The opinion of the court was delivered by: CHARLES R. RICHEY
Before the Court is the Plaintiff's Motion for Summary Judgment on Counts I, X, XI, and XII of the Complaint.
The Plaintiff York Associates is a multifamily mortgage lender which issued mortgage loans coinsured by the Government under the National Housing Act. 12 U.S.C. § 1701 et. seq. The Plaintiff alleges that by virtue of § 520 of the National Housing Act, it is entitled to interest on certain payments received by it from the Defendant Department of Housing and Urban Development.
Thus, the issue before the Court is whether § 520 of the National Housing Act, 12 U.S.C. § 1735d, applies to mortgage loans made pursuant to the coinsurance program established by § 244 of the National Housing Act, 12 U.S.C. § 1715z-9. For the reasons fully discussed herein, the Court finds that § 520 does apply under these circumstances and the Court shall grant summary judgment for the Plaintiff as to Counts I, X, XI, and XII of the Complaint.
The loans which are at issue in this case are part of a mortgage-backed securities program authorized by 306(g) of the National Housing Act ("NHA"), 12 U.S.C. § 1721(g), operated by Defendant Government National Mortgage Association ("GNMA"). Under that program, the lender issues securities that are secured by the properties subject to its coinsurance loans and enters into a guaranty agreement with GNMA. The lender pays a fee to GNMA in return for the Government's insurance of the loans. The lender collects interest payments from the borrower and pays interest to the security holders. However, when a borrower defaults, the lender must still make payments to the security holders and file for reimbursement. In the event that a lender does not make these payments to security holders, it is declared in default and GNMA then acquires the lender's entire portfolio, becoming a successor-in-interest as to all the loans.
In the instant case, York Associates ("York") issued several mortgage loans between 1983 and 1989 that were coinsured by HUD pursuant to § 244 of the National Housing Act, 12 U.S.C. § 1715z-9. Under § 244 of the NHA, when a borrower defaults, HUD is required to reimburse the lender for up to 90% of the loss caused by the default and the lender bears the remaining shortfall. Reimbursement payments by HUD to the lender may be made in the form of debentures or cash, depending on the preference of the lender. 24 C.F.R. 255.819 (1988) ("The Commissioner will pay insurance benefits in cash, unless the lender files a written request for payment in debentures."). Pursuant to the decision of the Court of Appeals for the District of Columbia Circuit in DRG Funding Corp. v Sec'y, Housing and Urban Development, 283 U.S. App. D.C. 191, 898 F.2d 205 (D.C. Cir. 1990), when such a reimbursement payment is in the form of debentures, it must include interest from the date of default.
In this case, when the borrowers defaulted in their payments to York, it filed for reimbursement benefits with HUD as to those loans. Subsequently, York defaulted in its payments due to GNMA under the mortgage-backed securities program and GNMA took over York's loan portfolio. As required, HUD made reimbursement payments to York and GNMA pursuant to the coinsurance agreements. However, the payments were made in cash, not debentures, and did not include interest from the date of default. The Plaintiff here maintains that, pursuant to § 520 of the NHA, a reimbursement payment by HUD made in cash must include the same amount of interest as York would be entitled to if the payment had been made in debentures. The Defendant HUD maintains that § 520 does not apply to coinsurance loans so the Plaintiff is not entitled to interest from the date of default.
Summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The parties in this action do not dispute any of the facts material to the determination of these counts and, therefore, summary judgment is appropriate.
II. BY ITS CLEAR LANGUAGE, SECTION 520 OF THE NHA APPLIES TO CASH COINSURANCE REIMBURSEMENTS MADE BY HUD TO A LENDER UNDER § 244.
In DRG Funding Corp. v. Sec'y, Housing and Urban Development, 283 U.S. App. D.C. 191, 898 F.2d 205 (D.C. Cir. 1990), our Circuit Court of Appeals held that when HUD reimbursed a mortgage-lender in debentures under § 244 of the NHA, the debentures must include the amount of interest earned as of the date of default, not as of the later date of settlement. The Court in DRG Funding addressed the exact same coinsurance statutes and regulations that are before the Court in this case.
Therefore, pursuant to DRG Funding, it is clear that if the reimbursement payments to the Plaintiff in this case were made in the form of debentures, then the Plaintiff would be entitled to interest from the date of default.
The Plaintiff asserts that, by its plain language, § 520 of the National Housing Act requires that cash reimbursement payments made on coinsurance loans must include an amount equal to the interest on the debentures. The Plaintiff argues convincingly that the language of § 520 requires that any cash payment of interest made by HUD must be the same as any payment of interest made in debentures under the same circumstances. Section 520 of the NHA provides that:
Notwithstanding any other provisions of this chapter with respect to the payment of insurance benefits, the Secretary is authorized, in his discretion, to pay in cash or in debentures any insurance claim or part thereof which is paid on or after August 10, 1965, on a mortgage or a loan which was insured under any section of this chapter either before or after such date. If payment is made in cash, it shall be in an amount equivalent to the face amount of the debentures that would otherwise be issued plus an amount equivalent to the interest which the debentures would have earned, computed to a date to be established pursuant to regulations issued by the Secretary.
III. SECTION 244 OF THE NHA DOES NOT BAR THE PAYMENT OF DEBENTURE INTEREST TO YORK IN THIS CASE BECAUSE SECTION 244 DOES NOT ADDRESS WHETHER THIS INTEREST MUST BE PAID TO A LENDER AND SECTION 244 IS NOT INCONSISTENT WITH SECTION 520.
A. Whether a Lender is Entitled to Interest on Cash Payments is Not a "Calculation" Within the Meaning of § ...