[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Rules and Regulations]
[Pages 51465-51469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20924]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 25, 30, 201, 202, 203, and 206
[Docket No. FR-5622-F-01]
RIN 2502-AJ13
Federal Housing Administration: Strengthening Risk Management
Through Responsible FHA-Approved Lenders
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule; clarification and correction.
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SUMMARY: As part of HUD's efforts to strengthen the risk management
practices of the Federal Housing Administration (FHA), HUD published a
final rule on April 20, 2010, revising its regulations pertaining to
the FHA-approval of mortgage lenders. The April 20, 2010, final rule
increased the net worth requirement for FHA-approved lenders and
mortgagees, eliminated HUD's approval of loan correspondents, and
amended the general approval standards for lenders and mortgagees. This
final rule makes several nonsubstantive clarifications and corrections
to the provisions of the April 20, 2010, final rule. The changes will
improve the clarity of HUD's regulatory requirements and, thereby,
facilitate program participant compliance and improve HUD's ability to
monitor and enforce its risk management regulations.
DATES: Effective Date: September 24, 2012.
FOR FURTHER INFORMATION CONTACT: Richard Toma, Deputy Director, Office
of Lender Activities and Program Compliance, Office of Housing,
Department of Housing and Urban Development, 490 L'Enfant Plaza East
SW., Room P3214, Washington, DC 20024-8000; telephone number 202-708-
1515 (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
As part of HUD's efforts to strengthen FHA risk management, HUD
published a final rule on April 20, 2010, entitled, ``Federal Housing
Administration: Continuation of FHA Reform; Strengthening Risk
Management Through Responsible FHA-Approved
[[Page 51466]]
Lenders'' (75 FR 20718). The April 20, 2010, final rule increased the
net worth requirement for FHA-approved lenders and mortgagees,
eliminated HUD's approval of loan correspondents, and amended the
general approval standards for lenders and mortgagees. This final rule
makes the following nonsubstantive clarifications and corrections to
the provisions of the April 20, 2010, final rule. The changes will
improve the clarity of HUD's regulatory requirements and, thereby,
facilitate program participant compliance and improve HUD's ability to
monitor and enforce its risk management regulations.
A. Liquidity REQUIREMENTS for FHA-Approved Lenders and Mortgagees
The revised net worth requirements established by the April 20,
2010, final rule are codified in 24 CFR 202.5(n). As of May 20, 2011,
FHA-approved non-small business lenders and mortgagees were required to
have a minimum net worth of $1 million ``of which no less than 20
percent must be liquid assets consisting of cash or its equivalent
acceptable to the Secretary'' (Sec. 202.5(n)(2)(iii)). As of that same
date, existing FHA-approved small business lenders and mortgagees were
required to have a minimum net worth of $500,000 ``of which no less
than 20 percent must be liquid assets consisting of cash or its
equivalent acceptable to the Secretary'' (Sec. 202.5(n)(2)(iv)).\1\
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\1\ A small business lender or mortgagee is an existing lender
or mortgagee whose size is less than or equal to ``the size standard
for its industry classification established by the Small Business
Administration at 13 CFR 121.201 Sector 52 (Finance and Insurance),
Subsector 522 (Credit Intermediation and Related Activities).''
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By May 20, 2013, all FHA-approved lenders and mortgagees,
irrespective of size, are required to have a minimum net worth of $1
million, plus an additional net worth of one percent of the total
volume in excess of $25 million of FHA single-family insured mortgages
originated, underwritten, purchased, or serviced during the prior
fiscal year. Further, the regulations require that ``[n]o less than 20
percent of the * * * required net worth must be liquid assets
consisting of cash or its equivalent acceptable to the Secretary''
(Sec. 202.5(n)(3)(i)).
As the quoted language above indicates, the wording of the
liquidity requirement differs slightly between Sec. 202.5(n)(2)(iii)
and (iv) (which establishes the requirements effective on May 20, 2011)
and Sec. 202.5(n)(3)(i) (which establishes the requirements effective
on May 20, 2013). Specifically, Sec. 202.5(n)(2)(iii) and (iv) omit
the word ``required'' when referring to the portion of net worth that
must be held in liquid assets. This difference is due to the
grammatical context in which these provisions are located.
While the intent of the final rule was that the liquidity
requirements apply solely to the required minimum net worth, HUD is
concerned that the variation in wording is unclear and has the
potential to confuse lenders and regulators alike. HUD has consistently
interpreted the liquidity requirements as applying to the required
minimum net worth; however, questions have arisen whether FHA-approved
lenders and mortgagees are required to maintain liquid assets
equivalent to 20 percent of their total net worth. In order to
alleviate confusion and institute clarity, this final rule amends Sec.
202.5(n)(2)(iii) and (iv) to explicitly refer to the approved lender or
mortgagee's required minimum net worth.
In addition, this final rule makes a related technical correction
to Sec. 202.7, which sets forth requirements governing nonsupervised
lenders and mortgagees. This final rule removes outdated paragraph
(b)(2) of Sec. 202.7, which formerly contained the liquidity
requirements for nonsupervised lenders and mortgagees, but has been
superseded by the liquidity requirements established by the April 20,
2010, final rule at Sec. 202.5(n). Section 202.5(n) specifies that the
new net worth and liquidity requirements ``apply to supervised and
nonsupervised lenders and mortgagees.''
B. Definition of Sponsored Third-Party Originator
The April 20, 2010, final rule eliminated HUD's approval of loan
correspondents. Loan correspondents may continue to participate in the
origination of FHA mortgage loans as sponsored third-party originators
through association with a sponsoring FHA-approved mortgagee, but
sponsored third-party originators are no longer subject to the FHA
lender approval process.
Removing the required HUD approval for loan correspondents was not
meant to preclude FHA-approved mortgagees from acting as sponsored
third-party originators. However, the current definition of a sponsored
third-party originator in Sec. 202.8(a)(3) could be read as
prohibiting FHA-approved mortgagees from acting as sponsored third-
party originators. It states that a ``third-party originator does not
hold a Title I Contract of Insurance or Title II Origination Approval
agreement * * *.'' This final rule revises the definition of a
sponsored third-party originator to clarify that a sponsored third-
party originator may hold a Title I Contract of Insurance or Title II
Origination Approval Agreement if it is also an FHA-approved lender or
mortgagee.
C. Consistent Use of the Term ``Sponsored Third-Party Originator'' in
FHA Regulations
In addition, this rule will make technical corrections to HUD's
regulations by removing references to loan correspondents, loan
originators, and other outdated terms, where applicable. Where
appropriate, this final rule replaces these terms with ``sponsored
third-party originator.'' However, since HUD does not approve sponsored
third-party originators, references to loan correspondents, loan
originators, and like phrases will be removed without replacement where
the regulations are applicable only to FHA-approved entities.
The HUD regulations affected by these corrections are those
governing the Mortgagee Review Board (24 CFR part 25), civil money
penalties (24 CFR part 30), FHA Title I property improvements and
manufactured home loans (24 CFR part 201), approval of lending
institutions and mortgagees (24 CFR part 202), single-family mortgage
insurance (24 CFR part 203) and home equity conversions mortgage
insurance (24 CFR part 206). The specific regulations revised by this
final rule are Sec. Sec. 25.3, 25.5, 25.6, 30.10, 30.36, 30.60, 201.2,
202.8, 203.5, 203.255, and 206.31.
II. Justification for Final Rulemaking
In general, HUD publishes a rule for public comment before issuing
a rule for effect, in accordance with HUD's regulations on rulemaking
at 24 CFR part 10. Part 10, however, provides, in Sec. 10.1, for
exceptions from that general rule where HUD finds good cause to omit
advance notice and public participation. The good cause requirement is
satisfied when the prior public procedure is ``impracticable,
unnecessary, or contrary to the public interest.''
HUD finds that good cause exists to publish this rule for effect
without soliciting public comment, on the basis that public procedure
is unnecessary. All of the changes made by this rule are technical in
nature and do not make any substantive changes to HUD's requirements
for individuals and entities participating in FHA programs. This rule
merely makes conforming changes to provisions regarding the liquidity
requirements of FHA-approved lenders and mortgagees in order to provide
clarification, removes or replaces obsolete references to ``loan
[[Page 51467]]
correspondents'' and other outdated terms, and clarifies the original
intent of the sponsored third-party originator definition.
III. Findings and Certifications
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.
As discussed above in this preamble, this rule does not establish or
revise any FHA program requirements. This final rule is limited to
conforming changes, technical corrections, and clarifications that
reflect existing requirements. The rule does not make any substantive
changes to HUD's regulations and, therefore, does not affect a
substantial number of small entities. Accordingly, for the above
reasons, the undersigned certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
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 will 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.
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 clarification and
corrections to HUD's regulations. Accordingly, under 24 CFR
50.19(c)(1), this rule is categorically excluded from environmental
review under the National Environmental Policy Act of 1969 (42 U.S.C.
4321).
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 final 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
24 CFR Part 25
Administrative practice and procedure, Loan programs--housing and
community development, Organization and functions (Government
agencies), Reporting and recordkeeping requirements.
24 CFR Part 30
Administrative practice and procedure, Grant programs--housing and
community development, Loan programs--housing and community
development, Mortgages, Penalties.
24 CFR Part 201
Claims, Health facilities, Historic preservation, Home improvement,
Loan programs--housing and community development, Manufactured homes,
Mortgage insurance, Reporting and recording requirements.
24 CFR Part 202
Administrative practice and procedure, Home improvement,
Manufactured homes, Mortgage insurance, Reporting and recordkeeping
requirements.
24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
24 CFR Part 206
Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, for the reasons stated in the preamble, HUD amends 24
CFR parts 25, 30, 201, 202, 203, and 206, as follows:
PART 25--MORTGAGEE REVIEW BOARD
0
1. The authority citation for part 25 continues to read as follows:
Authority: 12 U.S.C. 1708(c), 1708(d), 1709(s), 1715b, and
1735(f)-14; 42 U.S.C. 3535(d).
0
2. In Sec. 25.3, remove the definition of ``Loan correspondent'' and
revise the definition of ``Mortgagee'' to read as follows:
Sec. 25.3 Definitions.
* * * * *
Mortgagee. For purposes of this part, the term ``mortgagee''
includes:
(1) The original lender under the mortgage, as that term is defined
at sections 201(a) and 207(a)(1) of the National Housing Act (12 U.S.C.
1707(a), 1713(a)(1));
(2) A lender, as defined in this section;
(3) A branch office or subsidiary of the mortgagee or lender; or
(4) Successors and assigns of the mortgagee or lender, as are
approved by the Commissioner.
* * * * *
0
3. In Sec. 25.5, revise paragraphs (d)(1)(ii) and (e)(1)(ii) to read
as follows:
Sec. 25.5 Administrative actions.
* * * * *
(d) * * *
(1) * * *
(ii) During the period of suspension, a lender may not originate
new Title I loans under its Title I Contract of Insurance or apply for
a new Contract of Insurance.
* * * * *
(e) * * *
(1) * * *
(ii) During the period of withdrawal, a lender may not originate
new Title I loans under its Title I Contract of Insurance or apply for
a new Contract of Insurance. The Board may limit the geographical
extent of the withdrawal, or limit its scope (e.g., to either the
single family or multifamily activities of a withdrawn mortgagee). Upon
the expiration of the period of withdrawal, the mortgagee may file a
new application for approval under 24 CFR part 202.
* * * * *
0
4. Revise Sec. 25.6(cc) to read as follows:
Sec. 25.6 Violations creating grounds for administrative action.
* * * * *
(cc) Violation by a Title I lender of any of the applicable
provisions of this section or 24 CFR 202.11(a)(2).
* * * * *
[[Page 51468]]
PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT
0
5. The authority citation for part 30 continues to read as follows:
Authority: 12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, and 1735f-
15; 15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 1437z-1 and
3535(d).
0
6. In Sec. 30.10, remove the definition of ``Loan correspondent'' and
add the definition of ``Sponsored third-party originator'' in
alphabetical order to read as follows:
Sec. 30.10 Definitions.
* * * * *
Sponsored third-party originator. A sponsored third-party
originator as defined at Sec. 202.8 of this title.
0
7. Revise Sec. 30.36(a)(8) to read as follows:
Sec. 30.36 Other participants in FHA programs.
(a) * * *
(8) Sponsored third-party originators;
* * * * *
0
8. In Sec. 30.60, revise the section heading, paragraph (a)
introductory text, and paragraph (a)(3) to read as follows:
Sec. 30.60 Dealers or sponsored third-party originators.
(a) General. The Assistant Secretary for Housing-Federal Housing
Commissioner, or his or her designee, may initiate a civil money
penalty action against any dealer or sponsored third-party originator
that violates section 2(b)(7) of the National Housing Act (12 U.S.C.
1703). Such violations include, but are not limited to:
* * * * *
(3) Failing to sign a credit application if the dealer or sponsored
third-party originator assisted the borrower in completing the
application;
* * * * *
PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS
0
9. The authority citation for part 201 is amended to read as follows:
Authority: 12 U.S.C. 1703; 42 U.S.C. 3535(d).
0
10. In Sec. 201.2, remove the definition of ``Loan correspondent'' and
revise the definition of ``Lender'' to read as follows:
Sec. 201.2 Definitions.
* * * * *
Lender means a financial institution that:
(1) Holds a valid Title I contract of insurance and is approved by
the Secretary under 24 CFR part 202 to originate, purchase, hold,
service, and/or sell loans insured under this part; or
(2) Is under suspension or holds a Title I contract of insurance
that has been terminated, but that remains responsible for servicing or
selling Title I loans that it holds and is authorized to file insurance
claims on such loans.
* * * * *
PART 202--APPROVAL OF LENDING INSTITUTIONS AND MORTGAGEES
0
11. The authority citation for part 202 continues to read as follows:
Authority: 12 U.S.C. 1703, 1709, and 1715b; 42 U.S.C. 3535(d).
0
12. In Sec. 202.5, revise paragraphs (n)(2)(iii) and (iv) to read as
follows:
Sec. 202.5 General approval standards.
* * * * *
(n) * * *
(2) * * *
(iii) Net worth requirements for non-small businesses. Each
approved lender or mortgagee that exceeds the size standard for its
industry classification established by the Small Business
Administration at 13 CFR 121.201 Sector 52 (Finance and Insurance),
Subsector 522 (Credit Intermediation and Related Activities) shall have
a required minimum net worth of not less than $1,000,000. No less than
20 percent of the approved lender or mortgagee's required minimum net
worth must be liquid assets consisting of cash or its equivalent
acceptable to the Secretary.
(iv) Net worth requirements for small businesses. Each approved
lender or mortgagee that meets the size standard for its industry
classification established by the Small Business Administration at 13
CFR 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit
Intermediation and Related Activities) shall have a required minimum
net worth of not less than $500,000. No less than 20 percent of the
approved lender or mortgagee's required minimum net worth must be
liquid assets consisting of cash or its equivalent acceptable to the
Secretary. If, based on the audited financial statement or other
financial report that is required to be prepared at the end of its
fiscal year and provided to HUD at the commencement of the new fiscal
year, an approved lender or mortgagee no longer meets the Small
Business Administration size standard for its industry classification,
the approved lender or mortgagee shall meet the net worth requirements
set forth in paragraph (n)(2)(iii) of this section for a non-small
business approved lender or mortgagee by the last day of the fiscal
year in which the audited financial statement or other financial
report, as applicable, was submitted.
* * * * *
0
13. In Sec. 202.7, revise paragraph (b)(1), remove paragraph (b)(2),
and redesignate paragraphs (b)(3), (4), and (5) as paragraphs (b)(2),
(3), and (4), respectively.
The revision reads as follows:
Sec. 202.7 Nonsupervised lenders and mortgagees.
* * * * *
(b) * * *
(1) Net worth and liquid assets. The net worth and liquidity
requirements appear in Sec. 202.5(n).
* * * * *
0
14. In Sec. 202.8:
0
a. Revise the section heading;
0
b. In paragraph (a), revise the definition of ``Sponsored third-party
originator'';
0
c. Revise paragraph (b); and
0
d. Remove paragraph (c).
The revisions read as follows:
Sec. 202.8 Sponsored third-party originators.
* * * * *
(a) * * *
Sponsored third-party originator. A sponsored third-party
originator may hold a Title I Contract of Insurance or Title II
Origination Approval Agreement if it is an FHA-approved lender or
mortgagee. If the sponsored third-party originator is not an FHA-
approved lender or mortgagee, then the sponsored third-party originator
may not hold a Title I Contract of Insurance or Title II Origination
Approval Agreement. A sponsored third-party originator is authorized to
originate Title I direct loans or Title II mortgage loans for sale or
transfer to a sponsor or sponsors, as defined in this section, that
holds a valid Title I Contract of Insurance or Title II Origination
Approval Agreement and is not under suspension, subject to the sponsor
determining that the third-party originator has met the eligibility
criteria of paragraph (b) of this section.
(b) Eligibility to originate loans to be insured by FHA. A
sponsored third-party originator may originate loans to be insured by
FHA, provided that:
(1) The sponsored third-party originator is working with and
through an FHA-approved lender or mortgagee; and
(2) The sponsored third-party originator or an officer, partner,
director, principal, manager, supervisor, loan processor, or loan
originator of the
[[Page 51469]]
sponsored third-party originator has not been subject to the sanctions
or administrative actions listed in Sec. 202.5(j), as determined and
verified by the FHA-approved lender or mortgagee.
0
15. Revise Sec. 202.12(a)(1)(ii) to read as follows:
Sec. 202.12 Title II.
* * * * *
(a) * * *
(1) * * *
(ii) Customary lending practices. The customary lending practices
of a mortgagee include all single family insured mortgages originated
by the mortgagee, including mortgages that were originated by the
mortgagee's sponsored third-party originator(s).
* * * * *
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
0
16. The authority citation for part 203 continues to read as follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, and
1717z-21; 42 U.S.C. 3535(d).
0
17. Revise Sec. 203.5(e)(3) to read as follows:
Sec. 203.5 Direct Endorsement process.
* * * * *
(e) * * *
(3) A mortgagee and an appraiser must ensure that an appraisal and
related documentation satisfy FHA appraisal requirements, and both bear
responsibility for the quality of the appraisal in satisfying such
requirements. A Direct Endorsement Mortgagee that submits, or causes to
be submitted, an appraisal or related documentation that does not
satisfy FHA requirements is subject to administrative sanction by the
Mortgagee Review Board pursuant to parts 25 and 30 of this title.
0
18. Revise Sec. 203.255(b)(11) to read as follows:
Sec. 203.255 Insurance of mortgage.
* * * * *
(b) * * *
(11) A mortgage certification on a form prescribed by the
Secretary, stating that the authorized representative of the mortgagee
who is making the certification has personally reviewed the mortgage
documents and the application for insurance endorsement, and certifying
that the mortgage complies with the requirements of paragraph (b) of
this section. The certification shall incorporate each of the mortgagee
certification items that apply to the mortgage loan submitted for
endorsement, as set forth in the applicable handbook or similar
publication that is distributed to all Direct Endorsement mortgagees;
* * * * *
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
0
19. The authority citation for part 206 continues to read as follows:
Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).
0
20. In Sec. 206.31, revise paragraph (a)(1) to read as follows:
Sec. 206.31 Allowable charges and fees.
(a) * * *
(1) A charge to compensate the mortgagee for expenses incurred in
originating and closing the mortgage loan, which may be fully financed
with the mortgage. The Secretary may establish limitations on the
amount of any such charge. HUD will publish any such limit in the
Federal Register at least 30 days before the limitation takes effect.
The mortgagor is not permitted to pay any additional origination fee of
any kind to a mortgage broker or sponsored third-party originator. A
mortgage broker's fee can be included as part of the origination fee
only if the mortgage broker is engaged independently by the homeowner
and there is no financial interest between the mortgage broker and the
mortgagee.
* * * * *
Dated: August 20, 2012.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2012-20924 Filed 8-23-12; 8:45 am]
BILLING CODE 4210-67-P