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Statement of Need: This rule implements a law that allows HUD to assess civil money penalties for specific types of mortgage lender violations, including failure to engage in loss mitigation. The law also directs HUD to implement regulations as it determines necessary to implement the civil money penalty provisions. This rule is necessary to encourage certain lenders that rarely engage in loss mitigation activities to do so. Failure to engage in loss mitigation leads to additional claims on FHA's insurance funds. Greater emphasis by certain lenders on loss mitigation will act to reduce those claims and enhance the health of the funds.

Summary of the Legal Basis: Section 230 of the National Housing Act (NHA), (12 U.S.C. 1715u), requires mortgage lenders utilizing FHA-insured financing to engage in loss mitigation actions upon the default of any insured mortgage. Section 536(b)(1)(I) of the NHA (12 U.S.C. 1735f-14(b)(1)(I)) includes failure to engage in loss mitigation among the activities for which HUD may assess civil penalties. Section 536(a) of the NHA (12 U.S.C. 1735f-14(a)) provides that in the case of failure to engage in loss mitigation, the penalty may be tripled. Section 536(h) of the NHA (12 U.S.C. 1735f-14(h)) provides that HUD shall issue regulations to implement these provisions as it determines is appropriate.

Alternatives: This action is a rule of general applicability and future effect that does not fall into any of the rulemaking exceptions.

Anticipated Costs and Benefits: This rule will penalize lenders that have particularly poor records in the area of loss mitigation. By encouraging these lenders to engage in loss mitigation activities upon default, this rule will provide benefits to the insurance fund in the form of reduced claims on the insurance fund and hence reduced payouts.

Risks: This rule imposes no risks to public health, safety, or the environment.