13834 Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Office of the Assistant Secretary for

Housing—Federal Housing

Commissioner

24 CFR Parts 25, 201, and 202

[Docket No. R–95–1769; FR–3847–F–01]

RIN 2502–AG43

Approval of Lending Institutions and

Mortgagees; Investing Lenders in the

Title I Property Improvement and

Manufactured Home Insurance

Programs

AGENCY: Office of the Assistant

Secretary for Housing—Federal Housing

Commissioner, HUD.

ACTION: Final rule.

SUMMARY: This final rule amends the

regulations that govern the approval of

lending institutions to participate in the

property improvement and

manufactured home loan insurance

programs under Title I, section 2 of the

National Housing Act. The rule creates

a new category of approved lending

institutions, to be known as ‘‘investing

lenders,’’ and provides minimum

requirements and criteria for their

approval and operation. In addition, this

rule makes conforming changes to

several HUD regulations.

EFFECTIVE DATE: April 13, 1995.

FOR FURTHER INFORMATION CONTACT:

Karen Garner-Wing, Director, Lender

Approval and Recertification Division,

Room 9146, U.S. Department of Housing

and Urban Development, 451 Seventh

Street SW., Washington, D.C. 20410.

Telephone 202–708–3976, ext. 2024.

Hearing- or speech-impaired individuals

may call the Office of Housing’s TDD

number, 202–708–4594. (These are not

toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Introduction

Under Title I, section 2 of the

National Housing Act (12 U.S.C. 1703),

the Department insures approved

lending institutions against losses

sustained as a result of borrower

defaults on property improvement loans

and manufactured home loans. The

regulations governing the approval of

lending institutions to participate in the

Title I property improvement and

manufactured home loan insurance

programs are found in 24 CFR part 202.

This final rule amends part 202 to

create a new category of approved

lending institutions, to be known as

‘‘investing lenders.’’ This change will

provide opportunities for a wider range

of financial institutions, including

charitable and nonprofit associations

and pension funds, to invest in Title I

loans, without the obligation of

maintaining the staff and facilities

needed for loan origination and

servicing.

By making greater levels of capital

available, both the property

improvement and manufactured home

loan programs will benefit. Increased

capital investment in Title I loans will

help expand the availability of the

property improvement loan program to

all areas of the nation, and will increase

its use in carrying out community

revitalization and the rehabilitation of

housing for low- and moderate-income

families. In addition, making more

funds available for Title I loans will

help make the manufactured home loan

program a more competitive financing

vehicle to enable first-time buyers to

achieve homeownership.

The rule adds a new § 202.2(f), which

defines an ‘‘investing lender’’ as a

financial institution, including a

charitable or nonprofit organization or

pension fund, which is approved by the

Secretary to purchase, hold, and sell

loans that have been originated and

insured under the Title I program. An

investing lender may not originate Title

I loans in its own name, and it may not

service such loans except with the prior

approval of the Secretary.

In addition to the general approval

requirements applicable to all Title I

lenders, the rule adds a new § 202.7 that

establishes the following additional

requirements for approval as an

investing lender:

1. An investing lender must have

lawful authority to purchase, hold, and

sell Title I property improvement and

manufactured home loans in its own

name. Since a Title I loan correspondent

is not authorized to report loans for

insurance, an investing lender may

purchase loans only from a lender

holding a valid Title I contract of

insurance, and not from a loan

correspondent.

2. An investing lender must have, or

have made arrangements for, funds

sufficient to support a projected

investment of at least $1,000,000 in

property improvement and

manufactured home loans. For example,

the investing lender may have a

warehouse line of credit or other

funding program that would meet this

requirement.

3. In lieu of the staffing and facilities

requirements in § 202.3(b), an investing

lender must have officers or employees

who are capable of managing its

activities in purchasing, holding, and

selling Title I loans.

4. An investing lender must be

responsible for the servicing of the Title

I loans that it holds, through contractual

or other arrangements with another

lender holding a valid Title I contract of

insurance, but it may not directly

service such loans except with the prior

approval of the Secretary.

Conforming and Clarifying

Amendments

The Department is also amending

other sections of parts 25, 201, and 202

to conform them to the changes outlined

above and to clarify the text of the

regulations. The rule includes the

following amendments:

1. The last sentence of § 25.2 is

amended to clearly list those violations

of the Title I lender approval

requirements in part 202 that are subject

to redelegation by the Mortgagee Review

Board.

2. In § 25.3, the definition of ‘‘lender’’

is amended to more closely conform to

the definition of this term in parts 201

and 202. In addition, a definition of

‘‘loan correspondent’’ is added, and the

definition of ‘‘mortgagee’’ is revised to

include Title I lenders and loan

correspondents, as provided for in

section 202(c)(7) of the National

Housing Act (12 U.S.C. 1708(c)(7)).

3. Section 25.9(cc) is amended to

correct an obsolete reference to the

section in part 202 that lists the grounds

for an administrative action against a

Title I lender or loan correspondent.

4. In §§ 201.2(o) and 202.2(a), the

definition of ‘‘lender’’ is amended to

specify that a Title I lender may be

approved for the purpose of holding

Title I loans.

5. Section 202.3(c) is amended to

clarify that a corporate officer or other

person authorized to bind the lender

shall be responsible for reporting all

originations, purchases, and sales of

Title I loans to the Secretary for the

purpose of obtaining or transferring

insurance coverage.

6. In § 202.7, which has been

redesignated § 202.8, paragraph (c)(3) is

amended to correct an obsolete

reference to the Title I lender approval

requirements.

7. In § 202.8 (redesignated § 202.9),

the introductory text to paragraph (a) is

amended to clarify that, for purposes of

that section, the term ‘‘lender’’ also

includes loan correspondents. In

addition, paragraph (b)(8) is amended to

change an obsolete reference to the

Under Secretary and to correct a

typographical error.

Justification for Final Rulemaking

The requirements for approval as an

investing lender in §§ 202.2(f) and 202.7
Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 / Rules and Regulations 13835

are based upon § 202.16, which contains

the approval requirements for an

investing mortgagee in HUD’s mortgage

insurance programs. Section 202.16 had

its genesis in an interim rule published

in the Federal Register on July 30, 1980

(45 FR 50561). One of the provisions

added by the interim rule was § 203.6 to

create a new class of investing

mortgagees. Although the Department

solicited public comments, it received

no comments with regard to § 203.6.

In 1991, the Department published a

proposed rule that would revise the

mortgagee approval regulations and

move them from part 203 to part 202

(see 56 FR 29100, June 25, 1991). In this

proposed rule, the section on investing

mortgagees would be redesignated as

§ 202.16 and would incorporate the

existing requirements for investing

mortgagees found in § 203.6, except that

trusts would no longer be eligible to be

approved as mortgagees. None of the

public comments received on the June

25, 1991 proposed rule addressed the

provisions of § 202.16, and the proposed

rule was published in the Federal

Register essentially without change in a

final rule on December 9, 1992 (57 FR

58326).

As previously stated, creation of a

new category of investing lender will

provide opportunities for a wider range

of financial institutions, including

charitable and nonprofit associations

and pension funds, to invest in Title I

loans and make greater levels of capital

available to these programs. Considering

the past experience with the investing

mortgagee provision, the Department

believes that publishing a proposed rule

and requesting public comments on

these regulatory changes would be

unnecessary. Therefore, the Department

finds good cause to omit prior public

procedure, and promulgates these

changes as a final rule.

Findings and Other Matters

Environmental Impact

Under HUD’s regulations

implementing the National

Environmental Policy Act at 24 CFR

50.20(k), this rule is exempt from the

requirements of an environmental

finding. The rule relates solely to

internal administrative procedures that

do not involve a development decision

or affect the physical condition of

project areas or building sites, but only

relate to criteria and requirements for

the approval of lending institutions to

participate in HUD loan insurance

programs.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)) has reviewed and approved this

final rule, and in so doing certifies that

this final rule would not have a

significant economic impact on a

substantial number of small entities.

The majority of institutions that would

participate in the Title I program as

investing lenders are large financial

institutions and pension funds.

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

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. Specifically, the

requirements of this rule relate solely to

the approval of lending institutions, and

will not impinge upon the relationship

between the Federal government and

State and local governments. As a result,

the rule is not subject to review under

the Order.

Executive Order 12606, The Family

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12606, The Family, has

determined that this rule will not have

potential for significant impact on

family formation, maintenance, or

general well-being, and thus, is not

subject to review under the Order. The

rule relates solely to the approval of

lending institutions. No significant

changes in existing HUD policies or

programs will result from promulgation

of this rule.

Regulatory Agenda

This rule was not listed in the

Department’s Semiannual Agenda of

Regulations published November 14,

1994 (59 FR 57632) under Executive

Order 12291 and the Regulatory

Flexibility Act.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic

Assistance program numbers are:

14.110 Manufactured Home Loan

Insurance—Financing Purchase of

Manufactured Homes as Principal

Residences of Borrowers;

14.142 Property Improvement Loan

Insurance for Improving All Existing

Structures and Building of New

Nonresidential Structures; and

14.162 Mortgage Insurance—

Combination and Manufactured Home

Lot Loans.

List of Subjects

24 CFR Part 25

Administrative practice and

procedure, Loan programs—housing

and community development,

Organization and functions

(Government agencies).

24 CFR Part 201

Health facilities, Historic

preservation, Home improvement, Loan

programs—housing and community

development, Manufactured homes,

Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 202

Administrative practice and

procedure, Home improvement,

Manufactured homes, Mortgage

insurance, Reporting and recordkeeping

requirements.

Accordingly, 24 CFR parts 25, 201,

and 202 are amended as follows:

PART 25—MORTGAGEE REVIEW

BOARD

1. The authority citation for 24 CFR

part 25 continues to read as follows:

Authority: 12 U.S.C. 1715b; 42 U.S.C.

3535(d).

2. Section 25.2 is amended by revising

the last sentence to read as follows:

§ 25.2 Establishment of Board.

* * * With respect to actions taken

against Title I lenders and loan

correspondents, the Mortgagee Review

Board may redelegate its authority to

take administrative actions for failure to

remain in compliance with the

requirements for approval in 24 CFR

202.3(j), 202.4(a), 202.5 (a) and (c), and

202.6 (a) and (e).

3. Section 25.3 is amended by revising

the definitions of ‘‘Lender’’ and

‘‘Mortgagee’’, and by adding a definition

of ‘‘Loan correspondent’’ in alphabetical

order, to read as follows:

§ 25.3 Definitions.

* * * * *

Lender. A financial institution that

holds a valid Title I contract of

insurance and is approved by the

Secretary under 24 CFR part 202 to

originate, purchase, hold, service, and/

or sell loans insured under 24 CFR part

201. In matters involving the imposition

of civil money penalties, the term

‘‘lender’’ also includes a financial

institution that holds a Title I contract

of insurance that has been terminated,

but that remains responsible for
13836 Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 / Rules and Regulations

servicing or selling Title I loans that it

holds and is authorized to file insurance

claims on such loans.

* * * * *

Loan correspondent. A financial

institution approved by the Secretary to

originate direct loans under Title I,

section 2 of the National Housing Act,

12 U.S.C. 1703, for sale or transfer to a

sponsoring lending institution that

holds a valid Title I contract of

insurance and that is not under

suspension.

Mortgagee. For purposes of this

regulation, the term ‘‘mortgagee’’

includes:

(1) The original lender under the

mortgage, as that term is defined at

sections 201(a) and 207(a)(1) of the

National Housing Act, 12 U.S.C. 1707(a)

and 1713(a)(1);

(2) A lender or loan correspondent as

defined in this section; or

(3) A branch office or subsidiary of

the mortgagee, lender, or loan

correspondent. The term ‘‘mortgagee’’

also includes successors and assigns of

the mortgagee, lender, or loan

correspondent, as are approved by the

Commissioner.

* * * * *

4. Section 25.9 is amended by revising

paragraph (cc) to read as follows:

§ 25.9 Grounds for an administrative

action.

* * * * *

(cc) Violation by a Title I lender or

loan correspondent of any of the

applicable provisions of this section or

of 24 CFR 202.9(b).

* * * * *

PART 201—TITLE I PROPERTY

IMPROVEMENT AND MANUFACTURED

HOME LOANS

5. The authority citation for 24 CFR

part 201 continues to read as follows:

Authority: 12 U.S.C. 1703; 42 U.S.C.

3535(d).

6. Section 201.2 is amended by

revising paragraph (o) to read as follows:

§ 201.2 Definitions.

* * * * *

(o) Lender means a financial

institution that:

(1) Holds a valid Title I contract of

insurance and is approved by the

Secretary under 24 CFR part 202 to

originate, purchase, hold, service, and/

or sell loans insured under this part; or

(2) Is under suspension or holds a

Title I contract of insurance that has

been terminated, but that remains

responsible for servicing or selling Title

I loans that it holds and is authorized to

file insurance claims on such loans. For

purposes of loan origination under

subparts A, B, and C of this part, the

term ‘‘lender’’ also includes a ‘‘loan

correspondent’’ as defined in paragraph

(q) of this section.

* * * * *

PART 202—APPROVAL OF LENDING

INSTITUTIONS AND MORTGAGEES

7. The authority citation for 24 CFR

part 202 continues to read as follows:

Authority: 12 U.S.C. 1703, 1709, and

1715b; 42 U.S.C. 3535(d).

8. Section 202.2 is amended by

revising paragraph (a) and by adding a

new paragraph (f) to read as follows:

§ 202.2 Definitions.

* * * * *

(a) Lender means a financial

institution that:

(1) Holds a valid Title I contract of

insurance and is approved by the

Secretary under this part to originate,

purchase, hold, service, and/or sell

loans insured under 24 CFR part 201; or

(2) Is under suspension or holds a

Title I contract of insurance that has

been terminated, but that remains

responsible for servicing or selling Title

I loans that it holds and is authorized to

file insurance claims on such loans.

* * * * *

(f) Investing lender means a financial

institution, including a charitable or

nonprofit organization or pension fund,

that is approved under this part to

purchase, hold, and sell loans that have

been originated and insured under 24

CFR part 201. An investing lender may

not originate Title I loans in its own

name, and it may not service such loans

except with the prior approval of the

Secretary.

9. Section 202.3 is amended by

revising paragraph (c) to read as follows:

§ 202.3 General approval requirements.

* * * * *

(c) It shall ensure that a corporate

officer or other person authorized to

bind the lender shall be responsible for

reporting all originations, purchases,

and sales of Title I loans to the Secretary

for the purpose of obtaining or

transferring insurance coverage.

* * * * *

10. Part 202 is amended by

redesignating §§ 202.7 and 202.8 as

§§ 202.8 and 202.9, respectively, and by

adding a new § 202.7 to read as follows:

§ 202.7 Requirements for investing

lenders.

In addition to the general approval

requirements in § 202.3, a financial

institution shall meet the following

requirements to qualify as an investing

lender:

(a) An investing lender shall have

lawful authority to purchase, hold, and

sell Title I property improvement and

manufactured home loans in its own

name.

(b) An investing lender shall have, or

have made arrangements for, funds

sufficient to support a projected

investment of at least $1,000,000 in

property improvement and

manufactured home loans.

(c) In lieu of the staffing and facilities

requirements in § 202.3(b), an investing

lender shall have officers or employees

who are capable of managing its

activities in purchasing, holding, and

selling Title I loans.

(d) An investing lender shall be

responsible for the servicing of the Title

I loans that it holds, through contractual

or other arrangements with another

lender holding a valid Title I contract of

insurance, but it may not directly

service such loans except with the prior

approval of the Secretary.

11. Newly designated § 202.8 is

amended by revising paragraph (c)(3) to

read as follows:

§ 202.8 Termination of insurance contract.

* * * * *

(c) * * *

(3) A lender’s right to apply for and

be granted a new Title I contract of

insurance, provided that the

requirements for approval under this

subpart are met.

12. Newly designated § 202.9 is

amended by revising the paragraph (a)

introductory text and paragraph (b)(8) to

read as follows:

§ 202.9 Administrative actions.

(a) General. Administrative actions

that may be taken against Title I lenders

are set forth in 24 CFR 25.5 and

paragraph (a) of this section. Civil

money penalties may also be imposed

against Title I lenders in accordance

with 24 CFR 25.13 and 24 CFR part 30.

For purposes of this section, the term

‘‘lender’’ shall also include loan

correspondents as defined in § 202.2(b)

of this subpart.

* * * * *

(b) * * *

(8) Such other reason as the

Mortgagee Review Board, Secretary,

Deputy Secretary, or Hearing Officer, as

appropriate, determines to be justified.

Such reasons include, but are not

limited to, failure to exercise prudent

credit judgment; failure to observe

proper business practices; failure to

observe proper loan origination or

servicing procedures; or failure to
Federal Register / Vol. 60, No. 49 / Tuesday, March 14, 1995 / Rules and Regulations 13837

comply with HUD requirements or other

requirements of law or regulation.

* * * * *

Dated: February 8, 1995.

Nicolas P. Retsinas,

Assistant Secretary for Housing Federal

Housing Commissioner.

[FR Doc. 95–6158 Filed 3–13–95; 8:45 am]

BILLING CODE 4210–27–P