[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Rules and Regulations]
[Pages 72920-72923]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29545]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 232
[Docket No. FR-5537-F-02]
RIN-2502-AJ04
Federal Housing Administration (FHA) Section 232 Healthcare
Mortgage Insurance Program: Partial Payment of Claims
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule amends the regulations governing FHA's Section 232
Healthcare Mortgage Insurance program (Section 232 program) by
establishing the criteria and process by which FHA will accept and pay
a partial payment of a claim under the FHA mortgage insurance contract.
The Section 232 program insures mortgage loans to facilitate the
construction, substantial rehabilitation, purchase, and refinancing of
nursing homes, intermediate care facilities, board and care homes, and
assisted-living facilities. Through acceptance and payment of a partial
payment of claim, FHA pays the lender a portion of the unpaid principal
balance and recasts a portion of the mortgage under terms and
conditions determined by FHA, as an alternative to the lender assigning
the
[[Page 72921]]
entire mortgage to HUD. Partial payment of claim also allows FHA-
insured healthcare projects to continue operating and providing
services.
DATES: Effective Date: January 7, 2013.
FOR FURTHER INFORMATION CONTACT: Kelly Haines, Director, Office of
Residential Care Facilities, Office of Healthcare Programs, Office of
Housing, Department of Housing and Urban Development, 451 7th Street
SW., Room 6264, Washington, DC 20410-8000; telephone number 202-708-
0599 (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 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
A. Background
FHA's Section 232 program insures mortgage loans to facilitate the
construction, substantial rehabilitation, purchase, and refinancing of
nursing homes, intermediate care facilities, board and care homes, and
assisted-living facilities. A project may include more than one type of
facility and financing, and a combination of these uses is acceptable.
The Section 232 program is authorized under the National Housing Act
(12 U.S.C. 1715w). HUD's regulations for the Section 232 program are
codified in 24 CFR part 232. While many aspects of HUD's healthcare
facility operations, including the basic contract and eligibility
requirements, are governed by the regulations applicable to HUD's
multifamily mortgage insurance programs, separate healthcare
regulations have been adopted to address program operations specific to
healthcare facilities, such as state licensing requirements.\1\
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\1\ The regulations codified at 24 CFR part 200 (entitled
``Introduction to FHA programs'') set forth, in a single location of
the Code of Federal Regulations, requirements that are generally
applicable to FHA programs. The regulations at 24 CFR 232.2 require
that facilities meet state licensing requirements.
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One process well-established and long used in HUD's multifamily
housing programs is acceptance of partial payment of claims (PPCs). The
regulations implementing the statutory authority to accept PPCs, which
FHA adopted in 1985, and which are codified in 24 CFR 207.258b,
specifically excluded FHA's Section 232 program from the multifamily
PPC process. (See 24 CFR 232.251(a).)
Congress specifically authorized PPCs for the Section 232 program
in 1997. (See 12 U.S.C. 1735 f-19.) However, as the regulatory
provisions governing the multifamily programs, which predated the 1997
statutory amendments, were not revised to reflect the statutory
authority to use PPCs for healthcare facilities, HUD proposed revisions
specifically to address PPCs.
B. The Proposed Rule and Public Comments
On July 9, 2012, HUD published a proposed rule at 77 FR 40301, in
which it submitted for public comment a proposed revision to the
Section 232 program regulations to provide, in regulation, the
procedures and criteria for FHA to determine when PPCs should be
considered and paid for healthcare facilities.
The proposed regulations governing PPCs in the Section 232 program
used the current multifamily program regulations governing PPCs,
codified at 24 CFR 207.258b, as a baseline. Those PPC regulations were
modified based on FHA's experience in implementing the PPC process in
its multifamily housing programs, and in utilizing PPCs in the Section
232 program on a periodic and temporary basis.
The proposed rule added a new Sec. 232.882, entitled ``Partial
Payment of Claims,'' to the Section 232 program regulations in 24 CFR
part 232 to provide that if the mortgagee elects to assign a mortgage
to the FHA Commissioner, under certain circumstances the Commissioner
may request the mortgagee to accept a partial payment of the claim.
That proposed PPC regulation for the Section 232 program differed from
the regulations establishing the PPC process for the multifamily
programs primarily because the focus of the Section 232 program is on
healthcare facilities.
As stated in the proposed rule preamble and emphasized here in this
preamble to the final rule, FHA's partial payment of claim is made
pursuant to the contract of mortgage insurance between FHA and the
mortgage lender, which are the only parties to the contract. Borrowers
and operators are neither parties to the contract of insurance, nor are
they third-party beneficiaries, and thus they do not have any rights or
expectations in regard to any decision made by FHA to accept or reject
a mortgagee's request for a partial payment of claim.
By establishing a standard process and criteria for acceptance and
payment of PPCs in the Section 232 program, partial payment of claims
can occur more frequently than they do now in the Section 232 program,
not only resulting in savings to the FHA insurance fund, but helping to
restore a project to financial stability.
The public comment period for the July 9, 2012, proposed rule
closed on September 7, 2012, and HUD received one public comment
through the www.regulations.gov Web site. The commenter, an association
of healthcare finance bankers and healthcare consultants, expressed
strong support for the proposed PPC change, as it would make the
Section 232 program stronger by allowing appropriate use of the
partial-payment-of-claim option and provide another tool to help
struggling projects. The commenter offered no suggested changes, and
urged HUD to implement the final rule as quickly as possible.
C. This Final Rule
In this final rule, HUD adopts the proposed rule without
substantive change, but makes an organizational change and makes
certain citation revisions as a result of the organizational change. In
this final rule, HUD is adding the PPC provisions to subpart B,
entitled Contract Rights and Obligations. In the proposed rule, these
changes were proposed to be added to subpart D, which is also titled
Contract Rights and Obligations, but subpart D follows subpart C,
Supplemental Loans to Finance Purchase and Install Fire Safety
Equipment, and focuses on payments and claims related to loans to
finance the purchase and installation of fire safety equipment.
Relocating the PPC provisions to part 232 subpart B, which addresses
contract rights and obligations generally under the Section 232
program, was determined to be a more appropriate fit. Further, HUD has
made several minor revisions in the final rule stage to conform the
references in this rule to the relevant sections describing the claims
process to reflect the change from subpart D.
Findings and Certifications
Executive Order 13563, Regulatory Review
The President's Executive Order (EO) 13563, entitled ``Improving
Regulation and Regulatory Review,'' was signed by the President on
January 18, 2011, and 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.'' Section 4 of the EO, entitled ``Flexible
Approaches,'' provides, in relevant part, that where relevant,
feasible, and consistent with regulatory objectives, and to the extent
permitted by law, each agency shall identify and
[[Page 72922]]
consider regulatory approaches that reduce burdens and maintain
flexibility and freedom of choice for the public. As this rule will
include guidance for PPCs in the Code of Federal Regulations, HUD
submits that the changes by this rule to the Section 232 regulations
are consistent with the EO's directions. The existing Section 232
regulations provide insufficient guidance to the public on PPCs for the
Section 232 program. These changes will reduce risk to the FHA
insurance fund by establishing the criteria and process by which FHA
will accept and pay a partial payment of the claim under the FHA
mortgage insurance contract, as an alternative to the lender assigning
the entire mortgage to HUD. It therefore strengthens the Section 232
program, and helps to ensure that healthcare facilities remain
financially viable.
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.
This rule is directed to strengthening HUD's Section 232 program by
establishing a process and criteria by which the FHA may allow partial
payment of claims for Section 232 projects. As noted under the
discussion of EO 13563, establishment of this process also opens up
another means by which healthcare project owners can restore troubled
projects to financial stability. Acceptance of PPCs helps healthcare
project owners and operators to lower project debt, and continue to
provide valued healthcare services to the communities they serve. This
established process for acceptance of PPCs will help all healthcare
project owners, large and small. Additionally, by clarifying and
codifying existing requirements, the rule makes it easier for borrowers
and operators to comply with their legal obligations. Accordingly, the
undersigned certifies that this rule will not have a significant
economic impact on a substantial number of small entities.
Information Collection Requirements
The information collection requirements contained in this rule were
reviewed by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned OMB
Control Numbers 2502-0418.
In accordance with the Paperwork Reduction Act, 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 currently
valid OMB control number.
The docket file is available for public inspection.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
for this rule was made at the proposed rule stage in accordance with
HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of
the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)).
That Finding of No Significant Impact remains applicable to this final
rule and is available for public inspection between the hours of 8 a.m.
and 5 p.m. weekdays in the Regulations Division, Office of General
Counsel, Department of Housing and Urban Development, 451 Seventh
Street SW., Room 10276, Washington, DC 20410-0500. Due to security
measures at the HUD Headquarters building, please schedule an
appointment to review the finding by calling the Regulations 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.
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.
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 rule does not
impose any federal mandates on any state, local, or tribal governments,
or on the private sector, within the meaning of UMRA.
Catalogue of Federal Domestic Assistance
The Catalogue of Federal Domestic Assistance Number for the
Mortgage Insurance Nursing Homes, Intermediate Care Facilities, Board
and Care Homes, and Assisted Living Facilities program is 14.129.
List of Subjects in 24 CFR Part 232
Fire prevention, Health facilities, Loan programs--health, Loan
programs--housing and community development, Mortgage insurance,
Nursing homes, Reporting and recordkeeping requirements.
Accordingly, for the reasons cited in the preamble, HUD amends part
232 of title 24 of the Code of Federal Regulations as follows:
PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE
FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES
0
1. The authority citation for 24 CFR part 232 is revised to read as
follows:
Authority: 12 U.S.C. 1715b, 1715w, 1735f-19; 42 U.S.C. 3535(d).
0
2. Add Sec. 232.256 to subpart B to read as follows:
Sec. 232.256 Partial payment of claims.
(a) When a lender for a loan on a healthcare project becomes
eligible to file an insurance claim and to assign the mortgage to the
Commissioner pursuant to Sec. 207.258, the Commissioner may request
the lender, in lieu of assignment, to accept a partial payment of the
claim under the mortgage insurance contract and recast the mortgage,
under such terms and conditions as the Commissioner may determine.
(b) The Commissioner may request the lender to participate in a
partial payment of claim in lieu of assignment only after a
determination that partial payment would be less costly to the Federal
Government than other reasonable alternatives for maintaining the
project and that would keep the healthcare facility operational to
serve community needs. In addition to any findings that may be provided
in other guidance, the Commissioner shall base the determination on the
findings listed below:
(1) The lender is entitled, after a default as defined in Sec.
207.255, to assign the mortgage in exchange for the payment of
insurance benefits;
(2) The relief resulting from partial payment, when considered with
other resources available to the project, would
[[Page 72923]]
be sufficient to restore the financial viability of the project;
(3) The project is or can (at reasonable cost) be made physically
sound;
(4) The current or proposed operator of the facility is
satisfactory to the Commissioner, as demonstrated by past experience in
operating similar types of healthcare facilities and by state
regulatory performance;
(5) The default under the insured mortgage was beyond the control
of the borrower and/or operator, or in the case of a transfer of
physical assets (TPA), the proposed borrower or operator, unless the
Commissioner determines that any borrower/operator deficiencies giving
rise to the default have clearly been addressed; and
(6) The project is serving as, or potentially could serve as, a
needed nursing home, intermediate care facility, board and care home,
or assisted living facility.
(c) Partial payment of a claim under this section shall be made
only when:
(1) The property covered by the mortgage is free and clear of all
liens other than the insured first mortgage and such other liens as the
Commissioner may have approved;
(2) The lender has voluntarily agreed to accept a PPC under the
mortgage insurance contract and to recast the remaining mortgage amount
under terms and conditions prescribed by the Commissioner; and
(3) The borrower has agreed to repay to the Commissioner an amount
equal to the partial payment, with the obligation secured by a second
mortgage on the project containing terms and conditions prescribed by
the Commissioner. The terms of the second mortgage will be determined
on a case-by-case basis to ensure that the estimated project income
will be sufficient to cover estimated operating expenses and debt
service on the recast insured mortgage. The Commissioner may provide
for postponed amortization of the second mortgage.
(d) Payment of insurance benefits under this section shall be in
cash.
(e) A lender receiving a partial payment of claim, following the
Commissioner's endorsement of the mortgage for full insurance under 24
CFR part 252, will pay HUD a fee in an amount set forth through Federal
Register notice. HUD, in its discretion, may collect this fee or deduct
the fee from any payment it makes in the claim process.
Dated: December 3, 2012.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2012-29545 Filed 12-6-12; 8:45 am]
BILLING CODE 4210-67-P