Mortgagee Review Board; Proceedings Before a Hearing Officer; Approval of Lending Institutions and Mortgagees; Technical Amendments

SUMMARY: This rule changes the Department's regulations governing

sanctions imposed by the Mortgagee Review Board. The rule also makes

conforming changes to the regulations concerning HUD's hearing officers

and approval of Title I lenders, consistent with the revisions herein

and in the recent revisions to 24 CFR part 24. 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). These revisions

are necessary to comply with the President's directive to streamline

agency operations throughout the executive branch. The revisions are

also an element in the Government reinvention process at the

Department.

EFFECTIVE DATE: August 31, 1995.

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

Counsel for Administrative Proceedings, Office of General Counsel,

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

10251, Washington, DC 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(c) of the National Housing Act

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

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

concerning certain sanctions it has taken against a mortgagee, if the

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

However, the Department's regulations have delegated 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 rule

provides for the Board to delegate its hearing authority to a hearing

official who will conduct informal hearings under stated time

limitations, thereby streamlining the hearing process. The rule further

provides that the hearing official may, at his or her discretion, refer

matters to an administrative law judge or Board of Contract Appeals

judge, or to another ``independent'' official for findings of fact. The

term ``independent'' means that the other official will not be a member

of the Board or employed within an office acting as an advisor to the

Board as that term is described at Sec. 25.4(b).

The rule also implements the 1992 amendments to section 202 (Pub.

L. 102-550, approved October 28, 1992). These amendments limited the

duration of a suspension issued by the Board to one year, unless

extended for a period not longer than six months to protect the public

interest, or unless extended with the mortgagee's agreement. The

amendments also clarified that the term ``mortgagee'' includes a lender

or loan correspondent approved under Title I of the National Housing

Act.

In addition, the final rule reinstates a provision of 24 CFR 25.9

that the Department inadvertently deleted by a September 9, 1993

revision to the rule (58 FR 47379). This section (former Sec. 25.9(x))

cited as grounds for an administrative action the failure by a

mortgagee to remit, or timely remit, mortgage insurance premiums, loan

insurance charges, late charges, or interest penalties to the

Department. The final rule revises the current Sec. 25.9(x) and moves

the miscellaneous offense provision at Sec. 25.9(w) to a more logical

position at the end of Sec. 25.9. The rule also restores provisions

limiting discovery in Sec. 25.8 that the Department inadvertently

deleted in the proposed rule.

The rule also makes conforming changes to the Department's

regulations at 24 CFR parts 26 and 202, governing hearing officers and

Title I lenders, respectively, consistent with these revisions to the

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

Federal Register June 26, 1995 (60 FR 33037, 33046).

Discussion of Public Comment

On December 20, 1994 (59 FR 65700) the Department published a

proposed rule amending 24 CFR parts 25 and 26 of the Code of Federal

Regulations. One comment was received, from the Administrative

Conference of the United States (ACUS).

Comment: The commenter urged the Department to follow procedures

similar to those proposed in Recommendation 95-2, ``Debarment and

Suspension from Federal Programs,'' adopted by ACUS on January 18,

1995. ACUS Recommendation item II recommends that cases involving

disputed issues of material fact be referred to administrative law

judges, military judges, administrative judges of boards of contract

appeals, or similarly independent hearing officers for hearings and

preparation of (1) findings of fact, (2) a recommended decision, or (3)

an initial decision, subject to agency appeal. Item II of the ACUS

Recommendations also recommends that debarring officials be senior

agency officials who are guaranteed sufficient independence to provide

due process, and that such officials ensure that information used as

the basis for a sanction appear in the administrative record of the

decision.

Response: It should be noted that Board sanctions are substantially

different from suspensions and debarments. Unlike those sanctions,

which have Government-wide effect, the most severe Board sanction

involves withdrawal of a mortgagee's license, previously granted by the

Department, to participate in the insured mortgage programs of the

Federal Housing Administration (FHA). Board sanctions are imposed only

after the subject mortgagees have received advance notice of the

allegations against them and an opportunity to respond to those

allegations. A majority of the Board, composed of several of the

Department's highest officials, must vote to impose a sanction.

Considerable independence is thus statutorily guaranteed with respect

to every Board action.

Furthermore, the governing statute provides, at section

202(c)(4)(B), that upon receipt of a request for a hearing ``the Board

shall hold a hearing on the record * * *.'' Accordingly, a hearing

official must be designated by the Board, and all hearings must be

recorded.

However, in response to this comment and to reflect comparable

revisions to the Department's final rule on suspensions and debarments,

published in the Federal Register on June 26, 1995, this rule was

revised to adopt procedures similar to the first suggested hearing

method in ACUS Recommendation Item II. Thus, a hearing official

designated by the Board shall conduct hearings on Board sanctions, and

may, at his or her discretion, refer factual disputes to an

administrative law judge, member of the Department's Board of Contract

Appeals, or other independent official for findings of fact.

[[Page 39237]]

Findings and Other Matters

National Environmental Policy Act

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

on Environmental Quality and 24 CFR 50.20(k) of the Department's

regulations, the policies and procedures contained in this rule relate

only to administrative decisions, which do not constitute development

decisions and do not affect the physical condition of a project area or

building. Therefore, this rule is categorically excluded from the

requirements of the National Environmental Policy Act.

Regulatory Flexibility Act

In accordance with the Regulatory Flexibility Act (5 U.S.C.

605(b)), the Secretary hereby certifies that this rule would not have a

significant economic impact on a substantial number of small entities.

The rule implements statutory authority intended to protect the

Department's programs from abusive practices, but it will have no

adverse or disproportionate economic impact on small businesses.

Executive Order 12606, The Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this final rule does not

have potential for significant impact on family formation, maintenance,

and general well-being. No significant change in existing policies or

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

and programs relate to family concerns. Therefore, the rule is not

subject to review under the Order.

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 final rule is not subject to review under the Order.

Semiannual Agenda

This rule was listed as item 1379 in the Department's Semiannual

Agenda published on May 8, 1995 (60 FR 23368, 23369) under 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.

24 CFR Part 202

Administrative practice and procedure, Home improvement,

Manufactured homes, Mortgage insurance, Reporting and recordkeeping

requirements.

Accordingly, 24 CFR parts 25, 26, and 202 are amended as follows:

PART 25--MORTGAGEE REVIEW BOARD

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

follows:

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

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

2. Section 25.2 is revised to read as follows:

Sec. 25.2 Establishment of Board.

The Mortgagee Review Board (the 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, approved December 15, 1989).

Except as limited by this part, the 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 Board may, in its discretion, approve the initiation

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

any Suspending or Debarring Official under part 24 of this subtitle A.

The Board shall have all powers necessary and incident to the

performance of these functions. The Board may redelegate its authority

to review submissions and conduct hearings under Sec. 25.8. The Board

may also redelegate its authority to impose administrative sanctions on

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

other nondiscretionary acts. With respect to actions taken against

Title I lenders and loan correspondents, the Board may redelegate its

authority to take administrative actions for failure to remain in

compliance with the requirements for approval in 24 CFR 202.3(j),

202.4(a), 202.5 (a) and (c), and 202.6 (a) and (e).

3. In Sec. 25.3, definitions for ``Hearing officer'' and for

``Hearing official'' are added in alphabetical order, to read as

follows:

Sec. 25.3 Definitions.

* * * * *

Hearing officer. An Administrative Law Judge or Board of Contract

Appeals judge authorized by the Secretary, or by the Secretary's

designee, to issue findings of fact or other appropriate findings under

Sec. 25.8(d)(2).

Hearing official. An official designated by the Board to conduct

hearings under Sec. 25.8.

* * * * *

4. Section 25.5 is amended by revising paragraphs (c)(1), (c)(2),

and (d)(4)(iii), 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 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 if it

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 Board's decision under Sec. 25.8(e).

* * * * *

5. Section 25.7 is revised to read as follows:

Sec. 25.7 Notice of administrative action.

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

to 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

[[Page 39238]]

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, pursuant to Sec. 25.8, regarding the administrative action

(except for a letter of reprimand) and of the manner and time in which

to request a hearing. 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 is revised to read as follows:

Sec. 25.8 Hearings and hearing request.

(a) Hearing request. A mortgagee that is issued a probation,

suspension, or withdrawal action is entitled to a hearing on the

record. 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 SW., 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. 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. At the mortgagee's request, 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 recommendation. (1) The hearing official

shall issue written findings and a recommended decision to the Board

within 45 days after the conclusion of the hearing, unless the hearing

official extends this period for good cause or refers a matter for

findings of fact or other appropriate findings pursuant to paragraph

(d)(2)(i) of this section. The findings and recommendation 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.

(2) Referral to a hearing officer or other independent official.

(i) The hearing official may, at his or her discretion, refer disputed

material facts to a hearing officer or other independent official for

findings of fact. The hearing official may also, at his or her

discretion, refer other issues to a hearing officer or other

independent official for appropriate findings. The hearing official

shall provide the parties with notice of the referral. The hearing

official may reject the findings, in whole or in part, only after

specifically determining them to be arbitrary and capricious or clearly

erroneous.

(ii) The provisions of part 26 of this subtitle A shall be

applicable to proceedings before a hearing officer, with the following

limitations:

(A) No appeal to the Secretary may be taken under Secs. 26.24

through 26.26 of this subtitle A with respect to any order or decision

by the hearing officer.

(B) Discovery shall be limited to exclude requests for answers to

interrogatories, requests for admissions, and production of documents

that either do not pertain to the appealing mortgagee, or pertain to

reviews or audits by the Department or administrative actions by the

Board against mortgagees other than the appealing mortgagee. Members of

the Board shall not be subject to deposition, nor shall they be

required to testify at any hearing.

(iii) Proceedings before a hearing officer or other independent

official shall commence within 45 days after referral by the hearing

official, unless the parties agree to an extension of time. The hearing

officer or other independent official shall issue the requested

findings of fact or other appropriate findings to the hearing official

within 30 days after the conclusion of such proceedings. The time

limitations of this paragraph may be extended upon issuance of a

written notice describing good cause for such extension.

(iv) The hearing official shall provide a recommended decision to

the Board within 15 days after the findings are issued.

(v) [Reserved].

(e) Decision by the Board. The Board shall issue its decision

within 15 days after the hearing official issues the recommended

decision. The Board's decision shall be mailed to the mortgagee, and

shall serve as the final agency action concerning the mortgagee.

7. Section 25.9 is amended by revising paragraphs (i), (w), (x),

and (bb), and by adding paragraph (ee), 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, the hearing official, hearing

officer or other independent official to whom matters are referred

under Sec. 25.8(d)(2).

* * * * *

(w) Failure to remit, or timely remit, mortgage insurance premiums,

loan insurance charges, late charges, or interest penalties to the

Department;

(x) Failure to submit a report required under 24 CFR Sec. 202.19

within the time determined by the Commissioner, or to commence or

complete a plan for corrective action under that section within the

time agreed upon by the Commissioner;

* * * * *

(bb) Breach by the mortgagee of a fiduciary duty owed by it to any

person as defined in Sec. 25.3, including GNMA and the holder of any

mortgage-backed security guaranteed by GNMA, with respect to an insured

loan or mortgage transaction.

* * * * *

(ee) Any other reason the Board or the Secretary determines to be

so serious as to justify an administrative sanction.

Sec. 25.12 [Amended]

8. In Sec. 25.12, paragraph (a) is amended by removing the words

``Hearing Officer,'' from the fifth sentence, and by adding in their

place the words ``hearing official,'' and by removing the last sentence

of the paragraph.

9. Section 25.16 is revised to read as follows:

Sec. 25.16 Prohibition against modification of Board orders.

No hearing official, hearing officer, or other independent official

before whom proceedings are conducted under Sec. 25.8 shall modify or

otherwise disturb in any way an order or notice by the Board.

Sec. 25.17 [Removed and reserved]

10. Section 25.17 is removed and reserved.

PART 26--PROCEEDINGS BEFORE A HEARING OFFICER

11. The authority citation for part 26 is revised to read as

follows:

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

[[Page 39239]]

12. Section 26.1 is amended by revising the second sentence 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, to hearings conducted pursuant

to referrals by debarring or suspending officials under 24 CFR part 24,

and to hearings conducted pursuant to referrals by a hearing official

under 24 CFR part 25, unless such regulations at 24 CFR parts 24, 25,

or 200, provide otherwise. * * *

13. The authority citation for part 202 continues to read as

follows:

Authority: 12 U.S.C. 1703, 1709, and 1715b; 42 U.S.C. 3535(d).

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

14. In Sec. 202.9, paragraph (a) is revised, and paragraphs (c) and

(d) are removed, to read as follows:

Sec. 202.9 Administrative actions.

(a) General. Administrative actions that may be taken against Title

I lenders are set forth in Sec. 25.5 of this title. Civil money

penalties may also be imposed against Title I lenders in accordance

with Sec. 25.13 of this title and 24 CFR part 30. For purposes of this

section, the term ``lender'' shall also include a loan correspondent as

defined in Sec. 202.2(b).

* * * * *

Dated: July 24, 1995.

Henry G. Cisneros,

Secretary.

[FR Doc. 95-18790 Filed 7-31-95; 8:45 am]

BILLING CODE 4210-32-P