Federal Housing Administration (FHA) Single-Family Mortgage Insurance: Elimination of Requests for Alternative Mortgage Limits, 2024-2027 [2012-581]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 77, Number 9 (Friday, January 13, 2012)]
[Proposed Rules]
[Pages 2024-2027]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-581]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 77, No. 9 / Friday, January 13, 2012 / 
Proposed Rules

[[Page 2024]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-5462-P-01]
RIN 2502-AJ02


Federal Housing Administration (FHA) Single-Family Mortgage 
Insurance: Elimination of Requests for Alternative Mortgage Limits

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would eliminate the process for requesting 
alternative FHA maximum mortgage amounts. HUD currently sets the area-
based loan limits on a yearly basis and permits appeals of these loan 
limits. At the time the regulations permitting appeals were 
promulgated, there were no comprehensive, national databases of home 
sales transactions. As a result, HUD relied on sales data provided by 
interested parties in determining loan limits for certain areas. Today, 
however, HUD has available comprehensive direct sales transaction data 
and indirect home value data at the county level. In addition, since 
HUD began this new information collection on price trends at a county 
level, the number of parties utilizing the appeals process has gone 
from 105 for the 2008 loan limits to zero for the 2011 loan limits. For 
these reasons, HUD has determined that the regulations governing 
requests for alternative maximum mortgage amounts are outdated and 
unnecessarily disrupt HUD's loan limit determination process. The 
elimination of this appeals process would allow HUD to release its 
annual loan limits one month earlier than it has for the past three 
calendar years. This difference would provide more certainty in the 
mortgage lending market.

DATES: Comment Due Date: March 13, 2012.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street 
SW., Room 10276, Washington, DC 20410-0500. Communications must refer 
to the above docket number and title. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
https://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
https://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at (202) 708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Arlene N. Nunes, Director, Home 
Mortgage Insurance Division, Office of Housing, Department of Housing 
and Urban Development, 451 7th Street SW., Room 9266, Washington, DC 
20410-8000; telephone number (202) 708-2121 (this is not a toll-free 
number). Persons with hearing or speech impairments may access this 
number through TTY by calling the toll-free Federal Relay Service at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 203(b)(2) of the National Housing Act (12 U.S.C. 
1709(b)(2)) (NHA) limits the principal obligation of FHA-insured 
single-family mortgages. As amended by the Housing and Economic 
Recovery Act of 2008 (Pub. L. 110-289, approved July 30, 2008) (HERA), 
section 203(b)(2) of NHA states that an FHA maximum mortgage amount is 
the greater of: (1) 115 percent of the median house price for a single-
family home in the ``area,'' as determined by the Secretary of HUD, or 
(2) 65 percent of the national conforming limit, the dollar amount 
determined under section 305(a)(2) of the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C 1454(a)(2)) (FHLMC Act) (this 65 percent 
multiple is referred to as the ``floor'').\1\ Section 203(b)(2) of NHA, 
as amended by HERA, also states that in no case may area loans limits 
exceed 150 percent of the national conforming limit (this 150 percent 
multiple is referred to as the ``ceiling''), unless it is a special 
exception area--Alaska, Hawaii, Guam, and the Virgin Islands--in which 
case the limit is 150 percent of the ceiling.
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    \1\ The national conforming limit under FHLMC Act for a 1-family 
home is $417,000.
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    However, in early 2008, Congress established temporary rules for 
FHA loan limits in the Economic Stimulus Act of 2008 (Pub. L. 110-185, 
approved February 13, 2008) (ESA). ESA permits FHA to calculate loan 
limits based on 125 percent of the area median price (instead of the 
115 percent under NHA as amended by HERA), with an upper limit ceiling 
based on 175 percent (instead of 150 percent permitted under NHA as 
amended by HERA) of the national conforming loan limit for one-

[[Page 2025]]

family properties, equal to $729,750. ESA, like section 203(b)(2) of 
the NHA, as amended by HERA, sets the ``floor'' for such one-family 
properties at 65 percent of the national conforming loan limits, equal 
to $271,050. Since the enactment of ESA, both the national ceiling and 
the national floor have remained static, because the conforming limit 
has not changed from $417,000.\2\ For each year starting with 2009, 
Congress passed temporary measures that required HUD to set the loan 
limits at the greater of what was established under ESA and what would 
otherwise be calculated under NHA. The last of those expired on 
September 30, 2011. FHA issues a Mortgagee Letter each year setting 
forth the calculated limits applicable to the upcoming fiscal year, 
depending on the expiration of the most recent temporary measure passed 
by the Congress.\3\
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    \2\ Pursuant to HERA, the limits will go down to the lesser of 
115 percent of area median home prices or 150 percent of the 
national conforming limit, which would be $625,500.
    \3\ Most recently, HUD Mortgage Letter 2010-40, issued on 
December 1, 2010, announced the maximum mortgage limits in effect 
from January 1, 2011, until September 30, 2011. Mortgagee Letter 
2010-40 may be downloaded from https://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-40ml.pdf.
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    In no case, however, may the individual-insured-mortgage amount 
exceed the appraised value of the property used as security for the 
mortgage. Moreover, section 203(b)(2) of the NHA specifies that, for 
purposes of the statutory limitation, the term ``area'' means a 
metropolitan statistical area as established by the Office of 
Management and Budget (OMB). The loan limits for all counties within an 
OMB-designated metropolitan area are based upon that county with the 
highest median price within the area. OMB categorizes ``metropolitan 
areas'' into Core Based Statistical Areas, Metropolitan Statistical 
Divisions, and Micropolitan Areas. HUD recognizes all three types in 
the designation of ``areas.''
    HUD's regulations implementing section 203(b)(2) of NHA are 
codified at 24 CFR 203.18. Recognizing that there may be additional 
data or other information not available to HUD, the regulations at 
Sec.  203.18b provide a process by which a party may submit 
documentation in support of an alternative mortgage limit. Paragraph 
(a) of Sec.  203.18b provides that ``[i]f any party believes that a 
mortgage limit established by the Secretary * * * does not accurately 
reflect the median house prices in an area, the party may submit 
documentation in support of an alternative mortgage limit.'' Paragraph 
(b) of Sec.  203.18b specifies that this data must be in the form of 
``a listing of actual sales prices in the area for all or nearly all'' 
single-family properties sold in the area for a period of time that 
varies from one to three months, depending on sales volume. For 
example, paragraph (b)(1)(i) states that if the number of monthly 
closed sales in an area is 500 or more, the request need provide only 
one month's worth of data. Paragraph (b)(1)(iii) states that if the 
number of monthly home sales in the area is below 250, the required 
data period is three months. Paragraph (c) of Sec.  203.18b specifies 
the manner in which the FHA Commissioner may calculate home sales 
prices if the Commissioner determines that the median one-family house 
price does not reasonably reflect the sales prices of newly constructed 
homes because of an existing stock whose values is static or declining. 
HUD has never implemented paragraph (c) of Sec.  203.18b.
    HUD's current regulations for loan limit appeals and determination 
of home sale prices were promulgated in the early 1980s. At that time, 
there were no comprehensive national databases of home sales 
transactions. As a result, HUD relied upon appeals by interested 
parties, primarily local boards of realtors, as part of its loan limit 
determination process. The appeals process started when a party 
provided one month of sale transaction data (or multiple months if 
sales were low) to their respective HUD Home Ownership Center to show 
that the median price for that month or months was higher than the 
median in use by HUD. Appeals were typically based on Multiple Listing 
Service (MLS) listings. MLS listings are incomplete for sales in any 
county, and even the National Association of Realtors (NAR) is unable 
to obtain data from all independent MLSs when it compiles data for its 
existing-home median price estimates. In addition, reliance on short-
term data is problematic, because, first, the data can have seasonal 
variations. Second, short-term data can have aberrations as a result of 
its smaller sample size. For example, there could be a large number of 
new home sales in a given month (or three-month period) that greatly 
skew the local median price upward. Third, permitting continuous 
appeals, as in the former regime, may exacerbate housing booms, as 
sharply increasing housing prices continuously generate higher mortgage 
limits that increase the number of FHA-insured loans.
    Over time, HUD adopted a secondary, end-of-year sweep of loan 
limits. Relying upon the Mortgage Interest Rate Survey (MIRS) performed 
by the Federal Housing Finance Board (FHFB), HUD would create county-
level estimates of area median prices. If the median price from this 
data (for a 12-month period ending in October) was higher than what was 
currently being used for limit determination, then the median price and 
limits in the HUD database would be updated. MIRS was a national survey 
that included around 25,000 loans but was never intended to be accurate 
at the county level. Data records have ZIP Code but not county 
identifiers. However, this was a national source of data available to 
HUD that could be used to limit the necessity of relying upon uncertain 
and irregular appeals to assure that increases in local area home 
prices were being reflected in updated FHA loan limits.
    Starting in 2008, HUD developed a new centralized procedure for 
managing and updating FHA loan limits. HUD contracts with a data 
aggregator, CoreLogic, to compile comprehensive sales transaction 
information from county deed recorders for the defined look-back period 
(January through August) on nondistress sales of single-family 
residential properties (no condominiums). HUD uses those data to 
compute median home sale prices. Through CoreLogic, HUD has available 
comprehensive sale transaction data for more than 2,000 counties, 
representing population centers. For the remaining approximately 1,200 
counties with smaller populations, which tend to have few transactions, 
HUD relies upon indirect data sources in determining home values. The 
first indirect method is to use NAR existing home sale median prices at 
the metropolitan area level augmented with American Community Survey 
(ACS) data, in order to create county-specific price estimates. The 
next indirect method is to use median home values from the most recent 
ACS indexed by Federal Housing Finance Agency (FHFA) home price indices 
to create median price estimates for the subject look-back period. For 
additional areas with very small populations and housing stock, HUD 
uses Decennial Census median value estimates, updated to the subject 
look-back period with price indices published by the FHFA.
    HUD has direct price data for the counties with a high number of 
sale transactions. Appeals from any counties for which HUD has direct 
price data would be rejected, because there is no new information that 
could be provided in an appeal. An appeal for a county where HUD uses 
indirect data sources would have to meet four conditions to be 
considered: (1) The county is either designated as ``non-metro'' by OMB 
or, if the county is within a designated

[[Page 2026]]

metropolitan area, it is the county with the highest median price high-
cost in that area; (2) there must be a sufficient number of 
transactions (in practice, HUD considers ten or more transactions to be 
a sufficient number) in the county in question and during the defined 
look-back period; (3) the loan limit must be already above the national 
floor or would be if the appeal were valid; and (4) the loan limit must 
not be already at the national ceiling. Few counties could meet this 
four-part test. The 2010 median price across the counties for which HUD 
currently uses indirect sources of data is under $85,000, and the 95th 
percentile is under $175,000.
    There are currently only ten counties out of 3,234 that could 
possibly make an appeal based upon HUD-estimated home prices being near 
or above the national floor and their being in non-metro areas. Four of 
those are in the Northern Marianas Island, and one is in Guam. The 
remaining counties are: a rural county in Colorado (population 800), a 
resort area in the Virgin Islands (St. John), two fishing village 
jurisdictions in Alaska, and a Northern Neck county in Virginia 
(Lancaster County) where the median home price fluctuates widely each 
quarter because of the small number of sale transactions. Over the past 
seven years, FHA has insured no loans in any of the four municipalities 
of the Northern Marianas Islands. In only one of the other six 
jurisdictions has FHA insured loans each year since 2005 and has 
insured ten or more in any year--Lancaster County, Virginia. Thus, at 
this time only one county could qualify for the appeals process. HUD 
seeks comment on whether any other counties could qualify or will soon 
qualify for the appeals process.
    In addition, since these new procedures for establishing median 
prices took effect in 2008, the number of appeals received and accepted 
by HUD has dropped to zero. The number of requests for an alternative 
mortgage amount reached an all-time high for the 2005 loan limits, 203 
appeals, of which 180 were accepted. For the 2008 loan limits in effect 
before the passage of ESA, there were 105 appeals (in 2007), of which 
83 were accepted. This number dropped to nine appeals under the 2009 
loan limits, of which seven were accepted. For the 2010 loan limits, 
only one appeal was received. That appeal was rejected, because HUD 
already had comprehensive sales price data for the subject county. For 
the 2011 loan limits, for which the open appeals period was November 
through December 2010, and during which HUD's data coverage had 
significantly increased, no appeals were received.

II. This Proposed Rule

    This proposed rule would remove Sec.  203.18b, ``Increased mortgage 
amount,'' in its entirety. As noted, the current regulation requires an 
individual who is appealing the maximum mortgage amount for an area to 
provide documentation to support the request for the increase. Although 
HUD recognizes that home values have declined in many areas, the loan 
floor and ceiling have remained static since 2008; in some areas where 
the limit is between the floor and the ceiling, the limit has 
increased. The current appeals process is unnecessary and outdated for 
two reasons: (1) HUD either has complete sales transaction data (in the 
case of counties covered by direct price data, for which appeals would 
be rejected immediately); (2) the county's median home price falls 
below the national floor or has too few transactions to make a valid 
appeal based on these transactions. Related to these two reasons, the 
number of appeals in 2011 dropped to zero. HUD seeks comment on whether 
any other reasons contributed to the drop in the number of appeals.
    HUD anticipates that if this rule were not changed, there would be 
very few, if any, successful appeals in the future. This projection 
would be true even if local economies improve and home prices rise. A 
valid appeal must provide better data than HUD already has compiled on 
home sale transactions or home values in a given county, and a 
successful appeal must actually impact the area loan limits. As 
discussed above, since HUD's access to county-level home sale data 
began in 2008, the coverage rate has improved each year and has limited 
the number of potentially valid appeals. Further, most areas with small 
populations are not eligible to file an appeal as a result of low home 
sale prices or low numbers of transactions. Nevertheless, in future 
years, if a county currently covered by HUD's indirect median price 
estimates has a basis for filing an appeal under the current 
procedures, HUD will work with sources in that county to obtain more 
data on home sale transactions and will move to the use of direct data 
for that jurisdiction. Thus, HUD concludes that the removal of this 
regulation would not have any impact on the calculation of area loan 
limits now or in the future.

III. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866 (entitled ``Regulatory Planning and 
Review''). A determination was made that this proposed rule is a 
``significant regulatory action,'' as defined in section 3(f) of the 
Order (although not economically significant, as provided in section 
3(f)(1) of the Order). The docket file 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, please schedule an appointment to review the 
docket file by calling the Regulation 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 Relay 
Service at (800) 877-8339.
    The benefits of this rule come from providing the mortgage industry 
with firm loan limits as early as possible each year. The data HUD uses 
for loan limit determination is not available until mid-October, and 
the preliminary loan limits are completed in early-to-mid November. 
Requiring a 30-day appeals period for the sake of a possible appeal 
from one of the very small number counties that could possibly make a 
valid appeal creates a cost in terms of delays in final limit 
determination for the national housing market. Mortgage lenders require 
certainty in order to take loan applications in the November and 
December time frame, and loans that may not close until the next 
calendar year would be subject to new loan limits. HUD strives for 
direct sale transaction price data from any or all of the counties for 
which HUD currently uses indirect sources and which meet the four-part 
test outlined above. HUD would welcome a relationship with entities 
that could provide direct data, if any deviations between HUD's 
indirect median price estimate and actual home prices become material 
for FHA insurance in such areas. Having a national appeals period that 
delays implementation of final loan limits across the entire nation 
each year is not an effective means of addressing a very small number 
of localized needs in the future.
    The President's Executive Order (EO) 13563, entitled ``Improving 
Regulation and Regulatory Review,'' was signed by the President on 
January 18, 2011, and

[[Page 2027]]

published on January 21, 2011, at 76 FR 3821. This EO requires 
executive agencies to analyze regulations that are ``outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' For the reasons discussed in this preamble, HUD has 
determined that the regulations regarding the appeals process for FHA 
maximum mortgage amounts are now outmoded. The appeals were once an 
important source of data collection for HUD, but the new comprehensive 
nationwide data sources have negated the need for the appeals process 
and the corresponding regulations. HUD therefore proposes to remove the 
regulations. HUD seeks comment on any of the benefits or costs of the 
proposed removal of the regulations.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule will not impose any economic burdens. As indicated in 
the Background section of this preamble, entities (typically local 
boards of realtors that gather data from local MLSs) no longer utilize 
this appeals process and therefore do not, and will not in the future, 
incur expenses as a result of this proposed rule.
    Notwithstanding HUD's determination that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in the preamble to this rule.

Environmental Impact

    This rule does not direct, provide for assistance or loan and 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. This rule is limited to the procedures governing 
the submission of requests for alternative maximum mortgage amounts 
under the FHA single-family programs. In addition, part of this rule 
changes a statutorily required and/or discretionary establishment and 
review of loan limits. Accordingly, under 24 CFR 50.19(c)(1) and 
(c)(6), this rule is categorically excluded from environmental review 
under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (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 on the private sector. This proposed rule would 
not impose any federal mandates on any state, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

Catalogue of Federal Domestic Assistance

    The Catalogue of Federal Domestic Assistance Number for the 
principal FHA single-family mortgage insurance program is 14.117.

List of Subjects in 24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR part 203 to read as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

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

    Authority:  12 U.S.C. 1709, 1710, 1715b, 1715z-1716, and 1715u; 
42 U.S.C. 3535(d).

    2. Remove section 203.18b.

    Dated: December 28, 2011.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2012-581 Filed 1-12-12; 8:45 am]
BILLING CODE 4210-67-P