Office of the Assistant Secretary for HousingFederal Housing Commissioner; Streamlining Mortgagee Requirements

SUMMARY: This rule makes final the January 26, 1996 interim rule which

revised FHA's mortgagee requirements to streamline and make the FHA

process more flexible for mortgagees and FHA's customers and clients.

EFFECTIVE DATE: August 9, 1996.

FOR FURTHER INFORMATION CONTACT: William M. Heyman, Director, Office of

Lender Activities and Land Sales Registration, Room 9156, Department of

Housing and Urban Development, 451 Seventh Street, SW, Washington, DC

20410, telephone (voice) (202) 708-1515, (TTY) (202) 708-4594. (These

are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Background

Early in 1995 the FHA Single Family Business Practices Working

Group was established to develop recommendations to streamline the FHA

process, reduce or eliminate unnecessary requirements, promote greater

opportunities for first-time homebuyers and minorities, and maintain a

responsible risk management program. The Working Group was comprised of

representatives of mortgage lenders, State and local governments, trade

associations, realtors, government-sponsored enterprises, and other

interested parties.

On January 26, 1996, at 61 FR 2650, the Department published an

interim rule on Streamlining Mortgagee Requirements. The revisions made

by the interim rule resulted from the efforts and recommendations made

by the Working Group. They were designed to make the FHA process more

flexible for mortgagees, and for State and local governments and

nonprofit associations, and also to expand homeownership opportunities.

They were also intended to assist in making the FHA a more effective

organization to serve the needs of our customers and clients. In

addition, the revisions were intended to minimize the differences

between FHA and conventional loan processing and to place greater

reliance and accountability on mortgagees.

The interim rule made the following changes:

--Section 202.11(a)(5) was revised to establish uniform requirements on

the use of authorized agents by supervised and nonsupervised

mortgagees. For conforming reasons, Secs. 202.13(e) and 202.17(d) were

removed.

--Section 202.12(m) was revised to eliminate the requirement that a

branch office of a mortgagee must be approved by FHA to originate FHA

mortgages. A branch registry process is permitted. However, a

nonsupervised loan correspondent is required to provide evidence that

it complies with the net worth requirements for itself and all of its

branches, as set forth in Sec. 202.12(n)(3).

--Section 202.15(c)(1) was revised to eliminate the requirement that

loans must be closed in the name of the Loan Correspondent, and to

permit such mortgages to be closed in either the name of the Loan

Correspondent or its Sponsor(s).

--Section 202.15(c)(5) was revised to eliminate the compliance report

and the report on internal control from Loan Correspondents' annual

audited financial statements.

--Section 203.3(b)(2) was revised to eliminate the requirement that FHA

individually approve mortgagees' Direct Endorsement underwriters and to

establish a registry process for the underwriter. Also, the requirement

that the technical staff utilized by the mortgagee be approved by the

Secretary was removed. For conforming reasons, Secs. 203.3(b)(3) and

(c) were eliminated.

Public Comments

The public was afforded a 60-day comment period on the January 26,

1996 interim rule. Two commenters responded: one certified public

accountant firm and one national association of certified public

accountants. Below is a listing of the comments presented, and the

Department's response follows each comment.

Comment: The commenter questions (1) Whether the auditor needs to

meet GAO Yellow Book general requirements for education, etc., given

the lower level of scope, and (2) is the auditor required to

communicate indications of illegal acts to HUD if such indications are

present?

Response: (1) Unless engaged in other GAO Yellow Book audits, the

auditor of a loan correspondent mortgagee would no longer have to meet

the GAO Yellow Book education requirements. The Department notes,

however, that Professional Standards provide that an auditor should

obtain a level of knowledge of the auditee's business that will enable

the auditor to plan and perform the audit in accordance with Generally

Accepted Auditing Standards. (2) The auditor will still be required to

report illegal acts as set forth in Handbook 2000.04 REV-1,

Consolidated Audit Guide for Audits of HUD Programs.

Comment: The commenter urges the issuance by the Office of the

Inspector General of a supplement to Handbook 2000.04 REV-1,

Consolidated Audit Guide for Audits of HUD Programs. Otherwise, the

commenter believes there will be confusion among both loan

correspondents and their auditors since the Consolidated Audit Guide is

in conflict with the interim rule.

Response: The Department is revising the Consolidated Audit Guide

to reflect this and other changes. In the meantime, loan correspondent

mortgagees and auditors may refer to Mortgagee Letter 96-12 for

guidance.

Comment: Another commenter requests that the final rule state

whether the financial statement audits of Loan Correspondents should be

performed in accordance with Government Auditing Standards or in

accordance with Generally Accepted Auditing Standards (GAAS).

Response: The Department will no longer require that financial

statement audits of loan correspondent mortgagees be performed in

accordance with Government Auditing Standards. Such audits, however,

must be performed according to Generally Accepted Auditing Standards.

Although this will not be incorporated into the final rule, it will be

specified in the Consolidated Audit Guide and in Mortgagee Approval

Handbook 4060.1 REV-1, both of which are being revised by the

Department.

This Rule

No changes are needed to the regulatory text as a result of the

public comments received on the January 26, 1996 interim rule.

Therefore, this final rule adopts the interim rule without substantive

change. In addition, this final rule makes conforming changes to parts

202, 203, 221, and 234.

Other Matters

Environmental Finding

A Finding of No Significant Impact with respect to the environment

was

[[Page 36453]]

made in accordance with HUD regulations at 24 CFR Part 50, which

implement section 102(2)(C) of the National Environmental Policy Act of

1969, for the January 26, 1996 interim rule. Since this final rule

makes no changes to the interim rule, the Finding of No Significant

Impact for the interim rule shall serve as the finding for the final

rule. The 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, S.W.,

Washington, D.C. 20410.

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 do 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 insuring mortgages 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

because it revises mortgagee requirements.

The Regulatory Flexibility Act

In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility

Act), the Secretary by his approval of this rule hereby certifies that

this rule does not have a significant economic impact on a substantial

number of small entities because the changes made by this rule are

primarily procedural and will not have a significant economic impact.

List of Subjects

24 CFR Part 202

Administrative practice and procedure, Home improvement,

Manufactured homes, Mortgage 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 221

Low and moderate income housing, Mortgage insurance, Reporting and

recordkeeping requirements.

24 CFR Part 234

Condominiums, Mortgage insurance, Reporting and recordkeeping

requirements.

Accordingly, under the authority of 42 U.S.C. 3535(d), chapter II

of title 24 of the Code of Federal Regulations is amended by adopting

as final, without change, the interim rule for ``Parts 202 and 203,

Streamling Mortgagee Requirements'', published in the Federal Register

on January 26, 1996 (61 FR 2650). Chapter II is also amended by further

amending part 203, and by amending parts 221 and 234 as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

1. The authority citation for part 203 continues to read as

follows:

Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C.

3535(d).

Secs. 203.51, 203.258, 203.259a, 203.359, 203.363, 203.366, 203.368,

203.369, 203.378, 203.379, 203.380, 203.402, and 203.423 [Amended]

2. Part 203 is amended by removing the word ``approved'' wherever

it appears before the word ``underwriter'' in the following sections:

Secs. 203.51(2), 203.258(c)(2), 203.259a(a)(2)(ii)(B), 203.359(b)

introductory text, 203.363(b) paragraph heading, 203.366(b)(1),

203.368(a)(1)(ii), 203.369(a)(1), 203.369(b), 203.378(c)(3),

203.379(b), 203.380(a)(1)(iii), 203.402(g)(1) paragraph heading,

203.402(g)(2) paragraph heading, and 203.423(a)(1).

PART 221--LOW COST AND MODERATE INCOME MORTGAGE INSURANCE

3. 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).

Sec. 221.70 [Amended]

7. In Sec. 221.70(a)(2), the reference to ``approved underwriter''

is revised to read ``underwriter''.

PART 234--CONDOMINIUM OWNERSHIP MORTGAGE INSURANCE

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

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

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

234.85 [Amended]

9. In Sec. 234.85(a)(2), the reference to ``approved underwriter''

is revised to read ``underwriter''.

Dated: July 2, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing--Federal Housing Commissioner.

[FR Doc. 96-17559 Filed 7-9-96; 8:45 am]

BILLING CODE 4210-27-P