September 26, 2001

Dear Mr. Hauser:

     On May 22, 2001, the Department of Housing and Urban Development (HUD) submitted a draft notice for Office of Management and Budget (OMB) review under Executive Order No. 12866 relating to the establishment of a demonstration risk-sharing program. The demonstration would test the feasibility of entering into contracts with private mortgage insurers and other parties to reduce costs and risk to the Federal government while speeding mortgage processing.

     In the course of OMB's review of this draft notice OMB has held discussions with HUD staff regarding the objectives of this program. Specifically, many of the issues discussed relate to a letter of April 23, 1998 by which HUD's Deputy Assistant Secretary for Single Family Housing described a three year attempt to implement a risk sharing program and concluded that such a program "is not in the best interest of FHA or the general public." The letter described at length the reasons behind the decision.

     We have understood for some weeks that HUD is reassessing its position about pursuing this initiative in light of OMB's questions. Because this may take some time, I am returning this rule to you for reconsideration under Executive Order 12866. In light of the April 1998 letter noted above, we would appreciate a briefing by your staff should the Department decide to resubmit this draft rule.