Disposition of HUD-Acquired Single Family Property; Final Rule

SUMMARY: On May 29, 1998, HUD published for public comment a proposed

rule that would amend HUD's regulations for the disposition of HUD-

acquired single family properties. Among other amendments, the proposed

rule would provide HUD with the necessary flexibility to use a variety

of innovative, efficient, and cost-effective methods for selling its

inventory of single family properties. HUD's goals are to reduce the

inventory of single family properties while continuing to expand

homeownership opportunities for American families and to ensure the

stability of the Federal Housing Administration (FHA) Mortgage

Insurance Fund. This final rule makes effective the amendments in the

May 29, 1998 proposed rule and takes into consideration the public

comments submitted on the proposed rule.

EFFECTIVE DATE: March 11, 1999.

FOR FURTHER INFORMATION CONTACT: Joseph McCloskey, Director, Single

Family Asset Management Division, Office of Insured Single Family

Housing, Department of Housing and Urban Development, Room 9184, 451

Seventh Street, SW, Washington, DC 20410; telephone number (202) 708-

1672 (this is not a toll-free number). For hearing- and speech-impaired

persons, this number may be accessed via TTY by calling the Federal

Information Relay Service at 1-800-877-8399.

SUPPLEMENTARY INFORMATION:

I. HUD's Single Family Property Disposition Program

Section 204 of the National Housing Act (12 U.S.C. 1710) governs

the Federal Housing Administration (FHA) insurance claim process and

property disposition. Section 204(g) of the National Housing Act

addresses the management and disposition of HUD-acquired single family

properties. HUD's implementing regulations are found in 24 CFR part 291

(entitled ``Disposition of HUD-Acquired Single Family Property'').

Under these statutory and regulatory authorities, HUD is charged with

implementing a program of sales of HUD-acquired properties along with

appropriate credit terms and standards to be used in carrying out the

program. Before issuance of this final rule, HUD's principal method of

selling properties was through HUD-administered competitive sales of

individual properties to individual purchasers.

As previously structured, the competitive sales process was found

to be time consuming and did not always result in the efficient and

prompt delivery of the single family properties to the sales market.

HUD has the largest real estate-owned (REO) operation in the nation,

selling in excess of 50,000 properties each year. While this volume of

property sales represents only a small percentage of the total number

of home sales nationwide, it represents a significant administrative

responsibility for HUD. HUD determined that both HUD and potential

homeowners were disadvantaged by the processing time involved in the

competitive sales process. The longer the properties remain in HUD's

inventory, the more HUD's holding costs increase, and the longer they

remain unavailable as homeownership opportunities for potential

purchasers.

On June 13, 1997 (62 FR 32251), HUD published in the Federal

Register an advance notice of proposed rulemaking (ANPR) to solicit

public comments on more effective and efficient methods of disposing of

HUD-owned single family properties. The ANPR suggested that proposed

methods could include bulk sales of current inventory or future

acquisitions on a regional or national basis, or arrangements similar

to joint ventures, profit-sharing arrangements, or private-public

partnerships. In addition to soliciting comments through the ANPR

published in the Federal Register, HUD requested public input through a

notice published in the following newspapers: The Washington Post, The

New York Times, The Wall Street Journal, Barron's, and U.S.A. Today.

II. The May 29, 1998 Proposed Rule

On May 29, 1998 (63 FR 29496), after consideration of the public

comments received on the June 13, 1997 ANPR, HUD published for public

comment a proposed rule to amend its regulations at 24 CFR part 291.

(The preamble to the May 29, 1998 proposed rule contained a detailed

summary of the public comments received on the ANPR, and HUD's

responses to these comments (see 63 FR 29496, 29497-29498)).

The May 29, 1998 proposed rule provided as its primary proposal

that HUD would no longer limit itself to a primary method for the

disposition of its single family properties. The proposed rule provided

that HUD may, in its discretion, on a case-by-case basis or as a

regular course of its business, choose from a variety of sales methods.

These methods may include competitive sales to individuals, direct

sales, bulk sales, and other sales as determined necessary by the

Secretary.

The May 29, 1998 proposed rule also amended 24 CFR part 291 to

introduce for public comment an innovative and cost-effective sales

method, known as the REO acquisition method. Under this sales method,

HUD will invite interested entities to participate in a competitive

selection process for the right and obligation to acquire properties

designated by HUD. These designated properties would consist primarily

of properties that would otherwise come into HUD's inventory in the

future (``pipeline'' properties), but could also include properties

that are currently in HUD's inventory. HUD and the selected entity/

transferor would enter into a property acquisition agreement, which

would provide for the right and obligation of the transferor to acquire

the designated properties as the properties become available. The

preamble to the May 29, 1998 proposed rule provided additional details

regarding the REO acquisition method.

III. This Final Rule

This final rule makes effective the amendments contained in the May

29, 1998 proposed rule, and takes into consideration the public

comments on the proposed rule. In response to public comment, this

final rule also amends 24 CFR part 291 to refine the already codified

policies and procedures governing another innovative sales method,

disposition of single family properties through management and

marketing services. The management and marketing service process was

designed to address the deficiencies of HUD-administered competitive

sales of individual properties. Under this process, HUD contracts the

management and sales function of HUD real estate-owned properties to

experienced companies located in areas that correspond to HUD's

Homeownership Centers.

Under this method, management and marketing contractors are

selected by HUD to successfully manage single family properties owned

by or in the custody of HUD, to successfully market those single family

properties, and to successfully oversee the sales closing

[[Page 6471]]

activity, including proper accounting for HUD's sales proceeds.

Following the selection of the management and marketing contractors,

the individual acquired single family properties will continue to be

sold to individuals, including nonprofit organizations and government

entities. HUD will continue to retain closing agents who will have

primary responsibility for carrying out all closing activities. The

management and marketing contractors will be responsible, however, for

providing appropriate materials to the closing agent and reconciling

any discrepancies resulting from closing activities.

HUD is refining the codified procedures governing management and

marketing services in its regulations because it has determined that it

is an effective and efficient sales method. HUD has conducted a

successful management and marketing pilot program in the cities of

Baltimore, New Orleans and Sacramento. As noted in the preamble to the

May 29, 1998 proposed rule, HUD has been considering expanding its use

of management and marketing contracting as a result of this successful

pilot program (see 63 FR 29496, 29497). Additionally, many commenters

on the May 29, 1998 proposed rule praised the pilot program and urged

that HUD increase its use of management and marketing contracts (see

section IV of this preamble). As one of the public commenters wrote,

the management and marketing sales method is ``a public/private

partnership that works.''

As noted previously, the May 29, 1998 proposed rule was designed to

provide HUD with the flexibility to choose from a variety of sales

methods. Section 291.90 of the proposed rule, which is made effective

by this final rule, identifies the various sales methods available to

HUD, and includes disposition of properties through management and

marketing service contracts. Section 291.90(e) provides that ``HUD may

select any other method [of sale], as determined by the Secretary.''

HUD retains the right to use a sales method not listed in this section

that it determines is appropriate, efficient, and effective given the

circumstances involved. If, under Sec. 291.90(e), HUD determines that a

particular sales method may be used more frequently than originally

anticipated, HUD will amend Sec. 291.90 to include this sales method.

In any given disposition of single family properties, the public will

be notified of the sales methods to be used through appropriate

methods, which may include bid materials, the internet, and other

methods.

In also keeping with HUD's stated goal of increased flexibility,

HUD has determined that several additional amendments to the proposed

rule are necessary for purposes of clarity and the successful

implementation of this sales method. HUD also has made several other

changes in response to public comment to the procedures governing

competitive sales of individual properties. The revisions were

necessary to make the program more efficient and cost effective.

Additionally, HUD has made other non-substantive amendments for

purposes of clarity. The following summarizes the principal differences

between the May 29, 1998 proposed rule and this final rule. As

described below, none of these changes substantively alter the policies

and procedures described in the proposed rule.

1. Purpose and General Requirements (Sec. 291.1)

This rule amends Sec. 291.1, to clarify the purpose of 24 CFR part

291. As amended, Sec. 291.1(a)(1) provides that part 291 governs the

disposition of one-to-four family properties acquired by the Federal

Housing Administration (FHA) through foreclosure of an insured or

Secretary-held mortgage or loan under the National Housing Act, or

acquired by HUD under section 312 of the Housing Act of 1964.

2. Definitions (Sec. 291.5)

The definitions of the terms ``Closing agent,'' ``HUD-acquired

properties,'' and ``Single family property'' have been removed. Due to

other revisions made to the regulatory text of the May 29, 1998

proposed rule, these terms are not used in the final rule. Accordingly,

the definitions of these terms are unnecessary and have been removed.

The definition of the term ``Preapproved'' has also been removed from

Sec. 291.5. This term is commonly used and understood by individuals

involved in the sale of HUD-acquired single family properties. Further,

the term ``Preapproved'' is used only once in the part 291 regulations

(at Sec. 291.210(a)(1)), and not in the sense provided by the former

regulatory definition. It is therefore unnecessary to include a

definition of this term in 24 CFR part 291.

The definition of the term ``HUD'' has been clarified to provide

that, as used in 24 CFR part 291, it means the Department of Housing

and Urban Development or its contractor, as appropriate.

For purposes of clarity, the definition of the term ``Purchase

money mortgage (PMM)'' has been removed from Sec. 291.5 and relocated

to Sec. 291.100(d)(3). This term is only used in this section of the

regulation, and is therefore more appropriately located in the section

of the final rule where the term is referenced, rather than in the

general definitions section. The substance of the definition of

``Purchase money mortgage (PMM)'' has not been revised.

This rule also relocates the definition of the term ``Lessee'' from

Sec. 291.5 to Sec. 291.405. Section 291.405 sets forth the definitions

of terms that are used exclusively in 24 CFR part 291, subpart E

(entitled ``Lease and Sale of HUD-Acquired Single Family Properties for

the Homeless''). The term ``lessee'' is only used in subpart E of 24

CFR part 291, and is therefore more appropriately defined in

Sec. 291.405 than in Sec. 291.5. The substance of the definition of the

term ``lessee'' has not been revised.

3. Reference to Management and Marketing Service Contracts

(Secs. 291.90 and 291.205)

As noted above, the final rule has been amended to reference

management and marketing service contracts. Specifically, Secs. 291.90

(entitled ``Sales methods'') and 291.205 (entitled ``Competitive sales

of individual properties'') have been revised explicitly to provide

that HUD may conduct competitive sales of individual properties either

directly or through management and marketing service contracts.

4. Minimum Property Standards (MPS) (Secs. 291.100(c)(1) and (c)(2))

Section 291.100 describes certain general policies applicable to

most sales methods used by HUD in its single family property

disposition program. Paragraph (c)(1) of proposed Sec. 291.100 provided

that ``[a] property that HUD believes meets the intent of the Minimum

Property Standards (MPS) for existing dwellings * * * will be offered

for sale * * * with FHA mortgage insurance available.'' Several public

commenters recommended methods that HUD might use to improve its

competitive sales process, including suggestions for enhancing

appraisal standards (see comment captioned ``Improve Upon Current

Disposition Process'' in section IV.E. of this preamble). In response

to these commenters, HUD is strengthening the regulatory language of

Sec. 291.100(c)(1) to require that a property offered for an insured

sale must meet the MPS, as determined by the Secretary. A conforming

change has also been made to proposed Sec. 291.100(c)(2), which

formerly also referred to the ``intent of the MPS.''

[[Page 6472]]

5. ``As Is'' Condition for Section 203(k) Properties

(Sec. 291.100(c)(3))

This final rule also amends Sec. 291.100(c)(3) of the May 29, 1998

proposed rule for technical clarity. Proposed Sec. 291.100(c)(3) stated

that uninsured single family properties would be ``offered for sale

either in `as is' condition without mortgage insurance, or under

section 203(k) of the National Housing Act (12 U.S.C. 1709(k)).'' The

quoted language might erroneously imply that properties offered for

sale under the section 203(k) program will not be offered for sale in

``as is'' condition. However, as is made clear from the rest of the

rule, all properties are offered on an ``as is'' basis. In addition,

HUD's sales contracts in all cases provide that the properties are sold

in ``as is'' condition. Accordingly, the phrase ``as is'' has been

added following the reference to the section 203(k) program in

Sec. 291.100(c)(3).

6. Listings (Sec. 291.100(h))

For purposes of clarity, the substance of proposed Sec. 291.100(h)

and (i) have been consolidated in Sec. 291.100(h), which sets forth the

listing requirements for HUD's single family property disposition

program. The substance of proposed Sec. 291.100(h), has been

reorganized and redesignated as paragraph (h)(1) of Sec. 291.100. The

substance of proposed Sec. 291.100(i), which concerns asset management

and listing contracts, has been redesignated as new paragraph

Sec. 291.100(h)(2). With the exception of these clarifying changes, the

substance of these provisions has not been revised.

7. Repair Escrow Amounts (Sec. 291.205(b)(2))

Section 291.205(b) describes the procedures relating to the

calculation of net offers under the competitive sale program. This

final rule removes proposed Sec. 291.205(b)(2), which provided that

``[i]n the case of properties sold under the insured sales with repair

escrow program, the repair escrow amount is also deducted from the bid

to determine the net offer.'' HUD has determined that this change is

necessary for two reasons. First, in response to public comment, HUD

intends to expand its use of multiple listing services (MLS).

Specifically, HUD is considering use of the MLS for sales governed by

management and marketing sales contracts. (See the public comment

captioned ``HUD Should Require Transferors to Use MLS'' in section IV.B

of this preamble.) The identification of two list prices (one for

repair escrow purchasers and one for other buyers) is cumbersome under

the MLS. Further, the deduction of the repair escrow amount from the

bid amounts submitted by repair escrow purchasers may inadvertently

penalize these purchasers during the bid selection process.

8. Bid Period for Competitive Sales (Sec. 291.205(d))

Section 291.205(d) describes the bid procedures for competitive

sales of individual properties. The proposed rule (which reflected the

procedures in the existing part 291 regulations) would have established

fixed time frames for the submission and HUD review of bids. It is not

necessary to codify this information in HUD's regulations, since the

information may more appropriately be included in the bid materials

accompanying a particular sale. Further, HUD is refining and updating

its procedures governing management and marketing service contracts in

response to public comment. These public comments praised HUD's

management and marketing pilot program in the cities of Baltimore, New

Orleans, and Sacramento. The commenters urged HUD to revise the May 29,

1998 proposed rule to incorporate the procedures used in the successful

pilot program.

Among other revised features, HUD may provide for the electronic

submission of bids. The use of automated procedures and other

streamlined bid submission methods may call for a shortened bid period

or for the modification of HUD's bid review procedures. Accordingly,

this final rule revises Sec. 291.205(d) to provide HUD with the

necessary flexibility to successfully implement a variety of bid

submission and review procedures in the competitive sale of individual

properties. Specifically, the final rule removes the references to

fixed time periods and specific bid review procedures contained in the

May 29, 1998 proposed rule.

As revised by this final rule, Sec. 291.205(d) provides that HUD

will establish a bid period for properties available for competitive

sale. Generally, this bid period will be 10 days, but may be lengthened

or shortened by HUD. In the case of properties offered with mortgage

insurance, HUD may establish procedures that give priority to owner-

occupant purchasers for a period of up to 30-days (see

Sec. 291.205(a)(2)). HUD may treat all bids received during a specified

period of time as having been received simultaneously. HUD may also

choose to review bids on a daily basis, with all bids submitted during

each day considered to have been received simultaneously. HUD may use

either (or both) of these methods during the bid period, as specified

in the bid materials accompanying a particular competitive sale.

9. Extended Listing period (Sec. 291.205(f))

This section provides that properties not sold at the bid opening

of a competitive sale will remain available for an extended listing

period. Proposed Sec. 291.205(f) provided that properties that ``fail

to sell within 30-days after being offered for competitive bidding will

be reanalyzed and relisted.'' Proposed Sec. 291.205(f) also stated that

``[i]f a property's price or terms are changed, it will be subject to

another competitive bidding process * * *'' (emphasis added).

This final rule makes three changes to Sec. 291.205(f). First, this

final rule lengthens the extended listing period from 30 days to 45

days. This change extends the availability of a property being offered

for sale, and thus provides potential buyers with additional time to

purchase the property. In keeping with the stated goal of this rule to

provide HUD with the necessary flexibility to successfully implement a

variety of sales methods, this final rule also provides that a property

may be subject to another competitive bidding process if the property's

price or terms are changed (the language of the proposed rule would

have mandated another competitive bid process). Finally, this final

rule makes a clarifying change to Sec. 291.205(f) by replacing the term

``relisted'' with the phrase ``made available for sale.''

10. Bid Format (Sec. 291.205(g) and (k))

These two regulatory provisions have been updated to incorporate

the use of automated bid submission procedures. As set forth in the May

29, 1998 proposed rule, these provisions reflected outdated bid format

requirements. For example, Sec. 291.205(g)(2) provided that ``bids must

be placed in sealed envelopes marked with the property number, address,

and return address of the broker.'' This final rule revises

Sec. 291.205(g) and (k) to remove these references to outdated bid

format requirements, and to reflect modern electronic bid submission

procedures.

11. Multiple Bids (Sec. 291.205(i))

This final rule revises Sec. 291.205(i) for purposes of technical

clarity. Proposed Sec. 291.205(i) provided that ``[i]f a prospective

owner-occupant purchaser submits a bid on more than one

[[Page 6473]]

property, the first of those bids that produces the greatest return to

HUD will be accepted * * * .'' The quoted language might be

misinterpreted to mean that HUD will accept the first such bid

submitted by an owner-occupant purchaser, rather than the bid that

overall produces the greatest net return to HUD. Accordingly, this

final rule clarifies the language of Sec. 291.205(i).

12. Owner-Occupant Priority During Competitive Sales Process

(Sec. 291.205(j))

This final rule adds a new Sec. 291.205(j), which provides that

owner-occupant purchasers will be given priority in those cases where

an owner-occupant and an investor purchaser submit identical bids

during a competitive sale. Several public commenters recommended that

HUD ensure that the transferor will sell the properties to owner-

occupants (see the comment captioned ``HUD Should Ensure That

Properties Are Sold to Owner-Occupants'' in section IV.B. of this

preamble). HUD agrees with the commenters that the sale of single

family properties to owner-occupant purchasers is an effective method

of promoting affordable homeownership opportunities. In response to

these public comments, this final rule provides that if identical bids

are submitted by an owner-occupant purchaser and an investor purchaser

during a competitive sale, HUD will select the bid submitted by the

owner-occupant purchaser. As a result of the addition of new

Sec. 291.205(j), proposed Secs. 291.205(j) and (k) of the May 29, 1998

proposed rule have been redesignated as Secs. 291.205(k) and (l),

respectively.

13. Direct Sales to Government Entities and Nonprofit Organizations

(Sec. 291.210(a)(1))

Section 291.210(a) describes the procedures governing the direct

sale of properties to governmental entities and private nonprofit

organizations. Section 291.210(a)(1) of the May 29, 1998 proposed rule

would have changed the existing part 291 regulations by providing for

the direct sale of properties to government entities and private

nonprofit organizations of all properties located in HUD-designated

revitalization areas. However, section 602 of the Departments of

Veterans Affairs and Housing and Urban Development, and Independent

Agencies Appropriations Act, 1999 (Pub.L. 105-276, 112 Stat. 2461,

approved October 21, 1998) (the ``FY 1999 HUD Appropriations Act'')

directs HUD to carry out a sales program to local governments and

interested private nonprofit organizations in designated revitalization

areas. HUD will implement section 602 of the FY 1999 HUD Appropriations

Act through a separate rulemaking. Therefore, this final rule does not

adopt the language of proposed Sec. 291.210(a)(1). Rather, this final

rule uses the language of the existing part 291 regulations, which

provides for direct sales of properties without insured mortgages to

government entities and private nonprofit organizations, without regard

to their location. (For additional discussion regarding section 602 of

the FY 1999 HUD Appropriations Act and its relationship to this final

rule, please see the discussion of the public comment captioned ``HUD

Should Foster Cooperation with Nonprofit, Community Organizations, and

Local Governments'' in section IV.B of this preamble.)

As a result of the revision to Sec. 291.210(a)(1), a conforming

change has been made to Sec. 291.90, which identifies the various sales

methods available to HUD. Specifically, this final rule revises

proposed Sec. 291.90(c)(1), which lists direct sales to governmental

entities and nonprofit organizations, to specify that such sales will

be without mortgage insurance, and to remove the reference to ``HUD

designated revitalization areas.''

14. Tiebreakers for Direct Sales to Governments and Nonprofit

(Sec. 291.210(a)(2)(i))

In addition to the change discussed above, this final rule makes

another change to the procedures concerning direct sales to government

entities and private nonprofit organizations. Specifically, this final

rule amends Sec. 291.210(a)(2) to codify existing practice regarding

award selection in the case of identical bids submitted by two or more

bidders. Section 291.210(a)(2)(i) of this final rule provides that:

``All bids received on the same business day will be considered to have

been received simultaneously. In the case of identical bids submitted

on the same business day, award will be determined by drawing lots.''

15. Consideration and Inspection Period (Sec. 291.210(a)(2)(ii))

This final rule also revises Sec. 291.210(a)(2)(ii), which

describes the consideration and inspection period for governmental and

nonprofit purchasers. Proposed Sec. 291.210(a)(2)(ii) established a

fixed 10 day consideration and inspection period. It is not necessary

to codify this information in HUD's regulations, since the information

is more appropriately included in the bid materials accompanying a

particular sale. Further, removal of the fixed time period conforms to

the stated goal of this final rule to provide HUD with the necessary

flexibility to successfully use a variety of sales methods.

Accordingly, this final rule amends Sec. 291.210(a)(2)(ii) to remove

the reference to the fixed 10 day period. As revised by this final

rule, Sec. 291.210(a)(2)(ii) states that the consideration and

inspection period will usually be for ten days from the date of

notification of interest, but may be lengthened or shortened by HUD.

IV. Discussion of Public Comments on the May 29, 1998 Proposed Rule

The public comment period for the proposed rule expired on June 29,

1998. HUD received 201 comments, including comments from real estate

brokers, agencies, and related associations; vendors in the real estate

industry (contractors, title companies, appraisers, etc.); mortgage

lending institutions and related institutions and associations; local

governments and government agencies; nonprofit organizations; members

of Congress; and other commenters. This section of the preamble

presents a summary of the significant issues raised by the public

commenters on the May 29, 1998 proposed rule, and HUD's responses to

these comments.

A. Support for the REO Acquisition Method

Several commenters offered support for the REO acquisition method

described in the proposed rule. One commenter asserted that the

management of foreclosed homes has been identified by many lenders as a

task best contracted to specialists. Some of these commenters wrote

that this approach would bring higher prices for the properties and

move the properties more quickly. One commenter argued that the REO

acquisition method would likely bring HUD's properties to the open

market in better condition than through HUD's current sales process,

and some commenters expressed confidence that local real estate markets

would not be negatively affected, since the transferors would have

profit incentives to achieve market prices. Several commenters

expressed interest in participating in the future REO acquisition

process.

HUD Response. HUD agrees with these commenters that the REO

acquisition method is an efficient, and cost-effective process for the

disposition of single family properties. The purpose of this final rule

is to provide HUD with the flexibility to use a variety of innovative

methods in the sale of single

[[Page 6474]]

family properties. As already noted in this preamble, HUD agrees that

the management and marketing of foreclosed properties also presents an

efficient and effective sales method. HUD is amending Sec. 291.90 to

refine the policies and procedures governing management and marketing

service contracts. Through the use of management and marketing service

contracts, the REO acquisition method, or other similar arrangements,

HUD believes it will be able to transfer properties it acquires quickly

and efficiently and in a manner that allows HUD to achieve its national

housing goals.

B. Recommendations for Implementing the REO Acquisition Method

Applicable to Other Sales Methods

Many commenters offered suggestions for the successful

implementation of the REO acquisition method. Many of the suggestions

made by these commenters are not limited to the REO sales method, but

are applicable to a variety of disposition methods, including

management and marketing contracts. The following presents a summary of

the cross-cutting issues raised by these commenters, and HUD's

responses to these issues.

Comment: HUD Should Ensure Involvement of Local Brokers. Several

commenters recommended that if HUD uses the REO acquisition method, HUD

should ensure that the transferor engages in partnerships and otherwise

cooperates with local real estate brokers to ensure their continued

participation and business viability. Several commenters argued that

the involvement of local real estate professionals is the most cost-

efficient means of selling properties, because these professionals

provide knowledge of the local housing market. Several commenters

argued further that the competition among multiple brokers will provide

for fair market pricing.

HUD Response. HUD agrees that local real estate professionals can

be important contributors to the success of its single family property

disposition program. As the commenters note, the expertise provided by

these professionals can enhance the efficiency and timeliness of the

sales process. HUD has relied on the services of local real estate

professionals in the implementation of management and marketing service

contracts, and will seek to involve such professionals in the various

other sales methods available to HUD, to the extent practicable.

Comment: HUD Should Require Transferors to Use MLS. Several

commenters recommended that HUD require the transferors to list all

properties on the local multiple listing service (MLS) in order to

assure wide access to the properties by the general public. (However,

one commenter argued that HUD properties are in such bad condition that

they would not be suitable for placement on the MLS.)

HUD Response. HUD agrees that the MLS can be an effective method

for informing the public of single family properties that are available

for sale. HUD will determine on a case-by-case basis, depending on the

specific sales method, whether the use of the MLS is appropriate. HUD

intends to use the MLS for sales governed by management and marketing

service contracts. HUD believes that the use of the MLS by management

and marketing service contractors will ensure the widest possible

access to the properties by the general public.

HUD will consider the use of the MLS for other disposition methods,

such as the REO acquisition method. HUD may also use other methods to

publicize properties available for sale, including the internet,

newspapers, and other media determined appropriate by the Secretary.

Comment: HUD Should Foster Cooperation with Nonprofit, Community

Organizations, and Local Governments. Several commenters recommended

that HUD develop requirements or incentives (such as performance

measures) for the REO transferors to work with nonprofit organizations

and local governments in the disposition of the properties. Other

commenters suggested that local governments and/or nonprofit

organizations should be given the right of first refusal for properties

located in their areas, or those in revitalization areas, before these

properties are acquired by the transferors.

Four commenters recommended that HUD exempt all properties in

revitalization areas from the future REO acquisition process. In those

areas, the commenters suggested that HUD should sell all properties

directly to nonprofit and local governments at discounted prices, so

that those entities can then engage in community-based activities such

as rehabilitation and homebuyer counseling.

Three commenters suggested that through the disposition of Mission

Properties, HUD can implement its missions as an organization, which

include neighborhood revitalization, homeownership, and a continuum of

care for homeless persons, as well as other efforts such as the Officer

Next Door program. The commenters explained that Mission Properties

consist primarily of properties in areas of high FHA default and

foreclosure rates, or in other areas as designated by the community and

HUD. These commenters suggested that HUD should exempt such properties

from the future REO acquisition process and sell them directly to

nonprofit organizations and local governments at discounted prices.

HUD Response. HUD understands that there are nonprofit

organizations, local governments, and other community groups that rely

upon HUD-acquired properties as a resource for their housing programs.

HUD is committed to continuing its partnership with these groups. As

already noted in this preamble, HUD intends to continue to make

available a portion of its acquired properties to nonprofit

organizations (including homeless providers and nonprofit organizations

representing persons with disabilities or other classes of persons

protected by the Fair Housing Act) and units of government for use in

HUD and local housing or homeless programs.

Additionally, section 602 of the FY 1999 HUD Appropriations Act

requires that HUD carry out a program under which HUD-owned homes and

mortgages are made available in a manner that promotes expanded

homeownership opportunities in designated revitalization areas. Under

section 602, the Secretary will designate revitalization areas, in

consultation with affected units of general local government and

interested nonprofit organizations. Section 602 provides that the

Secretary shall provide a preference in the sale of HUD-owned homes and

mortgages to nonprofit organizations or to the unit of general local

government having jurisdiction in the revitalization area. HUD will

implement section 602 of the FY 1999 HUD Appropriations Act through a

future rulemaking.

Comment: HUD Should Ensure That Properties Are Sold to Owner-

Occupants. Several commenters recommended that HUD ensure that the

transferor will sell the properties to owner-occupants (or to

nonprofit/local governments that will, in turn, sell to owner-

occupants), and not to investors to use as rental properties. Two

commenters suggested that this could be accomplished through the

assignment of a preference or right of first refusal to owner-occupant

purchasers, as well as through particular marketing guidelines. These

commenters argued that the REO acquisition method should not undermine

HUD's homeownership goals by resulting in a net decrease in

homeownership. The commenters argued that HUD must ensure that its

sales methods operate consistently with

[[Page 6475]]

and in support of HUD's national housing goals.

HUD Response. HUD agrees with the commenters that the sale of

single family properties to owner-occupant purchasers is an effective

method of promoting affordable homeownership opportunities. For

example, this final rule retains the provision found in the existing

part 291 regulations that permits HUD to give priority to owner-

occupant purchasers in the competitive sales of individual properties

(see Sec. 291.205(a)(2)). In response to these public comments, this

final rule also provides that HUD will give priority to bids submitted

by owner-occupant purchasers during the competitive sales process.

Specifically, the rule provides that if identical bids are submitted by

an owner-occupant purchaser and an investor purchaser, HUD will select

the bid submitted by the owner-occupant purchaser. (See

Sec. 291.205(j)). HUD also wishes to note that under the bid procedures

established for management and marketing service contracts, priority

will be given to owner-occupant purchasers during the initial bid

opening period.

C. Specific Recommendations for Implementing the REO Acquisition Method

Many commenters made recommendations specifically applicable to the

implementation of the REO acquisition method. HUD appreciates the very

helpful and detailed suggestions regarding the implementation of this

innovative sales method. At this time, HUD has decided not to amend the

May 29, 1998 proposed rule to adopt by regulation the recommendations

made by these commenters. HUD does not want to limit its ability to

conduct an efficient and effective REO acquisition method by

prescribing too much detail through regulation. Instead, HUD prefers to

describe its sales methods broadly in order to retain the flexibility

granted to HUD by statute, and to leave the details for any sales

method to the bid materials.

A summary of the significant issues raised by these commenters is

set forth below.

Comment: HUD Should Enter Agreements with More Than One Transferor

Per Geographic Region. Several commenters recommended that HUD should

enter into agreements with more than one transferor in each geographic

region, in order to promote competition and increase access to the

properties.

Comment: HUD Should Develop Guidelines to Ensure Affordability.

Several commenters recommended that HUD develop a broad set of

guidelines to ensure that the transferors controlling the properties

continue to make them affordable to homeowners (e.g., through

downpayment or closing cost assistance).

Comment: HUD Should Test Future REO Acquisition Method First. Two

commenters recommended that HUD test the future REO acquisition method,

perhaps in certain test areas, for a limited period of time. If the

proposed method works without harming small businesses, homebuyers, or

communities, then HUD should phase the proposed method in slowly.

Comment: Structuring the REO Acquisition Process. One commenter

stressed that HUD must retain an interest in the properties and a share

of the risks and gains in order for the future REO acquisition method

to succeed. The commenter noted that a transferor under the future REO

acquisition method would be acquiring the pipeline properties ``in a

blind manner,'' which represents a potential risk. If HUD retains an

interest, and therefore a share of the risk, in the transaction, the

commenter asserted that HUD would receive higher bids from the

prospective transferors and higher ultimate proceeds. The commenter

also noted that the transferor must also have a significant interest in

the success of and the goals of the disposition process, to ensure that

properties are not ``dumped'' on the market.

One commenter suggested that in implementing the future REO

acquisition process, and in determining criteria for choosing the

transferors, HUD should emphasize the following factors: (1) The

transferors should be well capitalized and have the financial

capability to fund their obligations to HUD; (2) the transferors should

have well developed systems, policies, procedures, and vendor networks

in order to market and sell the properties promptly upon acquisition;

(3) the transferors should have plans to maximize the involvement of

small and/or disadvantaged businesses; and (4) the transferors should

develop a program to screen properties for appropriate referrals to

nonprofit and government sponsored housing development agencies.

One commenter offered very specific suggestions for establishing

the basis upon which prospective transferors would submit their bids.

This commenter expressed a concern that the transferors' profits will

depend more upon the speed of sales than the actual selling prices.

Therefore, this commenter argued that the transferor may have an

incentive to forsake negotiating efforts with the ultimate purchaser.

In order to counter that incentive, the commenter suggested that the

bids should be based upon a percentage of the selling price.

Comment: Requests for Additional Information. Several commenters

sought additional information about how the future REO acquisition

method would work. For example, one commenter asked many specific

questions, such as how HUD would decide which properties within a

geographic region would be included in the acquisition agreement (if

not all properties). Another commenter asked how the future REO

acquisition method would affect servicers' responsibilities and

contractors' duties and authorities.

Again, HUD appreciates all these suggestions and will consider

these comments when it determines property should be disposed through

the REO acquisition method.

D. Opposition to the REO Acquisition Method

Many of the commenters objected to the future REO acquisition

method described in the proposed rule. Most of these commenters equated

the proposed process with traditional bulk sales, which they claimed

helps only the large wealthy investors, while eliminating homeownership

opportunities for low-income and first-time buyers. They also claimed

that such bulk ``fire'' sales depress neighborhood property values and

otherwise harm neighborhoods.

Comment: HUD Should Continue Using Current Primary Method of Sale.

Many commenters urged HUD to continue using its current primary method

of selling its inventory of properties--competitive sales of individual

properties to individuals. These commenters argued that the current

method of sale is better than the proposed future REO acquisition

method for several reasons, as described below.

1. Future REO Acquisition Method Would Eliminate Homeownership

Opportunities

Many commenters argued that the future REO acquisition method would

eliminate homeownership opportunities for low-income families, which is

an important part of HUD's mission. Many of these commenters asserted

that through altering FHA guidelines in the sale of HUD properties, HUD

can provide homeownership assistance through reduced downpayments and

closing costs. These commenters argued that under the future REO

acquisition method, title to the properties would be

[[Page 6476]]

passed to a separate entity, and HUD would not be able to change the

FHA guidelines to provide such assistance. These commenters argued that

the future REO acquisition method would provide huge profits to large

investors, but would eliminate homeownership opportunities for low-

income families.

2. Future REO Acquisition Method Would Result in Lower Returns

Several commenters argued that the future REO acquisition method

would result in deeply discounted wholesale prices to investment

companies, reducing the return to HUD, and therefore to the taxpayers.

Some commenters argued that the competitive bidding process under the

current sales method results in the highest possible return to HUD.

Several commenters asserted that the future REO acquisition method

would also result in lower ultimate sales prices that would contribute

to the depreciation of the property values in the surrounding

neighborhoods. Alternatively, other commenters argued that the ultimate

sales prices would increase due to the profit motivations of the

transferors, making homeownership more difficult for lower income

buyers.

3. HUD Staff Can Sell Properties Faster and at Lower Cost Than

Contractors

Several commenters argued that, as compared to outside contractors,

HUD Single Family staff in its local offices can facilitate the sale of

properties faster and at lower cost than outside contractors. These

commenters argued, therefore, that HUD should not shift property

disposition functions to such contractors.

HUD Response. In response to all three groups of commenters, HUD

continues to believe that the REO acquisition method described in the

May 29, 1998 proposed rule is an effective, timely, and cost-efficient

method for the disposition of HUD-acquired single family properties,

and therefore retains this sales method in the part 291 regulations. In

addition, HUD has refined the procedures that govern management and

marketing service contracts. Again, the purpose of amending HUD's part

291 regulations is to notify the public that there is no principal or

primary sales method to which HUD must adhere.

This final rule codifies the proposal of the May 29, 1998 proposed

rule that HUD has the discretion to use other methods of sale in

addition to the REO acquisition method, including the competitive sales

to individuals preferred by the commenters, direct sales, and other

sales as determined necessary by the Secretary. At present, HUD has

decided to concentrate its efforts on competitive sales to individuals

through the use of management and marketing contracts. However, HUD

retains the option to use the REO acquisition method at any time. HUD

will consider the issues raised by these commenters during the

development of any future REO sales method.

Comment: Future REO Acquisition Process Would Result in Decreased

Rehabilitation. Two commenters argued that although the future REO

acquisition method may result in a rapid sale of properties, the large

investors that participate in the process would have an economic

disincentive to expend resources on rehabilitation. The commenters

argued that under the proposed sales method, HUD would have limited

control of the rehabilitation performed on these homes, which are often

physically distressed. The commenters argued that the transferors would

simply perform minimal cosmetic repairs that would prepare the homes as

rental properties.

HUD Response. HUD believes that the REO acquisition method is an

innovative and effective method for the sale of HUD-acquired single

family properties. At the present time, HUD is planning to rely on

management and marketing service contracts. HUD, however, has the

discretion to use the REO acquisition method or other sales methods

when it believes that a particular method(s) is appropriate given the

circumstances faced by HUD in economically and efficiently disposing of

properties and meeting its national housing goals.

Comment: Future REO Acquisition Process Would Hurt Small

Businesses. Several commenters argued that the future REO acquisition

process would hurt small businesses (particularly real estate brokers)

by eliminating them from HUD's disposition process. The commenters

argued that although a few large companies would profit, many small

real estate brokers would suffer. Some of these commenters remarked

that small investors would also be effectively prohibited from

participating in the future REO acquisition method, considering the

magnitude of the transactions.

HUD Response. Before publication of the May 29, 1998 proposed rule,

HUD performed an analysis on the impact the future REO acquisition

method would have on small businesses that do business with HUD, such

as real estate brokers. Based on this analysis, HUD determined that the

REO acquisition method described in the rule would not have a

significant economic impact on a substantial number of small entities

(see 63 FR 29496, 29499).

In analyzing the impact of the REO acquisition method on small

entities, HUD noted that a transferor under the REO sales arrangement

may use a sales process similar to HUD's competitive sales process, in

which case a number of the entities that would continue to be involved

in the ultimate sales of the properties would be small entities.

Further, in an effort to mitigate any potential impact on small

entities, HUD would encourage the transferor(s) to use small local

firms to assist in their disposal of single family acquired properties.

The May 29, 1998 proposed rule also noted that while HUD sells in

excess of 50,000 properties each year, this volume of property sales

represents only a small percentage of the total number of home sales

nationwide. During fiscal year 1997, the sale of HUD homes represented

only 1.2 percent of total home sales, using only 1.6 percent of the

active selling brokers. Since HUD's home sales are a very small portion

of the overall home sales business, the economic impact of the REO

acquisition method would not be significant, and it would not affect a

substantial number of small entities.

Comment: Shifting HUD Work to Contractors. Several commenters

objected to the proposed rule because it would unnecessarily shift FHA

Single Family work to contractors. One of these commenters argued that

shifting property management and disposition functions to a private

entity would clearly violate OMB Circular A-76, ``which permits

alternative methods of performing an activity only if it can be carried

out at a lower cost than in-house performance.'' One of these

commenters asserted that HUD is relying upon a centralization pilot to

support its argument that the future REO acquisition method would

result in faster processing with no loss in customer service. The

commenter asserted that most of the observed improvement was not a

result of the pilot, but rather a result of a decrease in FHA

refinancing volume and a reduction in quality reviews. One of the

commenters asserted that HUD itself is jeopardizing its property

disposition performance through downsizing.

These commenters also pointed to a comparison between HUD's Denver

staff and outside contractors, and concluded that HUD's staff

transferred properties more quickly and at lower costs than the

contractors. One commenter argued further that any savings in personnel

costs anticipated through the use of the

[[Page 6477]]

future REO acquisition method would be offset by the cost of personnel

necessary to oversee the disposition process properly and to perform

accounting functions. Another commenter argued that the disposition of

HUD properties is an optimal function for the new community builder

storefronts, since the commenter claimed that most of the public's

knowledge of HUD, and most of the traffic in the new storefronts,

consists of interest in HUD homes.

HUD Response. HUD does not agree with the assertions made by these

commenters, and believes that the REO acquisition method is an

efficient and cost-effective method for the disposition of HUD-acquired

single family properties and of meeting national housing goals. As

described in the preamble to the proposed rule, HUD anticipates that

entities interested in participating in the future REO acquisition

method will be experienced in high-volume property sales. Competition

among interested entities would enhance this benefit and result in

maximum efficiency and return. (See 63 FR 29496, 29497.)

Comment: An Invitation for Fraud and Corruption. Several commenters

asserted that since only the largest investors (or bidding teams) would

be capable of participating in the future REO acquisition method,

competition would be minimized. Some of these commenters concluded that

the magnitude of the proposed transactions would present an

overwhelming opportunity for fraud and corruption. One commenter

asserted that, due to downsizing, HUD would be even less capable of

monitoring contractor performance.

HUD Response. HUD agrees with these commenters that should the

Department pursue any future REO sales methods, appropriate safeguards

will be put in place to minimize the opportunity for fraud and

corruption.

Comment: HUD Violated Policy Regarding 60-Day Comment Period. One

commenter argued that HUD violated its general policy in 24 CFR part 10

of providing the public 60 days to comment on proposed rules. The

commenter argued that HUD provided an insufficient basis for shortening

the comment period to 30 days.

HUD Response. HUD recognizes the value and importance of public

comment in the regulatory process. HUD has invited public comment at

every stage of the development of the amendments made effective by this

final rule. HUD provided the public with notice and an opportunity to

comment on innovative sales procedures in the advance notice of

proposed rulemaking published in the Federal Register on June 13, 1997

(62 FR 32251). HUD also sought public input by publishing a notice in

several prominent newspapers and business journals. In order to provide

the fullest and most expedient access to the provisions of the May 29,

1998 proposed rule, HUD made it available on the HUD Home Page on the

World Wide Web at http://www.hud.gov, on the date of its publication in

the Federal Register. HUD also directly notified entities that had

expressed a significant interest to HUD by sending such entities a copy

of the May 29, 1998 proposed rule.

E. Other Recommendations

Comment: HUD Should Develop Sales Process Modelled on Freddie Mac/

HomeSteps. Many commenters urged HUD to work with Freddie Mac in order

to develop a property disposition process similar to Freddie Mac's

HomeSteps program. Three commenters, however, criticized disposition

programs such as Freddie Mac's, claiming that the required use of

professionals in the ``network'' stifles competition (and is in

violation of RESPA, according to two of the commenters). Two of the

commenters also argued that the properties in such programs do not sell

as quickly as HUD's.

HUD Response: As noted above, one of the purposes of this final

rule is to provide HUD with the necessary flexibility to use a variety

of sales methods for the disposition of HUD-acquired single family

properties. Under Sec. 291.90(e) of this rule, HUD has the authority to

use any sales methods as determined necessary by the Secretary. At this

time, HUD has decided not to implement a sales method modelled on the

Freddie Mac HomeSteps program.

Comment: Property Disposition Pilot Program/Golden Feather Realty.

Many commenters praised the management and marketing pilot program for

property disposition that HUD is conducting in Baltimore, New Orleans,

and Sacramento, describing it as ``a public/private partnership that

works.'' In particular, many commenters commended Golden Feather Realty

and its performance under the pilot program in Baltimore. These

commenters complimented Golden Feather on its efficiency--homes sell

quickly, with higher sales prices, saving HUD $8.6 million. One

commenter asserted that Golden Feather has increased the awareness of

and interest in the program through advertising and classes. These

commenters suggested that HUD expand this program nationwide and use it

as its primary sales method.

One commenter stressed that HUD should not, in implementing its

proposed future REO acquisition method, adversely affect the current

and pending management and marketing contracts in these pilot cities.

One commenter, however, asserted that nonprofit organizations have

not been able to participate in the acquisition of a significant number

of properties in these areas. The commenter suggested that in future

management and marketing contracts HUD should set goals to ensure

significant participation by nonprofit, along with appropriate

discounts on the properties.

HUD Response. As discussed above, HUD has decided to refine the

procedures relating to management and marketing service contracts in

the part 291 regulations, given the success of this pilot program and

the public comments praising this sales method. Under the management

and marketing process, HUD will contract the REO management and sales

function to experienced companies located in areas that correspond to

HUD's Homeownership Centers. Following the selection of the management

and marketing contractors, the individual acquired single family

properties will be sold to individuals, including nonprofit

organizations and government entities. HUD believes that the use of

such innovative methods as management and marketing contracts, the REO

acquisition method, and other sales methods will result in prompt

delivery of HUD-acquired single family properties to the sales market;

minimize losses to the FHA insurance fund; and keep the cost of

mortgage insurance low.

In response to the commenter who asserted that nonprofits have not

been able to meaningfully participate in the acquisition of properties,

HUD notes that in FY 1998 nonprofit organizations/governments played a

significant role in the management and marketing pilot program

(acquiring 102 properties in Baltimore, 75 properties in New Orleans,

and 105 properties in Sacramento).

Comment: Improve Upon Current Disposition Process. Several

commenters suggested that HUD seek to improve upon its current

disposition process, rather than abandoning it. For example, three

commenters suggested that HUD should establish routine procedures for

inspecting and appraising the properties, disclosing deficiencies,

repairing the properties, and/or providing repair escrow when

necessary. Another commenter

[[Page 6478]]

recommended that HUD should organize a broker committee with direct

input at the local level. Two commenters suggested that HUD should

develop an effective ``back-up'' process, so that if the first bid

falls through (e.g., due to lack of financing), the property can go to

the back-up bidder. One commenter wrote that HUD should establish

minimum acceptable bids for the properties. Another commenter

recommended that HUD should reduce the number of personnel in the

property disposition process.

Several of these comments focused on HUD's use of media in

informing the public of the availability of properties. For example,

several commenters wrote that HUD should rely more heavily upon the

Internet for listing the properties, and otherwise make better use of

new technology. Another commenter suggested that HUD should rely on its

employees and use all other tools available (online multiple listing

services, television, direct mail, community builders) to speed up the

property disposition process. One commenter recommended that HUD should

resume the practice of advertising HUD listings in local newspapers,

rather than just by facsimile (FAX), since small businesses do not

always have fax machines.

HUD Response. HUD agrees that changes to the current competitive

sales method for individual properties were necessary to make the

program more efficient and cost effective, and permit HUD to meet its

national housing goals. HUD has adopted several of these comments and

has modified its competitive sales procedures as described in section

III of this preamble. It is anticipated that with these modifications,

properties will be listed and returned to private homeownership more

quickly. In addition, HUD believes its expanded use of management and

marketing contracts will improve the efficiency and cost-effectiveness

of its competitive sales of individual properties.

Comment: Concentrate on Reducing Defaults/Foreclosures. Three

commenters urged HUD to concentrate on reducing the number of loans

that go into default and foreclosure. One commenter suggested that HUD

review the FHA underwriting guidelines. Two commenters asserted that

HUD should develop a comprehensive counseling and default mitigation

program. One commenter argued that the future REO acquisition method

would actually reduce the effectiveness of HUD's loss mitigation

efforts by reducing appraised market values in affected neighborhoods.

HUD Response. Over the past few years, legislation has been enacted

that provides HUD with several effective loss mitigation tools. HUD

continues to encourage lenders to mitigate losses, and to make

efficient use of available loss mitigation techniques.

V. Nondiscrimination Requirements

As noted in the May 29, 1998 proposed rule, HUD's responsibilities

and priorities include ensuring compliance with applicable

nondiscrimination requirements, such as the Americans with Disabilities

Act, section 504 of the Rehabilitation Act of 1973, and the Fair

Housing Act. With regard to the disposition of single family properties

in HUD's inventory, all resales by public entities are subject to

compliance with Title II of the Americans with Disabilities Act. All

resales by both public and private entities are subject to compliance

with the Fair Housing Act.

In addition, HUD must comply with section 504 of the Rehabilitation

Act of 1973, which requires nondiscrimination based on disability in

programs or activities conducted by any executive agency. HUD

regulations implementing this requirement are in 24 CFR part 9. Under

Sec. 9.155(a) of those regulations, HUD must ensure that its Property

Disposition Program policies and practices do not discriminate on the

basis of disability, against a qualified individual with disabilities.

HUD will take appropriate steps to ensure effective communication with

applicants, participants, personnel of other Federal entities, and

members of the public. HUD will provide appropriate auxiliary aids as

necessary to afford an individual with disabilities an equal

opportunity to participate in this program.

VI. Findings and Certifications

Executive Order 12866

The Office of Management and Budget (OMB) reviewed this rule under

Executive Order 12866, Regulatory Planning and Review. OMB determined

that this rule is a ``significant regulatory action,'' as defined in

section 3(f) of the Order (although not economically significant, as

provided in section 3(f)(1) of the Order). Any changes made to the

final rule subsequent to its submission to OMB are identified in the

docket file, which is available for public inspection in the office of

the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street,

SW, Washington, DC 20410-0500.

Environmental Impact

A Finding of No Significant Impact with respect to the environment

was made at the proposed rule stage in accordance with 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. 4223). That finding

continues to be applicable to this final rule and 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 General Counsel, Room

10276, Department of Housing and Urban Development, 451 Seventh Street,

SW, Washington, DC.

Regulatory Flexibility Act

The Secretary, in accordance with 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.

(1) No Significant Economic Impact

The amendments made by this final rule will not result in a

significant economic impact on a substantial number of small entities.

During fiscal year 1997, the sale of HUD homes represented only 1.2

percent of total home sales, using only 1.6 percent of the active

selling brokers. Since HUD's home sales are a very small portion of the

overall home sales business, the economic impact of this rule would not

be significant, and it would not affect a substantial number of small

entities.

(2) A Substantial Number of Small Entities Will Not Be Affected

HUD has determined that there are approximately 18,000 small

entities that could be affected by this rule, including nonprofit

organizations, State and local governments, Real Estate Asset Managers

(REAMs), real estate brokers, selling agents, closing agents, and

repair contractors. The number of entities potentially affected by this

rule is not substantial, and any potential economic impact would not be

significant.

Under many of the sales methods described in this final rule, such

as the REO acquisition method and management and marketing contracts,

it is likely that small entities would continue to be involved in the

ultimate sales of the properties. For example, a transferor under the

REO acquisition process may use a sales process similar to the process.

Management and marketing contractors will continue to conduct

competitive sales to individuals. Additionally, in an effort to

mitigate any potential impact on small entities, HUD will encourage the

use of

[[Page 6479]]

small local firms to assist in the disposal of single family acquired

properties. Under the management and marketing pilot program, 99

percent of the funds spent on subcontracting went to small businesses

providing services such as lawn cutting, debris removal, cleaning, and

repairs.

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 would 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. This rule

simply allows HUD to use innovative methods of selling its inventory of

single family homes. As a result, this rule is not subject to review

under the Order.

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 the private sector. This 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.

List of Subjects in 24 CFR Part 291

Community facilities, Conflict of interests, Homeless, Lead

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

recordkeeping requirements, Surplus government property.

Accordingly, for the reasons stated in the preamble, 24 CFR part

291 is amended as follows:

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

1. The authority citation for 24 CFR part 291 is revised to read as

follows:

Authority: 12 U.S.C. 1701 et seq.; 42 U.S.C. 1441, 1441a, 1551a,

and 3535(d).

2. In part 291, subparts A, B, and C are revised to read as

follows:

Subpart A--General Provisions

Sec.

291.1 Purpose and general requirements.

291.5 Definitions.

291.10 General policy regarding rental of acquired property.

Subpart B--Disposition by Sale

291.90 Sales methods.

291.100 General policy.

Subpart C--Sales Procedures

291.200 Future REO acquisition method.

291.205 Competitive sales of individual properties.

291.210 Direct sales procedures.

Subpart A--General Provisions

Sec. 291.1 Purpose and general requirements.

(a) Purpose. (1) This part governs the disposition of one-to-four

family properties acquired by the Federal Housing Administration (FHA)

through foreclosure of an insured or Secretary-held mortgage or loan

under the National Housing Act, or acquired by HUD under section 312 of

the Housing Act of 1964. HUD will issue detailed policies and

procedures that must be followed in specific areas.

(2) The purpose of the property disposition program is to dispose

of properties in a manner that expands homeownership opportunities,

strengthens neighborhoods and communities, and ensures a maximum return

to the mortgage insurance funds.

(b) Nondiscrimination policy. The requirements set forth in 24 CFR

parts 5 and 110 apply to the administration of any activity under this

part. In addition, in accordance with 24 CFR 9.155(a), HUD must ensure

that its policies and practices in conducting the single family

property disposition program do not discriminate on the basis of

disability.

Sec. 291.5 Definitions.

(a) The term Secretary is defined in 24 CFR part 5.

(b) Other terms used in this part are defined as follows:

Competitive sale of individual property means a sale of an

individual property to an individual bidder through a sealed bid

process (or other bid process specifically authorized by the Secretary)

in competition with other bidders in which properties have been

publicly advertised to all prospective purchasers for bids.

Direct sale means a sale to a selected purchaser to the exclusion

of all others without resorting to advertising for bids. Such a sale is

available only to approved applicants.

Eligible properties means HUD-acquired properties designated by HUD

for property disposition or other housing programs.

HUD means the Department of Housing and Urban Development or its

contractor, as appropriate.

Insured mortgage means a mortgage insured under the National

Housing Act (12 U.S.C. 1701 et seq.).

Investor purchaser means a purchaser who does not intend to use the

property as his or her principal residence.

Owner-occupant purchaser means a purchaser who intends to use the

property as his or her principal residence; a State, governmental

entity, tribe, or agency thereof; or a private nonprofit organization

as defined in this section. Governmental entities include those with

general governmental powers (e.g., a city or county), as well as those

with limited or special powers (e.g., public housing agencies).

Private nonprofit organization means a secular or religious

organization, no part of the net earnings of which may inure to the

benefit of any member, founder, contributor, or individual. The

organization must:

(1) Have a voluntary board;

(2)(i) Have a functioning accounting system that is operated in

accordance with generally accepted accounting principles; or

(ii) Designate an entity that will maintain a functioning

accounting system for the organization in accordance with generally

accepted accounting principles;

(3) Practice nondiscrimination in the provision of assistance in

accordance with the authorities described in Sec. 291.435(a); and

(4) Have nonprofit status as demonstrated by approval under section

501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)), or

demonstrate that an application for such status is currently pending

approval.

State means any of the several States, the District of Columbia,

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

Samoa, the Northern Mariana Islands, the Trust Territory of the Pacific

Islands, and any other territory or possession of the United States.

Tribe has the meaning provided for the term ``Indian tribe'' in

section 102 of the Housing and Community Development Act of 1974 (42

U.S.C. 5302).

Sec. 291.10 General policy regarding rental of acquired property.

HUD will lease acquired property to comply with other designated

HUD programs, or when the Secretary determines that it is in the

interest of HUD. Leases may include an option to purchase in

appropriate circumstances.

[[Page 6480]]

Subpart B--Disposition by Sale

Sec. 291.90 Sales methods.

HUD will prescribe the terms and conditions for all methods of

sale. HUD may, in its discretion, on a case-by-case basis or as a

regular course of business, choose from among the following methods of

sale:

(a) Future REO acquisition method. The Future Real Estate-Owned

(REO) acquisition method consists of a property acquisition agreement

(or agreements) between HUD and a transferor (or transferors), which

shall provide for the right and obligation of the transferor(s) to

acquire a future quantity of properties designated by HUD as they

become available. HUD will select such transferor(s) through a

competitive process, in accordance with all applicable laws and

regulations, including the requirements in Sec. 291.200. The

transferor(s) shall have the right and obligation to manage and dispose

of the properties upon such terms and conditions as are approved by the

Secretary;

(b) Competitive sales of individual properties. This method

consists of competitive sales of individual properties to individual

buyers, the procedures for which are described in Sec. 291.205;

(c) Direct sales methods. There are three types of direct sales

methods:

(1) Direct sales of properties without insured mortgages to

governmental entities and private nonprofit organizations, the

procedures for which are described in Sec. 291.210(a);

(2) Direct sales to displaced persons, sales of razed lots, or

auctions, the procedures for which are described in Sec. 291.210(b);

(3) Direct sales to other individuals or entities that do not meet

any of the categories specified in paragraphs (a) through (d) of this

section, under the circumstances and procedures described in

Sec. 291.210(c);

(d) Bulk sales, the procedures for which are described in

Sec. 291.210(d); or

(e) Other sales methods. HUD may select any other methods of sale,

as determined by the Secretary.

Sec. 291.100 General policy.

For all sales, except as otherwise specifically indicated, those

sales conducted in accordance with Secs. 291.90(a) and 291.200 or with

subpart D of this part, the following general policies apply:

(a) Qualified purchaser. (1) Anyone, including a purchaser from a

transferor of a property pursuant to Secs. 291.90(a) and 291.200,

regardless of race, color, religion, sex, national origin, familial

status, age, or disability may offer to buy a HUD-owned property,

except that:

(i) No member of or delegate to Congress is eligible to buy or

benefit from a purchase of a HUD-owned property; and

(ii) No nonoccupant mortgagor (whether an original mortgagor,

assumptor, or a person who purchased ``subject to'') of an insured

mortgage who has defaulted, thereby causing HUD to pay an insurance

claim on the mortgage, is eligible to repurchase the same property.

(2) Neither HUD nor any transferor pursuant to Secs. 291.90(a) or

291.200 will offer former mortgagors in occupancy who have defaulted on

the mortgage the right of first refusal to repurchase the same

property.

(3) HUD will offer tenants accepted under the occupied conveyance

procedures outlined in 24 CFR 203.670 through 203.685 the right of

first refusal to purchase the property only if:

(i) The tenant has a recognized ability to acquire financing and a

good rent-paying history, and has made a request to HUD to be offered

the right of first refusal; or

(ii) State or local law requires that tenants be offered the right

of first refusal.

(b) List price. The list price, or ``asking price,'' assigned to

the property is based upon an appraisal conducted by an independent

real estate appraiser using nationally recognized industry standards

for the appraisal of residential property.

(c) Insurance. Properties may be sold under the following programs:

(1) Insured. A property that meets the Minimum Property Standards

(MPS), as determined by the Secretary, for existing dwellings

(Requirements for Existing Housing, One to Four Family Living Units,

HUD Handbook 4905.1, which is available at the Department of Housing

and Urban Development, HUD Customer Service Center, 451 7th Street, SW,

Room B-100, Washington, DC 20410; by calling (202) 708-3151; or via the

Internet at www.hud.gov) will be offered for sale in ``as-is''

condition with FHA mortgage insurance available. Flood insurance must

be obtained and maintained as provided in 24 CFR 203.16a.

(2) Insured with repair escrow. A property that requires no more

than $5,000 for repairs to meet the MPS, as determined by the

Secretary, will be offered for sale in ``as-is'' condition with FHA

mortgage insurance available, provided the mortgagor establishes a cash

escrow to ensure the completion of the required repairs.

(3) Uninsured. A property that fails to qualify under either

paragraph (c)(1) or (c)(2) of this section will be offered for sale

either in ``as-is'' condition without mortgage insurance available, or

in ``as-is'' condition under section 203(k) of the National Housing Act

(12 U.S.C. 1709(k)).

(d) Financing. (1) Except as provided in paragraph (d)(2) of this

section, the purchaser is entirely responsible for obtaining financing

for purchasing a property.

(2) HUD, in its sole discretion, may take back purchase money

mortgages (PMMs) on property purchased by governmental entities or

private nonprofit organizations who buy property for ultimate resale to

owner-occupant purchasers with incomes at or below 115 percent of the

area median income. When offered by HUD, a PMM will be available in an

amount determined by the Secretary to be appropriate, at market rate

interest, for a period not to exceed 5 years. Mortgagors must meet FHA

mortgage credit standards.

(3) Purchase money mortgage (PMM). For purposes of this section,

the term ``purchase money mortgage,'' or PMM means a note secured by a

mortgage or trust deed given by a buyer, as mortgagor, to the seller,

as mortgagee, as part of the purchase price of the real estate.

(e) Environmental requirements and standards. Sales under this part

are subject to the environmental requirements and standards described

in 24 CFR part 50, as applicable.

(f) [Reserved]

(g) Lead-based paint poisoning prevention. Properties constructed

before 1978 are subject to the requirements for the evaluation and

reduction of lead-based paint hazards contained in 24 CFR part 35 and

24 CFR part 200, subpart O.

(h) Listings. Any real estate broker who has agreed to comply with

HUD requirements may participate in the sales program. Purchasers

participating in the competitive sales program, except government

entities and nonprofit organizations, must submit bids through a

participating broker.

(1) Open listings. Except as provided in paragraph (h)(2) of this

section, properties are sold on an open listing basis with

participating real estate brokers.

(2) Asset management and listing contracts. (i) A local HUD office

may invite firms experienced in property management to compete for

contracts that provide for an exclusive right to manage and list

specified properties in a given area.

[[Page 6481]]

(ii) In areas where a broker has an exclusive right to list

properties, a purchaser may use a broker of his or her choice. The

purchaser's broker must submit the bid to HUD through the exclusive

broker.

Subpart C--Sales Procedures

Sec. 291.200 Future REO acquisition method.

(a) Under this method of property disposition, HUD will enter into

a property acquisition agreement (or agreements) with a transferor (or

transferors), which shall provide for the right and obligation of the

transferor(s) to acquire a future quantity of properties designated by

HUD as they become available. The transferor(s) will be selected

through a competitive process, conducted in accordance with applicable

laws. HUD will negotiate the specific terms of the property acquisition

agreement(s) with the selected transferor(s). The properties will be

available on an ``as-is'' basis only, without repairs or warranties.

(b) Eligible entities. An individual, partnership, corporation, or

other legal entity will not be eligible to participate in this process

if at the time of the sale, that individual or entity is debarred,

suspended, or otherwise precluded from doing business with HUD under 24

CFR part 24.

Sec. 291.205 Competitive sales of individual properties.

When HUD conducts competitive sales of individual properties to

individual buyers, it will sell the properties on an ``as-is'' basis,

without repairs or warranties, and it will follow the sales procedures

provided in this section.

(a) General. (1) Properties that are sold on an individual

competitive bid basis are sold through local real estate brokers,

except as provided in Sec. 291.100(h).

(2) For properties being offered with insured mortgages, priority

will be given to owner-occupant purchasers, as defined in Sec. 291.5,

for a period of up to 30 days, as determined by HUD. For properties

offered without insured mortgages, priority will be given to

governmental entities and nonprofit organizations prior to other owner-

occupant purchasers.

(b) Net offer. (1) The net offer is calculated by subtracting from

the bid price the dollar amounts for the financing and loan closing

costs and the broker's sales commission, as described in paragraph

(b)(2) of this section.

(2) If requested by the purchaser in the bid, HUD will pay all or a

portion of the financing and loan closing costs and the broker's sales

commission, not to exceed the percentage of the purchase price

determined appropriate by the Secretary for the area. In no event will

the total amount for broker's sales commission exceed 6 percent of the

purchase price, except for cash bonuses offered to brokers by HUD for

the sale of hard-to-sell properties.

(c) Acceptable bid. HUD will accept the bid producing the greatest

net return to HUD and otherwise meeting the terms of HUD's offering of

the property, with priority given to owner-occupant purchasers as

described in paragraph (a)(2) of this section. The greatest net return

is calculated based on the net offer, as described in paragraph (b) of

this section.

(d) Bid period. (1) HUD will establish a bid period for properties

available for sale. Generally, the bid period will be 10 days, but may

be lengthened or shortened by HUD. After properties are initially

advertised, bids may be submitted by all potential purchasers. However,

in the case of properties offered with insured mortgages, HUD may give

priority to owner-occupant purchasers for a period of up to 30-days, as

described in paragraph (a)(2) of this section.

(2) HUD may treat all bids received during a specified period of

time during the bid period to have been received simultaneously. HUD

may also choose to review bids on a daily basis, with all bids

submitted during each day considered to have been received

simultaneously. HUD may use either (or both) of these methods during

the bid period, as described in the bid materials accompanying a

particular sale.

(3) Offers received on a property before the bid period begins will

be returned. Offers received after the bid period will not be

considered at the bid opening, but will be considered during the

extended listing period if no acceptable bid was received during the

bid period (see paragraph (f) of this section).

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

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

bid period. If an offer for the full list price and otherwise meeting

the terms of the offering is received, it will be accepted at the time

of the opening and the bid period cancelled.

(f) Extended listing period. Properties not sold during the bid

period will remain available for an extended listing period. All bids

received on each day of the extended listing period will be considered

as being received simultaneously, and will be opened together at the

next scheduled daily bid opening. Properties that fail to sell within

45 days after being offered for competitive bidding will be reanalyzed

and made available for sale. If a property's price or terms are

changed, it may be subject to another competitive bid period as

described in paragraph (d) of this section.

(g) Bid requirements. (1) All successful bids submitted, whether

during the bid period or the extended listing period, must be in a form

prescribed by HUD, and must be submitted in accordance with procedures

established by HUD. If the purchase is to be an insured sale, a local

HUD office may also require that supporting exhibits for mortgage

credit analysis accompany the initial submission of the bid. All bids

not indicating that the purchaser will occupy the property will be

considered as offers from investor purchasers.

(2) Noncomplying bids will be returned to the broker with an

explanation for the noncompliance decision and information about

whether the property is still available.

(h) Earnest money deposits. (1) The amount of earnest money deposit

required for a property with a sales price of $50,000 or less is $500,

except that for vacant lots the amount is 50 percent of the list price.

For a property with a sales price greater than $50,000, the amount of

earnest money deposit required in the area is set by the local HUD

office, in an amount not less than $500 or more than $2,000.

Information on the amount of the required earnest money deposit is

available from the local HUD office or participating real estate

brokers.

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

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

certification from the real estate broker that the earnest money has

been deposited in the broker's escrow account. If a bid is accepted by

HUD, the earnest money deposit will be credited to the purchaser at

closing; if the bid is rejected, the earnest money deposit will be

returned. Earnest money deposits are subject to total or partial

forfeiture for failure to close a sale.

(i) Multiple bids. Real estate brokers may submit unlimited numbers

of bids on an individual property provided each bid is from a different

prospective purchaser. If a purchaser submits multiple bids on the same

property, only the bid producing the highest net return to HUD will be

considered. If a prospective owner-occupant purchaser submits a bid on

more than one property, the bid that produces the greatest net return

to HUD will be accepted and all other bids from that purchaser will be

eliminated from

[[Page 6482]]

consideration. However, if the prospective owner-occupant purchaser has

submitted the only acceptable bid on another property, then that bid

must be accepted and all other bids from that purchaser on any other

properties will be eliminated from consideration.

(j) Identical bids. In the case of identical bids submitted by an

owner-occupant purchaser and an investor purchaser, HUD will select the

bid submitted by the owner-occupant purchaser. If identical bids are

submitted by two or more owner-occupant purchasers, or by two or more

investor purchasers, award will be determined by drawing lots.

(k) Opening the bids. Unless the Secretary specifically authorizes

another bid process:

(1) The successful bids will be opened publicly at a time and place

designated by the local HUD office.

(2) Successful bidders will be notified through their real estate

brokers by mail, telephone, or other means. Information regarding

losing bids will also be made available either through electronic

posting or by contacting the local HUD office. Acceptance of a bid is

final and effective only upon HUD's execution of the sales contract,

signed by both the submitting real estate broker and the prospective

purchaser, and mailing of a copy of the executed contract to the

successful bidder or the bidder's agent.

(l) Counteroffers. If all bids received on a property are

unacceptable, a local HUD office may notify all bidders or their

brokers that HUD will accept an offer equalling a predetermined net

acceptable price. Bidders must submit an acceptable offer before the

established bid cut-off period, to be determined by the local HUD

office. The highest acceptable offer received within the specified

period of time, including any offer received from a bidder who did not

submit a bid during the bid period, will be accepted, thus terminating

the counteroffer negotiations.

Sec. 291.210 Direct sales procedures.

When HUD conducts the sales listed in Sec. 291.90(c), it will sell

the properties on an ``as-is'' basis, without repairs or warranties,

and it will follow the applicable sales procedures provided in this

section.

(a) Direct sales of properties without insured mortgages to

governmental entities and private nonprofit organizations. (1) State

and local governments, public agencies, and qualified private nonprofit

organizations that have been preapproved to participate by HUD,

according to standards determined by the Secretary, may purchase

properties directly from HUD at a discount off the list price

determined by the Secretary to be appropriate, but not less than 10

percent, for use in HUD and local housing or homeless programs.

(2)(i) Purchasers under paragraph (a)(1) of this section must

designate geographical areas of interest by ZIP code. Upon request,

before those properties without insured mortgages are publicly listed,

HUD will assure that governmental entities and nonprofit organizations

are notified in writing when eligible properties become available in

the areas designated by them. HUD will coordinate the dissemination of

the information to ensure that if more than one purchaser designates a

specific area, those purchasers receive the list of properties at the

same time, based on intervals agreed upon between HUD and the

purchasers. A property in this section will be sold to the first

eligible purchaser submitting an acceptable contract. All bids received

on the same business day will be considered to have been received

simultaneously. In the case of identical bids submitted on the same

business day, award will be determined by drawing lots.

(ii) Purchasers under paragraph (a)(1) of this section must notify

HUD of preliminary interest in specific properties within 5 days of the

notification of available properties (if notification is by mail, the 5

days will begin to run 5 days after mailing). HUD will provide a

consideration and inspection period for these purchasers. The

consideration and inspection period will usually be for ten days from

the date of notification of interest, but may be lengthened or

shortened by HUD, as appropriate. Those properties in which purchasers

express an interest will be held off the market for the duration of the

consideration and inspection period. Other properties on the list will

continue to be processed for public sale. HUD may limit the number of

properties held off the market for a purchaser at any one time, based

upon the purchaser's financial capacity as determined by HUD and upon

past performance in HUD programs. At the end of the consideration and

inspection period, properties in which no governmental entity or

nonprofit organization has expressed a specific intent to purchase will

be offered for sale under the competitive bid process. Properties in

which a governmental entity or nonprofit organization expressed an

intent to purchase, during the consideration and inspection period,

will continue to be held off the market pending receipt of the sales

contract. If a sales contract is not received within a time period of

up to 10 days, as determined by HUD, following expiration of the

consideration and inspection period, and no other governmental entity

or nonprofit organization has expressed an interest, then the property

will be offered for sale under the competitive bid process.

(3) In order to ensure that properties purchased at a discount are

being utilized for expanding affordable housing opportunities, HUD may

require, as appropriate, periodic, limited information regarding the

purchase and resale of such properties, and certain restrictions on the

resale of such properties.

(b) Direct sales to displaced persons; razed lots; auctions. HUD

may seek to dispose of individual properties to individual buyers

through methods such as direct sales to displaced persons, sales of

razed lots, or auctions. These sales will be upon such terms and

conditions as the Secretary may prescribe.

(c) Direct sales to individuals or entities. HUD may also seek to

dispose of properties through direct sales to other individuals or

entities that do not meet any of the categories specified in this

section, if the Assistant Secretary for Housing-Federal Housing

Commissioner (or his or her designee) finds in writing that such sales

would further the goals of the National Housing Act (12 U.S.C. 1701 et

seq.) and would be in the best interests of the Secretary. These sales

will be upon such terms and conditions as the Secretary may prescribe.

(d) Bulk sales. HUD may seek to dispose of properties through bulk

sales. Such sales will be upon such terms and conditions as the

Secretary may prescribe.

3. A new Sec. 291.405 is added, to read as follows:

Sec. 291.405 Definitions.

For purposes of this subpart E:

Applicant means a State, metropolitan city, urban county,

governmental entity, tribe, or private nonprofit organization that

submits a written expression of interest in eligible properties under

this subpart E. Governmental entities include those that have general

governmental powers (e.g., a city or county), as well as those with

limited or special powers (e.g., public housing agencies or State

housing finance agencies). In the case of applicants leasing properties

while their applications for Supportive Housing assistance are pending,

``applicant'' is defined in 24 CFR part 583.

Homeless means:

[[Page 6483]]

(1) Individuals or families who lack the resources to obtain

housing, whose annual income is not in excess of 50 percent of the

median income for the area, as determined by HUD, and who:

(i) Have a primary nighttime residence that is a public or private

place not designed for, or ordinarily used as, a regular sleeping

accommodation for human beings;

(ii) Have a primary nighttime residence that is a supervised

publicly or privately operated shelter designed to provide temporary

living accommodations (including welfare hotels, congregate shelters,

and transitional housing, but excluding prisons or other detention

facilities); or

(iii) Are at imminent risk of homelessness because they face

immediate eviction and have been unable to identify a subsequent

residence, which would result in emergency shelter placement (except

that persons facing eviction on the basis of criminal conduct such as

drug trafficking and violations of handgun prohibitions shall not be

considered homeless for purposes of this definition); or

(2) Persons with disabilities who are about to be released from an

institution and are at risk of imminent homelessness because no

subsequent residences have been identified and because they lack the

resources and support networks necessary to obtain access to housing.

Lessee means the applicant, approved by HUD as financially

responsible, that executes a lease agreement with HUD for an eligible

property.

Dated: February 3, 1999.

William C. Apgar,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 99-3046 Filed 2-8-99; 8:45 am]

BILLING CODE 4210-27-P