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February 5, 1990

HOUSING STUDY GROUP, et al., Plaintiffs,
JACK F. KEMP, Secretary of Housing and Urban Development, et al., Defendants

Joyce Hens Green, United States District Judge.

The opinion of the court was delivered by: GREEN


 Plaintiffs ABG Financial Services, Inc. ("ABG") and Centennial Mortgage, Inc., ("Centennial"), two active mortgage bankers approved by the United States Department of Housing and Urban Development ("HUD") to be Federal Housing Administration ("FHA") coinsuring lenders with authority to provide financing and issue mortgage insurance for qualified multifamily housing projects, and Housing Study Group, a trade association of which ABG and Centennial are members, bring this suit for declaratory and injunctive relief against Jack Kemp, Secretary of HUD ("Secretary"), C. Austin Fitts, Federal Housing Commissioner ("Commissioner"), and Peter H. Monroe, Deputy Federal Housing Commissioner seeking to enjoin defendants from interfering with the operation of the coinsurance programs established under Section 244 of the National Housing Act, as amended, 12 U.S.C. § 1715z-9.

 The parties appeared before the Court this date for a hearing on plaintiffs' motion for a temporary restraining order. For the following reasons, the motion is denied.


 The National Housing Act, originally promulgated in 1934, and amended on numerous occasions since then, 12 U.S.C. § 1701, et seq., has as one of its primary purposes the promotion of the construction and availability of low and moderate income housing. Included in the original legislation was the creation of the Federal Housing Administration ("FHA"), to serve as one of the agencies charged with primary responsibility for the effectuation of the Act's purposes. *fn1"

 The principal objectives of the National Housing Act carried out by the FHA are providing an adequate home financing system by insurance of housing mortgages and credit and exerting a stabilizing influence on the mortgages market. *fn2" The FHA does not make loans itself; rather, it operates programs to insure private lenders against loss on mortgage loans used to finance the construction, rehabilitation, and improvement of eligible projects, which include single and multifamily residential properties, mixed use commercial and residential projects, land development projects, and group practice and other health care facilities. *fn3"

 In order to execute each of these programs, Congress authorized the Secretary of HUD to insure the mortgage loans by which eligible projects were acquired, refinanced, constructed, or rehabilitated. *fn4" At this time, the FHA itself fully insured eligible mortgage loans on section 221(d), 223(f), and 232 programs. Comprehensive regulations were utilized by the FHA in administering the full insurance program. *fn5"

 In 1974, Congress vastly altered this insurance scheme by promulgating section 244 of the National Housing Act which authorized the Secretary to implement the coinsurance program. 12 U.S.C. § 1715z-9. Section 244 provides, in relevant part:

The Secretary, upon request of any mortgagee and for such mortgage insurance premium as he may prescribe . . . may insure and make a commitment to insure under any provision of this chapter any mortgage . . . otherwise eligible . . . pursuant to a co-insurance contract providing that the mortgagee will -- (1) assume a percentage of any loss on the insured mortgage . . . and (2) carry out . . . [such] functions as the Secretary, pursuant to regulations, shall approve as consistent with the purposes of this chapter.


 Two features of the coinsurance program are of particular importance here. The first is the sharing of risk of loss between the FHA and the coinsuring lender in the event of a default on a coinsured mortgage loan. The second is the authority and autonomy of approved coinsuring lenders to process applications for coinsured mortgage loans and to make commitments for such loans for eligible projects. *fn7"

 In response to the authority delegated by Congress to promulgate rules and regulations necessary to carry out his functions, including administering the coinsurance program, *fn8" the Secretary issued regulations implementing the coinsurance program pursuant to notice and comment rulemaking as required by the Administrative Procedure Act, 5 U.S.C. § 553. These regulations are currently codified in 24 C.F.R. Parts 251, 252, and 255.

 Since the creation of the coinsurance program, HUD, the Commissioner, and other government officials have commented on the success of the program. *fn9" Despite this apparent success, the reputation of the coinsurance program was seriously damaged on September 16, 1988, when the Government National Mortgage Association ("GNMA") declared DRG Funding Corporation ("DRG"), the largest coinsuring lender, in default on its obligations. *fn10" GNMA seized DRG's portfolio, effectively removing DRG's authority to serve as a coinsuring lender. On March 22, 1989, HUD suspended DRG from participating in any federal program or HUD procurement contract. *fn11"

 Secretary Kemp testified before the Subcommittee on Employment and Housing of the House Committee on Government Operations on July 11, 1989 and acknowledged that HUD was responsible ...

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