Amendments to Regulation X, the Real Estate Settlement Procedures Act Regulation (Subordinate Liens), Final Rule; Correction

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

24 CFR Part 3500

[Docket No. R-94-1653; FR-3382-C-04]

RIN 2502-AG13

Amendments to Regulation X, the Real Estate Settlement Procedures

Act Regulation (Subordinate Liens), Final Rule; Correction

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

Commissioner, HUD.

ACTION: Final rule; correction.

-----------------------------------------------------------------------

SUMMARY: The Department is publishing corrections to the final rule on

Amendments to Regulation X, the Real Estate Settlement Procedures Act

Regulation (Subordinate Liens), published February 10, 1994 (59 FR

6505).

DATES: Effective date: August 9, 1994, except that the corrections and

clarifications in Sec. 3500.5(b) are effective upon publication.

FOR FURTHER INFORMATION CONTACT: Grant E. Mitchell, Senior Attorney for

RESPA, Office of General Counsel, room 10252 (202) 708-1550, Department

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

DC 20410-0500. The TDD number is (202) 708-4594. (These are not toll-

free numbers.)

SUPPLEMENTARY INFORMATION:

Background

On February 10, 1994, the Department issued amendments to its

regulations to implement sections 908 and 951 of the Housing and

Community Development Act of 1992 (Pub. L. 102-550, approved October

28, 1992) (Act). That Act expanded the coverage of RESPA to include

mortgages secured by subordinate liens, and restated the Department's

authority over refinancing transactions. The Department's final rule of

February 10, 1994 adopted certain definitions and disclosure

requirements of the Truth in Lending Act (TILA) and its implementing

regulation, Regulation Z, to minimize the burden on lenders and others

in complying with different or conflicting definitions and disclosure

requirements for transactions also covered by the TILA.

Need for Correction

As published, the preamble and the final rule contain material that

may be misleading and is in need of correction or clarification.

For example, some readers have erroneously interpreted a provision

in the preamble (at the end of the first column of 59 FR 6508) that was

intended to clarify treatment of certain specific owner-occupied

programs of the Federal Housing Administration (FHA) as modifying the

entire business purpose exemption. With one exception, the business

purpose exemption of Regulation X extends to all business purpose

transactions exempted under Regulation Z, and persons may rely on

Regulation Z in determining whether the exemption applies. The one

exception is loans to individuals to acquire, refinance, improve, or

maintain 1- to 4-family residential properties used, or to be used, for

rental purposes; these transactions have been determined by the

Department to be covered by RESPA. An individual who has voluntarily

chosen to act as a sole proprietorship is not considered an individual

under the exception to the business purpose exemption; however, a

lender may not require sole proprietorship status as a condition for

making the loan. The preamble has been amended by isolating the FHA-

related language, and clarifying language is included in

Sec. 3500.5(b)(2) of the rule.

Questions have also been raised regarding the title of the HUD-1A

form--Optional Form for Transactions without Sellers. It is called

``optional,'' which is synonymous with ``alternative'' in this context,

because the HUD-1 can be used for all transactions, using the

borrower's side of the form where there is no seller, or the HUD-1A can

be used for borrower-only transactions. As clarified in this

correction, pursuant to Sec. 3500.8, one or the other of these forms

must be used, except for open-end lines of credit (home equity plans)

under the Truth in Lending Act and Regulation Z, for which neither form

is required.

On the HUD-1A, unlike the HUD-1, there is no reference to

assumption fees, because no such fees are contemplated in refinance or

subordinate lien transactions. By this document, however, the

Department also clarifies that it has no objection if form or software

companies leave line 807 blank on the HUD-1A and use line 808 for

mortgage broker fees, so that the treatment of disclosure in the HUD-1

and HUD-1A is more parallel.

Correction of Publication

Accordingly, FR Doc. 94-3035, the final rule (FR-3382) on

Amendments to Regulation X, the Real Estate Settlement Procedures Act

Regulation (Subordinate Liens), published on February 10, 1994 (59 FR

6505), is corrected as follows:

1. On page 6508, in the first column, in the preamble, at the end

of the first paragraph under Item 7, the following two sentences are

added:

The exemptions requested in comments (a), (c), and (d) were

effectively adopted as part of the business purpose exemption. Comment

(b) was not adopted in its entirety, because the Department chose not

to exempt loans to individuals (natural persons) to acquire, refinance,

improve, or maintain 1- to 4-family residential rental properties.

2. On page 6508, in the second paragraph under Item 7 in the

preamble, the first sentence is removed and the following sentence is

substituted in its place:

The Department decided generally to adopt the ``business purpose''

exemption of Regulation Z, but does not include in the business purpose

exemption a loan to one or more natural persons to acquire, refinance,

improve or maintain 1- to 4-family residential properties used or to be

used for rental purposes. An individual choosing to act as a sole

proprietorship is not an individual under this rule.

3. On page 6508, in the first column and continuing in the second

column, in the third paragraph under Item 7 in the preamble, the last

two sentences in the paragraph are removed and a new Item 7A is added

in their place, to include the following heading and text:

7A. FHA-Related Transactions

Questions have arisen under the eligibility standards of certain

FHA owner-occupancy programs where both an individual and a living

trust (or a corporation, association, or partnership) are named on the

note or deed. For purposes of the relevant FHA programs, this dual

denomination on the note or deed continues to satisfy the owner-

occupied program definitions. These transactions are covered by RESPA.

Sec. 3500.2 [Corrected]

4. On page 6511, in the third column, in the definition in

Sec. 3500.2 of ``federally related mortgage loan'', the last sentence

in paragraph (2) is removed from paragraph (2) and is redesignated as a

separate paragraph (3).

Sec. 3500.5 [Corrected]

5. On page 6512, in the third column, in Sec. 3500.5, paragraph

(b)(1)(ii) is corrected by removing the word ``and'' at the end of the

paragraph and adding the word ``or'' in its place.

6. On page 6512, in the third column, and continuing on page 6513,

in the first column, in Sec. 3500.5, paragraph (b)(2) is clarified by

removing the period before the last sentence and adding a comma in its

place, and by removing the last sentence and by adding the following

clause and two sentences in its place:

(b) * * *

(2) * * *

* * * and persons may rely on Regulation Z in determining whether

the exemption applies. Notwithstanding the foregoing, the exemption in

this section for business purpose loans does not include any loan to

one or more persons acting in an individual capacity (natural persons)

to acquire, refinance, improve, or maintain 1- to 4-family residential

property used, or to be used, to rent to other persons. An individual

who voluntarily chooses to act as a sole proprietorship is not

considered to be acting in an individual capacity for purposes of this

part.

* * * * *

Sec. 3500.7 [Corrected]

7. On page 6514, in the second column, in Sec. 3500.7, paragraph

(f) is corrected by removing the parentheses in the citation ``12 CFR

226.5(b)'', to read ``12 CFR 226.5b''.

Sec. 3500.8 [Corrected]

8. On page 6514, in the second column, in Sec. 3500.8, the last

sentence of paragraph (a) is removed and the following two sentences

are added in its place:

(a) * * * Either the HUD-1 or the HUD-1A, as appropriate, shall be

used for every RESPA-covered transaction, unless its use is

specifically exempted, but the HUD-1 or HUD-1A may be modified as

permitted under this part. The use of the HUD-1 or HUD-1A is exempted

for open-end lines of credit (home-equity plans) covered by the Truth

in Lending Act and Regulation Z.

* * * * *

Sec. 3500.9 [Corrected]

9. On page 6515, in the first column, in Sec. 3500.9, paragraph (b)

is corrected by removing the clause ``paragraphs (a)(3), (6), and

(11)'' at the end of the section and adding in its place the clause

``paragraphs (a)(3) and (6)''.

Authority: 12 U.S.C. 2601 et seq.

Dated: March 24, 1994.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 94-7490 Filed 3-29-94; 8:45 am]

BILLING CODE 4210-27-P