Office of the Assistant Secretary for Housing-Federal Housing Commissioner; Single Family Miscellaneous Amendments, Clarifications, and Corrections

SUMMARY: This final rule makes a variety of technical amendments,

clarifications and corrections to regulations for the single family

mortgage insurance programs. None of the amendments or clarifications

add to the regulatory burden for mortgagors or mortgagees.

EFFECTIVE DATE: August 8, 1996.

FOR FURTHER INFORMATION CONTACT: John J. Coonts, Director, Office of

Insured Single Family Housing, Department of Housing and Urban

Development, Room 9266, 451 Seventh Street, SW, Washington, DC 20410.

Telephone: (202) 708-3046; TTY: (202) 4594. (These are not toll-free

telephone numbers.)

SUPPLEMENTARY INFORMATION: This rule is designed to make a large number

of technical improvements to the regulations for single family

programs. The changes will not add to the regulatory burden for

mortgagors or mortgagees. Some of the changes are corrections of small

errors in the current regulations that will have no substantive change

on the way the rules have been applied in practice. Other changes will

offer relief from unnecessary requirements.

Following is an explanation of changes made by the rule.

Part 200

A technical change is made to part 200 to remove a reference to

part 267 which has been removed from the Code of Federal Regulations.

Part 201

The rule makes a typographical correction to the table of contents

and to Sec. 201.18.

Part 202

Section 202.3 is amended to revise paragraph (j) to provide that

the Secretary may identify classes or groups of lenders that are exempt

from one or more of these fees. This provides more flexibility to the

program by allowing additional groups to be exempted.

``Origination approval agreement'' is included in the heading of

Sec. 202.11.

The rule deletes Sec. 202.12(d). That paragraph indicates that

approval of a supervised mortgagee that is a banking institution or a

trust company included approval of the mortgagee when acting in a

fiduciary capacity. The Department considers that the paragraph may be

misleading by implying that only supervised mortgagees that are banking

institutions or trust companies may hold mortgages in a trust or other

fiduciary capacity. Subject to any limitations that may appear in

regulations for particular programs, such as Sec. 203.434, regarding a

declaration of trust for a pool of single family mortgages, the

Department does not restrict mortgagees from holding mortgages in a

trust or other fiduciary capacity. The Department eliminated trusts as

eligible mortgagees through a 1992 revision of part 202 but there was

no intent to prevent FHA-insured mortgages from being held as trust

assets by an approved mortgagee. The Department will deal only with the

mortgagee, rather than others who may have interests in the mortgages,

and will hold the mortgagee solely responsible for complying with

obligations imposed on mortgagees.

The provisions regarding approval and recertification fees for

Title I lenders and Title II mortgagees are amended by adding a new

sentence permitting the Secretary to identify classes or groups of

lenders or mortgagees that are exempt from one or more of the fees. The

current exemption for governmental lenders and mortgagees is left

intact.

Part 203

The rule eliminates the requirement in Sec. 203.17(b) (and

corresponding requirements in Secs. 221.45 and 234.25(b)) that

mortgages involve a principal obligation in multiples of $50 if the

mortgage does not include financing of a one-time mortgage insurance

premium (MIP) payable pursuant to Sec. 203.280. One time MIP has been

replaced by the up-front segment of risk-based mortgage insurance

premiums under Secs. 203.284 and 203.285. Rather than substitute the

up-front segment of risk-based MIP for the one time MIP, however, the

Department has determined that there is no longer any reason for the

general requirement that other mortgages without a financed premium be

in multiples of $50. All mortgages may now be in multiples of $1.

Corresponding changes are made to Secs. 221.45 and 234.52.

Two changes are made to Sec. 203.18 which explain how the maximum

mortgage amount is calculated. A parenthetical phrase is removed from

Sec. 203.18(a)(1)(ii) to reflect the 1994 legislative change that set

the maximum dollar amount for an area at 75% of the current Freddie Mac

limit, instead of 75% of the 1992 Freddie Mac limit. A new

Sec. 203.18(i) is added to recognize that the maximum mortgage amount

for an energy efficient mortgage may exceed the area dollar limit that

would otherwise apply, under conditions prescribed by the Secretary in

accordance with section 106 of the Energy Policy Act of 1992.

Section 203.19(c) which applied to the now-repealed section 203(m)

program for mortgage insurance for seasonal homes is deleted as

obsolete.

Language is added in Sec. 203.22(a) to clarify that the mortgage

provision providing for payment of mortgage insurance premium

installments by the mortgagor does not require payment for any longer

than the period during which mortgage insurance premiums are payable by

the mortgagee to HUD. Obsolete language regarding payment of annual

charges on ``open-end'' advances is deleted.

Sections 203.24(a)(i) and 203.44, and related provisions in other

parts such as 234.70, are amended by deleting references to open-end

advances.

Section 203.30 is amended to add a new paragraph (d) regarding

compliance, for buildings having four (4) or more units which were

built for first occupancy after March 13, 1991, with the Fair Housing

Act new contruction requirements at 24 CFR 100.205.

Sections 203.36 and 234.67 are deleted as unnecessary. See sections

203.16 and 234.15 regarding the use of a dwelling for transient or

hotel purposes.

The language in section 203.38 is amended by changing the two

references to ``unit'' to ``one or more dwellings.''

In Secs. 203.40, 203.251(s), and 234.1(n), ``Commonwealth of the

Northern Mariana Islands'' is substituted for the ``Trust Territory of

the Pacific Islands'' because the Commonwealth of the Northern Mariana

Islands is the only portion of the former Trust Territory of the

Pacific Islands in which FHA single family programs are currently

authorized.

The ``rule of seven'' in Sec. 203.42 currently prohibits mortgage

insurance when a mortgagor is purchasing a property to be rented that

is ``part of, or adjacent or contiguous to, a project, subdivision or

group of similar rental

[[Page 36261]]

properties'' in which the mortgagor will have a financial interest in

more than seven dwelling units. This rule removes ``subdivision'' from

the quoted language. Denial of mortgage insurance simply because a

mortgagor has a financial interest in eight units in a very large

subdivision does not further the purpose of the ``rule of seven,''

which is to avoid insuring single family mortgages on rental units that

are in such close geographical proximity with other similar rental

units that they could logically be considered part of one multifamily

project rather than unrelated single family units. In practice, current

departmental policy in applying the ``rule of seven'' has been directed

to properties within a two-block radius from one another. Continued

reference to a subdivision would cause confusion regarding the intent

of Sec. 203.42.

Section 203.43(c)(3) and the corresponding Sec. 234.52(c) are

amended to permit a $50 increase in the monthly payment for refinancing

to a shorter term, to reflect the prevailing policy that has been

applied to date on a waiver basis.

Section 203.43b regarding mortgage insurance on seasonal occupancy

homes under now-repealed section 203(m) is deleted as obsolete.

Section 203.43f(b) is amended by deleting the last sentence which

refers to section 203.17(e). Section 203.17(e) was completely revised

and the current cross-reference is not meaningful.

The introductory paragraph of Sec. 203.43h is revised to clarify

that a mortgage covering a one- to four-family residence located on

Indian land is eligible for insurance pursuant to section 248 of the

National Housing Act, if the mortgage is made (1) by an Indian Tribe or

(2) on a leasehold estate, by an Indian who will occupy it as a

principal residence. Tribes are already recognized as eligible non-

occupant mortgagors under Sec. 203.18(f)(3). This amendment to

Sec. 203.43h reconciles the two sections. In addition, a statement has

been added to the definition of an ``Indian tribe,'' in

Sec. 203.43h(g), to note that, for purposes of engaging in section 248

insured mortgage transactions, an Indian tribe may act through its duly

authorized representative.

The reference to Sec. 203.50 contained in Sec. 203.43i is deleted

to allow rehabilitation loan mortgages under section 203(k) on section

247 Hawaiian home lands. This would have been permitted by a proposed

rule published on July 23, 1986, but the provision was omitted from a

final rule on the Hawaiian home lands program published on March 16,

1987, because of the difficulty of operating the Hawaiian home lands

program for the General Insurance Fund (as required for section 203(k)

loans) in addition to the Mutual Mortgage Fund. This difficulty no

longer exists as a result of a subsequent statutory change that

provides for all Hawaiian home land mortgages to be in the General

Insurance Fund.

Section 225 of the National Housing Act authorizes FHA insurance

for open-end mortgages under which the mortgagee could advance

additional funds under the mortgage to finance later improvements or

repairs that would substantially protect or improve the basic

livability or utility of the property. Although mentioned in the

regulations, FHA does not have administrative procedures for the

processing of open-end mortgages; they are not provided for in HUD's

instructions for mortgage forms, and GNMA has no programs for the

pooling of open-end mortgages. Various provisions in parts 203 and 234,

including Secs. 203.44 and 234.70, are amended to make clear that FHA

is not insuring open-end mortgages.

The introductory paragraph of Sec. 203.49 is amended by including a

reference to section 203(h) in the second sentence to permit adjustable

rate mortgages (ARMs) in disaster situations. Section 203(h) mortgages

generally meet all requirements of section 203(b) mortgages except that

a higher loan-to-value ratio is permitted. The Department has

determined that ARMs should be available on the same terms as for

section 203(b) mortgages.

Some issuers of 10-year warranty plans that have been approved by

HUD and used to support high-ratio mortgages for new construction have

read HUD's warranty plan requirements as permitting plans that impose

the requirement that homeowners submit warranty claims to arbitration.

This has never been HUD's intention under the warranty plan final rule.

Although arbitration must be available to a dissatisfied homeowner,

judicial resolution of disputes must also be available to homeowners.

HUD has modified the wording of Sec. 203.204(g) to make this clear.

Section 203.255(b)(2) is amended by replacing ``upon a form'' with

``in a form'' since application information may now be collected

electronically through CHUMS.

Section 203.281(b)(1) is amended by deleting the language following

the first comma to simplify the procedures for calculating the MIP

amount for the small number of cases for which one-time MIP is still

used.

Sections 203.356 and 203.402 regarding the notice of foreclosure

are amended to provide a more consistent application of the rules for

curtailment of debenture interest included in insurance benefits paid

to mortgagees. Section 203.356 is divided into subsection (a) for the

requirements to provide the notice of foreclosure, and subsection (b)

for exercising reasonable diligence in prosecuting the foreclosure.

Section 203.402(k)(1) is also subdivided. New subsection

203.402(k)(1)(ii) limits the amount of debenture interest that the

Secretary may curtail if the mortgagee does not provide the Secretary

the notice of foreclosure. This change will reduce the debenture

interest curtailment when the mortgagee proceeded to foreclose with

reasonable diligence, despite its failure to forward the initial notice

of foreclosure. The specific cap on debenture interest curtailment will

be set by administrative issuances, but the curtailment will not exceed

what is currently being assessed.

Sections 203.378, 203.379, and 203.380 regarding property condition

and adjustments for damage are amended to clarify that tornado damage

includes damage by hurricanes. Both storm systems are defined as

violent whirlwinds and historically have been treated the same by the

Department in this regard.

Section 203.502(b) regarding notification of transfer of servicing

is amended to change the responsibility for notifying the Secretary

from the transferor mortgagee to the transferee. This change will

enhance HUD's ability to coordinate the change in servicer with the

collection of mortgage insurance premiums from the new servicer.

Section 203.670 addresses conveyance of occupied property.

Paragraph (a) states HUD's property disposition policy, which is also

stated in Sec. 291.1 in part 291, Disposition of HUD-Acquired Single

Family Property. However, Sec. 291.1 was amended to reflect a revised

policy in a September 20, 1993 Interim Rule, made final on September

22, 1994. Therefore, Sec. 203.670(a) is being amended to reflect the

revised policy.

Section 203.685 is removed. It authorized waivers of single family

servicing regulations, but such waivers are now authorized by the

Department-wide waiver authority in 24 CFR 5.100.

Part 206

Section 206.13 is removed because it addresses the terminated

single family co-insurance program. Section 206.17 is amended to

recognize that the basic payment term and tenure payment

[[Page 36262]]

options for HECMs can be combined with lines of credit.

Part 234

Sections 234.11 and 234.54 are added to conform to corresponding

provisions in part 203.

Section 234.16 is amended to add a new paragraph (d) regarding

compliance, for buildings having four (4) or more units which were

built for first occupancy after March 13, 1991, with the Fair Housing

Act new construction requirements at 24 CFR 100.205.

Part 280

Section 280.330(c)(2) is amended by adding the following language:

``. . . remaining balance of the . . .''. The way this section is

currently written, it appears that the entire original mortgage amount

is cancelled. In addition, the spelling of ``cancelled'' is corrected.

Part 291

Section 291.105(h)(2) is amended to give the Secretary more

flexibility in determining what form of cash equivalents will be

acceptable for earnest money deposits in the sale of HUD-acquired

single family properties, given rapidly changing banking industry

practices. For example, the amendment permits HUD to accept teller's

checks that are currently excluded.

Section 291.115(b)(2) of the regulations on HUD property

disposition is amended to clarify that section 203(k) insured financing

for investors is available for eligible properties without increased

down-payment requirements. Section 291.110(e) already provides for

section 203(k) financing in property disposition sales. As a general

rule, investors are precluded from obtaining FHA-insured mortgage

financing. HUD-acquired properties may be sold to investors with FHA-

insured financing but, in order to protect the insurance funds, based

upon past experiences, the property disposition regulations were

drafted to require higher down-payments for investors. A 25 percent

down-payment is required for investors who purchase a one-unit single

family dwelling with insured mortgage financing.

The section 203(k) program specifically makes investors eligible to

obtain mortgage financing with a 15 percent down-payment based upon the

lesser of the estimated value of the property plus the cost of

rehabilitation, or 110 percent of the estimate of value after

rehabilitation. The availability of the section 203(k) program for

property disposition sales, as provided by Sec. 291.110(e),

incorporates the 15 percent down-payment requirement for investors

through the regulations that implement section 203(k). In order to make

it clear that the 25 percent down-payment provision of

Sec. 291.115(b)(2) does not apply to section 203(k) investor mortgages,

a technical amendment is being made to that section.

Typographical and Technical Errors, and Cross Reference Corrections

This rule corrects several typographical and technical errors and

also corrects and adds cross references and removes cross references

that are no longer applicable. Also, Sec. 203.390 is amended to insert

language inadvertently omitted when that section was last amended on

July 1, 1993, at 58 FR 35369.

Other Matters

Justification for Final Rulemaking

In general, the Department 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 does

provide for exceptions from that general rule where the agency 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) The Department finds that good cause exists to publish this

rule for effect without first soliciting public comment, in that prior

public procedure is unnecessary and contrary to public interest because

the amendments made by this rule give greater clarity and accuracy to

the provisions. They do not substantively affect the rights and duties

of participants in the programs.

Environmental Impact

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR part 50,

which implements section 102(2)(C) of the National Environmental Policy

Act of 1969 (NEPA). This Finding of No Significant Impact is available

for public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk, Office of the General Counsel,

Department of Housing and Urban Development Room 10276, 451 Seventh

Street, SW, Washington, DC 20410.

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. This final

rule makes a variety of technical amendments, clarifications and

corrections to regulations for the single family mortgage insurance

programs. None of the amendments or clarifications add to the

regulatory burden for mortgagors or mortgagees.

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.

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.

List of Subjects

24 CFR Part 200

Administrative practice and procedure, Claims, Equal employment

opportunity, Fair housing, Home improvement, Housing standards,

Incorporation by reference, Lead poisoning, Loan programs--housing and

community development, Minimum property standards, Mortgage insurance,

Organization and functions (Government agencies), Penalties, Reporting

and recordkeeping requirements, Social security, Unemployment

compensation, Wages.

24 CFR Part 201

Health facilities, Historic preservation, Home improvement, Loan

programs--housing and community development, Manufactured homes,

Mortgage insurance, Reporting and recordkeeping requirements.

24 CFR Part 202

Administrative practice and procedure, Home improvement,

Manufactured homes, Mortgage

[[Page 36263]]

insurance, Reporting and recordkeeping requirements.

24 CFR Part 203

Hawaiian Natives, Home improvement, Indians--lands, Loan programs--

housing and community development, Mortgage insurance, Reporting and

recordkeeping requirements, Solar energy.

24 CFR Part 206

Aged, Condominiums, Loan programs--housing and community

development, Mortgage insurance, Reporting and recordkeeping

requirements.

24 CFR Part 221

Low and moderate income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 233

Home improvement, Loan programs--housing and community development,

Mortgage insurance, Reporting and recordkeeping requirements.

24 CFR Part 234

Condominiums, Mortgage insurance, Reporting and recordkeeping

requirements.

24 CFR Part 280

Community development, Grant programs--housing and community

development, Loan programs--housing and community development, Low and

moderate income housing, Nonprofit organizations, Reporting and

recordkeeping requirements.

24 CFR Part 291

Community facilities, Conflict of interests, Homeless, Lead

poisoning, Low and moderate income housing, Mortgages, Reporting and

recordkeeping requirements, Surplus government property.

Accordingly, in title 24 of the Code of Federal Regulations, parts

200, 201, 202, 203, 206, 221, 233, 234, 280, and 291 are amended as

follows:

PART 200--INTRODUCTION

1. The authority citation for 24 CFR part 200 continues to read as

follows:

Authority: 12 U.S.C. 1701-1715z-18; 42 U.S.C. 3535(d).

Sec. 200.810 [Amended]

2. Section 200.810(b) is amended to remove the phrase ``, who shall

be listed on the HUD Appraiser Roster under Sec. 267.8(d)(2) of the

chapter,''.

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

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

follows:

Authority: 12 U.S.C. 1703; 42 U.S.C. 1436a and 3535(d).

Sec. 201.18 [Amended]

4. Section 201.18 is amended by revising the section heading to

read, ``Modification agreement or repayment plan.''

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

5. The authority citation for 24 CFR part 202 continues to read as

follows:

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

6. Section 202.3(j) is amended to add at the end the following

sentence:

Sec. 202.3 General approval requirements.

* * * * *

(j) * * * The Secretary may identify classes or groups of lenders

that are exempt from one or more of these fees.

* * * * *

7. Section 202.11 is amended by revising the section heading to

read as follows:

Sec. 202.11 Approval, origination approval agreement, recertification,

withdrawal of approval and termination of approval agreement.

* * * * *

8. Section 202.12(k) is amended to add at the end the following

sentence:

Sec. 202.12 General approval requirements.

* * * * *

(k) * * * The Secretary may identify classes or groups of

mortgagees that are exempt from one or more of these fees.

* * * * *

Sec. 202.13 [Amended]

9. Section 202.13 is amended by removing paragraph (d) and

redesignating paragraph (e) as paragraph (d).

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

10. 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).

11. Section 203.5 is amended by revising paragraph (e) to read as

follows:

Sec. 203.5 Direct Endorsement process.

* * * * *

(e) Appraisal. (1) A mortgagee shall have the property appraised in

accordance with such standards and requirements as the Secretary may

prescribe.

(2) The mortgagee shall not discriminate on the basis of race,

color, religion, national origin, sex, age, or disability in the

selection of an appraiser.

12. Section 203.17 is amended by revising paragraph (b) to read as

follows:

Sec. 203.17 Mortgage provisions.

* * * * *

(b) Mortgage multiples. A mortgage shall involve a principal

obligation in a multiple of $1.

* * * * *

13. Section 203.18 is amended to remove the parenthetical phrase

``(as in effect on September 30, 1992)'' in paragraph (a)(1)(ii) and to

add a new paragraph (i) to read as follows:

Sec. 203.18 Maximum mortgage amounts.

* * * * *

(i) Energy efficient mortgages. The principal amount of energy

efficient mortgages may exceed the maximum amounts determined under

paragraph (a)(1) of this section under conditions prescribed by the

Secretary in accordance with section 106 of the Energy Policy Act of

1992.

Sec. 203.19 [Amended]

Sec. 203.19 [Amended]

14. Section 203.19 is amended by removing paragraph (c).

15. Section 203.22 is amended by revising paragraph (a) to read as

follows:

Sec. 203.22 Payment of insurance premiums or charges; prepayment

privileges.

(a) Payment of periodic insurance premiums or charges. Except with

respect to mortgages for which a one-time mortgage insurance premium is

paid pursuant to Sec. 203.280, the mortgage may provide for monthly

payments by the mortgagor to the mortgagee of an amount equal to one-

twelfth of the annual mortgage insurance premium payable by the

mortgagee to the Commissioner. Such payments continue only so long as

the contract of insurance shall remain in effect or for such shorter

period as mortgage insurance premiums are payable by the mortgagee to

the Commissioner.

* * * * *

16. Section 203.24 is amended by revising paragraph (a)(1) to read

as follows:

Sec. 203.24 Application of payments.

(a) * * *

(1) Premium charges under the contract of insurance (other than a

one-time or up-front mortgage insurance

[[Page 36264]]

premium paid in accordance with Secs. 203.280, 203.284 and 203.285),

charges for ground rents, taxes, special assessments, flood insurance

premiums, if required, and fire and other hazard insurance premiums;

* * * * *

17. Section 203.30 is amended by adding a new paragraph (d) to read

as follows:

Sec. 203.30 Certificate of nondiscrimination by the mortgagor.

* * * * *

(d) That buildings having four (4) or more units, which were built

for first occupancy after March 13, 1991, were constructed in

compliance with the Fair Housing Act new construction requirements in

24 CFR 100.205.

Sec. 203.36 [Removed and reserved]

18. Section 203.36 is removed and reserved.

19. Section 203.38 is revised to read as follows:

Sec. 203.38 Location of dwelling.

At the time a mortgage is insured there must be located on the

mortgaged property one or more dwellings designed principally for

residential use for not more than four families.

20. Section 203.40 is amended by revising the first sentence to

read as follows:

Sec. 203.40 Location of property.

The mortgaged property shall be located within the United States,

Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern

Mariana Islands, and American Samoa. * * *

21. Section 203.42 is amended by revising paragraph (a) to read as

follows:

Sec. 203.42 Rental properties.

(a) A mortgage on property upon which there is a dwelling to be

rented by the mortgagor shall not be eligible for insurance if the

property is a part of, or adjacent or contiguous to, a project, or

group of similar rental properties, in which the mortgagor has a

financial interest in eight or more dwelling units.

* * * * *

22. Section 203.43 is amended by revising paragraph (c)(3) to read

as follows:

Sec. 203.43 Eligibility of miscellaneous type mortgages.

* * * * *

(c) * * *

(3) The mortgage must result in a reduction in regular monthly

payments by the mortgagor, except:

(i) When a fixed rate mortgage is given to refinance an adjustable

rate mortgage held by a mortgagor who is to occupy the dwelling as a

principal residence or secondary residence, as these terms are defined

in Sec. 203.18(f); or

(ii) When refinancing a mortgage for a shorter term will result in

an increase in the mortgagor's regular monthly payments of no more than

$50. In the case of a graduated payment mortgage, the reduction in

regular monthly payments means a reduction from the payment due under

the existing mortgage for the month in which the refinancing mortgage

is executed.

* * * * *

Sec. 203.43b [Removed and reserved]

23. Section 203.43b is removed and reserved.

Sec. 203.43f [Amended]

24. Section 203.43f(b) is amended to remove the last sentence.

25. Section 203.43h is amended by revising the introductory text,

revising paragraph (b), and revising paragraph (g)(3), to read as

follows:

Sec. 203.43h Eligibility of mortgages on Indian land insured pursuant

to section 248 of the National Housing Act.

A mortgage covering a one- to four-family residence located on

Indian land shall be eligible for insurance pursuant to section 248 of

the National Housing Act (12 U.S.C. 1715z-13), notwithstanding

otherwise applicable requirements related to marketability of title, if

the mortgage meets the requirements of this subpart as modified by this

section and is made by an Indian Tribe or on a leasehold estate, by an

Indian who will occupy it as a principal residence. Mortgage insurance

on cooperative shares is not authorized under this section.

* * * * *

(b) Eviction procedures. Before HUD will insure a mortgage on

Indian land, the tribe having jurisdiction over such property must

certify to the HUD Field Office that it has adopted and will enforce

procedures for eviction of defaulted mortgagors where the insured

mortgage has been foreclosed.

* * * * *

(g) * * *

(3) ``Indian tribe'' means any Indian or Alaska native tribe, band,

nation, or other organized group or community of Indians or Alaskan

natives recognized as eligible for the services provided to Indians or

Alaska natives by the Secretary of the Interior because of its status

as such an entity, or that is an eligible recipient under chapter 67 of

title 31, United States Code. For purposes of engaging in section 248

insured mortgage transactions under this section, an Indian tribe may

act through its duly authorized representative.

* * * * *

26. Section 203.43i is amended by revising paragraph (a) to read as

follows:

Sec. 203.43i Eligibility of mortgages on Hawaiian Home Lands insured

pursuant to section 247 of the National Housing Act.

(a) Eligibility. A mortgage on a homestead lease granted by the

Department of Hawaiian Home Lands covering a one- to four-family

residence located on Hawaiian home lands is eligible for insurance

pursuant to section 247 of the National Housing Act (12 U.S.C. 1715z-

12) if the mortgagor is a native Hawaiian who will occupy it as a

principal residence, and if the mortgage meets the requirements of this

subpart as modified by this section. Mortgage insurance on cooperative

shares under Sec. 203.43c on homes in federally impacted areas under

Sec. 203.43e is not authorized under this section.

* * * * *

27. Section 203.44 is revised to read as follows:

Sec. 203.44 Eligibility of advances.

Mortgagees may not make open-end advances under section 225 of the

National Housing Act (12 U.S.C. 1715p) in connection with the mortgages

insured under this chapter.

28. Section 203.49 is amended by revising the second sentence of

the introductory text and by removing the second sentence of paragraph

(a) beginning with ``The weekly average * * *'', to read as follows:

Sec. 203.49 Eligibility of adjustable rate mortgages.

* * * This section shall apply only to mortgage loans described

under sections 203(b), 203(h) and 203(k) of the National Housing Act.

* * * * *

29. Section 203.204 is amended by revising paragraph (a) and by

revising the third sentence of paragraph (g), to read as follows:

Sec. 203.204 Requirements and limitations of a plan.

(a) A Plan must assure timely resolution of homeowners' complaints

or claims covered under Sec. 203.205. Warranties set forth in a Plan

must comply with section 2301(a)(1)-(13) of the Magnuson-Mass Warranty-

Federal Trade Commission Improvement Act (15 U.S.C. 2301-2312) along

with the requirements and criteria set out in this section.

* * * * *

[[Page 36265]]

(g) * * * A Plan must contain pre-arbitration conciliation

provisions at no cost to the homeowner, and provision for judicial

resolution of disputes, but arbitration, which must be available to a

homeowner during the entire term of the coverage contract, must be an

assured recourse for a dissatisfied homeowner.

* * * * *

30. Section 203.251 is amended by revising paragraph (s) to read as

follows:

Sec. 203.251 Definitions.

* * * * *

(s) State includes the several States, Puerto Rico, the District of

Columbia, Guam, the Commonwealth of the Northern Mariana Islands,

American Samoa, and the Virgin Islands.

* * * * *

31. Section 203.255 is amended by revising paragraph (b)(2) to read

as follows:

Sec. 203.255 Insurance of mortgage.

(b) * * *

(2) An application for insurance of the mortgage in a form

prescribed by the Secretary;

* * * * *

Sec. 203.265 [Amended]

32. Section 203.265(b) is amended in the last sentence to remove

the phrase ``Treasury Fiscal Requirements Manual'' and add in its place

the phrase ``Treasury Financial Manual.''

33. Section 203.281 is amended by revising paragraph (b)(1) to read

as follows:

Sec. 203.281 Calculation of one-time MIP.

* * * * *

(b)(1) The Commissioner shall determine the applicable premium

percentage in accordance with sound financial and actuarial practice.

* * * * *

Sec. 203.284 [Amended]

34. Section 203.284 is amended by:

a. Removing the second sentence in paragraph (a)(1);

b. Removing the phrase ``pursuant to paragraph (b)(1)(i) or

(b)(2)(i) of this section,'' in paragraph (c); and

c. Removing the phrase ``Treasury Fiscal Requirements Manual'' in

the last sentence of paragaph (e), and adding in its place the phrase

``Treasury Financial Manual.''

35. Section 203.285 is amended by revising the second sentence of

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

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

applicable to mortgages subject to premiums under this section.

* * * * *

36. Section 203.346 is amended by revising the first sentence to

read as follows:

Sec. 203.346 Postponement of foreclosure--mortgagors in military

service.

If at any time during default the mortgagor is a ``Person in

military service,'' as such term is defined in the Soldiers' and

Sailors' Civil Relief Act of 1940, the period during which the

mortgagor is in such service shall be excluded in computing the period

within which the mortgagee shall commence foreclosure or acquire the

property by other means as provided in Sec. 203.355 of this subpart. *

* *

37. Section 203.356 is revised to read as follows:

Sec. 203.356 Notice of foreclosure and pre-foreclosure sale;

reasonable diligence requirements.

(a) Notice of foreclosure and pre-foreclosure sale. The mortgagee

must give notice to the Secretary, in a format prescribed by the

Secretary, within 30 days after the institution of foreclosure

proceedings. The mortgagee must give notice to the Secretary, in a

format prescribed by the Secretary, within the time-frame prescribed by

the Secretary, of the acceptance of any mortgagor into the pre-

foreclosure sale procedure.

(b) Reasonable diligence. The mortgagee must exercise reasonable

diligence in prosecuting the foreclosure proceedings to completion and

in acquiring title to and possession of the property. A time frame that

is determined by the Secretary to constitute ``reasonable diligence''

for each State is made available to mortgagees.

38. Section 203.378 is amended by revising paragraph (c)(1) to read

as follows:

Sec. 203.378 Property condition.

* * * * *

(c) * * *

(1) Damage by fire, flood, earthquake, hurricane, or tornado;

* * * * *

39. Section 203.379 is amended by revising paragraph (a),

introductory text, and paragraph (b), introductory text, to read as

follows:

Sec. 203.379 Adjustment for damage or neglect.

(a) If the property has been damaged by fire, flood, earthquake,

hurricane, or tornado, or, for mortgages insured on or after January 1,

1977, the property has suffered damage because of the mortgagee's

failure to take action as required by Sec. 203.377, the damage must be

repaired before conveyance of the property or assignment of the

mortgage to the Secretary, except under the following conditions:

* * * * *

(b) For mortgages insured under firm commitments issued on or after

November 19, 1992, or under direct endorsement processing where the

credit worksheet was signed by the mortgagee's underwriter on or after

November 19, 1992, the provisions of paragraph (a) of this section

apply and, in addition, if the property has been damaged during the

time of the mortgagee's possession by events other than fire, flood,

earthquake, hurricane, or tornado, or if it was damaged notwithstanding

reasonable action by the mortgagee as required by Sec. 203.377 of this

part, the mortgagee must provide notice of such damage to the Secretary

and may not convey until directed to do so by the Secretary. The

Secretary will either:

* * * * *

40. Section 203.380 is amended by revising paragraph (a)(1)(i) to

read as follows:

Sec. 203.380 Certificate of property condition.

(a) * * *

(1) * * *

(i) Undamaged by fire, flood, earthquake, hurricane or tornado; and

* * * * *

41. Section 203.390 is amended by revising paragraph (b)(1) to read

as follows:

Sec. 203.390 Waiver of title--mortgages or property formerly held by

the Secretary.

* * * * *

(b) * * *

(1) If a property held by the Secretary is sold by the Secretary

who also insures a mortgage financing the sale, and the mortgage is

later reassigned to the Secretary or the property covered by the

mortgage is later conveyed to the Secretary, the Secretary will not

object to title by reason of any lien or other adverse interest that

was senior to the mortgage on the date the mortgage was filed for

record, except where the lien or other adverse interest arose from a

lien or interest that had already been recorded against the mortgagor.

* * * * *

42. Section 203.402 is amended by revising paragraphs (b), (c) and

(k)(1) to read as follows:

[[Page 36266]]

Sec. 203.402 Items included in payment--conveyed and non-conveyed

properties.

* * * * *

(b) Special assessments, which are noted on the application for

insurance or which become liens after the insurance of the mortgage.

(c) Hazard insurance premiums on the mortgaged property not in

excess of a reasonable rate as defined in Sec. 203.379(a)(4).

* * * * *

(k)(1) For properties conveyed to the Secretary, an amount

equivalent to the debenture interest which would have been earned, as

of the date such payment is made, on the portion of the insurance

benefits paid in cash, if such portion had been paid in debentures,

except that:

(i) When the mortgagee fails to meet any one of the applicable

requirements of Secs. 203.355, 203.356(b), 203.359, 203.360, 203.365,

203.606(b)(1), or 203.366 within the specified time and in a manner

satisfactory to the Secretary (or within such further time as the

Secretary may approve in writing), the interest allowance in such cash

payment shall be computed only to the date on which the particular

required action should have been taken or to which it was extended;

(ii) When the mortgagee fails to meet the requirements of

Sec. 203.356(a) of this part within the specified time and in a manner

satisfactory to the Secretary (or within such further time as the

Secretary may approve in writing), the interest allowance in such cash

payment shall be computed to a date set administratively by the

Secretary.

* * * * *

43. An undesignated center heading ``GRADUATED PAYMENT MORTGAGES''

is added after Sec. 203.435 and before Sec. 203.436.

44. Section 203.502 is amended to revise the first sentence of

paragraph (a) and all of paragraph (b) to read as follows:

Sec. 203.502 Responsibility for servicing.

(a) After January 10, 1994, servicing of insured mortgages must be

performed by a mortgagee that is approved by HUD to service insured

mortgages. * * *

* * * * *

(b) Whenever servicing of any mortgage is transferred from one

mortgagee or servicer to another, notice of the transfer of service

shall be delivered:

(1) By the transferor mortgagee or servicer to the mortgagor. The

notification shall be delivered not less than 15 days before the

effective date of the transfer and shall contain the information

required in Sec. 3500.21(e)(2) of this title; and

(2) By the transferee mortgagee or servicer:

(i) To the mortgagor. The notification shall be delivered not less

than 15 days before the effective date of the transfer and shall

contain the information required in Sec. 3500.21(e)(2) of this title;

and

(ii) To the Secretary. This notification shall be delivered within

15 days of the transfer, in a format prescribed by the Secretary.

* * * * *

45. Section 203.604 is amended by revising the second sentence of

paragraph (b) to read as follows:

Sec. 203.604 Contact with the mortgagor.

* * * * *

(b) * * * If default occurs in a repayment plan arranged other than

during a personal interview, the mortgagee must have a face-to-face

meeting with the mortgagor, or make a reasonable attempt to arrange

such a meeting within 30 days after such default and at least 30 days

before foreclosure is commenced, or at least 30 days before assignment

is requested if the mortgage is insured on Hawaiian home land pursuant

to section 247 or Indian land pursuant to section 248 or if assignment

is requested under Sec. 203.350(d) for mortgages authorized by section

203(q) of the National Housing Act.

* * * * *

46. Section 203.670 is amended by revising paragraph (a) to read as

follows:

Sec. 203.670 Conveyance of occupied property.

(a) It is HUD's policy to reduce the inventory of acquired

properties in a manner that expands homeownership opportunities,

strengthens neighborhoods and communities, and ensures a maximum return

to the mortgage insurance fund.

* * * * *

47. Section 203.679 is amended by revising paragraph (b)(4) to read

as follows:

Sec. 203.679 Continued occupancy after conveyance.

* * * * *

(b) * * *

(4) Assignment of the property by the Secretary to a different use

or program.

Sec. 203.685 [Removed]

48. Section 203.685 is removed.

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

49. The authority citation for 24 CFR part 206 continues to read as

follows:

Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).

Sec. 206.3 [Amended]

50. Section 206.3 is amended by removing the last sentence of the

definition of ``Maximum claim amount''.

51. Section 206.9 is amended by revising the paragraph heading of

paragraph (b) to read as follows:

Sec. 206.9 Eligible mortgagees.

* * * * *

(b) HUD approved mortgagees.

Sec. 206.13 [Removed and reserved]

52. Section 206.13 is removed and reserved.

53. Section 206.17 is amended by revising paragraph (a) to read as

follows:

Sec. 206.17 General.

(a) Payment options. A mortgage shall initially provide for the

tenure payment option (Sec. 206.19(a)), the term payment option

(Sec. 206.19(b)), or the line of credit payment option

(Sec. 206.19(c)), or a combination as provided in Sec. 206.25(d),

subject to later change in accordance with Sec. 206.26.

* * * * *

Sec. 206.45 [Amended]

54. Section 206.45(b) is amended to remove the second sentence.

Sec. 206.121 [Amended]

55. Section 206.121(c) is amended to remove the citation

``Sec. 206.27(e)'' and to add in its place the citation

``Sec. 206.27(d).''

PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE

56. The authority citation for part 221 continues to read as

follows:

Authority: 12 U.S.C. 1707(a), 1715b, and 1715l; 42 U.S.C.

3535(d).

57. Section 221.45 is revised to read as follows:

Sec. 221.45 Mortgage obligation in multiples.

The mortgage shall involve a principal obligation in multiples of

$1.

PART 233--EXPERIMENTAL HOUSING MORTGAGE INSURANCE

58. The authority citation for part 233 is revised to read as

follows:

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

[[Page 36267]]

59. Section 233.5 is amended by revising paragraph (a) introductory

text and paragraph (b) to read as follows:

Sec. 233.5 Cross-reference.

(a) To be eligible for insurance under this subpart, a mortgage or

home improvement loan shall meet the eligibility requirements for

insurance under Sec. 203.1 et seq. (part 203, subpart A); Sec. 213.501

et seq. (part 213, subpart C); Sec. 220.1 et seq. (part 220, subpart

A); Sec. 221.1 et seq. (part 221, subpart A); Sec. 226.1 et seq. (part

226, subpart A); Sec. 234.1 et seq. (part 234, subpart A); Sec. 235.1

et seq. (part 235, subpart A); or Sec. 237.1 et seq. (part 237, subpart

A) of this chapter, except that:

* * * * *

(b) For the purposes of this subpart, all references in parts 203,

213, 220, 221, 226, 234, 235, and 237 of this chapter to sections 203,

213, 220, 221, 809, 234, 235, and 237 of the National Housing Act shall

be construed to refer to section 233 of the Act.

PART 234--CONDOMINIUM OWNERSHIP MORTGAGE INSURANCE

60. The authority for part 234 continues to read as follows:

Authority: 12 U.S.C. 1715qb and 1715y; 42 U.S.C. 3535(d).

Section 234.520(a)(2)(ii) is also issued under 12 U.S.C. 1707(a).

61. Section 234.1 is amended by revising paragraph (n) to read as

follows:

Sec. 234.1 Definitions used in this subpart.

* * * * *

(n) State includes the several States, Puerto Rico, the District of

Columbia, Guam, the Commonwealth of the Northern Mariana Islands,

American Samoa, and the Virgin Islands.

* * * * *

62. Section 234.11 is added to read as follows:

Sec. 234.11 Disclosure regarding interest due upon mortgage

prepayment.

Each mortgagee with respect to a mortgage under this part shall, at

or before closing with respect to any such mortgage, provide the

mortgagor with written notice in a form prescribed by the Commissioner

describing any requirements the mortgagor must fulfill upon prepayment

of the principal amount of the mortgage to prevent the accrual of any

interest on the principal amount after the date of such prepayment.

63. Section 234.16 is amended by adding a new paragraph (d) to read

as follows:

Sec. 234.16 Certificate of nondiscrimination by mortgagor.

* * * * *

(d) That buildings having four (4) or more units, which were built

for first occupancy after March 13, 1991, were constructed in

compliance with the Fair Housing Act new construction requirements in

24 CFR 100.205.

64. Section 234.25 is amended by revising paragraph (b) to read as

follows:

Sec. 234.25 Mortgage provisions.

* * * * *

(b) Mortgage multiples. The mortgage shall involve a principal

obligation in a multiple of $1.

* * * * *

65. Section 234.52 is amended by revising paragraph (c) to read as

follows:

Sec. 234.52 Refinancing of existing mortgages.

* * * * *

(c) The mortgage must result in a reduction in regular monthly

payments by the mortgagor, except:

(1) When a fixed rate mortgage is given to refinance an adjustable

rate mortgage held by a mortgagor who is to occupy the dwelling as a

principal residence or secondary residence, as these terms are defined

in Sec. 237.27(e); or

(2) When refinancing a mortgage for a shorter term will result in

an increase in the mortgagor's regular monthly payments of no more than

$50. In the case of a graduated payment mortgage, the reduction in

regular monthly payments means a reduction from the payment due under

the existing mortgage for the month in which the refinancing mortgage

is executed;

* * * * *

66. Section 234.54 is added, under the undesignated center heading

``ELIGIBLE MORTGAGES,'' to read as follows:

Sec. 234.54 Eligibility of assigned mortgages and mortgages covering

acquired property.

The Commissioner may insure under this part, without regard to any

limitation upon eligibility contained in this subpart, any mortgage

assigned to the Commissioner in connection with payment under a

contract of mortgage insurance, or executed in connection with a sale

by the Commissioner of any property acquired in the settlement of an

insurance claim under any section or title of the National Housing Act.

Sec. 234.67 [Removed and reserved]

67. Section 234.67 is removed and reserved.

68. The undesignated center heading ``OPEN-END ADVANCES''

immediately preceding Sec. 234.70 is removed.

69. Section 234.70 is revised to read as follows:

Sec. 234.70 Eligibility of open-end advances.

Mortgagees may not make open-end advances under section 255 of the

National Housing Act in connection with mortgages insured under this

chapter.

PART 280--NEHEMIAH HOUSING OPPORTUNITY GRANTS PROGRAM

70. The authority citation for 24 CFR part 280 continues to read as

follows:

Authority: 12 U.S.C. 1715l note; 42 U.S.C. 3535(d).

71. Section 280.330 is amended by revising the section heading and

paragraph (c)(2) to read as follows:

Sec. 280.330 Loan and Profit.

* * * * *

(c) * * *

(2) Loan and Profit--Any amounts remaining after distribution of

the down payment shall be shared equally between the Secretary and the

family, but only to the extent that the Secretary recovers an amount

equal to the amount of the loan originally made to the family under

this section. If such remaining amounts are insufficient for the

Secretary to recover the full amount of the loan made under this

section, the remaining balance of the second mortgage shall be

cancelled and shall not be transferred to a subsequent purchaser.

* * * * *

PART 291--DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY

72. The authority for 24 CFR part 291 continues to read as follows:

Authority: 12 U.S.C. 1790 and 1715(b); 42 U.S.C. 1441, 1441a,

1551a, and 3535(d).

73. Section 291.100 is amended by revising the first sentence of

paragraph (a)(3) and the introductory text in paragraph (a)(4) to read

as follows:

Sec. 291.100 General policy.

(a) * * *

(3) Except as provided in paragraph (a)(4) of this section, tenants

in occupancy will not be offered the right of first refusal to purchase

the property. * * *

(4) HUD tenants in occupancy will be offered the right of first

refusal to purchase property where:

* * * * *

74. Section 291.105 is amended by revising the first sentence of

paragraph (e) and the first sentence of paragraph (h)(2), to read as

follows:

Sec. 291.105 Competitive sales procedure.

* * * * *

[[Page 36268]]

(e) Full price offers. HUD field offices that operate under a

``full price offer'' program open offers at specified times during the

10-day bidding period. * * *

* * * * *

(h) * * *

(2) All bids must be accompanied by earnest money deposits in the

form of a cash equivalent as prescribed by the Secretary, or a

certification from the real estate broker that the earnest money has

been deposited in the broker's escrow account. * * *

* * * * *

75. Section 291.110 is amended by revising the first sentence of

paragraph (b)(1) to read as follows:

Sec. 291.110 Other sales procedures.

* * * * *

(b) Direct sales to displaced persons. (1) At the discretion of the

Field Office, properties eligible for insured financing are offered for

direct sale, at a discount of 10 percent off the list price, to

displaced persons who will occupy the properties. * * *

* * * * *

76. Section 291.115 is amended by revising paragraph (b)(2) to read

as follows:

Sec. 291.115 Insured sales.

* * * * *

(b) * * *

(2) For an owner-occupant purchaser, the mortgage amount is based

on the bid price plus any allowable pre-paids (e.g., taxes) and

financing or closing costs, up to local maximum mortgage amounts. For

investor purchasers without rehabilitation loans insured under

Sec. 203.50 of this chapter, the mortgage amount is limited to 75

percent of the bid price for one-unit properties, and 85 percent for

two- to four-unit properties, up to local maximum mortgage amounts.

Pre-paids, financing or closing costs may not be included in the

mortgage amount for such investor purchasers. For investor purchasers

with rehabilitation loans insured under Sec. 203.50 of this chapter,

the mortgage amount is calculated as provided in Sec. 203.50(f) of this

chapter and the bid price is used as the Commissioner's estimate of the

value of the property before rehabilitation.

Dated: June 13, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 96-17305 Filed 7-8-96; 8:45 am]

BILLING CODE 4210-27-P