Sale of HUD-Held Multifamily Mortgages; Final Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: This rule sets forth the basic policies and procedures that

govern the disposition of HUD-held multifamily project mortgages.1

In general, the Department will sell both current mortgages and

delinquent mortgages. However, the Department will not sell delinquent

mortgages if foreclosure is unavoidable and the project securing the

mortgage is occupied by low-income tenants who are not receiving

housing assistance and would be likely to pay rent in excess of 30

percent of their adjusted monthly income if HUD sold the mortgage. In

addition, mortgages on subsidized properties will only be sold with

Federal Housing Administration (FHA) mortgage insurance or equivalent

tenant protections; mortgages for unsubsidized projects may be sold

without FHA insurance.

\1\This rule and the policies contained in this rule are

intended to satisfy HUD's obligations under the settlement agreement

in Walker v. Kemp, No. C 87 2628 (N.D. Cal.), with regard to the

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Exhibit B mortgages.

EFFECTIVE DATE: The effective date of this rule will be October 24,

1994, unless a subsequent notice announcing an earlier effective date

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is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Frank Malone, Director, Office of

Preservation and Property Disposition, Office of Housing, Room 6272,

Department of Housing and Urban Development, 451 Seventh Street, SW.,

Washington, DC 20410, telephone (202) 708-3555. Hearing or speech-

impaired individuals may call HUD's TDD number (202) 708-4594. (These

telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

Background

On April 13, 1994, the Department published a proposed rule on the

sale of HUD-held multifamily mortgages (59 FR 17500). Two days earlier,

on April 11, 1994, President Clinton approved the Multifamily Property

Disposition Reform Act of 1994 (Pub. L. 103-233) (Multifamily Property

Disposition Act). Section 101(b) of the Multifamily Property

Disposition Act revised section 203 of the Housing and Community

Development Amendments of 1978 (12 U.S.C. 1701z-11) (HCD Amendments of

1978). This final rule incorporates technical changes to section 203 of

the HCD Amendments of 1978, as amended by section 101(b) of the

Multifamily Property Disposition Act, as those provisions affect the

sale of HUD-held mortgages. HUD will be publishing, shortly, an interim

rule to implement the statutory amendments affecting the management and

disposition of HUD-owned multifamily projects.

Summary of Comments--Generally

The Department received a total of 11 comments on this proposed

rule. The majority of the comments dealt with features of the

Department's planned mortgage sale program rather than with specifics

of the proposed rule. However, two commenters made recommendations

regarding the negotiated sale of subsidized mortgages to State and

local governments, and one commenter recommended changes to the

proposed rule. All of the comments are discussed in more detail below,

and, when appropriate, are addressed in the text of the rule.

Only the National Housing Law Project (NHLP) focused specifically

upon the text of the proposed rule. The NHLP acknowledged HUD's

authority to sell HUD-held mortgages, but urged that ``the utmost care

should be taken to ensure that low-income tenants do not lose benefits

to which they are entitled.''

With regard to the sale of subsidized mortgages with insurance, the

NHLP stated that: ``The mere act of selling with insurance will not

necessarily by itself satisfy the statutory goal of continuing the

protections for each project that are at least as advantageous as the

prior program's.'' The NHLP sought assurance that, at a minimum, the

regulatory protections contained in, for example, the regulatory

agreement, note, and program regulations also would apply.

This concern is consistent with the Department's intent to preserve

existing tenant protections. Consequently, the rule has been modified

to include statutory language prohibiting the Secretary from selling

any mortgages held by the Secretary on any subsidized project unless

the sale is made part of a transaction that ensures that the project

will continue to operate, at least until the maturity date of the loan

or mortgage, in a manner that will provide rental housing on terms at

least as advantageous to existing and future tenants as the terms

required by the program under which the original loan or mortgage was

made or insured. In other words, sale of a HUD-held subsidized mortgage

will not affect the existing regulatory agreement, prepayment

restrictions, flexible subsidy agreements, rental subsidy contracts, or

other applicable program regulations and housing policies.

The NHLP also sought clarification that purchase money mortgages

(PMMs) for previously subsidized projects will be treated like

subsidized mortgages. The Department so intends and has modified the

rule to make this evident.

The NHLP requested that a project with any project-based Section 8

assistance be treated as a subsidized project and be sold with

insurance. However, doing so would be contrary to the Multifamily

Property Disposition Act. In the Multifamily Property Disposition Act,

Congress revised the definition of a subsidized project for the

mortgage sale program (see section 203(b)(2)). Under the prior law (see

section 203(i)(2)), a project that had any rent supplement assisted

units was a subsidized project. The requirement that more than 50

percent of the units had to be assisted for the project to be a

subsidized project applied only to assistance provided under the United

States Housing Act of 1937 (other than with certificate and voucher

assistance). Finally, under the former law for purposes of mortgage

sales, any unit assisted under the United States Housing Act of 1937

(other than certificate and voucher assistance) made the project a

subsidized project.

Under the new statutory definition of subsidized project, the more

than 50 percent of the units provision applies to all forms of project-

based rental assistance listed. Also, there is no longer an exception

from the 50 percent requirement for mortgage sales. Thus, under the new

law the definition of ``subsidized project'' is the same for the

purpose of disposing of HUD-owned projects and for mortgage sales.

The definition of ``subsidized project'' in this final rule

conforms to the statutory definition of ``subsidized project.''

Accordingly, projects that are not Section 236, Section 221(d)(3) BMIR,

or Section 202 projects and have some units, but not more than 50

percent of the units, assisted with project-based rental assistance are

under both the statute and the rule ``unsubsidized projects.'' However,

the Department acknowledges that such partially assisted, unsubsidized

mortgages merit special treatment. Therefore, the Department plans to

sell these mortgages in specialized auctions to investors who will be

selected, in part, on the basis of their commitment to preserving the

economically integrated nature of the rental housing.

The NHLP also suggested that unsubsidized projects with affordable

rents be treated as though they were subsidized and be sold with

insurance. Adoption of this approach would be inconsistent with

congressional direction. Therefore, the Department must reject this

approach. The statute defines ``subsidized project'' as a project that

is receiving assistance: (1) Under the section 221(d)(5) (Below Market

Interest Rate) or the section 236 (Interest Reduction Payments)

programs; (2) under the section 202 direct loan program; or (3) in the

form of rental assistance for more than 50 percent of its units under

the section 8, section 23, rent supplement or rental assistance

payments (``RAP'') programs. This rule merely adopts the statutory

definition of ``subsidized project'' as the regulatory definition.

The NHLP recommended that HUD move certain statements regarding the

availability of Section 8 assistance to tenants in unsubsidized

projects from the preamble of the proposed rule to the regulatory text.

The statements in the preamble describe HUD standards which are already

addressed in other HUD regulations. As such, there is no need to repeat

these standards in the mortgage sale rule.

The NHLP asked why HUD would not sell mortgages without insurance

to mortgagees that are HUD-approved as well as to mortgagees that are

not HUD-approved. In fact, HUD plans to offer the mortgages for sale to

both types of mortgagees. The NHLP also questioned the wisdom of

selling mortgages to mortgagees that are not HUD-approved, on the

ground that HUD will have little regulatory leverage over such

mortgagees. HUD expects that HUD's relationship with such mortgagees

will be governed by and enforceable under the terms and conditions of

the loan sale.

The NHLP recommended that HUD impose certain requirements in the

event that a delinquent mortgage is restructured by a purchaser.

Specifically, the NHLP recommended that the purchaser/mortgagor should

agree:

(1) Not to discriminate against Certificate and Voucher holders

merely because of their status as Certificate or Voucher holders;

(2) To accept a project-based Section 8 contract if offered, as

long as the rents charged at the project are within 120 percent of the

Section 8 Fair Market Rents;

(3) To require good cause eviction for all tenants; and

(4) To require that the owner provide good repair and maintenance.

HUD's ability to regulate a mortgage restructuring will depend upon

whether the mortgage is subsidized or unsubsidized. In the case of a

delinquent subsidized mortgage, where the mortgage will be insured upon

sale, HUD's oversight can be expected to be close and prescriptive;

however, in the case of delinquent unsubsidized mortgages, where the

mortgages will not be insured upon sale, HUD does not expect to

regulate a mortgage restructuring closely.

In section 290.202(b) of the proposed rule, HUD stated that:

``Delinquent mortgages will not be sold if: (1) HUD believes that

foreclosure is unavoidable; and (2) the project securing the mortgage

is occupied by low-income tenants who are not receiving housing

assistance, but who would receive assistance [under section 203 of the

Housing and Community Development Amendments of 1978] if HUD foreclosed

upon the mortgage.'' The NHLP recommended that HUD not sell delinquent

unsubsidized mortgages ``if it believes that foreclosure is

unavoidable, and the project * * * is occupied by low-income tenants

who are not receiving housing assistance but could do so if HUD

foreclosed upon the mortgage.'' HUD has changed this section in the

final rule to conform with the new Multifamily Property Disposition

Act.

Under section 203(a) of the prior law, HUD was directed to preserve

as affordable all units in unsubsidized projects that were occupied by

low-income families. This statutory requirement was generally met at

foreclosure or sale by placing project-based Section 8 assistance on

units that were occupied by low-income families. Thus, under the prior

law the import of Sec. 290.202(b) would have been that, in general, HUD

would not sell unsubsidized projects where foreclosure was unavoidable

and there were unassisted low-income tenants in occupancy.

Under the new law, however, HUD is under no obligation when

foreclosing or selling an unsubsidized project to provide Section 8

assistance to low-income tenants if those tenants were not already

receiving some form of tenant-based assistance (see section

203(e)(1)(D)). HUD's only obligation upon foreclosure or sale in this

regard (and it applies only to very low-income families that would have

to pay more than 30 percent of their adjusted monthly income for rent,

not to all low-income families) is to ensure that their rent is not

increased for two years (see section 203(g)). These low-income tenants

would receive Section 8 assistance only if HUD makes an administrative

decision to provide more Section 8 assistance than is required by

statute. Thus, the import of Sec. 290.202(b) in the final rule is that

HUD generally will sell unsubsidized projects where foreclosure was

unavoidable and there are unassisted low-income tenants in occupancy.

HUD intends to foreclose delinquent unsubsidized mortgages only if it

makes a determination that unassisted tenants would receive assistance

(including assistance available on a discretionary basis) if HUD were

to foreclose.

Finally, the NHLP recommended that HUD not sell delinquent,

partially assisted, unsubsidized mortgages facing foreclosure. As noted

above, HUD acknowledges that these mortgages require special treatment,

and they will be sold only under conditions that preserve the rental

housing for economically integrated rental use.

Negotiated Sales to State and Local Agencies

The National Council of State Housing Agencies (NCSHA) and the

Illinois Housing Development Authority (IHDA) responded to HUD's

request for comments on the negotiated sale of mortgages to State and

local agencies authorized by section 203(k)(3) of the Housing and

Community Development Act Amendments of 1978. Both strongly supported

such sales and described the unique qualifications that State housing

finance agencies (HFAs) have to assist HUD in preserving the

availability and affordability of the projects securing the loans for

low- and moderate-income rental use. Specific comments and HUD's

responses are summarized below.

Subsidy Contracts

NCSHA recommended that HUD assign Section 8 subsidy contract

administration to HFAs. HUD is willing to consider this recommendation,

subject to agreement on fees and the concern raised in conjunction with

regulatory agreements.

Regulatory Agreements

NCSHA recommended that HUD assign broad regulatory authority to

HFAs, including allowing HFAs to set rents and require owners to enter

into HFA management contracts. HUD is concerned that there is no

mechanism for restraining costs if the HFA performs financing and

regulatory functions and also administers the Section 8 contract. HUD

would like to explore how to combine regulatory authority with

incentives to contain costs. Otherwise it is HUD's view that States may

either administer Section 8 subsidy contracts or regulate rents, but

not both, in order to preserve the checks and balances vital to a sound

subsidy system.

Windfall Profits

NCSHA recommended and HUD concurs that mortgage insurance should be

limited to the purchase price of a mortgage or the unpaid principal

balance, whichever is lower. In addition, HUD would not permit resale

of mortgages for capital gains, even if the gains are passed through to

HUD.

Servicing

NCSHA recommended that ``[w]hen an HFA requests it, HUD should turn

over servicing functions to it upon its purchase of the loan.'' HUD

intends to turn over mortgage servicing functions upon the sale of a

loan in every case.

Delinquent Loans

NCSHA recommended splitting mortgages into financially viable and

inviable portions, with HUD retaining the inviable portion. HUD does

not wish to use this method for restoring a mortgage to financial

soundness, because it is inconsistent with the overall objective of

reducing the HUD-held inventory and HUD servicing responsibility. In

addition, strategies that involve owner consent, such as creating new

mortgage documents, may add a party to the negotiations and complicate

the transaction. HUD would consider other approaches that meet mutual

goals.

Long-Term Affordability

NCSHA recommended that HUD extend the mortgage insurance period

when purchasers negotiate an extension of the affordability period, so

the insurance would be coterminous with the financing. HUD would need

more information on what is being proposed in order to assess this

recommendation, e.g. what ``financing'' is being proposed? FHA

insurance runs with the mortgage; any additional insurance period would

require careful consideration and review.

Refinancing

NCSHA recommended that HUD permit HFAs to restructure high-interest

rate loans through Section 223(a)(7) refinancing. HUD-held mortgages

are not eligible for Section 223(a)(7) refinancing, and subsidized

mortgages generally are not eligible for prepayment. However, as part

of the restructuring of the mortgage, HUD will consider modifying

mortgages to lower above-market interest rates (and to reduce subsidy

payments, as appropriate) prior to mortgage sale. Such reduction would

be considered in any pricing.

Due Diligence

NCSHA recommended that HUD work with HFAs to disseminate

information on mortgages and permit HFAs to perform adequate and timely

due diligence. HUD intends to cooperate fully with HFAs in their

conduct of needed due diligence on the mortgages in which they are

interested.

Warranties and Representations

NCSHA recommended that, among other representations, HUD warrant

and represent that purchased loans are secured by projects that are in

full compliance with their regulatory agreements and subsidy contracts

and that the loans are current in their debt service and escrow and

reserve payments. HUD's view is that not all of these representations

and warranties may be appropriate for the subperforming mortgages that

are the focus of this negotiated sale program. HUD proposes to discuss

these representations in conjunction with necessary due diligence and a

specific portfolio of mortgages identified for sale.

Interstate Mortgage Pools

NCSHA recommended consideration of the formation of interstate

mortgage pools, to lower administrative burdens and transaction costs.

HUD will consider such pools as long as the results are consistent with

the overall objectives of the negotiated sale program, including hands-

on servicing by the purchasing agency.

Others

In addition, NCSHA and IHDA recommended that HUD negotiate the sale

of both unsubsidized mortgages with Section 8 contracts and

nonperforming unsubsidized mortgages. As noted above, HUD intends to

sell partially assisted, unsubsidized mortgages in specialized auctions

to investors that will be selected in part on the basis of their

commitment to preserving the economically integrated nature of this

rental housing. In addition, HUD intends to sell nonperforming

unsubsidized mortgages to the highest bidder in competitive auctions

that are designed to put local and national bidders on equal footing.

Given the high degree of investor interest in HUD's unsubsidized

mortgage portfolio and the Department's aim of reducing losses to the

FHA insurance fund, the Department cannot justify reserving

unsubsidized mortgages for purchase only by State and local agencies.

Depending upon the terms of a sale, however, these agencies may

participate with other investors in the purchase of these mortgages.

HUD Mortgage Sale Program

Several comments focused upon the mechanics of HUD's auction

program. Both JBS & Associates, Inc., a national real estate and loan

marketing firm, and Ross-Dove Company, Inc., an auctioneering firm,

recommended that HUD use open outcry auctions as one method of

disposition to sell multifamily mortgages. HUD will consider the use of

open outcry auctions for some of its mortgage sales.

The Real Estate Capital Recovery Association (RECRA), a trade

association representing both real estate workout specialists and real

estate purchasers, recommended that HUD develop a strategy and schedule

for disposing of the HUD-held inventory; determine the best disposition

strategy for mortgages on a case-by-case basis; and make greater use of

the private sector in managing, foreclosing, and selling assets. In

addition, RECRA recommended against giving mortgagors two purchase

opportunities--i.e., the opportunity to payoff their mortgages and to

bid in an auction. RECRA believed both: (1) that HUD's ability to

negotiate a payoff would be improved if the mortgagor could not

participate in the auction; and (2) that other bidders would not want

to bid against the mortgagor who is most knowledgeable about the

property. The terms and conditions under which a mortgagor may be

permitted to bid on its mortgage are best decided in the light of the

particular facts of a mortgage sale, such as whether the mortgages are

being sold separately or in pools or are current or delinquent.

Accordingly, HUD will announce any such terms and conditions in the

mortgage sales announcement and by notice to affected mortgagors. HUD

will consider these comments and other factors in setting these terms

and conditions.

The National Leased Housing Association (NLHA) supported the

proposed rule, but believed that it should have gone further in

spelling out the details of HUD's mortgage sale program, in order to

provide an opportunity for public comment. In particular, NLHA wanted

more detail regarding the FHA mortgage insurance programs to be used,

the minimum bid requirements, any borrower right of first refusal and

right to bid policies, and the nature of the bid process. It

recommended that mortgages be sold individually, bidders have adequate

time in which to perform due diligence, and workout agreements be

permitted to be terminated by agreement between the new mortgagee and

the mortgagor. All of this advice is well-taken. The Department has

consulted widely, and will continue to consult, in the development of

its mortgage sales program, but does not believe that such details

concerning mortgage sale procedures should be codified in regulation.

Instead, the Department intends to adopt mortgage sale policies that

are consistent with these regulations and are suited to the

characteristics of the mortgages offered for sale. This approach also

will allow the Department to learn from experience and feedback from

all affected parties as it pursues a series of mortgage sales. Auction

procedures will be spelled out in a bid package distributed prior to

each auction.

One mortgagor recommended a carefully considered set of policies

for mortgage settlements with owners. These recommendations will be

considered as HUD works with its financial advisor to develop a

mortgage settlement policy. A law firm urged special attention to

participation by small investors in the mortgage sale program,

including negotiated sales to small investors. HUD seeks to encourage

participation by small investors by offering nonperforming mortgages in

small pools; however, it is not authorized to negotiated sales to

private entities. A development and property management firm

recommended against the sale of HUD-held mortgages on the ground that

they would be too deeply discounted; however, if they were sold, the

firm recommended that the mortgages be sold individually, rather than

in pools, to receive the highest price. HUD will determine whether to

offer mortgages individually, in pools, or both, based on the

characteristics of the mortgages offered for sale and other terms and

conditions of the auction. The Chinese-American Golden Age Association

recommended the sale of Section 202 loans. HUD is considering various

options for these mortgages at the present time.

Section-by-Section Changes From Proposed Rule

Some of the provisions in the final rule have been reformatted, to

aid in clarity. Substantive changes made to the proposed rule are

identified below:

Section 207.270

A new provision has been added to part 207 which authorizes the

Department to modify the terms of the mortgage reinsurance pursuant to

section 223(c) of the National Housing Act when the Department sells a

mortgage with FHA insurance. This change is necessary to take into

account the fact that mortgages may be sold to investors at a discount

rate due to fluctuating interest rates. When mortgages are sold at a

discount rate, HUD will adjust the amount of the reinsurance to reflect

the purchase price of the mortgage, not the original mortgage amount.

HUD will determine the amount of the reinsurance at the time of the

mortgage sale. This regulatory change codifies existing Departmental

policy for mortgage sales.

Section 290.3

The definition of subsidized mortgage has been clarified to

indicate that purchase money mortgages (PMMs) for previously subsidized

projects will be treated like subsidized mortgages. The definition of

subsidized project has been conformed with the Multifamily Property

Disposition Act.

Section 290.200

Language has been added to the section describing the purpose of

the new subpart D, Sale of HUD-held mortgages, to state that, except

for negotiated sales to State and local governments, HUD will sell

mortgages on a competitive basis. Language has also been added to

explain that the Secretary retains full discretion to offer any

qualifying mortgage for sale and to withhold or withdraw any offered

mortgage from sale. The procedures set out in the remaining sections of

this subpart apply only when the Secretary has determined that a

qualifying mortgage is to be sold.

Section 290.201(a)

The Department agrees with commenters that existing tenant

protections should be preserved. Consequently, a paragraph has been

added to include language from section 203(k)(1) of the HCD Amendments

of 1978, prohibiting the Secretary from selling a HUD-held mortgage on

a subsidized project unless the sale is made part of a transaction that

meets certain qualifications. The transaction must ensure that the

project will continue to operate at least until the maturity date of

the loan or mortgage in a manner that will provide rental housing on

terms at least as advantageous to existing and future tenants as the

terms required by the program under which the original mortgage was

insured.

Section 290.202(b)(2)

The language has been changed to incorporate the changes made by

the Multifamily Property Disposition Act in the treatment of

unsubsidized projects.

Other Matters

Executive Order 12866

This rule was reviewed by the Office of Management and Budget (OMB)

under Executive Order 12866, Regulatory Planning and Review. Any

changes made to the rule as a result of that review are clearly

identified in the docket file, which is available for public inspection

in the office of the Department's Rules Docket Clerk, room 10276, 451

Seventh Street SW, Washington, D.C.

Environmental Impact

In accordance with 40 CFR 1508.4 of the regulations of the Council

on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations,

the policies and procedures contained in this rule relate only to HUD

administrative procedures and, therefore, are categorically excluded

from the requirements of the National Environmental Policy Act.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that the policies

contained in this rule will not have substantial direct effects on

States or their political subdivisions, or the relationship between the

federal government and the States, or on the distribution of power and

responsibilities among the various levels of government. As a result,

the rule is not subject to review under the Order. Specifically, the

requirements of this rule are directed to HUD administrative

procedures, and do not impinge upon the relationship between Federal

government and State and local governments.

Executive Order 12606, the Family

The General Counsel, as the Designated Official under Executive

order 12606, The Family, has determined that this rule does not have

potential for significant impact on family formation, maintenance, and

general well-being, and, thus, is not subject to review under the

order. No significant change in existing HUD policies or programs will

result from promulgation of this rule, as those policies and programs

relate to family concerns.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)) has reviewed and approved this rule, and in so doing

certifies that this rule will not have a significant economic impact on

a substantial number of small entities. This rule will not affect the

ability of small entities, relative to larger entities, to bid for and

acquire HUD-held mortgages that HUD decides to sell.

Justification for Final Rulemaking

In general, the Department publishes a rule for public comment

before issuing a rule for effect, in accordance with its own

regulations on rulemaking, 24 CFR part 10. However, part 10 does

provide for exceptions from that general rule where the agency finds

good cause to omit advance notice and public participation. The good

cause requirement is satisfied when prior public procedure is

``impracticable, unnecessary, or contrary to the public interest.'' (24

CFR 10.1) The Department finds that good cause exists to publish

section 207.270 of this rule for effect without first soliciting public

comment, in that prior public procedure is unnecessary because the

Department is merely codifying an existing earlier policy.

Regulatory Agenda

This final rule was listed as sequence number 1579 in the

Department's Semiannual Agenda of Regulations published on April 25,

1994 (59 FR 20424, 20446) in accordance with Executive Order 12866 and

the Regulatory Flexibility Act.

List of Subjects

24 CFR Part 207

Manufactured homes, Mortgage insurance, Reporting and recordkeeping

requirements, Solar energy.

24 CFR Part 290

Low and moderate income housing, Mortgage insurance.

For the reasons stated in the preamble, part 207 and part 290 of

title 24 of the Code of Federal Regulations is amended as follows:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

1. The authority citation for part 207 is revised to read as

follows:

Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C.

3535(d).

2. Subpart B is amended by adding a new undesignated center heading

to follow immediately after Sec. 207.263, and by adding a new

Sec. 207.270 to read as follows:

Reinsured Mortgages

Sec. 207.270 Special Reinsurance Provisions.

The terms, method and amount for payment of insurance benefits for

mortgages reinsured pursuant to section 223(c) of the National Housing

Act may be modified by the terms of the Commissioner's endorsement of

the note for reinsurance.

PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY

PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD

MORTGAGES

3-4. The authority citation for part 290 continues to read as

follows:

Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b;

42 U.S.C. 3535(d).

5. Section 290.1 is revised to read as follows:

Sec. 290.1 Applicability.

This part applies to HUD-owned multifamily housing projects and to

rental housing projects that are subject to mortgages held by HUD.

Specific provisions, as noted in the rule text, apply only to ``rental

housing projects'' (including HUD-owned rental housing projects) as

defined in Sec. 290.3.

6. In Sec. 290.3, definitions for ``subsidized mortgage,''

``subsidized project'' and ``unsubsidized mortgage'' are added in

alphabetical order to read as follows:

Sec. 290.3 Definitions.

* * * * *

Subsidized mortgage means a mortgage, including a purchase money

mortgage, on a subsidized project.

Subsidized project means a rental project that is receiving, or

immediately before its mortgage was foreclosed by HUD or the project

was acquired by HUD pursuant to this regulation was receiving, any of

the following types of assistance:

(1) Below market interest rate mortgage insurance under the proviso

of section 221(d)(5) of the National Housing Act (hereinafter, a BMIR

project);

(2) Interest reduction payments made in connection with mortgages

insured under section 236 of the National Housing Act (hereinafter, a

236 project);

(3) Direct loans made under section 202 of the Housing Act of 1959

(hereinafter, a 202 project);

(4) Assistance, to more than 50 percent of the units in the

project, in the form of:

(i) Rent supplement payments under section 101 of the Housing and

Urban Development Act of 1965 (hereinafter, Rent Supp);

(ii) Additional assistance payments under section 236(f)(2) of the

National Housing Act (hereinafter, RAP);

(iii) Housing assistance payments under section 23 of the United

States Housing Act of 1937 (as in effect before January 1, 1975)

(hereinafter, Sec. 23); or

(iv) Housing assistance payments under section 8 of the United

States Housing Act of 1937 (excluding payments made for tenant-based

assistance under section 8) (hereinafter, project-based section 8).

* * * * *

Unsubsidized mortgage means any HUD-held mortgage that is not a

subsidized mortgage.

* * * * *

7. A new Subpart D, consisting of Secs. 290.200 through 290.202 is

added, to read as follows:

Subpart D--Sale of HUD-Held Mortgages

290.200 Purpose and applicability of Civil Rights Requirements.

290.201 Sale of subsidized HUD-held mortgages.

290.202 Sale of unsubsidized HUD-held mortgages.

Subpart D--Sale of HUD-Held Mortgages

Sec. 290.200 Purpose and applicability of Civil Rights Requirements.

(a) Purpose. The purpose of this subpart is to set out HUD's policy

regarding the sale of subsidized and unsubsidized HUD-held mortgages.

Except as otherwise provided in Sec. 290.201(b)(ii), the Department

will sell mortgages on a competitive basis. The Secretary retains full

discretion to offer any qualifying mortgage for sale and to withhold or

withdraw any offered mortgage from sale. However, when a qualifying

mortgage is offered for sale, the procedures set out in this part will

govern the sale.

(b) Applicability of Civil Rights Requirements. Nothing in this

subpart relieves HUD or housing that receives federal financial

assistance from federal civil rights requirements, including section

504 of the Rehabilitation Act, Title VI of the Civil Rights Act of

1964, Title VIII of the Civil Rights Act of 1968, the Age

Discrimination Act of 1975, Executive Order 11063, and related

regulations and requirements. This includes housing in which less than

50% of the units are receiving housing assistance payments under either

Section 23 or Section 8 of the United States Housing Act of 1937 and

housing in which the rent of any unit is paid by a Section 8

certificate or voucher.

Sec. 290.201 Sale of subsidized HUD-held mortgages.

(a) Tenant protections preserved. HUD will only sell subsidized

mortgages if the sale is part of a transaction that will ensure that

the project subject to the mortgage will continue to operate, at least

until the maturity date of the mortgage, in a manner that will provide

rental housing on terms at least as advantageous to existing and future

tenants as the terms required by the program under which the mortgage

was insured prior to its assignment. HUD's policy for selling

subsidized HUD-held mortgages is set out in paragraphs (b) and (c) of

this section.

(b) Current mortgages. HUD may sell current mortgages, as follows:

(1) Current mortgages with FHA mortgage insurance will be sold

either:

(i) On a competitive basis to FHA-approved mortgagees; or

(ii) On a negotiated basis, to State or local governments, or to a

group of investors that includes an agency of a State or local

government, if:

(A) The terms of the sale include an agreement by the State or

local government, or an agency of the State or local government, to:

(1) Act as mortgagee or owner of a beneficial interest in the

mortgage; and

(2) Ensure that the project will maintain occupancy by the tenant

group originally intended to be served by the subsidized housing

program; and

(B) The sales price is the best price that the Secretary can obtain

from an agency of a State or local government while maintaining

occupancy for the tenant group originally intended to be served by the

subsidized housing program.

(2) Current mortgages without FHA mortgage insurance will be sold

if HUD can offer protections equivalent to those listed for an insured

sale in paragraph (b)(1) of this section.

(c) Delinquent mortgages. Delinquent mortgages will be sold only

if, as part of the sales transaction:

(1) The mortgages are restructured; and

(2) Either FHA mortgage insurance or equivalent protections are

provided.

Sec. 290.202 Sale of unsubsidized HUD-held mortgages.

HUD's policy for selling unsubsidized HUD-held mortgages is as

follows:

(a) Current mortgages may be sold with or without FHA mortgage

insurance.

(b) Delinquent mortgages may be sold without FHA mortgage

insurance. However, delinquent mortgages will not be sold if:

(1) HUD believes that foreclosure is unavoidable; and

(2) The project securing the mortgage is occupied by very low-

income tenants who are not receiving housing assistance and would be

likely to pay rent in excess of 30 percent of their adjusted monthly

income if HUD sold the mortgage.

Dated: September 16, 1994.

Jeanne K. Engel,

General Deputy Assistant Secretary for Housing-Federal Housing

Commissioner.

[FR Doc. 94-23522 Filed 9-21-94; 8:45 am]

BILLING CODE 4210-27-P