[Federal Register Volume 79, Number 89 (Thursday, May 8, 2014)]
[Proposed Rules]
[Pages 26376-26381]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10572]


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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. 79, No. 89 / Thursday, May 8, 2014 / Proposed 
Rules

[[Page 26376]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-5744-P-01]
RIN 2502-AJ20


Federal Housing Administration (FHA): Adjustable Rate Mortgage 
Notification Requirements and Look-Back Period for FHA-Insured Single 
Family Mortgages

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Department of Housing and Urban Development (HUD).

ACTION: Proposed rule.

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SUMMARY: This rule proposes two revisions to FHA's regulations 
governing its single family adjustable rate mortgage (ARM) program to 
align FHA interest rate adjustment and notification regulations with 
the requirements for notifying mortgagors of ARM adjustments, as 
required by the regulations implementing the Truth in Lending Act 
(TILA), as recently revised by the Consumer Financial Protection Bureau 
(CFPB). The first proposed amendment of this rule would require that an 
interest rate adjustment resulting in a corresponding change to the 
mortgagor's monthly payment for an ARM be based on the most recent 
index value available 45 days before the date of the rate adjustment. 
The date that the newly adjusted interest rate goes into effect is 
often referred to as the ``interest change date.'' The number of days 
prior to the interest change date on which the index value is selected 
is called the ``look-back period.'' FHA's current regulations provide 
for a 30-day look-back period. The second proposed amendment would 
require that the mortgagee of an FHA-insured ARM comply with the 
disclosure and notification requirements of the 2013 TILA Servicing 
Rule, including at least a 60-day but no more than 120-day advance 
notice of an adjustment to a mortgagor's monthly payment. FHA's current 
regulations provide for notification at least 25 days in advance of an 
adjustment to a mortgagor's monthly payment.

DATES: Comment Due Date: June 9, 2014.

ADDRESSES: Interested persons are invited to submit comments regarding 
this 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 
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 
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 www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Patricia J. McClung, Acting Director, 
Office of Single Family Program Development, Office of Housing, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
9278, Washington, DC 20410; telephone number 202-708-3175 (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. Executive Summary

A. Purpose of the Regulatory Action

    This proposed rule would align FHA's regulations governing its 
single family ARM program with the interest rate adjustment and 
disclosure and notification periods required for ARMs by TILA, as 
implemented by the CFPB in a final rule published in the Federal 
Register on February 14, 2013, at 78 FR 10902, and entitled ``Mortgage 
Servicing Rules Under the Truth in Lending Act (Regulation Z).'' \1\ 
This February 2013 final rule, referred to in this preamble as the 2013 
TILA Servicing Rule, set the ARM adjustment notice requirement to a 
period of between 60 days (minimum) and 120 days (maximum) before the 
newly adjusted payment is due. Additionally, the 2013 TILA Servicing 
Rule established 45 days as the minimum ARM look-back period. In the 
preamble to the 2013 TILA Servicing Rule, the CFPB states that FHA's 
current 30-day look-back period does not provide sufficient time to 
notify the mortgagor of an interest rate and monthly payment 
adjustment. To allow HUD sufficient time to comply with the 
notification requirements of the 2013 TILA Servicing Rule, the CFPB 
delayed the effective date of the notification requirements in the 2013 
TILA

[[Page 26377]]

Servicing Rule to January 10, 2015, for ARMs insured by FHA with a 30-
day look-back period. Therefore, FHA-insured ARMs originated on or 
after January 10, 2015, must comply with the new notification 
requirements of the 2013 TILA Servicing Rule.
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    \1\ The CFPB initially published the rule on its Web site: 
http://www.consumerfinance.gov/regulations/2013-real-estate-settlement-procedures-act-regulation-x-and-truth-in-lending-act-regulation-z-mortgage-servicing-final-rules/.
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B. Summary of the Major Provisions of the Regulatory Action

    To comply with the 2013 TILA Servicing Rule, FHA proposes two 
amendments to its regulations. First, FHA proposes to amend 24 CFR 
203.49(d)(2) to require FHA-approved mortgagees, in setting a new 
interest rate, to use the current index figure that is the most recent 
index figure available 45 days (rather than the current 30 days) before 
the date of an interest rate adjustment. Revising the current 30-day 
look-back period to 45 days would enable FHA-approved mortgagees to 
meet the 60- to 120-day notification period prior to any adjustment to 
a mortgagor's monthly payment that may occur, as required by the 2013 
TILA Servicing Rule.
    The second proposed revision would update 24 CFR 203.49(h) to 
cross-reference the disclosure and notification requirements for 
interest rate and payment adjustments for ARMs, including the timing, 
content, and format of such disclosures, contained in the 2013 TILA 
Servicing Rule at 12 CFR 1026.20(c) and (d). The disclosure 
requirements of Sec.  1026.20(d) govern the initial rate adjustment of 
an ARM, while those of Sec.  1026.20(c) govern subsequent rate 
adjustments.
    Currently, FHA-approved mortgagees must only notify the mortgagor 
at least 25 days before any adjustment to a mortgagor's monthly payment 
may occur and inform the borrower of the new mortgage interest rate, 
the amount of the new monthly payment, the current index interest rate 
value, and how the payment adjustment was calculated (see 24 CFR 
203.49(h)). In cross-referencing paragraph (c) of 12 CFR 1026.20, HUD 
would require the mortgagee of an FHA-insured ARM to provide the 
mortgagor with specific and prescribed disclosures in connection with 
any adjustment of the interest rate, as required by the loan contract, 
that results in a corresponding adjustment to the mortgagor's monthly 
payment. These required disclosures must be provided to the mortgagor 
at least 60 days, but not more than 120 days, before the first payment 
at the adjusted level is due. In cross-referencing paragraph (d) of 12 
CFR 1026.20, the mortgagee would be required, the first time the 
interest rate adjusts the monthly payment of an FHA-insured ARM, to 
provide the appropriate disclosures to the mortgagor at least 210, but 
not more than 240, days before the first payment at the adjusted level 
is due.

C. Costs and Benefits

    Since an overwhelming majority of ARMs originated in the 
conventional mortgage market currently have a 45-day look-back period 
\2\ and were required to comply with the 2013 TILA Servicing Rule 
notification requirements on January 10, 2014, well before the 
effective date of this proposed rule, there should be little, if any, 
burden to apply the same 2013 TILA Servicing Rule requirements on FHA-
insured ARMs. Therefore, the anticipated costs of this proposed rule 
are very minimal.
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    \2\ Approximately 88 percent of the ARMs guaranteed by Fannie 
Mae and Freddie Mac have 45-day look-back periods. See footnote 163 
of the CFPB's February 14, 2013, final rule at 78 FR 10902, at 
10984.
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    In determining the impact of the adjusted look-back period on a 
single ARM insured by FHA, the effect upon the mortgagor's monthly 
mortgage payment is the difference between the interest rate generated 
by an index available 45 days before the interest change date from that 
generated by the same index 30 days before the interest change date. 
This difference may be due to a trend in rates or the ``noise'' (minor 
fluctuations around that trend) or both. However, given any date in the 
future, it is impossible to know whether the rate will be higher or 
lower 15 days prior. Even over a period in which a trend is expected, 
the limited timeframe of 15 days and the noise around that change means 
the significance of the change to the look-back period is unknowable. 
Thus, while the 15-day change may affect specific outcomes, this change 
is not expected to have any generalizable impact on the economy with a 
clear direction and scale. For mortgagees that would have sent later 
notice to mortgagors, the proposed changes may potentially increase 
prepayment risk, the risk that a mortgagor will pay-off a loan before 
the end of its term by ensuring that borrowers have more time to 
prepare for a change. Conversely for the mortgagee, the change should 
also reduce default risk, the risk that the mortgagor will fail to pay 
in part or in full. For the mortgagor, the primary benefit of the 
change is an earlier reminder of the adjustment and, consequently, more 
time to pursue other outcomes prior to the interest change date.
    Finally, since this proposed change conforms to the 2013 TILA 
Servicing rule, which was effective for an overwhelming majority of the 
ARM market on January 10, 2014, HUD does not anticipate that the 
revised disclosure requirements will impose significant costs on FHA-
approved mortgagees, since they were required to make these 
notification adjustments by January 10, 2014. Additionally, since a 
majority of ARMs already have look-back periods of 45 days, the revised 
45-day look-back period proposed by FHA is consistent with current 
industry norms.

II. Background

    Section 251 of the National Housing Act (12 U.S.C. 1715z-16) 
authorizes FHA to insure mortgagees against default by the mortgagors 
that obtain home purchase loans or refinancing loans with interest 
rates that will change over time, such as ARMs. The interest rates on 
these loans are initially lower than that of a fixed rate mortgage, but 
may increase or decrease over the life of the loan. An ARM provides a 
home mortgage option for a mortgagor who may be planning to own his or 
her home for only a few years, expects an increase in future earnings, 
or finds the prevailing interest rate for a fixed-rate mortgage to be 
too high. The regulations governing FHA's ARM program presently are 
codified in 24 CFR 203.49.
    The types of ARMs that FHA insures are those for which the interest 
rate may be adjusted annually by the FHA-approved mortgagee, beginning 
after 1, 3, 5, 7, or 10 years from the date of the mortgagor's first 
debt service payment.\3\ FHA's ARM program provides that changes in the 
interest rate charged on an ARM must correspond either to changes in 
the 1-year London Interbank Offered Rate (LIBOR) or to changes in the 
weekly average yield on U.S. Treasury securities, adjusted to a 
constant maturity of 1 year (see 24 CFR 203.49(b)). The regulations 
further provide that except as may be otherwise specified in the 
regulations, each change in the mortgage interest rate must correspond 
to the upward and downward change in the index.
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    \3\ FHA sometimes uses the terms ``standard 1-year ARM'' and 
``hybrid ARM'' to describe the different periods of time that the 
initial interest rate of a mortgage is held constant before 
adjusting to the appropriate market index. A standard 1-year ARM 
product offers an initial interest rate held constant for 1 year. A 
hybrid ARM offers an initial interest rate that is constant for 
either the first 3, 5, 7, or 10 years of the mortgage, depending on 
its terms. For purposes of this proposed rule, the term ``ARM'' 
refers to both a standard 1-year ARM and hybrid ARM products. For an 
explanation of FHA-insured ARM products see: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/203armt.
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    FHA's current regulations establish a maximum amount that interest 
rates may increase or decrease. For 1- and 3-

[[Page 26378]]

year ARMs, no single adjustment to the interest rate may result in a 
change in either direction of more than 1 percentage point from the 
interest rate in effect for the period immediately preceding that 
adjustment. Additionally, index changes in excess of 1 percentage point 
may not be carried over for inclusion in an adjustment for a subsequent 
year. Adjustments in the effective rate of interest over the entire 
term of these ARMs may not result in a change, in either direction, of 
more than 5 percentage points from the initial contract interest rate. 
For 5-, 7-, and 10-year ARMs, no single adjustment to the interest rate 
may result in a change, in either direction, of more than 2 percentage 
points from the interest rate in effect for the period immediately 
preceding that adjustment. Similar to the 1- and 3-year ARMs, index 
changes in excess of 2 percentage points may not be carried over for 
inclusion in an adjustment in a subsequent year. For these ARMs, 
adjustments in the effective rate of interest over the entire term of 
the mortgage may not result in a change, in either direction, of more 
than 6 percentage points from the initial contract rate.
    FHA's existing ARM program provides that interest rate changes may 
be implemented only through adjustments to the mortgagor's monthly 
payments. FHA's regulations provide that FHA-approved mortgagees must 
disclose to the mortgagor the terms of the ARM at the time of loan 
application. The regulations further provide that FHA-approved 
mortgagees must notify the mortgagor at least 25 days before any 
adjustment to a mortgagor's monthly payment may occur, informing the 
borrower of the new mortgage interest rate, the amount of the new 
monthly payment, the current index interest rate value, and how the 
payment adjustment was calculated (see 24 CFR 203.49(h)).
    To set a new interest rate, the FHA-approved mortgagee will 
determine if there is a change between the initial (i.e., base) index 
figure and the current index figure or will add a specific margin to 
the current index figure. The regulations provide that the initial 
index figure shall be the most recent figure available before the date 
of the mortgage loan origination, and the current index figure shall be 
the most recent index figure available 30 days before the date of each 
interest rate adjustment. Thus, HUD's existing regulations establish a 
30-day look-back period for determining the current index figure (see 
24 CFR 203.49(d)(2)).
    At the time FHA adopted the at-least-25-day advance notification 
period and the 30-day look-back period, these time periods were 
consistent with the regulations implementing TILA, as promulgated by 
the Federal Reserve Board (FRB), which had, until July 21, 2011, 
responsibility for oversight of compliance with TILA (15 U.S.C. 1601 et 
seq.). The predecessor FRB regulations, codified at 12 CFR part 1026, 
required notice of rate adjustments between 25 days and 120 days prior 
to the due date of the new payment. The Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Pub. L. 111-203, approved July 21, 2010), 
transferred this responsibility to the CFPB, and the CFPB revised 
Regulation Z and changed the periods for advance notice of rate 
adjustments.
    As discussed above, the 2013 TILA Servicing Rule, which became 
effective January 10, 2014, revised the time frame for providing the 
ARM adjustment notice from the current requirement to between 60 and 
120 days before the newly adjusted monthly payment is due (see 12 CFR 
1026.20(c)). The preamble to the 2013 TILA Servicing Rule explains the 
reasons for, and identifies research supporting, this change.\4\ The 
revised period is designed to provide borrowers with additional time to 
adjust their finances or to pursue meaningful alternatives such as 
refinancing, home sale, loan modification, forbearance, or deed-in-lieu 
of foreclosure. The preamble to the 2013 TILA Servicing Rule cites 
research indicating that the Nation's largest mortgage lenders take an 
average of more than 70 days to complete a refinance. The preamble to 
the 2013 TILA Servicing Rule also explains that the revised look-back 
period of 45 days is consistent with the business practices of ARM 
servicers. The preamble states that most ARM servicers determine the 
index value from which the new interest rate and payment will be 
calculated at least 45 days before the date of the interest rate 
adjustment. Because interest on consumer mortgage credit generally is 
paid one month in arrears, this means that ARM servicers know the index 
value approximately 75 days before the due date of the first new 
payment.
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    \4\ See 78 FR 10902, at 10924.
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    The preamble to the 2013 TILA Servicing Rule notes that some ARMs, 
including those insured by FHA and guaranteed by the Department of 
Veterans Affairs (VA), currently have look-back periods that are less 
than 45 days. Accordingly, the CFPB recognizes that servicers of these 
ARMs will not be able to comply with the revised notification 
requirements of 12 CFR 1026.20(c) (see 78 FR 10984). Also, as stated 
above, FHA's current regulations require at least 25 days' notice 
before the date the mortgagor's monthly payment would adjust based on 
the new interest rate. This present notification requirement is 
inconsistent with the 2013 TILA Servicing Rule requirements that 
require at least 60 days advance notice of an adjustment to a 
mortgagor's monthly payment. Since mortgagees originating loans insured 
by FHA and VA also must comport with the requirements and regulations 
established by those agencies at the time of origination, the 2013 TILA 
Servicing Rule ``grandfathers'' ARMs with look-back periods of less 
than 45 days and originated prior to one year after the effective date 
of the final rule; i.e., such ARMs originated prior to January 10, 2015 
(see 78 FR 10982). This accommodation allows time for HUD to amend its 
regulation to allow for compliance with the 2013 TILA Servicing Rule.

III. This Proposed Rule

    In response to the CFPB's amendments to the interest rate 
adjustment notification in 12 CFR 1026(c), this rule proposes two 
changes:
    First, FHA proposes to change 24 CFR 203.49(d)(2) to require FHA-
approved mortgagees, in setting a new interest rate, to use the current 
index figure that is the most recent index figure available 45 days 
(rather than 30 days) before the date of an interest rate adjustment. 
This change applies to all single family forward FHA-insured ARMs.
    Second, FHA proposes to change Sec.  203.49(h), which addresses the 
disclosure and notification requirements of an interest rate adjustment 
by the mortgagee to the mortgagor. This proposed rule would require the 
mortgagee to provide the disclosures and to comply with the timing and 
notification requirements of the 2013 TILA Servicing Rule at 12 CFR 
part 1026.
    In proposing to revise the look-back period from 30 days to 45 
days, and in order to comply with the 2013 TILA Servicing Rule, HUD is 
required to change its current 30-day look-back period to a period of 
no less than 45 days. HUD proposes to adopt the minimum period of 45 
days, which is also the industry norm.\5\ HUD agrees with the CFPB that 
a period of 45 days would allow a mortgagee to comply with the 60- to 
120-day notice to the mortgagor as required in 12 CFR 1026.20(c). 
Mortgagees holding or servicing an ARM with a 45-day, or longer, look-
back period should be able to comply with the requirement to

[[Page 26379]]

provide earlier notice to the mortgagor. For example, for an ARM with a 
45-day look-back period, the notice would be ready 45 days before the 
interest change date and, with an approximately 30-day billing cycle 
between the interest change date and the date that the first payment at 
the new level would be due, the mortgagee could provide the interest 
rate adjustment notice to the mortgagor approximately 75 days before 
the new payment was due. Under these circumstances, the mortgagee 
should be able to comply with the requirement that notice be provided 
to the mortgagor at least 60 days before the payment at a new interest 
rate level is due.
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    \5\ See 78 FR 10902, at 10926.
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    While HUD may have adopted a look-back period longer than 45 days, 
HUD's decision was limited by the servicing timeline described above to 
provide necessary notification of the adjusted monthly payment within 
the required 60- to 120-day notification period, which was also 
required in the 2013 TILA Servicing Rule. Furthermore, if the look-back 
period was extended beyond 45 days it would create a greater lag time 
between the relevant index value and the correspondingly adjusted 
monthly payment. For example, with a 45-day look-back period, if the 
interest rate change date is September 1, the servicer ``looks back'' 
45 days from the adjustment date, which would be July 18. With a look-
back period longer than 45 days, the servicer would go back further 
than July 18 to set the new monthly payment, and the ARM would be less 
responsive to the current market.
    In addition, Ginnie Mae may be unable to pool ARMs with varying 
look-back periods since different look-back periods have a different 
response rate to market fluctuation, as illustrated above. A less 
responsive or more slowly responsive ARM security is a different 
product from a more responsive security, from a potential investor's 
viewpoint. By adopting the uniform 45-day look-back period Ginnie Mae 
may continue to guarantee securities that are backed by pools of 
mortgages and issued by mortgage lenders.
    Finally, it would be less burdensome on servicers for HUD to adopt 
the industry norm 45-day look-back period, instead of continuing to 
apply different look-back periods for different ARMs. With different 
look-back periods, there would assumingly be different servicing 
timelines and notifications, which could lead to potential errors and 
reduced customer service. The CFPB also notes that once the grandfather 
period expires 45-day look-back periods will further dominate the 
market.
    The second proposed revision updates Sec.  203.49(h) to cross-
reference the disclosure and notification requirements for interest 
rate and payment adjustments for ARMs, including the timing, content, 
and format of such disclosures, contained in the 2013 TILA Servicing 
Rule at 12 CFR 1026.20(c) and (d). The disclosure requirements of Sec.  
1026.20(d) govern the initial rate adjustment of an ARM, while those of 
Sec.  1026.20(c) govern subsequent rate adjustments. Paragraph (c) of 
12 CFR 1026.20 requires the mortgagee of an ARM to provide the 
mortgagor with disclosures in connection with any adjustment of the 
interest rate, as required by the loan contract, that results in a 
corresponding adjustment to the mortgagor's monthly payment. This 
required disclosure must be provided to the mortgagor at least 60 days, 
but not more than 120 days, before the first payment at the adjusted 
level is due.
    The cross-references to the TILA requirements not only avoid the 
repetition of regulatory text, but help to ensure that HUD's codified 
regulations remain current should the CFPB revise Regulation Z. The 
alternative of repeating the CFPB regulatory text runs the risk that 
HUD's regulations may become outdated in the event the CFPB revises the 
regulatory disclosure and notification requirements, necessitating the 
need for HUD to undertake potentially time consuming notice and comment 
rulemaking to update its regulations. In addition to the timing 
requirements, FHA-approved ARM mortgagees would be required to comply 
with the requirements of 12 CFR 1026.20(c) governing the content and 
format of such disclosures. The 2013 TILA Servicing Rule requires 
specific disclosures, accompanying statements, and tables, including 
information such as the terms of the mortgagor's ARM, the effective 
date of the interest rate adjustment and when additional future 
interest rate adjustments are scheduled to occur, a comparison of the 
current and new interest rate, and the specific index or formula used 
in making interest rate adjustments. (For the full list of 
requirements, see 12 CFR 1026.20(c)(2) and (c)(3).) All such 
disclosures required under 12 CFR 1026.20(c) must be in the format 
substantially similar to the sample formats prescribed in the 2013 TILA 
Servicing Rule, which includes sample formats for such disclosures.\6\
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    \6\ The disclosures required by 12 CFR 1026.20(c) shall be 
provided in the form of a table and in the same order as, and with 
headings and format substantially similar to, forms H-4(D)(1) and 
(2) in appendix H of the 2013 TILA Servicing Rule (78 FR 11009-
11010).
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    As noted, 12 CFR 1026.20(d) establishes separate disclosure 
requirements for the initial rate adjustment of an ARM with an initial 
interest rate that is constant for more than one year. The first time 
the interest rate adjusts the monthly payment of an FHA-insured ARM, 
the mortgagee would be required to provide the appropriate disclosures 
to the mortgagor at least 210, but not more than 240, days before the 
first payment at the adjusted level is due.\7\ If the new interest rate 
(or the new payment calculated from the new interest rate) is not known 
as of the date of the disclosure, an estimate shall be disclosed and 
labeled as such for the mortgagor. This estimate shall be based on the 
calculation of the specific index or formula used in making the 
interest rate adjustment within 15 business days prior to the date of 
the disclosure.
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    \7\ The 2013 TILA Serving Rule also provides, at 12 CFR 
1026.20(d), that if the first payment at the adjusted level is due 
within the first 210 days after consummation, the initial disclosure 
shall be provided at consummation. This provision does not apply to 
FHA since, as more fully discussed below in this preamble, ARMs with 
terms of less than 12 months are not eligible for FHA insurance.
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    The required content and format of the initial disclosures are 
contained in 12 CFR 1026.20(d)(2). These disclosures, accompanying 
explanatory statements, and tables include information such as an 
explanation of the terms of the mortgagor's ARM; a comparison of the 
current and new interest rates; the telephone number of the mortgagee 
for the mortgagor to call if they anticipate not being able to make 
their new payments; a list of alternatives to paying at the new rate 
that the mortgagor may be able to pursue and a brief explanation of 
each alternative, expressed in simple and clear terms; the Web site to 
access either the CFPB's or HUD's list of homeownership counselors and 
counseling organizations; and the toll-free telephone number to access 
the HUD list of homeownership counselors and counseling organizations. 
All such disclosures required under 12 CFR 1026.20(d) must be in the 
format substantially similar to that prescribed by the 2013 TILA 
Servicing Rule, which includes sample formats for such disclosures.\8\
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    \8\ The disclosures required by 12 CFR 1026.20(d) shall be 
provided in the form of a table and in the same order as, and with 
headings and format substantially similar to, forms H-4(D)(3) and 
(4) in appendix H of the TILA Servicing Rule (78 FR 11011-11012).
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    The initial disclosure requirements of 12 CFR 1026.20(d) do not 
apply to ARMs with a term where the interest rate would adjust within a 
1-year period (see 12 CFR 1026.20(d)(1)(ii)). FHA does not insure ARMs 
with a term of less than 12 months. The HUD regulation at

[[Page 26380]]

24 CFR 203.49(d) describes the frequency of rate changes for ARMs 
eligible for FHA insurance, providing that ``. . . the first adjustment 
shall be no sooner or later than . . .'' as provided in the regulation. 
The shortest term ARM eligible for FHA insurance is a 1-year ARM with 
the first rate adjustment occurring no earlier than 12 months. 
Accordingly, the exemption provided by the 2013 TILA Servicing Rule is 
not applicable to FHA-insured ARMs.

IV. 30 Day Public Comment Period

    In accordance with HUD's regulations concerning rulemaking at 24 
CFR part 10 (entitled, ``Rulemaking Policy and Procedures''), it is 
HUD's policy that the public comment period for proposed rules should 
be 60 days. In the case of this proposed rule, however, HUD has 
determined there is good cause to reduce the public comment period to 
30 days for the following reasons:
    First, HUD is required by the 2013 TILA Servicing Rule to make 
regulatory changes to comply with the 2013 TILA Servicing Rule. The 
CFPB delayed the effective date of the notification period for FHA-
insured ARMs to January 10, 2015, and this allows HUD to go through the 
rulemaking process to bring FHA's regulations in conformity with the 
2013 TILA Servicing Rule.
    Second, the notification requirements established in the 2013 TILA 
Servicing Rule were published in the Federal Register on February 14, 
2013, and became effective on January 10, 2014, except for adjustable 
rate mortgages with look-back periods currently less than 45 days, 
including FHA-insured and VA-guaranteed ARMs, which are grandfathered 
until January 10, 2015. Since the industry and interested parties were 
notified of these regulatory changes, including a statement in the 
preamble of the rule that directed HUD to revise its regulations to 
comply with that of the 2013 TILA Servicing Rule, industry and 
interested parties have been on notice of HUD's proposed changes well 
before the publication of this proposed rule.
    Given that the proposed amendments to HUD's regulations mirror the 
requirements of the 2013 TILA Servicing Rule, and the January 10, 2015, 
deadline, HUD believes that good cause exists to reduce the public 
comment period to 30 days. All comments received during the 30-day 
public comment period will be considered in the development of the 
final rule.

V. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the order. 
Executive Order 13563 (Improving Regulations and Regulatory Review) 
directs 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.'' Executive Order 13563 also directs that, where relevant, 
feasible, and consistent with regulatory objectives, and to the extent 
permitted by law, agencies are to identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public.
    As discussed above in this preamble, the proposed rule would align 
the look-back requirements for FHA-insured ARMs to the revised TILA 
notification requirements established in the 2013 TILA Servicing Rule. 
Consistent with the goals of Executive Order 13563, the proposed 
amendments would simplify and standardize the ARM look-back and 
notification requirements established by the CFPB and in effect for the 
conventional ARM market on January 10, 2014. As a result, this rule was 
determined to not be a significant regulatory action under section 3(f) 
of Executive Order 12866, Regulatory Planning and Review, and therefore 
was not reviewed by OMB.

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 in this preamble, this proposed rule aligns the look-
back requirements for FHA-insured ARMs to the revised TILA notification 
requirements established in the 2013 TILA Servicing Rule. HUD does not 
have the discretion not to align its ARM notification requirements with 
new TILA requirements established by the CFPB as implemented in its 
2013 TILA Servicing Rule. The revised look-back period and disclosure 
requirements would apply to FHA-approved mortgagees originating ARMs in 
January 2015, whether or not HUD takes action. It is HUD's position 
that it is important for FHA regulations to be in compliance with TILA, 
and therefore HUD has initiated this rulemaking. In this rule, HUD 
proposes to adopt the minimum look-back period, 45 days, which would 
allow FHA-approved mortgagees to meet the TILA minimum requirements 
governing notification to borrowers.
    As also discussed in this preamble, the CFPB noted in its 
rulemaking, that the majority of ARMs in the conventional market have 
look-back periods of 45 days or longer. With the 2013 TILA Servicing 
Rule taking effect on January 10, 2014, any lenders originating in the 
conventional market ARMs that did not have a minimum look-back period 
of 45 days, have now adjusted to the new TILA requirements.
    As with the proposed changes regarding the look-back period, the 
revisions to the disclosure requirements simply conform HUD 
requirements to the 2013 TILA Servicing Rule and the procedures 
currently followed in the conventional mortgage lending market.
    For the reasons presented, the undersigned certifies that this rule 
will not have a significant economic impact on a substantial number of 
small entities. 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 less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in the preamble to this rule.

Environmental Impact

    The 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. Accordingly, under 24 CFR 50.19(c)(1), this 
proposed 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 (i) imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (ii) preempts 
state law, unless the agency meets the consultation and funding

[[Page 26381]]

requirements of section 6 of the Executive order. This proposed 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.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for Mortgage 
Insurance-Homes 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 discussed in this preamble, HUD 
proposes to amend 24 CFR part 203 as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

0
1. The authority citation for 24 CFR 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
2. Revise the third sentence of paragraph (d)(2) and paragraph (h) to 
read as follows:


Sec.  203.49  Eligibility of adjustable rate mortgages.

* * * * *
    (d) * * *
    (2) * * * The current index figure shall be the most recent index 
figure available 30 days before the date of each interest rate 
adjustment, except that for forward mortgages originated on or after 
[effective date of final rule to be inserted at final rule stage], 30 
days shall mean 45 days.
* * * * *
    (h) Disclosures. The mortgagee of an adjustable rate mortgage shall 
provide mortgagors with the disclosures in the timing, content, and 
format required by the regulations implementing the Truth in Lending 
Act (15 U.S.C. 1601 et seq.) at 12 CFR 1026.20(c) and (d).
* * * * *

    Dated: April 17, 2014.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2014-10572 Filed 5-7-14; 8:45 am]
BILLING CODE 4210-67-P