Termination of an Approved Mortgagee's Origination Approval Agreement

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 201, 202 and 203

[Docket No. FR-4239-F-02]

RIN 2502-AG99

Termination of an Approved Mortgagee's Origination Approval

Agreement

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

Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: On December 10, 1997 (62 FR 65180), the Department issued an

interim rule to clarify and make minor changes to 24 CFR parts 202 and

203. The rule improved the provisions regarding termination of a single

family mortgagee's origination approval agreement with FHA, and

corrected errors in 24 CFR parts 201 and 202. The Department is now

issuing a final rule without change from the interim rule. The

Department is also making a correction to a previous amendment of part

202.

EFFECTIVE DATE: September 17, 1998.

FOR FURTHER INFORMATION CONTACT: Phillip Murray, Director, Office of

Lender Activities and Program Compliance, Department of Housing and

Urban Development, Room B-133-P3214, 451 Seventh Street, SW,

Washington, DC 20410, telephone number (202) 708-1515 (this is not a

toll-free number). A telecommunications device for hearing-and speech-

impaired persons (TTY) is available at (800) 877-8339 (Federal

Information Relay Service).

SUPPLEMENTARY INFORMATION:

Part 202 of title 24 contains the Department's requirements for

approval of lenders and mortgagees for FHA insurance programs. An

interim rule issued on December 10, 1997 (62 FR 65180) amended part 202

to state more clearly the provisions regarding termination of an FHA-

approved single family mortgagee's origination approval agreement

(OAA). The following matters were clarified or changed in

Sec. 202.3(c):

When a mortgagee has a default and claim rate sufficient

to support termination of the OAA under the standards of part 202,

termination is at the discretion of the Secretary even if the

Department in a previous time period could have, but did not, place the

mortgagee on credit watch. This was a clarification of the Department's

existing interpretation.

A mortgagee will not be permitted to apply for a new OAA

for 6 months after termination of an OAA. Previously, there was no

delay required for an application for a new OAA.

Claims and defaults will be measured for 24 months after a

mortgage is insured, instead of the current 18 months for claims and 1

year for defaults.

Language was added to 24 CFR 203.3 and 203.4 that clarified HUD's

existing position that a mortgagee with a terminated OAA also has its

approval under the Direct Endorsement and Lender Insurance programs

terminated without further procedures. The interim rule also corrected

certain errors in parts 201 and 202.

Discussion of Public Comments

The Department received one comment from the public. The commenter

disagreed with the aspect of part 202 that allows HUD to terminate an

OAA based on certain default and claims levels. The commenter argued

that there was an underlying fallacy in the assumption that high

default and claims ratios are evidence of defective lending or

servicing practices by the lender. In addition, the commenter disagreed

with HUD's finding under the Regulatory Flexibility Act that the

interim rule will not have a significant economic impact on a

substantial number of small entities. HUD had invited small servicers

to comment on whether the rule will significantly affect them but no

such comments were received (the commenter is a large bank.)

These comments are not directed to the clarifications and technical

changes to part 202 made by the interim rule, but to provisions added

to part 202 in 1991 after proposed rulemaking. Furthermore, the

commenter wrongly concludes that HUD will terminate an OAA on the basis

of servicing obligations. As part of that proposed rulemaking, the

Department thoroughly considered the basic concept of termination based

on particularly high default and claims rates for originating lenders,

and finds no arguments or information that cause the Department to

reconsider at this time the policy reflected in part 202.

Technical Correction

On April 24, 1997, 62 FR 20080, HUD issued a final rule that

streamlined 24 CFR part 202 and made related changes to other parts of

title 24. As published, the final rule that streamlined 24 CFR part 202

contained some technical errors. These errors were discussed in the

Supplementary Information section of a corrective rule published on

February 26, 1998. However, HUD inadvertently failed to correct one of

the errors discussed in that section, by failing to include the words

``loans or'' in the corrected third sentence of 24 CFR 202.7(a). HUD is

now making that correction.

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 final rule, and in so

doing certifies that this final rule will not have a significant

economic impact on a substantial number of small entities. This final

rule merely clarifies and makes minor changes and corrections to the

existing regulations. The final rule will have no adverse or

disproportionate economic impact on small businesses.

Environmental Impact

This final rulemaking is exempt from the environmental review

procedures under HUD regulations in 24 CFR part 50 that implement

section 102(2)(C) of the National Environmental Policy Act of 1969 (42

U.S.C. 4332) because of the exemption under Sec. 50.19(c)(1). This

final rulemaking simply adopts without change an interim rule that

itself amended existing regulations regarding termination of a

mortgagee's approval to originate insured mortgages and did not alter

the environmental effect of the regulations being amended.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that this final

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. No

programmatic or policy changes will result from this final rule that

would affect the relationship between the Federal Government and State

and local governments.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-

4; approved March 22, 1995) (UMRA) establishes requirements for Federal

agencies to assess the effects of their regulatory actions on State,

local, and tribal governments, and on the private sector. This final

rule does not impose any Federal mandates on any State, local, or

tribal governments, or on the private sector, within the meaning of the

UMRA.

[[Page 44361]]

Executive Order 13045, Protection of Children From Environmental Health

Risks and Safety Risks

This rule will not pose an environmental health risk or safety risk

on children.

Catalog

The Catalog of Federal Domestic Assistance numbers for the programs

affected by this final rule are 14.117 and 14.142.

List of Subjects

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 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.

Accordingly, the interim rule published at 62 FR 65180, December

10, 1997, amending 24 CFR parts 201, 202 and 203 is adopted as final

without change, and part 202 is further amended to read as follows:

PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES

1. The authority citation for part 202 continues to read as

follows:

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

2. Section 202.7 is amended by revising the final sentence of

paragraph (a) to read as follows:

Sec. 202.7 Nonsupervised lenders and mortgagees.

(a) * * * A nonsupervised lender or mortgagee may originate,

purchase, hold, service or sell insured loans or mortgages,

respectively.

* * * * *

Dated: July 29, 1998.

Ira Peppercorn,

General Deputy Assistant Secretary for Housing--Federal Housing

Commissioner.

[FR Doc. 98-22158 Filed 8-17-98; 8:45 am]

BILLING CODE 4210-27-P