[Federal Register Volume 63, Number 149 (Tuesday, August 4, 1998)]
[Notices]
[Pages 41702-41703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20800]


      

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Part VI





Department of Housing and Urban Development





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Secondary Market for Non-Conforming Mortgage Loans to Low-Wealth 
Borrowers: Advance Notice of Demonstration Program; Notice

Federal Register / Vol. 63, No. 149 / Tuesday, August 4, 1998 / 
Notices

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4348-N-01]
RIN 2502-AH20


Secondary Market for Non-Conforming Mortgage Loans to Low-Wealth 
Borrowers; Advance Notice of Demonstration Program

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

ACTION: Advance notice of demonstration program.

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SUMMARY: HUD's fiscal year 1998 Appropriations Act set aside $10 
million for grants to certain nonprofit organizations to demonstrate 
methods of expanding homeownership opportunities for low-income 
borrowers by expanding the secondary market for non-conforming home 
mortgage loans to low-wealth borrowers. This advance notice solicits 
public input so that HUD can develop meaningful guidelines for 
selecting the organizations and operating the demonstration program.

DATES: Comment Due Date: September 3, 1998.

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: Vance T. Morris, Director, Home 
Mortgage Insurance Division, Office of Insured Single Family Housing, 
Department of Housing and Urban Development, Room 9266, 451 Seventh 
Street SW, Washington, DC 20410; telephone (202) 708-2700. (This is not 
a toll-free number). Hearing or speech-impaired individuals may access 
these numbers via TTY by calling the Federal Information Relay Service 
at (800) 877-8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act (Pub. L. 105-
65; approved October 27, 1997) (FY 1998 Appropriations Act) set aside 
$10 million from the HOME investment partnerships program for grants to 
up to three organizations that are exempt from Federal taxation under 
section 501(c)(3) of the Internal Revenue Code. The organizations are 
to be selected on a competitive basis to demonstrate methods of 
expanding homeownership opportunities for low-income borrowers through 
expanding the secondary market for non-conforming home mortgage loans 
to low-wealth borrowers. The Conference Report to the FY 1998 
Appropriations Act (H.R. Rep. No. 297, 105th Cong., 1st Sess. 103 
(1997)), which provides guidance from Congress on its legislative 
intent, states that the conferees ``underscore their intention that the 
demonstration program focus solely on strategies to expand the 
secondary market for affordable home mortgage credit from private 
lenders.''

Criteria for the Selection of Grantees

    Statutory selection criteria. In selecting the grantees for this 
demonstration program, the FY 1998 Appropriations Act provides the 
following criteria for selecting such grantees:

--Experience working with lenders who make non-conforming loans to low-
income borrowers;
--Experience in expanding the secondary market for such loans (to low-
income borrowers);
--Demonstrated success in carrying out such activities, including 
raising non-Federal grants and capital on concessionary terms for the 
purpose of expanding the secondary market for loans in the previous 2 
years in amounts equal or exceeding the amount awarded; and
--Demonstrated ability to provide data on the performance of such loans 
sufficient to allow for future analysis of the investment risk of such 
loans.
    Report Language Criteria. The Conference Report states that the 
grantees should be selected based on the criteria in the statute and 
contained in the House Report (H.R. Rep. No. 175, 105th Cong., 1st 
Sess. 37 (1997)). The House Report identifies the following selection 
criterion:

--The ability to adequately collect data on the underwriting and 
performance of the loans purchased; further, the portfolios should 
consist of loans that are non-conforming due to high loan-to-value 
ratio, missed payments, credit blemishes, or a lack of credit.

    The conferees further establish that priority in the selection 
criteria shall be accorded to those organizations that have the 
following characteristics:

--Statewide or multi-state service areas;
--Sophisticated existing (emphasis added) data collection capabilities, 
including adequate loan portfolio monitoring and analysis systems;
--A demonstrated strong track record of leveraging public sector funds; 
and willingness to match funds awarded under the demonstration program 
with non-Federal funds; and
--A mix between rural and urban loans.

Questions for Commenters

    In order for HUD to develop meaningful guidelines for selecting the 
organizations and operating the demonstration program, HUD is seeking 
public input on several particular issues. HUD also encourages 
commenters to provide any additional input that would be useful in 
designing this demonstration program.
    A. The FY 1998 Appropriations Act defines the purpose of the 
demonstration as follows: ``to demonstrate methods of expanding 
homeownership opportunities for low-income borrowers through expanding 
the secondary market for non-conforming home mortgage loans to low-
wealth borrowers.''
    1. What should be the desired and expected outcomes of the 
demonstration program?
    2. How should HUD define a ``low-wealth'' borrower for this 
demonstration program?
    B. The Conference Report indicates that Congress intends to place a 
responsibility on the applicant to go beyond addressing the immediate 
credit needs of lower-income borrowers to one of developing a strategy 
to expand the secondary market for affordable home mortgage credit by 
private lenders: ``[T]he conferees underscore strategies to expand the 
secondary market for affordable home mortgage credit from private 
lenders.''
    1. What would be the characteristics of an effective strategy?
    2. What are the best measures to assess a strategy's potential 
impact on the future availability of private credit to low-wealth 
borrowers?
    C. The FY 1998 Appropriations Act identifies several criteria for 
the selection of an applicant, one of which is ``experience in working 
with lenders who make non-conforming loans to low-income borrowers.''
    1. What factors might HUD consider in defining ``experience working 
with lenders'' for this demonstration program? What factors might be 
more (or less) relevant in an applicant's experience working with 
lenders?
    2. a ``non-conforming loan'' IS generally defined as a loan that 
does not

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meet Fannie Mae and Freddie Mac underwriting criteria. Should other 
definitions, such as an unseasoned loan, a loan that may require a 
second loan committee review, one that has a low mortgage or credit 
score, or a loan that does not meet conventional appraisal standards be 
considered? Should the definition include FHA loans?)
    D. Another selection criterion identified by the FY 1998 
Appropriations Act is ``experience in expanding the secondary market 
for such loans [i.e., non-conforming loans to low-income borrowers].''
    1. How should HUD assess the applicant's experience in expanding 
the secondary market for such loans for this demonstration program? 
(Examples: By the applicant's volume of such loans sold on the 
secondary market? By the applicant's experience with the origination of 
non-conforming loans?)
    2. The House Report indicates that the demonstration portfolios 
should consist of loans that are non-conforming due to high loan-to-
value ratio, missed payments, credit blemishes, or a lack of credit. 
Are these factors adequate, or are there other factors that HUD should 
evaluate?
    3. Are there any compensating characteristics among such borrowers 
that are not criteria recognized in conventional or standard 
underwriting guidelines? If so, what are they and how might HUD 
consider them as part of the demonstration program?
    E. Another selection criterion identified by the FY 1998 
Appropriations Act is ``demonstrated success in carrying out such 
activities including raising non-Federal grants and capital on 
concessionary terms for the purpose of expanding the secondary market 
for loans in the previous two years in amounts equal or exceeding the 
amount awarded.''
    1. How should HUD determine ``demonstrated success'' for this 
program? (Examples: By the amount of capital raised? By the types of 
activities undertaken? Working with lenders who make non-conforming 
loans to low-income borrowers and expanding the secondary market for 
such loans?)
    2. For purposes of the demonstration program, is there a preferred 
use of the funds? (Examples: as capital reserves, for loan 
originations, for the purchase of loans, for loan guarantees). Should 
the efficiency of leverage in the use of the funds be a requirement?
    F. The FY 1998 Appropriations Act also requires that the selected 
applicant must ``have demonstrated the ability to provide data on the 
performance of such loans sufficient to allow for future analysis of 
the investment risk of such loans.''
    1. What information does HUD need to collect? (Examples: 
information regarding delinquencies and defaults, restructured loans, 
claims, reasons for poor loan performance, availability of pre-/post-
purchase counseling, an analysis by the applicant of the reasons behind 
good/poor loan performance?) Should the information collected be 
predefined and made uniform for all applicants (e.g., defining the time 
period for a ``default'')?
    2. How frequently and for how long a duration of time should this 
information be reported?
    3. In order to maximize the credibility and impact of the 
demonstration, the conferees expect HUD to give priority to applicants 
that have ``sophisticated existing data collection capabilities, 
including adequate loan portfolio monitoring and analysis.'' How might 
HUD assess data collection capability?
    4. The conferees expect the Secretary to give priority to 
organizations that have statewide or multi-state service areas, and 
have a mix of urban and rural loans. How important is a diversified 
portfolio in assessing investment risk for purposes of the criterion 
described above?
    5. Should automated mortgage finance tools, such as credit or 
mortgage scoring, be evaluated in this demonstration? Are there other 
tools that should be examined?

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this advance 
notice of a demonstration program under Executive Order 12866, 
Regulatory Planning and Review, issued by the President on September 
30, 1993. Any changes made in this document 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 SW, 
Washington, DC 20410.

    Dated: July 29, 1998.
Ira Peppercorn,
General Deputy Assistant Secretary for Housing-Federal Housing 
Commissioner.
[FR Doc. 98-20800 Filed 8-3-98; 8:45 am]
BILLING CODE 4210-27-P