Federal Register / Vol. 75, No. 195 / Friday, October 8, 2010 / Proposed Rules 62335 

Alternative Methods of Compliance 

(h) The Manager, Boston Aircraft 

Certification Office, has the authority to 

approve alternative methods of compliance 

for this AD if requested using the procedures 

found in 14 CFR 39.19. 

Related Information 

(i) Contact Michael Schwetz, Aerospace 

Engineer, Boston Aircraft Certification Office, 

FAA, Engine and Propeller Directorate, 12 

New England Executive Park, Burlington, 

MA 01803; e-mail: michael.schwetz@faa.gov; 

telephone (781) 238–7761; fax (781) 238– 

7170, for more information about this AD. 

(j) Hamilton Sundstrand Service Bulletin 

247F–61–54, Revision 1, dated January 12, 

2004, pertains to the subject of this AD. 

Contact Hamilton Sundstrand Propeller 

Technical Team, One Hamilton Road, Mail 

Stop 1–3–AB43, Windsor Locks, CT 06096– 

1010; fax (860) 654–5107, for a copy of this 

service information. 

Issued in Burlington, Massachusetts, on 

October 4, 2010. 

Diane S. Romanosky, 

Acting Manager, Engine and Propeller 

Directorate, Aircraft Certification Service. 

[FR Doc. 2010–25390 Filed 10–7–10; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 203 

[Docket No. FR–5156–P–01] 

RIN 2502 AI58 

Federal Housing Administration (FHA) 

Single Family Lender Insurance 

Process: Eligibility, Indemnification, 

and Termination 

AGENCY: Office of the Assistant 

Secretary of Housing—Federal Housing 

Commissioner, HUD. 

ACTION: Proposed rule. 

SUMMARY: Through this proposed rule, 

HUD continues its efforts to improve 

and expand the risk management 

activities of the Federal Housing 

Administration (FHA). The proposed 

regulatory changes will update and 

enhance the Lender Insurance process 

through which the majority of FHAinsured mortgages are endorsed for 

insurance. Most significantly, the 

proposed rule would provide additional 

guidance on HUD’s regulations 

implementing the statutory 

requirements regarding mortgagee 

indemnification to HUD of insurance 

claims in the case of fraud, 

misrepresentation, or noncompliance 

with applicable loan origination 

requirements. The proposed rule also 

provides that mortgagees must 

continually maintain the acceptable 

claim and default rate required for 

eligibility to initially be delegated 

Lender Insurance authority, in order to 

retain such authority. In addition, this 

proposed rule also provides that HUD 

will review Lender Insurance mortgagee 

performance on a continual basis. HUD 

also proposes to revise the methodology 

for determining acceptable claim and 

default rates, to more accurately reflect 

mortgagee performance, and to 

streamline the approval process for 

Lender Insurance mortgagees that have 

undergone a corporate restructuring. 

The Department has also taken the 

opportunity afforded by this proposed 

rule to make two technical corrections 

to the regulations and to solicit public 

comment on whether FHA mortgagees 

should be required to submit mortgage 

loan case binders to HUD electronically. 

DATES: Comment Due Date: December 7, 

2010. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this proposed rule to the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 Seventh Street, SW., 

Room 10276, Washington, DC 20410– 

0500. Communications must refer to the 

above docket number and title. There 

are two methods for submitting public 

comments. All submissions must refer 

to the above docket number and title. 

1. Submission of Comments by Mail. 

Comments may be submitted by mail to 

the Regulations Division, Office of 

General Counsel, Department of 

Housing and Urban Development, 451 

Seventh Street, SW., Room 10276, 

Washington, DC 20410–0001. 

2. Electronic Submission of 

Comments. Interested persons may 

submit comments electronically through 

the Federal eRulemaking Portal at 

http://www.regulations.gov. HUD 

strongly encourages commenters to 

submit comments electronically. 

Electronic submission of comments 

allows the commenter maximum time to 

prepare and submit a comment, ensures 

timely receipt by HUD, and enables 

HUD to make them immediately 

available to the public. Comments 

submitted electronically through the 

http://www.regulations.gov Web site can 

be viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Note: To receive consideration as public 

comments, comments must be submitted 

through one of the two methods specified 

above. Again, all submissions must refer to 

the docket number and title of the rule. No 

Facsimile Comments. Facsimile (FAX) 

comments are not acceptable. 

Public Inspection of Public 

Comments. All properly submitted 

comments and communications 

submitted to HUD will be available for 

public inspection and copying between 

8 a.m. and 5 p.m. weekdays at the above 

address. 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 202–708– 

3055 (this is not a toll-free number). 

Individuals with speech or hearing 

impairments may access this number 

via TTY by calling the toll-free Federal 

Information Relay Service at 800–877– 

8339. Copies of all comments submitted 

are available for inspection and 

downloading at http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Mark Ross, Acting Director, Office of 

Single Family Program Development, 

Office of Housing, Department of 

Housing and Urban Development, 451 

Seventh Street, SW., Room 9278, 

Washington, DC 20410–8000; telephone 

number 202–708–2121 (this is not a tollfree number). Persons with hearing or 

speech impairments may access this 

number via TTY by calling the Federal 

Information Relay Service at 1–800– 

877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Federal Housing Administration 

(FHA) was established by Congress in 

1934 to improve nationwide housing 

standards, to provide employment and 

stimulate industry, to improve 

conditions with respect to home 

mortgage financing, to prevent 

speculative excesses in new mortgage 

investment, and to eliminate the 

necessity for costly second mortgage 

financing. FHA-insured single family 

mortgages are originated and 

underwritten through the Direct 

Endorsement process. A majority of 

FHA-insured mortgages that are 

originated under the Direct 

Endorsement process are endorsed for 

insurance by mortgage lenders through 

a second process, the Lender Insurance 

process. 

The Direct Endorsement and Lender 

Insurance processes are not separate 

programs; rather, they are the 

mechanisms that enable FHA-approved 

lenders to consider single family 

mortgage applications without first 

submitting paperwork to HUD. The 

Lender Insurance process is authorized 

under section 256 of the National 

Housing Act (12 U.S.C. 1715z–21). The 

HUD regulations that presently govern 

the Direct Endorsement and Lender 


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1See HUD press release HUD No. 10–016, 

available at: http://portal.hud.gov/portal/page/ 

portal/HUD/press/ 

press_releases_media_advisories/2010/HUDNo.10- 

016. 

Insurance processes are codified at 24 

CFR part 203 (entitled Single Family 

Mortgage Insurance). 

The Direct Endorsement process is 

described in § 203.5 and is available to 

mortgagees who meet the requirements 

set forth in § 203.3. Under Direct 

Endorsement, the mortgagee determines 

that the proposed mortgage is eligible 

for insurance under applicable 

regulations, and submits the required 

documents to FHA in accordance with 

§ 203.255. The Direct Endorsement 

mortgagee’s performance is subject to 

pre-endorsement and post-endorsement 

review by the Secretary. 

Direct Endorsement mortgagees that 

meet the requirements of § 203.4 may be 

approved for Lender Insurance, as 

described in § 203.6. Under the Lender 

Insurance process, a mortgagee conducts 

its own pre-insurance review and 

insures the mortgage without a preendorsement review by HUD. In order to 

be eligible to participate in the FHA 

single family programs as a Lender 

Insurance mortgagee, an FHA mortgage 

lender must be an unconditionally 

approved Direct Endorsement mortgagee 

that is high performing—i.e., for at least 

2 years prior to its application for 

Lender Insurance authority, the 

mortgagee must have had a claim and 

default record acceptable to HUD. 

II. This Proposed Rule 

Through this proposed rule, HUD 

continues its efforts to improve and 

expand the risk management activities 

of FHA. The proposed regulatory 

changes will update and enhance the 

Lender Insurance process. Most 

significantly, the proposed rule would 

revise HUD’s regulations implementing 

the statutory requirements regarding 

lender indemnification to HUD of 

insurance claims in the case of fraud, 

misrepresentation, or noncompliance 

with applicable loan origination 

requirements. The proposed rule will 

also provide that mortgagees, in order to 

retain their Lender Insurance authority, 

must continually maintain the 

acceptable claim and default rate 

required of them when they were 

initially delegated such authority. In 

addition, this proposed rule provides 

that HUD will review Lender Insurance 

mortgagee performance on a continual 

basis. HUD also proposes to revise the 

methodology for determining acceptable 

claim and default rates to more 

accurately reflect mortgagee 

performance, and to streamline the 

approval process for Lender Insurance 

mortgagees that have undergone a 

corporate restructuring. The Department 

has also taken the opportunity afforded 

by this proposed rule to make two 

technical corrections to the regulations. 

The proposed regulatory changes are 

as follows: 

1. Lender indemnification for 

insurance claims. Under section 256(c) 

of the National Housing Act (12 U.S.C. 

1715z–21(c)), an FHA-approved Lender 

Insurance mortgagee may be required to 

indemnify HUD for the loss if the 

mortgage loan was ‘‘not originated in 

compliance with the requirements 

established by the Secretary, and the 

Secretary pays an insurance claim 

* * * within a reasonable period 

specified by the Secretary.’’ HUD may 

also require indemnification at any time 

‘‘if fraud or misrepresentation was 

involved in connection with 

origination’’ of the mortgage loan. FHA 

may impose indemnifications, 

irrespective of whether the 

noncompliance, fraud, or 

misrepresentation caused the mortgage 

default. Currently, the section 256 

statutory indemnification requirement is 

limited to mortgagees with Lender 

Insurance authority. On January 20, 

2010, the Department announced that it 

would seek changes to section 256 of 

the National Housing Act, to apply the 

indemnification provisions to all Direct 

Endorsement lenders.1

The section 256 statutory 

indemnification requirements are 

currently codified at § 203.255(f)(4). 

HUD proposes to create a new 

§ 203.255(g) that would provide 

additional guidance on the statutory 

requirements of section 256. 

As discussed, the section 256 

indemnification requirements are 

applicable to claims paid in connection 

to a mortgage that was not ‘‘originated’’ 

in accordance with FHA requirements. 

For purposes of § 203.255(f), this 

proposed rule would define the term 

‘‘origination’’ as meaning ‘‘the process of 

creating a mortgage, starting with the 

taking of the initial application, 

continuing with the processing and 

underwriting, and ending with the 

mortgagee endorsing the mortgage note 

for FHA mortgage insurance.’’ The 

proposed definition of ‘‘origination’’ 

would apply only to indemnifications 

for mortgages endorsed for FHA 

mortgage insurance under section 256 of 

the National Housing Act by authorized 

Lender Insurance mortgagees, and is not 

being proposed by HUD to apply in any 

other contexts related to the FHA 

programs. 

As noted, cases of fraud or 

misrepresentation may require 

indemnification at any time. However, 

for cases not involving fraud or 

misrepresentation, section 256(c) limits 

the Department’s ability to require 

indemnification to insurance claims 

paid within a ‘‘reasonable time period’’ 

established by HUD. New § 203.255(g) 

would implement this timing 

requirement by codifying HUD’s 

longstanding practice of requiring 

indemnification for FHA insurance 

claims paid ‘‘within five years from the 

date of mortgage insurance 

endorsement.’’ The date of endorsement 

is a fixed date, and therefore has the 

benefit of being known to both HUD and 

the Lender Insurance mortgagee. 

Moreover, 5 years is a reasonable 

‘‘seasoning’’ period for a particular 

mortgage loan to either perform or go 

into default and for the Department to 

ascertain whether errors in the 

origination of the mortgage loan were 

made, while not being so long a time 

frame so as to burden mortgagees with 

the possibility of indemnification for a 

long-ago endorsed mortgage loan. 

Section 256(c) authorizes HUD to 

require indemnification where the 

mortgage was not originated in 

compliance with the HUD-established 

requirements. Proposed § 203.255(g) 

identifies the origination requirements 

for which HUD may seek 

indemnification if the Lender Insurance 

mortgagee knew or should have known 

that the requirements were not followed 

in the origination of the mortgage. HUD 

will seek such remedy for violations of 

FHA origination requirements that HUD 

deems serious and material; for 

example, in cases where the mortgage 

should never have been endorsed by the 

mortgagee, because FHA would not 

have insured the mortgage absent proper 

adherence to the Lender Insurance 

process. Specifically, a mortgagee may 

be required to indemnify HUD if it 

failed to, among other actions: (1) Verify 

and analyze the creditworthiness, 

income, and/or employment of the 

mortgagor in accordance with FHA 

requirements; (2) verify the source of 

assets brought by the mortgagor for 

payment of the required down payment 

and/or closing costs in accordance with 

FHA requirements; (3) address property 

deficiencies identified in the appraisal 

affecting the health and safety of the 

occupants or the structural integrity of 

the property in accordance with FHA 

requirements; or (4) ensure, in 

accordance with the requirements of 

§ 203.5(e), that the appraisal of the 

property serving as security for the 

mortgage loan satisfies FHA appraisal 


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requirements. HUD may seek 

indemnification irrespective of whether 

the violation caused the mortgage 

default. 

HUD deems violations of the 

origination requirements identified in 

the proposed rule as serious and 

material, because they pertain to the 

core analyses that must be performed for 

all properly underwritten mortgage 

loans. The purpose of mortgage loan 

underwriting is to evaluate the 

willingness and financial capability of 

the mortgagor to pay the loan, and to 

assess the physical condition of the 

property that is to serve as security for 

the mortgage loan, in order to determine 

whether it constitutes adequate 

collateral. These basic underwriting 

principles are enshrined in the so-called 

‘‘Four C’s of Credit’’ (credit, capacity, 

capital, and collateral) commonly 

referred to in the mortgage lending 

industry. The origination requirements 

listed above correspond to these 

fundamental underwriting functions. 

Accordingly, HUD believes that 

indemnification may be an appropriate 

remedy where the mortgagee knew or 

should have known that these 

requirements were not followed in the 

origination of the mortgage loan. 

The proposed rule would also specify 

that the demand for indemnification 

will be made by either the Secretary or 

the Mortgagee Review Board. Under an 

indemnification agreement, the 

originating mortgage lender agrees to 

either abstain from filing an insurance 

claim, or to reimburse FHA if a 

subsequent holder of the mortgage files 

an insurance claim and FHA suffers a 

financial loss. 

2. Acceptable claim and default rate 

for Lender Insurance mortgagees. 

Section 256(b) of the National Housing 

Act requires that the Secretary of HUD, 

in deciding whether to grant a 

mortgagee’s application for Lender 

Insurance approval, consider ‘‘the 

experience and performance of the 

mortgagee compared to the default rate 

of all insured mortgagees in comparable 

markets.’’ HUD has implemented this 

statutory requirement at § 203.4(b), 

which requires that ‘‘a mortgagee must 

have had an acceptable claim and 

default record for at least 2 years prior 

to its application for’’ Lender Insurance 

authority. The present regulation 

defines an acceptable claim and default 

as at or below 150 percent of either: 

(1) The national average rate for all 

insured mortgages; or (2) if the 

mortgagee operates in a single state, the 

average rate for insured mortgages in the 

state. 

The current regulation may make it 

easier for a single state mortgagee to 

meet the acceptable standard if the 

mortgagee operates in a state that has a 

high default rate. In contrast, a 

mortgagee would be disadvantaged by 

having its claim and default rate 

compared to the national average if the 

mortgagee operates in two states that 

have high default rates, even if the 

mortgagee is in full compliance with 

FHA requirements and otherwise 

eligible for Lender Insurance approval. 

To address these potential concerns, 

HUD proposes to revise the 

methodology for computing the 

acceptable claim and default rate for 

Lender Insurance approval. The 

proposed rule would revise § 203.4(b) 

by providing that a mortgagee is eligible 

for the Lender Insurance program if its 

claim and default rate is at or below 150 

percent of the average rate in the state(s) 

where the mortgagee operates. The 

proposed methodology will more 

accurately reflect mortgagee 

performance by evaluating each 

mortgagee based on its actual area of 

operations. 

3. Need to maintain acceptable claim 

and default rate. As noted, § 203.4(b) 

requires that mortgagees have an 

acceptable claim and default rate as an 

eligibility criterion for initial Lender 

Insurance approval; however, the 

regulation does not specify what 

constitutes an acceptable claim and 

default rate for purposes of maintaining 

Lender Insurance approval. This 

proposed rule emphasizes that a Lender 

Insurance mortgagee must continually 

maintain the acceptable claim and 

default rate required of them when they 

were initially granted Lender Insurance 

authority. HUD will review Lender 

Insurance mortgagee performance on a 

continual basis, and mortgagees that fail 

to maintain the required claim and 

default rate will be subject to 

termination of their Lender Insurance 

authority. 

4. Lender Insurance approval in the 

case of merger, acquisition, or 

restructuring. Section 256 of the 

National Housing Act requires that HUD 

consider ‘‘the experience and 

performance of the mortgagee’’ in 

determining the appropriateness of 

delegating the Secretary’s authority to 

endorse mortgages for FHA insurance. 

HUD’s implementing regulations at 

§ 203.4(b) elaborate on the statutory 

requirement by providing that ‘‘a 

mortgagee must have had an acceptable 

claim and default record for at least 2 

years prior to its application for’’ Lender 

Insurance authority. As discussed above 

in this preamble, the Lender Insurance 

process is reserved for high-performing 

mortgagees. The performance history 

requirement helps to ensure that only 

those mortgagees with a proven track 

record are eligible for Lender Insurance 

authority. 

Newly formed business entities that 

do not have a performance record are, 

therefore, ineligible for Lender 

Insurance approval. This is true even if 

the newly formed lending institution 

was created by a merger, acquisition, or 

reorganization where one or more of the 

participating entities had Lender 

Insurance approval, and the new 

resulting lending institution retains the 

structure, staff, and operational 

protocols that would—absent the 2-year 

historical performance requirement— 

make the new entity eligible for Lender 

Insurance authority under section 256 of 

the National Housing Act. Deferral of 

Lender Insurance eligibility is merited 

for new corporate entities that have not 

had the time to establish an acceptable 

performance track history. However, in 

the case of new entities created by a 

merger, acquisition, or reorganization, it 

is possible to forecast future 

performance with a high degree of 

certainty based on the performance 

history of the predecessor entities. To 

deny Lender Insurance eligibility to 

such mortgagees simply for purposes of 

‘‘running out the clock’’ is contrary to 

the rationale of the performance history 

requirement and the Lender Insurance 

process. 

In the past, the Department has 

addressed this issue through the 

granting of case-by-case regulatory 

waivers, a process that has the potential 

to be lengthy and, on occasion, 

administratively burdensome. This 

proposed rule would eliminate the need 

for regulatory waivers by codifying the 

conditions under which the Secretary 

may grant Lender Insurance authority to 

a mortgagee with less than the required 

historical performance record. The 

proposed criteria would permit HUD to 

evaluate the performance of the new 

mortgagee based on the performance 

history of the predecessor corporate 

entities, while also safeguarding against 

the possibility that a mortgagee with a 

poor track record might attempt to 

circumvent the purposes of section 256 

by acquiring or merging with a highperforming lending institution. 

First, the mortgagee must be an entity 

created by a merger, acquisition, or 

reorganization completed less than 2 

years prior to the date of the mortgagee’s 

application for Lender Insurance 

approval. Secondly, one or more of the 

entities participating in the merger, 

acquisition, or reorganization must have 

had Lender Insurance approval at the 

time of the corporate restructuring. 

Third, all of the lending institutions 

participating in the corporate 


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restructuring must have had an 

acceptable claim and default record for 

the 2-years preceding the mortgagee’s 

application for Lender Insurance 

approval. Fourth, and last, the 

extrapolated claim and default record of 

the mortgagee derived by aggregating 

the claims and defaults of the entities 

participating in the merger, acquisition, 

or reorganization, for the 2-year period 

prior to the mortgagee’s application for 

Lender Insurance approval, constitutes 

an acceptable rate of claims and 

defaults. 

The proposed new process would 

permit, but not compel, HUD to grant 

Lender Insurance authority to those 

mortgagees meeting the criteria outlined 

above. While a rebuttable presumption 

in favor of granting approval would be 

established by a mortgagee that meets 

all four of the required criterions, HUD 

may consider other available evidence 

or data indicative of performance, and 

may deny the application for Lender 

Insurance authority and require the 

mortgagee to wait until it establishes an 

acceptable performance track record. 

The proposed regulatory provision is 

consistent with HUD’s responsibility to 

evaluate mortgagee experience and 

ensure that Lender Insurance authority 

is provided only to high-performing 

lenders that comply with FHA 

requirements, while also facilitating the 

provision of FHA-insurance by new 

lending institutions created by a 

corporate restructuring. 

5. HUD reviews. Consistent with its 

duty to protect the FHA insurance fund, 

HUD monitors mortgagee performance 

on an ongoing basis (see, for example, 

the present regulation at 24 CFR 202.3 

providing for such HUD reviews). 

However, the current Lender Insurance 

regulation at § 203.4(c) only refers to an 

annual performance review. This 

proposed rule would clarify that HUD 

will monitor a mortgagee’s eligibility to 

participate in the Lender Insurance 

program on a continual basis. 

6. Termination of Lender Insurance 

authority. This proposed rule would 

revise § 203.4(d), which governs 

terminations of Lender Insurance 

authority, for purposes of clarity and 

readability. The proposed rule would 

provide additional specificity on the 

grounds for termination. Revised 

§ 203.4(d) provides that HUD may 

immediately terminate the mortgagee’s 

approval to participate in the Lender 

Insurance program, if the mortgagee 

violates any of the requirements and 

procedures established by the Secretary 

for mortgagees approved to participate 

in the Lender Insurance program, the 

Direct Endorsement program, or the 

Title II Single Family mortgage 

insurance program, or if HUD 

determines that other good cause exists. 

In addition, the proposed rule clarifies 

that terminations of Lender Insurance 

approval are effective upon receipt of 

HUD’s notice of such termination. The 

proposed rule would also revise 

§ 203.4(d) to clarify that pursuant to 

section 256(d) of the National Housing 

Act (12 U.S.C. 1715z–21(d)), HUD 

termination decisions are not subject to 

judicial review and that terminations 

instituted under § 203.4(d) are distinct 

from withdrawal of mortgagee approval 

by the Mortgagee Review Board under 

24 CFR part 25. 

7. Lender insurance pre-insurance 

review. The present regulations at 

§ 203.255(f)(1) require that mortgagees 

conduct a pre-insurance review of 

mortgages insured under the Lender 

Insurance process. The regulations 

provide that the pre-insurance review 

must meet HUD requirements, but does 

not specify the requirements for 

applicable reviews, instead providing 

that ‘‘HUD will directly inform 

participating mortgagees of its minimum 

requirements for pre-insurance review.’’ 

This proposed rule would codify 

existing Lender Insurance practice 

concerning the pre-insurance review 

provisions, by specifying that Lender 

Insurance mortgagees are responsible for 

conducting the pre-insurance review 

that would otherwise be performed by 

HUD under the Direct Endorsement 

process. 

8. Technical correction. In addition to 

the proposed regulatory changes 

discussed above in this preamble, HUD 

has taken the opportunity afforded by 

this proposed rule to make a 

nonsubstantive change to the existing 

regulations. The proposed rule would 

make a technical correction to 

§ 203.4(a), which incorrectly crossreferences to § 203.5 as containing the 

requirements for Direct Endorsement 

approval. These approval procedures 

are codified at § 203.3. 

III. Issue Under Consideration: 

Mandatory Electronic Submission of 

Case Binders 

In addition to soliciting public 

comment on the proposed regulatory 

changes described above in this 

preamble, the Department solicits 

comment on a possible change to 

current recordkeeping and submission 

requirements that the Department is 

considering. The present Direct 

Endorsement regulations at 24 CFR 

203.255(b) require mortgagees to submit 

to HUD specified documentation within 

60 days after the date of closing of a 

mortgage loan (collectively, these 

documents and certifications are 

referred to as the mortgage loan ‘‘case 

binder’’). The Lender Insurance 

regulations at 24 CFR 203.255(f)(2) 

provide that mortgagees must maintain 

records, including origination files, in a 

manner and for a time frame prescribed 

by HUD, and must make these mortgage 

loan ‘‘case binders’’ available to HUD 

staff upon request. 

Customarily, case binders are 

maintained and submitted to HUD in 

hard-copy paper format. Given changes 

in technology that facilitate the 

electronic submission and storing of 

mortgage loan records, HUD is now 

considering requiring by June 2012 that 

all case binders be submitted 

electronically regardless of the 

insurance process used by a mortgagee. 

Although Lender Insurance mortgagees 

are not currently required to submit case 

binders (except upon HUD’s request for 

a post-endorsement technical review), 

under HUD’s proposal they would be 

required to submit these mortgage loan 

records electronically within a specified 

time frame following insurance of the 

mortgage. The final rule may contain 

regulatory text requiring the electronic 

submission of case binders, and HUD 

invites public comment on such a 

possible change, including the 

appropriateness of a June 2012 

implementation date, the costs and 

benefits that would be associated with 

the electronic submission of case 

binders, and what the required time 

frames should be for submission of 

electronic case binders following 

insurance of the mortgage. For more 

information about the costs and benefits 

of this provision, please see the 

regulatory planning and review section 

of this preamble. 

IV. Findings and Certification 

Regulatory Planning and Review 

The Office of Management and Budget 

(OMB) reviewed this rule under 

Executive Order 12866 (entitled 

‘‘Regulatory Planning and Review’’). 

OMB determined that this rule is a 

‘‘significant regulatory action,’’ as 

defined in section 3(f) of the Order 

(although not an economically 

significant regulatory action, as 

provided under section 3(f)(1) of the 

Order). 

This proposed rule would modify 

three existing areas affecting FHAapproved lenders. First, this rule would 

impose indemnification provisions to 

all approved mortgagees with Lender 

Insurance authority. Second, this rule 

would amend the methodology and 

requirements for determining an 

acceptable claim and default rate. 

Lastly, this rule would amend the 2-year 


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historical performance requirement for 

mortgagees resulting from merger, 

acquisition, or reorganization. Other 

provisions of this rule describe 

clarifying or technical changes which 

would not produce an economic impact. 

The proposed rule also solicits 

comments on a possible change to 

current recordkeeping and submission 

requirements that the Department is 

considering. To the extent that these 

amendments have any economic 

impact, it would be to reduce the 

compliance costs currently borne by 

lenders, by clarifying and providing 

additional instructions that supplement 

existing FHA requirements and 

procedures. This rule, as proposed, 

would not have an economic effect of 

greater than $100 million and thus does 

not require a regulatory impact analysis. 

The reasons for HUD’s determination 

are as follows: 

Indemnification Requirements. With 

regard to the proposed indemnification 

provisions, this proposed rule codifies 

much of existing HUD practice, and this 

rule alone should not result in a 

dramatic change in underwriting 

practices and the quality of FHA loans, 

assuming that all of FHA’s Direct 

Endorsement lenders currently conduct 

due diligence in extending FHA-insured 

loans. A marginal change will be 

encountered by those lenders with 

ineffective risk management practices 

and/or those lenders who have refused 

to execute an indemnification 

agreement. HUD expects there to be 

some reduction in claims paid by FHA, 

but not a noticeable reduction in the 

claims rate attributed to this change by 

itself. FHA’s average loss rate on claims 

for first quarter Fiscal Year (FY) 2010 

(October 1, 2009 to February 28, 2010) 

properties conveyed to HUD and 

subsequently sold was approximately 60 

percent. For every claim averted, there 

would be a transfer (loss avoidance) of 

approximately $73,000 to FHA. 

The primary change is that all Direct 

Endorsement lenders with Lender 

Insurance authority will be subject to 

indemnification procedures and will not 

be able to negotiate the settlement, as is 

the current practice. This facet of the 

rule could lead to an efficiency: the 

initial process by a lender of deciding 

whether to indemnify FHA will be 

eliminated, and would be accompanied 

by reductions in the length and cost of 

negotiations. Time and effort may be 

saved because the costs of a lengthy 

preparation for both FHA and the lender 

in coming before the Mortgage Review 

Board are reduced by this proposed 

rule. The number of signed 

indemnifications for the last seven fiscal 

years (FY 2004 through the end of FY 

2010) has averaged 1,282 

indemnification agreements annually. If 

the average negotiation costs are one 

percent of the loan amount for both 

FHA and the lender (approximately 

$140,000 is currently the average FHAinsured mortgage amount), then the 

transaction costs to avoid or delay the 

indemnification would be $1,400 per 

loan. Over an average of 1,300 

indemnifications, the aggregate 

transaction costs saved by this rule 

would be $1.7 million. 

Acceptable Claim and Default Rate. 

The proposed rule would make two 

changes regarding acceptable claim and 

default rates for Lender Insurance 

mortgagees. First, HUD proposes to 

more accurately evaluate a mortgagee’s 

performance record by basing the claim 

and default rate comparison on the 

mortgagee’s actual area of operations. 

The proposed rule also clarifies that, in 

order to retain their Lender Insurance 

authority, mortgagees must continually 

maintain the acceptable claim and 

default rate required of them when they 

were initially delegated such authority. 

To simulate the impact of the 

proposed changes, HUD used data on 

active Direct Endorsement lenders. By 

moving to a consistent methodology, 

regional lenders are compared not to a 

national standard, but to their peers 

operating in the same area. Using as a 

base the total number of 1,945 currently 

active Direct Endorsement lenders, an 

additional 18 lenders would have the 

claim and default rate necessary for 

Lender Insurance authority under this 

proposed rule. However, the proposed 

requirement that Lender Insurance 

mortgagees maintain the acceptable 

default and claim rate initially required 

for Lender Insurance eligibility appears 

to result in a minimal reduction in the 

number of Direct Endorsement lenders 

that would be deemed to eligible for 

Lender Insurance authority. 

Specifically, 113 out of the 1,945 

currently active Direct Endorsement 

mortgagees would no longer have the 

necessary claim and default rate to 

maintain Lender Insurance authority; 

however, these mortgagees would retain 

their Direct Endorsement authority and 

could continue to participate in FHA 

programs. 

The combined effect of the two 

proposed changes would be to reduce 

the number of Direct Endorsement 

mortgagees eligible for Lender Insurance 

authority (a reduction of 54). In the 

short run, this effect can be thought of 

as a transfer between lenders of different 

regions. In the longer run, HUD expects 

the impact of this rule to be 

geographically neutral. Lenders will not 

be permanently reduced as a result of 

this rule; rather, HUD expects that 

lenders who can meet the eligibility 

criteria will eventually assume the 

business of those lenders who could not 

meet the new eligibility criteria. 

Lender Insurance Approval in the 

Case of Corporate Restructuring. The 

proposed rule would facilitate the 

compliance of new lending institutions 

resulting from a merger, acquisition, or 

reorganization with the statutory 

requirements for Lender Insurance 

approval. The proposed rule would thus 

make changes designed to provide 

additional regulatory flexibility and 

better reflect existing market conditions. 

The regulatory 2-year performance 

history requirement may impose a 

burden on lenders whose compliance 

with FHA requirements was not affected 

by the business reorganization. 

Although HUD has in the past granted 

regulatory waivers to address this 

problem, the proposed rule will codify 

a solution that is less administratively 

burdensome than the regulatory waiver 

process. 

Mandatory Electronic Submission of 

Case Binders. The present Direct 

Endorsement regulations require 

mortgagees to submit case binders to 

HUD within 60 days after the date of 

closing of a mortgage loan. Customarily, 

case binders are maintained and 

submitted to HUD in hard-copy paper 

format. Given changes in technology 

that facilitate the electronic submission 

and storing of mortgage loan records, 

the proposed rule solicits comments on 

whether HUD should require that all 

case binders be submitted 

electronically. Although Lender 

Insurance mortgagees are not currently 

required to submit case binders (except 

upon HUD’s request), under HUD’s 

proposal they would be required to 

submit these mortgage loan records 

electronically within a specified time 

frame following insurance of the 

mortgage. 

The minimum cost of this change to 

mortgagee would be zero. Most 

companies already possess the 

technology to process electronic 

documents for their investors. In 

addition, there are currently seven 

lenders that submit a total of 250,000 

electronic case binders annually. These 

firms would not incur additional costs 

for submitting electronic binders to 

FHA. Although most companies already 

subscribe to a service that transmits 

electronic documents, sending them to 

FHA would impose an additional cost. 

A reasonable estimate of the additional 

cost per loan is a transaction fee in the 

range of $9 to $17 per case binder, with 

an upfront cost of $5,000 to $15,000 per 

firm. With 4,000 firms, the aggregate 


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62340 Federal Register / Vol. 75, No. 195 / Friday, October 8, 2010 / Proposed Rules 

2The Small Business Administration size 

standard regulations at 13 CFR 121.201 define small 

business lenders and mortgagees as having less than 

$7 million in annual revenues for nondepository 

firms and assets under $175 million for depository 

firms. 

fixed cost of this portion of the rule 

would range from $20 million to $60 

million. If FHA has an average of 1.5 

million loans, then 1.25 million loans 

would be affected (1.5 million minus 

250,000). The aggregate variable cost of 

this requirement would constitute from 

$11 million to $21 million ($9 to $17 

multiplied by 1.25 million). 

The low-cost-scenario is defined as 

the case where the fixed and variable 

costs are lowest and the high-cost 

scenario where the costs are highest. 

The annualized cost over 10 years at a 

3 percent discount rate would be $14 

million in the low-cost scenario and $29 

million annually in the high-cost 

scenario. At a 7 percent discount rate, 

the annualized cost over 10 years would 

be $15 million annually for the low-cost 

scenario and $31 million for the highcost scenario. 

The net cost, however, of moving to 

mandatory electronic submission 

should not be lesser the gross cost 

described above, since there will be 

some substitution from more expensive 

postal to electronic submission. These 

benefits are expected to last for the next 

10 years until a new investment is 

required. Consider, for example, if the 

case binders of one-half of all loans 

were mailed to FHA at a cost of $30 per 

binder, then the annual savings of postal 

costs would be $18.7 million. This 

provision generates net benefits for the 

low-cost of transmission scenario (a 

total of $44 million at a 3 percent 

discount rate over 10 years) but not for 

the high-cost of transmission of scenario 

(a net cost of $81 million at the 3 

percent discount rate). The annualized 

net benefit in the low-cost scenario is 

$5.4 million and the annualized net cost 

in the high-cost scenario is $9.6 

annually. 

The docket file 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, please schedule 

an appointment to review the docket file 

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 toll-free 

Federal Information Relay Service at 

800–877–8339. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.) generally requires 

an agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. 

The proposed rule would not add any 

new regulatory burdens on FHAapproved mortgage lenders. Rather, as 

noted above in this preamble (see the 

section captioned ‘‘Regulatory Planning 

and Review’’), the proposed rule would 

codify much of existing practice 

regarding indemnification. Specifically, 

the proposed rule would codify a 

definition of the term ‘‘origination’’ for 

purposes of indemnification, specify 

time limits on HUD’s ability to demand 

indemnification in cases not involving 

fraud or misrepresentation, and identify 

specific defects in mortgage loan 

origination that may prompt HUD to 

seek indemnification. The primary 

change is that all Lender Insurance 

mortgagees will be subject to 

indemnification and will not be able to 

negotiate a settlement in lieu of 

indemnification. As noted in the 

‘‘Regulatory Planning and Review’’ 

section of this preamble, this change 

may have a marginal impact on those 

lenders with ineffective risk 

management practices and who have 

refused to execute an indemnification 

agreement. Accordingly, to the extent 

that indemnification provisions of this 

proposed rule have any economic 

impact, it will be as a result of the 

lender’s own actions—i.e., its inability 

or unwillingness to comply with 

prudent risk management practices— 

and not as a result of HUD regulatory 

action. 

HUD also proposes to revise the 

methodology for determining acceptable 

claim and default rates. The regulatory 

change will more accurately evaluate a 

mortgagee’s performance record by 

basing the claim and default rate 

comparison on the mortgagee’s actual 

area of operations, rather than on the 

national average. This change would 

have an overall beneficial economic 

impact on small business lenders.2 HUD 

data indicates that an additional ten 

small business lenders would be 

deemed to have an acceptable claim and 

default rate for purposes of Lender 

Insurance authority as a result of this 

change. (There are currently 602 active 

small business Direct Endorsement 

mortgagees participating in FHA 

programs.) 

The proposed rule also specifies that 

mortgagees must maintain the 

acceptable claim and default rate 

required of them when they were 

initially granted Lender Insurance 

authority, in order to retain such 

authority, and that HUD will monitor 

mortgagee performance on an ongoing 

basis. As noted in the ‘‘Regulatory 

Planning and Review’’ section of this 

preamble, this provision of the proposed 

rule would result in a minimal 

reduction in the number of Direct 

Endorsement lenders that would be 

deemed eligible for Lender Insurance 

authority (113 out of a total of 1,945 

currently active Direct Endorsement 

mortgagees). However, the economic 

impacts of this change should be 

minimal, as these lenders will continue 

to be able to participate in FHA 

programs as Direct Endorsement 

mortgagees. Moreover HUD reiterates 

that Lender Insurance authority is 

reserved for high-performing mortgagees 

that have a proven track record of risk 

management and sound underwriting 

practices. The regulatory change would 

merely require that Lender Insurance 

mortgagees maintain the same 

performance record that first made them 

eligible for Lender Insurance authority. 

To the extent that the proposed 

amendment has any impact, it will be as 

a consequence of the lender’s inability 

to maintain acceptable risk management 

practices, and not as a result a HUD 

regulatory mandate. 

The proposed rule also would make 

several changes designed to provide 

additional regulatory flexibility and 

better reflect existing market conditions. 

For example, the proposed rule would 

facilitate the compliance of new lending 

institutions created by a merger, 

acquisition, or reorganization with the 

statutory requirements for Lender 

Insurance approval. Under HUD’s 

regulations implementing section 256 of 

the National Housing Act, mortgagees 

must comply with a 2-year performance 

history requirement in order to qualify 

for Lender Insurance approval. As a new 

business entity, the lending institution 

created by a merger, acquisition, or 

reorganization would not be able to 

comply with the performance 2-year 

history requirements, and thus would be 

ineligible for Lender Insurance 

authority. The regulatory 2-year 

performance history requirement may 

impose a burden on lenders whose 

compliance with FHA requirements is 

not affected by the business 

reorganization. Although HUD has in 

the past granted regulatory waivers to 

address this problem, the proposed rule 

will codify a solution that is less 

administratively burdensome than the 

regulatory waiver process. 


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The proposed rule also solicits 

comment on a possible change to 

current recordkeeping and submission 

requirements. In light of changes in 

technology that facilitate the electronic 

submission and storing of mortgage loan 

records, HUD is considering requiring 

that case binders be submitted 

electronically regardless of the 

insurance process used by a mortgagee. 

As discussed in detail in the ‘‘Regulatory 

Planning and Review’’ section of this 

preamble, the proposed change likely 

would reduce the economic burden 

imposed on mortgagees by no longer 

requiring that they incur the cost of 

maintaining paper records (except in the 

worst high-cost scenario). Moreover, 

these benefits are expected to last for the 

next 10 years until a new technology 

investment is required. 

Accordingly, for the above reasons, 

the undersigned certifies that this rule 

will not have a significant economic 

impact on a substantial number of small 

entities. Notwithstanding HUD’s 

determination that this rule will not 

have a significant effect on a substantial 

number of small entities, HUD 

specifically invites comments regarding 

any less burdensome alternatives to this 

rule that will meet HUD’s objectives, as 

described in this preamble. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial direct compliance costs on 

state and local governments and is not 

required by statute, or the rule preempts 

state law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive Order. This 

rule will not have federalism 

implications and would not impose 

substantial direct compliance costs on 

state and local governments or preempt 

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 on 

the private sector. This proposed rule 

does not impose any federal mandates 

on any state, local, or tribal 

governments, or on the private sector, 

within the meaning of UMRA. 

Environmental Impact 

This proposed rule does not direct, 

provide for assistance or loan and 

mortgage insurance for, or otherwise 

govern or regulate, real property 

acquisition, disposition, leasing, 

rehabilitation, alteration, demolition, or 

new construction, or establish, revise, or 

provide for standards for construction or 

construction materials, manufactured 

housing, or occupancy. Accordingly, 

under 24 CFR 50.19(c)(1), this rule is 

categorically excluded from 

environmental review under the 

National Environmental Policy Act of 

1969 (42 U.S.C. 4321). 

Paperwork Reduction Act 

The information collection 

requirements for this proposed rule 

have been approved by the Office of 

Management and Budget (OMB) under 

the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) and assigned 

OMB control number 2502–0059. In 

accordance with the Paperwork 

Reduction Act, an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information, unless the collection 

displays a currently valid OMB control 

number. 

Catalogue of Federal Domestic 

Assistance 

The Catalogue of Federal Domestic 

Assistance Number for the principal 

FHA single family mortgage insurance 

program is 14.117. 

List of Subjects in 24 CFR Part 203 

Hawaiian Natives, Home 

improvement, Indians—lands, Loan 

programs—housing and community 

development, Mortgage insurance, 

Reporting and recordkeeping 

requirements, Solar energy. 

Accordingly, for the reasons 

discussed in the preamble, HUD 

proposes to amend 24 CFR part 203 to 

read as follows: 

PART 203—SINGLE FAMILY 

MORTGAGE INSURANCE 

1. The authority citation for part 203 

is revised to read as follows: 

Authority: 12 U.S.C. 1709, 1710, 1715b, 

1715z–16, 1715u, and 1717z–21; 42 U.S.C. 

3535(d). 

2. In § 203.4, amend paragraph (a) by 

revising the reference ‘‘§ 203.5’’ to read 

‘‘§ 203.3’’ and revise paragraphs (b), (c), 

and (d), to read as follows: 

§ 203.4 Approval of mortgagees for Lender 

Insurance. 

* * * * * 

(b) Performance: Claim and default 

rate. (1) In addition to being 

unconditionally approved for the Direct 

Endorsement program, a mortgagee 

must have had an acceptable claim and 

default rate (as described in paragraph 

(b)(3) of this section) for at least 2 years 

prior to its application for participation 

in the Lender Insurance program, and 

must maintain such a claim and default 

rate in order to retain Lender Insurance 

approval. 

(2) HUD may approve a mortgagee 

that is otherwise eligible for Lender 

Insurance approval, but has an 

acceptable claim and default record of 

less than 2 years, if: 

(i) The mortgagee is a an entity 

created by a merger, acquisition, or 

reorganization completed less than 2 

years prior to the date of the mortgagee’s 

application for Lender Insurance 

approval; 

(ii) One or more of the entities 

participating in the merger, acquisition, 

or reorganization had Lender Insurance 

approval at the time of the merger, 

acquisition, or reorganization; 

(iii) All of the lending institutions 

participating in the merger, acquisition, 

or reorganization had an acceptable 

claim and default record for the 2 years 

preceding the mortgagee’s application 

for Lender Insurance approval; and 

(iv) The extrapolated claim and 

default record of the mortgagee derived 

by aggregating the claims and defaults of 

the entities participating in the merger, 

acquisition, or reorganization, for the 

2-year period prior to the mortgagee’s 

application for Lender Insurance 

approval, constitutes an acceptable rate 

of claims and defaults, as defined by 

this section. 

(3) A mortgagee has an acceptable 

claim and default rate if its rate of 

claims and defaults is at or below 150 

percent of the average rate for insured 

mortgages in the state(s) in which the 

mortgagee operates. 

(c) Reviews. HUD will monitor a 

mortgagee’s eligibility to participate in 

the Lender Insurance program on a 

continual basis. 

(d) Termination of approval. (1) HUD 

may immediately terminate the 

mortgagee’s approval to participate in 

the Lender Insurance program, in 

accordance with section 256(d) of the 

National Housing Act (12 U.S.C. 1715z– 

21(d)), if the mortgagee: 

(i) Violates any of the requirements 

and procedures established by the 

Secretary for mortgagees approved to 

participate in HUD’s Lender Insurance 

program, Direct Endorsement program, 

or the Title II Single Family mortgage 

insurance program; or 

(ii) If HUD determines that other good 

cause exists. 

(2) Such termination will be effective 

upon receipt of HUD’s notice advising 

of the termination. Within 30 days after 

receiving HUD’s notice of termination, a 


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62342 Federal Register / Vol. 75, No. 195 / Friday, October 8, 2010 / Proposed Rules 

mortgagee may request an informal 

conference with the Deputy Assistant 

Secretary for Single Family Housing or 

designee. The conference will be 

conducted within 30 days after HUD 

receives a timely request for the 

conference. After the conference, the 

Deputy Assistant Secretary (or designee) 

may decide to affirm the termination 

action or to reinstate the mortgagee’s 

Lender Insurance program approval. 

The decision will be communicated to 

the mortgagee in writing, will be 

deemed a final agency action, and, 

pursuant to section 256(d) of the 

National Housing Act (12 U.S.C. 1715z– 

21(d)), is not subject to judicial review. 

(3) Termination of an origination 

approval agreement under part 202 of 

this chapter or termination of Direct 

Endorsement approval under 

§ 203.3(d)(2) for a mortgagee or one or 

more branch offices automatically 

terminates Lender Insurance approval 

for the mortgagee or the branch office or 

offices, without imposing any further 

requirement on the mortgagee or such 

offices to comply with this paragraph. 

(4) Any termination instituted under 

this section is distinct from withdrawal 

of mortgagee approval by the Mortgagee 

Review Board under 24 CFR part 25. 

3. In § 203.255, revise paragraph (f)(1), 

remove paragraph (f)(4), and add 

paragraph (g) to read as follows: 

§ 203.255 Insurance of mortgage. 

* * * * * 

(f) Lender Insurance. (1) Preinsurance review. For applications for 

insurance involving mortgages 

originated under the Lender Insurance 

program under § 203.6, the mortgagee is 

responsible for performing a preinsurance review that would otherwise 

be performed by HUD under 

§ 203.255(c) on the documents that 

would otherwise be submitted to HUD 

under § 203.255(b). The mortgagee’s 

staff that performs the pre-insurance 

review must not be the same staff that 

originated the mortgage or underwrote 

the mortgage for insurance. 

* * * * * 

(g) Indemnification. (1) General. By 

insuring the mortgage, a Lender 

Insurance mortgagee agrees to 

indemnify HUD, in accordance with this 

paragraph. 

(2) Definition of origination. For 

purposes of indemnification under this 

paragraph, the term ‘‘origination’’ means 

the process of creating a mortgage, 

starting with the taking of the initial 

application, continuing with the 

processing and underwriting, and 

ending with the mortgagee endorsing 

the mortgage note for FHA insurance. 

(3) Serious and material violation. 

The mortgagee shall indemnify HUD for 

an FHA insurance claim paid within 5 

years of mortgage insurance 

endorsement, if the mortgagee knew or 

should have known of a serious and 

material violation of FHA origination 

requirements, such that the mortgage 

loan should not have been approved 

and endorsed by the mortgagee and 

irrespective of whether the violation 

caused the mortgage default. Such a 

serious and material violation of FHA 

requirements in the origination of the 

mortgage may occur if the mortgagee 

failed to, among other actions: 

(i) Verify the creditworthiness, 

income, and/or employment of the 

mortgagor in accordance with FHA 

requirements; 

(ii) Verify the assets brought by the 

mortgagor for payment of the required 

down payment and/or closing costs in 

accordance with FHA requirements; or 

(iii) Address property deficiencies 

identified in the appraisal affecting the 

health and safety of the occupants or the 

structural integrity of the property in 

accordance with FHA requirements, or 

(iv) Ensure that the appraisal of the 

property serving as security for the 

mortgage loan satisfies FHA appraisal 

requirements, in accordance with 

§ 203.5(e). 

(4) Fraud or misrepresentation. The 

mortgagee shall indemnify HUD for an 

insurance claim if fraud or 

misrepresentation was involved in 

connection with the origination of the 

mortgage, regardless of when the 

mortgage was endorsed for insurance 

and irrespective of whether the fraud or 

misrepresentation caused the mortgage 

default. 

(5) Demand for indemnification. The 

demand for indemnification will be 

made by either the Secretary or the 

Mortgagee Review Board. Under an 

indemnification agreement, the Lender 

Insurance mortgagee agrees to either 

abstain from filing an insurance claim, 

or reimburse FHA if a subsequent 

holder of the mortgage files an 

insurance claim and FHA suffers a 

financial loss. 

Dated: September 16, 2010. 

David H. Stevens, 

Assistant Secretary for Housing—Federal 

Housing Commissioner. 

[FR Doc. 2010–25441 Filed 10–7–10; 8:45 am] 

BILLING CODE 4210–67–P 

DEPARTMENT OF JUSTICE 

28 CFR Part 2 

Paroling, Recommitting, and 

Supervising Federal Prisoners: 

Prisoners Serving Sentences Under 

the United States and District of 

Columbia Codes 

AGENCY: United States Parole 

Commission, Justice. 

ACTION: Proposed rule. 

SUMMARY: The United States Parole 

Commission seeks public comment on a 

proposed rule that would amend the 

Offense Behavior Severity Index in its 

paroling policy guidelines to equalize 

the ratings for crack cocaine and powder 

cocaine offenses. 

DATES: Comments must be received by 

December 1, 2010. 

ADDRESSES: Submit your comments, 

identified by docket identification 

number USPC–2010–03 by one of the 

following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the online 

instructions for submitting comments. 

• Mail: Office of the General Counsel, 

U.S. Parole Commission, 5550 

Friendship Blvd., Chevy Chase, 

Maryland 20815. 

• Fax: (301) 492–5563. 

FOR FURTHER INFORMATION CONTACT: 

Johanna E. Markind, Office of the 

General Counsel, U.S. Parole 

Commission, 5550 Friendship Blvd., 

Chevy Chase, Maryland 20815, 

telephone (301) 492–5959. Questions 

about this publication are welcome, but 

inquiries concerning individual cases 

cannot be answered over the telephone. 

SUPPLEMENTARY INFORMATION: 

Background 

The U.S. Parole Commission is 

responsible for making parole release 

decisions for those federal prisoners 

who are eligible for parole under the 

now-repealed indeterminate sentencing 

system. Under this system, a prisoner 

may be released to community 

supervision after he serves a minimum 

term required by his sentence or by 

operation of law. After the Commission 

makes a discretionary judgment to 

release the prisoner and imposes 

conditions of release, the released 

prisoner remains on supervision until 

the expiration of his sentence or his 

supervision is terminated early. Parole 

may be revoked and the offender 

returned to imprisonment for violating 

the conditions of release. The 

Commission carries out its duties under 

the statutes at 18 U.S.C. 4201–4218. The 

Commission also has similar 


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