[Federal Register Volume 60, Number 126 (Friday, June 30, 1995)] [Rules and Regulations] [Pages 34136-34138] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 95-16128] ----------------------------------------------------------------------- DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of the Assistant Secretary for Housing-Federal Housing Commissioner 24 CFR Part 203 [Docket No. FR-3766-F-01] RIN 2502-AG37 Electronic Payment of Periodic Mortgage Insurance Premiums; Final Rule AGENCY: Office of the Assistant Secretary for Housing-Federal Housing Commissioner, HUD. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: This final rule amends HUD's Single Family Mortgage Insurance regulations. This rule authorizes the Federal Housing Administration (FHA) Commissioner to require that periodic mortgage insurance premiums (MIP) be remitted electronically. The purpose of this rule is to reduce the servicing costs to mortgage lenders and to enhance HUD operations. EFFECTIVE DATE: July 31, 1995. FOR FURTHER INFORMATION CONTACT: Anne L. Baird-Bridges, Acting Director, Single Family Insurance Operations Division, Room 2246, Department of Housing and Urban Development, 451 Seventh Street, SW, Washington, DC 20410, telephone (202) 708-2438, or (202) 708-4594 (TDD). These are not toll-free numbers. SUPPLEMENTARY INFORMATION: I. Background In 1985, the Department of Housing and Urban Development (HUD) implemented the Automated Clearing House (ACH) program, with voluntary participation by mortgagees, for electronic payment of up-front mortgage insurance premiums (MIP) for single family mortgages that are obligations of the Mutual Mortgage Insurance Fund. In 1989, HUD implemented the ACH program on a voluntary basis for electronic payment of periodic (monthly) MIP for single family insured mortgages. In these single family mortgages, mortgagees collected mortgage insurance premiums on a monthly basis from the mortgagors and promptly remitted them to HUD as required by section 530 of the National Housing Act. These premiums are sometimes referred to as section 530 premiums to distinguish them from the risk-based premium segment that was adopted later in July 1991, although regulations under section 530 also apply to that segment. In 1992, HUD made the ACH program available on a voluntary basis to the risk-based premium segment of periodic MIP. On June 9, 1992, HUD published a proposed rule in the Federal Register (57 FR 24424) that would amend the Title II regulations to permit the Federal Housing Administration (FHA) Commissioner to require that all up-front premium payments be made electronically through ACH. HUD received five comments in response to that proposed rule. Two comments were from automated clearing house associations, and expressed general approval of HUD's proposal. Two comments were from national trade associations; both were favorable to the proposal, although one expressed a number of technical operational concerns. The fifth comment, from a small lender, expressed a similar concern to one raised by one of the trade associations, namely the financial impact on small lenders. On March 8, 1993, HUD published a final rule in the Federal Register (58 FR 12901) that was unchanged from the proposed rule. However, due to the concerns communicated in the comments, HUD allowed a one-year grace period for institutions making 300 or fewer new FHA single family loans per year. II. The Method of Electronic Payment HUD's policy prior to this final rule allowed mortgage lenders to remit payment of periodic (monthly) mortgage insurance premiums (MIP) either by mailing checks and remittance forms to the NationsBank lockbox contractor or electronically through the Automated Clearing House (ACH) program at Mellon Bank. This final rule will require the electronic payment of all periodic MIP. In the ACH program, periodic premium collections (also referred to as section 530 premiums and risk-based premiums) are processed from mortgagees and confirmations are remitted back to the mortgagees electronically, using remote terminals or microcomputers with modems in lieu of sending checks with HUD forms. Through ACH, the mortgagee's terminal or microcomputer operator keys in the transaction data, which is transmitted to Mellon Bank. Each day at 8 p.m. EST, the Mellon Telecash System originates an ACH file of debit transactions based on the data keyed by the mortgagee. When the debit transactions have been processed, the ACH will transmit the periodic premium data to HUD's premium collection system. Through this ACH process, the debit amount is drawn from the designated lender's bank account [[Page 34137]] electronically the next day, or can be ``warehoused'' and drawn on the lender's bank account on a future date. The corresponding credit entry will update HUD's account located at Mellon Bank. If the lender's bank is unable to receive an ACH entry, a paper Depository Transfer Check (DTC) is used. The processing of late charges will not change through the ACH process. Late charges will still be assessed if a payment is not received by the 10th of the month. Interest will still be due if the payment is made more than 20 days after the 10th of the month. In the ACH program, the late charge and interest amount can be entered on the input screen. Under this final rule, periodic MIP for all mortgages insured under the General Insurance Fund, the Special Insurance Fund, and the periodic risk-based segment of MIP for more recent mortgages insured under the Mutual Mortgage Insurance Fund will be collected electronically. Excluded under periodic risk-based MIP are condominium GPMs, GEMs, and ARMs which are not insured under section 203(b) of the National Housing Act. Also excluded are any section 203(b) mortgages insured pursuant to sections 233(e) (older declining areas), 238(c) (military impacted areas), 247 (Indian reservations), and 248 (Hawaiian home lands), since those mortgages are not obligations of the Mutual Mortgage Insurance Fund. HUD will transmit specific administrative instructions implementing this rule to all HUD-approved mortgagees before the rule's effective date. III. Benefits of Electronic Payment The method of electronic payment provides many benefits to the mortgage lenders that will reduce their servicing costs and enhance operations. The advantages of electronic payment are: (1) The electronic transfer of debits and credits in the ACH program can increase the lender's control of payment initiation and funds availability. (2) Banking costs are reduced. Electronic transfers costs less than paper check and wire transfers. (3) Accounting reconciliation is reduced. Payments are computerized and cash application is more automated than with manual systems. (4) Built-in edits can reduce data errors created by manual recording. (5) The chance of lost or late mail is eliminated. Although mortgage lender participation in the ACH transfer system for collecting periodic MIP has been minimal, electronic payment provides reduced servicing costs and enhanced operations to lenders as well as HUD. IV. This Final Rule This final rule amends the Single Family Mortgage Insurance regulations to authorize the FHA Commissioner to require the electronic payment of periodic MIP. In addition, the rule will correct an inadvertent omission of the language that permits HUD to require electronic payment of up-front MIP. The final rule for the electronic payment of up-front mortgage insurance premiums, published in the Federal Register on March 8, 1993 (58 FR 12901), inadvertently deleted a reference in Sec. 203.259a to new Sec. 203.285 regarding risk-based MIP for 15-year mortgages. HUD had added that reference in an interim rule published in the Federal Register on October 14, 1992 (57 FR 46980). When HUD issued the October 1992 interim rule in final form on July 30, 1993 (58 FR 41003), it added one reference to Sec. 203.285, but left out the sentence about electronic MIP. A corrective rule issued on March 24, 1994 (59 FR 13882) added a second reference to Sec. 203.285, but that correction still left out the sentence on electronic MIP. V. Justification for Final Rulemaking In general, HUD publishes a rule for public comment before issuing a rule for effect, in accordance with its own regulations on rulemaking (24 CFR part 10). However, part 10 provides for exceptions from that general rule when HUD finds good cause to omit advance notice and public participation. The good cause requirement is satisfied when prior public procedure is ``impracticable, unnecessary, or contrary to the public interest'' (24 CFR 10.1). HUD finds that good cause exists to publish this rule for effect without first soliciting public comment. Because of its experience in promulgating the amendment to the Title II regulations for electronic payment of insurance premiums through ACH and the voluntary participation in the ACH program by some lenders in the electronic payment of periodic MIP, as described in the ``Background'' section of this preamble, HUD finds that prior public procedure is unnecessary. VI. Regulatory Reform Consistent with Executive Order 12866 and President Clinton's memorandum of March 4, 1995 to all Federal departments and agencies on the subject of Regulatory Reinvention, HUD is reviewing all its regulations to determine whether they can be eliminated, streamlined, or consolidated with other regulations. As part of this review, HUD has reviewed this rule and determined that it furthers the President's objectives on regulatory reform. With this rule, HUD more closely conforms its practices with those in the private sector, by adopting an advanced technological process that relieves a paperwork and financial burden on lenders. VI. Other Matters Regulatory Flexibility Act The Secretary, in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule before publication and by approving it certifies that this rule does not have a significant economic impact on a substantial number of small entities. The rule implements a program that will enhance operations and be cost beneficial for all participating lenders. Environmental Impact Statement In accordance with 40 CFR 1508.4 of the regulations of the Council on Environmental Quality, and 24 CFR 50.20(k) of the HUD regulations, this rule is categorically excluded from the requirements of the National Environmental Policy Act. The rule relates solely to internal administrative procedures, the content of which do not involve a development decision or affect the physical condition of project areas or building sites, but only relate to the performance of accounting, auditing, and fiscal functions. Executive Order 12612, Federalism The General Counsel, as the Designated Official under section 6(a) of Executive Order 12612, Federalism, has determined that the policies contained in this rule will not have substantial direct effects on States or their political subdivisions, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government. As a result, the rule is not subject to review under the Order. Specifically, the requirements of this rule are directed to lenders, and do not impinge upon the relationship between the Federal Government and State and local governments. Executive Order 12606, The Family The General Counsel, as the Designated Official under Executive Order 12606, The Family, has determined that this rule does not have potential for significant impact on family formation, maintenance, and general well-being, and thus is not subject to review under the Order. No [[Page 34138]] significant change in existing HUD policies or programs will result from promulgation of this rule, as those policies and programs relate to family concerns. Regulatory Agenda This rule was listed as item number 1415 in HUD's Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368, 23370) in accordance with Executive Order 12866 and the Regulatory Flexibility Act. 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, 24 CFR part 203 is amended as follows: PART 203--SINGLE FAMILY MORTGAGE INSURANCE 1. The authority citation for 24 CFR part 203 continues to read as follows: Authority: 12 U.S.C. 1709, 1710, 1715b and 1715u; 42 U.S.C. 3535(d). 2. Section 203.259a is amended by adding a new sentence to the end of paragraph (b), to read as follows: Sec. 203.259a Scope. * * * * * (b) * * * In the cases that the Commissioner deems appropriate, the Commissioner may require, by means of instructions communicated to all affected mortgages, that up-front MIP be remitted electronically. * * * * * 3. A new Sec. 203.269 is added to the end of the undesignated center heading ``Mortgage Insurance Premiums--Periodic Payment'', to read as follows: Sec. 203.269 Method of payment of periodic MIP. In cases that the Commissioner deems appropriate, the Commissioner may require, by means of instructions communicated to all affected mortgagees, that periodic MIP be remitted electronically. 4. Section 203.284 is amended by revising paragraph (f) to read as follows: Sec. 203.284 Calculation of up-front and annual MIP on or after July 1, 1991. * * * * * (f) Applicability of other sections. The provisions of Secs. 203.261, 203.264, 203.266, 203.267, 203.268(a)(1), 203.269, 203.280, and 203.282 are applicable to mortgages subject to premiums under this section. * * * * * 5. Section 203.285 is amended by revising paragraph (c) to read as follows: Sec. 203.285 Fifteen-year mortgages: Calculation of up-front and annual MIP on or after December 26, 1992. * * * * * (c) Applicability of certain provisions. The provisions of Secs. 203.261, 203.266, 203.267, 203.268, 203.269, 203.280, and 203.282 are applicable to mortgages subject to premiums under this section. The provisions of paragraphs (d), (e), and (g) of Sec. 203.284 also shall be applicable to mortgages subject to premiums under this section. * * * * * Dated: June 20, 1995. Nicolas P. Retsinas, Assistant Secretary for Housing-Federal Housing Commissioner. [FR Doc. 95-16128 Filed 6-29-95; 8:45 am] BILLING CODE 4210-27-P