Housing Study Group v. Kemp
| Decision Date | 16 May 1990 |
| Docket Number | Civ. A. No. 90-0244. |
| Citation | 739 F. Supp. 633 |
| Parties | HOUSING STUDY GROUP, et al., Plaintiffs, v. Jack F. KEMP, Secretary of Housing and Urban Development, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Robert C. Seldon, John E. Bigstadt, Joseph A. Kijewski, Krooth & Altman, Washington, D.C., for plaintiffs.
Mark Nagle, Asst. U.S. Atty., Washington, D.C., for defendants.
This is yet another, but final, chapter in the ongoing dispute which has arisen as a result of the announcement by Jack F. Kemp, Secretary of Housing and Urban Development ("HUD"), of his intention to terminate the coinsurance program established under Section 244 of the National Housing Act, as amended, 12 U.S.C. § 1715z-9. Plaintiffs are two active mortgage bankers approved by HUD to participate in the coinsurance program and a trade association of which the two mortgage bankers are members. Defendants are Jack F. Kemp, Federal Housing Commissioner C. Austin Fitts, and Deputy Federal Housing Commissioner Peter H. Monroe. Presently pending before the Court are (1) plaintiffs' motion for permanent injunction with respect to Coinsuring Lender Letters Nos. 89-12, 90-1, and 90-2, (2) plaintiffs' motion for permanent injunction with respect to the Interim Rule published by HUD at 55 Fed.Reg 11,342 (March 27, 1990), (3) defendants' emergency motion for clarification of the Court's April 25, 1990 memorandum opinion, 736 F.Supp. 321, and (4) plaintiffs' third motion for a temporary restraining order and preliminary injunction with respect to HUD's most recent action, placing the two mortgage bankers on probation.
Consolidated argument on the motions was taken at a hearing before the Court on May 11, 1990. The Court's rulings follow.
The facts of this case, extensively discussed in two previous opinions of the Court and incorporated herein by reference, shall not be repeated here in detail. See Memorandum Opinion, February 6, 1990; Memorandum Opinion, April 25, 1990. Nevertheless, a brief discussion of the procedural background of this case and developments since the issuance of the latter opinion is necessary.
Plaintiffs originally moved for a temporary restraining order to enjoin defendants from giving effect to Coinsuring Lender Letters Nos. 89-12, 90-1, and 90-2, which would have established certain precommitment review requirements upon participating coinsuring lenders.1 On February 6, 1990, the Court denied that motion and set a briefing schedule for plaintiffs' motion for preliminary injunction and defendants' dispositive motion. On March 6, 1990, the day before the scheduled hearing on these motions, defendants informed the Court that because they were concerned with the possible outcome of the pending motions, they had issued a new Interim Rule governing precommitment review for lenders participating in the coinsurance program and had transmitted it to the appropriate committees of the House and Senate.2 HUD published the Interim Rule in the Federal Register on March 27, 1990. 55 Fed.Reg. 11,342. On April 19, 1990, plaintiffs filed a second motion for temporary restraining order and preliminary injunction to enjoin enforcement of the Interim Rule. On April 25, 1990, the Court granted plaintiffs' first motion for preliminary injunction with respect to the Lender Letters, granted plaintiffs' second motion for a temporary restraining order with respect to the Interim Rule, and granted, in part, defendants' motion to dismiss, dismissing counts IV and V of the complaint. Deadlines were established for further briefing on plaintiffs' motion for permanent injunction with respect to the Lender Letters and plaintiffs' motion for permanent injunction with respect to the Interim Rule.
On May 2, 1990, defendants filed an emergency motion for clarification of the Court's April 25, 1990 Memorandum Opinion, seeking to determine the precise steps they would be required to take to fully satisfy the notice and comment requirements of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553, and 42 U.S.C. § 3535(o), which the Court had determined they had previously failed to do.
In addition, on May 2, 1990, HUD placed several approved coinsuring lenders on probation and suspended others from further participation in the coinsurance program. Among those placed on probation were plaintiffs ABG Financial Services, Inc. ("ABG") and Centennial Mortgage, Inc. ("Centennial"). As a result of these notices of probation, ABG and Centennial, although permitted to continue to originate and process applications for mortgage insurance, were required to receive HUD approval before the issuance of firm commitments.3 On May 4, 1990 plaintiffs filed a third motion for temporary restraining order and preliminary injunction, requesting the Court to enjoin HUD from giving effect to the notices of probation sent to ABG and Centennial.4
Consideration has been given to the parties' multiple submissions, the argument of counsel, and the entire record.
In its April 25 Memorandum Opinion, the Court found that plaintiffs had shown a likelihood of success on the merits of their claim that the coinsuring lender letters were substantive rules requiring full notice and comment rulemaking pursuant to 5 U.S.C. § 553 and 42 U.S.C. § 3535(o). Defendants had argued, and continue to argue, that the Coinsuring Lender Letters are "procedural rules" exempt from notice and comment pursuant to 5 U.S.C. § 553(b)(A).5 In support of this argument, defendants relied and continue to rely almost exclusively on American Hospital Association v. Bowen, 834 F.2d 1037 (D.C. Cir.1987).
None of the submissions presented since the issuance of the April 25 Memorandum Opinion have persuaded the Court that its original analysis, which shall not be repeated here, was in error. The Lender Letters, if given effect, would substantially alter the rights and interests of approved coinsuring lenders who had previously enjoyed autonomy in issuing firm commitments. They are substantive rules which require full notice and comment rulemaking. Because these procedures were not followed, plaintiffs are entitled to permanent injunctive relief prohibiting HUD from giving force and effect to those Letters until such time as HUD complies with the full notice and comment requirements of the APA and HUD's enabling legislation.
Concerned that they might receive an unfavorable ruling with respect to the Coinsuring Lender Letters, by publishing an Interim Rule in the Federal Register on March 6, 1990, defendants began the administrative process necessary for establishing the identical precommitment review procedures that the Lender Letters would have established. However, HUD abbreviated the normal period for accepting public comment after publication in the Federal Register from 60 to 30 days,6 claiming that the abbreviation was justified by the alarming rate of increase in defaults by approved coinsuring lenders and the danger of future losses to the FHA General Insurance Fund. In their second motion for a temporary restraining order, plaintiffs argued that defendants had not demonstrated the "good cause" required by the APA for dispensing with full notice and comment.7 In issuing a temporary restraining order enjoining enforcement of the Interim Rule, the Court agreed with plaintiffs and found that defendants had not met their burden of establishing "good cause." That analysis need not be repeated here.8 Once again, none of the submissions presented to the Court since that ruling provide a basis for the Court to alter its original conclusion.9 Accordingly, defendants shall be enjoined from giving force and effect to the Interim Rule until the procedures outlined below have been satisfied.
Having decided that full notice and comment is required, the Court must determine whether defendants must start the entire rulemaking process anew. In their emergency motion for clarification, defendants ask the Court to clarify its previous ruling and specify that HUD can satisfy the "full notice and comment" that the Court found was required by publishing a new notice, as a proposed rule, that extends the public comment period by 30 days (for a total of 60 days), thereafter considering all comments received during both periods, then publishing the rule in final form to take effect 30 days thereafter, in accordance with 42 U.S.C. § 3535(o). Defendants' motion shall be granted.
Although the parties disagree over the amount of actual losses to the FHA General Insurance Fund as a result of defaults in the coinsurance program, HUD has known about problems in the industry for over a year and a half. HUD now seeks to justify the abbreviated public comment period as an emergency measure that is desperately needed because of defaults in the coinsurance program in the past few months that are increasing at an alarming rate, especially among previously unsanctioned lenders.
Although plaintiffs vigorously dispute this assertion, the purposes of § 553 of the APA and the notice and comment requirements of HUD's own regulations will best be served by permitting HUD to extend the public comment period by 30 days, as they request, rather than requiring them to begin the rulemaking process ab initio, provided that HUD consider all comments made during both thirty day periods prior to issuing its proposed rule.10
On May 2, 1990, HUD sent notices to both ABG and Centennial, informing them that upon receipt of the notices, each was being placed on probation for a period of six months. One of the effects of probation was that these lenders would be prohibited from issuing firm commitments without HUD's prior written approval. Plaintiffs subsequently moved for a temporary restraining order to enjoin defendants from giving force and effect to these notices of...
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