Federal Housing Administration (FHA): Handling Prepayments: Eliminating Post-Payment Interest Charges, 14200-14204 [2014-05407]

Download as PDF 14200 Federal Register / Vol. 79, No. 49 / Thursday, March 13, 2014 / Proposed Rules REGULATORY REVIEW—Continued [Modified ten-year schedule] 16 CFR part Topic 500 ..................... 501 ..................... 502 ..................... 503 ..................... 700 ..................... 701 ..................... 702 ..................... 703 ..................... 304 ..................... 310 ..................... 314 ..................... 315 ..................... 316 ..................... 433 ..................... 456 ..................... 460 ..................... 682 ..................... 233 ..................... 238 ..................... 251 ..................... 410 ..................... 18 ....................... 311 ..................... 436 ..................... 681 ..................... 24 ....................... 453 ..................... 14 ....................... 255 ..................... 313 ..................... 317 ..................... 318 ..................... 432 ..................... 444 ..................... 640 ..................... 641 ..................... 642 ..................... 660 ..................... 680 ..................... 698 ..................... 801 ..................... 802 ..................... 803 ..................... 437 ..................... 260 ..................... 312 ..................... 254 ..................... 309 ..................... 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Guides for Private Vocational and Distance Education Schools ..................................................... Labeling Requirements for Alternative Fuels and Alternative Fueled Vehicles ............................... [FR Doc. 2014–05263 Filed 3–12–14; 8:45 am] BILLING CODE 6750–01–P Year to review DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 203 [Docket No. FR 5360–P–01] ehiers on DSK2VPTVN1PROD with PROPOSALS RIN 2502–AJ17 Federal Housing Administration (FHA): Handling Prepayments: Eliminating Post-Payment Interest Charges Office of the Assistant Secretary for Housing-Federal Housing Commissioner, HUD. ACTION: Proposed rule. AGENCY: VerDate Mar<15>2010 14:07 Mar 12, 2014 Jkt 232001 PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 Currently Currently Currently Currently Currently Currently Currently Currently 2014. 2014. 2014. 2015. 2015. 2015. 2015. 2016. 2016. 2017. 2017. 2017. 2017. 2018. 2018. 2018. 2018. 2019. 2019. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2020. 2021. 2022. 2022. 2023. 2023. Under Under Under Under Under Under Under Under Review. Review. Review. Review. Review. Review. Review. Review. This rule proposes to revise FHA’s regulations that allow an FHAapproved mortgagee to charge the mortgagor interest through the end of the month in which the mortgage is being paid. The proposed change would prohibit mortgagees from charging postpayment interest, allowing them instead to charge interest only through the date the mortgage is paid. DATES: Comment Due Date: May 12, 2014. SUMMARY: Interested persons are invited to submit comments regarding this proposed rule to the Regulations Division, Office of General Counsel, Department of Housing and Urban ADDRESSES: E:\FR\FM\13MRP1.SGM 13MRP1 Federal Register / Vol. 79, No. 49 / Thursday, March 13, 2014 / Proposed Rules 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 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. ehiers on DSK2VPTVN1PROD with PROPOSALS 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. HUD will make all properly submitted comments and communications 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, you must schedule an appointment in advance to review the public comments, 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 toll-free Federal Relay Service at 800–877–8339. Copies of all comments submitted are available for inspection and downloading at www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Ivery Himes, Director, Office of Single Family Asset Management, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 9172, Washington, DC 20410; telephone number 202–708–1672 (this is not a toll-free number). Persons with VerDate Mar<15>2010 14:07 Mar 12, 2014 Jkt 232001 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 FHA’s current regulations allow FHAapproved mortgagees to charge borrowers interest due for the entire month should prepayment occur on a date other than the installment due date, subject to certain notice requirements to the mortgagor (see 24 CFR 203.558). However, current industry practices for non-FHA insured loans no longer utilize post-payment interest charges. In general, mortgagors who obtain conventional financing through banks, savings banks, or mortgage companies that finance mortgages sold through Fannie Mae, Freddie Mac, and privatelabel mortgage-backed securities,1 as well as mortgagors who obtain loans from private lenders that the Department of Veterans Affairs (VA) guarantees, are not required to pay interest for the full month in which prepayment occurs.2 The final rule of the Consumer Financial Protection Bureau (CFPB) entitled ‘‘Ability-to-Repay and Qualified Mortgage Standards under the Truth and Lending Act (Regulation Z)’’ (CFPB final rule), was first issued on the CFPB’s Web page 3 and subsequently published in the Federal Register on January 30, 2013, at 78 FR 6408. The rule, which became effective January 10, 2014, broadly defines ‘‘prepayment penalty’’ in closed-end transactions as the ‘‘charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due,’’ thus including charges resulting from FHA’s currently allowed monthly interest accrual amortization method (see 12 CFR 1026.32(b)(6)).4 In 1 See, e.g., Freddie Mac Single-Family Seller/ Servicer Guide, Chapter 51.19: Application of payments: Mortgage paid in full, explaining that for FHA/VA and Section 502 GRH Mortgages, any notice of prepayment or entitlement to interest past the date of payment-in-full must be waived by the servicer on behalf of Freddie Mac, and Fannie Mae Single Family Servicing Guide, Part III, 102.01: Additional Principal Payments, explaining that a servicer may charge the borrower interest on the then outstanding mortgage loan balance up until the date the prepayment is applied. 2 The VA currently authorizes prepayment penalties for partial prepayments made on other than an installment due date. Otherwise, the mortgagor has the right to prepay at any time, without premium or fee, the entire indebtedness or any part thereof not less than the amount of one installment, or $100, whichever is less. See 38 CFR 36.4811. 3 See https://files.consumerfinance.gov/f/201301_ cfpb_final-rule_ability-to-repay.pdf. 4 Prior to enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 14201 recognition of the important role that FHA-insured credit plays in the current mortgage market, the CFPB final rule provides that interest charged consistent with the monthly interest accrual amortization method is not a prepayment penalty for FHA loans consummated before January 21, 2015. However, for all FHA loans closed on or after January 21, 2015, a post-payment interest charge as a result of the monthly interest accrual amortization method will be considered a prepayment penalty, making it necessary for FHA to amend its regulations (see 12 CFR 1026.32(b)(6)(i)). II. This Proposed Rule This proposed rule would eliminate the option provided to FHA-approved mortgagees to charge prepaying mortgagors post-payment interest payments under FHA’s single family mortgage insurance program. The proposed regulatory change is responsive to the definition of ‘‘prepayment penalty’’ in the CFPB final rule. The CFPB final rule permits limited prepayment penalties for ‘‘qualified mortgages’’ (as that term is defined in the rule) during the first 36 months following consummation of the mortgage (see 12 CFR 1026.43(g)). Prepayment penalties are not, however, permitted for higher-priced mortgage loans, which include consumer credit transactions secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction, as of the date the interest L. 111–203, approved July 21, 2010) (Dodd-Frank Act), the Federal Reserve Board (Board) had responsibility for lenders’ compliance with the Truth-in-Lending Act (TILA). (This responsibility was transferred to the CFPB in July 2011.) In a September 2009 interpretive letter to Secretary Donovan, Board staff advised that they had not addressed whether monthly interest accrual amortization is a prepayment penalty and, therefore, would not prohibit such practice without further review. (See https://www.aba.com/ Compliance/Documents/da4a00df3ffb4650b7c9154 adbc1418aFedLtrtoHUD2009.pdf) In a proposed rule published on September 24, 2010, at 75 FR 59539, the Board proposed to amend Regulation Z, which implements TILA and the Board’s accompanying staff commentary. In this proposed rule, the Board stated that based on further review and analysis the monthly interest accrual amortization method should be treated as a prepayment penalty for TILA purposes. (See 75 FR 58586.) The CFPB’s final rule on ability-to-pay continued the analysis that the Board provided in its September 24, 2010, proposed rule and categorized FHA’s monthly interest accrual amortization method as a prepayment penalty, but not for FHA loans consummated before January 21, 2015. (See 78 FR 6445.) The CFPB offers examples of the monthly interest accrual amortization method at page 78 FR 6600. In its discussion at this page, the CFPB recognized that FHA would need rulemaking to change this practice and the amount of time needed to complete the rulemaking. E:\FR\FM\13MRP1.SGM 13MRP1 ehiers on DSK2VPTVN1PROD with PROPOSALS 14202 Federal Register / Vol. 79, No. 49 / Thursday, March 13, 2014 / Proposed Rules rate is set, by 1.5 or more percentage points for loans secured by a first lien on the dwelling or by 3.5 or more percentage points for loans secured by a subordinate lien on the dwelling (see 12 CFR 1026.43(g)(1)(i)(C)); or for loans that have an adjustable interest rate (see 12 CFR 1026.43(g)(1)(i)(A)). While some FHA-insured single family mortgages would meet the requirements permitting limited prepayment penalties during the first 36 months following consummation of the mortgage, others would not. For mortgages for which limited prepayment penalties are permitted, the CFPB final rule also imposes an additional requirement that lenders that offer loans with prepayment penalties also offer loans without such penalties (see 12 CFR 1026.43(g)(3)). In order to maximize consistency among FHAinsured single family mortgage products, and provide the same protections for all borrowers, this proposed rule would prohibit prepayment penalties in all FHAinsured single family mortgages. The proposed rule would revise the regulations in 24 CFR 203.558, which currently provide that, if prepayment is offered on other than an installment due date, the mortgagee may require payment of interest up to the date of the next installment due date. The proposed rule would revise this section to provide that, with respect to FHA-insured mortgages closed on or after the effective date of these proposed regulatory amendments, and notwithstanding the terms of the mortgage, the mortgagee shall accept a prepayment at any time and in any amount and shall not charge a postpayment charge. The proposed rule would require that monthly interest on the debt be calculated on the actual unpaid principal balance of the loan as of the date the prepayment is received and not as of the next installment due date. Under the proposed rule, postpayment charges using the monthly interest accrual amortization method are not considered prepayment penalties for FHA-insured mortgages closed prior to the effective date of these proposed regulatory changes. This proposed rule retains the current provisions of § 203.558 pertaining to the handling of prepayments for such mortgages, but consolidates the provisions in a revised paragraph (b) to § 203.558 and slightly revises their wording to reflect the fact that their applicability is limited to FHA-insured mortgages closed prior to the final rule’s effective date. Consistent with current regulations applicable to mortgages insured on or after August 2, VerDate Mar<15>2010 14:07 Mar 12, 2014 Jkt 232001 1985, the proposed rule does not permit mortgagees to require advance notice of prepayment. In addition to the proposed amendments to § 203.558, HUD also proposes to make two technical conforming changes to the regulations in 24 CFR part 203. First, HUD proposes to amend § 203.9, which requires a mortgagee to provide written notice to the mortgagor at or before closing regarding the accrual of interest on the mortgage loan following a prepayment. Since once this rule becomes effective it will prohibit such interest accruals, the requirements of § 203.9 will not be applicable to loans closed on or after the effective date of the final rule. Second, HUD proposes to revise § 203.22(b), which currently requires that ‘‘the mortgage shall contain a provision permitting the mortgagor to prepay the mortgage in whole or in part on any installment due date . . . .’’ For consistency with the proposed revision to § 203.558, this language would be amended to reference the mortgagor’s ability to ‘‘prepay the mortgage in whole or in part at any time and in any amount.’’ III. Findings and Certifications Regulatory Review—Executive Orders 12866 and 13563 Under Executive Order 12866 (Regulatory Planning and Review), agencies must determine whether a regulatory action is significant and, therefore, subject to review by the Office of Management and Budget (OMB) in accordance with the requirements of the order. Executive Order 13563 (Improving Regulations and Regulatory Review) directs 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.’’ Executive Order 13563 also directs that, where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, agencies are to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. This document was determined to be a ‘‘significant regulatory action’’ as defined in section 3(f) of the Executive order (although not an economically significant regulatory action, as provided under section 3(f)(1) of the Executive order). As discussed in this preamble, this rule proposes to prohibit mortgagees from charging post-payment interest and allow them to charge interest only through the date the mortgage is paid. PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 The CFPB final rule broadly defines ‘‘prepayment penalty’’ in closed-end transactions as the ‘‘charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due,’’ thus including charges from post-payment interest. HUD has prepared an economic analysis assessing costs and benefits of this proposal to eliminate post-payment interest. HUD’s full analysis can be found at www.regulations.gov. A summary of HUD’s analysis follows: A. Transfers/Revenue Effects HUD’s proposal to implement its own post-payment interest rule prior to the date of the FHA loans being bound by the prepayment penalty provisions of the CFPB final rule would result in an estimated transfer of $13 million from those borrowers who would not prepay mid-month under the current rule to those who would. The earlier in the month that a borrower prepays, the greater the transfer under the proposed rule relative to the current one. The beneficiaries of this transfer would also pay the higher prices for FHA-insured loans, however, and, therefore, the amount of the transfer would be reduced. However, this estimate assumes that the proposed rule is made final an entire year before the January 21, 2015, deadline for FHA to implement the CFPB final rule’s prepayment penalty provisions, which is an overestimation. In addition, HUD’s proposal to eliminate post-payment interest entirely would result in an estimated annual transfer of $37 million, which is a top threshold estimate. The actual annual transfer is expected to be less. See HUD’s full analysis for further explanation. B. Benefits and Costs Under the proposed rule, borrowers will experience costs and benefits. Borrowers who would pay postpayment interest under the current rule can expect to pay a slightly higher rate for FHA-insured financing, but they would also receive full benefit from lower interest costs when they prepay later, in most cases more than offsetting the cost of the higher rate. Borrowers who currently avoid paying postpayment interest under the current rule, however, will face the slightly higher rate for FHA-insured financing and receive no offsetting post-payment interest savings. FHA borrowers will no longer have to delay a closing or prepayment because of the cost of prepaying at a date earlier than the next installment due date. However, a very small percentage of borrowers may be dissuaded or E:\FR\FM\13MRP1.SGM 13MRP1 Federal Register / Vol. 79, No. 49 / Thursday, March 13, 2014 / Proposed Rules ehiers on DSK2VPTVN1PROD with PROPOSALS otherwise excluded from taking up an FHA loan. This may occur because in the borrowers’ current circumstances the increase in the immediate costs of the loan (whether expressed as an increase in points and fees or an increase in the monthly interest rate) figuratively puts the product out of reach. It may also occur because it makes another loan product more attractive. This proposed rule will force FHA lenders to bear the entire cost of interest from the prepayment date to the end of the month. However, HUD expects that lenders will simply look elsewhere to recoup these costs, charging a higher interest rate or servicing fee differential on all FHA-insured loans than they might have otherwise charged. 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. As noted above in this preamble, even without rulemaking by HUD, the circumstances in which a small entity could charge a prepayment penalty have been significantly limited by the CFPB final rule. The CFPB final rule implements the Dodd-Frank Act provisions that generally prohibit prepayment penalties except for certain fixed-rate, qualified mortgages where the penalties satisfy certain restrictions and the creditor has offered the consumer an alternative loan without such penalties. The CFPB final rule categorizes the post-payment interest charge resulting from FHA’s monthly interest accrual amortization method as a prepayment penalty. Therefore, the use of post-payment interest charges on all FHA loans closed on or after January 21, 2015, will be considered prepayment penalties. This is true, irrespective of any economic impacts of the rule. In any event, even if HUD were to issue a rule allowing prepayment penalties, the CFPB final rule requires that lenders that offer loans with prepayment penalties also offer loans without such penalties (see 12 CFR 1026.43(g)(3)). As of January 21, 2015, all small lenders 5 would have to be 5 Of HUD’s 1,459 supervised lenders, 598 are considered, by HUD, to be ‘‘small supervised lenders.’’ HUD defines ‘‘small supervised lenders’’ as those depository institutions regulated by the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, or the National Credit Union VerDate Mar<15>2010 14:07 Mar 12, 2014 Jkt 232001 prepared to offer loans without prepayment penalties and, therefore, be prepared to bear, or transfer, the cost of interest (or more) from the prepayment date to the end of the month. HUD expects that, with or without this rulemaking, lenders will simply look elsewhere to recoup these costs, charging a higher interest rate or servicing fee differential on all FHAinsured loans than they might have otherwise charged. Under the proposed rule, those borrowers who would pay post-payment interest under the current rule would be expected to pay a slightly higher rate for FHA-insured financing, but they would also receive full benefit from lower interest costs when they prepay later, in most cases more than offsetting the cost of the higher rate. Borrowers who currently avoid paying post-payment interest under the current rule, however, face the slightly higher rate for FHAinsured financing and receive no offsetting post-payment interest savings. Since HUD expects the increase in the pricing of FHA-insured loans under the proposed rule to be set to compensate lenders for the loss of post-payment interest from borrowers, the primary effect of the proposed rule is a transfer of funds from those who would not prepay mid-month under the current rule to those who would. 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 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 The proposed 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 proposed rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321). Administration that have a depository asset base of less than $500 million. PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 14203 Executive Order 13132, Federalism Executive Order 13132 (entitled ‘‘Federalism’’) prohibits an agency from publishing any rule that has federalism implications if the rule either (i) imposes substantial direct compliance costs on state and local governments and is not required by statute, or (ii) preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed 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. Catalog of Federal Domestic Assistance The Catalog of Federal Domestic Assistance number for Mortgage Insurance-Homes is 14.117. Paperwork Reduction Act This proposed rule reduces information collection requirements already 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 cost savings of this proposed rule, in time, are estimated to be 0.0036 burden hours. 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 discussed in this preamble, HUD proposes to revise 24 CFR part 203 as follows: E:\FR\FM\13MRP1.SGM 13MRP1 14204 Federal Register / Vol. 79, No. 49 / Thursday, March 13, 2014 / Proposed Rules PART 203—SINGLE FAMILY MORTGAGE INSURANCE 1. The authority citation for 24 CFR part 203 continues to read as follows: ■ Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z–16, 1715u, and 1717z–21; 15 U.S.C. 1639c; 42 U.S.C. 3535(d). 2. Revise the last sentence of § 203.9 to read as follows: ■ § 203.9 Disclosure regarding interest due upon mortgage prepayment. * * * This paragraph shall apply to any mortgage executed after August 22, 1991, and before [effective date of the final rule to be inserted at the final rule stage]. ■ 3. Revise § 203.22 paragraph (b) to read as follows: § 203.22 Payment of insurance premiums or charges; prepayment privilege. * * * * * (b) Prepayment privilege. The mortgage shall contain a provision permitting the mortgagor to prepay the mortgage in whole or in part at any time and in any amount. The mortgage shall not provide for the payment of any charge on account of such prepayment. ■ 4. Revise § 203.558, to read as follows: ehiers on DSK2VPTVN1PROD with PROPOSALS § 203.558 Handling prepayments. (a) Handling prepayments for FHAinsured mortgages closed on or after [effective date of the final rule to be inserted at the final rule stage]. With respect to FHA-insured mortgages closed on or after [effective date of the final rule to be inserted at the final rule stage], notwithstanding the terms of the mortgage, the mortgagee shall accept a prepayment at any time and in any amount. The mortgagee shall not require 30 days’ advance notice of prepayment, even if the mortgage instrument purports to require such notice. Monthly interest on the debt must be calculated on the actual unpaid principal balance of the loan as of the date the prepayment is received, and not as of the next installment due date. (b) Handling prepayment for FHAinsured mortgages closed before [effective date of the final rule to be inserted at the final rule stage]. (1) With respect to FHA mortgages insured before August 2, 1985, if a prepayment is offered on other than an installment due date, the mortgagee may refuse to accept the prepayment until the first day of the month following expiration of the 30day notice period as provided in the mortgage, or may require payment of interest to that date, but only if the mortgagee so advises the mortgagor, in a form approved by the Commissioner, in response to the mortgagor’s inquiry, VerDate Mar<15>2010 14:07 Mar 12, 2014 Jkt 232001 request for payoff figures, or tender of prepayment. If the installment due date (the first day of the month) falls on a nonbusiness day, the mortgagor’s notice of intention to prepay or the prepayment shall be timely if received on the next business day. (2) With respect to FHA mortgages insured on or after August 2, 1985, but closed before [effective date of the final rule to be inserted at the final rule stage], the mortgagee shall not require 30 days’ advance notice of prepayment, even if the mortgage instrument purports to require such notice. If the prepayment is offered on other than an installment due date, the mortgagee may refuse to accept the prepayment until the next installment due date (the first day of the month), or may require payment of interest to that date, but only if the mortgagee so advises the mortgagor, in a form approved by the Commissioner, in response to the mortgagor’s inquiry, request for payoff figures, or tender of prepayment. (3) If the mortgagee fails to meet the full disclosure requirements of paragraphs (b)(1) and (b)(2) of this section, the mortgagee may be subject to forfeiture of that portion of the interest collected for the period beyond the date that prepayment in full was received and to such other actions as are provided in part 25 of this title. (c) Mortgagee annual notice to mortgagors. Each mortgagee, with respect to a mortgage under this part, shall provide to each of its mortgagors not less frequently than annually a written notice, in a form approved by the Commissioner, containing a statement of the amount outstanding for prepayment of the principal amount of the mortgage. With respect to FHAinsured mortgages closed before [effective date of the final rule to be inserted at the final rule stage], the notice shall describe any requirements the mortgagor must fulfill to prevent the accrual of any interest on the principal amount after the date of any prepayment. This paragraph shall apply to any outstanding mortgage insured on or after August 22, 1991. Dated: February 21, 2014. Carol J. Galante, Assistant Secretary for Housing—Federal Housing Commissioner. [FR Doc. 2014–05407 Filed 3–12–14; 8:45 am] BILLING CODE 4210–67–P PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Chapter IX [Docket No. FR–5650–N–06] Native American Housing Assistance and Self-Determination Act of 1996: Negotiated Rulemaking Committee Third Meeting Office of the Assistant Secretary for Public and Indian Housing, HUD. ACTION: Notice of meeting of negotiated rulemaking committee. AGENCY: This notice announces the third meeting of the negotiated rulemaking committee. DATES: The meeting will be held on Wednesday, April 23, 2014, Thursday, April 24, 2014, and Friday, April 25, 2014. On each day, the session will begin at approximately 8:30 a.m., and adjourn at approximately 5 p.m. ADDRESSES: The meeting will take place at the Washington Hilton Hotel, 1919 Connecticut Avenue NW., Washington, DC 20009. FOR FURTHER INFORMATION CONTACT: Rodger J. Boyd, Deputy Assistant Secretary for Native American Programs, Office of Public and Indian Housing, Department of Housing and Urban Development, 451 Seventh Street SW., Room 4126, Washington, DC 20410, telephone number 202–401–7914 (this is not a toll-free number). Hearingor speech-impaired individuals may access this number via TTY by calling the toll-free Federal Relay Service at 1– 800–877–8339. SUPPLEMENTARY INFORMATION: SUMMARY: I. Background The Native American Housing and Assistance and Self-Determination Act of 1996 (25 U.S.C. 4141 et seq.) (NAHASDA) changed the way that housing assistance is provided to Native Americans. NAHASDA eliminated several separate assistance programs and replaced them with a single block grant program, known as the Indian Housing Block Grant (IHBG) program. The regulations governing the IHBG formula allocation are codified in subpart D of part 1000 of HUD’s regulations in title 24 of the Code of Federal Regulations. In accordance with section 106 of NAHASDA, HUD developed the regulations with active tribal participation using the procedures of the Negotiated Rulemaking Act of 1990 (5 U.S.C. 561–570). Under the IHBG program, HUD makes assistance available to eligible Indian E:\FR\FM\13MRP1.SGM 13MRP1

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[Federal Register Volume 79, Number 49 (Thursday, March 13, 2014)]
[Proposed Rules]
[Pages 14200-14204]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05407]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR 5360-P-01]
RIN 2502-AJ17


Federal Housing Administration (FHA): Handling Prepayments: 
Eliminating Post-Payment Interest Charges

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

ACTION: Proposed rule.

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SUMMARY: This rule proposes to revise FHA's regulations that allow an 
FHA-approved mortgagee to charge the mortgagor interest through the end 
of the month in which the mortgage is being paid. The proposed change 
would prohibit mortgagees from charging post-payment interest, allowing 
them instead to charge interest only through the date the mortgage is 
paid.

DATES: Comment Due Date: May 12, 2014.

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

[[Page 14201]]

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 
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. HUD will make all properly 
submitted comments and communications 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, you must 
schedule an appointment in advance to review the public comments, 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 toll-free Federal Relay Service at 
800-877-8339. Copies of all comments submitted are available for 
inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Ivery Himes, Director, Office of 
Single Family Asset Management, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street SW., Room 9172, 
Washington, DC 20410; telephone number 202-708-1672 (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

    FHA's current regulations allow FHA-approved mortgagees to charge 
borrowers interest due for the entire month should prepayment occur on 
a date other than the installment due date, subject to certain notice 
requirements to the mortgagor (see 24 CFR 203.558). However, current 
industry practices for non-FHA insured loans no longer utilize post-
payment interest charges. In general, mortgagors who obtain 
conventional financing through banks, savings banks, or mortgage 
companies that finance mortgages sold through Fannie Mae, Freddie Mac, 
and private- label mortgage-backed securities,\1\ as well as mortgagors 
who obtain loans from private lenders that the Department of Veterans 
Affairs (VA) guarantees, are not required to pay interest for the full 
month in which prepayment occurs.\2\
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    \1\ See, e.g., Freddie Mac Single-Family Seller/Servicer Guide, 
Chapter 51.19: Application of payments: Mortgage paid in full, 
explaining that for FHA/VA and Section 502 GRH Mortgages, any notice 
of prepayment or entitlement to interest past the date of payment-
in-full must be waived by the servicer on behalf of Freddie Mac, and 
Fannie Mae Single Family Servicing Guide, Part III, 102.01: 
Additional Principal Payments, explaining that a servicer may charge 
the borrower interest on the then outstanding mortgage loan balance 
up until the date the prepayment is applied.
    \2\ The VA currently authorizes prepayment penalties for partial 
prepayments made on other than an installment due date. Otherwise, 
the mortgagor has the right to prepay at any time, without premium 
or fee, the entire indebtedness or any part thereof not less than 
the amount of one installment, or $100, whichever is less. See 38 
CFR 36.4811.
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    The final rule of the Consumer Financial Protection Bureau (CFPB) 
entitled ``Ability-to-Repay and Qualified Mortgage Standards under the 
Truth and Lending Act (Regulation Z)'' (CFPB final rule), was first 
issued on the CFPB's Web page \3\ and subsequently published in the 
Federal Register on January 30, 2013, at 78 FR 6408. The rule, which 
became effective January 10, 2014, broadly defines ``prepayment 
penalty'' in closed-end transactions as the ``charge imposed for paying 
all or part of the transaction's principal before the date on which the 
principal is due,'' thus including charges resulting from FHA's 
currently allowed monthly interest accrual amortization method (see 12 
CFR 1026.32(b)(6)).\4\ In recognition of the important role that FHA-
insured credit plays in the current mortgage market, the CFPB final 
rule provides that interest charged consistent with the monthly 
interest accrual amortization method is not a prepayment penalty for 
FHA loans consummated before January 21, 2015. However, for all FHA 
loans closed on or after January 21, 2015, a post-payment interest 
charge as a result of the monthly interest accrual amortization method 
will be considered a prepayment penalty, making it necessary for FHA to 
amend its regulations (see 12 CFR 1026.32(b)(6)(i)).
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    \3\ See https://files.consumerfinance.gov/f/201301_cfpb_final-rule_ability-to-repay.pdf.
    \4\ Prior to enactment of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Pub. L. 111-203, approved July 21, 2010) 
(Dodd-Frank Act), the Federal Reserve Board (Board) had 
responsibility for lenders' compliance with the Truth-in-Lending Act 
(TILA). (This responsibility was transferred to the CFPB in July 
2011.) In a September 2009 interpretive letter to Secretary Donovan, 
Board staff advised that they had not addressed whether monthly 
interest accrual amortization is a prepayment penalty and, 
therefore, would not prohibit such practice without further review. 
(See https://www.aba.com/Compliance/Documents/da4a00df3ffb4650b7c9154adbc1418aFedLtrtoHUD2009.pdf) In a proposed 
rule published on September 24, 2010, at 75 FR 59539, the Board 
proposed to amend Regulation Z, which implements TILA and the 
Board's accompanying staff commentary. In this proposed rule, the 
Board stated that based on further review and analysis the monthly 
interest accrual amortization method should be treated as a 
prepayment penalty for TILA purposes. (See 75 FR 58586.) The CFPB's 
final rule on ability-to-pay continued the analysis that the Board 
provided in its September 24, 2010, proposed rule and categorized 
FHA's monthly interest accrual amortization method as a prepayment 
penalty, but not for FHA loans consummated before January 21, 2015. 
(See 78 FR 6445.) The CFPB offers examples of the monthly interest 
accrual amortization method at page 78 FR 6600. In its discussion at 
this page, the CFPB recognized that FHA would need rulemaking to 
change this practice and the amount of time needed to complete the 
rulemaking.
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II. This Proposed Rule

    This proposed rule would eliminate the option provided to FHA-
approved mortgagees to charge prepaying mortgagors post-payment 
interest payments under FHA's single family mortgage insurance program. 
The proposed regulatory change is responsive to the definition of 
``prepayment penalty'' in the CFPB final rule. The CFPB final rule 
permits limited prepayment penalties for ``qualified mortgages'' (as 
that term is defined in the rule) during the first 36 months following 
consummation of the mortgage (see 12 CFR 1026.43(g)). Prepayment 
penalties are not, however, permitted for higher-priced mortgage loans, 
which include consumer credit transactions secured by the consumer's 
principal dwelling with an annual percentage rate that exceeds the 
average prime offer rate for a comparable transaction, as of the date 
the interest

[[Page 14202]]

rate is set, by 1.5 or more percentage points for loans secured by a 
first lien on the dwelling or by 3.5 or more percentage points for 
loans secured by a subordinate lien on the dwelling (see 12 CFR 
1026.43(g)(1)(i)(C)); or for loans that have an adjustable interest 
rate (see 12 CFR 1026.43(g)(1)(i)(A)).
    While some FHA-insured single family mortgages would meet the 
requirements permitting limited prepayment penalties during the first 
36 months following consummation of the mortgage, others would not. For 
mortgages for which limited prepayment penalties are permitted, the 
CFPB final rule also imposes an additional requirement that lenders 
that offer loans with prepayment penalties also offer loans without 
such penalties (see 12 CFR 1026.43(g)(3)). In order to maximize 
consistency among FHA-insured single family mortgage products, and 
provide the same protections for all borrowers, this proposed rule 
would prohibit prepayment penalties in all FHA-insured single family 
mortgages.
    The proposed rule would revise the regulations in 24 CFR 203.558, 
which currently provide that, if prepayment is offered on other than an 
installment due date, the mortgagee may require payment of interest up 
to the date of the next installment due date. The proposed rule would 
revise this section to provide that, with respect to FHA-insured 
mortgages closed on or after the effective date of these proposed 
regulatory amendments, and notwithstanding the terms of the mortgage, 
the mortgagee shall accept a prepayment at any time and in any amount 
and shall not charge a post-payment charge. The proposed rule would 
require that monthly interest on the debt be calculated on the actual 
unpaid principal balance of the loan as of the date the prepayment is 
received and not as of the next installment due date.
    Under the proposed rule, post-payment charges using the monthly 
interest accrual amortization method are not considered prepayment 
penalties for FHA-insured mortgages closed prior to the effective date 
of these proposed regulatory changes. This proposed rule retains the 
current provisions of Sec.  203.558 pertaining to the handling of 
prepayments for such mortgages, but consolidates the provisions in a 
revised paragraph (b) to Sec.  203.558 and slightly revises their 
wording to reflect the fact that their applicability is limited to FHA-
insured mortgages closed prior to the final rule's effective date. 
Consistent with current regulations applicable to mortgages insured on 
or after August 2, 1985, the proposed rule does not permit mortgagees 
to require advance notice of prepayment.
    In addition to the proposed amendments to Sec.  203.558, HUD also 
proposes to make two technical conforming changes to the regulations in 
24 CFR part 203. First, HUD proposes to amend Sec.  203.9, which 
requires a mortgagee to provide written notice to the mortgagor at or 
before closing regarding the accrual of interest on the mortgage loan 
following a prepayment. Since once this rule becomes effective it will 
prohibit such interest accruals, the requirements of Sec.  203.9 will 
not be applicable to loans closed on or after the effective date of the 
final rule. Second, HUD proposes to revise Sec.  203.22(b), which 
currently requires that ``the mortgage shall contain a provision 
permitting the mortgagor to prepay the mortgage in whole or in part on 
any installment due date . . . .'' For consistency with the proposed 
revision to Sec.  203.558, this language would be amended to reference 
the mortgagor's ability to ``prepay the mortgage in whole or in part at 
any time and in any amount.''

 III. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Under Executive Order 12866 (Regulatory Planning and Review), 
agencies must determine whether a regulatory action is significant and, 
therefore, subject to review by the Office of Management and Budget 
(OMB) in accordance with the requirements of the order. Executive Order 
13563 (Improving Regulations and Regulatory Review) directs 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.'' 
Executive Order 13563 also directs that, where relevant, feasible, and 
consistent with regulatory objectives, and to the extent permitted by 
law, agencies are to identify and consider regulatory approaches that 
reduce burdens and maintain flexibility and freedom of choice for the 
public. This document was determined to be a ``significant regulatory 
action'' as defined in section 3(f) of the Executive order (although 
not an economically significant regulatory action, as provided under 
section 3(f)(1) of the Executive order).
    As discussed in this preamble, this rule proposes to prohibit 
mortgagees from charging post-payment interest and allow them to charge 
interest only through the date the mortgage is paid. The CFPB final 
rule broadly defines ``prepayment penalty'' in closed-end transactions 
as the ``charge imposed for paying all or part of the transaction's 
principal before the date on which the principal is due,'' thus 
including charges from post-payment interest. HUD has prepared an 
economic analysis assessing costs and benefits of this proposal to 
eliminate post-payment interest. HUD's full analysis can be found at 
www.regulations.gov. A summary of HUD's analysis follows:
A. Transfers/Revenue Effects
    HUD's proposal to implement its own post-payment interest rule 
prior to the date of the FHA loans being bound by the prepayment 
penalty provisions of the CFPB final rule would result in an estimated 
transfer of $13 million from those borrowers who would not prepay mid-
month under the current rule to those who would. The earlier in the 
month that a borrower prepays, the greater the transfer under the 
proposed rule relative to the current one. The beneficiaries of this 
transfer would also pay the higher prices for FHA-insured loans, 
however, and, therefore, the amount of the transfer would be reduced. 
However, this estimate assumes that the proposed rule is made final an 
entire year before the January 21, 2015, deadline for FHA to implement 
the CFPB final rule's prepayment penalty provisions, which is an 
overestimation. In addition, HUD's proposal to eliminate post-payment 
interest entirely would result in an estimated annual transfer of $37 
million, which is a top threshold estimate. The actual annual transfer 
is expected to be less. See HUD's full analysis for further 
explanation.
B. Benefits and Costs
    Under the proposed rule, borrowers will experience costs and 
benefits. Borrowers who would pay post-payment interest under the 
current rule can expect to pay a slightly higher rate for FHA-insured 
financing, but they would also receive full benefit from lower interest 
costs when they prepay later, in most cases more than offsetting the 
cost of the higher rate. Borrowers who currently avoid paying post-
payment interest under the current rule, however, will face the 
slightly higher rate for FHA-insured financing and receive no 
offsetting post-payment interest savings.
    FHA borrowers will no longer have to delay a closing or prepayment 
because of the cost of prepaying at a date earlier than the next 
installment due date. However, a very small percentage of borrowers may 
be dissuaded or

[[Page 14203]]

otherwise excluded from taking up an FHA loan. This may occur because 
in the borrowers' current circumstances the increase in the immediate 
costs of the loan (whether expressed as an increase in points and fees 
or an increase in the monthly interest rate) figuratively puts the 
product out of reach. It may also occur because it makes another loan 
product more attractive.
    This proposed rule will force FHA lenders to bear the entire cost 
of interest from the prepayment date to the end of the month. However, 
HUD expects that lenders will simply look elsewhere to recoup these 
costs, charging a higher interest rate or servicing fee differential on 
all FHA-insured loans than they might have otherwise charged.

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. 
As noted above in this preamble, even without rulemaking by HUD, the 
circumstances in which a small entity could charge a prepayment penalty 
have been significantly limited by the CFPB final rule. The CFPB final 
rule implements the Dodd-Frank Act provisions that generally prohibit 
prepayment penalties except for certain fixed-rate, qualified mortgages 
where the penalties satisfy certain restrictions and the creditor has 
offered the consumer an alternative loan without such penalties. The 
CFPB final rule categorizes the post-payment interest charge resulting 
from FHA's monthly interest accrual amortization method as a prepayment 
penalty. Therefore, the use of post-payment interest charges on all FHA 
loans closed on or after January 21, 2015, will be considered 
prepayment penalties. This is true, irrespective of any economic 
impacts of the rule.
    In any event, even if HUD were to issue a rule allowing prepayment 
penalties, the CFPB final rule requires that lenders that offer loans 
with prepayment penalties also offer loans without such penalties (see 
12 CFR 1026.43(g)(3)). As of January 21, 2015, all small lenders \5\ 
would have to be prepared to offer loans without prepayment penalties 
and, therefore, be prepared to bear, or transfer, the cost of interest 
(or more) from the prepayment date to the end of the month. HUD expects 
that, with or without this rulemaking, lenders will simply look 
elsewhere to recoup these costs, charging a higher interest rate or 
servicing fee differential on all FHA-insured loans than they might 
have otherwise charged.
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    \5\ Of HUD's 1,459 supervised lenders, 598 are considered, by 
HUD, to be ``small supervised lenders.'' HUD defines ``small 
supervised lenders'' as those depository institutions regulated by 
the Federal Reserve, the Office of the Comptroller of the Currency, 
the Federal Deposit Insurance Corporation, or the National Credit 
Union Administration that have a depository asset base of less than 
$500 million.
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    Under the proposed rule, those borrowers who would pay post-payment 
interest under the current rule would be expected to pay a slightly 
higher rate for FHA-insured financing, but they would also receive full 
benefit from lower interest costs when they prepay later, in most cases 
more than offsetting the cost of the higher rate. Borrowers who 
currently avoid paying post-payment interest under the current rule, 
however, face the slightly higher rate for FHA-insured financing and 
receive no offsetting post-payment interest savings. Since HUD expects 
the increase in the pricing of FHA-insured loans under the proposed 
rule to be set to compensate lenders for the loss of post-payment 
interest from borrowers, the primary effect of the proposed rule is a 
transfer of funds from those who would not prepay mid-month under the 
current rule to those who would.
    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 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

    The proposed 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 
proposed 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 (i) imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (ii) preempts 
state law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive order. This proposed 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.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for Mortgage 
Insurance-Homes is 14.117.

Paperwork Reduction Act

    This proposed rule reduces information collection requirements 
already 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 cost savings of this proposed rule, in time, are 
estimated to be 0.0036 burden hours.

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 discussed in this preamble, HUD 
proposes to revise 24 CFR part 203 as follows:

[[Page 14204]]

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

0
1. The authority citation for 24 CFR part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, and 
1717z-21; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).

0
2. Revise the last sentence of Sec.  203.9 to read as follows:


Sec.  203.9  Disclosure regarding interest due upon mortgage 
prepayment.

    * * * This paragraph shall apply to any mortgage executed after 
August 22, 1991, and before [effective date of the final rule to be 
inserted at the final rule stage].
0
3. Revise Sec.  203.22 paragraph (b) to read as follows:


Sec.  203.22  Payment of insurance premiums or charges; prepayment 
privilege.

* * * * *
    (b) Prepayment privilege. The mortgage shall contain a provision 
permitting the mortgagor to prepay the mortgage in whole or in part at 
any time and in any amount. The mortgage shall not provide for the 
payment of any charge on account of such prepayment.
0
4. Revise Sec.  203.558, to read as follows:


Sec.  203.558  Handling prepayments.

    (a) Handling prepayments for FHA-insured mortgages closed on or 
after [effective date of the final rule to be inserted at the final 
rule stage]. With respect to FHA-insured mortgages closed on or after 
[effective date of the final rule to be inserted at the final rule 
stage], notwithstanding the terms of the mortgage, the mortgagee shall 
accept a prepayment at any time and in any amount. The mortgagee shall 
not require 30 days' advance notice of prepayment, even if the mortgage 
instrument purports to require such notice. Monthly interest on the 
debt must be calculated on the actual unpaid principal balance of the 
loan as of the date the prepayment is received, and not as of the next 
installment due date.
    (b) Handling prepayment for FHA-insured mortgages closed before 
[effective date of the final rule to be inserted at the final rule 
stage]. (1) With respect to FHA mortgages insured before August 2, 
1985, if a prepayment is offered on other than an installment due date, 
the mortgagee may refuse to accept the prepayment until the first day 
of the month following expiration of the 30-day notice period as 
provided in the mortgage, or may require payment of interest to that 
date, but only if the mortgagee so advises the mortgagor, in a form 
approved by the Commissioner, in response to the mortgagor's inquiry, 
request for payoff figures, or tender of prepayment. If the installment 
due date (the first day of the month) falls on a nonbusiness day, the 
mortgagor's notice of intention to prepay or the prepayment shall be 
timely if received on the next business day.
    (2) With respect to FHA mortgages insured on or after August 2, 
1985, but closed before [effective date of the final rule to be 
inserted at the final rule stage], the mortgagee shall not require 30 
days' advance notice of prepayment, even if the mortgage instrument 
purports to require such notice. If the prepayment is offered on other 
than an installment due date, the mortgagee may refuse to accept the 
prepayment until the next installment due date (the first day of the 
month), or may require payment of interest to that date, but only if 
the mortgagee so advises the mortgagor, in a form approved by the 
Commissioner, in response to the mortgagor's inquiry, request for 
payoff figures, or tender of prepayment.
    (3) If the mortgagee fails to meet the full disclosure requirements 
of paragraphs (b)(1) and (b)(2) of this section, the mortgagee may be 
subject to forfeiture of that portion of the interest collected for the 
period beyond the date that prepayment in full was received and to such 
other actions as are provided in part 25 of this title.
    (c) Mortgagee annual notice to mortgagors. Each mortgagee, with 
respect to a mortgage under this part, shall provide to each of its 
mortgagors not less frequently than annually a written notice, in a 
form approved by the Commissioner, containing a statement of the amount 
outstanding for prepayment of the principal amount of the mortgage. 
With respect to FHA-insured mortgages closed before [effective date of 
the final rule to be inserted at the final rule stage], the notice 
shall describe any requirements the mortgagor must fulfill to prevent 
the accrual of any interest on the principal amount after the date of 
any prepayment. This paragraph shall apply to any outstanding mortgage 
insured on or after August 22, 1991.

    Dated: February 21, 2014.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2014-05407 Filed 3-12-14; 8:45 am]
BILLING CODE 4210-67-P
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