No. 36783 (Amendment): Rule R460-5. Termination of Eligibility to Participate in Programs

(Amendment)

DAR File No.: 36783
Filed: 09/17/2012 04:57:00 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose for the amendment is to eliminate obsolete practices and/or references and to add clarifying language to more clearly describe the process for suspending or terminating the eligibility of entities with whom Utah Housing Corporation (UHC) conducts business as well as associated timeframes.

Summary of the rule or change:

Section R460-5-1 changes include the elimination of Subsection R460-5-1(3) which required a lender to maintain itself as an eligible servicer. This reflects that UHC services 100% of the loans it funds and currently does not use any external entities to service its mortgage loans. Section R460-5-2 is stricken in its entirety and reserved for future use because UHC services 100% of its loans, eliminating the need for any third-party entity to act as a Servicer on UHC's behalf. Section R460-5-3 changes include: 1) elimination of a reference to an "interest rate buydown," a product which UHC no longer offers; 2) addition of language to clarify that a participant considered "not in good standing" (as defined in UHC's annually updated Qualified Allocation Plan - not a part of the Administrative Rules) may have its eligibility to participate terminated for such standing; 3) minor wording clarifications; 4) addition of language to allow the president of UHC to designate other UHC officers to suspend a participant for causes laid out in this rule; 5) addition of language expanding suspension notifications to be made by certified mail, as well as by electronic means; 6) elimination of a requirement for UHC to distribute a list of persons or entities whose ability to participate in UHC programs has been terminated or suspended. Because of the time-consuming nature of maintaining a database with all potentially interested parties due to constantly changing email addresses, etc., the list will continue to be compiled and maintained and will be provided upon request. Also changed the Authorizing, and Implemented or Interpreted Law reference to reflect changes made in the 2012 Utah General Session.

State statutory or constitutional authorization for this rule:

• Subsection 35A-8-711(1)
• Subsection 35A-8-712(4)

Anticipated cost or savings to:

the state budget:

There is no anticipated cost or savings to the state budget because Subsection 35A-8-702(3)(b) states that UHC is a "financially independent body" and therefore, receives no state appropriation. Furthermore, the changes made to this rule are merely clarifying in nature and do not entail any additional requirements.

local governments:

There is no cost or savings to any local government because the changes made to this rule are merely clarifying in nature. However, if a local government is suspended as a participant in a UHC program, it may forgo business opportunities with UHC programs had the local government unit maintained itself as eligible under UHC guidelines. This aspect is not changed with this amendment.

small businesses:

There is no direct cost or savings to any small businesses because the changes made to this rule are mainly clarifying in nature. While clarifying in nature, the fact that a small business no longer must maintain itself as an "eligible servicer" may allow additional small businesses to participate in UHC programs. Any fees that accrue to a participant in UHC programs as a result of being suspended and/or terminated are clearly detailed in program documents and have been for many years.

persons other than small businesses, businesses, or local governmental entities:

There is no cost or savings to other persons because the changes made to this rule are mainly clarifying in nature.

Compliance costs for affected persons:

There are no anticipated additional compliance costs (in addition to existing compliance costs) for persons affected by this rule.

Comments by the department head on the fiscal impact the rule may have on businesses:

The amendments to this rule are not expected to have any fiscal impact on businesses. Although it is anticipated there will be no fiscal impact, it is expected that the clarification of the rule and elimination of old requirements may enable additional businesses to participate in UHC programs.

Grant S. Whitaker, President and CEO

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Housing Corporation (Utah)
Administration
2479 LAKE PARK BLVD
WEST VALLEY CITY, UT 84120

Direct questions regarding this rule to:

• Jonathan Hanks at the above address, by phone at 801-902-8221, by FAX at 801-902-8321, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

11/14/2012

This rule may become effective on:

11/21/2012

Authorized by:

Grant Whitaker, President and CEO

RULE TEXT

R460. Housing Corporation, Administration.

R460-5. Termination of Eligibility to Participate in Programs.

R460-5-1. Mortgage Lenders.

UHC may terminate the eligibility of a mortgage lender to participate in UHC's programs if UHC finds that a mortgage lender:

(1) has failed to comply with the provisions of the [act]Act or the rules, guidelines, policies or procedures adopted thereunder;

(2) has failed to perform any one or more of its obligations arising under any contractual agreement with UHC;

[ (3) has failed to qualify and maintain itself as an eligible servicer as defined in the agreements between the servicer and UHC or has assigned the servicing of mortgage loans without the prior written consent of UHC;

] ([4]3) has commenced a voluntary case under any chapter of the Federal Bankruptcy Code, or has consented to, or has failed to controvert in a timely manner, the commencement of an involuntary case against the mortgage lender under such code, or has initiated or suffered any proceeding of insolvency under any other federal or state receivership law, or made any common law assignment for the benefit of creditors or written admission of its inability to pay debts generally as they become due;

([5]4) has failed to comply with any state or federal regulatory requirement relating to the mortgage lender's financial condition or operating performance;

([6]5) has suffered the appointment, by decree or order of a court, agency or supervisory authority having jurisdiction in the premises, of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding affecting the mortgage lender or substantially all of its properties, or for the termination or liquidation of its affairs;

([7]6) has consented to the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding affecting the mortgage lender or substantially all of its properties.

 

R460-5-2. Servicers (Reserved).

[UHC may terminate the eligibility of a servicer to participate in UHC's programs and order the servicer to transfer its servicing rights to another eligible servicer if UHC finds that a servicer:

(1) has failed to comply with the provisions of the act or the rules, guidelines, policies or procedures adopted thereunder;

(2) has failed to perform any one or more of its obligations arising under any contractual agreement with UHC;

(3) has commenced a voluntary case under any chapter of the Federal Bankruptcy Code, or has consented to, or has failed to controvert in a timely manner, the commencement of an involuntary case against the servicer under such code, or has initiated or suffered any proceedings of insolvency or reorganization under any other federal or state receivership law, or made any common law assignment for the benefit of creditors or written admission of its inability to pay debts generally as they become due;

(4) has failed to comply with any state or federal regulatory requirement relating to its financial condition or operating performance;

(5) has suffered the appointment, by decree or order of a court, agency or supervisory authority having jurisdiction in the premises, of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding affecting the servicer or substantially all of its properties, or for the termination or liquidation of its affairs;

(6) has consented to the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding affecting the servicer or substantially all of its properties.]Reserved.

 

R460-5-3. Other Participants.

(1) UHC may terminate the eligibility of a participant to participate in UHC's programs if UHC finds that a participant:

(a) has made or procured to be made any false statement for the purpose of influencing in any way an action of UHC or any other participant;

(b) has falsely advertised, made misleading or false offers, or otherwise attempted to induce persons to participate in [agency]UHC programs when program requirements cannot be met or have not been represented accurately;

(c) has represented, either orally or in writing or advertising, that [agency]UHC mortgage loans are available at a specified interest rate when such participant either knew or reasonably should have known that UHC mortgage loans are not available at such rate[, or are available only with the financial assistance of such participant, for example an interest rate buy down];

(d) has provided funds, whether by gift or by loan, to unqualified borrowers to enable such borrowers to obtain a mortgage loan or other benefits of a UHC program;

(e) has violated a law, regulation or procedure relating to an application for a mortgage loan or other benefits of a UHC program or relating to the performance of obligations incurred pursuant to a grant of financial assistance or pursuant to a conditional or final commitment to insure or guarantee;

(f) has been debarred or suspended or issued a limited denial of participation from a federal housing program;

(g) has been convicted of or held liable in a civil judgment for any of the following:

(i) commission of fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public or private agreement or transaction;

(ii) forgery, falsification or destruction of records, making false statements, making false claims, or obstruction of justice;

(iii) commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a person;[.]

(h) has been determined to be "not in good standing" as detailed in the current-year Qualified Allocation Plan utilized by UHC and its development partners for the housing credit and multifamily bond programs.

(2) For purposes of determining the scope of a participant's ineligibility to participate in UHC programs, conduct may be imputed as follows:

(a) The fraudulent, criminal or other seriously improper conduct of any officer, director, shareholder, employee, partner, joint venturer or other individual associated with a participant may be imputed to the participant when the conduct occurred in connection with the individual's performance of duties for or on behalf of the participant, or with the participant's knowledge, approval, or acquiescence. The participant's acceptance of the benefits derived from the conduct shall be evidence of such knowledge, approval, or acquiescence.

(b) The fraudulent, criminal, or other seriously improper conduct of a participant may be imputed to any officer, director, shareholder, employee, partner, joint venturer or other individual associated with the participant who participated in, knew of, or had reason to know of the participant's conduct.

(3) The eligibility of an affiliate or organizational element of a participant may be terminated solely on the basis of its affiliation, and regardless of its knowledge of or participation in the acts providing cause for the action. The burden of proving that a particular affiliate or organizational element is currently responsible and not controlled by the primary sanctioned party, or by an entity that itself is controlled by the primary sanctioned party, is on the affiliate or organizational element.

(4) Ineligibility shall be for a period commensurate with the seriousness of the cause. Ineligibility generally should not exceed three years. Where circumstances warrant, a longer period of ineligibility may be imposed. If a suspension precedes a determination of ineligibility, the length of the suspension period shall be considered in determining the length of the ineligibility period.

(5) The president or other designated officer of UHC may suspend a participant for any of the causes set forth in R460-5-1 or R460-5-3(1)[3.1] which shall immediately exclude a participant from participating in transactions involving UHC programs for a temporary period not to exceed 12 months.

(a) Suspension is a serious action to be imposed only when there exists adequate evidence of one or more of the causes set out in R460-5-1 or R460-5-3([3.]1 ) and immediate action is necessary to protect the public interest.

(b) In assessing the adequacy of the evidence, the president of UHC shall consider how much information is available, the credibility of the evidence given the circumstances, whether or not important allegations are corroborated, and what inferences can reasonably[e] b[y]e drawn as a result of all available evidence.

(c) All suspensions shall be for a temporary period pending the completion of an investigation and such legal or ineligibility proceedings as may ensue but in any event shall be for no longer than 12 months.

(d) Suspension shall be made effective by advising the participant, and any specifically named affiliates, electronically via email or facsimile and by certified mail, return receipt requested, of each of the following:

(i) [that] suspension is being imposed;

(ii) [of] the cause relied upon under R460-5-1 or R460-5-3(1)[R460-5-3.1] for imposing suspension;

(iii) [that] the suspension is for a temporary period pending the completion of an investigation and such legal or ineligibility proceedings as may ensue;[:] and

(iv) [of] the right to request within 30 days, in writing, a hearing, either oral or on the basis of any written submissions by the respondent.

(e) Within 30 days of receipt of a notice of suspension, a suspended participant, including any affiliate, desiring a hearing shall file a written request for a hearing with UHC. If a hearing is requested, it shall be held in accordance with R460-6-3.3.

(6) UHC shall compile and[,] maintain[, and distribute] a list of all persons or entities whose eligibility to participate in UHC's programs has been terminated or suspended. The list shall include the following items:

(a) the names and addresses of all ineligible and suspended persons or entities[, in alphabetical order, with cross-references when more than one name is involved in a single action];

(b) the type of action;

(c) the cause for the action;

(d) the scope of the action;

(e) any termination date for each listing;

(f) the name and telephone number of UHC point of contact for the action.

(7) Before resorting to adjudicative proceedings under R460-6, UHC may issue a cease and desist order, advising a participant of present actions by the participant that violate this rule, and ordering the participant to cease and desist such actions, subject to further sanctions.

(8) UHC may also refer a case involving a participant to the Utah Department of Commerce, or any other [city, ]state or federal agency, for further action.

(9) UHC may settle a case at any time.

(10) UHC and a participant may agree to a voluntary exclusion of a participant from a specific program or project.

 

KEY: housing finance

Date of Enactment or Last Substantive Amendment: [1993]2012

Notice of Continuation: October 15, 2007

Authorizing, and Implemented or Interpreted Law: [9-4-910; 9-4-911]35A-8-711; 35A-8-712

 

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