41702 Federal Register / Vol. 63, No. 149 /Tuesday, August 4, 1998 / Notices

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.

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 speechimpaired 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 lowincome borrowers;

—Experience in expanding the

secondary market for such loans (to

low-income borrowers);

—Demonstrated success in carrying out

such activities, including raising nonFederal 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 loanto-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 lowincome borrowers through expanding

the secondary market for nonconforming 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 ‘‘lowwealth’’ 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 lowincome 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
Federal Register / Vol. 63, No. 149 /Tuesday, August 4, 1998 / Notices 41703

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 lowincome 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