[Federal Register Volume 79, Number 139 (Monday, July 21, 2014)]
[Rules and Regulations]
[Pages 42187-42189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17072]
[[Page 42187]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 200
[Docket No. FR 5395-F-02]
RIN 2502-AI92
Federal Housing Administration (FHA): Refinancing an Existing
Cooperative Under Section 207 Pursuant to Section 223(f) of the
National Housing Act
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This final rule amends HUD's regulations governing the
eligibility for FHA insurance of mortgages used for the purchase or
refinancing of existing multifamily housing projects. Although the
statutory language authorizing such insurance does not distinguish
between rental or cooperative multifamily projects, HUD's regulations
limit FHA insurance to existing rental projects. Given the significant
needs identified for multifamily cooperative financing, the Department
determined that it was appropriate to reconsider the regulatory imposed
limitation. Accordingly, this rule revises HUD's regulations to enable
existing multifamily cooperative project owners to obtain FHA insurance
for the refinancing of existing indebtedness.
DATES: Effective Date: August 20, 2014.
FOR FURTHER INFORMATION CONTACT: James Carey, Director, Policy
Division, Office of Multifamily Housing Development, Office of Housing,
Department of Housing and Urban Development, 451 7th Street SW., Room
6152, Washington, DC 20410-8000; telephone number 202-708-1142 (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
A. The February 1, 2011, Proposed Rule
On February 1, 2011, at 76 FR 5518, HUD proposed to revise its
regulations governing the eligibility for FHA insurance of mortgages
used for the purchase or refinancing of existing multifamily housing
projects. Under section 223(f)(1) of the National Housing Act (12
U.S.C. 1715n(f)(1)) (NHA), FHA is authorized to insure mortgages
executed in connection with the purchase or refinancing of an existing
multifamily housing project. The existing multifamily housing project
to be purchased or refinanced may have been financed originally with
conventional debt, equity, or FHA insured mortgages. The section 223(f)
program insures lenders against loss on mortgage defaults and allows
for long term mortgages (up to 35 years). In general, a project is
eligible for section 223(f) mortgage insurance if the sponsor can
demonstrate that there is a definite market demand, and that the
project is economically self-sufficient.
HUD's regulations implementing the section 223(f) program are
codified at 24 CFR part 207 (entitled ``Multifamily Housing Mortgage
Insurance''). Section 207.1 of these regulations cross references to
the eligibility requirements for existing projects contained in 24 CFR
200.24 and makes the eligibility requirements applicable to multifamily
project mortgages insured under section 24 CFR part 207.\1\ Section
200.24 provides that ``a mortgage financing the purchase or refinance
of an existing rental housing project . . . may be insured pursuant to
the provisions of section 223(f) of the [National Housing] Act . . .''
(emphasis added). Thus, while the statutory language of section 223(f)
authorizes FHA mortgage insurance for existing multifamily housing
projects, irrespective of whether the project is for rental or
cooperative housing, HUD's regulations limit section 223(f) financing
to rental housing.
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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. Section 207.1 cross-references to the
eligibility requirements set forth in 24 CFR part 200, subpart A.
Section 200.24 is the relevant eligibility provision for existing
multifamily projects in subpart A of 24 CFR part 200.
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Lack of financing has recently been a particular problem for
multifamily cooperatives, which contend with legal restrictions on
cooperative share transfers and requirements for approval by the board
of a cooperative for some membership or operational changes. In
addition, ``affordable'' cooperatives, which have low initial purchase
prices, limited maintenance fees, and a cap on unit resale prices, face
further challenges because the potential for generating new income
through turnover of units and additional assessments is low.
Through the February 11, 2011 proposed rule, HUD proposed to remove
the regulatory limitation to facilitate the refinancing of cooperatives
through mortgage insurance issued under section 223(f) of the NHA to
both provide needed support to this cooperative financing market sector
and further HUD's mission of preserving affordable housing. The changes
were proposed to assist eligible cooperative projects to obtain
refinancing to make necessary repairs and/or consolidate more expensive
outstanding debt, thereby preserving affordable housing stock.
Interested readers are referred to the preamble of the February 1,
2011, proposed rule for additional information regarding the proposed
regulatory changes.
B. This Final Rule
This final rule follows publication of the February 1, 2011,
proposed rule and takes into consideration the public comments received
in response to the proposed rule. By the close of the public comment
period on April 4, 2011, HUD received five public comments on the
proposed rule.
Comments were submitted by individuals, a local housing
preservation and development agency, a national association
representing the interests of housing cooperatives, and a national
nonprofit organization focused on manufactured housing ownership. The
majority of comments expressed support for the proposed regulatory
changes, with a few commenters raising questions about the rule or
offering suggestions for additional amendments. After careful
consideration of the issues raised by the commenters, HUD has decided
to adopt the proposed regulatory amendments without change.
The final regulatory text provides as did the proposed regulatory
text that a mortgage financing the purchase or refinance of an existing
rental housing project or refinance of the existing debt of an existing
cooperative project under section 207 of the NHA, or for refinancing
the existing debt of an existing nursing home, intermediate care
facility, assisted living facility, or board and care home, or any
combination thereof, under section 232 of the NHA, may be insured
pursuant to provisions of section 223(f) of the NHA and such terms and
conditions established by HUD. HUD's risk management practices for the
financing or refinancing of mortgages for all projects covered by
section 207 of the National Housing Act, and which, as a result of this
rule, would now include cooperatives provides for more careful review
of projects that exceed $100 million.
The following section of this preamble summarizes the significant
issues raised by the commenters on the February 1, 2011, proposed rule
and HUD's responses to these comments.
[[Page 42188]]
II. Discussion of Public Comments Received on the February 1, 2011,
Proposed Rule
Comment: Include section 223(f) cooperative refinancing in the
Multifamily Accelerated Processing (MAP) system. One commenter
suggested that, in order to expedite processing time, HUD allow section
223(f) refinancing for housing cooperatives to be processed under the
Multifamily Accelerated Processing (MAP) system. MAP is a processing
procedure designed to establish national standards for approved lenders
to prepare, process, and submit loan applications for FHA multifamily
mortgage insurance.
HUD Response. HUD agrees that processing cooperative refinance
transactions under MAP would expedite the processing of these
transactions. Section 223(f) purchase loan transactions are already
eligible for processing under MAP and HUD will consider including
cooperative refinance transactions for processing under MAP.
Comment: Expand regulation to include manufactured housing
cooperatives. One commenter urged HUD to include cooperatives formed by
homeowners in manufactured home communities to be eligible for FHA
mortgage insurance upon refinancing their existing blanket mortgage
debt covering the land and infrastructure improvements. The commenter
wrote that, consistent with the mission of FHA, manufactured housing
cooperatives expand opportunities for low and moderate income
homebuyers. The commenter wrote that resident ownership of manufactured
home communities has proven critical to providing long-term housing
security to homeowners.
HUD Response. HUD declines to accept the commenter's
recommendation. It is HUD's long standing policy to not use Section
223(f) mortgage insurance for the refinancing of manufactured housing
parks. The Section 223(f) program structure is not tailored to
accommodate the unique risks and real estate features associated with
financing for manufactured home communities. Such properties are
appropriately served by conventional financing sources which can tailor
loan terms and underwriting requirements to address these risks and
real estate features. HUD notes that manufactured home cooperatives as
well as other manufactured homeownership transactions are eligible
under the Section 207 mortgage insurance program when substantial
rehabilitation or new construction is proposed.
Comment: Questions regarding FHA programs. Two commenters raised
concerns that supporting cooperatives by providing government support
for refinancing could negatively affect other parts of the housing
market. The commenters requested that HUD provide some basic
information on such as the following issues: Where the money is coming
from, who will pay for the mortgage insurance, and whether lenders
could increase their rates during the life of the loan.
HUD Response. HUD disagrees that providing refinancing for
cooperatives could negatively affect other parts of the housing market.
Providing refinancing for cooperatives helps preserve affordable
housing stock in the nation. With respect to basic information about
Section 223(f) program, information about this program can be found at
the following HUD Web site: http://portal.hud.gov:80/hudportal/HUD?src=/program_offices/housing/mfh/progdesc/purchrefi223f. This Web
site provides detailed information about the Section 223(f) program,
III. Costs and Benefits
In providing for refinancing for cooperatives under the Section
223(f) program, the costs incurred by FHA and the borrower are costs
typical of those associated with HUD's multifamily insurance programs.
The documents and transactions for refinancing cooperatives are similar
to those for FHA-insured multifamily programs, and the costs for the
borrower are those that typically occur with closing the loan and
document transaction costs. The costs for FHA include those pertaining
to underwriting applications, overseeing construction advances,
monitoring program compliance, collecting mortgage insurance premiums
and processing claims for insurance. Typically these costs are offset
by mortgage insurance premiums received under the program.
Additionally, with respect to costs and risks, and as noted earlier
in this preamble, HUD's risk management practices for the financing or
refinancing of mortgages for all projects covered by section 207 of the
National Housing Act, and which, as a result of this rule, now includes
cooperatives provides for more careful review of projects for which
financing or refinancing exceed $100 million.
While the costs are similar to those involved in FHA multifamily
housing transactions, the benefits in allowing refinancing for
cooperatives helps to preserve affordable housing stock in the U.S.
Refinancing the existing underlying mortgage of a cooperative is
considered a preferred alternative than expending a cooperative's
reserve fund, which would have a negative impact on the cooperative's
financial strength. Refinancing would help to avoid the need for a
special assessment (often needed for a large emergency repair such as a
leaking roof), which benefits the residents of a cooperative. If the
cooperative's reserve fund is too low, the residents must pay the cost
of the assessment, and this could harm low-to-moderate income
occupants, especially those on a fixed income.
IV. 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 Executive Order 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 consider
regulatory approaches that reduce burdens and maintain flexibility and
freedom of choice for the public.
HUD submits that the changes made by this rule are consistent with
the directions of Executive Order 13563 as the rule extends refinancing
to cooperatives, which increases affordable multifamily housing options
under the Section 207 program. Refinancing a cooperative through FHA
mortgage insurance promotes HUD's mission to increase the supply of
affordable housing by assisting eligible cooperative projects to obtain
refinancing to make necessary repairs and/or consolidate outstanding
debt, thereby serving to preserve the affordable housing stock.
Regulatory Flexibility Act--Small Business
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 final rule
[[Page 42189]]
does not add or modify any economic costs imposed on participants in
the FHA multifamily mortgage insurance programs. Rather, the rule
eliminates a current regulatory barrier to program eligibility and
expand participation in these programs. As discussed earlier in this
preamble, section 223(f) of the NHA authorizes FHA mortgage financing
for existing multifamily projects, irrespective of whether the project
provides rental or cooperative housing. The rule revises the
regulations governing eligibility for financing under section 223(f) to
enable owners of multifamily cooperative housing projects to refinance
their existing mortgage debt with FHA insurance. Accordingly, the
undersigned certifies that this rule will not have a significant
economic impact on a substantial number of small entities.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment was made at the proposed rule stage, in accordance with HUD
regulations at 24 CFR part 50, which implements section 102(2)(C) of
the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)).
The FONSI remains applicable to this final rule and is available for
public inspection between the hours of 8:00 a.m. and 5:00 p.m. weekdays
in the Regulations Division, Office of General Counsel, Room 10276,
Department of Housing and Urban Development, 451 7th Street SW.,
Washington, DC 20410. Due to security measures at the HUD Headquarters
building, please schedule an appointment to review the FONSI 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 Information 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 (1) imposes substantial direct compliance costs on state and
local governments, and is not required by statute, or (2) the rule
preempts state law, unless the agency meets the consultation and
funding requirements of section 6 of the Executive Order. This rule
does not have federalism implications and does 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 the UMRA.
Paperwork Reduction Act
The information collection requirements for this rule have been
approved 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 number 2502-0029. 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.
Catalogue of Federal Domestic Assistance
The Catalogue of Federal Domestic Assistance Number for the
principal FHA mortgage insurance program is 14.155.
List of Subjects in 24 CFR Part 200
Administrative practice and procedure, Claims, Equal employment
opportunity, Fair housing, Housing standards, Lead poisoning, Loan
programs--housing and community development, Mortgage insurance,
Organization and functions (Government agencies), Penalties, Reporting
and recordkeeping requirements, Social Security, Unemployment
compensation, Wages.
Accordingly, for the reasons stated above, HUD amends 24 CFR part
200 as follows:
PART 200--INTRODUCTION TO FHA PROGRAMS
0
1. The authority citation for 24 CFR part 200 continues to read as
follows:
Authority: 12 U.S.C. 1703, 1709, and 1715b; 42 U.S.C. 3535(d).
0
2. Revise Sec. 200.24 to read as follows:
Sec. 200.24 Existing projects.
A mortgage financing the purchase or refinance of an existing
rental housing project or refinance of the existing debt of an existing
cooperative project under section 207 of the Act, or for refinancing
the existing debt of an existing nursing home, intermediate care
facility, assisted living facility, or board and care home, or any
combination thereof, under section 232 of the Act, may be insured
pursuant to provisions of section 223(f) of the Act and such terms and
conditions established by HUD.
Dated: July 15, 2014.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2014-17072 Filed 7-18-14; 8:45 am]
BILLING CODE 4210-67-P