Mortgagor Income Stability Requirement for Single Family Mortgage Insurance

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing--Federal Housing

Commissioner

24 CFR Part 203

[Docket No. R-94-1761; FR-3775-F-01]

Mortgagor Income Stability Requirement for Single Family Mortgage

Insurance

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing

Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: HUD is repealing the mortgagor income stability requirement

for single family mortgage insurance. The current regulation requires

that a mortgagor's (borrower's) income continue for the first five

years of the mortgage term in order for the mortgagee (lender) to

include it in the mortgagor's qualifying ratios. HUD feels this five-

year test for all income sources is too strict. By abolishing the

regulation, the Federal Housing Commissioner will be free to establish

income stability criteria as he believes appropriate for a particular

income source and the mortgage product being offered.

EFFECTIVE DATE: December 19, 1994.

FOR FURTHER INFORMATION CONTACT:

Morris E. Carter, Director, Single Family Development Division,

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

Washington, DC, 20410; telephone (202) 708-2700; Hearing or speech-

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

telephone numbers are not toll free.).

SUPPLEMENTARY INFORMATION:

I. Background

Under the single family home mortgage insurance program, the

Federal Housing Administration (FHA) provides insurance for private

lenders against loss on mortgages financing one- to four-family

dwellings. This program is governed by the HUD regulations at 24 CFR

part 203.

The regulations at 24 CFR 203.33 set forth requirements concerning

the relationship between the mortgagor's income and the mortgage

payments. Specifically, 24 CFR 203.33(a) requires that the mortgagor

establish that his or her gross income is, and will be, adequate to

meet the periodic payments required by the mortgage, as well as any

other long term obligations. Paragraph (b) of this section requires

that only stable income expected to continue for approximately the

first five years of the mortgage term be included in Sec. 203.33(a)'s

income adequacy calculation.

HUD is repealing 24 CFR 203.33(b). Experience has shown that the

current five year projection of income is neither reasonable nor is it

required by the Veteran's Administration, the government-sponsored

enterprises of the Federal National Mortgage Association and the

Federal Home Loan Mortgage Corporation, or the private mortgage

insurers. These entities have established different criteria for income

stability determination depending on the income source and other

variables. HUD feels the FHA Commissioner should be permitted the same

latitude.

By abolishing 24 CFR 203.33(b), the Commissioner will be free to

establish income stability criteria as he sees appropriate for a

particular income source and the mortgage product being offered. This

will also enhance the Commissioner's ability to respond to a changing

mortgage market.

II. Justification for Final Rule Making

It is HUD's policy to publish rules for public comment before their

issuance for effect, in accordance with its own regulations on

rulemaking found at 24 CFR part 10. However, part 10 provides that

prior public procedure will be omitted if HUD determines that it is

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

CFR 10.1). HUD finds that it is unnecessary to solicit prior public

comment before publishing this rule for effect, because this rule is

merely eliminating a burdensome requirement which denies borrowers

homeownership opportunities. HUD will still maintain reasonable and

adequate underwriting standards.

III. Other Matters

A. 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.

B. 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. Specifically,

this rule is directed towards applicants and participants in HUD's

single family mortgage insurance program. It effects no changes in the

current relationships between the federal government, the states and

their political subdivisions in connection with this program.

C. 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. This rule eliminates a cumbersome administrative requirement for

borrowers participating in HUD's single family mortgage insurance

program. No significant change in existing HUD policies or programs

will result from the promulgation of this rule, as those policies and

programs relate to family concerns.

E. 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 impact on a

substantial number of small entities. This rule does not significantly

alter FHA insurance benefits, but removes a strict impediment to those

applying for mortgage insurance. Accordingly, this rule will not have a

significant economic impact on a substantial number of small entities.

F. Regulatory Agenda

This final rule was listed as item 1791 in the Department's

Semiannual Agenda of Regulations published on November 14, 1994 (59 FR

57632, 57654) in accordance with Executive Order 12866 and the

Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 203

Hawaiian natives, Home improvement, Indians--lands, Loan programs--

housing and community development, Mortgage insurance, Reporting and

recordkeeping requirements, Solar energy.

Accordingly, 24 CFR part 203 is amended as follows.

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

1. The authority citation for 24 CFR part 203 continues to read as

follows:

Authority: 12 U.S.C. 1709, 1710, 1715b; 42 U.S.C. 3535(d). In

addition, subpart C is also issued under 12 U.S.C. 1715(u).

2. Section 203.33 is amended by removing paragraph (b), and by

redesignating paragraph (c) as paragraph (b).

Dated: November 4, 1994.

Nicolas P. Retsinas,

Assistant Secretary for Housing--Federal Housing Commissioner.

[FR Doc. 94-28509 Filed 11-17-94; 8:45 am]

BILLING CODE 4210-27-P