58338 Federal Register / Vol. 65, No. 189 / Thursday, September 28, 2000 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 221

[Docket No. FR–4588–P–01]

RIN 2502–AH50

Discontinuation of the Section

221(d)(2) Mortgage Insurance Program

AGENCY: Office of the Assistant

Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Proposed rule.

SUMMARY: This proposed rule would

discontinue HUD’s section 221(d)(2)

mortgage insurance program. Through

this program, HUD insures mortgage

loans made by private lenders to finance

the purchase, construction, or

rehabilitation of low-cost, one- to fourfamily housing. The section 221(d)(2)

program is rarely used by homebuyers,

primarily due to its low mortgage limits.

Further, the program provides few

homeownership opportunities not

already made available by other HUD

mortgage insurance programs.

Accordingly, HUD proposes to no longer

enter into new contracts for mortgage

insurance under the program. The

proposed rule would remove those

provisions of the section 221(d)(2)

regulations concerning eligibility for

participation in the program, and

replace them with a savings clause. The

rule, however, would retain those

regulatory provisions regarding the

contract rights and servicing

responsibilities for existing program

participants.

DATES: Comments due date: November

27, 2000.

ADDRESSES: Interested persons are

invited to submit comments regarding

this proposed rule to the Regulations

Division, Office of General Counsel,

Room 10276, Department of Housing

and Urban Development, 451 Seventh

Street, SW., Washington, DC 20410–

0500. Communications should refer to

the above docket number and title.

Facsimile (FAX) comments are not

acceptable. A copy of each

communication submitted will be

available for public inspection and

copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT:

Vance T. Morris, Director, Office of

Single Family Program Development,

Office of Insured Single Family

Housing, Room 9266, U.S. Department

of Housing and Urban Development,

451 Seventh Street, SW., Washington,

DC 20410–8000; telephone (202) 708–

2700 (this is not a toll-free number).

Hearing- or speech-impaired individuals

may access this number via TTY by

calling the toll-free Federal Information

Relay Service at (800) 877–8339.

SUPPLEMENTARY INFORMATION:

I. Background—The Section 221(d)(2)

Single Family Mortgage Insurance

Program

Section 221(d)(2) of the National

Housing Act (12 U.S.C. 1715l(d)(2)),

authorizes HUD to insure private

lenders against loss from default on

mortgage loans made to finance the

purchase, construction, or rehabilitation

of low-cost, one- to four-family homes.

The regulations implementing the

section 221(d)(2) program are located in

24 CFR part 221. The program is

administered by HUD’s Office of

Housing-Federal Housing

Administration (FHA).

The section 221(d)(2) program is

rarely used by homebuyers, primarily

due to its low mortgage limits. The

maximum mortgage under the program

is $31,000 for a single-family home

($36,000 in high cost areas). For a larger

family with five or more persons, the

limit is $36,000 ($42,000 in high-cost

areas). Due to these low mortgage limits,

which are established by statute, the

program is not attractive to the majority

of homebuyers. In Fiscal Year 1999,

HUD insured 1,009 section 221(d)(2)

mortgages, representing less than $32

million of FHA’s total $120 billion in

mortgage origination. During the last

three fiscal years, FHA has endorsed

only 4,821 section 221(d)(2) mortgages.

The section 221(d)(2) program

provides few homeownership

opportunities not already made

available by other HUD mortgage

insurance programs, primarily the single

family home mortgage insurance

programs authorized by section 203 of

the National Housing Act (12 U.S.C.

1709) (implemented by HUD in 24 CFR

part 203), and the condominium

mortgage insurance program authorized

by section 234 of the National Housing

Act (12 U.S.C. 1715y) (implemented by

HUD in 24 CFR part 234).

The section 203 and section 234

programs have eligibility requirements

and underwriting procedures that are

almost identical to those of the section

221(d)(2) program. In addition, these

programs have the benefit of much

higher mortgage limits. For example, the

maximum mortgage for a single family

dwelling under the section 203(b) and

section 234(c) programs ranges from

$121,296 to $219,849, depending upon

location. Although the section 221(d)(2)

program does permit some additional

financing of closing costs, the low

volume of mortgages originated under

the program suggests that this is not a

significant benefit to homebuyers.

For these reasons—the infrequent use

of section 221(d)(2) mortgage insurance

by homebuyers, and the easy

availability of alternative FHA mortgage

insurance products—HUD has decided

to discontinue the section 221(d)(2)

program.

II. This Proposed Rule

This proposed rule would remove the

HUD regulations establishing the

eligibility requirements for section

221(d)(2) mortgage insurance in subpart

A of 24 CFR part 221. A savings clause

would be retained in subpart A of the

part 221 regulations to provide that the

authority to insure section 221(d)(2)

mortgages is terminated, except that

HUD will endorse for insurance validly

processed mortgages under direct

endorsement where the credit

worksheet was signed by the

mortgagee’s underwriter before the

effective date of the final rule. The

savings clause would also provide that

subpart A, as it existed immediately

before the termination date, will

continue to govern the rights and

obligations of insured mortgage lenders,

mortgagors, and HUD with respect to

section 221(d)(2) single family loans

insured before the effective date of the

final rule, and to the aforementioned

direct endorsement loans.

III. Findings and Certifications

Environmental Impact

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with HUD

regulations at 24 CFR part 50, which

implement section 102(2)(C) of the

National Environmental Policy Act of

1969 (42 U.S.C. 4223). The Finding of

No Significant Impact is available for

public inspection between the hours of

7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk, Office

of General Counsel, Room 10276,

Department of Housing and Urban

Development, 451 Seventh Street, SW.,

Washington, DC.

Regulatory Flexibility Act

The Secretary has reviewed this

proposed rule before publication, and

by approving it certifies, in accordance

with the Regulatory Flexibility Act (5

U.S.C. 605(b)), that this proposed rule

would not have a significant economic

impact on a substantial number of small

entities. The reasons for HUD’s

determination are as follows.

As noted above, the section 221(d)(2)

program is rarely used by homebuyers.

Federal Register / Vol. 65, No. 189 / Thursday, September 28, 2000 / Proposed Rules 58339

Mortgage lenders eligible to participate

in the section 221(d)(2) program are also

generally eligible to participate in other,

alternative, FHA single family mortgage

insurance programs that are preferred by

homebuyers (such as the section 203

and section 234(c) programs).

Accordingly, HUD’s decision to

discontinue the section 221(d)(2)

program is not anticipated to have a

significant economic impact on a

substantial number of mortgage lenders

participating in these FHA programs.

Notwithstanding HUD’s

determination that this rule will not

have a significant economic effect on a

substantial number of small entities,

HUD specifically invites comments

regarding any less burdensome

alternatives to this rule that will meet

HUD’s objectives as described in this

preamble.

Executive Order 13132, Federalism

Executive Order 13132 (entitled

‘‘Federalism’’) prohibits an agency from

publishing any rule that has federalism

implications if the rule either imposes

substantial direct compliance costs on

State and local governments and is not

required by statute, or the rule preempts

State law, unless the agency meets the

consultation and funding requirements

of section 6 of the Executive Order. This

proposed rule 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) 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 proposed rule

would not impose any Federal mandates

on any State, local, or tribal

governments, or on the private sector,

within the meaning of the Unfunded

Mandates Reform Act of 1995.

Catalog of Federal Domestic Assistance

Number

The Catalog of Federal Domestic

Assistance program number applicable

to 24 CFR part 221 is 14.120: Mortgage

Insurance—Homes for Low/Moderate

Income Families.

List of Subjects in 24 CFR Part 221

Low and moderate income housing,

Mortgage insurance, Reporting and

recordkeeping requirements.

Accordingly, for the reasons described

in the preamble, HUD proposes to

amend 24 CFR part 221 to read as

follows:

PART 221—LOW COST AND

MODERATE INCOME MORTGAGE

INSURANCE

1. The authority citation for part 221

is revised to read as follows:

Authority: 12 U.S.C. 1715b, 1715l; 42

U.S.C. 3535(d).

2. Subpart A is revised to read as

follows:

Subpart A—Eligibility Requirements—

Low Cost Homes—Savings Clause

§ 221.1 Savings clause.

(a) Effective [insert effective date of

final rule], the authority to insure

mortgages under section 221(d)(2) of the

National Housing Act (12 U.S.C.

1715l(d)(2)) for low cost and moderate

income mortgage insurance is

terminated, except that HUD will

endorse for insurance validly processed

mortgages under direct endorsement

where the credit worksheet was signed

by the mortgagee’s underwriter before

[insert effective date of final rule].

(b) Subpart A of this part, as it existed

immediately before [insert effective date

of final rule], will continue to govern

the rights and obligations of insured

mortgage lenders, mortgagors, and HUD

with respect to section 221(d)(2) single

family loans insured before [insert

effective date of final rule], or in

accordance with paragraph (a) of this

section, pursuant to the applicable

provisions of this subpart.

Dated: August 24, 2000.

William C. Apgar,

Assistant Secretary for Housing-Federal

Housing Commissioner

[FR Doc. 00–24949 Filed 9–27–00; 8:45 am]

BILLING CODE 4210–27–P