[Federal Register Volume 63, Number 85 (Monday, May 4, 1998)]
[Proposed Rules]
[Pages 24736-24737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11792]



[[Page 24735]]

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Part IX





Department of Housing and Urban Development





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24 CFR Part 203

Authority To Reduce FHA Mortgage Insurance Premium (MIP) for Mortgages 
on Single Family Properties in Central Cities; Proposed Rule

Federal Register / Vol. 63, No. 85 / Monday, May 4, 1998 / Proposed 
Rules

[[Page 24736]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4284-P-01]
RIN 2502-AH07


Authority To Reduce FHA Mortgage Insurance Premium for Mortgages 
on Single Family Properties in Central Cities

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule provides express authority for a reduced 
FHA single family mortgage insurance premium (MIP) for properties 
located in central cities. The purpose of this rule is to help increase 
the homeownership rate in areas of the country where the homeownership 
rate is low.

DATES: Comment due date: July 6, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of the General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410. Communications should refer 
to the above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each comment submitted 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: John J. Coonts, Director, Office of 
Insured Single Family Housing, Room 9266, Department of Housing and 
Urban Development, 451 Seventh Street, SW, Washington, DC 20410, 
telephone (voice) (202) 708-3046. (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: Three times during President Clinton's 
administration, FHA has reduced the up-front mortgage insurance premium 
(MIP) for single family mortgages below the level permitted by statute. 
In 1994 (through Mortgagee Letter 94-14), FHA reduced the MIP from the 
then-applicable statutory maximum of 3.0% to 2.25%. FHA further reduced 
the up-front MIP for first-time homebuyers who have received 
homeownership counseling to 2.00 (Mortgagee Letter 96-48) and from 2.00 
to 1.75% (Mortgagee Letter 97-37). These measures were designed to 
boost the Nation's homeownership rate, particularly among those who are 
most likely to have difficulty paying closing costs, without adversely 
affecting the actuarial soundness of the Mutual Mortgage Insurance 
Fund. The homeownership rate for 1997 was 65.7 percent, the highest 
annual rate in American history, due in part to these and other 
measures adopted as part of the National Homeownership Strategy of the 
National Partners in Homeownership initiated by HUD.
    The homeownership rate in cities, however, continues to lag far 
behind the rate in suburbs--49.8 % compared to 72.1% as of June 1997. 
President Clinton addressed this problem in his June 23, 1997 remarks 
to the United States Conference of Mayors in which he announced an 
Urban Homestead initiative to help Americans become homeowners in 
cities. In announcing one part of the initiative, President Clinton 
stated:

    But you and I know not enough homes are in our cities. In the 
last 4 years, we've reduced FHA mortgage premiums three times, to 
lower the average closing cost on a new home by $1,200. That's made 
a lot of difference to a lot of young people, and I'm proud of that. 
Today, we're going to cut the premium another $200 for people if 
they buy homes in our central cities. This will bring the total 
reduction, since we took office, of closing costs to those families 
to $1,400.<SUP>1</SUP>
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    \1\ Weekly Compilation of Presidential Documents, Vol. 33, No. 
26, page 938, at page 944.
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    In this rule, FHA proposes to carry out the President's pledge of 
an additional $200 estimated savings for a typical central city 
homebuyer by authorizing a reduced premium--for those who would 
otherwise qualify for the 1.75% premium--of 1.50% for homeowners in a 
central city. The rule would not establish a specific MIP level for 
central cities, but would generally permit FHA to establish an MIP 
level for a central city property that would be up to 25 basis points 
lower than the MIP that would otherwise be due. The rule would define a 
central city as any city or county that meets the definition of 
``metropolitan city'' or ``urban county'' for purposes of HUD's 
Community Development Block Grant (CDBG) program; i.e., any CDBG 
entitlement grantee.
    This definition is deliberately broad to ensure that all areas that 
may experience a lower homeownership rate due to urban location will 
benefit from a reduction in MIP level. Because the definition is based 
on well-established boundaries for existing governmental jurisdictions 
that are already used for a major HUD program, the definition will 
avoid the confusion that might arise if new lines were drawn solely for 
MIP purposes. The definition proposed in the rule is clear and concise 
and--unlike some other possible approaches that were considered--lends 
itself to effective computer tracking that will enable FHA to study and 
evaluate the effect of the MIP reduction.
    FHA has concluded that the proposed definition of central cities 
will permit FHA to reduce the upfront MIP to 1.50% for a first-time 
homebuyer who has received pre-purchase counseling, while also 
permitting FHA to maintain the Mutual Mortgage Insurance Fund on an 
actuarially sound basis and in excess of the statutory capital 
requirement.

Findings and Certifications

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. In this rule, FHA 
proposes to carry out the President's pledge of an additional $200 
estimated savings for a typical central city homebuyer by authorizing a 
reduced premium--for those who would otherwise qualify for the 1.75% 
premium--of 1.50% for homeowners in a central city. The rule will have 
no adverse or disproportionate economic impact on small entities. Small 
entities are specifically invited, however, to comment on whether this 
rule will significantly affect them, and persons are invited to submit 
comments according to the instructions in the DATE and ADDRESSES 
sections in the preamble of this proposed rule.

Environmental Impact

    This proposed rule is exempt from environmental review requirements 
under 24 CFR 50.19(c)(6). That exemption applies to various rate and 
cost determinations and related administrative or fiscal requirements 
or procedures which do not constitute a development decision that 
affects the physical condition of specific project areas or building 
sites. The sole impact of the proposed rule would be to permit a 
reduced MIP level for homes in central cities.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this rule 
will not have

[[Page 24737]]

substantial direct effects on States or their political subdivisions, 
or the relationship between the Federal Government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. No programmatic or policy changes will result 
from this rule that would affect the relationship between the Federal 
Government and State and local governments.

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

Catalog

    The Catalog of Federal Domestic Assistance number for the basic FHA 
single family mortgage insurance program is 14.117.

List of Subjects in 24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.
    Accordingly, the Department proposes to amend 24 CFR part 203 as 
follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    1. The authority citation for 24 CFR part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b and 1715u; 42 U.S.C. 
3535(d).

    2. Section 203.284 is amended by adding a new paragraph (i) to read 
as follows:


Sec. 203.284  Calculation of up-front and annual MIP on or after July 
1, 1991.

* * * * *
    (i) Central cities. If the mortgage is on property in a central 
city, the Secretary may establish the percentage used to calculate up-
front MIP level at a rate that is up to 25 basis points lower than the 
rate used to calculate MIP for a comparable mortgage on property that 
is not in a central city. For purposes of this section, ``central 
city'' means any city or county that is included in the definitions of 
``metropolitan city'' or ``urban county'' in sections 102(4) and 102(6) 
of the Housing and Community Development Act of 1974, 42 U.S.C. 5302(4) 
and 5302(6).
    3. Section 203.285(c) is revised to read as follows:


Sec. 203.285  Fifteen-year mortgages: Calculation of up-front and 
annual MIP on or after December 26, 1992.

* * * * *
    (c) Applicability of certain provisions. The provisions of 
Secs. 203.261. 203.262, 203.264, 203.265, 203.266, 203.267, 203.268, 
203.269, 203.280, 203.282, 203.284(c), 203.284(g) and 203.284(i) are 
applicable to mortgages subject to premiums under this section.
* * * * *

    Dated: March 27, 1998.
Art Agnos,
Acting General Deputy Assistant Secretary for Housing-Deputy Federal 
Housing Commissioner.
[FR Doc. 98-11792 Filed 5-1-98; 8:45 am]
BILLING CODE 4210-27-P