[Federal Register Volume 77, Number 9 (Friday, January 13, 2012)]
[Proposed Rules]
[Pages 2024-2027]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-581]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 77, No. 9 / Friday, January 13, 2012 /
Proposed Rules
[[Page 2024]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 203
[Docket No. FR-5462-P-01]
RIN 2502-AJ02
Federal Housing Administration (FHA) Single-Family Mortgage
Insurance: Elimination of Requests for Alternative Mortgage Limits
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would eliminate the process for requesting
alternative FHA maximum mortgage amounts. HUD currently sets the area-
based loan limits on a yearly basis and permits appeals of these loan
limits. At the time the regulations permitting appeals were
promulgated, there were no comprehensive, national databases of home
sales transactions. As a result, HUD relied on sales data provided by
interested parties in determining loan limits for certain areas. Today,
however, HUD has available comprehensive direct sales transaction data
and indirect home value data at the county level. In addition, since
HUD began this new information collection on price trends at a county
level, the number of parties utilizing the appeals process has gone
from 105 for the 2008 loan limits to zero for the 2011 loan limits. For
these reasons, HUD has determined that the regulations governing
requests for alternative maximum mortgage amounts are outdated and
unnecessarily disrupt HUD's loan limit determination process. The
elimination of this appeals process would allow HUD to release its
annual loan limits one month earlier than it has for the past three
calendar years. This difference would provide more certainty in the
mortgage lending market.
DATES: Comment Due Date: March 13, 2012.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Regulations Division, Office of General
Counsel, Department of Housing and Urban Development, 451 7th Street
SW., Room 10276, Washington, DC 20410-0500. Communications must refer
to the above docket number and title. There are two methods for
submitting public comments. All submissions must refer to the above
docket number and title.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
http://www.regulations.gov. HUD strongly encourages commenters to
submit comments electronically. Electronic submission of comments
allows the commenter maximum time to prepare and submit a comment,
ensures timely receipt by HUD, and enables HUD to make them immediately
available to the public. Comments submitted electronically through the
http://www.regulations.gov Web site can be viewed by other commenters
and interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
rule.
No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at (202) 708-
3055 (this is not a toll-free number). Individuals with speech or
hearing impairments may access this number via TTY by calling the
Federal Relay Service at (800) 877-8339. Copies of all comments
submitted are available for inspection and downloading at http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Arlene N. Nunes, Director, Home
Mortgage Insurance Division, Office of Housing, Department of Housing
and Urban Development, 451 7th Street SW., Room 9266, Washington, DC
20410-8000; telephone number (202) 708-2121 (this is not a toll-free
number). Persons with hearing or speech impairments may access this
number through TTY by calling the toll-free Federal Relay Service at
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Section 203(b)(2) of the National Housing Act (12 U.S.C.
1709(b)(2)) (NHA) limits the principal obligation of FHA-insured
single-family mortgages. As amended by the Housing and Economic
Recovery Act of 2008 (Pub. L. 110-289, approved July 30, 2008) (HERA),
section 203(b)(2) of NHA states that an FHA maximum mortgage amount is
the greater of: (1) 115 percent of the median house price for a single-
family home in the ``area,'' as determined by the Secretary of HUD, or
(2) 65 percent of the national conforming limit, the dollar amount
determined under section 305(a)(2) of the Federal Home Loan Mortgage
Corporation Act (12 U.S.C 1454(a)(2)) (FHLMC Act) (this 65 percent
multiple is referred to as the ``floor'').\1\ Section 203(b)(2) of NHA,
as amended by HERA, also states that in no case may area loans limits
exceed 150 percent of the national conforming limit (this 150 percent
multiple is referred to as the ``ceiling''), unless it is a special
exception area--Alaska, Hawaii, Guam, and the Virgin Islands--in which
case the limit is 150 percent of the ceiling.
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\1\ The national conforming limit under FHLMC Act for a 1-family
home is $417,000.
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However, in early 2008, Congress established temporary rules for
FHA loan limits in the Economic Stimulus Act of 2008 (Pub. L. 110-185,
approved February 13, 2008) (ESA). ESA permits FHA to calculate loan
limits based on 125 percent of the area median price (instead of the
115 percent under NHA as amended by HERA), with an upper limit ceiling
based on 175 percent (instead of 150 percent permitted under NHA as
amended by HERA) of the national conforming loan limit for one-
[[Page 2025]]
family properties, equal to $729,750. ESA, like section 203(b)(2) of
the NHA, as amended by HERA, sets the ``floor'' for such one-family
properties at 65 percent of the national conforming loan limits, equal
to $271,050. Since the enactment of ESA, both the national ceiling and
the national floor have remained static, because the conforming limit
has not changed from $417,000.\2\ For each year starting with 2009,
Congress passed temporary measures that required HUD to set the loan
limits at the greater of what was established under ESA and what would
otherwise be calculated under NHA. The last of those expired on
September 30, 2011. FHA issues a Mortgagee Letter each year setting
forth the calculated limits applicable to the upcoming fiscal year,
depending on the expiration of the most recent temporary measure passed
by the Congress.\3\
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\2\ Pursuant to HERA, the limits will go down to the lesser of
115 percent of area median home prices or 150 percent of the
national conforming limit, which would be $625,500.
\3\ Most recently, HUD Mortgage Letter 2010-40, issued on
December 1, 2010, announced the maximum mortgage limits in effect
from January 1, 2011, until September 30, 2011. Mortgagee Letter
2010-40 may be downloaded from http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-40ml.pdf.
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In no case, however, may the individual-insured-mortgage amount
exceed the appraised value of the property used as security for the
mortgage. Moreover, section 203(b)(2) of the NHA specifies that, for
purposes of the statutory limitation, the term ``area'' means a
metropolitan statistical area as established by the Office of
Management and Budget (OMB). The loan limits for all counties within an
OMB-designated metropolitan area are based upon that county with the
highest median price within the area. OMB categorizes ``metropolitan
areas'' into Core Based Statistical Areas, Metropolitan Statistical
Divisions, and Micropolitan Areas. HUD recognizes all three types in
the designation of ``areas.''
HUD's regulations implementing section 203(b)(2) of NHA are
codified at 24 CFR 203.18. Recognizing that there may be additional
data or other information not available to HUD, the regulations at
Sec. 203.18b provide a process by which a party may submit
documentation in support of an alternative mortgage limit. Paragraph
(a) of Sec. 203.18b provides that ``[i]f any party believes that a
mortgage limit established by the Secretary * * * does not accurately
reflect the median house prices in an area, the party may submit
documentation in support of an alternative mortgage limit.'' Paragraph
(b) of Sec. 203.18b specifies that this data must be in the form of
``a listing of actual sales prices in the area for all or nearly all''
single-family properties sold in the area for a period of time that
varies from one to three months, depending on sales volume. For
example, paragraph (b)(1)(i) states that if the number of monthly
closed sales in an area is 500 or more, the request need provide only
one month's worth of data. Paragraph (b)(1)(iii) states that if the
number of monthly home sales in the area is below 250, the required
data period is three months. Paragraph (c) of Sec. 203.18b specifies
the manner in which the FHA Commissioner may calculate home sales
prices if the Commissioner determines that the median one-family house
price does not reasonably reflect the sales prices of newly constructed
homes because of an existing stock whose values is static or declining.
HUD has never implemented paragraph (c) of Sec. 203.18b.
HUD's current regulations for loan limit appeals and determination
of home sale prices were promulgated in the early 1980s. At that time,
there were no comprehensive national databases of home sales
transactions. As a result, HUD relied upon appeals by interested
parties, primarily local boards of realtors, as part of its loan limit
determination process. The appeals process started when a party
provided one month of sale transaction data (or multiple months if
sales were low) to their respective HUD Home Ownership Center to show
that the median price for that month or months was higher than the
median in use by HUD. Appeals were typically based on Multiple Listing
Service (MLS) listings. MLS listings are incomplete for sales in any
county, and even the National Association of Realtors (NAR) is unable
to obtain data from all independent MLSs when it compiles data for its
existing-home median price estimates. In addition, reliance on short-
term data is problematic, because, first, the data can have seasonal
variations. Second, short-term data can have aberrations as a result of
its smaller sample size. For example, there could be a large number of
new home sales in a given month (or three-month period) that greatly
skew the local median price upward. Third, permitting continuous
appeals, as in the former regime, may exacerbate housing booms, as
sharply increasing housing prices continuously generate higher mortgage
limits that increase the number of FHA-insured loans.
Over time, HUD adopted a secondary, end-of-year sweep of loan
limits. Relying upon the Mortgage Interest Rate Survey (MIRS) performed
by the Federal Housing Finance Board (FHFB), HUD would create county-
level estimates of area median prices. If the median price from this
data (for a 12-month period ending in October) was higher than what was
currently being used for limit determination, then the median price and
limits in the HUD database would be updated. MIRS was a national survey
that included around 25,000 loans but was never intended to be accurate
at the county level. Data records have ZIP Code but not county
identifiers. However, this was a national source of data available to
HUD that could be used to limit the necessity of relying upon uncertain
and irregular appeals to assure that increases in local area home
prices were being reflected in updated FHA loan limits.
Starting in 2008, HUD developed a new centralized procedure for
managing and updating FHA loan limits. HUD contracts with a data
aggregator, CoreLogic, to compile comprehensive sales transaction
information from county deed recorders for the defined look-back period
(January through August) on nondistress sales of single-family
residential properties (no condominiums). HUD uses those data to
compute median home sale prices. Through CoreLogic, HUD has available
comprehensive sale transaction data for more than 2,000 counties,
representing population centers. For the remaining approximately 1,200
counties with smaller populations, which tend to have few transactions,
HUD relies upon indirect data sources in determining home values. The
first indirect method is to use NAR existing home sale median prices at
the metropolitan area level augmented with American Community Survey
(ACS) data, in order to create county-specific price estimates. The
next indirect method is to use median home values from the most recent
ACS indexed by Federal Housing Finance Agency (FHFA) home price indices
to create median price estimates for the subject look-back period. For
additional areas with very small populations and housing stock, HUD
uses Decennial Census median value estimates, updated to the subject
look-back period with price indices published by the FHFA.
HUD has direct price data for the counties with a high number of
sale transactions. Appeals from any counties for which HUD has direct
price data would be rejected, because there is no new information that
could be provided in an appeal. An appeal for a county where HUD uses
indirect data sources would have to meet four conditions to be
considered: (1) The county is either designated as ``non-metro'' by OMB
or, if the county is within a designated
[[Page 2026]]
metropolitan area, it is the county with the highest median price high-
cost in that area; (2) there must be a sufficient number of
transactions (in practice, HUD considers ten or more transactions to be
a sufficient number) in the county in question and during the defined
look-back period; (3) the loan limit must be already above the national
floor or would be if the appeal were valid; and (4) the loan limit must
not be already at the national ceiling. Few counties could meet this
four-part test. The 2010 median price across the counties for which HUD
currently uses indirect sources of data is under $85,000, and the 95th
percentile is under $175,000.
There are currently only ten counties out of 3,234 that could
possibly make an appeal based upon HUD-estimated home prices being near
or above the national floor and their being in non-metro areas. Four of
those are in the Northern Marianas Island, and one is in Guam. The
remaining counties are: a rural county in Colorado (population 800), a
resort area in the Virgin Islands (St. John), two fishing village
jurisdictions in Alaska, and a Northern Neck county in Virginia
(Lancaster County) where the median home price fluctuates widely each
quarter because of the small number of sale transactions. Over the past
seven years, FHA has insured no loans in any of the four municipalities
of the Northern Marianas Islands. In only one of the other six
jurisdictions has FHA insured loans each year since 2005 and has
insured ten or more in any year--Lancaster County, Virginia. Thus, at
this time only one county could qualify for the appeals process. HUD
seeks comment on whether any other counties could qualify or will soon
qualify for the appeals process.
In addition, since these new procedures for establishing median
prices took effect in 2008, the number of appeals received and accepted
by HUD has dropped to zero. The number of requests for an alternative
mortgage amount reached an all-time high for the 2005 loan limits, 203
appeals, of which 180 were accepted. For the 2008 loan limits in effect
before the passage of ESA, there were 105 appeals (in 2007), of which
83 were accepted. This number dropped to nine appeals under the 2009
loan limits, of which seven were accepted. For the 2010 loan limits,
only one appeal was received. That appeal was rejected, because HUD
already had comprehensive sales price data for the subject county. For
the 2011 loan limits, for which the open appeals period was November
through December 2010, and during which HUD's data coverage had
significantly increased, no appeals were received.
II. This Proposed Rule
This proposed rule would remove Sec. 203.18b, ``Increased mortgage
amount,'' in its entirety. As noted, the current regulation requires an
individual who is appealing the maximum mortgage amount for an area to
provide documentation to support the request for the increase. Although
HUD recognizes that home values have declined in many areas, the loan
floor and ceiling have remained static since 2008; in some areas where
the limit is between the floor and the ceiling, the limit has
increased. The current appeals process is unnecessary and outdated for
two reasons: (1) HUD either has complete sales transaction data (in the
case of counties covered by direct price data, for which appeals would
be rejected immediately); (2) the county's median home price falls
below the national floor or has too few transactions to make a valid
appeal based on these transactions. Related to these two reasons, the
number of appeals in 2011 dropped to zero. HUD seeks comment on whether
any other reasons contributed to the drop in the number of appeals.
HUD anticipates that if this rule were not changed, there would be
very few, if any, successful appeals in the future. This projection
would be true even if local economies improve and home prices rise. A
valid appeal must provide better data than HUD already has compiled on
home sale transactions or home values in a given county, and a
successful appeal must actually impact the area loan limits. As
discussed above, since HUD's access to county-level home sale data
began in 2008, the coverage rate has improved each year and has limited
the number of potentially valid appeals. Further, most areas with small
populations are not eligible to file an appeal as a result of low home
sale prices or low numbers of transactions. Nevertheless, in future
years, if a county currently covered by HUD's indirect median price
estimates has a basis for filing an appeal under the current
procedures, HUD will work with sources in that county to obtain more
data on home sale transactions and will move to the use of direct data
for that jurisdiction. Thus, HUD concludes that the removal of this
regulation would not have any impact on the calculation of area loan
limits now or in the future.
III. Findings and Certifications
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this proposed
rule under Executive Order 12866 (entitled ``Regulatory Planning and
Review''). A determination was made that this proposed 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). The docket file is available for public
inspection in the Regulations Division, Office of General Counsel,
Department of Housing and Urban Development, 451 7th Street SW., Room
10276 Washington, DC 20410-0500. Due to security measures at the HUD
Headquarters building, please schedule an appointment to review the
docket file by calling the Regulation Division at (202) 402-3055 (this
is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service at (800) 877-8339.
The benefits of this rule come from providing the mortgage industry
with firm loan limits as early as possible each year. The data HUD uses
for loan limit determination is not available until mid-October, and
the preliminary loan limits are completed in early-to-mid November.
Requiring a 30-day appeals period for the sake of a possible appeal
from one of the very small number counties that could possibly make a
valid appeal creates a cost in terms of delays in final limit
determination for the national housing market. Mortgage lenders require
certainty in order to take loan applications in the November and
December time frame, and loans that may not close until the next
calendar year would be subject to new loan limits. HUD strives for
direct sale transaction price data from any or all of the counties for
which HUD currently uses indirect sources and which meet the four-part
test outlined above. HUD would welcome a relationship with entities
that could provide direct data, if any deviations between HUD's
indirect median price estimate and actual home prices become material
for FHA insurance in such areas. Having a national appeals period that
delays implementation of final loan limits across the entire nation
each year is not an effective means of addressing a very small number
of localized needs in the future.
The President's Executive Order (EO) 13563, entitled ``Improving
Regulation and Regulatory Review,'' was signed by the President on
January 18, 2011, and
[[Page 2027]]
published on January 21, 2011, at 76 FR 3821. This EO requires
executive agencies to analyze regulations that are ``outmoded,
ineffective, insufficient, or excessively burdensome, and to modify,
streamline, expand, or repeal them in accordance with what has been
learned.'' For the reasons discussed in this preamble, HUD has
determined that the regulations regarding the appeals process for FHA
maximum mortgage amounts are now outmoded. The appeals were once an
important source of data collection for HUD, but the new comprehensive
nationwide data sources have negated the need for the appeals process
and the corresponding regulations. HUD therefore proposes to remove the
regulations. HUD seeks comment on any of the benefits or costs of the
proposed removal of the regulations.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The proposed rule will not impose any economic burdens. As indicated in
the Background section of this preamble, entities (typically local
boards of realtors that gather data from local MLSs) no longer utilize
this appeals process and therefore do not, and will not in the future,
incur expenses as a result of this proposed rule.
Notwithstanding HUD's determination that this rule will not have a
significant effect on a substantial number of small entities, HUD
specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in the preamble to this rule.
Environmental Impact
This 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. This rule is limited to the procedures governing
the submission of requests for alternative maximum mortgage amounts
under the FHA single-family programs. In addition, part of this rule
changes a statutorily required and/or discretionary establishment and
review of loan limits. Accordingly, under 24 CFR 50.19(c)(1) and
(c)(6), this rule is categorically excluded from environmental review
under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on state and local
governments and is not required by statute, or the rule preempts state
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This rule would not have
federalism implications and would not impose substantial direct
compliance costs on state and local governments or preempt state law
within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. This proposed rule would
not impose any federal mandates on any state, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
Catalogue of Federal Domestic Assistance
The Catalogue of Federal Domestic Assistance Number for the
principal FHA single-family mortgage insurance program 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, for the reasons stated in the preamble, HUD proposes
to amend 24 CFR part 203 to read as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority citation for part 203 continues to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-1716, and 1715u;
42 U.S.C. 3535(d).
2. Remove section 203.18b.
Dated: December 28, 2011.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2012-581 Filed 1-12-12; 8:45 am]
BILLING CODE 4210-67-P