Title I Property Improvement and Manufactured Home Loans; Electronic Payment of Title I Insurance Charges

[[Page 13854]]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing--Federal Housing

Commissioner

24 CFR Part 201

[Docket No. R-95-1765; FR-3823-F-01]

RIN 2502-AG41

Title I Property Improvement and Manufactured Home Loans;

Electronic Payment of Title I Insurance Charges

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

Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This final rule amends the regulations governing the property

improvement and manufactured home loan insurance programs under Title

I, section 2 of the National Housing Act. This rule permits the

Secretary to require that Title I insurance charge payments be made

through the Automated Clearing House (ACH) program. The purpose of this

rule is to improve the efficiency of the Federal Housing Administration

(FHA) Title I insurance program and reduce costs to HUD lenders.

EFFECTIVE DATE: April 13, 1995.

FOR FURTHER INFORMATION CONTACT: James A. White, Acting Director, Title

I Accounting and Servicing Division, Room 3100, Department of Housing

and Urban Development, 470 L'Enfant Plaza, East, Washington, DC 20024;

telephone (202) 755-7545, extension 105; or (202) 708-4594 (voice/TDD).

(These are not toll-free telephone 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 the payment of up-front mortgage

insurance premiums for single-family mortgages that are obligations of

the Mutual Mortgage Insurance Fund.

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 FHA Commissioner to require that all such premium payments

be made through ACH. Five comments were received 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 of these 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, because of 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. Also in 1993, HUD implemented the

ACH program on a voluntary basis for the payment of Title I insurance

charges.

The ACH system is designed to process the collection of Title I

insurance charges from lenders, using remote terminals instead of

sending checks and HUD-646 forms by mail. The lender's terminal

operator dials a number that ties the terminal or personal computer

into the collection agent's telenet system. The collection agent

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

the lender.

Each day at 6 p.m. eastern time, the collection agent originates an

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

When the debit transactions have been processed, the ACH will transmit

the Title I insurance charge data to HUD's Title I Insurance System.

Through this ACH process, the debit amount is drawn electronically from

the designated lender's bank account 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.

Without ACH, HUD personnel must correct all incorrect data

submitted by lenders, and the HUD system must prepare, key, and then

reprocess the corrected transaction. The ACH transfer system eliminates

most errors. Built-in edits will verify data and produce an error

message for lenders entering their payment data via terminal/personal

computer, and an error fax confirmation for lenders entering their

payment data via mainframe to mainframe. The ACH transfer system uses

the lender contract number as part of the logon procedure. Any error in

the lender contract number results in the ACH transfer system rejecting

the logon attempt. In addition, the ACH transfer system will verify

that the payment amount equals the billing amount less the exceptions.

Penalty charges and interest charges will be processed in the same

manner as in the past and billed on the next statement. Penalty charges

are levied if payment is received later than 25 days after the billing

date. Interest charges are assessed when payment is received on or

after the 55th day after the billing date. For the ACH program, penalty

charge and interest charge amounts are automatically calculated by the

system.

ACH provides lenders with numerous tangible benefits that should

reduce their servicing costs. The advantages of ACH are:

(1) Control of payment timing--The use of ACH debits and credits

can increase control of payment initiation and funds availability;

(2) Banking costs are reduced--ACH transfers cost less than paper

checks and wire transfers;

(3) Accounting reconciliation is reduced--Payments are computerized

and cash application is more automated than with manual systems;

(4) On-line edits can reduce data errors created by manual

recording;

(5) The chance of lost/late mail is eliminated;

(6) ACH payments are fully traceable;

(7) The premium payments are drawn down electronically from the

lender's designated bank account.

Because ACH provides lenders as well as HUD with numerous tangible

benefits that reduce servicing costs, HUD intends to use ACH as the

sole method for collecting Title I insurance charges. HUD believes that

this rule does not have a significant economic impact on the smaller

lending community for two reasons. First, lenders need only have access

to a personal computer to participate in the ACH program, and personal

computing is pervasive within the industry. Second, implementation of

this process will be phased in and coordinated with lenders on an

individual basis. This rule implements a program that will enhance

operations and be cost beneficial for all Title I lenders.

Under this final rule, insurance charges will be collected by the

ACH program for all property improvement and manufactured home loan

insurance programs under Title I, section 2 of the National Housing Act

(12 U.S.C. 1703). Instructions implementing this rule will be

transmitted to all Title I lenders at least 30 days before payment of

Title I insurance charges by ACH will be required. The instructions

will provide for a grace period of up to one year for compliance by

small lenders with portfolios of fewer than 200 loans.

[[Page 13855]]

II. 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 if 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.

Due to HUD's experience in promulgating the amendment to the Title II

regulations for payment of insurance premiums through ACH, and the

voluntary participation in the ACH program by some Title I lenders, HUD

finds that prior public procedure is unnecessary.

III. Other Matters

Environmental Impact

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.

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 Title I lenders. In addition, the plan to phase in

the program with lenders on an individual basis assures against undue

burdens on small organizations.

Regulatory Agenda

This rule was not listed in the Department's Semiannual Agenda of

Regulations published on November 14, 1994 (59 FR 57632) in accordance

with Executive Order 12866 and the Regulatory Flexibility 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. 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 significant change in existing HUD policies or programs will result

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

to family concerns.

Catalog of Federal Domestic Assistance

Program numbers are:

14.110 Manufactured Home Loan Insurance--Financing Purchase of

Manufactured Homes as Principal Residences of Borrowers;

14.142 Property Improvement Loan Insurance for Improving All

Existing Structures and Building of New Nonresidential Structures; and

14.162 Mortgage Insurance--Combination and Manufactured Home Lot

Loans.

List of Subjects in 24 CFR Part 201

Health facilities, Historic preservation, Home improvement, Loan

programs--housing and community development, Manufactured homes,

Mortgage insurance, Reporting and recordkeeping requirements.

Accordingly, 24 CFR part 201 is amended as follows:

PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS

1. The authority citation for 24 CFR part 201 continues to read as

set forth below:

Authority: 12 U.S.C. 1703; 42 U.S.C. 3535(d).

2. A new paragraph (b)(4) is added to Sec. 201.31 to read as

follows:

Sec. 201.31 Insurance charge.

* * * * *

(b) * * *

(4) The Secretary may require that loan insurance charges be

remitted electronically. Instructions implementing this requirement

shall be communicated to all affected lenders.

* * * * *

Dated: February 8, 1995.

Nicolas P. Retsinas,

Assistant Secretary for Housing--Federal Housing Commissioner.

[FR Doc. 95-6157 Filed 3-13-95; 8:45 am]

BILLING CODE 4210-27-P