Eligibility of Adjustable Rate Mortgages, 72696-72697 [05-23648]

Download as PDF 72696 Federal Register / Vol. 70, No. 233 / Tuesday, December 6, 2005 / Rules and Regulations DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 203 [Docket No. FR–4946–F–02] RIN 2502–AI26 Eligibility of Adjustable Rate Mortgages Office of the Assistant Secretary of Housing—Federal Housing Commissioner, HUD. ACTION: Final rule. AGENCY: On March 29, 2005, HUD published an interim rule making available a new adjustable rate mortgage (ARM) product. In accordance with statutory authority, this rule enabled the Secretary to insure five-year hybrid ARMs with interest rates adjustable up to two percentage points annually (this type of mortgage is known as a 5/1 ARM). The lifetime cap on annual interest rate adjustments for five-year ARMs was set at six percentage points. This final rule follows publication of the March 29, 2005, interim rule, and makes no changes at this final rule stage. DATES: Effective Date: January 5, 2006. FOR FURTHER INFORMATION CONTACT: Margaret Burns, Deputy Director, Office of Program Development, Office of Insured Single Family Housing, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 9266, Washington, DC 20410– 8000; telephone (202) 708–2121 (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 Information Relay Service at (800) 877–8339. SUMMARY: SUPPLEMENTARY INFORMATION I. Background Section 251 of the National Housing Act (12 U.S.C. 1715z–16) authorizes the Secretary to insure adjustable rate mortgages (ARMs). ARMs are mortgages that remain at a fixed interest rate for a certain period of time, but then provide for periodic adjustments in the interest rate charged on the mortgage. An ARM may be attractive to a potential homebuyer because it offers a lower initial interest rate than most fixed rate mortgage loans. Section 251 of the National Housing Act limits the amount of the annual interest rate adjustments on ARMs insured by HUD-Federal Housing Administration (FHA) depending on the duration of the initial fixed interest rate term. Section 301 of Public Law 108– 186 (approved December 16, 2003) (2003 Act), amended section 251(d) of VerDate Aug<31>2005 17:23 Dec 05, 2005 Jkt 208001 the National Housing Act to provide for greater flexibility in this regard. Prior to enactment of the 2003 Act, section 251 of the National Housing Act limited annual interest rate adjustments on FHA-insured ARMs to one percentage point only if the initial fixed interest rate term was for a period of five years or less. Section 301 amended section 251(d)(1)(C) of the National Housing Act to reduce this period to three years or less. In other words, the annual adjustment of one percent only applies to ARMs with a fixed term for the first three or fewer years. For five-, seven-, and ten-year ARMs, the mortgagee may make an annual adjustment that exceeds one percent. Thus, prior to the enactment of the interim rule, § 203.49(f)(1) limited the annual interest rate adjustment for five-year ARMs to a single percentage point. HUD became aware of concerns among mortgage lenders and borrowers regarding the one percentage point limitation on annual interest rate adjustments for five-year ARMs. These concerns were based primarily on the fact that a one percentage point limitation on FHA-insured five-year ARMs did not accurately reflect the realities of the mortgage market. Conventional mortgage lenders do not offer five-year ARMs with a one percentage point cap on annual interest rate adjustments. A maximum annual increase of one percentage point does not provide lenders with sufficient interest rate flexibility to offer five-year ARMs at an interest rate below the traditional 30-year fixed rate mortgage. Accordingly, the one percentage point limitation undercut HUD’s ability to offer mortgage insurance for a full range of ARM loans with standing initial interest rates lower than those on conventional 30-year fixed rate mortgages. On March 29, 2005 (70 FR 16080), HUD published an interim rule that enabled the Secretary to insure five-year hybrid ARMs with interest rates adjustable up to two percentage points annually (this type of mortgage is known as a 5/1 ARM). In addition, the interim rule raised the lifetime cap on interest rate adjustments for five-year ARMs to six percentage points. This change conformed the lifetime cap for five-year ARMs to those applicable to seven- and ten-year ARMs. II. This Final Rule This final rule follows publication of the March 29, 2005, interim rule and takes into consideration the public comments received on the interim rule. The public comment period for the interim rule closed May 31, 2005. HUD PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 received one public comment on the interim rule from an association representing real estate practitioners. The commenter wrote that it supports the interim rule because the new interest rate allows sufficient interest rate flexibility and will expand the number of available insured mortgage options. HUD has decided to adopt the March 29, 2005, rule as final without change. III. Findings and Certifications 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 on 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 rule permits greater flexibility for all lenders, regardless of size, to offer a revised mortgage product that is eligible for FHA insurance. This rule imposes no additional economic or monetary requirements on businesses. Therefore, the undersigned certifies that this final rule will not have a significant economic impact on a substantial number of small entities. Environmental Impact A Finding of No Significant Impact with respect to the environment was made at the interim 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)). That Finding remains applicable to this final rule and is available for public inspection between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410–0500. Executive Order 13132, Federalism Executive Order 13132 (entitled ‘‘Federalism’’) prohibits, to the extent practicable and permitted by law, an agency from publishing any rule that has federalism implications and either imposes substantial direct compliance costs on State and local governments and is not required by statute, or 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 E:\FR\FM\06DER2.SGM 06DER2 Federal Register / Vol. 70, No. 233 / Tuesday, December 6, 2005 / Rules and Regulations private sector within the meaning of UMRA. 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 (UMRA) (2 U.S.C. 1531–1538) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments, and the private sector. This final rule does not impose any Federal mandates on any State, local, or tribal government, or the VerDate Aug<31>2005 17:23 Dec 05, 2005 Jkt 208001 Catalog of Federal Domestic Assistance The Catalog of Federal Domestic Assistance numbers applicable to this rule are 14.108, 14.117, and 14.119. List of Subject 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. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 72697 Accordingly, for the reasons stated in the preamble, the interim rule for part 203 of Title 24 of the Code of Federal Regulations, amending § 203.49, published on March 25, 2005, at 70 FR 16080, is promulgated as final, without change. I Dated: November 23, 2005. Brian D. Montgomery, Assistant Secretary for Housing, Federal Housing Commissioner. [FR Doc. 05–23648 Filed 12–5–05; 8:45 am] BILLING CODE 4210–27–P E:\FR\FM\06DER2.SGM 06DER2

Agencies

[Federal Register Volume 70, Number 233 (Tuesday, December 6, 2005)]
[Rules and Regulations]
[Pages 72696-72697]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23648]



[[Page 72695]]

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Part II





Department of Housing and Urban Development





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24 CFR Part 203



Eligibility of Adjustable Rate Mortgages; Final Rule

Federal Register / Vol. 70 , No. 233 / Tuesday, December 6, 2005 / 
Rules and Regulations

[[Page 72696]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4946-F-02]
RIN 2502-AI26


Eligibility of Adjustable Rate Mortgages

AGENCY: Office of the Assistant Secretary of Housing--Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: On March 29, 2005, HUD published an interim rule making 
available a new adjustable rate mortgage (ARM) product. In accordance 
with statutory authority, this rule enabled the Secretary to insure 
five-year hybrid ARMs with interest rates adjustable up to two 
percentage points annually (this type of mortgage is known as a 5/1 
ARM). The lifetime cap on annual interest rate adjustments for five-
year ARMs was set at six percentage points. This final rule follows 
publication of the March 29, 2005, interim rule, and makes no changes 
at this final rule stage.

DATES: Effective Date: January 5, 2006.

FOR FURTHER INFORMATION CONTACT: Margaret Burns, Deputy Director, 
Office of Program Development, Office of Insured Single Family Housing, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 9266, Washington, DC 20410-8000; telephone (202) 708-2121 (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 
Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION

I. Background

    Section 251 of the National Housing Act (12 U.S.C. 1715z-16) 
authorizes the Secretary to insure adjustable rate mortgages (ARMs). 
ARMs are mortgages that remain at a fixed interest rate for a certain 
period of time, but then provide for periodic adjustments in the 
interest rate charged on the mortgage. An ARM may be attractive to a 
potential homebuyer because it offers a lower initial interest rate 
than most fixed rate mortgage loans.
    Section 251 of the National Housing Act limits the amount of the 
annual interest rate adjustments on ARMs insured by HUD-Federal Housing 
Administration (FHA) depending on the duration of the initial fixed 
interest rate term. Section 301 of Public Law 108-186 (approved 
December 16, 2003) (2003 Act), amended section 251(d) of the National 
Housing Act to provide for greater flexibility in this regard. Prior to 
enactment of the 2003 Act, section 251 of the National Housing Act 
limited annual interest rate adjustments on FHA-insured ARMs to one 
percentage point only if the initial fixed interest rate term was for a 
period of five years or less. Section 301 amended section 251(d)(1)(C) 
of the National Housing Act to reduce this period to three years or 
less. In other words, the annual adjustment of one percent only applies 
to ARMs with a fixed term for the first three or fewer years. For five-
, seven-, and ten-year ARMs, the mortgagee may make an annual 
adjustment that exceeds one percent. Thus, prior to the enactment of 
the interim rule, Sec.  203.49(f)(1) limited the annual interest rate 
adjustment for five-year ARMs to a single percentage point.
    HUD became aware of concerns among mortgage lenders and borrowers 
regarding the one percentage point limitation on annual interest rate 
adjustments for five-year ARMs. These concerns were based primarily on 
the fact that a one percentage point limitation on FHA-insured five-
year ARMs did not accurately reflect the realities of the mortgage 
market. Conventional mortgage lenders do not offer five-year ARMs with 
a one percentage point cap on annual interest rate adjustments. A 
maximum annual increase of one percentage point does not provide 
lenders with sufficient interest rate flexibility to offer five-year 
ARMs at an interest rate below the traditional 30-year fixed rate 
mortgage. Accordingly, the one percentage point limitation undercut 
HUD's ability to offer mortgage insurance for a full range of ARM loans 
with standing initial interest rates lower than those on conventional 
30-year fixed rate mortgages.
    On March 29, 2005 (70 FR 16080), HUD published an interim rule that 
enabled the Secretary to insure five-year hybrid ARMs with interest 
rates adjustable up to two percentage points annually (this type of 
mortgage is known as a 5/1 ARM). In addition, the interim rule raised 
the lifetime cap on interest rate adjustments for five-year ARMs to six 
percentage points. This change conformed the lifetime cap for five-year 
ARMs to those applicable to seven- and ten-year ARMs.

II. This Final Rule

    This final rule follows publication of the March 29, 2005, interim 
rule and takes into consideration the public comments received on the 
interim rule. The public comment period for the interim rule closed May 
31, 2005. HUD received one public comment on the interim rule from an 
association representing real estate practitioners. The commenter wrote 
that it supports the interim rule because the new interest rate allows 
sufficient interest rate flexibility and will expand the number of 
available insured mortgage options. HUD has decided to adopt the March 
29, 2005, rule as final without change.

III. Findings and Certifications

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 on 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 rule permits greater flexibility for all lenders, regardless of 
size, to offer a revised mortgage product that is eligible for FHA 
insurance. This rule imposes no additional economic or monetary 
requirements on businesses. Therefore, the undersigned certifies that 
this final rule will not have a significant economic impact on a 
substantial number of small entities.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the interim 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)). That Finding 
remains applicable to this final rule and is available for public 
inspection between 8 a.m. and 5 p.m. weekdays in the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-
0500.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from publishing any 
rule that has federalism implications and either imposes substantial 
direct compliance costs on State and local governments and is not 
required by statute, or 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

[[Page 72697]]

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 (UMRA) (2 
U.S.C. 1531-1538) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments, and the private sector. This final rule does not 
impose any Federal mandates on any State, local, or tribal government, 
or the private sector within the meaning of UMRA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers applicable to 
this rule are 14.108, 14.117, and 14.119.

List of Subject 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.


0
Accordingly, for the reasons stated in the preamble, the interim rule 
for part 203 of Title 24 of the Code of Federal Regulations, amending 
Sec.  203.49, published on March 25, 2005, at 70 FR 16080, is 
promulgated as final, without change.

    Dated: November 23, 2005.
Brian D. Montgomery,
Assistant Secretary for Housing, Federal Housing Commissioner.
[FR Doc. 05-23648 Filed 12-5-05; 8:45 am]
BILLING CODE 4210-27-P