2644 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Office of the Assistant Secretary for

Housing—Federal Housing

Commissioner

24 CFR Parts 203 and 221

[Docket No. FR–3899–P–01]

RIN 2502–AG55

Single Family Mortgage Insurance

Premium

AGENCY: Office of the Assistant

Secretary for Housing—Federal Housing

Commissioner, HUD.

ACTION: Proposed rule.

SUMMARY: This proposed rule would

provide many benefits to the mortgage

lenders that would reduce their

servicing costs and the confusion

generated by adjustments to the annual

mortgage insurance premium (MIP) on

cases not endorsed within the first six

months after amortization. The rule

would change the method of payment,

and the reconciliation schedule, and

clarify the due date. The changes would

result in an increase in MIP income,

thereby strengthening the FHA

insurance fund. Also, it would cut down

on the costly reconciliation now done

by HUD.

Specifically, this proposed rule would

provide that the FHA Commissioner can

accrue MIP from the beginning of

amortization (as defined in 24 CFR

203.251) on all Section 530 (of the

National Housing Act) loans and riskbased loans, no matter what time frame

exists between the endorsement date

and the beginning of amortization. It

would also amend the existing

regulation by requiring that mortgagees

pay the monthly installments as due on

or before the 10th of the month, whether

or not collected from the mortgagor. A

new system is being developed (and

expected to be operational by January

1997) which would produce a monthly

notice of premiums due, and the

reconciliation would be made monthly

by the lender when the premium is

paid. There would be no requirement

for annual reconciliation.

DATES: Comment due date: March 26,

1996.

ADDRESSES: Interested persons are

invited to submit comments regarding

this 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:

Christopher Peterson, Director, Office of

Mortgage Insurance Accounting and

Servicing, Room 2108, Department of

Housing and Urban Development, 451

7th Street SW., Washington, DC 20410,

telephone (202) 708–1046. For

telephone communication, contact

Anne Baird-Bridges, Single Family

Insurance Operations Division, at (202)

708–2438. Hearing or speech-impaired

individuals may call HUD’s TDD

number (202) 708–4594. These are not

toll-free numbers.

SUPPLEMENTARY INFORMATION:

Background

Section 320 of the Housing and

Community Development Act of 1980

(Pub. L. 96–399) amended Title V of the

National Housing Act (the Act) (12

U.S.C. 1702 et seq.) to add a new section

530. Section 530 requires, with respect

to insurance of mortgages under Title II

of the Act, the payment of MIPs upon

receipt from the borrower, except HUD

may approve payment of such

premiums within 24 months of such

receipt if the financial institution or

mortgagee pays interest to the insurance

fund. On July 15, 1982, at 47 FR 30750,

the Department published a final rule

that implemented section 530 by

requiring mortgagees to pay the MIP in

installments due on or before the 10th

day of the month following the month

in which payments are due from the

mortgagors. On June 23, 1983, at 48 FR

28794, the Department published a final

rule which set forth the requirement

that the borrower pay a single premium

when the mortgage loan is closed,

which represents the total premium

obligation for the insured loan. This

change applied to all new mortgages

insured under the Mutual Mortgage

Insurance Fund; therefore, after the

change took effect, section 530 was

limited to mortgages insured under the

Special Risk and General Insurance

Funds.

Section 530 loans include all FHA

loans endorsed prior to September 30,

1983, and all FHA loans insured under

the Special Risk and General Insurance

Funds after September 1983. Lenders

are required to remit annual MIP in 12

monthly payments totalling one-half of

one percent of the average outstanding

principal obligation of the mortgage.

The risk-based premium became

effective on July 1, 1991, for all loans

insured under the provisions of the

Mutual Mortgage Insurance Fund, in

accordance with the Omnibus Budget

Reconciliation Act of 1990 (Pub. L. 101–

508) and the National Affordable

Housing Act of 1990 (Pub. L. 101–625).

Sections 203.284 and 203.285 of title 24

of the Code of Federal Regulations were

promulgated to implement the

provisions governing risk-based

premiums (See 57 FR 15208, April 24,

1992, and 58 FR 40996, July 30, 1993).

Risk-based premiums have two

components: the up-front premium and

the periodic premium. Periodic

premiums on risk-based loans are

collected over a set number of years,

depending on the loan-to-value ratio of

the mortgage. Premium payments are

paid in twelve monthly installments

totalling one-half of one percent of the

insured principal balance of the

mortgage, minus any amounts included

to finance up-front MIP. However, there

is an exception under § 203.285 for any

mortgage with a term of 15 years or less,

which requires premium payments

totalling one-fourth of one percent of the

insured principal balance.

Proposed Change

This rule proposes to change the

method of payment and the

reconciliation schedule, and to clarify

the due date. Specifically, this proposed

rule would provide that the FHA

Commissioner can accrue MIP from the

beginning of amortization (as defined in

24 CFR 203.251) on all Section 530 and

risk-based loans, no matter what time

frame exists between the endorsement

date and the beginning of amortization.

It would also amend the existing

regulation by requiring that mortgagees

pay the monthly installments as due on

or before the 10th of the month, whether

or not collected from the mortgagor. A

monthly notice of premiums due would

be sent, and reconciliation would be

made monthly by the lender when the

MIP payment is made. There would be

no requirement for annual

reconciliation.

This rule proposes to revise

§§ 203.262, 203.264, and 203.265 to

reflect the new policy on monthly

payment of MIPs. The revised

provisions would also apply to riskbased premiums under §§ 203.284 and

203.285.

Sections 203.262 and 203.264 apply

to the scheduled payments. Existing

§ 203.264 requires that ‘‘any portion of

the periodic MIP received by the

mortgagee from the mortgagor on or

after September 1, 1982, shall be paid to

the Commissioner on or before the tenth

of the month following the month in

which it was received,’’ provided that
Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Proposed Rules 2645

the full annual MIP be paid by the tenth

of the month following the anniversary

date of amortization. At the initiation of

the Section 530 Program, mortgagees

were offered two payment options:

a. The Basic Monthly Payment

Method. According to this method, the

lender remits on a monthly basis, on or

before the tenth of each month, a

payment equal to all Section 530 MIP

amounts collected from mortgagors

during the preceding month, plus any

portion of annual MIP remaining due for

the current anniversary month whether

collected or not.

b. Optional Monthly Payment Method.

According to this method, the lender

remits a monthly payment equal to

1⁄12th of the total of all annual Section

530 MIPs for all mortgages in the

mortgagee’s servicing portfolio for the

month, plus any annual premiums

remaining due, without regard to MIP

amounts collected from mortgagors.

Most lenders opt to pay the premiums

as due. This proposed rule would

eliminate the option to pay the

premiums when collected. HUD systems

are set up to reconcile remittances of

MIP, late charges, and interest based on

payment of monthly premiums by the

10th of the month; exceptions must be

manually processed.

The two provisions to be modified for

Section 530 loans also apply to the

periodic portion of risk-based loans.

Mortgagees submitting risk-based

monthly premiums have been following

HUD’s policy on adjustment of initial

MIP depending on the date of

endorsement, and have been given the

option of paying monthly premiums (1)

‘‘as due’’ or (2) ‘‘as collected’’.

Section 530 and risk-based monthly

payments would be recorded in the

Single Family Premium Collection

Subsystem, which is now being

designed. Monthly premiums would be

due on the first of the month after the

beginning of amortization (as defined in

24 CFR 203.251) and must be received

on or before the tenth. Reconciliation

between amounts expected by HUD and

amounts remitted by the lender would

be accomplished after the date of

endorsement, when the insurance

information has been fed into the FHA

Single Family Insurance System. As

soon as possible after endorsement,

HUD would begin verifying that the

lender has paid the required monthly

premiums due at that time on each case,

and would begin notifying the lender on

a monthly basis of any discrepancies

existing between expected, versus

remitted, amounts. Until the new

system is implemented, lenders would

continue to reconcile risk-based

monthly premiums at case level using

MGIC Investor Services Corporation,

and Section 530 monthly premiums at

portfolio level based on the Advance

Notice of Annual Premiums for

Anniversary Due Date, which is being

sent by HUD.

The proposed new §§ 203.262 and

203.264 would authorize the FHA

Commissioner to accrue annual

premiums from the beginning of

amortization (as defined in 24 CFR

203.251) on all Section 530 and riskbased loans, no matter what time frame

exists between the endorsement date

and the beginning of amortization. This

rule also proposes to delete § 203.263

which provides for an adjustment on the

accrual date of the initial annual MIP

depending on the date of endorsement

of the loan. Section 203.268 would be

revised to provide that if the insurance

contract is terminated, the lender would

pay a portion of the MIP prorated from

the beginning of amortization (as

defined in 24 CFR 203.251) to the

month in which the loan is terminated.

The final monthly payment would be

due on the first of the month following

termination.

The changes proposed in this rule

would provide many benefits to the

mortgage lenders that would reduce

their servicing costs and the confusion

generated by adjustments to MIP on

cases not endorsed within the first six

months after amortization. The result

would be an increase in MIP income,

thereby strengthening the FHA

insurance fund. The proposed changes

would cut down on the costly

reconciliation now done by HUD. (The

cost of reconciliation on Section 530

and monthly risk based premiums

exceeded $7.5 million in FY 1994.)

According to research completed on

FY 1993 cases, approximately 7% of

cases were not endorsed within the first

six months of amortization. Currently

some lenders escrow the premiums

received from the homeowners on

Section 530 and risk-based loans and

remit the premiums to HUD at the

beginning of amortization rather than

when the case is endorsed for insurance.

This has led to much confusion and

variations in the computation of initial

premiums due, because some

contingencies cannot be forseen at

settlement; i.e., endorsement before the

beginning of amortization. The revised

regulation would prevent confusion for

those cases endorsed outside the sixmonth window by requiring lenders to

follow the same guidelines for all cases

needing periodic MIP.

MIP income would increase by

approximately $15 million per year.

This amount represents the reduction in

premiums now taken by the lenders for

both Section 530 loans and risk-based

loans, when the loans are endorsed over

six months from the beginning of

amortization. Lenders should not

receive a reduction in monthly MIP due

because of late endorsement for the

following reasons:

a. This is inconsistent with HUD’s

policy on one-time and up-front MIP.

These amounts are paid within 15 days

of closing, and no reduction is given

based on the date of endorsement. On

risk based loans, § 203.284 requires

payment of periodic MIP for a specific

number of years, depending on the loanto-value ratio. When the loan is

endorsed after the six-month window,

the period of time for which payments

are due is being reduced.

b. Often the late endorsement results

from late submission of the closing

package by the lenders to the Field

Office.

The new § 203.264 would require that

payment of the periodic MIP be received

from the mortgagee on or before the

tenth day of the month following the

month in which it was due from the

mortgagor. For example, for a case

closed in August, the initial premium

would be remitted by the lender by

September 10. Monthly reconciliation

would replace annual reconciliation.

Once the new system is implemented,

monthly notices would reflect a

breakdown by case number and by

month of the cumulative amounts of

monthly premium, late charge, and

interest due.

The proposed rule changes the

method of payment, and the

reconciliation schedule, and clarifies

the due date. Payment of the periodic

MIP by the lender would be made

monthly, regardless when collected.

Upon implementation of the new

system, a monthly notice from HUD

would be sent and reconciliation would

be made monthly by the lender when

the MIP payment is made. There would

be no requirement for annual

reconciliation. Remittances would be

due, not payable, on or before the tenth

day of the month.

Lenders would be informed that they

are responsible for all loans in their

portfolio for which monthly payments

are due, even if they do not appear on

the monthly notice. Because of servicing

transfers, endorsement delays, and

terminations, monthly notices may not

reflect the current status of the lender’s

portfolio and may require

reconciliation.

The proposed changes would provide

benefits to the mortgage lenders and to

HUD. Most lenders choose the

‘‘payment when due’’ option; the choice

is made by the lender when they begin
2646 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Proposed Rules

to send in premiums and is indicated on

the Form 2748 or 2752. The lender may

change from the ‘‘Payment as Received’’

to the ‘‘Payment When Due’’ option

without permission, but must receive

permission from Headquarters before

changing from the ‘‘Payment When

Due’’ to the ‘‘Payment as Received’’

option.

The current Single Family Premium

Collection System (A31) used for MIP

collection is not set up to reconcile

payments received under the ‘‘Payment

as Received’’ option. The new Single

Family Premiums Collection System

(SFPCS) is not being set up to reconcile

these payments either. The system

enhancements necessary to

accommodate this option would not be

cost effective, and are not necessary,

because most lenders have chosen the

other option anyway.

It should be noted that § 203.284(f)

‘‘Applicability of Other Sections’’ does

not include § 203.264 as applicable to

mortgages covered by § 203.284,

although HUD has taken the position

that this provision is properly

applicable to mortgages with risk-based

premiums. This rule would re-insert a

reference to § 203.264 that was

inadvertently deleted when that section

was published as a final rule (See 57 FR

15209, April 24, 1992). The rule would

also insert references to §§ 203.262 and

203.265 in lieu of the current

§§ 203.284(d) and (e) which are being

deleted. Similar changes would be made

to § 203.285(c).

Other Matters

Environmental Review

A Finding of No Significant Impact

with respect to the environment has

been made in accordance with the HUD

regulation at 24 CFR part 50, which

implements section 102(2)(C) of the

National Environmental Policy Act of

1969. The Finding of No Significant

Impact is available for public inspection

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

weekdays in the Office of the Rules

Docket Clerk.

Executive Order 12866

This proposed rule was reviewed by

the Office of Management and Budget

(OMB) under Executive Order 12866 on

Regulatory Planning and Review, issued

by the President on September 30, 1993.

Any changes made in this interim rule

as a result of that review are clearly

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.

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)) has reviewed and approved this

rule, and in so doing certifies that this

rule would not have a significant

economic impact on a substantial

number of small entities. A review of

the universe of approved mortgagees

indicates that only a small percentage of

them have assets of less than $10

million. These can be considered ‘‘small

entities’’ for purposes of this regulation.

The number of ‘‘small entities’’ affected,

therefore, is not substantial. Further,

HUD records indicate smaller

companies hold relatively few insured

mortgages, and they tend to concentrate

their business in the conventional

mortgage market. Thus, even for those

‘‘small entities’’ affected, the impact is

expected to be relatively insignificant.

Executive Order 12612, Federalism

The General Counsel, as the

Designated Official under section 6(a) of

Executive order 12612, Federalism, has

determined that the policies contained

in this rule would 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. 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 Executive

Order 12606, The Family, has

determined that this rule does not have

potential for significant impact on

family formation, maintenance, and

general well-being, and, thus, is not

subject to review under the order. No

significant change in existing HUD

policies or programs would result from

promulgation of this rule, as those

policies and programs relate to family

concerns.

List of Subjects

24 CFR Part 203

Hawaiian Natives, Home

improvement, Indians—lands, Loan

programs—housing and community

development, Mortgage insurance,

Reporting and recordkeeping

requirements, Solar energy.

List of Subjects

24 CFR Part 221

Low and moderate income housing,

Mortgage insurance, Reporting and

recordkeeping requirements.

Accordingly, the Department

proposes to amend Subtitle B, Chapter

II, Subchapter B, of Title 24 of the Code

of Federal Regulations as follows:

PART 203—SINGLE FAMILY

MORTGAGE INSURANCE

1. The authority for part 203 would

continue to read as follows:

Authority: 12 U.S.C. 1709, 1715b; 42

U.S.C. 3535(d).

Subpart C also is issued under 12

U.S.C. 1715u.

2. Section 203.262 would be revised

to read as follows:

§ 203.262 Due date of periodic MIP.

The full initial and each annual MIP

shall be due and payable no later than

the 10th day after the amortization

anniversary date.

§ 203.263 [Removed]

3. Section 203.263 would be removed.

4. Section 203.264 would be revised

to read as follows:

§ 203.264 Payment of periodic MIP.

The mortgagee shall pay each MIP in

twelve equal monthly installments.

Each monthly installment shall be due

and payable to the Secretary no later

than the tenth day of each month,

beginning in the month in which the

mortgagor is required to make the first

monthly mortgage payment or, if later,

in (insert the first month after the

effective date of the rule).

5. In § 203.265, paragraph (a) would

be revised to read as follows:

§ 203.265 Mortgagee’s late charge and

interest.

(a) Periodic MIP which are received

by the Commissioner after the payment

dates prescribed by §§ 203.262 and

203.264 shall include a late charge of

four percent of the amount paid.

* * * * *

6. In § 203.268, paragraph (a) would

be revised to read as follows:

§ 203.268 Pro rata payment of periodic

MIP.

(a) If the insurance contract is

terminated before the due date of the

initial MIP, the mortgagee shall pay a

portion of the MIP prorated from the

beginning of amortization, as defined in

§ 203.251, to the date of termination.

* * * * *

7. In § 203.284, paragraphs (d) and (e)

would be removed, and paragraph (f)

would be revised to read as follows:

§ 203.284 Calculation of up-front and

annual MIP on or after July 1, 1991.

* * * * *
Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Proposed Rules 2647

(f) Applicability of other sections. The

provisions of §§ 203.261, 203.262,

203.264, 203.265, 203.266, 203.267,

203.268, 203.280, and 203.282 are

applicable to mortgages subject to

premiums under this section.

* * * * *

8. In § 203.285, paragraph (c) would

be revised to read as follows:

§ 203.285 Fifteen-year mortgages:

Calculation of up-front and annual MIP on

or after December 26, 1992.

* * * * *

(c) Applicability of certain provisions.

The provisions of §§ 203.261, 203.262,

203.264, 203.265, 203.266, 203.267,

203.268, 203.280, 203.282, and

203.284(g) are applicable to mortgages

subject to premiums under this section.

* * * * *

PART 221—LOW COST AND

MODERATE INCOME MORTGAGE

INSURANCE

9. The authority for part 221 would

continue to read as follows:

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

U.S.C. 3535(d). Section 221.544(a)(3) is also

issued under 12 U.S.C. 1707(a).

§ 221.251 [Amended]

10. In § 221.251, paragraph (a) would

be amended by removing the reference

to ‘‘203.263 Adjustment of initial MIP.’’

Dated: November 8, 1995.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 96–1305 Filed 1–25–96; 8:45 am]

BILLING CODE 4210–27–P