Deletion of Value Criterion in Section 223(a)(7) Refinancing

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

24 CFR Parts 207, 213, 221, and 236

[Docket No. R-95-1660; FR-3342-F-03]

RIN 2502-AG04

Deletion of Value Criterion in Section 223(a)(7) Refinancing

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

Commissioner, HUD.

ACTION: Final rule.

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

SUMMARY: Section 223(a)(7) of the National Housing Act authorizes HUD

to insure mortgages given to refinance existing HUD-insured mortgages.

In the past, HUD's implementing regulations have prohibited the

refinanced mortgage amount from exceeding a stated percentage of the

value of the property. This value criterion precluded some troubled

projects from lowering their debt service payments and gaining a more

sound financial footing. On October 26, 1993, HUD published an interim

rule in the Federal Register deleting the value criterion from the HUD

regulations implementing Section 223(a)(7), which was extended by a

notice published on October 26, 1994. This rule makes final the

policies contained in the October 26, 1993, interim rule.

EFFECTIVE DATE: March 20, 1995.

FOR FURTHER INFORMATION CONTACT: Jane Luton, Acting Director, Policies

and Procedures Division, Department of Housing and Urban Development,

451 Seventh Street, SW., Room 6142, Washington, DC 20410. Telephone

number (202) 708-2556; and TDD (202) 708-4594. (These are not toll-free

numbers.)

SUPPLEMENTARY INFORMATION:

Background

Section 223(a)(7) of the National Housing Act (12 U.S.C.

1715n(a)(7)) (the Act) authorizes HUD to insure mortgages given to

refinance existing HUD-insured mortgages under any section or title of

the Act. Due to requirements of the Act, the HUD regulations

implementing Section 223(a)(7) limit the principal amount of the

refinanced mortgage to the amount of the original insured mortgage.

Additionally, HUD's implementing regulations had prohibited the

refinanced mortgage amount from exceeding a stated percentage of the

Federal Housing Commissioner's estimate of value of the project after

completion of any repairs or improvements to the property. Unlike the

original-value limitation noted above, this value criterion was not a

statutory requirement.

The value criterion precluded many troubled projects from

refinancing their HUD-insured mortgages, thus preventing them from

lowering their debt service payments and gaining a sounder financial

footing. Because Section 223(a)(7) mortgages are already limited by the

amount of the original insured mortgage, HUD felt the public interest

and HUD's Insurance Fund would be better served by allowing these loans

to be refinanced to take advantage of lower interest rates.

Therefore, on October 26, 1993, HUD published an interim rule (58

FR 57558) removing the value criterion from its regulations

implementing Section 223(a)(7). The effect of the interim rule was

extended by a notice published on October 26, 1994 (59 FR 53731). This

rule makes final the policies contained in the October 26, 1993,

interim rule.

Comments on the October 26, 1993, Interim Rule

By the expiration of the comment period on the October 26, 1993,

interim rule, HUD had received only two comments, both from the same

commenter.

The first comment addressed the backlog of applications languishing

in some HUD offices and requested that HUD Field Offices be notified

that Section 223(a)(7) refinancing applications already in process

should be given priority over those received after the effective date

of the interim rule. The preamble to the interim rule established

processing priorities, in order to better manage the increased workload

anticipated as a result of the rule change. Supplemental instructions

were provided to HUD Field Office staff and mortgagees through issuance

of HUD Notice H93-89 and Mortgagee Letter 93-39, both dated November

24, 1993, addressing processing priorities and other issues. Inasmuch

as the [[Page 9298]] priorities are no longer applicable, HUD has not

adopted the comment in this final rule.

The interim rule's preamble refers to deletion of the 90 percent-

of-value criterion. The commenter noted that Section 223(a)(7)

applications refinancing loans insured pursuant to section 223(f) of

the Act are subject to an 85 percent-of-value limitation, in lieu of 90

percent. The commenter believed this could cause confusion and

recommended that the rule explicitly eliminate the 85 percent loan-to-

value limitation. Although the specific language of the regulatory

change is clear, HUD accepts the commenter's suggestion that the

explanation of the change should be clarified to avoid confusion.

Because there are also instances (in 24 CFR 221.560(a)(1)(iii) and 24

CFR 236.40(b)(1)(iii)) where the value criterion limited the maximum

insurable mortgage amount to 100 percent-of-value in lieu of 90 percent

or 85 percent, HUD is revising the preamble simply to state that HUD is

deleting the value criterion in Section 223(a)(7) refinancing.

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

deletes a counterproductive restriction that unnecessarily limits the

refinancing of certain HUD-insured mortgages. By removing this

restriction, HUD hopes to avoid unnecessary defaults by viable projects

and resulting losses to HUD's Insurance Fund.

Environmental Review

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

on Environmental Quality and 24 CFR 50.20 of the HUD regulations, the

policies and procedures contained in this rule relate only to the

establishment of loan limits and approval of mortgage refinancing under

section 223(a)(7) of the National Housing Act, 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 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. The rule is limited

to removing an unnecessary restriction on refinancing certain HUD-

insured mortgages at more favorable rates.

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 significant change in existing HUD policies or programs would

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

relate to family concerns.

Regulatory Agenda

This rule was listed as sequence 1793 in HUD's Semiannual Agenda of

Regulations published on November 14, 1994 (59 FR 57632, 57654), under

Executive Order 12866 and the Regulatory Flexibility Act.

List of Subjects

24 CFR Part 207

Manufactured homes, Mortgage insurance, Reporting and recordkeeping

requirements, Solar energy.

24 CFR Part 213

Cooperatives, Mortgage insurance, Reporting and recordkeeping

requirements.

24 CFR Part 221

Low and moderate income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 236

Grant programs--housing and community development, Low and moderate

income housing, Mortgage insurance, Rent subsidies, Reporting and

recordkeeping requirements.

Accordingly, the interim rule published in the Federal Register on

October 26, 1993 (58 FR 57558), entitled, ``Parts 207, 213, 221, and

236, Deletion of the 90-Percent-of-Value Criterion in Section 223(a)(7)

Refinancing'', is adopted as final with the following change:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

The authority citation for part 207 is revised to read as follows:

Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C.

3535(d).

Dated: February 8, 1995.

Jeanne K. Engel,

General Deputy Assistant Secretary for Housing-Federal Housing

Commissioner.

[FR Doc. 95-3975 Filed 2-16-95; 8:45 am]

BILLING CODE 4210-27-P