HUD Multifamily Rental Project Closing Documents: Notice Announcing Final Approved Documents and Assignment of OMB Control Number, 24507-24511 [2011-10445]

Download as PDF Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices monitoring efforts that combat complacency—as intended by the Act. Recertification By letter dated March 24, 2011, the Commander, Seventeenth Coast Guard District, certified that the PWSRCAC qualifies as an alternative voluntary advisory group under 33 U.S.C. 2732(o). This recertification terminates on February 29, 2012. Dated: April 17, 2011. Christopher C. Colvin, Rear Admiral, U.S. Coast Guard Commander, Seventeenth Coast Guard District. [FR Doc. 2011–10513 Filed 4–29–11; 8:45 am] BILLING CODE 9110–04–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–5354–N–03] HUD Multifamily Rental Project Closing Documents: Notice Announcing Final Approved Documents and Assignment of OMB Control Number Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. ACTION: Notice. AGENCY: This notice announces that the multifamily rental project closing documents have completed the notice and comment processes and review by the Office of Management and Budget (OMB) as required by the Paperwork Reduction Act, and that OMB has assigned a control number to the documents. The final versions of the documents can be found on HUD’s Web site at https://www.hud.gov/offices/hsg/ mfh/mfhclosingdocuments.cfm. Additionally, this notice highlights some of the changes made by HUD to the documents based upon its review of the comments submitted in response to a December 22, 2010 notice. FOR FURTHER INFORMATION CONTACT: John J. Daly, Associate General Counsel for Insured Housing, Office of the General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 9226, Washington, DC 20410–0500; telephone number 202– 708–1274 (this is not a toll-free number). Persons with speech or hearing impairments may access this number through TTY by calling the tollfree Federal Information Relay Service at 800–877–8339. SUPPLEMENTARY INFORMATION: mstockstill on DSKH9S0YB1PROD with NOTICES6 SUMMARY: I. Background On January 21, 2010 (75 FR 3544) and consistent with the Paperwork VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 Reduction Act of 1995, HUD published for public comment, for a period of 60 days, a notice advising that HUD was updating and revising a set of closing documents used in Federal Housing Administration (FHA) multifamily rental projects. The 60-day notice, started anew the process for updating the multifamily rental project closing documents, and obtaining approval of these documents under the Paperwork Reduction Act, a process that had originally commenced on August 2, 2004. On December 22, 2010 (75 FR 80517), HUD published a 30-day notice to complete the public comment process required by the Paperwork Reduction Act of 1995. As discussed in the previously published notices, HUD provided detailed comments on the changes made to the documents between 2004 and their publication in January 2010. HUD provided a detailed summary of the comments and HUD’s responses to these comments in the January 21, 2010, notice accompanying the documents which were open for 60 days of comment in accordance with PRA requirements. At the time of the first issuance of proposed updated closing documents in 2004, HUD was not accepting comments electronically through a publicly available website, and consequently, the public did not have a readily and easily available mechanism to review public comments submitted in response to the August 2, 2004, notice. Therefore, the changes to the 2004 documents were discussed in detail to compensate for the lack of a publicly available website where all public comments could be viewed. For the January 21, 2010, notice, however, all the public comments submitted on the proposed updated closing documents were available for review on https://www.regulations.gov, which included proposed mark-ups of several of the closing documents. Nevertheless, HUD provided a discussion of the more significant changes made to the documents in the notice that HUD published on December 22, 2010, as its final notice for comment under the Paperwork Reduction Act. In addition to providing a summary of the changes made, HUD posted both clean versions of the closing documents and documents in redline/strikeout format on its website, so that industry participants and interested members of the public could see all changes made in response to the January 21, 2010, notice. This notice published today announces that HUD has completed the notice and comment processes required by the Paperwork Reduction Act, and that OMB has completed its review and PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 24507 has assigned an OMB control number, 2502–0598, to the documents. HUD did make additional changes to the documents in response to comments submitted on the December 22, 2010, notice. Therefore, in addition to announcing the completion of the process required by the Paperwork Reduction Act and the assignment of the OMB control number, HUD highlights some of the additional changes made to the multifamily closing documents (documents) in response to public comment as provided below. Comments on the Documents Posted in December 2010 in Conjunction With 30Day Notice In response to the December 22, 2010, notice, HUD received comments from ten commenters. Commenters included individual lenders, associations representing lenders, a nonprofit community development organization, a nonprofit representing housing providers and administrators of federally assisted rental housing, a city attorney representing a city serving as a low income housing tax credit allocating agency, and private practice attorneys. Several commenters provided detailed comments about several issues in the documents. All comments were carefully considered by HUD prior to presentation to OMB for final approval and assignment of a control number under the Paperwork Reduction Act. In this notice, HUD is highlighting certain changes which are representative of the types of changes made in response to these comments. The final text of the documents and the redlined changes from the documents posted in December 2010 in conjunction with publication of the December 22, 2010, notice are available at https:// www.hud.gov/offices/hsg/mfh/ mfhclosingdocuments.cfm. II. Status of Changes to Documents In response to comments that were received on the December 2010 notice, HUD made a number of revisions to the documents. Consequently, HUD has now modified all closing documents published on this date in response to public comments that were submitted during the 2010 and 2011 review process. The changes to these documents include both technical editorial changes and some more substantive changes. In this notice, HUD is not providing a detailed summary of the changes made in response to the final set of public comments. Rather, the following section of this notice addresses some of the more significant issues raised by the commenters in response to the December 22, 2010, E:\FR\FM\02MYN1.SGM 02MYN1 24508 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices notice and the closing documents posted on HUD’s Web site in conjunction with the December notice. Further, HUD is not repeating responses to proposed changes or issues that were addressed in the January 2010 notice or the December 2010 notice. The final versions of the documents and the redlined versions which detail specific changes to the documents posted in December revisions are available on the HUD Web site. III. Selected Policy Determinations Some of the changes made to the documents address similar comments submitted by the commenters and therefore the changes discussed below are representative of HUD’s response to several of the commenters: mstockstill on DSKH9S0YB1PROD with NOTICES6 Program Obligations In the January 2010 notice, HUD announced its decision to eliminate use of the term ‘‘directives’’ in the documents, and substitute the term ‘‘program obligations.’’ HUD noted in the January 2010 notice that this term better captures what was intended by use of the term ‘‘Directives,’’ namely, to advise parties to the closing documents of the additional requirements, beyond those included in the documents themselves, to which they are expected to adhere. The advantage of this language is that it identifies the specific, longstanding, and familiar types of requirements (those in statutes, regulations, handbooks, notices, and mortgagee letters) to which the parties must adhere. To provide an additional level of assurance to commenters who expressed concern over the possibility that they would be required to comply with any future provision that HUD might issue in any manner, the definition also explicitly stated that notice and comment rulemaking would be followed for any requirements that would be subject to such procedures. In essence, HUD made explicit that it would follow the applicable procedures, as directed by statute or regulation, which govern issuance of a document such as mortgagee letters or other types of direct notices that would be used to announce new binding requirements, policies, processes, forms, or standards to which parties to the closing documents must comply. The explicit statement to use these procedures was designed to address concerns raised about adherence to future directives by the commenters, including concerns about conflicts with existing requirements, retroactive application of new requirements, or lack of time to prepare for transition to new requirements. VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 In the December 22, 2010 proposed revisions to the documents, HUD retained the definition of ‘‘program obligations’’ used in the January 2010 documents. Further, in the text of the notice accompanying the documents, HUD noted that in response to commenters’ concerns that HUD appeared to have unfettered discretion to make material changes, without notice or sufficient notice, that will have an economic effect on the viability of the project, the definition of ‘‘program obligations’’ explicitly recognized that notice and comment rulemaking is followed for significant substantive requirements. In fact, changes to the regulations accompanying the documents were proposed on November 12, 2010, and citations to the regulations were included in the documents posted in connection with the December 2010 notice. This practice is continued in this set of documents as well. For example, in using the term ‘‘Principals’’ in the security instrument, HUD has referenced 24 CFR 200.215. Thus, any Security Instrument will always reference the current applicable regulation. In recognition, however, of concerns reiterated by comments that HUD appeared to have unfettered discretion to make future material changes to policies that would be applied to existing borrowers and may have an adverse economic effect on the operation of a project, HUD has clarified the definition of what constitutes ‘‘program obligations,’’ as shown in the following revised definition of program obligations in the Security Instrument: Program Obligations means (1) all applicable statutes and any regulations issued by the Secretary pursuant thereto that apply to the Project, including all amendments to such statutes and regulations, as they become effective, except that changes subject to notice and comment rulemaking shall become effective only upon completion of the rulemaking process, and (2) all current requirements in HUD handbooks and guides, notices, and mortgagee letters that apply to the Project, and all future updates, changes and amendments thereto, as they become effective, except that changes subject to notice and comment rulemaking shall become effective only upon completion of the rulemaking process, and provided that such future updates, changes and amendments shall be applicable to the Project only to the extent that they interpret, clarify and implement terms in this Security Instrument rather than add or delete provisions from such document. Handbooks, guides, notices, and mortgagee letters are available on HUD’s official Web site: (https:// www.hud.gov/offices/adm/hudclips/ index.cfm, or a successor location to that site. HUD did not include a materiality standard because, if adopted, it would PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 invite individual disputes about the application of certain provisions in the documents that may have a material effect on one borrower but not on another. Instead, HUD has included language in the revised definition clarifying that notice and comment rulemaking procedures be used for significant substantive requirements and that changes to HUD handbooks, guides, notices and mortgagee letters shall be applicable to the Project only to the extent that they interpret, clarify and implement terms in the relevant loan document as opposed to adding or deleting provisions from such document. This revised language incorporates current administrative law litigation standards. Reallocation of Responsibilities and Liabilities The Lender’s Certificate The Lender’s Certificate lists the certifications made by the lender to HUD regarding the responsibilities the lender has completed in performing the due diligence necessary to complete final underwriting of the project. Commenters expressed concern that the revised form of Lender’s Certificate changed the basic liability structure of the insurance contract, and that it shifted substantial risk from FHA to the lender. The liability structure developed in the group of documents should be recognized as establishing a delicate balance between delegation of authority to the lender in underwriting and construction management with new flexibility to address the problems of managing troubled projects. Therefore, the documents, including the Lender’s Certificate, now reflect an accompanying reallocation of responsibility between the parties to the transaction. Nevertheless, HUD has adopted several changes that address lenders’ concerns. For example, commenters stated that they were apprehensive that they would be unable to comply with certain requirements in Sections 30 and 31 of the Lender’s Certificate. Namely, commenters were concerned that they would have to absolutely certify that the borrower possessed all necessary governmental certificates, permits, licenses, qualifications and approvals of governmental authorities to own and operate the mortgaged property, to carry out all of the transactions required by the loan documents, and to comply with applicable federal statutes and regulations of HUD in effect on the date of the firm commitment. The commenters contend that typically, in commercial lending transactions, such E:\FR\FM\02MYN1.SGM 02MYN1 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES6 issues would be addressed in representations and warranties made by the borrower. Further, they submit that, in HUD transactions to date, it had been the responsibility of the borrower (and borrower’s counsel) to provide evidence of compliance; nor could the lender certify that, as of the date of initial closing, the borrower held certain government approvals to operate the property since these approvals are not issued until the time of final endorsement of the Note. However, under the new underwriting changes and liability structure established in the documents, HUD is limiting its role and giving lenders more ability to address any problems that arise in management of the property that contribute to a financial decline. These changes are made in the expectation that lenders will undertake increased due diligence to assure sound underwriting in insured multifamily projects. HUD recognizes that this expands the role for the lender in HUD-insured transactions, although these are familiar roles in commercial lending transactions. Accordingly, HUD has modified the Lender’s Certificate to make its requirements ‘‘based upon reasonable due diligence’’, that the lender ‘‘has made reasonable inquiry’’ or is certifying ‘‘to the best of lender’s knowledge.’’ HUD has relaxed the requirements in Section 30 to provide that the lender will simply confirm in writing before final endorsement of the Note that the borrower has obtained the necessary permits and met the listed requirements. HUD will also include in its multifamily handbooks expanded guidance on what constitutes a prohibited ‘‘identity of interest’’ as may exist among the parties to the loan at initial endorsement or that may arise during the loan term. Guide for Opinion of Borrower’s Counsel The Guide is the legal opinion that the borrower’s attorney gives to the lender prior to closing to provide the lender with protection that the borrower is legally formed, has the authority to enter into the mortgage, and can execute the closing documents. The lender requests this opinion because the lender will frequently depend on the borrower and its counsel to provide them with accurate and complete information on many aspects of the law in the applicable jurisdiction, as well as the borrower’s legal status. HUD received several comments regarding the details of the Guide for Opinion of Borrower’s Counsel, and has made several technical adjustments in VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 response to these comments. For example, in response to a commenter’s concerns that in some jurisdictions participants are unable to obtain a certificate of good standing for trusts, HUD has revised the requirements to obtain ‘‘good standing’’ certificates to provide alternatives in the documents that are appropriate for the jurisdiction and the entity and allow the participating entities to certify their legal status. HUD has also limited required certifications, narrowing the conflicts test for law firms to ‘‘attorneys who devote substantive attention to the transaction.’’ The conflicts test is further revised to limit the test to participating attorney’s knowledge of other firm attorneys’ financial interest and conflicts in the project, the property, or the borrower. These changes should broaden the number of firms that are eligible to provide this legal opinion, and ultimately lower the cost to the borrower. HUD has also changed its requirements for the permitted signatories of the Opinion of Borrower’s Counsel to reflect current practice in many firms that the opinion be signed on behalf of the firm issuing the Opinion rather than by an individual counsel. Certification of Borrower The Borrower’s Certification is the document comparable to the Borrower’s Affidavit in commercial lending transactions. In this document, the borrower reaffirms certain information provided to the lender, and represents to both the lender and the title insurance company that is insuring the property that the borrower is aware of facts related to the property. HUD also addresses liability concerns in the Borrower’s Certification. The final version of the document modifies proposed language that commenters contend could have been interpreted as requiring certifications by all entities that could be categorized as ‘‘the borrower.’’ Under the revised Borrower’s Certification, the borrower is only required to attest to pending litigation and claims with respect to those entities most likely to be held responsible—the general partner, managing member, or similar person or entity. The parties responsible for signing will be specified in more detail in a definition of ‘‘Principal’’ that will be developed in the forthcoming revisions to The Multifamily Accelerated Processing (MAP) Guide.1 1 Guides of the FHA of the Department of Housing and Urban Development are available on the PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 24509 Treatment of Reserves and Escrows A commenter expressed concern that the investment restrictions for reserves and escrows under the proposed documents represented a departure from current policy and would interfere with the business relationship between lender and borrower, and could also restrict liquidity of the reserves. Commenters suggested that requirements that escrows be deposited only in accounts fully insured by the United States of America would create administrative costs and difficulties. Also, the relatively low limit on insured accounts would require breaking up certain reserves or escrows into multiple insured accounts. The commenters further contend that restricting the ability of the lender to draw on letters of credit created operational issues and could increase risk to the lender and HUD. In addition, they submitted that a requirement to attach copies of letters of credit to Escrow Agreements was unworkable and unnecessary because the lender must cover the project obligation if a letter of credit were dishonored. HUD has taken a comprehensive approach to the issue of mortgagee and mortgagor financial responsibilities in the management of reserves and escrows which is reflected in the documents and in the handbook for multifamily programs which provides further detail on the program obligations.2 HUD has modified the language in the final Security Instrument and the Escrows according to the following general principles. Deposits for reserves, residual receipts, and escrow accounts are, in general, to be held in accounts in institutions which are insured by a federally chartered entity, such as the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA). If funds deposited in a reserve or escrow account exceed the maximum insurance level, such as the current $250,000 maximum for FDIC insured accounts, funds in those accounts may exceed the Department’s Web site: https://www.hud.gov/offices/ adm/handbks_forms/index.cfm. 2 HUD plans to revise and detail these policies when modifications are made to existing HUD Handbooks. Current guidance that HUD plans to revise includes FHA Handbook 4350.1,— Multifamily Asset Management and Project Servicing, and FHA Handbook 4350.4—Insured Multifamily Mortgagee Servicing and Field Office Guide. The FHA Guides are available on the website of the Department of Housing and Urban Development: https://www.hud.gov/offices/adm/ handbks_forms/index.cfm. E:\FR\FM\02MYN1.SGM 02MYN1 24510 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES6 insurance level if they are deposited in Ginnie Mae 3 rated institutions. Currently, for HUD multifamily project loans that are in Ginnie Mae pools, escrow funds, for example, are required to be in ‘‘Ginnie Mae rated’’ institutions. Ginnie Mae presently requires that issuers and entities holding custodian accounts must meet minimal ratings requirements.4 The Ginnie Mae and FHA guidebooks also establish requirements for the types of acceptable investments in which escrow funds can be held.5 These include certificates of deposits, U.S. Treasury bills, notes, bonds and other obligations of the U.S. Government and other assets, including tax exempt bonds, and AAArated and prerefunded bonds. The handbooks further require that disposition of all earnings, including interest earnings, if any, be credited or applied as established in regulations and handbooks.6 HUD will include similar deposit requirements in its revised multifamily program guidance, and will also require that banks issuing letters of credit will meet applicable Ginnie Mae standards plus other criteria to be set forth in program obligations. HUD does not wish to rely on the lender’s financial ability to cover obligations secured by a letter of credit. These new standards are designed to strengthen the financial soundness of the multifamily programs. Lenders should note that they have the ability to offset these requirements. For example, in the documents, HUD has included authority for the lender to charge the borrower a fee, in accordance with program obligations, to cover the lender’s increased responsibilities in managing reserve and escrow accounts. HUD’s current guidance recognizes that ‘‘reasonable and necessary expenses’’ can be recovered, and anticipates that, in the future, the lender and borrower will negotiate appropriate fees for administration of reserves and escrows. 3 The Government National Mortgage Association, known as Ginnie Mae, is a wholly owned federal corporation within the U.S. Department of Housing and Urban Development. 4 For example, Ginnie Mae currently uses the following rating requirements: Thompson Bankwatch—C or better, Moody’s—P–3 or better (short term bank deposits), or Standard & Poor’s— A–3 or better (short-term CD). (Ginnie Mae Handbook 5500.3 Rev. 1 10.01.09 p16–7). 5 The Ginnie Mae Guides are available on Ginnie Mae’s Web site. https://www.ginniemae.gov/help/ guides.asp?Section=Resources. The FHA Guides are available on the website of the Department of Housing and Urban Development: https:// www.hud.gov/offices/adm/handbks_forms/ index.cfm. 6 FHA Handbook 4350.1,—Multifamily Asset Management and Project Servicing, and FHA Handbook 4350.4—Insured Multifamily Mortgagee Servicing and Field Office Guide. VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 Requirements of Principals To Sign the Regulatory Agreement The Regulatory Agreement sets forth requirements that an owner must meet over the term of the HUD loan. In light of the consequences that certain insufficiently regulated actions have had on the housing finance markets in recent years, and that public funds are at risk, HUD proposed in the January 2010 documents that principals should be personally responsible for paying damages for certain ‘‘bad boy’’ acts as exceptions to the nonrecourse provisions of the Note. Accordingly, such provisions were included in the January and December 2010 versions of the closing documents issued for public comment. HUD retained provisions establishing that acts of fraud and misconduct that put the FHA insurance fund at risk will be pursued through contract rights made explicit in these documents and other remedies available to the federal government. HUD believes that the ‘‘bad boy’’ provisions referred to by commenters merely provide more certain legal mechanisms for enforcing HUD’s statutory, regulatory, and program requirements without overburdening those owners that conform to HUD requirements. Commenters expressed concern that even with changes made in December 2010 to the Regulatory Agreement, it remained difficult to identify the particular individuals who would be responsible for signing the Regulatory Agreement or would be liable for the ‘‘bad boy’’ acts. HUD recognizes that, for example, requiring volunteer officers and trustees of nonprofit mortgagors, as well as individual investors in tax credit projects to sign the documents presented practical issues. Accordingly, in the final documents, HUD has included a definition of principals based on the regulations—24 CFR 200.215. Additionally, HUD is providing further specificity in the revised documents—and in its multifamily guidebooks so the ‘‘signing principals,’’ both on behalf of the borrower and for those principals who must accept personal liability for the ‘‘bad boy’’ acts, will be identified by HUD in the firm commitment and at the time of closing. In addition, principals required to sign the documents are, in general, attesting only ‘‘to the best of their knowledge,’’ and primarily to their own statements and representations. Changes to the Regulatory Agreement Clarifying Capital Contributions In the December 2010 version of the documents, HUD included language PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 distinguishing funds related to the mortgaged property and funds separate and apart from the mortgaged property. A commenter suggested that further clarification would be useful to detail exclusion of capital contributions not eligible to be expensed to the mortgaged property. To address the request for clarification, HUD has included language that defines such contributions as equity or capital contributions required under the Firm Commitment or otherwise advanced for the purpose and as part of the mortgaged property.7 Transition. Commenters expressed a desire for HUD to coordinate the effective date for these documents with training and updated program guidance. HUD agrees with these comments and carefully considered them in determining an effective date. HUD intends to provide updated guidance and schedule training in advance of any closings that require use of the new closing documents. Additionally, to the extent that any administrative requirements in HUD handbooks, guidance, housing notices, or mortgagee letters are inconsistent with any provisions in the revised closing documents, the provisions in the revised closing documents will prevail. Use of the final approved closing documents and application of the revised regulations corresponding to the updated closing documents, published elsewhere in today’s Federal Register, shall be mandatory with respect to multifamily project mortgages for which HUD issued a firm commitment for mortgage insurance on or after September 1, 2011. The regulations provide that if the mortgagor demonstrates to the satisfaction of the Commissioner that financial hardship to the mortgagor would result from application of the revised regulations and updated closing documents due to the reasonable expectations of the mortgagor that the transaction would close under the regulations and closing documents in effect prior to September 1, 2011, the regulations and closing documents in effect prior to September 1, 2011 will apply. As noted previously in this notice published today, changes to the documents from the December 22, 2010, version of these documents are displayed in redline/strikeout format posted on HUD’s Web page. Clean versions of the documents, with the applicable OMB control number, are also provided on HUD’s Web site. 7 Sec. E:\FR\FM\02MYN1.SGM 12(a) of the Regulatory Agreement. 02MYN1 Federal Register / Vol. 76, No. 84 / Monday, May 2, 2011 / Notices Dated: April 26, 2011. Robert C. Ryan, Acting Assistant Secretary for Housing— Acting Federal Housing Commissioner. [FR Doc. 2011–10445 Filed 4–29–11; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF THE INTERIOR Fish and Wildlife Service [FWS–R4–R–2010–N277; 40136–1265–0000– S3] Cabo Rojo National Wildlife Refuge, Cabo Rojo, Puerto Rico; Draft Comprehensive Conservation Plan and Environmental Assessment Fish and Wildlife Service, Interior. ACTION: Notice of availability; request for comments. AGENCY: We, the Fish and Wildlife Service (Service), announce the availability of our draft comprehensive conservation plan and environmental assessment (Draft CCP/EA) for Cabo Rojo National Wildlife Refuge (NWR) for public review and comment. In the Draft CCP/EA, we describe the alternative we propose to use to manage this refuge for the 15 years following approval of the final CCP. DATES: To ensure consideration, we must receive your written comments by June 1, 2011. ADDRESSES: You may obtain a copy of the Draft CCP/EA by contacting Ms. Laura Housh, Regional Planner, Okefenokee NWR, 2700 Suwannee Canal Road, Folkston, GA 31537. Alternatively, you may download the document from our Internet Site at https://southeast.fws.gov/planning under ‘‘Draft Documents.’’ FOR FURTHER INFORMATION CONTACT: Ms. Laura Housh, at 912/496–6273 (telephone) or laura_housh@fws.gov ´ (e-mail); or Mr. Oscar Dıaz, at 787/851– 7258, extension 312 (telephone), or oscar_diaz@fws.gov (e-mail). SUPPLEMENTARY INFORMATION: mstockstill on DSKH9S0YB1PROD with NOTICES6 SUMMARY: Introduction With this notice, we continue the CCP process for Cabo Rojo NWR. We started the process through a notice of intent in the Federal Register on March 12, 2007 (72 FR 11047). For more about the refuge, its purposes, and our CCP process, please see that notice. Background The CCP Process The National Wildlife Refuge System Administration Act of 1966 (16 U.S.C. VerDate Mar<15>2010 17:48 Apr 29, 2011 Jkt 223001 668dd–668ee) (Administration Act), as amended by the National Wildlife Refuge System Improvement Act of 1997, requires us to develop a CCP for each national wildlife refuge. The purpose for developing a CCP is to provide refuge managers with a 15-year plan for achieving refuge purposes and contributing toward the mission of the National Wildlife Refuge System, consistent with sound principles of fish and wildlife management, conservation, legal mandates, and our policies. In addition to outlining broad management direction on conserving wildlife and their habitats, CCPs identify wildlifedependent recreational opportunities available to the public, including opportunities for hunting, fishing, wildlife observation, wildlife photography, and environmental education and interpretation. We will review and update the CCP at least every 15 years in accordance with the Administration Act. The refuge lies along a coastal plain and has a few gently rolling hills overlooking the southwestern tip of Puerto Rico. The establishment of the refuge was justified for the potential value that the habitat held for migratory birds and also for its value in providing habitat for resident birds, particularly doves and pigeons. The area is one of the few blocks of land in southwestern ´ Puerto Rico west of the Guanica Commonwealth Forest remaining in public ownership. The native vegetation is classified as subtropical dry forest under the Holdridge classification of world life zones. At least 245 plant species and 145 bird species have been identified on the refuge. CCP Alternatives, Including Our Proposed Alternative We developed three alternatives for managing the refuge and chose Alternative C as the proposed alternative. A full description of each alternative is in the Draft CCP/EA. We summarize each alternative below. Alternative A (Current Management, No Action) Under this alternative, we would continue to restore and maintain existing sub-tropical dryland forests, salt lagoons, and grassland habitats. Active habitat wetland management would be implemented by continuing water level manipulations for management of the saltwater lagoons through a special use permit with a commercial salt production company. We would continue to accommodate environmental education and interpretation programs and wildlife observation and photography. The PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 24511 ˜ friends group, Caborrojenos, would continue to partner with us in providing limited visitor services. The law enforcement program for the protection of wildlife and visitors would continue at current levels. Alternative B (Resource Emphasis) Under this alternative, we would provide greater management of habitats and associated plant communities for the benefit of wildlife. Activities that would be expanded or introduced under this alternative would include: Managing endangered plant populations and reducing the occurrence of exotic species; exploring opportunities and alternatives to assume direct control of managing water levels in the saltwater lagoons; establishing and managing a larger nursery to increase reforestation of native tree species in upland areas; restoring additional freshwater and saltwater ponds to increase avian habitat; expanding the volunteer base to increase habitat restoration activities; and proactively expanding research collaboration with universities. Additional staff would be required to implement this alternative. Such staff would likely include a biologist, a volunteer coordinator, and additional support staff. Alternative C (Habitat and Public Use Emphasis, Proposed) Under this alternative, our emphasis would be on improving refuge resources for habitat and wildlife. We would provide greater support for the visitor service program, including emphasis on the following: Developing a curriculumbased environmental education program; expanding the role of the friends group to include providing staffing and interpreting services at the new visitor services center; reviewing and updating our brochures and website, including offering a Spanish version of the website; updating current kiosks and building new kiosks along the trail system; expanding the volunteer program to also provide assistance with public use activities; seeking and developing new partnerships, particularly with regard to trail maintenance; and adding additional signage to clarify refuge uses. Additional staff required to implement Alternative C would include an additional visitor services/ environmental education specialist and a volunteer coordinator. Additional infrastructure would also be required to expand activities under this alternative, including developing volunteer housing and acquiring one or more additional vehicles. E:\FR\FM\02MYN1.SGM 02MYN1

Agencies

[Federal Register Volume 76, Number 84 (Monday, May 2, 2011)]
[Notices]
[Pages 24507-24511]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10445]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

 [Docket No. FR-5354-N-03]


HUD Multifamily Rental Project Closing Documents: Notice 
Announcing Final Approved Documents and Assignment of OMB Control 
Number

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

ACTION: Notice.

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SUMMARY: This notice announces that the multifamily rental project 
closing documents have completed the notice and comment processes and 
review by the Office of Management and Budget (OMB) as required by the 
Paperwork Reduction Act, and that OMB has assigned a control number to 
the documents. The final versions of the documents can be found on 
HUD's Web site at https://www.hud.gov/offices/hsg/mfh/mfhclosingdocuments.cfm. Additionally, this notice highlights some of 
the changes made by HUD to the documents based upon its review of the 
comments submitted in response to a December 22, 2010 notice.

FOR FURTHER INFORMATION CONTACT: John J. Daly, Associate General 
Counsel for Insured Housing, Office of the General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 9226, 
Washington, DC 20410-0500; telephone number 202-708-1274 (this is not a 
toll-free number). Persons with speech or hearing impairments may 
access this number through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    On January 21, 2010 (75 FR 3544) and consistent with the Paperwork 
Reduction Act of 1995, HUD published for public comment, for a period 
of 60 days, a notice advising that HUD was updating and revising a set 
of closing documents used in Federal Housing Administration (FHA) 
multifamily rental projects. The 60-day notice, started anew the 
process for updating the multifamily rental project closing documents, 
and obtaining approval of these documents under the Paperwork Reduction 
Act, a process that had originally commenced on August 2, 2004. On 
December 22, 2010 (75 FR 80517), HUD published a 30-day notice to 
complete the public comment process required by the Paperwork Reduction 
Act of 1995. As discussed in the previously published notices, HUD 
provided detailed comments on the changes made to the documents between 
2004 and their publication in January 2010. HUD provided a detailed 
summary of the comments and HUD's responses to these comments in the 
January 21, 2010, notice accompanying the documents which were open for 
60 days of comment in accordance with PRA requirements. At the time of 
the first issuance of proposed updated closing documents in 2004, HUD 
was not accepting comments electronically through a publicly available 
website, and consequently, the public did not have a readily and easily 
available mechanism to review public comments submitted in response to 
the August 2, 2004, notice. Therefore, the changes to the 2004 
documents were discussed in detail to compensate for the lack of a 
publicly available website where all public comments could be viewed.
    For the January 21, 2010, notice, however, all the public comments 
submitted on the proposed updated closing documents were available for 
review on https://www.regulations.gov, which included proposed mark-ups 
of several of the closing documents. Nevertheless, HUD provided a 
discussion of the more significant changes made to the documents in the 
notice that HUD published on December 22, 2010, as its final notice for 
comment under the Paperwork Reduction Act. In addition to providing a 
summary of the changes made, HUD posted both clean versions of the 
closing documents and documents in redline/strikeout format on its 
website, so that industry participants and interested members of the 
public could see all changes made in response to the January 21, 2010, 
notice.
    This notice published today announces that HUD has completed the 
notice and comment processes required by the Paperwork Reduction Act, 
and that OMB has completed its review and has assigned an OMB control 
number, 2502-0598, to the documents. HUD did make additional changes to 
the documents in response to comments submitted on the December 22, 
2010, notice. Therefore, in addition to announcing the completion of 
the process required by the Paperwork Reduction Act and the assignment 
of the OMB control number, HUD highlights some of the additional 
changes made to the multifamily closing documents (documents) in 
response to public comment as provided below.

Comments on the Documents Posted in December 2010 in Conjunction With 
30-Day Notice

    In response to the December 22, 2010, notice, HUD received comments 
from ten commenters. Commenters included individual lenders, 
associations representing lenders, a nonprofit community development 
organization, a nonprofit representing housing providers and 
administrators of federally assisted rental housing, a city attorney 
representing a city serving as a low income housing tax credit 
allocating agency, and private practice attorneys. Several commenters 
provided detailed comments about several issues in the documents. All 
comments were carefully considered by HUD prior to presentation to OMB 
for final approval and assignment of a control number under the 
Paperwork Reduction Act.
    In this notice, HUD is highlighting certain changes which are 
representative of the types of changes made in response to these 
comments. The final text of the documents and the redlined changes from 
the documents posted in December 2010 in conjunction with publication 
of the December 22, 2010, notice are available at https://www.hud.gov/offices/hsg/mfh/mfhclosingdocuments.cfm.

II. Status of Changes to Documents

    In response to comments that were received on the December 2010 
notice, HUD made a number of revisions to the documents. Consequently, 
HUD has now modified all closing documents published on this date in 
response to public comments that were submitted during the 2010 and 
2011 review process. The changes to these documents include both 
technical editorial changes and some more substantive changes. In this 
notice, HUD is not providing a detailed summary of the changes made in 
response to the final set of public comments. Rather, the following 
section of this notice addresses some of the more significant issues 
raised by the commenters in response to the December 22, 2010,

[[Page 24508]]

notice and the closing documents posted on HUD's Web site in 
conjunction with the December notice. Further, HUD is not repeating 
responses to proposed changes or issues that were addressed in the 
January 2010 notice or the December 2010 notice. The final versions of 
the documents and the redlined versions which detail specific changes 
to the documents posted in December revisions are available on the HUD 
Web site.

III. Selected Policy Determinations

    Some of the changes made to the documents address similar comments 
submitted by the commenters and therefore the changes discussed below 
are representative of HUD's response to several of the commenters:

Program Obligations

    In the January 2010 notice, HUD announced its decision to eliminate 
use of the term ``directives'' in the documents, and substitute the 
term ``program obligations.'' HUD noted in the January 2010 notice that 
this term better captures what was intended by use of the term 
``Directives,'' namely, to advise parties to the closing documents of 
the additional requirements, beyond those included in the documents 
themselves, to which they are expected to adhere. The advantage of this 
language is that it identifies the specific, longstanding, and familiar 
types of requirements (those in statutes, regulations, handbooks, 
notices, and mortgagee letters) to which the parties must adhere. To 
provide an additional level of assurance to commenters who expressed 
concern over the possibility that they would be required to comply with 
any future provision that HUD might issue in any manner, the definition 
also explicitly stated that notice and comment rulemaking would be 
followed for any requirements that would be subject to such procedures. 
In essence, HUD made explicit that it would follow the applicable 
procedures, as directed by statute or regulation, which govern issuance 
of a document such as mortgagee letters or other types of direct 
notices that would be used to announce new binding requirements, 
policies, processes, forms, or standards to which parties to the 
closing documents must comply. The explicit statement to use these 
procedures was designed to address concerns raised about adherence to 
future directives by the commenters, including concerns about conflicts 
with existing requirements, retroactive application of new 
requirements, or lack of time to prepare for transition to new 
requirements.
    In the December 22, 2010 proposed revisions to the documents, HUD 
retained the definition of ``program obligations'' used in the January 
2010 documents. Further, in the text of the notice accompanying the 
documents, HUD noted that in response to commenters' concerns that HUD 
appeared to have unfettered discretion to make material changes, 
without notice or sufficient notice, that will have an economic effect 
on the viability of the project, the definition of ``program 
obligations'' explicitly recognized that notice and comment rulemaking 
is followed for significant substantive requirements. In fact, changes 
to the regulations accompanying the documents were proposed on November 
12, 2010, and citations to the regulations were included in the 
documents posted in connection with the December 2010 notice. This 
practice is continued in this set of documents as well. For example, in 
using the term ``Principals'' in the security instrument, HUD has 
referenced 24 CFR 200.215. Thus, any Security Instrument will always 
reference the current applicable regulation.
    In recognition, however, of concerns reiterated by comments that 
HUD appeared to have unfettered discretion to make future material 
changes to policies that would be applied to existing borrowers and may 
have an adverse economic effect on the operation of a project, HUD has 
clarified the definition of what constitutes ``program obligations,'' 
as shown in the following revised definition of program obligations in 
the Security Instrument:

    Program Obligations means (1) all applicable statutes and any 
regulations issued by the Secretary pursuant thereto that apply to 
the Project, including all amendments to such statutes and 
regulations, as they become effective, except that changes subject 
to notice and comment rulemaking shall become effective only upon 
completion of the rulemaking process, and (2) all current 
requirements in HUD handbooks and guides, notices, and mortgagee 
letters that apply to the Project, and all future updates, changes 
and amendments thereto, as they become effective, except that 
changes subject to notice and comment rulemaking shall become 
effective only upon completion of the rulemaking process, and 
provided that such future updates, changes and amendments shall be 
applicable to the Project only to the extent that they interpret, 
clarify and implement terms in this Security Instrument rather than 
add or delete provisions from such document. Handbooks, guides, 
notices, and mortgagee letters are available on HUD's official Web 
site: (https://www.hud.gov/offices/adm/hudclips/index.cfm, or a 
successor location to that site.

    HUD did not include a materiality standard because, if adopted, it 
would invite individual disputes about the application of certain 
provisions in the documents that may have a material effect on one 
borrower but not on another. Instead, HUD has included language in the 
revised definition clarifying that notice and comment rulemaking 
procedures be used for significant substantive requirements and that 
changes to HUD handbooks, guides, notices and mortgagee letters shall 
be applicable to the Project only to the extent that they interpret, 
clarify and implement terms in the relevant loan document as opposed to 
adding or deleting provisions from such document. This revised language 
incorporates current administrative law litigation standards.

 Reallocation of Responsibilities and Liabilities

The Lender's Certificate
    The Lender's Certificate lists the certifications made by the 
lender to HUD regarding the responsibilities the lender has completed 
in performing the due diligence necessary to complete final 
underwriting of the project.
    Commenters expressed concern that the revised form of Lender's 
Certificate changed the basic liability structure of the insurance 
contract, and that it shifted substantial risk from FHA to the lender. 
The liability structure developed in the group of documents should be 
recognized as establishing a delicate balance between delegation of 
authority to the lender in underwriting and construction management 
with new flexibility to address the problems of managing troubled 
projects. Therefore, the documents, including the Lender's Certificate, 
now reflect an accompanying reallocation of responsibility between the 
parties to the transaction.
    Nevertheless, HUD has adopted several changes that address lenders' 
concerns. For example, commenters stated that they were apprehensive 
that they would be unable to comply with certain requirements in 
Sections 30 and 31 of the Lender's Certificate. Namely, commenters were 
concerned that they would have to absolutely certify that the borrower 
possessed all necessary governmental certificates, permits, licenses, 
qualifications and approvals of governmental authorities to own and 
operate the mortgaged property, to carry out all of the transactions 
required by the loan documents, and to comply with applicable federal 
statutes and regulations of HUD in effect on the date of the firm 
commitment. The commenters contend that typically, in commercial 
lending transactions, such

[[Page 24509]]

issues would be addressed in representations and warranties made by the 
borrower. Further, they submit that, in HUD transactions to date, it 
had been the responsibility of the borrower (and borrower's counsel) to 
provide evidence of compliance; nor could the lender certify that, as 
of the date of initial closing, the borrower held certain government 
approvals to operate the property since these approvals are not issued 
until the time of final endorsement of the Note.
    However, under the new underwriting changes and liability structure 
established in the documents, HUD is limiting its role and giving 
lenders more ability to address any problems that arise in management 
of the property that contribute to a financial decline. These changes 
are made in the expectation that lenders will undertake increased due 
diligence to assure sound underwriting in insured multifamily projects.
    HUD recognizes that this expands the role for the lender in HUD-
insured transactions, although these are familiar roles in commercial 
lending transactions. Accordingly, HUD has modified the Lender's 
Certificate to make its requirements ``based upon reasonable due 
diligence'', that the lender ``has made reasonable inquiry'' or is 
certifying ``to the best of lender's knowledge.'' HUD has relaxed the 
requirements in Section 30 to provide that the lender will simply 
confirm in writing before final endorsement of the Note that the 
borrower has obtained the necessary permits and met the listed 
requirements. HUD will also include in its multifamily handbooks 
expanded guidance on what constitutes a prohibited ``identity of 
interest'' as may exist among the parties to the loan at initial 
endorsement or that may arise during the loan term.
Guide for Opinion of Borrower's Counsel
    The Guide is the legal opinion that the borrower's attorney gives 
to the lender prior to closing to provide the lender with protection 
that the borrower is legally formed, has the authority to enter into 
the mortgage, and can execute the closing documents. The lender 
requests this opinion because the lender will frequently depend on the 
borrower and its counsel to provide them with accurate and complete 
information on many aspects of the law in the applicable jurisdiction, 
as well as the borrower's legal status.
    HUD received several comments regarding the details of the Guide 
for Opinion of Borrower's Counsel, and has made several technical 
adjustments in response to these comments. For example, in response to 
a commenter's concerns that in some jurisdictions participants are 
unable to obtain a certificate of good standing for trusts, HUD has 
revised the requirements to obtain ``good standing'' certificates to 
provide alternatives in the documents that are appropriate for the 
jurisdiction and the entity and allow the participating entities to 
certify their legal status.
    HUD has also limited required certifications, narrowing the 
conflicts test for law firms to ``attorneys who devote substantive 
attention to the transaction.'' The conflicts test is further revised 
to limit the test to participating attorney's knowledge of other firm 
attorneys' financial interest and conflicts in the project, the 
property, or the borrower. These changes should broaden the number of 
firms that are eligible to provide this legal opinion, and ultimately 
lower the cost to the borrower. HUD has also changed its requirements 
for the permitted signatories of the Opinion of Borrower's Counsel to 
reflect current practice in many firms that the opinion be signed on 
behalf of the firm issuing the Opinion rather than by an individual 
counsel.
Certification of Borrower
    The Borrower's Certification is the document comparable to the 
Borrower's Affidavit in commercial lending transactions. In this 
document, the borrower reaffirms certain information provided to the 
lender, and represents to both the lender and the title insurance 
company that is insuring the property that the borrower is aware of 
facts related to the property.
    HUD also addresses liability concerns in the Borrower's 
Certification. The final version of the document modifies proposed 
language that commenters contend could have been interpreted as 
requiring certifications by all entities that could be categorized as 
``the borrower.'' Under the revised Borrower's Certification, the 
borrower is only required to attest to pending litigation and claims 
with respect to those entities most likely to be held responsible--the 
general partner, managing member, or similar person or entity. The 
parties responsible for signing will be specified in more detail in a 
definition of ``Principal'' that will be developed in the forthcoming 
revisions to The Multifamily Accelerated Processing (MAP) Guide.\1\
---------------------------------------------------------------------------

    \1\ Guides of the FHA of the Department of Housing and Urban 
Development are available on the Department's Web site: https://www.hud.gov/offices/adm/handbks_forms/index.cfm.
---------------------------------------------------------------------------

Treatment of Reserves and Escrows
    A commenter expressed concern that the investment restrictions for 
reserves and escrows under the proposed documents represented a 
departure from current policy and would interfere with the business 
relationship between lender and borrower, and could also restrict 
liquidity of the reserves. Commenters suggested that requirements that 
escrows be deposited only in accounts fully insured by the United 
States of America would create administrative costs and difficulties. 
Also, the relatively low limit on insured accounts would require 
breaking up certain reserves or escrows into multiple insured accounts. 
The commenters further contend that restricting the ability of the 
lender to draw on letters of credit created operational issues and 
could increase risk to the lender and HUD. In addition, they submitted 
that a requirement to attach copies of letters of credit to Escrow 
Agreements was unworkable and unnecessary because the lender must cover 
the project obligation if a letter of credit were dishonored.
    HUD has taken a comprehensive approach to the issue of mortgagee 
and mortgagor financial responsibilities in the management of reserves 
and escrows which is reflected in the documents and in the handbook for 
multifamily programs which provides further detail on the program 
obligations.\2\ HUD has modified the language in the final Security 
Instrument and the Escrows according to the following general 
principles. Deposits for reserves, residual receipts, and escrow 
accounts are, in general, to be held in accounts in institutions which 
are insured by a federally chartered entity, such as the Federal 
Deposit Insurance Corporation (FDIC), and the National Credit Union 
Administration (NCUA). If funds deposited in a reserve or escrow 
account exceed the maximum insurance level, such as the current 
$250,000 maximum for FDIC insured accounts, funds in those accounts may 
exceed the

[[Page 24510]]

insurance level if they are deposited in Ginnie Mae \3\ rated 
institutions.
---------------------------------------------------------------------------

    \2\ HUD plans to revise and detail these policies when 
modifications are made to existing HUD Handbooks. Current guidance 
that HUD plans to revise includes FHA Handbook 4350.1,--Multifamily 
Asset Management and Project Servicing, and FHA Handbook 4350.4--
Insured Multifamily Mortgagee Servicing and Field Office Guide. The 
FHA Guides are available on the website of the Department of Housing 
and Urban Development: https://www.hud.gov/offices/adm/handbks_forms/index.cfm.
    \3\ The Government National Mortgage Association, known as 
Ginnie Mae, is a wholly owned federal corporation within the U.S. 
Department of Housing and Urban Development.
---------------------------------------------------------------------------

    Currently, for HUD multifamily project loans that are in Ginnie Mae 
pools, escrow funds, for example, are required to be in ``Ginnie Mae 
rated'' institutions. Ginnie Mae presently requires that issuers and 
entities holding custodian accounts must meet minimal ratings 
requirements.\4\ The Ginnie Mae and FHA guidebooks also establish 
requirements for the types of acceptable investments in which escrow 
funds can be held.\5\ These include certificates of deposits, U.S. 
Treasury bills, notes, bonds and other obligations of the U.S. 
Government and other assets, including tax exempt bonds, and AAA-rated 
and prerefunded bonds. The handbooks further require that disposition 
of all earnings, including interest earnings, if any, be credited or 
applied as established in regulations and handbooks.\6\
---------------------------------------------------------------------------

    \4\ For example, Ginnie Mae currently uses the following rating 
requirements: Thompson Bankwatch--C or better, Moody's--P-3 or 
better (short term bank deposits), or Standard & Poor's--A-3 or 
better (short-term CD). (Ginnie Mae Handbook 5500.3 Rev. 1 10.01.09 
p16-7).
    \5\ The Ginnie Mae Guides are available on Ginnie Mae's Web 
site. https://www.ginniemae.gov/help/guides.asp?Section=Resources. 
The FHA Guides are available on the website of the Department of 
Housing and Urban Development: https://www.hud.gov/offices/adm/handbks_forms/index.cfm.
    \6\ FHA Handbook 4350.1,--Multifamily Asset Management and 
Project Servicing, and FHA Handbook 4350.4--Insured Multifamily 
Mortgagee Servicing and Field Office Guide.
---------------------------------------------------------------------------

    HUD will include similar deposit requirements in its revised 
multifamily program guidance, and will also require that banks issuing 
letters of credit will meet applicable Ginnie Mae standards plus other 
criteria to be set forth in program obligations. HUD does not wish to 
rely on the lender's financial ability to cover obligations secured by 
a letter of credit. These new standards are designed to strengthen the 
financial soundness of the multifamily programs. Lenders should note 
that they have the ability to offset these requirements. For example, 
in the documents, HUD has included authority for the lender to charge 
the borrower a fee, in accordance with program obligations, to cover 
the lender's increased responsibilities in managing reserve and escrow 
accounts. HUD's current guidance recognizes that ``reasonable and 
necessary expenses'' can be recovered, and anticipates that, in the 
future, the lender and borrower will negotiate appropriate fees for 
administration of reserves and escrows.

Requirements of Principals To Sign the Regulatory Agreement

    The Regulatory Agreement sets forth requirements that an owner must 
meet over the term of the HUD loan. In light of the consequences that 
certain insufficiently regulated actions have had on the housing 
finance markets in recent years, and that public funds are at risk, HUD 
proposed in the January 2010 documents that principals should be 
personally responsible for paying damages for certain ``bad boy'' acts 
as exceptions to the nonrecourse provisions of the Note. Accordingly, 
such provisions were included in the January and December 2010 versions 
of the closing documents issued for public comment.
    HUD retained provisions establishing that acts of fraud and 
misconduct that put the FHA insurance fund at risk will be pursued 
through contract rights made explicit in these documents and other 
remedies available to the federal government. HUD believes that the 
``bad boy'' provisions referred to by commenters merely provide more 
certain legal mechanisms for enforcing HUD's statutory, regulatory, and 
program requirements without overburdening those owners that conform to 
HUD requirements.
    Commenters expressed concern that even with changes made in 
December 2010 to the Regulatory Agreement, it remained difficult to 
identify the particular individuals who would be responsible for 
signing the Regulatory Agreement or would be liable for the ``bad boy'' 
acts. HUD recognizes that, for example, requiring volunteer officers 
and trustees of nonprofit mortgagors, as well as individual investors 
in tax credit projects to sign the documents presented practical 
issues. Accordingly, in the final documents, HUD has included a 
definition of principals based on the regulations--24 CFR 200.215. 
Additionally, HUD is providing further specificity in the revised 
documents--and in its multifamily guidebooks so the ``signing 
principals,'' both on behalf of the borrower and for those principals 
who must accept personal liability for the ``bad boy'' acts, will be 
identified by HUD in the firm commitment and at the time of closing. In 
addition, principals required to sign the documents are, in general, 
attesting only ``to the best of their knowledge,'' and primarily to 
their own statements and representations.
Changes to the Regulatory Agreement Clarifying Capital Contributions
    In the December 2010 version of the documents, HUD included 
language distinguishing funds related to the mortgaged property and 
funds separate and apart from the mortgaged property. A commenter 
suggested that further clarification would be useful to detail 
exclusion of capital contributions not eligible to be expensed to the 
mortgaged property. To address the request for clarification, HUD has 
included language that defines such contributions as equity or capital 
contributions required under the Firm Commitment or otherwise advanced 
for the purpose and as part of the mortgaged property.\7\
---------------------------------------------------------------------------

    \7\ Sec. 12(a) of the Regulatory Agreement.
---------------------------------------------------------------------------

    Transition. Commenters expressed a desire for HUD to coordinate the 
effective date for these documents with training and updated program 
guidance. HUD agrees with these comments and carefully considered them 
in determining an effective date. HUD intends to provide updated 
guidance and schedule training in advance of any closings that require 
use of the new closing documents. Additionally, to the extent that any 
administrative requirements in HUD handbooks, guidance, housing 
notices, or mortgagee letters are inconsistent with any provisions in 
the revised closing documents, the provisions in the revised closing 
documents will prevail.
    Use of the final approved closing documents and application of the 
revised regulations corresponding to the updated closing documents, 
published elsewhere in today's Federal Register, shall be mandatory 
with respect to multifamily project mortgages for which HUD issued a 
firm commitment for mortgage insurance on or after September 1, 2011. 
The regulations provide that if the mortgagor demonstrates to the 
satisfaction of the Commissioner that financial hardship to the 
mortgagor would result from application of the revised regulations and 
updated closing documents due to the reasonable expectations of the 
mortgagor that the transaction would close under the regulations and 
closing documents in effect prior to September 1, 2011, the regulations 
and closing documents in effect prior to September 1, 2011 will apply.
    As noted previously in this notice published today, changes to the 
documents from the December 22, 2010, version of these documents are 
displayed in redline/strikeout format posted on HUD's Web page. Clean 
versions of the documents, with the applicable OMB control number, are 
also provided on HUD's Web site.


[[Page 24511]]


    Dated: April 26, 2011.
Robert C. Ryan,
Acting Assistant Secretary for Housing--Acting Federal Housing 
Commissioner.
[FR Doc. 2011-10445 Filed 4-29-11; 8:45 am]
BILLING CODE 4210-67-P
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