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[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95808-95810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28298]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6474-N-01]

Notice of Partial Claim Electronic Delivery Alternative 
Demonstration

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

ACTION: Notice, with request for comments.

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SUMMARY: This notice announces the Partial Claim Electronic Delivery 
Alternative Demonstration (the Demonstration). Under the Demonstration, 
participating mortgagees will submit digital copies of partial claim 
promissory notes and subordinate mortgages (PC Documents) to HUD 
instead of originals, which they will retain and provide to HUD upon 
request. The Demonstration will include any mortgagees that elect to 
participate but will only include partial claim subordinate mortgages 
secured by mortgage properties where the use of digital copies is 
permissible under applicable law. When the Demonstration ends, HUD will 
evaluate its success, determine whether to permanently implement the 
Demonstration processes, and identify any other necessary changes.

DATES: Comments are due no later than February 3, 2025. Following the 
conclusion of the 60-day comment period, HUD will fully evaluate 
submitted comments and may modify the design of the Demonstration. HUD 
will then issue another notice announcing the start date of the 
Demonstration and will also publish a mortgagee letter with further 
information.

ADDRESSES: There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Electronic Submission of Comments. Comments may be submitted 
electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare

[[Page 95809]]

and submit a comment, ensures timely receipt by HUD, and enables HUD to 
make comments immediately available to the public. Comments submitted 
electronically through www.regulations.gov can be viewed by other 
commenters and interested members of the public. Commenters should 
follow the instructions provided on that website to submit comments 
electronically.
    2. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500.
    Note: To receive consideration as public comments, comments must be 
submitted through one of the two methods specified above.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. HUD will make all properly 
submitted comments and communications available for public inspection 
and copying during regular business hours at the above address. Due to 
security measures at the HUD Headquarters building, you must schedule 
an appointment in advance to review the public comments by calling the 
Regulations Division at 202-708-3055 (this is not a toll-free number). 
HUD welcomes and is prepared to receive calls from individuals who are 
deaf or hard of hearing, as well as individuals with speech or 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit: https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments 
submitted are available for inspection and downloading at https://www.regulations.gov/.

FOR FURTHER INFORMATION CONTACT: Elissa Saunders, Director, Office of 
Single Family Asset Management, Office of Housing, Department of 
Housing and Urban Development, 100 South Charles Street, Bank of 
America Building, Tower II, 11th Floor, Baltimore, MD 21201; telephone 
number 202-402-2378 (this is not a toll-free number). HUD welcomes and 
is prepared to receive calls from individuals who are deaf or hard of 
hearing, as well as individuals with speech or communication 
disabilities. To learn more about how to make an accessible telephone 
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Background

A. Partial Claim Processes and Mortgagee Responsibilities

    Pursuant to section 230(b) of the National Housing Act (12 U.S.C. 
1715u), HUD will pay a partial claim to a mortgagee to cure arrearages 
and, in certain cases, to achieve principal reduction on an FHA-insured 
mortgage in default or facing imminent default. In exchange for this 
partial claim payment, the borrower agrees to execute PC Documents in 
favor of HUD.
    HUD's PC Documents do not accrue interest and require repayment 
only when the first of the following events occurs: the maturity of the 
first mortgage, the sale of the property, the payoff of the first 
mortgage, or if provided for under the partial claim note, the 
termination of FHA insurance, except that HUD will agree to subordinate 
the partial claim note to an FHA streamline refinance.
    The mortgagee is responsible for having the PC Documents executed, 
recording the partial claim mortgage, and delivering the original PC 
Documents to HUD (see 24 CFR 203.371 and HUD Handbook 4000.1 
III.A.2.k.v.(H)). If the mortgagee fails to provide HUD with the 
original PC Documents within the required timeframes, HUD requires 
reimbursement of the full amount of the partial claim and partial claim 
incentive fee (see 24 CFR 203.371(d), specifically).
    The mortgagee must retain copies of the PC Documents and other 
required partial claim information in its servicing file. The mortgagee 
is currently required to retain these items in its servicing file for 
at least seven years after the transfer or sale of the first mortgage 
or termination of mortgage insurance.

B. Partial Claim Servicing and Debt Collection

    The mortgagee services the partial claim until it records the 
partial claim mortgage and delivers the PC Documents to HUD. 
Thereafter, HUD, through its Loan Servicing Contractor (LSC), services 
partial claims and serves as the document custodian for PC Documents.
    When HUD is informed that the first mortgage is being paid in full, 
sold, transferred or assumed, terminated, or refinanced without 
resubordinating the partial claim, HUD, through its LSC, may provide a 
payoff figure on a partial claim. Once PC Documents become due and 
payable, HUD's LSC issues a payoff letter. If the borrower fails to pay 
the partial claim debt, it can be referred to HUD's Financial 
Operations Center for appropriate collection action. The referral 
package includes a copy of the PC Documents.
    While HUD primarily relies on copies of PC Documents to conduct its 
servicing and collection activities, there are limited occasions where 
original PC Documents are required to support such efforts. This is why 
HUD requires the mortgagee to deliver original PC Documents to HUD and 
why HUD retains original PC Documents.
    HUD is aware of the costs incurred and burdens associated with the 
mortgagee's delivery of and HUD's retention of original PC Documents. 
Besides these regular costs and burdens, there are also additional 
costs and burdens when original PC Documents are lost during delivery 
and it becomes necessary to take various steps to locate the lost PC 
Documents and execute lost note affidavits. In light of these costs and 
burdens, HUD now seeks to evaluate whether mortgagees could retain 
original PC Documents in their servicing files and deliver them to HUD 
only upon HUD's request.

II. Notice of Demonstration Program

A. Duration

    HUD will announce the start date of the Demonstration in a 
subsequent notice that will be issued after the conclusion of the 60-
day comment period for this notice. The Demonstration will continue for 
five years after this start date, unless extended. Mortgagees electing 
to participate in the Demonstration would be required to retain 
original PC Documents for the same records retention timeframe as the 
associated first mortgage. The requirement to retain the original PC 
Documents would not end after the expiration of the Demonstration for 
any PC Documents that have been electronically submitted to HUD as part 
of this Demonstration.

B. Overview

    Under the Demonstration, mortgagees would, after execution of the 
PC Documents by all required parties, agree to: (1) submit an 
electronic copy of the executed partial claim note to HUD no later than 
60 days from the execution date, (2) submit an electronic copy of the 
recorded partial claim mortgage to HUD no later than six months 
following the execution date, (3) retain the original PC Documents for 
the required duration of document retention, as described in HUD 
Handbook 4000.1 III.A.1.n, unless HUD otherwise instructs the mortgagee 
that the retention requirements have changed or that retention is no 
longer required, and (4) deliver the original PC Documents to

[[Page 95810]]

HUD upon HUD's request no later than five business days after the date 
of the request, or within another timeframe prescribed by HUD. 
Mortgagees that elect to submit electronic PC Documents for a 
subordinate mortgage must continue to process all future PC Documents 
electronically, for the duration of the Demonstration, unless a 
particular mortgage property is located in a jurisdiction where the use 
of digital documents is prohibited.

C. Goals

    The main goal of the Demonstration is to reduce the costs and 
burdens for mortgagees associated with the mailing and tracking of 
original PC Documents. The Demonstration is also intended to reduce the 
incidence of original PC Documents being lost during delivery, as when 
this occurs mortgagees have to obtain and resubmit replacements and 
borrowers have to re-execute lost documents. In addition, it is 
intended to reduce the amount of mortgagee reimbursement to HUD in 
connection with lost PC Documents. Finally, the Demonstration is also 
intended to reduce HUD's costs related to the retention of original PC 
Documents and to enhance HUD's ability to conduct servicing and debt 
collection activities associated with partial claims.

D. Participating Mortgagees

    Mortgagee participation in the Demonstration is voluntary. HUD will 
allow all mortgagees to participate in the Demonstration, where state 
and local law permits. The actions the participating mortgagees will 
take related to the submission of electronic PC Documents and the 
retention of original PC Documents will be performed without any 
expectation of compensation. If a mortgagee does not adhere to the 
requirements of the Demonstration, they may be removed from 
participation in the Demonstration.

III. Impacted Regulations

    For the duration of the Demonstration, participating mortgagees 
will not adhere to the 24 CFR 203.371(d) requirements to submit 
original PC Documents to HUD within certain prescribed timeframes. 
Failure to submit original PC Documents within these timeframes will 
not result in mortgagees having to reimburse HUD for the full amount of 
the partial claim or any partial claim incentive fee, so long as 
electronic copies of the PC Documents were submitted within the 
required timeframes and original PC Documents are delivered to HUD, 
upon HUD's request, within the required timeframe.

IV. Evaluating the Success of the Demonstration

    At the conclusion of the Demonstration, HUD will assess its 
success, determine whether to implement the Demonstration's PC 
Documents submission and retention processes on a permanent basis, and 
identify any additional changes that may be needed to implement those 
processes. In conducting this evaluation, HUD will assess such factors 
as whether the Demonstration processes: (1) reduce the costs and 
burdens for mortgagees associated with delivering original PC Documents 
to HUD, (2) reduce the number of lost original PC Documents, (3) reduce 
the costs and burdens for HUD associated with the retention of original 
PC Documents, (4) enhance HUD's ability to conduct servicing and debt 
collection activities associated with partial claims, and (5) allow for 
the assessment of risk to HUD's partial claim recoveries and FHA's 
Mutual Mortgage Insurance Fund.

V. Solicitation of Public Comments

    In accordance with 24 CFR part 10 and section 470 of the Housing 
and Urban-Rural Recovery Act of 1983 (42 U.S.C. 3542), HUD is seeking 
comment on the Demonstration in this Federal Register notice for 60 
days of public comment. The public comment period will give HUD the 
opportunity to consider submitted comments and to be in a position to 
commence implementation of the Demonstration following the conclusion 
of the 60-day comment period and publication of an additional notice 
announcing the Demonstration start date. HUD will fully evaluate 
submitted comments before the Demonstration commences and may modify 
the design of the Demonstration. If HUD decides to make any changes to 
the Demonstration, HUD will provide separate notice to the public prior 
to commencing the Demonstration.

Julia R. Gordon,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2024-28298 Filed 12-2-24; 8:45 am]
BILLING CODE 4210-67-P
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