1686 Federal Register / Vol. 75, No. 7 / Tuesday, January 12, 2010 / Rules and Regulations 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 257 

[Docket No. FR–5340–I–02] 

RIN 2502–AI76 

HOPE for Homeowners Program; 

Statutory Transfer of Program 

Authority to HUD and Conforming 

Amendments To Adopt Recently 

Enacted Statutory Changes 

AGENCY: Office of the Assistant 

Secretary for Housing-Federal Housing 

Commissioner, HUD. 

ACTION: Interim rule. 

SUMMARY: This rule implements the 

changes made to the HOPE for 

Homeowners (H4H) program by the 

recently enacted Helping Families Save 

Their Homes Act of 2009. Prior to 

enactment of the Helping Families Save 

Their Homes Act of 2009, rulemaking 

authority was under the Board of 

Directors of the HOPE for Homeowners 

Program (Board), and the regulations for 

the program are codified in a chapter of 

the Code of Federal Regulations (CFR) 

reserved for the Board. 

The H4H program is a temporary 

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 longterm sustainable homeownership, 

including, among other things, allowing 

homeowners to avoid foreclosure. The 

statute also transfers program 

responsibility for the H4H program to 

the Secretary of HUD. Previously, the 

program was overseen by a Board 

consisting of HUD, the Department of 

the Treasury, the Federal Deposit 

Insurance Corporation, and the Federal 

Reserve Board. The Board will continue 

in an advisory capacity to the Secretary 

of HUD on the implementation of the 

program. 

HUD also takes the opportunity 

afforded by this rule to address the two 

public comments received on the 

January 7, 2009, interim rule issued by 

the Board. Comments received in 

response to this rule will be taken into 

consideration in the development of a 

final rule, to follow this interim rule. 

DATES: Effective Date: March 15, 2010. 

Comment Due Date: March 15, 2010. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this rule to the Regulations Division, 

Office of General Counsel, Department 

of Housing and Urban Development, 

451 7th 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 

7th Street, SW., Room 10276, 

Washington, DC 20410–0500. 

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 

through 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: 

Margaret Burns, Director, Office of 

Single Family Program Development, 

Office of Housing, Department of 

Housing and Urban Development, 451 

7th 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 through TTY by calling the tollfree Federal Information Relay Service 

at 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. The HOPE for Homeowners Program 

The HOPE for Homeowners Act of 

2008 (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 National 

Housing Act (NHA) to add a new 

section 257. Section 257 (12 U.S.C. 

1701z–23) establishes the H4H program, 

a temporary program within HUD’s 

Federal Housing Administration (FHA) 

that offers homeowners and mortgage 

loan holders (or servicers acting on their 

behalf) insurance on the refinancing of 

loans for distressed mortgagors to 

support long-term sustainable 

homeownership and avoid foreclosure. 

Section 257 authorizes FHA to insure 

such refinanced eligible mortgages 

commencing no earlier than October 1, 

2008, and the authority to insure new 

mortgages expires September 30, 2011. 

The fundamental principle behind the 

H4H program is that providing new 

equity and reducing monthly payments 

for distressed homeowners may be an 

effective way to help homeowners avoid 

foreclosure. Under the H4H program, 

refinanced mortgages are offered by 

FHA-approved mortgagees to eligible 

borrowers who are at risk of losing their 

homes to foreclosure. The refinanced 

mortgage insured by FHA can have a 

principal loan balance below the current 

appraised value of the home, creating 

new equity in the mortgaged property. 

Participating mortgagors share their new 

equity and future appreciation of the 

value of the property subject to the 

refinanced mortgage with FHA. All 

holders of outstanding mortgage liens 

on a property must agree to accept the 

proceeds of the H4H program mortgage 

as payment in full of all indebtedness 

under the existing mortgage(s). 

Participation in the H4H program is 

voluntary. No mortgagees, servicers, or 

investors are compelled to participate. 

Under section 257, as originally 

established by HERA, the H4H program 

was administered by a Board of 

Directors (Board) 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 their designees). On 

October 6, 2008, at 73 FR 58418, the 

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Board published regulations in the 

Federal Register that established the 

core requirements for implementation of 

the H4H program. These regulations are 

codified in part 4001 of title 24 of the 

CFR. 

B. The Board’s January 7, 2009, Interim 

Rule 

Section 124 of the Emergency 

Economic Stabilization Act of 2008 

(Pub. L. 110–343, 122 Stat. 3765, 

approved October 3, 2008) (EESA) 

amended section 257 of the NHA to 

provide additional flexibility and 

options to lenders participating in the 

H4H program. Among other things, 

section 124 of EESA authorizes upfront 

payments to a holder of an existing 

subordinate mortgage in lieu of 

providing the subordinate lien holder 

with a portion of HUD’s 50 percent 

interest in the future appreciation of the 

value of the property. On January 7, 

2009, at 74 FR 617, the Board published 

an interim rule to implement the 

changes made by EESA, and provided 

the public with a 60-day period to 

comment on the regulatory 

amendments. The public comment 

period closed on March 9, 2009. 

C. The Helping Families Save Their 

Homes Act of 2009 

On May 20, 2009, the President 

signed into law the Helping Families 

Save Their Homes Act of 2009 (Division 

A of Pub. L. 111–22, 123 Stat. 1632) 

(Helping Families Act). Section 202 of 

the Helping Families Act makes several 

amendments to section 257 of the NHA 

to enhance operation of the H4H 

program and to provide additional 

flexibility to participants. In addition, 

the Helping Families Act transfers 

responsibility, including rulemaking 

authority, for the H4H program from the 

Board to the Secretary of HUD. The 

Board will continue in an advisory 

capacity to the Secretary of HUD on the 

implementation of the H4H program. 

II. This Interim Rule 

This interim rule implements the 

changes made to the H4H program by 

the Helping Families Act. The statutory 

revisions to the H4H program made by 

the Helping Families Act, in several 

instances, have superseded the 

regulatory amendments made by the 

January 7, 2009, interim rule. 

Nonetheless, HUD takes the opportunity 

afforded by today’s publication to also 

address the two public comments 

received on the January 7, 2009, interim 

rule issued by the Board. 

This section of the preamble discusses 

the regulatory amendments made in 

response to the Helping Families Act. 

Section IV of the preamble discusses the 

issues and suggestions submitted by the 

two public commenters on the January 

7, 2009, interim rule and HUD’s 

responses to these comments. 

Key Changes Made to the H4H Program 

by the Helping Families Act 

1. Transfer of H4H program 

responsibility to HUD. As noted, the 

Helping Families Act transfers 

responsibility for the H4H program from 

the Board to HUD. This interim rule 

implements this statutory mandate by 

transferring the H4H program 

regulations to a new part 257 of HUD’s 

regulations in title 24 of the CFR. With 

the exception of the regulatory 

amendments discussed below in this 

preamble, the substance of new part 257 

is nearly identical to that of 24 CFR part 

4001, which will be removed from the 

CFR in a future rulemaking. Where 

appropriate, the interim rule revises the 

H4H program regulations to replace 

references to the Board with references 

to HUD. Because the Board continues to 

serve in an advisory capacity to the 

Secretary of HUD on the administration 

of the H4H program, the interim rule 

does not remove 24 CFR part 4000, 

which establishes the Board’s 

procedures governing access to records 

under the Freedom of Information Act 

(5 U.S.C. 552). The procedures 

contained in part 4000 remain 

applicable to the Board’s ongoing 

advisory responsibilities. 

2. Inheritance exception to present 

ownership interest requirement 

(§ 257.104). Section 257(e)(11) of the 

NHA requires that the residence covered 

by the H4H program mortgage be the 

only residence in which the mortgagor 

has a present ownership interest. The 

Helping Families Act amended this 

provision to allow the Secretary of HUD 

to establish an exception for a mortgagor 

who has inherited property. The interim 

rule implements this statutory flexibility 

by providing for such an exception. 

3. Eligible mortgagors (§ 257.106). 

Prior to amendment by the Helping 

Families Act, section 257 of NHA based 

the calculation of a borrower’s debt-toincome (DTI) ratio on a March 1, 2008 

date. Specifically, the borrower’s DTI 

could be calculated as of March 1, 2008, 

or as of a later date, due to mortgage 

resets occurring after that date, but 

under the mortgage terms in effect on 

March 1, 2008. The Helping Families 

Act streamlines this calculation by 

removing all references to March 1, 

2008, and instead requiring that DTI be 

calculated based on the borrower’s 

existing mortgages at the time of 

application for the H4H program 

mortgage. The interim rule implements 

the simplified DTI calculation 

provisions in new § 257.106(a). 

In accordance with the Helping 

Families Act, the interim rule prohibits 

mortgagors with a net worth that 

exceeds $1 million from participation in 

the H4H program (§ 257.106(d)). For 

purposes of the statutory ban on 

millionaires, the interim rule defines net 

worth as the total dollar amount of all 

the liabilities subtracted from the total 

dollar amount of all the assets (other 

than retirement accounts) of the 

mortgagor. 

4. Underwriting requirements 

(§ 257.110). The interim rule provides 

additional flexibility regarding the loanto-value (LTV) thresholds and the 

allowable total monthly payments under 

the H4H program mortgage. HUD 

believes this flexibility will facilitate 

participation in the H4H program. 

The H4H program regulations, prior to 

amendment by the Helping Families 

Act, defined that the initial principal 

balance of the H4H program mortgage as 

a percentage of the current appraised 

value of the property may not exceed 

96.5 percent. The interim rule will no 

longer codify a regulatory cap on LTV. 

HUD has determined that any such cap 

is more appropriately established 

through Mortgagee Letter, given the 

temporary nature of the program and the 

urgency of the situations the program is 

intended to address. Removal of the 

codified LTV cap will allow HUD to 

more rapidly modify the H4H program 

in response to evolving housing market 

conditions. For these reasons, HUD’s 

position is that removal from the 

codified regulations is the right 

approach; however, HUD specifically 

invites comment on removal of the LTV 

cap from the codified regulations. 

The rule continues to provide that the 

mortgagor’s total monthly mortgage 

payment under a H4H program 

mortgage with an LTV greater than 90 

percent, excluding the upfront 

premium, may not exceed 31 percent of 

the mortgagor’s monthly gross income. 

Moreover, as required under the current 

regulations, the sum of the total 

monthly mortgage payment under such 

a H4H program mortgage and all 

monthly recurring expenses of the 

mortgagor may not exceed 43 percent of 

the mortgagor’s monthly gross income. 

(See § 257.110(a)(2).) 

5. Mortgagor representations 

(§§ 257.112 and 257.116). The Helping 

Families Act revises the existing 

required mortgagor representations. 

Specifically, the mortgagor is now 

required to provide a certification to the 

Secretary of HUD that the mortgagor has 

not: (1) Intentionally defaulted on an 

existing mortgage or other substantial 

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debt during the 5-year period ending 

upon insurance of the H4H program 

mortgage, (2) knowingly, willfully, and 

with actual knowledge furnished 

material information known to be false 

for purposes of obtaining the H4H 

program mortgage; or (3) been convicted 

under federal or state law for fraud 

during the 10-year period ending upon 

the insurance of the H4H program 

mortgage. The interim rule implements 

this requirement at § 257.116(b)(1). For 

purposes of the required certification, 

the interim rule defines substantial debt 

to mean any individual liability of the 

mortgagor that exceeds $100,000. 

The Helping Families Act also 

requires that the mortgagee make a 

good-faith effort to determine that the 

mortgagor has not been convicted under 

federal or state law for fraud during the 

10-year period ending upon insurance 

of the H4H program mortgage. The 

interim rule implements this provision 

at § 257.112(b) by requiring that the 

mortgagor provide the mortgagee with a 

certification that the mortgagor has not 

been convicted of fraud during the 

previous 10-year period and requiring 

that the mortgagee take such other 

action as HUD may specify in 

administrative guidance. For purposes 

of reducing required paperwork and 

facilitating H4H program oversight, the 

interim rule allows this certification to 

be combined with the mortgagor 

certification to the Secretary of HUD, 

discussed above and required under 

§ 257.116(b)(1). 

6. Appreciation sharing and upfront 

payments (§ 257.120). This interim rule 

makes the following changes to the 

appreciation sharing and upfront 

payment provisions in order to 

implement the Helping Families Act, as 

well as to provide additional flexibility 

and thereby facilitate increased 

participation in the H4H program. 

First, the interim rule removes the 

consideration of capital improvement 

expenditures from the calculation of 

appreciation in value. Further, the 

interim rule no longer requires that a 

subordinate mortgage must have been 

originated on or before January 1, 2008, 

in order for the person or entity holding 

the subordinate mortgage to be eligible 

for a portion of FHA’s interest in the 

appreciation in the value of the 

property. 

The interim rule implements the 

limitation on the amount of 

appreciation to which FHA is entitled. 

The Helping Families Act amends 

section 257 of the NHA to limit the FHA 

appreciation interest to 50 percent of the 

appraised value of the property at the 

time the H4H program mortgage was 

originated. Accordingly, § 257.120(b) of 

the interim rule provides that, upon sale 

or disposition of the property, FHA may 

be entitled to receive the lesser of up to 

50 percent of the appreciation in value, 

or an amount equal to the appraised 

value of the property at the time when 

the existing senior mortgage was 

originated. 

The interim rule removes the current 

Appendix to the H4H program 

regulations and will no longer codify 

the specific amounts of the upfront 

payment and the risk-adjusted future 

appreciation payment. Regulatory 

codification of the specific amounts has 

the potential to delay needed 

adjustments. Accordingly, HUD has 

determined that these amounts are more 

appropriately set forth through a 

Mortgagee Letter, which will allow the 

Department to more expeditiously 

update the amounts in response to the 

availability of new economic data and 

feedback from H4H program 

participants. 

As noted above, section 124 of EESA 

authorizes upfront payments to a holder 

of an existing subordinate mortgage in 

lieu of providing the subordinate lien 

holder a portion of HUD’s 50 percent 

interest in the future appreciation of the 

value of the property. HUD has 

implemented this authority through 

rulemaking. This interim rule clarifies 

the regulatory language to provide that 

the offer of an upfront payment is at 

HUD’s discretion. HUD notes that, at 

least initially, FHA will be exercising 

the authority to offer upfront payments 

in lieu of any shared appreciation. 

7. Payment of allowable fees and 

closing costs no longer codified in 

regulation. New part 257 will no longer 

codify the sources that may be used to 

pay allowable closing costs incurred in 

connection with the refinancing and 

insurance of a mortgage under the H4H 

program. Similar to removal of the LTV 

cap in codified regulation, removal of 

allowable closing costs allows HUD to 

more quickly respond to changing 

conditions, such as new costs that may 

appear, and make a determination of 

whether they should be considered 

allowable costs. This is the type of item 

that is better addressed in more specific 

guidance, such as through a mortgagee 

letter. Although HUD’s position is that 

removal from the codified regulations is 

the best approach, HUD specifically 

solicits comments on the exclusion in 

the codified regulations of sources that 

may be used to pay allowable closing 

costs. 

8. Revised upfront and annual 

mortgage insurance premiums 

(§ 257.203). The interim rule 

implements the flexibility provided by 

the Helping Families Act regarding 

upfront and annual mortgage insurance 

premiums for H4H program mortgages. 

Prior to amendment by the Helping 

Families Act, section 257 of the NHA 

specified an upfront premium of 3 

percent of the amount of the original 

insured principal obligation of the H4H 

program mortgage, and an annual 

premium of 1.5 percent of the remaining 

insured principal balance. The Helping 

Families Act amended section 257 to 

provide for an upfront premium of ‘‘not 

more than’’ 3 percent, and an annual 

premium of ‘‘not more than’’ 1.5 percent. 

The interim rule reflects these statutory 

changes at § 257.203(a)(1) and (a)(2). 

9. Streamlined property preservation 

exception to subordinate lien 

restrictions (§ 257.303). The interim rule 

streamlines eligibility for the property 

preservation exception to the restriction 

on subordinate liens. Section 257 

prohibits the mortgagor from granting a 

new second lien on the property during 

the first 5 years of the H4H program 

mortgage, except as the Secretary of 

HUD determines necessary to ensure the 

maintenance of property standards. The 

current H4H program regulations 

establish seven factors that must be met 

in order to qualify for the property 

preservation exception. This interim 

rule simplifies the determination of 

whether a subordinate lien qualifies for 

the exception by removing the seventh 

factor, regarding the sum of the unpaid 

principal balance and accrued and 

unpaid interest on the H4H program 

mortgage and the original principal 

balance of the new mortgage debt. 

Further, the interim rule clarifies that 

the restriction on subordinate liens does 

not apply to FHA loss mitigation actions 

(e.g., mortgage modifications and partial 

claims). 

III. Discussion of the Public Comments 

on the January 7, 2009, Interim Rule 

Two public comments were submitted 

on the January 7, 2009, interim rule; one 

by a national organization representing 

mortgage bankers, and the other 

representing state and federal credit 

unions. Both commenters were 

generally supportive of the regulatory 

amendments promulgated in the interim 

rule, but also offered suggestions they 

believed would further enhance the 

H4H program. As noted earlier in this 

preamble, the statutory amendments 

made by the Helping Families Act have, 

in several instances, superseded 

provisions in the January 7, 2009, 

regulatory changes. Nevertheless, HUD 

appreciates the support expressed by 

the commenters and the suggestions for 

program improvements that were 

offered. The issues and suggestions 

submitted by the two public 

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commenters and HUD’s responses to 

these comments are as follows. 

Comment: The process for becoming 

an FHA-approved lender is too 

burdensome. One of the commenters 

stated that the process for qualifying as 

an FHA-approved lender is very 

burdensome. The commenter expressed 

interest in working with FHA to discuss 

how the process may be streamlined. 

Response: The January 7, 2009, 

interim rule did not address the FHA 

lender approval process or solicit 

comment on this process, and therefore 

the comment is outside the scope of the 

January 7, 2009, interim final rule, 

which pertains solely to the H4H 

program regulations. Nevertheless, HUD 

appreciates the feedback on the FHAapproved lender process. HUD is 

frequently reviewing its processes for 

the purpose of determining that the 

processes achieve their goal without 

being unduly burdensome. 

Comment: The upfront and future 

appreciation payments percentages are 

too low. One of the commenters stated 

that the amounts of the risk-adjusted 

upfront payment and the risk-adjusted 

future appreciation payment provided 

for by the January 7, 2009, interim rule 

will discourage participation in the H4H 

program, and position FHA to only 

receive loans where foreclosure is 

imminent. The commenter stated that 

both payments should be significantly 

higher to encourage subordinate lien 

holder participation. 

Response: As noted above in this 

preamble, new 24 CFR part 257 no 

longer codifies the specific amounts of 

the upfront payment and the riskadjusted future appreciation payment. 

As discussed, HUD has determined that 

these amounts are more appropriately 

set forth through Mortgagee Letter, 

which will allow the Department to 

more expeditiously adjust the specific 

amounts to reflect changes in market 

conditions and facilitate the 

participation of subordinate lien holders 

in the H4H program. 

Comment: Additional flexibility is 

necessary regarding allowable LTV and 

DTI ratios. One of the commenters 

suggested that the allowable LTV ratio 

of 96.5 percent not be limited to those 

mortgagors whose new total monthly 

payment under the H4H program does 

not exceed 31 percent of the mortgagor’s 

monthly gross income. Further, the 

commenter suggested that servicers 

should be allowed to consider 

compensating factors as a basis for 

exceeding the current maximum DTI. 

The commenter stated that these 

changes would make the H4H program 

more accessible to mortgagors in highcost areas, such as California, where 

borrowers are accustomed to spending a 

higher percentage of their gross income 

on housing. 

Response: As noted above, this 

interim rule revises the provisions 

regarding allowable LTV ratios to 

provide additional flexibility and 

address concerns, such as those 

expressed by the commenter regarding 

high-cost areas. Specifically, the interim 

rule no longer codifies a cap on LTV, 

since HUD has determined that any 

such cap is more appropriately 

established through Mortgagee Letter. 

Establishment of LTV limits through 

Mortgagee Letter will allow HUD to 

more rapidly modify the H4H program 

in response to evolving housing market 

conditions. The rule continues to 

provide that the mortgagor’s total 

monthly mortgage payment under a 

H4H program mortgage with an LTV 

greater than 90 percent, excluding the 

upfront premium, may not exceed 31 

percent of the mortgagor’s monthly 

gross income. Moreover, as required 

under the current regulations, the sum 

of the total monthly mortgage payment 

under such a H4H program mortgage 

and all monthly recurring expenses of 

the mortgagor may not exceed 43 

percent of the mortgagor’s monthly 

gross income. (See § 257.110(a)(2).) 

Comment: Fully vetted legal 

documents should be provided for 

shared appreciation and shared equity 

mortgage documents. One of the 

commenters suggested that a servicer 

should not be liable for ensuring that 

the legal documents for the shared 

equity and appreciation mortgages are 

valid and enforceable in all states. The 

commenter suggested that appropriately 

vetted legal documents necessary for 

executing both types of subordinate 

loans should be provided by FHA. The 

commenter stated that the burden of 

performing the necessary legal review, 

and the associated costs and risks of 

litigation should the mortgages be found 

deficient, have deterred servicers from 

participating in the H4H program. 

Response: Lenders should modify the 

documents as may be necessary for 

compliance with state law. However, 

well-established document preparation 

services have modified, or are in the 

process of offering, state-compliant 

model security instruments for the H4H 

program. FHA-approved lenders have 

long used these services. 

Comment: Endorsement time frame is 

not consistent with standard 

endorsement procedures. One of the 

commenters objected to the requirement 

that the lender include in the file 

evidence that the borrower has made the 

first payment within 120 days of 

closing. Under the H4H program 

regulations, if the borrower has not 

made such payment, the loan will not 

be eligible for payment of a claim under 

the H4H program. The commenter 

stated that this requirement is 

inconsistent with the standard 

endorsement rule for FHA loans that 

allows loans that are endorsed late to 

receive insurance benefits if such loans 

are current or brought current. The 

commenter wrote that while section 257 

of the NHA provides that insurance 

benefits will not be paid if there is a 

‘‘first payment default,’’ FHA has the 

authority to interpret the term to mean 

‘‘a borrower who does not make the first 

payment or subsequent payments on the 

loan.’’ The commenter wrote that 

adopting the interpretation suggested by 

the commenter, in combination with the 

retention of the current FHA 

endorsement policy, will limit the 

exposure of servicers to those cases 

where the borrower fails to make the 

first and subsequent payments on a late 

endorsement. 

Response: The H4H program 

regulations provide endorsement 

procedures that protect lenders from 

exposure and promote confidence in the 

insurance being provided. The change 

suggested by the commenter would 

actually increase a lender’s exposure 

should the borrower not make the first 

payment since HUD is prohibited from 

paying a claim under such 

circumstances. To ensure that the 

lenders comply with the first payment 

default provision established in the law, 

this interim rule continues to require 

the lender to include in the file 

evidence that the borrower has made the 

first payment within 120 days of loan 

closing. 

IV. Justification for Interim Rulemaking 

HUD generally publishes regulatory 

changes for public comment before 

issuing them for effect, in accordance 

with its own regulations on rulemaking 

in 24 CFR part 10. Part 10, however, 

does provide in § 10.1 for exceptions 

from that general rule where the 

Department finds good cause to omit 

advance notice and public participation. 

The good cause requirement is satisfied 

when the prior public procedure is 

‘‘impracticable, unnecessary, or contrary 

to the public interest.’’ For the following 

reasons, the Department finds that a 

delay in the effectiveness of this interim 

rule, in order to solicit prior public 

comment, would be contrary to the 

public interest and statutory direction. 

As noted above in this preamble, H4H 

is a temporary program. Section 257(r) 

of the NHA provides that the Secretary 

of HUD may not enter into any new 

commitment to insure an H4H program 

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mortgage after September 30, 2011. 

Further, the H4H program was enacted 

to help the federal government address 

the national housing crisis. As noted by 

Congress, the goal of the H4H program 

is, in part, ‘‘to help stabilize and provide 

confidence in mortgage markets by 

bringing transparency to the value of 

assets based on mortgage assets’’ (section 

257(b)(3)). The changes made by the 

Helping Families Act were designed to 

provide additional needed flexibility 

and address programmatic deficiencies 

identified by lenders, HUD, and 

Congress. The pressing need to address 

the housing crisis and the temporary 

nature of the H4H program demonstrate 

it was the intent of Congress that the 

benefits of the H4H program be made 

promptly available to the public. A 

delay of the effectiveness of this rule for 

the prior solicitation of public comment 

would be contrary to the public interest, 

by postponing the benefits that Congress 

sought to be made immediately 

available to homeowners and lenders. 

The majority of the regulatory 

amendments made by this interim rule 

closely track the statutory language of 

the Helping Families Act. The 

amendments are largely conforming in 

nature, updating the current H4H 

program regulations to reflect the 

language of the Helping Families Act. A 

delay in the effectiveness of these 

regulatory amendments is unnecessary 

because the Department does not have 

the discretion to revise statutory 

language in response to comments 

submitted by the public. Although not 

directly on point as to whether good 

cause exists for the omission of prior 

public comment, the Department also 

notes that, in the case of other 

regulatory changes, the interim rule 

revises existing program requirements to 

provide lenders and homeowners with 

additional flexibility and facilitate their 

participation in the H4H program. The 

interim rule does not impose new 

regulatory burdens on lenders and 

homeowners. 

Although HUD has determined that 

good cause exists to publish this rule for 

effect without prior solicitation of 

public comment, the Department 

recognizes the value and importance of 

public input in the rulemaking process. 

Accordingly, HUD is issuing these 

regulatory amendments on an interim 

basis and providing for a 60-day public 

comment period. All comments will be 

considered in the development of the 

final rule. 

V. Findings and Certifications 

Executive Order 12866, Regulatory 

Planning and Review 

The Office of Management and Budget 

(OMB) reviewed this rule under 

Executive Order 12866 (entitled, 

‘‘Regulatory Planning and Review’’). 

This rule was determined to be 

economically significant under 

Executive Order 12866. The docket file 

is available for public inspection 

between the hours of 8 a.m. and 5 p.m. 

weekdays in the Regulations Division, 

Office of General Counsel, Department 

of Housing and Urban Development, 

451 Seventh 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 

202–708–3055 (this is not a toll-free 

number). Persons with hearing or 

speech impairments may access the 

above telephone number via TTY by 

calling the toll-free Federal Information 

Relay Service at 800–877–8339. 

The Economic Analysis prepared for 

this rule is also available for public 

inspection and on HUD’s Web site at 

http://www.hud.gov. A summary of the 

findings contained in the Economic 

Analysis follows. 

The economic impacts of this rule 

stem largely from the changes to the 

H4H program to increase participation. 

Readjusting the parameters of the H4H 

program will not substantially change 

the benefits of preventing a foreclosure. 

The modifications will, however, 

significantly increase the number of 

refinancings by imposing less onerous 

constraints on lenders and borrowers. 

HUD estimates that, with 10,000 

participants annually, the H4H program 

will generate $273 million in net 

benefits to society. H4H program 

participation could be as high as 

137,500 over the life of the program, 

with commensurately higher benefits. 

While the benefits per refinancing are 

substantial, the aggregate impact 

depends upon participation. The 

success of the H4H program will largely 

depend upon alternative opportunities 

for borrowers to refinance or modify 

their loans and the ability and 

willingness of servicers and investors to 

embrace the program. HUD estimates 

that a little more than 750,000 nonprime 

borrowers experiencing foreclosure 

could potentially be helped through a 

revised H4H program, but that only 18 

percent, or 137,500 households, will 

actually refinance through a revised 

H4H program due to various factors 

affecting the ineligibility of many of the 

potentially eligible homeowners. This 

number of 137,500 (or approximately 

90,000 annually) should be viewed as a 

maximum. 

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. This interim 

rule does not impose new regulatory 

burdens on homeowners and lenders 

participating in the H4H program. The 

regulatory amendments made by this 

interim rule closely adhere to the 

statutory language of the Helping 

Families Act. Accordingly, the majority 

of the amendments are largely 

conforming in nature, updating the 

current H4H program regulations to 

reflect the language of the Helping 

Families Act, and do not reflect the 

exercise of agency discretion to 

establish policy. Moreover, all of the 

regulatory changes—those mandated by 

the Helping Families Act and those 

where HUD is exercising policy 

discretion—revise existing program 

requirements to provide lenders and 

homeowners with additional flexibility 

and facilitate their participation in the 

H4H program, and not to establish new 

regulatory burdens. Accordingly, HUD 

has determined that this interim rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

Notwithstanding HUD’s 

determination that this rule does not 

have a significant economic impact on 

a substantial number of small entities, 

HUD specifically invites comments from 

all entities, including small entities, 

regarding less burdensome alternatives 

to this rule that will meet HUD’s 

objectives as described in this preamble. 

Paperwork Reduction Act 

The information collection 

requirements contained in this rule have 

been approved by OMB under the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501–3520) and assigned OMB 

Control Number 2502–0579. In 

accordance with the Paperwork 

Reduction Act, HUD may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information, 

unless the collection displays a 

currently valid OMB control number. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits, to the extent 

practicable and permitted by law, an 

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agency from promulgating a regulation 

that has federalism implications and 

either imposes substantial direct 

compliance costs on state and local 

governments and is not required by 

statute, or preempts state law, unless the 

relevant requirements of section 6 of the 

Executive Order are met. This rule does 

not have federalism implications and 

does not impose substantial direct 

compliance costs on state and local 

governments or preempt state law 

within the meaning of the Executive 

Order. 

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 interim rule will 

not impose any federal mandate on any 

state, local, or tribal government, or on 

the private sector, within the meaning of 

UMRA. 

Environmental Review 

A Finding of No Significant Impact 

(FONSI) with respect to the 

environment has been made in 

accordance with HUD regulations at 24 

CFR part 50, which implement section 

102(2)(C) of the National Environmental 

Policy Act of 1969 (42 U.S.C. 

4332(2)(C)). The Finding of No 

Significant Impact is available for public 

inspection between the hours of 8 a.m. 

and 5 p.m. weekdays in the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 7th Street, SW., 

Room 10276, Washington, DC 20410. 

Due to security measures at the HUD 

Headquarters building, please schedule 

an appointment to review the FONSI 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 Federal 

Information Relay Service at 800–877– 

8339. 

List of Subjects 

24 CFR Part 257 

Administrative procedures, Practice 

and procedure, Mortgage insurance, 

Reporting and recordkeeping 

requirements. 

■ Accordingly, for the reasons described 

in the preamble, HUD amends chapter 

I of title 24 of the Code of Federal 

Regulations by adding part 257 to read 

as follows: 

PART 257—HOPE FOR HOMEOWNERS 

PROGRAM 

Subpart A—HOPE for Homeowners 

Program—General Requirements 

257.1 Purpose of program. 

257.3 Scope of part. 

257.5 Approval of mortgagees. 

257.7 Definitions. 

Subpart B—Eligibility Requirements and 

Underwriting Procedures 

257.102 Cross-reference. 

257.104 Eligible mortgages. 

257.106 Eligible mortgagors. 

257.108 Eligible properties. 

257.110 Underwriting. 

257.112 Mortgagee verifications. 

257.114 Appraisal. 

257.116 Representations and prohibitions. 

257.118 Exit fee. 

257.120 Appreciation sharing or up-front 

payment. 

257.122 Forgiveness or waiver of 

prepayment penalties and default fees. 

Subpart C—Rights and Obligations Under 

the Contract of Insurance 

257.201 Cross-reference. 

257.203 Calculation of up-front and annual 

mortgage insurance premiums for H4H 

program mortgages. 

Subpart D—Servicing Responsibilities 

257.301 Cross-reference. 

257.303 Prohibition on subordinate liens 

during first 5 years. 

Subpart E—Enforcement 

257.401 Notice of false information from 

mortgagor-procedure. 

257.403 Prohibitions on interested parties 

in insured mortgage transaction. 

257.405 Mortgagees. 

Authority: 12 U.S.C. 1701z–22; 42 U.S.C. 

3535(d). 

Subpart A—HOPE for Homeowners 

Program—General Requirements 

§ 257.1 Purpose of program. 

The HOPE for Homeowners (H4H) 

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 to 

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 

H4H program is administered by HUD 

through FHA. As used in this subpart, 

the terms HUD and FHA are 

interchangeable. 

§ 257.3 Scope of part. 

(a) Core requirements. This subpart 

establishes the core requirements for the 

H4H program. 

(b) Basic program parameters. (1) 

FHA is authorized to insure eligible 

refinanced mortgages under the H4H 

program commencing no earlier than 

October 1, 2008. The authority to insure 

additional mortgages under the H4H 

program expires September 30, 2011. 

(2) Under the H4H 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 HUD. 

(c) Other applicable requirements. 

Except as may be otherwise provided by 

HUD, the provisions and requirements 

in the FHA regulations at 24 CFR part 

203, which generally are applicable to 

all FHA-insured single-family mortgage 

insurance programs, also apply with 

respect to the insurance of a refinanced 

eligible mortgage under the H4H 

program. 

§ 257.5 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 HUD 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 the mortgagee seeks to be the 

originator of the refinanced mortgage to 

be insured by FHA. 

§ 257.7 Definitions. 

As used in this part and in the H4H 

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 at 24 CFR 203.27(a). 

Board means the Advisory Board 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. 

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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 insufficient funds. 

Direct financial benefit means the 

same as ‘‘initial equity’’ determined 

under § 257.118(a). 

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 at 12 U.S.C. 1701j–3(d)(1) 

through (8). 

Eligible Mortgage means a mortgage as 

defined at § 257.104. 

Existing senior mortgage means an 

eligible mortgage that has superior 

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 that is 

being refinanced by a mortgage insured 

under section 257 of the Act. 

FHA means the Federal Housing 

Administration. 

HOPE for Homeowners program (or 

H4H 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 at 24 CFR 203.17(a)(1). 

Mortgagee has the same meaning as 

provided at 24 CFR 203.251(f). 

Mortgagor has the same meaning as 

provided at 24 CFR 203.251(e). 

Net worth means the total dollar 

amount of all liabilities subtracted from 

the total dollar amount of all assets 

(other than retirement accounts) of the 

mortgagor. 

Prepayment penalties mean such 

amounts as defined at 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 have 

only one primary residence. 

Program mortgage means the 

mortgage into which the existing senior 

mortgage is refinanced. 

Related party of a person means any 

of the following or another person 

acting on behalf of the person or any of 

the following— 

(1) The person’s father, mother, 

stepfather, stepmother, brother, sister, 

stepbrother, stepsister, son, daughter, 

stepson, stepdaughter, grandparent, 

grandson, granddaughter, father-in-law, 

mother-in-law, brother-in-law, sister-inlaw, son-in-law, daughter-in-law, the 

spouse of any of the foregoing, and the 

person’s spouse; 

(2) Any entity of which 25 percent or 

more of any class of voting securities is 

owned, controlled, or held in the 

aggregate by the person or the persons 

referred to in paragraph (1) of this 

definition; and 

(3) Any entity of which the person or 

any person referred to in paragraph (1) 

of this definition serves as a trustee, 

general partner, limited partner, 

managing member, or director. 

Secretary means the Secretary of 

Housing and Urban Development. 

Substantial debt means any 

individual liability of the mortgagor that 

exceeds $100,000. 

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 

§ 257.102 Cross-reference. 

(a) All of the provisions of 24 CFR 

part 203, subpart A, concerning 

eligibility requirements of mortgages 

covering one-to-four family dwellings 

under section 203 of the National 

Housing Act (12 U.S.C. 1709) apply to 

mortgages on one-to-four 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; 203.17(d) Maturity; 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 at 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 at 24 CFR 

part 203, subpart A, to the ‘‘Mutual 

Mortgage Insurance Fund’’ shall be 

deemed to be to the Home Ownership 

Preservation Entity Fund. 

(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. 

§ 257.104 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 that is: 

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(1) Owned and occupied by the 

mortgagor as his or her primary 

residence; and 

(2) The only residence in which the 

mortgagor has any present ownership 

interest, except for property acquired by 

the mortgagor through inheritance. 

(c) Meet such other requirements as 

HUD may adopt. 

§ 257.106 Eligible mortgagors. 

A mortgagor shall be eligible to 

refinance his or her existing mortgages 

under section 257 of the Act only if: 

(a)(1) The mortgagor has, as of the 

date of application for the H4H program 

mortgage, a total monthly mortgage 

payment of more than 31 percent of the 

mortgagor’s monthly gross income; or 

(2) If the mortgagor’s existing senior 

mortgage or existing subordinate 

mortgage, if any, is an adjustable-rate 

mortgage that by its terms resets after 

the date of application for the H4H 

program mortgage, the mortgagor will be 

likely to have a total monthly mortgage 

payment (based on mortgages 

outstanding on the date of application 

for the H4H program mortgage) of more 

than 31 percent of the mortgagor’s 

monthly gross income calculated as of 

the date the mortgagor applies for the 

H4H program mortgage; 

(b) The mortgagor does not have an 

ownership interest in any other 

residential property, except for a 

property that the mortgagor has 

inherited; 

(c) The mortgagor has not been 

convicted of fraud under federal or state 

law during the 10-year period ending 

upon insurance of the H4H program 

mortgage; 

(d) The mortgagor does not have a net 

worth, as of the date the mortgagor first 

applies for the H4H program mortgage, 

which exceeds $1 million. 

(e) The mortgagor meets such other 

requirements as HUD may adopt. 

§ 257.108 Eligible properties. 

(a) A mortgage may be insured under 

the H4H program only if the property 

that is to be the security for the 

mortgage is a one-to-four unit residence. 

(b) The following property types are 

eligible to secure a mortgage insured 

under the H4H 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. 

§ 257.110 Underwriting. 

A mortgage may be insured under the 

H4H program only if the following 

conditions are met: 

(a) Loan-to-value and income 

thresholds. The loan-to-value (LTV), 

payment-to-income, and debt-to-income 

ratios of the H4H program mortgage do 

not exceed the thresholds set forth in 

either paragraph (a)(1) or (a)(2) of this 

section. 

(1) Program mortgage with LTV ratio 

of 90 percent or less. (i) The initial 

principal balance of the H4H program 

mortgage (excluding the amount of the 

up-front premium) as a percentage of 

the current appraised value of the 

property does not exceed 90 percent; 

(ii) The total monthly mortgage 

payment of the mortgagor under the 

H4H program mortgage does not exceed 

38 percent of the mortgagor’s monthly 

gross income; and 

(iii) The sum of the total monthly 

mortgage payment under the H4H 

program mortgage and all monthly 

recurring expenses of the mortgagor do 

not exceed 43 percent of the mortgagor’s 

monthly gross income. 

(2) Program mortgage with LTV of 

greater than 90 percent. (i) The initial 

principal balance of the H4H program 

mortgage (excluding the amount of the 

up-front premium) as a percentage of 

the current appraised value of the 

property exceeds 90 percent (up to any 

limit established by HUD through 

Mortgagee Letter); 

(ii) The total monthly mortgage 

payment of the mortgagor under the 

H4H program mortgage does not exceed 

31 percent of the mortgagor’s monthly 

gross income; and 

(iii) The sum of the total monthly 

mortgage payment under the H4H 

program mortgage and all monthly 

recurring expenses of the mortgagor do 

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 

H4H program. 

(c) The H4H program mortgage shall 

have a maturity of not less than 30 years 

and not more than 40 years from the 

date of origination. 

(d) Nonoccupant co-borrowers. A 

mortgage loan may be insured by the 

FHA under the H4H program, even if 

one of the mortgagors on the loan (i.e., 

a co-signer) does not reside at the 

residence securing the loan, provided 

that the nonresident 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 H4H program. 

(e) Limit on origination fees. 

Mortgagees may charge and collect from 

mortgagors allowable closing costs. 

§ 257.112 Mortgagee verifications. 

(a) Income verification. The mortgagee 

shall use FHA’s procedures to verify the 

mortgagor’s income. 

(b) Mortgage fraud verification. The 

mortgagor shall provide a certification 

to the mortgagee that the mortgagor has 

not been convicted under federal or 

state law for fraud during the 10-year 

period ending upon the insurance of the 

H4H program mortgage. This 

certification may be combined with the 

certification to FHA required under 

§ 257.116(b)(1)(ii). The mortgagee shall 

take such action as HUD may specify in 

administrative guidance to ensure that 

the mortgagor is in compliance with the 

certification. 

§ 257.114 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 an H4H program mortgage 

shall be conducted in accordance with 

Uniform Standards of Professional 

Appraisal Practice (USPAP), and dated 

no more than 180 days from the date on 

which the mortgage transaction is 

closed, except as otherwise provided by 

HUD. 

(c) The mortgagee must inform the 

appraiser that copies of the appraisal 

may be shared with holders and 

servicers of existing subordinate 

mortgages. 

§ 257.116 Representations and 

prohibitions. 

(a) Underwriting and appraisal 

standards. In order for the H4H program 

mortgage to be eligible for insurance 

under the H4H program, the 

underwriter and the mortgagee must 

provide certifications, in a format 

approved by 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 H4H 

program. FHA may require additional 

certifications by the mortgagee to ensure 

compliance with such additional 

standards as 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 substantial debt during the 5-year 

period ending upon insurance of the 

H4H program mortgage; or 

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(ii) Knowingly or willfully and with 

actual knowledge furnished material 

information known to be false for the 

purpose of obtaining the H4H program 

mortgage; and 

(iii) Been convicted under federal or 

state law for fraud during the 10-year 

period ending upon the insurance of the 

H4H program mortgage. This 

certification may be combined with the 

certification to the mortgagee required 

under § 257.112(b). 

(2) The mortgagor shall provide any 

other certifications that FHA may 

otherwise require. 

(3) A mortgagor obligated under an 

H4H program mortgage shall agree in 

writing, on a form prescribed by HUD, 

to be liable to pay to HUD any Direct 

Financial Benefit achieved from the 

reduction of indebtedness on the 

existing senior and subordinate 

mortgages that are being refinanced 

under the H4H program if he or she 

makes a false statement or other 

misrepresentation in the certifications 

and documentation required for H4H 

program eligibility, including but not 

limited to the certifications required 

under paragraphs (b)(1) and (b)(2) of this 

section. 

(c) Mortgagee in violation of program 

requirements. (1) If the mortgagee holds 

an H4H program mortgage that it 

originated and/or underwrote, and FHA 

finds that the mortgagee violated the 

representations and warranties required 

under paragraph (a) of this section, FHA 

is prohibited from paying FHA 

insurance benefits to that mortgagee. 

(2) If the mortgagee no longer holds 

the H4H program mortgage that it 

originated and/or underwrote, FHA will 

pay an insurance claim to the mortgagee 

presently holding the H4H 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 H4H 

program requirements) and shall seek 

indemnification from the mortgagee that 

originated the H4H program mortgage. 

(d) FHA insurance. A mortgage is 

eligible for insurance if the mortgagee 

submits a complete case binder within 

such time period as HUD prescribes. 

The binder shall include evidence 

acceptable to HUD 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 

120 days from the date of closing of the 

mortgage. 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. 

§ 257.118 Exit fee. 

(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 an H4H program mortgage 

on a property, as calculated by the H4H 

program mortgage lender, shall equal: 

(1) The lesser of— 

(i) The appraised value of the 

property that was used at the time of 

origination of the H4H program 

mortgage to underwrite the mortgage 

and to determine compliance with the 

maximum LTV ratio at origination 

established by section 257(e)(2)(B) of the 

Act; or 

(ii) The outstanding amount due 

under all existing senior mortgages, 

existing subordinate mortgages, and 

nonmortgage liens on the property; less 

(2) The original principal amount of 

the H4H program mortgage on the 

property. 

(b) FHA’s interest. Upon the sale or 

disposition of a property secured by the 

H4H program mortgage or H4H program 

mortgage refinancing, FHA is 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 HUD may establish. 

§ 257.120 Appreciation sharing or upfront payment. 

(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 an H4H 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) In the case of— 

(i) A sale of the property to one or 

more persons, none of whom is a related 

party of the mortgagor, the gross 

proceeds from the sale of the property; 

or 

(ii) A disposition of the property or 

the sale of the property to a related party 

of the mortgagor, the current appraised 

value of the property at the time of the 

disposition or sale; less 

(2) The amount of closing costs, as 

adopted by HUD, incurred by the 

mortgagor(s) in connection with such 

sale or disposition, if any; less 

(3) The appraised value of the 

property that was used at the time of 

origination of the H4H program 

mortgage to underwrite that mortgage 

and determine compliance with the 

maximum LTV 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 an H4H program mortgage, 

FHA may be entitled to receive the 

lesser of: 

(1) An amount up to 50 percent of the 

appreciation in value of the property 

calculated in accordance with paragraph 

(a) of this section; or 

(2) An amount equal to the appraised 

value of the property that was used at 

the time the existing senior mortgage 

was originated. 

(c) Eligibility of subordinate mortgage 

holders to receive portion of 

appreciation in value. The persons or 

entities that hold, on the date of 

origination of an H4H program 

mortgage, an existing subordinate 

mortgage on the property may 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 HUD may establish, if: 

(1) The amount of the unpaid 

principal and interest on such existing 

subordinate mortgage, as of the first day 

of the month in which the mortgagor 

made application for the H4H program 

mortgage, is at least $2,500; and 

(2) Each person holding such existing 

subordinate mortgage agrees, in 

connection with the origination of the 

H4H 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 an H4H program 

mortgage may 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 

administrative instructions issued by 

HUD. 

(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 an H4H program mortgage, the 

interests of such eligible existing 

subordinate mortgages under paragraph 

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(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 H4H program 

mortgage. 

(4) Distribution of appreciation 

interest to subordinate mortgage 

holders. Upon the sale or disposition of 

a property securing an H4H program 

mortgage other than sale or disposition 

related to a default, any proceeds due to 

H4H 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. 

(e) FHA election to offer up-front 

payment in lieu of a share of 

appreciation. In lieu of any shared 

appreciation payment under paragraph 

(c) of this section, FHA may elect to 

offer the eligible holder(s) of an existing 

subordinate mortgage on a property 

securing an H4H program mortgage, a 

payment in an aggregate amount as 

provided by HUD through Mortgagee 

Letter. Eligible subordinate lien holders 

would receive the up-front payment 

contemporaneously with the origination 

of the H4H program mortgage. 

§ 257.122 Forgiveness or waiver of 

prepayment penalties and default fees. 

The holder or servicer of the existing 

senior and subordinate mortgages shall 

either forgive or waive all prepayment 

penalties and delinquency and default 

fees. 

Subpart C—Rights and Obligations 

Under the Contract of Insurance 

§ 257.201 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 at 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 at 24 CFR part 

203, subpart B, to the ‘‘Mutual Mortgage 

Insurance Fund’’ shall be deemed to be 

to the Home Ownership Preservation 

Entity Fund. 

(c) If there is any conflict in the 

application of any requirement of 24 

CFR part 203, subpart B, to this part, the 

provisions of this part shall control. 

§ 257.203 Calculation of up-front and 

annual mortgage insurance premiums for 

H4H 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) Up-front premium. FHA shall 

establish and collect a single premium 

payment not more than 3 percent of the 

amount of the original insured principal 

obligation of the H4H 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 not more than 1.5 percent of 

the amount of the remaining insured 

principal balance of the H4H program 

mortgage. 

(b) Proceeds for payment of the upfront premium. The up-front premium 

shall be paid with proceeds from the 

H4H 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 

§ 257.301 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. 

(c) If there is any conflict in the 

application of any requirement of 24 

CFR part 203, subpart C, to this part, the 

provisions of this part shall control. 

§ 257.303 Prohibition on subordinate liens 

during first 5 years. 

(a) Prohibition on subordinate liens 

during first 5 years. Except for FHA loss 

mitigation actions (e.g., mortgage 

modifications and partial claims) or as 

provided in paragraph (b) of this 

section, a mortgagor shall not, during 

the first 5 years of the term of the 

mortgagor’s H4H 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 

H4H program mortgage if such lien 

would be subordinate to the H4H 

program mortgage. 

(b) Property preservation exception. 

Paragraph (a) of this section shall not 

prevent a mortgagor on the H4H 

program mortgage from incurring new 

mortgage debt secured by a lien on the 

property securing the H4H program 

mortgage that is subordinate to the H4H 

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; and 

(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). 

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1696 Federal Register / Vol. 75, No. 7 / Tuesday, January 12, 2010 / Rules and Regulations 

Subpart E—Enforcement Mortgagor 

False Information 

§ 257.401 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. 

§ 257.403 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 

authorized to bring for a violation of 

paragraph (a) of this section. 

§ 257.405 Mortgagees. 

(a) HUD will monitor mortgagees to 

ensure compliance with the 

requirements of the H4H program. The 

Mortgagee Review Board at HUD is 

authorized to impose sanctions and civil 

money penalties against mortgagees 

who violates 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 § 257.16 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. 

Dated: November 11, 2009. 

David H. Stevens, 

Assistant Secretary for Housing—Federal 

Housing Commissioner. 

[FR Doc. 2010–263 Filed 1–11–10; 8:45 am] 

BILLING CODE 4210–67–P 

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