Debenture Interest Payment Changes, 35992-35994 [06-5577]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 71, Number 120 (Thursday, June 22, 2006)]
[Rules and Regulations]
[Pages 35992-35994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-5577]



[[Page 35991]]

-----------------------------------------------------------------------

Part II





Department of Housing and Urban Development





-----------------------------------------------------------------------



24 CFR Part 203



Debenture Interest Payment Changes; Final Rule

Federal Register / Vol. 71, No. 120 / Thursday, June 22, 2006 / Rules 
and Regulations

[[Page 35992]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-4945-F-01]
RIN 2502-AI41


Debenture Interest Payment Changes

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule makes conforming revisions to the regulations 
under the single family mortgage insurance program with respect to the 
payment of interest at the debenture rate for mortgage insurance 
claims. The revisions implement a recent statutory amendment to the 
National Housing Act that provides for a mandatory change in the 
calculation of all debenture interest on mortgage insurance claims paid 
in cash. The statutory change mandates that, when paying insurance 
claims in cash, debenture interest rates for such claims must be the 
monthly average yield, for the month in which the default on the 
mortgage occurred, on United States Treasury Securities adjusted to a 
constant maturity of 10 years.

DATES: Effective Date: July 24, 2006.

FOR FURTHER INFORMATION CONTACT: Leslie Bromer, Office of the Deputy 
Assistant Secretary for Single Family Housing, Office of Housing, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 9172, Washington, DC 20410-8000; telephone (202) 708-1672 (this is 
not a toll-free number). Hearing- and speech-impaired persons may 
access this number through TTY by calling the toll-free Federal 
Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 224 of the National Housing Act (NHA) (12 U.S.C. 1710) 
provides for the debenture interest rate to be used in the payment of 
Federal Housing Administration (FHA) single family mortgage insurance 
claims upon default of the mortgage. Before the recent amendment to 
section 224 of the NHA by section 215 of the Consolidated 
Appropriations Act, 2004 (Pub. L. 108-199, approved January 23, 2004), 
section 224 provided that debentures issued under any section of the 
NHA were to bear interest at the rate in effect on the date the 
mortgage was endorsed for insurance (or the rate that was in effect on 
the issue date of the commitment to insure the loan or mortgage; such a 
rate is no longer used in single family programs). As amended by 
section 215 of the Consolidated Appropriations Act, section 224 of the 
NHA now provides in pertinent part that the debenture interest rate for 
purposes of calculating an insurance claim paid in cash on a mortgage 
insured under section 203 or 234 of the NHA and endorsed after January 
23, 2004, ``shall be the monthly average yield, for the month in which 
the default on the mortgage occurred, on United States Treasury 
Securities adjusted to a constant maturity of 10 years.''

II. This Final Rule

    This final rule amends the single family mortgage insurance 
regulations under 24 CFR part 203 to conform them to section 215 of the 
Consolidated Appropriations Act, 2004. As noted above, section 224 of 
the NHA now provides that the debenture interest rate for purposes of 
calculating an insurance claim paid in cash on a mortgage insured under 
section 203 or 234 of the NHA and endorsed after January 23, 2004, 
``shall be the monthly average yield, for the month in which the 
default on the mortgage occurred, on United States Treasury Securities 
adjusted to a constant maturity of 10 years.''
    HUD is codifying this provision by adding new Sec. Sec.  203.405(b) 
and 203.479(b) that track section 224 of the NHA, as amended. 
Specifically, these new sections state that for mortgages endorsed for 
insurance after January 23, 2004, the debenture interest rate for 
insurance claims paid in cash ``shall be the monthly average yield, for 
the month in which the default on the mortgage occurred, on United 
States Treasury Securities adjusted to a constant maturity of 10 
years.''
    This final rule also makes several conforming changes to HUD's 
single family mortgage insurance regulations to ensure that they 
reflect HUD's statutory authority and that they accurately describe for 
the public the procedure by which HUD will determine the debenture 
interest rate for conveyance claims, non-conveyance claims, assignment 
claims, and rehabilitation loan claims. These conforming changes are 
described below.
    First, HUD is amending Sec.  203.402 that lists the items included 
in the payment of insurance benefits paid in connection with conveyance 
claims, claims without conveyance of title, and pre-foreclosure sale 
claims. Specifically, Sec.  203.402(k)(1) is amended to provide that 
insurance claims for properties conveyed and endorsed for insurance 
after January 23, 2004, shall include the debenture interest rate as it 
is set forth in the new Sec.  203.405(b), which, as already described, 
codifies the debenture rate authorized by section 224 of the NHA, as 
amended. Furthermore, for properties endorsed for insurance after 
January 23, 2004, amended Sec.  203.402(k)(2) and (k)(3) also implement 
the new debenture interest rate as it applies to the payment of 
insurance benefits for property without conveyance of title and to the 
payment for insurance benefits following a pre-foreclosure sale, 
respectively.
    The second conforming change that HUD is making is to the 
regulation describing the amount of payment for assigned mortgages. 
Specifically, sections 203.404 and 203.478(a)(5) are amended to provide 
that upon an acceptable mortgage assignment, the Federal Housing 
Commissioner shall pay the unpaid principal balance of the loan at the 
time of assignment and an amount determined by, in part, an amount 
equivalent to the new debenture interest rate as it is set forth in 
section 224 of the NHA, as amended.

III. Findings and Certifications

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 
at 24 CFR part 10. Part 10, however, does provide in Sec.  10.1 for 
exceptions from that general rule where HUD finds good cause to omit 
advance notice and public participation. The good cause requirement is 
satisfied when the prior public procedure is ``impracticable, 
unnecessary, or contrary to the public interest.'' HUD finds that good 
cause exists to publish this final rule for effect without first 
soliciting public comment, as public comment would be unnecessary and 
contrary to the public interest.
    This final rule implements a statutory amendment to the National 
Housing Act that sets forth a mandatory change in the calculation of 
all debenture interest on mortgage insurance claims paid in cash. This 
amendment is prescriptive and allows no agency discretion in 
promulgating implementing regulations. The required revisions to the 
regulations incorporate the statutory amendment and do not make 
additional substantive changes. HUD must revise the single family 
mortgage insurance regulations in order to incorporate this amendment 
and to ensure that the regulations accurately reflect the statutory 
method of calculating debenture interest rates.

[[Page 35993]]

Since the statutory amendment is self-implementing, public comment is 
unnecessary. HUD is only updating its existing regulations to conform 
to the amendment. Accordingly, HUD believes that it is in the public 
interest to publish this final rule to make the statutory amendment 
effective as soon as possible and that prior public procedure is 
unnecessary.

Environmental Impact

    This rule revises existing regulations to conform the regulations 
to a recent statutory change. The rule does not direct, provide for 
assistance or 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. Therefore, 
in accordance with 24 CFR 50.19(c)(1), this rule is categorically 
excluded from the requirements of the National Environmental Policy Act 
(42 U.S.C. 4321 et seq.).

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (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 
on the private sector. This rule does not impose a federal mandate on 
any State, local, or tribal government, nor on the private sector, 
within the meaning of the Unfunded Mandates Reform Act of 1995.

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 will not have a significant 
economic impact on a substantial number of small entities. There are no 
anti-competitive discriminatory aspects of the rule with regard to 
small entities, and there are no unusual procedures that would need to 
be complied with by small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
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 governments nor preempt state law within the meaning of 
the Executive Order.

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.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number is 14.117.

0
Accordingly, HUD amends 24 CFR part 203 to read as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

0
1. The authority citation for part 203 continues to read as follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C. 
3535(d)


0
2. Revise Sec.  203.402, paragraph (k) to read as follows:


Sec.  203.402  Items included in payment-conveyed and nonconveyed 
properties.

* * * * *
    (k)(1) Except as provided in paragraphs (k)(1)(i) and (ii) of this 
section, for properties conveyed to the Secretary and endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the date such 
payment is made, on the portion of the insurance benefits paid in cash, 
if such portion had been paid in debentures, and for properties 
conveyed to the Secretary and endorsed for insurance after January 23, 
2004, debenture interest at the rate specified in Sec.  203.405(b) from 
the date specified in Sec.  203.410, as applicable, to the date of 
claim payment, on the portion of the insurance benefits paid in cash.
    (i) When the mortgagee fails to meet any one of the applicable 
requirements of Sec. Sec.  203.355, 203.356(b), 203.359, 203.360, 
203.365, 203.606(b)(l), or 203.366 within the specified time and in a 
manner satisfactory to the Secretary (or within such further time as 
the Secretary may approve in writing), the interest allowance in such 
cash payment shall be computed only to the date on which the particular 
required action should have been taken or to which it was extended;
    (ii) When the mortgagee fails to meet the requirements of Sec.  
203.356(a) within the specified time and in a manner satisfactory to 
the Secretary (or within such further time as the Secretary may specify 
in writing), the interest allowance in such cash payment shall be 
computed to a date set administratively by the Secretary.
    (2)(i) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  
203.368 and was endorsed for insurance on or before January 23, 2004, 
an amount equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) The debenture interest that would have been earned from the 
date the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property to the date when payment of 
the claim is made, on the portion of the insurance benefits paid in 
cash if such portion had been paid in debentures, except that if the 
mortgagee fails to meet any of the applicable requirements of 
Sec. Sec.  203.355, 203.356, and 203.368(i)(3) and (5) within the 
specified time and in a manner satisfactory to the Commissioner (or 
within such further time as the Commissioner may approve in writing), 
the interest allowance in such cash payment shall be computed only to 
the date on which the particular required action should have been taken 
or to which it was extended.
    (ii) Where a claim for insurance benefits is being paid without 
conveyance of title to the Commissioner in accordance with Sec.  
203.368 and was endorsed for insurance after January 23, 2004, an 
amount equivalent to the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date 
that the mortgagee or a party other than the mortgagee acquires good 
marketable title to the mortgaged property, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date the mortgagee or a person other than the mortgagee 
acquires good marketable title to the mortgaged property to the date 
when payment of the claim is made, on the portion of the insurance

[[Page 35994]]

benefits paid in cash, except that if the mortgagee fails to meet any 
of the applicable requirements of Sec. Sec.  203.355, 203.356, and 
203.368(i)(3) and (5) of this chapter within the specified time and in 
a manner satisfactory to the Commissioner (or within such further time 
as the Commissioner may approve in writing), the interest allowance in 
such cash payment shall be computed only to the date on which the 
particular required action should have been taken or to which it was 
extended.
    (3)(i) Where a claim for insurance benefits is being paid following 
a pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance on or before January 23, 2004, an amount 
equivalent to the sum of:
    (A) The debenture interest that would have been earned, as of the 
date of the closing of the pre-foreclosure sale on an amount equal to 
the amount by which an insurance claim determined in accordance with 
Sec.  203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) The debenture interest that would have been earned, from the 
date of the closing of the pre-foreclosure sale to the date when 
payment of the claim is made, on the portion of the insurance benefits 
paid in cash, if such portion had been paid in debentures; except that 
if the mortgagee fails to meet any of the applicable requirements of 
Sec.  203.365 within the specified time and in a manner satisfactory to 
the Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
    (ii) Where a claim for insurance benefits is being paid following a 
pre-foreclosure sale, without foreclosure or conveyance to the 
Commissioner, in accordance with Sec.  203.370, and the mortgage was 
endorsed for insurance after January 23, 2004, an amount equivalent to 
the sum of:
    (A) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date specified in Sec.  203.410, as applicable, to the date of 
the closing of the pre-foreclosure sale, on an amount equal to the 
amount by which an insurance claim determined in accordance with Sec.  
203.401(a) exceeds the amount of the actual claim being paid in 
debentures; plus
    (B) Debenture interest at the rate specified in Sec.  203.405(b) 
from the date of the closing of the pre-foreclosure sale to the date 
when the payment of the claim is made, on the portion of the insurance 
benefits paid in cash, except that if the mortgagee fails to meet any 
of the applicable requirements of Sec.  203.365 within the specified 
time and in a manner satisfactory to the Commissioner (or within such 
further time as the Commissioner may approve in writing), the interest 
allowance in such cash payment shall be computed only to the date on 
which the particular required action should have been taken or to which 
it was extended.

0
3. Revise Sec.  203.404, paragraph (a)(4) to read as follows:


Sec.  203.404  Amount of payment-assigned mortgages.

* * * * *
    (a)(4) For mortgages endorsed for insurance on or before January 
23, 2004, an amount equivalent to the debenture interest that would 
have been earned on the portion of the insurance benefits paid in cash, 
as of the date such payment is made, and for mortgages endorsed for 
insurance after January 23, 2004, debenture interest at the rate 
specified in Sec.  203.405(b), from the date specified in Sec.  203.410 
to the date of claim payment on the portion of the insurance benefits 
paid in cash, except that when the mortgagee fails to meet any one of 
the requirements of Sec. Sec.  203.350(e), 203.351, and 203.353 of this 
chapter within the specified time and in a manner satisfactory to the 
Commissioner (or within such further time as the Commissioner may 
approve in writing), the interest allowance in such cash payment shall 
be computed only to the date on which the particular required action 
should have been taken or to which it was extended.
* * * * *

0
4. Revise Sec.  203.405 to read as follows:


Sec.  203.405  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and the first day of July of 
each year at the rate in effect as of the day the commitment was 
issued, or as of the date the mortgage was endorsed for insurance, 
whichever rate is higher. For applications involving mortgages 
originated under the single family Direct Endorsement program, 
debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and on the first day of July 
of each year at the rate in effect as of the date the mortgage was 
endorsed for insurance;
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average 
yield, for the month in which the default on the mortgage occurred, on 
United States Treasury Securities adjusted to a constant maturity of 10 
years.

0
5. Revise Sec.  203.478, paragraph (a)(5) to read as follows:


Sec.  203.478  Payment of insurance benefits.

    (a) * * *
    (5)(i) If payment is made in cash on a mortgage endorsed for 
insurance on or before January 23, 2004, an amount equivalent to the 
debenture interest that would have been earned, as of the date 
insurance settlement occurs, except that where the lender fails to meet 
any one of the requirements of Sec. Sec.  203.476 and 203.477 and such 
failure continues for more than 30 days (or such further time as the 
Commissioner may approve in writing), the debenture interest shall be 
computed for 30 days or the extended period;
    (ii) If payment is made in cash on a mortgage endorsed for 
insurance after January 23, 2004, debenture interest at the rate 
specified in Sec.  203.479 from the date specified in Sec.  203.486 to 
the date insurance settlement occurs, except that where the lender 
fails to meet any one of the requirements of Sec. Sec.  203.476 and 
203.477 and such failure continues for more than 30 days (or such 
further time as the Commissioner may approve in writing), the debenture 
interest shall be computed for 30 days or the extended period.

0
6. Revise Sec.  203.479 to read as follows:


Sec.  203.479  Debenture interest rate.

    (a) Debentures shall bear interest from the date of issue, payable 
semiannually on the first day of January and on the first day of July 
every year at the rate in effect as of the date the commitment was 
issued, or as of the date the loan was endorsed for insurance, 
whichever rate is higher. The applicable rates of interest will be 
published twice each year as a notice in the Federal Register.
    (b) For mortgages endorsed for insurance after January 23, 2004, if 
an insurance claim is paid in cash, the debenture interest rate for 
purposes of calculating such a claim shall be the monthly average 
yield, for the month in which the default on the mortgage occurred, on 
United States Treasury Securities adjusted to a constant maturity of 10 
years.

    Dated: June 14, 2006.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 06-5577 Filed 6-21-06; 8:45 am]
BILLING CODE 4210-67-P