Disbursing Multifamily Mortgage Proceeds: Permitting Mortgagees To Disburse Mortgage Proceeds With Mortgagor-Provided Funds, 100739-100743 [2024-29390]

Download as PDF Federal Register / Vol. 89, No. 240 / Friday, December 13, 2024 / Rules and Regulations A copy of the Notice of Proposed Rulemaking (NPRM), all comments received, this final rule, and all background material may be viewed online at www.regulations.gov using the FAA Docket number. Electronic retrieval help and guidelines are available on the website. It is available 24 hours each day, 365 days each year. FAA Order JO 7400.11J, Airspace Designations and Reporting Points, and subsequent amendments can be viewed online at www.faa.gov/air_traffic/ publications/. You may also contact the Rules and Regulations Group, Office of Policy, Federal Aviation Administration, 600 Independence Avenue SW, Washington DC 20597; telephone: (202) 267–8783. FOR FURTHER INFORMATION CONTACT: Steven Roff, Rules and Regulations Group, Office of Policy, Federal Aviation Administration, 600 Independence Avenue SW, Washington, DC 20597; telephone (202) 267–8783. SUPPLEMENTARY INFORMATION: establishment of United States Area Navigation Route T–487 and Canadian Area Navigation Route T–895 in Northwestern United States, published in the Federal Register on October 24, 2024 (89 FR 84812), is corrected as follows: FR Doc. 2024–24590, on page 84814, the coordinates listed for the route point DISCO in the regulatory text for Q–902 and T–487 are revised to read (lat. 48°22′35.81″ N, long. 123°09′30.60″ W) Authority for This Rulemaking The FAA’s authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency’s authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it corrects an error of incorrect coordinates in a previously published regulatory text. RIN 2502–AJ72 ADDRESSES: khammond on DSK9W7S144PROD with RULES History The FAA published a final rule for Docket No. FAA–2024–1347 in the Federal Register (89 FR 84812; October 24, 2024) that amended Q–1, Q–902, V– 495, and J–502. The action also revoked J–589 and established T–487 and T–895. Subsequent to publication, the FAA identified the coordinates listed in the regulatory text for the route point DISCO are incorrect. This action corrects that error. Correction to Final Rule Accordingly, pursuant to the authority delegated to me, Amendment of United States Area Navigation Routes Q–1 and Q–902, Very High Frequency Omnidirectional Range Federal Airway V–495, and Jet Route J–502. Also, the revocation of Jet Route J–589 and the VerDate Sep<11>2014 16:42 Dec 12, 2024 Jkt 265001 Issued in Washington, DC, on December 9, 2024. Richard Lee Parks, Manager(A), Rules and Regulations Group. [FR Doc. 2024–29299 Filed 12–12–24; 8:45 am] BILLING CODE 4910–13–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 200 [Docket No. FR–6423–F–02] Disbursing Multifamily Mortgage Proceeds: Permitting Mortgagees To Disburse Mortgage Proceeds With Mortgagor-Provided Funds Office of the Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development (HUD). ACTION: Final rule. AGENCY: When funds provided by a mortgagor to a mortgagee are not fully disbursed with the initial advance of the insured mortgage proceeds, this final rule permits mortgagees to disburse up to 1 percent of the mortgage amount initially endorsed for insurance before requiring that the funds provided by the mortgagor be disbursed in full. This change to HUD’s requirements removes unusual and burdensome mortgage servicing practices that may result from pooling mortgages into mortgage-backed securities guaranteed by the Government National Mortgage Association prior to the funds provided by the mortgagor being disbursed in full. This final rule adopts HUD’s August 6, 2024, proposed rule with only minor, non-substantive revisions. DATES: Effective January 13, 2025. FOR FURTHER INFORMATION CONTACT: Margaret Lawrence, Deputy Director, Office of Multifamily Production, Department of Housing and Urban Development, 451 7th Street SW, Room 6134, Washington, DC 20410, telephone 202–431–7397 (this is not a toll-free number). HUD welcomes and is SUMMARY: PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 100739 prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/ telecommunications-relay-service-trs. SUPPLEMENTARY INFORMATION: I. Background 24 CFR 200.54 and Ginnie Mae Guaranteed Mortgage-Backed Securities Mortgagees seeking to originate a Federal Housing Administration (FHA)insured mortgage regulated pursuant to 24 CFR part 200, subpart A, must comply with the project completion funding requirements in 24 CFR 200.54. These requirements provide that a mortgagor must deposit funds with its mortgagee that are sufficient, when added to the proceeds from the FHAinsured mortgage, to assure completion of planned multifamily or healthcare facility project work and to pay the initial service charge, carrying charges, and legal and organization expenses incident to the construction of the project. Typically, 24 CFR 200.54(b) requires that the funds deposited by the mortgagor with the mortgagee (mortgagor-provided funds) must be disbursed in full for project work, material, and incidental charges and expenses (collectively, ‘‘project-related expenses’’) before the mortgagee may disburse any mortgage proceeds. HUD requires that mortgagees disburse the mortgagor-provided funds in full before disbursing any mortgage proceeds as a basic risk measure.1 For most mortgages regulated pursuant to 24 CFR part 200, subpart A, the mortgagor-provided funds are disbursed in full to pay for projectrelated expenses with the initial advance of the insured mortgage proceeds at the time the insured mortgage is endorsed. For certain mortgages, however, the amount of mortgagor-provided funds exceeds the amount of project-related expenses due at the time the insured mortgage is endorsed. Where the mortgagorprovided funds are not fully disbursed at the time the insured mortgage is endorsed, the mortgagor-provided funds are fully disbursed through subsequent disbursements by the mortgagee, usually with the mortgagor-provided funds 1 HUD’s regulations at 24 CFR 200.54(c) allow an exception to the requirement in 24 CFR 200.54(b) for certain projects involving low-income housing tax credit syndication proceeds, historic tax-credit syndication proceeds, New Markets Tax Credits proceeds, and funds provided by a grant or loan from a Federal, State, or local government. E:\FR\FM\13DER1.SGM 13DER1 100740 Federal Register / Vol. 89, No. 240 / Friday, December 13, 2024 / Rules and Regulations khammond on DSK9W7S144PROD with RULES being disbursed within two months after the insured mortgage is endorsed. Given that 24 CFR 200.54(b) does not typically permit insured mortgage proceeds to be disbursed until the mortgagee disburses all mortgagorprovided funds, if the mortgagorprovided funds are not fully disbursed at the time the insured mortgage is endorsed, there may be challenges in pooling the mortgage into a mortgagebacked security (MBS) guaranteed by the Government National Mortgage Association (Ginnie Mae) without conflicting with 24 CFR 200.54(b), possibly creating financial difficulties for the mortgagor.2 As such, for an insured mortgage to be pooled into a Ginnie Mae guaranteed MBS, the insured mortgage proceeds must be permitted to be disbursed. This financial difficulty created by 24 CFR 200.54(b) typically only exists for a short period of usually no longer than two months after the endorsement of the FHA-insured mortgage, by which time the mortgagor-provided funds are usually fully disbursed. During the short period, the mortgagee must implement unusual and burdensome mortgage servicing practices to maintain compliance with 24 CFR 200.54(b). If a mortgagee is unable to pool an insured mortgage into a Ginnie Mae guaranteed MBS at endorsement, the mortgagee might never be able to securitize the insured mortgage and might fail to meet contractually required delivery dates between the mortgagee and investor. This could potentially lead to costly investor compensation fees. The mortgagee may also experience issues relating to its financial liquidity cycle. When many insured mortgages are unable to be pooled into Ginnie Mae guaranteed MBSs at the time the insured mortgages are endorsed, cascading issues for the broader mortgage market can occur. These can include reducing the overall liquidity of the mortgage market and increasing the cost on mortgagors to borrow funds, which reduces the availability of housing and ultimately harms HUD’s mission to create strong, sustainable, inclusive communities and affordable homes for all. Partial Regulatory Waiver of 24 CFR 200.54(b) HUD has recently addressed this issue with the requirements in 24 CFR 200.54(b) for mortgages insured under National Housing Act sections 213 and 2 For additional information about Ginnie Mae and Ginnie Mae’s guarantee of MBSs, see Ginnie Mae’s About Us web page, available at https:// www.ginniemae.gov/about_us/who_we_are/Pages/ funding_government_lending.aspx. VerDate Sep<11>2014 16:42 Dec 12, 2024 Jkt 265001 221(d)(4) by issuing a partial regulatory waiver of the requirements of 24 CFR 200.54(b) (Partial Waiver of 24 CFR 200.54(b)).3 The Partial Waiver of 24 CFR 200.54(b) partially waives the requirement in 24 CFR 200.54(b) that mortgagor-provided funds ‘‘must be disbursed in full’’ for project-related expenses before any disbursement of funds from the insured mortgage. Instead, the Partial Waiver of 24 CFR 200.54(b) permits a mortgagee to disburse funds from the insured mortgage in an amount up to one-half percent (0.5%) of the initially endorsed mortgage amount. The Partial Waiver of 24 CFR 200.54(b) allows mortgagees to comply with FHA’s requirements and pool insured mortgages into Ginnie Mae guaranteed MBSs. II. The Proposed Rule On August 6, 2024, HUD published for public comment a proposed rule entitled ‘‘Disbursing Multifamily Mortgage Proceeds: Permitting Mortgagees to Disburse Mortgage Proceeds with Mortgagor-Provided Funds.’’ 4 The proposed rule proposed to add an exception to the requirement in 24 CFR 200.54(b) that the funds provided by the mortgagor must be disbursed in full before the disbursement of any proceeds from the insured mortgage. The proposed rule also proposed to make non-substantive terminology and organizational edits to 24 CFR 200.54 that would not affect any other requirements within the section. The exception proposed to be added to 24 CFR 200.54(b) would permit mortgagees, where the funds provided by the mortgagor are not fully disbursed with the initial advance of the insured mortgage proceeds, to disburse up to 1 percent of the mortgage amount initially endorsed for insurance before requiring that the funds provided by the mortgagor be disbursed in full. This proposed exception would permit that a mortgagee could disburse mortgage proceeds at the time the mortgage is initially endorsed for insurance up to a maximum of 1 percent of the initially endorsed mortgage amount. Alternatively, a mortgagee could choose to disburse mortgage proceeds in any amount on a monthly basis, whether consecutive or not, up to a combined maximum of 1 percent of the initially endorsed insured mortgage amount until the mortgagor-provided funds are fully disbursed. 3 The Partial Waiver of 24 CFR 200.54(b) was initially granted in July 2021. See 87 FR 14563 (Mar. 15, 2022). The Partial Waiver of 24 CFR 200.54(b) has subsequently been extended and remains in effect until July 4, 2025. 4 89 FR 63847. PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 III. This Final Rule After reviewing and considering the public comments received during the proposed rule stage of this rulemaking, HUD is publishing this final rule with only minor, non-substantive revisions from the proposed rule. HUD believes that the added exception to 24 CFR 200.54(b) will help keep FHA-insured mortgage products competitive in economic environments with rising interest rates and/or multi-year high interest rates, especially for new construction projects, where a higher proportion of mortgage proceeds are constrained by FHA’s debt service coverage ratio requirements. In an economic environment with rising and high interest rates, mortgagors must deposit additional funds with their mortgagee, making it more likely that the mortgagor-provided funds will not be fully disbursed during the initial advance of the insured mortgage proceeds. HUD believes that this added exception will help ensure that interest rates for FHA-insured mortgages remain competitive and ensure the liquidity of FHA-insured mortgages on the secondary mortgage market. IV. Public Comments This public comments section contains a summary of the public comments that HUD received in response to the proposed rule. HUD should allow mortgage proceeds to be disbursed using a proportional debt to equity amount without requiring that mortgagor-proved funds first be fully exhausted. A commenter supported the proposed rule as a step in the right direction but suggested that HUD go further. Other commenters supported HUD’s goal to allow mortgagees to pool mortgages into Ginnie Mae guaranteed MBSs prior to mortgagor-provided funds being disbursed in full but believed the rule as proposed would be ineffective. A commenter stated that HUD’s proposed rule should be changed to allow mortgage proceeds to be drawn for HUD-covered multifamily loans proportionate to the proportion of the amount of debt i.e., the loan amount, to equity, i.e., the mortgagor-provided funds, in the HUD transaction. As the commenter provided by example, a loan that has a 60 percent loan to cost ratio would, at each draw, draw 60 percent from the Ginnie Mae MBS and 40% from borrower equity. Another commenter, similarly, suggested that HUD allow up to 35 percent of the insured loan proceeds to be drawn at initial endorsement, and then allow subsequent draws in E:\FR\FM\13DER1.SGM 13DER1 khammond on DSK9W7S144PROD with RULES Federal Register / Vol. 89, No. 240 / Friday, December 13, 2024 / Rules and Regulations proportion to the mortgagor’s remaining funds. This commenter stated that their recommendation would significantly lower insured loan interest rates. Commenters pointed to the problems associated with higher interest rates for construction loans and stated that their recommendations would address the issue of investors requiring higher interest rates to hedge variable interest rates while waiting for issuance. A commenter stated that the multiple Ginnie Mae guaranteed MBSs issued and delivered in various amounts to a Ginnie Mae investor over the length of the construction period, typically 18 to 24 months, are delivered to the investor in an amount equal to the mortgage proceeds disbursed and, in months where no mortgage proceeds can be disbursed, no Ginnie Mae MBS is delivered. The commenter stated concerns that under HUD’s proposed rule, in situations where mortgagorprovided funds are not fully disbursed in the first installment that the first Ginnie Mae guaranteed MBS delivery can be no more than 1 percent of the mortgage, and no subsequent Ginnie Mae guaranteed MBS deliveries will occur until borrower equity is exhausted. The commenter noted that it is common in today’s lending environment that borrower equity makes up 30 percent to 40 percent of the total sources of funds in a construction loan. The commenter described that all of this means that investors must price into the agreed interest rate the cost of waiting 7 to 14, or more, months for Ginnie Mae guaranteed MBS issuance in any substantive amount. The commenter stated that this delay can increase interest rates by approximately 10 to 50 basis points. Another commenter specifically noted that for Midwestern and smaller community projects, it can take up to a year before any insured loan proceeds are disbursed in a meaningful amount because the amount of required equity can be higher and take longer to exhaust. The commenter noted that because of this, the increase in interest rates in these communities can be anywhere between 0.15 and 0.40 percentage points. Commenters stated that their suggested changes represented a low risk to HUD, and that their suggestions do not increase the risk beyond the risk level already accepted under the proposed rule. A commenter noted that FHA-approved lenders are required to hold all the mortgagor’s required funds in escrow and to hold the initial operating deficit and working capital escrow fund either in cash or an irrevocable letter of credit. Another VerDate Sep<11>2014 16:42 Dec 12, 2024 Jkt 265001 commenter noted that if a HUD-insured project defaulted during construction, HUD and the lender, under HUD forms HUD–92441M (building-loan agreement) and HUD–94000M (security instrument), have the right to use mortgagor-provided funds, which are pledged collateral, to offset any losses or claims on disbursed loan proceeds. The commenter provided the example of a $10 million project with 40 percent mortgagor-provided funds and 60 percent mortgage-proceeds, which the commenter stated that the proposed rule would allow for a $60,000 Ginnie Mae draw before the mortgagor began to draw down equity. Under the commenter’s suggestion, the cash equity balance would stay higher for a longer period, meaning at the point where $3 million had been drawn from Ginnie Mae, $2 million would remain in cash equity as collateral. A commenter noted that FHA lenders can model the projected interest cost by preparing a draw schedule based on the projected draw down of insured loan proceeds. The commenter noted an additional 10 percent cushion could be added to the estimate to be reasonably confident there is sufficient capitalized interest carried in the project’s budget. Commenters also stated that HUD has extensive experience with proportional debt to equity construction loan disbursements through the Low-Income Housing Credit (LIHTC) exception to HUD’s full mortgagor-provided funds disbursement requirement. Commenters stated that HUD has allowed this LIHTC exception without increased risk to HUD and its mortgage insurance fund. Commenters stated that allowing proportional debt to equity disbursements for non-LIHTC projects, under their suggested change, would be less risky because LIHTC equity and bridge loan proceeds are not funded in full nor are they held by the lender like the funds are in non-LIHTC construction projects to which this proposed change would apply. HUD Response: HUD disagrees that mortgage proceeds should be disbursed to mortgagors in proportional debt to equity amounts. Through this rulemaking, HUD’s is maintaining the intent of the existing regulation, which is that a borrower’s equity should be invested ahead of debt. With a borrower’s equity at risk upfront, the owners are properly incentivized to prudently manage and complete the project. The regulation change made through this rulemaking is a technical, limited modification to support the timely issuance of Ginnie Mae guaranteed MBSs, while preserving the risk PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 100741 mitigation principle of upfront equity investment. Under the existing 24 CFR 200.54(b), a strict requirement that 100 percent of all borrower equity must be disbursed can delay the initial issuance of a Ginnie Mae guaranteed MBS and potentially disrupt the mortgagebanking liquidity cycle. HUD has determined that 1 percent of the mortgage amount can be drawn before borrower’s equity is disbursed in full, without impairing a borrower’s incentive to protect its equity investment. HUD determined this, in part, by its experience processing mortgages and observing mortgagee performance while relying on the Partial Waiver of 24 CFR 200.54(b). HUD should also allow disbursements of up to $25,000 per month in mortgage proceeds. A commenter suggested several technical edits to the proposed regulatory text of 24 CFR 200.54(b)(2). The commenter suggested that HUD allow the greater of 1 percent of the mortgagee funds or $25,000 monthly in mortgage proceeds. The commenter noted that drawdowns are made monthly, and HUD’s proposed rule appeared to only apply to the initial draw. HUD Response: HUD disagrees that the regulation should allow the greater of 1 percent of the mortgagee funds or $25,000 monthly in mortgage proceeds. In very infrequent cases, certain small loan balance multifamily loans may not achieve the investors’ preferred $25,000 minimum denomination under a 1 percent threshold; however, modifying the regulation to optimize investor preferences for the infrequently occurring nuances of small loan sizes is beyond the scope of this regulation change. HUD should adjust its permitted disbursement amount through Federal Register notice. A commenter suggested that HUD create a new 24 CFR 200.54(b)(3) that allows HUD to adjust the permitted disbursement amount through the publication of a notice in the Federal Register. The commenter stated that the Federal Register notice should provide a 30 day public comment period prior to the finalizing of the adjusted disbursement amount that was announced in the suggested notice. The commenter believed that a 1 percent disbursement amount may not be enough and thought HUD might decide to increase the percentage in the future. The commenter noted that adjusting the permitted disbursement amount through a Federal Register notice is similar to the strategy used for HUD’s mortgage insurance premium regulations. E:\FR\FM\13DER1.SGM 13DER1 100742 Federal Register / Vol. 89, No. 240 / Friday, December 13, 2024 / Rules and Regulations HUD Response: HUD disagrees that 24 CFR 200.54(b) needs periodic updates. Periodically adjusting the 1 percent threshold to a different percentage through a Federal Register notice is unnecessary because HUD has determined that it is sufficient to allow up to the 1 percent threshold amount can be drawn before a borrower’s equity is disbursed in full without impairing borrower incentive to protect its equity investment. HUD’s proposed rule goes too far by allowing even 1 percent of mortgage proceeds to be disbursed before requiring the full disbursement of mortgagor-provided funds. A commenter disagreed with HUD’s proposed rule by saying that HUD’s proposed rule goes too far by allowing even 1 percent of mortgagee proceeds to be disbursed before requiring the full disbursement of mortgagor-provided funds. The commenter stated that requiring full disbursement of mortgagor-provided funds before mortgage proceeds is a crucial risk mitigation measure to prevent financial mismanagement and delays in projects. The commenter stated that HUD’s proposed rule could introduce instability into the MBS market because, as is currently required, by first requiring the full disbursement of mortgagor-provided funds ensures the financial soundness of the securities issued. The commenter also suggested that HUD’s proposed rule could negatively impact small businesses by creating unpredictable financial environments, which would cause business uncertainties and cash-flow issues. HUD Response: HUD disagrees that a 1 percent disbursement of mortgage proceeds prior to full disbursement of mortgagor-provided funds materially impairs the over-arching risk mitigation set forth by HUD’s regulations. HUD has determined that 1 percent of the mortgage amount can be drawn before a borrower’s equity is disbursed in full without impairing borrower incentive to protect its equity investment. HUD determined this, in part, by its experience processing mortgages and observing mortgagee performance while relying on the Partial Waiver of 24 CFR 200.54(b). khammond on DSK9W7S144PROD with RULES V. Findings and Certifications Regulatory Review—Executive Orders 12866, 13563, and 14094 Pursuant to Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a regulatory action is significant and, therefore, subject to review by the Office VerDate Sep<11>2014 16:42 Dec 12, 2024 Jkt 265001 of Management and Budget (OMB) in accordance with the requirements of the Executive Order. Executive Order 13563 (Improving Regulations and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The order also directs Executive agencies to analyze regulations that are ‘‘outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.’’ Executive Order 13563 further directs that, where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, agencies are to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. Executive Order 14094 (Modernizing Regulatory Review) amends section 3(f) of Executive Order 12866, among other things. The only substantive regulatory change made through this rulemaking is to permit mortgagees, where the funds provided by the mortgagor are not fully disbursed with the initial advance of the insured mortgage proceeds, to disburse up to 1 percent of the mortgage amount initially endorsed for insurance before requiring that the funds provided by the mortgagor be disbursed in full. This rulemaking was determined to not be a ‘‘significant regulatory action’’ as defined in section 3(f) of Executive Order 12866, as amended by Executive Order 14094, and is not an economically significant regulatory action and therefore was not subject to OMB review. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The changes in this rulemaking are limited to permitting mortgagees, where the funds provided by the mortgagor are not fully disbursed with the initial advance of the insured mortgage proceeds, to disburse up to 1 percent of the mortgage amount initially endorsed for insurance before requiring that the funds provided by the mortgagor be disbursed in full. This change will not have a significant economic impact on a substantial number of small entities. Accordingly, the undersigned certifies that this final rule will not have a significant PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 economic impact on a substantial number of small entities. Federalism (Executive Order 13132) Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial direct compliance costs on State and local governments and is not required by statute or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rulemaking does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive Order. Environmental Impact A Finding of No Significant Impact (FONSI) with respect to the environment was made, at the proposed rule stage of this rulemaking, in accordance with HUD regulations at 24 CFR part 50 that implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI remains applicable to this final rule and is available through the Federal eRulemaking Portal at https:// www.regulations.gov. The FONSI is also available for public inspection during regular business hours in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410– 0500. Due to security measures at the HUD Headquarters building, you must schedule an appointment in advance to review the FONSI by calling the Regulations Division at 202–708–3055 (this is not a toll-free number). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit https://www.fcc.gov/ consumers/guides/telecommunicationsrelay-service-trs. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531– 1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments, and on the private sector. This rulemaking does not impose any Federal mandates on any State, local, or Tribal governments, or on the private sector, within the meaning of the UMRA. E:\FR\FM\13DER1.SGM 13DER1 Federal Register / Vol. 89, No. 240 / Friday, December 13, 2024 / Rules and Regulations List of Subjects in 24 CFR Part 200 Administrative practice and procedure, Claims, Equal employment opportunity, Fair housing, Housing standards, Lead poisoning, Loan programs—housing and community development, Mortgage insurance, Organization and functions (Government agencies), Penalties, Reporting and recordkeeping requirements, Social security, Unemployment compensation, Wages. Julia R. Gordon, Assistant Secretary for Housing—Federal Housing Commissioner. [FR Doc. 2024–29390 Filed 12–12–24; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF HOMELAND SECURITY For the reasons stated in the preamble, HUD amends 24 CFR part 200 as follows: Coast Guard PART 200—INTRODUCTION TO FHA PROGRAMS [Docket No. USCG–2024–1054] 33 CFR Part 100 Special Local Regulations; Recurring Marine Events, Sector St. Petersburg 1. The authority citation for part 200 continues to read as follows: ■ Coast Guard, DHS. Notification of enforcement of regulation. AGENCY: Authority: 12 U.S.C. 1702–1715z–21; 42 U.S.C. 3535(d). ACTION: 2. In § 200.54: ■ a. Amend paragraph (a) by removing the reference to ‘‘paragraph (d)’’ and adding, in its place, a reference to ‘‘paragraph (c)’’; ■ b. Amend paragraph (b) by removing the word ‘‘mortgage’’ and adding, in its place the term, ‘‘insured mortgage’’; ■ c. Redesignate paragraph (c) as paragraph (b)(1); ■ d. Amend newly redesignated paragraph (b)(1) by removing the word ‘‘mortgage’’ and adding in its place the term, ‘‘insured mortgage’’ and by adding the word ‘‘or’’ at the end of the paragraph; ■ e. Add paragraph (b)(2); and ■ f. Redesignate paragraph (d) as paragraph (c). The addition reads as follows: SUMMARY: ■ § 200.54 Project completion funding. * khammond on DSK9W7S144PROD with RULES provided by the mortgagor are fully disbursed. * * * * * * * * * (b) * * * (2) If the mortgagor’s deposit required by paragraph (a) of this section is not fully disbursed with the initial advance of the insured mortgage proceeds, the mortgagee may disburse up to one (1) percent of the mortgage amount initially endorsed for insurance before requiring that the funds provided by the mortgagor be disbursed in full. The 1 percent of the initially endorsed mortgage amount may be disbursed in full at the time of initial endorsement or may be disbursed in any amount on a monthly basis, whether consecutive or nonconsecutive, until the funds VerDate Sep<11>2014 16:42 Dec 12, 2024 Jkt 265001 The Coast Guard will enforce a special local regulation for the Gasparilla parade on January 25, 2025, to provide for the safety of life on navigable waterways during this event. Our regulation for recurring marine events within the Captain of the Port St. Petersburg identifies the regulated area for this event in Tampa, FL. During the enforcement periods, no person or vessel may enter, transit through, anchor in, or remain within the regulated area unless authorized by the Coast Guard Patrol Commander or a designated representative. DATES: The regulations in 33 CFR 100.703 will be enforced for the location identified in Table 1 to § 100.703, Item 1, from 11:30 a.m. through 2 p.m., on January 25, 2025. FOR FURTHER INFORMATION CONTACT: If you have questions about this notice of enforcement, call or email Lieutenant Ryan McNaughton, Sector St. Petersburg Prevention Department, U.S. Coast Guard; telephone 813–228–2191, email: Ryan.A.McNaughton@uscg.mil. SUPPLEMENTARY INFORMATION: The Coast Guard will enforce the special local regulation in 33 CFR 100.703 for the Gasparilla parade regulated area identified in Table 1 to § 100.703, Item 1, from 11:30 a.m. through 2 p.m. on January 25, 2025. This action is being taken to provide for the safety of life on navigable waterways during this event. Our regulation for recurring marine events, Captain of the Port Sector St. Petersburg, Table 1 to § 100.703, Item 1, specifies the location of the regulated area for the Gasparilla parade, which encompasses portions of Hillsborough PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 100743 Bay, Seddon Channel, Sparkman Channel and Hillsborough River located in Tampa, FL. Under the provisions of 33 CFR 100.703(c), all persons and vessels are prohibited from entering the regulated area, except those persons and vessels participating in the event, unless they receive permission to do so from the Coast Guard Patrol Commander, or designated representative. Under the provisions of 33 CFR 100.703, spectator vessels may safely transit outside the regulated area, but may not anchor, block, loiter in, impede the transit of festival participants or official patrol vessels or enter the regulated area without approval from the Coast Guard Patrol Commander or a designated representative. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation. In addition to this notice of enforcement in the Federal Register, the Coast Guard will provide notice of the regulated area via Local Notice to Mariners, Marine Safety Information Bulletins, Broadcast Notice to Mariners, and on-scene designated representatives. Dated: December 6, 2024. Michael P. Kahle, Captain, U.S. Coast Guard, Captain of the Port St. Petersburg. [FR Doc. 2024–29448 Filed 12–12–24; 8:45 am] BILLING CODE 9110–04–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [Docket No. USCG–2022–0988] RIN 1625–AA00 Safety Zone, Port Arthur Canal, Sabine, Pass, TX Coast Guard, DHS. Temporary final rule. AGENCY: ACTION: The Coast Guard is extending the temporary safety zones for waters of Port Arthur Canal adjacent to Golden Pass Liquefied Natural Gas (LNG) Facility in Sabine Pass, TX. These safety zones will continue to be temporarily activated during high pressure testing of the piping systems to protect persons and vessels on these navigable waters from potential blast and fragmentation hazards associated with high pressure piping testing. Entry of vessels or persons into these zones is prohibited unless specifically authorized by the Captain of the Port, Marine Safety Unit Port Arthur. SUMMARY: E:\FR\FM\13DER1.SGM 13DER1

Agencies

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 89, Number 240 (Friday, December 13, 2024)]
[Rules and Regulations]
[Pages 100739-100743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29390]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-6423-F-02]
RIN 2502-AJ72


Disbursing Multifamily Mortgage Proceeds: Permitting Mortgagees 
To Disburse Mortgage Proceeds With Mortgagor-Provided Funds

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Department of Housing and Urban Development (HUD).

ACTION: Final rule.

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SUMMARY: When funds provided by a mortgagor to a mortgagee are not 
fully disbursed with the initial advance of the insured mortgage 
proceeds, this final rule permits mortgagees to disburse up to 1 
percent of the mortgage amount initially endorsed for insurance before 
requiring that the funds provided by the mortgagor be disbursed in 
full. This change to HUD's requirements removes unusual and burdensome 
mortgage servicing practices that may result from pooling mortgages 
into mortgage-backed securities guaranteed by the Government National 
Mortgage Association prior to the funds provided by the mortgagor being 
disbursed in full. This final rule adopts HUD's August 6, 2024, 
proposed rule with only minor, non-substantive revisions.

DATES: Effective January 13, 2025.

FOR FURTHER INFORMATION CONTACT: Margaret Lawrence, Deputy Director, 
Office of Multifamily Production, Department of Housing and Urban 
Development, 451 7th Street SW, Room 6134, Washington, DC 20410, 
telephone 202-431-7397 (this is not a toll-free number). HUD welcomes 
and is prepared to receive calls from individuals who are deaf or hard 
of hearing, as well as individuals with speech or communication 
disabilities. To learn more about how to make an accessible telephone 
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Background

24 CFR 200.54 and Ginnie Mae Guaranteed Mortgage-Backed Securities

    Mortgagees seeking to originate a Federal Housing Administration 
(FHA)-insured mortgage regulated pursuant to 24 CFR part 200, subpart 
A, must comply with the project completion funding requirements in 24 
CFR 200.54. These requirements provide that a mortgagor must deposit 
funds with its mortgagee that are sufficient, when added to the 
proceeds from the FHA-insured mortgage, to assure completion of planned 
multifamily or healthcare facility project work and to pay the initial 
service charge, carrying charges, and legal and organization expenses 
incident to the construction of the project. Typically, 24 CFR 
200.54(b) requires that the funds deposited by the mortgagor with the 
mortgagee (mortgagor-provided funds) must be disbursed in full for 
project work, material, and incidental charges and expenses 
(collectively, ``project-related expenses'') before the mortgagee may 
disburse any mortgage proceeds. HUD requires that mortgagees disburse 
the mortgagor-provided funds in full before disbursing any mortgage 
proceeds as a basic risk measure.\1\
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    \1\ HUD's regulations at 24 CFR 200.54(c) allow an exception to 
the requirement in 24 CFR 200.54(b) for certain projects involving 
low-income housing tax credit syndication proceeds, historic tax-
credit syndication proceeds, New Markets Tax Credits proceeds, and 
funds provided by a grant or loan from a Federal, State, or local 
government.
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    For most mortgages regulated pursuant to 24 CFR part 200, subpart 
A, the mortgagor-provided funds are disbursed in full to pay for 
project-related expenses with the initial advance of the insured 
mortgage proceeds at the time the insured mortgage is endorsed. For 
certain mortgages, however, the amount of mortgagor-provided funds 
exceeds the amount of project-related expenses due at the time the 
insured mortgage is endorsed. Where the mortgagor-provided funds are 
not fully disbursed at the time the insured mortgage is endorsed, the 
mortgagor-provided funds are fully disbursed through subsequent 
disbursements by the mortgagee, usually with the mortgagor-provided 
funds

[[Page 100740]]

being disbursed within two months after the insured mortgage is 
endorsed.
    Given that 24 CFR 200.54(b) does not typically permit insured 
mortgage proceeds to be disbursed until the mortgagee disburses all 
mortgagor-provided funds, if the mortgagor-provided funds are not fully 
disbursed at the time the insured mortgage is endorsed, there may be 
challenges in pooling the mortgage into a mortgage-backed security 
(MBS) guaranteed by the Government National Mortgage Association 
(Ginnie Mae) without conflicting with 24 CFR 200.54(b), possibly 
creating financial difficulties for the mortgagor.\2\ As such, for an 
insured mortgage to be pooled into a Ginnie Mae guaranteed MBS, the 
insured mortgage proceeds must be permitted to be disbursed.
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    \2\ For additional information about Ginnie Mae and Ginnie Mae's 
guarantee of MBSs, see Ginnie Mae's About Us web page, available at 
https://www.ginniemae.gov/about_us/who_we_are/Pages/funding_government_lending.aspx.
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    This financial difficulty created by 24 CFR 200.54(b) typically 
only exists for a short period of usually no longer than two months 
after the endorsement of the FHA-insured mortgage, by which time the 
mortgagor-provided funds are usually fully disbursed. During the short 
period, the mortgagee must implement unusual and burdensome mortgage 
servicing practices to maintain compliance with 24 CFR 200.54(b). If a 
mortgagee is unable to pool an insured mortgage into a Ginnie Mae 
guaranteed MBS at endorsement, the mortgagee might never be able to 
securitize the insured mortgage and might fail to meet contractually 
required delivery dates between the mortgagee and investor. This could 
potentially lead to costly investor compensation fees. The mortgagee 
may also experience issues relating to its financial liquidity cycle. 
When many insured mortgages are unable to be pooled into Ginnie Mae 
guaranteed MBSs at the time the insured mortgages are endorsed, 
cascading issues for the broader mortgage market can occur. These can 
include reducing the overall liquidity of the mortgage market and 
increasing the cost on mortgagors to borrow funds, which reduces the 
availability of housing and ultimately harms HUD's mission to create 
strong, sustainable, inclusive communities and affordable homes for 
all.

Partial Regulatory Waiver of 24 CFR 200.54(b)

    HUD has recently addressed this issue with the requirements in 24 
CFR 200.54(b) for mortgages insured under National Housing Act sections 
213 and 221(d)(4) by issuing a partial regulatory waiver of the 
requirements of 24 CFR 200.54(b) (Partial Waiver of 24 CFR 
200.54(b)).\3\ The Partial Waiver of 24 CFR 200.54(b) partially waives 
the requirement in 24 CFR 200.54(b) that mortgagor-provided funds 
``must be disbursed in full'' for project-related expenses before any 
disbursement of funds from the insured mortgage. Instead, the Partial 
Waiver of 24 CFR 200.54(b) permits a mortgagee to disburse funds from 
the insured mortgage in an amount up to one-half percent (0.5%) of the 
initially endorsed mortgage amount. The Partial Waiver of 24 CFR 
200.54(b) allows mortgagees to comply with FHA's requirements and pool 
insured mortgages into Ginnie Mae guaranteed MBSs.
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    \3\ The Partial Waiver of 24 CFR 200.54(b) was initially granted 
in July 2021. See 87 FR 14563 (Mar. 15, 2022). The Partial Waiver of 
24 CFR 200.54(b) has subsequently been extended and remains in 
effect until July 4, 2025.
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II. The Proposed Rule

    On August 6, 2024, HUD published for public comment a proposed rule 
entitled ``Disbursing Multifamily Mortgage Proceeds: Permitting 
Mortgagees to Disburse Mortgage Proceeds with Mortgagor-Provided 
Funds.'' \4\ The proposed rule proposed to add an exception to the 
requirement in 24 CFR 200.54(b) that the funds provided by the 
mortgagor must be disbursed in full before the disbursement of any 
proceeds from the insured mortgage. The proposed rule also proposed to 
make non-substantive terminology and organizational edits to 24 CFR 
200.54 that would not affect any other requirements within the section.
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    \4\ 89 FR 63847.
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    The exception proposed to be added to 24 CFR 200.54(b) would permit 
mortgagees, where the funds provided by the mortgagor are not fully 
disbursed with the initial advance of the insured mortgage proceeds, to 
disburse up to 1 percent of the mortgage amount initially endorsed for 
insurance before requiring that the funds provided by the mortgagor be 
disbursed in full. This proposed exception would permit that a 
mortgagee could disburse mortgage proceeds at the time the mortgage is 
initially endorsed for insurance up to a maximum of 1 percent of the 
initially endorsed mortgage amount. Alternatively, a mortgagee could 
choose to disburse mortgage proceeds in any amount on a monthly basis, 
whether consecutive or not, up to a combined maximum of 1 percent of 
the initially endorsed insured mortgage amount until the mortgagor-
provided funds are fully disbursed.

III. This Final Rule

    After reviewing and considering the public comments received during 
the proposed rule stage of this rulemaking, HUD is publishing this 
final rule with only minor, non-substantive revisions from the proposed 
rule. HUD believes that the added exception to 24 CFR 200.54(b) will 
help keep FHA-insured mortgage products competitive in economic 
environments with rising interest rates and/or multi-year high interest 
rates, especially for new construction projects, where a higher 
proportion of mortgage proceeds are constrained by FHA's debt service 
coverage ratio requirements. In an economic environment with rising and 
high interest rates, mortgagors must deposit additional funds with 
their mortgagee, making it more likely that the mortgagor-provided 
funds will not be fully disbursed during the initial advance of the 
insured mortgage proceeds. HUD believes that this added exception will 
help ensure that interest rates for FHA-insured mortgages remain 
competitive and ensure the liquidity of FHA-insured mortgages on the 
secondary mortgage market.

IV. Public Comments

    This public comments section contains a summary of the public 
comments that HUD received in response to the proposed rule.
    HUD should allow mortgage proceeds to be disbursed using a 
proportional debt to equity amount without requiring that mortgagor-
proved funds first be fully exhausted.
    A commenter supported the proposed rule as a step in the right 
direction but suggested that HUD go further. Other commenters supported 
HUD's goal to allow mortgagees to pool mortgages into Ginnie Mae 
guaranteed MBSs prior to mortgagor-provided funds being disbursed in 
full but believed the rule as proposed would be ineffective.
    A commenter stated that HUD's proposed rule should be changed to 
allow mortgage proceeds to be drawn for HUD-covered multifamily loans 
proportionate to the proportion of the amount of debt i.e., the loan 
amount, to equity, i.e., the mortgagor-provided funds, in the HUD 
transaction. As the commenter provided by example, a loan that has a 60 
percent loan to cost ratio would, at each draw, draw 60 percent from 
the Ginnie Mae MBS and 40% from borrower equity.
    Another commenter, similarly, suggested that HUD allow up to 35 
percent of the insured loan proceeds to be drawn at initial 
endorsement, and then allow subsequent draws in

[[Page 100741]]

proportion to the mortgagor's remaining funds. This commenter stated 
that their recommendation would significantly lower insured loan 
interest rates.
    Commenters pointed to the problems associated with higher interest 
rates for construction loans and stated that their recommendations 
would address the issue of investors requiring higher interest rates to 
hedge variable interest rates while waiting for issuance.
    A commenter stated that the multiple Ginnie Mae guaranteed MBSs 
issued and delivered in various amounts to a Ginnie Mae investor over 
the length of the construction period, typically 18 to 24 months, are 
delivered to the investor in an amount equal to the mortgage proceeds 
disbursed and, in months where no mortgage proceeds can be disbursed, 
no Ginnie Mae MBS is delivered. The commenter stated concerns that 
under HUD's proposed rule, in situations where mortgagor-provided funds 
are not fully disbursed in the first installment that the first Ginnie 
Mae guaranteed MBS delivery can be no more than 1 percent of the 
mortgage, and no subsequent Ginnie Mae guaranteed MBS deliveries will 
occur until borrower equity is exhausted. The commenter noted that it 
is common in today's lending environment that borrower equity makes up 
30 percent to 40 percent of the total sources of funds in a 
construction loan. The commenter described that all of this means that 
investors must price into the agreed interest rate the cost of waiting 
7 to 14, or more, months for Ginnie Mae guaranteed MBS issuance in any 
substantive amount. The commenter stated that this delay can increase 
interest rates by approximately 10 to 50 basis points.
    Another commenter specifically noted that for Midwestern and 
smaller community projects, it can take up to a year before any insured 
loan proceeds are disbursed in a meaningful amount because the amount 
of required equity can be higher and take longer to exhaust. The 
commenter noted that because of this, the increase in interest rates in 
these communities can be anywhere between 0.15 and 0.40 percentage 
points.
    Commenters stated that their suggested changes represented a low 
risk to HUD, and that their suggestions do not increase the risk beyond 
the risk level already accepted under the proposed rule. A commenter 
noted that FHA-approved lenders are required to hold all the 
mortgagor's required funds in escrow and to hold the initial operating 
deficit and working capital escrow fund either in cash or an 
irrevocable letter of credit. Another commenter noted that if a HUD-
insured project defaulted during construction, HUD and the lender, 
under HUD forms HUD-92441M (building-loan agreement) and HUD-94000M 
(security instrument), have the right to use mortgagor-provided funds, 
which are pledged collateral, to offset any losses or claims on 
disbursed loan proceeds. The commenter provided the example of a $10 
million project with 40 percent mortgagor-provided funds and 60 percent 
mortgage-proceeds, which the commenter stated that the proposed rule 
would allow for a $60,000 Ginnie Mae draw before the mortgagor began to 
draw down equity. Under the commenter's suggestion, the cash equity 
balance would stay higher for a longer period, meaning at the point 
where $3 million had been drawn from Ginnie Mae, $2 million would 
remain in cash equity as collateral.
    A commenter noted that FHA lenders can model the projected interest 
cost by preparing a draw schedule based on the projected draw down of 
insured loan proceeds. The commenter noted an additional 10 percent 
cushion could be added to the estimate to be reasonably confident there 
is sufficient capitalized interest carried in the project's budget.
    Commenters also stated that HUD has extensive experience with 
proportional debt to equity construction loan disbursements through the 
Low-Income Housing Credit (LIHTC) exception to HUD's full mortgagor-
provided funds disbursement requirement. Commenters stated that HUD has 
allowed this LIHTC exception without increased risk to HUD and its 
mortgage insurance fund. Commenters stated that allowing proportional 
debt to equity disbursements for non-LIHTC projects, under their 
suggested change, would be less risky because LIHTC equity and bridge 
loan proceeds are not funded in full nor are they held by the lender 
like the funds are in non-LIHTC construction projects to which this 
proposed change would apply.
    HUD Response: HUD disagrees that mortgage proceeds should be 
disbursed to mortgagors in proportional debt to equity amounts. Through 
this rulemaking, HUD's is maintaining the intent of the existing 
regulation, which is that a borrower's equity should be invested ahead 
of debt. With a borrower's equity at risk upfront, the owners are 
properly incentivized to prudently manage and complete the project.
    The regulation change made through this rulemaking is a technical, 
limited modification to support the timely issuance of Ginnie Mae 
guaranteed MBSs, while preserving the risk mitigation principle of 
upfront equity investment. Under the existing 24 CFR 200.54(b), a 
strict requirement that 100 percent of all borrower equity must be 
disbursed can delay the initial issuance of a Ginnie Mae guaranteed MBS 
and potentially disrupt the mortgage-banking liquidity cycle. HUD has 
determined that 1 percent of the mortgage amount can be drawn before 
borrower's equity is disbursed in full, without impairing a borrower's 
incentive to protect its equity investment. HUD determined this, in 
part, by its experience processing mortgages and observing mortgagee 
performance while relying on the Partial Waiver of 24 CFR 200.54(b).
    HUD should also allow disbursements of up to $25,000 per month in 
mortgage proceeds.
    A commenter suggested several technical edits to the proposed 
regulatory text of 24 CFR 200.54(b)(2). The commenter suggested that 
HUD allow the greater of 1 percent of the mortgagee funds or $25,000 
monthly in mortgage proceeds. The commenter noted that drawdowns are 
made monthly, and HUD's proposed rule appeared to only apply to the 
initial draw.
    HUD Response: HUD disagrees that the regulation should allow the 
greater of 1 percent of the mortgagee funds or $25,000 monthly in 
mortgage proceeds. In very infrequent cases, certain small loan balance 
multifamily loans may not achieve the investors' preferred $25,000 
minimum denomination under a 1 percent threshold; however, modifying 
the regulation to optimize investor preferences for the infrequently 
occurring nuances of small loan sizes is beyond the scope of this 
regulation change.
    HUD should adjust its permitted disbursement amount through Federal 
Register notice.
    A commenter suggested that HUD create a new 24 CFR 200.54(b)(3) 
that allows HUD to adjust the permitted disbursement amount through the 
publication of a notice in the Federal Register. The commenter stated 
that the Federal Register notice should provide a 30 day public comment 
period prior to the finalizing of the adjusted disbursement amount that 
was announced in the suggested notice. The commenter believed that a 1 
percent disbursement amount may not be enough and thought HUD might 
decide to increase the percentage in the future. The commenter noted 
that adjusting the permitted disbursement amount through a Federal 
Register notice is similar to the strategy used for HUD's mortgage 
insurance premium regulations.

[[Page 100742]]

    HUD Response: HUD disagrees that 24 CFR 200.54(b) needs periodic 
updates. Periodically adjusting the 1 percent threshold to a different 
percentage through a Federal Register notice is unnecessary because HUD 
has determined that it is sufficient to allow up to the 1 percent 
threshold amount can be drawn before a borrower's equity is disbursed 
in full without impairing borrower incentive to protect its equity 
investment.
    HUD's proposed rule goes too far by allowing even 1 percent of 
mortgage proceeds to be disbursed before requiring the full 
disbursement of mortgagor-provided funds.
    A commenter disagreed with HUD's proposed rule by saying that HUD's 
proposed rule goes too far by allowing even 1 percent of mortgagee 
proceeds to be disbursed before requiring the full disbursement of 
mortgagor-provided funds. The commenter stated that requiring full 
disbursement of mortgagor-provided funds before mortgage proceeds is a 
crucial risk mitigation measure to prevent financial mismanagement and 
delays in projects. The commenter stated that HUD's proposed rule could 
introduce instability into the MBS market because, as is currently 
required, by first requiring the full disbursement of mortgagor-
provided funds ensures the financial soundness of the securities 
issued. The commenter also suggested that HUD's proposed rule could 
negatively impact small businesses by creating unpredictable financial 
environments, which would cause business uncertainties and cash-flow 
issues.
    HUD Response: HUD disagrees that a 1 percent disbursement of 
mortgage proceeds prior to full disbursement of mortgagor-provided 
funds materially impairs the over-arching risk mitigation set forth by 
HUD's regulations. HUD has determined that 1 percent of the mortgage 
amount can be drawn before a borrower's equity is disbursed in full 
without impairing borrower incentive to protect its equity investment. 
HUD determined this, in part, by its experience processing mortgages 
and observing mortgagee performance while relying on the Partial Waiver 
of 24 CFR 200.54(b).

V. Findings and Certifications

Regulatory Review--Executive Orders 12866, 13563, and 14094

    Pursuant to Executive Order 12866 (Regulatory Planning and Review), 
a determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the Executive 
Order. Executive Order 13563 (Improving Regulations and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The order also directs Executive agencies to analyze regulations that 
are ``outmoded, ineffective, insufficient, or excessively burdensome, 
and to modify, streamline, expand, or repeal them in accordance with 
what has been learned.'' Executive Order 13563 further directs that, 
where relevant, feasible, and consistent with regulatory objectives, 
and to the extent permitted by law, agencies are to identify and 
consider regulatory approaches that reduce burdens and maintain 
flexibility and freedom of choice for the public. Executive Order 14094 
(Modernizing Regulatory Review) amends section 3(f) of Executive Order 
12866, among other things.
    The only substantive regulatory change made through this rulemaking 
is to permit mortgagees, where the funds provided by the mortgagor are 
not fully disbursed with the initial advance of the insured mortgage 
proceeds, to disburse up to 1 percent of the mortgage amount initially 
endorsed for insurance before requiring that the funds provided by the 
mortgagor be disbursed in full. This rulemaking was determined to not 
be a ``significant regulatory action'' as defined in section 3(f) of 
Executive Order 12866, as amended by Executive Order 14094, and is not 
an economically significant regulatory action and therefore was not 
subject to OMB review.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The changes in this rulemaking are limited to permitting mortgagees, 
where the funds provided by the mortgagor are not fully disbursed with 
the initial advance of the insured mortgage proceeds, to disburse up to 
1 percent of the mortgage amount initially endorsed for insurance 
before requiring that the funds provided by the mortgagor be disbursed 
in full. This change will not have a significant economic impact on a 
substantial number of small entities. Accordingly, the undersigned 
certifies that this final rule will not have a significant economic 
impact on a substantial number of small entities.

Federalism (Executive Order 13132)

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

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made, at the proposed rule stage of this rulemaking, in 
accordance with HUD regulations at 24 CFR part 50 that implement 
section 102(2)(C) of the National Environmental Policy Act of 1969 (42 
U.S.C. 4332(2)(C)). The FONSI remains applicable to this final rule and 
is available through the Federal eRulemaking Portal at https://www.regulations.gov. The FONSI is also available for public inspection 
during regular business hours in the Regulations Division, Office of 
General Counsel, Department of Housing and Urban Development, 451 7th 
Street SW, Room 10276, Washington, DC 20410-0500. Due to security 
measures at the HUD Headquarters building, you must schedule an 
appointment in advance to review the FONSI by calling the Regulations 
Division at 202-708-3055 (this is not a toll-free number). HUD welcomes 
and is prepared to receive calls from individuals who are deaf or hard 
of hearing, as well as individuals with speech or communication 
disabilities. To learn more about how to make an accessible telephone 
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

Unfunded Mandates Reform Act

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

[[Page 100743]]

List of Subjects in 24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing standards, Lead poisoning, Loan 
programs--housing and community development, Mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social security, Unemployment 
compensation, Wages.

    For the reasons stated in the preamble, HUD amends 24 CFR part 200 
as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

0
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).


0
2. In Sec.  200.54:
0
a. Amend paragraph (a) by removing the reference to ``paragraph (d)'' 
and adding, in its place, a reference to ``paragraph (c)'';
0
b. Amend paragraph (b) by removing the word ``mortgage'' and adding, in 
its place the term, ``insured mortgage'';
0
c. Redesignate paragraph (c) as paragraph (b)(1);
0
d. Amend newly redesignated paragraph (b)(1) by removing the word 
``mortgage'' and adding in its place the term, ``insured mortgage'' and 
by adding the word ``or'' at the end of the paragraph;
0
e. Add paragraph (b)(2); and
0
f. Redesignate paragraph (d) as paragraph (c).
    The addition reads as follows:


Sec.  200.54   Project completion funding.

* * * * *
    (b) * * *
    (2) If the mortgagor's deposit required by paragraph (a) of this 
section is not fully disbursed with the initial advance of the insured 
mortgage proceeds, the mortgagee may disburse up to one (1) percent of 
the mortgage amount initially endorsed for insurance before requiring 
that the funds provided by the mortgagor be disbursed in full. The 1 
percent of the initially endorsed mortgage amount may be disbursed in 
full at the time of initial endorsement or may be disbursed in any 
amount on a monthly basis, whether consecutive or nonconsecutive, until 
the funds provided by the mortgagor are fully disbursed.
* * * * *

Julia R. Gordon,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2024-29390 Filed 12-12-24; 8:45 am]
BILLING CODE 4210-67-P

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