A Rule by the
Entry Type: Rule
Action: Final rule.
Document Citation: 79 FR 43929
Page: 43929 -43933 (5 pages)
CFR: 24 CFR 207
Agency/Docket Number: Docket No. FR-5583-F-02
Document Number: 2014-17742
Shorter URL: https://federalregister.gov/a/2014-17742
This final rule amends HUD's regulations covering the contract rights and obligations of mortgagees participating in FHA multifamily mortgage insurance programs, to address reimbursement to FHA of excess bond proceeds. When a mortgagee finances mortgages through the issuance and sale of bonds or through bond anticipation notes, the mortgagee uses the funds from the payment of a mortgage insurance claim under HUD regulations addressing FHA multifamily insurance claim payment to pay off the remaining bond debts. At times, the amount paid by the FHA multifamily insurance claim is greater than the remaining bond debts. This final rule requires mortgagees that finance a project using a project-specific trust indenture agreement to include language in the trust indenture to require that excess bond funds that remain after FHA's multifamily insurance claim payment is used to satisfy the bonds are returned to FHA. HUD requires similar payments of excess bond funds on obligations of public housing agencies and, thus, the final rule provides consistency in the administration of HUD's bond-financed mortgages.
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However, when the loan is bond financed, the amount FHA pays to the lender may be greater than the funds needed to pay the FHA insurance claim and discharge all other obligations of the trust indenture. When FHA pays an insurance claim on a bond-financed mortgage, the lender remits the payment to the bond trustee who pays off the bond debts, debt services on the bond, and fees and expenses owed to parties (such as the trustee or the bond issuer). Most of the factors in determining the amounts required to pay the FHA insurance claim and satisfy servicer fees required to be paid by the trust indenture can be calculated with precision, but the amount of funds in the trust is not known prior to accounting for the final interest earnings on the invested trust fund balances. Funds in the trust accounts earn interest and, given the passage of time and uncertainty of short-term interest rates, it is difficult to project what the trust fund balance will be at the time the FHA multifamily insurance claim is settled and all the trust indenture obligations are finally paid. As a result, the trustee is sometimes left with additional funds, also known as "excess bond funds." Excess bond funds are distributed by the bond trustee to the mortgagor, the mortgagee, FHA, or other third parties, according to the trust indenture agreement. As a result, the mortgagor or the mortgagee may receive excess bond funds after redeeming the bonds with the FHA multifamily insurance claim proceeds.
II. This Final Rule
This final rule follows publication of the
At the final rule stage, HUD has decided to amend the scope of the proposed rule, to provide clarifications in response to public comments, to correct an incorrect citation, and to make some editorial changes. Specifically, HUD is limiting the application of the rule to mortgagees that finance a project through bonds and use a project-specific trust indenture agreement. This action is consistent with how HUD treats bonds governed by HUD's regulations in 24 CFR part 811, which apply only to bonds financing single projects. Although this final rule does not relieve mortgagees that finance a project through multiple-project parity bonds from being responsible for returning excess bond funds that are identified, HUD recognizes the burden that would be borne if the specific trust indenture language was applied to multiple-project parity bond structures. HUD is also clarifying that the contract rights and obligations being amended under 24 CFR part 207 apply to all FHA multifamily mortgage insurance programs, including loans on healthcare facilities insured under Sections 232, 241, and 242 of the National Housing Act.
In addition to limiting the rule's scope, the proposed rule included a parenthetical referencing "the date of issuance of the refunding bonds" as the cut-off date for exempting the originally-deposited funds. HUD takes the opportunity afforded by this rule to replace the phrase "refunding bonds" with simply "bonds" so as to not create confusion, and to clarify that the date for exempting the originally-deposited funds is limited to the bonds used to secure the FHA-insured multifamily mortgage that the mortgagee has submitted an FHA multifamily insurance claim for. HUD's proposed rule also incorrectly referenced section 207.258 as the provision in which FHA pays a FHA insurance claim, HUD at the final rule stage replaces the incorrect citation with the correct reference to section 207.259.
Lastly, HUD clarifies the exact language to be included in the trust agreement and makes some editorial changes at this final rule stage. HUD incorporates the definition of "rebate fund" into the new section 207.261 as paragraph (b) to ease implementation for FHA multifamily insurance programs that cross-reference to the provisions in 24 CFR part 207, subpart B, but exclude the subpart B definitions in 207.251.
Consistent with HUD's proposed rule, new section 207.261(a) requires mortgagees that finance housing insured under Title II of the National Housing Act through the issuance and sale of bonds or bond anticipation notes, and use a project-specific trust indenture agreement that clearly outlines the project and identifies by project the trust funds established by and administered in accordance with the terms of the trust indenture, to meet the requirements set out in paragraphs (1) and (2) of this section.
Paragraph (1) requires that the mortgagee include in the bond trust indenture language that, upon a conveyance or assignment of the mortgage to the FHA Commissioner, the bond trustee must remit to the mortgagee all remaining excess bond funds. Excess bond funds mean (1) money remaining in all funds and accounts other than a rebate fund,  and (2) any other funds remaining under the trust indenture after payment, or provision for payment, of debt service on the bonds and the fees and expenses of the credit enhancer, issuer, trustee, and other such parties unrelated to the mortgagor (other than funds originally deposited by the mortgagor or related parties on or before the date of issuance of the bonds).
Paragraph (2) requires that the mortgagee, upon the FHA Commissioner's payment of an FHA mortgage insurance claim under section 207.259, shall legally enforce the trust indenture to collect all of the excess bond funds; and the mortgagee must remit to FHA all excess bond funds that result from FHA's payment of an FHA insurance claim after a conveyance or assignment of the mortgage to FHA, no later than 6 months following the date of the final settlement on the FHA mortgage insurance claim.
New paragraph (b) includes the definition of "rebate fund" consistent with the proposed rule, and defines "rebate fund" as a separate fund established under a contract or agreement for tax-exempt bonds in which amounts (excess interest earnings from the tax-exempt bonds) must be deposited to make rebate payments to the federal government under the Internal Revenue Code.
[*Federal RegisterVJ 2014-07-29]
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