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B-203904 1 (1982-03-30)

handle is hein.gao/gaobadkep0001 and id is 1 raw text is: 9/, ECII!ON FILE;B-203904 THN COMPTROLLER ONEORAL OF THE UNITED STATUS WASHINGTON, r3,0,403548 2A/rrX 3X5 DATif: March 30, 1982 MATTER OF: Insurance Reserve-Insured Loan Program of National Housing Act DIGEST: 1. Regulation in 24 C.FoR. S 201.12(c) which provides that annual downward adjustmnents In a lender's loss reserve account, out of which -11 insured loan claims are paid, should begin 5 yeats after an insurance con- tract is issued to the lender is based on asswnption that during initial 5-year period the lender will be actively engaged in making title I insured loans, Since the insurance reserve does not even come into existence until the insured lender actually begins to make loans and report them to MUD for insurance, HUD should not interpret the regulations as requiring ad- justments in the reserve of a lender to comience until 5 years after the lender begins to make insured loans. 2. Even if regulation in 24 C.FJR. 5 201,12(c) is interpreted as requiring the annual adjustmients in a lender's loss reserve account to comrence 5 years after the contract of insurance is approved, whether or not the lender has actually been making insured loans during that period, HU is authorized under 12 U.S.C, § 1703(e) to waive that regulatory provision where, as here, such an interpretation would be unfair to a lender that has subs.-'-ially complied with the regulations in good faith. This decision is in response to a request from the Assistant Secretary for Housing, Departint of Housing and Urban Development (HOD), for our legal opinion on the proper interpretation of a provi.- sion in HUD's Title I insured loan regulations. If the regulations are read to require an annual adjustment to be made in a lending insti- tution's total insurance reserve 5 years from the date it entered into a contract of insurance with HUD rather than 5 years from the date it began to make insured loans, it would result in an injustice to one of the major participants in the Title I insured loan program, the General Electric Credit Corporation (GECC). As explained below, GAO has no ob- jection to the latter interpretation which would give GECC a grace period of 5 years from the time it began to make insured loans before the annual reductions to its insurance reserve comnuence.

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