HOPE for Homeowners Program: Program Regulations: Upfront Payment Incentive for Subordinate Mortgage Lien Holders and Other Program Changes, 617-622 [E9-57]

Agencies

• Board of Directors of the Hope for Homeowners Program

[Federal Register Volume 74, Number 4 (Wednesday, January 7, 2009)]
[Rules and Regulations]
[Pages 617-622]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-57]



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Federal Register / Vol. 74, No. 4 / Wednesday, January 7, 2009 / 
Rules and Regulations

[[Page 617]]



BOARD OF DIRECTORS OF THE HOPE FOR HOMEOWNERS PROGRAM

24 CFR Part 4001

[Docket No. B-2009-F-03]
RIN 2580-AA01


HOPE for Homeowners Program: Program Regulations: Upfront Payment 
Incentive for Subordinate Mortgage Lien Holders and Other Program 
Changes

AGENCY: Board of Directors of the HOPE for Homeowners Program.

ACTION: Interim final rule.

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

SUMMARY: This interim final rule amends the HOPE for Homeowners Program 
regulations established by the Board of Directors (Board) of the HOPE 
for Homeowners Program (Program) and published on October 6, 2008. The 
regulations are being amended to provide additional flexibility and 
options to lenders as authorized by amendments to section 257 of the 
National Housing Act made by the Emergency Economic Stabilization Act, 
which was signed into law on October 3, 2008, and to make additional 
changes designed to improve the Program. Specifically, the regulations 
are amended to expand the Program to include 2-to-4 unit properties as 
eligible Program properties, which is consistent with the definition of 
``single family residence'' under the National Housing Act. The 
regulations are also amended to provide for the option of an upfront 
payment in lieu of a future appreciation payment from the Secretary of 
Housing and Urban Development (Secretary) to a holder of an existing 
subordinate mortgage. The upfront payment would be offered by the 
Secretary as an incentive to facilitate agreement by all mortgage lien 
holders to release their liens on the mortgage to be refinanced under 
the Program. The amendments made by this rule also include increasing 
the maximum term of Program mortgages from 30 to 40 years, as well as 
increasing or modifying the allowable loan-to-value and debt-to-income 
ratios for new mortgages under the Program. The regulations are also 
amended to modify the equity sharing provision of the Program for 
borrowers who may have equity in their homes at the time they are 
accepted into the Program, and to make the timeframe for lenders to 
obtain endorsement for Program loans consistent with other FHA 
programs.
    All these amendments are designed to expand the number of eligible 
borrowers and participating lenders and servicers, and improve the 
Program's operations consistent with the requirements and purposes of 
the Program. In addition, the regulations are amended to clarify the 
provisions regarding mortgagor eligibility, total monthly mortgage 
payment, and shared appreciation in the value of the refinanced 
property.

DATES: Effective Date: January 7, 2009.
    Comment Due Date: March 9, 2009.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 10276, Washington, DC 20410-0500. Communications should refer to 
the above docket number and title.
    Comment by Mail. Please note that due to security measures at all 
federal agencies, submission of comments by mail often results in 
delayed delivery.
    Electronic Submission of Comments. HUD now accepts comments 
electronically. Interested persons may now submit comments 
electronically through the Federal eRulemaking Portal at https://
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission allows the commenter 
maximum time to prepare and submit a comment, ensures timely receipt by 
HUD, and enables HUD to make them immediately available for public 
viewing. Commenters should follow the instructions provided at https://
www.regulations.gov to submit comments electronically.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable. 
In all cases, communications must refer to the docket number and title.
    Public Inspection of Public Comments. All comments and 
communications submitted will be available, without revision, for 
inspection and downloading at https://www.regulations.gov. Comments are 
also available for public inspection and copying between 8 a.m. and 5 
p.m. weekdays at the Regulations Division. Due to security measures at 
the HUD Headquarters building, please schedule an appointment to review 
the comments by calling the Regulations Division at (202) 708-3055 
(this is not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Emmanuel Yeow, Secretary of the Board 
of Directors of the HOPE for Homeowners Program, Department of Housing 
and Urban Development, 451 7th Street, SW., Room 9110, Washington, DC 
20410-8000, telephone 202-708-3600 (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: 

Background

    The HOPE for Homeowners Act of 2008 (Title IV of Division A of the 
Housing and Economic Recovery Act of 2008 (HERA), (Pub. L. 110-289, 122 
Stat. 2654, approved July 30, 2008)), amended Title II of the National 
Housing Act (NHA) to add a new section 257. New section 257 (12 U.S.C. 
1701z-22) establishes within the Federal Housing Administration (FHA), 
the Program, a temporary FHA program that offers homeowners and 
mortgage loan holders (or servicers acting on their behalf) insurance 
on the refinancing of loans for distressed mortgagors to support long 
term sustainable homeownership and avoid foreclosure. Section 257 of 
the NHA authorizes the Department of Housing and Urban Development 
(HUD) acting through FHA, to insure such refinanced eligible mortgages 
commencing no earlier than October 1, 2008, and the authority to insure 
new mortgages expires September 30, 2011.
    On September 30, 2008, the Board approved regulations that 
established the core requirements necessary and appropriate for 
implementation of the Program. These regulations were

[[Page 618]]

published in the Federal Register on October 6, 2008, at 73 FR 58418.
    Under the Program, refinanced mortgages are offered by FHA-approved 
mortgagees to eligible borrowers who are at risk of losing their homes 
to foreclosure. The refinanced mortgage insured by FHA has a principal 
loan balance below the current appraised value of the home, creating 
new equity in the mortgaged property. To participate in the Program, 
eligible borrowers must be unable to afford their existing mortgage 
payments, must occupy the residence that is the security for the 
refinanced mortgage as their primary residence, and may not have any 
present ownership interest in another residence. Investors and investor 
properties are not eligible for the Program. Under the Program, 
participating mortgagors share their new equity and future appreciation 
of the value of the property subject to the refinanced mortgage with 
FHA. Participation in this Program is voluntary. No mortgagees, 
servicers, or investors are compelled to participate.
    Under the Program, all holders of outstanding mortgage liens on a 
property to which a mortgage relates must agree to accept the proceeds 
of the refinanced FHA-insured loan as payment in full of all 
indebtedness under the existing mortgage(s). The Secretary is directed 
by HERA to take actions, subject to standards established by the Board, 
to facilitate coordination and agreement between the holders of the 
existing senior mortgage and existing subordinate mortgages.
    On October 3, 2008, the President signed into law the Emergency 
Economic Stabilization Act of 2008 (Pub. L. 110-343, 122 Stat. 3765) 
(EESA). Section 124 of EESA amended section 257 of the NHA to, among 
other things, authorize the Secretary, subject to standards established 
by the Board, to make upfront payments to a holder of an existing 
subordinate mortgage in lieu of providing the subordinate lien holder a 
portion of HUD's 50 percent interest in the future appreciation of the 
value of the property. Upfront payments may provide a more effective 
incentive to subordinate lien holders to release their liens on a 
mortgage eligible to be refinanced under the Program, thereby better 
enabling a borrower to participate in the Program. In addition, section 
124 of EESA amended section 257(e)(1)(B) of the NHA to clarify that a 
borrower's debt-to-income ratio may be calculated for purposes of that 
section as of March 1, 2008, or may be calculated as of a later date, 
due to mortgage resets that occur after that date under the mortgage 
terms in effect on March 1, 2008. Finally, section 124 of EESA amended 
section 257 of the NHA to give the Board discretionary authority to 
raise the maximum loan-to-value ratio of a Program mortgage, which was 
set prior to the amendment at 90 percent.

This Interim Final Rule

    This interim final rule makes the following changes to the Program 
regulations at 24 CFR part 4001:

A. Upfront Payment in Lieu of a Future Appreciation Payment

    As authorized by section 124 of EESA, this interim final rule 
amends the Board's regulations at 24 CFR 4001.120 (Appreciation 
Sharing) to permit a holder of an existing subordinate mortgage to 
receive a payment at the time a mortgage is refinanced under the 
Program in lieu of a share of any future appreciation in the value of 
the property that is owed to HUD. As a condition of receiving such 
payment, the subordinate mortgage holder must release the borrower of 
all indebtedness under the loan and release the holder's lien on the 
property.
    The following matrix, codified as Appendix A to the Program 
regulations, provides the mechanism for determining the risk-adjusted 
future appreciation payment a holder of an existing subordinate 
mortgage may be eligible to receive. The Appendix is amended by this 
final rule to reflect the risk-adjusted upfront payment a holder of an 
existing subordinate mortgage may be eligible to receive in lieu of the 
future appreciation payment. Appendix A is also amended to provide 
that, when calculating a subordinate mortgage lien holder's potential 
appreciation share, payment will be based upon principal and interest 
``as of the first day of the month in which the borrower makes 
application for the Program mortgage'' (as opposed to the ``date of 
origination of the Program mortgage,'' as provided for in the appendix 
to the final rule issued on October 6, 2008). These amendments are 
necessary because subordinate mortgage lien holders must be notified in 
advance of origination of the amount of any upfront or future 
appreciation share they may be eligible to receive, and they must agree 
in writing to accept one of these payment options. If the upfront 
option is selected, the originating lender must provide payment 
instructions to the closing agent in advance of origination. If the 
future appreciation option is selected, HUD must prepare and deliver 
the Appreciation Share Certificate prior to origination.

                             Calculation of Upfront and Appreciation Sharing Payment
----------------------------------------------------------------------------------------------------------------
                                                                                           Future appreciation
                                                                 Upfront payment option    option*  Percent of
                                                                   Percent of unpaid       unpaid principal and
Subordinate mortgage lien holder's cumulative combined loan-to-  principal and interest     interest that lien
                          value ratio                             that lien holder is     holder is eligible to
                                                                  eligible to receive       receive 
                                                                   (percent)           (percent)
----------------------------------------------------------------------------------------------------------------
>135%.........................................................                        3                        9
<=135%........................................................                        4                       12
----------------------------------------------------------------------------------------------------------------
*A payment to a subordinate mortgage lien holder will depend on actual appreciation of the property, as
  determined in accordance with 24 CFR 4001.120. Payment will be made according to the subordinate lien holder's
  position of priority in relation to the property at the time the Program mortgage is originated.
 Payment will be based upon principal and interest as of the first day of the month in which the
  borrower made application for the Program mortgage and calculated at the pre-default contract rate of
  interest.

    In establishing the upfront payment option, the Board took into 
account information received from market participants concerning the 
price currently received in the market for delinquent subordinate 
mortgages. The Board expects that the majority of subordinate mortgage 
liens to be released under the Program will be delinquent. The 
information provided by market participants indicates that delinquent 
subordinate mortgages recently have traded at substantially below their 
par values, with market values that approximate the ranges established 
by the Board for the upfront payment option. As a result, the Board 
believes that the compensation provided

[[Page 619]]

by the upfront payment option at the time of settlement should be 
sufficient to facilitate the participation of subordinate mortgage lien 
holders in the Program. The Board believes that providing an upfront 
payment option of 3 to 4 percent, as provided in this interim final 
rule, should likely provide the subordinate mortgage lien holder with 
about the same risk-adjusted compensation as the holder would receive 
under the right to receive a maximum of 9 to 12 percent of the unpaid 
principal and interest on the subordinate mortgage out of the future 
appreciation on the property (as is provided in the final regulations 
published on October 6, 2008). The upfront payment option will be 
subject to the same eligibility requirements as the future appreciation 
option.

B. Increased Loan-to-Value and Income Ratios

    This interim final rule amends Sec.  4001.110 (Underwriting) to 
increase the allowable loan-to-value ratio (LTV) of a Program mortgage 
up to 96.5 percent for any mortgagor whose: (i) New total monthly 
mortgage payment under the Program mortgage will not exceed 31 percent 
of the mortgagor's monthly gross income, and (ii) total monthly 
recurring expenses (including mortgage payments) will not exceed 43 
percent of the mortgagor's monthly gross income. This amendment is 
designed to promote Program participation by existing senior mortgage 
lien holders. Raising the LTV could reduce the gap between the existing 
mortgage balance and the new Program mortgage, reducing losses that 
existing primary lien holders may incur in connection with a Program 
mortgage. At the same time, the changes seek to ensure the new Program 
mortgage is sustainable by limiting the permissible DTI ratios to \31/
43\ percent for borrowers with a new LTV of greater than 90 percent. 
The rule also amends Sec.  4001.110 to allow a mortgagor whose Program 
mortgage has an LTV that does not exceed 90 percent to qualify 
immediately for the Program, without any trial modification period, if: 
(i) The mortgagor's new total monthly mortgage payments will not exceed 
38 percent of the mortgagor's monthly gross income; and (ii) the 
mortgagor's monthly recurring expenses (including mortgage expenses) 
will not exceed 50 percent of monthly gross income. The trial 
modification requirement will no longer be required under the Program, 
and the provisions related to trial modification are removed by this 
rule.
    Together these amendments should expand the number of eligible 
borrowers that may qualify for the Program and reduce the operational 
hurdles and other disincentives for lenders or servicers to participate 
in the Program. At the same time, the amendments balance a borrower's 
resulting LTV and mortgage debt- and total household debt-to-income 
ratios to help create a sustainable new mortgage for the borrower.

C. Extending Program Mortgage Terms From 30 to 40 Years

    The rule amends the Program regulations at Sec.  4001.110(c) to 
extend the maximum term of a Program mortgage from 30 to 40 years. 
Section 257(e)(5)(B) of the NHA requires a mortgage refinanced under 
the Program to have a term ``not less than'' 30 years, meaning that a 
longer term is possible. A conforming change is made to Sec.  4001.102, 
which cross-references the applicability of HUD's regulations governing 
eligibility for single family mortgage insurance at 24 CFR part 203, 
subpart A. Specifically, the rule amends Sec.  4001.102 to specify that 
the provisions of 24 CFR 203.17(d) limiting the term of a HUD-insured 
mortgage to 30 years are not applicable to the Program.
    For mortgagors with very high mortgage and household debt loads, 
extending the amortization period may reduce their monthly payments 
sufficiently to enable them to qualify for the Program. Whether a 
particular borrower would obtain a lower monthly payment through a 40 
year mortgage will depend on, among other things, the applicable 
interest rate. In order for a Program mortgage to qualify for inclusion 
in a pool of Program mortgages to back securities guaranteed by the 
Government National Mortgage Association (Ginnie Mae), the mortgage 
should be for a term of either 30 or 40 years to maintain consistency 
in the mortgages within a securitization pool. If the lender intends to 
hold the Program mortgage or securitize the mortgage other than through 
the Ginnie Mae program, then this operational limitation would not 
apply, and the lender is free to set the term of the mortgage at 30 
years, 40 years, or some intermediate number of years.

D. Mortgagor Eligibility, Total Monthly Mortgage Payment, and Shared 
Appreciation and Shared Equity Requirements

    Under the explicit authority granted by section 257(e)(1)(B) of the 
NHA, this rule amends the Program regulations at 24 CFR 4001.106 
(Eligible mortgagors) to provide additional flexibility for homeowners 
with adjustable rate mortgages to meet the requirement that the 
mortgagor must have had on March 1, 2008, ``or thereafter is likely to 
have, due to the terms of the mortgage being reset,'' a total monthly 
mortgage payment of more than 31 percent of the mortgagor's monthly 
gross income. As under the current Program regulations, any mortgagor 
will meet this requirement if the mortgagor had, as of March 1, 2008, a 
total monthly mortgage payment of more than 31 percent of the 
mortgagor's monthly gross income. In addition, this rule amends the 
existing Program regulations to permit a mortgagor that had an 
adjustable rate senior or subordinate mortgage on March 1, 2008, that 
by its terms resets after March 1, 2008, to alternatively qualify for 
the Program if the mortgagor has, as of the date the mortgagor first 
applies for the Program mortgage, a total monthly mortgage payment 
under mortgages existing on March 1, 2008, of more than 31 percent of 
the mortgagor's monthly gross income at the time of application for the 
Program mortgage. This rule amends 24 CFR 4001.106 to reflect this new, 
alternative qualification option for borrowers who had a qualifying 
adjustable-rate mortgage on March 1, 2008.
    As under the current Program regulations, a borrower's ``total 
monthly mortgage payment'' is based on the borrower's fully indexed and 
fully amortizing principal and interest payment under the terms of the 
mortgage, as well as amounts required to be paid for real estate taxes, 
hazard and mortgage insurance, and certain other fees and charges. (See 
24 CFR 4001.07 (Definition of total monthly mortgage payment).) This 
rule also amends Sec.  4001.106(a) to correct a technical error by 
replacing ``monthly total mortgage payment'' with the defined term 
``total monthly mortgage payment.''
    This interim final rule also makes certain modifications to the 
provisions regarding the calculation of shared appreciation at Sec.  
4001.120 (Appreciation sharing). The regulation at Sec.  4001.120(a)(1) 
currently provides that the amount of appreciation in the value of a 
property securing a Program mortgage will be calculated, subject to 
certain adjustments, based on the ``gross proceeds from the sale or 
disposition of the property.'' A non-sale disposition of a property, 
however, may not involve the transfer of any proceeds. In addition, a 
sale transaction between the borrower and a related party (including a 
person acting on behalf of the mortgagor or a related party) may not 
accurately reflect the appreciation in the value of the underlying 
property. In light of the foregoing, the rule amends Sec.  4001.120 to

[[Page 620]]

provide that, for purposes of the appreciation sharing provisions of 
the rule, the appreciation in the value of a property will, subject to 
certain adjustments, be based on (1) the gross proceeds of a sales 
transaction, unless the transaction is with or on behalf of a related 
party, and (2) the current appraised value of the property in the case 
of a non-sale disposition of the property or the sale of the property 
to a related party or a person acting on behalf of a related party. The 
definitions section of the rule (12 CFR 4001.07) also has been amended 
to include a definition of a ``related party'' of a person. This 
definition includes the immediate family of the person, as well as 
entities owned or controlled by the person or the person's immediate 
family.

E. Eligibility of Two-to-Four Unit Properties

    The rule amends Sec.  4001.07 (Definitions) and Sec.  4001.108 
(Eligible properties) to expand the types of residential properties 
that are eligible to serve as security for a Program mortgage to 
include a 2-to-4 unit residence. After further review of section 257 of 
the NHA, the Board determined that the term ``residence'' as used in 
section 257 may include a 2-to-4 unit residence, which is consistent 
with how such term is applied under section 203(b) of the NHA.\1\ The 
Board also concluded that expansion of the Program to include a 2-to-4 
unit residence would allow more borrowers to participate in the 
Program, especially in certain geographic areas, such as the Northeast, 
where 2-to-4 unit residences are more prevalent. Notwithstanding 
whether the property has 1, 2, 3, or 4 unit(s), the residence must be 
the borrower's primary residence, as this term is defined in Sec.  
4001.07, and the borrower cannot have an interest in any residential 
property other than the subject 1-to-4 unit residence.
---------------------------------------------------------------------------

    \1\ Section 257(v) of the NHA states that the provisions and 
requirements of section 203(b) of the NHA should apply with respect 
to the Program, except as otherwise provided in section 257 of the 
NHA or by the Board.
---------------------------------------------------------------------------

F. Clarification of Initial Equity

    Under section 257 of the NHA and the current regulations, a 
borrower must share with HUD the amount of ``equity'' created as a 
direct result of the origination of a Program mortgage. The amount of 
such ``initial'' equity that a borrower must share with HUD, under the 
existing regulations, is based (subject to certain adjustments) on the 
difference between the property's current appraised value at the time 
of origination of the Program mortgage and the principal amount of the 
new Program mortgage. Consequently, under the existing regulations, if 
a borrower has some existing equity in the home at the time the 
borrower enters the Program, this equity would have to be shared with 
HUD. In order to prevent such an unintended result, this rule modifies 
the calculation of equity sharing in Sec.  4001.118. Under the modified 
calculation of initial equity to be shared with HUD, lenders should 
deduct the original principal balance on the Program mortgage from the 
lesser of: (1) The appraised value of the property at the time of 
origination; or (2) the outstanding amount due under all existing 
senior mortgages, existing subordinate mortgages, and non-mortgage 
liens on the property.

G. Endorsement Timeframe

    Currently under Sec.  4001.116(d), a mortgagee must submit a 
complete case binder within 120 days from the date of closing for a 
mortgage to be eligible for insurance. The timeframe for lenders to 
obtain endorsement for Program loans has been expanded so that it is 
consistent with other FHA programs. To ensure that lenders comply with 
the first payment default provision established in the law, the Board 
will continue to require the lender to include in the file evidence 
that the borrower has made the first payment within 120 days of loan 
closing. If the borrower has not made such payment, the loan would not 
be eligible for payment of a claim under the Program.

III. Findings and Certifications

Administrative Procedure Act

    Section 553(a) of the Administrative Procedure Act (5 U.S.C. 551 et 
seq.) Section 553(a) of the Administrative Procedure Act (5 U.S.C. 551 
et seq.) (APA) provides that advance notice and public comment 
procedures do not apply to a matter relating to agency management or 
personnel or to public property, loans, grants, benefits or contracts 
(see 5 U.S.C. 553(a)). Because this rule amends regulations for a new 
mortgage insurance program under the supervision of the Board, it is 
exempt from notice and comment rulemaking as provided in 5 U.S.C. 
553(a). Nevertheless, the Board has determined to request public 
comment on these interim final rule amendments, which are effective 
upon publication in the Federal Register. The Board will consider any 
public comments received in fulfilling its responsibilities under 
section 257 of the NHA and will respond to comments when the Board 
takes final action on this interim final rule.

Executive Order 12866, 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, as provided under section 3(f)(1) of the Order). The 
first Program regulations promulgated by the Board were determined to 
be economically significant and an economic analysis accompanied 
issuance of the first Program regulations. It has been determined that 
the amendments made by this rule do not by themselves meet the 
threshold of economic significance set forth in the executive order. As 
noted in the preamble description of the economic analysis prepared for 
the October 6, 2008 final rule, the major unknown for purposes of an 
economic analysis is Program participation. Participation to date has 
been lower than expected under the original analysis for the October 6, 
2008 final rule. Though changes under this rule would likely expand 
participation, the increment is not expected to reach the threshold for 
economic significance. Although the analysis of the amendments made by 
this rule does not anticipate increased participation that would result 
in crossing the threshold for economic significance, these changes are 
expected to increase the cost to the Federal government of insuring 
Program mortgages, as the amendments made by this rule are expected to 
transfer additional risk to the Federal government.
    The docket file for this rule is available for public inspection in 
the Regulations Division, Office of General Counsel, Department of 
Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled by calling the Regulations Division at (202) 
402-3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Information Relay Service at (800) 877-8339.

Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism

[[Page 621]]

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 preempts 
state law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This rule will not impose 
any federal mandates on any state, local, or tribal governments or the 
private sector within the meaning of UMRA.

List of Subjects in 24 CFR Part 4001

    Administrative procedures, Practice and procedure, Mortgage 
insurance, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Board of Directors of 
the HOPE for Homeowners Program amends the regulations in part 4001 in 
Title 24 of the Code of Federal Regulations to read as follows:

Chapter XXIV--Board of Directors of the HOPE for Homeowners Program

PART 4001--HOPE FOR HOMEOWNERS PROGRAM

0
1. The authority of 24 CFR part 4001 continues to read as follows:

    Authority: 12 U.S.C. 1701z-22.

0
2. In Sec.  4001.07, insert the definition of ``Related party'' to 
follow the definition of ``Program mortgage'' to read as follows:


Sec.  4001.07  Definitions.

* * * * *
    Related party of a person means any of the following or another 
person acting on behalf of the person or any of the following--
    (1) The person's father, mother, stepfather, stepmother, brother, 
sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, 
grandparent, grandson, granddaughter, father-in-law, mother-in-law, 
brother-in-law, sister-in-law, son-in-law, daughter-in-law, the spouse 
of any of the foregoing, and the person's spouse;
    (2) Any entity of which 25 percent or more of any class of voting 
securities is owned, controlled or held in the aggregate by the person 
or the persons referred to in paragraph (1); and
    (3) Any entity of which the person or any person referred to in 
paragraph (1) serves as a trustee, general partner, limited partner, 
managing member, or director.
* * * * *

0
3. In Sec.  4001.102(a), add the phrase ``203.17(d) Maturity;'' 
immediately following the phrase ``203.16 Certificate and contract 
regarding use of dwelling for transient or hotel purposes;''.

0
4. Revise Sec.  4001.106 to read as follows:


Sec.  4001.106  Eligible mortgagors.

    A mortgagor shall be eligible to refinance his or her existing 
mortgages under section 257 of the Act only if:
    (a)(1) The mortgagor had, on March 1, 2008, a total monthly 
mortgage payment (based on mortgages outstanding on March 1, 2008) of 
more than 31 percent of the mortgagor's monthly gross income; or
    (2) If the mortgagor's existing senior mortgage or existing 
subordinate mortgage, if any, is an adjustable-rate mortgage that by 
its terms resets after March 1, 2008, the mortgagor has a total monthly 
mortgage payment (based on mortgages outstanding on March 1, 2008) of 
more than 31 percent of the mortgagor's monthly gross income calculated 
as of the date the mortgagor first applies for the Program mortgage;
    (b) The mortgagor does not have an ownership interest in any other 
residential property;
    (c) The mortgagor has not been convicted of fraud under federal or 
state law in the past 10 years;
    (d) The mortgagor certifies that the mortgagor has not 
intentionally defaulted on any mortgage or debt and has not knowingly, 
or willfully and with actual knowledge, furnished material information 
known to be false for purposes of obtaining any Program mortgage; and
    (e) The mortgagor meets such other requirements as the Board may 
adopt.

0
5. Revise Sec.  4001.108(a) to read as follows:


Sec.  4001.108  Eligible properties.

    (a) A mortgage may be insured under the Program only if the 
property that is to be the security for the mortgage is a 1-to-4 unit 
residence.
* * * * *

0
6. In Sec.  4001.110, revise paragraphs (a) and (c) to read as follows:


Sec.  4001.110  Underwriting.

* * * * *
    (a) Loan-to-value and income thresholds. The loan-to-value (LTV), 
payment-to-income, and debt-to-income ratios of the Program mortgage do 
not exceed the thresholds set forth in either paragraph (a)(1) or 
(a)(2) of this section.
    (1) Program mortgage with LTV ratio of 90 percent or less. (i) The 
initial principal balance of the Program mortgage as a percentage of 
the current appraised value of the property does not exceed 90 percent;
    (ii) The total monthly mortgage payment of the mortgagor under the 
Program mortgage does not exceed 38 percent of the mortgagor's monthly 
gross income; and
    (iii) The sum of the total monthly mortgage payment under the 
Program mortgage and all monthly recurring expenses of the mortgagor 
does not exceed 50 percent of the mortgagor's monthly gross income.
    (2) Program mortgage with up to 96.5 percent LTV. (i) The initial 
principal balance of the Program mortgage as a percentage of the 
current appraised value of the property does not exceed 96.5 percent;
    (ii) The total monthly mortgage payment of the mortgagor under the 
Program mortgage does not exceed 31 percent of the mortgagor's monthly 
gross income; and
    (iii) The sum of the total monthly mortgage payment under the 
Program mortgage and all monthly recurring expenses of the mortgagor 
does not exceed 43 percent of the mortgagor's monthly gross income.
* * * * *
    (c) The Program mortgage shall have a maturity of not less than 30 
years and not more than 40 years from the date of origination.
* * * * *

0
7. In Sec.  4001.116, revise paragraphs (d) and (e) to read as follows:


Sec.  4001.116  Representations and prohibitions.

* * * * *
    (d) FHA insurance. A mortgage is eligible for insurance if the 
mortgagee submits a complete case binder within such time period as the 
Board prescribes. The binder shall include evidence acceptable to the 
Board that the mortgage is current.
    (e) Mortgagor failure to make first mortgage payment. FHA shall not 
pay a mortgage insurance claim to any mortgagee if the first total 
monthly mortgage payment is not made within 120 days from the date of 
closing of the mortgage. The mortgagee shall not, directly or 
indirectly, make all or a part of the first total monthly mortgage

[[Page 622]]

payment on behalf of the mortgagor. The mortgagee is prohibited from 
escrowing funds at closing for all or part of the first total monthly 
mortgage payment.

0
8. Revise Sec.  4001.118(a)(1) to read as follows:


Sec.  4001.118  Equity sharing.

    (a) Initial Equity. For purposes of section 257(k)(1) of the Act, 
the initial equity created as a direct result of the origination of a 
Program mortgage on a property, as calculated by the Program mortgage 
lender, shall equal:
    (1) The lesser of--
    (i) The appraised value of the property that was used at the time 
of origination of the Program mortgage to underwrite the mortgage and 
to determine compliance with the maximum loan-to-value ratio at 
origination established by section 257(e)(2)(B) of the Act; or
    (ii) The outstanding amount due under all existing senior 
mortgages, existing subordinate mortgages, and non-mortgage liens on 
the property; less
* * * * *

0
9. In Sec.  4001.120, revise the heading, revise paragraphs (a)(1) and 
(c)(2), and add paragraph (e) to read as follows:


Sec.  4001.120  Appreciation sharing or upfront payment.

    (a) * * *
    (1) In the case of--
    (i) A sale of the property to one or more persons none of which is 
a related party of the mortgagor, the gross proceeds from the sale of 
the property; or
    (ii) A disposition of the property or the sale of the property to a 
related party of the mortgagor, the current appraised value of the 
property at the time of the disposition or sale; less
* * * * *
    (c) * * *
    (2) The amount of the unpaid principal and interest on such 
existing subordinate mortgage, as of the first day of the month in 
which the mortgagor made application for the Program mortgage, is at 
least $2,500; and
* * * * *
    (e) Election to receive upfront payment in lieu of a share of 
appreciation. Upon meeting the requirements of paragraph (c) of this 
section, the eligible holder(s) of an existing subordinate mortgage on 
a property securing a Program mortgage may elect to receive, 
contemporaneously with the origination of the Program mortgage, a 
payment from FHA in an aggregate amount determined in accordance with 
the formula provided in Appendix A to this part in lieu of any right to 
receive a portion of FHA's 50 percent interest in the future 
appreciation in the appraised value of such property under paragraph 
(c) of this section.

0
10. Appendix A to part 4001, including its heading, is revised to read 
as follows:

             Appendix A to Part 4001--Calculation of Upfront Payment or Future Appreciation Payment
----------------------------------------------------------------------------------------------------------------
                                                                                           Future appreciation
                                                                 Upfront payment option     option* Percent of
                                                                   Percent of unpaid       unpaid principal and
Subordinate mortgage lien holder's cumulative combined loan-to-  principal and interest     interest that lien
                          value ratio                             that lien holder is     holder is eligible to
                                                                  eligible to receive       receive 
                                                                   (percent)           (percent)
----------------------------------------------------------------------------------------------------------------
>135%.........................................................                        3                        9
<=135%........................................................                        4                       12
----------------------------------------------------------------------------------------------------------------
* A payment to a subordinate mortgage lien holder will depend on actual appreciation of the property as
  determined in accordance with 24 CFR 4001.120. Payment will be made according to the subordinate lien holder's
  position of priority in relation to the property at the time the Program mortgage is originated.
 Payment will be based upon principal and interest as of the first day of the month in which the
  borrower made application for the Program mortgage, calculated at the pre-default contract rate of interest.


    Dated at Washington, DC, this 31st day of December 2008.

    By order of the Board of Directors of the HOPE for Homeowners 
Program
Brian D. Montgomery,
Chairman of the Board.
[FR Doc. E9-57 Filed 1-6-09; 8:45 am]
BILLING CODE 4210-AA-P