30278 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Part 206

[Docket No. FR–4667–P–01]

RIN 2502–AH63

Home Equity Conversion Mortgage

(HECM) Program; Insurance for

Mortgages To Refinance Existing

HECMs

AGENCY: Office of Assistant Secretary for

Housing-Federal Housing

Commissioner, HUD.

ACTION: Proposed rule.

SUMMARY: This proposed rule would

amend HUD’s regulations for the Home

Equity Conversion Mortgage (HECM)

Program to implement the recent

amendments made by section 201(a) of

the American Homeownership and

Economic Opportunity Act of 2000. The

HECM Program enables older

homeowners to withdraw some of the

equity in their home in the form of

payments for life, a fixed term, or at

intervals through a line of credit.

Section 201(a) authorizes HUD to offer

mortgage insurance for refinancing of

existing HECMs, and provides consumer

safeguards for such refinancings.

DATES: Comments Due Date: July 5,

2001.

ADDRESSES: Interested persons are

invited to submit comments regarding

this proposed rule to the Rules Docket

Clerk, Office of 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) comments are not

acceptable. A copy of each

communication submitted will be

available for public inspection and

copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT:

Vance T. Morris, Director, Office of

Single Family Program Development,

Office of Insured Single Family

Housing, Room 9266, U.S. Department

of Housing and Urban Development,

451 Seventh Street, SW, Washington,

DC 20410–8000; telephone (202) 708–

2121 (this is not a toll-free number).

Hearing-or speech-impaired individuals

may access this number via TTY by

calling the toll-free Federal Information

Relay Service at (800) 877–8339.

SUPPLEMENTARY INFORMATION:

I. Background

The Home Equity Conversion

Mortgage (HECM) Program helps

homeowners 62 years of age or older,

who have paid off their mortgages or

have small mortgage balances, to stay in

their homes while using some of their

equity. The program enables these

homeowners to get financing with a

Federal Housing Administration (FHA)

insured reverse mortgage—a mortgage

that converts equity into income. The

FHA insures HECM loans to protect

lenders against loss. Such a loss could

occur if amounts withdrawn exceed

equity when the property is sold. The

statutory authority for the HECM

Program is section 255 of the National

Housing Act (12 U.S.C. 1715z–20) (the

NHA). HUD’s implementing regulations

are located at 24 CFR part 206 (entitled

‘‘Home Equity Conversion Mortgage

Insurance’’). More information on the

HECM Program can be found at HUD’s

website at www.hud.gov/buying/

reverse.cfm.

Section 201 of the American

Homeownership and Economic

Opportunity Act of 2000 (Pub. L. 106–

569, 114 Stat. 2944, 2948, approved

December 27, 2000) makes several

changes to the HECM Program. Among

other amendments, section 201(a) adds

a new section 255(k) to the NHA (the

existing subsection (k), concerning

funding for counseling and consumer

education, was redesignated as

subsection (m)). New section 255(k)

authorizes FHA to offer mortgage

insurance for refinancing existing

HECMs, and establishes several

requirements concerning such

refinancings for the protection of

homeowners and to expedite the

refinancing process. For example, the

statute establishes an ‘‘anti-churning’’

disclosure requirement for HECM

refinancings, and authorizes the waiver

of the HECM counseling requirements

under certain circumstances. Expedited

procedures for refinancing will enable

elderly homeowners to quickly take

advantage of declining interest rates and

increasing home prices in particular

areas.

In addition to the statutory changes

concerning HECM refinancings, section

201 also made amendments to the

HECM Program regarding housing

cooperatives (section 201(b)) and the

waiver of up-front premiums for

mortgages to fund long-term care

insurance (section 201(c)). These

statutory changes are not implemented

by this proposed rule, but may be the

subject of future HUD rulemaking.

II. This Proposed Rule

A. General

This proposed rule would implement

new section 255(k) of the NHA.

Specifically, the proposed rule would

create a new § 206.53, which contains

the requirements applicable for a

refinanced HECM to be eligible for

mortgage insurance. Section 206.53

would provide that HUD may, upon

application by a mortgagee, insure any

mortgage (that meets the HECM Program

requirements) given to refinance an

existing HECM. Except as otherwise

provided in § 206.53, all of the

requirements in 24 CFR part 206 would

apply to HECM refinancings.

B. Anti-Churning Disclosure

New section 255(k)(2) of the NHA

establishes an ‘‘anti-churning’’

disclosure requirement, which is

designed to ensure that homeowners are

made aware of the costs associated with

a HECM refinancing. The anti-churning

disclosure must be provided to

borrowers in addition to the disclosures

already required under § 206.43 of the

existing HECM regulations.

The proposed rule would implement

the anti-churning disclosure

requirement in paragraph (c) of § 206.53.

New § 206.53(c) would require that the

mortgagee provide to the mortgagor, in

addition to the other required

disclosures for the HECM Program, a

good faith estimate of:

1. The total cost of the refinancing to

the mortgagor (the proposed rule defines

the term ‘‘total cost of the refinancing’’

to mean the sum of the allowable

charges and fees permitted under

§ 206.31 and the initial mortgage

insurance premium (MIP) described in

§ 206.105(a)); and

2. The increase in the mortgagor’s

principal limit as measured by the

estimated initial principal limit on the

mortgage to be insured less the current

principal limit on the HECM that is

being refinanced. (The term ‘‘principal

limit’’ is defined at § 206.3 of the

existing HECM regulations and is not

being changed by this proposed rule.)

New section 255(k)(2) of the NHA

requires that HUD, through regulation,

establish ‘‘an appropriate time period’’

for submission of the anti-churning

disclosure. The proposed rule would

implement this statutory directive by

adopting the timing requirements

applicable to the Good Faith Estimate

required under the Real Estate

Settlement Procedures Act (RESPA).

The RESPA Good Faith Estimate is a

required disclosure under the HECM

Program (see § 206.43(a)). By

conforming the timing of the new antichurning disclosure to the existing

RESPA disclosure, the proposed rule

will minimize the administrative

burden imposed on lenders, and help to

Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Proposed Rules 30279

ensure that borrowers are provided with

all required disclosures at a single time.

C. Waiver of Counseling Requirement

1. General. Because HECM borrowers

can be vulnerable to fraudulent or

predatory lending abuses, the HECM

Program requires that a mortgagor

receive reverse mortgage housing

counseling from a HUD-approved

housing counseling agency as a

condition for obtaining HECM financing

(see § 206.41). However, the mortgagor

who is refinancing a HECM would

previously have received the required

counseling when obtaining FHA insured

mortgage financing for the initial HECM.

Accordingly, new section 255(k)(3) of

the NHA provides that such mortgagors

may elect to forego housing counseling

if certain requirements are satisfied. The

new statute establishes three conditions

that must be met in order to waive the

housing counseling requirement:

a. The mortgagor has received the

anti-churning disclosure;

b. The increase in the mortgagor’s

principal limit (as described in the antichurning disclosure) exceeds the total

cost of the refinancing by an amount

established by HUD; and

c. The time between the closing on

the original HECM and the application

for refinancing does not exceed 5 years.

2. Second condition for waiver of the

housing counseling requirement. HUD

proposes that the second condition for

a waiver be satisfied if the increase in

the mortgagor’s principal limit exceeds

five times the total cost of the

refinancing. Housing counseling is an

important component of HUD’s efforts

to protect borrowers participating in the

HECM Program from predatory lending

abuses. While no one set of abusive

practices or terms characterizes a

predatory mortgage loan, such loans

frequently contain excessive, often

hidden, fees. In establishing the amount

required for the second waiver criterion,

HUD has attempted to assure that

mortgagors who may be subject to such

predatory fees receive housing

counseling. At the same time, HUD is

cognizant of the statutory intent to

waive a potentially duplicative

requirement for HECM mortgagors who

wish to refinance and who have already

received counseling. Accordingly, HUD

proposes to establish a high threshold

for waiver of the housing counseling

requirement. HUD believes that a

refinanced HECM with an increase in

the principal limit that does not exceed

the proposed threshold is more likely to

contain the excessive fees that

frequently characterize predatory loans.

The amount necessary to satisfy the

second condition for a waiver would not

be specified in the regulatory text. This

amount may need to be updated on a

periodic basis due to changes in the

available financial data, or changes in

the housing market. Codification of the

threshold amount would require that

HUD use rulemaking procedures each

time the amount is revised. Rulemaking

is a potentially lengthy process that may

delay HUD’s ability to quickly update

this figure in response to rapidly

changing circumstances. Accordingly,

HUD proposes to announce any changes

to the second waiver criterion through

Federal Register notice. In order to

provide HECM program participants

with sufficient time to adjust to any

such change, HUD will delay the

effective date of the revision for a period

of not less than 30-days following

publication in the Federal Register

notice. After consideration of the public

comments on this proposed rule, HUD

will announce the initial threshold

amount in the preamble to the final rule.

3. Third condition for waiver of the

housing counseling requirement. With

regards to the third condition for waiver

of the counseling requirement, HUD

notes that the statutory language refers

to the ‘‘original’’ HECM that is to be

refinanced. Accordingly, a refinancing

mortgagor would be required to receive

housing counseling if more than 5 years

have passed since closing on the

mortgagor’s first HECM, regardless of

whether less than 5 years have passed

since a previous refinancing.

D. Limit on Origination Fee

New section 255(k)(6) of the NHA

permits HUD to ‘‘establish a limit on the

origination fee that may be charged to a

mortgagor’’ for a HECM refinancing.

HUD proposes to adopt the existing

limit on HECM origination fees for

purposes of HECM refinancings.

Specifically, the origination fee on a

refinanced HECM would be limited to

the greater of $2,000 or two percent of

the maximum claim amount on the

refinanced reverse mortgage (see HUD

Mortgagee Letter 00–10, issued on

March 8, 2000). Although this proposed

rule would adopt the existing HECM

origination fee limits for HECM

refinancings, different limits may be

established for ‘‘original’’ HECMs and

refinanced HECMs at a later date. As

with the current origination fee limits

for the HECM Program, the limits for

HECM refinancings would not be

specified in the regulatory text.

The proposed rule would also revise

§ 206.31(a)(1) of the existing HECM

regulations (which concerns origination

fees) to clarify that the origination fee

may be fully financed with the

mortgage. Further, any origination fee

limit shall include any fees paid to

correspondent mortgagees approved by

the Secretary. HUD also proposes to

adopt a new process for revising the

origination fee limits for the HECM

Program (this procedure would apply to

both HECM financing and refinancings).

Specifically, HUD will announce any

changes to the origination fee limits

through publication of a Federal

Register notice. Further, in order to

provide program participants with

sufficient time to adjust to any such

change, HUD will delay the effective

date of the revision for a period of not

less than 30-days following publication

in the Federal Register.

E. Reduction of Up-Front HECM

Mortgage Insurance Premium

For a refinancing mortgage, new

section 255(k)(4) of the NHA authorizes

HUD to reduce the amount of the initial

MIP otherwise collected on a HECM

(equal to 2 percent of the maximum

claim amount—see § 206.105(a)).

Section 255(k)(4) requires that any such

reduction be based on the results of a

statutorily mandated actuarial study to

determine the adequacy of the insurance

premiums collected for HECM

refinancings. Further, the statute

requires that HUD conduct the actuarial

study no later than 180 days after

enactment of the American

Homeownership and Economic

Opportunity Act of 2000. The required

actuarial study is currently under

development. As provided by the

statute, HUD may, based on the findings

of the study, determine that a reduction

in the initial MIP for HECM refinancings

is appropriate. HUD will implement any

such reduction through a proposed rule

and will provide the public with an

opportunity to comment on the

proposed MIP reduction.

III. Justification for Reduced Comment

Period

It is the general practice of the

Department to provide a 60-day public

comment period on all proposed rules.

The Department, however, is reducing

its usual 60-day public comment period

to 30 days for this proposed rule.

Section 201(a)(2) of the American

Homeownership and Economic

Opportunity Act of 2000 requires that

HUD’s final regulations implementing

new section 255(k) of the NHA take

effect no later than 180 days after

enactment. The reduced 30 day

comment period is necessary to help

ensure that the final rule is effective by

the statutory deadline date, and to

provide sufficient time for compliance

with all applicable rulemaking

requirements (such as the statutory 15-

30280 Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Proposed Rules

day prepublication Congressional

review requirements and the 30-day

delayed effective date requirements of

section 7(o) of the Department of HUD

Act (42 U.S.C. 3535(d)).

IV. Findings and Certifications

Regulatory Planning and Review

The Office of Management and Budget

(OMB) reviewed this rule under

Executive Order 12866, Regulatory

Planning and Review. OMB determined

that this rule is a ‘‘significant regulatory

action’’ as defined in section 3(f) of the

Order (although not an economically

significant regulatory action under the

Order). Any changes made to this rule

as a result of that review are identified

in the docket file, which is available for

public inspection in the office of the

Department’s Rules Docket Clerk, Room

10276, 451 Seventh Street, SW,

Washington, DC 20410–0500.

Information Collection Requirements

The information collection

requirements contained in § 206.53(c)

have been submitted to the Office of

Management and Budget (OMB) under

the Paperwork Reduction Act of 1995

(44 U.S.C. 3501–3520). In accordance

with the Paperwork Reduction Act,

HUD may not conduct or sponsor, and

a person is not required to respond to,

a collection of information unless the

collection displays a currently valid

OMB control number.

The burden of the information

collections in this proposed rule is

estimated as follows:

REPORTING AND RECORDKEEPING BURDEN

Section reference Number of

parties

Number of

responses

per respondent

Estimated average time for

requirement

(in hours)

Estimated annual

burden

(in hours)

206.53(c) anti-churning disclosure .................................................................. 4,000 1 .5 2,000

Total Reporting and Recordkeeping

Burden: 2,000 hours.

In accordance with 5 CFR

1320.8(d)(1), HUD is soliciting

comments from members of the public

and affected agencies concerning this

collection of information to:

(1) Evaluate whether the proposed

collection of information is necessary

for the proper performance of the

functions of the agency, including

whether the information will have

practical utility;

(2) Evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection of information;

(3) Enhance the quality, utility, and

clarity of the information to be

collected; and

(4) Minimize the burden of the

collection of information on those who

are to respond; including through the

use of appropriate automated collection

techniques or other forms of information

technology, e.g., permitting electronic

submission of responses.

Interested persons are invited to

submit comments regarding the

information collection requirements in

this proposal. Comments must be

received within sixty (60) days from the

date of this proposal. Comments must

refer to the proposal by name and

docket number (FR–4667) and must be

sent to: Joseph F. Lackey, Jr., HUD Desk

Officer, Office of Management and

Budget, New Executive Office Building,

Washington, DC 20503; and Ethelene

Washington, Reports Liaison Officer,

Office of the Assistant Secretary for

Housing—Federal Housing

Commissioner, Department of Housing

and Urban Development, 451 7th Street,

SW., Room 9114, Washington, DC

20410.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (2 U.S.C. 1531–

1538) establishes requirements for

Federal agencies to assess the effects of

their regulatory actions on State, local,

and tribal governments and the private

sector. This proposed rule does not

impose any Federal mandates on any

State, local, or tribal governments or the

private sector within the meaning of

Unfunded Mandates Reform Act of

1995.

Environmental Impact

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with HUD

regulations at 24 CFR part 50, which

implement section 102(2)(C) of the

National Environmental Policy Act of

1969 (42 U.S.C. 4223). The Finding of

No Significant Impact is available for

public inspection between the hours of

7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk, Office

of General Counsel, Room 10276,

Department of Housing and Urban

Development, 451 Seventh Street, SW,

Washington, DC.

Impact on Small Entities

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)) (the RFA), 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.

The reasons for HUD’s determination

are as follows.

The proposed regulatory amendments

are not discretionary, but are mandated

by statute. These amendments

authorizes FHA mortgage insurance for

HECM refinancings, and provide

consumer safeguards for such

refinancings. The amendments would

impose minimal, if any, economic costs

on small lenders and other participants

in the HECM Program. For example, the

origination fee limits that would be

established under this proposed rule for

HECM refinancings do not impose any

economic burden on lenders (the same

fee limits are already applicable original

financing under the HECM Program).

The anti-churning disclosure (although

a new information collection

requirement) also does not add new

costs or impose additional economic

burdens on lenders.

Notwithstanding HUD’s

determination that this rule will not

have a significant economic effect on a

substantial number of small entities,

HUD specifically invites comments

regarding any less burdensome

alternatives to this rule that will meet

HUD’s objectives as described in this

preamble.

Executive Order 13132, Federalism

Executive Order 13132 (entitled

‘‘Federalism’’) prohibits an agency from

publishing any rule that has federalism

implications if the rule either imposes

substantial direct compliance costs on

State and local governments and is not

required by statute, or the rule preempts

State law, unless the agency meets the

consultation and funding requirements

of section 6 of the Executive Order. This

proposed rule does not have federalism

implications and does not impose

substantial direct compliance costs on

State and local governments or preempt

State law within the meaning of the

Executive Order.

Federal Register / Vol. 66, No. 108 / Tuesday, June 5, 2001 / Proposed Rules 30281

Catalog of Domestic Assistance Number

The Catalog of Domestic Assistance

Number for the HECM program is

14.871.

List of Subjects in 24 CFR Part 206

Aged, Condominiums, Loan

programs—housing and community

development, Mortgage insurance,

Reporting and recordkeeping

requirements.

Accordingly, for the reasons described

in the preamble, HUD proposes to

amend 24 CFR part 206 as follows:

PART 206—HOME EQUITY

CONVERSION MORTGAGE

INSURANCE

1. The authority citation for 24 CFR

part 206 continues to read as follows:

Authority: 12 U.S.C. 1715b, 1715z–1720;

42 U.S.C. 3535(d).

2. Revise § 206.31(a)(1) to read as

follows:

§ 206.31 Allowable charges and fees.

(a) * * *

(1) A charge to compensate the

mortgagee for expenses incurred in

originating and closing the mortgage

loan, which may be fully financed with

the mortgage. The Secretary may

establish limitations on the amount of

any such charge. Any limitation on the

origination fee shall include any fees

paid to correspondent mortgagees

approved by the Secretary. HUD will

publish any such limit in the Federal

Register at least 30-days before the

limitation takes effect.

* * * * *

3. Add § 206.53 under a new

undesignated heading ‘‘REFINANCING

OF EXISTING HOME EQUITY

CONVERSION MORTGAGES’’ to read

as follows:

§ 206.53 Refinancings.

(a) General. This section implements

section 255(k) of NHA. Except as

otherwise provided in this section, all

requirements applicable to the

insurance of home equity conversion

mortgages under this part apply to the

insurance of refinancings under this

section. HUD may, upon application by

a mortgagee, insure any mortgage given

to refinance an existing home equity

conversion mortgage presently insured

under this part.

(b) Definition of ‘‘total cost of the

refinancing.’’ For purposes of

paragraphs (c) and (d) of this section,

the term ‘‘total cost of the refinancing’’

means the sum of the allowable charges

and fees permitted under § 206.31 and

the initial MIP described in § 206.105(a).

(c) Anti-churning disclosure. (1)

Contents of anti-churning disclosure. In

addition to the disclosures required

under § 206.43, the mortgagee shall

provide to the mortgagor a good faith

estimate of:

(i) The total cost of the refinancing to

the mortgagor; and

(ii) The increase in the mortgagor’s

principal limit as measured by the

estimated initial principal limit on the

mortgage to be insured less the current

principal limit on the home equity

conversion mortgage that is being

refinanced under this section.

(2) Timing of anti-churning

disclosure. The mortgagee shall provide

the anti-churning disclosure

concurrently with the Good Faith

Estimate required under § 3500.7 of this

title.

(d) Waiver of counseling requirement.

The mortgagor may elect not to receive

counseling under § 206.41, but only if:

(1) The mortgagor has received the

anti-churning disclosure required under

paragraph (c) of this section.

(2) The increase in the mortgagor’s

principal limit (as provided in the antichurning disclosure) exceeds the total

cost of the refinancing by an amount

established by the Secretary through

Federal Register notice. HUD may

periodically update this amount through

publication of a notice in the Federal

Register. Publication of any such

revised amount will occur at least 30-

days before the revision becomes

effective.

(3) The time between the date of the

closing on the original home equity

conversion mortgage and the date of the

application for refinancing under this

section does not exceed 5 years (even if

less than five years have passed since a

previous refinancing under this section).

Dated: April 19, 2001.

Mel Martinez,

Secretary.

[FR Doc. 01–14120 Filed 6–4–01; 8:45 am]

BILLING CODE 4210–27–P