Single Family Mortgage Insurance: Revision of Section 203(k) Consultant Fee Schedule-Solicitation of Comment, 61709-61712 [2016-21226]

Download as PDF Federal Register / Vol. 81, No. 173 / Wednesday, September 7, 2016 / Notices A. Overview of Information Collection Title of Information Collection: Application and Recertification Packages for Approval of Nonprofit Organizations in FHA Activities. OMB Approval Number: 2502–0540. Type of Request: Extension without change of a currently approved collection. Form Number: None. Description of the need for the information and proposed use: In order for nonprofit organizations to participate in FHA Nonprofit and Government Entity Programs they must submit an application and be approved by FHA. The FHA Nonprofit programs include: HUD Homes where a nonprofit may be able to buy a FHA REO property at the discount; FHA Mortgagor where a nonprofit can qualify for an FHA insured loan; and Secondary Financing where a nonprofit can provide financial assistance to low to-moderate- income family in the purchase of a home. Once a Nonprofit submits and application that is approved, the Nonprofit is placed on the FHA Nonprofit Organization Roster. The Nonprofit must recertify every two years and maintain documentation for reporting purposes and to permit FHA to monitor their activities to ensure compliance with program requirements. Respondents: Nonprofit Organizations. Estimated Number of Respondents: 395. Estimated Number of Responses: 731. Frequency of Response: 1 to 4. Average Hours per Response: 24.25. Total Estimated Burdens: 8692. mstockstill on DSK3G9T082PROD with NOTICES B. Solicitation of Public Comment This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following: (1) 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) The accuracy of the agency’s estimate of the burden of the proposed collection of information; (3) Ways to enhance the quality, utility, and clarity of the information to be collected; and (4) Ways to 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., permitting electronic submission of responses. HUD encourages interested parties to VerDate Sep<11>2014 17:30 Sep 06, 2016 Jkt 238001 submit comment in response to these questions. C. Authority Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35. Dated: September 1, 2016. Colette Pollard, Department Reports Management Officer, Office of the Chief Information Officer. [FR Doc. 2016–21482 Filed 9–6–16; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–5875–N–01] Single Family Mortgage Insurance: Revision of Section 203(k) Consultant Fee Schedule—Solicitation of Comment Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. ACTION: Notice; solicitation of comment. AGENCY: The Section 203(k) Program is HUD’s primary program for the rehabilitation and repair of single family properties. The Section 203(k) mortgage program enables homebuyers and homeowners to finance the purchase, or refinance of a home and include the rehabilitation costs through a single mortgage. There are two types of 203(k) rehabilitation mortgages: Standard 203(k) and Limited 203(k). The Standard 203(k) mortgage may be used for remodeling, rehabilitation and repairs that may have structural components, involve more complex work and the total rehabilitation costs must be greater than $5,000. The Limited 203(k) mortgage may only be used for minor remodeling and nonstructural repairs. The total rehabilitation cost may not exceed $35,000 and there is no minimum cost. As part of the Section 203(k) program requirements, the Federal Housing Administration (FHA) maintains a list of approved 203(k) Consultants on the FHA 203(k) Consultant Roster in FHA Connection. An FHA-approved 203(k) Consultant is required for all Standard 203(k) mortgages. A 203(k) Consultant is not required under the Limited 203(k) program, but may be used. FHAapproved 203(k) Consultants are required to perform responsibilities during the processing and rehabilitation phase of the 203(k) program. FHAapproved 203(k) Consultants who are placed on FHA’s 203(k) Consultant Roster are deemed qualified to complete SUMMARY: PO 00000 Frm 00048 Fmt 4703 Sfmt 4703 61709 these duties and therefore permitted to collect a fee for this service. In 1995, HUD issued its current Section 203(k) Consultant Fee Schedule and now seeks to update the Section 203(k) Fee Schedule to align with similarly performed services and the corresponding fees collected for such services. As a result, this notice seeks public comment on revising the current structure of the fee and the maximum amount of fees a 203(k) Consultant would be permitted to charge on a Section 203(k) mortgage. DATES: Comment Due Date: November 7, 2016. ADDRESSES: Interested persons are invited to submit comments regarding this notice to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410–0500. Communications must refer to the above docket number and title. There are two methods for submitting public comments. All submissions must refer to the above docket number and title. 1. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410–0500. 2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at 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 notice. 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 E:\FR\FM\07SEN1.SGM 07SEN1 61710 Federal Register / Vol. 81, No. 173 / Wednesday, September 7, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES 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 1–800–877– 8339 (this is a toll-free number). Copies of all comments submitted are available for inspection and downloading at www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Kevin L. Stevens, Director, Home Mortgage Insurance Division, Office of Single Family Program Development, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 9266, Washington, DC 20410–9000, telephone number 202– 402–4137 (this is not a toll-free number). Persons with hearing or speech impairments may access this number by calling the Federal Relay Service at 800–877–8339 (this is a tollfree number). SUPPLEMENTARY INFORMATION: I. Background Section 203(k) of the National Housing Act (12 U.S.C. 1709(k)) authorizes HUD to insure a purchase or a refinance mortgage on an existing 1–4 unit single family structure and include the rehabilitation costs through a single mortgage. The Section 203(k) Program is HUD’s primary program for the rehabilitation and repair of single family properties. The Section 203(k) program is important for neighborhood revitalization and homeownership opportunities. The regulations implementing the Section 203(k) Program are codified at 24 CFR 203.50. The Section 203(k) Program fills a unique and important role for homebuyers. In the conventional loan market, a homebuyer who purchases a home that is in need of repair or modernization usually has to follow a complicated and costly process. The homebuyer must obtain financing to purchase the dwelling, additional financing for the rehabilitation work, and a permanent mortgage after rehabilitation is completed to pay off the interim loans. The interim acquisition and improvement loans often have relatively high interest rates and short repayment terms. The Section 203(k) Program addresses this by permitting a homebuyer to obtain a single loan, at a long-term fixed or variable rate, to finance both the acquisition and rehabilitation of the property. VerDate Sep<11>2014 17:30 Sep 06, 2016 Jkt 238001 There are two types of 203(k) rehabilitation mortgages: Standard 203(k) and Limited 203(k). The Standard 203(k) mortgage may be used for remodeling, rehabilitation and repairs that may have structural components involve complex work and must have a total rehabilitation costs greater than $5,000. The Limited 203(k) mortgage may only be used for minor remodeling and non-structural repairs, the total rehabilitation cost may not exceed $35,000 and there is no minimum rehabilitation cost. The extent of the rehabilitation covered by the Section 203(k) mortgage may range from relatively minor to virtual reconstruction. For example, a home that will be demolished as part of rehabilitation is eligible, provided that the existing foundation remains in place. In addition to typical home rehabilitation projects, the Section 203(k) Program can be used to convert a property of any size to a one- to fourunit dwelling. Section 203(k) mortgage insurance can also be used to augment Energy Efficient Mortgages, Section 203(h) Mortgage Insurance for Victims of a Presidentially-Declared Major Disaster Area, and Mortgage Insurance for Solar and Wind Technologies. All improvements, renovations, or repairs undertaken with Section 203(k) mortgage insurance must comply with the HUD Minimum Property Requirements, HUD Minimum Property Standards and all local codes and ordinances. II. Section 203(k) Consultants An FHA-approved 203(k) Consultant is required for all Standard 203(k) mortgages and may be used for Limited 203(k) mortgages. As part of the Section 203(k) program requirements, the Federal Housing Administration (FHA) maintains a list of approved 203(k) Consultants on the FHA 203(k) Consultant Roster from which the Mortgagee must select a 203(k) Consultant and assign the 203(k) Consultant to the transaction, if required. When a Section 203(k) Consultant is required, the Consultant will enter into a written agreement with the Borrower that outlines the services that the Consultant will perform. In some cases, the Mortgagee or Borrower may require the Consultant to conduct a Feasibility Study to determine if the 203(k) mortgage is achievable, based on the costs of the rehabilitation project. The 203(k) Consultant conducts a Feasibility Study by completing a preliminary inspection of the property, and estimates the material and labor costs for the project. PO 00000 Frm 00049 Fmt 4703 Sfmt 4703 The 203(k) Consultant must inspect the property to ensure: • There are no rodents, dry rot, termites and other infestation the property; • there are no defects that will affect the health and safety of the occupants; • there exists adequate structural, heating, plumbing, electrical and roofing systems; and • there are upgrades to the structure’s thermal proportion (when necessary). The Consultant must prepare a report on the current condition of the property that categorically examines the structure utilizing a 35 point checklist. The Consultant must determine the repairs/ improvements that are required to meet the U.S. Department of Housing and Urban Development (HUD’s) Minimum Property Requirements, Minimum Property Standards and local requirements. The report must address any deficiencies that exist. The Consultant is responsible for identifying all required architectural exhibits. The Consultant must prepare the exhibits, or, if not qualified to prepare all of the necessary exhibits, must obtain the exhibits from a qualified subcontractor. The Consultant must prepare an unbiased Work Write-up and Cost Estimate without using a contractor’s estimate. The Work Write-Up and Cost Estimate must be detailed as to the work being performed based on the project proposal, including all required reports. The Consultant must physically inspect the work for completion, quality of workmanship, conformity to local codes and ordinances, and ensure that all building permits are onsite for the work that was performed at each draw request. At the Borrower’s or Mortgagee’s request, the Consultant must review proposed changes to the Work Write-Up and prepare a Change Order Form HUD–95277. The Consultant must inform the Mortgagee of the progress of the rehabilitation and of any problems that arise, including: • Work stoppages for more than 30 consecutive days or work not progressing; • significant deviations from the Work Write-Up without the Consultant’s approval; • any issues that could affect adherence to the program requirements or property eligibility; or • any issues that could affect the health and safety of the occupants or the security of the structure. The Borrower is responsible for the fee charged by the Section 203(k) Consultant. Under the Standard 203(k) program, the Consultant fee charged for E:\FR\FM\07SEN1.SGM 07SEN1 Federal Register / Vol. 81, No. 173 / Wednesday, September 7, 2016 / Notices the Feasibility Study, Work Write-Up, Mileage (not associated with a Draw inspection) and Architectural Exhibit preparation, may be included in the mortgage as a part of the cost of rehabilitation. III. Section 203(k) Consultants Fee Schedule Under the existing structure, the fee is based on a range of repair costs, recognizing that more extensive repairs would require more time and are costlier for the Consultant to complete. It also allows for some level of change over time as repair costs increase. HUD Maximum consultant fee 61711 establishes and monitors the maximum fees that a Section 203(k) Consultant may charge a Borrower to prepare the Work Write-Up for repairs associated with the Section 203(k) mortgage. The Work Write-Up includes the initial inspection, Architectural Exhibit Review and Cost Estimate. The current fee schedule, which HUD issued in 1995, is as follows: Maximum amount that can be financed Cost of repairs 203(k) Consultant Fee Schedule for preparing the Work Write-up $400 ............................... $500 ............................... $600 ............................... $700 ............................... $800 ............................... $900 ............................... $1,000 ............................ Less than $7,500 .................................................................................................................................... Between $7,501 and $15,000 ................................................................................................................. Between $15,001 and $30,000 ............................................................................................................... Between $30,001 and $50,000 ............................................................................................................... Between $50,001 and $75,000 ............................................................................................................... Between $75,001 and $100,000 ............................................................................................................. Above $100,000 ...................................................................................................................................... $400 500 600 700 800 900 1,000 Plus an additional $25 for each additional Dwelling Unit, not to exceed $75 The 203(k) Roster Consultant may charge a fee for additional services listed below mstockstill on DSK3G9T082PROD with NOTICES $100 ............................... $100 ............................... $50 ................................. Feasibility Study (if one is performed) .................................................................................................... For Preparing a Change Order Request ................................................................................................ For each Re-Inspection requested ......................................................................................................... The 203(k) Roster Consultant may also charge a reasonable and customary fee, not to exceed $350 for each draw inspection request plus mileage at the current Internal Revenue Service mileage rate when the place of business is more than 15 miles from the property. HUD has determined that the existing fee structure may discourage Consultant participation in the Section 203(k) Program and has the potential to limit access to credit. Between 2012 and 2015, the volume of loans requiring the use of a Consultant fell from 6,753 to 5,359. Based on the first two quarters of 2016, the projected volume of loans requiring the use of a Consultant is 5,132, while the projected volume of loans not requiring the use of a Consultant is 14,224. This data suggests that Borrowers are choosing the less complicated repair work, not requiring a Consultant. HUD believes that establishing a fee structure that is more in alignment with market rates would increase Consultants’ participation in the Section 203(k) program and expand access to credit by encouraging and enabling more Borrowers to purchase properties that require substantial rehabilitation. The willingness and ability of Borrowers to purchase properties involving substantial rehabilitation would contribute to the reduction in build-up of HUD’s Real Estate Owned inventories, result in an VerDate Sep<11>2014 17:30 Sep 06, 2016 Jkt 238001 increase in energy efficient homes and assist in the stabilization of the housing market. As part of its policy consolidation effort, HUD posted on the Single Family Housing Policy Drafting Table 1 its draft 203(k) Consultant Product Sheet section of the Single Family Policy Handbook 4000.1 and requested comments.2 The feedback that HUD received was that the fee schedule is not in alignment with current market rates and needs to be revised. Most commenters stated that the fee schedule was out-of-date and did not reflect the current cost of business. For example, some commenters stated that Consultants are dealing with issues like mold, radon, and other environmental hazards that were not widely recognized as issues in 1995 when HUD issued the current fee schedule. In addition, the feedback questioned the structure of the current fee schedule. For example, one commenter stated that the Consultant is limited to charging the same fee whether the home is 4,100 square feet with a crawlspace or 1,200 square feet on a slab. 1 See, http://portal.hud.gov/hudportal/HUD?src=/ program_offices/housing/sfh/SFH_policy_drafts. 2 See, http://portal.hud.gov/hudportal/ documents/huddoc?id=SFH_POLI_203K_CSL.PDF. PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 100 100 50 IV. Request for Public Comments on Updating the Section 203(k) Consultant Fee Schedule In order to better inform HUD, this notice seeks public comment on ways to revise the fee schedule for 203(k) Consultants. HUD is specifically seeking information to determine whether Consultant fees should continue to be based on the total cost of repairs or on some other metric. While all comments on updating the Consultant fee schedule are welcome, HUD is soliciting specific comments on the following options: 1. Retain the current fee structure but update maximum fees. Under this option, HUD would continue to base Consultant fees on the total cost of repairs and continue to allow Borrowers the ability to finance all fees into the 203(k) mortgage. If HUD uses this option, should it continue to use the current ranges for cost of repair, and if not, how should HUD set these thresholds and why? What should be the maximum Consultant fee at each threshold and why? Should the fees be tied to Consumer Price Index to account for regional differences in the cost of services? 2. Allow Consultants to charge fees that are reasonable and customary. Under this option, Consultants would be allowed to charge fees that are reasonable and customary in the market E:\FR\FM\07SEN1.SGM 07SEN1 61712 Federal Register / Vol. 81, No. 173 / Wednesday, September 7, 2016 / Notices for similar work performed by professionals with similar qualifications. If HUD uses this option, how can it manage risk associated with this concept? Should HUD continue to permit all fees to be financed or should it establish a maximum amount that can be financed in the 203(k) loan? If HUD uses this option what should be used to establish the financeable portion of the fee? Would requiring the Borrower to pay the excess fees adversely limit the number of Section 203(k) loan origination? Would this method of setting fees lead to an increase in the number of loans with negative equity? Would this method of setting fees lead to an increase in the number of loans with negative equity and how could HUD protect against this? 3. Develop a different metric on which to base Consultant fees. Under this option, Consultants’ fees would be based on a metric other than cost of repairs. For example, HUD could set fees based on a straight percentage of the repair amount or a fixed fee plus a percentage of the repair amount. If HUD uses this option, at what level should HUD set the amount? Would this option allow for regional differences in the cost of services or in the variation and complexity of services provided in a specific loan transaction? Are there other metrics upon which HUD could base Consultant fees? If so, what are the pros and cons of each metric? 4. Index Section 203(k) Consultant fees to another measure. Under this option, Consultant fees could be tied to Consumer Price Index or the Annual Rate of Inflation. HUD could then revise the fees under such measure and alert the public by Mortgagee Letter or Handbook publication. What are the pros and cons of tying the 203(k) Consultant fee schedule to either of these two measures? Are there other measures that would more accurately establish maximum fees? Would there be any reason for HUD to establish a maximum amount of the fee that can be financed into the 203(k) mortgage using either of these measures? Dated: August 26, 2016. Edward L. Golding, Principal Deputy Assistant Secretary for Housing. [FR Doc. 2016–21226 Filed 9–6–16; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–5909–N–67] 30-Day Notice of Proposed Information Collection: ConnectHome Use and Benefits Telephone Survey Office of the Chief Information Officer, HUD. ACTION: Notice. AGENCY: HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment. DATES: Comments Due Date: October 7, 2016. ADDRESSES: Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email: OIRA_Submission@omb.eop.gov. FOR FURTHER INFORMATION CONTACT: Anna P. Guido, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street SW., Washington, DC 20410; email Anna P. Guido at Anna.P.Guido@ hud.gov or telephone 202–402–5535. 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 SUMMARY: Service at (800) 877–8339. Copies of available documents submitted to OMB may be obtained from Ms. Guido. SUPPLEMENTARY INFORMATION: This notice informs the public that HUD is seeking approval from OMB for the information collection described in Section A. The Federal Register notice that solicited public comment on the information collection for a period of 60 days was published on February 4, 2016 at 81 FR 6036. A. Overview of Information Collection Title of Information Collection: ConnectHome Use and Benefits Telephone Survey. OMB Approval Number: 2528–New. Type of Request: New collection. Form Number: Survey. Description of the need for the information and proposed use: President Barack Obama and Secretary ´ Julian Castro announced ConnectHome on July 15, 2015, as the next step in the Obama Administration’s efforts to increase access to high-speed Internet access for all Americans. Through public-private partnerships, nonprofits, businesses, and Internet service providers (ISPs) ConnectHome will offer high-speed Internet service, devices, technical training, and digital literacy programs to residents of HUD assisted housing in 28 pilot communities, including the Choctaw Nation of Oklahoma. As communities begin to implement ConnectHome in 2016 and connect residents to internet within their homes, this telephone survey will illuminate how families are taking advantage of ConnectHome. The telephone survey will explore ConnectHome subscribers’ previous broadband access, current and planned use patterns, and current and anticipated benefits of their at-home high-speed Internet access. The survey will particularly focus on educational Internet use such as completing homework, connecting parents with educators, and applying to college. TABLE 1—DATA COLLECTION ACTIVITIES AND ANTICIPATED BURDEN Information collection (instruments) Number of respondents mstockstill on DSK3G9T082PROD with NOTICES Telephone Survey Instrument (Appendix B). Total Burden Hours Frequency of response 2,500 1 2,500 2,500 ........................ ........................ B. Solicitation of Public Comment This notice is soliciting comments from members of the public and affected VerDate Sep<11>2014 17:30 Sep 06, 2016 Responses per annum Jkt 238001 Burden hour per response Frm 00051 Fmt 4703 Hourly cost per response Annual cost .33 (15–20 minutes). 825 $15.00 $12,375.00 ..................... 825 15.00 12,375.00 parties concerning the collection of information described in Section A on the following: PO 00000 Annual burden hours Sfmt 4703 (1) Whether the proposed collection of information is necessary for the proper performance of the functions of E:\FR\FM\07SEN1.SGM 07SEN1

Agencies

[Federal Register Volume 81, Number 173 (Wednesday, September 7, 2016)]
[Notices]
[Pages 61709-61712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21226]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5875-N-01]


Single Family Mortgage Insurance: Revision of Section 203(k) 
Consultant Fee Schedule--Solicitation of Comment

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

ACTION: Notice; solicitation of comment.

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

SUMMARY: The Section 203(k) Program is HUD's primary program for the 
rehabilitation and repair of single family properties. The Section 
203(k) mortgage program enables homebuyers and homeowners to finance 
the purchase, or refinance of a home and include the rehabilitation 
costs through a single mortgage. There are two types of 203(k) 
rehabilitation mortgages: Standard 203(k) and Limited 203(k).
    The Standard 203(k) mortgage may be used for remodeling, 
rehabilitation and repairs that may have structural components, involve 
more complex work and the total rehabilitation costs must be greater 
than $5,000. The Limited 203(k) mortgage may only be used for minor 
remodeling and non-structural repairs. The total rehabilitation cost 
may not exceed $35,000 and there is no minimum cost.
    As part of the Section 203(k) program requirements, the Federal 
Housing Administration (FHA) maintains a list of approved 203(k) 
Consultants on the FHA 203(k) Consultant Roster in FHA Connection. An 
FHA-approved 203(k) Consultant is required for all Standard 203(k) 
mortgages. A 203(k) Consultant is not required under the Limited 203(k) 
program, but may be used. FHA-approved 203(k) Consultants are required 
to perform responsibilities during the processing and rehabilitation 
phase of the 203(k) program. FHA-approved 203(k) Consultants who are 
placed on FHA's 203(k) Consultant Roster are deemed qualified to 
complete these duties and therefore permitted to collect a fee for this 
service. In 1995, HUD issued its current Section 203(k) Consultant Fee 
Schedule and now seeks to update the Section 203(k) Fee Schedule to 
align with similarly performed services and the corresponding fees 
collected for such services. As a result, this notice seeks public 
comment on revising the current structure of the fee and the maximum 
amount of fees a 203(k) Consultant would be permitted to charge on a 
Section 203(k) mortgage.

DATES: Comment Due Date: November 7, 2016.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
10276, Washington, DC 20410-0500.
    Communications must refer to the above docket number and title. 
There are two methods for submitting public comments. All submissions 
must refer to the above docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
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 
notice.

    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

[[Page 61710]]

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 1-
800-877-8339 (this is a toll-free number). Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Kevin L. Stevens, Director, Home 
Mortgage Insurance Division, Office of Single Family Program 
Development, Office of Housing, Department of Housing and Urban 
Development, 451 7th Street SW., Room 9266, Washington, DC 20410-9000, 
telephone number 202-402-4137 (this is not a toll-free number). Persons 
with hearing or speech impairments may access this number by calling 
the Federal Relay Service at 800-877-8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 203(k) of the National Housing Act (12 U.S.C. 1709(k)) 
authorizes HUD to insure a purchase or a refinance mortgage on an 
existing 1-4 unit single family structure and include the 
rehabilitation costs through a single mortgage. The Section 203(k) 
Program is HUD's primary program for the rehabilitation and repair of 
single family properties. The Section 203(k) program is important for 
neighborhood revitalization and homeownership opportunities. The 
regulations implementing the Section 203(k) Program are codified at 24 
CFR 203.50.
    The Section 203(k) Program fills a unique and important role for 
homebuyers. In the conventional loan market, a homebuyer who purchases 
a home that is in need of repair or modernization usually has to follow 
a complicated and costly process. The homebuyer must obtain financing 
to purchase the dwelling, additional financing for the rehabilitation 
work, and a permanent mortgage after rehabilitation is completed to pay 
off the interim loans. The interim acquisition and improvement loans 
often have relatively high interest rates and short repayment terms. 
The Section 203(k) Program addresses this by permitting a homebuyer to 
obtain a single loan, at a long-term fixed or variable rate, to finance 
both the acquisition and rehabilitation of the property.
    There are two types of 203(k) rehabilitation mortgages: Standard 
203(k) and Limited 203(k). The Standard 203(k) mortgage may be used for 
remodeling, rehabilitation and repairs that may have structural 
components involve complex work and must have a total rehabilitation 
costs greater than $5,000. The Limited 203(k) mortgage may only be used 
for minor remodeling and non-structural repairs, the total 
rehabilitation cost may not exceed $35,000 and there is no minimum 
rehabilitation cost.
    The extent of the rehabilitation covered by the Section 203(k) 
mortgage may range from relatively minor to virtual reconstruction. For 
example, a home that will be demolished as part of rehabilitation is 
eligible, provided that the existing foundation remains in place. In 
addition to typical home rehabilitation projects, the Section 203(k) 
Program can be used to convert a property of any size to a one- to 
four-unit dwelling. Section 203(k) mortgage insurance can also be used 
to augment Energy Efficient Mortgages, Section 203(h) Mortgage 
Insurance for Victims of a Presidentially-Declared Major Disaster Area, 
and Mortgage Insurance for Solar and Wind Technologies. All 
improvements, renovations, or repairs undertaken with Section 203(k) 
mortgage insurance must comply with the HUD Minimum Property 
Requirements, HUD Minimum Property Standards and all local codes and 
ordinances.

II. Section 203(k) Consultants

    An FHA-approved 203(k) Consultant is required for all Standard 
203(k) mortgages and may be used for Limited 203(k) mortgages. As part 
of the Section 203(k) program requirements, the Federal Housing 
Administration (FHA) maintains a list of approved 203(k) Consultants on 
the FHA 203(k) Consultant Roster from which the Mortgagee must select a 
203(k) Consultant and assign the 203(k) Consultant to the transaction, 
if required.
    When a Section 203(k) Consultant is required, the Consultant will 
enter into a written agreement with the Borrower that outlines the 
services that the Consultant will perform. In some cases, the Mortgagee 
or Borrower may require the Consultant to conduct a Feasibility Study 
to determine if the 203(k) mortgage is achievable, based on the costs 
of the rehabilitation project. The 203(k) Consultant conducts a 
Feasibility Study by completing a preliminary inspection of the 
property, and estimates the material and labor costs for the project.
    The 203(k) Consultant must inspect the property to ensure:

     There are no rodents, dry rot, termites and other 
infestation the property;
     there are no defects that will affect the health and 
safety of the occupants;
     there exists adequate structural, heating, plumbing, 
electrical and roofing systems; and
     there are upgrades to the structure's thermal proportion 
(when necessary).

    The Consultant must prepare a report on the current condition of 
the property that categorically examines the structure utilizing a 35 
point checklist. The Consultant must determine the repairs/improvements 
that are required to meet the U.S. Department of Housing and Urban 
Development (HUD's) Minimum Property Requirements, Minimum Property 
Standards and local requirements. The report must address any 
deficiencies that exist. The Consultant is responsible for identifying 
all required architectural exhibits. The Consultant must prepare the 
exhibits, or, if not qualified to prepare all of the necessary 
exhibits, must obtain the exhibits from a qualified subcontractor.
    The Consultant must prepare an unbiased Work Write-up and Cost 
Estimate without using a contractor's estimate. The Work Write-Up and 
Cost Estimate must be detailed as to the work being performed based on 
the project proposal, including all required reports.
    The Consultant must physically inspect the work for completion, 
quality of workmanship, conformity to local codes and ordinances, and 
ensure that all building permits are onsite for the work that was 
performed at each draw request.
    At the Borrower's or Mortgagee's request, the Consultant must 
review proposed changes to the Work Write-Up and prepare a Change Order 
Form HUD-95277. The Consultant must inform the Mortgagee of the 
progress of the rehabilitation and of any problems that arise, 
including:
     Work stoppages for more than 30 consecutive days or work 
not progressing;
     significant deviations from the Work Write-Up without the 
Consultant's approval;
     any issues that could affect adherence to the program 
requirements or property eligibility; or
     any issues that could affect the health and safety of the 
occupants or the security of the structure.
    The Borrower is responsible for the fee charged by the Section 
203(k) Consultant. Under the Standard 203(k) program, the Consultant 
fee charged for

[[Page 61711]]

the Feasibility Study, Work Write-Up, Mileage (not associated with a 
Draw inspection) and Architectural Exhibit preparation, may be included 
in the mortgage as a part of the cost of rehabilitation.

III. Section 203(k) Consultants Fee Schedule

    Under the existing structure, the fee is based on a range of repair 
costs, recognizing that more extensive repairs would require more time 
and are costlier for the Consultant to complete. It also allows for 
some level of change over time as repair costs increase. HUD 
establishes and monitors the maximum fees that a Section 203(k) 
Consultant may charge a Borrower to prepare the Work Write-Up for 
repairs associated with the Section 203(k) mortgage. The Work Write-Up 
includes the initial inspection, Architectural Exhibit Review and Cost 
Estimate. The current fee schedule, which HUD issued in 1995, is as 
follows:

------------------------------------------------------------------------
                                                          Maximum amount
     Maximum consultant fee          Cost of repairs        that can be
                                                             financed
------------------------------------------------------------------------
     203(k) Consultant Fee Schedule for preparing the Work Write-up
------------------------------------------------------------------------
$400...........................  Less than $7,500.......            $400
$500...........................  Between $7,501 and                  500
                                  $15,000.
$600...........................  Between $15,001 and                 600
                                  $30,000.
$700...........................  Between $30,001 and                 700
                                  $50,000.
$800...........................  Between $50,001 and                 800
                                  $75,000.
$900...........................  Between $75,001 and                 900
                                  $100,000.
$1,000.........................  Above $100,000.........           1,000
------------------------------------------------------------------------
Plus an additional $25 for each additional Dwelling Unit, not to exceed
 $75
------------------------------------------------------------------------
  The 203(k) Roster Consultant may charge a fee for additional services
                              listed below
------------------------------------------------------------------------
$100...........................  Feasibility Study (if               100
                                  one is performed).
$100...........................  For Preparing a Change              100
                                  Order Request.
$50............................  For each Re-Inspection               50
                                  requested.
------------------------------------------------------------------------

    The 203(k) Roster Consultant may also charge a reasonable and 
customary fee, not to exceed $350 for each draw inspection request plus 
mileage at the current Internal Revenue Service mileage rate when the 
place of business is more than 15 miles from the property.
    HUD has determined that the existing fee structure may discourage 
Consultant participation in the Section 203(k) Program and has the 
potential to limit access to credit. Between 2012 and 2015, the volume 
of loans requiring the use of a Consultant fell from 6,753 to 5,359. 
Based on the first two quarters of 2016, the projected volume of loans 
requiring the use of a Consultant is 5,132, while the projected volume 
of loans not requiring the use of a Consultant is 14,224. This data 
suggests that Borrowers are choosing the less complicated repair work, 
not requiring a Consultant. HUD believes that establishing a fee 
structure that is more in alignment with market rates would increase 
Consultants' participation in the Section 203(k) program and expand 
access to credit by encouraging and enabling more Borrowers to purchase 
properties that require substantial rehabilitation. The willingness and 
ability of Borrowers to purchase properties involving substantial 
rehabilitation would contribute to the reduction in build-up of HUD's 
Real Estate Owned inventories, result in an increase in energy 
efficient homes and assist in the stabilization of the housing market.
    As part of its policy consolidation effort, HUD posted on the 
Single Family Housing Policy Drafting Table \1\ its draft 203(k) 
Consultant Product Sheet section of the Single Family Policy Handbook 
4000.1 and requested comments.\2\ The feedback that HUD received was 
that the fee schedule is not in alignment with current market rates and 
needs to be revised. Most commenters stated that the fee schedule was 
out-of-date and did not reflect the current cost of business. For 
example, some commenters stated that Consultants are dealing with 
issues like mold, radon, and other environmental hazards that were not 
widely recognized as issues in 1995 when HUD issued the current fee 
schedule. In addition, the feedback questioned the structure of the 
current fee schedule. For example, one commenter stated that the 
Consultant is limited to charging the same fee whether the home is 
4,100 square feet with a crawlspace or 1,200 square feet on a slab.
---------------------------------------------------------------------------

    \1\ See, http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/SFH_policy_drafts.
    \2\ See, http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_203K_CSL.PDF.
---------------------------------------------------------------------------

IV. Request for Public Comments on Updating the Section 203(k) 
Consultant Fee Schedule

    In order to better inform HUD, this notice seeks public comment on 
ways to revise the fee schedule for 203(k) Consultants. HUD is 
specifically seeking information to determine whether Consultant fees 
should continue to be based on the total cost of repairs or on some 
other metric. While all comments on updating the Consultant fee 
schedule are welcome, HUD is soliciting specific comments on the 
following options:
    1. Retain the current fee structure but update maximum fees. Under 
this option, HUD would continue to base Consultant fees on the total 
cost of repairs and continue to allow Borrowers the ability to finance 
all fees into the 203(k) mortgage. If HUD uses this option, should it 
continue to use the current ranges for cost of repair, and if not, how 
should HUD set these thresholds and why? What should be the maximum 
Consultant fee at each threshold and why? Should the fees be tied to 
Consumer Price Index to account for regional differences in the cost of 
services?
    2. Allow Consultants to charge fees that are reasonable and 
customary. Under this option, Consultants would be allowed to charge 
fees that are reasonable and customary in the market

[[Page 61712]]

for similar work performed by professionals with similar 
qualifications. If HUD uses this option, how can it manage risk 
associated with this concept? Should HUD continue to permit all fees to 
be financed or should it establish a maximum amount that can be 
financed in the 203(k) loan? If HUD uses this option what should be 
used to establish the financeable portion of the fee? Would requiring 
the Borrower to pay the excess fees adversely limit the number of 
Section 203(k) loan origination? Would this method of setting fees lead 
to an increase in the number of loans with negative equity? Would this 
method of setting fees lead to an increase in the number of loans with 
negative equity and how could HUD protect against this?
    3. Develop a different metric on which to base Consultant fees. 
Under this option, Consultants' fees would be based on a metric other 
than cost of repairs. For example, HUD could set fees based on a 
straight percentage of the repair amount or a fixed fee plus a 
percentage of the repair amount. If HUD uses this option, at what level 
should HUD set the amount? Would this option allow for regional 
differences in the cost of services or in the variation and complexity 
of services provided in a specific loan transaction? Are there other 
metrics upon which HUD could base Consultant fees? If so, what are the 
pros and cons of each metric?
    4. Index Section 203(k) Consultant fees to another measure. Under 
this option, Consultant fees could be tied to Consumer Price Index or 
the Annual Rate of Inflation. HUD could then revise the fees under such 
measure and alert the public by Mortgagee Letter or Handbook 
publication. What are the pros and cons of tying the 203(k) Consultant 
fee schedule to either of these two measures? Are there other measures 
that would more accurately establish maximum fees? Would there be any 
reason for HUD to establish a maximum amount of the fee that can be 
financed into the 203(k) mortgage using either of these measures?

    Dated: August 26, 2016.
Edward L. Golding,
Principal Deputy Assistant Secretary for Housing.
[FR Doc. 2016-21226 Filed 9-6-16; 8:45 am]
 BILLING CODE 4210-67-P