Office of the Assistant Secretary for HousingFederal Housing Commissioner; Revision of FHA Multifamily Processing and Fees

SUMMARY: This rule amends FHA multifamily processing regulations to:

increase processing/commitment fees; recognize a feasibility processing

stage for substantial rehabilitation projects and impose a fee for this

processing; require the project sponsor to request a preapplication

conference; and eliminate the conditional commitment processing stage

for all but Section 242 hospital mortgages, and Section 223(f)

acquisition/refinancing mortgages.

EFFECTIVE DATE: May 1, 1996.

FOR FURTHER INFORMATION CONTACT: Jane Luton, Director, New Products

Division, Office of Multifamily Housing Development, Room 6138,

Department of Housing and Urban Development, 451 Seventh Street SW.,

Washington, DC 20410-8000, telephone (202) 708-2556. (This is not a

toll-free telephone number.) Hearing- or speech-impaired may access

this number via TTY by calling the Federal Information Relay Service at

1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act Statement

The information collection requirements contained in Sec. 290.45 of

this rule have been approved by the Office of Management and Budget in

accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-

3520), and assigned OMB control number 2502-0029. An agency may not

conduct or sponsor, and a person is not required to respond to, a

collection of information unless the collection displays a valid

control number.

A. Rule Description

This rule amends various relevant parts of title 24 of the Code of

Federal Regulations to effect the following changes in its processing

procedures for FHA insurance of multifamily project mortgages. This

final rule is based on a proposed rule published on July 1, 1993 at 58

FR 35724. The section numbering in this rule differs from the proposed

rule. This final rule conforms to the consolidation of the FHA

multifamily mortgage insurance program regulations set forth in another

final rule published elsewhere in today's Federal Register.

1. Increase in Processing Fees

Multifamily mortgage insurance processing and commitment fees

currently do not cover expenses incurred by the Department. A Price

Waterhouse study estimates that during a 7-year period (FY 1985-FY

1991), fees collected (based on $3/$1,000 of the mortgage amount)

covered only 68 percent to 92 percent of HUD's costs. (These costs were

basically local HUD Office Housing costs--they did not include overhead

costs or personnel outside of the local HUD office Multifamily

Development Division.)

Implementation of the Delegated Processing program has resulted in

an even greater shortfall. Under this program, HUD pays outside

contractors to perform underwriting services. Fees charged by delegated

processors are based on their cost of doing business, not on a

percentage of the mortgage amount. The Price Waterhouse study, although

based on a limited sample, indicated that fees collected by HUD covered

only 61 percent of costs incurred. (Implementation of Technical

Discipline Contracts (TDCs), should result in similar deficiencies in

costs versus fees collected.)

Under this rule, HUD regulations are amended to more adequately

cover HUD costs by increasing the aggregate fees to $5/$1,000 (from the

current $3/$1,000) of the mortgage amount. This increase will be within

the statutory limitation prescribed in Section 207(d) of the National

Housing Act. Section 207(d) provides that appraisal and inspection

charges ``shall not aggregate more than 1 per centum, of the original

principal face amount of the mortgage.'' With the exception of Section

223(f) acquisition/refinancing mortgages, inspection fees are currently

based on, and will remain at, not to exceed $5/$1,000 of the mortgage

amount. Consequently, to remain within the statutory limitation of 1

percent, total processing/commitment fees cannot be increased by more

than $2/$1,000 (for a total processing/commitment fee of $5/$1,000).

This rule does not change the fees related to mortgage insurance

processing and commitment for hospitals under Section 242.

2. Feasibility Processing Stage with Fee

Feasibility processing for substantial rehabilitation projects is

recognized by program handbooks as an optional processing stage but it

is not recognized by regulation. For this reason, HUD is not able to

charge a processing fee, even though feasibility processing requires

substantially more effort than Site Appraisal and Market Analysis

(SAMA) processing for new construction projects, which are covered by

regulation and for which a fee is chargeable.

The inability to charge a fee has significantly contributed to the

processing deficit cited above, particularly when a case drops out

after the feasibility analysis is completed. In such cases, HUD also

loses the opportunity to collect a fee for future processing.

Furthermore, under Delegated Processing and Technical Discipline

Contracts (TDCs), outside contractors must be paid, regardless of

whether HUD collects a fee. Collecting a fee to help offset the costs

of paying the contractors is simply a sound business practice.

Consequently, this rule describes feasibility processing for

multifamily substantial rehabilitation projects and reflects long-held

HUD policy and practice that issuance of a feasibility letter is not

binding upon the Department. It is a generally known fact that, in

cases involving substantial rehabilitation, unanticipated major

structural problems may be found at a later stage and may result in a

dramatic increase in the total cost of rehabilitation. Also,

substantial rehabilitation can involve complex readaptation of

buildings, originally constructed for a non-residential purpose, that

may require major architectural changes in the scope of the work, and

consequently, in the Department's conclusions relative to the

feasibility of the proposed project. In addition, substantive

rehabilitation may come as a result of having to make the multifamily

housing projects accessible to persons with disabilities. This rule

reflects current HUD policy in stating that determinations found in a

feasibility letter are not to be binding upon the Department and may be

changed in whole or in part at a later time. The feasibility letter may

even be unilaterally terminated by the Commissioner if found necessary.

3. Preapplication Conference

One of the goals of the Office of Housing is to speed up mortgage

insurance processing. Submission of complete, well-documented

applications by sponsors/mortgagees is essential to expeditious

processing. Only if applications are complete, and time is not wasted

by going back to the sponsor/mortgagee, can processing time

[[Page 14411]]

goals be met. Consequently, the rule permits the local HUD Office to

determine if participation in a preapplication conference is required

as a condition to submission of an initial application. This

requirement will apply in all cases (except for part 242 insurance on

hospital mortgages, and part 241(f) insurance on equity and acquisition

loans) and will include any application by a project sponsor for an

operating loss loan.

During the preapplication conference, sponsors will meet with the

local HUD Office staff to present a project idea, discuss program FHEO

requirements and be advised of any known market or environmental

concerns. Contents of the application, including required exhibits,

will be identified and discussed. In addition, if the proposal is

obviously ineligible for mortgage insurance, the sponsor will be so

advised. If a proposal appears eligible, the local HUD Office will

determine when an application can be expected so that it can consider,

based on work load and other priorities, whether it might be a

candidate for in-house processing, delegated processing or TDC

contracting.

4. Elimination of Conditional Commitment Stage

To speed the processing cycle, the rule eliminates the conditional

commitment processing stage for all applications for loans for

acquisition or refinancing of existing construction pursuant to Section

223(f). Sponsors have the option of submitting an application for SAMA

(or feasibility) or firm commitment processing.

As is now the case, the SAMA (or feasibility) letter is not a

commitment to insure the mortgage, nor does it bind HUD to issue a firm

commitment to insure. The purpose of a firm commitment also remains

unchanged. It will be issued only after completion of technical

processing and will evidence HUD's approval of the application.

After issuing a SAMA letter, HUD technical staff will provide

liaison services to the sponsor's design architect in the development

of preliminary drawings, and specifications which must be submitted

within a time period set forth in the SAMA letter with a processing fee

and in a form prescribed by HUD. HUD will review and comment on the

drawings and specifications which will be provided to the sponsor for

use in preparing the firm commitment application. The fee will be equal

to $1.00 per $1,000 of the mortgage amount.

A preliminary work write-up and outline specifications will be

required for a feasibility application. Final documents, including

final cost estimates, will be submitted at the firm commitment

application stage.

5. Application Fees

The rule imposes a fee for feasibility processing (which HUD has

previously performed without charge) and modifies the overall existing

fee structure which currently requires an aggregate of $3.00 per $1,000

for all processing stages. The modified fee structure imposes an

aggregate fee of $5.00 per $1,000 of mortgage amount, to be distributed

among all processing stages.

Substantial Rehabilitation

A fee of $3.00 per $1,000 is charged at the feasibility stage for

substantial rehabilitation projects. The balance of $2.00 per $1,000

will be charged at the firm commitment stage.

New Construction

A fee of $1.00 per $1,000 is charged at the SAMA stage, $1.00 per

$1,000 for the review of plans and specifications, and the balance of

$3.00 per $1,000 will be charged at the firm commitment stage.

Section 223(f) Loans

Projects to be acquired or refinanced pursuant to Section 223(f)

will be subject to a conditional commitment processing fee of $3.00 per

$1,000 and a firm commitment fee of $2.00 per $1,000.

Loan to Cover Operating Losses

A combined application and commitment fee of $5 per $1,000 of the

loan amount shall be submitted with the application for firm

commitment.

6. Update of Nondiscrimination Provisions

This rule also updates the nondiscrimination requirements in

Sec. 241.640 to reflect current statutory and regulatory prohibitions

against discrimination on the basis of age, disability or familial

status.

7. Change In Section 223(f) Inspection Fees

This final rule contains a provision not contained in the proposed

rule relating to section 223(f) inspection fees. This change is being

implemented as a result of changing program experience under the

section 223(f) refinance program.

The nature of projects currently being considered for Section

223(f) mortgage insurance is significantly different from those

typically submitted when the fee schedule for 223(f) projects was

promulgated for full and coinsurance on August 25, 1987. At that time a

vast majority of the projects were near or at the regulation's upper

repair limits. Currently, HUD is receiving many applications for

refinance to reduce interest rates under the subject program, where

project repairs are very nominal.

The August 25, 1987, regulation provides for a two-tier inspection

fee schedule. One consideration against using a single-tier one percent

inspection fee rate, as was recognized at the time this regulation was

first issued, was that where repairs are minimal, the fee would not

cover the actual cost of making the inspection. This concern is still

valid. This rule does, however, replace the current rigid $30 per

dwelling unit minimum fee with authority in the Commissioner to

establish a minimum project inspection fee. This fee will be

periodically reviewed and may be adjusted upward or downward as

necessary. Initially, the fee will be administratively set at $500

since $500 is the apparent minimum rate that a contractor will charge

HUD for a project inspection regardless of the total work that will

have to be inspected.

This change will lower the inspection fees for all projects larger

than 17 dwelling units for which the repair costs are $3,000 per

dwelling unit or less. Furthermore, for the sake of uniformity this

change is also being incorporated in 24 CFR 232.906(d) covering

inspection fees on mortgage insurance for nursing homes and related

facilities.

B. Proposed Rule and Public Response

The Department received a total of 9 comments in response to the

July 1, 1993, proposed rule (58 FR 35724): eight from private mortgage

companies or developers and one from a national trade organization, The

National Association of Home Builders.

Seven comments expressed general approval of the rule but set forth

specific objections/recommendations. Two commenters (private companies)

expressed general opposition to the rule but raised very similar

objections/recommendations as those generally approving of the rule.

The following specific objections/recommendations were raised in

connection with the rule.

1. Increase in Processing Fees. Five commenters questioned the

manner in which the rule raises processing fees across the board on a

fixed basis without regard to the wide variations in types and size of

FHA applications.

With respect to loan size a number of points were raised:

[[Page 14412]]

a. FHA is now priced to attract most strongly the business on which

it loses money in processing--the ``little'' loans which it

``subsidizes'' by charging far less than the processing costs.

b. FHA is already now priced to be richly profitable on larger

loans, which currently pay an above market price for processing to the

extent they pay more than about $20,000.

c. A price change to 0.5% will inevitably drive away larger loan

business that was profitable, making the problem worse.

d. A price change to 0.5% will leave FHA still dramatically

underpriced and attractive to the ``little'' loans, on which FHA will

continue to lose money in processing.

A second objection is that the cost of processing varies greatly

not only because of loan size but also because of loan type. A 223(f)

refinancing request is relatively easy to process because there is an

existing property with demonstrated rents and occupancy. A 221(d) loan

is inherently more difficult. The property does not yet exist. Plans

must be reviewed. Cost must be reviewed. Far greater judgment must be

brought to bear to evaluate what levels can be prudently anticipated

for rents, expenses, and vacancies.

Clearly, the cost to FHA in processing a 223(f) loan is not the

same as that for a 221(d) loan. It would, therefore, be reasonable to

charge more for 221(d) work than for 223(f) work. Indeed, if the

underlying goal was to have the cases on which FHA presently loses

money in processing bear more of their own costs, it would be entirely

reasonably to thus differentiate.

One basic recommendation to address this situation would be

retention of the current 0.3% fee structure with the addition of both

minimum fees (so the smaller loans cover more of their processing

costs, as they would be obliged to do if using any alternative

financing source) and maximum fees (so as to limit the structural

disincentive that currently drives the larger and more profitable

business away from FHA as a source).

This would provide a ``more level playing field'' across the entire

spectrum of loan sizes.

A similar dollar differentiation would be made with respect to

refinancing as opposed to new construction or substantial

rehabilitation mortgages.

HUD Response: HUD insures mortgages made by private lending

institutions to finance: the construction or rehabilitation of

multifamily rental housing; the purchase or refinance of existing

multifamily or nursing home projects; and the construction or

rehabilitation of nursing homes, intermediate care facilities, assisted

living facilities, and board and care homes. Mortgage insurance is a

contingent Federal liability which is not included in computing the

Federal deficit. However, it is part of the ongoing discussion about

the deficit. The Federal Credit Reform Act of 1990 requires that the

budgetary treatment of all direct loan and loan guarantee programs

recognize, at the front end, the net cost to the Federal Government

resulting from these transactions. The Department is required to

estimate the amount that it might lose on all multifamily project

mortgages it insures and must request ``credit subsidy'' as part of its

budget each Fiscal Year (FY) to cover those losses. Beginning in FY

1992, each HUD budget has included a request for credit subsidy.

Because of current budgetary constraints credit subsidy dollars are a

scarce resource. Large and small projects use up the credit subsidy

dollars at an equal rate. The Department believes this provides the

level playing field referenced above.

A number of commenters indicated that the fees charged on large

loans subsidize small loans. One commenter indicated that the current

market price for processing a loan was about $20,000. Other comments

indicate that the increased fee will drive away larger loans and HUD

will continue to lose money in processing. On the surface it would

appear that the Department's fee structure is excessive. However, no

other financing source currently matches all the benefits available

with HUD mortgage insurance. For example, the Section 221(d)(4) program

provides mortgage insurance for the construction loan and permanent

loan (for up to 40 years with a level annuity payment plan), a maximum

mortgage based on 90 percent of the estimated replacement cost, and a

nonrecourse loan. Further, HUD insurance is a credit enhancement that

provides access to reduced financing costs and the secondary market.

2. Mandatory Preapplication Conferences

Five commenters took issue with these provisions in the rule. The

consensus was that:

1. Preapplication conferences should never be required (and should

be discouraged as a relatively counterproductive use of staff time) on

all refinancing transactions. This would specifically include 223(a)(7)

and 223(f) refinancings.

2. Preapplication conferences should be optional at the local HUD

Office level on new construction and substantial rehabilitation

proposals. Such conferences are not universally necessary and the

proposed rule would unnecessarily restrict local HUD Office flexibility

in this matter. The result of requiring conferences in all cases will

be wasteful and unneeded delays in FHA processing.

HUD Response: As previously stated, one of the Office of Housing's

goals is to speed up mortgage insurance processing. The submission of

complete well-documented applications by sponsors/mortgagors is

essential to expeditious processing. The Department cannot process

loans expeditiously and meet its time goals if applications are

incomplete, and time is wasted by going back to the sponsor/mortgagor.

However, based on comments from Industry and the local HUD Offices, HUD

realizes that a national solution like a mandatory preapplication

conference does not take into account the experience level of the

development team. Therefore, the Department has modified the proposed

regulation to accommodate differing levels of sophistication and

experience. The local HUD Office will decide, on a case-by-case basis,

if a preapplication conference is necessary. The Department, however,

strongly recommends a preapplication conference for all new mortgage

insurance applications involving new sponsors/mortgagors.

3. Requiring Technical Liaison by HUD Staff

Two commenters said that the rule proposal requiring HUD technical

staff to provide liaison services to Sponsor's design architect in

development of drawings, specifications, and cost estimates is

unrealistic. They noted that the local HUD Offices they have dealt with

have generally lacked the staff, expertise and time to commit to this

significant undertaking.

HUD Response: Local HUD Offices are being given the tools necessary

to commit to this activity. Previously, the Department provided the

local HUD Office with delegated processing and technical assistance

contracts to level their workload. To enhance the skill level of the

local HUD Office staff, HUD is currently streamlining the underwriting

process, developing computer systems that will free local HUD Office

staff from the rote aspects of their duties, and providing both formal

and informal training. Therefore, the Department is confident that the

local HUD Offices will be able to perform this task.

[[Page 14413]]

4. Efficient Processing by HUD Staff

Three commenters raised the issue of efficient processing by local

HUD Office staff. The following is an example of a typical comment:

Although we do not disagree with the imposition of a fee at the

SAMA or Feasibility stage, we believe that those applicants who are

paying fees for both SAMA or Feasibility (as appropriate) and Firm

Commitment applications should, in consideration of fees paid,

obtain processing within the time frames as per the HUD regulations

and handbooks. Currently, this is not happening; processing times

are now indeterminate. Applicants have paid fees and are unable to

obtain response from the HUD Offices as to when applications will be

processed and returned to the Sponsor/applicants, which is

unreasonable, notwithstanding of the amount of fees charged. Such

delays in processing are causing tremendous carrying costs to

Sponsors, Architects, Contractors, and HUD approved lenders.

HUD Response: The Department recognizes that processing delays are

costly to the Industry and to HUD. For this reason the Department is

undergoing the process of reinvention and reorganization. Short term

measures to reduce the workload were made available to local HUD

Offices in the form of Delegated Processing and Technical Assistance

Contracts. The Department is currently looking at the underwriting

process to determine which activities can prudently be modified or

eliminated altogether. Ultimately, the Multifamily Production Branch in

the local HUD Office will have a more efficient operation.

5. Site Appraisal and Market Analysis (SAMA)

Two commenters questioned the need for a review of preliminary

plans, etc., after SAMA approval. One made the following

recommendation.

The proposed rule creates a new mandatory processing step for

all sponsors who utilize the SAMA processing stage. This new step

would occur after SAMA approval and would require sponsors to submit

preliminary drawings, specifications and cost estimates, with a

processing fee, to HUD for review and comment. While this step would

be very useful to certain sponsors who desire HUD input on these

documents, it would delay processing for those projects with designs

that had previously been approved by HUD and with costs that the

sponsor felt would be acceptable to HUD at the firm commitment

stage. Therefore, we suggest that this step be optional at the

election of the sponsor.

HUD Response: The Department needs to interact with the development

team of a proposed project at this critical stage. The local HUD

Office's continuous liaison during the design development is critical

for streamlining the underwriting process. However, based on Industry

comments the Department has modified the process. The local HUD Office

will not request the owner's cost estimates nor will it produce cost

estimates during the interim period. Of course, if the development team

is using a previously approved design then the local HUD Office input

will be greatly reduced.

6. Replace SAMA With Feasibility Stage

One commenter made this recommendation:

I agree with your proposal to charge a fee at Feasibility

comparable to the required at SAMA. I feel a better approach,

however, would be to replace the SAMA stage with Feasibility for new

construction as well. This system, which prevailed in the early

1970's, would give a more detailed first look which would, I

believe, offer early euthanasia to infeasible projects and expedite

processing of those that make it to the Firm stage.

HUD Response: The Department disagrees with this recommendation

since it would slow down the processing of proposed new construction

projects while at the same time increasing the sponsor's out-of-pocket

cost. SAMA processing establishes the land value fully improved, the

acceptability of the proposed project site, the proposed composition,

number and size of the units, the market for the number of proposed

units, and the acceptability of the proposed unit rents. To do

feasibility processing, the sponsor would need to supply, as part of

the application package, drawings and specifications. The sponsor would

incur substantial cost without knowing if there was a market for the

project. In turn, the Department would have to review the plans and

specifications before determining a market exists for the proposed

project.

7. Mortgagee Has Option To Go Directly to Final Processing Stage

One commenter recommended that the rule be revised to set forth

more clearly this option of the mortgagee.

HUD Response: The Department's existing administrative policy

permits combining different stages of processing. However, over the

years there has been some confusion over this policy. To clarify

existing Departmental policy, this rule modifies the regulations to

state that at the option of the local HUD Office the SAMA/Feasibility

processing may be combined with the firm commitment processing.

However, HUD recommends this approach only in the case of an

experienced development team.

8. Charge Application Fees for Section 202 Projects

One commenter asked why application fees are not also charged in

connection with Section 202 projects for the elderly and disabled. The

commenter claimed much more time and effort go into the underwriting of

such projects.

HUD Response: The Section 202/811 Capital Advance Program does not

involve mortgage insurance. This program provides funding to nonprofit

organizations that house the elderly and persons with disabilities, two

under-served segments of the general housing population. Since the

funding comes directly from the Department, there is no reason to

charge any processing fees. Further, the Department recognizes that the

program is labor intensive and has established a working group to look

at ways to streamline the program.

C. Other Matters

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)) has reviewed and approved this rule, and in so doing

certifies that this rule will not have a significant economic impact on

a substantial number of small entities. The economic impact of this

rule is not significant, and affects small and large entities equally.

Environment

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,

the policies and procedures contained in this rule relate only to

internal administrative procedures whose content does not constitute a

development decision nor affect the physical condition of project areas

on building sites 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 do not have federalism implications and, thus,

are not subject to review under the order. No programmatic or policy

changes result from its promulgation which would affect the existing

relationship between the federal government and state and local

government.

[[Page 14414]]

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 232

Fire prevention, Health facilities, Loan programs--health, Loan

programs--housing and community development, Mortgage insurance,

Nursing homes, Reporting and recordkeeping requirements.

24 CFR Part 241

Energy conservation, Home improvement, Loan programs--housing and

community development, Mortgage insurance, Reporting and recordkeeping

requirements, Solar energy.

Accordingly, 24 CFR parts 200, 232, and 241 are amended as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

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

follows:

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

2. The text of Sec. 200.40 is added to read as follows:

Sec. 200.40 HUD fees.

The following fees apply to mortgages to be insured under this

part.

(a) Application fee--SAMA letter (for new construction). An

application fee of $1 per thousand dollars of the requested mortgage

shall accompany the application for a SAMA letter. An additional fee of

$1 per thousand dollars of the requested mortgage amount shall be

charged for the review of plans and specifications.

(b) Application fee--feasibility letter (for substantial

rehabilitation). An application fee of $3 per thousand dollars of the

requested mortgage amount shall accompany the application for a

feasibility letter.

(c) Application fee--conditional commitment. For a mortgage being

insured under section 223(f) of the Act (12 U.S.C. 1715n), an

application-commitment fee of $3 per thousand dollars of the requested

mortgage amount shall accompany an application for conditional

commitment. For a mortgage being insured under section 242 of the Act

(12 U.S.C. 1715z-7), an application fee of $1.50 per thousand dollars

of the amount loaned shall be paid to the Commissioner at the time the

hospital proposal is submitted to the Secretary of Health and Human

Services for approval.

(d) Application fee--firm commitment: General. (1) Except as

provided in paragraph (d)(2) of this section, an application for firm

commitment shall be accompanied by an application-commitment fee which,

when added to any prior fees received in connection with applications

for a SAMA letter or a feasibility letter will aggregate $5 per

thousand dollars of the requested mortgage amount to be insured. The

payment of an application-commitment fee shall not be required in

connection with an insured mortgage involving the sale by the

government of housing or property acquired, held or contracted pursuant

to the Atomic Energy Community Act of 1955 (42 U.S.C. 2301 et seq.).

(2) Application fee--firm commitment: Hospitals. A firm-commitment

fee which, when added to the application fee, shall aggregate $3 per

thousand dollars of the amount of the loan set forth in the firm

commitment shall be paid within 30 days after the date of the

commitment. If the payment of a commitment fee is not received by the

Commissioner within 30 days after the date of issuance of the

commitment, the commitment shall expire on the 30th day.

(e) Inspection fee. (1) In general. The firm commitment may provide

for the payment of an inspection fee in an amount not to exceed $5 per

thousand dollars of the commitment. If an inspection fee is required,

it shall be paid as follows:

(i) If the case involves insurance of advances, at the time of

initial endorsement; or

(ii) If the case involves insurance upon completion, before the

date construction is begun.

(2) Existing projects. For a mortgage being insured under section

223(f) of the Act, if the application provides for the completion of

repairs, replacements and/or improvements (repairs), the Commissioner

will charge an inspection fee equal to one percent (1%) of the cost of

the repairs. However, where the Commissioner determines the cost of

repairs is minimal, the Commissioner may establish a minimum inspection

fee that exceeds one percent of the cost of repairs and can

periodically increase or decrease this minimum fee.

(f) Fees on increases--(1) In general. Paragraph (f)(1) of this

section applies to all applications except applications involving

hospitals.

(i) Increase in firm commitment before endorsement. An application,

filed before initial endorsement (or before endorsement in a case

involving insurance upon completion), for an increase in the amount of

an outstanding firm commitment shall be accompanied by a combined

additional application and commitment fee. This combined additional fee

shall be in an amount which will aggregate $5 per thousand dollars of

the amount of the requested increase. If an inspection fee was required

in the original commitment, an additional inspection fee shall be paid

in an amount computed at the same dollar rate per thousand dollars of

the amount of increase in commitment as was used for the inspection fee

required in the original commitment. When insurance of advances is

involved, the additional inspection fee shall be paid at the time of

initial endorsement. When insurance upon completion is involved, the

additional inspection fee shall be paid before the date construction is

begun or if construction has begun, it shall be paid with the

application for increase.

(ii) Increase in mortgage between initial and final endorsement.

Upon an application, filed between initial and final endorsement, for

an increase in the amount of the mortgage, either by amendment or by

substitution of a new mortgage, a combined additional application and

commitment fee shall accompany the application. This combined

additional fee shall be in an amount which will aggregate $5 per

thousand dollars of the amount of the increase requested. If an

inspection fee was required in the original commitment, an additional

inspection fee shall accompany the application in an amount not to

exceed the $5 per thousand dollars of the amount of the increase

requested.

(iii) Loan to cover operating losses. In connection with a loan to

cover operating losses (see Sec. 200.22), a

[[Page 14415]]

combined application and commitment fee of $5 per thousand dollars of

the amount of the loan applied for shall be submitted with the

application for a firm commitment. No inspection fee shall be required.

(2) Hospitals. Paragraph (f)(2) of this section applies to

applications in connection with a mortgage to be insured under section

242 of the Act.

(i) Increase in commitment prior to endorsement. Upon an

application, filed prior to initial endorsement (or prior to

endorsement in a case involving insurance upon completion), for an

increase in the amount of an outstanding commitment, an additional

application fee of $1.50 per thousand dollars computed on the amount of

the increase requested shall accompany the application. Any increase in

the amount of a commitment shall be subject to the payment of an

additional commitment fee which, when added to the additional

application fee, will aggregate $3 per thousand dollars of the amount

of the increase. The additional commitment fee shall be paid within 30

days after the date of the amended commitment. If the additional

commitment fee is not paid within 30 days, the commitment for the

increased amount will expire and the previous commitment will be

reinstated. If an inspection fee was required in the original

commitment, an additional inspection fee shall be paid in an amount not

to exceed $5 per thousand dollars of the amount of increase in

commitment. Where insurance of advances is involved, the additional

inspection fee shall be paid at the time of initial endorsement. Where

insurance upon completion is involved, the additional inspection fee

shall be paid prior to the date construction is begun or within 30 days

after the date of the issuance of the amended commitment, if

construction has begun.

(ii) Increase in mortgage between initial and final endorsement.

Upon an application, filed between initial and final endorsement, for

an increase in the amount of the mortgage, either by amendment or by

substitution of a new mortgage, an additional application fee of $1.50

per thousand dollars computed on the amount of the increase requested

shall accompany the application. The approval of any increase in the

amount of the mortgage shall be subject to the payment of an additional

commitment fee which, when added to the additional application fee,

will aggregate $3 per thousand dollars of the amount of the increase

granted. If an inspection fee was required in the original commitment,

an additional inspection fee shall be paid in an amount not to exceed

$5 per thousand dollars of the amount of the increase granted. The

additional commitment and inspection fees shall be paid within 30 days

after the increase is granted.

(g) Reopening of expired commitments. An expired commitment may be

reopened if a request for reopening is received by the Commissioner

within 90 days of the expiration of the commitment. The reopening

request shall be accompanied by a fee of 50 cents per thousand dollars

of the amount of the expired commitment. If the reopening request is

not received by the Commissioner within the required 90-day period, a

new application, accompanied by the required application and commitment

fee, must be submitted.

(h) Transfer fee. Upon application for approval of a transfer of

physical assets or the substitution of mortgagors, a transfer fee of 50

cents per thousand dollars shall be paid on the original face amount of

the mortgage in all cases, except that a transfer fee shall not be paid

where both parties to the transfer transaction are nonprofit

organizations.

(i) Refund of fees. If the amount of the commitment issued or

increase in mortgage granted is less than the amount applied for, the

Commissioner shall refund the excess amount of the application and

commitment fees submitted by the applicant. If an application is

rejected before it is assigned for processing, or in such other

instances as the Commissioner may determine, the entire application and

commitment fee or any portion thereof may be returned to the applicant.

Commitment, inspection and reopening fees may be refunded, in whole or

in part, if it is determined by the Commissioner that there is a lack

of need for the housing or that the construction or financing of the

project has been prevented because of condemnation proceedings or other

legal action taken by a governmental body or public agency, or in such

other instances as the Commissioner may determine. A transfer fee may

be refunded only in such instances as the Commissioner may determine.

(j) Fees not required. The payment of an application, commitment,

inspection, or reopening fee shall not be required in connection with

the insurance of a mortgage involving the sale by the Secretary of any

property acquired under any section or title of the Act.

3. The text of Sec. 200.45 is added to read as follows:

Sec. 200.45 Processing of applications.

(a) Preapplication conference. Except for mortgages insured under

section 241(f) or 242 of the Act, the local HUD Office will determine

whether participation in such a conference is required as a condition

to submission of an initial application for either a site appraisal and

market analysis (SAMA) letter (for new construction), a feasibility

letter (for substantial rehabilitation), or for a firm commitment. The

project sponsor may elect (after the preapplication conference if

required) to submit an application for a SAMA or a feasibility letter

(as appropriate), or for a firm commitment for insurance depending upon

the completeness of the drawings, specifications and other required

exhibits. An application for a SAMA or feasibility letter may be

submitted by the project sponsor. An application for a firm commitment

for insurance must be submitted by both the project sponsor and an

approved mortgagee. Applications shall be submitted to the local HUD

Office on HUD-approved forms. No application will be considered unless

accompanied by all exhibits required by the form and program handbooks.

At the option of the local HUD Office, the SAMA/Feasibility letter

stage of processing can be combined with the firm commitment stage of

processing.

(b) Firm commitment requirement. An application for a firm

commitment must be made by an approved mortgagee for any project for

which a mortgagor seeks mortgage insurance under the Act.

(c) Staged applications. Staged applications leading to an

application for firm commitment shall be made as determined appropriate

by the Commissioner, and in accordance with such terms and conditions

established by the Commissioner. The intermediate stages to firm

commitment may include a site appraisal and market analysis (SAMA)

letter stage or a feasibility letter stage and a conditional

commitment. The conditional commitment stage applies only to mortgages

to be insured pursuant to section 223(f) of the Act.

(d) Effect of SAMA letter, feasibility letter, and firm

commitment--(1) SAMA letter. (i) The issuance of a SAMA letter

indicates completion of the site appraisal and market analysis stage to

determine initial acceptability of the site and recognition of a

specific market need. The SAMA letter is not a commitment to insure a

mortgage for the proposed project and does not bind the Commissioner to

issue a firm commitment to insure. The SAMA letter precedes the later

submission of acceptable plans and specifications for the proposed

project and is limited to advising the applicant as to the following

determinations of the Commissioner, which shall not be

[[Page 14416]]

changed to the detriment of an applicant, if the application for a firm

commitment is received before expiration of the SAMA letter:

(A) The land value fully improved (with off-site improvements

installed);

(B) The acceptability of the proposed project site, the proposed

composition, number and size of the units and the market for the number

of proposed units. Where the application is not acceptable as

submitted, but can be made acceptable by a change in the number, size,

or composition of the units, the SAMA letter may establish the specific

lesser number of units which would be acceptable and any acceptable

alternative plan for the composition and size of units; and

(C) The acceptability of the unit rents proposed. Where rent levels

are unacceptable, the SAMA letter may establish specific rents which

are acceptable.

(ii) After receiving a SAMA letter, the sponsor shall submit design

drawings and specifications in a timeframe prescribed by the

Commissioner. The Commissioner will review and comment on design

development and the drawings and specifications. The comments will be

provided to the sponsor for use in preparing a firm commitment

application.

(2) Feasibility letter. The issuance of a feasibility letter

indicates approval of the preliminary work write-up and outline

specifications and completion of technical processing involving the

estimated rehabilitation cost of the project, the ``as is'' value of

the site, the detailed estimates of operating expenses and taxes, the

specific unit rents, the vacancy allowance, and the estimated mortgage

amount. The issuance of a feasibility letter is not a commitment to

insure a mortgage for the proposed project and does not bind the

Commissioner to issue a firm commitment to insure. Determinations found

in a feasibility letter are not to be binding upon the Department and

may be changed in whole or in part at any later point in time. The

letter may even be unilaterally terminated by the Commissioner if found

necessary.

(3) Conditional commitment. The issuance of a Section 223(f)

conditional commitment indicates completion of technical processing

involving the estimated value of the property, the detailed estimates

of rents, operating expenses and taxes and an estimated mortgage

amount.

(e) Term of SAMA letter, feasibility letter, and conditional

commitment. A SAMA letter, a feasibility letter, and a conditional

commitment shall be effective for whatever term is specified in the

respective letter or commitment.

(f) Rejection of an application. A significant deviation in an

application from the Commissioner's terms or conditions in an earlier

stage application commitment or agreement shall be grounds for

rejection. The fees paid to such date shall be considered as having

been earned notwithstanding such rejection. (Approved by the Office of

Management and Budget under control number 2502-0029.)

PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE

FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES.

4. The authority citation 24 CFR part 232 is revised to read as

follows:

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

5. Section 232.906 is revised to read as follows:

Sec. 232.906 Processing of applications and required fees.

(a) Processing of applications. The local HUD Office will determine

whether participation in a preapplication conference is required as a

condition to submission of an initial application for either a

conditional or firm commitment. After the preapplication conference an

application for a conditional or firm commitment for insurance of a

mortgage on a project shall be submitted by the sponsor and an approved

mortgagee. Such application shall be submitted to the local HUD Office

on a HUD approved form. An application may, at the option of the

applicant, be submitted for a firm commitment omitting the conditional

commitment stage. No application shall be considered unless accompanied

by all exhibits required by the form and program handbooks. An

application may be made for a commitment which provides for the

insurance of the mortgage upon completion of any improvements or for a

commitment which provides, in accordance with standards established by

the Commissioner, for the completing of specified repairs and

improvements after endorsement.

(b) Application fee--conditional commitment. An application-

commitment fee of $3 per thousand dollars of the requested mortgage

amount shall accompany an application for conditional commitment.

(c) Application fee--firm commitment. An application for firm

commitment shall be accompanied by an application-commitment fee of $5

per thousand dollars of the requested mortgage amount to be insured

less any amount previously received for a conditional commitment.

(d) Inspection fee. Where an application provides for the

completion of repairs, replacements and/or improvements (repairs), the

Commissioner will charge an inspection fee equal to one percent (1%) of

the cost of the repairs. However, where the Commissioner determines the

cost of repairs is minimal, the Commissioner may establish a minimum

inspection fee that exceeds one percent of the cost of repairs and can

periodically increase or decrease this minimum fee.

(e) Cross-reference. The provisions of paragraphs (f)(1) (Fee on

increases), (g) (Reopening of expired commitments), (h) (Transfer fee),

(i) (Refund of fees), and (j) (Fees not required) of Sec. 200.40 of

this chapter apply to applications submitted under subpart E of this

part.

PART 241-- SUPPLEMENTARY FINANCING FOR INSURED PROJECT MORTGAGES

6. The authority citation for part 241 continues to read as

follows:

Authority: 12 U.S.C. 1715b, 1715z-6; 42 U.S.C. 3535(d).

7. Section 241.505 is revised to read as follows.

Sec. 241.505 Processing of applications and required fees.

(a) Preapplication conference. The local HUD Office will determine

whether participation in a preapplication conference is required as a

condition to submission of an initial application for a firm commitment

for insurance of an energy savings improvement loan on a project. An

application for a firm commitment for insurance must be submitted by

both the project sponsor and an approved lender. Applications shall be

submitted to the local HUD Office on HUD-approved forms. No application

will be considered unless accompanied by all exhibits required by the

form and program handbooks.

(b) Application for firm commitment. An application for a firm

commitment shall be accompanied by the payment of an application fee of

$5 per thousand dollars of the requested loan amount to be insured.

(c) Cross-reference. The provisions of paragraphs (e) (Inspection

fee), (f)(1) (Fee on increases), (g) (Reopening of expired

commitments), (i) (Refund of fees), and (j) (Fees not required) of

Sec. 200.40 of this chapter apply to

[[Page 14417]]

applications submitted under subpart E of this part.

8. Section 241.510 is revised to read as follows:

Sec. 241.510 Commitments

(a) Firm Commitment. The issuance of a firm commitment indicates

the Commissioner's approval of the application for insurance and sets

forth the terms and conditions upon which the loan will be insured.

(b) Types of firm commitment. (1) Where the amount of the loan is

$250,000 or more, the firm commitment may provide for the insurance of

advances of loan money made during construction or may provide for the

insurance of the loan after completion of the improvements.

(2) Where the amount of the loan is less than $250,000, the firm

commitment shall provide for insurance of the loan after completion of

the improvements.

(c) Term of commitment. (1) A firm commitment to insure advances

shall be effective for a period of not more than 60 days from the day

of issuance.

(2) A firm commitment to insure upon completion shall be effective

for a designated term within which the borrower is required to begin

construction, and if construction is begun as required, the commitment

shall be effective for such additional period, estimated by the

Commissioner, as will allow for completion of construction.

(3) The term of a firm commitment may be extended in such a manner

as the Commissioner may prescribe.

9. Section 241.640 is revised to read as follows:

Sec. 241.640 Employment discrimination prohibited.

Any contract or subcontract executed for the performance of

constructing the improvements to the project shall provide that there

shall be no discrimination against any employee or applicant for

employment because of race, color, religion, sex, familial status,

disability, age, or national origin.

10. Section 241.1015 is revised to read as follows:

Sec. 241.1015 Processing of applications and required fees.

(a) Application. An application for the issuance of a firm

commitment for insurance of an equity or acquisition loan on a project

shall be submitted by an approved lender and by the owner or purchaser

of the project to the Commissioner on a form prescribed by the

Commissioner. No application shall be considered unless the exhibits

called for by such forms are furnished.

(b) Commitment Fees. An application for a firm commitment shall be

accompanied by the payment of an application-commitment fee of $5.00

per thousand dollars of the requested loan amount to be insured.

11. Section 241.1020 is revised to read as follows:

Sec. 241.1020 Commitments.

(a) Firm Commitment. The issuance of a firm commitment indicates

the Commissioner's approval of the application for insurance and sets

forth the terms and conditions upon which the equity or acquisition

loan will be insured. The firm commitment may provide for the insurance

of advances of the equity or acquisition loan immediately upon

endorsement of the note.

(b) Term of Commitment. (1) A firm commitment is effective for

whatever term is specified in the text of the commitment.

(2) The term of a firm commitment may be extended in such manner as

the Commissioner may prescribe.

(c) Reopening of expired commitments. An expired firm commitment

may be reopened if a request for reopening is received by the

Commissioner within 90 days of the expiration of the commitment. The

reopening request shall be accompanied by a fee of 50 cents per

thousand dollars of the amount of the expired commitment. If the

reopening request is not received by the Commissioner within the

required 90-day period, a new application, accompanied by the required

application and commitment fee, must be submitted.

Date: March 22, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing--Federal Housing Commissioner.

[FR Doc. 96-7640 Filed 3-29-96; 8:45 am]

BILLING CODE 4210-27-P