Federal Housing Administration (FHA): Refinancing an Existing Cooperative Under Section 207 Pursuant to Section 223(f) of the National Housing Act
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Final rule.
CFR Part: "24 CFR Part 200"
RIN Number: "RIN 2502-AI92"
Citation: "79 FR 42187"
Document Number: "Docket No. FR 5395-F-02"
"Rules and Regulations"
SUMMARY: This final rule amends HUD's 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 regulations limit FHA insurance to existing rental projects. Given the significant needs identified for multifamily cooperative financing, the Department determined that it was appropriate to reconsider the regulatory imposed limitation. Accordingly, this rule revises HUD's regulations to enable existing multifamily cooperative project owners to obtain FHA insurance for the refinancing of existing indebtedness.
EFFECTIVE DATE: Effective Date:
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
I. Background
A. The
On
HUD's regulations implementing the section 223(f) program are codified at 24 CFR part 207 (entitled "
FOOTNOTE 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 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. END FOOTNOTE
Lack of financing has recently been a particular problem for multifamily cooperatives, which contend with legal restrictions on cooperative share transfers and requirements for approval by the board of a cooperative for some membership or operational changes. 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.
Through the
B. This Final Rule
This final rule follows publication of the
Comments were submitted by individuals, a local housing preservation and development agency, a national association representing the interests of housing cooperatives, and a national nonprofit organization focused on manufactured housing ownership. The majority of comments expressed support for the proposed regulatory changes, with a few commenters raising questions about the rule or offering suggestions for additional amendments. After careful consideration of the issues raised by the commenters, HUD has decided to adopt the proposed regulatory amendments without change.
The final regulatory text provides as did the proposed regulatory text 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 NHA, 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 NHA, may be insured pursuant to provisions of section 223(f) of the NHA and such terms and conditions established by HUD. HUD's risk management practices for the financing or refinancing of mortgages for all projects covered by section 207 of the National Housing Act, and which, as a result of this rule, would now include cooperatives provides for more careful review of projects that exceed
The following section of this preamble summarizes the significant issues raised by the commenters on the
II. Discussion of Public Comments Received on the
Comment: Include section 223(f) cooperative refinancing in the Multifamily Accelerated Processing (MAP) system. One commenter suggested that, in order to expedite processing time, HUD allow section 223(f) refinancing for housing cooperatives to be processed under the Multifamily Accelerated Processing (MAP) system. MAP is a processing procedure designed to establish national standards for approved lenders to prepare, process, and submit loan applications for FHA multifamily mortgage insurance.
HUD Response. HUD agrees that processing cooperative refinance transactions under MAP would expedite the processing of these transactions. Section 223(f) purchase loan transactions are already eligible for processing under MAP and HUD will consider including cooperative refinance transactions for processing under MAP.
Comment: Expand regulation to include manufactured housing cooperatives. One commenter urged HUD to include cooperatives formed by homeowners in manufactured home communities to be eligible for FHA mortgage insurance upon refinancing their existing blanket mortgage debt covering the land and infrastructure improvements. The commenter wrote that, consistent with the mission of FHA, manufactured housing cooperatives expand opportunities for low and moderate income homebuyers. The commenter wrote that resident ownership of manufactured home communities has proven critical to providing long-term housing security to homeowners.
HUD Response. HUD declines to accept the commenter's recommendation. It is HUD's long standing policy to not use Section 223(f) mortgage insurance for the refinancing of manufactured housing parks. The Section 223(f) program structure is not tailored to accommodate the unique risks and real estate features associated with financing for manufactured home communities. Such properties are appropriately served by conventional financing sources which can tailor loan terms and underwriting requirements to address these risks and real estate features. HUD notes that manufactured home cooperatives as well as other manufactured homeownership transactions are eligible under the Section 207 mortgage insurance program when substantial rehabilitation or new construction is proposed.
Comment: Questions regarding FHA programs. Two commenters raised concerns that supporting cooperatives by providing government support for refinancing could negatively affect other parts of the housing market. The commenters requested that HUD provide some basic information on such as the following issues: Where the money is coming from, who will pay for the mortgage insurance, and whether lenders could increase their rates during the life of the loan.
HUD Response. HUD disagrees that providing refinancing for cooperatives could negatively affect other parts of the housing market. Providing refinancing for cooperatives helps preserve affordable housing stock in the nation. With respect to basic information about Section 223(f) program, information about this program can be found at the following HUD Web site: http://portal.hud.gov:80/hudportal/HUD?src=/program_offices/housing/mfh/progdesc/purchrefi223f. This Web site provides detailed information about the Section 223(f) program,
III. Costs and Benefits
In providing for refinancing for cooperatives under the Section 223(f) program, the costs incurred by FHA and the borrower are costs typical of those associated with HUD's multifamily insurance programs. The documents and transactions for refinancing cooperatives are similar to those for FHA-insured multifamily programs, and the costs for the borrower are those that typically occur with closing the loan and document transaction costs. The costs for FHA include those pertaining to underwriting applications, overseeing construction advances, monitoring program compliance, collecting mortgage insurance premiums and processing claims for insurance. Typically these costs are offset by mortgage insurance premiums received under the program.
Additionally, with respect to costs and risks, and as noted earlier in this preamble, HUD's risk management practices for the financing or refinancing of mortgages for all projects covered by section 207 of the National Housing Act, and which, as a result of this rule, now includes cooperatives provides for more careful review of projects for which financing or refinancing exceed
While the costs are similar to those involved in FHA multifamily housing transactions, the benefits in allowing refinancing for cooperatives helps to preserve affordable housing stock in the U.S. Refinancing the existing underlying mortgage of a cooperative is considered a preferred alternative than expending a cooperative's reserve fund, which would have a negative impact on the cooperative's financial strength. Refinancing would help to avoid the need for a special assessment (often needed for a large emergency repair such as a leaking roof), which benefits the residents of a cooperative. If the cooperative's reserve fund is too low, the residents must pay the cost of the assessment, and this could harm low-to-moderate income occupants, especially those on a fixed income.
IV. Findings and Certifications
Executive Order 13563, Regulatory Review
The President's Executive Order (EO) 13563, entitled "Improving Regulation and Regulatory Review," was signed by the President on
HUD submits that the changes made by this rule are consistent with the directions of Executive Order 13563 as the rule extends refinancing to cooperatives, which increases affordable multifamily housing options under the Section 207 program. Refinancing a cooperative through FHA mortgage insurance promotes HUD's mission to increase the supply of affordable housing by assisting eligible cooperative projects to obtain refinancing to make necessary repairs and/or consolidate outstanding debt, thereby serving to preserve the affordable housing stock.
Regulatory Flexibility Act--Small Business
The Regulatory Flexibility Act (RFA) (5 U.S.C.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the environment was made at the proposed rule stage, in accordance with HUD regulations at 24 CFR part 50, which implements 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 for public inspection
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 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.
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 rule does 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 rule have been approved by the
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,
Accordingly, for the reasons stated above, HUD amends 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
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:
Assistant Secretary for Housing--
[FR Doc. 2014-17072 Filed 7-18-14;
BILLING CODE 4210-67-P
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