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Mortgage Insurance Premiums in Multifamily Housing Programs
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[Federal Register: July 2, 2001 (Volume 66, Number 127)]
[Rules and Regulations]
[Page 35069-35073]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy01-33]
[[Page 35069]]
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Part IV
Department of Housing and Urban Development
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24 CFR Part 207
Mortgage Insurance Premiums in Multifamily Housing Programs; Increase
in Certain FHA Multifamily Mortgage Insurance Premiums; Interim Rule
and Notice
[[Page 35070]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 207
[Docket No. FR-4679-I-01]
RIN 2502-AH64
Mortgage Insurance Premiums in Multifamily Housing Programs
AGENCY: Office of Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Interim rule.
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SUMMARY: HUD currently has statutory authority to set the mortgage
insurance premiums (``MIP'') for multifamily programs from one-fourth
to one percent of the outstanding principal balance per annum. However,
HUD's current regulations currently set the MIP at a specific figure,
one-half of one percent in most programs. This interim rule revises
current regulations to permit the Secretary to set mortgage insurance
premiums by program within the full range of HUD's statutory authority
through notice, making it easier for HUD to respond more efficiently to
changing market and programmatic conditions, and making it possible to
continue these programs for the remainder of fiscal year 2001 and into
2002.
DATES: Effective Date: August 1, 2001.
Comment Due Date: August 31, 2001.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Rules Docket Clerk, Office of General Counsel, Room
10276, Department of Housing and Urban Development, 451 Seventh Street,
SW, Washington, DC 20410-0500. Communications should refer to the above
docket number and title. Facsimile (FAX) comments are not acceptable. A
copy of each communication submitted will be available for public
inspection and copying between 7:30 a.m. and 5:30 p.m. weekdays at the
above address.
FOR FURTHER INFORMATION CONTACT: Michael McCullough, Director, Office
of Multifamily Development, U.S. Department of Housing and Urban
Development, 451 Seventh Street, SW, Washington, DC 20410, at (202)
708-1142. Persons with hearing or speech impairments may access these
numbers via TTY by calling the Federal Information Relay Service at
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
A. Background
Section 203(c)(1) of the National Housing Act authorizes the
Secretary to set the premium charge for insurance of mortgages under
the various programs in Title II of the National Housing Act. The range
within which the Secretary may set such charges must be between one-
fourth of one percent per annum and one percent per annum of the amount
of the principal obligation of the mortgage outstanding at any time.
(See 12 U.S.C. 1709(c)(1)).
HUD's multifamily mortgage insurance program regulations have
generally set the MIP at a specific percentage amount within the
authorized range and have not reflected the authorized range. Thus, for
example, 24 CFR 207.252 and 207.252a(a) have set the general MIP rate
for most mortgage insurance programs at one-half of one percent of the
average outstanding principal balance of the mortgage per year. There
are other programs where the MIP has been set at the maximum authorized
amount, for example, the first year mortgage insurance premium for
section 223(f) specified in section 207.252b.
Each year, Congress appropriates funds to cover HUD's credit
subsidy needs, based on an assessment of the probable risk of loss in
the insurance programs. The Federal Credit Reform Act of 1990, 2 U.S.C.
661 et seq. (``FCRA'') requires that the budgetary treatment for all
direct loan and loan guarantee programs recognize, in advance, the
estimated net cost to the Federal Government resulting from these
transactions. In other words, under FCRA, HUD is required to estimate
the probable cost to the agency of all multifamily mortgages it insures
and must request ``credit subsidy'' as part of its budget each fiscal
year to cover those costs. For example, the most popular of HUD's
multifamily construction programs, Section 221(d)(4), currently
requires a subsidy of 3.35 cents for each dollar of loan insured.
Due to greater than anticipated requests for loan insurance
commitments by HUD, the existing credit subsidy is insufficient for HUD
to continue the following programs: section 207 for new construction/
substantial rehabilitation and manufactured home parks, section 220 for
housing in urban renewal areas, sections 221(d)(3), 221(d)(4), 223(d)
operating loss loans, section 231 housing mortgage insurance for the
elderly, Section 234(d) for condominiums, section 241(a) supplemental
loans for multifamily projects, and HOPE VI projects under the sections
207, 220, 221(d)(4) and 231 programs. Because of this lack of necessary
credit subsidy, these programs will not be able to continue to operate
throughout the fiscal year. HUD is anticipating some additional credit
subsidy to be appropriated in the near future for the remainder of
Fiscal Year (FY) 2001, but it will not be sufficient to fund all
outstanding requests for commitments. In addition, it is anticipated
that only a small amount of credit subsidy will be available in FY
2002. For these reasons, HUD is revising certain multifamily mortgage
insurance programs to eliminate or substantially reduce the need for
credit subsidy by amending its regulations to allow the Secretary to
raise mortgage insurance premiums to the full extent of his statutory
authority. The Secretary will proceed to set the actual MIP within the
statutory and new regulatory limits by notice as described below.
B. This Interim Rule
This interim rule revises Subpart B ``Contract Rights and
Obligations'' of Part 207 ``Multifamily Housing Mortgage Insurance'' so
that the provisions on mortgage insurance premiums reflect the
statutory language, and allow the Secretary to raise or lower mortgage
premiums within the statutory limits through notice.
Where ``one-half of one percent'' appears in Secs. 207.252 and
207.252a, this interim rule changes that phrase to ``not less than one-
fourth of one percent nor more than one percent as the Secretary shall
determine.'' Where the regulations have specified that a one percent
premium will be charged, including during the first year mortgage
insurance premium for the Section 223(f) program specified in
Sec. 207.252b, and for properties located near military installations
insured under Special Risk Insurance Fund, as set forth in
Sec. 207.252c, the one percent premium remains and there is no change
in the regulations to Secs. 207.252b or 207.252c. There is no change to
regulations at Sec. 207.252d (late charge) or to Sec. 207.252e
(electronic transmission of premiums).
An increase as described below in the mortgage premium for
mortgages under the section 221(d)(4), section 207, section 207 for
mobile home parks, section 220, section 231, section 234(d) and HOPE VI
projects under sections 207, 220, 221(d)(4), and 231 will result in a
decrease in the credit subsidy needed for those programs for the
remainder of FY 2001, and the elimination of credit subsidy
requirements for FY 2002. The section 221(d)(3), section 223(d), and
section 241(a) for apartments programs will continue to require some
credit subsidy in both FY 2001 and FY 2002, albeit a reduced amount.
[[Page 35071]]
C. Changes in MIP
No later than the date this interim rule becomes effective, HUD
will issue a separate notice increasing its mortgage insurance premium
requirements for certain multifamily programs that currently require
credit subsidy to reduce the credit subsidy rates and the need for
credit subsidy. Other programs will keep the premiums in effect prior
to the notice. Based on HUD's analysis of credit subsidy needs, for the
period from the effective date of this rule to September 30, 2001, the
notice will change certain mortgage insurance programs, now having a
mortgage premium of 0.5% of the outstanding principal balance of the
insured loan, to programs with a mortgage premium of 0.8% of the
outstanding principal balance. HUD will make future changes by notice
as credit subsidy allocations and program needs dictate, although HUD
currently plans to keep the 0.8% rate in effect through FY 2002. HUD
will provide 30 days for public comment on all such future changes in
mortgage insurance premiums. Changes made by this rule in the method
for setting mortgage insurance premiums will be applied in accordance
with 24 CFR 207.499.
The mortgage insurance premiums, by program, will be:
------------------------------------------------------------------------
Multifamily loan program Percent
------------------------------------------------------------------\1\---
Section 207--Multifamily Housing--new/sub. Rehab............ 0.8
Section 207--Mobile Home Parks.............................. 0.8
Section 220--Housing In Urban Renewal Areas................. 0.8
Section 221(d)(3) and 221(d)(4)--Moderate Income Housing.... 0.8
Section 223(a)(7) Refinancing of Insured Multifamily Project 0.5
Section 223(d) Operating Loss Loans......................... 0.8
Section 207/223(f) Purchase or Refinance--housing........... 0.5
Section 231 Housing for the Elderly......................... 0.8
Section 232 Health Care Facilities.......................... 0.5
Section 232 pursuant to Section 223(f) Purchase or Refinance 0.5
Transactions...............................................
Section 234(d) Condominium Housing.......................... 0.5
Section 241(a) Additions & Improvements for Apartments...... 0.8
Section 241(a) Additions & Improvements for Health Care 0.5
Facilities.................................................
Section 242--Hospitals...................................... 0.5
Title XI--Group Practice.................................... 0.5
HOPE VI Projects--[207, 220, 221(d)(4) and 231]............. 0.8
Low Income Tax Credit Projects [207, 220, 221(d)(4) and 231]
0.5
without HOPE VI............................................
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\1\ Annual mortgage insurance permiums charged.
Absent any change in law, premium rate changes will not apply to
mortgages which have received a firm commitment and a sufficient
obligation of credit subsidy; such mortgagees may continue to proceed
to closing at the committed amount with the premium rate in effect
before the change made by this rule and the notice to be issued on or
before its effective date. An obligation of credit subsidy occurs when
the mortgagee has notified the appropriate HUD office in writing of the
acceptance of the firm commitment by the mortgagee and the borrower,
and has received notice in writing from HUD that there is sufficient
credit subsidy to cover the mortgage amount for which a firm commitment
was received.
All firm commitments for these programs to be issued, reissued or
amended on or after the effective date of this rule and its
implementing notice must be processed at the 0.8% rate. In the case of
commitments having a sufficient obligation of credit subsidy,
amendments to those commitments that do not affect the mortgage amount
need not be reprocessed at the new premium rate. All projects in the
Headquarters queue that did not receive an obligation of credit subsidy
prior to the effective date of this rule and its implementing notice
will, subject to the availability of credit subsidy and any conditions
that may be imposed on such availability, not be reprocessed at the new
rate but will continue to be processed at the rate on which the
commitment was based. Notwithstanding the previous sentence, all
projects in the Headquarters queue that did not receive an obligation
of credit subsidy prior to the effective date of this rule and
implementing notice, upon the request of the mortgagee, will be
reprocessed at the new premium rates.
In accordance with 24 CFR 200.40, HUD will refund to the mortgagee
any firm commitment application fee, if the mortgagee advises the Field
Office in writing that it wishes to withdraw its application or
surrender its outstanding firm commitment because of the increase in
the mortgage insurance premium.
D. Findings and Clearances
Justification for Interim Rulemaking
HUD generally publishes a rule for public comment before issuing a
rule for effect, in accordance with its own regulations on rulemaking
in 24 CFR part 10. However, part 10 provides for exceptions to the
general rule if the agency finds good cause to omit advanced notice and
public participation. The good cause requirement is satisfied when
prior public procedure is ``impractical, unnecessary, or contrary to
the public interest'' (see 24 CFR 10.1). Because the credit subsidy
appropriated for FY 2001 HUD mortgage insurance programs affected by
this rule has been almost completely committed, and the additional
credit subsidy HUD is anticipating will not suffice to cover upcoming
requests currently in the application pipeline, HUD is facing the near-
term shutdown of those programs. It is in the public interest for those
programs to continue so that the various low and moderate income
multifamily projects, for which mortgage insurance is made available by
HUD's programs, can continue to receive the HUD-insured mortgage
funding that makes such housing possible. The business community, as
well, needs continuity if these programs are to remain useful vehicles
for housing production. Therefore, HUD finds that good cause exists to
have the regulations reflect the statutory requirements so that the
Secretary has the flexibility to adjust the MIPs within those
requirements as necessary so that the programs can continue
uninterrupted throughout the fiscal year. The changes being made by
this rule are prospective only and do not affect existing commitments.
HUD will be accepting comments on this interim rule for a 60-day
period. HUD will consider these comments in promulgating the final
rule.
Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, Regulatory Planning and Review. OMB determined
that this rule is a ``significant regulatory action'' as defined in
section 3(f) of the Order (although not an economically significant
regulatory action under the Order). Any changes made to this rule as a
result of that review are identified in the docket file, which is
available for public inspection in the office of the Department's Rules
Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-
0500.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so
doing certifies that this rule will not have a significant
[[Page 35072]]
economic impact on a substantial number of small entities. While this
rule does raise mortgage insurance premiums in certain programs, the
amount of increase, which is constrained by HUD's statutory
authorization, is relatively small. Furthermore, without the increase,
it is likely that the effect on business entities will be much greater,
as a number of HUD's mortgage insurance programs would have to cease
operations completely, causing hardship and uncertainty to those who
depend upon these programs to secure mortgages. Thus, this rule acts to
minimize adverse impacts on the business community.
Notwithstanding HUD's determination that this rule does not have a
significant economic impact on a substantial number of small entities,
HUD specifically invites comment regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in the preamble.
Environmental Impact
In accordance with 24 CFR 50.19(c)(6) of HUD's regulations, this
rule involves establishment of rate or cost determinations and related
external administrative requirements and procedures which do not
constitute a development decision that affects the physical condition
of specific project areas or building sites. Accordingly, under 24 CFR
50.19(c)(6), this 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, to the
extent practicable and permitted by law, an agency from promulgating a
regulation that has federalism implications and either imposes
substantial direct compliance costs on State and local governments and
is not required by statute, or preempts State law, unless the relevant
requirements of section 6 of the Executive Order are met. 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 (Pub. L. 104-
4; approved March 22, 1995) (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 interim
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.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number applicable to the
program affected by this rule is 14.134.
List of Subjects in 24 CFR Part 207
Manufactured homes, Mortgage insurance, Reporting and recordkeeping
requirements, Solar energy.
For the reasons stated in the preamble, HUD amends 24 CFR part 207
as follows:
PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE
1. The authority citation for 24 CFR part 207 is revised to read as
follows:
Authority: 12 U.S.C. 1701z-11(e), 1709(c)(1), 1713 and 1715b; 42
U.S.C. 3535(d).
Subpart B--Contract Rights and Obligations--Premiums
2. Revise Sec. 207.252 to read as follows:
Sec. 207.252 First, second and third premiums.
The mortgagee, upon the initial endorsement of the mortgage for
insurance, shall pay to the Commissioner a first mortgage insurance
premium equal to not less than one-fourth of one percent nor more than
one percent as the Secretary shall determine of the original face
amount of the mortgage. The specific premium to be charged will be set
forth in Federal Register notice.
(a) If the date of the first principal payment is more than one
year following the date of such initial insurance endorsement, the
mortgagee, upon the anniversary of such insurance date, shall pay a
second premium equal to not less than one-fourth of one percent nor
more than one percent as the Secretary shall determine of the original
face amount of the mortgage. On the date of the first principal
payment, the mortgagee shall pay a third premium equal to not less than
one-fourth of one percent nor more than one percent of the average
outstanding principal obligation of the mortgage for the following year
which shall be adjusted so as to accord with such date and so that the
aggregate of the said three premiums shall equal the sum of:
(1) One percent of the average outstanding principal obligation of
the mortgage for the year following the date of initial insurance
endorsement; and
(2) Not less than one-fourth of one percent nor more than one
percent per annum as the Secretary shall determine of the average
outstanding principal obligation of the mortgage for the period from
the first anniversary of the date of initial insurance endorsement to
one year following the date of the first principal payment.
(b) If the date of the first principal payment is one year, or less
than one year following the date of such initial insurance endorsement,
the mortgagee, upon such first principal payment date, shall pay a
second premium equal to not less than one-fourth of one percent nor
more than one percent as the Secretary shall determine of the average
outstanding principal obligation of the mortgage for the following year
which shall be adjusted so as to accord with such date and so that the
aggregate of the said two premiums shall equal the sum of:
(1) One percent per annum of the average outstanding principal
obligation of the mortgage for the period from the date of initial
insurance endorsement to the date of first principal payment; and
(2) Not less than one-fourth of one percent nor more than one
percent as the Secretary shall determine of the average outstanding
principal obligation of the mortgage for the year following the date of
the first principal payment.
(c) Where the credit instrument is initially and finally endorsed
for insurance pursuant to a Commitment to Insure Upon Completion, the
mortgagee on the date of the first principal payment shall pay a second
premium equal to not less than one-fourth of one percent nor more than
one percent as the Secretary shall determine of the average outstanding
principal obligation of the mortgage for the year following such first
principal payment date which shall be adjusted so as to accord with
such date and so that the aggregate of the said two premiums shall
equal the sum of not less than one-fourth of one percent nor more than
one percent per annum as the Secretary shall determine of the average
outstanding principal obligation of the mortgage for the period from
the date of the insurance endorsement to one year following the date of
the first principal payment.
(d) Until the mortgage is paid in full, or until receipt by the
Commissioner of an application for insurance benefits, or until the
contract of insurance is otherwise terminated with the consent of the
Commissioner, the mortgagee, on each anniversary of the date of the
first principal payment, shall pay an annual mortgage insurance premium
equal to
[[Page 35073]]
not less than one-fourth of one percent nor more than one percent as
the Secretary shall determine of the average outstanding principal
obligation of the mortgage for the year following the date on which
such premium becomes payable.
(e) The premiums payable on and after the date of the first
principal payment shall be calculated in accordance with the
amortization provisions without taking into account delinquent payments
or prepayments.
(f) Premiums shall be payable in cash or in debentures at par plus
accrued interest. All premiums are payable in advance and no refund can
he made of any portion thereof except as hereinafter provided in this
subpart.
(g) Any change in mortgage insurance premiums pursuant to this
section will apply to new commitments issued or reissued on or after
August 1, 2001 and any notice setting mortgage insurance premiums
issued pursuant to this section.
3. Revise Sec. 207.252a to read as follows:
Sec. 207.252a Premiums--operating loss loans.
(a) The mortgagee, upon the insurance endorsement of the increase
loan credit instrument covering the operating loss loan, shall pay to
the Commissioner a first mortgage insurance premium of not less than
one-fourth of one percent nor more than one percent as the Secretary
shall determine of the original amount of the loan.
(b) The provisions of paragraphs (d), (e), (f) and (g) of Sec.
207.252 shall apply to operating loss loans.
4. Add a new 24 CFR 207.254 to read as follows:
Sec. 207.254 Changes in premiums; manner of publication.
Notice of future premium changes will be published in the Federal
Register. The Department will propose MIP changes for multifamily
mortgage insurance programs and provide a 30-day public comment period
for the purpose of accepting comments on whether the proposed changes
are appropriate. After the comments have been considered, the
Department will publish a final notice announcing the premiums for each
program and their effective date. The provisions of paragraph (g) of 24
CFR 207.252 shall apply to any notice of future premium changes
published pursuant to this section.
Dated: June 12, 2001.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 01-16594 Filed 6-29-01; 8:45 am]
BILLING CODE 4210-27-P