76520 Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 30

[Docket No. FR 4553–A–01]

RIN 2501–AC66

Treble Damages for Failure To Engage

in Loss Mitigation; Advance Notice of

Proposed Rulemaking

AGENCY: Office of the Assistant

Secretary for Housing—Federal Housing

Commissioner, HUD.

ACTION: Advance notice of proposed

rulemaking.

SUMMARY: This notice announces HUD’s

intention to issue a proposed rule to

amend HUD’s Civil Money Penalty

regulations to provide for damages of

three times the amount of any mortgage

insurance benefit claimed by the

mortgagee for any mortgage as to which

the mortgagee failed to engage in loss

mitigation actions. Current regulations

provide that HUD may initiate a civil

money penalty action against

mortgagees and lenders for certain

prohibited conduct, including failure to

service FHA insured mortgages in

accordance with FHA regulations.

However, in 1998, Congress amended

the National Housing Act, as more

particularly described below, to add a

triple penalty to the existing civil

money penalty system for a mortgagee’s

failure to engage in loss mitigation.

Specifically, HUD seeks comments

regarding the best regulatory procedures

and structures for implementing this

Congressional mandate. This notice

therefore solicits public comment on the

subject prior to publication of a

proposed rule.

DATES: Comment Due Date: February 5,

2001.

ADDRESSES: Interested persons are

invited to submit comments and

responses to the Rules Docket Clerk,

Office of the 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) responses are not

acceptable. A copy of each response will

be available for public inspection and

copying during regular business hours

(7:30 a.m. to 5:30 p.m. Eastern Time at

the above address).

FOR FURTHER INFORMATION CONTACT: Jack

Tautges, Office of The Deputy Assistant

Secretary for Single Family Housing,

Room 9184, Department of Housing and

Urban Development, 451 Seventh Street

SW., Washington, D.C., 20410,

telephone (202) 708–1672 (this is not a

toll-free number). Hearing or speechimpaired individuals may access these

numbers via TTY by calling the Federal

Information Relay Service at 1–800–

877–8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 601(f), (g) and (h) of the

Department of Veteran’s Affairs and

Housing and Urban Development and

Independent Agencies Appropriations

Act (1999) (Pub. L. 105–276, approved

October 21, 1998) amended sections

230, 536(a), and 536(b)(1) of the

National Housing Act (‘‘NHA’’)(12

U.S.C. 1715u, 12 U.S.C. 1735f–14(a)(2)

and 12 U.S.C. 1735f–14(b)(1),

respectively) to add a triple penalty for

failure to engage in loss mitigation to

the existing civil money penalty system.

Among other things, the statute now

requires that, upon the default of a

single family mortgage insured under

Title II of the National Housing Act, it

is mandatory for the mortgagee to

engage in loss mitigation actions

(including, but not limited to, special

forbearance, loan modification, and

deeds in lieu of foreclosure) for the

purpose of providing alternatives to

foreclosure. Also, added to the actions

in section 536(b) for which the Secretary

‘‘may impose a civil money penalty on

the mortgagee or lender’’ is ‘‘failure to

engage in loss mitigation actions as

provided in section 230(a) of this Act

[i.e., the NHA].’’ See section 536(b)(1)(I),

12 U.S.C. 1735f–14(b)(1)(I). In the case

of such failure, ‘‘the penalty shall be in

the amount of three times the amount of

any insurance benefits claimed by the

mortgagee with respect to any

mortgage’’ as to which such failure

occurred. See section 536(a)(2), 12

U.S.C. 1735f–14(a)(2).

The regulation relating to civil money

penalties for mortgagees who engage in

prohibited acts is found at 24 CFR

30.35. This regulation was promulgated

in its current form on September 24,

1996 (61 FR 50215) and technically

amended on February 26, 1998 (63 FR

9742). The regulation currently provides

for a maximum penalty of $5,500 for

each violation, up to a maximum of

$1,100,000 for all violations committed

within any one-year period. A variety of

prohibited acts are covered, including,

generally, a failure to service a mortgage

in accordance with 24 CFR part 203. See

24 CFR 30.35(a)(10). The requirement to

engage in loss mitigation is set forth

primarily at 24 CFR 203.501, which

cross-references actions including, but

not limited to, deeds in lieu of

foreclosure (24 CFR 203.357); special

forbearance (24 CFR 203.471, 203.614);

partial claims (24 CFR 203.414);

assumptions (24 CFR 203.512); and

recasting of mortgages (24 CFR 203.616).

In addition, regulations require lenders

to engage in a loss mitigation evaluation

to determine which loss mitigation

options are appropriate (24 CFR

203.605).

Ordinary civil penalties will remain

in effect for failure to engage in a variety

of required servicing functions,

including, but not limited to: preforeclosure review to ensure that all

servicing requirements have been met

(24 CFR 203.606); giving each mortgagor

in default the notice of default (24 CFR

203.602); and monthly reporting

concerning all properties that are 90

days or more delinquent (24 CFR

203.332).

This Advance Notice of Proposed

Rulemaking

HUD plans to issue a proposed rule

implementing the new requirement to

assess treble damages when a mortgagee

fails to engage in any loss mitigation

activities with cooperative and qualified

mortgagors. HUD’s goals are to foster an

increase in loss mitigation efforts by

lenders, to decrease losses to FHA’s

insurance fund, to help borrowers retain

their homes, to integrate the pre-existing

civil money penalty system with the

new requirement of treble damages, and

to avoid punishing lenders who have

overall good records.

To that end, HUD plans to propose a

rule that would assess treble damages

considering both single-loan

performance and overall portfolio

performance. As to a single loan that

goes into default, HUD proposes to

regard a lender as having failed to

engage in loss mitigation if the lender

has failed to perform the loss mitigation

evaluation under 24 CFR 203.605 and

then take the appropriate loss mitigation

action(s). In that case, the lender would

be potentially subject to treble damages.

As a further step, HUD proposes to

establish a system of analyzing a

mortgagee’s loss mitigation efforts

portfolio-wide by using a tiered scoring

system based on performance ratios of

loss mitigation actions divided by Real

Estate Owned (‘‘REO’’). Based on the

loss mitigation/REO ratio established,

HUD plans to propose to group lenders

in four tiers in relation to the mean or

some other identified score. HUD plans

to propose a system in which lenders in

the top three tiers, i.e., those who have

relatively good records of making loss

mitigation efforts, would not be subject

to treble damages, and those in the

bottom tier who violate the regulation

would be subject to treble damages.

Federal Register / Vol. 65, No. 235 / Wednesday, December 6, 2000 / Proposed Rules 76521

HUD specifically invites comments on

this proposed tiering system, including

comments regarding the specific tier

structure based on performance ratios of

loss mitigation actions to REO. HUD

also welcomes suggestions regarding

other factors, if any, that commenters

believe should be included in the ratio.

In addition, HUD welcomes general

comments regarding the proposed rule.

HUD will review all public comments

submitted in connection with preparing

the proposed rule on this subject. HUD

will promulgate a proposed rule that

implements a system for assessing treble

damages against mortgagees who fail to

engage in loss mitigation with

cooperative and qualified borrowers.

Executive Order 12866

The Office of Management and Budget

(OMB) reviewed this advance notice of

proposed rulemaking (ANPR) under

Executive Order 12866, Regulatory

Planning and Review, issued by the

President on September 30, 1993. Any

changes made in this ANPR subsequent

to its submission to OMB are identified

in the docket file, which is available for

public inspection during regular

business hours in the Office of the Rules

Docket Clerk, Office of the General

Counsel, Department of Housing and

Urban Development, Room 10276, 451

Seventh Street, S.W., Washington, DC

20410.

Dated: November 29, 2000.

William C. Apgar,

Assistant Secretary for Housing—Federal

Housing Commissioner.

[FR Doc. 00–30989 Filed 12–5–00; 8:45 am]

BILLING CODE 4210–27–P