Federal Housing Administration (FHA): Single Family Sale Program

<RULE> DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT <CFR>24 CFR Parts 203, 206 and 291</CFR> <DEPDOC>[Docket No. FR-6051-F-03]</DEPDOC> <RIN>RIN 2502-AJ47</RIN> <SUBJECT>Federal Housing Administration (FHA): Single Family Sale Program</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This rule amends the requirements for the sale of eligible single family mortgage loans insured by the Federal Housing Administration (FHA) that have been assigned to the Secretary of the Department of Housing and Urban Development (HUD) in exchange for claim payments. The mortgage notes are sold, without FHA insurance, to qualified purchasers in a manner that seeks to maximize recoveries and strengthen HUD's Mutual Mortgage Insurance Fund (MMIF) and to achieve HUD's operational goals for the MMIF. This rule transitions the pilot Single Family Sale Program from a demonstration to a permanent program and removes existing Disposition of HUD-Acquired and -Owned Single Family Property regulations, which provided for a retired program that handled the sale of HUD-held single family mortgage loans. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective:</E> January 10, 2025. </DATES> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> John Lucey, Director, FHA Office of Asset Sales, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410-8000; telephone: (202) 708-2625 (this is not a toll-free number), or toll-free: (800) 481-9895. HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as from individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit <E T="03">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> Under section 204 of the National Housing Act, <SU>1</SU> <FTREF/> HUD has general authority to pay insurance claims and dispose of mortgages and properties acquired under the FHA single family mortgage insurance programs. Section 204(g) specifically grants HUD broad discretion to implement a range of disposition alternatives. The National Housing Act also requires that HUD ensure the MMIF remains financially sound. HUD must effectively manage HUD's defaulted assets and minimize losses to the MMIF to carry out its fiduciary responsibility to ensure the financial soundness of the MMIF. <FTNT> <SU>1</SU>   <E T="03">See</E> 12 U.S.C. 1710 (2010), as amended by section 601 of the Fiscal Year 1999 Departments of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act (Pub. L. 105-276, approved October 21, 1998) (“FY 1999 Appropriations Act”). </FTNT> Since 2002, HUD has operated a demonstration program to implement its broad disposition authority with respect to mortgages and properties acquired under the FHA single family mortgage insurance programs. By notice published in the <E T="04">Federal Register</E> on February 5, 2002, HUD announced the establishment of the Accelerated Claim and Asset Disposition (ACD) Demonstration to “address any programmatic concerns” and “assess its success and determine whether to implement the ACD process on a permanent basis, throughout the country.”  <SU>2</SU> <FTREF/> On October 29, 2002, HUD responded to public comments and conducted its first sale of defaulted mortgages through the ACD Demonstration. <SU>3</SU> <FTREF/> HUD has continuously operated the ACD Demonstration for the purpose of paying insurance claims and disposing of mortgages and related properties acquired under the FHA single family mortgage insurance programs. <FTNT> <SU>2</SU>   <E T="03">See Notice of FHA Accelerated Claim Disposition Demonstration,</E> 67 FR 5418 (February 5, 2002). </FTNT> <FTNT> <SU>3</SU>   <E T="03">See Notice of FHA Accelerated Claim Disposition Demonstration,</E> 67 FR 66038 (October 29, 2002). </FTNT> HUD has used various names to refer to the demonstration program, including the ACD Demonstration, the Single Family Loan Sales (SFLS) Program, and the Distressed Asset Stabilization Program (DASP). For purposes of this rule, HUD will refer to the demonstration as the “Single Family Sale Program,” which encompasses all of the iterations of Single Family Loan Sales, including any sales HUD designates as part of this program. The final rule applies to all Single Family Loan Sales by HUD. Absent the Single Family Sale Program, if a borrower is unable to resume their mortgage payments after loss mitigation, the mortgagee in most cases would be required to foreclose the defaulted loan to perfect an insurance claim. If the property cannot be sold to a third party at foreclosure or a second-chance auction, the mortgagee may file a conveyance claim, which gives the property to HUD in exchange for receiving the FHA mortgage insurance claim payment. Prior to filing the conveyance claim, the mortgagee will incur legal and holding costs for which the mortgagee may seek reimbursement from HUD through claim payment. A property conveyed to HUD increases HUD's Real Estate Owned (REO) inventory, posing an additional financial burden on the MMIF for asset management costs. As an alternative to filing a conveyance claim, for a forward loan that has been foreclosed, HUD will pay a claim without conveyance of title claim from the MMIF to the mortgagee if the borrower defaults and the mortgagee loses money after selling the house in a foreclosure or post-foreclosure sale. Disposing of delinquent forward mortgage loans shortens the period between default and claim payment, reducing the financial exposure to these insurance funds for costs incurred after default. For a Home Equity Conversion Mortgage (HECM) that has been foreclosed, the mortgagee cannot file a conveyance claim but can sell the foreclosed property to a third party and receive claim payment if the mortgagee is owed more than it receives from such sale. For HECMs endorsed before 2009, HUD pays claims from the General Insurance (GI) Fund. For HECMs endorsed in 2009 or after, HUD pays claims from the MMIF. HUD's sale of defaulted loans through the Program is generally intended to yield a recovery to the MMIF that meets or exceeds the recovery obtained as a result of a foreclosure-based claim. When a borrower passes away after assignment of a HECM, HUD incurs costs associated with real property when it is vacant or abandoned. HUD's servicing tenure and attempts to foreclose can be delayed by title or jurisdictional issues and backlogs resulting from high volume. These issues result in higher servicing costs along with additional inspection and property preservation costs while the HECMs remain in HUD's portfolio. After foreclosure, HECMs that converted to REO are added to HUD's inventories, increasing asset management costs to protect and dispose of the properties. Disposition of eligible assigned HECMs, such as HECMs secured by vacant and abandoned properties, can result in significant cost savings to the MMIF and GI Fund, as applicable, and enable better and more timely resolution of these assets. On June 5, 2006, HUD issued an Advance Notice of Proposed Rulemaking (ANPR) soliciting public comment on HUD's Program. <SU>4</SU> <FTREF/> The ANPR solicited public comments to make “possible improvements to the program,” including the most efficient way to “maximize the return to the FHA insurance fund” by “minimiz[ing] the time an asset is held.”  <SU>5</SU> <FTREF/> <FTNT> <SU>4</SU>   <E T="03">See Accelerated Claim and Asset Disposition (ACD) Program; Advanced Notice of Proposed Rulemaking,</E> 71 FR 32392 (June 5, 2006). </FTNT> <FTNT> <SU>5</SU>   <E T="03">Id.</E> </FTNT> On April 30, 2007, HUD published a regulatory agenda providing public notice that FHA had withdrawn the ANPR effective March 1, 2007. <SU>6</SU> <FTREF/> After this action, HUD adopted additional modifications to the Program, including changing the disposition method from joint venture to whole loan sales. <FTNT> <SU>6</SU>   <E T="03">See HUD Semiannual Regulatory Agenda,</E> 72 FR 22694 (April 30, 2007). </FTNT> <HD SOURCE="HD1">II. The Proposed Rule</HD> On July 16, 2024, HUD published for public comment a proposed rule (89 FR 57798) to amend 24 CFR parts 203, 206, and 291. The proposed rule sought to transition the Single Family Sale Program from a demonstration to a permanent program by revising HUD's Single Family Mortgage Insurance, Home Equity Conversion Mortgages, and Disposition of HUD-Acquired and -Owned Single Family Property regulations to provide for the sale of HUD-held single family forward mortgages and Home Equity Conversion Mortgages through competitive sale and direct sale of single family loans. In addition, HUD proposed to remove the existing Disposition of HUD-Acquired and -Owned Single Family Property regulations, which provided for a retired program that handled the sale of HUD-held single family mortgage loans. HUD sought public comment on all aspects of the rule and sought public feedback on ten (10) specific issues regarding the operation of the Program. <HD SOURCE="HD1">III. This Final Rule</HD> This final rule adopts the proposed rule with no changes. The next section outlines how various issues raised through public comments may be addressed through guidance or by future updates to sale documents, including but not limited to Conveyance, Assignment, and Assumption Agreements (CAAs), <E T="04">Federal Register</E> Notices (FRNs), and Bidder Information Package (BIP) forms. <HD SOURCE="HD ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 111k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━