Mortgagee Review Board; Proceedings Before a Hearing Officer; Proposed Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: This proposed rule would make changes in the Department's

regulations governing sanctions imposed by the Mortgagee Review Board.

The proposed rule would also make conforming changes to the regulations

concerning HUD's hearing officers, consistent with the revisions

proposed herein and in the proposed revision to 24 CFR part 24

published elsewhere in today's Federal Register. The changes to the

Mortgagee Review Board actions are intended to follow more closely the

statutory provisions set forth at 12 U.S.C. 1708(c). The Department

considers these proposed revisions necessary to comply with the

President's directive to streamline agency operations throughout the

Executive Branch. The proposed revisions are also an element in the

Government reinvention process at the Department.

DATES: Comment due date. Comments must be submitted on or before

February 21, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding

this rule to the Rules Docket Clerk, Office of General Counsel, Room

10276, Department of Housing and Urban Development, 451 Seventh Street,

S.W., Washington, D.C. 20410. Communications should refer to the above

docket number and title. A copy of each communication submitted will be

available for public inspection and copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Emmett N. Roden, Assistant General

Counsel for Administrative Proceedings, Office of General Counsel, U.S.

Department of Housing and Urban Development, 451 7th Street, S.W., Room

10251, Washington, D.C. 20410, telephone (202) 708-2350. The telephone

number for the hearing impaired (TDD) is (202) 708-9300. These are not

toll-free numbers.

SUPPLEMENTARY INFORMATION: Section 202 of the National Housing Act (12

U.S.C. 1708 (c) and (d)) established the Mortgagee Review Board

(``Board''). Section 202(c)(4) directs the Board to ``hold a hearing on

the record'' concerning sanctions it has taken against a mortgagee, if

the mortgagee so requests within 30 days notice of the Board's action.

However, HUD's current regulations delegate the Board's authority to

hold hearings to hearing officers (administrative law judges and Board

of Contract Appeals judges). These proceedings have proven extremely

time-consuming and expensive. Accordingly, this proposed rule will

return the hearing function to the Board, thereby streamlining the

hearing process.

The proposed rule also implements the 1992 amendments to Section

202. These amendments limited a suspension issued by the Board to not

more than one year, unless extended for not more than six additional

months, to protect the public interest, or unless extended with the

mortgagee's agreement. The amendments also clarified that the term

``mortgagee'' included lenders or loan correspondents approved under

the National Housing Act.

The proposed rule also would make conforming changes to HUD's

regulations governing hearing officers, consistent with the proposed

revisions both to the Board's regulations and to 24 CFR part 24,

published elsewhere in today's Federal Register.

Written comments from the public will be considered prior to

issuance of a final rule. No hearing will be conducted with respect to

this proposed rule.

Findings and Other Matters

Environmental Impact

A Finding of No Significant Impact with respect to the environment

required by the National Environmental Policy Act of 1969 (42 U.S.C.

4331) is unnecessary since the rule addresses administrative decisions

whose content does not constitute a development decision nor affect the

physical condition of a project area or building.

The Regulatory Flexibility Act

Under 5 U.S.C. 605(b) (the Regulatory Flexibility Act), the

Secretary by his approval of this rule certifies that this rule would

not have a significant economic impact on a substantial number of small

entities. The rule would implement statutory authority that is intended

to protect the Department's programs from abusive practices, but it

should have no adverse or disproportionate economic impact on small

businesses.

Executive Order 12866, Regulatory Planning and Review

This rule was reviewed and approved by the Office of Management and

Budget as a significant rule, as this term is defined in Executive

Order 12866, which was signed by the President on September 30, 1993.

Any changes to the rule as a result of that review are contained in the

public file for the rule in the Department's Office of the Rules Docket

Clerk.

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. The rule alters the administrative procedures associated with

the prosecution of abuses of HUD programs, but it has no impact on

family-related concerns.

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 between them and other levels of government. The

rule's major effects are on individuals and businesses.

Semiannual Agenda of Regulations

This rule was listed as sequence number 1718 in the Department's

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

57632, 57640) pursuant to Executive Order 12866 and the Regulatory

Flexibility Act.

List of Subjects

24 CFR Part 25

Administrative practice and procedure, Loan programs--housing and

community development, Organization and functions (Government

agencies).

24 CFR Part 26

Administrative practice and procedure.

Accordingly, 24 CFR parts 25 and 26 would be amended as follows:

PART 25--MORTGAGEE REVIEW BOARD

1. The authority citation for part 25 would be revised to read as

follows:

Authority: 12 U.S.C. 1708 (c) and (d), 1709(s), 1715b and

1735(f)-14; 42 U.S.C. 3535(d).

2. Section 25.2 would be revised to read as follows:

Sec. 25.2 Establishment of Board.

The Mortgagee Review Board was established in the Federal Housing

Administration, which is in the Office of the Assistant Secretary for

Housing--Federal Housing Commissioner, by section 202(c)(1) of the

National Housing Act, (12 U.S.C. 1708(c)(1)), as added by section 142

of the Department of Housing and Urban Development Reform Act of 1989

(Pub. L. 101-235, 103 Stat. 1987). Except as limited by this part, the

Mortgagee Review Board shall exercise all of the functions of the

Secretary with respect to administrative actions against mortgagees and

lenders and such other functions as are provided in this part. The

Mortgagee Review Board may, in its discretion, approve the initiation

of a suspension or debarment action against a mortgagor or lender by

any Suspending or Debarring Official under part 24 of this title. The

Mortgagee Review Board shall have all powers necessary and incident to

the performance of these functions. The Mortgagee Review Board may

redelegate its authority to impose administrative sanctions on the

grounds specified in Secs. 25.9 (e), (h), and (u), to take all other

nondiscretionary acts, and to review submissions and conduct hearings

in accordance with Sec. 25.8. With respect to actions taken against

Title I lenders, the Mortgagee Review Board may redelegate its

authority to take administrative actions on the grounds specified in 24

CFR 202.3(j), 202.5(a), and 202.5(c) of this title (as incorporated in

Sec. 202.6(b)(1) of this title).

3. In Sec. 25.3, a definition for Hearing official would be added

after the definition for Cease and desist order, a definition for Loan

correspondent would be added after the definition for Letter of

reprimand and the definition of Mortgagee would be revised to read as

follows:

Sec. 25.3 Definitions.

* * * * *

Hearing official. The hearing official is a Departmental official

designated by the Board to conduct hearings under Sec. 25.8.

* * * * *

Loan correspondent. A financial institution approved by the

Secretary to originate direct loans under Title I of the National

Housing Act, 12 U.S.C. 1702 et seq., for sale or transfer to a

sponsoring lending institution which holds a valid Title I contract of

insurance and which is not under suspension.

* * * * *

Mortgagee. (1) For purposes of this part, the term ``mortgagee''

includes:

(i) The original lender under the mortgage, as that term is defined

at sections 201(a) and 207(a)(1) of the National Housing Act, 12 U.S.C.

1707(a) and 1713(a)(1);

(ii) A lender or loan correspondent as defined in this section; or

(iii) A branch office or subsidiary of the mortgagee, lender or

loan correspondent.

(2) The term ``mortgagee'' also includes successors and assigns of

the mortgagee, lender or loan correspondent, as are approved by the

Commissioner.

* * * * *

4. In Sec. 25.5, paragraphs (c)(1), (c)(2) and (d)(4)(iii) would be

revised to read as follows:

Sec. 25.5 Administrative actions.

* * * * *

(c) Suspension--(1) General. The Board may issue an order

temporarily suspending a mortgagee's HUD/FHA approval if there exists

adequate evidence of a violation(s) under Sec. 25.9 and continuation of

the mortgagee's HUD/FHA approval, pending or at the completion of, any

audit, investigation, or other review, or such administrative or other

legal proceedings as may ensue, would not be in the public interest or

in the best interests of the Department. Suspension shall be based upon

adequate evidence.

(2) Duration. A suspension shall last for a specified period of

time, but not less than 6 months and generally not more than 1 year.

The Board may extend the suspension for an additional 6 months it if

determines that the extension is in the public interest. These time

limits may also be extended upon the voluntary written agreement of the

mortgagee.

* * * * *

(d) * * *

(4) * * *

(iii) Upon receipt of the hearing official's decision under

Sec. 25.8.

* * * * *

5. Section 25.7 would be revised to read as follows:

Sec. 25.7 Notice of administrative action.

Whenever the Board takes an action to issue a letter of reprimand,

place a mortgagee on probation, or to suspend or withdraw a mortgagee's

approval, the Board shall promptly notify the mortgagee in writing of

the determination. Except for a letter of reprimand, the notice shall

describe the nature and duration of the administrative action, shall

specifically state the violations and shall set forth the findings of

the Board. The notice shall inform the mortgagee of its right to a

hearing regarding the administrative action (except for a letter of

reprimand) and of the manner and time in which to request a hearing

pursuant to Sec. 25.8. A supplemental notice may be issued in the

discretion of the Board to add or modify the reasons for the action.

6. Section 25.8 would be revised to read as follows:

Sec. 25.8 Hearings and hearing request.

(a) Hearing request. In the case of probation, suspension or

withdrawal action, a mortgagee is entitled to a hearing on the record

before a hearing official designated by the Board. The mortgagee shall

submit its request for a hearing within 30 days of receiving the

Board's notice of administrative action. The request shall be addressed

to the Board Docket Clerk, Department of Housing and Urban Development,

451 7th Street, S.W., Washington, D.C. 20410. The request shall

specifically respond to the violations set forth in the notice of

administrative action. If the mortgagee fails to request a hearing

within 30 days after receiving the notice of administrative action, the

Board's action shall become final.

(b) Procedural rules. The hearing official shall hold a de novo

hearing within 30 days of HUD's receipt of the mortgagee's request,

unless the mortgagee requests a later hearing date or requests an

informal conference, under paragraph (e) of this section, in addition

to the hearing. The mortgagee or its representative shall be afforded

an opportunity to appear, submit documentary evidence, present

witnesses and confront any witness the agency presents. The parties

shall not be allowed to present members of the Board as witnesses. A

transcribed record of the hearing shall be made available at cost to

the mortgagee.

(c) Hearing location. The hearing shall generally be held in

Washington, D.C. However, upon a showing of undue hardship or other

cause, the hearing official may, in his or her discretion, order the

hearing to be held in a location other than Washington, D.C.

(d) Hearing official's decision. The hearing official shall make a

written decision within 45 days after the conclusion of the hearing,

unless the hearing official extends this period for good cause. If

there is any dispute as to material facts, the hearing official shall

make written findings of fact. The decision shall be based upon the

facts as found, together with any information and argument submitted by

the parties and any other information in the administrative record. The

hearing official's decision shall be mailed to the mortgagee, and shall

serve as the final agency action concerning the mortgagee.

(e) Informal conference. The mortgagee may request an informal

conference with respect to a notice of withdrawal, suspension, or

probation. The conference shall, at the option of the mortgagee, be in

lieu of or precede the hearing on the Board action. The mortgagee must

submit the request for an informal conference to the Board Docket Clerk

within 30 days after receipt of the notice of Board action. If the

mortgagee elects to request a hearing in addition to the conference,

the mortgagee must include with the request for a conference and

hearing an express waiver of the mortgagee's right to the hearing

within 30 days after the Department's receipt of the request for

hearing. The conference shall be conducted by the hearing official, or

another designated official, within 15 days after receipt of the

request for a conference.

6. In Sec. 25.9, paragraphs (i) and (w) would be revised to read as

follows:

Sec. 25.9 Grounds for an administrative action.

* * * * *

(i) Failure or refusal of an approved mortgagee to comply with an

order of the Board, the Secretary, or the hearing official;

* * * * *

(w) Any other reasons the Board, the Secretary, or the hearing

official, as appropriate, determines to be so serious as to justify an

administrative sanction;

* * * * *

Sec. 25.12 [Amended]

7. In Sec. 25.12(a), the words ``Hearing Officer'' would be removed

and in their place, the words ``hearing official'' would be added, and

the last sentence would be removed.

8. Section 25.16 would be revised to read as follows:

Sec. 25.16 Prohibition against modification of Board orders.

The hearing official shall not modify or otherwise disturb in any

way an order or notice by the Board, except after having conducted a

hearing in accordance with Sec. 25.8.

Sec. 25.17 [Removed]

9. Section 25.17 would be removed.

PART 26--PROCEEDINGS BEFORE A HEARING OFFICER

10. The authority citation for part 26 would be revised to read as

follows:

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

11. In Sec. 26.1, the second sentence would be revised to read as

follows:

Sec. 26.1 Purpose.

* * * These rules of procedure apply to hearings with respect to

determinations by the Multifamily Participation Review Committee

pursuant to 24 CFR part 200, subpart H, and to hearings conducted

pursuant to a referral by a debarring or suspending official of a

dispute with respect to material facts at issue in an administrative

sanction matter under 24 CFR part 24, unless such regulations at parts

200 or 24 provide otherwise. * * *

Dated December 8, 1994.

Henry G. Cisneros,

Secretary

[FR Doc. 94-30912 Filed 12-19-94; 8:45 am]

BILLING CODE 4210-32-P