GNMA Requests for Full Insurance on Coinsurance Loans

Federal RegisterJan 11, 1994

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

24 CFR Parts 251, 252 and 255

[Docket No. R-934-1589; FR-2951-F-02]

RIN 2502-AF09

GNMA Requests for Full Insurance on Coinsurance Loans

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

Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This rule revises currently applicable multifamily and health

facility coinsurance regulations to eliminate the requirement that the

Government National Mortgage Association (GNMA), in every case, first

attempt to assign issuer-servicer responsibility on current coinsured

mortgages held by a defaulting lender-issuer before requesting full

insurance endorsement by the Federal Housing Administration (FHA). The

purpose of the rule is to eliminate a current regulatory requirement

which has proved to be time-consuming and, in most cases, unnecessary.

EFFECTIVE DATE: February 10, 1994.

FOR FURTHER INFORMATION CONTACT: Albert B. Sullivan, Director, Office

of Multifamily Housing Management, room 6160, Department of Housing and

Urban Development, 451 Seventh Street, SW., Washington, DC 20410, voice

(202) 708-3730, TDD (202) 708-4594. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: The Department's former regulations

concerning GNMA's right to assignment of coinsured mortgages were found

at 24 CFR 251.827 (Multifamily Coinsurance--New Construction and

Substantial Rehabilitation), Sec. 252.827 (Coinsurance of Nursing Homes

and Related Facilities), and Sec. 255.827 (Coinsurance of Mortgages

Covering Existing Multifamily Projects), before their recent removal as

part of the termination of the Coinsurance program sections on right to

assignment provided that, for any Coinsured Mortgage that is not in

default and is held by a defaulting lender-issuer, GNMA will first

attempt to have the Mortgage assigned to another eligible coinsuring

lender by soliciting offers to assume the defaulting lender-issuer's

rights and obligations under the Mortgage from those eligible

coinsuring lenders that are indicated on a periodically updated listing

furnished to GNMA by the Commissioner and that are also GNMA issuers.

If GNMA rejects all offers or no offers are received, GNMA will then

have the right to perfect an assignment of the Mortgage to itself. The

Commissioner will endorse any Mortgage assigned to GNMA as provided by

this section for full insurance effective as of the date of assignment

in accordance with the appropriate provisions of title 24 of the Code

of Federal Regulations.

On October 10, 1990, a final rule was published (55 FR 41312)

terminating the FHA multifamily coinsurance programs and revising parts

251, 252 and 255. As a result of the final rule, parts 251, 252 and 255

each now consist of a single section dealing with the program phase-out

process. However, while the former rule's provisions are no longer

included in the Code of Federal Regulations, those regulations in

effect before November 12, 1990 continue to govern the rights and

obligations of mortgagors, coinsuring lenders and HUD in existence

before the termination of the coinsurance programs. The effect of this

rule is to revise those regulations as they relate to the handling of

mortgage assignments to GNMA.

On December 15, 1992 the Department published a proposed rule (57

FR 59314) identical in text to this final rule. No comments were

received from the public concerning this proposed rule.

In lieu of the above-quoted paragraphs (a)(1) and (a)(2), this rule

provides that ``For any Coinsured Mortgage that is not in default and

is held by a defaulting lender-issuer, GNMA will have the right to

perfect an assignment of the mortgage to itself. However, before

exercising this right, GNMA will attempt to have the Mortgage assigned

to another eligible coinsuring lender (unless it determines, with the

agreement of the Commissioner, that the attempt would prove ineffectual

because of market or other conditions). The assignment will be

attempted by soliciting offers to assume the defaulting lender-issuer's

rights and obligations under the Mortgage from those eligible

coinsuring lenders that are also GNMA issuers and that are indicated on

a periodically updated listing furnished to GNMA by the Commissioner.''

Given the facts that (a) the authority to coinsure mortgages has

been terminated; (b) for the most part, no market exists for the

purchase of coinsurance servicing rights; and (c) none of the few

remaining approved coinsuring lenders has shown any interest to date in

assuming additional coinsuring risk by assignment of loans from GNMA,

implementation of the regulatory requirement earlier set forth in

paragraphs (a)(1) and (a)(2) has proved to be a time-consuming,

burdensome and fruitless process. Therefore, this rule amends parts

251, 252 and 255 to eliminate the requirement that GNMA, in every case,

first attempt to assign issuer-servicer responsibility on current

coinsured mortgages before perfecting assignment of the Coinsured

Mortgage to itself and requesting full insurance endorsement by FHA.

Procedural Matters

Executive Order 12866

This final rule was reviewed and approved by the Office of

Management and Budget as a significant regulatory action under

Executive Order 12866, Regulatory Planning and Review, which was signed

by the President on September 30, 1993. Any changes made to the rule as

a result of that review are a part of the public docket file in the

office of the Rules Docket Clerk listed at the beginning of this

preamble.

In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility

Act), the undersigned hereby certifies that this rule does not have a

significant economic impact on a substantial number of small entities.

This rule is procedural in nature. It effects no substantive changes in

HUD programs or policies.

This rule was listed as item number 1540 in the Department's

Semiannual Agenda of Regulations published on October 25, 1993 (58 FR

56402, 56431) under Executive order 12291 and the Regulatory

Flexibility 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 do not have Federalism implications and, thus,

are not subject to review under the Order. No programmatic or policy

changes result from this rule's promulgation which would affect

existing relationships between the 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. The rule is procedural in nature and no significant change in

existing HUD policies or programs impacting on the family result from

promulgation of this rule.

Environment

An environmental assessment is unnecessary, since internal

administrative procedures whose content does not constitute a

development decision affecting the physical condition of specific

project areas or building sites are categorically excluded from the

Department's National Environmental Policy Act procedures under 24 CFR

50.20(k).

List of Subjects

24 CFR Part 251

Low and moderate income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 252

Health facilities, Loan programs--housing and community

development, Loan programs--health, Mortgage insurance, Reporting and

recordkeeping requirements, Nursing homes.

24 CFR Part 255

Low and moderate income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

Accordingly, 24 CFR parts 251, 252 and 255 are amended to read as

follows:

PART 251--COINSURANCE FOR THE CONSTRUCTION OR SUBSTANTIAL

REHABILITATION OF MULTIFAMILY HOUSING PROJECTS

1. The authority citation for 24 CFR part 251 is revised to read as

follows:

Authority: 12 U.S.C. 1715b, 1715z-9; 42 U.S.C. 3535(d).

2. Section 251.2 is added to read as follows:

Sec. 251.2 GNMA right to assignment.

If the lender-issuer defaults on its obligations under the GNMA

Mortgage-Backed Securities Program, GNMA will have the right to cause

all Coinsured Mortgages held in GNMA pools by the defaulting coinsuring

lender-issuer to be assigned to another GNMA-approved coinsuring

lender-issuer, or to GNMA itself.

(a) For any Coinsured Mortgage that is not in default and is held

by a defaulting lender-issuer, GNMA will have the right to perfect an

assignment of the mortgage to itself. However, before exercising this

right, GNMA will attempt to have the Mortgage assigned to another

eligible coinsuring lender (unless GNMA determines, with the agreement

of the Commissioner, that the attempt would prove ineffectual because

of market conditions or other factors). This attempt will be undertaken

by soliciting offers to assume the defaulting lender-issuer's rights

and obligations under the Mortgage from those eligible coinsuring

lenders that are also GNMA issuers and that are indicated on a

periodically updated listing furnished to GNMA by the Commissioner.

(b) For any Coinsured Mortgage that is in default and held by a

defaulting lender-issuer, GNMA will have the right to perfect an

assignment of the Coinsured Mortgage directly to itself before

extinguishing the Mortgage by completion of foreclosure action or

acquisition of title by deed-in-lieu of foreclosure.

within 30 days after taking a Mortgage by assignment in accordance with

this section, in order to allow an appropriate endorsement and

necessary changes in the Commissioner's records.

(d) The Commissioner will endorse any Mortgage assigned to GNMA as

provided by this section for full insurance, effective as of the date

of assignment in accordance with the appropriate provisions of 24 CFR

part 221. Any future claim by GNMA, or any assignment of the fully

insured Mortgage, will be governed by the appropriate provisions of 24

CFR part 221, except that any payment will be made in cash instead of

debentures.

PART 252--COINSURANCE OF MORTGAGES COVERING NURSING HOMES,

INTERMEDIATE CARE FACILITIES AND BOARD AND CARE HOMES

3. The authority citation for 24 CFR part 252 is revised to read as

follows:

Authority: 12 U.S.C. 1715b, 1715z-9; 42 U.S.C. 3535(d).

4. Section 252.2 is added to read as follows:

Sec. 252.2 GNMA right to assignment.