Federal Housing Administration (FHA) Multifamily Mortgage Insurance; Capturing Excess Claim Proceeds, 41339-41342 [2013-16456]

Download as PDF Federal Register / Vol. 78, No. 132 / Wednesday, July 10, 2013 / Proposed Rules DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 40 [Docket No. RM13–8–000] Electric Reliability Organization Proposal To Retire Requirements in Reliability Standards Federal Energy Regulatory Commission. ACTION: Notice of proposed rulemaking. AGENCY: This document contains corrections to the proposed rule (RM13– 8–000) which was published in the Federal Register of Friday, June 28, 2013 (78 FR 38851). The proposed regulations would approve the retirement of 34 requirements within 19 Reliability Standards identified by the North American Electric Reliability Corporation (NERC), the Commissioncertified Electric Reliability Organization. SUMMARY: changed from ‘‘$535,500’’ to ‘‘$518,220.’’ In FR Doc. 2013–15433 appearing on page 38851 in the Federal Register of Friday, June 28, 2013, the same corrections are made: 1. On page 38860, in P 90, the estimate ‘‘$535,500’’ in the first sentence is changed to ‘‘$518,220.’’ 2. On page 38860, in the table in P 90, the ‘‘Estimated Total Annual Reduction in Burden (in hours)’’ for FAC–013–2, R3 and INT–007–1, R1.2 is changed from ‘‘1,600’’ to ‘‘640’’ and from ‘‘448’’ to ‘‘1,120,’’ respectively, and the Total is changed from ‘‘8,925’’ to ‘‘8,637.’’ 3. On page 38860, in the table in P 90, the ‘‘Estimated Total Annual Reduction in Cost’’ for FAC–013–2, R3 and INT– 007–1, R1.2 is changed from ‘‘$96,000’’ to ‘‘$38,400’’ and from ‘‘$26,880’’ to ‘‘$67,200,’’ respectively, and the Total is changed from ‘‘$535,500’’ to ‘‘$518,220.’’ Dated: July 3, 2013. Kimberly D. Bose, Secretary. FOR FURTHER INFORMATION CONTACT: [FR Doc. 2013–16495 Filed 7–9–13; 8:45 am] Kevin Ryan (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, Telephone: (202) 502–6840. Michael Gandolfo (Technical Information), Office of Electric Reliability, Division of Reliability Standards and Security, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, Telephone: (202) 502–6817. SUPPLEMENTARY INFORMATION: BILLING CODE 6717–01–P mstockstill on DSK4VPTVN1PROD with PROPOSALS Errata Notice 17:29 Jul 09, 2013 24 CFR Part 207 [Docket No. FR–5583–P–01] RIN 2502–AJ16 Federal Housing Administration (FHA) Multifamily Mortgage Insurance; Capturing Excess Claim Proceeds Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. ACTION: Proposed rule. AGENCY: On June 20, 2013, the Commission issued a ‘‘Notice of Proposed Rulemaking’’ in the above-captioned proceeding, Electric Reliability Organization Proposal to Retire Requirements in Reliability Standards, 143 FERC ¶ 61,251 (2013). This errata notice serves to correct P 90 and the associated table. Specifically, in P 90, the estimate ‘‘$535,500’’ in the first sentence is changed to ‘‘$518,220.’’ In the table in P 90, the ‘‘Estimated Total Annual Reduction in Burden (in hours)’’ for FAC–013–2, R3 and INT– 007–1, R1.2 is changed from ‘‘1,600’’ to ‘‘640’’ and from ‘‘448’’ to ‘‘1,120,’’ respectively, and the Total is changed from ‘‘8,925’’ to ‘‘8,637.’’ In addition, in the table in P 90, the ‘‘Estimated Total Annual Reduction in Cost’’ for FAC–013–2, R3 and INT–007– 1, R1.2 is changed from ‘‘$96,000’’ to ‘‘$38,400’’ and from ‘‘$26,880’’ to ‘‘$67,200,’’ respectively, and the Total is VerDate Mar<15>2010 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Jkt 229001 This proposed rule would amend HUD’s regulations covering the contract rights and obligations of mortgagees participating in FHA multifamily mortgage insurance programs, to address reimbursement to FHA of excess claim proceeds. When a mortgagee finances mortgages through the issuance and sale of bonds or through bond anticipation notes, the mortgagee uses the FHA insurance claim funds to pay off the remaining bond debts. At times, the amount paid by the FHA insurance claim is greater than the remaining bond debts. This proposed rule would require mortgagees to return to FHA the excess bond funds that remain after FHA’s payment is used to satisfy the bonds. HUD requires similar payments of excess bond funds SUMMARY: PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 41339 on obligations of public housing agencies and, thus, the proposed rule would provide consistency in the administration of HUD’s bond financing programs. DATES: Comment Due Date: September 9, 2013. 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. 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 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 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 toll free, E:\FR\FM\10JYP1.SGM 10JYP1 41340 Federal Register / Vol. 78, No. 132 / Wednesday, July 10, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS 800–877–8339. Copies of all comments submitted are available for inspection and downloading at www.regulations.gov. FOR FURTHER INFORMATION CONTACT: James Mitchell, Project Officer, Office of Multifamily Housing Programs, Office of Asset Management, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 7164, Washington, DC 20410; telephone number 202–708–2612 (this is not a tollfree number). Persons with hearing or speech impairments may access this number through TTY by calling the Federal Relay Service, toll free, at 800– 877–8339. SUPPLEMENTARY INFORMATION: I. Background FHA provides mortgage insurance on loans made by FHA-approved lenders for single-family and multifamily homes. FHA mortgage insurance provides lenders with protection against losses as the result of single-family and multifamily project owners defaulting on their mortgage loans. By insuring loans made to FHA-approved lenders, FHA facilitates the availability of mortgage financing and helps to expand affordable housing. The FHA multifamily insurance program is authorized by section 207 of the National Housing Act (12 U.S.C. 1713). HUD’s regulations implementing multifamily mortgage insurance eligibility requirements and contract rights and obligations can be found at 24 CFR part 207 (entitled ‘‘Multifamily Housing Mortgage Insurance’’). Under part 207, upon an assignment of the mortgage or a conveyance of the property to FHA, FHA will pay insurance benefits to the mortgagee. When the loan is bond financed 1, the lender remits the payment to the bond trustee who pays off the bond debts, debt services on the bond, and fees and expenses owed to parties (such as the trustee or the bond issuer). The amount of the claim is determined in compliance with a regulatory formula 2 and is meant to provide only the funds needed to settle the claim. Most of the factors in determining the proper claim amount are known. However, the bond trust indenture (contract) requires that certain reserves be held, including a debt service reserve, to maintain payments to bond holders prior to a 1 HUD’s regulation at 24 CFR 207.258 provides that mortgages may be funded with the proceeds of state or local bonds, Government National Mortgage Association (GNMA or Ginnie Mae) mortgagebacked securities, participation certificates, or other bond obligations, as may be specified by the FHA Commissioner. 2 See 24 CFR 207.259. VerDate Mar<15>2010 17:29 Jul 09, 2013 Jkt 229001 default in the case where the mortgagor does not make proper payment. Funds in the reserve accounts earn interest and, given the passage of time and uncertainty of short-term interest rates, it is difficult to know how much more money will be in the reserves at the time the claim is settled and all the obligations are finally paid. As a result, the trustee is sometimes left with additional funds, also known as ‘‘excess bond funds.’’ Excess bond funds are then distributed by the bond trustee, according to the trust indenture agreement, to the mortgagor, the mortgagee, FHA, or other third parties. As a result, the mortgagor or the mortgagee may receive excess bond funds stemming from FHA’s payment on the insurance claim. FHA’s insurance payment is designed to make the mortgagee whole when the mortgagor defaults on the mortgage loan. Under the current distribution, a multifamily project owner and lender may benefit from the mortgage default, which is contrary to the intended results of FHA mortgage insurance to increase the availability of affordable housing. II. This Proposed Rule Through this proposed rule, HUD seeks to address this concern by requiring mortgagees to reimburse FHA for the excess bond funds that remain after the insurance claim payment is used to satisfy the bonds. HUD requires similar payments of excess bond funds on obligations of public housing agencies, under 24 CFR part 811, entitled ‘‘Tax Exemption of Obligations of Public Housing Agencies and Related Amendments’’ (see especially 24 CFR 811.108, which addresses debt service reserve). Accordingly, the proposed rule would not only rectify the possibility that a mortgagor or mortgagee benefits from the mortgage default, but would also provide consistency in the administration of HUD’s bond financing programs. The specific regulatory amendments that would be made by this proposed rule are as follows: This proposed rule would add a new § 207.261 that requires mortgagees that use the issuance and sale of bonds or bond anticipation notes to finance FHAinsured mortgages on multifamily housing to return excess bond funds to FHA. New § 207.261 would require the mortgagee to do three things. First, the mortgagee must include in the bond trust indenture language that, upon a conveyance or assignment of the mortgage, the bond trustee must remit to the mortgagee all remaining excess bond funds after the issuance of the refunding PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 bond and other required payments. For purposes of § 207.261, ‘‘excess bond funds’’ would mean (1) money remaining in all funds and accounts other than a rebate fund,3 and (2) any other funds remaining under the indenture after payment, or provision for payment, of debt service on the bonds and the fees and expenses of the credit enhancer, issuer, trustee, and other such parties unrelated to the mortgagor (other than funds originally deposited by the mortgagor or related parties on or before the date of issuance of the refunding bonds). Second, the mortgagee, upon FHA’s payment of an insurance claim, must legally enforce the trust indenture to collect all of the remaining excess bond funds. Finally, the mortgagee must remit to FHA all excess bond funds that result from FHA’s payment of an insurance claim after a conveyance or assignment of the mortgage to FHA, no later than 6 months following the date that FHA pays the mortgage insurance claim. The proposed rule would also amend § 207.251, which is the definition section for the part 207, subpart B, regulations, to include a definition of ‘‘rebate fund’’ which is based on the definitions provided in footnote 3 of this preamble. III. Cost and Benefits of the Proposed Rule The proposed rule would amend HUD’s regulations covering the contract rights and obligations of mortgagees participating in FHA multifamily insurance programs and using taxexempt bonds under section 103 of the Internal Revenue Code (IRC),4 to make explicit that proceeds remaining after bond debts have been paid off as the result of a claim must be returned to FHA. The existence and possible value of any excess bond funds to individual private entities cannot be precisely stated, as such measures are dependent on the following: the occurrence and timing of a default (which is by definition an unforeseen result of any nonfraudulent lending in the program); the current interest rate environment; 5 3 A rebate fund, also referred to as an arbitrage rebate fund is a fund typically established under the bond contract for tax-exempt bonds in which arbitrage earnings from investments in various funds and accounts holding bond proceeds are accumulated in order to make arbitrage rebate payments to the Federal Government. See http:// www.msrb.org/msrb1/glossary/ view_def.asp?param=ARBITRAGEREBATEFUND. See also http://www.irs.gov/pub/irs-tege/ part2e02.pdf. 4 Under section 103, payments of interest on State or local bonds are excludable from gross income. (See 26 U.S.C. 103.) 5 Reserve funds may grow more slowly due to low interest rates and the low rates on taxable financing E:\FR\FM\10JYP1.SGM 10JYP1 41341 Federal Register / Vol. 78, No. 132 / Wednesday, July 10, 2013 / Proposed Rules the bond indenture; and, then, on the independent actions that HUD and the trustee take. As a result, the value of any windfall is likely to be limited. Approximately 3 percent of total claims are financed by issuing section 103 taxexempt bonds. In 2012, there were $189 million in claims and 3 percent of this number, $5.67 million, provides an estimate of the total claims for taxexempt bond financed projects. HUD estimates that about 1.16 percent of outstanding balances are subject to recapture; therefore, in 2012 there was an estimated $66,000 in excess claims that would be recaptured by this rule. The transfer of excess claim funds to FHA as proposed by this rule makes explicit that FHA’s payment of a claim for bond debts is not to result in either a windfall for the mortgagee, the mortgagor, or any third party. Given the inherently unexpected nature and discussed in the preceding paragraph, the aggregate amount of funds is well below the amount that would make this rule economically significant. uncertain value of any excess claims, the proposed rule, if enacted, is not expected to have a significant impact on future mortgagees or their interest or behavior in the program. If mortgagee participation in the program is unlikely to be affected, the proposed rule is also unlikely to affect how future mortgagors or others experience the program. It should be noted that, while the impact of the proposed rule on any individual entity is likely to be inconsequential, there is value to FHA from the proposed change. Across all of its borrowers, the occurrence of defaults and the payment of excess claims are statistically likely events, and the aggregate amount of program funds currently expended on such windfall payouts across all claims over time is sufficient to motivate the proposed rule. However, based on the 2012 data pertaining to claims for taxexempt bond financed projects, as IV. Findings and Certifications Paperwork Reduction Act The information collection requirements contained in this proposed rule have been submitted to the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number. The burden of the information collections in this proposed rule is estimated as follows: REPORTING AND RECORDKEEPING BURDEN [Office of Housing to provide matrix information] Number of responses per respondent Number of respondents Section reference Estimated average time for requirement (in hours) Estimated annual burden (in hours) 15 1 .5 7.5 Totals ........................................................................................................ mstockstill on DSK4VPTVN1PROD with PROPOSALS § 207.261(a) ..................................................................................................... ........................ ........................ ........................ 7.5 In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments from members of the public and affected agencies concerning this collection of information to: (1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) Evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information; (3) Enhance the quality, utility, and clarity of the information to be collected; and (4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated collection techniques or other forms of information technology; e.g., through permitting electronic submission of responses. Interested persons are invited to submit comments regarding the information collection requirements in this rule. Comments must refer to the proposal by name and docket number and must be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503, Fax number: 202–395–6947 and Reports Liaison Officer, Office of Housing, Department of Housing and Urban Development, Room 9128, 451 7th Street SW., Washington, DC 20410. Interested persons may submit comments regarding the information collection requirements electronically through the Federal eRulemaking Portal at http://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 http://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. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 605(b)) generally requires an agency to conduct 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 would not impose any economic burdens on FHAapproved mortgagees. The proposed regulatory amendments would not modify the terms of FHA mortgage insurance through which mortgagees are made financially whole in the case of a mortgage default and filing of a mortgage insurance claim. Rather, the proposed rule seeks to rectify the possibility that a mortgagor and mortgagee may profit from a mortgage have made tax-exempt financing less advantageous to developers. VerDate Mar<15>2010 17:29 Jul 09, 2013 Jkt 229001 PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 E:\FR\FM\10JYP1.SGM 10JYP1 41342 Federal Register / Vol. 78, No. 132 / Wednesday, July 10, 2013 / Proposed Rules default, which is inconsistent with HUD’s public housing bond financing regulations, the purpose of the FHA programs, and the proper administration of the FHA mortgage insurance funds. Accordingly, the undersigned certifies that this rule will not have a significant economic impact on a substantial number of small entities. Notwithstanding HUD’s determination that this rule will not have a significant economic impact on a substantial number of small entities, HUD specifically invites comments regarding less burdensome alternatives to this rule that will meet HUD’s objectives as described in this preamble. 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 will 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. mstockstill on DSK4VPTVN1PROD with PROPOSALS Environmental Review This final 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. Accordingly, under 24 CFR 50.19(c)(1), this final rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321). Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531– 1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and the private sector. This proposed rule does not impose any Federal mandates on any state, local, or tribal government, or the private sector within the meaning of UMRA. Catalog of Federal Domestic Assistance The Catalog of Federal Domestic Assistance number for FHA mortgage VerDate Mar<15>2010 17:29 Jul 09, 2013 Jkt 229001 insurance for the purchase or refinancing of existing multifamily housing projects is 14.155. List of Subjects in 24 CFR Part 207 Manufactured homes, Mortgage insurance, Reporting and recordkeeping requirements, Solar energy. Accordingly, for the reasons stated in the preamble, HUD proposes to revise 24 CFR part 207 as follows: PART 207—MULTIFAMILY HOUSING MORTGAGE INSURANCE 1. The authority citation for part 207 continues to read as follows: ■ Authority: 12 U.S.C. 1701z–11(e), 1709(c)(1), 1713, and 1715b; 42 U.S.C. 3535(d) ■ 2. Revise § 207.251 to read as follows: § 207.251 Definitions. As used in this subpart: Act means the National Housing Act, as amended. Commissioner means the Federal Housing Commissioner. Contract of insurance means the agreement evidenced by such endorsement and includes the terms, conditions and provisions of this part and of the National Housing Act. Insured mortgage means a mortgage which has been insured by the endorsement of the credit instrument by the Commissioner, or his duly authorized representative. Mortgage means such a first lien upon real estate and other property as is commonly given to secure advances on, or the unpaid purchase price of, real estate under the laws of the State, district or territory in which the real estate is located, together with the credit instrument or instruments, if any, secured thereby. In any instance where an operating loss loan is involved, the term shall include both the original mortgage and the instrument securing the operating loss loan. Mortgagee means the original lender under a mortgage its successors and such of its assigns as are approved by the Commissioner, and includes the holders of the credit instruments issued under a trust indenture, mortgage or deed of trust pursuant to which such holders act by and through a trustee therein named. Mortgagor means the original borrower under a mortgage and its successors and such of its assigns as are approved by the Commissioner. Rebate fund means a separate fund established under a contract or agreement for tax-exempt bonds in which amounts (excess interest earnings from the tax-exempt bonds) must be PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 deposited to make rebate payments to the federal government under the Internal Revenue Code. ■ 3. Add § 207.261 to read as follows: § 207.261 Rebate of excess claim proceeds. A mortgagee that finances housing insured under this part through the issuance and sale of bonds or bond anticipation notes shall: (a) Include language in the trust indenture that states that in the event of an assignment or conveyance of the mortgage, subsequent to the issuance of the bonds, all money remaining in all funds and accounts other than the rebate fund, and any other funds remaining under the indenture after payment or provision for payment of debt service on the bonds and the fees and expenses of the credit enhancer, issuer, trustee, and other such parties unrelated to the mortgagor (other than funds originally deposited by the mortgagor or related parties on or before the date of issuance of the refunding bonds) shall be returned to the mortgagee; and (b) Upon the Commissioner’s payment of a mortgage insurance claim under § 207.258, the mortgagee shall take all legally entitled actions to enforce the clause required by paragraph (a) of this section and pay the Commissioner any remaining bond funds returned to the mortgagee by the bond trustee, no later than 6 months after the date of the Commissioner’s payment of the mortgage insurance claim. Dated: June 12, 2013. Carol J. Galante, Assistant Secretary for Housing—Federal Housing Commissioner. [FR Doc. 2013–16456 Filed 7–9–13; 8:45 am] BILLING CODE 4210–67–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R08–OAR–2010–0389; FRL–9831–9] Approval and Promulgation of Air Quality Implementation Plans; State of Colorado Second Ten-Year PM10 ˜ Maintenance Plan for Canon City Environmental Protection Agency (EPA). ACTION: Proposed rule. AGENCY: EPA is proposing approval of the State Implementation Plan (SIP) revisions submitted by the State of Colorado. On June 18, 2009, the Governor of Colorado’s designee SUMMARY: E:\FR\FM\10JYP1.SGM 10JYP1

Agencies

[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Proposed Rules]
[Pages 41339-41342]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16456]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 207

[Docket No. FR-5583-P-01]
RIN 2502-AJ16


Federal Housing Administration (FHA) Multifamily Mortgage 
Insurance; Capturing Excess Claim Proceeds

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

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would amend HUD's regulations covering the 
contract rights and obligations of mortgagees participating in FHA 
multifamily mortgage insurance programs, to address reimbursement to 
FHA of excess claim proceeds. When a mortgagee finances mortgages 
through the issuance and sale of bonds or through bond anticipation 
notes, the mortgagee uses the FHA insurance claim funds to pay off the 
remaining bond debts. At times, the amount paid by the FHA insurance 
claim is greater than the remaining bond debts. This proposed rule 
would require mortgagees to return to FHA the excess bond funds that 
remain after FHA's payment is used to satisfy the bonds. HUD requires 
similar payments of excess bond funds on obligations of public housing 
agencies and, thus, the proposed rule would provide consistency in the 
administration of HUD's bond financing programs.

DATES: Comment Due Date: September 9, 2013.

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. 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 
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 
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 toll free,

[[Page 41340]]

800-877-8339. Copies of all comments submitted are available for 
inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: James Mitchell, Project Officer, 
Office of Multifamily Housing Programs, Office of Asset Management, 
Office of Housing, Department of Housing and Urban Development, 451 7th 
Street SW., Room 7164, Washington, DC 20410; telephone number 202-708-
2612 (this is not a toll-free number). Persons with hearing or speech 
impairments may access this number through TTY by calling the Federal 
Relay Service, toll free, at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    FHA provides mortgage insurance on loans made by FHA-approved 
lenders for single-family and multifamily homes. FHA mortgage insurance 
provides lenders with protection against losses as the result of 
single-family and multifamily project owners defaulting on their 
mortgage loans. By insuring loans made to FHA-approved lenders, FHA 
facilitates the availability of mortgage financing and helps to expand 
affordable housing. The FHA multifamily insurance program is authorized 
by section 207 of the National Housing Act (12 U.S.C. 1713). HUD's 
regulations implementing multifamily mortgage insurance eligibility 
requirements and contract rights and obligations can be found at 24 CFR 
part 207 (entitled ``Multifamily Housing Mortgage Insurance'').
    Under part 207, upon an assignment of the mortgage or a conveyance 
of the property to FHA, FHA will pay insurance benefits to the 
mortgagee. When the loan is bond financed \1\, the lender remits the 
payment to the bond trustee who pays off the bond debts, debt services 
on the bond, and fees and expenses owed to parties (such as the trustee 
or the bond issuer). The amount of the claim is determined in 
compliance with a regulatory formula \2\ and is meant to provide only 
the funds needed to settle the claim. Most of the factors in 
determining the proper claim amount are known. However, the bond trust 
indenture (contract) requires that certain reserves be held, including 
a debt service reserve, to maintain payments to bond holders prior to a 
default in the case where the mortgagor does not make proper payment. 
Funds in the reserve accounts earn interest and, given the passage of 
time and uncertainty of short-term interest rates, it is difficult to 
know how much more money will be in the reserves at the time the claim 
is settled and all the obligations are finally paid. As a result, the 
trustee is sometimes left with additional funds, also known as ``excess 
bond funds.''
---------------------------------------------------------------------------

    \1\ HUD's regulation at 24 CFR 207.258 provides that mortgages 
may be funded with the proceeds of state or local bonds, Government 
National Mortgage Association (GNMA or Ginnie Mae) mortgage-backed 
securities, participation certificates, or other bond obligations, 
as may be specified by the FHA Commissioner.
    \2\ See 24 CFR 207.259.
---------------------------------------------------------------------------

    Excess bond funds are then distributed by the bond trustee, 
according to the trust indenture agreement, to the mortgagor, the 
mortgagee, FHA, or other third parties. As a result, the mortgagor or 
the mortgagee may receive excess bond funds stemming from FHA's payment 
on the insurance claim. FHA's insurance payment is designed to make the 
mortgagee whole when the mortgagor defaults on the mortgage loan. Under 
the current distribution, a multifamily project owner and lender may 
benefit from the mortgage default, which is contrary to the intended 
results of FHA mortgage insurance to increase the availability of 
affordable housing.

II. This Proposed Rule

    Through this proposed rule, HUD seeks to address this concern by 
requiring mortgagees to reimburse FHA for the excess bond funds that 
remain after the insurance claim payment is used to satisfy the bonds. 
HUD requires similar payments of excess bond funds on obligations of 
public housing agencies, under 24 CFR part 811, entitled ``Tax 
Exemption of Obligations of Public Housing Agencies and Related 
Amendments'' (see especially 24 CFR 811.108, which addresses debt 
service reserve). Accordingly, the proposed rule would not only rectify 
the possibility that a mortgagor or mortgagee benefits from the 
mortgage default, but would also provide consistency in the 
administration of HUD's bond financing programs. The specific 
regulatory amendments that would be made by this proposed rule are as 
follows:
    This proposed rule would add a new Sec.  207.261 that requires 
mortgagees that use the issuance and sale of bonds or bond anticipation 
notes to finance FHA-insured mortgages on multifamily housing to return 
excess bond funds to FHA.
    New Sec.  207.261 would require the mortgagee to do three things. 
First, the mortgagee must include in the bond trust indenture language 
that, upon a conveyance or assignment of the mortgage, the bond trustee 
must remit to the mortgagee all remaining excess bond funds after the 
issuance of the refunding bond and other required payments. For 
purposes of Sec.  207.261, ``excess bond funds'' would mean (1) money 
remaining in all funds and accounts other than a rebate fund,\3\ and 
(2) any other funds remaining under the indenture after payment, or 
provision for payment, of debt service on the bonds and the fees and 
expenses of the credit enhancer, issuer, trustee, and other such 
parties unrelated to the mortgagor (other than funds originally 
deposited by the mortgagor or related parties on or before the date of 
issuance of the refunding bonds). Second, the mortgagee, upon FHA's 
payment of an insurance claim, must legally enforce the trust indenture 
to collect all of the remaining excess bond funds. Finally, the 
mortgagee must remit to FHA all excess bond funds that result from 
FHA's payment of an insurance claim after a conveyance or assignment of 
the mortgage to FHA, no later than 6 months following the date that FHA 
pays the mortgage insurance claim.
---------------------------------------------------------------------------

    \3\ A rebate fund, also referred to as an arbitrage rebate fund 
is a fund typically established under the bond contract for tax-
exempt bonds in which arbitrage earnings from investments in various 
funds and accounts holding bond proceeds are accumulated in order to 
make arbitrage rebate payments to the Federal Government. See http://www.msrb.org/msrb1/glossary/view_def.asp?param=ARBITRAGEREBATEFUND. See also http://www.irs.gov/pub/irs-tege/part2e02.pdf.
---------------------------------------------------------------------------

    The proposed rule would also amend Sec.  207.251, which is the 
definition section for the part 207, subpart B, regulations, to include 
a definition of ``rebate fund'' which is based on the definitions 
provided in footnote 3 of this preamble.

III. Cost and Benefits of the Proposed Rule

    The proposed rule would amend HUD's regulations covering the 
contract rights and obligations of mortgagees participating in FHA 
multifamily insurance programs and using tax-exempt bonds under section 
103 of the Internal Revenue Code (IRC),\4\ to make explicit that 
proceeds remaining after bond debts have been paid off as the result of 
a claim must be returned to FHA. The existence and possible value of 
any excess bond funds to individual private entities cannot be 
precisely stated, as such measures are dependent on the following: the 
occurrence and timing of a default (which is by definition an 
unforeseen result of any nonfraudulent lending in the program); the 
current interest rate environment; \5\

[[Page 41341]]

the bond indenture; and, then, on the independent actions that HUD and 
the trustee take. As a result, the value of any windfall is likely to 
be limited. Approximately 3 percent of total claims are financed by 
issuing section 103 tax-exempt bonds. In 2012, there were $189 million 
in claims and 3 percent of this number, $5.67 million, provides an 
estimate of the total claims for tax-exempt bond financed projects. HUD 
estimates that about 1.16 percent of outstanding balances are subject 
to recapture; therefore, in 2012 there was an estimated $66,000 in 
excess claims that would be recaptured by this rule.
---------------------------------------------------------------------------

    \4\ Under section 103, payments of interest on State or local 
bonds are excludable from gross income. (See 26 U.S.C. 103.)
    \5\ Reserve funds may grow more slowly due to low interest rates 
and the low rates on taxable financing have made tax-exempt 
financing less advantageous to developers.
---------------------------------------------------------------------------

    The transfer of excess claim funds to FHA as proposed by this rule 
makes explicit that FHA's payment of a claim for bond debts is not to 
result in either a windfall for the mortgagee, the mortgagor, or any 
third party. Given the inherently unexpected nature and uncertain value 
of any excess claims, the proposed rule, if enacted, is not expected to 
have a significant impact on future mortgagees or their interest or 
behavior in the program. If mortgagee participation in the program is 
unlikely to be affected, the proposed rule is also unlikely to affect 
how future mortgagors or others experience the program. It should be 
noted that, while the impact of the proposed rule on any individual 
entity is likely to be inconsequential, there is value to FHA from the 
proposed change. Across all of its borrowers, the occurrence of 
defaults and the payment of excess claims are statistically likely 
events, and the aggregate amount of program funds currently expended on 
such windfall payouts across all claims over time is sufficient to 
motivate the proposed rule. However, based on the 2012 data pertaining 
to claims for tax-exempt bond financed projects, as discussed in the 
preceding paragraph, the aggregate amount of funds is well below the 
amount that would make this rule economically significant.

IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In 
accordance with the Paperwork Reduction Act, an agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid OMB 
control number.
    The burden of the information collections in this proposed rule is 
estimated as follows:

                                       Reporting and Recordkeeping Burden
                                [Office of Housing to provide matrix information]
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                     Number of     average time      Estimated
                Section reference                    Number of     responses per        for        annual burden
                                                    respondents     respondent      requirement     (in hours)
                                                                                    (in hours)
----------------------------------------------------------------------------------------------------------------
Sec.   207.261(a)...............................              15               1              .5             7.5
                                                 ---------------------------------------------------------------
    Totals......................................  ..............  ..............  ..............             7.5
----------------------------------------------------------------------------------------------------------------

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology; e.g., 
through permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Comments must refer 
to the proposal by name and docket number and must be sent to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax number: 202-395-6947

and

Reports Liaison Officer, Office of Housing, Department of Housing and 
Urban Development, Room 9128, 451 7th Street SW., Washington, DC 20410.

    Interested persons may submit comments regarding the information 
collection requirements electronically through the Federal eRulemaking 
Portal at http://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 http://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.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 605(b)) generally requires 
an agency to conduct 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 
would not impose any economic burdens on FHA-approved mortgagees. The 
proposed regulatory amendments would not modify the terms of FHA 
mortgage insurance through which mortgagees are made financially whole 
in the case of a mortgage default and filing of a mortgage insurance 
claim. Rather, the proposed rule seeks to rectify the possibility that 
a mortgagor and mortgagee may profit from a mortgage

[[Page 41342]]

default, which is inconsistent with HUD's public housing bond financing 
regulations, the purpose of the FHA programs, and the proper 
administration of the FHA mortgage insurance funds. Accordingly, the 
undersigned certifies that this rule will not have a significant 
economic impact on a substantial number of small entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

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 will 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.

Environmental Review

    This final 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. Accordingly, under 24 CFR 50.19(c)(1), this 
final rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Unfunded Mandates Reform Act

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

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for FHA mortgage 
insurance for the purchase or refinancing of existing multifamily 
housing projects is 14.155.

List of Subjects in 24 CFR Part 207

    Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to revise 24 CFR part 207 as follows:

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

0
1. The authority citation for part 207 continues to read as follows:

    Authority: 12 U.S.C. 1701z-11(e), 1709(c)(1), 1713, and 1715b; 
42 U.S.C. 3535(d)

0
2. Revise Sec.  207.251 to read as follows:


Sec.  207.251  Definitions.

    As used in this subpart:
    Act means the National Housing Act, as amended.
    Commissioner means the Federal Housing Commissioner.
    Contract of insurance means the agreement evidenced by such 
endorsement and includes the terms, conditions and provisions of this 
part and of the National Housing Act.
    Insured mortgage means a mortgage which has been insured by the 
endorsement of the credit instrument by the Commissioner, or his duly 
authorized representative.
    Mortgage means such a first lien upon real estate and other 
property as is commonly given to secure advances on, or the unpaid 
purchase price of, real estate under the laws of the State, district or 
territory in which the real estate is located, together with the credit 
instrument or instruments, if any, secured thereby. In any instance 
where an operating loss loan is involved, the term shall include both 
the original mortgage and the instrument securing the operating loss 
loan.
    Mortgagee means the original lender under a mortgage its successors 
and such of its assigns as are approved by the Commissioner, and 
includes the holders of the credit instruments issued under a trust 
indenture, mortgage or deed of trust pursuant to which such holders act 
by and through a trustee therein named.
    Mortgagor means the original borrower under a mortgage and its 
successors and such of its assigns as are approved by the Commissioner.
    Rebate fund means a separate fund established under a contract or 
agreement for tax-exempt bonds in which amounts (excess interest 
earnings from the tax-exempt bonds) must be deposited to make rebate 
payments to the federal government under the Internal Revenue Code.
0
3. Add Sec.  207.261 to read as follows:


Sec.  207.261  Rebate of excess claim proceeds.

    A mortgagee that finances housing insured under this part through 
the issuance and sale of bonds or bond anticipation notes shall:
    (a) Include language in the trust indenture that states that in the 
event of an assignment or conveyance of the mortgage, subsequent to the 
issuance of the bonds, all money remaining in all funds and accounts 
other than the rebate fund, and any other funds remaining under the 
indenture after payment or provision for payment of debt service on the 
bonds and the fees and expenses of the credit enhancer, issuer, 
trustee, and other such parties unrelated to the mortgagor (other than 
funds originally deposited by the mortgagor or related parties on or 
before the date of issuance of the refunding bonds) shall be returned 
to the mortgagee; and
    (b) Upon the Commissioner's payment of a mortgage insurance claim 
under Sec.  207.258, the mortgagee shall take all legally entitled 
actions to enforce the clause required by paragraph (a) of this section 
and pay the Commissioner any remaining bond funds returned to the 
mortgagee by the bond trustee, no later than 6 months after the date of 
the Commissioner's payment of the mortgage insurance claim.

    Dated: June 12, 2013.
Carol J. Galante,
 Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2013-16456 Filed 7-9-13; 8:45 am]
BILLING CODE 4210-67-P