Single Family Mortgage Insurance; Informed Consumer Choice Disclosure Notice

SUMMARY: HUD is publishing this proposed rule to implement a recent

statutory amendment to HUD's FHA Single Family Mortgage Insurance

Program. The statutory amendment requires the original lender to

disclose certain information, in the form of a notice, to each

prospective borrower who has applied for an FHA-insured home mortgage;

and HUD to develop this disclosure notice. Specifically, through the

disclosure notice, the lender must provide the borrower with an

analysis comparing the mortgage costs of the FHA-insured mortgage to

the mortgage costs of other similar conventional mortgage products that

the lender offers and for which the borrower might qualify. The

disclosure notice must also provide information about when the

borrower's requirement to pay FHA mortgage insurance premiums

terminates.

DATES: Submit comments on or before March 18, 1999.

ADDRESSES: Submit your comments about this proposed rule to the Office

of the General Counsel, Rules Docket Clerk, room 10276, Department of

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

20410-0500. Your comments should refer to the above docket number and

title. We do not accept facsimile (FAX) comments. A copy of each

communication submitted will be available for public inspection and

copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern

time) at the above address.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Home

Mortgage Insurance Division, Office of Insured Single Family Housing,

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

Washington, DC 20410-8000, Room 9270; Telephone: (202) 708-2121 (this

is not a toll-free number). Hearing or speech-impaired individuals may

access this number via TTY by calling the toll-free Federal Information

Relay Service at (800) 877-8399.

SUPPLEMENTARY INFORMATION:

I. Background

Section 225(a) of the Departments of Veterans Affairs and Housing

and Urban Development, and Independent Agencies Appropriations Act,

1999 (HUD FY 1999 Appropriations Act), Pub. L. 105-276, 112 Stat. 2461,

amended sec. 203(b)(2) of the National Housing Act by adding at the end

of the section the following language:

In conjunction with any loan insured under this section, an

original lender shall provide to each prospective borrower a

disclosure notice that provides a one page analysis of mortgage

products offered by that lender and for which the borrower would

qualify. This notice shall include: (i) a generic analysis comparing

note rate (and associated interest payments), insurance premiums,

and other costs and fees that would be due over the life of the loan

for a loan insured by the Secretary under this subsection with note

rates, insurance premiums (if applicable), and other costs and fees

that would be expected to be due if the mortgagor obtained instead

other mortgage products offered by the lender and for which the

borrower would qualify with similar loan-to-value ratio in

connection with a conventional mortgage . . . assuming prevailing

interest rates; and (ii) a statement regarding when the mortgagor's

requirement to pay mortgage insurance premiums for a mortgage

insured under this section would terminate or a statement that the

requirement will terminate only if the mortgage is refinanced, paid

off, or otherwise terminated.

This amendment requires original lenders to provide each

prospective FHA-insured mortgage borrower with an analysis comparing

the mortgage costs of the FHA-insured mortgage to the mortgage costs of

other similar conventional mortgage products that the lender offers and

for which the borrower might qualify. The amendment also requires the

lender to provide information to the borrower about when the borrower's

requirement to pay FHA mortgage insurance premiums terminates.

Section 225(b) of the FY 1999 HUD Appropriations Act directs HUD to

develop the disclosure notice document, through which the lender must

disclose this information. Section 225(b) also directs HUD to develop

this notice within 150 days of enactment of the FY 1999 HUD

Appropriations Act and to develop the notice through notice and comment

rulemaking.

This proposed rule includes, for comment, a model disclosure notice

that contains the consumer information required to be disclosed by

section 225(a). The proposed rule also provides a model format for the

notice. The proposed rule includes an amendment to HUD's regulations at

24 CFR part 203 that would add a new section, Sec. 203.10. Section

203.10 would conform HUD's regulations to the statutory lender

disclosure requirement.

II. Proposed Informed Consumer Choice Disclosure Notice

The following provides HUD's proposal for the informed consumer

choice disclosure notice. HUD specifically solicits comments and

recommendations on the format of the proposed disclosure notice. FHA

anticipates that lenders will develop generic disclosure notices that

compare a typical FHA mortgage in the marketplace with typical

conventional mortgages offered by that lender, using a $100,000 sales

price (or other such amount as may be typical within the lender's

market) and using the suggested format and instructions shown below for

guidance.

As conventional mortgage offerings and pricing change over time,

lenders will be required to modify their disclosure notices

accordingly. HUD believes that a generic disclosure notice (similar to

those provided on ARMs) reflects the intent of Congress in enacting

sec. 225(a) and does not impose an unreasonable burden on lenders.

Therefore, HUD will not require a case-specific disclosure notice for

each borrower who may qualify for both a FHA-insured mortgage and

conventional financing. To do otherwise would significantly increase

mortgage origination costs and be counter to the intent of the

Paperwork Reduction Act of 1995.

To complete the generic disclosure format shown below, lenders

should use the following instructions. At the lenders discretion,

lenders may add additional line items to the disclosure format, shown

below, if the conventional financing is so unique or creative that such

additions are necessary to make a meaningful comparison.

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II. Findings and Certifications

Justification for Shortened Comment Period

Generally, HUD provides a 60-day public comment period on all rules

in accordance with 24 CFR part 10. Section 225(b) of the HUD FY 1999

Appropriations Act directs HUD to develop this rule within 150 days of

the date of enactment. The HUD FY 1999 Appropriations Act was enacted

on October 21, 1998. The deadline to develop this rule, therefore, is

March 20, 1999. To assist us in meeting this deadline, we have

shortened the public comment period to 30 days.

Paperwork Reduction Act Statement

The proposed information collection requirements contained at

Sec. 203.10 of this proposed rule have been submitted to the Office of

Management and Budget (OMB) for review under sec. 3507(d) of the

Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35. An agency may

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

collection of information unless the collection displays a valid

control number.

(a) In accordance with 5 CFR 1320.5(a)(1)(iv), HUD is setting forth

the following concerning the proposed collection of information:

(1) Title of the information collection proposal: Single Family

Mortgage Insurance; Informed Consumer Choice Disclosure Notice

(2) Summary of the collection of information: The information

collection requires lenders to provide prospective borrowers with a

disclosure notice that contains an analysis of the costs of an FHA-

insured mortgage compared with the costs of other conventional mortgage

products that a lender offers and for which the borrower might qualify.

In order to produce this notice, the lender would be required to

collect information about any applicable mortgage products, such as

interest rates, insurance premiums, and other costs and fees that would

be due over the life of the particular mortgage product.

(3) Description of the need for the information and its proposed

use: The need for the disclosure notice was mandated by Congress. The

notice would be provided to prospective borrowers who have applied for

an FHA-insured mortgage so that they would be able to evaluate the

overall costs of an FHA-insured mortgage versus a similar conventional

mortgage for which the mortgagor might also qualify.

(4) Description of the likely respondents, including the estimated

number of likely respondents, and proposed frequency of response to the

collection of information: Respondents would be HUD-approved lenders

participating in the Single Family Mortgage Insurance Program. The

estimated number of respondents is described in paragraph (5). The

proposed frequency of responses would be variable as lenders would

revise their disclosure notices only when their mortgage product

offerings change.

(5) Estimate of the total reporting and recordkeeping burden that

will result from the collection of information:

Reporting Burden:

----------------------------------------------------------------------------------------------------------------

Number of Est. Avg. response Est. annual

Reference respondents Freq. of response time (hours) burden (Hrs.)

----------------------------------------------------------------------------------------------------------------

Sec. 203.10...................... 9000 Varies............... \1/2\ Hour........... 4500

----------------------------------------------------------------------------------------------------------------

Recordkeeping Burden

------------------------------------------------------------------------

Hours per Total annual

Recordkeepers recordkeeper responses

------------------------------------------------------------------------

There are no recordkeeping burdens associated with this disclosure

notice.

------------------------------------------------------------------------

(b) In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting

comments from members of the public and affected agencies concerning

the proposed collection of information in order to:

(1) Evaluate whether the proposed collection of information is

necessary for the proper performance HUD's functions, including whether

the information will have practical utility;

(2) Evaluate the accuracy of HUD's estimate of the proposed

collection of information's burden;

(3) Enhance the quality, utility, and clarity of the information to

be collected; and

(4) Minimize the proposed collection of information's burden on

respondents, including through the use of appropriate automated

collection techniques or other forms of information technology, e.g.,

permitting electronic submission of responses.

Interested persons are invited to submit comments regarding the

proposed information collection requirements. Comments must be received

within 60 days from the date of this proposal. Comments must refer to

this proposed rule by name and docket number (FR-4411-P-01) and must be

sent to:

Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and

Budget, New Executive Office Building, Washington, DC 20503

and

Reports Liaison Officer, Office of the Assistant Secretary for Housing-

Federal Housing Commissioner, Department of Housing and Urban

Development, 451 7th Street, SW, Room 9116, Washington, DC 20410

Environmental Impact

In accordance with 24 CFR 50.19(c)(1) of HUD's regulations, this

proposed rule does not direct, provide for assistance or loan and

mortgage insurance for, or otherwise govern or regulate, real property

acquisition, disposition, leasing, rehabilitation, alteration,

demolition, or new construction, or establish, revise, or provide for

standards for construction or construction materials, manufactured

housing, or occupancy. Therefore, this proposed rule is categorically

excluded from the requirements of the National Environmental Policy

Act, 42 U.S.C. 4321-4347.

Regulatory Flexibility Act

The Secretary has reviewed this proposed rule before publication

and by approving it certifies, in accordance with 5 U.S.C. 605(b) (the

Regulatory Flexibility Act), that this proposed rule would not have a

significant economic impact on a substantial number of small entities.

The proposed rule simply

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implements a statutory disclosure requirement and provides a proposed

format for that notice. While HUD does not anticipate that this

proposed rule would have a significant economic impact on a substantial

number of small entities, HUD specifically requests comments regarding

alternatives to compliance that may be less burdensome for small

entities.

Federalism

The General Counsel, as the Designated Official under sec. 6(a) of

Executive Order 12612 (Federalism) has determined that the policies

contained in this proposed 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.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance number for part 203 is

14.117.

List of Subjects in 24 CFR Part 203

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

housing and community development, Mortgage insurance, Reporting and

recordkeeping requirements, Solar energy.

Accordingly, 24 CFR part 203 is proposed to be amended as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

1. The authority citation for 24 CFR part 203 continues to read as

follows:

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

3535(d).

2. Add Sec. 203.10 to read as follows:

Sec. 203.10 Informed consumer choice disclosure notice.

(a) Applicability. Before making a mortgage insured under this

part, the mortgagee must provide a prospective mortgagor with an

informed consumer choice disclosure notice, in a format prescribed by

the Commissioner.

(b) Contents of notice. The informed consumer choice disclosure

notice must provide a generic analysis of the costs of conventional

mortgage products, offered by the mortgagee and for which the mortgagor

might qualify, that have similar loan-to-value ratios as the

prospective FHA-insured mortgage.

(c) Timing. The informed consumer choice disclosure notice must be

provided to the prospective mortgagor within three days of signing the

mortgage loan application for the prospective FHA-insured mortgage.

(d) Effective date. This section applies to any application for

FHA-insured mortgage insurance under Sec. 203(b) of the National

Housing Act (12 U.S.C. 1709) that the mortgagee receives on or after

[Insert effective date of the final rule].

Dated: January 29, 1999.

William C. Apgar,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 99-3562 Filed 2-12-99; 8:45 am]

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