Single Family Mortgage Insurance; Clarification of Floodplain Requirements Applicable to New Construction

SUMMARY: This final rule adopts revisions to HUD's regulations

concerning flood hazard exposure and single family mortgage insurance

published for public comment in a proposed rule on April 30, 1999.

These revisions provide mortgagees with an additional means of

complying with HUD's single family flood hazard regulations and clarify

a number of provisions in HUD's single family mortgage insurance

regulations. HUD considered the comments received on the April 30, 1999

proposed rule, but is adopting the revisions published in the proposed

rule without change.

DATES: Effective Date: November 15, 1999.

FOR FURTHER INFORMATION CONTACT: Mark Holman, Chief, Mortgage

Underwriting and Insurance Branch, Office of Insured Single Family

Housing, U.S. Department of Housing and Urban Development, 451 Seventh

Street, SW, Room 9270, Washington, DC 20410-8000; telephone (202) 708-

2121 (this is not a toll-free telephone number). Hearing-or speech-

impaired persons may access this number via TTY by calling the toll-

free Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

a. The April 30, 1999 Proposed Rule

On April 30, 1999, HUD published a rule (64 FR 23480) for public

comment that proposed certain revisions to HUD's regulations concerning

flood hazard exposure and single family mortgage insurance. The

revisions permit mortgagees to obtain an Elevation Certificate as an

alternative to a final Letter of Map Amendment or Revision for

submission with the Builder's Certification of Plans, Specifications,

and Site when property improvements are located in a Special Flood

Hazard Area. The revisions clarify that all provisions of

Sec. 200.926d(c)(4) apply to one- to four-unit homes and to

communities, whether or not the community has adopted criteria for site

development. The revisions also clarify that structures are subject to

the same elevation requirements, whether or not they have basements.

Finally, the revisions remove obsolete provisions concerning

subdivisions and improved area processing and make a number of

conforming changes.

b. This Final Rule

This final rule adopts the revisions published in the April 30,

1999 proposed rule without change. The public comment period for the

proposed rule closed on June 29, 1999. HUD received 14 comments.

Commenters included trade associations, government agencies, lending

institutions, and housing developers. HUD appreciates the suggestions

offered by commenters and carefully considered the issues raised by

them. For the reasons discussed below, however, we have chosen not to

implement these suggestions. This section of the preamble presents a

summary of the issues raised by the public commenters and HUD's

responses to their comments.

Comment--Require submission of other evidence of compliance in

addition to elevation certificate. One commenter wrote that an

elevation certificate (EC) alone does not document compliance with

National Floodplain Insurance Program (NFIP) floodplain management

requirements. The commenter suggested that the final rule require, in

addition to an elevation certificate, the submission of other evidence

from the community that indicates that property improvements comply

with the community's floodplain management regulations. The commenter

listed a number of documents that could be required to satisfy this

requirement, including a building permit and a certificate of occupancy

issued by the community.

HUD Response. HUD agrees that the EC alone does not document

compliance with NFIP floodplain management requirements. We do not

believe, however, that it is necessary to require additional

documentation of compliance because local procedures already require

these documents. For example, it is absolutely necessary for a builder

to obtain a building permit from local authorities before construction

commences. Similarly, all properties submitted to HUD for endorsement

must have been issued an occupancy permit by local authorities prior to

submission. Requiring these additional documents, therefore, is

unnecessary, would be a duplication of effort, and would run counter to

the principle of streamlining government processes.

Comment--Required flood insurance that is lesser of the outstanding

balance of the mortgage, value of building, or maximum amount of NFIP

insurance available. One commenter was concerned about the language in

Sec. 203.16a(c) that states that flood insurance must be maintained in

an amount equal to either ``the outstanding balance of the mortgage,

less estimated land costs, or the maximum amount of the NFIP insurance

available with respect to the property improvements, whichever is

less.'' The commenter wrote that subtracting the estimated land cost

from the outstanding balance of the mortgage could result in situations

where no flood insurance is required on a mortgaged building. The

commenter suggested requiring that the amount of flood insurance be at

least equal to the lesser of the outstanding balance of the mortgage,

the value of the building, or the maximum amount of NFIP insurance

available.

HUD Response. While HUD appreciates the commenter's suggestion, the

provision contained in Sec. 203.16a(c) is not a direct subject of this

rulemaking. Consequently, we have not made any changes in response to

this comment. HUD, however, will consider this issue as a subject for a

future rulemaking.

Comment--HUD should conduct eight-step analysis required by

Executive Order 11988. One commenter wrote that the proposed rule, in

effect, waives the full eight-step process required by Executive Order

11988 (entitled ``Floodplain Management'') for individual mortgage

transactions. The commenter suggested that HUD should perform an

analysis applying the eight-step process to the transactions covered

under the proposed rule. The commenter suggested that the analysis

should balance the adverse impacts of placing fill in some floodplains

against any benefits of the current rule in discouraging floodplain

development by requiring letters of map amendment (LOMA) and letters of

map revision (LOMR).

HUD Response. The commenter has misinterpreted HUD's regulations.

The FHA single family mortgage insurance program, both for new

construction (which this rule addresses) as well as for existing

construction, is not subject to the requirements of Executive Order

11988. HUD regulations at 24 CFR part 55 specifically address our

responsibilities and procedures regarding the Executive Order. Prior to

1993, single family new construction

[[Page 56109]]

was analyzed in an environmental assessment, which included the

requirements of the Executive Order's eight-step analysis through HUD

subdivision processing procedures. However, we terminated subdivision

processing and approval in 1993. Currently, all applications for

mortgage endorsement (insurance) are submitted to HUD by lenders after

the structure has been built and the applicable local entity has

determined that it meets floodplain and other requirements.

Comment--Clarify when flood insurance must be purchased. One

commenter wrote that the preamble to the proposed rule was not clear

about when flood insurance must be purchased. The commenter suggested

that the preamble to the final rule should clarify that flood insurance

must be purchased when an EC is submitted, but not when a LOMA or LOMR

is submitted.

HUD Response. The commenter's understanding about when flood

insurance must be purchased is correct. Whenever an EC is utilized, it

indicates that improvements are in the base floodplain, and, therefore,

flood insurance is mandatory. HUD will make this requirement clear in

its processing documents and will advise lenders by issuing a Mortgagee

Letter.

Comment--Clarify rule and extend comment period. Two commenters

urged HUD to clarify the proposed rule and requested that HUD extend

the comment period in order to accomplish this.

HUD Response. The commenters did not specify what aspects of the

proposed rule needed clarification, and they gave no other

justification for extending the comment period. Therefore, we have not

extended the comment period. It is important to note, however, that we

accepted and considered all comments received on the proposed rule,

including those that were received shortly after the close of the

comment period.

Comment--Permit mortgage insurance in those portions of alluvial

fans that pose the same or less risk as riverine special flood hazards.

A number of commenters suggested that HUD should treat alluvial fans

that pose the same or less risk as riverine special flood hazards the

same as riverine special flood hazards for the purpose of issuing FHA

mortgage insurance. These commenters wrote that these areas pose no

more severe a threat than do riverine areas, and addressing them in the

final rule will open up many areas to affordable housing that have

previously been closed. Two commenters suggested certain additional

engineering certification requirements for allowing construction on

alluvial fans.

HUD Response. HUD appreciates these commenters' concern for

building affordable housing. Specific provisions concerning alluvial

fans, however, are not the subject of this rulemaking. HUD's

prohibition on mortgage insurance for properties in alluvial fans is

based on the hazard posed by location in an alluvial fan and is not

dependent on the availability from the Federal Emergency Management

Agency (FEMA) of a LOMA or LOMR, which is no longer required under this

rule. Adding provisions to specifically address alluvial fans in this

rule would require the publication of a new proposed rule for public

comment, which would delay the publication of this final rule. In

addition, any decision to permit alluvial fans would require serious

and detailed engineering and hydrological studies and analysis. These

studies, of FEMA identified and designated alluvial fan areas, would be

extremely time consuming and costly to conduct on a ``area by area''

basis. The reliance on certifications would be meaningless until such

time as FEMA completes their currently ongoing studies of alluvial fans

and makes a formal determination and issues guidance, requirements, and

regulations regarding the safety aspects of alluvial fans that should

be considered and taken into account. For the preceding reasons, we

have decided not to specifically address alluvial fans in this

rulemaking and have decided to proceed with the publication of this

final rule.

Comment--Add provision acknowledging Voluntary Affirmative

Marketing Agreement. One commenter suggested adding the following

language to Sec. 203.12(b)(3) at the end of the first paragraph:

In lieu of submission of an Affirmative Fair Housing Marketing

Plan, if the builder or developer is, either through a state or

local home builder association or directly, a signatory to the

Voluntary Affirmative Marketing Agreement (VAMA) between HUD and the

National Association of Home Builders, the builder or developer may

meet the requirement of this section by certifying to this effect on

the Builder's Certification of Plans, Specifications and Site.

HUD Response. While HUD appreciates the commenter's suggestion, the

suggestion is outside the scope of this rulemaking. However, it should

be noted that the provision that the commenter suggests is already part

of HUD procedures. Box 11 of the Builder's Certification of Plans,

Specifications, & Site allows a builder to certify that they are a

signatory in good standing to a Voluntary Affirmative Marketing

Agreement in lieu of submission of an Affirmative Fair Housing

Marketing Plan.

Comment--Include ``back-to-back'' units in Sec. 200.926(a)(1). One

commenter suggested that the language in Sec. 200.926(a)(1) be expanded

to include units that are ``back-to-back'' as well as units that are

``side-to-side.'' The commenter suggested using the language ``where

the units are joined in some manner with adjacent living units.''

HUD Response. We have reviewed this suggestion, but do not believe

any change or additional language is necessary. Section 200.926 applies

to any one- to four-family structure, regardless of whether it is side-

by-side, back-to-back, stacked, or configured as a duplex, triplex, or

fourplex.

II. Findings and Certifications

Environmental Impact

A Finding of No Significant Impact (FONSI) with respect to the

environment has been 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 (42 U.S.C. 4332). The FONSI is

available for public inspection and copying between 7:30 a.m. and 5:30

p.m. weekdays at the Office of the Rules Docket Clerk, Room 10276, 451

Seventh Street, SW, Washington, DC 20410.

Paperwork Reduction Act Statement

The information collection requirement contained at Sec. 203.12 of

this final rule has been approved by the Office of Management and

Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3501-3520) and assigned OMB control number 2502-0496. 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.

Regulatory Flexibility Act

The Secretary, in accordance with section 3(a) of the Regulatory

Flexibility Act (5 U.S.C. 605(b)), has reviewed this final rule before

publication, and by approving it certifies that this rule would not

have a significant economic impact on a substantial number of small

entities.

This final rule serves two primary purposes. First, it allows

mortgagees greater flexibility by permitting them to comply with

floodplain requirements through the submission of an additional type of

document. Second, the final rule

[[Page 56110]]

removes obsolete provisions and makes clarifying amendments to the

regulations. These changes reflect HUD's current interpretation of its

regulations and would not increase the regulations' burden. These

changes are being made in order to make the regulations clearer and

more accurate.

Federalism

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

of Executive Order 12612 (entitled ``Federalism''), has determined that

the policies contained in this final rule do not have substantial

direct effects on States or their political subdivisions, on the

relationship between the Federal Government and the States, or on the

distribution of power and responsibilities among the various levels of

government.

III. 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 203

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

housing and community development, Mortgage insurance, Reporting and

recordkeeping requirements, Solar energy.

24 CFR Part 234

Condominiums, Mortgage insurance, Reporting and recordkeeping

requirements.

PART 200--INTRODUCTION TO FHA PROGRAMS

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

PART 234--CONDOMINIUM OWNER MORTGAGE INSURANCE

For the reasons stated in the preamble, HUD amends 24 CFR parts

200, 203, and 234 as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

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).

2. Revise Sec. 200.926(a)(1) to read as follows:

Sec. 200.926 Minimum property standards for one and two family

dwellings.

(a) * * * (1) Applicable structures. The standards identified or

contained in this section, and in Secs. 200.926a-200.926e, apply to

single family detached homes, duplexes, three-unit homes, and to living

units in a structure where the units are located side-by-side in town

house fashion. Section 200.926d(c)(4) also applies to four-unit homes.

* * * * *

3. Amend Sec. 200.926d as follows:

a. Revise paragraph (c)(1)(ii);

b. Revise paragraph (c)(1)(iii);

c. Revise paragraph (c)(4)(iv); and

d. Remove paragraph (c)(4)(vii):

Sec. 200.926d Construction requirements.

* * * * *

(c) * * *

(1) * * *

(ii) With the exception of paragraph (c)(4) of this section, these

site design standards apply only in communities that have not adopted

criteria for site development applicable to one and two family

dwellings.

(iii) Single family detached houses situated on individual lots

located on existing streets with utilities need not comply with the

requirements of paragraphs (c)(2) and (c)(3) of this section.

* * * * *

(4) * * *

(iv)(A) In all cases in which a Direct Endorsement (DE) mortgagee

or a Lender Insurance (LI) mortgagee seek to insure a mortgage on a

newly constructed one-to four-family dwelling (including a newly

erected manufactured home) that was processed by the DE or LI

mortgagee, the DE or LI mortgagee must determine whether the property

improvements (dwelling and related structures/equipment essential to

the value of the property and subject to flood damage) are located in a

100-year floodplain, as designated on maps of the Federal Emergency

Management Agency. If so, the DE mortgagee, before submitting the

application for insurance to HUD, or the LI mortgagee, before

submitting all the required data regarding the mortgage to HUD, must

obtain:

(1) A final Letter of Map Amendment (LOMA);

(2) A final Letter of Map Revision (LOMR); or

(3) A signed Elevation Certificate documenting that the lowest

floor (including basement) of the property improvements is built at or

above the 100-year flood elevation in compliance with National Flood

Insurance program criteria 44 CFR 60.3 through 60.6.

(B) Under the DE program, these mortgages are not eligible for

insurance unless the DE mortgagee submits the LOMA, LOMR, or Elevation

Certificate to HUD with the mortgagee's request for endorsement.

* * * * *

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

4. 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).

5. Revise Sec. 203.12 to read as follows:

Sec. 203.12 Mortgage insurance on proposed or new construction.

(a) Applicability. This section applies to an application for

insurance of a mortgage on a one-to four-family dwelling, unless the

mortgage will be secured by a dwelling that:

(1) Was completed more than one year before the date of the

application for insurance or, under the Direct Endorsement Program, was

completed more than one year before the date of the appraisal; or

(2) Is being sold to a second or subsequent purchaser.

(b) Procedures. (1) Applications for insurance to which this

section applies will be processed in accordance with procedures

prescribed by the Secretary. These procedures may only provide for

endorsement for insurance of a mortgage covering a dwelling that is:

(i) Approved under the Direct Endorsement Program or the Lender

Insurance Program; or

(ii) Located in a subdivision approved by the Rural Housing

Service.

(2) The mortgagee must submit a signed Builder's Certification of

Plans, Specifications and Site (Builder's Certification). The Builder's

Certification must be in a form prescribed by the Secretary and must

cover:

(i) Flood hazards;

(ii) Noise;

(iii) Explosive and flammable materials storage hazards;

(iv) Runway clear zones/clear zones;

(v) Toxic waste hazards;

(vi) Other foreseeable hazards or adverse conditions (i.e., rock

formations, unstable soils or slopes, high ground water levels,

inadequate surface drainage, springs, etc.) that may affect the health

and safety of the occupants or the structural soundness of

[[Page 56111]]

the improvements. The Builder's Certification must be provided to the

appraiser for reference before the performance of an appraisal on the

property.

(3) If a builder (or developer) intends to sell five or more

properties in a subdivision, an Affirmative Fair Housing Marketing Plan

(AFHMP) that meets the requirements of 24 CFR part 200, subpart M must

be submitted and approved by HUD no later than the date of the first

application for mortgage insurance in that subdivision. Thereafter,

applications for insurance on other properties sold by the same builder

(or developer) in the same subdivision may make reference to the

existing previously approved AFHMP.

6. Revise Sec. 203.16a to read as follows:

Sec. 203.16a Mortgagor and mortgagee requirement for maintaining flood

insurance coverage.

(a) If the mortgage is to cover property improvements (dwelling and

related structures/equipment essential to the value of the property and

subject to flood damage) that:

(1) Are located in an area designated by the Federal Emergency

Management Agency (FEMA) as a floodplain area having special flood

hazards, or

(2) Are otherwise determined by the Commissioner to be subject to a

flood hazard, and if flood insurance under the National Flood Insurance

Program (NFIP) is available with respect to these property

improvements, the mortgagor and mortgagee shall be obligated, by a

special condition to be included in the mortgage commitment, to obtain

and to maintain NFIP flood insurance coverage on the property

improvements during such time as the mortgage is insured.

(b) No mortgage may be insured that covers property improvements

located in an area that has been identified by FEMA as an area having

special flood hazards, unless the community in which the area is

situated is participating in the National Flood Insurance Program and

such insurance is obtained by the mortgagor. Such requirement for flood

insurance shall be effective one year after the date of notification by

FEMA to the chief executive officer of a flood prone community that

such community has been identified as having special flood hazards.

(c) The flood insurance must be maintained during such time as the

mortgage is insured in an amount at least equal to either the

outstanding balance of the mortgage, less estimated land costs, or the

maximum amount of the NFIP insurance available with respect to the

property improvements, whichever is less.

PART 234--CONDOMINIUM OWNER MORTGAGE INSURANCE

7. The authority citation for 24 CFR 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).

Sec. 234.1 [Amended]

8. In Sec. 234.1, remove the words ``Mortgage insurance on proposed

or new construction in a new subdivision'' and add, in their place, the

words ``Mortgage insurance on proposed or new construction''.

* * * * *

Dated: October 8, 1999.

William C. Apgar,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 99-26972 Filed 10-12-99; 3:10 pm]

BILLING CODE 4210-27-P