58418 Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 

1The Board is composed of the Secretary of HUD, 

the Secretary of Treasury, the Chairman of the 

Board of Governors of the Federal Reserve System, 

and the Chairperson of the Board of Directors of the 

Federal Deposit Insurance Corporation, or their 

respective designees. Section 257(t) of the NHA also 

provides that the Board may ‘‘prescribe, amend, and 

repeal such bylaws as may be necessary for carrying 

out the functions of the Board.’’ Consistent with 

this provision, the Board adopted bylaws regarding 

its organization, staffing, and operational 

procedures. These bylaws were published in the 

Federal Register on September 4, 2008 (73 FR 

51621) and provide that the Board’s principal place 

of business is 451 7th Street, SW., Washington, DC 

20410–0500. 

2Section 4(b) of the Department of Housing and 

Urban Development Act, 42 U.S.C. 3533(b), 

provides that the Federal Housing Commissioner 

shall head a Federal Housing Administration within 

HUD and shall have such duties and powers as may 

BOARD OF DIRECTORS OF THE HOPE 

FOR HOMEOWNERS PROGRAM 

24 CFR Part 4001 

[Docket No. B–2009–F–01] 

RIN 2580–AA00 

HOPE for Homeowners Program: 

Program Regulations 

AGENCY: Board of Directors of the HOPE 

for Homeowners Program. 

ACTION: Final rule. 

SUMMARY: This final rule sets forth the 

core requirements for the HOPE for 

Homeowners Program that have been 

established by the Board of Directors 

(Board) of the HOPE for Homeowners 

Program (Program). A new section 257 

of the National Housing Act (NHA) 

provides the authority for this Program 

and oversight requirements to be 

performed by the Board. Specifically, 

section 257(c)(1) of the NHA requires 

the Board to prescribe such regulations 

as may be necessary or appropriate to 

implement the Program. The Board has 

determined that the regulations set forth 

in this rule are necessary and 

appropriate for the implementation and 

effective administration of the Program. 

DATES: Effective Date: October 6, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Emmanuel Yeow, Secretary of the Board 

of Directors of the HOPE for 

Homeowners Program, Department of 

Housing and Urban Development, 451 

7th Street, SW., Room 9110, 

Washington, DC 20410–8000, telephone 

202–708–3600 (this is not a toll-free 

number). Persons with hearing- or 

speech-impairments may access this 

number through TTY by calling the tollfree Federal Information Relay Service 

at 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

Background 

The HOPE for Homeowners Act of 

2008, located in Title IV of division A 

of the Housing and Economic Recovery 

Act of 2008 (HERA), (Pub. L. 110–289, 

122 Stat. 2654, approved July 30, 2008), 

amended Title II of the NHA to add a 

new section 257. New section 257 (12 

U.S.C. 1701z–22) establishes within the 

Federal Housing Administration (FHA), 

the Program, a temporary FHA program, 

that offers homeowners and existing 

mortgage loan holders (or servicers 

acting on their behalf) insurance on the 

refinancing of loans for distressed 

mortgagors to support long term 

sustainable homeownership, including 

among other things, allowing 

homeowners to avoid foreclosure. 

Section 257 of the NHA authorizes the 

Department of Housing and Urban 

Development (HUD) acting through the 

FHA to insure such refinanced eligible 

mortgages commencing no earlier than 

October 1, 2008, and such authority 

expires September 30, 2011. 

Under the Program, new mortgages 

are offered by FHA-approved 

mortgagees to mortgagors who are at risk 

of losing their homes to foreclosure. The 

new FHA-insured mortgage refinances 

the borrower’s existing mortgage at a 

significant write-down. Eligible 

borrowers must be unable to afford their 

existing mortgage payments, must 

occupy the residence that is the security 

for the refinanced mortgage as their 

primary residence, and may not have 

any present ownership interest in 

another residence. Investors and 

investor properties are not eligible for 

the FHA-insured refinanced mortgages. 

Under the Program, participating 

mortgagors share their new equity and 

future appreciation with FHA. 

Additionally, participation in this 

Program is voluntary. No mortgagees, 

servicers, or investors are compelled to 

participate. 

Section 257 of the NHA prohibits the 

new mortgage loan insured by FHA 

from exceeding 90 percent of the 

appraised value of the property that is 

security for the mortgage, or 132 percent 

of the dollar amount limitation in effect 

for 2007 under section 305(a)(2) of the 

Federal Home Loan Mortgage 

Corporation Act (12 U.S.C. 1454(a)(2)) 

for a property of applicable size. In 

addition, section 257 also provides that 

the term of the FHA-insured refinanced 

mortgage shall have a maturity of not 

less than 30 years, and must bear a 

single rate of interest that is fixed for the 

entire term of the mortgage. Section 257 

directs that a mortgagor participating in 

the Program may not grant a new 

subordinate lien on the mortgaged 

property during the first 5 years of the 

term of the mortgage insured under the 

Program, except as the Board may 

determine is necessary to ensure the 

maintenance of property standards, and 

subject to the requirements that any new 

outstanding liens (1) do not reduce the 

value of FHA’s equity in the mortgagor’s 

home; and (2) when combined with the 

mortgagor’s existing mortgage 

indebtedness, do not exceed 95 percent 

of the home’s appraised value at the 

time of the new subordinate lien. 

The fundamental principle behind the 

HOPE for Homeowners Act and this 

Program is that providing new equity for 

distressed homeowners may be an 

effective way to help homeowners avoid 

foreclosures. 

This Final Rule 

Section 257(c)(1) of the NHA requires 

the Board to establish requirements and 

standards for the Program, and prescribe 

such regulations and provide such 

guidance as may be necessary or 

appropriate to implement such 

requirements and standards.1 In 

addition to this broad direction to 

establish requirements and standards for 

the Program, section 257 also outlines 

specific areas for which the Board is 

charged with establishing standards and 

policies for the Program. 

This final rule provides the core 

requirements that the Board has 

determined are necessary and 

appropriate for the implementation and 

effective administration of the Program. 

Consistent with section 257 of the NHA, 

however, the Board may establish 

standards and policies through means 

other than codified regulations. More 

detailed provisions implementing these 

core requirements may be issued by the 

Board or FHA through orders, a Federal 

Register notice, or through FHA 

mortgagee letters (or similar 

administrative issuances). Because this 

is a temporary program designed to 

address the immediate needs of 

homeowners faced with the looming 

threat of foreclosure, the regulations 

adopted by the Board are limited to the 

basic requirements of the Program. The 

Board’s objective is to adopt regulations 

that address the core features of the 

Program, include necessary safety 

measures to avoid fraud, waste, and 

abuse, and leave FHA with sufficient 

flexibility to issue such guidance or 

processing requirements to make this a 

Program that is able effectively to assist 

distressed homeowners avoid 

foreclosure. 

The regulations in this part present 

the purpose, the authority delegated to 

FHA, and reference to FHA 

requirements that are applicable to the 

Program.2 The regulations define the 

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Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 58419 

be prescribed by the Secretary of HUD. The 

Secretary of HUD has delegated to the FHA 

Commissioner the power and authority to carry out 

all FHA mortgage insurance programs, including 

authority to issue rules or regulations to carry out 

these programs. 

key Program terms, and address the 

following Program areas: underwriting 

standards, representations of the 

mortgagee whose mortgagor will 

participate in the Program, mortgagor 

representations, certain prohibitions 

imposed on FHA, FHA equity sharing 

with the borrower, FHA appreciation 

sharing with the borrower, the 

prohibition on subordinate liens during 

the first five years of the mortgagor’s 

Program mortgage, and applicable 

hearing procedures. The Board has 

determined that regulations addressing 

these areas are necessary for immediate 

implementation and long-term 

administration of the Program. 

The payment to FHA of the equity 

created in the property as a result of the 

refinancing of the eligible mortgage is 

designed to avoid any windfall to 

mortgagors that would arise as the result 

of the refinancing. The same windfall 

avoidance concept also applies to the 

requirement that property appreciation 

be shared between the homeowner and 

FHA, the latter which is authorized to 

share any appreciation funds with 

subordinate mortgage holders. 

Section 257(e)(4)(B) requires that, at a 

minimum, the Board take into 

consideration three factors in 

determining the amount of appreciation 

a subordinate mortgage lien holder may 

receive. The first factor is the status or 

relative priority of the subordinate liens. 

This factor is addressed in the payout 

allocation set forth in the rule. After sale 

or disposition of the property, HUD’s 50 

percent appreciation interest is paid to 

prior mortgage lien holders in order of 

the seniority in which their mortgage 

liens were held, to the extent of HUD’s 

share. Mortgage lien holders that were 

in 2nd position behind the 1st mortgage 

will be paid first, then 3rd mortgage lien 

holders, and when the claims of all 

prior lien holders have been satisfied, 

HUD will retain the balance, if any. 

The second factor is the outstanding 

principal and accrued but unpaid 

interest of the existing senior mortgage 

and subordinate mortgages. Since the 

total balances may not accurately reflect 

the amount the mortgagee potentially 

could recover in a foreclosure, the Board 

determined that these balances should 

be compared to the appraised value of 

the property. Therefore, this factor is 

expressed in the matrix described below 

as a cumulative combined loan-to-value 

(CLTV). 

The third factor is the extent to which 

the principal and accrued interest owed 

on the mortgages that are senior to the 

particular subordinate mortgage exceed 

the property’s current appraised value. 

This factor is taken into account as well 

in the matrix for appreciation sharing 

because the amount a subordinate 

mortgage holder may receive is based in 

part on the amount of principal and 

interest, calculated at the pre-default 

contract rate, owed on those mortgages 

that are more senior than the 

subordinate mortgage in question. 

The Board gave very careful 

consideration to these three factors by 

examining several models developed to 

implement this authority. The initial 

models were very intricate and concern 

was raised that adopting any of them 

would cause confusion in the mortgage 

marketplace, and discourage 

subordinate mortgage holders and 

servicers from participating in the 

program. The Board also considered the 

potential for the existing senior 

mortgage holder, who will receive 

proceeds from the refinancing that are 

likely to exceed the holder’s potential 

recovery in a foreclosure, to compensate 

a subordinate mortgage holder to 

participate in the Program. The Board 

encourages lenders to pursue such 

arrangements. 

The following matrix provides the 

mechanism for determining the future 

appreciation payment a subordinate lien 

holder is eligible to receive. The Board 

considers a number of benefits to be 

present with this approach. It provides 

an incentive to action by subordinate 

lien holders; reduces administrative 

costs; is simple to calculate and easy to 

understand; and voids competing 

appraisals. 

APPRECIATION SHARING PAYOUT

MATRIX

Subordinate lien holder 

Percent of unpaid principal 

and interest 

that lien holder 

is eligible to 

receive* 

Cumulative CLTV >135% ..... 9% 

Cumulative CLTV ≤135% ..... 12% 

* Appreciation payment to a subordinate lien 

holder will depend on actual appreciation at 

the time of sale of the property and will be limited by the amount of future appreciation HUD 

receives. Payment will be made according to 

the subordinate lien holder’s position of priority 

in relation to the property at the time the Program mortgage is originated, and will be 

based upon principal and interest on the date 

of origination of the Program mortgage, calculated at the pre-default contract rate of 

interest. 

In establishing the maximum 

payments allowable to a subordinate 

mortgage holder, the Board took into 

account information received from 

market participants concerning the price 

received in the market currently for 

delinquent subordinate mortgages. The 

Board expects that the majority of 

subordinate mortgages offered to the 

Program will be delinquent. The 

information provided by market 

participants indicates that delinquent 

subordinate mortgages currently trade at 

substantially below their par values, 

with market values within the ranges 

established by the Board. Moreover, the 

information provided suggests that 

subordinate mortgages that are even 30 

days delinquent are very likely to 

default and yield no recovery value to 

the holder of the subordinate mortgage. 

Indeed, it is common practice for 

holders to write-down the value of 

delinquent subordinate mortgages in 

portfolios and in securitized pools to 

zero once the loans are 180 days past 

due. 

In establishing the maximum amounts 

that a subordinate mortgage holder may 

receive through receipt of an interest in 

the future appreciation of the property, 

the Board also took into consideration 

that subordinate mortgage holders 

receiving compensation in the form of 

future appreciation rights, may require 

additional compensation to participate 

in the Program to reflect the time value 

of money and uncertainty about the 

extent and timing of property 

appreciation. A certificate entitling the 

holder to receive a portion of future 

appreciation on a property may be 

worth little or nothing if the property 

experiences little or no appreciation. 

Moreover, appreciation rights are 

exercised upon sale or other disposition 

of the property, the timing of which is 

determined by the homeowner, rather 

than the claim holder. As a result, if 

homeowners that have a mortgage 

insured under the Program sell quickly, 

appreciation rights will have less value. 

Since homeowners participating in the 

Program have an incentive to sell the 

property to escape the shared 

appreciation requirement, claim holders 

may discount the value of shared 

appreciation rights. Accounting for 

these factors is inherently imprecise; 

nonetheless, using models based in part 

on option-pricing concepts, the Board 

believes that providing the holder of a 

subordinate mortgage the right to 

receive a maximum of 9 to 12 percent 

of the unpaid principal and interest on 

the subordinate mortgage out of the 

future appreciation, if any, on the 

property should likely provide the 

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58420 Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 

holder about the same risk-adjusted 

compensation as the holder would 

receive from a current cash payment 

equal to the approximate current market 

value of a delinquent subordinate lien of 

the same amount and CLTV. 

Findings and Certifications 

Administrative Procedure Act 

This final rule is being issued and 

will become effective without a public 

comment period. Section 553(a) of the 

Administrative Procedure Act (5 U.S.C. 

551 et seq.) (APA) provides that advance 

notice and public comment procedures 

do not apply to a matter relating to 

agency management or personnel or to 

public property, loans, grants, benefits 

or contracts (see 5 U.S.C. 553(a)). This 

final rule establishes regulations for a 

new mortgage insurance program under 

the supervision of the Board and is 

therefore exempt from notice and 

comment rulemaking as provided in 5 

U.S.C. 553(a). 

This final rule will become effective 

upon publication in the Federal 

Register. Section 553(d) of the APA 

provides that substantive rules, such as 

this rule, shall be made effective not less 

than 30 days after publication unless, 

among other things, an agency finds 

good cause to provide an earlier 

effective date. Good cause exists for 

these regulations to be immediately 

effective. This is a voluntary and 

temporary program designed to address 

the immediate needs of homeowners 

facing foreclosure, and HERA provides 

for this Program to begin October 1, 

2008, in order that homeowners can 

take advantage of the mortgage relief 

offered by this Program. The immediate 

effective date of this rule is consistent 

with the statutory authority. The 

objective for expedient action by the 

Board to have this Program commence 

at the beginning of the new Federal 

fiscal year is motivated by the high level 

of at-risk borrowers and weak 

conditions in the housing market. 

Executive Order 12866, 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 an economically 

significant regulatory action as defined 

in section 3(f) of the Order. Accordingly, 

an economic analysis was prepared for 

this rule. 

This Program has the potential to 

have significant economic benefits. The 

major unknown is participation. If 

10,000 participate in the Program, the 

aggregate net benefit of the Program may 

exceed $100M. It is possible that there 

will be more participants than 10,000, 

or less, in which case the net benefits 

increase or decrease, as the case may be. 

There are other factors important in 

determining the aggregate impact on the 

economy. The net benefit to the lender 

was estimated to be $10,000 but, as the 

economic analysis discusses, it may be 

higher. A higher net benefit to the senior 

lien holder would increase the expected 

benefit of preventing a foreclosure. 

There are also economic benefits to the 

community from preventing foreclosure. 

HUD anticipates that the net economic 

benefits will exceed the costs based on 

initial analysis. 

The docket file for this rule, which 

includes the economic analysis, is 

available for public inspection in the 

Regulations Division, Office of General 

Counsel, Department of Housing and 

Urban Development, 451 7th Street, 

SW., Room 10276, Washington, DC 

20410–0500. Due to security measures 

at the HUD Headquarters building, an 

advance appointment to review the 

public comments must be scheduled by 

calling the Regulations Division at 202– 

402–3055 (this is not a toll-free 

number). Individuals with speech or 

hearing impairments may access this 

number via TTY by calling the Federal 

Information Relay Service at (800) 877– 

8339. 

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 

rule does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

state and local governments nor 

preempts state law within the meaning 

of the Executive Order. 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (2 U.S.C. 1531– 

1538) (UMRA) establishes requirements 

for federal agencies to assess the effects 

of their regulatory actions on state, 

local, and tribal governments and the 

private sector. This rule will not impose 

any federal mandates on any state, local, 

or tribal governments or the private 

sector within the meaning of UMRA. 

Congressional Review Act 

OMB has determined that this rule 

constitutes a ‘‘major rule’’ as defined in 

the Congressional Review Act (CRA) (5 

U.S.C. 801 et seq.). Generally, a major 

rule under the CRA has a 60-day 

delayed effective date and is required to 

be submitted to Congress in accordance 

with the requirements of the CRA. 

Section 808 of the CRA allows a rule to 

become effective sooner than otherwise 

provided by the CRA, if the agency, for 

good cause, finds that notice and public 

procedure are impracticable, 

unnecessary, or contrary to the public 

interest. This finding and a brief 

statement of the reasons for the finding 

must be incorporated in the rule. (See 5 

U.S.C. 808(2)). As stated in this 

preamble under the section that 

addresses APA requirements, this rule is 

exempt from the notice and comment 

procedures of the APA. As also 

discussed in connection with the APA 

requirements, this Program is a 

voluntary and temporary measure 

designed to prevent eligible borrowers 

whose mortgages are at risk of 

foreclosure from losing their homes. 

Some of these borrowers are facing 

foreclosure now or may in the very near 

future, making the need for 

implementation of the Program 

immediate. A 60-day delay in the 

effective date of this rule would 

therefore be contrary to the public 

interest. Thus, good cause exists to 

make this rule effective as close as 

possible to October 1, 2008, which is the 

date on which the HERA provides for 

the Program to begin. The Board will 

submit this rule and other required 

information to Congress as required by 

the CRA. 

List of Subjects in 24 CFR Part 4001 

Administrative procedures, Practice 

and procedure, Mortgage insurance, 

Reporting and recordkeeping 

requirements. 

■ For the reasons set forth in the 

preamble, the Board of Directors of the 

Hope for Homeowners Program 

establishes a new Chapter XXIV 

consisting of part 4001 in Title 24 of the 

Code of Federal Regulations to read as 

follows: 

CHAPTER XXIV—BOARD OF DIRECTORS 

OF THE HOPE FOR HOMEOWNERS 

PROGRAM 

PART 4001—HOPE FOR 

HOMEOWNERS PROGRAM 

Subpart A—HOPE for Homeowners 

Program—General Requirements 

Sec 

4001.01 Purpose of program. 

4001.03 Requirements and delegated 

authority. 

4001.05 Approval of mortgagees. 

4001.07 Definitions. 

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Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 58421 

Subpart B—Eligibility Requirements and 

Underwriting Procedures 

4001.102 Cross-reference. 

4001.104 Eligible mortgages. 

4001.106 Eligible mortgagors. 

4001.108 Eligible properties. 

4001.110 Underwriting. 

4001.112 Income verification. 

4001.114 Appraisal. 

4001.116 Representations and prohibitions. 

4001.118 Equity sharing. 

4001.120 Appreciation sharing. 

4001.122 Fees and closing costs. 

Subpart C—Rights and Obligations under 

the Contract of Insurance 

4001.201 Cross-reference. 

4001.203 Calculation of upfront and annual 

mortgage insurance premiums for 

Program mortgages. 

Subpart D—Servicing responsibilities 

4001.301 Cross-reference. 

4001.303 Prohibition on subordinate liens 

during first five years. 

Subpart E—Enforcement 

Mortgagor False Information 

4001.401 Notice of false information from 

mortgagor-procedure. 

Appraiser Independence 

4001.403 Prohibitions on interested parties 

in insured mortgage transaction. 

Mortgagees 

4001.405 Mortgagees. 

Appendix A to Part 4001—Calculation of 

Future Appreciation Payment. 

Authority: 12 U.S.C. 1701z–22. 

Subpart A—HOPE for Homeowners 

Program—General Requirements 

§ 4001.01 Purpose of program. 

The HOPE for Homeowners Program 

is a temporary program authorized by 

section 257 of the National Housing Act, 

established within the Federal Housing 

Administration (FHA) of the 

Department of Housing and Urban 

Development (HUD) that offers 

homeowners and existing loan holders 

(or servicers acting on their behalf) FHA 

insurance on refinanced loans for 

distressed borrowers to support longterm sustainable homeownership by, 

among other things, allowing 

homeowners to avoid foreclosure. The 

HOPE for Homeowners Program is 

administered by HUD through FHA. 

§ 4001.03 Requirements and delegated 

authority. 

(a) Core requirements. This subpart 

establishes the core requirements for the 

HOPE for Homeowners Program that 

have been adopted by the Board of 

Directors (Board) for the HOPE for 

Homeowners Program (Program). In 

addition to the core requirements, 

codified in this subpart, the Board of 

Directors may adopt and issue 

additional requirements, standards and 

policies through non-codified 

regulations, including through order, 

Federal Register notice, or other 

statement, such as a mortgagee letter, to 

be issued and implemented by FHA. 

(b) Basic Program parameters. (1) 

FHA is authorized to insure eligible 

refinanced mortgages under the Program 

commencing no earlier than October 1, 

2008. The authority to insure additional 

mortgages under the Program expires 

September 30, 2011. 

(2) Under this Program, an eligible 

mortgagor may obtain a refinancing of 

his or her existing mortgage(s) with a 

new mortgage loan insured by FHA, 

subject to conditions and restrictions 

specified in section 257 of the National 

Housing Act and requirements 

established by the Board. 

(c) Delegated authority. HUD is 

statutorily charged with administering, 

through FHA, the Program. In carrying 

out the Program requirements 

established by the Board, FHA is 

directed to issue such interim guidance 

and mortgagee letters as FHA 

determines necessary or appropriate, 

within the parameters of the 

requirements, standards and policies 

adopted by the Board. In addition to 

FHA’s statutory charge, the Board of 

Directors authorizes FHA to address 

unique or case-by-case situations as may 

be encountered by FHA in carrying out 

the Program, and to take such action as 

may be necessary to implement the 

Board’s requirements. This delegated 

implementing authority includes, but is 

not limited to, specifying application 

forms, mortgage application procedures, 

certifications or other assurances, and 

other information collection 

requirements, subject to such rules, 

standards and policies as the Board may 

adopt. 

(d) Other applicable requirements. 

Except as may be otherwise provided by 

the Board, the provisions and 

requirements in the FHA regulations in 

24 CFR part 203, which are generally 

applicable to all FHA-insured single 

family mortgage insurance programs, 

also apply with respect to the insurance 

of a refinanced eligible mortgage under 

the Program. 

§ 4001.05 Approval of mortgagees. 

(a) Eligibility. In order for a mortgage 

to be eligible for insurance under this 

part, the mortgagee originating the 

mortgage loan and seeking mortgage 

insurance under this part shall have 

been approved by the Secretary 

pursuant to 24 CFR part 202. 

(b) Mortgagee whose loan is to be 

refinanced. A mortgagee holding or 

servicing an eligible mortgage to be 

refinanced and insured under section 

257 of the National Housing Act is not 

required to be an approved mortgagee as 

required in paragraph (a) of this section, 

unless it seeks to be the originator of the 

refinanced mortgage to be insured by 

FHA. 

§ 4001.07 Definitions. 

As used in this part and in the 

Program, the following definitions 

apply. 

Act means the National Housing Act 

(12 U.S.C. 1701 et seq. ). 

Allowable closing costs mean charges, 

fees and discounts that the mortgagee 

may collect from the mortgagor as 

provided in 24 CFR 203.27(a). 

Board means the Board of Directors 

for the HOPE for Homeowners Program, 

which is comprised of the Secretary of 

HUD, the Secretary of the Treasury, the 

Chairman of the Board of Governors of 

the Federal Reserve System (Federal 

Reserve Board), and the Chairperson of 

the Board of Directors of the Federal 

Deposit Insurance Corporation or the 

designees of each such individual. 

Capital improvements means a repair, 

renovation, or addition to a property 

that significantly enhances the value of 

the property, but does not include 

expenses for interior decor, landscape 

maintenance, or normal maintenance or 

replacement expenses. 

Contract of insurance means the 

agreement by which FHA provides 

mortgage insurance to a mortgagee. 

Default and delinquency fees means 

late charges contained in a mortgage/ 

security instrument for the late or nonreceipt of payments from mortgagors 

after the date upon which payment is 

due, including charges imposed by the 

mortgagee for the return of payments on 

the mortgage due to non-sufficient 

funds. 

Direct financial benefit, as used in 

section 257(e)(1)(A)(ii)(II) of the Act, 

consists of the greater of two factors: 

(1) The amount of initial equity the 

mortgagor has in the property at the 

closing for the Program mortgage as 

determined under § 4001.118; and 

(2) The total amount that the existing 

senior mortgage and all existing 

subordinate mortgages on the property 

have been written down. 

Disposition means any transaction 

that results in whole or partial transfer 

of title of a property other than— 

(1) A sale of the property; or 

(2) Any transaction or transfer 

specified in 12 U.S.C. § 1701j-3(d)(1) 

through (8). 

Eligible Mortgage means a mortgage as 

defined in § 4001.104. 

Existing senior mortgage means an 

eligible mortgage that has superior 

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58422 Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 

priority and is being refinanced by a 

mortgage insured under section 257 of 

the Act. 

Existing subordinate mortgage means 

a mortgage that is subordinate in 

priority to an eligible mortgage which is 

being refinanced by a mortgage insured 

under section 257 of the Act. 

FHA means the Federal Housing 

Administration. 

HOPE for Homeowners Program (or 

Program) means the program 

established under section 257 of the 

Act. 

HUD means the Department of 

Housing and Urban Development. 

Intentionally defaulted for purposes 

of section 257(e)(1)(A) of the Act means 

the mortgagor: 

(1) Knowingly failed to make payment 

on the mortgage or debt; 

(2) Had available funds at the time 

payment on the mortgage or debt was 

due that could pay the mortgage or debt 

without undue hardship; and 

(3) The debt was not subject to a bona 

fide dispute. 

Mortgage has the same meaning as 

provided in 24 CFR 203.17(a)(1). 

Mortgagee has the same meaning as 

provided in 24 CFR 203.251(f). 

Mortgagor has the same meaning as 

provided in 24 CFR 203.251(e). 

Premium pricing means the price for 

the sale of a mortgage loan with an 

above market rate of interest. 

Prepayment penalties mean such 

amounts as defined in 12 CFR 

226.32(d)(6) of the Federal Reserve 

Board’s Regulation Z (Truth in 

Lending). 

Primary residence means the dwelling 

where the mortgagor maintains his or 

her permanent place of abode and 

typically spends the majority of the 

calendar year. A mortgagor can only 

have one primary residence. 

Program mortgage means the 

mortgage into which the existing senior 

mortgage is refinanced. 

Secretary means the Secretary of 

Housing and Urban Development. 

Total monthly mortgage payment 

means the sum of: 

(1) Principal and interest, as 

determined on a fully indexed and fully 

amortized basis; and 

(2) Escrowed amounts. (i) The 

monthly required amount collected by 

or on behalf of the mortgagee for real 

estate taxes, premiums for required 

hazard and mortgage insurance, 

homeowners’ association dues, ground 

rent, special assessments, water and 

sewer charges and other similar charges 

required by the note or security 

instrument; or 

(ii) For mortgages not subject to 

escrow deposits, 1⁄12 of the estimated 

annual costs for items listed in 

paragraph (2)(i) of this definition. 

Subpart B—Eligibility Requirements 

and Underwriting Procedures 

§ 4001.102 Cross-reference. 

(a) All of the provisions of 24 CFR 

part 203, subpart A, concerning 

eligibility requirements of mortgages 

covering one-family dwellings under 

section 203 of the National Housing Act 

(12 U.S.C. 1709) apply to mortgages on 

one-family dwellings to be insured 

under section 257 of the National 

Housing Act (12 U.S.C. 1701z–22), 

except the following provisions: 203.7 

Commitment Process; 203.10 Informed 

consumer choice for prospective FHA 

mortgagors; 203.12 Mortgage insurance 

on proposed or new subdivisions; 

203.14 Builder’s warranty; 203.16 

Certificate and contract regarding use of 

dwelling for transient or hotel purposes; 

203.18 Maximum mortgage amounts; 

203.18a Solar-energy system; 203.18b 

Increased mortgage amount; 203.18c 

One-time or up-front MIP excluded from 

limitations on maximum mortgage 

amounts; 203.18d Minimum principal 

loan amount; 203.19 Mortgagor’s 

minimum investment; 203.20 Agreed 

interest rate; 203.29 Eligible mortgage in 

Alaska, Guam, Hawaii or the Virgin 

Islands; 203.32 Mortgage lien; 203.37a 

Sale of property; 203.42 Rental 

properties; 203.43 Eligibility of 

miscellaneous types of mortgages; 

203.43a Eligibility of mortgages covering 

housing in certain neighborhoods; 

203.43d Eligibility of mortgages in 

certain communities; 203.43e Eligibility 

of mortgages covering houses in 

federally impacted areas; 203.43g 

Eligibility of mortgages in certain 

communities; 203.43h Eligibility of 

mortgages on Indian land insured 

pursuant to section 248 of the National 

Housing Act; 203.43i Eligibility of 

mortgages on Hawaiian Home Lands 

insured pursuant to section 247 of the 

National Housing Act; 203.43j Eligibility 

of mortgages on Allegany Reservation of 

Seneca Nation Indians; 203.44 

Eligibility of advances; 203.45 Eligibility 

of graduated payment mortgages; 203.47 

Eligibility of growing equity mortgages; 

203.49 Eligibility of adjustable rate 

mortgages; 203.50 Eligibility of 

rehabilitation loans; 203.51 

Applicability; and 203.200–203.209 

Insured Ten-Year Protection Plans 

(Plan). 

(b) For the purposes of this subpart, 

all references in 24 CFR part 203, 

subpart A, to section 203 of the Act 

shall be construed to refer to section 257 

of the Act. Any references in 24 CFR 

part 203, subpart A, to the ‘‘Mutual 

Mortgage Insurance Fund’’ shall be 

deemed to be to the Home Ownership 

Preservation Entity Fund, and any 

references to ‘‘the Commissioner’’ shall 

be deemed to be to the Board or the 

Commissioner (as the context may 

require). 

(c) If there is any conflict in the 

application of any requirement of 24 

CFR part 203, subpart A, to this part the 

provisions of this part shall control. 

§ 4001.104 Eligible mortgages. 

A mortgage eligible to be refinanced 

under section 257 of the Act must: 

(a) Have been originated on or before 

January 1, 2008; 

(b) Be secured by a property owned 

and occupied by the mortgagor as his or 

her primary residence, and be the only 

residence in which the mortgagor has 

any present ownership interest; and 

(c) Meet such other requirements as 

the Board may adopt. 

§ 4001.106 Eligible mortgagors. 

In order for a mortgagor to be eligible 

to refinance his or her existing 

mortgages under section 257 of the Act, 

the mortgagor must: 

(a) Have had, on March 1, 2008, a 

monthly total mortgage payment of 

more than 31 percent of the mortgagor’s 

monthly gross income; 

(b) Not have an ownership interest in 

any other residential property; 

(c) Not have been convicted of fraud 

under federal or state law in the past 10 

years; 

(d) Certify that the mortgagor has not 

intentionally defaulted on any mortgage 

or debt and has not knowingly, or 

willfully and with actual knowledge, 

furnished material information know to 

be false for purposes of obtaining any 

Program mortgage; and 

(e) Meet such other requirements as 

the Board may adopt. 

§ 4001.108 Eligible properties. 

(a) A mortgage may be insured under 

the Program only if the property that is 

to be the security for the mortgage is a 

one-family residence. 

(b) The following property types are 

eligible to secure a mortgage insured 

under the Program: 

(1) Detached and semi-detached 

dwellings; 

(2) A condominium unit; 

(3) A cooperative unit; or 

(4) A manufactured home that is 

permanently affixed to realty and is 

treated as realty under applicable state 

law except state taxation law. 

§ 4001.110 Underwriting. 

A mortgage may be insured under the 

Program only if the following conditions 

are met: 

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(a) Debt-to-income thresholds. Except 

as provided in paragraph (c) of this 

section: 

(1) Payment-to-income. The total 

monthly mortgage payment of the 

mortgagor under the Program mortgage 

does not exceed 31 percent of the 

mortgagor’s monthly gross income; and 

(2) Debt-to-income. The sum of the 

total monthly mortgage payment under 

the Program mortgage and all monthly 

recurring expenses of the mortgagor 

does not exceed 43 percent of the 

mortgagor’s monthly gross income. 

(b) Past credit performance. The 

mortgagor must have made at least six 

full payments on the existing senior 

mortgage being refinanced under the 

Program. 

(c) Trial modifications. For any 

mortgagor who is unable to meet the 

requirements of paragraph (a) of this 

section, a mortgage loan may 

nevertheless be presented for insurance 

by FHA under the Program if: 

(1) The mortgagor, using existing 

income, has made full and timely 

mortgage payments on the existing 

senior mortgage pursuant to the terms of 

the trial modification: 

(i) For the three consecutive months 

before submission of the application for 

the mortgage to be insured under the 

Program; and 

(ii) In an amount that is at least 90 

percent of the estimated total monthly 

mortgage payment to be paid by the 

mortgagor on the Program mortgage. 

(2) The total monthly mortgage 

payment of the mortgagor under the 

Program mortgage does not exceed 38 

percent of the mortgagor’s monthly 

income; and 

(3) The sum of the total monthly 

mortgage payment under the Program 

mortgage and all monthly recurring 

expenses of the mortgagor does not 

exceed 50 percent of the mortgagor’s 

monthly gross income. 

(d) Non-occupant co-borrowers. A 

mortgage loan may be insured by the 

FHA under the Program, even if one of 

the mortgagors on the loan (i.e. , a cosigner) does not reside at the residence 

securing the loan, provided that the 

non-resident mortgagor relinquishes all 

interests in the property that is to be 

security for the mortgage before an 

application is submitted for FHA 

insurance under the Program. 

(e) Amount of new mortgage payment. 

The mortgagor’s total monthly payment 

on the mortgage to be insured under the 

Program must not be greater than the 

mortgagor’s aggregate total monthly 

mortgage payment under the 

mortgagor’s existing senior mortgage 

and all existing subordinate mortgages. 

(f) Limit on origination fees. 

Mortgagees may charge and collect from 

mortgagors allowable closing costs. 

§ 4001.112 Income verification. 

The mortgagee shall use FHA’s 

procedures to verify the mortgagor’s 

income and shall comply with the 

following additional requirements: 

(a) The mortgagee shall document and 

verify the income of the mortgagor by 

obtaining a transcript of the borrower’s 

Federal income tax returns or a copy of 

the borrower’s Federal income tax 

returns obtained directly from the 

Internal Revenue Service for the most 

recent two years; and 

(b) The mortgagee shall document and 

verify the mortgagor’s income in any 

case in which the mortgagor has not 

filed a Federal income tax return. 

§ 4001.114 Appraisal. 

(a) The property shall be appraised by 

an appraiser on the FHA Appraiser 

Roster. 

(b) An appraisal of a property to be 

security for a Program mortgage shall be 

conducted in accordance with Uniform 

Standards of Professional Appraisal 

Practice (USPAP) but dated no more 

than 90 days from the date on which the 

mortgage transaction is closed, except as 

otherwise provided by the Board. 

(c) The mortgagee must inform the 

appraiser that copies of the appraisal 

may be shared with holders and 

servicers of existing subordinate 

mortgages. 

§ 4001.116 Representations and 

prohibitions. 

(a) Underwriting and appraisal 

standards. In order for the Program 

mortgage to be eligible for insurance 

under the Program, the underwriter and 

the mortgagee must provide 

certifications, in a format approved by 

the FHA, that the mortgage is in 

compliance with the underwriting and 

the appraisal standards set forth in this 

part, and that it meets all requirements 

applicable to the Program. FHA may 

require additional certifications by the 

mortgagee to ensure compliance with 

such additional standards as the FHA 

deems necessary given the specific 

mortgage transaction presented. 

(b) Mortgagor’s liability for 

repayment. (1) The mortgagor shall 

provide a certification to FHA that the 

mortgagor has not: 

(i) Intentionally defaulted on the 

mortgagor’s existing mortgage(s), or any 

other debt; or 

(ii) Knowingly or willfully and with 

actual knowledge furnished material 

information known to be false for the 

purpose of obtaining the mortgagor’s 

existing mortgage(s). 

(2) The mortgagor shall provide any 

other certifications that FHA may 

otherwise require. 

(3) A mortgagor obligated under a 

Program mortgage shall agree in writing, 

on a form approved by the Board, to be 

liable to pay to FHA any Direct 

Financial Benefit achieved from the 

reduction of indebtedness on the 

existing senior and subordinate 

mortgages that are being refinanced 

under the Program if he or she makes a 

false statement or other 

misrepresentation in the certifications 

and documentation required for 

Program eligibility, including but not 

limited to the certifications required 

under section 257(e)(1)(A)(i) of the Act. 

(c) Mortgagee in violation of Program 

requirements. (1) If the mortgagee holds 

a Program mortgage that it originated 

and/or underwrote, and FHA finds that 

the mortgagee violated the Program 

requirements, FHA is prohibited from 

paying FHA insurance benefits to that 

mortgagee. 

(2) If the mortgagee no longer holds 

the Program mortgage that it originated 

and/or underwrote, FHA will pay the 

insurance claim to the mortgagee 

presently holding the Program mortgage 

(if all other requirements of the contract 

for mortgage insurance are met and the 

present holder did not participate in the 

violation of Program requirements) and 

shall seek indemnification from the 

non-holding mortgagee. 

(d) FHA insurance. A mortgage is 

eligible for insurance if the mortgagee 

submits a complete case binder within 

120 days from the date of closing of the 

mortgage, or such other time as the 

Board may prescribe. The binder shall 

include evidence acceptable to the 

Board that the mortgage is current. 

(e) Mortgagor failure to make first 

mortgage payment. FHA shall not pay a 

mortgage insurance claim to any 

mortgagee if the first total monthly 

mortgage payment is not made within 

the time frame established in paragraph 

(d) of this section. The mortgagee shall 

not, directly or indirectly, make all or a 

part of the first total monthly mortgage 

payment on behalf of the mortgagor. The 

mortgagee is prohibited from escrowing 

funds at closing for all or part of the first 

total monthly mortgage payment. 

§ 4001.118 Equity sharing. 

(a) Initial Equity. For purposes of 

section 257(k)(1) of the Act, the initial 

equity created as a direct result of the 

origination of a Program mortgage on a 

property, as calculated by the Program 

mortgage lender, shall equal: 

(1) The appraised value of the 

property that was used at the time of 

origination of the Program mortgage to 

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underwrite the mortgage and to 

determine compliance with the 

maximum loan-to-value ratio at 

origination established by section 

257(e)(2)(B) of the Act; less 

(2) The original principal amount of 

the Program mortgage on the property. 

(b) FHA’s interest. Upon the sale or 

disposition of a property or Program 

mortgage refinancing, FHA shall 

calculate and be entitled to receive the 

portion of the initial equity (as defined 

by paragraph (a) of this section) set forth 

in section 257(k)(1) of the Act, subject 

to such standards and policies as the 

Board may establish. 

§ 4001.120 Appreciation sharing. 

(a) Calculation of appreciation. For 

purposes of section 257(k)(2) of the Act, 

the amount of the appreciation in value 

of a property securing a Program 

mortgage that occurs between the date 

the mortgage was insured under section 

257 of the Act and the date of any 

subsequent sale or disposition of the 

property shall be equal to the following, 

as such amounts of appreciation may be 

established to the satisfaction of FHA: 

(1) The gross proceeds from the sale 

or disposition of the property 

(calculated at the pre-default rate of 

interest); less 

(2) The amount of closing costs, as 

adopted by the Board, incurred by the 

mortgagor(s) in connection with such 

sale or disposition, if any; less 

(3) Seventy-five percent, as may be 

modified by the Board, of the actual 

expenditures for Capital Improvements 

made by the mortgagor(s) after the date 

of origination of the Program mortgage; 

and less 

(4) The appraised value of the 

property that was used at the time of 

origination of the Program mortgage to 

underwrite that mortgage and determine 

compliance with the maximum loan-tovalue ratio at origination established by 

section 257(e)(2)(B) of the Act. 

(b) HUD’s interest in appreciation. 

Upon sale or disposition of a property 

securing a Program mortgage, FHA shall 

be entitled to receive an amount equal 

to 50 percent of the appreciation in 

value of the property calculated in 

accordance with paragraph (a) of this 

section. 

(c) Eligibility of subordinate mortgage 

holders to receive a portion of 

appreciation in value. The persons or 

entities that hold, on the date of 

origination of a Program mortgage, an 

existing subordinate mortgage on the 

property shall be eligible to receive a 

portion of FHA’s interest in the 

appreciation in value of the property, as 

determined in accordance with the 

provisions of this section and such 

additional standards and policies that 

the Board may establish, if: 

(1) The existing subordinate mortgage 

was originated on or before January 1, 

2008; 

(2) The amount of the unpaid 

principal and interest on such existing 

subordinate mortgage on the date of 

origination of the Program mortgage is at 

least $2,500; and 

(3) Each person holding such existing 

subordinate mortgage agrees, in 

connection with the origination of the 

Program mortgage, to fully release: 

(i) The mortgagor(s) from any 

indebtedness under the existing 

subordinate mortgage; and 

(ii) The holder’s mortgage lien on the 

property. 

(d) Shared appreciation interest of 

subordinate mortgage holders. 

(1) In general. The eligible holder(s) of 

an existing subordinate mortgage on a 

property securing a Program mortgage 

shall be eligible to receive, subject to 

paragraph (c)(3) of this section, an 

interest in FHA’s interest in the 

appreciation in the value of such 

property up to the amount set forth in 

the Appendix to this part. 

(2) Form. The interest of an eligible 

holder of an existing subordinate 

mortgage under paragraph (d) of this 

section is evidenced in a shared 

appreciation certificate or other 

documentation to be issued by, or on 

behalf of, HUD. 

(3) Multiple subordinate liens. If there 

is more than one eligible existing 

subordinate mortgage on a property 

securing a Program mortgage, the 

interests of such eligible existing 

subordinate mortgages under paragraph 

(d)(1) of this section shall have priority 

among each other in the same order of 

priority that existed among the existing 

subordinate mortgages on the date of 

origination of the Program mortgage. 

(4) Distribution of appreciation 

interest to subordinate mortgage 

holders. Upon the sale or disposition of 

a property securing a Program mortgage 

other than sale or disposition related to 

a default, any proceeds due to FHA as 

a result of the appreciation in value of 

the property (as calculated in 

accordance with paragraph (a) of this 

section) shall be distributed: 

(i) First to the holders of any shared 

appreciation certificate or other 

documentation issued by HUD with 

respect to the property, if any, in 

accordance with paragraphs (d)(1), 

(d)(2), and (d)(3) of this section; and 

(ii) The remaining amounts, if any, 

will be retained by FHA. 

§ 4001.122 Fees and closing costs. 

(a) The holder or servicer of the 

existing senior and subordinate 

mortgages shall either forgive or waive 

all prepayment penalties and 

delinquency and default fees. 

(b) Allowable closing costs incurred 

in connection with the refinancing and 

insurance of a mortgage under the 

Program can be paid from the following 

sources: 

(1) The mortgagor’s assets; 

(2) The mortgagee holding or 

servicing the existing senior and 

subordinate mortgage or the mortgagee 

originating the Program mortgage; 

(3) Premium pricing by the mortgagee 

providing the Program mortgage; 

(4) Financed as part of the Program 

mortgage provided that the mortgage 

amount is adjusted accordingly, and the 

loan-to-value ratio does not exceed 90 

percent (including the up-front 

premium required under 

§ 4001.203(a)(1)); 

(5) A Federal, state, county or parish, 

or municipal program; or 

(6) Such other sources as the Board 

may permit. 

Subpart C—Rights and Obligations 

Under the Contract of Insurance 

§ 4001.201 Cross-reference. 

(a) All of the provisions of 24 CFR 

part 203, subpart B, covering mortgages 

insured under section 203 of the Act 

shall apply to mortgages insured under 

section 257 of the Act, except the 

following sections: 203.256 Insurance of 

open-end advances; 203.259a Scope; 

203.260 Amount of insurance premium; 

203.261 Calculation of periodic MIP 

(periodic MIP); 203.270 Open-end 

insurance charges; 203.280 One-time of 

Up-front MIP; 203.281 Calculation of 

one-time MIP; 203.283 Refund of onetime MIP; 203.284 Calculation of upfront and annual MIP on or after July 1, 

1991; 203.285 Fifteen year mortgages: 

calculation of up-front and annual MIP 

on or after December 26, 1992; 203.415– 

203.417 Certificate of Claim; 203.420– 

203.427 Mutual Mortgage Insurance 

Fund and Distributive Shares; 203.436 

Claim procedures—graduated payment 

mortgages; 203.438 Mortgages on Indian 

land insured pursuant to section 248 of 

the National Housing Act; 203.439 

Mortgages on Hawaiian home lands 

insured pursuant to section 247 of the 

National Housing Act; 203.439a 

Mortgages on property in Allegheny 

Reservation of Seneca Nation of Indians 

authorized by section 203(q) of the 

National Housing Act; and 203.440– 

203.495 Rehabilitation Loans. 

(b) For the purposes of this subpart, 

all references in 24 CFR part 203, 

subpart B, to section 203 of the Act shall 

be construed to refer to section 257 of 

the Act. Any references in 24 CFR part 

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Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 58425 

203, subpart B, to the ‘‘Mutual Mortgage 

Insurance Fund’’ shall be deemed to be 

to the Home Ownership Preservation 

Entity Fund, and any references to ‘‘the 

Commissioner’’ shall be deemed to be to 

the Board or the Commissioner (as the 

context may require). 

(c) If there is any conflict in the 

application of any requirement of 24 

CFR part 203, subpart B, to this part 

4001, the provisions of part 4001 shall 

control. 

§ 4001.203 Calculation of upfront and 

annual mortgage insurance premiums for 

Program mortgages. 

(a) Applicable premiums. Any 

mortgage presented for endorsement 

under section 257 on or after October 1, 

2008, and prior to September 30, 2011, 

shall be subject to the following 

requirements: 

(1) Upfront premium. FHA shall 

establish and collect a single premium 

payment equal to 3 percent of the 

amount of the original insured principal 

obligation of the Program mortgage. 

(2) Annual premium. In addition to 

the premium under paragraph (a)(1) of 

this section, FHA shall establish and 

collect an annual premium payment in 

an amount equal to 1.5 percent of the 

amount of the remaining insured 

principal balance of the Program 

mortgage. 

(b) Proceeds for payment of the 

upfront premium. The up-front 

premium shall be paid with proceeds 

from the Program mortgage through a 

reduction of the amount of indebtedness 

that existed on the eligible mortgage 

prior to its being refinanced. 

Subpart D—Servicing Responsibilities 

§ 4001.301 Cross-reference. 

(a) All of the provisions of 24 CFR 

part 203, subpart C, covering mortgages 

insured under section 203 of the Act 

shall apply to mortgages insured under 

section 257 of the Act, except as follows: 

203.664 Processing defaulted mortgages 

on property located on Indian land; 

203.665 Processing defaulted mortgages 

on property located on Hawaiian home 

lands; 203.666 Processing defaulted 

mortgages on property in Allegany 

Reservation of Seneca Nation of Indians; 

and 203–670–203.681 Occupied 

Conveyance. 

(b) For the purposes of this subpart, 

all references in 24 CFR part 203, 

subpart C, to section 203 of the Act shall 

be construed to refer to section 257 of 

the Act. Any references in 24 CFR part 

203, subpart C, to the ‘‘Mutual Mortgage 

Insurance Fund’’ shall be deemed to be 

to the Home Ownership Preservation 

Entity Fund, and any references to ‘‘the 

Commissioner’’ shall be deemed to be to 

the Board or the Commissioner (as the 

context may require). 

(c) If there is any conflict in the 

application of any requirement of 24 

CFR part 203, subpart C, to this part 

4001, the provisions of part 4001 shall 

control. 

§ 4001.303 Prohibition on subordinate 

liens during first five years. 

(a) Prohibition on subordinate liens 

during first five years. Except as 

provided in paragraph (b) of this 

section, a mortgagor shall not, during 

the first 5 years of the term of the 

mortgagor’s Program mortgage, incur 

any debt, take any action, or fail to take 

any action that would have the direct 

result of causing a lien to be placed on 

the property securing the Program 

mortgage if such lien would be 

subordinate to the Program mortgage. 

(b) Property preservation exception. 

Paragraph (a) of this section shall not 

prevent a mortgagor on the Program 

mortgage from incurring new mortgage 

debt secured by a lien on the property 

securing the Program mortgage that is 

subordinate to the Program mortgage if: 

(1) The proceeds of the new mortgage 

debt are necessary to ensure the 

maintenance of property standards, 

including health and safety standards; 

(2) Repair or remediation of the 

condition would preserve or increase 

the property’s value; 

(3) The cost of the proposed repair or 

remediation is reasonable for the 

geographic market area; 

(4) The results of the repair or 

remediation are not primarily cosmetic; 

(5) The repair or remediation does not 

represent routine maintenance; 

(6) The new mortgage debt is closedend credit, as defined in § 226.2 of the 

Federal Reserve Board’s Regulation Z 

(12 CFR 226.2); and 

(7) The sum of the unpaid principal 

balance and accrued and unpaid interest 

on the Program mortgage and the 

original principal balance of the new 

mortgage debt: 

(i) Does not exceed 95 percent of the 

estimated appraised value of the 

property securing the Program mortgage 

after completion of the proposed repair 

or remediation; and 

(ii) Is less than: 

(A) The estimated appraised value of 

the property securing the Program 

mortgage after completion of the 

proposed repair or remediation; less 

(B) FHA’s proportionate share of the 

initial equity created upon origination 

of the Program mortgage as determined 

pursuant to the schedule set forth in 

section 257(k)(1) of the Act as if a sale 

of the property had occurred on the date 

of origination of the new mortgage debt. 

Subpart E—Enforcement 

Mortgagor False Information 

§ 4001.401 Notice of false information from 

mortgagor-procedure. 

(a) If FHA finds that the mortgagor has 

made a false certification or provided 

false information via any means, 

including but not limited to false 

documentation, FHA shall inform the 

mortgagor, in writing or any other 

acceptable format, of such fact. 

(b) The notice shall be sent to the 

mortgagor’s last known address by both 

certified and ordinary mail. The notice 

shall state with specificity the 

misrepresentation or false statement 

made by the mortgagor. The notice shall 

include a request for repayment of the 

Direct Financial Benefit that the 

mortgagor is deemed to have received, 

as determined by FHA, by the 

refinancing of the eligible mortgage and 

subordinate mortgages. This does not 

preclude HUD or the United States from 

bringing any other action that they may 

be authorized to bring. 

(c) The mortgagor may request a 

hearing before a Hearing Officer. The 

hearing will be conducted in accordance 

with the provisions of 24 CFR part 26, 

subpart A, except as modified by this 

section. Requests for a hearing must be 

made within 45 days from the date of 

the false information notice. 

Appraiser Independence 

§ 4001.403 Prohibitions on interested 

parties in insured mortgage transaction. 

(a) A mortgage lender, mortgage 

broker, mortgage banker, real estate 

broker, appraisal management company 

or employee thereof, and any person 

with an interest in a real estate 

transaction involving an appraisal 

conducted as part of the process for 

insuring a mortgage under section 257 

of the Act shall not improperly 

influence or attempt to improperly 

influence through any means, including 

but not limited to coercion, extortion, 

collusion, compensation, instruction, 

inducement, intimidation, nonpayment 

for services rendered, or bribery, the 

development, reporting, result or review 

of a real estate appraisal sought in 

connection with the origination, 

processing and closing of the mortgage 

for insurance. 

(b) HUD may, pursuant to its 

authority under section 536(a) of the 

Act, bring an action to impose a civil 

money penalty for a violation of 

paragraph (a) of this section. 

(c) The authority to bring a civil 

money penalty under this section shall 

not preclude HUD from bringing any 

other action that HUD may be 

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58426 Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Rules and Regulations 

authorized to bring for a violation of 

paragraph (a) of this section. 

Mortgagees 

§ 4001.405 Mortgagees. 

(a) FHA is authorized by the Board to 

engage in monitoring activities to ensure 

mortgagee compliance with the 

requirements of this Program. The 

Mortgagee Review Board at HUD is 

authorized by the Board to impose 

sanctions and civil money penalties 

against mortgagees that violate program 

requirements under this part. The 

authority of the Mortgagee Review 

Board to impose sanctions and civil 

penalties shall not preclude HUD from 

bringing any other action that HUD may 

be authorized to bring. 

(b) Nonpayment of mortgage 

insurance claims for reasons established 

in § 4001.16 shall not preclude the 

Mortgagee Review Board or HUD from 

bringing any action against the 

mortgagee that the Mortgagee Review 

Board or HUD are authorized to bring. 

(c) The mortgagee may request a 

hearing before a Hearing Officer. The 

hearing will be conducted in accordance 

with the provisions of 24 CFR part 26, 

subpart A, except as modified by this 

section. Requests for a hearing must be 

made within 45 days from the date of 

the false information notice. 

Appendix A to Part 4001—Calculation 

of Future Appreciation Payment 

Subordinate lien holder’s 

CLTV 

Percent of unpaid principal 

and interest 

that lien holder 

is eligible to 

receive 

Cumulative CLTV >135% ..... 9% 

Subordinate lien holder’s 

CLTV 

Percent of unpaid principal 

and interest 

that lien holder 

is eligible to 

receive 

Cumulative CLTV ≤135% ..... 12% 

Note: Appreciation payment to a subordinate lien holder will depend on actual appreciation at the time of sale of the property and 

will be limited by the amount of future appreciation HUD receives. Payment will be made 

according to the subordinate lien holder’s position of priority in relation to the property at the 

time the H4H mortgage is originated, and will 

be based upon principal and interest on the 

date of origination of the Program mortgage, 

calculated at the pre-default contract rate of 

interest. 

Dated at Washington, DC, this 30th day of 

September, 2008. 

By order of the Board of Directors of the 

HOPE for Homeowners Program. 

Margaret E. Burns, 

Executive Director of the Board. 

[FR Doc. E8–23612 Filed 10–3–08; 8:45 am] 

BILLING CODE 4210–AA–P 

mstockstill on PROD1PC66 with RULES3