Single Family Mortgage InsuranceSpecial Forbearance Procedures

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

24 CFR Part 203

[Docket No. R-95-1759; FR-3626-P-01]

RIN 2502-AG20

Single Family Mortgage Insurance--Special Forbearance Procedures

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

Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would permit the mortgagee and the

mortgagor to enter into a special forbearance agreement requiring the

payment of arrearages before maturity of the mortgage without obtaining

the prior approval of HUD. It would also eliminate the present gap in

reimbursement of debenture interest that occurs if the mortgagor files

a petition in bankruptcy after entering into a special forbearance

agreement. The purpose of this change is to encourage mortgagees to

make greater use of special forbearance procedures when the mortgagor

is temporarily unable to make full regular mortgage payments.

DATES: Comment due date: March 24, 1995.

ADDRESSEES: Interested persons are invited to submit comments regarding

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

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

Street, S.W., Washington, D.C. 20410-0500. Communications should refer

to the above docket number and title. A copy of each communication

submitted will be available for public inspection between 7:30 a.m. and

5:30 p.m. at the above address. Facsimile (FAX) comments are not

acceptable.

FOR FURTHER INFORMATION CONTACT: Joseph Bates, Director, Single Family

Servicing Division, Room 9178, Department of Housing and Urban

Development, 451 Seventh Street, SW., Washington, D.C. 20410, (202)

706-1672, or, for hearing and speech impaired, (202) 706-4594. (These

are not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This rule would revise current HUD regulations governing

forbearance procedures in connection with FHA insurance of single-

family homes. Under the present forbearance procedures (24 CFR 203.614

(a) and (b)), the mortgagee may suspend or reduce the mortgagor's

required payments for the forbearance period, but may not increase

payments to recover arrearages until after mortgage maturity unless the

mortgagee obtains prior approval from HUD. This rule proposes to add a

new paragraph (c) to Sec. 203.614, which would permit the mortgagee to

reduce the required payments to an amount not less than 50% of the

regular mortgage payments for a forbearance period of up to 6 months.

On expiration of the forbearance period, the mortgagee may increase the

required payments to not more than 1\1/2\ times the regular payment

amount until all arrearages are repaid.

Limitations

The new procedure contains several limitations that are intended to

avoid arrearages accumulating to an amount that the mortgagor cannot

reasonably be expected to repay before maturity. These limitations

include:

Not more than four monthly payments may be due and unpaid

at the time of execution of the forbearance agreement;

The monthly payments may be reduced but not suspended;

The period of reduced payments may not exceed 6 months;

The increase in payments may not be required until 6

months after execution of the agreement; and

The first monthly payment must be made at the time of

execution of the agreement.

If greater forbearance relief is needed, the mortgagee may utilize

the existing forbearance procedures, under which the mortgagee may not

recover [[Page 4392]] arrearages until after mortgage maturity without

HUD's prior approval.

Conditions for New Procedures

The conditions for granting the new form of forbearance relief are

as follows:

(1) As under the current regulations, the mortgagor must establish

to the satisfaction of the mortgagee that the mortgagor does not own

other property subject to a FHA-insured mortgage and that the default

was caused by circumstances beyond the control of the mortgagor.

(2) During the period established, the forbearance agreement must

provide for payment of not less than 50 percent of the regular mortgage

payments, nor more than the regular mortgage payments. The Secretary

may adjust the required minimum percentage on a national or regional

basis as economic conditions may indicate.

(3) The period of reduced payments may not exceed 6 months after

execution of the forbearance agreement.

(4) The agreement must provide for an increase in payments, in

order to recover arrearages accruing prior to and during the

forebearance period. The increase in the payments is to begin no

earlier than 6 months after execution of the agreement.

(5) The increased payments may not exceed 1\1/2\ times the regular

mortgage payments.

(6) The agreement must provide for resumption of the regular

mortgage payments after the total amount of arrearages is repaid.

(7) The agreement must be executed no later than the date on which

four full monthly payments are due and unpaid.

(8) At the time the agreement is executed, the mortgagor must pay

an amount agreed upon by the mortgagor and the mortgagee, but not less

than the first monthly installment due under the agreement.

Other Changes

Current regulations (Secs. 203.650-.660) have the effect that if

State law, bankruptcy, or assignment considerations preclude a

mortgagee from initiating foreclosure within 90 days after the

mortgagor fails to meet the requirements of a special forbearance

agreement, then neither mortgage or debenture interest is paid on the

insurance claim for the period from 90 days after the date of the

mortgagor's failure to meet the requirements of a special forbearance

agreement until the date foreclosure is initiated (Secs. 203.402a and

203.410(a)(3)). The proposed rule would avoid this lapse in interest

payments by revising Sec. 203.410(a)(3) to provide that debenture

interest payments will begin the day after the date to which mortgage

interest is computed.

In addition, the current regulations do not specifically identify

assignment consideration as a possible cause for delaying foreclosure

initiation; the proposed rule has been expanded to do so.

Finally, the rule would make a conforming revision to

Sec. 203.355(c). This section currently requires mortgagees to commence

foreclosure within 60 days after the expiration of any prohibition on

foreclosure that is found in State law or Federal bankruptcy law. The

rule would also apply this 60-day requirement to foreclosures that are

commenced due to the mortgagor's failure to meet the requirements of a

special foreclosure agreement.

Other Matters

Executive Order 12866

This proposed rule was reviewed by the Office of Management and

Budget (OMB) under Executive Order 12866, Regulatory Planning and

Review. Any changes made to the proposed rule as a result of that

review are clearly identified in the docket file, which is available

for public inspection in the office of the Department's Rules Docket

Clerk, room 10276, 451 Seventh Street, SW, Washington, DC 20410.

Environmental Impact

In accordance with 40 CFR 1508.4 of the regulations of the Council

on Environmental Quality and 24 CFR 50.20 (a) and (l) of the HUD

regulations, the policies and procedures contained in this rule relate

only to loan terms and individual actions involving single-family

housing and, therefore, are categorically excluded from the

requirements of the National Environmental Policy 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 would 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 would 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 significant change in existing HUD policies or programs would

result from promulgation of this rule, as those policies and programs

relate to family concerns.

Impact on Small Entities

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

U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so

doing certifies that this rule would not have a significant economic

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

permit, but would not require, use of a special forbearance procedure

by mortgagees. In addition, the number of cases to which the procedure

would apply is limited.

Regulatory Agenda

This rule was listed in the Department's Semiannual Agenda of

Regulations published on April 25, 1994 (59 FR 202424, 20443), in

accordance with Executive Order 12866 and the Regulatory Flexibility

Act.

The Catalog of Federal Domestic Assistance program number is

14.117.

List of Subjects in 24 CFR Part 203

Hawaiian Natives, Home improvement, Loan programs--housing and

community development, Mortgage insurance, Reporting and recordkeeping

requirements, Solar energy.

Accordingly, part 203 of title 24 of the Code of Federal

Regulations is proposed to be amended as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

1. The authority citation for part 203 would continue to read as

follows:

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

2. In Sec. 203.355, the introductory text of paragraph (a) and

paragraph (c) would be revised and new paragraph (h) would be added, to

read as follows:

Sec. 203.355 Acquisition of property.

(a) In general. Except as provided in paragraphs (b) through (h) of

this section, upon default of a mortgage the mortgagee shall take one

of the following actions. Such action shall be taken within 9 months

from the date of [[Page 4393]] default, or within any additional time

approved by the Secretary or authorized by Secs. 203.345, 203.346, or

203.650 through 203.660:

* * * * *

(c) Prohibiting of foreclosure within time limits. If assignment

consideration under Secs. 203.650 through 203.660, the laws of the

State in which the mortgaged property is located, or Federal bankruptcy

law:

(1) Do not permit the commencement of foreclosure within the time

limits described in paragraphs (a), (b), (g), and (h) of this section,

the mortgagee must commence foreclosure within 60 days after the

expiration of the time during which foreclosure is prohibited; or

(2) Require the prosecution of a foreclosure to be discontinued,

the mortgagee must recommence the foreclosure within 60 days after the

expiration of the time during which foreclosure is prohibited.

* * * * *

(h) Special forbearance. The mortgagee must commence foreclosure or

obtain a deed-in-lieu of foreclosure, with title being taken in the

name of the mortgagee or the Secretary, within 90 days following the

date the mortgagor fails to meet the requirements of a special

forbearance under Sec. 203.614.

3. Section 203.402a would be revised to read as follows:

Sec. 203.402a Reimbursement for uncollected interest.

The mortgagee shall be entitled to receive an allowance in the

insurance settlement for unpaid mortgage interest if the mortgagor

fails to meet the requirements of a forbearance agreement entered into

pursuant to Sec. 203.614 and this failure continues for a period of 60

days. The interest allowance shall be computed to:

(a) The earliest of the applicable following dates, except as

provided in paragraph (b) of this section:

(1) The date of the initiation of foreclosure;

(2) The date of the acquisition of the property by the mortgagee by

means other than foreclosure;

(3) The date the property was acquired by the Commissioner under a

direct conveyance from the mortgagor;

(4) Ninety days following the date the mortgagor fails to meet the

requirements of the forbearance agreement, or such other date as the

Commissioner may approve in writing prior to the expiration of the 90-

day period; or

(5) The date the mortgagee sends the mortgagor notice of

eligibility to participate in the Pre-Foreclosure Sale procedure; or

(b) The date foreclosure is initiated or a deed in lieu is

obtained, or the date such actions were required by Sec. 203.355(c),

whichever is earlier, if the commencement of foreclosure within the

time limits described in Sec. 203.355 (a), (b), (g), or (h) is

precluded by:

(1) Assignment consideration under Secs. 203.650 through 203.660;

(2) The laws of the State in which the mortgaged property is

located; or

(3) Federal bankruptcy law.

4. In Sec. 203.410, the heading of paragraph (a) would be

italicized and paragraph (a)(3) would be revised to read as follows:

Sec. 203.410 Issue date of debentures.

(a) Conveyed properties, claims without conveyance, pre-foreclosure

sales--* * *

(3) As of the day after the date to which mortgage interest is

computed as specified in Sec. 203.402a, if the insurance settlement

includes an allowance for uncollected interest in connection with a

special forbearance.

* * * * *

5. In Sec. 203.614, a new paragraph (c) would be added, to read as

follows:

Sec. 203.614 Conditions of special forbearance.

* * * * *

(c) The mortgagee may grant special forbearance relief providing

for increased mortgage payments without the approval of the Secretary,

subject to the following conditions:

(1) The conditions of paragraph (b)(1) of this section are met;

(2) The agreement is executed not later than the date on which four

full monthly payments are due and unpaid;

(3) At the time of execution of the agreement, the mortgagor must

pay an amount agreed upon by the mortgagor and the mortgagee, but not

less than the first monthly installment due under the agreement;

(4) The written forbearance agreement shall:

(i) Provide for the payment for a period not to exceed 6 months

after execution of the agreement of:

(A) Not less than 50 percent of the regular mortgage payments; or

(B) Such percentage as the Secretary, by administrative

instruction, may determine, but not more than the regular mortgage

payment;

(ii) Provide for an increase of payments to not more than 1\1/2\

times the regular mortgage payments, commencing no sooner than 6 months

after execution of the agreement; and

(iii) Provide for resumption of the regular mortgage payments after

the total unpaid amount accruing prior to and during the forbearance

period is repaid.

Dated: November 4, 1994.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 95-1633 Filed 1-20-95; 8:45 am]

BILLING CODE 4210-27-P