Source: https://www.federalregister.gov/documents/2000/03/30/00-7771/strengthening-the-title-i-property-improvement-and-manufactured-home-loan-insurance-programs-and
Timestamp: 2017-09-24 10:45:21
Document Index: 577870822

Matched Legal Cases: ['art 202', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', 'arts 201', '§\u2009202', '§\u2009202', '§\u2009202', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009202', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009201', '§\u2009200', '§\u2009201', '§\u2009202', '§\u2009202', '§\u2009202']

A Proposed Rule by the Housing and Urban Development Department on 03/30/2000
65 FR 17119
17119-17125 (7 pages)
Docket No. FR-4246-P-01
00-7771
https://www.federalregister.gov/d/00-7771 https://www.federalregister.gov/d/00-7771
In addition to the changes described above (which would only apply to the Title I programs), this proposed rule would also revise 24 CFR part 202 to raise the current minimum net worth requirements applicable to loan correspondents under both the Title I and Title II programs. This proposed change is discussed in section III of this preamble. Start Printed Page 17121
1. Two party disbursements of dealer property improvement loan proceeds (§§ 201.2 and 201.26). The proposed rule would amend the definition of “dealer loan” in § 201.2 to prohibit lenders from disbursing property improvement loan proceeds solely to a dealer. The proposed rule would require that a lender disburse the proceeds either solely to the borrower or jointly to the borrower and dealer or other parties to the transaction. The proposed rule would also make a conforming change to § 201.26, which describes the conditions for disbursement of property improvement loan proceeds.
2. Lien position for property improvement loans in excess of $7,500 (§ 201.24). The proposed rule would amend § 201.24 (which describes security requirements) to require that a lien securing a property improvement loan in excess of $7,500 must occupy no less than a second lien position. The current regulation does not specify the position that such a lien must occupy, other than to state that the Title I property improvement loan must have priority over any lien securing an uninsured loan made at the same time.
3. Disbursement of direct property improvement loan proceeds in excess of $7,500 (§ 201.26). This proposed rule would amend § 201.26 (which describes the conditions for loan disbursement) to modify the disbursement procedures for direct property improvement loans in excess of $7,500. The proposed rule would require that such disbursements be made using a “draw” system, similar to that used in construction lending. Lenders would be required to deposit all of the loan proceeds in an interest bearing escrow account until they are disbursed. The draws would be made in accordance with criteria established by the Secretary. The loan proceeds would be disbursed in three draws—an initial disbursement of 40 percent of the loan proceeds, a subsequent 40 percent disbursement, and a final 20 percent disbursement.
4. Telephone interviews for dealer property improvement loan disbursements (§ 201.26). The proposed rule would amend § 201.26 to require that the lender must conduct a telephone interview with the borrower before the disbursement of dealer property improvement loan proceeds. The lender, at a minimum, must obtain an oral affirmation from the borrower to release funds to the dealer. As with the proposed dual disbursement requirement discussed above (see proposed change number 1), it is expected that the telephone interview will help to ensure borrower satisfaction with the work being performed by the dealer/contractor. The lender shall document the borrower's oral affirmation.
5. Liquidity requirement (§§ 201.27, 202.6, 202.7, and 202.8). The proposed rule would amend the regulations at 24 CFR parts 201 and 202 to conform the liquidity requirements applicable to the Title I program to those currently applicable to the Title II Single Family Mortgage Insurance program. The proposed liquidity requirement would apply to Title I supervised lenders (§ 202.6), Title I unsupervised lenders (§ 202.7), Title I loan correspondent lenders (§ 202.8), and Title I dealers (§ 201.27). Under the proposed rule, these Title I participants would be required to have liquid assets consisting of cash (or its equivalent acceptable to the Secretary) in the amount of 20 percent of their net worth, up to a maximum liquidity requirement of $100,000. For purposes of this proposed rule, HUD will not consider lines of credit to be liquid assets, nor loans or mortgages held for resale by the mortgagee. Liquid assets include cash on hand, checking accounts, savings accounts, certificates of deposit, and marketable securities.
6. Reporting of loans for insurance (§ 201.30). The proposed rule would amend § 201.30 to clarify that required loan reports must be submitted on the form prescribed by the Secretary, and must contain the data prescribed by HUD. This change will ensure that information vital to the proper monitoring of Title I loans (such as the address of the borrower and the applicable interest rate) is properly collected and transmitted to HUD.
7. Increase in insurance charge for property improvement and manufactured home loans (§ 201.31). The proposed rule would revise § 201.31(a) to increase the insurance charge for Title I property improvement and manufactured home loan insurance. Currently, Title I lenders are required to pay an insurance charge of 0.50 percent of the loan amount, multiplied by the number of years of the loan term. This proposed rule would increase the applicable percentage to 1.00 percent of the loan amount. The current charge amount has proven insufficient in covering the costs of insurance claims paid by HUD under the program. The proposed increase is necessary to strengthen the financial viability of the Title I program.
Further, the proposed rule would amend § 201.31(b) to conform the procedures governing the payment of the insurance charge for manufactured Start Printed Page 17122home loans with the insurance charge payment procedures for property improvement loans. The current regulations establish an accelerated payment schedule for manufactured home loans with a maturity in excess of 25 months. Given the proposed increase in the insurance charge, HUD also proposes to eliminate this “front loading” system for manufactured home loans. Under the proposed rule, the payment schedule for manufactured homes loans with a maturity in excess of 25 months would be identical to that applicable to comparable property improvement loans. Specifically, insurance charge payments for both types of loans would be made in annual installments of 1.00 percent of the loan amount until the insurance charge is paid.
8. Inspection requirements for all dealer and direct property improvement loans (§ 201.40). HUD proposes to expand the current on-site inspection requirements for dealer and direct property improvement loans at § 201.40. Specifically, the proposed rule would require that on-site inspections be conducted for all dealer and direct property improvement loans (not just for loans where the principal obligation is $7,500 or more, or where the borrower fails to submit a completion certificate). In the case of dealer and direct property improvement loans of $7,500 or less, the lender would be required to conduct two inspections—a pre-construction inspection and a post-construction inspection. For dealer and direct loans in excess of $7,500 the lender would also be required to conduct a third inspection. Additionally, the proposed rule would also require that photographs of the site be taken as part of all required inspections. The pre-construction inspection and photograph requirements do not apply where emergency action is needed to repair damage resulting from a disaster, as described in § 201.20(b)(3)(ii). The proposed rule would also authorize HUD to grant exceptions to the pre-construction inspection and photograph requirements.
In addition to the regulatory changes described in Section II of this preamble (which would only apply to the Title I property improvement and manufactured home programs), this proposed rule would also increase the net worth requirements for both Title I and Title II loan correspondents. Specifically, the rule would amend § 202.8 to raise the minimum net worth requirement for Title II loan correspondent mortgagees and Title I loan correspondent lenders from $50,000 to $75,000. The proposed rule would also amend § 201.27 to raise the current minimum net worth requirements for Title I property improvement loan and manufactured home dealers from $25,000 and $50,000, respectively, to $75,000.
The information collection requirements contained in § 201.26(a)(7) (the new telephone interview requirement for dealer property loan disbursements) has been submitted to the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This is the only new information collection requirement that would be established by this proposed rule. 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.
Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and Budget, Start Printed Page 17123New Executive Office Building, Washington, DC 20503;
Ethelene Washington, Reports Liaison Officer, Office of the Assistant Secretary for Housing-Federal Housing Commissioner, Department of Housing and Urban Development, 451—7th Street, SW, Room 9114, Washington, DC 20410
Where the proposed rule would impose an economic burden (such as the increased net worth and liquidity requirements), HUD has attempted to minimize the costs to lenders. For example, the proposed increased net worth and liquidity requirements would be “phased-in,” and not take effect until six months after the effective date of the other new regulatory requirements. This delayed effective date will provide lenders with additional time to meet the new requirements.
The proposed rule would also increase the net worth requirements for all Title I and Title II loan correspondents from $50,000 to $75,000. HUD is proposing to make this modest increase for a variety of reasons, including the need to make adjustments for inflation since the net worth requirements were last updated—in 1991 for the Title I program (October 18, 1991; 56 FR 52414); and 1992 for the Title II program (December 9, 1992; 57 FR 58326).
14.110 Manufactured Home Loan Insurance— Financing Purchase of Manufactured Homes as Principal Residences of Borrowers;
(2) Disbursement schedule. Disbursement of the loan proceeds will be made in a series of “draws,” in accordance with criteria established by the Secretary. Disbursement of the loan proceeds will be made using the following schedule:
(i) The lender will disburse 40% of the loan proceeds upon the completion of the pre-construction inspection required under § 201.40(c)(3)(i).
(iii) The lender will disburse the balance of the loan proceeds upon the completion of the inspection required under § 201.40(c)(3)(ii).
(2)(i) For any loan having a maturity in excess of 25 months, payment of the insurance charge shall be made in annual installments, with the first installment due on the 25th calendar day after the date the Secretary acknowledges the loan report, and the second and successive installments due Start Printed Page 17125on the 25th calendar day after the date of billing by the Secretary.
8. In § 201.40, revise the section heading and paragraph (c) to read as follows:
Pre- and Post-disbursement loan requirements.
(ii) An inspection within 60 days before the disbursement of the loan proceeds (in the case of a dealer loan), or within 60 days before the final draw of the loan proceeds (in the case of a direct loan—see § 200.26(a)(2)(iii)); and
(5) Exceptions. The pre-construction inspection and photograph requirements do not apply where emergency action is needed to repair damage resulting from a disaster, as described in § 201.20(b)(3)(ii). Exceptions to the pre-construction inspection and photograph requirements can be granted in other circumstances if the prior approval of the Secretary is obtained.
9. Revise § 202.6(b)(2) to read as follows:
10. Revise § 202.7(b)(2) to read as follows:
11. Amend § 202.8 by revising paragraphs (b)(1) and (b)(4) to read as follows: