Interpretation of HUD's Title I Insured Loan Regulations

An opinion was requested on the proper interpretation of a provision in the Department of Housing and Urban Development's (HUD) insured loan regulations. If an annual adjustment in a lenders insurance reserve is required by the regulations 5 years from when it entered into an insurance contract rather than 5 years from when it began to make insured loans, an injustice would result to a certain participant in the loan program. Regulations provide that the first 10-percent annual adjustment to the insurance reserve shall not be made until 5 years after the issuance of a contract. The firm entered into a contract of insurance with HUD, but did not begin active participation in the program until about 5 years later. Consequently, the firm's reserve account was adjusted downward in the first year of its actual participation and in every year since then. GAO found that: the insured loan regulations should be interpreted so as not to require the 10-percent annual adjustment to be made until 5 years after the lender begins to make insured loans and report them to HUD; this interpretation would be consistent with the 10-percent statutory limitation. Further, the language granting the Secretary of HUD the authority to waive the regulatory provision is quite broad, and necessary statutory requirements that must be satisfied before a waiver can be granted appear to be present. Accordingly, GAO has no objection to HUD restoring the monies deducted from the firm's reserve account. A grace period of 5 years from the date on which the firm began to participate in the loan program should be granted.