Government National Mortgage Association: Loan Seasoning for Ginnie Mae Mortgage-Backed Securities-Interpretive Rule, 31042-31045 [2018-14354]
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Federal Register / Vol. 83, No. 128 / Tuesday, July 3, 2018 / Rules and Regulations
Accordingly, for the reasons
discussed in the preamble, HUD amends
24 CFR part 200 as follows:
PART 200—INTRODUCTION TO FHA
PROGRAMS
1. The authority citation for part 200
continues to read as follows:
■
Authority: 12 U.S.C. 1702–1715z–21; 42
U.S.C. 3535(d).
2. In § 200.145, add paragraph (c) to
read as follows:
■
§ 200.145 Property and mortgage
assessment.
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*
*
*
*
*
(c) For all new construction as well as
structural repairs and/or renovations of
existing properties, to the extent that an
inspection is required to determine if
construction quality of a one- to fourunit property is acceptable as security
for an FHA-insured loan, the following
requirements apply:
(1)(i) In areas where local
jurisdictions provide building code
enforcement and the requisite
documentation, the lender shall provide
a copy of:
(A) The building permit, or its
equivalent, and a copy of the certificate
of occupancy, or its equivalent; or
(B) A satisfactory inspection notice for
work completed, or its equivalent.
(ii) The documentation provided
under paragraph (c)(1)(i) of this section
shall be considered satisfactory
evidence of completion of the work.
(2) In jurisdictions that do not provide
building code enforcement and requisite
documentation, three inspections are
required for new construction. For
existing construction, only one
inspection and certification of work
completed for structural repairs and
renovations is required. For both new
and existing construction, the lender
shall, in order to ensure compliance
with FHA requirements:
(i) Select a Residential Combination
Inspector (or its successor designation)
or a Combination Inspector (or its
successor designation) certified by the
International Code Council (or its
successor organization) who is licensed
or certified as a home inspector in
accordance with the applicable State
and local requirements governing the
licensing or certification of those
jurisdictions that license or certify such
inspectors in the respective jurisdiction.
The lender shall provide a certification
from such inspector that the new
construction and/or structural repair or
renovation work is completed
satisfactorily and in compliance with
any applicable building code.
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(ii) In the absence of such Residential
Combination Inspector and
Combination Inspector, the lender shall
obtain an inspection performed by a
third party, who is a registered architect,
a professional engineer, or a trades
person or contractor, and who has met
the licensing and bonding requirements
of the State in which the property is
located. The lender shall provide a
certification from such inspector that
the inspector is licensed and bonded
under applicable State law, and that the
new construction and/or structural
repair or renovation work is completed
satisfactorily and in compliance with
any applicable building code.
§§ 200.170 through 200.172
[Removed]
3. Remove the undesignated center
heading ‘‘FHA Inspector Roster’’ and
§§ 200.170 through 200.172.
■
Dated: June 26, 2018.
Brian D. Montgomery,
Assistant Secretary for Housing—Federal
Housing Commissioner.
[FR Doc. 2018–14212 Filed 7–2–18; 8:45 am]
BILLING CODE 4210–67–P
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Part 330
[Docket No. FR–6112–IA–01]
Government National Mortgage
Association: Loan Seasoning for
Ginnie Mae Mortgage-Backed
Securities—Interpretive Rule
AGENCY:
Office of General Counsel,
HUD.
ACTION:
Interpretive rule.
HUD is issuing this
interpretive rule to clarify the scope of
the provision of the recently enacted
Economic Growth, Regulatory Relief,
and Consumer Protection Act (Act) that
prohibits the Government National
Mortgage Association (Ginnie Mae) from
guaranteeing the timely payment of
principal and interest on a security that
is ‘‘backed by a mortgage’’ that fails to
meet certain ‘‘seasoning’’ requirements.
With this new amendment, questions
have arisen as to the effect of this
provision on Ginnie Mae’s ability to
guarantee Multiclass Securities where
the trust assets consist of direct or
indirect interests in certificates,
previously lawfully guaranteed by
Ginnie Mae, but with underlying
mortgage loans that may not be in
compliance with the seasoning
requirements. This rule provides HUD’s
interpretation that the statutory
provision does not prohibit Ginnie Mae
SUMMARY:
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from making guarantees in this context.
Although interpretive rules are exempt
from public comment under the
Administrative Procedure Act, HUD
nevertheless invites public comment on
the interpretation provided in this rule.
DATES:
Effective date: This interpretive rule is
effective June 29, 2018, and is
applicable beginning June 25, 2018.
Comment due date: August 2, 2018.
ADDRESSES: Interested persons are
invited to submit comments regarding
this interpretive rule to the Regulations
Division, Office of General Counsel,
Department of Housing and Urban
Development, 451 7th Street SW, Room
10276, Washington, DC 20410–0500.
Communications must refer to the above
docket number and title. There are two
methods for submitting public
comments. All submissions must refer
to the above docket number and title.
1. Submission of Comments by Mail.
Comments may be submitted by mail to
the Regulations Division, Office of
General Counsel, Department of
Housing and Urban Development, 451
7th Street SW, Room 10276,
Washington, DC 20410–0500. Due to
security measures at all Federal
agencies, however, submission of
comments by mail often results in
delayed delivery. To ensure timely
receipt of comments, HUD recommends
that comments submitted by mail be
submitted at least two weeks in advance
of the public comment deadline.
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 website can be
viewed by other commenters and
interested members of the public.
Commenters should follow the
instructions provided on that site to
submit comments electronically.
Note: To receive consideration as
public comments, comments must be
submitted through one of the two
methods specified above. Again, all
submissions must refer to the docket
number and title of the rule.
No Facsimile Comments. Facsimile
(FAX) comments are not acceptable.
Public Inspection of Public
Comments. All properly submitted
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comments and communications
submitted to HUD will be available for
public inspection and copying between
8 a.m. and 5 p.m. weekdays at the above
address. Due to security measures at the
HUD Headquarters building, an
appointment to review the public
comments must be scheduled in
advance by calling the Regulations
Division at 202–708–3055 (this is not a
toll-free number). Individuals with
speech or hearing impairments may
access this number via TTY by calling
the Federal Relay Service at 800–877–
8339. Copies of all comments submitted
are available for inspection and
downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Simpson, Associate General
Counsel for Finance and Administrative
Law, Office of General Counsel,
Department of Housing and Urban
Development, 451 7th Street SW, Room
8150, Washington, DC 20410; telephone
number 202–402–2036. Persons with
hearing or speech impairments may
access this number via TTY by calling
the toll-free Federal Relay Service at 1–
800–877–8339.
SUPPLEMENTARY INFORMATION:
I. Background
Established by the Federal National
Mortgage Association Charter Act
(Ginnie Mae Charter),1 Ginnie Mae
guarantees investors the timely payment
of principal and interest on single class
mortgage-backed securities (MBS)
issued by private lenders and others that
are backed by pools of mortgage loans
insured or guaranteed by the U.S.
Department of Housing and Urban
Development, Federal Housing
Administration (FHA), U.S Department
of Veterans Affairs (VA), U.S.
Department of Agriculture, Rural
Development (RD), and U.S. Department
of Housing and Urban Development,
Office of Public and Indian Housing
(PIH). The Ginnie Mae guaranty, backed
by the full faith and credit of the United
States Government, which Ginnie Mae
places on MBS lowers the cost of, and
maintains the supply of, mortgage
financing for such government-backed
loans. The authority for these guaranties
is found in section 306(g)(1) of the
Ginnie Mae Charter.2 As stated in
Ginnie Mae’s All Participants
Memorandum 18–04, any Ginnie Mae
MBS with an issuance date of May 2018
or earlier is not affected by the Act.
Further, any refinanced VA mortgage
loan that does not meet the seasoning
requirement contained in the Act, that
was not backing a Ginnie Mae MBS
prior to May 24, 2018, is ineligible to
serve as MBS collateral.
The ‘‘Multiclass Securities Program’’
is a vehicle that further increases the
liquidity of Ginnie Mae MBS and
attracts new sources of capital for
federally insured or guaranteed loans.
Ginnie Mae Multiclass Securities are
collateralized by trust assets that consist
of direct or indirect interest in
certificates with underlying FHA, VA,
RD, and PIH mortgage loans (i.e., MBS
or previously issued Multiclass
Securities). Ginnie Mae Multiclass
Securities direct principal and interest
payments from the underlying MBS or
previously-issued Multiclass Securities
to classes (known as tranches) with
different principal balances, interest
rates, average lives, prepayment
characteristics, and final maturities.
This enables investors with different
investment horizons, risk-reward
preferences, and asset-liability
management requirements to purchase
mortgage securities that are tailored to
their needs. The authority for this
program is also found in section
306(g)(1) of the Ginnie Mae Charter.
On May 24, 2018, President Trump
signed into law the Act.3 Title III of the
Act contains several legislative
protections for veterans, consumers and
homeowners, including section 309,
which largely incorporated the
‘‘Protecting Veterans from Predatory
Lending Act of 2018.’’ Section 309(b) of
the Act amended section 306(g)(1) of the
Ginnie Mae Charter 4 to add the
following sentence: ‘‘The Association
may not guarantee the timely payment
of principal and interest on a security
that is backed by a mortgage insured or
guaranteed under chapter 37 of title 38,
United States Code,5 and that was
refinanced until the later of the date that
is 210 days after the date on which the
first monthly payment is made on the
mortgage being refinanced and the date
on which 6 full monthly payments have
been made on the mortgage being
refinanced.’’
This seasoning requirement was
designed to deter lenders from
encouraging veterans to refinance their
VA mortgage loans often and repeatedly.
This practice of ‘‘churning’’ led to faster
prepayment speeds on the mortgages
underlying Ginnie Mae MBS and
Multiclass Securities, making these
securities less valuable to investors.
Increased prepayment speeds means
that the underlying loans, and therefore
a portion of the related securities, do not
stay outstanding, at the agreed upon
3 Public
Law 115–174.
U.S.C. 1721(g)(1).
5 38 U.S.C. chapter 37 governs VA loans.
4 12
1 12
U.S.C. 1716 et seq.
2 12 U.S.C. 1721(g)(1).
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interest rates, as long as expected. This
uncertainty adversely affects the
investor expectations, resulting in low
prices on the securities and therefore
higher coupon rates for MBS and
Multiclass Securities. The value to
investors of the predictability of Ginnie
Mae MBS and Multiclass Securities as
opposed to alternatives is one reason,
however, that interest rates on mortgage
loans insured or guaranteed by VA,
FHA, RD and PIH are kept at relatively
low interest rates. Accordingly,
‘‘churning’’ was seen as detrimental to
veterans not only because those who
refinanced often did not realize that the
overall refinance costs could outweigh
the short-term benefits, but also because
overall mortgage rates were higher than
they would otherwise be in part because
of the adverse impact, in the view of the
investors, of higher prepayment speeds
on the VA mortgage loans backing the
Ginnie Mae MBS and Multiclass
Securities.
II. This Interpretive Rule
It is HUD’s interpretation that as of
the enactment of the Act, any VA
refinanced mortgage loan that does not
meet the seasoning requirements
contained in section 309(b) of the Act is
ineligible to serve as collateral for
Ginnie Mae MBS. Ginnie Mae MBS
guaranteed before the enactment of the
Act, that contain VA refinanced
mortgage loans that do not meet the
seasoning requirements contained in the
Act, are unaffected by the Act. For
Multiclass Securities, the Act does not
prohibit Ginnie Mae from guaranteeing
Multiclass Securities where the trust
assets consist of direct or indirect
interests in Ginnie Mae guaranteed
certificates with underlying VA
mortgage loans that may not comply
with the statutory seasoning
requirement. As discussed more fully
below, this reading of section 309(b) is
supported by a close reading of the
relevant statutory language. Further, and
as discussed below, a contrary
interpretation of section 309(b) of the
Act would defeat the provision’s
purposes of restricting VA loan
churning and protecting veterans.
A. Statutory Text
HUD’s interpretation is supported by
a close reading of the statutory text of
the Ginnie Mae Charter, section 309(b)
of the Act, and section 309 more
broadly.
The language of section 309(b) of the
Act differs in significant respect from
the long-standing language in the Ginnie
Mae Charter. Section 306(g)(1) of the
Ginnie Mae Charter refers to the
securities that Ginnie Mae is authorized
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to guarantee as those ‘‘backed by a trust
or pool composed of mortgages,’’
language that has long been understood
by Congress and HUD to encompass
both MBS and Multiclass Securities. See
Letter from Nelson Diaz to Dwight P.
Robinson (June 27, 1994). However, the
language added by section 309(b) of the
Act does not use similarly broad
language—it refers only to those
securities that are ‘‘backed by a
mortgage.’’ It is a well-settled principle
of statutory interpretation that ‘‘the use
of different words within the same
statutory context strongly suggests that
different meanings were intended.’’ 6 In
addition, ‘‘a statute should be
constructed so that effect is given to all
of its provisions, so that no part will be
inoperative or superfluous, void or
insignificant.’’ 7 Under these principles,
Congress’s decision to use only the
words ‘‘backed by a mortgage,’’ as
compared to ‘‘backed by a trust or pool
composed of mortgages,’’ should be
given meaning.
To give meaning to the narrower
language in section 309(b) of the Act,
that provision should be read to
reference a narrower class of securities
(MBS) than all of the securities long
understood to be covered by the broader
language of section 306(g) the of Ginnie
Mae Charter (both MBS and Multiclass
Securities). Had Congress intended
section 309(b) of the Act to encompass
Multiclass Securities as well as MBS, it
would have employed the broader
language known to encompass both
types of securities—i.e., ‘‘backed by a
trust or pool composed of mortgages.’’
Instead, Congress used only the words
‘‘backed by a mortgage.’’ HUD believes
that the best way to give that distinction
meaning, as required under the case
law, is to read the narrower phrase to
encompass only those securities that are
backed directly by mortgages (i.e., MBS)
as opposed to securities that are backed
directly by a trust of securities that are
ultimately backed by mortgages (i.e.,
Multiclass Securities).
This reading is supported by nearby
statutory language in section 306(g)(3) of
the Ginnie Mae Charter. As the Supreme
Court has explained, ‘‘[t]he plainness or
ambiguity of statutory language is
determined by reference to the language
itself, the specific context in which that
6 United States v. Maria, 186 F.3d 65, 71 (2d Cir.
1999) (citing Crockett Telephone Co. v. F.C.C., 963
F.2d 1564, 1570 (D.C. Cir. 1992) and other cases);
see also A. Scalia & B. Garner, Reading Law: The
Interpretation of Legal Texts 170 (2012) (‘‘[W]here
the document has used one term in one place, and
a materially different term in another, the
presumption is that the different term denotes a
different idea.’’).
7 Marx v. General Revenue Corp., 568 U.S. 371,
392–93 (2013).
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language is used, and the broader
context of the statute as a whole.’’ 8 The
language of section 306(g)(3) of the
Ginnie Mae Charter refers differently to
MBS and to Multiclass Securities in a
way that supports reading section 309(b)
of the Act to apply only to MBS. In
sections 306(g)(3)(A) and (B) of the
Ginnie Mae Charter, Congress describes
MBS as ‘‘securities or notes based on or
backed by mortgages.’’ In contrast, in
section 306(g)(3)(E) of the Ginnie Mae
Charter, Congress refers distinctly to
Multiclass Securities as being ‘‘backed
by a trust or pool of securities or notes
guaranteed by [Ginnie Mae].’’ Put more
simply, section 306(g)(3) of the Ginnie
Mae Charter describes MBS as securities
backed by mortgages and describes
Multiclass Securities differently as
securities backed by a trust or pool of
securities or notes, even though
Multiclass Securities ultimately also are
backed by mortgages. The narrow
language of section 309(b) of the Act
—‘‘a security backed by a mortgage’’—
appears intended to track the
description of MBS in section
306(g)(3)(A) and (B) of the Ginnie Mae
Charter and not to include Multiclass
Securities as described in section
306(g)(3)(E) of the Ginnie Mae Charter.
In addition, this interpretation of
section 309(b) of the Act is supported by
a holistic reading of section 309. Other
provisions in this section refer explicitly
to MBS, but none refers to Multiclass
Securities. In section 309(c) of the Act,
for example, the statute imposes
reporting requirements on Ginnie Mae
to allow it to monitor the effectiveness
of the Act in regards to MBS, but the
provision does not reference Multiclass
Securities. This strongly implies that
MBS were the only securities targeted
by Congress in section 309 of the Act,
and that section 309(b) of the Act
therefore does not apply to Multiclass
Securities.
Lastly, this reading is supported by
the heading of section 309(b) of the
Act—‘‘Loan Seasoning for Ginnie Mae
Mortgage-Backed Securities.’’ The
heading refers only to MBS and makes
no reference to Multiclass Securities.
The Supreme Court has said that ‘‘the
title of a statute or section can aid in
resolving ambiguity in the legislation’s
text.’’ 9 Thus, to the extent section
309(b) of the Act is ambiguous, its
heading clarifies its limited application
to MBS only.
8 Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117
S. Ct. 843, 846 (1997).
9 INS v. National Center for Immigrants Rights
Inc, 502 U.S. 183 (1991).
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B. Inconsistency With Purpose of Statute
HUD’s interpretation of section 309(b)
of the Act is also consistent with the
purposes of both section 309 of the Act
and the Ginnie Mae Charter. A contrary
reading would prohibit Ginnie Mae
from guaranteeing all new Multiclass
Securities ultimately backed by any
prohibited mortgage, including
Multiclass Securities composed solely
of securities lawfully guaranteed prior
to enactment of the Act. Prohibiting
Ginnie Mae from guaranteeing such
securities would harm, not help,
veterans and would therefore
contravene the purposes of section 309
of the Act and the Ginnie Mae Charter.
1. Anti-Churning. As noted, section
309 of the Act was intended to protect
both veterans and investors by
discouraging the unfair lending practice
of ‘‘churning.’’ By prohibiting Ginnie
Mae from guaranteeing MBS containing
any loans refinanced in violation of the
seasoning requirements, the Act
decreases the marketability of these
loans and thereby motivates lenders to
avoid such practices in the future. By
contrast, prohibiting Ginnie Mae’s
ability to guarantee Multiclass
Securities containing MBS that were
guaranteed by Ginnie Mae prior to the
Act becoming law can have no impact
on lender behavior. The lender cannot
change the circumstances surrounding
the production of a loan securitized and
sold prior to the enactment of the Act.
Further, it may be unknowable whether
the previously guaranteed MBS or
previously issued Multiclass Security
would comply with section 309(b) of the
Act because assuring and tracking
compliance with the seasoning
requirements in the Act were not
requirements for Ginnie Mae securities
prior to the Act’s enactment. To
interpret the prohibition of section
309(b) of the Act to include Multiclass
Securities, therefore, is to sanction a
measure that does not advance the
legislative aim of decreasing the
financial motives of lenders to engage in
the predatory practices at issue.
2. Protection of Veterans. Interpreting
section 309(b) of the Act to prohibit the
guarantee of Multiclass Securities
composed of trust assets that consist of
direct or indirect interests in certificates
with underlying VA mortgage loans that
were guaranteed prior to the enactment
of the statute would also have a negative
impact on the liquidity of the Multiclass
Securities market, driving up VA
mortgage rates and restricting the
availability of the VA mortgage loans to
the very veterans that the statute was
intended to protect.
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The Act enacted several legislative
changes, including section 309, that
were aimed at protecting veterans from
predatory lending practices in
connection with refinancing activity
and preserving the relatively low rates
created by Ginnie Mae guarantees
without the adverse impact of high
prepayment speeds.10 The broader
purpose of these provisions is to benefit
veterans by providing them with
affordable housing. Indeed, section
309(b) of the Act is titled ‘‘Protecting
Veterans from Predatory Lending.’’ This
is also one of the purposes of the Ginnie
Mae Charter, which was amended by
section 309(b) of the Act.
Under settled precedent, Section
309(b) of the Act cannot be construed in
a way that would frustrate the purposes
of either Section 309 of the Act or the
Ginnie Mae Charter. The Supreme Court
has instructed that courts ‘‘cannot
interpret federal statutes to negate their
own stated purposes.’’ 11 Moreover, a
statutory provision that may seem
‘‘ambiguous in isolation is often
clarified by the remainder of the
statutory scheme . . . because only one
of the permissible meanings produces a
substantive effect that is compatible
with the rest of the law.’’ 12
But to conclude that section 309(b) of
the Act precludes the guarantee of
Multiclass Securities collateralized by
MBS and Multiclass Securities
previously and lawfully issued by
Ginnie Mae also would frustrate the
purpose of these statutes. Precluding
existing MBS and Multiclass
Securities—where it is now difficult, if
not practically impossible, to assess
compliance with Section 309(b) of the
Act would potentially ‘‘orphan’’ billions
of dollars worth of outstanding Ginnie
Mae securities that were validly
guaranteed under prior law. This is
because they never could be
incorporated into Multiclass Securities
after the enactment of the Act. This
would frustrate the reasonable
expectations of Ginnie Mae investors
who purchased Ginnie Mae MBS at
prices that explicitly contemplated their
ultimate inclusion in Multiclass
Securities. Because these securities
would then decrease in value, the end
result would be increased interest rates
for veterans. Given that this would
harm, rather than help, veterans, it is
difficult to imagine that Congress
intended to cause significant disruption
to the Multiclass Securities program
beyond what was needed to stop the
undesirable lending practices on a
prospective basis. Further, restricting
the inclusion of existing MBS and
previously issued Multiclass Securities
as eligible collateral would not decrease
the amount of risk to Ginnie Mae and
the investors since the certificates are
already guaranteed.
III. Conclusion
For the reasons described above, it is
HUD’s interpretation that as of the
enactment of the Act, any VA
refinanced mortgage loan that does not
meet the seasoning requirements
contained in section 309(b) the Act is
ineligible to serve as collateral for
Ginnie Mae MBS. Ginnie Mae MBS
guaranteed before the enactment of the
Act, that contain VA refinanced
mortgage loans that do not meet the
seasoning requirements contained in the
Act, are unaffected by the Act. For
Multiclass Securities, the Act permits
Ginnie Mae to guarantee Multiclass
Securities even where the trust assets
consist of direct or indirect interest in
certificates guaranteed by Ginnie Mae
without regard to whether the
underlying VA mortgage loans are in
compliance with the seasoning
requirements in section 309(b) of the
Act.
IV. Solicitation of Comment
This interpretive rule represents
HUD’s interpretation of section 309(b) of
the Act and, as such, is exempt from the
notice and comment requirements of the
Administrative Procedure Act.13
Nevertheless, HUD is interested in
receiving feedback from the public on
this interpretation, specifically with
respect to clarity and scope.
Dated: June 25, 2018.
J. Paul Compton, Jr.,
General Counsel.
[FR Doc. 2018–14354 Filed 6–29–18; 11:15 am]
BILLING CODE 4210–67–P
10 See e.g., section 302 (limits, and establishes a
dispute process and verification procedures with
respect to, the inclusion of a veteran’s medical debt
in a consumer credit report); section 313 (makes
permanent the one-year grace period during which
a servicemember is protected from foreclosure after
leaving military service)).
11 New York State Dept. of Social Servs. v.
Dublino, 413 U.S. 405, 419–420 (1973).
12 United Sav. Assn. of Tex. v. Timbers of Inwood
Forest Associates, Ltd., 484 U.S. 365, 371 (1988).
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13 See,
5 U.S.C. 553(b)(3)(A).
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DEPARTMENT OF LABOR
Occupational Safety and Health
Administration
29 CFR Part 1910
[Docket No. OSHA–2018–0003]
RIN 1218–AB76
Revising the Beryllium Standard for
General Industry
Occupational Safety and Health
Administration (OSHA), Labor.
ACTION: Final rule; confirmation of
effective date.
AGENCY:
OSHA is confirming the
effective date of its direct final rule
(DFR) adopting a number of clarifying
amendments to the beryllium standard
for general industry to address the
application of the standard to materials
containing trace amounts of beryllium.
In the May 7, 2018, DFR, OSHA stated
that the DFR would become effective on
July 6, 2018, unless one or more
significant adverse comments were
submitted by June 6, 2018. OSHA did
not receive significant adverse
comments on the DFR, so by this
document the agency is confirming that
the DFR will become effective on July 6,
2018.
DATES: The DFR published on May 7,
2018 (83 FR 19936), becomes effective
on July 6, 2018. For purposes of judicial
review, OSHA considers the date of
publication of this document as the date
of promulgation of the DFR.
ADDRESSES: For purposes of 28 U.S.C.
2112(a), OSHA designates the Associate
Solicitor of Labor for Occupational
Safety and Health as the recipient of
petitions for review of the direct final
rule. Contact the Associate Solicitor at
the Office of the Solicitor, Room S–
4004, U.S. Department of Labor, 200
Constitution Avenue NW, Washington,
DC 20210; telephone: (202) 693–5445.
FOR FURTHER INFORMATION CONTACT:
Press inquiries: Mr. Frank Meilinger,
OSHA Office of Communications, Room
N–3647, U.S. Department of Labor, 200
Constitution Avenue NW, Washington,
DC 20210; telephone: (202) 693–1999;
email: meilinger.francis2@dol.gov.
General information and technical
inquiries: Mr. William Perry or Ms.
Maureen Ruskin, Directorate of
Standards and Guidance, Room N–3718,
OSHA, U.S. Department of Labor, 200
Constitution Avenue NW, Washington,
DC 20210; telephone: (202) 693–1950;
fax: (202) 693–1678.
Copies of this Federal Register
document and news releases: Electronic
copies of these documents are available
SUMMARY:
E:\FR\FM\03JYR1.SGM
03JYR1
]]>Agencies
[Federal Register Volume 83, Number 128 (Tuesday, July 3, 2018)]
[Rules and Regulations]
[Pages 31042-31045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14354]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 330
[Docket No. FR-6112-IA-01]
Government National Mortgage Association: Loan Seasoning for
Ginnie Mae Mortgage-Backed Securities--Interpretive Rule
AGENCY: Office of General Counsel, HUD.
ACTION: Interpretive rule.
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SUMMARY: HUD is issuing this interpretive rule to clarify the scope of
the provision of the recently enacted Economic Growth, Regulatory
Relief, and Consumer Protection Act (Act) that prohibits the Government
National Mortgage Association (Ginnie Mae) from guaranteeing the timely
payment of principal and interest on a security that is ``backed by a
mortgage'' that fails to meet certain ``seasoning'' requirements. With
this new amendment, questions have arisen as to the effect of this
provision on Ginnie Mae's ability to guarantee Multiclass Securities
where the trust assets consist of direct or indirect interests in
certificates, previously lawfully guaranteed by Ginnie Mae, but with
underlying mortgage loans that may not be in compliance with the
seasoning requirements. This rule provides HUD's interpretation that
the statutory provision does not prohibit Ginnie Mae from making
guarantees in this context. Although interpretive rules are exempt from
public comment under the Administrative Procedure Act, HUD nevertheless
invites public comment on the interpretation provided in this rule.
DATES:
Effective date: This interpretive rule is effective June 29, 2018,
and is applicable beginning June 25, 2018.
Comment due date: August 2, 2018.
ADDRESSES: Interested persons are invited to submit comments regarding
this interpretive rule to the Regulations Division, Office of General
Counsel, Department of Housing and Urban Development, 451 7th Street
SW, Room 10276, Washington, DC 20410-0500. Communications must refer to
the above docket number and title. There are two methods for submitting
public comments. All submissions must refer to the above docket number
and title.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW, Room 10276,
Washington, DC 20410-0500. Due to security measures at all Federal
agencies, however, submission of comments by mail often results in
delayed delivery. To ensure timely receipt of comments, HUD recommends
that comments submitted by mail be submitted at least two weeks in
advance of the public comment deadline.
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 website can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must be
submitted through one of the two methods specified above. Again, all
submissions must refer to the docket number and title of the rule.
No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
[[Page 31043]]
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or
hearing impairments may access this number via TTY by calling the
Federal Relay Service at 800-877-8339. Copies of all comments submitted
are available for inspection and downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Kevin M. Simpson, Associate General
Counsel for Finance and Administrative Law, Office of General Counsel,
Department of Housing and Urban Development, 451 7th Street SW, Room
8150, Washington, DC 20410; telephone number 202-402-2036. Persons with
hearing or speech impairments may access this number via TTY by calling
the toll-free Federal Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Established by the Federal National Mortgage Association Charter
Act (Ginnie Mae Charter),\1\ Ginnie Mae guarantees investors the timely
payment of principal and interest on single class mortgage-backed
securities (MBS) issued by private lenders and others that are backed
by pools of mortgage loans insured or guaranteed by the U.S. Department
of Housing and Urban Development, Federal Housing Administration (FHA),
U.S Department of Veterans Affairs (VA), U.S. Department of
Agriculture, Rural Development (RD), and U.S. Department of Housing and
Urban Development, Office of Public and Indian Housing (PIH). The
Ginnie Mae guaranty, backed by the full faith and credit of the United
States Government, which Ginnie Mae places on MBS lowers the cost of,
and maintains the supply of, mortgage financing for such government-
backed loans. The authority for these guaranties is found in section
306(g)(1) of the Ginnie Mae Charter.\2\ As stated in Ginnie Mae's All
Participants Memorandum 18-04, any Ginnie Mae MBS with an issuance date
of May 2018 or earlier is not affected by the Act. Further, any
refinanced VA mortgage loan that does not meet the seasoning
requirement contained in the Act, that was not backing a Ginnie Mae MBS
prior to May 24, 2018, is ineligible to serve as MBS collateral.
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\1\ 12 U.S.C. 1716 et seq.
\2\ 12 U.S.C. 1721(g)(1).
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The ``Multiclass Securities Program'' is a vehicle that further
increases the liquidity of Ginnie Mae MBS and attracts new sources of
capital for federally insured or guaranteed loans. Ginnie Mae
Multiclass Securities are collateralized by trust assets that consist
of direct or indirect interest in certificates with underlying FHA, VA,
RD, and PIH mortgage loans (i.e., MBS or previously issued Multiclass
Securities). Ginnie Mae Multiclass Securities direct principal and
interest payments from the underlying MBS or previously-issued
Multiclass Securities to classes (known as tranches) with different
principal balances, interest rates, average lives, prepayment
characteristics, and final maturities. This enables investors with
different investment horizons, risk-reward preferences, and asset-
liability management requirements to purchase mortgage securities that
are tailored to their needs. The authority for this program is also
found in section 306(g)(1) of the Ginnie Mae Charter.
On May 24, 2018, President Trump signed into law the Act.\3\ Title
III of the Act contains several legislative protections for veterans,
consumers and homeowners, including section 309, which largely
incorporated the ``Protecting Veterans from Predatory Lending Act of
2018.'' Section 309(b) of the Act amended section 306(g)(1) of the
Ginnie Mae Charter \4\ to add the following sentence: ``The Association
may not guarantee the timely payment of principal and interest on a
security that is backed by a mortgage insured or guaranteed under
chapter 37 of title 38, United States Code,\5\ and that was refinanced
until the later of the date that is 210 days after the date on which
the first monthly payment is made on the mortgage being refinanced and
the date on which 6 full monthly payments have been made on the
mortgage being refinanced.''
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\3\ Public Law 115-174.
\4\ 12 U.S.C. 1721(g)(1).
\5\ 38 U.S.C. chapter 37 governs VA loans.
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This seasoning requirement was designed to deter lenders from
encouraging veterans to refinance their VA mortgage loans often and
repeatedly. This practice of ``churning'' led to faster prepayment
speeds on the mortgages underlying Ginnie Mae MBS and Multiclass
Securities, making these securities less valuable to investors.
Increased prepayment speeds means that the underlying loans, and
therefore a portion of the related securities, do not stay outstanding,
at the agreed upon interest rates, as long as expected. This
uncertainty adversely affects the investor expectations, resulting in
low prices on the securities and therefore higher coupon rates for MBS
and Multiclass Securities. The value to investors of the predictability
of Ginnie Mae MBS and Multiclass Securities as opposed to alternatives
is one reason, however, that interest rates on mortgage loans insured
or guaranteed by VA, FHA, RD and PIH are kept at relatively low
interest rates. Accordingly, ``churning'' was seen as detrimental to
veterans not only because those who refinanced often did not realize
that the overall refinance costs could outweigh the short-term
benefits, but also because overall mortgage rates were higher than they
would otherwise be in part because of the adverse impact, in the view
of the investors, of higher prepayment speeds on the VA mortgage loans
backing the Ginnie Mae MBS and Multiclass Securities.
II. This Interpretive Rule
It is HUD's interpretation that as of the enactment of the Act, any
VA refinanced mortgage loan that does not meet the seasoning
requirements contained in section 309(b) of the Act is ineligible to
serve as collateral for Ginnie Mae MBS. Ginnie Mae MBS guaranteed
before the enactment of the Act, that contain VA refinanced mortgage
loans that do not meet the seasoning requirements contained in the Act,
are unaffected by the Act. For Multiclass Securities, the Act does not
prohibit Ginnie Mae from guaranteeing Multiclass Securities where the
trust assets consist of direct or indirect interests in Ginnie Mae
guaranteed certificates with underlying VA mortgage loans that may not
comply with the statutory seasoning requirement. As discussed more
fully below, this reading of section 309(b) is supported by a close
reading of the relevant statutory language. Further, and as discussed
below, a contrary interpretation of section 309(b) of the Act would
defeat the provision's purposes of restricting VA loan churning and
protecting veterans.
A. Statutory Text
HUD's interpretation is supported by a close reading of the
statutory text of the Ginnie Mae Charter, section 309(b) of the Act,
and section 309 more broadly.
The language of section 309(b) of the Act differs in significant
respect from the long-standing language in the Ginnie Mae Charter.
Section 306(g)(1) of the Ginnie Mae Charter refers to the securities
that Ginnie Mae is authorized
[[Page 31044]]
to guarantee as those ``backed by a trust or pool composed of
mortgages,'' language that has long been understood by Congress and HUD
to encompass both MBS and Multiclass Securities. See Letter from Nelson
Diaz to Dwight P. Robinson (June 27, 1994). However, the language added
by section 309(b) of the Act does not use similarly broad language--it
refers only to those securities that are ``backed by a mortgage.'' It
is a well-settled principle of statutory interpretation that ``the use
of different words within the same statutory context strongly suggests
that different meanings were intended.'' \6\ In addition, ``a statute
should be constructed so that effect is given to all of its provisions,
so that no part will be inoperative or superfluous, void or
insignificant.'' \7\ Under these principles, Congress's decision to use
only the words ``backed by a mortgage,'' as compared to ``backed by a
trust or pool composed of mortgages,'' should be given meaning.
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\6\ United States v. Maria, 186 F.3d 65, 71 (2d Cir. 1999)
(citing Crockett Telephone Co. v. F.C.C., 963 F.2d 1564, 1570 (D.C.
Cir. 1992) and other cases); see also A. Scalia & B. Garner, Reading
Law: The Interpretation of Legal Texts 170 (2012) (``[W]here the
document has used one term in one place, and a materially different
term in another, the presumption is that the different term denotes
a different idea.'').
\7\ Marx v. General Revenue Corp., 568 U.S. 371, 392-93 (2013).
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To give meaning to the narrower language in section 309(b) of the
Act, that provision should be read to reference a narrower class of
securities (MBS) than all of the securities long understood to be
covered by the broader language of section 306(g) the of Ginnie Mae
Charter (both MBS and Multiclass Securities). Had Congress intended
section 309(b) of the Act to encompass Multiclass Securities as well as
MBS, it would have employed the broader language known to encompass
both types of securities--i.e., ``backed by a trust or pool composed of
mortgages.'' Instead, Congress used only the words ``backed by a
mortgage.'' HUD believes that the best way to give that distinction
meaning, as required under the case law, is to read the narrower phrase
to encompass only those securities that are backed directly by
mortgages (i.e., MBS) as opposed to securities that are backed directly
by a trust of securities that are ultimately backed by mortgages (i.e.,
Multiclass Securities).
This reading is supported by nearby statutory language in section
306(g)(3) of the Ginnie Mae Charter. As the Supreme Court has
explained, ``[t]he plainness or ambiguity of statutory language is
determined by reference to the language itself, the specific context in
which that language is used, and the broader context of the statute as
a whole.'' \8\ The language of section 306(g)(3) of the Ginnie Mae
Charter refers differently to MBS and to Multiclass Securities in a way
that supports reading section 309(b) of the Act to apply only to MBS.
In sections 306(g)(3)(A) and (B) of the Ginnie Mae Charter, Congress
describes MBS as ``securities or notes based on or backed by
mortgages.'' In contrast, in section 306(g)(3)(E) of the Ginnie Mae
Charter, Congress refers distinctly to Multiclass Securities as being
``backed by a trust or pool of securities or notes guaranteed by
[Ginnie Mae].'' Put more simply, section 306(g)(3) of the Ginnie Mae
Charter describes MBS as securities backed by mortgages and describes
Multiclass Securities differently as securities backed by a trust or
pool of securities or notes, even though Multiclass Securities
ultimately also are backed by mortgages. The narrow language of section
309(b) of the Act --``a security backed by a mortgage''--appears
intended to track the description of MBS in section 306(g)(3)(A) and
(B) of the Ginnie Mae Charter and not to include Multiclass Securities
as described in section 306(g)(3)(E) of the Ginnie Mae Charter.
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\8\ Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S. Ct.
843, 846 (1997).
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In addition, this interpretation of section 309(b) of the Act is
supported by a holistic reading of section 309. Other provisions in
this section refer explicitly to MBS, but none refers to Multiclass
Securities. In section 309(c) of the Act, for example, the statute
imposes reporting requirements on Ginnie Mae to allow it to monitor the
effectiveness of the Act in regards to MBS, but the provision does not
reference Multiclass Securities. This strongly implies that MBS were
the only securities targeted by Congress in section 309 of the Act, and
that section 309(b) of the Act therefore does not apply to Multiclass
Securities.
Lastly, this reading is supported by the heading of section 309(b)
of the Act--``Loan Seasoning for Ginnie Mae Mortgage-Backed
Securities.'' The heading refers only to MBS and makes no reference to
Multiclass Securities. The Supreme Court has said that ``the title of a
statute or section can aid in resolving ambiguity in the legislation's
text.'' \9\ Thus, to the extent section 309(b) of the Act is ambiguous,
its heading clarifies its limited application to MBS only.
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\9\ INS v. National Center for Immigrants Rights Inc, 502 U.S.
183 (1991).
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B. Inconsistency With Purpose of Statute
HUD's interpretation of section 309(b) of the Act is also
consistent with the purposes of both section 309 of the Act and the
Ginnie Mae Charter. A contrary reading would prohibit Ginnie Mae from
guaranteeing all new Multiclass Securities ultimately backed by any
prohibited mortgage, including Multiclass Securities composed solely of
securities lawfully guaranteed prior to enactment of the Act.
Prohibiting Ginnie Mae from guaranteeing such securities would harm,
not help, veterans and would therefore contravene the purposes of
section 309 of the Act and the Ginnie Mae Charter.
1. Anti-Churning. As noted, section 309 of the Act was intended to
protect both veterans and investors by discouraging the unfair lending
practice of ``churning.'' By prohibiting Ginnie Mae from guaranteeing
MBS containing any loans refinanced in violation of the seasoning
requirements, the Act decreases the marketability of these loans and
thereby motivates lenders to avoid such practices in the future. By
contrast, prohibiting Ginnie Mae's ability to guarantee Multiclass
Securities containing MBS that were guaranteed by Ginnie Mae prior to
the Act becoming law can have no impact on lender behavior. The lender
cannot change the circumstances surrounding the production of a loan
securitized and sold prior to the enactment of the Act. Further, it may
be unknowable whether the previously guaranteed MBS or previously
issued Multiclass Security would comply with section 309(b) of the Act
because assuring and tracking compliance with the seasoning
requirements in the Act were not requirements for Ginnie Mae securities
prior to the Act's enactment. To interpret the prohibition of section
309(b) of the Act to include Multiclass Securities, therefore, is to
sanction a measure that does not advance the legislative aim of
decreasing the financial motives of lenders to engage in the predatory
practices at issue.
2. Protection of Veterans. Interpreting section 309(b) of the Act
to prohibit the guarantee of Multiclass Securities composed of trust
assets that consist of direct or indirect interests in certificates
with underlying VA mortgage loans that were guaranteed prior to the
enactment of the statute would also have a negative impact on the
liquidity of the Multiclass Securities market, driving up VA mortgage
rates and restricting the availability of the VA mortgage loans to the
very veterans that the statute was intended to protect.
[[Page 31045]]
The Act enacted several legislative changes, including section 309,
that were aimed at protecting veterans from predatory lending practices
in connection with refinancing activity and preserving the relatively
low rates created by Ginnie Mae guarantees without the adverse impact
of high prepayment speeds.\10\ The broader purpose of these provisions
is to benefit veterans by providing them with affordable housing.
Indeed, section 309(b) of the Act is titled ``Protecting Veterans from
Predatory Lending.'' This is also one of the purposes of the Ginnie Mae
Charter, which was amended by section 309(b) of the Act.
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\10\ See e.g., section 302 (limits, and establishes a dispute
process and verification procedures with respect to, the inclusion
of a veteran's medical debt in a consumer credit report); section
313 (makes permanent the one-year grace period during which a
servicemember is protected from foreclosure after leaving military
service)).
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Under settled precedent, Section 309(b) of the Act cannot be
construed in a way that would frustrate the purposes of either Section
309 of the Act or the Ginnie Mae Charter. The Supreme Court has
instructed that courts ``cannot interpret federal statutes to negate
their own stated purposes.'' \11\ Moreover, a statutory provision that
may seem ``ambiguous in isolation is often clarified by the remainder
of the statutory scheme . . . because only one of the permissible
meanings produces a substantive effect that is compatible with the rest
of the law.'' \12\
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\11\ New York State Dept. of Social Servs. v. Dublino, 413 U.S.
405, 419-420 (1973).
\12\ United Sav. Assn. of Tex. v. Timbers of Inwood Forest
Associates, Ltd., 484 U.S. 365, 371 (1988).
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But to conclude that section 309(b) of the Act precludes the
guarantee of Multiclass Securities collateralized by MBS and Multiclass
Securities previously and lawfully issued by Ginnie Mae also would
frustrate the purpose of these statutes. Precluding existing MBS and
Multiclass Securities--where it is now difficult, if not practically
impossible, to assess compliance with Section 309(b) of the Act would
potentially ``orphan'' billions of dollars worth of outstanding Ginnie
Mae securities that were validly guaranteed under prior law. This is
because they never could be incorporated into Multiclass Securities
after the enactment of the Act. This would frustrate the reasonable
expectations of Ginnie Mae investors who purchased Ginnie Mae MBS at
prices that explicitly contemplated their ultimate inclusion in
Multiclass Securities. Because these securities would then decrease in
value, the end result would be increased interest rates for veterans.
Given that this would harm, rather than help, veterans, it is difficult
to imagine that Congress intended to cause significant disruption to
the Multiclass Securities program beyond what was needed to stop the
undesirable lending practices on a prospective basis. Further,
restricting the inclusion of existing MBS and previously issued
Multiclass Securities as eligible collateral would not decrease the
amount of risk to Ginnie Mae and the investors since the certificates
are already guaranteed.
III. Conclusion
For the reasons described above, it is HUD's interpretation that as
of the enactment of the Act, any VA refinanced mortgage loan that does
not meet the seasoning requirements contained in section 309(b) the Act
is ineligible to serve as collateral for Ginnie Mae MBS. Ginnie Mae MBS
guaranteed before the enactment of the Act, that contain VA refinanced
mortgage loans that do not meet the seasoning requirements contained in
the Act, are unaffected by the Act. For Multiclass Securities, the Act
permits Ginnie Mae to guarantee Multiclass Securities even where the
trust assets consist of direct or indirect interest in certificates
guaranteed by Ginnie Mae without regard to whether the underlying VA
mortgage loans are in compliance with the seasoning requirements in
section 309(b) of the Act.
IV. Solicitation of Comment
This interpretive rule represents HUD's interpretation of section
309(b) of the Act and, as such, is exempt from the notice and comment
requirements of the Administrative Procedure Act.\13\ Nevertheless, HUD
is interested in receiving feedback from the public on this
interpretation, specifically with respect to clarity and scope.
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\13\ See, 5 U.S.C. 553(b)(3)(A).
Dated: June 25, 2018.
J. Paul Compton, Jr.,
General Counsel.
[FR Doc. 2018-14354 Filed 6-29-18; 11:15 am]
BILLING CODE 4210-67-P
