Source: http://thefederalregister.com/2012/08/24/2012-20924.html
Timestamp: 2017-12-17 23:14:22
Document Index: 629110773

Matched Legal Cases: ['§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', 'art 25', 'art 30', 'art 201', 'art 202', 'art 203', 'art 206', '§ 25', 'art 10', 'art 10', '§ 10', 'art 25', 'ART 25', 'art 25', '§ 25', '§ 25', '§ 25', '§ 25', '§ 25', 'ART 30', 'art 30', '§ 30', '§ 30', '§ 30', '§ 30', '§ 30', 'ART 201', 'art 201', '§ 201', 'ART 202', 'art 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202', 'ART 203', 'art 203', '§ 203', '§ 203', 'ART 206', 'art 206', '§ 206']

Federal Register | Federal Housing Administration: Strengthening Risk Management
[Docket No. FR-5622-F-01]
ACTION: Final rule; clarification and correction.
As part of HUD's efforts to strengthen FHA risk management, HUD published a final rule on April 20, 2010, entitled, “Federal Housing Administration: Continuation of FHA Reform; Strengthening Risk Management Through Responsible FHA-ApprovedLenders” (75 FR 20718). The April 20, 2010, final rule increased the net worth requirement for FHA-approved lenders and mortgagees, eliminated HUD's approval of loan correspondents, and amended the general approval standards for lenders and mortgagees. This final rule makes the following nonsubstantive clarifications and corrections to the provisions of the April 20, 2010, final rule. The changes will improve the clarity of HUD's regulatory requirements and, thereby, facilitate program participant compliance and improve HUD's ability to monitor and enforce its risk management regulations.
The revised net worth requirements established by the April 20, 2010, final rule are codified in 24 CFR 202.5(n). As of May 20, 2011, FHA-approved non-small business lenders and mortgagees were required to have a minimum net worth of $1 million “of which no less than 20 percent must be liquid assets consisting of cash or its equivalent acceptable to the Secretary” (§ 202.5(n)(2)(iii)). As of that same date, existing FHA-approved small business lenders and mortgagees were required to have a minimum net worth of $500,000 “of which no less than 20 percent must be liquid assets consisting of cash or its equivalent acceptable to the Secretary” (§ 202.5(n)(2)(iv)).1
1A small business lender or mortgagee is an existing lender or mortgagee whose size is less than or equal to “the size standard for its industry classification established by the Small Business Administration at 13 CFR 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit Intermediation and Related Activities).”
By May 20, 2013, all FHA-approved lenders and mortgagees, irrespective of size, are required to have a minimum net worth of $1 million, plus an additional net worth of one percent of the total volume in excess of $25 million of FHA single-family insured mortgages originated, underwritten, purchased, or serviced during the prior fiscal year. Further, the regulations require that “[n]o less than 20 percent of the * * * required net worth must be liquid assets consisting of cash or its equivalent acceptable to the Secretary” (§ 202.5(n)(3)(i)).
As the quoted language above indicates, the wording of the liquidity requirement differs slightly between § 202.5(n)(2)(iii) and (iv) (which establishes the requirements effective on May 20, 2011) and § 202.5(n)(3)(i) (which establishes the requirements effective on May 20, 2013). Specifically, § 202.5(n)(2)(iii) and (iv) omit the word “required” when referring to the portion of net worth that must be held in liquid assets. This difference is due to the grammatical context in which these provisions are located.
While the intent of the final rule was that the liquidity requirements apply solely to therequired minimumnet worth, HUD is concerned that the variation in wording is unclear and has the potential to confuse lenders and regulators alike. HUD has consistently interpreted the liquidity requirements as applying to therequired minimumnet worth; however, questions have arisen whether FHA-approved lenders and mortgagees are required to maintain liquid assets equivalent to 20 percent of theirtotalnet worth. In order to alleviate confusion and institute clarity, this final rule amends § 202.5(n)(2)(iii) and (iv) to explicitly refer to the approved lender or mortgagee'srequired minimumnet worth.
In addition, this final rule makes a related technical correction to § 202.7, which sets forth requirements governing nonsupervised lenders and mortgagees. This final rule removes outdated paragraph (b)(2) of § 202.7, which formerly contained the liquidity requirements for nonsupervised lenders and mortgagees, but has been superseded by the liquidity requirements established by the April 20, 2010, final rule at § 202.5(n). Section 202.5(n) specifies that the new net worth and liquidity requirements “apply to supervised and nonsupervised lenders and mortgagees.”
Removing the required HUD approval for loan correspondents was not meant to preclude FHA-approved mortgagees from acting as sponsored third-party originators. However, the current definition of a sponsored third-party originator in § 202.8(a)(3) could be read as prohibiting FHA-approved mortgagees from acting as sponsored third-party originators. It states that a “third-party originator does not hold a Title I Contract of Insurance or Title II Origination Approval agreement * * *.” This final rule revises the definition of a sponsored third-party originator to clarify that a sponsored third-party originator may hold a Title I Contract of Insurance or Title II Origination Approval Agreement if it is also an FHA-approved lender or mortgagee.
The HUD regulations affected by these corrections are those governing the Mortgagee Review Board (24 CFR part 25), civil money penalties (24 CFR part 30), FHA Title I property improvements and manufactured home loans (24 CFR part 201), approval of lending institutions and mortgagees (24 CFR part 202), single-family mortgage insurance (24 CFR part 203) and home equity conversions mortgage insurance (24 CFR part 206). The specific regulations revised by this final rule are §§ 25.3, 25.5, 25.6, 30.10, 30.36, 30.60, 201.2, 202.8, 203.5, 203.255, and 206.31.
In general, HUD publishes a rule for public comment before issuing a rule for effect, in accordance with HUD's regulations on rulemaking at 24 CFR part 10. Part 10, however, provides, in § 10.1, for exceptions from that general rule where HUD 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.”
HUD finds that good cause exists to publish this rule for effect without soliciting public comment, on the basis that public procedure is unnecessary. All of the changes made by this rule are technical in nature and do not make any substantive changes to HUD's requirements for individuals and entities participating in FHA programs. This rule merely makes conforming changes to provisions regarding the liquidity requirements of FHA-approved lenders and mortgagees in order to provide clarification, removes or replaces obsolete references to “loancorrespondents” and other outdated terms, and clarifies the original intent of the sponsored third-party originator definition.
III. Findings and Certifications Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601et 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. As discussed above in this preamble, this rule does not establish or revise any FHA program requirements. This final rule is limited to conforming changes, technical corrections, and clarifications that reflect existing requirements. The rule does not make any substantive changes to HUD's regulations and, therefore, does not affect a substantial number of small entities. 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.
List of Subjects 24 CFR Part 25
Administrative practice and procedure, Loan programs—housing and community development, Organization and functions (Government agencies), Reporting and recordkeeping requirements.
Administrative practice and procedure, Grant programs—housing and community development, Loan programs—housing and community development, Mortgages, Penalties.
Claims, Health facilities, Historic preservation, Home improvement, Loan programs—housing and community development, Manufactured homes, Mortgage insurance, Reporting and recording requirements.
Hawaiian Natives, Home improvement, Indians—lands, Loan programs—housing and community development, Mortgage insurance, Reporting and recordkeeping requirements, Solar energy.
Aged, Condominiums, Loan programs—housing and community development, Mortgage insurance, Reporting and recordkeeping requirements.
PART 25—MORTGAGEE REVIEW BOARD 1. The authority citation for part 25 continues to read as follows: Authority:
12 U.S.C. 1708(c), 1708(d), 1709(s), 1715b, and 1735(f)-14; 42 U.S.C. 3535(d).
2. In § 25.3, remove the definition of “Loan correspondent”and revise the definition of “Mortgagee”to read as follows:
Mortgagee.For purposes of this part, the term “mortgagee” includes:
3. In § 25.5, revise paragraphs (d)(1)(ii) and (e)(1)(ii) to read as follows:
§ 25.5 Administrative actions.
4. Revise § 25.6(cc) to read as follows:
§ 25.6 Violations creating grounds for administrative action.
PART 30—CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT 5. The authority citation for part 30 continues to read as follows: Authority:
12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, and 1735f-15; 15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 1437z-1 and 3535(d).
6. In § 30.10, remove the definition of “Loan correspondent”and add the definition of “Sponsored third-party originator”in alphabetical order to read as follows:
7. Revise § 30.36(a)(8) to read as follows:
§ 30.36 Other participants in FHA programs.
8. In § 30.60, revise the section heading, paragraph (a) introductory text, and paragraph (a)(3) to read as follows:
§ 30.60 Dealers or sponsored third-party originators.
PART 201—TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS 9. The authority citation for part 201 is amended to read as follows: Authority:
12 U.S.C. 1703; 42 U.S.C. 3535(d).
10. In § 201.2, remove the definition of “Loan correspondent”and revise the definition of “Lender”to read as follows:
Lendermeans a financial institution that:
PART 202—APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES 11. The authority citation for part 202 continues to read as follows: Authority:
12. In § 202.5, revise paragraphs (n)(2)(iii) and (iv) to read as follows:
§ 202.5 General approval standards.
(iii)Net worth requirements for non-small businesses.Each approved lender or mortgagee that exceeds the size standard for its industry classification established by the Small Business Administration at 13 CFR 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit Intermediation and Related Activities) shall have a required minimum net worth of not less than $1,000,000. No less than 20 percent of the approved lender or mortgagee's required minimum net worth must be liquid assets consisting of cash or its equivalent acceptable to the Secretary.
(iv)Net worth requirements for small businesses.Each approved lender or mortgagee that meets the size standard for its industry classification established by the Small Business Administration at 13 CFR 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit Intermediation and Related Activities) shall have a required minimum net worth of not less than $500,000. No less than 20 percent of the approved lender or mortgagee's required minimum net worth must be liquid assets consisting of cash or its equivalent acceptable to the Secretary. If, based on the audited financial statement or other financial report that is required to be prepared at the end of its fiscal year and provided to HUD at the commencement of the new fiscal year, an approved lender or mortgagee no longer meets the Small Business Administration size standard for its industry classification, the approved lender or mortgagee shall meet the net worth requirements set forth in paragraph (n)(2)(iii) of this section for a non-small business approved lender or mortgagee by the last day of the fiscal year in which the audited financial statement or other financial report, as applicable, was submitted.
13. In § 202.7, revise paragraph (b)(1), remove paragraph (b)(2), and redesignate paragraphs (b)(3), (4), and (5) as paragraphs (b)(2), (3), and (4), respectively.
(1)Net worth and liquid assets.The net worth and liquidity requirements appear in§ 202.5(n).
14. In § 202.8: a. Revise the section heading; b. In paragraph (a), revise the definition of “Sponsored third-party originator”; c. Revise paragraph (b); and d. Remove paragraph (c).
§ 202.8 Sponsored third-party originators.
Sponsored third-party originator.A sponsored third-party originator may hold a Title I Contract of Insurance or Title II Origination Approval Agreement if it is an FHA-approved lender or mortgagee. If the sponsored third-party originator is not an FHA-approved lender or mortgagee, then the sponsored third-party originator may not hold a Title I Contract of Insurance or Title II Origination Approval Agreement. A sponsored third-party originator is authorized to originate Title I direct loans or Title II mortgage loans for sale or transfer to a sponsor or sponsors, as defined in this section, that holds a valid Title I Contract of Insurance or Title II Origination Approval Agreement and is not under suspension, subject to the sponsor determining that the third-party originator has met the eligibility criteria of paragraph (b) of this section.
(b)Eligibility to originate loans to be insured by FHA.A sponsored third-party originator may originate loans to be insured by FHA, provided that:
(2) The sponsored third-party originator or an officer, partner, director, principal, manager, supervisor, loan processor, or loan originator of thesponsored third-party originator has not been subject to the sanctions or administrative actions listed in § 202.5(j), as determined and verified by the FHA-approved lender or mortgagee.
15. Revise § 202.12(a)(1)(ii) to read as follows:
(ii)Customary lending practices.The customary lending practices of a mortgagee include all single family insured mortgages originated by the mortgagee, including mortgages that were originated by the mortgagee's sponsored third-party originator(s).
PART 203—SINGLE FAMILY MORTGAGE INSURANCE 16. The authority citation for part 203 continues to read as follows: Authority:
17. Revise § 203.5(e)(3) to read as follows:
18. Revise § 203.255(b)(11) to read as follows:
PART 206—HOME EQUITY CONVERSION MORTGAGE INSURANCE 19. The authority citation for part 206 continues to read as follows: Authority:
20. In § 206.31, revise paragraph (a)(1) to read as follows:
(1) A charge to compensate the mortgagee for expenses incurred in originating and closing the mortgage loan, which may be fully financed with the mortgage. The Secretary may establish limitations on the amount of any such charge. HUD will publish any such limit in theFederal Registerat least 30 days before the limitation takes effect. The mortgagor is not permitted to pay any additional origination fee of any kind to a mortgage broker or sponsored third-party originator. A mortgage broker's fee can be included as part of the origination fee only if the mortgage broker is engaged independently by the homeowner and there is no financial interest between the mortgage broker and the mortgagee.
Dated: August 20, 2012. Carol J. Galante, Acting Assistant Secretary for Housing—Federal Housing Commissioner.