Federal Housing Administration (FHA): Single Family Mortgage Insurance Maximum Time Period for Filing Insurance Claims, Curtailment of Interest and…
Proposed rule.
CFR Part: "24 CFR Part 203"
RIN Number: "RIN 2502-AJ23"
Citation: "80 FR 38410"
Document Number: "Docket No. FR-5742-P-01"
Page Number: "38410"
"Proposed Rules"
SUMMARY: This proposed rule would establish the maximum time period within which an FHA-approved mortgagee must file a claim with FHA for insurance benefits. HUD's current regulations are silent with respect to a deadline by which a claim for insurance benefits must be filed with FHA. Due to the downturn in the housing market, which resulted in a significant increase in mortgage defaults, some mortgagees have refrained from promptly filing claims for insurance benefits and instead have opted to wait and file multiple claims with FHA at a single point in time. The uncertainty regarding a deadline by which a claim must be filed, and the number of claims currently being filed at a single point in time strain FHA resources and negatively impact FHA's ability to project the future state of the
EFFECTIVE DATE: Comment Due Date:
ADDRESSES: Interested persons are invited to submit comments regarding this rule to the Regulations Division,
1. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division,
2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the www.regulations.gov 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 proposed 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
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION: HUD's regulations for FHA single family mortgage insurance are codified in 24 CFR part 203. These regulations address mortgagee eligibility requirements and underwriting procedures, contract rights and obligations, and the mortgagee's servicing obligations. These regulations also address action to be taken by a mortgagee when a mortgagor defaults on a loan, such as undertaking loss mitigation as provided in
FOOTNOTE 1 See http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh/4330.4 and https://entp.hud.gov/pdf/mp_sfs3_cp_clminpt.pdf. END FOOTNOTE
FOOTNOTE 2 http://www.hud.gov/offices/adm/hudclips/forms/files/27011.pdf. END FOOTNOTE
Mortgagees generally file claims for FHA mortgage insurance within 2 months after the date of the foreclosure sale. In recent years, however, some mortgagees altered this practice and opted to wait and file multiple claims with FHA at a single point in time. In some instances, mortgagees delayed filing claims for 2 years or more after foreclosure sales. The uncertainty regarding the timing of the filing of claims and the high number of claims filed all at once strain FHA resources. This activity has the potential to negatively impact HUD's ability to project the future state of the MMIF, and, consequently, FHA's ability to fulfill the statutory obligation to safeguard the MMIF. A delay in filing a claim also increases interest, property charges and other expenses included in the insurance benefit claim and can result in additional decline in the value of a property that had been the security for the FHA-insured mortgage foreclosed by the mortgagee, thereby reducing the amount FHA could recover on a real estate owned (REO) sales transaction. The proposed rule is designed to address these concerns.
II. This Proposed Rule
Through this rule, HUD proposes to amend FHA's regulations in subpart B of 24 CFR part 203, which govern the contract rights and obligations pertaining to FHA single family mortgage insurance. The proposed rule would add a new
Termination of Contract of Insurance for Mortgagee's Failure To File a Claim
New SEC 203.317a of this proposed rule would cause the contract of insurance to terminate if the mortgagee fails to file a claim within the maximum allowable time periods for filing the claim, and the proposed amendment to
Deadline by Which Mortgagee Must File a Claim for Insurance Benefits
In general, proposed
For a property acquired by the mortgagee through foreclosure, new
For a property sold through a pre-foreclosure sale (PFS), or Claim Without Conveyance of Title (CWCOT), new
For a property acquired by the mortgagee through a deed-in-lieu of foreclosure, new
The proposed deadline for filing mortgage insurance claims will bring greater certainty to the claims process, thereby facilitating HUD's ability to comply with its statutory obligation to protect the FHA insurance funds. HUD believes that these time periods in which to submit a claim for insurance, as proposed in new
Disallowance of Expenses and Requirement To Curtail Interest Due to Failure To Meet Established Timelines
In addition to establishing a deadline by which a mortgagee must file a claim for insurance benefits, this rule proposes to amend
The amended
Examples of Claim Curtailment Proration
Example 1
* The mortgagee completes First Legal Action on calendar day 230 instead of the First Legal Action deadline, which is day 180 (i.e., 6 months). The allowable and reasonable costs including interest, attorney fees, taxes, insurance, homeowner association (HOA)/condominium association (COA) fees, maintenance, etc., incurred during the First Legal Action completion period total
* The reasonable due diligence timeframe (which includes 30 days to file a claim) is 15 months from the completion of First Legal Action in this hypothetical example. /3/ The mortgagee conveys the property in conveyance condition in 13 months. The total allowable and reasonable costs incurred for the above-referenced timeframe for taxes, insurance, and maintenance is
FOOTNOTE 3 Reasonable diligence timeframes are established for each jurisdiction and updated by mortgagee letter. END FOOTNOTE
* Final Outcome: The mortgagee is required to curtail total claim expenses of
Example 2
* A mortgagee receives a 30 day extension to evaluate a mortgagor for loss mitigation because the mortgagor's expenses have decreased since the previous evaluation for loss mitigation. However, the mortgagor does not qualify for loss mitigation. The mortgagee completes First Legal Action on calendar day 252 instead of the First Legal Action deadline, which is day 210 (i.e., 6 months + 30 day extension). The allowable and reasonable costs including interest, attorney fees, taxes, insurance, maintenance, HOA/COA fees, etc., incurred during the First Legal Action completion period total
* The reasonable due diligence timeframe, which includes 30 days to file a claim, is 10 months (300 calendar days) from completing First Legal Action in this hypothetical example. /4/ The mortgagee conveys the property in conveyance condition in 540 calendar days. The total allowable and reasonable costs incurred for the referenced timeframe for taxes, insurance, and maintenance is
FOOTNOTE 4 Reasonable diligence timeframes are established for each jurisdiction and updated by mortgagee letter. END FOOTNOTE
* Final Outcome: The mortgagee is required to curtail total claim expenses of
Existing SEC 203.365, which pertains to documents and information to be furnished to the Secretary under a claim review, lists items to be furnished to the Secretary within 45 days after a deed is filed for record in the case of a conveyance claim or within 30 days after the closing of the pre-foreclosure sale in the case of a claim arising from a pre-foreclosure sale. The amended
The regulatory changes proposed by this rule emphasize the importance of meeting established deadlines and provide for the denial of insurance benefits and disallowance of payment of expenses where such deadlines are not met.
III. Costs and Benefits of Proposed Rule
This rule proposes to establish a maximum time period within which an FHA-approved mortgagee must file a claim with FHA for mortgage insurance benefits. Currently, there is not a required timeframe in which mortgagees must file claims for FHA mortgage insurance. The cost to mortgagees of compliance with this proposed rule is expected to be minimal. The cost of compliance for each loan is estimated to be
This proposed rule offers many important benefits to FHA, including certainty regarding when payment will be sought on claims and increased recovery on REO sales transactions. In recent years, some mortgagees have opted to wait and file multiple FHA mortgage insurance claims at a single point in time, sometimes delaying the filing of claims for 2 years or more. See Table 1 for data on the timing of the filing of insurance claims. The uncertainty regarding the timing of the filing of claims and the high number of claims filed all at once strain FHA resources. This proposed rule will provide a better measurement of expected claims because it provides a definite date for which the mortgagee is no longer able to file a claim. Additionally, this proposed rule would ease the burden on mortgagees by allowing for the curtailment of interest and expenses associated with the actual delay of the mortgagee, rather than all interest and expenses incurred beyond a missed deadline until the termination of the insurance contract.
Table 1--Mortgagee Filing of Claims Within Specified Time Periods From FY 2008-2014 Fiscal year Number of Claims Claims Claims Claims Claims claims filed filed filed filed filed more processed within 30 within 31- within 61- within 91- than 180 & paid days of 60 days of 90 days of 180 days days of (Total) good & good & good & of good & marketable marketable marketable good & marketable title or title or title or marketable title or conveyance conveyance conveyance title or conveyance extension extension extension conveyance extension expiration expiration expiration extension expiration (percent) (percent) (percent) expiration (percent) (percent) FY 2008 55,700 60.64 23.57 4.87 6.04 4.88 FY 2009 68,859 55.72 26.74 5.88 6.45 5.21 FY 2010 98,689 49.87 29.41 7.30 8.01 5.41 FY 2011 90,218 46.03 26.33 9.08 10.46 8.10 FY 2012 100,508 41.20 22.83 7.94 10.08 17.95 FY 2013 110,692 35.08 22.09 10.73 17.10 15.00 2014 50,260 32.30 17.12 11.10 19.03 20.45 (10/1/2013- 7/18/2014)
The uncertainty resulting from long-delayed filing of FHA insurance claims has the potential to negatively impact HUD's ability to project the future state of the MMIF, and, consequently, FHA's ability to fulfill its statutory obligation to safeguard the MMIF. Therefore, establishing a timeframe in which mortgagees must file FHA mortgage insurance claims will bring better predictability to FHA. The ability to better project capitalization of the MMIF will lessen the likelihood of FHA needing to obtain a capital infusion to support the solvency of the MMIF.
When the filing of an FHA insurance claim is delayed, it also results in increased property charges and other expenses included in the insurance benefit claim and can result in additional decline in the value of a property that had been the security for the FHA-insured mortgage foreclosed by the mortgagee, thereby reducing the amount FHA could recover on REO sales transactions. By preventing delayed claim filing, FHA expects to reduce claim cost, primarily due to taxes and insurance, of more than
IV. Findings and Certifications
Paperwork Reduction Act
The information collection requirements contained in this document have been approved by the
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C.
This proposed rule would address an issue that has arisen recently and that is the high number of defaults resulting from the downturn in the housing market that began in late 2007 and early 2008. Until that point, FHA-approved mortgagees filed insurance claims within a reasonable time following a foreclosure of the property or the last event that must be taken by an FHA-approved mortgagee prior to filing the insurance claim. HUD understands the strain on resources placed on FHA-approved mortgagees facing a high number of defaults by their mortgagors, and that bundling and filing multiple claims at a single point in time may be administratively convenient for the mortgagees. However, submission of a high number of claims to FHA by one single mortgagee at one single point in time long after the triggering event strains FHA resources and negatively impacts FHA's ability to project the future state of the MMIF, and, consequently, FHA's ability to fulfill its statutory obligation to safeguard the MMIF. The recent filing of multiple claims at a single point in time has emphasized to FHA the need to establish a deadline for filing insurance claims, which are absent from the regulations. While government and the industry have been working diligently since 2008 to implement requirements and measures to be taken to avoid another housing crisis, a clear deadline for filing an insurance claim will benefit both FHA and FHA-approved mortgagees.
HUD believes that the relevant time periods to file a claim for insurance benefits are reasonable periods for all FHA-approved mortgagees, large and small, and will not adversely affect any mortgagee. Additionally, HUD's existing regulations authorize the FHA Commissioner to extend any time period for action to be taken by FHA-approved mortgagees under the regulations of 24 CFR part 203, subpart C, and this authorization allows the FHA Commissioner to take into consideration any difficulties that may be faced by a mortgagee to meet a deadline. Moreover, this rule will benefit mortgagees because it will require mortgagees to only curtail the expenses and interest associated with the length of the delay beyond a required deadline, rather than all otherwise permissible expenses after a missed deadline for the remaining life of the loan, regardless of the length of the delay. At present, a missed foreclosure initiation deadline by one day could result in interest curtailment and disallowance of expenses for the remaining life of the loan, through the entire foreclosure and conveyance process until final termination of the FHA insurance contract.
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 economic 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.
Environmental Impact
The proposed rule does not direct, provide for assistance or loan and mortgage insurance for, or otherwise govern or regulate, real property acquisition, disposition, leasing, rehabilitation, alteration, demolition, or new construction, or establish, revise or provide for standards for construction or construction materials, manufactured housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this proposed rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).
Executive Order 13132, Federalism
Executive Order 13132 (entitled "Federalism") prohibits an agency from publishing any rule that has federalism implications if the rule either (i) imposes substantial direct compliance costs on state and local governments and is not required by statute, or (ii) 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.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number for Mortgage Insurance--Homes is 14.117.
List of Subjects in 24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--housing and community development, Mortgage insurance, Reporting and recordkeeping requirements, Solar energy.
Accordingly, for the reasons described in the preamble, HUD proposes to amend 24 CFR part 203 as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority citation for part 203 continues to read as follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, and 1717z-21; 42 U.S.C. 3535(d).
2. Add
For mortgages endorsed for insurance on or after [insert effective date], the contract of insurance shall be terminated if the mortgagee fails to file a claim within the maximum time periods for filing a claim of insurance benefits in
3. Revise
No contract of insurance shall be terminated until the mortgagee has given written notice thereof to the Commissioner within 15 calendar days from the occurrence of one of the approved methods of termination set forth in this subpart, except that such written notice is not required for termination of the insurance contract under
4. Add
(a) This section applies to mortgages endorsed for insurance on or after [insert effective date].
(b) No claim for insurance benefits may be filed, regardless of claim processing type, more than 12 months after expiration of a period of time from the date of default that is equal to the amount of time provided in the reasonable diligence timeframe established under
(c) In addition to the time period in paragraph (b) of this section, no conveyance, pre-foreclosure sale, or deed-in-lieu claim may be filed outside of the time period established by claim type under this paragraph.
(1) Property acquired by foreclosure. For a property acquired by foreclosure, a mortgagee must file a claim for insurance benefits no later than 3 months from the date of the occurrence of one the following events, whichever event is the last to occur:
(i) The date of the foreclosure sale;
(ii) The date of expiration of the redemption period (the period allowed the mortgagor to redeem and regain ownership of the property);
(iii) The date that the mortgagee acquires possession of the property (i.e., the property is vacant); or
(iv) Such further time as the Secretary or the Secretary's designee may approve in writing.
(2) Property not acquired by the Secretary. For a property not acquired by the Secretary that is sold through a pre-foreclosure sale or the claim without conveyance of title (CWCOT) process, the mortgagee must file a claim for insurance benefits no later than 3 months following the date of closing, for a pre-foreclosure sale; or the date determined in paragraph (b)(1) of this section, for a CWCOT.
(3) Property acquired by means other than foreclosure. For a property acquired by deed-in-lieu of foreclosure, the mortgagee must file a claim for insurance benefits no later than 3 months from the date of conveyance of the property to the mortgagee or the date of conveyance of the property to the Secretary, whichever occurs first.
(d) Resubmission of claims. The filing of a claim does not toll the time periods set forth in this section or guarantee an extension of time in which to file or refile a claim that has been withdrawn or denied for any reason, including claims resubmitted after the initial claim resulted in a repurchase of a loan or reconveyance of property.
5. Amend
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(k)(1) Except as provided in paragraphs (k)(1)(i) and (ii) of this section, for properties conveyed to the Secretary and endorsed for insurance on or before
(i) For properties endorsed for insurance on
(A) When the mortgagee fails to meet any one of the applicable requirements of SUBSEC 203.355, 203.356(b), 203.359, 203.360, 203.365, 203.606(b)(l), or 203.366 within the specified time and in a manner satisfactory to the Secretary (or within such further time as the Secretary may approve in writing), the interest allowance in such cash payment shall be computed only to the date on which the particular required action should have been taken or to which it was extended; and
(B) When the mortgagee fails to meet the requirements of
(ii) For properties endorsed for insurance on or after [insert effective date]:
(A) When the mortgagee fails to meet any one of the applicable requirements of SUBSEC 203.355, 203.356(b), 203.359, 203.360, 203.365, 203.606(b)(l), 203.366, or 203.402(u), within the specified time and in a manner satisfactory to the Secretary (or within such further time as the Secretary may approve in writing), the interest allowance in such cash payment shall be reduced by the amount determined, based on a pro rata calculation of interest by day, to have been incurred as a result of the failure of the mortgagee to comply with the specified time period; and
(B) When the mortgagee fails to meet the requirements of
(2)(i) Where a claim for insurance benefits is being paid without conveyance of title to the Commissioner in accordance with
(A) The debenture interest that would have been earned, as of the date the mortgagee or a party other than the mortgagee acquires good marketable title to the mortgaged property, on an amount equal to the amount by which an insurance claim determined in accordance with
(B) The debenture interest that would have been earned from the date the mortgagee or a party other than the mortgagee acquires good marketable title to the mortgaged property to the date when payment of the claim is made, on the portion of the insurance benefits paid in cash if such portion had been paid in debentures, except that if the mortgagee fails to meet any of the applicable requirements of SUBSEC 203.355, 203.356, and 203.368(i)(3) and (5) within the specified time and in a manner satisfactory to the Commissioner (or within such further time as the Commissioner may approve in writing), the interest allowance in such cash payment shall be computed only to the date on which the particular required action should have been taken or to which it was extended.
(ii) Where a claim for insurance benefits is being paid without conveyance of title to the Commissioner in accordance with
(A) Debenture interest at the rate specified in
(B) Debenture interest at the rate specified in
(iii) Where a claim for insurance benefits is being paid without conveyance of title to the Commissioner in accordance with
(A) Debenture interest at the rate specified in
(B) Debenture interest at the rate specified in
(3)(i) Where a claim for insurance benefits is being paid following a pre-foreclosure sale, without foreclosure or conveyance to the Commissioner in accordance with
(A) The debenture interest that would have been earned, as of the date of the closing of the pre-foreclosure sale on an amount equal to the amount by which an insurance claim determined in accordance with
(B) The debenture interest that would have been earned, from the date of the closing of the pre-foreclosure sale to the date when payment of the claim is made, on the portion of the insurance benefits paid in cash, if such portion had been paid in debentures; except that if the mortgagee fails to meet any of the applicable requirements of
(ii) Where a claim for insurance benefits is being paid following a pre-foreclosure sale, without foreclosure or conveyance to the Commissioner, in accordance with
(A) Debenture interest at the rate specified in
(B) Debenture interest at the rate specified in
(iii) Where a claim for insurance benefits is being paid following a pre-foreclosure sale, without foreclosure or conveyance to the Commissioner, in accordance with
(A) Debenture interest at the rate specified in
(B) Debenture interest at the rate specified in
* * * * *
(u) Disallowance of expenses due to mortgagee failure to meet timelines. Notwithstanding any other provision of this section, FHA may deny payment of any amount claimed for any expenses, such as taxes, special assessments, hazard insurance, forced placed insurance, flood insurance, homeowner association (HOA)/condominium association (COA) fees or dues, utilities, inspections, debris removal, and any property preservation and protection expenses, that were paid or incurred by or on behalf of the mortgagee during any period of delay or as a result of any delay by the mortgagee in taking any required actions prior to the expiration of the time periods set forth in paragraph (u)(1) of this section.
(1) If a mortgagee fails to comply with any of the timeframes established by the Secretary for actions set forth in this paragraph, the mortgagee must curtail all claim expenses in accordance with paragraph (u)(2) of this section:
(i) The timeframe for taking of First Legal Action to commence foreclosure;
(ii) The reasonable diligence timeframes established by the state in which the property is located;
(iii) The timeframe to convey a property after obtaining title and possession;
(iv) The timeframe for marketing a property; or
(v) Any other timeframe established under this subpart that is applicable to the mortgagee's filing of a claim for insurance benefits.
(2) For a mortgagee that does not meet one or more of the deadlines in paragraph (u)(1) of this section, the mortgagee must curtail on a prorated basis:
(i) Expenses in paragraph (u) of this section incurred during or as a result of any failure by the mortgagee to act within the applicable time period; or
(ii) Expenses that are reasonably estimated to have been incurred during or as a result of any failure by the mortgagee to act within the applicable time period if the amount of expenses specifically incurred beyond the applicable deadline is unavailable or not itemized; and
(iii) Any additional expenses incurred as a result of the mortgagee's failure to comply with the timeframe.
(3)(i) Regardless of the review type, if FHA determines that the mortgagee's claim included expenses incurred after the expiration of a timeframe listed in paragraph (u)(1) of this section, FHA may, in its discretion:
(A) Reduce the amount of insurance benefits paid to the mortgagee; or
(B) Demand for repayment of all expenses that were not curtailed by the mortgagee.
(ii) FHA may offset any future claims made by a mortgagee if the mortgagee does not satisfy any demand for repayment under paragraph (u)(3)(i)(B) of this section within 30 days of the date FHA issues the demand for repayment.
6. Revise the heading of
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Dated:
Principal Deputy Assistant Secretary for Housing.
[FR Doc. 2015-16479 Filed 7-2-15;
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