60320 Federal Register / Vol. 65, No. 196 / Tuesday, October 10, 2000 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR–4311–F–02]

RIN 2502–AH15

Single Family Mortgage Insurance;

Electronic Underwriting

AGENCY: Office of the Assistant

Secretary for Housing—Federal Housing

Commissioner, HUD.

ACTION: Final rule.

SUMMARY: As part of Direct Endorsement

processing of a single family mortgage

for FHA insurance, FHA previously

required a Direct Endorsement

underwriter to review personally the

appraisal report and credit application,

including the analysis performed on the

worksheets. HUD issued an interim rule

in May 1998 to allow a Direct

Endorsement lender to substitute an

acceptable risk classification from a

FHA-approved automated underwriting

system (AUS) in lieu of a personal

review by a Direct Endorsement

underwriter. The interim rule is adopted

without change as a final rule.

EFFECTIVE DATE: November 9, 2000.

FOR FURTHER INFORMATION CONTACT:

Vance Morris, Director, Office of Home

Mortgage Insurance, Room 9266,

Department Housing and Urban

Development, 451 Seventh Street, SW,

Washington, DC 20410, telephone

(voice) (202) 708–2700. (This is not a

toll-free number.) Hearing-impaired or

speech-impaired individuals may access

the voice telephone listed by calling the

Federal Information Relay Service

during working hours at 1–800–877–

8339.

SUPPLEMENTARY INFORMATION:

Background

Until changed by an interim rule

published on May 29, 1998 (63 FR

29506), the Direct Endorsement (DE)

procedure required a DE underwriter to

personally review the appraisal report

and credit application, including the

analysis performed on the worksheets,

when a single family mortgage was

processed for FHA insurance under the

Direct Endorsement procedure. The DE

underwriter would certify that the

underwriter had personally reviewed

the credit application and appraisal

report on all mortgages originated under

the DE procedure. With the introduction

of automated underwriting systems, the

need for human underwriters to review

certain aspects of the mortgage loan

application has been substantially

diminished. The regulatory change

made by the interim rule allowed the

lender to substitute an ‘‘accept’’ risk

classification from a FHA-approved

automated underwriting system in lieu

of a personal review by a DE

underwriter of the borrower’s credit and

capacity to repay the mortgage.

An automated underwriting system

(AUS) performs an analysis of the loan

application and provides risk grades or

classifications as to the probability of

mortgage default. The AUS either

provides an acceptable risk

classification (using such terms as

‘‘accept’’ or ‘‘approve’’) for the

application based on information

provided by the lender, or refers the

application for further review by an

individual underwriter. FHA controls

the approval of all proprietary AUS’s,

determines the risk it is willing to

accept (i.e., the score necessary to allow

the loan to be considered an ‘‘accept’’ or

an ‘‘approve’’), and enters into

agreements with the AUS vendors

outlining what elements of the mortgage

application it is permitting the AUS to

evaluate. FHA, at its discretion, may

determine that the AUS may be used to

review elements of the applicant’s credit

and capacity.

FHA will continue to require a

personal review for those mortgage

applications referred to an individual

underwriter and to require that the

lender certify that all other aspects of

the mortgage transaction, including data

integrity and eligibility rules, meet FHA

requirements. Further, the mortgage

lender remains responsible for those

aspects of the credit and capacity not

evaluated by the AUS, including

eligibility requirements, as well as the

integrity of the data used by the AUS to

arrive at the ‘‘accept’’ risk classification.

Public Comments

HUD received one comment on the

interim rule from a DE underwriter.

Comment. The commenter stated that

it would be prudent for HUD to retain

a requirement for a qualified person to

sign off on each loan. The commenter

expressed concern that a person would

need to ensure the integrity of

information, such as that taken from a

Builder’s Certification for a new home,

or make judgment calls concerning a

need for repairs to a home. The same

commenter expressed concern over

what he characterized as ‘‘HUD’s

choice’’ of Freddie Mac’s Loan

Prospector, objecting to Freddie Mac’s

charge for access to that AUS system.

HUD Response. Under the rule as

revised on May 28, 1998, the lender

must still sign and submit to HUD,

before the mortgage is endorsed for

insurance, the Form HUD–92900–A that

holds the lender accountable for data

integrity. The lender will have the

option to decide who signs for the

lender on the form certifying to the

accuracy of the data used to determine

the credit and capacity of the borrower,

and may designate the DE underwriter

for this purpose. The DE underwriter

will still be responsible for review of the

property, including repair requirements.

An AUS will eliminate only the

mandatory personal review of credit and

capacity to repay, not the underlying

collateral.

HUD did not approve Freddie Mac’s

licensing fees as part of the approval

process, and does not expect to approve

such fees for other systems. As other

AUSs receive HUD approval, we expect

that this will lead to market competition

regarding fees for access to AUS

processing for FHA-insured mortgages.

Since the interim rule was published,

HUD has approved Fannie Mae’s

Desktop Underwriter, as well as PMI

Mortgage Services’ pmiAURA, and is

continuing to evaluate other systems.

HUD has concluded that no change to

the interim rule is needed.

Findings and Certifications

Environmental Finding

A Finding of No Significant Impact

with respect to the environment was

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, at the time of the interim rule. The

Finding of No Significant Impact

remains available for public inspection

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

weekdays in the Office of the Rules

Docket Clerk, Office of the General

Counsel, Department of Housing and

Urban Development, Room 10276, 451

Seventh Street, SW., Washington, DC

20410.

Federalism

Executive Order 13132 (entitled

‘‘Federalism’’) prohibits, to the extent

practicable and permitted by law, an

agency from promulgating a regulation

that has federalism implications and

either imposes substantial direct

compliance costs on State and local

governments and is not required by

statute, or preempts State law, unless

the relevant requirements of section 6 of

the Executive Order are met. This final

rule does not have federalism

implications and does not impose

substantial direct compliance costs on

State and local governments or preempt

State law within the meaning of the

Executive Order.

Federal Register / Vol. 65, No. 196 / Tuesday, October 10, 2000 / Rules and Regulations 60321

The Regulatory Flexibility Act

In accordance with 5 U.S.C. 605(b)

(the Regulatory Flexibility Act), the

Secretary by his approval of this rule

hereby certifies that this rule does not

have a significant economic impact on

a substantial number of small entities

because it allows mortgage lenders

greater flexibility and reduces

underwriting time and expense.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (2 U.S.C. 1531–

1538) (UMRA) requires 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, within

the meaning of the UMRA, any Federal

mandates on any State, local, or, tribal

governments or on the private sector.

List of Subjects in Part 203

Hawaiian Natives, Home

improvement, Indians—lands, Loan

programs—housing and community

development, Mortgage insurance,

Reporting and recordkeeping

requirements, Solar energy.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic

Assistance number for this program is

14.117.

Accordingly, the amendment to 24

CFR 203.255(b)(5) made by interim rule

published on May 29, 1998 at 63 FR

29506 is adopted as a final rule without

change.

Dated: October 2, 2000.

William C. Apgar,

Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 00–25869 Filed 10–6–00; 8:45 am]

BILLING CODE 4210–27–P