Proposed Rule2024-17033
Disbursing Multifamily Mortgage Proceeds: Permitting Mortgagees To Disburse Mortgage Proceeds With Mortgagor-Provided Funds
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 6, 2024
Issuing agencies
Housing and Urban Development Department
Abstract
When funds provided by a mortgagor to a mortgagee are not fully disbursed with the initial advance of the insured mortgage proceeds, the proposed rule would permit 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 proposed change would allow mortgagees to pool mortgages into mortgage-backed securities guaranteed by the Government National Mortgage Association prior to the funds provided by the mortgagor being disbursed in full.
Full Text
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<title>Federal Register, Volume 89 Issue 151 (Tuesday, August 6, 2024)</title>
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[Federal Register Volume 89, Number 151 (Tuesday, August 6, 2024)]
[Proposed Rules]
[Pages 63847-63850]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-17033]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 200
[Docket No. FR-6423-P-01]
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: Proposed 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, the proposed rule would permit 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 proposed change would allow mortgagees to pool mortgages
into mortgage-backed securities guaranteed by the Government National
Mortgage Association prior to the funds provided by the mortgagor being
disbursed in full.
DATES: Comments due October 7, 2024.
ADDRESSES: To receive consideration as public comments, comments must
be submitted through one of the two methods specified in the text that
follows. All submissions must refer to the docket number and title of
this proposed rule.
1. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
<a href="http://www.regulations.gov">www.regulations.gov</a>. 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 comments immediately available
to the public. Commenters should follow the instructions provided on
<a href="http://www.regulations.gov">www.regulations.gov</a> to submit comments electronically.
2. 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.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying at <a href="http://www.regulations.gov">www.regulations.gov</a> or between 8:00
a.m. and 5:00 p.m. weekdays at the above address. HUD strongly
encourages the public to view the docket file at <a href="http://www.regulations.gov">www.regulations.gov</a>.
Due to security measures at the HUD Headquarters building, an advance
appointment to review the public comments must be scheduled by calling
the Regulations Division at 202-402-3055 (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 <a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>.
In accordance with 5 U.S.C. 553(b)(4), a summary of this proposed
rule may be found at <a href="http://www.regulations.gov">www.regulations.gov</a>.
FOR FURTHER INFORMATION CONTACT: Willie Fobbs III, Director, Office of
Multifamily Production, Department of Housing and Urban Development,
451 7th Street SW, Room 6134, Washington, DC 20410, telephone 202-402-
3242 (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 <a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>.
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 require that a mortgagor 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 current 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
[[Page 63848]]
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 being disbursed within two
months after the insured mortgage is endorsed.
Given that 24 CFR 200.54(b) does not 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, the mortgage cannot be
pooled into a mortgage-backed security (MBS) guaranteed by the
Government National Mortgage Association (Ginnie Mae) without
conflicting with 24 CFR 200.54(b).\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
<a href="https://www.ginniemae.gov/about_us/who_we_are/Pages/funding_government_lending.aspx">https://www.ginniemae.gov/about_us/who_we_are/Pages/funding_government_lending.aspx</a>.
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This conflict with 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 where this
conflict exists, the mortgagee must either implement unusual and
burdensome mortgage servicing practices to maintain compliance with 24
CFR 200.54(b) or else the mortgagee will not be able to pool the
insured mortgage into a Ginnie Mae guaranteed MBS at the time of
endorsement. 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 the described conflict 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
waived 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) permitted, to the extent necessary,
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 pool
insured mortgages into Ginnie Mae guaranteed MBSs when mortgagor-
provided funds are not fully disbursed at the time the insured mortgage
is endorsed because it allows mortgagees to meet the Ginnie Mae
requirement that the insured mortgage proceeds be disbursable.
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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. This Proposed Rule
The Proposed Exception to 24 CFR 200.54(b)
Through this proposed rule, HUD proposes 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. This proposed rule would also 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.
As described in the Background section of this proposed rule, 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. HUD is proposing to
set the amount of the proposed exception to 24 CFR 200.54(b) at 1
percent of the initially endorsed mortgage amount because in an
environment where mortgage interest rates increase, additional
mortgagor-provided funds are required to be deposited with the
mortgagee. Where additional mortgagor-provided funds are deposited with
a mortgagee, there is an increased chance that the mortgagor-provided
funds will not be fully disbursed when the insured mortgage is
initially endorsed. Permitting a 1% of the initially endorsed mortgage
amount exception to 24 CFR 200.54(b) will allow additional mortgages to
be securitized at the time of endorsement with no incremental risk to
HUD compared to the one-half percent (0.5%) prescribed in the Partial
Waiver of 24 CFR 200.54(b).
The proposed exception to 24 CFR 200.54(b) would allow mortgagees
to disburse mortgagor-provided funds for project-related expenses in
conjunction with the proceeds from the insured mortgage at the time the
mortgage is initially endorsed even where the mortgagor-provided funds
are not fully disbursed with the initial advance of the insured
mortgage proceeds. This would allow mortgagees to pool a mortgage into
a Ginnie Mae guaranteed MBS even when the mortgagor-provided funds were
not fully disbursed with the initial advance of the insured mortgage
proceeds.
This proposed exception would 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
[[Page 63849]]
the mortgagor-provided funds will not be fully disbursed during the
initial advance of the insured mortgage proceeds. HUD believes that the
proposed exception would help ensure that interest rates for FHA-
insured mortgages remain competitive and ensure the liquidity of FHA-
insured mortgages on the secondary mortgage market.
Alternative Solution Considered
In determining whether to propose the exception to 24 CFR
200.54(b), HUD considered whether an alternative solution to the
proposed exception to 24 CFR 200.54(b) existed that would better
address the issue outlined throughout this proposed rule. One
alternative solution considered by HUD was to encourage the mortgage
industry to contract for the future delivery of MBSs once all
mortgagor-provided funds had been disbursed from the insured mortgages
that were to be pooled. While this solution could, in theory, correct
the same issue that the proposed exception addresses, HUD ultimately
determined that this would likely cause higher borrowing costs for
mortgagors because interest rates would need to be hedged through some
mechanism. Further, mortgagees would potentially experience unfavorable
accounting classifications, having to book recently closed mortgages as
``mortgages held for sale,'' rather than booking closed mortgages as
the more favorable ``mortgage serving rights.'' Mortgagees could also
face unfavorable changes to their counterparty credit profile because
of the need to hold whole mortgages on their balance sheet for a number
of months, likely precluding smaller mortgagees from warehouse credit
and potentially creating funding constraints. For these reasons, HUD
believes that the proposed exception to 24 CFR 200.54(b) would be a
better solution for mortgagors, mortgagees, FHA, and the secondary
mortgage markets.
Evaluation of the Partial Waiver of 24 CFR 200.54(b)
HUD has evaluated the results of granting the Partial Waiver of 24
CFR 200.54(b). At the time that HUD granted the Partial Waiver of 24
CFR 200.54(b), HUD determined that permitting up to one-half percent
(.5%) of the initially endorsed mortgage amount to be disbursed
represented only a negligible increase of risk to FHA. As expected,
since granting the Partial Waiver of 24 CFR 200.54(b) in July 2021, HUD
has received positive feedback from mortgagees regarding the use of the
partial waiver and FHA has experienced no negative impacts due to
mortgagees' reliance on the partial waiver.
In reviewing the knowledge gained from the implementation of the
Partial Waiver of 24 CFR 200.54(b), HUD designed this proposed rule to
be similar to the partial waiver, with a notable exception being that
this proposed rule permits mortgagees to disburse mortgage proceeds in
an amount up to 1 percent, rather than one-half percent, of the
initially endorsed mortgage amount before requiring that the mortgagor-
provided funds be disbursed in full. HUD determined that the proposed 1
percent of the initially endorsed mortgage amount produces no
meaningful increase of risk to FHA, while better helping to ensure that
mortgagees are more easily able to pool mortgages into Ginnie Mae
guaranteed MBSs.
In summary, HUD believes that the proposed exception to 24 CFR
200.54(b) is the best solution to the potential conflict with the
requirements in 24 CFR 200.54(b) where the mortgagor-provided funds are
not fully disbursed with the initial advance of the insured mortgage
proceeds for mortgages intended to be pooled into Ginnie Mae guaranteed
MBSs. The proposed exception would assist FHA in keeping its mortgage
products competitive and would further HUD's mission to create strong,
sustainable, inclusive communities and affordable homes for all.
III. 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.
As discussed in this preamble, the only substantive regulatory
change proposed in this rule 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 rule was determined not to 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 proposed in this rule 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. These proposed changes would not have a significant economic
impact on a substantial number of small entities. Accordingly, the
undersigned certifies that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
Notwithstanding HUD's determination that this rule will not have a
significant impact on a substantial number of small entities, HUD
specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in the preamble to this rule.
Executive Order 13132, Federalism
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
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Executive Order. This proposed rule 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 with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
which implement section 102(2)(C) of the National Environmental Policy
Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of No Significant
Impact is available for public inspection on <a href="http://www.regulations.gov">www.regulations.gov</a> and
between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations
Division, Office of General Counsel, Room 10276, Department of Housing
and Urban Development, 451 7th Street SW, Washington, DC 20410-0500.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for Federal agencies to
assess the effects of their regulatory actions on State, local, and
Tribal governments, and on the private sector. This proposed rule would
not impose any Federal mandates on any State, local, or Tribal
governments, or on the private sector, within the meaning of the UMRA.
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 above, HUD proposes to amend 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. Revise paragraph (a) by removing the citation to ``paragraph (d)''
and adding, in its place, a citation to ``paragraph (c)'';
0
b. Revise paragraph (b) by removing the word ``mortgage'' and adding,
in its place, ``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, ``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 funds provided by the mortgagor are not fully disbursed
with the initial advance of the insured mortgage proceeds, the
mortgagee may 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. 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. 2024-17033 Filed 8-5-24; 8:45 am]
BILLING CODE 4210-67-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.