determination by the United States Department of Housing and Urban Development (HUD) that they do not qualify under 12 U.S.C. § 1715u (1982) for participation in HUD's Mortgage Assignment Program. Mr. and Mrs. Butler petition this court to set aside HUD's decision and either order the agency to accept assignment of their mortgage or in the alternative, remand the matter for a new administrative hearing. In addition, plaintiffs request this court to enjoin the Federal National Mortgage Association from instituting foreclosure proceedings against their property and to order HUD to direct the Federal National Mortgage Association to suspend prosecution of foreclosure proceedings against the Butlers. This action is before this court on cross motions for summary judgment.
The facts before this Court are undisputed. Plaintiffs purchased their current home in the late 1960's. Plaintiffs' mortgage is insured by HUD pursuant to the Section 221(d)(2) program, a federal program designed to stimulate and encourage homeownership among persons of low- and moderate-income. Defendant Federal National Mortgage Association currently holds this first mortgage. In 1970, Mr. Butler was severely injured and became partially disabled. Beginning in 1976, the Butlers took out several loans from the Beneficial Consumer Discount Company. After several years of under-employment and unemployment, Mr. Butler obtained steady employment in 1978. In the spring of 1981, plaintiffs defaulted on their first mortgage. The plaintiffs' joint tax returns show that their gross income fell from $13,463 in 1977 to $10,273 in 1978 to $8,869 in 1980.
In February, 1982, plaintiffs applied to have their mortgage assigned to HUD pursuant to Mortgage Assignment Program. On December 3, 1982 following an informal conference, HUD sent the Butlers a Final Decision of Assignment letter in which it refused to accept assignment of the mortgage. In the letter HUD explained its decision on the grounds that it had found "the default was not caused by a circumstance or set of circumstances beyond your control which temporarily rendered you financially unable to cure the delinquency within a reasonable time. . . ." The HUD determination letter further stated that "the default began in April 1981. There was no loss of income either before, during or after this time." HUD reaffirmed its determination in a letter dated April 14, 1983. On June 7, 1984, counsel for all parties entered into a written stipulation which provided, in part, that HUD would review its final decision to deny plaintiffs' request for assignment and that plaintiffs would agree to make their regular monthly mortgage payments commencing with the one due in May 1984. On June 8, 1984, HUD once again rejected plaintiff's request for assignment although it did find that there was a "reasonable prospect" that the plaintiffs would be able to resume full mortgage payments. On June 11, 1984 this court issued an injunction restraining the Federal National Mortgage Association from proceeding with the foreclosure sale until October 19, 1984. Whether plaintiffs have made mortgage payments pursuant to the June 7, 1984 Stipulation is a matter in dispute.
Statutory and Regulatory Framework
Pursuant to the statutory national housing goal of "a decent home and a suitable living environment for every American family", the United States Government operates several housing assistance insurance programs in which it insures mortgages on properties owned by low- and moderate-income individuals, elderly persons, handicapped persons and persons displaced by government action. See 42 U.S.C. § 1441 (1982). This insurance makes it possible for people who might not otherwise be able to obtain financing to purchase housing. Congress anticipated that persons requiring government assistance to acquire housing might also have difficulty keeping current in mortgage payments. Thus Congress authorized HUD to operate a mortgage relief program which requires HUD after receiving notice of default and for the purpose of avoiding foreclosure, to pay off the mortgage debt, take an assignment of the mortgage from the mortgagee and work out a payment plan for eligible mortgagors.
HUD's administration of the Mortgage Assignment Program has been subject to some criticism. Ferrell v. Pierce, 560 F. Supp. 1344, 1372 (E.D.Ill.1983), aff'd 743 F.2d 454 (7th Cir.1984).
The statutory authority for the Mortgage Assignment Program is Title 12, Section 1715u(b)(1) of the United States Code which provides:
When the Secretary receives notice of a default described in subsection (a)(1) of this section and makes a determination that assistance under subsection (a) of this section would be inappropriate in the case of the mortgagor, the Secretary (for the purpose of avoiding foreclosure of the mortgage . . .) shall, if determined necessary by the Secretary, acquire the mortgage and security therefore upon payment of the insurance benefits in an amount equal to the unpaid principal balance of the mortgage plus any unpaid mortgage interest and reimbursement for such costs and attorney's fees as the Secretary finds were properly incurred in connection with the defaulted mortgage and its assignment to the Secretary, and for any proper advances theretofore made by the mortgagee under the provisions of the mortgage. After the acquisition of such mortgage by the Secretary, the mortgagee shall have no further rights, liabilities, or obligations with respect thereto . . .
According to federal regulations, the Secretary will accept assignments of mortgages in order to avoid foreclosure when the defaulting mortgagor meets six conditions. 24 C.F.R. § 203.650(a) (1984). Since HUD has changed its position with regard to whether there is a reasonable prospect that the plaintiffs would be able to resume full mortgage payments after a period of reduced or suspended payments, only one of the six criteria is at issue here. Before HUD may accept assignment of a mortgage it must find that "the mortgagor's default has been caused by circumstances beyond the mortgagor's control which render the mortgagor unable to correct the delinquency within a reasonable time or make full mortgage payments." 24 C.F.R. § 203.650(a)(5). HUD's handbook for administration of mortgage assignment programs provides examples of reasons for default that would be considered beyond a mortgagor's control including "curtailment of family income, such as unemployment or underemployment; . . . or other loss of income due to divorce, illness, or death." See HUD Handbook No. 4330.2, "Administration of The Home Mortgage Assignment Programs," #2-3 (January 1979).
Scope of Review
This court's review of HUD's determination of the plaintiffs' eligibility for participation in the Mortgage Assignment Program is governed by the Administrative Procedure Act which provides in part that a "reviewing court shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law . . ." 5 U.S.C. § 706(2)(A) (1982). The Supreme Court characterized the appropriate standard of review under 5 U.S.C. § 706(2)(A) in Citizens To Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S. Ct. 814, 823, 28 L. Ed. 2d 136 (1971) (citations omitted):
Section 706(2)(A) requires a finding that the actual choice made [by the agency] was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law . . . To make this finding the court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. . . Although this inquiry into the facts is to be searching and careful, the ultimate standard is a narrow one. The court is not empowered to substitute its judgment for that of the agency.