Schedule for Submission of One-Time and Up-Front Mortgage
Insurance Premiums
[Federal Register: April 13, 2005 (Volume 70, Number 70)]
[Rules and Regulations]
[Page 19665-19669]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ap05-25]
[[Page 19666]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 203
[Docket No. FR-4690-F-02]
RIN 2502-AH67
Schedule for Submission of One-Time and Up-Front Mortgage
Insurance Premiums
AGENCY: Office of Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule makes final a proposed rule that would have, in
recognition of the increased efficiencies created by the electronic
processing of payments, shortened the remittance period for mortgage
insurance premiums (MIPs) from 15 calendar days to three business days
(Monday through Friday, exclusive of Federal holidays) for both one-
time and up-front MIPs. In response to public comment, the remittance
period is set at 10 calendar days in this final rule. This final rule
also, in response to public comment, delays the effective date for six
months from the date of publication in the Federal Register to allow
lenders to adapt their electronic systems to the new requirements.
DATES: Effective Date: October 11, 2005.
FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of
Single Family Program Development, Department of Housing and Urban
Development, 451 Seventh Street, SW., Washington, DC 20410-8000, at
(202) 708-2121 (this is not a toll-free number). Persons with hearing
or speech impairments may access these numbers through TTY by calling
the toll-free 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
Title II of the National Housing Act. In a June 23, 1983, final rule
(48 FR 28804) that followed a proposed rule and public comment, HUD
established the one-time MIP for single-family programs, citing
improved cash management for HUD without increased burdens on
borrowers. The specific programs affected by this one-time MIP are
listed in 24 CFR 203.259a, and include loans for refinancing loans
insured under the National Housing Act (see 24 CFR 203.43(c));
mortgages in Hawaiian Home Lands (see 24 CFR 203.43i); and loans which
are obligations of the Mutual Mortgage Insurance Fund which were
executed before July 1, 1991.
Section 203(c)(2) of the National Housing Act authorizes the up-
front MIP, implemented at 24 CFR 203.284 (and 24 CFR 203.285 for 15-
year loans), which applies to all other mortgages executed on or after
July 1, 1991 that are obligations of the Mutual Mortgage Insurance
Fund. The up-front MIP requires the payment of a single premium of up
to 2.25 percent of the original insured principal balance of the
mortgage, and annual payments of .50 percent of the remaining insured
principal balance for stated periods of time that vary depending on the
original principal obligation of the mortgage.
Since April 7, 1993, it has been mandatory for lenders to make up-
front MIP payments in the single-family insurance program through an
electronic system. (See, e.g., Mortgagee Letter 94-25.) The one-time
MIP is remitted electronically as well. (See, e.g., Mortgagee Letter
96-33.) Electronic submission allows for MIPs to be paid more quickly
than the 15-day period allowed prior to the effective date of this rule.
B. The Notice of Proposed Rulemaking (NPRM)
The NPRM, published on August 21, 2002 (67 FR 54313), proposed
amending 24 CFR 203.280 and 203.282 to reduce the remittance period for
the up-front and one-time MIP in affected single-family programs from
15 calendar days to 3 business days (Monday through Friday, excluding
Federal holidays), and to adjust the late charge provisions
accordingly. Affected single family programs include mortgages that are
obligations of the Mutual Mortgage Insurance Fund and refinancings
under 24 CFR 203.43(c) (see 24 CFR 203.259a). The time period was
proposed to be calculated from the date of loan closing. However, in
the case of refinancing, the NPRM proposed that the three-day period
would be counted from the date of disbursement of the mortgage proceeds
rather than the date of loan closing, in order to take into account the
fact that refinancing borrowers have three days to exercise a right of
rescission.
Current 24 CFR 203.284 and 285 include the remittance rules in
203.280 by cross reference (see 24 CFR 203.284(f) and 203.285(c)). The
NPRM proposed to clarify this relationship by referencing 24 CFR
203.284 and 203.285 in 24 CFR 203.280.
C. This Final Rule
This final rule amends 24 CFR 203.280 and 203.282 to reduce the
remittance period for the up-front and one-time MIP in affected single-
family programs from 15 calendar days to 10 calendar days, and to
adjust the late charge provisions accordingly. While the NPRM had
proposed 3 days, HUD has reconsidered that time limit in response to
considerations raised by public commenters. In addition, after
considering alternatives proposed by commenters, the rule provides
that, for both original loans and refinancings, the 10-day remittance
period will be counted from the date of disbursement of the mortgage
proceeds or the date of loan closing, whichever is later. Finally, in
order to accommodate the need for lending institutions to adjust their
systems, HUD is delaying the effective date of this final rule for 180
days.
D. Public Comments
The public comment period closed on October 21, 2002. HUD received
24 comments on the proposed rule. Comments were received from mortgage
lenders, a state housing development authority, a national association
of mortgage lenders, and a national association of community banks.
Comment: Three days is an insufficient time for remittance of MIPs.
All commenters made comments criticizing the three-day remittance
period. Most of these commenters stated that the three-day period is
not realistic or practical given actual business practices. Two
commenters stated that even with the 15-day period, ``we sometimes have
to fund these out of our operating funds while waiting for the arrival
of the checks.'' Four commenters stated that three days is not
realistic, as the closing packages are not even back from the
attorney's office within three days. Four commenters stated that the
process of getting the closed loan documents from the settlement agents
can take up to five days. Then, an audit is performed and checks are
processed which takes another three days. One commenter stated that it
believed that no lender would be able to comply with this rule,
because, typically, a title company does not return closed files to
lenders in a sufficient time.
Several commenters stated that the three-day rule would not be
appropriate because it could result in MIPs having to be paid before
the loan proceeds are disbursed. One commenter stated that a vast
number of purchase loans do not close and fund all on the same date.
Title Companies take anywhere from two to four days to return papers and
[[Page 19667]]
checks to the lenders. HUD would then be requiring those lenders to pay
the UFMIP before they have even received the cash from the loan
funding. Three days is not practical for all lenders. Another commenter
similarly observed that in 50% of its retail loan closings, three days
or more elapse between closing and disbursement of proceeds. Three
commenters stated that HUD assumes that the lender has the closed loan
package the day of closing, but in reality, the lender will not have
the package until a minimum of one day after the closing, possibly
longer. No lender should be forced into submitting the MIP until it has
the closed loan package and the security instrument.
Three commenters stated that the period should be shortened to
seven business days, instead of three. Another commenter stated that
its up-front funds are included in closing packages that arrive in
seven business days from closing regardless of transaction type.
Two commenters stated that the proposed remittance period would
only work if the overall process was changed. One of these commenters
suggested that three days would only work if HUD required the closing
agents to electronically transfer the funds when they disburse. Another
commenter stated that until the remittance process is streamlined,
there should be no reduction in the 15-day period.
Response: HUD agrees in principle with the comments that three
business days may be inadequate for submission of the mortgage
insurance premiums. Consequently, HUD will extend the submission period
from the proposed three business days to 10 calendar days. In place of
the 3 business days originally proposed, this will be less disruptive
to existing lender processes. HUD disagrees that the remittance process
should be streamlined as a condition for this rule. In fact, the
process was streamlined in 1993 to require electronic funds transfer
while the 15 calendar days remittance period, which dated from prior,
non-electronic paper processes, remained in effect.
Comment: Eleven commenters stated that the proposed three-day
remittance period would have a significant impact on their businesses.
Three commenters stated that the proposal would have a major impact on
lenders and closing agents, since lenders might need to increase staff,
or transfer staff, to be able to make the 3-day rule and avoid
penalties. Another commenter similarly stated that a three-day
remittance period would have a significant negative impact on the
company. Shortening the period would require a complete revision of
procedures and an increase in expenses, which would either have to be
absorbed by the company or passed on to the borrower. Two commenters
stated that the short time frame would unfairly require lenders either
to have to advance funds out of their own accounts or pay a penalty.
Two commenters quantified the economic impact. One commenter stated
that if the rule changes from 15 to 3 days, this translates to an
approximate corporate loss of $16,000.00 monthly from payments of late
fees to HUD. Another commenter stated that data shows that the
commenter paid 8% in three days, 72% within 10 calendar days, 91%
within 13 days and 94% within 15 calendar days. Under the proposed
rule, the remaining premiums would cost the company $656,702.
One commenter stated that the rule could be a large enough
financial burden that FHA lenders could possibly re-think their
business models and ultimately stop originating HUD/FHA loans.
One commenter stated that shortening the transmittal time frame
would not allow lenders to properly validate data coming in from front-
end systems and outside title companies.
One commenter stated that the shorter time frame would negatively
impact first-time and low- and moderate-income borrowers because the
three-day remittance period would reduce the number of FHA loans that
lenders could originate.
Response: HUD has no way of determining the accuracy of reported
expenses that would be incurred by lenders, including late fees, should
the three-day remittance rule be put into effect. However, HUD does
agree that the three-day submission period as proposed could require
submission of the upfront MIP from the lender's corporate funds.
Consequently, HUD is adopting a ten-calendar days remittance period.
This longer remittance period will avoid potential economic burdens.
Comment: Ten commenters suggested alternatives to the proposed 3-
day remittance period. Three commenters suggested that 5 days would be
preferable. Three other commenters stated that a 10-day remittance
period would meet HUD's objectives while allowing lenders to maintain a
high level of accuracy, reduce refund requests and not further
jeopardize the insuring process. One commenter stated that the time
could feasibly be shortened to 10 calendar days or 8 business days. One
commenter stated that Home Equity Conversion Mortgage (HECM) lenders
should be given seven business days to remit their MIPs. One commenter
stated generally that HUD should adopt a more reasonable time period.
Response: As stated in response to other comments, HUD has agreed
to adopt a 10-day remittance period. HUD believes that a 10-day
remittance period is practical for lenders and will meet HUD's policy
goals as stated in the NPRM. Initial premiums on HECM loans were not
covered by the proposed rule, but may be addressed in a separate
rulemaking.
Comment: Six commenters stated that there was increased risk for
lenders with ``cancelled'' loans (loans that do not close because of
borrower rescission).
Two commenters stated that loans that are scheduled to close do not
always close. Loan companies will pay the up-front MIP from corporate
funds for these ``cancelled close'' loans because the three-day period
is too short for the cancelled status to be communicated to the
company. For loans that are cancelled, the company will have to request
a refund, which takes several months.
Fives commenters (including one of the above commenters) stated
that with the shorter time period, lenders risk remitting funds for a
loan that has cancelled. Refunds from HUD are not timely, and in some
cases, are made to the applicant instead of the lender.
Response: HUD accepts the arguments of lenders that on refinances
the remittance of MIP could occur on a loan where the borrower has
exercised the right of rescission notwithstanding that the MIP
remittance period begins following the right of rescission. However,
HUD believes that ten calendar days should prove sufficient for lenders
to communicate with their closing and post-closing staff that the right
to rescind has been invoked by the borrower and, thus, eliminate
payment of the MIP on a mortgage that has been rescinded. In addition,
this final rule will start the MIP remittance period on the later of
the date of loan closing or the date of disbursement of the mortgage
proceeds. This change should also help prevent a conflict between the
remittance of the MIP and the borrower's right of rescission.
Comment: Three commenters disagreed with the proposal in the NPRM
that the beginning of the time period for remittance of the MIP for
loans, except for refinancings, would be the date of loan closing.
Commenters suggested that the beginning date should be the
recording of the mortgage; the actual funding of the loan; or the
disbursement date of the loan proceeds, since the disbursement date is
the most consistent easily
[[Page 19668]]
identified date representing the date amortization of the loan begins.
Response: HUD does not agree that recordation of the mortgage
should start the MIP remittance period. Most lenders do not know when
the mortgage is recorded and requiring entry of that date into HUD's
system of records would be an unnecessary burden to the lender. HUD
does agree, however, that the date of disbursement of the loan
proceeds, for both purchase money mortgage and refinance transactions,
would be an easily understood and recognizable trigger date for
starting the remittance period and will thus adopt this suggestion as a
possible alternative to the date of loan closing. The date of
disbursement of the loan proceeds may occur later than the closing date
in the case of refinancings. The loan disbursement date is easily
identifiable on the HUD-1 settlement statement by the date of the
beginning of per diem interest charges. HUD will look to that entry
when auditing lenders for compliance with this revised remittance period.
HUD is modifying its data collection systems to require lenders to
enter the date of disbursement (i.e., the date the closing agent
transfers control of the loan proceeds, at which time the borrower
becomes liable for interest charges) into the system. This final rule
provides that the remittance period will start on the date of closing
or the date of disbursement of the mortgage proceeds, whichever is
later. Once this final rule becomes effective, lenders will have to
input the loan disbursement date in order to use the electronic system.
Comment: Six commenters stated that a three-day remittance period
will be much more difficult for mortgage companies with decentralized
offices.
Five commenters stated that it will be much more difficult to
control the accuracy of mortgage insurance payments in the
decentralized environment (from main office to branches), possibly
leading to a need for refunds from HUD (which are slow to be paid), or
additional late fees.
One commenter stated that its automated system requires a minimum
of three business days to get the data into transmission form. As a
nationwide lender, that commenter stated that it does not receive the
necessary documents until day two or three.
Response: HUD is adopting a ten-calendar day remittance period. HUD
believes that such a period will be adequate for data transmission
within decentralized lender environments.
Comment: One commenter stated that, in the Commonwealth of
Virginia, settlement agents cannot disburse funds collected at closing
for the MIP until after recordation of the deed of trust, which in the
Commonwealth of Virginia could be two days after closing. (Virginia
Code 6.1-2.13)
Response: HUD recognizes this issue and believes that the ten-day
remittance rule, along with the adoption of the later of date of
closing or date of disbursement of the loan proceeds as the beginning
of the remittance period, accommodates the needs of lenders making FHA
loans in Virginia.
Comment: One commenter commented that if the rule does go into
effect, HUD should give an assurance that refunds will be handled in a
timely manner. In addition, it would be helpful to have a contact
person at HUD for refund issues.
Response: The adoption of a 10-day remittance period will generally
eliminate the need for additional refunds that might have occurred had
the rule gone into effect as proposed. Since this final rule makes no
change in refunds, refunds will continue to be handled as they are
currently, in accordance with the instructions on HUD's web site at
http://www.hud.gov/offices/hsg/comp/premiums/at_ref.cfm. 
Comment: One commenter asked, if the rule is published as proposed,
that HUD impose a six-month delayed implementation time to allow
lenders enough time to update systems and change processes.
Response: HUD recognizes that lenders face significant systems
issues whenever their trading partners make such changes. For this
reason HUD agrees that the implementation of this final rule will not
take place for six months following publication of the final rule in
the Federal Register.
Comment: One commenter stated that Home Equity Conversion Mortgage
(HECM) loans should be specifically excluded from this rule in final
form. This commenter stated that its understanding was that HECM loans
were not intended to be covered by the rule.
Response: Initial premiums on HECM loans were not covered by the
proposed rule, but may be addressed in a separate rulemaking. Since
there is no indication in the rule that HECM loans are covered, it is
not necessary to explicitly exclude them.
Comment: One commenter stated that HUD should leave the 15-day rule
in effect, or simply impose a penalty on those lenders that HUD has
deemed to have abused the rule.
Response: The purpose of this rule is not to penalize lenders or
adopt harsher measures. Rather, HUD seeks to both clarify when the
remittance period begins, and to revise its procedures to reflect
electronic MIP remittance rather than the mailing of checks to a lock-
box upon which the original 15-calendar day period was based. As to
those few lenders that have abused the existing 15-calendar day
remittance period, HUD prefers to prevent such abuse rather than
attempt to take action after discovering the abuse. Therefore, HUD
declines to adopt the suggested approach.
In addition to these comments, one commenter supported the overall
goals of the rule. No response to this comment is required.
Findings and Certifications
Paperwork Reduction Act
The information collection requirements contained in this document
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 2502-0423. In accordance with the Paperwork
Reduction Act, HUD 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.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this final rule, and in so
doing certifies that this rule will not have a significant economic
impact on a substantial number of small entities. Because of the
streamlining of operations and the changes made by this final rule to
accommodate current business practices, this final imposes no
significant burdens on business.
Environmental Impact
This final rule does not direct, provide for assistance of 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
final 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
[[Page 19669]]
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 final 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 final
rule does not impose any federal mandates on any state, local, or
tribal government, or on the private sector, within the meaning of UMRA.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number applicable to
this rule is 14.117.
List of Subjects for 24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
? For the reasons stated in the preamble, HUD amends 24 CFR part 203 as
follows:
PART 203--SINGLE FAMILY HOUSING 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).
Subpart B--Contract Rights and Obligations
? 2. Revise 24 CFR 203.280 to read as follows:
Sec. 203.280 One-time or Up-front MIP.
For mortgages for which a one-time or up-front MIP is to be charged
in accordance with Sec. Sec. 203.259a, 203.284, or 203.285, the
mortgagee shall, as a condition to the endorsement of the mortgage for
insurance, pay to the Commissioner for the account of the mortgagor, in
a manner prescribed by the Commissioner, a premium representing the
total obligation for the insuring of the mortgage by the Commissioner
or the up-front portion of the total obligation, as applicable, within
10 calendar days after the date of loan closing or within 10 calendar
days after the date of disbursement of the mortgage proceeds, whichever
is later.
? 3. Revise 24 CFR 203.282 to read as follows:
Sec. 203.282 Mortgagee's late charge and interest.
(a) Payment of a one-time or up-front MIP is late if not received
by HUD within 10 calendar days after the date of loan closing or within
10 calendar days after the date of disbursement of the mortgage
proceeds, whichever is later. Late payments shall include a late charge
of four percent of the amount of the MIP.
(b) If payment of the MIP is not received by HUD within 30 days
after the date of loan closing or within 30 calendar days after the
date of disbursement of the mortgage proceeds, whichever is later, the
mortgagee will be charged additional late fees until payment is
received at an interest rate set in conformity with the Treasury Fiscal
Requirements Manual.
Dated: April 4, 2005.
John C. Weicher,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 05-7352 Filed 4-12-05; 8:45 am]
BILLING CODE 4210-27-P
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