to determine whether Credit Watch Termination is 
warranted.

Opposition to the Rule

    Some commenters opposed this rule without providing a basis for 
their opposition.
    HUD Response: HUD is unable to address commenters' opposition to 
the rule, as they did not provide specific reasons for their 
opposition.

Concerns With the Rule

    There is a potential for lenders to become lax in complying with 
applicable regulations if branch offices are not registered.
    One commenter said that while they welcome the rule, it could 
result in lenders becoming less compliant if branch offices are not 
registered with HUD. The commenter stated that if offices were no 
longer subject to branch inspections, lenders will be less likely to 
hold branch office employees accountable.
    HUD Response: HUD appreciates this comment and the concern raised. 
However, as stated previously in this preamble, each lender and 
mortgagee has, and will continue to have, the responsibility to manage 
its risk, to comply with regulations and standards, and to carry out 
its defined risk management processes. HUD will continue its proactive 
monitoring of the performance for lenders and mortgagees. Further, HUD 
has existing processes and procedures for enforcement activities to 
address noncompliance.
    There should be limitations on what an unregistered branch office 
can and cannot do.
    One commenter expressed concern with reduced compliance by 
unregistered branch offices and suggested imposing limitations on what 
an unregistered branch office can and cannot do.
    HUD Response: HUD does not agree that a bifurcation between the 
permitted activities for registered and unregistered branch offices is 
necessary. Each lender and mortgagee has been, and will continue to be, 
responsible for the actions of its staff that participate in FHA 
transactions. Further lenders and mortgagees must continue to exercise 
control over the management and supervision of such staff, which must 
include regular and ongoing reviews of staff performance and of the 
work performed. Performance monitoring will include FHA activity from 
both registered and unregistered branch offices. Further, HUD currently 
has existing processes and procedures for enforcement activities to 
address noncompliance.
    Questions about HUD's current practices and implementation of the 
rule.
    One commenter questioned ``if eliminating the requirement that 
lenders register all branch offices conducting FHA business will affect 
reporting Neighborhood Watch/Compare Ratio Data by branch office and, 
if so, if it will skew the data by excessively expanding the dataset to 
larger geographic parameters results?'' The commenter stated concerns 
about how FHA will record branch level data without individual branch 
office registration.
    Another commenter had various questions regarding HUD's current 
practices and implementation of the proposed rule including: ``1. 
[d]oes HUD currently monitor excessive rates of early defaults and 
claims based on the branch ID or mortgages originated within the 
geographic area served by a HUD field office?'' ``2. If HUD monitors 
based on the geographic area served by a HUD field office, and FHA 
terminates the lender's authority, does that termination apply to the 
entire geographic area served by a HUD field office, regardless of how 
many branches serve that area, or just the branch with the excessive 
rate of early defaults and claims in that geographic area?'' ``3. If 
HUD monitors based on excessive rate of early defaults and claims by 
branch ID, what would happen if an institution only had one branch 
registered under the proposed rule?'' ``Would the entire institution be 
terminated, or would the institution be terminated in that specific 
geographic area where an excessive rate of early defaults and claims 
occurred?'' ``4. If a lender chooses to have multiple branch IDs, would 
HUD require the registered branch manager to be physically located 
somewhere within the geographic area served by a HUD field office based 
on the branch's physical address?'' ``5. If so, what would HUD's 
expectation be for those call center branches where the employees work 
remotely?'' ``In that instance, would the required office address be 
the home office?'' ``Would HUD permit a branch manager to be listed 
under multiple lender branch IDs (for the same lender) or would the 
need for a branch manager be removed altogether, permitting a lender 
``manager'' assigned by lender ID?''
    HUD Response: Once the rule becomes effective, FHA branch 
registration will become optional. Mortgagees that elect to register 
branch offices will still be able to access branch-level data in 
Neighborhood Watch, including Compare Ratios for registered branches. 
For mortgagees that discontinue branch office registration or that 
never had a business model that included local or regional branch 
offices, Neighborhood Watch provides a variety of geographic parameters 
independent of branch IDs. Most FHA monitoring processes already focus 
on mortgagee-level data based on a variety of geographic areas. For 
example, FHA's current Credit Watch Termination process focuses on 
properties underwritten by each Direct Endorsement Mortgagee in a 
particular HUD field office jurisdiction, regardless of the originating 
branch. FHA expects mortgagees to conduct similar analysis, and to 
continue tracking the performance of specific branches using their own 
data if necessary.
    HUD currently monitors excessive rates of early defaults and claims 
based on mortgages originated/underwritten within the geographic area 
served by a HUD field office. When FHA terminates a mortgagee's 
authority through the Credit Watch Termination process, that 
termination applies to the entire geographic area served by the HUD 
field office, regardless of how many branches serve that area.
    Currently, HUD defines a branch manager as an onsite manager for a 
branch office who manages one branch office. HUD defines a regional 
manager as a manager who oversees the operation of multiple branch 
offices. Each lender and mortgagee must have a branch and/or regional 
manager to oversee each of its branch offices. Furthermore, each lender 
and mortgagee must ensure that it and its employees

[[Page 7277]]

comply with the requirements of the SAFE Act, including the licensing 
and registration of its employees in the Nationwide Mortgage Licensing 
System (NMLS).

III. Findings and Certifications

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

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the order. 
Executive Order 13563 (Improving Regulation and Regulatory Review) 
directs executive agencies to analyze regulations that are ``outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' Executive Order 13563 also directs that, where relevant, 
feasible, and consistent with regulatory objectives, and to the extent 
permitted by law, agencies are to identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public. Executive Order 14094 entitled ``Modernizing 
Regulatory Review'' (hereinafter referred to as the ``Modernizing 
E.O.'') amends section 3(f) of Executive Order 12866 (Regulatory 
Planning and Review), among other things.
    The final rule will revise 24 CFR 202.5 (i) and (k) to update HUD's 
regulation to conform with the mortgage industry's evolving business 
practices. Additionally, the rule will lessen the administrative burden 
on lenders and mortgagees. This rule was determined not to be a 
``significant regulatory action'' as defined in section 3(f) of 
Executive Order 12866 as amended by Executive Order 14094 and is not an 
economically significant regulatory action and therefore was not 
subject to OMB review.

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 final 
rule does not impose any Federal mandates on any state, local, or 
tribal government, or on the private sector, within the meaning of the 
UMRA.

Environmental Review

    This final rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this rule 
is categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321).

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 rule will remove the requirement that lenders and mortgagees 
register with HUD each branch office where they conduct FHA business. 
This will not create an undue burden on small entities, instead it will 
eliminate the burden for all lenders and mortgagees of having to 
register branch offices with HUD and pay the associated fees. HUD has 
determined that this rule will not have a significant economic impact 
on a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has Federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments or is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule will not have Federalism 
implications and will not impose substantial direct compliance costs on 
state and local governments or preempt state law within the meaning of 
the Executive Order.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520), an agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information, unless the 
collection displays a currently valid Office of Management and Budget 
(OMB) control number. The information collection requirements contained 
in this final rule have been approved by OMB under the Paperwork 
Reduction Act and assigned OMB control number 2502-0059.

List of Subjects in 24 CFR Part 202

    Administrative practice and procedure, Home improvement, 
Manufactured homes, Mortgage insurance, Reporting, and recordkeeping 
requirements.

    Accordingly, for the reasons stated in the preamble above, HUD 
amends 24 CFR part 202 as follows:

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

0
1. 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).


Sec.  202.5  [Amended]

0
2. Amend Sec.  202.5 by:
0
a. In paragraph (i) removing ``authorized to originate Title I loans or 
submit applications for mortgage insurance'' and adding in its place 
``that the lender or mortgagee registers with the Department'';
0
b. In paragraph (k), adding ``or mortgagee'' after ``A lender'' in the 
first sentence of paragraph (k), and removing the second sentence.

Julia R. Gordon,
Assistant Secretary of Office of Housing--Federal Housing 
Administration.
[FR Doc. 2024-02023 Filed 2-1-24; 8:45 am]
BILLING CODE 4210-67-P