[Federal Register Volume 76, Number 21 (Tuesday, February 1, 2011)]
[Proposed Rules]
[Pages 5518-5521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2170]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 200
[Docket No. FR 5395-P-01]
RIN 2502-AI92
Federal Housing Administration (FHA): Refinancing an Existing
Cooperative Under Section 207 Pursuant to Section 223(f) of the
National Housing Act
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: HUD proposes to revise its regulations governing the
eligibility for FHA insurance of mortgages used for the purchase or
refinancing of existing multifamily housing projects. Although the
statutory language authorizing such insurance does not distinguish
between rental or cooperative multifamily projects, HUD's current
regulations limit FHA insurance to existing rental projects. Given the
current crisis in the capital markets and the significant downturn in
the multifamily market, the Department has determined that this is an
appropriate time to reconsider this regulatory imposed limitation with
respect to the mortgage insurance for the refinancing of cooperative
projects. As mortgage lenders strive to increase capital reserves and
tighten underwriting standards, the availability of financing for
multifamily housing has been reduced. FHA mortgage insurance could
significantly improve the availability of funds and permit more
favorable interest rates than would otherwise be likely. Accordingly,
this proposed rule would revise HUD's regulations to enable existing
multifamily cooperative project owners to obtain FHA insurance for the
refinancing of existing indebtedness.
DATES: Comment Due Date: April 4, 2011.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Regulations Division, Office of General
Counsel, Department of Housing and Urban 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
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7th Street, SW., Room 10276, Washington, DC 20410-0500.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
http://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
http://www.regulations.gov Web site can be viewed by other commenters
and interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
rule.
No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above 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 Information Relay Service at 800-877-8339. Copies of all
comments submitted are available for inspection and downloading at
http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Joyce Allen, Director, Office of
Multifamily Housing Development, Department of Housing and Urban
Development, 451 7th Street, SW., Room 6134, Washington, DC 20410-8000;
telephone number 202-708-1142 (this is not a toll-free number). Persons
with hearing or speech impairments may access this number through TTY
by calling the toll-free Federal Information Relay Service at 800-877-
8339.
SUPPLEMENTARY INFORMATION:
I. Background
Under section 223(f)(1) of the National Housing Act (12 U.S.C.
1715n(f)(1)) (NHA), FHA is authorized to insure mortgages executed in
connection with the purchase or refinancing of an existing multifamily
housing project. The existing multifamily housing project to be
purchased or refinanced may have been financed originally with
conventional debt, equity, or FHA insured mortgages. The section 223(f)
program insures lenders against loss on mortgage defaults and allows
for long term mortgages (up to 35 years). In general, a project is
eligible for section 223(f) mortgage insurance if the sponsor can
demonstrate that there is a definite market demand, and that the
project is economically self-sufficient.
HUD's regulations implementing the section 223(f) program are
codified at 24 CFR part 207 (entitled ``Multifamily Housing Mortgage
Insurance''). Section 207.1 of these regulations cross references to
the eligibility requirements for existing projects contained in 24 CFR
200.24 and makes the eligibility requirements applicable to multifamily
project mortgages insured under section 24 CFR part 207.\1\ Section
200.24 provides that ``a mortgage financing the purchase or refinance
of an existing rental housing project * * * may be insured pursuant to
the provisions of section 223(f) of the [National Housing] Act * * *''
(emphasis added). Thus, while the statutory language of section 223(f)
authorizes FHA mortgage insurance for existing multifamily housing
projects, irrespective of whether the project is for rental or
cooperative housing, HUD's regulations limit section 223(f) financing
to rental housing.
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\1\ The regulations codified at 24 CFR part 200 (entitled
``Introduction to FHA Programs'') set forth, in a single location of
the Code of Federal Regulations, requirements that are generally
applicable to FHA programs. Section 207.1 actually cross-references
to the ``eligibility requirements set forth in 24 CFR part 200,
subpart A * * *'' Section 200.24 is the relevant eligibility
provision for existing multifamily projects in subpart A of 24 CFR
part 200.
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Given the current downturn in the mortgage lending market, HUD has
decided to reconsider the regulatory imposed limitation on section
223(f) mortgage financing to rental projects. A recent HUD report on
U.S. Housing Market Conditions \2\ indicated that performance in the
multifamily (five or more units) housing sector continued to be weak in
the third quarter of 2009. The report further notes that:
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\2\ 2009 HUD Office of Policy Development and Research, U.S.
Housing Market Conditions November 2009 p. 4, 5. The report notes
that in the production sector, building permits, starts, and
completions all declined. The absorption rate of new rental units
fell during the third quarter, and the rental vacancy rate increased
sharply.
During the years of rapid home price appreciation from 2004
through 2006 (and possibly into 2008 for multifamily housing) the
aggressive underwriting standards that characterized the subprime
home mortgage market were mirrored in the multifamily mortgage
market. While subprime mortgagees used hybrid adjustable-rate
mortgages to help borrowers afford higher priced single-family
homes, some multifamily lenders employed pro-forma underwriting
based on aggressive estimates of future earnings and 5 to 10 year,
interest only balloon and other short-term mortgages to support
rising property prices in similarly overheated multifamily housing
markets. Some of these mortgages will be due in the next few
years.\3\
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\3\ See page 5 of the report referenced in footnote 2.
Like single-family housing financing, multifamily housing is thus
facing a credit crunch. Lenders' efforts to increase capital reserves
and loan committee efforts to tighten underwriting standards both
reduce the availability of financing for all multifamily housing.
Credit constraints thus exacerbate trends in an already weak
multifamily market. FHA mortgage insurance could both improve the
availability of funds to this sector and permit more favorable interest
rates than would otherwise be likely. This credit enhancement would
provide needed support to a market segment which is currently
experiencing diminished operating cash flows and depreciated collateral
values.
The lack of financing is a particular problem for cooperatives.
Cooperatives contend with legal restrictions on cooperative share
transfers and many require approval by the board of a cooperative for
some membership or operational changes. These issues raise concerns
with traditional financial institutions. In addition, ``affordable''
cooperatives, which have low initial purchase prices, limited
maintenance fees, and a cap on unit resale prices, face further
challenges because the potential for generating new income through
turnover of units and additional assessments is low. HUD has received
inquiries from several existing cooperatives that have expressed an
interest in refinancing their underlying mortgages. The average age of
these projects is 35 years.
Refinancing at the current low interest rates could improve the
viability of these types of cooperative housing projects in several
ways. By reducing the servicing cost of their underlying mortgage,
often substantially due to a high rate when the loan was originally
made, a board of directors can accomplish a number of desirable goals.
Shareholders could finance the cost of necessary capital improvement
projects, such as fa[ccedil]ade restoration or elevator
[[Page 5520]]
renovations. Refinancing would also allow cooperative boards to avoid
special assessments, a source of unexpected financial stress for many
residents when doubled up with existing monthly maintenance fees. These
types of assessments can be particularly painful during economic
downturns when unemployment is relatively high in some urban areas.
Facilitating the refinancing of cooperatives through mortgage
insurance issued under section 223(f) of the NHA would thus help to
further HUD's mission of preserving affordable housing by assisting
eligible cooperative projects to obtain refinancing to make necessary
repairs and/or consolidate more expensive outstanding debt, thereby
preserving affordable housing stock. Therefore, HUD is currently
proposing to remove this regulatory limitation in recognition of
cooperative financing needs.
II. This Proposed Rule
This proposed rule would revise Sec. 200.24 of HUD's regulations
to enable owners of cooperative projects to obtain FHA insurance for
their mortgage loans. Specifically, the proposed rule would amend Sec.
200.24 to provide that ``a mortgage financing the purchase or refinance
of an existing rental housing project or refinance of the existing debt
of an existing cooperative project under Section 207 of the [National
Housing] Act, or for refinancing the existing debt of an existing
nursing home, intermediate care facility, assisted living facility, or
board and care home, or any combination thereof, under Section 232 of
the [National Housing] Act, may be insured pursuant to provisions of
Section 223(f) of the [National Housing] Act and such terms and
conditions established by HUD.'' Extending the section 223(f) mortgage
insurance program to refinancing of the debt of multifamily cooperative
housing projects is consistent with HUD's strategic goals of recreating
a strong housing finance system and promoting affordable, financially
sustainable multifamily housing options. When combined with judicious
use of reserves to make capital improvements to maintain the property,
the credit enhancement provided by this proposed rule will help
rejuvenate properties and enhance the economic life of multifamily
cooperative housing projects.
III. Findings and Certifications
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this proposed
rule under Executive Order 12866 (entitled ``Regulatory Planning and
Review''). This proposed rule was determined to be a ``significant
regulatory action,'' as defined in section 3(f) of the Order (although
not economically significant, as provided in section 3(f)(1) of the
Order).
The docket file is available for public inspection 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,
please schedule an appointment to review the docket file by calling the
Regulations Division at 202-402-3055 (this is not a toll-free number).
Individuals with speech or hearing impairments may access this number
via TTY by calling the Federal Information Relay Service at 800-877-
8339.
Regulatory Flexibility Act--Small Business
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
As discussed above, the purpose of the proposed rule is to expand
eligibility for financing under section 223(f) to enable owners of
multifamily cooperative housing projects to refinance their existing
mortgage debt with FHA insurance. Owners of such projects will be able
to obtain 223(f) financing under the same terms and conditions as
currently eligible owners of multifamily rental projects. Cooperative
housing owners will not be subject to any additional procedures or
required to incur any additional costs.
Accordingly, the undersigned certifies that this rule will not have
a significant economic impact on a substantial number of small
entities. Notwithstanding HUD's determination that this rule will not
have a significant effect on a substantial number of small entities,
HUD specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in the preamble to this rule.
Environmental Impact
A Finding of No Significant Impact (FONSI) 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 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. Due to security
measures at the HUD Headquarters building, please schedule an
appointment to review the FONSI 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 Information Relay Service at (800) 877-8339.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either (1) imposes substantial direct compliance costs on state and
local governments, and is not required by statute, or (2) the rule
preempts state law, unless the agency meets the consultation and
funding requirements of section 6 of the Executive Order. This proposed
rule would not have federalism implications and would not impose
substantial direct compliance costs on state and local governments or
preempt state law within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. This proposed rule would
not impose any federal mandates on any state, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
Paperwork Reduction Act
The information collection requirements for this proposed rule have
been approved by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB
control number 2502-XXXX. In accordance with the Paperwork Reduction
Act, an agency may not
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conduct or sponsor, and a person is not required to respond to, a
collection of information, unless the collection displays a currently
valid OMB control number.
Catalogue of Federal Domestic Assistance
The Catalogue of Federal Domestic Assistance Number for the
principal FHA mortgage insurance program is 14.155.
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.
Accordingly, for the reasons stated above, HUD proposes to amend 24
CFR part 200 as follows:
PART 200--INTRODUCTION TO FHA PROGRAMS
1. The authority citation for 24 CFR part 200 continues to read as
follows:
Authority: 12 U.S.C. 1703, 1709, and 1715b; 42 U.S.C. 3535(d).
2. Revise Sec. 200.24 to read as follows:
Sec. 200.24 Existing projects.
A mortgage financing the purchase or refinance of an existing
rental housing project or refinance of the existing debt of an existing
cooperative project under section 207 of the Act, or for refinancing
the existing debt of an existing nursing home, intermediate care
facility, assisted living facility, or board and care home, or any
combination thereof, under section 232 of the Act, may be insured
pursuant to provisions of section 223(f) of the Act and such terms and
conditions established by HUD.
Dated: December 20, 2010.
David H. Stevens,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2011-2170 Filed 1-31-11; 8:45 am]
BILLING CODE 4210-67-P