Electronic Payment of Periodic Mortgage Insurance Premiums; Final Rule

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

24 CFR Part 203

[Docket No. FR-3766-F-01]

RIN 2502-AG37

Electronic Payment of Periodic Mortgage Insurance Premiums; Final

Rule

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

Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This final rule amends HUD's Single Family Mortgage Insurance

regulations. This rule authorizes the Federal Housing Administration

(FHA) Commissioner to require that periodic mortgage insurance premiums

(MIP) be remitted electronically. The purpose of this rule is to reduce

the servicing costs to mortgage lenders and to enhance HUD operations.

EFFECTIVE DATE: July 31, 1995.

FOR FURTHER INFORMATION CONTACT: Anne L. Baird-Bridges, Acting

Director, Single Family Insurance Operations Division, Room 2246,

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

Washington, DC 20410, telephone (202) 708-2438, or (202) 708-4594

(TDD). These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

I. Background

In 1985, the Department of Housing and Urban Development (HUD)

implemented the Automated Clearing House (ACH) program, with voluntary

participation by mortgagees, for electronic payment of up-front

mortgage insurance premiums (MIP) for single family mortgages that are

obligations of the Mutual Mortgage Insurance Fund. In 1989, HUD

implemented the ACH program on a voluntary basis for electronic payment

of periodic (monthly) MIP for single family insured mortgages. In these

single family mortgages, mortgagees collected mortgage insurance

premiums on a monthly basis from the mortgagors and promptly remitted

them to HUD as required by section 530 of the National Housing Act.

These premiums are sometimes referred to as section 530 premiums to

distinguish them from the risk-based premium segment that was adopted

later in July 1991, although regulations under section 530 also apply

to that segment. In 1992, HUD made the ACH program available on a

voluntary basis to the risk-based premium segment of periodic MIP.

On June 9, 1992, HUD published a proposed rule in the Federal

Register (57 FR 24424) that would amend the Title II regulations to

permit the Federal Housing Administration (FHA) Commissioner to require

that all up-front premium payments be made electronically through ACH.

HUD received five comments in response to that proposed rule. Two

comments were from automated clearing house associations, and expressed

general approval of HUD's proposal. Two comments were from national

trade associations; both were favorable to the proposal, although one

expressed a number of technical operational concerns. The fifth

comment, from a small lender, expressed a similar concern to one raised

by one of the trade associations, namely the financial impact on small

lenders.

On March 8, 1993, HUD published a final rule in the Federal

Register (58 FR 12901) that was unchanged from the proposed rule.

However, due to the concerns communicated in the comments, HUD allowed

a one-year grace period for institutions making 300 or fewer new FHA

single family loans per year.

II. The Method of Electronic Payment

HUD's policy prior to this final rule allowed mortgage lenders to

remit payment of periodic (monthly) mortgage insurance premiums (MIP)

either by mailing checks and remittance forms to the NationsBank

lockbox contractor or electronically through the Automated Clearing

House (ACH) program at Mellon Bank. This final rule will require the

electronic payment of all periodic MIP.

In the ACH program, periodic premium collections (also referred to

as section 530 premiums and risk-based premiums) are processed from

mortgagees and confirmations are remitted back to the mortgagees

electronically, using remote terminals or microcomputers with modems in

lieu of sending checks with HUD forms. Through ACH, the mortgagee's

terminal or microcomputer operator keys in the transaction data, which

is transmitted to Mellon Bank.

Each day at 8 p.m. EST, the Mellon Telecash System originates an

ACH file of debit transactions based on the data keyed by the

mortgagee. When the debit transactions have been processed, the ACH

will transmit the periodic premium data to HUD's premium collection

system. Through this ACH process, the debit amount is drawn from the

designated lender's bank account

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electronically the next day, or can be ``warehoused'' and drawn on the

lender's bank account on a future date. The corresponding credit entry

will update HUD's account located at Mellon Bank. If the lender's bank

is unable to receive an ACH entry, a paper Depository Transfer Check

(DTC) is used.

The processing of late charges will not change through the ACH

process. Late charges will still be assessed if a payment is not

received by the 10th of the month. Interest will still be due if the

payment is made more than 20 days after the 10th of the month. In the

ACH program, the late charge and interest amount can be entered on the

input screen.

Under this final rule, periodic MIP for all mortgages insured under

the General Insurance Fund, the Special Insurance Fund, and the

periodic risk-based segment of MIP for more recent mortgages insured

under the Mutual Mortgage Insurance Fund will be collected

electronically. Excluded under periodic risk-based MIP are condominium

GPMs, GEMs, and ARMs which are not insured under section 203(b) of the

National Housing Act. Also excluded are any section 203(b) mortgages

insured pursuant to sections 233(e) (older declining areas), 238(c)

(military impacted areas), 247 (Indian reservations), and 248 (Hawaiian

home lands), since those mortgages are not obligations of the Mutual

Mortgage Insurance Fund. HUD will transmit specific administrative

instructions implementing this rule to all HUD-approved mortgagees

before the rule's effective date.

III. Benefits of Electronic Payment

The method of electronic payment provides many benefits to the

mortgage lenders that will reduce their servicing costs and enhance

operations. The advantages of electronic payment are:

(1) The electronic transfer of debits and credits in the ACH

program can increase the lender's control of payment initiation and

funds availability.

(2) Banking costs are reduced. Electronic transfers costs less than

paper check and wire transfers.

(3) Accounting reconciliation is reduced. Payments are computerized

and cash application is more automated than with manual systems.

(4) Built-in edits can reduce data errors created by manual

recording.

(5) The chance of lost or late mail is eliminated.

Although mortgage lender participation in the ACH transfer system

for collecting periodic MIP has been minimal, electronic payment

provides reduced servicing costs and enhanced operations to lenders as

well as HUD.

IV. This Final Rule

This final rule amends the Single Family Mortgage Insurance

regulations to authorize the FHA Commissioner to require the electronic

payment of periodic MIP. In addition, the rule will correct an

inadvertent omission of the language that permits HUD to require

electronic payment of up-front MIP. The final rule for the electronic

payment of up-front mortgage insurance premiums, published in the

Federal Register on March 8, 1993 (58 FR 12901), inadvertently deleted

a reference in Sec. 203.259a to new Sec. 203.285 regarding risk-based

MIP for 15-year mortgages. HUD had added that reference in an interim

rule published in the Federal Register on October 14, 1992 (57 FR

46980). When HUD issued the October 1992 interim rule in final form on

July 30, 1993 (58 FR 41003), it added one reference to Sec. 203.285,

but left out the sentence about electronic MIP. A corrective rule

issued on March 24, 1994 (59 FR 13882) added a second reference to

Sec. 203.285, but that correction still left out the sentence on

electronic MIP.

V. Justification for Final Rulemaking

In general, HUD 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 provides for exceptions from that

general rule when HUD 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). HUD finds that good cause exists

to publish this rule for effect without first soliciting public

comment. Because of its experience in promulgating the amendment to the

Title II regulations for electronic payment of insurance premiums

through ACH and the voluntary participation in the ACH program by some

lenders in the electronic payment of periodic MIP, as described in the

``Background'' section of this preamble, HUD finds that prior public

procedure is unnecessary.

VI. Regulatory Reform

Consistent with Executive Order 12866 and President Clinton's

memorandum of March 4, 1995 to all Federal departments and agencies on

the subject of Regulatory Reinvention, HUD is reviewing all its

regulations to determine whether they can be eliminated, streamlined,

or consolidated with other regulations. As part of this review, HUD has

reviewed this rule and determined that it furthers the President's

objectives on regulatory reform. With this rule, HUD more closely

conforms its practices with those in the private sector, by adopting an

advanced technological process that relieves a paperwork and financial

burden on lenders.

VI. Other Matters

Regulatory Flexibility Act

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

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule does not have a significant

economic impact on a substantial number of small entities. The rule

implements a program that will enhance operations and be cost

beneficial for all participating lenders.

Environmental Impact Statement

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,

this rule is categorically excluded from the requirements of the

National Environmental Policy Act. The rule relates solely to internal

administrative procedures, the content of which do not involve a

development decision or affect the physical condition of project areas

or building sites, but only relate to the performance of accounting,

auditing, and fiscal functions.

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 lenders, and do not impinge

upon the relationship 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.

No

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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 Agenda

This rule was listed as item number 1415 in HUD's Semiannual Agenda

of Regulations published on May 8, 1995 (60 FR 23368, 23370) 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 and 1715u; 42 U.S.C.

3535(d).

2. Section 203.259a is amended by adding a new sentence to the end

of paragraph (b), to read as follows:

Sec. 203.259a Scope.

* * * * *

(b) * * * In the cases that the Commissioner deems appropriate, the

Commissioner may require, by means of instructions communicated to all

affected mortgages, that up-front MIP be remitted electronically.

* * * * *

3. A new Sec. 203.269 is added to the end of the undesignated

center heading ``Mortgage Insurance Premiums--Periodic Payment'', to

read as follows:

Sec. 203.269 Method of payment of periodic MIP.

In cases that the Commissioner deems appropriate, the Commissioner

may require, by means of instructions communicated to all affected

mortgagees, that periodic MIP be remitted electronically.

4. Section 203.284 is amended by revising paragraph (f) to read as

follows:

Sec. 203.284 Calculation of up-front and annual MIP on or after July

1, 1991.

* * * * *

(f) Applicability of other sections. The provisions of

Secs. 203.261, 203.264, 203.266, 203.267, 203.268(a)(1), 203.269,

203.280, and 203.282 are applicable to mortgages subject to premiums

under this section.

* * * * *

5. Section 203.285 is amended by revising paragraph (c) to read as

follows:

Sec. 203.285 Fifteen-year mortgages: Calculation of up-front and

annual MIP on or after December 26, 1992.

* * * * *

(c) Applicability of certain provisions. The provisions of

Secs. 203.261, 203.266, 203.267, 203.268, 203.269, 203.280, and 203.282

are applicable to mortgages subject to premiums under this section. The

provisions of paragraphs (d), (e), and (g) of Sec. 203.284 also shall

be applicable to mortgages subject to premiums under this section.

* * * * *

Dated: June 20, 1995.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 95-16128 Filed 6-29-95; 8:45 am]

BILLING CODE 4210-27-P